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Driving Mobile Content Profits Managing mobile content distribution to improve the bottom line White Paper May 2005

Executive Summary

Mobile operators of all sizes are facing new challenges as their subscriber bases increase in size and the demands of each customer segment develop. Generating additional revenue is not the only goal for the operators – selling and supporting higher margin products and profitability are now critical to future success. Assuming that the mobile operator is able to control operational costs, then every dollar increase in the average revenue increases profitability - in fact, over the last few years, the larger mobile operators have been able to reduce their operational cash costs. Hence, every ringtone sold for $2.49 makes a difference to the profitability of the operator.

The cost of acquiring a new subscriber exceeds $300 and keeps on rising. It is therefore crucial that the mobile operator be able to maximize the revenues available from its existing subscriber base. Selling what the mobile operator already has, such as games, ringtones, music, and productivity applications, to more of its existing users can increase revenues significantly. And since the subscriber is already a customer, the additional cost of sales is minimized.

It is important to stress that any new revenue, now matter how small or seemingly inconsequential, must be profitable. The industry has grown up since the days of ‘growth at any cost’. The cost of acquiring, marketing and distributing any content is therefore critical – a single ringtone must be as profitable as an $80-per-month corporate data rate plan. Therefore, given the large numbers of downloads and the amount of content available, the operator’s content distribution system must be efficient and able to deliver the required products when requested profitably. Of course, there are some basic issues that need to be considered and addressed:

As data and content revenues comprise a larger percentage of total revenue, and the number of data services increase, so it becomes very important that the mobile operators maximize all sources of profitable revenues, no matter how small. The additional sources of revenue are, of course, dependent on the availability of a reliable data service which can be used to deliver entertainment, music, gaming, personal productivity and business productivity applications and services.

The successful delivery of content is not solely dependent on the availability of a data network. The operator must manage an entire eco-system of improved devices, billing and customer care systems, marketing messages and branding, third-party content provider relationships and customer expectations. And as opposed to voice services, the operator must also track the type of handset the subscriber is using.

So how do operators effectively leverage their data network assets and growing subscriber demand for mobile content with products that are profitable and build long term customer loyalty? The issue is not the amount of content available – there is plenty. And mobile operators are starting to create their own exclusive content designed specifically for their unique medium. Distribution and marketing are the problem, mainly due to the expanding subscriber bases and the sheer variety of content available. The main question is therefore how to get the right content to the right user at the right time?

One company that is providing operators with profitable content distribution solutions is Motricity, which provides mobile content distribution solutions for mobile operators and infrastructure companies, websites, and consumer channels. Motricity’s Fuel platform is a the mobile content distribution platform offered to mobile operators, providing an end-to-

end solution that enables operators to more effectively source, manage and deliver mobile content. Fuel enables mobile operators to:

Manage content providers effectively with partner management and content management capabilities that enable the operator to build and maintain content licensing arrangements independent of content management and content merchandising.

Expand their addressable market by allowing the operator to present relevant, personalized and dynamic content to a segmented subscriber base through a customized user interface.

Market content effectively by providing near real-time data reporting data to allow the operator marketing department to quickly react to market changes and conditions.

Improve user experience and build customer loyalty through the use of a single content management and storefront solution to provide a much more consistent user experience.

Potentially reduce costs by using open platforms that are device and network independent and a highly scalable design.

While it is always difficult to build generic ROI (return on investment) models for service providers, it is possible to prepare scenarios that show some typical situations. To demonstrate the potential revenues from an improved content and media distribution system, iGillottResearch has prepared three scenarios for mobile operators five million, 20 million and 40 million subscribers.

Each scenario includes a set of base assumptions but also show that the net effect on the mobile operators’ business can be significant. Figure 1 shows the potential revenues from a unified content distribution system – note that the majority of revenues come from selling additional applications to the existing base. Revenues are also realized from reducing feature churn and increasing the number of subscribers using content services.

