Losing voice

“Over-the-top (OTT) providers could capture as much as 16 per cent of mobile voice revenue in the next five years.” This fascinating headline caught The Insider’s eye and made him wonder if anyone really cared. It was linked to a press release from Analysys Mason promoting one of their reports, but with voice revenues declining steadily for CSPs you’d wonder why they would be concerned with losing percentage of what is fast becoming a commodity item.

Another article sighted this week claimed that it should be no surprise voice call revenues are declining when you take into account that voice technology has hardly changed in over one hundred years. Sure, the transport medium has evolved and it no longer needs wires but the basic process of setting up a call between two parties, and the talking part, has not altered since Mr Bell made his disputed first call.

The technology that has evolved simple handsets into smartphones is mooted as the primary cause for the declining voice revenues. Not only because you can communicate in so many other ways with smartphones but because applications running in them allow OTT services like Skype, Google Voice and Viber to circumvent the operator’s voice network.

The article states that because smartphones are forecast to account for over 70 per cent of mobile handsets in Western Europe by the end of 2016, the prospect of third-party providers making significant inroads into core mobile revenue is very real. The interest in over-the-top services is symptomatic of how mobile devices are changing. Previously under the rigid control of mobile operators, handsets are opening up to new players and to new forms of customer usage.

“Operator responses have been muddled so far. Short-term measures, such as blocking or charging a premium for third-party VoIP services, fail to address the issue in a sustainable manner. Operators need to formulate a long-term strategy to counter the threat. However, the mass-market adoption of smartphones has implications that are still to be worked through and there is a good deal of uncertainty about market outcomes. The major areas of uncertainty can be described in terms of the following:

• Consumer demand. We don’t know how consumers will want to engage with communications services in the future. Pricing has been a major factor in the adoption of mobile VoIP services so far but we are not yet certain of the demand for advanced features. Also, it is unclear whether consumers prefer a single application for a range of communications needs, or if will they take a more ad-hoc approach to different kinds of interaction.
• Business models. New voice services will be brought to the market by new players – both Internet start-ups (like Viber Media) and more established players (like Google and Apple). These new players bring new business models that disrupt the existing market. However, it is unclear to what extent these companies will invest in a full replacement voice service and, if they do, what business models they will employ.
• Technology. The migration to LTE networks represents major discontinuity for operators’ voice services. While OTT players continue to launch new services and integrate applications, the operator community is still in the early trial stage. Operators have yet to decide whether their efforts should be focused on ensuring service continuity or with creating a new paradigm for voice communications.”

Whilst Analysys Mason puts forward three scenario-based approaches to combat the revenue drops it doesn’t come up with anything boldly new. One has to question if spending money to keep a declining revenue stream flowing is preferable to innovating new services that not only utilize smartphone technology but also keep customers using other key services.

There is no escaping that CSPs are primarily providers of ‘communications service’ and how customers choose to use that service is solely at their discretion. However, successful CSPs of the future will be those best equipped to offer their own innovative products to make up any revenue loss to OTT players.

How long will it be before we see a new type of structural separation where CSPs spawn off their own OTT operations to compete head-on, or maybe that has already started happening?