Mobile Industry Characterized by Episodes of Technology-led Disruption

The mobile industry has been characterized by technology-led disruptions such as the transition from analogue to digital and 2G to 3G. The rising importance of data services for growth and build out of fast data networks, discussion of new models for business and value capture, and the entry of new players with potentially disruptive and disintermediating services into the industry value chain represent another disruption. Leading operators appear to take this into account by combining cash flow and capex metrics. Monitoring of cash flow and capex requirements reduces the risk of shortfalls in investment capabilities and permits greater strategic flexibility during technology-led disruptions.

Profit Growth Still Revenue-led

In the majority of markets, the bulk of the operating income before depreciation and amortization (OIBDA) growth comes from revenues rather than expense management. “Voice is still important to revenue growth in Asia Pacific’s developing markets,” says the analyst of this research. “Connections, usage growth potential, and management of voice revenue growth or decline remain an important part of profitability management in all markets.”

Faster Data Networks Enable Revenue Growth

In mature markets such as Australia and the United States that invested early in higher-speed networks, data accounts for an average of 80 and 55 percent of the revenue growth, respectively. Japan and South Korea, with early investments in ‘thinner data’ networks, have shown lower data growth and contributions. Developing markets, where SMS accounts for most of the data, have seen high variance in data’s contributions to growth. “Data revenue growth rates are higher in markets that invested early in fast networks, with the United States showing close to a five-fold increase in revenues and Australia exhibiting more than 200 percent growth,” notes the analyst. “The percentage contribution of non-messaging data is high in these markets.”

Service Costs Increase Noticeably but are Manageable so Far

In leading markets, investments in faster data networks have compressed service margins due to rising capex, depreciation and amortization (D&A), network and selling general & administration (SG&A) charges. However, revenue growth has offset most of these issues and widened services margins. Higher traffic and traffic-driven costs appear manageable to date but realization of the most challenging scenarios such as the migration of fixed broadband usage to mobile cannot be completely discounted. The management of non-service equipment costs, subsidy and commission levels is also important for overall operator margins, particularly in the early phase of the device adoption cycle.

Pricing, new services, and management of investments in data networks to meet customer requirements, are key pivots for market leadership in the next cycle.

Technologies

The following technologies are covered in this research:

• Global system for mobile communications (GSM)/ General packet radio service (GPRS)/ Enhanced data-rates for global evolution (EDGE)


• Universal mobile telecommunications system (UMTS)/ High-speed parallel adder (HSPA)/Long-term evolution (LTE)


• Cellular

TABLE OF CONTENTS


1. Executive Summary
   1.1 Methodology

2. Mobile Service Profitability by Country
   2.1 OIBDA Margin Overview
   2.2 Service Revenues Overview
   2.3 Voice Revenues
   2.4 Data Revenues
   2.5 Expenses
   2.6 OIBDA Margin Analysis
   2.7 Capex
   2.8 OIBDA less Capex
   2.9 Operating Income

3. Lead Operators Mobile Service Profitability
   3.1 Margin Overview
   3.2 Service Revenues Overview
   3.3 Voice Revenues
   3.4 Data Revenues
   3.5 Expenses
   3.6 OIBDA Margin Analysis
   3.7 Capex
   3.8 OIBDA less Capex
   3.9 Operating Income

4. Data Service Profitability
   4.1 Data Profitability
   4.2 Data Costs
   4.3 Data Revenues