Mobile Operators’ Strategies for Connected Devices

1Executive Summary

Though mature, cyclical and capital-intensive, the U.S. telecommunications sector is also undergoing constant technological innovation that affects both growth and renovation.

While the current climate favors major players Verizon and AT&T, diversified telecom companies across the spectrum are experiencing net line losses on an ongoing basis as more and more customers abandon traditional phone lines in favor of wireless devices. In fact, line losses are the single greatest threat to the domestic sector’s growth.

The U.S. telecom sector receives the second-lowest long-term terminal growth estimate from forecasters, with a mean estimated growth rate of 5.3 percent, narrowly beating out only that of utilities. Growth estimates in Western Europe are equally dire with a mean of 4.9 percent. Long-term growth forecasts average 1.7 percent for the BRIC countries, 4.7 percent for Asia-Pacific emerging markets and 7 percent for the Africa and Middle East region. In other words, for predicted long-run growth, thetelecom sector ranks last in the three critical emerging market geographic regions.

Consolidation is one strategy to overcoming the sector’s growth ceiling, but a focus on new, non-phone data-consuming technologies is perhaps more worthy of examination. Mobile voice is currently telecom companies’ bread-and-butter, but high penetration rates in developed markets are forcing a shift of focus to non-phone data consumption for new device categories, including tablets, e-readers and machine-to-machine (M2M) communications.

The rising importance of non-voice devices to the long-term success of wireless carriers has forced a reevaluation of how operators conduct business. The diversity of available devices and applications in varied segments is creating significant
opportunities and challenges. Carriers must adjust their strategies to move their business from standard high ARPU voice and data service on phones and smatphones to customized low ARPU data services on non-voice devices. While this change will be difficult, connecting a deluge of non-voice wireless devices to the network will provide a high volume business and new revenues. To drive profitability from this market, carriers must make careful decisions about what segments of the value chain to own and what to outsource. Operators that get the formula correct will gain a competitive advantage that will disrupt the current competitive environment.

The main focus of this report is on carriers’ strategies for these emerging devices. However, one can’t understand their importance for telecom companies without first comprehending the consolidation trend and growth obstacles faced by the sector. Below we outline the current global ecosystem for the mobile sector.

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