The year 2004 will be remembered as the year where the “first” 3G operators launched their offerings and the migration from 2G to 3G really started to take off. Many mobile markets have been dominated by 2, 3, 4 or 5 operators who have divided the market amongst themselves for the past years, often making it difficult for customers to distinguish between their marketing and offerings. At the end of the day it will not come as a surprise if the majority of the worlds mobile users cannot explain the difference between the different operators - despite the fact that each operator will claim to differentiate themselves in a number of areas.
2004 was also the year where web-based MVNO’s, like the ones seen in Denmark, spread across Europe and countries like Denmark, Norway, Finland and The Netherlands experienced massive price reductions. A trend, which we are sure, will spread to the rest of Europe in 2005.
All in all, 2004 was the year where the technology people focused on the smart new applications and possibilities with the new handsets and higher bandwidth that EDGE and UMTS has given, while the Operators focused on how to limit CAPEX and OPEX to compensate for declining prices.
On today's mobile market, customers have primarily bought new smart mobile phones bundled with either a prepaid offering or post-paid subscriptions. The main focus from the customer has been on the mobile handset and the price of voice minutes. SMS prices have also been important but often not the factor that influenced the choice of operator. In 2005, the mobile market will mainly be influenced by these four factors:
1. The introduction of 3G from other Operators than “3”
2. A number of MVNO's that will focus on SIM-only concepts
3. Falling prices on especially the prepaid market
4. End of subsidies on prepaid handsets
The result will be a much more fragmented market with more and more customers showing different purchasing behaviours. These new behaviours, combined with falling prices, will result in various changes in the mobile market that will affect the operators, handset suppliers and of course the retail market. We believe that in just 12 months - at the end of 2005 - there will most probably be significantly fewer employees in the mobile industry and many executives will be looking at a job change.
2004 and 2005 will be a years we will remember as the years when the consumers took over power. In past years the operators have been able to offer good deals together with the retail sector, thereby attracting the customers they needed to maintain their market shares and compensate for the ever-present churn that always flourishes in a competitive market with multiple operators.
The customers are taking over by demanding simple, understandable tariffs; no monthly subscriptions and prices that do not vary depending on whose network you are calling to or from. At the end of the day, the price for a voice-minute and SMS will become more important than exactly how new and smart your mobile handset is.
Many people in the business will actually be taken by surprise at just how fast the mobile market will change, as customers really start going for the offerings that simply give them the best value for money. Unlocking the handset's SIM lock will become a national pastime in 2005 and despite the industries best efforts to stop this, the press, consumer organisations and even politicians will defend the customers desire to unlock their mobile phones.
3G will launch in 2 directions: consumer focused and business focused. When Operators like Vodafone and Orange launch 3G, we will see a launch that in many ways will be similar to what we have already seen from "3". There is little left that has not already been said by “3”, so for many new customers that want to switch to 3G, choosing between e.g. Vodafone, Orange, T-Mobil, KPN, TDC, TeliaSonera, Telenor and what 3 already offers, does look like it will come down to what handset and how many minutes 3G operators will bundle and offer new 3G customers.
Some Operators will try to focus the 3G corporate market, For example Vodafone will most likely try to profile themselves as the 3G business solution provider, focusing on how businesses can benefit from 3G interfacing to corporate applications. One strong selling point Vodafone has is that they can support this approach with the possibility of roaming between the many European Vodafone networks and offering attractive prices for that service.
Operators like Orange, who will focus on the consumer market, will in many ways be similar to ”3”. They will see if they can charge higher prices for their 3G services than 3, while at the same time being more competitive on the mobile handsets, and their marketing will be focused on three areas: Services, Terminal prices and new technology.
Some of the more sensible operators today will continue their strategy on the 3G market - offering high ARPU (Average Revenue Pr. User) customers very attractive offerings on both 3G handsets and tariffs. Their message will be that if you are going to be spending a lot of money on 3G - they will give you an offer very hard to refuse. Their goal will not so much be for 3G growth, but rather sensible earnings.
