From Carriage to Content - The future of telcos

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Carriers have long acknowledged that they need to bolt innovative and appealing content services onto their fixed and mobile communications services if they are going to weather the inevitable decline in access charges.

Carriers have long acknowledged that they need to bolt innovative and appealing content services onto their fixed and mobile communications services if they are going to weather the inevitable decline in access charges.

Phase one of this acknowledgment was to throw a whole lot of stock reports, weather, horoscopes and sport at the problem and hope that would keep people happy.

Something called WAP (wireless access protocol) came to deliver these services and promptly died without anyone caring much. Many carriers seriously splashed on 3G spectrum without much idea of how to recoup their investment. Then along came MP3s, phones with cameras and video, MySpace and Youtube and suddenly the telco landscape looked nothing like it used to.

Analyst Bruce McCabe of S2Intelligence notes that while the promise of exciting content informs much of the marketing of carrier’s high speed services, it is something which they themselves are especially bad at.

“It’s like the very initial days of the dot com boom – there’s this naivety instead of being considered about what matters,” he says.

What’s ironic about all of this is that while carriers’ boardroom meetings centred on deciphering current consumer behaviour - and how to make them pay for it, the success of sites like MySpace, Youtube and even Ebay should have made it quite obvious that people are especially fond of watching, well, themselves.

“Youtube was never something that was going to be invented by big corporations,” says Australian Interactive Media Industry Association (AIMIA) chief executive John Butterworth.

“Carriers have been through the phase of wanting to be content providers and are now working with content aggregators.”

As Jennifer Wilson, managing director of Australian publishing veteran HWW, now owned by NineMSN, puts it: “The idea that content is a one way stream is dead.” Major portals like MSN, AOL and Yahoo! appear to have acknowledged this by moving away from charging for content, focussing instead on advertising revenues. Such changes are among many linked with the evolution of the so-called Web 2.0.

Research group GFK surveyed just over 1000 users online this year about their mobile usage. While just under 90 percent used the phone for SMS, usage of other features was quite high. Just over 70 percent had used their phone to take photos with 45 percent taking advantage of the ability to send them. Around a quarter had used their phones to surf the Web, make videos, play games and MP3 files. Video calling made up 18 percent. Making videos 10 percent. Watching mobile TV was 7 percent.

But of course it’s not all fun and games.

This year’s 13th annual AIMIA awards fielded a sharp increase in entries from the financial services, property, agriculture and medical sectors.

“The entertainment side tends to be where all the innovation is driven and then business will follow,” Butterworth muses: “But I’m particularly impressed by people starting to move into really boring things, which means the whole community is starting to embrace the whole Internet content idea”.

Vaughan Bowen, managing director of listed carrier M2 Communications, says that in the US and the UK, non-carriers such as banks, utilities and supermarket chains are increasingly popping up as mobile virtual network operators (MVNOs).

While yet to emerge here, he believes that the trend heralds a broad shift in the way in which businesses communicate with their customers. For instance, a bank might entice its customers to take a mobile plan with services such as free or low cost mobile banking.

“Banks with a three to four million customer base could be well served by having a badged mobile offering funded through one of their services,” Bowen says. “I see it as the next phase in how mobile marketing will be done and services offered.”
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Click to see GfK's take on mobile phone usage.

M2 is Optus’ exclusive mobile wholesale partner in Australia.

In a sure sign that mobile content is no longer just about voice and SMS, Hutchison recently became the first Australian carrier to report revenues for its newer mobile content.

“It’s one of those little signs that mobile content is taking off,” says AIMIA’s Butterworth. “They obviously think they’re onto something now.”

For the first 6 months of 2006, contribution to Hutchison’s average revenue per user (ARPU) of non-voice services including SMS multimedia content and high speed data access grew 19.8 percent from $16 in half year 2005 to $19.

The company said that while SMS revenue grew from $9 a year ago to $11, 3G ARPU from other non-voice services, including multimedia content, video calling and high speed data access rose from $7 to $8. Helping to drive this, has been the large numbers of Hutchison’s Orange customers upgrading to its 3 brand.

