Pricing Mobile Messaging, Content and Entertainment services: a structured approach to maximising revenue

SUMMARY

Product overview

The mobile industry is facing great challenges at the moment. The phenomenal increase in mobile subscriber numbers which has fuelled revenue growthover recent years is coming to an end as the market saturates. However, operators are under pressure to fund new network roll-out and, in many cases,are still paying for expensive 3G licences. As a result, they cannot afford to accept established utility-type returns from their existing networks.The maximum revenues must therefore be obtained from current 2G and 2.5G networks, and operators must draw on the experience gained in offering theseservices to ensure that their 3G networks deliver the highest possible returns from launch.

Pricing Mobile Messaging, Content and Entertainmentservices: a structured approach to maximising revenue examines key elements involved in pricing these services to help operators identify the mostappropriate pricing strategy. It looks at the ways in which prices for MCE services can be structured now, and considers the kinds of pricingstructure which could emerge in future. It also considers how price levels should be set - ranging from introductory offers, through initial fullpricing, to price optimisation over time. The report looks at the impact on pricing strategy of a range of key factors - such as an operator'sapproach to content, the positioning of its competitors, and how well connected the operator is in other markets. It then draws this analysis togetherto describe a stepwise approach for operators to determine the most appropriate MCE pricing strategy given their particular set of circumstances.

PricingMobile Messaging, Content and Entertainment services: a structured approach to maximising revenue answers your key questions:

• What pricing structures are appropriate for messaging, content and entertainment services?
• How can operators and service providers find the right balance of simplicity and sophistication of structure?
• How should pricing levels be set, and how should their evolution be managed towards optimal prices over time?
• What options are there in approaching the sourcing of content, and how do they affect pricing strategy?
• How should market position and alliances affect pricing strategies for MCE services?
• How will competitors' pricing strategies affect the appropriateness of different strategy options?

Who should read this report?

• Mobile operators and MVNOs: to maximise revenues by understanding the alternative pricing strategies that can be used for MCE services, andusing the structured approach outlined by Analysys to determine the appropriate strategy for their organisation
• Content providers: to strengthen their negotiating position through an understanding of the market dynamics that will affect differentoperators' choice of partnership arrangements with content providers, and the motivation and rationale behind their differing pricing strategies
• Billing and customer care vendors: to better meet the needs of operators offering MCE services by identifying future trends in pricing structureand complexity
• Regulators and analysts: to develop an understanding of the approaches to pricing of MCE services and the motivation behind those prices

TABLE OF CONTENTS

0 Summary

1 Appropriate price structures and levels are essential for the success of new services

2 The structure of prices will evolve as services become established

• 2.1 Several principles guide pricing structure
• 2.2 Operators can choose from a wide variety of pricing structures
• 2.3 Event-based charging is dominant for both transport and content, but other approaches are being tried
• 2.4 Current pricing structures reflect many but not all of the available options
• 2.5 A greater diversity of pricing structures will emerge in future

3 Price levels must reflect perceived value while covering costs

• 3.1 Prices for messaging, content and entertainment will not follow the steady decline observed for voice services
• 3.2 Most operators have set their initial prices by analogy with similar existing services
• 3.3 Price optimisation should be the priority over the next few years, to maximise revenues and earnings

4 Market positioning is a crucial element in defining pricing strategy

• 4.1 Strategic options can be illustrated by a 'typical' Western European mobile market
• 4.2 Our example demonstrates that optimal strategies are heavily dependent on the competitive environment
• 4.3 The choice of MCE pricing strategy could make a difference of more than 16% to an operator's total mobile revenues in 2008

5 Operators should follow a stepwise approach in setting prices

• 5.1 Understand your market position and competitive environment
• 5.2 Decide on the appropriate content strategy
• 5.3 Decide on the appropriate pricing strategy
• 5.4 Take account of key principles when setting price structures and levels

Actions

List of figures and tables

• Figure 1.1: Mobile service revenue in Western Europe, 2002 and 2008
• Figure 1.2: Mobile service revenue distribution in Western Europe, 2002 and 2008
• Table 1.1: Mobile messaging, content and entertainment services
• Table 1.2: Comparison of network usage, pricing and revenue across MCE services
• Table 2.1: Transport pricing structures and pricing considerations
• Table 2.2: Third-party content pricing structures and pricing considerations
• Table 2.3: Combinations of transport and content pricing for MCE services
• Figure 3.1: Historical evolution of ARPU for mobile voice services
• Figure 3.2: Anticipated evolution of ARPU for a messaging or content-based service
• Table 3.1: Selection of introductory offers used for MMS in Western Europe
• Figure 3.3: Examples of pricing for sending SMS and MMS in Western Europe
• Table 3.2: Pricing analogies for content services
• Figure 3.4: Price ranges observed for different services across a selection of operators in Western Europe
• Figure 4.1: Breakdown of Europia's mobile subscribers by operator and market segment, 2003
• Figure 4.2: Alternative pricing strategies for mobile MCE services
• Figure 4.3: Composition of Green's MCE revenues by strategy, 2008
• Figure 4.4: Green's total MCE revenues by strategy, 2003?8
• Figure 4.5: Breakdown of MCE market share (by revenue) by strategy, 2008
• Figure 4.6: Total mobile revenues by strategy, 2008
• Figure 5.1: A stepwise approach to determining MCE pricing strategy
• Table 5.1: Assessment of the suitability of content strategies against an operator's size
• Table 5.2: Assessment of the suitability of content strategies against an operator's partnerships
• Table 5.3: Assessment of the suitability of content strategies against an operator's strengths/reputation
• Table 5.4: Assessment of budget and targeted pricing strategies against an operator's size
• Table 5.5: Assessment of budget and targeted pricing strategies against an operator's strengths/reputation
• Table 5.6: Assessment of budget and targeted pricing strategies against the strategy of an operator's main competitor
• Table 5.7: Assessment of budget and targeted pricing strategies against the flexibility of an operator's billing system
• Table 5.8: Assessment of budget and targeted pricing strategies against an operator's required resource availability
• Table 5.9: Key principles for implementing pricing strategies