Research Notes

Lean and Mean is the way forward for a great many mobile operators

In some areas, South America is far behind Europe and the experiences gained on the European market can be utilised by the Brazilian operators and operators in other areas of South America. There is no doubt that the market player that has the best strategy will win in the long run.

The Lean and Mean strategy will turn many mobile operators business upside down. Mobile operators will move focus away from doing everything themselves, to instead letting external partners handle a great many of the tasks that mobile operators today consider as part of their core business.

The most revolutionary and significant characteristic of the Lean and Mean strategy is that the mobile operator will stop marketing themselves as an independent brand and instead operate as a “carrier’s carrier”. The business model is based on renting network capacity to other mobile operators, MVNOs, SP’s etc. Customers will thereafter only be serviced by various types of wholesale customers via many different brands. For the mobile operator it is important to be able to attract the “correct” wholesale customers – in other words wholesale customers that can attract many consumers and generate high network traffic, as it will be these wholesale customers that will give the mobile operator a profitable business case. The “correct” wholesale customers could be wholesale customers that currently offer other telecom services in the form of IP telephony or cable TV etc. where mobile telephony would be an excellent supplement for them.

For the mobile operator, the level of costs is very important when competing in attracting wholesale customers and outsourcing – and the use of partnerships – is an important part of the mobile operators’ business model and essential in the quest to achieve a more cost-effective operation. Tasks that previously were considered part of mobile operator’s core competencies will increasingly be outsourced to external companies that will be able to handle these tasks more efficiently and at lower cost. This will be the case for e.g. the operation and service of the mobile operators mobile network, where a number of mobile operators have already outsourced the daily operation of their network to other companies.

Outsourcing is not new for mobile operators and has been used before to reduce costs or make costs variable. What is new is the business areas that the operators are choosing to outsource to minimise their costs. Many of the business areas that operators are focusing on are areas that most operators today perceive as part of their core business. This is why these business areas have traditionally not been taken into consideration as possible outsourcing areas. With the Lean and Mean strategy, mobile operators will attempt to ensure that the most possible fixed costs become variable, partly to better be able to adapt to changes in the market and partly to find cost savings.

When using the Lean and Mean strategy, the mobile operator has no direct costs in connection with acquiring individual end-users, as those costs are maintained by the wholesale customers. The mobile operator will therefore have a positive accumulated cash flow on all customers from the first day and the mobile operator can achieve far better earnings as one of their most significant expenditure items (SAC) – that is up to 25% of many operators total costs – disappears. Alternatively operators can also utilise the saving to reduce the various network prices that their wholesale customers have to pay, to thereby hopefully attract more wholesale customers to use their network and thereby become more competitive and achieve a larger market share.

When using the Lean and Mean strategy, the mobile operator only retains the most essen-tial part of their business in-house, while the rest is outsourced to minimise costs. The es-sential parts of the operators business are:

  • Licence
  • Billing system 
  • Network-centric services/platforms

Other areas that are central to the operators business are:

  • Outsourcing
  • Wholesale customers
  • Network coverage
  • Telemetry
  • Add-on products
  • Hosting services
Mobile Operators also use the Lean and Mean strategy to try to significantly reduce their CAPEX compared to previously. Mobile operators will try to ensure that they do not bind capital in tangible assets like for example infrastructure, that the mobile operators traditionally have invested billions of Euro in. This will be a break with tradition as the investment in – and operation of – mobile infrastructure has up to now being considered as one of the mobile operators most important core competencies.

Successful strategies on the future VAS market

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