NONVOICE SERVICES: EXITING THE PRICE COMPETITION CYCLE

by Wojciech Ozimek, Senior Consultant, Cutter Consortium

"Mobility" seems to be the new buzzword in the post-e-business world. The telecommunications market is growing rapidly, especially in Europe and Asia. According to the latest market data from the EU, the market penetration for mobile phones has reached 86% (PMR. The Polish Telecommunications Market to Increase by More Than 13% in 2004, September 2004).

The revenue of mobile operators is still dominated by voice transmission, but as the fierce price competition for these basic services pushes revenues and margins down, telecoms are desperately looking for new products that will drive future growth. Their main goal is to get out of the price competition cycle. Voice services are getting cheaper and cheaper each month, and the competition is more and more intense.

Entering the nonvoice services market looks like the right way to change the battleground from "price-oriented" to "innovation-based." But it's also a huge change in the way telecommunications companies conduct their business. The new mobile services (such as mobile games) are very different from voice services in a number of ways:

• Shorter product lifecycle. New products (games, information services, etc.) are developed quickly and will disappear even quicker. The value of the service and information depends on just-in-time deployment. Consider a set of mobile games related to a new movie, for example.

• Many different customer segments. Mobile services dedicated for youths (instant messaging [IM], dating, etc.) are quite different from those built for business (e.g., fleet management).

• Large number of products. The nonvoice product range is broader, and specific services target many virtual markets.

These factors make entering the nonvoice market an enormous challenge for telecoms, which are used to monopolizing their markets. In order to self-sufficiently cover the whole range of competencies and capabilities required for developing, marketing, and delivering nonvoice mobile services, they would have to change their organization. To produce mobile games, they would have to establish creative departments to invent entertainment solutions; to produce commercial applications (e.g., mobile intranet), they would have to organize teams with specific vertical industry knowledge. Some telecommunications companies attempt to build such units, only to discover that their efficiency, creativity, and market leverage are seriously compromised by the dominating "network-oriented" culture typical of telecoms. In most cases, it soon becomes evident that the "do it yourself" attitude makes little sense in the case of nonvoice services.

It's no surprise, then, that the world market leader, Japan's NTT DoCoMo, has taken a different approach. The mobile subsidiary of this telecommunications mammoth has been created and is managed by people from the media industry. The business model is based on truly generous revenue sharing between the application creators and the operator. Applications are created by third-party suppliers. Anybody with a good idea can create services for the mobile network. DoCoMo provides these services to end users in exchange for a fee, retaining 15%-30% of the revenue from network traffic that the company generates. A client chooses the service that suits his or her needs. This model does not require telecoms to produce services inhouse.

The Japanese experience proves that mobile services are likely to generate new, fast-growing segments to existing service marketplaces, and -- more important -- to generate new markets. While DoCoMo's early results are compelling (25 million subscribers in two years), it should be noted that the company's success is founded on a large network of companies that develop, market, and deliver services via the DoCoMo network. DoCoMo partners are often the ones who have to take the business risk associated with bringing innovative services to market and making them profitable.

To become a value network, DoCoMo had to "open the market" in terms of providing open standards, open access to network and infrastructure services, and so on. By giving away some control, the company created the entire "world" of mobile applications, a world guided by customer demand and the innovation capabilities of a value network. The DoCoMo managers empowered developers by giving them access to the market, and they empowered the end users by giving them the right to choose their favorite applications.

-- Wojciech Ozimek, Senior Consultant, Cutter Consortium