Telco growth has stalled

Telecom operators are getting hit from all sides. Voice revenue has been in steady decline for years. But over the past 18 months SMS income has been sliding rapidly (Ovum says telcos will lose $32 billion this year to the social messaging players) and now the word is roaming– their last high-margin revenue stream – is being hit by regulations in Europe. The impact is reportedly already starting to be felt by Hong Kong cellcos.

And this is just the beginning – T-Mobile in the US yesterday announced it will offer its “Simple Choice“ customers free unlimited data and texting in 100 countries starting at the end of the month. (The fine print notes the speed will be an average of 128 kbps, but they’d be happy to boost that for a fee.) Voice calls will be a flat 20 cents per minute. So roaming -- both voice and data -- will no doubt head in the same direction as texting revenue!

Telecom Asia yesterday reported that aggregate ARPU across Asia-Pacific telcos dropped 14% since June 2010. Blended APRU decreased in 15 out of 25 countries in APAC during that period.

The nets results of these trends: revenues from developed markets in Asia Pacific are projected to increase an anemic 1% a year over the next five years, according to Analysys Mason. The firm expects revenue growth in emerging markets in the region to slow from 8.5% annually over the past four years to 5.8% per year until 2018.

For the region as a whole, Ovum pegs growth at 3% this year to $598 billion (it was up 2% in H1 over last year). Without China and India included, revenue actually fell 7% in H1.

But by the global standard, Asia’s performance is a “growth” story. An Ovum report yesterday boldly stated: “The golden age of telecom growth and prosperity is waning”. It forecasts worldwide service revenues contracting 1% in 2018 – the first decline in the mobile industry’s history. The firm predicts revenue in Europe will fall 1.5% annually for the next six years.

The question is where will telcos pick up the shortfall? On the one hand, many are investing tens of billions in 4G networks (for example, capex in China is expected to increase from 25% of revenue last year to 27% in 2013 due increased spending on 4G). On the other, they haven’t identified any new mass-market services that are both compelling to customers and offer attractive margins. The optimism of valued-added services has soured. VASs in Asia Pacific, the global growth leader, are expected to expand just 13% per year over the next five years.

After VAS what is there – m-payments, m-health or e-education? Selling anonymized user data to the major brands is likely the best option – IF they can work together in a market to give the brands a single point of contact. That is surely a long shot in the short term.

So the search continues while customers turn to other options. The only viable option soon will be radical cost reductions through restructuring.