Pricing strategies for an incumbent operator: Mobile Services

1
Pricing strategies for an incumbent
operatorMobile Services
Saburo Tanaka, ITU
The views expressed in this paper are those of
the author and do not necessarily reflect the
opinions of the ITU or its Membership. Dr Kelly
can be contacted by e-mail at Tim.Kelly_at_itu.int
2
Pricing mobile servicesAgenda

• A Mobile Revolution
• Worldwide and in the sub-region
• Pricing Mobile
• Options
• Price comparisons and trends
• Price trends
• Average Revenue Per User (ARPU)
• Fixed-Mobile Interconnect
• A Mobile Future

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A Mobile Revolution
Fixed Lines vs. Mobile Users,
worldwide, Million
1'400
Mobile Users
1'200
Fixed Lines
1'000
800
600
400
200
0
1993
1995
1997
1999
2001
2003
Source ITU World Telecommunication Indicators
Database.
4
Mobile subscribers per 100 inhabitants Year-end
1999 Sub-region
0.16
Lao P.D.R.
0.33
Viet Nam
0.81
Cambodia
1.06
Indonesia
1.42
Sri Lanka
3.00
Philippines
3.42
China
4.21
Thailand
11.09
Malaysia
Source ITU World Telecommunication Indicators
Database.
5
Mobile subscribers as of total telephone
subscribers Year-end 1999 Sub-region
9.4
Viet Nam
19.7
Lao P.D.R.
24.8
Sri Lanka
26.8
Indonesia
28.5
China
32.9
Thailand
35.3
Malaysia
42.4
Philippines
76.3
Cambodia
Source ITU World Telecommunication Indicators
Database.
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The secret of mobile success

• Why is mobile currently growing ten times faster
  (55 p.a.) worldwide than fixed lines networks
  (5.5 p.a.)?
• Why is the average mobile user much younger than
  the average fixed-line user?
• Why do users make calls using a mobilephone even
  when a fixed-line telephone is available and
  cheaper?
• What is the secret of the success of mobile?
• Price Options

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A selection of price optionsFrom Orange (UK)
Source http//www.uk.orange.net/kit/index.html.
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Pricing Mobile
Price of 100 minutes per
9.74
Indonesia
month mobile usage, in US
10.87
China
16.26
Philippines
17.80
Sri Lanka
19.34
Thailand
19.55
Lao P.D.R.
21.02
Malaysia
27.71
Viet Nam
37.00
Cambodia
Note Price basket based on monthly subscription
plus 50 mins peak and 50 mins off-peak
use.Source ITU World Telecommunication
Indicators Database.
9
Declining prices for mobile access, global
average, in US, 1992-98
Note CAGR Compound Annual Growth rate.Source
ITU World Telecommunication Development Report
1999 Mobile cellular
10
Average revenue per user (ARPU)Bell Mobility
(Canada)
120
1'600
Revenue per sub/month
1'400
100
1'200
80
1'000
Cost per sub/month
60
800
Subscribers ('000s)
600
40
Subscribers
400
20
200
0
0
90
91
92
93
94
95
96
97
98
Source ITU World Telecommunication Development
Report 1999 Mobile cellular
11
Cultivate the high-spenders
Source Price Waterhouse Coopers, based on
Canadian data.
12
Mobile ARPU converging with Fixed-line ARPU,
Japan (Yen 000s p.a.)
300
Mobile ARPU
250
200
150
Fixed-line ARPU
100
50
0
1990
1991
1992
1993
1994
1995
1996
1997
Source ITU World Telecommunication Development
Report 1999 Mobile cellular
13
Pricing mobile and fixedMonthly subscription
charges (US)
Ratio
Cellular/fixed
Residential fixed-line
25
3.0
Digital cellular
20
2.4
1.1
5.0
1.7
15
5.0
10
5
0
Malaysia
HK Sar
Cambodia
Indonesia
Thailand
Sri Lanka
14
Pricing mobile and fixedPrice of 3 minute local
calls (US)
Residential fixed-line
1.0
Digital cellular
n.a.
Ratio
18.2
0.8
Cellular/fixed
6.7
0.6
10.0
0.4
3.0
7.5
0.2
0
0.0
HK Sar
Cambodia
Thailand
Sri Lanka
Malaysia
Indonesia
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Fixed-Mobile Interconnection

• Interconnect prices are a major determinant of
  retail prices
• Evidence of market failure
• Interconnect prices are variable but generally
  very high
• In Calling Party-Pays environments, caller may
  not be aware of the charge they will be paying
• Calling party does not have a choice of operator
  to terminate the call
• Fixed-to-mobile and mobile-to-fixed highly
  asymmetric
• By 2005, 75 of all calls worldwide will involve
  a mobile

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Calling opportunities worldwide
5.0
0.3
5.0
7.5
19.9
1993
89.7
52.7
23.4
26.7
Fixed-to-
Mobile-to-
19.9
fixed
mobile
1998
Fixed-to-
Mobile-to-
mobile
fixed
25.0
25.0
2003
Source ITU Fixed-Mobile Interconnect website
http//www.itu.int/interconnect
17
Interconnection Rates in selected European
countries under CPP (in US / minute)
18
Interconnection Rates in Selected European
Countries Calling Party Pays (CPP). In US per
minute.
19
Interconnection rates in selected non-European
countries Calling Party Pays (CPP) vs. Receiving
Party Pays (RPP). In US per minute.
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A mobile future
Actual and projected subscriber growth,
fixed-lines and mobile, millions, 1990-2010
2'000

• Mobile has overtaken fixed-lines in Cambodia,
  Finland, Italy, Korea
• Mobile subscribers to overtake fixed-line
  worldwide before 2005?
• Mobile revenue to overtake fixed-line after 2004?
• Fastest growth in developing countries

1'500
Fixed
1'000
Mobile
500
0
1990
2000
2010
Source 1990-1998 data from ITU World
Telecommunication Indicators Database. 1999-2010
ITU projections.
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The race for 3rd Generation mobiles IMT-2000
Video Streaming
Video Streaming
2,000
1G
2G
3G
Still
Still
Imaging
Imaging
384
Audio Streaming
Audio Streaming
144
Text Messaging
Text Messaging
Data Transmission Speed - kbit/s
128
Voice
Voice
64
JPEG
Still Photos
E-Commerce
32
9.6
0
Time
Source Adapted from Motorola.
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For more information ...

• Publication launch 10 October 1999 (TELECOM
  99)
• Available on paper and online (PDF format)
• World Telecom Indicators Database available
  online
• Website
• http//www.itu.int/ti

Other reports launched at TELECOM 99

• Direction of Traffic 1999 Trading Telecom
  Minutes
• Trends in Telecom Reform 1999 Convergence
• Internet for Development (updated with latest
  data)