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Direct carrier billing could help operators to capture consumer spending on mobile content and apps

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Consumers are increasingly purchasing mobile content and apps, but most of this spending is with non-operators. This report discusses the potential that direct carrier billing (DCB) has to enable …

Consumers are increasingly purchasing mobile content and apps, but most of this spending is with non-operators. This report discusses the potential that direct carrier billing (DCB) has to enable operators to insert themselves into the value chain and capture a significant proportion of this revenue.

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  • 1. © Analysys Mason Limited 2013 Direct carrier billing could help operators to capture consumer spending on mobile content and apps Research Report Direct carrier billing could help operators to capture consumer spending on mobile content and apps June 2013 John Abraham, Justin van der Lande and Ronan de Renesse
  • 2. © Analysys Mason Limited 2013 Direct carrier billing could help operators to capture consumer spending on mobile content and apps Contents [1] 5. Executive summary 6. Executive summary [1] 7. Executive summary [2] 8. Recommendations 9. Recommendations [1] 10. Recommendations [2] 11. Market definition 12. Direct carrier billing is only one of many mobile payment options but offers the best opportunity for operators to generate mobile revenue 13. Direct carrier billing provides another payment option at checkout 14. Process flow between the entities involved in direct carrier billing 15. DCB has to support a multi-channel delivery ecosystem that is changing rapidly driven by technology, economics and regulations 16. Business environment 17. The business environment in 2013 is encouraging mobile operators to develop new value-added service revenue 18. Mobile payments are set to grow as the world continues to move to mobile devices – 400 million European users will pay for mobile content in 2016 19. In developed markets, operator revenue from voice and messaging is declining, as is their share of revenue from mobile content and apps 2 20. The potential market for DCB addresses not only the ‘unbanked’, but all users of smartphones worldwide 21. Half of respondents aged 18–34 spend money on apps, of which 28% spend more than LCU5 per month 22. Operators should initially target contract customers because they are more likely to have smartphones and margins are better 23. More than half of respondents with a smartphone have never bought an app 24. DCB has much lower drop-out rates than other payment methods, so although settlement rates are lower, overall revenue can be higher 25. Direct carrier billing opportunity outlook 26. Unlike traditional payment methods, DCB allows operators to capture a proportion of customer spend 27. Different national regulations present challenges to DCB implementation 28. Operators’ DCB revenue will grow significantly during the next 10 years and will replace PSMS as the payment option for operators 29. Market drivers and inhibitors 30. Slow growth in mobile revenue increases the need for operators to access OTT markets – and DCB can help 31. DCB alleviates consumers’ concerns about the security of payment systems, while addressing their preference for a single bill Slide no. Slide no.
  • 3. © Analysys Mason Limited 2013 Direct carrier billing could help operators to capture consumer spending on mobile content and apps Contents [2] 32. Difficult economic conditions, the prevalence of credit cards and online banking, and the limitations of DCB offerings hinder growth … 33. … as do the cost, lack of awareness among consumers, lack of standardisation, and policy and legal challenges 34. Use cases 35. Virgin Media offers direct carrier billing as a means to pay for digital content 36. SFR implements direct carrier billing as a means to generate revenue from the burgeoning mobile apps market 37. Non-operators such as Facebook and Skype also offer direct carrier billing as a payment option 38. About the authors and Analysys Mason 39. About the authors 40. About Analysys Mason 41. Research from Analysys Mason 42. Consulting from Analysys Mason 3 Slide no.
