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1. Carrier margins will decline over the course of the year, most notably on the fixed side
We expect fixed carriers to see reduced EBITDA margins in 2006, largely as a result of the continued decline in their mainstay voice revenues, and the increased influence of alternative carriers offering VoIP, or online VoIP players such as Skype and Yahoo!. While revenues from new services (IPTV, fixed-mobile convergent applications) will continue to expand, we do not expect them to grow fast enough –in 2006- to make up for the sharp decline in voice revenues. Nevertheless, we remain bullish on new services and believe the blip will be temporary; we see 2006 as the down year that precedes a strong rebound in the net contribution of new services to carrier profitability, as IMS applications become popular and telcos become a stronger presence in the video segment.
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2. The world’s mobile subscriber base will pass the 2.5bn subscriber mark; the interesting fact is how it will get there
The number of global mobile subscriptions hit 2.3bn in 2005; by the end of 2006, we expect that figure to be closer to the 2.6bn-2.7bn range. Beyond where this growth will come from (Asia will add close to 1bn new users, Africa/Middle East will add three times as many subscribers as Western Europe), 2006 will be particularly important for how carriers will drive this expansion. Mobile operators are now looking for wealth at the bottom of the population pyramid; to get there, they’ll have to show tremendous innovation, offer low-cost handsets, and tweak networks and models to remain profitable while generating monthly ARPUs lower than $5. Beyond the Vodafones, Verizons and Oranges, 2006 will be defined by the strategic moves of players such as India’s Bharti, Pakistan’s Mobilink and Paktel, or Nigeria’s Globacom.
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3. The first commercial launches of seamless WLAN – cellular services will take place in the second half of 2006
The launch of the mid-tier dual mode WiFi-Cellular handsets by the largest handset manufacturers, such as Nokia, Motorola, LG and Samsung, will bring UMA and voice over WLAN services to the consumer market. Several high-end handsets are already available commercially, but it is the expansion of the portfolio to about 25 mass market-priced models in mid-2006 that will become a major driver of service adoption. Convergent operators, who currently trial UMA, will launch broadband and UMA service bundles. MVNOs will jump on that bandwagon as well, with players such as the US’s SK – Earthlink combining cellular and WLAN hot spot access, and potentially kicking off a new cycle in the mobile voice price wars.
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View details of Pyramid Research's new report WLAN-Cellular Convergence: The Carrier Business Case for WLAN, UMA and VoWLAN
4. Operator M&A will continue
The drivers are multiple; healthier balance sheets, market consolidation, the lure of emerging markets, convergence, and the burgeoning financial power of private equity firms. Mergers and acquisitions were unquestionably back in the telecoms markets worldwide in 2005; we expect that 2006 will yield more M&A activity mostly centered around European and Asia Pacific operators. In Europe, we are keeping an eye on Bouygues, Belgacom, Swisscom, Eircom, Fastweb, Cable & Wireless, TDC, Elisa, Telindus and Kingston in 2006, as they look increasingly vulnerable. There are also a number of opportunities in Central and Eastern European mobile markets, where subscriber growth is expected to be strong. In the US, the potential of a merger between Bellsouth and AT&T (formerly SBC) appears intriguing, though there are regulatory concerns.
In Asia Pacific, we’re keeping an eye on operators with regional aspirations like Singtel and Hutchison, those with an interest in growth markets, such as SK Telecom and Telekom Malaysia, and non-Asian operators such as Vodafone and Telenor. The battleground will expand from the two giants of the region, India and China, to the other high-growth emerging markets, including Indonesia, Vietnam, Bangladesh, Pakistan and Thailand.
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5. 2006 will be a watershed year for managed services deals in the telecoms industry
Alcatel’s recently opened network operations center (NOC) in Hong Kong, focused on supporting Hutchison Global Communications; this was planned to be operational in September 2005. Ericsson’s new NOC in Singapore, opened January 2005; in October 2005 Ericsson also decided to convert their NOC in Gurgaon, India to a regional NOC. Nokia’s announcement in December 2005 that they would open a global NOC in Chennai, India in early 2006.
