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What’s driving up Network Operator’s revenues today?

By Scott Allen, Group Head of Marketing, Bluefish Technologies

ARPU (average revenue per user) has become today’s mantra for Mobile Network Operators the world over. While 3G continues to twinkle like a distant star, the Operators are doing their best to make the most of what is the here and now, leveraging their existing networks, and technology and using the latest phones to deliver the best mobile experience that subscribers have ever had. The competition is hot however and in Europe at least where subscribers have plenty of choice, rates of churn continue to hover around 25%.

So what is it with ARPU and why are the Operators so focussed on it? The revenue stream from mobile subscribers is still increasing as more and more become connected. In the boom years the Operators could do no wrong and they grew year on year, investing in their networks buying others and buying next generation licenses, which they and the analysts thought would fuel the next boom. As we now know they were wrong in the short term at least so now in markets like Europe where subscriber saturation is high, increased revenues have to come from somewhere else… in other words, existing subscribers.

To drive this the Network Operator service offering has had to improve, firstly to stop subscribers moving over to another operator and secondly to encourage them to use their phones more. Services offerings started out with voice, one to one connections that freed us from our desks and homes and made communications truly mobile. In markets like Europe, voice services have become a commodity, there is not much to differentiate one Operator’s offering from another, although simplifying tariffs to make them more transparent to the user has worked for both Orange and Virgin Mobile in the UK. In many countries in Africa however mobile phones often outnumber and have better coverage than landlines so revenues from voice services continue to be very important.

Imagine that the world’s repository of Network Operator services was stored in a large fridge to be kept cool or on ice. These would then be taken out as and when required to provide a menu from which subscribers could choose. Voice was always on the menu but up until a few years ago if you opened the fridge door it was as if someone had forgotten to do the food shopping. But lurking in the freezer compartment and put on ice was a box, labelled ‘Second Generation Technologies’.

Second Generation Technologies
That box in the freezer compartment was quite important because 80% of the connected mobile world is using these Second Generation technologies, GSM handsets with a Phase 2+ SIM card inserted to enable a network connection. The interesting thing about these technologies is that although they provide Network Operators with a highly flexible and interoperable environment for value added service development, they remain under exploited in many markets.

Lets see what today’s technology has to offer. Most of today’s applications are centred on the SIM, which is the key to gaining access to the network via the phone. The SIM in its current incarnation stores certain GSM network and security parameters, such as authentication algorithms, special keys etc, which authenticate the user. It is highly secure and despite various scare stories is very difficult to crack. The SIM also provides space to store a users phone book, and is the storage medium for SMS messages both sent and received.

Well if that doesn’t sound very impressive lets investigate further to see just how clever this device can be. Built in to the SIM is the ability to receive and act upon a set of commands embedded within text messages. Being SMS, this is a two way street so the SIM can also send commands back to the Operator’s Short Message Service Centre. Sending commands to and fro is all very well but what does it achieve? Firstly the ability to communicate seamlessly over the air so that applications written specifically to reside on the SIM can respond to and send out commands either to the phone in which it resides or back to the Network Operator’s server. The SIM applications are accessed using SIM Application Toolkit (SAT) and it is these that are at the heart of many of today’s value added services. What SAT delivers is simple menu driven applications, which end up as services that allow Operators to differentiate themselves. They are often personalised for each user, remain under the Operator’s control and can be configured over the air, often without a change of SIM.

What No Applications?
Not any longer, they are hitting the market hard and fast. The SIM has got what it takes to deliver but there is still a long way to go (see Where in the World). There are many out there based on simple text messaging and there are also sophisticated applications that have become invaluable to subscribers and have encouraged further mobile use.

Worldwide Roaming
Open that fridge again and you will find nestling between the ice-cold drinks on the top shelf is a package simply called ‘Roaming’. Every SIM is pre-programmed with a pair of numbers that makes it entirely unique within the GSM system. These numbers, the IMSI (International Mobile Subscriber Identity) and the Ki (Subscriber Authentication Key) are the basis for user authentication on the different mobile networks around the world. The SIM is able to hold many more IMSI’s and can be configured with an application that will select which one should be used with a particular network. For Operators there are obvious advantages in controlling, which networks subscribers roam on to. Bluefish has pioneered Multiple Identity SIMs, which will ensure that revenue generated from high value roaming calls will remain within the Operators group.

Give me the Info
In the door of the fridge between the milk and the bottle of wine is another bottle labelled ‘Information Services’. We want information wherever we are, the news, the horoscope, the final score and today we can have it. In most cases subscribers visit a web site and choose from a range of information services, which are then pushed out to the phone via SMS at a particular time each day.

However it is possible to pull information down to the phone as and when required using a SIM driven application, which provides the user with much more choice. There is no need for a WAP phone and the process of receiving information is considerably quicker and more spontaneous. The user simply calls up the menu resident on the SIM and selects the item required. This triggers an SMS sent to the information provider’s server, which processes the request and sends the information back to the user, again by SMS, a process, which takes a few seconds.

Lifestyle options
In the Second Generation Fridge there are a number of lifestyle options. Beyond the phone and the changeable covers are the delicacies the kids like. These are the SIM applications that allow users to download ring tones and icons to jazz up their screens although these generate significant revenues from fashion conscious teenagers and the gadget freaks they hardly constitute a major turnaround for Operators. But they have made phones ‘must-have’ accessories and introduced a new generation of subscribers.