  • 4. © Analysys Mason Limited 2013 Direct carrier billing could help operators to capture consumer spending on mobile content and apps List of figures Figure 1: Operator revenue for direct carrier billing, worldwide, 2012–2023 Figure 2: The mobile payment ecosystem Figure 3: Segmenting mobile money Figure 4: The entities involved in DCB process flow Figure 5: Typical DCB process flow Figure 6: DCB ecosystem relationship Figure 7: Mobile handset content and apps subscribers by region, Europe, 2011–2016 Figure 8: Messaging revenue by type and its share of total mobile revenue, Western Europe, 2009–2017 Figure 9: Monthly app spend and number of apps bought per respondent by age group Figure 10: Smartphone ownership by pricing model 4 Figure 11: Monthly app spend Figure 12: Share of respondents who purchased an app, by level of monthly spend Figure 13: Publisher revenue, credits cards versus direct carrier billing Figure 14: Revenue splits for direct carrier billing Figure 15: Revenue splits for traditional payment methods Figure 16: Operator revenue for direct carrier billing, worldwide, 2012–2023 Figure 17a: Direct carrier billing market drivers Figure 17b: Direct carrier billing market drivers Figure 18a: Direct carrier billing market inhibitors Figure 28b: Direct carrier billing market inhibitors
  • 5. © Analysys Mason Limited 2013 Direct carrier billing could help operators to capture consumer spending on mobile content and apps Direct carrier billing provides another payment option at checkout  In order to better understand the mobile money market, we have split it into three segments according to customer points of sale, types of payment interfaces encountered and methods of payment.  The customer point of sale is the environment encountered at the time of making the payment through a mobile device.  Payment interfaces are the entities that the customer interacts or communicates with at the time of making a mobile payment.  The payment methods are the different means through which a consumer can make mobile payments. DCB is a payment method.  Premium SMS has been around for quite a while as a form of making payments through carrier billing. In this report, we have excluded premium SMS from DCB. The main reason for this is that premium SMS is a large market with significant worldwide revenue and dwarfs the nascent but steadily growing DCB market. Figure 3: Segmenting mobile money [Source: Analysys Mason, 2013] 13 Customer point of sale Apps Application stores Near-field communication (NFC) Web portal Payment interface Mobile wallet Application stores Web portal Payment method SMS Mobile wallet Direct banking Credit and debit cards Direct carrier billing (DCB) In-app
  • 6. © Analysys Mason Limited 2013 Direct carrier billing could help operators to capture consumer spending on mobile content and apps 30 Driver Description Effect Timeframe Slow growth in mobile revenue The slowing growth in revenue from the core mobile services and falling margins thanks to competitive pricing pressures have made operators look beyond traditional service offerings to generate additional revenue. Operators are increasingly interested in using their advantages to be part of the value chain in smartphone ecosystems. Experiments since 2011, significant revenue generation is expected from 2014 onwards. Access to OTT markets DCB enables operators to access the OTT market. Opportunity to offset falling revenue and margins. Ramping up from 2012 onwards Support from handset manufacturers Handset manufacturers’ application stores that offer DCB are helping to promote the service, which is beneficial to operators. Helps build greater awareness for DCB. Significant value from 2014 onwards. Access to unbanked members of the population Segments of the population that traditional payment methods cannot reach such as teenagers and people in poor regions of the world represent significant revenue opportunities. Huge revenue potential. Policy challenges remain. DCB is expected to generate value in emerging markets from 2014. Proliferation of mobile devices The world is moving to mobile connected devices, smartphones and tablets, providing increasing demand for mobile payments. DCB will offer huge revenue potential when it is mature. Wider adoption is expected during the next 2–3 years. Slow growth in mobile revenue increases the need for operators to access OTT markets – and DCB can help Figure 17a: Direct carrier billing market drivers [Source: Analysys Mason, 2013]
  • 7. © Analysys Mason Limited 2013 Direct carrier billing could help operators to capture consumer spending on mobile content and apps 38 Executive summary Recommendations Market definition Business environment Direct carrier billing opportunity outlook Use cases About the authors and Analysys Mason
  • 8. © Analysys Mason Limited 2013 Direct carrier billing could help operators to capture consumer spending on mobile content and apps About the authors John Abraham (Analyst) is a member of Analysys Mason’s Telecoms Software Research team and contributes to the Revenue Management, Service Fulfilment and Customer Care programmes. He has more than 5 years’ experience in the telecoms industry. He has worked for a global OSS vendor and implemented revenue management solutions for Tier 1 telecoms operators in Europe, India and the Middle East. John joined Analysys Mason in early 2012. He holds a bachelors degree in computer science from Anna University (India) and an MBA from Bradford University School of Management (UK). Justin van der Lande (Senior analyst) leads the Revenue Management programme (formerly Billing), which is part of Analysys Mason’s Telecoms Software research stream. He specialises in business intelligence and analytics tools, the functionality of which cuts across all of the research programmes in this area. He also provides project management for large-scale projects within our Telecoms Software research. Justin has more than 20 years’ experience in the communications industry in software development, marketing and research. He has held senior positions at NCR/AT&T, Micromuse (IBM), Granite Systems (Telcordia) and at the TM