2009 TMT Predictions: Telecommunications
1. Smart phones: how to stay clever in a downturn
A continued economic downturn in 2009 may buffet the smart phone’s fortunes. In an effort to reduce costs, mobile operators, the main channel to market for smart phones, may start reviewing handset subsidies, which the industry invests tens of billions of dollars in each year. Mobile phone manufacturers need to show mobile operators how their smart phone could provide a superior return on investment compared with both their competitors and with other, cheaper types of phone. They should focus on developing and marketing smart phones whose features consumers are willing to pay for despite tough times. For business users, they could even position devices as replacements for laptops. Handset manufacturers should pass on some of the downward pricing pressure to mobile component manufacturers, who, in turn, may need to cut costs. As for mobile operators—they should reduce smart phone subsidies with care: these devices generate over 25 percent of mobile data traffic.
2. Data ascends from the basement to the boardroom
Customer information has long been part of telecommunications operators’ asset base, but thus far, collection has outweighed insight. Given the economic outlook, however, better customer information may help operators retain and gain customers. Accurate information can help an operator evolve its positioning from being regarded as the best for the latest technology to the best for value. Information is also likely to be key to supporting diversification into other areas—including Internet Protocol Television (IPTV) and managed service—and allow a more rapid response to such emerging phenomena as social networking and online video sharing. Operators should consider how to structure their activities to utilize their full spectrum of information, by appointing chief information officers to senior management teams, implementing a data governance framework, or contracting customer information systems specialists. But gathering of customer information should not undermine consumer privacy and operators should monitor the evolving regulatory environment regarding retention of customer information.
3. Digital communication loses its message
In many businesses, the efficiency of digital communications has been increasingly blunted by overuse. During 2009, average office workers are expected to dedicate up to two hours a day to email, with an estimated 20 megabytes per employee, per day. To control costs, some IT departments are forcibly emptying the inboxes of the heaviest users. But excessive use of digital communication, especially email, is an entirely human problem. Organizations need to help users regain discipline, encouraging them to focus on quality, not quantity. Companies could even consider discouraging email for one day a week, which could have a considerable impact on productivity. This can translate into real financial benefits: for example in a 1,000 person organization, not using the “reply-all” function could potentially recapture $1,800 per year per employee in wasted labor costs. Social networking companies should also consider their potential impact on the workplace. Although many organizations are keen to take advantage of online networking to promote cooperation and teamwork, social networks may find that the best approach is to offer corporations “white-label” solutions.
4. The joys of disintermediation: why operators should embrace the application store
Mobile operators have long been concerned by disintermediation: the intrusion by third parties into the originally closed relationship between operator and customer. But in 2009, mobile phone users are expected to download over 10 billion applications to their mobile phones—the majority from sites managed by mobile device manufacturers, consumer electronics firms, and software houses. Although operators are unlikely to earn any direct revenue from third-party application downloads, there are several options for them to generate income from downloads, including device back up; management of application transfers; and specialized services provided to third-party stores. Operators may be able to earn revenues from developers and consumers by wholesaling presence- and location-sensitivity into services. Consumers will benefit from application stores, but should be mindful of the seemingly inexorable risk that some applications may be contaminated by viruses.
5. Integration unleashes mobile phone convergence, finally
The promise of mobile phone convergence remained largely unfulfilled in recent years, requiring consumers seeking top-of-the-range performance little alternative but to carry multiple devices. But in 2009, the convergence compromise may be overcome. Falling component prices and advances in miniaturization will play a part, but the biggest driver is likely to be improved integration with mobile phones’ myriad functionality. Over and above their increasingly attractive technical specifications, demand for these products may be driven by more cautious consumers eager to obtain multiple applications offered at a lower price than available from separate devices, and subsidies from mobile operators. But the mere addition of more features does not guarantee success. Mobile handset manufacturers should seek to enhance products’ practical benefits so as to justify any price premium. They should also work closely with mobile operators to ensure that converged functionality can be monetized; operators will be reluctant to subsidize any features that offer no clear route to revenues.
