Tuesday Oct 03, 2006

Own label mobile handsets

The mobile phone is already established as the world's largest and fastest growing consumer electronic product in history.  Earlier this year Strategy Analytics, a technology research firm, forecast that sales of handsets worldwide could top one billion in 2006 for the first time - of which the vast majority will have the Java programming language pre-installed

In most developed markets, operators heavily subsidise the cost of the handset to new subscribers.  This frequently results in the break-even point in a twelve month contract being delayed until month nine or ten.  At the end of the contract typically some 20-25 per cent of subscribers then 'churn' by not renewing the 12 month contract and switching to another mobile operator, often encouraged to do so by the offer of the latest handset model.

The handset market is dominated by five manfacturers: Nokia; Motorola; Samsung; Siemens; and Sony Ericsson.  Each year most new models are launched at the end of the summer in order to drive subscriber-led demand in period leading to the pre-Christmas sales peak.  In the week immediately before Christmas, an operator can achieve up to 10% of their annual new subscriber sales.

Since handset subsidies account for such a high proportion of new subscriber acquisition costs, it is perhaps surprising that operators have not created their own 'private label' handsets tied to their network just like the SIM card.  Operators could design the handset to link to their own service offering, e.g. add a button to access 'walled garden' services such as T-Zones or Vodafone Live!

Last week it was reported that Vodafone was in talks with a Chinese company that already produces handsets under licence for one or more of the five main manufacturers.  Such an arrangement would surely provide Vodafone with a competitive price advantage through lower handset subsidy costs (subject to there being sufficient consumer demand and acceptance to achieve the necessary production volumes).  Assuming that the rate of handset technical innovation slows down or the market segments into distinct categories, e.g. camera phones, integrated MP3 player phones, etc., in the same way that other consumer electronic products mature, e.g. DVD players, then handsets over time will become less important in driving new (retaining existing) subscriber sales.

At present, the handset functional features rather than the network is the main sales tool and talking point at the point of purchase.  Without a constant flow of new handsets, sales executives in The Link, Carphonewarehouse or Phones4U might need to be retrained to differentiate between the retailer's offers.

Monday Oct 02, 2006

Aren't channels "old hat" nowadays?

The argument goes that mass market media such as broadcast television are now in terminal decline. In the future, consumers will be able to compile their own personalised viewing, listening or reading schedule from a vast range of digitally distributed content. Instead of linear consumption, viewers will be able to choose between real time programming, e.g. live sports coverage or time-lapsed pre-published content, e.g. feature films.

Everywhere you look, there is more evidence of media fragmentation. Last Friday, in addition to the free newspapers being handed out in the street to London commuters, there were two themed free sports titles: Take Sport (an A5 glossy not to be confused with Talk Sport) and Sport (colour sub sized tabloid not to be confused with the Daily Sport - which is something entirely different). In terms of editorial positioning, a good rule of thumb for any title aimed at men is the bikini count. The Sport had only one full page bikini picture (Tiger Wood's wife) compared to Take Sport that had five bikini pictures each of which were only very loosely connected with the written coverage. This does not include a feature on beach volleyball or the advertising.

Is this further evidence of themed media replacing channel media?

Broadcasters and newspaper publishers have traditionally produced range of editorial content in an effort to appeal to the widest possible audience. National newspapers, for example, combine hard news reporting with softer features (helping to drive category advertising), reviews, crosswords and television listings. Most of the large Internet portal sites have followed this route by organising content (usually third-party feeds) under themed channels, e.g. Yahoo! Sport, News, Dating, Shopping, etc. In a multi-channel environment, viewers are more likely to use the remote control to switch between channels (particularly during the commercial breaks) to seek out alternative programmes.

Nowadays, broadcasters acknowledge this behaviour and arrange their schedules in 30 minute segments. For themed channels that broadcast only one programming category, viewers know in advance what to expect. This is a long way from the days when people would sit down to watch ITV or BBC1 as soon as they got home from work and continue viewing the same channel all evening - like an audience for a variety show in a theatre.

Rather than the media fragmenting, more niche channels themed around specific interests seem to be emerging both in tradional media and online. It looks like the channel is around for some time to come.

Friday Sep 29, 2006

SunLIVE06:Telco & Media on Thurs 05 October

SunLIVE06: Telco, Media & Entertainment
Everything & Everybody Participating on the Network.

