by Christopher Walton
Once upon a time the channel for mobile communications was an entirely separate industry from the IT channel. The data market knew what it did — servers, software licences and routers — while the communications experts, and latterly mobile communications specialists, stuck to voice rigidly.
Of course that is no longer the case. Convergence arrived several years ago. Resellers embraced voice and data networks and sold them in their thousands. But for all that time the communications channel managed to hang on to its cash cow (at least in tariff terms) — mobile communications.
Today the convergence of mobile communications with the traditional domain of the IT channel is a growing market that customers want and resellers need in order to retain a competitive edge. Laptops today ship with Wi-Fi so any user can turn his computer on and check his work emails, whether they are in, for example, Starbucks, a hotel lobby or an airport waiting lounge.
As the user downloads his sales figures over a secure corporate intranet while having a latte, the device in his pocket beeps. It’s not an incoming call but an email from his boss, asking why the sales figures are below expectations. Despite the obvious problems for our salesman the problem for his IT department is that one employee is using multiple devices for two different forms of mobile communications with both chucks of data flowing over the same corporate network.
There are also multiple problems for the enterprise deploying this technology among its workforce. Users, driven by the consumer sector, expect broadband quality internet on multiple devices as part of their everyday working life. Managing the roll-out of those devices among the workforce is a headache; the security implications are a migraine.
The problem for UK resellers is that mobile device shipments are forecast to shrink in 2008. Brad Rees, managing director at mobile communications consultancy Mediacells, says approximately 28 million mobile device units were sold in the UK in 2006 and that was nothing compared with 2007 when 30 million mobile devices were sold — one for every two people in the country. 2008 promises to be less than a banner year, irrespective of fears on recession or the squeeze of the credit crunch.
"In 2008 those device sales are going to come down and we will finish the year with sales in the region of 25 million. The reason for the fairly substantial downturn in projected figures is the amount of 18 to 24-month operator contracts sold that are really starting to kick in now," explains Rees.
"Signing up to one of those contracts means you are not going to refresh your device until 2009 or 2010. We have got used to contracts being a means to refresh devices.
"Secondly retailers and distributors are telling us that customers are fairly comfortable with their devices. They do not want a new device just to get the latest model. Each phone comes with a camera and each phone is increasingly coming with mobile internet."
The trick is converting these mobile devices into increased internet usage. Even corporate employees are using their mobile devices sparingly for the internet. According to Rees there are 7 million unique mobile internet users in the UK, a relatively small figure when compared with the amount of device churn. But those that stay using the internet on a mobile device are reluctant to part with it.
One device that is likely to change users’ approach to mobile devices is the Apple iPhone. While it may not have made much of an impact in terms of units shipped — with a price in excess of £310 per unit and a lack of 3G capability, Rees estimates that the latest figures will show UK sales of 30,000 to 50,000 in 2007 — the iPhone will have a dramatic impact on users’ perception of what a mobile device can do for them. In some cases it may get close to replacing the role of the computer in their lives.
"We call it the iPhone halo effect," adds Rees. "By the third quarter of 2008 we expect that halo effect to have driven usage of mobile internet and WAP across all devices because of the awareness it has created."
Contracts and tariffs
This will have a tremendous knock-on effect for devices such Nokia’s N-series or Orange’s HTC touch, whose data capabilities can match, if not supersede, the iPhone. What makes the money on these devices is not the unit price but the contract and the data tariff associated with it.
Adrian Williams, head of OEM and IT channels at T-Mobile, insists that tariff management is a model that resellers have struggled with in the past: "What we have found with the IT channel is that there have been challenges in understanding some contracts."
T-Mobile has looked to address the challenges with different tariff models. Firstly its web ‘n’ walk contract incorporates data use in a 12, 18 or 24-month contract at a flat rate of £17 a month, making multiple roll-out skews fairly simple. Last November it introduced a pre-pay tariff of £4 per day of use. Williams believes that these tariffs have gone a long way to improve take-up of T-Mobile products and services in the channel.
The development of flat rate data tariffs, which both T-Mobile and Vodafone offer, means customers can overcome their fear of ‘per byte billing’ and get a monthly charge for their mobile internet access.
"The pre-pay proposition has been fairly useful from a channel point of view. It is a box you can add onto another box and make margin off a product from selling it. Selling other contracts requires a bit more investment and a bit more training but you can sell the same product with two different margin opportunities," explains Williams.
