Saturday, June 05, 2004

High End Handsets - A Potential Threat - Mako Analysis

Can Telecoms firms outsmart new handsets? - Irish Times

Mako Analysis - Research, Analysis and Bespoke Consulting for the Mobile Industry

The Nokia 6600, N-Gage, 3650, 7650, Siemens SX1, Sony Ericsson P800 and P900, just a selection of devices that are currently available on the market that allow an entire range of new revenue generating services to be installed on the device. When taken at face vale this seems like an excellent development for the mobile industry, but in many cases however, a savvy user can use this open operating system to completely bypass a range of services that are normally charged for by their mobile operator.

UK based mobile consultancy Mako Analysis, are the first to publicly highlight this potential threat and state that devices that run on Symbian’s Series 60 operating system could be a significant worry in the wrong hands (Richard: why wrong hands?). This operating system functions in a similar fashion to a Microsoft Windows PC, the user can install new applications and pieces of software as well as uploading all manner of consumer content such as ringtones and java games. The crucial element of this scenario is the potential impact on the mobile operator community. From simple content such as ringtones to complete service offerings such as Mobile Music or Instant Messaging, an open operating system can bypass and therefore potentially eliminate any revenue from these services.

What is the Nature of the Threat?

Mako Analysis states that while penetration of these devices is currently low, the success of terminals such as the Nokia 6600 mean that the threat will only grow over time and that operators need to consider how they are going to deal with the problem before it is too late. The consultancy has highlighted a few examples of how these devices pose a threat to the various revenue streams of a mobile operator:

If we were to take the example of a consumer who uses text messaging extensively; at present this user spends a significant amount of money per month purely on messaging his circle of friends. If this user purchases a Nokia 6600 for example there are several ways of by passing the standard text messaging method and significantly reducing his bill spend. Firms such as Fastchat for example offer an application that allows users to communicate via text in an instant messaging style format for a completely flat rate of approx £5 per month. This application also allows users to send brief voice messages to each other in the same fashion as a Push-to-Talk service. (Richard: £5 per month for messaging?)

Mobile Music
With several major launches underway, the ability to listen to music on your mobile phone and download it whilst on the move is current hot topic. The commercial offerings currently charge per track downloaded as well as the packets of data used to transport the file to the device. Generating two revenue streams for the mobile operator in question. A current criticism of the service at present is that the tracks that have been downloaded are not easily transferred to other mediums. For example a consumer does not want to pay for a track to be downloaded to their mobile and then have to purchase that same track again if they wish to listen to it at home on their CD player.

If a consumer has a Series 60 device there are several MP3 players that can be downloaded to their device for a small one off fee. Once they have the player on the device, MP3 tracks can be moved over to the phone’s memory card for free by using Bluetooth, infrared or a USB connection cable. Given the widespread knowledge of acquiring or creating MP3’s free of charge, particularly in the youth segments that are being targeted by mobile operators, the potential to bypass mobile operator solutions is significant.

With Java gaming generating the second highest non-SMS data ARPU after ringtones, its importance to the future of the mobile operator is becoming increasingly important.

The role an open platform environment is multiple in the mobile gaming space; java games can be downloaded free of charge from the Internet and then transferred to the phone via USB, Bluetooth or infrared in the same fashion as other applications. Perhaps what is most alarming however is that if a user knows to look in the right place, full Nokia N-Gage games can be sourced and downloaded free of charge and made to work on a Nokia 6600. Our team have seen several N-Gage Games such as Tomb Raider and Sonic the Hedgehog (games with a 35-40 Euro value) working perfectly on a Nokia 6600. The titles require a small conversion application and use of the on board memory card as they can be up to 8Mb in size.

Phone Personalisation
The largest non-SMS data revenue generating income source for mobile operators at present are phone personalisation features such as ringtones, screen savers, wallpaper and “themes” that change the entire look of the feel of the device interface.

Once again, after conducting a brief search on the Internet Mako were able to find whole libraries of this content free of charge. Given the sizable memory card that is generally supplied with series 60 devices Mako were able to store vast amounts of content on the device and vary the whole look and sound of the terminal on a frequent basis.

A Mako Analysis spokesman said, “As we have shown, the increasing sophistication of high-end mobile devices opens up a range of additional problems and will continue to undermine the data revenue streams of mobile operators at a time when they desperately need them to be increasing. As with any new device feature, it will eventually infiltrate into medium and low-end terminals, in the case of practically every other advancement this would be welcomed. This historical approach has lead us to blindly encourage the addition of increasingly sophisticated devices throughout the range, in the case of open platform operating systems our approach surely has to be one of caution.”

He went on to conclude, “While Series 60 operating systems allow us to create a multitude of sophisticated business and consumer services and distribute them to the devices with ease, the threat of the intelligent user bypassing pay to use portals altogether will only increase over time and must be addressed.

Richard: Mako of course completely missed the VoIP applications possible on such general purpose devices. Or maybe they wanted to give the shock to the mobile operators in small doses and keep something for the next report?

Danny O'Brien from the Irish Times got this and stated:

Even the most basic monopoly that the mobile companies possess may vanish once smartphones become prevalent. A smart enough phone can run a VoIP programm - which means when those long distance calls are too expensive, you will be able to sneak your phone calls over your phone's 2.5 or 3G internet connection instead.

Now phone companies have some tricks to stop this kind of activity.

The ones who haven't waited for Mako to tell them the obvoius are already considering them. Hiking up the price of that internet connectivity is one obvious trick.

Except that means hiking up the price of everyones's data connectivity. Do that, and the price of data will suddenly become a point of competition between providers.

Or you could engineer ways to filter or ban such uses of your mobile phone. Such steps are common when open system enter closed markets.

While they provide opportunities, they threaten existing business models (sic)

History is of the side of those who exploit the opportunities.

It requires a great deal of change in business practices. And it may mean that some companies go to the wall.

And the writing on the wall is: give the consumer what they want.

Give them something else when they have alternatives (Richard: WiFi and WiMAX) is the road to ruin in a market economy.

When you deny your customers choice, they exercise the only choice they have left: They choose to be ex-customers.

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