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Strategies for Driving Data ARPU. Portio Research Ltd 2008

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Learn how the best in the business drive higher ARPU from non-voice mobile services.

Learn how the best in the business drive higher ARPU from non-voice mobile services.

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  • 1. Strategies for Driving Data ARPU Portio Research Limited. Published July 2008 by Portio Research Limited © Copyright 2008. www.portioresearch.com info@portioresearch.com Disclaimer and Legal Notices Disclaimer Every care has been taken in the preparation of this study to ensure that the information contained herein is accurate, factual and correct to the best of our knowledge, at time of publishing. All opinions, suppositions, estimates and recommendations included in this document are solely the opinions of the authors unless otherwise stated. Portio Research Limited accepts no liability for any loss or damage or unforeseen consequential loss or damage arising from the use of the information contained within this document. The opinions, suppositions, estimates and recommendations within this document cannot be guaranteed, and readers use this information at their own risk. The information published in this document is subject to change without notice at any time, and Portio Research Limited accepts no liability or obligation to inform the reader of such changes. Portio Research Limited do not promote or endorse any specific companies or products, the views and opinions we express in this document are wholly our own assessments, and independent from any external interest or influence. Many terms and phrases and trade names used in this document are proprietary and Portio Research Limited recognises and acknowledges that all trademarks are copyright, belonging to their respective owners. Where possible, this document accords such terms and phrases and trade names to their respective owners. All Rights Reserved. No part of this document can be copied, shared, redistributed, transmitted, displayed in the public domain, stored or displayed on any internal or external company or private network or electronic retrieval system, nor reprinted, republished or reconstituted in any way without the express written permission of the publisher. Forwarding of this electronic document without the correct legal licence is theft. It’s unethical, immoral and against the law. If you have any questions about the legal licence conditions under which this document has been distributed, please contact Portio Research on info@portioresearch.com If you did not buy this document and a colleague or associate has sent it to you, do not assume you are legally entitled to read it, it is your responsibility to ensure you have the correct legal licence to read this document. © 2008, Portio Research. All Rights Reserved 1
  • 2. Strategies for Driving Data ARPU Contents Introduction ..............................................................................................................................7 Strategies for Creating End-User Demand for Mobile Data Services (SCEUD): A Brief Synopsis ...................................................................................................................................8 The Worldwide Mobile Market...............................................................................................11 Mobile Data Services—A Worldwide Overview...................................................................16 Mobile Data Services—A Worldwide Overview...................................................................17 Mobile Messaging Services ............................................................................................................... 17 Mobile Entertainment Services .......................................................................................................... 18 Other Data Services........................................................................................................................... 20 Evolving Trends in the Worldwide Mobile Data Services Market ....................................................... 21 The Success of Mobile Data Services – Lessons from the Past ........................................................ 22 Short Messaging Service ......................................................................................................24 Short Messaging Service ......................................................................................................25 Case Study 1: SMS, O2 UK............................................................................................................... 26 Case Study 2: The Growth of SMS in the US .................................................................................... 31 Mobile E-mail ..........................................................................................................................37 Case Study 1: The Success of Consumer Mobile E-mail in Japan .................................................... 37 Case Study 2: The Success of Enterprise Mobile E-mail in the US – AT&T Mobility ......................... 40 Mobile Instant Messaging .....................................................................................................44 Case Study 1: NateOn (Mobile Instant Messaging)—SK Telecom .................................................... 44 Case Study 2: Windows Live Messenger & Yahoo Messenger—3 UK.............................................. 46 Mobile Music—Full-track Downloads ..................................................................................50 Case Study 1: Orange Player—Orange UK ....................................................................................... 51 Case Study 2: V-CAST Music—Verizon Wireless.............................................................................. 56 Mobile Gaming .......................................................................................................................63 Case Study: Mobile Gaming—Verizon Wireless ............................................................................... 64 Mobile Payments....................................................................................................................71 Case Study 1: DCMX (Mobile Credit Card Service)—NTT DoCoMo ................................................. 72 Mobile Internet........................................................................................................................80 Case Study 1: EZWeb—KDDI ........................................................................................................... 81 Mobile User-Generated Content ...........................................................................................89 Case Study 1: Mobile CyWorld (Mobile Social Networking—SK Telecom)........................................ 90 Case Study 2: EyeVibe (Mobile Video Sharing) — 3 UK and O2 UK................................................. 96 Mobile TV ................................................................................................................................99 Case Study 1: Broadcast (DVB-H) Mobile TV—3 Italia...................................................................... 99 Case Study 2: Streaming Mobile TV— Orange France ................................................................... 107 Case Study 3: Streaming Mobile TV Service—Etisalat, UAE .......................................................... 114 Role of Handsets in Driving Data ARPU ........................................................................... 121 Case Study 1: Apple iPhone and Data ARPU.................................................................................. 122 Mobile Data Services in Emerging Markets...................................................................... 131 Case Study 1: Caller Ringback Tone (Hello Tunes) — Bharti Airtel (India) ..................................... 133 Case Study 2: Voice SMS (Minicall)—Vodafone Egypt ................................................................... 137 Case Study 3: Ad-funded Missed Call Alert (Please Call Me) — Vodacom (South Africa) and Vodafone (Egypt) ............................................................................................................................. 140 Case Study 4: Mobile Banking (M-PESA) — Vodafone and Safaricom (Kenya) ............................. 144 Case Study 5: Mobile Instant Messaging (Fetion)—China Mobile ................................................... 149 The Future of Mobile Data Services in Emerging Markets ............................................. 154 Conclusion........................................................................................................................... 157 2 © 2008, Portio Research. All Rights Reserved
  • 3. Strategies for Driving Data ARPU Appendices .......................................................................................................................... 162 Glossary .........................................................................................................................................163 Portio Research Classifications......................................................................................................173 Companies Mentioned in this Report .............................................................................................174 About the Authors...........................................................................................................................176 Also available from Portio Research Limited..................................................................................178 © 2008, Portio Research. All Rights Reserved 3
  • 4. Strategies for Driving Data ARPU List of Figures Figure 1: Worldwide Mobile Subscribers (In Million, 2004-2012E) ......................................................11 Figure 2: Worldwide Mobile Revenue (In USD Billion, 2004-2012E) ...................................................12 Figure 3: Worldwide Service Revenue and Equipment Sales (In USD Billion, 2004-2012E)...............12 Figure 4: Worldwide Mobile Service Revenue Break-out by Region (2004 and 2012E)......................13 Figure 5: Worldwide Mobile Service Revenue – Voice-Data Split (2004 and 2012E)..........................14 Figure 6: Worldwide Mobile Data Revenue as a Percentage of Service Revenue (2004-2012E) .......15 Figure 7: Worldwide Mobile Voice Revenue (In USD Billion, 2004-2012E) .........................................15 Figure 8: Worldwide Mobile Messaging Services Revenue (In USD Billion, 2006-2012E) ..................17 Figure 9: Worldwide Mobile Entertainment Services Revenue (In USD Billion, 2006-2012E) .............18 Figure 10: O2 UK – SMS Volume (In Million, 2004-2007) ................................................................27 Figure 11: The UK – SMS Per Subscriber Per Quarter (Q3, 2006-Q3, 2007) ..................................27 Figure 12: Vodafone UK and O2 UK – SMS ARPU (In USD, 2005-2007) ........................................28 Figure 13: O2 UK – SMS Service Drivers.........................................................................................29 Figure 14: The US – SMS Traffic Volumes (In Billion, 2001-2008E) ................................................32 Figure 15: Key US Operators – SMS Traffic Volumes (In Billion, Q4 2006-Q1 2008) ......................32 Figure 16: US – Premium SMS Revenue Sharing Arrangement (2008E)........................................35 Figure 17: Mobile E-mail in Japan – Strategic Success Factors.......................................................39 Figure 18: AT&T Wireless – Mobile Enterprise E-mail Success Summarised ..................................42 Figure 19: Mobile IM – Strategic Success Factors Summarised ......................................................47 Figure 20: Orange UK – Average Monthly Full-Track Downloads from Orange World (In Thousand, January 2007-January 2008)...........................................................................................................52 Figure 21: Orange UK Full-Track Downloads – Key Success Factors Summarised ........................55 Figure 22: Verizon Wireless – Music and Video Downloads (In Million, Q2 2007-Q1 2008).............57 Figure 23: Verizon Wireless—Market Leader in Monthly Data ARPU (In USD, 2006 and 2007).....57 Figure 24: Verizon Wireless – Rising Data ARPU (Q3 2005-Q1 2008) ............................................58 Figure 25: Verizon Wireless (US) Full-Track Downloads – Key Success Factors Summarised .......60 Figure 26: US Operators – Share of Mobile Gaming Market (by game purchasers) – Q1 2008......65 Figure 27: Verizon Wireless – Key Success Factors of Mobile Gaming Service Summarised ........68 Figure 28: Timeline of Deployment of DCMX Services.....................................................................73 Figure 29: NTT DoCoMo – Aggressive Growth of DCMX Subscribers (All Variants) (In Million, June 2006-March 2009E).........................................................................................................................74 Figure 30: NTT DoCoMo—iD Payment Terminals (In Thousands, June 2006-March 2008) ............75 Figure 31: DCMX Revenue Streams ................................................................................................77 Figure 32: EZWeb Subscribers and Penetration (March 2000-March 2008) ....................................82 Figure 33: Japan – Y-o-Y Growth of Mobile Internet Service Subscriber Base (March 2004-March 2008) 82 Figure 34: Japan – Market Share of Mobile Internet Service Subscribers (March 2003-March 2007) 83 Figure 35: Trends in Data ARPU – KDDI vs. NTT DoCoMo (2003-2007).........................................83 Figure 36: KDDI WIN Subscribers – Increasing Uptake of Flat Rate Schemes (In Million, 2004-2007) 86 Figure 37: Mobile CyWorld – Total Users in South Korea (In Million, February 2005-December 2006) 91 Figure 38: Mobile CyWorld User Base ( SK Telecom) Compared With that of Competing Offerings (In Million, November 2007) ............................................................................................................91 Figure 39: Mobile CyWorld – Revenue (In USD Million, 2005 and 2006) .........................................92 Figure 40: CyWorld Launch ..............................................................................................................93 Figure 41: SK Telecom’s Mobile CyWorld – Strategic Success Factors Summarised......................95 Figure 42: 3 UK – SeeMeTV – Strategic Success Factors Summarised ..........................................96 Figure 43: EyeVibe – What It Means for the Mobile Video UGC Market in the UK ...........................97 Figure 44: 3 Italia – Mobile TV Subscribers and Penetration (In Thousands, July 2006-December 2007) 100 Figure 45: 3 Italia – Mobile Data ARPU (In USD, June 2005-December 2006)..............................101 Figure 46: Italy – Mobile Data ARPU (In USD, June 2005-December 2006)..................................101 Figure 47: 3 Italia’s Mobile TV Service—Strategic Success Factors Summarised .........................105 4 © 2008, Portio Research. All Rights Reserved
  • 5. Strategies for Driving Data ARPU Figure 48: Orange France – Active Customers of Mobile TV/VoD (In Thousand, December 2005December 2007)............................................................................................................................108 Figure 49: Orange France – Mobile TV and Video Sessions (In Millions, 2004-2007E) .................109 Figure 50: Orange France – Average Mobile TV Use per User (Minutes/Month, December 2004December 2006)............................................................................................................................110 Figure 51: Orange France – Live Mobile TV Channels (December 2004-January 2008) ...............111 Figure 52: Orange France – Constantly Adding Value to its Mobile TV Service.............................112 Figure 53: Orange France – Presence Across the Mobile TV Value Chain ....................................113 Figure 54: Growing Acceptance of Etisalat’s Streaming Mobile TV Service (In Thousand, February 2007-December 2007)...................................................................................................................115 Figure 55: Growing Revenue Generation from the Streaming Mobile TV Service (In USD Million, February 2007-December 2007) ...................................................................................................116 Figure 56: Etisalat – Three-Step Access to TV Channels On-The-Go............................................117 Figure 57: Apple iPhone – Global Quarterly Unit Sales (In Thousand)...........................................123 Figure 58: Mobile Subscribers of AT&T and Verizon (In Million, Q4 2006-Q4 2007) ......................124 Figure 59: US iPhone Users’ Data Services Consumption Compared With that of Smartphone Users And Market Average (December 2007) .........................................................................................125 Figure 60: The iPhone’s Best Features Revealed Through a Survey – May 2007 .........................127 Figure 61: Bharti Airtel ‘Hello Tunes’ – Challenges and Mitigation Strategies ................................135 Figure 62: Vodafone Egypt – Strategic Success Factors for Minicall Summarised ........................138 Figure 63: Ad-funded ‘Please Call Me’ Service – Strategic Success Factors Summarised ............143 Figure 64: M-PESA – Growing Subscriber Base in Kenya (In Thousand) ......................................145 Figure 65: M-PESA – Money Transfer Charges (In USD, May 2008).............................................146 Figure 66: China Mobile – Fetion IM Subscribers (In Million, November 2006-December 2007) ...150 Figure 67: China Mobile – Fetion IM – Key Success Factors Summarised ....................................152 Figure 68: Relative Positioning of Data Services in Developing Markets........................................154 Figure 69: Value-Investment Mapping of Data Services.................................................................158 List of Tables Table 1: Table 2: Table 3: Table 4: Table 5: Table 6: Table 7: Table 8: Table 9: Table 10: Table 11: Table 12: The US – SMS Price Restructuring by Major Mobile Operators ...........................................33 Cost Advantage under SMS Bundled Plans .........................................................................34 Comparison of Mobile E-mail Portfolios of Leading US Operators .......................................41 Verizon Wireless’ 15 Top-Selling Applications (Early 2008) .................................................66 Features of DCMX Variants..................................................................................................73 EZWeb Services launched by KDDI.....................................................................................85 Mobile CyWorld Features .....................................................................................................94 Etisalat Mobile TV – Content Offering ................................................................................118 Operators Selling iPhone in Various Markets (May, 2008).................................................123 iPhone – Top 10 Data Services (Used Daily) by US Subscribers – March 2008 ...........126 Examples of Successful Mobile Data Services in Emerging Countries .........................132 M-PESA Ecosystem ......................................................................................................147 © 2008, Portio Research. All Rights Reserved 5
  • 6. Strategies for Driving Data ARPU Section 1 Introduction 6 © 2008, Portio Research. All Rights Reserved
  • 7. Strategies for Driving Data ARPU Introduction Mobile data services have become an important tool to generate revenue now that mobile handsets are used not only for voice calls but also for non-voice services such as messaging, music, video, etc. The shift in focus from voice to data services has largely been due to the decreasing growth of voice revenue and the increasing pressure on voice margins. As voice becomes commoditised, mobile operators need to look at other sources to generate income and this has provided the impetus to formulate and implement strategies to create successful data services that help increase overall data average revenue per user (ARPU). The worldwide mobile data market cannot be generalised. Each market is unique and a service that is successful in one market may not necessarily do well in another. There are various factors that come into play to make a mobile data service successful. This report analyses the strategies that have been adopted by operators in both advanced and developing countries to make their data services successful and, thereby, drive up data ARPU. We have also covered the strategies adopted by a mobile handset vendor to push its mobile handsets, as they ultimately led to increased data ARPU for operators. For each case study, we have identified success indicators that explain why each of these cases has been profiled. We have also provided a brief introduction about the service around which the case has been developed. By analysing the strategies that have been adopted by operators/other players, we have tried to highlight the success factors for each of the data services. The report identifies the successful strategies adopted by mobile network operators in advanced countries to drive data ARPU from the following data services: • • Messaging services o SMS o Mobile e-mail o Mobile IM Non-messaging mobile services o Mobile music o Mobile games o Mobile TV and video o Mobile user generated content o Mobile commerce o Mobile portals The report also covers mobile data service trends in developing countries and the successful strategies adopted by mobile network operators in these countries to drive growth in mobile data ARPU. This new report is the third instalment in our ‘Growing Data Services Series’ and follows on very specifically from our previous report titled ‘Strategies for Creating End-User Demand for Mobile Data Services’ (referred to as SCEUD throughout this study), which analysed the strategies adopted by the most successful operators worldwide for various mobile data services. The SCEUD report also provided certain best practice recommendations for making a data service successful. This new report highlights recommendations made in SCEUD and compares them with examples of actual strategies adopted by mobile operators to make a data service successful. © 2008, Portio Research. All Rights Reserved 7 This report focuses on several successful mobile data services—in advanced as well as developing markets —and studies the underlying strategies which make these services successful.
  • 8. Strategies for Driving Data ARPU Strategies for Creating End-User Demand for Mobile Data Services (SCEUD): A Brief Synopsis The last report in our ‘Growing Data Services Series’, titled ‘Strategies for Creating End User Demand for Mobile Data Services’, analysed the strategies adopted by the most successful mobile operators for different mobile data services. The goal of that report was to create a ‘best practice’ case history that could be followed by other MNOs to maximise revenue from non-voice data services. The report highlighted various factors that play an important role in driving the success of mobile data services. Some of the important recommendations made by the report were as follows: Choice and Flexibility The report highlighted that to make a data service successful, it is important to provide plenty of choice to subscribers. People like choices and they want choice in the services on offer. They want choice in the type of handsets, type of content and also on how they store and use the content once they have purchased it. Segmentation Segmentation according to target audience is important for the success of any data service. Since a ‘one size fits all’ approach rarely works in the case of mobile data services, it is imperative for mobile operators to know their target audience well and devise strategies accordingly. A data service may be very good, but it will not be successful if it is not targeted at the right consumer segment. Low-Cost Services and Transparent Pricing The report highlighted the need to price data services according to the income structure of the market. It also highlighted the need to cross-subsidise services that would help in the fast uptake of the targeted service. For example, voice rates could be increased and SMS rates brought down to drive greater use of SMS. High-Value Proposition Each data service needs to provide value to the subscriber. It is only when subscribers see value in using the service that they will pay for it; subscribers should always feel that they are deriving more out of a service than its cost. Focus on Brand Branding is yet another factor that helps increase the uptake of a service and has been an important factor for most successful mobile data services. Consumers feel more confident when they are using a known brand; this is especially true for data services such as mobile commerce. It was recommended in the report that operators should build partnerships with leading brands for such data services. Innovation Operators need to offer innovative data services to catch subscriber attention. These data services need to be backed up by devices that can support them. 8 © 2008, Portio Research. All Rights Reserved The goal of SCEUD was to create a ‘best practice’ case history that could be followed by MNOs to maximise revenue from mobile data services.
  • 9. Strategies for Driving Data ARPU Simplicity and Ease of Use SMS has become such a big hit worldwide because the service is simple and easy to use. Subscribers do not want to use a data service that is complex and so services should be designed in a fashion that complements users’ lifestyle. Therefore, operators and handset vendors should focus on the simplicity of the user-interface. Handsets The report recommended that handset vendors need to work in close cooperation with MNOs so that they are able to launch handsets that are capable of supporting innovative data services. Mobile subscribers want a choice of handsets and, at the same time, they want handsets that are simple to use. In SCEUD we used the following targets to show how a service scored in our process for the selection of good examples of best-in-class services. SYMBOL RANK 1 2 3 4 5 Now in this report we have used the same targets to show how the selected services meet the key success factors identified in the conclusions of SCEUD. If you do not have a copy of SCEUD, our previous report in this series, please e-mail sceud@portioresearch.com with your name and the name of the company you work for, and we will send you a copy of that full report, free of charge, for your reference. We believe that SCEUD is essential background reading for anyone reading this new report, so please contact us for your copy now. © 2008, Portio Research. All Rights Reserved 9
  • 10. Strategies for Driving Data ARPU Section 2 The Worldwide Mobile Market 10 © 2008, Portio Research. All Rights Reserved
  • 11. Strategies for Driving Data ARPU The Worldwide Mobile Market The worldwide mobile subscriber base has experienced significant growth in recent years with worldwide mobile penetration increasing from 25 to 50 percent in just four years. Strong growth is expected in the worldwide mobile subscriber base, which is estimated to reach 4.9 billion by end-2012 from 1.7 billion at end-2004. Mobile uptake is no longer restricted to advanced markets in the regions of Europe, North America and some Asia Pacific countries; these markets largely accounted for the initial growth in mobile services. In the next few years, developing markets in Eastern Europe, Latin America, Africa and the Middle East and Asia Pacific are expected to be responsible for a substantial proportion of the growth in worldwide mobile subscriber numbers. China and India are expected to be the markets with the fastest growth in the number of subscribers. Strong growth is also expected in North America, in particular the US, in Africa and the Middle East, and in countries such as Brazil, Pakistan, Bangladesh, Indonesia, etc. However, subscriber growth will continue to slow in most of Northern and Western Europe. Figure 1 shows the projected growth in the worldwide subscriber base from 2004 to end2012. Figure 1: Worldwide Mobile Subscribers (In Million, 2004-2012E) Subscribers (In Million) 6000 5000 3,901.3 4000 4,254.3 4,589.7 4,906.9 3,502.2 3,080.9 2,650.2 3000 2,169.7 2000 1,744.5 1000 0 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E Year Source: Portio Research Ltd. E – Estimated With increased saturation in their domestic markets, mobile network operators in advanced markets are looking at emerging markets for further growth and are developing strategies, in particular, to exploit the large, untapped rural markets in these regions. Handset vendors and infrastructure vendors are also eyeing these developing mobile markets to capitalise on opportunities. However, there are numerous challenges that operators have to overcome to succeed in emerging markets. These include deployment of low-cost mobile infrastructure, availability of basic infrastructure and development of low-cost handsets. There are other obstacles in these markets, such as sporadic power supply and unreliable electrical infrastructure, and complex tax structures and local government regulations. As depicted in Figure 2 below, worldwide mobile revenues stood at USD 519.7 billion at end2004 and are expected to increase at a strong rate to touch USD 1,094.9 billion by end-2012. © 2008, Portio Research. All Rights Reserved 11 Strong growth is expected in the worldwide mobile subscriber base, which is estimated to reach 4.9 billion by end-2012 from 1.7 billion at end-2004.
  • 12. Strategies for Driving Data ARPU Figure 2: Worldwide Mobile Revenue (In USD Billion, 2004-2012E) Mobile Revenue (In USD Billion) 1200 803.7 874.3 936.0 993.6 1,045.7 1,094.9 718.4 800 616.4 519.7 400 0 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E Year Source: Portio Research Ltd. E – Estimated Figure 3 shows worldwide mobile service revenues and equipment sales from 2004 to 2012. Revenues (In USD Billion) Figure 3: Worldwide Service Revenue and Equipment Sales (In USD Billion, 2004-2012E) 1200 85.8 800 91.1 95.7 100.3 104.3 108.4 81.2 61.9 69.3 400 457.8 547.1 2004 2005 840.3 941.4 986.5 637.2 783.2 893.3 717.8 2006 2007E 2008E 2009E 2010E 2011E 2012E 0 Year Service Revenue Equipment Sales Source: Portio Research Ltd. E – Estimated Worldwide service revenues are expected to increase at a compound annual growth rate (CAGR) of 10.1 percent from 2004 to 2012. In terms of the geographic split of service revenues, Asia Pacific and Northern and Western Europe together accounted for more than 60 percent of worldwide mobile service revenues in 2004. With increasing contributions from Asia Pacific and North America, the share of Northern and Western Europe is expected to decline by end-2012. Asia Pacific will continue to be the leader in worldwide mobile service revenues, followed by North America and Northern and Western Europe in 2012. Figure 4 below shows the change in revenue contributions from various regions for the years 2004 and 2012. 12 © 2008, Portio Research. All Rights Reserved In 2012, Asia Pacific is expected to be the leader in worldwide mobile service revenues, followed by North America and Northern and Western Europe.
  • 13. Strategies for Driving Data ARPU Figure 4: Worldwide Mobile Service Revenue Break-out by Region (2004 and 2012E) 2004 5.0% 17.6% 5.2% 6.6% 29.7% 3.3% 32.6% 2012E 6.7% 24.0% 6.1% 3.8% 6.3% 33.4% 19.7% N&W Europe Africa C&E Europe Middle East North America Asia Pacific Latin America Source: Portio Research Ltd. E – Estimated On the one hand, commoditisation of voice services, rigid regulatory issues on mobile termination rates and roaming rates, fierce price competition as well as addition of low ARPU customers in emerging countries have contributed to a decline in voice ARPU in the recent years. On the other hand, with tremendous upgrade in mobile handset technology, operators are now looking at growing data services to increase revenues and counter falling voice margins. Mobile handsets have become multi-purpose information, communication and entertainment devices. Furthermore, mobile handsets are being used by enterprises in new and innovative ways to increase efficiency and productivity. Although voice services continue to account for the majority share of mobile operators’ revenues worldwide, the share of data services has grown substantially and is expected to continue growing in the coming years. The share of revenue generated from data services accounted for only 12.8 percent of total worldwide mobile revenues in 2004; this is expected to go up to slightly over 25 percent by end-2012 as shown in Figure 5 below. © 2008, Portio Research. All Rights Reserved 13 The share of revenue generated from data services is expected to go up to slightly over 25 percent of total worldwide mobile revenues in end-2012.
  • 14. Strategies for Driving Data ARPU Figure 5: Worldwide Mobile Service Revenue – Voice-Data Split (2004 and 2012E) 2004 87.2% 12.8% 2012E 74.5% 25.5% Voice Data Source: Portio Research Ltd. E – Estimated Figure 6 below illustrates the increasing percentage contribution of data revenues to the total worldwide mobile services revenue. 14 © 2008, Portio Research. All Rights Reserved
  • 15. Strategies for Driving Data ARPU Figure 6: Worldwide Mobile Data Revenue as a Percentage of Service Revenue (2004-2012E) 30 Percentage 25 18.9 20 15 12.8 14.4 20.5 21.8 23.0 24.3 25.5 16.1 10 5 0 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E Year Source: Portio Research Ltd. E – Estimated Voice revenues are expected to grow to USD 734.6 billion by end-2012 from USD 399.1 billion in 2004, even though the contribution of voice revenues to total revenues is expected to fall during the same period. Figure 7 highlights the increasing trend of worldwide voice revenues from 2004 to 2012. The uptake of data services in a region largely depends on cultural factors and operators’ strategies to popularise these services. Figure 7: Worldwide Mobile Voice Revenue (In USD Billion, 2004-2012E) Mobile Voice Revenue (In USD Billion) 800 600 534.8 582.1 622.5 657.5 687.6 712.9 734.6 2010E 2011E 2012E 468.2 399.1 400 200 0 2004 2005 2006 2007E 2008E 2009E Year Source: Portio Research Ltd. E – Estimated As data services gain importance, it is interesting to observe how various data services have performed in different regions worldwide. The uptake of data services in a region largely depends on cultural factors and operators’ strategies to popularise these services. The following section of this report examines the state of the data services market worldwide and the expected course of growth, while the subsequent sections highlight successful data services in different regions. © 2008, Portio Research. All Rights Reserved 15
  • 16. Strategies for Driving Data ARPU Section 3 Mobile Data Services—A Worldwide Overview 16 © 2008, Portio Research. All Rights Reserved
  • 17. Strategies for Driving Data ARPU Mobile Data Services—A Worldwide Overview The share of mobile data services in the overall revenue from mobile services has been on the rise. The contribution is expected to increase from approximately 19 percent in 2007 to more than 25 percent by end-2012. Mobile network operators, who have been witnessing the commoditisation of voice, are now increasingly banking upon data services to bolster their revenue streams. Mobile Messaging Services SMS has been immensely popular ever since it was launched in the mid-90s; in fact, this value-added service still contributes by far the biggest share to the revenue generated from all non-voice mobile services. Broadly speaking, three more mobile messaging services were launched after SMS, namely, MMS, mobile e-mail and mobile Instant Messaging (IM). These three services have been less popular than SMS, but their uptake is expected to increase in the coming years. Mobile e-mail and mobile IM services have done well in certain markets, but have not been universally successful like SMS. Figure 8 shows the expected worldwide growth of revenue from mobile messaging services from 2006 to end-2012. Figure 8: Worldwide Mobile Messaging Services Revenue (In USD Billion, 2006-2012E) Mobile Messaging Serv ices Revenue (In USD Billion) 160 132.3 140 148.6 2011E 2012E 120.6 107.2 120 100 142.1 93.2 78.3 80 60 40 20 0 2006 2007E 2008E 2009E 2010E Year Source: Portio Research Ltd. E – Estimated Key Geographical Markets In terms of revenue, Asia Pacific has been the largest contributor to mobile messaging services and is expected to retain this status during the next five years. For SMS, the major markets are China, India, Malaysia and the Philippines. Mobile e-mail has been very successful in Japan, while mobile IM has seen significant uptake in South Korea. Europe comes next in terms of contribution to revenue with the key markets in the region being the UK, Germany, France and Italy. In North America, SMS has picked up very well in the US, as have mobile e-mail (particularly enterprise e-mail) and IM. © 2008, Portio Research. All Rights Reserved 17 In terms of revenue, the Asia Pacific region has been the largest contributor to mobile messaging services and is expected to maintain this lead in the coming five years as well.
  • 18. Strategies for Driving Data ARPU Mobile Entertainment Services Mobile entertainment services include the following data services: • Mobile music • Mobile games • Mobile TV and video Mobile entertainment services have proved to be a very important source of revenue for operators and, in many cases, have helped them in arresting declining ARPUs to a large extent. The services may not be as successful as SMS to date, but their contribution to overall data services revenue is on the rise. Figure 9 shows the expected worldwide growth of revenue from mobile entertainment services from 2006 to end-2012. Mobile Entertainment Services Revenue (In USD Billion) Figure 9: Worldwide Mobile Entertainment Services Revenue (In USD Billion, 2006-2012E) 60 52.4 46.5 50 40.7 34.2 40 28.3 30 20 20.7 10.5 10 0 2006 2007E 2008E 2009E 2010E 2011E 2012E Year Source: Portio Research Ltd. E – Estimated Key Geographical Markets Mobile Music Mobile music can be classified into the following categories: • Ringtones (monophonic, polyphonic, true tones) • Ringback tones • Streaming audio • Full-track music downloads Mobile music is one of the most important contributors to mobile data services revenue worldwide. The service is expected to witness growth in the coming years as the penetration of music-enabled handsets increases. The service has seen tremendous success in developing countries such as China and India. The revenue from the service is expected to increase from USD 12.7 billion in 2007 to USD 21.41 billion at end-2012. Asia Pacific has been the largest contributor to the revenue generated from mobile music; Europe comes next, followed by North America. In the coming years, however, the percentage contribution of Europe to the overall revenue generated from the service is expected to go down and Asia Pacific’s contribution is expected to increase. 18 © 2008, Portio Research. All Rights Reserved The worldwide revenue from mobile music is expected to increase from USD 12.7 billion in 2007 to USD 21.41 billion in 2012.
  • 19. Strategies for Driving Data ARPU Mobile Games Currently, the mobile gaming market is not doing as well as other data services such as SMS and mobile music. In most of the regions worldwide, the service is still at a nascent stage. Some of the factors responsible for this under par performance include the high price of both gaming-enabled handsets and mobile games, as well as a lack of choice in gaming content. Revenue from mobile gaming is expected to increase from USD 4.5 billion as of end-2007 to USD 8.3 billion by end-2012. Asia Pacific has been the largest contributor to worldwide mobile gaming revenue. Japan and South Korea, in particular, have contributed the most to mobile gaming revenue and are, in fact, the leaders of worldwide mobile gaming services. While the services have become quite popular in certain European countries, they have made little impact in North America. However, the contribution of the North American region to the overall revenue from the services is expected to increase in the coming years. Mobile TV and Video The mobile video market includes mobile TV and streaming video downloads. Operators and content providers across various geographies are trying to increase the uptake of these services. Currently, the contribution of the service to the overall revenue generated from data services is very low; however, its contribution is expected to increase significantly in the coming years. Europe is the current leader in revenue contribution from these services, with mobile TV proving particularly successful in Italy and France. Next in terms of revenue contribution is Asia Pacific, with South Korea taking the regional mobile TV lead. © 2008, Portio Research. All Rights Reserved 19 Japan and South Korea, in particular, have contributed the most to mobile gaming revenue in Asia Pacific and are, in fact, the worldwide leaders in the mobile gaming market.
  • 20. Strategies for Driving Data ARPU Other Data Services Mobile Payments Mobile payments have the potential of becoming a very successful data service in the coming years. The service can help operators in increasing subscriber loyalty and, therefore, reduce churn rates. Mobile payment services have seen varied success in different regions. They are used widely in countries such as Kenya to transfer money, whereas, in developed countries such as Japan, South Korea, the UK, etc., mobile handsets are being used as credit cards and for making proximity payments at stores, parking lots, to buy railway tickets, etc. In North America, the service has fared less well, but is expected to pick up slowly. Mobile Portals The increasing focus on revenue generation from non-voice and value-added services has led to the development of mobile portals. As ARPU from voice services declined, operators started looking for alternatives to increase ARPU, and the popularity of data services such as mobile music, mobile TV, mobile games, mobile IM and social networking have helped in this regard. These value-added services are delivered via mobile portals. A one-stop direct marketing and sales medium for value-added services, the portals behave as an interface between mobile operators and subscribers. Today, the success of a value-added service is dependant on the simplicity and strength of the portal that markets it. Mobile portals are immensely popular in developed countries such as Japan and the US, as well as in regions such as Western Europe. Mobile User-generated Content Social networking sites have been greatly successful in the fixed Internet domain. With the advances in data services technology, mobile operators tried to replicate this success on the mobile platform. Mobile networking sites enable subscribers to do pretty much everything that they would on a desktop—upload videos, photographs, leave messages for friends, join communities and grow networks—with the advantage that it can be done on the go. Some of the more successful examples of mobile networking sites include Mobile CyWorld and MySpace Mobile. Mobile CyWorld was launched in South Korea in 2004. As of November 2007, approximately 3 million users, accounting for 20 percent of total CyWorld subscribers, were registered with Mobile CyWorld and nearly 60,000 subscribers used the service every day. Launched in December 2006, MySpace Mobile is available with 23 carriers in 13 countries worldwide. The mobile version of the popular online social network received 1 1.4 billion visits in the US alone in June 2008 . 1 Source: http://www.wirelessduniya.com/2008/07/04/analysis-myspace-and-facebook-challenge-mobile-only-socialnetworks/ 20 © 2008, Portio Research. All Rights Reserved Mobile payments and mobile portals have mainly seen success in the advanced markets. Mobile user generated content—mostly social networking and amateur video sharing—is also gradually gaining popularity in these markets.
  • 21. Strategies for Driving Data ARPU Evolving Trends in the Worldwide Mobile Data Services Market Mobile data services based on entertainment—mobile music, mobile TV and video, and mobile gaming—have a higher uptake in developed nations. Full-track music downloads are very popular in Japan and the UK, and are also gaining popularity in Europe and the US. For instance, 289,000 full-track songs were downloaded in the month of December 2007 through the Orange network in the UK. Mobile TV is gaining ground in France and Italy—3 Italia and Orange France offer two of the most successful mobile TV services. The demographics in countries such as South Korea and Japan favour the gaming culture. Japan is considered to be the most advanced market for mobile games, contributing close to 31 percent of the total revenue generated from mobile gaming services in the Asia Pacific region. The key factor that will determine the growth of entertainment-based data services in developing countries is the price of the service. However, in developing countries, utility-based data services such as messaging and mobile banking are more popular. A successful example is M-Pesa in Kenya. Vodafone has developed a mobile banking system in partnership with local network provider Safaricom, the Commercial Bank of Africa and Faula, a micro-financial institution. M-Pesa allows customers to borrow money, check accounts and transfer money using their mobile handsets. M-Pesa was rolled out in March 2007 with a target of 200,000 customers in the first year—it was a resounding success as the first-year target was achieved in the first month itself. One year later, M-Pesa had 1.6 million subscribers. A major reason for its success is inaccessibility to formal banking for the masses. Vodafone is now planning to set up mobile banking services in a number of other countries, including Tanzania and India. Another example of a popular utility service is the ‘Please Call Me’ (PCM) service in South Africa—it is a free call-back service for pre-paid and control line subscribers who need to contact others, but do not have the required balance to make a call or send an SMS. The PCM service was highly popular as 18 million to 20 million messages were sent every day, according to a December 2007 survey 2 by Vodacom. 2 Source: http://www.on-the-line.co.za/pdf/PleaseCallMe-Factsheet.pdf © 2008, Portio Research. All Rights Reserved 21 Mobile data services based on entertainment—mobile music, mobile TV and video and mobile gaming—have higher uptake in developed nations. Utility-based data services— such as messaging and mobile banking—are finding strong ground in emerging markets
  • 22. Strategies for Driving Data ARPU The Success of Mobile Data Services – Lessons from the Past The mobile data services market is witnessing the emergence of data services that are more engaging in nature and help operators differentiate their products and service offerings from those of their competitors. Operators are launching these services to not only reduce churn rates by building brand loyalty, but also to drive their data ARPU. Since the data services offered by operators may be of a similar nature, operators have been adopting various strategies to differentiate their offerings. This study highlights the successful strategies that were adopted and implemented to improve subscriber experience and data ARPU. In this report, as we set out to study strategies that will help operators, handset vendors, platform providers and other players in the mobile data services value chain in developed countries drive up data revenue in the coming 5-6 years, we start by analyzing the factors that led to the failure of certain data services. This is important because these are precisely the factors that players need to avoid if they want data services to be successful. The Failure of Video Calling Video calling was among the first few data services that were believed to hold immense potential for operators in the 3G era. When we wrote our earlier report SCUED at end-2006, we identified availability, penetration, pricing and promotion as the key elements that drove interest in video calling. Reviewing the market in 2008, we see that video calling has failed to succeed as a data service. True, it is more fun to video call than to send an SMS, but not if one has to pay a fortune while doing so. The following are some of the factors that prevented video calling from becoming a successful mobile data service: • • • • Prohibitive costs: The service was nearly two to three times more expensive than voice calls in 3G markets. Little practical use: There was little value to be gained by seeing the person on the other end of the line when speaking on the phone. Whatever novelty it provided was eclipsed by the high price of using the service. Poor quality of service: Video calls suffered from frequent dropped and failed calls, affecting quality of service. Usability issues: Most handsets that were capable of video calling lacked user-friendly interfaces for using the service (e.g., single-click video calling). This affected the service’s one and only appeal—impulse use. The Slow Growth of MMS MMS is another mobile data service that has failed to live up to expectations. Offered as an extension of the hugely popular SMS service, operators banked on MMS to bring in higher ARPU and to lower churn rates. However, MMS failed to become the successful protégé of SMS. Although not as big a write-off as video calling, MMS has disappointed operators in almost every market it has launched in. In most markets, MMS has reached such a stage that if operators cannot revive it now, there is a good probability of MMS being replaced completely by newer and more advanced mobile messaging solutions such as mobile e-mail and mobile IM (e.g., the Apple iPhone supports the transfer of images through e-mail and not MMS). Listed below are some of the reasons that hampered the success of MMS: • • • 22 High price: In most markets, MMS was significantly more expensive than SMS. Interoperability issues: Unlike SMS, MMS suffered from interoperability issues in the early stage of its lifecycle. Complex user interface: Using MMS was not as simple as using SMS. © 2008, Portio Research. All Rights Reserved MMS failed to live up to be the successful protégé of SMS. Although not as big a write-off as video calling, MMS has disappointed operators in almost every market that it has been launched.
