Operators around the world are rolling out sexy new services like mobile TV and full-track downloads in an effort to compensate for razor-thin margins for voice service and see a return on investments in 3G technology. But carriers looking to spur data revenues-which is to say, every operator on the planet-should consider sharing the wealth, according to a recent report from Strand Consult.
Original equipment manufacturers depend on sales of low-end, carrier-subsidized phones that are often given to customers in return for signing a service contract. Operators, meanwhile, are looking to high-tech phones with plenty of bells and whistles to whet consumers’ appetites for next-generation services.
“The problem with the business models in the current value chain is simply that the handset manufacturers and dealers have currently completely opposite interests to the mobile operators,” the Danish market research firm wrote. “Some of the business models in the value chain have been designed so that the players are actually obstructing each other in their efforts to generate revenue. … In other words, the players have opposite interests in their efforts on creating a financial return.”
It may behoove carriers, then, to share data revenues with manufacturers based on usage. A popular multimedia phone that sees a higher-than-average revenue per user could reward its creator in overall sales as well as with recurring revenue, benefiting both the manufacturer and the operator.
Most analysts agree that a lack of user-friendly, multimedia-focused handsets remains a substantial hurdle in wireless data. Manufacturers have a vested interest in creating sleek, sexy phones that drive one-off sales-not mini-computers that push the envelope of 3G services. Motorola Inc.’s Razr, for instance, has been wildly successful due to its space-age form, funky materials and practical design, said John Jackson, director of Wireless/Mobile Technologies Decision Service for the Yankee Group.
“You need look no further than the leading features on the Razr, which more closely resemble the periodic table of elements” than a multimedia-phone, said Jackson, noting the phone’s nickel-plated keypad and stainless-steel look. Motorola is “making money on fashion forward, not on streaming video.”
Even phones specifically designed to drive data revenues have generally failed to gain traction. The industry has yet to come up with a gaming-focused device that appeals to a broad audience-witness Nokia Corp.’s N-Gage-and most music-focused handsets have received disparaging reviews. The Wall Street Journal’s Walter Mossberg, in fact, slammed Verizon Wireless’ new LG Electronics Co. Ltd. Chocolate phone, which features an iPod-like design and is targeted at music fans.
“It’s burdened by a ham-handed user interface,” Mossberg wrote last week of the Chocolate, “and other failings that would get its designers fired at Apple.”
But while sharing receipts with OEMs might help build better phones, it probably won’t be embraced by U.S. operators any time soon. Carriers are all too familiar with such business models, which provide the foundation for most of their relationships with content providers, messaging partners and application developers.
It’s unlikely they’ll warm to the idea of writing more checks every month, according to IDC Research Manager Lewis Ward.
“It’s possible (revenue-sharing) is being considered” between OEMs and carriers, said Ward, “but I don’t think operators want to split their shares with anyone else if they can avoid it.”
Also, manufacturers aren’t the only ones who would like a slice of the monthly pie. “Enabling technology” developers that provide firmware, encoding software, digital rights management and others are all vying for a little taste of data revenues, Jackson noted.
“If you look at all of the companies out there that are trying to make between 2 cents and $2 on each handset, the sum is greater than what the market will bear,” Jackson said. “It begs for more creative business models.”
Those “creative business models” will need to include dealers, too. Retailers often draw commissions based not just on hardware sales but on voice and data plans. The idea, of course, is to get staffers to push lucrative content and services at the sales counter, introducing potential customers to the world of mobile games, music and video. Even that relationship will evolve, though, according to Strand Consult.
“We will see a trend toward mobile operators trying to use their significant influence to change the business models they are using in their cooperation with both the handset manufacturers and mobile dealers,” Strand wrote, perhaps optimistically. “This trend will revolutionize the way (OEMs and retailers) do business and how they develop, manufacture and distribute mobile handsets, as they will be forced to redefine their business models and roles in the value chain.”
