Kiwi telcos warned... Adapt or risk becoming irrelevant

IDC says the New Zealand telco industry is feeling the squeeze as costs rise but revenue drops, with the traditional telco strategy no longer sustainable.

A recently released report from the research company shows declining revenue in the New Zealand telecommunications market in 2013.

New Zealand Telecommunications Competitive Ecosystem 2013/2014 shows total telecommunications spending fell 2.5% to $4.92 billion in the year to December 31, 2013, on the back of declining mobile service and fixed revenue, down 1.1% and 3.7% respectively.

The mobile services revenue drop is greater than that seen in Australia, where IDC reported mobile services revenue down 0.3% for the same period, with plateauing revenue and subscribers in the Australian mobile services market.

Unsurprisingly, IDC says Kiwi data consumption continues to climb rapidly in tandem with the expansion of 4G LTE in mobile and UFB in fixed networks.

“With strong adoption in smartphones and tablets, there is a shift from traditional data platforms (SMS and MMS) to over-the-top (OTT) applications such as YouTube, Skype and WhatsApp.

“While telcos are capturing some of this increase through higher data caps, the majority of value is being captured by OTT players.

“This report shows that a traditional telco strategy is no longer sustainable as network investment needs increase and associated revenues continue to decline.”

IDC senior market analyst, Shane Minogue, says connectivity is no longer enough to capture revenue growth.

“Although operators must continue to invest in network capabilities to protect their core revenue they must adapt their strategy to create new streams of revenue or risk becoming irrelevant from a consumer perspective, as those providing services on top of the network steal the show," Minogue says.

IDC says in the long term, the market will continue to grow in terms of connections, as broadband penetration increases and the population becomes increasingly mobile.

“Despite this increase in connections, revenue is forecast to continue to decline as competition drives average revenue per user down and squeezes margins in both mobile and fixed,” notes IDC.

Adds Minogue: "The continued consolidation in the market, a significant rebranding of the incumbent and continued investment by the main players in offering new services shows how the market is in a state of transformation.

“Each player is implementing new strategies to be successful in the modern telecommunications environment, however in a market where there is increasing competitive pressures only a small few will be successful."

The report is based on IDC's telecommunications tracker, which captures revenue and connections associated with fixed and mobile networks.