Prepaid offerings the future for mobile operators

Operators should look to prepaid offerings to maximise the mobile broadband opportunity in the fourth quarter of 2008, rather than pinning their hopes on mobile broadband substituting fixed services, according to new research.

The research, in a new report by global advisory firm Ovum, titled Mobile broadband operator strategies in Western Europe, highlights the approaches available to operators in maximising the opportunity for mobile broadband. It finds that mobile broadband services are best positioned as complementary to fixed.

Steven Hartley, senior analyst at Ovum and the report’s author, explains: “Fixed broadband penetration across Western Europe is simply too high. Mobile broadband can not compete with fixed on speed or capacity, particularly as high bandwidth applications such as IPTV take off”.

There will be some consumer segments for which mobile broadband could be a realistic substitute for a fixed service, such as students and itinerant workers; those in short term shared or rented accommodation; and those simply unable to access a fixed services. But, as Hartley states, the window of opportunity to target these segments is closing rapidly.

He continues: “The size of the substitution opportunity is limited and operator activity to date means these segments are becoming saturated. Therefore, the potential for a long term fixed mobile substitution strategy in Western Europe in the future looks unlikely.”

Understandably operators in Western Europe to date have focussed on maximising the potential of mobile broadband through contract offerings, Hartley adds. This makes sense as a customer locked into a contract provides a stable revenue stream.

However, the pool of customers willing to commit to an average of a two year contract for mobile broadband will naturally shrink over time, he continues. This is particularly true where mobile broadband is most likely to be used in addition to a fixed broadband service. Furthermore, as the cost of USB modems (or dongles) continues to fall a major barrier for entry is removed for the consumer. For the operator this also means no hardware subsidy to recoup.

As a result, Ovum predicts that the next opportunity for mobile broadband in Western Europe will be prepaid offerings. With a prepaid approach operators can attract users who appreciate the mobility and simplicity of mobile broadband on some occasions, but are unwilling to commit to a long-term contract. As such, it is a model in which mobile broadband complements the already high fixed broadband penetration in Western Europe.

Hartley concludes: “What’s more the timing for a focus on prepaid is perfect. With Christmas approaching everyone wins; those purchasing a bundle as a gift have no contract commitment, end users have a flexible mobile broadband service and operators gain new customers and revenues.”

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