Looking around the world there is no doubt that the mobile broadband market is simply exploding and in many areas the development of this dongle market that gives access to broadband via mobile networks is reminiscent of the development we saw in the mobile area, when customers started migrating from fixed line telephones to mobile telephones.
In countries like Finland, Norway. Sweden and Denmark, we can see that the number of DSL connections is decreasing and being replaced by mobile broadband – and this is happening just a few years after mobile broadband is launched in a country. In reality there are today whole customer segments that have cancelled their fixed line broadband connection and are using a wireless connection instead.
If you are following the mobile Internet debate, you could easily get the impression that most of the Internet traffic on a mobile operator’s network is being generated by the new and advanced smartphones being marketed and sold by companies like Nokia, Samsung, Apple, HTC etc. But if you analyse the data traffic it is clear that a mobile broadband connection on a PC generates between 10 to 25 times more traffic than an advanced smartphone.
What are the financial aspects of smartphones versus mobile broadband?
One thing is selling mobile broadband connections on smartphones and mobile broadband connections, but the actual financial business case of the two products and which solution – small versus large screen – that gives the best profitability is a completely different matter.
Strand Consult has studied these two different products, the amount of data traffic being generated by different devices, the price ranges operators are charging and finally how much load the two products place on an operator’s mobile network.
The result of the analyses is very clear and allows you to view the two products from a number of angles and thereby take a fresh look at the financial potential of both products. This is what the agency discovered:
1. Price per megabyte data: When the experts examine the price a small screen data package is sold for compared to a large screen and the volume of data the two categories consume, it becomes obvious that the data price on a small screen is far greater than on a large screen.
2. Size of load on network: Usually when people use a smartphone on the network, they are only online for a short period of time. Additionally the data volume generated when a smartphone is online is less than the data volume generated by an online PC.
3. Customer service load: The technical challenges customers face using a smartphone to surf the net are greater than when using a PC with a broadband dongle. In practice, customer service for smartphones is significantly more expensive than customer service for broadband dongle users.
4. Acquisition costs: Again when the agency examines an operator’s sales and marketing costs in connection with a smartphone compared to a dongle, there is no doubt that it is significantly more expensive to acquire a smartphone customer, than a mobile broadband customer using a dongle to go online.
5. Churn on these two customer segments: a smartphone customer often purchases a subsidised phone with a 12 or 24 months subscription – with a large probability that he will stay with that operator until the next time he replaces his mobile phone. A mobile broadband customer is on the other hand mainly focused on where they can receive the best connection at the lowest price. Once he has found a provider that can deliver the same service at a saving or a better service for the same price, there is a large risk that he will change provider.
6. The possibility to sell VAS products: Selling extra services is difficult when selling a mobile broadband connection. A customer purchases a broadband connection containing a certain data volume per month. A Smartphone customer does not only use data, but also purchases voice, SMS, MMS and a number of value added services that allow operators to make money on services that are created, marketed and sold by third-party companies, but billed by the operator.
All in all it is obvious that selling data on a small screen will most often be better business than selling data on a large screen. On the other hand it is important when projecting financial figures to include all costs, including acquisition costs, customer service costs and even possible guarantee costs on smartphones that are not covered by the manufacturer: