I was reading an article on Apple e-sim concept and I realized the big change happened. It was really dramatic and once it's highly skewed towards Mobile Operators where as now they are taken for granted. Ofcourse I won't blame the otp's (Like apple, google) or industry bodies (3gpp, gsma) but the blame goes to Operators themselves. Moving forward there are many challenges for an operator and below is a small summary from my point of view.
1. Innovation
Traditionally TELCO's are not good in innovating. They've been working within the stipulated standards set by ETSI or IEEE and the same thing continues in Mobile space. Some operators may be an exclusion but most of them look at 3GPP for 'guiding them to do a task'. In my interaction with the operators many a times I faced this question. "Is it endorsed by 3gpp?". Though I can understand the dependency on standard's compliance, I've to mention that innovation often started when the organization or person defy the existing rules/situation.
Today we see the innovation driven by OTP's & App developer. If the Mobile operator continues the same way sooner or later they are going to at the mercy of them. We've seen how Apple draw the terms when iPhone was launched and it continues even now.
In a survey done by Total Telecom, 39% mobile operator answered "App developers" for the question
"What sources of innovation do you think mobile operators should rely upon most over the next three years". Sadly it's not going to help operators.
2. Financials
2.1. Margins
Gone are the days when telco's enjoy >50% EBIDTA margins. Even when we look at the operators in US or in Singapore the trend is clear. The margins are dropping and you can see from the graph here for Singapore largest telco.
2.2. High CAPEX
Most of the Operators are spending money right now or need to spend hefty amounts. The advanced network owners in developed nations need to spend money on LTE or expanding the 3G networks, and the developing nations on 3G or HSDPA networks. By any means this is not going to be a small amount. Added to that the big chunk kept aside for "Spectrum" it's going to be a lot of money out of operator pockets.
2.3. Increasing OPEX
Just look at the SingTel financials for last 3 years and you'd see a clear trend of increasing operating expenditure.
Here is the graph showing the increasing acquisition cost (Money spend to get a new subscriber on board)
One may say that with the revenue increase the costs tend to be higher. I agree but the ratio seems dropping. Below is the graph for revenue for the same period. As we can see,
* Revenue is growing but at much slower pace than expenditure
* Selling & Admin costs almost doubled
* Cost of sales almost doubled
3. Technology
Today's mobile operators combat zone is no longer restricted heavily by regulation and many disruptive technologies can hit them hard.
3.1. Disruptive Technologies
Technologies like VoIP, callback, Alternate roaming, Wi-Fi hitting them hard right now. In future expected technologies like soft-sim, e-sim & advertising can potentially hit the bottom lines. I'd focus on the softsim concept as I found it very interesting and the impact to operators can be quite hard.
Here is a presentation on this done by me.
3.1. Failure to capitalize on new technologies
We all talk about how Apple changed the game play with Apple. But I still remember their first foray which is with Motorola (
Here). But Apple quickly learned the lesson and optimized the experience to masses. Apple became such a game changed because
* They are innovate and quick to conceptualize the ideas
* Excellent product packaging (if something doesnt work on Apple they would say it's a feature)
* Excellent distribution together with great support.
Sadly, our TELCO's fail in each and every aspect. I've seen in the past many TELCO's showing interest in VoIP. But they are too late in to the market. Even when the entered (StarHub did a great job with pFingo) the product packaging is bad and virtually zero support (try opening pFingo website or query on mediaring. you'd know what i am talking). In my observation, a typical life cycle of idea in TELCO's goes like this
So by that time the product is launched in the market either someone else took the lead or the idea is no longer fresh/disruptive.
Anohter dangerous sign I've seen is the "reducing importance on technology". With the exception of few respected operators (like NTT, Verizone, Voda etc) most of the operators are not investing in technology development. For any question the simple solution is "give a call to vendor". While I was talking at sidelines during a conference (Frost & Sullivan) in Singapore recently I realized none of the Mobile operators in this region invested in IPv6. They seems to be looking at the 3GPP & Vendors (e.g. Ericsson, Nokia, Huawei) to tell them what to do. Once operator loose the strong technical skills the next thing is to loose on the ability to offer innovative products leveraged on the technology.
IPv6 is one of the big thing going to happen.
M2M is another interesting concept but at this point of time it seems to be a big game changer.
4. Customers
Did we ever see a Gen Y chap wearing a SingTel or StarHub t-shirt? If there is what would be the expected comments from his/her friends? Well, excuse me for being so pessimistic but if we're to ask a question why people are perceived "Cool" when they are associated with Apple, Google but not with TELCO's?
Today's customer is no longer the customer from old days who is happy when a call is connected and sms is delivered within 2 minutes time. They are getting smarter and thanks to internet they even know how mobile networks work, and the technologies behind most of the service. Unfortunately the Operator call centers failed to evolve. They are still bound by the decades old SOP (Standard Operating Procedure) and most of the times the first suggested solution to many of the problems is "please restart the phone".
Major issues in this category would be
* Loyalty
* Customer touch points/Call Center revamp
* Customer Experience
* SLA's
5. Others
There are plenty of other issues. But here I outline some of the issues which would have considerable impact in my opinion
5.1. Falling smartphone prices
Today people still sign contracts and Operators subsidize some of the cost of the expensive handphones. When the handphone prices drop to the threshold point it will be an interesting game play. Customer may choose to buy directly from the handphone manufacturer thus bypassing the operator from the value chain. It can be positive to the operator in terms of cash flow but can be very negative as the control goes to the handset manufacturer. For example Google can sell the handset and "offer" services from "network operator" which is quite opposed to today's dynamics.
5.2. Regulatory & Compliance risks
So far the regulatory aspects on Mobile operators are not as hard as on the traditional players. When things like Net Neutrality, Compliance requirements enforced strongly by regulators this would increase their costs/hurt their bottom lines.
6. Conclusion
In summary, the future is not going to be an easy ride for most of the operators. The time is now and the top management need to act now to ensure if they want to be an effective player in the next decade. They need to start invest in technology, adapt best practices, develop in-house expertise and accept the fact that there will be some impact to the bottom lines and find alternate ways to address the revenue drop. I'll be writing another article soon. Till then happy holidays.
This is not 100% accurate as the data is compiled based on CPF submissions. So the Employment Pass holders, businessman who doesnt contribute to CPF are not captured here. Still, this is by far the best available tool to benchmark the pay as well as to get an idea.
