Alcatels mergers with Lucent
AT&Ts plan to buy Bell South in US
Telefonicas buys O2 in
These were some of the headlines in businessworld in last one month and also the trigger for this posting .The basic idea is to go through the basic driver underlaying these consolidations and try to answer the question is
In the past if you look at other industry segments like Auto, Utilities, Pharma etc major consolidation happened when that industry reached a mature stage (i.e there is nor more disruptive products in the pipline which could change the business dynamics totally ).So idea would be study the present state of mobile communication (Mob comm) Industry to check are there any potential big disruptive technologies and services that could continue to make it a growth industry .In my opinion mob comm Industry is still a growth industry but some of the players in this industry may change (i.e some of the companies who are major players today may no more be in future and likely to be replaced by companies from other industries ).
Before going further let me classify the different players in this industry into 3 different segments namely
- Handset providersMobile Phone Manf) likeNokia,Motorola,LG etc
- Operators Like Vodofone,Cingular ,Verizon etc
- Network Infrastructure providers like Ericsson,Nokia,Lucent,Motorola
Now after this basic classification of players before entering into present dynamics in each of these segments lets go back in time quickly and try to trace the emergence of these segments and its players. Mobile industry as we know today is just 15 years old .Early 1990s saw the signs of the emergence of this industry around the same time when PC industry started to grow .During these past 15 years mobile phone has grown from being luxury service affordable by only few ,to essential part of common mans life.Today around 2.2 billion people have mobile phones most of these people had never had access to land line or ever used PC in their life this shows that the depth and width of penetration of this industry .Today in volume terms Mobile phones is the single most manufactured and sold elctronics item in the world (around 900 million units/year). During these years It has also produced extraordinarily huge companies like Nokia, Vodofone and ericsson representing those 3 segments
.If you look carefully the only killer service that this industry has served is Voice i.e the ability to make a simple telephone call even when you are mobile.This service was novel when it started to pick up in early 1990s even in developed nations, which meant industry had the pricing power and great margins which gave it a title from Investors community as “Growth industry “. As mobile services started to widen user base ,it had to make it more affordable hence lesser margins but still generated quite handsome profit as most of this net addition of new users were in developed nations were average revenue per user(ARPU) is still quite good .This phase of expansion lasted till early part of this decade.So far the story for industry was quite ok and still it kept its tittle as growth industry .But once penetration reached nearly 70% and in some countries like finland and sewden even 100% the only way to grow revenue was to increase userbase further in untapped markets like developing world or to introduce new high value premimum services in already established developed nations .So far this industry has continued to increase its revenue by using only the first method i.e increasing user base in developing world which meant driving the prices further down to make it affordable which also meant lesser margins and became more of size and volumes business and thus rising questionis is it any more growth industry?in my second posting I hope to cover each of the above segments in detail and tocheck weather second method of finding revenue stream exists ?.