For those of you who have been following my periodic postings on global communications industry restructuring (including last week’s item on Maxcom’s recapitalization), you are aware that I believe we are at an industry tipping point. By all appearances, the next 12-18 months are going to dictate what the future industry structure will look like for many years, and sorting out the hunters from the hunted while problematic is going to be an unprecedented case of problematic musical chairs.
With publically held carriers around the world reporting their quarterly results in the past several days, one thing that stands out that may be something for tea leave readers to look at is that the 1970’s axiom that “speed kills” needs to be modified to “speed is a killer.”
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In this regard the remarks of Orange chairman and CEO Stephane Richard in revealing less than stellar results recently resonate. Despite falling revenues and profits, much of it attributable to the fact that the bulk of the company’s operations are in economically challenged Europe, Richard said the outlook for the rest of the year was strong. The reason cited was the 3.1-percent rise (7 million) in new subscribers to 231.5 million which reflected gains in all of it operating areas.
Richards stated, "Against a macro-economic and competitive backdrop that remains difficult in our main markets, these results demonstrate the effectiveness of our strategy both commercially and in terms of reducing our cost structure….We are also maintaining the roll-out of our high-speed fiber and 4G networks and are seeing real appetite for very high-speed broadband from our customers who are showing a willingness to pay a premium to access these services."
Interestingly UK-based EE, the only mobile service provider in England to be currently offering 4G LTE service, struck a similar tone. Turnover fell 3.1 percent on a year-on-year basis to €3.7 billon ($5.9 billion); however, it doubled its number of 4G customers to 687,000. The company feels this puts them on the path to reach over one million 4G customers by the end of the year as both residential and enterprise customers want and are willing to a premium for higher speeds. It also noted that its subscriber count of post-pay customers rose by 833,000 while pre-paid ones fell 671,000. The reason this number is so critical is that post-pay customers generate nearly six times higher ARPU.
Olaf Swantee, chief executive officer of EE, commented: "Today's results demonstrate our success in building our new brand and differentiating our network to drive commercial momentum while continuing to deliver cost savings to increase our margin performance."
In short, in both cases speed is making a margin and not marginal difference. Indeed, there is a global customer grab in the fixed, mobile and converged world to capture the high-hanging fruit, i.e., broadband users with the willingness and ability to pay. It is what is driving the intense interest in finding new radio spectrum suitable for high speeds. Those who committed early to broadband are reaping the rewards, while others lag creating clear haves and have-nots as the industry restructuring music plays and we get ready for the next signal for everyone to sit and take stock as chairs disappear.
Bumpy times ahead
The above comes at the same time as struggling Netherlands service provider KPN announced that it has agreed to see its German mobile unit E-Plus to Telefonica Deutchland with KPN taking a 17.6 percent stake in the owner as part of a very complicated transaction. It also comes on the heels of breaking news that Latin America’s large mobile service provider America Movil (AM) has terminated its Relationship Agreement with KPN, effective immediately. America Movil has had its eyes on KPN for a while, and the termination of the agreement means AM can increase its holdings in KPN and possibly make a move for a complete takeover.
The list of industry machinations involving Verizon, Vodafone, Softbank and DISH, just to name a few, that have been in recent headlines regarding various types of asset reshuffling plays whether for expansion in home markets or outside of them is extensive. Struggling operators look ripe for takeover and those who believe they can step in with broadband upgrades to the existing customer base while picking up assets on the cheap are no doubt salivating as they look across the landscape, particularly in Europe where broadband deployment has lagged compared to other parts of the world.
Who is next? Who knows! That goes for the hunters and hunted alike. The reality is that, as none other than Google’s interest in being a broadband infrastructure provider shows, there are still many who believe there is inherent and in theory unlocked value in owning the customer connection, and that is why there is such interest in under-appreciated assets. It will keep the world turning and at what is likely to be an accelerated pace.
What can be said for certain is that we are in for a bumpy ride.
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