The Global Mobile Industry Bechmark

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The Global Mobile Industry Bechmark

  1. 1. The Pursuit of Customer Profitability Emagine International Global Benchmark Diagnostic Mobile Data Services: Current & Future Winners The Global Mobile Industry Bechmark
  2. 2. Mobile Data Report Table of Contents Table of Contents................................................................................................................1 Table of Figures ....................................................................................................................3 Executive Summary.............................................................................................................5 Disclaimer .............................................................................................................................6 Intellectual property rights........................................................................................6 Abuse of confidentiality............................................................................................6 Disclaimer ....................................................................................................................6 1 Introduction ..................................................................................................................7 1.1 About emagine International ............................................................................7 1.2 About the Mobile Data Services Report ..........................................................8 1.3 Document Purpose ..............................................................................................8 1.4 Confidentiality.......................................................................................................8 1.5 Operator Codes ...................................................................................................9 2 Research Methodology............................................................................................10 2.1 Overview..............................................................................................................10 2.2 Methodology ......................................................................................................10 2.2.1 Purchasing Power Parity (PPP) Conversion Method ...........................10 2.2.2 Market Competitiveness Index...............................................................10 2.2.3 Best Practice Defined ..............................................................................11 2.2.4 Customer Lifetime Net Present Value (NPV) Defined.........................12 2.3 Participant Selection and Recruitment ..........................................................13 2.4 Questionnaire Development............................................................................13 2.5 Data Collection ..................................................................................................14 2.6 Data Analysis.......................................................................................................14 2.7 Case Studies........................................................................................................14 3 Mobile Data Services ................................................................................................15 3.1 Overview..............................................................................................................15 3.2 Executive Highlights ...........................................................................................15 3.3 Best Practice Benchmarks ................................................................................15 3.4 Customer profile .................................................................................................16 3.5 Innovative new and differentiated services/content.......................................17 3.5.1 The most popular data services are SMS, and Entertainment Services for both Pre and Post paid customers ...................................17 3.5.2 Between 30-40% of operators customer base on average use SMS. .............................................................................................................18 3.5.3 Average users of SMS generate US$4.30 – US$5.20 per customer per month ..................................................................................................19 3.5.4 SMS has the greatest impact on customer churn...............................20 3.5.5 Case study –SingTel introduces mobile advertising that results in churn reduction ........................................................................................22 3.5.6 Subscription to data services starts to take off in medium level of competitiveness markets.........................................................................23 3.5.7 SMS is becoming a mainstream service offer ......................................25 3.5.8 SMS usage appears price inelastic............................................................27 1/48 www.emagine-int.com
  3. 3. Mobile Data Report 3.5.9 Is MMS a “killer app”? ..................................................................................28 3.5.10 Operators do not expect many customers to use mobile data services (excluding SMS and MMS) in the next 12 months ................30 3.5.11 Operators think SMS followed by International Roaming and Ringtones and Logos are the most likely services to stimulate revenue in the next 12 months ...........................................................................30 3.5.12 Operators don’t expect data services to have a major impact on churn .....................................................................................................32 3.5.13 Forecasted revenue from data services in 2005 is expected to be at least 20% percent of total revenue ............................................34 3.5.14 In 12 months time the majority of revenue will still come from voice services ............................................................................................35 4 The impact of Mobile Data Services on the Operator........................................37 4.1 Who will own the customer? ............................................................................37 4.2 Who to recruit in the future...............................................................................38 4.2.1 Staff will come from non telecommunications backgrounds in the future...........................................................................................................38 4.3 