Competitive pressure in the global wireless telecommunications industry is increasing, with disruptive competitors emerging from adjacent markets and increasing “price wars” among operators. For telecom operators, this means stagnating profitability along with serious questions about new paths for growth, according to a recent report published by Strategy&, PwC’s strategy consulting business.
Wireless markets around the globe are at varying stages of commoditization, and nearly all have become more commoditized over the last 10 years. The average revenue per user (ARPU) is declining, with the majority of markets tracked in Strategy&’s research moving toward more uniform ARPUs and evenly distributed market shares. Those are important signs of a market approaching competitive equilibrium.
In a new paper from Strategy&, “An Industry at Risk: Commoditization in the wireless telecom industry,” it is suggested that as a rule, virtually every market is moving towards a state of equilibrium. “Lack of differentiation in terms of network coverage and quality have forced operators to compete on price,” says Florian Groene, an advisor to communications, media, and high-technology companies with Strategy&, PwC’s strategy consulting business, principal with PwC US.
Other key findings include:
- All primary geographical regions have trended towards commoditization during the past decade.
- Of 59 major regional markets analysed across the primary geographical regions, 55 or 93% are already commoditized or on the edge of commoditization
- From 2006 to 2016, the global population-weighted average ARPU in these markets fell by 35%, or 4% annually. In Europe and Latin America, annual decline has been as high as 6%.
- Majority of these markets also saw a reduction in market share spread within the same period, in some cases as high as 11-13%, as observed in France and Germany.
- Among the primary geographical regions, Eastern Europe and the Middle East saw the most commoditization – with over 75% of major markets commoditized. With over 40% of its major markets still ‘comfortable,’ Latin America is the least commoditized region
While it’s understood that the current trends point toward commoditization as a high risk for wireless operators, particularly in the scope of cost of capital and network upgrades, Strategy& identifies two distinct strategies to avoid this fate:
- Cut costs strategically. Most operators need to go beyond the characteristic cost-cutting measures, which might mean challenging the foundations of the business itself by fundamentally reconfiguring their internal and external value chains, rebuilding the capability systems, and rethinking how they deliver services. This Fit for Growth* strategy should enable operators to improve short-term margins and provide for reinvestment capabilities.
- Differentiate for growth. Wireless providers must re-evaluate their current strategic assets and address how new, innovative technologies might enable them to differentiate capabilities, such as 5G, network function virtualization, and services for the smart home and connected driving.
“The effects of commoditization and inevitable evolution of the mobile services and telecommunications market will be profound,” Groene says. “However, network service providers might be able to slow down or perhaps reverse the process if they are willing to take deliberate and strategic steps to differentiate themselves from their competitors. Additionally, strategic scenario analysis is an important discipline that can help operators avoid the pitfalls of linear planning and thinking.”
Ironically, the telecom industry has become a victim of its own success. Only by choosing a strategy that plays to the strengths and distinct capabilities of the operators can they hope to grow in this shifting landscape.
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