One path--consolidation--lies ahead for most telcos in Asia, according to J.P. Morgan, and possibly for most telcos globally, according to Nokia Bell Labs. The big problems are slowing rates of growth in virtually all regions, including the former fast-growing regions of Asia and Central and South America.
According to STL Partners, looking at 68 telcos for which there is data available, growth rates have been slowing since 2011.
In Asian markets, mobile service providers are facing profit margin pressures, higher operating costs and higher capital investment requirements. Revenue growth now is less than the rate of gross domestic product growth, notes James Sullivan, J.P. Morgan managing director and head, “Asia except Japan” research.
Among the other problems is that as the number of customers buying mobile internet access increases, the ability to cannibalize voice simultaneously increases. Also, rapid increases in data usage mean additional capital investment, typically without the ability to increase revenues roughly linearly with usage growth.
Of course, many mobile operators are moving up the stack and creating their own video subscription services. The issue is that mobile operator ability to capture value (and revenue), compared to the content providers. Looking at older 2013 forecasts for value capture, and comparing those forecasts with actual results, J.P. Morgan finds that telco loss of value has been worse than originally forecast.
So significant are the revenue pressures that J.P. Morgan believes asset restructuring will be necessary. Even if revenue growth continues to 2024 on a single-digit basis, costs will grow faster, with the result that, by 2014, many, if not most mobile service providers will see negative rates of earnings growth.
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