Digging for the New Mobile Gold: The Next Generation of Mobile Monetization

The mobile market continues to evolve at a blindingly fast pace. It seems as though new faster, sleeker, and more powerful mobile devices are launched every day. The number of applications available to run on these revolutionary new mobile devices is staggering, numbering in the millions. The insatiable demand for mobile devices and new bandwidth-hungry applications is generating enormous amounts of mobile data.

In spite of this phenomenal growth and insatiable consumer demand, many MNOs are struggling to profit from this mobile gold rush. Mobile operators are watching as their average revenue per customer (ARPU) flattens or declines. This mobile paradox - huge growth and customer demand, yet significant business and market challenges - seems to be unique to the mobile industry.  Mobile operators need to build out more network capacity to keep up with the voracious customer demand, but they are struggling to convert these investments into higher revenues and profitability. Much of this business is being lost to substitute over-the-top (OTT) services and to major shifts in usage behaviors.

The history of the mobile industry has involved huge and successful waves of revenue growth.  For a long time the mobile industry made huge sums of money from the mobile killer app - voice. However, high or unlimited minute plans and changing usage have meant the end of that growth wave. Messaging provided operators with perhaps one of the highest-margin and highest-growth products of all time, from any industry. OTT applications such as WhatsApp, Snapchat, and social media saw that revenue wave crest. Lately, MNOs are watching mobile data access rise to well over one-half of their total revenue, fueled by the insatiable consumer need to connect their mobile devices and applications. However, the crest of this third growth wave is visible on the horizon as the industry disruptors begin to shape a new mobile world.

The question for mobile operators everywhere is, what is this fourth, or next, wave of mobile growth?

Unfortunately there is no obvious tsunami-size fourth monetization wave cresting on the horizon for mobile operators. Unlike the preceding three waves, there will be no gold rush created by a single killer app, such as voice, messaging, or data. A lot of gold still remains in the mobile business, but it is going to come from multiple sources and require some sophisticated mining techniques. 

Cisco believes that there are four key strategic thrusts, or monetization areas, for operators to create new value from their mobile business.

1. Cost Optimization

While not a revenue-generating opportunity in itself, cost leadership will be a critical component in creating value for service providers. In Cisco’s experience, working with our major service provider customers, we have been able to improve overall service provider OpEx efficiency by at least 10 percent. Key activities to deliver these improvements include: virtualized production architectures; next-generation mobile access; improved business agility; and, new business and operating models.
2. Pricing
Pricing has always been an important tool for mobile operators. While pricing is, in fact, the most powerful of a firm’s profit levers, it is often overlooked by managers. Key considerations in enhancing profitability through pricing include: tiered pricing and usage caps; value-based pricing; shared plans for Internet of Everything (IoE) readiness; plan rationalization and simplification; and, bundling.

3. Network-Enabled Features

Mobile operators realize that many of the assets and capabilities in their network and operations allow them not only to improve the quality of the user experience, but also to sell relevant information and services to other interested parties. Key opportunities to monetize network-enabled features include: quality of service (QoS); policy; APIs; data analytics; and, security. 

4. New Solutions and Services
As the world becomes truly mobile, service providers have a unique opportunity to use their core technology and business assets to create new solutions and services to enhance their users’ experience and utility, reshape businesses and business models, and create new sources of value beyond their core access business. Potential new solutions and services that mobile operators could successfully deliver include: mobile cloud; Internet of Everything and machine-to-machine (M2M); connected vehicles; enterprise and small and medium business (SMB) solutions; OTT collaboration; and, location and data analytics solutions.

While mobile operators can derive new and incremental business value by focusing on all four of these strategic monetization opportunities, Cisco believes that the truly untapped gold lies at the heart of the mobile operators - their network. This new gold exists in the information and capabilities deep in the core network elements and infrastructure.  The key to mining this new gold and creating new and lasting business value involves building, and successfully delivering, the monetization layers that lie above the network. The features/services and solution layers extract the inherent technical value from mobile networks and translate these into market-ready products and services that can be sold through different channels to the ultimate end user.

Further details on these new mobile monetization opportunities can be found in our white paper:  Digging for the New Mobile Gold: The Next Generation of Mobile Monetization

How Service Providers Can Profit From Smart Cities

The UN estimates that at some point between 2008 and 2009 the world’s urban and rural populations became equal in size for the first time in human history.  Urbanization is set to continue as the rural population seeks the wealth and social opportunity that cities offer. In the period from 2007 to 2050, the UN estimates the urban population will grow from 3.1bn to 6.4bn.  As cities around the world grow in size, we are beginning to see that strained resources, infrastructure, and services are causing natural limits to urban growth, which in turn limits the economic growth opportunity. The challenge of managing sustainable urban growth is one of the defining challenges of the 21st century. In parallel, city leaders are looking for ways to establish clear identities for their cities and to use the growing connectivity of everything to improve urban life for their citizens.

Cities as diverse as Barcelona, Nice, Dallas and Songdo in South Korea, are already starting to leverage advanced technologies and data analysis to create smart, connected cities.  These cities, and others around the globe, are building out new digital services such as smart lighting, traffic, waste management and data analytics to reduce costs, tap new sources of revenue, create new innovation business districts and improve the overall quality of urban life. Not only will the creation of smart cities generate huge value for the cities and their inhabitants, but there are great opportunities for the vendors and partners who help the cities to create and operate these digitally smart cities of the future.

Connecting all of the sensors, devices, people and data is critical to making a city smart.  With highly developed wireline and mobile networks, Service Providers are at the center of providing this network connectivity.  However, Cisco believes that the SPs have a much greater role to play beyond simply providing the connectivity.  There are numerous opportunities for them to move up the stack to extract a much greater portion of the more than $1.5 trillion that Cisco estimates will need to will need to be invested in ICT and “smart” urban infrastructure worldwide over the next decade.

To understand the best role for a service provider in smart cities and how they can make money, we need to consider three strategic dimensions – benefits, role and finance/governance.

1.    Benefits to the Service Provider – Different types of potential benefits include:

·         Direct – network access; network management; services (e.g., location-based, cloud, security); solutions (e.g., smart parking, traffic, lighting); technology/business platform (build and operate)

·         Ancillary – rights of way for network deployment on city assets; upsell to city, local businesses and consumers; customer retention

·         Indirect – branding; PR/communications; customer experience; regulatory relief; government relations

2.    Service Provider Role – We view the potential SP smart city roles as a pyramid, or set of layers with each layer supporting the layer above and increasing the potential business return as we move up the pyramid.

 

3.    Financing/Governance Models – Range of financing and ownership models:

·         City Funded and Owned – City buys and owns the equipment and services and funds through budget or bond issue

·         Vendor/SP Funded – Vendor/SP finances and owns the infrastructure and leases it to the city with services

·         Public-Private Partnership – Funded and operated through a partnership of City and one or more private providers

·         New Separate Entity – Create new legal entity of key ecosystem partners, finance and operate as a separate business with profitability/break-even goals

By carefully assessing their options and opportunities along these three dimensions service providers can define a successful strategy and operating model for profiting from smart cities.  SPs are in a unique position to deliver Internet of Everything enabled, smart digital city services to key urban areas by providing a combination of connectivity, Wi-Fi network, platform, operations, implementation and integration, and specific applications and solutions.

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