Summary: While the market for mobile broadband services (3G/WiMax/Dongles/Netbooks etc.) is growing explosively, today’s telco propositions are based on out-moded business models which threaten profitability. Telco 2.0 proposes innovative retail and wholesale approaches to improve returns.
This 30+ page article can be downloaded in PDF format here.The Executive Summary is reproduced below.
Executive summary & recommendations
At present, the majority of mobile broadband subscribers are engaged through traditional monthly contracts, typically over 12-24 month periods. This is true for both standalone modems and especially embedded-3G notebooks. There are also some popular prepaid offerings, especially in markets outside North America.
However, further evolution is necessary. Many consumers will not want another monthly commitment, especially if they are infrequent users. Operators will be wary of subsidising generic computing devices for the non-creditworthy.
We expect a variety of new business models to emerge and take a significant share of the overall user base, including:
- Session-based access, similar to the familiar WiFi hotspot model;
- Bundling of mobile broadband with other services, for example as an adjunct to fixed broadband or mobile voice services;
- Free, guest or “sponsored” mobile broadband, paid for by venue owners or event organisers;
- “Comes-with-data-included” models, where the upfront device purchase price includes connectivity, perhaps for a year;
- Two-sided business models, with mobile access subsidised by “upstream” parties like advertisers or governments, rather than direct end-user payment.
Transition to these models will not be easy. There are question marks about the convenience of using physical SIM cards, especially for temporary access. Distribution, billing and support models will need re-evaluation. Definitions and metrics will need re-evaluation. Terms like ARPU and “subscription” will have less relevance as conventional “subscribers” drop to perhaps 40% of the overall mobile broadband user base. Operators and vendors need to face up to these challenges as soon as possible.
Figure 3: Mobile broadband can support both subscription & transient models
[Figure]
Source: Telco 2.0
Recommendations for mobile operators & retailers
Business models and business planning
- Calculate your production cost per GB of data based on the real cost of adding extra new capacity, rather than just using up the “sunk costs” of current radio assets;
- Reinterpret mobile broadband business plans based on potential capex reductions and delayed capacity upgrades during recession;
- Develop a broad range of business models / payment options, including long-term contracts, prepaid accounts, session-based services, bundles and mechanisms for enabling “free” or “sponsored” connections. Do not think solely in terms of “subscribers” as most future users will not have “subscriptions”;
- Examine “two-sided” Telco 2.0 business models as mechanisms for gaining mobile broadband revenue streams, for example through advertisers and governments.
Marketing and distribution
- Be extremely careful about marketing mobile broadband as a direct alternative to DSL / cable. You may also need those wired broadband lines for future femtocells or WiFi offload;
- Be realistic about the future mix of dongles vs. embedded modules. Customers (and salespeople) like dongles, so despite the theoretical attractions of embedded, don’t kill the golden goose. Instead, look at ways to add value to the dongle proposition;
- Partner with large IT services and integration firms to deliver mobile broadband solutions to the enterprise, rather than point products.
Network planning
- In dense areas, spectrum and network capacity is generally too valuable to waste on those users who are not “truly mobile”;
- Only use application-specific traffic management if you are prepared to openly publish details of your network policies. Vague terms on “fair usage” are likely to be counter-productive and challenged by law and the Internet community;
- Consider potential scenarios around new high-bandwidth applications appearing across the user base (e.g. high-definition video, enhanced always-on social networking etc). Put in place strong links between your device, web application and radio network departments to anticipate effects.
Technology planning
- Look at the evolution of devices and software to understand likely opportunities & threats in the way they use the network (e.g. always-on connection whilst “off”, background applications pulling down traffic in “quiet” periods, new browser types or video codecs etc);
- Push vendors and standards bodies towards mechanisms for enabling session-based access for mobile broadband. This may need compromises on SIMs or roaming / multi-operator partnerships.
Organisation
- Develop a separate, arm-length, wholesale division able to offer mobile broadband to MVNOs, Internet players, device/content vendors or vertical-market specialists on a non-discriminatory basis.
