strategies for creating end user demand for mobile data services. portio research ltd 2006

Strategies for Creating End User Demand for Mobile Data Services

© 2006, Portio Research. All Rights Reserved

Portio Research Limited. Published December 2006 by Portio Research Limited. © Copyright 2006. All rights reserved. www.portioresearch.com [email protected] Disclaimer and Legal Notices

Disclaimer

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Contents


Introduction ...................................................................................................4 Mobile Data Services – An Overview ..........................................................6

Non-messaging Mobile Services ........................................................................... 6 Messaging Services ............................................................................................ 12

Successful Strategies – Non-Messaging Mobile Data Services .............17 Mobile Portals...................................................................................................... 18 Mobile Full-track Music Downloads ..................................................................... 37 Mobile Video Downloads/Uploads ....................................................................... 53 Ringback Tones................................................................................................... 64 Mobile Commerce ............................................................................................... 72 Mobile Games ..................................................................................................... 82 Mobile Video Calling............................................................................................ 88

Successful Strategies – Messaging Services...........................................92 SMS .................................................................................................................... 93 Case Study: Innovation Driving SMS-based Services ....................................... 108 Case Study: Further Innovation From New Services ......................................... 112 MMS.................................................................................................................. 114

Web 2.0 – An Introduction........................................................................125 Mobile and Web 2.0........................................................................................... 125

Summary of Key Best Practice Recommendations...............................134 Mobile portals .................................................................................................... 134 Music download................................................................................................. 134 Video upload/download ..................................................................................... 134 Ringback tones.................................................................................................. 134 Mobile commerce .............................................................................................. 135 Mobile games .................................................................................................... 135 SMS .................................................................................................................. 135 MMS.................................................................................................................. 136 Web 2.0 ............................................................................................................. 136

Conclusion.................................................................................................137 Appendices................................................................................................144

Glossary ............................................................................................................ 145 Portio Research Classifications ......................................................................... 154 Companies mentioned in this report .................................................................. 155


Contents


List of Figures Figure 1: Western Europe Mobile Portal Market (In Millions, 2005-2010) .........................................6 Figure 2: Worldwide Mobile Music Full-track download market (In Millions, 2004-2009) ..................7 Figure 3: Mobile Games Annual Revenues (In Billions, 2006-2011) ...............................................10 Figure 4: Worldwide SMS Traffic Volumes (In Billions, 2004-2010) ................................................12 Figure 5: Worldwide SMS Revenue (In USD Billions, 2004-2010) ..................................................12 Figure 6: Worldwide MMS Traffic Volumes (In Billions, 2004-2010) ...............................................14 Figure 7: Worldwide MMS Revenue (In USD Billions, 2004-2010) .................................................14 Figure 8: Number of Subscribers to i-mode Services in Japan ......................................................20 Figure 9: The three-pronged strategy of NTT DoCoMo for i-mode..................................................21 Figure 10: Growth Trends: Verizon Wireless data customers ...........................................................32 Figure 11: China Mobile – CRBT Subscribers and Penetration (2003-June 2006) ...........................68 Figure 12: Percentage of Customers Using Wallet Services at Various Retail Points ......................77 Figure 13: Smart: SMS Traffic Volumes (In Billions, 2000-June 2006) .............................................95 Figure 14: Smart: SMS-related Services Revenue as a % of Total Data Revenue...........................96 Figure 15: Maxis: SMS Traffic Volumes (2001-2005)......................................................................100 Figure 16: NetCom: SMS Traffic Volumes (In Millions, 2002-June 2006) .......................................103 Figure 17: Verizon Wireless: MMS Traffic Volumes (In Millions, 2004-2006)..................................115 Figure 18: SFR: MMS Traffic Volumes (2002-June 2006)...............................................................119

List of Tables Table 1: Total Regional SMS Traffic (In Billions, 2004-2010) .............................................................13 Table 2: Total Regional MMS Traffic (In Billions, 2004-2010).............................................................15 Table 3: Selection Criteria for Portals .................................................................................................19 Table 4: The History of Services Launched by i-mode in the Past .....................................................20 Table 5: The History of Licensee Agreements with MNOs .................................................................22 Table 6: Selection Criteria for Mobile Music Downloads.....................................................................38 Table 7: Selection Criteria for Mobile Music Downloads.....................................................................54 Table 8: Selection Criteria for Ringback Tones...................................................................................65 Table 9: Advantages of Using G-Cash: Deposit or Withdrawal Process/Tax or Bill Payment ............75 Table 10: Advantages of Using G-Cash: Remittance Process from Bank A to Bank B ...................75 Table 11: Selection Criteria for Mobile Games Service....................................................................82 Table 12: Top 15 SMS MNOs (2005) ...............................................................................................93 Table 13: Top 15 SMS MNOs (4Q 2005) .........................................................................................93 Table 14: Smart: SMS-based Applications.......................................................................................98 Table 15: Selection Criteria for MMS..............................................................................................114


© 2006, Portio Research. All Rights Reserved Page 4

Introduction

As 2006 draws to a close the total number of mobile subscribers worldwide is rapidly approaching 2.5 billion. This vast number has been achieved in a breathtakingly short time and over the next five or six years, we expect another two billion more to be added to this total. As this staggering growth continues, in mature markets voice services have become commoditised; prices are low, margins are tight and competition is fierce and the last two or three years have seen network operators turning to non-voice mobile services in order to try to differentiate themselves from competitors and generate revenue growth to help combat declining voice ARPU. In these efforts, great variance exists between different markets. Adoption rates for services vary from country to country, tariff structures can be complex and costly, subscribers are often confused about costs and availability, and international groups have been finding that what works in one market does not necessarily work in another. For this report we analysed the strategies adopted by the most successful operators worldwide for each of nine different mobile services. We have selected the leading Mobile Network Operators (MNOs) offering these services across different geographies and studied their service offerings and strategies. By then analysing and comparing these strategies, we have tried to highlight the key defining factors which have contributed to the success of these services in their respective markets. We hope that the end result of this exercise creates a ‘best practice’ case history that other MNOs might follow to maximise revenues from their own non-voice services. This study looks at the successful strategies adopted by leading MNOs to drive the uptake of the following mobile data services: • Non-messaging mobile services

Mobile portals Mobile music downloads Mobile video calling Mobile video downloads Mobile games Ringback tones Mobile commerce

• Messaging services SMS MMS

This study looks at the best practices followed by leading MNOs to drive the uptake of select mobile data services.



Research Methodology We used both secondary and primary research to identify the most successful MNOs for nine services and to determine their strategies for driving the demand for their data services.

Secondary Research We have used secondary research tools to identify the leading MNOs for the above-mentioned services. We short-listed the most successful MNOs worldwide for each of the nine services. The operators were short-listed on various criteria, such as their news value (reflective of the extent of publicity each service has attracted) and the other indicators of the strong growth of the service of the MNO, such as the number of subscribers using that service, etc.

Primary Research We have also used primary research to gather information about the strategies of the select MNOs for the nine services. For this purpose, we conducted interviews in a structured and ethical manner with key executives of leading mobile operators, content providers, handset vendors, etc.



Mobile Data Services – An Overview

Non-messaging Mobile Services

Mobile Portals The number of subscribers to mobile portals [outside of Japan] has increased sharply in the last two or three years. This is primarily due to the fact that the mobile data services market is slowly shifting towards 3G applications, partly driven by the operator community and partly to meet consumer demand. MNOs now offer a wider range of applications such as games, entertainment and other information through their mobile portals to attract new subscribers. Also, penetration of suitably equipped handsets has reached a point now where the mass market can access and use a wide range of multimedia non-voice services.

Key Geographical Markets Currently, regions such as Western Europe, the US and Japan have witnessed an increase in users of mobile portals. According to IDC forecasts, the mobile portal market in Western Europe is expected to reach 74 million users by 2010. The mobile portal market in Western Europe has grown at a CAGR of 10 percent during 2005-2010. Figure 1 shows the growth in the mobile portal market in Western Europe during the period 2005-2010.

Figure 1: Western Europe Mobile Portal Market (In Millions, 2005-2010)

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Growth Drivers

• Demand for value-added services Mobile handset users have begun to realise that they can access a number of

value-added services from their handsets, other than just making phone calls. • Demand for accessing real-time information

As Internet usage on mobile has grown in the last few years, the demand for accessing real-time information has grown simultaneously. Mobile users are keen on being updated on the latest information in the market.

Barriers to Future Uptake • Limitations for providing universal standards

1 http://www.vnunet.com/vnunet/news/2149482/3g-growth-fuels-demand-mobile

Recently, regions such as Western Europe, the US and Japan have witnessed an increase in users of mobile portals.



Most of the mobile portals do not offer standard features due to the limitations of hardware and software applications for different handsets.

Mobile Full-track Music Downloads The mobile full-track music download market is expected to grow at a CAGR of 145.9 percent over the next three years (2006-2009). According to a report by Juniper Research, the mobile full-track download market revenue is expected to increase from USD 20 million in 2004 to approximately USD 1.8 billion in 2009. Further, the number of full-track music downloads is expected to reach 1 billion in 2008. Figure 2 shows the growth of the mobile full-track download market during 2004-2009.

Figure 2: Worldwide Mobile Music Full-track download market (In Millions, 2004-2009)

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Key Geographical Markets Asia Pacific is the largest market globally for full-track music download services. Japan and Korea account for a majority of the market share in the Asia-Pacific region. The UK accounts for the highest number of mobile downloads of full music tracks in Europe.

Growth Drivers • Moving up the ringtone value chain

While the mobile music market started with typical ringtone downloads, now MP3 playback is being built into mobile handsets, the market is shifting to full-track music downloads, creating more demand for mobile music services.

• Uptake of 3G data services Full-track music downloads have become one of the main attractions on the

mobile portals of 3G operators. With faster downloads, users can download songs of sizes up to 10 MB.

• Maturing of the mobile handset as an entertainment device Mobile handsets have become a medium for entertainment rather than just a

telephone. Enhanced mobile handsets with integrated music players have led to the growth of the full-track music download market.

Barriers to Future Uptake • Emergence of new technologies

With the development of music mobility devices, such as iPod, providing access to the Internet, the digital music download market is likely to remain a fiercely contested battleground for some years to come.

2 http://pdfserver.emediawire.com/pdfdownload/213753/pr.pdf

The mobile full-track music download market is expected to grow at a CAGR of 145.9 percent over the next three years (2006-2009).



Mobile Video Download/Upload Mobile video downloads is another application gaining momentum in the mobile content market. Five major content services seem to be leading the demand for mobile video downloads: • Sports clips • Music videos • Movie shorts • Adult content • User-generated content According to Analysys, “… mobile phone users are expected to spend more than USD 1.5 billion on mobile video downloads and streaming by 2007.”

Key Geographical Markets The US has been the fastest growing market for mobile video downloads. Europe, despite being the early adopter of mobile video downloads, has shown a slower growth rate in the last two years. However, operators like Hutchinson 3 UK have launched applications such as ‘SeeMeTV’ to create demand for user generated content. Subscribers can upload and share their personal images and videos through this platform, then download and view each others’ video clips.

Growth Drivers • Innovation of handsets to enable video services

Handset manufactures have actively participated in driving the growth of video content services. New handsets with integrated chips and video-enabled features have contributed towards this growth.

• Growth of premium content services Premium content services, such as music video download, sports clips and

adult content have gained popularity globally. Sports and adult content services are expected to drive the market for mobile video downloads especially in the male segment.

Barriers to Future Uptake • Meeting consumer demand

The increasing demand for mobile video content from subscribers will pressurise content providers to deliver a surplus of mobile video content and update their content portfolio regularly, whilst maintaining certain quality standards. They will also have to meet the demand from new operators for more content and new platforms for the delivery of services.

Ringback Tones Ringback tones are expected to account for nearly 20 percent of worldwide mobile music revenues by 2010. According to Juniper Research3, the ringback tones market worldwide is expected to reach USD 2.7 billion by 2010.

Key Geographical Markets Asia Pacific is the largest market for ringback tones with around 40 percent market share. The leading markets of Japan, Korea and China have accounted for more than 40 percent of revenues in the Asia Pacific region. Europe is the second largest market for ringback tones with more than 25 percent market share. For the US ringback tone market, IDC predicts that the number of subscribers for this service will reach 60 million by 2009.

Growth Drivers • Increase in consumer demand for new services

3 http://pdfserver.emediawire.com/pdfdownload/213753/pr.pdf

The demand for mobile video downloads is expected to increase due to the availability of advanced handsets and premium content services in the market.



Ringback tones gained popularity almost as soon as the service was launched. Operators including T-mobile (US) and Airtel (India) experienced a growth of 1 million subscribers in just five months after the service was launched. With more users subscribing to ringback tones, even regional and local operators have started exploring the market potential of this highly lucrative service.

• Collaboration with music media companies Operators are signing contracts with music companies to provide more original

content in their portfolio.

Barriers to Future Uptake • Maintaining portfolio

The operators need to update their portfolio of songs frequently, to maintain high service levels. Therefore, anticipating user needs and providing the right form of content is a challenge for many operators.

• Pricing strategies The operators need to introduce new pricing strategies in order to compete

with other providers. Operators in Japan have come up with aggressive flat pricing model to attract new customers.

Mobile Commerce Mobile-commerce (M-commerce) is the use of mobile devices, such as mobile handsets, to conduct e-business financial transactions. We have considered M-Commerce as the transactions made through mobile handsets for payments of utility bills, online bills, insurance premiums, credit transfers, cash deposits and withdrawals, etc.

Key Geographical Markets Mobile commerce has taken off in Asia Pacific but is yet to achieve significant success in the US and Europe. Japan was one of the first countries to adopt M-Commerce and is still leading in terms of the number of users of M-Commerce services.

Growth Drivers • Convenience of mobile payment services

The actual mobile payment mechanism itself has been one of the key drivers for M-Commerce, as many consumers and business users find it convenient to make their payments through their mobile device as it saves time.

Barriers to Future Uptake • Security concerns

M-Commerce has still not penetrated the middle-lower class segment, which comprises a large mass of users. Non-tech savvy users are not ready to share their financial information through their mobile handsets.

Mobile Games The Global revenues from mobile games are expected to cross USD 3 billion by the end of 2006. Further, according to Juniper Research, annual revenues from mobile games are expected to exceed USD 17.5 billion in 2011. Figure 3 shows the growth of annual revenues from mobile games during 2006-2011.

Asia Pacific remains the largest market for ringback tones, followed by Europe.

According to Juniper Research, annual revenues from mobile games are expected to exceed USD 17.5 billion in 2011.



Figure 3: Mobile Games Annual Revenues (In Billions, 2006-2011)

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Key Geographical Markets According to Juniper Research, Asia Pacific is the largest market, contributing 38 percent of the worldwide mobile gaming revenues. Europe is the second largest market for mobile game downloads, although its growth is expected to be slow as the mobile market in the continent has started reaching its saturation level in terms of mobile subscribers. North America is the third largest market for mobile games and is expected to grow at a faster rate as compared to other regions.

Growth Drivers

• Access to games anytime The ability to download and play games on mobiles anytime and anywhere

has been a key factor in adding to the level of consumer demand. • Superior technology

With the evolution of new gaming platforms, end-users have shown a keen interest in adopting high-end games. Furthermore, 3G platforms have also provided increased bandwidth for playing more engaging online games, leading to an increase in demand for mobile game downloads.

• Expanding existing portfolio With a steady increase in the number of mobile subscribers, operators have

started introducing more games in their portfolios to meet the demand in the market.

Barriers to Future Uptake

• Pricing The high prices charged for premium mobile game downloads has been a

constraint for a large number of users. • Niche interest

Paid-for, advanced gaming remains a youth-market niche that lacks mainstream appeal to the wider market.

Mobile Video Calling NTT DoCoMo was the first operator to launch mobile video calling services on the i-mode platform. Japan has the largest number of users for mobile video calling services. In Europe, mobile video calling is still in a nascent stage as the service can be provided on 3G platforms only.

4 http://www.juniperresearch.com/pdfs/whitepaper_mobilegames.pdf



In the US, mobile video calling services have still not been launched by 3G operators.

Growth Drivers

• Increased bandwidth offered by 3G network operators 3G operators have been constantly trying to increase their bandwidth to

provide their users with reliable mobile video calling services.

Barriers to Future Uptake • Quality of user experience

The problem of network congestion has been a barrier for video calling services. The operators have not been able to provide video calling services throughout their network coverage area and at consistent high-quality levels.

• Handset compatibility and penetration Only selected mobile handsets are suitably equipped for video calling, and it

takes time (several years) for these handsets to penetrate the market to a suitable level. This has led to low usage levels of mobile video calling services.

Mobile video calling services are still at a nascent stage in most of the major geographical regions.



Messaging Services

SMS SMS has been the most successful non-voice mobile application in all markets worldwide. Worldwide SMS traffic volumes are expected to grow from 761 billion in 2004 to 2,379 billion in 2010. Figure 4 shows the worldwide SMS traffic volumes during 2004-2010.

Figure 4: Worldwide SMS Traffic Volumes (In Billions, 2004-2010)

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Figure 5 highlights the worldwide revenue generated from SMS during 2004-2010.

Figure 5: Worldwide SMS Revenue (In USD Billions, 2004-2010)

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Key Geographical Markets Asia Pacific is the largest market for SMS, accounting for about 57 percent of all worldwide SMS traffic. The Philippines, Malaysia, China and India are the largest markets for SMS in the Asia Pacific market. The other key SMS markets include the UK, Germany, France and the US. Table 1 highlights the projected SMS traffic forecasts for various regions.



Table 1: Total Regional SMS Traffic (In Billions, 2004-2010)

REGION SMS (2004)

SMS (2005)

SMS (2006)

SMS (2007)

SMS (2008)

SMS (2009)

SMS (2010)

North America 52.6 77.3 114.6 150.2 193.7 227.8 249.3

Latin America 44.7 72.3 89.6 115.8 136.2 156.7 174.8

Asia Pacific 434.1 540.1 672.8 802.4 935.9 1072.1 1212.7

Europe 204.8 232.3 292.9 384.2 521.9 605.5 639.6 Rest of the world 24.4 29.2 38.9 52.5 72.2 86.6 102.8

Global 760.6 951.2 1208.8 1505.2 1859.8 2148.6 2379.3 Source: Portio Research Ltd.

Growth Drivers Following are some of the key growth drivers of SMS: • Lower price points: It is likely (and recommended) that with the availability of

higher capacity and bandwidth, mobile network operators will slash the price of SMS to drive usage.

• Mobile deployment: A bulk of the growth in SMS in 2006-10 is likely to come from low and growing mobile deployment markets, such as China, India and Latin America. SMS has been quite popular in these low per capita income countries, as a cheap alternative to voice calls. Mobile deployment, in turn, would depend on handset vendors slashing prices and operators subsidizing handsets.

• Enterprise messaging: A2P and P2A messaging are likely to witness high growth, as SMS will form an essential element of many mobile services, such as mobile marketing, location-based services, mobile banking, news and a host of other services.

• Innovative solutions: Companies such as Telsis, a company aimed at providing innovative solutions for mobile networks, have developed products for higher revenue generation from messaging applications for mobile operators. The company has developed the Telsis Intelligent SMS Routing system based on a more refined SMS architecture for efficiently handling P2P messaging, SMS voting, etc. Operators are looking forward to such solutions for securing revenues from SMS which are expected to grow at a slower rate in comparison to SMS volumes.

Barriers to Future Uptake The following are some of the factors that are likely to hinder the growth of SMS in the future: • Growth of mobile instant messaging and mobile e-mail: New messaging

technologies, such as mobile e-mail and mobile instant messaging (IM), may reduce SMS growth rates in markets where 3G has been widely deployed. For example, in Japan, e-mail is already the dominant mobile messaging application, with the average user sending an estimated 10 e-mails per day.

• Growth of web-based messaging systems: With messaging applications being offered on mobile portals at a much lower price than by operator services, the growth rate of SMS might witness marginal decline. However, this is likely to happen only in markets where the level of 3G-uptake and technology awareness is considerably high.

• Cannibalising SMS volumes: SMS volumes run the risk of being cannibalised by new messaging applications, such as Mobile IM, that offer advantages such as low latency and presence functionality. SMS revenue are likely to be marginally offset by web based messaging systems that offer text messaging at much lower

Mobile deployment in India, China and the Americas will drive SMS growth.



price points and have a direct billing relationship with the consumer, bypassing the operator.

MMS Worldwide MMS traffic volumes are expected to grow from 7.3 billion in 2004 to 112.5 billion in 2010. Figure 6 shows the worldwide MMS traffic volumes during 2004-2010.

Figure 6: Worldwide MMS Traffic Volumes (In Billions, 2004-2010)

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Figure 7 depicts the projected worldwide growth in revenue from MMS during 2004-2010.

Figure 7: Worldwide MMS Revenue (In USD Billions, 2004-2010)

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Key Geographical Markets MMS was not as successful as hoped for in the initial launch period but has now started picking up in most geographies worldwide. The service has been most successful in Asia Pacific and Europe. Table 2 presents the estimated break-up of MMS traffic by region during 2004-2010.

Worldwide, MMS revenue will almost match SMS revenue by 2010.



Table 2: Total Regional MMS Traffic (In Billions, 2004-2010)

REGION MMS (2004)

MMS (2005)

MMS (2006)

MMS (2007)

MMS (2008)

MMS (2009)

MMS (2010)

North America 0.40 0.74 1.40 2.60 4.74 7.84 11.82

Latin America 0.36 0.74 1.36 2.30 4.08 5.63 6.84

Asia Pacific 4.29 6.45 9.20 12.61 16.90 21.89 24.94

Europe 2.01 4.72 10.37 20.36 38.02 55.69 67.70 Africa and Middle East

0.23 0.49 0.56 0.66 0.78 0.99 1.20

Global 7.29 13.15 22.90 38.54 64.53 92.05 112.52 Source: Portio Research Ltd.

Growth Drivers The key growth drivers for MMS are discussed below: • Value-added services: Value-added services make MMS an attractive medium

for consumers across all markets. MMS can be used for distribution of public content as well as the sharing of personal content. MMS content like entertainment (music, video, realtones, etc), information, games, and mobile commerce bring added value to both users as well as content providers. These features expand the functionality of mobile communications, both for private and corporate use.

• Effective marketing by individual operators: Operators spending on marketing and promoting MMS have created some excitement in certain market segments. There is a latent demand for MMS, but its profitability will depend on how individual operators formulate their marketing strategies to attract and retain high-value customers. The experience in the Japanese market suggests that the youth market will be the driving segment and, once critical mass is reached, users will themselves be the most powerful agents for promoting MMS services.

Barriers to Future Uptake

• Interoperability: The level of network interoperability of MMS has been quite low in all geographies, except in Japan and South Korea, until 2005, when things started slowly improving. Now many of these agreements are in place, things are slowly picking up. The usage of SMS took off substantially when networks operating in different parts of the world interconnected their SMS services. Similarly, interoperability between different operator networks in different countries, even using different network technologies such as GSM and CDMA, is the key to gaining user confidence and acceptance.

True interoperability between MMS-enabled handsets is also of key importance. Fine-tuning of transcoding parameters and the optimisation of the transfer of multimedia content between handsets is important for enhancing the user experience. In addition, Internet-to-MMS interoperability is needed, not only for users who don't have MMS-enabled handsets but also for those who wish to compose, send and store MMS messages on their PC by using a standard web interface.

• High pricing of MMS services and MMS-enabled handsets: The development

of the MMS market will be primarily determined by its penetration of the youth market (i.e., more price-sensitive customers). SMS gained popularity because price sensitive users substituted voice with SMS. A significant MMS price premium over SMS will hamper the up-take of MMS.

Customised content and effective marketing is the key to MMS growth.



In order to accelerate MMS adoption and market penetration, operators will have to subsidise both the services as well as MMS-enabled handsets. These issues may have been overcome (largely) in mature markets, but more can be done in growth markets to help boost the use of MMS.

• User usefulness and user experience: Another barrier to the growth of MMS is

the consumers’ perception of MMS as a utility; MMS is simply less useful then SMS, it takes longer, costs more and is more difficult to use, yet adds no additional level of utility to the message, making the service less compelling than SMS. Also, at the present state of MMS development, a sender can never be sure whether the other party will receive the multimedia message as sent, or whether the message will be displayed or played differently by the recipient - especially if that recipient is using a different cellular network or a different handset with a different display configuration. Users will adopt the new service when they realise that it is useful, valuable and simple to operate.

• Barriers to accessing multimedia content: The growth of MMS will be offset by

barriers to accessing multimedia content, such as the unavailability of affordable handsets and barriers to sharing of content (such as handset and network interoperability). The high price of the service will also be a major deterrent.

Network interoperability, availability of handsets and the high price of services have been the main barriers to MMS uptake in recent years.



Successful Strategies – Non-Messaging Mobile Data Services

Barring a few markets in Northern and Western Europe, Japan and South Korea continue to dominate the mobile data services market worldwide. This can be attributed to the strong infrastructure support due to the early introduction of 3G services in these countries, wide scale interoperability across MNOs and the consumer inclination towards mobile data services. Hence, the MNOs in Japan and South Korea have largely emerged as the clear winners for most of the non-voice mobile VAS covered in our report. Many of the non-voice mobile services in these geographies have already achieved significant growth and also show strong future growth prospects. These markets have become the test bed for new, innovative mobile applications and devices and the successful strategies adopted by the MNOs in these geographies have been replicated by MNOs in other parts of the world. The emerging 3G markets (mainly Western Europe and North America) are in a transition phase and 3G adoption in these geographies is increasing. Therefore, most of the new mobile services, such as video download, music track download and mobile video calling are still at a nascent stage in their growth trajectory and are yet to achieve a strong market position in these geographies. However, the services of some MNOs in these geographies, especially in the US and the UK, have started picking up and show a promising future ahead. We have selected the most successful MNOs for these new mobile services in these geographies, as well to understand their strategies and the external factors pertinent to these geographies, together which are responsible for driving success, and hence revenues, with these non-voice services.

Japan and South Korea are the leaders in the mobile data services market worldwide.



Mobile Portals

Selection Criteria

We started our research with the major mobile portals worldwide, such as NTT DoCoMo (i-mode), Vodafone UK (Vodafone Live!), O2 UK (O2 Active), T-Mobile (T-Zones), Verizon Wireless (V CAST), Orange (Orange World), KDDI (EZWeb), 3 (Mobile Web) and Cingular Wireless (MEdia Net). We ran a filtering process on the above-mentioned portals based on the following two parameters: • Number of subscribers – this denotes the number of mobile subscribers of the

MNO, who purchase content from the portal • News value – this comprises the number of search results generated through

general Internet research and is reflective of the extent of publicity created by a portal. We see direct correlation between the success of a portal and the news value generated by it. (‘Number of subscribers’ is a direct reflection of the success of a mobile portal, and hence, was allotted precedence over ‘news value’)

Based on these criteria, we identified the following five most successful mobile portal services: • i-mode (NTT DoCoMo) • O2 Active (O2 UK) • V CAST (Verizon Wireless) • Vodafone Live! (Vodafone UK) • KDDI (EZWeb) Perhaps unsurprisingly, i-mode emerged as the clear winner among the five short listed mobile portals and clearly i-mode has led the way in the mobile portal market for several years. The other four short listed MNOs are yet to achieve success of this magnitude and are presently in the growing phase. However, they have created substantial news value for themselves and made their presence felt in the market. Table 3 assigns relative ranks to the selected five mobile portals based on the identified selection criteria.

NTT DoCoMo’s i-mode is the clear winner among the five short listed mobile portals.



Table 3: Selection Criteria for Portals

SELECTION CRITERIA MNO-PORTAL NUMBER OF

SUBSCRIBERS NEWS VALUE RANK

NTT DoCoMo – i-mode

1

O2 UK – O2 Active

2

Verizon – V CAST

3

Vodafone UK – Vodafone Live!

4

KDDI – EZWeb

5

The following section will elaborate on the mobile portal strategies adopted by the top four selected MNOs.



NTT DoCoMo – i-mode NTT DoCoMo introduced mobile services in Japan in 1979. It is Japan’s largest operator, with a market share of about 56 percent in 2005 in terms of number of subscribers. It was the first operator to launch 3G services in Japan in October 2001. i-mode is the name of the mobile portal service offered by NTT DoCoMo. i-mode services were first launched in February 1999. An i-mode portal service enables the user to access the mobile Internet content using Packet Data Transmission Technology. i-mode provides access to about 97,000 Internet sites through its portal. As on March 2006, i-mode was offering 6,028 and 5,043 menu sites for its FOMA (3G technology) and mova (2G technology) subscribers, respectively. i-mode had 46.36 million subscribers in Japan as on 31 March 2006, resulting in a penetration of about 90 percent among its mobile subscribers. Figure 8 depicts the growth of i-mode subscribers from 1999 to March 2006.

Figure 8: Number of Subscribers to i-mode Services in Japan

0

46.4044.0041.137.8

32.2

21.7

5.6

0

10

20

30

40

50

60

1999 2000 2001 2002 2003 2004 2005 Mar-0605101520253035404550

Subscribers of i-mode

Total Subscriptions of NTT - DoCoMo

% of FOMA in the NTT - DoCoMo's Subscriptions

Source: http://www.nttdocomo.com

Table 4 illustrates i-mode related services with their launch dates.

Table 4: The History of Services Launched by i-mode in the Past

YEAR SERVICE LAUNCHED FEATURES

Dec. 1999 Colour Screen Handsets

i-mode compatible colour screen Handsets were marketed

Jan. 2001 i-appli Java Enabled Services Jul. 2001 i-area Location Based Services Nov. 2001 i-motion Video Content via Packet communication

Jun. 2002 i-shot Transfer of still images captured with an i-mode compatible handset

Jan. 2003 i-motion mail Captured Video content can be e-mailed through i-motion enabled handsets

Jul. 2004 Osaifu-Keitai Wallet Functions

Sep. 2005 i-channel The news and information is pushed the standalone handsets of the subscriber

Nov. 2005 ToruCa Store coups are retrieved on ‘Osaifu-Keitai’

i-mode has a penetration of about 90 percent among NTT DoCoMo’s subscribers.



enabled handset and are availed

Dec. 2005 iD Credit Services on a ‘Osaifu-Keitai’ enabled handset

Source: Company Website

Internal Strategies

• Full-control over the Value Chain: Some of i-mode’s success could be attributed to its tight control over the basic value chain components of content, quality and wireless technologies to evolve the user experience. NTT DoCoMo proactively realised that to differentiate its product and services from other MNOs, it needed to provide customised and innovative services to its end-customer. This particular fact compelled it to have a business model which gives it control over the value of the whole delivery process. NTT DoCoMo finally came out with a ‘Three Pronged’ business model to address its concerns and spell out success.

Figure 9 illustrates the three-pronged strategy followed by NTT DoCoMo.

Figure 9: The three-pronged strategy of NTT DoCoMo for i-mode


i-mode synchronises itself with Licensee Partners (MNOs) abroad, handset vendors and content providers to evolve the ultimate user experience.

Alliances with Content Providers: The core strength of every business model lies in its product. i-mode could be referred to as one of the most successful products among the NTT DoCoMo offerings. i-mode has partnered with the following content providers in Japan – CNN,

Hudson, Nihon, Keizai Shimbun, XING, Bloomberg, Citibank, Disney, etc. NTT DoCoMo has an internal team of content providers which work closely with the external content providers to generate content that matches with the users’ expectations. Out of the 97,000 Internet sites that i-mode provides through its portal, 60 percent8 of them offer entertainment, 20 percent are informational and the remaining are transactional and database applications.

The key reason for the success of i-mode is the tight hold NTT DoCoMo have over the mobile content value chain.

Handset Vendors

Content Provides

Licensee Partners

NTT DoCoMo

Co-marketing Co-marketing

Scale Benefits

Customised Assured Quality

Revenue Channel

Content / Handset Integration

Inter-Operability Inter-Operability



i-mode has adopted an ‘Open Garden’ approach when it comes to the content. Through i-mode the user can access a limited number of ‘official sites’ and an unlimited number of ‘unofficial sites’. Official websites are those, which are registered with i-mode and billing is routed through i-mode. NTT DoCoMo supervises the content and functioning of such official websites. Unofficial websites are not billed through the operator. However, billing for such unofficial websites can be routed through i-mode as soon as that particular website has been registered with i-mode.

NTT DoCoMo sensed the future demand for search services on i-mode. To cater to this possible demand, it has also partnered with 10 search engine portals for providing i-menu search site services.

These structured working relationships have proven to be mutually beneficial for i-mode and the content providers. Through this arrangement, i-mode takes care of all billing activities through its reliable and systematic billing system on behalf of the content providers, where as the content providers can concentrate on providing innovative, good quality, reliable services to the subscribers.

Alliances with Handset Vendors: i-mode has strategic partnerships with key mobile handset vendors such as Panasonic, NEC, Samsung, Motorola, Nokia and SonyEricsson. These partnerships have helped NTT DoCoMo to closely integrate with the handset vendors to provide customised handsets for its i-mode subscribers. It has further helped NTT DoCoMo to specify i-mode features in detail, thus distinguishing its i-mode services from other MNOs. NTT DoCoMo was able to provide customised handsets to its mobile subscribers at a subsidised rate, which has helped to increase the uptake of i-mode services in Japan. The attractiveness and user friendliness of handsets is also contributing to the success of the uptake of i-mode subscriptions. Strategically, these partnerships also help NTT DoCoMo to retain control of the brand, an important weapon in churn control and customer retention.

Alliances with Licensee Operators: Maintaining an alliance with the Licensee Operators is a key part of i-mode’s distribution strategy. These license partners are based in countries other than Japan, and this move is clearly identified with NTT DoCoMo’s International expansion strategy. i-mode has provided licenses to global MNOs with whom it can partner with and provide its services in regions other than Japan. The trend started with the launch of i-mode services by E-Plus of Germany in 2002. i-mode started catering to the European market with its customised solutions and region-specific content. While i-mode has not been as successful in Europe as in Japan, due to such Licensee Agreements i-mode had added over 6 million subscribers abroad by the end of March 2006. Today i-mode provides roaming services in over 81 countries due to its associates and licensee agreements. This arrangement has also proven to be beneficial for partners as it works on a revenue-sharing basis.

Table 5 lists the licensing agreements of NTT DoCoMo with other MNOs around the world.

Table 5: The History of Licensee Agreements with MNOs

YEAR COUNTRY LICENSEE Mar. 2002 Germany E-Plus Mobil funk GmbH & Co. KG5 Apr. 2002 Netherlands KPN Mobile The Netherlands B.V5. Jun. 2002 Taiwan Far EasTone Telecommunications Co. Oct. 2002 Belgium BASE N.V / S.A5. Nov. 2002 France Bouygues Telcom S.A.

5 Sublicensed from KPN Mobile

NTT DoCoMo has established a strong partnership network with all the players in the mobile content value chain.

i-mode has provided licenses to MNOs worldwide, in around 14 countries in total.



Jun. 2003 Spain Telefonica Moviles Espana S.A. Nov. 2003 Italy Wind Telecomunicazioni S.p.A Jun. 2004 Greece COSMOTE Mobile Telecommunications S.A Nov. 2004 Australia Telstra Co., Ltd. Sep. 2005 Israel Cellcom Israel Limited Sep. 2005 Russia Mobile TeleSystems OJSC Oct. 2005 UK and Ireland O2 plc Nov. 2005 Singapore StarHub


Other Alliances: Along with the content providers NTT DoCoMo also partnered with selected Internet Service Providers (ISPs), software vendors and other companies across the world, these alliances have ultimately helped i-mode develop world class content related services. For instance, i-mode structured a relationship with American Online6 Inc., in

2001 to provide e-mail services to its customers. i-mode has started a dedicated website known as www.imodez.com for

facilitating its subscribers to understand the recent developments in application developments on i-mode and software vendors working on such applications.

• Unique Revenue Model: A major part of i-mode’s success can be attributed to

its flat pricing structure and the luring revenue-sharing model in place with content providers. The uptake of i-mode services initially was fuelled by the simplicity and low cost of text-based services. Subsequently, with the introduction of 3G services with FOMA, enabled i-mode to reduce its tariffs per packet. In recent times i-mode, with the support of network technologies, has introduced flat-rate pricing plans which ultimately have lead to increased uptake for its services. Flat Pricing Structure: Users can afford to keep i-mode on all the time

because they are charged for the amount of data they download, not per minute. They pay a flat fee of about USD 2.5 (300 Yen) a month, plus USD 0.0025 (0.3 Yen) per 128-bit packet, or about USD 0.34 (4 Yen) for sending a 500-letter e-mail or USD 0.171 (20 Yen) for downloading a weather report.

Generous Revenue-Sharing with Content Providers: NTT DoCoMo has gained the confidence of the content providers by offering them attractive revenue-sharing schemes, which in turn has translated to a significantly large number of offerings of i-mode content services. NTT DoCoMo allows the content providers to charge i-mode users up to USD 2.50 (300 Yen) per month. DoCoMo collects this charge on behalf of content providers as a monthly bill and takes a 9 percent commission while transferring the rest of the generated revenue to the content providers.

Pricing of Handsets: i-mode has adopted a price skimming strategy in the sale of handsets in Japan. Due to the high costs of handsets, customers from the business segment were the early adopters of such handsets since they were the first prepared to pay for the Internet services offered by i-mode.

• Technology Differentiator: Technology is typically a part of the product. In the

case of i-mode, technology takes a front seat in creating the unique experience for the user, combining quality, variety and usability. Open-architecture Model: i-mode is based on an open-architecture model

which allows users to develop their own content. This has helped the operator to provide user-friendly services to i-mode subscribers, and thus drive greater usage of the service. Furthermore, i-mode includes a wide variety of appealing

6 Source: http://findarticles.com/p/articles/mi_m0IGP/is_6_4/ai_76813757

i-mode has a luring revenue sharing model with content providers, which has helped it to deliver a wide assortment of good quality content to subscribers.



features available on the Internet, such as banking, booking tickets and shopping, etc.

Packet-Switch Network providing an ‘always-on’ Connection: i-mode is based on a packet-switch network which allows for faster access to Internet services by eliminating the ‘dial-up’ and ‘log-on’ process. This means that users can be charged based on the amount of downloaded content rather than on the time spent browsing the portal.

Choosing simplified form of HTML called cHTML: i-mode is based on a simplified version of HTML which has helped NTT DoCoMo to concentrate on developing new content services rather than to concentrate on the technology adoption of the content. This has helped NTT DoCoMo to generate the broad portfolio of content services – entertainment, transaction, information and database-oriented content – which is so appealing to a wider audience of consumers.

Use of New Software Features: The technology has always enhanced the user experience by making the services more user-friendly and attractive by including new software features like flash player, etc. With the inclusion of customer side flash player known as ‘Flash Lite’, i-mode offers more than 60 percent of the official i-mode sites and 20 percent of the unofficial sites which are ‘Flash Lite’ enabled.

