The saturation and price wars of the mobile market continue to breed consolidation and defensiveness, but these trends are also resulting in a strong wave of innovation and disruption in many markets. The only way for new entrants, or fourth-placed players, to have an impact is to be highly creative in their services, cost base and pricing – and while many established operators have responded just by closing ranks or trying to buy up the newcomers, others are starting to show a measure of creativity too.
If France has been the template for many of these trends since Iliad unleashed Free Mobile on the MNOs in 2012, India is currently the most closely watched market because of the activities of Reliance Jio. India is the major economy which could least do with a price-cutting disruptor, since its ARPUs were already rock-bottom and its regulator has a habit of setting excessively high reserve prices for spectrum. But RJio is harnessing its LTE-only network, and an efficient cost base – high degrees of infrastructure and spectrum sharing, extensive use of WiFi – to undercut its more established rivals.
This is likely to spark long-overdue consolidation among the operators, but as RJio starts to hit its own challenges, it must also be hoped that Vodafone, Bharti Airtel and other incumbents can also respond by innovating in services or quality, as Starhub is doing in Singapore in the face of a new entrant – not just by price cutting even further, as the Italian operators look to be doing as Iliad launches in their country too.
It is not only new entrants which can disrupt a market. Those in fourth place or worse in a mature mobile economy face a choice of merging with another operator, or innovating their way into a better position. In countries where a reduction in the number of MNOs is resisted by regulators, some smaller players have had no choice in the matter – hence T-Mobile USA’s Uncarrier and Binge On deals, which have propelled it to overtake Sprint and take third place in the MNO subscriber rankings. This is now being emulated by 3UK – the latest step in a history of service innovation sees the company offering Go Binge, which zero-rates certain streamed music and video offerings in the same way as TMO’s Binge On.
Many of these examples of creative thinking relate to attracting subscribers with good data deals – zero-rating certain applications, where net neutrality will allow that; re-introducing unlimited data plans in markets where these had been phased out, like the US. Reliance Jio itself achieved its initial burst of subscriber uptake by offering free data for a period of time.
But MNOs will find themselves in a predicament if this is their only weapon. They are currently better able to cope with sharp rises in data usage, than they were in the early period of transition from 3G to 4G – they are investing in more LTE capacity and efficiency including densification; they are using WiFi offload and integration more intelligently; they are looking forward to further cost:capacity improvements from 5G. But there are limits to the viability of a business model which revolves around gaining subscriber market share, rather than increasing ARPU.
Telstra is already foreseeing a world where data becomes free, as voice has effectively become now. In that scenario, MNOs will need to ensure they have some valuable additional services in their bundles, to justify support for consumer connectivity at all in profitability terms. Of course, large numbers of subscribers, even if the ARPU is falling, are good for revenue, market share and cashflow, but there still must be efforts to inject more value into the relationship, as well as driving the balance of business further towards business-to-business services and the Internet of Things.
These are the dilemmas which face mobile operators all round the world, and they need to start thinking creatively right now, not waiting for 5G to come and solve all their problems.