Figure 1: Additional potential revenues due to content distribution system

$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

$700,000,000

$800,000,000

5 millionsubscribers



AdditionalsubscriberpenetrationReduced featurechurn

Additionalapplicationrevenue

Source: iGillottResearch Inc., 2005

Current State of the Wireless Industry

The global wireless and mobile industry has undergone two significant changes in the last couple of years. The first is that while subscribers may have noticed the fashionable handset designs, the availability of entertainment-centric content, or the increased coverage, the operators have shifted from building volume in their business to building profitable businesses. Rather than grow at any cost, as was past practice, in recent years the operators have adopted a strategy of ‘profitable growth’. This means that rather than just introduce new services to the user base and see what happens, the operators are first making detailed business models for each new service and looking for a payback in a short three to six months. Speculation and mass-market trials are being replaced by planning and analysis.

Secondly, the wireless operators themselves have become much bigger. Just a few years ago, a large carrier was considered one with more than ten million subscribers. Now there are global operators that far exceed this number: Vodafone controls over 150 million subscribers for example, while Cingular has over 50 million in the U.S. market. The market today is therefore not just made up of regional operators, but national carriers and global carriers as well.

The result of these two occurrences is that business decisions have much greater impact on the profitability of the operators. A larger, more diverse subscriber base means that a greater number of needs have to be addressed and that the operator is required to offer more and more services. The need for profitability means that each new proposed service undergoes much more scrutiny before it is launched.

Wireless Operator Metrics

In a highly competitive, maturing market, wireless carriers must manage a number of operating metrics that can determine their overall profits and public valuations. The most important metrics are the average revenue per subscriber (ARPU), the cost to acquire a new customer (Cost per Gross Add, or CPGA), cost to maintain a customer (Cash Cost per User, or CCPU), minutes of use per month (MOU) and churn, which is the percentage of subscribers that leave the carrier each month. In addition, operators are now emphasizing metrics for their data businesses including data feature and service churn, data subscribers, data service revenue, and data service adoption rates.

Table 1 shows these metrics for the major operators in the U.S. wireless market (as of fourth quarter 2004, the most recent quarter for which all statistics were available). Note that there is a large range for these metrics. And while some operators can excel in some metrics, they fall short in others. For example, a carrier may have a strong ARPU and a low churn, but the cost per gross ad is likely to be high as a result. You cannot have your cake and eat it!

These figures present something of a challenge for the industry. Consider that the average subscriber generates a gross margin just over $28 per month (source: iGillottResearch, Inc. 2005). But since the average subscriber costs $395 to acquire (source: iGillottResearch, Inc. 2005), it takes the operator 14 months to recoup their expenses. And this does not take into account that the operator may loose up to one quarter of its subscribers through churn per year.

From this simple calculation, it is clear that revenue is not the only goal, but that higher

margin products and profitability are of paramount importance to the wireless operators. Assuming that the mobile operator is able to control their operational costs, then every dollar increase in the average revenue increases profitability. In fact, over the last few years, the larger mobile operators have been able to reduce their operational cash costs. Hence, every ringtone sold for $2.49 makes a difference to the profitability of the operator.

Table 1: Selected U.S. Wireless and Mobile Carrier Metrics, Fourth Quarter 2004

Verizon Wireless

Cingular Wireless

Sprint PCS Nextel T Mobile USA

Alltel

Net subscriber additions (000)

1,700 1,800 1,580 955 1,019 139

Consolidated ending subscribers (millions)

43.8 49.1 24.8 16.2 17.3 8.6

Average monthly churn

1.43% 2.6% 2.7% 1.6% 3.0% 1.68%

Average Revenue per User (ARPU)

$50.32 $49.22 $62.00 $69.00 $55.00 $49.34

Cost per Gross Subscriber Addition (CPGA)

Not Available

Not Available

Not Available

$440 $345 $318

Source: Company filings and press releases, 2004.

Figure 2 shows the split of ARPU between voice and data – note that content and applications delivered over data connections are included in the data ARPU. In 2004, the majority of the revenue (88 percent) still came from voice services – remember that the wireless industry has experienced such strong growth in the last ten years mainly due to the ability to provide relatively inexpensive voice services. By 2009, iGillottResearch expects that 40 percent of the ARPU will be from data and content.

It is important to realize that the average revenue will not drop significantly between 2004 and 2009 – just $1 over the five year period. But the significance of data and content cannot be overstated. If an operator has to rely on simple voice services for revenue, then their ARPU can be expect to fall from $47.30 in 2004 to $31.68 in 2009.

