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Mobile Operator Business Model Challenges

Informa launched its annual Mobile Market Status report for 2007, which includes detailed insight from Informa's principal analysts on the future of the mobile market and a barometer of industry opinion based on a survey of more than 1,800 senior industry professionals.

The report highlights a bullish outlook from the mobile industry as a whole, with 65 percent of respondents feeling more confident about prospects for 2007 than for 2006. Yet mobile operators do not share such a positive outlook.

While handset manufacturers and equipment vendors look set to profit from the continued growth of the communications industry, the figure falls to only 54 percent among mobile operators, who face challenging times ahead as they battle to halt the slide in voice revenues and determine the best strategy as convergence takes hold.

Operators are having to reassess their business models in light of revenue pressures from several quarters. Informa believes many will start to consider moving from subscription-based services towards an advertising-based business model -- a view backed up recently by Vodafone, which is teaming up with Yahoo! to offer cheaper services for customers who accept adverts, and 3, who have just announced mobile Internet partnerships with firms such as eBay, Google and Skype.

"The telecommunications industry is evolving at lightening speed, undermining and refashioning business models for all players in the value chain," comments Mark Newman, Informa's Chief Research Officer. "In the future, a mobile business model could look much more like broadband and Internet economics, with the operator charging for access to the Internet and deriving advertising and click-based revenues." Earlier this year, Informa predicted mobile advertising to be a $11.35 billion market by 2011.

Rather than being used to grow Average Revenue Per User (ARPU), most mobile operators would now acknowledge that the main aim of launching new mobile services and applications is to slow the slide in ARPU resulting from declining voice revenues.

Almost half of operators believe 3G will be the most important technology in raising mobile revenues, and the shining star of mobile content in 2007 looks to be mobile TV -- 41 percent of all respondents thought this would be the most interesting service on offer next year. This optimism is reminiscent of the excitement felt around mobile music 12 months ago, and music has certainly had a major impact on the mobile handset market over the last year. But T-Mobile's Rene Obermann recently declared that he does not see mobile TV or music generating a significant proportion of his company's revenues.

The survey respondents across the mobile sector overwhelmingly (63 percent) selected integrated fixed and mobile operators as those best placed to profit from fixed-mobile convergence, but the voice telephony future looks uncertain for mobile operators.

The dominance of the fixed-mobile operator is a likely scenario, but Informa believes that certain operators -- particularly those who are competing against integrated fixed and mobile operator groups -- will also increasingly see fixed-mobile substitution as an opportunity.

Few in developed markets have aggressively pursued this strategy until now because it would require a sharp cut in per-minute pricing, but competition is bringing down mobile voice prices to levels where consumers will substitute fixed for voice minutes.

The worst-case scenario for mobile operators is the separation of access and services -- where consumers access the Internet through public access Wi-Fi or WiMAX and use applications such as Skype to make calls. The arrival of dual-mode cellular/Wi-Fi devices could mean the bypassing of mobile operators becomes increasingly common in the future.

"Fixed-mobile substitution, convergence, wireless broadband and IP are fundamentally changing the dynamics of the mobile industry, but these trends will impact different markets at different times and to differing degrees," commented Mark Newman.

Where fixed line residential telephony is entrenched -- in Europe, North America and developed Asia -- fixed-mobile convergence and substitution will take root more quickly and have a greater impact on the market. Likewise, markets with high broadband penetration will be quicker to see the impact of IP and a more open approach to providing access to the Internet than countries where mobile telephony is the de facto communications medium.

Many markets are now saturated, with greater than 100 percent mobile subscription uptake, but there are still real opportunities for growth in unsaturated major markets, including China, India, Mid-East and Africa.

"The only certainty about the mobile communications business is that mobile phone ownership in mid-to-high income countries is becoming a basic human need. And even in developing markets, governments are using mobile telephony as a key driver to develop their economies," concluded Newman.

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