Profitable Prepaid Smartphones

Profitable Prepaid
Smartphones
How operators in developing economies can ride
the prepaid smartphone growth wave
An Ericsson Discussion Paper
June 2012
NEW PREPAID
SMARTPHONE AND
MOBILE DATA USERS
Mobile phones with operating systems and computing
functionality have been around for decades, but it was
not until 2007 that the modern smartphone – with a
large, touch screen and very few buttons – emerged
to take the industry by storm. Since then, it has
created a fast-growing market and new opportunities
for operators as well as other players in the mobile
ecosystem.
increasing numbers of people in developing nations
are being exposed to their first Internet experience on
smartphones. The emergence of low-cost, mass market
smartphones, typically priced below US$100, is adding
an extra stimulus to their adoption in those countries.
Although smartphones still constitute a small portion
of the mobile user base in emerging economies, they
are growing rapidly in the next five years. In developing
Asia, where current smartphone penetration is
estimated at a mere five percent, user numbers are
projected to increase by more than four-fold between
2011 and 2016, according to Strategy Analytics.
The popularity of smartphones is not limited to
mature markets as users everywhere embrace a
mobile lifestyle, fueled by the growing availability
of both “work” and “play” applications. In fact,
Fig 1
Figure 1: Smartphone Users in Selected Developing Asian Countries
433
27
193
865%
20
India
9
108
200%
China
Thailand
61
17
7
Malaysia
143%
301%
18
Indonesia
Ericsson Internal | 2012-05-30 | Page 1
Source: Strategy Analytics, 2011
2 ERICSSON PROFITABLE PREPAID SMARTPHONES
Smartphone Users (Millions)
239%
Five-year
Growth
2011
2016
The growth of smartphones in developing Asia will be
accompanied by the prevalence of prepaid services,
since prepaid customers have and will continue to
account for the vast majority (nine out of 10) of the
region’s mobile user base. These prepaid customers
tend to be value-conscious, prefer to pay in small
increments, and may not be accustomed to mobile
Internet or data services.
Although current mobile data use among prepaid users
remains low, smartphones are providing a new platform
for operators to drive its uptake. Indeed, smartphone
users tend to pay more for data connectivity to support
their non-voice usage, which may also include the
consumption of paid content.
Before smartphones, consumer Internet use tended to
be “chunky” and rather deliberate. But smartphones
are allowing users to go online the very instant they
get the impulse, turning Internet access into more
spontaneous and unplanned events. Today, around
three-quarters of smartphone users’ interactions
with their devices involve non-voice activities. These
behavioral shifts present operators with a growing
opportunity to leverage mobile broadband as a source
of revenue growth.
In Indonesia, Southeast Asia’s largest mobile market,
where smartphone penetration is expected to breach
the double-digit threshold for the first time in 2012,
social networking and Internet browsing dominate
the non-voice use of smartphone users, according
to recent Ericsson ConsumerLab research. In fact,
Internet access and mobile applications are also found
to be the primary driver for a smartphone purchase
among users in India, Russia and Brazil.
As a major catalyst for mobile data adoption,
smartphones will be instrumental for growth in a
market with continued downward pricing pressure.
Ericsson analysis suggests that while mobile operators
in emerging Southeast Asian economies still derive
the bulk (more than 85 percent) of their revenues from
voice and SMS services, future growth will primarily be
driven by mobile data.
Given the rise of prepaid smartphones in developing
Asia, how can operators in the region – or those facing
similar market conditions in Latin America or Africa –
best capitalize on this fast-growing segment?
Fig 2
Figure 2: Indonesian Smartphone Usage by Application
Smartphone
66%
54%
37%
WWW
IM
21%
19%
a pp
Social network
14%
Browse Internet
9%
Instant messaging
5%
Video Clips
Download Apps
2%
4%
Other phone
Source: Ericsson ConsumerLab, 2012
Ericsson Internal | 2012-05-30 | Page 2
PROFITABLE PREPAID SMARTPHONES ERICSSON 3
Smartphones need
smart offerings
Smartphones and mobile data form a “virtuous circle,”
where the adoption of one fuels the growth of the other.
