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Tellabs ‘death clock’ predicts end of profit for MNOs

Mobile operators could be set to reach ‘End of Profit’ in a little over two years, as the costs of building and running their networks exceed the revenues that they are generating, according to a forecast compiled by network solutions vendor Tellabs. North American carriers are most at risk, with the firm suggesting that net income for the region’s carriers could sink below outgoings as early as the first quarter of 2013.

The forecast modelled ‘typical’ operators for North America, Western Europe and developed Asia Pacific and, while based on the firm’s experience of working with “numerous tier one carriers globally” did not relate to any specific carriers, Tellabs said. In Asia Pacific the crossover point could come as soon as 3Q13, while Western European carriers are expected to resist the trend until 1Q14.

Traffic and the cost of provision were taken from Analysis Mason’s wireless traffic forecast for 2010, which posited a seven-fold traffic growth by 2015, for voice and data combined. The capex and opex costs and network design principles were drawn from Tellabs’ own modelling.

A number of other assumptions were made, including that the hypothetical carriers do not deviate from the flat-rate billing models that many are now renouncing as economically unworkable. It was also assumed that all carriers in all regions were offloading a considerable percentage of traffic to indoor, internet solutions, Tellabs said. “A gradual increase to 75 per cent offload by 2015 moves the point where revenues fall below total cost (capex and opex) to 2014 and beyond in  all regions of interest,” Tellabs said.

Timelines for ‘end of profit’ by region.

Region “High” (earlier) Median “low” (later)
North America Q1 2013 Q4 2013 Q2 2014
Dev. Asia Pacific Q3 2013 Q3 2014 Q1 2015
Western Europe Q1 2014 Q1 2015 Q2 2015

Source: Tellabs

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6 comments

  1. Lisa Clark 03/02/2011 @ 3:10 pm

    The expectations and priorities of the financial sector are important and directly related to the profitability and sustainability of telecom infrastructures. Simply, continual upgrades require major investments. In the current period of growth, mobile data traffic and subsequent requirements for network expansion have financial communities particularly attuned to CapEx ratios.

    While we’re beginning to see a growing number of carriers experiment with pricing/billing models to address the explosion of data traffic, we are also seeing a few on the leading edge of more profitable service chain models. Companies such as Ericsson, Cisco, Telenor and others are already saving millions in infrastructure costs through the creation of integrated Reuse Markets within the supply chain. These are visibility-enabled frameworks that facilitate the reuse of what they — and other like networks — already own to ensure QoS and address expansion. More than just a rounding error, the financial benefit directly impacts the bottom line and furthers sustainability goals. Without having an earnest look at the reverse logistics process, however, the goal in unachievable.

  2. Rose 03/02/2011 @ 3:35 pm

    I not very tech savvy, and so a lot of these articles tend to go over my head. My question here is how will this effect me as a prepaid wireless customer- I’m with Net10, and all I know is they are MVNO, meaning they don’t own their own networks, but lease from Verizon and AT&T. Would the implications of the MNO’s coming to the end of their profit line carry over to the MVNOs? And will that in turn make what’s presently one of the best deals for me, become a costly one? I am presently on a “flat-rate billing model”, as referred to here (well unlimited plan) and would this hypothetically mean they would have to look at tiered models too?
    Sorry for the ignorance, but worry about the implications to my tight budget.

  3. MarkP 03/02/2011 @ 4:53 pm

    Why report on this ridiculous piece of economic forecasting?

  4. underwun 03/02/2011 @ 11:54 pm

    Personally I see this as responsible journalism, the reality is the telco’s have strong financial managers and functional marketing that depend on tomorrow being the same as yesterday…they lack vision because they have focused on exploiting the consumer rather than investing in an understanding of tomorrow.

    For those of you that hold telco equities this article is giving you timelines and insight into diminishing value.

  5. MobileGuy 04/02/2011 @ 9:45 am

    This article is tough sell, especially when it is combined in the same email with another article reflecting growing revenues and profitability from Vodafone.

    http://www.telecoms.com/24398/data-usage-overtakes-messaging-at-vodafone/

    Demand and growth for voice minutes and SMS is still exists, so does its revenues. Data unlimited usage is going away slowly. Technologies are evolving.. wonder why the doomsday?

  6. Pal Zarandy 04/02/2011 @ 2:30 pm

    The analysis is based on the faulty assumption that the cost-structure of the networks remains the same.

    But in practice, most operators with capacity problems are swapping their legacy RAN, PS core and access transmission platforms to new generation gears (not necessarily LTE, but modern HSPA boxes), and negotiating fundamentally new software licensing mechanisms with their suppliers where variable CAPEX (and OPEX) are not linked to the traffic (in terms of throughput), but something that is a more aligned with the operators’ top line. E.g. number of customers.

    Check out http://insights.rewheel.fi for case studies of operators with 20-30x traffic increase and largely flat Capex to sales.

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