|
|
|
|
|
Riding The Data Tsunami: Adjusting To Changing Telecom Industry Economics
Published Jan 5, 2011
|
A formidable transformation is taking place beneath the placid surface of the telecommunications industry. As the global economy becomes increasingly digital, data traffic over both fixed and wireless networks is exploding. This presents telecom operators with a major challenge: They must invest more and more capital in next generation networks that can absorb this wave of data even as increasing competition, regulatory pressure, and the proliferation of flat rate pricing for data services put enormous pressure on their margins. This raises two vital questions: How can operators manage the exponential increase in data volumes And where will the money come from to build the networks needed to handle the coming data tsunami? The answers to these questions lie in the ability of operators to monetize the huge volumes of data that are flowing and will continue to flow over their networks.
Rapid Changes:
The telecom industry is facing major changes. Despite relatively stable growth, the industry’s sources of revenue are changing rapidly. Revenues from mobile services exceeded those from fixed in the U.S., Western Europe, and the BRIC countries (Brazil, Russia, India, and China) several years ago. Data traffic overtook voice traffic long ago, and data revenues are now starting to take significant share from voice revenues. And the BRIC countries themselves are producing a quickly growing share of overall revenues.
A closer look at pricing trends reveals that the industry’s primary sources of revenue are quickly becoming commoditized. The average cost of both fixed and mobile phone calls has dropped precipitously over the past 20 years. The European Commission estimates that the average price of a 10 minute domestic call in 27 countries dropped by 68.7 from 1998 to 2008. This is forcing down margins and leaving operators searching for new sources of revenues,” said Karim
Sabbagh, Partner and the Global Practice Leader for the Communications, Media and Technology Practice at Booz & Company.
The most dramatic trend in the telecom industry is the massive increase in global demand for data services. Over the past few years, video services have become a major contributor to this trend. This has led to an explosion in the amount of video data flowing over the infrastructure of telecom operators.
Streaming video consumption in the U.S. alone has risen 78 per year since 2005, an increase of 1672 just from 2005 to 2009. Cisco Systems also estimates that the total volume of data circulating on mobile networks will grow from 0.09 exabytes 90 million gigabytes per month in 2009 to 3.6 exabytes in 2014, roughly doubling every year,” said Bahjat El Darwiche, partner with Booz & Company.
Unfortunately, because of the physics of radio transmissions, mobile networks cannot easily be scaled up to meet this explosion of data. The mobile networks of the future will need to be vastly more efficient.
Funding:
Operators are already experiencing pressure on both revenues and margins from numerous sources, including increased competition, regulations that are squeezing the strong margins operators have attained on some services, and flat rate pricing structures.
Further, the sources of revenue that some operators might use to help pay for the necessary infrastructure investments may not materialize. In short, telecom operators will find it very difficult to fund the infrastruc ture upgrades required to serve the digital economy of the future.
Operators are already taking a conservative approach to new investments in both fixed and wireless broadband, and this is understandable: What rational business would make investments that would show little or no return for seven, 10, or even 15 years, and with no clear visibility into the business models that would lead to real returns said El Darwiche.
Surviving the ride:
Operators have four main levers they can pull to help themselves survive and thrive in the coming years. They can Redefine the network architecture of the future. Operators can offload mobile data traffic to fixed line radio access points and redefine their network architectures by allowing “intermodal” roaming between fixed and mobile networks, and charge for the privilege.
Invest in data compression technol¬ogy to better manage growing data volumes. Operators will require technologies that can mitigate the impact of the data tsunami, including LTE and other radio efficiency technologies.
Pursue growth opportunities in the B2C and B2B applications space. Operators can be legitimate players in this market, thanks to their technical skills and network infrastructures. They can also benefit from strong brand recognition and trust, particularly among small and midsized businesses.
Monetize the service levels on their networks.
broadband service offerings do not allow for pricing based on service levels. The only way to increase service levels is to increase a line’s bandwidth. But that can be changed. Singapore has overcome this limitation through its Nucleus Connect services and other markets can to.
In conclusion:
The fast developing data tsunami will lead to profound changes in the topology of telecommunications networks, and building those networks will require massive investments. Several avenues are possible for the deployment of this infrastructure, and several different models are likely to emerge, depending on local regulations and on the results of the approaches chosen by different operators.
The best models are likely to be those that allow for open networks over which service providers can profitably sell their services and operators can monetize the value of their network infrastructure. Creating such a model will take a great deal of energy and effort, but operators that succeed will be able to ride the data tsunami and become driving forces in the ongoing development of the digital economy,” concluded Sabbagh.
About Booz & Company:
Booz & Company is a leading global management consulting firm, helping the world’s top businesses, government ministries, and organizations.
Our founder, Edwin Booz, defined the profession when he established the first management consulting firm in 1914.
With more than 3,300 people in 61 offices around the world, we bring foresight and knowledge, deep functional expertise, and a practical approach to building capabilities and delivering real impact. We work closely with our clients to create and deliver essential advantage.
For more information:
MS&L
Smriti Singh
T: 971 4 3676156
F: 971 4 3672615
E: smriti.singh@dubai.mslpr.com
Posted by
VMD - [Virtual Marketing Department]
|
|
|
