Research Notes

The smaller mobile operators need to reorganize

if they are to stand a chance of surviving the increasing competition – which paradoxically could result in a market consolidation and thereby the end of the road – for the small operators.
The small mobile operators in Western Europe will have to start rethinking their businesses. The demand for new innovative thinking is the simple consequence of these smaller mobile operators already having difficulty in achieving a satisfactory financial return that can either ensure or justify their future existence. If the smaller mobile operators choose to just sit back and conduct their business as usual – they will soon be out of business.

Especially the smaller mobile operators have been in the line of fire as competition amongst the mobile operators and other mobile providers has heated up during the past few years in Western Europe.

This exposed position can be explained by the fact that the smaller mobile operators’ investments in licenses and infrastructure is usually the same size as the large operators – but in contrast to the large operators, the small operators simply do not have critical mass in the size of their customer bases. Without enough customers, the small operators will never be able to achieve any reasonable return on their investments, as they will simply not be able to generate enough mobile traffic in their network.

This increasing necessity to generate more mobile traffic in their networks, together with the need to reorganise their organisations, will push more and more of the smaller Western European mobile operators towards discount mobile telephony. One of the most distinctive features of discount mobile telephony is that the customer registers and pays for his mobile usage online. Also customers are offered very simple pricing tariffs, do not have to pay any monthly subscriptions and can call and send SMS’s at extremely low prices.

This new business area of discount mobile telephony has just been thoroughly analysed in Strand Consults latest comprehensive report “The Moment Of Truth – A Portrait Of The Discount Mobile Service Providers Success”. This report has examined the Danish mobile market, where discount mobile telephony has in a very short period of time, managed to turn the whole mobile market upside down, completely changing the competitive parameters that were until recently governing the market.

The report focuses on how the two Discount Mobile Service Providers (Telmore and CBB Mobil) have managed to acquire no less than 43.7% of all new mobile customers from 2H 2000 to 1H 2003! This is an outstanding achievement considering these two companies were both launched at the end of 2000. Add to this that around 20% of the total Danish mobile customer base is using a Discount Mobile Service Provider today and you just have to be pretty impressed. The report also analyses the development of the end-user prices for voice and SMS messages. In the past 10 months alone the price has dropped by around 50% so a discount mobile customer can today talk on his mobile phone for just 0.091 Euro and send SMS messages galore at only 0.026 Euro pr. message. It is only a question of time before we see a similar trend on all the other Western European mobile markets.

It has not been the mobile operators – especially not the large mobile operators – that have been introducing discount mobile telephony to their customers. The large mobile operators have absolutely no reason at all to change their policy of their customers paying a monthly subscription and relatively high prices pr. voice minute and SMS. Up to now most of the discount mobile entrepreneurs have either been companies that have been started for the sole purpose of only offering discount mobile services, or service providers that purchase their network capacity from the mobile operators.

But now there are however also the small mobile operators, that will either offer discount mobile telephony because they are being pressured to be innovative and look for new business areas and can see some sort of opportunity in the discount area. Alternatively they simply do not have any choice if they want to stay afloat as more and more of their competitors start offering cheap mobile telephony through discount offerings.

For the small mobile operators, the discount mobile telephony gives them on the one hand the opportunity to generate more traffic in their network from their own customers, but also gives them the possibility of letting service providers generate volume discount traffic on the operators network. On the other hand, discount mobile telephony can also create even more competition on the mobile markets, with ever more providers offering mobile telephony at drastically falling prices. If the latter should happen, discount mobile telephony will not be the salvation of the smaller mobile operators, but on the contrary become cement shoes, making it increasingly difficult for them to stay afloat. If that is the case then at the end of the day the smaller mobile operators will have little choice but to see themselves taken over by the larger mobile operators as they try to consolidate the mobile markets.

More information “”The Moment Of Truth” – A Portrait Of The Discount Mobile Service Providers Success”

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