Posts Tagged GSM
- Mobile data adaption can be (and usually is) very un-healthy for the mobile voice revenues.
- A Mega Byte of Mobile Voice is 6 times more expensive than a Mega Byte of Mobile Data (i.e., global average)
- If customers would pay the Mobile Data Price for Mobile Voice, 50% of Global Mobile Revenue would Evaporate (based on 2013 data).
- Classical Mobile Voice is not Dead! Global Mobile Voice Usage grew with more than 50% over the last 5 years. Though Global Voice Revenue remained largely constant (over 2009 – 2013).
- Mobile Voice Revenues declined in most Western European & Central Eastern European countries.
- Voice Revenue in Emerging Mobile-Data Markets (i.e., Latin America, Africa and APAC) showed positive growth although decelerating.
- Mobile Applications providing high-quality (often High Definition) mobile Voice over IP should be expected to dent the classical mobile voice revenues (as Apps have impacted SMS usage & revenue).
- Most Western & Central Eastern European markets shows an increasing decline in price elasticity of mobile voice demand. Even some markets (regions) had their voice demand decline as the voice prices were reduced (note: not that causality should be deduced from this trend though).
- The Art of Re-balancing (or re-capture) the mobile voice revenue in data-centric price plans are non-trivial and prone to trial-and-error (but likely also un-avoidable).
An Unbearable Lightness.
There is something almost perverse about how light the mobile industry tends to treat Mobile Voice, an unbearable lightness?
How often don’t we hear Telco Executives wish for All-IP and web-centric services for All? More and more mobile data-centric plans are being offered with voice as an after thought. Even though voice still constitute more than 60% of the Global Mobile turnover and in many emerging mobile markets beyond that. Even though classical mobile voice is more profitable than true mobile broadband access. “Has the train left the station” for Voice and running off the track? In my opinion, it might have for some Telecom Operators, but surely not for all. Taking some time away from thinking about mobile data would already be an incredible improvement if spend on strategizing and safeguarding mobile voice revenues that still are a very substantial part of The Mobile Business Model.
Mobile data penetration is un-healthy for voice revenue. It is almost guarantied that voice revenue will start declining as the mobile data penetration reaches 20% and beyond. There are very few exceptions (i.e., Australia, Singapore, Hong Kong and Saudi Arabia) to this rule as observed in the figure below. Much of this can be explained by the Telecoms focus on mobile data and mobile data centric strategies that takes the mobile voice business for given or an afterthought … focusing on a future of All-IP Services where voice is “just” another data service. Given the importance of voice revenues to the mobile business model, treating voice as an afterthought is maybe not the most value-driven strategy to adopt.
I should maybe point out that this is not per se a result of the underlying Cellular All-IP Technology. The fact is that Cellular Voice over an All-IP network is very well specified within 3GPP. Voice over LTE (i.e., VoLTE), or Voice over HSPA (VoHSPA) for that matter, is enabled with the IP Multimedia Subsystem (IMS). Both VoLTE and VoHSPA, or simply Cellular Voice over IP (Cellular VoIP as specified by 3GPP), are highly spectral efficient (compared to their circuit switched equivalents). Further the Cellular VoIP can be delivered at a high quality comparable to or better than High Definition (HD) circuit switched voice. Recent Mean Opinion Score (MOS) measurements by Ericsson and more recently (August 2014) Signals Research Group & Spirent have together done very extensive VoLTE network benchmark tests including VoLTE comparison with the voice quality of 2G & 3G Voice as well as Skype (“Behind the VoLTE Curtain, Part 1. Quantifying the Performance of a Commercial VoLTE Deployment”). Further advantage of Cellular VoIP is that it is specified to inter-operate with legacy circuit-switched networks via the circuit-switched fallback functionality. An excellent account for Cellular VoIP and VoLTE in particular can be found in Miikki Poikselka et al’s great book on “Voice over LTE” (Wiley, 2012).
Its not the All-IP Technology that is wrong, its the commercial & strategic thinking of Voice in an All-IP World that leaves a lot to be wished for.
Voice over LTE provides for much better Voice Quality than a non-operator controlled (i.e., OTT) mobile VoIP Application would be able to offer. But is that Quality worth 5 to 6 times the price of data, that is the Billion $ Question.
- Figure Above: illustrates the compound annual growth rates (2009 to 2013) of mobile voice revenue and the mobile data penetration at the beginning of the period (i.e., 2009). As will be addressed later it should be noted that the growth of mobile voice revenues are NOT only depending on Mobile Data Penetration Rates but on a few other important factors, such as addition of new unique subscribers, the minute price and the voice arpu compared to the income level (to name a few). Analysis has been based on Pyramid Research data. Abbreviations: WEU: Western Europe, CEE: Central Eastern Europe, APAC: Asia Pacific, MEA: Middle East & Africa, NA: North America and LA: Latin America.
In the following discussion classical mobile voice should be understood as an operator-controlled voice service charged by the minute or in equivalent economical terms (i.e., re-balanced data pricing). This is opposed to a mobile-application-based voice service (outside the direct control of the Telecom Operator) charged by the tariff structure of a mobile data package without imposed re-balancing.
If the Industry would charge a Mobile Voice Minute the equivalent of what they charge a Mobile Mega Byte … almost 50% of Mobile Turnover would disappear … So be careful AND be prepared for what you wish for!
There are at least a couple of good reasons why Mobile Operators should be very focused on preserving mobile voice as we know it (or approximately so) also in LTE (and any future standards). Even more so, Mobile Operators should try to avoid too many associations with non-operator controlled Voice-over-IP (VoIP) Smartphone applications (easier said than done .. I know). It will be very important to define a future voice service on the All-IP Mobile Network that maintains its economics (i.e., pricing & margin) and don’t get “confused” with the mobile-data-based economics with substantially lower unit prices & questionable profitability.
Back in 2011 at the Mobile Open Summit, I presented “Who pays for Mobile Broadband” (i.e., both in London & San Francisco) with the following picture drawing attention to some of the Legacy Service (e.g., voice & SMS) challenges our Industry would be facing in the years to come from the many mobile applications developed and in development;
One of the questions back in 2011 was (and Wow it still is! …) how to maintain the Mobile ARPU & Revenues at a reasonable level, as opposed to massive loss of revenue and business model sustainability that the mobile data business model appeared to promise (and pretty much still does). Particular the threat (& opportunities) from mobile Smartphone applications. Mobile Apps that provides Mobile Customers with attractive price-arbitrage compared to their legacy prices for SMS and Classical Voice.
