The bit-pipe model has worked extremely well for almost 100 years -- globally telcos have consistently delivered ebitda levels above most other industries. But with the massive surge in data traffic and telcos unable to generate sufficient revenue from that growth, the traditional voice-centric and connectivity based business model is breaking down.
According to Ericsson's 2012 Mobility Report, mobile data traffic doubled between Q3 2011 and Q3 2012. The company expects mobile data traffic to expand at a CAGR of almost 50% over the next six years. On the supply side, telcos are struggling to keep up with soaring demand on their networks.
Continued investments in both coverage and capacity are no doubt required, but telcos now need to make more effort in understanding and improving the customer experience, which most analysts agree is a requirement to having a solid business model for the future, in a world where voice and SMS are increasingly free.
Just look at the traditional high-margin SMS segment. Ovum reported last October that mobile operators were on track to lose $23 billion in SMS revenue in 2012 as smartphone users shifted to free messaging applications. Ovum forecasts the cumulative losses would reach $54 billion by the end of 2016 as the traditional SMS gives way to Internet-based platforms such as WhatsApp.
Proactive measures
The path forward for mobile operators is to offer a smarter pipe, says Tom Darell, Ericsson's regional head of OSS & BSS in South East Asia and Oceania. "The key is to be able to provide, for example, guaranteed HD quality, differentiated speed, access to premium content and granular charging mechanisms based on instant demand."
He says that not being able to monetize on the massive data growth is not a sustainable option for an operator. "The combination of new technologies (dynamic traffic management), improved customer experience and innovative business models can enable the operator to capture a significantly larger share of the potential revenues from OTT content."