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Pricing and Revenue: Growth Opportunities?

For what it’s worth, we think a combination of approaches, including clear, targeted offers for SMEs will contribute to growth, or at least help offset revenue decline in consumer markets. That’s partly because we are an SME and none of the big telcos has anything to offer us at all – and we think they should - and partly because we have worked in that sector for a long time.

At Ericsson’s pre-MWC briefing on the 13th, we heard how finding growth opportunities for their customers is a key element of their offer. And so it should be - all vendors need to do this, as, ultimately, if your customers don't make money, then you are unlikely to maximise your own revenue potential. It’s hardly altruism, but certainly will contribute to the survival of the species – promoting mutual self-interest is a proven evolutionary strategy.

An interesting insight into this was provided in a quote from one of the speakers at the event, reported last week by telecoms.com . We quote from their wry weekly newsletter, A Week In Wireless:

If the price of a service is well above a consumer’s income or disposable spending levels then they are simply not going to buy it,” said Jaco Fourie, senior BSS expert at Ericsson, when the Informer spoke to him this week. “If you have more than 100 per cent penetration in a market then you might get a bump from the early adopters when you first launch [a new technology] but when you get to the mass market you will grow at GDP—end of story.

Well, that’s right. Service pricing is a hugely vexed issue. Few consumers are willing to pay for new services that don’t offer much more than they can obtain from alternative providers or that they can’t afford.

By the way, this was one of the issues that was endlessly discussed in the early days of RCS (yes, it’s still early days, at least in terms of deployment, but still…). Most of the MNOs saw benefits in launching services, but struggled to work out how they would make money from it.

The answer, of course, is that they can’t. Why should they? It’s just a catching up proposition to evolve basic messaging to match capabilities that are available elsewhere, but with the benefit that you only need a phone number for it to work. Yes, there are lots of arguments against it, much more elegantly put elsewhere, but the point we are making here is that a lot of time and energy was wasted trying to determine optimal business and charging models, even while many in the industry were standing up and making a commitment to launching services. Of course, not many of those commitments have been met yet, but as we said, that’s another story. The business model here isn’t about revenue growth, it’s about protecting something you already have – and are losing, so it’s a kind of negative influence.

The fact is, RCS is not going to contribute to revenue growth, at least not in the consumer world – all of which confirms Mr Fourie’s point: for some services, you might attract an initial premium, but not for long and not one that will make a difference. Many others will make no difference at all.

Where does that leave us? It means operators may need to change their fundamental assumptions about service revenue opportunities. They need help to do so. They might (and it remains to be seen, of course) be able to charge more for different bundles, price plans, add-ons and so on, but their ability to leverage new services are severely constrained by macro economic conditions and the fact that most attractive applications that consumers want to use currently come from OTTs and are generally free anyway.

They need to focus on several key areas:

  • Service innovation in delivery of bandwidth, connectivity, QoS and QoE;
  • Opex reduction; and
  • Coming up with useful, targeted offers that cater for the needs of specific segments.

We think there is an opportunity for new service launches in consumer markets, but only at the right price, which isn’t going to be much. Of course, if it’s possible to launch services cheaply and cost-effectively, all well and good, but that trick seems to still be rather unusual. We know a few vendors who have successfully developed solutions that address this, but again, they tend to be highly targeted offers.

But in general, we think it’s far more interesting to focus on innovation for customers who actually care – and that means really getting to grips with the SME, enterprise and other significant market segments. Sadly, too many operators are concerned with the diminishing returns available in the consumer market and not enough are paying real attention to opportunities that are currently underserved.

Of course, we can’t pretend to know the answers – that’s just our opinion, based on the environment in which we work and our long experience, but it’s part of our job to help our customers position their solutions towards opportunities that provide ROI, generate returns and can generally be justified and, as such, not only is it fun to contribute to the debate, it’s something we take extremely seriously. Sadly, as we have said before, there are no magic beans.