Data services are seen by the wireless industry as the next major area of growth. Voice rates are falling yearly, due to competition and the increasing commoditization of the service. Data services offer a way for the operators to continue to differentiate their services and charge accordingly.

Data revenues are still a small part of the mobile operator’s revenue stream, usually less than ten percent of total revenues even for the most successful operators. The goal of course is to profitably grow data revenues as much as possible, and using the additional

revenue to cover capital expenditure investments in new data networks. One of the challenges is therefore to keep the ‘pipes full’ – as networks are deployed with higher data rates, the operators need to provide more content and media that makes use of the bandwidth and provides additional revenue streams.

A second concern is the time taken to get to significant revenues for a new network. Once a new data network is deployed, it currently takes between five and six quarters for the effects of increase bandwidth and additional services to impact the operator’s financial results. The delay is because of the time taken to get the new devices capable of using the network into the market, to market and sell the new devices, and to sell the accompanying services. Considering the billions of dollars in investment that it usually takes to deploy a new network, eighteen months is too long to wait.

Figure 2: North America Wireless & Mobile Subscriber ARPU, 2004 - 2009

$30.00

$35.00

$40.00

$45.00

$50.00

$55.00

2004 2005 2006 2007 2008 2009

Overall DataVoice

Source: iGillottResearch, Inc. 2005

Need for incremental revenues

As data and content revenues comprise a larger percentage of total revenue, and the number of data services increase, so it becomes very important that the mobile operators maximize all sources of profitable revenues, no matter how small. Voice revenues are declining not because of a reduction in use by the subscriber, but rather due to increased competition driving down the average price per minute. The additional sources of revenue are, of course, dependent on the availability of a reliable data service which can be used to deliver entertainment, music, gaming, personal productivity and business productivity applications and services.

The successful delivery of content is not solely dependent on the availability of a data network. The operator must manage an entire eco-system of improved devices, billing and customer care systems, marketing messages and branding, third-party content

The operator must manage an entire eco-system of improved devices, billing and customer care systems, marketing messages and branding, and customer expectations.

provider relationships and customer expectations. And as opposed to voice services, the operator must also track the type of handset the subscriber is using.

Table 1 shows that the current cost of acquiring a new subscriber is very high – over $300. Hence, the mobile operator must be able to maximize the revenues available from its existing subscriber base. Selling what the mobile operator already has (such as games, ringtones, music, and productivity applications) to more users can increase revenues significantly. And since the subscriber is already a customer, the additional cost of sales is minimized.

It is important to stress that any new revenue, now matter how small or seemingly inconsequential, must be profitable. The industry has grown up since the days of ‘growth at any cost’. The cost of acquiring, marketing and distributing any content is therefore critical – a ringtone that sells for $2.49 must be as profitable as an $80-per-month corporate data rate plan. Therefore, given the large numbers of downloads and the amount of content available, the distribution system must be efficient and able to deliver the required products when requested profitably.

So how do operators effectively leverage their data network assets and growing subscriber demand for mobile content with products that are profitable and build long term customer loyalty? The issue is not the amount of content available – there is plenty. And mobile operators are starting to create their own exclusive content designed specifically for their unique medium. Distribution and marketing are the problem, mainly due to the expanding subscriber bases and the sheer variety of content available. The main question is therefore how to get the right content to the right user at the right time?

Selling what the mobile operator already has to more users can increase revenues significantly. And since the subscriber is already a customer, the additional cost of sales is minimized.

The Mobile Media Operator

As discussed in the previous section, the amount of revenue coming from data is rapidly increasing and by 2009 is expected to make up 40 percent of the operators’ revenues. But how much comes from content compared to data transport services? Table 2 shows the split between content and transport for the North American market. So while nearly two-thirds of the cost of ‘data’ is for transport in 2004 and the remainder allocated for content, by 2007, the situation is reversed. And by 2009, two-thirds of revenue is for the content.

