Are Data / OTT Apps Threatening Telcos Revenue Model ?

3G IndiaOne common feature among all the new approaches, though, is the growing awareness that data bandwidth on a mobile network is an intrinsically scarce resource that must be allocated carefully. Indian 3G pricing acknowledges this and all Indian operators are charging on a tiered basis only. Going forward, we believe re balancing of data / access pricing versus voice and SMS pricing packaging will become increasingly important.

Let us examine what could happen to overall pricing for operators if their users were to switch to using over-the-top (OTT) applications, consuming just data. The key, in our view, is to price data in a way that takes into account voice pricing and the potential for substitution of voice if data is priced too cheaply.

To show this we construct a calculation that simulates an on-the-spot full cannibalization of traditional GSM services at current data prices. We assume that a VoIP software application like Viber would generate around 28mb of traffic for an hour of high-quality full duplex conversation. From the consumer’s point of view, this might be a free VoIP to VoIP call, or it may be a VoIP to line call, such as through SkypeOut. The cost to the subscriber for the former would be just the data charged by the home mobile operator, while for the latter it would be the data charge plus the cost of the SkypeOut call.

It is also expected that in the long run, 90% of SMS would disappear, and be replaced by either pure IP messaging, or by an OTT replacement which would charge the subscriber and likewise not share any revenue with the network operator. From a data usage point of view, a 160-character SMS on the GSM network uses less than 1kb of data, while we assume that the usage of an SMS-like IP message may range up to 10kb.

Indian operators, currently will be least impacted in the event of full data substitution as their data Charges are extremely high. The A-Vo-Id Cartel which controls 2/3rd of Indian Telecom Revenues will be extremely aggressive in protecting its interests.