Why change — and why now?
The changes impacting the industry are pervasive and profound, and they occur in several dimensions. Operators’ profitability remains under significant pressure, driven by rising customer sophistication and demand, ongoing price pressures — exacerbated by intensifying competition from over-the-top (OTT) providers — and regulatory pressures on core service areas.
And as traditional markets become saturated, the business case for investment by operators is no longer driven by net additions and rising penetration. Many markets are now hyper-penetrated, while churn remains low despite intense pricing pressure. Yet long-term capex requirements remain high. And future growth opportunities increasingly involve new types of customers, connectivity, use cases and profitability profiles — with even the traditional definitions of “customer” or “user” coming under scrutiny.
Change is also under way on the investor side as shareholders and analysts increasingly look for new sector growth stories in the wake of infrastructure upgrades. Meanwhile, operators themselves are squaring up to the challenge of improving their business intelligence capabilities as a catalyst for better decision-making. This in turn requires a more robust set of internal metrics that capitalizes on the wealth of product and customer data they have at their disposal.
New metrics for a new environment
These combined fundamental shifts mean that new metrics are needed to measure the industry’s health and performance. Robust and relevant operational and financial metrics are critical to support informed decision-making across the industry, maintain the credibility and relevance of operators’ reporting and forecasts, and sustain investors’ confidence.
If the metrics used by the industry are to continue to play these roles, it is vital that they keep pace with changing market conditions, business models and service offerings. It is also important to maintain global consistency in these new and evolving metrics as operators widen their service propositions and as investors and regulators demand new insights into addressable markets and end users.
Strong industry growth fuels capex concerns
The global telecoms sector is outpacing the market’s previous assumptions on its growth rate because of soaring usage of data services. Yet concerns persist over the costs required to support this exploding demand for data.
The current wave of growth in mobile data services and traffic is driving connections and handset penetration ever higher. As the long tail of emerging market users gets connected, the number of mobile connections is projected to surpass the global human population in 2014 (see Figure 1). Demand for data is being further increased by trends such as consumers aggregating devices and embedded SIM and machine-to-machine (M2M) offerings.
At the same time, global smartphone shipments are continuing to ramp up impressively (see Figure 2). However, minutes of use (MoU) is flattening in some markets as consumers’ usage shifts toward data and away from traditional services such as voice, despite a rising proportion of packages offering unlimited minutes and text messages.
An uncertain outlook …
In combination, these trends are projected to see the proportion of global mobile revenues derived from data services rise from 29% in 2010 to 48% in 2017, reflecting a fundamental shift in product and revenue mix.
Investors’ view of the telecoms sector remains fundamentally ambivalent, reflecting uncertainty over the trade-off between the costs and value of new growth areas. A further factor is the difficulty of assessing operators’ future capex commitments as mobile traffic growth outpaces mobile data revenue growth.
… threatens the sector’s defensive qualities
This uncertainty means the capex guidance for many operators remains conservative, despite the strongly rising demand for mobile data. A subdued perception of growth potential, coupled with macroeconomic pressures, has seen telecoms stocks characterized as a defensive play offering strong cash flows. Yet even this view of the industry is now under pressure in the wake of dividend cuts announced by leading players.
A comparison of major telcos’ share performance over the past five years highlights defensive qualities giving way to underperformance in 2012 (see Figure 4). Overall, the industry’s performance has been resilient but unexciting over this period — and it is clear that ongoing macroeconomic and structural pressures remain.
Find the entire study in English in the attached pdf document
