Research Notes

Should mobile broadband providers subsidise dongles and portable PCs?

One of the major questions on the mobile broadband market is about hardware: what strategy should operators choose regarding dongles, terminals and portable PCs?
At Strand Consult we believe it is most likely that especially portable PCs will increasingly have built-in mobile broadband – in the same way that they already have built-in WiFi, or that they alternatively will be sold together with a mobile broadband dongle.
If you examine how the mobile broadband market in South America will develop, there is no doubt that MVNOs like Spring Wireless will play a serious role in distributing mobile broadband products to corporate customers.

This development will result in the possibility of bundling a data subscription and a portable PC – and thereby the possibility to subsidise PCs. This opens up a very interesting market for the computer manufacturers, as they can see the possibility of developing some extremely interesting packages that can drive the development of the computer market in the same way that the mobile telephone market has been driven and that will result in the mobile broadband providers stimulating the IT market. There is no doubt that retail sector and computer manufacturers will welcome this type of offering, but on the other hand, will this type of offering be profitable for the mobile operators?

In our new report  Ssuccessful Strategies on the Mobile Broadband Market , we examine and analyse the changes currently happening on the mobile broadband market. When a mobile broadband provider develops a business case for whether subsidising PCs is a viable strategy, there are many issues/challenges that need to be taken into account. In the near future, a customer will typically be paying 15-25 Euro a month for a mobile broadband connection including “fair use” consumption. A typical portable PC costs between 700-1100 Euro and the provider needs to decide how much the provider wants to subsidise and how much the end-users should pay. The lifespan of a portable PC is typically 15-18 months, which results in an ARPU during 15 months of 225-375 Euro and for 18 months between 270-450 euro – which should be compared to the 700-1100 euro that a portal PC typically costs.
A simple calculation shows that there is no room in a future mobile broadband subscription for any substantial portable PCs subsidies – and small subsidies will not be sufficient to create the attractive packages that can tempt large numbers of end-users. Mobile broadband providers therefore need to reverse the current development and increase customers ARPU if they want subsidies to be part of their future strategy.
Mobile operators have long feared becoming bitpipes, in other words only being used as data carrier’s without receiving any share of revenue from services – and services is one of the ways to increase ARPU. Mobile broadband providers have the possibility to launch revenue sharing models on the broadband market similar to the business models being used on the mobile services market. In our new report we call this the BCAP (Broadband Content Application Provider) model. This gives mobile broadband providers the possibility to create an ecosystem that gives them a share of the services market. But we also concluded that they have the additional possibility of increasing ARPU by offering other customised services bundled with the basic Internet access.
The question is however whether an increase in ARPU from services will be sufficient to allow portable PC subsidies and especially whether a sufficient growth can actually be achieved in this area.

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