Mobile market: where do we grow from here?

Consumers are waiting for a fresh new mobile talent

It was a Stars in their Eyes moment. As this country’s (possibly the world’s) oldest living start-up, NZ Communications launched itself onto the mobile stage this month, showcasing a new name and new executive line-up, I wanted to feel excitement, a sense of anticipation at mobile’s new wave.

However, after six years of watching NZ Communications trying to get onto the stage, the cynicism was (unfortunately) palpable from the audience. The fact that this was a pre-launch of the launch, with more smile than substance, didn’t help. The unspoken question was can 2degrees be more than a ‘me too’ cover version of what has gone before – but cheaper?

Six years ago the then-named EcoNet was a bright-eyed, young, mobile wannabe, straining for a crack at the still growing local mobile market. The problem is, it has been promising to rock our mobile world for far too long, and meanwhile the world has moved on. We have more mobile connections than people, with 110% mobile penetration by the end of 2008. We have two players – and yes, we need a competitive shakeup. But those two players are cranking up the competitive 3G amps, which risks drowning out any new voices.

So where do we grow from here? And where will 2degrees fit?

First the good news: there is still room for further mobile growth. IDC is forecasting penetration will grow to 127% over the next five years with more than 5.5 million mobile connections based on a proliferation of handsets, USB connectors and 3G-embedded laptops.

This was hard to envisage a few years ago. IDC data shows that internationally the average number of mobile connections per population in Western Europe is already 123% and growing, while the most advanced markets (namely mobile-mad Italy) showing up to 160% penetration – that is, 1.6 mobile connections for every man, woman and child.

And mobile broadband will be a key driver. Mobile broadband represents a new revenue stream; one that doesn’t carry termination charges, or require revenue sharing with content or music rights owners. IDC NZ is forecasting 179% growth in mobile data revenues to $576 million by 2013. This will help offset the continuing erosion, as traditional voice and text, leading to a 7% increase in total mobile revenues to $2.3 billion in 2013.

Our portable PC base is increasing. We have seen a 22% growth in consumer notebook sales over the past year, while the number of commercial notebooks sold increased 15%. That creates an installed base for mobile broadband in a market where both nomadic use and full mobility becomes increasingly important.

And we believe there is pent-up business demand. Initial findings from our 2009 business survey of 268 businesses shows that 46% plan to maintain their spending on mobile broadband (as opposed to text or telemetry) over the next 12 months, while 28.4% plan to increase spend while a further 20% are undecided.

When asked the top three reasons for using mobile broadband, the answers were (not unexpectedly) increasing office mobility (30.1%), improving productivity (14.2%) and infrastructure cost savings – although the biggest barrier cited was no clear business benefits or little need. And the three main reasons for switching service providers over the next year? Network data speeds/quality (20.8%); network coverage (20.4%) and uncompetitive or flexible pricing (19.1%). Carriers, take note.

However, this is a market in which Telecom and Vodafone are aggressively staking claim: NZ Communications as a new entrant will struggle to gain business traction, particularly as it can not add mobile as part of full-service fixed bundle as have TelstraClear or CallPlus. True mobile broadband requires a sophisticated network with fibre backhaul, international transmission, coverage and quality of service.

So how can 2degrees capture some of this growth? The more obvious ground for 2degrees to exploit is the price-conscious prepay market, trying to build mobile communities through giveaway SIMs and ‘two for one’ type handset deals with big buckets of voice minutes and text.

This can help build scale but comes at a price – and, as CEO Mike Reynolds acknowledges, tariffs are the easiest for rivals to match. And it represents traditional telco thinking where it is all about the tariff.

What I would love to see, when 2degrees finally bursts onto the stage this year, is not a dressed up wannabe, but a fresh new talent. A newcomer that is realistic about the need to attract on price, but thinks more like a fast moving consumer goods brand when creating value. Invests in creating a sassy brand identity, then reinforces it through an ecosystem of strategic partnerships and distribution channels. Thinks of customers in terms of their behaviour and aspiration, not just voice minutes and usage. Exploits the lack of legacy by adding value outside of traditional minutes and handsets – in short, it thinks like a services company, not a telco. And executes. Consistently.

Get that right and the rest will follow.

Nelson is telecommunications research manager for IDC New Zealand

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