With the launch of Swedish mobile operator Telia’s new family data plan, the Swedish incumbent claims to be the first of its kind in Europe.
The underlying importance of this is not whether Telia is the first to launch a shared data plan in Europe but more so whether this represents a movement toward innovative data pricing in the mobile industry?
To properly evaluate this movement, let’s look into a few key areas:
1) Shared data plans in the US
2) Stopping Europe’s mobile revenue slide
3) Telia’s game-plan
Telia seems to be following a proven model by US operators
It has long been known that declining voice revenues and price wars on data have caused operators many problems. Certain operators such as Swisscom and O2 have implemented speed-based pricing and tiered data plans, but in general data pricing innovation is still relatively unheard of in Europe.
In the US – AT&T, Verizon, and others have successfully deployed family data plans for some time now. As of July 2012, AT&T saw 88% of their wireless subscribers on family or business data plans. US operators have seen a 25% rise in ARPU, while operators in Europe have suffered a 15% decline since 2007. So it is possible that Telia’s new family data plan could represent the start of a movement in increased revenues through innovative data pricing.
Being the first to launch a shared data plan provides Telia with an opportunity to increase revenues per user and reduce net churn by increasing customer loyalty. Telia can improve customer convenience by; sharing data, combining voice and text, making it easier and more affordable to add devices, and making it more advantageous to have all devices on the same carrier.
Europe’s Revenue Slide
A recent study from Arthur D. Little and Exane BNP stated that LTE services need to generate monthly data ARPUs of at least €17 (an increase of €7) by 2016 to stop the decline of mobile revenues for operators in Europe. Without examining what “LTE services” and “data ARPU” include, the study highlights that operators’ financial stability must come from an increase in data services related revenue.
I believe the problem boils down to a supply-demand issue. There is no shortage of capacity in operators’ networks, meaning that their primary concern is acquiring new customers and/or paid usage to fill this capacity. So the idea that operators can charge more for LTE/4G services than 3G services is no longer a realistic possibility. Between the 2nd and 4th quarters of 2012 LTE tariffs fell 30% on a per gigabyte basis. The reality of the European telecom industry is that access technology is not a revenue differentiator. So rather than relying on LTE, operators need to focus on other initiatives to boost ARPU.
European operators must take a more active and daring approach since old business models haven’t and will not stop the bleeding. Similar to American operators, European telcos may need to follow suit by implementing; family plans, data sharing, speed tiering, and other creative ways to combat the revenue slide.
Telia’s Game Plan
Telia claims that their new pricing scheme is not designed to provide them with significant revenue enhancement but rather will allow them to maintain their current revenue flow. This does not sound very bold and even comes across as somewhat passive. But whatever their reasoning, let’s have a look at what a typical Family Data Plan deal compared to the same group of people billed individually would look like:
As an experiment let’s examine a “medium sized family” as a typical scenario, assuming:
• 3 smartphones
• 1 tablet
• 10GB of data consumption.
Under Telia Mobil Dela, this would cost around 1,250 sek/month. If each item were billed individually, it would cost between 1,415 and 1,865 sek/month depending on contract length, phone payments, and other items.
Based on the above data, one could conclude that Telia assumes that very few, if any, families will switch their three Telia subscriptions to a single family plan. The more likely scenario is that most families have subscriptions from more than one operator and Telia hopes to acquire new users by “cross-selling” to existing customers. Initial incremental revenue from such new users would obviously be lower than if they joined as an ordinary subscriber. However, Telia’s business case is likely built on ‘less from more’ than ‘more from less’. How fast the competitors will follow suit remains to be seen, but if we see families starting to sign up by the masses I bet other operators will be out with their family plans in a heartbeat.
So, to what extent and how quickly Telia’s new data plan will change their revenue stream remains to be seen. However, the longer term benefits in customer loyalty and acquisition seem to be obvious.
In either case, Telia has generated some curiosity and perhaps awakened some other operators. Hopefully this move has inspired other players in the industry to take a more active approach when it comes to creative pricing for data and billing customers for what they actually consume and enjoy.
Matt is an Analyst at Northstream
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19 Apr 2013 | Northstream
Some time ago I wrote about the relevance that “platform wallets” (e.g. Google Wallet, Windows Phone Wallet, Apple Passbook) would have over the near future in the mobile commerce arena. At that time I did not touch upon payment applications, as I wanted to bring to light that mobile commerce is much more than just payment, but now the turn has come to dive deeper into the payment area.
Following the announcements at the recent MWC and some of the relevant news over the last few weeks, I would like to reflect on how the mobile payment landscape, especially when using a mobile device at the point of sale, is changing and evolving from a mobile network operator point of view.
