The pressured margins that both AT&T and Verizon reported in the fourth quarter may be the new normal for wireless carriers.
According to new research from Strategy Analytics, which surveyed trends for ARPU, revenues and EBITDA, carriers may be unable to recoup the $700 billion in infrastructure investments they’ve made collectively over the past 10 years.
The report, entitled ‘Are Telecommunications Operators in Denial?’, concludes that the regulators’ insistence on a four-carrier competitive arena has benefited consumers with lower prices, while painting carriers into a fiscal corner.
Phil Kendall, executive director of Wireless Network Services at Strategy Analytics, said that as capacity and competition have increased, ARPU has steadily declined in every region of the world.
“Lower ARPU and the slow revenue growth that we forecast in our earlier ‘Global Mobile Service Revenue to Stagnate at $1 Trillion Mark’ are leading to a steady erosion of margins since 2010 in most regions,” Kendall said in a statement.
Sue Rudd, Director Service Provider Analysis for the Wireless Networks and Platforms at Strategy Analytics expands on this point.
“Despite massive cost savings per Gigabyte (GB) from new investment in LTE, the Total Cost of Operations (TCO) for Mobile Broadband Networking is projected to fall by only a factor of three, while selling prices per GB are projected to fall by a factor of 10 over a period through 2018,” Rudd said.
And Rudd contends that efficiencies gained through Software Defined Networking (SDN) and Network Function Virtualization (NFV) are not enough to cover the damages.
“Even though Network Functions Virtualization (NFV) and Software Defined Networking (SDN) may reduce costs by an even greater factor of 4 to 5 times – i.e. by a further 33% to 67% from today’s projected rate, costs will still be declining half as fast as prices,” Rudd noted.
AT&T’s reported a fourth-quarter wireless operating income margin of 16.3 percent versus 21.4 percent in the year-ago quarter. Wireless EBITDA margin was 26.4 percent compared to 31.8 percent in the fourth quarter of 2013.
Verizon meanwhile saw wireless operating income margins of 23.5 percent and segment EBITDA margin on service revenues was 42.0 percent. That compares with 29.5 percent and 47.0 percent, respectively, in fourth-quarter 2013.