Forum. Justin holds a BSc in Management Science and Computer Studies from the University of Wales. Ronan de Renesse (Principal Analyst) is the lead analyst for Analysys Mason’s Mobile Content and Applications and Mobile Broadband and Devices programmes. His primary areas of specialisation include rich media applications and services on mobile, application store forecasting, mobile broadband, tablets and smartphone adoption. Ronan has been analysing the telecoms and media industry since 2003. Prior to joining Analysys Mason, Ronan was a Senior Analyst and the Head of Mobile at IHS Screen Digest, where he had overall responsibility for the Mobile Media Intelligence service and all related activities. For the past 5 years, Ronan has led the conception and development of various mobile media and technology forecasts, including those for mobile video, mobile music, mobile games, mobile apps, mobile broadband and smartphones. Before becoming an industry analyst, Ronan was an academic researcher at the Centre for Telecommunications Research at King's College London. He holds a PhD in Telecommunications from King's College London. 39
  • 9. © Analysys Mason Limited 2013 Direct carrier billing could help operators to capture consumer spending on mobile content and apps About Analysys Mason Knowing what’s going on is one thing. Understanding how to take advantage of events is quite another. Our ability to understand the complex workings of telecoms, media and technology (TMT) industries and draw practical conclusions, based on the specialist knowledge of our people, is what sets Analysys Mason apart. We deliver our key services via two channels: consulting and research. 40 Consulting  Our focus is exclusively on TMT.  We support multi-billion dollar investments, advise clients on regulatory matters, provide spectrum valuation and auction support, and advise on operational performance, business planning and strategy.  We have developed rigorous methodologies that deliver tangible results for clients around the world. For more information, please visit www.analysysmason.com/consulting. Research  We analyse, track and forecast the different services accessed by consumers and enterprises, as well as the software, infrastructure and technology delivering those services.  Research clients benefit from regular and timely intelligence in addition to direct access to our team of expert analysts.  Our dedicated Custom Research team undertakes specialised and bespoke projects for clients. For more information, please visit www.analysysmason.com/research.
  • 10. © Analysys Mason Limited 2013 Direct carrier billing could help operators to capture consumer spending on mobile content and apps Research from Analysys Mason We provide dedicated coverage of developments in the telecoms, media and technology (TMT) sectors, through a range of research programmes that focus on different services and regions of the world. 41 Alongside our standardised suite of research programmes, our Custom Research team undertakes specialised, bespoke research projects for clients. The dedicated team offers tailored investigations and answers complex questions on markets, competitors and services with customised industry intelligence and insights. To find out more, please visit www.analysysmason.com/research.
  • 11. © Analysys Mason Limited 2013 Direct carrier billing could help operators to capture consumer spending on mobile content and apps Consulting from Analysys Mason For more than 25 years, our consultants have been bringing the benefits of applied intelligence to enable clients around the world to make the most of their opportunities. 42 Our clients in the telecoms, media and technology (TMT) sectors operate in dynamic markets where change is constant. We help shape their understanding of the future so they can thrive in these demanding conditions. To do that, we have developed rigorous methodologies that deliver real results for clients around the world. Our focus is exclusively on TMT. We advise clients on regulatory matters, help shape spectrum policy and develop spectrum strategy, support multi-billion dollar investments, advise on operational performance and develop new business strategies. Such projects result in a depth of knowledge and a range of expertise that sets us apart. We help clients solve their most pressing problems, enabling them to go farther, faster and achieve their commercial objectives. To find out more, please visit www.analysysmason.com/consulting.
  • 12. © Analysys Mason Limited 2013 Direct carrier billing could help operators to capture consumer spending on mobile content and apps Published by Analysys Mason Limited • Bush House • North West Wing • Aldwych • London • WC2B 4PJ • UK Tel: +44 (0)845 600 5244 • Fax: +44 (0)845 528 0760 • Email: research@analysysmason.com • www.analysysmason.com/research • Registered in England No. 5177472 © Analysys Mason Limited 2013. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means – electronic, mechanical, photocopying, recording or otherwise – without the prior written permission of the publisher. Figures and projections contained in this report are based on publicly available information only and are produced by the Research Division of Analysys Mason Limited independently of any client- specific work within Analysys Mason Limited. The opinions expressed are those of the stated authors only. Analysys Mason Limited recognises that many terms appearing in this report are proprietary; all such trademarks are acknowledged and every effort has been made to indicate them by the normal UK publishing practice of capitalisation. However, the presence of a term, in whatever form, does not affect its legal status as a trademark. Analysys Mason Limited maintains that all reasonable care and skill have been used in the compilation of this publication. However, Analysys Mason Limited shall not be under any liability for loss or damage (including consequential loss) whatsoever or howsoever arising as a result of the use of this publication by the customer, his servants, agents or any third party.

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