One of the biggest takeaways from Ofcom’s Communications Market Review (CMR) was that the number of voice calls being made on a mobile phone in the UK had fallen for the first time.
Whereas making calls on the move was once considered the raison d'être of the mobile phone when it first arrived in the 1980s, priorities of mobile users have shifted significantly since the first iPhone and first Android devices launched a decade ago.
Just 75 per cent of smartphone users consider using a mobile phone for phone calls as ‘important’, compared to 92 per cent who consider web browsing to be important.
Traditional revenue squeeze
One of the reasons for the drop can be attributed to the popularity of applications like Facebook Messenger and WhatsApp.
It’s been clear for a long time that mobile networks are now defined by their ability to carry data – only yesterday Three revealed that its average customer consumes 7.7GB a month – and also that mobile operators need to find new ways of monetising this demand as traditional revenues decline.
It’s six years since the number of messages sent via WhatsApp, iMessage and other applications exceeded those sent via SMS and now the distinction between native messaging and over-the-top (OTT) services. In 2016, 89 billion SMS messages were sent but this is set to fall to 64 billion in 2018. In 2020, the figure is expected to be 40 billion.
And in Europe, operators are counting the cost of the abolition of roaming charges within the EU. While most cost-savvy customers have used Wi-Fi and/or OTT services to avoid most charges, it means that additional levies on data consumption are now outlawed.
The opposing argument is that mobile operators stand to benefit from greater demand for data services and there is some truth to this as carriers seek to increase revenues with more generous bundles and bigger data allowances.
But these trends are having an effect on out of bundle revenues which have fallen from £2.1 billion in 2016 to £1.4 billion in 2018, according to ReportLinker, which suggests a further decline to £600 million by 2020.
To put it into perspective, the average monthly amount spent on mobile services has fallen from £43.55 in 2016 to £41.12 in 2018. By 2020, this could be as low as £38.89. Intense competition between four major providers is also playing a role.
Future of networks
With mobile operators having to invest billions to upgrade their existing 4G networks and to prepare for the advent of 5G, this is a worrying trend. No one wants a repeat of the 3G era when there was precious little capital to invest in infrastructure (although this was due to crippling spectrum licences).
But there is hope. One of the principal aims of the industry is to ensure that mobile networks aren’t simply ‘dumb pipes’ that other companies such as Facebook and Netflix profit from. That’s why there has been such a push into additional services like content and areas like the Internet of Things (IoT).
The ability for an operator to see everything that happens on their network, whereas OTT companies can only see what takes place within their application, is a huge advantage.
5G represents a significant opportunity to connect more things and deliver more services, while it also hoped that new, virtualised infrastructure and next-generation equipment will lower operational costs.
A golden opportunity
There have also been moves to regulate OTT services more closely. The mobile industry has long complained that it is subject to obligations that rivals like WhatsApp and Skype are not. Germany has said it wants to regulate OTT firms like telcos, while the GSMA has said the advent of the EU’s General Data Protection Regulations (GDPR) will also help level the playing field.
And there’s hope for traditional revenues too. Google is working with operators around the world on Rich Communications Services (RCS), which is seen as a successor to SMS and a rival to iMessage. RCS combines the rich content of instant messaging with the universality of SMS and is targeted at both consumers and businesses.
Analysts also believe that the short-term decline in roaming revenues within the EU could be offset in the medium to long term by the increased use of mobile phones abroad. It has been suggested that many people simply don’t use their phones on holiday because they are scared of the costs, but normalisation could see more calls and texts being made or bigger bundles being taken out.
The past decade has seen irreversible changes in how people use their mobile phones and access the Internet and it’s something that operators have had to get to grips with. But Ofcom’s report also shows that people are using mobile devices more than ever and that opportunity must be seized.
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