Making CAPEX profitable

Service providers continue to look to ways to increase revenues that are waning, though for the meantime it appears the more they invest in infrastructure, the less incremental revenue is being driven. Batelco Bahrain’s CEO, Rashid Abdulla, makes the point

Bahrain Batelco CEO, Rashid Abdulla, believes operators need to differentiate the services being offered, and then charge a premium for certain ones

“The more we invest in networks the more revenues we lose,” asserted Rashid Abdulla recently. “This trend is likely to continue for a number of years and give rise to cannibalisation.”

For a telco that invested BD50.8 million (US$135 million) in capital expenditure across its domestic and foreign networks in the first half of 2012, the idea of investing in infrastructure that does not immediately have a positive impact on revenues might be considered concerning.

Batelco is not alone in this concern. The monetisation of digital services that are now being delivered over mobile networks has been the focus of the service operator community since the introduction of 3G networks, though with the growth in the participation of over-the-top players in the 3.5G and 4G environments, the pressure to start making money out of high-speed networks has become more acute.

“As an operator community we need to focus on the grade of service,” Abdulla said. “We need to differentiate the services being offered, and then charge a premium for certain ones,” he added.

It has become apparent that cost control is an area that is being closely aligned to the expansion plans of service providers, and for Batelco the link between offering new services and retaining customers to spend money on them has been made even clearer through the adoption of its GEAR strategy.

GEAR is an acronym for the telco’s efforts to remain viable and overcome operational and competitive challenges with the G representing growth in mobility and broadband; the E representing excelling in customer care; the A representing the development of adjacent services; and the R representing the realignment of the telco’s cost structure.

As part of its GEAR strategy Batelco has been implementing a cost restructuring programme that it forecasts will help it save BD20 million annually starting from 2014. The telco intends to be very busy over the next coming 12 to 15 months on 42 initiatives across the entire organisation, essentially in Bahrain.

Abdulla also advises caution with respect to developments that are forecast to generate significant incremental revenues, without a view being taken on how service providers are set to benefit from such upgrades.

“Machine-to-machine is considered to be a huge opportunity, though it is generating an insignificant amount of revenue at the present time,” Abdulla pointed out. “The forecast is that there will be 50 billion connected devices in a few years, but what would be the point of those if they are not generating cash for service providers?”

Indeed Ericsson has been one of the biggest proponents of the ‘connected world’ vision and the significant revenue-generating opportunity that exists in the realm of M2M services. There are over one billion mobile broadband subscribers in the world today, with the number of global mobile subscribers expected to climb to nine billion by 2016. A year earlier in 2015, Ericsson forecasts that as many as 50 billion connected devices will be in use, with the view being that machines that benefit from a connection to some network shall increasing be so.

“The cloud, mobility and online social interaction and publishing are the key ingredients to allowing the connected environment,” said Anders Lindblad, Ericsson’s president of Region Middle East. We now exist in an environment in which the individual is empowered to become the developer of content as well as the distributor of content, and as such the amount of data traffic being transferred over communications networks is increasing drastically, creating both an opportunity as well as a challenge to network providers.