T Fundamentals of Network Media

Transcription

1 1 T Fundamentals of Network Media Mobile Communications Business Sakari Luukkainen Helsinki University of Technology Telecommunications Software and Multimedia Laboratory

2 2 Agenda Telecommunications business related studies at TML lab Current mobile market situation in Finland Future evolution of mobile networks

3 3 Telecommunications Management New technologies enable many new services, the demand of which is difficult to predict There is an increasing number of positions in telecommunications companies, which require technoeconomic skills as well as abilities to work in an international environment The goal is to understand the structure and dynamics of economic life and industry with a special focus on the telecommunications business

4 4 Telecommunications Management Telecom Industrial Management Internet & Multimedia

5 5 R&D Sales Legal 3URGXFW 0DQDJHU Production Customers Marketing

6 6 Core courses T Telecommunications Architectures T Multimedia Technology T Computer Networks TU Strategic Management of Tech. and Innovation T Development of Business Processes TU Marketing Management T Tech. Management in Telecom. Industry T Research Seminar on Telecom. Business I T Research Seminar on Telecom. Business II

7 7 Master s Thesis Scope Technology / Product Strategy Analysis Telecom Service Design Integration of ICT & Business Processes Business Analyses Specific to Telecom Sectors

8 8 Telecommunications Management The students are encouraged to emphasize language studies since the telecommunications industry is truly an international one (seminars and master s thesis in English) Telecommunications Management studies will open up positions in e.g. product management, product marketing, sales, consulting and R&D project management in the telecom sector There is also a possibility for postgraduate studies in Telecommunications Management

9 9 Mobile market in Finland During the 1990s Finland was the forerunner in mobile voice and SMS Saturation of mobile subscriptions was reached quite early on in Finland Currently only slow to moderate growth in both fixed and mobile telecommunications In new mobile data services not any more clear forerunner position V H Q R K ÃS LOH E R ÃP LWK ÃZ V H P R IÃK W ÃR Q H UF H <HDU Source: Ficom 2003

10 10 Categorization of industry actors Network operators 7UDGLWLRQDOFRPSDQLHVWKDWKDYHJUDGXDOO\EXLOWWKHLU LQIUDVWUXFWXUH $OOPRELOHWUDIILFVWLOOSDVVHVWKURXJKWKHLULQIUDVWUXFWXUH UHJDUGOHVVRIQHZVHUYLFHSURYLGHUV Service providers 7UDGLWLRQDOWHOHFRPPXQLFDWLRQVVHUYLFHSURYLGHUV GLYHUVHFRPSHWLWRUV Branding partners 2XWVLGHSDUWQHUVWKDWOHQGWKHLUEUDQGQDPHWRVHUYLFH SURYLGHUV

11 11 Current actors 1HWZRUN 6HUYLFH %UDQG TeliaSonera Radiolinja Origo Finnet Verkot TeliaSonera Saunalahti Globetel ACN Finland Finnetcom NetFonet CDF Mobile Radiolinja Cubio Tele2 MTV3 Song Networks Kolumbus DNA Fujitsu Services PGOne GoMobile Wireless Maingate Hesburger Passeli

12 12 Recent developments The most significant development: the introduction of the number portability arrangement 0DNHVQXPEHUSRUWDELOLW\HDV\IRUVXEVFULEHUV,QFUHDVHGFRPSHWLWLRQKDVUHVXOWHGLQGHFOLQLQJXVHU OR\DOW\DQGLQFUHDVHGFXVWRPHUFKXUQ Diverse new entrants (MVNO) have emerged (full control over SIM cards, branding, marketing, billing and customer care, might have own CC, MSC, HLR, IN) Finnish authorities have intervened to guarantee equal network usage fees to all competitors At the beginning of March 2004 network operators cut their fees by approximately 30%

13 13 Competition Much of the competition has been and continues to be price-based Aggressive discounts in the form of free calls have been offered to new subscribers These discounts make it hard or even impossible for service providers to recover initial costs from new subscribers, especially with increased customer churn Costs of getting new subscriber is 370 with 7 margin pay back time is 4,4 years (Brummer 2004) Corporate customers have been able to renegotiate their contracts Source: Kohonen 2004

14 14 Customer lock-in Investments in varying complementary assets related to the actual investment influence switching costs When the switching costs from one brand to another are substantial, customers face lock-in Low number of moving customers before portability of telephone number Switching cost can be collective e.g. cheaper calls inside smaller groups Total switching cost = costs the customer bears + costs the new supplier bears Switching is likely to appear when customer value between the competing offerings are more than total sw cost

