These posts are excerpts from my article in Mobile Europe from October 2012.
Video is a global phenomenon in mobile
networks. In less than 3 years, it has exploded, from a marginal use case to
dominating over 50% of mobile traffic in 2012.
Mobile networks until 3G, were designed
and deployed predominantly for transactional data. Messaging, email, browsing are
fairly low impact and lightweight in term of payload and only necessitate speeds
compatible with UMTS. Video brings a new element to the equation. Users rarely
complain if their text or email arrives late, in fact, they rarely notice.
Video provides an immediate feedback. Consumers demand quality and are
increasingly assimilating the network’s quality to the video quality.
With the wide implementation of HSPA
(+) and the first LTE deployments, together with availability of new attractive
smartphones, tablets and ultra book, it has become clear that today’s networks
and price structure are ill-prepared to meet these new challenges.
From value chain to value circles:
the operators’ broken business model
One of the main reasons why the current
models are inadequate to monetize video is the unresolved changes in the value
chain. Handset and device vendors have gained much power in the balance lately and
many consumers chose first a device or a brand before a network operator. In
many cases, subscribers will churn from their current operator if they cannot
get access to the latest device. Additionally, device vendors, with the advent
of app stores have become content aggregators and content providers, replacing
the operators’ traditional value added services.
In parallel, the suppliers of content
and services are boldly pushing their consumer relationship to bypass
traditional delivery media. These Over-The-Top (OTT) players extract more value
from consumers than the access and network providers. This trend accelerates
and threatens the fabric itself of the business model for delivery of mobile
services.
Mobile video is already being monetized
by premium content vendors and aggregators, through subscription, bundling and
advertisement. Mobile network operators find themselves excluded from these new
value circles overnight while forced to support the burden of the investment.
In many cases, this situation is a self-inflicted wound.
Operators have competed fiercely to
acquire more subscribers when markets were growing. As mature markets approach
saturation, price differentiation became a strong driver to capture and retain
subscribers. As 3G was being rolled out in the mid
2000’s, the mobile markets were not yet saturated and mobile network operators
business model still revolved around customer acquisition. A favourite tool was
the introduction of all-you-can-eat unlimited data plans to accelerate customer
acquisition and capture through long term captive contracts. As a result, the
customer penetration grew and accelerated with the introduction of smartphones
and tablets by 2007. By 2009. Traffic started to grow exponentially.
Data traffic was growing faster than
expected: AT&T data traffic grew 80x between 2007 and 2010 and is projected
to grow another 10x between 2010 and 2015. Korea Telecom traffic grew 2x in
2010, Softbank (Japan) traffic doubled in 2011, Orange France traffic doubled
in 2010 and doubled again in 2011. In 2012, mature operators are trying to
acquire smartphone users as it is widely believed that the ARPU (Average
Revenue Per User) is much higher (nearly twice) than the one of traditional
feature phone subscribers.
The cost to acquire these subscribers is
important, as many operators end up subsidizing the devices, and having to
significantly increase their network capacity.
At the same time, it appeared that increasingly, consumer data
consumptions was changing and that the “bandwidth hogs”, the top 1% that were
consuming 30 to 40% of the traffic were now consuming about 20%. They were not
consuming less, the average user was consuming a lot more and everyone was
becoming a voracious data user.
The price plans devised to make sure
the network is fully utilized are backfiring and many operators are now discontinuing
all-you-can-eat data plans and subsidizing adoption of limited, capped, metered
models.
While 4G is seen as a means to increase capacity,
it is also a way for many operators to introduce new charging models and to
depart from bundled, unlimited data plans. It is also a chance to redraw the
mobile network, to accommodate what is becoming increasingly a video delivery
network rather than a voice or data network.
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