Telecoms brands must adapt

12 September 2012

LONDON: Companies in the telecoms sector must adapt their business models to reflect the surge in mobile data use, which will require new pricing structures and the roll out of innovative services, new research has suggested.

The Financial Times, the newspaper, commissioned the GSMA, the trade body representing almost 800 mobile operators across 220 nations, to assess current and potential future revenue trends in the category.

At present, data services yield around 20% of returns, a total set to reach 44% in 2016, when this sphere of activity will generate $500bn. By 2020, these figures are expected to hit 53% and $648bn respectively.

Within this, telecoms companies are anticipated to accrue greater revenues from data than voice calls in 2017, indicative of the wholesale transformation stimulated by devices like smartphones and tablets.

Price competition is, however, predicted to remain fierce. "For investors, data ARPUs average revenues per user will become the key metric," said Ana Tavares Lattibeaudiere, head of connected living at the GSMA.

Simon Weeden, an analyst at Citi, stated that US companies are ahead of their European rivals thanks to the prevalence of 4G networks. "We are not far off having more people on smartphones than not, while tablets and laptops consume a lot of data," he added.

Alongside rising usage of the mobile web, the "internet of things" – driven by "machine-to-machine" online connections in everything from cars to fridges – will be another key shift.

"This is right at the beginning of the data growth curve, so the options taken now will define revenues in the future. We are seeing an explosion of things needing to be connected," said Tavares Lattibeaudiere.

"Companies are adapting slowly, with some trying to buy into the value chain through bolting on businesses and others looking to incubate them within their groups."

The GSMA also suggested that telecoms providers should focus on selling partner services to data plans, like billing, identity protection and security tools.

Successfully doing so could drive up global revenues by 80%, from $1,000bn in 2012 to $1,800bn in 2020. A failure to make such moves will yield growth of just 2% per year, the analysis added.

"The telecoms sector is in the middle of an identity crisis," Robin Bienenstock, an analyst at Bernstein, said. "Data has become all important for future growth – in terms of both the 'internet of things' and in that mobile phones are becoming pocket-sized computers. Becoming a low-growth utility stock is exactly the risk."

Data sourced from Financial Times; additional content by Warc staff