• Marketing Initiatives: i-mode’s success could also be attributed to the unique

marketing initiatives undertaken by NTT DoCoMo in Japan. i-mode believes that it is the content (deliverable product) which ultimately

matters to the end-consumer, not the enabling technology. This strategy is refreshingly simple in the mobile industry, and makes for an extremely effective way of communicating the utility and ease-of-use of i-mode services. This campaigning strategy proved to be a better way of promoting services rather than attempting to explain the technological aspects of the product.

Broad market segmentation: i-mode, rather than addressing a particular segment of the market, preferred to address multiple different segments of the market with appropriately customised solutions. The handset models are also custom-designed to suit the specific needs of the market segments. For instance, i-mode has recently introduced handsets that are capable of catching digital terrestrial television broadcast signals.

External Factors Influencing Success

The success of i-mode in Japan could be attributed to the following drivers in the external environment: • Tech-savvy Japanese Population:

More than 90 percent of the young adults in Japan in the age group of 20-29 own at least one mobile handset

Higher tendency of people to own gadgets • Low Internet Penetration: The high cost of dial-up Internet access has led to

lower PC Internet penetration that you might expect in Japan. For instance, in 1999, when i-mode was launched, only 23 percent of the Japanese population had access to the Internet by computer.

• Consumer Attitudes Driving Mobile Data Demand: The attitude7 of the youth sector in Japan is such that many prefer to have a

network of a couple of hundred ‘virtual’ friends rather than enjoy the physical company of just one single friend.

The Japanese population is more willing to use a mobile handset for daily chores. For instance, more than 30 percent of the Japanese population uses i-mode services more than 10 times a day for activities, such as sending e-mail

7 Source: http://www.accenture.com/Global/Services

i-mode has followed a unique marketing strategy, according to which it markets the utility and ease-of-use of i-mode services rather than its technology aspects.



services, booking e-tickets and online banking. It is due to this frequency of usage that Japanese ARPU from i-mode services is double that of the average European ARPU.

i-mode outside Japan

i-mode has signed 14 licensing agreements with international MNOs for providing i-mode services. For instance, O2 UK has been the most successful international i-mode deployment, outside Japan. O2 has attracted about a quarter of million subscribers for its i-mode services within six-seven months from the launch of its services in September 2005. However, the international success of i-mode has been limited, as is clearly highlighted by its 6 million subscriber base outside Japan in comparison with over 46 million subscribers in its domestic market. Some of the factors responsible for its limited success may include:

Product-related reasons

• Inability to Provide the Holistic Product: Some of the Licensee partners failed to provide variety of handsets that are designed and customised for i-mode services.

• Technology: Some of the licensee partners failed either in terms of providing technology which can completely support i-mode services or tried to club WAP and i-mode services together. This has also created confusion in user’s perceptions.

Marketing-related reasons

• Confusions emanating from the co-branding strategies of i-mode with the existing portal services by the Licensee

• The inability to explain the utility and ease-of-use of i-mode services • The inability to create a distinction for i-mode services against traditional services • The inability to market the right content to the right segment of the market

Pricing-related reasons The pricing strategy which has worked so well for the Japanese market has virtually failed in Europe.

Limitations for i-mode’s expansion outside Japan

• Handsets: i-mode may face8 problems with the rollout of i-mode services in countries

where WAP technology is predominant. The availability of GPRS handsets which can support both WAP and i-mode technology is low. Most existing subscribers would prefer to access both WAP and i-mode services on the same handset.

Handset vendors in western countries are increasingly concerned about adding too many new value-added features to the handsets.8 Handset vendors such as Nokia, SonyEricsson and Motorola are introducing Wireless Application Service Provider (WASP) and portals, mobile security and wireless instant messaging features. Similar trends are not catching up with the handset vendors who supply NTT DoCoMo in Japan.

However, NTT DoCoMo along with its licensing partners is consciously working towards developing an optimum strategy for driving i-mode in non-Japanese markets. While i-mode services have witnessed some success in the UK market, i-mode is still to witness widespread acceptance across other geographies. The case also highlights the fact that successful strategies can not be replicated globally without taking into account the regional variations in consumer preferences.

8 Source: http://www.wirelessdevnet.com/newswire-less/thefeature02.html

i-mode has been a limited success outside Japan primarily due to the pricing, product and marketing-related reasons.



O2 UK – O2 Active O2, the former mobile telephony arm of BT became an independent entity when the de-merger took place on 19 November 2001. On 7 March 2006, O2 became a fully owned subsidiary of Telefonica S.A. O2 currently operates in the UK, Ireland, Germany, Czech Republic and Isle of Man. As on June 2006, O2 UK had a total customer base of 16.8 million9. O2 Active is O2’s mobile portal service which was launched in June 2003. The portal is an icon-driven menu that allows its customers to access and navigate through a range of mobile data and multimedia services. As of December 2005, O2 Active had a customer base of around 8.5 million10 across the group, accounting for around11 31 percent of the mobile subscribers12 of the O2 group. The O2 Active portal offers a variety of services to mobile customers. These include: • Sending and receiving e-mails with BT Yahoo and O2 E-mail • MMS, Moblog, Media chat, Media alerts and creating WAP sites • Games, puzzles and quizzes • Video clips, streaming video, full track music video downloads • Sports columns, racing and betting, score alerts • Lifestyle from titles such as GQ, FHM and Glamour • Movie clips, celebrity interviews, cartoons, astrology, TV & soaps information • Weather, videos and news updates • Music news, top charts, music sites, music tones, live performances • Information about business, shops, health, maps, lottery and reservations O2 Active was launched in the UK primarily to drive the level of uptake of a variety of data services, such as ringtones, games, music downloads, Web surfing on the mobile handsets and so on, in light of declining growth in voice revenues. The adoption of strategies, such as simplicity of usage, wide availability of compatible handsets and installing an icon-driven menu directly onto the user’s handsets, rather than enabling the service to be browser driven, have led to significant uptake of this service among O2’s existing customers. Offering personalised content and a high level of interactivity and flexibility of usage on multiple handsets has led to O2 Active’s success in the UK market.

Internal Strategies

• Open-Garden Approach: O2 Active provides access to an unlimited number of websites, both official and unofficial, through its O2 Active portal. Official sites are websites whose links are provided under 10 broad content categories on the O2 Active menu. Users can gain access to the standard categories of content through these links. Apart from these official sites, users can also gain access to other websites (unofficial sites) through the search function, which are not directed from O2 Active’s menu. However, O2 Active disclaims itself, naturally, from the content downloaded from such unofficial websites.

9 Source: www.o2.com 10 Source: www.o2.com 11 Source: www.o2.com 12 Mobile subscribers excluding the number of Tesco Mobile subscribers

As of December 2005, O2 Active had a customer base of around 8.5 million across the group.



Facilitating wider reach by ensuring access to various websites allows O2 customers to access a plethora of content available from multiple content providers.

• Handset Driven Portal Technology: O2 has always made an effort to provide a

high quality user experience and ensure the best possible simplicity of use. These principles were applied in designing the O2 Active service. In contrast to some of its competitors, O2 believes in providing services which are compatible with its existing handset models. O2 Active services are optimised and custom tailored according to the handset model, rather than having a handset that needs to be customised according to the standard browser.

The advantage of subscribing to O2 Active services is that any one of the supporting handsets can allow the user to access the optimised version of the O2 Active portal. O2 Active is currently accessible on more than 100 mobile handsets.

Moreover, installing an icon-driven menu directly onto the user’s handsets, rather than enabling the service to be browser driven further simplifies access to the O2 Active portal from these handsets.

• Pricing Strategy: O2 Active’s pricing is based on volume13. It gives users the

flexibility to choose a bundling package through which a certain volume of content can be browsed or downloaded. Unlike a fixed subscription-based service, O2 Active allows user to pay only on the basis of usage of the services. Through this bundling package, a certain amount of data would be offered to the user, and that user then has the flexibility to consume the allowed amount of data either for browsing or for downloading content, depending upon their preferences. Content, such as games, ringtones, truetones, videos and wallpapers could be downloaded where as services like chatting, news, scores and railway timetable, etc., are considered under browsing14.

Once the allowed data limit is exhausted, the user is charged on a per kilobyte basis, over and above the allowed limit. Typically, for that extra usage of data, a user would be charged at the rate of USD 11.55 per MB (EUR 9.08). Generally speaking, most users find this pricing approach to be more transparent due to the flexibility.

• Innovative Content Services: As part of its strategy to attract new customers,

O2 Active has adopted unique applications to differentiate itself from others. Some innovative services offered through its O2 Active portal are: MapWay Services: It is an innovative service through which a user can mark

locations of their interest on their mobile map. Users can identify the route and know the distance to a particular location. The application has been included in the menu of the portal and has become quite popular.

Election15 Site: O2 recently launched an election site prior to the local elections in the UK. The objective behind launching this service was to educate the voters, share opinions and to increase the voter turnout.

13 Source: www.o2online.ie 14 Source: www.o2.co.uk 15Source: www.o2.co.uk

Offering personalised content and a high level of interactivity, combined with flexibility in handsets choice has led to O2 Active’s success in the UK market.



• Creating Brand Identity: The company is trying to build a unique brand image for its O2 Active portal by giving it a ‘Sporty’ and ‘Entertainer’ look, and positioning it as a portal which focusses more on providing entertainment and information services. This has helped in increasing the uptake of O2 Active’s services in the vital market-leading youth sector. In order to further build on this image, O2 has partnered with several companies who have strong brand recognition in the youth sector, to reinforce this image in the mind of its customers.

The company has entered into partnerships to provide exclusive access to

videos of Arsenal's Premiership and Champions League games in the UK. O2 provides its customers with RFU, Premiership Rugby and the Sir Clive

Woodward rugby content, which customers can access via the O2 Active portal on their mobiles.

O2 has entered into a partnership with Anschutz Entertainment Group (AEG), one of the world's leading providers of live entertainment, to help transform the former Millennium Dome into the UK's most technically advanced music, sport and entertainment destination, due to open in 2007. In turn, this partnership is helping O2 in providing music and events from Auschutz Entertainment Group to its customers.


• UK’s Propensity to Adopt Mobile Data Services: According to a recent study16, 3G users in the UK spend USD 81.6 (GBP 43) per month, on average, on voice and data services. This shows the tendency of consumers in the UK to adopt to innovative mobile data services, which helps operators to launch a wide range of innovative services.

• Availability of Handsets: Various handset vendors, such as LG, Motorola,

Nokia, O2, Samsung, and SonyEricsson have partnered with MNOs in the UK to provide handsets which are compatible with O2 Active, thus making it convenient for consumers to access the portal.

16 Source: http://www.telephia.com/documents/3GFINAL12.12.05.pdf

The external factors which led to the high uptake of O2 Active are the easy availability of compatible handsets, and the propensity of mobile subscribers in the UK to adopt data services.



Vodafone UK – Vodafone Live! Vodafone Group provides mobile voice and data telecommunication services to its customers across Europe and other territories. In January 1985, Vodafone made the UK's first ever mobile call. Since then the company has come a long way. At present, it has significant presence in Europe, the Middle East and Africa, and further interests in Asia and the US. Vodafone is one of the leading companies in the UK, with a customer base of 16.3 million as at end-September 2006. Vodafone Live! is the multimedia portal service offered by Vodafone. Vodafone Live! services were originally developed under the brand name ‘J-Sky’ by Japan’s J-Phone. Later on, when Vodafone acquired J-Phone in 2001, J-Sky services were renamed to Vodafone Live!. In October 2002, Vodafone Live! services were re-launched under GPRS technology. In November 2004, Vodafone Live! 3G service was also launched. Today, Vodafone Live! services are offered on both 2G and 3G technologies. Vodafone Live! services are offered to over 31 million active customers in 22 countries17. The customer base is growing at the rate of 1 million customers per month in Europe. At end-September 2006 the number of Vodafone Live! customers reached 30.69 million worldwide, with 4.47 million of them in the UK18. The list of services which are offered on Vodafone Live! include the following: • Mobile TV • Full Track Music Downloads and Video Clips • News, Sports and Weather information • Local Maps and Directory • Video Calling • Picture Messaging • Mobile E-mail • MMS • Voice Calls • Text Messaging • Ringtones and Ringback tones • Games Vodafone Live! was launched in 8 countries in October 2002. In its first six months the service attracted 1 million customers worldwide18. Up to October 2003, Vodafone Live! reached 710,000 customers in the UK itself. Vodafone Live! enabled customers for the first time to access a range of services such as picture messaging, game and polyphonic ringtones downloads, etc., through an icon based, coloured–menu driven portal. Vodafone Live! had the first mover advantage in the UK which resulted in instant popularity of the service. In 2003, other operators, such as O2 also launched their portal along similar lines. In 2003, operators in the UK launched video streaming and video downloads on their GPRS networks. Also, Hutchison 3 rolled out its video services on its 3G network in the same year. Therefore, to compete with 3’s services Vodafone re-designed and launched its Vodafone Live! with added 3G services, in 2004. Since then, the company has taken various steps to compete with the other MNOs in the UK.

17 Source: www.coremedia.com 18 Source: www.vodafone.com

Vodafone Live! had a customer base of 4.47 million as at end-September 2006 in the UK.



Internal Strategies

• Strategies for 3G Services: At the launch of 3G services in the UK, Vodafone believed that the future of its 3G service was dependent on providing value-added services to its customers leveraging the capabilities of the advanced network, rather than solely on enhanced communication services such as video calling, video mail, etc. Therefore the company focussed on providing data services in the form of online content, such as music, videos, news, etc., to enrich the service to its customers.

The strategies which were deployed by the company to make a mark at the time of the new launch of Vodafone Live! with 3G are as follows. Vodafone Live! with 3G was launched in November 2004. It was timed to

attract consumers during the pre-Christmas season, by providing faster access to music, video and e-mail downloads, compared to GPRS. The shopping season helped the company to promote and sell new handsets which were compatible with the 3G service.

The company launched a range of ten new 3G handsets offering a good,

broad choice to the customers. These handsets were subsidised as aggressively as its 2G handset range existing at that time. This was to urge its 2G subscribers to upgrade to the 3G network.

The company added new content on its Vodafone Live! portal for 3G

customers. Vodafone made contracts to provide an extensive range of music to its customers. It introduced new ‘made for mobile’ drama series and also launched movie clips for the mobile platform. The company also added UEFA Champions League and Barclays Premiership football video clips and also exclusive Manchester United and Ferrari mobile video content to its portal. The new and exclusive content was added to create differentiation from other portals.

• Strategies for 2.5G Services: When Vodafone rolled out Vodafone Live! for 3G

handsets, it did not neglect its customers who were using its existing GPRS service. The company ensured that Vodafone Live! was available for both 2G and 3G handsets. Instead of pushing customers towards buying new handsets for its data services, Vodafone continued to provide a variety of content on its WAP based portal for 2G handsets, unlike other companies. This made it possible for the customers to use Vodafone Live! on their present 2G handsets instead of upgrading to new handsets, thus retaining and adding to its existing customer base.

• Pricing Strategy: Vodafone Live! adopted an event-based pricing model, in

which the customers are charged only on the basis of content downloaded from the portal. Browsing on Vodafone Live! is free of charge for its customers. As each download or event is billed, so customers can keep track of their spending easily by checking the details on their monthly bill. Such a transparent pricing and billing system allows user to derive value for their money. It also encourages higher usage of content services and builds confidence in customers for services offered by Vodafone.


• Popularity of Vodafone Live! on the 2G network: The WAP based portal was already being used by many customers with GPRS enabled handsets. The success of Vodafone Live! on GPRS helped with the initial uptake of services provided on 3G.

Vodafone has adopted different strategies for Vodafone Live! on 2G and Vodafone Live! on 3G networks.



• Demand of Mobile Data Services: MNOs in the UK have among the highest

ARPU in the world, which is due to high demand for mobile data services. This helps UK MNOs to introduce new services, such as video downloads, etc.



Verizon Wireless – V CAST Verizon Wireless is a US-based mobile telephony company, which was formed through a joint venture between Verizon Communications and Vodafone. Verizon Wireless is the second largest mobile operator in the US, with around 54.8 million subscribers as of June 2006.19 The other three major national MNOs in the US are Cingular Wireless, T-Mobile USA and Sprint-Nextel. Verizon Wireless network is based on CDMA technology. Verizon Wireless has the following credentials20: • It was the first operator to launch 3G services based on CDMA 2000 1X EV-DO

technology in October 2003. • It launched the most comprehensive mobile music service in the US. • It has the highest customer loyalty in the industry with an enviable churn rate of

just 1.1 percent. Figure 10 indicates the growth of Verizon wireless data customers and data ARPU during 2005-2006.

Figure 10: Growth Trends: Verizon Wireless data customers

19.121.6

23.826.1

28.9

17.8

3.11 3.47 4.23 4.85 5.586.406.3 7

8.49.8

11.512.9

0

5

10

15

20

25

30

2005 Q1 2005 Q2 2005 Q3 2005 Q4 2006 Q1 2006 Q2-1

1

3

5

7

9

11

13

Number of Data Customers (millions) Data ARPU (in USD)

Data % of Service Revenue

Source: Verizon Wireless; CDMA Development Group

V CAST is a 3G multimedia service offered by Verizon. Since it encompasses all the aspects of a mobile portal – offering mobile entertainment services and information services on a single platform – we have included it in the mobile portals category. The V CAST service was launched in February 2005 on a 3G CDMA 2001X EV-DO network. It offers music, gaming and streaming video services with average download speeds between 400-700 Kbps and 2 Mbps. V CAST forms a substantial part of Verizon Wireless’ broader ‘Get It Now’ VAS platform. VCAST offers the following services: • V CAST performance (live music performance) • Online music store • Video clip downloads • 3D games

19 Source: http://news.vzw.com/investor/pdf/Cellco10Q8.7.06.pdf 20 Source: http://aboutus.vzw.com/ataglance.html

V CAST, a 3G multimedia service, forms a substantial part of Verizon Wireless’ broader ‘Get It Now’ VAS platform.



• Online store for buying handsets, etc. • In December 2006, announced as this report was being completed, V CAST will

start offering video downloads from YouTube and Revver, both popular online user-generated content video download sites

V CAST services were available to nearly 140 million users in 171 cities and 68 primary airports in the US as of December 2005.21 Between April and June 2006, customers downloaded nearly 55 million games, news items, ring tones, ringback tones, etc.

Internal Strategies

• Differentiating Services: V CAST Music: Verizon music service, launched in January 2006,

distinguishes its service from its competitors by offering the compatibility of V CAST music with various digital players/software. This strategy is built around the fact that North America and Europe together accounted for 13.9 percent of the global online music services in 2004 and the market share of these geographies is expected to increase to 30 percent by 2010, amounting to USD 8.2 billion22. Verizon offers stiff competition to its major competitor Apple in the US. V CAST Music has also taken the advantage of the failure of the proposed partnership between Apple’s i-tune and Motorola to launch handsets that are exclusively i-tune enabled. Compatibility with Wide Digital Systems: The V CAST music service

allows users to download music both to their PCs and to their handsets. Windows XP software along with the Windows Media Player on the users’ PC allows them to view the online music store and download music tracks of their choice. Users have been given an option to pay USD 0.99 for downloading a music track to their PC, which can be transferred to their Verizon handset through a USB connection. They also have an option to download an entire music album to their PCs powered by Windows XP software.

V CAST Videos: Verizon is focussing on providing short video clips (less than five minutes) by offering only the most interesting part of a TV show or an event, etc. The strategy is aimed at subscribers who can only afford to spend a few minutes watching such a clip, such as while standing in a queue, etc. However, the operator plans to offer longer video clips and TV shows in the near future and has partnered with Qualcomm Inc.'s MediaFLO subsidiary for network support.23

V CAST 3D Games: V CAST provides a unique experience to its gaming users, with high-quality colour 3D graphics. The quality of these games is comparable to that of the Sony Playstation.

• Pricing Structure: V CAST offered free services in the first month of

subscription, and then offers the service at a flat price of USD 15. Additionally, the company has also heavily subsidised 3G handsets to remove the pricing barrier which hinders V CAST adoption. Free Service Usage in First Month of Subscription: V CAST offered free

services to its customers in the first month of subscription. This helped the users to experience the service and get accustomed to it without fear of over-spending.

21 Source: http://www.hispanicbusiness.com/news/newsbyid.asp?id=26876 22 Source: http://www.macnn.com/articles/06/01/31/v.cast.vs..itunes/ 23 Source: http://www.multichannel.com/article/CA6321230.html

V CAST offers a multitude of 3G data services on a single platform.



Flat-rate Pricing Model: V CAST has adopted a flat-rate24 pricing strategy. However, it offers both subscription and event-based pricing in place. Typically, V CAST services come at a flat-rate subscription fee of USD 15 per month, which includes Web browsing and some multimedia applications. However, the following transactions are chargeable over and above the subscription fee:25 Music videos cost USD 4 each Video clips cost USD 1 per clip NBA highlights cost around 50 cents per video

• Exclusive Content Offerings: V CAST offers a variety of exclusive content by

partnering with various broadcasting companies and record labels. The content providers for V CAST include NBC Mobile, ESPN, Fox Sports, Fox Entertainment Group, Walt Disney Internet Group, CNNtoGO, MarketWatch, MTV Networks, CinemaElectric, Gameloft, Airborne Entertainment, Superscape Group and Jamdat Mobile.26 For instance, through V CAST videos, the user can choose and download video clips from the following categories: News: CNN and NBC market watch Entertainment: V CAST Showcase, Just for laughs Sports: Fox Sports, ESPN Weather: AccuWeather.com Breaking news and Forecasts

• Service Targeted at most Age Groups: Verizon focusses on providing a broad

range of content that offers something that should appeal to most age groups. To achieve this, Verizon has partnered with familiar and well known brands, such as CNN, etc., to target the business class and older age groups. For the younger audience, Verizon has partnered with media and audio companies.

24 Source: http://www.shosteck.com/news/feb05.htm 25 Source: http://reviews.cnet.com/Verizon_V_Cast/4505-9242_7-31299289-2.html 26 Source: http://finance.yahoo.com/q/pr?s=VZ

V CAST services are targeted for a broader spectrum of subscribers enabling widespread adoption of the service in the US.



Best Practice Recommendations • Ensure a portal offers both depth and breadth of mobile content:

Depth of content: MNO’s can ensure a quality range of compelling content from third-party content providers by pursuing liberal revenue-sharing agreements, and by seeking content partnerships with innovators, trend-setters and market leaders among the content community.

Breadth of content: A wide assortment of content can be guaranteed by partnering with a large number of content providers. This will not only add variety to the content offerings, spreading appeal to the widest possible number of demographic groups, but will also reduce an MNO’s dependence on a few select providers.

• Ensure strong branding – Portal providers must build strong brand recognition

and partner with best-of-breed branded content partners to maintain the right image of quality and credibility. In Europe in particular, operators face stiff competition from handset vendors for brand loyalty. In many cases, subscribers may be loyal to a certain handset vendor, but they seem less concerned by who provides their connectivity. MNOs must look to a well branded portal as a way of reducing churn and building customer loyalty.

• Differentiate with unique content – A portal should try to offer some unique

applications or content downloads that are not on offer from other mobile portals. This would help in differentiating its services from mobile portals of other MNOs as well as create a strong brand image in the market.

• Ensure optimal localisation – While localising a mobile portal service is good in

the short run, it can create problems when an MNO decides to export the model overseas. It is important to achieve the correct mix of localised content on a globally acceptable technology platform. This also helps ensure smooth roaming and brand consistency.

• Maintaining that consistency in any viewing environment - A good portal should

strive to deliver a consistent consumer experience either online, offline, on a mobile handset or using a wireline connection and a desktop PC. While there will obviously be differences between a big-screen and a small-screen experience, browsing the Internet using a mobile handset should not be any more difficult than browsing the Internet using a PC.

• Transparent pricing – a solid and simple pricing plan seems an essential key to

success for any portal. Users need to know what they are spending and how it adds up. Flat rate bundles are a good way to go, or sensible per-item billing for downloads and services are fine. Access to the portal must be free and users must not find unexpected so-called ‘hidden charges’ on their monthly bill, as this is guaranteed to put consumers off. A good transparent tariff structure builds confidence and re-enforces usage habits, which will be of long term benefit to the VAS industry.

• Offer a smooth and simple user experience – Content navigation and discovery

must be intuitive and simple. An easy-to-use portal should include search, personalisation and CRM to help subscribers find what they want quickly and easily. A good navigation system should offer a combined solution of personalisation and recommendation so that the right type of content is delivered to the right user at the right time. This should be further coupled with a simple m-

Mobile portals should offer a wide variety of content, maintain a transparent pricing model, keep the navigation process easy and focus on the brand.



commerce system and a simple micro-payments solution, as complex credit card billing for micro-payments can be onerous and off-putting.

• Handset choice and price: A broad range of handsets will capture the maximum

amount of consumer interest. MNOs should structure partnerships with handset vendors that include co-branding handsets specifically designed for use with a portal. Not only does this extend the brand recognition of the portal, but this also helps encourage end-users to use the portal services, through simple one-click access. Heavily subsidized handsets seem to have been a key success factor for all the leading portal services.

• Market positioning:

Minimise jargon: Selling technology for its own sake, an oft-repeated mobile industry headache, puts end users off, so sell the benefits, not the technology.

Position a portal service within the broader service offerings, ensuring congruency and brand consistency with the entire service portfolio, not conflict and confusion. If multiple portal services are offered, ensure transparent and highly visible differentiation.

Technology compatibility: Ensure that applications support various open standards across mobile, Internet, handsets and communications devices, such as MP3 players, etc. All players in the mobile content value chain (MNOs, handset vendors, content providers) should encourage the use of open standards and develop interoperability across multiple platforms and mobile devices.

Summary – open up your portal, offer plenty of fresh content, maintain transparent pricing, keep navigation simple and focus on the brand!



Mobile Full-track Music Downloads

Selection Criteria

For this report we studied the major mobile music download services available worldwide. The major MNOs which have established a mark in the mobile music download market include, KDDI Japan, SK Telecom South Korea, Sprint Nextel US, 3 UK, O2 UK, Orange UK, Vodafone UK, Verizon Wireless US and SFR Telecom France. We ran a filtering process on the above-mentioned mobile music download services of each of those MNOs based on the following two parameters: • Number of music track downloads – this denotes the number of full-length mobile

music tracks downloaded by the subscribers of the MNO • News value – this comprises the number of search results generated through

general Internet research and is reflective of the extent of publicity created by music download service of the MNO. We see direct correlation between the success of a mobile music service and the news value generated by it. (‘Number of music track downloads’ is a direct reflection of the success of a mobile music service, and hence, was allotted precedence over ‘news value’)

Apart from the ‘news value’, we have also referred to certain awards bestowed upon the respective MNOs for their music download service by various associations, indicating a certain level of peer-reviewed respect. Based on these criteria, we identified the following five MNOs as those offering the most successful music download services: • KDDI (EZ Chaku-Uta Full) • SK Telecom (MelOn) • Sprint-Nextel • 3 UK • O2 UK KDDI and SK Telecom in Japan and South Korea, respectively, emerged as the outright leaders in the mobile music download market worldwide. Their music services have already achieved a huge level of success in the market and the strategies adopted by these operators have been broadly followed by other MNOs worldwide. Sprint-Nextel and 3 UK in the US and the UK, respectively, are the other three MNOs which have achieved a good level of success for their mobile music download service. Table 6 assigns relative ranks to the selected five most successful mobile music download services based on the identified selection criteria.

KDDI and SK Telecom in Japan and South Korea, respectively, emerged as the outright leaders in the mobile music download market worldwide.



Table 6: Selection Criteria for Mobile Music Downloads

SELECTION CRITERIA MNO – MUSIC DOWNLOAD NUMBER OF

DOWNLOADS NEWS VALUE RANK

KDDI - EZ Chaku-Uta Full

1

SK Telecom – MelOn

2

3 UK – Music Download

3

Sprint-Nextel –Music Download

4

02 UK –Music Download

5

The following section will elaborate on the mobile music download strategies adopted by the top four of these selected MNOs.



KDDI – EZ Chaku-uta Full KDDI is the second largest mobile operator and the second largest fixed line operator in Japan. The other two MNOs in Japan are NTT DoCoMo and SoftBank Mobile (earlier Vodafone K.K.). KDDI operates two mobile services – au and TU-KA. KDDI had 22.69 million au subscribers and 2.74 million TU-KA subscribers as of 31st March 2006.27 With more than 90 percent of the subscriber base on a 3G network, the company is a leader in mobile music services and other data services in Japan and indeed worldwide. KDDI pioneered in mobile music services with the launch of Japan’s first full-track mobile music download service, EZ Chaku-uta Full in November 2004. Currently, subscribers to the service have the option of downloading over 150,000 songs available on 80 websites. The service has enjoyed huge success in the Japanese market. In fact, KDDI’s EZ Chaku-uta Full service is, by far, one the most successful full-track music download service worldwide, with over 50 million songs downloaded by its subscribers as of May 2006. The key milestones of the service have been listed below:28 • 19 November 2004 – Start of EZ Chaku-uta Full service • 5 January 2005 – Downloads exceed 1 million • 5 February 2005 – Downloads exceed 2 million • 1 March 2005 – Downloads exceed 3 million • 17 March 2005 – Downloads exceed 4 million • 3 April 2005 – Downloads exceed 5 million • 15 June 2005 – Downloads exceed 10 million • 28 September 2005 – Downloads exceed 20 million • 28 December 2005 – Downloads exceed 30 million • 20 May 2006 – Downloads exceed 50 million The key reason for the success of EZ Chaku-uta Full is the first-mover advantage of KDDI in launching Japan’s first full-track music download service. The network infrastructure support (radio networks with 2.4 Mbps or higher data transmission speed), which is required for full-track music downloads, was only available with KDDI at the time of launch, making it the ONLY operator providing full-track music download services in Japan in 2004. The launch of HSDPA networks by NTT DoCoMo and trial launch by SoftBank Mobile (earlier Vodafone K.K.) has enabled these operators to launch their music download services in 2006 and 2005, respectively. The following section discusses in detail the strategies adopted by KDDI to create demand for its EZ Chaku-uta Full service.

Internal Strategies

• First-mover Advantage: KDDI has consistently used mobile music services to gain competitive edge. In November 2004, KDDI became the first operator in Japan to introduce a complete music track download service, while NTT DoCoMo and Vodafone Japan launched such services in 2006 and 2005, respectively. KDDI’s EZ Chaku-uta Full service became so successful that there were more than one million downloads in less than two months of the launch of the service. The launch of KDDI’s EZ Chaku-uta Full service was essential for moving up the

27 Source: http://www.kddi.com/english/corporate/ir/library/fact_book/2006/pdf/factbook_2006.pdf 28 Source: http://www.kddi.com/english/corporate/news_release/2006/0524/index.html

KDDI’s EZ Chaku-uta Full service is, by far, the most successful full-track music download service worldwide, with over 50 million song downloads.

The key reason for the success of EZ Chaku-uta Full is the first-mover advantage of KDDI in launching Japan’s first full-track music download service.



mobile music value chain as the market for ringtones had reached the saturation point.

• Flat Pricing Strategy: KDDI follows a flat pricing structure in which the users pay for an unlimited number of downloads for a fixed price and there are no browsing charges. Hence, the users have the option of downloading all their favourite songs without any hassles or concerns about browsing charges. Furthermore, the company introduced the ‘Double Flat Rate’ fixed-rate packet data service to entice its flat-rate customers to access the offer.

• Technology Differentiator: KDDI has consistently worked upgrades on its network to support faster data transmission and download speeds. Initially, the operator took advantage of this superior network infrastructure in terms of transmission capability and the usage of a different format for their music download service. KDDI utilised a different format for full-track music downloads known as

MPEG-4 aacPlus (also known as HE AAC), provided by Silicon Valley-based Coding Technologies. This format allows for the downloading of high quality music at low bitrates and thus, helped its subscribers to download high quality music songs at a faster rate and save time and money for browsing the network.29

KDDI utilises a radio network with 2.4 Mbps data transmission speed, which allows faster downloads of music tracks on to the end-users handset. The operator is planning to upgrade its CDMA 2000 EV-DO network to CDMA 2000 EV-DO Revision A in December 2006, which will further enhance the connection speed and transmission capacity and help it to continue to differentiate and separate its music download service from its competitors, by offering the fastest service in the Japanese market.30

• Constant Innovations in Music Track Offerings: KDDI is constantly taking

initiatives to increase the music track offerings and improve the overall experience of the users for its service by introducing newer handsets, technologies and services. Increased Content Offerings: KDDI has gradually expanded its music

content offerings. At the time of the launch of the service, subscribers could choose from a selection of about 10,000 songs to download from eight websites covering a wide range of content catering to different musical tastes, whereas currently there are about 80 websites now, offering over 150,000 songs for download that are compatible with EZ Chaku-uta Full.

Increased Selection of Compatible Handsets: KDDI has increased the number of handsets that support EZ Chaku-uta Full from four in November 2004 (launch period) to nine presently. This increase in the range of compatible handsets was achieved by increasing the number of partnerships with handsets vendors. The nine compatible handsets are manufactured by Toshiba, Hitachi, Sanyo, Casio, Kyocera, and SonyEricsson. The total number of compatible handsets in the market in circulation increased from 3.9 million in September 2005 to 8.46 million in June 2006. The growth of compatible handsets is in line with the steady growth of EZ Chaku-uta Full downloads.31 Moreover, the company recently introduced the ‘MUSIC-HDD’ handset with a built-in 4 GB hard disc capable of storing over 2000 songs or 18 hours of 15 frame/second QVGA movie video. The memory capacity of the ‘MUSIC-HDD’ handset compares with the memory of all but the top model iPod Nano and thus provides stiff competition to its competitor Apple.32

29 Source: http://brew.qualcomm.com/ 30 Source: http://www.kddi.com/english/corporate/news_release/2006/0822/index.html 31 Source: http://www.kddi.com/english/corporate/ir/presentation/pdf/060721_mobile_au.pdf 32 Source: http://www.intellectuk.org/download.asp?file=585

KDDI has consistently evolved its music offerings to improve the overall experience of the users as well as upgraded its network to allow faster transmission speeds.



‘Song Search’ featured handsets: KDDI launched "Song Search" featured handsets in 2005, which enabled easy tracking of music content for EZ Chaku-uta Full.33

Enabling compatibility between Handsets and PCs: KDDI launched au LISTEN MOBILE SERVICE (LISMO) in late January 2006. The major features of this service include: The service enabled compatibility between handset and PC, ensuring that

music could be file shared between the two, using music management software on the PC.

KDDI introduced a PC music distribution site ‘LISMO Music Store’ in May 2006. The site allows the users to search and download their favorite song through a PC, music management software called ‘au Music Port’. These songs could then be transferred to their handsets.

KDDI has a dedicated server installed in its network – ‘Lifelog Pod’, which tracks the daily activities of subscribers, including the download of music tracks, video clips, use of LBS, etc. Using GPS technology, the server can be accessed by other subscribers to find out the latest tracks being downloaded by their friends within a radius of a few miles, an activity that reinforces the sense of community which is very strong in Japan.


The phenomenal success of full-length song downloads in Japan could be attributed to the following drivers in the external environment: • Tendency of Japanese to Directly Access the Internet on Mobiles: In sharp

contrast to the US and Europe, mobile Internet is extremely popular in Japan. In fact, many users are more comfortable downloading songs to their mobile handset from their MNOs network, rather than downloading them using a PC and then transferring those songs from their PC to their handsets.34

• Strong Demand for Mobile Music among the Youth Sector: As in most other markets, mobile music is most popular with the youth sector in Japan. For instance, in June 2006, the 10 to 30 age bracket accounted for a whopping 37 percent of KDDI’s entire subscriber base, but accounted for 60 percent of the Chaku-uta Full subscriber base.35 Secondly, youth use EZ Chaku-uta Full service to check new songs available in the market before buying music albums on CD.

Future Outlook

With Chaku-uta Full service now being available from all three leading operators in Japan, KDDI has started differentiating its EZ Chaku-uta Full service from its competitors. KDDI has bundled its EZ Chaku-uta Full service with a new LISMO service, as described above, which enables compatibility of the downloadable tracks between a PC and a mobile handset. KDDI has been aggressively promoting its new service through TV commercials, print media, etc. Secondly, to remain ahead in technology support for the service, KDDI will be launching an upgraded version of the CDMA EV-DO network in December 2006 to offer even higher data transmission speeds and capacities than their competitors. KDDI has been promoting churn into their ‘au’ service in order to increase data ARPU on their 3G services. The initiatives should gradually result in higher uptake of 3G data services including EZ Chaku-uta Full. With more than 90 percent of the subscriber base of KDDI already on a 3G network, the future for their 3G data services, especially EZ Chaku-uta Full, seems promising.

33 Source: http://www.kddi.com/english/corporate/news_release/2005/0523/index.html 34 Source: http://www.researchandmarkets.com/reportinfo.asp?report_id=297486&t=e&cat_id= 35 Source: http://www.kddi.com/english/corporate/ir/presentation/pdf/050725_aubusiness.pdf

Music is extremely popular among the Japanese population, especially in the youth market.



SK Telecom – MelOn Music South Korea’s mobile market is one of the most advanced markets in the world, with the highest 3G penetration anywhere on the planet. Of the 3 MNOs operating in South Korea, SK Telecom is the largest operator in terms of mobile subscribers, with a market share of more than 50 percent. SK Telecom had 20.12 million subscribers as at end October 2006. The operator is credited with the launch of the world’s first commercial 3G CDMA 2000 1x EV-DO and 3.5G HSDPA services in 2002 and 2006, respectively. This strong network infrastructure has enabled the operator to launch a broad range of innovative value-added services. The MelOn service was introduced by SK Telecom in the country on 15th November 2004. MelOn is the world’s first wired and wireless integrated music portal, which provides an array of musical services ranging from simple ringtones to full-length music track downloads. MelOn claims to have the largest collection of legal music in Korea. The key feature of the MelOn service is the compatibility of the music files available on the MelOn portal with a PC, MP3 player or mobile handset. The subscribers have the option of choosing a monthly flat rate billing system to gain access to an unlimited amount of digital music available on the portal with no additional charges for downloading or streaming the music. The monthly subscription fee for subscribing to unlimited music downloading and streaming is only USD 5. The various milestones reached by the MelOn service are as follows: • The subscriber base grew to over 2 million in June 2005 with about 470,000

subscribers choosing the monthly flat rate billing system • The subscriber base grew to 4.2 million at the end of December 2005 with over

600,000 subscribers choosing the monthly flat rate billing system • Revenue generated by MelOn in 2005 amounted to USD 45 million The major strategy adopted by SK Telecom that has helped in distinguishing its service from other operators and gain competitive advantage in the market is the convergence model, which ensures the compatibility of music files on the MelOn portal between a PC, MP3 player and mobile handset. Further, the flat-fee monthly subscription pricing model adopted by SK Telecom became a trend in the mobile music industry, after the other MNOs realized the potential of the model. The following section discusses in detail the strategies adopted by SK Telecom to reach the milestones illustrated above.