Table 2: Wireless Data Revenue Allocated by Transport and Content, 2004 - 2009

2004 2005 2006 2007 2008 2009

CAGR

2004-

2009

Data Associated

Revenue ($M) $ 1,927 $ 3,712 $ 6,568 $ 10,572 $ 15,828 $ 21,968 62.7%

Transport (%) 62% 56% 50% 45% 40% 35%

Transport ($M) $1,195 $2,079 $3,284 $4,757 $6,331 $7,689 45.1%

Content (%) 38% 44% 50% 55% 60% 65%

Content ($M) $732 $1,633 $3,284 $5,815 $9,497 $14,279 81.1%


Mobile operators are rapidly becoming media creation and distribution companies. Excluding their (sizeable) voice businesses, their business models are more likely to resemble a company like Viacom or Disney than the traditional telco from which they sprung.

The challenge, though, is marketing. Consider the following examples:

Sprint lists just 46 games available for download in its Game Lobby, with another 24 games listed as ‘Coming Soon…’

Verizon Wireless lists 14 categories of games on its website. Each category contains a wide range of games: for example, the ‘Sports’ category lists 30 games, while the ‘Puzzle’ category has ten games. Assuming each category contains on average 15 games, the Verizon Wireless has approximately 210 games from which to choose. And of course, the games are rotated in and out as subscriber interest rises and falls.

Cingular lists 600 games in 18 categories on its website.

It is interesting to note the difference in the number of games available (currently!) from

Verizon Wireless and Cingular versus Sprint. While the former two operators obviously like to list as many variations as possible, Sprint has taken the approach of limiting content to what it believes its customers really want. Sprint also changes its games on a regular basis to ensure that it has the latest games.

When asked about these differences and how they decided which game to offer (or which content provider to source from for that matter), Sprint noted that it limits content simply because if there are too many, the user is unable to find what they need. The issue is therefore organization of the product and product discovery. User experience is a key limiting factor in the presentation and purchase of content.

Consider the case of ringtones:

Cingular lists over 1,300 ringtones available for download in 30 categories – there are 156 ringtones in the Hip Hop category alone.

Sprint lists 26 categories of ringers on its website containing 4,017 ringtones.

Verizon Wireless quotes more than 10,000 ringtones with Get It Now, although not all are available on all brands of handsets.

The situation with Verizon Wireless is interesting. Note that certain ringtones are available on selected handsets (do not forget that many subscribers have older handsets) – segmentation is therefore occurring within the subscriber base, but not based on subscriber behavior or metrics. Secondly, assuming that a subscriber has an appropriate handset, they will in theory be able to view and access the entire catalog. This means that searching for a particular ringtone could be an arduous task, even if you have to search through ‘just’ five or six thousand tones.

In addition to the plethora of content that is now available, users are saddled with a user experience that is extremely limiting. How is a subscriber expected to find the ringtone they want from a list of 4,017 ringtones on a 1 ¼ inch screen. Searching for content or media on a small screen mobile device is very different from doing the same thing on a desktop. Scrolling through hundreds of games, ringtones or graphics on a well-designed website enables the user to view considerably more content than on a mobile handset. This is a significant limitation when one considers the amount of content available. Yet still over 90% of content purchases take place on the handset rather than on a PC.

This all emphasizes the need for organized content aggregation and a strong marketing and merchandising capability tied to an intuitive, compelling and dynamic user experience that captivates the user and encourages content consumption.

Realizing the opportunity

Subscribers will pay for content. Examples can be seen in the music world, as well as in the mobile industry. For example, Apple recently announced that 250 million songs have been downloaded on iTunes since they started the service, and the current download rate is 1.25 million per day. In 2004, the mobile industry sold approximately $3 billion worth of ringtones.

However, how much money is being left on the table because a subscriber cannot find

In addition to the plethora of content that is now available, users are saddled with a user experience that is extremely limiting.

what they want? Or is told about a new piece of content after it would have been useful or attractive to them? In truth, the industry cannot rely on subscribers to find what they need when they want it – users need to be presented with the content they need at the right time.

The first opportunity for the wireless industry is therefore to proactively present content to the subscriber. Rather than overwhelm them with thousands of items, a more logical approach would be to offer a limited catalog to specific individual users. We know that operators can segment their content according to the type of handset the subscriber uses, so they can certainly do the same thing based on other demographics.