  • 23. Strategies for Driving Data ARPU • Handset incompatibility: Between 2002 and 2004, when MMS was struggling to gain popularity, the number of camera-enabled handsets was limited. We have always maintained that MMS is not a failure. Rather, the expectations from MMS were unjust. Of late, some markets, such as the US, are seeing a revival of MMS, thanks to operators re-designing the marketing mix of MMS. For instance, operators in the US witnessed significant MMS uptake after they launched unlimited messaging plans with effect from February 2008. Interoperability issues, handset availability and user interface issues have now improved in most markets and MMS is believed to be slowly gaining in popularity. With the above background, we now start examining several case studies from developed and developing mobile markets to see how operators have created successful mobile data services. © 2008, Portio Research. All Rights Reserved 23
  • 24. Strategies for Driving Data ARPU Section 4 Short Messaging Service 24 © 2008, Portio Research. All Rights Reserved
  • 25. Strategies for Driving Data ARPU Short Messaging Service Short Messaging Service (SMS) has been by far the most popular mobile data service worldwide. In SCEUD, we identified the reasons for the staggering success of SMS—cheap, quick and easy to use being the main ones—and these factors, we see, continue to fuel the demand for SMS in all regions of the world. After the Philippines, which is known as the ‘SMS capital of the world’, countries such as the UK, Norway, USA, etc are among the most advanced SMS economies worldwide. In SCEUD we drew up a list of the top 15 SMS operators worldwide (based on the number of SMS sent per subscriber per month) and subsequently profiled Maxis (Malaysia), Smart (Philippines) and Netcom (Norway). Now, eighteen months on, it has become a lot more challenging to pinpoint successful SMS services worldwide because SMS is more strongly entrenched as the most successful mobile data service in almost all regions worldwide. The strategies that we identified for SMS in SCEUD—innovative services, flat pricing schemes, bundled offers, youth targeting, etc.—have been successfully deployed by many operators worldwide. It might seem that SMS has achieved all that it can and that operators are better off concentrating on newer messaging products such as mobile IM and e-mail, but SMS has far from peaked. We have identified two case studies in this report—O2 UK’s SMS strategy and SMS gaining popularity in the US—to show how SMS can be used in innovative ways to achieve greater profits. © 2008, Portio Research. All Rights Reserved 25
  • 26. Strategies for Driving Data ARPU Case Study 1: SMS, O2 UK The UK is a mature SMS market. In 2007, mobile subscribers in the UK sent nearly 57 billion SMS. 3 The mobile market is characterised by stiff competition between five prominent operators—Vodafone, O2, T-Mobile, Orange and 3. O2 is the second-largest operator (by subscriber base), with around 24.8 percent of the total subscriber base in the UK. SMS services are provided by all UK operators and are used by almost all mobile subscribers. However, O2 UK’s network has the heaviest SMS traffic in the country. SMS was launched in the UK in 1998. In the last 10 years, this service has become hugely popular among British mobile subscribers. With five prominent mobile operators, the UK mobile market is rife with competition. Given that almost all mobile subscribers use SMS, operators’ share of the total SMS traffic should be roughly in proportion to their subscriber market shares. This, however, is not true. O2, which is second to Vodafone in terms of number of subscribers, leads the UK in SMS traffic and also generates more SMS ARPU than Vodafone. Differentiating a service as basic as SMS in a competitive and mature market like the UK is a challenging task. O2 has made this possible by considering SMS not as a commoditised communication service, but as a mobile data service lending itself to multiple opportunities. Strong linkages with the media (primarily television) and the enterprise sector enabled O2 to extract the maximum value from SMS services. (Non-P2P SMS formed about 15.9 percent of O2’s data revenues in the fourth quarter of 2007). This, coupled with flexible price plans, propelled O2 to the position of SMS leader in the UK in the early 2000s. The operator has held on to its leadership position over the years and, in 2007, O2 UK’s network handled nearly 38.6 percent of all SMS generated in the UK. Key Success Indicators O2 UK—SMS Volume Growth Figure 10 below illustrates the explosive growth of O2’s SMS service in the past few years, from 2004 to 2007. O2 SMS volumes increased 20.8 percent from 18.18 billion messages in 2006 to 21.96 billion messages in 2007. 3 Source: MDA 26 © 2008, Portio Research. All Rights Reserved O2, which is second to Vodafone in terms of number of subscribers, leads the UK in SMS traffic and also generates more SMS ARPU than Vodafone.
  • 27. Strategies for Driving Data ARPU Figure 10: O2 UK – SMS Volume (In Million, 2004-2007) 25000 21,964 SMS Volume (in Million) 20000 18,178 15000 13,675 9,961 10000 5000 0 2004 2005 2006 2007 Year Source: Company Reports In 2007, with around 24.8 percent of the subscriber base in the UK, O2’s subscribers sent 38.6 percent of the total number of SMS generated in the UK. In the first quarter of 2008, with 6,838 million messages, text messaging volumes of O2 UK increased 30.5 percent year-onyear. 4 In 2007, with around 24.8 percent of the subscriber base in the UK, O2’s subscribers sent 38.6 percent of the total number of SMS generated in the UK. Figure 11 compares SMS volumes on leading UK operators’ networks to reveal O2 UK’s leadership in the UK SMS market. Figure 11: The UK – SMS Per Subscriber Per Quarter (Q3, 2006-Q3, 2007) 350 Number of SMS 300 304 294 296 291 272 250 200 150 150 133 170 152 99 83 100 220 202 189 172 166 158 119 110 116 50 0 Q3 2006 O2 Q4 2006 Orange Q1 2007 Q2 2007 Vodafone Q3 2007 T-Mobile Source: Ofcom and Portio Research Ltd. Messaging Revenues Although O2 is behind market leader Vodafone in terms of subscriber numbers, O2 in fact generates higher messaging revenue per subscriber than Vodafone, and the other MNOs in the UK market. 4 Source: http://www.o2.com/media_files/financial_performance/PR0812_Telefonica_Europe_Q1_2008.pdf © 2008, Portio Research. All Rights Reserved 27
  • 28. Strategies for Driving Data ARPU The average revenue per user generated through messaging services by O2 and Vodafone in the UK is depicted in Figure 12 below. Figure 12: Vodafone UK and O2 UK – SMS ARPU (In USD, 2005-2007) 16 Monthly SMS ARPU (In USD) 12.92 12 11.25 10.59 8.10 8 6.61 6.84 4 0 2005 2006 2007 Year O2 UK Vodafone UK Source: Company Report and Portio Research Ltd. Strategic Success Factors O2 got off to the right start when it took SMS seriously at the outset. SMS for O2 was more than just a communication service— rather it was a mobile data service that could form the backbone of successful mobile data services in the years to come. Listed below are the strategic factors that explain how O2 created the most financially lucrative SMS service in the UK. SMS as a Medium for Other Data Services O2 started cashing in on SMS at the very beginning. For example, the operator sold simple SMS games such as ‘hangman’ and ‘anagram’ way back in 2002, and these games generated more than 8 million messages sent by O2 UK subscribers in only nine-and-a-half months. 5 In 2002, O2 UK launched ‘Revolution’—a mobile service that allowed subscribers registered on the O2 portal to purchase a variety of applications through text messages, thereby promoting the use of SMS in m-commerce. Emphasis on Premium SMS O2 established strong relationships with many television channels to provide services such as mobile text alerts and text voting. These partnerships included: • • • Channel 4 for SMS voting for the popular programme Big Brother. Popstars—The Rivals, a UK-based reality TV show. Reality entertainment show, Pop Idol, on ITV1. O2 was the first UK mobile operator to optimise links across all UK networks. For example, mobile subscribers across the UK (irrespective of their networks) could use Channel 4’s SMS short codes to vote on Big Brother. Premium SMS is more expensive than normal P2P SMS and is also driven more by impulse. Therefore, more P2A and A2P premium messages on O2’s network translated into higher messaging revenue for the operator. 5 Source:http://www.iplay.com/article.do;jsessionid=8F9E3099824D5A08E1035A882945C1DC.tomcat1_iplay1?NID= 20&NYID=2002 28 © 2008, Portio Research. All Rights Reserved O2 was the first UK mobile operator to optimise links across all UK networks. For example, mobile subscribers across the UK (irrespective of their networks) could use Channel 4’s SMS short codes to vote on Big Brother.
  • 29. Strategies for Driving Data ARPU In order to support the large volumes of messages that need to be handled simultaneously in event-based programmes, O2 has teamed with technology companies such as Telsis for advanced messaging platforms. Emphasis on Enterprise SMS Services O2 earned a reputation for providing SMS-based CRM services to enterprises such as Master Foods, Baileys, Pepsi, First Direct, etc. In 2006, O2 engaged carrier-grade messaging operator TynTec to provide a managed SMS reception service, which allows O2’s corporate customers to provide an SMS interaction channel to their customers. Bundled Offers and Transparent Pricing O2 introduced bundled plans for its SMS service, which allowed users to purchase bundles of text messages instead of being charged on a per massage basis. This contributed to the growth in SMS volumes as customers adopted bundled plans, which offered cheaper SMS rates. O2 also introduced innovative, use-based plans, such as’ family plans’, for SMS users. The family plan offered users text bundles for the entire family. O2’s innovative ‘bolt-ons’ allow users to gain the maximum value from their tariff plans and minimise the cost per SMS. Bolt-ons are essentially flat rate plans for a fixed number of SMS. Figure 13: O2 UK – SMS Service Drivers Treat SMS as a mobile data service, not a plain communication service Media linkage - Premium SMS Enterprise SMS Transparent & flexible pricing Source: Portio Research Ltd. © 2008, Portio Research. All Rights Reserved 29
  • 30. Strategies for Driving Data ARPU The following table summarises the factors that have led to the success of the SMS service for O2 UK and compares them against the factors that SCEUD (our previous report) recognised as important for driving end-user demand for the service. Factors Identified in SCEUD O2 SMS Service Affordability of content and value for money Simplicity and ease of use Flexible options Innovation in Service Market Segmentation 30 © 2008, Portio Research. All Rights Reserved
  • 31. Strategies for Driving Data ARPU Case Study 2: The Growth of SMS in the US In contrast to the UK and other developed markets in Western Europe, SMS use in the US picked up late. Until about 2001, US subscribers preferred to call instead of sending SMS. This was largely due to the high SMS tariffs (US subscribers are still required to pay for incoming SMS) and lack of interoperability between operators. The introduction of interoperability in 2001 unleashed the true potential of SMS in the US. In 2002, SMS traffic in the US increased dramatically by over 2,700 percent in that one year, and traffic rates have kept increasing ever since. SMS, the single-most popular mobile data service across the world, was not as popular in the US in its early days. We have always maintained that the key to making data services successful is to keep them cheap and accessible. SMS has succeeded in most parts of the world because it is cheap and easy to access; however, SMS in the US in the early 2000s was neither. It was prohibitively expensive to send and receive SMS, largely because of the lack of interoperability between operators’ networks. These factors led to lower uptake of SMS in the US prior to 2001. However, after interoperability was achieved in 2001, SMS volumes in the US started growing dramatically. Fuelled by solid demand, operators increased per-SMS cost to encourage adoption of bundled SMS plans. This, along with the increased use of premium SMS, buoyed the SMS market in the US. For example, AT&T Wireless, which is the exclusive partner for Fox Network’s wildly popular, seasonal reality show ‘American Idol’, handled a record number of 78 million text messages generated by fans voting while the episodes of season 7 were on air between January 2008 and May 2008. So, once again, studying this case reinforces the key ingredients for a successful data service—cheap, easy accessibility and fun to use. Key Success Indicators Figure 14 below shows the growth in SMS volumes in the US from 2001 to 2008. © 2008, Portio Research. All Rights Reserved 31 The introduction of interoperability in 2001 unleashed the true potential of SMS in the US.
  • 32. Strategies for Driving Data ARPU Figure 14: The US – SMS Traffic Volumes (In Billion, 2001-2008E) SMS Volumes (In Billion) 600 480.0 500 363.0 400 300 162.0 200 81.0 100 0.4 11.2 14.4 34.3 2001 2002 2003 2004 0 2005 2006 2007 2008E Year Source: CTIA and Portio Research Ltd. The rising SMS volumes benefitted all US operators, especially Verizon Wireless, which is among the leaders in data ARPU globally. The following figure shows the increasing SMS traffic recorded by the major mobile operators in the US from Q4 2006 to Q1 2008. SMS Volume (In Billion) Figure 15: Key US Operators – SMS Traffic Volumes (In Billion, Q4 2006-Q1 2008) 60 55 50 45 40 35 30 25 20 15 10 5 0 58.0 45.0 44.0 36.5 28.4 22.8 17.7 13.0 12.0 Q4 2006 14.2 16.0 Q1 2007 24.0 18.0 33.0 30.0 18.0 Q2 2007 21.0 Q3 2007 24.0 Q4 2007 Q1 2008 Quarter AT&T Wireless Verizon Wireless T-Mobile Source: Portio Research Ltd. 6 In the first quarter of 2008, Verizon Wireless is reported to have delivered around 58 billion text messages—a record high for the operator since crossing the 10 billion messages a month mark for the first time in June 2007. When compared to the last quarter of 2007, the SMS volume of AT&T Wireless increased by over 46 percent in Q1 2008. T-Mobile’s messaging volume increased to 33 billion in Q1 2008 from 24 billion in Q4 2007. 6 NOTE: Sprint does not report SMS traffic figures. 32 © 2008, Portio Research. All Rights Reserved In the first quarter of 2008, Verizon Wireless is reported to have delivered around 58 billion text messages—a record high for the operator since crossing the 10 billion messages a month mark for the first time in June 2007.
  • 33. Strategies for Driving Data ARPU Strategic Success Factors Complete Interoperability In early 2002, all operators devised a system whereby complete interoperability was introduced across technologies, such as GSM, CDMA, and TDMA, throughout the US. This led to increased uptake of SMS as a customer of one network was able to send an SMS to a customer of another network without any difficulty—subscribers did not have to worry about the operator or the technology of the recipient. Price Restructuring For a long time, per SMS cost in the US was 10 cents. As US subscribers discovered the benefits of texting, operators decided to drive volumes by shifting subscribers to bundled SMS plans or unlimited SMS plans. They did this by increasing the pay-per-use cost of SMS from 10 cents to up to 20 cents in a phased manner. Starting with Sprint in October 2006, all US operators gradually hiked per SMS costs by up to 100 percent. Table 1 shows the SMS price restructuring undertaken by major US operators since October 2006. Table 1: The US – SMS Price Restructuring by Major Mobile Operators Operators Pay per SMS Rates (USD) Revised SMS Rates (USD) Date of Revision AT&T 0.10 0.15 0.15 0.20 December, 2006 March, 2008 Verizon Wireless 0.10 0.15 0.15 0.20 March, 2007 March, 2008 T-Mobile 0.10 0.15 June, 2007 Sprint-Nextel 0.10 0.15 0.15 0.20 October, 2006 October, 2007 7 Source: Various (See Footnote ) This increase in SMS rates did not affect subscribers who had opted for bundled messaging plans as those rates were left untouched. Operators also introduced many unlimited messaging plans that were targeted at subscribers with heavy SMS usage patterns. This strategy induced subscribers to shift to monthly messaging plans, which were beneficial for both the subscriber as well as the operator—subscribers got the cost advantage of bundled plans, while operators were ensured of regular monthly revenue from them. Bundled SMS plans translated into immense savings for subscribers, from almost 700 percent to 1,900 percent. Table 2 below shows the cost advantage to subscribers through bundled SMS plans. 7 Source: http://www.engadgetmobile.com/2008/01/26/atandt-boosting-pay-per-use-text-and-mms-rates-again/ http://www.fiercewireless.com/story/verizon-wireless-raises-sms-rate-20-cents/2008-01-09 http://www.t-mobile.com/shop/addons/services/MessagingDisclaimer.aspx http://www.mobiletracker.net/archives/2006/10/11/sprint-raises-sms http://www.smstextnews.com/2007/08/sprint_sms_goes_up_to_20_cents.html © 2008, Portio Research. All Rights Reserved 33 Bundled SMS plans translated into immense savings for subscribers, from almost 700 percent to 1,900 percent.
  • 34. Strategies for Driving Data ARPU Table 2: Cost Advantage under SMS Bundled Plans Operators Packages (Messages Allocated) 0.20 40 4.99 702 0.20 200 9.99 1902 0.20 - 19.99 - 250 0.20 50 5 900 0.20 100 10 900 1500 0.20 300 15 1900 5000 0.20 1000 20 4900 400 0.15 60 4.99 1102 1000 0.15 150 9.99 1402 Unlimited 0.15 - 14.99 - 300 0.20 60 5 1100 1000 0.20 200 10 1900 Unlimited Sprint-Nextel 200 500 T-Mobile Case 2 Monthly Bundled Rates (In USD) Unlimited Verizon Wireless Case 1 Subscriber Pays (In USD) 1000 AT&T Case 1 Pay per message rate (In USD) Cost Advantage (In percentage) 0.20 - 15 - Source: Operators’ Websites and Portio Research Ltd. This pricing strategy has worked excellently in the US. While the laws of economics associate increased prices with decreased consumption, US subscribers responded to the SMS price increase by moving to bundled plans and sending more SMS—just what the operators wanted. SMS Marketing and Boosting Revenues through Premium SMS After SMS was made interoperable across networks in the US, operators and marketers started following the successful example of Europe and began using SMS as an advertising medium. Partnerships with television networks have created further SMS opportunities for US operators. Premium SMS, which are used for voting, participation in sweepstakes, purchasing off-deck mobile content, etc., are charged at higher rates than normal SMS, but the interactivity they offer users makes them very popular tools in traditional media outlets such as television, radio, etc. AT&T Wireless, which is the exclusive partner for Fox Network’s wildly popular, seasonal reality show ‘American Idol’, handled a record number of 78 million text messages generated by fans voting while the episodes of season 7 2008 were on air between January 2008 and May 2008. During the season 6 (January – May 2007), the show generated around 64.5 8 million text messages. Participating in contests/polls through SMS is rapidly gaining popularity in the US. In quarter three of 2007, 9.96 million US subscribers sent SMS for polls and contests. 9 Shows such as ‘American Idol’, ‘Deal or No Deal’ and ‘The Apprentice’ are generating millions of text messages, each of which costs between 50 and 99 cents. Given that the current industry structure allows mobile operators to claim the lion’s share of these revenues, getting into the business of premium SMS has proven to be a good strategy for US operators. Figure 16 below shows the revenue sharing arrangement between various players in the value chain in the US. 8 9 Source: http://www.fiercewireless.com/story/american-idol-generates-78-million-sms-messages/2008-05-23 Source:http://www.mobilemarketer.com/cms/news/research/171.html 34 © 2008, Portio Research. All Rights Reserved The current industry structure in the US allows the mobile operator to claim a good share of the premium SMS revenues. Therefore, getting into the business of premium SMS has worked out to be a good strategy for operators like O2
  • 35. Strategies for Driving Data ARPU Figure 16: US – Premium SMS Revenue Sharing Arrangement (2008E) Content Owner (65-70%) Content Aggregator (5-10%) Mobile Network Operator (20-25%) Source: Portio Research Ltd. E – Estimated The following table summarises the factors that have led to the success of SMS services in the USA and compares them against the factors that SCEUD recognised as important for driving end-user demand for the service. Factors Identified in SCEUD SMS Service in the USA Affordability of content and value for money Simplicity and ease of use Flexible options Innovation in Service Market Segmentation © 2008, Portio Research. All Rights Reserved 35
  • 36. Strategies for Driving Data ARPU Section 5 Mobile E-mail 36 © 2008, Portio Research. All Rights Reserved
  • 37. Strategies for Driving Data ARPU Mobile E-mail Mobile e-mail is a service that enables the sending and receiving of e-mails through mobile handsets. The use of mobile e-mail can be classified into two market segments: Consumer mobile e-mail: An extension of the desktop e-mail function, mobile subscribers can use their handsets to send and receive e-mails. Enterprise mobile e-mail: Employees of an enterprise can operate their corporate e-mail accounts through their handsets, usually high-end smartphones and PDAs. Due to the incredible success of SMS, mobile e-mail, especially consumer e-mail, has not yet been able to gain a strong foothold in most parts of the world. The only region worldwide where consumer mobile e-mail is popular (in fact, more popular than peer-to-peer SMS) is Japan, where all operators offer mobile e-mail. Enterprise e-mail has been successful in the US, with AT&T Wireless’ service being one of the leading enterprise e-mail services in the country. Mobile e-mail services were promoted in Japan before SMS could establish itself as the leading data service. Case Study 1: The Success of Consumer Mobile E-mail in Japan Japan is the undisputed global leader in the consumer mobile e-mail market. The success of mobile e-mail in Japan can be largely explained by the fact that mobile e-mail preceded SMS in the country and was promoted before SMS could establish itself as the leading data service. As a result, while in most other mobile markets, operators deliberately underplayed mobile e-mail for fear of loss of SMS revenue; Japanese operators were uninhibited in promoting mobile e-mail. Mobile e-mail was introduced in Japan in February 1999 when the leading operator NTT DoCoMo launched i-Mode, its wireless Internet service, which offered an e-mail service called ‘i-mail’. The service was received very well and accessing e-mail through i-Mode became, and remains, one of the most popular activities for Japanese subscribers. Following NTTDoCoMo’s lead, the other two Japanese operators—KDDI and Vodafone KK (now Softbank Mobile)—also launched their mobile e-mail services, EZWeb and Vodafone Live! respectively, as part of their mobile Internet offerings. Mobile e-mail services were provided by Japanese operators at a time when fixed-line Internet penetration was low in Japan. It was also a time when SMS had not yet become the most successful mobile data service. As a result, mobile e-mail, and not SMS, became the preferred mode of non-voice communication between peers as it was cheap (cheaper than SMS), easy to use (similar to the online experience) and offered enhanced messaging features when compared to SMS. Traditionally, the Japanese are more inclined towards the exchange of longer text and multimedia messages, and this need is better fulfilled by e-mail than by SMS. The Japanese also work long hours and do not usually access their personal mail boxes while working. The comparatively low penetration of fixed-line Internet services in Japan, coupled with the long © 2008, Portio Research. All Rights Reserved 37
  • 38. Strategies for Driving Data ARPU hours of commuter travel time, make mobile e-mail an ideal communication platform in urban Japan. Apart from the cultural factors mentioned above, there are several other strategic reasons for the success of mobile e-mail in Japan. These reasons are discussed below. Strategic Success Factors Strategic Launch Timing When NTT DoCoMo launched mobile e-mail in Japan in 1999, the fixed-line Internet penetration in Japan was low and, more importantly, Internet access was expensive. Also, SMS, though available, was not as popular as in other parts of the world. As a result, Japanese operators were not worried about mobile e-mail cannibalising SMS revenues. These conditions came together to create an environment conducive for the growth of mobile e-mail in Japan. Interoperability and Handset Compatibility The success of mobile e-mail in Japan is also attributed to interoperability between operators and Web e-mail operators. E-mail services were completely interoperable among MNOs and global e-mail operators. On the contrary, SMS services suffered from interoperability issues. 10 Moreover, Japanese operators have an influence in handset manufacturer-circles, which ensures that the majority of handsets sold in the Japanese mobile market are e-mail enabled. Accessing e-mail on handsets is easy and does not require the user to download any extra software. Accessibility and Usability Difficult user interfaces have posed a significant challenge for mobile e-mail services across the world. However, in Japan using e-mail through mobile handsets has always been just as convenient as using fixed-line e-mail. For example, just like PC-based Internet e-mail, it is possible to send long messages and attach a wide range of files through mobile e-mail in Japan. Also, messages can be sent to multiple addressees and functions such as “forward”, “reply to all” and “CC: & BCC” work just like they do in PC mail. In-line images and HTML formatting also function seamlessly, making the e-mailing experience very similar to that of fixed-line e-mail. To summarise, using mobile e-mail is perceived to be more fun and more convenient than using SMS in Japan. Cheaper than SMS Mobile e-mail is cheaper than SMS in the Japanese market. For example, NTT DoCoMo charges only USD 0.008 for sending or receiving 20 characters via e-mail—around 20 percent cheaper than the prevailing SMS rates. 11 This, coupled with attractive flat rate plans offered by operators, helped mobile e-mail suppress SMS and evolve into the most successful mobile data service in Japan. The following factors summarise why mobile e-mail has been such a resounding success in Japan. 10 11 Source: http://www.apvco.com/resources/public/Asia_Mobile_Markets_and_Outlook_200702.pdf Source: http://www.nttdocomo.co.jp/english/binary/pdf/service/imode/guide/imode.pdf 38 © 2008, Portio Research. All Rights Reserved Using mobile e-mail is much greater fun and convenient than using SMS in Japan.
  • 39. Strategies for Driving Data ARPU Figure 17: Mobile E-mail in Japan – Strategic Success Factors Source: Portio Research Ltd. Japan is an exceptional case when it comes to the success of mobile consumer e-mail. In other parts of the world, peer-to-peer data communication through the handset is still largely dominated by SMS. In the enterprise sector, mobile e-mail has met with considerable success, especially in the US. The following table summarises these factors and compares them against the factors that SCEUD recognised as important for driving end-user demand for mobile data services. Factors Identified in SCEUD Consumer Mobile E-mail in Japan Affordability of content and value for money Simplicity and ease of use Flexible options Handset availability © 2008, Portio Research. All Rights Reserved 39
  • 40. Strategies for Driving Data ARPU Case Study 2: The Success of Enterprise Mobile E-mail in the US – AT&T Mobility Contrary to its limited success in the consumer e-mail market, mobile e-mail has been more successful in the enterprise segment. The increasing number of employees on the move and the pressing need to coordinate between multiple work locations has opened up opportunities of providing access to corporate e-mail on the go. North America is the worldwide leader in the enterprise mobile services market on account of the abundance of industries in the US, both large and small. A large subscriber base, high mobile penetration and a keen awareness of the latest technologies are factors that have helped the uptake of mobile services in the US enterprise segment. The growing acceptance of smartphones and PDAs among subscribers has also spurred the growth of mobile e-mail. According to research, 45 percent of US workers worked out of office premises in 2006. 12 In the US, enterprise e-mail services were rolled out in 1999 with the launch of RIM’s BlackBerry converged devices. AT&T (formerly Cingular) was the first operator to bring the BlackBerry to the US market. All the major US operators offer mobile e-mail services to enterprise subscribers. However, AT&T’s enterprise mobile e-mail service is the market leader. In 2006, Strategy Analytics stated, “Among US carriers offering enterprise-grade mobile e-mail, Cingular [AT&T] remains the uncontested category leader supporting a user base SA estimates to be nearly 40% of the market.” AT&T introduced the mobile enterprise e-mail service in 1999 with the BlackBerry smartphone. AT&T currently leads the BlackBerry market in the US and its mobile email service is the most successful enterprise mobile e-mail service in the country because its service scores over those offered by competitors on several counts. For starters, as AT&T operates on the GSM network, business travellers prefer using e-mail services from AT&T compared to those from Sprint or Verizon Wireless, which operate on CDMA. T-Mobile is also a GSM operator, but its subscriber base is barely one-fifth that of AT&T’s (as of end-2007) and, therefore, does not offer any significant competition to AT&T’s mobile e-mail services. Also, AT&T offers the convenience and flexibility of multiple devices connecting to multiple e-mail platforms with enterpriseclass security, which contributes to its leading position in mobile enterprise e-mail. Additionally, the operator offers the broadest choice of handsets. Strategic Success Factors First-Mover Advantage AT&T has pioneered important milestones in the US mobile e-mail market. It launched the BlackBerry smartphone in 1999 and in 2005, for the first time in the US market, the 12 Source: mobile enterprise solution - market opportunities in the US 40 © 2008, Portio Research. All Rights Reserved North America is the leader in the enterprise mobile services market worldwide on account of the abundance of small, as well as large, industries in the US.
  • 41. Strategies for Driving Data ARPU BlackBerry service was made available by AT&T on a third-party handset (the EDGEpowered Nokia 9300 business device) via the BlackBerry Connect licensing program from RIM. Compatibility of the BlackBerry solution with non-RIM handsets increased the addressable market of the mobile e-mail solution significantly. Broadest Range of Services AT&T offers the widest range of mobile e-mail services to its subscribers. Table 3 compares the mobile e-mail portfolios of major US operators. Table 3: Comparison of Mobile E-mail Portfolios of Leading US Operators Operator E-mail Services Available AT&T Wireless BlackBerry Connect Microsoft Direct Push Good Mobile Messaging Verizon Wireless BlackBerry Connect Microsoft Direct Push Wireless Sync (proprietary to Verizon Wireless) - Sprint Nextel BlackBerry Connect Microsoft Active Sync - - T-Mobile BlackBerry Connect Windows Mobile Solutions - - Xpress Mail (from SEVEN) Source: Portio Research Ltd. While BlackBerry Connect is a service that all operators provide, AT&T offers two exclusive mobile e-mail solutions—Good Mobile Messaging and Xpress Mail. Good Mobile Messaging provides enterprise class mobile e-mail and personal information management including calendar, contacts, etc. Xpress Mail helps subscribers to access their work e-mail including Microsoft Outlook and Lotus Notes. The users can also receive personal e-mail on their device from Yahoo! Mail, AOL, Windows Live Hotmail, Comcast, EarthLink and others. Other benefits of using the Xpress Mail are that the subscribers can also access their work calendar, and view Microsoft Office and PDF attachments. The service is specifically targeted at small and medium-sized businesses. Apart from the four mobile e-mail services listed in the table above, AT&T also offers a business notification service called ‘Enterprise Paging’. Largest Array of Handsets AT&T offers its business customers the largest array of e-mail-enabled handsets in the US to choose from. This enhances flexibility and attracts more users to the service. Reliable Support Support and customer service are two key elements in a successful enterprise mobile e-mail offering. Enterprise-grade mobile e-mail solutions comprise various critical elements that are brought together and presented as a holistic service by the operator. Therefore, to play the role of the integrated provider well, the operator needs to provide the necessary support to ensure an uninterrupted run of the service for its subscribers. Towards this end, AT&T offers complementary consultative services, consolidated billing and streamlined end-user support services, as well as the services of its dedicated Business Markets Group, which works with clients to ensure the effective implementation of enterprise-wide mobile e-mail services. International Coverage AT&T has a large network and, therefore, extensive wireless coverage; subscribers can access their e-mail not only in the US, but in around 140 countries worldwide—the largest © 2008, Portio Research. All Rights Reserved 41 Support and customer service are two key elements in a successful enterprise mobile e-mail offering.
  • 42. Strategies for Driving Data ARPU international coverage among carriers operating in the US. This gives the service true mobility and an added advantage for business use. To conclude, AT&T is the most successful enterprise mobile e-mail service provider in the US. The operator enjoys the position of a pioneer in the enterprise mobile e-mail market and is today regarded as a capable service provider that is trusted by Fortune 500 companies for their mobile e-mail needs. The following figure summarises AT&T’s enterprise mobile e-mail strategy. Figure 18: AT&T Wireless – Mobile Enterprise E-mail Success Summarised Source: Portio Research Ltd. The following table summarises the success factors and compares them against the factors that SCEUD recognised as important for driving end-user demand for mobile data services. Factors Identified in SCEUD AT&T Enterprise Mobile E-mail Support Service Affordability of content and value for money Simplicity and ease of use Flexible options Branding focus Handset availability 42 © 2008, Portio Research. All Rights Reserved
  • 43. Strategies for Driving Data ARPU Section 6 Mobile Instant Messaging © 2008, Portio Research. All Rights Reserved 43
  • 44. Strategies for Driving Data ARPU Mobile Instant Messaging Instant Messaging (IM) is one of the most popular online activities available in the wireline world. However, in the mobile world, with just a few exceptions, this service is yet to generate comparable momentum. Offered as an advanced messaging service, mobile IM saw the first glimpses of success in South Korea and Europe. Gradually, the service has caught on in other geographies and has been significantly successful in markets such as the US. It is notable that in markets where SMS has been spectacularly popular, mobile IM has received little marketing from operators for fear it would cannibalise SMS revenues. In the following sections, we examine two successful mobile IM services—NateOn messenger In 2005, after two years of from SK Telecom in South Korea and 3 UK’s IM offering, which includes Windows Mobile launch, NateOn surpassed Messenger and Yahoo Messenger. MSN in popularity to become the most popular IM service in These two successful mobile IM offerings are driven by very different strategic factors and South Korea. therefore offer operators and other stakeholders useful observations and best practices for this segment of the mobile data services market. Case Study 1: NateOn (Mobile Instant Messaging)—SK Telecom SK Telecom’s NateOn mobile messenger is believed to be one of the earliest and most successful mobile IM services worldwide. Mobile NateOn is yet another example of SK Telecom’s continued focus on creating winning solutions based on fixed-mobile convergence. In 2003, SK Telecom launched NateOn, a wireline IM service accessible through its online portal NATE. At that time, MSN Messenger was the leading online IM tool in South Korea and NateOn could attract only a small percentage of MSN’s large user base. NateOn gradually gained acceptance and, in 2005, after two years of launch, it surpassed MSN in popularity to become the most popular IM service in South Korea. As of April 2008, an average of 10 million Koreans used NateOn every day compared to an average 3 million using MSN. Launching a mobile version of NateOn was the next logical step for SK Telecom. As of 2006, mobile NateOn had signed up 200,000 users. As of June 2008, 25 million users were using the NateOn service. Strategic Success Factors Successful Fixed-Mobile Integration Much of mobile NateOn’s success is derived from the fact that it is a wireless extension of a very popular wireline product, and offering the same service on a mobile platform immediately appealed to its target user base—i.e., the younger population. Integration with Other Popular Data Services The NateOn messenger service enables users to integrate with CyWorld, another SK Telecom product and an enormously popular social network in South Korea. For example, NateOn is used as a medium for updating CyWorld members about changes in each other’s homepages (or minihompies). This adds to the appeal of NateOn significantly. NateOn users are also allowed 100 free SMS a month—another incentive to use the service over other 44 © 2008, Portio Research. All Rights Reserved
  • 45. Strategies for Driving Data ARPU available mobile IMs. In 2007, SK Telecom launched the Gifticon service, which enables NateOn users to send gifts to friends and family using the mobile IM service. 13 Ease of Use/Accessibility The IM experience through mobile NateOn is similar to that provided by its wireline counterpart. The wireline and wireless services are seamlessly integrated to provide users a holistic communication experience. The following table summarises the success factors and compares them against the factors that SCEUD recognised as important for driving end-user demand for mobile data services. Factors Identified in SCEUD S K Telecom’s NateOn IM Service Affordability of content and value for money Simplicity and ease of use Flexible options Fun element Branding focus Handset availability 13 SK Telecom – Annual Report – 2007 © 2008, Portio Research. All Rights Reserved 45
  • 46. Strategies for Driving Data ARPU Case Study 2: Windows Live Messenger & Yahoo Messenger—3 UK IM is a popular online activity in the UK. However, owing to the staggering success of SMS, operators have been hesitant about mobile IM for fear of revenue cannibalisation and have, therefore, experienced limited success with the service. Contrary to South Korea, where the most popular mobile IM offering is an operator-branded product, in the UK, operator-branded IM offerings have not lived up to expectations. Instead, operators have allied with established wireline IM brands, such as Windows Live, Yahoo, etc., to provide the mobile version of these popular wireline IM services. 3 UK was the first mobile operator to offer mobile IM services in the UK. In August 2006, the operator allied with Microsoft to launch the mobile version of Windows Live Messenger and within 10 weeks, 100 million MSN messages were transmitted through 3’s network. The service continued seeing rapid growth and, in June 2007, around 133 million IM messages were sent across 3’s UK network via Window’s Live Messenger. Driven by the success of MSN messenger, 3 launched another popular IM product— Yahoo Messenger—in August 2007. By October 2007, more than a year since the launch of the first mobile IM product, 3 recorded more than 1 billion IM messages, an average of more than 100 million messages having been sent and received each month. 3 UK received the “Best Mobile Messaging Service” award for its Windows Live Messenger at the GSM Awards 2007. Strategic Success Factors First-mover Advantage 3 UK was an early entrant into the mobile IM business—it was the only operator to offer IM services in the UK in the third quarter of 2006. The idea was to replicate the runaway success of wireline IM services on the mobile platform. According to 3 UK, Windows Live Messenger had over 10 million registered users in the UK in 2006; almost three quarters of users aged 24 and younger were regular IM users and over half of them were eager to access the IM service on mobile handsets. Based on the survey, 3 UK targeted 16-24-year-old consumers who spent a large portion of their time online and on IM. 14 The August 2006 launch was a huge success as, within three months of launch, 3 recorded an average transmission of 1 million IMs per day. Key Partnerships Unlike other European operators, such as Vodafone UK, SFR (France) and Orange (France) who experimented with proprietary IM services between 2002 and 2004, 3 UK followed in the footsteps of US operators and launched IM solutions in partnership with established wireline players such as Yahoo and MSN. Using this model, IM penetration levels in the US reached around 7.5 percent in 2006 (more than double that in the UK, France and Germany). 15 14 Source: http://www.mobilemarketingmagazine.co.uk/2006/11/3_sees_instant_.html Source: http://www.de.capgemini.com/m/de/tl/Mobile_Instant_Messaging.pdf 15 46 © 2008, Portio Research. All Rights Reserved 3 UK received the “Best Mobile Messaging Service” award for its Windows Live Messenger at the GSM Awards 2007.
