Research Notes

Strand Consult: Predictions for the European Mobile Market in 2003

Consumer Behaviour
2003 will be the year where we really start to notice how consumers will be divided between a voice based market and a data based market. The consumers on the voice based market will primarily use their mobile phones for voice and a little SMS, they will mostly buy low end terminals and will not be very interested in colour screens, MMS, Java and Mobile Services.
The consumers on the data based market will be very interested in the new technology mobile phones that have much more functionality than just voice. New services based on WAP 2.0, Java, MMS etc. will start to be used by a rapidly growing number of customers.
We will see a number of customer segments that will show a significant increase in the use of voice and non-voice traffic and ARPU will increase in a number of countries.
We will also notice that increased use of VAS (Value Added Services) will actually stimulate voice traffic.

The mobile operators will focus more and more on post-paid customers, rather than prepaid. Prepaid will however have somewhat of a renascence as the operators will develop new more advanced prepaid products than we have seen so far.
Those operators that have many stores will most likely reduce the number of their own stores, closing down the less profitable outlets. Operators with only a few shops of their own will continue to buy into communication retailer shops to gain more power and control over their distribution. We will also see a tendency for some operators to try and opt for a franchising scenario, taking their own shops and franchising them out, rather than owning them. Another similar trend will be letting chains like Carphone Warehouse take over the running of operators shops.
In general, the operators will be focusing much more on direct sales than they have been before. Direct sales can be through their outlets, via the Internet, via direct mail and tele marketing and this will not just be for terminals, but also VAS and Airtime for prepaid customers. We will see operators launch bonus programmes – like the airlines have had for years – where the customer saves up points that can be used for example to buy a new terminal, add on equipment like a camera or mobile services.
Customers with low ARPU will get worse and worse terms on the mobile market – they will start having to pay more when purchasing their terminals and will see their price on airtime rise compared to the heavier users. An exception to this could be if the low ARPU customers can learn to serve themselves on the Internet, thereby saving money for themselves with lower airtime cost and for the operators with lower handling costs.
The high end customers will start to see cheaper or free hardware upgrades and in general the operators will do everything they can to hold on to these customers.
We will start to see a number of new types of subscriptions, which are more user friendly than those offered today – with a more simple and understandable pricing structure. We will also see new types of subscriptions that will be attractively priced compared to fixed line subscriptions, where customers will be offered a similar price when calling from their mobile to a fixed line, as they would have gotten calling from a fixed line to a fixed line.
Value Added Services like ringtones and logos will be bundled together with many subscriptions, so a subscription for a younger user could look like this: Pay X Euro pr. month and get 180 minutes airtime, 150 SMS, 2 ringtones and 3 logos.
GPRS will move away from being a service that you need a special subscription for and become embedded in your standard subscription – like SMS already is today.
The operators will focus strongly on loyalty – loyalty from their retailers and from their customers.

The consolidation of the European mobile distributors will continue. As economy of scale is the key, the distribution strategies described in the paragraph above will force the smaller players to either close or join the consolidation process, where the larger retailers will be ensuring a presence on several markets. The distributors will continue to expand their offerings with repair services and other value added services. One of the key factors for the success of mobile distributors will be their ability to handle the operators demands for specially configured mobile terminals, as the terminals become more advanced. This one factor will have a long-term impact on which retailers have success. Retailers that cannot handle this will end up catering for the low ARPU segments.
As operators focus more and more on core business, they will be looking to outsource various activities to the distributors, putting pressure on the distributors to keep up with developments. Another challenge for the distributors will be that the fragmentation of the terminal market can easily put distributors in a position where they have miscalculated the market, leaving them with stock they cannot sell without a loss.
There will be a tendency towards the operators using their marketing budgets to market new technologies and branding of themselves, leaving the marketing of new mobile terminals to the manufactures – except for the mobile operators own brand of mobile phones like Oranges SPV.

Retailers in general

The retailers’ profit when selling a mobile phone will be structured in a completely different way than we are seeing today. The main profit will not just come from the basic subscription, instead the retailers ability to sell new services to the customers will have a significant impact on how much a retailer will make on each subscription.
In countries like England, Sweden and Germany we are certain that the basic subscription margins on some products will decrease, while margins will increase on newer product groups.
In countries like Denmark, Norway, Spain and Italy, the retailers’ profit on mobile phones will increase, while it will remain mostly unaltered in France, Holland, Belgium and Switzerland.
Retailers who focus on data heavy customers and can explain and sell new mobile services will make good money. Retailers without this focus will be left with the low ARPU customers – thereby having difficulty in growing their business and making a profit.
We will see retailers take their profit on mobile phones and either use it to bring down the price of the mobile phone or keep some of the terminal subsidisation as extra profit – the borderline between retailer profit and terminal subsidisation will thereby start to disappear.

Specialist shops
2003 will be the year where we see the number of independent specialised shops drop, less larger retailer chains and a new type of mobile store will start to emerge.
Specialised shops will reduce the number of operators they are selling for in their shops, although some might try to offer all operators. A reduction of the number of operators that are represented in a shop, will mainly be due to pressure from those operators to adopt this strategy. The general focus in the shops will move away from selling mobile phones, to becoming mobile service “hubs” where customers can buy hardware, upgrade hardware, get repairs and buy – and get help installing – new mobile services.

