Mobile Internet — In Desperate Need of New Revenue Sources

21 Feb 2018

The rising data consumption on the mobile internet presents a phenomenal opportunity for the digital marketing industry. While the mobile operators are struggling with falling revenues and increasing costs resulting from the constant need for additional network capacity, dominant players like Google and Facebook are continuing to prosper. The operators need new revenue sources as their classic business model seems to have played out its role. Digital advertising is a likely solution, but the current value chain is full of obstacles and malpractice. JoorsChain is a blockchain-based technology project that is going to address these flaws.

Mankind’s desire for mobile data seems to be insatiable. Data traffic is expected to grow by a factor of 10 during the next 6 years. However, average revenue per subscriber for mobile operators has declined at a rate of 0 to 5% per year over the past 3–5 years globally. There has been a drop in EBITDA margins among telecom companies from 25 percent in 2012 to 17 percent today, according to a report by McKinsey. This situation is clearly problematic, as mobile operators are forced to make substantial investments in new technology while profit margins are falling across the board.

The revenues for mobile operators are falling due to several factors. It is partly a result of voice service becoming a commodity which is no longer chargeable, and partly from the growth of fixed price data plans and all- you-can-eat concepts. Operators try to maintain their profit margins by putting intense pressure on vendors which has led to price erosion on network equipment. As a consequence, network vendors have seen their results steadily declining. Operating income for the main vendors in the industry has dropped from 24% to 13% in the last 5 years.

Technology shifts and the move from one G to the next are helping the Telco business case. For example, the shift from 3G to 4G has increased efficiency, measured as cost per GB provided in the network, by a factor of about 4–6. This is impressive, but it is important to understand that the same cannot be expected in the upcoming move from 4G to 5G since the efficiency curve is flattening. Furthermore, the magnitude of data- traffic increase, as indicated earlier, is perhaps the most evident proof that the challenge is greater than the speed of future technological progress.
The industry is in a challenging but yet interesting situation. The current business models, where the end user pays for his/her consumption in a classic way, seem no longer adequate. This is where the advertising industry enters the picture. Giants such as Google and Facebook have had tremendous growth and impact on the information & communications industries over recent years. The success of these companies, as well that of the Spotifies, and the Netflixes of this world, can to a great extent be contributed to two factors: a) They have not (in any significant way) paid for the infrastructure on top of which they offer their services, b) the lion’s share of their revenue comes from advertisement.

It can be argued that this relationship is unfair, but it would be naïve to expect that regulation will force Over-the-Top to subsidize Telco. Nor would this be needed, due to the digital advertising industry’s forceful entry into mobile. The reason for this is two-fold. End users want their data and service no matter what, and as service consumers in the OTT space, they are happily accepting advertisement consumption as the means of payment. Secondly, the traditional advertising industry, in their shift from analogue to digital has their aim set on mobile.

As things stand today, operators are getting only a very small portion of the advertisement displayed on their infrastructure. And an even smaller portion is derived from direct ad-sponsoring (data consumption towards ad viewing). Apart from previous lack of suitable end to end solutions in this space, major factors here include inefficiencies in the advertising value chain and the absence of a working, traceable transaction model, in which both operators, as well as advertisers, will get what they sign up for.