“IP killed the SMS Star” … Will IP also do away with the Classical Mobile Voice Economics as well?
Okay … Lets just be clear about what is killing SMS (it’s hardly dead yet). The Mobile Smartphone Messaging-over-IP (MoIP) App does the killing. However, the tariff structure of an SMS vis-a-vis that of a mobile Mega Byte (i..e, ca. 3,000x) is the real instigator of the deed together with the shear convenience of the mobile application itself.
As of August 2014 the top Messaging & Voice over IP Smartphone applications share ca. 2.0+ Billion Active Users (not counting Facebook Messenger and of course with overlap, i.e., active users having several apps on their device). WhatsApp is the Number One Mobile Communications App with about 700 Million active users (i.e., up from 600 Million active users in August 2014). Other Smartphone Apps are further away from the WhatsApp adaption figures. Applications from Viber can boast of 200+M active users, WeChat (predominantly popular in Asia) reportedly have 460+M active users and good old Skype around 300+M active users. The impact of smartphone MoIP applications on classical messaging (e.g., SMS) is well evidenced. So far Mobile Voice-over-IP has not visible dented the Telecom Industry’s mobile voice revenues. However the historical evidence is obviously no guaranty that it will not become an issue in the future (near, medium or far).
WhatsApp is rumoured to launch mobile voice calling as of first Quarter of 2015 … Will this event be the undoing of operator controlled classical mobile voice? WhatsApp already has taken the SMS Scalp with 30 Billion WhatsApp messages send per day according the latest data from WhatsApp (January 2015). For comparison the amount of SMS send out over mobile networks globally was a bit more than 20 Billion per day (source: Pyramid Research data). It will be very interesting (and likely scary as well) to follow how WhatsApp Voice (over IP) service will impact Telecom operator’s mobile voice usage and of course their voice revenues. The Industry appears to take the news lightly and supposedly are unconcerned about the prospects of WhatsApp launching a mobile voice services (see: “WhatsApp voice calling – nightmare for mobile operators?” from 7 January 2015) … My favourite lightness is Vodacom’s (South Africa) “if anything, this vindicates the massive investments that we’ve been making in our network….” … Talking about unbearable lightness of mobile voice … (i.e., 68% of the mobile internet users in South Africa has WhatsApp on their smartphone).
Paying the price of a mega byte mobile voice.
A Mega-Byte is not just a Mega-Byte … it is much more than that!
In 2013, the going Global average rate of a Mobile (Data) Mega Byte was approximately 5 US-Dollar Cent (or a Nickel). A Mega Byte (MB) of circuit switched voice (i.e., ca. 11 Minutes @ 12.2kbps codec) would cost you 30+ US$-cent or about 6 times that of Mobile Data MB. Would you try to send a MB of SMS (i.e., ca. 7,143 of them) that would cost you roughly 150 US$ (NOTE: US$ not US$-Cents).
1 Mobile MB = 5 US$-cent Data MB < 30+ US$-cent Voice MB (6x mobile data) << 150 US$ SMS MB (3000x mobile data).
A Mega Byte of voice conversation is pretty un-ambiguous in the sense of being 11 minutes of a voice conversation (typically a dialogue, but could be monologue as well, e.g., voice mail or an angry better half) at a 12.2 kbps speech codec. How much mega byte a given voice conversation will translate into will depend on the underlying speech coding & decoding (codec) information rate, which typically is 12.2 kbps or 5.9 kbps (i.e., for 3GPP cellular-based voice). In general we would not be directly conscious about speed (e.g., 12.2 kbps) at which our conversation is being coded and decoded although we certainly would be aware of the quality of the codec itself and its ability to correct errors that will occur in-between the two terminals. For a voice conversation itself, the parties that engage in the conversation is pretty much determining the duration of the conversation.
An SMS is pretty straightforward and well defined as well, i.e., being 140 Bytes (or characters). Again the underlying delivery speed is less important as for most purposes it feels that the SMS sending & delivery is almost instantaneously (though the reply might not be).
All good … but what about a Mobile Data Byte? As a concept it could by anything or nothing. A Mega Byte of Data is Extremely Ambiguous. Certainly we get pretty upset if we perceive a mobile data connection to be slow. But the content, represented by the Byte, would obviously impact our perception of time and whether we are getting what we believe we are paying for. We are no longer master of time. The Technology has taken over time.
Some examples: A Mega Byte of Voice is 11 minutes of conversation (@ 12.2 kbps). A Mega Byte of Text might take a second to download (@ 1 Mbps) but 8 hours to process (i.e., read). A Mega Byte of SMS might be delivered (individually & hopefully for you and your sanity spread out over time) almost instantaneously and would take almost 16 hours to read through (assuming English language and an average mature reader). A Mega Byte of graphic content (e.g., a picture) might take a second to download and milliseconds to process. Is a Mega Byte (MB) of streaming music that last for 11 seconds (@ 96 kbps) of similar value to a MB of Voice conversation that last for 11 minutes or a MB millisecond picture (that took a second to download).
In my opinion the answer should be clearly NO … Such (somewhat silly) comparisons serves to show the problem with pricing and valuing a Mega Byte. It also illustrates the danger of ambiguity of mobile data and why an operator should try to avoid bundling everything under the banner of mobile data (or at the very least be smart about it … whatever that means).
I am being a bit naughty in above comparisons, as I am freely mixing up the time scales of delivering a Byte and the time scales of neurological processing that Byte (mea culpa).
- Figure Above: Logarithmic representation of the cost per Mega Byte of a given mobile service. 1 MB of Voice is roughly corresponding to 11 Minutes at a 12.2 voice codec which is ca. 25+ times the monthly global MoU usage. 1 MB of SMS correspond to ca. 7,143 SMSs which is a lot (actually really a lot). In USA 7,143 would roughly correspond to a full years consumption. However, in WEU 7,143 SMS would be ca. 6+ years of SMS consumption (on average) to about almost 12 years of SMS consumption in MEA Region. Still SMS remain proportionate costly and clear is an obvious service to be rapidly replaced by mobile data as it becomes readily available. Source: Pyramid Research.
