The mobile market is growing like never before. Nokia and Motorola enjoyed their biggest ever quarter in Q3, shipping nearly 100 million devices between them. Nokia predicts a global total of 780 million devices will be sold this year.
Most of these new sales are from the developing world, and thus the average selling price of handsets continues to decline. Nokia's handset margin is now 16.9%, compared with 18.8% a year ago and 21% in the first part of 2004.
This actually plays to the strengths of the handset leaders. Both Nokia and Motorola have increased market share, taking advantage of economies of scale, deep distribution and the ability to design leading-edge devices. Inevitably we are heading for a world where five or six handset brands dominate.
On the other side of the industry, operators also seek scale; but they are not manufacturers, and customers will punish them hard for poor service. They can lower costs by improving their IT function, or attacking fraud or offshoring their call center.
Operators face a lot of challenges, but between the pressures of heavy competition, falling ARPU and the threat from VoIP, cellcos might remember that some of the best solutions are the simplest.
Here's one: a way of reducing the growing distribution cost of prepaid, and improving ARPU at the same time.
Prepaid is a financial blessing to operators because it means cash upfront. But it requires an extensive distribution network. To sell topups through 7-Elevens or other franchises is 3%-4% of the total cost. Eliminating that through electronic means adds 15% to the bottom line.
So says Chris Eyles, CEO of Interacct Solutions, who should know. His company offers a customer care portal and basic transaction engine for prepaid operators that, believe it or not, uses the old USSD (unstructured supplementary services data) protocol - a retro tech if ever there were one.
USSD is a session-based protocol that is integrated into every GSM network. Some US operators used it for data services in the '90s, but it has since been overshadowed by SMS and packet data.
Yet it has a surprising amount of functionality. As Eyles puts it: 'What you really have is a huge interactive data menu on the phone.'
The problem Interacct solves is this. In basic prepaid customer care, users send a short code message to receive their balance. What the USSD solution can do is take customers to a portal, where they can see their balance, but also see a menu underneath of further options: download ringtone, wallpaper, sports, weather and so on.
This is the kind of functionality that postpaid customers are used to.
Prepaid customers don't have Web-based accounts, or often don't even have access to the Web.
The opportunity is to upsell to a huge pool of customers who normally are beyond the reach of regular cross-sell programs. A medium-sized operator might receive millions of account balance checks each day.
Interacct's solution, which can also be used to recharge cards and transfer credits between accounts, has been adopted by Telstra and Maxis, and is being targeted at operators in Thailand, the Philippines and China.
USSD isn't the only technology that can deliver this, but it's the simplest and most flexible. SIM Toolkit (STK) is quite rigid, and has never been popular among operators. WAP and Java are quite capable, but they're not usually available in low-end handsets.
Being session-based, USSD loads faster than, say, J2ME over packet-based GPRS. A user can connect to the USSD portal in about two seconds. J2ME GPRS will take eight to 20 seconds.
Ironically, says Eyles, interest has picked up in recent months because of 3G. Operators are now beginning to see the limitations of 3G, he says. USSD is defined in the 3G specs.
He thinks USSD has been neglected because vendors have pushed sexier technologies over the years. Operators must take some of the blame, however, for not making use of the functionality already in their network, just as they overlooked SMS for so long.
USSD customer care is unlikely to become a blockbuster on the scale of SMS. But it's another reminder that we spend too much time on technologies looking for problems to solve instead of solving problems with existing capabilities.
Robert Clark is a Hong Kong-based technology journalist and analyst [email protected]
(The views presented in this article series are those of the author and in no way reflect those of Lucent Technologies)