15 15 Competition Campaigns are timed at the end and beginning of the school semester and before Christmas Also the launch of the number portability arrangement was followed by aggressive campaigns The significant number of portings in February is mostly from ACN U V H E P X ÃQ G U W H R /03 9/03 10/03 11/03 12/03 1/04 2/04 0RQWK Source: Numpac 2003

16 16 Competition Aggressive campaigns are only effective with a specific customer segment (under 30 age group) As this segment is more likely to churn, long term profits from these customers are hard to earn More traditional service providers may be able to keep their most profitable customers &XVWRPHUV WKDW YDOXH WKHLPDJH DQGUHOLDELOLW\ RIWKHLU SURYLGHU &XVWRPHUV WKDW XVH PRUH VHUYLFHV DQGDOVR QHZ VHUYLFHV 7KHVH FXVWRPHUV FDQ EH GHYHORSHG IXUWKHU However scarce competition through differentiation Source: Kohonen 2004

17 17 Service offerings Post-paid services have always been dominant in Finland Only 5% market share for pre-paid, compare with over 80% in some European countries and 50% in Sweden Pre-paid likely to become more popular Clear trend: fixed prices for inter-provider calls Currently mobile data services create only few procents of operators revenues (disappointment in WAP, low GPRS usage etc.) Increasing importance of content services

18 18 Mobile content economics &DSDFLW\ QHHGHG 9DOXHSULFHWR HQGXVHU 9DOXHIRURSHUDWRU 0% SMS 160 bytes 0,14 / message 875 MMS 30 kb 0,39 / message 13 Voice 16 kb/s 0,12 / min 1 GPRS Internet access kb/s 1 / MB (ADSL 35 / month) 1 Music streaming 128 kb/s 0,5 / min 0,5 Video streaming 384 kb/s 1 / min 0,35

19 19 Content pricing One of the most fundamental features of digital goods is that their cost of production is dominated by the first-copy R&D costs, and cost of distribution is falling Majority of fixed costs are sunk costs which can not be recovered By delivering third party digital content operator value of SMS/MMS can increase (ringing tones, java games, backround pictures, weather ), in i-mode case value distribution between operator and content provider Problems related to free internet content, peer-to-peer networks Differential pricing based on customer value not cost: personalized, group, versioning

20 20 Future projections Price competition will have to settle down in the long term New offerings to target niche customers Rationalization of customer service -> move to Internet based customer service Rationalization of sales channels -> subscriptions no longer sold through specialized sales points Bundling of equipment, subscription and services may be possible Bundling could help 3G adoption rates 3G will need a boost completely new services Source: Kohonen 2004

21 21 Characteristics of ICT Innovation Magnitude of Change Discontinuous change Incremental change Time

22 22 Positioning of Mobile Networks &DSDFLW\ Mobile Wireless, WLAN DVB-H 3G, UMTS 3G, UMTS 2.5 G, GPRS/EDGE 2.5 G, GPRS/EDGE 2G, GSM 2G, GSM ap ap anp ŽaNP &RYHUDJH

23 2 G 23 Complementing solutions? 0RELOLW\ Vehicle DVB-H Outdoor Walk Fixed 2,5/3 G Indoor Walk Fixed/ Desktop Bluetooth 0,1 :/$1 UWB ESV 8VHU%LWUDWH

24 24 Discontinuous change GSM (2G) UMTS (3G) - standardized services - service innovations - technology push - market driven - no license fee - high license fee - network structure - demand determines determines capacity - high priced basic services - low priced - oligopoly - competition - profitability excellent - profitability uncertain - vertical integration - value network - mass market - segmented market - regional market - international market

25 25 3 G benefits for operators Increased capacity Broadband frequencies higher speeds up to 2 Mb/s Integration of voice and data Integration of fixed and mobile networks Global roaming Backward compatibility to 2 G, cost effective update Cheaper and incrased capacity than in 2 G Virtual Home Environment Cost effectivity of transfers Short delays Reduced power consumption 1HZVHUYLFHV Source: Westerholm 2004

26 26 Possible 3 G services Mobile ISP Virtual Home Environment Multimedia Messaging Rich voice Location based services Transactions Multimedia content streaming/downloads Killer application? After an market experimentation period we will see what flyis!

27 27 Seamless mobile IP connectivity GP RS / EDGE WLAN '9%+ UMTS WLAN PAN PAN '9%+ UMTS GP RS / EDGE

28 28 Conclusions Organic growth from new subscribers is unlikely ARPU is decreasing Number portability arrangement together with the intervention of Finnish authorities on pricing issues has lead to increased competition Owners of network infrastructure are still able to leverage their investment for profits 3G is potential source for differentiation, revolution in radiointerface, incremental evolution in services Integration of different radiointerfaces into single network is likely