Vyke gets another upgrade

Grrrr!

I really *hate* these nonsensical blatherings from startups who have found a backdoor to provide an existing service in a different way and think that they will change the world.

Rule #1: Keep The Lights On. Any MNO has fixed costs to Keep The Lights On. Spectrum licences, Men in white vans, rent, power, marketing, the list is endless.

Rule #2: Keep The Investors Happy. MNO’s need to make an RoI to provide a dividend to their investors. Any edjit will tell you that Telco RoI is much the same as any other business. MNO’s are not special. They are not licences to print money. Should I invest in a sneaker manufacturer or an MNO? Often there is little difference from an investor perspective. 10% return PA? maybe. If MNO’s were THAT much of a rip-off/licence to print money, then their returns to investors would be much greater, but they aren’t.

Part of MNO revenue is SMS. It is priced at a point that users find provides fantastic value for money, or they wouldn’t use it in their zillions. It is priced along with voice and data to provide the RoI required to Keep The Lights On and Keep The Investors Happy.

You CANNOT do some ad-hoc reverse maths and say that SMS is 750 times more expensive than data. If you want to do that, then fine – deliver the SMS like data – no QoS, you need a PC on, client running, etc. Then see how happy people are.

Assuming Vyke can emulate the normal SMS process by running their client on the handset instead of the built-in globally standardised SMS functionality, ok, on the face of it it works.

But…

Assume Vyke is stupenously successful. Everyone gets it, and no-one buys SMS packages anymore. How do MNO’s meet Rules 1 & 2 eh? Up the price of calls until they get similar revenue streams again? Up the price of Data? Up the monthly contract fee? One or both or all three would have to occur, or guess what? The lights go out. No coverage. No capacity. It’s as simple as that.

Vyke are piggybacking on a massive investment which they have not had to make, and then have the nerve to claim that customers are being ripped off. That’s like a burglar stealing a new car, selling it for £100 and telling you that the new car dealer was ripping you off all along.

There are plently of cases of on the face of it, expensive stuff. A CD costs 50p to print, so can a pirate CD seller claim record companies are ripping you off by charging £10? What if no-one buys CD’s anymore because everyone’s only willing to pay 50p. The musicians get no royalties, no-one knows about new records because there’s no PR, etc etc.

Vyke are not living in the real world, and are morally bankrupt in their sell to customers.

Grrr.

Good points — however 12.5p per text (Vodafone UK) is nowhere near good value for transmitting 160 characters, Mike. Nowhere!

The Voda 12p is for delivery cross-network, once you’ve exceeded your SMS bundle, as far as I can interpret the not-too-clear small print. Certainly the cost for bundled, or on-net SMS is much, much cheaper than 12p. This reflects the interconnection charges that all MNO’s face and place on others to terminate on thier rather expensive networks.

On Three you can get 1,000 cross-network SMS for £20. That, by my maths, is 0.5p per SMS. Not 12p. Nowhere near it. A factor of over 20 out.

But let’s look at what’s involved in the transmission of those 160 characters, *per MNO*:

Licence to operate in the UK airwaves: several £Bn up front
Build network to provide meaningful coverage: Quite a few more £Bn up front
Ongoing cost to run staff, buildings, network infrastructure, handset subsidies: several £Bn/year?

Now you could argue that the cost to write 160 characters on a Post-It and hand it to someone is way less than 0.5p – a Post-It and a bit of ink, plus a short stroll. But customers want SMS delivered instantly, from anywhere they are, to anywhere the recipient is In The World. They want it GUARANTEED delivered, maybe with a read receipt.

No-one who complains about the cost of an SMS has EVER had to build and run an MNO. I could argue that the price of a pint is exhorbitant. It’s 95% water fer crissake! Rip off! However, I assume the brewing industry value chain has reacted over thousands of years to market forces and competition, and I’m paying a reasonable price for what it cost to make my pint and serve it to me. I’ve never been a brewer or landlord, so I’m guessing here.

You get what you pay for. If you want to pay nothing, or next to nothing, that’s exactly what you will get (a glass of water instead of Summer Lightening), because MNO’s won’t be able to run their multi-£Bn networks if you aren’t willing to pay to Keep The Lights On and Keep The Investors Happy. Even if you were out of your SMS bundle, overseas, the ‘cost’ of an SMS will be good value commensurate with its content. If you are SMS’ing to say ‘Hi, the sun’s bloody hot here in Santa Lucia’ then 50p or whatever might seem pricey. If you are saying ‘Send food/water/float plane – there’s a coup on’ or ‘no bog paper left!’ then 50p might seem like teriffic value.

Ewan’s the first guy to evangalise the flaming huge success that SMS has been. Would it have been successful if it was priced wrong? I reckon SMS pricing is spot on. 45M UK SMS users appear to agree. With 5 major MNO’s in the UK you have competition up the wazoo, and it keeps everyone honest. Vyke coming in and expecting to remove a major chunk of MNO revenue for no investment of their own just doesn’t hold water. If Vyke does succeed in screwing MNO’s out of existing SMS revenue, how will MNO’s react? Time will tell.