In developing markets, small packages of innovative
data services will invariably play an important role
in driving mobile broadband uptake among prepaid
smartphone users. The best packages are those with
a high customer value and yet require minimal network
resources to deliver. In addition, they must be:
>Relevant: content and services must be pertinent
and value-adding to users’ lives. This opens up vast
opportunities for localization and personalization;
>Simple: services must be easy to purchase and easy
to use, with an attractive and user-friendly interface.
They must also be flexible, allowing cost-conscious
users to easily choose just what they want; and
>Affordable: User cost control, low price points as well
as simple and risk-free plans are essential in pricesensitive, low-ARPU environments.
SEGMENTATION
As the smartphone user base grows, it is imperative
that operators identify SIMs that have moved from a
basic phone to a smartphone in order to target them
with appropriate offerings. Simple analytics can identify
a “mismatch” between the spending pattern and
handset functionality of a new smartphone user, thus
providing an opportunity to promote new services.
More elaborate analyses can be performed to segment
users according to their preferences and behaviors,
allowing smart packages – as discussed below – to
be proactively offered. For example, insights into time
Fig 3
spent on certain web pages or types of data consumed
can enable an operator to formulate offerings that can
target social networkers, instant messagers or music
lovers.
For segmentation to be commercially meaningful,
the network needs to be able to deliver services with
different levels of quality of service (QoS). Without
QoS, both lower- and higher-paying segments will
experience the same reduction in network speeds
during congestion, which would not support price
differentiation. In addition, by giving lower-paying
segments slightly lower priority in service delivery,
affordable packages can be created without large
investments for additional network capacity.
The rise of smartphones – and other connected
devices like tablets and TVs – is also redefining the
way consumers interact with service providers.
The traditional channels of retail stores and voiceand SMS-based support are giving way to online
mechanisms, which can harness the power of real-time
interaction and personalization. Segmentation will play
a critical role in how mobile operators reach and grow
loyalty among new smartphone users.
SMART PACKAGES
Through smart packages, operators can encourage
prepaid users to take full advantage of their
smartphones. Since customer experience is rising in
importance and smartphone users are likely to expect
improved service usability, smart packages are best
offered as applications on a user dashboard (see Figure
4) or on other online tools such as web browsers, as
Figure 3: User Segmentation and Differentiated Offerings
Price
Price
Standard offerings
Segmented offerings
Segmentation
Users
Source: Ericsson, 2012
4 ERICSSON Ericsson
PROFITABLE
PREPAID
Internal | 2012-05-30
| Page 3 SMARTPHONES
Users
opposed to static USSD menus or an SMS interface.
Innovative strategies around smart packages include:
Top-ups
An intuitive and easy-to-use top-up mechanism is at
the heart of reducing churn and increasing spending in
the prepaid market. For smartphone users, operators
can introduce a top-up application with a real-time
wallet, giving customers visibility into – and full
control of – their accounts. Apart from self-care cost
management, a user-friendly usage reporting tool, such
as a progress bar or “fuel” gauge, showing remaining
voice minutes and data allowance on a real-time basis
will also prove very useful in managing consumer
awareness of their voice and data consumption.
Passes
There are two primary types of passes: time-based
(e.g. hourly or daily) and session-based (e.g. watching
a video or playing a game). In either case, passes offer
smartphone users flexibility without having to commit
to large spending. App-specific passes can be very
effective and since social media has emerged as a
highly popular smartphone activity, operators can sell
prepaid passes for unlimited access within a specified
time period to selected social media sites, such as
Facebook or Twitter.
Through SMS activation, Smart in the Philippines
offers its Java phone users a range of highly
affordable unlimited Facebook packages,
starting from as little as 10 pesos (approx. 25 US
cents) for 24 hours.
Fig 4
Boosters
Boosters provide smartphone users with an
opportunity to enhance their experience on an ondemand basis. Online video viewers can be offered a
speed booster for a small charge whereas real-time
gamers can be prompted to take up a low-latency
booster. Like top-ups and passes, boosters can be
time-based, quota-based or session-based. In fact,
boosters and passes are complementary so customers
can, for example, buy one-hour access to YouTube and
enhance it with a high-definition booster.
