Business consultancy project

The Modification in the MNO revenue outlook

Mobile communication services have expressed the exponential changes in the last decade. The extensive modification of the highly advanced technological innovations sustains continuous development in the industry. The transition from voice-based 2G technology to the data-centric UMTS world was driven by the industry`s intention to dynamic changes. The adoption of new technical capabilities shifts the mobile operators’ traditional services profile and urge them to broad horizons by looking for alternative services. (Ballon, 2007)
However, together with advanced technology integration the different external and industry related factors influenced MNO positions in the communication industry. (Gautam & Singh, 2015)

1. External factors

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     Economic situation
     
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     Regulatory intervention
     
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     Alternative communication tools
     

Economic situation

The telecommunication industry constitutes one of the main components of economic growth as one of the fastest developing parts of the industry, which generates free cash flow. Meanwhile, any instability in the economy creates an adverse effect on the telecom profitability and thereby, the global financial crisis (GFC) has negatively impacted the revenue of mobile telecom industry as any business environment. The telecommunication industry has also experienced a downward revenue trend, and the economic meltdown caused the decline of the overall and telecom industry GDP worldwide. In the period of recession consumer and enterprises market tried to diminish the consumption through cost-efficiency. (Confronting the Financial Crisis, 2009)
Mobile communication industry as any services experienced the detrimental effect of the diminishing profit. The GFC impacted European mobile communication companies as well. During the 2008-2009 economic recession period, the mobile communication market has experienced the annual average 2-5% of revenue
decline in the Western Europe market. (How Financial Crisis and Recession Impacted Communication sector in Europe, 2009). Even though the western Europe market recovered from the insulation of the financial crisis, the eastern Europe market decline continued until Y 2011. (Mobile Europe, 2011)
Meanwhile, the economic downturn, together with Europe impacted the developing Asian market as well. Indian and Singapore operators had been impacted by the global financial crisis as well. Singapore operator`s revenue and EBITDA reduced by single digits during the GFC period. (Singapore Business Review, 2015)
Regulatory intervention
Because of the changes in the economic situation in the last decade, regulatory bodies reinforced inspection of the mobile network industry. Regulators performed the new regulation plans for monitoring the misuse performance and market share distribution by mobile operators. These actions planned to decrease the cost for consumers and make mobile communication service as a mainstream service. One of the principal regulations of the mobile communication pricing strategy has been started by European Union, and the European parliament had diligently controlled the over continent mobile communication price and made the mobile communication services, especially high-cost roaming price more affordable for customers (REGULATION (EU) 2018/1971 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL, 2018).
Additionally, regulatory bodies and anti-monopoly agencies regulate the pricing strategy through benchmarking methodology. Mobile operators are regulated for not applying price ceiling or price discrimination strategy within the country. (Cullen International, 2014)
Besides, starting from the beginning of 2000`s the telecommunication regulatory bodies over the world urged mobile network operators to launch mobile MNP service. Mobile number portability enables switching from one mobile operator to another by keeping the existing mobile number. The launch of MNP diminishes the mobile operator’s power by transferring the relocation of mobile number property to the consumer. In addition to simplifying the porting process for the consumer, it also reduces the switching cost for the customer as mobile operators allocate all transmission requirements. Due to regulatory obligations, mobile operators must adjust their software system and cover all expenses through their internal financial resources. (Buehler, Haucap, & Dewenter, 2006), (Khan, 2010)
Alternative communication tools
The evolution of advanced technological development and relocation to the IP technology industry enhance the integration of online consumption services and the emergence of new services and business models operating over the Internet. The commonly known internet-based services as over the top (OTT) establishes the rapid communication channel between consumers and providers over the Internet. The OTT data channel can be transported over the fixed or wireless network infrastructure by using WIFI or mobile broadband. OTT services can be divided into OTT content, messaging, and voice calling. (Report on OTT services, 2016)
Hence, the arrangement of communication services over the Internet mitigate the mobile communication services’ position. Smartphone penetration and the progression of high-speed internet availability enables the substitution of mobile services by OTT services. Even though OTT players use mobile network operator’s infrastructure, on the contrary, diminish the mobile operators` revenue by substituting their traditional services. (Over the Top players (OTT), 2015). Simultaneously, the emergence of voice service over IP connectivity endorse the transition of international and local calls to OTT service providers as well as Mobile operators confronted with the decline of their traditional communication tool consumptions. According to the research made by Revector due to the OTT impacts mobile operator revenues leading to the 25% decrease in 2016. Meanwhile, OTT Bypass creates competition for telecom operators in terms of termination calls, the tendency of Voice over IP apps redirecting calls from telecom providers and terminating them in apps is observed. It results in the 25% revenue reduction from termination calls revenue for mobile operators. (New threat to mobile network operator revenues, 2016)
However, the worse OTT impact appeared in messaging service and within the raise of awareness of OTT the SMS revenue declined. According to the Price water house Y 2017 report, around 80% of the messaging traffic belongs to Viber, WhatsApp, iMessage, while, Skype accounts for more than 30% in terms of international traffic voice minutes. Consequently, telecom providers faced with decreased revenues in SMS, international voice, and roaming with shares of 30%, 20% and 15% accordingly. (Telecommunication Trends, 2017).
The growth of the reputation of OTT can be explained due to the cost efficiency strategy and the availability of additional features compared with mobile communication tools. Despite the diminishing prices and cutting profit margin, mobile communication services cannot compete with OTT services in the affordable price approach. Besides, OTT services arrange more diverse and innovative communication features which meet the prerequisite of the young generation. New digitalized customers express more different communication behavior than decades ago and, the timeframe of rapid technological development and digitalization drastically strengthens the OTT position in the market of communication. (Economic Impact of OTTs, 2017).

