Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
When it comes to the wireless sector, I would just like to say what everybody else in the wireless ecosystem knows – the carrier is king! Now, I am not just saying this because most of our customers are carriers, but because carriers are truly at the center of the telecom ecosystem and everybody who is anybody wants to talk to carriers or connect with carriers or get visibility with carriers so that they can deploy their technology, solution or service in a particular market.
Carriers are important because they own the spectrum, they own the customers, and they own the capital needed to deploy anything of significant value in the wireless ecosystem. From the world’s largest telecom vendors to its smallest application developers, everyone wants to know what carriers think and getting into the headspace of a carrier’s future plans is probably the Holy Grail that every player in the telecoms ecosystem is wanting to keep track of in these tough economic times.
Our advice on this matter to our clients is this – be prepared for a deep chill in carrier opex (operating expenditures) and capex (capital expenditures) in 2009 and 2010.
We say this because as carriers around the world come out with their latest financials, it is becoming obvious that carrier capex plans are going to be put on hold and any opex plans that are demand-driven are going to be scaled back.
Our first quarter 2009 Global Mobile Operator Forecast (which covers 65 operational and financial metrics on 200-plus mobile operators in 50-plus markets) shows some interesting trends:
|
|
2008 |
2009 |
2010 |
|
Subscriber Growth |
10.7% |
5.0% |
2.8% |
|
ARPU Growth |
-4.2% |
-3.1% |
-1.2% |
|
Service Revenue Growth |
10.1% |
5.6% |
4.5% |
|
EBITDA Margins |
37.6% |
37.4% |
37.7% |
|
CAPEX/Reported Revenue, % |
10.9% |
9.9% |
8.6% |
Source: IE Market Research Corp., Global Mobile Operator Forecast. Figures are averages across 200-plus wireless carriers globally.
With the exception of a few carriers in emerging markets, subscriber growth at wireless carriers averaged about 10.7% in 2008. While this might look like an impressive number, the average subscriber growth rate is down from the heady days of the 2004 – 2007 period when carriers in both emerging and mature markets were seeing 20% – 40% growth rates in subscriber numbers. But check out what we are forecasting. Given the global slowdown, we are predicting that subscriber growth will average only 5.0% in 2009 and will slow further to 2.8% in 2010.
The wireless ecosystem needs to pay heed to this chill in subscriber growth. This is because it will have a direct impact on the revenue visibility that operators will be expecting in the next two years. As shown in the table above, we are forecasting that service revenue growth at carriers will also slowdown to an average of 5.6% in 2009 and 4.5% in 2010.
It is quite obvious now that slowing revenue will have an impact on carrier capex. We are forecasting that in 2009, there will be a -3.5% reduction in carrier capex and a further -6.9% reduction in carrier capex in 2010 globally. (And if you are wondering just how accurate IEMR’s forecasts are, on average for subscriber growth, revenue growth, and carrier capex, we were 94.7%, 91.3%, and 84.7% accurate.)
What does it all mean for the wireless ecosystem?
In two words: reduced subsidies
What this means is that carriers are seeing a slowdown in demand for the use of their networks and services and this is going to have a negative impact on every piece of equipment, application, platform or service that is licensed or sold to them. We also think that this is going to have an impact on the speed with which innovations come to market in the wireless space and the diversity of product offering in the market place. From where a carrier sits, projects that are “nice to have” will be delayed or shelved entirely.
We already see indications of what this decline in subscriber growth, revenue growth, and capex means at the top of the wireless food chain, that is at the confluence of the carrier-handset vendor space. We think that Japan actually provides a good model of how carriers are going to approach and treat their vendors. Japanese carrier NTT DoCoMo (the granddaddy of mobile carriers) recently announced that its operating profits would rise by 20% in 2008 as a result of its new sales strategy of reducing handset subsidies it offers to retailers. The introduction of this new sales model among all three Japanese wireless carriers has reduced sales of mobile phones in Japan by about 20% while boosting carriers’ profits there. KDDI (Japan’s 2nd largest carrier) also saw a 19% increase in profits in the fourth quarter of 2008.
What do declining carrier subsidies for handsets mean for the rest of the ecosystem?
In one word: Everything!
The price of a mobile handset typically includes all of the bells and whistles consumers demand: the GPS, the LBS, the mobile VoIP, the NFC, the WiMax, the LTE, the camera, the MP3 player, the gaming applications, all of it and the technology and applications that support the mobile phone is subsidized by the carrier in most developed markets. When these subsidies are reduced, as has happened in Japan, not only do the sales of handsets decrease but also the entire value chain that produces the innovations embedded in handsets is put into a state of disarray. We are therefore going to see more carriers shelve their expansion plans both on their service offering and the infrastructure needed to make everything happen.
And guess what? As in Japan, carriers will see a boost in their short-term profitability as a result of undertaking these measures! Their shareholders and the markets will definitely be pleased about that. Their suppliers will not.
To reiterate, the ecosystem must be prepared for a deep chill in telecom spending by wireless carriers around the world.
Questions or comments about this column? Contact Nizar Assanie at nizar.assanie@iemarketresearch.com. Contact RCR Wireless at rcrwebhelp@crain.com. The opinions expressed in this article are the true opinions of the analyst(s) and IE Market Research Corp. (IEMR) about the firm(s) and/or industry appearing in this artice. Any “forward looking statements” are the best estimates and opinions of the analyst(s) and IEMR based upon information that is publicly available and that the analyst(s) and IEMR believe to be correct. There is no guarantee that forecasts appearing in this article will materialize.
Article updated Feb. 10