The “Black” Art of Re-balancing … Making the Lightness more Bearable?
I recently had a discussion with a very good friend (from an emerging market) about how to recover lost mobile voice revenues in the mobile data plans (i.e., the art of re-balancing or re-capturing). Could we do without Voice Plans? Should we focus on All-in the Data Package? Obviously, if you would charge 30+ US$-cent per Mega Byte Voice, while you charge 5 US$-cent for Mobile Data, that might not go down well with your customers (or consumer interest groups). We all know that “window-dressing” and sleight-of-hand are important principles in presenting attractive pricings. So instead of Mega Byte voice we might charge per Kilo Byte (lower numeric price), i.e., 0.029 US$-cent per kilo byte (note: 1 kilo-byte is ca. 0.65 seconds @ 12.2 kbps codec). But in general the consumer are smarter than that. Probably the best is to maintain a per time-unit charge or to Blend in the voice usage & pricing into the Mega Byte Data Price Plan (and hope you have done your math right).
Example (a very simple one): Say you have 500 MB mobile data price plan at 5 US$-cent per MB (i.e., 25 US$). You also have a 300 Minute Mobile Voice Plan of 2.7 US$-cent a minute (or 30 US$-cent per MB). Now 300 Minutes corresponds roughly to 30 MB of Voice Usage and would be charged ca. 9$. Instead of having a Data & Voice Plan, one might have only the Data Plan charging (500 MB x 5 US$cent/MB + 30 MB x 30 US$/cent/MB) / 530 MB or 6.4 US$-cent per MB (or 1.4 US$-cent more for mobile voice over the data plan or a 30% surcharge for Voice on the Mobile Data Bytes). Obviously such a pricing strategy (while simple) does pose some price strategic challenges and certainly does not per se completely safeguard voice revenue erosion. Keeping Mobile Voice separately from Mobile Data (i.e., Minutes vs Mega Bytes) in my opinion will remain the better strategy. Although such a minutes-based strategy is easily disrupted by innovative VoIP applications and data-only entrepreneurs (as well as Regulator Authorities).
Re-balancing (or re-capture) the voice revenue in data-centric price plans are non-trivial and prone to trial-and-error. Nevertheless it is clearly an important pricing strategy area to focus on in order to defend existing mobile voice revenues from evaporating or devaluing by the mobile data price plan association.
Is Voice-based communication for the Masses (as opposed to SME, SOHO, B2B,Niche demand, …) technologically un-interesting? As a techno-economist I would say far from it. From the GSM to HSPA and towards LTE, we have observed a quantum leap, a factor 10, in voice spectral efficiency (or capacity), substantial boost in link-budget (i.e., approximately 30% more geographical area can be covered with UMTS as opposed to GSM in apples for apples configurations) and of course increased quality (i.e., high-definition or crystal clear mobile voice). The below Figure illustrates the progress in voice capacity as a function of mobile technology. The relative voice spectral efficiency data in the below figure has been derived from one of the best (imo) textbooks on mobile voice “Voice over LTE” by Miikki Poikselka et all (Wiley, 2012);
- Figure Above: Abbreviation guide; EFR: Enhanced Full Rate, AMR: Adaptive Multi-Rate, DFCA: Dynamic Frequency & Channel Allocation, IC: Interference Cancellation. What might not always be appreciate is the possibility of defining voice over HSPA, similar to Voice over LTE. Source: “Voice over LTE” by Miikki Poikselka et all (Wiley, 2012).
If you do a Google Search on Mobile Voice you would get ca. 500 Million results (note Voice over IP only yields 100+ million results). Try that on Mobile Data and “sham bam thank you mam” you get 2+ Billion results (and projected to increase further). For most of us working in the Telecom industry we spend very little time on voice issues and an over-proportionate amount of time on broadband data. When you tell your Marketing Department that a state-of-the-art 3G can carry at least twice as much voice traffic than state-of-the –art GSM (and over 30% more coverage area) they don’t really seem to get terribly exited? Voice is un-sexy!? an afterthought!? … (don’t even go brave and tell Marketing about Voice over LTE, aka VoLTE).
Is Mobile Voice Dead or at the very least Dying?
Is Voice un-interesting, something to be taken for granted?
Is Voice “just” data and should be regarded as an add-on to Mobile Data Services and Propositions?
From a Mobile Revenue perspective mobile voice is certainly not something to be taken for granted or just an afterthought. In 2013, mobile voice still amounted for 60+% of he total global mobile turnover, with mobile data taking up ca. 40% and SMS ca. 10%. There are a lot of evidence that SMS is dying out quickly with the emergence of smartphones and Messaging-over-IP-based mobile application (SMS – Assimilation is inevitable, Resistance is Futile!). Not particular surprising given the pricing of SMS and the many very attractive IP-based alternatives. So are there similar evidences of mobile voice dying?
NO! NIET! NEM! MA HO BU! NEJ! (not any time soon at least)
Lets see what the data have to say about mobile voice?
In the following I only provide a Regional but should there be interest I have very detailed deep dives for most major countries in the various regions. In general there are bigger variations to the regional averages in Middle East & Africa (i.e., MEA) as well as Asia Pacific (i.e., APAC) Regions, as there is a larger mix of mature and emerging markets with fairly large differences in mobile penetration rates and mobile data adaptation in general. Western Europe, Central Eastern Europe, North America (i.e., USA & Canada) and Latin America are more uniform in conclusions that can reasonably be inferred from the averages.
As shown in the Figure below, from 2009 to 2013, the total amount of mobile minutes generated globally increased with 50+%. Most of that increase came from emerging markets as more share of the population (in terms of individual subscribers rather than subscriptions) adapted mobile telephony. In absolute terms, the global mobile voice revenues did show evidence of stagnation and trending towards decline.
- Figure Above: Illustrates the development & composition of historical Global Mobile Revenues over the period 2009 to 2013. In addition also shows the total estimated growth of mobile voice minutes (i.e., Red Solid Curve showing MoUs in units of Trillions) over the period. Sources: Pyramid Research & Statista. It should noted that various data sources actual numbers (over the period) are note completely matching. I have observed a difference between various sources of up-to 15% in actual global values. While interesting this difference does not alter the analysis & conclusions presented here.
