Mobile operators are missing a clear opportunity to double cash returns by following current network strategies claims a report commissioned by Tellabs and undertaken by STL Partners.
Cash returns on invested capital for mobile operators today are typically 5.8%, in line with utility company stocks. The report concludes that mobile operators can more than double cash returns to 13.3% by delivering smart services.
The research during Q2 and Q3 2011 is based on an analysis of strategies and cost modelling of major mobile operators from North America, Western Europe and Asia Pacific.
"In the face of stagnant share prices, investors now demand higher dividend yields, limiting mobile operators' ability to fund growth," said Dr. Vikram Saksena, Tellabs CTO. "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."
Mobile operator stocks in need of a boost
While mobile network operator stocks demonstrated incredible growth over the last 10 to 20 years, now that growth has slowed or stopped. Operator stocks have become "utility" stocks, causing investors to demand higher dividend returns, in turn reducing stock value and limiting funds available for new investment.
In order to boost performance, operators need to move from current practices -- such as relatively dumb networks and one-sided business models -- to full service offerings with smart services enabled by smart networks. This transformation requires infrastructure changes to increase the awareness and intelligence of networks, as well as leveraging these new capabilities to develop smart services.
The report finds that smart networks can increase mobile network operator cash returns on investment by 1.6%, from 5.8% to 7.4%. Delivering smart services over these upgraded networks requires the implementation of new business models, and smart services have the ability to increase returns by a further 5.9%, from 7.4% to 13.3%.
"Make no mistake, these are not easy moves for mobile operators to make," said Chris Barraclough, Managing Director of STL Partners and author of the report. "There is a great deal of work that needs to be done to move towards smart services, including many business models, technological and cultural shifts. If operators can successfully implement a 'Telco 2.0' smart services strategy, they can really boost financial performance. But the analysis in the report reveals that many in the industry feel such a full-service offering is beyond most operators," concludes Barraclough.
In February 2011, a Tellabs study demonstrated that mobile operators around the world face the "end of profit" as the costs of supporting the mobile data boom are on a trajectory to exceed associated revenues -- unless mobile operators change their business strategies. The new Tellabs-STL research adds further pressure to the argument that mobile operators face a stark choice: either a profitable smart mobile internet or profitless dumb mobile internet.
