For all of their emphasis on smartphones and data plans, carriers are still mainly in the business of talk. Ever since the first analog brick phone, operators have made their money and built their profits on voice and later SMS. This year, however, the balance will shift.
According to a new report from Chetan Sharma Consulting, data accounted for 44 percent of all U.S. operators’ service revenue in the 4th quarter, and the rapid transition from dumb phones to smartphones is driving that number upwards. Meanwhile, unlimited talk plans are proliferating even as voice plan pricing is falling. That’s causing average voice revenue per subscriber to drop.
Eventually the rising data line and falling voice line will intersect on the industry’s revenue graph. Sharma plots that meeting point in the 4th quarter of 2013, at which point operators will start to look more like ISPs than phone companies.
I wouldn’t expect an overnight transformation once they pass that halfway mark, but it’s fair to say carriers will start behaving differently as the economics of the mobile market shift. Operators will most likely attempt to accelerate their gains in data, while de-emphasizing voice even more.
Voice revenues are actually declining faster than data revenues are growing. For every 48 cents in new data revenue operators raked in the fourth quarter, they lost 64 cents in voice revenue, Sharma found. To make up for those losses, they will try to upsell their customers on data plan tiers and — in the case of AT&T(s t) and Verizon(s vz)(s vod) at least — try to force more of their customers off grandfathered unlimited data plans. They will also try to swing more of their customers toward smartphones and tablets and migrate more subscribers to new LTE networks — both of which will drive more data use.
Carriers won’t have to prod their customers too much. While the 4G-connected tablet market is still slow, smartphones accounted for 84 percent of fourth quarter handset sales in the U.S. In just two years, Verizon has moved 21.6 million subscribers over to its LTE network. Simultaneously the typical consumer’s hunger for mobile data is only increasing.
“The smartphone data consumption at some operators is averaging close to 1 GB/mo,” Sharma wrote in the report. “Some devices are averaging close to 2 GB/mo. As we move into 1GB range along with the family data plans kicking in, you can expect the data tiers to get bigger both in GBs and dollar amount.”
Now voice and SMS have become the commodity, increasingly available only in unlimited packages, while data plans have become more and more granular. Verizon and AT&T have taken the ultimate step toward commoditizing voice and SMS, making them unlimited-use features standard in their family plans, just like voicemail. I suspect that this trend will not only continue, but voice prices will drop further as carriers put all of their chips into selling data.
We won’t just see more and increasingly larger data tiers, but operators will begin creating specialty plans to differentiate between different types of data, just as they created nights-and-weekends and friends-and-family plans in the boomtown days of voice. Customers will be able to buy plans that give them unlimited access to IP communications services or social networking. They could choose to pay extra fees each month to access faster speeds than their neighbors.
If there is a way to slice and dice data into an appealing tiered plan, operators will figure out how to do it. Once they pass that halfway mark, there’s no looking back. They will become mobile ISPs with voice businesses on the side.