Research Notes

The consolidation from 5 to 3 mobile operators

and ban on mobile phone subsidies boosted the 2.5G rollout in Korea!
While the European mobile operators all are either trying to cut down on mobile phone subsidies in general, or move them away from pre-paid phones to the much more lucrative post-paid business customers, the Korean mobile operators got hit with a ban against subsidies on mobile phones, that came into effect from June 2000.

Nine months later, the two largest Korean mobile operators merged with the two smallest operators, bringing the number of operators down from 5 to 3. Three mobile operators is unusual in a country with a mobile penetration of 61% and around 30 million mobile subscribers – but together with the subsidisation ban – this has paved the way to three financially healthy mobile operators. This consolidation of mobile operators will be a necessary step for many European countries, where there are simply too many operators competing for customers and basically not making money.

Already the year after, all three Korean mobile operators were in the black – for two of them, a welcome turn-around from several years of losses!

The regulative authorities in Korea issued the ban against phone subsidies to help the operators’ bottom line, as they faced the investments in 2.5G and the challenge of getting their mobile customers to switch to new 2.5 mobile phones.

So how did a ban on subsidising new mobile phones help the operators, exactly when they faced the problem of getting their customers to buy new 2.5G phones – now at full price?

For a start, the operators marketing expenditure was immediately halved – this was simply the money they were spending on the actual subsidisation. When you have a market with around 30 million mobile users, suddenly not having to subsidise each and every mobile phone adds up to a lot of money – and as all three mobile operators are effected by the ban, non of them can now use the price of the mobile phone as leverage to get new customers.

But now, with these huge savings as good as in the bank, the operators had to adopt a completely new marketing strategy, that both would ensure the sales of the newer, more expensive 2.5G mobile phones and at the same time drive the average revenue pr. user (ARPU) up to maintain a sound business and pay for the 2.5G and 3G investments.

Getting your mobile customers to actually talk more on their mobile phones is difficult anywhere in the world – so the rise in ARPU would have to come from new mobile services and the data traffic they generate.

The solution that all three Korean mobile operators went for, was to split their subscription offerings into sub-brands, specifically targeted at different age and gender segments of the mobile users. And we are not just talking about different price plans here, as we have seen in Europe – but actual brands with their own portals, marketing, content- and services offerings and of course price plans, for pre-teens, teens, young adults, women and so on.

The results have been unique! After the first year since the ban on phone subsidies, over 9 million mobile customers had switched to 2.5G mobile phones, ARPU has risen dramatically as the new mobile services- and content in the different sub-brands is used regularly by almost all mobile users and the mobile operators EBITDA margin rose to between 30 and 40%, where it had been in red figures for two of the operators only the year before! The unique combination of the sub-brands and the vast amount of content and mobile services offerings that the sub-brands can offer, have been instrumental in getting the mobile users to discard their 2G mobile phones and buy the new non-subsidised 2.5G mobile phones.

The ban on mobile phone subsidies, the new sub-brand strategies and the results after the first year of 2.5G in Korea, are all described in detail in Strand Consults most comprehensive report to date “The Korean Mobile market, a window to 3G”. Strand Consult spent almost 9 months analysing the worlds most advanced mobile market. We met with all the players in the mobile value chain and been honoured to have access to information not previously disclosed. We describe what the operators, the content owners and the technology companies business case actually looks like for real. With key figures and information we give a detailed description of a mobile market with over 30 million mobile customers – of which 9 million are 2.5G users, with mobile services and download speeds very similar to what we will see in Europe on 3G!

Today, Korea is somewhere between 3 and 5 years ahead of the European mobile markets and the lessons that can be learned from what the Koreans have achieved are astounding and a gift to a hard pressed European mobile industry, that still does not know exactly what sort of strategies they should be looking at for their 2.5G rollout.
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