In Business Model, Internet Access, Mobile, News

Even if an industry knows a key change in business model is inevitable, the rate of change matters. A slow transition allows time to create alternative revenue streams. Too rapid a drop threatens survival.

It appears the India Department of Telecommunications (DoT) thinks a measured transition of voice revenues makes sense. The DoT also appears to think Whats App and other over-the-top voice and messaging services are functional replacements for traditional carrier voice and messaging. If so, then similar regulatory regimes would make some sense. 

Some would argue OTT voice and messaging are not, in fact, full substitute products. But much hinges on the context. In some markets with challenging infrastructure issues, low disposable income or high retail costs, OTT products are substitute products, in large part.

The DoT has recommended domestic voice over internet protocol (VoIP) calls offered by WhatsApp, Skype and Viber be regulated in line with voice calls offered by telecom operators. That move appears intended to eliminate some pricing arbitrage and allow mobile operators more time to build replacement revenue streams.

Voice calls offered by mobile operators are estimated to be 12.5 times more expensive (at retail) than those through OTT services. In the case of text messages, the difference is 16 times, a DoT report argues.

For a one-minute phone call, a customer is charged about 50 paise, while a one-minute call made through the Internet costs four paise, according to TRAI. The disparity in text messaging costs is even wider, where a single mobile network text message might cost 16 times what an OTT message costs the end user.

Mobile service providers in the hyper-competitive Indian market, who earn nearly 80 percent of total revenue from voice, warn that they could lose perhaps 30 percent to 50 percent of current revenue from OTT voice and messaging competition.

You might argue that is simply the typical warnings from incumbent service providers facing new competition.

Over time, those warnings would be in line with actual experience in other markets that have reached maturity.

In the U.S. fixed network business, for example, revenue dropped 50 percent between 2002 and 2013.

Other products also have seen that magnitude of decline. In 1997, half of total telecom provider revenue was earned from long distance services in the U.S. market.

By 2007, mobility services had replaced long distance, which dropped more than 50 percent from 1997 levels.

Between 2001 and 2011, looking at consumer spending on communications, mobility spending grew from 25 percent to 48 percent of total spending. Other components obviously decreased by precisely the percentage mobility spending grew.

The point is that, even if one believes such claims of financial damage are a normal part of industry jockeying for position, there is good historical reason to believe revenue declines of that magnitude are quite within the realm of possibility.

Start typing and press Enter to search