Where to from here?

By Candice Jones for Gartner
Johannesburg, 06 Aug 2009

Telecommunications operators are struggling to find a new growth future beyond subscribers.

Aside from subscriber growth in voice and data, telecoms operators globally are not sure what they want to be, says Nick Jones, VP at Gartner Research. He adds this lack of identity also affects the local telecoms companies.

“Some are trying to become service providers, but it will take some work if they are intending to compete effectively in that space,” adds Jones. Across the world, telecoms providers are facing declining margins, which Jones says is becoming more pronounced.

SA's telecoms boom has not protected operators from the downward slope. MTN's financial results for the year ended 31 December 2008 saw the group under pressure, with EBITDA margins at 42.1%, down from the previous year's 43.5%, despite good subscriber growth.

Telkom is also in a problematic situation, having lost its income from Vodacom after the latter's sale to Vodafone. The company is bleeding fixed-line subscribers and margins are also taking a beating. Vodacom has not yet released its results since the transaction.

SA's massive mobile penetration is unprecedented, with the country clearing the 100% mark in the third quarter of last year. Gartner research shows that for every single fixed-line connection in SA, there are nine mobile connections.

While some operators globally have been considering getting into content provision, Jones says companies like Google and Apple have taken up that game. “Services are unlikely to be fought by the operators. The challenge now will be for them to become bit pipes, simply transporters.”

Bare bones

However, principal Gartner research analyst Will Hahn explains that the operators' choice for their future may well be taken from them, specifically in a case like Telkom.

He says there is a real chance that operators will no longer serve the consumer market, but will have to move back into simply being an infrastructure provider. He calls this the utility model, which he admits not many operators will be interested in.

Hahn's research shows that, over the last year, not one of the top 10 global telecoms companies can prove any significant growth. “Retail does represent a big chunk of the carriers' revenue, but their real margins are more visible in the wholesale and network operations segments.”

He admits there are aspects of the utility model that are not attractive for the traditional telco. “Operators would lose their retail presence. If carriers have to go down this path it will be kicking and screaming.”

However, for companies which are not growing, the utility model could be unavoidable for some. Hahn explains that many of the telecoms providers are trying different opportunities, but there is a real chance those options could fail.

Gartner says it remains to be seen whether the telecoms providers will have to move in this direction, since there is still a chance that alternative strategies will pay off.