Recessionary Boom

Operators Are Changing Business Models

By Carsten Brinkschulte, CEO of Synchronica

2009 marked already an important milestone within the telecommunications sector - the global networks reached more than four billion subscribers worldwide. From affluent addresses in central London to the grit and poverty of Brazil's infamous Favelas, mobile phones have cut through economic and cultural barriers. Mobile technology has truly enveloped the planet, and with one in two now using a mobile phone, the potential to connect via advanced messaging, such as mobile email, is enormous. Yet, consumer mobile email still remains a largely untapped market waiting for operators to exploit.

As the global economic downturn continues to gather pace, subscribers are becoming increasingly savvy in their quest to find value from their mobile provider. This change in the spending habits of consumer and enterprise customers is presenting interesting challenges to mobile operators. For operators fighting the recession, 2009 may become the year of improved efficiency and introduction of new data services aiming to compensate for stagnating voice revenues with a potential to maintain or even increase the average revenue per user (ARPU).

2009 - The Year of Improved Efficiencies

During 2009, operators will be put under pressure by shareholders to reduce their spending. In the past, operators invested heavily in non-core infrastructure and the human resources required for maintaining it. Outsourcing and resource utilization will emerge as massive cost-saving opportunities enabling operators to maximize efficiencies.

Indian network operators have already achieved this by radically slashing their Opex and non-network Capex costs. Here, the outsourcing of customer support lines and IT systems is commonplace, and even with a meagre monthly average revenue per user (ARPU) of USD 9, operators in India generate profit margins that exceed 40 percent.

The Indian business model has caught the attention of many operators around the world and is being replicated across diverse markets. Zain, the pan-African and Middle Eastern giant recently announced a new strategy to outsource back office functions and improve cost savings. Zain envisages that within twelve months, they will realize improvements in their operating margin to the region of five percent. Zain considers this strategy integral to the vision of becoming a top ten global mobile telecoms operator by 2011.

Synchronica has identified this emerging trend and is now offering managed services that enable operators to deploy their Mobile Gateway or Mobile Backup service without having to invest in additional IT infrastructure or costly management resources. The service is hosted in a Synchronica-managed data center and is proving to be popular with a number of customers.

Synchronica also provides a comprehensive professional services offering that supplements the full life cycle of our software products, from installation, deployment, and configuration to systems integration, as well as customer-specific feature enhancements. Designed for operators who wish to outsource product development, Synchronica's professional services offering encompasses skilled systems engineers, dedicated software project developers, and deployment specialists. They are fully knowledgeable of our products and closely liaise with our product development and quality assurance.

As a product, Mobile Gateway maximizes efficiencies by providing operators with significant savings on costly network bandwidth. The OMA EMN standard, for example, fully supported by Mobile Gateway, uses an SMS trigger to provide push email without the device needing to maintain a permanent data connection. This improves battery life, but more importantly reduces the number of simultaneous data connections implying load on the network base stations, enabling operators to service a larger number of mobile email users without having to expand their network capacity.

Similarly, Mobile Gateway's new transcoding engine, which allows email attachments to be accessed even from mass market mobile devices, helps to improve network efficiency. By converting and reducing the size of attachments to match the screen of the handset, the transcoding engine dramatically reduces data traffic across the network.

2009 - The Year of Stemming Losses

Informa Telecoms & Media believes that the economic downturn has resulted in operators placing a greater focus on subscriber retention. During this period, lower investment capital, lower revenues and less money being spent by subscribers will become commonplace.

Encouraging loyalty to cut customer acquisition expenditure and maintain revenue is a vital component of longevity. The cost of acquiring a new subscriber can substantially exceed the cost of retaining an existing subscriber. If a customer churns, the investment for customer acquisition is lost, often before the customer has generated enough revenue to pay back the acquisition costs. Operators now invest in developing effective churn management strategies which aim to increase market share, build subscriber loyalty, and enhance profitability.

Mobile device loss is closely linked to churn. Research commissioned by technology consulting firm Booz Allen Hamilton shows that ahead of poor service provision and tariff strategies, mobile phone loss, theft, and damage contribute heavily to subscriber churn.

The data across all markets is staggering. Nigeria's Minister of Information and Communications recently disclosed that three mobile phones are reported lost or stolen every minute in her country. London's Metropolitan Police receives 10,000 complaints monthly, and according to data obtained from LIRNEasia, Singapore, which typically enjoys low levels of crime, records a 31 percent year-on-year increase of mobile theft.

Synchronica's Mobile Backup product in tandem with other restoration initiatives is being used by operators to mitigate lost average revenues per user (ARPU) and reduce churn. If subscribers do not have their contacts transferred onto a new mobile phone in case of loss or replacement, they tend to use it less. This does not sit well with the business of operators who are keen to have subscribers use their phones as frequently as possible. Mobile Backup backs up subscriber contacts onto a remote server at pre-defined intervals and seamlessly populates the replacement mobile phone with this saved data.

Synchronica's Mobile Gateway product addresses churn by providing a sticky mass market service which makes users literally dependent on the service due to the frequent usage patterns of mobile email. Also known as the CrackBerry effect, mobile email is highly addictive and will prevent users from switching to a different carrier as they would lose access to their email, in particular if Mobile Gateway is combined with an operator-provided email address.

2009 - The Year of Increased Revenues

Even in this current economic climate, when users are less likely to upgrade to data-intensive smartphones, operators can increase revenues, for example, by offering new service strategies to enhance revenue streams from legacy phones.

