Analysys Says Operators Entering Dangerous Territory: Beyond the iPhone Revenue Deal.

LONDON -- Following the latest unconfirmed iPhone rumours (first reported in FT Deutschland on August 21) claiming that a handful of major operators have agreed to share with Apple 10% of iPhone's new subscriber access revenues - as well as content service revenue - Analysys, the global advisers on telecoms, IT and media (http://research.analysys.com) notes that control of handset distribution has been a key factor in facilitating this win-win deal. As such, Analysys urges mobile operators to utilise this and other value chain leverage points to the full when entering into any additional content service partnerships.

"If these rumours are true then it represents the first known case of a handset vendor (or any other partner) successfully negotiating a direct share of mobile transport service revenues ," said Jason Kowal, US head of Analysys Research.

"Even if the real details are never released, the upside for Apple's operator-partners is substantial, given the Apple user community who download music, images, films, TV programmes and videos in a way no other community of users does. These users will quickly become passionate, sophisticated, high-traffic and high-ARPU (Average Revenue Per User) customers," added Kowal.

On the surface, this kind of deal appears to be what the mobile industry needs in order to achieve strong growth in non-voice ARPU, which is essential given the ongoing decline. Provided that operators continue to open up the mobile Web browsing experience, keep tariffs simple, and maintain control of handset distribution, non-voice ARPU should increase considerably in coming years, from 19% of total ARPU today to over 32% by 2012 (Analysys Research, 2007).

While Apple is unique, mobile operators need to be very careful as to how the next wave of partnership deals are structured, according to Analysys. In the iPhone case, both the operators and Apple have similar goals - to broaden the appeal and scope of what is essentially a semi-closed community of high-value users.

However, the next generation of potential partnership combinations, for example with OEMs such as Nokia with its Ovi service, or content houses such as Google (Gphone), Yahoo!, or Disney, could bring a very different and potentially dangerous dynamic. Few organisations bring the combination of shared interests to an operator offered up by Apple. Instead, an operator deal is more likely to be seen by media and OEMs as a step on the road to delivering a complete user experience through a direct consumer relationship. In this scenario, an operator's ability to generate incremental service revenues is severely limited. In negotiating these deals now, if an operator surrenders too many of its leverage points with customers (handset distribution, billing, location/usage information), it could find itself limited to the role of dumb pipe, a scenario that most operators want to avoid. Smaller operators in particular need to proceed with caution.

"Fortunately for mobile operators, there is only one Apple, and there are unlikely to be other OEMs that could demand or offer so much. However, other alliances may arise, possibly involving major players like Blackberry manufacturer RIM, Nokia (Ovi), or Google, which require careful observation. More importantly, operators should act quickly to improve the mobile Internet experience on sustainable terms by more aggressively partnering with sources of content and software on their own. This will bring compelling applications to the handset on terms that keep the operator in the centre of the mobile value chain," concluded Kowal.

Analysys provides strategy and management consultancy, information services and start-up support throughout the telecommunications, IT and media sector.