With LTE deployments well under way, operators are now thinking beyond simply launching 4G and are focused more on market strategies and the next stages of the evolutionary roadmap. Telecom Asia and analyst firm Ovum teamed up once again for an online mobile broadband survey to dig deeper into those strategies. The survey covers a lot of ground, but an executive summary of the APAC results goes like this:
Mobile has never been stronger as a broadband proposition. While operators are concentrated on getting the basic business model right - and zeroing in on strategies to boost ARPU and improve the customer experience - there’s also a clear understanding that the network itself is the key asset to achieving those business and operational goals. Meanwhile, big data and third-party OTT content are also part of the plan.
QoS matters
In the early days of 4G, operators were focused mainly on price and/or speed as the main market differentiators. But that focus has clearly shifted to service quality.
For both cellcos and integrated operators, QoS ranked as the single most important differentiator in our survey for the third straight year. Speed and price ranked second and third for integrated operators, but for cellcos, speed and price were tied for second place.
“QoS reigns supreme in today’s data-fueled world,” observes Nicole McCormick, principal analyst at Ovum. “Today, price is less of a differentiator, especially in developed markets where the nature of the game is customer retention.”
One notable finding: coverage ranked dead last, echoing comments made by Vodafone UK CEO Jeroen Hoencamp earlier this year that coverage doesn’t mean much if the connection is crap and unreliable.
Turn up the volume
Pricing still matters, of course - if not as a primary differentiator, then certainly as a way for operators to get the most value out of their data pipe. There are many different ways to approach pricing, but if everyone agrees on one thing, it’s that unlimited plans are lousy pricing models, even if sometimes they’re necessary.
Less than a fifth of respondents named unlimited plans as “the most effective way to charge for consumer mobile broadband”. For everyone else, data volume-based models are the way to go, though opinions differ as to what (if anything) should be bundled with data. For cellcos, roughly the same percentage of respondents (around 22%) favor standalone data volume models, or data volume bundled with content or speed. Integrated operators prefer speed+data volume bundles, though bundled content also made a good showing.
“For now, charging by volume and adding content as a differentiator is increasingly being offered. For operators that do not include this content in the monthly data allowance, they are better monetizing the data opportunity,” Ovum’s McCormick observes.
In any case, she adds, it’s good news that APAC operators are putting less emphasis on unlimited data in Asia Pacific than they did five years ago. “In 2010, just over half of respondents said unlimited data was the best way to charge for consumer mobile broadband services, but as network speeds increase, linking volume usage to pricing provides a better alignment of revenues to costs.”
There’s also burgeoning interest in QoS/SLA based models, although these remain in the vast minority, and are more likely to be deployed by integrated operators than standalone cellcos.
Interestingly, while a number of cellcos already offer shared data plans as an option for consumers, not a single cellco selected it as an effective model. But it’s early days, McCormick notes. “Outside the US, shared data plans have largely struggled to gain traction, due to their complexity. But with the rise of connected devices, shared data plans will become more the norm.”
The priority list
We asked operators to rate their priorities for LTE in 2015. And unsurprisingly, capacity expansion is the most urgent priority. And for the most part, operators are banking on carrier aggregation as the way forward, although integrated operators are somewhat more likely to be looking at additional bands and macro buildouts (theoretically because they have relatively more generous capex budgets than standalone cellcos).
“`Getting the network right’ is a main priority for mobile-only operators as that is their bread and butter,” McCormick says. “In order to achieve that, operators are turning to carrier aggregation to improve speed - which is still considered a key market differentiator - and capacity. The challenge will be how to monetize that higher speed network. As per above, moving from unlimited to volume based pricing is a sensible move when improving network speed.”
For many cellcos, VoLTE is a strong second on the priority list. That’s not surprising, McCormick says, “since VoLTE initially is more about reducing opex, and that is a key priority for mobile-only operators that face ongoing network upgrade costs.”
That said, that focus on VoLTE won’t result in too many commercial launches in APAC this year. Just 17% of cellcos say they’ll launch VoLTE this year. But next year may be the big year for VoLTE - over 60% of cellcos said they’ll launch in the next 1-2 years. (For the record, no one said “never”.)
We also asked about everyone’s priorities on the business/operational side of their LTE strategy for 2015. By far, increasing ARPU is the top priority for everyone this year, followed by building up market penetration and subscriber bases, and improvements in customer service.
However, most operators are going to find ARPU growth a hard slog, McCormick warns. “The main way to increase ARPU is to increase tariffs. But that won’t be a reality for most markets. Rather, operators will need to focus on the upsell opportunity - which they are not too good at doing - and selling additional services to customers, which is also a struggle.”
As such, McCormick strongly advises all operators to throw their weight behind improving customer service. “A good offering and good network is meaningless without good customer service. Omnichannel will be crucial to the customer experience.”
OTT partnerships
One of the more volatile issues facing the mobile sector is its relationship with OTT content providers. But while some cellco CEOs may bluster over OTT apps cannibalizing core voice and SMS revenues, our survey indicates that the majority operators in APAC - especially standalone cellcos - would just as soon partner with third-party OTT content players and let them do most of the heavy lifting in terms of content development.