The second improvement would be to expand the addressable market beyond the market segments currently served by content services. In conversations with consumers in recent focus groups, it is not uncommon for those over 30 years old to say that games are for younger users. Anecdotal evidence from the mobile operators confirms that mobile subscribers under twenty-five years old are still a minority in the total subscriber base and the impression is that this demographic is the only one playing games and downloading ringtones. In other words, the mobile operators are only targeting a small part of the potential market. While there is some truth to this, this is not entirely true – many “soccer moms” will also say they will play games to fill a few minutes waiting for the kids after dance class, for example. But the content isn’t presented to these other segments.

Figure 3 shows wireless Internet capable subscribers and users of wireless Internet services for the North American market. While there are a great many wireless data and content capable users (subscribers who have devices capable of accessing the Internet and content, and have services available to them from their carrier) in North America, the actual number of users is only a fraction of that – the majority of subscribers that could access the Internet and media content do not do so, either because they see no value or because they do not know how to do so.

Figure 3: North American Wireless Content Capable Subscribers and Actual Users, 2004 - 2009

0

50,000

100,000

150,000

200,000

250,000

2004 2005 2006 2007 2008 2009

Capable Subscribers(000)Actual Users (000)


One reason for this gap is the games the soccer moms want to play and those that are attractive to the teenager are very different. Rather than the blast-boom-kill-skate-throw games favored by the younger crowd, older subscribers are more interested in cerebral games, such as crossword puzzles. Therefore, by segmenting the market and then marketing appropriate content and media to the correct segment, the mobile industry will be able to increase their overall addressable market and the number of content consumers. Note the ‘content’ in this context extends beyond games to applications and services that would appeal to retirees, mobile professionals, English-as-second-language users, and specific vertical professions - In short, the segments that are not currently targeted.

The Future is Now

While the future for mobile content is bright – the complexity is only increasing. Consider the following three announcements from Sprint and Verizon Wireless:

In December 2004, Sprint announced the addition of Music Choice to its Sprint PCS Vision Multimedia Services channel line up. Music Choice is a multi-platform music network that will provide Sprint customers popular audio music channels, including R&B and Hip-Hop, Hit List, 80s, 90s, Country and Rock. Customers can also access "Music Choice Today" for daily video clips, including artist interviews and performances produced at the Music Choice studios, and "Music Choice News" for music news and artist gossip.

Earlier in 2004, Sprint announced Sprint PCS Vision Multimedia Services, a service that delivers streaming audio and video content at up to 15 frames per second, from familiar sources, including NBC Mobile, CNN, ABC News, FOX Sports, The Weather Channel, Discovery, E! Entertainment, mFlix, Twentieth Century Fox, AccuWeather, Cartoon Network, Adult Swim, Comedy Time, 1KTV and now Music Choice.

Verizon Wireless announced its VCAST video on-demand service, available from February 1, 2005. The service offers live-action 3-D games, news, sports, entertainment, music videos and other applications over the Verizon Wireless EV-DO network. The service costs an additional $15 monthly access in addition to the regular Verizon Wireless calling plans, and customers will need to purchase a new EV-DO phone from available from LG, Samsung or UTStarcom.

These examples show that in addition to games, ringtones and graphics, the industry is very quickly moving to video, TV and music, all available on a handset near you, on demand. Note the range of content partners included in these announcements – again, the question is not will the mobile operators have the content people want, but will they be able to effectively market that content and make it easy for subscribers to find it?

One major danger for the mobile industry is that if they do not take the lead in marketing content and media to their subscribers, someone else will. For example, it is easy to imagine Google or Yahoo! allowing subscribers to search for mobile-specific content and then pushing it to the subscriber. Google has proved most adept at building an advertising-based business around a search engine. So why not offer mobile content and media based on those same search results? For the mobile operators, the result of this type of scenario could be a devastating loss in revenues.

Issues for the Mobile Operator

For the mobile operators to successfully deliver a wide range of content to the various segments of their subscriber bases, there are a number of issues that need to be considered and addressed.

Segmentation

Mobile operators all over the world are concerned with becoming mere ‘bit pipes’ for users to access Internet content directly from their mobile devices without the carrier getting financial recognition for the content. For this reason, the mobile operators have tended to offer as much content as they can to all users, sometimes regardless of the value of the content to that particular subscriber.

