June 3 2003

Transition Of Mobile Applications To Fixed Environment Pushes Up Profits For Incumbents

Exacerbated by the economic downturn, fixed-line operators have witnessed a decline in revenues and suffered weakening exposure to end-users amid tightening competition and massive investments in fixed network upgrades.

In order to restore profitability and to fight inertia in the fixed-line market, which is causing vast numbers of fixed-line subscribers to reach for their mobiles instead of fixed phones, a new study urges fixed-line operators to emulate mobile service functionality and to maximise usage of their fixed network assets.

According to Frost & Sullivan, the international market consultancy, the advent of fixed-line SMS, designed to send messages between fixed-line telephones or to mobile handsets and faxes, enables beleaguered telcos to tap into the burgeoning SMS market by extending the service to fixed-line users.

Unlike mobile and fixed voice services, SMS has grown exponentially without a decline in tariffs (and in some cases even showing an increase). SMS messaging has experienced unprecedented growth in the last five years, both in terms of revenue generation and the return generated against the cost of implementation.

According to the GSM Association, an estimated 366 billion SMS were sent globally in 2002. At an average of $0.10, this equates to $36 billion of worldwide revenue in 2002 alone, achieved with a minimum of marketing expenditure and relatively straightforward technical implementation.

“By generating only a small percentage of this traffic volume, fixed SMS still has the potential to yield substantial revenues for fixed operators,” explains Nathan Budd, Industry Analyst at Frost & Sullivan. “Just 1 per cent of this revenue equates to business volumes of $360 million a year. With controlled investment, fixed operators are in a position to SMS- enable networks and to maximise return on investment (ROI),” he adds.

Increasingly widespread adoption will be aided by intensified strategic focus on the maximisation of the potential of fixed SMS, the full utilisation of the network and the rejuvenation of the fixed environment.

Research by the UK regulator for the telecoms industry provides additional insight into the fixed SMS potential. Oftel’s figures suggest that 7 out of 10 mobile users send text messages rather than make voice calls from their mobile – with 36 per cent doing so frequently.

Significantly, 41 per cent of mobile users send text messages instead of making calls from their fixed line residential phone (at different levels of frequency). Approximately 17 per cent of these users send SMS from home frequently, signalling great potential for fixed SMS to appropriate a percentage of this market.

The growing ubiquity of mobile handsets, reflected in a penetration rate of up to 80 per cent in some European countries, is the foundation of the rapid growth in SMS capability. Users in Europe and Asia are already sending billions of SMS messages each month and operators have begun to create bundled packages, offering a number of SMS messages for a fixed fee. The result is a well-established, well-defended market, which poses a threat to a smooth foray of fixed-line SMS.

Frost & Sullivan emphasises that, although it is clear that fixed SMS has the potential to act as a complementary technology to the mobile SMS market, it will initially be perceived as a substitute.

The success of fixed SMS hinges on the number of enabled devices within the network. There is still the potential to send messages to and from the mobile environment and the ability to terminate messages on the fixed network though TTS, but real functionality and market take-off will only become reality through rising handset adoption.

Marketing strategy must be based on boosting handset adoption and improving the channel management. With little incentive to push the fixed SMS product, telecoms stores will not communicate the functionality and benefits of these products.

Mr Budd warns that a complete lack of cooperation from mobile operators has the potential to kill the market before it has had a chance to establish itself. Mobile operators have traditionally run cartel-like interoperability agreements, making it extremely difficult to break into this aspect of the market.

The primary use for the SMS service is person-to-person (P2P) communication, accounting for around 94 per cent of traffic. “The issue here is how suitable the family or business phone becomes in the context of receiving personalised SMS messages and how viable the concept of alternative mailboxes and numbers become as a way of addressing this issue,” Mr Budd argues.

Although mobile penetration has now reached dizzying heights, there remains a chunk of mobile owners who have yet to adopt SMS usage. Especially elderly mobile phone users, a large and growing part of the population, may want to be able to originate and receive SMS, but have little or no understanding of the SMS functionality on their mobile phones.

These senior citizens, along with other SMS novices and sporadic mobile users, are more comfortable with the fixed environment and require intermediary handsets that allow them to use a keyboard and screen rather than alphanumeric input. Fixed SMS provides a solution within this niche market.

Parents seeking to introduce text messaging to the very young without the need to purchase a mobile phone, are indirectly creating a further target audience for fixed-line operators.

“Although these user groups appear to be niche, this does not imply that the service as a whole is a niche service. It only becomes a niche service if deployment merely occurs in one or two of these groups. Uptake in a number of areas paves the way for mass-market adoption,” Mr Budd says.

Beyond the residential applications and user groups, fixed SMS also holds vast potential within the business application market. Operators must look towards the business market, not only through increase network usage and the progression towards more MVNO status, but also explore the provision of fixed SMS as an application, managed by the operator throughout the organisation.

 

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