In the telecom industry many AxPU metrics have been proposed and/or used to assess the business performance of a given telecom market and/or operator. However ARPU (average revenue per user) remains the most strategically regarded and widely accepted metric. It is commonly calculated by dividing aggregated revenues by the average number of subscribers who theoretically generated those revenues during a predefined time period – typically a month as adopted by most telecom carriers. More interestingly, focused ARPU figures are calculated for specific services in a bid to identify the largest sources of revenue generation, as they are calculated according to diverse factors such as geographic location, user age, occupation, and income.

Jamoussi believes it is time to contest assumptions such as low-ARPU markets are unprofitable, while high-ARPU ones are

A related metric to ARPU is ARPPU (average revenue per paying user), which is calculated by dividing aggregated revenues by the average number of subscribers who paid some amount of money, yielding a figure that is significantly greater than ARPU. Also related to ARPU – but less used – is AMPU (average margin per user), which is calculated on the basis of net profit rather than total income, and which is the difference between the cost of serving a user and the revenue that user generates. Thus the greater the AMPU the greater the profit. In this regard, it is noted that some telcos have started shifting their focus from ARPU to AMPU in order to maximise their returns as niche markets become saturated.

Today, as telecom markets reach saturation and competition aggressively erodes revenue streams, the challenge of securing targeted revenues with a given subscriber base is not necessarily disclosed by ARPU figures. This ARPU limitation necessitates the consideration of more indicative metrics of profitability and business performance, which should be more closely related to telecom services that are consumed rather than to revenues that are generated.

ACPU metrics

Average connectivity per user (ACPU) is a new metric, proposed to assess the business opportunities and/or performance of a telecom market. ACPU is calculated as the total type of generated traffic (voice/data) divided by the number of subscribers during a predefined time period – typically a month. Voice ACPU (ACPU-V) is calculated as the number of voice minutes consumed by a subscriber, while data ACPU (ACPU-D) is calculated as the number of megabytes consumed by a subscriber in a given period. In either case, the total considered traffic (voice/data) includes on-net and off-net traffic, incoming and outgoing traffic, and national and international traffic. More interestingly, these new metrics could be tuned to on-net ACPU, off-net ACPU, international ACPU, roaming ACPU, for data as well as voice services.

Broadly speaking, if ARPU focuses primarily on operators’ businesses, ACPU’s appeal is widened to more players, including operators, vendors (networks designers/optimisers), content developers, and so on. In other words, ACPU better reflects the attractiveness and the potential of a given market. ACPU may also better reflect new usage trends such as social networks, voice-to-data migration (given the popularity of smart phones), and the decline of international voice traffic in the face of IP connectivity and PC-to-PC calls. On another hand, ARPU indicates essentially the financial performance of an operator or the financial opportunities of a market, while ACPU addresses the maturity of the telecom market in a country, the volume of traffic (data/voice) generated, and consequently, the willingness of subscribers to consume telecom services.

From another perspective, many telecom operators express dismay at declining ARPUs and consider investing and serving low-income markets as risky. As such attempting to generate a profit from serving low ARPU customers is viewed as being a difficult thing to achieve. However, business logic and the dynamics of the telecom industry are showing this not to be the case, as ARPU figures are financially correlated to operational costs, labour costs, and average income. In other words, high-ARPU climates are not necessarily drivers of profitability, particularly if operational costs are too high and/or not fully allocated. Moreover, if ARPU is used to indicate how successful an operator had been in inciting users to spend more on telecom services, that is no longer the case in saturated and/or highly competitive markets, particularly where promotional offers, free services, or free subscriptions are involved.

Such practices dilute ARPU, and thus high ARPU in a saturated market may not necessarily be more appealing than lower ARPU in a market that has average or low subscriber penetration. Thus non-financially based metrics such as ACPU are revealed to be more suitable in predicting the business success in emerging markets. Typical examples could be taken from the Asia Pacific region, where monthly ARPU ranges from less than US$3 in countries like Bangladesh and Sri Lanka to more than US$50 in Japan.

While ARPU continues to be a widely used metric by telcos, it is time to raise awareness for more realistic and reflective metrics as mobile markets hit saturation and subscriber acquisitions slow down. I also believe it is time to contest assumptions such as low-ARPU markets are unprofitable, while high-ARPU ones are. It is suggested that ACPU metrics better track voice and data usage and coupled with ARPU, help to estimate potential revenues. These new metrics are believed to be a better guide for all telecom stakeholders, in order to help them in deploying more profitable services. More importantly, these new metrics will lead to the development of new business thinking (with respect to business strategies, technology deployments, proposed services portfolios, CAPEX and OPEX investments, and so on) about participating within prepaid segments, low income customers, and declining/low ARPU markets.

