Research Notes

Mobile Operators Start to See Double

– Expansion Can Be Intoxicating and Cause the Loss of Clear-Sight

Most commercial players in any market around the world would be thrilled to be in a situation where their customers found a need to purchase more goods or services from them. In any sales department the graph of inclining sales is almost a piece of art to enjoy, a piece that is often displayed side by side of expensive abstract paintings! And compared to the abstract paintings the inclining graph is easy to understand, but the simplicity of the graph can be a dangerous illusion.

The wish for increased sales is also found in the sales departments at the world’s mobile operators. But in mature and high penetrated mobile markets the mobile operators need to remain critical to the trend of their customers purchasing and using more than one terminal. Because with this trend follows two central issues. At first this will force the mobile operators to develop and apply a new type of subsidisation strategy, and moreover the tradition bound “mobile penetration” will increasingly loose information value.

Those increasingly number of mobile users that possess and use more than one terminal, can be due to the fact that they have both a personal and a business phone, or that the users besides their “normal” terminal have a PDA and/or Smartphone.  Some users however also choose to purchase “emergency phones” and places these in their vacation house or on their boat. At Strand Consult we believe that 15-20% of all European mobile users have more than one SIM card.

This trend is highly problematic for the mobile operators, as they need to subsidise increasingly more terminals, and thereby the acquisition cost per customer increases. This is not sustainable in the long run as the users does not suddenly double their mobile spending, just because they have two terminals, but the operator can easily have doubled their acquisition cost by selling two terminals to the same customer. The mobile operators’ SAC will in other words not be in balance with the ARPU they are expecting from the customers.

By selling two terminals/SIM cards to their customer, the operators are risking seeing double, as a customer with 2 SIM cards will be counted two times in the operator’s customer base, and consequently the customer will have cost the double to acquire. The operators sales departments will look at their inclining sales graph, but the attractive graph will be an expensive piece of art.

This development makes it necessary for the operators to take their existing subsidy strategy up for revision. At the same time, the operators’ future terminal subsidy strategy must focus on making a sensible relationship between SAC per terminal and revenue per terminal. The operators need to be more flexible in their work with terminal subsidisation in the recognition that their customers’ spending is not equal to the number of terminals the same costumers possess. Differentiation means that high spending customers are offered high subsidies, and low spending customers will not be offered subsidies at all.

Re-doing the mobile operators’ subsidy strategy will influence the terminal manufacturers and mobile retailers, who have enjoyed the fact that the operators did not especially differentiate subsidies per terminal. A new subsidy strategy will most likely mean that the operators payment to
terminal manufacturers and mobile retailers will be based on revenue share agreements, so that it is not a fixed amount per sold terminal, but a variable amount depending on the customers mobile spending on the specific terminal sold.

The trend that mobile users increasingly will purchase more than one terminal, means that the concept of ”Mobile penetration” looses its information value, as the concept no longer can be used to define how large a percentage of a country’s population possess a mobile terminal. The information value is even more clouded by the fact that SIM cards are increasingly used in navigation equipment and in machine to machine communication.

This means that the operators increasingly need to work with the penetration concepts. SIM penetration and mobile penetration. The concept of SIM penetration looks at the number of terminals in the market, where the concept of mobile penetration shows the number of persons on a country who possess minimum one terminal. The gab between the two different penetration concepts will increase in the future, which will mean that the tele-authorities will become more specific in what they allow the mobile operators to include in their customer count.

The trend of increasing numbers of terminals for one user, is by far the least trend that justifies
significant changes in the mobile value chain as we know it. Strand Consult have identified 10 Mega Trends, which all are analysed in debt in the (+300 pages) report “Mega trends in the mobile industry – a question of life and death”.

The market for mobile telephony will change dramatically due to these Mega trends. It will mean new business processes and revenue sharing models. The report analyses the effect, which the 10 Mega trends will have on terminal manufacturers, content providers, mobile operators and mobile retailers, as well as makes suggestions to what actions the individual market players can do to prepare for the effect of the 10 Mega trends.

The mobile operators must adjust their strategy to the customers changed spending pattern, so that they do not come out injured from a sales success following a not up-to-date subsidisation strategy. When the operators are ready to present their new subsidisation strategy it will influence the rest of the value chain dramatically.

Mega trends in the mobile industry – a question of life and death

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