Of all the world’s major industries, telecommunications has often proven to be the most resilient in recessionary times. Even in the toughest economic downturns, business has continued growing. In no part of the telecoms world has this held more true than in wireless communications, starting out with the humble mobile phone and moving on up to the mini-mobile computers of today’s Smartphone generation. The telecoms industry and its mobile ecosystem are not only growing but are in the middle of a major shift from traditional voice and SMS revenue towards a world driven by data and Internet-led services.
Mobile’s growth has been blind to socio-economic status. In fact, in some of the poorest regions of the world, mobile has been able to connect the previously unconnected and deliver life-changing modern mobile and Internet communications for the first time. In many ways, mobile has been the great leveler across Europe as all nations and territories have benefitted from the reach and capability of the mobile network. Of course, market penetration varies across nation states, but the mobile is without doubt a force for good across Europe. According to the World Bank, a 10% increase in mobile penetration drives an increase in a country’s GDP or between 0.6% and 1.4%.
But is this picture all so bright or do we see storm clouds moving in ahead? To be able to sustain coverage and deliver the quality of service and network enhancements required, major investment is needed. In fact, according to research from AT Kearney and the GSM Association, over the next four years mobile industry capital investment will reach close to $800bn. This ongoing expenditure needs to be made to make sure we all can benefit from what the next generation of technology can provide.
Unfortunately for Europe and for much of the world, the ongoing economic crises are casting their shadow, putting pressure on balance sheets and placing at risk the telecommunications industry’s hard-won status as the world’s most economically resilient industry. We see the ongoing battles for market share, companies consolidating through mergers and others looking to make stringent cost cuts, and European and American companies facing up to the aggressive challenge of competition from market-hungry players of the Asia-Pacific region.
There is an argument that some of the economic issues the industry is facing are self-inflicted – that the telecoms market is a victim of its own success creating a demand for ubiquitous low-cost voice and data connectivity. Fixed and wireless operators all over the world have adopted the principle of “All You Can Eat” tariffs in order to stimulate and drive growth in the data market, and they have been successful beyond their wildest dreams. The competitive nature of the global and local markets drove a customer acquisition race and fuelled a growth drive that could be seen as unsustainable – if it were not for the fact that it is being sustained.
At Ericsson, we have a vision we call the Networked Society. We see that an increasingly networked world has profound implications for all of us with major changes to the ways we communicate, innovate, collaborate, produce, govern and sustain. By 2020, we envision a world with more than 50 billion connected devices – that is seven times the number of people on the planet today.
Machina Research, in a study carried out for the GSMA, predict that the value of the connected devices market will be some $4.5trillion globally by 2020 with Europe’s share alone put at $1.12trillion. This change has happened quickly and yet the pace of change is still accelerating. In 2007 there was almost no mobile traffic data but in December 2009 it surpassed voice – and the expectation is that usage will continue to grow by 60% per year over the next five years. If this trend continues through 2020, then data usage will have grown by more than 40 times. The “All-You Can-Eat” tariff model with virtually flat revenue growth does not stand up to that level of sustained growth in consumption.
Furthermore, building the infrastructure to support this type of growth and deliver the type of speed, capacity and coverage that businesses and consumers now expect is one of the biggest challenges for the operator community. And building that infrastructure profitably with a good return on investment is potentially an even bigger challenge.
Nevertheless, it is a challenge that operators have to accept. Operators must innovate and develop new business and tariffing models to address the mobile broadband market and the consumer’s demand for personalised services and offers, like a tariff plan offering voice plus unlimited Facebook-time. But in order to introduce these new approaches, operators will need to focus on and invest in their operating and business system to handle the needed changes.
In this investment-heavy environment, it becomes even more important that Europe’s politicians, regulators and other stakeholders look at the wider economic considerations of communications infrastructure, especially when it comes to the availability and release of the precious radio spectrum vital for next generation services and the requirement to encourage and help fuel investment in communication services. The opportunity is there for Europe, and for Europe’s political and regulatory leaders, to show the leadership and vision required to help create the Networked Society.
Take for example the 2.6GHz spectrum band essential for next generation mobile broadband services. As well as offering a major increase in capacity, the 2.6GHz band has the potential to be used for mobile broadband services worldwide, providing equipment makers with global economies of scale, enabling them to lower the cost of devices and network infrastructure. Globally harmonised spectrum in sub 1 GHz bands is likewise essential to achieving the objectives in nations’ respective broadband plans.
Regulators need to continue taking a harmonised approach to how spectrum is allocated on a global or regional base in order to maximise value and yield for both users and providers. Strong infrastructure for communication drives growth, but even more importantly it improves and strengthens a country’s competitiveness. The work that the operators will undertake – transforming fixed line broadband services and building next generation LTE mobile networks with greatly increased capacity and throughput – needs to be encouraged and assisted. Widely available, low-cost of entry mobile broadband networks can help to get Europe and Europe’s economy moving again.
Working towards a Networked Society extends well beyond just building more networks. It’s about being able to address some of the world’s biggest challenges, including climate change, sustainability, and the availability of education and health care, etc.
Matt Hatton, a director at Machina Research, puts the value of the Networked Society even higher. “By 2020, there is no doubt we will live in a much more connected world, which will have a fundamental impact on the way we live and work. This will facilitate a host of new business models, improve the way that companies do business and improve efficiencies in innumerable ways. Our estimate of the value of this is $4.5 trillion, but the impact on and benefit to society is immeasurable.”
To ensure this dividend is realised we believe that regulators, operators and the telecommunications industry need to be united in vision and purpose. The funding of a telecommunications infrastructure revolution needs to be encouraged by the regulators and the industry at large. Building the infrastructure will require significant investment but will stimulate economies across Europe, and smoothing that path in political and regulatory terms is vital. But that’s not to say the operators, with the support of industry partners such as Ericsson, cannot achieve greater efficiencies both in their business and their operational systems and services.
Leaner business models will allow for speedier deployment of new services while cloud-based and shared operating systems and services will lower infrastructure costs. The so-called small-cell revolution can serve to pinpoint network issues and deliver coverage and capacity exactly where it is needed at a lower cost than macro network investment. At the same time, a greener and low-energy infrastructure will not only benefit the environment in the long-run, but will lower operating costs today.
Working with our global operators, customers and partners, we can help to deliver those benefits and create leaner operator business models that can drive return on investment. It is not just about the operators and vendors working together, it is about the entire telecommunications ecosystem, the technical, business, political and regulatory being united in a common vision and working towards the common goal of the fully Networked Society and helping to reboot Europe’s economy.
Per Borgklint is Senior Vice President and Head of Business Unit Support Solutions at Ericsson. firstname.lastname@example.org