Friday, 11 July 2008
Obviously we're flying blind a bit here since nothing quite the same has cropped up before, so I had to engage my advanced analogy skills.
I thought first of the motor industry. Over the years cars have got faster, more comfortable and bigger until they reached a level at which people said "that's enough for me", i.e. it'll do 100MPH, I don't get haemmoroids from a short trip and it'll seat 4-5 people. Applying the logic of higher bandwidth would have us believe that once that level of sophistication was reached it would continue. Surely in the 21st century we should be driving around in massive opulent palaces on wheels that do 200MPH. We should all be driving suped up winnebagos. We don't because people don't need it, the roads (read copper) won't take it and most people won't pay any more for it. To upgrade the road system to allow us all to drive winnebagos would be expensive and hugely disruptive. Ditto rolling out fibre. All for something we don't need.
The other thing to consider is that operators will penalise adoption of higher bandwith connectivity through sliding scale pricing. So you'll pay more if you get higher bandwidth. Fair enough. So, to get 500 meg, you'll have to pay. This changes the proposition from "if you build it they will come" to "if you build it they will come and pay a premium for something they don't use yet".
Mostly a bit rambling and the analogy isn't a perfect one (when are they ever?) but I think you see the point. Previous trends (people will pay for more bandwidth) are no indicator of future developments. At some point enough is enough. Maybe it's 2 meg, maybe it's 50 meg.
Monday, 30 June 2008
- The phones on offer aren't the greatest and a very limited range. 4 phones: LG KF600, Nokia 6650, SEMC W580i and K660i.
- No-one buys at £30. The whole market is pretty much at £35 or under £25. The middle ground is empty and the offers there are typically not the best in the market. It's like a restaurant advertising that it has the cheapest Turnip Surprise. No-one buys it anyway.
- If the market is shifting cheaper, it's going to £25. 3's £25 offer of 500 mins/unlimited SMS is a market leader and offering an extra 200 mins for an extra £5/month isn't exactly going to set the world on fire. Particularly as the handset range is limited, whereas with 3 you'd get a free Nokia 6500 Classic.
What's most interesting for me is that the trend of segmenting tariff and handset together (i.e. you can have the cheap tariff but only with a crappy phone) continues. It surely can't be too long before everyone adopts handset charging. Want a top-end handset? Great, pay me. Don't care about handset? Great, here's some extra mins and texts.
At the moment, most efforts to implement this model haven't been user friendly. Take this T-Mobile offer. If you want this £30/month offer you can only choose between four handsets, which seems ludicrous. Why not offer all the handsets and bump up the price a little if someone wants a pricy one. It might not fit with the "can't get more mins for x" shout, but it would take the unusual step of actually giving people what they want. How about that?
Friday, 13 June 2008
- Vodafone to sell out of Verizon Wireless (and expand further in Africa) - A bit right. They did invest further in emerging markets, but not really Africa and they didn't sell Verizon. In fact Verizon is on a buying spree itself, although let's see how that all plays out. Could be one for 2008. 3/10
- Hutchison Whampoa sells 3 - Nope. 0/10
- SonyEricsson will have a good year - what a great range of devices! Absolutely. SEMC kicked butt in 2007. It sold 103m units in 2007 up from 74m in 2006, increasing global market share from 7% to 9%. And these were typically pretty high-end phones, so they weren't just riding the wave of emerging market growth. The K850 and W910 sold by the millions in late '07. I think they may find '08 a bit more challenging though. 10/10
- Flat-rate mobile internet becomes the norm - yes, yes, yes. Everyone's doing it now. Charge by the MB? Not any more. £5-£8/month for "unlimited" mobile internet is the standard, be it Web'n'Walk or whatever. Not that tricky a trend to spot though if I'm honest. 8/10
- Mobile music still won't generate any revenue (except for ringtones) - Also true. O2 has done well with its music strategy: it doesn't sell downloads and has made loads of good publicity from sponsoring the dome...sorry, the O2. 9/10
- Everyone will plump for DVB-H - Still up in the air this one. Vodafone has come out as being agnostic and Qualcomm has secured spectrum suitable for MediaFLO, at least in the UK, so maybe things will be more complicated. 4/10
- Fixed mobile convergence won’t make the splash it’s expected to in the consumer market - Right again. No-one cares about FMC. Which makes me question the wisdom of getting into the LLU market in a big way (O2, Vodafone, Orange). Surely FMC must be the order of the day rather than simple bundling. But there doesn't really seem a particularly persuasive business model for FMC. 8/10
- MVNOs will continue their onward march. Sort of. Tesco's doing OK. Couple more launches, but nothing that's really tearing up any trees. 3/10
- Consumer mobile IM and email won’t take off - we're still waiting, even with flat rate data plans. 9/10
- Carphone Warehouse will suffer - not really. Agreement was reached and CPW seems pretty healthy, albeit at risk from the impending recession. 2/10
So, overall 56/100, which from memory is about a "C+". Must try harder.
