Summary:

Mobile operators are looking for dollars from the content producers. This time, it appears they want over-the-top providers to help fund the cost of building out their networks. But are Wi-Fi offload, congestion pricing and high-margin, machine-to-machine services enough to maintain healthy margins?

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Mobile operators once again have their hands out looking for alms from the content producers; this time, it appears they want over-the-top providers to help fund the cost of building out their networks. When asked in an interview if the operators alone should bear the burden of building out next generation networks to meet the demand for mobile broadband, Franco Bernabe, the new head of the GSM Association and the CEO of Telecom Italia replied, “If the over the top players want to serve their customers with high quality services, I think they have to be part of the equation in serving our customers … our common customers.”

However, his most salient point, and one that may be glossed over is more reasonable — the idea of efficient applications. He says the industry and content providers need to address the issue of “inefficient uses of the networks,” which could mean anything from chatty apps to folks who are frivolously downloading YouTube videos. Remember, telecommunications folks really want people to start counting gigabytes. However, designing applications to make the most efficient use of the bytes that need to be transferred is a good thing for operators, and for customers who tend to pay for their mobile downloads by the byte. But I expect for the call to charge content companies to continue with the role of the bandwidth hogging villain passing from Google to Netflix in the coming year.

Which brings us back to the idea of data demand and the self-proclaimed woes of the wireless operators. To be sure, operators are walking a tightrope as the revenue from their voice calls fall while the revenue from mobile broadband services hasn’t and maybe won’t rise to the previous levels. For example, a research report out today from Wireless Intelligence notes that European operators have seen average revenue per user go from €25 ($34.75 USD) in the last three years to hit €20 — a 20-percent drop.

EU27: Average Revenue Per User (ARPU) 2007-2010

The crux of the report is how mobile data services aren’t making up for the lost revenue and those services are using up more of the network resources. It is a worrying trend, but operators know what they need to do. They must boost the use of smartphones and encourage subscribers to sign up for more data plans, while also making sure they don’t go crazy while using them. To that end, I’ve written about personalized pricing plans being introduced in Europe as well as the promise of congestion-based pricing plans.

Additionally, operators are opening up new lines of business by going after the machine-to-machine market, which can offer higher margins as well as provide connectivity to many more devices. Plus, the same network upgrades caused by the increase in demand are also helping lower the cost per bit for operators by a considerable amount. And operators in developed countries have fairly high operating margins in the 20 percent range, so while no business wants to see those margins drop, there is room for operators to work without jumping into a loss.

Of course, absent wireless network neutrality, it’s possible mobile operators will convince consumers and regulators that charging over the top providers such as Google or Netflix is the best way to meet the onslaught of demand. Personally, I’d bet on more Wi-Fi offload, congestion pricing and high-margin, machine-to-machine services going a long way toward helping operators keep going, but I can’t blame operators for trying. No one likes to see margins drop.

 

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