Wednesday, September 3, 2008

Prepaid key to mobile broadband growth?

Operators should look to prepaid offerings to maximise the mobile broadband opportunity in Q4 2008, rather than pinning their hopes on mobile broadband substituting fixed services, according to a new report by global advisory firm Ovum, titled 'Mobile broadband operator strategies in Western Europe'.

The research, which highlights the approaches available to operators in maximising the opportunity for mobile broadband, finds that mobile broadband services are best positioned as complementary to fixed.

"Fixed broadband penetration across Western Europe is simply too high," commented Steven Hartley, senior analyst at Ovum and the report's author. "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, according to Hartley, the window of opportunity to target these segments is closing rapidly:

"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."

Ovum says that operators in Western Europe to date have focussed on maximising the potential of mobile broadband through contract offerings. 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. 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, says Ovum.

As a result, Ovum is predicting 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.

"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," concluded Hartley.

An interesting standpoint given the current widely-held view that mobile broadband has the potential to eat into fixed broadband revenue. Should we expect more rolling contracts like those currently offered by Vodafone, T-Mobile and O2? Watch this space.

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