Thursday, 12 June 2008
I like to equate it to car parking charges (I'm really sharpening up my analogies in advance of getting back into the analyst space). If you regularly park in a shopping centre and regularly spend 50 mins doing your shopping, how much time will you put on your car? 1 hour? Almost certainly not. For a small incremental cost you can get 2 hours and remove the risk of being landed with a parking ticket. Let's not forget, your average is 50 mins, but you may be 1 hr 5 mins. So buying what you 'need' is risky. Buying more than you need is not.
In mobile the same is true. People don't want to exceed their allowances. They pay x for what should be their monthly need and they don't want to exceed it. Admittedly proportionately the cost of exceeding (10p-15p/min) is nothing compared to the cost of a parking fine relative to a ticket, but I believe psychologically it's pretty much the same. This situation is particularly exacerbated by the fact that most people have no idea how much they'll pay for out-of-bundle usage. They'll assume "a lot".
So, if, on average, I use 200 mins per month, I'm not going to buy a 200 minute bundle because logically I can expect to exceed that limit on a reasonably regular basis, say 4-5 months per year. If that's the case, then 500 mins is a much more logical option. It means I definitely won't exceed my allowance and it'll probably only cost me an extra £5/month. £60/year for the certainty that even when I exceed my usual 200 min usage I won't be charged any more.
Throw in the fact that most people have no idea how many minutes they use and that better handsets are thrown in free on higher value contracts (and lots of people only buy based on handset) and you have a very logical set of factors driving users towards a bundle utilisation rate of only about 40%.
People are generally pretty logical in their choices. They buy big bundles because they need big bundles. Not because they will use it, but because they might. And it's the only way to get a free N95 8GB.
Wednesday, 11 June 2008
This also set me thinking about how this might have been influenced by the recent evolution in the digital music market. I generalise: Older, less tech-savvy and (let's face it) more solvent people buy music in the form of CDs. Young folk get it free from file-sharing sites. The result is that the music that older people like will dominate, leading to the slightly disturbing fact that there are currently three Neil Diamond albums in the top 20. But, on the positive side, the only way that many bands can guarantee to generate cash is through playing live. Hence the rash of big money reunion tours (Duran Duran, Led Zeppelin, Take That). The result is that if you can't perform live, you won't make much money. It also means that any artist that can generate and keep a small loyal fan-base prepared to pay regularly to see a kick-ass show (as I witnessed yesterday) they can keep going forever. And they can achieve this largely without coming onto the radar of the 'mainstream' courtesy of social networking and fan sites.
The logic works like this: Where everyone is making money eyes are on the top line. When the money starts to dry up the eyes go to the bottom line and thoughts turn to creating economies of scale and generating efficiency savings. What's the best way to do that? Consolidation. Also, in hard times good deals tend to be easier to come by. Compare the $28 billion Cable & Wireless got from PCCW for C&W HKT in 2000 with the couple of shiny stones that they got for all the rest of their assets mere months later.
So recession naturally leads to consolidation and, let's face it, in most European markets with the proliferation of MNOs and MVNOs a bit of consolidation wouldn't be amiss. In the UK it's hard to see Orange, O2 or Vodafone selling, but T-Mobile and 3 would be potential targets, both for each other and for other MNOs or maybe Virgin or BT. Not a new prediction perhaps, but I think the chances have increased substantially with the imminent threat of recession. I would be surprised if there were still 5 MNOs in the UK by the end of '09.
Therefore the priority should be on getting the application onto as many devices as possible rather than looking to optimised email devices like the Blackberry. This is particularly true if we're focusing on the consumer market.
