Telcos Continue to Face Falling Revenues in 2017
With saturated markets and falling revenues, telcos need to explore new business models to maintain a competitive advantage.
Gone are the days where telecommunication companies enjoyed double-digit growth year after year. Telcos have reported declining revenues in the last few years with Europe’s telcos taking the brunt of it since 2009. In Asia, the financial outlook for telcos is just as bleak. Singtel Group, one of Singapore’s largest telcos, reported a fall of 1.2 percent in third-quarter net profits last year. We highlight several issues surrounding the industry’s poor performance this year.
Competition from over-the-top (OTT) applications
Smartphone ownership rates have skyrocketed in many countries since 2013. In urban China, smartphone penetration has reached 97%, higher than 91% in US and Europe. As a result, OTT chat applications have become commonplace in the industry. Being third-party applications, OTT chat applications bypass the carrier’s traditional telephony services and instead push messages or calls through the mobile device’s data connection allowing users to avoid SMS or airtime fees.
Together with improvements in the availability of broadband networks, the growing capability of smartphones and the dominance of social media, OTT chat applications have led to the cannibalization of voice and SMS services that telcos provide. Ovum, a London-based research and analytics firm, predicts the telco industry will lose a combined $386 billion between 2012 and 2018 due to OTT applications such as Skype, WhatsApp and WeChat.
According to analysts, the OTT ecosystem will continue to experience rapid growth over the next few years. Even now, the numbers are staggering. Early last year, WhatsApp announced that it has reached more than 1 billion monthly active users and reported over 42 billion messages being sent per day. With OTT applications providing connectivity to consumers worldwide, it’s unsurprising that telcos have reported declines and will continue to face falling revenues from SMS, roaming and IDD services.
Data prices fall as competition intensifies
As consumers shift toward data-intensive mobile applications, data becomes the new competition ground for telcos. In Singapore, nearly 8 out of 10 Singaporeans use 2 or more connected devices according to a survey by Google. The survey also showed a vast majority, 83% of them, use a smartphone to stream music, watch videos and play games online. Even in maturing markets such as Myanmar, up to 80% of the population are on smartphones with rural data usage being almost 60% of urban data usage.
In order to recapture market share, telcos have been dropping prices on data services. In Singapore, a price war among telcos emerged early last year with data prices being slashed by up to 40 percent, down to $3 per gigabyte. Similar events have played out around the world, most notably in India where data prices were slashed by up to 50 percent, down to $1 per gigabyte, in a desperate bid to attract users amidst intense competition. Analysts predict that revenue from data plans will continue to fall on a per-volume basis with low revenue growth over the next few years.
Telcos need to explore alternative revenue sources
Telcos have to look beyond traditional revenue sources such as voice, SMS and roaming to find new revenue opportunities. One area that promises new growth has emerged in the form of machine-to-machine connections. These connections are forecasted to reach 1 billion by 2020, representing 10% of all mobile connections as the internet of things begins to takes shape.
In order to take advantage of this next phase of data usage, telcos need to reinvent the way they charge for data. Latching on to traditional ways of charging for data by bundling with voice or SMS services would not work. New revenue models would require flexibility to accommodate for high volumes of data transactions between connected devices and networks. These new models would have to utilize spectrum management to create tiered pricing structures based on the quality of service required by the consumer.
Another promising area of growth exists in insights that telcos can offer. Most telcos already conduct analytics programs that enable them to use internal data to boost the efficiency of their networks, segment customers and drive profitability. These insights would be of interest to many companies in industries such as retail, advertising and finance who want to predict consumer behaviour, identify buying trends and increasing marketing efficiency. With sizeable volumes of data that telcos can already use to draw insights from, it is only a matter converting those insights into tangible revenue streams.
Conclusion
The financial outlook for the telco industry may look bleak right now, but significant areas for growth still exist. To move forward successfully, telcos will need to take a step back and re-examine their business models. This will involve looking beyond traditional revenue models to find new ways to monetize data to create new revenue streams.
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Learn how DataStreamX can help your network commercialize your data insights or to continuing reading check out Three New Revenue Streams for Telcos Beyond 2017.
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Originally published at https://www.linkedin.com on April 11, 2017.
