Why do people choose prepaid mobile?

Today I was invited to lunch with Claire Milne, senior visiting fellow at the LSE and telecoms consultant.  Some years ago I completed a Masters in marketing.  Claire had found online my Masters thesis online entitled ‘The strange success of prepaid mobile phones’ and wanted to discuss it with me.  We spent a very pleasant lunchtime discussing the thesis’s topic: Why DO people choose prepaid mobile?

Marketing theory and common sense tells us that when choosing products, people opt for the best one, or rather the one that best meets their needs.

Yet when comparing prepaid mobile phone service with postpaid (billed) mobile phone service, the prepaid customer has to pay for calls in advance, has the inconvenience of running out of credit, typically pays more for a handset, and frequently has access to a narrower range of handsets or services than are available on postpaid plans.  Yet prepaid mobile took off like a rocket and was growing much faster than postpaid mobile. This apparent paradox was the subject of my thesis.

An Eircell Ready to Go topup voucher or Go card

An Eircell Ready to Go topup voucher or Go Card

To put the work in context, some facts.  I completed the thesis in 1999.  A couple of years previously I’d had the privilege of leading the service design team for the first prepaid mobile phone service in Ireland, and one of the more successful early prepaid mobile services in the world: Eircell’s ‘Ready to Go’ prepaid mobile service.  By 1999, mobile phone penetration across Western Europe was around 25%.

My methodology was straightforward: a literature review to identify hypotheses, followed by research among industry experts (using the Delphi methodology), and depth interviews with individual users.

The conclusions (remember this was 1999, and prepaid mobile was still new) were that the benefit of controlling spending was important.  The benefit of avoiding the pain of a bill loomed large (the concept of negative discounting, where a customer avoids the dread of a bill by paying in advance, is a particularly interesting concept).  For younger people less used to commitment, the benefit of no contract period was attractive. An incidental finding was that very few of the industry experts at the time seemed to have given the question much thought.

Claire has recently been researching this topic – she reports that within the intervening sixteen years, very little additional research has been carried out into customers’ motivations for choosing prepaid mobile service over billed plans.  Perhaps some enterprising student would like to carry out some research into the topic.  Apart from any other questions (of which there are many), it would be interesting to see how customers’ and experts’ views have changed over the intervening period.  Although prepaid mobile may have peaked, it is still here and remember, it is responsible for untold connecting millions of people to the world’s voice and data networks.  Surely we should learn a little more about why it is so popular?

The thesis can be downloaded here.

SMS is here to stay

Many commentators have noted the rise of messaging applications such as Facebook messenger, Google hangouts, WhatsApp and the granddaddy of them all, Skype – and predicted the demise of SMS.  This graph, from Irish regulator COMREG’s Q4 2014 market report, shows it clearly.  However, the last two quarters show the decline slowing and even reversing.  Future reports will show whether Q4 2014 is a blip or the steep decline of SMS is over.

Comreg Q4 volumes

However, most of us still use SMS every day.

It seems that SMS is here to stay.  Why is this?  Well, SMS offers some unique advantages:

  • SMS is ubiquitous. If your friend has a mobile number, then you know they can receive an SMS.  That’s not true of any other messaging application.
  • Whereas the OTT messaging apps all require mobile data coverage, SMS doesn’t.  There are plenty remote places with coverage but no mobile data.
  • SMS works on the poorest mobile signal.  In fact, an SMS will often get through where a voice call won’t.  In  the UK, the emergency services have set up a 999 / 112 SMS service.
  • SMS is the communication method of choice for most companies offering 2-factor authentication.  The Next Web has a useful article on why SMS is widely used for A2P (Application-to-person) messaging.

These are among the reasons why SMS has a bright future. Sure, usage will continue to decline for a while as messaging apps gain penetration – but SMS is here to stay.

This post first appeared on the Idiro blog.

International & Irish communications market data published

If you’re ever looking for international telecoms comparisons, this OFCOM International Communications Market Report 2014 – just published – is a good place to start.

If you’re looking for Irish market data, Comreg have just published their Q3 quarterly market report. They seem to be getting slightly quicker at issuing them – this is the first one I’ve noticed to be issued in the following quarter.