2. 
   Internal Factors.
   
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     Traditional Services Revenue Decline
     
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     Competition
     
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     Substitution of Voice via Data service.
     

Traditional Services Revenue Decline

The airtime and short message service (SMS) used to be the main revenue streams for mobile operators. However, considering within previous years’ trend, the revenues from both services are gradually declining. SMS texting service expansion occurred in the early 2000s and had become the most popular mobile communication mainstream revenue endowing a substantial contribution to the mobile operator`s income. Nevertheless, now, mobile operators are experiencing shrinking airtime and SMS revenue. Despite mobile
operators’ intention to sustain the subscribers` retention by managing price-cutting strategy for airtime and SMS, the consumption of these services is not raising, and the ARPU is experiencing the steady decline. (How can mobile operators look beyond falling traditional revenues, 2018). (The State Digital Communication, 2019) The rising competition and market penetration through the expansion of the number of subscription and making mobile services affordable to all market segments confirm the supply and demand interrelation. While with the growth rate of penetration, prices declined respectively, and mobile communication services commoditized.
Based on the Juniper research, the voice revenue will continue to decline, and the loss from voice revenue will fall by annually 10 % through 2023. (Mobile Voice Revenues to fall 157 billion by 2023, 2018). Besides, according to the GSMA, mobile trend report the global mobile market revenue growth rate is very low and starting from Y 2020 compared with previous years, and the marginal annual growth will be shrinking. (Global Mobile Trends, 2018).
Figure.21 Total Global Revenue Growth.

