Dongle sales have reached 200,000 per month, from around half that in 2008, and operators are reporting a mobile broadband profits surge as they find new ways of monetising the service.
When dongles first appeared on the market in November 2007, customers were lured into expensive 18 month deals. These contracts are now coming ?to an end, and operators are acutely aware that they must now work hard ?to retain customers.
Sim-only broadband deals
Last week, 3 launched a £15 per month Sim-only mobile broadband deal (see box) that will work on a rolling contract with an existing 3 dongle, in a bid to retain those customers with contracts coming to an end.
There are currently around 2.5 million dongle users in the UK, and this figure is set to increase by a further 15% in 2009, compared with last year. 3 is the market leader by some margin, with around 40% of the market and one million UK customers. T-Mobile and Vodafone hold around one quarter each, while Orange has around 13% and O2 4%.
However, contract mobile broadband is starting to plateau, according to sources, so operators must find a way to differentiate themselves in an increasingly cluttered market. One option is through prepay with non-commitment offerings. Ovum senior analyst Steven Hartley agrees that ?pay-as-you-go is the most viable route, and says: ‘Early adopters would have spent more money – how many have operators retained?’
He also adds: ‘3’s Sim-only deal looks at retaining those on contracts that are coming to an end. The take-up in prepay is interesting profit wise, because the more [customers] use the more you retain your margin. I think prepay will be exciting moving forward.’
To attract prepay customers, networks will now have to look at churn from rival prepay propositions or netbook offers.
Convergence of products is also an opportunity for expansion, with BT, Orange and O2 already offering services that include mobile and fixed broadband for around £20 per month. Areas such as ARPU are affected but more users equal higher revenues.
The importance of performance
Price is not always the defining factor when consumers choose a mobile broadband package, according to one operator source. He adds that browsing performance and coverage, as well as connection and ease of use are more important to customers.
Another operator source agrees, adding: ‘Customers want choice – something that works for them rather than simply price.’
Meanwhile, one O2 source says: ‘Customers are far more likely to remain loyal to a mobile broadband provider if they feel they are getting value for money, a reliable and quality service along with support that is available if something goes wrong.’
Hartley agrees: ‘There is a lot about convergence, and about differentiating through factors other than speed and price. Without this, you are commoditising the market.’
Other than connectivity software, operators may look to value added services. However, customers may find these too expensive and buying them from a network would be confusing, says one operator source. Although talk about mobile TV has gathered pace, operators have so far failed to monetise the proposition as they are aware that when a consumer buys a dongle, ?the primary aim is simply to access the internet.
In Europe, there is more differentiation in price. UK consumers generally pay a fixed rate for a fixed amount of data, whereas in Europe there are daily options of £2 to £3 per day.
T-Mobile does offer a similar deal in the UK, with one, seven and 30 day packages costing £2, £7 and £30 respectively. Europe also has peak and off peak pricing that is only likely in this country if it is ‘bundled with DSL [fixed line]’, according to one operator source.
T-Mobile ended Q1 with dongle sales up 169% year on year, and a 24.3% share for the period.
But sources point out that there is a ‘question mark’ over profitability from mobile broadband. However, strategy analytics’ senior analyst, Phil Kendall, says the UK market is ‘slightly better off than Austria and Sweden’, where they are competitive on price. He adds: ‘If everyone used up data from their 1GB to 3GB plans it would be more profitable here, but customers aren’t using it.’
Hartley says: ‘I’ve been speaking to people in emerging markets and they don’t see how companies earn money from mobile broadband.
‘In Europe, there is more data per user and this attracts more customers. With a flat rate, there comes a certain point where it is not profitable.’
Hartley also highlights that an increase in users puts greater strain on the network. He adds: ‘In 3’s case, mobile broadband is what the network was built for. It is in a good position as it can drop prices, but it doesn’t have the scale of the other operators.’
Fair use policy
Figures show that on average, only 1GB to 1.5GB of data is used per month via mobile broadband. Business customers use it for wide area mobility – but just one third have it as their sole broadband connection.
There have been two changes in business models since dongles first emerged. In the past, fair use policy was applied to data, but now customers that go over the limit will be charged extra.
Secondly, netbooks and laptop deals target 24 to 36 month contracts. Kendall adds: ‘They [operators] are obviously pushing themselves to a bigger subsidy and streams of revenue. The profitability comes in the last six to nine months of the contract. It’s a good way to make long-term profits.’
So, operators will go back to generating revenue – there is a strain on the networks but it’s ‘not that bad’. 3 and T-Mobile have really been pushing mobile broadband on price, while Vodafone, Orange and O2, with the smaller market share, are slower to discount too heavily.
Mobile broadband attracts students and ‘early career people’ without a fixed telephone. Prices have reduced over time as the sector becomes a strategic focus for operators.
One source says: ‘Voice and text is where profit is made, but for five years they have been working out how people can spend more on a mobile phone – now they can get another £15 from customers on mobile broadband.’
In terms of immediate market development beyond netbooks, operators may ?look at prepay and combined offers, as customers look for better deals and the market starts to plateau on the contracts side.
3’s £15 Sim-only deal
3 has launched a mobile internet deal that will allow mobile customers to use the internet on a Sim-only commitment.
The 5GB Sim-only offer will be available to consumers for a monthly fee of £15, with a one month commitment.
3 claimed the ‘Broadband 5GB one month’ promotion provides enough data to send 5,000 emails or around 50 hours of web surfing.
Customers that do not have dongles will also be able to use the offer, as the Sim card can be bought with a USB modem.
Orange: business key in broadband
Orange cut prices for mobile broadband business customers after it identified the sector as the main market for dongles, last month.
Existing small medium enterprise (SME) customers can now get unlimited mobile broadband for £7.50 per month – the service previously cost £15 per month – and new customers can get the deal for £10 per month.
Orange vice president of business Paul Tollet said: ‘Mobile broadband has really taken off across all industries and business sizes. In fact, our own research shows that a key driver for customers adopting mobile broadband has been the growing desire to stay in control and stay on top
Dongle sales have reached 200,000 per month, f