With voice ARPU steadily declining and data ARPU undercompensating, network operators should re-examine their data services strategies.
On 21 November 2006, Informa Telecoms & Media presented their outlook for the mobile industry in front of a packed audience in central London. The data presented by Informa’s six senior analysts at the event was rather unflattering for network operators. You can check here for the full video of the day’s presentations.
A gloomy outlook According to Informa, voice ARPU (average revenue per user) fell from a global average of $19.38 in 2005 to $17.65 in 2006 and is expected to further drop by $1.34 (7.6%) in 2007. At the same time, the much-awaited boost in data service revenues has fell rather short of expectations. From a global average of $2.84 in 2005 data service ARPU dropped to $2.81 in 2006 and is forecast to climb by just $0.07 in 2007, according to Informa.
In a nutshell, global voice ARPU is forecast to drop nearly 20 times faster than the rate by which data ARPU will increase in 2007! This outlook is set in the backdrop of hundreds of billions of dollars in network operator investments in 3G licenses, network infrastructure upgrades and megadeals with content providers.
Source: snapshot from Informa’s Mobile Industry Outlook
One might argue that Informa’s global predictions are overly skewed since they include developing mobile markets. Vodafone’s key performance indicators reveal a similar trend. Across Vodafone’s four main markets (Germany, Italy, Spain, UK), average voice ARPU fell by 7.39% between 2005 and 2006, while data ARPU (including messaging) rose by 3.20% in the same period (although performance across individual countries varies widely). Comparatively, in Spain and the UK voice ARPU dropped by over 3.5 times faster than the rate by which ARPU increased between 2005-6. Oddly, in Germany and Italy, voice ARPU is dropping much (40x) faster than data ARPU is rising (!).
The sustained decline in voice ARPU is probably down to a couple of market effects: firstly the global mobile subs base expanding to lower-spending customers and secondly the existence of multiple SIM cards per user (1.29 SIM cards per user globally for 2006, according to Informa).
Focus on voice, not data The question is, how should mobile network operators react ? My thesis is that operators should focus their strategy not on achieving small increases in data service revenue, but on how to turn around the tumble in voice ARPU. Operators should do so by banking on the capabilities of data services and the improved user experience offered by handsets applications.
In other words, network operators should focus their efforts on data services that support voice services by making voice calls easier, more intuitive and more fun. Examples are T-Mobile’s MyFaves, Zi’s Qix, Comverse’s Visual Voicemail and SK Telecom’s avatar-based videotelephony.
T-Mobile US leads the way MyFaves makes it easier and more fun to call. Launched in October 2006, T-Mobile’s MyFaves service offers subscribers unlimited calls to five other numbers (to any network) for a flat monthly fee starting from $39.99. In the case of mobile telephony, five is a magic number; Nokia’s 360 study of phone usage patterns concluded that more than 50% of voice calls and 70% of SMSs go to top 5 contacts. (source: study of S60 users, UK/Germany/France as reported in Sep 06).
The unique selling point of MyFaves is that the handset idle screen displays a caroussel of images or avatars of the user’s five favourite contacts. These five contacts can be changed once a month by calling customer services, through the MyFaves application or through a web page. T-Mobile’s service is currently available for the Nokia 6030, 6103, 6133, Samsung t209, t509s, t609, t619, t629, Samsung Trace, Motorola v195s, RAZR v3, v3t, v3i and Blackberry Pearl.
The uniqueness of MyFaves stems from the combination of a voice service, a data service and a desktop UI application (desktop UI = the type of application that provides service discovery by replacing the idle screen). The data service (i.e. synchronisation between the desktop UI and the network billing engine) as well as the handset application are intended to boost voice usage, through a 1-click access to calling one of the five contacts. The user can send an SMS or MMS to one of five contacts through the same interface. I wonder what sort of ARPU uplift is T-Mobile witnessing thanks to MyFaves.
This is a trully innovative, end-to-end service. I wouldn’t be surprised if T-Mobile country operators in Europe follow the US cousin’s lead.
Qix: Making calling easier Zi corp’s Qix is another example of how handset applications can be used to boost voice usage. Qix is a desktop UI application that uses T9-style predictive contact search to bring up contacts based on the keys that the user presses. Simply put, instead of going into the contacts application and typing in the name of the contact, Qix allows the user to find contacts just by pressing keys corresponding to the contact’s name from the idle screen. This drastically reduces the number of clicks needed to call up a contact and is claimed to boost voice usage by 3%. Owners of Windows-Mobile handsets will have used this feature widely, which has been built on the operating systems since v1 (with the launch of SPV in 2002).
Unfortunately for Qix, Zi has had too many top management changes in the last 4 years, its operating losses have been doubling on a yearly basis (check the reports) and its device support has been surprisingly poor. On the positive side, I ‘m aware of at least two competing products to Qix which are launching next week at 3GSM.
In summary, my thesis is that network operators need to heal their wounds first (the sustained decline in voice ARPU) before dashing into new and risky territory (investments into more data services). There are known recipes (and more innovative ones still sitting on the shelves of R&D teams) for boosting voice usage by employing data services and innovative handset applications.