Strand Consult: Predictions for the Telecoms Market in 2012
| Once again Strand Consult would like to revive our year-end tradition of taking a look at the events that have happened during the past year and then predict what we believe will happen in the coming year. Strand Consult has been in the Telco industry for around 17 years and we daily run into experts that offer opinions on how they believe the future market will evolve. Unlike many others, Strand Consult has no problem in being held responsible about what we said in the past would happen in the future. We have been predicting the coming year’s events for the past 11 years. We have yet to find another company that publishes predictions for the coming year and at the same time publishes links to their previous predictions, so that readers can read their past predictions and see how accurate those predictions were. On the other hand, giving people access to predictions we have made during the past 11 years requires a great deal of confidence, pretty accurate predictions and having highly skilled employees that spend the necessary time and energy compiling these predictions. As usual some of our predictions will be about sensitive subjects and areas in the Telco industry – areas that others usually try to avoid. Fortune-telling has always been an integrated part of the New Year festivities. It is an easy way to attract attention for industry market players who are constantly battling for attention from both consumers and the media. Strand Consult’s core business is helping mobile operators around the world understand how the future market is developing. We do not depend on income from technology companies who are often mostly interested in hyping new products and business areas. Our approach is very straightforward and pragmatic – all the companies that work with us and people who read our reports and research notes recognise this as our trademark. It is interesting to look back at 2011 and compare the events of the year to our predictions that we wrote at the end of 2010. You can read our predictions here: 2011 Predictions . If you take the time to skim through them you will see that once again in 2010 – as in the previous 11 years – we managed to describe rather precisely what would be happening in the Telco industry during 2011. We naturally have a lot of confidence in our abilities within this area and also believe that our track record is the best possible reference we could wish for. Our company goal has always been to help our customers find it a little easier than their competitors when navigating around the mobile universe. This will continue to be our company goal in the future. Once again we have chosen to focus on eight main areas that we believe will attract an enormous amount of attention during 2012. Below we will describe in more detail what we believe will happen during the next 12 months. Is it possible to ensure cooperation between private sector companies that are investing in vital communication infrastructure that will benefit both the future society and the public sector? How could one go about this? Very few politicians understand that mobile operators and other Telco industry companies have taken on a roll, whereby they are using their own money to build and expand technological communication infrastructure that actually should be a task for society! Usually society spends taxpayers’ money building bridges and roads and tunnels and other types of physical infrastructure, but spends nothing on communication infrastructure. Yet everyone knows that society is extremely dependent on telecom infrastructure. But how many politicians actually understand the roles and enormous risks that the Telco industry has been taking since the Telco markets were liberalised around the world? We believe that the political understanding of the Telco industry is still very limited in many countries In many countries local councils and other public authorities play a central role when mobile operators build or expand their mobile networks. But do these local and national authorities believe they should help the Telco industry in quickly and cost effectively building vital technological infrastructure that will benefit society, or do they view the Telco industry as their opponents and as a source of revenue? In 2011, Strand Consult completed a large survey that examined this area in detail. We have no doubt that this survey and other documents that our PR department will publish during 2012 will put a great deal of focus on the challenges we are facing on improving the cooperation between the Telco industry. On the one hand and local and national public authorities on the other. Strand Consult believes that it is time to redefine how to build and operate mobile networks. The traditional business model of having multiple parallel national mobile networks is obsolete and dead. It is time to look forward and find out how to improve the use of mobile networks and available spectrum. It is no secret that we are seeing an increasing number of companies consolidate and enter into network sharing agreements, but it is time to take this development to the next level. The political system needs to decide how this can be achieved in a close cooperation between the Telco industry and the political system, on a market that solely consists of private companies. We believe that 2012 will be the year where politicians will have no choice but to start addressing this development. This has already happened in the USA, where AT&T was not allowed to take over T-Mobile – and will result in the need for alternative business models that can ensure a healthy network income. The alternative is that the Telco industry will experience massive hits on their revenue that will simply hurt and slow future infrastructure investments. So the question is not whether this debate will come, but rather whether it will also spread outside North America and Europe? We believe the answer to that is ‘yes’ and that we will already see Africa, India and parts of South America addressing this issue during 2012. When mobile penetration reaches 100% and operators then start purchasing customers from each other, competition gets so tough that prices have no option but to fall. When prices fall and mobile traffic simultaneously