  • 47. Strategies for Driving Data ARPU 3 UK identified Windows Live Messenger as the first IM product to launch on its mobile network. Windows Live Messenger had over 10 million registered users in the UK in 2006 and many of them were willing to use their favourite IM on mobile phones. Yahoo Messenger— another very popular wireline IM—was the next obvious choice for 3 UK. Value Proposition Access to mobile IM is free for 3 UK’s pre-paid and post-paid customers. The application is downloadable through 3 UK’s WAP portal, ‘Planet 3’, and use of the service is absolutely free. According to 3 UK, at this stage, it is not trying to generate revenues through this service, but is using it to create customer loyalty. The free IM service from 3 UK is limited by the Fair Use Policy of 6,000 MSN messages and 10,000 Yahoo messages per month, respectively. However, unlimited IM is possible under 3 UK’s bundled X-Series tariff plans. Ease of Use/Accessibility 3 UK’s mobile IM service is very easy to use, with IM applications downloadable from 3’s Planet 3 portal. Users can use their existing IM IDs to start using the mobile version of Yahoo Messenger and Windows Live Messenger. As 3 has removed interoperability barriers with its decision to offer established wireline IM brands, 3 subscribers can communicate seamlessly with any Yahoo or Windows Live user worldwide. To conclude, the mobile IM successes of SK Telecom and 3 UK have important lessons for mobile operators. The following figure illustrates how with ease of use and accessibility remaining constant, these two services were propelled by different strategic success factors. Figure 19: Mobile IM – Strategic Success Factors Summarised Source: Portio Research Ltd. © 2008, Portio Research. All Rights Reserved 47
  • 48. Strategies for Driving Data ARPU The following table summarises the success factors and compares them against the factors that SCEUD recognised as important for driving end-user demand for mobile data services. Factors Identified in SCEUD 3 UK’s Mobile IM Service Affordability of content and value for money Simplicity and ease of use Partnerships Fun element Branding focus Handset availability 48 © 2008, Portio Research. All Rights Reserved
  • 49. Strategies for Driving Data ARPU Section 7 Mobile Music–Full-Track Downloads © 2008, Portio Research. All Rights Reserved 49
  • 50. Strategies for Driving Data ARPU Mobile Music—Full-track Downloads In developed mobile markets, mobile music services have evolved from ringtones and caller ringback tones to include full-track music downloads. The increasing penetration of musicenabled handsets in developed markets has morphed the mobile handset into an MP3 player and subscribers now need a constant fresh supply of the latest music tracks to replenish playlists and build greater personalisation onto their handsets. Operators have identified significant opportunities by effectively becoming music stores and selling music tracks to subscribers. Peer-to-peer transfer of music through the PC or Bluetooth devices presents significant challenges to developing a paid mobile music download model and herein begins the race for providing the best array of tracks to choose from, the best value proposition and the best user experience in full-track mobile music download services. One of the first and most successful full-track music download services worldwide is Japan’s “Chaku-Uta Full” service, which is available through leading Japanese operators. We described the strategic success factors of KDDI’s Chaku-Uta Full service in SCEUD 2006. Chaku-Uta Full is still the most popular full-track mobile music download service worldwide; from 20 million downloads in May 2006, the service passed the 100 million download mark in May 2007 and reached the 200 million mark in April 2008. 16 Apart from Japan and South Korea, the two most advanced markets worldwide when it comes to mobile data services, the UK is one of the most digitally advanced nations in Europe, with UK mobile subscribers being avid consumers of mobile digital content. The country is equipped with 3G networks and is catered to by five prominent mobile operators—O2, Vodafone, T-Mobile, Orange and 3 UK. The 3MusicStore, from 3 UK, is the UK’s leading fulltrack (singles) music download service. (Please refer to SCEUD for a detailed view of the various strategic factors of 3MusicStore). Orange UK’s full-track music download service is also very popular. In the US, the two leading mobile music services—Sprint Music Store from Sprint and VCAST Music from Verizon—are considered to be among the world’s leading full-track download services. The strategic success factors behind V-CAST Music are discussed in this report (while for Sprint’s success with its Sprint Music Store, please refer to SCEUD). As noted at the start of this report, we refer constantly to the findings in our previous report in this series – Strategies for Creating End-User Demand for Mobile Data Services (SCEUD for short). This earlier report was immensely popular but if you do not already have a copy, please e-mail sceud@portioresearch.com with your name and company name, and we will send you a complimentary copy to complete your reading. In this report, we take a look at the full-track download services offered by Orange UK and Verizon Wireless (US). 16 Source: http://www.billboard.biz/bbbiz/content_display/industry/e3i80886592cf59d365c5da5977695d3c03, SCEUD 50 © 2008, Portio Research. All Rights Reserved Japan’s ‘Chaka Uta Full’ is the most successful full-track mobile music download service worldwide. Other successful full-track offerings include Orange UK’s service and Verizon Wireless’ EV-DO service called V-CAST Music
  • 51. Strategies for Driving Data ARPU Case Study 1: Orange Player—Orange UK Orange UK, currently with around a 21 percent share of subscribers in the UK mobile market, was one of the first operators to introduce full-track music download services in the country in 2004. Ever since, music has been a key element in Orange UK’s mobile data services strategy. The operator has been constantly innovating to provide subscribers the best personalisation experience with full-track downloads. The operator currently offers a wide array of tracks for download and has doubled its revenues from full-track downloads in the second half of 2007. 17 In 2008, Orange UK was named the “Best Entertainment Operator” in Europe at the Mobile Entertainment Awards in Cannes. In 2004, Orange UK’s mobile entertainment strategy took a new turn with the launch of two exclusive music services—a full-track audio download service and a new proprietary music player called ‘Fireplayer’, which allowed users maximum personalisation by offering the ‘remix’ function. In 2004, the Mobile Entertainment Forum (MEF) named Fireplayer as the winner in the ‘Best Use of Mobile’ category. In 2005, Orange UK’s full-track download service was rated the ‘Best in Class’ full music download service by Strategy Analytics. Apart from constantly bolstering its catalogue through deals with major music labels, Orange also followed an aggressive handset strategy, partnering with established names in the music domain such as Sony Ericsson, to launch special, music-friendly handsets. These steps, coupled with constant endorsement of musical events and festivals, have helped Orange UK build a strong association with music in the UK’s mobile music market. In 2006, in an industry-first, Orange’s music downloads found their way into the Official UK Download Chart. As per Orange’s Digital Media Index, as of early 2008, more than 250,000 full-tracks were being downloaded each month from the Orange Music Store on Orange World. December 2007 alone saw 289,000 full audio track downloads. In 2008, Orange UK was named the “Best Entertainment Operator” in Europe at the Mobile Entertainment Awards in Cannes. Key Success Indicators Accelerating Download Numbers Full-track downloads through Orange’s mobile portal Orange World accelerated at a fast pace throughout 2007. From 105,000 average monthly downloads in January 2007, the number of monthly downloads reached 270,451 in January 2008, a year-on-year increase of 157 percent. Figure 20 below depicts the accelerating download figures of full-tracks from Orange World from January 2007 to January 2008. 17 Source: http://www.pocket-lint.co.uk/news/news.phtml/11176/12200/Orange-reveals-music-download-figures.phtml © 2008, Portio Research. All Rights Reserved 51
  • 52. Strategies for Driving Data ARPU Single Music Track Downloads (In '000) Figure 20: Orange UK – Average Monthly Full-Track Downloads from Orange World (In Thousand, January 2007-January 2008) 300 289 270 250 203 211 Oct-07 Nov-07 200 150 105 100 50 0 Jan-07 Dec-07 Jan-08 Month Source: Portio Research Ltd., Orange Digital Media Indices and Others 18 (NOTE: The temporary spike in monthly downloads in December 2007 can be attributed to the holiday season) A few statistics on individual tracks clarify the popularity of the service further. As of November 2007, the top track in the singles chart—Bleeding Love by Leona Lewis—had been downloaded more than 5,000 times from the Orange Music store in a one week period, while the best-selling download single—Crazy by Gnarls Barkley—had been downloaded 25,000 times since launch. 19 The download momentum of full-tracks from Orange World has continued in 2008; as of early 2008, on average more than 270,000 full-tracks were being downloaded each month from the Orange Music Store on Orange World. 20 Boost to Data ARPU As of end-2006, music services represented about 10 percent of Orange UK’s data revenues. 21 Orange UK reported a 70 percent increase in music download sales between May and October 2007 and an almost 100 percent increase between January and October 2007. 22 Data services now account for 23.6 percent of Orange UK’s total revenues. 23 Strategic Success Factors Handset Strategy: Partnering with Established Names in the Music Industry Mobile music from operators is perhaps one of the most handset-dependent data service offerings. Realising that its music strategy needs to be backed with increased availability of advanced, music-related handsets, Orange put handsets at the core of its music strategy right 18 Source: http://www.paidcontent.co.uk/entry/419-orange-music-store-sales-doubled-since-january/ Source: http://www.paidcontent.co.uk/entry/419-orange-music-store-sales-doubled-since-january/ 20 Source: Orange Digital Media Index – Spring 2008. 21 Source: Capgemini 22 Source: http://www.moconews.net/entry/419-orange-music-store-sales-doubled-since-january/ 23 Source: http://www.unstrung.com/document.asp?doc_id=155368&print=true 19 52 © 2008, Portio Research. All Rights Reserved
  • 53. Strategies for Driving Data ARPU from the outset. The first music phone from Orange, the SPV 550, was a Windows-powered smartphone, the first of its kind in the UK, with dedicated music buttons. In 2006, Orange UK partnered with Sony Ericsson for making the latter’s Walkman handsets available first to Orange UK subscribers. The Walkman brand is synonymous with music and this helped Orange build a stronger association between music and its own music-based offerings. Within 12 months, Orange sold over 2 million Sony Ericsson Walkman handsets in the UK, through which subscribers could download full-tracks seamlessly from Orange World. The W850, W810 and W880 Walkman handsets have continually been the top three Orange music phones in the UK in terms of download numbers. 24 Choice of Content: Expanding Catalogue, Exclusive Content from Prominent Music-based Events Orange UK has constantly been bolstering its full-track music catalogue through content deals with prominent record labels such as Warner, EMI, Universal, etc., and also independent labels. Its music catalogue currently offers more than one million music tracks with fresh additions every week. 25 The catalogue additionally boasts rare tracks that are not available from alternative music stores. Users can also purchase Fireplayer tracks that include raw studio sound bites from artistes’ recording sessions. Users can then remix these parts to create their own music and save them as tracks or ringtones. Apart from the regular, ever-expanding catalogue of full-tracks, Orange also derives temporary spikes in music sales through event-based and exclusive music content. For example, in 2006, Orange UK teamed up with popular singer Christina Aguilera for nine months to offer its subscribers exclusive music content by her. Usability and Accessibility: Best Portal Layout, One-click Access, Best Download Speed, MultiPlatform Purchase Orange’s Music Player supports high quality AAC+ MPEG-4 tracks and includes useful features such as ‘Tell A Friend’ (allowing subscribers to forward 30-second previews of tracks with an option to buy) and ‘Skip A Track’. 26 Also, a text search function enables users to look for and find music on the handset by artist and track name. Orange’s full-track mobile music download service was adjudged the best such service in the UK in 2005 by a Strategy Analytics panel on the following parameters 27: • • • • Portal layout/usability. Navigation speed. Speed of download. Clarity of catalogue interface. The same panel revealed that similar offerings from O2 and Vodafone lacked in usability and interface issues. In end-2005, Orange combined mobile music downloads with Internet access to enhance the music download experience. New additions included online preview and purchase of tracks, playlist management and tools to synchronise mobile downloads between the handset and the PC. This added another platform for purchasing full-track downloads and, therefore, enhanced the accessibility of the service. By opening up channels to transfer music from the PC to the handset, Orange also hedged its full-track download service against that of 24 Source: http://www.mobilemarketingmagazine.co.uk/2007/07/orange-and-se-s.html Source: http://www1.orange.co.uk/entertainment/music/musicPlayerMusiWaveFAQ.php#how-many; http://www.pocket-lint.co.uk/news/news.phtml/11176/12200/Orange-reveals-music-download-figures.phtml 26 NOTE: AAC+ provides highest quality music at lowest bit rate and is shortlisted by 3GPP as standard codec for high quality audio delivery. 27 Source: http://findarticles.com/p/articles/mi_m0EIN/is_2005_Sept_27/ai_n15633892 25 © 2008, Portio Research. All Rights Reserved 53 Orange UK has constantly been bolstering its full-track music catalogue through content deals with prominent record labels such as Warner, EMI, Universal, etc., and also independent labels.
  • 54. Strategies for Driving Data ARPU competitor 3 UK, which provides the option of simultaneously downloading a track to the handset and the PC. Pricing: Flexible Pricing Options, Bundled Discounts, Ad-funded Free Music The Orange Music Player and the Fireplayer is available for download free of charge. Orange UK offers its music customers flexible pricing options which include Pay-per Use and Monthly Flat Rate Plans. In March 2008, Orange launched the largest ad-supported content trial in the UK. Through this three-month trial, the operator allowed around 800,000 customers to download up to 500 music tracks from four different genres—urban, pop, rock and dance—on their handsets for free or for a heavily discounted price. 28 The revenue model for this trial included allowing brands to place banner advertising on the handset’s screen during the music download process. Although the results of this trial were not publicised at the time of writing this report, the ad-funded service is expected to boost uptake of Orange’s music offerings further. Promotion: Strong Brand Association with Music Orange’s promotional strategy for music content goes beyond traditional advertising or sponsorship models. The Orange brand enjoys a prolonged association with music and entertainment and, capitalising on this, the operator’s efforts have been to create a holistic association with music. (In the name of fairness, it should be noted here that other UK operators, including O2 and Vodafone, also work hard to promote their strong associations with the UK music scene.) The following are some of the steps in this direction: • Orange Gigsandtours: A SIM-based service that offers mobile subscribers alerts of musical events in the UK, facilitates ticketing, and also gives away free tickets from time to time. • mobileAct Unsigned: This is a multi-platform local music marketing campaign that Orange has launched in partnership with Sony Ericsson. Essentially, mobileAct Unsigned is a talent hunt for identifying unsigned bands that indirectly also leads to the creation of fresh content for Orange’s music offerings. mobileAct Unsigned content will be available across the three platforms of TV, Internet and mobile. • Glastonbury Sponsorship: Orange has been sponsoring the Glastonbury Music Festival— one of the largest events showcasing contemporary arts—for 10 years. Apart from capitalising on the exposure among thousands of music enthusiasts who come to attend this event every year, Orange also uses this festival as a launching ground for new, innovative services. For instance, Music Player and Fireplayer were first made available 29 to music fans at Glastonbury 2004. To conclude, while all the various strategic success factors described above have a role to play in Orange UK’s success with its full-track download service, the three most important differentiating factors for this service are: • Handset Strategy: Orange is the leading provider of Sony Ericsson’s Walkman handsets across Europe. • Promotional Strategy: Orange positions itself as a true music brand, not just a mobile operator trying to push music content to boost revenue. • Usability: Orange’s full-track download service is the easiest to access and use. 28 Source : http://www.mobileeurope.co.uk/news_wire/113739/Orange_announces_adfunded_content_trial_for_800,000_mobile_users_in_the_UK_.html 29 Source: http://goliath.ecnext.com/coms2/gi_0199-497812/Orange-pitches-new-music-services.html 54 © 2008, Portio Research. All Rights Reserved The Orange brand enjoys a prolonged association with music and entertainment and, capitalising on this, the operator’s efforts have been to create a holistic association with music.
  • 55. Strategies for Driving Data ARPU The following figure summarises the key success factors for Orange’s full-track music download service in the UK. Figure 21: Orange UK Full-Track Downloads – Key Success Factors Summarised Promotion Usability Pricing Handsets Content Source: Portio Research Ltd. The following table summarises these factors and compares them against the factors that SCEUD recognised as important for driving end-user demand for mobile data services. Factors Identified in SCEUD Orange Music Player Choice of Content Affordability of content and value for money Simplicity and ease of use Flexible options Fun element Branding focus Handset availability © 2008, Portio Research. All Rights Reserved 55
  • 56. Strategies for Driving Data ARPU Case Study 2: V-CAST Music—Verizon Wireless In 2004, Verizon Wireless pioneered ringback tones in the US market. Since then, the operator has forged its music strategy on relationships with artists, content providers and platform providers. Purchasing full-tracks through mobile operators has not taken off in the US in the way it has in the UK, but then the stateside mobile full-track music download market had a later start, with the first such downloads only possible towards the end of 2005. Sprint’s Music Store debuted in end-2005, soon to be followed by a similar service from Verizon Wireless. Verizon Wireless (VZW) is an example of how 3G can be utilised to deliver on its promise of driving data ARPU for mobile operators. VZW launched its EV-DO network in 2003 and two years later, launched the first mobile multimedia service in the US called V-CAST. In January 2006, close on the heels of Sprint’s launch of its full-track music download service, VZW launched V-CAST Music—a similar service providing subscribers access to full-length tracks through their handsets. Currently, V-CAST provides users with an holistic, end-to-end music experience that includes previewing clips, viewing album art, setting up artist alerts and downloading full songs to the handset (and simultaneously to the PC). However, in 2006, research by Strategy Analytics deemed Sprint’s Music Store superior to V-CAST Music on grounds of network performance and usability. V-CAST Music’s unique selling proposition at launch was its lower price point compared to Sprint’s service. In the last two-and-a-half years that V-CAST Music has been available, the operator has improved the service significantly through a number of strategic moves. As a result, V-CAST Music is now considered to be among the leading mobile music services in the US, handling more than 120 million music and video downloads in the four quarters leading to Q1 2008. VZW is the leading operator in the US in terms of data revenues and data ARPU, and V-CAST music has had a prominent role in this achievement. Key Success Indicators Increasing Uptake: Accelerating Music Downloads Although VZW does not report subscriber or revenue figures for V-CAST, a look at the music and video download figures over the past few quarters indicates that the service is doing well for the operator. The following figure depicts the number of music and video downloads from VZW from the second quarter of 2007 to the first quarter of 2008. 56 © 2008, Portio Research. All Rights Reserved V-CAST Music is considered to be among the leading mobile music services in the US, handling more than 120 million downloads in the four quarters leading to the first quarter of 2008.
  • 57. Strategies for Driving Data ARPU Figure 22: Verizon Wireless – Music and Video Downloads (In Million, Q2 2007-Q1 2008) Music and Video Downloads (in Million) 40 34.6 35 30 29.7 30.0 Q3 2007 Q4 2007 25.0 25 20 15 10 5 0 Q2 2007 Q1 2008 Quarter Source: Company Reports As depicted above, the number of video and music downloads increased by 38.4 percent, from 25 million in the second quarter of 2007 to nearly 35 million in the first quarter of 2008. Music downloads accounted for a significant share of the consolidated number of downloads, which signifies substantial uptake of Verizon’s mobile music service. Boost to Data ARPU: VZW leads Data ARPU Worldwide At a time when operators are increasingly trying to boost the contribution of data revenue to total service revenues, VZW managed to achieve the 20 percent mark in the third quarter of 2007. From 9.8 percent in Q4 of 2005, data revenues now contribute around 20 percent to total service revenues for VZW—the highest for any operator worldwide. At nearly USD 12 a month on The figure below compares VZW’s monthly data ARPU at end-2006 and end-2007 with that of data consumption (as of the its competitors in the same years. first quarter of 2008), VZW mobile subscribers are among the highest spenders on mobile data services worldwide. Figure 23: Verizon Wireless—Market Leader in Monthly Data ARPU (In USD, 2006 and 2007) 12 9.9 Average Monthly Data ARPU (In USD) 10 8 9.2 9.2 7.9 7.4 6.8 6.2 5.8 6 4 2 0 Sprint Nextel T-Mobile 2006 Verizon Wireless AT&T Wireless 2007 Source: Company Reports and Portio Research Ltd. © 2008, Portio Research. All Rights Reserved 57
  • 58. Strategies for Driving Data ARPU At nearly USD 12 a month on data consumption (as of the first quarter of 2008), VZW mobile subscribers are among the highest spenders on mobile data services worldwide. 30 The following figure depicts the quarter-by-quarter increase in VZW’s monthly data ARPU from the third quarter of 2005 to the first quarter of 2008. It also shows the quarter-overquarter percentage increase in data ARPU. Monthly Data ARPU (USD) 14 11.9 12 9.8 10 11.1 9.0 8 6 10.6 6.6 7.4 8.1 5.8 4.4 5.0 4 2 0 20 18 16 14 12 10 8 6 4 2 0 Q-o-Q Growth of Monthly Data ARPU (In %) Figure 24: Verizon Wireless – Rising Data ARPU (Q3 2005-Q1 2008) Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Monthly Data ARPU Quarter-over-Quarter growth of Monthly Data ARPU Source: Company Reports and Portio Research The figure above depicts an increasing data ARPU trend for VZW. It also depicts that in the last 11 quarters, VZW recorded the maximum quarter-over-quarter increase in data ARPU in the first quarter of 2006—the quarter when V-CAST music was launched. Strategic Success Factors One of VZW’s main strategies with V-CAST Music was providing a lower-cost alternative to Sprint’s high-priced full-track downloads. The various strategic factors that led to the success of V-CAST Music are detailed below: Usability and Accessibility: Easy to Use, Seamless Integration with PC, Integration with other Music Players VZW has improved the usability of V-CAST Music significantly since launch. In November 2006, the operator launched a PC-based application called the ‘Music Essentials Manager’, which enabled users to purchase songs, manage their music collections and seamlessly sideload music files from a PC to a handset at no extra cost. With this service, V-CAST Music could offer a complete music store on the PC as well as the handset, allowing users to search, browse, preview and purchase clips on the PC as well as the handset. This service extension provided V-CAST Music the much-needed device flexibility for a music service of its kind, and significantly enhanced the accessibility of the V-CAST music service. The Sprint Music Manager, a similar fixed-mobile music integration application from Sprint, was launched much later in June 2007. Before that, side-loading from the PC was not an option for Sprint Music Store customers. 30 Source: http://investor.verizon.com/news/view.aspx?NewsID=909 58 © 2008, Portio Research. All Rights Reserved One of VZW’s main strategies with V-CAST Music was providing a lower-cost alternative to Sprint’s highpriced full-track downloads.
  • 59. Strategies for Driving Data ARPU To drive integration with the growing universe of digital devices, Verizon Wireless ensures that tracks purchased from V-CAST Music can be played on all ‘PlaysForSure’ certified devices (e.g., Creative, iRiver, etc.). 31 Price Leadership: Flexible Pricing, Cheaper than Competitor’s Offerings At the time of launch, VZW offered a 20 percent lower price per mobile download of full-length tracks compared to Sprint Music Store. Sprint subscribers needed to pay USD 2.50 per mobile download, while V-CAST subscribers were charged only USD 1.99. Furthermore, songs purchased from a PC (which could be later side-loaded on to the handset at no extra charge) were charged at USD 0.99 only (on a par with iTunes). The difference of USD 1 was the premium that users had to pay for access to music on the go. Later, in August 2006, VZW waived the monthly fee of USD 15 that V-CAST subscribers had earlier needed to pay for accessing V-CAST Music (in the form of the data package named VCAST V-Pak). Between August 2006 and June 2007, V-CAST mobile tracks were available for USD 1.99 per track, while Sprint’s mobile tracks were available for USD 2.50 per track. After that, Sprint made full tracks available at only 99 cents, along with monthly data packs of USD 15 and USD 20. As downloading full tracks through a mobile handset is mostly driven by impulse, VZW’s decision to remove monthly fees and offer a pay-as-you-go model was a better strategy than Sprint’s monthly schemes. Innovative Features: Flexible Purchase Options to Drive Track Sales through the Handset Purchasing a full-track from V-CAST Music through a PC is nearly 50 percent cheaper than purchasing the same track through the handset. Therefore, to encourage users to buy more music through the handsets, VZW offers a music discovery service called ‘V-CAST Song ID’. This service is available for free and can be used to make impulse purchases of tracks while on the go for USD 1.99 per track. At launch in May 2007, the service could identify over 4 million songs; all the user needs to do is capture a sample of the music in their V-CAST handset. Choice of Content: Large Catalogue, Exclusive Content Providing users with a wide array of content to choose from is the cornerstone of a successful mobile data strategy. VZW’s V-CAST Music catalogue launched with half-a-million tracks and expanded to include 1 million tracks within four months of operations. 32 Currently, the service offers nearly 2 million tracks across 25 genres. Apart from content from prominent global record labels (Sony BMG, Warner Music, EMI, Universal), V-CAST Music also carries content from a number of independent labels to bolster its collection of indie music. Some of its partnerships with independent labels include: • Independent Online Distribution Alliance (IODA): This alliance brings music from more than 1,500 independent labels worldwide to V-CAST. Labels include Koch Entertainment, China Record Corporation, Shellshock (UK), Outside Music (Canada), Inertia Distribution (Australia) and Daiki Sound (Japan), among many others. • Digital Rights Agency (DRA): This alliance supplies music from nearly 7,000 artists on 250 labels worldwide. Artists include Daddy Yankee, Lil Jon, Death Cab for Cutie, Yellowcard, Elliott Smith, Sleater-Kinney, Smokey Robinson and Count Basie. • CD Baby: CD Baby provides V-CAST the latest in music from125,000 indie artists signedup with it. • MySpace: This alliance was aimed at selecting an independent band to be promoted through V-CAST Music. V-CAST Music also provides subscribers with exclusive music content to differentiate itself from competitors’ offerings. The following are examples of exclusive content made available by VZW for its V-CAST subscribers: 31 NOTE: PlaysForSure is a Microsoft certification given to portable devices and content services after testing them against various compatibility and performance requirements. Currently, this certification has been rebranded to ‘Certified for Windows Vista’. 32 Source: http://newscenter.verizon.com/press-releases/verizon/2006/page.jsp?itemID=29670908 © 2008, Portio Research. All Rights Reserved 59 As downloading full tracks through a mobile handset is mostly driven by impulse, VZW’s decision to waive off monthly fees and offer a payas-you-go model was a better strategy than Sprint’s monthly schemes.
  • 60. Strategies for Driving Data ARPU • • • Legendary rock albums from AC/DC: For the first time in the history of digital music, iconic rock band AC/DC’s entire back catalogue of 18 albums was made available exclusively to V-CAST users. Music enthusiasts had long been awaiting digitisation of AC/DC’s catalogue and VZW beat competitors in making this much-coveted content available exclusively for its subscribers. Exclusive pop single from Prince: Weeks before the anticipated launch of Prince’s new album Planet Earth, VZW allied directly with the artist to offer a single track from this album to V-CAST Music customers through its Song ID service. Exclusive mobile music from Led Zeppelin: In a deal with Warner Music, V-CAST subscribers could download Led Zeppelin full-tracks from V-CAST music. Promotion: Better Visibility than Competitor’s Offering VZW followed an aggressive promotional strategy with its V-CAST Music service. The service’s launch was marked by VZW hosting a live pre-Grammy concert. This was followed by intensive coverage of the service in various media outlets. Sprint’s Music Store, by comparison, was less visible to end-users. Handsets: Slicker, Music-capable Handsets for V-CAST Music At the time of launch, V-CAST Music could only be accessed through three handsets, but VZW has since expanded the range of compatible handsets to include exclusive, musiccapable handsets such as LG’s Chocolate, Motorola’s RAZR, Samsung’s Juke Navy, etc. VZW handsets can now play songs purchased from ‘PlaysForSure’ certified stores, such as Napster and MSN Music Over time. To conclude, V-CAST music’s success can be attributed to several factors. Compared to its competitor’s offering, this service was cheaper, more flexible in terms of access and pricing, and offered users a host of exclusive content. The following figure summarises the key success factors of VZW’s full-track download service, V-CAST Music. Figure 25: Verizon Wireless (US) Full-Track Downloads – Key Success Factors Summarised Usability & Accessibility Pricing Handsets Content Promotion Source: Portio Research Ltd. 60 © 2008, Portio Research. All Rights Reserved Compared to its competitor’s offering, V-CAST Music was cheaper, more flexible in terms of access and pricing and offered users a host of exciting content.
  • 61. Strategies for Driving Data ARPU The following table summarises these factors and compares them against the factors that SCEUD recognised as important for driving end-user demand for mobile data services. Factors Identified in SCEUD V-CAST Music Choice of content Affordability of content and value for money Simplicity, ease of use, accessibility Flexible options Fun element Branding focus Handset availability © 2008, Portio Research. All Rights Reserved 61
  • 62. Strategies for Driving Data ARPU Section 8 Mobile Gaming 62 © 2008, Portio Research. All Rights Reserved
  • 63. Strategies for Driving Data ARPU Mobile Gaming As typifies the Japanese and South Korean markets, mobile gaming has gained greater traction here than anywhere else worldwide. In SCEUD, we studied four mobile gaming case studies from Japan and South Korea—NTT DoCoMo and KDDI (Japan) and SK Telecom and KTF (South Korea)—to illustrate how operators in these two countries were leveraging the popularity of mobile games to boost data ARPU. We also studied the strategies of 3 UK to get a flavour of successful mobile gaming strategies in Europe. While researching this report, we found that the Asian mobile gaming leaders continue to hold the top spot in the worldwide mobile gaming landscape as they have kept devising innovative strategies to maintain their stronghold. The following are some major updates in their strategies since we wrote SCEUD: • Japanese operator NTT DoCoMo launched a range of new intuitive motion-sensing games called ‘Chokkan Games’. For this, NTT DoCoMo developed special handsets — the first being the 904i model under the FOMA series in April 2007. These enabled NTT subscribers to play games by rolling, shaking or touching their handsets. In November 2007, the operator launched the more advanced FOMA 905i series of handsets to support more complex motion games. • The second-largest Japanese operator KDDI expanded its gaming catalogue by 50 percent between January 2006 and January 2007. 33The operator also exported its successful gaming offerings to North America in March 2007 in partnership with game developer and publisher Namco Networks. 34 • South Korean operator SK Telecom has also adopted the strategy of increasing its mobile gaming revenues by licensing games for distribution in other countries. In March 2008, SK Telecom signed an agreement with game publisher CDC Games to license Massively Multiplayer Online Role Playing Games (MMORPG) for distribution in North America and China. 35 • In the UK, 3 trialled ad-funded mobile gaming services only to realise that this was not a feasible strategy, as the quality of ad-supported games were sub-standard and could lead to brand dilution. 36 Japan and South Korea are undoubtedly the most successful mobile gaming markets worldwide and there are indeed valuable lessons to be learnt from operators in these two countries. However, one caveat that needs to be borne in mind while trying to emulate their strategies is the influence of culture. South Korea and Japan are advanced mobile markets, where people are culturally more prone to using all types of mobile data services, including mobile games. Korea, in fact, is known as the online gaming capital of the world. The US, on the other hand, is not a nation naturally comprising avid mobile data lovers. So, it is interesting to study how a purely entertainment-based mobile data service like mobile gaming is adding to the data ARPU of US operators. 33 Source: http://www.qualcomm.com/press/releases/2007/070411_application_downloads_s.html Source: http://www.namcogames.com/pressDetails.php?id=59 35 Source: http://www.cdcgames.net/news080309.html 36 Source: http://www.moconews.net/entry/419-operators-and-games-publishers-still-wary-of-ad-funded-mobilecontent/ 34 © 2008, Portio Research. All Rights Reserved 63 South Korea and Japan are advanced mobile markets, where people are culturally more prone to using all types of mobile data services, including mobile games.
  • 64. Strategies for Driving Data ARPU Case Study: Mobile Gaming—Verizon Wireless All the major US operators — AT&T Mobility, Verizon Wireless, Sprint, and T-Mobile — offer mobile games to their subscribers. However, in spite of being the second-largest operator by subscriber-share, Verizon Wireless (VZW) enjoys the highest data ARPU in the US market. VZW also leads the US mobile gaming market in terms of share of game purchasers. VZW had an early start in offering over-the-air game downloads and other applications, and today the operator offers one of the most extensive mobile gaming services to its subscribers. Verizon Wireless (VZW) leads the US market in terms of data ARPU. The operator launched BREW-based content and application services branded ‘Get it Now’ in 2002, making it the first operator to offer US customers over-the-air game downloads, ringtones, applications, etc., using the BREW technology. Along with launching ‘Get It Now’, VZW started building awareness about mobile gaming. The operator tied up with prominent names in the gaming world —Sony and Jamdat—to build up a competent image in the nascent US gaming market. Today, after six years of operation, VZW’s gaming offerings lead the US market in terms of number of purchasers. The operator has been able to build a successful mobile gaming service through offering a wide choice of content, exclusive and popular games, flexible pricing, and the best game download experience in the market. Overall, the operator also followed astute segmentation of the market, tailoring separate offerings for casual gamers and hardcore gaming enthusiasts. Key Success Indicators Increasing Gaming Revenues and Number of Gamers VZW introduced its BREW platform, branded ‘Get It Now’, offering over-the-air content downloads (including games) in 2002. In March 2005, the operator launched premium 3D games as part of its EV-DO service, V CAST. The following are some statistics to reflect the increasing popularity of VZW’s gaming offerings: • • • • • In the period January to May 2004, VZW customers downloaded more than 12 million games. 37 VZW registered a 36 percent growth in gaming downloads between March 2005 and March 2006 after launching premium 3D games as part of the V CAST service. 38 Between March 2006 and March 2007, the number of game downloaders at VZW increased by 21 percent. 39 Mobile gaming revenues at VZW increased by 38 percent in the first three quarters of 2007, compared to the same period in 2006. 40 In the first three quarters of 2007, VZW customers paid for 50 million game transactions. 41 37 Source: http://findarticles.com/p/articles/mi_m0EIN/is_2004_August_25/ai_n6168657 Source: http://www.3g.co.uk/PR/March2006/2812.htm 39 Source: http://www.fiercedeveloper.com/story/mobile-gaming-turning-enthusiasm-revenues/2008-05-28 40 Source: http://ipodtoucher.wordpress.com/2008/02/07/n-gage-revival-and-iphone-sdk-raise-anchor-for-mobilegaming/ 41 Source: http://www.netnewspublisher.com/verizon-wireless-bucks-the-trend-with-a-large-growth-in-paid-gamedownloads/ 38 64 © 2008, Portio Research. All Rights Reserved Verizon Wireless has been able to build a successful mobile gaming service through offering wide choice of content, exclusive and popular games, flexible pricing, and the best game download experience in the market.
  • 65. Strategies for Driving Data ARPU VZW currently enjoys the largest share of the mobile gaming market in the US (in terms of number of mobile game purchasers). The following figure from M:Metrics’ research shows VZW’s leadership in the mobile gaming market in the US in the first quarter of 2008. Figure 26: US Operators – Share of Mobile Gaming Market (by game purchasers) – Q1 2008 23% 17% 14% 6% 27% 4% 9% VZW T-Mobile AT&T Wireless Sprint Boost Mobile Alltel Wireless Others Source: M:Metrics Games among Top-Selling Applications at VZW Games have a prominent place in the list of top selling applications for VZW. At the BREW 2008 conference the operator publically listed its top 15 applications, of which 10 were games. The following table lists the prominence of games among VZW’s 15 top-selling applications in early 2008. © 2008, Portio Research. All Rights Reserved 65
  • 66. Strategies for Driving Data ARPU Table 4: Verizon Wireless’ 15 Top-Selling Applications (Early 2008) Rank Name of Application Type of Application 1 Sony Music Box Music 2 ESPN MVP Sports Content Pack 3 Surviving High School 08 Game 4 Univision Tomos Other 5 Pac-Man by Namco Game 6 Tetris Game 7 Little Shop of Treasures Game 8 Guitar Hero III Game 9 Diamond Detective Game 10 Zuma Game 11 Diner Dash 2 Game 12 Univision Ringtones Ringtones 13 Scrabble Game 14 Smarter Than a 5th Grader Game 15 WeatherBug Weather information Source: http://www.pocketgamer.co.uk/r/PG.Biz/news.asp?c=7039 Strategic Success Factors Choice of Content and Exclusivity While it is difficult to predict the success of a mobile game before its launch, games which are based on popular content (cinema, television, music, etc.) and games which have already seen success in the console version stand a good chance of becoming popular with mobile subscribers. VZW learnt from this observation and focused on building a catalogue with emphasis on mobile games based on popular content and famous console games. Many of these popular games were made available exclusively to VZW subscribers, adding to their charm. The following are some examples of exclusive games and games with a proven track record made available to VZW subscribers: • Wildly popular console game Guitar Hero III was made available exclusively to VZW subscribers in December 2007. Guitar Hero III Mobile was the highest selling mobile 42 game on VZW handsets in the first quarter of 2008. Mobile version of popular console game Metal Gear Solid was introduced exclusively for VZW subscribers in March 2008. 43 Sony Picture Television’s popular console game God of War: Betrayal was launched in mobile form exclusively for VZW subscribers in June 2007. 44 Exclusive Pirates of the Caribbean mobile multiplayer game launched on VZW’s networks’ in the summer of 2006. 45 • • • 42 43 Source: http://news.vzw.com/news/2008/05/pr2008-05-28a.html Source: http://www.phonemag.com/metal-gear-solid-mobile-game-available-from-verizon-031874.php 44 66 Source: http://www.gamespot.com/mobile/action/godofwarbetrayal/news.html?sid=6175475 © 2008, Portio Research. All Rights Reserved Verizon Wireless focused on building a catalogue with emphasis on games based on popular content and the mobile versions of famous console games.
  • 67. Strategies for Driving Data ARPU • VZW launched the first real-time multiplayer mobile game in the US market when it teamed with leading game publisher Gameloft to offer the 3D racing game Asphalt Urban GT on its V CAST network in 2005. 46 Other than the ones described above, VZW has partnered with a large number of media houses and gaming publishers to offer a robust catalogue of over 300 games to its subscribers. Careful Segmentation and Targeted Offerings VZW has segmented its gaming market carefully. The operator offers mobile games through 2 channels. Simple 2D games are available from the BREW platform ‘Get It Now’, whereas premium 3D games and games which offer a console-like experience are offered through the high-speed EV-DO network as part of the V-CAST service. V-CAST games, ranging in size from 1-2 MB and offering a superior gaming experience, are targeted at serious gamers, who are ready to pay more to play better quality games. The BREW platform, on the other hand, is targeted at casual gamers and provides a wide collection of puzzle, casino, and strategy games. The VZW Gaming Catalogue: Tailored to Users’ Tastes VZW’s catalogue is well-tuned to the tastes and preferences of its subscribers. Realising that subscribers prefer games which can be played quickly and while on the move, VZW started offering exclusive Flash-based mini games called ‘Quikies’ in association with the popular US gaming website ‘AddictingGames’. In 2008, AddictingGames.com is expected to add 75 exclusive self-published titles and more than 600 titles from game developers worldwide. Best in Usability and Content Discovery Although the revenue from mobile gaming in the US was projected to be over USD 600 million in 2007, operators were losing out on a significant portion owing to inferior usability of gaming offerings. A research firm evaluated the game download process of leading US operators and concluded that VZW offered the best game download experience compared to those of its competitors. Strategy Analytics’ user panel was able to discover the game download area of VZW in the least time, purchase a game in the least amount of clicks, and showed the highest levels of satisfaction when using the VZW game download service. 47 Ease of use, or the ease with which subscribers can navigate through a mobile game and play it, forms the cornerstone of the game’s popularity. This is especially true for mobile extensions of popular console games. In these games, users like to be able to use the same tools and features as are used to in the console versions. VZW, with a large collection of mobile adaptations of poplar console titles, ensures that users are able to use the same weapons, shortcuts, tools and resources in the mobile games as they can in the console originals. VZW offers detailed information about games to subscribers to ensure correct choice of game and sometimes offers trial versions of games which users can try on before making the purchase. The ‘Get it Now’ Search application, available for free through the ‘Get It Now’ menu on subscribers’ handsets, enables users to search through all games available in the catalogue and quickly locate the desired title. Accessible from Handset as well as Online VZW subscribers can easily access games through the ‘Get It Now’ menu on compatible handsets. VZW also offers users the option of sending games to their phones from the VZW website. The ‘Send to Phone’ option sends a shortcut for the chosen game to the user’s 45 46 47 Source: http://telephonyonline.com/mag/telecom_mobile_games_moving/ Source: http://findarticles.com/p/articles/mi_m0EIN/is_2005_Sept_8/ai_n15374489 Source: http://www.strategyanalytics.com/default.aspx?mod=PressReleaseViewer&a0=3443 © 2008, Portio Research. All Rights Reserved 67 VZW offers detailed information about games to subscribers to ensure correct choice of game and sometimes also offers trial versions of games which users can try on before making the purchase.
