Research Notes

GPRS prices drop – while ADSL prices try to rise

– will they never learn..
Just as some ISP’s start introducing a pay pr. Mb scheme for ADSL – something that all ADSL operators would like to get back to – the prices for GPRS are dropping rapidly, with the first flat rate GPRS subscriptions already now available. Obviously, the mobile world does not know where the whole flat-rate misery came from – if they did they would understand that they do not need to follow in the footsteps of the ADSL providers and make the same mistake by offering flat rate.

GPRS is the backbone for data revenue for mobile operators and the pricing of GPRS will set the standards – and expectations from the consumers – for 3G data pricing in the coming years. So why are the mobile operators already slashing GPRS prices and even offering GPRS flat rate schemes? Basically they are following in the footsteps of their ADSL counterparts – but not for the same reasons that ADSL operators introduced flat rate.

So why did the ADSL operators introduce flat rate? The answer is quite simple. Before NASDAQ crashed, ADSL operators were introducing the new ADSL offerings to the Internet users. In the USA competition was fierce and these quite young companies like @Home were being valued by the number of customers they had – rather than whether they were making money.! Sounds familiar doesn’t it.

So in the race to acquire as many new customers as possible, thereby pushing their market value on NASDAQ up, flat rate was introduced simply as the fastest and easiest way to attract new customers – irregardless of the fact that flat rate ADSL would make it very difficult to actually make a profitable business case. No one cared about that when their company’s market value was billions – and rising – on NASDAQ.

Today it is a completely different scenario for the ADSL providers. Their market value is based on one factor – are they making a profit – or on the right track to making a profit. The same factor as the value of all other companies is based on – including the mobile operators. The mobile operators already know this. At the time ADSL providers were giving away ADSL almost for free to attract new customers, mobile operators were attracting customers by giving away mobile phones for free, also to help their market value.

Not unsurprisingly, ADSL providers are now desperately trying to move back to the pay pr. Mb model – which was what they originally started with when they first launched ADSL. Also something that is not very unsurprising is that customers are now used to low flat rate ADSL prices and are not at all interested in pay pr. Mb schemes.

With the above history lesson in mind – there is absolutely no reason for the mobile operators to even consider giving GPRS away for either little money or almost for free with flat rate and from a business point of view it must be infuriating for their shareholders.

T-mobile have just cut their GPRS prices by up to 70% to “boost the use of GPRS” and other mobile operators will most likely follow suit in the usual scrabble to be the “cheapest on the market”. Finnish DNA offers flat rate GPRS for Euro 19 pr. month.

But it is totally unnecessary. Of course price is important. But there are two major factors that will boost GPRS: the right mobile services (and lots of them) and differentiated data traffic pricing when using GPRS.

Instant Messaging is great on GPRS. It costs about 10% when chatting via Messenger over GPRS compared to sending SMS’s. So charge more for GPRS when users are chatting via Instant Messaging. But watching streaming video over GPRS could easily use around 1 Mb of data – at 3 – 5 Euro pr. Mb – for a 5 minute video, plus any content fee on top of that. No problem, put the price of GPRS down when streaming video.

Lots of services, combined with different pricing on data traffic over GPRS make for an astoundingly healthy business model. If the operators want to make even more money, they could offer a tiny revenue share on data traffic when users send and receive email over their mobile phone. So that Hotmail and other portals push mobile email services over on the phone – and make a little money every time the user checks mail. This model works great in South Korea to both the benefit of the mobile customers, the mobile operators and the email portals.

In 2002 the value of the mobile content market was 1.6 billion Euro. Out of this the mobile operators received 900 million Euro and the rest went to the content providers. The 900 million for the operators can be again broken down into the operator’s share of the mobile services content fee – around 350 million Euro and the actual data traffic revenue – which they do not split with content owners – around 550 million Euro. So what the operators are doing is slashing the income they are already earning on data traffic – in some cases by up to 70% – rather than looking at getting more services out there like Vodafone Live are doing and launching differentiated pricing on GPRS. Remember – this was 2002, mobile services are expected to generate a total of 23 billion Euro. The content providers will get just under 10 billion Euro out of that no matter what, but the 13 billion Euro left for the mobile operators will be decimated if they all go for flat rate GPRS – a ridiculous scenario when there is no real reason to do it and a much better alternative that already works in South Korea.

The above figures are taken from Strand Consults latest report “How to make money on mobile services” – a 700+ page comprehensive report about the development and value of all types of mobile services in 16 mobile markets in Europe from 2002 to 2005. Included in the report are many case studies from across Europe.

History is there to be learned from. Making mistakes that have been already made shouldn’t be possible in this day and age of our Information Society. On the other hand isn’t there a phrase called “History repeats itself”??
More information “How to make Money”
More information “Facts & Figures”
More information “Understanding SMS and MMS Service Market”
More information “Understanding the Mobile Application Service Market”

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