By John Strand, CEO at Strand Consult
The Mobile World Congress (MWC) once again set new records with over 108,000 visitors coming to Barcelona to exchange knowledge, experience, visions, and of course, thousands of business cards. MWC is one of the world’s most successful trade shows, and 2017 marks a decade since GSMA has become less financially independent of its members whose interests it defends.
A lot has happened since the 2005 MWC in Cannes attracted 34,000 to the event it has become today. The GSM World Congress started as a conference for mobile operators and those selling technology and solutions to mobile operators. In practice, the MWC has shifted focus to what other players can do with mobile technologies, and less on the mobile operators themselves. Moreover, MWC has evolved from being a conference focusing on GSMA’s members’ needs and the services they deliver over a mobile network to a conference focusing on mobile solutions. In practice, GSMA has chosen not to focus on how operators must finance their investments if they are to realise the dream of 5G.
Clinically cleansed event
This year’s MWC was an impressive event, but it was clinically cleansed of all the bad news and challenges facing mobile operators around the world. I spoke with several politicians at the conference, and they did not understand why increasing regulation is a problem for mobile operators.
One of the most important politicians in the EU told me that it looks like 5G will drive tremendous growth in mobile companies’ revenue, and he could not understand the complaints from mobile operators around Europe. He simply assumes that mobile operators will automatically make money with a new mobile standard, even though that was not the case when they rolled out 3G and 4G.
By hyping 5G, GSMA sent the wrong signal to the politicians, regulators and investors who participated in the MWC 2017. The last time the industry made this mistake was around the year 2000 when 3G was hyped up. It turned out to be an expensive strategy for shareholders. I gather that GSMA has forgotten the economic consequences of that hype. Indeed, a number of financial analysts I met at the conference agree to my assessment.
Why abolish roaming?
Sunil Bharti Mittal, the new chairman of GSMA and chairman and MD of Bharti Airtel , has built an impressive business in India and 20 other countries and runs it professionally. His first message was that that roaming should be abolished. The problem with the message is that it comes after operators across Europe have struggled against the new EU roaming rules. In practice, GSMA’s new chairman is saying the opposite of what a number of his organisation’s biggest members say about roaming in Europe. Thus Mittal sent a missile into a number of European operators’ credibility.
Roaming fees have several purposes: one is to ensure that operators can recover costs associated with building and operating networks in different countries. In practice price control such as roam like home do not allow operators to recover their costs. It boggles the mind why a gifted man like Mittal would want to abolish roaming fees, as it would be detrimental if applied to his own company.
The background for his presentation was that earlier that morning he announced that Airtel chose to end roaming across India and of all of its operations in 21 countries on incoming voice and SMS (not data). What Mittal forgot to tell is that the old Celltel (later Zain and now Airtel) companies already removed roaming in the same companies. Mittal announced 11 year old news at the MWC in 2017.
The big question that one should ask Mittal on his fight against roaming is whether he will reduce roaming prices that foreign operators pay to use his network in the 21 countries. It is not hard to abolish roaming on your own network if in fact you have economy; the problem occurs when you have to use other operators’ networks, especially networks in countries where it is expensive to build and operate mobile coverage.
Takeaways from MWC
In our MWC preview, we correctly described what we expected would be the main themes of the conference. 4YFN was an exciting event with many innovative companies and presentations.
The key presentation on MWC was “Building the 5G Economy” featuring FCC Chairman Ajit Pai, European Commission VP Digital Single Market Andrus Ansip, Orange Group chairman and CEO Stéphane Richard, and Liberty Global president and CEO Mike Fries.
The first presentation was Ansip who offered an un-motivating speech noting that he did not support in-market, but rather cross-border consolidation. It is clear that DG Comp’s Margrethe Vestager, determines which way the telecommunications market develops in Europe, not DG Connect where Ansip sits. Ansip’s talk was about the big goals EU has for the future. As a large investor said to me, “It was a clear speech — we can start investing in Europe some years from now when they finally reach their goals.” That is to say, the environment presently is not attractive.
The second presentation was Pai. A stirring presentation, it was obvious that the man believes in limited government intervention in the market. The proof of his view is the light touch approach adopted in the US from 1996-2008 in which innovation and investment exploded in the US. He was clear that the FCC’s 2015 net neutrality rules 2015 were a mistake. Pai signalled that the United States will return to a light touch approach, leaving the EU to continue down the path of falling behind.
The presentation by Fries showed a talented man who understands the industry, what creates innovation, and how to attract investors. His message was in line with Pai’s. With the growing government intervention in the EU, Fries expressed that Europe’s largest cable TV operator had little confidence in the EU’s policy and also noted the flip-flop of its leaders. First they welcomed Liberty for its investment to create an additional wireline facility, but then decided that they wanted to regulate it. It’s a sobering message for investors.
Then the group engaged in panel discussion. There was little evidence to suggest that the telecom crisis in the EU will improve. The European Union may make press releases about a 5G ambition, but growing regulation does not make a welcoming environment. The EU continues to fall behind the US in investment and innovation, and a lack of telecom investment will create the next crisis in EU.
I encourage readers to watch the panel discussion. After seeing Ansip, Pai and Fries, ask yourself where you would put your money if you were an investor, the US or EU? Strand Consult has no doubt about that investments in the telecommunications sector will move away from the EU and towards the US and other markets where it is more attractive to invest.
What they forgot to tell you
The combination of technical inspiration, amazing people, and good food and wine makes the week at MWC a special experience. Some other highlights include:
- Mobile driving global economic growth – They just forgot to tell about how mobile operators world contend with increasing regulation and declining profitability.
- 5G powering the fourth industrial revolution and the GSMA Innovation City – They just forgot to tell about how the value chain looks and how the revenue is distributed including how little the operators get out of 5G cake.
- Regulating for success – They forgot to tell that EU telecommunications policy is a disaster and that many operators hardly have the resources required to build and operate 5G networks in the future.
- Progress on delivering on UN’s Sustainable Development Goals (SDG) – They just forgot to mention that operators do not get much goodwill/revenue out of the SDG goal UN has set.
- Showcasing the latest devices – They just forgot to talk about how these new devices would deliver growth in operators ‘revenue or whether the experience was the same as we described in 2009 when we documented the iPhone had not created value for mobile operators’ shareholders.
- Connecting cars – They just forgot to talk about who should pay for the telecom infrastructure to realise the dream of connected cars. Seen from an operator’s eyes, the business case is very difficult.
- Delivering mobile-first content as highlighted in Netflix CEO Reed Hastings’ presentation – They just forgot to talk about why Netflix will not pay for the traffic it sends through mobile operators’ networks.
There is no doubt that it was a fun week of hype, but I miss the substance GSMA used to provide to communicate the operators’ predicament. The was nothing to help explain how mobile operators will fund the 5G rollout, let alone earn money on it. I expect that a number of operators will find a more effective partner than GSMA to represent their interests successfully.
With new roaming rules and growing regulation for net neutrality and data protection affecting the industry negatively, the outlook for the EU is bleak. GSMA missed an opportunity to tell 108,000 people about the many challenges mobile face. Operators need to find a new venue where they can engage political and regulatory actors, as it not the current MWC. With the hype of 5G, operators are on the same path as they were with 3G. Everyone wanted a party of revenue, but the results did not excite shareholders.
Strand Consult is a research firm based in Denmark.