increases, the need for creating much more cost-effective offerings becomes crucial. We know that there are countries where politicians do understand this perfectly normal market scenario, but there are still a great many countries where the political understanding of their current Telco industry and the direction their industry is heading, is extremely limited. We believe that this will change in a number of countries during 2012, but that there will sadly still be countries where politicians have little or no understanding of how to create a healthy and competitive Telco market, which will benefit both their consumers and their society. How should the Telco market be regulated? Will the EU work towards the EU becoming one large market with few market players and uniform prices? The EU is not always the most popular organisation among the European people and the current financial situation has certainly not helped improve the EU’s popularity. Many people believe that the EU has yet to justify its existence in many areas. It is no secret that the EU does try to find areas where it can improve its image just a little. One example of this is that every summer around July, just before Europeans go on their summer holidays, the EU announces that it will decrease mobile telephone roaming prices. They have done this in previous years, they did it again in 2011 and we are sure they will do it again in 2012. In countries where there is little or no competition between mobile operators, regulating roaming prices is a good idea. But what about all the other countries that already have enormous competition, decreasing prices and even special taxes or high spectrum prices? We think that the EU needs to spend 2012 discussing whether the European Telco market is a uniform market, or whether it is a number of parallel markets that are developing in different directions? Put another way, the EU needs to decide in 2012 whether it should regulate and harmonise the prices of taxis and wages across all of Europe, or accept that different industries in different EU countries have different market conditions. Unfortunately the Telco area has become an easy target for the EU. Many politicians simply view Telco regulation as an easy way to attract media attention to themselves. Oddly enough, some of the politicians that publicly slander the Telco industry the most, are the same politicians that have helped almost ruin a number of European countries by using more money than the countries were earning. It is a fact that some of the countries in Europe that have had problems regarding competition on roaming prices are countries that currently have some of the worst economies in Europe; Portugal, Italy, Greece and Spain. When you take the first letter of each country name, you get the name that some people have given to these four countries; the European PIGS. In 2012, the Telco industry will need to address the EU Telco politics and start discussing how to create a better and far more constructive dialogue between all those that build and operate communication infrastructure and the public sector and society that cannot live without that infrastructure. One of next year’s top subjects will be network neutrality. We will see Google doing their utmost to appear as a knight in armour protecting the poor consumers. The battle over who will finance the networks and which customers’ operators own will be tough and brutal. The Telco industry will make sure that everyone understands its point of view; that their customers are not just the end-users and that Google should pay to have their many services delivered via the mobile operators’ networks. We hope that the EU will rise to the occasion and show the world how it is possible to create an industrial business framework for the Telco industry. While that would be really fantastic, we do have a feeling that it will most probably be the USA that leads the way in this area. The infrastructure industry will also experience increasing competition and more consolidation. The question is not whether some market players will close in 2012, but rather which companies will fold and who will fold first? 2011 was tough for technology companies selling mobile infrastructure. If you need to advise your children on what career they should choose there are two industries you would be wise to tell them to avoid; working in a bank, or working in a mobile infrastructure technology company. But if you think 2011 was a brutal year for the mobile infrastructure industry, just wait till 2012 is over! 2012 will most probably be the most brutal year in the history of the Telco industry! We will be seeing market players giving up and some of the largest players on the market being taken over by their competitors. At the Mobile World Congress at the end of February in Barcelona, we believe we will see infrastructure manufacturers lining up to take the microphone and state that their current situation is intolerable. But the problem is that competition is so tough that the only way to create a healthy market is through consolidation – and that will take time. While consolidation talks are taking place, time will pass and a great deal of money will be lost. We believe we will see Ericsson making some large purchases in 2012. In our opinion, the current size and market position of Ericsson puts them in a good position to build on that position with one or more large acquisitions. In other words, 2012 will be the year where infrastructure market players either purchase other companies, are purchased themselves, or start focusing on a narrow selection of products where they have a competitive advantage. It is not a coincidence that NSN did what they did in 2011. The question is whether it will be them or another large market player that will be taken over by Ericsson or Cisco? In 2012 the infrastructure market will increasingly focus on the winning technologies. The many manufacturers that are currently focused on nice technologies will find it difficult to do business unless they have found a very well-defined niche area where they have a solid market position. The smartphone market will be bloody. Increasing competition, decreasing prices and customers that want to see and try new things will all result in an increasingly tough market. The development