Pricing structures of the future .........................................................................39 5 WAP, GPRS and 3G ...................................................................................................41 5.1 Data enabled WAP and GPRS handsets .......................................................41 5.1.1 For most operators, less than half the base have WAP handsets ........41 5.2 GPRS handset penetration has had even less impact than WAP handsets...............................................................................................................43 5.3 Most operators expect to have GPRS roaming available in 1-2 years.....45 5.4 Devices – what will be the future device?.....................................................45 5.5 3G (UMTS) services .............................................................................................46 5.5.1 Most operators expect to be testing 3G within the next 2 years .....46 5.5.2 Majority of operators expect 3G international roaming to be 3+ years away ...........................................................................................47 5.5.3 Majority of operators have optimistically forecast large reductions of customer churn on introduction of 3G services ..................................48 2/48 www.emagine-int.com
  4. 4. Mobile Data Report Table of Figures Figure 1.1 Emagine’s Overview 7 Figure 2.1 Market Competitive Index 11 Figure 2.2 Average customer lifetime NPV 12 Figure 3.1 Percentage of operators offering data services – Postpaid versus Prepaid 17 Figure 3.2 Average percentage customer base using data services – Postpaid versus Prepaid 18 Figure 3.3 Average ARPU per data service – Postpaid versus Prepaid 19 Figure 3.4 Percentage breakdown affect on churn per data service – Postpaid 20 Figure 3.5 Percentage breakdown affect on churn per data service – Prepaid 20 Figure 3.6 Percentage of customer base subscribing to data services (excluding SMS) – Postpaid 23 Figure 3.7 Percentage of customer base subscribing to data services (excluding SMS) – Prepaid 24 Figure 3.8 Percentage of customer base using SMS – Postpaid 25 Figure 3.9 Percentage of customer base using SMS – Prepaid 26 Figure 3.10 Average SMS’s sent per month versus Average price per SMS – Postpaid 27 Figure 3.11 Average SMS’s sent per month versus Average price per SMS – Prepaid 27 Figure 3.12 Average percentage of total customer base operators expect to use mobile data services (excludes SMS and MMS) 30 Figure 3.13 Percentage breakdown of the likelihood of value-added services to stimulate revenue in the next 12 months 31 Figure 3.14 Percentage breakdown of the churn impact of new data services 32 Figure 3.15 Percentage breakdown of revenue operators expect to come from data services (including SMS) in 2005 – Postpaid split by market competitiveness 34 3/48 www.emagine-int.com
  5. 5. Mobile Data Report Figure 3.16 Percentage breakdown of revenue operators expect to come from data services (including SMS) in 2005 – Prepaid split by market competitiveness 35 Figure 3.17 Average percentage revenue breakdown forecasted in 12 months time 36 Figure 4.1 Future pricing methods 40 Figure 5.1 Percentage breakdown of the proportion of the 41 Figure 5.2 Percentage breakdown of the proportion of the customer base who have WAP enabled handsets – Prepaid 42 Figure 5.3 Percentage of operators customer base that have GPRS enabled handsets – Postpaid 43 Figure 5.4 Percentage of operators customer base that have GPRS enabled handsets – Prepaid 44 Figure 5.5 Percentage breakdown of when operators expect full GPRS international roaming to become available 45 Figure 5.6 Percentage breakdown of when operators expect to pilot test UMTS 46 Figure 5.7 Percentage breakdown of when operators expect full 3G (UMTS) international roaming to become available 47 Figure 5.8 Comparison of current total monthly churn rate versus forecasted churn rate year 1 after launch of 3G 48 4/48 www.emagine-int.com
  6. 6. Mobile Data Report Executive Summary Emagine International’s mobile data report investigates the efforts by operators to stimulate ARPU through diversification from voice to data services and the impact these new services have on churn minimisation. Both the Prepaid and Postpaid impacts are investigated. Most operators expect data to contribute at least 20% of their total revenue by 2005 however, to date only a few are on their way to achieving this. European operators in the study are leading the way with an average of 15% of revenues attributable to non-voice services (data and SMS). However, for operators to be successful, the provision of mobile data services needs to be extended to the Prepaid base. The study has shown that the majority of revenue currently generated by data services is attributable to Short Message Service (SMS), which has seen a remarkable increase in usage over the last few years. Most operators report an average of 30-40% of their customer base to be regularly using SMS. Notably, price elasticity is so far absent from this segment, recalling the days of voice services in most markets. The study also looks at the wider impacts the introduction of data services is likely to have on the operator. It suggests that as content becomes more important the operator may not have the control it once held over the customer. Furthermore to succeed in the future the operator needs to reconsider some of its traditional ways of doing business and bring these practices more in line with other industries such as the media and electronic/software businesses. The study also looks at the adoption of WAP and GPRS services and the likely take-up of 3G services. It includes 25 charts and 1 case study. 5/48 www.emagine-int.com
