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Data now 85% of mobile traffic but 39% of revenue: What gives?

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A whopping 85 percent of the traffic traversing the four nationwide mobile operators networks is pure data, according to a new study by wireless analyst Chetan Sharma, showing that the U.S. mobile industry long ago abandoned its voice mantle to become a data-driven juggernaut. Or has it? Sharma also found that data only accounted for 39 percent of all mobile data revenues carriers collected in the fourth quarter. Operators may be running what are primarily data networks, but they are still getting paid mainly for voice minutes.

The detailed report (check out Kevin Tofel’s first pass on Sharma’s numbers in his tablet post) also shows that overall revenues for operators are increasing, driven by data use, which will grow from a $67 billion market in 2011 to an $80 billion one at the end of this year. But the average revenue carriers collect per customer is declining: For every 52 cents of new data fees operators took in last quarter, they lost 96 cents in voice fees.

Taken at face value, these numbers paint a rather foreboding picture: Mobile operators’ future clearly lies in replacing voice minutes with data megabytes on the earnings sheets, but voice revenues are declining faster than data revenues are increasing. In addition, operators are using far more network capacity to deliver one dollar’s worth of data than they are using to deliver one dollar’s worth of voice.

But the numbers also don’t paint a precise picture. While 85 percent of traffic may be data, the networks that carry it are orders of magnitude more efficient than they were in the past. For the same infrastructure and spectrum investment, operators can deliver multiple megabits of capacity where they once could only offer dial-up modem speeds or a few dozen phone calls. Those network efficiencies mean operators can make money off data even if it takes over 100 percent of their traffic — as long as they keep upgrading their networks.

But the loss of voice revenue is the bigger problem. Voice accounts for so much of their revenue stream yet so little of their network resources that carriers are obviously using it to pad their profits. If some over-the-top VoIP service were to get widely adopted, it could wipe out a good percentage of customers’ bills, forcing operators to build their business models primarily on data. That doesn’t mean they couldn’t make money on data; it just means they would make a lot less.

What would really do the operators in is if they were forced to charge customers only for the data they consume. Sharma reported that only the top 30 percent of smartphone users consume more than 1 GB per month. Yet the data plans operators sell are designed to give average consumption a wide berth. The smallest smartphone data bucket Verizon(s vz)(s vod) sells contains 2 GB for $30 per month. Under AT&T’s(s t) new pricing structure, customers can buy a 300 MB plan for $20, but the next tier is 3 GB for $30. That means the vast majority of U.S. smartphone customers are coming in way under their caps, buying a lot of data they will conceivably never use.

10 Responses to “Data now 85% of mobile traffic but 39% of revenue: What gives?”

  1. Andrew Pengelly

    The problem is a concern here in New Zealand too. One of the reasons for this is the high use of TXT instead of voice PLUS services such as Skype put the voice call over a data circuit. This is a minor concern if the data circuit is yours however if the phone also supports WiFi and the user is in a free WiFi hot spot zone then the voice call becomes free for the user.
    However on the other side of the arguement data circuits generate income from both ends of the connection as both the sender and receiver pay for the data. Comapre that to a traditional voice call where just one party pays for the connection. So in the scenario where a data connection is established between 2 users on the same network the network operator is getting 2x income on the data connection.

  2. Nicholas

    Because they sell minutes through many packages, including unlimited. And, I use data. Just yesterday, when setting up my iPad for data, I reduced my call pla. But, even with an extra gig, I’ll still continue to go over every month.

  3. dwinsmith

    Most months I use less than half of my allotted 450 minutes, but at $39.99 it’s the cheapest voice plan and I use often 1-3 GB of data. Obviously a rethink is needed since I suspect this will only further decline with the growing popularity of VoIP

    • Kevin Fitchard

      Hi Dwin,

      I think the subsidy model largely protects operators from VoIP here in the U.S. My colleague Kevin Tofel uses a GSM Galaxy Nexus with a data-only SIM, but since he didn’t sign a contract he had to pay full cost for the Nexus. As soon us Americans start paying full price for our devices we can start chucking the voice plans.

  4. Lindsworth Horatio Deer

    Makes seens. Telecoms providers are lazy, as they don’t want to upgrade their networks. They love low resource Voice that uses their existing infrastructure than having to waste money on upgrading to carry Data that uses more resources but costs less. VoIP can do the trick!!!!! Simple thing, as Mobile Data is in demand by people worldwide, as the continuing popularity of the Apple iPad proves!!!!

  5. Dean Bubley

    Voice revenue declines & data increase are largely decoupled, except where accounting rev-allocation practices blur the lines.

    The main reason that voice revenues are falling is that carriers have put all their eggs in one basket – the voice application we call the “phone call”, which is more than 100 years old & looking its age. Except for a limited amount of conferencing & push-to-talk, voice = telephony for most telecom operators. Phone calls were a reasonable approximation of human communication behaviour in Alexander Graham Bell’s time, and got a bit of a refresh with mobility. But with smartphones and Internet innovation, we’ve now got dozens of other ways to communicate which fit better with our psychology. The carriers have been very slow in adapting their core service to meet this opportunity, and other services and apps have filled the gap.

    • ggruber66

      It also seems like charges for voice have not appreciably changed in a decade. Perhaps because of the slow change in carrier mentality that Dean alludes to. But to charge for the data in the abstract would mean the data charges would be way higher than voice and combined bills would be sky high. Which also makes no sense when actual voice calls are in decline. So if they re-calibrated, I would imagine total charges wouldn’t change much, but you’d “see” further erosion of voice revenues.