Wireless Week

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The Mobile Internet: The Consumer Will Decide
Wed, 02/10/2010 - 10:13am
Russ Shaw, Skype

Blink and you just might miss something in the world of mobile. More than 450 million people around the world are now using their cell phones to access the Internet, a figure that will rise to 1 billion by 2013, according to IDC. Right now, to keep up with demand, Apple is receiving approximately 10,000 new app submissions per week and needs to approve 692 apps per day.

The rate of growth of the mobile Internet is faster that the adoption of TV, radio and the desktop Internet. We are right in the middle of the biggest technology paradigm shift in the history of computing.

Not only is the mobile Internet changing everyday lives, it is shifting the landscape of the telecommunications industry. ABI recently predicted that 4G mobile consumer service revenue in 2014 will top $70 billion. That's a huge opportunity for the companies that get this right.

Russ ShawThe pace of change cannot be underestimated and the window of opportunity is short. Gartner analysts recently commented that "telecom carriers (particularly those in mature markets) intent on pursuing non-traditional service opportunities need to act now, if they have not done so already."

Consumers are aware of these possibilities and are eager to take advantage of them. What users expect, apart from an affordable and easy-to-understand pricing model, is a superior user experience and access to innovative services, applications and content. They want to access these services on any device at any time from any place. Great examples of this already exist, but finding them all in the same place seems next to impossible. Apple has already demonstrated the rewards for those that can bring these services together in a seamless and rich user experience.

The only way to exploit the opportunity offered by the mobile Internet is to provide easy to use, compelling applications and services that "just work" every time, regardless of the mobile device or operating system. It is imperative that mobile operators, device manufacturers and application developers start looking for more effective ways to work together. This will require new thinking in terms of new business models and partnerships, rather than hoping old models will deliver in this new world. But too many operators – especially some of the world's leading ones – are dragging their feet and not embracing these realities.

In the fixed Internet business, carriers sell Internet access to customers and have little control over what the customer does on the Internet. It does not matter what applications the customer runs – if they play online games, watch videos, upload photos or make a video call with their friends and family, it's all part of the package. Sometimes users may pay extra for certain services their provider is offering, like video on demand.

Conversely, in the mobile business, some carriers are playing an over-dominating role and are trying to broaden their control to protect existing revenue streams or open up new ones. They think they can decide which services and applications their customers will be allowed to use over their network infrastructure. Nonetheless, examples are emerging of carriers opening up their networks. But this is still piecemeal. Only a few are taking the bold steps needed to lead and win.

So, as mobile operators look to rebuild their business models, I believe there are two valuable insights from the fixed Internet environment. First, consumers don't like monoliths. Partnerships with specialists, rather than domination by generalists, foster innovation and lead to the creation of compelling new applications and services that drive consumer adoption and, ultimately, revenue. The likes of Facebook, MySpace and Twitter have led the social media boom. The big have been surpassed by the nimble to the point that they must rely on risky and expensive acquisitions to try to catch up.

The second lesson is around the importance of applications. People flocked to the Internet because of the innovative services that were available online, not because of the infrastructure. The initial killer application was e-mail. Then, e-commerce services like book sales, travel booking and online auctions further drove the Internet's popularity.

Skype, which sits right at the center of this shift, is often accused of taking something away from operators. Let me set the record straight and give a concrete example in which Skype has partnered with a mobile operator and is helping deliver the key performance metrics that any service provider wants from their business – higher ARPU, new user acquisition at lower costs and reduced churn.

There is no better illustration of this than the partnerships we have formed with Hutchison Whampoa's 3 in the U.K. 3 is challenging its competitors by allowing mobile Skype calls over the Internet at no extra cost. It is providing its customers with tangible value and a comprehensive user experience by integrating the Skype application into a wide range of mobile handsets. In the U.K., over a billion minutes of Skype calls have been made on 3's network, which is estimated to represent a savings of over £120 million ($187 million) for U.K. consumers.

Those 3 U.K. customers who use Skype generate 20 percent higher margins. A survey undertaken by 3 in August 2009 revealed that, on average, users of Skype used 17 percent more traditional voice minutes than non-users. As well as being a valuable customer acquisition tool, Skype users on 3 U.K. have a lower churn rate and higher ARPU.

This clearly demonstrates that innovative applications like Skype do not threaten the revenues of operators, but can, in fact, deliver improved financial results. It also shows that mobile operators that embrace Skype can differentiate themselves from their competitors and tap into Skype's existing community of more than 520 million registered users to attract new subscribers.

Smart, forward-thinking operators around the world are coming to the same conclusion. The Web is an application-centric environment and it must be no different on the mobile Internet. Embracing the most popular applications, like Skype, is the best way to take advantage of its massive potential. Consumers will add these applications to their devices on their own if they have to. Just look at the more than 12 million people who have downloaded Skype onto their iPhones in less than 12 months.

The most financially beneficial way for the mobile industry to tap into this demand is to partner with those companies that are coming from the fixed Internet world that are best-in-class specialists in their field, pragmatic and open to partnerships that will ensure carriers do have a significant and lucrative role to play in this mobile future.

Russ Shaw is general manager of Skype's mobile business unit.

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