If all voice minutes was charged with the current Rate of Mobile Data, approximately Half-a-Billion US$ would evaporate from the Global Mobile Revenues.
So while mobile voice revenues might not be a positive growth story its still “sort-of” important to the mobile industry business.
Most countries in Western & Central Eastern Europe as well as mature markets in Middle East and Asia Pacific shows mobile voice revenue decline (in absolute terms and in their local currencies). For Latin America, Africa and Emerging Mobile Data Markets in Asia-Pacific almost all exhibits positive mobile voice revenue growth (although most have decelerating growth rates).
- Figure Above: Illustrates the annual growth rates (compounded) of total mobile voice revenues and the corresponding growth in mobile voice traffic (i.e., associated with the revenues). Some care should be taken as for each region US$ has been used as a common currency. In general each individual country within a region has been analysed based on its own local currency in order to avoid mixing up currency exchange effects. Source: Pyramid Research.
Of course revenue growth of the voice service will depend on (1) the growth of subscriber base, (2) the growth of the unit itself (i.e., minutes of voice usage) as it is used by the subscribers (i.e., which is likely influenced by the unit price), and (3) the development of the average voice revenue per subscriber (or user) or the unit price of the voice service. Whether positive or negative growth of Revenue results, pretty much depends on the competitive environment, regulatory environment and how smart the business is in developing its pricing strategy & customer acquisition & churn dynamics.
Growth of (unique) mobile customers obviously depends the level of penetration, network coverage & customer affordability. Growth in highly penetrated markets is in general (much) lower than growth in less mature markets.
- Figure Above: Illustrates the annual growth rates (compounded) of unique subscribers added to a given market (or region). Further to illustrate the possible relationship between increased subscribers and increased total generated mobile minutes the previous total minutes annual growth is shown as well. Source: Pyramid Research.
Interestingly, particular for the North America Region (NA), we see an increase in unique subscribers of 11% per anno and hardly any growth over the period of total voice minutes. Firstly, note that the US Market will dominate the averaging of the North America Region (i.e., USA and Canada) having approx. 13 times more subscribers. So one of the reasons for this no-minutes-growth effect is that the US market saw a substantial increase in the prepaid ratio (i.e., from ca.19% in 2009 to 28% in 2013). Not only were new (unique) prepaid customers being added. Also a fairly large postpaid to prepaid migration took place over the period. In the USA the minute usage of a prepaid is ca. 35+% lower than that of a postpaid. In comparison the Global demanded minutes difference is 2.2+ times lower prepaid minute usage compared to that of a postpaid subscriber). In the NA Region (and of course likewise in the USA Market) we observe a reduced voice usage over the period both for the postpaid & prepaid segment (based on unique subscribers). Thus increased prepaid blend in the overall mobile base with a relative lower voice usage combined with a general decline in voice usage leads to a pretty much zero growth in voice usage in the NA Market. Although the NA Region is dominated by USA growth (ca. 0.1 % CAGR total voice growth), Canada’s likewise showed very minor growth in their overall voice usage as well (ca. 3.8% CAGR). Both Canada & USA reduced their minute pricing over the period.
- Note on US Voice Usage & Revenues: note that in both in US and in Canada also the receiving party pays (RPP) for receiving a voice call. Thus revenue generating minutes arises from both outgoing and incoming minutes. This is different from most other markets where the Calling Party Pays (CPP) and only minutes originating are counted in the revenue generation. For example in USA the Minutes of Use per blended customer was ca. 620 MoU in 2013. To make that number comparable with say Europe’s 180 MoU, one would need to half the US figure to 310 MoU still a lot higher than the Western European blended minutes of use. The US bundles are huge (in terms of allowed minutes) and likewise the charges outside bundles (i.e., forcing the consumer into the next one) though the fixed fees tends be high to very high (in comparison with other mobile markets). The traditional US voice plan would offer unlimited on-net usage (i.e., both calling & receiving party are subscribing to the same mobile network operator) as well as unlimited off-peak usage (i.e., evening/night/weekends). It should be noted that many new US-based mobile price plans offers data bundles with unlimited voice (i.e., data-centric price plans). In 2013 approximately 60% of the US mobile industry’s turnover could be attributed to mobile voice usage. This number is likely somewhat higher as some data-tariffs has voice-usage (e.g., typically unlimited) embedded. In particular the US mobile voice business model would be depending customer migration to prepaid or lower-cost bundles as well as how well the voice-usage is being re-balanced (and re-captured) in the Data-centric price plans.
- Figure Above: Illustrating the annual growth (compounded) of the per minute price in US$-cents as well as the corresponding growth in total voice minutes. The most affected by declining growth is Western Europe & Central Eastern Europe although other more-emerging markets are observed to have decelerating voice revenue growth. Source: Pyramid Research.
Clearly from the above it appears that the voice “elastic” have broken down in most mature markets with diminishing (or no return) on further minute price reductions. Another way of looking at the loss (or lack) of voice elasticity is to look at the unit-price development of a voice-minute versus the growth of the total voice revenues;
- Figure Above: Illustrates the growth of Total Voice Revenue and the unit-price development of a mobile voice minute. Apart from the Latin America (LA) and Asia Pacific (APAC) markets there clearly is no much further point in reducing the price of voice. Obviously, there are other sources & causes, than the pure gain of elasticity, effecting the price development of a mobile voice minute (i.e., regulatory, competition, reduced demand/voice substitution, etc..). Note US$ has been used as the unifying currency across the various markets. Despite currency effects the trend is consistent across the markets shown above. Source: Pyramid Research.
While Western & Central-Eastern Europe (WEU & CEE) as well as the mature markets in Middle East and Asia-Pacific shows little economic gain in lowering voice price, in the more emerging markets (LA and Africa) there are still net voice revenue gains to be made by lowering the unit price of a minute (although the gains are diminishing rapidly). Although most of the voice growth in the emerging markets comes from adding new customers rather than from growth in the demand per customer itself.
- Figure Above: Illustrating possible drivers for mobile voice growth (positive as well as negative); such as Mobile Data Penetration 2013 (expected negative growth impact), increased number of (unique) subscribers compared to 2009 (expected positive growth impact) and changes in prepaid-postpaid blend (a negative %tage means postpaid increased their proportion while a positive %tage translates into a higher proportion of prepaid compared to 2009). Voice tariff changes have been observed to have elastic effects on usage as well although the impact changes from market to market pending on maturity. Source: derived from Pyramid Research.
