Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
President Obama’s visit to Myanmar a few months ago was considered as a major sign of U.S. interest in this part of the world. For the telecommunication industry, this is certainly the last “Eldorado” in the world: 50 million inhabitants, no existing infrastructure and wireless licenses to bid for. No surprise that all the major carriers in the world, like Vodafone or Airtel, jumped on this opportunity and entered the race. Well, not all the major carriers … certainly not the American carriers.
All the largest carriers in the world, without any notable exception, have always looked for growth outside their country of origin. All of them: Telefonica in South America, France Telecom in Africa, Deutsche Telekom in Eastern Europe, Telenor in CIS, Qtel in the Middle East, Singtel in South East Asia, Softbank (Japan) in the United States.
Over the past few years, American carriers did the reverse, and divested most of their investments outside the United States. In spite of some rumors saying that AT&T would be interested in investing in Europe, we do not believe that this is going to happen any time soon.
You just have to look at the figures: for U.S. carriers, there is no place like home. If on paper most of the European carriers claim levels of earnings before interest, taxes, depreciation and amortization similar to AT&T and Verizon Communications (30% and above), those markets are much tougher than the United States.
In countries like Italy or Germany, the wireless average revenue per user dropped by 30% over the last eight years, while it remained more or less flat in the United States. A triple play (Internet, phone and television) in France would cost you around $40, three-times less than in the United States.
The reasons for that are multiple. European markets are very competitive, with regulations favorable to mobile virtual network operators for instance, or unbundling of the local loop, unleashing fierce competition on the broadband market. As the countries are also smaller in size, each carrier can easily cover all the territory with its network and its retail branches. Hence, a more direct competition between all the players.
The only chance of an AT&T or a Verizon to succeed in Europe would be to engage in multiple purchases and consolidate the market. This is a long and risky process.
In emerging markets, the example of Myanmar is misleading. Most of the great opportunities have already been realized. Market shares are still up for grabs, but at the bottom of the pyramid, with people spending a couple of dollars per month on wireless calls. Deploying a brand new network there would never give you a return of investment comparable to the standards of a U.S. carrier.
Should our national carriers then keep concentrating on the domestic market? Not necessarily. There are a few interesting opportunities for overseas investments.
The first one is in the submarine cable business carrying the Internet traffic. With the spectacular growth of the number of Internet users in emerging countries, the traffic is skyrocketing and the paradox is that this traffic needs to be routed to the United States for the most part, as this is where the most successful services are hosted. The need for international connections is huge. Internet giants like Google and Facebook know how critical this is, and have invested money in this business themselves. There is no reason for the U.S. carriers not to do so; this is a traditional infrastructure capital expenditure intensive business, with volumes of transactions that can easily be forecast.
Another area of investment is in the software business. Verizon and AT&T are already shopping in this business but mostly in the United States (e.g. Verizon with Terremark or Hughes with telematics). Acquiring software is key to addressing the enterprise segment and to follow the overall move of the service delivery to the cloud. Even if the U.S. remains the most exciting market for software, there is no reason for not shopping overseas. Let’s remember that Spotify comes from Sweden and Angry Birds from Finland. The marketplace is global and full of opportunities.