Mohamed Jamoussi is a senior advisor for Saudi Telecom (STC)

It’s then not surprising to read that recent research conducted by UK research & consulting organisation, YouGov among 2,082 smartphone owners, concluded that 79% of smartphone users believed mobile advertising to be intrusive and largely non relevant. For mobile operators, this highlights the risk of alienating their subscribers if mobile advertising is not handled properly.

However, where user benefits are tangible, ads highly targeted and delivered in a non-intrusive manner, the potential for generating revenues from mobile advertising remains significant. In addition to incremental revenue opportunity for an operator, the service can also serve as a customer retention tool, through the perceived delivery of value to end-users. For advertisers, the attractiveness of this medium undoubtedly lies in the immediacy, cost effectiveness and increased engagement.

With the increasing adoption of smartphones, a number of mobile advertising firms have emerged in the full screen display segment, all claiming to have the secret sauce to addressing this challenge of intrusiveness and non-relevance; among them Norway-based Mercury Mobile.

Mercury Mobile’s me-mobi mobile advertising platform is an end-to-end ad serving platform; consisting of a front-end mobile application client and a self-serving ad publishing server with a report and analytic tool to track performance.

In addition to incremental revenue opportunity for an operator, mobile advertising can also serve as a customer retention tool, through the perceived delivery of value to end-users

The me-mobi ad serving platform has sought to address the problem of non-relevance and intrusiveness, through serving smartphones users tailored, full screen ads matching subscribers profile and preference data. The mere fact of a mobile advertising service being permission-based does not in itself make it non-intrusive. The me-mobi platform is notable for the manner in which the targeted ads are delivered to smartphone screens. The ads are delivered only when the phone is in use, and when the user is most likely to see it.

Targeted at mobile operators, the platform meets the requirements of service providers looking to monetise their subscriber base through mobile ad delivery, and provides brands with an effective vehicle to engage their customers directly with easy-to-use intuitive dialogue buttons that make use of the unique touchscreen capabilities of smartphones.

The company only recently concluded a three-month pilot trial in Oslo, Norway, among 200 subscribers using the Android based Galaxy S smartphone with network partner Tele2.

The mobile advertising market continues to draw a lot of buzz and excitement with so many initiatives being launched in the industry, however to realise the full potential of this market segment, ensuring advertising is done properly remains the major challenge for mobile operators.

Mercury Mobile Int AS (www.me-mobi.com) was established in 2009 by mobile advertising pioneers. The company is privately funded by private and institutional investors and headquartered in Norway. The company is actively working in European and international markets, partnering with innovative advertisers, agencies, media companies and mobile network operators.

Mercury Mobile has developed the unique mobile marketing solution; me-mobi.

Mobile advertising trend gathers pace in US

By the end of this year, eMarketer estimates, 38 per cent of US mobile users will have a smartphone and 41 per cent will use the mobile Internet at least once each month. These developments mean an increase in the opportunity for mobile advertising—and an increase in spending.

eMarketer forecasts that advertisers will spend nearly US$1.23 billion on mobile advertising this year in the US, up from US$743 million last year and the amount is set to reach almost US$4.4 billion by 2015. This includes spending on display ads (such as banners, rich media and video), search and messaging-based advertising, and covers ads viewed on both mobile phones and tablets.

This year, messaging-based formats still represent the largest portion of mobile advertising revenues, accounting for US$442.6 million in spending. But in 2012, banners and rich media are forecast to become even with search, each garnering 33 per cent of spending, or US$594.8 million. That will place them ahead of messaging, which will fall to 28.2 per cent of all mobile ad spending next year. By 2015, banners and rich media and search will dominate further, and messaging will have shrunk to 14.4 per cent of the total – though still growing in terms of dollars.

Video is the fastest-growing mobile ad format, but from the smallest base. Mobile video ad spending, at US $57.6 million this year, will grow at a compound annual rate of 69 per cent between 2010 and 2015 to reach US$395.6 million.

Cisco was projecting that, based on traffic observed over the last five years, mobile data traffic was to double every year. Even more remarkable, video, then a mere 20 per cent of the overall traffic would rise and account up to 64 per cent of the traffic by 2013.

The industry met these projections with raised eyebrows and many dismissed the report as a simple attempt for vendors to sell more network equipment. While the intention behind the report is undoubtedly to bring carriers to the conclusion that they need to strengthen their network and prepare for huge CAPEX spending, the observations remain relevant.

By the summer of 2009, networks started experiencing data outages (AT&T). While the trend seemed to accelerate and spread (Verizon, Sprint, Vodafone Germany, Vodafone UK, O2 UK, Orange UK…), carriers and vendors alike started to look at identifying and defining the issue.

Patrick Lopez is founder and CEO of {Core Analysis} and has 13 years international experience in product and technology introduction

Mobile data indeed was growing fast and video seemed to be a large part of it. Additionally, the outages seemed caused by a variety of factors, from radio access network (signalling) to core (congestion) instability.

It is clear that the massive take-off of smartphones and tablets, coupled with the change in media consumption patterns by mobile subscribers had taken all by surprise.

