High-tech

Multimedia Messaging Service (MMS), part 1

By The Chilli staff analysts

Introduction

The mobile communications industry in Europe directly employs around 500,000 people and over 2 million indirectly, with a total turnover in excess of 240 billion Euro. The industry has an ecosystem of mobile network operators (MNOs), infrastructure vendors, terminal makers, system integrators, independent software vendors, content providers, aggregators and distributors. In the UK alone, the mobile industry contributes 2.3% of GDP and employs 175,000 people, according to figures from cebr.

This is the first part of a series looking at new opportunities for startups, their investors and partners in the nascent market for multimedia messaging services (MMS). In this, the first part, we examine the current state of the industry; in the future, we will look at future trends, highlight challenges and solutions.

Current state of play

The MNOs have made a colossal investment for 3G licenses, excluding infrastructure investment, of over £30bn. With an unclear business case, some MNOs have had to write-down these investments. Until 3G is deployed widely, MNOs have to sweat their existing assets and rely on GSM for now.

Approximately 80% of MNO revenues are from voice calls, with 20% for data. Of that data slice, 90% is from text messaging (short messaging service, or SMS).

Usage, in terms of minutes, is on the increase, while the price per minute has declined, in line with mobile voice calls becoming a commodity, as well as regulation. MNOs are also under regulatory pressure to reduce call termination charges (fees that wireless telephone companies pay to complete calls on wireline phone networks or vice versa). This potential impact on revenue stream may have a knock-on effect with the possible termination of handset subsidies, often up to 100% in countries such as the UK.

As MNOs renew their GSM licenses to secure their primary revenue stream, they are confronted with a choice in how to increase revenue. The choices are:

1. Attack under developed markets such as China and India. This is risky, entailing substantial investment, with limited control through joint ventures.

2. Gain more subscribers in mature markets. This would require incentives, essentially reducing margins to steal customers from each other. MNOs are loathe to cut prices by a given amount, if it fails to stimulate a comparable level of additional demand. In some cases, price rises could be used to distance MNOs away from low-value customers, e.g. the pay-as-you-go (PAYG) teenage demographic.

3. Steal market share from fixed-line telecommunications providers (TV adverts from UK MNOs are already encouraging more calls and text messaging).

4. Increase average revenue per user (ARPU) from existing subscribers. A number of options exist, including migrating pre-paid users to post-paid contracts, improving margins through the deployment of cheaper white label handsets, requiring little or no MNO subsidy, and finally, increasing data usage.

However, MNOs do not have a lot of time to figure out what to do. GSM networks are running out of voice capacity and this needs to be solved, as this could be the ceiling to increasing revenues in the short-to-medium term.

The evolution of messaging

Text messaging was an accidental success. SMS was originally designed to be a channel for maintenance and billing, and not for customer use. The first text message in the UK was sent in December 1992, with commercial launch in 1995, followed by interconnect between the UK MNOs in 1998. Approximately 20 billion text messages were sent in the UK during 2003.

SMS allows short text messages to be sent. Enhanced messaging service (EMS) is an application-level extension to SMS, superseding basic SMS features by allowing elements such as icons, formatted text and monophonic melodies to be inserted in short or concatenated messages. Multimedia messaging service (MMS), allows images, text, voice/audio/video clips and presentation information to be sent as a single entity, and has been standardised by the WAP Forum, the 3GPP and OMA.

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© Chilli Publishing Ltd 2004

23JUNE2004