Why doesn't mobile Internet access translate to mobile revenue and increased ARPU?

Mobile Internet access and traffic - there's no shortage of it.  In fact, in the latest Sandvine Global Internet Phenomena Report for 2H, 2013, mobile traffic is shown to grow rapidly for every market being monitored.  For instance:

• North America, since 1H report: Mean monthly usage has made a 13.5% jump, increasing from 390.1 MB to 443.5 MB
• Europe: Mean monthly usage has increased 15% from 311 MB to 358.4 MB per month
• Asia: Increasing from 700.4 MB to over 1.1 GB per month

Overall, mobile traffic (i.e. from mobile devices) only makes up some 20% of Internet traffic (see KPCB 2013 Internet Trends, slide 32), but growing at 1,5x per year or more, mobile broadband traffic is on a pretty good trajectory.

Similarly, the Ericsson Mobility report for November 2013 states that "the increase of monthly mobile data traffic in Q3 2013 exceeded total monthly mobile data traffic in Q4 2009" and that there was a "80% growth in data traffic between Q3 2012 and Q3 2013".  And looking forward, "mobile data traffic is expected to grow at a CAGR of around 45 percent (2013-2019) leading to a 10x growth in mobile data traffic between 2013 and 2019".

So, volume-wise, mobile traffic numbers look good if you are in the mobile broadband area or a mobile access provider.  Does the traffic increases translate to money for mobile access operators?

While mobile traffic is increasing significantly, ARPU for mobile operators, for both mixed voice and mobile broadband providers as well as voice only providers,  are expected to fall in the next years (GSMA and OVUM numbers a bit old):

• GSMA: "European mobile ARPU falls 20%", 1, 2
• Global Mobile Outlook, OVUM (2011): Monthly ARPU remains in steady decline across all the regions, and we expect it to fall at a CAGR of 4% from 2011 to 2016.
• The Mobile Economy 2013, AT Kearney: Despite the growth in usage of voice and SMS and increasing numbers of data subscriptions, ARPU rates have declined across every region globally. The overall global ARPU rate has fallen by 7.6% p.a. from US$19 to US$14 per month, with the highest reductions in 2010-2012 seen in Africa (-10% p.a.) and Europe (-7% p.a.)

So, revenue per user going down for mobile operators, but average traffic volumes per subscriber going up rapidly.  Why?  There's a number of reasons among them:

1. Despite Moore's Law and networking units getting ever more capacity at ever lower prices, functionality, complexity, service management levels and operations transactions per networking unit is going up.  There is seldom less complexity introduced with new mobile G generations and always-on mobile units, costs for building and maintaining mobile networks are also increasing.
2. Race to the bottom.lack of service differentiation: Telco and mobile operations has squarely entered the mass-production or utility service era, and there is little noticeable service quality or service range differentiation once basic mobile coverage has been ensured. Operators are competing on level of mobile handset subsidies and traffic volume/capping bundles.
3. Mobile access subscription and service does not translate to any significant degree of share of "mobile wallet and spend" - customers get their mobile service needs by Internet and 3rd party providers.
4. Lack of investment or market foothold in first-mile services (i.e. hosting, extended comms and messaging) and middle-mile infrastructure and services (i.e. CDN, on-net traffic aggregation) for mobile operators and telco's .

Point 4 can be illustrated by how things are looking in the mobile ad space and mobile app & service subscription space - much better than mobile voice and broadband ARPU developments! Some indicators:

1. Business insider,THE FUTURE OF DIGITAL, 2013: Mobile is the only media time that's growing (slide 24), Mobile is now approx 20% of e-commerce traffic (slide 37)
2. Mobile ads now close to half of Facebook ad ARPU - slide 37 in the KPCB report referenced above
3. Twitter: " More than 70 percent of advertising revenue came from mobile devices in the third quarter, compared with 65 percent in the second quarter." (2013 numbers, of total Twitter revenue of $168.6 million in the last period).
4. Gartner is predicting that worldwide revenue from app stores will increase this year (2013) by 62%, bringing the total industry revenue to $25 billion dollars.
5. Business Insider, "The Results So Far From Holiday Shopping Point To Huge Gains For Mobile Commerce This Year":  ...mobile commerce grew more than twice as quickly (as e-commerce overall), at 63%, and accounted for nearly $940 million in sales on those three days. ...one in four e-commerce dollars spent on Black Friday and Thanksgiving were on purchases made through mobile devices. ...Tablets have emerged as a principal engine for mobile commerce growth.

So, to answer the question raised in the title: It turns out there is no direct relation, so far?, between providing mobile Internet access and capturing share of mobile traffic and services revenue, or share of mobile customers spend on e-commerce, Internet services and use of traffic-intensive deliveries.  Because with whom customers choose to have their mobile access isn't the same parties that they choose to use for e-commerce, Internet services like messaging, social media sharing, file sync, photo storage and get delivery of movies and entertainment. 

Erik Jensen, 15.1.2014