The smartphone is now central to modern life in most places, a portable hub for communications, collaboration, entertainment, shopping and banking always in the palms of consumers. But the device itself is just a passenger without the underlying network that connects it. That leaves mobile operators in a solid position to overturn their recent declines to deliver new services and establish new revenue streams beyond connectivity.
Intense market competition, over-the-top (OTT) alternatives from web companies and regulation have been chipping away at telephone companies’ (telcos) traditional voice and SMS business for the last decade, leading to widespread shrinkage in turnover and profit margins and subsequent industry consolidation. But the increasing dominance of the smartphone due to consumers’ newfound appetite for all things digital post-pandemic, coupled with the steady expansion of 5G networks, now looks set to inspire a turnaround.
Games and streaming video lead the charge.
In my experience, data minutes alone are unlikely to deliver the returns that operators seek. These days, larger monthly megabyte bundles are just table stakes for consumers interested not so much in the raw network capacity as the digital content they can experience with it. That leaves telcos needing to establish a larger, more lucrative stake in the app distribution and payment ecosystem.
At the top of that wish list is the mobile gaming market, estimated by Newzoo to have generated revenue of $90.7 billion in 2021. Social media and video streaming are the next most popular category by download volumes, according to data.ai’s latest State of Mobile 2022 report (paywall).
Productivity, security and payments drive Digital 2.0.
As more of us work from home, access to productivity, conferencing and collaboration apps has become important. These applications were, until recently, limited to enterprise versions only. Google One, Microsoft Teams, Zoom and Microsoft Office Mobile (the mobile version of Office 365), originally designed for enterprises, now have millions of paying end consumers.
Protecting sensitive information from unauthorized access and cyberattacks has also become a priority for smartphone users. This is especially true for people in industries such as banking and healthcare who need to comply with strict data privacy and protection regulation—leading to increased demand for virtual private networks (VPN) apps.
With more people shopping on their smartphones, the value of global mobile commerce (mCommerce) transactions has also surged, growing by over 22% year on year in 2021 to be worth $3.56 billion, according to Statista calculations. Juniper Research noted a parallel increase in the number of people using mobile wallets to fund those purchases, with some telcos—including AT&T, Airtel and Telefónica, for example—already capitalizing on the trend by offering electronic wallets (e-wallets) of their own. (Disclosure: Google, Microsoft and Telefónica are clients of my company.)
5G opportunities abound in the Metaverse.
Having invested considerably in building fifth-generation (5G) network infrastructure, telcos are understandably keen to recoup that investment. In its Mobile Economy 2021 Report, GSMA Intelligence predicted that mobile operators would invest $900 billion in upgrading their infrastructure over the next five years, 80% of which will be in 5G.
Those 5G networks will bring much lower latency than the current 4G infrastructure and faster download speeds. That scalability is vital because it adds support for a much broader range of devices other than smartphones to be connected, including a new generation of internet of things (IoT) and industrial IoT (IIoT) devices. These devices offer additional revenue potential for telcos and operators in partnership with component manufacturers in industries as diverse as automotive, logistics, aviation, manufacturing and farming. With the combination of artificial intelligence, the use cases are swelling.
Another bet involves personalized telehealth delivered via remote consultations and diagnosis due to the combination of low latency and abundance of wearable devices that can help track vitals. Even so, I predict most of the turnover will come from more traditional sources. Research company Omdia has forecast that OTT video services bundled over 5G networks will grow to account for almost 56% of their revenue by 2025 (paywall).
It’s time to occupy the digital purchasing space.
Telcos need to make sure they explore every possible opportunity to embed themselves in the app value chain. That includes a tighter alignment of mCommerce channels with mobile wallets to exploit the convenience of completing purchases on the same platform with the click of a button.
Some telcos have dabbled with their own mobile wallets, but those haven’t scaled as much as the pure-play wallets such as Apple Pay and Google Pay. Expanding direct carrier billing (DCB) payment mechanisms to enable merchants to offer flexible purchasing options to millions of mobile phone subscribers will undoubtedly help.
Large numbers of smartphone users in many regions do not have bank accounts or cards and struggle to buy online using cash. Allowing them to purchase digital (and, in some countries, physical) goods and services by adding charges to their mobile phone bills will significantly expand the mCommerce landscape. Omdia’s global carrier billing forecast 2020-2025 report (paywall) estimates that the value of goods and services billed through mobile phone accounts will grow at a compound annual growth rate (CAGR) of 6.7% over the next few years to reach $77 billion by 2025, for example.
Many people already fund their monthly subscription video on demand (SVOD) services such as Netflix using DCB, with gaming fees commonly added to mobile phone bills. Those can include anything from complete game downloads to additional charges for upgrades, skins, weapons and other in-game content, as well as subscriptions to cloud gaming platforms such as Microsoft’s Xbox Game Pass Ultimate or Nvidia’s GeForce Now.
Bundling those digital subscription services within mobile voice and data packages offers another route to market for telcos that deliver consistent recurring revenue. Some consumers will undoubtedly prefer to do business with one company and pay a single bill rather than sign up for subscriptions with multiple content providers. Telcos should pull out all the stops to ensure they occupy that slot. The best strategy is to be more central to the digital lives of their consumers.