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Tuesday, August 24, 2010

Is mobile voice being over-valued?

Yesterday I read this Wired article on the "death of the phone call" - essentially pointing out that voice telephony is becoming increasingly sidelined in favour of other modes of communication, many of them asynchronous (SMS, Facebook etc).

This sort of flies in the face of my historical stance that voice is the forgotten saviour of the telecoms industry - overlooked, underestimated and shamefully sidelined in terms of product development. I've agreed with others - my associates at Telco 2.0, visionaries like Martin Geddes and all my friends in the VoIP community - that, surely, there must be a pot of gold left in telephony if only we can de-construct it and make it fit better with personal behaviour or companies' business processes.

Surely, there is value beyond the ever-falling per minute price? Clever voicemail or push voice messaging, HD voice, all manner of web- and cloud-based voice mashups.

I'm beginning to have doubts about this. What if the simple fact is that despite all that innovation, we're collectively coming to realise we don't like talking on the phone that much after all? Especially when we've got an ever-expanding array of tools that enable specific interactions to proceed much more smoothly and with less stress.

That doesn't mean we won't still want to have gossips with friends, chats with family or conference calls with clients. But for other things, especially short "transactions" ("Running 5 mins late, see you at the pub, mine's a lager"), we increasingly prefer modes that have less emotional investment or concentration, even if it takes longer to compose an SMS.

I think this may also mean we over-estimate the inherent value of voice when we calculate telecoms market statistics. It is common to see mobile revenues reported by carriers as split something like:

- Voice
- Non-messaging data

But actually, the amount that gets classified as "voice" also includes all (I think - anyone have a reference to the accounting standards?) of the payback of handset subsidy, and also implicitly the "line rental" which is also used for the SMS and data. That's the fee for occupying a number, a "slot" on the HLR, the cost of administering my billing record and so on.

If we start to value voice less, and SMS and Internet/app access more, shouldn't we re-classify the numbers to reflect this? I'm about at the point where I'd rather have just SMS rather than voice, if I could only pick one.

So, maybe my £45 a month contract ought to be split down as:

£10 - "access fee"
£15 - subsidy repayment
£10 - data [I use maybe 600MB / month]
£6 - SMS [perhaps 300 or so / month]
£4 - voice calls [250 outbound minutes]

Whereas at the moment, the accounts would likely show that as £29 voice, £6 messaging and £10 for data.

Another way might be to re-assign the subsidy and access fee elements in proportion with the other three components, so that the £25 is split in proportion 10/6/4 and reassigned, which would give:

£22.50 data [edit: I'd roughly assign this as £8 email, £5 Facebook, £3 Google search & £4 general web browsing and £2.50 other apps' data use. £zero for downloads & app purchases]
£13.50 SMS
£9.00 voice

I'm not really close enough to the accountancy & auditing side of mobile to understand the nuances of reporting, but the exercise (and the Wired article) has got me wondering if all our assertions about "80% of value is still voice" aren't entirely representative of reality. And if that's the case, it makes it even more ridiculous if we are engineering all future networks with the old "voice comes first" mentality.

Edit - I should point out that most of my longer voice calls & conference calls are done from my landline or PC via Skype/SkypeOut. Also, as I don't work for a large company I don't have "internal" calls with colleagues.

Thinking through this a bit more, the argument I have is that it is *assumed* that people are "voice-primary" in allocating revenues that should really attributable to a broader blend of voice/messaging/data. I'm pretty certain that a good chunk of post-paid mobile contract fees are wrongly considered as voice on this basis, given the growing proportion of people who are "data primary" or "SMS primary". For prepaid, it's generally much easier to allocate revenues as they tend to be per-use (except for the "bundle" prepaid accounts popular with some operators in markets like the US)


Dan Young said...

Oh yes, the talkie stick. Well it's not natural is it? Talking into a plastic box, to someone you can't see?

Seriously though, I agree entirely that the range of specific messaging tools available has eroded the importance of voice for the type of "transaction" interaction you're describing. At the other end of the scale Facebook has, for a whole generation, substantially cut the amount of 'keep in touch' extended voice interaction.

Voice has most value in the middle of this range of human comms. "Fire and forget" messaging was an awesome innovation. However, as soon as that interaction demands more complexity, voice becomes the only viable option.

How many times have I abandoned an SMS and just hit dial? Plenty.

Dan Warren said...

Slightly different angle but going in perhaps a similar direction to Dan Young...

A quantitative segmentation of the cost of a subscription is not really what we pay for. Would you pay £41 for the service set described if the £4 voice value were taken out but then you had no voice service? We get all the services in a bundle, and the bundle comes as such because it gives us the ability to communicate in all the ways we want. Take one element out and suddenly the overall value is not the same (even if the cost to me is reduced). Would I buy a phone that didn't make voise calls? No I wouldn't. Equally, would I buy a phone that didn't make or receive texts? Nope.

But here comes my regular opine on the subject - there are a whole bunch of customers that do not currently have phones that allow data connectivity to the internet, and whole bunch further that don't have smartphones. Moreover, they don't see the need for that type of phone either. Why? Because they want a phone that makes calls and sends texts. It is probably a generational thing (although it is also very much a developed market thing too), and at some point that generation will die out, but that is not going to be anytime soon. Because we read Dean's blog we are tech savvy customers, else we would find it all very baffling. We have to keep in mind that does not necessarily make us 'typical' when it comes to the services we demand as essential, and even if it did, we would still expect mobile phones to support voice.

You can still make calls on an smartphone after all. If it wasn't still a requirement, the service simply wouldn't be there.

Dean Bubley said...

Thanks Dan & Dan

(NB I've added in a few extra parts to the blog now)

Dan#1 - yes, I agree that voice tends to be best for complex interactions. I guess I also need to allocate a premium value to the ability to occasionally make an emergency or urgent call.

But nevertheless, an increasing number of calls "you don't really want to make" can now be effectively substituted by other modes.

There's also an argument (not sure I agree) that if something is *that* complex or urgent, video is better than voice, again squeezing the plain old call's addressable market.


No, for £4 difference @£41 I wouldn't swap. But if it was the "assigned" £16 for SMS & data and the same level of subsidy, but no voice - yes, absolutely. As long as I had fixed-line at home, Skype on a PC, I reckon I'd be fine.

I could always have a separate, tiny GSM phone with £5 prepaid credit for emergencies in my wallet.

I definitely agree that there are still many non-data users. And some of them are also non-voice users (eg teenagers who just text, although prepay makes this easier to account for).

The point is that (I think) at the moment that 100% of the implicit access & subsidy value on phones is attributed to voice. That should be lower, on average.

John Davies said...

wrto the allocation issue, I understand that it works like this:

1) allocate all separately billed items to the appropriate category (NB this includes incoming voice and SMS interconnect).

2) remaining revenues are split by looking at usage of different services and the effective average prices paid by eg overage, pre-pay, add-on bundles, dongles etc. This is more of an art than a science.

So, my £30 a month might be split more in favour of data over time as I use more data and less voice, assuming the comparison prices remain constant.

I think I would agree with Dean that this methodology overstates the voice element in terms of the value I personally would allocate to it.

Maybe the operators should add survey data to the mix in allocating revenues?

My big issue with the disclosure is that it has little to do with how the operators actually work. They segment the market by customer type in reality, not so much by service.

So maybe they should be saying they get x% of revenues from 20 something men with smartphones (doubtless with some not-so-snappy alliterative tag).

Then you get the issue of allocating their traffic to work out profitability, but that's another problem entirely...