The main cause, in my mind, for this surge and instability in mobile network traffic is not to be found in the technology but rather in the business model.

At the beginning of 2000, the wireless world is in ebullition. 3G licences are being sold for billions (with the UK auction the most expensive at £22.4 billion). Wireless operators embark on the promise of wireless Internet (WAP) and multimedia messaging. These promises were not delivered on, and many started to look for content and applications to fill their new-found bandwidth.

USB dongles proved popular for the enterprise market, to provide data connectivity on the go. Around that time, flat fee, all-you-can-eat, unlimited data packages start to appear. While there was not that much attractive content available, these plans proved effective in drawing throngs of subscribers and became a weapon of choice in the customer acquisition arsenal.

Fast forward to 2011 – with the rise of social media, the introduction of smartphones and tablets as new categories, the explosion of user-generated-content and the emergence of apps as the preferred way to access or interact with content in the mobile world – networks find themselves flooded with data usage.

While 4G is seen as a means to increase capacity, it is also a way for many operators to introduce new charging models and to depart from bundled, unlimited data plans.

Let’s look at some of the strategies in place for data pricing in a video world:

• Unlimited usage:This category tends to disappear as data demand increases beyond network capacity. It is still used by new entrants or followers with a disruptive play.
• Fair limit: even with unlimited packages, many operators tend to enforce a fair limit, usually within 90 per cent of their subscriber’s usage.

Charging and tariffing strategies in a video world

Capacity capping:this mechanism consists of putting a limit to the subscriber’s capacity to use data on a monthly basis. It is usually associated with a flat monthly fee. It is mostly a defensive measure. Past that limit, the operator has four choices:

• Hard cap:no data usage is allowed beyond the limit. The subscriber must wait for the next period to use the service anew.
• Hard cap with overage fee:Once the customer has reached his limit, a fee per metered usage is imposed, traditionally at a very high rate. For instance, €20 for 2GB and €1 per additional 10MB
• Soft cap:The operator introduces several levels of caps and usage and once a customer reaches a cap, he switches to the next one.
• Soft cap with throttling: The operator throttles the speed of delivery of data past the cap. Usually at a rate that makes it inefficient/impossible to use data intensive applications such as video. It is called as well “trickle-loading”.

Speed capping: As video, P2P and download usage becomes close to fixed broadband, operators have started to provide means to measure and charge for different speeds and usage. It allows them to create different packages for the type of usage

• Low speed for transactional (email)
• Medium speed for real time (social network, Internet music and radio)
• High speed for heavy use (downloads and videos)

Application bundling:This method consists of grouping applications or usage by bundles with individual tariffing schemes. For instance, free, unlimited IM, Facebook,

Twitter, Email at US$20 per month up to 2GB, no P2P…

Metered usage:This method consists of charging based on the amount of data consumed monthly by the subscriber.

Contextual charging:

• Content based charging:This is the target of many operators, being able to differentiate between the types of content, origin, quality and create a tariff grid accordingly. For instance: a pricing structure that will have different rates for HD and SD video, whether it is on deck or off deck, whether it is sport or news, live or VOD…
• Time of day charging: This is a way to make sure that peak capacity is smoothed throughout the day or to get the most margin from busiest times.
• Location based charging: Still embryonic. Mostly linked to Femtocell deployments.

As with many trends in wireless, it will take a while before the market matures enough to elaborate a technology and a business model that is both user-friendly and profitable for the operators. Additionally, the emergence of over-the-top traffic, with new content providers and aggregators selling their services directly to customers, forces the industry to examine charging and tariffing models in a more fundamental fashion.

Revenue sharing, network sharing, load sharing require traditional core network technologies to be exposed to external entities for a profitable model where brands, content owners, content providers and operators are not at war. New collaboration models need to be thought of.

Additionally, while the technology has made much progress, the next generation of DPI, PCRF, OSS/BSS will need to step up to allow for these sophisticated charging models.

About the author: Patrick Lopez is founder and CEO of {Core Analysis} and has 13 years international experience in product and technology introduction in the US, Canada, Switzerland, Ireland and France.

{Core Analysis} provides consultancy services to technology vendors, carriers and venture capital firms on mobile broadband, video optimisation, policy management and messaging.

About {Core Analysis}: www.coreanalysis.ca, http://coreanalysis1.blogspot.com/

Alexander Rauser is CEO of Prototype Interactive

For operators this results in an increase in data usage by empowering the ecosystem, but also creating a new revenue stream through app sales. The challenge however, with these relatively new technologies is to target a broad range of consumers while being able to create enough content through app developers and content providers.

In order for the ecosystem to grow and become stable, a number of challenges have to be overcome especially from a regional perspective. Developers need to be able to develop for a wide range of devices; which means cross platform applications are an opportunity for operators while these are not owned or controlled by device manufacturers. In order to increase demand however, users need to be able to gain access to more affordable data packages and content from international app stores that are not always fully available in the region due to billing and licensing limitations.