  7. 7. Mobile Data Report Disclaimer Intellectual property rights The findings, views and opinions presented herein are those of Emagine International and cannot be reprinted, copied or re-transmitted in any form without the express permission of Emagine International. Abuse of confidentiality Emagine International has entered into confidentiality agreements with all participants regarding the handling of information supplied to Emagine International as part of ICVM and considered confidential to each participant. Emagine International is bound by those confidentiality agreements, which in summary mean, that at no time, shall Emagine International nor any of its representatives or agents; • Specifically identify which operators have participated in this study • Attribute any material presented in this report directly to a particular operator excluding to a participant that which has been provided by the participant directly Operator names are used in Case Studies that appear in the Customer Retention Handbook, however these operators are not necessarily participants in the study. Publicly available information has been used for the case studies, which are intended to provide a practical illustration of a particular Emagine point of view or specific initiative. Disclaimer Emagine International has used its best efforts in preparing this report. All information presented is directly based on information supplied by participating operators. In rare situations where quantitative information was not supplied directly by the participants, public domain information, including website information or estimates have been used. All participants have had the opportunity to comment on these estimates and suggest variations where appropriate. Emagine International can provide no express or implied warranties with respect to the accuracy of the contents of this report. Emagine International specifically denies any implied warranties of useability of this report for any particular purpose and at no time shall be liable for any loss or consequential damages resulting from actions taken subsequent to this report. 6/48 www.emagine-int.com
  8. 8. Mobile Data Report 1 Introduction 1.1 About emagine International Emagine International’s aim is to enable our telecommunications clients to pursue customer profitability leadership. Emagine provides closed-loop marketing solutions that enable telecommunications operators to pursue customer profitability leadership by creating intelligent, value-based customer interaction at each customer touch point. We rapidly deploy high-impact churn management and revenue stimulation strategies across multiple channels. Figure 1.1 Emagine Overview How emagine delivers customer profitability leadership… • emagine’s global benchmark diagnostic provides unique insight and a roadmap for high-impact initiatives which actually work to reduce churn and stimulate revenue. • Emagine’s Closed-Loop Marketing Suite for Telecommunications is a comprehensive modular solution designed to deliver the high-impact quick-wins to achieve customer profitability leadership • We specialise in telecommunications and deliver deep telecommunications industry experience immediately to your business. We bridge the gap in your organisation between marketing strategy, technology solutions and operational execution 7/48 www.emagine-int.com
  9. 9. Mobile Data Report • Our “ROI driven CRM” implementation methodology ensures that the business objectives and results, not the technology, drive the entire closed-loop marketing project • We believe in the power of our methodology and solutions - our license fees are based on success For more information on Emagine International see www.emagine-int.com 1.2 About the Mobile Data Services Report This report has been prepared based on information gathered from Emagine International’s International Customer Value Management study. The study is a global multi-client consulting initiative of Emagine International, that benchmarks best practice performance and customer profitability of leading mobile operators from Asia, Europe and The United States. This study provides a unique apples-to-apples comparison of best practice activities between operators, with a valuable mixture of in-depth quantitative and qualitative measures, practical case studies and Emagine commentary. Emagine’s study involves in-depth one-on-one interviews with leading cellular operators from Europe, Asia Pacific and the United States and reports the very latest benchmarks and developments for both Prepaid and Postpaid cellular operators. 1.3 Document Purpose The Mobile Data Report is a global best practice benchmark designed to assist mobile operators to understand and achieve best practice in terms of their mobile data business. It has been designed to offer insights into the strategies and programs used by mobile operators in similarly competitive markets. The study focuses on identifying current and potential best practice strategies and programs, and then presents how the participant’s operations compare with these practices. From this comparison, it is proposed that readers will be able to develop insights into how their operation should be improved to address the problem of customer retention and how best to react to or pre-empt changing market conditions. 1.4 Confidentiality Owing to the highly sensitive nature of the information in this study, Emagine International is unable to release details either of study participants, or which operator represents which results. Therefore a code system has been used throughout the report to allow individual participants to identify themselves and how they compare to other operators in the study. 8/48 www.emagine-int.com
  10. 10. Mobile Data Report 1.5 Operator Codes Due to the high number of operators in the study, operator codes are listed in ‘alphabetical’ order, (A, B, C etc.) in order of an operator’s increasing market competitive index. Many charts that break data up into regional data for Europe, Asia and United States will stipulate averages for each region accordingly. 9/48 www.emagine-int.com
  11. 11. Mobile Data Report 2 Research Methodology 2.1 Overview This section provides an overview of the methodology used in this report, including the definitions for common terms. It also outlines the process behind participant selection, recruitment, data collection and analysis. 2.2 Methodology 2.2.1 Purchasing Power Parity (PPP) Conversion Method In order to provide a useful comparison of operators’ efforts in multiple countries it was necessary to first convert all financial data into a common currency. Due to its dominance in world trade, the United States dollar US$ was chosen as the benchmark currency for the study. Furthermore, to balance the price levels of local economies and current exchange rates on the US$ benchmarks, all figures were adjusted using the atlas method of purchasing power parities as published by the World Bank. This method provides a more useful benchmark output. For more details on purchasing power parities and why they are used, go to: www.oecd.org/std/ppp/pppfaq.htm 2.2.2 Market Competitiveness Index To normalise for differences between operators’ local market competitiveness, Emagine has developed a Market Competitiveness Index (MCI) based on: Market Competitiveness Characteristic Indicator Used in MCI Level of direct competition Number of operators in market Intensity of competition Acquisition costs and handset subsidies Intensity of competition Average price per minute Maturity of the market Mobile penetration rate by population Regulatory controls on competition Mobile number portability existence Population coverage Percentage Population covered Ratings are based on the operator’s own assessment of the importance and impact of each of the variables on market competition. To retain confidentiality of each operator, the exact calculation of the Market Competitiveness Index is not provided and is proprietary to Emagine International Pty Ltd. 10/48 www.emagine-int.com
