Consolidation has also strengthened key financial measures in wireless operations.
For example, operating cash flow or earnings before interest, taxes, depreciation,
and amortization (EBITDA), which measures a company’s ability to fund operations and to borrow, has been rising in wireless firms. “Thanks to consolidation, the wireless industry’s financial statements are beginning to resemble those issued by wireline local exchange carriers,” Sutherland says. “Wireline companies historically generate EBITDA in the 30 to low 40 percent range. That’s pretty
good. And as an industry, wireless is getting close to that level.”
Sutherland points to an Ernst & Young study in 2003 showing that major North
American wireless companies achieving EBITDA margins of almost 30 percent, with
wireless companies in Europe surging above 30 percent. “This is still below the wireline companies, but thrusting into the same range,” he says.
MVNO: Regulators developed the original concept for mobile virtual network operators (MVNOs) a number of years ago, but the idea didn’t truly take hold until it went through a radical metamorphosis that was characterized by a rationalization of the market. Today, MVNO has become an exciting new business opportunity. “Business ventures between companies with wireless networks and companies that want to plug into those networks are taking off,” says Sutherland. “The most
recent example is the cable operators cutting an MVNO deal with Sprint-Nextel. This is an important trend that is driving the industry in new directions.”
New Business Models, New Services,New Handsets
A couple of trends have begun to alter the business models and service bundles being offered by wireless competitors. “Given the Verizon-MCI and SBC-AT&T mergers, we expect to see more bundled service offerings,” says Gerald M. Belson of Deloitte Consulting. “In some cases, we may also see a push toward disaggregated models. Sprint-Nextel, for example, has announced partnerships with cable companies and is wholesaling its wireless services.”
As business models evolve, the nature of competition may change, continues Belson, who is also impressed with the possibilities presented by MVNOs. Unlike a wireless reseller, an MVNO such as Mobile ESPN, for example, will bring an established brand and unique content to its service offerings. “This is not just a resale play designed to make a profit on margin,” Belson says. “MVNOs aim to provide a differentiated customer experience. Some of the niches in this kind of business might be sizeable. Cable companies, of course, can use the concept to add wireless to their offerings and market a quadruple play or home run service that includes voice, data, video, and wireless.”
New business models and new services will of course require new and improved handsets. Belson lists five features that will probably have to improve.
