Is That Kid Next Door the Future of Mobile Data?
By Eric Ransdell, Fri Jan 17 13:30:00 GMT 2003
Experts warn: “Don’t bet your money on kids alone.”
Li Ping Hsu has one 17-year-old son and one big problem. Two years ago she and her husband bought their son, Zhu Mang, a mobile phone as a gift after he scored well on his year-end exams. Last year when he said he needed a computer for school, they bought him an Apple iMac. And earlier this year they had ADSL installed in their modest apartment in Shanghai's former French Concession. Now their son is asking them to sign him up for China Mobile's new GPRS service and his mother, at least, is wondering where it will all end.
"Every year it's something new," Hsu says as she takes a sip from a steaming glass of green tea. "And if it's not something big like a computer, it's some sort of service that ends up costing us the same, or even more, over time. We try to give him every advantage, but they keep inventing new things that he absolutely has to have. And if we don't give them to him we end up feeling like bad parents."
Hsu and her husband are not alone. Not only in China, but around the world, parents are feeling the pinch as they try and keep their children outfitted with the latest technological devices and services in what amounts to the teenage equivalent of an arms race. In terms of mobile data services, the question of whether parents like the Hsu's will continue to ante up for ever more expensive services is one that may just determine the future of the entire wireless industry.
Why? Because wireless operators, vendors and service providers are all betting on teenagers to drive adoption of the next generation mobile data services that will justify their massive spending on 3G networks, handsets and services. According to a report by KPMG Consulting, European network operators are believed to be working under the assumption that mobile data services will result in a doubling in average usage levels per phone from 8 to 15 minutes per day.
The Y Chromosome
That kind of growth is not expected to come from business users - at least not in the short run. The hope is that it will be Generation Y that segment of society born between 1979 and 1994 that drives the uptake of next generation mobile services. In the US, Generation Y is three times as large as its predecessor, Generation X, and only slightly less sizable than America's Baby Boomers.
Among analysts there is little doubt that it was teenagers who drove the adoption of SMS and unleashed the mobile data services revolution by turning what was once considered a rather irrelevant handset feature into a global phenomenon. In Asia, mobile data services currently account for 10 percent of operator revenues. In Western Europe, mobile data services accounts for EUR 2.5 billion of a total mobile services market of EUR 104 billion.
But the mobile data services market worldwide is currently driven by SMS. The question now is will teenagers, not to mention the parents who pay their bills, go for the much more expensive, always-on services over GPRS & 3G? If prices were going to be comparable to those of SMS, the industry would have little to worry about. But to recoup their huge investments, operators are going to have to make the next generation of mobile data services infinitely more expensive. In Japan, for example, it currently costs 6-10 times more to send a photo message over the country's new 3G networks than a regular SMS. In the US, downloading a game over WAP can cost as much as 30 times more than a single text message.
That makes 3G services prohibitively expensive for teenagers on limited or parentally controlled budgets. But unlike other sectors of the market, the teen market is the most susceptible to peer pressure. Just as no teenager wants to be the only kid in his class who doesn't have the latest Playstation or PC, Genetration Y'ers are also expected to demand the most technologically advanced phones - particularly at a time when getting a mobile phone is increasingly being viewed as a 21st Century coming of age ritual. "When we look at the growth and penetration of cell phones among teens," explains Dylan Brooks, senior analyst for wireless and broadband for Jupiter Research, "it's basically seen as kind of a mark that you've arrived, that you're an adult."
This is where the idea of teens driving 2.5G and 3G data services adoption becomes more hope than hype. Currently in almost every developed country, wireless continues to enjoy its greatest penetration among teenagers. Three years ago in the US, for example, the number of teenagers with mobile phones was 20 percent. Today that number is up to 41 percent.
And these newly wireless teens are clearly eager to do more with their new mobile handsets than just make calls. A study commissioned by Nokia and conducted by HPI Research Group in Brazil, Italy, Germany, Singapore, Britain and the US, found that 67 percent of 16-19 year olds were excited about using new data service delivery systems such as MMS.
The New Rules of the Game
Downloadable ringtones, wallpaper and logos have already proven the most popular among teens. But many analysts feel the biggest driver will be downloadable games enabled by Java (J2ME) handsets. In the US games already account for 15 percent of wireless data usage. In Western Europe the mobile games market is currently estimated at EUR 273 million and could generate EUR 4 Billion by 2008, according to "Mobile Content and Entertainment: Forecasting the Future for Games and Other Wireless Content" a November 2002 report by London's Analysys Research. .
As to who will pay for these new services, parents have proved amazingly adept at providing their teenagers with everything from email accounts to broadband, not to mention keeping pace with the rising cost of every form of entertainment from movies to compact discs to console games. Says Katrina Bond, a principal with London's Analysys Research: "Mobile data services will draw not just on past budgets for mobile communication, but also on entertainment budgets more generally, particularly for teens." Changing lifestyle trends among teens will also account for more disposable income. Bond cites a survey commissioned by the Duke of Edinburgh Awards, which found that a reduction of teenage smoking has resulted in British teens reallocating some of their budgets for cigarettes to mobile communications.
Advanced markets such as Japan and Korea are also proving that, so far, teenage consumers are willing to pay for these new services. In Korea, teenagers have been identified as the main market driver for the nation's new 3G networks that were rolled out in early 2002. According to a study by the International Telecommunications Union, although Korean teenagers have the second lowest average revenue per user after over-50s, they are currently spending a third of their average $27 a month expenditure on data services. That's the good news. The bad news is that for those in the 20-24 year-old age group, data services spending drops by half. And by the age of 30 it is a mere $1 per user.
MTV vs. 3G
"There's an ingrained belief that if you're getting a young user it will percolate up into the old users," says Jupiter's Dylan Brooks. "But people worry about the MTV factor, sure it's got great penetration among the young, but when you're 30 how often do you watch MTV? People just don't end up hooked for life like they might be with cigarettes."
In the near term, Brooks isn't certain the teen market will be the primary driver for next generation mobile services because of the high cost of those services. "The maturation of SMS text messaging has shown that it can penetrate across wage categories," Brooks explains. "But I'm not certain that will hold true for things like photo messaging, games downloads and other next generation services. In Japan, you're not seeing a teen-led stampede on the photo-messaging or application side, it does still skew younger, but that's more because of twenty-somethings who have a lot of disposable income."
So will teens, and the parents who foot their bills, drive the next mobile data services revolution? Brooks thinks they definitely have a significant role to play. Out of an average family's multimedia budget for teenagers, he estimates that wireless (including data services) will account for about $40 a month, somewhat lower than total spending on cable and video/DVD rentals, but higher than broadband. In effect, it will take replace most family's spending for a fixed line phone for their teenagers. And while those "teen phones" have definitely helped operators bottom lines, they haven't been the primary driver of growth in the fixed-line industry.
As Brooks puts it:"Looking for teenagers to be an early experimental base is an intelligent thing for to be doing, basing your future business model on them is not."
Eric Ransdell is the former Silicon Valley Bureau Chief for US News and World Report magazine. Now living in Shanghai, he covers mobile technology in Asia.