Wireless carriers smitten with sexy 3G services should stop searching for the killer app and start focusing on the bottom line, according to a recent report from Strand Consult.
The Danish market research firm last week issued a “wakeup call” to network operators, saying the gap between high-tech mobile services and solid business models is widening. While the industry is smitten with consumer-focused services like mobile TV and full-track downloads, Strand warned carriers aren’t reaping enough to offset their substantial investments in the infrastructure that makes such offerings possible. And technology vendors are to blame, the firm claimed.
“Not one operator in the world can, after comparing the money spent on developing, marketing and selling different mobile services to the revenues they have achieved, (say) that it has been profitable,” Strand Consult stated. “Sometimes it looks like the technology manufacturers are not in the technology business but (making) a living selling hockey sticks.”
The firm specifically called out Vodafone U.K.’s Live service, opining the multimedia offering has “cost Vodafone stockholders a fortune.”
There’s little doubt that operators in Europe and North America have only just begun to recoup the billions they spent in building out next-generation networks. Profit margins from voice continue to erode, forcing operators to scramble as potentially lucrative multimedia services struggle to gain mass-market traction.
“Is mobile video profitable today? It’s hard to say,” said Julie Ask, research director with JupiterResearch. “From the media side it’s about managing the cost … the answer is still probably no today.”
But in the early days of mobile entertainment-and these are very early days-there are positive signs for U.S. operators. Verizon Wireless three months ago became the first American carrier to top the $1 billion mark in quarterly wireless data revenue, with data usage accounting for 13 percent of overall service revenues. Cingular Wireless L.L.C. last week matched Verizon Wireless’ previous performance, with third-quarter data revenues accounting for 13 percent of ARPU.
“(Cingular’s) pick-up was driven by … traditional messaging applications and bolstered by enhanced applications such as Cingular Music, Video and mobile Internet access,” Lehman Brothers stated in an analysts’ note. “To date, data revenue has been driven almost entirely by traditionally data products on its 2G networks, but management highlighted that it continues to see a pick-up in data revenues in its 3G markets and noted that broader 3G deployment will accelerate growth.”
Indeed, analysts believe 3G offerings serve as a substantial catalyst for wireless data uptake. An M:Metrics study earlier this year found that 3G users in Germany and the United Kingdom were as much as five times more likely to purchase wireless data offerings. Not only were 3G subscribers more active consumers of high-tech applications such as video and gaming, they also outpaced 2G subscribers in usage of e-mail and text and instant messaging. And there’s plenty of room for growth in the United States, where the penetration of 3G handsets lags substantially compared to European markets.
While Strand cautions operators against spending too much on their networks, analysts say such investment is validation of the mobile data market. Carriers are hastily moving from 3G to 3.5G and making plans to invest heavily in 4G. Sprint Nextel Corp., for instance, has vowed to spend $7 billion by the end of next year on its Power Vision network.
“Sprint and Verizon now are upgrading to Rev. A; they’re continuing to add to their networks,” Ask said. “If they didn’t foresee there was a way to make money from (wireless data), they wouldn’t continue to upgrade.”
And just as mobile multimedia technologies are in their early days, so too are the business models. Most consumers may be unlikely to pay $15 a month to watch clips of “The Daily Show with Jon Stewart,” for instance, so operators are beginning to tinker with mobile marketing in an effort to create advertising revenues. Mobile data usage will continue to grow as more handsets are deployed, Ask predicted, and carriers are certain to increase data subscriptions with a combination of premium and ad-supported offerings.
“We’re still in the early stages; there are still so few subscribers on these networks,” Ask said. “This is going to take time.”
