Home EuropeEurope I 2010 Partnering for growth

Partnering for growth

by david.nunes
Russ ShawIssue:Europe I 2010
Article no.:11
Topic:Partnering for growth
Author:Russ Shaw
Title:General Manager for EMEA and General Manager for Mobile
PDF size:225KB

About author

Russ Shaw is Skype’s General Manager for Europe, Middle East and Africa (EMEA) and General Manager for Mobile. Mr Shaw left Telefonica/O2, where he held a number of senior executive positions to join Skype. Most recently he was the Global Innovation Director for the Telefonica Group. Prior to this, Mr Shaw worked at O2, first as UK marketing director, then as Innovation Director for O2’s UK operations. Mr Shaw was also CEO of Mobileway, a mobile messaging start-up, and Managing Director at UK cable company NTL (now Virgin Media). Before entering the telecoms industry, Mr Shaw spent years marketing consumer financial services, including at American Express, based in London, in a variety of international marketing, advertising, and brand management roles in the Consumer Card and Global Network Services divisions. At Charles Schwab Mr Shaw served as SVP, International Marketing. Russ Shaw has a BS from Washington University in St. Louis and an MBA from Harvard Business School. He is also a non-executive director for Dialog, a publicly-traded semiconductor company.

Article abstract

Use of the mobile Internet is a growing rapidly, a growing range of devices – netbooks, mobile phones, GPS devices, cameras and more – now use it. Mobile operators are rethinking their business models and many would like to impose ‘infrastructure fees’ to pay for their network expansion, but this will only throttle network usage and innovation. Operators can set themselves off from the competition, not only by partnering with device manufacturers, but by offering popular applications and content exclusively.

Full Article

Mobile operators should co-operate with application and content providers to take advantage of the mobile Internet boom. The Internet has changed the way we communicate. It has broken down existing barriers, giving rise to innovation and the creation of a wealth of new possibilities for users, and growth opportunities for market players. In the mobile industry, however, a lot of barriers are still in place and while they are, the mobile Internet unfortunately cannot realise its full potential. Since 3G has become reality, mobile handsets have improved to an extent that they can more or less do the same things a PC can do. Moreover, mobile 3G networks provide data rates that allow a full range of increasingly sophisticated mobile applications and services like web browsing, mobile calls over the Internet, social networking, downloading and watching videos, playing games, sharing content – services that in pre-3G times were either not available or offered a user experience that restricted their widespread adoption. Last, but not least, a wide range of consumer electronics products offer wireless mobile broadband connectivity, from netbooks to GPS devices, digital cameras and games consoles. In a not too distant future, one expects that almost everything will be connected to the Internet from just about anywhere, be it a car, a fridge, or a mobile phone. Consumers are aware of the possibilities wireless technologies – especially the mobile Internet – are offering and are eager to take advantage of these. Today 450 million people are using the mobile Internet and this figure will rise to one billion by 2013, according to IDC . What users expect, apart from an affordable and easy-to-understand pricing model, is a superior user experience and access to innovative services, applications and content. All of these already exist on the market, but finding them all in the same place seems next to impossible. Apple has demonstrated the rewards for those that can bring these together in a seamless and rich user experience. There is no other way of accessing the huge business potential the mobile Internet has than providing easy to use, compelling applications and services that just simply work every time. Therefore it is imperative that mobile operators, device manufacturers, application and service providers start looking for more effective ways of working together now. This requires out-of-the-box thinking in terms of new business models and partnerships rather than hoping old models will deliver in this new world. Too many operators – especially some of the leading ones – are dragging their feet and not embracing the realities. In the wired business, carriers sell voice services and Internet access to customers without having much control over what the customer does on the Internet. It does not matter what applications the customer runs, if they play online games, watch videos, upload photos, use Facebook or talk and video call with friends and family. It’s all part of the package. Sometimes users pay extra for certain services their provider is offering like video on demand. Conversely, in the mobile business, carriers are playing an over-dominating role, and are trying to broaden that control in order to protect existing revenue streams or open up new ones. They think they can decide which devices to sell and which services and applications their customers are allowed to use over their infrastructure. Many mobile carriers offer flat data rates that are not at all really that flat because the access speed will be throttled down after the customer has watched too many videos on YouTube, for instance, or they have to top-up to use certain Internet-based services. Carriers recognise that the voice part of their business – still the biggest revenue chunk today – will be shrinking while the mobile Internet portion grows. They also realized that their infrastructure is an enabler, but that applications and content are the drivers for usage and revenue. What many of them have not yet realised is the extent to which they need to re-build their business models based on this dynamic. Many mobile carriers either block applications they regard as dangerous to their already decreasing voice revenues or force their customers to pay extra for these applications on top of their existing data plans. By doing so, they slow down innovation instead of embracing this trend and forging partnerships with content and application providers to attract new customers, enhance the mobile experience for existing customers, and lower churn rates. A heated debate is underway in the mobile industry today concerned with the perceived reduction in revenue for voice services through applications and services, which offer alternative ways of communication. One view is that the modern networking infrastructure, which is a prerequisite for the mobile Internet, is very expensive to build, maintain and modernize. So surely, it’s only reasonable that providers who want to offer their applications and services need to pay the operators for the use of their infrastructure? The answer to this question is no. This would allow the operators to achieve an unhealthy high degree of control over the (mobile) Internet, possibly affecting peoples’ basic right to information. Would Amazon pay ISPs a fee for each book sold? The mechanisms of a free and open market would be in danger because an ‘infrastructure fee’ makes it very difficult for third party vendors to compete with offerings from operators. Many innovative applications would probably never reach the end user, who, as a consequence would have a very limited choice of mobile services and applications Nevertheless, protecting the market is not the only reason why an ‘infrastructure fee’ is unsound. Operators do need this fee because they can differentiate from their competitors by offering innovative applications, services and prime content through partnerships. If the idea of winning new customers by partnering with a device manufacturer and selling popular mobile handsets exclusively is natural to some operators, why would they not think of offering popular applications exclusively for the same reason? The use of ‘protective’fees will ensure that the innovative and compelling applications users want will never see the light of day and the mobile Internet will fail. Everyone will lose. There is already some evidence that the entire discussion is based on a misperception, and that in reality using the Internet to make calls do not cannibalize the revenues of operators. Some operators, like Three in the UK, have already changed their business model. They are challenging their competitors by partnering with a software company, offering a popular application that allows mobile VoIP calls at no extra cost, providing their customers with a very tangible extra value and comprehensive user experience by integrating the application into a range of mobile handsets. As a result, the group of customers using these services generate 20 per cent higher margins than non-users, voice revenue being a key contribution to this. A survey undertaken in August 2009 revealed that users of this application used on average 17 percent more traditional voice minutes than non-users. Next to this, a comparatively lower churn rate and higher ARPU (average revenue per user) was one of the positive outcomes as well. This example proves that innovative applications and services do not threaten the revenues of operators but can deliver improved financial results. It also shows that dedicated partnerships with application providers can help mobile operators differentiate from their competitors, attract new customers, reduce churn and even improve ARPU – a task operators are struggling with as voice and SMS services becoming increasingly commoditised. It will only be a matter of time when other operators around the globe will realise that the best way to take advantage of the mobile Internet is to enter into similar mutually beneficial partnerships.

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