Cross-service bundles
Once consumers combine smartphone use with
dashboard or online mechanisms, the possibilities
of turning a service into a marketing channel also
increase. For example, additional promotions can be
added on top of pass and booster offerings to create
awareness and drive uptake of another service: an
operator may offer unlimited free cloud synchronization
with the purchase of an Internet access day pass, give
away free game downloads with a low-latency booster,
or offer a free voice-over-IP trial with a data top-up.
There is latent market demand for these smart
offerings. Ericsson ConsumerLab indicates that over
half (52 percent) of Indonesian mobile Internet users
are receptive to the booster concept while 45 percent
are interested in using a dashboard to self-manage
various services and control expenses. More than four
in ten stated preferences toward top-ups and appspecific passes. In addition, Indonesian mobile Internet
users prefer packages that offer unlimited access to
a small number of applications of choice, such as
Facebook and YouTube, to large data cap plans.
Figure 4: Top-up, Pass and Booster Apps on Smartphone User Dashboard
Ericsson Internal | 2012-05-30 | Page 4
Source: Ericsson, 2012
PROFITABLE PREPAID SMARTPHONES ERICSSON 5
For an extra fee, Indonesia’s Telkomsel allows
mobile broadband users to restore speeds back
to their original plans once they reach their data
cap. Its “anti-throttling” speed boosters, called
Paket Turbo, come in two quota options, 450
MB and 1 GB, enabling consumers to continue
to use high-speed mobile broadband services
without deterioration in user experience.
CONTENT PARTNERSHIPS
In traditional prepaid environments, all content
consumption incurs a charge, either directly from a
user’s prepaid balance in pay-as-you-use payment
schemes or indirectly through purchased quota
deductions. However, operators can stimulate takeup of certain content use by subsidizing data traffic,
making it more affordable – and in some cases, even
free-of-charge – to view and download content. This
can be done via direct partnerships with content
owners, akin to toll-free calls in the voice world. In the
case of over-the-top (OTT) content, a partnership not
only delivers a win-win scenario but also reduces the
risk of the operator being disintermediated. It can also
be done via third-party sponsorships; for instance, a
6 ERICSSON PROFITABLE PREPAID SMARTPHONES
bank can subsidize data charges for access to certain
mobile sites or use of selected applications while
promoting mobile money transfer, a service that is
gaining rapid traction in developing countries.
In deploying any of the above strategies, operators can
overlay incentives such as a loyalty program to reward
customers based on their usage frequency, spend level
or tenure. Current prepaid incentives and discounts
mostly apply to basic voice and SMS services,
but they are equally applicable in the data market.
Gestures of goodwill, such as free starter credit for new
smartphone users and invitations to try new services,
can reinforce value-for-money perceptions highly
critical in the prepaid segment. There is an opportunity
for the telecom industry to learn from other industries,
including airlines, retail and financial services, when it
comes to differentiated and personalized services to
increase customer stickiness and spending.
In Kenya, Orange’s Zawadika Bonus is a prepaid
top-up bonus program, where the bonus
amounts increase with the length of customers’
relationship with the operator. The bonus ranges
from 10 percent for 3 to 6 months up to 30
percent for over 18 months.
Smartphones need
smart Networks
Along with segmentation and offering strategies to
facilitate mobile data adoption, smartphone operators
must ensure they have a network with superior
performance and business flexibility, that can costeffectively deliver smart offerings. Smart networks
are user-, service- and content-aware. Ericsson
recommends a three-step process toward achieving a
smart network for operators in emerging markets.
SMARTPHONE-READY NETWORKS
Network quality, including coverage and reliability,
has always been a major criterion for mobile users
when choosing an operator. For mobile data, Ericsson
ConsumerLab finds that network speed and network
quality stand out as the two most important selection
criteria, not only among Indonesian users but also
among those in developed markets. Moreover, network
speed and quality are among the top three factors that
would increase mobile data usage in Indonesia.
Fig 5
Not only are fast and reliable mobile networks critical to
attracting smartphone users and encouraging greater
data use, they also prevent churn as smartphone users
are more than twice as likely to look for a new service
provider due to poor network quality. In developing
Asia, where 3G networks are progressively rolled out,
operators need to ensure that the time smartphone
users are served by 3G networks is maximized. This
can be done through expanding 3G coverage and
handover parameter tuning.
