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The Cash Cow is Dying: Mobile Networks Face Bleak Future

Gordon Kelly


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.


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.


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.

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