FOR IMMEDIATE RELEASE
Feb. 3, 2011

Mobile operators profitability challenged within three years, says study

Operators must rethink their networks before they run out of cash

Naperville, Ill – A study undertaken by Tellabs, based on independent analyst data, has found that profitability could become extremely challenging for some mobile operators within three years. The mobile Internet is forcing operators to transform their networks and business models. Without rethinking the design and capabilities of their networks, costs will surpass revenues for many operators in:

  • North America by Q4 2013. In some cases this could happen as early as Q1 2013.
  • Developed Asia Pacific by Q3 2014. In some cases this could happen as early as Q3 2013.
  • Western Europe by Q1 2015. In some cases this could happen as early as Q1 2014.

The study puts timescales on an issue that has concerned operators since users began embracing the mobile Internet. Traditional ways of handling dramatic traffic growth are expensive. Meanwhile competition has increased pressure on revenues.

“Mobile operators can spend themselves into a hole well before users run out of hunger for capacity,” said Rob Pullen, chief executive officer and president of Tellabs. “Our study shows that simply adding capacity or ‘dumb pipes’ is an unsustainable business. To avoid the ‘end of profit,’ operators must bring intelligence to their networks – it’s critical to carrier survival.”

Dr. Vikram Saksena, Tellabs chief technology officer, added, “It’s challenging for mobile operators to sustain a business model based on bandwidth alone. Adding intelligence to the network adds revenue, improves business fundamentals and enables a more profitable business.

“To provide critical intelligence for operators to survive and prosper, we’re introducing a new smart mobile backhaul solution and an improved smart mobile packet core platform” Dr. Saksena said.

Network intelligence encompasses many variables in operator networks. Powerful analytics enable smart networks to deliver the right bandwidth to the right users at the right time. Intelligence brings new traffic management efficiencies, new business models and new revenue streams. Intelligence will reverse the trend of declining operator profits.

Regional Differences
North America – Higher network access costs make North American operators most susceptible to the changes wrought by the mobile Internet. This is despite earlier adoption and roll-out of more cost-effective network technologies.

Developed Asia Pacific – Rapid revenue decline is the primary challenge faced by operators in developed Asia Pacific markets. Analysys Mason predicts a revenue per gigabyte decline of 88.2% between 2010 and 2015.

Western Europe – Lower network access costs and a more gradual revenue decline lessens the impact on Western European operators.

Note to Editors
Click here for Tellabs "End of Profit" study executive summary.
Click here for related Tellabs product announcements:
Tellabs adds intelligence, Ethernet and capacity to create smart mobile backhaul

About Tellabs — Tellabs innovations enable the mobile Internet and help our customers succeed. That’s why 43 of the top 50 global communications service providers choose our mobile, optical, business and services solutions. We help them get ahead by adding revenue, reducing expenses and optimizing networks.

Tellabs (Nasdaq: TLAB) is part of the NASDAQ Global Select Market, Ocean Tomo 300™ Patent Index, the S&P 500 and several corporate responsibility indexes including the Maplecroft Climate Innovation Index, FTSE4Good and eight FTSE KLD indexes. www.tellabs.com

Appendix
Assumptions, Methodology and Data Sources
The model that underpins this study uses forecast data and accepted industry costs, trends and strategies to estimate the point at which cost exceeds revenue for mobile operators.

The model does not address specific operators. The model generalizes technology, costs and carrier strategies to create a hypothetical operator, representative of a given region. All hypothetical operators are utilising network technologies from the GSM family.

CAPEX costs are assumed to be consistent across all regions. Price erosion has been applied to all technologies and estimated sunk costs are accounted for. OPEX has been calculated as a percentage of CAPEX, the lowest percentage for technologies that offer mobile carriers the lowest network carriage costs.

There are inevitably factors outside of this model that influence both costs and revenue. However, the significant technologies and trends are incorporated, and CAPEX and OPEX are as comprehensive as possible and based on operator-approved KPIs. The cost of acquisition – or the resulting benefits – of spectrum has not been factored into this model due to inconsistency across countries.

The results are particularly sensitive to the percentage of macro traffic offloaded onto indoor networks, such as femtocells and WiFi. A gradual increase to 75% offload by 2015 moves the point where revenues fall below total cost (CAPEX + OPEX) to 2014 and beyond in all regions of interest.

Tellabs used multiple sources of data in this study. Analysys Mason traffic and revenue forecasts for operators in developed markets provided the base. Tellabs also used its own, proprietary data to establish network capital and operating expenditure costs for operators in developed markets. This data is drawn from Tellabs’ vast experience of working with many operators in the regions.

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