Phone companies, which announced $116 billion in emerging markets acquisitions last year, may spend their money at home in 2011 to meet surging mobile-data demand.
Thanks to devices such as Apple Inc.’s iPhone and handsets based on Google Inc.’s Android software, demand for high-priced data plans is exploding, prompting operators to focus on their domestic markets and cut back on emerging market deals, according to a report from PRTM, a management consulting firm. Telecommunications deals almost doubled last year from 2009.
“We see a real shift in the balance of power from developing to developed markets,” Ameet Shah, a partner at PRTM in London, said in an interview. “For a long time, capital has fled Europe, for example, to be invested elsewhere. We’re seeing that rebalancing.”
The emerging markets push left some countries with too many operators and sliding call rates; India, with more than 10 competitors, saw call rates fall to less than a penny a minute. At the same time, demand for data-hungry devices such as the iPhone, iPad and Android phones is surging, with the number of mobile-data connections in Europe set to rise by an average of 15 percent a year to 270 million in 2014, according to market researcher IDC.
“We are not anymore in the idea of creating a pan-African telecoms group,” Vivendi SA head of strategy Regis Turrini said at a conference in London on Jan. 15. The owner of SFR, France’s second-largest mobile operator, is focused on building its domestic business by buying out Vodafone Group Plc’s minority stake in the French operator, he said.
Vodafone, the largest mobile operator by revenue, also tempered its emerging-market ambitions. Last year it sold a $6.5 billion stake in China Mobile Ltd. and may also unload its 24 percent holding in Poland’s Polkomtel SA.
The rebalancing won’t mean the end of mergers and acquisitions. Operators including France Telecom SA are still making selective acquisitions in new markets, with the Paris-based company targeting Iraq, Algeria, and Cambodia.
The push for leadership in home markets may also drive a consolidation in the U.K., where Hutchison Whampoa Ltd.’s 3 unit lags behinds its competitors in market share. Deutsche Telekom AG’s T-Mobile is in a similar situation in the U.S.
Investors are likely to welcome a pause in large-scale empire-building by phone operators, said Boris Boehm, who helps manage about 1.1 billion euros ($1.5 billion) at Aramea Asset Management in Hamburg.
“The experiments many telecom companies tried in emerging markets were not very fruitful,” he said. “It shows the importance of local knowledge; it’s much easier to make money in your home market.”
‘Bread and Butter’
Focusing on domestic markets brings its own set of issues. Operators in countries like France and the U.K. are looking for ways to monetize increased data use, and to manage the network spending needed to support the boom.
While forecaster Gartner Inc. expects global revenue from mobile applications to almost triple to $15.1 billion this year, most of that revenue goes to the programs’ developers. Yet demand for services like Google’s YouTube and streaming TV shows will push annual European spending on network gear by 28 percent from now to $3.7 billion in 2014, according to figures from researcher Canalys.
The spread of mobile data use was “so quick and so explosive” it took mobile operators by surprise, said John Tysoe, the founder of London-based The Mobile World, an advisory firm that helped prepare the PRTM report.
Operators are seeing volumes much greater than they’d planned for, “so all of a sudden, it’s ‘put all our resources back in our bread and butter domestic market,’” he said.
Operators may seek new pricing strategies to boost revenue from clients. France Telecom has pledged to join the U.S.’s AT&T Inc. in moving toward so-called tiered pricing, which could mean the end of unlimited data packages for mobile customers.
Tiered pricing would represent a look back to the future for operators, who began the online age by offering fixed-line Internet packages with usage caps that quickly became unpopular once technological advances made unlimited access practical.
Capping data use on mobile devices may be “untenable,” with customers likely to complain, according to PRTM’s Shah. Still, finding ways to lead their home markets’ increased data use is operators’ most critical challenge, he said.
“The impending saturation of the developing world and the acceleration in data have really put us past the tipping point,” he said.