Where's the next telco pot of gold?

With the arrival of mobile saturation stagnation our telcos are entering a more complex market, where the spoils will have to be shared with many more contenders.

With the arrival of mobile saturation stagnation is occurring in telecoms revenue growth in most developed telecoms markets.

Voice traffic is increasingly moving onto IP-based systems, which are either free or at very low cost to its users. This is taking place on both the fixed and mobile networks.

While in the case of corporate and government organisations nearly all fixed voice traffic has moved to IP-based systems, in the SME and consumer market this has not been the case. In that market long-distance calls are being partly moved to VoIP systems, while consumers are predominantly making their local calls over the mobile networks, based on a monthly bundle with a fixed price.

The only market still significantly using the POTS (plain old telephone system) is the SME market, and the good news for the telcos is that this conservative and loyal market is only set to change slowly over coming years.

Nevertheless the overall trend is that less and less revenue is being generated from voice services.

Competition in the mobile market has seen more voice and message services being included in the fixed price bundle, together with mobile broadband access. As new growth is now much harder to achieve and competition is still biting, it is hardly possible to increase revenues here – in fact China Mobile recently announced for the first time ever – negative growth in its business.

The latest financial data from the Australian operators also all indicate stagnation or negative growth.

So where will new growth come from?

With an increase in the use of video-based services – both legal and illegal – we see that customers are prepared to pay extra for higher broadband speeds in order to access these services. However, the problem is that most incumbent carriers have failed to keep pace with this trend and don’t have the networks in place to deliver those higher-speed services. But, in reality, even that extra revenue growth would only be seen as incremental in the larger scheme of the telecoms business.

There is a great deal of hype around the next growth market – the M2M market, linking billions of sensors to the network. While this is certainly a new growth market it is still very early days and these new services are not going to deliver any serious revenue relief over the next few years.

At present the real growth in the internet of things (IoT) market is in the Over-the-top content (OTT) services, with new apps on smartphones and new wearable devices for fitness and healthcare purposes.

The money here is mainly in the device and the app rather than in the telco service.

These services are adding further valuable data about the customers of the OTT providers, which in turn is used for advertising and marketing purposes. None of that money flows back into the telecoms industry and, as has been the case over the last decade, it is hard to believe that the telcos are going to keep pace with any of these developments, let alone lead these markets.

The telcos can play a more serious role in the corporate market, providing M2M solutions to energy companies and developing e-health applications for GPs, pharmacists, hospitals and the national health organisations. But here also a slow growth pattern, with little indication of major revenue streams emerging over the medium term, will not be enough to compensate for the slump in their traditional business.

While we have seen similar grim developments over previous decades at those times developments such as mobile and broadband were offering serious new business opportunities for the telcos. But there is no such new money-spinner on the horizon for the telcos today.

It will be interesting to see what leadership will come from the telcos to move into the more complex ICT markets of M2M, connected homes, smart grids, e-health and e-education in order to generate new business opportunities for themselves – markets that will need to be shared with many more contenders. The OTT players are perhaps the most threatening to their current business models, but many other players, such as Cisco, IBM, HP, Samsung, are eyeing off the same developments.

This is an edited version of a post originally published on August 25. Paul Budde is the managing director of BuddeComm, an independent telecommunications research and consultancy company, which includes 45 national and international researchers in 15 countries.

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