One
day conference and Sun technology exhibition for all executives working
in the telecoms, Media and entertainment industries taking place on
Thursday 5th October at the Sun London Customer Briefing Centre, EC4 - Cannon Street & Monument/Bank.

Register today- it’s free to attend.

Telecom San Frontières, Internet With Borders

Most of the so-called early Internet evangelists proclaimed that the World Wide Web would develop into a global community-based resource, freely available to all users irrespective of where they were in the world. Instead, several recent events have highlighted how the Web is increasingly being segmented by national borders by Web site owners.

1) A couple of weeks ago, the New York Times blocked users from the UK (presumably based on their IP address) accessing its site to read an article about the ongoing investigations into the alleged plot to blow up planes bound for the US over the Atlantic.  For good reason.  The NYT wanted to ensure that its reporting was not deemed to be 'in contempt of court' in the UK. Under English law, the defense counsel can claim that media reporting before or during the trial may have influenced the jury.  This contrasts to high profile trails in the US such as O J Simpson or Michael Jackson that are simultaneously played out in the tabloid media.

2) Collaboration for commercial gain between Internet companies and authoritarian governments, most notably Google in China. As I understand it, Google has agreed to remove all references to web sites or subject categories in its search results, presumably as required by the Chinese government. Since search engine algorithms are kept highly secret, it's anyone's guess as to whether this same collaboration might be applied by search engines elsewhere.

3) National pricing and product offers. The most high profile site Apple iTunes.  Like most online retailing sites, iTunes directs users to a country-based versions of its download sites. Each national front page highlights content and rankings in local language. iTunes also charges different prices for the same music downloads dependent on which country site you access the track from: .com US$0.99 (Euro 0.78); .de Euro 0.99; .co.uk £0.79 (Euro 1.16).

As we increasingly move towards the Web 2.0 model, and individual users rather than Web site owners post most of the content online, this trend is likely to be accentuated further. If for example you are browsing other user's online profiles at Myspace, you are more likely to be interested in people located near to you. Having said that, an old school friend of mine met his now wife in a Yahoo! chatroom. He lived in Brighton on the English south coast - she was a Texan gal (sic) from Fort Worth.

Thursday Sep 28, 2006

Telecom San Frontières

Telephony is the only truly borderless, global utility. Not withstanding government interference in certain regions of the world, it is possible to make a 'direct dial' call from virtually any part of the populated world to someone located on another continent or just a few miles away. Most people don't tolerate not being able to get through first time.

In some countries, the former state owned telephone operators have a statutory duty to provide sufficient network capacity to handle emergency calls. Most mobile operators build into their SIM cards a tiered network access priority that enables certain groups to have preference during peak traffic periods, e.g. business contract users ahead of pay-as-you-go customers.

Historically, the switching of voice traffic between national operators has required agreed common technical protocols and financial mechanisms to reconcile payments between operators. Many of the commercial agreements probably emerged from systems set-up to handle post and parcels. In zones of conflict or areas affected by natural disasters around the world, a breakdown in telecoms resulting from ground stations or exchanges being out of action, as recently happened in southern Lebanon, can impair relief efforts just as much as bombed bridges, railway lines or airport runways.

A French based charity Télécoms San Frontières (TSF) has recently set-up a rapid response team modelled on the better known Médecins Sans Frontières, to provide immediate emergency on-the-ground relief. Télécoms San Frontières operates using lightweight satellite phones connected to the Inmarsat network.

At first as a charitable concept, in comparison to Médecins Sans Frontières, a dedicated telecoms emergency service might seem to be rather indulgent or superfluous. Medical supplies and care administered by trained practitioners must surely be more important in an emergency situation.

But telecoms support can greatly increase the efficiency of directing aid and emergency supplies to where it is needed most. For the relief organisations, getting the message with video pictures can help raise awareness of the severity of the need and contribute to fundraising efforts in donor countries.

Wednesday Sep 27, 2006

Web 3.0? It comes after Web 2.0...

Further thoughts on how Web 2.0 differs from has come before it and definitions for Web 3.0 and beyond.  Read Paul Wallace's blog.

Newspapers: does the 'long tail' apply to new entrants?

Every couple of years, a new business idea comes along that immediately seems to be liberally applied to all sorts of business situations and issues. Very soon, you start to hear people using it outside of its original business context.

