Game On for Euro Carriers
But this sector, which Analysys tabs as "Mobile Content and Entertainment," will attract more and more revenue as GPRS usage increases, 3G networks are switched on, and billing systems are upgraded -- with the figure ultimately rising to €23 billion in 2007, or 17 percent of the total €135 billion (see chart below).
According to a new Analysys report, "Charging and Revenue Sharing for Mobile Content and Entertainment," the services in this sector include premium "push and pull" content [ed. note: not to be confused with the Dr. Doolittle character of the same name], free-to-all content accessed via browsers (which generates access revenues), games, ring tones, logos, cartoons, horoscopes, and other trivial crap -- er, that is, "personalized content."
Just how much of the revenue generated by these services stays in the mobile operators' coffers will depend on three major factors, according to principal analyst Katrina Bond: the state of the operators' back office systems, their relationships with content providers, and their ability to realize that expanding the market is more important than taking as much commission as possible.
"If operators had updated their billing systems they could have had a bigger slice of the revenues," Bond tells Unstrung. She says they need systems that can add event-based transactions, such as the downloading of ring tones or logos, to the customer's mobile bill. Currently such transactions involve the customer calling a premium-rate phone number supplied by a fixed-line operator, which increases the number of parties taking a slice of the revenue. This adds complexity for the customer and content provider, too.
Adding to most operators' billing issues is that they have separate systems for postpaid and prepaid customers. "They need to integrate these systems -- have a common view of their total customer base. Currently they are having to update and add the same pricing information to two systems in many cases," adds Bond.
Bond cites Telenor Mobile as a company that can handle event-based billing and says Vodafone Group PLC's (NYSE: VOD) M-Pay system is also a step in the right direction. However, "most mobile operators are limited by the capabilities of their billing systems."
Bond also believes that the relationship between the operators and those companies that supply the original content is key to the development and growth of the whole games and entertainment market. "The carriers have an important facilitating role to play. The more generous they are to the content companies [in terms of the cut they get from the mobile transaction] the more companies will produce specific content." A bigger slice will also attract more developers and fuel choice and market growth.
A number of different strategies are evolving, says Bond. KPN Mobile has copied NTT DoCoMo Inc.'s (NYSE: DCM) model of offering a fixed percentage of each transaction to the content provider -- 86 percent in KPN's case, 91 percent in DoCoMo's. Others will have a fixed rate for those content companies that take care of their own marketing and an individually agreed rate for deals where the content appears on the operator's mobile portal. T-Mobile's agreement with Disney is an example of this, says Bond. Major content owners and media companies will be in the best bargaining position, and market consolidation will see content aggregators and content developers fall by the wayside.
But no matter who is providing the content, the operators must avoid the old telco way of thinking that equates massive commissions with the highest revenues. "It is difficult for some of the operators to change their mindset," notes Bond. "There are still a lot of operators that see the content and entertainment business as lucrative in its own right. They need to focus on increasing their network traffic to maximize access revenues, rather than trying to take lots of commission [from content]. Growing the size of the market must be the prime consideration for the carriers."
— Ray Le Maistre, European Editor, Unstrung