Driven by a massive shift from voice to data services, the global telecommunications industry is coming to the end of an era; this carries significant implications for mobile and fixed sectors alike, according to a new report from global management consultancy PRTM and The Mobile World, an information services company focused on the mobile telecommunications market. The report, “The Future of Telecommunications: New Strategies for a New World,” states that, while the past 10 years have demonstrated the power of innovation, market-making and entrepreneurship in developing markets, the next 10 will highlight the importance of national and regional scale, cost and capital management and in-market consolidation.
According to the study, customers will gravitate toward service providers with the best in-market broadband networks, due to an increasingly data-centric world—leading network operators to revisit their models of the past five years, where every spare dollar went overseas. Operators will likely leverage M&A and capital spending to improve competitive positions in their countries/regions rather than investing in global empire building.
PRTM expects the global telecommunications leader boards to change dramatically in the years ahead, driven by consolidators rather than by new entrants. Consolidators like Telefónica (NYSE: TEF), AT&T (NYSE: T) and Verizon (NYSE: VZ)—who are combining fixed and mobile assets, building regional scale and tightly controlling costs—have the financial clout and experience to lead the next wave of consolidation. Vodafone (NASDAQ: VOD), which has emerged as the poster child for mature network operators through tight financial discipline, solid cash flow and spinning-off minority stakes (as opposed to developing world acquisitions and global expansion) now seems well-positioned as regional network importance increases, according to PRTM.
Primary Growth Returning to Developed Markets
PRTM’s study shows that, as 3G/4G data, rather than voice, becomes the engine of growth, momentum will once again return to developed markets. Operators in Europe and the U.S. will regain momentum, and the financial disciplines of the past few years will begin paying off. Although growth in developing markets is beginning to subside, companies like China Mobile (NYSE: CHL), Bharti Airtel (BSE: BHARTIARTL.BO), VimpelCom (NYSE: VIP), América Móvil (NASDAQ: AMOV) and MTN (JSE: MTNJ.J) will remain major players.
According to PRTM, the developing world will see intensifying competition, further price wars, lower ARPUs and continued pressures on margins. Subscriber numbers will continue to grow, but revenues will rise more slowly and profitability and cash flows may flatten or decline. Significantly, the huge market valuations of developing operators will diminish, resulting in a substantial loss of acquisition currency.
Power Position for Established Fixed and Mobile Operators
In developed markets, the fast-growing demand for data services will fuel the expansion of fiber-optic networks, invaluable for underpinning advanced wireless networks that combine Wi-Fi and cellular technologies. Yet the high cost of fiber will prohibit its ubiquitous deployment. As a result, well-established companies that have both mobile and fixed assets will be strongly positioned in the years ahead, according to PRTM. This marks a sharp reversal, as 25 years ago in developed countries, fixed operators provided universal (basic) service and mobile operators provided premium service.
Advent of 4G
Meanwhile, the advent of 4G (mainly LTE) networks threatens to further upset the stability of the network equipment industry. The widespread adoption of 3G saw the demise of Motorola Mobility (NYSE: MMI), Nortel, Lucent, Alcatel, Nokia and Siemens as independent players. The spread of 4G will likely consolidate the last five—Ericsson (NASDAQ: ERIC), Huawei, Nokia Siemens Networks, Alcatel-Lucent (NYSE: ALU) and ZTE (HKEX: 763:HK)—to three major players. PRTM believes that only companies that win in LTE in 2011 will survive as independent entities; the rest are likely to face consolidation.
“The milestone of five billion connections in less than 20 years is a powerful reminder of the light-speed of change inherent in the global telecommunications industry,” said Ameet Shah, Director at PRTM. “However, a new landscape is emerging, requiring operators to employ radically different operating strategies for success. 2011 is the beginning of a new 20-year era, which will see fundamentally new opportunities and battlegrounds. There is a new game in town. Are you ready?”
The PRTM study can be accessed by visiting www.prtm.com/telecomreport2011.
About The Mobile World
The Mobile World (www.themobileworld.com) is an information services company focused on the mobile telecommunications sector. Our flagship service, The Mobile World Database, is firmly established as the world's most accurate, detailed and accountable source of mobile market intelligence. The information we provide is relied upon by many of the world's top companies and our team of expert analysts is widely respected across the mobile world. Additional information is available through John Tysoe at email@example.com or via +44-20-7168-7680.
Since 1976, PRTM has created a competitive advantage for its clients by changing the way companies operate. PRTM management consultants work with senior executives to develop and implement innovative operational strategies that deliver breakthrough results. The firm is a leader in operational strategy, supply chain, product development, and customer value management. PRTM has 19 offices worldwide and serves major industry and global public sectors. For more information, visit www.prtm.com.
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