According to Wikipedia a “perfect storm” is an expression that describes an event where a rare combination of circumstances will aggravate a situation drastically.” The term gained popularity when George Clooney stared in a film called The Perfect Storm (based on the book by Sebastian Junger of the same name) about the 1991 Halloween Nor’easter in which three weather conditions combined to generate a perfectly fierce and deadly situation:
• warm air from a low-pressure system coming from one direction,
• a flow of cool and dry air generated by a high pressure from another direction, and
• tropical moisture provided by Hurricane Grace.
Today in both Europe and North America, the wireless industry shows its own combination of circumstances which could create a future perfect storm:
• market saturation – it is estimated that 85-90% of Americans own a cell phone and the number in many European countries are estimated to be at or over 100%,
• cheaper “all-you-can-eat” rate plans – in the USA, all of the four major carriers offer voice/data plans for $99/month and Metro PCS offers voice plans for as low as $50/month, and
• increasing OPEX – the two largest expenses for wireless carriers are payroll and rent roll and both are inflating.
It doesn’t take a meteorologist to forecast enormous pressure on cellular operating margins. And it is safe to assume that cellular operators have and will continue to focus on this issue.
On the revenue side of the equation, operators will battle it out for the final 10-15% of market share, and operators will continue to search for more ways to increase ARPU by adding cool apps and services as well as introducing cooler handsets to encourage subscribers to remain loyal and/or switch to their service. The iPhone/Blackberry battle is the classic example of this.
On the expense side, these conditions place pressure on payroll and rent roll and operators are looking for ways to lower OPEX. Expect to see more outsourcing and tighter cost controls. Also expect to see more rigorous scrutiny applied to lease costs. With annual rent rolls in the billions, operators will be keeping a close eye on the rent expense.