- Headlines/preview (i.e. you don't need to download the whole email if you don't want to - that could be expensive on a limited MB plan)
- Back up on server (rather than storage solely on the device)
- Access to contacts - so if you do need to communicate with people, you can
- Backward device compatibility
- Push - useful but not essential for the average Joe.
- Qwerty keyboard
- Reading attachments
So basically, web-based email is going to be enough for most people, in the same way that web-based is fine for PC-based email. Most people don't use Outlook or Lotus Notes at home. Why would they do so on the mobile? The experience is a bit better, so if it's easy to set up inboxes and so forth, why not? But most people will be happy with web-based. So what's required then? A good experience (i.e. mobile-optimised sites) and cheap flat-rate data bundles.
Tuesday, 10 June 2008
But it's not really a price cut is it? It's a guide price. What they're doing is allowing the operators to subsidise the phone, as MNOs do with all other phones. Very generous. It potentially means that users will face a much more expensive contract to pay for the device. Compared to a standard £35 tariff with an N95:
- Assuming an unsubsidised price of £500 for an 8GB version there is something like an extra £100 cost to recoup, i.e. £6/month additional cost.
- MNOs have to pay Apple a revenue share of the customers that take the phone. That may be as much as 30%, so £10-ish per month.
- An unlimited data plan for £6-£8/month
So, that £35 contract pretty swiftly becomes a £60/month contract. That's a big ask.
It's difficult to discern whether this constitutes back-tracking, or whether it was always their plan. The fact that they've adopted the same process in US (where it's been something of a hit) and Europe (where it hasn't) indicates to me that they were planning to do this anyway.
Europeans just aren't such Apple-istas as our cousins on the other side of the pond. Here it's a phone, there's it's a must-have gadget. To sell as a phone in Europe it needs to be subsidised and it must be brought into the same sort of affordability range as the N95 8GB. It seems Apple has just about done that. I suspect that the strength of the range of high end phones available from the competition for free on a £25-£35 contract has forced Apple's hand.
There is an iPhone killer, it's the iPhone. It remains to be seen if the iPhone 3G is affordable enough to be the N95 killer.
Amendment: Looks like there'll be no up-front cost and a £45/month tariff (£59/month for the 16GB) and no more revenue share. Hmmm. Actually sounding much better.
Friday, 6 June 2008
Take the example of Motorola and Nokia in 2006. Everyone and their brother were fawning all over Motorola telling them what a wonderful job they'd done and occasionally asking about the follow up to the RAZR. In contrast they were hypercritical of Nokia for failing to get on the ultra-slim bandwagon and no-more-than half-heartedly embracing clamshells. Turns out the Finns knew exactly what they were doing. If they'd followed most analysts' advice they'd be in a much worse state than they are now.
Take also the example of an analyst talking to an MNO about mature services. What can I as an analyst tell (for instance) the product manager for x at a European MNO about the product that they are responsible for?
So I tend to use a few rules of thumb:
- Do not try to tell people how to do their job. They know better than you. There's no possible way you can understand the Portuguese IM market than the IM manager at a Portuguese MNO.
- Offer international perspectives. You’re there to tell them something they don’t know and they won’t know what’s going on in other similar markets and will appreciate the benchmarking.
- Listen. You may think you know what they want to know, but they definitely do. Analysts have a tendency to think of strategy sessions (or whatever they’re called) as set-piece presentations. They shouldn’t be. The more interaction the better.
- Talk about the future. Everyone has a view on what will happen in the future but they’re also interested in an independent view. As an analyst you’re probably better placed to comment on it than anyone else.
- Be able to talk about the whole eco-system. MNOs understand the MNO business, vendors undertand their business. Giving one insight into the thoughts of the other is always useful. Similarly other parts of the value chain, e.g. media players etc.
- The grass is not always greener. As David Rossiter told me: lots of analysts want to work for network operators, but few who have done so would want to return. I had to do it, otherwise I'd have always wondered what life was like on the operator side of the fence.
- It's easy to be critical. As an analyst I always tried to be as understanding of the difficulties of running a mobile network. Now I'm even more sympathetic. I've always hated to watch analysts trying to tear apart execs by asking why they haven't done x, y or z, when they've been kind enough to grant a group of analysts an audience. Now I'm even more aware that it's easy for analysts in their ivory towers to recommend a course of action, it's a completely different thing to get it done.
