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Can the mobile networks survive the evolution of mobile telecoms?

(Image credit: Image source: Shutterstock/Ekaphon maneechot)

On April 3rd, 1973 Martin Cooper, a senior engineer at Motorola, called a rival telecommunications company and informed them he was speaking via a mobile phone. This was the world’s first mobile phone call.   

34 years later the iPhone arrived and transformed the way we use our phones today.   And in September 2017 they launched their first £1,000 phone. 

As our devices have evolved and improved, and network coverage has increased (although it is still very patchy) our usage patterns have changed.   But, are the providers keeping up with these changes? Are they offering packages that reflect our changing behaviour? Are these behemoths under threat if they don’t or can they weather almost any storm?   

A move away from mobile 

Let’s look at the changes: A report by Deloitte in late 2016 found that, in any given week, 31% of smartphone users make no traditional voice calls. This contrasts with a quarter in 2015, and just 4% in 2012.   This mirrors the growth of consumer apps such as Facetime and Whatsapp, which in turn reflects the rising interest in video calls, and a desire to avoid roaming charges.     

There is a similar shift in the business sector. The growth of VoIP and phone system apps allowing people to have their office landline number on their mobile has seen traffic move away from the mobile networks.     

Then there is the enduring battle over whether it is better to have a mobile or landline number if you want to choose just one number to promote.  Right now, it would appear the landline is winning – especially as it is being bolstered by new legislation. 

For example, in the financial sector, with advent of MIFID II legislation and the requirement to record all calls, the ability to add an app that can record calls in a compliant fashion and then store them alongside calls made when in the office, has meant financial businesses are looking at data only sims in their company mobiles. In other words, pushing calls away from mobile and towards landlines.    

For the small business owner, the benefit of having a work number that can be turned off at weekends and being able to keep one’s mobile number private is also helping to keep the landline alive.  

Text usage is also changing 

The first text was sent on December 3rd, 1992, when British engineer Neil Papworth used his computer to send the message ‘Merry Christmas’ to a mobile phone.   The number of texts sent in Britain peaked in 2011. Text messages lead to the creation of a new language of ‘text speak’. From OMG (Oh My God) to LOL (Laugh Out Loud) and XOXO (hugs and kisses) – abbreviations became the new normal.   Since then, however, text messages have fallen by almost half and have been over-taken by instant messaging applications.      

In 2016, WhatsApp passed a billion active users  and found that the main reason 42% of Brits used a mobile phone was to access messaging apps.  Many of these apps, like Snapchat, are appealing to younger age groups who see SMS as old and unfashionable. 

Lost revenues 

The impact on the mobile networks is a drop in revenue, as SMS has always been a key part of their income stream. This decline, coupled with the loss of roaming charges in the EU, and the potential that, as we negotiate trade deals elsewhere in the world post-Brexit, other regions may also drop roaming charges – means the mobile networks could see their profits dropping and their future looking a little less bright than it has been.   

For example, O2 announced its results earlier this year; although revenues in 2016 grew 1.2 per cent year-on-year, the rise was due to higher subscription revenues and out of bundle charges for both contract and prepay customers.  In other words, rising prices and charging people for excess usage including roaming.   With roaming charges gone, this will now be harder to do, and it will negatively affect their revenues. 

What might the future hold? 

Perhaps the expectation for the future of the mobile networks is a growth in data usage as a result of the Internet of Things and increasing use of data-based apps. However, this looks unlikely in the short-term as, although there are people with high data usage due to video and music streaming, the average usage per device is still quite low.  The latest research by Cisco showed that average monthly smartphone data traffic in the UK during 2015 was 1.2 GB - an increase from the average of 849MB per month in 2014.   Even if that rate of growth was replicated again in 2016, it would still make the average less than 2GB per month. 

There are over 50 million 4G connections in the UK, but the shocking lack of coverage (the UK ranks 54th in the world) means that the applications and technologies that would drive data usage struggle to work all the time. This forces consumers to find alternatives and drives the demand for wifi hotspots – which many cafés, bars, trains and coach services now offer for free, as they recognise this brings in customers.  Smart users who consistently connect to wifi wherever available can, on average, reduce data usage by a third. This is a challenge for the mobile operators as reduced data usage means reduced revenues - and with the number of wifi hotspots increasing all the time, this is good news for users, and bad news for the mobile operators.    

5G might be the saviour as it is likely to prompt a surge in data usage as it will be more robust and considerably faster – however there is still no word on a launch date for 5G in the UK.      

With falling revenues, the mobile operators have a challenge; they need to make a profit if they are to fund investment - especially in the next generation of 5G networks – that will allow them to survive and thrive.    

The UK’s mobile and data telecoms plans are already five years behind countries such as Japan and South Korea.  But if users continue to communicate via apps (both messaging and voice) and use wifi wherever it is available then that can only lead to standard package prices going up to generate the revenues the operators need.  Either that or the Government is going to have to fund more of the infrastructure – something that is already happening in many countries. 

Dave Millett, Director, Equinox

Image Credit: Ekaphon Maneechot / Shutterstock

Dave Millett
Dave Millett has over 35 years’ experience in the Telecoms Industry. He now runs Equinox, a leading independent brokerage and consultancy firm.