And finally, COMREG are starting to make underlying data available on their site http://www.comstat.ie/. There’s not much available yet, so let’s hope more is added soon.

Latest iPad contains Apple SIM supporting multiple carriers – reports

Late this week, various media are reporting that the latest iPads sold in the USA & UK offer the option of an Apple SIM supporting multiple USA & UK mobile operators.  If true (and with the evidence, it must be), this represents a fundamental shift in the power relationship between network operators and equipment vendors.  Check out the graphic below.

Screen-Shot-2014-10-16-at-5.06.59-PM

Suddenly, the customer can choose EE in the UK and Sprint (or whoever offers prepaid data cheapest) in the USA.  The network operator is reduced to providing the bit-pipe, and far worse, the customer can choose between competing service providers at the point of purchase of the service, like we do with buying most other services.  Because there is no voice service, there is no need for a phone number – another tie to the operator broken.   How does Apple replicate the SIM functionality in software?  We don’t yet know, but it represents huge possibilities for change in the mobile industry.

Of course, there may be economic or usability barriers to using the service which may mean that in practice, the customer is restricted to one operator per country.  Even then, it would wipe out roaming revenue from these customers.

We look forward to hearing user reports.

Watch this space.

Delicate tradeoffs ahead for Carphone Warehouse

Earlier this year, mobile phone retailer Carphone Warehouse announced it was launching an Irish MVNO in 2015.  This will involve some delicate tradeoffs ahead for Carphone Warehouse.

CPW Grafton St Dublin

A Carphone Warehouse store on Grafton St., Dublin

Carphone Warehouse, an independent retailer of mobile phones and service contracts, has 92 shops around Ireland, selling mobile phones and contracts for all of the large mobile network operators in Ireland – Eircom, Vodafone, O2 and Three.

When the takeover of O2 Ireland by Three was approved by the European Commission, certain conditions were set – in particular that to offset the reduction in competition in the Irish market caused by the removal of one player, O3 (as some industry wags have started to call the new merged entity) must enable two new MVNOs on its network.  We now know that these will be UPC and Carphone Warehouse, both launching in 2015.

As the biggest independent retailer of mobile phone contracts in the state, Carphone Warehouse has built a Irish strong business with sales of over €100M in 2013.  However, that business was built on two pillars: a reputation for impartiality with the Irish consumer, and a market power that encouraged the mobile networks to do business with it.  Now one of those pillars is under threat, as the other networks wonder whether their independent channel will remain so – or whether it will prioritise sales of its sister company over that of its competitors.

Talkmobile Christmas campaign

Talkmobile UK Christmas campaign

Now, Carphone Warehouse has run a MVNO called Talkmobile in the UK since 2007 , so it has experience of balancing the needs of the two businesses.  But nevertheless, the Irish networks will be watching Carphone Warehouse’s retail division closely for any sign of favouring their own child on the playing field.  Christmas 2015 will be a crucial test for the networks.  Will Carphone Warehouse’s stores deliver the traditional sales bonanza for the big mobile networks – or will the home MVNO (dare we call it Talkmobile.ie?) win out?

For the Irish consumer it is important that the new MVNOs succeed, as competition in the Irish mobile market has been weakened by the reduction in number of big players from four to three.  UPC’s mobile offering will likely only make sense to the consumer as part of a quad-play bundle, which puts the onus on a successful Carphone Warehouse MVNO to incrase competitiveness.  Judging by the market position of the UK MVNO and the comments of Carphone’s Ireland CEO in this Silicon Republic interview, the MVNO will focus on the value end of the market – good news for Irish consumers.  It will be a fine line to walk: be successful, but not at the expense of the lucrative retail business.

The end of the telco as we know it?

The telcos and the blow-in giants of the internet (Facebook, Apple and Google) are shaping up for a battle royal, and whatever the outcome, the world of telecoms will change for good.  Will we soon see the end of the telco as we know it?

Right now, the giants of the internet already have control of most of the devices that we use for our mobile communications.   They are building a portfolio of internet-based communications services (Google Voice, Apple Facetime…) – or buying them (Whatsapp).  These ‘over the top’ services are eating into telcos’ revenues, but the telcos retain control of their key assets – the phone number and the cellular network.

