Research Notes

The Mobile Operators Business is turning inside out and upside down

– Outsourcing is one way to minimize OPEX

Traditionally the mobile operators that have had the all-important role in the mobile value chain – and they never really had any other intention than playing first violin. This is why the mobile operators have constantly try to maximise their controlling position in the value chain by e.g. retaining a great number of different work processes and competencies in-house within their own organisations. The operators have naturally had business partners – but wherever possible the operators have played solo. But now the operators are having to change their tone!

There are a number of reasons why mobile operators have such a significant role in the value chain as they have today. One of the major reasons is that operators own licenses to offer mobile telephony and also that the operators have been the only market player that could handle the billing of end users’ mobile usage. The operators thereby function as a kind of heart that pumps financial resources from the end-users out to all the other players in the mobile value chain.

A paradigm shift in the mobile value chain now means that operators need to turn their large internal organisations inside out and examine them very closely to be able to adapt and optimise their procedures and organisations to the new mobile reality. The paradigm shift will lead to an upheaval of the existing value chain and all the market players will be forced to redefine their tasks and structure.

The mobile value chain is changing – constantly and significantly changing! Mobile technology is changing, VAS services are changing, demands from customers are changing – all things that require change in necessary competencies and procedures etc. For the mobile operators, these changes are happening at the same time as they are experiencing an increasing price competition from an increasing number of smaller mobile providers.

This fast paced evolution and the decreasing profit margins make it necessary for operators to establish a much more flexible organisation and an organisation that is not too cost heavy. The mobile operators traditional organisational structure has however not been characterised by an ability to be able to adapt quickly and even less characterised as being inexpensive to operate!

We will therefore see a significant increase in operators that start to define tasks that they can outsource in their attempts at achieving a greater level of flexibility and to help minimise OPEX (Operating Expenses). Thereby processes that previously were considered as core competencies for mobile operators will increasingly be outsourced to external companies that can handle these processes more efficiently than the operators themselves.

This has for example been the case in Austria, where the mobile operators One and Telering have chosen to outsource their network operations to e.g. Alcatel. In Sweden the politicians have taken into consideration the significant OPEX that operators have and therefore allowed the Swedish mobile operators to operate shared 3G networks.

Likewise an increasing number of operators will hand over the task of distribution of mobile handsets to external companies that have the expertise and large-scale operation advantages in handling stock and logistics.

Many mobile operators are also examining the possibilities of outsourcing the daily operation of their own mobile shops to external experts in the retail business that often will be able to manage the stores on a much more cost efficient basis than the mobile operators can themselves.

Last but not least, mobile operators will increasingly trying to “outsource” tasks to their own customers. The mobile operators have a great number of employees that handle customer service/call centres, which is costly in wages and benefits and office space etc. So mobile operators are focusing on getting as many customers as possible to be able to service themselves, for example via the Internet. There will however always be the need for mobile operator to have a call centre, but the mobile operator does not necessarily have to include a call centre in their own organisation, but can instead outsource it to companies that have the expertise and large-scale operation advantages in that area.

One of the largest challenges facing the mobile operators in the future will therefore be to retain their powerful position in the value chain, while at the same time outsourcing tasks that were previously considered to be core competencies. The operators are under pressure to move away from the “Big is beautiful” motto, towards having a goal of “Less is more”.

But the operator’s worries are not over yet just by creating an outsourcing strategy. This tendency towards outsourcing is only one of a number of Mega-trends that are all leading to the paradigm shift in the mobile value chain.

Strand Consult has identified a total of 10 Mega-trends that are all analysed in depth in a new report  “Mega trends in the mobile industry – a question of life and death” (300+ pages). Due to these 10 Mega-trends, the market for mobile telephony is facing an upheaval in the whole value chain, which will lead to the launching of new business procedures and revenue sharing models. The report analyses the effect that the 10 Mega-trends will have on handset manufacturers, content providers, mobile operators and dealers and the report puts forward suggestions on which considerations and initiatives each market player must examine to prepare themselves for the effect that the 10 Mega-trends will have on the mobile market.
Mega trends in the mobile industry

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