Tuesday, September 5, 2017

Is "Mobile-Only" Business Model Sustainable?

Does the future belong to “integrated” service providers that own both mobile and ubiquitous fixed network assets? It is possible, in the 5G era. The reasoning is fairly simple: 5G “requires” dense small cell networks where the trunking network (backhaul) is the key cost, not the radio network.

Even before that happens, in some regions, such as Western Europe, “market share of mobile-only telcos in Western Europe dropped from 40 percent to 20 percent of the total mobile market revenues,” according to Detecon Consulting.

There are signs of strain elsewhere as well. As strong as account growth is in many emerging markets, J.P. Morgan equity analyst James Sullivan is “bearish on wireless stocks in emerging markets.”

The problem, he argues, is precisely the amount of growth, which is fueled by an aggressive focus on account growth, irrespective of profit margins, plus the cost of supplying mobile data, relative to revenues.

But asset restructuring (mergers that reduce the number of suppliers) could make a difference, Sullivan argues.


If the prediction that fixed network ownership is crucial for 5G, most mobile-only service providers will be challenged, as the cost of leasing access to support dense small cell networks will be challenging. Consider the sort of fiber deep network Verizon is building, extending the fiber trunking network almost literally “to the light pole,” or “every other light pole.”

Few, if any,  mobile-only operators can afford to build such networks. Few likely can acquire a tier-one fixed network capability and in many cases, regulators will bar mobile-only operator consolidation.

In one sense, an integrated operator might have two sorts of advantages. Mobile offers lower retail customer service costs and a growing role as a full substitute for fixed networks. But fixed network ownership allows lower trunking costs.

“Mobile operators, not required to support legacy services, require approximately one-eighth the care staff and receive half as many inbound calls per customer compared to wireline network operators,” say researchers at Detecon. So mobile access is a way to drive down operating costs, at the same time that fixed network ownership allows lower-cost trunking.  

And though it remains to be seen, 5G-based fixed wireless to support gigabit internet access might well be the most-important new revenue source available to some 5G operators, along with mobile entertainment video.

Internet of Things might ultimately prove more important, but only over a decade or so. Fixed wireless and mobile video will generate immediate cash flow.

No comments:

Where is Telco "Core Competency" Going?

If you ask just about any telco executive or middle manager what their firm’s “core competency” is, the traditional answer almost always has...