While many operators have successfully offered content (and generated increased revenues), the perception remains that the mobile operators are primarily voice-oriented service providers and are not media companies. While this may not technically be true, the perception does make the operators’ task of selling content more difficult.

The mobile operators need to segment their subscriber bases more accurately and offer the targeted content to the each segment. In this way, the perceived value of the operator will increase. However, mobile operators have historically been slow to segment their markets – consider that it took years for the industry to start offering voice rate plans targeting specific areas of the market.

Content Management

As already discussed, the amount of content available from the major operators is increasing rapidly. As well as sheer volume, the range of media types supported is also rising – in addition to ringtones, games and graphics, the larger operators are now offering video clips, ringback tones, TV, streaming music, and music downloads.

In addition to the actual job of aggregating and managing the content itself, the operators also face the issue of offering differentiated content. What value is a ringtone if all of the operators offer it? And how can the operators charge for premium services if their competitors offer the same products?

A second issue with the amount of content and range of media types is the billing and OSS systems’ ability to support the needs of the business. With mobile operator bases now exceeding forty million subscribers, the administrative systems are becoming very large indeed. And as the size increases, so the time taken to make changes and adjustments also increases.

Business Model

The traditional business model for the mobile operators has been selling voice services with a subsidized handset. The expectations of the financial markets are therefore based on this business model. As the operators start to offer more content, they must maintain or improve their current margins and demonstrate fiscal viability to their investors. This is not an insignificant challenge.

As the wireless industry is so competitive, there is constant pressure for the mobile operators to meet the performance of the best operator. While this is true of any industry, investors seem to have the view that all mobile operators are created equal and use equivalent technology, for example. This, of course, is not the case. But the need remains for each operator to offer competitive content and media to the best – this is especially a problem for the smaller operators.

User Experience

To effectively market content and to build long term brand loyalty among their customers, Operators must consider User Experience as a primary factor in long term data revenue growth and profitability. User experience on a mobile device for the discovery and consumption of content pales in comparison to any other media channel. But operators who can capture and excite users through compelling, dynamic brand-building interfaces seamlessly integrating presence, context and personalization with content will have significant advantage and will capture long term customer value. It is through user experience that services will be defined and it is imperative that that experience marries the best of the personal, time-sensitive, contextual aspects of mobility with intuitive discover and content consumption mechanisms. This will attract and keep profitable customers.

How Fuel addresses the issues

One company that is providing operators with profitable content distribution solutions is Motricity, which provides mobile content distribution solutions for mobile operators and infrastructure companies, websites, and consumer channels. Motricity’s strategy is based around three core concepts:

Technology – carrier-grade mobile content distribution infrastructure

Content – aggregation of mobile content

Distribution – multi-channel distribution network for mobile content.

Motricity’s Fuel platform is a the mobile content distribution platform offered to mobile operators, providing an end-to-end solution that enables operators to more effectively source, manage and deliver mobile content. Fuel enables mobile operators to:

Manage Content Providers effectively – Fuel provide partner management and content management capabilities that enable the operator to build and maintain content licensing arrangements independent of content management and content merchandising. Fuel provides developer extranet functionality for aggregating content from all the operators content providers and then managing that content centrally. This removes an inherent conflict of interest when content providers are also the merchandiser and distribution platform. And with a single platform for managing and delivering content from all content providers, it enables the operator to single source content such as ringtones and thus reduce the prices they pay for content.

Expand their Addressable Market – Fuel allows the operator to present relevant, personalized and dynamic content to a segmented subscriber base through a customized user interface. Content sets can be developer at a more granular level and offered to specific segment of the market that are not currently being served. The ability to quickly sub-segment parts of the market to provide specific content for short term promotions, for example, is also supported.

Market content effectively - Fuel provides near real-time data reporting data to allow the operator marketing department to quickly react to market changes and conditions. This can be applied to short term venues and events, for example. Robust marketing tools including promotions and discounts, bundling, coupons and cross-sell and up-sell capabilities make it possible to actively market content. A single unified interface increases operator control of content presentation, vendors, pricing plans, and media types.

