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FROM PYRAMID RESEARCH
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UMTS
June 26, 2004
Four years after the launch of the first
commercial GPRS services in Europe, only about 17% of all subscribers will
be using 2.5G and 3G services at year-end 2004. The low adoption rates have
been caused by many factors such as initial lack of handsets and attractive
content. Today, the challenge remains to convert the casual mobile data user
into an active one and provide the best end-user experience, a new motto for
the European cellcos.
The barriers to this mission are manifold:
vastly different handset screens, high prices for GPRS connectivity and,
above all, lack of transparency and simplicity in content pricing.
The full realization of the hindrance the
latter poses to the adoption has dawned on most service providers, and 2004
is expected to bring many changes, with focus not only on the reduction of
data charges, but also on the elimination of content download surcharges,
introduction of flat rate browsing fees, and changing pricing structures to
introduce subscriptions and bundles. These changes cannot come quickly
enough.
Today's European pricing models for
accessing WAP content over GPRS are a motley crew of volume charges, per
event fees, as well as subscriptions, bundles and flat tariff. Most mobile
providers have now realized that the complexity of tariff schemes and high
monthly bills are major hurdles to the growth of mobile content usage.
Popularity of SMS-based content, which currently generates 20-50% of total
messaging revenue, shows that WAP content has good growth potential. As the
first step, which will give WAP usage a boost, cellcos started to bring down
their 2.5G tariffs, but a price decrease alone is not enough.
Key Pricing Model Changes Ahead
Elimination of content download surcharges is deemed the
first step toward growing mobile data service usability. In May 2004,
Vodafone stopped surcharging for content in the UK, where Orange remains
the only company that still does so, but likely not for long.
Another important change involves the introduction of a
flat fee for unlimited WAP browsing of operators' portal. Orange had
earlier introduced a flat fee of €6 for unlimited WAP portal access in
France, while Vodafone charges €4.95/month for unlimited browsing in
Germany. Both have had some success in stimulating WAP usage, and it is only
a matter of time before the scheme is introduced in the UK. We believe that
the role of a broadband provider fits the cellcos better and expect that one
monthly fee for all-you-can-eat mobile browsing - except perhaps premium
content - will provide an incentive to use the service more and finally take
the negative connotation away from the word WAP.
The Challenge of Mobile Video
Mobile video deserves a separate discussion, as it presents a special
challenge to mobile operators, especially when it comes to video streaming.
Among the issues awaiting resolution on the service provider side are
revenue-sharing agreements with content providers, especially the big media
and music companies such as Warner Brothers, Discovery and Universal,
where many parties are involved in content creation. More end-user survey
data is necessary to decide on the pricing and revenue-sharing structure.
Moreover, delivering video services is a challenge to existing billing
systems, which will require upgrades in the next two years. Finally, video
will not become a large revenue generator in the short or medium terms,
estimated to generate less than 10% of total non-voice revenue in 2008. Yet,
it will account for an estimated 30-40% of mobile data traffic. So is it
worth the trouble? The answer is unequivocally yes, as video will be an
important service differentiator, and doing it right will give cellcos
important perks in the competition for mobile data users.
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