In his book, 'The Long Tail: How Endless Choice is Creating Unlimited Demand', Chris Anderson suggests that businesses are increasingly shifting away from a focus on a relatively small number of hits (mainstream products and markets at the head of the demand curve, i.e. the traditional 80:20 rule) and moving toward a huge number of niches in the tail. He argues that the 'long tail' can be applied across most product sectors and markets - whether or not they are online businesses.

His original article in Wired magazine reportedly resulted from a conversation he first had with the CEO of Ecast, an online music store. It emerged that of the 10,000 albums available to download from the Ecast web site, a staggering 98% sold at least one track per quarter. Unlike conventional music retailers, constrained by the amount of real estate and promotional point-of-sale display, the economics of online retailing are shifting sales away from hit albums in the charts.

The same principles can be applied to book sales and publishing but not to newspapers.

Newspapers are the most perishable of all consumer products. The retail shelf life of a daily newspaper is usually 12 hours at the most. Nobody wants to read yesterday's news.

Added to this, a high proportion of the cost of publishing a newspaper is accounted for by its printing and distribution as well as newsgathering and marketing costs. Substantial economies of scale and high entry costs, not to mention the defensive actions of existing players, has acted as a barrier to new entrants. The print unions also used to exploit the perishability of newspapers knowing that any production stoppages could irreversibly restrict sales for that edition.

For these reasons, we are unlikely to see the same number of new market players as compared to broadcasting or online. Furthermore, falling circulations among existing titles will force publishers to diversify into new areas to distribute their cost bases. In the past few weeks, the Daily Telegraph, the Times and the FT have all announced plans to create a single newsroom operation combining their print and online operations.

BTW: Unlike many business books that try to expand a single idea to a 250,000 word essay, Chris Anderson's book is both highly readable and relevant with many real-life examples.

Tuesday Sep 26, 2006

Making the Network relevant (again)

Most major fixed line carriers around the world are facing the same challenge. They are having to confront new 'disruptive' technologies such as VoIP, Voice over Internet Protocol that threaten their traditional subscription-based revenue base, that until now has provided the steady cash flow to fund investment in their networks.

At the moment, the fixed line operators control most of the access to the Internet through broadband connections. But as we move from a 'network of computers' towards a 'network of devices connnecting everything and everybody', this will have the potential to marginalise the network operators.

For most end-user consumers, whether they are sending an email, uploading pictures from a digital camera to the flickr Web site or browsing items on eBay, they do not care about the network transporting their content. By definition, IP technology routes Internet traffic over inter-connected parallel networks. For business, its different. Particularly for the financial markets sector, network security and service reliability are critical requirements.

Former state monopolies are also under pressure from their respective regulators to build and then open up to their competitors a full end-to-end IP network. BT, British Telecom are at the forefront of building such a network - 21st Century Network. Several operators in North America have publicly stated that they are waiting to see what happens with BT's 21CN before announcing their own plans to upgrade their network infrastructure.

Five years or so ago, as the Internet was being rapidly rolled out to consumers, there was a tabloid fuelled debate around censoring Internet content. Sensibly, the operators stood back from the issue. Collectively they said that they could not be held responsible for the type of material that customers accessed online, in the same way that they did not listen into and monitor telephone conversations.

Now as we enter Web 2.0 and content proves to be one of the main service offering differentiators, the operators need again to make their networks relevant. By offering a range of 'value-added' services to different customer groups, they need to be more involved in the bits and the bytes that run down their fibre.

Sunday Sep 24, 2006

Telcom operators lead in utility pricing

It was said that Moscow during the Soviet era had a highly efficient telephone system. For the small number of elite nomenclatura that had access to a telephone, they enjoyed a high standard of service. It only emerged after the Soviet system collapsed that it struggled to handle any type of usage based subscriber billing. In the early 1990s, many Muscovites were able to make all their calls for free.

Unlike other utility businesses such as gas or electricity which charge their customers by the amount consumed, e.g. cubic metres or kilowatt hours, telephone operators have set up hugely complex tarrifs. Apart from a standing charge, calls can be charged for by: 1, duration (down to the second); 2, distance or destination; 3, type of network or by individual network operator; 4, time of day; and 5, need to take account of different tariff calling plans.

This expertise in micro billing systems positions telecom operators in a strong position to compete for managing other usage based businesses as they emerge. One area will be road pricing that is likely to be based on distances travelled at certain times of day and on different types of road, probably linked back to the type and CO2 emissions of the vehicle. Vehicle location readings can be tracked either via GPS satellite or within WiMax cells linked to ground stations. This would be much like the TomTom® in car navigation system that uses bluetooth to link via a mobile phone on the ground for data on congestion and traffic flow.

Several insurance companies in the UK have announced that they are looking into usage based premiums for motoring policies rather than the current underwriting of annual mileage bands. Dependent on the spectrum allocated to road pricing, as Wi-Max technology develops the mobile operators should be in a very strong position with their existing base station infrastructure.

Friday Sep 22, 2006

eTailing - isn't it simply mail order online?

Continuing the theme from yesterday around the hype and excesses of dot com start-ups in the period leading up to the bubble bursting in spring 2001, I remember taking part in a brainstrorming session (with my previous employer) in New York looking at potential new business partners among technology start-ups.

At the time, my 'old economy' company was being approached by a stream of Internet start-ups, mainly it seemed so that they could be publicly associated with a large multinational organisation with its own dedicated sales force around the world. As I recall however, the joint go-to-market discussions never seemed to progress beyond North America.

Many of these start-ups were convinced that online retailers were in the process of re-writing all the rules of retailing rules. This was a view shared by most of my colleagues. In their view, it no longer mattered what product category was being sold, consumers would over time naturally prefer to buy online from sites that offered them greater product choice and price transparency than visiting a store.

Surely, I argued, wouldn't the new online model follow the conventional mail order rules? Was it not a case of simply transferring the contents of a printed product catalogue online? In the end, its still all about proximity to the store, shipping costs and shopping experience. Nobody else agreed. I was simply too European and lacked vision.

Firstly, certain product categories are simply not suited to eTailing. These maybe heavy, low cost bulky items. Using an extreme example such as cement, the delivery costs form a large part of the pricing. As pets.com later found out, cat litter and dried dog food also falls into this category.

Secondly, online retail sites are not suited to the luxury shopping experience. I am told that part of the pleasure of buying a Rolex is the visit to the store and being pampered by the sales staff. Displaying Rolex watches alongside other brands removes a certian amount of the brand's supposed exclusivity.

Thirdly, the demand for mail order goods depends on the customer's own proximity to a retail store. Customers living in remote villages in the American mid West or the Highlands of Scotland should have a higher need for mail order (displosable incomes notwithstanding) than someone who works and lives in downtown Manhatten.

It always surprises me when I see Amazon.com referred to as an Internet company. Without doubt, the design, functionality and usability of its web site has re-defined online shopping, but at its core, its business centres around managing a successful low margin retailing business including pricing and discounting, inventory control and predicting consumer demand.

Thursday Sep 21, 2006

Web 2.0 - so where's all the hype this time?

Around a year before the dot com bubble burst while I was working in the US, I remember seeing a double page spread advertisement in the Wall Street Journal (rate card cost $100,000+) for an Internet start-up retailer. The online retailer claimed that its low cost base enabled it to pass on substantial cost savings to customers on a range of everyday consumer electronic products. Furthermore, it was able to aggregate demand across other online retailers in order to buy at a high discount levels from manufacturers.

Curious, I checked out what was on available to buy at the company's web site. Incredibly, the web site had less than a dozen items listed - a smaller range than most street vendors and certainly less than a corner shop.

Firstly, was it not pre-mature for this company to be spending its investors’ funds on advertising before it had a competitive offer? And secondly, why choose to advertise in the financial press, in a publication that commands a high CPM (cost per thousand impressions) when USA Today for example, would have offered far more value for money - and most likely more retail sales?

Of course, we now know the answer. The firm was probably not interested in making any sales from the advertisement at all but instead seeking to prepare itself for an IPO, an initial public offering on Wall Street.

Despite the fact that Web 2.0 has already created a handful of successful businesses, the company's involved are by comparison understated in their self-promotion. This is partly due to a low investor appetite for pure-play technology IPOs. In most cases, where start-ups have been sold, it has been to an established company, e.g. myspace to News Corp., friendreunited to ITV.

At the same time, the Internet itself has developed into a far more effective communications vehicle for companies to get themselves known - and consequently they have become less reliant on traditional media advertising to grow their businesses (and get themselves noticed by the investment community).

Wednesday Sep 20, 2006

London freesheet battle: 200 metres, 11 distribution points and 8 newspapers

On my short walk of just 200 metres from the Sun office to Cannon Street station last night, I passed eleven newspaper distributors: 4 Standard Lite; 3 the London Paper; and 3 the Evening Standard. Some days of the week, there are also people standing outside the station handing out sample copies of the FT and Daily Telegraph, produced in the hope that people will be encouraged to buy the full paid-for version the next day.