Improve User Experience – Through a single content management and storefront solution an operator is able to provide a much more consistent user experience, as opposed to having each content provider host their own storefront. This improves user satisfaction and reduces customer support issues caused by confusing inconsistent interfaces. Utilizing internal usability research findings, Fuel will support the merchandising and marketing of content through various interfaces – browser, client, device, web – and will enable the operator to delivery a highly branded, compelling user experience that increases customer loyalty.

Reduce costs - Motricity’s solutions are open and network and device independent,

support virtually any network architecture, device portfolio or content strategy. This enables an operator to work with one partner to manage all of their content sourcing and delivery. This elimination of “silo” solutions reduces business process complexities and reduces capital and operational expenditures.

Fuel is a highly scalable solution, delivering millions of transactions on a monthly basis and proven to scale to meet the needs of the worlds largest operators including Cingular Wireless, Verizon Wireless and O2.

Potential Impact on Mobile Operator Business

While it is always difficult to build generic ROI (return on investment) models for service providers, it is possible to prepare scenarios that show some typical situations. To demonstrate the potential revenues from an improved content and media distribution system, iGillottResearch has prepared three scenarios for mobile operators five million, 20 million and 40 million subscribers.

Each scenario makes the assumption that additional revenues will be realized from:

Increasing the amount of content accessed per user. For existing users, this means that additional content will be downloaded. And for new users, additional revenues will be realized.

Increasing the number of subscribers who access the content and media. As we have already discussed, the majority of games, for example, are accessed by those less than thirty years old. Marketing appropriate games to those over thirty will therefore generate new revenues.

Reducing feature churn – for each service or feature the service provider offers, some users stop using the service which increases expense (to update the appropriate systems) and of course, decreases revenues. A good example is picture messaging – most users with a new cameraphone use the service for the first few months and then stop once the novelty disappears. Decreasing feature churn has the same effect as decreasing overall churn – increased revenues and reduced expenses.

Several assumptions have been made that apply equally to each model. First, we have assumed that each subscriber base is split into five segments: teenagers, youth/college, consumer, metro/state mobile professional and national mobile professional. The relative sizes of each segment vary in each scenario.

The second assumption is that the number of subscribers in each segment accessing and downloading content and media will increase year over year as a result of the improved content distribution model we have discussed. Table 3 shows the percent of subscribers in each segment that are accessing content for each of the three years of the scenario. For example, it is assumed that 40 percent of teenagers in year 1 will access and download content, rising to 45 percent in year 2 and 50 percent in year 3.

Table 3: Assumed content access and download service penetration for each segment

Segment Year 1 Year 2 Year 3

Teenager 40% 45% 50%

Youth/College 30% 35% 40%

Consumer 15% 20% 25%

Metro/State mobile

professional 20% 25% 30%

National mobile professional 25% 30% 35%


5 million subscribers

The first scenario is for a mobile operator with five million subscribers. The total subscriber base grows to 5.5 million in the third year of the model, while the average revenue per user falls from $55.10 in year 1 to $52.50 in year 3 (Table 4). The subscriber base is predominantly consumer and mobile professionals, with relatively few teenage and college users. However, the mobile operator is clearly targeting the younger user as the percent of teen and college users increases significantly through the third year of the model.

Table 4: Subscriber base segmentation and ARPU for 5 million user scenario

Year 1 Year 2 Year 3

Subscriber Base 5,000,000 5,250,000 5,500,000

ARPU per month $55.10 $54.16 $52.50

ARPU

Teenager $35 5% 8% 12%

Youth/College $40 10% 12% 15%

Consumer $45 35% 32% 30%

Metro/State mobile professional $60 20% 20% 18%

National mobile professional $72 30% 28% 25%


This scenario assumes that the average revenue per month per subscriber for accessing and downloading content increases $2 per month due to the improved distribution model. Feature churn also falls 2 percent, which leads to additional revenue since fewer subscribers stop accessing content and media for the reasons discussed.

Table 5 and Figure 4 show the potential revenues for the first scenario with 5 million subscribers. These calculations are based on the reduced feature churn, the increased number of subscribers in each market segment accessing content, and the additional content revenue, which accounts for majority of the additional revenue. The total potential additional revenues over three years exceed $112 million.

