Strand Consult: Predictions for the European Mobile Market in 2004
| 2003 was the year where the mobile industry really experienced a paradigm shift, moving from the traditional monochrome terminals to the new colour screen terminals with MMS, WAP 2.0, Java, GPRS and of course built in camera. The customers have really embraced the new terminals and features and at the same time the use of mobile services has exploded. That SMS is a success is old news, but that WAP traffic has grown at an incredible speed in many countries has probably surprised most people. The use of premium SMS has been a huge success across all countries and many Wireless Application Service Providers (WASPs) around the world are experiencing record sales. One of the biggest surprises in 2003 came from Java games. Who would have thought just 12 months ago that millions of Java games would be sold to mobile users – in some markets revenue from Java games has overtaken the sales of ringtones. 2003 was also the year where “3” launched in a number of countries. Their ambitions and marketing budgets were even bigger than the promises and messages in their marketing campaigns. However, in the real world “3” repeatedly had to lower their subscriber forecasts and at the same time reduce their number of employees. In some countries top management was also replaced. On the brink of 2004 “3” is looking more and more like a new “Iridium”. What will 2004 have in store for “3” and how will the mobile market develop? Once again it is a pleasure for Strand Consult to offer our opinion on what news and developments we will be seeing on the worldwide mobile markets in 2004. Consumer behaviour 2004 will be the year where the customers take over power. Many mobile customers are now using their mobile handset number 4 or 5 and have been a customer with 2 or 3 mobile operators. Also subscription types are becoming less complicated and easier to understand, which is making the market mature faster. Also cheap voice and SMS prices are becoming increasingly important for the customers choice of operator. We will see a continued explosion of the use of premium mobile services based on SMS, but the use of premium MMS will also increase. We expect premium MMS services will account for 5-6% of the total MMS traffic. Users will also start to WAP to an extent we have not seen so far and the introduction of new XHTML based portals will be a success. The increased penetration of the advanced terminals and the possibility for content providers to earn money on marketing and selling mobile services will push the customers’ consumer patterns in the right direction. The combination of falling voice prices and an increase in the use of services will lead to more operators announcing that they are now getting over 20% of their mobile revenue from non-voice traffic. In this regard Denmark, England, Sweden and Holland are countries that one should keep an extra eye on in 2004. The Operators 2004 will be the year where mobile operators will have to choose whether they want to focus on becoming more cost effective or whether they want to try to differentiate themselves to the competition by developing and marketing new mobile services. We believe most will try to do both and that they will focus on three main areas; segmentation, mobile portals and reducing costs. Across Europe we will see a number of severe price reductions in the mobile industry. The price for a mobile voice minute will fall noticeably. Especially the pre-paid customers will see vast price reductions, but other customer segments will also experience sharply falling prices. The introduction of web based mobile service providers will put pressure on prices in a number of countries – exactly like the Danish market has experienced in 2003 – and many of the smaller mobile operators will try their hand at becoming discount mobile providers. The drop in prices will mean that the operators will have to focus on their expenses to an extent that has not been seen before in the mobile industry. The effect of the 3G auctions’ extraordinary high costs will start to show in the mobile operators’ accounts, as voice minute and SMS prices continue to drop. Some of the key areas for the operators will be to reduce their CAPEX and daily costs and also focus on outsourcing. The stock markets will see an increasing focus on the number of employees needed by an operator to run their business. The combination of this focus on costs and the falling prices for voice will – for a great number of the players in different areas of the industry – lead to a surge in consolidations that will again help to ensure a more cost effective mobile market. The operators T-Mobil, Vodafone and Orange will again begin to focus on acquisitions in those markets where they do not have a large footprint. “3” will continue during the first half of 2004 to suffer with various problems and find that their biggest competitor will simply be their limited coverage and small range of terminals. We expect to see “3” achieve a little better success towards the end of 2004, but by then the biggest question on most critics lips will be “can they ever make a healthy business out of their investments?” To compensate for the drastic reductions in prices, operators will seek to increase segmentation of their customer bases and increasingly offer selected services customised to different segments. Segmentation of customers, distribution, services and terminals will all be buzzwords and will be visible in the corresponding strategies. Mobile portals will also become an area of interest. Many operators dream of creating a “Vodafone Live” solution during the coming year and focus will turn from just having portals, to the content and quality, working on the strategies so that the content on the portals not only match the wishes of the customers, but also are numerous and varied enough to be attractive for all customers. In this respect, Telenor, KPN, TIM and Telefonica are the ones to watch in 2004 Distribution The keywords surrounding distribution will be quality and control. It will be interesting to see what quality of customers the operators will get from their various sales channels – while at the same time trying to reduce costs and thereby putting pressure on the distribution channels. Those dealers that supply customers with high churn rates and low airtime will experience a noticeable fall in their revenue pr. customer, while dealers that deliver customers with low churn rates and high airtime will see their earnings rise. Control in the sense that the operators will still focus on having their own retail shops, but will want an even closer relationship to selected independent chains and also have alternative sales channels via the Internet and or even segmented – like for example a sports club. The dealers will see their average terminal subsidy fall, but at the same time more and more often be offered a share on the airtime generated by the contracts they sell. The goal for the operators is simply to reduce the dealers’ incentive to churn their customers. In other words get the dealers making money on retaining and servicing customers, rather than actually finding the customer. The distribution channels will also start to see terminal manufacturers like Nokia start choosing selective distribution of their products, so that not all their products will be available through all distribution channels. We will see a trend towards the large chains like Carphone Warehouse growing, while smaller chains will have trouble staying in business or see themselves forced into some kind of consolidation. Who to watch