How The Little Things Add Up
By Carlo Longino, Thu Nov 18 23:15:00 GMT 2004
A regulator decision here, a code of conduct there -- all kinds of decisions can hit mobile companies' bottom lines.
It's common practice for operators to charge each other, and fixed-line carriers, for connecting calls that terminate on their network, but it might be a little surprising to find out these charges account for roughly 20 percent of service revenues in the UK. This makes what might appear to be a small consumer-protection ruling by that country's telecoms regulator quite a big deal.
The regulator, Ofcom, ruled in June that mobile operators had to cut these "termination fees" by an average of about 30 percent beginning September 1, with most of the savings expected to be passed on to consumers. Cutting the fees by roughly 3p per minute may not seem like much, and perhaps operators are just being overly cautious in their forward-looking disclosure, but mmO2, Orange, Virgin and Vodafone all cited it in their latest earnings reports and outlooks as exerting downward pressure on revenues and growth.
With such a significant chunk of revenue under threat, the operators are getting creative: they're still allowed to set different rates for different times, so fixed-line carrier BT complained when T-Mobile achieved the reduction in its average rates by cutting them during the week, only to jack up its weekend rates by 86 percent. Orange also raised its weekend rates by 28 percent. The rate cuts will last until at least March 2006, but for some reason don't apply to 3G networks -- giving the operators one reason to move customers on to the new systems.
Another seemingly insignificant development this week saw UK operators and mobile content providers agree to a code of conduct governing subscription-based content services, following a raft of complaints from users that it was too hard or unclear how to unsubscribe from them -- particularly from ringtone subscription services aimed at kids, New Media Age reports. New subscribers will get an SMS explaining the details of charges and how to unsubscribe, and will get reminders every month or following every 20 pounds they spend.
Again, it seems an empty gesture to answer consumer complaints, but consider that 40 to 60 percent of subscribers to Japanese ringtone sites don't download anything in a given month, despite paying the subscription fee, according to a J@pan Inc newsletter. It calls into question how much of content providers' revenues come from unwitting subscribers -- subscribers that, given an opportunity, will quit paying.
Japanese ringtone subscriptions have dropped as much as 25% in the last six months, due mainly to users upgrading from 2G to 3G phones. When they upgrade, they're presented with a list of of the services they're paying for, and must indicate which ones they wish to keep. Instigating these monthly reminders in the UK could similarly excise a large chunk of subscribers -- and their monthly revenues -- from content providers' rolls.
The easy argument is that depending on practices like exorbitant termination charges and making unsubscribing from services intentionally difficult opens you up to these types of developments, and it's not wrong. Perhaps the effects of seemingly innocuous decisions like these will reinforce the notion that growth has to come from innovation and service, rather than possibly shady tactics.