2011 – The Year Ahead

Friday, 07 January 2011 12:39  |  James Barton

Developing Telecoms editor James Barton takes a look at what we can expect to see unfolding across the telecommunications industry over the coming year, including upcoming technologies, probable market trends, and potential developments in emerging markets.

Counting the Cost

Reducing costs will perhaps be the single greatest motivating factor across the telecoms industry in 2011, with network operators under massive pressure from shareholders to turn a profit. This is causing a seismic shift in long-held attitudes across the industry, and practices such as outsourcing and network sharing, once frowned upon, are now being rapidly adopted by many operators as a convenient means of cutting costs.

Building and owning a network, once considered essential in constructing a brand identity, is no longer profitable in the face of increasingly competitive prices; when the alternative to network-sharing is either buying out competitors or ceasing services entirely, it’s natural to conclude that this trend can only continue in a market obsessed with lowering costs.

‘Cost effective’ could perhaps be the key phrase of 2011 – and the days when it was cost effective for a single network operator to build out their own infrastructure to operate across could now be numbered. Share holder value will likely become a top priority for operators in 2011, so an industry-wide drive to minimise expenditure for the sake of profitability will likely lead to a trend of network consolidation.

Joint Operations

Already in 2010, major operators in developed countries – such as Tele2 and Telenor in Sweden, or T-Mobile and Orange in the UK – have begun network-sharing agreements. The telecoms sectors in many developing countries are highly crowded, a problem that is only compounded by limited or expensive spectrum and a rising demand for more sophisticated services, so it is highly likely that emerging markets will also witness network consolidation taking place.

Indeed, the trend of infrastructure consolidation really only builds on what was already happening in 2010 – increasingly, it is the only profitable course of action for large-scale operators. Consolidation will take place across the industry in 2011, with major operators and manufacturers acquiring smaller independent firms as a means of driving innovation.

Vendors for sale?

Speculation about potential mergers and acquisitions in 2011 inevitably gravitates towards the major Chinese manufacturers, which have thus far tended to avoid assimilating smaller firms. A move towards consolidation would certainly shake things up, and could even have political ramifications.

It is unlikely that major vendors such as Huawei and ZTE would be able to continue expanding exclusively through acquisitions across 2011 and 2012, but we will almost certainly witness a trend of larger companies tapping independent, smaller firms to develop innovative new products and services – a trend which has already begun in the West.

Firms such as Nokia Siemens Networks, Ericsson and Alcatel-Lucent have begun to focus more on developing their existing portfolios while buying in new, innovative products from smaller, independent technology companies. Typically, such firms have been backed by venture capital, and we are likely to see savvy investors reap the rewards from major industry players on the hunt for innovation.

Star Tech

In terms of defining technologies, LTE will be key in 2011, overhauling attitudes towards ‘always-on’ internet connections and forcing broadband providers to rethink their pricing strategies. As more and more countries launch LTE services, the increased competition will drastically devalue DSL services.

Meanwhile, mobile operators and other service providers will upgrade their offerings from single and dual play services to triple and quadruple play, further increasing competition and lowering broadband prices, possibly to the point that providers begin offering premium products and services (such as VoIP and IPTV) to supplement free (or extremely inexpensive) mobile broadband subscriptions.

Initially, LTE will fall under this category, but as awareness rises and the new technology becomes ubiquitous, subscribers will become increasingly unwilling to accept high fees for the service. Similarly, customers are likely to vote with their wallets if they feel that ‘standard’ functionality such as streaming services are removed from their mobile broadband packages in order to be ‘resold’ at a premium – and dwindling mobile broadband subscription fees may well put them at liberty to do so.

There is also likely to be a major paradigm shift in perceptions of VAS, which many currently consider the exclusive preserve of smartphone users. The explosion of VAS across emerging markets proves that this is not true; handset-agnostic services are providing operators with a much sought-after way of distinguishing themselves from their rivals in highly competitive markets such as India.

The lack of smartphone penetration in emerging markets has not affected demand for services such as mobile email and mobile banking. As mobile phone penetration increases further, it will make better economic sense for VAS providers to develop services with multiple handset functionality, targeted at emerging markets.

Emerging market operators take centre stage

In terms of market activity, it comes as no surprise that the majority of major developments in 2010 took place in emerging markets, and this trend is set to continue into 2011.

The past year saw major players from the developed world selling their stake in firms from emerging markets – for example, Vodafone relinquished its shares in China Mobile. However, as Western firms pulled out, more and more deals affecting emerging markets were made by players from developing countries.

The Indian operator Bharti Airtel purchased Zain’s African operations in their entirety, and the region has attracted several other major operators, with the South African MTN making significant inroads across the continent and Russia’s VimpelCom attempting to purchase Egypt’s Orascom.

Taking into account the burgeoning economies of many emerging markets – particularly India, China and Russia – operators from developing countries are highly likely to increase their activity over the next year, although potential managerial shortcomings as well as pressure from governments and regulators could prove problematic.

So in conclusion...

The importance of emerging markets in the telecommunications industry will continue to grow throughout 2011. As network operators seek to keep costs down and competition explodes in the services sector, markets with lower penetration rates will have the greatest revenue potential – and the operators in these markets know it. With new technology expanding across the world and traditional pricing models becoming obsolete, it will likely be newer, dynamic operators in emerging markets who lead the way in innovative approaches to meeting their market’s requirements.

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