A little while ago I was thoroughly disappointed not to make it to an Amdocs event about Emerging Markets. Amdocs, in case you haven’t come across them, is the global behemoth that powers many of the vital mobile operator systems around the planet.
The company commissioned analysts Frost & Sullivan to talk with 45 mobile operators around the globe to examine the status of emerging markets vs mature markets and to look at the role of a service provider in ‘the connected world’.
The event was going to discuss the findings of this report — and while we tend to focus on the mature markets here at Mobile Industry Review, I very much wanted to keep updated with the emerging market view.
I contacted Amdocs’ PR and asked if anyone there would be able to write up the report into something I could publish — and to my delight, Donna Rowlands agreed. Donna is Director of Market Strategy and Executive Audiences for Amdocs. Thank you Donna!
So here we go, over to Donna:
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Emerging Markets and the Connected World
Emerging markets have experienced huge growth in recent years. Populations that previously had limited access to modern telecommunications have grabbed with gusto the opportunity to own a mobile phone. There are now over 5 billion mobile subscribers globally, with the fastest growth and volume of subscribers seen in emerging markets like Africa and Asia-Pacific where growth has been relatively unaffected by the recession.
Emerging countries have led the boom in cellular markets. Rapid economic growth has increased disposable incomes and many consumers have acquired mobile phones for the first time. In many emerging countries, mobile phones have had faster uptake than Internet or fixed-line telephones owing to the lack of cable infrastructure, which is costly to set up in vast and remote areas.
Emerging Markets and the Connected Vision
Not all emerging markets are the same however. Some are maturing and becoming more developed at a faster rate than others. What’s more, penetration rates cannot continue at the same high level, especially in markets where the price of even ultra-low-cost mobile services is beyond large segments of the population. At the same time, network operating costs remain the same and are increasing, cutting margins even thinner.
So, for some emerging market service providers, the focus is shifting more to customer retention and growth than acquisition. Entry-level smartphones are entering the market that will enable and indeed have already stimulated demand for the delivery of new mobile Internet services, such as mobile banking. The awarding of 3G licences opens up opportunities around mobile broadband.
The connected world vision is, therefore, on the threshold of having a real effect in emerging markets. But how prepared are service providers there in delivering that vision, and how do their business and operational strategies differ from those in more developed markets?
Emerging Vs. Developed Markets
To explore these questions, we commissioned research from Frost & Sullivan to help us understand how service providers around the globe view the connected world and which business and operational strategies they are deploying to prepare for it. The research included qualitative interviews with 45 leading service providers across North America, United Kingdom, South-East Asia, Latin America and Eastern Europe.
The research found that service providers in emerging markets are acting as confident drivers of the connected world vision. However this is being achieved with a slightly different flavour than in developed markets:
1. The connected world is coming: 75% of service providers in emerging markets believe the connected world will be realised in the next 1-5 years.
2. Similar market drivers, different challenges: Similar market drivers push the markets towards the connected world but different challenges threaten to hold it back.
Consumer demand, access to new devices, new technologies and new business and revenue models are seen by service providers in both developed and emerging markets as key drivers in the achievement of the connected world vision.
For example, whilst Frost & Sullivan found that the regulation was a key driver in developed markets; most respondents in emerging markets believe that regulation is the key barrier to growth and development of the connected world.
3. Market growth drivers differ: Mobile money and mobile commerce lead the market growth potential in emerging markets while healthcare and consumer electronics lead the developed markets’ growth potential.
In 2009, 80 percent of Latin Americans carried a cellphone, but only 30 percent had access to basic financial services according to the World Bank and Wireless Intelligence. Service providers in developing markets as a result see the connected world vision as a way to improve ease of life for their customers, through services such as m-money, online payments and e-learning. Businesses will also benefit from this vision through the delivery of increased control over their businesses, productivity improvements, and business efficiencies.
The research also found that the devices used to deliver these services differed depending on the market, whereas in developed markets, emerging devices (e.g. consumer electronics) push the market forward, in emerging markets its smartphones.
4. M2M = growth: All service providers see M2M as an opportunity for growth.
M2M services have already become a staple of service provider offerings in developed markets, with 90% active in offering such solutions or are planning to offer advanced solutions.
Service providers in emerging markets are now waking up to this opportunity and the role they can play in the delivery of these services, although to varying degrees:
• 67% of service providers in Eastern Europe said they had already implemented new devices/M2M into their network
• Latin America – 86% of service providers have already deployed M2M solutions
• Asia Pacific – 36% of service providers have already deployed M2M solutions
5. Service provider role in the connected world: Service providers in emerging markets see themselves as driving the connected world evolution, while service providers in developed markets are competing over their role in the value chain.
According to the survey, service providers in emerging markets see themselves as following one of two business models in the connected world. The first is that of the service enabler, in which they will be the centre of the ecosystem, offering other players their services in order to reach the consumer. The second business model is all about providing the end-to-end experience, in which the service provider adopts the supermarket approach, directly offering their customers all the services.
6. New pricing models expected to emerge: 90% of service providers in emerging markets believe new pricing models will emerge to fund consumer services and to increase customer adoption e.g:
b. Different forms of revenue sharing
c. Prepaid and postpaid hybrid pricing
d. Premium service-based models
e. Niche-market focus
While none of the service providers in developed markets has a clear view of future pricing schemes, all are in different levels of testing various models.
7. Operational environment inadequate to support connected world: Most service providers believe their current operational environment cannot support the connected world.
Service providers in both emerging and developed markets have similar priorities in terms of the need to improve B/OSS solutions; however the motivations for doing so are different.
It is also important to realise that not all emerging markets are the same, and market characteristics are likely to play an important role in where and how much investment is committed. For example, high rates of illiteracy in some markets add to the marketing budgets of service providers who must invest in educating customers how to use basic and new services. 22 percent of operating costs (AT Kearney) are spent on teaching customers.
Breaking Out of the Status Quo
Whilst developed markets are fixated by the Apple effect on service providers and the way in which the app revolution is changing the game plan, emerging markets are looking to more traditional players to set the pace, e.g. Nokia’s entry-level smartphones.
Although this research supports the vision that the connected world is beginning to show signs of fruition in emerging markets, service providers should be wary of applying mature market models. They should tailor both their operational and business strategies to their own particular flavour.
We have already seen this in the case of two very different business models that cater for two different business and operational environments – cherry picking the top end of the market or the approach of seeking the larger market share. While some service providers in these markets have adopted both strategies, it is likely that this will not remain the status quo and one strategy will become predominant in each market for the short term.
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Thank you once again for taking the time to contribute that Donna.
You can download the full Connected Worlds report here.