Integration into the mobile value chain

Most 3GPP/UMTS operators will need to wait until 2012 before starting broad migration of circuit telephony to standardised VoIP. In the meantime, they will have to compete or partner with pre-standard VoIP players with multiple options for both operators and independent specialists becoming a virtual mobile operator vs partnerships. Integrating mobile data services onto handsets, VoIP will eventually become invisible to users as one of many Internet services on the handset. It will be more important to embed mobile VoIP into new devices, services or web applications (Voice 2.0) than adding video or other media streams. Standalone Mobile VoIP players offer blends of WiFi, VoIPo3G, call-through and special SIMs, backed by a variety of social networking / Web 2.0 capabilities.

Further, VoIP allows carriers to handle more calls on their spectrum and reduce expenses by handling all traffic as data. It will also let them offer new services and become service enablers, already a clear trend towards this with open mobile internet access and all you can use tariffs. In this context, mobile operators in developed nations must look to new 3G applications and bundled services for increased average revenue per customer.

While operators have the assets (billing and access to customers), content providers provide revenue streams, traffic and advertising revenue. However, working together operators will drop VoIP-hostile 3G terms-of-service, on the grounds of competition, regulation and difficulty of enforcement. In the case of scope for partnerships between VoIPo3G innovators and incumbent operators (and other parties), especially on HSPA networks, initial reticence will be countered by awareness of the threats of outright competition.

Connectivity

In the area of connectivity, the key areas include WiFi, 3G – True VoIP vs Hybrid VoIP. By 2012 broad migration of circuit telephony to standardised VoIP will have started and VoIP will be accessed by mobile operators' own standards-based VoIP capabilities, over the new, advanced 3G+ networks vs still be on independent providers' offerings. Operators will deploy VoIP to improve voice capacity, gain synergies from Fixed Mobile convergence networks and counter competition from WiMAX or other VoIP providers. While mobile VoIP is set to grow, it will run over the 3G data provided by handsets, rather than over Wi-Fi, according to a research report from Disruptive Analysis, which predicts 250 million users of 3G VoIP by 2012, compared with less than 100 million for voice on Wi-Fi.

In this context, new sectors and revenue streams include social networking capabilities and exploiting web 2.0. While new advertising models are not cracked yet eMarketer reports that ad spend on social networks is not as high as anticipated, £65m in 2007, and £115m by the end of 2008. This when big brands are yet to transfer more than a couple of percent of their advertising budget onto mobile, giving this market potential to explode from $1.72bn in 2008 to $12.09bn by 2013 according to Informa Telecoms & Media forecasts.

Further, revenue from consumer telecoms network services will hit $2 bn globally by 2012 as the digital divide between developed and developing nations deepens, market watchers predict. In-Stat expects the sector to grow at a steady annual pace of about 5.7%, on average, over the next five years.

To give you an idea of how the revenue sharing model actually works in case of Mobile VAS and correlation between content and distribution, here is an insight into the Indian Idol revenue model. During the voting period from November 2004 to March 2005, Indian Idol got more than 55 million votes via SMS. At Rs 3 per SMS, that is Rs 16.5 crore. The telecom companies made Rs 11.5 crore, and Sony about Rs 5 crore.

So as one can see, the creators of the content as of now do not demand as much of the revenue margin as the distributors (i.e. the mobile phone operators). In short, the supply of mobile phone operators is relatively inelastic i.e. they are fewer in number and not growing that fast. The supply of content makers however is relatively elastic - there are loads of people trying to produce exclusive content and there is a certain level of quality that is being made due to the proliferation of so called 'exclusive' content creation tools. So obviously the distribution takes a higher premium because there are scores of people lining up with content for distribution while everything cannot really be distributed.

Another development in the near future is that TV over mobile is going to be easily accepted. We definitely will see exclusive content but due to limitations in bandwidth primarily and due to the nature of the screen and short attention time spans, we will see mostly TV 'munching' or short TV shows (like our very own WATShow).

In the past, the impression was that content over the mobile will be paid for, and the revenues will be much bigger on the Mobile phones than on the Internet. This was primarily because of the mindset that exists in the consumer's mind who thinks that everything on the Internet is (or should be) free, while everything on mobile phones is/or can be paid for.

Key Takeaways

To sum up, mobile Internet will be dominated by mobile VoIP and other chat applications to give users a fully integrated 'mobile freedom' especially when consumers are demanding lower costs of communications and are becoming familiar with finding and using new technologies to achieve this. The supplier market is currently fragmented allowing room for independent innovators to make their mark with key developmental challenges being faced by content providers, network operators and others in the mobile internet value chain.

Further, operators concentrating on their current mobile internet capabilities will use the technology innovations of independent suppliers to make their own entry into the market via partnerships. Finally, mobile internet is a strong future revenue stream but advertising models need to be honed to provide proven value for brands before budgets will be allocated.