Mobile operators must find a better way to address the content market other than transferring the Internet model to a mobile platform.
In saturated Western European markets, providing access to mobile content is one of the most promising sources of new revenue. In order to avoid being bypassed by content providers selling directly to final users, or advertisers selling to mobile Internet companies, it is critical that operators apply the lessons learned from the fixed broadband Internet world and take an active approach to securing their position in the value chain.
For fixed-line operators, the widespread penetration of the Internet has clearly been a material benefit, but revenues from data usage have only partially offset the ongoing decline in voice revenues. Fixed operators have been unable to capture a significant share of the online advertising market or extract value from the content sold on the Internet. Fixed networks have effectively been reduced to ‘big pipes’, and operators have been unable to generate meaningful revenue from value-added services.
If mobile operators are to avoid the fate of the fixed operators, they must find a better way to address the content market other than transferring the Internet model to a mobile platform. While there are clear advantages to adopting the open-model, flat-rate path of the fixed-line operators, it is critical that mobile operators protect their position by offering value-priced, wholesale tariffs and retaining control over handsets.
The four parts of the mobile content strategy should be:
- Open model: By enforcing a ‘walled-garden’ approach (operators acting as both the access pipe to the mobile Internet as well as the provider of content), operators may gain a relatively high proportion of the total value of mobile content from their subscribers. However, this approach has led to limited take-up. Operators must now push towards a more open model and harness established brands to stimulate customer usage and appeal. There is evidence that this transition is already taking place. For example, Vodafone UK has signed content agreements with major players, including eBay, Google and MySpace. However, there are risks when adopting a completely open model. As demonstrated by the experience of fixed players, operators may be cut out of the value chain for content delivery.
- Capped flat-rate tariffs: The cost of data traffic is one of the current barriers to the usage of mobile content services. The lack of transparency in pricing remains a major issue, as many mobile users and potential users will be confused by the tariffs for mobile data access or, worse, not realise that there is a separate, additional charge to download data. Many of the new tariff plans also have a cap of tens of megabytes per month, which is inadequate for applications such as music or video downloading. In order to foster take-up and to stimulate usage, operators should offer capped, flat-rate tariffs with higher usage limits. Additional sources of revenue, such as wholesale revenue from content providers, advertising, and charges for ‘premium’ services can be used to compensate for revenue lost by lowering prices.
- Value-priced wholesale tariffs: As an integral part of their mobile content strategy, mobile operators should charge content providers a price per megabyte that reflects the value of the delivered content. Operators are then able to provide content to consumers at a single, transparent price that includes all data download costs.
- Control over handsets: Mobile operators must make more of the opportunities offered by mobile advertising. In an open model (as seen in the fixed Internet model), advertisers typically bypass operators and purchase ad space on specific Web sites. For example, organisations such as Google, rather than ISPs or fixed network operators, generate their own advertising revenues. In the mobile context, however, there is potential for this loss of revenue to be reduced if mobile operators retain control over handsets. Even in an open model, an operator can direct customers to its own portal and benefit from sales of mobile advertising. This can happen either by providing advertising partners with space on the home page or by delivering advertising to subscribers on a portion of the screen controlled by the operator. Furthermore, mobile operators could exploit their customer knowledge to provide information that appeals to advertisers, within the bounds of relevant data protection legislation.
In conclusion, we believe that there are significant, untapped opportunities in the mobile content market, but a significant change in the way that the industry operates is required. An open model can help increase take up when supported by flat rates with high usage caps. To avoid the fate of the fixed broadband operators, mobile operators must implement a new business model based on active participation in the value chain and the introduction of value-priced, wholesale data tariffs.