- There's more to life than mobile TV. The analyst obsession with all things content is not reflected in the operator world. Voice and text generate revenue, while regulatory issues and technology roadmaps cause headaches. Focus on those and you can't go far wrong.
- Some of the work has been fascinating (regulatory, top-level strategy etc.) but some of it has been stultifyingly dull. Isn't it always the way?
- There's pros and cons to focusing solely on one market. You do get to know it very well, but I miss the travel and the variety!
- I missed 3GSM, no really! The opportunity to get together with the great and good in Barcelona was greatly missed.
- I prefer working for a smaller firm where you can see what's going on end-to-end and you have a lot of direct contact with the client. So working for a big (in the context of the companies I've worked for, 3 is big) company hasn't really suited me perfectly.
Hopefully this brief sojourn in the operator space will make me a better analyst. I think it has.
I've heard a few people claim that mobile is recession-proof. In my opinion no consumer product or service is entirely recession proof. Admittedly few people will give up their mobiles altogether, but usage may change, most notably by users being unwilling to stump up cash for handsets or sign up to contracts. Prepay is probably recession-proof, contract ain't.
The handset market is particularly vulnerable: expensive consumer electronics is one of the first costs to be dumped when the belts are being tightened. Admittedly most people don't currently pay for handsets, but with a dwindling interest in signing up for new contracts, the number of bundled handsets will fall. In fact, contract and handset sales have been declining for months.
So, what do MNOs need to do to head off the risk?
- Beef up your prepay options. Prepay will be a big battleground. Headline price doesn't matter so much. People think of prepay like they think of filling up their car with petrol. They don't think of the per-min price. In fact most don't even know what price they're paying. What they are aware of is special offers, e.g. top up £10 and get free calls at the weekend. These sell. Low per-min rates don't really. So focus on hot special offers such as these.
- Push SIM-only, it'll be huge. Actually, it's already huge. People will swap out their handsets less frequently, but that doesn't mean they won't change provider, particularly with faster number porting.
- Focus on own-channels. Big opportunity here to cut out the third party channels. Deal seekers will come into store or use the web. They'll chase the deals, so there's no need to throw money at a middleman.
- Do not throw handset subsidies at prepay users. How many times do you need to be told. If you sell prepay handsets at massive subsidies, you'll get box-breaking. Then you'll haemmorhage cash. End of story.
- Look at more flexible contract offers. Rolling contracts, for example, should be investigated more closely. People don't want to tie themselves down, so don't make them. This applies equally to mobile broadband, where operators can steal a march on fixed BB suppliers with more flexible contract terms.
- Forget the multimedi services. These are far from being essentials (unlike voice and text) so don't focus on them. Push cheap voice and text.
In conclusion, mobile voice and SMS are probably recession-proof, but the way people pay for them isn't.
Thursday, 5 June 2008
Nothing earth-shattering to comment on, but I remembered something that happened a little while back that demonstrated the problems associated with the clash of media, youth culture and telecoms.
At a conference while discussing full track music downloads a prominent industry analyst referred to Gnarls Barkley (who had hit #1 with the excellent "Crazy" solely on the basis of digital download, much of it mobile) as "he". Now I don't claim to be the most hip with the kids but even I'm aware that GB is a "they", specifically Cee-Lo Green and Danger Mouse (no, not that Danger Mouse).
Of course, pretty much no-one noticed since the average attendee at a mobile conference is not that down with da yoof. However it did demonstrate a couple of things to me. Firstly, do your research. Secondly, and less facetiously, we in telecoms have pretty much no understanding of popular culture. Don't try to guess, you'll get it wrong. Give people the tools to do what they want to do and leave it at that. That's the "smart" pipe. The "dumb" pipe thinks that Gnarls Barkley is a "he", Lykke Li can be found in Ikea and emo was Rod Hull's friend.
There has, recently been an obsession with mobilising Facebook and MySpace and so on. This misses the point. These sites are ephemeral. Give it 2 years and everyone will be on to something else. Remember Friends Reunited? Still checking it? Thought not. Still think you'll be using Facebook in 2 years? Maybe, but then you'll probably also be using something else. Mobilising the internet is about allowing people to do what they like, not second guessing it.