Over 450 resellers in the UK have signed up to the T-Mobile programme as part of the operator’s pan-European channel initiative. Its channel programme operates on a three-tier system in which Partners, Preferred Partners and Premier Partners receive a range of benefits including training, marketing support and product previews. Preferred and Premium partners will also have regular meetings with T-Mobile account managers to help with sales development and marketing.
It is not just bringing IT resellers into the mobile device fold. The service provider has also established relationships with global laptop vendors including Hewlett-Packard, Dell, Fujitsu Siemens, Sony and Toshiba to offer SIM-embedded notebooks and mobile broadband bundles. It is working with distributors Northamber and Ingram Micro to bring the traditional hardware reseller into the emerging market of mobile devices.
"We are looking to drive mobile broadband; that is our key proposition for this market. We have voice channel and IT channel partners and mobile broadband will be a key proposition for both during the coming year," explains Williams.
"We have the opportunity to lead in this space and the IT channel has the most appropriate opportunity to sell mobile broadband on the notebook."
The trick for resellers will be getting users to stick with one device to access mobile broadband. As outlined earlier, there are many options available to users that want to access the internet on the move. Resellers are well positioned to sell both handheld and laptop devices but those focusing on handheld devices must be wary of the major bane of the mobile communications industry: churn.
Resellers will be forgiven for wondering exactly why churn is a problem. The constant sale of devices keeps volumes and revenues high. Unfortunately churning devices reduces the chances of customers sticking to a long term tariff, where clever resellers can make bigger margins. Similarly it stops the sale of incremental services and software, which can be just as lucrative.
The industry customer churn rate increased by 15.3 per cent between 2005 and 2007 in the UK, according to a report by Pitney Bowes Group 1 Software. In 2005 customer deflection rates in the sector stood at 33.4 per cent, a figure that shot up in 2007 to 38.6 per cent. As a result the UK is the customer deflection champion of the world and hanging on to your customer as a reseller is a real test.
Andrew Greenyer, vice-president of international marketing at Pitney Bowes
Group 1 Software, says the world is becoming "generally more mobile and less loyal" and, despite the efforts and investment of mobile vendors, finding an effective strategy to retain customers has been frustratingly evasive.
"Mobile telecoms remains a very fluid area and strong brands are having an effect, with the issue of content provision likely to be a key factor in future churn, or indeed inertia, patterns. Provision of technologies like 3G has disappointed consumers, leading to massive churn," he says.
Greenyer believes the UK market can learn some lessons from the US, which, despite lagging behind some European economies in take-up of mobile communications devices, is far better at customer retention. The US has a closer link between the service provider and the handset while the European norm is to swap SIM cards between different models — thus retaining tariffs but churning devices. The attraction is there for resellers looking at high hardware sales, those cannier with tariff management will find it more difficult but if they get it right the business is more lucrative.
With such levels of churn in existence one way to appease the IT and comms managers is through mobile device management (MDM). This is asset management on a large scale, taking into account not just the number of mobile phones, smartphones and mobile laptop connections but the number of specialist software licences and security protocols deployed on each device across the enterprise.
In 2006 analyst firm IDC estimated that the market for mobile device management would be poised to grow from $205.7m (£105m) in 2006 to $345m (£176m) by 2011. It also predicted the mobile enterprise application market will surge to $3.5bn (£1.8bn) by 2010, demonstrating the scale of the asset management problem that users face.
Businesses are grappling with all the issues associated with managing the smartphones of their remote workforces. They need to do so to meet the need for regulatory compliance, including corporate governance acts like the Companies Act and Sarbanes-Oxley, the increasing levels of security scares involving the theft of data stored on enterprise users’ mobile devices and the ever increasing need for operational efficiency.
Many of the arguments for driving business in the mobile communications space have been replicated in the IT channel. Core competencies from resellers such as asset management, unit sales and adding services and software are immediately transferable and as broadband access switches to the smartphone, resellers will not want to miss any opportunities when it comes to connecting their customers to
With vendors such as T-Mobile and Vodafone in the infancy of their channel programmes the opportunity for resellers to get into the smartphone environment early is happening now. Sukh Rayat, vice-president at distributor Avnet, explains the market shift succinctly: "Up until now an IBM reseller was just an IBM reseller but now they have the chance to develop offerings across many technologies. Customers are not going to resellers for data centres any more. The resellers who are smart will become accredited with wider, open technologies and see a world that will open up."
Resellers have shown great resistance in adopting new technology lines as they diversify their businesses. Mobile broadband will change the reseller business model in the same way that the advent of fixed convergence did. Despite falling device volumes, users will turn to their pockets, not their desks, when it comes to accessing the internet and resellers will want to be a part of that growing world.