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US bill heralds end of walled gardens

Market will kill them anyway

Content policies

On the content side, cost competitiveness will be important too, but more significant will be attracting unique and appealing partners. In some ways, the MVNOs, which lease capacity on a partner’s network to offer a highly branded service to a targeted demographic group, have a headstart.

The successful MVNOs, such as Virgin Mobile and ESPN Mobile, have already attracted a loyal customer base with their core products and so will have an easier task of building a well targeted content base. For a content owner like sports channel ESPN the job is particularly easy, since it can keep certain premium services exclusive to its network. Apple’s iTunes music store will be an important content offering for its cellco partners such as Cingular, but would have an even more powerful impact if Apple were ever to prove persistent rumors true and launch its own MVNO centered on the music platform.

Some cellcos are starting to formulate credible content and data policies. A good example is Nextel’s Boost pre-paid service, which is specifically targeted at teenagers. It boasts ARPU of $41 a month, double the average for pre-paid services. Its differentiators serve as an object lesson for other carriers – it boast strong segment marketing and understanding of its target base, a wide range of downloadable Java applications appropriate to the brand, plus Nextel’s signature push to talk service, which accounts for about 25% of the $41 figure.

Such well targeted platforms are only possible with the right content partners, and these partners are also the chief way that cellcos could keep their users off the open internet for at least part of the time. As the internet over other media has shown, it is extremely difficult to compete with free content, but there are some methods that work – users will still pay for material with a high perceived value, either in information or brand terms, that is not available freely; and for advertisement-free delivery. To offer these advantages, operators must make close alliances with key content providers – which is likely to mean being more generous than most currently are.

Vodafone, for instance, is locked in battles with content providers over revenue splits, but refuses to shift from its basic 50:50 arrangement – although the cellco did recently agree to invest in a major marketing drive around its key partners.

The i-Mode approach

It is surprising that more operators have not emulated the most successful mobile content platform to date, NTT DoCoMo’s i- Mode. DoCoMo set up i-Mode as a system to encourage mobile content generation by promising nearly all of the revenue to the content providers, and just taking a small piece (about 10 per cent) for itself. That actually encouraged content providers to offer their content on mobile offerings, increasing the overall pie size for everyone.

The problem with less generous schemes is that content providers are lukewarm about going mobile at all, and so the operator has an unimpressive range to offer, pushing the users back to the open internet again – and the risk of swamping the network with free downloads.

Walled gardens

In the face of this dilemma, some operators are clinging for as long as possible to the walled garden. While T-Mobile recently announced a fully open internet access service for its European networks, called web ‘n’ walk and including Google search and a choice of start page, Hutchison only allows access to its own portal.

T-Mobile is taking the view that it must accept that data ARPU will be squeezed by open IP services, but that this must be balanced by reducing costs and decreasing churn. The former is achieved by axing the division that was responsible for creating and populating the T-Zones portal, with the cellco now relying mainly on direct offerings from content partners.

The latter should follow from offering customers what they want in terms of open access, though a friendly user interface will be essential. Vodafone takes the middle ground, marketing its Live! portal and its content suppliers aggressively but allowing open access – if users can work out how to use it. While T-Mobile’s greatest risk factor in web ‘n’ walk is the poor user experience that is usually the downside of open access – especially since most web sites are not yet optimized for mobile devices – Vodafone aims to turn that risk into a positive, by highlighting the contrast in experience between Live! versus open access.

"Vodafone's strategy has subtly shifted away from hiding the gates of the garden or growing large bushes in front of them, to making it clear that users can go outside, but why would they want to?," said John Delaney, a principal analyst at Ovum, in a recent interview. This effect is enhanced because customers pay for data traffic when outside the Live! portal but incur no fees for browsing within the portal, until they choose to buy a piece of content.

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