These are not easy times for mobile network operators. Margins have been squeezed by increased competition (particularly from ‘free’ internet-based options), revenues from voice and SMS are on the decrease and capital costs seem set to explode in many countries as operators and regulators move towards 4G LTE.
Not surprisingly, most mobile operators are now keenly focused on reducing both capital and operational costs. And while some continue to make good progress eking out savings through traditional organizational cost reductions and restructuring, others are taking the opportunity to fundamentally rethink the way they develop and manage their mobile networks.
Based on recent events and announcements in Europe, it seems that the sector is in the midst of breaking into three distinct business models:
Although the sharing option can be regarded as an alternative to outsourcing, often it is better considered as an intermediate step in a process of continuous improvement. After the sharing partners have merged their operations and have reaped efficiency gains themselves (by streamlining operations and existing contracts), the option for outsourcing is still open.
Already, we are seeing promising signs that these new models are delivering value and cost savings for mobile operators. For some, sharing is also done in other areas such as procurement, with Deutsche Telekom and France Telecom-Orange’s as a good example. Their shared procurement joint venture (BUYIN), aims to deliver cost benefits by pooling purchasing activity in handsets, mobile communications kits and large parts of their fixed network and service platforms.
As with any business model transformation, the move towards shared assets and processes will have significant implications for operators. Consideration must be given to the operational impacts (ensuring that network quality remains high), commercial effects (maintaining focus on customer needs), organizational change requirements (such as the restructuring of business units), as well as regulatory aspects.
But while the transformation to new models will undoubtedly be difficult for many operators – sacred cows will need to be closely evaluated and hard decisions will need to be made – it is clear that network sharing is already delivering significant cost savings and competitive advantages for operators around the world.
By Bart Bastiaans and Lars van Zomeren, KPMG in the Netherlands