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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.


May 2, 2013, 9:25 pm

Good article. The whole roaming rip-off is the last, durable, refuge of these scoundrels. However, they could be hoist by their own petard; their stubborness will only encourage people into VOIP, because they then have a telephone number free from the control of the carrier and can use the same number even abroad on a local sim. It's just data, after all.

On a side note, I wonder how many people with cable broadband nevertheless still maintain a traditional telephone landline, instead of going VOIP.

Paul Brasington

May 3, 2013, 12:32 am

I agree with your analysis Gordon but the unknown is whether the mobile telcos will find a way of getting past the commoditisation of their business. I've done quite a lot of work as a writer over the years for a couple of the mobile majors and I can say that they are well aware of the problem, but having milked their customers shamelessly over the last ten years they are not well placed to position themselves as a trusted helper for the new data world. I remember too that when it was first clear that Apple was developing a phone commentators said "ah but they don't understand the business" and Apple proceeded to piss all over them - because it turned out that people like Apple and didn't really like any of the networks, so Apple set its own terms. Can't see any of those networks getting anywhere near the real added-value ecosystems created by Apple and Google (and I wouldn't write off Microsoft... yet). But then you might have said the same of BT, which has (more than the mobile telcos) managed to reshape its business model far away from time and distance based call charging, and claimed some success in content provision ... Too early to call then ... but interesting times


May 3, 2013, 9:32 am

Dear mobile telcos,

Please die already.

Signed: everyone who's had to pay 15 cents for 140 BYTES of data (more than NASA pays to send data to Hubble, just for comparison)

Gordon Kelly

May 3, 2013, 10:58 am

Agreed. I actually have a Nexus 4 because I travel abroad a lot and switch out to a local sim. As such unreasonable roaming prizes mean UK telcos miss out on any money from me. Had their rates been more fair I wouldn't have bothered with the hassle.

I actually have cable and a phone line, but it is only because I need a backup service as I can't afford to be cut off from work. I suspect that's not the norm though! In Scandinavia very few people have a home phone line, it is all mobiles and cable broadband. Given how advanced their networks are I suspect that is a vision of the future for the UK. Albeit with 4G also being a viable alternative for some.

Gordon Kelly

May 3, 2013, 11:00 am

Haha. I think it is roaming rates more than anything which have destroyed any last shred of sympathy for mobile telcos. I don't think they'll ever die as we need their networks, but they will just become mobile ISPs.

Gordon Kelly

May 3, 2013, 11:03 am

I think your analysis is spot on too!

Mobile telcos are definitely aware of the problem and Three, in particular, has even tried to embrace a data centric world but you are right - they harbour little to no trust. Had WiMAX ever taken off I wonder if it wouldn't be the likes of Google Fiber that would have been powering our networks.

BT has actually played an interesting long term game. When they pulled out of mobile it was seen as madness, but ultimately it has strengthened its fiber network around the country, taken on numerous hotspot partnerships with mobile telcos and generally done well. That said the home phone line is slowly dying so it still has some reshaping to do yet.

PS And yes, never write off Microsoft!

Jack Westrop

May 3, 2013, 6:30 pm

Great article, yeah telcos have been ripping people of left right and centre for years - or at best, slowing progress/change for their own sake. I pay for a fibre connection to my house, and with that I can make as many VOIP calls, IMS, and download as much stuff as I need, with mobiles you get significantly less for your money. I refuse to have a mobile contact, poor value for money. I have no sympathy for telcos, if only everyone knew what tech minded people know, they would have been forced to change or die years ago.

Jenna Whitmore

May 4, 2013, 12:11 am

Your mobile carriers in the UK like Three have big plans for data, no worries. They are now mapping class of services to sell you based on your data consumption. So, if you are a big Facebook user, you can purchase a fast track Facebook plan. Get it, you will pay them based on services you use on your mobile. They have already install the data selection routers in their data centers. These devices allow them to segment each data stream your mobile is using and so they know everything you consume on your data connection. I know, I helped them install it. ;) Reluctantly.

Gordon Kelly

May 4, 2013, 11:26 am

You're right! It is pronounced like 'Crowes' though, hence the accidental error.

Thanks for pointing it out. She is one of my favourite politicians too - she certainly makes her feelings known!

Gordon Kelly

May 4, 2013, 11:37 am

Three certainly does and some of the smaller virtual carriers like Giff Gaff and Virgin are pushing that way. It isn't true that the traditional heavyweights have moved in that direction though as they want to hold onto their traditional revenue models as long as possible.

That said they clearly have to embrace the future eventually and data speed and reliability are big factors now in choosing a telco. It's interesting you have been helping to install the hardware - any fascinating details to share? :)

Gordon Kelly

May 4, 2013, 11:39 am

I take a similar approach. I've been the 3's One Plan for years now, though Virgin's VIP tariff is now hugely appealing: http://www.trustedreviews.c...

Ultimately in trying to hold back the tide, the pressure has only built up so when it does fully crash through I think telcos will be in worse shape than had they embraced data sooner.


May 7, 2013, 11:12 am

I see a I lot of people writing and commenting on tech websites who ignore something crucial: Rational economics. The folks who sell technological goods and services are operating with a different motive to you as the consumer. As tech-heads, we always want the latest and greatest devices and services, and we can see no reason in holding back. However, the tech vendors are companies, whose primary responsibility is to maximise profits for their shareholders.

>Great article, yeah telcos have been ripping people of left right and centre for years - or at best, slowing progress/change for their own sake

Its not slowing progress/change for their own sake. Its maximising a revenue stream from an existing and untapped market before increasing costs by moving into something new. Completely natural.

You can blame the telcos for roaming charges, but they're only doing what is natural ie maximising profits within the rules of the game. Sometimes the rules of the game do not naturally take into account the costs and benefits to society at large (which is not normally measured by corporate profits) and then there is a case for regulation. So you could argue that the regulation on data roaming is too lax. But its not fair to blame the telcos.

We don't have to be happy about the situation, but a better understanding of the economics would help in knowing where to lay the blame.

PS: Great article, Gordon. Really, fascinating food for thought.

Gordon Kelly

May 7, 2013, 5:13 pm

Ah I see. Then I obviously bow to your Dutch :)

"Leenus"? My world is collapsing!

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