The end of the telco?The giants of the internet are active at the other end of the seven-layer model too – investing in infrastructure like subsea fibre-optic cables.  Moreover, Google has launched ‘Google Fiber‘, providing broadband service to homes in the USA – initially to Kansas City, and now rolling out to another 34 other cities in the USA. Interestingly the basic connectivity service is free – you just pay the $300 or so installation cost.  Imagine a fixed line telco in Ireland offering that!

But wait, there’s more. Yesterday (24th April) it was reported that Google are considering offering free wi-fi in those same cities.  It is already (just about) possible to port your US  landline number to Google Voice – so with an Android smartphone, a VoIP app and a landline number you can have cordless (though not truly cellular) coverage over public wi-fi.  Calls might even be free of charge.

The easy way into full mobile service is by becoming a mobile virtual network operator, or MVNO.  Google is reported to have been in MVNO talks with US mobile operators Verizon and Sprint.  It is of course only a matter of time before a mobile operator breaks ranks and does a deal with Google.  Like Diarmait Mac Murchada’s pledge of allegiance to Henry II of England in exchange for support in his attempt to regain the Kingship of Leinster, such a deal is likely to be the thin end of the wedge. Already we see the integration of a SMS interface into Google Hangouts – encouraging the customer to to choose the more feature-rich and lower cost Hangout IM instead of sending an SMS.  Will we see the same with voice calls over wifi?  While the Irish MVNOs are owned by the likes of Tescos, the MNOs will sleep soundly.  But Google as an MVNO?  Be afraid, mobile operators.

It used to be said that the telecoms industry had succeeded by sacrificing functionality for ubiquity – if the computer industry had invented the telephone, we would have all had colour videophones 30 years ago… but most of them would be unable to communicate with each other.  The telecoms industry, however has achieved something very special – any phone number in the world owned by any phone company using any technology can be called from any other phone on the planet. What a great and unique achievement!  However, if an intelligent terminal can handle a multiplicity of standards, perhaps this lack of functionality has become the Achilles’ heel of the telcos?

Of course, there are many things that telcos do well that the internet companies can’t – like providing (almost) nationwide connectivity.  However, their business is being eaten into by the Internet behemoths.  The end of the telco as we know it is, if not nigh, then at least a likely scenario in the long term, perhaps even in Ireland.  Interesting times ahead.

Ireland’s Mobile Virtual Network Operators

When we think of mobile operators in Ireland, we tend to think of the big four: Vodafone, Three, Meteor and (for the moment) O2.  We often forget Ireland’s Mobile Virtual Network Operators (MVNOs).  In fact there are plenty of virtual network operators in Ireland.

What is a Mobile Virtual Network Operator?

Well, the answer’s in the name.  These are companies that offer a mobile phone service to customers, but do not own their own network infrastructure – rather, they strike deals to use one of the traditional mobile operators’ networks.  Sometimes the network owners do deals with MVNOs that go after niches that the big operators are not interested in, and sometimes the regulators force the traditional operators to do deals with MVNOs.  MVNOs typically have lower setup costs but lower margins, and they tend to targer specific smaller markets.

You will have heard of most of Ireland’s MVNOs

  • Launched in 2010, Postfone is, as the name implies, owned by An Post. Its key strength is An Post’s chain of retail outlets.  It focuses on customers with relatively simple mobile needs looking for low-cost mobile service from a trusted brand.  It uses Vodafone’s mobile network.
  • 48 Months (launched in 2012) looks like an MVNO but it’s not one.  It is a brand owned by Telefónica O2.  It is aimed at 18 to 22 year olds (yes, I know, that’s 5 years, i.e. 60 months, not 48…) and at those older or younger who wish they were that age.  48 months don’t offer phones at all, just free SIMs and very simple all-you-can-eat pricing. Go conquer…
  • Lycamobile, launched in Ireland in 2012, is the Irish branch of the multinational MVNO aimed squarely at the international calls market.  Lycamobile operates in 17 countries through various brands.   In Ireland, Lyca uses the O2 network.  If you are looking for low cost calls abroad, check out Lyca.

