Buzz About Data but Voice Still Rules

For all the talk about the iPhone, ringtones, the wireless Web and mobile e-mail, here’s the reality few people want to admit: the vast majority of wireless revenue comes from voice services because the vast majority of wireless subscribers mostly use their devices to talk.

Talking on your cell phone is no where near as sexy as using an iPhone or Blackberry but that’s the reality once you get beyond the hard-core business crowd and the geeks. Carriers are reluctant to admit as much because voice is a non-sexy, lower margin service compared with high-margin, sexy data services.

It’s not that often, for example, that you’ll hear ads from Verizon, AT&T, Rogers or Bell touting their crystal-clear sound quality when making a call. Instead, they’re trying to get you excited about being able to check your e-mail anywhere, anytime or surfing the Web so you can use Google at all hours of the day. It’s business, and the sweet profits are in data, not voice.

Still, the carriers are pounding away on consumers so they can justify the major investments they’ve made in 3G networks. Meanwhile, device makers such as Apple, Research in Motion, Nokia and Samsung are aggressively supporting the data “campaign” by making increasingly sleek and sexy smartphones.

Keep in mind, however, that buying one of these babies isn’t cheap after taking into account you either have to pay through the nose upfront or commit yourself to a long-term contract to reduce your upfront costs to something less than what your monthly mortgage payment might be.

I realize telling a device-loving, leading-edge audience that wireless data isn’t as sexy as cool as they think is probably going to encourage a lot of pushback. But that’s okay.

And it’s not to suggest that wireless data isn’t eventually going to be significantly more popular but right now, it’s not the imminent reality many techies believe.

Perhaps the most honest comment about the real wireless world appeared in a Canadian Press story that quoted IDC analyst Ramon Llamas.

“I look at a lot of Joe and Jane consumers on main street anywhere and a lot of them are pretty content with just a regular cellphone,” Llamas said. “It does what they need it to do and basically that is just to make a phone call.”

Next on this week’s wireless agenda is a hard look at the projections for mobile advertising and entertainment. Part one of this wireless series was yesterday’s look at “sublime” iPod Touch.

Update: BusinessWeek has an interesting story looking at how VoIP is going mobile. While the carriers will probably figure out a way to capitalize on this kind of data flowing over their networks, VoIP is something that likely scares them.

Technorati Tags: blackberry, iPhone, wireless

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http://kevinrestivo.com Kevin Restivo

Mark,

Smartphones will become the norm many Canadians in 5 years time.

Handsets are improving – RIM, Nokia and of course, Apple are making the smartphone a more attractive proposition. Wireless access has improved. Prices are likely on the way down.

These factors will serve to make the smartphone a more attractive proposition and thus part of most cell phone owner’s lives in five years time.

Remember, it was all of 10 years ago that many people scoffed at the thought of what’s now considered the most basic of cell phones.

Even in Canada, where prices are relatively high compared to other developed nations, wireless penetration is now at roughly 63% to 64%. In the U.S. it is above 80%.

Soon the smartphone will be in many of those cell phone owners hands.

Kevin
http://www.markevanstech.com Mark Evans

You’re probably right but my sense the bullishness about the mobile Web is premature. Then again, hyperbole and getting the masses excited about what’s just over the horizon is a key part of the tech industry’s modus operandi.

Mark
http://jaxtr.blogspot.com JimAtJaxtr

I’m pretty amazed at how fast things have moved in Internet growth and mobile phone adoption since the mid-90s, so I think Kevin has a point about the adoption of smartphones. The Pew Internet shows some interesting data around adoption of mobile technology (http://www.pewinternet.org/pdfs/PIP_Mobile.Data.Access.pdf). Hispanics in the US are using mobile phones considerably more for email, IM, and video than the caucasian demographic. Perhaps, the mobile phone having a smaller barrier to access (cost) gives that demographic that access point, potentially replacing computers. In other cultures, we are already seeing leaps over technology (countries going straight to wireless and bypassing copperwire in some places). So, I wonder if the smartphone won’t catch on in popularity not so much by the geeks of the world, but by those technologically catching up who want to get as many things as possible into one device.
Christian

Mark,

While I’d agree with you on the present economics of wireless voice versus data, the point is to continuously evolve a viable business model for tomorrow – and naturally to position both consumers and their own organizations to shift to the new paradigm.

The increased commoditization of landline voice and services (i.e. long distance), and its effects on Canadian carriers shows us where wireless voice services are headed – they will become a still-lower margin, (and in many cases flat rate) utility. Any carrier that denies this is just setting themselves up for a fall as competition increases – already the counter-intuitive approach by Bell and Telus on SMS pricing is costing them significant customer goodwill and represents no cost-reality from their point, just a blind atttempt to increase revenue by gouging customers.

The question to ask is where the next ARPU-lifting (or maintaining, really as average wireless voice pricing will fall – see today’s Moody’s downgrade of the sector) service is coming from. And, chances are, it’s related to wireless data.

Data prices will fall, and see some commoditization as well, no doubt of that, but as phones get smarter and customers begin to understand what they can do with them, data-related services will become a significant portion of the revenue picture. Presence-related services, music downloads and on-screen navigation are just a few examples of where data services are beginning to show revenue promise as stand-alone offerings worldwide (though not so much in Canada as we’re way behind), not to mention the many applications and multimedia services that will drive significantly higher data consumption – if you just want to talk about data volume – but really, it’s not going to be about that for too long. Smart carriers will realize that charging by event/usage for value-add services and maintaining relatively generous data and voice pricing will ultimately be a strong retention and revenue model. Until the next great thing comes along, of course….

So sure, voice is king for revenue right now, but it is declining, and will continue to decline on a per subscriber basis, something that Canada’s currently turgid wireless penetration rates will make unsustainable. As stated, this is no different than most wireline telcos – they too still have a huge amount of revenue pouring in from voice and (surprisingly) LD, but they have the foresight to move in new directions (IP TV for instance), just as their competitors across the telecoms space are diversifying (cable operators -> VOIP), and hopefully in the process, differentiating themselves here and there. The alternative is to be left behind, as single-play ISP’s have found themselves – a utility that provides conduit and no differentiating value. And that’s not a money-winning proposition.

Cheers,
Christian.

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Buzz About Data but Voice Still Rules