Editor’s Note: Welcome to our Monday feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry. In the coming weeks look for columns from Current Analysis’ Avi Greengart, iGR’s Iain Gillot and more.
Free in this use case usually means ad-supported. I raise the question because I’ve seen an increasing number of new applications and services that claim to have an ad-supported model. However, I’ve only seen a handful of ad-supported voice models for the cellphone. I ask myself, “why not?”
Voice is Primary Source of Revenue for Wireless Service Providers Despite Free Minutes
Revenue from voice subscription services still represents at least 80% of revenue for most wireless carriers. Revenue per voice minute has been declining for years as we head down the road that long distance followed years and years ago. Wireless subscribers are willing to pay for the benefits of wireless communications. They value the freedom associated with being reachable while they are outside the home or office as well as the safety and security (i.e., reaching their children) a mobile connection provides.
There is Already a Lot of Free Wireless Voice
There are free weekends. There are free evenings. At first, the evening didn’t start until 9pm. Now, evenings start earlier. The addition of free in-network calling was genius as was T-Mobile’s response with their myFaves program.
The wireless service providers added these marketing tactics to their bag of tricks relatively early on as Wall Street looked to them to add subscribers and reduce churn quarter over quarter. Now nearly one third of subscribers expect the free minutes-even the subscribers who are too young to remember metered long distance and free evenings on their home phones. As a result, minutes of use have steadily climbed while voice revenue for most if not all carriers has gradually declined.
Local telcos moved to flat rate pricing on long distance to compete with lower cost providers. Boost Mobile adopted this tactic just recently with their $45/month for unlimited calling from your home geography. Wireless voice isn’t yet free, but when my parents and grandmother-who grew up during the Great Depression and still grows her own vegetables in the back yard-stop using their home phones and only use their cellphones, it’s a sign that it’s a good value proposition.
Mobile VoIP Isn’t a Compelling Free Solution – At Least Near Term
First of all, VoIP isn’t free unless a service provider leverages infrastructure built and maintained by another party. Wireless services providers have seen how this worked on wireless broadband and will be cautious in terms of how they let these applications run on their networks.
Many argue that a mobile VoIP solution is the long term answer to inexpensive voice. For the wireless carriers, it makes sense if they can bundle in additional applications or services that they would otherwise be unable to offer. The priority for most carriers these days though seems to be looking for cost savings which mobile VoIP doesn’t provide-at least in the sense that it isn’t more bandwidth efficient on a wireless network. (Using UMA to move voice to a wired network owned by the subscriber is its own unique and compelling story.) Moreover, quality of service is THE MOST important criteria to most consumers when selecting a wireless service provider. Why mess with the success that has brought them.
Ad-supported Voice is One Possibility, But Would Consumers Choose it?
The idea of ad-supported voice can seem alarming to privacy advocates, but a lot would depend on the implementation. Virgin Mobile gives away free minutes if it’s subscribers watch ads online. A substantial number of wireless subscribers that we’ve surveyed would be willing to give up personal information about themselves and allow themselves to be targeted online or on their phones in exchange for free minutes. In fact, when we asked them about a long list of “freebies,” voice was near the top of the list.
Another implementation would be to have a machine (a server with code) filter through one’s conversations to identify key words that would be used later on for targeted advertising online or elsewhere. I found this idea alarming the first time I heard it, but then I thought, “I use Gmail, and they are doing the same thing. Are my conversations more private than my emails?”
I conducted a focus group once where this question was posed, and the teenagers had a very negative response. That said, most weren’t paying their own bills yet, and “no” is the reaction everyone has when first asked about advertising. People usually give in to the lure of free services and content provided the advertising isn’t too intrusive.
Ad-Supported Models are Hard to Implement
Many young companies creating content and developing applications give up their hopes of licensing fees or subscription revenues before even launching their product. It seems like most news companies have an ad-supported business model these days, and most seem willing to share that revenue with the carrier. In fact, they are even willing to let the carrier or someone else sell the inventory for them. How nice. The reality is in many of these cases, is that the mobile ad inventory world is extremely fragmented. There are a handful of large networks (e.g., Third Screen, AdMob), but there are many small bits and pieces. The irony is that advertising is one of the hardest models to execute on in a nascent market. One of the venture capital panelists (Tom Huseby from Seapoint Ventures) at CTIA a couple of weeks ago phrased it well. He said, “when a company tells me they have an ad-supported model, I know I’m going to be their only source of revenue for the next few years at least.”
Free Doesn’t Necessarily Mean Ad-Supported
Free can also be a perception. It’s also a marketing tactic. If I’m paying my wireless service provider $70 per month for a bucket of minutes, do I really think I’m talking for “free” after 9pm. If I’m paying my cable or DSL provider $60 a month for broadband and another $80 per month for TV programming (a hypothetical example – I don’t actually pay this) and I use a “free” service to make calls on my broadband connection, do I really think I have “free” voice?
Consumers Aren’t Really Asking for Free Voice, But Some Will be Interested
Consumers will pay for services if they find value in them. Voice doesn’t need to be free-at least yet. The staggering growth in the number of wireless subscribers speaks for itself as do industry revenues.
That said, there are market segments today such as prepaid or young adults which are likely good targets for testing these early models. Our data show that prepaid subscribers are more focused on value than quality of network and seem more tolerant to ads. Most of teenagers and half of college-aged students are still on their parents plans. They are developing cell phone habits they can’t support themselves.
Questions or comments about this column? Please e-mail Julie at jask@jupiterresearch.com or RCR Wireless News at rcrwebhelp@crain.com.