of the mobile telephone market is resulting in fewer and fewer companies actually being successful. Instead what we are currently seeing is an increasing number of companies moving from being market leaders to having a great deal of difficulty selling their products – and all that is happening in a short space of time. The history books have many examples of manufacturers that managed to halve their market share and decimate their revenue in a short space of time. Ericsson is one example of this before they joined forces with Sony and another is Motorola. Motorola launched one Razr after another from 2003 to 2007 without changing its design. But Apple’s current strategy does seem very similar to the above examples of trying to package new technology inside old design. We are wondering what will happen to Apple’s sales if they do not start thinking about launching a new and innovative mobile product that is different from the iPhone? The iPhone was originally launched in January 2007 and is now four years old. We believe that a combination of the death of Steve Jobs, increasing competition and increasing prices will probably result in Apple losing some of the magic they had just a short while ago. Apple does have a very strong brand and many loyal customers, but will that be enough in itself for them to maintain their position on the smartphone market? We have no doubt that Apple will need new mobile telephone products that can compete in other price ranges than those that the iPhone 4S is currently targeting. There is no doubt that Nokia and Microsoft will use 2012 to launch a comeback. Just the fact that Nokia no longer has a group of stone faced Finns to profile the company should attract some positive attention. The question is which business areas will Nokia be able to improve during 2012 and which areas will deteriorate? We think Nokia will find 2012 a difficult year. It will not be a walk in the park and if it is a walk in the park, it will not be the type of park I would let my daughter play in! There is no doubt that Nokia will receive a great deal of attention in the USA. The influence of Microsoft combined with a desire from US operators to reduce the influence of Apple in the USA, will open doors for Nokia on the American market. The question is how large market shares they can achieve and long will it take? Nokia will most certainly need to prepare for a bit of a rollercoaster ride during 2012. If Nokia cannot significantly improve how they communicate to the outside world during 2012, they will probably end up being nominated the biggest loser of 2012. 2012 could end up being a bit of a “make it or break it” year for Nokia, but we think they will probably end up somewhere in-between and hopefully avoid any major disasters. In 2012, Stephen Elop will need to show that he can do a better job than we saw at the Mobile World Congress in 2011. His performance there was basically a catastrophe and his story about the ‘burning platform’ has been extremely expensive for Nokia shareholders. Again in 2012, the mobile handset market will also see enormous sales of feature mobile phones. But they will not receive the media attention they deserve, which is mostly due to the wide selection of smartphones and the fact that mobile handset sales will decrease in a number of countries. We will increasingly see mobile consumers use their smartphones for a longer period of time before replacing them, compared to the lifespan of previous types of mobile phones. We will also see a consolidation of the mobile handset market in 2012. It is difficult to predict whether this will happen by different companies using the same platforms, or by a market player being purchased. We do not believe that it is serious to start speculating at the moment as to whether companies like Nokia, Rim, LG or other similar companies could be sold during 2012. During the next 12 months we will see a great deal of focus on tablets. Many new market players will enter this market. On the other hand this market will see enormous competition from ultrabooks that will compete head-to-head on size and weight with the currently very popular tablets. We believe we will soon see impressive ultrabook sales figures that will primarily cut into iPad sales. One interesting question is how the Kindle Fire will perform outside the USA. Will customers purchase and use it and what will its sales be in 2012? Could the Kindle Fire be Amazon’s ticket into a number of markets where they have been weak so far? We certainly think that the Kindle Fire will see satisfactory sales and will give Amazon a good deal of media attention, but we think it is unlikely that it will be the icebreaker that Amazon had been hoping with regard to their other products. One of the large challenges for mobile operators will be the lack of interest from PC manufacturers to include mobile broadband in the PCs and Ultrabooks they are manufacturing. Some operators will ask for these types of products, but we believe that manufacturers will respond by asking operators to subsidise the products. Unfortunately there is no profit in subsidising these types of packages, but we do believe that end-users are willing to pay extra to have an internal mobile broadband connection embedded in their new computers. In our opinion the mobile phone manufacturers are facing a very tough year. Their frustration will only increase as they search for the next big success product that can help move their whole industry to the next level. We will probably see the launch of more rumours than actual products on the mobile handset market during 2012. Rumourmongers will have a very busy year in deed! The broadband market – high speed, always on, at a low price. One product that will continue to sell in great quantities during 2012 is mobile broadband. There will be an increasing focus on LTE and an increasing number of people will see wireless broadband connections as a logical and serious alternative to fixed line products. So the challenge will not be how to sell mobile broadband – that part is easy. The challenge will be how to create a healthy business case. We believe that mobile operators need to view mobile broadband as mobile solutions, rather than simply a wireless DSL product. We will see an explosion of prepaid mobile broadband sales