Mobile operators path towards profitability

Hi everyone,

In this article we share our view about three topics; a) The reasons behind mobile operator’s current struggle to provide return on investment for its shareholders. b) Having bigger pipes does not mean higher profits, and c) Digital transformation; The path that mobile operators must embrace to outsmart platform players like Apple, Google, and Netflix.

The reasons behind Telcos current struggle to provide a return on investment for its shareholders

To decipher telcos’ ongoing struggle, we must look back at the beginning of the century to understand when Telcos lost control of its most valuable assets, being those of its customers and networks.

At the beginning of the 21st century, telcos experienced double-digit revenue loss on its core business, voice services. The intense price competition came from different angles, the rise of prepaid card operators, the invention of internet technologies like Skype, launched in 2003, which offered free voice services, and the shift from fixed to wireless.

Skype could probably be considered as the pioneer or driver who motivated a rainfall of technology players to eat into the telcos market share due to continuous innovation. A few years later, 2005, blackberry messenger was launched. It was with the inception of blackberry messenger, a free SMS application when mobile operators realized that both its voice and SMS services were at stake.

However, things started to get worse quickly when Apple released the revolutionary smartphone in 2007. Since that moment, tech giants like Apple, with its iOS, and Google, with its Android, became platform players opening the pandora box for vendors to offer their services, through apps, to reach billions of consumers using the telcos’ deployed infrastructure without paying a fee. Initially, telcos were pleased with the invention of the smartphone as sales of mobile phones skyrocketed. However, its happiness started to fade once Apple allowed vendors to sell products and services over the top with the launch of the Apple Store, and iPhone users to text each other for free with the iconic iMessage released in 2011.

To put things into perspective, USA mobile carriers generated, the year iMessage was released, 23 billion dollars with its text messaging business. However, the drop-in voice services and text messaging was offset with an increase in data services for a couple of years until the inevitable happened. T-Mobile, led by the one in a million “John Legere,” shacked the mobile market with a series of brilliantly designed marketing techniques called “the uncarrier”. It debuted in March 2013, where the company introduced a new streamlined plan structure for new customers which drops contracts, subsidized phones, coverage fees for data, and early termination fees.

T-Mobile aggressive strategy worked well. Its mobile subscriber based went from 33.4 million in 2012 to 79.7 million users in 2018, generating $43,3 billion in revenue and $2.9 in net profit, becoming the 3rd largest carrier.

However, since the beginning of 21st century, neither T-Mobile, with its brilliant marketing strategy, nor AT&T, Verizon, or Sprint disrupted its industry through real innovation as Apple, Google, and Netflix did. The plan of mobile network operators’ “MNOs” was to acquire customers at any cost, investing large amounts of CAPEX in infrastructure and spectrum, bundling voice services, text messaging, and data at a fixed price. In other words, offering more for less, to be able to compete.

Having bigger pipes does not mean generating higher profits

In the 2nd decade of the 21st century, USA carriers invested heavily in infrastructure. AT&T announced an investment in the range of 140 billion dollars in wireless and wireline for the period 2014-2018. We, the users, were able to experience the evolution 3G, 4G, LTE, and even 5G networks in less than ten years!.

The download speeds in a smartphone device went from up to 3.1 megabytes per second “Mbps,” with 3G, to 100+ Mbps with 5G. Therefore, it would be reasonable to think that much faster speed equals more revenue for the operators who invested billions of dollars in infrastructure to be able to provide us these services, is not it? Well, it is not

The average revenue per minute “ARPU” for USA wireless users decreased from nearly $48, in 2009, to $38 in 2019. This ARPU includes voice, text messaging, and mobile broadband. Thus, the USA mobile carriers experienced a decrease in ARPU of 21% the same decade the platform giants’ owners Apple and Alphabet, experienced a combined market capitalization increase of 1.4 trillion dollars!

Therefore, it is proven that having bigger pipes does not generate higher profits. Telcos and USA mobile operators must rethink their business models and adapt quickly to be able to ripe some of the benefits platform giants enjoyed by focusing on its pivot points. Those pivot points are; their customers, their infrastructure, and a large amount of data generated by their users.

Digital transformation; The path mobile operators must embrace to outsmart platform players like Apple, Google, and Netflix

At Digital Impact, we believe that there are two ways for mobile operators to outsmart the platform giants called FANGs (Facebook, Apple, Amazon, Netflix, and Google).

The first path for mobile operators to outsmart platform giants is to follow Huawei steps who developed its own operating system, called Harmony, in a period of 6 to 9 months based on the Android open-source platform. Huawei took this approach as retaliation to Google’s ban for prohibiting the Chinese tech manufacturer to use its OS influenced by the politics of Donald Trump’s administration.

However, the strategy of investing in your OS may fire back to small operators. Smartphone producers like Samsung, that uses Android OS, or Apple, with its symbolic IOS, could ban the operator from selling their devices, leading to a significant drop in revenue. However, carriers like Orange, Vodafone, America Movil, and Telefonica, who own 10 to 20+ networks worldwide, have enough purchasing power to negotiate with smartphone manufacturers such as Apple, and Samsung.?

The second path for mobile operators to outsmart platform giants is only “one quick away.” You may be wondering, what do we mean with “one click away”??It takes only one extra click for a smartphone user to access the mobile operator app Vs. the Google assistant, Apple siri or Microsoft cortana natural language processing “NLP” embedded in the OS.

NLP is a subfield of artificial intelligence “AI” that allows humans to interact with computers via voice recognition. Its power is endless. Think about it; humans have been using their hands to perform tasks for thousands of years ago. The fact that you can get work done without the use of your hands is valuable. And the main reason for Amazon, Microsoft, Google, and Apple to have invested billions on NLP technology.

So, if the FAANGs of the world already have powerful NLP technology. Why the end-user would do an extra click to open the operator app's own NLP engine? Our answer to this question is another question. Why do we purchase in Amazon all the time? Let’s name a few reasons, It is convenient, affordable, provides excellent customer service, but most important of all, you can find anything you need!

Therefore, mobile operators must provide quick and easy access to a set of valuable services that consumers cannot find in any of the other platforms to encourage them to do an “extra click.” Otherwise, the consumer will not invest the extra 3 to 5 seconds for accessing the mobile operator’s app.?

Digital Impact can build an AI platform with NLP functionality where mobile operators can offer seamless access to the services that you demand on a monthly basis such as Utilities ( electricity, gas, water), insurance (car, house, life, mortgage), and consumer goods (food and restaurants) by collaborating with players from other industries via application interface “API.”

Summarizing, mobile operators must change their mindset shifting its focus from increasing their ARPU in a few basic points to either building its own operating system, to control and monetize the “app store”, or having a NLP platform where vendors from other industries can offer their services to the mobile operator’s customers via app in a win to win for the consumers, the mobile operator, and the vendors.

In our next article, we will dive deeper into the type of services mobile operator should offer to win consumers hearts over taking back the control of its network, a percentage of the time users spend in front the device, and most important a portion of the revenue that platform giants have been taken away from them since the beginning of the 21st century.

If you like this article drop a comment and visit us at www.digitalimpact.cloud

Javier Macineiras

Chief Strategy & Digital officer

https://digitalimpact.cloud/