Mobile Operators' Strategies and Financials in the 4th Revenue Growth Curve

Mobile Operators' Strategies and Financials
in the 4th Revenue Growth Curve
By ALI Saghaeian
Chief Analyst & Consultant
Telecoms, IT, and Media
Saghaeian [at] gmail.com

Objectives
• Understanding the 4th Curve
• What are the Opportunities in the
4th Curve
• Analysis of the 4th Growth Curve
• Tracking the rise and fall of the 4th
Revenue Curves
• What are Mobile Operators'
Strategies in the 4th Curve
• What are the Impact of 4th Curve
on Operator Financials
• Business Case
Development for a
typical VAS (excel
task)
Exercise

Agenda
• Implications of the 4th wave
• Opportunities in the 4th Curve
• Opportunities beyond Voice and Data
• Case Studied for Revenues from new businesses
• 4th Curve Application Areas
• The four revenue growth curves
• Mobile Operator Strategy in the 4th Curve
• The Impact of 4th Curve on Operator Financials
• ICT and Digital Media Industry
• Profitability of business segments
• Global Mobile Industry Profit Share

The 4th Curve
 The 4th curve is not a single entity or a functional block like voice,
messaging or access but is made up dozens of new application areas.
 The 4th curve has different characteristics than the previous three:
o It is not one single curve but a combination of dozens of smaller
curves.
o The barriers of entry are low on the fourth curve.
o The Competitive landscape of each of these curves is different
requiring a more agile organization.
o Competition from new entrants starts very early.
o Business models that extend beyond metering are required.
 The previous three curves were quite distinct in their offerings. The
investment required, the type of people that needed to get hired, the
product roadmap, the vendors, and the value chains etc. were well defined
over the course of time. The purpose, the functionality, and expected
returns were well understood.

Telecom sector revenue trends
Revenue decline can slow down if especially mobile operators implement the
right strategies

 Who will capture the profits
 The Need for New operating models
 Implications on the Ecosystem
 Competition and Operator Consolidation
 New Revenue Models
 New Joint Venture Models
 New Business Models
 Regulatory Rethink
Implications of the 4th wave

Opportunities in the 4th Curve
 AT&T and Telefonica Digital are focused on opportunities beyond
communications into M2M, Advertising, Financial Services, Cloud, Security,
mHealth, and Distribution. With the scale of multi hundred million
subscriber base, each can make an impact with solutions and services they
introduce into the market.
 In many of the markets like advertising and security services, the operator
will be a new entrant. But, the operator is also in a unique position where
they can provide an end-to-end solution to the customers where they already
have a billing and service relationship.
 Operators will have to segment the cost of doing business and the revenue
streams and optimize for higher margins.

Opportunities beyond Voice and Data

Globally identification of new revenue opportunities is a key
requirement for Telco players facing slow down
• Further development of customer base
expansion through segmentation
• Locking of customers to retain the revenues
• Focus on high-end customers
• Push on (interactive) VAS to increase revenue
and margin
• Re-assessment of cost base and organisation
models to address increasing margin pressure
• Identification of new revenue opportunities
in adjacent sectors
• Direct competition between fixed and
mobile players in voice market
• Customer base and consumption still on
the rise, but tariff pressure and regulatory
changes leading to ARPU decrease
• Markets increasingly competitive and
segmented
• Increase in acquisition and retention costs
• Technologies enabling media players to
compete in the Telco market and Telco
players in the media market (OTT)
Global trends in the Telco industry Potential actions from Telco’s

NTT DoCoMo Revenues from new businesses

Telefonica Digital Revenue Targets

Contextual Communications means New Revenue

AT&T earns new revenue with connected car

China Telecom earns new wholesale revenue with
virtual numbers

The 4th curve opportunities

4th Curve Application Areas
Application Areas Competitors
Identity, Risk Management Facebook, Google, Twitter, Microsoft, Banks
Commerce Amazon, Ebay, Google, Groupon
Payments Paypal, Startups, Google, Facebook, Visa
User Profile Google, Microsoft, Apple, Twitter, Facebook
Advertising Google, Facebook, Startups, Apple
Cloud Services Amazon, Cisco, Apple, Microsoft, Salesforce
Enterprise SIs, Vertical players
Connected Home Cable Companies, HP, Microsoft, Sony, Apple, ADT
Health Microsoft, Health Care providers
Analytics Google, Microsoft, Facebook, Amazon

