Wireless Service Providers Look to the Cloud to Regain Profits

Despite booming growth in data revenue, margins for wireless operators have been squeezed as they have been slow to react to the paradigm shift wrought by the explosive rise of broadband usage on smartphones and tablets, forcing the operators to embrace new revenue services and business models—including the cloud—to enhance profits, according to the IHS iSuppli Mobile & Wireless Communications Service from information and analysis provider IHS.


“Mobile communications service providers have lagged behind in the race to unlock the value in the mobile communications industry, which is estimated to grow to a trillion dollars during the next two years,” says Jagdish Rebello, Ph.D., senior director and principal analyst for communications and consumer electronics at IHS.


“Because of this, the average operating profit for wireless service providers around the world declined in 2010, even as semiconductor suppliers and device manufacturers improved their margins. With the transformative impact of tablets and consumer-centric smartphones, the pace of change is accelerating in the wireless market. And to reclaim their share of profits, wireless carriers must be willing to take risks, move fast and be innovative in their offerings. A key offering will be cloud-based services for tablets and other mobile devices that represent a new revenue stream for these companies.”


Sunny Days Ahead

Consumer and enterprise spending on the public segment of the cloud is projected to rise to $110 billion in 2015, up from $23 billion in 2010, as presented in the figure below.


The public cloud represents a concept of cloud computing wherein services, software and storage are configured and delivered, over the shared, public Internet infrastructure in a framework that is rapidly scalable, dynamically provisionable, on-demand and with minimal management requirements.


IHS believes that mobile network operators (MNO) can capture about 7 percent of the total spend on public cloud services in 2015, up from less than 1 percent in 2011.


Data on Data Revenue

Global wireless data revenue grew by almost 18.5 percent in 2010 to $218 billion, and is expected to rise to approximately $337 billion by 2015.


Despite the strong increase in data revenue, the average operating profit margin of wireless service providers declined to 19 percent in 2010, down from 20 percent in 2009.


Tablet Revolution

Meanwhile, media tablet sales are booming—with the market dominated by Apple Inc.’s iPad.


Global media tablet shipments are expected to rise to 60 million units in 2011, up 245.9 percent from 17.4 million in 2010. Shipments then will rise to 275.3 million units in 2015.


Because of their dependency on Internet-based resources and enhanced user interfaces, media tablets are driving up wireless data traffic.


However, many media tablets are being offered without cellular connectivity, and in many cases are being sold with no subsidies. In contrast to smartphones, tablets are not reliant on wireless carrier marketing and advertising.


As a result, wireless carriers often are being bypassed in the key area where they derive revenue for data services: fees related to mobile broadband access for data plans on tablets.


To compensate for the lack, wireless operators must concentrate on other segments of the data market, particularly value-added services including the cloud.



Cloud Opportunities and Challenges

The transition to could-based services will require new levels of data security, backup and disaster recovery. This is especially important in the enterprise information technology (IT) environment to ensure that critical elements of the corporate knowledge base are protected and safeguarded. It is in this new paradigm that IHS sees a tremendous opportunity for service providers to offer differentiated services and gain relevance.






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