|Issue:||Asia-Pacific II 2014|
|Topic:||Telco carriers embrace Wi-Fi as a larger network strategy|
|Author:||David Kennedy/ Nicole McCormick|
|Title:||Practice Leader (Asia-Pacific Region)|
Telecoms Consulting / Senior Analyst – Industry, Communications &Broadband
David Kennedy is the Research Director for Ovum’s Asia-Pacific research group. Based in Melbourne, Australia, he co-ordinates Ovum research priorities across Australia, New Zealand, South-East Asia and Greater China.
Prior to joining Ovum in January 2006, David worked in both government and the private sector as an analyst and consultant, with a strong emphasis on linking research to policy and strategy development. Key roles have included:
• Senior Policy Adviser to the Australian Communications Minister during the 1997 telecommunications reform process
• Consultant to the Malaysian Government on its 1998 communications policy reforms
• General Manager for Strategy at the National Office for the Information Economy, with responsibility for research and policy development on convergence issues
• General Manager for Research at the Australian Department of Communications, IT and the Arts, where he lead a team responsible for economic analysis of telecommunications and related markets
David’s areas of research interest include telecommunications regulation, next-generation networks, and other fixed communications. David has a Bachelors degree with Honours in Science from the University of Sydney.
Nicole McCormick is a Senior Analyst based in Brisbane.
She leads Ovum’s research and analysis on consumer mobile communications, including operator opportunities in the fixed broadband space, providing strategic advice to wireless operators, vendors, and regulators. She is responsible for publishing in-depth monthly research and regular comments on leading and breaking topics within the consumer mobile sector.
She also oversees key mobile data statistics and regularly presents at leading conferences throughout the region.
Nicole joined Ovum from Informa Telecoms & Media where she was senior analyst for Asia.
Nicole graduated from the University of Queensland with a Bachelor of Arts degree, with majors in journalism and economics
In the wholesale market, new technologies, standards, software, and managed services potentially enable new business models for operators to monetize Wi-Fi investments beyond mobile offload. The development of the Next-Generation Hotspot framework will make it easier for customers to connect seamlessly, paving the way for more roaming agreements between service providers.
Wi-Fi access is a way to extend the reach and/or capacity of a customer’s broadband subscription. Because it can also lower the cost per bit of delivering data traffic (compared to doing so on the 3G cellular network) for the operator, it also offers the possibilities of lowering the customer’s cost and even subsidizing usage. Giving away some access in order to preserve the customer relationship and increase the customer’s perception of value can significantly reduce churn. Over the long term, that effect may be much more valuable and meaningful than the potential revenue the operator may have gained by charging for that access.
Many carriers around the globe have now embraced Wi-Fi as a part of their larger network strategy. Nevertheless, carriers are still working to clarify their objectives for Wi-Fi networks, and are grappling with how to commercialize Wi-Fi access with packages, pricing, and new business models. Directly monetizing Wi-Fi will remain difficult for carriers; they are likely to gain more from the indirect commercial benefits and opportunities that Wi-Fi enables.
Objectives vary by type of operator
However, different kinds of operators derive different kinds of benefits from Wi-Fi.
Mobile carriers are focused on offload strategies. In markets where network coverage is poor or unreliable, Wi-Fi is increasingly necessary to expand coverage to maintain a consistent and acceptable level of service. In other markets where smartphone, LTE, and mobile broadband penetration are high, carriers are deploying small cells, including Wi-Fi, to ‘deepen’ coverage in their existing network footprint. For these carriers, Wi-Fi is fast becoming an integral part of that small-cell deployment plan. The cost of deploying Wi-Fi alongside other small cells is often negligible, and substantially lower than the cost of deploying or maintaining macro cells.
Mobile-only carriers arguably have the greatest need for Wi-Fi but lack the fixed network assets to provide offload or backhaul themselves. They must therefore resort to partnering with other service providers (often competitors) or aggregators.
For fixed-only carriers, Wi-Fi is a means to extend service beyond the customer’s home and onto users’ mobile devices. By extending the service outside the home, carriers expect to increase the usefulness and value of the service, and time spent interacting with their brand.
Wi-Fi is also helping fixed-only carriers to upgrade customers to higher tiers of service where Wi-Fi is offered on a complimentary, no-charge basis. For instance, TWC claims that its high-speed data customers who access its Wi-Fi are less likely to churn, and that its video-only customers are more likely to add Internet service when they are made aware of the availability of Wi-Fi. TWC also claims that saving on cellular costs is a primary driver of customer satisfaction and that the availability of Wi-Fi services influences their decision to subscribe.
Finally, integrated carriers can exploit all of the service advantages discussed above for mobile and fixed carriers. However, integrated carriers also have significant cost advantages. These service providers offload mobile traffic to Wi-Fi in order to lower their cost. In many cases they will be able to use their own fixed network to provide the necessary backhaul to power their Wi-Fi access points. Of course, integrated carriers are still limited by the size of their own fixed network footprint. But unlike mobile operators, they have leverage in reciprocal roaming agreements with aggregators because they have network footprint in which to place Wi-Fi access points or routers.