With all the talk about Mobile Data, it might come as a surprise that Voice Usage is actually growing across all regions with the exception of North America. The sources of the Mobile Voice Minutes Growth are largely coming from
- Adding new unique subscribers (i.e., increasing mobile penetration rates).
- Transitioning existing subscribers from prepaid to postpaid subscriptions (i.e., postpaid tends to have (a lot) higher voice usage compared to prepaid).
- General increase in usage per individual subscriber (i.e., few markets where this is actually observed irrespective of the general decline in the unit cost of a voice minute).
To the last point (#3) it should be noted that the general trend across almost all markets is that Minutes of Use per Unique customer is stagnating and even in decline despite substantial per unit price reduction of a consumed minute. In some markets that trend is somewhat compensated by increase of postpaid penetration rates (i.e., postpaid subscribers tend to consume more voice minutes). The reduction of MoUs per individual subscriber is more significant than a subscription-based analysis would let on.
Clearly, Mobile Voice Usage is far from Dead
Mobile Voice Revenue is a very important part of the overall mobile revenue composition.
It might make very good sense to spend a bit more time on strategizing voice, than appears to be the case today. If mobile voice remains just an afterthought of mobile data, the Telecom industry will loose massive amounts of Revenues and last but not least Profitability.
Post Script: What drives the voice minute growth?
An interesting exercise is to take all the data and run some statistical analysis on it to see what comes out in terms of main drivers for voice minute growth, positive as well as negative. The data available to me comprises 77 countries from WEU (16), CEE (8), APAC (15), MEA (17), NA (Canada & USA) and LA (19). I am furthermore working with 18 different growth parameters (e.g., mobile penetration, prepaid share of base, data adaptation, data penetration begin of period, minutes of use, voice arpu, voice minute price, total minute volume, customers, total revenue growth, sms, sms price, pricing & arpu relative to nominal gdp etc…) and 7 dummy parameters (populated with noise and unrelated data).
Two specific voice minute growth models emerges our of a comprehensive analysis of the above described data. The first model is as follows
(1) Voice Growth correlates positively with Mobile Penetration (of unique customers) in the sense of higher penetration results in more minutes, it correlates negatively with Mobile Data Penetration at the begin of the period (i.e., 2009 uptake of 3G, LTE and beyond) in the sense that higher mobile data uptake at the begin of the period leads to a reduction of Voice Growth, and finally Voice Growth correlates negatively with the Price of a Voice Minute in the sense of higher prices leads to lower growth and lower prices leads to higher growth. This model is statistically fairly robust (e.g., a p-values < 0.0001) as well as having all parameters with a statistically meaningful confidence intervals (i.e., upper & lower 95% confidence interval having the same sign).
The Global Analysis does pin point to very rational drivers for mobile voice usage growth, i.e., that mobile penetration growth, mobile data uptake and price of a voice minute are important drivers for total voice usage.
It should be noted that changes in the prepaid proportion does not appear statistically to impact voice minute growth.
The second model provides a marginal better overall fit to the Global Data but yields slightly worse p-values for the individual descriptive parameters.
(2) The second model simply adds the Voice ARPU to (nominal) GDP ratio to the first model. This yields a negative correlation in the sense that a low ratio results in higher voice usage growth and a higher ration in lower voice usage growth.
Both models describe the trends or voice growth dynamics reasonably well, although less convincing for Western & Central Eastern Europe and other more mature markets where the model tends to overshoot the actual data. One of the reasons for this is that the initial attempt was to describe the global voice growth behaviour across very diverse markets.
- Figure Above: Illustrates total annual generated voice minutes compound annual growth rate (between 2009 and 2013) for 77 markets across 6 major regions (i.e., WEU, CEE, APAC, MEA, NA and LA). The Model 1 shows an attempt to describe the Global growth trend across all 77 markets within the same model. The Global Model is not great for Western Europe and part of the CEE although it tends to describe the trends between the markets reasonably.
- Figure Western & Central Eastern Region: the above Illustrates the compound annual growth rate (2009 – 2013) of total generated voice minutes and corresponding voice revenues. For Western & Central Eastern Europe while the generated minutes have increased the voice revenue have consistently declined. The average CAGR of new unique customers over the period was 1.2% with the maximum being little less than 4%.
- Figure Asia Pacific Region: the above Illustrates the compound annual growth rate (2009 – 2013) of total generated voice minutes and corresponding voice revenues. For the Emerging market in the region there is still positive growth of both minutes generated as well as voice revenue generated. Most of the mature markets the voice revenue growth is negative as have been observed for mature Western & Central Eastern Europe.
PS.PS. Voice Tariff Structure
Typically the structure of a mobile voice tariff (or how the customer is billed) is structure as follows
Fixed charge / fee
- This fixed charge can be regarded as an access charge and usually is associated with a given usage limit (i.e., $ X for Y units of usage) or bundle structure.
Variable per unit usage charge
- On-net – call originating and terminating within same network.
- Off-net – Domestic Mobile.
- Off-net – Domestic Fixed.
- Off-net – International.
- Local vs Long-distance.
- Peak vs Off-peak rates (e.g., off-peak typically evening/night/weekend).
- Roaming rates (i.e., when customer usage occurs in foreign network).
- Special number tariffs (i.e., calls to paid-service numbers).
How a fixed vis-a-vis variable charges are implemented will depend on the particularity of a given market but in general will depend on service penetration and local vs long-distance charges.
I greatly acknowledge my wife Eva Varadi for her support, patience and understanding during the creative process of creating this Blog. I certainly have not always been very present during the analysis and writing. Also many thanks to Shivendra Nautiyal and others for discussing and challenging the importance of mobile voice versus mobile data and how practically to mitigate VoIP cannibalization of the Classical Mobile Voice.
- A Billion GSM subscriptions & almost $200 Billion GSM revenue will have gone within the next 5 years.
- GSM earns a lot less than its “fair” share of the top-line, a trend that will further worsened going forward.
- GSM revenue are fading out rapidly across a majority of the mobile markets across the Globe.
- Accelerated GSM phase-out happens when pricing level of the next technology option relative to the GDP per capita drops below 2%.
- 220 MHz of great spectrum is tied up in GSM, just waiting to be liberated.