in 2004: Dangaard Telecom, Carphone Warehouse Terminals The year 2004 will be a very good year indeed for terminal lovers. It will be the year where we will see an almost infinite number of different mobile terminals from an almost infinite number of terminal manufacturers. Manufacturers like Nokia will concentrate on having a high Share of Terminals (SOT) in the different distribution channels. Technologically we will see a rise in the use of mobile platform standards like Nokia’s Series 60 and the Microsoft/Intel platform. A number of new terminal manufacturers will emerge in the form of ODMs and carve an increasing slice of the market. We expect the ODM terminals to account for as much as 25% of the total terminal market by the end of 2004. Companies like Microcel, Compal, HTC, Wistron, Mitac, BenQ and Quanta will start to become more well known, but also some of the existing players like LG, Samsung, Sharp and Panasonic will become much more visible Looking at design, there will be an increasing trend towards the clamshell design – we will see the Europeans embrace the clamshell design that has been predominant in both Asia and the USA in the past years. A manufacturer like Nokia will show that they have no problems in breaking their traditions and will launch a series of mobile terminals in this design. These terminals will be based on both the Series 40 and Series 60 platforms. Nokia will in fact be in focus most of the year. Despite some mobile operators aversion against Nokia’s dominant position, the fact that Nokia will be announcing around 30 new mobile terminals, with at least 17 of those running EDGE, will gain Nokia respect in the industry and also mean that they will be able to offer a wide range of products to a wide range of customers. We will also see Nokia launch a number of service delivery platforms that will integrate with both the terminals and the mobile operators network technologies. Microsoft will also attract some attention, although many will be disappointed that Microsoft will not be launching that many MS based terminals, a fact that will be somewhat emphasised by the great number of new terminals coming from the many other players in the industry. Symbian will be generating lots of rumours. Will they be wholly or partly taken over by Nokia and what role will Psion play in this connection? Symbian’s dilemma is that they would like to be perceived as an independent alternative to Microsoft that is backed by the whole mobile industry. If Nokia did control Symbian, they risk changing both the speed and direction of Symbian’s development. One of the big conversation topics in 2004 will be EDGE. Over the next 12 months many mobile operators will launch EDGE and the difference between 2.5G/GPRS and 3G/UMTS will steadily become more and more difficult to see. Many will question the need for 3G when they see the bandwidth that EDGE can deliver and how good services like streaming video look on an EDGE terminal. 3G terminals will be a great disappointment to many. It will not just be the limited range of terminals, but also the fast drain on the batteries and the actual size of the handsets will not make the 3G terminals look too good, especially when customers start seeing the new EDGE terminals hit the markets. Who to notice in 2004: Nokia, LG, Motorola Services The mobile services market will accelerate as the mobile consumers adopt the new services much faster than many experts had predicted. The operators’ revenue sharing models will motivate content providers and media companies to develop and market a wide variety of mobile services. The sales of premium SMS, MMS, Java, WAP etc based services and games will explode and the markets will develop just like we have seen in Norway the last 4 years – but with a delay corresponding to when operators in other countries offered revenue sharing. The killer application for MMS will be text – the first results already show that around 35% of all MMS only contain text, which happens when a user replies to a photo MMS. Even though the customer’s reply only contains text, it will still be charged as a MMS. We will see most operators launching new mobile portals based on WAP 2.0 and XHTML. Their vision is to create a new Vodafone Live. The portals, network services and the mobile terminals will converge. In this way we will see selected services working on selected terminals on one operators network that will not work on another network or other terminals. One relatively old topic will emerge again – the discussion as to whether operators should go for a walled garden or open garden strategy, with the walled garden critics looking at whether the sales will be able to justify the investments in the service platforms and marketing costs. We think the operators own direct sales of mobile services will account for around 10-15% of the total market for mobile services. The pressure on the price of a voice minute will mean that many operators will move away from a walled garden strategy to an open garden concept, where anyone can help the operator generate traffic on their network and earn money at the same time. In reality this will mean that some of the companies that today only have the operators as their primary customers will be forced to either change their strategy, look for someone to merge with or in the worst case, close down business. Email will be the next big thing. Customers will demand terminals with user-friendly email clients, so that they can easily check and reply to their mail on their mobile terminal. EDGE will be a driving factor for the mobile services market and many content providers will choose to optimise their content to the bandwidth that EDGE will deliver – rather than optimise to the 3G bandwidth. Who to watch in 2004; TV Broadcasters, platform suppliers and billing gateways. The Marked When looking at the mobile industry as a whole, the word consolidation will be a much-used word in 2004. All areas of the mobile industry will experience the need to consolidate, creating fewer and larger companies – many with an international presence. We will experience a veritable explosion of MVNOs/service providers who, in their quest for fame and fortune, will try their hands at being web-based discount operators. The regulative authorities will focus on the end user prices and the content providers access to the mobile consumers. Both the EU and the national regulative authorities will start to take notice of the convergence emerging in the industry e.g. when we purchase media services on our mobile phone. The question is then which legislation to use in the mobile area; Media legislation, financial legislation or Telecommunication legislation. The banks will be justified in feeling that they are being discriminated by the mobile operators with regards to mobile payments. The debate about convergence will increase, especially as content on mobile phones gets richer and richer. How will digital rights be managed, how do you ensure freedom of speech on the mobile Internet and should “public service” obligations also apply to the mobile Internet? These are just some of the many questions that will be discussed in 2004 without agreeing on any optimal solutions. All in all, 2004 will in many ways proceed smoothly, moving forward from 2003’s big paradigm shift with all the new colour terminals and features – the question is not whether we will see a consolidation in the industry in 2004, but rather who will still be in business in 12 months time! To view our predictions from earlier years, please see the links below |
| 2003 Predictions 2002 UK predictions Strand Reports |
