A colleague of mine recently bought a smartphone. On a limited budget, he was able to find an excellent phone with a sharp 5.5inch display, 32 GB storage, and an 8 MP camera, running the latest version of Android for a little over $100.

I spent a few minutes looking at the device and marvelling at the fantastic value for money, and it hit me – consumers have never had it better, but telecoms companies have never been under more pressure.

Samsung – the world’s largest mobile device manufacturer recently recorded a 37.6% drop in profits, due to competitive pressures.

Even with a global brand and large advertising revenues, it has become extremely difficult for Samsung to compete with over 100 different mobile device manufacturers all struggling for market share (and profitability).

This is only part of the story.
There are 4 main smartphone software platforms – Apple iOS, Android, Windows and Blackberry. Of these platforms, Android owns over 83% market sharewhilst iOS owns about 13% market share (Gartner). 

The Android platform is owned by Google, and is provided free of charge to handset manufacturers to use on their devices. 

This has made it relatively easy for manufacturers to enter the market, as Google manages the platform and has created an attractive and profitable ecosystem for application developers to deliver their content to subscribers.

Google in turn makes money from this platform using an advertising supported model.

Most of the smartphone devices sold by Samsung run on the Android platform,they therefore have to compete for market share with over 100 device manufacturers and can only distinguish themselves on hardware specifications, and to a limited extent on software customisation and services.

Consumers are therefore spoilt for choice, as manufacturers are stuck in a race to the bottom on price.

Even Apple with its unique combination of hardware, software and services, and sky high profitability, recently suffered a share price drop when it announced record-breaking- yet-lower-than-expected sales and revenue figures.

Apparently, investors are concerned about Apple’s growth prospects in light of current market dynamics.

This is in spite of the fact that Apple already makes over 90% of all profits in the entire smartphone industry, leaving all other operators to struggle for just 7% of smartphone profits (Forbes).

Telecoms operators and service providers are also facing similar struggles globally.

Traditional operator revenue streams (voice telephony and SMS) are declining and will continue to do so. In the near future, Cisco predicts that voice will make up less than 10% of total mobile traffic.

Subscribers are increasingly turning to cheaper over-the- top (OTT) alternatives such as WhatsApp and Skype, to make calls and send messages.

These OTT players have typically lower entry costs but global reach, and pose a significant challenge to existing telecoms operators.

For example, the total number of mobile VoIP minutes is expected to grow from 15 billion in 2010 to 471 billion in 2015 (Juniper Research).

Furthermore, Telecoms subscribers now have much higher expectations from their providers, and telecoms operators are scrambling to find waysof providing differentiated customer service to address the needs of their subscribers, to avoid losing them to rivals – especially now that technology has reduced the hurdles of switching between telecoms providers.

Almost all Telecoms operators are therefore looking to data services to drive growth.

However, the competition for provision of data services is fierce – especially since this strategy puts them in direct competition with traditional internet service providers in many cases.

Telecoms operators and service providers therefore now face pressures from both sides as well.

Traditional revenue streams are drying up due to competition from OTT players (amongst other factors), and there is increased competition in new areas of interest.

The scenario is also causing a race to the bottom on price for telecoms services.

Competition is supposed to be a good thing for consumers.

It is meant to create a situation in which they get the best value (and price) for goods and services.

At the moment, consumers have never had it better – they can choose their devices from an increasing list of manufacturers at constantly decreasing prices, choose their connectivity from a bouquet of offers with constantly decreasing prices, and choose their applications from a collection oflow cost or free options. However, at some point this competition could turn out to be a poisoned chalice.

What happens if device manufacturers and telecoms operators start (continue) going out of business? 

Now that consumers’ appetite has been whet, is it sustainable to continue to expect prices to drop? Should regulators be doing more to ensure an even playing field?  Should governments do anything to protect their companies from global competition?Should the principles of free markets be allowed to prevail?

A lot of difficult questions need to be asked and answered in the global telecoms industry – and these questions equally to the local industry.

For example, the Nigerian Communications Commission (NCC) has issued 4G licenses to wireless internet providers to ensure that Nigerian subscribers have access to affordable (and widely available) data services.

However, licenses have not yet been made available for auction to mobile operators.

These operators face increasing pressure as traditional revenue streams are being eroded by OTT players for example, and this erosion is encouraged by the presence of these new wireless internet service providers.

As a result, these mobile operators may not be able to compete effectively as they have to use their limited spectrum to provide the quality of service (QoS) guarantees that traditional voice services demand, whilst trying to compete against providers who do not have this challenge.

OTT players such as WhatsApp do not have a physical presence in most countries in which their services are used, and therefore do not pay taxes or provide jobs in those countries.

Again whilst consumers benefit from better and cheaper services, what happens if mobile operators (who have paid millions of dollars in license fees, and spent millions more on equipment) begin to shed jobs?

What happens if (as) tax revenues from these mobile operators decrease?

Whilst competition can be a very useful tool in providing value to consumers, it can also create scenarios which undermine the benefits it is meant to provide.

Ensuring a vibrant telecoms sector must include maintaining a healthy balance between competitive policies (to provide value for consumers), and policies aimed at ensuring that companies can continue to thrive and provide jobs, benefits to shareholders, as well as tax revenue.