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Mobile & Wireless
Analysis
Increasing mobile ARPU in emerging markets
New software provides an answer
by Brian Roundtree (special to Telecommunications)
Competition for new mobile subscribers is fierce. There are now more
than 3.1 billion wireless subscribers in the world, and according to an
Ovum Mobile Market Trends report, worldwide mobile connections are
outpacing population growth. Developed markets are embracing mobile
technologies, and have either reached or are nearing 100 percent
saturation. Many subscribers in these markets even have multiple
devices and networks. This overwhelming market saturation indicates
that the time has come for mobile operators to look elsewhere for new
customers.
Fortunately, a new report from Portio Research forecasts the addition of
more than 1.8 billion mobile subscribers worldwide before 2012, and two-
thirds of these subscribers are expected to come from emerging markets.
Seven of the top ten fastest-growing markets are in Asia, while the
Middle East and Africa will remain the least penetrated regions in 2012.
Wireless services in India are also growing at one of the fastest rates in
the world.
But business strategies used in developed markets don’t always transfer
to their emerging counterparts. Stark differences in handset types,
usage and costs create a whole new ballgame in emerging markets. This
frontier in wireless is a high-volume, low-average revenue per user
(ARPU) market with tremendous potential for growth — or, with the
wrong tools and strategy, failure.
Mobile operators are facing a new challenge as they scramble to access
emerging markets and avoid costly blunders. The operating costs in
these areas remain the same as in developed markets, but ARPU is
typically very low. In fact, GSM Association statistics state that 80
percent of the world’s population is within wireless coverage, but only 25
percent can afford to access it. Given their need to expand into new
areas, how can mobile operators keep costs down to offset the price of
gaining subscribers?
Lowering costs
Many operators have begun to address this concern by chipping away at
their operating costs. Both Nokia and Motorola, for example, have
started producing low-end handsets built specifically for emerging
markets and are offering service for as little as US$5 per month. By
pushing inexpensive pre-paid plans which result in lower customer
support costs than alternative plans, operators are attempting to
provide a no-frills service for customers who may not have high
disposable incomes.
But this tactic creates additional problems. With low-end phones and
predominantly pre-paid plans, mobile operators often experience a higher
churn rate in emerging markets. People can and do all too easily create
new connections by replacing the SIM cards in existing handsets. While
pre-paid plans result in fewer customer support calls and associated
costs, phone turn-over does not foster adoption of new features and
services and therefore eliminates an important revenue source.
Other strategies to reduce overhead in emerging markets have included
sharing infrastructure to avoid building duplicate structures. This is a
practical approach to lowering both costs and the number of unsightly
towers needed to build a network. Operators are distancing themselves
from infrastructure and have begun to lease it from firms specializing in
mobile network build-out.
These cost-cutting strategies have certainly proven profitable for some
companies. Bharti Airtel, the only carrier offering services in all 23 circles
in India, is the largest Indian mobile phone operator, with a market share
of 24.4 percent as of September 2007. Reliance Communications,
Vodafone Essar and government-owned BSNL are following close behind
with September 2007 market shares of 18.1 percent, 17.8 percent and
15.1 percent, respectively (Gartner).
How low can mobile operators go in their quest for profitable expansion
into the wireless frontier? As more companies vie for access, the level of
competition will likely increase and push the price of telecom services
down even further. Costs will need to continue dropping if operations in
rural areas are to expand profitably. And, while many low-overhead
business models of mobile operators have been highly successful, there
are some aspects of mobile service that simply cannot be taken out of
the picture.
Focus on customer service
SIM card switching aside, operators still face the tremendous challenge
of financing customer service. With the introduction of new technologies
and services, inevitable user questions arise which have typically been
directed to expensive call centers. It is crucial that operators provide
tools to meet their customer’s needs while simultaneously avoiding high
support costs.
With the influx of pre-paid plans in new markets, mobile operators have
addressed support issues by charging customers on their pre-paid
account when they call customer support, instead of providing the
service for free as with post-paid customers. Hidden fees such as these
are not likely to be popular with subscribers. And increased competition
in emerging markets means that if a customer isn’t happy, another
wireless provider will be waiting with open arms to take their business. In
fact, research conducted by the American Management Association
found that 68 percent of all customers who stop doing business with a
company do so because of a bad service experience.
This cutthroat landscape is hostile to subscriber retention unless a company can
achieve the perfect balance of low costs and high customer satisfaction.
Some Indian operators have attempted to tackle customer support
issues by encouraging subscribers to solve problems themselves. This
self-help policy is problematic if companies don’t offer customers the
tools they need to solve handset issues. The extent of customer care
from Idea Cellular, for example, includes provision of the address, phone
and e-mail address of the company on its website. Bharti Airtel has
taken a similar approach and has no customer service link on its page.
Vodafone India has self service kiosks, links to customer support on its
website, and bill-paying services through My Vodafone or by calling
customer care.
But, thanks to a new batch of technologies, providing support does not
need to be an unpleasant or costly experience for operators and
customers. Keeping overhead low and avoiding the alternative of
frustrating IVR services is becoming increasingly easy with new
capabilities such as remote diagnostic support and updates as well as on-
device services. Unlike the IVR systems with which many mobile users
have become all too familiar, remote support services attempt to fix
problems proactively before they occur. Remote support can detect
common problems and solve them before a user even notices they exist.
Customers feel empowered by resolving problems on their own and on-
device services seek to provide users with relevant, context-sensitive
solutions to help them do so.
One way to help avoid customer frustration is by employing software
that can step in when calls are made to customer support organizations
and presents each user with personalized tools to resolve as many as
three out of four issues quickly and easily on the device.
In addition to encouraging the use of revenue-boosting applications,
access to interactive tutorials will also teach the user about their mobile
device, thus decreasing the number of calls to customer service. If
operators can provide a workable, cost-effective solution to benefit the
user, call center traffic will decrease significantly and reduce overall
operational costs.
Easy and intuitive activation creates a positive experience for new and
existing users from the moment they purchase a phone. Providing
educational resources on the handset will decrease the number of
returned devices and subsequently increase revenue for operators.
Customers keep devices they know how to operate and use applications
they understand. This in turn drives customer loyalty as subscribers
engage fully with their devices and have a positive relationship with the
mobile operator.
Lowering operating costs through inexpensive phones and new
innovations in customer service is only half the battle. Mobile operators
still must advertise, attract potential customers and drive uptake of new
services. Existing channels such as TV, direct mail, e-mail, billboards,
radio and in-store promotions are costly. Less expensive alternative
means of reaching customers are therefore being considered.
Most mobile users have been the unwelcoming recipients of spam texts
and calls pushing new services and promotions. While inexpensive, this
practice is not pleasant for customers. An alternative is helping to drive
new service discovery and adoption by providing operators with a
platform to interact with their subscribers and present targeted offers.
This outreach results in promotions that are highly relevant and tied to
the context of the subscriber’s own behavior. On-device self-service
software reacts to user events and presents the right content at the
right time in a visually compelling way.
Mobile operators need to answer the challenges found in emerging
markets by providing services and handsets at an affordable, competitive
price point. Additionally, they must make products and services easy to
find and simple to use to build customer loyalty. As operators provide
more value to their customers, they will be more loyal and less likely to
switch SIM cards and operators so frequently. The secret to maximizing
growth opportunities in emerging markets lies in outsmarting competition
by utilizing new technologies that strike the elusive balance between low
costs and satisfied subscribers.
Brian Roundtree founded and serves as Chief Technology Officer for
SNAPin Software, Inc.
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