Navigating the Economic Downturn: An Inside Look at the Mobile Data Industry
By Adrian Hall
During its relatively young life, the mobile communications industry has benefited from extremely favorable global economic conditions. Mobile phone penetration hit an important landmark in 2007, reaching 50 percent of the world's total population. As this explosive growth continues, movement from voice-only to data-based models is clear. Strategy Analytics estimates that the number of wireless data users will grow from 1.8 billion in 2007 to nearly 2.5 billion in 2011. The same source also predicts that consumer spending on mobile data services (including cellular data transport, messaging and content) will increase from $125 billion to more than $200 billion during the same period.
Faced with a global economic recession, the industry has now entered uncharted territory. While most wireless network operators have made enormous investments in the rollout of next generation networks, they have yet to realize the full revenue opportunities from value-added data services that will yield a return on their investments and ensure sustained profitable growth into the future.
In order to assess how network operators and other service providers plan to navigate the economic downturn and simultaneously drive data growth, global mobile Internet solutions provider Bytemobile, in conjunction with the Economist Intelligence Unit (EIU), recently surveyed 228 senior executives from key mobile ecosystem players around the world.
The results provide an inside look at some of the thoughts and issues that are top of mind for industry leaders as they attempt to balance their response to economic woes while managing skyrocketing data usage.
Operators Optimistic About Mobile Data Resiliency
According to the study, growth expectations for mobile data services across the industry are high, with 84 percent of the total sample--and 92 percent of wireless network operators--expressing their belief that demand for data will remain robust despite the downturn. Most of these operators have already completed deployment of their 3G networks and the new, larger pipes need to be filled with data traffic in order to recoup massive investments.
The focus on mobile Internet consumption may not be purely aspirational, as it is already proving to be the fastest growing source of data revenue for many operators. Vodafone Group recently reported, for example, that its non-messaging data revenue increased by approximately 50 percent in the past year, compared to less than 15 percent growth in messaging and voice services. Sustaining data growth at this rate could be a challenge.
Likely Inhibitors of Mass Adoption
The study indicates that the most likely inhibitors of mobile data adoption will be the cost of services (citing 43 percent of respondents) and the effects of limited bandwidth on the network (citing 36 percent of respondents).
The high cost of data services is certainly an obstacle in emerging markets, considering that monthly mobile internet fees run as high as US$100. In contrast, average wireless data prices have fallen sharply in developed markets, and most operators now charge flat rates for Internet access on laptops and mobile phones. However, the Bytemobile-EIU survey confirms that price reduction will not necessarily lead to more data usage but will almost certainly have a negative impact on data revenue.
Growing mobile data usage, fueled in part by the introduction of unlimited data plans, threatens to clog wireless networks. As many as 64 percent of the executives surveyed believe that bandwidth is becoming increasingly limited for the content and services that their users are demanding. And while only a small minority believes that the bottlenecks will be eliminated over the next three years, 54 percent of those surveyed expect network capacity to remain tight.
New Innovations Driving Data Consumption
Optimization solutions enable operators to scale their networks ahead of current data usage trends, yet within the footprint of their existing installations. The survey showed that apart from such solutions, operators are considering proactive management of user behavior to solve limited capacity problems. Approximately 56 percent of respondents see variable bandwidth pricing as a viable solution to network capacity issues, as well as a promising future source of revenue, with mobile data usage continuing to rise.
As many as 29 percent of operators surveyed believe that creative ways of packaging and pricing both Internet access and content are needed to drive mobile data adoption. The aim of bundling is to create customized packages that add perceived value for consumers, who will consequently be willing to pay a premium for them. In order to add perceived value for consumers, mobile content will need to be personalized to suit each user's interests and needs--another challenge that operators face.
Mobile Data: High Hopes, Tough Going
Operators are finding that regardless of the financial crisis, mobile users are consuming enormous amounts of data. Traffic over Tier-One networks is growing at 10 percent to 15 percent per month. Demand for increasingly richer content and robust mobile broadband services such as video--plus the popularity of high-end smartphones such as the Apple iPhone and USB dongles for laptops--point to future acceleration of data growth.
However, as with all major markets, the mobile data industry will remain vulnerable during an extended period of economic uncertainty. The industry's optimism about the resiliency of mobile data demand is being tested as consumers around the world contract their budgets.
Interestingly enough, the Bytemobile-EIU research shows that mobile data companies are prepared to weather the storm. Many network operators have already tightened their belts, are watching capital expenditures closely and have clear ideas regarding the steps needed to protect and expand their revenue streams. With data revenues from text messaging flattening out and average voice revenues on the decline, increased mobile data consumption has become a critical requirement for filling the gap and fueling new growth.
As the global study has confirmed, executives across the mobile industry recognize that continued investment is necessary to increase mobile data usage. The challenge remains for the entire telecommunications industry--in developed and emerging markets alike--to continue driving data consumption by making the mobile Internet a reality for all consumers and generating substantial value-added revenue streams in the process.
Adrian Hall is the chief marketing officer of Bytemobile, Inc.