With carrier-grade scalability and integration, Synchronica's Mobile Gateway fits seamlessly into an operator's existing IT and network infrastructure. It enables a swift and easy deployment of a fully branded and secure mobile email and synchronization service that unlocks new and creative revenue streams from existing users without requiring them to upgrade their handset to an expensive smartphone. Unlike most other products, Mobile Gateway supports the entire range of devices - from the high-end smartphone to mass market feature phones and all the way down to the lowest common denominator, the basic phone. For operators, this means a larger addressable market, faster take-up rate, and a more profitable service in a shorter time.

Tweet That You're in Vogue

According to data from Nielsen, two thirds of the world's internet population now visit social networking or blogging sites. If data analysis is any indication, this trend will continue. It is expected that global registrations amongst all social networking sites will grow almost exponentially until 2012. In 2008 alone, the social networking and micro-blogging service Twitter recorded between 5000 and 10,000 new user registrations each day.

Social networking is by no means a phenomenon limited to the West. The use of social networking within emerging markets is exploding - comScore reports that the greatest year-on-year growth of social networking subscriptions comes from the Middle East and Africa (66 %) and Latin America (33 %).

A social network service focuses on building online communities of people who share common interests or relationships. Using these services, people share news, personal experiences, and update their mood - as succinctly demonstrated by celebrity Nicole Ritchie who told us via Twitter that it was a "lazy Sunday. What movie shall I rent?".

Social networking is a service that is currently in vogue. Synchronica identified this growing trend relatively quickly and added new functionality to Mobile Gateway which automatically pushes social networking and news updates from Twitter, Flickr, or news sites, such as Financial Times or ESPN, to any mass market mobile phone. This drives the volume of messages and in turn increases mobile phone and data usage, increasing revenue.

Free … Could Be a Tidy Revenue Earner

Of the worldwide mobile phone users who took part in a recent study commissioned by Morgan Stanley, 91 percent said that they check their mobile phone repeatedly by having it kept within arm's reach throughout the day and night.

This global study did more than just expose the usage habits of the world's mobile phone population. It illustrated the potential of a new advertising channel. With four billion mobile phones now in use worldwide, twice as many as television sets, the mobile phone has the potential to become the most widely adopted advertising medium – eventually beating print, cinema, radio, television, and maybe even the web.

There is a massive revenue opportunity for mobile operators to provide free email services to their subscribers, funded by advertising. With a small and non-intrusive advertising text inserted into each email sent and received, a consumer mobile email service could be offered completely free of charge to the user which would result in an even faster take-up rate and generate a massive boost to operator revenues.

One question remains – would subscribers be prepared to receive advertising messages in exchange for free mobile email? It certainly seems that they would. Combined, the top three webmail providers, Gmail, MSN Hotmail, and Yahoo have more than 600 million email accounts. These webmail providers have quietly created a culture of advertising-funded email. They have been successful with this model for years and made the concept of advertising-funded email broadly accepted. It is therefore to be expected that a mobile email service funded by in-email adverts would be equally acceptable to mobile users, in particular for those that are using a popular webmail service.

The general acceptance of mobile advertising is supported by research of Informa Telecoms & Media which found that consumers are generally receptive to mobile advertising in return for free and relevant services. Harris Interactive found that 26 percent of current mobile phone subscribers would accept mobile adverts in exchange for free applications. It seems that society is ready to embrace an advertising-funded service.

Some operators have already picked up on this trend. Generating 20 million advertising messages daily via their prepay recharge platform, South African operator Vodacom projects that advertising revenue will exceed USD 150 million by 2011. Similarly, in 2008, the total spend for mobile advertising in Japan reached USD 4.4 billion, exceeding the combined revenues generated by radio and magazines channels. During these times of global recession, free truly could be a tidy revenue earner.

Reduced Loss, Improved Efficiency, and Increased Revenues

A slowdown in subscriber spend can be offset by strong value added propositions. The need for flexible applications that can be adapted with ease to meet a vast assortment of functions is paramount. At Synchronica, we believe that our offerings, coupled with our unique approach to providing these, are perfectly suited in helping mobile operators worldwide to transform the current economic downturn into a highly lucrative opportunity.

During 2008, Synchronica invested heavily in product development whilst building up significant experience in assisting operators to identify and tap into new revenue streams. There is a good chance that, for operators, 2009 will be the year of improved efficiency and increased revenue leading to higher profitability, and Synchronica is well positioned to help operators achieve this.

About Synchronica

Synchronica plc develops and markets mobile email and synchronization solutions for mobile operators and device manufacturers. Products include the award-winning push email and synchronization solution Mobile Gateway and the device backup solution Mobile Backup. Based on industry standards, Synchronica can reach the built-in email and synchronization clients of more than two billion mobile devices on the market today. Service providers in emerging and developed markets use Synchronica's products to offer mobile email, PIM synchronization, and backup and restore services to consumer and business subscribers.

Headquartered in England, Synchronica has a development center in Germany and presences in the USA, Hong Kong, and Dubai. Synchronica plc is a public company traded on the AIM list of the London Stock Exchange (SYNC.LN). More information is available at www.synchronica.com

For more information, please contact:

Nicole Meissner
Chief Operating Officer
Tel.: +44 1892 552 780
Mobile: +44 7977 256 412
Fax: +44 1892 552 721
nicole.meissner@synchronica.com