About 60 percent of all global telecommunications revenue in 2012 was earned by mobile service providers. But overall revenue is basically flat, despite the addition of billions of new mobile customers over the last half decade or so.
And the overall stability of revenue masks, for example, the worsening condition of major mobile service providers in Europe.
From time to time, transactions such as Vodafone’s possible sale of its Verizon Wireless stake get attention and provide a distraction. Vodafone could use the $120 billion or so it might reap from a sale of its 45 percent stake in Verizon Wireless.
But Vodafone would also be losing its top revenue generator, and increase its exposure to the European markets.
Vodafone's gross profit margin is 32 percent, but has been decreasing every year since 2006. Revenue growth has also slowed. Since 2007 (the company made a loss in 2006), revenue growth has averaged 8 percent a year.
However, revenue growth has been just 1.1 percent in 2012 and 3.2 percent in 2011.
France Telecom has issues as well. France Telecom earned half of its 2012 sales within France. And it’s an issue because of new competition from Iliad's Free Mobile, which has succeeded in disrupting the telecom industry in France, primarily by causing a price war that has lead to lower profits for the existing companies.
But competition from cable operators is a growing issue as well, in part because cable operators are leveraging their triple play offers by adding mobile services to create quadruple plays that are hard for a mobile-only provider to match.
Since January 2012, when Free Mobile launched, average revenue per mobile user has fallen 10 percent and Free Mobile has gotten 6.4 percent market share.
Lower profit margins are also seen as a global problem. In fact, many leading tier-one service providers might not even be earning back their cost of capital.
Wireline networks have the weakest returns on invested capital, with a 1.5-percent gain over the last decade, according to Bernstein Capital analyst Craig Moffett.
Wireless networks had a meager return of 0.3 percent. Cable garnered a 2.5-percent return.
Satellite networks had the best return on invested capital at 5.5 percent. Others, including AT&T, Comcast, Dish, Sprint and Verizon, have negative returns, Moffett argues.
The point is that it is growing more difficult for a major telecom services supplier to earn a profit, given current cost structures, competitive markets and evolving end-user behaviors.
Edited by
Braden Becker
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