This isn’t about Vyke doing something cool that MNO’s have dragged the chain on and are therefore stiffing consumers because they are slack.

“the 12p a typical UK consumer is paying for a text message is simply exorbitant”. Hmmm…let’s see….assuming Vyke are correct, 3Bn SMS per month in the UK@12p = £360M/month. 45M subscribers. So all those SMS get sent, all the value they add to business, personal lives, the economy – for an *average* of £8 per mobile subscriber.

And the way bundles are structured, user-pays. Heavy users pay more, and I assume they get value from that. Someone who only SMS’s once a year in an emergency also gets value – the network was sitting there, humming away, waiting for them to need it.

Sorry, but where exactly is the rip-off? Methinks Alistair Campbell has been retained by Vyke to beat up a sense of consumer injustice, but like the dodgy dossier, Vyke’s claims just don’t bear reasonable scruitiny.

£0.02 (discounted from £0.12 just for Ewan)

Mike

Woops – 2000p / 1000 SMS = 2p each, assuming you make no voice calls at all, which obviously is silly.

…but you get my point.

Mike,

Firstly, Vodafone itself classifies SMS as mobile data (check their annual report) – it’s the only way that they can claim to have 18 odd per cent of revenue coming from mobile data.

The comparison you made to car theft is nonsensical. Is Google stealing from broadband providers when users visit their page? After all, Google is not paying the broadband provider to carry the data – right?

What Google is doing is actually selling broadband for the ISP. No services = no ISP customers.

Ever wonder why Vodafone’s mobile data revenue is estimated to be less than 1% of turnover (once you have removed SMS)? Walled gardens, prohibitive data costs, etc = no services.

To put it plainly, Vyke offer a mobile data service that a user accesses using the mobile internet service that he or she is paying for.

The majority of the mobile network operators are clinging to an antiquated business model. They are heading down the path of becoming wireless ISPs, but are fighting it with desperate measures (their “VoIP helps terrorists” claim comes to mind here). Care to guess who sent them on that path? They did when they started pitching the wonders of the high speed mobile data available with 3G.

In my mind, the billions they spent on acquiring the 3G licenses were, in light of how they address mobile data services, not money well spent. The primary goal of 3G was to provide high speed mobile data service, which has been, by any measure, an extraordinary failure.

So, Mike, why are you so interested in footing the bill for the billions in licenses (wasted), network (hardly used to its capabilities) and administrative bloat?

As a consumer, I will not spend my hard earned money supporting a failed business model by paying far too much for services that are essentially unchanged since the early 90s.

With Vyke, you can text message for free using the mobile internet connection that you pay for. You used to have to pay a lot more than free. That’s what happens in technology…

Sincerely,

Aaron Powers

Vice President of Business Development
Vyke

Hi Aaron,

So the 3G fees were wasted? How do you launch a service that relies on fast 3G packet data (for which your company invested, ahem, £0.00), and then claim that that investment was wasted? Anyone using the mobile internet today is getting value from that 3G licence investment. Our beloved Mr Mcleod gets ‘value’ every time he uses his 3G USB modem. Or should we have stayed in the 2G world?

“The primary goal of 3G was to provide high speed mobile data service, which has been, by any measure, an extraordinary failure.” Hmmm…been to Austria lately? Sweden? Have a look at how many people are using 3G as their *only* connectivity. Some MNO’s in Austria are looking at over half their revenue / subs being from 3G data only. The fact that the licences were auctioned and the networks built 3 years prior to decent handsets and apps/sites being developed is a major shame, yes. Most people still don’t realise just how capable their handsets are. In another 3 years the situation will be completely reversed. Our 3 year old picked up a landline handset and wondered what the cord was for and why it couldn’t take pictures. The under-25’s are totally up with mobile internet. As they age, as MNO’s market, as services like eBay/Amazon mobilise, as the BBC etc use more and more mobile content in headline news, the populace will be educated.

If the networks are ‘hardly used to their capabilities’ then why do MNO’s put in 6-sector cells with 3 carriers? Not for fun. Because the investment is being sweated. Users are using. 2G and 3G spectrum is the most heavily utilised, efficiently managed slice of the spectrum. Turn on a spectrum analyser in central London and have a look. Yep, there are urban / rural sites that are under-utilised, but that’s the nature of mobile. You have to have coverage AND capacity to deliver a good proposition.

Administrative bloat? Not in any MNO I’ve worked in in the last 10 years. They are as lean as any other multi-million customer-serving company.

Your Google anology is incorrect. When a customer visits Google, the OpCo looses nothing (if they’re smart, they might have an ad rev-share deal cut, so it could well be an earner). MNO’s have no Google of their own. Your model will, if successful, remove the revenue from SMS that currently goes toward Keeping The Lights On and The Investors Happy. What would you have the MNO do? Bend over and take it?

Just like public WiFi, *there*is*no*free*lunch* – Google & Earthlink will tell you that. The tradgedy of the commons dictates that if something is free but finite, it will end up with ultimately no value as it gets overused.

