articles for telecom engineers

The 21st Century appears to be an increasingly benevolent era, particularly for telecommunications products and services. Consumers and businesses are being offered an ever widening range of goods, for a ticket prize of zero. Or are they?

Mobile telephones are often offered for free. This is courtesy of a subsidy, sometimes as high as $1000. Subsidies were a po­werful tool during the high-growth phase of the industry, but may have become an expensive and uncomfortable legacy. In major markets, the annual cost of this subsidy runs into billions of dollars annually. The cost of the subsidy is factored into the consumer’s bill via call charges and line-rental prices117? Thus a free handset is far from free but is paid for with every call made.
Broadband is increasingly being offered as a free service. But the cost of this free offer can often include the obligatory purc­hase of another service, or services; a charge for the privilege of being released from the free service; the cost of calling a premi­um rate, technical support hotline when the modem that was pro­vided gratis proves a nightmare to install, or stops working.
Furthermore, the majority of free broadband offers may inc­lude usage caps, which limit the quantity that can be uploaded and downloaded by customers. Consumers exceeding their limit may find themselves charged a significant premium for each ad­ditional megabyte of use.
VoIP can also be perceived as free, particularly if calls are made from PC-to-PC. But there are, as ever costs involved. Fully free calls, that is calls with zero marginal costs, can only be ma­de by those with access to a PC and a broadband connection, both of which cost money. In addition, there is the time taken to set up the call; to ensure both users are registered on the same V oIP system and have the same version of the software, and the­re is the impact of other users’ calls flowing over your broadband connection thanks to the peer-to-peer software being used. In to­tal, the financial and other costs associated with making a free call can be high, which may explain why PC-to-PC VoIP rema­ins a marginal element of the world’s voice traffic, and is likely to remain a small frag­ment of all traffic in 2007118?
In 2007, the use of free offers may incre­asingly counter strate­gic objectives to imp­rove revenue and mar­gin growth. Having set the ‘free’ precedent, telecommunications companies may have a hard job persuading consumers that their services are worth pa­ying for.

Bottom line
Telecommunications operators should take a much more discriminating approach to ‘free’, using it selectively, care­fully and with a full and realistic understanding of its potenti­ally negative implications.
Offering products and services for free can be a powerful tool in high-growth markets, where it can translate into rapid market share growth. But in the maturing telecommunications world of 2007, the technique may be or become a liability.
This is particularly the case in the fixed broadband mar­ket. There are already numerous examples of free offers tur­ning into public relations disastersl19, and companies must ca­refully consider the implications of marketing ‘free’ 120. Most free broadband offers form part of triple-play packages. Gi­ven that the economics of triple play have been brought into serious doube21, operators should lessen their dependence on free broadband as soon as possible. Additionally, not only are consumer groups likely to keep a close eye on the small print associated with free offers, but also competition authorities and regulators may well pay increasing attention, and could even intervene more regularly if the term free becomes either overused or misused.
Using free offers to minimize subscriber churn may hold potential in low-value segments, but only if there is a clear path to revenue growth in the future. This is likely to require far greater selectivity in relation to the tiers of service offered for free, in order to create the opportunity to up-sell to higher specification, paid-for services, and substantially greater cer­tainty on the revenue growth prospects from other, paid-for servIces.
A focus on value and quality may be more sustainable than one based on giveaways. In 2007 a significant proporti­on of consumers are likely to remain willing to pay for qu­ality, and by definition, these customers represent the best tar­get for revenue growth for all telecommunications compani­es. This is particularly the case in the mobile segment, where in Europe, for example, 20 percent of customers typically ge­nerate 50 percent of revenues122?
The subsidy model for mobile operators may have to stay, as a free-mobile phone has now become central to consumer expectations. However operators can still lessen the impact of subsidies. For example operators should encourage the migra­tion of customers from prepaid to contract tariffs123 as custo­mers within a contract typically yield higher revenues. There is a direct correlation between the speed of migration from prepaid to contract and growth in service revenuesl24, and ope­rators should seek to exploit this fact.
VoIP operators should also distance themselves from free offers, not only because consumers.,and commentators are be­coming increasingly aware that VoIP is not free, but also be­cause a business model based on free services is likely to be untenable in the long_termI25? The technical capabilities of VoIP lend themselves very well to premium offerings, with high-fidelity sound and robust encryption, and operators wo­uld do well to shift their focus in this direction.

source:

telekomdunyasi (magazine)

number:59 page:97