Nowadays operators’ overall revenues tend to be flat, and with those coming from traditional services such as voice and SMS are declining. In this challenging environment, management has to decide whether or not (and how) to go forward with mobile payment and mobile wallet solutions. It’s a tough call, because the legacy of several years of investments in such areas have generated almost no revenues while innovative solutions from the Over The Top (OTT) space are undermining operators’ relevance.
Over the last ten or so years, GSMA and many of the major MNOs have devoted a great deal of effort to standardization of SIM-centric NFC solutions for mobile payments at the point of sale. However, things have not turned out to be the way GSMA envisioned them. The reason is very simple; Such an ecosystem is complex, it is overcrowded with too many players, each one trying to get a cut on every transaction and hence result in very low if any margins for most involved. No wonder these operator-driven initiatives are struggling to gain market share. ISIS, the US-based initiative of T-Mobile, AT&T and Verizon, has witnessed very slow consumer adoption, and apparently a new company has been assigned to re-design the app to make it more appealing to consumers. Whether that will make the day remains to be seen.
To no big surprise, alternative business models are therefore challenging the SIM-centric NFC model on multiple fronts, essentially by simplifying the ecosystem value chain (e.g. removing the need for secure elements, trusted service managers, etc).
It was thus not earthshaking to hear the announcement at MWC that Bankinter has been trialing an NFC-based EMVco payment solution without the need for a hardware secure element. At the same time, Samsung has announced a partnership with VISA, which aims at preloading VISA NFC payment cards into their new smartphones. Although details, such as the issuing bank, have not yet been revealed, the initiative clearly indicates that its strong position in the consumer segment has allowed - or even encouraged - Samsung to enter into direct competition with operators’ ambitions. And it’s one of the players that have the market power and financial strength to drive and possibly succeed with an end-user payment solution outside the operators’ realm.
Clearly, the mobile payment space is quite broad and mobile wallet (or mobile at the point of sale) is only one part of this multi faceted space, though probably the most hyped. Betting on a single horse is however never a safe bet, and operators should not ignore the importance and relevance of other areas such as direct carrier billing, which after all is the one that works reliably today and is widely used by many people, especially in developing countries.
So, where am I going with all this? Well, I believe operators should make a sober reality check to see what does not work and what may do. They should take a look at innovative NIH solutions and embrace new business models when it comes to mobile payments and mobile wallets instead of focusing on SIM-centric NFC models only. There’s nothing wrong with the latter, but success so far has been very limited, to say the least. Instead, for example, operators could differentiate from competition by embracing 3rd party solutions, or operators could focus on evolving direct operator billing for 3rd party services, including integration with NFC-based solutions to be used for mobile payments at the point of sale. In either case, mobile payments will be big some day, and even though operators may not be the ones making the break or leading the crowd they do indeed sit on a vital position in the ecosystem, and with some openness for new thinking there is indeed a buck or two to make.
Andrea Bacioccola is a Senior Consultant at Northstream
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05 Apr 2013 | Northstream
One thing is for sure: as mobile phone users we will continue to crave with great appetite innovative and ever more data-hungry applications. This requires infrastructure rollout and technology able to keep up with the increased data volumes that are to be handled; hence it entails large capex investment by the operators. Such investments would secure the implied future-proofing R&D expenditures from infrastructure suppliers, at least if their profitability allows for it…. This in turn will not be possible unless the operators are profitable to such an extent that deters them from price-pressurizing their suppliers unduly hard. Many factors impact operators’ ability to make due profits, but a decisive one, which is not really under their control, is regulation. Therefore it is worth elaborating briefly on the bearing regulation can have on operator cost and revenue structure and to shed some light on the impact on profitability for the infrastructure vendor sector.
Simply speaking, operators have two variables they can work with to maximize profits: boosting revenues and curbing costs.
Boosting revenues depends largely on their ability to make consumers pay for the amount of data they actually consume. To a large extent, this requires a market structure void of excess competition and price warfare. Only a reasonable level of competition will allow operators to introduce price plans where data consumption and revenue per user grow in a correlated manner. In the past regulators in most European countries have favoured to license spectrum to an incremental number of operators. In France for example this recently led to a price war, which seemingly results in a detriment of infrastructure advancement. Earmarking spectrum for new entrant bidders is in many markets not an apt approach of licensing auctions as it may cause wild bidding for the remainder of the operators, as can be observed recently in the Czech Republic (though the regulator should be credited for suspending their 4G auction gone wild preventing “winner´s curse” at last).
When it comes to curbing costs then, the network is still by far any operator’s single biggest cost factor. Which brings us back to network sharing as one of the largest levers for reducing costs. A small or spread-out population poses an ever so bigger need to curb network costs. Sweden as an example has been a forerunner with network sharing dating back to 2001. Recently, French regulators apparently have come to understand that downward price spirals drain the sector of its potential to invest, and they have finally opened up the perspective of network sharing (at least for passive components, such as masts). So although hesitance is still there, as suggested by the regulator´s recorded intention to “maintaining competition in network infrastructure" there is still hope for soundness. Cooperation is what is needed to improve network infrastructure. Split spend on network means more operator profits and less price pressure on infrastructure vendors and thus an increased potential of R&D investment into future network technology. And, one should not forget what is probably the final cure for many markets – Consolidation (see Northstream prediction # 2 for 2013).
