Research Notes

VAS-providers are stuck in the past

– is it not time to look forward?
With their so-called CPA model, the Norwegian mobile operators were first to offer content providers revenue sharing from sales of their premium SMS services to the end users. With this revenue sharing model, content providers were offered a share of the revenue that the sales of their premium SMS services generated. The content providers had to purchase their own SMS short-codes, which amongst other things meant that the SMS services could be offered across the mobile operators networks to all the countries mobile users – which gave the content providers the incentive to market their own mobile services.
The mobile operators are especially interested in the growing VAS market, as the mobile operators profit margin per voice minute and SMS messages is still decreasing – especially as a consequence of competition from the discount mobile companies. The falling profit margin is a problem as sales of the basic services of voice telephony and SMS messages are still today a very significant share of the mobile operator’s total revenue. If the mobile operators are to have a healthy economy, it will especially require that the sales of VAS become an increasingly larger share of the mobile operator’s total sales – which will only be possible if the customers are offered interesting and advanced VAS.
But why is it still simple services like ring tones and simple java-applications like games that dominate the VAS-market? The reasons are lack of proper revenue share models and the lack of the ability to integrate services properly with the operators’ network.
Operators have been very reluctant to expand their revenue share models to include other data-channels than SMS. It is crucial to give VAS-providers wholesale access to GPRS-traffic in order to enable streaming services like TV, music etc., because these kind of services are, firstly, very expensive in terms of GPRS-traffic, and secondly end-users will have to pay separately for the traffic.
Even though operators then often will sell the traffic to VAS-providers way below what end-users pay, operators will still benefit. They will get much more traffic in their networks caused by VAS-providers getting revenue share on traffic, which will stimulate traffic, and we will perhaps even see VASs making use of the 3G-networks that operators in Europe have paid dearly for.
Proper revenue share models on GPRS-traffic are however not enough. For VAS-providers to be able to offer some advanced VAS’, more integration to operators’ networks are necessary. This include VASs like location based services or other network centric services like VPN (Virtual Private Network) or  PBX (switch board) To further expand the VAS market, services that is able to attract new end-users and persuade them to increase their monthly consumption must emerge. Operators are however very protective on their networks and they are in the market for advanced services pursuing a walled garden strategy. This will however change, because operators are increasingly on pressure for a more cost-effective operation, and by using an open garden business model on network centric services too, operators will achieve lower OPEX and a much healthier service market.
The operators’ increasing focus on outsourcing is among the 10 Mega-trends identified by Strand Consult, that each is analysed in depth in the report “Mega trends in the mobile industry – a question of life and death”. Due to these Mega-trends, the mobile telephony market is in the middle of an upheaval of the whole value chain, which will lead to the implementation of new business procedures and revenue sharing models. The report analyses the effect that the 10 Mega-trends will have on the handset manufacturers, content providers, mobile operators and dealers respectively and the report puts forward suggestions on which considerations and measures the individual market players should take to prepare for the effect of the 10 Mega-trends.
To summarise, operators should stop using a protective strategy on their networks and begin opening their network to third parties to enable them to provide advanced services to end-users.

Megatrends in the Mobile Industry

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