Adoption of mobile data in Asia will require restructuring the industry’s poor and declining economics.
Throughout Asia, many markets are saddled with too many competitors investing furiously to meet pent-up customer demand. Collectively, this level of investment is not economically justifiable. Moreover, the ownership structure of many Asian operators, which are linked to competitive local conglomerates, has hindered efforts to work together. For example, the continued delay of short message service (SMS) interconnection among the six operators in Hong Kong likely reflects the industry’s defensiveness.
This situation may soon have to change. Across the mobile industry globally, two distinct archetypes of operators are emerging. The first includes a small number of operators that have developed significant scale either through breadth of footprint (Vodafone) or success in a large home market (NTT DoCoMo and China Mobile). These operators have sufficient size to set standards and to amortize the substantial development costs associated with mobile data across a large user base.
Most Asian operators, however, fit the second archetype: They serve small, local markets and lack comparable scale, even if they are the major player in the home market. The complexity associated with mobile data increases exponentially, and development costs will be difficult to justify for any of these operators alone. This group may have no option but to embrace “co-opetition” to create, rather than destroy, value.
The worldwide airline industry provides a useful analogy for co-opetition. Airlines have developed shared resources to perform activities either not core to their businesses or not economically viable to develop on their own. They share common reservation systems and contract with independent providers for baggage handling, catering and customer service.
For mobile-data operators in Asia, the lesson is that unbundling activities and developing alliances would simulate the advantages enjoyed by large-scale operators. Candidate activities include co-development of mobile-data applications and platforms, outsourcing non-core functions to specialized providers, sharing facilities or consolidating networks, and creating independent companies that build and operate networks.
Airlines have also accepted and exploited a high degree of operational complexity that will become increasingly important in mobile data. The more profitable airlines understand how different economics apply to different routes, based not just on a customer’s spending but on the subtle ways profit margins are affected. For example, an airline might tailor the service of a particular international route according its competitor’s service level from the destination country.
Likewise, operators should finely segment their offerings, optimize prices and engineer margins according to rigorous analysis of customer behavior and clear insights into where the company can and cannot make money. Price will remain an important lever, but not the only one. Too much attention on price cutting will lead to value destruction, and ultimately, a downward spiral for the industry.
Operators must acquire a deep understanding of the economics of mobile data and determine what fundamental shifts in their business design will be required. Otherwise, mobile data will be slow to take off in Asia, and many operators may find themselves sinking into a no-profit zone.
Su-Yen Wong is vice president of Mercer Management Consulting based in Hong Kong. She can be contacted at su-yen.wong@ mercermc.com.
