Research Notes

Mobile Operators must differentiate their prices for data-traffic

and stop treating mobile data services like the Internet.
Most mobile operators are still treating GPRS as a sort of mobile Internet.

This not only includes taking the “always on” slogan from the ADSL world and using it for GPRS, but it also includes having a price pr. Mb for GPRS usage.

It is not a secret that making money on the Internet has been very difficult and that there little or no business sense in taking any Internet business models and transferring them to the mobile sector. So even if GPRS does remind you of ADSL, for the mobile operators, just having a fixed price pr. Mb does not make good business sense and in the long run will cost them a great deal of money in the form of lost revenue.

For example – mobile phones are now coming on the market that handle instant messaging – so you can see which of your friends are online and chat with them – not via SMS – but on Microsoft Messenger or similar messenger services. Using Messenger via GPRS, with todays pricing structure, is so much cheaper than sending an SMS, that Messenger will completely cannibalise the operator’s p2p SMS revenue!

On the other hand, if customers want to download larger files like video clips or are using their mobile phone as a modem for their portable PC, the price pr. minute on GPRS will be so exorbitant when GPRS gets up to speed, that the operators will simply miss out on that market completely, as no mobile customers will want to pay up to 8 Euro pr. minute when downloading some content that maybe actually has little value. A good quality 3 minute video clip – say a movie trailer – for a pocket PC like the Ipaq or the new XDA takes up around 3Mb. Who will want to pay 24 Euro to download and watch a 3 minute trailer? Nobody – not even if it was XXX rated!

Mobile operators have no choice but to differentiate their pricing of data traffic, depending on what type of data it is, what subscription type the customer has, what time of day it is, what 2G services it may be competing with – and so on. Only this way can the operators maintain their existing revenue streams and business models, while giving mobile users an incentive to start using new services and new technologies that the operators – and content owners – can also make money on.

This is exactly what the Korean mobile operators have done with great success during the past year on their 2.5G networks.

In Korea the mobile operators have differentiated the price of data traffic, splitting it up into text-based and multimedia traffic and they do not price data traffic by the Megabyte, but in “packets” instead. As each packet is 512 bytes – half a Kilobyte – this makes it much easier for the mobile users to relate to what it is costing them pr. packet – which is a tiny amount. When we look at the price pr. Mb, the Korean mobile users are actually paying $9,8/Mb for text based content and $3,8/Mb for multimedia content. In this way, the Korean operators are not cannibalising their text based services, while making it attractive for their mobile customers to use the new multimedia based services.

Add to this that the Korean operators are offering their customers segmented subscription offerings with between 1000 and 4500 packets of data traffic included in the subscription and it is little wonder that the 2.5G signups are immense and the use of data services on the 2.5G platforms in Korea has exploded.

These differentiated subscription offerings are described in detail in Strand Consults new report “The Korean Mobile market, a window to 3G”. The report examines in detail the whole of the Korean mobile market – a market that is currently 3 to 5 years ahead of the European mobile market and achieving documented results that are putting to shame almost all of the European excuses for not getting on with launching new services, offering content providers new business and revenue models for the new technologies and thereby speeding up the rollout of 2.5G.

Korea has in only one year converted 25% of their mobile users to 2.5G – over 9 million subscribers – and nearly 80% of those are regular users of data services. This is both to the benefit of the mobile operators and the content owners and service providers – the latter who are getting a 90% split of the revenue share on the price of the content.

In Korea, the mobile operators are selling mobile data traffic by packets – not pr. Mb – and have created their own segmented subscription offerings – not looked at how ADSL works on the Internet. The European operators – all of whom are selling GPRS for a fixed price pr. Megabyte – will not be able to avoid having to differentiate their prices and subscription offerings – if they want to make a sensible business case from mobile data traffic in the future.
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