  • 68. Strategies for Driving Data ARPU handset and the user’s account is charged only when the user has successfully downloaded the game following the shortcut. Flexible Pricing VZW’s games are flexibly priced. Each game is priced differently, depending on its popularity and subscribers can either pay a one-time fee for unlimited use or pay a daily, monthly or annual subscription on a recurrent basis. While there is no monthly fee to use ’Get It Now’, V CAST subscribers need to pay a flat monthly V CAST subscription fee over and above the price of individual games. Therefore, while extracting a premium from hardcore gamers who are ready to pay for a superior gaming experience, VZW offers off-the-peg prices for casual gamers. Advanced Handsets VZW offers state-of-the art handsets which enhance the gaming experience for its subscribers. In early 2008, BREW device penetration exceeded 75 percent of the operator’s total retail sales base, representing 76 percent of monthly sales. 48 Also most of VZW’s handsets are V CAST-enabled, allowing 3D gaming to hardcore gamers. To summarise, VZW’s success with mobile gaming is a result of several well-crafted strategies. The following figure summarises VZW’s mobile gaming strategies. Figure 27: Verizon Wireless – Key Success Factors of Mobile Gaming Service Summarised Source: Portio Research Limited 48 68 Source: http://brew.qualcomm.com/brew/brew_2008/pdf/BREW_Times_Friday.pdf © 2008, Portio Research. All Rights Reserved
  • 69. Strategies for Driving Data ARPU In SCEUD, we identified several parameters as being the prerequisites for creating a successful mobile data service. In the following table, we rate how VZW’s successful gaming service measures up to each of these parameters. Factors Identified in SCEUD Verizon Wireless Gaming Service Choice of Content Affordability of content & value for money Simplicity, ease of use, accessibility Flexible pricing options Fun element Branding focus Handset availability © 2008, Portio Research. All Rights Reserved 69
  • 70. Strategies for Driving Data ARPU Section 9 Mobile Payments 70 © 2008, Portio Research. All Rights Reserved
  • 71. Strategies for Driving Data ARPU Mobile Payments Mobile payment services are available in most advanced mobile markets, but nowhere have they been more successful than in Japan, where operator NTT DoCoMo has played a vital role in this success. In July 2004, it launched a mobile payment service called ‘Osaifu-Keitai’, which allows subscribers to use their handsets as wallets. 49 Users can purchase tickets, transfer money and make online payments through their handsets that are fitted with a contactless communications IC. The user base of the Japanese ‘Osaifu-Keitai’ service stood at 29 million as of April 2008. 50 49 50 Source: http://www.nttdocomo.com/pr/2004/001189.html Source: http://www.nttdocomo.com/binary/about/facts_factbook.pdf © 2008, Portio Research. All Rights Reserved 71
  • 72. Strategies for Driving Data ARPU Case Study 1: DCMX (Mobile Credit Card Service)—NTT DoCoMo In April 2006, NTT DoCoMo launched DCMX—a credit payment service—for the users of its ‘Osaifu-Keitai’ service. The service provides subscribers with the facility of non-cash shopping through their handsets. The DCMX service is a consumer credit card service that works by holding the handset over ‘iD’ payment terminals, which were launched in December 2005. 51 The DCMX service started in the form of two credit cards, namely DCMX mini and DCMX. After a year, in April 2007, NTT DoCoMo launched the ‘DCMX Gold’ mobile credit card service with several extended benefits. 52 NTT DoCoMo started mobile credit card services in Japan under the brand DCMX as an extension of its existing and highly successful mobile wallet service named ‘OsaifuKeitai’. The launch of DCMX in April 2006 was strategically timed because credit cards were unpopular in Japan at that time. In 2006, only 9 percent of global purchases made in Japan were made with credit cards. In the US, however, 24 percent of global purchases were made using credit cards in the same year. NTT’s endeavour was to capture that opportunity through a fast foray into this domain. Within a year of launch, NTT DoCoMo’s mobile wallet service was outperforming similar services from competitors. As of March 2007, the subscribers of KDDI’s mobile wallet service measured only a quarter of the users of ‘Osaifu-Keitai’. Following on from the success of ‘Osaifu Keitai’, DCMX became so popular that its subscriber base reached more than 5.5 million in just two years of operations. The fees associated with the credit service offers a very attractive revenue stream to the operator; the expected annual revenue from NTT DoCoMo’s mobile credit card service is estimated to be between USD 400-900 million (¥60-100 billion) within four to five years of launch. When NTT DoCoMo announced plans to enter the mobile credit card field, the industry was sceptical as the operator had little experience in dealing with financial services. It was perceived to be a risky move for NTT DoCoMo. Two years after the launch, NTT DoCoMo has dispelled all such scepticism by turning the DCMX service into yet another very successful Japanese mobile data service. 51 Source: NTT DoCoMo annual report 2006 Source: http://www.nttdocomo.com/pr/2007/001334.html ; http://www.eurolabs06.be/pres/labs66lefes.ppt#265,10 ; http://www.jetro.org/documents/event_documents/234/234_CTIA_PRESENTATION_SUMMARY_1.pdf http://www.3g.co.uk/PR/April2006/2876.htm 52 72 © 2008, Portio Research. All Rights Reserved Following on from the success of ‘Osaifu Keitai’, DCMX became so popular that its subscriber base reached more than 5.5 million in just two years of operations.
  • 73. Strategies for Driving Data ARPU Figure 28 gives the timeline of deployment of various DCMX and related services: Figure 28: Timeline of Deployment of DCMX Services Launch of OsaifuKeitai July 2004 Launch of DCMXmini card April 2006 Dec 2005 DCMX Card launched June 2006 April 2007 DCMX Gold Card introduced Introduction of iD Payment terminals Source: Portio Research Ltd. Key Service Features The DCMX service is available in three forms: • DCMX mini • DCMX • DCMX Gold All versions are compatible with iD, NTT DoCoMo's branded platform for mobile credit cards. The table below highlights the features of all the three variations of DCMX. Table 5: Features of DCMX Variants FEATURES DCMX mini DCMX DCMX GOLD USD 88.3 (¥10,000) a month None for first year, USD 11.6 (¥1,312) (including tax) thereafter USD 176.6 (¥20,000) a month > USD 176.6 (¥20,000) a month e-money Not required Not required Not required Age limit >12 years >18 years >18 years With phone bill Separate bill Separate bill Not available Available with VISA and MasterCard Available with VISA and MasterCard No Yes Yes No Yes, redeemable against purchase of NTT DoCoMo products Yes, redeemable on a number of attractive offers from NTT DoCoMo and other premium brands Annual fee/Membership fee Credit limit Billing Plastic cards Usable on cash dispensers Reward Points None © 2008, Portio Research. All Rights Reserved USD 139.2 (¥15,759) 73 The aggressive growth of DCMX subscriber base has led NTT DoCoMo to target 9 million subscribers by the end2008.
  • 74. Strategies for Driving Data ARPU Compensation for loss of phone None Up to USD 88.3 (¥10,000) Yes Access to service 3-step sign-up through i-Mode Application in writing/through i-Mode Application in writing/through i-Mode Through handset Through handset Through handset Yes Yes Yes Checking credit status Security features Source: Portio Research Ltd. Key Success Indicators Burgeoning Subscriber Base The DCMX service debuted in April 2006 and ended the year with 1.4 million subscribers. The year 2007 brought in another 3.3 million subscribers, taking the total count to 4.7 million subscribers by end-December 2007. The wild popularity of the service prompted NTT DoCoMo to revise their DCMX subscriber base target for the 2007 financial year (ending March 2008) from 4 million to 5.17 million. This target was surpassed by over 8 percent and DCMX closed financial year 2007 with around 5.6 million subscribers. The aggressive growth of the DCMX subscriber base has led NTT DoCoMo to target 9 million subscribers by the end-2008. Figure 29 below shows the increase in the DCMX subscribers from its launch until the end of 2007. Figure 29: NTT DoCoMo – Aggressive Growth of DCMX Subscribers (All Variants) (In Million, June 2006-March 2009E) DCMX Subscribers (In Millions) 10 9.0 8 5.6 6 4.7 3.8 4 2.9 2.1 2 1.4 0.3 0.8 0 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Mar-09E Quarter Ended Source: NTT DoCoMo Annual and Quarterly Reports E–Estimated The penetration of DCMX services among NTT DoCoMo’s subscribers reached around 10 percent in a two year timeframe. Increasing Number of Payment Terminals The DCMX service requires iD payment terminals in merchant establishments (convenience stores, supermarkets, food chains, petrol pumps, entertainment halls, etc.) to read the handsets in order to process the payment. Since the launch of iD platforms in December 2005, the installed base of iD terminals has expanded rapidly to reach 300,000 terminals at 74 © 2008, Portio Research. All Rights Reserved
  • 75. Strategies for Driving Data ARPU the end of financial year 2007 (March 2008). 53 Figure 30 below shows the increase in the number of iD payment terminals in Japan from the time of launch of DCMX services until March 2008. Figure 30: NTT DoCoMo—iD Payment Terminals (In Thousands, June 2006-March 2008) iD Payment Terminals (In Thousands) 300 300 250 200 150 150 100 100 60 50 30 0 Jun-06 Sep-06 Dec-06 Mar-07 Mar-08 Quarter Ended Source: NTT DoCoMo Annual Reports Acceptance of Service NTT DoCoMo launched DCMX services at a time when Japan was predominantly a cashdriven society. In 2006, the Japanese used credit cards only for 9 percent of their global (As before) purchases as compared to 24 percent in the US. 54 Therefore, the DCMX service was not a mobile extension of a much-used, non-mobile application, but an entirely new domain for Japanese customers. The spectacular popularity of this service despite the low usage of standard credit cards in Japan reinforces the success of DCMX. The DCMX service works on handsets that are embedded with FeliCa chips. In 2007, 70 percent of handsets shipped to Japan were FeliCa-enabled—another measure of DCMX’s success. 55 Creating New Sources of Data ARPU NTT DoCoMo’s DCMX service has brought in revenue from multiple sources (for details, check subsequent section on Strategic Success Factors). However, data ARPU was directly boosted through DCMX subscribers checking card usage information on NTT DoCoMo’s network and data transfer used in card transactions. Strategic Success Factors First-Mover Advantage NTT DoCoMo launched its mobile credit card service significantly ahead of its competitors. As mentioned before, at launch-time, the credit card market was not a very mature one. Therefore, NTT DoCoMo created the market for cash-less payments in Japan and this gave the operator a strategic advantage over competitors. KDDI started offering mobile credit cards in association with JCB in September 2006. 53 Source: http://www.nttdocomo.co.jp/english/corporate/ir/binary/pdf/library/earnings/fy2007_4q_e.pdf Source: http://www.nttdocomo.com/binary/about/mobility_doc_06.pdf 55 Source: http://www.paynet-recruitment.com/Mobile-Payments-in-Japan-Leading-The-Way 54 © 2008, Portio Research. All Rights Reserved 75 The DCMX service is not a mobile entertainment service. It is a practical, need-based service that facilitates subscribers’ mundane, dailyuse transactions.
  • 76. Strategies for Driving Data ARPU Need-based, Flexible Service The DCMX service is not a mobile entertainment service. It is a practical, need-based service that facilitates subscribers’ mundane, daily-use transactions. This formed the basic value proposition of the service and also one of the most important factors for its huge success. The design of the DCMX services reflects careful, strategic segmentation of the market. Instead of adopting a one-size-fits-all approach, NTT DoCoMo offers variants of the DCMX service that are targeted at different user segments. The DCMX mini service is aimed at younger users (above 12 years of age); the standard DCMX credit card is best suited for adult subscribers; whereas the premium gold version is targeted at heavy spenders. NTT DoCoMo has also made it easy for subscribers of DCMX to upgrade to DCMX Gold. Creation of a Successful Ecosystem Financial services offered over the handset are different from other data services because they require the support of a large number of service and platform providers. The ecosystem for a successful mobile financial data service is, therefore, more complex than that for a nonfinancial data service. NTT DoCoMo created a full-scale, functional ecosystem for its mobile credit offering. The following points explain the creation of this vibrant ecosystem: • • • Strategic acquisitions and alliances: In 2005, NTT DoCoMo acquired a 34 percent stake in Sumitomo Mitsui Cards. 56 Under this deal, Sumitomo Mitsui Cards was expected to leverage its expertise as a general credit card company to develop infrastructure for the DCMX service, including installation of terminals at merchant establishments across Japan. In March 2006, just before the launch of DCMX cards, NTT DoCoMo signed an agreement with Credit Saison Co. Ltd., Mizuho Bank and UC Card Co. Ltd. to jointly promote the iD brand. 57 Partnership with merchant establishments: NTT DoCoMo partnered with a number of popular retail establishments in Japan to increase the coverage of its DCMX service. Some of the major establishments with whom NTT partnered to provided iD payment terminals include: – Convenience stores such as Family Mart and Lawson. – Supermarkets such as Aeon shops and LaLaport shops. – Restaurants and food chains such as McDonalds and Coca-Cola. – Electronics, CD and book shops such as Tower Records. – Taxi services such as Tokyo Musen taxis and Checker Cab taxis. 58 Handsets: The DCMX service can be accessed only on FOMA handsets that are embedded with FeliCa chips. NTT DoCoMo has been aggressively launching newer handsets with pre-loaded DCMX and iD capabilities. Revenue and Business Model The DCMX mobile credit card services added to the operator’s data revenues in three ways: • Revenues generated through commissions from shops, supermarkets and other commercial facilities for payments through DCMX services. • Annual fees of DCMX Gold users. • Increased mobile data ARPU resulting from millions of DCMX users checking their credit card status through their handsets. 56 Source : http://www.paymentsnews.com/ntt_docomo/ Source: http://wirelesswatch.jp/2006/03/06/docomo-announces-id-card-partners/ 58 Source: http://www.nttdocomo.com/binary/about/mobility_doc_14.pdf 57 76 © 2008, Portio Research. All Rights Reserved NTT DoCoMo created a fullscale, functional ecosystem for its mobile credit offering.
  • 77. Strategies for Driving Data ARPU The following figure depicts the direct and indirect revenue streams from DCMX. Figure 31: DCMX Revenue Streams Transaction Commission Annual Card Fee Data Usage Charges Source: Portio Research Ltd. Most mobile payment services worldwide have stumbled into challenges arising from creating a sustainable business model involving diverse players across the mobile payment value chain. In contrast, NTT DoCoMo had been preparing for advanced mobile financial services for some time before the launch of its mobile financial services. For instance, back in the late 1990s, the operator teamed up with Japanese electronics major, Sony, to develop the FeliCa contactless IC chip. Later, NTT DoCoMo created a sound business model for its DCMX service by acquiring a stake in Sumitomo Mitsui Cards, a company that had prior experience in delivering credit card services. Sumitomo Mitsui’s financial know-how, coupled with NTT DoCoMo’s mobile know-how, created value-added synergies that have led to a successful data service. Ease-of-Use and Convenience Factor The DCMX service is easy to use and operate. The following are some usability factors that add to the popularity of the service: • Easy subscription: Users can apply for the DCMX service either by putting in a written application to NTT DoCoMo or through i-Mode. The DCMX mini service offers a particularly easy, three-step sign-up process through i-Mode. • Smooth and faster transaction: Transactions through DCMX are faster and smoother than standard credit cards. Subscribers do not need to provide pin codes or their signatures for low-value transactions. Transactions can be processed by simply waving the handset over an iD terminal. • Safety and security: Though low-cost transactions do not require a pin code, transactions of more than USD 88.3 (¥10,000) do require subscribers to provide a pin, making high-value payments safe and secure. Also, in case of loss of handset, subscribers can get their handsets locked by informing NTT DoCoMo. Moreover, other locking options such as remote lock, IC card lock and fingerprint authentication make the service highly secure. • Complimentary plastic credit cards: NTT issues plastic credit cards along with the DCMX mobile credit card service so that users can shop overseas and at establishments where iD payment terminals are not installed. This increases the scope of usage and, therefore, drives adoption. • Transparent billing and flexible repayment: Users of DCMX mini get one consolidated bill from NTT DoCoMo that includes DCMX charges along with their normal phone charges. DCMX and DCMX Gold users are provided with separate monthly credit card usage bills and can use the revolving credit function like any other physical credit card. • Easy, any-time access to card status: All DCMX users can access information about their credit card use through their mobile handsets. © 2008, Portio Research. All Rights Reserved 77 Most mobile payment services worldwide have stumbled into challenges arising from creating a sustainable business model involving diverse players across the mobile payment value chain. NTT DoCoMo surmounted this challenge by establishing a thriving mobile credit ecosystem.
  • 78. Strategies for Driving Data ARPU • Fee waiver: Although the DCMX and DCMX Gold cards carry annual fees, the DCMX mini version does not involve any annual fee. To conclude, NTT DoCoMo’s DCMX service is far from an ordinary mobile data service. It signifies the operator’s successful entry into a completely different line of business. Although such a strategy is rife with risk, if executed properly as in the DCMX case, the rewards are substantial. Today, data services are budding offerings for most operators, who look upon data services such as mobile TV, video, music, etc., as the panacea for falling voice margins. But such data services may be insufficient for creating differentiated offerings in the future. That is when operators might have to consider forays into completely different businesses and business models. The DCMX case can provide valuable insights to those operators who want to think ahead and prepare themselves for the more competitive data services market of the future. Factors Identified in SCEUD DCMX– Mobile Credit Card Service Choice of content Affordability of content and value for money Simplicity, ease of use, accessibility Flexible options Branding focus Handset availability 78 © 2008, Portio Research. All Rights Reserved
  • 79. Strategies for Driving Data ARPU Section 10 Mobile Internet © 2008, Portio Research. All Rights Reserved 79
  • 80. Strategies for Driving Data ARPU Mobile Internet Mobile Internet is still a nascent service in most regions of the world. However, in Japan NTT DoCoMo’s legendary i-Mode service has revolutionised mobile Internet access, making it a highly popular service in the country. As of end-2007, over 53 million subscribers in Japan accessed the Internet through their handsets, nearly equaling the country’s wireline Internet connections. 59 In SCEUD, we outlined the key strategic factors responsible for i-Mode’s resounding success in Japan. In terms of subscriber base and, therefore, market share, i-Mode continues to be the leading mobile Internet service in Japan. From 46.36 million subscribers in March 2006, the service currently (April 2008) has over 48 million subscribers. 60 However, since the beginning of 2004, NTT DoCoMo started losing market share to KDDI. This trend accelerated after Mobile Number Portability (MNP) was introduced in Japan in October 2006. As of October 31, the net result of MNP was an increase of 102,000 subscribers for KDDI, and a loss of 73,000 and 23,000 subscribers for NTT DoCoMo and Softbank, respectively. 61 Along with overall market share, NTT DoCoMo’s leadership in the mobile Internet arena (through iMode) also seems to be weakening as KDDI’s strategic moves are helping drive uptake of its own mobile Internet service, EZWeb. 59 Source: http://in.news.yahoo.com/hindustantimes/20080210/r_t_ht_tc_mobile/ttc-the-net-goes-mobile-in-a-big-waya9d2070.html 60 Source: http://www.nttdocomo.co.jp/english/corporate/ir/binary/pdf/finance/subscriber/monthly_pre_080509_e.pdf 61 Source: http://www.5myths.com/Publishing/Whitepapers/Japan/All.aspx 80 © 2008, Portio Research. All Rights Reserved NTT DoCoMo’s leadership in the mobile Internet sphere, through its i-Mode service, seems to be weakening while KDDI’s strategic moves are helping drive uptake of EZWeb, KDDI’s mobile Internet service.
  • 81. Strategies for Driving Data ARPU Case Study 1: EZWeb—KDDI KDDI launched EZWeb in April 1999, two months after NTT DoCoMo launched i-Mode. Unlike i-Mode, EZWeb is a WAP portal through which KDDI subscribers can access an array of data services such as full-track music downloads, e-mail, location-based services and a large selection of third-party portals. Faced with a formidable competitor in the form of iMode, KDDI’s success with EZWeb is a remarkable example of reaping the maximum benefit from 3G investments. EZWeb had 6.7 million customers within a couple of years of launch. Although this was not as impressive as the 25 million subscribers that i-Mode gathered in the same period, EZWeb’s penetration in KDDI’s subscriber base was over 45 percent within this short period of time, indicating the increasing popularity of the service. KDDI has the widest 3G coverage in Japan, and whereas 83 percent of NTT DoCoMo’s subscribers were 3G subscribers as of April 2008, KDDI’s 3G penetration reached 87 percent by end-2005. KDDI offers 3G services under the brand ‘CDMA1XWIN’. NTT DoCoMo’s i-Mode is still by far the most popular mobile Internet service in Japan. But what makes KDDI’s EZWeb an interesting case study is the fact that this service has steadily been gaining share in Japan’s mobile Internet market, while its competitors—i-Mode and Softbank Mobile’s mobile Internet services—have been losing share. EZWeb is currently the fastest growing mobile Internet service in Japan. KDDI’s strategy with EZWeb has been one of careful differentiation. Faced with a formidable competitor in the form of i-Mode, KDDI’s success with EZWeb is a remarkable example of reaping the maximum benefit from 3G investments. Key Success Indicators Growing Subscriber Base and Market Share Within a year of launch, EZWeb had around 1.7 million subscribers—about 13 percent of KDDI’s total subscriber base. From a penetration of only 13 percent in 2000, EZWeb’s penetration went up to nearly 84 percent in March 2008. The subscriber base grew steadily from only 1.7 million in March 2000 to around 25.5 million in March 2008—a CAGR of over 40 percent. The figure below juxtaposes the growth of EZWeb subscribers from March 2000 to March 2008 with the growth in KDDI’s subscriber base in the same period and depicts the increasing penetration of the service. © 2008, Portio Research. All Rights Reserved 81
  • 82. Strategies for Driving Data ARPU Figure 32: EZWeb Subscribers and Penetration (March 2000-March 2008) 30.33 28.19 23.13 20.59 20.0 13.30 14.94 80% 23.5 25.5 20.5 15.7 50% 12.5 40% 9.6 10.0 70% 60% 18.3 17.83 16.10 25.44 90% EZweb Penetration Subscribers (In Million) 30.0 30% 6.7 20% 1.7 10% 0.0 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 Year-end (March) EZWeb subscribers KDDI subscribers EZWeb Penetration Source: Annual Reports & Portio Research Ltd. The growth of EZWeb’s subscriber base has been higher than the growth observed by other mobile operators—NTT DoCoMo and SoftBank Mobile—for their respective mobile Internet services i-Mode and Yahoo! Mobile. Figure 33 compares the percentage year-on-year growth in the number of subscribers for EZWeb, i-Mode and Yahoo! Mobile from March 2004 to March 2008. Figure 33: Japan – Y-o-Y Growth of Mobile Internet Service Subscriber Base (March 2004-March 2008) 30 25.2 In Percentage 25 20 16.3 10 5 14.7 12.4 15 8.4 8.8 7 .2 6.5 5.3 2.6 -0.6 0.007 3 2005 2006 2007 0 -5 2004 NTT DoCoMo (i-Mode) Year KDDI (EZW eb) 0.9 2008 SoftBank Mobile (Yahoo! Mobile) Source: Annual Reports & Portio Research Ltd. The figure above shows that the growth of i-Mode’s subscriber base is gradually stalling compared to that of EZWeb’s. SoftBank Mobile’s Yahoo! Mobile service has started recovering since 2006 (after Vodafone completed its sale of Vodafone Japan to SoftBank Mobile) and is on a growth path. But neither the scale of Yahoo! Mobile’s subscriber base nor its rate of growth is comparable to EZWeb’s, making EZWeb the fastest growing mobile Internet service in Japan. 82 © 2008, Portio Research. All Rights Reserved
  • 83. Strategies for Driving Data ARPU Figure 34 displays EZWeb’s increasing share of the total mobile Internet subscriber base in Japan. Figure 34: Japan – Market Share of Mobile Internet Service Subscribers (March 2003-March 2007) 65 60.5 5 8.9 58.6 58.1 (In Percentage) 55 56.4 45 35 25 15 22.5 20.1 19.5 18.6 24.3 17.1 25.7 16.2 27.9 15.7 5 -5 2003 2004 NTTDoCoMo (i-Mode) 2005 KDDI (EZW eb) Year 2006 2007 SoftBank Mobile (Yahoo! Mobile) Source: Annual Reports & Portio Research Ltd. Although i-Mode still leads with a 56.4 percent share of the total mobile Internet subscriber base in Japan, its dominance is gradually weakening. At the same time, EZWeb’s share has been increasing continuously since 2003, narrowing the divide between i-Mode’s share and its own. Strengthening Data ARPU KDDI’s 3G leadership in Japan has resulted in the rapid growth of the operator’s data ARPU. From USD 10.9 in 2003, KDDI’s data ARPU grew to USD 17 in 2007. In the same period, NTT DoCoMo’s data ARPU showed a more variable trend, at one point declining for 2 straight years. In 2003, NTT DoCoMo’s data ARPU was around USD 14.8. KDDI’s data ARPU caught up with NTT DoCoMo’s data ARPU in 2006 and has been growing in tandem since then. The following figure compares data ARPU trends for KDDI and NTT DoCoMo in the period March 2003–March 2007). Data ARPU (In USD) Figure 35: Trends in Data ARPU – KDDI vs. NTT DoCoMo (2003-2007) 20 18 16 14 12 10 8 6 4 2 0 18.9 17.4 16.1 17.1 14.8 15.7 16.2 2004 2005 16.0 17.0 10.9 2003 NT TDoCoMo (i-Mode) Year 2006 2007 KDDI (EZWeb) Source: Annual Reports & Portio Research Ltd. © 2008, Portio Research. All Rights Reserved 83 KDDI’s 3G leadership in Japan has resulted in the rapid growth of the operator’s data ARPU. From USD 10.9 in 2003, KDDI’s data ARPU grew to USD 17 in 2007.
  • 84. Strategies for Driving Data ARPU EZWeb has played an important role in boosting KDDI’s data ARPU in the past few years. As early as June 2001, EZWeb users were contributing an additional ARPU of USD 12 (JPY 1,500) in Internet fees. 62 After the launch of KDDI’s 3G service ‘CDMA 1X WIN’ in 2003, EZWeb use (and therefore data ARPU from EZWeb) increased further because the CDMA2000 1x EV-DO network supporting CDMA 1X WIN could deliver speeds of up to 2.4Mbps. As of March 2007, the ARPU generated by KDDI’s WIN subscribers was USD 67.45 (JPY 8,310) and exceeded that of FOMA subscribers, namely USD 60.88 (JPY 7,500). In terms of data ARPU, WIN subscribers spent up to 23 percent more on EV-DO data services than FOMA subscribers did on similar data services. 63 In September 2007, a comScore survey revealed that Internet use on mobile phones in Japan averaged over 8 hours per month, and that KDDI’s subscribers spent more time mobile Internet surfing than those of NTT DoCoMo and Softbank Mobile. 64 Strategic Success Factors Mobile Number Portability in Japan has been a great facilitator for KDDI. But that apart, the growing popularity of EZWeb can be attributed to several strategies undertaken by KDDI. For example, the operator kept its focus firmly on Japan as a market and channelled all of its resources in to developing its position in the domestic market. The following are some specific strategies that have helped shape the success of EZWeb. Choice of Content: A plethora of content to choose from Using EZWeb, KDDI subscribers can access a number of innovative and successful data services such as e-mail, mobile music and video, location-based services and m-commerce. The following table, below and over the page, lists some of the popular services that users can access through EZWeb. 62 Source: http://www.japaninc.com/article.php?articleID=84 Source: http://www.fiercewireless.com/press-releases/press-release-kddi-continues-see-strong-growth-customerschoosing-mobile-number-porta 64 Source: http://www.comscore.com/press/release.asp?press=1742 63 84 © 2008, Portio Research. All Rights Reserved Using EZWeb, KDDI subscribers can access a number of innovative and successful data services such as e-mail, mobile music and video, location-based services and m-commerce.
  • 85. Strategies for Driving Data ARPU Table 6: EZWeb Services launched by KDDI Service Feature EZ Chaku Uta Full 65 au mobile users can use the feature to download and play an entire song . EZ Navi Walk Location-based service that provides directions on the mobile handset using GPS. EZ Passenger Seat Navigation Mobile handset car navigation system which allows a passenger to provide navigational support to the driver. The service provides voice navigation, traffic congestion information and destination-area parking information. EZ Channel Content distribution service for video, audio and text. EZ FeliCa Mobile payment service offering electronic money services such as Edy and mobile Suica with FeliCa for au mobile handsets. EZ Appli Enables downloading of convenient utility programmes, mini-applications and real games. au Auctions Public auctions on the mobile handset. au Shopping Mall Shopping website. EZ Book Downloads electronic books that have sound and animation. DUOBLOG A blog service that can be set up using an au handset. Source: KDDI Fact Book Some of these services, such as the full-track music download service Chaku Uta Full, have been extremely popular, adding to the appeal of EZWeb. Using EZWeb, users can access any WAP site anywhere worldwide. Accessibility of Content: More content made available with greater ease and speed KDDI has been able to use technology to its advantage in creating a successful mobile data service. With the deployment of 1xEV-DO mobile broadband technology and WIN services in November 2003, KDDI became the first operator in Japan to provide an always-on, PC-like Internet experience. Improving on usability has been one of KDDI’s focus areas right from the beginning. In December 2004, the operator launched PC Site Viewer, a service that ensured users access to websites that could usually be accessed through PCs. The PC Site Viewer passed the 10 million customer mark in March 2007, reflecting its popularity. 66 Unlike NTT DoCoMo, which, through i-Mode, lists several thousand links to external content providers, EZWeb subscribers are first taken to the operator’s own content pages through the portal menu. This gives KDDI content an advantage over third-party content providers. Over the years, KDDI has improved access to the EZWeb service. For example, more external websites were added to EZWeb and accessing external websites was made easier, quicker and simpler. With effect from June 2006, EZWeb users got access to Google Search to locate content within the service. In December 2006, the upgrade to EV-DO Revision A 65 66 NOTE: Au is a KDDI mobile service brand Source: http://www.cdg.org/technology/applications/files/CDG_Search_Final_100407.pdf © 2008, Portio Research. All Rights Reserved 85 Unlike NTT DoCoMo, which, through i-Mode, lists several thousand links to external content providers, EZWeb subscribers are first taken to the operator’s own content pages through the portal menu.
  • 86. Strategies for Driving Data ARPU enabled KDDI to further enhance the search experience through broadband upload speeds and user-generated multimedia capabilities. Pricing: Pioneered flat pricing and tiered structures for maximum flexibility KDDI was the first Japanese operator to introduce flat rates for mobile data. The introduction of the ‘Double-Teigaku-Light’ (Packet Flat-rate) for CDMA 1X WIN subscribers was possible because the operator was able to leverage the cost advantage provided by the EV-DO technology. As the subscriber base of CDMA 1X WIN services increased, the number of WIN subscribers adopting the Packet Flat-rate plans increased simultaneously. The number of WIN subscribers that signed up for the Packet Flat-rate plan was approximately 0.29 million in 2004; this number increased to 11.2 million in 2007. Figure 36 below shows the CDMA 1X WIN subscriber base and the Packet Flat-rate uptake ratio from 2004 to 2007. Figure 36: KDDI WIN Subscribers – Increasing Uptake of Flat Rate Schemes (In Million, 20042007) 3G Subscribers (In Million) 16.0 14.55 11.20 12.0 8.28 8.0 6.71 3.25 2.50 4.0 0.34 0.30 0.0 2004 2005 2006 2007 Year WIN Subscribers Packet Flat-rate Subscribers Source: KDDI Annual Report, 2007 Business Model: Better profitability, more revenue streams Unlike NTT DoCoMo, which chooses not to compete with third-party content providers, KDDI produces and sells only its own content in key revenue-generating segments, such as ringtones. For instance, KDDI’s EZMusic service sells ringtones from KDDI only, whereas iMode sells ringtones from several third-party content providers. This involvement in content production implies that KDDI does not need to share as much revenue with content providers as other operators and can, therefore, retain more of the content revenue and profit. 86 © 2008, Portio Research. All Rights Reserved
  • 87. Strategies for Driving Data ARPU The use of advertising on the mobile portal also creates revenue streams for KDDI. The operator is more aggressive than its competitors when it comes to pushing advertisements to subscribers and this helps it generate more revenue from adverts than its competitors. KDDI also earns revenue from contextual ads embedded in Google search results. Other than its own content, KDDI puts up a substantial amount of content from third parties on EZWeb. To streamline transactions, KDDI offers seamless payment systems and transparent content procuring standards for its content partners. Handset Strategy: Attractive and Feature-Rich Handsets In order to attract more subscribers and to promote data services, KDDI adopted the strategy of launching a wide range of attractive and feature-rich handsets. This followed the realisation that there was a demand for, but lack of supply (by other operators) of, such handsets. KDDI was the first to identify this gap and launched designer handsets that appealed to the Japanese. The operator started to lead device trends in Japan by introducing name-branded designer handsets. The operator launched handsets with improved music playing features in order to popularize its music download services such as Chaku Uta and Chaku Uta Full. Both services became highly successful in Japan, attracted a large number of subscribers for KDDI (Chaku Uta Full downloads exceeding 200,000,000 within three and a half years of launch) and also helped to 67 increase the operator’s data revenue . To conclude, KDDI’s EZWeb has been able to challenge the Japanese behemoth i-Mode through strategic differentiation of the mobile Internet access experience. The following table summarises the factors that have contributed to the success of EZWeb. The following table shows how KDDI’s EZWeb offering measures against the various parameters that Portio Research’s SCEUD (2006) identified as prerequisites for a successful mobile data offering: Factors Identified in SCEUD KDDI’s EZWeb Choice of content Affordability of content and value for money Simplicity, ease of use, accessibility Flexible options Fun element Branding focus Handset availability 67 Source: http://www.kddi.com/english/corporate/news_release/2008/0507/index.html © 2008, Portio Research. All Rights Reserved 87 While NTT DoCoMo, does not compete with third-party content providers, KDDI produces and sells it own content in key revenuegenerating segments, such as ringtones.
  • 88. Strategies for Driving Data ARPU Section 11 Mobile User-Generated Content 88 © 2008, Portio Research. All Rights Reserved
  • 89. Strategies for Driving Data ARPU Mobile User-Generated Content User-generated content (UGC), particularly, social networking, has gained immense popularity in the Internet world. In fact, it has emerged as one of the most popular Web 2.0 applications among Netizens. Prominent social networking and UGC websites, such as MySpace, Facebook, Bebo, YouTube, DailyMotion, Orkut, LinkedIn, etc., have been steadily attracting large volumes of traffic. Operators, having realised the potential of social networking and UGC on the mobile platform, have started offering social networking and UGC on mobile handsets. The main bottleneck with such offerings on the mobile platform, as on the Internet platform, is monetising the services. Web 2.0 applications are yet to give rise to sustainable business models that can translate the large traffic volumes into tangible monetary benefit for service providers. Moreover, mobile UGC faces the additional challenges of usability, ease-of-use and replicating the very successful online experience on to the mobile screen. Most operators in mature mobile markets have launched some form of Mobile 2.0. Even in developing markets such as India, operators have started experimenting with services such as mobile blogging. Most of these services are still at the nascent stages of development. However, two notable exceptions are the mobile social networking service ‘Mobile CyWorld’ from SK Telecom and the amateur video sharing service (similar to YouTube) ‘SeeMe TV’ from 3 UK. In SCEUD, we discussed the various strategic success factors for SeeMe TV (now known as EyeVibe) and the service remains one of the most successful mobile 2.0 services worldwide. In this report, we will take a detailed look at Mobile CyWorld and provide an update on strategies adopted by 3 UK to sustain the success of SeeMe TV. © 2008, Portio Research. All Rights Reserved 89 Operators, having realised the potential of social networking and UGC on the mobile platform, have started offering social networking and UGC on mobile handsets. The main bottleneck with such offerings is the challenge of monetisation.
  • 90. Strategies for Driving Data ARPU Case Study 1: Mobile CyWorld (Mobile Social Networking—SK Telecom) SK Telecom has a successful history of creating seamless fixed-mobile converged services. Its NATE brand encompasses many of these services, which, after having been immensely popular on the Internet platform, have replicated their success on the mobile platform. Mobile CyWorld is one such example of successful fixed-mobile convergence from South Korea’s largest mobile operator. CyWorld is a social networking website that was launched in 1999 in South Korea. The service started gaining popularity after it was acquired by SK Communications, a subsidiary of SK Telecom, in August 2003. SK Communications launched the mobile version of this service—Mobile CyWorld—in March 2004 and the service rapidly amassed a large subscriber base primarily due to the popularity of the Internet version. Also driving its success was the fact that the mobile social networking service replicated the online experience. Mobile CyWorld was awarded the ’Most Innovative Application/Product of the Year’ at the Frost & Sullivan Asia Pacific Technology Awards 2005 and was named the ‘Hit Product of the Year’ by Samsung Think Tank in 2004. Mobile CyWorld also won the award for the ‘Most Innovative Service Content’ at the 2006 Global Mobile Content Awards. The success of the service in South Korea encouraged SK Telecom to launch it in other geographies, by following the same strategy of first popularising the Internet version and then launching the mobile extension. Key Success Indicators Subscriber Growth After its launch, Mobile CyWorld witnessed rapid growth in the number of subscribers to the service as depicted in Figure 37 below. 90 © 2008, Portio Research. All Rights Reserved Mobile CyWorld was awarded the ‘Most Innovative Application/Product of the Year’ at the Frost & Sullivan Asia Pacific Technology Awards 2005 and was named the ‘Hit Product of the Year’ by Samsung Think Tank in 2004.
