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Published: October 23, 2003

 
 

How Wireless Carriers Will Make Mobile Data Pay

To date, mobile operators have followed the lead of the first generation of U.S. and European cable and Internet service providers, which applied a connectivity-only business model. These companies charge consumers for access to their network and have agreements with third-party content providers (e.g., game developers, instant messaging services) to use their network as a distribution channel. Third parties also develop their own paid relationships with consumers. Because their revenues have come primarily from charging for use of their network, mobile carriers have historically focused on network efficiency. It has been up to the third parties to make the large investments in complex IT systems to deliver the multimedia experience and take the marketing and distribution risks.

“In the integrated service model, mobile operators don’t simply provide a connection. They’re positioned to directly influence and profit from the customer’s total wireless experience.”
Mobile network operators could continue to capture the basic value from owning the connection, but their ability to grow is limited because they’re always one step removed from the customer experience. They bear none of the responsibility for or the risks involved in signing up more wireless service customers or for providing the innovations and quality that attract people. To earn the required return on past and future investments, mobile operators can’t continue to have a business model limited to running networks and providing connectivity while others are capturing the value created by the services running through the network.

Charging for services on the basis of the volume of data transmitted rather than by putting a price on the type and the quality of content is also a mistake mobile operators have perpetuated by copying the business models of early Internet players. When we asked 700 consumers of mobile telephone services in five major European markets in the fall of 2002 what kinds of payment methods would be most acceptable to them, 69 percent said they preferred paying a price per download of content (e.g., per song). Only 14 percent said they would be willing to pay according to the volume of data transmitted (e.g., per megabyte).

Not only is value-based or event-based pricing more acceptable to users, our analysis shows that such pricing will stimulate demand and enable mobile operators to maximize revenues. For example, at the prevailing volume-based rate charged by European mobile operators in February 2003, downloading a one megabyte music track would have cost 10 euros, but a standard text message would have cost only 0.0001 euro. According to our research, the optimal price would have been closer to 1 euro per download for a song and 0.2 euro for a short text message . 

Partners in the Value Chain
Mobile operators must also establish constructive relationships with everyone who brings value to wireless products and services — the content providers, mobile handset manufacturers, applications developers, and system integrators. Mobile operators may not need to manufacture devices or generate content themselves, but they must increase their economic involvement and sphere of influence in this market to strengthen their control over revenue and profit.

Through partnerships, wireless telecom operators can achieve two objectives that improve the customer experience and increase the financial rewards for companies — create an integrated service environment and influence handset design.

Create an integrated service environment. The “service environment” of a wireless device, which includes the user interface and the underlying software platforms, shapes the user experience (e.g., ease of use, reliability, and security). Mobile companies are well positioned to understand the complex requirements that go into creating a quality wireless experience. Indeed, they have the advantage of overseeing all the relevant factors: the interface, pricing, security features, content discovery channels (e.g., portals, word of mouth, television ads, promotional games), network quality, user content preferences (determined by what is most downloaded), reactions to branding, and more.

 
 
 
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Resources

  1. "Why Banks and Telecoms Must Merge to Surge,” by Wouter Rosingh, Adam Seale, and David Osborn, s+b, Second Quarter 2001. Click here.
  2. "Will Prepaid Service Be the Next Wireless Frontier?,” by Raul L. Katz, Eric J. Riddleberger, Bharat V. Sarma, and Daniel H. Yang, s+b enews, 08/15/02. Click here.
  3. "Capturing Value in the Enterprise Wireless Market,” by Carolina Junqueira, Sajai Krishnan, Gregor Harter, and Mark Page, s+b enews, 12/19/01. Click here.
  4. "Winning on the Wireless Web,” by Christian Fongern, Pierre Peladeau, and Bernhard Kerres, s+b enews, 09/25/00. Click here.
 
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