The mobile phone has become the most common personal device all over the world. Over 4.6 billion mobile phones were sold around the world in 2011 to a population of just over 7 billion. There is virtually no place in the world that mobile phone coverage does not reach. Phone ownership and usage cut across all ages and all ethnic backgrounds. All these should indicate that the mobile industry around world is thriving. It is, but the industry is also beset with some major problems. The whole industry is in the process of reinventing itself to stay healthy.
The rapid growth in phone usage has, paradoxically, contributed to the industry's problems. Some of these issues are discussed below.
1) The decline in profit margins
The dramatic increase in mobile phone penetration around the world is in major part due to affordable tariff. In the early days of mobile phones in the early 1990s, phone charges were very high compared to land-line tariff and the subscriber base was small. As the social benefits of communication connectivity became apparent, governments started to license more service providers. The process of rolling out the infrastructure became well known and the competition drove prices lower. The mobile phone tariff around the world now is comparable to land-line costs.
Over 80 percent of mobile phone company revenues are from simple voice calls and text messaging, despite the availability of a bewildering menu of value added services. The low margin on the major part of the revenue stream impacts profits.
2) The wide disparity in customer profiles
The mobile phone is used by people of various age groups, income brackets and for a wide range of applications as these have become available. The phone companies now face the problem of a very disparate range of customers. The simple voice and text message user needs one level of service. The teenage user often uses the mobile phone as a gaming console or a music player or a social network interface. The business user looks for internet connectivity and data communication rather than gaming or music.
The cost of offering the right kind of service at the correct price point to the appropriate customer segment is a critical marketing challenge. The network infrastructure needs to support the highest service level though, as noted earlier; only a small fraction of the customer base uses the enhanced capability.
3) The fast advance of technology
The mobile phone industry is witnessing incredible advances in technology in recent years with faster processors, new software platforms, display technologies and a growing library of apps specifically created for the mobile phone. These technology advances were being funded by the revenue growth from increased mobile phone penetration. As the total annual mobile phone sales reach saturation levels, and with the margins remaining low, new revenue sharing plans are being worked on. In the future, technology companies may have to work with phone service providers to arrive at a revenue sharing plan on the lines used by computer hardware and software companies.
4) The unbundling of vertically integrated phone service companies
Vertically integrated phone service providers are beginning to unbundle their operations. The communication towers and physical infrastructure are being spun off to independent companies, who would be able to carry signals from competing phone companies simultaneously. This should increase asset utilization and reduce operating costs. The next step would be the transfer of switching operations to shared services' companies. This has happened recently in Austria, where Alcatel has taken over the switching operations from two of the service providers. This process has to mature before the major new investments for 4G networks need to be made.
In the past, most mobile phone companies offered subsidized handsets bundled with subscription for a fixed period, usually six months. As the variety of handsets in the market and their costs increase, mobile phone companies are beginning to move away from subsidized handsets or asking for longer lock-in periods.
5) Identification of new revenue streams
Mobile service providers are also beginning to look for new revenue streams in their business. The first step some have taken is the sale of the customer data base to telemarketing companies. This is facing legal challenge in many countries. The next logical step would be targeted advertising linked to the customer's profile, that is beamed to the mobile phone, perhaps along with e-mails, text messages or other downloads.
The mobile phone is also being adapted to serve as the interface for cash-free transactions in the manner of a bank credit or debit card. These transactions could result in a small commission to the mobile service provider.
The mobile phone industry is undergoing a major internal transformation and the challenge would be to come up with a business model that keeps the basic phone service affordable while generating adequate margins for the phone company.