On my inward journey during the morning rush hour, I can pick-up a copy of the Metro (exclusively distributed from bins inside the station) or take a copy of City AM from a distributor standing outside in the street. Occasionally, there are people handing out copies of Money Market, a monthly consumer finance title, printed on pink newsprint similar to the FT colour. Additionally, there are a couple of classified job listings magazines that are selectively handed out to anyone that looks like they maybe a legal secretary or office administrator.

This explosion in freesheets over the past twelve months is taking place at a time when newspaper readership overall is falling and much of the classified advertising is moving onto the Web.

Why have Associated Newspapers and News International (the UK publishing arm of News Corporation), the two most successful newspaper groups in the country decided to produce freesheets? Do they believe the future of newspapers is to be free? After all, news is mainly free on the Internet.

In the future, newspapers might only be able to charge a cover price for expert analysis, comment and opinion. Although readers recognise that online news doesn't always offer the breadth and depth of coverage that they would find in the printed version, for most its still 'good enough'. But in research, many readers surveyed say that they are "turned-off" by heavily opinionated newspaper reporting.

I suspect that both groups are mainly interested in the contract to be awarded by London's mayor for the evening distribution rights using the bins placed in London underground stations. These contain copies of Metro during the morning rush hour (a title part-owned by Associated). As a market, London can probably still support several free newspapers. Since so much of the UK's wealth is concentrated in and around the capital, the London commuter market is highly attractive to advertisers. The problem for Associated is that their attempts to fend off any new entrant is likely to be equally damaging to the Evening Standard. A couple of weeks ago, the cover price was raised to 50 pence perhaps to compensate for expected falling sales.

In Associated and News International, there are two highly competitive and successful companies with deep pockets, neither of whom will expect to withdraw voluntarily from the London market.

Tuesday Sep 19, 2006

Broadcasting: how the 'Long Tail' applies to television channels

Flicking through the numerous channels on my Sky satellite television system, I am constantly amazed that there can be sufficient numbers of viewers to make most of the channels financially viable. Despite the number of channels on offer, the majority of viewing among the 8 million or so homes that receive their television through the BSkyB system is still accounted for by the combined total for the terrestrial: BBC1; BBC2; ITV1; C4 and C5 plus a handful of other channels such as Sky One.

Surfing across the channels, its apparent that rather than presenting the viewer with a wide choice and diversity of programming, satellite like most commercial broadcasting markets simply delivers more variety of the same thing. A couple of dozen channels all showing pop videos, subscription channels showing Hollywood films previously successful at the box office and themed channels showing repeats from mainstream channels.

How can they all co-exist? Can there really be a sufficiently large enough audience to make these channels financially viable? This must be where theory of the Long Tail kicks-in.

Like the example of video rentals used in Chris Anderson's book, most of the channels that form part of the long tail in broadcasting undertake little if any original programme production themselves. Most only show re-runs or repeats from other networks. When there is original programming, such as on the shopping channels (yes, this is original programming) production costs (and hence values) are kept to an absolute minimum.

Most of the channels in the 'long tail' probably only provide 'top up' grazing rather than core, pre-planned viewing for most of their audience. The main broadcasters are still able to attract event based audiences particulatly around talent shows and reality programmes that are widely covered in other Media.

Much of the 'long tail' audience typically consists of the under 25 age group who are much more indiscriminate and haphazard in their viewing habits than older groups, despite these audiences in most cases having the same number of channels to choose from on their remote control.

Thursday Sep 14, 2006

Interoperability drives growth & will limit Apple's iPod strategy

Working for an IT company, people naturally expect you to know about all sorts of technology. A couple of days ago, an economist friend rang me up to ask whether he should buy an MP3 player or an Apple iPod. As an iPod Mini owner myself and regular downloader of Podcasts from the iTunes site, I recommended that he buy a generic MP3 player particularly since I have needed to return my iPod Mini for repair twice under its warranty.

The iPod product family has been a runaway success for Apple and largely responsible for restoring the company's fortunes. But like the Apple Macintosh computer before it, having adopted a closed proprietary platform in terms of its digital rights management system, the current success of the iPod is unlikely to be either scalable or sustainable in the longer term. Just as the Mac lost out to cloned IBM personal computers in terms of market share, it's likely that over time the iPpod will lose to the MP3 players that have adopted industry standard DRM software instead.