Advanced LTE and 5G do require unthrottled R&D spend to be brought about. Therefore, do not waver now, brave regulators, but follow through with setting the new course. Make wise rules for the sake of full-fledged network sharing on the infrastructure side, license spectrum prudently for reasonable competition in the market and take advice on what is the right number of operators in your market – there is no sacred universal number. Both will enable solid operator profits allowing for sustainable infrastructure vendor profits giving rise to technological advance. At stake is the innovation, which we as mobile phone customers want to enjoy even tomorrow.
Franz-Josef is a Consultant at Northstream
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27 Mar 2013 | Northstream
Much of the business world is lagging in truly adopting the knowledge sharing, analytics oriented, collaborative tools that have revolutionized our social world. And while I believe that resisting getting on board with social networking has some adverse impacts for individuals, for businesses the benefits of being completely on board are swiftly becoming too great to ignore.
Facebook, Twitter, Instagram, Whatsapp, and even Spotify, with its streaming list of what friends are listening to, give a three-dimensional view of what one’s friends and family are doing, thinking, reading, seeing and hearing. For many of us, the benefits of these platforms have relegated our email use mostly to coordinating plans and extracurricular activities with contacts when Facebook groups aren’t enough, and otherwise for professional or ecommerce communications. The phenomenon brought on by social media of being either consciously or subconsciously aware of our contacts at a micro-level has been termed “ambient awareness.” We can have our fingers on the pulse of our contacts’ lives, and not just periodic briefs of the highlights, even if they live across the globe. Newer platforms make non-face-to-face interaction more alive than ever, truly inspiring increased awareness of others and thus encouraging intensified networking.
Ambient awareness is much newer to the business arena. While there are plenty of marketing departments running Facebook pages, HR teams finding talent through LinkedIn, and interoffice Skype conversations, adoption and full utilization of the social networking spectrum remains far on the horizon for most of the business world. So how can this micro-level awareness revolutionize the operational and cultural models of organizations, both internally and externally?
The potential that social networking holds for internal organizational use is revealed in the fact that Google, Microsoft, Salesforce, Adobe, and Oracle have spent over 2.5 billion USD just this year in acquiring social media tools to add to their enterprise offerings. These platforms and others are designed to diminish the silo effect between departments, countries and organizational hierarchies. They facilitate real-time communication and problem solving that can benefit all departments, while helping social relationships to flourish, which is directly connected to the activation and sharing of organizational learning as well as the creation of new knowledge. Socialcast is one such platform, and its popularity with larger enterprises, such as Nokia and Philips, is growing. They report, for example, that questions posed to an internal organizational community are answered in real-time at a rate of 67%, and that about half of employees’ contacts in the networks are from other business units or departments. This solution and others like it also offer analytics tools for added value to the management and strategy offices. These tools measure and provide actionable insights on the important people, conversations and topics occurring throughout the organization’s collaborations, such as a quantified status update on project management. When implemented and fully utilized, such platforms offer ambient awareness of the health and mood of the organization, which has heretofore been something that management can only ambiguously estimate, at best.
The possibilities of ambient awareness in regards to the commercial relationships of companies are just beginning to be exploited, and then only by a small proportion of organizations globally. Using social networking platforms consistently and intentionally across an organization’s value chain can provide a three-dimensional overview of the consumer landscape. From measuring the public opinion on a new product through Twitter to the ability to reach a potential client with targeted advertising based on their location combined with their online social profile, it’s time that more organizations prioritize the way social networking platforms can positively impact their business processes and decision making. An impressive example of an organization pioneering in social media strategy is American Express. When cardholders sync their cards with their Twitter accounts, they will get couponless deals related to items that they tweet about. As they encourage the syncing of cards with other platforms such as Facebook, Foursquare and Youtube, American Express is developing a growing three-dimensional perspective of their consumers Plus, their exposure grows exponentially, where for example, based on the number of AMEX-related stories on Facebook (a “like”, “comment” or “share” by a fan) there is a potential reach of over 3 million people, and that is all without spending a cent.
I think the organizations most resistant to social networking see it as a trend that they can continue to sidestep without consequence. Some have moved into this arena passively, with only bottom-up implementation constrained to certain departments. Organizations need to move towards establishing social networking as a critical aspect of top management’s strategy, despite the hurdles that the necessary investments of time, training and other resources may pose. Not doing so will inhibit their development and competitive advantage, if it isn’t already. It will only be with the C-suite’s formalization and follow through of a top-down social networking strategy that a company will see and reap the benefits of ambient awareness both internally and externally. The hurdles in achieving this, and the accompanying resistance so prevalent within organizations, deserve to be addressed in another post soon.