Radio and TV shops
These types of shops will have little option but to focus on selling hardware with low profit margins to low ARPU customers. They will have to focus less on post paid customers and high end data services – as these customers and services will be to complex and time consuming to handle in non specialised shop with a high customer throughput.
Therefore the focus will be on upgrading existing prepaid customers to some of the newer prepaid types of subscriptions described earlier. These shops will also believe that they can make money on selling smartphones, PDA’s and other types of convergence products – but again, the complexity of these products and the services for them will make it difficult for them to handle and not be a great success. In general, these shops will suffer from decreasing marketing help from the mobile operators and will start to see that mobile products they are selling will be more on a “off the shelf” basis – like their other products.

The services
In 2003 there will be an enormous focus on premium SMS, especially push services will enjoy huge success. The operators will be very aware that they must get their 2.5G strategies in place, if the market for 2.5G services is going to take off. We will see a great number of variations on the pricing of GPRS traffic and also see differentiated pricing on different types of GPRS traffic.
MMS will be somewhat of a disappointment. We will not see the traffic that many were expecting and the price of an MMS will decrease in many countries until it reaches a level around three times the price of an SMS. We will see some differentiated pricing on MMS depending on their size, but mostly from content providers offering premium MMS.
A growing number of the larger media companies will make good revenue from developing and marketing mobile services and we will see even more mobile services being used in Television shows as part of their interactivity with the viewers.
Ringtones and logos will slowly decline and be less visible in the media.
Unified Messaging will be re-launched as a type of second-generation voice mail – we think that the operators will use UM integrated as part of a new type of prepaid subscription – thereby trying to reduce churn on prepaid customers.
The market for push-based services like sports results, traffic information and other, will grow substantially. We will see the first types of TV shows where all mobile users can directly compete against contestants in the studio. Mobile services will become an integrated part of the launch of new movies, cars and products and also in the more general marketing of products and companies.

Some music CD’s will contain free ringtones and or logos. WAP will have a comeback as downloads of Java games and new ringtones take off.
Når man køber en musik CD vil den komme til at indeholde 1-3 gratis ringetoner og et logo
South Korea will be widely recognised as the market leader for implementing mobile services and CDMA will be talked about and analysed than we have seen so far – putting pressure on GSM.
South Korea will be seen as market leaders when it comes to implementing mobile services.

The phones
We will see more phones and brands than before, but fewer manufactures.
New brands will enter the market – brands that we have not seen before. This could be companies like Swatch, Coca Cola, Porsche and so on.
More operators will sell their own terminals that are manufactured by companies like HTC, the company behind Orange’s new SPV smartphone.
Microsoft will continue working with different companies to launch a number of mobile terminals based on the Smartphone 2002 platform and with different types of design.
Nokia will also continue to launch many new mobile phones, making it increasingly difficult for customers, operators and retailers to know which mobile phones suit which segments the best.
PDA’s will become increasingly visible. Operators will start offering corporate customers packages consisting of a number of PDA’s and a backend software solution that integrates into the companies IT solution, at a very attractive price.
Mobile phones will start to have a number of mobile services preinstalled and working when the consumer leaves the shop. One of the more important preinstalled services will be e-mail.
Nokia’s new mobile phone N-Gage will attract much attention, but will not sell very well – the competition from Nokia’s other terminals will make it difficult for customers to understand why they should invest in this terminal.
As retailers will have difficulty in differentiating between the many new terminals, they might end up marketing just a handful of their “favourite” terminals – that thereby would become very popular and take a big slice of the terminal market.

The 3G perspectives
As 3G launches in a number of countries – with rather low coverage and few terminals – Hutchison 3G will loose their first mover interest and become more and more similar to other 3G operators.
The mobile sector will be discussing whether operators with an open-garden content strategy can differentiate themselves enough compared to those with a walled-garden approach. Customers will have difficulty in seeing why they should jump on the 3G train, as 2.5G will offer best coverage, the largest choice of terminals and the most services. This will make the launch of 3G quite tough and early comparisons showing how little difference there actually is between 2.5G and 3G will not help.
2003 will be the year when Microsoft really make their mark in the mobile sector – and even though Microsoft’s sales figures will be at the level Microsoft expects, the marketplace will have even greater expectations for Microsoft’s sales.
The launch of Microsoft’s Pocket PC 2003 and Smartphone 2003 and their integration up to Microsoft Exchange servers and other products will impress many people.
Operators will try to obtain exclusive 3G rights on content, but many media companies will try to avoid those kinds of deals, hoping that the 3G mobile services market will mainly evolve around an open garden strategy.

The press will most likely have field day writing about the failure of 3G, forcing the operators to spend time and money defending their 3G rollout. More 3G operators will try and stall their rollout and some will return their license.
The huge 3G investments will start a consolidation process in many countries, where we will often see one operator merge with one of the others, taking the number of operators in a country down by one.
Some of the independent operators will form International alliances between themselves, making it easier for them to compete against operators like Vodafone. A few of the large and well-known European operators will disappear in 2003 as they are forced into a consolidation process.

How did we do last year? See Strand Consults predictions for 2002 – click below
2002 UK predictions
Strand Reports

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