| Backgrounder: |
Over the past few years, the telecoms industry has been riding a roller-coaster. Telecoms companies around the world moving out of state ownership, and facing increasingly aggressive competition. Regulators imposing a range of structural measures in an often vain attempt to maintain some sort of order and fairness. Governments opportunistically charging windfall licence fees for 3G, in some cases leading to high levels of debt. Many smaller wireless operators are open to offers or vulnerable to take-over – at the time of writing, AT&T wireless has just been bought by Cingular, after a bidding battle with Vodafone, while KPN is reportedly prowling around MO2 (the mobile carrier hived off from BT).
Although some of the former hype around 3G now seems highly exaggerated, the growth of new telephony services remains strong. Ownership and use of mobile telephones continues to expand, and the enthusiastic take-up of text messaging (especially among those too young to remember telegram or telex) has brought relief to many telecoms carriers.
Like software and pharma, the telecoms industry has very high fixed costs – mostly involved in developing new products and maintaining the infrastructure – and extremely low variable costs. The business imperative is to drive the product lifecycle – generating rising stars, converting rising stars rapidly to cash cows, and running the cash cows aggressively to achieve good margins on high market share. This is especially a challenge for those operators that have grown by merger and acquisition, where the legacy assets are spread across a range of different operating platforms and infrastructures. |
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