Corinne is a Consultant at Northstream
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07 Feb 2013 | Northstream
For those that don’t know, the Royal Rumble is a professional wrestling Pay-Per-View event, in which a number of wrestlers aim at eliminating their competitors by hurling them over the top rope.
While this may seem extreme (and perhaps a little violent), it paints a similar picture to what is going on in the Nordic digital media industry.
In light of recent events, we thought it would be interesting to look into the changing landscape of the VOD market in the Nordics. So let’s have a look at the heavyweights, the new guys, and the veterans to see how this Rumble will play out…
Subscription Video-on-Demand (SVOD)
Recently we have seen two major heavyweights, Netflix and HBO, enter the ring by opening their services to the SVOD market in the Nordics. Additionally, the market has seen new and more innovative offerings, which has resulted in overall market price increases.
Currently, there are four major SVOD services in the Nordics: Netflix, HBO, Viaplay (MTG), and C More Entertainment (Filmnet).
The key question becomes, can four major players really survive in a market of only 25 million people? The players in the SVOD market are much larger and more mature than those in the TVOD (transactional VOD) market. Therefore it will be unlikely that we see any consolidation or dropouts of SVOD players in the near future due to strong financial backing and investment. It is likely that these services will continue to try and polish their multi-screen offering and user experience while vigorously defending their content rights to ensure a positive user experience. Netflix has done rather well in this area. I recently tried their service and their platform allows you to switch from watching a video on your TV to your mobile phone, tablet, etc… without missing content or compromising video quality.
Given the entrance of HBO and Netflix, C More Entertainment (backed by Telenor and the Bonnier Group) will try to defend their market position and their share of the IPTV and OTT distribution platforms against the heavy weight players. This will be especially important, since C More has begun to focus more and more on TV series as a part of their content offering.
Telenor in Norway also provides a SVOD service. Telecom operators are uniquely positioned, compared to companies like Netflix, in the sense that they are able to bundle their SVOD offering with their other services such as linear TV, mobile, etc…
Transactional Video-on-Demand (TVOD)
TVOD essentially means that customers pay for their content item by item (transactional). The players in the TVOD market are much smaller players than those in the SVOD market. That being said, there are a couple categories of offerings in the market: independent players (Voddler, Headweb, SF Anytime, Film2Home) and fixed telecom incumbents. It is more likely that some form of consolidation or market exit will occur amongst these players than those in the SVOD market.
The telecom incumbents tend to play one of two interesting roles for TVOD offerings. TDC in Denmark actually takes it upon itself to manufacture agreements between themselves and the studios to secure content rights, which they then sell to end-users. Telia has a different strategy whereby they partner with SF Anytime, Nordic Film, HBO, etc.. for TVOD, but handle the linear TV channels themselves. Telenor also utilizes TVOD partners but they already have a strong linear TV distribution arm since they own Canal Digital.
Partnerships with telecom incumbents are important for independent TVOD players. But the problem here is that most incumbents already have VOD partnerships in place. So as an alternative, TVOD players need to offer digital content that is over and above what the telecom incumbents already receive from their VOD partners in order to remain competitive. They will need to focus on improving their offerings for various devices, such as: Samsung Smart TV, Apple TV, smart phones, tablets, laptops, etc…
As if the market isn’t crowded enough, we now see new players entering the ring. Atflick is a company that offers both TVOD and SVOD with a social networking flare to it. Another start-up that is in the beta testing phase is called Magine. Their service seems almost like an advanced PVR service. PVR is short for personal video recorder, which is a device that records television data in digital format. Based on the service definition, it appears that Magine is trying to be the SVT Play for all TV channels. The key question for them is what contracts or agreements will they be able to secure with TV channels at their official launch. And of course, you still have traditional Pay-Per-View to contend with as well.
As it stands, Headweb, Voddler, and Film2Home are not powerful enough to make a dramatic impact on mobile devices. That being said, Netflix and HBO can very well be the locomotives that drive the usage of film and TV programs on other devices in the Nordics.
To have a multiscreen offering is definitely important for VOD providers, since a large part of the total digital media turnover is comprised of VOD starts over an IP connection. With Telia having over 50 million VOD starts per year in Sweden and TDC owning the majority share of the Danish market, both companies must surely understand the importance of having a seamlessly integrated TV anywhere strategy.
There are many questions and issues that these competitors need to haggle with. But the primary concern is, “are the current OTT distribution platforms expansive enough for companies trying to gain market share in SVOD and TVOD?” Clearly this is something that even Telecom incumbents have yet to tackle, yet it is such an important part of the user experience.
Matt is an Analyst at Northstream
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29 Jan 2013 | Northstream