Carriers should be careful with new applications expectations

Carriers should avoid hanging their hopes for future prosperity on the impressive communications applications that IP Multimedia Subsystem (IMS) technology is supposed to bring (see box), says one skeptical industry observer. Keith Nissen, principal analyst at Scottsdale AZ-based In-Stat, says this type of thinking will only lead to disappointment. Regardless of the application’s functionality, "Getting people to part with their money is not so easy," he says. Nissen says his outlook stems from history, pointing to Federal Communications Commission’s data regarding total household spending. He notes that consumer spending on communications services is about 3% of total household spending and that figure has changed in the recent past. In pure dollar terms, he adds that consumers have about $10 per year to spend on extra communications services. "If you set your sites on everybody using presence and you come up with this grandiose set of features, and you expect people to pay more for it, you’re probably misrepresenting what’s actually going to happen," Nissen tells Network Letter. Nissen’s numbers are particular to the US, but a brief hunt for Canadian measurements suggest his assessment might pertain to this country as well. In 2004 Statistics Canada recorded an average annual household income of $63,640, of which people spent about $700 per year on traditional phone services – 1% of the average household’s revenue. If consumers here are as reluctant to spend more on communication applications year over year as people are south of the border, Nissen’s observations are informative for Canuck carriers too. So what’s a telco to do? Nissen says they should forget about convincing people to spend more on communications service alone. Instead, they have to try to tap into existing services – make communications an enhancement to other offerings, not just a stand-alone product. "People spend a lot of money every month renting DVDs, going to the movies," Nissen points out. "Our research indicated that a family of four spends about $30 a month on in-home entertainment. That’s something other than communication services." Carriers should think beyond communication, Nissen says: integrating communication with video content, for example. "If you can set up your applications such that they tap into existing spending, as opposed to that extra $10 a year, that’s a lot less risky," Nissen says. "People are already spending their money on something. It’s a lot easier to transform the entertainment than to convince people to not rent a DVD in favour of spending more on a voice subscription feature." Imagine a customer being able to click an icon on their TV screen that connects the phone to that of a movie expert at the local DVD rental centre. The expert might tell the end user about similar films, perhaps so the user would be able to rent more films like the one they’re watching, or avoid other titles. However, many communications service providers seem to get it, Nissen says, noting that they are advanced in their understanding of the spending patterns of consumers. "A customer with AT&T for broadband and Verizon for wireless and a cable company for TV" is ripe for a bundle offer, he says. "The triple and quadruple plays are very much part of this." Nissen also has advice for carriers concerning their legacy local and long-distance phone services. Incumbent telephone companies should resist the pressure to battle upstart providers on price. He figures there are plenty of people in the world willing to pay current prices for legacy services and lowering the price won’t necessarily win a carrier any more customers, but will hurt the service provider’s revenues. Bell Canada, MTS-Allstream Inc. and Telus Corp. didn’t want to talk about the theories put forth by the In-Stat analyst. Carrier activities suggest that telcos in this country are closely watching IMS and the advanced applications the technology is meant to support. They’re building service bundles to convince customers to go whole-hog on one or another provider’s offerings – Bell et al. are no strangers to the triple play. And they’re eyeing Fixed-Mobile Convergence (FMC), a concept linked with IMS infrastructure in which wireless end users would be able to hop from one type of network to another without losing the connection. Nissen says his assessment is not pessimistic. "These applications that everybody talks about are going to yield revenue. But they’re not going to yield the huge pot of gold everybody thinks they’re going to," he tells NL. "There are going to be a lot of other applications that carriers can use to tap into existing revenue in other spaces."

Carriers should be careful with new applications expectations

News | May 25, 2006

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