Category Archives: Mobile telecoms

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.

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.

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.

What is LTE and what will it bring to Ireland?

4G LTE is slowly seeping into the Irish consciousness.  Eircom’s launch announcement seems to have gained most of the attention, although Vodafone and O2 have been rolling out LTE in Ireland too.

So what exactly is LTE?

LTE is a complex set of evolving standards, but suffice it to say that it makes mobile data speeds a whole lot faster, and should provide a more reliable and consistent mobile data experience, too.  Testers in the UK are reporting download speeds from 8Mb/s to 25Mb/s, and healthy upload speeds.  It (obviously) requires a LTE-compatible handset, like the  Samsung S4, and it will usually require a specific 4G subscription – at least initially.  LTE data also exhibits less latency, so the customer experience of some real-time data services will improve.  Voice can be carried as packet data over LTE, which presents some opportunities (and headaches) for telcos. It seems that initially at least, voice calls will be carried by 3G and 2G networks.

Some readers will remember that 3G used to have the alternative name UMTS, which stood for universal mobile telecommunications system – which it wasn’t.  While the Japanese & Europeans agreed a 3G standard – in itself a step forward- the Americans largely went with a different version of 3G, a problem that bedevilled the Vodafone-Verizon relationship.  LTE should end that problem too.  However, one issue with LTE is that it uses a wide range of different frequencies in different countries, resulting in some early compatibility issues.  It seems that handset manufacturers are addressing this by increasing the number of radio frequencies supported.  Another is that running 4G is reported to reduce battery life. Finally, don’t confuse LTE with 4G, which (outside the technical standards organisations) can refer to LTE, to 3G HSPA or to WiMax.

And what is LTE for?

A cynic might say that the purpose of LTE is either a) to raise revenue for governments or b) an excuse for some telcos to charge extra for mobile data.  Let us put those thoughts aside.  UK regulator OFCOM has published an interesting report on future services enabled by LTE. It is worth quoting:

  • Personal services will be enhanced with contextual information so that technology becomes more and more deeply embedded into our daily activities.
  • Enterprise efficiency applications will continue to grow, with big data techniques extracting insight from unstructured data, and digital business changing the way many companies serve customers.
  • Public infrastructure − city, transport, health and so on − will become more connected and intelligent, allowing more efficient utilisation and helping society to deal with challenges such as the ageing population

Which is all good news, I’m sure you will agree.  It also identifies two potential new applications:

  • New mobile data services for the emergency services – essentially an upgrade path from the TETRA networks that the UK emergency services have been running.  Data speeds on TETRA are pretty poor.  Perhaps Irish government TETRA users will migrate to LTE when networks are built out.
  • New mobile broadbast services.  LTE defines a mobile broadcasting service – eMBMS.  The report is sceptical about the consumer demand for such services in the UK.  Ireland has fewer terrestrial TV channels than the UK, which might increase the chances of a new broadbast technology, however many countries are seeing a decline in broadcast TV viewing, particularly among the young as TV streaming services and the regular internet prove increasingly attractive.

So – when LTE appears in your area, it won’t necessarily usher in any fantastic new services – but it should improve the mobile data user experience considerably.

Q3 Comreg report reveals interesting developments in Irish telecoms

Comreg’s latest quarterly report, published just before Christmas, makes for interesting reading.  Here, in aid of brevity given the evening that’s in it, are some observations on the report and what it means for us in the Irish telecomms industry:

  • Telecoms is still getting cheaper – see chart 1.4.1.  This is probably driven by quad-play, in part, but we await the next quarterly report to see whether prices continue to decline with the consolidation in the mobile industry.  This tallies with Figure 4.5.1 which shows that mobile ARPU continues to fall.
  • Eircom’s loss of fixed line market share continues, albeit at a reduced rate. It is too early to say whether Eircom TV is starting to arrest the decline.  Certainly, as chart 2.2.3 below shows, most of the growth in fixed-lines seems to be coming from UPC.  This is backed up by the growth in triple-play services shown in graph 2.2.4.  Apologies for the poor quality graphic – the original (here) is a little more legible, though still hard to read.
Q3 2013 223

Green = Eircom, light blue = UPC, orange = Digiweb, red = Vodafone (fixed), purple = Imagine, dark blue? = Sky, maroon = OAOs & black = total subscriptions (right axis)

  •  Chart 3.1.2 shows that fixed broadband is substituting for mobile broadband.  Overall growth in broadband penetration seems to have plateaued – surely have we not reached saturation?  Chart 3.3.1 shows that Ireland is well below the European average on broadband penetration, and the days are gone when one could argue that household size was a significant factor there.   This is a real issue –  how can Ireland become a knowledge economy if we don’t get the people using computers?  Some of the research findings suggest that home broadband in Ireland is expensive (fig 3.5.1), whereas other charts suggest that price is not the main issue.  However, according to research published elsewhere, our broadband is also too slow.  Research published here shows that Irish broadband upload and download broadband speeds are towards to bottom of the list of European countries.