  12. 12. Mobile Data Report Throughout this report, Emagine refers to three levels of market competitiveness – low, medium and high. These are illustrated in Figure 2.1. MARKET COMPETITIVENESS LEVELS Low MCI 20-40% Medium MCI 41-61% High MCI 62% + Figure 2.1 Market Competitive Index • Operators identified as operating in countries of low MCI are working in relatively cosy markets with low levels of competition. The focus is on growing market share quickly and the consequent acquisition focus and aggressive marketing campaigns leads to high churn rates. • Operators in medium MCI markets have experienced a shift from a market share focus to a retention focus. As a result of implementing retention programs and systems, churn is much lower than for low MCI companies. • As more competitors enter the market the MCI index increases. Churn also increases due to the number of players in the market and the desire by operators to lose their non profitable, low value customers. NPV tends to decline due to aggressive price cuts. 2.2.3 Best Practice Defined The key indicator of best practice used in this study is determined by the maximisation of average customer lifetime NPV. This is because, if the objective of the business is to maximise net asset value, then the most important consideration is the total value of the customer base that is retained. Figure 2.2 represents the critical indicator of the financial health of an operator as the value of the customers’ lifetime contribution towards profitability (discounted to today’s dollar terms), measured as customer lifetime net present value (NPV). 11/48 www.emagine-int.com
  13. 13. Mobile Data Report Decaying over time $x margin Average lifetime Tenure Average customer lifetime NPV Figure 2.2 Average customer lifetime NPV In the report much of the data is analysed using the Market Competitiveness index as the x-axis, thus enabling participants to measure themselves against operators of similarly competitive markets. 2.2.4 Customer Lifetime Net Present Value (NPV) Defined The generally accepted definition of customer lifetime NPV is the total profit earned per customer over the average customer lifetime. Different operators may adopt different internal calculations of customer lifetime NPV. For the purpose of benchmark comparisons, Emagine has applied a common model across all participants in the ICVM study. It is worthwhile to understand the formula used and its implications. Customer lifetime NPV = (- Acquisition cost) + ((ARPU*Margin)/WACC)*((1(1/(1+WACC)^(1/Churn))))) Where: • Acquisition cost = total average acquisition cost per customer • Margin = the average monthly ongoing operator margin in dollar terms per customer excluding acquisition costs. • WACC = monthly weighted average cost of capital • Churn = total average monthly churn rate %. 12/48 www.emagine-int.com
  14. 14. Mobile Data Report Explanation: • (Margin/WACC) is a shortcut formula to calculate the net present value (NPV) of a decaying series • The series is an annuity, i.e. x$ in margin is paid to the operator per month over a period of time • The formula takes the NPV of the decaying series = (operator margin/monthly WACC) • Less the NPV of the decaying series from the end point of the average lifetime of a customer (last part of formula) • The average customer lifetime is calculated based on the churn rate. The lower the churn, the longer the average lifetime • The acquisition cost is also deducted 2.3 Participant Selection and Recruitment Study participants were selected for their apparent expertise and recent success record in at least one aspect of mobile customer retention, as observed by Emagine’s customer retention consultants. Three regions were targeted and subsequent operators were selected from Europe, Asia Pacific and the United States who agreed to participate in Emagine’s diagnostic. The study was limited to mobile operators or the mobile divisions of integrated telecommunications operators to maximise the relevance of the findings to participants. 2.4 Questionnaire Development The questionnaire was designed to gather both qualitative and quantitative data. Following the publication of last year’s study, a series of workshops were held with participants and additional scope was identified. These workshops identified the key retention and loyalty questions operators asked as well as potential gaps of information. Where possible, participating operators were again given the opportunity to contribute to questionnaire design. The questionnaire split the data between Prepaid and Postpaid. The final questionnaire design comprised two components: • A face-to-face or phone interview qualitative questionnaire, and • Quantitative data workbooks, which were completed by the operator prior to the qualitative interview (where possible) 13/48 www.emagine-int.com
  15. 15. Mobile Data Report 2.5 Data Collection The data-collection phase of the study was undertaken between May and July 2002. This phase involved face-to-face and/or phone interviews spread across Europe, USA and the Asia-Pacific. Each interview lasted approximately 2-3 hours and often with 2 – 3 key people in each operator. Key people interviewed include where possible: CEO, Marketing Director, Retention/CRM Director, Customer Service Director, Retention Manager, and Senior Financial and Marketing Analysts. In addition, participants were provided with the quantitative workbooks and qualitative questionnaire prior to the scheduled interview. 2.6 Data Analysis The initial phase of the analysis combined all the participating operator information to formulate a single view of the data. This enabled key findings to be identified. Emagine interpreted these findings to identify best practice customer retention activities. In a limited number of circumstances, where confidence in the data provided was low and contributed to a significant skewing of the data, specific operator data has been excluded from certain analysis. In all cases, Emagine has based this report upon data provided directly from the participants. Every effort has been made to ensure information portrayed in this report is accurate and realistic. Where discrepancies occur Emagine holds no liability for the accuracy of the specific information in question. The quality of the final analysis and recommendations is based on Emagine’s expertise in the area and the information supplied by the participants. 2.7 Case Studies Case studies are used to provide a practical illustration of a particular Emagine point of view or an example of a specific initiative. Operator names used in Case Studies are not necessarily participants in the study. Publicly available information has been used for the case studies. 14/48 www.emagine-int.com