6. Farewell mobile phone, welcome the wireless device
In 2009, the mobile phone will evolve from being a device dedicated to cellular mobile networks, into a truly wireless device. For the first time, single wafer chipsets will be available with five or more separate wireless technologies, offering combinations of short-, mid-, and long-range communications capable of working with myriad distinct networks. Just as radical, the cost of these chipsets will likely drop below $2. All players in the mobile industry should understand how they will be affected by the new the low-cost, multiple-standard chipset. For mobile operators and device manufactures, the business case for the integration of wireless technology into a range of devices, not just voice-centered mobile phones, may now be stronger. The industry should consider which devices, such as laptops, could benefit from having multiple wireless standards built in. Mobile operators in particular need to determine whether to remain focused on the provision of long-range cellular mobile standards, or if they should become aggregators of multiple wireless standards. Operators should also understand how they can monetize the proliferation of wireless technology, particularly if they are subsidizing its inclusion in the phones offered to their customers.
7. The mobile broadband accident in slow motion
Global sales of mobile broadband “dongles” exceeded four million per month during 2008, and are expected to more than double in 2009. The resultant stress on networks, particularly backhaul connections, could be significant. To accommodate the growing number of users, operators may collectively have to spend tens of billions of dollars. And with data now exceeding voice volume on some mobile networks, costs could rapidly erode margins. Going forward, mobile operators are likely to have to balance customer satisfaction, diversification, profits, and investment levels with the management of traffic loads. Where possible, operators should try to divert heavy data traffic from cellular networks to other available networks, structuring data tariffs to encourage this behavior. Where no viable alternative networks exist, operators should build out capacity as fast as possible to avoid a deteriorating user experience. Consumers should subscribe to mobile broadband services with a clear understanding of their strengths and limitations. Either way, operators need to be wary of overpromising and under-delivering.
8. The third screen goes dark: mobile television loses its reception
With mobile television logging a disappointing 2008, its temporary demise may only accelerate in the economic downturn expected in 2009. Tightening liquidity may make investments in digital video broadcasting unlikely. Lower handset subsidies may mean fewer high-end phones capable of supporting mobile television. Depressed media revenues portend a greater reluctance from the creative sector to experiment with new formats. Advertisers may decide to focus funds on only previously successful media formats. And cash-strapped consumers are unlikely to open their wallets for add-ons. But while, for many customers, mobile may be unsuitable for receiving television, it is potentially an ideal medium for enhancing consumers’ television experience. Mobile telephones could provide an efficient payment mechanism for video-on-demand (VOD) and could be used to control digital video recorders (DVR). Television broadcasters can also use mobile as part of their CRM strategy, sending reminders of a new series or the launch of a major box-set. The mobile phone has already been well-used as a means of voting on the outcome of some of the most popular television programs around.
9. One for all and all for one: fiber networks change the shape of competition
As pressure mounts on fixed operators to upgrade copper networks to fiber, the continuing viability of infrastructure-based competition is likely to be debated. While this approach can benefit consumers, it can result in a large-scale duplication of assets. In the past, the availability of inexpensive financing combined with rapid revenue growth had made duplicate networks viable. But with hard economic times, 2009 may see a fundamental change of ideology, with regulators determining that a single network with shared ownership and open access is the best way forward. Telecommunications operators should be aware of the challenges, as well as the opportunities, this could imply. Shared ownership may reduce fiber’s cost and risk, but may also require a new approach to competition. Companies should determine which skills they may need to compete on the basis of services alone. They should also consider how they can take advantage of fiber’s capacity. And to ease the transition, companies should work with governments to find ways of limiting, or at least phasing in, deployment costs.
10. Mobile termination rates in Europe: a cut too far or a cut too fast?
Mobile termination rates (MTR) in Europe have historically been higher than equivalent fixed charges. During 2008, the spread of MTRs in Europe was between €0.02 and €0.18 per minute. This compares to typical fixed termination charges of €0.01 But in June 2008, the European Commission (EC) recommended that the asymmetry between mobile and fixed be reduced, proposing that MTRs fall by 70 percent over three years. Mobile operators likely to be adversely affected by MTR cuts should suggest alternative approaches to the EC proposals. But operators should avoid over-stating the impact of MTR cuts. Exaggerated claims may not help negotiations with regulators, and may even heighten the concerns of investors. The fact remains, however, that MTR declines are likely to accelerate, and operators must gauge the impact on profitability, perhaps looking at data services to offset falling voice revenues. Likewise, mobile operators who stand to gain from MTR cuts should also consider the broader impact: consumers are likely to expect lower bills from all operators.
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