Mobile Operators Missing Opportunity to Double Cash Returns for Investors

HIGH WYCOMBE, United Kingdom, Nov. 10, 2011 /PRNewswire/ -- Mobile operators are missing a clear opportunity to double cash returns by following current network strategies. This finding comes from a new report entitled "The value of 'smart' pipes to mobile network operators," commissioned by Tellabs and undertaken by STL Partners.

Cash returns on invested capital for mobile operators today are typically 5.8%, in line with utility company stocks. The report concludes that mobile operators can more than double cash returns to 13.3% by delivering smart services. Smart services can improve operators' share value and performance, turning today's value stocks into tomorrow's growth stocks.

The research during Q2 and Q3 2011 is based on a deep analysis of strategies and cost modelling of major mobile operators from North America, Western Europe and Asia Pacific.

"In the face of stagnant share prices, investors now demand higher dividend yields, limiting mobile operators' ability to fund growth," said Dr. Vikram Saksena, Tellabs CTO. "It is vital that operators increase return on invested capital to boost their stock performance. The Tellabs-STL report demonstrates the real value that mobile operators could return with a strategy that focuses on leveraging smart networks to deliver smart services."

Mobile operator stocks in need of a boost

While mobile network operator stocks demonstrated incredible growth over the last 10 to 20 years, now that growth has slowed or stopped. Operator stocks have become "utility" stocks, causing investors to demand higher dividend returns, in turn reducing stock value and limiting funds available for new investment.

In order to boost performance, operators need to move from current practices – such as relatively dumb networks and one-sided business models – to full service offerings with smart services enabled by smart networks. This transformation requires infrastructure changes to increase the awareness and intelligence of networks, as well as leveraging these new capabilities to develop smart services.

The report finds that smart networks can increase mobile network operator cash returns on investment by 1.6%, from 5.8% to 7.4%. Delivering smart services over these upgraded networks requires the implementation of new business models, and smart services have the ability to increase returns by a further 5.9%, from 7.4% to 13.3%.

Smart networks come first on the road to smart services

To achieve the 1.6% increase in cash returns enabled by moving to a smart network, the following elements are essential:

• Efficient network configuration
• Network security
• Device management
• Network sharing
• WiFi offload
• Traffic shaping
• Multicast and content delivery networks (CDNs).

To increase cash returns by a further 5.9%, the following smart services must be introduced:

• Delivering personalised and differentiated user services that leverage assets such as customer data
• Making additional operator assets, such as location, presence, payments, identity and authentication, available to users and other service providers
• Implementing differentiated pricing and charging for users and upstream service providers based on customer segmentation and tiered service levels.

"Make no mistake, these are not easy moves for mobile operators to make," said Chris Barraclough, Managing Director of STL Partners and author of the report. "There is a great deal of work that needs to be done to move towards smart services, including many business models, technological and cultural shifts. If operators can successfully implement a 'Telco 2.0' smart services strategy, they can really boost financial performance. But the analysis in the report reveals that many in the industry feel such a full-service offering is beyond most operators," concludes Barraclough.

In February 2011, a Tellabs study demonstrated that mobile operators around the world face the "end of profit" as the costs of supporting the mobile data boom are on a trajectory to exceed associated revenues -- unless mobile operators change their business strategies. The new Tellabs-STL research adds further pressure to the argument that mobile operators face a stark choice: either a profitable smart mobile internet or profitless dumb mobile internet.  

The full report is available on request at http://info.tellabs.com/smartpipes

Cash Returns – "CROIC"

Cash Returns on Invested Capital (CROIC) is the rate at which cash is generated for investors relative to the total capital (debt and equity) invested in a company.  It is a particularly useful metric for investors because it removes measures that can be open to interpretation or manipulation such as earnings, depreciation or amortisation.  

Editor's Note: If you have questions about Tellabs and STL Research's "The value of 'smart' pipes to mobile network operators," join us for a live Q&A session on Twitter on Tuesday, Nov. 15, from 10 a.m. to 11 a.m. Central Time. Follow our Twitter account at http://www.twitter.com/tellabsinc and submit questions with the hashtag #smartnetwork.

About STL Partners

STL Partners is a research, brainstorm events and consulting company that specializes in business model innovation at the intersection of the Telecoms-Media-Technology sectors.  As creators of the Telco 2.0 initiative, we work with visionary leaders who are looking to make breakthroughs with their businesses at a time of unparalleled disruption and change. www.stlpartners.com

About Tellabs — Tellabs innovations advance the mobile Internet and help our customers succeed. That's why 43 of the top 50 global communications service providers choose our mobile, optical, business and services solutions. We help them get ahead by adding revenue, reducing expenses and optimizing networks.

Tellabs (Nasdaq: TLAB) is part of the NASDAQ Global Select Market, Ocean Tomo 300® Patent Index, the S&P 500 and several corporate responsibility indexes including the Maplecroft Climate Innovation Index, FTSE4Good and eight FTSE KLD indexes. http://www.tellabs.com

Tellabs® and Tellabs logo are trademarks of Tellabs or its affiliates in the United States and/or other countries. Any other company or product names mentioned herein may be trademarks of their respective companies.

SOURCE Tellabs