Fierce price competition in Europe continues to drive down the price of big-screen (laptop and netbook) mobile broadband services, threatening profitability as usage increases. Mobile operators have spoken of the potential to boost revenues and margins by selling a range of value-added services. However, the potential options are unlikely to have a dramatic impact. Therefore, operators must focus on stringent network efficiency for big-screen mobile broadband to remain profitable.
The flat-rate subscription structure that helped to stimulate demand for big-screen mobile broadband (essentially laptop and netbook access) is leading to a margin squeeze for operators as traffic growth per user increases, just as it did in the fixed world. As a result, although there is very little activity today, mobile operators are beginning to investigate the potential of value-added services for big-screen mobile broadband to ease the squeeze.
However, as Ovum has concluded in its recently published report Value-added services for big-screen mobile broadband, we believe that the primary objective for mobile operators in the short term should be to optimise their networks to carry data more efficiently, rather than seek new value-added service revenues. They must also focus on customer retention (primarily their most valuable customers) with those consuming network capacity either migrated to more profitable plans or, as a last resort, off the network.
The reason for this belief is twofold. Firstly, we do not believe that a value-added service for big-screen mobile broadband will contribute a great deal of additional revenue or margin. Therefore, several services will be required to have a meaningful effect on the top line, increasing operational costs at minimal margin impact. Secondly, each new value-added service will be under pressure to progressively contribute more revenues. This will be to plug the shortfall caused by price erosion in both access services and older value-added services.
Very few operators will benefit
Only some operators will benefit from big-screen value-added services. In particular, integrated operators will be able to leverage content and services from their fixed divisions. These will need to be optimised for the mobile environment though, and the costs and complexities of this should not be ignored. The other players likely to benefit in the long term are those aspiring to be among the SMART players of the future (see Ovum report The future of the mobile industry: a vision for 2020 for a definition) – most notably the largest global players or those in large emerging markets with less competition from the global Internet players.
Big-screen mobile broadband value-added service activity is limited today, and the services offered closely resemble those of fixed broadband service providers. Operators are mainly focused on selling software, especially anti-virus. Software sales are simple to implement, but will have minimal revenue impact due to the intensity of competition. Software is available from so many different channels that operators will only be able to attract a small share of the market. In addition, price competition will erode margins.
Network storage has much more potential as it plays to the advantages of network operators. Furthermore, for mobile operators, the portable nature of mobile broadband increases both the risk of loss or damage of laptops and the desire for content synchronisation across multiple devices, particularly netbooks used as secondary devices.
Among other potential services, business solutions look inviting, although it will take very dedicated mobile operators to develop, sell, deliver and manage services to businesses. Content is clearly attractive to consumer users, but it is difficult to see how mobile operators, outside those aspiring to be SMART players, will be able to compete for revenues with other online retailers. Integrated players may have more luck if they can leverage their existing content rights across to the mobile arena.
Similarly, advertising services could be utilised from a fixed division for integrated players. For mobile-only players it looks more difficult, although the connectivity dashboard provides excellent real estate. Ultimately, the advertising opportunity sums up the role of value-added services for mobile broadband: difficult to implement, open to a great deal of new competition, difficult to differentiate and unlikely to add significantly to the top line.
Steven Hartley is a senior analyst at Ovum