Research Notes

The mobile consumers are still buying mobile phones on their brand name and price

– and walking out of shops with a new 2G phone!

Not surprisingly, there seems to be two main criteria for how most customers decide which new mobile phone they are going to buy – the make of the phone and the price. The problem is that many of those phones are still 2G phones, in Europe most of them are Nokia, Siemens, Motorola and Ericsson phones and few of them support any of the new services like GPRS and MMS – services that are essential for the mobile operators future existence.

The operators need to stop this trend now – but are uncertain as to how they can break the terminal manufactures strong influence on the mobile customers purchase decision for new mobile phones. Until they do, they can wave goodbye to any 2.5G mobile services revenue from customers who have signed a 12 or 24-month subscription contract for a new Nokia 3310 that has no 2.5G capabilities at all!

In Europe, over 60% of the customers go into a shop knowing that they want to come out of it with a Nokia mobile phone in their hands and will often buy the cheapest deal they can get. What do they often have in their hands? A Nokia 3310! That was a great phone 2 years ago. Today it has no future revenue possibilities from any 2.5G services – services that many operators hope will bring in 30% of their revenue in a few years time.

Nokia on the other hand are very happy indeed – they have sold over 80 million 3310’s! The more Nokia 3310’s they can sell, the longer lifespan the mobile phone has and the more money they can make for themselves and their shareholders. It is not Nokia’s fault that the mobile operators do not have a strategy for how to sell 2.5G mobile phones to their customers and it is not Nokia’s fault that the mobile operators are binding customers to their new Nokia 3310 with a 12 or 24-month subscription. So Nokia can happily sell 3310’s with a clean conscience – despite the fact that they know the mobile operators desperately need to get customers on to the 2.5G mobile phones.

The biggest challenge for the mobile operators is to give the customer a reason not to buy a 2G phone. The most logical way of doing that is by creating a demand for services that simply do not work on a 2G phone. You can compare it to buying a PC, nobody today would want to buy a cheap PC if there was no way at all it could connect to the Internet – it would be worthless! People want access to all the content on the Internet from their PC and the PC needs to have some way of connecting to the Internet.

In the same way, if customers went in to mobile phone retailers and ask for a services package consisting of e.g. an email application, traffic application and a games deal – all new 2.5G services – the shop would have a difficult time trying to sell them a Nokia 3310 at the same time.

In the above scenario, the phone becomes secondary, the customer first chooses a services package to suit his needs and then can choose between the 2.5G mobile phones that support the services the customer wishes to use. This is how it works in Korea and in under a year 25% of the mobile users ( 9 million out of 36 million subscribers) bought new 2.5G mobile phones and started using 2.5G services on them! And in Korea the mobile phones are not even subsidised!

A few mobile operators are starting to understand that the services must come first and then the mobile phones will follow suit. Vodafone in the UK will be launching their own brand of mobile phones, with colour screens and built in services that will not be found on the terminal manufactures phones. By doing this Vodafone stand a much better chance of breaking the hold that the terminal manufactures have on the mobile customers – and at the same time can market new services on their own new 2.5G mobile phones, thereby differentiating themselves from the competition and getting the 2.5G mobile service market in gear.

In much the same way, O2 has lanced the XDA running Microsoft’s Pocket PC in England, Holland, Ireland and Germany and T-Mobile will be launching the XDA under their own brand name – calling it the MDA.

The latest report from Strand Consult “How to make money on mobile services” a picture of the current & future Market for Mobile Services in Europe shows that in 2005, non-voice ARPU (average revenue pr. user) will account for 32% of the mobile operators earnings and have a total value of Euro 23 billion. Of that, under 2 billion will come from SMS based mobile services and the rest from new technologies based on MMS/WAP and JAVA! The report takes into account the mobile operators slow marketing of GPRS and 2.5G mobile phones, not to mention the lack of revenue sharing models for new mobile services. All the prerequisites from all the players in the mobile marketplace that need to be in place, before the 2.5G mobile services market really can take off, are gone through in detail, in the most comprehensive report so far from Strand Consult.
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