  16. 16. Mobile Data Report 3 Mobile Data Services 3.1 Overview This report provides insight into the effectiveness of mobile data services, including SMS and other value added services to reduce churn and stimulate revenues. It investigates future trends and looks at the impact of technology on mobile data services. 3.2 Executive Highlights • The most popular data services are SMS, and Entertainment Services for both Pre and Post paid customers • On average 30-40% of the customer base are active users of SMS, and these users generate an average of US$4.30 – US$5.20 per customer per month. • SMS has the greatest impact on churn. 90% of operators state that SMS has at least some impact on churn. 17% of operators suggest that SMS reduces Postpaid churn by at least 6%. • SMS usage is price inelastic for both Postpaid and Prepaid subscribers – a decrease in price does not appear to stimulate usage. • The average price per SMS is US$O.05 in low MCI, increasing to an average of US$0.16 in high MCI markets. This trend is contrary to all other pricing patterns which show price decreasing as competition increases. • Forecasted revenue from data services in 2005 is expected to be 20% of total revenue • For most operators, less than half the base have WAP handsets • GPRS handset penetration has even less impact than WAP. Most operators expect to have GPRS roaming available in 1-2 years 3.3 Best Practice Benchmarks Best Practice Operators: • Actively promote data handsets to their customer base for new acquisitions and through retention based handset upgrade programs • Offer a wide range of VAS to both Pre and Postpaid customers and continually enhance the service offerings. • Offer SMS to both Pre and Post paid customers. This contributes to both ARPU and churn minimization. • Charge a relatively high rate for SMS and maintain rather than reduce the price point. 15/48 www.emagine-int.com
  17. 17. Mobile Data Report 3.4 Customer profile To date Mobile Data services have been targeted at high value Postpaid customers (generally businesses and corporate customers) with a focus on enterprise solutions. The exceptions to this have been NTT Do Co Mo’s imode service which has had tremendous success with the consumer (and particularly the youth market) and more recently the Vodafone Group’s Vodafone Live! service which targets consumer customers. However, even these services have focused on Postpaid customers only. In general, Prepaid customers have not been offered mobile data services as they are usually perceived as a low value base. In addition, mobile data services delivery processes need to be adapted for Prepaid customers to ensure sufficient credit is available and this can delay the introduction of services. Emagine believes that for mobile data services to really gain momentum, the Prepaid market must have the same mobile data opportunities as the Postpaid market. This is particularly relevant in countries where Prepaid subscribers form the majority of the customer base. Furthermore, many new mobile data services, such as gaming and entertainment actively target the youth market which is predominantly Prepaid. The youth market has also led previous data trends and are therefore likely to spearhead the mobile data trend. They have quickly adopted new technology, are high users of the internet and led the take-up of SMS. Indeed, their spend on data services (SMS) often exceeds their voice spend and therefore they are a much higher margin customer. 16/48 www.emagine-int.com
  18. 18. Mobile Data Report 3.5 Innovative new and differentiated services/content 3.5.1 The most popular data services are SMS, and Entertainment Services for both Pre and Post paid customers 100.0% M es sa ging - S M S 93.8% 93.8% E ntertainm e nt (eg.ringtone s, lo gos) 87.5% M es saging - E m ail/W eb b row s ing 81.3% 31.3% Inte rnation al R oam ing 81.3% 50.0 % M es sag ing - C hat 7 5.0% 6 8.8% G a m in g (eg. In terac tive g am e sN O T E ) 6 8.8% 62.5% P ostpa id: 43 .8% Loca tion b ased info rm ation s ervic es P rep aid : 18.8% m C om m erc e (eg . V endin g m a chin es, 43 .8% p ark ing m eters ) 12.5% M ess aging - M M S 25.0% 6.3 % O ther 6.3 % 0 .0% M obile A d vertis ing 6.3 % 0 .0% Figure 3.1 Percentage of operators offering data services – Postpaid versus Prepaid • SMS is the most popular data service for both pre and post paid customers, closely followed by entertainment services such as ringtones and logos. However beyond this point there is a difference between pre and post paid customers with Postpaid customers preferring international roaming and Email/web browsing services and Prepaid customers preferring Chat messaging and gaming. This is no doubt reflective of the types of customers attracted to each type of payment plan with Prepaid customers more likely to be youth who enjoy entertainment services, and Postpaid customers more likely to be those who use the service for their business needs in addition to personal communication. • Newer data services such as m-commerce, mobile advertising, MMS, web browsing and LBS are more popular amongst Postpaid customers, irrespective of MCI, as they are more likely to be able to afford the services. This is a function of both the higher cost of these services relative to SMS and voice and the requirement for handset capability, which is only found in the more expensive model of phones, generally purchased by Postpaid customers. • The degree of market competitiveness has no bearing on the most popular data services – they remain SMS, and ringtones and logos. However, both pre and Postpaid customers in lower MCI markets are 17/48 www.emagine-int.com
