Research Notes

The reality for mobile operators on the Western European Markets

Mobile operators have experienced an explosive growth in the number of mobile subscribers throughout the last 8 to 10 years. Globally there is no doubt that this growth will continue with increasing mobile penetration in countries like the USA, China, India and a great number of third world countries.

But from the viewpoint of the Western European mobile operators, the future can only offer a very limited growth in the number of subscribers, as the mobile penetration on most Western European markets is reaching its maximum with penetrations of over 95% in many countries.

On mature markets the competition will change and many mobile operators have not in proper time foreseen this development, and these mobile operators will have to change their strategy to adapt to the new reality to survive in the future mobile universe. At Strand Consult, we have identified 10 mega-trends there will have significant impact on mobile operators business:The threat and possibilities of the Discount Mobile Service Providers,Falling profit margins on basic mobile services (voice, SMS) as a result of competition,The use of outsourcing – to minimize OPEX,Controlled investment in infrastructure – to reduce CAPEX,The use of micro-segmentation (Mobile operators will use sub-brands and producers of mobile terminals will introduce a wide range of different terminal models),Higher marketing expenses – partly because of the use of micro-segmentation,Stock Rotation Risk – the result of the terminal producers larger product portfolio,New business models in the mobile value chain – the existing business models are an impediment on economic growth,A more complex value chain – a growing number of different players seek the place in the mobile value chain,Mobile penetration vs. SIM-penetration – there is an important difference.Mobile operators will have to take these 10 mega-trends into consideration when designing their strategy for the future; Mobile operators can no longer do business the usual way, if they want to have a attractive position in the future mobile market.

One of the trends that already have had a big impact on mobile operators business are falling profit margins on the basic mobile services, voice and sms. We predict that there will be heavily increasing price competition for the Western European mobile operators over the coming years, for both voice and SMS traffic. Today 90 to 95% of most mobile operators’ revenue comes from voice and SMS traffic, and falling profit margins will therefore have a large effect on the result for mobile operators.

The combination of competition on pricing and low growth rates will continue to put a lot of pressure on the mobile operators’ profits in the future. The reality for mobile operators will not just be a problem for the mobile operators, but for the whole mobile value chain – in other words also the handset manufacturers, distributors, content providers, dealers etc. That is, when the mobile operators are pressured on their revenue, there is therefore a large risk that they will reduce their expenses and this will of course have a negative influence on the rest of the mobile value chain, as a reduction in the mobile operators’ costs/investments will mean a smaller revenue stream for the other players in the mobile industry.

Strand Consult has identified 10 Mega-trends, that each is analysed in depth in a new report “Mega trends in the mobile industry – a question of life and death” (300+ pages). Due to these Mega-trends, the mobile telephony market is in the middle of an upheaval of the whole value chain, which will lead to the implementation of new business procedures and revenue sharing models. The report analyses the effect that the 10 Mega-trends will have on the handset manufacturers, content providers, mobile operators and dealers respectively and the report puts forward suggestions on which considerations and measures the individual market players should take to prepare for the effect of the 10 Mega-trends. 

Mega trends in the mobile industry – a question of life and death

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