Internal Strategies

• Convergence Model Driven by Customer Need: MelOn is an ‘ubiquitous music service’, which has the following advantages: The MelOn service is based on a convergence model which allows users to

access the portal online from a PC or mobile device, and to download music tracks which can be played on an MP3 player, a PC or a mobile handset, each in their respective formats.

The MelOn service can be accessed from anywhere in the world through the Internet, either from a PC or using a mobile handset.

To achieve this convergence model, SK Telecom has established partnerships with domestic MP3 player manufacturers and mobile handset vendors worldwide. For instance: SK Telecom signed a business cooperation agreement with the following

major manufacturers of domestic MP3 players, such as 'Cowon' (November, 2004), ‘yepp’ (July 2005) and 'Reigncom' (November 2005). These initiatives

MelOn is the world’s first wired and wireless integrated music portal.

SK Telecom adopted a convergence model, which ensures the compatibility of music files on the MelOn portal between a PC, MP3 player and mobile handset.



have made MelOn compatible with 80 percent of MP3 players in the domestic marketplace.36

SK Telecom signed a memorandum of understanding (MOU) with Intel Korea in June 2005, which has made the MelOn service compatible with Intel's range of digital home connected products, such as TV, stereo, notebook, mobile telephone and portable media player.37

• Innovative Pricing Strategy: SK Telecom was the first operator in Korea to

launch a music service offering a monthly flat-fee-based subscription model, which was followed suit by other operators in the country. This model allowed unlimited streaming and downloading of music tracks, etc. The pricing structure became so successful that Virgin Digital, Napster and Yahoo adopted the flat rate system after realizing the potential of the system.38 Additionally, end users also have the option of a rental plan in which the subscribers are charged on a per download basis. The combined strategy of monthly flat-fee-based subscription model and per download plan has resulted in SK Telecom achieving revenues of USD 5 million per month from the MelOn service.39

• Positioning Itself in the Music Value Chain: SK Telecom is positioning itself as

a media company and not just a platform for selling media content to its subscribers. This has helped SK Telecom to have a greater control over the supply and the pricing structure of mobile music content. SK Telecom took the following initiatives to acquire the rights from the media and record companies to use music content for their ringtones, ringback tones and full track music downloads: The company formed a Joint Venture (JV) with Warner Music Korea in May

2006 to create one of the first technology-content hybrid company. This deal is the largest investment of SK Telecom in a music content and distribution company.40

The company bought a 43.33 percent stake in Korea's largest record company, YBM Seoul in May 2005 for USD 12.6 million.41 This acquisition has helped SK Telecom to increase its range of music content on the MelOn portal.

The company bought a 21.7 percent stake in entertainment company IHQ for USD 15.41 million (KRW 14.4 billion).42

• Personalisation and Customisation of a Wide Variety of Content: SK

Telecom constantly invests in the MelOn service in order to increase the range of musical content available, and to develop new technologies and services that help to deliver an appealing, user-friendly interface which is easy to navigate and use. Furthermore, MelOn provides a large amount of musical content to meet the demographic diversity among its subscribers and has even introduced various customised and personalised music services for its subscribers. Depth and breadth of content:

SK Telecom claims MelOn is the largest legal music source in Korea, with approximately 850,000 music files available on the MelOn portal.

SK Telecom has agreements with major record companies, such as Universal, Sony BMG, EMI and Warner, as well as other independent

36 Source: http://www.sktelecom.com/english/ir/ir_activities/ir_news/1197371_3092.html 37 Source: http://www.sktelecom.com/english/ir/ir_activities/ir_news/1197680_4355.html 38 Source: http://www.sktelecom.com/eng/cyberpr/press/1196923_3738.html 39 Source: http://www.intellectuk.org/download.asp?file=585 40 Source: http://www.boston.com/news/ 41 Source: http://www.digitalmusicnews.com/results?title=LG 42 Source: http://english.chosun.com/w21data/html/news/200505/200505270019.html

SK Telecom became the first operator in Korea to offer music services on a monthly flat-fee-based subscription model.



record companies. This helps to provide both international and local music content for its subscriber base.

Exclusive Offerings: MelOn also offers a ‘Showcase’ service which allows some privileged

customers to get access to content even before it is released officially by the record companies.

Customised Offerings: MelOn offers a variety of customised services, such as ‘Theme Zone’

(focusses on hot issues in music industry) and ‘MelOn Juice’ (music magazine).43

'MelOn Agent Service', a part of SK Telecom’s '1mm Expert Agent Services': This service helps subscribers to get access to the right music content for them, based on the historic usage pattern of the subscriber, considerably reducing the search time and effort.43

Additionally, the company has promoted the digital musical market by protecting the copyrights of record labels using Digital Right Management (DRM) technology. (The technology prevents the illegal distribution of musical content and blocks the usage of downloaded musical tracks once the subscription expires). Apart from the above strategies adopted by SK Telecom, the following factors are also believed to have been instrumental in the success of the MelOn service: • Strong Infrastructure Support: SK Telecom was the world’s first operator to

launch 3G CDMA2000 1x EV-DO services. The network infrastructure provides sufficient bandwidth to enable the fast downloading of music tracks from the network to the mobile handsets. SK Telecom also uses the advanced WiderMusic technology platform (from WiderThan) that supports a broad variety of music content and music services.

• Strong Brand Identity of SK Telecom: SK Telecom has a strong brand position

in the Korean market and is known for its advanced technological and innovative offerings. This brand strength has helped SK Telecom to gain the confidence of its customers and influence their service purchasing decision positively. MelOn has taken several marketing initiatives in the country which have helped it to distinguish its musical service offerings from its competitors and establish a brand position in the market for musical content. The major promotional activities undertaken by SK Telecom in the recent past include43: ‘MelOn Partnership Program': This program was initiated with the aim of

strengthening the partnerships with the music copyright holders as well as to promote the use of digital music across the country. Through this program, the company selects talented new singers each month and provides financial assistance to these singers for the production of their first album through another program known as the 'New Singer Album Production Support' program.

'Digital Show Case Support' Program: This program aims to support the music promotional activities of the record companies through the MelOn service, prior to the official launch of new records in the wider marketplace.


The success of MelOn in Korea could be attributed to the following drivers in the external environment:44

43 Source : http://www.sktelecom.com/eng/cyberpr/press/1196923_3735.html 44 Source: http://www.moconews.net/?p=2444

Personalisation and customisation of content has made the MelOn service a huge success in Korea.



• Strong Affinity for Built-in Music Player Mobile Handsets: According to industry analysts, more than 80 percent of the handsets sold in Korea are integrated with built-in MP3 players.

• Consumer Attitudes Driving Mobile Data Demand: Koreans have a strong

affinity for mobile data services, which is evident from the share of mobile data services in the total service revenues of all the MNOs in the country. SK Telecom, for example, sees a whopping 40 percent of total service revenues from mobile data services and Internet access.

Future Outlook

The future of the MelOn service seems to be bright considering the strong affinity Koreans show towards mobile music and the initiatives taken by SK Telecom to promote the use of digital music in the country. SK Telecom launched the world’s first commercial 3.5G HSDPA (High Speed Downlink Packet Access) service in May 200645, which should enable ultra-speed data transfer and boost the supply and array of musical content. The operator has set the following targets for MelOn for 2006:46 • Total subscriber base: 8 million • Subscribers using the monthly flat rate billing system: 900,000 • Annual revenue: USD 70 million

45 Source: http://www.3g.co.uk/PR/May2006/3092.htm 46 Source: SK Telecom presentation “New 3G Services”, 24 May 2006

SK Telecom has high expectations from its music portal in the future and has set a target of 8 million subscribers by end of 2006.



Hutchison 3 UK – Music Download Service 3 UK is an industry leading mobile media company. It is a part of the Hutchison Whampoa international group of companies, which includes substantial fixed and mobile telecom interests worldwide, including 9 3G networks, 8 of them under the “3” brand. The company had a customer base of 3.75 million47 3G customers in the UK as at August 2006, which was more than the combined 3G customer base of all the other UK MNOs together48. The ARPU of 3’s customers, measured as total spending on Communications, Media and Entertainment and Information services is USD 65.51 (GBP 34.51) per month49. The company is bullish on the music download market in the UK. It launched its audio music download service in 2005, after a successful launch of its music video download service in July 2004. 3 reached the millionth audio track download mark in just four months after the launch of the service50. Since the beginning of 2006, 3 has registered average sales of over 200,000 audio tracks per month50. 3’s audio and video download sales reached one million a month, accounting for 76 percent of total mobile music downloads in the UK, 17 percent of the digital download market, and 4 percent of the total single sales in the UK, in April 200651. This clearly shows the influence 3 has in the UK music sales market, having sold over 16 million audio and video tracks up until March 200650. 3 UK has adopted the following strategies to ensure that its music download service is a success in the UK market.

Internal Strategies

• Wide Range of Content: 3 UK has a huge database of over 500,000 tracks that it has made available to its customers51. The company has an impressive portfolio of partners providing full length audio track downloads. The company has focussed on providing a wide range of content for music downloads.

Steps taken by the company in this direction include:

Partnerships with Record Companies: 3 UK has alliances with three leading content providers, namely Sony BMG, EMI and Warner. These three companies along with Universal account for 90 percent of recorded music sales in the UK. The partnerships with these companies allows 3 to leverage full-track, over-the-air downloads from these labels. The company also has an agreement for audio tracks and videos from independent label artists through an online music video channel VidZone. These agreements create a wide range of options for 3’s customers.

High Level of Customisation: In order to meet and maximise on the demands of the broad and diverse range of cultures and tastes in the UK music market, 3 provides a wide range of local content to satisfy all tastes. For example, 3 provides Desi music, i.e., mixing classical Bollywood songs with contemporary British-Asian music, to its mobile music customers, and 3 also provides music from Ministry of Sound, a leading night club brand in the UK.

47 Source: http://www.hutchison-whampoa.com/europe/eng/media/press.htm 48 Source: www.three.co.uk/aboutus/newkind.omp 49Source: www.3gnewsroom.com 50 Source: www.three.co.uk 51 Source: www.three.co.uk

3 reached the millionth audio track download mark in just four months after the launch of the service.



• Dual Download: This is a provision available to 3’s customers whereby a user purchases a song online and it is made available to him in two forms, one for mobile and one in windows format for the PC.

• Pricing Strategy: Since 1st April 2006, the company has been selling full length

music tracks at a flat rate of USD 1.87 (GBP 0.99) per track. At this rate, the song can be downloaded to a mobile handset and also a PC or a music player for no extra cost. The company charges a bit more for video track downloads, i.e., USD 2.84 (GBP 1.5) per video. The company is also providing subscribers a monthly package of USD 9.5 (GBP 5), in which they can download video clips, music tracks, games, etc. and up to 5 audio tracks in a month. These pricing options make it possible for customers to choose the one which is most suitable for them, depending on their needs.

• Promotional Strategies: 3 is taking steps to promote mobile as a medium on

which the customers can access music, games, news, video clips etc. The company does not believe in promoting each offering separately. It promotes all its 3G services via television, online promotions, MMS, concerts, etc. The company is cross-selling all its service offerings to its existing customer base. 3 UK has used various tactics to promote its range of services, including audio music downloads. Some of its strategies which have helped the uptake of the music download service are: Premieres: The company has worked with various labels and artists to secure

a series of world premieres on 3 including James Blunt, Madonna and Robbie Williams, before they were broadcasted on TV, radio and even on the Internet.

Exclusive Rights: The company has exclusive rights to the single “Stop Me” by "Planet Funk". Music fans can download the song only from 3. The company mounted a marketing campaign to promote the single to its customers in the run-up for the release in May 2006. The track was also seeded as a free dialtune available to 3 customers, so anyone calling them will hear the track while they are waiting for the phone to be answered. This single became the world’s first to be released first on a mobile network.

Artists to Push Trends: 3 relied on popular, younger-leaning, urban artists to promote various trends involving 3's music downloads. This is to increase the youth uptake of music services and strengthen 3’s brand image within the all-important youth market.

MMS: The company has been sending MMS messages to customers about new songs and videos which they can download from its music store.


• 3G Infrastructure: In 2003, 3 was the first operator to launch 3G services in the UK. The company has a customer base of over 3.75 million 3G customers in the UK, which is more than that of the other UK mobile operators combined. 3’s network is capable of handling high speed downloads, such as video clips, games, full track videos, etc. These factors made it easy for 3 UK to launch its music download service on a network supporting a substantial 3G customer base.

• Availability of Handsets: Handsets compatible with 3G services, provided by companies such as Nokia, LG, Motorola, Sony Ericsson, etc., are easily available in the UK market. Various partnerships between mobile operators and handset providers make it easy for subscribers to buy handsets at affordable prices.

• Consumer Attitudes towards Mobile Data Services: UK mobile operators have among the highest ARPU in the world, which is partly due to high consumer interest in mobile data services. This helps UK operators to introduce and promote innovative services on existing advanced networks.

3 offer various pricing models for its music offerings, giving subscribers a large number of options to choose from, depending on their needs and usage.



Sprint Nextel – Sprint Music Store Sprint Nextel was formed by the merger of Sprint and Nextel in August 2005.52 It provides wireless and wireline communications services to its consumers in the US. Sprint Nextel had a total subscriber base of 51.9 million by end-September 2006. In the US, Sprint Nextel has deployed advanced 3G wireless networks for mobile voice and data services. Sprint’s full-track music download service, known as Sprint Music Store, was the first to be launched in the US in October 2005 on the company’s 3G 1X EV-DO network. The Music Store has a huge database of songs, over 320,000 and counting as at mid 2006. Sprint Nextel charges its customers USD 2.50 per song for downloading full length tracks from its Music Store, in addition to the monthly subscription charges of USD 15 to USD 25 for data access.53 In the first three months since the launch of the service, Sprint achieved the milestone of 1 million music downloads by its customers faster than it initially anticipated.54 In April 2006, Sprint Nextel reached another milestone of two million music downloads54, further reaching around 4.5 million in July 2006. However, these figures do not comprise all paid downloads as the company offers free downloads with various music download package plans. But they clearly indicate the growing level of consumer interest in the service. The strong 3G infrastructure support required for full-track music download service was only available with Verizon Wireless and Sprint Nextel in 2004. However, Sprint Nextel took the advantage by launching such a service first, ahead of Verizon. In February 2006, when Verizon launched its service in the US, Sprint had already amassed well over 1 million music downloads. The first-mover advantage has helped Sprint to maintain its strong position in the US music download market. The operator has adopted various strategies to maintain its leadership, in particular, allowing free downloads to users during the initial promotional period to help them become accustomed to using the service; and the recommendations feature that has been added to its Sprint Music Store. The various strategies adopted by Sprint are discussed in more detail below.

Internal Strategies

• First-mover Advantage: Sprint was the first mobile operator to launch a full track music download service in the US. It was introduced in October 2005, keeping in mind the approaching winter holiday shopping season in the country and the corresponding increase in consumer spending. This launch time also aided Sprint in capturing the most active period in the music industry calendar, all of which helped it to extract early revenues from the service.

• Large Catalogue of Music Tracks: Sprint Nextel has a music database of more

than 320,000 songs. Sprint has been able to provide a wide variety of music to its customers, which is due to its multiple partnerships with major recording companies, such as EMI Music, Sony BMG, Warner Music Group and Universal Music Group.55 The Sprint Music Store allows customers to preview and purchase from a wide selection of songs from virtually every generation, broadening the appeal of the service to the widest possible audience.

52 Source: www.sprint.com 53 Source: http://www.pcworld.com/printable/article/id,124477/printable.html 54 Source: www.wirelessweek.com 55 Source: http://www.boston.com/business/technology/articles

Sprint Nextel was the first operator in the US to launch a full-track music download service in October 2005.

The first-mover advantage has helped Sprint to maintain its strong position in the US music download market.



• Handset Strategy: Sprint Nextel focussed on ensuring the broadest possible level of handset

availability in the market before the launch of its service in the US. To achieve this, Sprint primarily formed alliances with Samsung and Sanyo and then co-promoted the launch of the service with the various compatible mobile handsets provided by those chosen vendors. The company heavily promoted the handsets by marking them as music devices. This led to a higher uptake of these handsets and the company was successful in making inroads in the US market with its music download service.

Optional Storage Capacity: Sanyo and Samsung handsets provided by Sprint come with small capacity memory cards. These cards have a capacity of roughly 12-32 songs, which is quite low compared to other portable music devices. The company kept this in mind and promoted 1 gigabyte optional cards, which boost the capacity of the handsets to store about 1,000 songs. This strategy made the handsets comparable to other MP3 devices in terms of adequate storage capacity.

• Download Options: The songs which are downloaded from Sprint’s Music Store

are not restricted to mobile handsets only. As with other MNOs, such as ‘3’ in the UK, profiled above, on download, customers receive two copies of the song, one for their phone and another in Windows format for their PC. Customers can also burn their music, to a CD using a Windows PC, or transfer the tracks to a portable MP3 device. This brings flexibility in the company’s music download service and the customer can listen to the music downloaded from the Music Store using various devices.

• Promotional strategies: Free Downloads in the Initial Stages: Sprint Nextel launched its music

download service with the promotional offer of ‘first five downloads for free’ to its customers. This service was provided from launch in October 2005 until 14 January 2006. This helped those first customers to quickly get a feel of the new service, and hopefully spread the word to their friends.

Recommendations Feature: Sprint is promoting its Music Store through

social networking in the US. The company has added a recommendation feature to its Sprint Music Store, which lists songs and artists subscribers may be interested in, based on their history of song purchase. Prompts are sent on the customer’s mobile, regarding the type of song their friends are downloading, so as to attract the customer to download the same song which their friends have downloaded.

Exclusive Tracks: Sprint also had some special promotions, such as offering

exclusive tracks of songs performed by The Rolling Stones during the Super Bowl XL Halftime Show. The company took advantage of the growing trend of promoting artists and tours for its music download service.

Download Schemes: Sprint Nextel does provide some incentives to its

customers for downloading music from the Music Store. For example, Sprint ran a promotional scheme during late 2006 (until 15 November 2006) that gives customers one free song download for every two songs they purchase. These tactics are deployed to attract more downloads, driving up traffic and awareness, while delivering better value-for-money to subscribers.

Sprint has adopted various promotional strategies for its service to remain ahead in the market.




• Speed and Ease of Download: Even though the cost of music downloads are more than those of online downloads, people still prefer mobile downloads for instant gratification. The ease of download through their mobiles is keeping the customers interested in this service. Moreover, its takes only 30 seconds to download a song over Sprint Nextel’s 3G network56, which is approximately the same as in the case of downloading through the Internet on a PC. These factors are keeping the mobile download service competitive with other download services.

Future Outlook

The future prospects of Sprint Nextel are looking good in terms of music downloads as the overall trend of mobile downloading is favouring the operators in the US. Various new strategies are in process to be deployed by Sprint. The company is taking steps to launch software for mobiles which can help its customers to know the details about the song while they are listening to the radio on their mobile. This will help them to instantly download the song which they like, and this could promote further sales of Sprint’s mobile music downloads. With the launch of full-track music downloads by Verizon in the US, Sprint has planned to launch a flat monthly pricing model in the future to sustain the growth of its mobile music service.57 The company has a target to reach 10 million music downloads by the end of 2006.

56 Source: http://arstechnica.com ; http://www.usatoday.com 57 Source: http://www.macnn.com/articles/06/03/28/subscription.music.plan/

The company has a target to reach 10 million music downloads by the end of 2006.



Best Practice Recommendations • First mover advantage. Though first-to-market is not always an advantage, in the

case of mobile music download services, in competitive markets being ‘first out the gate’ does seem to help secure precious market share. Combining first-to-market entry with strong youth-oriented brands and an intelligent marketing strategy does seem to lead to a solid market leading position which later entrants find hard to surmount.

• Provide a transparent pricing structure:

MNOs must ensure that customers are charged only for the tracks they download; there should not be any additional charges for browsing or sampling content. Also, all songs, whether new or old, popular or back-catalogue, should be charged at a flat rate. The price of any song available for download should be the same across the music store, in all categories.

Additionally, MNOs should provide an option to subscribers for a monthly all-you-can-eat subscription bundle, for the avid music fan to download an unlimited number of tracks in that month.

• All music downloaded by customers should be as ‘technology agnostic’ as

possible, not confined only to a specific mobile device or file format. A good music download service should provide songs in at least two forms – one for the mobile and another in a Windows-friendly format for PCs. For consumers, it’s all about choice, so give them the flexibility to use the music they have paid for however they wish to listen to it.

• MNOs should look to form alliances with major record companies such as Universal, Sony BMG, EMI and Warner and others, to leverage as wide a range of full-track, over-the-air downloads from these labels as possible. Not only will this ensure the strong branding that will be essential in developing end-user confidence, but this should also ensure breadth and depth in the content catalogue, catering to the most diverse demographic possible. Additionally, while partnerships with the major players will ensure that the big internationally popular artists are available, MNOs should look to include plenty of independent local content too, catering to the different cultures, languages and sub-sectors of local markets.

• Differentiation through innovation: MNOs should look at innovative marketing

campaigns that leverage the relationships they have with record labels. Marketing exclusive content, pre-releases promotions, network exclusive launch deals; such tools can all be used to create differentiation in tough competitive markets.

• MNOs should provide a decent range of suitably capable handsets. Partnerships

with handset vendors should be formed to launch handsets with proper sound and storage capacity. Good handset options can enhance the brand strength and differentiation an MNO can achieve for its music download service. The promotion of these handsets as music handsets will help increase their impact in the market place.

• Keep things simple and user-friendly: Subscribers should not find navigating

through the music database a cumbersome process. You should ensure that customers do not need to spend too much time in browsing through the content before they start finding things they like. An uncomplicated user-interface, an in-built search function and some level of personalisation, possibly achieved through a CRM database of purchasing preferences, will all help the MNO to reach this goal.

Being first-to-market, offering a broad variety of content by forming solid partnerships, and constant innovation in marketing are the key to the success of a good mobile music download service.



• Target marketing: Whilst we recommend a broad spread of content, to ensure

catering to all musical tastes, we also recommend that an MNO should segment their market properly and target music download services directly at the youth market. Teens and young adults will clearly form the majority subscriber group for such services and clearly the bulk of content should be aimed at this demographic.

Summary – Be first out-the-gate, build robust partnerships, offer plenty of high-quality choice and focus on innovation.



Mobile Video Downloads/Uploads

Selection Criteria

Mobile video download services are yet to achieve a significant mass market reach in the mobile data services industry, simply because they are still a comparatively new service. There are a large number of MNOs worldwide which are offering video download services and this market should show considerable growth in the coming two or three years. Some of the leading MNOs in this space include 3 UK, O2 UK, T-Mobile US, Verizon Wireless US, Orange UK and NTT DoCoMo Japan. We ran a filtering process on the above-mentioned mobile video download services of MNOs based on the following two parameters: • News value – this comprises the number of search results generated through

general Internet research and is reflective of the extent of publicity created by a mobile video download service. We see direct correlation between the success of a mobile video download service and the news value generated by it.

• Significant Achievement (Awards) – this is an indicator of the performance of the mobile video download service in the marketplace. The awards acknowledge the achievements made by the MNO in video download service, in terms of quality, innovativeness, usage, future potential and competitive position.

Based on these criteria, we identified the following three MNOs as those offering the most successful video download/upload services: • 3 UK (SeeMeTV) • O2 UK • NTT DoCoMo (i-motion) 3 UK’s SeeMeTV, a video download/upload service, has generated a lot of interest in the media owing to the innovativeness of the service. This service is a pioneer in terms of moving the mobile Internet forward into the next generation of Internet development, the so-called Web 2.0. SeeMeTV is among the first mobile data services anywhere which promotes user-generated content on mobile networks. 3 UK has achieved great success in the UK by capitalizing on this growing trend for user-generated content. The SeeMeTV service won the "Top App Awards"-- by FierceMobileContent in 2006 for being among the top ten most promising mobile applications for the future. The other MNOs we have covered here, namely O2 UK and NTT DoCoMo, Japan have also made their presence felt in this space, with a high level of uptake of their video download services in their respective markets. Table 7 assigns relative ranks to the selected three most successful mobile video download/upload services based on the identified selection criteria.

3 UK’s SeeMeTV, a video download/upload service, is among the first non-messaging mobile data services anywhere in the world which promotes user-generated content on mobile networks.



Table 7: Selection Criteria for Mobile Music Downloads

SELECTION CRITERIA MNO – VIDEO DOWNLOAD/UPLOAD NEWS VALUE SIGNIFICANT

ACHIEVEMENT RANK

O2 UK – Video Download

1

3 UK – SeeMeTV

2

NTT DoCoMo – i-motion

3

The following section will elaborate on the mobile video download/upload strategies adopted by these selected MNOs.



O2 UK – Video Download Service O2 is one of the largest operators in the fiercely competitive, close-fought UK market. mmO2 was formed after the de-merger of British Telecom from its former mobile business unit, BT Wireless in 2001. Currently, O2 UK is a part of the O2 group, which is a wholly-owned subsidiary of Telefonica S.A58. As at June 2006, O2 UK had a total customer base of 16.8 million59. O2 currently derives almost 30 percent of its revenues from mobile data services, an industry-leading figure among the very best in European operators. O2 launched its video download service in July 2003, with the launch of the O2 Active portal, which allowed customers to download or stream video content related to the 2003 Rugby World Cup. With the launch of 3G in 2005, O2 redesigned its O2 Active portal, and added a variety of new content for video downloads. O2 provides video clips, as well as full track music video downloads via its O2 Active portal. The company does not promote each service on its portal separately, rather videos for download are available within various sections on the portal such as sports, music etc.

Internal Strategies

• Wide Range of Content: O2 provides a wide range of video content for download on its portal, which combined with the operator’s large customer base and the popularity of O2 Active, has led to a high degree of success for this service. The company has an impressive portfolio of partners providing news, comedy, music, fashion and sports related content to attract the broadest possible audience. The range of video content offered by O2 comprises of: Music and events from Auschutz Entertainment Group (AEG) Previews, behind the scenes news and interviews from Warner Bros Online Lifestyles from titles such as GQ, FHM and Glamour Music videos from major recording artists and MTV News from ITN Formula 1 with BMW-Sauber, England Rugby and Arsenal Football With a wide range of content variety to choose from, customers get options to download content according to their individual liking.

• Exclusive content: O2’s store of exclusive content is known as the Blue Room.

The company has partnerships with content providers for exclusive rights to the content in the Blue Room. Exclusive Music Rights: The company is capitalising on the growing trend of

partnerships between mobile operators and recording artists. O2 premiered the OutKast music release “Morris Brown” one week before it was aired elsewhere. While this ensured that the new video was available to O2 customers, they were also offered the option to download different versions of the single, in addition to other exclusive OutKast content such as images and back catalogue video mixes.

Partnership for Exclusive Sport Content: O2 provides exclusive videos for

football fans in the UK. The company provides Arsenal fans in the UK with exclusive access to video downloads of Arsenal's Premiership and Champions

58Source: www.o2.co.uk 59 Source: www.o2.com

O2 currently derives almost 30 percent of its revenues from mobile data services, an industry-leading figure among the very best in European operators.



League fixtures. Customers can also download match highlights and classic video clips from the club's history.

The company also provides exclusive content for rugby fans. O2 has partnerships with the England rugby team and the Rugby Football Union (RFU), as well as additional partnerships with O2 rugbyclass and Premier Rugby Ltd for the Zurich Premiership.

• Full track music video downloads: The video download service offered through O2 has evolved in time to include a wide selection of full track music video downloads for its customers. This is to keep abreast of the growing demand of mobile music downloads across the market place. O2 ran a series of promotional activities to establish this service, from May to August 2006, where customers were allowed to download certain videos, from a selection of 100 sample videos, for free. Further, steps are continuously being taken by the company to add to its existing collection of full track music videos in order to effectively compete with other video download service providers in the UK.

• Handsets Compatibility: O2 offers a wide range of handsets that are compatible

with its video download service. More than 50 O2 handsets support O2’s mobile video service. This gives customers a wide variety of options to choose from and consumers do not have to worry about compatibility issues when it comes to handsets.

• Video uploads: Video uploads allow users to generate and upload video content,

which can also then be downloaded by other O2 customers. O2 has launched a video upload service to facilitate users to generate and share original and creative video content online. By doing so, O2 has tried to tap into this new, fast-growing market and generate revenue through tapping into the rising demand for user generated content. Strategies adopted by the company to promote this service are: O2 launched its video upload service in collaboration with Yospace (who also

provide solutions to 3 UK and other leaders in this field), which allows user generated content to be uploaded by subscribers.

The uploaded video clips can then be downloaded by other O2 subscribers at a low cost of just USD 0.66 (GBP 0.35).

As with other successful services in this field, the company gives incentives to its customers for uploading video clips, as they are paid a fee of USD 0.06 (GBP 0.03) per download if their clips are downloaded by other O2 customers.


• Pre-deployed advanced network infrastructure: All the major operators in the UK have deployed 3G networks that enable them to provide high-speed data services to their customers. These services include downloading video clips, games, full track music videos, etc., in the UK. High-speed networks enable faster access to data services, thus improving the quality of service. O2 is optimising the utilisation of its 3G networks to the fullest by launching many such innovative data services.

• Consumer Attitude towards Mobile Data Services: MNOs in the UK have

among the highest ARPU in the world after Japan, which is due to high consumer interest in mobile data services. This has enabled MNOs in the UK to introduce and promote innovative ideas to mobile consumers in the market. O2 continuously strives to gauge consumer interests and launches services with a strong focus on sports, music and games.

O2 has exclusive rights and partnerships with various content providers and handset vendors, which help it to offer a wide range of content and handsets for its subscribers.

There is a strong affinity for mobile data services in the UK, especially among the youth sector.



• Community based approach: O2 has launched services that exploit the community element prevalent in sports, music and games in the UK market. Strong cultural attachment to certain sports – such as football – and music and TV have created opportunities to provide content focused to the needs of these niche interest groups. People are ready to pay for exclusive interviews, clips and for some inside information regarding their favourite game, band, celebrity, etc. Such high levels of interest and demand for news and information helps operators to earn revenues by providing content related to these specific areas in the UK market.



Hutchison 3 UK – SeeMeTV Hutchison’s 3 UK is the largest 3G operator in the UK. 3 UK is a subsidiary of the Hutchison Whampoa Group, which has 3G operations in Australia, Austria, Denmark, Hong Kong, Ireland, Italy, Sweden and the UK. 3 UK was also the first operator to launch 3G services in the country in March 2003, while the other operators launched their 3G services in late 2004. 3 UK had 3.75 million customers as of August 2006.60 With the largest 3G subscriber base and a backbone of good network infrastructure, 3 UK has launched a number of communication, entertainment and information services in the country and is building a solid reputation and brand awareness. SeeMeTV, a video download/upload service, was launched by 3 UK in its home market on 18 October 2005.61 The service allows 3 subscribers to do the following: • Upload their personalised video content from their mobile handsets on to the

SeeMeTV channel • Download other user’s video clips over-the-air from the SeeMeTV channel The subscriber who created the video is paid a small fee every time his or her clip is downloaded by another user. The service is designed and operated by Yospace, a communication solution provider. SeeMeTV received more than 30,000 user-generated clips by March 2006. It has been one of the most successful user-generated mobile services to date. There have been over 12 million video clips downloads till end-September 2006 since its launch. 3 UK was a pioneer in this area and quickly became one of the first MNOs to replicate the success of user-generated content in the fixed-line Internet environment, by launching SeeMeTV as a mobile video blogging service. SeeMeTV is a completely customer-driven service. However, 3 UK has taken several initiatives to exploit the trend of user-generated content by adopting simple strategies of revenue-sharing, the simple navigation process and strict quality control over the generated content. The following section discusses the various initiatives taken by 3 UK that have led to the huge uptake of SeeMeTV in such a short span of time.

Internal Strategies

• First-mover Advantage by Capitalizing on the User-Generated Content Trend: The SeeMeTV service was one of the first user-generated content oriented mobile services in the world. There has been tremendous growth in social networking communities and user-generated content websites in the recent past all over the world. Moreover, the growth of online user-generated content (giving users full control of the content creation process) has created a second wave in the digital market. A mobile handset is a strong medium for creating user-generated content, for instance, capturing photographs through camera handsets, creating videos, etc. 3 UK, which sighted the strong potential of this market, capitalised on the trend by launching SeeMeTV in the UK market ahead of the competition.

• Revenue Sharing Model: 3 UK charges a reasonable USD 0.2-USD 0.4 (GBP 0.10-0.20) for every clip downloaded. Further, it gives credit to the people who upload the content by giving USD 0.02 (one pence) for every download of their clip. The cash earned through each video clip download is accumulated and the amount is paid to the creator of the video clip only when his/her balance reaches USD 19 (GBP 10), helping to keep administration costs lower for 3.

60 Source: http://202.66.146.82/listco/hk/hutchison/interim/2006/intrep.pdf 61 Source: http://www.three.co.uk/news

3 has the largest 3G subscriber base in the UK and has build a solid reputation and brand awareness.



• Ease of Usage: 3 UK has taken several initiatives to ease the navigation process

of SeeMeTV and structure the user-interface to facilitate an improved user experience. For instance, The menu of SeeMeTV is updated on a daily basis, which ensures that the

users always have access to the most recent clips uploaded by other users. 3 UK assigns ratings to the user-generated clips based on the opinion polls of

the subscribers. Thus, the users can browse and download the most popular clips available on the menu.

To ease the navigation process, the clips are categorised under various categories based on the type of content. The video clips are catalogued into categories such as 'Stupid Stuff' to 'Cuddly' and 'Dead Impressive'.61

• Constant Innovations in Content Offerings:

Expansion of Content Offerings: 3 UK has introduced several new offerings on the SeeMeTV service, such as 24 hours – a news service for the upcoming journalist who might want to share their news in the UK, an online dating service and a platform for music talent.62

Alliance with MSN Space to Promote SeeMeTV: 3 UK and MSN signed a three-month agreement in March 2006 to jointly promote 3’s SeeMeTV and MSN’s MSN Space in the UK. MSN Space is an online blogging tool where the users take part in the content generation process by sharing their photos, music, videos, etc., taken by 3 UK’s video-compatible handsets. 3 MSN Space posts the top 10 ten best video clips each day, as voted for by the users and then, based on this voting, the originator of the video clip with the largest share of the votes is awarded a prize of USD 190 (GBP 100).63

• Quality Control over the User-Generated Video Clips:

The clips uploaded by the users are constantly monitored by 3 UK’s editorial team.

Any video clips regarded as adult content can only be accessed by entering a PIN number, which is provided only to registered adult subscribers.

Finally, all users have to abide by the terms and conditions laid down by 3 UK before submitting their video clips on the SeeMeTV menu.


Apart from the above strategies adopted by 3 UK, the following external factors have been instrumental in the success of the SeeMeTV service: • Strong Infrastructure Support: 3 became the first operator in the UK to launch

3G services in March 2003. The operator is a clear leader in 3G in the UK with more than 3.75 million subscribers. The bandwidth support and high transmission capacity and speed of 3’s WCDMA network has helped 3 UK to introduce high-quality, content-rich services, such as audio and video downloads, etc., available to a wide selection of compatible mobile handsets.

• Strong Brand Identity of 3 UK: 3 UK has a strong brand position in the UK

market and is known for its advanced technological and innovative offerings on its 3G UMTS network. The brand name has helped 3 UK to win the confidence of its customers and gain competitive advantage in the market.

62 Source: http://www.film.vic.gov.au/ 63 Source: http://www.3g.co.uk/PR/March2006/2788.htm

3 UK has taken several initiatives to exploit the trend of user-generated content by adopting simple strategies of revenue-sharing, a simple navigation process and strict quality control over the content.



• Consumer Attitude Driving Mobile Data Demand: MNOs in the UK have among the highest ARPU in the world owing to the strong tendency of mobile subscribers to try and use innovative data services.

SeeMeTV’s success is also due to the strong tendency of mobile subscribers in the UK to try out innovative data services.



NTT DoCoMo – i-motion NTT DoCoMo introduced mobile services in Japan in 1979. It is Japan’s largest MNO, with a market share of about 56 percent in the first half of 2005 in terms of number of subscribers. It was the first operator to launch 3G services in the country in October 2001. The other two operators in the country are KDDI and SoftBank Mobile (earlier Vodafone K.K.). NTT DoCoMo launched i-motion, its video download service, in November 2001, soon after the launch of 3G services in Japan. The i-motion service enables users to download audio and video content from the i-mode portal via the operator’s 3G FOMA network. The service is offered in three formats – video clips, audio clips and still-picture frames with sound. In addition to the packet switched charges, the service has additional charges varying on the type of video and audio content.

Internal Strategies

• Enhanced Video Content Offerings and Features: i-motion offers a variety of rich content for its customers, such as movie trailers, promotional videos, sports clips, information services, such as weather reports and news bulletin, etc. The video clips support two kinds of format – MP4 format and ASF format. The

MP4 format enables i-motion to offer a better quality and longer video clips. The MP4 format further allows the inclusion of subtitles, while playing a video on the end-users handset. The MP4 format also allows ‘progressive download’, i.e., using buffering, the users can start to play the video before it is completely downloaded onto the handset.

The ‘i-motion mail’ service allows users to send short video clips which they have downloaded, from their handset to others by attaching them to an e-mail.

• Ease of Usage: Subscribers can easily access video content from i-mode websites and download it to their handsets. The 3G FOMA network allows high-speed packet transmission of the content. Further, the operator has introduced four MP4 compatible i-motion handsets and three ASF compatible i-motion handsets for making the user interface hassle-free and easy to navigate.64


The success of i-motion in Japan could be attributed to the following drivers in the external environment: • Tech-savvy Japanese Population:

More than 90 percent of the youth in Japan, in the age group of 20-29, own at least one mobile handset

Higher tendency of people to own gadgets, as Japanese culture is very tech-savvy and most of the population are extremely confident with consumer electronics

• Strong Demand for Mobile Data Services among Youth: The younger generation in Japan is strongly inclined towards mobile data services, especially audio and video content services.

64 Source: http://www.nttdocomo.co.jp/english/p_s/i/imotion/imotion.html

i-motion offers a variety of rich content for its customers, and the 3G FOMA network allows reliable high-speed packet transmission.



Best Practice Recommendations • Compatibility with a wide range of mobile handsets, video and audio formats and

the use of an open DRM system. Keeping handset options open and giving the subscribers plenty of choice is vital. Downloads should either be provided in the most widely acceptable file format, or offered in a variety of formats which can be used on different types of handsets This gives customers various options to choose from and consumers do not have to worry about compatibility issues.

