Mobile Carriers Could Lose Premium Services Game
Mobile carriers' ability to recoup their investments in LTE networks depends greatly on their performance in getting customers to buy into value-added services offered by the carriers themselves. If carriers drop the ball, there are plenty of nimble, entrepreneurial players ready to move in and steal potential revenue.
Mobile network operators are investing enormous sums into their next-generation LTE networks out of necessity, and with the release of the iPhone 5, with 4G/LTE capability, operators are under even greater pressure to offer LTE services in order to stay competitive.
The success of these investments relies on carriers' ability to effectively monetize LTE, and mobile value-added services (VAS) represent one key opportunity to generate significant new revenue streams.
Mobile VAS are premium mobile services that are not covered in voice or SMS/Internet data plans. Parks Associates estimates these services worldwide generated US$14.5 billion for mobile operators in 2011. As a percentage of data ARPU, they collectively accounted for less than 10 percent in North America and even lower portions in other parts of the world, but moving forward, these services represent great revenue and strategic opportunities for operators. For example, VAS can employ revenue models detached from the monthly billing cycle, which may significantly reduce consumers' resistance to adoption. In other words, these services will rely on a fast and efficient mobile data network but are monetized based on consumers' value perceptions.
Mobile Entertainment Services
The major categories of mobile entertainment services include music, video, and games. As media tablet adoption increases, newspapers, magazines, and e-books are also becoming popular. In the past, mobile operators delegated content aggregation and distribution functions to their third-party partners. That strategy worked when operators had a firm grip on the mobile ecosystem, dictating everything from the service interface to handset features to delivery options. Today, these partners have alternative distribution channels, thereby reducing their reliance on operators. As a result, despite explosive growth of mobile content consumption during the past three years, most operators have seen much slower revenue growth from these mobile premium content services than have other players in the mobile media ecosystem. A few operators have deployed mobile entertainment services aimed at changing this equation.
For example, SK Telecom purchased Cyworld, a social network and gaming service, in 2003. Cyworld is South Korea's largest social network; it had 24 million unique visitors to the website in December 2011. The service generates revenues through the Cyworld Appstore via advertising and virtual purchases. The service has lost significant market share to Facebook, but Cyworld aims to rebound with a new smartphone app and global Cyworld launch.
The term "mobile cloud" emerged in mid-2010 as cloud computing services evolved from a primarily enterprise-focused technology to more consumer-oriented services. The vision for mobile cloud is not a significant departure from that for general cloud computing, but mobile cloud computing goes one step further in terms of network requirements and user experience because of the mobility element and demand for a converged experience across both fixed and mobile networks.
Mobile operators have every reason to make the mobile cloud their new competitive advantage. Many own both fixed and mobile networks, they have ongoing relationships with billions of users, and they manage user experiences on a daily basis. Yet even though mobile cloud is a new concept, carriers already face competition. Apple and Amazon have both introduced cloud services to consumers under freemuim and paid models, while many operators have yet to map out their mobile cloud strategies, which must encompass both enterprise and consumer markets. Mobile network operators (MNOs) in Asia, Europe, and North America are scrambling to get their cloud services to market.
Connected Home Services
Over three-fourths of U.S. broadband households now have a home network, which greatly expands the market potential for the connected home services space. As a result, large players such as Verizon, AT&T, and Rogers have entered this emerging space in the past year, offering consumers solutions in energy management, lighting and appliance control, and home monitoring. Leading brands from other industries, such as pay-TV provider Comcast and home security providers ADT and Vivint, are also active. Even home improvement retailer Lowe's is testing the waters. Parks Associates estimates bundled IP home services currently have approximately 500,000 U.S. subscribers but adoption will hit 18-20 million households by 2020.
Providers such as AT&T, Verizon, and Rogers, which already have an established presence in the home broadband and pay-TV space, are better positioned to become credible players in the connected home space. Carriers attempting to enter this market solely from a wireless angle will have a tougher sell. Parks Associates' research reveals consumers value security over other connected home features, though energy management is also compelling for some consumer segments. In the U.S. market, carriers offering connected home services should highlight their home monitoring and security solutions but enable easy and affordable expansion to other home automation and management solutions to broaden the system's uptake. The most powerful bundles will offer both peace of mind and energy management features.
Rich Communication Suite-Enhanced
Operators are re-visiting their core voice and messaging services to bring new value to consumers and develop additional revenues on top of existing assets. The Rich Communication Suite Initiative is a joint effort among MNOs, infrastructure players, and device vendors. Managed by the GSMA, RCS-e formed in 2008 to create new and better communication services built upon IP Multimedia Subsystem (IMS) standards that are interoperable between MNOs.
On its website, the GSMA has announced the first RCS services to market will incorporate one-to-one and one-to-many instant messaging, file sharing (stand-alone or within a chat session), video sharing within a voice call, and service capability discovery.
While not typically considered a "value-add," RCS-e will be a crucial weapon in MNOs' battle against OTT messaging and voice/video communication services. Operators' key advantage over OTT messaging and calling is interoperability. Many OTT services work only between users within the system, resulting in barriers to scale and fragmentation of communication services. For the end user, RCS-e interoperability means carriers' services will "just work" -- they will be as intuitive to use as texting, and consumers can adopt the services regardless of the MNOs used by friends and family. The extent of this interoperability may seem anathema to MNOs' natural impulse to differentiate from each other based on these types of services, but operators involved in the RCS-e Initiative recognize the seriousness of the threat posed by OTT players.
In many VAS categories, MNOs face formidable competition and are already having to catch up with existing OTT offerings. Operators must leverage their assets, notably access to location-based services, rich subscriber information, and billing relationships with millions of users, in order to mount a proper challenge to their competitors. There are also a variety of vendors within the mobile ecosystem that can provide the tools to enable mobile VAS and RCS services, including Mavenir Systems, Acision, Newbay Software, Alcatel-Lucent, and Ericsson.
It is a complicated market space, but operators would be well served to analyze the service gaps among competitors, both peers and OTT providers, and build the capabilities to design and deploy innovative solutions in mobile cloud, digital home, and rich communication services, with the flexibility to adjust services and strategies as the market evolves.