Time for greater reporting transparency in the mobile industry

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I was reading an article this morning that talked about the need for greater consistency in global financial-reporting standards, and it had a particular slant on the need for transparency regarding companies’ sustainability performance. It wasn’t focused directly on the sector I cover, but it did get me thinking about how stale reporting standards in telecoms have become.

If you think about it, the telecoms industry of today bears little resemblance to the state of the sector at the start of the last decade. If we cast our minds back to the year 2000, the industry was still over 18 months away from the launch of the world’s first ever 3G network. Even good old GPRS had only just been unleashed on the world. Back in those days, your average mobile user made a few phone calls, sent a handful of text messages and, in rare cases, occasionally checked his phone for the latest sports scores.

In fact, it would take another half-decade or more, until 2006 and the arrival of HSPA, for the transformation to really get under way. But the pace of change that’s swept through the sector since then has been remarkable. The explosion of data services with the rise of smartphones, dongles and other connected devices means the mobile world of today is virtually unrecognizable from that of 2000.

When we’re all agreed that the mobile sector has changed almost beyond recognition, why have none of the operators changed the way they report the changing nature of their businesses? A quick scan of your typical quarterly report reveals that the metrics of a decade ago are still being used to measure the relative operating success or failure of an operator’s business today. We all know what those standard measures are: subscriptions, ARPU, minutes of use and churn. But these metrics are being rendered more irrelevant by the day as multiple-SIM ownership grows, as voice usage is substituted for data and as operators target new segments of the market with an array of new device types, such as laptops, notebooks, tablets, e-readers, not to mention the whole connected world of the Internet of Things.

So just why aren’t operators quantifying the operational performance of the growing parts of their business? Sure, some operators will split out a few financial indicators that are a tad more relevant. Generally speaking, we probably do get some break down of revenues derived from voice and data; maybe even voice, messaging and nonmessaging data, if we’re lucky. But why not some more meaningful operational metrics? If I were a financial analyst, I’d be seriously questioning how I can credibly measure the performance of an operator’s data business with the bare bones of what’s reported today.

If operators are unsure of what’s insightful to report, let me kick off with a few ideas. For starters (and this list could be endless), how about:
1. Connections with data plans per operating company.
2. Connections with smartphones/dongles/M2M per operating company.
3. Average revenue per device type (i.e. smartphone, dongle, M2M).
4. Churn rate of different device categories (e.g. mobile broadband).
5. Number of converged customers (i.e. taking mobile and fixed services).
6. Customer lifetime value (based on all revenue attributable to a single user).
7. Average data-traffic usage (in megabytes) per month per connection.

I’m sure the operators will trot out the standard response that these numbers are competitively sensitive. But are they really? Are they really that sensitive that they’ll affect the competitive dynamics of their operating companies? I’d argue not. Why, for example, if operators are happy to report minutes of use for voice services, are they loath to publish average data usage per customer?

Perhaps a greater issue is that operators simply cannot provide the transparency on new data points because they don’t know them. It’s fair to say the capturing and reporting of internal data has never been the operators’ greatest strength. My discussions with operators have revealed that they struggle to get to grips with how to allocate revenue fairly when end-user spending is bundled together as a single flat-rate plan for voice, SMS and data.

To be completely fair, some operators are beginning to be more transparent about their businesses, and it is here that I’ll give a shout-out to Vodafone and Swisscom, which are starting to publish some interesting data points, albeit on an ad hoc basis. But ad hoc is simply not enough: These metrics need to be published regularly and consistently to enable the industry to analyze ongoing performance in a more enlightened way. The operators themselves will benefit as they learn to benchmark their performance against other operating groups across more meaningful metrics than total subscription numbers or ARPU.

I’m sure my sentiments would be echoed by industry-analyst colleagues the world over, but the reality is that pressure to open up can only really be applied effectively by the financial-analyst community. The cynic in me says it is only to serve financial analysts that operators will truly bend over backward to be transparent as they seek to secure as many positive “buy” notes as possible.

So here’s my call to arms for all the equity analysts out there: Demand greater transparency from the operators. Ask them to publish more-relevant operational data and ask them to do it more consistently. It’s only under pressure from shareholders that the operators will be forced to open up about the reality of their performance to the outside world and the industry will start to shift to understanding its success on the basis of a more meaningful set of metrics.


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