Recommendations for network equipment suppliers
Business models and business planning
- Better understand the mix of traffic by device type on operator customers’ networks, as this will drive their future upgrade / enhancement plans. A move to PC-dominated networks may need very different architecture to phone-oriented designs;
- Develop network-upgrade business cases against realistic growth in device types, application consumption and changing usage patterns.
Product Development
- Look at new managed service opportunities arising around the MID and “mobilised” broadband consumer electronics device ecosystems, for example in content or application management, service and support etc;
- Look at mechanisms for supporting non-SIM or multi-SIM models for mobile broadband, especially for users with multiple devices;
- Optimise backhaul and network-offload solutions to cope with expected trends in mobile broadband. Integrate WiFi or femtocells with “split tunnel” architectures to “dump traffic onto the Internet”;
- Develop data-mining and analytics solutions to help operators better understand the usage models for mobile broadband, and customise their networks and offerings to target end users more effectively.
Marketing and distribution
- Be wary of over-hyping network peak speeds in marketing material, rather than increasing overall aggregate network capacity;
- Position WiMAX networks as ideal platforms for innovative end-to-end device, connectivity and application concepts.
Recommendations for device & component vendors
Business models and business planning
- Consider issues around macro-network offload, specifically the ability to easily recognise and preferentially connect via femtocells or WiFi;
- Expect the MID, consumer electronics and M2M markets for mobile broadband to be fragmented and possibly delayed by recession. Focus on partner programmes, tools and consulting/integration services to enable the creation of new device types and business models;
- Do not expect markets with a heavy prepay bias for mobile phones to be enthusiastic about long-term contracts for notebook-based mobile broadband;
- Be very wary about operator software acting as a “control point” on the notebook, especially in terms of application monitoring / blocking / advertising. As handsets become more open, there are few arguments for PCs to become closed;
- Anticipate support questions around issues like network coverage, signal strength etc. and have processes in place to deal with these;
- Consider new business models for WWAN-enabled notebooks supported by advertisers, content or Internet companies, governments etc;
- Support WiMAX as well as 3G / LTE in new device platforms – it seems likely that some WiMAX operators will be more open to experimentation with new business models, as they have less legacy to protect from cannibalisation.
Product Development
- Add value to dongles by supporting other functions like GPS, video, memory, WiFi, MP3 etc. Also use physical design to differentiate and make external modems seen as “cool”;
- Encourage the development of “free” / 3rd-party paid models for mobile broadband to drive modem adoption among users unwilling to pay for access themselves;
- Consider developing your own portfolio of value-added services that can exploit the WWAN connection – e.g. managed security and backup;
- Everyone with a WWAN-enabled notebook or MID will have a mobile phone as well. Endeavour to make them work well together and exploit each other’s capabilities;
Marketing and distribution
- Encourage operator partners to support a broader range of business models to extend the addressable market to customers unwilling to sign 24-month contracts for mobile data;
- Look at channels for temporary modem rentals / provision to venue or event delegates;
- Examine non-operator routes to market for “vanilla” modules and modems, and support this usage model. For example, set up a web portal with methods highlighting how to acquire temporary SIM+data plans in different countries;
- Push OS suppliers towards richer APIs in connection managers that can tell applications various characteristics about the network being used, signal strength, macro vs. femtocell, maybe even measured latencies and packet loss. Maybe also expose details of alternative radio bearers;
- Push module vendors towards pricing models that are geared into future service uptake / expenditure;
- Work closely with software vendors to ensure optimised performance of connection managers, browsers and other application environments;
- Look at bundling opportunities via operators, for example phone + netbook combinations.
© Copyright 2009. STL Partners. All rights reserved.
STL Partners published this content for the sole use of STL Partners’ customers and Telco 2.0™ subscribers. It may not be duplicated, reproduced or retransmitted in whole or in part without the express permission of STL Partners, Elmwood Road, London SE24 9NU (UK). Phone: +44 (0) 20 3239 7530. E-mail: contact@telco2.net. All rights reserved. All opinions and estimates herein constitute our judgment as of this date and are subject to change without notice.