Transition from voice to low-margin data
Over the next three to five years, mobile operators across Asia will have to confront the inherent difficulties associated with transiting from predominantly voice-centric service providers to an increasingly more data-centric environment.
In particular, a key risk is that data networks may result in the disintermediation of existing operators (i.e. third parties will be able to access end-users directly, as in the fixed-line sector) which could both reduce the ability of mobile operators to develop new data/content revenues as well result in the more rapid cannibalization of existing higher margin voice and SMS revenues. For example, all-IP networks could encourage the rapid take-up of VoIP while the take-up of smartphones could also result in instant messaging platforms resulting in the erosion of SMS.
This is not to say that mobile operators will disappear, but they need to recognize that the future mobile data-centric business case will be materially different than the current voice-centric one, and operators need to prepare for this - otherwise the transition could be painful.
Operators need to improve network efficiency significantly, especially as data networks are likely to be far more capital intensive with lower returns than voice-orientated networks; operating expenditures need to be managed more aggressively if the relatively high historic margins in the sector are to be maintained; handset subsidies should be far more critically assessed (some operators are already trying to reduce their involvement in the handset subsidy race); and operators need to be far more active in sourcing and developing new content and services so that they, rather than third parties, remain the primary providers of services to their end-users.
If telcos do not adapt their business strategies for the new reality, then the underlying risk is that telcos will become nothing more than access only "dumb pipe" utilities, like many of their fixed-line cousins, with much of the new data related revenue growth leaking from the sector to new service providers. That is not to say that an access "dumb pipe" utility model is not long-term sustainable, but we would expect such a model to have lower financial returns than currently enjoyed and from that perspective, operators do need to try and maintain a content/service focus in the increasingly data-centric world.
- William Bratton, head of telecom research, Deutsche Bank
The views expressed are those of the author and do not necessarily reflect the official views of Deutsche Bank or its related entities.