Mobile devices are becoming more and more powerful in respect to their computing capabilities and this also requires the increase of available bandwidth for mobile devices and faster connection speed. This is especially true in regions where mobile penetration is at its peak as it is in some Middle Eastern countries, and mobile web browsing exceeds conventional web browsing at times due to unavailability of workstations in remote regions.

In general users are looking for more interactive experiences on their mobile phone and instant access to applications without the requirement to connect to a personal computer.

Currently this is mainly possible through the app stores of the phone manufacturers or platform developers. These have a great advantage over operators as they deal directly with the developers of the applications at different levels. The relationships and tight integration into their development tools gives operators little chance to be at the source of content generation.

However, while operators are trying to enter the app store market as they see an opportunity to generate additional revenue from app sales this partly makes sense as the operator has direct access to the end-user. Billing structures are already set in place as well as other operational systems such as customer support, which make the operator “technically” app store ready. However, revenue sharing models, application certification and other required procedures need to be taken into account and are very different in their operations than anything an operator would be used to.

If such infrastructure was established, combined with an easy-to-use system that allows users to download applications across different platforms and devices, successful application stores could be established. But to compete with the platform manufacturers’ app stores, operators should invest in technologies such as HTML5 and web centric applications that can run across different devices and that are not the main priority of the leading platform manufacturers. HTML5 applications could be game changers as they would allow operators to offer applications that theoretically can be developed by a much larger group of developers due to a lower entry barrier than native application development in lower level programming languages than HTML.

At the same time developers need to have enough reason to develop for the operator’s store and this is the biggest challenge. As other app stores already have wide developer bases and audiences, it will be difficult to recruit developers to focus on a new ecosystem while existing stores already bring revenue and results.

The question remains whether operators should enter the app store business or not. It appears that in order to come up to speed with existing systems, strategic partnerships seem to be wiser than trying to compete directly by implementing proprietary solutions.

Alexander Rauser is CEO of Prototype Interactive

With the patient’s prior consent, M2M solutions enable mobile health devices to remotely monitor, connect and communicate the patient’s health status to a medical specialist over the air

The delivery of healthcare through mobile technologies (mHealth) can provide an answer to the growing incidence of chronic illnesses. Remote wireless health monitoring will play a vital role in the development of new healthcare strategies aimed at improving access to and continuity of healthcare – while controlling costs at the same time.

A key technology to facilitate wireless health monitoring is cellular based machine-to-machine (M2M) communication. With the patient’s prior consent, M2M solutions enable mobile health devices to remotely monitor, connect and communicate the patient’s health status to a medical specialist over the air. Thanks to this technology, patients can benefit from specialised services in a timely fashion, wherever they are, especially in remote areas. Complementing face-to-face visits, M2M technology establishes an additional communication channel between clinicians and patients, removing geographic barriers and enhancing the quality of service delivery.

Unobtrusive and easy to use mobile health devices can suit a variety of telehealth purposes. This includes monitoring a patient’s medication compliance (pill reminder); managing elderly patients through wearable health monitors (assisted living), helping chronic disease patients, e.g. diabetics by providing assistance to bring blood glucose levels back to a normal range (chronic care management) and many more. Remote monitoring devices can automatically call for help (social alarms), enabling emergency services to react more quickly – and ultimately save lives.

Consistent and real time monitoring of vital parameters or behaviour allows for early detection of a deterioration of a patient’s condition thereby facilitating timely intervention to help reduce expensive emergency situations and hospitalisation. It also encourages more frequent interactions with patients based on medical data gathered in real life situations, improving the continuity of care.

Patient’s electronic health records have to be strictly confidential. How can healthcare providers ensure data is protected?

Security is indeed a key requirement for the adoption of electronic health records. Safeguarding the content of an individual’s online medical record is of critical importance and the subject of government regulations. M2M wireless technology allows for automatic and secure transmission of medical data from sensors straight into a patient’s record, delivering a clear and complete picture of all aspects of a patient’s health without compromising the privacy of the patient. Companies such as Gemalto now provide technology that enables healthcare devices to communicate over wireless networks in a highly secure fashion. Data transmission is based on the latest encryption technologies and security mechanisms inherent in modern cellular networks.

In addition, online security specialists are also able to supply healthcare providers with smart badges and strong authentication solutions to securely access patient records, ensuring only authorised personnel can retrieve sensitive patient data. Combining

M2M technology, smartcards and other solutions online security specialists can significantly improve end-to-end security in wireless networks, safeguarding patient information and meeting regulatory requirements.

