While mass adoption of 3G services has occurred more slowly than most analysts predicted (to the chagrin of operators, vendors and service providers alike), the Western European 3G user base increased by more than 50% during the first half of 2006.
This has accelerated the growth of mobile content, and services such as music and streamed TV have recorded a sharp rise in usage. If we consider mobile content revenue by service type, in 2005, music and VoD services comprised less than 7% of all mobile content revenue in Western Europe. This proportion is expected to rise to nearly 30% by 2011 – with a further 6% of revenue derived from broadcast TV services delivered over dedicated mobile broadcasting networks using technologies such as DVB-H or T-DMB (see Figure 1).
Figure 1: Split of mobile content revenue in Western Europe by service type, 2005–11 (Source: Analysys Research, 2006)
However, for these revenues to be fully realised, operators and content providers will have to be more responsive to consumers’ needs. Although the recent increase in 3G adoption is encouraging, it will not necessarily lead to significantly greater adoption of rich-media services.
One key obstacle to adoption of mobile content services has been the content providers’ complex billing and pricing options, which have confused customers and discouraged repeat usage. For example, some customers have been charged three times to access a single piece of content: one charge for browsing on an operator’s portal to find the content, another for the content itself and a third for downloading the content.
Providers are now seeking to remedy this situation, but some of their solutions carry their own risks. Many operators, for example, have lifted traffic surcharges on content. However, in order to maintain the value of content, these operators may have to raise the retail price of content, bear the cost of not charging for traffic or transfer that cost to the content providers.
One option favoured as a solution – using the additional capacity of 3G networks to offer flat-rate content pricing – may stimulate short-term growth but creates its own difficulties. This solution could make operators more susceptible to price competition, make it harder to extract additional value from content in the future and, if usage of data-intensive services becomes too heavy, lead to network congestion or very low revenue per megabyte.
As an alternative to those solutions, a more profitable option might be to emulate pay-TV operators such as BSkyB and offer themed bundles of content to specific segments, which can make marketing campaigns more effective. In the short term, bundled pricing can increase voice and data service take-up, usage and revenue; in the longer term, it can help develop customer relationships, minimise churn and price competition, and increase ARPU.