Declining Per-user Revenues, Increasing Costs for Mobile Operators

Carl Weinschenk
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A good rule of thumb for reading a press release: If it has the phrase "nightmare scenario" in the first sentence, the document probably doesn't offer good news.

In the case of this release from Juniper Research, the idea is that mobile network operators are entering a danger zone as their revenues flatten or decline while their costs to operate accelerate. The increasing costs, the press release says, are mainly due to the rise in cellular backhaul costs. The reductions in revenue are due to decreased average revenue per user (ARPU).

That change in basic arithmetic becomes even more problematic as network usage accelerates. And, of course, signs of that acceleration are everywhere. For instance, ABI Research reported late last month that enterprises will generate $36 billion in revenue from carriers by 2016. The firm singles out the Asia-Pacific and North American regions as particularly active. It also points to tablets. The firm says that in the U.S., media tablets' "attach rates" will be 33 percent higher than netbooks and double that of laptops.

Cisco also points to extraordinary growth. In the latest release of its Visual Networking Index, the company points to more users, more devices, faster speeds and video as the reasons for the growth, which reads a bit like science fiction:

The projected increase of Internet traffic between 2014 and 2015 alone is 200 exabytes, which is greater than the total amount of Internet Protocol traffic generated globally in 2010.

Traffic, Cisco adds, is "[o]n the verge of reaching 1 zettabyte, which is equal to a sextillion bytes, or a trillion gigabytes by 2015 ..."

The Juniper warnings are perhaps even more intriguing, since it generally is understood that mobile traffic is exploding now and will continue to for the foreseeable future. The Juniper research tells a straightforward story: Two arrows - revenue and expenditures - both are heading in the wrong direction. The release suggests some revenue-enhancing ways to avoid a meltdown, which include "integrated rate plans" and building revenues on services atop the pure connectivity.

The release doesn't go in depth about the rise in backhaul costs. While backhaul demand is increasing in line with the exploding use of cellular networks, it should not be assumed that the cost of backhaul will explode with it. In the United States, for instance, cable operators see cellular backhaul as a potential goldmine.

Indeed, cellular backhaul has a double bonus: The prospect of the direct revenue from backhaul will drive operators to build out - geographically and in terms of sophistication - their networks. These newly upgraded and expanded networks will enable operators' commercial services businesses to offer more services to larger organizations.

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