Is mobile in the middle of an identity crisis?
26 November 2007
Now well into its teenage years, mobile has gone through its rapid growth period and is beginning to consolidate. Operators have come out of this growth period and are taking stock of the situation within the industry. The picture they are presented with is one of falling ARPU figures throughout Europe: Analysys Research figures show voice ARPU has declined by as much as 15% since 2000[1], with voice revenues virtually zero in older mobile markets. This is leading operators to reassess their business strategies and in some cases, question their identity and market approach.
Two approaches appear to be emerging: the bit pipe and the service distribution model. The latter has much more appeal, with greater potential revenues and lucrative brand association available. However, operators are beginning to encounter competition from a raft of new entrants looking to corner the market for the service distribution identity, potentially leaving operators with little choice over their own future and forcing them into the bit pipe category.
Alliances springing up between handset vendors and content providers provide compelling evidence of this happening already. The most recent is Nokia and Microsoft’s for the launch of a new version of Windows Live Suite, including Hotmail and Windows Live Messenger, on a number of existing and new Nokia phones. Deals like this essentially seek to push the operator away from the customer. Instead of using the operators’ interface to access content or to chat, the customer will see Microsoft’s familiar layout and branding.
If content and application providers like Microsoft have their way, the future of MNOs could be similar to the fixed world: telephone, billing and internet all provided by virtual operators like Tiscali reducing the network to being just the road on which they run. While there is money to be made with a bit pipe business strategy – being the best carrier would attract flocks of innovative MVNOs to the operator – this market will likely reduce to just one or two key players.
The service distribution identity has much more scope for operators and the level of customer proximity only possible from operators’ involvement is vital to delivering the innovative and rich services required.
Only operators have access to the full picture of what content customers download, and this intelligence can be used to develop personalised cross-service packages from several parties including internet brands. The personalised nature of this packaging makes it more attractive to the customer and will ultimately drive both revenue and loyalty. Operators can also ensure that services run on all handsets and interoperate between all networks, essential to success in developed markets. Mobile functionality also lies solidly in the operator’s domain and can enhance the value of internet applications. For example, Streetmap or Multimap are highly popular online map applications, but adding operator powered location-based services which pin-point your current location makes these services much more powerful.
Due to the complexity of the mobile network, network resource allocation will become critical when more data hungry applications are rolled out. If the operator is kept out of the process it will be unable to plan for network allocation which could seriously impact service delivery.
Despite the very real threat of identity theft, operators are still in a strong position to choose which way they take their businesses, and it is likely that the majority will go for distribution of value-added services. This means that to achieve market potential, internet players need to partner with operators to mobilise their services, rather than simply targeting handset vendors as a channel to bypass operator service portfolio decision. We are likely to see more deals like the one between Nokia and Microsoft, but it remains to be seen whether excluding the operators in this way will deliver the dividends that the partners seek.
[1] Analysys Research report, The Western European Mobile Market: trends and forecasts 2007–12 Voice ARPU has declined in most Western European markets (falling from approximately €27 in 2002 to approximately €23 in 2007)