The first 3G provider in Australia, 3 introduced a number of new content services this year including Mobile TV from Big Brother, SBS, BBC and CNN, video highlights from the World Cup soccer as well as channels from MTV, E! Entertainment, The Cartoon Network, Rage, Sky Racing and ABC Kids. The company also reports growing popularity for its mobile news, entertainment, sport an weather portal Planet 3, with 76 percent of customers accessing the service with 57 percent having a billable event.

3 reports strong uptake of its Cricket updates and live video streaming with 380,000 ‘mobile Ashes Series Moments’ accessed.

AIMIA published the second edition of its Australian Mobile Phone Lifestyle Index in May this year, titled The Impact of 3G. It asked nearly 4,000 people between the ages of 9 and 70 about their mobile phone habits.

Almost all participants said that they spent on SMS, with 20 percent spending on MMS, six percent on email and three percent for video. Around 12 percent said that they had used their phone to buy content although very few respondents had this as a significant proportion of their overall bill.
With regard to future mobile content, 35 percent said they wanted more maps and directions, 34 percent wanted more weather with 32 percent calling for more news content.

Respondents under 25 accessed the most information from their mobile phones.

News Corp chief Rupert Murdoch recently coined the term ‘digital natives’ to describe this generation of consumers who have more than likely grown up in the medium. He suggests that those older are ‘digital immigrants’. Both groups are worth big money.

“A 3G customer, in terms of their content spend, is easily worth three times a 2.5G customer,” says HWW’s Wilson.

The emergence of new high bandwidth services such as ADSL2+ – several times faster than normal ADSL – and further enhanced 3G services such as Telstra’s recently launched NextG network, boasting HSDPA and therefore potential wireless speeds of up to 14Mbps, will provide a major stimulus to digital content depending on the rate of uptake.

And while Digital TV will no doubt have major implications for content delivery and spending in Australia, it still has many creases to be ironed out. Free-to-air networkers are required to provide a certain amount of high definition (HD) and standard definition (SD) programming but the regulatory framework is still being worked out on the fly, particularly with regard to issues like multi-channelling. Auctions for the so-called channel A and channel B (or mobile channel) spectrum are expected to take place next
year and again, it remains to be seen what shape things will take.

While concerns have been raised about the quantity of Australian digital content versus that sourced from the US and other places, unlike on free-to-air TV, there is the belief that there’s plenty of Australian content in cyberspace. “Most non-entertainment content is very Australian,” says the AIMIA’s Butterworth.

The industry body reports that there are now several hundred Australian companies exporting digital content at the moment, with Asia proving to be the strongest market, especially for games and mobile-based services for learning English.

“Asian mobile phone culture is different to ours and there is a lot of opportunities for Australian content developers,” he says. One company is marketing a CD-ROM to demonstrate Australia’s less water intensive techniques for growing rice to the Vietnamese.

Ice TV started off providing the electronic program guide (EPG) for free-to-air which has now spawned a number of interactive services allowing, for instance, users to simply click on their computer or mobile screen at the start of the week to select the programs they want to record. IceTV has bundling agreements with computer companies such as HP, Toshiba, Acer and Optima. IceTV general manager, Matt Kossatz, predicts that the role of TV will be very different in the coming years.

“There are a lot of experts in the industry who feel that instead of watching TV, people will subscribe to the production houses,” he says.

For instance consumers could pay for season passes or indicate their preference for different genres or actors.

IceTV’s core technology was developed by eminent Australian inventor, Peter Vogel, and allows users to pause, rewind and fast forward content, including ads of course - a feature which prompted PBL to take legal action against IceTV recently. However, Kossatz emphasises that the ability to access a more targeted audience via digital will likely prove more powerful for advertisers in the future, while filling the coffers of carriers and media companies which find the right strategies and partnerships.

“Eventually all content is going to be delivered by the Net,” he says.
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