Europe's mobile industry is cutting back spending on new networks and services as a growing regulatory burden from the European Union puts profitability under pressure, according to GSMA, the global trade body for the mobile industry. To justify the imposition of retail price caps, the European Commission has claimed that mobile operators are making excessive profits, but the European mobile industry's return on capital employed was just 9 per cent in 2006 compared with more than 20 per cent in software, pharmaceuticals and several other sectors, says management consultancy A.T. Kearney.
In its response to the European Commission's public consultation on the voice roaming regulation, the GSMA warns that European mobile operators, on average, are only just covering their weighted cost of capital and some of them are making an economic loss. A.T. Kearney estimates that ROCE for the mobile industry in 2007 was equal to or slightly lower than the 2006 figure.
Historically, one of the leading investors in Europe, the EU mobile industry's capital spending has slipped from 13 per cent of revenue in 2005 to 12 per cent in 2006 to 11 per cent in 2007. However, heavy capital investment is needed to ensure the widespread availability of advanced 3G networks, which enable mobile users to access the Internet and other multimedia services at broadband speeds. While the mobile industry's technology roadmap envisages further dramatic improvements in network performance and capacity, the speed of deployment of new networks may be constrained by the mobile industry's relatively low level of profitability.