Contribution by Axel Hansmann and Manfred Kube, specialists in M2M healthcare solutions at Cinterion (a Gemalto company)

Mohamed Jamoussi is a senior advisor for Saudi Telecom (STC)

New marketing strategies

As a matter of fact, with ever-increasing competition, the alternatives to differentiation are limited, as most operators are providing more or less the same services/products for nearly the same prices. This is the case unless an operator can manage monopolised services/products and/or market segments (for example incumbents offering fixed line services). On the other hand, the current marketing strategies and practices have always been focussed on either traffic initiators (for example voice callers, or SMS/MMS senders) or traffic type/volume (for example minutes of voice/video calls, number of SMS/MMS) – with little or no concern about the customer connected to their network that will terminate the traffic (answering a call) and converting it into revenue.

It is time today for operators to work on retaining and rewarding not only traffic initiators, but also traffic terminators; as they are part of the business value chain. They deserve to be thanked and rewarded given the value their subscriptions bring to the operator network. Operators should re-think their relationships with traffic terminators, particularly solicited subscribers (heavy call receivers), who terminate on-net traffic and/or roamed traffic. To this end, operators should formulate and propose more comprehensive marketing offers, more attractive promotions and incentives for both traffic initiators and traffic terminators. This new marketing thinking would have a significant and positive impact on retaining customers and reducing customer churn. More interestingly, it may maximise the lifetime of post-paid customers and discourage their migration to prepaid programmes – a nightmare to most telecom operators. In this regard many interesting ideas can be proposed and worked out.

Leveraging customer retention

From another standpoint, customers are becoming more price sensitive in their consumption of telecom services, since they have more than one alternative. They make selections between competing operators – with high expectations – forcing operators to adopt more evolved marketing and customer retention strategies.

Indeed, customer retention is a key driver for profitability. It has been proven through various studies and analysis that a two per cent increase in customer retention has the same effect on profits as cutting costs by 10 per cent and that a five per cent reduction in customer defection rate can increase profits by up to 25 per cent. Yet, many customers are only being retained – expressing no loyalty. Therefore, operators should further focus on understanding the evolved needs, desires and behaviour of their customers, even if they appear to be satisfied. More importantly, even satisfied customers may look for more attractive offers from rivals – with one key question in the back of their minds: “What will I gain when calling with this operator?”

Today, to leverage their customer retention and/or enlarge their customer base, telecom operators should make their current/potential customers ask two key questions: “What will I gain when calling with this operator?” And, “What will I gain when receiving with this operator?” To this end telecom operators should re-think their customer retention strategies and practices for both their traffic initiators and their traffic terminators. They should, therefore, work on raising barriers to churn to even higher levels, discouraging a subscriber, particularly a solicited one, from switching and connecting to a rival network. Operators should focus more seriously on retaining their existing customers as it may cost them up to four times more to acquire a new customer than to satisfy and retain a current one. In this regard, practices in the field of banking are worth exploring and learning from with respect to retention.

Learning from banks

Today, the banking industry is highly competitive – with institutions not only competing amongst each other, but also with other financial institutions as they offer similar services/products and at very competitive prices. Today, banks can only distinguish themselves on the basis of price and quality. A superior service alone is no longer sufficient to satisfy customers. Prices are essential, if not more important than service and relationship quality. As a result, customer retention became the most powerful tool that banks have to gain strategic advantages.

The focus, then, is to retain as many customers as possible and for as long as possible, as it is more economical to keep existing customers than to acquire new ones. More importantly, long-term customers become less sensitive to price changes. In this regard, we can state the case of some North American banks that charge their customers a decreasing monthly fee as their accounts grow older. So for example customers who opened accounts in the 1980s pay monthly account fees as low as US$1. Such pricing policies are cleverly devised as marketing strategies. Their focus is essentially to raise churn barriers to their highest possible level, discouraging customers from moving to other financial institutions and making it costly for them to switch to a competitor. Consequently, even with a relatively low level of satisfaction and/or a slightly higher pricing of some services, customers continue to partner with their banks as it is more cost effective to do so than to move to a new one.

In summary

The global telecom industry has changed dramatically and most markets have become saturated. The time has come for telecom operators in the region and worldwide to seriously re-think their marketing and customer retention strategies. They need to consider and re-engineer their business models. More specifically, they need to adopt revolutionary marketing and customer retention strategies and approaches – which not only benefit initiators, but also services terminators. This will have the effect of further encouraging consumption from both groups, resulting in the capture of as much business as possible.

Mohamed Jamoussi is a senior advisor for Saudi Telecom (STC)

Zoran Vasiljev, managing director of Value Partners (MEA)

Comm: Value Partners has recently completed a report on Micropayments – an emerging area of opportunity and challenge at the crossover of the media, telecommunications and payments industries. What are some of the key learnings coming out of report?

ZV: Digital media distributors are seeking new ways to monetise their content offerings. The growth in penetration of high-speed fixed and mobile Internet has created new distribution channels and an opportunity for content distributors to sell to new, larger audiences to offset falling advertising revenues. For the majority of content distributors, subscription-based business models remain the most appealing. However, not all types of consumers are willing to enter into such regular financial commitments and can therefore only be monetised through individual transactions of small value.

