Does Google Matter?

Global ARPU (voice and data) is declining 4% per year in the future, and data mix is still barely creeping above 20% despite bolder, capacity-soaking, flat rate plans. Asia and Africa is growing like crazy but the combined monthly ARPU for China and India are still less than $20, which is less than half of US and only 2/3 of EU levels. New spectrum and licensees are fast coming into play. Meanwhile, mobile termination rates continue to decline in advance of 4G, and everyone still wants to wrestle handset subsidies back to earth, as devices in circulation rise to the multiple billions. This evergreen profit squeeze increasingly pushes handset vendors to retail, bypassing the operators, and drives operators to add more services to their own portals. No wonder we see the proliferation in new wireless operating models that span from low-frills to the most business-friendly and usage-rich; from prepaid, unlimited voice and data plans to the most applications-deep options for higher-pay segments—in order to expand the revenue envelope. No wonder that wireless carriers on average (not even first quartile-performing ones) have reduced opex per subscriber by 13 percent last year, on top of a 5 per cent reduction the year before that!

Google will eventually emerge from its core war in advertising to take on the mobile services sector, but we Spartans have scarce precious time to prep, train and defend. Some initiatives come to mind: be more innovative and daring in pricing, such as dynamic tariffing (pioneered by major operators in some developing markets to optimize revenue profile); streamline the archaic global handset/CPE supply chain (too many handoffs, too much footprint and complexity, 19^th century forecasting techniques), upgrade user interfaces a la Apple to handle true multi-session management (nextgen messaging, screens, resolution, etc), rationalize and even turbocharge industry alliances (how far can Ovi go?) and continue the unrelenting, banshee-like attack on cost structure, by pursuing delayering and cross-geography initiatives.

The business case for Google shareholders requires first a pitched battle in the ad world against two types of wily foes, and an eventual expansion into an equally well-established subscription-based revenue world. In girding for this eventual combat (while still many moons away), traditional telcos must upgrade their own business models to be more robust and defensible. Google matters most, in that its spectre can finally mobilize our sector to become truly world-class in both strategy and operations.

Alex Liu is a partner at A.T. Kearney, and leads its Communications, Media and High Technology practice in North America.