    Tesco mobile brochure

    Tesco mobile flyer

  • Tesco mobile is another on the O2 network.  Tesco aim at the value segment and the loyal customers of their supermarkets. Tesco’s phones are also popular with transatlantic tourists for their Irish holidays.
  • Is eMobile an MVNO?  No, it’s Eircom’s brand focussed on postpaid mobile consumers.  It uses (of course) Meteor’s network.  Postpaid MVNOs are relatively rare.

For a full list of licenced mobile operators in Ireland including MVNOs, check out Comreg’s page here.

The MVNOs’ impact on the Irish mobile market is growing, but still pretty limited: Measuring market share by number of subscriptions (not revenue) and excluding the data-only SIMs, we see that two of the MVNOs have significant market share.  Tesco have 4.5%, Lycamobile have 2.1% and the others between them have 0.3%.  Put another way, of about 4.75M voice SIMs in Ireland, about 320,000 of them are on MVNOs. (48 Months and eMobile subscriber numbers are reported within O2’s and Eircom’s market shares respectively.)

Comreg’s Q4 2013 market share figures (source: Comreg)

MVNOs past and rumoured…

In October 2010, two brave lads launched JUST Mobile, an innovative MVNO not linked to a retailer, a consumer brand or a telco. It used the Vodafone network.  JUST Mobile ran into distribution challenges and suffered from the lack of a known brand, and closed about a year later.

The telecoms industry is abuzz with rumours that UPC will soon launch an MVNO on Three’s network.  This would turn UPC into a powerful quad-play operator.

The future for Ireland’s Mobile Virtual Network Operators?

Some larger countries have a large number of MVNOs – Germany has many MVNOs including Aldi Talk and niche operators such as Ay Yildiz, a Turkcell-owned MVNO aimed at Turkish people in Germany. Ireland is too small to support such niche operators, but as the trend towards convergence of telecoms and TV services accelerates, it looks more and more likely that in future, Ireland will have a small number (probably three) of triple / quad-play telecoms & TV providers and a few niche players (in the mobile space, that will be the MVNOs) serving those that don’t want a converged offering from a big brand.

Robert Halpin, an Irish pioneer of submarine telecoms

Robert Halpin, an Irish pioneer of submarine telecoms was born this day, February 16th in 1836 at the Bridge Tavern (still a pub in 2014) in Wicklow Town.

Robert Halpin memorial, Fitzwilliam square, Wicklow. Copyright Simon Rees.

Robert Halpin memorial, Fitzwilliam square, Wicklow. Copyright Simon Rees.

His contribution to the development of international telecoms is well known to the people of Wicklow Town – the Halpin Trail is a walk around landmarks connected to him.

Halpin’s contribution to international telecommunications comes from his position as the captain of the SS Great Eastern.  Built by Brunel, the Great Eastern was an outstanding technical achievement – by far the largest ship at the time – but a commercial failure.  After various incarnations, she was bought for £25,000 by a group of entrepreneurs who then founded the Great Eastern Telegraph Company, subsequently Cable & Wireless.

Imagine a time before international telecommunications.  To send a message from Ireland to the USA in the 1850s would take over a week by ship – and the same again to receive the reply.  However, in 1839 Cooke and Wheatstone gave birth to the telecommunications industry by demonstrating the first working electrical telegraph, and in 1850 the first international submarine telegraph cable was laid between England and France.  The prospect of laying an international telegraph cable from Europe to North America encouraged John Pender and two others to buy the Great Eastern and convert her into a cable-laying ship.

An Post commemorates Robert Halpin’s life. Image copyright www.stu1967.com

Under James Anderson and later Robert Halpin, the Great Eastern laid over 30,000 miles of telegraph cables, giving us instant worldwide communications for the first time.  Their feats of seamanship include the time when one of their first transatlantic telegraph cables snapped as it was being laid, and was lost.  The following spring, according to the National Maritime Museum of Ireland, after successfully laying another cable to from Valentia to Newfoundland, Halpin navigated the great ship to the exact spot where the cable break had occurred the previous year. The lost cable was grappled, raised and joined to a fresh cable which was paid out to Newfoundland, thus providing a second link from the old World to the new.

