Do you feel as though operators are about to enter a period of pricing power?
That’s the view of Stephen Howard, Head of Global Telecoms, Media and Technology Research at HSBC. Howard said that for the first time “ever” the mobile industry could be in a position of pricing power – ie the ability to increase prices and not affect demand for the product – mainly due to the fact that scarcity of spectrum and bandwidth is now becoming an issue.
Howard said that in his view operator capex will have to rise over the near term, as operators have to address the capacity demands they are facing. That would normally be bad news for investors, he said, as it would be assumed to have a negative impact on free cash flow. But in this case the increase in capex would only be a return to the mean.
But also, Howard is encouraged by the sense that scarity will become a factor, meaning that operators could enter a period of pricing power.
It’s a different story from the one we’re used to hearing about mobile operators – the one that says that prices are doomed to fall as operators’ attempts to differentiate in any other manner are made irrelevant by over the top service providers.
It’s also a view that relies on the view of exponentially rising data demand, as Howard himself called it, and a limit on the ability of alternative models (WiFi, femto, etc) to meet it.
Are there any examples of operators out there that have raised prices or are raising prices, confident in the value of their product? I suppose you could cite the hefty tariffs operators attach to the iPhone – but that is surely as much about the perceived value of the device as any one operator’s own value.
So, pricing power… what do you think?