Again like the Mac, the iPod has a stylish and distinctive design. Its rotary wheel device control offers best-in-class usability. In the UK, iTunes peaked at 70 per cent market share of music downloads but in the past tweleve months, as the content owners themselves such as HMV/EMI woke up to the fact that online distribution was the future, as well as new start-up aggregator sites, have entered the market. Most of these download sites are able to offer a considerably larger music catalogue than iTunes and I believe without exception have undercut the GBP 0.79 price per single file download charged by Apple iTunes.

It seems like a direct replay of the Mac vs PC battle. For the time being, there will be many iPod loyalists, willing to pay a premium for its distinctive design and usability. But the market as a whole is moving towards the common DRM standards providing another example of the laws of free trade, showing that collaborative market participation drives overall growth.

As a post script, in the pub last night my friend told me that despite my advice he was going to buy an iPod anyway, since his girlfriend thought they looked "cool". Now that's the power of branding.

Thanks also to Tawky Tawny who pointed out that the iPod is an MP3 player. FairPlay, the digital rights management technology used by Apple is proprietary. Files purchased on the iTunes store can be played on a Mac or a PC with iTunes, or can be copied to an iPod. HMV and the other music stores sell DRM protected WMA files.

Security flaw in DRM software halts film download services

Over the past few days, several newspapers including The Guardian and industry newswires such as ZDNet, silicon.com and The Register, have reported on the security flaw that has emerged in Microsoft's digital rights management software.

In the UK, a leading broadcaster who launched its own movie and sports clip broadband download service in January, has decided to suspend its service as 'a precaution' while Microsoft® works on a secure version of its DRM software. The Guardian has also reported that the security flaw may jeopardise that launch of BT Vision, planned for the autumn, although BT said it was not experiencing similar problems with the Microsoft software.

For software hackers, the stakes are now much higher. Any security flaw that can be exploited in DRM software can lead to much greater mischief making and has the potential for financial gain. Instead of causing their victim's computers to crash or destroying data stored on their local hard drive - hackers now have the much greater challenge of stealing copyrighted material and re-disseminating it for free or for profit.

For content owners, whether they are Hollywood studios, broadcasters or the owners of sporting rights, they need to be confident that the DRM software employed will not require regular user-activated software upgrades to protect against identified security vulnerabilities. If so, how many users will be willing (or organised enough) to update the versions of the DRM software installed on their own computers on a regular basis, that is, if their firewall software doesn't already block software downloads, to ensure that the copyright owner's material is not compromised?

Further details at: http://www.theregister.co.uk/2006/09/13/microsoft_drm_bskyb=/

Wednesday Sep 13, 2006

Vodafone enters UK fixed line broadband market

It came as no surprise when Vodafone announced on Monday that it had signed a Heads of Agreement with BT Wholesale to provide its customers in the UK with Vodafone branded consumer fixed-line broadband services. In a press statement, Vodafone said that it expected to launch its new broadband service before the end of the year. In May, Vodafone had already said it was aiming to get up to 10 percent of its annual revenues over the next three to four years from its new "Mobile Zone" businesses, including converged fixed-mobile Internet services.

In a separate deal two years ago, the two companies reached a partnership agreement to create a Mobile Virtual Network Operator (MVNO) and for Vodafone to become BT's mobile partner in its fixed mobile convergence (FMC) activities. The first product from the deal was the launch of BT Fusion earlier this year, the world's first fixed-mobile phone service. This new agreement now means that Vodafone can now offer a similar fixed-mobile service, thereby directly competing with (and possibly under-cutting) the BT Fusion service from BT Retail.

It's fairly safe to say that Vodafone management has been receiving some fairly mixed press recently. This latest announcement has led to the company being criticised for entering into an already fiercely competitive market with considerable downward pressure on prices and bundled 'free' offers from new entrants. But if Vodafone is to compete in the converged world, it needs to move away from its mobile 'pure play' status.

Perhaps the biggest opportunity that this agreement presents to Vodafone is being able to offer fixed mobile packages to its considerable SME customer base. As an early entrant into the UK mobile market, Vodafone was able to build an enviable UK business customer base. Apart from usually generating higher call revenues per subscriber, business accounts are considerably less likely to churn each year and require a stream of heavily subsidised new handsets to reatin users.

