In Business Model, Mobile

Competition from over the top voice and messaging apps might reduce mobile voice revenues in India by up to half, according to industry body COAI.

The proliferation of services such as Skype and Whatsapp could carve 30 percent to 50 percent of revenue from operator’s voice services, in months, COAI director general Rajan Mathews has said.

The predictions of revenue decline would not be unusual. Only the potential speed of the decline is unusual.

In 2001, in the U.S. market, for example, about 65 percent of total consumer end user spending for all things related to communications and video services went to “voice.”

By 2011, voice represented only about 28 percent of total consumer end user spending.

Over that same period, mobile spending grew from about 25 percent to about 48 percent.

You see the pattern: growth of about 100 percent of new revenue sources and losses of 50 percent in legacy revenues.

We can disagree about how much new revenue some communications service providers will have to create over a decade’s time, to replace lost legacy revenues. But the amounts are quite substantial.

If global telecom revenue is about $1.6 trillion to $2 trillion, and assuming about half the revenue is earned in mature markets, where the displacement arguably is most imminent, then the revenue subject to disruption ranges from $800 billion to $1 trillion.

Half of that represents $400 billion to $500 billion. That, hypothetically, is the potential amount of global revenue that might be lost, and would have to be replaced. And that assumption is based on voice revenue growing, not contracting, in the rest of the world.

One rule of thumb is that service providers must plan for a loss of about half of current revenue every decade or so. That might seem shocking, but simply reflects history.

In the U.S. market, one can note roughly the same pattern for long distance and mobile services revenue. Basically, mobile replaced long distance revenue over roughly a decade.

At one time, international long distance was the highest-margin product, followed by domestic long distance. That changed fundamentally between 1997 and 2007.

Over that 10-year period, long distance, which represented nearly half of all revenue, was displaced by mobile voice services.

A similar trend is underway globally. By some estimates, voice revenue has been falling, globally, since 2011.

But it is hard to see the impact in industry revenue projections COAI itself presents. The obvious conclusion is that other revenue sources, and an absolute increase in customer base, will have even more impact than the loss of voice revenue, which some would say is reasonable enough, as a prediction.

According to Ovum, global mobile industry revenue will contract by one percent in 2018,

He said OTT competition has already taken a 30% slice of operator messaging revenues in the market.

Ovum has estimated the size of the impact of OTT services on SMS and VAS revenue in India for the last two years at $2.76 billion.

Critics say mobile operators will make more money from data services than they lose in over the top messaging and voice.

Credit Suisse also recently named India among the companies most exposed to the OTT threat, because the nation’s operators still derive 80 percent of their revenue from voice.

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