There’s no parallel in the fixed ISP world, as you buy the line, then pay to add the service. There’s no option to not pay for the line. You can’t say to BT “I’m only using this line in the evenings (got some wet string & 2 cans for the morning), so make it half price thanks”. In mobile, SMS revenue helps keep the line running. If you remove it, what happens to the line?

“The majority of the mobile network operators are clinging to an antiquated business model. They are heading down the path of becoming wireless ISPs”. Perfect illustration of my point. If you look at MNO’s as WISP’s right now, there is a set amount of revenue required to deliver the network. Remove part of that revenue and where does that leave the customers? The investors?

“With Vyke, you can text message for free using the mobile internet connection that you pay for.” ….but where your mobile internet charge only covers a portion of the overall service, the bit of revenue you are supplanting needs to be made up.

In closing, let’s just not pretend that Vyke poaching SMS revenue from the very networks they run on is a zero-sum game.

There is no free. I use global VoIP on ADSL and mobile with gateway local numbers, but I recognise there is a cost to delivering me these and “as a consumer” I’m happy to pay to keep it going. I just don’t buy into the ‘You are being ripped off, it should be free’ line. Mo’ power to you, but IMHO, loose the weasel words.

Cheers, Mike

Mike, I agree with your comments on SMS pricing – doubtless SMS cross-subsidises other activity but the per character breakdown is a bit like comparing first class post with sea freight. They are ultimately very different services

Not so sure about your suggestions that the MNOs have a right to this revenue and that without the poor darlings couldnt keep the lights on.

If Vyke can find a niche on which they can build a business (they seem to be doing pretty nicely at the moment) good luck to them. Sure, if VykeSMS displaced significant amounts of true SMS then the data pricing on which they depend would change.

And that’s the rub – this isnt SMS (see the recent demise of Hotxt and all the previous similar service). Hopefully Vyke will continue to build a very successful business but its hardly likely to be noticed within the total SMS traffic

Mike,

I appreciate the dialogue – thanks for your response.

I am not making the point that high speed mobile data is not valuable service – it is extraordinarily valuable. But for a service that is touted to be the way that world is moving in, it amounts to an amazingly small portion of overall revenues. In my opinion, billions invested in new technologies that amount to single digit % on a company’s top line is a failure.

All of those base stations and users you mention are, in the overwhelming majority, using very basic services that have not changed in years. The reason why the cell towers are needed is not because of the massive amounts of wireless data that are being used – its population / user density. This has little or no relation to the use of 3G spectrum for its advantages in high speed data capabilities.

I believe that your rejection of my Google analogy is flawed. If I understand it correctly, you are recommending to users that if they have a choice of two services that do the same thing, one free and the other not, they should choose the paid service out of some nebulous loyalty to the fact that the company that offers the paid service needs to have some revenue too? From a market perspective, this is preposterous.

I, as a user, pay for mobile internet service – why are you trying to tell me that I cannot use that service to access the things that I want? Walled gardens don’t work. Master-planned data services (AOL for example) don’t work. Vodafone Live doesn’t work. AOL is now an ISP and the amount of revenue generated from walled garden mobile internet environments and Vodafone Live is a pittance. Successful services generate revenue – full stop.

I believe that the current MNO strategy of stifling innovation in order to overcharge for very basic services is corrupt. Please provide innovation for your users. If you are unable to provide innovation, adjust your business strategy so that it enables innovation on the part of third parties. I strongly advise you to not “Keep the Lights On” by holding your users hostage. Let users spend their money on services that they will want and use. Do MNO’s really look at their user base as something to be controlled and manipulated? This may be a starting point for MNOs interested in finding out why levels of public satisfaction with mobile operators are so low.

You may have noticed by this point that I am a proponent of the free market. A basic rule of the free market is that a company must cannibalize its own market before someone else does. MNO’s have been asleep at the switches in this regard. Telco monopolies are dead. What has happened since the massive developed-world move towards deregulation? Users get more and more services at less and less incremental cost. Given the level of elasticity in communication demand, this means that people use more services than ever before and, on an altruistic level, I believe that the world has become a smaller place because of it.

At a fundamental level of abstraction, you are arguing against all of that.

Trying to block a service that erodes the profitability of a cash cow product is the antithesis of the direction that the market has been moving since the 90’s as well as the antithesis of free market economics. This is the way that a competitive market works – again, full stop. Are you really arguing against a free market economy in telecoms? Or is this a case of the pigs being more equal than the other animals?

To those of you reading that are not Mike, my advice to you is to make your spending decisions as you see fit. If using Vyke Pro saves you enough money for an extra whatever at the end of the month, do it. If you would rather pay your MNO for the same service, please do that. Do not worry about Vyke and do not worry about your mobile operator. If Vyke or your mobile operator releases a product that is not successful, the product gets changed. Remember that it is up to you, as consumers, to let service providers like your MNO and Vyke know what YOU want. You do this by using or not using a service.

Mike, I hardly expect to resolve this given our fundamental differences of opinion – it may well have to end with an agreement to disagree. Thanks again for your considered and well written responses.

Regards,

Aaron Powers
VP Business Development
Vyke