In April 2014, the European Parliament voted to remove roaming fees completely in the EU by December 2015. Regulatory developments,as well as massive technology changes, are creating a major impact on the roaming activity of consumers and roaming revenue of operators.
Roaming has been a high margin business for mobile operators. However, the high rates have led many travelers to become silent roamers, leaving a large untapped market.
In 2013, it was estimated that 70% to 80% of all roamers (depending on the region) were silent mobile data roamers. This latent demand equates to a loss of 10,500 Tb/year in mobile roaming data traffic in 2013, and represents a missed revenue opportunity of over $3.0bn in inter-operator payments alone. In addition, mobile subscribers who do use mobile data roaming significantly curb their data usage when abroad, again due to the high price of data roaming packages.
On the voice side, a similar situation is occurring. It is estimated that around 50% of roamers do not use mobile voice services while roaming. This equates to a loss of 16 billion potential international minutes and $0.6 billion in termination rates revenue.
Consistently high roaming fees combined with the growth of smartphones and tablets, the rising dependence on social media and the ease of access to the Internet is prompting mobile users to seek alternative services when roaming, such as WIFI, local SIM cards, as well as alternate roaming service providers.
These combined pressures on mobile operators’ international business and the advent of LTE, with the potential of exponential traffic growth that it could bring, are making it more urgent for mobile operators to change their business model and introduce new services and packages to take advantage of the upcoming explosion in data roaming traffic and services.
Faced with declining roaming revenue, some mobile operators have started reacting by increasing their domestic pricing plans or increasing the cost of roaming outside the area of regulation. Rather than simply increasing the prices of their other services, mobile operators should adopt new pricing roaming structures and develop alternative sources of revenue by capitalising on the significant latent demand for services.
The mobile industry has one massive advantage compared to many other application providers: the ability to use a globally recognised addressing scheme - the telephone number - and to seamlessly use those services wherever the customer happens to be. Traditional roaming pricing has discouraged the advantage in the minds of many consumers and they have sought alternatives to meet their needs.
Refocusing efforts on creating easily used and simply priced services that persuade the customer that their mobile service is the default service wherever they are could pay dividends in generating incremental revenue and customer satisfaction, while removing the need for regulatory action on pricing in the future. In addition, mobile operators could also seek to develop alternate revenue generating services and adapt to the changing landscape.
In 2012, regulations were implemented by the telecom regulators of the GCC countries which established maximum prices for outgoing calls while roaming within the GCC leading to 70% reduction in call charges. The GCC Mobile Roaming Working Group is now considering to extend this initiative to cover other roaming services including incoming voice calls, SMS and mobile data. This initiative will benefit the consumer positively but will create a major impact on the roaming revenues of the operators.
Currently in the region, mobile data forms a major part of the revenue for the operators. For example, du receives 27% of its revenue for mobile services from data. du’s data revenue witnessed more than 30% growth in 2013 and this growth was largely supported by the exponential growth of more than 200% in mobile data roaming. However implementing of unified data roaming service charges for the GCC region will create pressure on the revenues and force operators to change their business models.
Operators will have to target silent roamers, as well as alternate roaming service providers while roaming, by offering new packages and services. In addition, operators could offer their own VOIP services and gain from mobile data growth. Currently, some VOIP services are banned in the GCC countries and users on roaming prefer using VOIP services given the cost advantage. This ban presents a tremendous opportunity for the operators to not only increase data volumes on roaming but also attract subscribers. Therefore refocusing efforts on creating easily used and simply priced services that will persuade the customer to use their mobile service as the default service wherever they are would pay dividends in generating incremental revenue and customer satisfaction.
Colin Brooks is director at Value Partners Management Consulting.