• Ease of usage and improved user experience: To ease the navigation process, video clips should be categorised according

to the type of content. An MNO could add value by adding a search engine in each category, or using voting/ranking software to highlight ‘most popular’ videos.

The menu should be updated on a daily basis, which ensures that the users have quick and easy access to the most recent and most popular clips. This will not only enable users to access the latest clips, but will also keep the operator ahead of other MNOs video download services when new trends emerge.

• Wide assortment of content: A good video download service should offer a wide variety of content ranging from news, comedy, music, fashion and sports, to appeal to the broadest possible audience. This can be done by partnering with various content providers and ensuring all major demographics are catered for. An MNO can also capitalise on the growing trend for user generated content currently proliferating in Europe and North America. This is a growing area of the market and we would expect to see considerable development in this space in the coming years. As this market develops, we expect to see adult-only X-rated user-generated portals, sports-dedicated portals and more. As mobile video blogging grows so special-interest groups will likely set up such services for all manner of niche interests.

• Importantly, to make any user-generated service a success, the portal host should offer a generous revenue sharing scheme to give due credit to the people who uploaded the best and most popular video clips. Secondly, the host should also maintain a strict quality control process, monitoring all uploaded clips in order to ensure they are appropriate and to take care of any copyright issues and regulatory policies.

• Focus on providing content based on the cultural preferences in a country – A good video download service should not only provide a wide variety of content, but also address some specific preferences in the country (countries) where that service is available. There should be a decent mix of local and global content, and services should cater to local interests. For example, there is high demand for football content in the UK, and a strong pop-music culture in Japan, and a great love of cars and customised cars in the US. MNOs in these markets can exploit these trends by providing content updated with the daily happenings in sports/music/motors and by providing the subscribers a range of exclusive content of their favourite teams/artists/etc.

• Innovation: As previously noted, continuous innovations in product offerings and marketing techniques is vitally important. Service providers should introduce new offerings regularly to keep users updated about the latest happenings and make their video download service an innovative one. MNOs and others should keep an eye on developing trends in the wireline Internet video downloads market, and consider emulating innovations in their service portfolio and gain the first-mover advantage. MNOs should try to capitalise on the trend for user-generated content, think about who else could be enticed into this model, forums for independent record labels to showcase new music, or for would-be movie directors to air their short movies, etc.

Offering a broad variety of rich content at a cheap price and keeping the navigation process easy, can help increase the uptake of video upload/download service.



• Transparency in charging techniques: Again this issue of simple, transparent pricing shows up as an important part of the winning formula. Operators and Service providers should maintain a transparent pricing model so that users can easily understand what they are being charged for. As far as possible, end users should not be charged for browsing as it inhibits users from accessing the data which is not close to the main menu. Only charge them for what they actually download, and be sure they understand what it costs.

• Offer several charging techniques: Provide users various pricing options to choose from, depending on their needs and expectations. One option might be a flat pricing structure for those who download video clips frequently. Alternatively, users could be offered an option of pay-per-download for the less frequent visitor.

Summary – flexibility, choice and innovation are the strong points again. Give customers choice, let them take part, share the revenue and keep things cheap, simple and fun!



Ringback Tones

Selection Criteria

Ringback tones, which allow mobile subscribers to replace the usual ‘ring’ sound with songs and tunes, has added another dimension to MNOs data services revenue worldwide. Ringback tone services have already proven their success in Asian countries but are yet to achieve significant mass market reach in other geographies. Ringback tone services are available in Europe but have not yet achieved a similar success rate as in Asia Pacific countries. The service has only recently been launched in the US market, and so the Asia Pacific region currently continues to dominate the ringback tones service market. Some of the major MNOs identified by us in this space include SK Telecom Korea, Korea Telecom Freetel (KTF) South Korea, LG Telecom South Korea, China Mobile, Airtel India and Maxis Malaysia. We ran a filtering process on the above-mentioned MNOs providing ringback tones based on the following two parameters: • Ringback tones penetration among subscribers – this denotes the number of

mobile subscribers of the MNO using the ringback tone service divided by the total mobile subscribers of the MNO.

• News value – this comprises the number of search results generated through general Internet research and is reflective of the extent of publicity created by a portal. We see direct correlation between the success of an MNOs ringback tones service and the news value generated by it. (‘Ringback tones penetration among subscribers’ is a direct reflection of the success of the service, and hence, was allotted precedence over ‘news value’)

Based on these criteria, we identified the following five most successful MNOs offering ringback tones services: • SK Telecom, South Korea • China Mobile, China • KTF, South Korea • LG Telecom, Korea • Airtel, India SK Telecom and China Mobile both have achieved a significant market penetration with their ringback tones services, with penetration of ringback tones among the subscriber base close to 50 percent. The success of these MNOs can be attributed to the strong music culture in their respective geographies and the early initiatives and strategies adopted by these MNOs to take advantage of this trend. Table 8 assigns relative ranks to the selected five MNOs’ ringback tones service based on the identified selection criteria.

Asia Pacific is the largest market for ringback tones due to the strong cultural inclination of people towards music and the fact that Asian operators launched ringback tones ahead of their counterparts in other geographies.



Table 8: Selection Criteria for Ringback Tones

SELECTION CRITERIA MNO – RINGBACK TONE SERVICE RINGBACK

PENETRATION NEWS VALUE RANK

SK Telecom - COLORing

1

China Mobile - CRBT

2

KTF – Ringback Tone

3

LG Telecom – Feel Ring

4

Airtel – Hello Tunes

5


The following section will elaborate on the strategies adopted by the selected top two MNOs for ringback tone services.



SK Telecom – Ringback Tones After its establishment in 1984, SK Telecom made a number of breakthroughs in the Korean telecommunications industry. The company evolved its services from first generation analogue cellular systems to the world's first commercial second generation CDMA network. It moved on to the 2.5 generation CDMA 2000 1X system and then launched the world's first third generation synchronised IMT-2000 cellular system (CDMA 2000 1x EV-DO). In 2005, the company earned revenues of USD 11 (KRW 10,161.1) billion, and its total subscriber base reached 19.5 million in the same year65. SK Telecom launched its ‘COLORing’ service in 2002, and was the first operator in the world to launch a ringback tones service. The service has been a major success. In the same year, the COLORing service secured approximately 4.8 million subscribers and achieved sales worth USD 60.3 million (KRW 57 billion) for the company66. Also, by the end of 2003, the penetration of the service grew by almost a half and reached 38 percent amongst the company’s subscribers67 in a very short span of time. The success of the COLORing service was not limited to the domestic market; it also helped the company to earn from exports. In June 2003, SK Telecom started providing its COLORing solution to mobile operators in different countries. In the same year, the company concluded a solution supply contract for its COLORing service with SingTel and Mobile One in Singapore, SMART in the Philippines, and S-Telecom in Vietnam. In July 2004, the company provided its COLORing service solution to Telkomsel in Indonesia, worth about USD 1.5 million68. In the US, the company helped Verizon to launch its ringback tones service by providing its network solutions. As of December of 2005, total exports of COLORing surpassed USD 15 million65. The various strategies involved in making the service successful are as listed below.

Internal Strategies

• First-mover Advantage: SK Telecom was the first operator in the world to launch a ringback tones service. The company got early returns from its investment as the penetration rate of the COLORing service reached more than 30 percent in Korea, in just eight months after its introduction. The strategy of the company to be the first mover to launch a ringback tone service helped it to capitalise on the Korean mobile market share.

Also, once the service became successful in Korea, the company helped other operators launch their ringback tone services. The export of its COLORing solution was made possible by its early inroads in the domestic market.

• Innovative Services: The company provided a variety of new services for

customers to maintain their interest in the ringback tones. Some of the customer-friendly innovative services introduced by SKT comprised of: Pre-listening Facility: Allowing subscribers to browse and sample ringback

tones before they make a purchase.

65 Source: Annual Report 2005 66 Source: Annual Report 2002 67 Source: Annual Report 2003 68 Source: Annual Report 2004

SK Telecom was the first operator anywhere in the world to launch a ringback tone service.



Auto COLORing: Auto COLORing is an upgrade of the COLORing service, which provides customers an automatic change in ringback tones. In this, the customers can choose their type of music, and songs will keep on changing according to the category of music selected by them. The Auto COLORing service grew by 29.3 percent in the year 2005, confirming the success of the company in understanding its customers’ needs 65.

• Pricing Strategy: The company bills its users a low monthly subscription fee for

the COLORing service. Above this, it also charges its customers an additional fee of USD 1-2 for every new ringback tone selected by them. This strategy was adopted by the company to tab the general trend in which users often order different ringback tones for various contacts, such as their spouses, children, friends, co-workers, etc., which helped the company to extract the maximum revenues out of the service.

• Transparent Business Model: The company has a clear business model and a

simple revenue sharing agreement. The operator retains a 50 percent share of the revenue earned from the COLORing service, whereas 20 percent of the revenue is taken by content providers, and the remaining 30 percent is used for copyright and loyalty fees.

The business layout adopted by the company brings transparency in the revenue sharing, and has attracted major music groups to sign business deals with it for providing music content for the COLORing service. Due to these alliances with content providers, the company has been able to provide its customers with a huge database of music, from over 20 content providers. This allows SK Telecom to provide the most recent songs as ringback tones to its customers, helping them to stay ahead in the crucial youth sector.


• Ease of Adoption: Ringback tones are available on the carrier's server. Any caller can hear these tones, regardless of a handset's model, or whether the call is coming from a mobile or landline number. Also, customers who subscribe to the service do not need to upgrade their handsets and ringback tones have no learning curve, because neither callers nor subscribers need to do anything different when placing or receiving a call. Therefore, ease of deployment and ease of usage are the factors making the service popular worldwide.

• Popularity of the Service in the Youth sector: The ringback tone is popular –

rather unsurprisingly - amongst the youth sector in the country, i.e., in the age group of 15-20 years. People of this age group often use this service as an expression of their mood, emotions, etc. A high uptake of ringback tones amongst the youth market has been one of the key drivers of its success.

SK Telecom has a clear business model and a simple revenue sharing agreement. The operator retains half of the revenue earned through ringback tones, and the rest is distributed among content providers and copyright holders.



China Mobile – CRBT China is the largest mobile market in the world. The Chinese market is dominated by two major operators, namely China Mobile and China Unicom. China Mobile is the largest mobile network operator in China, with approximately 292 million mobile subscribers as of 31 October 2006, which also makes it the largest mobile operator in the world. China Mobile was established as an offshoot of China Telecom in 2000, and offers mobile services based on 2G GSM and 2.5G GPRS standards. With the huge success of ringtones in China, China Mobile first introduced its ringback tone service, known as Color Ring Back Tone (CRBT) across parts of the country in 2003. However, the service was fully commercially launched in May 2004. The number of mobile subscribers using the CRBT service has increased significantly from 0.48 million in 2003 to 128.4 million in June 2006. Moreover, the number of CRBT downloads in the first half of 2006 was 200 million, as compared to 300 million CRBT downloads registered by subscribers in the full year 2005. Figure 11 depicts the number of subscribers of China Mobile using the CRBT service and the penetration of the service among China Mobile subscribers from 2003 to June 2006.

Figure 11: China Mobile – CRBT Subscribers and Penetration (2003-June 2006)

0.5

128.4

90.0

27.20%

13%

37%

47%

0

25

50

75

100

125

150

2003 2004 2005 Jun-06

CR

BT S

ubsc

riber

s (M

n)

0%

10%

20%

30%

40%

50%

CR

BT

Pene

tratio

n

Subscribers Penetration


Revenues from the CRBT service reached USD 420 million (RMB 3.4 billion) in 2005, an increase of 303.5 percent over 2004. The revenue generated in the first half of 2006 was USD 172 million (RMB 1.379 billion). CRBT has become a major driver for the company’s mobile music offerings and has become the largest revenue source in non-messaging mobile data services, as the penetration of the service is approaching 50 percent. Its success can be attributed primarily to China Mobile’s strategy of extensively promoting and marketing its musical offerings. Moreover, the company takes advantage of its vast customer base and its strong network across China. Its broad strategies to increase the uptake of the CRBT service have been discussed in the following section.

Internal Strategies

• Lead in Mobile Music Value Chain: China Mobile considers mobile music its core data service and has established its brand name in the Chinese mobile music industry. The company has a long-term strategy of mobile handset customisation to suit music services, and is expected to occupy about 60 percent

The subscribers for China Mobile’s CRBT service have increased significantly from 0.48 million in 2003 to 128.4 million in June 2006.



of the market share in the mobile music industry.69 In line with this aim, the company launched the CRBT service in 2003. To make the service a success, it formed alliances and partnerships with various record companies, such as A8 Limited and MTV China, and set up its own mobile music portal. Further, it partnered with various organisations to provide customised CRBT services for the events and promotion of festivals. For instance, the company provides a customised CRBT service to promote the Olympics (to be held in 2008) in partnership with the Chinese Olympics Committee.

• Promotional and Marketing Efforts: In partnership with various record

companies and content providers, the company has launched a number of promotional campaigns in China for the CRBT service. The promotional campaigns have added immensely to the popularity of CRBT in the country. For instance, the survey results of iResearch reflect that ‘strong curiosity to CRBT’ is the key reason for the high uptake of the service in China. About 39 percent of the Chinese mobile population considers this the main reason for success. Some of the major marketing and promotional activities carried out by the company include the following: Experiential Marketing (free service offering at the time of launch to

stimulate demand): The company launched experimental marketing techniques in various provinces of mainland China to trigger the use of CRBT. For instance, it offered free subscriptions to the CRBT service to new customers in Shanghai for 60 days, while in Jiangsu, the new customers could use an ‘experience card’ to enjoy a free trial period of up to 45 days.

Multifarious Marketing Activity: Various marketing and promotional activities are being undertaken by the subsidiaries of China Mobile in different regions, which expand and deepen the awareness of the service. For example, In some provinces/municipalities, China Mobile offers a promotional activity

called ‘ Accumulate Credit Points’, in which customers (using the GOTone and M-Zone services) are provided with credit points depending on the bill amount (the higher the bill, higher the credit points earned). The subscription fee of CRBT can then be paid by using these credit points.

China Mobile held a ‘Color Ring Stars’ competition in the country to promote its CRBT service in 2005.

‘Wireless Music Rank’: ‘This scheme was launched in April 2005. Through the promotion of the ‘Mobile Music Rank’ and the establishment of the ‘Mobile Music Club’, China Mobile attracted more customers to try out, use and get accustomed to the CRBT service.

• ‘Group CRBT’: Some Chinese people use CRBT as a medium to promote their

business.70 China mobile has capitalised on this trend and offers a ‘Group CRBT’ service to its enterprise customers. The service allows enterprises to customise CRBT using their corporate culture and use it for communication between its employees and its customers. The service has helped enterprises to build their brand image. It has also helped China Mobile to generate interest for the CRBT service among other enterprise customers.

• Pricing Strategy: The company charges its subscribers a low monthly

subscription fee for its CRBT service. The monthly subscription fee varies across regions and brands (GOTone, Easy-own and M-Zone) from USD 0.6 to USD 1.25 (RMB 5-10). In addition, China Mobile offers a few free ringback tones for download every month. Beyond these free offerings, it costs USD 0.25-0.6 (RMB 2-5) for each CRBT download, and sensibly, China Mobile does not charge a fee

69 Source: http://www.findarticles.com/p/articles/mi_m0EIN/is_2005_Dec_21/ai_n15955822 70 Source: http://en.chinabroadcast.cn/855/2006/05/08/[email protected]

CRBT’s success can be attributed primarily to China Mobile’s strategy of extensively promoting and marketing its musical offerings.



for browsing. As a result of this strategy, subscribers have an option to peruse and download different ringback tones, which helps the company to generate maximum revenues from the service.

• Revenue Sharing: The company shares a large percentage of its revenue with

the other players in the ringback tone value chain. Currently, the CRBT service has a three-way revenue split between content provider, service provider and China Mobile. Content providers and service providers share 85 percent of revenues from each download, while China Mobile keeps the residual 15 percent as well as 100 percent of the monthly subscription fee. The company plans to increase its share of the revenue to 30-50 percent in the future. This generous revenue sharing has helped China Mobile to build extensive partnerships with the other players in the mobile music value chain.


• User-generated Content (UGC) Growth: The growth of the UGC space among the young Chinese population is contributing to the expansion of overall mobile music content offerings in China. This trend has been luring content providers and content aggregators to aggregate and develop UGC for mobile data services. While the content providers/aggregators expand their service portfolio, the UGC owners get their share. China Mobile has been promoting the trend and launched the ‘Color Ring Pioneer’ contest in 2005 to promote and publicise UGC. The contest was a huge success across the country, with more than half a million entries. The music entries were then listed on China Mobile’s portal and the entries with the maximum number of votes were offered for downloads as ringtones or CRBTs. The dominance of UGC in the CRBT service is reflected by the fact that it accounted for about 30 percent of the total revenue generated by CRBT in China in 2005.71

• Strong Brand Position: China Mobile has the largest network in China, spread

across all the 31 provinces of mainland China. As a consequence of its strong and reliable network, it has the largest number of subscribers in the country and a strong brand image. China Mobile exploits this huge subscriber base for the uptake of its data services.

71 Source: http://www.3gmobilechina.com/files/3gmobile/pdf/ugc.pdf

China Mobile has the largest network in the country and exploits this huge subscriber base for the uptake of its data services.



Best Practice Recommendations • Choice: Customers should be allowed to choose their ringback tone from a wide

range of content. This is possible by creating a huge database of content after entering into partnerships with numerous content providers. MNOs should implement a clear and transparent business model, highlighting

the percentage revenue sharing between the operator and the content provider. Generous revenue sharing agreements would help in ensuring strong alliances with content providers.

Customised ringtones for events and festivals should be made available to the customers. This would likely help in driving further uptake of the service as people would use these ringtones during such special occasions.

• Simple and transparent pricing: Complex tariff structures confuse consumers and

put them off, so it pays to keep pricing simple and easy to understand. It seems the most successful model is for MNOs to charge their customers a small monthly subscription fee for the basic ringback tone service, and then beyond this customers must be charged an additional fee for every new ringback tone they select. Equally, a flat price all-you-can-eat monthly bundle should be made available for those high-demand users.

• Revenue split: That policy of simple and transparent pricing should also apply to

the revenue split between operators and content providers, ensuring adequate incentive for all parties.

• Service and marketing innovation: MNOs can also provide innovative upgrades of

the basic ringback tone service. For example, providing ringback tones which change and update automatically at regular intervals, to suit the musical tastes of the subscriber on the basis of the type of music they have previously selected. Other initiatives, such as introducing user-generated content into ringback tones, are also helping to drive user numbers and revenues.

• Customers must be provided with a ‘try-before-you-buy’ facility of listening to the

songs either on the Internet or via a WAP portal so that they can preview the ringback tones they wish to deploy. In the initial stages after the launch of a ringback tones service, MNOs could provide ringback tones for free to its customers to help get the service off to a good start.

• Marketing segmentation: Apart from the obvious youth-sector principle target, and

the clear advantage again of being first-to-market in a specific country, ringback tones can be targeted at other specific segments of the market. Offering customised ringback tones for specific companies, groups and organisations would help drive the popularity of the service in the enterprise sector. MNOs should enter into partnerships with various organisations for providing them with customised ringback tones, as these can be used as an advertising tool or as a platform for delivering messages within their organisations.

• Simple technology: As a network application, ringback tones owe some success

to the fact that they do not require end-users to go out and purchase new handsets. Bearing this in mind, all MNOs should offer ringback tones as a comparatively quick and easy additional non-voice service to deploy.

Summary – again variety and choice stand out, keep the pricing simple and the marketing innovative, and know your customers needs.

Offering a variety of content, extensively promoting the service, and targeting the youth generation are key to the success of a ringback tones service.



Mobile Commerce

Selection Criteria

Mobile commerce has taken off in Asia Pacific but is yet to achieve significant success in the US, Europe or other regions. M-commerce services have failed to create interest among large numbers of subscribers primarily due to the lack of cooperation between the financial institutions and MNOs. However, MNOs in Europe are trying to improve this situation and overcome the barriers, and some m-commerce services have started picking up in Europe. Meanwhile, Asia Pacific remains the undisputed leader in mobile commerce services. The major MNOs providing m-commerce solutions short listed by us include NTT DoCoMo Japan, KDDI Japan, SK Telecom South Korea, KTF South Korea, Smart Philippines, Globe Telecom Philippines and Mobilkom Austria. We have taken two MNOs’ m-commerce solutions, which are based on different platforms, in order to develop a greater understanding of the various m-commerce solutions. We identified the following two most successful MNOs offering m-commerce solutions: • NTT DoCoMo, Japan • Globe Telecom, Philippines NTT DoCoMo’ m-commerce solution is partly hardware based, relying on a chip embedded in the mobile handsets while Globe Telecom’s m-commerce solution is entirely software based, working on an SMS platform. These two examples have been taken as the best examples from the developing mobile markets and the developed mobile markets. The following section will elaborate on the strategies adopted by the two selected MNOs to make their m-commerce solutions a success.

Asia Pacific remains the undisputed leader in mobile commerce services.



Globe Telecom – G-Cash The Philippines’ mobile market is characterised by its consolidation in the last two to three years, leading to the emergence of two key operators. While the mobile market in the Philippines has five major operators, namely Smart, Globe, Sun Cellular (Digitel Mobile), Extelcom and Next Mobile; Smart and Globe are the leading MNOs in the country, with more than 90 percent of the total mobile market share between them. Globe Telecom was the first operator in the Philippines to launch mobile services in 1994. However, Smart, which launched its services in 1999, ended the dominance of Globe, by enabling millions of people in the low-income segment of the market in the Philippines to get access to mobile services. Globe offers wireless services in the country through three brands – Globe Handyphone, Globe Handyphone Prepaid and Touch Mobile. Globe, now the second largest MNO in the Philippines, had around 14 million subscribers as of end-June 2006. G-Cash is an m-commerce service which allows Globe Handyphone and Touch Mobile subscribers to make electronic transactions, enabling them to send and receive cash, and make payments via SMS. G-Cash was launched by Globe Telecom in October 2004. Globe Handyphone and Touch Mobile subscribers have to register for G-Cash via SMS to make use of the service. Once registered, users can then load their G-cash wallets by visiting authorised G-Cash outlets and submitting cash and identification forms [to prevent money laundering]. The service has the following features for its registered customers:72 • Cash deposits and withdrawals • International transactions (remittances) • P2P credit transfers • Payment of utility bills, online bills, insurance premiums, loan interests, etc. • Donation to charitable organisations and institutions • Micro-finance through co-operation with rural banks • Prepaid account recharge through G-Cash Load, etc. The service is PIN-protected, with only the user having an option to access/change the PIN. Globe charges a fee of 1 percent of the total transaction, with a minimum fee of USD 0.2 (PHP 10) for cash-in or cash-out transactions.73 The minimum and maximum limit for G-Cash wallet are USD 0.02 (PHP 1) and USD 720 (PHP 40,000), respectively. Further, the maximum daily and monthly amount allowed for transactions is USD 720 (PHP 40,000) and USD 1,800 (PHP 100,000), respectively.74 G-Cash totalled more than 1.2 million users by December 2005.75 However, the registered G-Cash customer base stood at 469,349 as of end-June 2006. This reduction in the number of G-Cash registered customers is due to a change in the way the company counts the number of subscribers using G-Cash, starting May 2006. Until May 2006, a registered G-Cash user was considered as a G-Cash user until such a time as he or she voluntarily suspends or stops his or her G-Cash service. After May 2006, registered G-Cash customers were reported on the basis of cumulative registrations, reduced by the number of voluntary suspensions net of reactivations during each month.76 G-Xchange, a wholly-owned Globe Telecom

72 Source: http://cgap.org/docs/MicroTech_infoDEV.pdf 73 Source: http://www.prweb.com/releases/2004/10/prweb170015.htm# 74 Source: http://www.myglobe.com.ph/gcash/news.asp?articleid=1987 75 Source: http://www1.globe.com.ph/uploads/GlobeTelecom2005AnnualReport.pdf 76 Source: http://www1.globe.com.ph/uploads/GT17Q2Q2006.pdf

G-Cash, an m-commerce service from Globe Telecom, allows subscribers to send and receive cash and make payments via SMS.



subsidiary, manages the m-commerce initiatives of Globe Telecom, including the G-Cash service. The key success factors of Globe Teleocm’s G-Cash service include the high-volume, low-price model and the presence of strong distribution networks by establishing partnerships with various industries present in and outside the Philippines. The company’s broad strategies to increase G-Cash’s uptake have been discussed in the following section.

Internal Strategies

• Capitalising on Market Trends: Capitalising on High-texting trend: G-Cash is the first wireless text-based

cash-less and card-less m-commerce service in the Philippines.77 The success of G-Cash is clearly attributable to the high-text messaging trend in the Philippines. The country has long been regarded as the texting capital in the world, with over 200 million SMS sent daily.

Capitalising on Pre-paid Reloading and Load-sharing Services trend: Globe’s pre-paid reloading (‘Autoload Max’) and load-sharing (‘Share-a-Load’) services were a huge success in the Philippines. These services allowed subscribers to transfer their credit to other subscribers or accrue credit in their own pre-paid account via SMS over-the-air (OTA). This trend inspired Globe to incorporate a similar mobile-transaction service in their product portfolio, with the aim of addressing the concerns of subscribers and the ease of use of OTA mobile transactions.73

• High-volume, Low-fee Business Model: The G-Cash service is an SMS-based

model and does not necessitate any additional costs for acquiring technology (handset upgrade). The operator charges a minimal fee of 1 percent of the total value of the transaction, and then the regular SMS charge of USD 0.02. This excellent low-cost business model allows users to make low-cost transactions quickly and easily, helpful for the population in rural areas, who may not even have a bank account. Furthermore, the minimum-value-transaction limit is kept low so as to allow for micropayments, which otherwise could not have been possible through debit cards. These factors have helped to make the service extremely popular with a large segment of the population.

• Strong Partnerships & Distribution Network: Globe Telecom has partnered

with more than 500 local and international companies with over 4,500 outlets. The company had 27 international partners, with more than 200 outlets in 15 countries. The scale of partnerships can be judged by the fact that more than 3 million G-Cash transactions had been completed by end-August 2005 and G-Cash’s average monthly transaction total is currently around USD 108 million (PHP 5.4 billion) as of 30 June 2006.76 This broad base of partnerships across different industry verticals has brought the following suite of services to Globe’s subscribers.78 Banking Organisations: Micro-financing, bills payment, tax payment, etc. Industries: Charity, food delivery, retail payments, transportation services, etc. Overseas Filipino Workers: Domestic and international funds transfer Content and Application Providers: Online games, pre-paid Internet, etc. Distributors: OTA pre-paid reloading, etc. The partnerships have benefited Globe Telecom as well as its partners. The partners achieved reduced costs, increased efficiency, other sources of direct

77 Source: http://www.myglobe.com.ph/gcash/news.asp?articleid=1609 78 Source: http://siteresources.worldbank.org/INTINDIA/Resources/MAMERTO_PRESENTATION.pdf

The key success factors of Globe Teleocm’s G-Cash service include the high-volume, low-price model and the presence of a strong distribution network.



income, expansion of their business reach, etc. as Globe Telecom offered the large network of retailers to its subscribers, making the transactions affordable and easy. The major partnerships have been with banking organisations, which have been discussed in detail below. Partnership with BancNet Banks: This partnership has helped G-Cash to

provide banking services, enabling its subscribers to upload their G-Cash wallet from their BancNet Bank accounts via ATMs, Internet banking or mobile banking. Further, the BancNet Interbank Fund Transfer (IBFT) facility allows Globe’s subscribers to transfer credit to other subscriber’s G-Cash wallets through an ATM.79

Partnerships with Rural Banks: Globe Telecom has partnered with more than 760 rural banks with over 2,000 branches in the Philippines for its G-Cash service. (760 rural banks account for over USD 2 billion assets, over 5 million deposit accounts and over 1 million borrowers). The partnership has provided scale benefits both to Globe’s subscribers and the rural banks. The partnership allows subscribers to conduct daily transactions, loan payments, etc., at reduced costs, while at the same time it helps the banks to increase efficiency, eliminate cash-in transit risk, reduce operating costs, etc. Moreover, the G-Cash service provides micro-finance to its customers through a project between Globe Telecom, the Rural Bankers Association of the Philippines (RBAP) and the Microenterprise Access to Banking Services (MABS) organisation. Micro-financing services bear great significance in the Philippines as micro, small and medium sized enterprises account for about 99 percent of the total number of businesses in the country.80 The scale benefits achieved through a transaction using the G-Cash service over transactions done through the bank’s counter have been illustrated in Table 9 and 10.

Table 9: Advantages of Using G-Cash: Deposit or Withdrawal Process/Tax or Bill Payment

COSTS/RISKS G-CASH DIRECTLY THROUGH BANK G-CASH ADVANTAGE

Direct Transaction Fee

USD 0.2 (PHP 10)

USD 0.32 (PHP 16)

Cost savings: USD 0.12 (PHP 6)

Opportunity Costs None Travel and bank

transaction time Considerable time savings

Risks None Hold-up No cash-in transit risks

Source: http://siteresources.worldbank.org/

Table 10: Advantages of Using G-Cash: Remittance Process from Bank A to Bank B

COSTS/RISKS G-CASH DIRECTLY THROUGH BANK G-CASH ADVANTAGE

Transaction Fee (For the Client)

USD 1.65 (PHP 82.47) (PHP 41.65 fee from remitter to rural bank A, PHP 40.82 fee from beneficiary paid to rural bank B)

USD 3 (PHP 150) for remitter

Cost savings: USD 1.35 (PHP 67.53)

Fee-based Income (For the Bank)*

USD 0.83 (PHP 41.65) fee for bank A USD 0.82 (PHP 40.82) fee for bank

USD 0.72 (PHP 36) share for bank A

Considerable fee-based income

79 Source: http://www.myglobe.com.ph/gcash/news.asp?articleid=1795 80 Source: http://www.bwtp.org/arcm/documents/Jimenez.pdf

Globe has a strong distribution network (partnerships with 500 local and international companies with over 4,500 outlets), an essential requirement for the success of m-commerce services.



B Source: http://siteresources.worldbank.org/

*Assumptions: PHP 2,000 remittance and 2 percent remittance fee

• Customer Confidence by Complying with Regulatory and Policy

Environment: G-Cash has been established as a new payment system in the Philippines, with recognition from Bangko Sentral ng Pilipinas (BSP), which supervises the Philippines’ banking system. The compliance of G-Cash with regulatory bodies, PIN-enabled secured transaction and Globe’s reliable network has helped G-Cash to gain customer confidence and has increased the usage of G-Cash for business transactions. The various initiatives taken by Globe Telecom to make the service secure and reliable for its customers include: Confirmation of all transactions by SMS: Every transaction done through

G-Cash requires a PIN. Moreover, the customer receives a confirmation via SMS after every transaction.

Anti-money laundering issues: G-Cash has set a daily and monthly transaction limit in compliance with the Anti-Money Laundering Act (AMLA) set by BSP. The maximum total amount of transactions per day and per moth is USD 720 (PHP 40,000) and USD 1,800 (PHP 100,000), respectively. Further, the company documents every transaction through G-Cash and requires its subscribers to register via SMS with their personal details before using the G-Cash service.


The various external factors which contributed to the growth of G-Cash in the country include the following: • Support from Financial Institutions: The financial institutions in the Philippines,

especially the rural banks, have been the real supporters of mobile banking services. The combined initiatives have resulted in offering micro-finance to the rural population, who do not have access to credit. Secondly, the central bank of the Philippines has accepted G-Cash as a new payment system, nationally recognised across the country.

• Large Penetration of Mobile Services among Low-income Households: The

rural population accounts for a large proportion of the Philippines’ population. A major chunk of the rural population does not have access to banking services. However, this population does have access to mobile services, owing to the low-cost of mobile services in the country. Secondly, these low-income households are familiar with text-messaging and consider SMS a vital part of their lives. This strong SMS culture has led to the huge uptake of G-Cash services among the rural population in the country.

• Overseas Filipino Workers’ (OFW) Remittance Trend: SMS is used for

remitting funds back to the Philippines by OFW. As OFW account for more than 10 percent of the country’s population, the MNOs in the country have capitalised on this trend of working abroad to increase the uptake of SMS-based m-commerce services.

The financial institutions in the Philippines, especially the rural banks, have been the real supporters of mobile banking services.



NTT DoCoMo – Mobile Wallet NTT DoCoMo operates the worlds leading mobile Internet portal service, i-Mode, which has amassed a staggering 47 million subscribers as of October 2006.81. The company launched its ‘Osaifu-Keitai’ service in July 2004, which refers to mobile handsets with wallet functions. Under the mobile wallet concept, mobile handsets can be used instead of coins and paper currency, credit cards, tickets and more. In order to be compatible with this service, certain 2G and 3G handsets are fitted with a contactless communications IC, which enables the use of this service when a user holds the mobile handset over an i-mode Felica reader at a store or a ticket gate. The mobile wallet services provided to NTT DoCoMo’s customers include the following: • Cashless Payments: Purchases can be made at a wide range of stores and

vending machines • Online Shopping: Payments can be made to online services via mobile handsets • Transportation: Mobile wallet handsets can be used for booking flights and also

enable customers to automatically check in at airports. Train tickets and other services can also be billed through the mobile wallet

• Tickets: Tickets which are reserved online can be printed out by waving the mobile handset in front of a machine at the venue

• Finance: Cash withdrawals and credit card payments can be completed with ‘Osaifu-Keitai’ handsets

• Keys and IDs: Systems can be deployed at residences and offices which enable mobile wallet handsets to act as door keys

• Membership Card: Mobile wallet handsets can serve as programme ID cards as well as purchase point cards

As of June 2006, more than 12 million i-mode users were using this mobile wallet service in Japan82, a clear indicator of the success of the service. NTT DoCoMo conducted an Internet survey in May 2005, which gives us a brief idea of how the customers of the mobile wallet service use their wallet-enabled handsets. Figure 12 shows the graphical representation of the survey results.

Figure 12: Percentage of Customers Using Wallet Services at Various Retail Points

11% 16% 22% 29%

77%

0%

20%

40%

60%

80%

100%

Supermarketsand department

stores

Electronics anddiscount stores

Booksores andrental shops

Cafes andcoffee shops

Conveniencestores


81 Source: http://www.nttdocomo.com/about/company/history/index.html 82 Source: http://www.paymentsnews.com/2006/09/the_mobile_phon.html

As of June 2006, more than 12 million i-mode users were using the mobile wallet service in Japan



Internal Strategies

Here we look at NTT DoCoMo’s strategies for driving the success of the mobile wallet application: • Credit Card Platform: Only 9 percent of the Japanese population uses credit

card services, which is much lower than most other highly developed countries. To tab the potential growth of the credit services market in Japan, the company launched a mobile credit platform known as ‘iD’ in December 200583, in alliance with Sumitomo Mitsui Card Co., Ltd., Sumitomo Mitsui Financial Group, and Sumitomo Mitsui Banking Corporation. This enabled customers to make low-value transactions at various stores via their mobile wallet handsets.

Also, the company became a credit card issuer in April 2006, after launching its credit card service DCMX in April 200683. The DCMX service allowed customers to make purchases ranging from very low value to quite high value amounts, using their mobile handsets. Through this move, the company aimed to improve its mobile credit service by customizing the service according to the needs of mobile users.

• Strong Network: The company provided a range of diverse and innovative mobile wallet services that helped customers in their daily lives. Alliances with companies for providing mobile wallet services to the customers have been one of the main reasons for the success of these services. NTT DoCoMo launched its mobile wallet services forming an alliance with 39

companies. These companies include Japan’s largest railway company East Japan Railway Co. (JR East), MasterCard, Visa, Japan Credit Bureau, All Nippon Airways, Coca-Cola Japan, Fuji Xerox and NEC.

It entered into an alliance with LAWSON, Inc., which enabled customers to use their handsets with wallet functions for making credit card payments at 8,300 convenience stores nationwide. The service also helped the customers to obtain information about store promotions.

NTT DoCoMo acquired rights from airport authorities to allow its customers to check in at airports by holding up their mobile wallet handsets in front of ticketing terminals.

• Security Measures: Security measures taken by the company include the

following: The company has taken steps to ensure that it provides a safe and secure

platform for mobile credit services to its customers. It entered into an agreement with Sumitomo Mitsui Financial Group to jointly develop a secure mobile credit payment service, and also to provide infrastructure for the transaction process.

Since the mobile handset can be used as a wallet, the loss of these handsets can cause considerable problems to end-users, and hence security measures are a vitally important element in the value proposition. The company has paid a great deal of attention to this area and handsets which are provided by NTT DoCoMo can be locked by default and lost phones can be locked remotely by calling the phone. Also, the company has launched phones which use biometrics (facial profiles, fingerprints, etc.) for positive user verification.

• Partnerships with Handset Vendors: The company has formed alliances with

handset vendors to provide advanced handsets for mobile wallet services to its customers. The company also ensured that they have enough handsets available at the time of the launch of the mobile wallet services. Remember the saying, “You never get a second chance to make a good first impression”.

83 Source: Annual Report 2006

The company offers a strong and secured distribution network for its mobile wallet service.




• Mobile Market in Japan: Japan has the most advanced mobile market in the world. Internet access via PCs has been surpassed by Internet access via the mobile handsets. A high penetration of mobile data services amongst the Japanese population has been one of the major reasons for the success of new innovative services, such as mobile wallet services, in the country. The Japanese population are extremely tech-savvy and early-adopter culture is strong, helping to keep the nation at the cutting edge of such innovation in technology.



Best Practice Recommendations • Choosing the right platform to deliver m-commerce solution:

SMS has achieved astronomical success and is widely used by subscribers all over the world, and it still holds growth strong potential, at least in the near future. SMS could be used effectively as a platform for delivering m-commerce solution in those countries which have a high text messaging trend. An SMS-based platform could be particularly useful in countries with a sizeable percentage of low-per-capita income subscribers, as most handsets are SMS-enabled already, so subscribers are saved from the expense of upgrading to a new handset. This will not only save subscribers money, but also history suggests that this will dramatically speed up deployment and penetration of the service among the installed subscriber base. As a new handset is not required, the total cost of an m-commerce transaction for a customer only remains the cost of sending an SMS.

This SMS-based solution has considerable scope in many developing markets, such as the large and rapidly expanding markets of Asia and Latin America, and the largely rural markets of Africa. Access to credit and banking facilities is often not an option for many rural Africans, and a simple pre-paid SMS-based mobile micro-payment system could be a huge boost to subscribers across the continent.

Alternatively, advanced handsets fitted with contactless communications IC can be used as a platform for delivering mobile commerce solutions in more advanced markets. The solution provides a secured transaction and can be used as a replacement for credit cards. However, the solution can only be used in countries with a strong retail sector and in countries where MNOs have strong relationship with handset vendors to maintain a continuous supply of the handsets embedded with the relevant IC technology. This system obviously requires the subscribers to purchase new handsets, but once in place this system may offer real benefits to the MNO. Once subscribers are locked into a secure mobile commerce system that they trust, and they have established a decent credit limit, etc, this could help retain customers, increasing loyalty and reducing churn.