Integrated carriers can also dynamically adjust the cost of delivering customers’ mobile data traffic by using Wi-Fi offload, something their cable and other non-integrated competitors cannot do because they don’t own both assets. This enables integrated carriers to offer dynamic discounts and promotions. It also allows them to offer over-limit customers an alternative access option to prevent them from churning. An operator might also differentiate its video on-demand (VoD) or video communications service on the fact that downloading content or conducting certain types of OTT video communications over Wi-Fi does not eat up data on the customer’s plan.
Wi-Fi rollout is a trade-off
For most carriers, it’s not a question of whether to deliver Wi-Fi as a service, but how, when, and on what scale. Ovum’s conversations with operators show that the carriers we surveyed had a clear preference for owning and operating at least a portion of their Wi-Fi footprint. The locations where carriers offer public Wi-Fi access are of paramount importance. Most carriers select locations based on subscriber concentration, such as shopping malls, retail spaces, and outdoor public spaces. Not only are these locations likely to get the most customer use, but these are also the locations where carriers see most potential for revenue-generating services and business models. Installing hotspots in these areas also supplements the mobile network footprint where coverage and capacity can be problematic.
Extending the Wi-Fi footprint involves a trade-off: scale versus quality. The decision of whether to partner with aggregators and rely heavily on roaming agreements to extend coverage coverage is one of scale and speed versus control and quality. Aggregator partners can vastly increase an operator’s Wi-Fi presence overnight, but in many cases, as with FON and iPass, the operator has intelligence about the quality of the Wi-Fi network, but no control over that quality of service, making it potentially unreliable, inconsistent, or even sub-standard. The lack of control is particularly pertinent for in-building public access, which can be challenged by interference or other technical limitations that may diminish the power of the hotspot or the quality of experience that the hotspot can consistently deliver. Carriers who prioritize scale in their Wi-Fi strategy need to understand that there is a quality control trade-off inherent in that decision.
Indirect benefits will outweigh direct revenue
Directly monetizing Wi-Fi will remain difficult for carriers. Ovum’s conversations with operators reveal that most fixed and integrated carriers are bundling Wi-Fi access at no charge, while mobile operators often offer separate, paid-for plans. A majority of all carriers charge non-customers for access.
The complexity and diversity of Wi-Fi pricing strategies that Ovum sees is typical of an immature market. Levels of competition vary widely; for example, carriers face significant challenge from public Wi-Fi businesses such as Boingo and iPass. Even these businesses have seen a decline of customers willing to pay, and are developing new revenue sources. Paid-for Wi-Fi access is unlikely to grow into a major new revenue-generating value-added service (VAS) for carriers. Paid-for, session-based, or subscription-based Wi-Fi access will continue to exist, but these access services will yield diminishing returns as the wider availability of Wi-Fi access points drives down prices and perceived value.
In the wholesale market, new technologies, standards, software, and managed services potentially enable new business models for operators to monetize Wi-Fi investments beyond mobile offload. The development of the Next-Generation Hotspot framework will make it easier for customers to connect seamlessly, paving the way for more roaming agreements between service providers. Technology advances such as the deployment of Hotspot 2.0, 802.11ac, and ANDSF will bring higher speeds and therefore a broader range of applications and a better experience. Carriers that approach Wi-Fi as a managed service, apply intelligent offload solutions, and use Wi-Fi access as a platform for providing additional VASs (proximity marketing, advertising, premium event services) are hoping to capture new revenues that are distinct from access services.
In the short term, customers and carriers will continue to see Wi-Fi as an extension of the wireline or wireless broadband access services that customers already pay for. In this case, scale and the quantity of available hotspots are critical. Success of paid-for Wi-Fi access relies more on the quality of the location and management of the connectivity being offered. Yet today, very little of customers’ Wi-Fi traffic happens over public Wi-Fi access points. It is clear that Wi-Fi will grow in terms of traffic over time, but there are no such signs that it will grow in terms of revenues.
Ovum’s view is that carriers have more to gain from the indirect commercial benefits and opportunities that a Wi-Fi network enables. The three top indirect opportunities that we see are:
• Bundling Wi-Fi for no additional charge to high-ARPU mobile customers offers a value-add to premium customers and supports a greater price variance between low-end and high-end plans.
• In the vast majority of markets, customers are likely to enjoy additional broadband access over Wi-Fi at no additional charge or at minimal cost. This could enable additional data use that the customer would otherwise not have (or would have to pay more for) if provided over the cellular network. In emerging markets with low smartphone penetration and correspondingly low data usage, free or cheap Wi-Fi can even encourage additional cellular data usage by driving smartphone take-up. In turn, carriers hope that such customers will be enticed to trade up to a more expensive mobile data package with a larger data allowance.
• In the case of fixed broadband, the main driver for carriers providing public Wi-Fi is to provide Internet connectivity to their subscribers, usually at no charge, outside the home. This is to fulfil the demand from consumers that increasingly want Internet connectivity over Wi-Fi from their tablet or smartphone in a public place. In short, providing Wi-Fi access for a fixed broadband operator is a value-added play, not a direct monetization strategy.