Table 5: Additional potential revenues for 5 million subscriber scenario


Additional application

revenue $26,121,750 $28,499,730 $31,244,015

Reduced Feature

Churn $1,902,000 $1,960,560 $1,930,500

Additional subscriber

penetration $0 $3,738,690 $14,014,880

Total $28,023,750 $37,198,980 $47,189,395


Figure 4: Additional potential revenues for 5 million subscriber scenario

$0$5,000,000

$10,000,000$15,000,000$20,000,000$25,000,000$30,000,000$35,000,000$40,000,000$45,000,000$50,000,000


AdditionalsubscriberpenetrationReducedFeature Churn




The second scenario is for a mobile operator with twenty million subscribers. The total subscriber base grows to 22 million in the third year of the model, while the average

revenue per user falls from $53.39 in year 1 to $51.71 in year 3. The subscriber base is predominantly consumer, with relatively few mobile professionals and even fewer teenage and college users. This model assumes that the average revenue per month per subscriber for accessing and downloading content increases $2.20 per month due to the improved distribution model. Feature churn also falls 2 percent.

Table 6 and Figure 5 show the potential revenues for this scenario. These calculations are based on the reduced feature churn, the increased number of subscribers in each segment accessing content, and the additional content revenue. The total potential additional revenues over three years exceed $444 million. Another way to consider the increase in revenues: the operator would have to add 237,000 new subscribers each year to generate the equivalent revenues, without taking into account the acquisition cost of these new subscribers!




revenue $104,102,680 $109,862,676 $116,256,800

Reduced Feature

Churn $7,809,120 $7,695,072 $7,114,800


penetration $0 $29,722,308 $61,740,976

Total $111,911,800 $147,280,056 $185,112,576



$0$20,000,000$40,000,000$60,000,000$80,000,000

$100,000,000$120,000,000$140,000,000$160,000,000$180,000,000$200,000,000


AdditionalsubscriberpenetrationReducedFeature Churn




The final scenario is for a mobile operator with forty million subscribers. The total subscriber base grows to 46 million in the third year of the model, while the average revenue per user falls from $46.34 in year 1 to $45.40 in year 3 - note that the ARPU for this operator is significantly lower than for the other scenarios. The subscriber base is predominantly consumer, teen and youth/college, with relatively few mobile professionals.

This scenario assumes that the average revenue per month per subscriber for accessing and downloading content increases $1.75 per month due to the improved distribution model. Feature churn falls 2 percent.

Table 7 and Figure 6 show the potential revenues for this final scenario. These calculations are again based on the reduced feature churn, the increased number of subscribers in each segment accessing content, and the additional content revenue. The total potential additional revenues over three years exceed three quarters of a billion dollars. Again, this operator would have to add 460,000 new subscribers each year to generate the equivalent revenues, without taking into account the acquisition cost of these new subscribers!




revenue $175,285,950 $188,432,396 $201,578,843

Reduced Feature Churn $15,256,500 $15,188,460 $14,378,910


penetration $0 $51,222,950 $103,452,160

Total $190,542,450 $252,397,906 $319,409,913



$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

$300,000,000

$350,000,000


AdditionalsubscriberpenetrationReduced FeatureChurn



About iGillottResearch

iGillottResearch is a market strategy consultancy focused on the wireless and mobile communications industry. Founded by Iain Gillott, one of the wireless industry's leading analysts, we research and analyze the impact new wireless and mobile technologies will have on the industry, on vendors' competitive positioning, and on our clients' strategic business plans.

Our clients typically include service providers, equipment vendors, mobile Internet software providers, wireless ASPs, mobile commerce vendors, and billing, provisioning, and back office solution providers. We offer a range of services to help companies improve their position in the marketplace, clearly define their future direction, and, ultimately, improve their bottom line.

A more complete profile of the company can be found at www.igillottresearch.com.

Disclaimer

The opinions expressed in this white paper are those of iGillottResearch and do not reflect the opinions of the companies or organizations referenced in this paper. All research was conducted exclusively and independently by iGillottResearch. This white paper was sponsored by Motricity but Motricity personnel were not involved in the carrier interviews or in the ongoing research.

driving mobile content profits mobile content... · 2016. 2. 11. · white paper may 2005 . page 1...

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