• A low minimum-value transaction limit is crucial, enabling the mobile handset to

act as a cash replacement. A robust micro-payment platform could broaden the appeal of such a service to the wider population, particularly those in lower-income groups who may not have access to credit cards and other means of making payment. Ensure services to these groups operate on a pre-paid system, minimising the risk of fraud and bad debt problems.

• Establish a strong distribution network and solid partnerships: MNOs already

have a large subscriber base and an established billing structure, and they are aware of the demographics and the geographic location of their customers. Therefore, in order to leverage these factors for m-commerce services, MNOs must work hard to establish a broad availability network, by forming partnerships and co-operations across the m-commerce value chain. Establishing a strong distribution network is essential as the customers will then consider the MNO’s m-commerce solution as an alternative payment system, which has a wide spread acceptance. Building partnerships with financial institutions is essential. These partnerships not only help MNOs in providing financial assistance to customers via mobiles but also reiterate the fact that their solution is an accepted payment model in the country. The alliances benefit MNOs as well as their partners. The partners achieve reduced costs, increased efficiency, other sources of direct income, expansion of their business reach, etc., while the MNOs offer a large network of retailers to their subscribers, making the transactions affordable and

MNOs, especially in developing mobile markets, should look to leverage SMS usage to spur the adoption of m-commerce solutions.



easy. MNOs may also find partnerships with financial institutions essential, as many MNOs may not want to become banks, adding billions in credit payments to their financial worries.

• Safety and Security: Above all else, subscribers will be scared away from m-

commerce solutions that do not offer state-of-the-art security. We live in an age of online scams, identity theft and credit card fraud, and consumers will be extremely wary of any new dangers. MNOs should look to comply with the regulatory and policy environment in their market to gain customer confidence, and offer subscribers the very best in PIN and encryption technology. The various measures which MNOs should take to make their m-commerce solution secure include the following: Assign a confidential PIN to every user to be used for every transaction. Allow remote locking-out of mobile handsets in cases of theft or loss Set daily and monthly transaction limits to address anti-money laundering

issues and reduce risk. Select only established distribution partners and formulate a strict procedure

for selecting affiliated m-commerce partners. Make it mandatory for users to register for your m-commerce solution before

using the service. The users should provide essential personal details. Develop standards and comply with the regulatory and policy environment,

which will help to become recognised by the banking authority in the country as a new payment system.

Partner with well known best-of-breed security solutions providers, such as F-Secure, SmartTrust or VeriSign. Brand awareness and an established market presence will help convince subscribers that m-commerce systems are safe. The combination of a trusted MNO brand, with a major, trusted financial institution and a well known trusted security solution gives credibility to a service and will help deliver peace-of-mind to subscribers.

Summary – segment your market, pick the right technology to address the needs of the market, build strong partnerships and strengthen the brand, focus on security and wide acceptability of services.



Mobile Games

Selection Criteria

The mobile games market has evolved from the conventional simple games which have been pre-installed on mobile handsets for years, to high speed 3D games with powerful graphics and online multi-player interaction. Now mobile games are gaining in popularity in countries with high penetration of 3G services, such as Korea and Japan. While the consumption of mobile games is relatively low in European countries and the US, with only 4.2 percent of UK subscribers and 2.5 percent of US subscribers downloading a game, the Japanese mobile operators generate 5 to 10 times more revenue per customer from mobile games compared to their European counterparts. The strategies deployed by NTT DoCoMo in Japan, and SK telecom and KTF in Korea in terms of gaming content, pricing and technology streamlining have been the major reasons for the success of mobile games in these countries. The major MNOs short listed by us include NTT DoCoMo Japan, KDDI Japan, SK Telecom Korea, KTF Korea, 3 UK, Vimpelcom Russia and MTS Russia. Based on the news value, we identified the following five most successful MNOs offering mobile games services: • NTT DoCoMo, Japan • SK Telecom, Korea • KDDI, Japan • KTF, South Korea • 3 UK Table 11 assigns relative ranks to the five selected MNOs’ mobile gaming service based on the identified selection criteria.

Table 11: Selection Criteria for Mobile Games Service

SELECTION CRITERIA MNO – MOBILE GAMES NEWS VALUE

RANK

SK Telecom – Mobile Games

1

NTT DoCoMo – Mobile Games

2

KDDI – Mobile Games

3

KTF – Mobile Games

4

3 UK – Mobile Games

5

The following section will elaborate on the strategies adopted by the top two selected MNOs to make its mobile gaming service a success.

Mobile games are extremely popular among the youth sector in Japan and South Korea.



SK Telecom – Mobile Games SK Telecom is the largest telecommunications operator in Korea providing mobile services to its customers on a CDMA platform. As previously noted, the company launched the world's first third generation synchronised IMT-2000 cellular system (CDMA 2000 1x EV-DO) in 2002. By June 2006, around 20 million subscribers were using SK Telecom’s services, including around 9 million 3G subscribers84. The company provides its customers games through the ‘GXG’ 3D mobile game service. On 11 April 2005, the company introduced a mobile game portal site GXG.com, in which it launched a variety of 3D games. This helped users to upgrade from already existing games on their mobile handsets to new, creative 3D games offering an improved gaming experience. SK Telecom’s GXG game portal offers a variety of games, ranging from conventional games to the latest creative games provided by a number of content partners. The company’s move towards providing games with powerful graphics on its portal helped it to tap the gaming trend in Korea, resulting in early returns from the launch of the portal. In July 2005, its GXG portal registered 55,000 downloads85, even though only four 3D game-specific handset models were made available in the market at that time. The company deployed a variety of strategies to promote its gaming portal. The primary reason for the success of this service in the Korean market was the availability of new games providing an improved user experience in terms of high speed and powerful graphics. Other strategies which helped the portal to become successful are discussed below.

Internal Strategies

• Launch of 3D Games: With the launch of the GXG portal, the company introduced around 16 3D games in the market. These 3D games provided customers with a new sense of high speed and powerful graphics. The launch of the new 3D experience in games helped the company promote its gaming portal, as more customers visited the portal for the new 3D games and also downloaded many of the older, popular conventional games.

• Availability of Gaming Handsets: The company focused on providing new

handsets to its customers for a better gaming experience. SK Telecom formed partnerships with handset vendors, such as Samsung Electronics, LG Electronics, SK Teletech, Pantech, Curitel and Motorola for releasing 3D-specific handsets in the market. It also entered into contracts for handsets with higher resolution colour display, 2D and 3D graphics, special multifunction buttons, and high-fidelity stereo sound to enhance the overall customer experience for GXG games. While only four models supporting 3D games were available at the start, that was enough to ensure instant popularity for this service.

• Pricing Strategies: With the launch of the new portal, SK Telecom introduced a

tariff plan offering unlimited gaming access for a fixed monthly fee. Under this plan subscribers can download unlimited GXG games, without having to pay any additional call charges, for a fee of USD 14.8 (KRW 14,000) per month. The aim of the plan was to attract regular gaming users by offering them an unlimited gaming experience on their mobile handsets.

For those customers whose gaming demands are somewhat lower, the portfolio of new games being offered on the GXG portal have also been made available on

84 Source: http://wireless-watch.com/tag/ktf/ 85 Source: http://www.iparksv.com

SK Telecom has introduced a dedicated games portal, GXG.com, which features all the latest games with 3D graphics.

Access to games providing an improved user experience in terms of high speed and powerful graphics was the primary reason for the increased uptake of this service in the Korean market.



a per-download basis. Along with the launch of the portal, the company came out with attractive prices for 3D games, which are as follows: USD 4.76 to USD 5.82 (KRW 4,500-5,500) when downloaded through the PC

Sync USD 3.17 to USD 3.91 (KRW 3,000-3,700) (information fee) for games

downloaded directly via mobile handsets, with an additional data traffic fee • Wide Range of Popular Online Games: The company realised that the success

of mobile games relies heavily on the brand value associated with their online counterparts, as it was easy to promote games which had a high brand recall of popular online versions. To benefit from the popularity of online games, SK Telecom launched its 3D games based on such well-known online games as ‘Mavinogi (Nexon)’, ‘Mu (Webzen)’, and ‘Lagnarok (Graviti)’. While these names may be unfamiliar to non-Korean readers, these games are popular and well known within the Korean market.

The company also entered into partnerships with popular online game operators, such as Nexon, to introduce mobile versions of their popular online games and to undertake joint marketing activities with them.


• High Penetration of 3G Networks: The country has a high level of penetration of 3G services amongst its subscriber base. The third-generation technologies which bring high speed data services on to the mobile platform are the main reason for the success of high definition mobile games.

• Popularity of Online Games in Korea: First and foremost, Korea is widely

recognised as the electronic gaming capital of the world, and all forms of electronic and online gaming are immensely popular in the Korean market. Mobile games are evolving through influences from the wireline broadband Internet online gaming segment. Since the online gaming business in South Korea generates high revenues, the profits from mergers between mobile and online games are high for mobile operators. Creating leverage through the synergies of the fixed and mobile gaming worlds is a natural fit in Korea, creating a win-win scenario for online games developers and mobile operators.

The popularity of online games and high penetration of 3G networks has helped operators in Korea to spur the growth of mobile games in the country.



NTT DoCoMo – Mobile Games NTT DoCoMo is Japan's leading mobile communications company, with a market share of approximately 56 percent registered in the first half of 2005. However, with revenues from voice services stagnating over a period of time, as in many developed countries, due to market saturation (68 percent in Japan as of March 2005) and intense competition and a churn rate of 0.81 percent (Q2 2005), NTT DoCoMo is increasingly providing non-voice services like mobile gaming, MMS, m-Commerce, etc., to generate additional revenues, and to reduce churn. Since March 2000, Hudson has been providing the most popular Japanese games, such as Miracle Grand Prix, to NTT DoCoMo. With the success of DoCoMo’s FOMA and i-mode services and after a series of developments, mobile gaming has witnessed a significant improvement with downloadable technologies (and enabled handsets) emerging as a convenient platform for the delivery of games. DoCoMo has adopted various strategies to promote its gaming services. It has defined a value chain to build an efficient system to generate revenues. DoCoMo has clearly defined the roles of the players at each level in the value chain. By identifying the most efficient ways for the investments and operations to be utilised at different levels of the chain, lucrative services at optimal prices have been provided to the consumers.

Internal Strategies

• Clearly defined Value-chain with Generous Revenue-sharing: NTT DoCoMo has developed a well-defined structure with a clearly defined percentage share in profit for everyone involved at various stages of the value chain. According to industry experts, game developers account for around 8-12 percent of the total revenues, publishers account for 40-50 percent, licensors take around 15-18 percent, while NTT DoCoMo keeps the rest. This strategy has helped DoCoMo to establish extensive distribution channels which helps their games to reach the consumers at the right time. This is an extremely important issue, considering that a game’s lifetime in Japan is usually just 6-12 months after its launch, so time wasted getting the game to market creates a serious lost revenue opportunity.

• Advanced Handsets: NTT DoCoMo has launched a range of advanced mobile

handsets which can support Java downloads and higher bandwidth GPRS and 3G networks. It is focussing on two kinds of games for two different categories of customers. It has launched several ‘casual games’ for consumers who play games in their free time. These games are low-priced Java games with limited game play. For the hardcore games fans DoCoMo has launched several “Hardcore Games” that feature 3D graphics and network-connected functionality. The availability of advanced 3G handsets enable NTT DoCoMo to provide a high-quality user gaming experience for both these categories of games with equal efficiency.

• Increased Focus on Casual Games: According to various research reports, globally, growth in the mobile gaming market is being driven by casual games which aim at killing time, rather than hardcore multiplayer online role playing games. This is true across many cultures, including Japan, as consumers increasingly perceive mobile gaming as an ‘anytime, anywhere’ gaming platform, when compared to online games at a fixed connection. In light of this trend, NTT DoCoMo is increasingly focussing on providing interesting casual games, for instance Tetris, to its broadening base of mobile users.

NTT DoCoMo is increasingly providing non-voice services like mobile gaming, MMS, m-Commerce, etc., to generate additional revenues, and to reduce churn.



• Strategic Partnerships for Better Gaming Platforms: In order to provide better gaming platforms and improved games, NTT DoCoMo has sought partnerships and signed MoUs with multiple game developers and publishers. In Feb 2001, DoCoMo and SEGA Corporation signed an agreement to

collaborate in developing new gaming and other innovative services by combining NTT DoCoMo's i-mode handsets with video arcade games machines equipped with SEGA's arcade board.

In August 2001, DoCoMo signed an agreement with Sony Computer Entertainment Inc. (SCEI) to jointly develop new services by combining both NTT DoCoMo's i-mode service and SCEI's Playstation. Both the firms collaborated to establish a new i-mode/Playstation entertainment network. Through this service, i-mode users are able to play games that have been customised for the Sony PocketStation hand-held device. The technology enables users to link the hand-held device through an adapter and download games.


• Popularity of i-mode: The popularity and high penetration of i-mode has given DoCoMo the requisite base to promote mobile gaming. It has launched several games in integration with the i-mode services.

• Demanding Japanese Youth: There is a huge demand for advanced games

among the Japanese youth market (age group 16-24). With growing advertisements and marketing strategies adopted by telecom players, the demand is ever-increasing.

A strong affinity for mobile gaming among the youth segment and the popularity of i-mode are the key drivers behind the success of mobile games in Japan.



Best Practice Recommendations • Market segmentation: One major key to success in gaming seems to be in

understanding your consumer database. Gaming markets are split down the middle between casual gamers and the hardcore fans. A separate pricing structure should be deployed to appeal to each of these sub-segments A monthly subscription option should be provided to attract regular hardcore

gamers. Under this, customers should be allowed to download unlimited games by paying a fixed price per month. A small premium for ‘latest release’ could be an additional option.

Casual gamers should be provided with an option in which they can pay according to the number of games they downloaded, which a menu of prices for different games of varying complexity.

• MNOs should develop a clear business model with a well-defined revenue

sharing agreement in place. Developing compelling new games takes time and is expensive, and if an MNO wants to offer best-of-breed games, then the right partnerships will be needed, and these will have to be paid for. The game developers, publishers and licensors should have a clear picture of their share of revenues earned from the games. This should help MNOs in establishing widespread distribution channels for providing an extensive range of top-of-the-range mobile games to their customers.

• Ensure that the network infrastructure is in place to provide high-speed games

reliably to the end-users. 3D games with powerful graphics and online multiplayer role-playing games attract a premium from hardcore gamers, but the network must be able to support and deliver a reliable gaming experience. Quality and reliability are crucial, and MNOs who keep pace with the latest development in cutting-edge games will keep fans loyalty, reducing churn and ensuring lucrative revenues from this particular segment of the market.

• The success of mobile games relies heavily on the brand value associated with

their online counterparts, i.e., games with a high brand recall of popular online versions. To take advantage of this factor, MNOs must enter into partnerships with popular, established online game developers and introduce mobile versions of their popular online games.

• Ensure that a range of suitably-equipped, advanced handsets are easily available

for subscribers to enjoy the latest games with advanced 3D graphics. MNOs must enter into partnerships with handset vendors to launch handsets with a high resolution colour display, 2D and 3D graphics, special buttons for playing games and high-quality stereo sound to enhance the overall gaming experience. In many respects the Asian MNOs have developed relationships with handset vendors that MNOs in other regions should look to replicate. MNOs should try to retain some brand control through partnering with handset vendors to develop handsets targeted at specific segments of the MNOs subscriber base.

• Ensure developers produce games that are truly “mobile”: An excellent blog offers

extensive advice on this issue, including such pearls of wisdom as ‘Ensure a game only needs two thumbs to play’ and many more. See http://www.gamasutra.com/php-bin/news_index.php?story=11665.

Summary – again market segmentation is crucial, price accordingly, partner with established brands and move fast – offer the best and latest games to stay ahead of the competition!

To make mobile games a success, MNOs should have robust infrastructure support offering high data transmission speeds, a generous revenue sharing model with content providers, and ensure easy availability of gaming handsets by forming partnerships with handset vendors.



Mobile Video Calling

Selection Criteria

Although a video calling service was introduced by NTT DoCoMo in 2001, the market for the service still remains sluggish compared to some other non-voice services. Video calling services are still at a nascent stage in most countries, and widespread adoption by mobile subscribers still lies in the future for most network operators. Currently, video calling services are available mainly in Asian and European countries and only 3 percent of mobile network operators worldwide offer such services.86 Vodafone has admitted that video calling is not a great success in Europe so far.87 Some of the major MNOs worldwide offering video calling services include NTT DoCoMo Japan, 3 (numerous territories), SK Telecom South Korea, Vodafone (numerous countries), T-Mobile (multiple markets), O2 UK, MTN South Africa, Singtel Singapore and TMN Portugal. Based on the ‘news value’, we identified NTT DoCoMo as the most successful MNO, so far, offering a video calling service. It was not possible to rank all service providers as so few have an established, mature service with some traction and history behind it, so we have chosen only to cover DoCoMo in detail. The following section will elaborate on the strategies adopted by NTT DoCoMo that has made video calling a success in Japan.

86 Source: http://www.pctoday.com/ 87 Source: http://www.cnet.co.uk/misc/print/0,39030763,49282457,00.htm

Video calling services are still at a nascent stage in most countries, and widespread adoption by mobile subscribers still lies in the future.



NTT DoCoMo – Mobile Video Calling NTT DoCoMo is Japan's leading mobile communications company. It was the first operator to commercially launch 3G services (FOMA) in Japan and anywhere in the world, in October 2001. Simultaneously, video calling was also launched as a new feature of the 3G-enabled (FOMA) services. For the first two years after its launch, FOMA was an experimental service that was targeted mainly at professionals from the telecommunications industry. Moreover, the first FOMA handsets were massive, had poor battery life and limited network coverage (the network covered Japan’s largest towns only). As a consequence, mobile video calling, being one of the services offered by FOMA-enabled handsets didn’t create any considerable impact on the market. However, by March 2004, with the launch of an improved range of new handsets (DoCoMo’s 900i series) and with improvement in network services, the market for mobile video-calling saw significant growth. By March 2004, nearly two million of DoCoMo’s existing handsets, and over 80 percent of the newly launched FOMA handsets were capable of live video calling. Over the past couple of years, DoCoMo has seen steady growth in its video telephony traffic. It has grown from approximately 9 million minutes at the beginning of 2004 to around 17 million by the end of March 2005. As a part of its business strategy to increase global uptake of its video calling services, NTT DoCoMo has signed agreements with global players like LG, KPN and Fujitsu to jointly promote 3G services. By April 2006, DoCoMo was offering videophone services internationally, offering international roaming in 24 countries.

Internal Strategies

• Advanced Handsets: NTT DoCoMo launched its video calling service as one of the features of its FOMA enabled handsets. Due to limitations such as poor battery life, the bulkiness of the handsets, and limited network coverage, mobile video calling did not create any significant uproar in the early stages. However, with the launch of a better selection of more advanced handsets, DoCoMo was able to address the issues mentioned above. Since then, DoCoMo has continuously phased out old handsets, replacing them with handsets offering better features as part of its strategy to promote its video calling services along with other 3G services amongst its existing subscribers.

In March 2002, NTT DoCoMo launched FOMA-enabled handsets that were equipped with a videophone facility and DoCoMo’s i-motion video-clip transmission service. In September 2002, it launched handsets equipped with i-motion and video calling facilities. In March 2004, DoCoMo’s 900i series of mobile handsets were launched. Apart from enhanced features such as extended memory and higher standby time, these handsets were equipped with better video calling facilities compared to counterparts. They have become a huge success among customers.

• Promotion of 3G FOMA Services: As a part of its strategy, NTT DoCoMo has

placed continuous emphasis on promoting its 3G FOMA services. The company constantly sought partnerships with global players to undertake a large-scale promotion of its 3G services. In 2002, NTT DoCoMo signed an agreement with KPN Mobile to jointly promote 3G services in the Netherlands. On similar lines, in 2004, NTT DoCoMo and Fujitsu Limited signed a MoU to jointly promote 3G FOMA mobile communication services in France. In 2005, DoCoMo entered into an agreement with LG Electronics to collaborate together on the development of

NTT DoCoMo’s video calling traffic has grown from approximately 9 million minutes at the beginning of 2004 to around 17 million by the end of March 2005.



a dual-mode FOMA handset that would work on both W-CDMA and GSM/GPRS networks. Together, they developed new dual-mode handsets, capable of international roaming and equipped with all the basic FOMA functions, including videophone and i-mode services. As a result of these partnerships, video calling – being a feature showcased by the growth of 3G services – saw an increase in global uptake.

• Expansion with Proper Planning: After achieving success with its video calling

services in Japan, NTT DoCoMo has strategically expanded its video-calling technology to a wider audience and broader markets. In February 2004, DoCoMo enabled Japanese customers with 3G FOMA-enabled handsets to exchange videophone calls with customers with compatible 3G/W-CDMA-enabled handsets offered by 3 HK Limited in Hong Kong. In June 2005, DoCoMo expanded FOMA 3G international roaming and videophone services to Europe and Asia. This is a part of its strategy, in line with the global roll out of i-mode, to expand outside the domestic Japanese market.

NTT DoCoMo has expanded its video-calling technology with proper planning, offering videophone services internationally, in 24 countries worldwide.



Best Practice Recommendations • Penetration: Ultimately, the success of a video calling service will depend on the

level of penetration of the service among the subscriber base in any one country market. If too few subscribers have access to the service and an adequately-equipped handset, then the service is unlikely to generate any substantial traffic. Operators should focus on availability, promotion, pricing and handset availability as key drivers for such services.

• Sign interoperability agreements with other MNOs for video calling and build a

strong 3G infrastructure: A video calling service utilises a 3G network and the level of usage of the service varies with the availability of that 3G network, compliance with the technologies available in the country and the interoperability agreements between with the other MNOs within and outside that country. Ensure 3G network coverage reaches more than 95 percent of the population in the country and sign interoperability agreements with the other MNOs to make video calling a success.

• Handset choice: Ensure consumers have a choice from a decent selection of

advanced 3G handsets that support video calling. MNOs can increase the uptake of video calling service by enriching the user experience, which requires a desirable 3G handset with a long battery life and a high resolution video camera and screen.

• Keep pricing attractive: While voice calls are an essential communication tool,

video calling is still a novelty and most subscribers see it as purely “for fun”. If prices are too high, subscribers will not pay a premium just for a bit of fun, so keep prices low or offer bundles of video calling minutes as part of the introduction package to win new business. Offer the video calling service by bundling video calling minutes into 3G subscription plans and include target price points where prices decline as usage grows, to encourage more use.

• Video mail pays: Integrate video calling and video mail services to promote video

telephony services. Many MNOs around the world do not offer video mail as part of their video calling service, and this represents a lost opportunity. MNOs should integrate video call and video mail services in order to offer a complete suite of video telephony services. The video mail service allows video calls, which are not answered by the called party (due to the called party being busy or unavailable or outside network coverage), to be directed to a video mail box, where the calling party can record and deposit video messages. This increases video traffic dramatically for the MNO: first, the original call is completed as the video message is recorded and deposited. Next the receiving party calls to retrieve the message, and pays to view or download it, then they will likely return the call, possibly using video calling again, hence the MNO may gain triple the revenue from this one call by offering a videomail service. Video mail and video call are complementary services as the implementation of video mail services will support video call revenues by increasing the completion rate of video calls.

Summary – availability, penetration, pricing and promotion are vital drivers for creating traction at first. Offer sexy handsets and low prices to drive into the mass market and offer video mail, it’s more fun than sending an SMS!

MNOs must integrate video calling and video mail services, sign interoperability agreements with other MNOs and offer a broad and appealing range of advanced 3G handsets.



Successful Strategies – Messaging Services

Worldwide, SMS has grown at an astounding rate to become the cheapest, quickest and easiest form of peer-to-peer communication ever known. SMS is not dead yet; indeed SMS traffic is still growing in ALL regions, and more new SMS-based services are emerging in the market every week. SMS has been the most successful data application in 2G markets worldwide and we believe that SMS still has a huge future ahead of it in the coming years. Some of the most active SMS markets today include: • Europe: UK, Italy, Germany, Spain, France and Portugal • Asia Pacific: China, Philippines, Malaysia and India • Latin America: Argentina, Mexico, Venezuela and Brazil • Africa and Middle East: South Africa and Nigeria • North America: The US and Canada The growth of MMS messaging has been sluggish since its launch in 2002. The growth in MMS traffic volumes was plagued by a lack of network interoperability, format standardisation, steep handset prices and inefficiencies in handset technology during the first few years. However, with most of the MNOs signing interoperability agreements during 2003-2005 and the penetration of suitably equipped handsets reaching the mass market, MMS traffic has now grown considerably worldwide. While SMS is popular almost everywhere, some networks carry vastly more traffic than others, and so we decided to use the metric ‘total SMS-per-subscriber-per-month’ as our measure of success. We have selected the most successful MNOs for messaging services (SMS and MMS) to understand their strategies and the external factors pertaining to these geographies, which are together responsible for making messaging services such a success for those MNOs.



SMS

Selection Criteria

We started our research with the top 15 SMS markets worldwide in terms of SMS volumes per subscriber per month. Table 12 depicts the top 15 SMS-carrying MNOs worldwide in terms of SMS sent (outbound) per subscriber per month for the full year 2005:

Table 12: Top 15 SMS MNOs (2005)

MNO NUMBER OF SMS SENT/MONTH/SUBSCRIBER PLDT (Piltel+Smart), Philippines 179.7 Maxis, Malaysia 120.3 O2 Ireland 76.2 Netcom, Norway 72.9 O2 UK 71.3 Telecom Personal, Argentina 60.2 TMN, Portugal 53.0 Belgacom, Belgium 48.7 Optimus, Portugal 48.0 Sonera, Finland 40.4 Elisa (Radiolinja), Finland 40.0 Swisscom, Switzerland 38.7 Verizon Wireless, US 34.9 SFR, France 26.2 Telia Sweden 17.5

Source: Company Websites and Portio Research Estimates

Table 13 depicts the top 15 SMS-carrying MNOs worldwide in terms of SMS sent (outbound) per subscriber per month for the 4Q 2005:

Table 13: Top 15 SMS MNOs (4Q 2005)

MNO NUMBER OF SMS SENT/MONTH/SUBSCRIBER PLDT (Piltel+Smart), Philippines 200.9 Maxis, Malaysia 173.2 O2 UK 81.5 Netcom, Norway 81.2 O2 Ireland 79.9 Telecom Personal, Argentina 74.8 TMN, Portugal 57.0 Optimus, Portugal 50.0 Belgacom, Belgium 48.3 Verizon Wireless, US 48.0 Sonera, Finland 45.2 Elisa (Radiolinja), Finland 42.0 Swisscom, Switzerland 40.4 SFR, France 28.0 Telia Sweden 20.0

Source: Company Websites and Portio Research Estimates

PLDT (Smart and Piltel), Philippines has the highest number of SMS sent per subscriber per month anywhere in the world.



Based on the above criteria and the news value each carrier generated, we identified the following three network operators as the most successful MNOs worldwide for SMS services: • Maxis Malaysia • Smart Philippines • Netcom, Norway The following section will elaborate on the strategies adopted by the three selected MNOs for the growth of SMS.



Smart – SMS SMS has been immensely successful in the Philippines and the country is commonly referred to as the ‘SMS capital of the world’. Smart is the largest mobile operator in the Philippines with 22.5 million subscribers as at end-June 2006, equivalent to about 58 percent market share in the country. The total subscriber base consisted of 16.4 million customers of Smart and 6.1 million customers of Pilipino Telephone Corp. (Piltel), a Smart subsidiary. The other leading MNO in the country is Globe Telecom. Smart is a wholly-owned subsidiary of Philippines’s dominant telecommunications carrier, the Philippine Long Distance Telephone Company (PLDT). Smart has revolutionised the mobile market in the Philippines by enabling millions of consumers in the lower-income segment of the market to have access to mobile services. SMS was introduced by Smart in 1999 on its GSM network. The total number of SMS sent by Smart subscribers increased from 3.9 billion in 2000 to a staggering 109.9 billion in June 2006. Figure 13 highlights the SMS volumes of Smart from the year 2000 to 2Q 2006. (The huge leap in traffic from 2005 to 2006 is explained below.)

Figure 13: Smart: SMS Traffic Volumes (In Billions, 2000-June 2006)

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As is common for many mobile operators around the world, SMS-related services make the largest contributions to Smart’s non-voice service revenues. Figure 14 depicts the share of SMS-related services in the company’s total mobile data revenues from 2003 to June 2006.

Smart subscribers sent a massive 110 million SMS in the first half of 2006.



Figure 14: Smart: SMS-related Services Revenue as a % of Total Data Revenue

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The high uptake of SMS among Smart’s subscribers can be attributed to its bottom-of-the-pyramid (BOP) business model, its constant innovations in SMS-based service offerings and pre-paid services in ever-smaller denominations. The company’s broad strategies to increase SMS uptake have been discussed in the following section.

Internal Strategies

• BOP Model to Target Low Income Customer Base: While Globe Telecom was the first operator to launch SMS in the Philippines in the late 1990’s, Smart has been able to surpass Globe’s dominance by addressing the needs of the mass market BOP consumers, which constitutes more than 50 percent of the Philippines’ population. Smart launched a number of innovative SMS-based services to meet the demands of lower income consumers. The strategy was so successful that more than 98 percent of the subscriber base of Smart now constitutes pre-paid customers, who are very price sensitive and are the most frequent users of low-cost services such as SMS. Smart achieved this success by adopting a different and unique business model, and marketing and distribution strategies especially designed to meet the needs of a broad range of customers in the previously ignored section of society – the poor, giving Smart a clear advantage in the market. The business model was to develop the so-called Smart Load system, which would load airtime credits over-the-air (OTA) from a retailer’s prepaid account after receiving an SMS request form the subscriber and thus removing the need of any recharge vouchers. The business model helped to drastically reduce the distribution cost and the savings were utilised to develop a strong network of retailers and keep the cost of sending SMS down. Further, the start-up cost for establishing the retail network was minimal, enabling the presence of Smart retailers virtually everywhere in the country.

• Low-cost Pricing Models: To make the service affordable to the BOP market,

Smart developed low-cost sachets of airtime. Thus, this low-cost, self-sustaining model helped Smart to gain access to a vast cost-conscious consumer group and propel SMS growth among them. Smart undertook a number of initiatives that led to a huge uptake of SMS among the low-income group in the Philippines. Some of these are described below:88

88 Source: http://www.ecch.com/ ; http://www.digitaldividend.org/case/case_smart.htm

The high uptake of SMS among Smart’s subscribers can be attributed to its BOP business model, constant innovations in SMS-based service offerings and pre-paid services in ever-smaller denominations.



Smart launched a low-cost, high-coverage service in 2000, SmartBuddy, offering text-only SIM cards, which can be reloaded by purchasing ‘call and text’ cards in small denominations, such as USD 5.38 (PHP 300), USD 8.97 (PHP 500) and USD 17.95 (PHP 1,000).

Smart launched a text-only card service, PureTxt 100 for USD 1.8 (PHP 100) in August 2002. The service offered ten free text messages, valid for one month. The service was highly acclaimed and became an instant success among the public, as it encouraged those people who could not previously afford the high-denomination cards to get access to mobile services at a lower rate. The price of a single SMS was kept as low as USD 0.02 (PHP 1) in comparison to the price of a voice call (USD 0.14 during a peak time and USD 0.07 during an off-peak time).

Smart, in continuation with its efforts to target low-income groups, introduced the Pasa Load service in December 2003, which further fuelled the growth of subscribers, as well as SMS volumes. The service offered airtime recharges in denominations of USD 0.03 (PHP 2), USD 0.08 (PHP 5) and USD 0.27 (PHP 15).

‘Bucket’ Plans for Voice and Text Services: Smart launched a series of bucket or fixed-rate plans from March 2005 onwards.89 Smart launched a service, Smart 258, offering unlimited Smart-to-Smart

voice calls and unlimited Smart-to-Smart SMS. The service was aggressively promoted and the company marketed several variations in the load denominations since the launch of the service in 2005. Currently, the Smart 258 plan offers unlimited SMS within the Smart network for USD 0.3 (PHP15), USD 0.6 (PHP 30) and USD 1.2 (PHP 60) denominations, with expiry periods of one, two and four days, respectively.

In April 2006, Smart launched a Smart Load ‘All Text’ service, which offers 10 to 20 SMS without expiration for USD 0.24 (PHP 12) and USD 0.46 (PHP 23), respectively.

In June 2006, Smart launched top-up services called ‘Unli’ (Unlimited). The Unli 30 for PHP 30 offered unlimited SMS with an expiry period of two days.

The company did extensive advertising of its new unlimited SMS offerings using billboards in rural areas and through advertisements on vans and three-wheelers, the most common medium of transportation in the Philippines. As a result, there was a huge uptake of SMS within a year, which is well reflected from the surge in SMS traffic from 44 billion in 2005 to 110 billion in June 2006.

• Using SMS as a Marketing Tool: Smart has consistently used SMS as a marketing tool for promotional activities, text-games, TV voting applications, etc. These initiatives have consistently kept up with the demands of broad sections of society, and especially the youth segment. Smart has tie-ups with major music distributors and content providers to promote various entertainment and lifestyle services via SMS. For instance:90 Smart offers an entertainment service via SMS named ‘Smart Cinema Club’,

which provides the latest information about movies to subscribers and also allows subscribers to win movie tickets and passes.

Smart was the first operator in the Philippines to introduce a text-based game in 2001, known as ‘Text to Millions’. The service was an instant success and other MNOs as well as third-party content providers in the country followed the example set by Smart. The subscribers who registered with the service were sent four trivia questions per day, via SMS, and the winner, chosen from

89 Source: Half-Yearly Financial Report ending June 2006 90 Source: http://www.asiafoundation.org/pdf/ICT_PHSMS.pdf

The range of unlimited SMS plans have been wildly successful, generating a huge rise in SMS traffic in the first half of 2006.



among the subscribers who gave the right answer, was awarded one million pesos.

SMS TV: Smart introduced SMS chat channels across the Philippines in 2003 by forming agreements with a number of content providers. The channels allow subscribers to communicate via SMS on TV and express and share their opinions and emotions with others. This strategy has helped Smart generate significant revenue as well as further reinforce its brand name in the country.

• Using SMS as an Application Tool: Smart used SMS as a medium for

developing diversified applications targeted to cover all sections of society, including the ‘top of the pyramid’ consumers. Its SMS-based services have propelled its usage among subscribers and have helped to maximise the ARPU from SMS and reduce churn for the operator. Table 14 lists some of the major SMS-based services offered by Smart.91

Table 14: Smart: SMS-based Applications

SERVICE NAME SERVICE DESCRIPTION

GirlTxt Offers information and privileges, such as movie tickets, free magazines, special promos, etc., exclusively to female subscribers

Smart Review Offers reviews and critical information of variety of products and services, such as music, restaurants, gadgets, etc.

Smart Chic SMS Magazine

Offers exclusive downloads of inspirational quotes, horoscopes, fitness advice, etc.

24/7 Nocturnal Navigator Provides information about the latest happenings in the country, especially night life such as concerts, celebrities, dance parties, trendiest affairs, etc.

Your Mobile Classified Ads Offers classified services to its subscribers

Smart Scene Offers latest information about movies, restaurants and events

Music Link Offers ringtones, logos and wallpapers for download MTV Mobile Mania Offers ringtones and logos from MTV

Smart ICQ Allows subscribers to exchange SMS with 140 million registered ICQ users all over the globe

My Crush Flirting - allows subscribers to message his/her ‘crush’ without divulging the cell phone number

Chat Lounge Offers chat services to its subscribers

Yahoo Mail Allows users to send and receive e-mail from Yahoo accounts via SMS

Mobile Banking Allows daily banking transactions via SMS Smart Automatic Vehicle Location System (AVLS)

Allows tracking of vehicles using GPS technology exclusively for Smart Gold customers



SMS was introduced in the Philippines by Globe Telecom in 1994. It was offered as a free service until 2000, which led to tremendous uptake of the service in the country. The popularity of SMS can be judged by the fact that the service was also introduced on landlines in the Philippines in 2001. The various external factors which contributed to the growth of SMS in the country include the following.

91 Source: http://www.smart.com.ph/SMART/Value+Added+Services/Advanced+VAS/

Smart has capitalised on the popularity of SMS in the Philippines by using SMS as an application as well as a marketing tool.



• Low Penetration of Landlines, PCs and the Internet: The limited reach of wireline telecommunication services meant that Filipinos embraced mobile networks as soon as they were available. As the price of sending an SMS was very low in comparison to the cost of voice calls, SMS quickly became the common medium for communication and also a substitute for e-mail and instant messaging.

• Culture of Sociability in Filipinos: Filipinos consider SMS as a vital part of their

lives and use it for daily chores. Apart from communicating with relatives and friends, SMS is used for daily activities such as government or corporate transactions, booking movie or airline tickets, guiding rescue operations, sending remittance payments, banking transactions, etc.

• SMS, a Boon for Overseas Filipino Workers (OFW): SMS has become a

communication medium for OFW, who prefer using cheap SMS over more expensive voice calls for communicating with their relatives back home in the Philippines. Secondly, SMS is used by OFW for remitting funds back to the Philippines. As OFW account for more than 10 percent of the Philippines’ population, MNOs in the country have capitalised on this trend to increase the uptake of SMS.

External factors, such as the low penetration of landlines, PCs and the Internet, and the presence of a large community of Overseas Filipino Workers have also contributed to the growth of SMS in the country.



Maxis – SMS Headquartered in Kuala Lumpur, Malaysia, Maxis provides mobile, fixed and international network services to its customers. As at March 2006, the company had 8.21 million customers, representing a 40 percent market share of the mobile subscriber base in Malaysia92. The company provides various SMS-based services to its customers, such as e-billing, colour SMS, voice SMS, etc. Maxis has encouraged the uptake of these services by offering its customers a convenient and economical pricing plan. SMS sent on Maxis’ network is charged at prices as low as USD 0.003 (1 sen) per message. Maxis has also attempted to target the youth/student segment of the market by offering special discounts on calls and SMS messages sent from registered campuses. Maxis focused on penetrating the broadest possible spectrum of society via one of the most basic mobile services, i.e., SMS. The company has always focussed on providing innovative SMS-based services to its customers. It was the first company to launch an e-billing service in Malaysia in 1999, providing customers a convenient option for confirming orders, sending bill reminders, and accepting payments via SMS. Also, in 2001, Maxis took steps to initiate inter-operator SMS traffic across the mobile networks in Malaysia. This resulted in a 216 percent increase in its average SMS volume in 2002, in comparison to the previous year93. Innovations in basic SMS-based services, along with economic pricing strategies and a focus on a larger target audience, led to a constant increase in the company’s SMS volume in the following years. This is depicted in figure 15, which shows its growth in SMS volumes from 2001 to 2005.

