The telecoms industry in the Asia-Pacific region will face considerable challenges in 2012 as overall growth in the mobile market slows down and competition for customers increases. As revenue growth slows, operators will be forced to improve efficiency and control costs within their businesses. They will need to do this in an environment driven by smart devices and fixed-service bundling.
While details vary from market to market, the overall picture is one of tightening margins. A key success factor for operators will be strong internal management to make operational changes that ensure continued profitability. Ovum believes that five major trends will drive the telecoms industry in Asia-Pacific in 2012.
The push for cost optimization and efficiency
Cost optimization will grow in importance as operators face increasing competition and margin pressures over the next 12 months. While early cost optimization initiatives will involve relatively simple measures such as passive network sharing and the outsourcing of non-core functions, more aggressive cost optimization strategies, such as backhaul sharing and access infrastructure sharing, will also begin to emerge. There is no single strategy that operators should adopt as different markets will require different approaches. However, organizing joint ventures with competitors will be challenging, especially in developed markets.
Opex reductions should be easier to realize than capex reductions, and opex reductions are expected to increase in 2012 through the outsourcing of network management, customer service, and other non-core business functions. Ovum expects outsourcing deals among emerging market operators to grow by approximately 50% in 2012.
The importance of customer service
Many operators are struggling to find sustainable, non-price advantages over their competitors. The current strategy is to stay ahead of the competition with a series of tactical moves including promotions, marketing, exclusive device relationships, better network coverage/reliability, and customer service.
As poor customer service is expensive to provide, good customer service benefits both operators and their customers. Many operators around the world are spending heavily to improve their customer service systems. This expenditure is encompassing areas such as 24/7 customer service and weekend fault repair calls. Some telcos are now also addressing customer problems over social networking services such as Twitter and Facebook. Customer service can be a significant differentiator for telcos, but any efforts must involve the entire organization and ultimately result in cultural change.
The future of smart devices and mobile app ecosystems
The continuing movement away from feature phones towards smartphones and tablets running “light” operating systems will continue to affect operator strategy. It will have a significant impact on network investment, service pricing, and will drive operators’ value-added service offerings. Application functionality and content will become increasingly reliant on the network and cloud services.
Consumers are no longer content to purchase a device based solely on hardware features and price. Successful devices will need to integrate applications, content, and services into the platform.
The emergence of cross-platform development based on web standards and/or proprietary Rich Internet application runtimes provides a potential route away from the current reliance on proprietary vendor-controlled app stores. The challenge for operators over the next two years lies in managing this transition, and using it to move up the value chain in delivering applications and content to users of smart devices on their networks.
Network data management is vitally important
With data traffic increasing exponentially, operators are being forced to implement a mix of technologies to alleviate network congestion. Advanced pricing schemes, such as quality of service and prioritization-based tariffs, have been hard for customers to understand and therefore difficult for operators to sell.
In some markets, operators have continued to embrace Wi-Fi offloading. While femtocells are gaining some traction in Asia-Pacific, the business case for them is very operator- and market-specific. Adding to operators’ dilemma is the debate surrounding picocell, macrocell, and microcell networks.
Operators will ultimately roll out a combination of solutions. We expect to see several more LTE networks launched, more extensive Wi-Fi offloading, and increased discussions of heterogeneous network solutions in Asia-Pacific in 2012.
A lack of sufficient backhaul will be a major component of capacity challenges in 2012. Mobile operators that have not already done so will look to move their backhaul to packet technologies (typically Ethernet) in conjunction with capacity upgrades.
Bundling for customer retention
Bundling strategies have begun to gain traction, and we expect this trend to accelerate in 2012. Telcos with bundling strategies maintain that the net outcome of bundling is revenue growth and reduced churn.
Ovum expects to see more bundling strategies emerge in 2012, particularly from second tier operators. There is also a significant bundling opportunity for mobile-only operators in countries where governments are deploying wholesale-only fiber NGA networks.
David Kennedy is the practice leader for Ovum’s Asia-Pacific research group
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