Only slightly bent

Will smartphones end up killing the operator ARPUs?

Okay, let’s take a step or two back. In the mobile phone industry, there are few things more misleading than the split to smartphones and other phones. The concept of “smartphones” has several problem; first, people don’t exactly agree on what is a smartphone and what isn’t. This fact alone leads to the production of different statistics on the same things and differing and confusing terminology – IDC, for example, calls smartphones “converged mobile devices”. And since smartphones are cool, more expensive, more technically sophisticated etc, the press and the industry as a whole is entirely, myopically, focused on them.

And it leads to absurd news headlines, such as this one from Bloomberg Business Week: Apple iPhone Captures 72% of Japan Smartphone Market – anybody who knows the types of phones in use in Japan will find this figure hard to believe. That’s because it’s basically bogus, stripped of any usability by MMRI’s definition of a smartphone; a definition that neatly dismisses DoCoMo’s Symbian- and Linux-based “featurephones” from the figures.

But that’s fine, really. It’s not the main problem. Even if everyone were to agree on what is a smartphone and what is not, the major issues would remain. That’s because all smartphone vs non-smartphone statistics matter precious little when nobody takes into account how the phones are used. Industry players make implicit assumptions that smartphones generate more app sales, more traffic, more this and that and ultimately more revenue. But let’s take a look at the most common activities people use their phones for – in order of popularity:

• Voice calls – with voice calls, it hardly matters what type of phone you have. Right? Voice calls still make up the vast majority of the industry revenue, so I find it interesting that the whole industry has been dragging its feet on introducing improvements to the voice quality with features such as WB-AMR. It’s as if everyone assumed that we can leave that service on the “good enough” level that it’s been at for the past decade and just milk it ad infinitum.

• SMS – the most absurdly profitable business the world of telecommunications has ever seen. SMS probably has better profit margins than ponzi schemes. Yet, as with voice calls, SMS usage has nothing to do with a phone being a smartphone. Or does it?

• Contacts – i.e. your phone book. This at least has nothing to do with being or not being a smartphone. Big battles are being raged over the control and “ownership” of the contacts list, with most players duly forgetting that it’s supposed to be the customer who “owns” his/her contact list.

• Camera – most people use the mobile phone camera if they have one. The high-end ones even take decent photos. So smartphones are better for taking photos and, due to other features, more likely to be used for sharing/uploading those photos.

• 3rd party apps – Facebook is by far – by far – the most used application on many mobile platforms in most of the Western world. Other social networking apps dominate elsewhere. Smartphones obviously have an edge here, because one definition of a smartphone is that you can significantly extend its functionality through 3rd party software; i.e. apps. And apps often mean increased data usage.

• Music – smartphones generally have an edge on storage capacity, so they are more likely to be used as music players. In the case of services like Spotify, this means increased data usage.

• Internet browsing – smartphones generally also have a bigger screen and better browsers than “feature”phones and are thus more likely to be used for browsing the Internet. Increased data usage.

• Maps & Navigation – mostly possible only with smartphones for now. For some models (Ovi Maps), this means nothing in terms of data traffic, but with some (Google Maps), it means increased data usage.

So from this very light and superficial glance, it is apparent that what we call smartphones “need” a data plan if you are to use the features they are good at. That means additional ARPU for the operator which is precisely why we see operators across the globe promoting data services, from Facebook to videos to whatnot. Promoting someone else’s service to push your own is interesting in its own right but let’s gloss over that for now.

The problem? The other shoe has yet to drop.

Unfortunately, as we know each day has a finite number of minutes and hours; hence, each day has a finite amount of time you will be spending fiddling your mobile phone and whatever feature you use, the time is away from something else. At first, mobiles enabled us to talk to our friends instead of strangers on the train, or instead of reading the paper. As new devices, mobiles obviously cannibalized only non-mobile-related activities.

Curiously now, the most important, most-used features smartphones are better at than other phones – namely taking and uploading pictures, social networking & other apps and browsing the Internet – are all likely to lower your usage of voice calls and SMS. Mobiles now cannibalize other mobile use cases.

For the mobile operators looking to make an extra buck from the data services, this is in fact bad news. Having subscribers sign up to flat-rate (or just big enough) data packages will, at first, drive up the ARPU. And in order to take advantage of the things smartphones are better at, the consumers will be rightly encouraged to sign up for one when they buy a smart-enough-phone. But get this: when customers learn to actually use the marketed abilities and services, they will be spending less time on the most profitable parts of the business: voice calls and SMS.

Based on mostly anecdotal evidence, the resultant decline in voice and SMS revenue more than offsets the increase gotten from the data packages. With all the Internet services at hand 24/7, my mobile voice call usage now averages 2.6 minutes per day. That represents a decline of approximately 90% in 10 years. My monthly voice ARPU of $50-70 has been mostly replaced by a data package worth $10.

Basically, operator revenues are screwed because their customers learn to use the features they themselves marketed and promoted.

Oops.

When in the US, e-commerce was pure bliss already ten years ago. Stuff was cheap, came to your door fast and reliably and the whole shopping experience was just good. In Finland, to understate a little, things were not so good. Relatively few companies had (or have) an online store and the prices were in line with the brick-and-mortar stores, i.e. absurdly high. Especially the shipping costs (largely thanks to the Itella-monopoly, no doubt) were just insane. Some improvement has happened in recent years, but there’s still a long way to go.

