Friday, January 20, 2012

Will Mobile Revenues Fall Below Costs Between 2014 and 2016?

Though not every mobile service provider will face such issues, many mobile executives will be facing huge profitability challenges between now and 2016, according to Juniper Research, which forecasts that mobile service providers face potential capital investment and operating costs that actually exceed revenues by about 2014, Juniper Research says. 

Separately, analysts at Analysys Mason concluded that carriers in many regions around the world face the risk of an "end to profit" in 2015 if not before.

A study carried out by mobileSquared surveyed 31 global mobile operators and found that one third of operators already see traffic and revenue decline, while 75 percent of are worried about losing revenues to mobile application providers.

The research confirmed that over-the-top apps already are affecting traffic and revenues. Some 32 percent of respondents thought operator traffic from messaging, voice and video calling would decline between 11 percent and 20 percent over the next five to 10 years. About 20 percent of respondents estimated revenue would fall 31 percent to 40 percent over the next five to 10-year period. 

My own framework calls for a decline of as much as 50 percent in the legacy lines of service over 10 years, based on price trends in long distance. 

The problem, according to Juniper Research, is that profit margins are running between 15 percent and 20 percent, which means many service providers are at about break even.

By 2015, costs will exceed revenues slightly, and fall below capital and operating expense by about 2016.

Separately, analysts at Tellabs also predict that revenue could fall below costs "within four years."

The Analysys study assumes a continuation of current cost and revenue trends, especially the current pricing of bandwidth. The findings also suggest the immediate need mobile service providers have for changes in retail packaging and pricing to keep revenues above cost. 

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