Summary
1. Primarily, this is a situation/opportunity for wireless operators. However, the key issue is for traditional fixed line operators – especially incumbents - suffering the double whammy of fixed to mobile substitution and VoIP. To overcome this, they must invest in their network assets and build a strong mobile offering.
2) For wireless operators to help secure revenues and aid retention – they are offering significant bundles of free minutes. But need to build more relevant value added applications.
3) However, operators are aiming to drive voice usage by simple innovations – a more advanced example would be what Orange did with Wildfire voice recognition software.
Analysis
·Whilst, I view this primarily as a situation/opportunity for wireless operators such as France Telecom’s Orange or Vodafone; the key issue is for traditional fixed line operators – especially incumbents. They are suffering the double whammy of fixed to mobile substitution and VoIP. Clearly, they are leveraging their assets to counter this revenue hurt. For instance, in the UK, British Telecom (BT) leverages its network asset to maximize the broadband opportunity as both a broadband operator and more significantly as a regulated wholesale reseller. Separately, bundling and convergence offerings are helping to address the revenue hurt. However, to launch the TV and entertainment services at an acceptable quality of service requires investing in network assets. This suggest that the winners will be those that have the highest fibre/cable capacity in the ground (such as Verizon, Virgin Media) coupled with a strong mobile offering.
·The key drivers of fixed to mobile phone substitution arise from the basic consumer insight that ‘people wish to call people not places’ – and so, you are more likely to speak to someone carrying their mobile than at their home or at their desk. Separately, to originate a call is easier from one’s mobile which in most cases stores the phone numbers of key contacts. Clearly, a key driver has been cost – with mobile rates falling for all calls be they to users on the same network or to those internationally.
·To help secure revenues – all operators be they wireless (who initiated this in Europe) or fixed are offering bundles of free minutes – with the expectation (on the back of a great volume of analysis and game play) that a significant number of users won’t use their full bundle of free minutes.
·Indeed, mobile users are a bundle price sensitive bunch – and operators are offering significant retention deals. For instance, on a personal note, my operator with whom I’ve been a customer for over 12 years offered me 2,800 minutes (cross all networks and landlines) for only £35 per month (after much negotiation)! I used to have 500 minutes for the same price!
·It is this commoditisation and price erosion that is driving the need for value added applications to aid retention and build declining ARPU – be it music downloads, games, richer data usage or the unlikely broadcast TV. The data from Finland - showing the proportion of voice traffic originating on mobile phones rose from 55% in 2004 to 70% in 2006; while the average spend per mobile minute dropped by 34% with mobile usage per capita increasing by only 23%, resulting in a net loss of ARPU – further reinforces this point.
·However, operators are aiming to drive voice usage – for instance, when the mobile is switched off and you have missed calls (with no message being left) - Orange sends you a text with the missed caller’s number. Likewise, operators are improving the interface and usability of answer phones for seamless call return.
·Orange in the UK was one of the first operators worldwide to experiment with Wildfire voice recognition software in 1999 (first generation AI) to improve the answer phone interface, act as a virtual personal assistant and help to generate more mobile voice usage (and so raise ARPU via a monthly subscription and the resulting call revenue). Unfortunately, Orange withdrew this service in 2003/4. Despite some initial teething problems, it may have been too far ahead of its time.