For example, 44% of cellcos said they would invest in minimal content of their own and leave the rest to third-party partners. “This makes complete sense for smaller mobile-only operators that don’t have the traditional content from a fixed broadband offering to leverage,” says McCormick.
Less than 17% want that balance of investment to be more 50/50. Only one in ten would rather go it alone.
By contrast, half of integrated operators want to maintain a rough 50/50 balance between their own content and third-party content. But 27% would rather rely more on third parties, and 20% would just as soon leave it to third parties entirely.
McCormick says that the 50/50 division has some merit in certain large markets, such as Japan, China and Korea, which are also non-English markets. “But by and large, these markets will be the exceptions.”
We also asked what types of content cellcos and integrated operators expect to make the most money from via OTT partnerships. The most common response across the board: TV/video, with social media a respectable second.
Where the money is
As operators obsess over ARPUs and OTT cannibalization, they’re also planning to use LTE to develop new sources of incremental revenue. We asked them to name their main source for new incremental revenue over the next five years.
The short answer: wherever they can get it.
Our survey recorded a fairly even spread across numerous categories, with the biggest single category “consumer cloud video.” But the Internet of Things in aggregate could play a bigger role in incremental revenue, particularly in areas like healthcare, energy/utilities, retail/wholesale and government , which combined accounted for almost 45% of responses from cellcos.
Mobile finance made a blip on the radar at 11%, but more cellcos (17%) see advertising as a more likely possibility.
McCormick says that the differences in answers are more likely a reflection of market differences rather than operator difference. But she agrees that all operators will chase a mix of sources, with some revenue sources (such as mobile finance, say) being bigger opportunities in some countries (e.g. emerging markets) than others.
“Also, the issue with consumer cloud video is that video also adds cost, so this might not be as profitable as lower aggregate revenue IoT services,” she adds.
For internal use only
One area where operators won’t be seeing much new incremental revenue is big data. That’s not to say they have no interest in it - the vast majority of operators say they either have a big data plan in place or are hammering one out now, with the remainders mostly saying they’ll have a plan for big data next year.
But when asked if they see value in big data as a sellable product, most operators said big data is far more value to them as a tool for better marketing and customer support.
Ovum concurs with that assessment, says McCormick. “We continue to see big data fundamentally about improving the customer experience. For example, monitoring network performance in real time to assist customer service agents with network bottlenecks or fault information for customers can be a differentiator and customer relationship enhancer. Even better is using big data to fix a problem in the network before the customer notices a slowdown or adverse quality affects. Using predictive analytics for customer service alerts, customized cross-sell and upsell offers in real time, and for churn management will also remain prevalent.”
McCormick also warns that selling big data is not without risk. “The potential risk to the customer relationship of on-selling their data would also be a factor causing operators to be hesitant to pursue this.”
SIDE BAR: More spectrum, please
Additional survey findings: operators need more spectrum, mobile broadband rivals fixed, 2G still isn’t dead
We want more airwaves: Last year, our survey asked operators if they have enough spectrum to meet traffic needs in the short to medium term. In 2014, 60% of respondents said yes. One year, the same percentage said no.
This varies by market and specific operators, of course, but for both cellcos and integrated operators, the majority said they’re facing a spectrum shortage in the short to medium term.
Consequently, operators also said that if RAN capacity isn’t a restraint on mobile services now, it will be soon. Cellcos aren’t currently feeling the pinch compared to integrated operators (22% of cellcos say it’s a constraint already, compared to 38% of integrated operators) but around half say it will be within the next year.
Mobile broadband grows up: With LTE’s capabilities already rivaling and even surpassing fixed broadband (as long as it’s not fiber), “cord-cutting” has become a popular buzzword. We asked operators how they rate mobile broadband’s chances as a competitor to fixed in the next five years.
Cellcos are naturally far more bullish about mobile’s ability to dominate over fixed broadband in that time frame, or at least serve as a viable alternative. Over 60% said so in our survey. A slim majority (54%) of integrated operators say mobile broadband will remain complementary to fixed broadband rather than compete with it.
When will 2G die?: As LTE becomes the default mode of mobile broadband activity, many operators are asking themselves how much longer they’ll hold on to their own 2G networks before they’re finally decommissioned.
Suffice to say 2G still has plenty of life in it yet, though that lifespan depends on individual circumstances, such as timelines for spectrum refarming, which is happening more in markets like Australia and Korea than, say, Western Europe.
For standalone cellcos, the bulk of switch-offs are earmarked for three to four years from now, says Ovum principal analyst Nicole McCormick. “These operators are likely to have only begun refarming legacy spectrum for LTE, have lower LTE penetration rates, and still can milk healthy GSM roaming/voice/M2M revenues. But over time, such factors will become less pertinent, and the cost of maintaining the network will outweigh residual revenues earned from that spectrum, which would earn more if it were used by an LTE customer, not a GSM one.”
This article first appeared on Telecom Asia LTE Insights April 2015 edition