  • 91. Strategies for Driving Data ARPU Figure 37: Mobile CyWorld – Total Users in South Korea (In Million, February 2005-December 2006) 3.5 3.0 Users (in million) 3 2.5 2 1.5 1.5 1 1.0 1.2 0.5 0.5 0 Feb-05 Sep-05 Dec-05 Jun-06 Dec-06 Source: http://www.plus8star.com/ As observed in Figure 37, SK Telecom’s subscriber base of Mobile CyWorld increased by 200 percent from 0.5 million in February 2005 to 1.5 million in June 2006. By end-2006, a total of nearly 3 million people in South Korea (which included not only SK Telecom subscribers, but the subscribers of the two other South Korean operators as well—LG Telecom and KTF) were registered to Mobile CyWorld. Nearly 60,000 SK Telecom subscribers were said to be using Mobile CyWorld each day at end-2006. 68 In 2007, Mobile CyWorld continued to grow in popularity and left its competitors far behind in terms of user numbers. The following figure illustrates this. Figure 38: Mobile CyWorld User Base ( SK Telecom) Compared With that of Competing Offerings (In Million, November 2007) Users (In Million) 2 1.5 1.00 1 0.5 0.14 0.10 Mobile Daum Café Mobile NaverBlog 0 Mobile CyWorld Source: http://www.koreaninsight.com/tag/cyworld/ (NOTE: The 1 million user base of mobile CyWorld in 2007 does not include CyWorld users on KTF and LG Telecom’s networks.) 68 Source : http://www.plus8star.com/Inside_Cyworld_Sample.pdf © 2008, Portio Research. All Rights Reserved 91 SK Telecom’s subscriber base of Mobile CyWorld increased from 0.5 million in February 2005 to nearly 3 million by end-2006.
  • 92. Strategies for Driving Data ARPU As of November 2007, the average monthly page view of Mobile CyWorld was 350 million. On average, this meant that a user visited Mobile CyWorld 11 times a day, or almost once every [waking] hour. In these visits, users were reported to be uploading more than a million photos every month on their personal homepages (‘minihompies’) on Mobile CyWorld. 69 According to SK Telecom, CyWorld, the biggest online community in Korea, attracted 21.9 million members by the end of 2007 70. Revenue and Data ARPU SK Telecom earned USD 30 million from its Mobile CyWorld service in 2005 which increased by approximately 83 percent to reach USD 55 million in 2006. This is depicted in Figure 39 below. Figure 39: Mobile CyWorld – Revenue (In USD Million, 2005 and 2006) 55 Revenue (in USD million) 60 50 40 30 30 20 10 0 2005 Year 2006 Source: Juniper Research and http://www.plus8star.com/ Mobile CyWorld was the highest ARPU generating mobile data service in Korea at the end of 2006, generating USD 10 per month. 71 Geographical Expansion The success of the CyWorld service in the South Korean market led SK Telecom to expand it to other Asian geographies. Beginning with the launch of CyWorld in China in June 2005, CyWorld was soon introduced in Japan, Taiwan and Vietnam. CyWorld was also unveiled in the US in 2006. The following figure shows the launch map of CyWorld in foreign markets. 69 Source: http://www.koreaninsight.com/2007/11/mobile-cyworld-gets-11-visits-a-dayfrom-one-user/ Source: SK Telecom, 2007 Annual Report 71 Source: www.world2006.hk/en/business/doc/dec04/10_Cherrypicks.pdf 70 92 © 2008, Portio Research. All Rights Reserved
  • 93. Strategies for Driving Data ARPU Figure 40: CyWorld Launch Launch of Cyworld Japan Jun 2005 Dec 2005 Launch of Cyworld China Plans to launch Mobile Cyworld USA Aug 2006 2008 Launch of Cyworld Vietnam, Taiwan Launch of Cyworld USA Source: http://www.plus8star.com/ The US version was appropriately localised to suit the tastes and preferences of US subscribers. SK Telecom also plans to launch a mobile version of CyWorld in 2008. The operator’s strategy in the US is the same as that in the domestic market—creating a successful online property and then offering a mobile extension to ensure a ready customer base for the mobile offering. Strategic Success Factors Culturally, South Korean and Japanese mobile subscribers are among the heaviest users of data services worldwide. But, cultural drivers aside, there are several other factors that have contributed to the success of Mobile CyWorld in the Korean market. Unique Revenue and Business Model For most social networks, advertising is the primary source of revenue, whereas CyWorld has minimal dependence on advertising. The primary source of revenue is from sales of virtual money. By paying a flat rate for the use of the service, subscribers can add to the value of their profile by purchasing virtual enhancements with virtual money known as ‘dotori’ (Korean for acorns), which is converted from real currency denominations. Enhancements available on the service include digital furniture, art, home electronics, wallpaper, etc., which range in cost from the equivalent of USD 0.2 to USD 9.0. The decreased dependence on advertising allows Mobile CyWorld to focus more on content and aim for better customer satisfaction. Instead of placing obtrusive ads on personal, mini-homepages, Mobile CyWorld encouraged an innovative advertisement strategy in which businesses can become CyWorld members, 72 create their own profiles and interact with customers through the service. SK Communications, the developer of CyWorld, is completely owned and operated by SK Telecom. This implies that the entire revenue generated from CyWorld is accrued to SK Telecom. This is a rather unusual revenue split for mobile data services, as in most cases operators need to pay the application provider/platform provider a certain percentage of revenue. By keeping control of the entire Mobile CyWorld value chain, SK Telecom has internalised the cost of providing the service to subscribers, which, in turn, is reflected in the pricing of the service. 72 Source: http://money.cnn.com/magazines/business2/business2_archive/2006/08/01/8382263/index.htm © 2008, Portio Research. All Rights Reserved 93 Instead of placing obtrusive ads on personal, minihomepages of users, Mobile CyWorld encouraged an innovative advertisement strategy in which businesses can become CyWorld members, create their own profiles and interact with customers through the service.
  • 94. Strategies for Driving Data ARPU Flat Pricing Mobile CyWorld is offered at a flat rate, making it very attractive for the youth segment. Through flat pricing, SK Telecom encourages long-term repeat use and increases customer loyalty by allowing users to upload as many photographs as they want. Feature-Rich and Easy-to-Use Mobile CyWorld provides an identical user-experience to the successful online version. So, through Mobile CyWorld, SK Telecom was not trying to promote a new product, but instead the mobile version of an already successful offering. The table below describes some of the engaging features of Mobile CyWorld. Table 7: Mobile CyWorld Features Feature Details Visitors’ Log Place for visitors to leave messages for the subscriber Photo Gallery Space for the member to upload photographs Il-chon Space to upload photos visible to only one other visitor defined by the subscriber Diary Personal blog space for user Plaza Forum Contains list of stories posted by CyWorld members Free-board Public bulletin board Club CyWorld membership communities MyCy. Personal configuration page for CyWorld members Source: Portio Research Ltd. Mobile CyWorld is rich with personalisation tools. Users can decorate their profiles by purchasing virtual goods—digital furniture, art, home electronics, wallpaper, music, among others—with acorns (virtual money). SK Telecom has also been proactive in identifying and acting upon potential demand for specific content. For instance, observing that a lot of baby photographs were being uploaded by mothers on CyWorld, the company created a baby section to target this segment of users; this section included baby photo albums, baby movies, baby diaries and guest books. Seamless Distribution Although Mobile CyWorld is owned and operated by SK Telecom, the operator has not restricted its use to its own subscribers. Mobile CyWorld is also accessible to subscribers of the other two mobile operators in the country—LG Telecom and KTF. This strategy has helped rapidly build up the user base. The case of Mobile CyWorld is important for the mobile data services industry because it is one of the very few services that has successfully leveraged and monetised the popularity of UGC. The following figure summarises the key success factors of Mobile CyWorld. 94 © 2008, Portio Research. All Rights Reserved Although Mobile CyWorld is owned and operated by SK Telecom, the operator has not restricted its use to its own subscribers. Mobile CyWorld is also accessible to subscribers of the other two mobile operators in the country—LG Telecom and KTF.
  • 95. Strategies for Driving Data ARPU Figure 41: SK Telecom’s Mobile CyWorld – Strategic Success Factors Summarised Unique Business Model Feature-rich, Ease-of-Use Attractive flatrate pricing Interoperable across South Korea Source: Portio Research Ltd. The following table lists how Mobile CyWorld measures up against the parameters that Portio Research’s SCEUD (2006) identified as requisites for creating a successful mobile data service. Factors Identified in SCEUD S K Telecom’s Mobile CyWorld Choice of content Affordability of content and value for money Simplicity, ease of use, accessibility Flexible options Fun element Branding focus Handset availability © 2008, Portio Research. All Rights Reserved 95
  • 96. Strategies for Driving Data ARPU Case Study 2: EyeVibe (Mobile Video Sharing) — 3 UK and O2 UK In SCEUD, we discussed 3 UK’s amateur video sharing service, SeeMeTV. This service was 3’s answer to YouTube, the extremely popular video-based social network, and was the first of its kind on any mobile network, giving users a chance to share their videos with other subscribers and simultaneously earn money. The service was an immediate hit with more than 4 million video downloads in the first four months after launch in October 2005 The figure below summarises the strategic success factors for SeeMeTV as described in SCEUD. Figure 42: 3 UK – SeeMeTV – Strategic Success Factors Summarised Source: SCEUD, 2006 (Portio Research Ltd.) As illustrated in the figure above, SeeMeTV’s success was grounded on several robust factors. However, the success of the service soon invited competition. In June 2006, O2 UK launched a similar service called LookAtMe, which started gaining rapid popularity. Between end-2005 and early 2008, users of SeeMeTV and LookAtMe have together paid for more than 32 million video downloads. Users have submitted more than 60,000 clips, earning a combined total of over USD 1.5 million (GBP 800,000) in the process. 73 The services, as of early 2008, generated 28 million mobile page impressions per month in the UK. 74 To capitalise on the growing popularity of the two services and to prevent any possible stagnation in their respective services, 3 UK and O2 took the strategic step of merging the two in early 2008 to create EyeVibe, the UK’s largest cross-network mobile video sharing platform. EyeVibe has been touted as an open access mobile video community—implying that any mobile subscriber can become a member. The merger of LookAtMe and SeeMeTV is believed to do for mobile video sharing what interoperability agreements did for SMS and MMS worldwide. 73 Source: http://www.mad.co.uk/BreakingNews/BreakingNews/Articles/6f103e01db1d48f684d956cffbe36f05/3-andO2-launch-EyeVibe.html 74 Source: http://www.yospace.com/press/evlaunch.html 96 © 2008, Portio Research. All Rights Reserved The merger of LookAtMe and SeeMeTV is believed to work for mobile video sharing in the same way that interoperability agreements worked for SMS and MMS worldwide.
  • 97. Strategies for Driving Data ARPU The following figure illustrates the strategic significance of the merger. Figure 43: EyeVibe – What It Means for the Mobile Video UGC Market in the UK Source: Portio Research Ltd. Although it is still early to decide the fate of EyeVibe, the service incorporates all the ingredients needed to continue the successful legacy of its components. © 2008, Portio Research. All Rights Reserved 97
  • 98. Strategies for Driving Data ARPU Section 12 Mobile TV 98 © 2008, Portio Research. All Rights Reserved
  • 99. Strategies for Driving Data ARPU Mobile TV Mobile TV has been touted as one of the top advanced data services for some years now. The concept of making TV programming available through mobile handsets was believed to be potent enough to create significant traction among data-hungry mobile subscribers in advanced mobile markets. Mobile TV was also expected to provide operators with a strong platform of differentiation in the fiercely competitive, advanced mobile markets. Operators worldwide, especially those in advanced mobile markets with functional next generation networks, have introduced mobile TV offerings for subscribers. Most of these services have generated a lukewarm response from customers, in large part because of significant roadblocks such as faulty transmission, prohibitive pricing, lack of suitable mobileoptimised content, etc. Among the few successful services, 3 Italia’s mobile TV offering in Italy has set a benchmark in the global mobile TV market and has become a benchmark within the industry. Also doing well are mobile TV services by Orange in France and Etisalat in the UAE. It is noteworthy that these successful mobile TV services are based on different technologies. 3 Italy’s mobile TV service is a broadcast service, while those of Orange and Etisalat are 3G based streaming services. Case Study 1: Broadcast (DVB-H) Mobile TV—3 Italia 3 Italia, part of the Hutchison Whampoa Group, was the first operator worldwide to commercially launch a mobile TV service based on the DVB-H technology. The launch of the service—La3—in June 2006 was a strategic decision by the operator as it coincided with the 2006 FIFA World Cup. 3 Italia’s key objectives behind launching La3 were boosting ARPU, increasing market share and minimising churn. 3 Italia’s mobile TV service was closely followed by similar services from competitors Telecom Italia Mobile (TIM) and Vodafone Italy, but no other service has been able to match the success of 3 Italia’s groundbreaking DVB-H service. A comparison with South Korea, one of the most advanced mobile data services markets worldwide, shows that the first mobile TV service launched in the market (by Korean operator SK Telecom’s subsidiary TU Media) took three months to sign up the first 100,000 subscribers—thrice the time required by 3 Italia’s service to achieve the same milestone. The service was recognised in the International Engineer Consortium (IEC) ‘Infovision’ Awards 2006 and has been judged winner in the mobile TV category in Juniper Research’s Future Mobile Awards, 2008. Key Success Indicators Burgeoning Subscriber Base The La3 service added subscribers at a very fast rate, and within six weeks of launch, 3 Italia’s mobile TV subscriber base touched 111,000. 75 In the following four months, towards the end of 2006, La3 added another 289,000 subscribers (an average of more than 70,000 subscribers per month). At end-2006, the La3 subscriber base stood at 400,000. The figure further increased to 600,000 by the end of May 2007 and 770,000 by the end of October 2007. The mobile TV subscriber penetration of 3 Italia increased from 1.7 percent in July 2006 to 10 percent at the end of December 2007. 75 Source : http://www.iht.com/articles/2006/07/20/technology/italia.php © 2008, Portio Research. All Rights Reserved 99 Among the few successful mobile TV services worldwide, 3 Italia’s mobile TV offering in Italy has set a benchmark in the global mobile TV market and has become a legend in itself.
  • 100. Strategies for Driving Data ARPU Figure 44 shows 3 Italia’s mobile TV subscriber base and penetration from July 2006 to October 2007. Figure 44: 3 Italia – Mobile TV Subscribers and Penetration (In Thousands, July 2006-December 2007) Mobile TV Subscribers (In Thousands) 700.0 800 10.0% 10% 600 9.9% 600.0 8% 8.2% 500.0 12% 400 400.0 6% 5.6% 300.0 4% 200.0 100.0 111 1.7% 140 2% 2.0% Mobile TV Penetration 770 800.0 0% 0.0 Jul-06 Oct-06 Dec-06 May-07 Oct-07 Dec-07 Year Mobile TV subscribers Mobile TV penetration Source: Company Website and Other Sources 76 High Revenue As of September 2007, 3 Italia earned USD 24.2 million (EUR 17.4 million) 77 per month from its mobile TV service compared to TIM’s USD 0.7 million (EUR 500,000) per month. 78 High Data ARPU 3 Italia has the highest data ARPU in Italy. Mobile TV has further strengthened the operator’s position as the service has enabled 3 Italia to increase its data ARPU from USD 11.9 per month in June 2005 to USD 14.9 per month by end-2006. Figure 45 below depicts 3 Italia’s increasing trend of monthly data ARPU from June 2005 to December 2006. 76 Source: http://www.bi-me.com/main.php?id=19051&t=1&c=33&cg=4 Source: http://www.oanda.com/convert/fxhistory (Conversion rate for 30th Sep, 2007) 78 Source : http://www.nlane.co.uk/thought.php?thought_id=6 77 100 © 2008, Portio Research. All Rights Reserved 3 Italia’s mobile TV service was recognised in the International Engineer Consortium (IEC) ‘Infovision’ Awards 2006 and has been adjudged winner in the mobile TV category in Juniper Research’s Future Mobile Awards, 2008.
  • 101. Strategies for Driving Data ARPU Figure 45: 3 Italia – Mobile Data ARPU (In USD, June 2005-December 2006) 16.0 14.8 Data ARPU (In USD) 13.9 12.4 11.9 Dec-05 14.9 Jun-06 Sep-06 Dec-06 12.7 Sep-05 14.8 12.0 8.0 4.0 0.0 Jun-05 Mar-06 Source: Telegeography A comparison with competitors’ data ARPU in the same period shows that 3 Italia’s data ARPU was indeed markedly higher. Figure 46 compares the data ARPU of 3 Italia with the data ARPU of its competitors in Italy between June 2005 and December 2006. Figure 46: Italy – Mobile Data ARPU (In USD, June 2005-December 2006) 16.0 14.8 Data ARPU (In USD) 13.9 12.7 12.4 11.9 14.9 14.8 12.0 8.0 6.2 5.5 5.6 5.1 4.0 2.9 6 5.6 3.1 3 6 6.0 3.5 6 6.0 5.9 6.1 3.8 3.5 6 6.1 3.6 0.0 Jun-05 Sep-05 Dec-05 3 Italia Mar-06 Vodafone Italy Jun-06 TIM Sep-06 Dec-06 Wind Source: Telegeography The figure above shows that 3 Italia’s data ARPU over the period was more than double the data ARPU of any of its competitors. As of Q3 2007, the ARPU of its La3 subscribers was around 60 percent higher than the average ARPU of Italian mobile subscribers (around USD 30-35 per month). 79 Moreover, the spike in 3 Italia’s data ARPU after the introduction of its mobile TV service is evident in Figure 46—data ARPU for March 2006 was USD 13.9 and it 79 Source: http://www.moconews.net/entry/419-3-italia-hits-600000-dvb-h-users/ © 2008, Portio Research. All Rights Reserved 101
  • 102. Strategies for Driving Data ARPU rose to USD 14.8 for June 2006, the month of La3’s launch, registering an increase of 6.5 percent 80. After June 2006, until end-2006, 3 Italia managed to hold the high levels of data APRU, closing the year with a data APRU of USD 14.9 per month. The success of 3 Italia’s mobile TV service might have been attributed largely to the 2006 FIFA World Cup (which Italy won), but the fact that La3 subscriber numbers kept increasing steadily even after the event concluded and that data ARPU levels remained high is proof that the service owes its success not only to the appeal of the World Cup, but to concerted strategies that helped shape the phenomenal success of this service. Strategic Success Factors Rapid Go-to-Market 3 Italia’s decision to launch a mobile TV service based on the DVB-H technology came at a time when the technology was being trialled in many European countries. No other operator was ready for a commercial roll-out of the technology, even though the European market was a mature one and was ready for a compelling data service such as mobile TV. By being the first operator to launch broadcast mobile TV in a mature market, 3 Italia had the first mover advantage and was able to quickly capture customer attention. La3 was a unique, one-of-itskind service, and for the first six months the service faced little competition. By the time Vodafone Italy launched its DVB-H offering in December 2006, the first 400,000 early adopters of the DVB-H mobile TV service (who, incidentally, being early adopters are also heavy users of all new technology and, hence, other mobile data services) were already 3 Italia’s mobile TV customers. Strategic Launch Timing La3’s launch timing was strategic—3 Italia chose to coincide the launch of its mobile TV service with the FIFA World Cup that was held in Germany in June 2006. The operator hoped that the excitement of the upcoming football matches would provide the necessary momentum to its mobile TV service at launch. In order to launch the service on time (during the football tournament), 3 Italia acquired a national digital TV operator license and quickly created its own DVB-H network to provide coverage to almost 65 percent of the Italian population during this window. Since the service was launched in time, the subscribers were able to watch all 64 World Cup matches on their DVB-H-compliant handsets. Accessibility and Usability In November 2006, a Strategy Analytics’ study revealed that Italian mobile TV users considered 3 Italia’s mobile TV service the easiest to buy and the best to use. 3 Italia’s service outscored TIM’s DVB-H offering and another streaming mobile video service from TIM. 81 The following are some of the features that enhanced the usability and user interface of 3 Italia’s service: • One-click access: Users simply need to click the “TV” key on their handsets to watch live television programming. • Interactive guides: An interactive channel guide is built into the “TV” key, allowing users easy access to programming information on various channels. • Incoming call and message alert: While watching TV, users can be alerted of incoming calls and messages and can receive/review those calls and messages. Normal call forward functions also work while the TV function is on. This means that the TV viewing experience does not interfere with the regular communication functions of the handset. • Parental control: As the mobile TV service offers some adult content, it is equipped with sufficient parental controls with which it is possible to block adult content and channels. 80 Note: An even higher spike of about 9.45 percent between December 2005 and March 2006 can be attributed to the year-end holiday season. 81 Source : http://www.mobiletv-news.com/content/view/257/2/ 102 © 2008, Portio Research. All Rights Reserved By being the first operator to launch broadcast mobile TV in a mature market, 3 Italia had the first mover advantage and was able to quickly capture customer attention.
  • 103. Strategies for Driving Data ARPU Such channels and content can be accessed only by providing a pre-assigned authentication code. Quality of Service The choice of technology for the mobile TV service was an important cornerstone in 3 Italia’s strategy, as it directly influenced the quality of service (QoS) that the operator could deliver to its mobile TV subscribers. Although the operator held a leading position in Italy’s 3G market when the service was launched, it did not rely on the unicasting (streaming) model for the La3 service. Mobile TV services that run on the unicast model fall short of replicating the television viewing experience that subscribers enjoy on a television set. Most services suffer from disrupted transmissions and failed sessions, and these problems worsen with the number of subscribers that an operator supports on its network. Clearly, this is not an optimal mobile TV delivery model. 3 Italia was the first operator worldwide to commercially exploit the technological superiority of the DVB-H technology—a technology used to broadcast live television content on handsets. By adopting the DVB-H technology, 3 Italia ensured that its service provided uninterrupted, high-quality TV viewing, which was nearly at par with normal television viewing. The DVB-H platform meant that a large number of subscribers accessing the service at the same time would not mean dilution of QoS. This served as an important factor in making the service popular among Italian mobile subscribers and driving data ARPU. The use of DVB-H also translated into lower running costs for 3 Italia, a benefit that the operator could pass on to its subscribers in terms of attractive pricing of the service. Value Proposition When designing the world’s first successful mobile broadcast TV service, 3 Italia strived to price it in a manner that would make it affordable for end-users. Also, as consumption of TV content is highly dependent on individual tastes and preferences, flexibility in the pricing structure was given prime importance. 3 Italia offers the following two pricing structures for its broadcast mobile TV service: • An “all inclusive” package that combines a pay TV subscription model with a daily bundle of voice and Internet. This is priced at flat rates for specific periods of time. • A pay-per-view model that allows customers to pre-pay for access to the service from one day to three months. The flat rate plan is aimed at heavy users of mobile TV. By charging USD 40.3 (EUR 29) per 82 month (against USD 69.4 (EUR 50) charged by Telecom Italia’s parallel service ), this plan allows subscribers access to all digital mobile TV offerings (USD 1.4 (EUR 1) per day to watch 14 mobile TV channels, against USD 1.4 (EUR 1) per hour for viewing streaming TV content), access to 3 Club on 3’s mobile portal, free national calls and 1GB per month of mobile broadband Internet download. By bundling TV with voice and Internet, the operator ensures high uptake of all three services. The pay-per-view plan is aimed at occasional mobile TV viewers. Depending on the volume of use, subscribers can access the service through this plan at USD 5.5 (EUR 4) per day, USD 11.1 (EUR 8) per week, USD 26.4 (EUR 19) per month or USD 40.3 (EUR 29) for three months. Choice of Content 3 Italia developed a repository of compelling content for its mobile TV service by partnering with major Italian content providers—RAI, Mediaset and SKY. 3 Italia’s content strategy for its mobile TV service revolved around the following framework: • Provide popular television programmes on mobile handsets. • Focus on niche thematic channels, including user-generated content. 82 Source : http://www.nlane.co.uk/thought.php?thought_id=6 © 2008, Portio Research. All Rights Reserved 103 3 Italia was the first operator worldwide to commercially exploit the technological superiority of the DVB-H technology—a technology used to broadcast live television content on handsets.
  • 104. Strategies for Driving Data ARPU • Broaden the array of content available to subscribers through strategic partnerships with media houses. Focussing on providing television programmes that were greatly popular in Italy was a riskaversion strategy that worked well for 3 Italia. For instance, the mobile TV service offers one channel dedicated to “Grande Fratello”—the “Big Brother” reality TV show, while the La3 sport channel offers ‘wall-to-wall soccer’—a programme that 85 percent of Italian sports fans watch. By providing these popular programmes on the mobile handset, 3 Italia partially mitigated the risk associated with introducing a new format of delivering TV content. 3 Italia identified early that the demand for mobile TV content would be shaped by thematic content—mainly news and sports. Surveys revealed that approximately 71 percent of audiences watch thematic channels (average weekly share), whereas the remaining 29 83 percent watch classic TV channels. Using this insight, the operator followed the principle of utilising the long tail of content. It launched various niche channels on its mobile TV service that targeted specific demographic segments. Sport, in particular, is a hugely popular theme in the Italian media landscape. Accordingly, 3 Italia’s launch of various sports channels and coverage of sporting events was in line with its strategy to boost its mobile TV subscriber base. Apart from sports channels, the operator launched various news and entertainment channels that have also gained traction. 3 Italia further capitalised on the rising popularity of user-generated content; it offered subscribers the functionality to add user-generated opinion, jokes, songs and simulated commentary on various sporting events. At the time of launch, 3 Italia’s mobile TV service offered a package of channels—three RAI channels, a channel with the best of Mediaset, SKY Cinema, SKY Sport, Sky TG 24 and Sky Vivo, and also the self-produced channels of 3 Italia, namely La3 Live and La3 Sport. It also made available a special teen channel called ‘Boing’ and a music channel. Over the years, 3 Italia has strengthened its mobile TV content repository by adding channels to the service through strategic alliances with various media partners. As of March 2007, 3 Italia’s mobile TV 84 service offered 12 digital mobile channels and six soccer-specific channels. Many operators worldwide have expressed caution over the fact that in mobile broadcast technology, operators lose control over the content aired to subscribers. 3 Italia has mitigated this risk by building its own broadcasting network, which covers 75 percent of the country. This gives the operator the freedom to decide on the type of content its subscribers can access through the mobile TV service. 3 Italia has also started producing content in-house. 85 The two channels developed by 3 Italia, namely, La3 Live and La3 Sport, together commanded an average weekly audience share of 22 percent as of August 2007. 86 Business Model A successful mobile TV deployment requires uninterrupted viewing and compelling content. Keeping this in mind, 3 Italia focussed on building a sound ecosystem that ensured cooperation with content providers, TV stations and broadcast networks. Unlike other operators, who offer mobile TV services only through partnerships with content providers and aggregators, 3 Italia worked on an integrated business model that ensured its presence across the entire mobile TV value chain. For instance, before launching its DVB-H service, 3 Italia acquired TV broadcast station Canal 7 for between USD 35.4-41.3 (EUR 30-35) million. 87 Canal 7 held a network license for national digital TV distribution on terrestrial frequencies. Using Canal 7, the operator built its own network that provided DVB-H coverage to 65 percent of the nation at launch. On the content front, it limited the production effort to existing staff members and used its corporate headquarters in Milan as its studio. This integrated delivery model 88, involving the operator’s presence across the mobile TV value 83 Source: http://www.dvb-h.org/Services/services-Italy-3Italia.htm Source : http://www.mediesekretariatet.dk/bilag/dttudbud/danmarkstv/bilag7_18.pdf 85 Source: http://www.eurocomms.com/features/112057/ORGANISING_MOBILE_TV_-_Build_it__but_will_they_come%3F.html 86 Source: http://www.dvb-h.org/Services/services-Italy-3Italia.htm 87 Source : http://weblogs.jupiterresearch.com/analysts/husson/archives/2005/11/3_buys_7_when_t.html 88 Source: http://www.dri.co.jp/auto/report/idate/pdf/idateitmtv07_br.pdf 84 104 © 2008, Portio Research. All Rights Reserved 3 Italia worked on an integrated business model that ensured its presence across the entire mobile TV value chain.
  • 105. Strategies for Driving Data ARPU chain, helped it internalise many of the costs that its competitors had to bear because they chose to operate through partnerships with broadcasters. 89 The integrated model meant that 3 Italia could claim a larger share of mobile TV revenues as there were fewer value chain intermediaries to share it with. Aggressive Handset Strategy 3 Italia’s mobile TV service could be accessed on specific handsets only. As end-user devices was one segment of the value chain where the operator did not enjoy explicit control, it followed a strategy of aggressive subsidisation of DBV-H-capable handsets to ensure that its service did not face uptake bottlenecks stemming from high handset cost. To create a differentiated position in a market already flooded with a number of advanced handsets, the operator trademarked the name ‘TVfonino’, literally meaning a mobile handset with TV capabilities. 3 Italia also launched special pocket TV sets (not phones) that allowed users to access its mobile TV service. 90 To conclude, 3 Italia’s mobile TV service owes its phenomenal success to the confluence of several strategic demand and supply-side factors. These attributes have been summarised in Figure 47 below. Figure 47: 3 Italia’s Mobile TV Service—Strategic Success Factors Summarised Source: http://www.dapa.tv/pdfs/mobile-tv-update-june-2006-v3.pdf and Portio Research Ltd 89 90 Source: http://www.eetimes.com/rss/showArticle.jhtml?articleID=197801506&cid=RSSfeed_eetimes_newsRSS Source: http://www.pressroom2.com/2008/03/04/garmins-nuvi-900t-combo-mobile-tv-navigation-device-for-italy/ © 2008, Portio Research. All Rights Reserved 105
  • 106. Strategies for Driving Data ARPU The following table shows how 3 Italia’s mobile TV offering measures against the various parameters that Portio Research’s SCEUD (2006) identified as prerequisites for a successful mobile data offering: Factors Identified in SCEUD 3 Italia’s Mobile TV Choice of content Affordability of content and value for money Simplicity, ease of use, accessibility Flexible options Fun element Branding focus Handset availability 106 © 2008, Portio Research. All Rights Reserved
  • 107. Strategies for Driving Data ARPU Case Study 2: Streaming Mobile TV— Orange France The mobile TV market in Europe witnessed an important change during the Christmas of 2007, when France moved ahead of Italy in terms of the number of mobile TV subscribers. Given that France does not have a dedicated mobile broadcast network like Italy, this is indeed is a significant achievement. Orange France is the most successful French mobile operator in terms of mobile TV subscriptions with over 1 million mobile TV subscribers at end2007—well ahead of the 350,000 mobile TV subscribers of SFR, the second-largest operator in France. 91 Orange France launched 3G streaming mobile TV services in December 2004 to become the first mobile TV service in France. It gathered 268,000 subscribers within the first year of launch and boasted 360,000 TV/video active users within the first 20 months. Currently, France Telecom’s ‘Orange TV’ is the biggest mobile TV service in the country. At end-2007, this service had over 1 million subscribers—way ahead of competitor SFR’s 350,000 (including Canal+ viewers) and also ahead of 3 Italia’s 800,000 subscribers. This is a phenomenal achievement especially since the service offered is not a broadcast mobile TV service. Orange France’s mobile TV success results from a combination of strategic factors, including breadth and depth of content (television content as well as video-on-demand), unlimited use pricing plans, wide coverage, mass market handset availability, etc. Key Success Indicators Growing User Base The number of subscribers for Orange TV has increased steadily since launch. Significant growth was witnessed in the last quarter of 2007 when the subscriber base grew at almost 40 percent from approximately 715,000 in September 2007 to over 1,000,000 by end-2007 (of which 70 percent (circa 700,000) is estimated to be active customers of the service). The rapid growth of subscribers led to France surpassing Italy in terms of total number of mobile TV subscribers in December 2007. Figure 48 below shows the growth of Orange France’s mobile TV user base from December 2005 to December 2007. 91 Source: http://www.moconews.net/entry/419-12-million-mobile-tv-users-in-france/; http://rapidtvnews.com/index.php/sfr-reaches-350000-mobile-tv-subs.html © 2008, Portio Research. All Rights Reserved 107
  • 108. Strategies for Driving Data ARPU Figure 48: Orange France – Active Customers of Mobile TV/VoD (In Thousand, December 2005December 2007) 800 700 In Thousand 600 500 400 268 200 0 Dec-05 Dec-06 Dec-07 Year Mobile TV/VoD Active Customers Source: Portio Research and Company Presentations In December 2007, Orange France was reported to have 1 million mobile TV subscribers against SFR’s 350,000 (including Canal+ subscribers). The Canal+ Group had over 250,000 mobile TV customers through SFR and Bouygues Telecom. Increased Frequency of Use The number of mobile TV and video sessions has increased dramatically since launch. This is not only because the number of active subscribers has increased, but also because each subscriber is connecting more frequently to the service every month. Figure 49 below shows the growth of mobile TV and video sessions for Orange France since its launch in the second half of 2004 and also depicts the increase in sessions per active subscriber per year. 108 © 2008, Portio Research. All Rights Reserved
  • 109. Strategies for Driving Data ARPU Mobile TV and Video Sessions (In Million per year) Figure 49: Orange France – Mobile TV and Video Sessions (In Millions, 2004-2007E) 92 200 178.6 160 125 102 120 85.8 80 51 40 23 3.6 0 2004 2005 2006 Sessions (millions per year) 2007E Sessions per subscriber/year Source: Portio Research Ltd. And Company Website From an average of around seven sessions per user per month in 2005, users of Orange Mobile TV/VoD increased viewing sessions to more than 14 sessions per month by end2007. This shows the increasing popularity of the service and customers’ growing interest in using it. High Average Mobile TV Use The average mobile TV use per user for Orange France has increased significantly since its launch at end-2004. In December 2004, users spent around 10 minutes per month accessing this service. This increased to 43 minutes by end-2006. The following figure shows the increasing use of Orange’s mobile TV service. 92 NOTE: Currently, an average active subscriber is reported to make 15 sessions per month (Source: Primary Research). Moving with an estimated active user base of 700,000, the number of sessions (in millions) per year for 2007 is estimated to be around 125. © 2008, Portio Research. All Rights Reserved 109 From an average of around seven sessions per user per month in 2005, users of Orange Mobile TV/VoD increased viewing sessions to more than 14 sessions per month by end-2007.
  • 110. Strategies for Driving Data ARPU Figure 50: Orange France – Average Mobile TV Use per User 93 (Minutes/Month, December 2004December 2006) 50 Usage (Minutes/Month) 43 40 30 26 20 10 10 0 Dec-04 Dec-05 Dec-06 Year Mobile TV Usage per User Source: Portio Research Ltd. and Company Presentations In mid-2006, Orange launched unlimited TV multimedia options for the first time in the French market and this led to a significant increase in the use of mobile TV—to 2 hours a month by end-2006. Contribution to Data ARPU Orange France’s data ARPU trailed SFR’s until March 2006. However, the launch of unlimited mobile TV packages created a significant positive impact on Orange’s numbers, and by mid2006 Orange’s data ARPU caught SFR’s, before eventually surpassing it. Since then, Orange France’s data ARPU has been the highest in the country. Strategic Success Factors Wide Network Coverage Orange’s mobile TV service is accessible to over 95 percent of the French population (against SFR’s 70 percent coverage at end-2007) 94. This is one of the factors that has contributed to the service’s mass appeal in the French market. The 3G/EDGE coverage of Orange’s mobile TV offers good connectivity and, therefore, a fairly reliable viewing experience even indoors. Breadth and Depth of Content One of the main drivers for the success of Orange’s mobile TV offering is the depth and breadth of the content that it offers. As of January 2008, Orange TV had 62 live TV channels, up from only 10 live TV channels in December 2004. 95 Figure 51 below shows the quick pace at which Orange France added live channels to its mobile TV offering, therefore increasing its appeal for subscribers. 93 NOTE: Usage for unlimited package users in December 2006 was around two hours a month. Source: http://www.apropos.sfr.fr/html/espacepresse/communiques/detail.php?wid=1039533407478E24E7B641A 95 Source: http://mobilebroadbandnews.com/2008/01/17/orange-applies-for-two-mobile-tv-licenses-in-france/ 94 110 © 2008, Portio Research. All Rights Reserved The launch of unlimited mobile TV packages strengthened Orange’s data ARPU which was less than the data ARPU of SFR until March 2006.
  • 111. Strategies for Driving Data ARPU Figure 51: Orange France – Live Mobile TV Channels (December 2004-January 2008) 70.0 Live Mobile TV Channels 60 62 Dec-06 Jan-08 60.0 51 50.0 42 40.0 30.0 24 18 20.0 10 10.0 0.0 Dec-04 Feb-05 Apr-05 Jun-05 Dec-05 Source: Portio Research Ltd. Orange France’s 62 mobile TV channels span eight themed content categories to make it easier for users to choose from the array of content. The categories covered include general, news, sport, entertainment, music, youth, practical and discovery. The channels available include TF1, BBC World, Fashion TV, RTL 9, TF6, Fun TV, M6, Direct 8, W9, etc. The operator has recently landed deals with premium content providers such as HBO and Warner Brothers to provide premium subscription and on-demand content to its mobile TV users. Along with popular television programming, the service also offers a large and updated collection of on-demand video clips to satisfy the content snacking impulse of most mobile TV viewers. The video clips are available in nine categories—news, sport, cinema, music, humour, cartoons, TV series, live cam and erotic. Various other types of content, created specially for mobile broadcasting, include LCI Mobile (the first TV channel created specifically for mobile), ‘mobisodes’ and summaries of the ‘Plus Bella La Vie’ series, Johnny Halliday Videos, and ‘Arthur and the Minimoys’ mini-episodes. To capitalise on the growing popularity of user-generated content, Orange has also allied with popular video-sharing networks such as Sumo TV to make its content available to subscribers. Usability and User Experience Orange’s mobile TV service is easy to use and offers an excellent audio visual experience to its viewers. The following are some usability features that make the mobile TV viewing experience as close as possible to viewing real television and, therefore, add to the popularity of the service: • Ease of access: The service is easily accessible to EDGE/3G handset owners from the ‘Orange World’ portal. Subscribers can choose a channel through the Orange World TV player, which starts playing automatically. The channels appear as icons with their respective branding. • Informative: The service offers users daily programme guides, both for broadcast and for mobile-exclusive channels. • Easy content search: The portal enables subscribers to search programmes by content type. This is particularly important in a service that offers customers so much content choice. • Seamless viewing experience: The proprietary ‘Orange Player’ ensures that the chosen channel plays seamlessly. © 2008, Portio Research. All Rights Reserved 111 Along with popular television programming, the service also offers a large and updated collection of on-demand video clips to satisfy the content snacking impulse of most mobile TV viewers.