The four revenue growth curves
Operators who are investing heavily in the 4th curve have a good shot at
seeing the end of the decade

 The 4th wave analyzes the four mobile revenue curves in detail and
discusses the strategies needed to increase the net revenue and the
investment areas that can lead to new revenue and healthier margins for
operators around the world.
 It is inevitable that the 4th growth curve for the wireless industry is going to
bring in disruption in the industry structure, technologies used, revenue
models, and at some point the regulatory framework itself.
 Any given operator could play a different role on the various mini-curves
that make up the 4th curve. The net performance of any given operator will
be measured by how they perform in aggregate on the 4th curve.
 Alone, any given mini-curve might not represent as big of an opportunity as
the previous three curves individually, however, collectively; the 4th curve
has the potential of surpassing the previous ones.
Analysis of the 4th Growth Curve

The rise and fall of the 4th Revenue Curves

o Delay the decline
This can be achieved by a number of key initiatives that involve a mix of business
models, consumer loyalty, integration of new technologies to reduce churn, and
embracing OTT/VAS services.
o Extend the peak
The reason Sprint is still able to offer unlimited data on iPhone and Android devices
is because their margins/bit are better than their competitors.
A number of operators like Rogers, Vodafone and Verizon have launched data share
plans that allow consumers to bundle multiple device per plan. This will encourage
users to become data users across multiple devices. This form of data pricing and
bundling will help extend the access curve peak in all markets.
o Invest in the 4th curve
Given that the 4th curve is not a singular curve but a combination of several mini-
curves that have their own profile, growth characteristics, competitive dynamics, and
opportunity landscape, operators will have to manage the 4th curve like an
investment professional would manage an investment portfolio or fund – diversify to
reduce risk and extend growth.
Mobile Operator Strategy in the 4th Curve

The Impact of 4th Curve on Operator Financials
 The growth in revenue has been fueled by the investments that operators
have to make to keep up with the network demand. As such, many have had
to raise significant amounts of debt.
 If the EBITDA for the company doesn’t grow in proportion to the rising debt,
the company comes under scrutiny and financial pressure. Typically, the
average Debt/EBITDA ratio for global operators stays around 1.4 with Asian
operators
 Over the past few years, weak economic conditions in various geographies
and pressures on the first three curves have increased the Debt to EBITDA
ratios for some of the operators. For Deutsche Telekom, the ratio has risen
by 22%, for France Telecom 23%, for Sprint 24%, and for Telefonica 50%
 Operators’ ability to raise debt and invest in new ideas and growth curves
rests on the both the will to invest as well as their current financial condition.
When the revenues stop growing but the debt demands stay high, the ratios
start to climb, putting significant stress on the financial health of the
operator.

ICT and Digital Media Revenue Map

ICT and Digital Media Industry - Revenue
 ICT and digital media industry has
grown by 5.6% since 2007, reaching $3.7tn
in 2013.
 It remains a services-based industry
however the proportion of services
decreased by 5.1% since 2007 in favor of
hardware.
 The role of advertising gains on
importance.

Business Segments - Revenue, 2007 vs. 2013
 Communications was the worst performer whilst broadband connectivity gained
in importance as service providers tackle competition with multi-play offerings
 The role of devices increased as more gadgets were connected
 Content was flat as companies look for effective monetization strategies

Shift in value, 2007 vs. 2013

Revenue Growth Barometer

ICT and Digital Media Industry - Profitability
 ICT and digital media industry EBITDA
has grown by 5.1% since 2007, reaching
$962bn in 2013.
 EBITDA margin saw moderate decline
from 26.4% to 25.7%, with software being
the main culprit.
 The biggest improvement in EBITDA
margin was achieved by advertising.

Profitability of business segments, 2007 vs. 2013

EBITDA Margin Barometer

Perceived value, 2007 vs. 2013
 Connectivity & communications remains the worst performing segment, with
a knock-on effect on network vendors
 Investors see potential in content, followed by internet platforms and IT
 Device, OS & components seems overpriced

Global Mobile Industry Profit Share

Mobile Operator profit growth in some regions

Safaricom Mobile Data Revenue Segmentation

Any Questions?
34
ALI Saghaeian | saghaeian@gmail.com

Mobile Operators' Strategies and Financials in the 4th Revenue Growth Curve

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