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Rocketing smartphone use could drive mobile operators into losses in three years unless they rapidly adopt technology to capture more revenue from data services, according to a US network company.
Rising investment costs to handle exploding data traffic combined with lower revenue per unit of data could begin to drive some operators into the red in as soon as two years, Tellabs said it calculated based on independent analyst data.
"Carriers can spend themselves bankrupt well before users run out of hunger for capacity," said Tellabs chief executive Rob Pullen.
"Our study shows that simply adding dumb capacity is unsustainable. To avoid the 'end of profit', carriers must bring intelligence to their networks -- it is critical to carrier survival," he was quoted as saying in a statement.
A number of industry players expect mobile data traffic, driven mostly by smartphones, to nearly double each year for the next several years.
While operators are investing heavily to add capacity and roll out fourth-generation networks, they are having difficulty earning money from data transfer and forecasts see falling revenue per unit of data transferred if current trends continue.
Dozens of companies such as Tellabs are offering mobile operators solutions to manage network traffic, reducing needed investments and opening possibilities to capture more revenue through priority services.
"Mobile carriers face a stark choice about their business models: it's either the smart mobile Internet or an unsustainable dumb-pipe business," said Vikram Saksena, Tellabs' chief technology officer.
Tellabs' findings come days before the mobile industry holds its annual gathering in Barcelona, where a smartphone-driven boom in data traffic overwhelming networks and capturing revenue from data are set to be at the top of the agenda.
Tellabs did not analyse specific mobile operators, but used a model that generalised costs and revenue structures in three major regional markets.
It found that operators in North America were most vulnerable to changes wrought by mobile Internet and that some could plunge into unprofitability as soon as the beginning of 2013, others at the end of that year based on median cost and revenue assumptions.
For developed Asia-Pacific markets, operators would enter the red from the third quarter of 2013 to the third quarter of 2014.
Western European operators are forecast to enter unprofitablity from the beginning of 2014 or 2015.

Canada's industry minister vowed Thursday to overturn a regulatory ruling that effectively put an end to small Internet service providers offering unlimited downloads.
"It is unacceptable that this decision stands and we will reverse this decision," Industry Minister Tony Clement told the House of Commons.
"It is important to protect consumers, innovators and creators, as well as small and medium-sized businesses," he said.
The Canadian Radio-television and Telecommunications Commission, or CRTC, ruled last week that telecommunications giant Bell can charge wholesalers that lease bandwidth on its network based on usage.
Many of these smaller service providers offered their customers unlimited Internet access at set rates, relying on bandwidth Bell and other big operators are required to lease to them.
Major telecommunications firms Bell and Telus, as well as cable companies Rogers, Shaw and Videotron do not offer unlimited plans and Bell suggested those offered by smaller service providers were congesting its networks.
Nearly 360,000 Canadians signed an online petition calling for the decision to be overturned, fearing it could lead to higher prices as consumers download more and more data such as high resolution movies or play games online.
Earlier CRTC chairman Konrad von Finckenstein defended the ruling, telling a parliamentary committee: "Ordinary Internet users should not be made to pay for the bandwidth consumed by heavy users."
He noted that a very small percentage of consumers are heavy Internet users.
According to the CRTC's Communications Monitoring Report, Canadians used on average 15.4 gigabits per month in 2009.
Likening the Internet to a public utility, von Finckenstein added the CRTC's view remained "that usage-based billing is a legitimate principle for pricing Internet services."
Clement told reporters he felt the CRTC's ruling "would have a huge impact on consumers and would hurt small businesses, would hurt innovators and creators."
He said he understands that bandwidth capacity is a problem, but usage-based billing "is the wrong way to do it."
The CRTC "must go back to drawing board," Clement also tweeted.