Ironic it may seem. While there is much celebration over the ubiquity of mobile phones and the shift toward the “mobile society” — those at the center of this revolution are not exactly celebrating. If anything, they are getting worried — increasingly worried. The mobile service providers, for some time, have been recording a surge in subscriber base, but a sharp drop in what they call ARPU — Average Revenue Per User. And no, the volumes do not offset the margins, yet.
Analysts have predicted that for some time data services on mobile phones will compensate for the voice revenues. According to Portioresearch, voice represents 80%–90% of all mobile traffic worldwide today, and of the remaining 10%–20% that is non-voice, SMS represents approximately 90%. Though, data usage has consistently picked up with SMS, the person-to-person data communication (SMS and MMS) has not been able to offer a significant new revenue stream to the service providers.
That was the underlying factor prompting mobile operators (especially in Europe) — many of which had paid huge amounts to buy 3G licenses and spend equally huge amounts to build those networks — to bet on content, traditionally not an offering from telcos, who have restricted themselves to conduit.
The gamble seems to be paying off.
According to European market-research firm Telephia, 3G subscribers are spending significantly more on services than non-3G subscribers. 3G users, according to a report by the firm, spend an average of $75 (£43) per month on voice and data services. This is about 50% higher than the average spent by non-3G subscribers who spend an average of $51 (£29) a month.
The global market for cell phone premium content, including music, gaming and video, is expected to grow to more than $43 billion by 2010, rising at a compound annual growth rate of 42.5% from $5.2 billion in 2004, according to another research firm, iSuppli Corp. The content break-up, however, is likely to change drastically.
From an almost music download dominated content market in 2004, iSuppli predicts that by 2010, the market will be equally divided among games, video and music. While video remains the biggest long-term opportunity, mobile gaming is seeing a faster growth now. Mobile gaming revenues grew 80% in 2005. According to End-to-End, a European mobile managed service provider, the global mobile gaming market will touch $12 billion by 2009. According to Telphia, 34% of the 3G subscribers download games, as compared to only 21% of non-3G subscribers.
Nirvana through Outsourcing?
Most industries outsource the non-core functions that they do not see value in keeping to themselves. The telecom industry is no exception. According to Analysys, a European telecom analyst firm, European telcos today outsource activities in the support area, such as HR, F&A, IT, logistics and facilities management or call centers, and increasingly in the infrastructure area, such as network design, maintenance and OSS/BSS applications. The only function in the “core” services area that is “often outsourced”, is content sourcing and development.
Mobile content is definitely a core area for the operators, especially those offering the 3G services. Yet, the popularity of outsourcing this area by the “conservative” telcos is because of the lack of necessary skills and ability in-house. That means it will remain one of the few outsourcing areas not to get commoditized in the near future. A recent study by research firm, Screendigest, shows that the global mobile gaming outsourcing industry will touch $2.5 billion by 2010.
The Not-so-Simple Value Chain
The mobile gaming ecosystem is distinct from the PC and console game ecosystem in one significant way. While PC and console games are distributed like any other business-to-consumer (B2C) software product, the mobile service providers act as the primary channel for distributing mobile games — though common casual games are often sold through the handset makers.
Service providers, unlike the re-sellers in computer software, are in the center of the mobile game ecosystem, and often define what they need. The game developers — big and small — have to conform to their needs. Initially, this was something that bigger game developers were not used to. That created opportunities for the smaller service providers, who were quite willing to go by what the service providers dictated. But the huge opportunity in mobile gaming is making bigger publishers like Electronic Arts, adjust to the rules of the mobile gaming distribution chain. The share of mobile gaming in the overall gaming market is expected to rise from just about seven percent in 2003 to 28% in 2009.
