In the book, Tipping Point, author Malcolm Gladwell describes a tipping point as “the moment of critical mass, the threshold, the boiling point.” The point where the sociological scale tips and “ideas and products and messages and behaviors spread like viruses do.” Gladwell gives interesting observations of how once unknown products and behaviors reach the “tipping point” and become wildly popular and eventually commonplace. I argue that such a phenomenon will occur in the near future in the wireless industry. No, I am not making some bold prediction but rather simply pointing out an obvious fact – with nearly everyone in possession of a cell phone, the cellular industry is nearing market saturation and is transitioning into the mature phase of the business life cycle.
In the cellular industry, operators rapidly blew through the introduction phase and are deep into the growth phase where it has been for the last ten to fifteen years. With the onset of the maturity phase, however, comes the cellular tipping point.
Here’s Business 101. When companies reach the maturity phase of the business life cycle they attempt to prolong a product’s life span by stretching this phase for generations. It is a business school fundamental that the best way to prolong this phase is to reinvent yourself as many times as possible and simultaneously optimize margins. While struggling as of late, the auto industry is a classic example of success in this endeavor. Each year they introduce new models of old cars aimed at getting consumers to trade-in for a new/improved version. But auto makers only paid attention to one side of the equation. It has been the mismanagement of opex over the last several decades that has caused American auto manufacturers to falter – they simply can’t compete with foreign manufactures that can produce an equal or better car with substantially lower labor costs per vehicle.
Back to the cellular industry. Operators are making the same competitive adjustments to their products. Each carrier is upgrading their networks to the next “G” in an effort to reinvent themselves faster than Madonna. They are introducing new über-cool handsets so quickly you’re in constant phone-envy and the end of your two-year contract comes slower than a child’s Christmas morning.
But unlike the auto industry, don’t think operators are ignoring opex. FierceWireless recently published an article entitled, “Operators now playing the opex game”, which points out that mobile operators can no longer focus on subscriber acquisition to grow and that they are now focusing on opex in an attempt to manage margins. While I have been forecasting this phenomenon as “the perfect storm” ever since AGL published my first article, I want to declare again that the tipping point is very close. Over the next twelve to twenty-four months I argue that key industry executives and Wall Street analysts will make the reduction of wireless opex such common speak that the masses will shift from focusing on capex and speed-to-market to scrutinizing operating margins. Are you prepared for this tipping?
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