"Follow the Money"

Rule number one when analyzing the telecom business is to “follow the money.” What service supplier executives, regulators, supplier executives or policy advocates might say provides clues about where value is perceived or business models are anchored.

Consider the issue of mobile roaming charges within the European Union. EU. A survey commissioned by the European Commission shows that 28 percent of those who travel in the EU switch off their mobile phone when going to another country.

Only about eight percent of travelers within the EC zone, who also reside in the zone, use their phones abroad in the same way as at home. About 33 percent of traveling EC area residents never use their phones at all when traveling outside their home countries, but within the EC.

Some 94 percent of Europeans who travel outside their home country limit their use of services like Facebook, because of mobile roaming charges, the survey also suggests.

About 47 percent report they would never use email or social media in another EU country.

About 10 percent say their behavior does not change, at home or roaming. Only about five percent say their use of social media when roaming is the same as when they are in their home countries.

Basically, mobile service providers have opposed an end to roaming charges, while EC regulators have favored it. To be sure, there are valid public policy issues here: EC regulators want lower prices for consumers.

But that is where the notion of “follow the money” applies. EC regulators, whatever the merits of policies first to reduce, then put an end to roaming charges, do not suffer financial downside as a result of those policies, of course.

Mobile service providers, by way of contrast, earn perhaps three percent of total revenue from roaming charges.

The European Commission argues that mobile service providers “are missing out on a market of around 300 million phone users because of current pricing strategies.”

“This makes no sense,”  regulators have argued.

Well, not exactly. Mobile service providers will lose three percent of their revenue. Consumers will gain lower prices for texting, voice and mobile Internet usage. App providers, on the other hand, will gain directly as use of their apps grows.

But “follow the money.” Mobile service providers lose a specific amount of money. Consumers will save money and app providers will make more money, as usage, and therefore advertising and commerce, increases.

When ecosystem participants support policies, it is because they gain. When participants oppose policies, it is because they lose.

It is hard to argue against lower consumer prices. It also is hard to ask providers to invest more, while earning less.

EC officials might argue that three percent gross revenue reductions are not relevant for investment decisions. Earnings from roaming charges only support dividend payments.

Whatever the truth of that charge, it remains true that dividend payments are a major cost of doing business for public telecom companies. They must be paid, and then capital investment made out of the rest of cash flow or earnings.

Three percent less income might not be a big deal for regulators: they don’t lose the money. It is material for a mobile service provider asked to give up three percent of gross revenue.
Post a Comment

Popular posts from this blog

Voice Usage and Texting Trends Headed in Opposite Directions

Who Are the Key Telco Competitors?

Jio is Succeeding at "Destroying" the India Mobile Market