Mobile data growth: careful what you wish for!

Profitable revenue growth in the era of data is simply not guaranteed. Voice revenue is in steady decline as “minutes of use” growth has stagnated and per minute pricing continues to decline

Mohammad Chowdhury
Updated: Apr 15, 2014 07:54:41 AM UTC

Last year I wrote on the three reasons why US operators have suffered from data cost growth outstripping data revenue growth, and how a similar fate could befall operators in India when mobile internet usage finally takes off by the end of 2015. Helpfully, I set up the problem but didn’t give any solutions for Indian operators to consider! That was because it was too early to cover problem and solution all at once, but let’s now look at some steps being taken to address the imbalance between cost growth and revenue growth.

A bit of background: although we have well over a billion mobile broadband users around the world (see figures below), mobile ARPU continues to decline in all regions. Profitable revenue growth in the era of data is simply not guaranteed. Voice revenue is in steady decline as “minutes of use” growth has stagnated and per minute pricing continues to decline. Instant messaging is also substituting SMS revenue for operators, through switching from texting to services such as BBM and Whats App. Revenue growth from mobile data usage is not making up for this, and at the same time, as the chart below shows, data cost is in danger of spiralling out of control due to the huge rises we are seeing in traffic and the consequent need for more and more network capacity.

figure_one

Here are a few industry trends that seek to address these challenges, both through pricing as well as through data cost management, many of which are applicable to India and some of which are already in use:

  1. Fair use policies and “throttling” to curtail excessive data usage: A FUP caps what is loosely termed as “unlimited” data to a pre-agreed level, such as 500Mb per month, for an agreed tariff. When such levels are reached, operators are now giving a choice to subscribers to either upgrade to a higher cap, switch to a stiffer per Mb usage charge, or, if neither is taken up, to throttle connection speed.
  2. Segment-specific data pricing strategies: operators around the world are becoming savvier, quarter by quarter, at segment-based offers and pricing plans. The reason why this is still an eventful journey for this industry is because mass-scale “analytics” is only just taking off across mobile operators. Many do not even have an analytical decision system to link customer behaviour to pricing to any degree of sophistication.
  3. Partnerships to generate more “upstream” revenue from mobile broadband: full or specific connectivity to a service via a device on purchase is the best example of this. For example, a Kindle e-reader from Amazon in the US comes complete with an AT&T Wireless 3G mobile data package, meaning that AT&T data is now being supported through a partnership with a bookseller. Specific connectivity is illustrated by examples where a service is enabled on a multi-use device, such as Sony Play Station connectivity onto a device for gaming sessions.
  4. Data convergence as the future growth point: in mature markets, we increasingly expect service providers who offer fixed and mobile services in a more integrated fashion to grow their mobile data business quicker. This is because in such markets more people are turning to one-stop solutions where they can satisfy their data requirements for home, office and on the move.
  5. WiFi: Wireless LAN is increasingly available as a means to satisfy demand for high-speed wireless connectivity while managing cost.  Public WiFi networks are prevalent across Europe and North America and we can expect more such service launches in India covering hotels, coffee shops, airports and shopping malls.  Telecom operators have made efforts to capture this “off-network” activity by being directly involved in the WiFi hotspot business, an example being BT Openzone, and we may expect the same to happen in India as this segment scales up.
  6. Beyond WiFi: Operators are deploying technologies to limit the cost to serve growing data demand, such as Femtocells and 4G LTE. As more technology becomes available, the industry is looking for new ways to reduce the cost per Mb of traffic, for example through better spectral efficiency. 4G LTE is already being deployed in India through launches over BWA, of which we can expect more this year, as well as newly liberalised 1800MHz and 900MHz spectrum. See the diagram below for some of my team’s recent analysis on how costs for data traffic can fall as we step through newer technologies.

 Next generation technologies will lower costs to serve growing data demand

figure_one

(source: PwC analysis)

You may think this is too confusing and how on earth will the customer figure out to connect to which network, on which device, at what price and when?  Answer: this will become more automated as devices’ capability to optimise across available networks and tariffs and latch onto connections accordingly evolves.  Meantime, do not underestimate users’ ability to switch frequently between networks in a bid to squeeze out that all important extra bit of speed without having to spend more money on the service!

Follow me on Twitter @mtchowdhury for the latest on telecoms.

The thoughts and opinions shared here are of the author.

Check out our end of season subscription discounts with a Moneycontrol pro subscription absolutely free. Use code EOSO2021. Click here for details.

Post Your Comment
Required
Required, will not be published
All comments are moderated