SIM-only services are key to growth in saturated markets

By Mark Newman

Mobile operators are starting to uncover new business models that help to address the problems posed by saturated mobile markets and high handset subsidies.

European operator Telefonica O2 announced last week that its SIM-only service, Simplicity, has almost half a million customers and accounts for one-third of its online sales. The SIM-only concept was pioneered by discount MVNOs in northern Europe and is now being embraced enthusiastically by mobile operators.

It holds two key attractions for operators, according to research from Informa Telecoms & Media. First, it enables them to accelerate the migration from prepaid to postpaid price plans. And second, it significantly reduces subscriber-acquisition and -retention costs. SIM-only customers keep their existing phones, so operators do not need to resort to costly device subsidies.

With the impending credit crunch in many developed markets, SIM-only services are extremely attractive to users who are prepared to keep their old phone in return for lower subscription and usage fees.

Some operators have started handing out “free” SIM cards as part of a special promotion. Even though the vast majority of these cards remain unused, it is a relatively low-cost and effective way for an operator to market its service and can generate a good return on investment with even an extremely modest take-up.

The UK’s O2 is an example of an operator that has successfully used this approach. In countries where there is a strong incumbent, a “challenger” might believe that it has a better chance, in the short term, of persuading target customers to take out an additional subscription to use for specific services rather than attempting to make them completely drop their existing subscription.

For example, in Italy, Wind’s Noi family tariff is particularly convenient for on-net calling, and the operator has become the secondary supplier for millions of Italian mobile users. Typically, the operator offers a package of two to four SIM cards, and calls between the cards are virtually free. The latest examples of such promotions are the Noi Wind Pack and Noi Wind Pack SMS, both launched in 2Q07: The Noi Wind Pack SMS offers 4,000 text messages to Wind numbers for a monthly fee of Eur2 (US$2.70), and the Noi Wind Pack offers 200 on-net voice minutes for up to three SIM cards for a monthly fee of Eur6.

The SIM-only business model highlights how operators in developed markets are undertaking a thorough review of their businesses and strategies in a bid to retain their levels of profitability amid the onslaught from lean, fast-moving Internet companies and business cultures.

While SIM-only services are an effective tool to win market share, reduce subscriber-acquisition costs and spend on customer retention, mobile broadband is a brand new revenue stream for mobile operators.

Measuring the sales of HSDPA modems and data cards is difficult, because most operators report only a total subscription number that also includes HSDPA-enabled phones. However, Informa data and other financial reports – for example, sales data produced by European retailer the Carphone Warehouse – indicate that in many markets, sales of dongles in 2H07 compared favorably with those of new mobile phones.

HSDPA dongles are now among the top-selling devices for mobile operators in a number of European countries and made up more than half of the global total of 30 million HSDPA subscriptions at end-2007, according to Informa research. The number of 3.5G-connected laptops will rise to 184 million by 2012, Informa says.

In some countries, operators, retailers and service providers are experimenting with the bundling of laptop computers with mobile broadband subscriptions and dongles. In Sweden, Tele2 is partnering with mobile retailer Carphone Warehouse to offer a ?10-a-month mobile broadband subscription and a ?30-a-month subscription that includes a free laptop.

Carphone Warehouse says it can significantly expand the market for laptop PCs by subsidizing devices in this way. Its own research has indicated that children age 15 and under would rather have their own laptop than a mobile phone.

Mobile operators have the opportunity to play an even more active role in the computing market as manufacturers start to embed SIM cards in their laptops.

In August, TeliaSonera partnered with Dell to provide mobile broadband using SIM cards, using the Telia Connect Card in Sweden, Denmark, Norway and Finland. In October, T-Mobile and Sony Vaio expanded their partnership, offering four new Vaio notebook models featuring Web’n’Walk HSDPA/HSUPA data modules.

Given the importance of the SIM card in the relationship between the operator and the handset, and in the delivery of new services, the embedding of SIM cards in laptops gives mobile operators huge potential for rolling out new functionality and applications across multiple platforms and applications.