Research Notes

There is a killer application for 2.5G – E-mail

but the European operators are not ready for it!
The new report from Strand Consult “The Korean Mobile market, a window to 3G” documents that the most used 2.5G application in Korea is actually e-mail.

In Korea, the traditional Internet portals that now offer mobile e-mail services are actually making money, as the Korean mobile operators have given them an innovative revenue sharing model. For the Internet portals that offer e-mail services in other parts of the world like Lycos, Yahoo and Hotmail, making money on otherwise free browser based e-mail services would be a welcome change.

In a sense, it is a pity that the Koreans, who are currently 3 to 5 years ahead of the European mobile markets, are using their high-speed colour screen, Java enabled mobile phones to read and write such a simple text based application as e-mail – but there are some very good reasons why this is the case and why the Korean mobile operators are enjoying substantial revenue and rising ARPU (average revenue pr. user) from e-mails on the mobile phones – while being able to offer the e-mail portals a very profitable revenue sharing deal.

SMS is a great way of keeping in touch with your friends, whereas email is very widely used by both young and older as a means of communication that is much less limited and more versatile. On 2G platforms using WAP, checking and sending email was an expensive pastime, where users were paying by the minute and the WAP browsers were not particularly user friendly or nice to look at. This is one of the reasons that e-mail on WAP was – like many other applications – not successful.

In Korea there are five main reasons why e-mail is the most popular application for 2.5G users:

· 2.5G gives higher data speeds
· The Internet e-mail portals are getting a substantial revenue share
· Users pay for data traffic only – not the time they spend online
· The e-mail application is resident on the mobile phone – using VM
· Data traffic prices are differentiated

One of the main prerequisites is that the email application is resident on the mobile phone. The mobile operators in Korea are running Virtual Machine (VM), enabling mobile consumers to download services, games and applications to their mobile phone, which they then can use in principal for as long as they like or have paid for, without having to go online again.

Thereby an email application can reside in the users mobile phone and go online and send and receive the latest mails, which the user can then read and respond to at his leisure – without being online. The email applications are based on Java or Brew and the user interface and colour graphics give the users a much more friendly and fun experience than WAP could ever have done.

Add to this that the price for sending and receiving e-mails has changed dramatically, compared to WAP, so the price for sending an e-mail has dropped over 80% and the price for receiving a mail has dropped 40%.

For the Internet portals offering e-mail services, the business model is as follows:
First the mobile users download the mobile e-mail application to their mobile phone for free – paying only for the data traffic (around 0.5 $) that goes directly to the mobile operator.
Now they can send and receive emails on their mobile phone. The price of data traffic for text based services in Korea was around 0,002$ pr. packet (512 bytes). What the mobile operators and the Internet e-mail portals have agreed upon, is to raise that price up to 0,004$ pr. packet and give the Internet e-mail portal 90% of the extra amount. Because the average size of an email is around 3Kb – the Internet portal is making around 1 cent (0,01$) on every e-mail sent to and from a mobile phone and the mobile operator is making a little more on the data traffic.

One of the major Internet portals in Korea has 15 million active e-mail users alone! As these users switch to 2.5G VM enabled mobile phones – most of them will be using the mobile e-mail applications.

Is this good business? This is excellent business. Before, nobody used WAP for emails or much else. Today, most of the 3 million 2.5G VM mobile users in Korea are using email regularly and have turned the e-mail business into a profitable one.

According to the detailed report about the little known Korean mobile market “The Korean Mobile market, a window to 3G” from Strand Consult, the Korean 2.5G VM mobile users receive on average 5 e-mails a day and send 1 e-mail from their mobile phones. The Korean mobile operators have differentiated their pricing on 2.5G data traffic, so e-mail is cheaper to send and receive than for example multi-media data – but more expensive than other text based data – allowing the Internet portal a good slice of the cake.

This has given the mobile users a huge incentive to start using the many new 2.5G mobile services available and e-mail has stood out as the killer application. The sheer volume of e-mails being sent and received on mobile phones in Korea has led to an unprecedented rise in ARPU (average revenue pr. user) for the mobile operators.

Even though the European operators have launched GPRS, they are still missing the VM platforms and also the flexible and price differentiated business and revenue models that have been fundamental in the success of the new mobile services – like e-mail – in Korea.

Korea is showing the world that the fears and doubts of the European mobile operators as to whether they can make any money on 2.5G and 3G technology and data services is unfounded. They just need to learn from the Koreans, who are currently over 3 years ahead of their European colleagues and now sharing their experiences and knowledge, compiled into the most comprehensive report yet from Strand Consult.
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