Feature Article

August 10, 2012

What's the Bigger Problem: Lost Voice and Messaging Revenue, or Across the Board Price Reductions?

In fact, mobileSquared projects off-net messaging traffic forecast to be worth $2.93 billion in 2012, and $6.4 billion in 2016. OTT off-net voice revenue will be worth $805.5 million in 2012 and increase to $1.92 billion in 2016.

Neither of those figures would be much cause for huge alarm in a global business worth a couple of trillion dollars a year. But assume that each dollar of over the top messaging or voice revenue represents a loss of $10 in equivalent mobile service provider revenue.

In that case, $6.4 billion in OTT service provider revenue would represent a carrier loss of perhaps $64 billion in lost carrier revenue. $1.92 billion in OTT provider revenue might equate to lost carrier revenue of $19.2 billion. That would imply $83.2 billion in lost carrier revenue.

But mobileSquared also forecasts that total mobile voice revenues will fall from $714 billion to $573.51 billion over the 2012 to 2016 forecast period. That’s a loss of $140.5 billion in mobile service provider revenues globally.

That might suggest that some $57 billion will be lost by mobile service providers, above and beyond the lost voice and data revenues. One could account for such a loss by assuming there are fewer mobile subscribers (not many, if any observers, think that is likely) or that per-subscriber revenue will fall.

Most observers might agree that the latter is more likely than the former. So, one might argue that global mobile service providers will lose about $83.2 billion in voice and messaging revenues from customers that decide to use over the top alternatives, and then another $57 billion in lower retail prices for services provided to consumers who remain.

An outcome such as this would suggest that 59 percent of the lost carrier revenue will come from users who use OTT alternatives to carrier voice and carrier messaging. About 41 percent would come from lower tariffs for some voice and messaging products.

There are precedents for allowing competitors to take share, while lowering prices as little as possible. When international long distance prices began their long two orders of magnitude per-minute pricing descent, AT&T basically decided to harvest the business for cash flow, while casting about for something else to do. 

True, AT&T matched prices when it had to, but generally decided that matching competitor prices aggressively would hit revenue as badly as losing some share. 

U.S. telcos took the same attitude to embracing VoIP, concluding that they would lose more money by dropping overall prices than by simply allowing competitors to take some market share. Mobile service providers will probably find themselves facing a similar dilemma. 

Over-the-top providers are going to take mobile voice and messaging share, and put pressure on unit pricing. Mobile service providers must decide whether to compete, across the board, on pricing, or simply allow competitors to take some amount of market share, reacting on the price front only as absolutely required. 

History might suggest the wiser strategy is to let competitors take share, instead of dropping all prices, across the board.

Want to learn more about today’s powerful mobile Internet ecosystem? Don't miss the Mobility Tech Conference & Expo, collocated with ITEXPO West 2012 taking place Oct. 2-5 2012, in Austin, TX.  Stay in touch with everything happening at Mobility Tech Conference & Expo. Follow us on Twitter.

Edited by Rich Steeves

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