Overcoming the dent in mobile voice revenues

In the last two years, Indian mobile operators have faced a looming problem that has mobile service providers in developed markets scurrying to change their business models — the problem of declining revenues from voice services. Since mobile voice revenues contribute more than 80% of all mobile revenues in the Indian market, any decrease in the mobile revenues immediately impacts the operator's top line.

The magnitude of the problem has been the spotlight of various analyst reports in the industry. According to ABI research, mobile voice revenue will peak in 2010. Beyond that, it is expected to decline. The research further forecasts that annual mobile voice revenues will reach $580 billion globally in 2010 but by 2014, the same parameter is expected to decrease by 9.6%.

A corollary to (or possibly in some cases the cause of) the declining voice revenues is the decline in ARPU (Average Revenue Per User). ARPU levels in the Indian market have already begun to decline and this puts additional pressure on the mobile operator to look for alternate sources of revenue to bridge the gap. It is rather striking that operators are now faced with the challenge of keeping ARPUs stable at the levels they are rather than attempting to increase them.

Mobile operators around the world, as well as in India, have responded to this challenge in many ways. The overriding focus has rightly been on bridging the voice revenue gap (and the ARPU decline) through innovative value-added / content services that appeal to specific segments of the market. Such services, broadly categorised as “mobile data” services are expected to enjoy a CAGR of 9% through to 2014, as per the ABI research report. In addition to mobile data services, other opportunities present themselves as potential solutions to the voice revenue decline issue. This article delves into these opportunities and looks at how operators can capitalize on them.

“Smart” Applications and Content

While mobile Internet services have been around for some time, they are likely to be revitalized by the ever-increasing investments in mobile broadband infrastructure. Mobile infrastructure and technology improvements resulting from 3G, 3.5G, WiMAX and LTE investments (the technology as allowed by the regulatory environment in a market) have served to significantly increase the available “pipe” for content and data services. Operators have the opportunity to create “smarter”, targeted applications and content that could appeal to different customer segments.

Commonly available data and content services via premium messages (SMS or MMS) could evolve to rich content applications, which leverage internet/web technology, Java applications and development toolkits. The opening of the mobile world to the massive volumes of user-generated content available over the web provides an avenue for the “long-tail” model to be more easily adopted as a revenue-generating and revenue-bridging mechanism. Several mobile operators in Europe are starting to see the benefits of this approach as they make available a wide variety of content to their customers.

In India, the increased bandwidth made available by the imminent 3G networks, would allow operators to attempt to bridge the ARPU decline by introducing richer content applications that could create greater “stickiness” and re-use amongst both retail and enterprise customers. Such “smarter” content also allow for flexible value-based pricing models which help protect the operators' margins. Voice-based VAS services too have a role to play in this evolution. The extensive use of IP networks with a common service plane that leverages technologies such as SIP enables greater flexibility in creating and rendering voice-VAS services, which could appeal to subscribers in non-urban areas.

Service Bundling

One way to bridge the drop in voice revenues is to devise innovative bundles of voice, data and rich content applications that reward the user with discounts/bonus on data and content applications whenever voice usage exceeds certain threshold levels. This form of service bundling also helps introduce content portals and applications to slow adopters, the first step in creating some level of user loyalty to the service.

While the tools for service bundling have been available for some time, operators have been reluctant to exercise the flexibility provided by such offers, as the focus has primarily been on launch/adoption of new value-added services and protection of margins. However, just as multi-service operators have realized that the best way to retain customers and gradually increase customer ARPU is by offering service bundles, mobile operators would benefit from providing service bundles by combining voice, SMS and a wide array of content services. Innovative content service bundles themselves could help attract specific customer segments. Integrated service delivery and real-time charging environments, such as the solution offered by Oracle, provide critical enablers to service providers in this transition.

Partnering for Success

Increasingly, with the confluence of telecom, web/internet, content, banking and retail services, operators are finding that the traditional business of telecom services has taken on new dimensions. No operator can hope to master all these dimensions at the same pace at which this metamorphosis is occurring. A case in point is the evolution of digital content services. After an initial foray in attempting to create and master all forms of digital content (audio, video, information etc), operators have thrown in their lot with content and IP rights owners and serve more as distribution channels today.

Creating content applications (eg. travel, wholesale marketplace, weather reports) targeted at the rural market - the current frontier in subscriber expansions - requires an intimate understanding of customer behaviour patterns and sensitivities. Such applications require collaboration between regional/local bodies, network suppliers, software technology suppliers, content developers and the mobile operators. Such partnerships also help spread the cost of development and the risks of failure. Conversely, successful content applications do normally result in a cascading chain of revenues for most parties involved.

The need for partnership is all the more acute as operators attempt to transform themselves into retailers of a variety of financial services such as payments, remittances, banking, wallets etc. Collaboration between financial institutions, operators, distributors and retailers is pre-condition to success. Besides the monetary rewards through commissions, operators benefit from increased revenues that result from bundling traditional telecom services with other necessary services that customers transact on a daily basis.

Conclusion

Indian mobile operators have not yet suffered from declining voice revenues in absolute terms but this is largely due to the offset of increasing subscriber volumes. A more dangerous trend, though, is the decline in ARPUs. As operators work to stem this decline and stabilize this all-important metric, it is useful to learn from the experiences of mobile operators in developed economies. Rich and well-targeted content applications developed by a worldwide Java developer community can help operators not only spread content development costs, but enhance “stickiness” of their end-customers. Bundling of services and collaboration with multiple partners to create and offer innovative services are other avenues through which mobile operators can bridge the ARPU gap, while continuing to demonstrate value to their customers. Oracle continues to support this evolution through industry thought leadership and open standards-based technology, applications and solutions.

Raghu Prasad, Senior Director, Business Transformation, Asia Pacific & Japan, Oracle Communications