Section of PTAT-1: Private transatlantic telecoms cable. Euro coin for scale. Copyright Simon Rees

Section of PTAT-1: Private Transatlantic Telecommunications cable. Euro coin for scale. Copyright Simon Rees.

Submarine telecommunications cables are still laid to this day, following in the footsteps of Robert Halpin.  This image shows a piece of the PTAT-1 cable, completed in 1989.  It connected Ballinspittle, Co. Cork and Brean Down, Devon with Bermuda and New Jersey.  The eight coloured dots that can just be discerned in the centre are the four pairs of fibre-optic cables, each capable of carrying 400Mb/s.  Cable ships today are purpose-built and use GPS, ploughs and remote submersibles, and many other technologies not available to Robert Halpin.

In later life, Halpin returned to Wicklow where he built the beautiful Tinakilly House.  He died of gangrene from an infected toe on the 20th of January 1894.

To learn more about the life of Robert Halpin, watch this short video:

How MCI’s ‘friends and family’ tariff and campaign changed telecoms marketing

In 1991, US landline carrier MCI launched an offer that was to be copied by fixed and mobile telcos across the world – its ‘Friends and family’ tariff and campaign.

Nowadays it is hard to imagine a world without competitive telecoms, but competition in US telecoms had only begun, slowly, from 1984 (in Europe, competitive telecoms began with Mercury Communications in 1982).  The USA telecoms market was split between the local exchange carriers (LECs) and the long-distance carriers.  At the time, there were three significant long-distance operators in the USA – AT&T, the incumbent, plus MCI and Sprint, the challengers.

MCI’s early history was so dogged with lawsuits to win the right to compete that wags joked that MCI was ‘a legal practice with a telecoms tower on top’.  MCI was later to fall in the Worldcom accounting scandal and is now a subsidiary of Verizon.

So, back to the story.  By 1991 MCI has established itself as a serious player in the long-distance market.  MCI decided to launch a new type of tariff, where the caller would gain an extra hefty discount if the person they were calling was also an MCI customer.  The story goes that the MCI team heard that AT&T was working on a similar plan, but that the billing development would take many months for both companies (telecoms veterans will know that billing system development is usually the bottleneck in telco services), so MCI rented a warehouse, hired hundreds of clerical staff, gave them desks and computers, and taught them to them calculate the discounts by hand – then launched the service.  MCI’s ‘Friends and family’ service was a massive success .  By the time the competitors responded, MCI had gained massive market share and the battle for ‘Friends and family’ was over.

It seems obvious in hindsight that telco customers tell their friends about the purchases they make.  We all accept now that for communications products, an economic incentive can be designed to add to the social pressure already existing, and will drive customers to follow their friends in switching telecoms provider.  A former colleague of mine, Dr. Daniel Birke, explored this phenomenon in his Ph.D thesis and subsequent book.

MCI’s ‘Friends & family’ tariff and campaign was successful because it combined two key elements:

  • A tariff discount for caller if the recipient was also a user of MCI’s long-distance service
  • A member-get-member campaign where the customers were encouraged to ask their friends to join MCI to avail of the discount, or to pass the phone numbers of friends to MCI salespeople.

It is worth pointing out that MCI’s ‘Friends & family’ tariff was fundamentally different to the on-net mobile tariffs that are almost ubiquitous today.  Firstly, on-net calls are cheaper to deliver than offnet calls, because they attract no interconnect payment whereas MCI gained no savings from delivering calls to ‘Friends and family’ destination because the service was provided by the LEC in either case.  Secondly, differentiating between on-net & offnet destinations in a billing system is relatively straightforward, whereas MCI had to apply the discount based on each customer’s individual list of ‘Friends and family’ destinations.

Perhaps the story of the warehouse full of staff at computers typing up bills is an urban myth, but MCI’s success was a lesson to all telcos: social influence is a strong force in marketing.  Combine a generous offer to a customer’s social group with an easy mechanism for sharing, and your customers will market your product for you.  Add in a strong brand and an excellent user experience and your customers become apostles.  It is hard to achieve but for those that do, the rewards are considerable.

A version of this post appears on the idiro.com blog.