At the higher end, large Corporates (with overseas operations) are already well served by international fixed line operators. Intense competition and over supply has resulted in low or even negative margins on many of the large Corporate accounts. For many SME companies, having a single telco company to deal with would provide considerable time and cost savings. Not to mention savings from a combined fixed mobile pricing plan that takes into account the number of calls made by employees from their mobiles to other employees on either the same site or another company location.

Tuesday Sep 12, 2006

Dixons' 'Freetalk' VOIP fails to repeat 'Freeserve' boost to DSG retailing group

At the height of the dot com stock market exuberance seven years ago, Dixons' 'Freeserve' dial-up Internet service transformed the Dixons Store Group (owner of Dixons, PC World and Currys on the high street) into a dot com company overnight. This was despite the fact that 'Freeserve' at the time accounted for only a very small proportion of the retailing group's revenues compared to sales of washing machines, bags for vacuum cleaners and tapes for VCRs.

'Freeserve' was the UK's first large scale dial-up Internet service. Instead of charging a fixed monthly fee, it derived its revenues from a share of the call charges levied by the telecom operators - at the time 1p (US 1.8 cents) per minute. Dixons simply provided the banks of dial-up modems and distributed the connection software in their stores.

DSG sold its Freeserve customer base to France Telecom (which re-branded the business to become Wanadoo and more recently Orange) last week announced that it was shutting down it's 'Freetalk' VOIP service and transferring the customer base to Vonage.

What has changed?

Firstly, unlike the launch of 'Freeserve' in 1997, Dixons did not have a first-mover advantage in its local market. UK consumers who were interested in VOIP calls could already sign-up to a package from several VOIP specialists and from the telcos themselves including BT Communicator.

Secondly, like so many Internet delivered services, VOIP quickly established itself as a commoditised offering. 'Freetalk' required the user's PC to be linked via a broadband connection to the other party's VOIP enabled PC. This severley limited the market size.

Thirdly, and most importantly, recent VOIP adoption patterns show how new technologies have become pervasive and mainstream among consumers. Instead of consumers needing to pop down to their local Currys to pick up an installation disk, in the Participation Age, everything is simply accessible from and distributed via the Network. Apart from transforming high street retailing by providing the consumers with greater price transparency, the Network is impacting consumer's choice, use and satisfaction across all ICT services.

Monday Sep 11, 2006

BT Movio: why only a MVNO and none of the mobile operators have taken up the offer

Last Friday, BT (British Telecom) announced the launch of BT Movio, the world's first wholesale mobile broadcast entertainment service, The BT Movio service will combine live TV (at launch: BBC1; ITV1; Channel 4; and E4), DAB digital radio, a seven-day programme guide and ‘red button’ interactivity for mobile phones.

Interestingly, none of the five UK mobile network operators (O2, Orange, Three/H3G, T-Mobile or Vodafone) decided to partner with BT in the venture. In fact, earlier in the week, Orange issued a statement saying it had "considered the DAB service from BT, but with only one compatible handset currently available and only a small number of channels on offer, [streaming TV over 3G] remains the best means of delivery for Orange". Instead Virgin Mobile, a MVNO - mobile virtual network operator, will offer the service to its subscribers. Like several other MVNOs including Fresh (CarPhoneWarehoue), Virgin Mobile is managed by T-Mobile and runs over its UK network. This is not perhaps surprising.

Subscriber market saturation, static voice call volumes and continued reliance on handset subsidies are all contributing to the pressure on the mobile operators to grow revenues from driving additional network traffic that can be monetised. Providing existing subscribers with access to DAB, Digital Audio Broadcast delivered programming on part of the digital spectrum that is free-to-air and licensed by government, detracts away from the main priority of growing services over their own established 2.5G and 3G networks.

In general, I suspect that mobile operators would want to avoid their handsets being capable of tuning into other (free-to-air) frequencies, a little like FM and AM on an analogue radio set. Operators in their home market, prohibit users from roaming between networks. For Virgin Mobile, itself recently acquired by the UK's leading cable operator ntl:Telewest in a friendly takeover, BT Movio is likely to be integrated into its consolidated quad play offering in the future. For the time being, it's more likely to be viewed by them as a subscriber handset up-sell opportunity.

For BT, its another example of how the company continues to innovate outside of its core telephony business and a reminder of what might have been, had BT not sold its own O2 (formerly Cellnet) mobile business to reduce its debt.

