future challenges of the mobile operator business model
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Future challenges for the mobile operator business model
Mark Newman,
Chief Research Officer
More than one phone for every person in Europe
0%
20%
40%
60%
80%
100%
120%
140%
Subscription growth forecastSubscription growth forecast
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2005 2006 2007 2008 2009 2010
Su
bsc
rip
tio
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('000
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USA/Canada
Middle East
Europe: Western
Europe: Eastern
Asia Pacific
Americas
Africa
Source: Informa Telecoms & Media
ARPU is on the slide in most European markets (% annual change)
Austria 2.1 -1.9 -3 -5.6
Belgium -0.4 -1.5 -0.3 -0.4
Denmark 3.7 3.4 7.5 7.7
Finland -11.9 -14.3 -17.6 -21
France 1.9 2.5 1.8 1.4
Germany -1.9 -2.8 -4.1 -5
Greece 2.5 -1.9 -2.3 -5.6
Ireland -0.1 1.7 2 1.8
Italy 0.4 -2.1 -3.4 -4.3
Netherlands -10.9 -10.3 -9.8 -4.2
Norway -5.2 -5.7 -6 -2.6
Portugal 1.9 -2.4 -8.8 -9
Spain 8.3 6.9 5.5 2.5
Sweden -13.3 -9.4 -2.7 -5.3
Switzerland -3.5 -3.2 -3.3 -6.6
UK -4.7 -6.5 -4.5 -2.1
Europe -0.9 -2.1 -2.4 -2.8
4Q04 1Q05 2Q05 3Q05
But people are making more phone calls…..
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But people are making more phone calls…..
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Austri
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Belgium
Denmar
k
Finlan
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Germ
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Norway
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Europe
MO
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Never have there been so many opportunities for mobile operators
• Mobile entertainment and 3G• Mobile television• Mobile commerce and payments• Fixed mobile substitution• Fixed mobile convergence• Mobile broadband
But there may be even more threats than there are opportunities
• Internet technnologies and economics• Faster and faster, but why?• Wi-fi and wimax• Broadband pipe versus public network• Closed business models• The love-hate relationship between handset
brands and mobile operators
Key themes
1. Mobile entertainment and 3G
2. Mobile vs Internet economics
3. Public network vs broadband pipe
4. Fixed mobile convergence
5. Mobile operators and handset manufacturers
Do the maths! – mobile data and 3G are still flattering to deceive
Average European ARPU = Euro 30Voice ARPU = Euro 25SMS ARPU = Euro 4Mobile data ARPU = Euro 0.5-1
Voice vs SMS vs data ARPU
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2
3
Mobile Entertainment and 3G
Mobile content spend “breakdown”
2006:
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
Annual 2006 Monthly 2006 Daily 2006
$0.00
$5.00
$10.00
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Annual 2010 Monthly 2010 Daily 2010
2010:
Source: Informa Telecoms & Media
Mobile Entertainment and 3G
There is genuine excitement about the potential for mobile music• Devices and UIs are rapidly
improving• Vodafone has cut the prices of
downloads to the same level as online downloads
• Music companies believe in mobile music
• HSDPA will bring down the cost and time of full track downloads
• Hutchison has already recorded 50 million downloads
• Operators are starting to wholesale data capacity
Mobile Entertainment and 3G
Games and gambling are flattering to deceive
• Prices are too high• Poor gaming experience• Long tail• Too many devices, form factors,
technical challenges
Mobile Entertainment and 3G
While the TV industry rolls out time-shifted television, mobile operators set their sights on broadcasting
Mobile Entertainment and 3G
• Subscription or advertising?
• Operator-tv company relationships
• Video versus television
• Personal TV or mobile TV?
Mobile Entertainment and 3G
Operators are reviewing their role in the mobile content business
•Off-portal strategies
•Cutting back content teams
•Data wholesale and MVNOs
•User generated content
Mobile versus Internet economics
GSM versus TCP/IP – only one winner?
•Not so much telly addicts as Internet addicts
•Open versus closed business models
•High cost versus low cost. Expensive versus cheap (free)
•Microsoft, Google, Skype versus mobile operators (fast companies versus slow ones)
•Wi-fi and VOIP versus telephony businesses
•Do we need mobile operators?
Public network versus broadband pipe
Was cellular technology ever designed for high-speed broadband communications?
• 70% of calls are made from the home or the office
• Is 3G coverage good enough to offer mobile broadband in the home?
• FMC takes the initiative away from the public mobile network to the broadband pipe
Fixed mobile convergence
Has anyone bothered asking their customers if they want FMC services?
• Fixed = home and family, mobile = personal
• Technology choices and timetables
• IMS = operator-centric Internet = wishful thinking?
• Handset availability
• Fixed mobile substitution – now you’re talking
Mobile operators and handset manufacturers
And the balance shifts back in favour of the global handset brands?
• The lunacy of handset subsidies
• Are long contracts the only strategy for reducing churn?
• ‘Play videos on your MP3 player’
• The Korean and Japanese models
What are we going to do now?
• Cut costs• Set up a wholesale business – voice and data• Price entertainment services competitively• Invest in a long term strategy to serve enterprises• Take an open mind to IP based services• Take an open mind to FMC• Welcome Microsoft – cautiously!
And remember, SMS became a bigger industry than Hollywood despite operators, not because of them!
Mark Newman
Chief Research Officer
Informa Telecoms & Media
Tel + 44 20 7017 4263