Summary: Some telcos are hoping that mobile data growth will resurge and transform their fortunes, though STL Partners has previously argued that data growth will not be enough. In this report we re-examine this argument looking at global trends and present the insights and lessons from six operator case-studies including DNA Finland, T-Mobile US and Reliance Jio. (Executive Briefing Service, April 2017)
Below is a short extract from this 47 page Telco 2.0 Report that can be downloaded in full in PDF format by subscribers to the Executive Briefing Service here. To find out more about how to join or access this report please see here or call +44 (0) 207 247 5003.
A recent STL Partners report – Which operator growth strategies will remain viable in 2017 and beyond? - looked at the growth strategies of 68 operator groups, and identified eight different growth strategies employed over this sample.
The eighth strategy was to expect mobile data growth to start to reverse the decline in revenues once the decline in voice and messaging revenues is complete. In the previous report, we argued that data growth would not rapidly counterbalance the losses of voice and messaging due to the forces outlined in Figure 2 below:
Source: STL Partners
In that report, we showed a number of examples, including NTT Docomo in Japan, which has been experiencing voice and messaging declines for the longest period of telcos we are aware of, and the UK market, which is competitive with relatively good availability of market data (See Figure 3):
Source: Company accounts, STL Partners
Despite the clarity of our own convictions on this matter, we are aware that some telcos are growing their revenues, and also that a minority of our clients (perhaps one in ten based on a number of informal surveys we have run in workshops etc.) believe that data could start to regrow the market in certain conditions.
Given how attractive this idea is to the industry, and how difficult and lengthy the path of transformation and creating digital services is proving for telcos, we decided that it would be useful to revisit our assertions, to dig deeper to see what signs of growth we could find and what might be learned from them. This report contains our findings from this further analysis.
This decline is not a new story, and STL Partners has been warning about this phenomenon and the need for business model change since 2006.
Back in 2013, STL Partners estimated that digital business would need to represent 25+% of Telco revenue by 2020 to avoid long-term industry decline. However, to date we have not taken the view that data revenues will to grow enough to make up for the decline in traditional services, meaning that “hunger gap” will not be filled this way (see Figure 4).
Source: STL Partners
However, making the transition to new business models is challenging for telcos, who have traditionally relied on an infrastructure-based business model. Digital businesses are very different, and the astronomical growth in demand for mobile data services over the past decade is placing severe strain on networks and resources.
We have argued that telcos now need to make a fundamental shift from their traditional infrastructure-based business model to a complex amalgam of infrastructure, platform, and product innovation businesses.
Alternatively, growing data would be an innately attractive prospect for the telecoms industry. It would not require all the hard work, risk, change and investment of transformation. Hard-pressed executives would love nothing better than the ‘do little’ strategy to work out. It’s an idea that can easily find traction and supporters.
But is it a realistic prospect to grow data revenues faster than voice and messaging are shrinking?
To sense-check our original assertion that data will not grow overall revenues, this report takes a new look at the available evidence. We picked six different telcos appearing to exhibit representative or outlier strategies to see whether there may currently be grounds to change our view that data will not grow the overall telecoms market.
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...Members of the Executive Briefing Service can download the full 47 page report in PDF format here. For non-members, to find out more about how to join or access this report please see here or call +44 (0) 207 247 5003.
Technologies and industry terms referenced include: Cosmote, data growth, disruption, DNA, Free Mobile, innovation, mobile, operator strategy, Reliance Jio, revenue growth, SMS, T-Mobile, text messaging, Vodafone.