Cellcos Could Double Return On Cash With Smart Services

Tellabs report says change in business model, not just network design, is needed to get operators out of the utility category.

There is still a chance for mobile operators to avoid becoming dumb pipes, and to double their cash returns by making their networks more intelligent - or better still, run 'smart services' themselves.

This is the conclusion of a report by STL, commissioned by backhaul and router vendor Tellabs, which is trying to expand its own business by pushing intelligence throughout the network. Such an approach, the firm says, can lead to a series of benefits, some short term - such as better return on network investment - and some less immediate, but with a bigger impact on long term profitability, and return on cash. The latter will depend on turning their systems into networks that easily support smart services, whether their own or partners' - such as differentiated pricing, open APIs and personalization.

Focal Points:

• The survey of operators carried out by STL indicated that carriers recognize the need to develop a smart services strategy, but that they believe the most strategic decisions will also be the most difficult to implement. Even cellcos, which are seen as being frontrunners in shifting from access to services, such as Telefonica with its new digital unit and its BlueVia APIs program, are not yet seeing the return in terms of ARPU or profits.
• Returns on invested capital for mobile operators today are typically 5.8%, in line with utility firms, says Tellabs, and some carriers and analysts believe that the utility model will, indeed, be the right one to follow in future. But most cellcos are grappling with the challenge of adding value to their model and their place in the commercial chain. The report claims that they could more than double cash returns, to 13.3%, by delivering smart services.
• "In the face of stagnant share prices, investors now demand higher dividend yields, limiting mobile operators' ability to fund growth," commented Tellabs' CTO Vikram Saksena. "It is vital that operators increase return on invested capital to boost their stock performance. The Tellabs-STL report demonstrates the real value that mobile operators could return with a strategy that focuses on leveraging smart networks to deliver smart services."
• The full increase, to 13.3%, however requires a multifaceted approach. Simply deploying smart networks will, on average, boost cash returns by 1.6% to 7.4%, calculates STL. These changes would typically include combinations of efficient network planning, device management, data offload, RAN sharing and modern traffic shaping or content delivery systems.
• However, delivering smart services over these new-look networks could increase returns by a further 5.9%, from 7.4% to 13.3%, says the report. The essential services would include personalized offerings leveraging the carrier's customer data; harnessing of operator assets like location, presence, payments, identity and authentication; and differentiated charging for users and upstream partners.

Editor’s Note: This article continues with the idea that new business models will change the ROI picture for many service providers. Ultimately, it will become all about services and features rather than infrastructure.