These new NOCs will be used to provide network operation, management, integration, and support services to operators through multi-year managed services agreements. It is notable that all of these NOCs are in Asia Pacific, which has been at the forefront of the managed services market for years – think Hutchison Australia, Telecom New Zealand, AAPT, Bharti, and Maxis, among others. We expect to see more deals focused on the rollout, operation, and support of 3G and advanced data services, especially in Asia Pacific.
Which operators will take the step towards managed services? Typically operators that are ‘attackers’ in their markets – eg, the second or third mobile operators – are most open to outsourcing the network operations and management, as their survival depends more heavily on successfully acquiring, retaining, and monetizing their subscriber base.
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6. The multiplication of distribution platforms will continue to challenge the concept of content exclusivity
In the not too distant past, ‘exclusive’ meant that network operators had unique agreements with content providers to deliver content to their subscribers, and theirs alone. Content providers, in return, were grateful to be granted access to subscribers as a new addressable audience for products and promotions. That was then.
Subscribers are quickly coming to realize that there is a plethora of free mobile content available via the Internet. What’s more, much previously ‘exclusive’ content can be reached this way. With network operators no longer controlling the channel, the upper hand has shifted to content providers who are in a position to broker exclusive arrangements to the highest bidder. This ‘exclusive’ arrangement is unlikely to be complete brand loyalty, unless the carrier happens to own the brand. What this is more likely to entail is some selectively ‘exclusive’ deliverables such as unique ringtones, music clips or videos made available by the content provider for a short period of time. ‘Exclusive’ isn’t dead, but its definition has certainly been diluted.
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7. The US mobile market will NOT witness significant change of ownership; T-Mobile and Alltel are here to stay
Unlike 2005, which was highlighted by the consummation of Cingular’s acquisition of AT&T Wireless, Sprint PCS’ merger with Nextel, and Alltel’s acquisition of Western Wireless, 2006 will not witness any significant change of ownership stake within the mobile operator community in the US. Although rumors are ripe about Deutsche Telecom offloading its stake in T-Mobile USA and Alltel spinning off its wireline division to appear as an attractive candidate for a wireless buyout, both these operators will continue to exist beyond December 2006. T-Mobile will acquire additional spectrum in the next FCC auction slated for June 2006 to launch UMTS in the US, while Alltel will continue to acquire smaller rural regional players to strengthen its position as the largest non-national operator in the US.
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8. A flurry of enterprise-focused MVNOs (EMVNO) will enter developed mobile markets
While 2005’s MVNO activity was centered on private labels and their MVNO aspirations for various consumer segments, 2006 will see announcements from business-oriented companies looking to become EMVNOs to utilize networks based on W-CDMA/HSDPA and CDMA 1xEV-DO and bring solutions to various segments of the business customer market. The increasing capabilities of the mobile networks in mature mobile markets will be the primary enabler for such companies to mobilize their services and tap into different segments in the business market with innovative data applications and products. Likely candidates include financial institutions and IT firms.
While business customers represent a valuable market segment for network operators, they will be encouraged to work with EMVNOs to maximize their return on network investment and diversify their services to reach untapped business opportunities.
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9. The triple bundle of broadband, video and wireless voice will be more successful than traditional triple play and, even, quadruple play
With IPTV on the horizon, both telcos and cable companies are already talking about quadruple play. We are doubtful of the prospects of quadruple play in 2006; the “voice” component of today’s service bundles remains costly and customers are increasingly cutting the cord to switch to wireless services only. Traditional wireline triple play will continue to pick up, but we foresee a more successful triple play bundle to emerge over the course of the year, driven largely by operators incorporating wireless services to their service portfolios. This triple play bundle will include broadband, video and wireless services. The discounted pricing for such a bundle will prove more compelling than the bundle that includes fixed voice or VoIP.
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10. Fixed WiMAX (802.16d) deployments will not begin before the end of 2006 unlike last year’s expectations of commercial deployment in early 2006
The certified WiMAX equipment was expected to hit the market early in 2006. However, the first round of testing is yet to be completed and another round will take place some time by mid-2006 with more participants. We now anticipate that commercial certified WiMAX equipment will not be available before the end of 2006, which means that we will not see a meaningful adoption of WiMAX services in 2006. There remains a significant level of interest in WiMAX and WiMAX licenses are being awarded across the world. We believe that the delays in the introduction of standardized WiMAX equipment will provide a window of opportunity for pre-WiMAX solutions.
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