There can be a significant increase in mobile data use
between smartphones that are always on a 3G network
and those toggling between 2G and 3G networks
due to inconsistent 3G coverage. For operators
with volume-based mobile data offerings, the traffic
increase means added revenues and lower operational
costs, as 3G networks are much more efficient in
delivering data services, leaving 2G networks to costeffectively handle voice traffic.
Figure 5: Mobile Data Operator Selection Criteria Among Indonesian Users
Network speed
89%
85%
Network quality
Mobile data pricing
73%
Easy top-up mechanism
71%
Easy-to-understand plans
71%
Online self-service tool
52%
WiFi access bundle
52%
Content-specific offerings
51%
Flexible, non-lock-in plans
45%
Content variety
44%
Handset choice
41%
Source: Ericsson ConsumerLab, 2012
Ericsson Internal | 2012-05-30 | Page 5
PROFITABLE PREPAID SMARTPHONES ERICSSON 7
LEVERAGING POLICY CONTROL
Smart networks require tools that provide visibility into
network activities and resources and a policy-control
system that governs what users will experience. Data
traffic generated by smartphone users needs to be
differentiated to enable service differentiation and
improve user experience while optimizing network
resource utilization.
This value-generation process is achieved using
a combination of deep-packet inspection (DPI)
technology and content filtering based on packet
headers. DPI enables service-aware policy and
charging, while content filtering can be used to avoid
delivering non-subscribed services (for example, a low-cost social networking package will restrict direct
access to file downloading until the user decides to
upgrade the package).
Through traffic analysis, performance optimization
and flexible charging capabilities, smart networks
exercise policy control to monetize smart offerings
through awareness of users, their subscriptions and
preferences, device types, locations as well as service
and content characteristics. Many mobile operators
in Southeast Asia have implemented policy control to
some degree and vast opportunities exist to leverage it
innovatively. Ericsson ConsumerLab reveals that speed
throttling to limit mobile broadband usage once data
allowance is reached, is users’ least preferred method
of policy control.
IMPLEMENTING AN END-TO-END SMART
NETWORK
Smart offerings through service differentiation call
for a holistic approach to network architecture, with
policy control at its heart, liaising with business
support, customer interaction and delivery enforcement
systems. Key to the delivery of “high customer value,
low network cost” services, end-to-end policy control
involves the integration of:
> Radio access and transport – including new
capacity-enhancing techniques and congestionaware scheduling of air-interface resources;
> Packet core – performing prioritization of data
packets, negotiation or modification of policy control
parameters, and content optimization and caching;
> OSS/BSS – including flexible charging options,
real-time credit control, subscription management,
fulfillment and settlement, as well as service
assurance; and
> Service layer – incorporating service enablement
that provides superior customer experience and
flexible interaction adapted to device and access use.
Service enablement equates flexibility as operators’
business evolves. It allows them to monetize networks
and expand into new ecosystems by exposing operator
assets, such as QoS and subscriber data, to external
partners and content providers. With a myriad of new
smartphone applications emerging, an operator’s
speed to adapt to new business models and address
new value chains determines its competitiveness in the
marketplace.
A smart network for smartphones requires deep
interaction between the policy controller, core and radio
networks, as well as orchestration between content
provisioning and customer-facing functions. Only with
real-time and direct delegation of policy from the policy
controller to these components can operators monitor,
differentiate and prioritize traffic according to user
subscriptions and network conditions.
8 ERICSSON PROFITABLE PREPAID SMARTPHONES
Figure 6: End-to-End Policy Control with Service Enablement
› Harmonized customer interaction
› Integration and creation
› Network monetization
Users
OSS/BSS
Service
Enablement
›
›
›
›
›
›
Flexible
Business
Management
Service Layer
External partners
Developers
OTT services
Customer care
Subscription management
Provisioning
Revenue management
Fulfillment
Assurance
Policy
Control
GW
RAN
Transport
DPI
Packet core
Ericsson Internal | 2012-05-30 | Page 6
Source: Ericsson, 2012
PROFITABLE PREPAID SMARTPHONES ERICSSON 9
Conclusion
Spurred on by lifestyle and increasing affordability of
handsets, prepaid mobile users in developing countries
are rapidly adopting smartphones. Although usage of
mobile data among prepaid customers has traditionally
been low, the rise of smartphones is opening up a new
platform for operators to access the largely untapped
data market.
which can help offset users’ and operators’ costs,
will be indispensible in facilitating data uptake. As
customer experience rises to the fore, an intuitive and
user-friendly interface in the form of a dashboard with
easy-to-select applications, will not only lower the
service adoption barrier, but also stimulate greater usage.
