Mobile operators face profitability squeeze in 2018

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Mobile operators face profitability squeeze in 2018

Next year, mobile network operators (MNOs) will have to balance the twin challenges of insatiable worldwide appetite for mobile connectivity, prompting massive capital expenditure on network improvements, while growing competitive threats pile increasing pressure on their revenue streams, according to a report from the Economist Intelligence Unit (EIU).

The EIU said that MNOs would be tightly focused on expanding their footprints in 2018 to improve 4G mobile network coverage and, in more advanced markets, prepare for 5G mobile network testing as the industry works towards commercial deployments in early 2020.

However, dwindling average revenues per user (Arpu) means there will be less cash to spare for commercial networking investments, and MNOs will have to scramble to unlock new sources of revenue.

“The telecoms sector will see its finances stretched again in 2018, and the pressures of infrastructure investment, market saturation and competition are only intensifying as more people have access to mobile and broadband connectivity,” said EIU telecoms analyst Matt Kendall.

“Operators are going to have to think about how best to adapt in a space where consumer demand is dictating the pace, lending an even greater urgency to the need to find new and creative revenue streams.”

In the world’s 60 largest markets, the EIU expects total telecoms revenues to fall by 2% in US dollar terms to $1.2tn in 2018 (£895bn), while Arpu will decline across those markets as MNOs are forced to offer discounted, data-rich packages and bundled services.

Many MNOs have already seen the benefits of partnering with over-the-top (OTT) service providers – such as Netflix or Amazon Music – and are making the data that these services use free of charge for consumers on certain plans.

Three cut such a deal with Netflix earlier in 2017, and EE has a similar arrangement with Apple Music. Such deals may prove popular, but are regarded by many as against the spirit, if not the letter, of the European Union’s (EU’s) net neutrality guarantees.

Others may capitalise on emerging technologies such as connected cars, mobile banking, smart homes, and potentially anything else with internet of things (IoT) functionality, which the EIU said would be increasingly important for cash-poor MNOs.

The EIU report noted that there were still “huge opportunities” for the mobile sector in 2018, with two-thirds of the world’s population now having access to mobile services and the proportion of those with smartphones growing rapidly in Asia and emerging African markets.

In some markets, said the EIU, deregulation may help MNOs broaden the nature of their services and become more of a rounded digital services provider, blurring the lines between a traditional MNO and a media company.

However, the report warned, regulatory pressures may also restrict MNOs’ ability to roll out improved or new networks, and restrict them competitively as a more interventionist stance becomes evident from many governments on the back of competition and consumer pricing concerns.

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