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31/5/09

The credit crunch has had an interesting effect on the advertising of mobile phone contracts. A while ago I looked at the three ring trick where I said that the three stages of mobile phone evolution were coverage, price and service.

In mature markets we were in a service battle. Who had the best Apps stores, features like MyFaves, navigation, maybe even education and banking. There were some dead ends like PTT and UMA, moves towards TV and NFC. But the acronym that had disappeared was VFM.

Then the squeeze came and it all moves to minutes for your dollar, pound, euro or shekel.
Look at T-Mobile.com and MyFaves is no longer about your circle of friends but about your calling plan and number of minutes.

Vodafone has taken a summer holiday from roaming costs. It's become a price war. This might please some people, most of all the regulators who can jump up and down complaining about the cost of mobile phone calls and then take all the credit when the prices drop thanks to market forces.

As a Brit I don't see why MPs are so keen to drive down mobile phone costs. Don't they claim them on expenses?

With the drop in tariffs we'll see less interest in the advanced services. If my phone bill is $10 of speech, $5 of text and $20 of ringback, ringtones, browsing, social networking and other stuff I can halve my phone costs by just using text and speech.

It drives the value out of the whole market. Value added services suddenly look more expensive and it doesn’t get the regulators off anyone’s backs because the regulators just look for more cost reductions.
It’s very wrong that those regulators are the same people who want to charge vast fortunes for spectrum, then enforce roll-out and after that move the pricing model.

I’m not saying that the interconnect status quo is a good thing. Mostly it’s just operators moving money between themselves, and building a fiction that if two people are roaming the call really is routed through the home network.

What’s broken, and highlighted by the publicity over roaming rates is the increasing disparity between domestic and roamed rates. And this is as much to do with the discounting of domestic rates as it is with the high prices of the roamed ones.

We saw a window of common sense with 3 Like Home, where any 3 subscriber could use any 3 network as though they were on their home network but that’s dead

Low domestic rates means there is less to spend on subscriber retention and acquisition. Which means more 18 month contracts and more subscriber churn as people look for new hardware and better deals. If you can’t reward an existing subscriber with a better handset you can’t sell them the enhanced services. This is the right hand ring of my three rings.

Worse you have less money to invest in infrastructure. New technology like HSPA+ will have to wait, and it might as well if people aren’t using the advanced services. It’ll become hotspotty.

Communication costs always drop over time. Fibre capacity increases, we get better at compression, we use more spectrum and spectrum gets re-farmed. There is no need for prices to go up, but they do need to be held. It’s going to be hard we are used to prices dropping at times of inflation so in the present weird world of zero inflation you’d expect them to drop faster. It’s hard to see how that would grow the market.

Cat Keynes publishes her thoughts on the mobile phone industry every Sunday at www.catkeynes.com you can read the column  the previous Friday by subscribing here. Follow me on Twitter here. Comment on this here.


 

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