The Mobile World Congress in Barcellona is the annual summit of all stakeholders of Europe’s mobile sector. For the first time since the Congress is held in Barcelona, the sector’s optimism seems dented. The reason is simple: convergent fixed mobile offers will become the market standard, because fixed and mobile access provide complementary services for end-users and mobile and fixed operators increasingly share the same backhaul networks. Mobile operators who cannot provide convergent offers, pure Mobile Operators, risk to be marginalized.
If the mobile industry wants to remain innovative and generate growth as it was over the last two decades, the industry should urgently start reflecting on a number of questions: first, understanding the interplay between technology evolution, regulation and mobile data. Secondly, shift the view/measurement of the mobile industry from static margin and price focus measures to more dynamic measures that reflect the long term economics of the industry such as investments and innovation. And, thirdly, address critical market structure issues the mobile industry faces to enable it to monetize booming demand for data.
Understanding the interplay between technology evolution, regulation and mobile data, particularly video, and the implications to the industry.
Mobile data is expected to grow between 20 to 100% per annum for the next 10 years or so. In the highest growth forecasts, the impact on capex will be substantial. Much of this growth is likely to be driven by video. Some types of video traffic will be easier to monetize than others, e.g. movies/sports vs social media. And increasingly, regulators are attempting to prevent any type of traffic discrimination on networks. While their focus has generally been on fixed networks, the policies do not differentiate between access networks. This demand explosion will significantly alter the economics of mobile networks over the next decade and will either put significant pressure on capex or on service quality.
In that context, 5G and subsequent technology evolutions will be important beyond the technical standards of the technology. If traditional voice and data networks are overwhelmed with traffic but are unable to invest capex to maintain service levels, 5G may enable the emergence of “thinner” networks focused on niches such as M2M which, unburdened by coverage and regulatory obligations may be better able to deliver services
Developing an alternative set of metrics on industry performance to more accurately reflect the sector’s contribution
Metrics to evaluate industry’s performance has created a view of the industry that focused on price and margins. This seems to be a static, and often outdated, view. While these dimensions are important and must be watched, there are areas for improvement on these dimensions in some countries. Too much focus on these variables misses much of the underlying economics of the industry.
The industry is facing multiple demands from governments and policy makers to continue to increase broadband capacity, increase geographical coverage and improve quality of service standards. These demands require significant investments, and imply a long term, evolutionary, view of the sector. But to shift the focus, the industry must develop an alternative set of metrics to catch a more dynamic view of the sector performance and reflects the industry’s long term economics.
This may be both an external set of KPIs (aimed at the general public, policy makers, regulators) and an internal one (aimed at standardizing some views of industry performance for operators).
Some examples metrics that could be used are: measures of performance in saturated markets that go beyond ARPU, which has less relevance in hyper saturated markets. Then, clearer and sharper message on the long term economics of the industry and the dynamic nature of investments away from the current static focus on operating margin and pricing. Also, regulators should no further measure industry concentration just in telecoms market, but concentration in the broader eco-system, including suppliers and complementary markets such equipment makers, device manufacturers and OTT and media players. Finally, to be generally adopted, the new metrics must not only be sensible but also intuitive and easy to understand. For example, it is easy to compare pricing across markets and the immediate consumer benefit of lower prices. It is less clear to compare investment levels and medium term benefits to consumers. However, in the longer term, the growth in living standards will depend on a nation’s or firm’s ability to improve productivity. Productivity growth is determined by improvements in the quality and quantity of inputs and technological progress – i.e. a sector’s propensity to innovate. In the absence of investment and dynamic efficiency, consumers will over time be confronted with obsolete services, less innovation and reduced choice.
Addressing Critical Economic Issues around industry structure and data growth (particularly video and machine to machine)
Although growth has substantially slowed down, the sector’s financial performance remains healthy. The industry’s keys markets still benefit from the boom in digital communications. The underlying demand for the mobile and wireless services is still strong. However, monetizing that consumer demand for wireless services is critical to ensure the long term sustainability of the sector. In addition, there will be two critical drivers: a sustainable industry structure definition and a clarification of the role of spectrum in driving industry structure and performance.
The priority should be on guaranteeing a sustainable long-term industry structure. Defining the elements of a sustainable structure, articulating the benefits of such a structure, and the communicating the costs of deviating from those structures is critical to ensure the sector can support the growth in demand that is projected for the industry
As regards the role of spectrum in driving industry structure and performance, it is key to understand that spectrum’s influence on the industry appears to go beyond just providing additional radio capacity and limiting the number of players. Large amounts of underused spectrum, accompanied by coverage obligations that ensure some operators will have excess capacity and “empty” networks may be playing a significant role in the downward evolution of prices in specific markets.
Last but not least, the reputational image of the mobile industry in the broad public will be crucial. Mobile operators provide services to all segments of the population, making them “easy” political targets of price regulation, hidden taxes etc. The mobile industry should be more vocal and air a much more concerted and clear message on the key contribution of the mobile industry to growth, technological progress and investment. This needs to include a clear and easy to remember explanation on how the mobile industry interacts with other sectors to deliver the services we could no more miss today. The message needs also to rebut the current irrational fears against market concentration. The goal should be to obtain a shift in the perception of the sector by governments and regulators, from an industry that needs to be supervised and controlled, towards a partner in economic development. Such shift in perception by government will be supported by the mentioned parallel efforts to better inform public opinion.
*Luigi Gambardella, founder Broadband4Europe. Former Chairman Executive Board ETNO