The End of
Profitability For most mobile operators, the best-case scenario has costs surpassing revenues within the next 3 years. Here’s why – and how to avoid becoming a statistic. By Tim Kridel
90 WEEKS.
If you’re a North American mobile operator, that’s how soon your network could stop being profitable. For Asian carriers, the outlook is brighter, but just barely – 2.25 years – while Western
Europeans have about 2.75 years of profitability left. So predicts a new study from Tellabs. It isn’t the only study
warning operators that their network operating costs are on track to surpass revenues. But it is the first to calculate the time frame for when profitability may end. “Everyone has been talking about this for the past 5 years,
yet nobody would put a date on it. We put a date on it,” said Sonny Waheed, Tellabs senior manager of communications for EMEA and Asia-Pacific. “While not precise as to the month or even quarter, it is accurate to an investment cycle.”
Race to the Bottom Between November 2010 and January 2011, Tellabs analyzed revenue and cost trends for carriers in Western Europe, North America and the APAC markets of Australia, Hong Kong, Japan, New Zealand, Singapore, South Korea and Taiwan. The company created a model that uses forecast data from Analysys Mason, an independent research firm. The model also uses accepted industry costs, trends and strategies to help estimate the point when costs start to exceed revenues. The model uses revenue-per-gigabyte and total-data-traffic
figures and assumes that the majority of traffic will be going over 3G infrastructure. Tellabs also used CapEx, OpEx and accepted principles for network design that it gathered from years of working with Tier 1 carriers worldwide. If carriers keep their current business models and network
designs, the worst-case scenario predicts: • North American operators could stop being profitable sometime between Q1 2013 and Q4 2013.
• Carriers in developed APAC markets could lose profitabil- ity sometime between Q3 2013 and Q3 2014.
• Profitability for Western European operators could end sometime between Q1 2014 and Q1 2015.
“The day of reckoning varies significantly by region, but
for most operators, one thing is clear: The end of operational profitability is a matter of when rather than if,” said Rob Pullen, Tellabs president and CEO.
Data Revenue to Fall More than 80% Several factors are responsible for the geographic differences: • North American carriers typically lease backhaul facilities, which means their OpEx rises in lockstep with mobile data use. Granted, many North American carriers have spent the past few years deploying more cost-effective network technologies. Yet they still don’t own all of their backhaul and thus have limited control over OpEx.
• For operators in developed APAC countries, revenue is trending sharply downward due to fierce competition and highly price-sensitive demographics. Between 2010 and 2015, APAC operators can expect an 88.2% decline in revenue per gigabyte.
• Western Europe carriers have lower network access costs and a more gradual revenue decline: 80.1%.
• Among the three regions, APAC has the highest data growth.
One problem knows no borders: the dumb-pipe
syndrome, where carriers sell bandwidth rather than value. In fact, carriers increasingly don’t even sell bandwidth. Instead, they routinely give it away to third parties. Those companies make money by selling services to the carrier’s customers, or access to those customers — mobile advertising, for example — or both.
TELLABS INSIGHT Q2 14
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