Supporting a family of five, I continue to suffer from mobile-phone sticker shock. The cost of supplying my family with devices, data plans, and services is climbing close to the monthly payment for a Porsche. I don’t think I’m alone.
As I hand over more of my hard-earned cash to mobile operators, I wonder if this is a sign that the profitability of mobile operators has peaked. I came to this realization this weekend when we went to the local mobile operator store to acquire a new smartphone for my daughter.
We have established a tradition in our family, which is that you get your first smartphone when you turn 13, as long as certain grade and work requirements are met. Our younger daughter recently turned 13. Getting her a smartphone was a bittersweet moment. I was happy that my daughter was excited about the phone. She’s worked hard to meet all the conditions for this technology privilege.
But there’s also the downside: time and cost. My daughter will now spend more time on Instagram and games. It’s a constant battle to manage electronics use among children. Then there’s the cost. Another smartphone will add another $10 a month (at least) to a bill that already exceeds $240 a month for a family of five. That’s twice as much as our cable bill and the same price as the payments on a new car.
Global service providers are regularly grousing that they aren’t adequately compensated for the bandwidth they build for people who are streaming Netflix. But in the mobile market, they have cleaned up in the last few years as mobile usage soared and mobile networks were still protected by lucrative pricing models such as short message service (SMS) and per-megabit data pricing.
That’s all changing — and it should. Unlimited data is becoming more common, as is its use as a competitive tool by some carriers to lure subscribers. But there are yet other options, many of them free. Increasingly, I find myself using free over-the-top (OTT) Internet communication services such as Facebook’s Messenger or Skype. A friend of mine, who is based in Thailand but was recently visiting the US, called me for free using Facebook’s Messenger service. I didn’t even know you could receive a call through Facebook.
Anybody who travels abroad knows these free OTT services are a godsend, as international mobile roaming charges are a ripoff. Free Internet messaging services are the tool of choice for international travel. I’m currently writing this in Vancouver, British Columbia, where I turned my cellular services off as soon as I got here. I’ve been using OTT and WiFi ever since I arrived.
Whether or not you think OTT communications services are legit, it doesn’t matter. They are perfectly legal and even encouraged by the current regulatory environment. And that’s going to increase pressure on the mobile operators to lower pricing. They’re already engaged in a price war with other carriers.
This is all proving out in the public numbers. In its earnings announcement last week, Verizon announced that wireless revenues rose 5.3% to $22.6 billion, with 1.1 million net new postpaid subscribers added. That brings Verizon’s total wireless retail subscribers to 109.5 million, 5% growth. Overall revenue rose 2.4% to $32.2 billion.
Verizon cut its full-year revenue forecast as it lowers prices in the competitive environment. Verizon’s net income was $4.23 billion from $4.21 billion a year earlier.
That’s not massive growth, especially when you consider that mobile expansion. Studies show that growth in average revenue per user (ARPU) is flattening out in Western countries. A recent study by Chetan Sharma Consulting found that postpaid ARPU is “in freefall.”
All of these factors indicate a waning appetite for consumers to pay premium prices for mobile services, including data. The social networking giants such as Facebook are having success adding their own messaging platforms. The price war will continue, and profitability is likely to decline for the mobile operators.
This means the mobile operators need to work harder on finding new revenue and profit streams. Among these are the potential for 3G and 4G wireless broadband, M2M (machine to machine) and industrial connectivity applications, and mobile video services.