As a research analyst trying to sell market forecasts and intelligence to mobile operators a year ago, things were not easy. Most mobile operators scarcely looked ahead, and when they did all they could see was a continuation of the good times.
Of course, the market has now changed dramatically. Yet, the published figures of the mobile operators still reflect the pursuit of subscriber above all else. And even these are hardly clear.
Take the first two paragraphs of the Vodafone third quarter statement of October 4. It contains eleven references to subscriber numbers, and trying to make sense of the underlying figures would require the detective skills of Sherlock Holmes.
Mobile operators also provide patchy details on a range of other ARPU, margin, pre-paid and contract customers totals, and churn figures. Most now provide some sort of 'percentage of revenues from data' figure to show the success of SMS. Yet, these figures are usually inconsistent, and often aggregated into meaningless totals.
In the UK, Vodafone and One2One have halted the subscriber count in the days following the end of the quarter, by stating they will delay the release of this data. T-Mobile has stated that its aims for One2One in the UK have changed from 'subscriber growth towards improving profitability'.
Few operators now disagree with this sentiment, although some make the argument that those operators moving away from subscriber numbers are those who are losing market share.
The argument is disingenuous, as the wider point is that a total subscriber figure is fairly meaningless. Of a total subscriber figure, over 10% could be inactive (and Vodafone among others have now tried to exclude inactive users) and over 70% could be pre-paid users who, with an ARPU that is typically one third of contract users, are often unprofitable.
Investment analysts have been warming to the profitability theme. Banc of America Securities wrote, on October 3, that investor attention should shift away from subscriber numbers towards "ARPU, EBITDA margins and growth in EBITDA". EBITDA is the earnings before interest, tax, depreciation and amortization - a favorite investment analyst method of measuring profitability.
So the current position is that the mobile operators provide meaningless and vague statistics. The financial analysts are pushing them to adapt more closely to their favoured measures. These financial indicators only show past performance, and hence are of little value in determining which operators will succeed in 3G.
Instead, factors such as network build, new revenue streams and application portfolio will be key areas for success which will become the main performance metrics for mobile operators.
Speed to market and network build-out
Schroder Salomon Smith Barney research suggests that the European GSM operators who were first to offer services still enjoy the highest profit margins today. More important than first-mover advantage will be quickly building coverage. Coverage proved to be the single biggest determinant for users in initial choice of GSM operator.
However, coverage is not enough. Users expect more than a nicely coloured map of the country showing where the base stations are sited. Mobile operators will need to provide metrics on three other areas; integration with GSM and GPRS, cost of network build and network reliability.
The most interesting area is reliability. Quality of service and network reliability are the single most important buying criteria for fixed network customers. As mobile solutions are used as 'serious' business applications, then users will want to understand more about the performance of the different mobile networks.
There is certainly an opportunity for mobile operators to position themselves as the 'quality provider'. Future performance metrics will allude to the ratings of independent bodies such as regulators.
Mobile operators have tended to be poor at segmenting and targeting customers, compared even to new fixed operators. The figures can be revealing as well. For example, while O2 (the strange symbol for the operator formerly known as BT Cellnet) has lost third place in the UK to Orange, according to regulator OFTEL, O2 is used by 51% of small businesses.
Mobile operators will need to tailor packages for specific vertical markets, and specifically gain strong penetration within major corporations. Operators will need to provide figures on their penetration, revenues and market share among these business segments.
Even on the consumer side, it is widely believed that the most attractive 10-20% of users can provide the vast majority of revenues and profits. In breaking down contract users, mobile operators should be keen to highlight their user numbers in the 'more than 500 minutes per month' segment.
A weakness of mobile operator has been in meeting the needs of businesses, and more specifically their IT departments. How many can claim to be strong in areas such as: solutions for integrating mobile applications into existing legacy applications, training, customer and technical support, application updates and multi-channel solutions.
There is a great opportunity for a more business-focussed approach from mobile operators. Metrics will be required of their ability to convert business users to their new packaged offerings.
Wholesale and new revenue streams
It is not just about data or m-commerce revenues, but about the ability of mobile operators to generate a whole raft of new revenue streams which can be broken down in their quarterly numbers. Take a look at the main offerings of Sonera - these include services around portals, positioning, mobile security, wireless logistics and mobile payments.
What about wholesale opportunities - an area initially ignored by fixed operators who saw it as a competitive threat, but now wholly embraced as a strong area of growth. Mobile operators will need to break down their revenues from new business areas and highlight the partnerships that they have formed to offer such services.
It would be tempting for mobile operators to use price-skimming for 3G - that is, charge a high price to early adopters. The massive differences in GPRS tariffing - one investment analyst recently estimated that the most expensive mobile operators charges more than twenty times the price per 1Mb of the cheapest operator - shows the lack of clarity in the minds of the mobile operators.
Pricing issues are further complicated by two other factors.
First, it will vary widely by country. Operators tend to use competitors' tariffs as the main pricing criterion. If all mobile operators charge a premium price, none may want to undercut the others.
Yet, some mobile operators - particularly those without infrastructure - are likely to position themselves as cheaper providers, which will effectively lead all operators in that country to bring down their prices. For example, Hutchison 3G in the UK has stated that it will be "offering advanced high-speed Internet services for about the same price as current packages".
Second, pricing will become a far more complex area. Durlacher and Eqvitec Partners estimate that there will be over 3,000 mobile applications and services offered over the next five years in Europe. Particularly for business users, these will be tailored into packages and far more customized pricing will emerge.
A further complexity for consumer pricing will be the emergence of sponsored and advertising-led services which will help subsidize handset and service costs.Mobile operators will need to articulate a clear pricing strategy which ties clearly into their market positioning.
Much of the mobile market remains immature and the performance metrics, with their emphasis on crude and meaningless data, reflect this. The key success factors for mobile operators are issues such as network reliability and coverage, business applications and customer base, and their portfolio of applications.
Mobile operators will also need to show clearly where they have positioned their business as reflected by their customer segmentation and pricing strategies. These are the areas in which they will need to publish real numbers.
Steve Wallage works and writes for the451. Steve has more than 13 years of experience as a technology analyst specializing in telecommunications.
Most recently, he was a principal analyst at Gartner Group tracking the voice, data and IP service markets for the carrier, vendor and financial community. He predicted how these markets are likely to grow, and helped develop the business plans of leading vendors while analyzing key trends in the market.