The provision of a full-screen Internet experience using mobile broadband dongles has been extremely successful: in developed markets, mobile broadband dongles typically represent 25%–35% of all broadband connections and more than half of net additions, while in emerging markets they account for over 50% of the total broadband market and are still growing.
Although the level of take-up is translating into high revenue growth, a profitable business case for mobile broadband data has still to be established. Analysys Mason has undertaken projects on this issue with operators focused in Asia–Pacific, where the growth of mobile broadband has been significant. Results indicate that revenue yields (revenue per MB) for mobile broadband data are extremely low – ten times lower than for handset data access – due to the high volume of data consumed (2–3GB per month) and the flat-rate tariffs offered. Moreover, the revenue yields for both handset and mobile broadband data are declining rapidly (see Figure 1 for publicly available data with similar trends).
![Figure 1: Norway case study: Internet traffic and revenue yield for handset and dongle [Source: NPT]](/PageFiles/15914/Comm_June-2010-Amrish%20Kacker%20(1).jpg "Figure 1: Norway case study: Internet traffic and revenue yield for handset and dongle [Source: NPT]")
Figure 1: Norway case study: Internet traffic and revenue yield for handset and dongle [Source: NPT]
The facts revealed from statistics in Norway are consistent to the experience of operators in Asia-Pacific and are clearly challenging:
- Although dongle revenues have grown by 75% (and even more in emerging markets), traffic has increased by 175%.
- Handset revenues have grown by a mere 10%, while traffic has more than doubled – clearly implying declining yields.
- Yields for mobile broadband data are ten times less than those for handset data. (Similar ratios are also found in emerging markets.)
- Dongle traffic is ten times that for handset data, implying significantly more capex at a much lower yield.
- Revenue yields for dongles have declined by 48% in the last year, and by 36% for handsets.
Growing demand will dramatically increase investment requirements
The rising take-up of mobile broadband will require significant capex and opex in the coming years – we estimate that delivering a mobile broadband experience to 20% of the subscriber base would double the NPV of cash outflows. A big driver for the increase in cash outflows will be the need to improve backhaul and transmission, which will account for up to one third of the NPV of cash outflows (in an illustrative business case).
Given that the revenue yield on mobile broadband is likely to be extremely low, there remain significant concerns about whether a profitable business model exists.
Delivering better revenue yields and cost reduction measures are fundamental to future profits
Tackling the challenges in building a profitable mobile broadband business will require a disciplined and systematic approach to improving revenue yield, as well as more effective reduction of network costs (see figure below). The key initiative to improve revenue yield is pricing that focuses on creating profitable subscriber segments. The major network initiatives under evaluation by operators in the region are peak traffic offload (e.g. using WiFi or femtocells) and backhaul optimisation.
![Figure 2: Network initiatives to improve profits from mobile broadband (illustrative) [Source: Analysys Mason projects]](/PageFiles/15914/Comm_June-2010-%20Amrish%20Kacker%20(2).jpg "Figure 2: Network initiatives to improve profits from mobile broadband (illustrative) [Source: Analysys Mason projects]")
Figure 2: Network initiatives to improve profits from mobile broadband (illustrative) [Source: Analysys Mason projects]
Analysys Mason works with mobile operators on commercial and technical initiatives to support the development of a profitable mobile broadband business. Please click here to download a document providing more details on the various initiatives and an overview of our capabilities in this area. Alternatively, please contact amrish.kacker@analysysmason.com.