02/11/10
Telco Conference UK version

London, 11 February 2010 – Mobile operators need to keep up with industry as it maximises benefits from phenomenal growth in smartphones according to new Booz & Company study.

London, 11 February 2010 – Mobile operators need to keep up with industry as it maximises benefits from phenomenal growth in smartphones according to new Booz & Company study.

  • Industry is already making the most of the phenomenal growth of the smartphone and the exploding market in apps
  • Apps market growing massively from currently 1.4 billion downloads to nearly 19 billion by 2014, generating EUR 17 billion in sales
  • Mobile operators need to meet requirements and face other significant challenges going forward.

A new Booz & Company study published on the eve of the Mobile World Congress (15-19 February) shows that mobile operators must innovate and radically improve service development in order to meet the challenges of soaring consumer demand and the convergence of mobile technology.

“It is not yet clear that mobile operators have the ability to capture sustainable value in this new paradigm,” says Michael Knott, Booz & Company partner.

According to the study,3G technology is expected to have 90% market penetration by 2013 in the developed markets of Europe. By 2014 smartphones are expected to make up 30% of all mobile devices along with 18.7 billion app downloads worth Euro 17 billion, a 25% p.a. growth rate.

Certain players – most notably Apple – are maximizing the benefits of the phenomenal growth of the smartphone and associated mobile applications. Machine-to-machine applications, such as smart metering, healthcare, telematics and commerce are also beginning to transform adjacent industries.

The key challenge for mobile operators going forward is to balance a number of emerging factors:

  • innovating and partnering in the areas of end-devices, new services/applications and relevant content
  • investing in new high capacity next generation IP-based mobile (and fixed/convergent networks)
  • dramatically improving costs structures as margins in the core business continue to decline.

The study clearly shows that in order to defend market share, the established providers need to score with customers by innovating in the areas of end-devices, new services and relevant content. The phenomenal success of the iPhone (and potentially iPad) has demonstrated the value of an intuitive user interface and host of applications – many of which people are willing to pay extra for. The challenge for operators is in defining the value-added role they can play in this new ecosystem and capturing some of the upside.

On the other hand, the dramatically increasing demand for video and data is forcing constant investment in network expansion.

“The need to invest in the telecoms sector for increased broadband capacity is on a par with the need to invest in infrastructure such as roads and railways 100 years ago,” adds Michael Knott.

Booz & Company takes the view that long-term the demand will be for at least 100 Mbit per second speeds, pushing the need to deploy LTE. This demand for ever increasing bandwidth is pushing the requirement for more extensive mobile and fixed network integration. A unified next generation IP-based network will ultimately allow for reduced network operating costs. However, in the short-term, investment requirements are on the increase unless infrastructure can be shared. As an example, it is estimated that LTE deployments alone will cost the industry EUR 20 billion globally through to 2014.

This is where the dilemma for traditional mobile operators becomes particularly apparent: while revenues are flat, and the need for investment remains constant, the profits are flowing to players in adjacent markets.

“The network operators are finding themselves in an ever more precarious situation. If they don’t want to lose more of their traditional territory, they have to invest now, and consistently, in innovations, content and new business models,” sums up Knott.