Consumers will appreciate 3G's value
March 15, 2004
Yankee Group
3G should not be targeted at business customers but used to support and improve the wide range of consumer services that are beginning to emerge on today's GPRS networks.
3G will be arriving in Europe in a big way this year and the closer it comes, the more vociferous become the arguments against it. Despite the delays of the past 2 to 3 years, by the end of 2004, most leading European mobile network operators will be offering commercial 3G services.
However, like many new technologies, the third generation of cellular has become a target for relentless, usually ill-judged, criticism from various quarters. With its inglorious past, 3G is certainly an easy target for such attacks. In most cases, when we look beneath the surface of the criticism, we see a fundamental lack of understanding of mobility and its impact on consumer behavior.
In this research note, we re-state our position on key aspects of the evolution of mobile services and dispel some common myths.
Myth: Enterprise wireless data services are the cornerstone of the 3G business case, but the technology cannot support the fast connectivity required by mobile professionals. Alternative, truly high-speed technologies will therefore erode the 3G-business case.
This misconception underpins many anti-3G arguments. The reality
is that business customers generate only 8% of European MNOs' mobile
data revenue today. Although this segment will see the fastest growth
over the next 4 years, by 2007 it will still account for no more
than 10% of data revenue. Consumer mobile messaging and content
services will far outweigh business applications. It is entirely
predictable that Wi-Fi and other high-speed solutions will capture
wireless enterprise traffic at hotspots. However, in the same way
3G does not compete with ADSL for high-speed services to homes and
offices, it competes only marginally with high-speed services to
airports, hotels, and coffee shops. Even if 3G could support speeds
of 1, 2, or even 10 megabytes per second, hotspot technologies will
always beat it. The key point is that network speed will not be
the main criteria used by most customers when determining which
technologies they use to access mobile data services.
Myth: Alternative low-cost solutions such as Wi-Fi will stifle demand for 3G licenses and network deployment because of their high costs.
The costs of 3G are certainly high, and MNOs will try to recoup those costs by charging a premium for their services. Indeed, if MNOs target 3G services primarily at business users, there is every chance that those customers will find lower-priced technologies that meet most of their mobile data needs. However, 3G should not be targeted at business customers. It should be used to support and improve the wide range of consumer services that are beginning to emerge on today's GPRS networks. These services should be charged based on their value (e.g. video messaging) or on a per-event basis (e.g. video-based mobile gaming). Although flat-rate pricing will be appropriate for some 3G services (e.g. unlimited WAP browsing for a flat monthly fee); MNOs must retain the ability to generate incremental revenue as demand for these services increases. Most important, these 3G services can command premium prices because of the ubiquitous access that the technology provides. The value to consumers of this anywhere, anytime access is consistently underestimated, particularly by supporters of hotspot solutions. The trap that many observers fall into is they consider only two dimensions of mobile service demand. They focus on speed and price. They forget about convenience, style, expression, and fun and therefore neglect the very things that have made mobile communications the great success it is today.
Myth: Because high-speed network connectivity will be available, most customers will carry PDAs, laptop computers, and other devices. This will drive demand for even faster connections.
We still hear the tired argument that if customers are using high-speed multimedia services at home or in the office they will demand the same services in a mobile environment. We agree there will be demand for access to such services while customers are in locations where Wi-Fi is available. However, for the most part, real demand for mobile data services will only emerge where the service can be readily used and where it adds real value for the customer. This means most successful mobile data services will continue to be accessed from pocket-sized phones. Innovation in mobile devices through increased product segmentation will certainly drive more data usage, but the dominant form factor will continue to be one that precludes applications like Internet browsing or watching movies. There are tens, maybe hundreds, of mobile data applications that will benefit from the introduction of stable 3G technology. The fact that many early 3G trials are focusing on laptop connectivity via 3G data cards should not mislead industry observers. Over time, this type of application will be swamped by successful consumer services in the same way that GPRS networks are used more today for WAP sessions and transmitting MMS messages than they are to provide high-speed mobile office services.
Carrier Recommendations
- MNOs should not use 3G technology as the basis for segmenting customers and services. Segmentation models and service roadmaps should address the different needs of business customers and consumers, particularly for data services. For example, when they launch 3G, MNOs should continue to target business customers with mobile office applications and other remote working solutions. However, they should emphasize that users will experience different quality-of-service depending on whether or not they are within a 3G coverage area.
- MNOs should position 3G and Wi-Fi as complementary services. For business customers, Wi-Fi will add value and will improve their mobility. By positioning 3G and Wi-Fi as complementary services, MNOs will minimize the threat of cannibalization of traffic from 3G to Wi-Fi. Where cannibalization does occur, they will gain some revenue by offering their own Wi-Fi service. They don't need to build their own Wi-Fi networks. They can partner with established players to act as virtual service providers.
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