Figure 15: Maxis: SMS Traffic Volumes (2001-2005)

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Internal Strategies

• Focus on Broader Spectrum of Customers: Maxis focussed on providing services for customers from all segments of society rather than targeting services toward only one or two demographic groups of customers.

92 Source: www.theedgedaily.com 93 Source: http://www.maxis.com.my/mmc/index.asp?fuseaction=home.article&aid=129&status=1

Signing interoperability agreements between Malaysian operators for SMS resulted in a 216 percent increase in the average SMS volume in 2002 over the previous year.



The company provides an extensive range of SMS-based information and entertainment data services. It provides customers with basic services such as access to taxi numbers, movie timings, world and sports news, etc. The company also provides more meaningful services such as phone bill enquiries and payments, Islamic data services with comprehensive Islamic spiritual and daily guides. It also provides specialised content for its Chinese customers.

Apart from content, the company provides various pricing plans to its customers, for example the 1 sen plan, in which SMS is charged at a price as low as USD 0.003 (1 sen) per message. Maxis was thus able to target a broader spectrum of customers by providing them a wide range of easy-to-use, simple SMS-based services at low prices, and this broad strategy has been biggest drivers behind the high uptake of SMS-based services in Malaysia.

• Innovative SMS-based Services: The company has been launching innovative SMS-based services to attract more customers. Extending its policy of offering service that attract all segments of the market, Maxis has rolled out SMS-based services such as games and social networking applications, that appeal to all groups, regardless of the level of disposable income.

Maxis was the first operator to launch services such as song dedications and

radio polling, wherein radio stations dished out topics of interest to customers who voted and sent in their opinions via SMS.

Maxis also launched an interactive service known as the SMS SpeedMaster Challenge, which was a major success for the company. Its first edition received some 1.8 million entries in 2001.

The company also launched a series of innovative SMS games. In 2004, Maxis collaborated with a number of companies to facilitate voting

status enquiries and election results to its customers via SMS. Maxis launched Desktop SMS, in which the company offered customers the

facility to send SMS from their computers to other customers’ mobiles.

• Targeting the Youth Market: The youth market in Malaysia, i.e., customers in the age group of 18-21 years, is the largest user-base of SMS-based services for all mobile operators. Maxis took one step further to attract customers in this segment, by providing a special scheme known as CampusZone, which offers students prepaid mobile rates of USD 0.045 (15 sen) per minute calls and USD 0.003 (1 sen) per SMS, when used within the zone. Within just one month, 22 campuses made this service available to their students.


• Interoperability: After the establishment of interconnection for SMS in August 2001, total text messaging traffic almost doubled in Malaysia to 3.6 billion messages sent in 2002. Out of this, 1.4 billion messages were sent on Maxis’ network. This clearly implies that interoperability of SMS services between mobile networks in Malaysia was a key factor, as in many other markets, to high growth rates of SMS in the country.

• Low Internet Penetration: In 2001, Internet penetration, and hence the use of

email, in Malaysia was only 15.9 percent94. This was one of the reasons for the high uptake of SMS in this market, as Malaysians chose SMS as a common mode of communication.

94 Source: www.itu.int

Innovations in basic SMS-based services, along with economic pricing strategies and a focus on a larger target audience have led to a constant increase in Maxis’ SMS volume.



• Low SMS Price: Due to major competition amongst mobile operators, SMS rates in Malaysia were slashed in 2002. This resulted in one of the lowest SMS rates in the world being offered to customers which led to high use of SMS as a cheap communication tool. This trend is still prevalent in the country today, which keeps the use of SMS-based services high.

• User Awareness: User awareness of other newer technologies is still low in

much of Malaysia, despite heavy advertising by operators. The uptake of 3G services, for instance, remains low. People in Malaysia still prefer to use simple, cheap, easy-to-access services such as SMS. This is one of the reasons for the continued growth of basic mobile services in Malaysia.



NetCom – SMS Norway is amongst the most advanced mobile markets in the world, with a mobile penetration rate of approximately 102.5 percent in 2005. The largest operator in Norway is Telenor. NetCom is the second largest operator in Norway. It is a subsidiary of TeliaSonera and had a market share of 23.5 percent in 2005. The operator had 1.65 million subscribers in 2005. Norwegians are big SMS users and the country records one of the highest rates of SMS sent per subscriber annually in the world. The total number of SMS sent in Norway increased from 3.65 billion in 2004 to 4.63 billion in 2005, an increase of approximately 27 percent. Simultaneously, the average number of SMS sent per subscriber per month increased from 67.5 in 2004 to 81.2 in 200595. The total number of SMS sent by NetCom subscribers was 1.4 billion in 2005. Figure 16 highlights the SMS volumes of NetCom from 2002 to 2Q 2006. (Please note the 2006 data only captures a half-year total.)

Figure 16: NetCom: SMS Traffic Volumes (In Millions, 2002-June 2006)

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Since 1993, NetCom has been operating a GSM network, and in 1998, the company launched prepaid cards for customers. Customers were allowed to send free SMS messages in the initial period after the launch. As a result, NetCom enjoyed a period of sharp growth in the Norwegian market. In the same year, the overall size of the GSM market increased which was also responsible for the growth of various services provided by operators, especially SMS. A long free SMS introductory period, along with continuous marketing targeted specifically at the youth in the form of attractive reduced pricing schemes and advertisements, led to strong initial uptake of SMS in Norway. Further, the difference in price between voice call rates and SMS rates, among other social and cultural factors, led to a steady increase in SMS volumes in Norway during 1997-1999. The two operators in the Norwegian market, Telenor and NetCom, experienced a dramatic increase in peer-to-peer SMS messages sent over their networks. However, in the years that followed, the differentiating factor was the personalisation of SMS-based information services, such as logos, alerts, etc., provided to the customers.

95 Source: http://www.npt.no/

The total number of SMS sent by NetCom’s subscribers was 1.4 billion in 2005.



Internal Strategies

• Clear Business Model with Content Providers: NetCom entered into an agreement with Telenor to provide content partners in Norway, such as Cellus, Mobilnett, Inpoc, Popit, and Maxsms, a platform through which their mobile services could be distributed to all Norwegian end-users across the mobile operators’ networks. A business model was developed to share revenues with the content providers and services took off rapidly. This led to high profits from Premium SMS services and proved to be the most important factor for the high uptake of these services in the Norwegian market. The alliance between NetCom and Telenor proved that the Premium SMS market could be a billion dollar industry. As a result, this strategy was then adopted by operators worldwide.

• Focus on Premium SMS Services: The company management realised that in

order to increase NetCom’s market share in the mobile market via SMS, it had to focus on providing a broad range of good quality Premium SMS services to its customers. The services included downloading ringtones, logos, alerts, quizzes and games, SMS voting, Web content, taxi services, etc.

One of the most important steps taken by NetCom to promote its Premium

SMS service was the integration of SMS services with national television broadcasting. The company has been providing SMS voting provisions for well known national television programmes and this strategy has proven to be very profitable for NetCom. For example, one of the TV shows - Pop Idol - in Norway generated SMS revenues of more than USD 1.7 million (EUR 1.4 million) during 2002-0396.

• Pricing Strategy: The company launched prepaid cards for its customers which

allowed them to send free SMS messages. This helped subscribers to build familiarity with these new SMS services in the initial stages of the launch of the service. Later on, the company fixed low SMS rates and comparatively high per minute voice call prices. This was a prime driver for the high uptake of SMS services. This pricing strategy also attracted teenagers as the subscription price for prepaid cards was low, which combined with cheap SMS helped youths keep their total operating costs for owning a mobile to a minimum.

• Reverse Billing: By adopting a reverse billing strategy in 2000, NetCom charged customers for SMS messages sent by content providers, for services those subscribers had requested to receive. This made it possible for numerous content providers to offer subscription services such as goal alerts and news services. This helped the operator to provide a wide range of SMS-based services to its customers.

• Corporate SMS: Following the success of peer-to-peer SMS and Premium SMS

services, the company launched corporate SMS services in January 2003. This move was directed towards promoting the benefits of the SMS service to the corporate market. In association with solution provider General Wireless, NetCom launched its ‘NetCom Corporate SMS’ service.

96 Source: http://www.strandreports.com/sw616.asp

NetCom focused on providing Premium SMS services to its customers.



External Strategies Influencing Success

• Interconnection Agreement between the Operators: While it may sound

elementary now, in 2006, it is worth remembering that an important factor influencing the success of SMS services in Norway was the interconnect agreement between Telenor and NetCom for a complete degree of national interlinking for P2P SMS messages. This allowed customers to send messages from one network to another, leading to an increase of almost 30 percent in the number of SMS messages sent in Norway in the year which followed the interconnection agreement. While interconnection for SMS is standard fare now, these lessons should be remembered for future new services, such as Mobile TV – the mobile industry must ensure that a lack of technical cooperation is not responsible for holding back development ever again.

• Hands-off Approach from Regulation Authorities: A lack of interference from regulatory authorities enabled NetCom and Telenor to collaborate on pricing and interlinking issues in the market of Premium SMS services.



Best Practice Recommendations • Market Segmentation: As the clear examples above show, yet again good

market segmentation is a major key to success. Put quite simply - know your customers. As bargain priced bucket deals suit the low income subscribers in the Philippines and Premium SMS services drove the success of SMS in the more affluent Norwegian market, so it is vitally important to understand your customer’s needs and offer services and tariffs to suit those needs.

• Target your customers - but not just one group, target all groups. Focus on a

broader spectrum of customers by offering a suite of services tailored to each demographic group’s needs. MNOs worldwide have been focussing on introducing new, innovative and advanced non-voice services to maximise revenues from subscribers with plenty of disposable income, but many of these new advanced services are not affordable to the lower-income groups. While Premium SMS services and more advanced non-voice services such as mobile games and video downloads may be OK in highly developed markets, in many of the fastest growing markets now and in the coming years, SMS, which remains the most successful data service worldwide to date, may be the only non-voice service many can afford to use. SMS still holds the potential to address the needs of the mass market BOP consumers (lower income consumers), especially in developing countries. MNOs should adopt a different and unique business model and develop innovative marketing and distribution strategies to meet the needs of a broad range of customers in this section of society – the poor. For instance Develop a system for purchasing credits over-the-air (OTA), which allows the

subscribers to load airtime credits over-the-air (OTA) from a retailer’s account. This would curtail the costs for recharge vouchers and help MNOs to reach the masses, often in rural locations.

Introduce text-only SIM cards, which can be reloaded by purchasing cards in small denominations. This should encourage those people who could not earlier afford the high-denominations cards to get access to mobile services at a lower rate.

Offer tariffs that price SMS at a level considerably cheaper than voice. SMS has enjoyed great success in countries in Asia and Latin America where voice charges are quite high and SMS prices are very low.

Target cost-conscious prepaid subscribers. Bargain offers to students and youths and low-income workers will help drive SMS use into every corner of the market.

Timing: Offer vouchers for limited-time-only SMS bundles at peak times, such as New Year celebrations, festivals, holidays, etc. Cards that expire after 48 or 72 hours which offer prime time bundles of SMS, even unlimited amounts, at bargain prices, should help drive maximum peak time use and crucial revenues at these important times.

• Move towards a flat pricing structure: In most territories operators generally

ensure that SMS is priced lower than voice calls to maintain the utility of SMS for subscribers. In most mature markets prices have already reached a level where further reduction is not likely to create a proportional increase in demand. Therefore, MNOs should offer a flat pricing structure, where subscribers are charged a fixed amount for a package including a specific number of SMS, or even unlimited SMS in certain cases. Particularly in the US market, where the price ratio between a voice call and an SMS is low, the attractiveness of SMS as a low-cost communication medium does not hold much weight, and so a move towards flat pricing should drive further SMS use.

It is vitally important to understand your customer’s needs and offer services and tariffs to suit those needs.



• Offer bundling schemes for a complete messaging platform: To many subscribers, SMS is perceived as a simple messaging tool and a substitute for a voice call, and other more advanced messaging services, such as MMS, mobile IM and mobile e-mail, are seen as complicated and expensive luxuries. MNOs can increase the uptake of not only SMS but also other messaging services by providing bundled packages. This strategy has already been widely accepted in the US and some other markets in Europe, where operators are bundling text messaging and picture messaging plans, eventually leading to a surge in both the SMS and MMS traffic volumes. Further bundling SMS, MMS and Email services, and even including video messaging too, may help drive use across all these messaging mediums.

• Innovation in services: More than any other area of the mobile industry, we have

seen innovation in the vast range of services that utilise SMS. Worldwide there are literally thousands of services that use SMS as a way for consumers to communicate with services, or as a way for services to be delivered back to consumers. Genius services such as polling public opinions for radio shows and TV voting applications and ticketing applications have been hugely successful in many countries and these services generate vast amounts of SMS revenue. MNOs must remember that worldwide SMS accounts for approximately 80% of all non-voice service revenues, and MNOs should embrace everything SMS has to offer for the next few years in order to build non-voice service revenues as high as possible. Study best-of-breed SMS applications worldwide and emulate those services, as SMS is the one service that almost everyone can use. There is an installed base of over 2 billion SMS-enabled handsets worldwide, a figure matched only by voice of course, and that represents a huge market opportunity. Utilise the best in service and marketing innovation to maximise revenues from this most important sector of the mobile data services market.

• Use SMS as a platform to deliver best-of-breed consumer services: MNOs should

use SMS as a medium for developing diversified applications targeted to cover all sections of society. Some of the most successful SMS-based services that MNOs should offer in their service portfolios are mobile banking, news (sports, movies), SMS alerts (restaurants, concerts of celebrities, horoscopes), SMS chat, SMS TV voting, etc. This will increase SMS usage among subscribers, maximise ARPU from SMS and compelling services can help differentiate operators and hence reduce churn.

• Eliminate technical barriers to widespread use of SMS: Any technical barriers will

slow down service adoption, ensure handsets are simple to use, ensure the user interface is clear and intuitive and not a mass of complex menus and multiple screens. Services that generate the fastest growth and the greatest uptake among subscribers are the ones that are quick and easy to use, interacting with the service in just one or two clicks. Remove any unnecessary complexities in order to aid quick and simple interaction with all SMS based applications.

Summary – use everything SMS has to offer, it’s a worldwide success. Innovate; segment your customers and offer tariffs and services that have broad appeal. Eliminate technical hurdles and price low, SMS still has a huge future, especially in low-income markets.



Case Study: Innovation Driving SMS-based Services

Telsis – Intelligent SMS Routing Established in 1987, Telsis is a leading supplier of carrier-grade infrastructure for advanced text and voice services. The company is headquartered in England with subsidiaries in Germany, Italy, the Netherlands, Spain, Singapore and Australia. Telsis recognised the limitations of SMSC-based architectures for messaging and was the first to develop the concept of SMS routing to overcome these limitations. The company entered into partnerships with Ericsson and BT Wholesale to provide end-to-end solutions to telecom companies. The product range provided by the company consists of carrier-grade network platforms, service node components with service creation capabilities, and solutions for both text- and voice-based services. Telsis passionately focusses on SMS and the company firmly believes that SMS has many good years still to go, an opinion we share at Portio Research as we have written in many of our research reports before. The Telsis Intelligent SMS Routing system is designed for network operators to increase revenues from SMS based services, such as through SMS voting in competition events, as it provides increased connectivity, efficiency and throughput by routing SMS on the ‘edge-of-network’ rather than centrally through an SMSC. With central routing through an SMSC traffic can become congested and message delivery can be delayed, whereas intelligent routing speeds throughput and ensures faster delivery, relieving network congestion. Telsis provides its Intelligent SMS Routing system to numerous operators, some of which include: • Vodafone (UK) • Vodafone (Greece) • 3 (Scandinavia) • Telefonica Moviles (Spain) • T-mobile (Netherlands) • O2 (UK) • Warid Telecom (Pakistan) • Jersey Telecom (Jersey) • Telia (Sweden) Telsis offer some highly innovative products for driving text messaging to the next level, including: • SMS Voting System: SMS voting on TV shows relies on efficient delivery and

counting of SMS votes. For this, Telsis provides a powerful fully integrated voting system, which provides consumers with a single number which can be used for text and voice participation. The system ensures almost instant delivery of large volumes of SMS, so for TV production companies, this means a far greater number of SMS can be delivered in a much shorter period of time. Also, Telsis’ intelligent routing system guarantees delivery, an important feature in a voting application. This takes TV voting to the next level, with guaranteed delivery and faster delivery times, in-show voting, live and interactive, is easy to achieve. For example, the technology provided by Telsis to Telia MegaCall in Sweden helped in resolving problems related to handling a large number of SMS and voice responses that were sent to a single number over a short period of time. Telia now handles more than 100 million premium rate responses a year.

Telsis’ SMS Voting System takes TV voting to the next level, with guaranteed delivery and faster delivery times, in-show voting, live and interactive, is easy to achieve.



• Text for Business: Mobile messaging services have not penetrated the majority

of enterprises as quickly as many would have hoped for. While no executive is complete without a BlackBerry in his or her hand, for the majority of lower level workers and for most small and medium sized companies, mobile services are yet to make a significant impact. One of the reasons for this is the complex issue of bringing mobility into the overall bigger picture of corporate IT and telecoms infrastructure. Corporate IT departments generally control budgets as tightly as they control network access, and companies face a dilemma over the price of integrating mobile solutions into existing systems. As mentioned previously in this study, there is an installed base of over 2 billion mobile handsets worldwide that are already equipped to handle SMS, no technical hardware or software upgrade is required. SMS has massive potential to become a universally acceptable business tool, designed for communication in situations where voice calls cannot be made or where brevity is appropriate. SMS could be used in the field for engineers and sales staff to record data, for logging in and out of customer jobs and much more. The ‘Text for Business’ application from Telsis allows business customers to use these above-mentioned properties of SMS to the fullest, by offering some basic “email-like” functions for SMS systems, including: SMS Divert: SMS Divert enables the forwarding of text messages from one

handset to another, or to an office based system or data store, in the same way as voice calls can be diverted to another line or a voice mailbox.

SMS Copy: This enables incoming messages to handsets to get automatically copied to another mobile or e-mail address, as essential component for businesses which require records of all communications to be kept for reference and legal reasons.

SMS Log: In this, the outgoing messages from the mobile are automatically copied to an e-mail address for storage and reference.

While mobile email will surely one day become as ubiquitous as SMS is today, that time remains several years away, as hundreds of millions of mobile subscribers do not yet have suitably powerful handsets and many networks have only just started offering mobile email services. In the meantime, SMS could be widely used for corporate communications with comparatively little investment and almost no disruption to the end users.

• Wizard: This solution allows an operator to create an SMS-based Question-and-

Answer service. An MNO or service provider can install this solution that allows customers to send product/service-specific questions to the server by SMS and the server responds with automated answers that do not require human input. The service learns more over time, building a database of answers, learning from experience, and the application can be adapted to all manner of services. There are clear customer service roles, and some technical support, but also the service could be used to run a game, quiz or competition, and the service could easily be used to run mobile marketing campaigns, such as sponsored games, product promotions, prize draws and so on. One notable installation of this solution is with Telefonica in Spain, where this application powers a service for prepaid subscribers called “Lend me 2 Euros”. This service allows subscribers who are running out of credit to send an SMS to the Wizard which them “lends” them 2 Euros worth of credit, which is then deducted from their next top-up.

• Alpha: Traditionally, all SMS-based applications that require subscribers to communicate with server-based applications use short codes, typically a 5-digit number for sending SMS messages. A short code is a network address for a mobile network, just like an IP address for a web site. Alpha is an application that allows SMS short codes to be used alphabetically, the same way we look up

SMS has massive potential to become a universally acceptable business tool.



websites using names, not IP address’s, so consumers can text to a WORD (for example, ADIDAS or REEBOK or PEPSI) instead of a number (short code) that may be difficult to remember. As mobile marketing grows, there are clear advantages to this system and countless applications where this could be used.

Advantages for MNOs

Over 70 percent of mobile networks with SMS routing use Telsis’ solutions. There are many advantages to using such a solution, not least the following factors: • Intelligent SMS routing delivers a large number of SMS almost instantly at a

speed which is approximately 10 times faster than that of the traditional SMSC architectures. This helps in eliminating some problems which operators have previously faced: Traditional messaging architectures often fail to handle peaks in traffic to

applications (such as voting for American Idol or Big Brother or other such popular shows) and peaks in P2P messaging at times such as New Year’s Eve. Part of the delay at absolute peak times, like New Years Eve, occurs because a traditional SMSC continues trying to redeliver messages again and again until the system has cleared. Unproductively, this exacerbates the problem, as the SMSC becomes ever more congested with those messages it has not yet delivered and the flood of new messages still coming in. While Intelligent SMS routing is unlikely to completely handle the huge annual peak that occurs on New Years Eve, in most circumstances edge-of-network routing should eliminate such capacity constraints.

This solution helps operators to earn revenues from SMS voting on TV shows, as the intelligent routing system is capable of delivering bulk messages almost instantly. By ensuring faster delivery, “real-time” voting can be introduced into more TV shows, offering new revenue generating opportunities with interactive quiz shows, and interactive “knockout” shows with contestants voted out by the public and so on.

• An intelligent routing system is less expensive than traditional SMSCs • The company’s ‘Text for Business’ service provides an opportunity to telecom

operators to increase their revenues from business customers and dramatically increase SMS use.

Future Outlook

Throughout this report we have identified innovation as a key factor driving success in almost all non-voice mobile services. Telsis offer some extremely innovative solutions, of which we believe ‘SMS voting’ and ‘Text for Business’ offer the greatest scope for the near future. While all these solutions offer great additional utility to SMS, the possible growth in interactive TV voting and business use could potentially stimulate vast increase in SMS traffic volumes. SMS voting is already popular on TV shows. If live interactive voting applications can take place on more TV shows, there is huge scope for TV quiz shows to start using SMS Q&A voting/quiz applications. For example, in a show like "Who Wants to be a Millionaire", instead of "Ask the audience" they could have an "Ask the nation" option/round. “Big Brother” could include live votes for contestants to undertake tasks selected by the public, or “American Idol” could include live public ratings on performances. Operators would be well advised to make the most of the current popularity of TV voting applications and maximise messaging revenues as they do. In many instances, the voting public seem unconcerned about the price of these TV voting applications, quiz or competition entries, live bingo or lottery-style contests could all be powered by SMS, and as premium services these could generate vast new revenue flows for operators and TV production companies.

The intelligent SMS routing delivers SMS at a speed which is 10 times faster than that of the traditional SMSC architectures.



In the enterprise sector, SMS has the potential to be a huge success as a business tool, especially with SMEs where the cost of implementing large-scale integrated corporate IT/telecom solutions may be prohibitive. Companies face high up-front investment costs if they buy in an all-new corporate mobile communications solution and such costs are likely to be prohibitive for many small and medium sized companies, where buying a simple ‘Text for Business’ solution may be a much cheaper and easier solution. If SMS can be stored, copied, backed-up, diverted to a mailbox, answered with an ‘Out-of-office’ (or ‘Away-from-phone’) reply, auto-forwarded and archived for future reference, without any technical upgrade required at the handset end, then there is massive potential for companies to use text messaging this way.



Case Study: Further Innovation From New Services

Bubble Motion – BubbleTalk Established in 2003, Bubble Motion is a technology company developing voice applications for mobile operators. It is headquartered in the US, with offices in Singapore and Malaysia. BubbleTalk is the name of the “voice SMS” service provided by the company, which allows users to send a short voice message to the recipient, using SMS as part of the delivery mechanism. In terms of simplicity and the discreet, ease-of-use of the service, this is similar to sending a text SMS. In this service, the user can dial a number provided by his or her network operator, followed by the mobile number of the recipient, and then record a 30-second voice message. The recipient would then receive an SMS notification and would be able to hear the voice message that was sent. Bubble Motion’s service known as ‘BubbleTalk Voice SMS’ was launched by Digi in Malaysia on 31 January 2005. The service has been a success in that country and the number of voice messages sent over Digi’s network reached a massive 88 million by November 200597. Presently, Bubble Motion has partnered with various operators who have launched this service in different countries. The various operators include: • Digi in Malaysia • M1 in Singapore • CSL in Hong Kong • New World Mobility in Hong Kong • Airtel in India • Indosat in Indonesia

Advantages for MNOs

BubbleTalk is an innovative service that has the potential to experience mass uptake owing to some basic advantages that the service offers over sending an SMS or making a regular voice call. • BubbleTalk caters to the demand for low-end voice services and has the potential

to be very popular in developing countries, where incomes and literacy rates are lower, as it is cheap, quick and simple to use, just like SMS.

• Voice SMS provides an additional option to elderly people who find SMS fiddly, to non-tech-savvy types who are not comfortable with SMS or maybe don’t like predictive text typing, etc, and to office-goers and the younger generation who might want to save time, or may not be so comfortable with typing a text message at that point of time.

• Voice SMS services work on all GSM handsets. Therefore, the service has the potential to tap the entire subscriber base with its launch, which is a massive advantage over many other services.

• Voice messages are billable per message like SMS, which should appeal to most regular SMS-user groups, such as cost-conscious prepaid users, low income subscribers, etc, as it helps keep a tight grip on spending. Also, the charges are

97 Source: http://www.ericsson.com/mobilityworld/sub/articles/other_articles/05nov21

BubbleTalk has the potential to be very popular in developing countries as it is cheap, quick and simple, just like SMS.



comparable with services such as MMS, voice calls, etc. The service is ideally priced between that of sending an SMS and making a voice call.

• BubbleTalk uses existing resources such as voice circuits and USSD; therefore, the deployment cost of the service is not high for the operator. Also, the time taken by the company to deploy the service on the operator’s network is less then two months, as the voice SMS service utilises existing Internet and voice circuits for transport.

• The BubbleTalk service can be deployed on all networks. Any advances made by an operator towards 3G networks would not require an upgrade in the voice message application.

Future Outlook

BubbleTalk is expected to grow exponentially, especially in developing countries in Asia and further afield, as it provides low-end voice services for operators to deploy. As the service utilises the existing network, the time and cost for deployment of the service is low, which should help operators earn revenues quickly from only a minimal level of investment.



MMS

Selection Criteria

Although MMS uptake had been slow in the past, MMS has started gaining popularity in many geographies, especially across Europe and the US, due to the interoperability agreements between MNOs and re-evaluation of the pricing strategies adopted by many operators. We short listed the major MNOs worldwide which have the highest levels of MMS traffic. These include Verizon Wireless USA, Cingular Wireless USA, T-Mobile USA, Sprint-Nextel USA, TIM Italy, Telcel Mexico, SFR Telecom France, Telenor Norway, O2 UK, SK Telecom South Korea and NTT DoCoMo Japan. Based on the above criteria and the news value each has achieved, we identified the following five most successful MNOs for MMS: • Verizon Wireless, USA • SFR Telecom, France • Telenor, Norway • Sprint-Nextel, USA • TIM, Italy Table 15 assigns relative ranks to the selected five MNOs for MMS based on the identified selection criteria.

Table 15: Selection Criteria for MMS

SELECTION CRITERIA MNO – MMS NEWS VALUE MMS VOLUME

RANK

Verizon Wireless – MMS

1

SFR Telecom – MMS

2

Telenor – MMS

3

Sprint-Nextel – MMS

4

TIM Italy – MMS

5

The following section will elaborate on the strategies adopted by the top three selected MNOs for the growth of MMS.

MMS has slowly built popularity across Europe and the US.



Verizon Wireless – MMS Verizon Wireless, a joint venture between Verizon Communications and Vodafone, is the second-largest mobile operator in the US, with close to 54.8 million subscribers as of 30 June 2006.98 The other three major national MNOs in the US are Cingular Wireless, T-Mobile USA and Sprint-Nextel. The Verizon Wireless network is based on CDMA technology. Verizon Wireless was the first operator to launch 3G services based on CDMA 2000 1X EV-DO technology in the US in October 2003. MMS was launched by Verizon in July 2003 on its CDMA 2000 1X network. The company allows its subscribers to send picture and video messages from peer-to-peer, to a valid e-mail address and to Verizon’s on-line multimedia library – Pix Place. The subscribers can also send MMS messages from an e-mail account to a mobile handset, using mobile number @vzwpix.com, or from Verizon’s on-line multimedia library – Pix Place to any mobile handset. The price for sending and receiving each MMS is USD 0.25 (plus airtime) though it is important to note that in the US, both sending and receiving party pays, so revenues are effectively doubled. Users can also purchase picture message bundles, as follows:99 • USD 2.99 per month for 20 MMS and USD 0.25 for each additional MMS, plus

airtime • USD 4.99 per month for 40 MMS and USD 0.25 for each additional MMS, plus

airtime The total number of MMS sent on Verizon’s network increased from 100 million in 2004 to a massive 347.4 million in 2005 and is surging forward in 2006. Figure 17 highlights MMS volumes for the Verizon Network from 1Q 2004 to 2Q 2006.

Figure 17: Verizon Wireless: MMS Traffic Volumes (In Millions, 2004-2006)

232

171

134

110

6241

33262121

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50

100

150

200

250

1Q'04 2Q'04 3Q'04 4Q'04 1Q'05 2Q'05 3Q'05 4Q'05 1Q'06 2Q'06

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The success of Verizon’s MMS service is attributed in no small part to the existence of interoperability agreements with all the major MNOs in the US and a strong reliable nationwide wireless network in the US for sending and receiving picture and video messages. It is no secret that the lack of interoperability agreements and the presence of competing network technologies across the US market greatly hampered the roll out of MMS in the early years. The company’s broad strategies to increase MMS uptake have been discussed in the following section.

98 Source: http://news.vzw.com/investor/pdf/Cellco10Q8.7.06.pdf 99 Source: http://www.verizonwireless.com/pdfs/gsaadvantage.pdf

The total number of MMS sent on Verizon’s network increased from 100 million in 2004 to a massive 347.4 million in 2005 and is surging forward in 2006



Internal Strategies

MMS volumes through Verizon’s network reached the 1 million mark within less than a month after launch100. This rapid uptake of MMS, when the service was at a very nascent stage, was possible due to the following strategies adopted by Verizon at the time of launch to generate interest and encourage use among its subscribers: • Offered Bundling Schemes while Other MNOs Charged Premium: Verizon

offered bundling schemes to its subscribers for MMS while the other MNOs in the US were charging a premium for the service. After launching the service in July 2003, Verizon offered unlimited picture messages for USD 2.99 (plus airtime) until 1 January 2004 for those who subscribed to the bundling package before 3 August 2003.101

• Simplicity of Use and Payment: Verizon’s MMS service was easy to use as it required only four steps or clicks on Verizon’s handset against six to ten steps for subscribers on other networks. Also, significantly, the company charged on a per-MMS-sent-and-received basis, or through bundle schemes as mentioned above, while other MNOs such as T-Mobile and Cingular Wireless charged for MMS by the number of kilobytes of data sent. This strategy helped to change the consumer’s perception of MMS as a utility and subscribers adopted the new service when they realised it was fun, good value and simple to use.102

Apart from having a reputation for network reliability, Verizon Wireless has adopted the following strategies since then, which have lead to a 10-fold growth in MMS traffic from 21 million in 1Q 2004 to 232 million in 2Q 2006. • Interoperability Agreements with All the Major MNOs: The level of network

interoperability of MMS is now very high within the US. Verizon subscribers can send and receive MMS from all the major MNOs in the US, such as Cingular/AT&T, T-Mobile, Sprint Nextel, Alltel, US Cellular, Cricket/Leap Wireless, etc. Verizon’s MMS interoperability agreements with major MNOs have been listed below in chronological order: Cingular in March 2005103 US Cellular in April 2005104 Cricket/Leap Wireless in May 2005105 Sprint in July 2005106 Alltel in August 2005107 MMS traffic took off substantially once these interoperability agreements were in place, allowing Verizon’s customers to share content on other networks as well. The interoperability between various networks, along with the penetration of camera-enabled handsets, have been the two most important single factors driving the MMS market forward.

• Re-evaluating the Pricing Model by Bundling Text Messaging and Picture

Messaging: Verizon started bundling text messaging and picture messaging from

100 Source: http://www.prnewswire.com/ 101 Source: http://www.theregister.co.uk/ ; http://www.prnewswire.com/ 102 Source: http://www.findarticles.com/p/articles/mi_qn4176/is_20030708/ai_n14552857 103 Source: http://seattlepi.nwsource.com/business/217145_cellpix23.html 104 Source: http://www.wirelessweek.com/article/CA529899.html?text=mobile+365 105 Source: http://www.wirelessweek.com/article/CA603326.html 106 Source: http://www.mobiletracker.net/archives/2005/07/17/verizon-sprint-mms 107 Source: http://telephonyonline.com/wireless/news/Verizon_Alltel_MMS_081905/

MMS volumes through Verizon’s network reached the 1 million mark within less than a month after launch, which was mainly due to the bundling schemes provided to its subscribers.



2005, as well as continuing to offer the regular charging models. The newer schemes break out as follows: Txt-Pix Messaging Plan for USD 5 per month: Unlimited text, picture and video

messaging to other Verizon Wireless subscribers and 50 additional messages to non-Verizon Wireless subscribers

Txt-Pix Messaging Plan for USD 10.99 per month: Unlimited text, picture and video messaging to other Verizon Wireless subscribers and 250 additional messages to non-Verizon Wireless subscribers

Txt-Pix Messaging Plan for USD 15 per month: Unlimited text, picture and video messaging to other Verizon Wireless subscribers and 500 additional messages to non-Verizon Wireless subscribers

Presently, according to independent reports, more than 16 percent of Verizon’s wireless customers subscribe to these bundle schemes.108 This strategy helps to negate any price sensitivity subscribers have towards MMS by capping the cost and in turn this will help to get more people accustomed to using MMS as a messaging platform.

• Encouraging User-Generated Content Sharing through Dedicated Websites: Verizon’s Online Multimedia Library – Pix Place: It provides dedicated

space to Verizon’s subscribers for storing, managing and sharing photographs. The gallery allows its subscribers to create picture messages online using several categories of content, such as fun, love/flirt, nature, songs, sounds and sports.

KODAK Mobile Service for Verizon Wireless's ‘Get It Now’ customers: Verizon formed an alliance with Kodak in February 2004, which allowed Verizon Wireless's ‘Get It Now’ customers to download a BREW-based Kodak mobile application for USD 3.99 per month onto their Verizon handsets. The application allows subscribers to create, share, organise, store and order prints for digital photographs on Kodak-powered weblogs.109


• Interoperability between MNOs: True interoperability between MNOs and the compatibility of handsets has significantly increased the uptake of MMS in the US market. The various interoperability deals in the US between all the major MNOs, using different network technologies, such as GSM and CDMA, have been the key for gaining user confidence and acceptance of the service in the market. Since these agreements were finalised, MMS has started winning considerable gains in the US market.

• Increased Penetration of Camera-enabled Handsets in the US: The

penetration of camera handsets in the US has considerably increased in the recent past, which has been instrumental in the surge in MMS traffic. Currently, more than 79.26 million subscribers in the US own camera-enabled handsets.110

108 Source: http://www.tmcnet.com/usubmit/2006/09/09/1875118.htm 109 Source: http://news.vzw.com/top_stories/138.html 110 Source: http://informationweek.com/management/showArticle.jhtml?articleID=193006233



Future Outlook

The growth of MMS over Verizon’s network is expected to gain momentum in the future with the growing penetration of camera-enabled handsets in the US and the dedicated initiatives taken by Verizon Wireless. Verizon has recently enabled premium MMS billing over its network for content aggregators,111 which will allow those content aggregators to bill and distribute their services to Verizon customers using MMS. This should greatly enhance the customer experience and further encourage the growth of application-to-peer (A2P) MMS. Unlike the sale of handsets in other geographies, handset sales in the US are largely controlled by the MNOs. The MNOs and handset vendors can easily work together to ensure seamless compatibility between handsets provided by different MNOs, thus ensuring that MMS is delivered to the desired destination on any network without suffering any loss of format. This should further contribute to the uptake of MMS in the country.

111 Source: http://biz.yahoo.com/iw/060627/0139490.html

The growth of MMS over Verizon’s network is expected to gain momentum in the future.



SFR France – MMS SFR is the second-largest telecommunications operator in France, providing voice, multimedia services and mobile data solutions to its GSM customers. As of December 2005, it had more than 17.2 million customers, including 1 million exclusive 3G customers. SFR launched its MMS service in 2002. This service allows customers to send and share pictures and video messages from their handsets. Customers can also send e-mails from their handsets as well as receive them via MMS. SFR customers can also use MMS for uploading their pictures to the Internet from their handsets. The company charges its customers USD 0.12 (EUR 0.10) for sending a text MMS to a recipient, and it charges USD O.38 (EUR 0.30) for sending a photo MMS or video MMS. It also provides package deals112, in which the customers can send: • 30 SMS or 10 MMS for USD 3.1 (EUR 2.5) per month • 60 SMS or 20 MMS for USD 6.3 (EUR 5) per month • 120 SMS or 40 MMS for USD 12.5 (EUR 10) per month Additionally, SFR offers a range of tariffs suited to professionals and enterprises. After the launch of its MMS service in 2002, SFR saw a robust increase in MMS sent by its customers from 2003 onwards, after the signing of interoperability agreements between the mobile operators in France. This led MMS volumes to increase manifold, from 0.4 million in 2002 to 6 million in 2003, and 37 million in the following year. The launch of MMS mail and the innovative pricing strategies deployed by the company helped MMS volumes reach 98 million in 2005. Figure 18 shows the number of MMS sent on SFR’s network over the last five years. The figure also depicts a major increase in MMS sent in the first half of 2006, which was partly due to the football World Cup in 2006.

Figure 18: SFR: MMS Traffic Volumes (2002-June 2006)

0.4 6

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2002 2003 2004 2005 Half Yearly(2006)

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Source: www.vivendi.com

Internal Strategies

• Integration of Services: SFR integrated its mobile e-mail service (which is known as MMS Mail) with its MMS service. Customers using the MMS Mail

112 Source: http://www.sfr.fr/info_nouveautes

As in other countries, after a slow start MMS has grown in France since interoperability agreements were signed and cameraphone penetration reached a critical mass.



service get e-mails from their online accounts pushed to their handset's inbox in the form of MMS messages. They can also reply to an e-mail or send a new e-mail, which can include attachments such as photos or video clips, in the form of an MMS from their handsets to any email address. The MMS Mail service managed to achieve 150,000 paid subscribers in just four months from its launch in June 2005. This not only marks the success of the service but also its contribution towards the uptake of MMS services amongst SFR’s customers, as the messages that pass between online accounts and handsets are in the form of MMS messages.

