Growing “co-opetition” in the wireless industry, as well as changes in the power structure of a value chain, are common phenomena for many industries. How mobile operators respond and adapt to their new market dynamics, therefore, offers lessons, not just for wireless players, but for companies across industries facing today’s familiar mix of business uncertainty and compelling opportunity.
The worldwide growth of the mobile data marketplace has been little short of breathtaking. As of October 2003, NTT DoCoMo, one of the industry’s earliest leaders, had moved roughly 40 million of its 46 million mobile service subscribers in Japan to the i-mode data services platform, according to the Financial Times. The company is reaping impressive rewards: Monthly revenue from i-mode users is typically 20 percent more than from its voice-only services.
Major European and American mobile telephone operators are racing to attract new customers with their own multimedia data services, which include AT&T’s mMode, Vodafone live, and France Télécom’s Orange Sans Limite (Orange without Limits). Handset manufacturers, including Nokia, Motorola, Siemens, Sanyo, and Sony Ericsson, have in the past year introduced dozens of new models of so-called smart phones, which serve as PDAs, cameras, and e-mail and messaging devices. More multifunctional phones are on the way.
In 2002, spending on mobile data services in Europe, the United States, and Asia reached $32 billion. From 2002 to 2007, mobile data service spending will grow at a compound annual rate of 24 percent, reaching $92 billion in 2007, according to Booz Allen Hamilton projections. Even though voice transmission remains by far the largest part of the wireless business, we anticipate that in Europe, sending messages, getting news, playing games and lotteries, watching sports, and sharing photos and video clips will be the top revenue growth generators in mobile products and services for the mass market within three years, with the United States following a similar trajectory.
Yet, to date, mobile telecom operators have applied the same connectivity-only model that the first generation of U.S. and European cable and Internet service providers did in the 1980s and 1990s. These companies charge consumers to access their network, and then forge agreements with third-party content providers, such as game developers or Internet service providers that want to use the network as a distribution channel for their content. Third parties also develop their own paid relationships with consumers.
Because their revenues have derived from charging rent for use of their networks, mobile carriers have historically focused on a network’s speed and coverage. It has been up to the third parties (the renters) to make the large investments in the complex IT systems that deliver multimedia content, and to shoulder the marketing and distribution risks and responsibilities for growing mobile data service offerings. Mobile operators’ preoccupation with network efficiency has also meant they have played a limited role in influencing the look, feel, and usability of handsets.
Mobile operators could continue to capture only the basic value from the network connection as they add multimedia services, but their ability to grow revenues and profits will be highly constrained. The connectivity-only value proposition keeps them embroiled in brutal competition on pricing and network quality. Additionally, with this model, operators will always remain one step removed from the customer experience.
On the basis of our research and discussions with scores of executives at leading companies, we see two primary ways mobile operators can change their business models. One alternative is to adopt a low-cost, low-risk, lower-growth connectivity model with the objective of increasing user traffic and the volume of data transmitted over the company’s wireless network. The other is to use the higher-cost, higher-risk, but higher-value-added integrated service model, which aims to capture more value from the different types of content carried over the network.