Why Do Tier One Service Providers Switch Course, Then Back Again, So Swiftly?

Back in April 2014, AT&T said it was going to create an in-flight LTE service to enable Internet access services for airline passengers. Now AT&T says it has abandoned plans for the in-flight Wi-Fi service, citing a need to focus use of capital.

In 2007, Vodafone got into the fixed line high speed access market in the United Kingdom. In 2012, it sold all those assets. Now, in 2014, Vodafone is planning to get back in to the fixed line broadband business.

BT was one of the first two mobile operators in the United Kingdom, but got out of the mobile business in 2002.  Now it is planning on getting back into the mobile business, on a niche basis, combining some new spectrum with potential access to Wi-Fi and other untethered spectrum anchored by BT’s fixed network.

Those course reversals might suggest either a highly-fluid strategic context or simply tactical decisions based on overall organization priorities at a point in time.

All the above likely applies in the case of the in-out decisions made by AT&T, BT and Vodafone.

In AT&T’s case, new investments require some hope of revenue scale. It never was clear that the airline Wi-Fi business would be too big, revenue-wise.

Now AT&T has a blockbuster acquisition of DirecTV under review, and also has made an independent move into the Mexican mobile market with its acquisition of Iusacell. Those moves promise a big needle-moving cash flow impact, in the case of DirecTV, and an important long-term growth opportunity, in the case of Iusacell.

Compared to that, the in-flight Wi-Fi opportunity might have been a distraction. To be sure, it is clear why offering in-flight Wi-Fi is significant for airlines. In fact, U.S. airlines make about $6 per passenger per flight profit, or about 2.4 percent net profit margin, according to the International Air and Transport Association.

Service revenue has been pegged at perhaps $1 billion to $2 billion in the relatively near term, globally. That is too small a market to be worth AT&T’s effort, some would argue.

The connected car market might generate four billion euros (about US$5 billion) in access revenue for mobile service providers, by about 2018, by way of comparison. Even that, some might say, is too small to drive significant revenues for any tier-one service provider.

The big carrot is the connected car services market, which, in 2018, would be perhaps 24 billion euros (about US$30 billion). Obviously, that is the bigger reason firms such as AT&T are active in the connected car market.

The in-out-in pattern of interest in either mobile or fixed assets and operations by BT and Vodafone likely have something to do with priorities at the time decisions were made to divest, as well as new thinking about how to grow core access revenues.

Many mobile service providers now see incorporation of fixed assets as a way to drive revenues up and operating costs down, while fixed network operators see expansion into mobile services as a way to escape the revenue-challenged and margin-challenged fixed network business.

But the relatively rapid shifts--selling assets and getting out of lines of business, only to reenter a few years later--suggests the unstable and challenging nature of the business. Strategy can shift rapidly, because the market itself can shift rapidly.

Risk, in other words, has grown, across the whole telecom business.
Post a Comment

Popular posts from this blog

Voice Usage and Texting Trends Headed in Opposite Directions

Who Are the Key Telco Competitors?

Jio is Succeeding at "Destroying" the India Mobile Market