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The mobile operators have suffered in terms of decline in revenues around the globe. According to the Icra Ratings rating agency, an 11% decrease in revenues in 2018 was observed in India, while, for 2019 the forecast of further 7% is expected. (Telecom companies revenue to decline for 3rd consecutive year, 2019)
The marginal decline in revenue occurred in China telecommunication industry in 2018 as well, The China Mobile Communications Corporation, the largest mobile operator around the globe, experienced the first decrease in operating revenue in four years. (Telecom firm sees marginal decline in revenue, 2018)
Compared with Asian Networks European market has also faced the aggressive decline. The biggest mobile giants of Europe such as, Telefonica, Orange, Vodafone, Deutsche Telecom, and Telecom Italia confirmed the aggressive decline of the revenue by 46% compared to Y 2010 financial results.
(Telecommunication, is it declining business model?, 2019). Revenues earned by “Orange” French telecommunication group have recently reduced for the first time in the last two years. The reason for revenue reduction is a fierce competition among players of telecom industry in the country. Revenue of the group dropped by 1.8% to 3.81 billion euros from 4.41 billion euros (Telecoms group Orange's revenue in France falls for first time in two years, 2019)
Competition
The emergence of MNP over the worldwide mitigates the mobile operators' position and strengthens the competition among market participants. Mobile operators started aggressively using different marketing strategies for the acquisition and retention of customers. The vigorous competition through price discrimination strategy (Hollenson, 2014) jeopardized the overall mobile networks revenue. Mobile telecom industry reached to commoditization and market saturation. The integration of the mobile telecom industry has quickly passed to the developing market. Now even the countries with low per capita income have 2 or 3 cellular networks and face intense competitive pressure among players. Meanwhile, the competition among players is becoming more aggressive in the developed world, whereas all mobile operators obtained advanced technological infrastructure and expanded network coverage. Despite adjusting any dynamic modifications, the substitutability opportunity among operators is very high. (Carlo, Rossoto, & Robhlf, 2009), (Grzybowski, 2004)
Substitution of Voice and SMS with Mobile Broadband.
The ongoing downward trend in voice and SMS usage and the emergence of high-speed mobile cellular systems enhanced the implementation of innovative mobile data services. Besides, the stagnation of the Voice and SMS revenues shifted the mobile network consideration for stimulation of mobile data usage. Starting from Y 2011, the mobile internet revenue overtook the SMS revenue. Operators started to transform their marketing strategy from voice-oriented bundles to the data-centric models. New strategies are focused on promoting the data service as the primary communication tool and whereas voice and SMS services are included as add-on services in data packages. Mobile broadband became the new revenue generator for mobile operators. (GSMA Intellegence, 2014)
The industry analysis which was done by Tefficient in Y 2019 confirmed that almost 46% of mobile networks across the globe achieved to stabilize revenue by increasing data usage. (All operators climbed the tree, 2019)
Besides the decline of the Data price boosts the world-wide data usage. Together with developed countries, mobile broadband consumption increased in the developing African and Asian countries as well. The mobile broadband expansion also is triggered by smartphone penetration as well. (World Wide Web Foundation, 2019) The increasing popularity of social media, content applications modified the consumers' communication habit by making them addicted to online connections. The transformation of communication models and the availability of smartphones emphasized mobile cellular data usage.
Considering the implication factors as customer preference and the advanced development of cellular technology and smartphone penetration, facilitate the mobile broadband upward trend. The digitalization simplifies access to the different sources of information via broadband. The availability of online and digital libraries, online shopping, and mobile banking reinforce the mobile broadband consumptions. (Broadband a Platform for Progres, 2011)
According to Pyramid research results in Y2015, the half of mobile operators’ revenue was being generated by mobile data, and the proportion is going to increase, and the total mobile data revenue will be reaching 600$ billion in Y 2020 (Mobile Data Revenue, 2017). Meanwhile, Ericsson Y 2016 reports also confirmed the dynamic change of data usage in the latest periods. The evaluation of Y 2016 and forecast until Y 2022 the data traffic compound annual growth rate will be 46% (Future mobile data usage and traffic growth, 2016)
Besides, the distinct evaluation by GSMA also affirms the expansion of mobile broadband in the CIS region. Mobile networks across the region are experiencing the rapid growth of mobile broadband. 4G connection increased by 16% in Y 2017 and projected to increase in Y 2025. At the same time, the 5G is expected to be launched until 2025 in Azerbaijan, Georgia, and Belarus respectively. The smartphone penetration is projected to increase up to 73%, and simultaneously the mobile broadband CAGR rate will be around 40% until Y2023. (GSMA Intellegence, 2019)
Figure.22 The shift of Mobile broadband in CIS region (in percentage)

Meantime, the determination of the financial indicators of the traditional communication tools and strengthening position of mobile broadband endorse mobile operators to consider the additional way for the sustaining revenue. Besides, the growing subscriber’s demand induce mobile networks to the implementation of more innovative and digitalized services.

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