How television in Ireland is changing

Television in Ireland is changing fast.  In a few years the TV that we now know will be completely changed.  Here are some of the key changes ahead:

4K TV.  After the failure of 3D TV to capture the imagination (i.e. to sell many units), the next big thing from the broadcast industry is 4K resolution.    As the graphic from Wikimedia commons shows, 4K resolution will deliver a massive increase in picture quality over existing HDTV.  While some commentators debate the real value of it – and just like with cameras, the marginal benefit to the human eye of of each increase in the number of pixels certainly becomes less and less – 4K is certainly coming.

Smart TVs.  This is all about integrating the internet – particularly web 2.0 – into TVs.  Faced with the threat of competition from the internet, TVs are turning into internet devices.  Many TVs now allow you to play YouTube videos, interact with a Neflix account, and so on.  Expect services offered to multiply and expect the user interfaces to become less clunky as they evolve.

TV leaves the house.  For many of us, TV viewing is no longer confined to the sitting room, with TVs in bedrooms and kitchens.  Increasingly we will see TV viewing (if indeed, we should call it that) leaving the house.  Faster wi-fi and LTE mobile networks are delivering the bandwidth to allow much higher quality video streaming to the mobile user (though data tariffs will have to fall before most can afford it over mobile).

Triple and quad-play. Remember the good old days when banks were banks, building societies were building societies were building societies and insurance companies were insurance companies? Those days are gone, and for television in Ireland they’re going too. The big buzzword (and the main reason that this blog covers TV) is convergence – that is, offering TV, landline and broadband (and maybe mobile, too) in a bundle to the customer.  Telcos and pay-TV companies have found that the more products you offer your customers, the more money you make, so it’s coming. Vodafone’s CEO has stated his intention to offer “unified, converged, multiscreen services in all countries” and is threatening to follow BT into the pay TV market in the UK. Both Sky and UPC each has a broadband & home phone offering and UPC has been rumoured (albeit a little while ago) to be launching a mobile service on Three’s network. Eircom of course has a quad-play offering, eVision.

Streaming replacing broadcast. In the old days we watched what the TV companies showed us, when they wanted to show it, even if we had a pay-TV service like Sky or UPC (71% of Irish TV-owning households use some sort of pay-TV according to the latest COMREG report). If you missed the Late Late show on a Friday night, tough. Then came VCRs and then PVRs, which allowed us to save programmes to watch later, as long as we remembered in advance. Now we have Netflix (over 150,000 subscribers in Ireland) and its competitors like LoveFilm allowing us to watch what we want, when we want it, without buying DVDs or recording the programme.  And so we can watch eight episodes of the The Borgias (or, for Guardian readers, Borgen) at a sitting.  Welcome to this month’s buzzword: binge-watching.

User interface challenges.  All new telly stuff brings complexity.  The Sky box is a paragon of usability and compatibility, but some of its competitors fall short, and even with Sky, users will need a separate box for DVDs or Netflix.  Many of us have multiple boxes and multiple remote controls. Your author has five such devices: the TV, a Ferguson Ariva combo box for decoding free satellite & RTE signals, a blu-ray player, a cinema sound amplifier and a WDTV box for playing stored movies. Each has its own remote control.  It’s hardly intuitive.

Original content from Pay-TV companies.  We are used to pay-TV companies such as Sky and now BT securing exclusive rights to sports programming and early viewing to movies at home.  Now Netflix and Sky are creating their own programme content.  If their exclusive content is good enough, then they will attract subscribers based on the content itself.  Netflix’s ‘House of Cards’ and its takeover of the the award-winning series ‘Arrested Development‘ seems to be starting to do just that.  Sky Atlantic is following a similar path, commissioning documentary and drama content.  Because viewers of television in Ireland depend so much on pay TV, this provider-specific content will become a significant factor in the battle for market share.

A change in the TV licence:  The number of households without a television in Ireland seems to increasing, as families turn away from broadcast TV and turn to the internet for their viewing.  (When is a TV not a TV? When it is a computer monitor without a TV tuner in the back).  Recognising this, the government is planning a levy on every household, whether or not it has a TV, to replace the TV licence. A brave and logical move.

Interesting times ahead for the television in Ireland.  Stay tuned.