Wednesday, June 06, 2007

Mobile content is a white lie (2)

Having written Monday’s posting on mobile content it looks almost like a coincidence, that I received a (commercial) message from Paul Budde of the telecom research bureau Budde.Com on mobile marketing. Paul writes:
I find it unbelievable that ten years after my presentation on the dotcom event First Tuesday, the mobile hype still exists. At the event there, where hundreds of dot com people were present, I launched the controversial slogan WAP=CRAP. I still remember the rumouring going around in the audience after my presentation and the passionate discussions afterwards. Now I am pretty certain that m-commerce, m-payment, mobile video and mobile marketing will flourish at a certain time. But this will only happen when industry is ready for this. The basic principles of mobile marketing are so bad, that a fast turn around is impossible.
That does not look very promising for the mobile industry in general. The remarks of Paul Budde reminded me of article by Joachim Jorge from 2003, when he was an assistant professor at Lisbon University. He wrote for the Content Market Monitor an article on UMTS and content. His basic conclusion was: not content will drive 3G, but speech. At 2007 the article is still valid.

Communications, not content drives 3G
Third-generation services, combining data, video, Internet and wireless technologies, were supposed to bring about a brave new era for communications. Instead, rising scepticism about their prospects, governments’ and managers’ greed together with the huge sums paid by operators in the form of 3G licenses, helped bring about the great telecoms crash of 2001.
However, this story may yet find a happy ending. The unexpected killer applications of UMTS may likely be personal communications enhanced by multimedia features of the new generation, not content. Voice was the killer application of first-and second-generation systems, and the emergence of new services based on personal communications is likely to please investors as well as foster effective competition to established local telephone companies.

It can be argued that people do not want entertainment from their cell phones [Odlizko’02]. They want to be connected and engage in social experiences with others. To this extent we should note the success of simple text messaging and the failure of Wireless Access Protocol, which was supposed to be about content. The good news is that UMTS higher bandwidth can provide for higher-quality personal communications and maybe better service, through more reliable connections.

How is this possible in a market that is approaching saturation? In many European countries cell phone penetration has surpassed 80% of the population (such as in Portugal, Italy and Finland in 2002) with a high of 99% in Luxembourg. Even if we count for the substitution market, new subscriber rates will be slower for 3G than they were during the heyday of GSM in Europe. However, penetration rates do not equate intensity of use by subscribers. Operators are focusing on new services as a way of increasing revenue by subscribers, but the fact is, people have not been talking enough on their cell phones.

As a symptom of this we can look at average usage of cell phones per day: this is less than five minutes in the UK versus eight in the USA [Odlyzko’02]. This may be related to more generous pricing plans in the USA, such as the flat fee for 500 minutes introduced by AT&T in 1998. Europe’s declining rates of revenue per costumer suggest that operators should take a better look at volume usage versus unit cost trade-offs.

This is where the author sees an opportunity for 3G mobile communications. Instead of focusing on content, we believe that operators should look at using the greater bandwidth of the 3G network to provide enhanced person-to-person communications. These have proven to be the mainstay of all communication networks ever since the inception of the postal service, several centuries ago and we believe they will continue to provide for the bulk of traffic of next-generation networks.

We believe operators should be looking for ways to change customer usage patterns, to offset lower prices by higher volume of communications. If prices go down by an order of magnitudes, but usage goes up by two orders of magnitude, revenue will increase tenfold.
Operators, who stick to current pricing policies, will be caught in a loose-loose situation, given that average revenue per costumer has been steadily declining in the past few years.
We believe that the turning point for telecommunications operators in UMTS will come about by a combination of three factors: a) Innovative pricing strategies such as volume discounts and block deals. b) enhanced and innovative personal communication services such as multiparty calling and personal video-conferencing (we believe that streaming video would be of sufficient quality for these applications) and c) a focus on communications rather than content.

The biggest gains, will come from more non-business use. In a fascinating book, "America Calling," Claude Fischer showed that the phone industry entered a new high-growth phase in the 1920s when it abandoned the attitude that phones were for important commercial purposes only and instead started encouraging "frivolous" social uses. These served to make telephones an indispensable part of people's lives, and raised usage (and total spending) far beyond the levels envisaged by the industry's pioneers.

Blog Posting Number: 776

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