US Mobile Well into its 'Third Revenue Wave,' Fourth Wave Still Unclear

The U.S. mobile data market grew 3 percent quarter over quarter and 17 percent year over year to reach $19.9 billion worth of revenue in the third quarter of 2012, according to mobile analyst Chetan Sharma.

That’s the good news: mobile data continues to drive revenue growth as messaging and voice revenue matures.

Data is now almost 43 percent of U.S. mobile industry service revenue. But the possibly troubling implication is that the industry is about halfway to saturating the mobile data market.

If you want to know why mobile service providers are launching mobile payments, mobile wallet, mobile banking, mobile commerce or machine-to-machine initiatives, that’s the reason. Another wave of revenue growth, big enough to displace voice, messaging and even mobile broadband, is necessary.

Other contestants in the payments ecosystem aren’t unaware of the challenges either. Bank of America, for example, has just launched its own version of the Square mobile point of sale system.

The bank’s “Mobile Pay on Demand,” available Dec. 3, 2012, will offer the bank’s small and medium-sized business (SMB) customers an easy way to accept credit card payments from an iPhone, iPad or Android device. Businesses will pay a 2.7-percent fee on transactions – a little under Square’s flat 2.75-percent fee.

Ignore for the moment the obvious new development that Bank of America now essentially competes with some of the point of sale terminal suppliers in the ecosystem. These days, mobile service providers sometimes compete with local banks, sometimes even partner with them.

That’s easier to see in developing markets where payment services such as M-Pesa operate, but Rogers in Canada also has formally been chartered as a bank.

Sometimes mobile service providers compete with ad-supported applications and sites. At other times the competition is Western Union and other money transfer services.

So far, no mobile service provider has made a move into some of the other mobile commerce areas, ranging from back office software to hosted or managed processes. But bill payment services are increasingly offered to support virtual goods merchants.         

It remains unclear just how big any of these new initiatives will become. But it is clear one or more of the experiments underway, or perhaps some as yet unforeseen application, will eventually become large enough to be recognized as the key driver of the next wave of mobile revenue.

And it seems inevitable that will happen within a decade, perhaps less. Generally speaking, an era of communications is driven by one application that represents about half of total service provider revenue. Long distance has had the longest run in that role. But mobile supplanted long distance by about 2007 in the U.S. market.

Mobile messaging, in turn, supplanted the basic mobile voice application and messaging as the new growth driver, and now it is mobile broadband access that is the key new revenue producer.

The decline of messaging, at the moment, is important mostly because messaging now is the second legacy service to hit, and pass its peak point in the product life cycle. The replacement revenue driver – mobile Internet access – is already producing huge amounts of new revenue for mobile operators.

Still, it is possible to say we are in what some might call a “third era” of mobile revenue, led by mobile broadband, following the maturation of the “voice” and then “messaging” eras.

Most western markets have seen messaging revenue decline, though up to this point the U.S. market has resisted the trend. But in the third quarter, for the first time, there was a decline in both the total number of messages sent and received, as well as total messaging revenue.

Voice traffic will dip below 10 percent of the overall traffic in 2012 (revenue is another matter).

For much of the last three decades, voice has dominated the revenue streams for almost all operators, Sharma argues.

In 2013, global voice revenue will fall below 60 percent. So far, the drop in voice revenue has been matched by the rise of messaging revenues and mobile data. But mobile data will also reach saturation at some point, raising the question of what comes next.

The answer to that question is not yet clear. But most observers believe some combination of new applications, using network resources as an input, must be a large part of the answer.