Research Notes

The retail price for mobile broadband is in many countries below the production price

– there are 5 ways that operators can compensate for this missing revenue

Across Europe the tough competition on mobile broadband is resulting in prices dropping faster than the growth of the market can compensate for. In fact, today many operators are experiencing that the price they are selling mobile broadband for is approximately 50% below the price it is costing them to produce that volume of mobile data. The big issue is why operators are selling at these prices and how can they improve their earnings on mobile broadband in a competitive market?
In Strand Consults new report ”Successful Strategies in the mobile broadband market”, we have not only examined the current mobile broadband market but also analysed how it is developing. If you look at the countries with a market penetration already above 10% (Finland, Austria and Sweden) it is very clear that the market does not take off until all the operators have launched HSDPA – also called Turbo 3G. After that launch, the operators are basically all at the same starting line and all have the necessary prerequisites to take a large part of the market – in reality the smallest operator has the same opportunities as the largest.
One thing is certain and that is that the revenue operators receive from their mobile broadband sales cannot cover the CAPEX and OPEX in connection with their mobile broadband ventures. In practice, the operators are forced to use their voice revenue to pay for their mobile broadband ventures. There are five strategies that can help ensure that the mobile broadband ventures to develop positively for operators around the world:
1. Reduce SAC on traditional mobile telephones. This can be done by reducing or removing subsidies, or limiting dealers’ commissions. Today many operators spend 25-30% of their costs on sales and acquisition costs and 10-15% on building and maintaining their networks.
2. Limit the use of a basic mobile broadband connection. An operator can block peer-to-peer traffic, VoIP and certain types of streaming, thereby limiting the use of individual connections and thereby avoiding that tiny customer group that often use up to 25% of a mobile broadband operators traffic.
3. Launch a number of premium products that customers pay extra for. This could for example be peer-to-peer traffic, VoIP, streaming and quality of service. This can be achieved by offering customers a number of add-on products on top of their basic mobile broadband connection, or alternatively selling them a premium product that contains all these additional services.
4. Launch a combination of micro payments and premium VAS, based on the model already known from premium value added services – where content providers use premium SMS, WAP billing, MMS billing and IP billing to charge for the services they develop, market and sell for mobile phones.
5. Launch a number of data services bundled with the mobile broadband connection, for example services like a hosted Exchange. This would be services that the operator can purchase develop and market themselves, or alternatively launch in cooperation with system integrators and other application providers on this market. The aim is to ensure that customers lose functionality if they switch to another mobile broadband provider.
As you can read in our new 300+ page report ”Successful Strategies in the mobile broadband market” that examines in detail the changes currently happening on the mobile broadband market, we do not believe that you can simply increase retail prices on a market with the level of competition that the mobile broadband market is experiencing. The decreasing prices and high production costs are resulting in the operators only being able to compensate for their lack of revenue by using a combination of new revenue sources and an increased focus on cost reductions in their existing business.
Our new 300+ page report ”Successful Strategies in the mobile broadband market” examines and analyses in depth these and many other issues. The report is therefore an effective tool to help a mobile broadband market player choose and develop an optimal strategy.

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