during 2012. An increasing number of operators will move focus to prepaid solutions and countries that are experiencing growth difficulties will start focusing on prepaid mobile broadband solutions that will be bundled with e.g. mobile subscriptions. Operators that understand how to reinvent the mobile broadband market and additionally understand how to focus on market segments can be very successful. Those who do not will experience increasing pressure on prices and margins, but without having revenue growth that corresponds to their growth in traffic and costs. The value added services market – traffic will explode and new business models will need to defend existing revenue The keyword for the value added services market will be growth, growth, growth and finally growth. Just the increase in smartphone sales and penetration will result in the use of mobile services exploding during 2012. Many countries will see their number of smartphone users double – and all these new users will be using apps, browsing the Internet and using their mobile phone to update Facebook, Twitter etc. The mobile versions of the current most popular Internet programs will be the most successful in 2012. These will include Facebook, MSN, Google Maps, Google Search, Youtube, Linkedin and of course some of the most successful new sites. In 2012, an increasing number of people will be talking about Mobile-First and how their company will make an enormous effort to acquire a piece of the mobile cake. The problem is that most companies will eventually find out that the revenue from this area will not correspond to their effort, growth or investment. The increasing smartphone penetration will result in SMS traffic decreasing in many countries. Much of the communication that previously was handled by SMS has now moved over to Facebook, WhatsApp and other online IM applications. This will result in operators around the world contemplating how to react to their decreasing SMS traffic and sales. Customers will use an increasing number of different types of online communication programs and apps to communicate with each other. By the end of 2012, Facebook will be one of the top programs in this area and will thereby have played its part in killing off the SMS market. We believe that operators around the world will have little choice in 2012 than to sell packages of limited or even unlimited SMS at very low costs. That is the only way of having any chance of trying to maintain the market position of the SMS, before all communication is moved over to IM solutions and Facebook. The question is how many operators will realise this before it’s too late? From the customer’s viewpoint, 2012 will be an absolutely fantastic year with lots of exciting mobile services to choose between. The problem is that it is difficult to make money on marketing and selling for example Apps and other mobile services, unless you have a very wide distribution network and a strong brand. All in all, 2012 will end up being a year where many companies experience growth in their mobile traffic. But the fight against free services will result in most companies experiencing the frustration of having a solid growth in traffic, but at the same time seeing their cash flow stagnate or even decrease. Mobile operators will increasingly focus on social media over the next 12 months and try to use social media to communicate with their customers in an effort to hold on to their customers. We will see an increasing number of operators integrate social media into their services than we have seen up to now. Demands from end-users will dominate the debate and the position of the political system in 2012. Both in 2009 and 2010 we predicted that customers will take over power and rule the Telco market. In 2012 customers will really find out how much power and value they actually have. It is difficult to describe in words just how tough the Telco market will be in 2012. Perhaps it is easier to understand if we explain by stating that we believe the number of employees working for mobile operators around the world will decrease by between 5 and up to 20% in most countries. Europe will see large reductions in staff as a result of the customers’ ability and willingness to shop around on the market. This will not only affect mobile operators but also service providers and mobile telephone manufacturers, who will all experience the results of customers becoming aware of their increasing power to choose for themselves. In reality it would be very relevant to start asking whether competition on this market is in fact functioning so well and customers now have so much power of choice, that it is in fact time, to start reducing regulation. Mobile customers have made the Telco industry into one of the most dynamic industries in the world. We believe we will see an increasing number of customers do more and more things online during 2012. This will include purchasing their mobile phones online, purchasing and changing mobile subscriptions and apps online and paying for various invoices and subscriptions online. If you would like to see how this actually works, take a look at the Danish mobile market. Denmark has turned into a mobile self-service society, with almost 35 percent of all mobile customers servicing themselves using various online solutions. This has resulted in an improved economy for mobile market players and a higher level of satisfaction among customers. We hope that the our thoughts and predictions in this annual Christmas prediction letter has given you a little food for thought about the global Telco industry that you are a part of. The purpose of this research note and everything else we publish is not to point fingers at people or companies, but solely to give the industry access to objective information and research that can make it easier for market players to navigate this complex business area. If you would like to read what we have previously predicted would happen in the future, please do not hesitate to click on the links from the past 11 years below. Once again we are quietly confident that this year’s predictions will hit close to the mark. Strand Consult wishes all our customers and contacts a Merry Christmas and Happy New Year See you in 2012! |
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