The consulting firm A.T. Kearney recently conducted a survey in 20 countries about the shifting needs of the telecom customer. The research shows that a majority of consumers see their mobile operator as a provider of data connectivity. At the same time, digital services and apps are taking over a lot of the functionality that only carriers used to provide. So how can telcos catch up?
A.T. Kearney’s research shows that in Italy, 72% of people are already using apps to make calls. Consumers pay for the bandwidth, but that is negated by the fact that they are not making calls on the network any more. And in many cases, they are using WiFi rather than their mobile connection. Additionally, higher expectations for data quality and speed also require more investments into the technical infrastructure. This puts carriers between a rock and a hard place: pricing for data needs to increase but at the same time the cost needs to be lower than that of other telcos in order to stay competitive.
One solution to this problem is to generate additional revenue beyond data from the over the top services by partnering with them and providing carrier billing for their paid features. But mobile operators are able to take home 10-30% of the revenue from processing a payment compared to 100% of the money that is generated from an actual call on their network. If additional revenue sources have a smaller margin, the logical step is to try and increase the volume.
The existing segments of digital content, app stores, and gaming are already captured by mobile operators. The next step in becoming a digital navigator will be for carriers to ramp up their presence in the digital commerce segment: online marketplaces, insurance services, digital wallets, virtual credit cards, ridesharing etc.
While margins for processing payments in these segments are lower, the increased volume outweighs by far. A.T. Kearney’s survey showed that the average user spends $30 on mobile commerce in Europe per month, almost always using bank-based payments. For comparison, the average telco’s customer brings in $10 per month.
The telecom industry is having the same challenge today as banks: their core business is being threatened by smaller, agile service providers. But unlike banks, mobile operators who bring innovation to their payments offering and technology have the opportunity to actually work together with these providers and generate additional revenue from the digital ecosystem.