Asia Pacific mobile market to face challenging times

Operators need to develop new business models, prudent manage capital investment, and enrich customer experience.

Asia-Pacific is the fastest growing mobile market in the world with connections more than double that of any other market. However, according to Ernst & Young’s recently released report, Serving the next billion: the promises and challenges of the Asia-Pacific telecoms market, Asia Pacific’s telecoms operators are facing numerous challenges.

The study, involving in-depth interviews with senior executives from 18 industry leading companies across Asia, found that, to be successful, operators will need to tackle falling investor confidence, multiple inhibitors to broadband growth, spectrum constraints, disruptive technologies and backhaul bottlenecks. In this increasingly challenging environment, operators will have to embrace transformation to survive: including developing new business models, rationalizing heavy capital investments; and enriching the customer experience.

Develop new business models
According to the study, to sustain competitiveness and growth in a highly cost-sensitive marker, operators will need new, more cost effective business models. As technology companies and internet players create new business models that encroach on operator territory, existing business models offer little ground for sustainable profitability, and telecoms operators urgently need to transform. Vincent de La Bachelerie, Global Telecommunications Leader at Ernst & Young, says operators need to create more value for users, instead of merely providing connectivity.

“The next wave of business model changes will be driven by technology convergence, strategic partnerships and cloud computing opportunities. Whether they decide to reap the potential of the spike of data traffic by becoming a service-oriented company or a pipe provider, operators need to create their own business models.”

The report revealed that new models are likely to include platform rationalization, network outsourcing and infrastructure sharing, requiring strategic partnerships along the value chain.

Rationalize capital investment
The study showed that with efficiency being the key to creating a sustainable business model, operators will need to manage capital investment carefully.

Jonathan Dharmapalan, Global Deputy Telecommunications Leader at Ernst & Young, says that, “Investment in backhaul upgrades or moving to LTE is expensive and complex. The near-term business case will depend on potential efficiency gains. Operators need to develop a clear technology strategy that allows them to keep pace with capacity demands but does not duplicate infrastructure with overlapping technologies.”

Enhance customer intimacy
The study found that additional value from new customers is decreasing as a result of falling prices and aggressive subsidies.

“In this environment, operators must shift their focus from simply acquiring new customers to monetizing subscriber growth through enhanced efficiency and introducing new services,” says Steve Lo, Leader of the Global Telecommunications Center - Beijing.

According to the study operators have an important opportunity to innovate the user experience with localized services and personalization to develop long-term loyalty. However, in terms of building non-traditional services, operators face high barriers to entry, such as the cost of content, fragmented operating systems and competitive platforms.

Market consolidation forecast
The study predicts subscriber growth will slow over the next 12 months, while data will traffic explode, requiring increased investment. The resulting need for scale and the continued drive for lower costs are likely to lead to a new wave of M&A activity.  Eventually, the market will consist of a smaller number of large service providers, including those in emerging markets.