metrinomics global consumer survey 2010 - mobile market

Liberating the subscriber is the new zeitgeist of telecommunications Mobile phone usability impacts the operators’ revenues.A core problem for mobile operators lies in the architecture of mobile phones. However, the solution has to come from suppliers. Rethinking the customer relationship is the key to growth in the telecommunications industry.

Copyright © 2011 Metrinomics GmbH. All rights reserved.

January, 2011

Copyright © 2011 Metrinomics GmbH. All rights reserved. | 2

1. Introduction

If there is one problem with the traditional business models of mobile operators, it is ARPU (Average Revenue Per User). Even though mobile operators continuously upgrade their networks, and the technologies have been around for some years already, they have never been able to generate ARPU growth as expected. The growth has actually come from external players who are now making mobile networks their playground, in a way that operators have not been able to.

This has led to some questioning of the industry, which will be addressed in this report. The main issue is why mobile operators were unable to lead the development in data-usage themselves, despite so much effort?


2. Why mobile operators failed to grow ARPU sufficiently

Our data allows us to compare mobile phones and mobile service providers, with the various other products and services that consumers use (see page 11).

Mobile operators have a very specific view of their business. Their subscribers don’t play as prominent a role in their strategies as the customers of other products and services do in their markets. Mobile operators are much more interested in strategic issues which don’t involve their subscribers. The fact that revenues are generated only by their subscribers tends to be lost along the way.

Focus on growth

Mobile operators tend to focus only on growth, and achieving that in a rising market comes too easily. However they failed to develop a more secure, deeper relationship with subscribers. Therefore, subscribers are still distant from the operators, a faceless mass, even though operators like to think that they ‘own’ them in a way.

Handsets are the centre of the relationship

Mobile handsets and handset strategy have also had a major impact on the operators’

relation to subscribers. The market penetration of handset technologies is critical. The mobile handset is the window on the network, the means by which the subscriber can take advantage of it. But the weak point for the network operator is that whatever does not appear on or through the handset does not de-facto exist for the subscriber. The possibilities of the network are, in the end, dependant on the usability of the handset. If a subscriber is unable to access new features on his handset, then those features are irrelevant to him and result in no usage income for the network operator. Therefore, when prices fell and the number of features increased, ARPU remained lower than it should have been.

Handset manufacturer strategy

Critical to this is the fact that handset manufacturers sell, above all, to operators and not to consumers. It’s hard to imagine, but as a result some handset manufacturers have never tested a new phone among end-users. In fact they have no real need to do so as it’s more important to them to equip phones with all the features that they want to offer, and that the infrastructure supplier has sold to them and implemented. That closes the circle of self-fulfilling reasoning that characterises the operators’ technology policies.


Feature hype

The only testing of mobile handsets seems to be carried out in laboratories. If you browse through catalogues of mobile handsets, you will find various tables showing the different features available on each handset. Technically speaking, most mobile handsets are as advanced as they possibly can be at any point in time. But there is a vast difference between capability and usability. Some phones often feel like they are designed only with a telecom engineer in mind. So, trying to guess how, for example, a pull-down menu is organised on many mobile phones, is often a source of frustration.


Fig. 1: Global Consumer panel coverage

63% of the world’s GDP and 55% of the world’s mobile phone users

3. The Metrinomics Global Consumer survey - Probing the victims

In order to better understand the implications of these two issues, we have analysed feedback on the day-to-day experience of 15,000 mobile phone users across the world, as part of our Global Consumer survey. We believe there is a great clarity to be achieved by looking at the networks through the eyes of the mobile phone user.

The Metrinomics Global Consumer panel is regularly surveyed and includes consumers from 11 countries worldwide, representing the majority of global GDP. This panel rates a wide range of products, across all industry sectors, and as a result Metrinomics generates an unrivalled set of data and can offer a unique way of analysing the drivers of market success.


Fig. 2: The Master/Slave Index 4. A mobile phone used to improve your image but can now make you look foolish or trapped

Technology is there to serve individuals and society. However, when the average person finds a piece of technology is not intuitive enough, and forces him or her to follow it, rather than the other way around, then the user has lost his or her position of control.

You can be the master, you can be the slave

Our Global Consumer data is used to derive insight indices, including the Master/Slave Index which shows, for every product category, to what extent the user is in a position of control. A positive index score represents control (a master) and a negative index that the user lacks control (a slave).

So, on which side of the master/slave divide would you like a product to be for yourself? On which side of the divide are mobile phones?

From the user perspective, the average mobile phone has a negative Master/Slave Index. This is the complete opposite to a

decade ago. Despite, or even because of, all the advances made by mobile phones since then, they are still considered difficult to use on average.

Slave (consumer feels he lacks control) (consumer feels he is in control) Master

Entertainment console

All-in-one device(scanner, printer, etc.)

Online game

Stereo system

High-end phone

Mobile phone

Middle-class phone

Low-end phone

iPhone

Drill

Mid-point

Sending an MMS, on the face of it, looks as easy as sending an SMS, right? Well, after a struggle, you might locate the MMS function, then you go through the whole process of choosing the recipient, and attaching the picture, only to

get a message 10 minutes later that the MMS was unable to go through.

