Mobile Key to Broadband Growth in Emerging Markets

Mobile broadband will drive next generation broadband revenues in emerging markets to nearly double by 2017, according to Generation Next, a study identifying the five biggest TMT growth trends in emerging markets commissioned by global law firm, Linklaters.

Revenues for mobile and fixed broadband services are forecast to grow by 89 per cent to $193bn in 2017, from $102bn in 2012, with connections rising to 3.7bn in the same period.

Mobile broadband penetration is predicted to skyrocket to 3.2bn users by 2017, accounting for 87 per cent of all emerging market broadband connections. Though 4G services will grow, 3G services are expected to dominate revenue growth during this period.

Fixed-line broadband is forecast to grow more slowly, accounting for just 14 per cent of total connections. However, its proliferation in higher income areas and households will see it account for 56 per cent of revenues in 2017.

“The battle for next-generation broadband services is just beginning,” said Julian Cunningham-Day, telecoms co-leader at Linklaters. “The next big wave of growth is all about finding the route to market in areas which are not always easy to monetise and connecting those consumers that can’t be reached with traditional fixed-line infrastructure.”

Despite the significant growth projections, broadband service providers may face a profitability challenge, with overall income per customer expected to fall by 32 per cent. Changing consumer demands, growing competition, and the increasing proportion of lower-margin mobile broadband connections will all contribute to this income pressure.

According to the report, strategic collaboration, in the shape of equitable partnerships, via contracts, JVs or M&A frameworks, will be vital to overcoming the profitability squeeze.

“Broadband providers won’t be able to ride an easy wave of growth, they will need to forge strategic partnerships to build the services required,” said Roger Barron, telecoms co-leader at Linklaters. “Decreasing income per customer means that success will depend on the strength, structure and suitability of those collaborations.”

The report singles out China, India, Indonesia, Brazil and Russia as the five largest growth hotspots for fixed and mobile broadband. However, it also ranks and details the important risk considerations for companies operating in these markets.
China alone will account for 894m new broadband connections and $53bn, or more than a quarter of all broadband revenues in these major growth markets. Whilst India will also see significant growth of 466 per cent, from $3bn to $17bn by 2017, the report signals a word of caution giving it a high-risk rating for new TMT investments.