Battle over revenue distribution in the mobile internet sector intensifies

How can the mobile network operators succeed?

Booz & Company survey results published following Mobile World Congress in Barcelona

  • Acceptance of mobile services is rising exponentially
  • High bandwidths mean that breakthrough to the mass market is anticipated before 2010
  • Battle for content a dominant feature
  • Active involvement in joint development of open systems essential
  • Innovation-oriented model would open the door to annual turnover of around US$ 480 billion for network operators

London, 19 February 2008 - European mobile phone operators generated 82% of their turnover from traditional voice services in 2007. Mobile data services, including SMS messaging and e-mail push services, therefore accounted for just 18% of turnover. But this balance of revenue streams is set to shift dramatically in favour of mobile data services, as the mobile internet finally becomes a reality.

By 2011, Booz & Company forecasts a further 220% rise in average mobile time on the internet. Unlike the landline network, however, provider roles in the mobile internet arena are not yet firmly distributed and established. This means that network operators could develop new parts of the value-added chain as growth areas, alongside their traditional area of business in providing transmission capacities.

These are just two of the core findings of a survey by Booz & Company, published this week, during the Mobile World Congress in Barcelona. It suggests that European mobile phone network operators urgently need to reassess their strategies, or risk being left standing in the market for mobile internet offerings, when compared with end-device manufacturers, content providers and internet portals.

The success of iPhone and its revenue participation model, Google’s ambitiously-scaled Android platform, Nokia’s OVI multimedia portal and, not least, the planned takeover of Yahoo by Microsoft represent a serious challenge to traditional mobile phone providers in the competition for their core business.

“Large and powerful internet, IT and end-device providers are adopting strategic positions. They want to cut themselves a large slice of the mobile internet revenue cake,” comments partner Joe Sifer. “Traditional mobile phone providers are faced with a decision as to whether to adopt a confrontation or cooperation strategy towards the new competitors in the battle for this future market.”

Exponential growth in mobile data services

A further key finding of the survey is that, in a mobile phone market increasingly dominated by discount and flat rate tariffs in the voice segment, the future growth potential for network operators lies in data services. The technical preconditions are already well-established - 77% of all European mobile phone owners have the infrastructure in place to profit from mobile internet services, yet barely one third (31%) make use of these opportunities. Within this group, however, the time spent using mobile services is increasing rapidly. In the start phase alone, between 2001 and 2006, consumers increased their “mobile” time on the internet by a factor of ten, on average.

“Providers need to lead their mobile phone customers to the mobile internet with special offers. Our analysis shows that once the barriers to entry have been overcome, use increases,” says Stewart Sidhu, Principal in Booz & Company’s UK telecommunications practice.

“The success stories in the established internet will also win through in the mobile internet”, says Joe Sifer. “Revenues for mobile facilitators of social communities, news services and eCommerce offers will rapidly overhaul those from messaging offers like SMS and push e-mail.“

It is vital to the success of the mobile phone providers to incorporate appealing content into their mobile marketing platforms, via cooperation partners and open interfaces. “Mobile phone operators cannot permanently monitor which offers and applications customers are using on their mobile end-device. Instead of fighting them off, network operators need to embrace the mobile web and actively help to frame it through open systems,” Mr Sifer continues.

If they don’t succeed in doing so, then there is the looming threat of what is being termed the “bit pipe”. In this scenario, mobile phone operators might only turn over around US$274 billion annually world wide. By contrast, an innovations-oriented model would make it possible for network operators to achieve annual turnover of around US$480 billion.

Technological developments are set to make mobile data use even more attractive for consumers going forward. The UMTS-based High Speed Packet Access (HSPA) mobile transmission standard is already raising speeds dramatically, to several Megabit/sec. Corresponding high-performance, mobile end-devices are similarly available. The door to the mass market is opening.

Success factors: service worlds and open interfaces

Mr Sifer comments that “in the mobile future, the successful offers and providers will be the ones developing distinctive and unique service worlds which give mobile added value to customers.” Which innovations will telecommunications providers realise independently, and which are best achieved through joint ventures or in functional partnerships? The Booz & Company study identifies success factors for the different options:

In-house development: Focusing on a few, highly promising projects with tested major market potential. The network operator handles the entire innovation and development process internally and involves upstream suppliers only for selected components.

Joint venture: Partners develop the business model: the operator concentrates on controlling functions and provides capital. Joint ventures need to have a clear positioning. Profit and loss monitoring is essential.

Partnerships: Both sides develop key service elements for all partners involved. Monitoring and budgeting are conducted jointly. The process must include a definition of the key ratios to be achieved, and of exit points.

Using carefully-planned and structured partnership models, network operators can secure a significant part of the market and of the value added by mobile data services for themselves.