Research Notes

To Be – Or Not To Be – A Service Enabler… That Is The Question

A question that many Mobile Operators are asking themselves these days
Many people are talking about the market for mobile services – and especially the mobile operators are taking part in the debate with statements about positive expectations for future sales of mobile services. These positive statements do stand out a bit when you think of the long list of mobile operators that have invested – and lost – millions of euros on starting and running their own mobile content solutions. The question that mobile operators ought to be asking themselves is almost provoking in its simplicity “Should I be a service enabler or not”? – However the answer to that question seems to be anything but simple!

There is no doubt that there is a large market for mobile services. Nor is there any doubt that the market for mobile services is growing significantly. The size of the market and the growth potential is also very important for all mobile operators around the world, as sales of mobile services will have to compensate for the fall in revenue from sales of voice minutes and SMS messages. On markets with high penetration, the price of a voice minute and an SMS message has become the primary competitive parameter, which explains the mobile operators increasing interest to create a profitable business selling mobile services.

The mobile operators are not afraid to admit that they have a problem as their current revenue on the one hand is mainly being generated from sales of traditional voice/SMS, that they are constantly being forced to decrease the price of due to competition and on the other hand, that they have still not found an effective model for developing, producing, marketing and selling premium mobile services which are – and will be in the future – extremely important for players in the mobile value chain. Right now far too many mobile operators are simply not discussing which players have to be best suited to actually develop and operate the future services market and how those players are to be paid for the services they deliver.

The market for sales of mobile services can be split into two parts. One part of the market is dominated by the mobile operators and their selection of mobile services for sale on their own portals. The mobile operators influence in this area is not least a result of their willingness to invest significant amounts to both purchase platforms and mobile services and to pay for the marketing of these. Another part of the market is driven by operator independent content providers, that market their mobile services across all operators. These content providers base their revenue from sales of mobile services on revenue sharing deals between themselves and the mobile operators. This business model is best known from today’s Premium SMS business, where one short code works across multiple operators.

In our new report – ”How to get success in the 3. generation VAS market” – we examine the issue on how the value chain for sales of mobile services can be optimised to create a healthy services market. Creating an optimal mobile market is, in this connection, not least deciding who will develop, produce, market and sell mobile services. On top of this it is essential to decide which players in the value chain that most effectively can handle the investments and operations of these service platforms that will enable end-users to be offered attractive mobile services that they are willing to purchase and pay for.

The mobile operators need for the market for mobile services to develop into a success, has led to some mobile operators putting themselves in a dominating role in the value chain for sales of services. Most mobile operators are already spending huge investments on developing and marketing and wide range of mobile services and mobile operators often choose to handle these investments and the costs that are connected with purchasing and operating one or more service platforms themselves. The question is however, whether this is a good idea as it most often is the case that 90 to 95% of the mobile operators revenue solely derives from sales of voice and SMS traffic – and not from sales of mobile services. The mobile operators must in other words ask themselves whether these investments have up to now been successful.

With these facts in mind, there are three major questions that all mobile operators ought to be asking themselves, before they make any more large investments on service platforms:

  • Should I as a mobile operator invest in getting the voice and SMS market to grow, or should I be investing in mobile services and service platforms?
  • Should I as a mobile operator focus on my own service platforms – that would lead to increasing CAPEX and OPEX?
  • Or should I as a mobile operator focus on content providers that work with Premium SMS, Premium MMS and Premium WAP services across multiple operators?

In our new report – ”How to get success in the 3. generation VAS market” – we have not only analysed many of the technological solutions that a number of service platform environment providers offer their customers, we have also focused on which business models the providers offer the buyers of their products. A number of the service platform environment suppliers offer rather flexible business models, where the mobile operators investment to get access to a service platform can be based on revenue sharing models. The size of the mobile operator’s investment for the service platform is thereby made dependent on whether the platform helps generate revenue for the mobile operator.

Before a mobile operator decides on a business model for offering mobile services, the operator should also do themselves a favour and analyse the experiences other mobile operators have already had. In our new report we can document that experiences from the European mobile operators show without a doubt, that there is a healthy business case in having an operator strategy where content providers in connection with selling their Premium VAS via the mobile operators network are offered a deal based on revenue sharing models. We can document that this model is much more preferable than a business model where mobile operators choose to focus on purchasing, developing, marketing and selling their own mobile services on their own portals.

The mobile operators are however not the only players on the market that need to have flexible business models. The suppliers of service platforms to mobile operators will have to sell their products on completely different terms than we are seeing today. These suppliers will have to think again, if they believe that they can continue selling technology to mobile operators as they have been doing in the past.

The platform providers are in reality partly competing against thousands of content providers, that using their own platforms have created large businesses based on revenue sharing of the traffic they generate on the mobile operators network.

One of our conclusions in the report is that mobile operators in the future will not be focusing that much on purchasing their own service platforms and the platforms that the mobile operators actually do purchase will be paid for based on revenue sharing deals with the supplier. So if the platform does not generate very much traffic on the mobile operators network, the mobile operator will not be paying the supplier much for even the most advanced platforms.

Using this business model, the mobile operator does not even need to ask themselves the question “To be – or not to be – a service enabler”, as the revenue sharing models have already documented that an operator in the future can almost risk free have access to even the most advanced service platforms.

How to get success in the 3. generation VAS market

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