And what of mobile?

  • For the first time in a long time, the proportion of postpaid (vs. prepaid) subscriptions fell, albeit slightly – as evidenced in fig 4.2.1.  Are consumers or operators pulling back from great deals on postpaid smartphones at the bottom of the market?
  • Chart 4.3.1 below tells an interesting story. It will come to no surprise to telecoms heads that SMS volumes are falling through the floor as Over-The-Air (OTA) services grow.  Whatsapp has over 400 Million users!  Of course, mobile data volumes are growing fast – they almost doubled in the last 2 years, as the chart shows.

Q3 2013 431

  • Chart 4.3.5, when taken with 4.3.1 above, shows that the growth in mobile data volumes comes from both the number of users and the volume per user. No surprise there.
  • Comreg are doing a good job of keeping us abreast of the new field of machine-to-machine (M2M) communications.  Figure 4.6.1 shows that Vodafone and O2 have most of the market between them.
  • Fig 4.3.2 shows the breakdown of mobile outgoing calls.   Another first for Q3 2013 – the volume of mobile international and roaming calls outstrips that of mobile to fixed numbers for first time.  So punters are taking fixed lines (2.2.3, above) but they’re probably not giving the numbers out, and if they are, their friends are electing to call them on the mobile.
  • Figure 4.3.4 shows that about ⅔ of mobile voice minutes are on-net. Research has shown that people tend to choose the same network as their social group – this phenomenon is much more marked in countries (e.g. Portugal) where the price advantage for calling on-net is stronger.

Overall, another interesting report and a couple of firsts for this quarter.  One request to COMREG, please: can you publish the report as a higher-resolution pdf please?  Some graphics (e.g. 2.2.3) are difficult to read.

Happy New Year to all!

Ireland ‘the most expensive of the competitive telecoms markets’

A report just published by consultancy Rewheel compares pricing of benchmark mobile tariffs across the EU and beyond.  The good news is that Rewheel categorise Ireland as one of the more competitive markets.  The bad news is their find of Ireland as ‘the most expensive of the competitive markets’.

Mobile telcos worldwide are facing the threat of losing revenue to so-called over-the top services (like WhatsApp, Viber, and the granddaddy of them all, Skype). The battle for superior functionality in traditional telco products is all but lost (MMS, anyone?) and  attempts to compete by launching services like Joyn are struggling  to gain traction.   Many telcos have turned to tariffs to try stop the slide towards becoming a dumb pipe: the development of price plans offering unlimited voice and SMS, but charging heavily for data access has become almost ubiquitous across the OECD.  Many of these tariff plans can be shared across families, thereby increasing the lock-in that we see when entire family is on the same network.  And because these plans are so similar to each  other, they can be directly compared.

This month sees an interesting report from mobile data consultants Rewheel entitled ‘Price benchmark of smartphone tariffs with unlimited minutes & SMSs in EU28, US, Switzerland and Norway – October 2013’.  The ‘executive preview’ (a teasing selection of the findings) is available to download here.

Rewheel country comparisonThe report describes mobile internet (at the risk of hyperbole) as ‘the fuel of digital economies’ and finds that pricing for these bundles in Europe’s ‘protected oligopolies’ (e.g. Germany, Spain, Greece and Hungary) is up to 2200% higher than the the EU’s most competitive markets (UK, Sweden, Finland, Denmark & Austria).  It also finds that big EU telcos tend to charge more.  No surprise: there is no point investing millions in a multinational brand if you can’t leverage it by charging a premium for services.

insight_17

And where does Ireland fit into this picture?  The report says “Ireland ranks as the most expensive competitive market (i.e. markets where a challenger like Hutchison is present). The price for a 2GB smartphone tariff with unlimited minutes and SMS is €35 which is slightly above the EU28 average.”  The graph below shows that Ireland shares this honour with another unnamed country.

Rewheel Ireland graph

This analysis tallies broadly with Comreg’s figures in the figures as described in their latest quarterly market report: pp. 65-69 of the report shows low-spending & prepaid Irish users paying rather more than average, and medium and high users paying the average price or a little less.

So what of the future?  With the recent purchase of O2 Ireland by Three, Ireland’s market is hardly going to become more competitive anytime soon.  Perhaps this consolidation will move Ireland from its position as the most expensive of the competitive economies to being one of the cheaper of the protected oligopolies!

The full report is available for purchase from Rewheel for €3000.