  • 112. Strategies for Driving Data ARPU • Enhanced audio visual quality: Since November 2006, Orange France’s mobile TV offering has been delivering a crisper and more fluid multimedia experience to subscribers. With the launch of high-definition mobile TV, the service was able to offer a richer video stream (encoding rate at 250 kbs/MPEG4) and QVGA screen (a high resolution of 320x240 pixels). Value Proposition Orange France has constantly improved its offers vis-à-vis its mobile TV service. The following figure depicts how the operator has used pricing to deliver increasing value to its mobile TV customers. Figure 52: Orange France – Constantly Adding Value to its Mobile TV Service High Attractiveness of Service Unlimited mobile TV, video and music usage for flat rate Unlimited TV usage for €6 to €12 per month €6/month for up to 10 minutes + unlimited weekends €6/month for up to 10 minutes Low Dec-04 Jun-05 Jun-06 H2-07 Source: Orange & Portio Research Ltd. When Orange started offering unlimited weekend use to its customers in June 2005, the use of the service doubled. Unlimited TV use payment plans of EUR 6-12 (USD 7.7 -15.5) a month also encouraged uptake. Orange was the first operator to provide unlimited TV tariffs in France—a move that was later emulated by competitors. But the greatest impact has been observed with the content bundling offer that came in 2007. This offer allows subscribers unlimited TV, video and music use for a flat monthly fee. It delivered immense value to customers and is believed to be one of the largest contributors to the spurt in Orange France’s subscriber base in the last quarter of 2007. Business Model Like 3 Italia, Orange France has control over most of the mobile TV value chain, but does enjoy alliances with a few selected content partners. Orange defines specifications for the videos produced (length, format, etc.) and pays them upfront fees and some audiencebased fees. While popular content is sourced from established content providers, Orange controls service offerings, user experience and overall delivery. Orange France has control over most of the mobile TV value chain. While popular content is sourced from established content providers, Orange controls service offering, user experience and overall delivery. The following figure illustrates Orange France’s position in the mobile TV value chain: 112 © 2008, Portio Research. All Rights Reserved
  • 113. Strategies for Driving Data ARPU Figure 53: Orange France – Presence Across the Mobile TV Value Chain Orange France Content Creation Content Aggregation Partner Involvement • Content Protection (DRM) Content Access & Delivery • Manage user experience • Manage Sales & Marketing • Promotion of service Customer Relationship Management • • Billing Relationship building Conditional Access Source: Portio Research Ltd. And Orange France To conclude, Orange France’s mobile TV service—a profitable service in the market—owes its success to certain strategic factors. The following table summarises these factors and compares them against factors that SCEUD recognises as important for driving end-user demand for mobile data services. Factors Identified in SCEUD Orange France’s Mobile TV Choice of content Affordability of content and value for money Simplicity, ease of use, accessibility Flexible options Fun element Branding focus Handset availability © 2008, Portio Research. All Rights Reserved 113
  • 114. Strategies for Driving Data ARPU Case Study 3: Streaming Mobile TV Service—Etisalat, UAE The UAE is a considerably developed mobile market. In 2007, mobile penetration in the UAE stood at 152 percent—the highest figure in the Middle East region and one of the highest worldwide. Etisalat was the sole telecom operator in the UAE from 1976 to 2007. In 2004, the operator was the first to launch 3G networks in the Middle East region. Etisalat’s 3G services started with video calling and high-speed mobile Internet access. In 2006, Etisalat launched advanced UMTS/HSPA (3.5G) networks in the region—another first in the Middle Eastern market. Etisalat’s monopoly in the UAE market ended with the entry of a second mobile operator, du, in February 2007. du launched with an initial offering comprising high-end data services such as 3G streaming mobile TV and mobile payment services. In a competitive response, Etisalat launched 3/3.5G streaming mobile TV services in the UAE in the same month. Etisalat’s mobile TV service became a runaway hit in the UAE, proving the value of over 30 years of experience in the UAE telecom market. Etisalat launched a streaming mobile TV service in February 2007, close on the heels of the entry of a second mobile operator in the UAE market—du. Etisalat’s mobile TV service was made available from the operator’s WAP portal ‘Weyak’ and it became extremely popular within months of launch. It was not a broadcast service and it was barely advertised, but by October 2007, the service was generating over 1 million hits per month. Etisalat’s mobile TV launch was a competitive response to du’s entry. Some of the key reasons for its phenomenal success in the region include competitive pricing, broad choice of content and good usability features. The mobile TV service has played an important role in driving Etisalat’s data revenues in 2007, which increased significantly compared to the previous year. Currently, Etisalat’s mobile TV service is the largest mobile TV service in the Middle East region. In 2007, the service was recognised by the GSMA for its 3G/HSPA-rich portfolio. 114 © 2008, Portio Research. All Rights Reserved In 2007, mobile penetration in the UAE stood at 152 percent and was the highest in the Middle East region and one of the highest worldwide.
  • 115. Strategies for Driving Data ARPU Key Success Indicators Growing Subscriber Base Etisalat’s streaming mobile TV service attracted 100,000 subscribers within two months of launch. 96 The number kept increasing and reached 230,000 subscribers by November 2007. 97 As of end-2007, Etisalat’s mobile TV service was used by more than 280,000 subscribers in the UAE, the highest in the Middle East region. 98 The service generated an average of 40 minutes of usage per subscriber per month 99. The following figure shows the growth in the number of Etisalat mobile TV subscribers from February 2007 to December 2007. Figure 54: Growing Acceptance of Etisalat’s Streaming Mobile TV Service (In Thousand, February 2007-December 2007) 280 Mobile TV Subscribers ('000s) 300 230 250 200 150 100 100 50 0 0 Feb-07 Apr-07 Nov-07 Dec-07 Source: Etisalat, GSMA & Portio Research Ltd. Robust Data Revenue Stream The mobile TV service played a major role in boosting Etisalat’s 2007 data revenues. The mobile TV service generated two revenue streams for the operator: • Monthly rental charges: Each mobile TV subscriber pays a flat rate of around USD 10.6 (Dirham 39) a month to access the mobile TV service. • WAP browsing charges: Over and above the rental revenue, Etisalat also earns WAP browsing charges of nearly 3 cents (1 Fils) per kilobyte of data when mobile TV subscribers browse through pages in the Weyak portal to access the service. Etisalat generates revenue from its mobile TV service through monthly rental charges and WAP browsing charges. The following figure shows the estimated growth in monthly rental revenues from the service since its launch in February 2007. 96 Source: http://english.people.com.cn/200705/04/eng20070504_372013.html Source: http://www.tmcnet.com/usubmit/2007/11/18/3103824.htm 98 Source: GSMA 99 Source: http://www.mysolutioninfo.com/newsdisplay.aspx?Code=8587&t=Etisalat%20Briefs%20SAMENA%20Telecommunications%20Council%20on%20major% 20trends%20in%20international%20connectivi 97 © 2008, Portio Research. All Rights Reserved 115
  • 116. Strategies for Driving Data ARPU Figure 55: Growing Revenue Generation from the Streaming Mobile TV Service (In USD Million, February 2007-December 2007) Mobile TV Rental Revenue (Monthly, In USD Million) 4 2.97 3 2.44 2 1.06 1 0.00 0 Feb-07 Apr-07 Nov-07 Dec-07 Source: Etisalat & Portio Research Ltd. 100 Strategic Success Factors Brand Equity Etisalat held a mobile monopoly in the UAE until du’s February 2007 launch. In terms of technology, Etisalat also enjoyed first-mover advantage as it was the first operator to launch 3G in the UAE and to adopt the HSPA technology. It launched streaming mobile TV services in February 2007 after 30 years of telecoms operations in the UAE, while du, in contrast, launched mobile TV soon after it came into existence as a company. Consequently, Etisalat’s mobile TV offering had a long and successful brand legacy behind it, which helped drive uptake—du’s did not. Quality of Service Streaming mobile TV services suffer from interrupted transmission and inferior audio and video quality in many of the regions where they have been launched. Etisalat’s mobile TV service, although a streaming service, delivers very good QoS in terms of picture quality and video resolution. In fact, the picture quality is not compromised even when viewed on full screen. 101 The main factor responsible for the superior quality of service is Etisalat’s highspeed 3G/3.5G network. The service works on the RTSP streaming protocol and requires a media player that supports it. Pricing and Flexibility Etisalat’s charges for mobile TV are lower than du’s. At the time of launch, Etisalat offered a single package of 10 channels for around USD 10.6 (Dirham 39) per month. Over the last year, it has added three more channels to the package, while keeping the cost constant. Etisalat also waived the subscription fee at launch and is yet to re-introduce it. This means that an Etisalat mobile TV subscriber needs only pay around USD 10.6 (Dirham 39) a month for unlimited use of the 15 available channels. In contrast, du, at the time of launch, offered four separate channel packages featuring five to seven channels each, priced at USD 21.8 (Dirham 80) per month. 102 100 NOTE: Estimated figures using 39 Dirhams/month as rental per subscriber Source: http://dot1ne.com/journal/review-etisalat-mobile-tv 102 Source: http://archive.gulfnews.com/articles/07/02/25/10106894.html 101 116 © 2008, Portio Research. All Rights Reserved Etisalat’s high-speed 3G/3.5G network is one of the most important reasons responsible for the superior quality of mobile TV service offered by the operator.
  • 117. Strategies for Driving Data ARPU So, compared to du’s pricing, Etisalat’s mobile TV pricing gave its customers more flexibility in terms of choosing a channel. Usability and Accessibility Before launching mobile TV, Etisalat conducted rigorous research and usability tests and only then positioned the service under its Weyak portal. This was to ensure maximum ease in channel selection and content discovery. Figure 56: Etisalat – Three-Step Access to TV Channels On-The-Go Access mobile TV through Etisalat’s mobile portal ‘Weyak’ Additional Features Shortcut Access—Subscribers Choose from a number of listed, live TV channels and click on channel of choice can access the mobile TV service by bookmarking it on their mobile Internet access menu. Flexible Viewing—Subscribers The channel starts playing automatically in the handset’s media player can stop, pause, or view the streamed video on full screen. Source: Portio Research Ltd. Etisalat’s mobile TV service is accessible on any 3.5G-capable handset. As of end-2007, Etisalat's 3.5G network had the widest coverage in the UAE. Etisalat’s 3G and 3.5G network coverage currently extends over 97 percent of the UAE’s populated areas. 103 Well-balanced Array of Content Etisalat’s strategy with mobile TV content has been well-balanced. The service covers all the basic categories of TV content—namely, news, sports, business and culture and entertainment—and subscribers can watch English channels as well as Arabic ones. The following are the various channels available through Etisalat’s mobile TV service: 103 Source: http://www.tmcnet.com/usubmit/2007/11/18/3103824.htm © 2008, Portio Research. All Rights Reserved 117 Etisalat’s 3G and 3.5G network coverage currently extends over 97 percent of the UAE’s populated areas.
  • 118. Strategies for Driving Data ARPU Table 8: Etisalat Mobile TV – Content Offering Category Arabic News English News Local Channels (Art, Culture, Entertainment) Sports Business Channels • • Al Arabiya Al Jazeera • • • • • • • • • • • Al Jazeera International BBC World Sama Dubai Abu Dhabi TV Emirates TV Melody Aflam Melody Hits MBC 1 Abu Dhabi Sports Dubai Sports Special sporting events (e.g., Cricket World Cup) • CNBC Arabia Source: Portio Research Ltd. and Etisalat For USD 10.6 (Dirham 39) a month, an Etisalat subscriber can choose to watch any of these channels. du, on the other hand, with 20 channels covering these categories, packages them into category-specific bundles and leaves a subscriber who wants to watch all 20 channels paying comparatively more. Capitalising on the high popularity of sports content, Etisalat has been streaming coverage of important sporting events. One such example was the ICC Cricket World Cup 2007, during which Etisalat added two new dedicated mobile TV channels to its portfolio. This was an innovative move as Etisalat was the only operator in Asia and the Middle East to bring cricket to the mobile handset.4 In late 2007, the operator partnered with the Board of Control for Cricket in India (BCCI) to provide five-weeks of coverage of cricket matches between India and Pakistan. Covering such popular events through mobile TV not only provides the operator with an opportunity to earn greater revenues for a certain time period (the Indo-Pak cricket matches cost USD 9.5 (Dirham 35) a week over and above the monthly USD 10.6 (Dirham 39)), but also helps attract new mobile TV subscribers. Etisalat is also working with major media houses in India and the US to integrate popular Indian cinema content into its mobile TV portfolio. The operator realises that in order to create good content for the small screen, it is important to develop content specifically for this medium. To this end, Etisalat is working on developing content optimised for the handset screen. Along with focussing on popular foreign content, Etisalat is also looking to source good local content from the Arab world. 118 © 2008, Portio Research. All Rights Reserved Providing popular content such as coverage of sporting events has proved to be a fruitful strategy for Etisalat’s mobile TV service.
  • 119. Strategies for Driving Data ARPU The following table ranks Etisalat’s mobile TV service against the various factors that Portio Research’s SCEUD (2006) identified as requisite for creating a successful mobile data offering: Factors Identified in SCEUD Etisalat’s Mobile TV Choice of content Affordability of content and value for money Simplicity, ease of use, accessibility Flexible options Fun element Branding focus Handset availability © 2008, Portio Research. All Rights Reserved 119
  • 120. Strategies for Driving Data ARPU Section 13 Role of Handsets in Driving Data ARPU 120 © 2008, Portio Research. All Rights Reserved
  • 121. Strategies for Driving Data ARPU Role of Handsets in Driving Data ARPU While it is true that compelling mobile data services with a clear value proposition for endusers are imperative for driving the use of such services worldwide, handsets too play a definitive role in shaping demand for data services— especially higher-end data services like mobile TV/video, gaming and full-track downloads. Research suggests that in the US, the average reported monthly spending for wireless services is USD 14 higher among subscribers who use a variety of features and services on their mobile phones. 104 Operators may push data services aggressively through new launches, flat rate pricing and innovative business models, but ultimately, it is the handset – both hardware and software that shapes the user experience with a particular data service. Handset vendors have been designing slick, savvy, feature-rich models in tandem with operators’ data services push. Data services such as mobile e-mail received a significant boost from the increasing popularity of smartphones, but as these handsets had been predominantly targeted at business users (with segment-specific features), multimedia infotainment services could not adequately leverage this same handset uptake. Gradually, as smartphones made inroads into the consumer space, handset vendors started incorporating a large number of features that enhance the infotainment experience for consumers. Yet still, many of these handsets failed to live up to users’ expectations because in many cases, the multitude of features and functionalities in these phones were confusing. This left many users unable to access a particular feature when it was needed the most. Apple’s entry into the wireless market with its revolutionary iPhone changed the picture completely. 104 Source: http://www.jdpower.com/corporate/news/releases/pressrelease.aspx?ID=2007271 © 2008, Portio Research. All Rights Reserved 121 Although MNOs push data services aggressively through new launches, flat rate pricing and innovative business models, but it is the handset that shapes the user experience with a particular data service.
  • 122. Strategies for Driving Data ARPU Case Study 1: Apple iPhone and Data ARPU The iPhone, essentially a smartphone with advanced multimedia features, is currently the most-talked-about mobile handset worldwide. Apple, originally a brand best known for its personal computing products, entered the mobile industry in June 2007 with the launch of an advanced multimedia smartphone that has since garnered so much media attention that it barely requires an introduction—the iPhone. The handset was first launched in the US, and then in the UK, Germany and France towards the end of 2007. The most appealing feature of the iPhone is its slick design and touch screen technology. Contrary to many of the other smartphones available on the market from notable players such as Research In Motion (RIM) and Palm, the iPhone looks more like a multimedia device than a mobile handset. Its advanced and user-friendly features position it as a data service-friendly device and all the four operators who have launched the iPhone in their respective markets have reported greater subscriber additions and more data services usage after the launch. Apple continues to follow a staggered release strategy with the iPhone. It is positioned as an exclusive and premium device, meant to engage high-involvement users. Therefore, the iPhone is believed to naturally complement operators’ mobile data services push worldwide. Ever since its launch in June 2007, the iPhone has seen staggering success. Although not positioned to be a mass market device, the handset topped 3.4 million units sold in 2007. In 2008, the handset has already sold over 1.7 million units (till March 2008). Figure 57 illustrates the number of iPhones sold by Apple from quarter ending September, 2007 to quarter ending March 2008. 122 © 2008, Portio Research. All Rights Reserved Apples’ iPhone sales stood at approximately 3.4 million units worldwide in 2007. The handset was first launched in the US in June 2007 and then in the UK, Germany and France towards the end of 2007.
  • 123. Strategies for Driving Data ARPU Unit sales (In Thousand) Figure 57: Apple iPhone – Global Quarterly Unit Sales (In Thousand) 105 3000 2,315 2500 2000 1,703 1500 1,119 1000 500 0 Quarter Ending September Quarter Ending December 07 07 Quarter Ending March 08 Source: Company Reports The iPhone and Operators—A Win-Win Game So far, Apple has followed a strategy of tying up exclusively with one operator in each of the markets where it has launched the iPhone. The following table lists the operators through whom the iPhone is available in the various markets. Table 9: Operators Selling iPhone in Various Markets (May, 2008) Country Operator Launch Date AT&T June 2007 O2 November 2007 and February 2008 France Orange November 2007 Germany T-Mobile November 2007 Rogers Wireless Planned in 2008 Telecom Italia Mobile Planned in 2008 US UK and Ireland Canada Italy Source: Portio Research Ltd. In all the markets where the iPhone has been launched, operators saw gains in terms of subscriber additions and increased use of data services after making the iPhone available to their subscribers. With the launch of the iPhone in June 2007, AT&T experienced significant growth in its subscriber base, which grew approximately 6.7 percent over Q3 2007 to 70.05 million in the fourth quarter of 2007. During the same period, Verizon’s Wireless’ subscriber base grew only 3.2 percent to 65.71 million. The following figure illustrates the sudden gap in subscriber addition of AT&T and Verizon Wireless. This growth can be attributed to the launch of the iPhone in the third quarter of 2007. 105 NOTE: Dip in unit sales in the first quarter of 2008 as compared to the last quarter of 2007 can be attributed to the holiday season. © 2008, Portio Research. All Rights Reserved 123 So far, Apple has followed a strategy of tying up exclusively with one operator in each of the markets where it has launched the iPhone.
  • 124. Strategies for Driving Data ARPU Number of Subscribers (In Million) Figure 58: Mobile Subscribers of AT&T and Verizon (In Million, Q4 2006-Q4 2007) 70.05 70.00 65.67 66.00 63.67 62.22 62.00 60.96 65.71 63.70 62.05 60.72 59.05 58.00 4Q 06 1Q 07 2Q 07 AT&T 3Q 07 4Q 07 Verizon Source: Company Reports The iPhone not only led to greater subscriber additions for operators, but also drove usage of data services. iPhone users in the US, for instance, have been observed to use data services more extensively than other smartphone users and the market average. The following figure shows the higher usage of data services by iPhone users in the US. 124 © 2008, Portio Research. All Rights Reserved
  • 125. Strategies for Driving Data ARPU Figure 59: US iPhone Users’ Data Services Consumption Compared With that of Smartphone Users And Market Average (December 2007) 6.70% 27.90% Music 74.10% 4.20% Social Netw orking or Blogging On-demand Video or TV Programming 19.40% 49.70% 1.40% 7.00% 20.90% 4.60% 14.20% Mobile TV or Video 30.90% 6.10% 37.00% Web Search Access 58.60% 13.10% New s or Information Access through Brow ser 58.20% 84.80% 0% 20% 40% 60% 80% 100% Percentage of Subscribers iPhone Users Smartphone Users Market Average Source: M:Metrics Survey 106 M:Metrics’ survey further suggests that use of specific brands of data services, such as YouTube, Facebook and Google Maps, is higher among iPhone users than the market average. The following table lists the top 10 data services (used daily) among US subscribers, as revealed by Rubicon Consulting’s survey. 106 NOTE: M:Metrics’ survey was based on a sample of 31,389 US mobile subscribers. © 2008, Portio Research. All Rights Reserved 125
  • 126. Strategies for Driving Data ARPU Table 10: iPhone – Top 10 Data Services (Used Daily) by US Subscribers – March 2008 Feature Used Rank Reading e-mail 1 Reading/Writing SMS 2 Web browsing 3 Listening to music 4 Wi-Fi Internet connection use 5 Composing e-mail 6 Watching video on the Web 7 Viewing Maps 8 Reading Feeds 9 Playing Games 10 Source: Rubicon Consulting Survey Reading e-mail emerged as the most frequent activity among US iPhone owners. This can be partly explained by the fact that AT&T leads the US market in mobile e-mail (Please see case study: ‘The Success of Enterprise Mobile E-mail in the US – AT&T Mobility’ for more details on AT&T’s mobile e-mail strategy). Web browsing is another very popular activity among iPhone users. The iPhone is reportedly offering the best Web browsing experience in the mobile industry today. In early 2008, iPhone Web-traffic to Google surpassed that from BlackBerry and Windows Mobile devices in the US 107. The following are some reasons why the Web browsing experience offered by the iPhone is so popular among its users: • The iPhone’s Web browser—Safari—has the exact same underpinnings as the Safari running on a Mac. 108 • Users can see the entire Web page on the iPhone’s screen (similar to online experience). • New links open in separate windows and users can multi-task between the windows at the swipe of a finger. • “Rubber Web Page” technology allowing users to seamlessly zoom, stretch and shrink Web pages at their convenience. This is especially useful when accessing applications such as Google Maps. • High-resolution screen (at least twice the resolution of almost every other phone on the market). • QWERTY keypad, implemented in software on a touch screen interface. Other than these features that facilitate Web browsing, the iPhone’s wide screen and attractive icons make it appear more like a multimedia device (closer to a PC) than a mobile handset. As a result of this, the device connects better in the end-users’ minds as a data services-friendly handset. 107 108 Source: http://www.intomobile.com/2008/01/14/iphone-web-traffic-to-google-outpaces-all-other-smartphones.html Source: http://www.37signals.com/svn/posts/459-iphone-sdk-its-called-safari 126 © 2008, Portio Research. All Rights Reserved Reading e-mail, text messaging and web browsing are the most popular activities among iPhone users.
  • 127. Strategies for Driving Data ARPU The following figure depicts the top five features of the iPhone as revealed through a survey in the US before its launch in June 2007. Touch screen and gesturing system were voted the two most important features of iPhone, primarily responsible for providing enhanced userexperience. Figure 60: The iPhone’s Best Features Revealed Through a Survey – May 2007 Best Feature Screen Size 228 Gesturing System 231 Wi-Fi 314 Touch Screen 417 Looks 503 0 100 200 300 400 500 600 Number of Votes Source: http://www.iphonic.tv/2007/05x/shiny_iphone_survey_results_pa_2.html The importance of the touch screen and the gesturing system brings out the fact that the iPhone is valued as a device that provides an enhanced user-experience. This coupled with the finding that it’s the 16-24-year-old age group that likes the revolutionary new interface the most, makes the iPhone a perfect device for driving the use of higher-end data services. This is evident from the following facts: • In the first quarter of 2008, AT&T’s ARPU from its iPhone subscribers was over USD 90. 109 The overall ARPU in the same period was USD 50.18. 110 Research by Rubicon Consulting suggests that iPhone use leads to a 24 percent increase in subscribers’ monthly mobile bills in the US. 111 • T-Mobile in Germany has reported that at more than 100MB a month, the average data used by iPhone subscribers is as much as 30 times higher than that by subscribers using other phones. 112 • The ARPU of an iPhone customer with O2 in the UK was 30 percent higher than an average post-paid user’s ARPU as of end-2007. 113 About 60 percent of O2’s iPhone subscribers were sending or receiving more than 25MB of data a month, which was the equivalent to sending 7,500 e-mails. By comparison, only 1.8 percent of O2’s other mobile customers on monthly contracts were consuming more than 25MB a month. 114 The high uptake of data services by iPhone users is truly remarkable given that the iPhone available on the market till mid-July 2008 was not 3G-enabled and ran on EDGE. The 3G iPhone was launched on July 11, 2008 115. With the 3G iPhone running on HSDPA, e-mail attachments and web pages are expected to load twice as fast than on existing 2G EDGE 109 Source: http://www.unstrung.com/document.asp?doc_id=151734 Source: http://www.fiercemobilecontent.com/story/data-revenue-growth-fuels-att-s-q1-surge/2008-04-22 111 Source: http://rubiconconsulting.com/downloads/whitepapers/Rubicon-iPhone_User_Survey.pdf 112 Source: http://www.unstrung.com/document.asp?doc_id=144563 113 Source: www.mobilenewscwp.co.uk/News/14619/dunne_confident_after_strong_o2_q4_figures.html 114 Source: http://www.ft.com/cms/s/0/c4af8bd4-b1c3-11dc-9777-0000779fd2ac.html?nclick_check=1 115 Source: http://www.guardian.co.uk/media/2008/jul/14/mediabusiness.mobilephones?gusrc=rss&feed=media 110 © 2008, Portio Research. All Rights Reserved 127
  • 128. Strategies for Driving Data ARPU networks 116 This, along with the fact that the 3G iPhone is expected to bring to the market a rare combination of a phone, a portable music device, and a mobile Internet surfing terminal, is expected to boost use of data services even further among iPhone owners. The fact that Apple sold 1 million units of the 3G iPhone within 3 days of launch —a milestone that the original iPhone took 74 days to achieve—indicates the staggering popularity of the device among Apple fans. Strategic Success Factors Operators who have made the iPhone available to subscribers have combined the device’s winning features with strategic tactics of their own to offer a winning combination to their subscribers. Moreover, some of Apple’s strategies are also designed to bring about the maximum gain for itself and for the operators it has allied with. The following are some of the strategies that have helped operators and Apple push the iPhone: Exclusivity Apple’s strategy of making the iPhone available through one operator in each market helped preserve the device’s exclusive appeal. For operators, this translated into the creation of more loyal customers, many of whom were migrants from other networks. For instance, 60 percent of O2 UK’s iPhone customers till end-2007 were migrants from other networks. 117 Tariff Plans The iPhone was offered to subscribers through simple and easy to understand plans. To encourage take-up, operators’ pricing strategies focussed on providing subscribers limited options so as to limit complications. This has helped customers to adopt the iPhone and gain from competitive pricing. For example, at the time of launch, AT&T offered three service plans starting at USD 59.99 per month. All the plans included unlimited data, visual voicemail, 200 SMS messages, rollover minutes, unlimited mobile-to-mobile calling and a specific number of voice minutes. The customers were able to choose plans as per their voice minute requirements. Through the addition of unlimited data services by default in iPhone plans, operators also ensured the promotion of data services. 118 Price of Handset and Subsidies Both Apple and the operators have realised that the same business model will not work in all markets. In the US, AT&T has been selling the iPhone at a very high price. The price does not seem to have dampened demand in any way. In certain European markets, however, the high price of the iPhone is affecting demand seriously. France, for example, is one market where iPhone sales are lagging behind other European countries. To address this, Orange France and Apple are considering subsidising the handset considerably—something that is already in practice in the UK and Germany (operators subsidise iPhone handsets provided subscribers sign up for a substantial monthly plan, a strategy that is beneficial for Apple as well as operators). In Italy too, where the iPhone is expected to hit the stores in Mid July will be available to both contract customers and to payas-you-go users, and will include a wide range of data offerings. If the subscribers choose a contract price plan, such as iPhone Vodafone Facile, the Apple phone can be made available at a particularly attractive price. People preferring a pre-pay plan for private users can buy the 119 In fact, AT&T is also believed to 8Gb iPhone for Euro 499 or the 16GB model for Euro 569. be considering subsidising the 3G iPhone when it is launched in the US in the second half of 2008. 116 Source: Tests conducted by Apple in May and June 2008. Source: http://www.o2.com/about/o2_uk.asp 118 Source: http://www.att.com/gen/press-room?pid=4800&cdvn=news&newsarticleid=24018 119 Source: http://www.vodafone.com/start/media_relations/news/local_press_releases/italy/italy_press_release/vodafone_italia_l aunches1.html 117 128 © 2008, Portio Research. All Rights Reserved Operators who have made the iPhone available to subscribers have combined the device’s winning features with strategic tactics of their own to offer a winning combination to their subscribers.
  • 129. Strategies for Driving Data ARPU Perspective To conclude, research suggests that use of an iPhone leads to more data usage (and therefore greater ARPU) than any other service, product, or gadget in existence. However, when considering the role of handsets in boosting data ARPU, it might not be correct to position the iPhone as a benchmark for all future handset design. The iPhone has not been designed to be a mass market device. The first few million units of this high-priced, fashionable and highly-desirable handset have been sold to the natural early adopters who are, by default, higher users of data services. So, even if iPhone owners continue to use more data services than non-iPhone owners, the sheer strength of the latter category will, in all likelihood over-shadow any significant boost in overall ARPU. As long as iPhone remains a high-end, niche device, its overall impact on average worldwide ARPU levels will remain negligible. Many iPhone users and industry pundits report that the iPhone is not a particularly great phone, but it is a great multi-media device. Possibly, using the word “phone” has been misleading. Perhaps the device should be thought of as the worlds finest ‘pocket multimedia viewing device’, which then conveniently has a telephone built in. As a pocket multimedia viewing device, the iPhone is exceptional, finally delivering the ‘videoplayer-in-your-pocket’ that consumer electronics manufacturers have been trying to delver for years. This great multimedia platform also has a phone built in, a neat bonus, but comparing this to the mass market of billions of handsets in use worldwide, is rather like comparing a Rolls Royce or Maybach to the tens of millions of cars that ordinary people use worldwide every day. Of course the Rolls Royce driver buys more fuel, and uses more electrically powered gadgets in his car, and is a higher-value customer to his Rolls Royce dealer, compared to the average Ford customer. It would be foolish to think that if ‘everyone’ had a Rolls Royce they would all buy as much fuel, and use a chauffeur and sit in the back drinking champagne. The iPhone is unlikely to reach the mass market, shipping hundreds of millions of devices. We believe the iPhone was designed as a high-end niche device, and we believe that Apple have realistic expectations of iPhone, in line with our own. We believe that media pundits who have suggested this device will change the world and drive worldwide use of data service to new levels are failing to understand the iPhones target market. That said, there is little doubt that the iPhone is a fabulous, stylish, appealing device, with wonderful software and hardware, and in the hands of the first 10 million buyers, this device will surely help to drive ARPU to record levels. © 2008, Portio Research. All Rights Reserved 129
  • 130. Strategies for Driving Data ARPU Section 14 Mobile Data Services in Emerging Markets 130 © 2008, Portio Research. All Rights Reserved
  • 131. Strategies for Driving Data ARPU Mobile Data Services in Emerging Markets The mobile data services market in emerging markets is significantly different from that in developed nations. Although operators in these markets face the same pressures as their counterparts in mature mobile markets—that is, falling voice revenues, increasing commoditisation of voice, etc.—the challenges to developing successful mobile data services in these countries are magnified due to the inherent market conditions. For instance, the average spending on mobile communication is still very low in most emerging markets; in fact, the mobile is still predominantly a voice communication tool for subscribers in these markets. In such a situation, falling voice tariffs result in lower ARPU levels for operators. Difficult market conditions, coupled with the constant need to innovate compelling data services, presents a significant challenge for operators in developing markets. The singlemost important question they face is: How to create data services compelling enough to warrant successful uptake and drive data ARPU? The first step to answering this question is studying the factors that made SMS such a successful data service in these markets. Portio Research’s SCEUD report (Dec-2006) detailed successful SMS case studies in the Philippines and Malaysia, and identified the following factors as the drivers of SMS’ unprecedented popularity in developing markets. • • • • Cheap Easy to use Easy to access (available on all handsets by default) Serves a definitive purpose (communication or entertainment) SMS could have been tailor-made for developing countries. It is simple to use, cheap and fulfils a basic communication need—very much like voice services. A year and a half since writing SCEUD, we observe that SMS still remains the single-most successful data service in the developing markets of India, China, the Philippines, Pakistan, Brazil, Mexico, etc. The use of SMS in developing mobile markets is expected to remain strong in the near future as well. However, in the long run, the share of SMS in data revenues is expected to go down as SMS use peaks in the limited literate segment of the population in these markets. This holds significance for mobile music—the rising star in the mobile data landscape of emerging nations. Unlike SMS, mobile music does not depend on literacy. Therefore, there is considerable potential for mobile music services in developing markets. A look into some of the data services that have been successful in driving operators’ data ARPU in developing countries reveals that even within a limited scope, operators have been able to popularise basic and simple data services, mostly based on SMS and music, among subscribers. We have chosen the following data services as successful case studies owing to their popularity in their respective markets. © 2008, Portio Research. All Rights Reserved 131 A look into some of the data services that have been successful in driving operators’ data ARPU in developing countries reveals that even within a limited scope, operators have been able to popularise basic and simple data services, mostly based on SMS and music, among subscribers
  • 132. Strategies for Driving Data ARPU Table 11: Examples of Successful Mobile Data Services in Emerging Countries Service Name Type of Service Operator Country ‘Hello Tunes’ Caller ringback tone Bharti Airtel India Voice SMS Vodafone Egypt Ad-funded call-back SMS Vodacom South Africa Mobile money transfer Vodafone Kenya Mobile IM China Mobile China ‘MiniCall ‘Please Call Me’ M-PESA Fetion 132 © 2008, Portio Research. All Rights Reserved
  • 133. Strategies for Driving Data ARPU Case Study 1: Caller Ringback Tone (Hello Tunes) — Bharti Airtel (India) Bharti Airtel is the largest, pan-India mobile operator with 59.67 million subscribers as of endFebruary 2008. 120 The company had a 23.4 percent share of the Indian mobile market—one of the lowest ARPU mobile markets worldwide with an average ARPU of USD 9 per month— as of September 2007. 121 Having established a successful ringtones business, Bharti Airtel was the first Indian operator to launch a caller ringback tone service branded ‘Hello Tunes’ in 2004. This service became a huge hit in the Indian market and prompted competitors to launch similar services. Over the years, Airtel has constantly improved upon its Hello Tunes service, making it one of the most successful mobile data services in the Indian market. Hello Tunes, launched by Airtel in July 2004, was modelled on ‘COLORing’, a successful ringback tone service launched by SK Telecom in May 2002. COLORing was hugely popular in South Korea (contributing three times more revenue than other services such as ring tones and wallpapers in 2005) and Airtel decided to replicate this success in India. As India and South Korea were vastly different in terms of mobile market maturity, Hello Tunes was modified to fit the market and adapted to Indian mobile subscribers’ tastes and preferences. The Hello Tunes service is an example of how a successful data service can be exported to an emerging market from a mature one. Airtel and its platform partner, WiderThan (the company also behind SK Telecom’s COLORing), studied the Korean market carefully and applied the lessons to an emerging market to create a highly successful mobile data service. Hello Tunes has played a pivotal role in Airtel’s mobile music strategy over the years. Today, the service boasts a 60,000-plus song collection across a host of categories and genres. Key Success Indicators Within weeks of its launch, Hello Tunes was adopted by 0.5 million of Airtel’s 9 million mobile customers in India. 122 Five months after launch, Airtel had 1 million subscribers registered for the service, paying USD 0.68 (INR 30) as monthly rental and USD 0.34 (INR 15) for every Hello Tune downloaded—at this point, the penetration of Hello Tunes was over 11 percent of Airtel’s total subscriber base. 123 The service achieved 10 million downloads within a year of its launch and surpassed all of Airtel’s internal targets. Interestingly, more than half the subscribers to Airtel's Hello Tunes service were from small towns, indicating the service’s successful penetration in the promising non-urban market. 124 In 2006, Airtel celebrated 75 120 Source :http://www.bhartiairtel.in/index.php?id=372&tx_ttnews[tt_news]=684&tx_ttnews[backPid]=18&cHash=fe1aa99104 121 Source:http://www.bhartiairtel.in/index.php?eID=tx_nawsecuredl&u=0&file=fileadmin/srijan/events_conferences/JP _Morgan_Conf_Nov_2007.pdf&t=1210236908&hash=fa7427bc5d8cc3c0e914bfa6eb09f564 122 Source: http://www.expressindia.com/news/fullstory.php?newsid=37269 123 Source: http://www.prnewswire.co.uk/cgi/news/release?id=136444 124 Source: http://www.rediff.com/money/2005/sep/22spec.htm © 2008, Portio Research. All Rights Reserved 133 Bharti Airtel was the first Indian operator to launch a caller ringback tone service branded ‘Hello Tunes’ in 2004.
  • 134. Strategies for Driving Data ARPU million music downloads (since launch), including Hello Tunes and ring tones of all forms (MP3, truetones, polytones and monotones). 125 Strategic Success Factors Indian culture is inclined towards music and this cultural preference has played a role in the success of Hello Tunes. However, Airtel’s strategic go-to-market moves and the operator’s subsequent innovations of the service are the main drivers behind its success. Strategic Partnerships Airtel partnered with SK Telecom subsidiary Wider Than to launch Hello Tunes in the Indian market. Wider Than had the experience of setting up a highly successful caller ringback tone service for SK Telecom (COLORing) in South Korea; it used this experience to add significant value to Hello Tunes—for example, Wider Than placed significant focus on the sound quality of the service by reducing noise and latency. Wider Than also took India's multiple dialects into consideration and developed the IVR interface accordingly, accommodating the service in five Indian languages other than English—Hindi, Telugu, Tamil, Punjabi and Kannada. Choice of Content Airtel sourced a wide variety of content from India's movie industry, Bollywood, and voice clips from many of India's celebrities. The operator has been expanding its Hello Tunes catalogue continuously since launch by partnering with prominent content providers and aggregators such as SoundBuzz, Cellebrum, etc. Currently, the Hello Tunes catalogue contains more than 60,000 songs spanning both international (pop, rock, ballads, trance, blues, techno, rap, etc.) and Indian genres (Bollywood songs, old film classics, remixes, devotional songs, etc). Hello Tunes’ content also spans nearly 20 Indian languages and dialects. To capitalise on cricket’s popularity in India, Airtel also offers cricket score updates as Hello Tunes for cricket enthusiasts (called Cricket Hello Tunes). Cricket Hello Tunes are premium tunes, but are completely flexible. When a cricket series ends, the tune automatically reverts to the user’s regular Hello Tune. Ease of Use and Increased Accessibility Airtel emphasised making the service easy to use. Functions like copying a Hello Tune by pressing the ‘Star’ button, went a long way to making the service so popular among the masses. At the time of launch, the Hello Tunes service was available only through Airtel’s IVR system. In the four years since, Airtel has increased the accessibility of this service four times. Currently, subscribers can choose to access Hello Tunes from four different platforms: • • • • SMS IVR ‘Easy Music’ retail outlets Music discovery service branded ‘SongCatcher’ The launch of the Easy Music retail outlets and the SongCatcher service in 2006 were innovative moves that helped fuel the demand for Hello Tunes. The Easy Music service was launched with the opening of more than 100,000 retail outlets, where subscribers had the option of going through and picking out a tone from a physical catalogue. This made purchasing Hello Tunes easier for subscribers who were previously restrained by inadequate understanding of technical details such as SMS and IVR. Currently, there are around 200,000 Easy Music retail outlets across India. The SongCatcher service was tailored to fuel impulse purchases of Hello Tunes. This service allows instant gratification as subscribers can complete a Hello Tune download in 30 seconds 125 Source:http://www.bhartiairtel.in/182.0.html?&tx_ttnews%5Btt_news%5D=269&tx_ttnews%5BbackPid%5D=181&c Hash=be6cc548c0 134 © 2008, Portio Research. All Rights Reserved Within weeks of its launch, Hello Tunes was adopted by 0.5 million of Airtel’s 9 million mobile customers in India.
