Mobile telecommunications operators worldwide — from Japan’s NTT DoCoMo to France Télécom’s Orange to the U.S.’s Verizon Wireless — are in a difficult spot. The wireless network connection has become a commodity; the licensed network is no longer a key asset. Revenue growth from traditional cell phone voice services is slowing, despite the increasing popularity of wireless phones and more dazzling portable multifunction “smart” phones (with such features as cameras, PDAs, e-mail, and Web connectivity). Having spent billions on fabled 3G broadband networks, many mobile telecom companies are now saddled with paying off huge capital investments. Meanwhile, aggressive new competitors from every part of the digital value chain — application developers, software vendors, content owners, handset manufacturers — are all intent on getting their piece of the wireless action.
|“Aggressive new competitors to mobile operators, from every part of the digital value chain, are intent on getting their piece of the wireless action.”|
So where can mobile service operators go for growth? We believe the next big opportunity is in mobile data — the digital sounds, pictures, videos, games, and text messages fancied by a burgeoning population of consumers who view their mobile devices as much more than a telephone. Indeed, launching mobile data services to capitalize on the expanding broadband infrastructure is the biggest new business opportunity for the wireless telecom industry since its inception more than a decade ago.
Through broadband and even narrow-band networks, the latest portable digital communications devices will soon reach data transmission power similar to that of personal computers. Consumers seem enthralled by the possibilities, and mobile operators in the most advanced markets are already reaping the profits. According to the Financial Times, NTT DoCoMo has moved nearly 40 million of its 46 million mobile service subscribers in Japan to the popular i-mode data services platform. The FT reports DoCoMo’s monthly revenue from i-mode users is typically 20 percent more than from its voice-only services.
Our market projections, which are supported by other wireless market watchers, suggest that sending short text messages, getting news, playing games and lotteries, watching sports, and sharing photos and video clips will be the top generators of revenue growth in mobile products and services in Europe within three years, with a similar growth trajectory expected to follow in the U.S. Nokia projects that the annual worldwide business in mobile data will grow to 180 billion euros by 2007, more than quadruple the current revenues in this area.
Business Model Options
To profit from these opportunities, however, wireless companies have to make critical choices over the next one to two years with respect to their mobile data strategies.
Booz Allen Hamilton’s research and ongoing discussions with industry leaders indicate that mobile telecom companies have two business model options. One alternative is to adopt a low-cost, low-risk, lower-growth connectivity model with the objective of increasing the volume of data transmitted over the company’s wireless network. Here, the mobile operator focuses on growing traffic, but misses out on opportunities to capture value from the content carried over its network. This strategy may be viable for companies with limited financial resources that can compete on the price for, rather than on the value (breadth and quality) of, their services. But this is not a viable strategy for the major wireless carriers, especially those that have already made significant 3G investments.
For them, a higher-cost, higher-risk but higher-value “integrated service” model makes more sense. With this approach, mobile operators don’t simply provide a connection, they position themselves to directly influence and profit from the customer’s total wireless experience.
In the integrated model, pricing is determined on the basis of the value of content rather than the volume of data transmitted; wireless operators play a much bigger role in packaging, promoting, and selling the content, subscriptions, and services offered by content companies. Operators also work much more closely with handset manufacturers than they have in the past to develop unique new devices designed for the multimedia experience, which can serve to enhance both partners’ brands. Such partnerships will be crucial to the mobile operator’s ability to expand revenue streams, grow market share, and make customer relationships more valuable.