What would Apple do? - Mobile World Live

What would Apple do?

16 JUN 2010

The mobile industry has added a whole new chapter to the marketing handbook on “loss leaders”.

It’s very easy to give away something that’s not part of your core business. Mobile phone networks live in fear of the loss of voice revenue. Skype is the enemy.

Microsoft and Symbian used to think they could make money out of mobile operating systems until Google decided to give away Android for free. Nokia and Intel give away MeeGo because Intel wants to sell chips.

Google wants radio spectrum to run free wi-fi. Someone else’s core business is a nice value add if you can make money out of your core.One network described 10% international money transfer fees as ‘huge’, which is a bit disingenuous when you think that mobile phone networks want to charge 40% for reverse billed SMS and 50% for being an apps store.

Mobile phone networks grew up thinking that that their core competencies were radio, and radio planning. Then the shift moved to brand and marketing. The brand work Wolfe Olins did for Orange moved the whole industry from one around telegraph and post horns to FMCG. Orange pulled off masterstroke after masterstroke to build the brand from being the first network with bundled minutes to billing by the second, fantastic empowered customer service reps to branding the launch handset as the Nokia Orange.

And yet they had a weakness. A common weakness in most mobile phone operators: The billing engine. Pulled in lots of different directions by marketing campaigns billing engines have to be flexible enough to cope with things like discounted local calls, multiple call rates, free calls from home, family packages and a whole host of other metrics. They are the butt of the Friday afternoon ‘seems like a good idea’ marketing promotion.

The amount of data stored in a telco billing system is unimaginably vast these days. The task of just backing up that sort of data with hundreds if not thousands of transactions every second of every day is formidable. For a long time one (at least!) of the main telco billing solutions ran on systems where there was no hope of a decent backup in the event of a real disaster; the standard issue company uniform for IT was brown trousers.

Billing is hard. Vodafone is very proud of launching the world’s first commercial text message service. They can only claim that because they were the first to charge. Orange had been giving away SMS for two years by that time. Of course marketing meddled and Vodafone tried to rename SMS as ‘Telenote’. It was a terrific wheeze – the world’s most expensive data at around £500 a megabyte. Fixed line operators looked on green with envy.

Use the force

What hasn’t happened yet is that networks haven’t realised the power of their billing engine. That’s “realised” in both senses of the word: They haven’t woken up to the possibilities, but when they do they will make them a real force.

The mobile phone business eats other industries. It’s the pocket radio, the flashlight and the digital camera that everyone carries. Nokia is the world’s biggest camera manufacturer. Polaroid is no more. Kodak, which spotted the power of the digital camera early, missed the mobile phone threat.

Banking is ripe for the taking. As much as the old boys club of the regulators and banks try to slow down the march of progress there are no skills in banking that a mobile phone network cannot learn. This is an industry which bills four billion people an average of $20 a month. But they may not be able to do what banks still seem obliged to do and have regular periods of online shutdown during “systems maintenance” – and there is no possible option of expediently skipping a period of billing because the commodity being billed effectively has marginal cost of zippo.

What did Apple do when it saw that mobile phones were the greatest threat to the iPod? They built a mobile phone!

What should banks do as Mobile Phone networks become the greatest threat to International Money Transfer and Mobile Money Transfer? Banks should become a mobile phone network.

The easiest way to do this is as a virtual network or an MVNO. It’s very hard to make money as an MVNO unless you have a special advantage. Virgin Mobile has succeeded in some territories and failed in others. This has often been down to the strength of the brand and the individual deals done with the carrier in that territory. That hinges on having better market modelling than the carrier. Tesco has succeeded because it owns the retail presence. Even before the Tesco MVNO the company was selling £300m/year in pre-pay top-ups.

Banks similarly own the route to market with an astonishing retail presence, and those customers are so intimidated that they regard changing their bank as up there with moving house and divorce, in terms of life’s most stressful events.

Foreign Money

The ethnic MVNO is a well-trodden space. Ay Yildiz, Chippie, Globalcell, IDT Mobile, Lebara Group, Lycamobile, Movida Communications, Nomi Mobile, Ortel Mobiel, Red Pocket Mobile, Telesur, Total Call Mobile, Tracfone Wireless and TuYo Mobile all have ethnic propositions.

What makes being an MVNO hard is that the licenced operators have much more favourable terms for carrying each others traffic, particularly for international calls. The blunt way to do this is to buy an operator. There are enough small operators, the equivalent of Mediterranean Avenue and Baltic Avenue on the monopoly board but even these tend to command a premium.

A more subtle way is to own spectrum. This is legally interesting but there are some options where you can have the status of a full operator and the costs base of an MVNO.

This gives cheap international calls. It’s ideally suited to a company that wants to target the immigrant communities. This is a compelling business model for a bank just leveraging the brand, customer base and the presence. An MVNO could be a profitable business just as a phone company.

The special sauce comes with the money transfer. The priorities for someone sending money home from abroad are, in order:

  • The ease of getting to a location for sending the money
  • The ease with which the recipient can get to an agent to receive the money
  • Security
  • Cost.

Nothing could be more convenient than having the sending terminal in the pocket of the sender. The cost to banks of operating their vast networks ATMs is already probably more than giving every customer a free mobile phone.


There is potential for the mobile money transfer element to make for a fantastically valuable MVNO proposition at a lower consumer cost than either the ethnic MVNO or existing International Money Transfer, promoting consumer loyalty.

While it’s technically harder for a bank to become a mobile operator than the other way around, it’s financially easier. The Return on Investment (RoI) that a bank looks for is very much lower than the high tech RoI a mobile operator looks for. Indeed it’s why banks lend money to mobile operators, to get a share of that RoI.

But there are two other considerations that might just add to the banks’ nightmare: PayPal and Google Checkout have both made gibbering monkeys from the banks’ pathetic efforts to complicate international transfers and payments.

The result of all this is likely to be a series of truly “epoch-making” considerations that transcend mere commercial considerations, and demand a much more thorough investigation around monopolies and the social desirability of the resulting landscape . It was once deemed important that the road network was too important as national infrastructure to be privately owned and controlled, but if I was the Queen, I’d willingly flog my potholed Highway and use the cash to buy a combined bank and telco+wireless network operation, tomorrow.



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