- GSM is horrific spectral in-efficient in comparison to today’s cellular standards.
- Eventually we will have 1 GSM network across a given market, shared by all operators, supporting fringe legacy devices (e.g., M2M) while allowing operators to re-purpose remaining legacy GSM spectrum.
- The single Shared-GSM network might survive past any economical justification for its existence merely serving legal and political interests.
Gone So Much … GSM is ancient, uncool and so 90s … why would anybody bother with that stuff any longer … its synonymous with the Nokia Handset (which btw is also ancient, uncool and so 90s … and almost no longer among us thanks to our friend Elop …). In many emerging markets GSM-only phones are hardly demanded or sold any longer in the grey markets. Grey market that make up 90% (or more) of handset sales in many of those emerging markets. Moreover, its not only AT&T in the US talking about 2G phase-out but also an emerging market such as Thailand is believed to be void of GSM within the next couple of years.
A bit of Personal History. Some years ago I had the privilege to work with some very smart people in the Telecom Industry on merging two very big mobile operations (ca.140 million in combined customer base). One of our cardinal spectrum strategic and technology arguments were the gain in spectral efficiency such a merger would bring. Anecdotally it is worth mentioning that the technology synergies and spectrum strategic ideas largely would have financed the deal in shear synergies.
In discussions with the country’s regulator we were asked why we could not “just” switch off GSM? Then use that freed GSM spectrum for new cellular technologies, such as UMTS and even LTE. Thereby gaining sufficient spectral efficiency that merging the two business would become un-necessary. The proposal would have effectively turned off the button of a service that served at ca. 70 Million GSM-only (incl, EDGE & GPRS) subscribers (at the time) across the country. Now that would have been expensive and most likely caused a couple or thousands of class action suits to the beat.
Here is how one could have thought about the process of clearing out GSM for something better (though overall its is more for richer and poorer). There is no “just …press the off button”, as also Sprint experienced with their iDEN migration.
Our thoughts (and submitted Declarations) were that by merging the two operators spectrum (and sites pool) we could create sufficient spectral capacity to support both GSM (which we all granted was phasing out) and provide more capacity and customer experience for the Now Generation Technology (i.e., HSPA+ or 4G as they like to call it in that particular market … Heretics! ;-). A recent must read GigaOM blog by Keith Fitchard “AT&T begins cannibalizing 2G and 3G networks to boost LTE capacity” describes very well the aggressive no-nonsense thinking of US carriers (or simply desperation or both) when it comes to the quest for spectrum efficiency and enhanced customer experience (which co-incidentally also yields the best ARPUs).
It is worth mentioning that more than 2×110 Mega Hertz is tied up in GSM, Up-to 2×35 MHz at 900MHz (if E-GSM has been evoked) and 2×75 MHz at 1800MHz (yes! I am ignoring US GSM band plans, they are messed up but pretty fun nevertheless … different story for another time). Being able to re-purpose this amount of spectrum to more spectral efficient cellular technologies (e.g., UMTS Voice, HSPA+ and LTE) would clearly leapfrog mobile broadband, increase voice capacity at increased quality, and serve the current billions of GSM-only users as well as the next billion un-connected or under-server customer segments with The Internet. The macro-economical benefits being very substantial.
220 MHz of great spectrum is tied up in GSM, just waiting to be liberated.
Back in the days of 2003 I did my first detailed GSM phase-out techno-economical analysis (a bit premature one might add). I was very interested in questions such as “when can we switched off GSM?”, “what are the economical premises of exiting GSM?”, “Why do operators today still continue to encourage subscriber growth on their GSM networks?”, “Today … if you got your hands on GSM usable spectrum, would you start a GSM operation?”, “Why?” and “Why not?”, etc..
So why don’t we “just” switch off GSM? and let go of that old in-efficient cellular technology?
How in-efficient? you may ask? … Pending a little bit on what state the GSM is in, we can have ca. 3 times more voice users in WCDMA (i.e., UMTS) compared to GSM with Adaptive Multi-Rate (AMR) codec support. Newer technology releases supports even more dramatic leaps in voice handling capabilities.
Data? what about cellular data? That GSM, including its data handling enhancements GPRS and EDGE, is light-bits away from the data handling capabilities of WCDMA, HSPA+, LTE and so forth is at this point a well establish fact.
Clearly GSM is horrific spectral in-efficient in comparison to later cellular standards such as WCDMA, HSPA(+) and LTE(+) and its only light (in a very dark tunnel) is that it is supported at lower frequencies (i.e., more economical deployment in rural areas and for large surface area countries). Though today that no longer unique as UMTS and LTE are available in similar or even lower frequency ranges. … of course there are other economical issues at plays as well, which we will see below.
Why do we still bother with a 27+ year old technology? a technology that has very poor spectral efficiency in comparison with later cellular technologies. GSM after all “only” provides Voice, SMS and pretty low bandwidth mobile data (while better than nothing, still very close to nothing).
Well for one thing! there is of course the money thing? (and we know that that makes the world go around) ca. 4+ Billion GSM subscriptions worldwide (incl. GPRS & EDGE) generating a total GSM turnover of 280+ Billion US$.
In 2017 we anticipate to have a little less than 3 Billion GSM subscriptions generating ca. 100+ Billion US$. So ….a Billion GSM subscriptions and almost 200 Billion US$ GSM revenue will have dis-appeared within the next 5 years (and for the sake of mobile operators hopefully replaced by something better).
In this trend APAC, takes its lion share of the GSM subscription loss with ca. 65% (ca, 800 Million) of the total loss and ca. 50% of the GSM top-line loss (ca. 100 Billion US$).
The share of GSM revenue is rapidly declining across (almost) all markets;
The GSM revenue as share of the total revenue (as well as in absolute terms) rapidly diminishes, as 3G and LTE are introduced and customer migrate to those more modern technologies.
If the should be any doubts GSM does not get its fair share revenue compared to its share of the subscriptions (or subscribers for that matter):
While the above data does contain two main clusters, it still pretty well illustrates (what should be no real surprise to any one) that GSM earns back a lot less than its “fair” share (whatever that really means). And again if anyone would be in doubt that picture will be grimmer as the we fast forward to the near future;
Grim, Grimmer, Grimmest!
Today GSM earns a lot less than its “fair” share of the top-line, this trend will be further worsened going forward.
