In the world of mobile communications, competition isn’t what it used to be. Historically, the greatest threat to regional carriers’ profitability came from national operators providing the latest handsets, aggressive marketing campaigns, and wide reach. Regional carriers have competed with these large, established players through superior customer service, a strong local presence, better networks, and more personal relationships with subscribers.
A new form of competition has emerged, however, one that shifts customer loyalty away from the carrier toward the latest in-demand services and devices. Known as “over-the-top” (OTT) services, these IP-based options are reducing use of core services like SMS and MMS as subscribers choose feature-rich – and free – OTT alternatives. As a result, regional carriers must look beyond competition from other operators to address the growing global threat of IP-based communication services.
The Smartphone Effect
As of July 2012, smartphone penetration in the United States reached 55.5 percent, according to Nielsen. Smartphone adoption is expected to continue to grow, largely driven by increased availability of lower priced handsets. In fact, by 2017, the average smartphone price will be $152, down from $188 in 2011, according to a study from Informa Telecoms & Media.
Due to rising smartphone adoption, a growing number of subscribers are flocking toward OTT options such as Skype, iMessage, and WhatsApp. Research firm Ovum estimates that carriers lost $23 billion in SMS revenues to OTT services through 2012, a figure it suggests will grow to $54 billion by 2016. What’s more, in a report on the impact of OTT services on Western European operators, Informa estimates that every 10 percent increase in smartphone penetration could cost operators $1.19 billion in voice and messaging revenues.
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