FB: The report analyses opportunities at the interface between retail payments, media and telecom. As digital media becomes increasingly central to the way information and services are delivered, the need to facilitate high volume small monetary value payments increases. There is a growing need for low cost payment services that operate in real-time, with a secure and simple user interface. They must of course meet accounting needs and compliance requirements. New payment models range from virtual currencies for social networks or gaming communities; payment aggregators; prepaid services or stored value wallets, and payment aggregators; to the service extension of established payment infrastructures.

Comm: Could you qualify what is a “micropayment”?

FB: ‘Micropayments’ is a term that identifies transactions of low value; however the exact definition varies considerably by audience. For the purposes of our report, a micropayment is defined as ‘an online or mobile, real-time or deferred, financial transaction below €5 (US$), which initiates the instantaneous delivery of a digital good’. They can be used to charge customers on a purchase-by-purchase basis for a range of digital goods, including access to news content, online music, TV shows and films.

Comm: What drives the micropayments opportunity?

ZV: The key driver of micropayments is the shift towards the monetisation of digital content and the emergence of new media business models. As media profit margins are squeezed by dwindling advertising revenues, digital content providers have sought to convert their free readership base into fee-paying customers. The demand for an effective micropayments solution originates from a range of online industries, from video on demand through in-game purchases to digital music downloads. Currently, payments for these services are accepted by incumbent payment infrastructures (e.g. direct debit and card payments) and a number of emerging payments business models (e-wallets and payment aggregators). However, the demand is yet to be met by the silver bullet of a universal micropayment solution. No solution has yet managed to combine the critical elements of low cost, high speed and an excellent user-experience together with compliance with regulation and the flexibility to support multiple distribution business models throughout the breadth of the media, technology and telco industries.

FB: Value Partners believes that the micropayments solutions landscape will remain relatively fragmented for the foreseeable future. As consumer demand and digital media distribution increase, micropayment use will grow, but it is unlikely that a single solution will cater to all types of content and parties involved.

Through research and client experience, Value Partners has identified and presented in its report a number of critical success factors that any successful micropayments solution will have to exhibit to successfully compete for a piece of this growing opportunity.

Those providers with exclusive or unique content will be better positioned to introduce a pay-wall to their content and dictate the payment solution used, while providers of more generic, easily substitutable content should be prepared to evaluate and embrace a number of different solutions simultaneously to drive consumer spend, often on an impulse basis. In either case, while the lack of a single, universal micropayment ‘silver bullet’ will not prevent content providers from successfully monetising their offering, it will increase the complexity of the challenge ahead.

Francesco Burelli, principal of Value Partners in London

Comm: In your report you mentioned that the micropayments evolution has been enabled by three, mutually reinforcing trends. Could you detail these trends?

FB: You are correct – First of all the distribution of digital content requires the ability to deliver it through high-speed connections. This with the growth of e-commerce has created an environment in which it is customary to purchase online. The growth of social networks and online gaming communities have led to the establishment of business models based on virtual goods. Internet wallets and some large scale aggregators have then enabled the establishment of early paid–for models. These inter-dependable three factors have led to an environment in which micropayment enabled business models can grow and prosper.

Comm: What can be concluded from the report?

ZV: Based on our experience, our projects and our research in the payments, media and telecom industries across the globe, Value Partners has reached a number of conclusions:

1) There is today no single answer to the desire for a universal micropayments solution, and moreover the aspiration to a ‘silver bullet’ solution is currently unrealistic. Different types of media, supplied to different types of consumer through different business models can be addressed by different micropayments solutions.

2) Whatever solution is chosen, it remains true that the user experience reigns supreme except for monopoly suppliers of digital goods and services. A convenient, seamless user experience will not only increase conversion rates of interested consumers but will facilitate impulse purchases. If costs can be minimised, compliance is addressed and fraud risks managed, then convenient solutions will gather critical mass and enable profitable transactions at low purchase costs.

3) The evolution of micropayment demand and commercial solution is still at an early stage of development.

Value Partners expects considerable activity in the space over the next five years leading to a short-term fragmentation of offerings that will be tempered in the long term by their economic viability and user preferences.

Devine Kofiloto is a consultant with Deccocon, an independent consulting business focused on emerging markets

With the number of operators across the region looking to further extend network rollout into semi-urban and rural areas, the demand for tower sites in the medium-term is expected to be high. Coupled with national regulators increasing concerns over the environmental impact of the proliferation of towers (which in some cases has prompted the placing of restrictions on new tower constructions in some cities in some countries such as Ghana), the conditions look set on the demand side for the emergence and growth of third party tower operators.

That said can it be assumed that this heightened focus on cost-cutting by mobile operators, to keep their capex spending in check and national regulators concerns over the environmental impact of the proliferation of towers, will serve as the main catalyst to drive the growth of tower companies across the African region, as we have seen in India and the US? What could potentially hold back third-party tower sharing and the subsequent materialisation of the growth of independent tower companies?

