Telco Innovation Doesn’t Cut it

In the year of the 10^th iPhone celebration, few would argue with the substantial cultural change we’ve been through over the last decade. Most of our internet use moved to mobile. As mobile internet speeds get faster and faster and there are more things online that people want to do and view, the demand for ever more gigabytes in a monthly price plan accelerates.

The most common solution from the supplier side is that telcos worldwide have started to offer more data on plans at a lower cost than ever before. The trend has been described by some as ‘Data Deflation’ and results in a roughly 50% discount in the price consumers pay for the data on their phone plan, every 12 months.

All the main telcos are prepared to follow each other on the discounting road. In fact, they have to, otherwise they stand to lose customers to their competitors. This is especially true of those who are on prepaid or other non contracted plans. Importantly this area of the market has seen a great deal of change, itself. Increasingly, people are creating their own bundle in this way – buying the phone outright, themselves and adding their own SIM.

Of course, those who are able to take advantages of new data deals, as they are released, need to be in the position to switch telcos when they see an advert for a deal. Essentially, that means the winners will be those who are on monthly plans which can be terminated once the current agreement ends – typically 28 or 30 days. A quick look at WhatPhone’s prepaid plans comparison page  confirms two things. First, it shows that Australia benefits from some of the best value data in the world. Second, users can clearly see, prepaid plans include just as much, if not more data than that offered to those signing contract plans of an equivalent value.

The fact that most ‘hero’ device releases are remarkably similar to their predecessors means that less than 40% of people buy their iPhone or Android device under contract.

These trends interact. People on month to month agreements get more data added all the time and can switch network, conveniently. So less and less people sign contracts. The challenge for the phone companies is – what happens when Data Deflation trend continues…. And the price of data trends towards $0 ?

Phone companies world wide are planning ahead. Recently, Andrew Penn, CEO for Telstra, Australia’s largest telco, revealed that charging for data may well, soon, become a thing of the past.  It’s not surprising to hear Penn discussing the situation. Telstra have enjoyed fat margins for years and are seeing the rosy glow of the future fade in the face of their fixed line businesses shrinking, and not being replaced by mobile alternatives.

Subscription based content and ‘data free streaming’

Telcos will have to look at other ways (beyond data ) to raise revenue. Some, like Optus ( Telstra’s major Australian rival ) last year, bought the exclusive (Australian) rights to Televise through live streaming, the English Premier League. The service can be viewed ‘data free’ on a mobile phone – which means the network traffic users incur watching football will not count against their monthly allocation. However, users do incur a monthly flat fee subscription cost for access to the content, for the privilege.

There are other content options being made available by the leading telcos, like data free music streaming, even though there are strings attached. ( These often include a requirement that the user sign up to expensive prepaid monthly packages for phone, SMS, MMS and data. )

Smart Home Connectivity

Some mobile companies are even moving towards offering Smart Home connectivity to wireless devices in the home. These services allow people to monitor their home environment when away at work for the day, on a long vacation or even on a weekend getaway. This is all moving towards retrieving revenue from customers through a different route with the expectation that a free data world will soon be upon us.

Mobile broadband replacements

2017 has already seen a new type of plan released by many, in this case often smaller phone companies. Mobile Broadband bundles with fixed line data allocations are now common place. For between $50 and $70 a month this ‘new’ type of plan offers data allocations from 25GB to 70GB per month. These plans are not yet direct competitors for the fixed line broadband service most people would have at home. Families use typically 4 to 8 times the biggest of these data entitlements.

Niche groups are taking them up in droves, however.  Business men on the move, students, and families who want to keep the kids entertained in the car with YouTube are all investing in the technology. That’s extra revenue for the phone company and extremely valuable customers for smaller phone companies who do not suffer the cost of the switch from fixed, as the incumbents do.

Since these mobile broadband plans too will be subject to the laws of Data Deflation, it may well, not be long, before people do replace their fixed line broadband with mobile.

Telco innovation doesn’t cut it

The telcos should be credited for trying to diversify their services to attract a different type of user, even if it’s a niche customer. Unfortunately, the nature of telcos is that they are big beasts which are slow to react. Even they can see the writing on the wall ( free data. ) There is little evidence so far that people want to watch entertainment on their phones. The value of their core product is halving every year and the replacements they’re proposing have neither the scale or appeal to fill the gaps.

None of the ideas being undertaken by the phone companies could be called truly innovative or suggested to have benefitted from massive uptake. The near future could well see consolidation in telco with brands merging to reduce their most substantial costs – network build – and share the cost of expensive content rights across larger customer bases. Telco’s future looks much like Kodak’s or print journalism.