Other operators offering MVNO (Mobile Virtual Network Operator) strategies will differentiate themselves a great deal on the mobile market. Operators like Base in Belgium, E-Plus in Germany, T-Mobile in the UK and Telfort in the Netherlands are on the list. Their MVNO strategy will vary somewhat from the other players. By 2006, they will all have grown in number of customers. An aggressive strategy on the MVNO market will give these Operators - in contrast to the other operators - the widest and most aggressive distribution on the market and at the same time the lowest SAC (Sales and Acquisitions Costs). The decreasing SAC will compensate for the lower revenue from lower tariffs.
“3” will continue to give large subsidies and offer customers low prices, resulting in a continued growth in their customer base. We expect that 3's growth will result in a number of problems - or challenges - regarding the quality of their customer service, billing, network quality etc. In 2005, “3” will have a more noticeable share of the mobile market, but many will still question the cost that is related to acquiring that success.
2005 will be the year of the MVNO! Operators like Telfort, T-Mobile, E-Plus, and Base etc. will drive this market, looking at MVNO's as alternative distribution channels to the more traditional channels. Virgin Mobile, easyMobile and many other names will help grow the Operators overall customer base and ensure an ever increasing growth of traffic that stays within their own mobile network. easyMobile will probably surprise many people both in the business and the press when they launch next spring.
The name on everyone's lips next year will without a doubt be easyMobile's CEO in UK Frank Rasmussen. Frank Rasmussen is a man who speaks out for - and sides with - the man in the street. He is loved by the customers and the press, while his competitors usually find him an irritating pain. With his aggressive guerrilla marketing tactics and swift attacks on the handset manufacturers' attempts on trying to stop e.g. unlocking SIM locks, Frank Rasmussen comes out as the man who fights for the right to sell cheap mobile services to the man in the street. His message is simple - cheap mobile telephony and freedom for the customers - cutting through all the mumbo jumbo tariff jungle.
There is little doubt that this will lead to some serious competition between Virgin Mobile and easyMobile. We will most probably see Virgin Mobile copy easyMobile, as easyMobile launches the Telmore model that made Danish MVNO Telmore world famous in mobile circles - a model that others also will try to copy.
The MVNO's will become favourites of the press and customers that are not too worried about having the latest and smartest mobile phone will flock to switch from their expensive prepaid subscriptions to the MVNO's Internet based cheap offerings. This will result in a dramatic decrease in prepaid pricing tariffs, so that prepaid prices will start closing in on post-paid prices. However the good news is that the reduction in prices will lead to an increase in voice and SMS traffic.
The coming year will see a greater fragmentation in the distribution industry as many independent dealers start facing tough times. Operator subsidies for new prepaid customers will either be reduced or disappear altogether, taking a large chunk out of the mobile dealers earnings on initial sales and subsequent revenue share on mobile traffic.
We will soon see a market where mobile phones will primarily sell through four channels:
1. Special stores offering multiple operator choices
2. The operator’s own stores
3. Direct online sales of SIM cards on the Internet
4. Consultants selling to corporate clients.
As prices drop, operators will make every effort to bring down their OPEX and SAC by reducing their workforces and changing their subsidy and commission strategies.
We believe that the large mobile retail chains that can add value in different ways - like we have seen from Carphone Warehouse - will have a reasonable year. Their size and the fact that they offer products from multiple operators will help them maintain a good level of activity. The smaller chains and the operator owned stores will probably see a reduction in activity and turnover. The FMCG (Fast Moving Consumer Goods) shops will see a larger decrease in prepaid sales; also prepaid scratch cards will increasingly loose market shares and be replaced by online sales.