• Pricing Strategies: The company provides good value bundled deals to its customers, in which customers can send a fixed number of SMS and MMS messages for a fixed monthly price. This has helped the company promote the adoption of MMS among its customers, as these bundle deals offer both SMS and MMS at highly subsidised rates, and remove the fear that sending an MMS is an expensive activity.

In addition to the bundle deals on offer, SFR also offers a scheme whereby customers can send unlimited SMS and MMS to three numbers of their choice by paying USD 6.3 (EUR 5) per month. Such innovative bundling and pricing strategies have helped in driving the uptake of this service.

• Online Picture Sharing: To add more features that would increase the uptake of the MMS service, SFR facilitated online picture sharing for its customers by entering into a partnership with Kodak Corp. With this service, SFR customers have the option to upload pictures to the online KODAK Photo Album site, which they can do by sending an MMS to the operator. This allows customers to store, share and print pictures directly from their handsets. The online picture sharing facility has been available to customers since February 2005. The company took this step to tap into the social networking trend in the country, which makes it possible for people to stay connected with their friends even when they are on the move.


• Penetration of camera handsets: France has a high penetration rate of camera-equipped handsets. This has helped in the uptake of MMS services, as customers can click and send their pictures via MMS. The service also helps in uploading pictures taken by customers on their handsets to the Internet.

SFR integrated mobile e-mail into its MMS service, attracting 150,000 paid subscribers in just four months from its launch in June 2005.



Telenor Mobil – MMS Telenor Mobil is Norway's largest telecommunications company. With a total subscriber base of 96 million in the second quarter of 2006, and ownership interest in 12 mobile operators across Europe and Asia, Telenor is one of the fastest growing mobile communication service providers worldwide. Telenor Group’s revenues for FY 2005 reached USD 10.7 billion (NOK 68.9 billion), a growth of 14 percent as compared to FY 2004. Of the group’s total revenues, 57 percent were derived from its mobile operations. Telenor Mobil was the first telecom operator in the world to launch Multimedia Messaging Services when it introduced the service in March 2002. Since then, the use of MMS in Norway has witnessed a boom, with around 2 million MMS messages sent over the summer in 2003, giving Norway the tag of the leading ‘MMS’ country in Europe during that period. Telenor subscribers sent 14.5 million MMS in 2003. In the first six months of 2005, 88 million MMS messages were exchanged in Norway, an extremely significant increase over the 20 million MMS messages exchanged during the same period in 2004. Telenor Mobil launched MMS with a free trial period of around seven months (till October 2002). After the trial period, the company adopted a flat pricing structure for its MMS services. As opposed to the pricing system adopted by its competitors, where the MMS was charged according to the size of the message, a flat pricing structure was an easier model for consumers to understand. Telenor also quickly formed alliances with other global operators to promote interoperability.

Internal Strategies

• Pricing Strategy: Free MMS Usage in Initial Launch Period: Telenor developed a critical mass

of MMS users early on owing to the long free trial period offered for free MMS use, from launch until November 2003. This introduction strategy was adopted from its earlier successful introduction strategy for SMS, which also created an initial surge in SMS usage.113

Flat Pricing: Telenor, the first company to launch MMS services commercially, adopted a flat pricing scheme of USD 1.6 (EUR 1.30) per message sent, irrespective of the message size. In contrast to this, most of the other operators around Europe charged MMS to subscribers based on the size (number of kilobytes) of the message. Users who were familiar with the per-message billing system, as used in the case of SMS, found the flat pricing scheme much easier to understand, whereas confusion surrounded the per-KB system, allowing Telenor’s MMS service to gain wider acceptance and uptake among users.

• MMS Interoperability: In October 2003, Telenor entered into a ‘Mobile Alliance’

agreement with eight independent mobile operators, including Amena (Spain), O2 (Germany, UK and Ireland), One (Austria), Pannon GSM (Hungary), Sunrise (Switzerland) and Wind (Italy). The aim of the alliance was to provide improved voice and data solutions for customers across Europe by using each other’s networks. As a result of this alliance, services such as GPRS and MMS connectivity saw a significant improvement.

• Signing Distribution Agreements: Telenor has always placed emphasis on

consolidating its networks to enable easier distribution of MMS services across the Telenor Mobile group. In December 2002, it signed a global framework

113 Source: http://www.itu.int/osg/spu/ni/futuremobile/general/casestudies/norwaycaseE.pdf

Telenor Mobil was the first telecom operator in the world to launch Multimedia Messaging Services in March 2002.



agreement with Ericsson for MMS solutions. The agreement encompasses all Telenor Mobile operations in Europe and Asia. This agreement helped Telenor realise cost efficiency in the MMS market by distributing services to consumers globally, with limited development costs.

• Overcoming Handset Limitations: MMS-enabled handsets were comparatively

expensive back in 2002/2003 and it was hard for end users to justify the cost, unless the service was priced cheap enough. In light of this, even though MMS uptake has been extremely high in Norway, Telenor was unable to tap into the broader market of subscribers who did not carry MMS-enabled handsets at the time. In order to do so, Telenor entered into a partnership with LogicaCMG to upgrade their mobile messaging platform with the next generation messaging solution. Apart from adding a variety of new features, this solution enabled transcoding, which adapts the MMS message to different handsets, ensuring a reasonably high quality end-user experience even on less advanced handsets.


• Increase in Number of High-end Handsets: The launch of MMS-enabled handsets was timed to coincide with the introduction of MMS services in Norway, which boosted MMS use from the start. In some other markets services were launched at a time when very few handsets were available and this drastically help back development of the service. Out of the 1.6 million handsets sold in Norway in 2003, 56 percent were MMS enabled and 12 percent had a camera. This was a huge boost to the growth of MMS in Norway in those early years, and obviously the number of advanced MMS-enabled handsets has increased significantly since 2003. Attractive features such as camera, GPRS, WAP and MMS services are available to most subscribers now and this has helped MMS traffic to continue growing rapidly.

• Receptiveness to New Technology: Norway has long been known for its

tradition of introducing and adopting innovative mobile technology and services in its market. In November 1999, it pioneered the launch of a public WAP portal and in March 2002, launched the first MMS services. Norway has been a leader in the field of wireless telecommunications.

In 1906, Norway became the first North European country to deploy a wireless telegraph link. In 1919, its first wireless telephone sets were introduced. Introduction of manual mobile telephony services in Norway dates as far back as 1966. The number of mobile subscribers in Norway superseded that of fixed line subscribers as far back as 1998. The Norwegian mobile market showed a healthy CAGR of 53.6 percent from 1995 to 2002, and the number of subscribers reached 84.3 percent penetration (3,840,377 subs) by 2002, among the most advanced in the world.

• Existing SMS-intensive customer base: In Norway, the basic SMS and

premium SMS market has emerged as a platform to aid delivery of a whole host of different MMS services and to provide a degree of interactivity to the existing customer base. This is a strategy aimed at reducing churn. Recent studies indicate that major Norwegian operators like Telenor and Netcom are developing business models for MMS on similar lines as those developed for the SMS and premium SMS markets.

Telenor entered into a partnership with LogicaCMG to upgrade their mobile messaging platform with the next generation messaging solution.



Best Practice Recommendations • Price: As we have written in other reports before - see our ‘Mobile Messaging

Futures’ studies at www.portioresearch.com - MMS is a very different application to SMS. Where SMS offers utility, MMS offers fun. SMS is a cheap, quick way to communicate a short message, but MMS is more about having fun, sharing experiences and sending a novelty message. Because of this difference, MMS should not be priced too much higher than SMS, as the additional abilities of MMS are not of great value. Early per-KB pricing plans confused consumers and put them off using MMS. MNOs should provide a flat pricing structure for MMS, where messages are charged according to the number of messages sent, not the size of each message.

• Price low! It’s that simple, keep prices low and offer bulk deals to stimulate use.

• Bundle deals: As well as per-message-billing and keeping prices low overall,

operators should look at offering bundle deals incorporating a fixed number of SMS and MMS messages for a fixed monthly price. Bundled schemes has been successful in drastically improving the uptake of MMS service in various countries, especially in places where use of SMS is quite high. Operators should also consider bundles that include mobile email, mobile IM and mobile video messages too, bundling all messaging formats together should encourage use of them all. Bundle deals where SMS and MMS are offered together have played a major role in making MMS services successful for a number of MNOs globally.

• Innovation: Again this point of innovation shines through.

MMS Mail: Innovative services, such as MMS Mail from SFR, where email is combined with MMS, help stimulate demand through increasing the usefulness of MMS and broadening the appeal to a wider audience. Such a service can generate traffic from outside SFR’s network, emailing to SFR subscribers, whom then reply using MMS, generating revenue for SFR.

User-generated content: Catching on to the Web 2.0 phenomenon and embracing the current trend for user-generated content is an excellent way to stimulate MMS traffic. Forming a partnership with an online photo service, such as Kodak, can encourage lots of MMS traffic as cameraphone users upload their snapshots to online galleries.

Technology adaptation: Where possible, implement technology at the network level rather than relying on subscribers to upgrade to new handsets. Waiting for the number of MMS/camera/colour screen -enabled handsets to reach a critical mass in Europe held back MMS growth for the first 2 years. If possible, operators should adapt technology at the network level to help deliver services to end users, such as in the example of Telenor implementing a new messaging platform to help less advanced handsets handle MMS properly.

• Eliminate barriers: Now, in late 2006, it goes without saying, but operators and

other players in the market must do all they can to eliminate barriers to service development. MMS – probably more than any other mobile service – was held back in the early days by the lack of handset penetration (as mentioned above), and the lack of interoperability agreements. It sounds like “old news” to hear it now, but no other single factor has been more influential in driving up the use of both SMS and MMS that the signing of interoperability agreements between network operators. As the mobile world moves towards new music services, mobile video services, mobile TV and much more, this point should not be forgotten. Handset penetration was slowed by high prices and subscribers found MMS confusing, with unclear tariffs, poor standardisation of software coding meant MMS messages displayed well on some handsets but poorly on others,

MMS should be bundled with SMS and integrated with mobile e-mail services.



and networks could not communicate with each other properly. In all, this confusion stifled the launch of MMS and held the service back for a long time.

• Ease of use: Ensure that customers do not find sending an MMS a cumbersome

process. Provide a easy-to-use, best-of-breed user interface that enables messages to be created and sent with the minimum possible number of menu navigations and thumb clicks.

Summary – keep prices low, offer bargain bundle deals, structure innovative services and keep the user interface simple.



Web 2.0 – An Introduction

In recent years, there has been a phenomenal change in the way people use the Internet. The Internet has suddenly become a more engaging place, delving ever more deeply into the lives of users and becoming a means of self-expression for many people from every corner of the Earth. The burgeoning accumulation of user-generated content from collaborative resources like Wikipedia, through blogs, photos, audio and video clips and multiplayer gaming communities, is an indication of this trend. This trend is a manifestation of the Web 2.0 concept. Web 2.0 aims to provide more flexibility to Internet users, allowing them a space for expressing themselves easily. Where the first generation of the Internet was like a vast open book, where a user could turn the pages at will and read whatever they liked; now the Internet is moving into the next generation where users actually participate. Where the web was simply an open text book, it is now becoming a diary of life in the 21st century, with billions of contributing authors. The existing Web 2.0 offerings include social networking, multimedia upload and sharing, blogging (online publishing), social bookmarking, and social search, etc. These offerings help users to network and form communities with their friends or with other users who have similar interests and hobbies. They can also very easily upload photos and videos and instantly share them with other users, including members of their online community. In addition, users are often allowed to rate and post comments about the content created or uploaded by other users. Web 2.0 has spawned several major Internet media companies – Flickr, YouTube, MySpace, Facebook, etc. In a very short span of time, these companies have become some of the most frequently visited sites on the Web. In fact, MySpace has surpassed Internet giants such as Google, Yahoo, MSN and AOL to attract the highest number of visits. Further, due to the involving nature of this new breed of websites, in many cases an average user spends much more time on them than on more traditional sites.

Mobile and Web 2.0 Mobile handsets have been evolving over the last few years with respect to the multitude of services they now support, as networks have been evolving the services they offer. They now have the capability to support high download speeds and high-end handsets now include advanced software to support various applications and usage patterns. However, many of the services on offer have failed to grab the attention of the mass market, lacking truly compelling utility or lacking in engaging content. Now however, service providers and vendors may not have to look far to find such content, the online revolution of web 2.0 may be just the answer. Already, several industry watchers have begun to opine that mobile handsets are the next destination for this web 2.0 revolution. An increasing number of mobile users are showing interest in services such as photo and video upload and moblogging. According to M;Metrics114, an Internet research and consulting firm in the US, 33.2 percent of 18-24 year-old Americans post photos to Websites from their mobile handsets. On the other hand, only about 18.7 percent of young adults play downloadable mobile games, a dominant form of mobile entertainment content presently. These figures indicate the growing opportunity for social networking providers as well as wireless service providers and mobile handset vendors.

114 Source: http://www.businessweek.com/technology/content/may2006/tc20060530_170086.htm

The existing Web 2.0 offerings include social networking, multimedia upload and sharing, blogging (online publishing), social bookmarking, and social search, etc.

Mobile handsets are believed to be the next destination for the web 2.0 revolution.



A good example of how Web 2.0 can be utilised by a service provider is that of SeeMeTV launched by Hutchison 3 UK. SeeMeTV received more than 30,000 user-generated clips by March 2006 and more than 4 million video clips had been downloaded during its first four months after launch. As the trend for user-generated content grows, there are already numerous companies offering mobile Web 2.0 features and Internet media giants have evinced interest in these companies. For instance, Dodgeball, a mobile social networking company, was acquired by Google as early as May 2005, and no one in the industry could have missed the October 2006 announcement that Google was acquiring YouTube, barely 18 months since its start, for a staggering 1.65 Billion USD. Google has also acquired several other mobile-web-centric companies, including Zipdash, a mobile traffic update service provider. Despite all such endeavours, there are some thresholds that need to be crossed in order to translate the online success of Web 2.0 on to mobile handsets. The two major thresholds, as Frederick Ghahramani of AirG points out115, include smaller screen sizes and content regulation (copyright and privacy issues). The screen size issue may resolve itself, as the bulk of content generated on mobile handsets will be viewed on other mobile handsets, but the ugly issue of copyright protection is already becoming a problem in the wireline world, and this will not doubt follow on wireless platforms.

115 Source: http://www.techdigest.tv/2006/05/whats_needed_fo.html



Mobile Social Networking – MySpace for mobiles Online social networking is one of the most popular manifestations of Web 2.0. The two most popular online social networking platforms are MySpace and Facebook. MySpace, the more popular of the two, had around 80.7 million users worldwide as of May 2006116 and offers services in the US, the UK, Australia, France, Germany and Ireland. Currently, MySpace allows its users to create a personal home page, write blogs, upload photos and videos, connect with friends and form communities, all of it in the same environment. The online success of MySpace is attributable to several aspects pertaining to innovative use of technology and interesting content. Some of the key factors of MySpace’s online success have been discussed below – • Flexibility – MySpace users are given the freedom to customise the look and feel

of their homepage the way they want, which helps them to best reflect their virtual identities. Such flexibility, integrated in a single environment, has been one of the defining features of its success. Also, features such as importing photos from third-party services, such as Photobucket, increase flexibility for users.

• Social Networking Model – The social networking model of MySpace is very different from its competitors. Unlike Friendster, MySpace never allowed the display of the ‘friend chains’ of its users. Such ‘friend chains’ have a heavy computational download and affect the site’s performance and page loading times. Additionally, unlike Facebook, where communities are university college-based, MySpace enforces no such restriction.

• Focus on the Young – Interestingly, MySpace has become a busy online location for unsigned amateur music bands to showcase their work. This is a factor in explaining its runaway success amongst teenagers and young adults. Establishing a solid brand presence in a niche area like this is a great way to build awareness and reputation.

• Sponsored Content – The social networking website hosts sponsored pages providing comedy content. Although this is not strictly [amateur] user-generated content, it is nevertheless an attractive feature of the site. This highlights MySpace’s willingness to look beyond the user-generated aspects to engage users and generate revenue. There is no law that says “user-generated content” can only be generated by amateur users. Since the Internet became a mainstream facet of everyday life, we now live in an age where old business models have been turned upside down and new ones are being formed every day. As we are all users of the Internet, private individuals and corporations alike, in the future we may see corporate versions of sites like MySpace, where enterprises upload content that is deemed to be ‘in the general interest’. Of course such a site would need to be moderated in order to avoid it being a pure advertising platform, but as viral marketing (see below) becomes more popular such a site could become “out-take TV” for corporations, with great interest to the general public too.

• Viral Marketing – MySpace has very successfully utilised ‘viral’ or ‘word-of-mouth’ marketing in order to attract a rapidly growing user base. Though its marketing was not restricted to word-of-mouth, this method proved to be very effective amongst the young adult users of the site.

• Intrusive Ads – From the beginning, MySpace has never monetized the ever-increasing traffic on its website through intrusive advertising. MySpace has been mindful of not alienating its users and diluting the overall user experience by extensive advertisements. While more advertising would have helped generate revenues, it may have turned some users away.

116 Source: http://www.businessweek.com/technology/content/may2006/tc20060530_170086.htm

MySpace is the most popular online social networking platform with 80.7 million users worldwide as of May 2006.



Despite avoiding hosting and selling a huge amount of advertising space, MySpace has founded a successful revenue model. The company signed a USD 900 million deal with Google117 to allow it to distribute search advertisements. Additionally, MySpace may also be looking at earning through hosting more sponsored pages. The popular comedy section of MySpace was launched with sponsorship from Sierra Mist, a Pepsi brand soft drink targeted at the youth market.

MySpace on Mobile Handsets – Initial Steps

According to Colin Digiaro, senior vice president of MySpace, “advancement into mobile is one of the key initiatives on MySpace.” Digiaro further points out that “…if MySpace has its way, its mobile applications will come preloaded onto all handsets sold, becoming as integral a wireless handset feature...” (as told to Business Week)118. This statement came from Mr Digiaro after a couple of mobile-centric initiatives had already been announced by MySpace. • Partnership with Helio – In February 2006, MySpace launched a mobile version

of its service in an exclusive partnership with Helio, an MVNO being launched by SK Telecom and Earthlink in the US. Helio also announced a partnership with MySpace to exclusively launch ‘MySpace Mobile’119.

• Partnership with Cingular – As part of a separate initiative, MySpace also began offering ‘friend request’ alerts to Cingular mobile users who subscribe to its online services. However, users have to log online through a PC to act upon these requests118.

• Expected Partnership with China Mobile – MySpace has plans to expand into China in a partnership with leading Chinese wireless operator China Mobile120. News Corp., the parent company of MySpace, has already formed a partnership with China Mobile, in June 2006121.

The two key drivers for MySpace to participate in mobile social networking are discussed below – • Staying connected with the young – Most of the MySpace subscribers are

teenagers and young adults. A large section, possibly 100 percent, of this user group also own mobile handsets. As handsets increasingly become the access gateway to the Internet, having a mobile extension of the social networking service seems a natural move for MySpace in order to stay connected with its youth-centric user base.

• Spending on mobile ads – A recent study by Informa Telecoms & Media

predicts that advertising spend on mobile channels will cross USD 11.35 billion by 2011122. With such a surge, mobile search ads could become an additional stream of revenue for MySpace.

Mobile platforms hold an immense opportunity for social networking service providers. As these mobile platforms evolve, people may find it easier to network with their friends and partners through them. MySpace, which is already a popular social networking brand, will find a ready user base for its potential mobile extension. 117 Source: http://news.bbc.co.uk/2/hi/business/5254642.stm 118Source: http://www.businessweek.com/technology/content/may2006/tc20060530_170086.htm 119Source: http://www.mobiletracker.net/archives/2006/02/16/helio 120Source: http://gigaom.com/2006/09/19/myspace-china-mobile/page/2/ 121Source: http://www.newscorp.com/news/news_302.html 122Source: http://www.marketingvox.com/archives/2006/09/11/mobile_ad_spend_soon_to_surpass_11b/

MySpace has entered into partnerships with Helio, Cingular and China Mobile for advancing the service into the mobile arena.



In fact, sampling these factors, MySpace is expected to start its mobile service to all users across all the major service providers as early as 2007. The partnership with Helio may not remain an exclusive one for very long.



Textamerica – A Mobile Photoblog We have already discussed mobile social networking moving into the mobile arena; however, long before mobile social networking was conceived, moblogging or mobile blogging was already a popular trend. Moblogging involves posting pictures or videos from handsets to an online photo blog. According to Chris Hoar, Textamerica founder, “Moblogging drives the adoption of camera handsets123." Also, some mobile handset vendors have already begun to cater to moblogging by incorporating the feature – ‘send to blog’ – onto their handsets. Moblogging may also be a unique way to generate revenue for service providers as more and more users follow the trend, driving picture messaging traffic up as more users upload photos to online archives. There are a host of moblogging sites on the Internet. Textamerica is one of the oldest moblogging websites, with its official launch date being in 2003. Other popular moblogging sites are Mobog, Yafro, Buzznet, Moblog UK, etc. Some of the key reasons for Textamerica’s success amongst the moblogging community are – • Early-mover Advantage – Textamerica was one of the first mobile blogging

websites in the US. As a result of the novelty of the service and little competition, Textamerica witnessed tremendous growth in the number of users. According to a Business Week article, Textamerica had reached the half-a-million users mark by 2004. However, out of the half a million users, only about 110,000 kept moblogs, while the other 400,000 just viewed and commented.

• Thematic Blogs – Textamerica has often come up with ways to maintain its edge

in the moblogging field by introducing thematic blogs concurrent with an ongoing trend or event. A prime example of this is the launch of moblogs about the ‘California Fires’ in 2003. Users were encouraged to upload pictures captured through their handsets of Californian bush fires to this public blog. The popularity of such an idea is evident as a competitor of Textamerica, Buzznet, also launched a fire blog. As this trend evolves, expect to see blogs following certain celebrities, touring pop stars, political campaigns, sports events, etc.

• Creative Concepts – Amongst the many firsts, a notable one may be the launch

of a full-fledged mobile music video on Textamerica. The video was shot on a Nokia 3650 handset. Such experiments help Textamerica to gain attention amongst the blogging community as well as have the potential to take moblogging to the next level. If this music video initiates a trend wherein amateur music bands upload their videos on moblogs, it could generate significant traffic for the site. Dedicated music video blogs could become hunting grounds for record companies searching for new acts.

• Easing Content Layout – Textamerica has been working to simplify content

layout for its users. For instance, the moblogging service provider tied-up with Alatto Technologies to launch a ‘Quick Surf’ service for its users. The service is intended to provide quick and easy navigation of moblogs to help users find the best pictures quickly124.

Despite being at the forefront of moblogging, Textamerica has experienced some problems. The biggest amongst these was its decision to charge a moblog fee; this

123 Source: http://news.com.com/2100-1025_3-5182709.html 124 Source: http://www.phonecontent.com/bm/news/gnews/1194.shtml

Textamerica is one of the oldest moblogging websites and it benefited immensely from being an early mover in this market.



resulted in the deletion of the blog space of existing free moblog subscribers. This move was not received well by a substantial proportion of the moblogging community which liked to use free services, and Textamerica later reopened its free moblogging service. Such abrupt u-turns in product management may have resulted in the loss of market image and respect as well as actual subscribers. In the field of moblogging, the pace of change is rapid, and thus every player has to introduce innovative products and easy-to-use services quickly. As in the case of mobile social networking, tie-ups with mobile service providers could result in an increased reach for these sites. Before the emergence of portals such as Textamerica, users were limited by the memory constraints of their handsets while taking pictures. Moblogging, by overcoming this constraint, has reinvigorated the industry and it seems certain that the growth of moblogging can be linked to the rise of picture uploads and the popularity of camera handsets. This trend looks set to escalate in the future.



Flickr – Can it Repeat its Success on Mobile? Flickr is an online photo-sharing website launched in 2004. It was acquired by Yahoo in March 2005. From its origin as an independent start-up, Flickr has become one of the most visited websites on the Internet with over 2.5 million users125. According to Hitwise, the website is the top photo-sharing website in the UK with almost 11.5 percent of market share126. Several factors can be attributed for the online success of Flickr, including: • Promotion Strategy – Easy blogging and the posting of Flickr badges on other

people’s sites were important initial features. This resulted in helping 80 percent of new users to find Flickr through the blogs of other Flickr users127. Further, Flickr also encouraged its power users to actively promote the site to their friends by offering features such as extra storage.

• Easy Navigation – From the start, Flickr has always placed emphasis on

discovering and accessing the best pictures quickly and easily. For instance, on Flickr, the best quality pictures pertaining to a certain theme automatically move to the top of their group. Such features create a positive impression of the service amongst new users.

• Focus on Photographers – Flickr has worked towards targeting serious

photographers as a core group of users. The creation of such a core group has resulted in developing a collection of interesting and high-quality photographs, furthering the attraction of Flickr, broadening its audience to all who can appreciate photography in all its forms.

• Fast Reform and Revamp – Flickr has been appreciated for its Web

development strategy, which may be classified as ‘release early, release often’. According to Caterina Fake, a co-founder of Flickr, the site has stressed releasing the product quickly and taking feedback directly from users for further development. As a result, Flickr has tried and added several new features to its offering. The latest popular addition is ‘geotagging’128, which helps tag your photo on Yahoo maps according to the location where the picture was taken.

• Engaging Content Themes – Flickr has continued to float thematic groups that

users could join and to participate in social networking projects. For instance, a group called ‘squared circle’ is a type of social project where pictures of circular objects and images are contributed. ‘Squared circle’ as of April 2006 had around 3,500 members and more than 26,000 pictures129. Such themes strengthen the social/community aspect of the website.

Notably, around 80 percent of Flickr photos are public according to Caterina Fake130. This is yet another aspect that differentiates Flickr from other photo-sharing websites. Flickr has extended its services to the mobile community, rather unsurprisingly called ‘Flickr Mobile’. Flickr Mobile is functional across all networks and handsets. It has attracted significant media attention in the wake of the surging moblogging

125 Source: http://www.msnbc.msn.com/id/12015774/site/newsweek/ 126 Source: http://weblogs.hitwise.com/heather-hopkins/2006/08/flickr_1_photography_site_in_u_1.html 127 Source: http://www.startup-review.com/blog/flickr-case-study-still-about-tech-for-exit.php 128 Source: http://blog.flickr.com/flickrblog/2006/08/great_shot_wher.html 129 Source: http://www.msnbc.msn.com/id/12015774/site/newsweek/page/5/ 130 Source: http://www.christine.net/2006/08/caterina_fake_a.html

Flickr has become one of the most visited websites on the Internet with over 2.5 million users.



phenomenon. Flickr has undertaken several initiatives to promote its service by forming alliances with handset vendors and service providers. Some of them include: • Mobile Handset Vendors – Flickr struck an agreement with Nokia in April 2006

to include a click-to-upload option on to its N-series handsets (N73, N72 and N93)131. Such measures make it easy for users to store and share their pictures. For Nokia, the vendor stands to benefit from the attractiveness of Flickr. With around 100 million Nokia camera handsets sold in 2005, and any more than that in 2006, Flickr expects to benefit from the extended reach.

• Mobile Software Providers – Flickr has also partnered with several software

providers in order to facilitate the browsing of its site using a mobile handset. For instance, the partnership between Flickr and Netomat132 offers users free software that delivers Flickr updates with images and text to mobile handsets. These facilities ease the syndication of content for mobile users, a problem we highlighted earlier in this report as one of the barriers that slowed down the widespread adoption of MMS in the early days.

Flickr Mobile presents an interesting case for tapping into increased service revenues through mobile Web 2.0. The potential for Flickr Mobile to replicate the success of its online arm is significant. The service offers easy access to its online users, which will help it to promote its mobile service, and active measures such as alliances and tie-ups with industry leaders and key mobile technology companies may help the service to gain traction among the growing hundreds of millions of cameraphone owners. Indeed, it could be argued that even without Flickr Mobile, the regular wireline version of Flickr itself is a great driver of increased MMS traffic, as a huge percentage of the images on Flickr were originally taken using cameraphones, and uploaded over mobile networks. . Despite these factors, Flickr Mobile may face challenges in differentiating its offering from other mobile photo-sharing websites. Most of these challenges will be a result of constraints of the mobile platforms. For example, a simple generic limitation of small screen sizes may restrict Flickr from offering an elaborate suite of services. However, these problems are common to all players in this segment. Despite these technical issues, it seems photo blogging has a huge future, good news for Flickr and good news for the mobile industry, as cameraphone sales continue to surge and mobile network operators continue to bring MMS prices down and down.

131 Source: http://premium-mobile.com/ 132 Source: http://publications.mediapost.com/

Flickr Mobile has the potential to replicate the success of its online arm.



Summary of Key Best Practice Recommendations

Mobile portals • Choice: open garden; broad demographics; plenty of compatible handsets • Brand: solid partnerships; quality content; reputable content partners • Transparent pricing: simple; good value bundles • Ease of use: simple; customisable; personalization; quick and simple navigation Summary: Open up your portal, offer plenty of fresh content, maintain transparent pricing, keep navigation simple and focus on the brand.

Music download • First-mover advantage: First to market can be a big help • Transparent pricing: simple; good value bundles • Innovation: smart marketing; market segmentation • Technological compatibility: side-loading from PCs; file formats • User interface: keep it simple; easy-to-use; customisable; user-friendly interface • Choice: broad demographics; plenty of choice; something for everyone • Brand: be with the best; strong partnerships; top quality content • Handsets: ensure plenty of choice available

Summary: Be first out-the-gate, build robust partnerships, offer plenty of high-quality choice and focus on innovation.

Video upload/download • Choice: plenty of variety for all tastes; keep the selection fresh, regular updates • User-generated content: catch this latest trend; expect an X-rated dedicated

channel to appear soon, user-generated porn likely to have some appeal • Pricing: keep it simple; keep it cheap, transparent pricing and revenue share • Ease-of-use: keep things simple; ensure it’s quick and uncomplicated, easy with

one thumb on the move • Innovation: smart; follow the trends; clever marketing • Technology: handset choice; PC-handset flexibility, online is online, wired or

wireless Summary: Flexibility, choice and innovation are the strong points again. Give customers choice, let them take part, share the revenue and keep things cheap, simple and fun.

Ringback tones • Business model: clear; keep it simple; fair deal to content partners • Choice: plenty for all; keep it fresh • Segmentation: target different groups • Pricing: cheap; simple; bundles; monthly subscription plus top-ups • Ease of use: simple; quick; clear navigation



• Innovate: good marketing; try-before-you-buy; automatic updates • Personalisation: allow customisation; ringtones have always been about

personalisation Summary: Again variety and choice stand out, keep the pricing simple and the marketing innovative, and know your customers needs.

Mobile commerce • Know your customers: segment the market; offer services pitched at the right

(price) level; Micropayments for one end of market, premium services with high-credit at top end of market

• Micropayments: set lower limit very low; functionality • Distribution and support: build a solid, broad, reliable distribution network; wide

support; wide availability; widespread acceptance; good relationships with retails sector

• Security: provide state-of-the-art security; partner with top quality, branded security player; full regulatory approval; reliability

Summary: Segment your market, pick the right technology to address the needs of the market, build strong partnerships and strengthen the brand, focus on security and wide acceptability of services.

Mobile games • Advanced handsets: the gaming experience must be first class; choice; fashion;

functionality • Partnerships: clearly defined value-chain; top quality branded partners • Segmentation: again, know your customers; appeal to all tastes and levels of

gamers • Life in the fast lane: stay ahead of the competition in this fast changing

business; cutting edge; offer best new gaming innovations • Tariffs: offer monthly bundles for hardcore gamers, off-the-peg prices for casual

gamers Summary: Again market segmentation is crucial, price accordingly, partner with established brands and move fast – offer the best and latest games to stay ahead of the competition.

SMS • Just Do It: SMS is the mainstay of mobile data revenues, so hit it as hard as you

can; scope out the best services worldwide and use them; use everything SMS has to offer

• Segmentation: again relevant services must be targeted to relevant chunks of the subscriber base; target every corner of the market; endless new services

• Innovation: nowhere else is this more true, SMS has some of the most innovative ideas ever; keep finding smart and fun ways to make people use SMS; use intelligent routing; use TV voting and so much more

• Price: keep it cheap; low prices are the key to mass market popularity; understand price differentials between SMS and voice and apply to local market conditions; push big bundles, heavy users will pay top dollar, others will buy bundles that then go partly unused, pushing up effective price paid

• Eliminate technical issues: ensure SMS is so simple your dog could use it; offer free tutorials to older/less technically proficient consumers, in store or over the phone



• Premium services: such a lucrative segment of the market; subscribers often unaware of costs of TV voting or similar; promote these desirable bonus services

• Enterprise sector: develop corporate SMS systems; two billion handsets worldwide; mobile email still only a niche, SMS more widespread

Summary: Use everything SMS has to offer, it’s a worldwide success. Innovate; segment your customers and offer tariffs and services that have broad appeal. Eliminate technical hurdles and price low, SMS still has a huge future, especially in low-income markets.

MMS • Pricing: Keep it clear and simple; no per-KB pricing; charge only for per-

message; push big bundles; bring down P2P picture messaging as cheap as SMS

• Bundle deals: bundle MMS in with SMS and other formats; cheap picture-messaging bundles to promote uploading to moblog sites, etc.

• Innovate: again, keep it fresh, focus on smart ideas; maximise on the trend for UGC; online picture sharing; partner with branded premium content suppliers.

• Ease of use: keep it simple; keep it quick; user-friendly user interface • Next generation messaging: integrate MMS with email services; evolve MMS

into more advanced 3G service • Eliminate technical barriers: learn from the mistakes; resolve technical issues;

stick to industry standards Summary: Keep prices low, offer bargain bundle deals, structure innovative services and keep the user interface simple. Look at the growing trend for user-generated content on the web for signs of the future of MMS.

Web 2.0 • Innovation: almost everything about Web 2.0 is innovation; from Wikipedia to

You Witness News, it’s all new and brilliantly simple • Technology: integrate wired and wireless Internet worlds; utilise technical

standards; encourage cross-platform integration and sharing; integrate Web 2.0 into handsets

• Moblogging: very good news for picture messaging; encourage growth of this trend; boost to cameraphone sales

• Picture uploads: Flickr, Kodak, it’s all good news for MMS Summary: Web 2.0 is the future, this is the Internet starting to show what it can really do, jump on this bandwagon early and ensure the trend for UGC (user-generated content) is wholly integrated into the mobile world form the start.



Conclusion

It has become clear, reading the preceding 130 or so pages, that several essential factors play a vitally important role in driving the success of all best-of-breed non-voice mobile services.

Choice and flexibility No one would want to go shopping to buy a new car, or a new suit, or a new music CD to find that the shop offered a choice of just one car, one suit, maybe two CDs. No one would want to go to dinner in a restaurant where the menu had just one starter, maybe only two deserts, and only one possible selection on the wine list. We all enjoy choice, lots of it, and since the advent of the Internet age consumers now have more choice than ever. The Internet brings choice to your customers from competitors you never even knew existed, and allows new competitors to spring up from the other side of the planet at a moments notice. Consumers need services that offer choice, plenty of choice. They want choice in the services on offer, choice in how those services are delivered, choice in the content those services deliver and choice in how they should pay. On top of all that, consumers want choice in what type of handset, terminal or device they use to purchase the content on offer, and then they even want choice on how they store and use it once they have purchased it. Consumers, especially fickle fashion-conscious mobile consumers with notoriously short attention-spans, also want that choice refreshed and updated constantly. Mobile portals, music and video download services, ringback tones, games, SMS infotainment and more - all these applications must place consumer choice at the heart of their product strategy. Consumers need choice in the range of handsets they can choose from that support new services, and they need to able to switch back and forth between their mobile handset and their desktop PC as it pleases them. Within the selection of content itself, this is where the broadest choice is required. Network operators must work closely with brand owners and content providers to build an exciting portfolio of content offerings that appeal to the broadest possible spread of consumers. While many content offerings are tailored to the market-leading youth segment, other consumer groups must not be ignored. Variety is key to broadening the appeal of many non-voice mobile services, and content must be offered to meet the needs of all ages and tastes. Music, games, religious content, information services, access to online services from banks, service companies, retailers and entertainment companies – there is an almost endless array of content that can be fed right into consumers hands. Mobility is here to stay, and in future generations a wireless mobile device will be seen as the normal medium for consuming all manner of media and products, so investments should be made now in order to get things right. Rich rewards surely await in the long term for those who get it right, so choice and variety are essential in driving content-consuming habits deep into the mass market now.

Segment your market While offering a broad base of services and an even broader spread of content is extremely important, segmenting the market and targeting those offerings at specific groups is an equally essential part of any winning strategy. The mobile handset is a

Offer plenty of choice in content, handsets and formats to meet the needs of all ages.



unique and comparatively new retail platform and as such it must be treated differently to more conventional retail points-of-sale. Applying ‘old rules’ to new technology may not be appropriate, so services must be purposefully designed from the ground-up to meet the needs and circumstances of the mobile consumer. When accessing services form a mobile device, consumers may only have a few seconds to get something done, they are unlikely to be at home so have no access to records or paperwork for reference, and they may have to do everything using just one thumb – services should be designed to suit these circumstances in order to be truly successful mobile services. One size definitely does not fit all and so once a broad base of content and services have been assembled, service providers need to segment those offerings according to the demographic make-up of their customer base. Clearly, as we have read in this report, services tailored and targeted to meet the needs of specific consumer groups have been most successful. Understanding your customers spending power and ensuring services are priced accordingly can have a dramatic effect on take up. Globe Telecom’s G-Cash service has been a huge success because it gave relatively low-income customers an easy way to perform micropayments and transfer small amounts of money between people who, in many cases, don’t have bank accounts. At the other end of the scale, premium services must be appropriately targeted to those with more disposable income, such as hardcore gamers and youths happy to pay to regularly download music, videos and all the latest ringtones. Most new non-voice mobile service have been targeted at the youth sector, marketing has been slick, sexy, trendy and suggestive of the hip, young persons care-free lifestyle. While there is no doubt that youths usually form the bulk of early adopters for most of these new services, it is little wonder few subscribers from older generations use these services, as this marketing approach probably alienates them, putting them off instead of encouraging them to try something new. New services need to be promoted to different segments of the market in ways that appeal to those demographics, with something for everyone. Through V CAST, Verizon Wireless offers rock music, hip hop, country and folk music, and business news downloads, sports and financial information – clearly something for everyone. By opening up the service to the widest possible audience, and segmenting your customers with targeted marketing, maximum penetration can be achieved.