However, given the value-conscious nature of the
prepaid segment, data services on smartphones are
best offered as small packages. They must be relevant
to users’ lives and simple to purchase and use, with
affordable, easy-to-understand and risk-free tariff
structures. The key to success in a low-ARPU, prepaid
environment is to offer smartphone customers diverse
data packages with a high user value but a low network
cost, and to empower them to easily choose just
what they want and give them a strong sense of cost
control. Internet access and social networking are the
most popular smartphone applications in emerging
economies.
Smart packages need smart networks. Operators must
ensure their networks are smartphone-ready, delivering
superior coverage, speeds and reliability. To increase
cost efficiency and revenue potential, smartphone time
on 3G networks must be maximized. Smart networks,
which are user-, service- and content-aware, call
for a holistic approach to network architecture with
policy control that enables differentiated services and
optimize network resources.
Strategies for smartphone packages include top-ups,
passes and boosters – all found to be well received
by potential users. With many new smartphone
owners also first-time mobile data users, customer
segmentation and partnerships with content providers,
10 ERICSSON PROFITABLE PREPAID SMARTPHONES
Innovative offerings, delivered by end-to-end policy
control and QoS, allow smartphone operators to
stimulate mass uptake of data and unlock mobile
broadband potential as they differentiate themselves in
the marketplace. They also allow operators to profitably
venture into an emerging segment and cultivate
customer loyalty while having full control of network costs.
Further Reading
CONSUMERLAB RESEARCH
Smarter mobile broadband: How smarter management and charging of mobile
Internet can enhance the consumer experience
http://www.ericsson.com/res/docs/2012/smarter_mobile_broadband.pdf
Emerging app culture: Apps main reason for buying smartphones
http://www.ericsson.com/res/docs/2012/ericsson_emerging_app_culture.pdf
Optimal consumer experience
http://www.ericsson.com/res/docs/2012/oce_design.pdf
From apps to everyday situations
http://www.ericsson.com/res/docs/2011/silicon_valley_brochure_letter.pdf
Do you like your phone or do you love it?
http://www.ericsson.com/res/docs/2011/device_study_2010_us_results.pdf
WHITE PAPERS
Service enablement: Innovate, enable and manage today’s business ecosystem
http://archive.ericsson.net/service/internet/picov/get?DocNo=28701-EN/LZT1380878
&Lang=EN&HighestFree=Y
Perfecting policy control: Strategies for end-to-end support and convergence
http://www.ericsson.com/res/docs/whitepapers/WP-e2e-policy-control.pdf
Why smartphones need smart networks
http://www.ericsson.com/res/docs/2011/111014_smartphone_brochure.pdf
Network 4: Profitable connectivity
http://www.ericsson.com/res/docs/whitepapers/wp-network4.pdf
Differentiated mobile broadband: Enhance user experience and drive revenue growth
http://www.ericsson.com/res/docs/whitepapers/differentiated_mobile_broadband.pdf
UNPLUG!
UNPLUG! Let’s Rethink Mobile Broadband
http://www.ericsson.com/unplug
PROFITABLE PREPAID SMARTPHONES ERICSSON 11
Ericsson and Smart
Mobile Broadband
To realize its vision of the Networked Society, Ericsson is driving
innovations in mobile broadband by working with telecom operators and
solution partners across the ecosystem to create world-leading technology
and sustainable business solutions.
As the world’s largest provider of mobile infrastructure technology, Ericsson
advises operators on innovative mobile broadband business models and
offers end-to-end smart network solutions, including heterogeneous
networks, managed services, and business and operational support
systems. In addition, insights and experience with both operators and
end-users around the world mean that Ericsson is bringing critical business
value beyond the realm of telecom technology.
For more information, please contact:
Warren Chaisatien
Strategic Marketing Manager, Ericsson Australia
Phone: +61 2 9111 4999
or Martin Fröjd
Principal Mobile Broadband Consultant, Ericsson Singapore
Phone: +65 6880 8754
© Copyright Ericsson Australia 2012