As part of our ongoing Q&A series with mobile and wireless industry influencers, we recently caught up with Mark Newman, chief research officer at Informa Telecoms & Media, to get his take on the latest issues facing mobile operators.
1) Your area of expertise is analyzing mobile operator strategies. From your point of view, what are operators doing well right now and what are the main areas in which they need to improve?
Mobile operators are managing their profit margins pretty effectively by trimming their cost base. This takes a number of different forms – from taking a more selective approach to handset subsidies to outsourcing a range of different network and service functions. Pan-regional operators seem to be getting a lot better at removing duplication across their different businesses.
I still believe that they need to develop a clearer, more coherent strategy with regard to their content strategies. The success of mobile broadband has demonstrated that there is a massive pent-up demand for portable and mobile access to the Internet. We believe that there is huge potential for operators to introduce different payment and access options rather than accepting that flat-rate pricing is going to be the dominant business model.
2) In the late 1990s and early 2000s, as adoption of wireless devices went mainstream, operators put tremendous focus on marketing to and acquiring new subscribers. We’re at a point now where operators have to focus on retention and luring non-subscribers away from competitors. How can operators differentiate, stay relevant and build competitive advantage?
During the 1990s – and even in the early years of the current decade in some countries – coverage for basic voice services was a key differentiator. New players tended to be more aggressive in their pricing because they had worse coverage and network quality than the incumbents. But over the last five years, voice coverage has ceased to be a differentiator and operators have attempted to develop their own new services and strong brands to differentiate themselves.
Now we may be about to see a swing back to coverage and quality being differentiators. Operators are at different stages of building out mobile broadband networks, and coverage and quality levels vary. We have seen Vodafone launch femtocells because they believe that offering better indoor coverage can be a strong lure for mobile users. They have stolen an important lead on their competitors, and their femtocell launch this month caught the industry by surprise.
This is not to say that operators are not continuing to invest in new services to provide these key differentiators. But their track record in building and bringing to market new services and applications is not great. However, some are beginning to realize that the mistake they made in the past was trying to generate significant businesses in their own right from these services rather than, for example, offering them for free and using them as a tool to retain customers.
3) Operators continue to report lucrative data revenue growth. What are the implications of this growth on networks and how might this affect subscribers down the road?
The introduction of flat-rate data pricing – and more importantly the launch of the dongle – has resulted in a colossal surge in data traffic on mobile operators’ networks. For the time being they are coping reasonably well – 3G networks have been sitting idle for several years and it is only now that they are being truly utilized. However, within the next one to two years, operators are going to face capacity bottlenecks. The problem will be in the home, where many mobile broadband users are using their connections to access high-bandwidth video services and in the backhaul where many mobile operators will need to upgrade their microwave links to DSL or fiber. This clearly involves substantial investment, and the price war that has broken out in the high street for mobile broadband services means that this investment is not always easy to recoup.
4) What other revenue opportunities are operators looking at - or should they be looking at - to help offset falling voice revenues?
Gone are the days when operators believed that non-voice services (beyond SMS) were an important new revenue stream in their own right. Operators have learned that they can monetize access to broadband networks, but charging for games, music or video has had only limited success.
Many operators are now looking to open up their networks to allow third parties – Internet or entertainment companies – to develop their own services. Operators hope that these companies will use some of their network assets - for example, location technology or core communications capabilities such as voice or SMS - to build into their applications. Operators can monetize these services either by charging for access to these “APIs” or sharing in the advertising revenues that can be generated off the back of these services.
Even if revenues are modest, operators believe these strategies and investments are worthwhile if they help to reduce churn.
5) From our point of view, it appears that European operators are more likely than their U.S. counterparts to deploy solutions that allow for a better user experience (e.g., multimedia content adaptation, optimization, etc.). Why do you think that is? Can you point to other notable differences between the U.S. and Europe in terms of operator strategies?
I think it’s a question of maturity more than anything else. European mobile operators have been focusing on new services for longer than their U.S. counterparts because the focus of their business has long since shifted away from building out their network coverage.
That said, if you look at the financials of European and U.S. operators, you will find that U.S. operators tend to have higher ARPU for non-SMS data services than European ones. ARPU levels in the U.S. are higher generally, and most mobile users are postpaid customers who are seemingly happy to pay $50 per month or more for a large bundle of services including voice, SMS and data.
If you have any questions you’d like us to ask in the future, feel free to leave a comment or send an email to sinfantino@bytemobile.com.
-Stacey Infantino
