The Cash Cow is Dying: Mobile networks face bleak future

meI say I say I say, what’s the difference between a telecoms company and an ISP…? Nothing!

Technology jokes may not be the best, but in five to ten years everyone

will understand this punchline. How we use our mobile phones is rapidly

changing and in order to keep up mobile networks are being forced to spend

billions shooting themselves in the foot.

WhatAppening
The latest evidence for this comes from research company Informa, which revealed this week that use of instant messaging apps has overtaken SMS

for the first time. According to its data nearly 19 billion messages

were sent per day on chat apps in 2012, compared with 17.6bn SMS.

Interestingly

this research is also half baked. Informa only took WhatsApp,

BlackBerry Messenger, Viber, Nimbuzz, Apple iMessage and KakaoTalk into

account leaving out arguably the two biggest: Facebook Messenger and

China’s dominant TenCent service.

So SMS is losing, but at over

20 years old it should be losing. What’s more interesting is the bigger

picture. People don’t prefer apps over SMS, they prefer data over

everything else.
SMS
Megabytes not mega minutes
Data

is the revolution mobile networks are forced to inflict upon themselves. Their

heyday was the 2G era when the number of cross network minutes and SMS

was the defining element of your contract. What they didn’t see was the

danger in 3G.

In spending an astonishing £22bn on 3G licenses in

2000 UK telcos, like telcos around the world, thought they were opening

themselves up to a lucrative new world of restricted content portals,

MMS messaging and video calls. In reality 3G bred the smartphone, which

opened up the web and bred the “app store”.

Mobile networks tried to fight

back. Network-specific app stores were pre-installed on handsets to try

and grab a slice of their revenue and Orange and O2 famously vetoed the Nokia N97

because it dared to integrate Skype into the main dialler. Even now

truly unlimited data contracts are resisted by most networks for fear

the higher quality, geography-free nature of VoIP will take off like

messaging apps. Whatever their self serving attempts, it seems inevitable.

Pandora’s Box is open and it cannot be closed. Understanding their fate, mobile networks bid just £2.34bn for 4G licences

this year knowing it will slash their last major revenue stream and

premiums for 4G contracts will evaporate as competition increases. They

fight to chop off their own heads.

Take up and roaming

All

of which has led to something of a celebration. Mobile networks are about as

popular as estate agents, and even Neelie Kroes, vice president of the European Commission, couldn’t resist a dig on hearing Informa’s research: “The cash cow is dying. Time for telcos to wake up & smell the data coffee.”

The

trouble is mobile networks know they are dying, just as we all know we are

theoretically dying with each breath. Change will take time. Globally

smartphones have only just overtaken feature phones. Research firm IDC confirmed the figures

on Monday saying smartphone shipments made up 51.6 per cent of the

phone market. That means there are still a lot of non-smart handsets

unable to capitalise on data’s benefits, the majority of which are

bought in the world’s poorest countries.
phone use
Furthermore

travel remains a huge barrier. In Europe, Crowes’s own initiatives have

seen data roaming rate caps introduced that cut previously unregulated

rates to 90 euro cents (81p) per megabyte in July 2012. Further cuts to

70 euro cents (63p) and 50 euro cents (45p) will come in July 2013 and

2014 respectively. This is useful, but it hardly makes VoIP appealing

and it doesn’t allow most people to leave their data hungry smartphones

continually roaming, so messaging apps become impractical.

Travel

outside Europe and there is no roaming regulation at all and no sign

any is likely unless governments can band together – hardly likely to happen. As such

unlocked phones and local sims seem the only solution for the data lover

far from home.

Diversify or die
Still, while roaming

remains lucrative, it is clear the core business of mobile networks is gradually

being ripped apart. 11 months ago O2 reported phone calls were just the

fifth most popular smartphone activity and the launch of 4G (which isn’t

used for phone calls) will shrink that further. So networks must adapt.

With 4G providing potential speeds of up to 300Mbit, the

obvious market for telcos to attack is fixed line broadband. Hardcore

users will most likely stick to their fibre connections,

but for many the convenience of no fixed cable or home phone line will

have strong appeal. Networks will be able to charge premiums, though

probably not for long.

The irony in all this is telcos have

never been more important. Their mobile networks are instrumental to the

progression of smartphones, tablets, laptops and Cloud computing. The

trouble is what fuels them is a commodity and in the data revolution

telco’s lose.