There is a debate which has only really just started within the telecom sector over the long-term impact of mobile data.
On the one hand mobile data is clearly one of the few growth areas within the sector generating new revenues as new subscriber growth slows and as voice tariffs remain under downward pressure. But on the other hand there are those who view the current mobile data growth story with a certain degree of skepticism and focus more on the underlying "quality" of revenues especially in terms of their long-term impact on sector profitability.
As a starting point, there is no doubt that mobile data usage is growing substantially as a result of new products and improved equipment functionality. In Hong Kong, for example, the regulator estimates that the average 2.5G/3G mobile subscriber generated approximately 128 MB more data traffic in July 2010 than a year earlier while StarHub in Singapore (one of the few Asian telcos to publish mobile data usage) has seen total mobile data usage more than double over the past year.
This increasing usage is undeniably translating to new sector revenues. We recently estimated that nearly all the new revenues generated in Singapore telecom sector over the last 12 months were from mobile data while many telcos across the region are achieving accelerating data revenue growth over recent quarters.
But we view it as simplistic to point at increasing usage and revenue growth and conclude that this is obviously a good thing? In fact there are a number of reasons why we are not yet convinced that mobile data growth is an incremental positive on the sector.
First, telcos do not appear to be effectively monetizing the surging data usage as reflected in the substantial gap between the data usage growth and data revenue increases. And unfortunately given current pricing structures (driven by the desire of telcos to drive higher data usage), revenue collection per unit of data delivered is likely to remain far less than traditional voice and SMS traffic.
This is key to our second reason for caution: our working presumption is that mobile data margins and return on capital invested will be significantly lower than those achieved for voice and SMS as revenue per MB of data delivered declines at a faster rate than associated costs. Clearly there will be variations between operators (reflecting network topology, nature of end-user demand, pricing models etc) but we expect data to continue the general downward margin pressure.