So we can soon phase-out GSM? Right? hmmmm! Maybe not so fast!
Well while GSM revenue has certainly declined and expected to continue the decline, in many markets the GSM-only (e.g., here defined as a customers that only have GSM Voice, GPRS and/or EDGE available) customers have not declined in proportion to the related revenue might fool us to believe.
The above statistics illustrates the GSM-only subscription share of the total cellular business.
The GSM revenue are expected to massively free fall over the next 5 years!
However, also observe (in the chart above) that we need to sustain the network and its associated cost as a considerable amount of customers remain on the network, despite generating a lot less top line.
As we have already seen above, in the next 5 years there will be many markets where GSM subscription and subscriber share will remain reasonable strong albeit the technology’s ability to turn-over revenue will be in free-fall in most markets.
Analyzing data from Pyramid Research (actual & projection for the period 2013 to 2017), including other analyst data sets (particular on actual data), extrapolating the data beyond 2017 by diffusion models approximating the dynamics of technology migration in the various market, we can get an idea about the remaining (residual) life of GSM. In other words we can make GSM phase-out projections as well as get a feel for the terminal revenue (or residual value) left in GSM. Further get an appreciation of how that terminal value compares to the total mobile turnover over the same GSM phase-out period.
The chart below provide the results of such a comprehensive analysis. The colored bars illustrate the various years of onset of GSM phase-out; (a) the earliest year which is equal to the lower end of light-blue bar is typically the year where migration off GSM accelerates, (b) the upper end of the light-blue bar is a most-likely year where after GSM no longer would be profitable, and (c) the upper end of the red bar illustrates the maximum expected life of GSM. It should be noted that the GSM Phase-out chart below might not be shown in its entirety (particular right side of the chart). Clicking on the Chart itself will display it in full.
Taking the above GSM phase-out years, we can get a feeling for how many useful years GSM has left in terms of economical-life and customer life-time defined as which event comes first of (i) less than 1 Million GSM subscriptions or (ii) 5% GSM market-share. 2014 has been taken as the reference year;
It should be noted that the Useful Life-span of GSM chart above might not be shown in its entirety (particular right side of the chart). Clicking on the Chart itself will display it in full.
|Western Europe||16||4.1 +/- 3.3 years|
|Asia Pacific||13||6.4 +/- 5.0 years|
|Middle East & Africa||17||11.0 +/- 6.2 years|
|Central Eastern Europe||8||6.9 +/- 4.8 years|
|Latin America||19||6.6 +/- 3.7 years|
That Western Europe (and US which has not been shown here) has the most aggressive time-lines for GSM phase-out should come as no surprise. The 3G/UMTS has been deployed there the longest and the 3G price level to GDP has come down to a level where there is hardly any barrier for most mobile users to switch from GSM to UMTS. Also the WEU region has the most extensive UMTS coverage which also removes the GSM to UMTS switching barrier. Central Eastern Europe average is pulled up (i.e., longer useful life) substantial by Russia and Ukraine that shows fairly extreme laggardness in GSM phase-out (in comparison with the other CEE markets). For Middle East and Africa it should be noted that there are two very strong clusters of data distinguishing the Gulf States from the African Countries. Most of the Gulf States have only a very few years of remaining useful life of GSM. In general the GSM remaining life trend can be described fairly well with the amount of time UMTS has been in a given market (i.e., though smartphone introduction did kick-start the migration from GSM more than anything else), the extend of UMTS coverage (i.e., degree of pop and geo coverage) and the basic economics of UMTS.
In my analysis I have assumed 4 major triggers for GSM phase-out;
- Analysis shows that once the 3G (or non-2G) ARPU is below 2% of the nominal GDP per capita an acceleration of migration away from GSM speeds up. I have (somewhat arbitrarily) chosen 1% as my limit where there is no longer any essential barrier of customer migrating off GSM.
- When GSM penetration is below 5% as a decision point for converting (by possible subsidies) GSM customers to a more modern and efficient technology. This obviously does depend on total customer base and the local economical framework and as such is only a heuristics rather than a universal rule.
- Last but not least, my 3rd criteria for phasing out GSM is when its base is below 1 million subscriptions (i.e., typically 500 to 800 thousand subscribers).
- Last but not least, before complete phase-out of GSM can commence, operators obviously need to provide the alternative technology (e.g., UMTS or LTE) coverage that can replace the existing GSM coverage. This is in general only economical if comparable frequency range can be used and thus for example for UMTS coverage replacement of GSM in many cases re-farming/re-purposing 900MHz from GSM to UMTS. This last point can be a very substantial bottleneck and show stopper for migration from GSM to UMTS, particular in rural areas or in countries with very substantial rural populations on GSM.
Interestingly enough, extensive data analysis on more than 70 markets, shows that the GSM phase—out dynamics appears to have little or no dependency on (a) the 2G ARPU level, (b) 2G ARPU level relative to 3G ARPU and (c) handset pricing (although I should point out that I have not had a lot of data here to be firm in this conclusion, in particular reliable data for grey market handset pricing across the emerging markets is a challenge).
One of the important trigger points for onset of accelerated GSM phase-out is the pricing level of the next technology (e.g., 3G) option relative to the GDP per capita.
Migration decision appears less to do with the legacy price of the old technology or old technology price relative to new technology pricing.
Above chart illustrates an analysis made on 2012 actual data for more than 70+ markets all across WEU, CEE, APAC, EMEA and LA (i.e., coinciding with markets covered by Pyramid Research). It is very interesting to observe the dynamics as the markets develop into the future and the data moves towards the left indicating more affordable 3G pricing (relative to GDP per capita) and increasingly faster GSM phase-out as is evident from the chart below providing the same markets as above but fast forwarded 5 years (i.e., 2017).
Firstly the GSM ARPU level across most markets is below 2% of a given markets GDP per capita. There is no clear evidence in the country data available that the GSM ARPU development has had any effect on slowing down or accelerating GSM phase-out. Most likely an indication that GSM has reached (or will reach shortly) a cost level where customers become insensitive.
Conceptually we can visualize the GSM phase-out dynamics in the following way were as the 3G gets increasingly affordable (which may or should include the device cost depending on taste), GSM phase-out accelerates (i.e., moving from right to left in the illustrative chart below). While the chart illustration below is more attuned to emerging market migration dynamics of GSM phase-out it can of course with minor adaptations be used for other more balanced prepaid-postpaid markets.
