To investigate how Mobile Cellular Network Operators can increase the average revenue per user by stimulating the usage of broadband services. A Research Report presented to the Graduate School of Business Leadership University of South Africa In partial fulfilment of the requirements for the Masters Degree in Business Leadership, University of South Africa By Potsane Malebanye (Pr Eng.) (70506817) 28 November 2007 Study Leader: Mr Andre Erwee Acknowledgements I would like to extend a very sincere thank you to all my lecturers in the MBL programme, and to the SBL staff, in particular to the librarians and the photocopying staff who, during the last couple of months of this endeavour, provided me with very useful and helpful assistance. Coming from a technical background as I have, this programme has been an eye opener. I would also like to thank my supervisor, Mr Andre Erwee, for his guidance and support; and Vodacom for giving me a bursary to do the MBL programme. Many thanks go to my daughter Teboho Moephuli, my colleague Maxwell Mbundwini and his cousin Mnomane Sikrweqe for their dedication in distributing and collecting the questionnaire. Many thanks also go to Don Lepati for his interest, advice, encouragement, patience and a great job done in preparing and analysing the results. Finally, special thanks go to my wife Lipalesa, and my two boys, Naleli and Rethabile, for their love, support, encouragement and patience with me during those very difficult and trying times, even when at times I felt like giving up. i Abstract The objective of this research is to investigate how mobile cellular network operators can increase the average revenue per user by stimulating the usage of mobile broadband services. There is a general consensus that the revenue from voice calls is slowly reaching saturation; hence, mobile cellular operators, service providers and content providers are looking for other sources of revenue from their new and existing customers. They are therefore beginning to focus more intensively on customer retention and on developing new strategies that will stimulate the usage of high speed mobile data services. The research shows that most people are aware of many of the mobile data services offered by operators, but that they thought that they were unreliable, slow, difficult to use and expensive. By and large, people signed up for mobile data services because they wanted a mobile always-on connection anytime, anywhere, with faster speed when accessing e-mail and other services or when downloading data from the Internet. The majority of people would use mobile broadband internet service if it cost less to use; if the speed were faster and the service were easy to use; if the cellular phone had a larger screen and used less battery power; and if the keyboard were larger. The relationship between Network operators, WASPs and content providers was found to be good, even though at times it is strained by the increased competition between them; this forces them not to cooperate on some issues for fear of compromising their competitive advantage. ii 1 Chapter: 1 Orientation .................................................................... 1 1.1 Introduction ..................................................................................... 1 1.2 Purpose or Objective of this Research .......................................... 3 1.3 Statement of the Problem of this Research .................................. 3 1.4 Definitions ....................................................................................... 4 1.5 Delimitation of the Study ................................................................ 6 1.6 Importance of the Study ................................................................. 7 1.7 Outline of the Research Report ...................................................... 9 2 Chapter 2: Foundation of the study............................................. 11 2.1 Introduction ................................................................................... 11 2.2 The Need to Increase ARPU ......................................................... 11 2.3 What is ARPU ................................................................................ 13 2.4 Declining ARPU Globally .............................................................. 15 3 Chapter 3: Literature Review ....................................................... 25 3.1 Technology Adoption ................................................................... 26 3.2 Involving Innovative Users in Service development .................. 29 3.3 Data Warehousing and Mining ..................................................... 33 3.4 Communication channels ............................................................. 35 3.5 Meeting the Needs of Teenagers ................................................. 37 3.6 The Lower Income Group ............................................................. 41 3.7 Operator Driven Business Models ............................................... 47 3.8 Innovative Pricing ......................................................................... 49 3.9 Communication strategies to support product launch .............. 51 3.10 Integrated Billing Systems ........................................................... 53 3.11 Quality of Service .......................................................................... 55 3.12 Summary of Strategies ................................................................. 58 3.13 Summary of Best Practice Recommendations ........................... 59 4 Chapter 4: Research Methodology .............................................. 62 5 Chapter 5: Research results ........................................................ 66 5.1 Sample Description ....................................................................... 66 5.1.1 The Profile of Respondents .......................................................... 66 5.1.2 The Demand and Awareness of Mobile Data Services………….71 5.1.3 The Reliability, Affordability and Ease of Use of Services……100 5.1.4 The Partnership between Network Operators and WASPs…..105 6 Chapter 6: Discussion, Conclusions and Recommendations.110 6.1 The Profile of Respondents ........................................................ 110 6.2 The Demand and Awareness of Mobile Data Services ............. 111 6.3 The Reliability, Affordability and Ease of Use of Services ....... 116 6.4 The partnership between Network Operators and WASPs ...... 118 6.5 Conclusions ................................................................................ 123 6.6 Recommendations ...................................................................... 127 7 List of References ....................................................................... 129 8 Appendices ................................................................................. 136 8.1 General Questionnaire ................................................................ 136 8.2 Questionnaire for Network Operators, WASPS and SPs .......... 142 9 Article for Publication................................................................. 145 10 List of Figures ............................................................................. 146 11 List of Tables .............................................................................. 152 1 Chapter: 1 Orientation 1.1 Introduction The South African communications industry has three mobile cellular network operators, namely Vodacom (Pty) Ltd, MTN and Cell-C. Vodacom (Pty) Ltd was established in 1993 and is one hundred percent owned by the Vodacom Group (Pty) Ltd, which is owned by Telkom SA, fifty percent, and Vodafone PLC, fifty percent. It launched services in 1994 and is presently the largest mobile cellular network operator in South Africa. MTN was also established in 1993, and is one hundred percent owned by the holding company, MTN Group, which is listed on the Johannesburg Stock Exchange. The Group is owned by Newshelf 664, holding nineteen percent; NEC, holding nine percent; and “other shareholders,” retaining seventy two percent (Falconer & Neilson, 2007: 85). It launched services in 1994 and is presently Africa’s largest mobile cellular network operator. Cell-C, which was established in 2001, is a wholly owned subsidiary of 3C Telecommunications. It is sixty percent owned by Saudi’s Oger Telecom South Africa; twenty-five percent is held by CellSaf a broad based consortium of black empowerment groups and fifteen percent by Lanun Securities, the offshore investment arm of Saudi engineering group, Rashid. It launched services in 2001 (Falconer & Neilson, 2007: 88). It initially provided services via a 15-year commercially negotiated roaming agreement with Vodacom, as it rolled out a network of base-stations with the intention of relying solely on its own access network in metropolitan areas by the end of 2004 (The Yankee Group Report, 2003: 124). The industry has been liberalised and is regulated by the Independent Communications Authority of South Africa (ICASA), mainly through the 1 Electronics and Communications Act, 2005 (Act No. 36 of 2005), whilst the Competition Act, 1998 (Act No. 89 of 1998) and the Constitution are also sometimes used to resolve disputes as they arise. The South African mobile market reached an estimated 30.4 million by the end of 2005, making it one of the largest on the African continent, and is expected to grow to over 34 million by the end of 2006, reaching 43 million by 2010 (BMI-T, 2006: 400). Ninety-five percent of this market