Looking at the mobile handsets, we will see an ever increasing number of new mobile phones, new designs and more and more terminals specifically designed for smaller special customer segments will be more common. Looking at the manufacturers, we think the world market shares will go to:
7. HTC and others
HTC will take many by surprise – a lot of Operators will be focusing on the corporate market and one of the big conversation pieces in the coming year will be using mobile handsets for business - an area HTC knows well and an area becoming more important to corporate customers to help them become more cost efficient and competitive in 2005. We will also see an increasing number of corporate customers trying to become more accessible for their customers by offering SMS services or XHTML content - services that can range from alerts to online marketing information and much more.
Operators will see an increasing number of customers that own two mobile phones, two SIM cards and two mobile subscriptions. This will not only affect SAC negatively, but also influence churn. Despite handset manufacturers assurances that more advanced phones will stimulate higher ARPU, operators will have difficulty seeing that as customers choose one handset for voice and another for data, or one handset for work – and another for leisure. Whoever you are, there will always be a handset that just suits your special 2005 needs perfectly.
Looking at VAS (Value Added Services) the operators will focus on their 3G portals that will mainly be an extension of their 2.5G portals – but of course with the addition of video calls, streaming video and download of music and games.
Five things will influence the 2005 VAS market:
1. New players entering the VAS market
2. Services based on MMS, WAP and Java
3. Content providers driving the market
4. A tougher regulation of the services market
5. Services targeting the corporate market
Companies like Nokia, Ericsson, Microsoft and Qualcomm will continue their quest to find their position on the mobile market. One way of doing this will be by bundling handsets and services. These companies would like to be able to deliver services to the operators, directly competing against the services market that started with premium SMS and is now moving towards much more advanced services.
In 2005 the operators will announce that their mobile portals are not core business for them, but rather a service offering to their customers. Some operators might even admit in public that the VAS they are selling via their open garden offerings - like premium SMS services - are generating much bigger earnings than their own portals.
Within regulation of the services market, organisations like ICSTIS (the Independent Committee for the Supervision of Standards of Telephone Information Services) in the UK will tighten regulation of the Premium VAS market, especially with regard to protecting minors, making the marketing of subscription services another conversation piece at mobile events in 2005.
All in all 2005 will be a fast paced and exciting year with many larger changes influencing the mobile market.
Looking around the world, we think that especially 4 regions will be interesting to look at in 2005:
Europe, North America, South America and India.
Europe will experience a transformation, prices will drop and the mobile market will start moving towards a commodity market, where different Operators sells almost compatible products and the end-user prices will become one of the most important factors when the customer selects provider. The exception will be the corporate market, where we believe many companies perceive the price as a secondary factor, which must however be acceptable, but where quality and service are the most important factors when choosing Operator.
In North America, especially in the US we will experience a consolidation. The US mobile industry will change and the Operators will in a number of areas change strategy. MVNO’s will be the next big thing, and we believe that Operators like T-Mobile and Sprint will put focus on alternative distribution through MVNO agreements with a number of new players.
In the VAS (value added service) market, Operators will move away from their Walled Garden approach towards a more open and free market, as seen in Europe, where the same Premium SMS services are offered across multiple Operators and where the mobile markets are regulated across the industry.
South America is almost at the end of their consolidation, and the last TDMA Operators have decided or are deciding which way to move forward. As in the US it will be a contest between GSM and CDMA. We believe that the GSM Operators will gain market share, as they have access to more and cheaper terminals than the CDMA Operators. On the VAS area we will see the same trend as in the US, where the Operators will move towards an Open Garden strategy, as seen in Europe.
India will be an exciting country to watch. The world has for some years been focusing on Japan and Korea, but in 2005 the focus will start to shift to markets like India, China and Eastern Europe. All these countries will experience tremendous growth and at the same time Operators will experience a profitability that reflects their low handset subsidies and limited competition on voice and SMS prices. We believe that we will hear a lot of exciting stories from India, e.g. stories focusing on how companies have developed new technologies and platforms that become popular amongst the Operators and customers.