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The ‘perfect storm’ which faces mobile operators round the world is well documented. Its elements can be summarised as:
Just to stand still, operators need to invest in networks which can support the data volumes and user experience demanded by users, including new voice and messaging technologies to try to keep some of that business alive (for instance, Voice over LTE or HD Voice).
They face significant capex investments to support the new data volumes and applications, but cannot be certain these will guarantee higher ARPUs and profits, when much of the usage is over-the-top
The clear conclusion is that a business case which rests entirely on mobile consumers will fail, perhaps quickly, perhaps after a decade of painful decline. The only way to be profitable when focused on consumer services alone will be to operate over-the-top or as an MVNO (a mobile virtual network operator, which rides on a third party network and so does not incur the costs of building and maintaining its own infrastructure).
For the companies which still own their own mobile networks, the priorities will be to slash the cost of expanding capacity (with new, more efficient technologies and with options like network sharing), and to generate additional revenue streams from the same capacity.
In a survey conducted by Rethink Technology Research in late 2013, 65 mobile operators were asked what percentage of new revenues, driven by their upgrade to LTE or fourth generation technology, would fall into various categories.
Between 2014 and 2018, it was clear that their plans and expectations were shifting away from consumer services and towards two new areas of growth – charging the content or application provider, rather than the consumer, for popular services (for instance, revenue sharing); and focusing on enterprise services.
In the second group, the most important areas of new revenue are the ‘internet of things’ (IoT), in which all kinds of everyday devices are connected to the internet, often wirelessly, and cloud-based services for enterprises. By 2018, these are expected to be the biggest generators of new revenues for LTE networks, with the IoT contributing about one-fifth.
Figure 1. Most important sources of additional revenue driven by LTE Source: Rethink Technology Research mobile operator survey 2013
Of course, there is a consumer angle to the IoT (services to ‘wearables’ like smart watches or Google Glasses, for instance, as well as home security and monitoring systems). However, many of these will be supported by WiFi, which does not provide revenue for the mobile operator.
By contrast, most IoT growth will come from industrial or vertical market sources – an expansion of the established business in mobile M2M (machine-to-machine) connectivity in segments like vehicle tracking and factory automation.
It is both threatening and reassuring for service providers to wake up to the low importance of consumers in the profitable mobile model. They know that enterprise customers have higher ARPU (double in many countries), lower churn and greater predictability of usage.
But they also know that they have less control over the enterprise and vertical bases, which have treated operators as providers of connectivity not added value.
Mobile operators, in particular, have a deep one-to-one relationship with consumers, but they should beware of seeing that market as the low hanging fruit for IoT services, on the basis that it extends that consumer relationship to embrace many more home and mobile gadgets.
There will increasing unwillingness among users to pay very much extra to attach larger numbers of gadgets, with most of the expenditure going to providers of value added services, not connectivity.
The real source of mobile operator riches in the LTE-based IoT will be the enterprise, particularly where a carrier can provide more than just connectivity, but can also offer cloud-based management of all those devices, or big data services.
It is important that they make this adjustment if they are to increase revenues but also profitability – otherwise there will be a glaring disparity between what the mobile operators believe they will make from IoT services over the next few years, and the probable reality.
This article was written by Vanessa Barnett.
For more information contact Vanessa on +44 (0)20 7203 5228 or firstname.lastname@example.org