With mobile data consumption set to skyrocket in the coming months and years, telcos around the world are struggling to cope with the increasingly capricious demands of their customers. Consumers want to gorge themselves on as much Netflix, Spotify and Facebook as they can cram down their metaphorical throats, while simultaneously paying as little as possible for their mobile tariff. In an industry with notoriously thin operating margins, telcos may find themselves stuck between a rock and a hard place as they attempt to woo new customers and generate new income streams. However, a new report by OpenSignal suggests that giving customers exactly what they ask for…
With mobile data consumption set to skyrocket in the coming months and years, telcos around the world are struggling to cope with the increasingly capricious demands of their customers. Consumers want to gorge themselves on as much Netflix, Spotify and Facebook as they can cram down their metaphorical throats, while simultaneously paying as little as possible for their mobile tariff. In an industry with notoriously thin operating margins, telcos may find themselves stuck between a rock and a hard place as they attempt to woo new customers and generate new income streams. However, a new report by OpenSignal suggests that giving customers exactly what they ask for, comes with huge risks, especially if the customer is asking for unlimited data consumption.
The US – A cautionary tale
Unlimited data plans made a comeback in the US in February 2017, after a long (and perhaps well advised) absence. Both AT&T and Verizon reintroduced the plans in an attempt to increase their market share and secure a legion of loyal customers for years to come. Take up was huge and threw up some enormous stumbling blocks for America's two biggest telcos to overcome.
"This produced a massive surge of new users and created huge volumes of data traffic on their networks. As soon as that happened, we started seeing a steady drop off in those operators' 4G speeds," OpenSignal's lead analyst, Kevin Fitchard, told Total Telecom.
AT&T and Verizon's 4G speeds pretty much went off a cliff in February 2017, as they failed to cope adequately with the huge influx of data traffic they were being asked to process. Average speeds continued to drop until September, when both operators took steps to arrest the slump. During this time, AT&T and Verizon's main competitors, namely Sprint and T-Mobile, boosted their own network speeds and attract huge numbers of new customers on the back of their newly superior speeds.
"The whole time this was happening, T-Mobile and Sprint weren't just sitting idle. T-Mobile in particular used that period to do a lot of work and improve its own speeds, while AT&T and Verizon's were dropping. The result was that it ended up way ahead of Verizon. So even though Verizon looks to have made a full recovery [in terms of network speeds] following the implementation of its unlimited data package, it has still surrendered a lot of ground to T-Mobile," Fitchard added.
OpenSignal's report shows that T-Mobile and Sprint have made up enormous amounts of ground on America's two biggest players, with T-Mobile now being the telco to beat, winning the categories for fastest 3G, 4G and overall fastest networks, 4G availability and lowest 3G latency.
A warning to the rest of the world
The dangers of caving in to the demands of customers are by no means limited to telcos plying their trade in the US. Operators in Europe and Asia Pacific are coming under increasing pressure to facilitate massive amounts of data consumption by their customers. As ultra high definition mobile TV streaming services continue to grow, this demand is set to skyrocket.
Aside from Reliance Jio's success in India (and even they have only recently become profitable) it is hard to find a model which has successfully monetised data provision for telcos.
"Anytime you introduce more demands on the networks, it will affect speed and capacity. It is just naïve to think that you could just bring on millions of users who are consuming exponentially more data and for that to not have an effect on your network. Ultimately, if you have more people competing for capacity on the same cell, then the speeds that are divvied up between them will be lower per person. So, if European operators, or any operators around the world, introduce unlimited data plans, they will definitely see some effect on their capacity," said Fitchard.
However, there is much to be learned from AT&T and Verizon's painful experiment with all you can eat data plans.
"[Telcos] could also take steps to mitigate those problems. If you introduce unlimited data plans while simultaneously upgrading your LTE networks, adding more spectrum, introducing more phases of LTE Advance, you could potentially overcome any capacity problems that you would encounter," said Fitchard.
With data consumption around the world set to grow exponentially in the near to mid-term, telcos will have to find new strategies to monetise the huge quantities of data that there customers are consuming. If lessons are to be learnt from the US, it would seem that any decision to offer customers an unlimited pass to the data buffet must be accompanied by significant investment in network infrastructure. If not, telcos could be leaving the door wide open for the competition to walk in and take a huge bite out of their market share.
Friday Review – 26/01/2018