Anyhow, I was expecting Australia to fall somewhere between Finland and US in terms of online commerce. And most of the times it does, but at times the experience is even worse than in Finland – a big disappointment. First, relatively few companies are online here. There is increasing, but still low, awareness of how to do e-commerce properly (let alone m-commerce, let’s not even go there). Second, shipping, while cheaper than in Finland, takes surprisingly long even from “nearby”. Third, by coincidence or not, it was an Australian online merchant who happened to be the first one to ever lose my credit card details which forced me to get new cards after fraud attempts.

Now, years ago e-commerce really took off with books first, so here is a case study from yesterday about getting a book. I wanted to buy this book. By nature, I first checked Amazon US: $25 AUD plus $17 AUD for expedited international shipping, so $42 AUD total and I could expect to get the book in about 10 days. That doesn’t sound too bad for a big, 750+ pages, hardcover book.

What about the local competition? First up, Borders: sticker shock of $89.95 AUD and a delivery time of 10-12 days. Angus & Robertson was in the same ballpark. Only Dymocks was significantly cheaper at $55 AUD, but still more expensive than Amazon. None of the Australian vendors charged explicit shipping costs, but the high initial price and shipping times of 10-12 days explain why that is so. As a comparison, the book would have cost about $50 AUD including shipping if bought (with)in Finland with a delivery time of 5-15 days (annoyingly wide scale).

Let’s take a look at the figures again:

Remember that Borders, Dymocks and Angus & Robertson are all local, Australian companies and the Amazon US order is shipping from literally the other side of the planet just for me. If one bought more than one book, the figures would be even more favorable for Amazon.

Whenever an individual can import goods from halfway across the planet, while paying for individual express air cargo, for up to 50% less than the domestic companies are charging, some aspect(s) of competition and/or efficient markets are clearly missing.

Meet the Myki card, a brand new smart card, the backbone of the high-tech public transport ticketing system in Melbourne. Or not.

If you’re a sensible consumer, you will stay away from it as long as possible.

When the Matkakortti system in Helsinki started operations some years back, it had its share of teething problems – like terrible selection of a proprietary, soon-to-be-bankrupted vendor, incomprehensible user interface and so on. Since then, many cities have deployed smart card-based public transit ticketing systems – while some have been less successful than others, you’d have thought that these learnings would have been put to good use when building the Melbourne system.

Apparently not. Myki launched at the beginning of this year and suffers from not only huge cost overruns, missed deadlines after another, incomplete coverage (only trains so far) and equipment that doesn’t work well but also from a number of usability and other problems. I just started using Myki like 48 hours ago, and here’s what I’ve already discovered:

• They broke the one of the most important rules when replacing ticketing systems; speed. Myki readers – when they work – are slower to use than the old MetCard readers. Not by much, but by a noticeable amount. When millions of people need to move through gates, every fraction of a second counts.
• The train stations are not equipped with Myki recharging equipment. Imagine my surprise as I walk to our “premium” station one morning and naively assume I can top up my Myki card there. No such luck; not at the counter, not at the machines. Instead I would need to travel to the city to top it up – but wait, I can’t without a ticket so I’m forced to buy an old ticket to get to somewhere where I can recharge the new ticket. Not exactly a great start.
• At my stop in the city, the busy Parliament station, I find that the North end of the station also suffers from what I now understand is ubiquitous lack of Myki machines. So I have to walk like two kilometers to the South end of the station, where there is a Myki-capable machine. Someone is there to help me recharge and the customer service rep tells me that yes, the plan indeed is to be able to recharge everywhere where you can now buy MetCards, the old system. When I ask “When will that be? In 2020?” she gives me a nervous laugh and explains that they have for months been trying to tell the company they need a machine on the North side of the station but they have been unable to deliver. Good grief, what are they made of, some precious metal that is in short supply globally?
• Oh but wait! I can top up my Myki over the phone or online! Now that should be a breeze, right? Wrong. It can take up to 48 hours for the online topup to happen! Oh FFS, I can get an ice cream from SYDNEY by CAR faster than Myki can deliver a few bits between a couple of always-connected systems?!

I also discovered another problem – which Myki cannot be blamed for – that will be increasingly annoying as more cards go wireless; they interfere with each other. I can have a contactless payment card on one side of the wallet and a Myki on the other one, but try putting a third one in the same wallet and you’re asking for problems.

Since the arrival of the kids, we have been spending a fair amount of time at various parks – conveniently they often come with good playgrounds. Below are some photos of these urban oasis near our home; click to enlarge.

Basterfield park has a pond and is especially nice at this time of the year (at least this year, since we’ve had good rainfall over the summer):

Braeside park is a huge (312 hectares) park a short drive away; it has a variety of areas as the following three photos indicate:

Dendy park, especially popular with people with dogs:

This little critter – Green Mantid – I actually caught roaming our back yard – and discovered that if you don’t shut the blinds / curtain in the evening, you will discover them walking on the window, lured by the light.

Sunsets are often excellent here – and happen at a decent hour year round so you’re actually awake to take photos of them The first example is from our back yard..

.. and another one from Basterfield Park.