  19. 19. Mobile Data Report more likely to prefer entertainment services such as gaming whereas medium and high customers prefer email messaging and web browsing as well as international roaming. This is probably a reflection of the size of the base of Prepaid and Postpaid customers for each MCI.. 3.5.2 Between 30-40% of operators customer base on average use SMS. 45% Postpaid: 41.9% Prepaid: 40% 34.9% Average percentage of base subscribing (%) 35% 30% 25% 20% 15% 12.5% 10% 7.5% 6.8% 6.3% 6.4% 4.6% 4.9% 5.3% 4.5% 4.6% 5% 3.0% 3.1% 3.2% 2.9% 2.3% 2.7% 2.5% 2.5% 2.5% 2.0% 0% mCommerce Location based Messaging - Messaging - Entertainment Gaming (eg. Messaging - Other Mobile International Messaging - (eg. Vending information Chat Email/Web (eg.ringtones, Interactive MMS Advertising Roaming SMS machines, services browsing logos) games) parking meters) Figure 3.2 Average percentage customer base using data services – Postpaid versus Prepaid 18/48 www.emagine-int.com
  20. 20. Mobile Data Report 3.5.3 Average users of SMS generate US$4.30 – US$5.20 per customer per month 6.00 Postpaid: Prepaid: 5.19 Average Revenue Per User (US$PPP) per month 5.00 4.33 4.00 2.96 3.00 2.03 2.00 1.00 0.84 0.88 0.72 0.47 0.50 0.45 0.41 0.43 0.33 0.330.24 0.33 0.27 0.24 0.24 0.20 0.17 0.14 0.00 mCommerce Other Mobile Messaging - Messaging - Gaming (eg. Location Entertainment Messaging - International Messaging - (eg. Vending Advertising MMS Chat Interactive based (eg.ringtones, Email/Web Roaming SMS machines, games) information logos) browsing parking services meters) Figure 3.3 Average ARPU per data service – Postpaid versus Prepaid • SMS is becoming an extremely important service for operators. Almost 35% of Prepaid customers and 42% of Postpaid customers use SMS. SMS usage is significantly higher than for other data services. Interestingly, while fewer Prepaid subscribers use SMS, those who do use it, do so more often and consequently prepaid SMS ARPU is higher than for Postpaid at US$5.20 per month compared to an ARPU of $4.30 for prepaid. Given the large proportion of customers who use this service, it can be seen why SMS is and has the potential to be a greater contributor to total ARPU. • International Roaming is used by 12.5% of the Postpaid base and 6% of the Prepaid base. This is clearly a service that is needed by a certain segment of the market and it contributes well to ARPU from customers who use it – almost US$3 for Postpaid customers and $2.50 for Prepaid customers pre month on average. • Messaging services such as email and web browsing also contribute heavily to Postpaid ARPU at US$2. 19/48 www.emagine-int.com
  21. 21. Mobile Data Report 3.5.4 SMS has the greatest impact on customer churn 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 8% 7% 0% 11% 90% 20% 22% 20% 25% 14% 17% 80% 50% 50% 70% 20% 60% 33% 56% 33% 42% 50% > 15% decrease in churn 50% 100% 100% 10 - 15% decrease in churn 64% 6 - 10% decrease in churn 40% < 5% decrease in churn 0% impact on churn 30% 60% 50% 50% 42% 44% 20% 33% 33% 30% 10% 14% 0% 0% ng S S g t ) r ng s ) ce ha os e es e in M M th ic er si si m -C og m -S -M O rv rti ow m oa ga ,l se ve om g ng br g lR es in e Ad in n gi tiv C eb ag on na io g sa m sa ac ile at l/W s gt tio es es m es ob er n na .ri ai r M M nt M fo M m eg er .I in -E t t( g In d (e en se ng g m ba in gi in am sa n ta tio es er G ca M t En Lo Figure 3.4 Percentage breakdown affect on churn per data service – Postpaid > 15% decrease in churn 10 - 15% decrease in churn 6 - 10% decrease in churn < 5% decrease in churn 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0% impact on churn 10.0% 14.3% 90.0% 0.0% 80.0% 40.0% 37.5% 50.0% 50.0% 70.0% 66.7% 42.9% 60.0% 50.0% 80.0% 100.0% 100.0% 100.0% 40.0% 30.0% 60.0% 62.5% 50.0% 50.0% 20.0% 42.9% 33.3% 10.0% 10.0% 0.0% International mCommerce Messaging - Messaging - Messaging - Messaging - Gaming (eg. Entertainment Location based Mobile Roaming SMS MMS Email/Web Chat Interactive (eg.ringtones, information Advertising browsing games) logos) services Figure 3.5 Percentage breakdown affect on churn per data service – Prepaid 20/48 www.emagine-int.com
  22. 22. Mobile Data Report • Between 86% and 90% of operators state that SMS has at least some impact on churn. 17% of operators suggest that SMS reduces Postpaid churn by at least 6%. • 50-58% of operators believe that offering international roaming reduces churn. A few operators believe that the impact of Postpaid churn reduction due to international roaming is between 5-10% while the impact on Prepaid churn reduction is much less. • Email messaging and web browsing appears to reduce churn for Postpaid customers with 25% of operators experiencing a 6-10% decrease in churn. This is because the service is quite “sticky” and something that a customer comes to rely on once they have it as compared to other services, which may be more of a fad. • Other services which have some impact on churn for both Pre and Postpaid customers are the popular services discussed earlier, namely, games and ringtones and logos. It appears that newer data services such as mobile advertising, MMS etc are not having a significant impact on churn at this stage. • Interestingly, it would appear that while data services have the ability to increase ARPU significantly, their impact on reducing churn is perceived to be much less at this stage. With the exception of SMS, there does not appear to be one “Killer App” which will combat churn. 21/48 www.emagine-int.com
  23. 23. Mobile Data Report 3.5.5 Case study –SingTel introduces mobile advertising that results in churn reduction Introduction Singtel operates in a small competitive Asian market which is at the leading edge of new mobile developments. They have had good success with the SMS and other data services in the market and were keen to capitalise on this by utilising existing technology to develop new services. Issue Singtel has a large group of mass market customers, with reasonable ARPU who they wish to retain. However these customers expect “everything for free” and it is not possible meet their demands, beyond what they are entitled to today, as part of SIngtel’s retention program. The company has been approached by consumer merchants who wish to promote their services to Singtel customers base but to date a suitable vehicle for this has not been found. Solution Implemented The introduction of mobile advertising allowed Singtel to solve these problems by delivering the merchants a customer base to market to and providing free offers to Singtel customers. Merchants were approached to provide their service for free or at a discount (common examples of product given away were burgers or mooncakes) and to contribute to a co-op advertising fund. Singtel co-ordinated the advertising program and promoted the service in local daily newspapers and on the radio. The customer received an SMS explaining the free offer and if they wanted the service they SMS’d back