Pushing the Envelope of Mobile Carrier Profitability

There is a premise that the more subscribers an operator has, the greater economy of scale it can achieve. And yes, this is broadly correct. For example, from ABI Research’s Mobile Carrier Strategies Research Service, we have established that China Mobile is the carrier with the highest overall gross profit for 1Q 2013 (US$9,748 million), but that is very much due to the 726 million subscriptions it has on its network. However, when it comes to gross profit per subscriber, China Mobile is not even in the top 50. Instead that accolade goes to the North American (NA) mobile carriers.

NA mobile carriers are proving they can generate more gross profit per subscription than any other regional carrier. This is even despite NA OPEX per sub being 6X that of the average OPEX per sub in Asia-Pacific. Remarkably, in a recent survey, the top-five carriers with the highest gross profit per subscription positions have been taken by NA carriers.

The GDP per capita (PPP) of Canada (US$42,533) and the United States (US$49,965) does help to underpin the discretionary spending of the North American mobile consumer, who has also been reassured by anticipated 1.8% GDP growth in Canada and 2.5% growth in the United States. In addition, North American carriers have been able to stimulate a rapid adoption of smartphones as well as large voice and data quota plans. Verizon has reported 6.4 million 4G LTE device activations in 2Q 2013 alone. AT&T has stated that 70% of its subscribers are now on smartphones. In the case of TELUS, monthly ARPU has increased by $1.17 to $60.04 as data ARPU more than offset voice ARPU decline, and TELUS has been boosting ARPU YoY for 10 quarters. Mobile data services and smartphones are proving to be a platform for improving ARPU and gross profit returns. In the case of TELUS, top-line growth in revenue can be attributed to growth in TV, Internet, business process outsourcing services, and TELUS Health.

It is also noticeable that North American carriers have made substantial OPEX savings such as in head count in their engineering and telecom support departments. Operators have been consolidating the number of network operations centers, and also seeking to gain economies of scale across different service delivery platforms to enable converged operations. Specifically there are fixed and mobile convergence opportunities in the front office, field management, and spare parts management departments of the carrier. There is also synergy in performance-monitoring functions.