The wireless industry faces greater uncertainties than ever before and industry players must adapt their business planning to survive. Analysys Research has developed and quantified the impact of three diverse but plausible scenarios for the evolution of the wireless industry from 2007–12. These can help industry players to test their business plans, devise strategies to drive the market’s development in their preferred direction, and cope with the unexpected. The analysis below is extracted from a new Analysys Research report, The Future of the Global Wireless Industry: scenarios for 2007–12.
Single-line predictions have been a mainstay of the wireless industry, but … players need to plan for a variety of different futures.
Five key factors will influence the wireless industry’s future
There are numerous uncertainties about the future of the wireless industry, but this article will focus on five broad areas that will have a major influence on its direction during the next five years: voice telephony, non-voice services, technology evolution, industry structure, and the relative importance of developed and developing markets.
Voice telephony continues to be the dominant revenue generator for mobile operators, but many factors will have an impact on its value during the next five years, including fixed–mobile substitution, fixed–mobile convergence, price competition, regulation and VoIP. For example, mobile voice usage has increased in most developed countries, but its effect on mobile voice spend has varied widely, as illustrated by Figure 1.
Figure 1: Changes in mobile voice usage and mobile voice spend from 2004 to 2006 in selected countries (Source: Analysys Research, 2007)
Sophisticated mobile handsets, networks and services are widely available in developed countries, but messaging continues to be the primary source of non-voice ARPU for most mobile operators. As shown in Figure 2, operators’ attempts to achieve significant growth in the absolute level of non-voice ARPU have had mixed results. Even if non-voice services succeed, it is not clear whether mobile operators will be able to maintain control over the end-to-end value chain (and the revenue that they generate) or will become low-margin ‘bit pipes’.
Figure 2: Non-voice ARPU for selected mobile operators, 1Q 2005 to 4Q 2006 (Source: Analysys Research, 2007)
As the number of technologies (such as cellular data enhancements, WiMAX and mobile broadcasting systems) increases, it becomes less clear which (if any) of them will be deployed widely. Alternative architecture types for cellular networks, such as indoor base stations, provide even more choices, and core network and service architecture is also evolving – for example, through the deployment of IMS. Network outsourcing and network sharing may become more prevalent as the pressure to control costs increases.
The structure of the wireless industry in developed markets has changed relatively little; mobile operators have tended to dominate retail mobile services and little consolidation has occurred among them. Most mobile operators continue to be vertically integrated – that is, they operate networks and sell services directly to their customers. However, as the number of MVNOs increases and third-party organisations become more involved in content provision, mobile operators will have to compete to maintain their dominance of the value chain. Consolidation may be inevitable if competition intensifies and margins are eroded.
As mobile penetration reaches saturation in developed markets, revenue growth will become increasingly dependent on new services that increase ARPU. However, uncertainties about the success of these services suggest that developed markets may have limited growth potential. Developing markets may offer better prospects. The potential for mobile penetration growth is very high in some developing countries, but their relatively low levels of disposable income could limit ARPU growth.
Analysys Research defines three plausible scenarios for the wireless industry’s development
Single-line predictions have been a mainstay of the wireless industry, but the major uncertainties discussed here indicate that industry players need to plan for a variety of different futures. Analysys Research has developed three scenarios for the evolution of the wireless industry.
- In the Emerging Markets Thrive scenario, saturation of mobile penetration, intense price competition for voice telephony and a lack of consumer interest in non-voice services cause substantial declines in overall ARPU in developed countries. This leads to significant cost reduction and consolidation in these markets. Operators, investors, and handset and infrastructure vendors focus on growth opportunities in developing countries, where the lack of mature fixed-network services makes mobile voice telephony and data services highly popular.
- In the Cellular Goes Indoors scenario, the provision of wireless services to the home and workplace becomes increasingly important in developed markets. Mobile operators deploy indoor base stations to achieve high-quality indoor coverage at low cost. They achieve growth in ARPU through the increased use of mobile phones in the home environment, fixed–mobile substitution and a number of non-voice services, such as mobile TV and fixed broadband. Fixed broadband and cellular technologies fulfil increasingly complementary roles in homes and offices.
- In the Low-cost Data Pipes scenario, wireless data becomes a commodity and mobile networks become transparent ‘bit pipes’, in much the same way as fixed networks. Many mobile operators are unable to generate service revenue from anything other than basic data access. Mobile operators’ primary aim is to reduce cellular network costs substantially so that they can deliver high volumes of data traffic profitably.
The ‘Cellular Goes Indoors’ scenario appears to be the most attractive for the wireless industry, but mobile operators would have to make a significant investment to drive the market in this direction. The ‘Emerging Markets Thrive’ and ‘Low-cost Data Pipes’ scenarios could be more likely if mobile operators do nothing to influence the market’s development. Regardless of which scenario transpires, there are profound implications for organisations within the wireless industry – including potential consolidation and changes of ownership, new value chains, and the need to invest in different technologies, services or markets.