Future network operator profits are at serious risk

BOSTON, USA: A recently completed analysis by Strategy Analytics of global telecom operators indicates that continued investment in technology infrastructure alone is not likely to improve the declining revenues and profitability facing the industry.

Strategy Analytics' research on a sample of major network operators including Verizon, AT&T, NTT, Telefonica, China Telecom, Deutsche Telekom, France Telecom/Orange, and BT shows deteriorating financial performance since 2007 with total revenues flat and profitability in a declining trajectory. Convergence of broadband wireline and wireless businesses will further intensify revenue and profit pressures.

This deteriorating performance may even be exacerbated by their massive investment in fiber technology and advanced 4G LTE wireless technology as operators compete in a 'race to the bottom'.

The Strategy Analytics Wireless Operator Strategies (WOS) service report, "Improving Network Financial Performance- Transforming the Utility" examines the industry structure, microeconomic forces, and regulatory factors behind the over 50 percent decline in network operator profitability since the first half of the past decade.

Harvey Cohen, the author, and president of Strategy Analytics, said: "With historical roots as public utilities in most countries, network operators continue to behave as network-centric providers of commodity services whose return on assets is guaranteed. Their financial performance is typical of undifferentiated commodity producers facing intensifying competition in maturing markets."

Drawing on Strategy Analytics' work on wireless network cost and pricing forecasts, the report projects continued challenges to profitability even with ongoing investment.

Cohen continued: "To escape the commodity trap, network operators must become consumer-centric and focus on meeting specific functional needs as they compete for carefully targeted consumer segments.

"The ability to win the hearts, minds, and loyalties of specific consumer segments with innovative value propositions and meaningful brand differentiation will create significant new sources of profit and growth for those network operators who make this marketing transformation."

Through its new Consumer Insights Practice and Network Strategies Group, Strategy Analytics provides the process expertise and industry knowledge to explore strategic options for achieving this transformation.