Smartphones to run operators into the red in 3 years

Feb 03, 2011
Rocketing smartphone use could drive mobile operators into losses in three years unless they rapidly adopt technology to capture more revenue from data services, according to a US network company. Rising investment costs to handle exploding data traffic combined with lower revenue per unit of data could begin to drive some operators into the red in as soon as two years.

Rocketing smartphone use could drive mobile operators into losses in three years unless they rapidly adopt technology to capture more revenue from data services, according to a US network company.

Rising investment costs to handle exploding data traffic combined with lower revenue per unit of data could begin to drive some operators into the red in as soon as two years, Tellabs said it calculated based on independent analyst data.

"Carriers can spend themselves bankrupt well before users run out of hunger for capacity," said Tellabs chief executive Rob Pullen.

"Our study shows that simply adding dumb capacity is unsustainable. To avoid the 'end of profit', carriers must bring intelligence to their networks -- it is critical to carrier survival," he was quoted as saying in a statement.

A number of industry players expect mobile data traffic, driven mostly by smartphones, to nearly double each year for the next several years.

While operators are investing heavily to add capacity and roll out fourth-generation networks, they are having difficulty earning money from data transfer and forecasts see falling revenue per unit of data transferred if current trends continue.

Dozens of companies such as Tellabs are offering solutions to manage network traffic, reducing needed investments and opening possibilities to capture more revenue through priority services.

"Mobile carriers face a stark choice about their : it's either the smart mobile Internet or an unsustainable dumb-pipe business," said Vikram Saksena, Tellabs' .

Tellabs' findings come days before the holds its annual gathering in Barcelona, where a smartphone-driven boom in overwhelming networks and capturing revenue from data are set to be at the top of the agenda.

Tellabs did not analyse specific mobile operators, but used a model that generalised costs and revenue structures in three major regional markets.

It found that operators in North America were most vulnerable to changes wrought by and that some could plunge into unprofitability as soon as the beginning of 2013, others at the end of that year based on median cost and revenue assumptions.

For developed Asia-Pacific markets, operators would enter the red from the third quarter of 2013 to the third quarter of 2014.

Western European operators are forecast to enter unprofitablity from the beginning of 2014 or 2015.

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User comments : 7

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dogbert
5 / 5 (2) Feb 03, 2011
Is anyone surprised that "a US Network Company" has decided that increased sales will result in reduced profits and that the providers need to raise prices?

gwrede
not rated yet Feb 03, 2011
Their predictions are pretty specific, considering Europe and Asia-Pacific are vast areas of dissimilar countries.
rgwalther
not rated yet Feb 03, 2011
Cancel the unprofitable smartphone systems. Dissolve the companies. Sell the assets to people who know what they are doing.
Quantum_Conundrum
3 / 5 (2) Feb 03, 2011
The "Dark Side" of Moore's Law...

As computer power goes up geometrically as we approach the quantum limits, the prices go down, this means profit margins go down, because they can't "overcharge" because the competitor will put them out of business.

This means employees, stock holders, and especially CEOs of these companies will ultimately take a hit as the business becomes "worthless".

One day in 10 or 20 years, it's really already starting, computers will be so common and cheap that they will be like pencils and paper, with a profit margin of like 1 cent per 500 or so...
rgwalther
5 / 5 (3) Feb 03, 2011
The "Dark Side" of Moore's Law...

I repeat my previous statement.
Change has become exponential with no sign of slowing. We are moving either to destruction and a return to Stone Age culture (sans money); or we are accelerating into a social, political and economic system that is not based on traditional concepts of money. I am not certain how the the Star Trek universe 'paid' for things, but our future will not work with imaginary money, issued by bankers who create vast sums and keep 6% off the top.
If the financial 'profit' in a functioning, necessary industry is effectively reduced to zero dollars, then the valuation of 'profit' in that industry will have to be radically changed.
I don't know the answers, but we must find them or exterminate ourselves.
All economic, social and political systems are in a state of transitional psychoses. When this mad transition stablilizes, we will return to the crazy, brutal past or enter a crazier but luxurious future.
corvair64
not rated yet Mar 07, 2011
Perhaps they should get out of the subsidizing business and focus on service. That would reduce overhead for almost all aspects of the the US industry and slow the technology demands as people realize they have to plop down >$500 for each device upgrade. Sure, you'll still have the techno-philes, and business users, but you won't have 2.6 kids in every family getting the latest/greatest every year... (just my opinion)
J-n
5 / 5 (1) Mar 07, 2011
"falling revenue per unit of data transferred"

That's what this is about?! Why are Mobile phone companies worried about revenue per unit of data? They don't pay someone else for units of data transferred.. why care what they make per unit of data transferred, unless they're trying to make the case that they MUST charge consumers per unit of data.

I don't see AT&T, Verison, Sprint, Virgin, etc.. going out of business all that soon. Maybe i'm reading this article wrong but it REALLY seems like "Some major phone company" Making the case that they need to charge their customers more, and urging the other phone companies do the same.

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