Likely bottlenecks

The sharing of passive infrastructure elements such as sites and towers through bartering and co-sharing is already prevalent among some operators today and tends to happen on an ad-hoc basis. This cooperation, where it exists, is generally most likely to be among operators with comparable market share in a given market. Some market observers are of the opinion that area coverage today is highly overrated, and the reality is that in markets/regions were national network coverage is on average low, it still remains a strategic competitive advantage. Two large operators in a market might deem it tactical to enter a sharing agreement to keep out an independent tower operator and hence deny new entrants or a rival with a smaller footprint the advantage of rapid network rollout.

Generally speaking, for an independent tower operator’s business model to be viable, maximising yield per tower is a key consideration. Meaning it is paramount that it brings in multiple operators to take up a lease on the same tower. The average occupancy rate might be in the range of 2.5 – 3.5 operators on one tower. Bearing in mind the anchor tenant usually gets given the choice of location and radio height, tower companies are likely to face challenges in attracting other lessees or tenants, for whom the existing location and radio height might not fit with their network planning. The recent deals signed by independent tower companies, Helios Towers and Eaton Towers, with Millicom and Vodafone respectively in Ghana, will be interesting cases to follow and see how these tower companies are able to offer the same towers to new lessees on non-conditional terms.

One other key consideration behind the argument of outsourcing towers to independent tower companies is the efficiency consideration, which is the desire to maintain an asset-light balance sheet and focus on the core business of selling airtime. An operator’s existing towers can be spun-off, sold to an independent tower operator and leased back, creating a cash injection. However, this is not without its concerns. Though the obvious rationale is towards optimising capex, deferring capex into opex (tower leasing) could have a dilutive effect on EBITDA and subsequently lower it, potentially affecting a key valuation metric.

There is undoubtedly good reason to believe that independent tower companies can achieve cost savings for mobile operators in managing their towers. However there are inherent market challenges that could impact the pace and size of their much predicted market growth across the region.

Devine Kofiloto is a consultant with Deccocon, an independent consulting business focused on emerging markets and providing research and consulting services across the many verticals within the TMT space

www.deccocon.com

Patrick Lopez is chief marketing officer of Vantrix

The reality is that mobile carriers have to seek today solutions to deal with the expanding mobile Internet and specifically the increasing use of mobile video applications. There’s no magic bullet, but with a combined approach to adjusting carrier infrastructure and content delivery strategies, the industry will be able to curb the skyrocketing network congestion problem.

So where do we go from here? How do we satisfy the needs of consumers who are increasingly using mobile video, while ensuring that operators do not significantly increasing CAPEX or OPEX? The answer is bandwidth optimisation.

Impact on end-users

Mobile phone subscribers are 100 per cent, unquestionably hooked on video content and applications. For better or for worse, you can’t deny that video has redefined the mobile subscriber expectations of what is a full and worthwhile mobile experience. Unfortunately the bandwidth crunch we find ourselves in, now threatens to alter those user experiences and in some cases permanently impact end-users relationships with their network providers. The main point here is that while this is a carrier problem, it is felt throughout the mobile ecosystem, no more so than by end-users themselves. Slow loading and jittery content; degraded video quality; the inability to access certain applications and service disruptions are becoming all too common. The effects aren’t isolated incidents anymore and carriers are being forced to take action in order to preserve subscriber loyalty.

The tipping point

In the picture I’ve painted there are three main drivers to the bandwidth crunch and end-user experience: content addiction, all-you-can-eat plans and rising mobile video usage. Eventually subscriber loyalty will be threatened by them. What decisions, then, are operators faced with and at what cost? Most recently we’ve seen the introduction of usage limits to save networks from overload. Ultimately, I believe we’ll see more and more carriers turning to this option. It’s the fastest way to recoup the costs of more data usage on their networks. What will be difficult to mitigate, however, is while data caps are being put in place, service providers are banking on content and the phones that deliver the best content experiences to keep subscribers loyal. Therefore it becomes a delicate balance to maintain; feeding a business model with content revenue, but limiting the flexibility of subscribers to access that content.

Others have suggested that spectrum re-allocation, 4G or LTE networks are what’s really needed to lessen the brunt of the bandwidth strain. However, isn’t 4G merely a band-aid? More powerful smartphones and the ever expanding video needs (HD, 3D, full length features…) seem to show that 4G capacity will be already sold out by the time of its mass market roll out.

Finally, there’s the option of limiting what and when content is delivered to subscribers – a more drastic alternative than even across the board data caps. It’s not realistic to think this will offer any kind of long term solution. The fact is consumers are more willing than ever to switch providers for the latest and greatest device and applications. Subscriber loyalty is up for grabs and the winner will be the provider offering the fullest content experience.

Decision time

I believe the industry is at a tipping point; what are the options to handle this bandwidth crisis? I see five complementary methods that operators will have to consider in order to curb the issue.

