Boom times fading for mobile operators

The global rise of internet telephony is a major factor in a predicted squeeze on the revenues of telecommunications companies such as du and Etisalat.

Skype has eaten into the revenues of mobile operators by offering free voice and video calling over the internet. Illustration by Mario Tama / Getty Images /AFP
Powered by automated translation

The boom times are officially coming to an end for the world's major mobile phone operators, with Etisalat and du facing the same problems as major western players such as Vodafone and T-Mobile.

Editor's Pick: The big business stories making headlines today

UAE plane fares to get cheaper as competition ramps up Competition between airlines flying out of the country in increasing, as carriers and the number of flights continue to grow. Read article

Emirati graduates can earn 80% more than expatriate colleagues Salaries in the UAE are up by 5 per cent, with Emirati graduates in Abu Dhabi earning between Dh25,000 and Dh32,000 - up to 80 per cent more than their expat counterparts. Read article

Middle East online users cite lack of trust for not buying via the Web A lack of trust in payment systems is cited as the main reason why just 6 per cent of Middle East internet users shop online. Read article

After 20 years of growth, mobile phone markets in regions such as the US and Europe are seeing potential stagnation for the first time. The international research company Ovum reports that major mobile phone operators will experience falling revenues from voice services over the coming years. And although data traffic in the form of emails, video entertainment and other types of communication is growing, competition is expected to drive down data prices.

According to Ovum, even though the UAE is still classed as an emerging market by many economists, du and Etisalat face challenges similar to those affecting major operators in developed markets such as Europe and the US.

"The UAE is an interesting market, combining high demand from centres like Dubai and Abu Dhabi with a penetration rate approaching 200 per cent," says Emeka Obiodu, a senior analyst at Ovum. "In markets such as the UAE, increasing competition is driving prices down, and this is of concern to the major players.

"In the context of the move to data traffic and falling voice revenues, this could be problematic for domestic operators du and Etisalat."

However, voice will continue to drive mobile operators' revenues and is still expected to account for 60 per cent of total mobile revenues in 2016. But Ovum predicts global voice revenues will start to fall in 2013, shrinking from US$658 billion (Dh2.41 trillion) this year to $628bn in 2016.

The fall in voice revenues will result from the shift away from mobile voice to data traffic. Consumers in developed markets increasingly download large volumes of data as they spend more time on internet-based services such as Google and Facebook. Smartphone manufacturers such as Apple and Nokia are racing one another to produce hand-held devices capable of quickly processing the huge amounts of data needed for multimedia communications.

But mobile operators such as du and Etisalat are also facing a more threatening trend as the information technology (IT) industry encroaches on their traditional voice revenues.

Microsoft's $8.5bn purchase of Skype this year indicates what mobile operators can expect in the coming years. Skype, which was founded in 2003, has eaten into the revenues of mobile operators by offering free voice and video calling over the internet. Microsoft hopes that its purchase of Skype will enable it to extend voice and video services to business customers.

This is also being seen as an indication that Microsoft hopes to offer mobile phone users free voice calling over mobile phones made by its partner, Finland's phone-making giant Nokia.

"Skype is a phenomenal service that is loved by millions of people around the world," said Steve Ballmer, Microsoft's chief executive, when the acquisition was announced in May. "Together we will create the future of real-time communications so people can easily stay connected to family, friends, clients and colleagues anywhere in the world."

As mobile operators in the UAE will continue to rely on voice for years to come, the threat of the IT industry supplying the software to make free internet voice calling a standard feature of new phones is a frightening one for Etisalat and du.

Mr Obiodu predicts that in 2016, non-voice revenue will begin to replace voice revenue rather than merely supplementing it.

Although Ovum expects the number of global mobile connections to hit 7.8 billion by 2016, revenue growth, where it occurs, is expected to be marginal. One reason is that most new mobile phone connections will not come from mature markets such as the US but from emerging markets such as Africa, where per capita income is low.

However, mobile revenues in Africa will grow at a compound annual rate of 4.9 per cent from this year to 2016, while revenues in western Europe will drop by 0.7 per cent over the same period, according to Ovum.

The number of mobile connections in Africa is expected to grow at a compound annual rate of 9.4 per cent over the next five years, reaching 991 million in 2016. This will be almost double the number of connections in North America, which is expected to experience a compound annual growth rate of 4.2 per cent in the number of mobile connections between this year and 2016.

"Although emerging markets contribute a majority of connections, their contribution to global mobile services revenue is not so big compared to the US and Europe," says Mr Obiodu.

The same adverse market conditions apply to du and Etisalat, with expansion into emerging markets therefore unlikely to offset the adverse effects of the shift from voice to data traffic on their mobile networks over the coming years.