EE: New Tech Is Mobile Revenue Savior

EE has responded to a Light Reading story about the potential revenue disappointment of 5G by insisting that without new technologies its revenues would have fallen more dramatically in recent years.

The UK mobile giant, now a part of fixed-line incumbent BT Group plc (NYSE: BT; London: BTA), got in touch with Light Reading following the publication of a story earlier this week suggesting that 5G could be a bigger disappointment to operators than previous generations of mobile network technology. (See 5G: Another Next-Generation Disappointment?)

That opinion piece showed that EE's annual service revenues have fallen from £6.2 billion ($7.6 billion, at today's exchange rate) in 2011, the year before its 4G launch, to £6 billion ($7.4 billion) in 2015, despite the introduction of fixed broadband and TV services over this period.

A closer look at EE's financials reveals that annual service revenues from mobile activities dropped from £6.2 billion ($7.6 billion) to just £5.5 billion ($6.8) between those dates.

High-profile analysts have expressed concern about the telco business case for 5G despite optimism the technology could unlock new service opportunities and spur economic growth.

Bengt Nordström, the CEO of the Northstream consulting business, is doubtful that 5G will fuel a revenue increase for service providers, and thinks operators will invest in the technology to retain customers tempted by higher-speed rival offerings.

John Strand of Strand Consult seems in broad agreement, predicting that 5G will be a "financial disappointment for most."

But EE says it needs to keep investing in next-generation technologies to preserve the value in its business. "Just think how much our revenues would have dropped without the introduction of those technologies," said a spokesperson for the operator. "We're in the world's most competitive consumer market, which has an obvious impact on pricing, and we have regulation driving down prices at an astonishing rate."

"The only way we've been able to increase revenues or even stay flat is to drive more value into the consumer offering -- and that comes from network investment and innovation," he added.

While EE had nothing to say about 5G specifically, its comments about the prevailing trends could be seen as a tacit admission that 5G will not lead to a sales increase.

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Light Reading.

The operator also acknowledged that introducing new technologies reduces the value of their predecessors. "I think it's evident that value reduction will happen anyway -- particularly driven by competition and regulation -- and so technology becomes the savior of revenues," he said.

Europe's telcos have generally been keen to portray themselves as the victims of a harsh regulatory environment and overly competitive markets, with the region's authorities broadly opposed to in-country consolidation. While operators have also insisted that technology investments could suffer unless the regulatory environment changes, competition has so far driven players to keep spending on network upgrades.

Following EE's input, Light Reading looked into domestic mobile revenue trends at some of Europe's other big operators over the 2011-15 period (see graphic below). Not a single one of the five operators that we examined reported service revenue growth between these dates, and in some cases the rate of decline was dramatic.

Mobile Service Revenues ($B, Using Current Exchange Rates)
Source: companies. Note: Each operator has a financial year that runs from January to December, except Vodafone, which reports from April to March (so its 2015 financial year ends in March 2015).
Source: companies. Note: Each operator has a financial year that runs from January to December, except Vodafone, which reports from April to March (so its 2015 financial year ends in March 2015).

For investors, a big concern must be that 5G triggers a new round of spending on network equipment and spectrum without delivering the hoped-for sales improvements.

Nordström reckons operators will approach 5G warily and does not expect to see mass deployments of the technology for about six years, even though a standard should be ready for commercial rollout in 2020.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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