High data prices are a vulnerability for telcos

2019-02-08-hihg-data-prices-are-a-vulnerability-for-telcos
  • Mobile data prices are going down and the consumption is going up

  • Some countries - especially in North America and Western Europe - still have abnormally high data prices

  • This leaves telco markets open to disruption

  • Telcos are not good at monetizing alternative services but they should look into working with the digital (streaming) service providers, not against them

Lately I got a new packet offer from a mobile operator which included 100 minutes of calls and 2GB of high speed mobile internet per month for only 10 euros. I burst out with laughter because as Estonians we are more used to packages that include 1000 minutes of calls and 15GB of internet for as little as 5 euros. Estonia enjoys the luxury of having one of the lowest mobile data price right next to countries like Latvia, Finland and even India.

We’re known for being an e-country but we might as well be a 4,5G country. Our mobile data usage is growing accordingly: in 2017 it spiked by 83%, making us 5th in the world. But as data prices continue to fall and consumption to rise in some parts of the world, nothing much is happening in the other and significantly more expensive regions.

Wealthy western countries from North America to Western Europe have the highest smartphone and data plans in the world. One might say it’s due to monopoly of a few telcos. It is commonly believed that at least four telcos per market are optimal for healthy competition. The median price of smartphone plans in the US is 4x higher and the median gigabyte price 16x higher than in European markets with at least 4 telcos.

In addition to high prices the telcos might erect artificial data usage barriers for consumers. In 2017 unlimited data plans spread in US but those haven’t increased the overall usage much. That is linked to the volume and bandwidth limitations on these plans. For example some telcos switch all video to low quality on its unlimited data plans. If you want to watch it in better resolution, you have to pay extra.

But relying on high data prices might leave the telcos open for vulnerability. For example in India, Reliance Industries' Jio triggered a brutal price war in 2017, offering free data and calls to its subscribers. This was followed by 33% fall in consumer spends and became a nightmare for the other telcos. It brought along a rapid wave of consolidation on the market, as well as rumors about other operators being on the verge of bankruptcy.

Western markets are not immune to this as well. Italian gigabyte prices fell 70% between April and October of 2018 after Iliad launched as a fourth operator on the market. Iliad already disrupted the French market in 2012 with Free Mobile. So a seemingly stable market situation can change rapidly. If the data prices vary so much, the pressure to lower them on the higher end is obvious.

At the same time mobile operators often don’t focus enough on monetizing alternative income sources. For example a fresh survey found that most telcos lack the capability to use customer data for marketing and sales. The primary obstacles include a lack of resources and talent, dated infrastructures, digital transformation delays, change-resistant mindsets and the lack of data integration across telecom companies.

Another monetization option - bundling - is also rare in the high priced data countries. It’s more common to find a combined offer with home security than digital streaming services. Of course the latter need a constant and plentiful supply of data, especially for streaming services such as music or video.

In the long run, mobile data prices are pressured to even up on a lower end of the scale. Good news is, that when data prices go down, people use it a lot more. For example aforementioned Jio disruption in India resulted in over 300% mobile data usage growth. Lower prices wouldn’t mean less services for telcos - just restructuring their current business model.

Reducing data prices opens up other income sources for telcos but only if they proactively start offering alternative services to their users. Customers want to use digital services and telcos should seek collaboration with the services that are consumed over their data network. This can mean a lower revenue per gigabyte, but it would be compensated by bigger consumption. Also telcos can have their part of the revenue by offering carrier billing and bundling deals with popular digital merchants.

If you want to harness all your potential alternative income sources, get in touch and we’ll get you started.