2 February 2010 | Published by Ovum

London – Telecoms operators in emerging markets* must improve their strategy and execution if they are to ensure sustained success in the mobile content and applications arena, according to Ovum. The global advisory and consulting firm believes operators are yet to commit sufficient attention and resources to what is a small but growing market with significant potential. According to Ovum, which has recently completed extensive research* on the subject, most operators have so far been too busy with land grab and expansion to be able to make the transition from providing basic voice and SMS services.

Significant potential

The content and applications market in emerging markets is currently immature and represents a very small part of the mobile market.

SMS and mobile Internet aside, content accounts for 5–7% of most operator revenues, and most of this is basic services such as ringtones, logos, wallpapers, simple games and news/information services.

“There are multiple reasons for this state of play”, said Angel Dobardziev, practice leader at Ovum.

“Many operators have yet to commit significant organisational focus and resources to this area. Users, many of whom have very recently crossed the communications divide, are still focusing their limited budgets on basic voice and SMS services.

“Penetration of more capable mid-range devices and smartphones, which enable a richer mobile content experience, remains low. 3G coverage also remains patchy in many markets, contributing to a slow multimedia experience.”

Confidence among operators

Many emerging market operators feel very confident about their current market position, and few are concerned about device vendors’ inroads into content and applications through applications stores or vertically integrated mid- to low-end services such as Nokia Life Tools.

The low penetration of smartphones and the immature payment infrastructure (which makes their billing capability that much more valuable) are the key planks of operator confidence in their market position.

This is the main reason that emerging market operators take a big cut of the content revenues – around 50%, far higher than the prevailing 30% norm in mature markets.

A strong content ecosystem will be the key market driver

Ovum believes the development of a strong, balanced and effective value chain will be one of the key factors that will shape the future of mobile content services in emerging markets.

Mobile operators currently occupy a central role in the value chain, but few are giving mobile content services the attention required to develop an attractive service portfolio in order to succeed.

“Of course, there are other important factors that will play a major role in market development”, said Mr Dobardziev.

“The availability of affordable mid-range devices that enable a richer content experience is still low, but is set to rapidly improve in the medium term, although smartphone penetration will remain relatively low.”

Literacy challenges will be a key barrier, particularly in rural areas, and solutions to overcome this, such as IVR and video, will be few and far between. Local content and applications tailored for, and in the language of, diverse local communities are still sparse, although this will improve rapidly in the medium term.

Hence, while different markets will evolve at different rates, in emerging markets as a whole we expect all of the above factors to lead to muted market development in the short term.

Operators need to improve their content strategies

Ovum’s research indicates that many operators’ strategies need more refined customer segmentation, stronger marketing (in its broadest sense), more effective management of the content value chain and a carefully considered application store strategy. Operator shortcomings are understandable: mobile content and applications require a very different mindset to selling voice and SMS.

In particular, operators must use their dominant position in the mobile content value chain wisely.

This means working effectively with other players in the value chain and, more importantly, ensuring there are adequate incentives for them.

“Key emerging market operators are in a good position to tackle the challenges of launching an own-brand application store”, concluded Mr Dobardziev.

“However, this will not be the default route for all operators and there are a number of other application store strategies to explore, including partnering with other operators or third-party application stores.”

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