The future of the mobile industry

*Luigi Gambardella, President EUBrasil, Former Chairman Executive Board ETNO

With a view to the forthcoming Mobile World Congress in Barcellona, some reflections are needed around the main areas that should be at the center of action in the near future, if the mobile industry wants to continue to be innovative and generate growth. In my view, these are some points to reflect on: first, Understanding the interplay between technology evolution, regulation and mobile data. Secondly, shift the view/measurement of the mobile industry from static margin and price focus measures to more dynamic measures that reflect the long term economics of the industry such as investments and innovation. And, thirdly, address critical market structure issues the mobile industry faces to enable it to monetize booming demand for data.

Understanding the interplay between technology evolution, regulation and mobile data, particularly video, and the implications to the industry.

Mobile data is expected to grow between 20 to 100% per annum for the next 10 years or so. In the highest growth forecasts, the impact on capex will be substantial.  Much of this growth may be driven by video.  Some types of video traffic will be easier to monetize than others, e.g. movies/sports vs social media.  And increasingly, regulators are attempting to prevent any type of traffic discrimination on networks.  While their focus has generally been on fixed networks, the policies do not differentiate between access networks.  This demand explosion will significantly alter the economics of mobile networks over the next decade and will either put significant pressure on capex or on service quality.

In that context, 5G and subsequent technology evolutions will be important beyond the technical standards of the technology.  If traditional voice and data networks are overwhelmed with traffic but are unable to invest capex to maintain service levels, 5G may enable the emergence of “thinner” networks focused on niches such as M2M which, unburdened by coverage and regulatory obligations may be better able to deliver services

Developing an alternative set of metrics on industry performance to more accurately reflect the sector’s contribution

Metrics to evaluate industry’s performance has created a view of the industry that focused on price and margins.  This seems to be a static, and often outdated, view. While these dimensions are important and must be watched, there are areas for improvement on these dimensions in some countries. Too much focus on these variables misses much of the underlying economics of the industry.

The industry is facing multiple demands from governments and policy makers to continue to increase capacity, increase coverage and improve quality.  These require significant investments, and will need a long term, evolutionary, view of the sector.  But to shift the focus, the industry must support an alternative set of metrics to define a more dynamic view of the sector that reflects the industry’s long term economics.

The industry must shape a set of metrics that would support a more comprehensive view of sector performance.  This may be both an external set of KPIs (aimed at the general public, policy makers, regulators) and an internal one (aimed at standardizing some views of industry performance for operators).

Some examples of where changes may be needed are: measures of performance in saturated markets that go beyond  ARPU, which  has less relevance in hyper saturated markets. Then, clearer and sharper message on the long term economics of the industry and the dynamic nature of investments away from the current static focus on operating margin and pricing. Also, there should be the need for measures of concentration not just in telecoms but in supplier and complementary markets such equipment makers, device manufacturers and OTT and media players.  Finally, to be successful, these measures must not just be credible but also intuitive and clear to understand.  For example, it is easy to compare pricing across markets and the immediate consumer benefit of lower prices.  It is less clear to compare investment levels and long term benefits to consumers.

Addressing Critical Economic Issues around industry structure and data growth (particularly video and machine to machine)

Although growth has substantially slowed down, the sector’s financial performance has remained healthy and its keys markets have remained in the center of a significant boom in digital communications.  This means underlying demand for the services the sector delivers is strong. Monetizing that consumer demand is critical to ensure the long term sustainability of the sector.  This comes from two critical drivers: Defining a sustainable industry structure and Clarifying role of spectrum in driving industry structure and performance.

The focus should be on guaranteeing a sustainable long-term industry structure.  Defining the elements of a sustainable structure, articulating the benefits of such a structure, and the communicating the costs of deviating from those structures is critical to ensure the sector can support the growth in demand that is projected for the industry

As regards the role of spectrum in driving industry structure and performance, it is key to understand that spectrum’s influence on the industry appears to go beyond just providing additional radio capacity and limiting the number of players.  Large amounts of underused spectrum, accompanied by coverage obligations that ensure some operators will have excess capacity and “empty” networks may be playing a significant role in the downward evolution of prices in specific markets.

Finally, for what concerns the relationship with policy makers and regulators, it is very clear that mobile operators have significant reach to broad segments of the population, thus making them “easy” political targets. On this point, I think that there should be a much more concerted and clear message of the positive contribution of the mobile industry to growth, technological progress and investment.  This needs to include how the mobile industry interacts with other sectors and their own relative concentration.  It will require a shift in the view of governments and regulators towards a partner in economic development and should be supported by efforts to shift public opinion.