The SMS channel does however offer some intriguing insights to the future. The mobile phone is now being touted as the next great communication channel. Mobile marketing is in its infancy but in 2002 there have been several successful campaigns worthy of note. Because the phone courtesy of the SIM is a trusted personal device any messages received have to be relevant, provide entertainment or be selectively exclusive. For example in June 2002 Macdonald’s ran a campaign to coincide with the summer’s hit movie Monster’s Inc. Over 10 million packs of fries featured a peal off door revealing one of six Monsters Inc characters, a monster code and text in number. Customers would then send in the code as a text message and instantly receive a fun monster message back with notification of whether or not they were a winner.

Pre-paid market driver
The majority of users worldwide are pre-paid customers, paying cash to buy vouchers or scratch cards to top up their accounts. This can be inconvenient when the phone runs out and the user cannot purchase another card. Among several new SIM based top-up applications is one called Zaryba TopUp. This solution enables prepaid mobile phone users to refill their prepaid accounts directly from their handsets. It also offers Network Operators a cost effective alternative to scratch cards and vouchers and unlike most prepaid top-up schemes, a method of recharging while roaming.

For the user this is a fully interactive process using a simple SIM driven menu to check balances as well as receive confirmation of successful transactions. Zaryba TopUp can be initiated by the user any time, anywhere or be prompted when the prepaid balance is falling below a pre-set minimum level. The advantage of this solution is that the subscriber does not need to carry a spare scratch card as the transaction is carried out over the air.

Pre-paid, roaming and still in touch
Another SIM application is called ‘SIM Controlled Calling’ a winner of the GSM Association Award for Technical Innovation. ‘SIM Controlled Calling’ is a patented, solution from PrivaCom that is aimed at GSM Network Operators around the world. It was designed because it was recognised that pre-paid customers like to roam as much as anyone else and still want to keep in touch with home news and other information when away. With ‘SIM Controlled Calling’ a roaming customer will key in a desired number and make a call. Instead of the call being processed in the normal way, the SIM Controlled Calling application on the SIM intercepts and triggers the home network’s switch. The switch then initiates a call back to the subscriber’s mobile phone. The customer will then accept the call in the normal way at which point the home switch will set up the call. The whole process takes a few seconds and ensures that calls are made via the home network.

MMS and picture exchange
New phones with colour screens and built in cameras are the latest wow on the street but so far MMS (Multimedia Messaging Service) and picture exchange is in the realm of the few. Why? It is simple; it’s down to a lack of interoperability. Just like in the early days of SMS it is impossible, so far to send and receive MMS and pictures between different networks. This will change but until it does these two new trends will be bit part players in the Operator revenue stakes.

Where in the World?
Today there are GSM networks throughout the world, it is the most popular mobile telephone technology. But what is on offer to the World’s GSM subscribers?

Europe undoubtedly leads the way being the first to adopt the SIM Standard. Here 16 and 32K SIMs are common, voice is a commodity and service provision drives revenue generation. ARPU is on the up. A wide range of services is available to subscribers and Java SIMs have started to appear. 3G is still on the horizon and there will continue to be healthy partnership between SIM card suppliers, application developers, content providers and of course the Operators.

Following close on the heels of Europe is the Asia-Pacific market, which has and is still growing very fast. The extraordinary popularity of SMS in markets like the Philippines has shown the strength of the GSM platform. Here as in Europe competition between Network Operators has been fierce and has in turn led to the development of a whole raft of information services, ringtone and logo downloads, location based services, specialised roaming and gaming.

The Middle East and India and Africa are interesting markets. Here voice still pre-dominates as mobile networks stretch out of the cities beyond the realm of traditional landlines. Here as elsewhere there are great opportunities for Operators to put their own spin on their network offerings. For example MTN, a leading Operator in South Africa, is looking at things like mobile ticketing to satisfy a huge demand for better ticketing in a country, which is mad about its sport. Although voice still predominates, the first value added services are in place.

In Conclusion
The GSM platform provides Network Operators the world over with an interoperable environment, which has created a worldwide phenomenon. Operators have shown in some markets the flexibility that both the SIM and the network offer when it comes to developing their service offerings. In many markets Operators have led the way and innovated but in others there is a long way to go. The technology to provide subscribers worldwide with a rich collection of value added services is here today. They provide new revenue opportunities at every turn. There is no need for Operators to wait for 3G they do not need to look very far in this connected world to see how it is being done elsewhere. Its time to open that fridge and plan a new menu!

For more information, please contact:
Scott Allen: scott.allen@bluefish.com

Scott Allen
Scott Allen has a degree in Marketing. He is also a fully qualified member of the internationally recognised Chartered Institute of Marketing.

Scott previously worked at Orga Card Systems as Marketing Manager. His role involved heading up all marketing responsibilities across the territories of the UK, Ireland, Middle East, Indian Sub-Continent, Australia and South Africa. During this time he helped raise Orga's profile significantly within these territories, as they continued to grow above the smart card industry rate year-on-year.

In May 2000 Scott joined Bluefish Technologies as Group Head of Marketing. He is responsible for all their global product, partner and communications marketing. Scott is also a regular speaker at industry events.

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