Source: Global Consumer survey 2010. Representative sample of approx. 11,000 consumers across 11 countries.


5. Mobile phones no longer make life easier

Anything that makes our lives easier is always welcome. The mobile phone was one such device when first introduced on the market. The new-found freedom that mobile phone users experienced in those early days was almost revolutionary.

However, even though the mobile phone has been continuously developing, its basic functions are no longer perceived to enhance our lives. Most people have their own mobile phone today, so the perception about how easy the mobile phone makes our lives is not as clear as in the past. And in fact the opposite perception takes hold. As manufacturers add on more and more features, users find it increasingly more difficult to master their handsets, and the associated ease of life declines. It gets to the point where one eventually becomes a ‘hostage’ to the device.

According to the Global Consumer survey, there is a whole range of product categories that make life easier than the mobile phone, from the internet browser to Navigation GPS, the drill, and all-in-one.

Why do complex new products and services, like internet browsers and online shops, make our lives easier, but mobile phones do not? And the answer to that comes back to the fact that mobile phones are designed to please the operator in the first respect, and not the end-user.

Nevertheless, the iPhone has emerged to turn the perceptions of mobile phones on its head. The iPhone has an ‘Ease of Life’ index that is second only to the internet browser.

Fig. 3: Ease of life index

Average

60 8077.5 100

iPhoneLaptop

All-in-one device (scanner/printer/copier)

Drill

Stereo system

Mobile phone


85.9%

83.7%

82.6%

81.6%

77.4%

76.4%

73.3%

Source: Global Consumer survey 2010. Representative sample of

approx. 11,000 consumers across 11 countries.


6. The iPhone comes to the rescue

The launch of the iPhone was a milestone in the history of the mobile phone industry. It restored a certain magic to the mobile phone market through its radical design that put the user first, leading the user smoothly through all his mobile phone “events”. The iPhone has made the mobile phone easier and more fun to use than ever before.

‘Fascination’, which was lacking in the mobile phone market for most of the last decade, was restored by the iPhone. And ARPU is driven by this ‘fascination’, which is a combination of IT, lifestyle, internet, and content.

No single device has the ability to drive up ARPU like the iPhone. In the USA, during the first quarter of 2009, the average iPhone user gave AT&T about $95 a month compared to $59 for the average post-paid AT&T customer1.

Our survey shows that the frequency of usage of the iPhone and the variety of different features and applications used by iPhone owners, is unmatched by any other mobile device. Almost all iPhone owners use the device many times a day.

1 Gigaom.com Why AT&T Is Desperately Addicted to the iPhone, Malik, Om, April 22, 2009

Fig. 4: Frequent Usage (% of a device’s users who uses it twice a day or more often)

iPhone

89.9%Smartphone

80.1%High-end

phone

70.7%Mobile phone

66.3%Middle-class

phone

61.6% Low-endphone

44.9%


30 40 50 60 70 80

iPhone

Laptop

All-in-one device (scanner/printer/copier)

Drill

Stereo system

Mobile phone


65.7%

55.7%

53.5%

51.1%

48.4%

43.4%

39.1%

Average

48.5

Fig. 5: Fascination Index


iPhoneMobile phone

Camera: 18%

Organiser:14.4%

Music: 14.2%

Data transfer: 12.5%

Internet/WAP:9.7%

E-mail: 8.8%

Games: 8.6%

SMS: 4.3%

Other*: 9.5% Camera: 12.5%

Organiser:10.6%

Music: 11.4%

Data transfer: 7.9%

Internet/WAP: 14.2%

E-mail: 13.2%

Games: 8.4%

SMS: 6.6%

Other*: 15.2%

*Other: Alarm, MP3 Player, Radio, MMS and Mobile TV

Fig. 6: Mobile phones - most commonly used features The iPhone is more than a phone because it connects users to their everyday life.

The window onto the network

The mobile handset is a window onto the network. It is the technology that enables our entry into different data worlds with all the possible services that entails. We, as the end-consumers, are the ones who remunerate the operators for helping to ease our lives. But it is the handset that makes all that revenue generation possible.

Apple is finally turning the mobile telecommunication industry into a success, becoming the most significant ARPU driver. But why Apple, and not Sony- Ericsson, Nokia, Motorola, or Samsung? Why not the big operators like Vodafone, Telefonica, America Móvil, T-Mobile, or China Mobile? The answers to this and to where ARPU is going will determine the future of the whole telecommunications industry.

The iPhone acts more as an access point to the web than other mobile phones. A typical iPhone user in the US (based on billings analysis), consumes 273 MBs of data per month as compared with 54 MBs for Blackberry users and 150 MBs for Android and other users in the U.S1. and the main downstream protocols for mobile networks include HTTP,

YouTube, Bit Torrent, Windows Update, and Web 2.0.such as MySpace and Facebook2 . Apps have also made a huge impact with iPhone users to the extent that all other phone manufacturers have created their own app stores. Apps are a unique way to personalise one’s iPhone and have proved so popular that there are apparently over 22,000 individual apps available for the iPhone.

