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Reality Check: The blurring of voice and data revenues – How mobile operators can win

Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.

Truth is, for mobile operators the per-bit profitability of voice (or, even more, of texting) is gone and will not be back. They know they need to move more traffic to extract the same profit they used to get in a voice-dominated environment, but this comes at a time when their per-bit costs also are going down, reducing the impact of the lower per-bit profitability.

For the subscribers, the move to an IP-based, data-centric usage and billing model can lead to increased ARPUs if operators successfully leverage their network and service capabilities, and provide them with the choice and flexibility they need to tailor their plans to their interests and needs. New service plans recently introduced by operators in Europe, Asia and the United States show that mobile operators are moving in this direction, but they are still focused on a small subset of the revenue-generating opportunities that are available to them.

Generally, there are two main directions that mobile operators can take towards maximizing revenues:

–Building on the foundation of all-inclusive (i.e., voice and data) service plans for subscribers, shifting the emphasis to optional services that can be subscription based or targeted at occasional users.

–Instead of competing with over-the-top players, develop partnerships that are beneficial to the operator (more revenues, more control over traffic), to partners (better network access, more control over content and visibility into performance) and to subscribers (better performance, higher reliability).

Current ARPU trends are sobering. Even in the United States where subscriber revenues have been stable, mobile ARPU has decreased on average 1.5% from 2006 to 2011. In Japan, the growth in mobile data revenues that now account for 57% on average has not compensated for a yearly decline of more than 12% in voice revenues, leading to a 4.3% decline in the overall ARPU.

Most mobile operators still offer a limited number of service plans but for subscribers, a smartphone plan is (or can be) much more than a number of minutes and gigabytes.

Customer experience and satisfaction with the service can be improved if subscribers can tailor the plan to their preferences, so that they pay for what they need, when they need it. From the operator point of view, offering more choices enables them to get additional revenues from their subscribers and to segment their subscribership more effectively.

In recent years, operators have started to offer more options to capture the need to personalize the service. This trend will accelerate, both in the percentage of operators offering a wider range of services and in the breadth of choices to consumers.

Interestingly, operators and OTT players are, and have been, complementary in making mobile broadband an astounding success, and will continue to work closely to ensure continued growth, while facing demanding subscribers and a growth in network capacity that will be insufficient to match demand without tight traffic and service management.

In a network that is occasionally congested, mobile operators and OTTs can operate independently in parallel within a best-efforts framework without stepping too much on each other’s toes. As network utilization increases, this balance gets threatened and network resources need to be more carefully allocated to reach a good balance between subscriber quality of experience and per-bit revenues.

Bottom line: Operators can manage network resources, OTTs cannot. But OTTs have deeper knowledge of the requirements of content. Operators can use that information to prioritize network access based on the subscriber’s tier, either for its overall subscription or for a specific application (e.g., a premium subscriber at Spotify). As a result, operators and OTTs have to work together to optimize network utilization. If they don’t, they will both fail to maximize overall subscriber’s revenues.

To stop the decline in ARPU and get revenues commensurate with the improved service they offer, mobile operators need to go beyond marginal adjustments to their service plans. They must reshape their revenue-generating strategy to fully leverage to their advantage two changes that the transition from voice- to data dominated services have created:

–Subscribers want more choice, reliable performance and the ability to pick the services they want. Current plans are still tied to the voice legacy and they are more effective at protecting voice and texting revenues than to stimulate data revenues. To counter OTT threats, operators need to alter their offering to provide more flexible service plans that subscribers can tailor to their preferences, needs and budget, and that are no longer voice or data plans, but more encompassing mobile broadband plans.

–Mobile operators cannot control what subscribers do or what content they want to access when they are connected. But they control the network and they are the only ones who have the tools to make the experience better. To date, they have focused more on scrapping with OTTs and other ecosystem players perceived as competitors, rather than focusing on their core strengths – the capability to operate increasingly impressive networks – and bring the performance and QoE advantage that they are uniquely positioned to provide to their subscribers. Because they control the network, but not the content or the applications, they can partner with other ecosystem players to deliver the level of service that their networks increasingly allow. But the ecosystem players equally need help from mobile operators to ensure that their content and applications can be delivered as they require and expect.

What is the answer? First, operators can give more flexibility to subscribers. Second, they can work more closely with ecosystem partners to help regain the revenues they may have lost. There needs to be a shift to service plans that are voice/data agnostic, that rely more on customizable options and less on fixed base plans, and that attracting revenues both from subscribers and ecosystem partners to reverse down-trending ARPU. Additional revenues will not come from subscribers’ willingness to pay higher bills, but from their ability to redirect some of their entertainment spending towards mobile operators, since the mobile phone is becoming an entertainment device.

Ultimately, increasing ARPU will depend on how mobile operators present an attractive proposition that can measurably improve the quality of the mobile broadband experience.

Pardeep Kohli, President and CEO, Mavenir Systems, is a wireless industry Veteran with 18 years of experience. Pardeep, as co-founder, President and CEO, led Spatial Wireless, the mobile next generation networking market leader, to broad success across the US market. Following the acquisition by Alcatel, as SVP of the Mobile NGN business, Pardeep led the continued expansion and success of the Spatial Wireless product across the global market place. Pardeep has worked in multiple roles at NEC America, DSC, Alcatel and PacBell. While at PacBell, Pardeep participated in the technology selection and network implementation of the first large U.S. GSM network.

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