Friday Sep 08, 2006

Latest handsets open the way for mobile advertising

Advertising works best when it conveys an impactful and relevant message to its intended audience, ideally at the point of purchase or at a time when the individual consumer is considering their buying options. Advertising also needs to intrude into or interupt the consumption of the editorial content, e.g. commercial breaks during television programmes or ads facing editrial pages in magazines. This helps to explain many advertisers' preference for running rich media ads rather than traditional static banners online.

The latest generation of multimedia mobile handsets opens up mobile advertising. RIM, manufacturers of the Blackberry, today announced plans to integrate a camera into future models. According to a report by Informa Telecoms & Media, global spending on advertising delivered over mobile phones is expected to grow to $11.35 billion within five years. This could provide new revenues to mobile operators, many of which, especially those in Western Europe and developed markets, are struggling to raise revenues amid intense competition and falling prices. Advertising could be packaged around games, music downloads, television clips and even be used to subsidise calls and messaging to make it popular among customers.

The traditional pact that commercial broadcasters have had with their audiences, whereby viewers implicity agree to watch a 2-3 minute commercial break every 15 minutes in return for free programming, looks like it could be extended to mobile. However, unlike any other media channel, mobile offers advertisers the opportunity to target by location in real-time. Perhaps this level of customer 'intimacy' maybe considered a little too intrusive by many users.

Thursday Sep 07, 2006

Clean water first, then computing, but make sure they're not laptops

Many so-called IT evangelists seem to think that computing can solve all of the world's problems. Jonathan Schwartz is much more realistic.

In his blog earlier this week, he referred to a conference examining the impact of technology on developing nations. The argument was that the digital divide provides a barrier to development. And those without access can't participate.

Much more important for developing nations has to be more fundamental issues such as access to clean water, access to arable land, and access to world markets free from subsidy and trade barriers. In much of the developing world, mobile telephony provides the country's communications infrastructure rather than fixed line. In the same way that wireless has leapfrogged over fixed line telephony, these same countries need to move straight to thin client, lower cost computing - rather than fall into the trap of adopting standalone personal computing, each PC consuming large amounts of electricity and having unnecessary internally-installed processing power.

Maybe some of the ideas originally put forward by E F Schumpeter in 'Small is Beautiful: A Study of Economics as if People Mattered', first published in 1973 can now be applied to IT for developing countries. In his book, Schumpeter proposes a system of intermediate technology arguing that industrialised economies had developed advanced technologies that failed to efficiently meet the needs of the developing world.

More than perhaps any other machine invented, the PC running expensive proprietary software has evolved into a highly over-engineered system that remains idle, in terms of what it is designed for, virtually all of the time its switched on.

Wednesday Sep 06, 2006

ITV starts broadcasting live to mobile phones

Despite the fact that ITV as a company has been on the ropes in recent weeks for its poor programme ratings and financial performance (still heavily dependent ITV1 airtime sales that took a hit during the World Cup), ITV has beaten other broadcasters to launch the first simulcast of its entire programming output via mobile phones. For the time being, the ad breaks will not be included depriving ITV of any incremental revenue.

Although viewing moving pictures on a mobile handset has its limitations, not to mention listening through an earphone, ITV's first-move should help prove how well television programming via mobile is received by consumers. Compared to cinematic films, television programmes are shot for a 4:3 ratio, are more heavily reliant on the script and most viewers are familiar with their content, e.g. can instantly recognise a character in a soap.

Consequently, viewing television on a mobile phone will provide a much better user than watching a feature film (shot for the big screen) on an MP3 player or iPod.

Tuesday Sep 05, 2006

The London Paper

The Economist, itself registered as a newspaper, in a recent issue led on its front page with 'Who killed the newspaper?' arguing in a leader that most newspapers are still too timid, defensive or high-minded about the Internet.

Yesterday, News International (part of News Corp) launched 'The London Paper' a feature and pictures led freesheet distributed mainly to commuters in the evening rush hour. Many aspects of the paper's layout and editorial and navigation appear to be have been influenced by web design - again demonstrating how the Internet is impacting virtually all other businesses.

Interest in taking a copy no doubt benefitted from the 'Crocodile Hunter' aka Steve Irwin story breaking during the day, but The London Paper provides a good example of an alternative journalistic style - particularly its positive upbeat coverage of the capital.

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stephendavis

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