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Tue 21 Jul 2009 04:00 AM

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Drive for data

With demand for mobile data soaring, 2G and 3G mobile operators have an ideal opportunity to offer their customers a diverse range of services.

Drive for data
Drive for data
Brinkschulte sees significant potential for data services on 2G networks.

With demand for mobile data soaring, 2G and 3G mobile operators have an ideal opportunity to offer their customers a diverse range of services.

While mobile data is often associated with 3G and even 4G technologies, most operators understand that it is 2G technology that remains the main revenue driver in the mobile sector, and this appears to be a situation that will remain for some time.

Indeed, according to US-based analyst In-Stat, more than half of all base stations shipped in 2008 were 2G, and in 2012 LTE base stations are expected to represent less than 1% of all base station shipments for the year. Shipments of 2G base stations, primarily those using EDGE, will be 25 times greater than those with LTE in 2012.

Furthermore, only 11% of total cellular subscriptions worldwide are 3G, and the percentage will rise to just 28% by 2013, according to In-Stat.

While the growth of 3G networks has made it easier for people to access more content-rich data, the bulk of mobile data revenues still originate from functions such as SMS and MMS, and to this end, both 2G and 3G operators in the region are increasingly looking at these most commonly used data functions as a means of reviving falling APRU.

“Mobile operators in the Middle East have increased their focus on data applications to offset declining ARPU,” says Santosh Kumar Sinha, an industry analyst for South Asia and Middle East at the ICT practice, Frost & Sullivan.

“3G networks have made it easier to provide content rich applications to consumers. However data revenue is predominantly driven by P2P SMS which contributes over 50% of overall data revenue.”

Sinha adds that music and ring-back tones, MMS, and religious content are some of the key data applications in terms of revenue generation, although plain SMS is likely to remain the “predominant revenue generator” for some years. “Growth in mobile data solution is expected to continue in coming years, while data revenue is estimated to double in the next six to seven years.

George Yazbeck, a technical officer at the Dubai office of Jinny Software, a mobile application specialist, agrees that at present, 2G data applications dominate data revenues. “Currently the bread and butter of the operators, most of their revenue is from SMS and a lot of the VAS revenue comes from ringback tones,” he says. “These are the two most successful VAS services and both of these do not rely on 3G.”

Jinny Software, which is headquartered in Ireland, provides data solutions to a number of operators in the region, and Yazbek adds that MMS and SMS related products are among the most popular offerings from the company at present. “We also have mobile instant messaging and also some of the media products like video SMS and voice SMS.”

In terms of increasing data revenues, Yazbek recommends that operators should work closer with third party data and content providers, and essentially let the specialists handle this side of the business.

“The biggest problem the operators are facing with mobile data is really becoming bit pipes, becoming just track providers for IP traffic, and not really monetising what is happening in there,” Yazbek says. “I don’t think the operators necessarily have to become bit pipes and they don’t necessarily have to close off their networks and only provide the services that they manage.”

For Yazbek, the best path for operators is to understand their assets and then “open the network” to third party providers. The main asset that operators have is their customers, and information about them.

“There is a middle ground that they should be able to reach which is opening up the network for third party providers to do the applications and at the same time monetising the unique assets that they have which is the identity, charging relationship with the subscriber and the location of the subscriber. These are the things that the content providers don’t have.”

“If you access anything on the internet, the operators know the identity of the subscriber, they have the information about this. They also have the billing relationship with the subscriber, so if you open up this capability to third party providers, I think it provides a lot of value,” he says.

Yazbek suggests that operators can leverage the value of their customer base by allowing content providers limited access to subscribers, for example, by allowing mobile advertising to be sent to certain customers that have agreed to receive a particular type of adverts. “The identity of the subscriber is something that they don’t have,” he says.

“At the same time the operators should control what the content providers are sending towards their network, there should be some policy management, and some grading and charging functions and these should be done in conjunction with opening up the network.”

In terms of Jinny’s target markets in the region, Yazbek says that both the Middle East and Africa are important, although he concedes that “there is much more room for growth in Africa” than the Middle East.

“Many countries in the Middle East are saturated because of subscriber penetration and this is not the case in Africa. It is an emerging market that offers a lot of opportunities,” he says. Ubiquitous email

While companies such as Jinny software aim to bring a range of revenue driving solutions to both 2G and 3G and NGN operators, other solutions providers remain convinced of the mass market appeal of mobile email. Email is recognised by most analysts as the most widely used non-voice function on 3G networks, and a few companies are determined to see email become a ubiquitous data feature available even on entry level handsets.

Carsten Brinkschulte, CEO, Synchronica, a UK-based company that specialises in push-email services, is one company hoping to address the rising demand for push email, particularly in developing markets such as the Middle East and Africa.

“Mobile email is maybe the most horizontal mobile application that you can think of. Worldwide, there are about 2 billion email addresses and 4 billion mobile phone users so we have got a big overlap between the two,” he says.

The company offers it push email solution through operators, and directly to businesses, and it plans to push further into the consumer market after recently entering a deal to bundle its software with handsets.

In both the business and consumer segments, Brinkschulte is optimistic about the demand for email on 2G networks.

“Business users are used to mobile email from RIM with BlackBerry products but in emerging countries these are not affordable. We have got a cost-effective alternative that enables similar functionalities but on entry level phones,” he says.

“In the consumer space our product works well on entry level phones which is what most consumers have.”

Forward with 3G

It is clear that the market is moving in the direction of 3G, with approximately 12 countries in the region having already deployed a 3G network, while other countries are in the process of rolling out networks.

But barriers to the adoption of 3G remain, mainly due to the high cost of data downloads, according to Frost & Sullivan’s Sinha, who adds that mobile internet, video calling and mobile TV are the most popular services accessed on 3G networks in the region.

“In mid 2008, 16 operators were offering video calling while mobile TV is offered by 11 operators,” he says.

Joao Sousa, partner, Delta Partners, sees “substantial potential” for the growth of 3G data services in the region, although he adds that much will depend on the quality of the networks. “In one way there is a lot of market potential but then, the quality of networks in some of the countries still lacks to give a good usage for the front line.”

A further way to increase the use of data over 3G would be for operators to bundle data usage as part of a pre-paid package. Indeed, Sousa points out that in some countries, subscribers with 3G enabled handsets connect to 3G networks by default, even though they might not be connecting to the internet. This can be a potential problem, with unnecessary voice traffic using up capacity on the network.

“One way to solve that is for the operators to always bundle data so they can be assured that a client buying a 3G Sim card wants to use data. That is one way to make sure your 3G clients really want data and you can create an offer that is not attractive for people that only use voice.”

Rise of MMS

Revenue from advertising funded MMS is set to accelerate within the next five years with annual growth rates reaching 94%, according to Juniper Research.

The Far East and and in particular China is set to lead the global trend by a considerable margin, followed by North America and Western Europe.

With the number of brands using MMS as an advertising medium growing rapidly, push MMS and SMS is gaining traction in both mature and emerging markets. Network operators are keen to test advertising-funded voice and SMS tariffs as they attempt to stem falling ARPU.

Juniper Research has also forecast that the number of global mobile email users will climb by 21% to reach 1.1 billion in 2014.

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