the required key code (this was also published in the paper so that customers reading the ad could respond immediately). Once the code was sent, a “coupon” for the free good was sent to the customers handset via SMS. The customer presented this coupon to the merchant to redeem their free or discounted product. At point-of-sale the merchant is responsible for deleting the coupon from the customers phone. Results and Lessons Learned This was a successful promotion. The merchants profited as their product was promoted and in many cases they were able to sell additional products to those they gave away for free. Customers were happy as they received free products. And Singtel benefited by reducing their churn by between 1-5% and increasing revenue through the extra SMS messages sent by customers responding to the offer. In addition, the proposition cost Singtel very little in terms of marketing budget as advertising costs and products were provided by the merchant. * Note Operator case studies are not necessarily participants in the study 22/48 www.emagine-int.com
  24. 24. Mobile Data Report 3.5.6 Subscription to data services starts to take off in medium level of competitiveness markets 5 15% + 4 L R W Y Percentage of Base subscribing (%) 10 - 15% 3 J N T V AA 5 - 10% 2 Q X AC AD AB 2 - 5% 1 F G H K O S U 0 - 2% 0 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% Market Competitiveness Index (%) Figure 3.6 Percentage of customer base subscribing to data services (excluding SMS) – Postpaid 23/48 www.emagine-int.com
  25. 25. Mobile Data Report 5 15% + 4 L 10 - 15% Percentage of Base subscribing 3 W AA 5 - 10% 2 N T 2 - 5% 1 F G J O Q R S U X AC AD V AB 0 - 2% 0 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% Market Competitiveness Index (%) Figure 3.7 Percentage of customer base subscribing to data services (excluding SMS) – Prepaid • Low MCI markets tend to have very low subscription rates (less than 5%) to data services for Postpaid customers. In medium to high MCI markets, the percentage of Postpaid customers subscribing is quite polarised, with some operators experiencing over 15% data service subscription and others having very low rates of subscription. However the general trend suggests that as competition increases, data services are introduced to differentiate between competitors and data usage begins to take off. • Amongst Prepaid customers, subscription to data services is mixed and MCI does not appear to be a determinant to subscription levels. Approximately 40% of operators are seeing virtually no usage of services, 40% are seeing 2-3% usage of services and 20% of operators appear to be experiencing relatively high levels of usage amongst the Prepaid base. This suggest that Prepaid subscription to data is very much operator dependent at this stage. 24/48 www.emagine-int.com
  26. 26. Mobile Data Report 3.5.7 SMS is becoming a mainstream service offer 5 90% + 4 Percentage of postpaid customer base subscribing 70 - 90% 3 50 - 70% 2 30 - 50% 1 0 - 30% 0 A C F G J K L N O Q R S T U V W X Y AA AB AC AD Figure 3.8 Percentage of customer base using SMS – Postpaid 25/48 www.emagine-int.com
  27. 27. Mobile Data Report 5 90% + Percentage of prepaid customer base subscribing (%) 4 70 - 90% 3 50 - 70% 2 30 - 50% 1 0 - 30% 0 A C F G J K L N O Q R S T U V W X Y AA AB AC Figure 3.9 Percentage of customer base using SMS – Prepaid • As MCI increases, the number of Postpaid customers using SMS increases. In general low MCI operators can expect between 30-50% of Postpaid customers to use SMS, with 50-70% of customers using SMS for medium/ high MCI customers. The trend is similar for Prepaid customers. • The increasing usage of SMS is attributable to consumers making a conscious choice to communicate immediately while mobile, at a cheaper cost than mobile voice. SMS is also instantaneous and ensures that the recipient receives the message regardless of where they are. 26/48 www.emagine-int.com
  28. 28. Mobile Data Report 3.5.8 SMS usage appears price inelastic Avg no. SMS sent/mth (Postpaid) Avg price per SMS (Postpaid) Linear (Avg price per SMS (Postpaid)) 80 $0.25 70 $0.20 Average number of SMS's sent per month 60 Average Price per SMS (US$PPP) 50 $0.15 40 $0.10 30 20 $0.05 10 0 $0.00 A C F G J K L N O Q R S T U V W X Y AA AB AC AD Figure 3.10 Average SMS’s sent per month versus Average price per SMS – Postpaid Avg no. SMS sent/mth (Prepaid) Avg price per SMS (Prepaid) Linear (Avg price per SMS (Prepaid)) 120 $0.25 100 $0.20 Average Number of SMS's sent per month Average Price per SMS (US$PPP) 80 $0.15 60 $0.10 40 $0.05 20 0 $0.00 A C F G J K L N O Q R S T U V W X AA AB AC AD Figure 3.11 Average SMS’s sent per month versus Average price per SMS – Prepaid 27/48 www.emagine-int.com
  29. 29. Mobile Data Report • At current pricing levels it appears that SMS usage is price inelastic for both Postpaid and Prepaid subscribers. Indeed some operators have recognised this phenomenon and increased their SMS pricing. • When the average price of an SMS is compared between operators in low MCI and those in high MCI there is a marked increase in price from an average of 5c in low MCI to an average of 16c in high MCI markets. This trend is contrary to all other pricing patterns which show price decreasing as competition increases. • It appears that there are a few operators that have heavily discounted the price of SMS in their market. Given the relative price inelasticity of SMS, these operators have an opportunity to re-evaluate their SMS pricing policy and can potentially increase ARPU and NPV without impacting usage at all. • There is a marked difference in the average price of an SMS between European and Asian operators. European operators charge on average US$ 14c compared to US$ 8c in Asia. The ppp index used in this study adjusts for purchase power parity, so this result demonstrates the potential price (and ARPU) premium that SMS could command for Asian operators. • In general SMS usage is lower in low MCI markets than for medium and high MCI markets. The average number of SMS sent per month is also lower for Prepaid customers than for Postpaid. Emagine believes that this is a function of the size of the Prepaid base in that there are a number of Prepaid customers that rarely use their mobile for voice let alone other services and this brings down the average across the Prepaid base. Evidence from some markets show that there is a keen segment of Prepaid customers (youth) who actively use Prepaid SMS and send on average 39 messages per month. 3.5.9 Is MMS a “killer app”? MMS has been portrayed as the next big “killer” application with some forecasts predicting that it will overtake SMS in the future. Emagine believes that these forecasts have been somewhat optimistic. To achieve the same level of success as SMS, MMS needs to gain widespread take-up and this will only be accomplished when: 1. MMS handsets are widely available at price-points similar to handsets in the market today. Currently, while handset manufacturers are making between 20-30% of new handsets MMS capable, they are at the upper price range. In most countries these handsets are not heavily subsidised, as operators cannot 28/48 www.emagine-int.com