Method 1: Cap usage / metered usage. Major global carriers have already done it; it’s likely that more operators will quickly follow suit. This can be introduced in a 1-2 years timeframe as most operators need to implement sophisticated tools for charging differentially per service, subscriber, content and so forth. The price range is in the tens of millions.

Method 2: Make significant network infrastructure upgrades such as increase the number of cell sites, backbone capacity, get more spectrum, or move to 4G. We saw the first hints of network inadequacy as mobile messaging numbers spiked. Operators knew then that their infrastructure was not built for high volume data traffic. This has only grown worse as data usage skyrocketed and video was introduced to mass market. While this may buy operators a few years a major infrastructure overhaul comes at excessive cost and planning. This is a 5-10 years strategy with CAPEX and OPEX in the hundreds of millions.

Method 3: Implement technologies that can manage intelligently mobile traffic. This can include: Deep Packet Inspection (DPI), Policy and Charging Rule Function (PCRF), or Flexible Billing Systems. These technologies are available and being deployed. Time frame is 1-2 years, price in the tens of millions.

Method 4: Offload traffic, using Femtocells, mobile content delivery network (CDN), or provide economy of scale through edge caching. Depending on where the traffic is offloaded (cell site, edge…) the costs and benefits vary greatly. In any case, it is a midterm solution (3-5 years) with solutions in the hundreds of millions investment.

Method 5: This is probably the option that can be deployed the fastest and the least costly with the highest immediate benefit. Video optimisation (transcoding, adaptive bit rate, adaptive streaming, etc…) can address the bandwidth issue now with component technology while leaving the door open for adjustments later, at a reasonable cost. The heart of this solution lies in bandwidth optimisation, or the ability to maximise the network capacity providers have now, by making adjustments to the way in which they deliver content to end-users on-the-fly. These are solutions that not only stop the network “waste” incurred by operators in delivering videos to smartphones, tablets and laptops, but can then effectively double the capacity of existing network infrastructure, while reducing the OPEX and CAPEX investments necessary to run converged multimedia. This can be deployed in months with an investment of millions.

How quickly can the mobile ecosystem evolve?

As we look toward the future, this is perhaps the greatest question- how quickly will demand grow and how long will it take for networks to adapt? Some of the solutions I outlined will take years to show real returns, but the industry doesn’t have years. With every day the bandwidth crunch is left ignored operators are losing customers to the competition. Our industry needs to address the video growth now, in a holistic fashion. It has to become a core competency of network operators, just like voice or messaging have been until now.

Patrick Lopez is chief marketing officer of Vantrix

As part of the transaction, NSN expects to gain incumbent relationships with more than 50 operators and to strengthen its position with China Mobile, Clearwire, KDDI, Sprint, Verizon Wireless and Vodafone.

NSN expects that based on revenue, with the addition of the Motorola wireless network infrastructure business, it will become the #3 wireless infrastructure vendor in the United States, the #1 foreign wireless vendor in Japan, and strengthen its current #2 position in the global infrastructure segment.

“This is an exciting acquisition that I believe has significant benefits for customers, employees and our shareholders,” said Rajeev Suri, CEO of NSN. “NSN will see the benefits of a deal that is expected to enhance profitability and cash-flow and to have significant upside potential.”

“Motorola is very proud of the operational and financial performance of our Networks business and its employees, who will now become a valuable addition to NSN,” commented Greg Brown, Co-CEO of Motorola. “We are excited to have reached this agreement to combine our Networks team with such an industry leader.”

Motorola’s networks infrastructure business extends to GSM, CDMA, WCDMA, WiMAX and LTE.

Around 7,500 employees are expected to transfer to NSN from Motorola’s wireless network infrastructure business when the transaction closes, including large R&D sites in the US, China and India. Motorola retains the iDEN business, substantially all the patents related to its wireless network infrastructure business and other selected assets.

NSN’s Suri, who was appointed CEO last September, says the acquisition will enhance profitability and cash-flow, as well as have significant upside potential

NSN and Motorola also are exploring a global relationship in the public safety arena. This relationship would combine Motorola’s leadership in providing solutions to public safety organisations with Nokia Siemens Networks’ commercial LTE solutions.

Just last month, Bruce Brda, Motorola’s senior vice president and general manager of Home & Networks Mobility at Motorola told Comm. that as a standalone business, Motorola’s network business generated revenues amounting to US$4.9 billion in 2009, making it amongst the smaller members of the highly competitive global telecom infrastructure suppliers’ club.

Smaller annual revenues meant smaller amounts that could be invested in R&D, meant less opportunity to take leadership positions in new technologies and developments, meant being faced with the potential of a shrinking market share. Brda said he was aware of such constraints but believed Motorola’s strategy to focus on the customers it already services, and focus on technologies in which it already enjoyed strong positions in, would be the correct one to assume in its post-separation life.