Since 2015, international voice traffic on the interconnected public networks of telecom operators has been declining in both volume and revenue1 as a result of the rise of OTT2 uses from mobiles, made possible by the widespread of smartphones and the development of 3G, 4G and now 5G mobile networks. In addition to being free, OTTs have improved their quality significantly, not only for voice, but also for video. The pandemic has boosted the phenomenon due to new use cases: Less roaming, increased use of unified communications solutions in the B2B sector and rise of new behaviors (video conferencing, etc.).
In this context, the decline in international voice traffic on telco networks seems inevitable; how can operators respond?
A decline that unequally affects operators and regions
This cannibalization by OTT solutions differs according to each of the regions of the world, as several factors come into play:
- The main factor is tariffs: the most affected traffic flows are those with the most expensive end-user tariffs; therefore, international voice traffic from African countries has been particularly affected.
- The development of social networks is another factor: the speed of their spread and adoption has facilitated a shift in usage from telco networks to OTT solutions; this phenomenon has been particularly highlighted in East and Southeast Asia.
- Finally, regulation also plays a role: in some countries where high tariffs apply, restrictions on the use of OTT applications have made it possible to contain, at least temporarily, the erosion of telco voice volumes; this was the case in the Middle East for example.
Therefore, the impact varies greatly from one operator to another, because such a drop in traffic has a double effect:
- For international voice traffic initiated by the operator's customers: decrease in retail revenues and associated wholesale expenses
- For international voice traffic received by the operator's customers: decrease in wholesale revenues related to incoming international call termination.
In Europe and developed countries, call terminations are already very low and continue to decline, the share of voice in retail revenues is decreasing, and the decline in volumes is moderate; so the overall impact is less painful in Europe than in economies that are more dependent on revenues associated with international voice traffic, particularly in Africa, where international call terminations are particularly high3.
The economic equation of telecom operators
Thus, in order to reverse the trend and regain market share in international traffic, a reduction in tariffs - both retail and wholesale - seems unavoidable. However, the economic equation for the telecom operator is uncertain, because in order to propose attractive offers compared to free OTT solutions, the operator must agree to significant price cuts, which may impact existing revenues, without having the expected elasticity effect on volumes; hence a legitimate fear of accelerating rather than slowing down the downward trend in revenues.
Two examples illustrate the mechanisms at play, and show that the decline in international voice volumes of telecom operators is not inevitable, and that wise policies combining regulation, retail and wholesale, allow, under certain conditions, to reverse the trend, but require tight management.
“Free" roaming for the end user
Free of charge means that there is no additional cost for the end user when roaming; several formulas have been elaborated, and can be divided into two categories;
- Roam like at home: free and unlimited call reception, calls made at no extra cost compared to a call made from the country of residence
- Roam like a local: free call reception (with a possible time limit), calls made at the rates applied in the visited country.
Whatever the implemented scenario, free roaming has generally led to a significant and lasting increase in volumes often under the impetus of regional regulators; moreover, this increase was immediate, which indicates that mobile operators have recovered some of the usage of OTT solutions.
However, the balance sheet for operators remains mixed, because while free roaming has restored value to their offerings and shown that cannibalization by OTT solutions is not an irreversible phenomenon, the financial impact on roaming traffic alone has been negative, with a significant drop in retail revenues and a stable wholesale balance (wholesale revenues - wholesale expenses).
International calls offers
These offers are based on specific wholesale tariffs that are much lower than standard tariffs (a few euro cents per minute instead of tens of euros per minute); this enables the operator to offer very attractive international call tariffs to its customers. Such offers not only increase volumes, but in some cases they have enabled revenues growth, with the increase in volumes more than offsetting the fall in tariffs.
The key success factors for such offers are:
- Partnership relationship between the originating operator and the destination operator; this involves identifying the right partners in the destination country
- Targeted marketing campaigns, both in the country of origin and in the country of destination; diasporas are usually the main target of these offers in the country of origin
- Customer journey and user experience
- Offers allowing calls to an entire country, rather than just one network in the destination country
- Offers that can be used while roaming in the destination country to call the country of residence (as OTT solutions overlook borders), and including SMS/MMS and data messaging services
- Competitive advantage gained by an operator over its competitors after being the first to launch such offers in a country
- Wholesale solutions that closely match retail needs, which may include moving away from per-minute wholesale pricing to a flat-rate model.
Transit operators, who act as a link between the originating and destination operators, also play a key role in the success of these solutions; they can also offer both originating and destination operators outsourcing solutions for their inbound and/or outbound international traffic, enabling them to control their wholesale revenues and expenses.
OTTs do not have a monopoly on international voice traffic, and the cannibalization of telecom operators' international traffic is not inevitable; however, this means that telecom operators are rethinking their offerings in order to better adapt them to the needs of diasporas: convergence and abundance are thus key elements in the fight against OTT solutions. Similarly, operators must work more closely with their counterparts in remote countries; the coordination of their roadmaps is essential to the success of such offers.
 For example, Telegeography estimates an average annual decline of 6% in volumes over the 2015-2020 period, and nearly 9% in retail revenues over the same period
 Examples include WhatsApp, Facebook Messenger, WeChat, Viber, Line...
 It is worth recalling that the international call terminations of African operators had experienced very significant increases over the period 2012-2015; in the absence of regulation, these increases allowed African operators facing monopoly on their incoming international traffic, to generate immediate additional revenues, with an EBITDAaL ratio close to 100%.