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Three ring trick

9/11/08

A classic magician’s tricks is three solid steel rings which he’ll hand to a punter to examine before spinning and linking them as though metal passes through metal.

Carriers might wish to turn to magic to help with Subscriber Acquisition Cost. Margins being squeezed by regulation is a problem they treat with the blunt implement of price. It’s not the magic they need, it’s the rings.

Price is only one of the three rings of mobile. This isn’t in Powerpoint and I’m not going to start posting Venn diagrams, but imagine, if you will, three overlapping circles in a straight line. Like the Audi logo with the last ring missing. In the first one you write Coverage, in the second Price and in the third Service. Go on, get out a pencil and do it.

This is the growth path for carriers and it is the overlaps that are important. When a network is new it has limited coverage. In the days when all the networks in a country were new they all fought on coverage. Indeed this is still true of some emerging places like Cameroon, Ghana and North America.

Expansys HTC Touch Diamond advert

If coverage is poor, particularly if there is a better established rival, the new entrant needs to be cheap. Really cheap. Smart handsets discounted to zilch and masses of credit for cents. This is at a time when money needs to be spent on infrastructure and makes for a very expensive business. Governments don’t help with what they charge for spectrum. Live through the pain and build enough customers and coverage and you can start to recoup the cost. One of the nice things is as kit and costs get cheaper tariffs can be kept fairly static and the margin improves.

Then comes the second ring. As consumers realise coverage is much of a muchness, everywhere is reasonable and all the networks have the same blackspots – imposed by geographic conditions – there is no longer a need to pay a premium for better coverage and prices decline to that of the cheaper operator.

Operators then fight on price. A subtle war with offers which cannot be compared directly. Are anytime free calls to a few friends worth more than free weekend calls to anyone? Free calls on your Birthday? Free at Christmas? Bundles of minutes and texts, In the overlap between coverage and price there is the opportunity for showing off: “Our network is so good that if we drop your call we’ll give you the next call free”. Once, however, things stabilise, the savvy customers who are the focus of churn realise all the deals pretty much amount to $30 a month for a low to medium user and it doesn’t matter which network you are on.

Then comes the Service ring. In the mature UK market this is the focus of the battle and it is what is behind the music services and particularly the interest in social networking: Post to Facebook, Flirtomatic or Last.FM from your mobile. Teens are more loyal to their social network than carrier, and will happily swap carrier if it means they have better communication with their circle of friends. Other services make different customers sticky –  SpinVox, Zyb, Blue Book or Gypsii.

Regulation on price is actually destructive because it harms the two rings to which it is attached. If prices are kept low then so will be coverage and you won’t get new innovative services.  Of course the price of these services matters which is why the ring overlaps. Services don’t overlap with coverage. You can’t roll out a great, compelling service before coverage is a non-issue. This will be a major obstacle to the fourth generation, be it LTE or WiMax. The proposition of super services needs to be built on complete coverage, unlike the magician’s three rings where one of them has a gap in it hidden by his hand. The punter only gets to examine the two solid ones, although one gets passed over twice. Any fourth generation network with gaps will get passed over in an entirely different way.


Cat Keynes publishes her thoughts on the mobile phone [sponsored link] industry every Sunday at www.catkeynes.com you can read the column  the previous Friday by subscribing here.


Links

A new Norwegian startup is looking to supply phones for toddlers. Blipper follows in the footsteps of Teddyphone.

Following on from the success Vodafone has had with Mpesa, Orange is similarly looking to change the lives of the poorest people in the world with mobile banking. They’ve even raised $1.7m from the Bill and Melinda Gates Foundation to do it.

You need to be very careful about how you read statistics. This report on Fixed Mobile Convergence either says it’s great, or it’s dreadful. They say the market for FMC phones will be $7.6Bn in Q2 2008, so sounds great, but that there will be 9.7m subscribers in the year. Over $780 per subscriber, but the 9.7m is for the year not quarter and does not include the installed base so you can look at more than $2,000 per handset per subscriber, maybe even $3,000. Clearly that’s not what is happening. What the numbers really show is the vast majority of people who own FMC capable handsets never use the service. Given they list the major manufacturer as Nokia they’ll be N95s.

Most mobile phone companies go out of their way to wine and dine analysts and press. They’ll fly them in the pointy ends of planes and put them up in hotels where even the free soap has designer labels. Nokia on the other hand charges them to attend.

One complaint I’ve never seen levelled at the iPhone is it isn’t dual-SIM, but that’s clearly not what these Chinese cloners thought when they did the homage to the iPhone..

Mistake alert: I got the shortcode for Sccope.com the comparative shopping website wrong. It should be 62555. Sorry.

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