  • 135. Strategies for Driving Data ARPU through a three-step procedure. The SongCatcher service helped increase the fun element in Hello Tunes and, therefore, promoted its uptake. Price In 2005, the Hello Tunes service was available for a monthly subscription of USD 0.68 (INR30) and per tune charges of USD 0.34 (INR 15). In four years of successful operations, Airtel has not increased either the price per tune or the monthly subscription charge in spite of having expanded the Hello Tunes catalogue by multiples. In fact, the operator has introduced bulk quantity discounts on per download charges (a subscriber can purchase an album of four songs for USD 0.68 (INR 30) and advanced rental discounts on monthly subscription charges (savings of up to 40 percent on subscription fee for signing up for up to one year). Usability and Personalisation The caller ringback tone service provides users with highly personalised content. This is one of the reasons why the service has done so well in markets worldwide. Airtel has added further elements of usability and personalisation to the service by allowing users options for gifting a tune, copying a tune, customising a tune for a specific caller, etc. To conclude, Airtel’s Hello Tunes service is a successful mobile data service in the Indian market and it owes its success to the strategic moves executed by the operator. It is an example of how constant innovation, adequate localisation and astute marketing can create successful, non-SMS data services in markets that have neither next generation network infrastructure nor deep-pocketed mobile subscribers. The following figure, below, summarises how Airtel addressed various challenges in designing the Hello Tunes service. Figure 61: Bharti Airtel ‘Hello Tunes’ – Challenges and Mitigation Strategies Source: Portio Research Ltd. © 2008, Portio Research. All Rights Reserved 135 Functionalities such as gifting a tune, copying a tune, customising a tune for a specific caller, etc., are some of the factors behind the success of Airtel’s caller ringback tones service.
  • 136. Strategies for Driving Data ARPU SMS-based dating services Hello Tunes is not the only successful data service launched by Airtel in the Indian market. In have helped the operator to multiply its earnings in the 2003, TrackUrMate—an SMS-based dating service—helped Airtel increase its earnings from data services by a multiple of five. Before the service was launched, Airtel users were sending past. an average of three SMS a day; this number increased to 15 SMS after the launch of TrackUrMate and translated into approximately USD 0.70 per month in additional data ARPU from its 850,000 post-paid mobile customers. In 2003, very few handsets were GPRSenabled and Airtel’s rationale behind launching an SMS-based data service and not a WAPbased one was to ensure that the service was compatible with all handsets. 126 The following table ranks Bharti Airtel’s mobile music service against the various factors that Portio Research’s SCEUD (2006) identified as requisite for creating a successful mobile data offering: Factors Identified in SCEUD Bharti Airtel’s Hello Tunes Choice of content Affordability of content and value for money Simplicity, ease of use, accessibility Flexible options Fun element Branding focus Handset availability 126 Source: http://networks.silicon.com/telecoms/0,39024659,10004127,00.htm?r=1 136 © 2008, Portio Research. All Rights Reserved
  • 137. Strategies for Driving Data ARPU Case Study 2: Voice SMS (Minicall)—Vodafone Egypt Vodafone Egypt wanted to boost its data ARPU in the typically low-ARPU, predominantly prepaid Egyptian mobile market. The operator chose a compromise between voice and SMS with the launch of an audio messaging service named ‘Minicall’. Audio messaging is simple to understand, faster and easier than writing an SMS, allows more emotional expression, and provides an opportunity for spontaneous and more personalised communication. In developing markets where subscribers have already welcomed SMS, audio messaging or voice SMS, has potential for considerable success, as is evident from the case of Vodafone Egypt. Vodafone launched Minicall in the Egyptian market in March 2007 in collaboration with BubbleMotion—a US-based global voice SMS vendor with proven success in many Asia-Pacific markets (for a detailed profile on BubbleMotion, see SCEUD). Minicall allows Vodafone subscribers to record short voice messages and send them as SMS to any network. Although the service is a combination of voice and SMS, it became successful in Egypt without cannibalising either voice or SMS traffic. This was because Minicall was successful in carving out an independent place for itself in the market—the positioning of the service made it look like an extension of SMS and not basic voice. Minicall has all the attributes that have made SMS so successful in developing markets—cheap, easy to use and a useful communication tool. Moreover, it packed a punch by introducing the additional angles of personalisation and instant gratification. Key Success Indicators Vodafone’s Minicall service achieved 15 percent penetration within two months of launch. 127 By May 2007, the service had been adopted by more than 1.4 million Vodafone subscribers in Egypt. Between March and May 2007, the operator’s ARPU went up 1.5 percent because of the increased use of Minicall. 128 Another indicator of Minicall’s success is the fact that the service is thriving without cannibalising either SMS or voice traffic. It has been successful in creating fresh use situations—for example, subscribers using voice SMS to lace messages with emotion— something that is not easily possible through text messaging. Vodafone’s Minicall service achieved 15 percent penetration within two months of launch. Strategic Success Factors Minicall’s success can be summarised thus—cheap, easy to use, convenient, and fun to use. • Cheap: Minicall costs subscribers no more than text messaging. Vodafone realised that although voice SMS was more than simple texting, subscribers would not be willing to pay more than the price of SMS. So, Minicall has been strategically priced at the same point as SMS. Like incoming SMS, which are free, incoming Minicalls are also free across the domestic network. Moreover, subscribers do not need to pay a monthly fee for this service. • Ease of Use: Sending and receiving voice SMS is as simple as sending and receiving SMS. Replying to and forwarding Minicalls are, in fact, simpler than replying to and forwarding SMS because these two functions can be executed with the press of a button in the case of Minicalls. Also, Minicalls come with delivery reports just like SMS. 127 128 Source: http://findarticles.com/p/articles/mi_m0ECZ/is_2007_May_31/ai_n19189403 Source: http://www.bubblemotion.com/news/TotalTelecom30May2007.pdf © 2008, Portio Research. All Rights Reserved 137
  • 138. Strategies for Driving Data ARPU • Convenient: Minicalls can be sent to and received on any handset that is capable of executing voice calls and SMS functions (that is, all handsets available in the market). As no client software needs installing on the handset, users can start sending and receiving Minicalls on existing handsets without any inconvenience. • Fun Element: The biggest attraction of the Minicall service is the fun element that it introduces to the otherwise mundane SMS function. Minicall elevates messaging from a basic communication need to an impulse-driven conveyance of emotions. Vodafone Egypt’s success with voice SMS carries important takeaways for operators in other developing markets—especially promising rural markets in India and China, where low literacy rates pose challenges for the widespread adoption of SMS. The following figure summarises the strategic factors of Vodafone’s Minicall service. Figure 62: Vodafone Egypt – Strategic Success Factors for Minicall Summarised Source: Portio Research Ltd. 138 © 2008, Portio Research. All Rights Reserved Low cost, ease of use, and the fun element in conveying emotional messages are some of the strategic success factors of Vodafone’s Minicall service.
  • 139. Strategies for Driving Data ARPU The following table ranks Vodafone Egypt’s Minicall service against the various factors that Portio Research’s SCEUD (2006) identified as imperative for creating a successful mobile data offering: Factors Identified in SCEUD Vodafone Egypt’s Minicall Service Affordability of content and value for money Simplicity, ease of use, accessibility Fun element Branding focus Handset availability © 2008, Portio Research. All Rights Reserved 139
  • 140. Strategies for Driving Data ARPU Case Study 3: Ad-funded Missed Call Alert (Please Call Me) — Vodacom (South Africa) and Vodafone (Egypt) South Africa is predominantly a pre-paid mobile market where voice revenue constitutes a major portion of total mobile services revenue. The single-largest successful data service in the country has been SMS. Pre-paid mobile subscribers have a very low overall ARPU and operators have been looking at various channels to increase overall revenue. To make a data service popular in such a market situation, mobile subscribers need to be presented with a clear value proposition. Vodacom, with its ‘Please Call Me’ (or PCM) service has set down a successful example. Missed calls, also known as ‘beeps’ or ‘flashes’ are quite prevalent in most African nations, including South Africa, which is a low-ARPU, mostly pre-paid country. An entire culture has developed around this practice and operators are disadvantaged as these beeps do not generate revenue but congest the network. According to research, more than 20-30 percent of total calls made each day in Africa are beeps. Vodacom South Africa saw an opportunity in this missed call phenomenon and built a successful service around it. The operator launched a free call back service called ‘Please Call Me’ in 2004. This service was very well received in the South African market as it was tailormade for the market conditions—predominantly pre-paid, low ARPU, and users often left without call credit in their accounts. The burgeoning traffic generated by the PCM service led Vodacom to innovate around this service and create revenue potential from it. In October 2007, the operator introduced advertising in PCM messages. This not only led to revenue generation from a free service, but strengthened the messaging culture among subscribers by getting subscribers habituated to free messaging. Also, Vodacom’s PCM strategy was two pronged—along with generating revenues from free SMS, it also encouraged voice traffic. If a PCM message is sent to a subscriber within the Vodacom network, it is followed by a call from the recipient of the message, thus leading to an increase in voice revenue. Vodacom’s PCM service is an example of how operators can drive ARPU through data services even in developing mobile markets. Other than South Africa, Vodafone also offers the successful ad-funded PCM service in Egypt (96 percent pre-paid market). Such an ad-funded model could be applied in other low ARPU growth markets, such as India, China, Bangladesh, Pakistan, etc., which are characterised by similar market conditions. Service Description PCM is a free call-back service for Vodacom’s pre-paid subscribers; it allows them to send a message, free of charge, to someone with the request “Please Call Me”. The unique selling proposition of this service is that it works even when the subscriber has no calling credit in her pre-paid account. The message recipient calls back and incurs the cost for the call. Ever since Vodacom inserted ads in this service, text advertisements of up to 115 characters can 140 © 2008, Portio Research. All Rights Reserved The unique selling proposition of the PCM service is that it works even when the subscriber has no calling credit in his/her pre-paid account.
  • 141. Strategies for Driving Data ARPU be attached to both outgoing and confirming messages. It is a cross-network service and PCM messages can be sent to any subscriber in South Africa. Key Success Indicators Large Volumes In 2006, Vodacom South Africa generated 3.5 billion SMS over its network—the number increased to 4.5 billion in 2007. 129 According to a March 2006 figure, 200 million PCM messages were being sent every month (nearly 7 million messages every day 130) and this volume has been increasing rapidly ever since. An August 2007 survey by Vodacom revealed 2.4 million unique PCM users per day in South Africa. 131 As of December 2007, within the Vodacom network alone, between 18 and 20 million PCM messages were sent daily. This number is huge compared to SMS traffic sent within the Vodacom network and, for a nation of about 44 million, overwhelming—on average, every second person in the country sends a PCM message every day, and for every three SMS sent over the Vodacom network, four PCM messages are sent. According to a March 2006 figure, 200 million PCM messages were being sent in South Africa every month, which is little below 7 million messages every day. The number of PCM messages has been increasing rapidly since then. Advertising Success Advertisers have seen significant success with the PCM service. The National Aids Helpline commissioned an AIDS awareness campaign with Vodacom’s PCM service for 45 days. Text advertisements embedded in PCM messages urged users to contact the call centre to get information on HIV tests. During the campaign period, Vodacom experienced a 136 percent increase in call volumes and an additional 1,500 calls were made per day. 132 Strategic Success Factors Value Proposition for Customers The PCM messaging service provides a great value proposition for Vodacom’s subscribers, as they are able to send free messages to recipients requesting a call back. The greatest value in this service, and the main reason why subscribers would choose to send a PCM message instead of beeping, is the fact that a PCM message can be sent even when the credit in the pre-paid account reads zero. Value Proposition for Advertisers In traditional advertising media such as television or radio, it is difficult to know exactly how many people saw an advert and how many responded. PCM advertising, on the other hand, provides marketers with quantitative results. Through PCM advertisements, marketers can measure exactly how many people saw the messages, how many people responded and how many people used the service being advertised. Based on the Most Successful Data Service Worldwide In most advanced mobile markets such as Europe and North America, mobile advertising tends to be based on mobile Internet and other rich media such as WAP, mobile TV, video services, etc. However, in markets such as South Africa and Egypt, these higher-end data services, although present, are at a nascent stage. Vodacom realised that a far better opportunity could be explored by attaching advertisements to simple text messages—the predominant non-voice service in the given markets. This was a good strategy for the markets in question and unsurprisingly the service became a huge hit among subscribers. 129 Source : Annual Report Source: http://www.vodacom.co.za/mccrdetail.do?id=447&action=detail 131 Source: http://www.on-the-line.co.za/pdf/PleaseCallMe-Factsheet.pdf 132 Source: http://www.on-the-line.co.za/content/view/67/61/ 130 © 2008, Portio Research. All Rights Reserved 141 Through PCM advertisements, marketers can measure exactly how many people saw the messages, how many people responded and how many people used the service being advertised.
  • 142. Strategies for Driving Data ARPU Astute Segmentation The most receptive audience to mobile advertisements is the 19-29 age group 133 This is also the age segment that comprises the heaviest users of PCM messages. Vodacom’s August 2007 survey found that 61 percent of PCM users are less than 34 years old, 134 and that 88 percent of PCM users had some schooling—making them good targets for text advertisements. Accessibility and Usability Given that PCM messages are basically text messages, the service scores highly on accessibility and usability. The following are some usability highlights that add to the success of this service: • Interoperability: The service is cross-network compatible and so can be sent to any network in the country. • Personalisation: Subscribers can personalise PCM messages by mentioning their names in the messages. They also enjoy the option of changing their name once every calendar month. • Frequency of use: Each subscriber is allowed to send up to seven PCM messages every day. • Advertising opt-out: Subscribers can easily opt out of receiving advertisements with PCM messages. 133 Source: http://internetcommunications.tmcnet.com/topics/broadband-mobile/articles/12404-vodacom-launchesmobile-advertising-initiative-south-africa.htm 134 Source: http://www.on-the-line.co.za/pdf/PleaseCallMe-Factsheet.pdf 142 © 2008, Portio Research. All Rights Reserved Interoperability, personalisation, frequency of use and advertising opt-out are some usability highlights that add to the success of the PCM service.
  • 143. Strategies for Driving Data ARPU Figure 63: Ad-funded ‘Please Call Me’ Service – Strategic Success Factors Summarised Sound Value Proposition PCM Success Factors Simple & Easy to Use (Based on SMS) For Operator For Subscribers Targeted reach for advertisers Astute Segmentation For Advertisers Source: Portio Research Ltd. The advert-funded call-back service offered by Vodacom in South Africa and Vodafone in Egypt is in many ways different from other successful data services that we have covered in this report and also in our earlier SCEUD report, published in 2006. There are two reasons why this service is different from the others: • It is an ad-funded data service. • It is an example of a successful non-voice service in developing, low ARPU mobile markets. Instead of the usual requisite elements such as choice of content, user experience and fun factor, the unique selling proposition of the PCM service is the value it offers to subscribers, its practicality, and its simplicity. © 2008, Portio Research. All Rights Reserved 143
  • 144. Strategies for Driving Data ARPU Case Study 4: Mobile Banking (M-PESA) — Vodafone and Safaricom (Kenya) Across the world, there are many examples of mobile payment initiatives that have stalled at the pilot stage because of low customer uptake. In developed countries, uptake has been challenged by competition from alternative banking channels (for example the Internet) and in emerging nations, affordability and usability have been the most significant bottlenecks. In SCEUD, we described the success of G-Cash, an m-commerce service from Globe Telecom in the Philippines. G-Cash is one of the first successful mobile financial services in an emerging nation. Yet mobile banking has immense potential in emerging nations and to this end Vodafone launched an SMS-based mobile money transfer service called M-PESA in Kenya in March 2007. Here, the market opportunity was significant: Kenyans send more than 5 million text messages a day 135 and, at the time of launch, the country had only 400 bank branches and 600 cash dispensing machines. Poor banking infrastructure excluded more than 80 percent of the population from adequately participating in formal banking channels 136 and about 38 percent of the Kenyan population—mostly from rural areas—were entirely unbanked. 137 In March 2007, after a highly encouraging pilot, Vodafone launched M-PESA, a simple SMS-based money transfer service, in Kenya in collaboration with the country’s largest mobile operator, and Vodafone partner, Safaricom. M-PESA addressed a significant gap in the market and opened up banking channels for Kenya’s significantly large ‘unbanked’ population. The service met with phenomenal success and within a year of operation, gathered 1.6 million subscribers. M-PESA’s success can be attributed to several factors; first and foremost, it is based on the most widely used data service in Kenya—SMS. Secondly, M-PESA is offered to Kenyan mobile subscribers for a negligible fee. While keeping the charges low, Vodafone and Safaricom worked out an innovative business model for creating revenue streams from M-PESA. Therefore, MPESA is a brilliant example of how operators in fast-growing, but low ARPU, markets can capitalise on popular data services, think beyond the normal mode of delivering data services, and break technical and regulatory bottlenecks to finally create an innovative business opportunity. Service Description M-PESA is essentially a mobile money transfer service that does not require a new handset or SIM card. Using M-PESA, subscribers can change real money into virtual money (emoney) and transfer this virtual money to other subscribers—recipients of M-PESA transfers can then withdraw the money in its physical form. The conversion of real money to virtual money at the sender’s end and the subsequent re-conversion at the recipient’s end takes place with the help of authorised M-PESA agents. Other than transferring money, M-PESA can also be used to maintain virtual accounts of up to USD 829 (50,000 Kenyan Shillings 138) and to buy pre-paid airtime. 135 Source: http://www.mefeedia.com/tags/ndege/ Source: http://www.reuters.com/article/pressRelease/idUS44198+11-Feb-2008+RNS20080211 137 Source: http://innovationcafe.blogspot.com/2007/06/safaricom-m-pesa-in-kenya-sms-text-news.html 138 NOTE: Conversion rate used :1 Ksh = USD 0.016571429 in early May 2008 136 144 © 2008, Portio Research. All Rights Reserved Using M-PESA, subscribers can change real money into virtual money (e-money) and transfer money to other subscribers.
  • 145. Strategies for Driving Data ARPU Key Success Indicators When M-PESA was launched in March 2007, Vodafone’s target was to achieve 200,000 subscribers within a year of operations. 139 This target was achieved in about four-and-a-half months and, currently, after 14 months of operations, M-PESA has 2 million subscribers— some 20 percent of Safaricom’s subscriber base. With 2 million subscribers, M-PESA dwarfs the largest bank in Kenya, Equity Bank, which has just over 1 million account holders. 140 Figure 64 depicts the burgeoning subscriber base of M-PESA in Kenya. Figure 64: M-PESA – Growing Subscriber Base in Kenya (In Thousand) Number of Subscribers (In Thousands) 2,500 2,000 2,000 1,600 1,500 1,000 500 10 111 2 weeks 3 months 200 0 4.5 months 12 months 14 months Time after Launch Source: Portio Research Ltd. After three months of launch, M-PESA was adding around 12,000 subscribers every week. 141 After one year, the weekly rate of subscriber addition went up to 50,000. 142 Currently, the pace of subscriber addition is over 40,000 a week. Within three months of launch, M-PESA generated profits worth USD 8 million for Safaricom. 143 Since launch, M-PESA has handled over USD 15 million and, currently, the service channels over USD 1.7 million per day. Strategic Success Factors Strictly speaking, M-PESA is not a typical data service that helps an operator boost data ARPU in the face of falling voice ARPU. M-PESA SMS are free for customers; there is no additional data ARPU component in the service. However, as the service delivers value to the end user, this becomes a value proposition in itself, winning favour for Safaricom and hence helping to combat churn. Vodafone’s strategy with this service was to create a completely different business and revenue model capitalising on SMS—the most popular Kenyan data service. The following are some of the strategic factors responsible for M-PESA’s success in Kenya. 139 Source: http://ipezone.blogspot.com/2008/04/more-on-mobile-phone-banking-for.html Source: http://allafrica.com/stories/200804072077.html; http://biz.yahoo.com/ibd/080215/tech.html?.v=1 141 Source:http://www.vodafone.com/etc/medialib/attachments/cr_downloads.Par.3477.File.tmp/VOD833%20Policy%2 0Paper%20Series%20FINAL.pdf 140 142 143 Source: http://www.reuters.com/article/pressRelease/idUS44198+11-Feb-2008+RNS20080211 Source: http://innovationcafe.blogspot.com/2007/08/m-pesa-adds-us-8-m-to-safaricoms-bottom.html © 2008, Portio Research. All Rights Reserved 145 Vodafone’s strategy with MPESA service was to create a completely different business and revenue model capitalising on SMS—the most popular data service in Kenya.
  • 146. Strategies for Driving Data ARPU Simplicity and Ease of Use The M-PESA service is as simple as using SMS and buying pre-paid airtime. Vodafone realised that in a country such as Kenya, where high-end handsets are few, SMS was likely to offer the best combination of usability and affordability. Users can access the service through a menu-driven SIM toolkit, which is easily available through a simple and free SIM upgrade. For a SIM upgrade and depositing or withdrawing of money, users simply need to visit the same outlets from where they purchase pre-paid call credit and follow a process similar to buying pre-paid airtime. As the M-PESA service is aimed at the large rural unbanked population, the interface is available in both English and Swahili, the local language. Fantastic Value Proposition Although an SMS-based service, M-PESA does not charge for SMS sent or received by users. The only charge levied on users is a commission on the transaction. In the case of money transferred to a registered M-PESA user, there is a fixed charge of USD 0.50 (30 Kenyan Shillings). In an instance where money is transferred to a non M-PESA user, the charge varies from USD 1.24 (75 Kenyan Shillings) to USD 6.63 (400 Kenyan Shillings). The amount paid is negligible compared to the high transaction fees charged by banks in the country. The following figure lists the minimum/maximum charges for money transfers through MPESA. The charges vary according to the amount transferred. Figure 65: M-PESA – Money Transfer Charges (In USD, May 2008) M-PESA SUBSCRIBER M-PESA SUBSCRIBER Non M-PESA SUBSCRIBER 0.58 1.68/6.71 0.41/2.81 0 Send Money Withdraw Money Deposit Cash 0 0 Source: Safaricom and Portio Research Ltd. For sending the maximum permissible amount of money through M-PESA, which is around USD 580 (Kenyan Shilling 35,000), M-PESA subscribers need to pay a maximum of a little more than 1 percent of the transaction amount as commission. 146 © 2008, Portio Research. All Rights Reserved
  • 147. Strategies for Driving Data ARPU Wide Accessibility The M-PESA service is supported by a large network of agents through whom users can convert and transfer/receive money. At launch, Vodafone used Safaricom’s established network of dealer outlets selling airtime and other mobile paraphernalia. This was a strategic move because these dealers were already interacting with mobile subscribers and, therefore, could serve as important touch points for the new service. Gradually over the last 14 months, M-PESA’s agent network has expanded to include petrol stations, supermarkets, hotels, banks and micro-finance organisations, and also small-scale entrepreneurs. From 400 retail outlets at the time of launch, there are currently over 1,600 authorised M-PESA agents across Kenya. From 400 retail outlets at the time of launch, there are currently over 1,600 authorised M-PESA agents across Kenya. An Innovative Business Model The business model for M-PESA is unique. Developed and owned by Vodafone, Safaricom offers the service under the terms of a five-year licensing agreement. As SMS sent for accessing M-PESA are free, the only source of revenue for Safaricom is the commission that it charges users for transactions. Safaricom pays Vodafone 32.5 percent of all revenues generated from M-PESA on a quarterly basis. Safaricom’s costs include compensating agents and the free SMS traffic that it supports on its network. A Thriving Ecosystem While discussing NTT DoCoMo’s DCMX service earlier in the report (please see page 70), we highlighted the importance of developing a thriving ecosystem for delivering a successful mobile financial transactions service. Like NTT DoCoMo, Vodafone launched M-PESA in partnership with several entities, each fulfilling a critical role in the launch and subsequent performance of the service. The following table lists the various M-PESA partners and the role they played in its success: Table 12: M-PESA Ecosystem Name of Partner Safaricom Description of Partner • • Provision of mobile network Provision of agent network • Mobile operator Commercial Bank of Africa Faulu Kenya Role in M-PESA Provision of platform for converting real money to emoney Provision of understanding on consumer behaviour Bank Local micro-finance organisation • Source: Portio Research Ltd. To conclude, M-PESA is an example of a fantastic value proposition launched at the right time in the right market. © 2008, Portio Research. All Rights Reserved 147 The source of revenue for Safaricom is the commission that it charges users for transactions.
  • 148. Strategies for Driving Data ARPU Factors Identified in SCEUD M-PESA Choice of Partners Affordability of content and value for money Simplicity, ease of use, accessibility Flexible options Safety and Security Branding focus Handset availability 148 © 2008, Portio Research. All Rights Reserved
  • 149. Strategies for Driving Data ARPU Case Study 5: Mobile Instant Messaging (Fetion)—China Mobile China is the largest mobile market worldwide with around 559 million subscribers as of the first quarter of 2008, with China Mobile holding 70 percent of this subscriber base. Like all emerging nations, the mobile data services market in China is also predominantly SMS and music-based. As of March 2008, Chinese mobile subscribers sent an average of 3.32 messages per day, totalling a mind-bending 58.61 billion SMS sent during the month of March alone. 144 After the phenomenal success of its caller ringback tone service (refer to SCEUD 2006), China Mobile launched a mobile instant messaging (IM) service for the first time in the Chinese market in 2007. The Chinese mobile IM market is shared between the country’s two operators, China Mobile and China Unicom, with other stand-alone services being PICA (from Beijing-based MMIM Technologies), Mobile MSN and Tencent’s mobile QQ. China Mobile launched its mobile IM service called Fetion in June 2007 after a very successful one-year pilot that generated nearly 21 million subscriptions. Fetion is a GPRS-based, not SMS-based, real-time chat service that is offered to subscribers for free. The only charges that users incur are the GPRS charges. Fetion can be used to communicate with a mobile handset or a PC. Driven by China Mobile’s huge subscriber numbers and the operator’s strategic moves to push this service, Fetion witnessed rapid uptake among Chinese subscribers. By the end of 2007, Fetion had captured more than 50 percent of the Chinese mobile IM market. Fetion’s success is indicative of how an operator with a dominant position in the market can use its clout to create successful mobile data offerings. Key Success Indicators Subscriber Base China Mobile launched Femoo as a trial version in November 2006. Within one month, Femoo generated 5.78 million subscribers, and by April 2007 the subscriber count reached 20.68 million. In June 2007, China Mobile launched the commercial version of Femoo, now branded Fetion, which witnessed rapid uptake to register 40 million subscribers after six months of launch. 145 This was far above China Mobile’s target of 25 million subscribers by year-end 2007. 146 The following figure depicts the rapid growth of Fetion’s subscriber base. 144 Source: http://www.intomobile.com/2008/05/05/china-mobile-phone-user-base-hits-574-million-in-march-2008.html Source: Annual reports 146 Source: http://www.entertainmentasia.com/news_detail.php?ct=1003&nid=541 145 © 2008, Portio Research. All Rights Reserved 149 Driven by China Mobile’s huge subscriber numbers and the operator’s strategic moves to push this service, Fetion witnessed rapid uptake among Chinese subscribers.
  • 150. Strategies for Driving Data ARPU Figure 66: China Mobile – Fetion IM Subscribers (In Million, November 2006-December 2007) Subscribers (In Million) 50.0 40 40.0 30.0 21 20.0 10.0 6 0.0 Nov-06 Dec-06 Apr-07 Dec-07 Source: China Mobile Annual Reports When Fetion was launched, the mobile IM market in China was dominated by Tencent’s QQ messenger, PICA and MSN. As of year-end 2007, Fetion was the leading mobile IM service, with a market share of 52 percent (72 percent combined market share of Fetion and Fetion QQ) outstripping that of nearest competitor PICA (18 percent) by a significant margin 147. Although Fetion allows sending unlimited free SMS, the service has not cannibalised China Mobile’s SMS traffic—from 353.4 billion SMS at end-2006, China Mobile’s SMS traffic increased by 42.2 percent to 502.7 billion SMS at end-2007. 148 China Mobile boosted the popularity of Fetion by integrating it with its other successful data services. Strategic Success Factors Integration with Popular Data Services China Mobile boosted the popularity of Fetion by integrating it with its other successful data services. The IM tool has been embedded with downloads of China Mobile’s ringback tone service—‘Colour Ring’. In 2007, ‘Colour Ring’ subscribers downloaded the ringback tone around 0.78 billion times. 149 Fetion also offers users access to an online shop where they can check their phone bills and purchase China Mobile offerings. This strategic move of linking Fetion with its ringback tone service increased the appeal of Fetion. 150 China Mobile plans to integrate more popular data services—such as, games and music downloads—with Fetion in the future. Accessibility and Usability Going beyond the various mobile IM applications available on the market, China Mobile’s strategy was to promote Fetion as a fixed-mobile convergence product—a comprehensive product that seamlessly integrates communication on the PC and the handset. Moreover, Fetion’s interface is similar to Tencent’s QQ and MSN Mobile, making it simple and easy to use. This similarity with popular mobile IM products meant that subscribers were already accustomed to using the product; this guaranteed that the service would not suffer from slow uptake due to lack of user awareness. Other attractions of Fetion are that it provides free 147 Source: http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=ind_focus.story&STORY=/www/story/04-162008/0004793840&EDATE=WED+Apr+16+2008,+08:00+AM 148 Source: Annual Report 149 Source: http://www.chinamobileltd.com/images/pdf/2008/ar/en_chp07.pdf 150 Source: Annual report – china mobile 2007 150 © 2008, Portio Research. All Rights Reserved
  • 151. Strategies for Driving Data ARPU SMS services on both the handset and the PC, and that signing up for the service is easy and can be done through multiple platforms—for user convenience. Handset Strategy China Mobile provides its users with a range of handsets that are pre-loaded with the Fetion software. Currently, Fetion is available on over 16 prominent handset brands, including Nokia, Motorola, Samsung, NEC, Dopod, etc. Value Proposition At launch, China Mobile’s subscribers could use Fetion free of cost. Those using Fetion QQ, the version of Fetion which is interconnected with Tencent QQ, were charged a nominal fee of USD 0.71 a month. Compared to this, Fetion’s competitors—Tencent and MSN Mobile—were charging USD 0.71 and USD 1.42, respectively, for their services. Fetion is still freely available for download and use (users only pay the GPRS charges), thereby offering a sound value proposition. Business Model In a strategic move that was possible because of China Mobile’s near-monopolistic domination of the country’s mobile market, the operator terminated its partnership with Tencent and MSN just before the launch of Fetion. This implied that the large number of China Mobile subscribers who were using Tencent’s QQ or MSN Mobile could not continue to do so and also could not send IMs to friends who were using these services on other networks. However, as Tencent was the leading mobile IM provider in China with 7 million subscribers as of June 2007, the operator realised the importance of interoperability between Tencent’s messenger and Fetion. 151 China Mobile signed an interoperability agreement with Tencent, under which Fetion users could communicate with Tencent QQ users through a platform called Fetion QQ for a monthly charge of USD 0.71—the derived revenue is shared between Tencent and China Mobile. As a result, China Mobile earns revenues from Fetion through two direct channels: • • GPRS charges from Fetion users. Revenue share from Tencent QQ users. Sometimes services in China can appear very successful on a worldwide scale simply due to the un-matched size of this market. However, Fetion’s success is also indicative of how an operator with a dominant position in the market can use its sway to create successful mobile data offerings. The following figure summarises the key strategic factors for the success of Fetion. 151 Source: http://www.gidabyte.com/focus/151/ © 2008, Portio Research. All Rights Reserved 151 China Mobile provides its users with a range of handsets that are pre-loaded with the Fetion software.
  • 152. Strategies for Driving Data ARPU Figure 67: China Mobile – Fetion IM – Key Success Factors Summarised Integrated with popular data services Colour Ring Tones & Online Shop Unlimited Free SMS to handset/PC Dominance in the Chinese Mobile Market Replication of online experience Cheap and easily accessible Interoperability with Tencent QQ Source: Portio Research Ltd. The following table ranks China Mobile’s Fetion IM service against the various factors that Portio Research’s SCEUD (2006) identified as requisite for creating a successful mobile data offering: Factors Identified in SCEUD Fetion Mobile IM Service (China Mobile) Affordability of content and value for money Simplicity and ease of use Business Model Fun element Branding focus Handset availability 152 © 2008, Portio Research. All Rights Reserved
  • 153. Strategies for Driving Data ARPU Section 15 Emerging Markets–Future of Mobile Data © 2008, Portio Research. All Rights Reserved 153
  • 154. Strategies for Driving Data ARPU The Future of Mobile Data Services in Emerging Markets After SMS, the only other data service that has been successful to some extent in developing mobile markets is mobile music—as MMS has failed to generate interest in such markets. As these markets develop and mature, the services that hold out the maximum potential for growth include mobile gaming, payments and mobile TV/video. Figure 68 summarises the state of various data services in developing countries, segmenting them by current market share and future potential growth. Figure 68: Relative Positioning of Data Services in Developing Markets Source: Portio Research Ltd. Data services such as mobile gaming, TV/video and payments are expected to witness better growth in emerging markets compared to their growth in developed markets. By example, Mobile TV has had to compete against the superior viewing experience provided by largescreen plasma and HD TVs available in developed markets where the service has so far met with success. The challenge of building up an appetite for the same content on a small mobile handset screen was, therefore, quite formidable. In most emerging nations, the penetration of such advanced television technology is very low. Moreover, most rural areas in these countries do not even have proper television coverage; this presents an opportunity for the growth of live mobile TV in these markets. Mobile video clips, especially user-generated video clips, have a potential for growth in emerging markets because low broadband penetration restricts users from experiencing such clips through popular portals like YouTube and Revver. Accessing such clips through the handset is expected to be a novel experience for subscribers in emerging markets, thereby encouraging uptake. Mobile gaming also has the potential for growth in emerging countries because, while gaming as an activity has universal appeal, the youth population in many emerging regions has not experienced gaming on sophisticated consoles. In fact, due to low broadband penetration, a large number of users have no experience of online gaming either. 154 © 2008, Portio Research. All Rights Reserved After SMS, the only other data service that has been successful to some extent in developing mobile markets is mobile music.