1 CNN.com, How data caps help RIM, hurt Apple, Philip Elmer-DeWitt , June 14, 2010 2 Understanding your Mobile Network, Sandvine.com, 2009



7. The subsidy trap

Consumers have never been at the centre of mobile phone development, because the majority of phones are manufactured for sale to the mobile operator. Then the operator passes the phones on to the consumer, in the form of bundled sales i.e. subsidised handsets in exchange for locking themselves into a contract. So the consumer, to a certain extent, was only an after-thought for operators and handset suppliers.

It is no wonder then, that manufacturers have a certain distance to the end-user way of thinking and behaving. The result is that manufacturers supply devices that fulfil their promise of offering newer and better technology. That is good for the operator. But manufacturers are unable or unwilling to provide interfaces and design that allow the user to take control of this technology.


8. Customer satisfaction with mobile devices

This lack of connection with the consumer is reflected in the decline in customer satisfaction with mobile phones over the last 10 years. Once the initial fascination with the mobile phone wore off, customers began to find that their mobile device, although technologically advanced, was not designed to meet their needs.

High levels of market growth and poor mobile operator strategy meant that customer issues were not addressed and satisfaction levels gradually fell off. This decline in satisfaction was not only with the handsets themselves, but also with the operators. Mobile operators nowadays are rated as having among the lowest customer satisfaction and loyalty.

Fig. 7: Customer satisfaction with a range of product/service categories

Anti-virussoftware

2ndiPhone

1stHome

cinema system

8thEntertainment

console

12thStereosystem

23rdMobilephone

52ndBrowser

62ndDVD

recorder

83rdMobile

provider

93rdPublic

services

101st

Ranking on satisfaction (based on all product categories)

Average50th



Fig. 8: User satisfaction with mobile phones over time In contrast, the satisfaction levels of the iPhone represent the point where the mobile phone industry, as a whole, could have been. The resulting gap represents the opportunity that the industry has missed out on in the last decade.

Mobile phonesmissed opportunity

Mobile phones

iPhone

Other mobile phones

72

76

80

84

85



9. What should operators learn from this?

Operators have begun to understand what it takes to keep up with the likes of Apple and Google. Some are setting up their own shop fronts, app store, or community. Many others have accepted the consequence of strategically shifting to become the ‘owners’ of the network, subscribers, and the “last mile” to the individual subscriber.

For most operators, the ‘intelligent pipe’ business model offers them a strong position. With all the subscriber data available, there are many opportunities to profit from this knowledge. But that attitude tends to see the end-users as little more than a commodity. For many subscribers, this feels like they are being exploited once again. Operators claim that their ‘intelligent pipe’ solutions will provide customers only with the content and services that he or she has a preference for. So, customers will react by choosing the operator that best understands them and rejecting the others.

Operator policies still remain somewhat suspicious to the subscriber. The mobile telecommunication industry does not have the best reputation among consumers due to poor service perceptions, unfulfilled promises, and various disputes. Will it benefit us if operators track our personal profiles in their

databases? Or will it rather be used to our disadvantage? How likely is it that such data privacy issues will put the spotlight on operators, forcing them to justify their practices?

So, operators again run the risk of losing out on large parts of their business potential. The reasons are the same as before: the operators’ relationship to their customers and subscribers; the total lack of customer orientation.

If operators want to retain and grow their mobile business revenues, they urgently need to turn their attention to their customers. Be cool, be friendly, be helpful, and make customers’ lives nice and easy. That is what operators are there for - to protect their customers and enable them. They must do it now and radically.

Otherwise the future of operators will be simply as regional suppliers of ‘dumb pipes’.


10. What should suppliers learn?

Infrastructure suppliers have to support the operators in their attempts to take advantage of their intelligent pipe model and also to put the customer first. Their architecture solutions need to tackle mobile capacity broadband issues but also provide the operator with technical solutions to deliver new applications as efficiently and effectively as possible. They can help operators capitalise on areas in which they have an advantage such as mobility applications and secure services like financial services.

Good customer experience could be the difference between success and failure for mobile operators in the search for new revenue models. Mobile devices are increasingly feature-rich, using different access technologies and many mobile terminal applications. The consumer is getting lost in the complexity. It is even difficult for the operators to ensure all applications work correctly and that the latest software version is on all devices. But if an application does work unreliably or fails for any of those reasons, then the customer satisfaction will fall. Infrastructure suppliers have a key role in helping the mobile operator overcome these issues and ensure a smooth and positive customer experience.


Metrinomics is a market strategy company with a focus on global B2B markets. We help companies position themselves in relation to customers, as their main source of revenues. Metrinomics provides a comprehensive portfolio of business optimization services based on customer feedback and market research techniques. We see our task as tracking the conditions for market success into the future, enabling our clients to explore and leverage their business potential.

Metrinomics‘ focus industries include telecommunications, fund management, logistics and consumer products.

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metrinomics global consumer survey 2010 - mobile market

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