Research Notes

Discount mobile service providers will be a great threat to mobile operators and traditional service providers

– but what can threaten the discount mobile service providers themselves?
More information “”The Moment Of Truth” – A Portrait Of The Discount Mobile Service Providers Success”

Two years ago they literally didn’t exist – today they are the “talk of the town”. From being completely unknown and uninteresting in the minds of the mobile operators, they have progressed in this short space of time to having so much influence on the mobile market that they are directly influencing the mobile operators’ business strategies. Who has come so far and achieved so much in just two years? We are talking about the so-called discount mobile service providers.

The basic characteristic of discount mobile telephony is that the mobile customer registers and pays for his mobile usage online via the Internet. Also the customer is offered very clear and simple pricing tariffs with very low prices on voice minutes and SMS messages and without any form of ´monthly subscription. Discount mobile telephony has especially become common in Denmark, where there are no less than 10 discount mobile service providers. Now it is not a question of whether discount mobile telephony will spread like wildfire to the rest of Europe – but only a question of how many mobile customers the operators will loose when discount mobile telephony hits their markets.

This new business area of discount mobile telephony has just been thoroughly analysed in Strand Consults latest comprehensive report “The Moment Of Truth – A Portrait Of The Discount Mobile Service Providers Success”. This report has examined the Danish mobile market, where discount mobile telephony has in a very short period of time, managed to turn the whole mobile market upside down, completely changing the competitive parameters that were until recently governing the market.

The report focuses on how the two Discount Mobile Service Providers (Telmore and CBB Mobil) have managed to acquire no less than 43.7% of all new mobile customers from 2H 2000 to 1H 2003! This is an outstanding achievement considering these two companies were both launched at the end of 2000. Add to this that around 20% of the total Danish mobile customer base is using a Discount Mobile Service Provider today and you just have to be pretty impressed. The report also analyses the development of the end-user prices for voice and SMS messages. In the past 10 months alone the price has dropped by around 50% so a discount mobile customer can today talk on his mobile phone for just 0.091 Euro and send SMS messages galore at only 0.026 Euro pr. message. It is only a question of time before we see a similar trend on all the other Western European mobile markets.

The report also examines which factors enabled the huge success of the discount mobile service providers. There is simply no reason why companies in other countries should not copy this model with the same success. As long as a country has a high penetration of mobile terminals and a high Internet penetration, mobile providers all over Europe will find very valuable information and be able to learn from the discount experiences on the Danish mobile market.

But despite the really impressive success that the discount mobile services providers have had – especially those that started earliest – these discount mobile service providers are not completely invincible when looking forward. In “The Moment Of Truth – A Portrait Of The Discount Mobile Service Providers Success”, we examine in detail some of the interesting factors and strategies that the mobile operators will actively be able to use in their efforts to compete with their fast growing discount counterparts. Amongst these factors are:

– Longer minimum subscription periods when subsidising mobile handsets. The discount mobile service providers do not offer their customers subsidies when purchasing a new mobile handset. A longer minimum subscription period would greatly help mobile operators increase their customer loyalty.

– Upgrading mobile technology. When new technologies are introduced like EDGE and UMTS, there will be the basis for customers to exchange their existing mobile handsets to new handsets that support the new technologies. The customer has been used to making this purchase with a mobile operator – as they offer subsidies on the price – and thereby again with a longer minimum subscription period, the mobile operators would both be able to get their customers back and increase customer loyalty.

– Delaying mobile services functionality (Premium SMS, GPRS etc.) As the mobile operators own their own networks, they will be the first to have access to any new mobile services and can choose not to let their service providers using their network to have access to new mobile services. By delaying access in this way, the mobile operators will – for a period of time – be able to exclusively offer their own customers the most attractive new mobile services.

– The convergence of mobile networks and handsets. Customers will increasingly experience that their mobile handsets will feature increased functionality when using a certain operators network – but that this extra functionality will cease when switching to another operator. This will bind the customer closer to the operator that both has subsidized the handset and offers the increased functionality, weakening the discount mobile service providers possibilities to attract those customers.

– Volume. Even though discount mobile service providers do not have to invest in licenses and infrastructure, it still needs good financial backing to start up on a new market. This is due to e.g. that the discount mobile service providers have to purchase “voice” minutes and SMS messages from the mobile operator and sell them to their customers. If the discount mobile service provider has a limited mobile traffic volume, they will often have to pay a higher price for their voice minutes and SMS messages than they can sell them for. It is not until they reach a certain volume that they can start making money from reselling mobile minutes and SMS’s. In this way the mobile operators can – using their service provision agreements – make sure that especially the smaller discount mobile service providers will have a difficult time getting going and becoming too big.

– Price matching from the operators. The mobile operators are not really interesting in having to lower prices any more than absolutely necessary, but on a market where discount mobile telephony has not yet established itself, the mobile operators could – for a while – lower their prices to match or even beat the prices offered by the discount mobile service providers, making it very difficult for these new companies to gain any foothold on the market at all. This would of course be expensive for the mobile operators, but on the other hand the success of the discount mobile service providers in Denmark has also been extremely expensive for the mobile operators.

In other words the mobile operators have some very interesting possibilities to both prepare for and tackle the growing threat from the discount mobile service providers. But it is very necessary for the mobile operators to understand both exactly how the discount mobile service providers operate and all the possible countermeasures that the operators have at their disposal, so that it all comes together in a strong overall business strategy. Because there is no doubt that the discount mobile service providers are going to become a part of every European mobile operator’s daily life.

More information “”The Moment Of Truth” – A Portrait Of The Discount Mobile Service Providers Success”

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