  • 155. Strategies for Driving Data ARPU Mobile banking makes a clear-cut case for itself in certain countries of the African continent, and in the rural regions of Bangladesh, India, China, Brazil, etc., where traditional banking channels are not available to a large segment of the population. Operators, handset vendors, content providers and platform providers can capitalise on the potential of these services by emphasising the following: • Affordability: Data services should be cheap and should be compatible with low-end handsets. • Compelling value proposition: The service should provide more than sheer entertainment and preferably meet a practical need, as the issue of affordability enters the fray if the service is essentially an entertainment-oriented service, as in the case of mobile gaming or mobile TV. • Ease of use/usability: Design the service to ensure simple navigation. • Accessibility: Make the service available through multiple channels, including SMS and IVR. © 2008, Portio Research. All Rights Reserved 155 Affordability, compelling value proposition, ease of use and accessibility are the key parameters that operators, handset vendors, content providers and platform providers need to emphasize on in order to capitalise on the potential of the data services
  • 156. Strategies for Driving Data ARPU Section 16 Conclusion 156 © 2008, Portio Research. All Rights Reserved
  • 157. Strategies for Driving Data ARPU Conclusion From a little over 16 percent at end-2006, the contribution of data revenue to the total worldwide mobile services revenue is expected to increase to approximately 25.5 percent by end-2012. The increasing importance of data services has made operators worldwide come up with strategies to maximise the revenue-earning potential of these services. Operators are now focussing on offering a wide array of data services to subscribers, ranging from the basic, yet tremendously popular, SMS to advanced services such as mobile TV and mobile Internet in order to counter the declining voice revenues and to compete in the this highly competitive industry. After writing SCEUD, we reached the conclusion that to create winning data services, operators needed to follow some basic principles. These were: • • • • • • Maximize choice and flexibility Keep prices low and transparent Focus on the brand Keep the service easy to use Innovate on service ideas and market smartly Ensure adequate availability of handsets We believe that the futures success of 3G, and beyond, lies in delivering services that meet these criteria. The 20 odd cases studied in this report reinforce the need to follow the above principles and more. Some of these key criteria are detailed below. Expand Perceived Value “What value will this service deliver to my customers? Is this service a must-have, a good-to have or a great-to-have? Will my service pass the cost-benefit analysis that my buyers will subject it to? ” Asking questions like these while pricing data services will help avoid pricing the services way above what customers are ready to pay for them. In case operators wish to extract consumer surplus, they should be able to first create value in the eyes of the consumer. Also, they need to know whether a consumer surplus actually exists for a particular data service and only then should they price it at a level they think their end-customers would accept. For this, it is important to segment the market and target customers according to their tastes, preferences and spending power. Vodacom’s ‘Minicall’ service is a great example of delivering value to customers. Minimize ‘Clicks to Access’ It is great to be able to watch TV on the handset. But a user who misses a fascinating goal in a football match of national import because he could not click his way through to the mobile TV service on his handset on time, is surely not going to appreciate this service too much. End-users are hardly concerned with technology that goes into delivering a mobile data service. They are only concerned with quality of service and ease of use—the speed of access, the ease of access, and most importantly, the number of clicks it takes to navigate through to the service. A data service may run on sophisticated technology, but to make it popular among end-users, it needs to be simple. In order to make a mobile data service successful, operators need to focus on making the service simple to use. The focus should be to minimize the number of clicks required to access the service. Choose Your Service Carefully Data services are important for an operator’s service portfolio. Operators worldwide are offering some form of data service or other and are constantly trying to fortify their data services portfolio. That said, it may be dangerous to foray into offering new data services without considering their feasibility. Different data services demand different degrees of resources and involvement from the operator. © 2008, Portio Research. All Rights Reserved 157
  • 158. Strategies for Driving Data ARPU The following figure depicts a value-investment mapping for mobile data services. Figure 69: Value-Investment Mapping of Data Services Bubble size correlates to importance of usability Promising “Star” Performer Challenging Importance of Perceived Value High Low Need for investment SMS MMS Email/IM Games Full-track music Mobile Interent UGC TV Banking/paymets High Caller Tones Source: Portio Research Ltd. While SMS is the unchallenged star performer (low on investment, high on perceived value and moderate in need for usability), services such as mobile banking/payments and mobile TV are challenging to develop because the need for investment in these services is usually quite high. Caller ringback tones, mobile internet, games, e-mail/IM and UGC, on the other hand, are promising services. Plan the Launch Any product or service is bound to be successful if it is launched at the right time at the right place. Mobile TV in Italy is a case in point. The service was launched in Italy during the Football World Cup of 2006. The strategic launch timing of the service helped the operator, 3 Italia, add a huge number of subscribers within a remarkably short period of time. Similarly, consumer mobile e-mail in Japan became such a huge hit because it was launched at a time when SMS had not managed to conquer the imagination of Japanese mobile subscribers as THE MOST useful mobile data service. Another example is NTT DoCoMo’s launch of mobile credit service DCMX at a time when credit cards were not in widespread use in Japan. Create the Right Business Model A data service might be all that it takes to capture the fancy of mobile subscribers. But the lack of a suitable business model might prevent it from being a commercial success. Online user-generated content platforms are examples of such services. In spite of drawing staggering traffic numbers, the owners of these platforms have been struggling to monetise them because no proven business models have been identified so far. In the mobile data business, it is imperative to create the right business model. A case in point is SeeMeTV (now EyeVibe). 3 UK could turn user-generated content into a revenue earner because the operator invented an ingenious business model involving pay-outs to content creators. Another example is 3 Italia’s broadcast TV business model, which involves control 158 © 2008, Portio Research. All Rights Reserved
  • 159. Strategies for Driving Data ARPU on the whole value chain, from content creation to delivery and billing. NTT DoCoMo’s DCMX service, with a thriving ecosystem supporting it, is another example of a data service backed by a sound business model. Be Ready with Upgrades Like all things in today’s fast-paced world, the dizzying pace of innovation is rendering the lifecycle of mobile data services shorter. In order to cope in a dynamic market such as this, operators should be ready with upgrades. A great example of this is mobile music. When the popularity of monophonic ringtones started declining, operators were quick to offer polyphonic tones, truetones, caller ringback tones and finally, full-track music downloads. The progression of mobile music from one form to the other has been very smooth and this has led to sustained revenue from the service. Final Thoughts The core strategies that need to be adopted to make a data service successful have not changed much since we published SCEUD in 2006. We have worked for 5 months to publish this follow-up study, and we believe the findings of this report reinforce the conclusions of SCEUD. One point that has been reinforced more in this report than in SCEUD is that of launch timing, and it would seem that several of the case studies in this new report highlight the advantages of being first-to-market. It would seem that the strategic timing of a new product or service launch to fit to local market conditions is a formidable weapon which MNOs can use to win long-term advantage over their competitors. Of course, competition has intensified even further since we wrote SCEUD 18 months ago, and with all the options available around them, customers have become, in general, even harder to satisfy. However, the good thing is that subscribers do not ever seem to tire of gazing into their mobile handset screens! The opportunities, therefore, are almost endless. If operators can devise data services which deliver value and are easy to operate, they are surely going to find that right market response. The following is a quick re-cap of some best practice pointers, taken from SCEUD and this new report that can aid operators and other stakeholders in the mobile data services market in creating winning mobile data services. Mobile TV and Video • • • • • • • Launch timing: The launch timing of a service such as mobile TV is strategic. 3 Italia launched its mobile TV service during the FIFA World Cup 2006 and this helped it in attracting a large number of subscribers in a short span of time. Being the first mover can also be of great help. Ease of Use: The user interface for such services needs to facilitate ease of use as subscribers do not want to push several keys before reaching the content they want to view. Accessibility: The service should be accessible at all times and from any where the subscriber wants, which implies that it should have a good network coverage area. Best QoS: Operators need to focus on offering the best quality of service (QoS)— therefore, they need to adopt a technology that is not only cost effective, but can also deliver the best service to end users. Offer value through pricing: Operators need to offer the services at a price that spells out value for subscribers. Wide array of content: Content should be tailor-made for subscribers’ requirements. In other words, offer subscribers the sort of content they like and give them plenty of it so they are spoilt for choice. Business model: Operators should have control over most of the mobile TV/video value chain as this helps them in customising the content to subscriber demands. © 2008, Portio Research. All Rights Reserved 159
  • 160. Strategies for Driving Data ARPU Mobile User-Generated Content • • • • • Innovative business model: Mobile-based social networking and user-generated content (UGC) services need to have innovative business models as those for Internetbased social networking services might not be a perfect fit for the mobile industry. Pricing: The services should be priced low and may be offered in bundles for a monthly subscription. Online clone: The services should be similar to their online versions so that subscribers get the benefit of a seamless experience. Ease of use: The services should be simple and easy to use. Availability and access: The services should be available across different networks as this will improve their probability of success. Mobile Games • • • • • • Gaming innovations: Operators need to come up with innovative and engaging games that can be played on mobile handsets. Availability of latest handsets at attractive prices: Operators need to develop strategies that will promote the use of the latest gaming-based handsets. Expansion: Operators need to introduce successful mobile gaming titles in different geographies to increase data revenue. Deployment of improved technology: Operators need to constantly upgrade technology for services such as mobile gaming to keep pace with the growing sophistication of the gaming industry. Simple tariff plans: Operators need to offer simple tariff plans to mobile gamers; low game prices will help increase use. Ecosystem: Develop an ecosystem where each player in the value chain has enough incentive to make the service successful. Mobile Music • • • • • • Quality: The quality of music on offer needs to be good to increase usage. Choice: Users should have large and varied, as well as the latest, content available to choose from. Segmentation: Users can be segmented based either on age or on usage of such data services so that operators can target customers accordingly. Pricing: Tariffs should be flexible and based on the target audience. Ease of use: Subscribers should find the service easy to use. Service promotion: Operators need to use innovative ways to promote the service. Mobile Payments • • • • • 160 Innovation: Mobile payment services need to be innovative in order to offer great utility to mobile subscribers. Operators need to identify subscriber requirements and offer innovative services accordingly. Business model: The business model of mobile payment services should be dependent on the market. For example, in case of developing countries, there should be a business model that offers these services at a very nominal charge or at no charge at all. The revenue in such cases should be generated through other sources — such as a nominal commission with each payment. In the fat growing, yet cash-strapped mobile markets, operators should drive these service son volumes, not value. Ease of use: Mobile payment services should be easy to use as this helps in making the service more popular. Safety and security: As these services involve financial transactions, their success depends, to a major extent, on the safety and security features of the services. Develop a robust ecosystem: Since mobile payment services involve the services of various players in the value chain, there is a need to develop a robust ecosystem to make the service successful. © 2008, Portio Research. All Rights Reserved
  • 161. Strategies for Driving Data ARPU Mobile Internet • • • • • Technology: Use of efficient technology can help operators in providing high quality data services through mobile portals at low prices. Pricing plans: Flat rate pricing can also help increase the usage of data services through mobile portals. Wide range of content: The wide range of content offered through mobile portals can help increase the use of the mobile portals and, thus, push data revenue. Feature-rich handsets: Attractive and feature-rich handsets can be used to increase the uptake of the service. Ease of use: The service should be user friendly and simple to use. Mobile IM • • • Bundling: Bundle the mobile IM service with other data services such as social networking and UGC on mobile handsets. Offer value: Operators need to offer value to subscribers to encourage uptake. For instance, subscription to an IM service could include free access to other popular data services during the promotional period. Partnerships: Proprietary IM services have not been successful in many countries. Operators need to launch mobile IM services in partnership with branded Internet players. Mobile E-mail • • • • Range: Operators need to offer a wide range of mobile e-mail services. Ease of use: The service should have a simple interface and be easy to use. Handsets: A wide range of e-mail-enabled handsets can help increase the uptake of the service. Pricing: The pricing structure should be simple and should offer great value to subscribers. SMS • • • • Pricing: For this industry bellwether, operators should push bundled plans, keep prices low and customise pricing as per the market. Promote premium SMS: This segment is proving to be a good source of revenue for operators, who need to be innovative in using premium SMS. Segmentation: Operators should segment the market based on usage or on age and then introduce segment-specific SMS plans. Target businesses: Sell messaging plans to businesses. © 2008, Portio Research. All Rights Reserved 161
  • 162. Strategies for Driving Data ARPU Appendices This market study has been written in a way that avoids excessive use of market acronyms (except where appropriate) and industry technical talk, as we have tried to keep the text open to all readers, not just those with in-depth knowledge of the world’s mobile markets. Because this study covers all geographical regions and many emerging markets, a great deal of the data contained within this study will potentially be of interest to investors, financial analysts, consultants, venture capitalists and others all around the world who do not work within the mobile industry itself every day of their lives. To many of these people, some of the industry technical talk and acronyms may be confusing, so we have attempted to write this study in a self explanatory way that assumes little prior knowledge, but in doing this, some of the speech chosen may seem somewhat "obvious" to our more knowledgeable readers. We hope this offers the best possible solution to everyone, and we hope this does not cause any confusion or inconvenience. Where we have used technical terms or acronyms, we offer an explanation of those expressions below. 162 © 2008, Portio Research. All Rights Reserved
  • 163. Strategies for Driving Data ARPU Glossary 1G or First Generation Packet Data Networks Packet data networks include Cellular Digital Packet Data (CDPD), Advanced Radio Data Information Service (ARDIS) and Mobitex are regional as opposed to national networks. 2G or Second Generation Packet Data Networks The second-generation packet networks recently introduced consist of combined voice and packet data networks based on global standards. 2.5G 2.5G describes the state of wireless technology and capability usually associated with General Packet Radio Services (GPRS) - that is, between the second and third generations of wireless technology. The second generation or 2G-level of wireless is usually identified as Global System for Mobile (GSM) service and the third generation or 3G-level is usually identified as Universal Mobile Telecommunication Service (UMTS). Each generation provides a higher data rate and additional capabilities. There is also a fourth generation (4G) of technology in the planning and research stages. 2.5G protocols extend 2G systems to provide additional features such as packet-switched connection (GPRS) and enhanced data rates (HSCSD, EDGE). 3G or third generation 3G is an International Telecommunication Union (ITU) specification for the third generation (analog cellular was the first generation and digital PCS 152 was the second generation) of mobile communication technology. Third generation Wireless Wide Area Networks (WWAN) communication systems are characterised by high-speed data rates (144 Kbps 153 to 2+ Mbps 154) suitable for multimedia content. 3G technologies typically are packet-switched and use Code Division Multiple Access (CDMA) technology to communicate. Examples of 3G include EDGE 155, 1xRTT, HDR and W-CDMA 156. 3G protocols in mobile telephony support higher data transmission rates, measured in Mbps, intended for applications other than voice. 3G support broadband and bandwidth applications, such as full-motion video, video conferencing and Internet access. 4G or fourth generation 4G or fourth generation WWAN communication systems are characterised by high-speed data rates at 20+ Mbps, suitable for high-resolution movies and television. The initial deployment of 4G communication systems is expected in 2006-2010. The proposed features of these systems include 100 Mbps speed, location sensing and self-tailoring to user needs. AAC Advance Audio Coding: It is an advanced audio compression algorithm used for downloading music files, streaming video, audio and satellite-radio applications. AMR Adaptive Multi-Rate: It is a data compression tool used for coding audio forms, such as speech. It makes use of different modes of encoding, such as ACELP, DTX, VAD and CNG, to tackle unlikely network conditions 152 Personal Communications Service (PCS) Kilobits per second (Kbps) 154 Megabits per second (Mbps) 155 Enhanced Data for Global Evolution (EDGE) 156 Wideband Code Division Multiple Access (W-CDMA) 153 © 2008, Portio Research. All Rights Reserved 163
  • 164. Strategies for Driving Data ARPU AMPS Advanced Mobile Phone System: A 1G standard, which operates in the 800-900MHzfrequency band. It is still widely used in the United States. ARPU Average Revenue per User: Measures the average monthly revenue generated for each customer unit, such as a handset or pager that an operator has in operation. Backhaul It refers to the process of transmitting voice and data traffic from a remote site to a central site. BMP BMP is an extension for files containing graphics. It is used as a graphics file format on the Microsoft Windows platform. It stores image formats of different bit sizes. It regenerates the image in its own form and does not have any compressing capabilities. However, it can adapt itself to other image software’s running on other operating systems. This graphic format also comes with .DIB (device-independent bitmap), .XBM, .XPM and .TGA extensions. BMP files can support lossless data compression algorithms because of their spare capacities. BoP Bottom of Pyramid: It refers to poorest socio economic groups. BREW Binary Runtime Environment for Wireless: It is an application development platform developed by Qualcomm. It enables wireless users to download and run applications, such as enhanced e-mail, location positioning, games, etc., to BREW-enabled handset. BREW was first introduced and developed for CDMA handsets, but it now supports GSM/GPRS and UMTS handsets as well. Broadcast Technologies for Mobile TV Some of the broadcast technologies for mobile TV worldwide are: DVB-H 157 (Digital Video Broadcast – Handheld): DVB-H technology allows simultaneous broadcast of television, video and radio channels on mobile, and helps operators to preserve network bandwidth for other data and voice services. It has been accepted as the standard by the European Telecommunications Standards Institute (ETSI). ISDB-T (Integrated Services Digital Broadcast – Terrestrial): It is the transmission standard that has been developed in Japan to help the radio and television stations support digital content. DMB (Digital Media Broadcast): It is a transmission standard, which transmits video feed via satellite (S-DMB) or terrestrial (T-DMB) mode. The standard is currently deployed in Korea and is being increasingly used in other parts of Asia as well as Europe. MBMS (Multimedia Broadcast/Multicast Service): This standard allows the transmission of multimedia content over the UMTS and GSM network. BTS Base Transceiver Station: It is the equipment that facilitates the wireless communication between user equipments such as mobile handsets, computers etc., and the mobile network. 157 Source: http://www.strategiy.com/inews.asp?id=20041127000355 164 © 2008, Portio Research. All Rights Reserved
  • 165. Strategies for Driving Data ARPU BWA Broadband Wireless Access: It is a form of fixed wireless access system. CAPEX Capital Expenditure: It refers to the cost of developing a product or system. CDMA Code Division Multiple Access: In a CDMA system, each voice circuit is labelled with a unique code and transmitted on a single channel simultaneously along with many other coded voice circuits. The receiver uses the same code to recover the signal from the noise. CDMA2000 1x CDMA2000 1x: This is regarded as the first phase of CDMA2000 technology used for providing voice and data services over mobile networks. Data speeds of 307kbps are using a single channel while with two channels speeds of 614kbps are possible. Churn Rate It is the rate at which the subscribers cancel their subscription with the existing operator and sign up with another operator. DoJa It is a JAVA-based technology/application developed for DoCoMo's i-mode mobile handset. It allows users to access more interactive applications or content than the conventional HTMLbased i-mode content. DRM Digital Rights Management: It refers to a set of technologies used for the administration of digital content. It authorises the nature and restricts the frequency of the usage based on the administrative policy settings. It sustains the revenue of the mobile network operator by regulating the usage of content at end user. DSL Digital Subscriber Loop: It is a technology that provides digital data transmission over the copper lines of a PSTN network. DVB-H Digital Video Broadcasting-Handheld is a mobile TV format. Broadcast services can be brought to mobile handsets using this technical specification. EDGE Enhanced Data rates for Global Evolution: An enhanced modulation technique designed to increase network capacity and data rates in GSM networks. EDGE should provide data rates up to 384 Kbps. EDGE will let operators without a 3G license compete with 3G networks offering similar data services. Emoticon Emoticons are symbols or combination of symbols used to convey emotional content in messages. EV-DO Evolution Data Only, Evolution Data Optimised: It is a wireless radio broadband data protocol being adopted by many CDMA operators. It is being used as a part of CDMA2000 networks in Japan, Korea, the United States and Canada. It provides better data speeds in comparison to GSM technologies like GPRS and EDGE. © 2008, Portio Research. All Rights Reserved 165
  • 166. Strategies for Driving Data ARPU ExEn Execution Environment: It is an application developed by Infusio for developing games for higher-end mobile devices. GIF Graphics Interchange Format: It is a file extension to a different kind of bitmap image. This format of file is capable of compressing the size of the file, unlike a normal BMP format file. The compression process does not result in loss of data. This feature ensures the quality of image by simultaneously reducing the downloading times by a considerable amount. This format is only suitable for images of 256 and less colours. It causes limitation in formatting picture files. GPRS General Packet Radio Service (GPRS) is a packet-based standard for mobile communication, which runs at speeds up to 115 kilobits per second, compared with GSM systems' 9.6 kilobits per second. GPRS supports a wide range of bandwidths and makes efficient use of limited bandwidth. It is particularly suited for sending and receiving small bursts of data, such as e-mail and web browsing, as well as large volumes of data. Applications for GPRS may include any of the following: chat, text and visual information, still images, moving images, web browsing, document sharing/collaborative working, audio, job dispatch, corporate e-mail, Internet e-mail, vehicle positioning, remote Local Area Network (LAN) access, file transfer or home automation. GSM Global System for Mobile communications, the most widely used digital mobile phone system and the mobile telephone standard in Europe. It was originally defined as a pan-European open standard for a digital cellular telephone network to support voice, data, text messaging and cross-border roaming. GSM is now one of the world's main 2G digital wireless standards. GSM is present in more than 160 countries and according to the GSM Association, accounts for approximately 70 percent of the total digital cellular wireless market. GSM is a time division multiplex (TDM) system. Implemented on 800, 900, 1800 and 1900 MHz frequency bands. GUI Graphical User Interface (GUI) is the front-end interface and navigation design of an application. This includes standard formats for representing text and graphics. GUIs have become the standard ways for interaction between users and digital devices. HTML Hyper Text Mark-up Language: It is a syntax based language used for designing web pages. The content of HTML, written in standard syntax, when opened in a web browser takes the form of Web page. The nascent version of HTML was used with easy syntax rules in comparison to existing HTML and MHTML versions of it. In recent times, the official standards of World Wide Web recommend Web developers to use XHTML 1.1, XHTML 1.0 and HTML 4.01 versions. IC An Integrated Circuit which is also known as a chip is a small electronic circuit made out of semiconductor material. IC is used in almost all electronic equipment in use today. iMelody It is a standard format through which music tones can be transferred between devices. The format has volume modifiers to vary the volume throughout the tone duration, codes for flashing phone’s backlight and other features. iMelody was developed by the irDa association (infrared communications). 166 © 2008, Portio Research. All Rights Reserved
  • 167. Strategies for Driving Data ARPU Instant Messaging Instant Messaging is an Internet-based service that alerts users when their friends or colleagues are online and allows them to communicate with each other in real-time through private online chat areas. With instant messaging, users create a list of other users with whom they want to communicate. When a user from their list is online, the service alerts them and enables an immediate contact with the other user. While instant messaging has primarily been a proprietary service offered by Internet service providers such as AOL and MSN, businesses are starting to employ instant messaging to increase employee efficiency and make expertise more readily available to employees. Intranet The intranet is a private network inside a company or an organisation, and uses software similar to that used on the Internet. Companies use intranets to manage projects, provide employee information, distribute data and information, etc. i-mode i-mode is a proprietary packet-based information service for mobile handsets. It delivers information (such as mobile banking, and train timetable) to handsets and enables exchange of e-mail from mobile handsets on the PDC-P network. Launched in 1999 by NTT DoCoMo, imode is very popular in Japan (especially for e-mail and transfer of icons). IMPS IMPS (Instant Messaging and Presence Service) is an instant messaging system designed for mobile environments. Presence refers to the availability of a user for communication. IMS IMS IP Multimedia Subsystem is an extension of the GSM / 3GPP GPRS core Network. It uses SIP (Session Initiation Protocol) to set up, maintain and terminate packet-switched voice and multimedia sessions. Interoperability This is defined as the ability of a network to operate with other networks, such as two systems based on different protocols or technologies. J2ME Java2, Micro edition: The Micro Edition of the Java 2 Platform provides an application environment that specifically addresses the needs of commodities in the vast and rapidly growing consumer and embedded space, including mobile handsets, pagers, personal digital assistants, set-top boxes, and vehicle telematics systems. Java A simple platform-independent object-oriented programming language used for writing applets that are downloaded from the World Wide Web by a client and run on the client's machine. JPEG Joint Photographic Experts Group: This is the most commonly used format for storage and transmission of images on the Internet. The format uses lossy compression techniques wherein the compressed data is very close to the original form. An advanced form of the JPEG standard known as JPEG File Interchange Format (JFIF) is capable of formatting the size of graphics according the storage capacity of computer and transmission medium. LTE Long-Term Evolution (LTE) is the standard being developed by 3GPP to achieve download rates of 100Mbps, and upload rates of 50Mbps for every 20MHz of spectrum and is termed as a 4G standard. LTE will have support for bandwidths ranging from 1.25MHz to 20MHz. The LTE group is expected to come up with concrete recommendations by September 2007. © 2008, Portio Research. All Rights Reserved 167
  • 168. Strategies for Driving Data ARPU MIDI Musical Instrument Digital Interface: It is a protocol which acts as an interface between musical notes of an electronic instrument and computer. The orchestral performance and notes are defined (formatted) into a form, which can be understood and played by computers, i.e., MIDI is capable of playing the actual piece of orchestra unlike a recorded version. MNP Mobile Number Portability: MNP is a facility which allows mobile subscribers to retain their mobile number when moving between mobile networks. MP3 It is an expert compressing tool, which has been widely used in musical content rendering. It is capable of compressing audio files up to 10 percent of its original size. MPEG layer-3 (MP3) format can retain the full quality of an actual song by unperceivable deviations. MVNO Mobile Virtual Network Operator: Term used for a mobile operator who does not own its own spectrum and usually does not have its own network infrastructure. Instead, MVNOs have business arrangements with traditional mobile operators to buy minutes of use (MOU) for sale to their own customers. Node - B It is a term used in Universal Mobile Telecommunications System (UMTS) to refer to the Base Transceiver Station (BTS). Nokia Binary It is an audio format developed by Nokia, which allows mobile users to send ringtones to some Nokia handsets and other brands. It is also known as SCKL, since all the messages begin by //SCKL. OPEX Operating Expenditure: It refers to the ongoing costs for running or operating a product or system. Packet Data Packet data is a method of transmitting information in small packets each containing a certain amount of the information. Packet data networks allow transmission of high-speed data to and from devices connected to the network. Packet Data is similar to dial-up Internet access available in homes or in businesses with cable modems, ADSL 158 lines, etc. PCO Public Call Office: It refers to the telephone facility located in a public place. PCS networks Personal Communications Service Networks: In the U.S., the 1.9 GHz band has been allocated for PCS systems; the allocated spectrum is 120 MHz wide and is licensed as two 30 MHz segments for the 51 major trading areas, and three 10 MHz segments for the 493 basic trading areas. PDA Personal Digital Assistant: A portable computing device capable of transmitting data. This device makes possible services such as paging, data messaging, electronic mail, computing, facsimile, date book and other information handling capabilities. 158 Asymmetric Digital Subscriber Line (ADSL) 168 © 2008, Portio Research. All Rights Reserved
  • 169. Strategies for Driving Data ARPU PDC This stands for Personal Digital Cellular, a Japanese cellular standard. PHS system This stands for Personal Handy phone system, a Japanese cordless standard. PIM Personal Information Manager: Also known as a "contact manager," is a form of software that logs personal and business information, such as contacts, appointments, lists, notes, occasions, etc. PNG Portable Network Graphics: This tool replicates the GIF format in it’s functioning with compression as an added feature. This format similar to GIF is capable of working on different platforms, backed by library functions. It is a non-lossy compression tool. PTT Push to Talk is a two way communication system which allows only one user to talk at any given time. This system, comparable to walky-talky is unlike mobile handsets which allow multiple users to speak at the same time. QCP QCP is a format used for ringtones. The format was developed by Qualcomm PureVoice. RAN Radio Access Network: It is a component that exists between the mobile handset and the core network. It performs the radio functionality of the network and provides connection to the core network. SIM card It is a smart card that gives GSM handset its user identity. The card is inserted into a GSM/TDMA or GSM-only mobile handset containing subscriber-related data. The card contains 18 digits code for GSM markets and 20 digits code for TDMA markets. SIM Toolkit Subscriber Identity Module Application Toolkit: It is used by network operators to provide a user friendly interface on a subscribers’ handset to access value-added services provided by them. These applications also provide a mechanism for storing and using any service specific parameters. These applications are built within a SIM card by mobile network operators. SIMPLE SIMPLE (Session Initiation Protocol for Instant Messaging and Presence Leveraging Extensions) is an open standard instant messaging (IM) protocol. SIP Session Initiation Protocol or SIP is a standard multimedia and telephony protocol for initiating an interactive user session over mobile networks. The services under SIP may include call forwarding, number delivery, authentication and other telecoms applications. Smartphone Smartphone is a phone with a microprocessor, memory, screen and built-in modem. The Smartphone combines some of the capabilities of a PC in a phone device. Most of the current models also include a Web browser. © 2008, Portio Research. All Rights Reserved 169
  • 170. Strategies for Driving Data ARPU SMS TV This is defined as the use of SMS for variety of applications, such as voting, teletext chat for TV programmes. SMSC Short Message Service Centre (SMSC) provides the routing of all SMS or text messages in any mobile network. Similar to e-mail server, the SMSC handles large volumes of messages sent between two mobile handsets or a mobile handset and a software application. SoC System on Chip: It refers to the process of integrating all the components of an electronic system into a single integrated circuit or chip. SS7 SS7 is a global standard for telecommunications defined by ITU Telecommunication Standardisation Sector (ITU-T). The standard defines the procedures and protocol by which network elements in the public switched telephone network (PSTN) exchange information over a digital signalling network to effect mobile (cellular) and wire-line call setup, routing and control. TIFF Tagged Image File Format: It is a platform free image format, which enables reproduction of an image created on a platform, such as Macintosh, on other platform such as an ordinary PC. It is an advanced tool for storing bit map or graphic image on different platforms. TIFF format supports scanned image, fax and other applications involving editing of image. TDD Time Division Multiplex: This is a scheme for allowing simultaneous transmission and receiving of data at the same frequency, but with the different time slots allocated to them. TDMA Time Division Multiple Access: A TDMA channel is a single FDMA channel divided up in time into multiple time slots. TDMA system is able to transmit multiple voice circuits per channel. Three users can take it in turn to share one radio channel. The channels can vary in bandwidth and depending on the type of system, the time slots can transmit all or part of a voice circuit. Each user's speech is stored, compressed and transmitted as a quick packet, using controlled time slots to distinguish them-hence the phrase 'time division'. It uses 30 KHz channels and a vocoder rate of 8 Kbits/sec. At the receiver, the packet is de-compressed. UMTS Universal Mobile Telecommunications System: This is the future transmission network for third generation mobile telephones, as defined by the International Telecommunications Union (ITU). In time, UMTS could reach transmission capacities of 2 Mbits/sec. (compared to 9.6 Kbits/sec. for GSM). Initially UMTS will offer rates of 144 to 384 Kbits/sec. This standard will make the development of new multimedia services having very wide bands and new uses, notably in the transmission of video, images and sound possible. UMTS TDD Universal Mobile Telecommunication System (UMTS) Time-Division-Depleting (TDD): UMTS TDD Mobile Broadband technology is a packet data implementation of the international 3GPP UMTS standard and is designed to work in a single unpaired frequency band. It is designed to generate typical data transfer rates of up to 2 Mbps. UMTS FDD Universal Mobile Telecommunication System (UMTS) Frequency Division Duplex (FDD): It is designed to generate typical data transfer rates of up to 384 Kbps and is suitable for wide area coverage due to potentially high reach. 170 © 2008, Portio Research. All Rights Reserved
  • 171. Strategies for Driving Data ARPU VAS Mobile operators offer various services which are not part of the basic voice offer. These services are availed off separately by the mobile subscribers. It includes services such as SMS, MMS, mobile e-mail, mobile games, mobile music etc. These also include services such as WAP, voicemail, call diversion, etc. vCalender It is a standard format used to exchange information about schedules and activities electronically via an e-mail attachment. vCalender requires a personal information manager (PIM) type of application program. The format was developed by a consortium founded by Apple, AT&T, IBM and Siemens. vCard vCard is an electronic business card used for exchanging personal information digitally. It contains name, address information, company logos, URLs, photographs and sound clips. It was developed by a consortium founded by Apple, AT&T, IBM and Siemens. WAP Wireless Advance Protocol: WAP is a specification for a set of communication protocols to standardise the way mobile devices, such as handsets and radio transceivers, can be used for Internet access. The WAP standard is based on Internet standards (HTML, XML and TCP/IP). It consists of a Wireless Markup Language (WML) specification, a WMLScript specification, and a Wireless Telephony Application Interface (WTAI) specification. The WAP protocol is the leading standard for information services on wireless terminals such as digital handsets. Some examples of WAP for accessing information include the following: checking train timings, purchasing tickets, flight check-in, viewing traffic information, checking weather conditions, looking up stock values, looking up phone numbers, looking up addresses or looking up sport results, and there are countless more. WAV It is a widely used audio format for wireless devices which is limited to files less than 2 GB in size. WBMP It is a graphic file format used for sending Web content to wireless devices. The format is designed to support multiple image types for WAP-enabled wireless phones. WiBro Wireless Broadband: The technology was formulated by South Korean telecom industry as an equivalent to mobile WiMAX international standard. Wi-Fi Wireless Fidelity: It is used to provide wireless local area network through enhanced interoperability of the network. Services such as Internet, VoIP phone access, and gaming, etc., can be provided using Wi-Fi. WiMAX Worldwide Interoperability for Microwave Access: It is a telecommunication technology used for wireless data transfer over long distances through point-to-point links as well as mobile cellular type access. It is based on standards that are useful in wireless broadband access. Wireless MAN Wireless Metropolitan Area Network: The technology is used to provide wireless network over a larger area as compared to local area network. © 2008, Portio Research. All Rights Reserved 171
  • 172. Strategies for Driving Data ARPU WLL Wireless Local Loop: It refers to the wireless devices that are situated in fixed locations. The signal transmissions occur through the air and it provides connectivity to the users in remote and isolated areas without the need for laying new cables. WMA Windows Media Audio: It is a compression format with Digital Rights Management features incorporated in it. It compresses the content to half of what an MP3 can do with the same content. This feature makes it more adaptable to lower memory devices such as handsets. WML Wireless Mark-up Language is an XML and a HTML-based language used for creating content, which can be delivered to wireless hand-held devices. This language supports WAP (Wireless Application Protocol) standards just as HTML supports World Wide Web (http) standards. WML is useful in accessing text on web pages over hand-held devices. W-CDMA Wideband Code Division Multiple Access: The third generation standard offered to the International Telecommunication Union by GSM proponents. This is a 3G technology that increases data transmission rates in GSM systems by using CDMA instead of TDMA. W-CDMA has become the Direct Sequence mode in the ITU's 3G specification, which includes the 1x Multi-Carrier mode (1x MC) and 3x Multi-Carrier mode (3x MC). 1x MC (formerly known as cdma2000) and 3x MC comprise the 3G upgrade paths for operators already using CDMA. 172 © 2008, Portio Research. All Rights Reserved
  • 173. Strategies for Driving Data ARPU Portio Research Classifications Geographical Regions: There is sometimes a difference in the way research firms classify the major geographical territories. At Portio Research, we follow 'obvious' geographical lines, but for the record, here are the regional definitions we follow, unless otherwise stated in the report: Western Europe: Standard classification includes Iceland and various islands Central and Eastern Europe: Includes standard list of Central and Eastern European countries, and the Baltic states, Balkans, Russia, Greece and Turkey Asia Pacific: Includes Australasia, the Indian Sub-Continent, Pakistan, Afghanistan, Sri Lanka, Maldives and the Former Soviet Union Central Asian republics North America: Standard classification, including Hawaii and islands to the North Latin America: Includes all South and Central American countries including Mexico, The Caribbean and The West Indies Middle East: Includes Israel and all Middle Eastern countries East of Egypt, South of Turkey and West of Afghanistan Africa: Standard classification includes territories in Western Indian Ocean Mobile Subscribers Generally, we count active SIMs, and we consider active as being used within 3 months, but, of course there is some room for variance, depending on what figures operators themselves publish or report to us when we interview them. When running spot-checks on operator numbers, we are governed by the figures they give us, and as we are all aware, many individuals and companies around the world count their subscribers/subscriptions by a number of different criteria. We refer to "total subscribers" for a network/country or globally, as a count of the total number of active subscriptions those networks have, and as such this can cause a slight distortion of any country-penetration rate. Currency and Monetary Values All monetary values quoted in this report are in US Dollars as the most widely recognised benchmark internationally. The currency conversion has been done on the year average basis. Whilst researching global mobile markets, we use http://www.oanda.com/ for all currency conversion calculations. Methodology We have arrived at the worldwide mobile revenue figures by adding the total revenue (service revenue + other revenues) generated by mobile network operators worldwide. © 2008, Portio Research. All Rights Reserved 173
  • 174. Strategies for Driving Data ARPU Companies Mentioned in this Report 3 Italia AOL Apple AT&T Wireless Baileys Bharti Airtel Bouygues Telecom Canal 7 China Mobile China Record Corporation Coca-Cola Commercial Bank of Africa Credit Saison Co. Ltd Daiki Sound Dopod du EMI Ericsson Etisalat Family Mart First Direct Fox Network Frost and Sullivan Gameloft Globe Telecom Hutchison Whampoa Group Inertia Distribution Juniper Research KDDI Koch Entertainment KTF Lawson LG Maxis McDonalds M:Metrics Motorola Napster NEC Nokia MSN NTT DoCoMo O2 UK Orange France Orange UK Outside Music Palm Pepsi Research in Motion (RIM) Rubicon Consulting Safaricom Samsung 174 www.tre.it www.aol.com www.apple.com www.att.com www.baileys.com www.airtel.in www.bouyguestelecom.fr www.canal7.com.ar www.chinamobileltd.com www.crcjianian.com www.coca-cola.com www.cba.co.ke corporate.saisoncard.co.jp www.daiki-sound.jp www.dopodasia.com www.du.ae www.emigroup.com www.ericsson.com www.etisalat.ae www.family.co.jp www.firstdirect.com www.fox.com www.frost.com www.gameloft.com www.globe.com.ph www.hutchison-whampoa.com www.inertia-music.com www.juniperresearch.com www.kddi.com www.kochent.com www.ktf.co.kr www.lawson.com www.lge.com www.maxis.com.my www.mcdonalds.com www.mmetrics.com www.motorola.com www.napster.com/napstermobile www.nec.com www.nokia.com www.msn.com www.nttdocomo.com www.o2.co.uk www.francetelecom.com www.orange.co.uk www.outside.on.ca www.palm.com www.pepsi.com www.rim.com rubiconconsulting.com www.safaricom.co.ke www.samsung.com © 2008, Portio Research. All Rights Reserved
  • 175. Strategies for Driving Data ARPU SFR S K Telecom Smart Softbank Mobile Sony BMG Sony Ericsson Sony Picture Television Sprint Nextel Strategy Analytics Sumitomo Mitsui Cards Telecom Italia Mobile Tencent T-Mobile TU Media UC Card Co. Ltd. Universal Verizon Wireless Vodacom Vodafone Warner Music Yahoo © 2008, Portio Research. All Rights Reserved www.sfr.com www.sktelecom.com smart.com.ph mb.softbank.jp/mb/en/ www.sonybmg.com www.sonyericsson.com www.sonypictures.com www.sprint.com www.strategyanalytics.com www.smfg.co.jp www.tim.it www.tencent.com www.t-mobile.com www.tu4u.com www.uccard.co.jp www.universalpictures.com www.verizonwireless.com www.vodacom.co.za www.vodafone.com www.wmg.com www.yahoo.com 175
  • 176. Strategies for Driving Data ARPU About the Authors Sutithi Chakraborty Sutithi Chakraborty, lead author of this report, works as a Manager with Portio Research and Evalueserve, and is responsible for project planning, client interface and quality ownership of projects. She is a post graduate in Business Management from Indian Institute of Foreign Trade, Delhi. She has been working with Portio Research and Evalueserve since April 2007. Rakesh Kumar Rakesh Kumar is working as a Senior Business Analyst with Portio Research and Evalueserve. He has worked on various projects related to telecom domain. He is a post graduate in Business Management from International Management Institute, Delhi. He has been working with Portio Research and Evalueserve since May 2007. Gaurav Narula Gaurav Narula is working as a Business Analyst with Portio Research and Evalueserve. He has worked on various projects related to telecom domain. He graduated from IT-BHU, Varanasi, India. He has been working with Portio Research and Evalueserve since March 2007. Ankur Maheshwari Ankur Maheshwari is working as a Business Analyst with Portio Research and Evalueserve. He graduated from IT-BHU, Varanasi, India. He has been working with Portio Research and Evalueserve since April 2008. John White John White has been Editor and contributing author for this report. John is Business Development Director for Portio Research and has over 17 years experience in the technical publishing industry. Working in the IT sector previously and in the telecoms industry for the last 10 years, John has extensive experience in the mobile sector. 176 © 2008, Portio Research. All Rights Reserved
  • 177. Strategies for Driving Data ARPU Feedback Form Please use this form to provide feedback about this report. Your feedback is valuable, both to us and also to you – the more you tell us then the better we can make our future reports and directories and hence the better we can serve you in the future. Please be as honest as you like – you can tell us anything here, good or bad - and then you can fax this page to us, anonymously if you prefer, to +44 (0)1249 656967 Strategies for Driving Data ARPU Please tell us what you like about this market study? Please tell us what you don’t like about this market study? Anything else you want to say? Optional: (If you would like a response, further information or further assistance) Your Name: __________________________________________ Your Job Title: ________________________________________ Company: ____________________________________________ Your E-mail Address: ___________________________________ Thank you! We truly appreciate your feedback and we will study your comments carefully, and in the strictest confidence. © 2008, Portio Research. All Rights Reserved 177
  • 178. Strategies for Driving Data ARPU Also available from Portio Research Limited Portio Research Ltd is a UK-based research company focussing on the mobile space, providing reports, handbooks, directories and database products. New and Best Selling Reports in 2008: Mobile Data Services Markets 2008 This long-awaited detailed new market study provides a detailed look at mobile data services markets worldwide, including complete regional revenue analysis and an in-depth look at the development of data services around the world. Published in June 2008, this massive new study is packed with over 230 pages of data giving you an unparalleled state-of-the-art understanding of today’s non-voice mobile markets. Packed with data you can use, this report explains how markets have developed to the point they are today, and what likely growth lies ahead in the coming years. Click here for more details. Mobile and Wireless in the US: Opportunities and Profits 2008-2012 This detailed market report takes an in-depth look at the fantastic opportunities ahead in the rapidly-evolving US mobile and wireless market. With fast growth and world beating high ARPU this market looks set to generate tens of billions in additional voice and data revenues over the next 5 years, and this report gives you all the essential market data and forecasts, including MNO market share, subscriber demographics, trends in data consumption and much more. Click here for more details. Slicing up the Mobile Services Revenue Pie This exciting new market study will show you the massive USD 874 Bn revenues flowing into mobile network operators worldwide, analyzing which services and countries the money comes from, and where it ends up going to. Complete mobile subscriber growth forecasts, handset shipment forecasts, mobile data services revenue forecasts - SMS, MMS, mobile email, IM, mobile TV and video, mobile games, mobile music and much more. Click here for more details. If you have any questions or if we can be of any assistance to you, please contact us by e-mail: info@portioresearch.com Copyright 2008. Portio Research Limited 2008 www.portioresearch.com 178 © 2008, Portio Research. All Rights Reserved