|Issue:||Europe I 2010|
|Topic:||Digging out – opportunities and challenges in a wireless world|
John Aalbers is the CEO of Volubill. He joined the company from Intec Telecom Systems where he was the VP of Charging and Billing Products. Prior to joining Intec, Mr Aalbers built successful businesses in EMEA and APAC for CGI (Computer Generation Inc.) culminating in the sale of CGI to Intec. Mr Aalbers has direct experience in sales and business development, strategic and product marketing, delivery and support, acquisition integration and customer and partner management. John Aalbers attended the University of Melbourne.
Mobile is growing, despite the economy, throughout the world. Nevertheless, costs are rising faster than revenues in many markets and money needed for the network upgrades needed to maintain service levels is scarce. Big-name carriers face rising service quality complaints. A substantial percentage of these complaints reflect these operators’ success marketing devices like the iPhone together with flat-rate data plans coupled with their failure to keep up with the overwhelming demand for bandwidth these devices – and the applications they enable – generate.
At a time when the global economy is pressuring communications service providers to deliver cutting edge services and reap new revenues, one might expect that wireless and mobile providers are in a particularly tight spot. The truth is, however, that economic difficulties have done almost nothing to slow the consumption of high-bandwidth mobile services. November 2009’s release of the Motorola Droid in the US, and reports from around the same time that Apple’s iPhone is quickly becoming the smartphone of choice in China, show that in both emerging and developed markets alike, consumers are as hungry as ever for devices capable of accessing bandwidth-intensive applications and media-rich services. Consumer appetite for mobile data seems to grow constantly, so wireless providers have ever more opportunity to interact with their customers. Indeed, operators will have a bevy of new chances to offer their customers more ways to access the services they want and, ultimately, drive new profits. But these new opportunities also complicate a growing dilemma in the industry. Each new service subscribed to, or piece of content purchased, is another chunk of data for wireless and mobile providers to make room for on their networks. Quantity not quality As I write this, AT&T is in the midst of suing Verizon Wireless in the US for advertisements that claim AT&T’s network coverage is far worse than its competition. AT&T might not appreciate being called out so directly by one of its biggest rivals, but Verizon is not the only one to have ever done so. Many iPhone users have complained about slow network speeds and even total lack of coverage with AT&T, and the cause of this poor performance gets right to the heart of this wireless industry opportunity-challenge dilemma. The economy may not have slowed subscribers’ appetites for data services, but it has slowed most wireless providers’ investment in bigger back end infrastructures through which to cram all this new data traffic. What AT&T and its customers have experienced is service quality degradation due to over-crowded networks and flat-rate pricing models. Providers have offered consumers all they can eat data plans and customers are now using them to their full potential – and clogging the networks with streaming video, peer-to-peer applications and location-based services. User-based content is king Providers will still certainly be able to capitalize on the opportunities presented by a growing and more active customer base, and produce real profits from them. But mobile operators, and their consumers, will have to shift their perception of how they charge and pay for the kinds of services they want, and think about how to make this a reality in an era of tighter purse strings. High-value mobile services have proliferated wildly in the last five years: mobile TV, app stores, device tethering, GPS, mobile banking, Twitter, Facebook. ABI Research predicts that by 2014 this explosion will result in mobile Internet users “sending and receiving more data in one month than in the whole of 2008”. Mobile bandwidth consumption is no longer simply a one-way, download game. Orange UK announced in November 2009 that it has started to integrate Twitter services directly in to its social media aggregation services, including all pan-European mobile offerings. Operators must contend with information flowing not only to users, but from them, as well. With more users accessing networks more often in increasingly diverse ways, providers have more opportunities to interact with customers and offer them something new. Service providers have traditionally been capable of developing these services, and operators like AT&T have found ways to partner with third party organizations to create more enticing offerings for their customers. But although surging mobile bandwidth use will produce lots of opportunities in coming years, operators face an increasingly tough battle to sustain current revenue margins. One of the biggest fights in this battle will be to control the rising network management costs of delivering more content and services in different ways, especially where flat-rate plans will limit the total value a provider can realize from any one subscriber. Today, these flat-rate plans are doing well as broadband access and mobile data are still a relative novelty to many. But there are cracks appearing in the flat-rate model’s shiny exterior, and operators that are benefitting from flat-rate plans today may face real service, network and customer experience troubles quickly. Squeezing more from less Emerging trends in policy control, bandwidth management and traffic shaping technologies present solutions to these challenges that can create opportunities for new profits. Enabling and restricting what customers can and can’t do on their handsets allows the service provider greater control over network traffic whilst enabling them to demonstrate a greater understanding of customers’ needs. But for most operators, interpreting this data and understanding those needs accurately is where things often fall short. Providers haven’t, historically, done the best job of listening to what exactly their customers are asking for. The question they need to ask is, ‘What does a particular customer actually need or want access to that we, as a service provider, can afford to offer them whilst maintaining their satisfaction?’ The key word here, as we’ve seen with operators like AT&T often delivering sub-par service quality and access levels, is ‘afford’. New business models In more developed markets, a combination of revenue sharing models and managing existing bandwidth capacities is necessary to stay profitable. In particular, mobile advertising programs will present a large opportunity. Juniper Research predicts that by 2014, annual mobile ad spending will near US $2 billion, a sharp increase from current levels. And the increase is not strictly limited to developed markets either, with operators in Indonesia experimenting with new interstitial mobile advertising platforms that can create targeted and measurable advertising campaigns. If providers are to capture any portion of this revenue they will need to align network monitoring and policy systems to both share and distribute relevant data. For instance, to entice advertisers to share revenues, mobile providers will likely need to share consumers’ usage data (such as subscriber preferences, network activities, possibly even location) with advertisers so they can develop personalized ad-campaigns. The providers will need systems to monitor ad-related activities and distribute resulting revenues to the appropriate parties. Sharing such data presents some obvious questions about customer data protection, and providers will have to be very judicious about how they solicit their customers’ approval to do so. Mobile devices are very personal objects. So providers and advertisers must work to ensure they only offer customers things that truly add value to their experience. But in doing so, providers will have carved another piece of the value chain pie for themselves beyond the traditional flat-rate plans, and, hopefully, improved customer satisfaction at the same time. Simultaneously, more customers, growing bandwidth usage, and more complex data management processes are stretching networks to their limits. This in itself is an important trend for mobile providers to address. Vicious prepaid, all-you-can-eat pricing wars are slashing the amount of revenue providers can pull in per customer, and ultimately putting expensive network backhaul programs on a back burner. Evidence from U.S. providers like MetroPCS and Verizon Wireless has suggested that making commitments to long-term evolution (LTE) technologies to speed up their networks has become more important than investing in costly overhauls to implement WiMAX-based solutions. This means operators will need to pay more attention to doing more with existing resources. Knowing exactly what their customers are up to on the network, using technologies like deep packet inspection, is an important step, albeit a controversial one. So controversial, in fact, the United States government has brought the so-called ‘net-neutrality’ debate to a boil again, and is currently trying to decide whether operators should be allowed at all to monitor such activity and use the data to manage their networks more effectively. The new growth economies On the other side of the world, in emerging and developing markets like Africa and the Middle East, most new subscribers in coming years will be from younger, lower-income demographics. Mobile operators’ biggest opportunities here lie with being the ‘cool’ brand. The goal for operators in these regions should be to reduce churn by offering custom-tailored services that customers will ‘stick’ with. This will create loyalty in the youth market and create a host of more profitable customers as they access higher-value services like mobile email and Internet browsing as working adults. In Africa and the Middle East, such services include those that enable every day needs and experiences. An absence of physical banking locations in many countries in Africa has made mobile banking and money transfers some of the most utilized mobile services for all ages. Iran’s youth broadcasted their country’s political election controversy in real-time via mobile YouTube videos, Twitter, blogs and MySpace photos. In many Middle Eastern countries, mosques stream religious ceremonies directly to worshippers’ handsets so that users are never out of touch with their mosque. Another strategy for emerging-market mobile operators is to partner with third-party companies that put on events or make products that attract youthful consumers, and create promotional campaigns that involve sharing revenue between providers and the third parties. This is similar to the model that AT&T used with Apple to launch the iPhone, but presents similar challenges. Sharing revenues with one partner can be done relatively easily. But when multiple partners are involved, profit sharing policies can become a tangled mess. Implementing new charging models like this requires network monitoring systems to automatically communicate subscribers’ actions to policy control and enforcement systems aligned to specific profit sharing models that have been negotiated. Opportunity knocks The recession has made for a significant landscape change, but market dynamics are slowly settling in to place and we are beginning to see the type of world wireless operators will be living in over the next few years. But customer attitudes and activities are actually giving operators more opportunities to reap new revenues if charging and traffic policies can be brought bear. The trick to realizing revenues from these opportunities is designing systems, policies and models that present real added value to subscribers at every possible instance, maximizing the value of each customer, bolstering trust and maintaining a high quality of experience.