Low cost services and transparent pricing For many services, some segmentation can be achieved through well thought out pricing. Clearly in countries where there is a large low-income segment of the population, low price services are likely to prove popular. In such countries, operators may price voice comparatively high, as a premium service, but keep SMS prices very low, to encourage SMS as the medium of choice for cost-conscious consumers. This strategy has worked well in certain countries in Asia and Latin America, where SMS traffic has surged forward. In other markets voice and SMS may be priced quite low and tariffs may include bundles of bulk-priced premium services, to encourage use of a wide array of non-voice mobile services. Encouraging consumers to use more premium services such as games and music downloads will require intelligent pricing. Marketers must not make the mistake of watching a market during the early adopter phase, when enthusiastic consumers seem willing to pay almost any price, and assuming that these prices can be sustained into the mass market phase. Beyond voice and SMS, most mobile data services are based on entertainment, not utility. Consumers worldwide may be willing to annually spend USD 50 billion on

Offer a broad base of services and content according to the demographic make-up of the customer base.



SMS, but it does not follow that they will do the same with music downloads or mobile TV, as these entertainment services do not offer that same level of usefulness that SMS offers. Service providers and content partners must be realistic about pricing. It is essential to understand that prices will have to drop to rock bottom in order to drive many of these non-voice services into widespread mass market use. Bundles are proving to be one of the most popular ways to encourage this growth. Operators, who do not already do this, should look at bundling services together in discounted packages. Messaging bundles including set numbers of SMS, MMS, video messages and mobile emails are a great way to stimulate cross-platform growth, encouraging users to use video messaging and mobile email who may not have previously tried such services. As the mobile music download business grows, bundling a set number of downloads per month for a bargain price should stimulate demand here too. Early adopters may pay high prices, but the masses will not automatically follow, prices have to decline to drive hundreds of millions of users into the market. Around the world, consumers can purchase a CD in the shops or online that might hold 14 tracks for approximately USD 1 per track, so they are unlikely to pay substantially more on their mobile handset. The ultra-keen youth sector will continue to pay more for latest releases, and for the convenience of delivery anytime, any place, but the mass market will not. If service providers and music companies want to drive digital music into the pockets of hundreds of millions more consumers, prices will need to be dirt cheap, otherwise consumers will download their music on their home PC and sideload it onto their handset later. These bundle prices and bundle tariff packages need to be transparent and simple to understand. Consumers will be quickly upset by hidden charges and high download fees, pricing must be clear and event-based, not based on download time, KB’s downloaded or any other technical calculation. Consumers don’t understand how cellular networks do what they do, and they don’t want to understand it, so charging per KB or the time it takes to download a set amount of KB is irrelevant and confusing to consumers. A clear and simple price plan should offer the end-user a fool proof understanding of what each item costs, as many subscribers, especially those opting for prepaid tariffs, show greater use of services where pricing is simple, event-based and consistent. In many cases, the fact that the services or downloads on these tariffs are actually not lowest-local-market prices does not seem to matter, so long as the prices are clear and honest.

Focus on the brand It seems that brand really does matter. In almost all case studies of successful services, those services are offered in partnership with leading brand names in their respective sectors. Reputation goes a long way to building consumer confidence, and this is vitally important in services such as mobile payment solutions, where an unknown bank or an unknown security solution vendor may fail to give consumers the confidence they need to start using the service. Operators should build partnerships with appropriate leading brands for each service, in order to offer best-of-breed content from well established, reputable sources. Partnering with top-quality brands is most important in music, videos, ringback tones, games, entertainment services, banking, retailing and any other services that are either fashion related or involve handling consumers own money. Brand strength for network operators themselves is a problem in some markets, particularly in Europe. While Asian network operators have kept tighter branding control over the handset supply in Asian markets, in Europe the handset vendors have considerable strength in terms of brand loyalty. In many cases, the handset

Offer transparent and simple to understand bundle prices and bundle tariff packages.



brand is stronger than the operator’s brand, particularly Nokia, and this should be a worry for European MNOs. MNOs can foster greater brand strength themselves through building the right alliances with content partners. Operators need to differentiate themselves through their services and content offerings, and here is one area where being first-to-market does seem to be a real advantage. Operators and brand/content owners should look for exclusive deals together, to create market strength through unique promotions and offerings, and in the process MNOs may see their brand strengthen in those segments of the market. Being first to market with an innovative new service and backing it up with some clever marketing can drive excellent results.

Innovation. Get smart with your services and your marketing SMS opinion polls on radio shows – genius. MMS Mail combined MMS and email service – brilliant. SMS TV voting – genius. Micropayment solution on a mobile phone, perfect for poor, extensive rural communities with limited access to banking – superb. Paying users to upload video clips, which other users then pay to download, creating an almost self-perpetuating cash register – genius. These are just a few of the many excellent innovations that the non-voice mobile services industry has seen in the last few years. Many of the services studied in this report have innovation at the heart of their success. As mobile handsets gain more and more functionality and as greater numbers of subscribers have access to mobile Internet services and faster network download speeds, so the market for new services looks set for rapid growth. Some of the most innovative moves have come from a shift in operator thinking, as we have seen with Telenor, SFR and Globe Telecom. The speed of adoption of a new service can be dramatically improved when services can be enabled at the network level, meaning that end-users are not forced to upgrade to new handsets. If services can be enabled using SMS or other technology that is already available on the majority of handsets in the market, services can be rolled out at little or no expense to end users. As we learned after the introduction of MMS, and 3G, when a service requires new handsets to penetrate the market, the time for that service to reach mass market usage can be several years. Once services are available, further innovation in marketing can quickly drive uptake among subscribers. Special promotions and incentives, free downloads for an introductory period, low priced bundles during launch period and many more marketing strategies have been proven to help drive usage, especially during the initial launch phase of a new service. Above all else, service providers should focus on removing any barriers to service uptake. As well as encouraging users to try a new service, remove any reason for them not to try that new service. MMS uptake was hampered by confusion over pricing, poor handset compatibility, lack of network interoperability and a complex user interface. These kind of technical hurdles are almost guaranteed to stifle growth, and having learned these lessons already, there is no excuse for such mistakes to be replicated in the future.

Make things useful, simple, easy and value-for-money – in that order The key to the success of SMS is that it is just so incredibly useful. It’s also simple, cheap, easy, quick and discreet, but mostly it serves a purpose that nothing else can do in quite the same way. SMS is still the benchmark that other non-voice services should strive to emulate. The reason that voice and SMS are the only two services

MNOs should foster greater brand strength by forming alliances with leading brands for each service in order to offer best-of-breed content.

Innovations and right marketing is the key to success of any service.



worldwide that are used by almost everyone is because they are the only two things an individual can actually do with a mobile phone that might be considered as essential activities. Ultimately, a mobile phone is primarily a communications tool, and these two services are basic communications – everything else is nice to have, but voice and SMS are need to have services. So voice and SMS are successful because they are useful, and simple. Service providers must understand this point and keep this at the core of all service development strategies – useful, simple, easy and value-for-money, in that order. Mobility is all about convenience and lifestyle enhancement, and services which follow that profile, useful, simple, easy and value-for-money, can’t fail to attract hundreds of millions of users. Services must be designed to enhance and complement the user’s lifestyle, not simply offered because the technology is available to make it happen. In fact, the technology should be invisible to the end user, who invariably cares little for how or why something works, just that it does. The long term future promises to be entirely technology-agnostic and the quicker we move towards that goal the better. A decade from now, consumers won’t want to know whether they are using 4G, 5G, WiFi, WiMAX, satellite or anything else, they just need to be able to download or access anything, anytime, anyplace, at home, at work, out socially, abroad – anywhere, and using any device they like. Services must be technology agnostic, integrating wired and wireless worlds, embracing the inevitable web-centric convergence that the world is heading towards. Service providers must keep business models, tariffs and user-interfaces as simple and user friendly as possible, embrace partnerships with more traditional media companies as the wireless world becomes integrated into the broader worlds of IT and mass media. Extending the principle of simplicity, encourage the end-users themselves to contribute, to create the content they want. As new trends in the online world see user-generated content proliferate, service providers should embrace this development and include new channels of UGC in their service portfolios. It’s such a simple business model, let the users create the content, and other users download it, and add value in the middle by providing the service. Operators and handset vendors should work together to ensure moblogging is built in to future handsets, encouraging user-participation with single-click functionality – useful, simple, easy and quick.

Handsets Mobile handsets have changed almost beyond recognition in the last decade, from simple wireless telephones to multi-functional, fashionable pocket computers. Handset sales across the world have grown year after year, and now we are heading for the magical figure of one billion units shipped in one year. As handsets have evolved to include digital cameras and music players, services and consumers have struggled to keep up with the pace of technological development. Despite the impressive array of technical capabilities on top-end handsets today, few non-voice services beyond SMS and ringtones have penetrated far into the market. Handset vendors must work in close partnership with network operators, all working together for their common good, to ensure that the right handsets are available to the right people at the right time. When new mobile data services are launched they must be supported by a wide choice of fully compatible new handsets, at affordable prices. Consumers want choice, they want reliability and they want simple and

Offer services, which are useful, simple, easy and value-for-money.

Handset vendors and MNOs should work closely to ensure that the right handsets are available to the right people at the right time.



effective software, so that services are quick and easy to access, especially on the move, in a hurry, often using only one hand.

Look to Asia, and learn We all know Japan and South Korea are way ahead in terms of 3G rollout, but there are many other things we can learn from looking more closely at the Asian mobile markets. Japan, Korea, the Philippines, Malaysia – this is the cutting edge of mobile technology, it’s where the action is, these markets lead the world in terms of more evolved business models, better understanding of customer needs, deeper penetration of non-voice services and a greater awareness and comfort level with using a mobile device as an all-encompassing lifestyle-tool. As mobile network operators and content partners develop new mobile services for the markets of EMEA and the Americas, much can be learned from the market leading examples we see in Asia. But there is more to these markets than meets the eye at first. Below the surface, beneath the services and the tariffs and the marketing strategies, lies so much more. More sophisticated business models, a better understanding of customer relationships and a better control of the value chain. And beneath it all is a deep cultural fit with the mentality of the population in these nations. European and American service providers can learn from the carrier-centric business models of Asian operators, where handset vendors and operators work together, not competing for brand value. Network operators have enviable brand value in some Asian markets, seen as a desirable lifestyle service, not just a technical service provider or a mere utility. A love of technical gadgets and hi-tech services underlies the population of countries such as Japan, Korea and Malaysia. Operators in these markets rarely have to fight to launch services against a disinterested market; on the contrary consumers are hungry for the latest technical innovation and applications. A national cultural desire to stay at the forefront of technological advances keeps these countries at the cutting edge of the mobile revolution.

Final thoughts Above all else, the mobile and wireless industry should stop from time to time and congratulate itself on the meteoric rise of mobile telephony, from nothing to worldwide acceptance by almost 3 billion people in a little over 20 years. It took fixed landline telephony 100 years to achieve the same level of success. This is awesome performance, and those pioneering companies and individuals who have been active in this space for upwards of a decade should feel very proud of the achievements they have made. Once the self congratulating is out of the way, the mobile industry must learn from previous mistakes made along the way: • Do not launch mobile services because the technology exists, launch services

that consumers want, services that are useful, and offer real value to peoples lives.

• When new services are launched, ensure networks are interoperable (if applicable) and handsets are compatible, before the launch. Iron out the technical issues first.

• Ensure a plentiful supply of suitably-enabled handsets to complement the launch of any new service.

• Establish clear and simple pricing from the start, and make things cheap to stimulate rapid growth in demand.

Learn from the Asian mobile markets, such as Japan, Korea, the Philippines and Malaysia.



While focussing efforts and development budgets on promoting faster 3G (and beyond) networks and services is great, don’t lose sight of the importance of SMS right here and now. Still, as 2007 approaches, SMS is the only mass market non-voice service generating significant revenues in all mobile markets worldwide. While ringtones and MMS have achieved some success, both look insignificant alongside SMS, in terms of users and revenues generated. SMS revenue still accounts for the vast majority of mobile data revenues (approximately 80%) for most operators outside Japan and Korea. By the end of this decade, we forecast total mobile subscribers to pass 4 billion worldwide, half of them in Asia, many in comparatively low income consumer groups. It is highly likely that voice and SMS will be the only services that many of these people use, so it would be prudent to remember that SMS still has a huge future ahead of it. A great help to the continuing growth of SMS is the fact that there are now two billion or more SMS-enabled handsets in circulation around the world. Only voice and SMS have that kind of support worldwide and the mobile industry must understand that no other service is likely to emulate that level of success until such a service is similarly supported to that level. For example, once 2 billion MP3 enabled phones are in circulation, surely then music downloads will hit tens of millions every week, maybe every day. The mobile industry as a whole and the financial institutions that support it must have realistic expectations for these new non-voice services and the time it will take for these services to grow. As the Web 2.0 bandwagon rolls on, the mobile world should embrace this trend and ride with it. The very essence of the user generated content genre is “here and now”, action “as it happens”, real “slice of life” sharing. The mobile platform lends itself to this ethos more naturally that a wireline PC, as the action and events of life tend to happen out on the streets, not in a quiet living room or a teenagers untidy bedroom. Solid market segmentation is one of the keys to success in non-voice mobile services. Target enterprises, the youth market and the baby boomers with relevant and appropriate services, at relevant and appropriate prices. If the service is frivolous, the price should be frivolous too. And finally, consider external factors in each country market – tailor services to appeal to national identity, regional demographics, cultural and religious preferences. Find out what consumers want, and then give it to them, packaged for their convenience, cheap, quick and easy to use.



Appendices

This market study has been written in a way that avoids too much use of market acronyms (except where appropriate) and industry technical talk, as we have tried to keep the text open to all readers, not just those with in-depth knowledge of the world’s mobile markets. Because this study covers all geographical regions and many emerging markets, a great deal of the data contained within this study will potentially be of interest to investors, financial analysts, consultants, venture capitalists and others all around the world who do not work within the mobile industry itself every day of their lives. To many of these people, some of the industry technical talk and acronyms may be confusing, so we have attempted to write this study in a self explanatory way that assumes little prior knowledge, but in doing this, some of the speech chosen may seem somewhat "obvious" to our more knowledgeable readers. We hope this offers the best possible solution to everyone, and we hope this does not cause any confusion or inconvenience. Where we have used technical terms or acronyms, we offer an explanation of those expressions below.



Glossary

1G or First Generation Packet Data Networks

Packet data networks include Cellular Digital Packet Data (CDPD), Advanced Radio Data Information Service (ARDIS) and Mobitex are regional as opposed to national networks.

2G or Second Generation Packet Data Networks

The second-generation packet networks recently introduced consist of combined voice and packet data networks based on global standards.

2.5G

2.5G describes the state of wireless technology and capability usually associated with General Packet Radio Services (GPRS) - that is, between the second and third generations of wireless technology. The second generation or 2G-level of wireless is usually identified as Global System for Mobile (GSM) service and the third generation or 3G-level is usually identified as Universal Mobile Telecommunication Service (UMTS). Each generation provides a higher data rate and additional capabilities. There is also a fourth generation (4G) of technology in the planning and research stages. 2.5G protocols extend 2G systems to provide additional features such as packet-switched connection (GPRS) and enhanced data rates (HSCSD, EDGE).

3G or third generation

3G is an International Telecommunication Union (ITU) specification for the third generation (analog cellular was the first generation and digital PCS133 was the second generation) of mobile communication technology. Third generation Wireless Wide Area Networks (WWAN) communication systems are characterised by high-speed data rates (144 Kbps134 to 2+ Mbps135) suitable for multimedia content. 3G technologies typically are packet-switched and use Code Division Multiple Access (CDMA) technology to communicate. Examples of 3G include EDGE136, 1xRTT, HDR and W-CDMA137. 3G protocols in mobile telephony support higher data transmission rates, measured in Mbps, intended for applications other than voice. 3G support broadband and bandwidth applications, such as full-motion video, video conferencing and Internet access.

4G or fourth generation

4G or fourth generation WWAN communication systems are characterised by high-speed data rates at 20+ Mbps, suitable for high-resolution movies and television. The initial deployment of 4G communication systems is expected in 2006-2010. The proposed features of these systems include 100 Mbps speed, location sensing and self-tailoring to user needs.

AAC

Advance Audio Coding: It is an advanced audio compression algorithm used for downloading music files, streaming video, audio and satellite-radio applications.

133 Personal Communications Service (PCS) 134 Kilobits per second (Kbps) 135 Megabits per second (Mbps) 136 Enhanced Data for Global Evolution (EDGE) 137 Wideband Code Division Multiple Access (W-CDMA)



AMR

Adaptive Multi-Rate: It is a data compression tool used for coding audio forms, such as speech. It makes use of different modes of encoding, such as ACELP, DTX, VAD and CNG, to tackle unlikely network conditions

AMPS

Advanced Mobile Phone System: A 1G standard, which operates in the 800-900MHz-frequency band. It is still widely used in the United States.

ARPU

Average Revenue per User: Measures the average monthly revenue generated for each customer unit, such as a handset or pager that an operator has in operation.

BMP

BMP is an extension for files containing graphics. It is used as a graphics file format on the Microsoft Windows platform. It stores image formats of different bit sizes. It regenerates the image in its own form and does not have any compressing capabilities. However, it can adapt itself to other image software’s running on other operating systems. This graphic format also comes with .DIB (device-independent bitmap), .XBM, .XPM and .TGA extensions. BMP files can support lossless data compression algorithms because of their spare capacities.

BREW

Binary Runtime Environment for Wireless: It is an application development platform developed by Qualcomm. It enables wireless users to download and run applications, such as enhanced e-mail, location positioning, games, etc., to BREW-enabled handset. BREW was first introduced and developed for CDMA handsets, but it now supports GSM/GPRS and UMTS handsets as well.

Broadcast Technologies for Mobile TV

Some of the broadcast technologies for mobile TV around the world are: DVB-H138 (Digital Video Broadcast – Handheld): DVB-H technology allows simultaneous broadcast of television, video and radio channels on mobile, and helps operators to preserve network bandwidth for other data and voice services. It has been accepted as the standard by the European Telecommunications Standards Institute (ETSI). ISDB-T (Integrated Services Digital Broadcast – Terrestrial): It is the transmission standard that has been developed in Japan to help the radio and television stations support digital content. DMB (Digital Media Broadcast): It is a transmission standard, which transmits video feed via satellite (S-DMB) or terrestrial (T-DMB) mode. The standard is currently deployed in Korea and is being increasingly used in other parts of Asia as well as Europe. MBMS (Multimedia Broadcast/Multicast Service): This standard allows the transmission of multimedia content over the UMTS and GSM network.

CDMA

Code Division Multiple Access: In a CDMA system, each voice circuit is labelled with a unique code and transmitted on a single channel simultaneously along with many other coded voice circuits. The receiver uses the same code to recover the signal from the noise.

138 Source: http://www.strategiy.com/inews.asp?id=20041127000355



CDMA2000 1x

CDMA2000 1x: This is regarded as the first phase of CDMA2000 technology used for providing voice and data services over mobile networks. Data speeds of 307kbps are using a single channel while with two channels speeds of 614kbps are possible.

Churn Rate

It is the rate at which the subscribers cancel their subscription with the existing operator and sign up with another operator.

DoJa

It is a JAVA-based technology/application developed for DoCoMo's i-mode mobile handset. It allows users to access more interactive applications or content than the conventional HTML-based i-mode content.

DRM

Digital Rights Management: It refers to a set of technologies used for the administration of digital content. It authorises the nature and restricts the frequency of the usage based on the administrative policy settings. It sustains the revenue of the mobile network operator by regulating the usage of content at end user.

EDGE

Enhanced Data rates for Global Evolution: An enhanced modulation technique designed to increase network capacity and data rates in GSM networks. EDGE should provide data rates up to 384 Kbps. EDGE will let operators without a 3G license compete with 3G networks offering similar data services.

EV-DO

Evolution Data Only, Evolution Data Optimised: It is a wireless radio broadband data protocol being adopted by many CDMA operators. It is being used as a part of CDMA2000 networks in Japan, Korea, the United States and Canada. It provides better data speeds in comparison to GSM technologies like GPRS and EDGE.

ExEn

Execution Environment: It is an application developed by Infusio for developing games for higher-end mobile devices.

GIF

Graphics Interchange Format: It is a file extension to a different kind of bitmap image. This format of file is capable of compressing the size of the file, unlike a normal BMP format file. The compression process does not result in loss of data. This feature ensures the quality of image by simultaneously reducing the downloading times by a considerable amount. This format is only suitable for images of 256 and less colours. It causes limitation in formatting picture files.

GPRS

General Packet Radio Service (GPRS) is a packet-based standard for mobile communication, which runs at speeds up to 115 kilobits per second, compared with GSM systems' 9.6 kilobits per second. GPRS supports a wide range of bandwidths and makes efficient use of limited bandwidth. It is particularly suited for sending and receiving small bursts of data, such as e-mail and web browsing, as well as large volumes of data. Applications for GPRS may include any of the following: chat, text and visual information, still images, moving images, web browsing, document sharing/collaborative working, audio, job dispatch, corporate e-mail, Internet e-mail,



vehicle positioning, remote Local Area Network (LAN) access, file transfer or home automation.

GSM

Global System for Mobile communications, the most widely used digital mobile phone system and the mobile telephone standard in Europe. Originally defined as a pan-European open standard for a digital cellular telephone network to support voice, data, text messaging and cross-border roaming. GSM is now one of the world's main 2G digital wireless standards. GSM is present in more than 160 countries and according to the GSM Association, accounts for approximately 70 percent of the total digital cellular wireless market. GSM is a time division multiplex (TDM) system. Implemented on 800, 900, 1800 and 1900 MHz frequency bands.

GUI

Graphical User Interface (GUI) is the front-end interface and navigation design of an application. This includes standard formats for representing text and graphics. GUIs have become the standard ways for interaction between users and digital devices.

HTML

Hyper Text Mark-up Language: It is a syntax based language used for designing web pages. The content of HTML, written in standard syntax, when opened in a web browser takes the form of Web page. The nascent version of HTML was used with easy syntax rules in comparison to existing HTML and MHTML versions of it. In recent times, the official standards of World Wide Web recommend Web developers to use XHTML 1.1, XHTML 1.0 and HTML 4.01 versions.

iMelody

It is a standard format through which music tones can be transferred between devices. The format has volume modifiers to vary the volume throughout the tone duration, codes for flashing phone’s backlight and other features. iMelody was developed by the irDa association (infrared communications).

Instant Messaging

Instant Messaging is an Internet based service that alerts users when their friends or colleagues are online and allows them to communicate with each other in real-time through private online chat areas. With instant messaging, users create a list of other users with whom they want to communicate. When a user from their list is online, the service alerts them and enables an immediate contact with the other user. While instant messaging has primarily been a proprietary service offered by Internet service providers such as AOL and MSN, businesses are starting to employ instant messaging to increase employee efficiency and make expertise more readily available to employees.

Intranet

The intranet is a private network inside a company or an organisation, and uses software similar to that used on the Internet. Companies use intranets to manage projects, provide employee information, distribute data and information, etc.

i-mode

i-mode is a proprietary packet-based information service for mobile handsets. It delivers information (such as mobile banking, and train timetable) to mobile handsets and enables exchange of e-mail from mobile handsets on the PDC-P network. Launched in 1999 by NTT DoCoMo, i-mode is very popular in Japan (especially for e-mail and transfer of icons).



IMPS

IMPS (Instant Messaging and Presence Service) is an instant messaging system designed for mobile environments. Presence refers to the availability of a user for communication.

IMS

IMS IP Multimedia Subsystem is an extension of the GSM / 3GPP GPRS core Network. It uses SIP (Session Initiation Protocol) to set up, maintain and terminate packet-switched voice and multimedia sessions.

Interoperability

This is defined as the ability of a network to operate with other networks, such as two systems based on different protocols or technologies.

J2ME

Java2, Micro edition: The Micro Edition of the Java 2 Platform provides an application environment that specifically addresses the needs of commodities in the vast and rapidly growing consumer and embedded space, including mobile handsets, pagers, personal digital assistants, set-top boxes, and vehicle telematics systems.

Java

A simple platform-independent object-oriented programming language used for writing applets that are downloaded from the World Wide Web by a client and run on the client's machine spend approximately 20 percent or more of their work on travelling assignments.

JPEG

Joint Photographic Experts Group: This is the most commonly used format for storage and transmission of images on the internet. The format uses lossy compression techniques wherein the compressed data is very close to the original form. An advanced form of the JPEG standard known as JPEG File Interchange Format (JFIF) is capable of formatting the size of graphics according the storage capacity of computer and transmission medium.

MIDI

Musical Instrument Digital Interface: It is a protocol which acts as an interface between musical notes of an electronic instrument and computer. The orchestral performance and notes are defined (formatted) into a form, which can be understood and played by computers, i.e., MIDI is capable of playing the actual piece of orchestra unlike a recorded version.

MNP

Mobile Number Portability: MNP is a facility which allows mobile subscribers to retain their mobile number when moving between mobile networks.

MP3

It is an expert compressing tool, which has been widely used in musical content rendering. It is capable of compressing audio files up to 10 percent of its original size. MPEG layer-3 (MP3) format can retain the full quality of an actual song by unperceivable deviations.

MVNO

Mobile Virtual Network Operator: Term used for a mobile operator who does not own its own spectrum and usually does not have its own network infrastructure. Instead, MVNOs have business arrangements with traditional mobile operators to buy minutes of use (MOU) for sale to their own customers.



Nokia Binary

It is an audio format developed by Nokia, which allows mobile users to send ringtones to some Nokia handsets and other brands. It is also known as SCKL, since all the messages begin by //SCKL.

Packet Data

Packet data is a method of transmitting information in small packets each containing a certain amount of the information. Packet data networks allow transmission of high-speed data to and from devices connected to the network. Packet Data is similar to dial-up Internet access available in homes or in businesses with cable modems, ADSL139 lines, etc.

PCS networks

Personal Communications Service Networks: In the U.S., the 1.9 GHz band has been allocated for PCS systems; the allocated spectrum is 120 MHz wide and is licensed as two 30 MHz segments for the 51 major trading areas, and three 10 MHz segments for the 493 basic trading areas.

PDA

Personal Digital Assistant: A portable computing device capable of transmitting data. This device makes possible services such as paging, data messaging, electronic mail, computing, facsimile, date book and other information handling capabilities.

PDC

This stands for Personal Digital Cellular, a Japanese cellular standard.

PHS system

This stands for Personal Handy phone system, a Japanese cordless standard.

PIM

Personal Information Manager: Also known as a "contact manager," is a form of software that logs personal and business information, such as contacts, appointments, lists, notes, occasions, etc.

PNG

Portable Network Graphics: This tool replicates the GIF format in it’s functioning with compression as an added feature. This format similar to GIF is capable of working on different platforms, backed by library functions. It is a non-lossy compression tool.

PTT

Push to Talk is a two way communication system which allows only one user to talk at any given time. This system, comparable to walky-talky is unlike mobile handsets which allow multiple users to speak at the same time.

QCP

QCP is a format used for ringtones. The format was developed by Qualcomm PureVoice.

SIM card

It is a smart card that gives GSM handset its user identity. The card is inserted into a GSM/TDMA or GSM-only mobile handset containing subscriber-related data. The card contains 18 digits code for GSM markets and 20 digits code for TDMA markets.

SIM Toolkit

Subscriber Identity Module Application Toolkit: It is used by network operators to provide a user friendly interface on a subscribers’ handset to access value-added 139 Asymmetric Digital Subscriber Line (ADSL)



services provided by them. These applications also provide a mechanism for storing and using any service specific parameters. These applications are built within a SIM card by mobile network operators.

SIMPLE

SIMPLE (Session Initiation Protocol for Instant Messaging and Presence Leveraging Extensions) is an open standard instant messaging (IM) protocol.

SIP

Session Initiation Protocol or SIP is a standard multimedia and telephony protocol for initiating an interactive user session over mobile networks. The services under SIP may include call forwarding, number delivery, authentication and other telecoms applications.

Smartphone

Smartphone is a phone with a microprocessor, memory, screen and built-in modem. The Smartphone combines some of the capabilities of a PC in a phone device. Most of the current models also include a Web browser.

SMS Routing

It is a mechanism of handling large SMS volumes during peak SMS traffic (e.g. voting) by using control techniques such as distributing traffic over multiple SMSCs.

SMS TV

This is defined as the use of SMS for variety of applications, such as voting, teletext chat for TV programmes.

SMSC

Short Message Service Centre (SMSC) provides the routing of all SMS or text messages in any mobile network. Similar to e-mail server, the SMSC handles large volumes of messages sent between two mobile handsets or a mobile handset and a software application.

SS7

SS7 is a global standard for telecommunications defined by ITU Telecommunication Standardisation Sector (ITU-T). The standard defines the procedures and protocol by which network elements in the public switched telephone network (PSTN) exchange information over a digital signalling network to effect mobile (cellular) and wire-line call setup, routing and control.

TIFF

Tagged Image File Format: It is a platform free image format, which enables reproduction of an image created on a platform, such as Macintosh, on other platform such as an ordinary PC. It is an advanced tool for storing bit map or graphic image on different platforms. TIFF format supports scanned image, fax and other applications involving editing of image.

TDD

Time Division Multiplex: This is a scheme for allowing simultaneous transmission and receiving of data at the same frequency, but with the different time slots allocated to them.

TDMA

Time Division Multiple Access: A TDMA channel is a single FDMA channel divided up in time into multiple time slots. TDMA system is able to transmit multiple voice circuits per channel. Three users can take it in turn to share one radio channel. The channels can vary in bandwidth and depending on the type of system, the time slots can transmit all or part of a voice circuit. Each user's speech is stored, compressed



and transmitted as a quick packet, using controlled time slots to distinguish them-hence the phrase 'time division'. It uses 30 KHz channels and a vocoder rate of 8 Kbits/sec. At the receiver, the packet is de-compressed.

UMTS

Universal Mobile Telecommunications System: This is the future transmission network for third generation mobile telephones, as defined by the International Telecommunications Union (ITU). In time, UMTS could reach transmission capacities of 2 Mbits/sec. (compared to 9.6 Kbits/sec. for GSM). Initially UMTS will offer rates of 144 to 384 Kbits/sec. This standard will make the development of new multimedia services having very wide bands and new uses, notably in the transmission of video, images and sound possible.

UMTS TDD

Universal Mobile Telecommunication System (UMTS) Time-Division-Depleting (TDD): UMTS TDD Mobile Broadband technology is a packet data implementation of the international 3GPP UMTS standard and is designed to work in a single unpaired frequency band. It is designed to generate typical data transfer rates of up to 2 Mbps.

UMTS FDD

Universal Mobile Telecommunication System (UMTS) Frequency Division Duplex (FDD): It is designed to generate typical data transfer rates of up to 384 Kbps and is suitable for wide area coverage due to potentially high reach.

VAS

Mobile operators offer various services which add value to the basic voice and data services that are available on mobile networks. These include services such as WAP, voicemail, call diversion, etc.

vCalender

It is a standard format used to exchange information about schedules and activities electronically via an e-mail attachment. vCalender requires a personal information manager (PIM) type of application program. The format was developed by a consortium founded by Apple, AT&T, IBM and Siemens.

vCard

vCard is an electronic business card used for exchanging personal information digitally. It contains name, address information, company logos, URLs, photographs and sound clips. It was developed by a consortium founded by Apple, AT&T, IBM and Siemens.

WAP

Wireless Advance Protocol: WAP is a specification for a set of communication protocols to standardise the way mobile devices, such as mobile phones and radio transceivers, can be used for Internet access. The WAP standard is based on Internet standards (HTML, XML and TCP/IP). It consists of a Wireless Markup Language (WML) specification, a WMLScript specification, and a Wireless Telephony Application Interface (WTAI) specification. The WAP protocol is the leading standard for information services on wireless terminals such as digital mobile phones. Some examples of WAP for accessing information include the following: checking train timings, purchasing tickets, flight check–in, viewing traffic information, checking weather conditions, looking up stock values, looking up phone numbers, looking up addresses or looking up sport results, and there are countless more.



WAV

It is a widely used audio format for wireless devices which is limited to files less than 2 GB in size.

WBMP

It is a graphic file format used for sending Web content to wireless devices. The format is designed to support multiple image types for WAP-enabled wireless phones.

WMA

Windows Media Audio: It is a compression format with Digital Rights Management features incorporated in it. It compresses the content to half of what an MP3 can do with the same content. This feature makes it more adaptable to lower memory devices such as mobile phones.

WML

Wireless Mark-up Language is an XML and a HTML-based language used for creating content, which can be delivered to wireless hand-held devices. This language supports WAP (Wireless Application Protocol) standards just as HTML supports World Wide Web (http) standards. WML is useful in accessing text on web pages over hand-held devices.

W-CDMA

Wideband Code Division Multiple Access: The third generation standard offered to the International Telecommunication Union by GSM proponents. This is a 3G technology that increases data transmission rates in GSM systems by using CDMA instead of TDMA. W-CDMA has become the Direct Sequence mode in the ITU's 3G specification, which includes the 1x Multi-Carrier mode (1x MC) and 3x Multi-Carrier mode (3x MC). 1x MC (formerly known as cdma2000) and 3x MC comprise the 3G upgrade paths for operators already using CDMA.



Portio Research Classifications

Geographical Regions:

There is sometimes a difference in the way research firms classify the major geographical territories. At Portio Research, we follow 'obvious' geographical lines, but for the record, here are the regional definitions we follow, unless otherwise stated in the report: Western Europe: Standard classification includes Iceland and various islands Central and Eastern Europe: Includes standard list of Central and Eastern European countries, and the Baltic states, Balkans, Russia, Greece and Turkey Asia Pacific: Includes Australasia, the Indian Sub-Continent, Pakistan, Afghanistan, Sri Lanka, Maldives and the Former Soviet Union Central Asian republics North America: Standard classification, including Hawaii and islands to the North Latin America: Includes all South and Central American countries including Mexico, The Caribbean and The West Indies Middle East: Includes Israel and all Middle Eastern countries East of Egypt, South of Turkey and West of Afghanistan Africa: Standard classification includes territories in Western Indian Ocean

Mobile Subscribers

Generally, we count active SIMs, and we consider active as being used within 3 months, but, of course there is some room for variance, depending on what figures operators themselves publish or report to us when we interview them. When running spot-checks on operator numbers, we are governed by the figures they give us, and as we are all aware, many individuals and companies around the world count their subscribers/subscriptions by a number of different criteria. We refer to "total subscribers" for a network/country or globally, as a count of the total number of active subscriptions those networks have, and as such this can cause a slight distortion of any country-penetration rate.

Currency and Monetary Values

All monetary values quoted in this report are in US Dollars as the most widely recognised benchmark internationally. The currency conversion has been done on the year average basis. Whilst researching global mobile markets, we use http://www.oanda.com/ for all currency conversion calculations.



Companies mentioned in this report

Mobile network operators

Airtel – www.airtelworld.com Belgacom – www.belgacom.be Bouygues Telecom – www.bouyguestelecom.fr China Mobile – www.chinamobileltd.com China Unicom – www.chinaunicom.com.cn/web/eng Cingular Wireless – www.cingular.com Globe – www.globe.com.ph Hutchinson 3G – www.three.co.uk KDDI – www.kddi.com KT Freetel – www.ktf.com LG Telecom – www.lgtelecom.co.kr Maxis – www.maxis.com.my Mobilkom – www.mobilkomaustria.com MTS – www1.mtsgsm.com MTN – www.mtn.com NetCom – https://netcom.no/ NTTDoCoMo – www.nttdocomo.com O2 – www.o2.co.uk/ Optimus – www.optimus.pt Orange – www.orange.com Radiolinja – www.elisa.com/english/index.cfm Smart – www.smart.com SFR Telecom – www.sfr.com Singtel – www.singtel.com SK Telecom – www.sktelecom.com Sprint Nextel – www.sprint.com StarHub – www.starhub.com Swisscom – www.swisscom-mobile.ch Telecom Personal – www.personal.com.ar Telefonica Moviles – www.telefonica.es Telenor Mobile – www.telenor.com T-Mobile – www.T-Mobile.com TMN – www.tmn.pt Verizon Wireless – www.verizonwireless.com Vimpelcom – www.vimpelcom.com Vodafone – www.vodafone.com Warid Telecom – www.waridtel.com

Handset vendors and network infrastructure manufacturers

Casio – www.casio.com Hitachi – www.hitachi.com Kyocera – http://global.kyocera.com LG Electronics – www.lge.com



Motorola – www.motorola.com NEC – www.nec.com Nokia – www.nokia.com Palm – www.palm.com/us Panasonic – www.panasonic.com Sanyo – www.sanyo.com Samsung – www.samsung.com Siemens – www.siemens.com SonyEricsson – www.sonyericsson.com

Messaging software developers, applications developers, solutions providers

Anschutz Entertainment Group – www.aegworldwide.com AOL – www.aol.com Bubble Talk/ Bubble Motion – www.bubblemotion.com EMI Group – www.emigroup.com Facebook – www.facebook.com Flickr – www.flickr.com Google / Gmail – www.google.com Hudson Entertainment – www.hudsonentertainment.com ICQ – www.icq.com Kodak – www.kodak.com LogicaCMG – www.logicacmg.com Microsoft – www.microsoft.com Microsoft (MSN Messenger) – http://messenger.msn.com/ MTV China – www.mtvchina.com MySpace – www.myspace.com Qualcomm – www.qualcomm.com SAP – www.sap.com Symbian – www.symbian.com Sony BMG – www.sonybmg.com Telsis – www.telsis.com/ Textamerica – www.textamerica.com Universal – www.universalmusicgroup.com Warner – www2.warnerbros.com WDIG, Disney – http://corporate.disney.go.com WiderThan – www.widerthan.com Yahoo! – www.yahoo.com/ Yospace – www.yospace.com YouTube – www.youtube.com



About the Authors

Abhishek Khanna

Abhishek Khanna, lead author for this report, works as Team Lead for Portio Research and Evalueserve, and is responsible for project planning, client interface and quality ownership of report projects. He is a post graduate in Business Management from International Management Institute, Delhi. He has been working with Portio Research and Evalueserve since May 2003.

Priyanka Agrawal

Priyanka Agrawal, lead analyst for this report, is working as a Team Lead with Portio Research and Evalueserve. She is a post graduate in Business Management from International Management Institute, Delhi. She has been working with Portio Research and Evalueserve since May 2004. Amit Garg

Amit Garg is working as a Senior Business Analyst with Evalueserve and Portio Research. He has worked on various projects related to IT and telecom domain. He graduated from the India Institute of Technology, Roorkee in 2005 with a Bachelor’s Degree in Technology (B.Tech). He has been working with Portio Research and Evalueserve since July 2005.

Akshay Taneja

Akshay Taneja is working as a Business Analyst with Evalueserve and Portio Research. He has worked on various projects related to telecom domain. He graduated from Nagpur University, India with a Bachelor’s Degree in Electronics and Telecommunication Engineering. He has been working with Portio Research and Evalueserve since January 2006.

John White

John White has been Editor and contributing author for this report. John is Business Development Director for Portio Research and has over 17 years experience in the technical publishing industry. Working in the IT sector previously and in the telecoms industry for the last 9 years, John has extensive experience in the mobile sector.



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