We should keep in mind that unless the mobile operators new technology coverage (e.g., UMTS, LTE, ..) at the very least overlap the GSM coverage, the migration from GSM to UMTS (or LTE) will eventually stop. This can in countries with a substantial rural population in particular become a blocking stone for an effective 100% migration. Resulting in large areas and population share that will remain underserved (i.e., only GSM available) and thus depend on an in-efficient and ancient technology without the macro-economical benefits (i.e., boost of rural GDP) new and far more efficient cellular technologies could bring.
That’s all fine … what a surprise that customers wants better when it gets affordable (like to have wanted that even more when it was not affordable)… and that affordability is relative is hardly a surprising either.
In order for an operator to make an informed opinion about when to switch off GSM, it would need to evaluated the remaining business opportunity, or residual GSM value, against the value for re-purposing the GSM spectrum to a better technology, i.e., with a superior customer experience potential, and with a substantial higher ARPU utilization.
Counting from 2014, the remaining life-time aka terminal aka residual GSM revenue will be in the order of 850 Billion US$ … agreeable an apparently dramatic number … however, the residual GSM revenue is on average no more than 5% of total cellular turnover and for many countries a lower than that. Actual 45 markets out of the 73 studied will have a terminal GSM revenue lower than 5%.
The chart below provides an overview of the Residual GSM Revenues in Billion of US$ (on a logarithmic scale) and the percentage of Residual GSM value out of the total cellular turnover (linear scale) for 75 top markets spread across Western Europe, Central Eastern Europe, Asia Pacific, Middle East & Africa, and Latin America.
Do note that the GSM Terminal Revenue chart above might not be shown in its entirety (right side of the chart). Clicking on the Chart itself will display it in full.
It is quiet clear from the above chart that, apart from a few outliers, GSM revenue are fading out rapidly across a majority of the mobile markets across the globe. Even if the residual GSM topline might appear tempting, it obviously need to be compared to the operating expenses for sustaining the legacy technology as well as considering that a more modern technology would create higher efficiency (and possible ARPU arbitrage) and therefor mitigate margin decline sustaining more traffic and customers.
Emerging APAC MNO Example: an emerging market in APAC has 100 Million subscriptions and ca. 70 Million unique cellular user base.One of the Mobile Network Operators (MNO) in this market has approx. 33% market share (revenue share slightly larger). in 2012 its EBITDA margin was 42%. Technology cost share of overall Opex is 25% and for the sake of simplicity the corresponding GSM cost share is in 2012 assumed to be 50% of the Total Technology Opex. As the business evolves it is assumed that the GSM cost base grows slower than non-GSM technology cost elements. This particular market has a residual GSM revenue potential of approx. 4 Billion US$ and the MNO under the loop has 1.3 Billion US$ remaining GSM revenue potential.
Our analysis shows that the GSM business would start to breakdown (within the assumed economical framework or template) at around 5 Million GSM subscriptions or 3.5 Million unique users. This would happen around 2019 (+/- 2 years, with a bias towards earlier years) and thus leave the business with another 3 to 5 years of likely profitable GSM operation. See the chart below.
This illustration shows (not surprisingly) that there is a point where even if the phasing-out GSM turns-over revenue, from an economical perspective it makes no sense for a single mobile operator to keep its GSM network alive for a diminishing customer base and even faster evaporating top-line.
In the example above it is clear that the MNO should start planning for the inevitable – the demise of GSM. Having a clear GSM phase-out strategy as soon as possible and targeting GSM termination no later than 2018 to 2019 just makes pretty good sense. Looking at risks to the dynamics of the market development in this particular market there is a higher likelihood of no-profit being reached earlier rather than later.
Would it make sense to startup a new GSM business in the market above? Given the 3 to 5 years that the existing mobile operators have to meet retire GSM before it becomes un-profitable, it hardly make much sense for a Greenfield operator to get started on the GSM idea (seem to be better ways for spending cash).
However, if that Greenfield operator could become The GSM Operator for all existing MNO players in the market, allowing those legacy MNOs to re-purpose their existing GSM spectrum (and possible with a retro-active wholesale deal), then maybe in the short term it might make a little sense. However, it quiet frankly would be like peeing in your trousers on a cold winter day, it will be warm for a short while but then it really gets cold (as my Grandmother used to say).
What GSM strategies makes really sense in its autumn days?
Quit clearly GSM Network Sharing would make a lot of sense economically and operationally as it would allow re-purposing of legacy spectrum to more modern and substantially more efficient cellular technologies.
The single Shared-GSM network would act as a bridge for legacy GSM M2M devices, extreme laggards and problematic coverage areas that might not be economical to replace in the shorter – medium term. Thus mobile operators could then solve possible long-term contractual obligations to businesses and consumers having fringe devices connecting with GSM (i.e., metering, alarms, etc..). The single Shared-GSM network might very well survive for a considerable time past any economical justification for its existence merely serving legal and political interests. Thanks to Stein Erik Paulsen who pointed this problem out for GSM phase-out.
I am not (too) hanged up about the general Capex & Opex benefits of Network Sharing in this context (yet another story for another day). The compelling logical step of having 1 (ONE) GSM network across a given market, shared by all operators, supporting the phase-out of GSM while allowing to re-purpose legacy GSM spectrum for UMTS/HSPA and eventually LTE(+), is almost screamingly obvious. This furthermore would feed a faster migration pace and phase-out as legacy spectrum would be available for re-purposing and customer migration.
Of course Regulatory authorities would need to endorse such a scenario as it de-facto would result in a smelling-like creating a monopolistic GSM operator albeit serving all in a given market.
The Regulatory Authority should obviously be very interested in this strategy as it would ensure substantial better utilization of scarce spectral resources. Furthermore, not only gaining in spectral efficiency but also winning the macro-economical boost from connecting the unconnected and under-served population groups to mobile data networks, and by that, the internet.
I have made extensive use of historical and actual data from Pyramid Research country data bases. Wherever possible this data has been cross checked with other sources. In my opinion Pyramid Research have some of the best and most detailed mobile technology projections that would satisfy even the most data savvy analysts. The very extensive data analysis on Pyramid Research data sets are my own and any short falls in the analysis clearly should only be attributed to myself.