  30. 30. Mobile Data Report afford to do so, due to the costs of 3G licensing and heavy subsidisation of previous handset models. 2. MMS handsets also need to be made available to the Prepaid market as this market has a large youth component, who will be the major users of entertainment services that MMS will deliver. 3. There is interoperability between operators for MMS. Interoperability took many years to arrive for SMS and it wasn’t until this occurred that usage really took off. Operators need to re- negotiate these agreements to include MMS, both nationally and internationally. 4. The price of sending an MMS message must be affordable. Most operators today are charging a high price premium, which cannot be sustained in the long term. The average cost of an MMS in Europe is about US$ 35c compared to 10c for an SMS. SMS succeeded initially because the price per message was cheaper than making a call. 5. The pricing structure must also be easy to comprehend for the consumer. Today, operators have come up with a variety of methods for pricing based loosely around either a price per message or volume based. 6. There must be plenty of good content and applications available. Currently most operators are distributing enhanced logos, photo applications and advanced games, all of which have a novelty impact but are not useful, everyday services. 7. To encourage content developers to create new services, operators need to reassess their content model. This means that the supplier needs to be rewarded for successful content with a greater percentage of revenue share than currently available. Furthermore operators and their network providers need to be able to account for messages on-sent to other customers and be able to pay revenue on these. Currently an operator cannot differentiate whether a message sent is a forwarded message or not. This is important as a large proportion of SMS messages today are forwarded messages, and MMS content suppliers will want to ensure that they get their share of this revenue. 29/48 www.emagine-int.com
  31. 31. Mobile Data Report 3.5.10 Operators do not expect many customers to use mobile data services (excluding SMS and MMS) in the next 12 months • The majority of operators (67%) believe that less than 10% of the base will use mobile data services (excluding MMS and SMS) in the next 12 months. 7% 0% 7% 0 - 10% 10 - 20% 20 - 30% 30 - 40% 50% + 20% 67% Figure 3.12 Average percentage of total customer base operators expect to use mobile data services (excludes SMS and MMS) 3.5.11 Operators think SMS followed by International Roaming and Ringtones and Logos are the most likely services to stimulate revenue in the next 12 months • 75% of operators believe SMS is very likely to stimulate revenue, with 44% of operators thinking International Roaming and Ringtones and Logos will have the same impact on revenue. This is unsurprising – SMS is already having a significant impact on total revenue today and international roaming and ringtones and logos appeal to key market segments who use the service frequently. The latter two services are also premium priced, thus having a greater ARPU impact. • Many operators believe that MMS will also stimulate revenues, although judging from the following chart they don’t expect these revenues to be substantial enough to have a major impact on total revenue yet with 30/48 www.emagine-int.com
  32. 32. Mobile Data Report most expecting to see MMS contribute between 1-2% in revenue in the next year. • Gaming is also a service that is expected to stimulate revenue along with gambling. This will probably be further enhanced with the new MMS capability. • Few operators believe that mobile advertising or mCommerce will have a substantial impact on revenue. This suggests that there is still further work to be done in these areas to develop services that customers will want. Messaging - SMS (short message 0%6% 19% 75% service) International Roaming 13% 19% 19% 6% 44% Very Unlikely Unlikely Entertainment (eg.ringtones, Neutral 0%6% 6% 44% 44% Likely logos) Very Likely Messaging - MMS (multi-media 6% 13% 6% 44% 31% message service) Gaming (eg. Interactive games, 0%6% 25% 44% 25% gambling) Messaging - Email/Web browsing 13% 13% 25% 31% 19% Messaging - Chat 0%6% 50% 31% 13% Location based information 6% 19% 25% 44% 6% services mCommerce (eg. Vending 19% 19% 50% 13% 0% machines, parking meters) Mobile Advertising 27% 40% 27% 7% 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Figure 3.13 Percentage breakdown of the likelihood of value-added services to stimulate revenue in the next 12 months 31/48 www.emagine-int.com
  33. 33. Mobile Data Report 3.5.12 Operators don’t expect data services to have a major impact on churn 0% 0% 7% 7% 0% impact on churn 0 - 5% decrease in churn 5 - 10% decrease in churn 10 - 15% decrease in churn > 15% decrease in churn 87% Figure 3.14 Percentage breakdown of the churn impact of new data services • Churn is expected to decrease by between 0-5% with the introduction of new data services. • This is consistent with other findings, which suggest that VAS do not have a major impact on churn. To impact churn VAS must be “sticky” so that the user can’t live without them. • Emagine suggests that once services such as mobile banking and email become more user friendly and widely available they may have a greater impact on churn. Emagine point of view Data services with the exception of SMS and MMS are not being taken up by a large number of consumers due to the limited amount of applications and content available. Services available today are either not useful or not user friendly. For example, while email and calendar services have been available in many countries for some time, these have been difficult to set up and integrate with existing systems and consequently take up has been slow. To overcome these obstacles operators need to provide encouragement for content developers to create content. This includes: 32/48 www.emagine-int.com

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