The telecom industry is undergoing significant changes. As customer behavior is evolving and new technology allows attractive and easy-to-use services, the industry is converging with sectors such as media, entertainment and IT. In such a context, telecom operators are facing numerous opportunities but also several challenges.
A new competition context is evolving, where the telecom value chain covers a larger set of services and a larger number of partners and competitors. In the consumer market, convergence is centered on media, content and devices. The convergence has driven many telecom operators into taking a more active role in the media industry as well as the device industry by focusing not only on mobile phones, but also on computers, TV set-top-boxes and smart home gateways.
New actors line up
The market convergence opens for opportunities for operators to enlarge their market by entering new service segments. However, it also opens for new business models where other than operators are strengthening their roles. Several new actors are lining up to gain a position in the content and services market. Mobile phone manufacturers, and companies like Apple, as well as strong internet brands all strive for positions in the mobile market in particular.
Advertisement-based business models are already well established in the internet space, with market leaders such as Google. As mobile internet surfing is growing, the same logic is entering the mobile market, and the big internet brands will be among the first to move into the mobile space. Advertising along with m-commerce also opens for new revenue streams for operators. Both these markets will grow, but their share of total revenues is expected to be fairly small for most operators.
However, online advertising on internet is clearly gaining ground as a media channel at the expense of traditional media. As handsets gain in popularity as a media channel, mobile operators are presented with the opportunity to sell space here.
Digital and traditional advertising spending
Source: Strategy Analytics, 2008
An ecosystem of industries
The market context is changing in the consumer and business segments alike. In the business segment, the transformation is related to the convergence between the historically divided telecom and IT services markets. Telecom providers as well as IT providers are expanding their offerings to cover both sides and thereby taking on a larger role in the value chain. Various related industries are working together in an ecosystem with dependence on each other for partnerships, but also in competition with one another.
A driver behind this development is the need by both private and public companies to manage their operations more efficiently. In this process they turn to electronic communication and related applications. At the same time the boundaries between business and private life become blurred. The telecom and IT suppliers are growing closer to each other in order to meet the increased need for efficiency and productivity, and satisfy the demand for higher benefits and fast payback from communications and IT investments.
Prices under pressure
TeliaSonera is present in 20 markets, including associated companies. Competition is intense and together with regulatory intervention puts prices under pressure in all markets.
Mobile market competition is particularly strong in the Nordic and Baltic markets where new customers, but not necessarily new SIM-cards, are few. In these markets, competition is focusing on adding services and increasing service usage. Retail mobile voice prices in the Nordic markets have been declining for some years. Certain consolidation has taken place during recent years however, resulting in fewer players in most markets. The large players, with their own networks, have gained at the expense of smaller providers relying on renting network capacity. But on the other hand, regulation is putting pressure on prices.
Meanwhile, the average revenue per customer remains fairly stable since the price declines are offset by increased voice usage and higher customer spending on value-added services and mobile internet services. An uncertainty in this context is the flat rate pricing of mobile data, which could hamper potential revenue growth, and result in increased costs due to higher data consumption. Operators are starting to introduce other price models that better reflect the level of usage.
Our emerging markets are also characterized by keen competition.
In the broadband market, where services generally are priced as a fixed fee per month, the average retail revenue per user is holding steady, and even showing a slight increase. However, data consumption is growing as customers demand higher bandwidths in tandem with increased usage. That increase is rarely offset by corresponding price increases. To compensate for this, broadband providers are offering a number of individually priced, related services such as storage, TV and VoD.
