The struggle for market leadership and revenues in mobile instant messaging has lead operators down different paths, finds Tony Dennis

Many operators are looking at mobile instant messaging (MIM) as a key service for driving revenues. They also see MIM as a way to build mobile communities and user-generated content services. While some European operators have launched their own IM services, they've never proved very popular with subscribers who prefer to use an already-established brand. Currently there is a struggle going on between these existing, ISP-based IM services and the 'own-branded'  IM offerings from network operators. Market watcher, Analysys believes the Mobile IM market will be worth an impressive € 26 billion by 2010, but by contrast, rival firm, VisionGain, is more conservative and is predicting that it will only be worth around € 10.89 billion by 2011.

So, exactly what Mobile IM services are up and running with mobile operators? Steven van Zanen, head of messaging with Acision, defines two key IM services which he calls community IM and operator-owned IM. Guy Reiffer, product marketing director with Colibria, makes a similar distinction. "Currently there are two options available for mobile operators, Mobilised Internet IM Gateway services and operator ‘own brand' MIM services," he argues. "With Mobilised Internet IM Gateway services, operators are able to provide subscribers with complete access to an existing Internet IM service, such as Windows Live Messenger, Google Talk or ICQ. This option enables the operator to leverage the brand awareness of a chosen Internet IM brand. However, it does mean that the operator is potentially restricted by certain business models and branding factors."

According to Scott Stonham, vp for product marketing with IM specialist, Miyowa, the prominent ISP-based  IM service appears to vary markedly depending upon geography. Microsoft – with its variations of Windows Live Messenger – appears to dominate in Western Europe, whereas in Eastern Europe ICQ is most prominent. Yahoo! holds market leadership position in Asia, whereas in Western Europe it is running a close second. Stonham puts these differences down to which brand has achieved the best 'mind share' amongst the existing fixed line community of IM users.

There's one obvious solution to this dilemma. At OZ Communications, Michel Besner, a senior vp of marketing points out that, "OZ has successfully deployed Windows Live, Yahoo Messenger, AIM and ICQ services, all of which can be accessed and used simultaneously from inside a single client application." By contrast, Miyowa's Stonham revealed significant part of the specification process which occurs when mobile operators come to his company for IM client software. He maintains that the majority of operators start off by asking for one client which can handle all of the major IM services. "After time – for a variety of political commercial and technical reasons – this requirement usually dwindles down to a request for just one IM service to be covered – on a toe in the water basis," Stonham explained, "Even though for Miyowa it is perfectly possible to have a single piece of software that provides access to multiple IM services." This capability Stonham describes as a 'multi-headed' application.

There's one major exception to these two categories which isn't an own branded solution nor an ISP originated solution. That joker in the pack is the IM aggregator which creates its own presence and doesn't rely either on an ISP or on a mobile operator to gain a foothold. A good example here, Stonham says, is Ebuddy. Another odd man out is Skype which – besides being a hugely successful VoIP service -also offers a top class IM system. The big difference is that while the likes of Windows Messenger and Yahoo have been optimised for the mobile environment, Skype has come very late to the mobile market. The major exception here is Hutchison 3 which offers Skype chat via its dedicated Skypephones.

'Own brand' IM
Asked how successful 'own brand' IM communities have been, Scott Stonham replied, "The harsh truth is that none of the major mobile network operators appears to have enjoyed much success with its 'own branded' flavour of IM." It still seems to be early days for the mobile operators even though a big noise was made about mobile IM at the 3GSM conference back in 2006 with the GSMA's Personal IM initiative. "There are some technical reasons for this as well," Stonham continued. "If, for example, the operator goes for a client which isn't pre-installed but user-downloadable then there can be a problem with users actually finding the app in the first place. Typically they might have to move through three to five menus just to open the application. The incentive to do so is poor unless the subscriber is actually rewarded with some tangible benefit.  If the result is that the mobile handset can 'see' all of their existing IM buddies, this is sufficient incentive. And it probably explains why own branded services – which are starting from scratch – fare so badly."

OZ's Michel Besner basically concurs with this view. "Some operators – especially in Europe – have tried to launch their own operator-branded services based on the IMPS standard," Besner explained. "These services have not been known to be successful.  Lately, we are seeing many major European operators shifting to deploying portal-branded mobile IM services." Acision's Steven van Zanen, added, "In general, it appears community IM has become more successful than  own brand IM. However, market penetration of IM services overall has been low and there are approximately only 30-40 own-brand deployments worldwide." There are some exceptions – but not in Europe, it seems. One such example comes from South Africa, where MTN has introduced its own brand MIM service called ‘noknok'. Using a Colibria supplied system, noknok subscribers can receive messages as either an SMS or an MMS – as advocated by the GSMA's Personal IM Initiative. MTN's success clearly proves that own branded IM is working but only in an environment where ISP-based IM has little or no foothold.

Exact figures for IM usage are difficult to come by. Myiowa's  Stonham wouldn't  reveal exactly which European customer was in question but said that operator  had found that its own branded IM was being used by as few as 0.5 per cent of its subscriber base (one in 200). This compared to a client app that offered access to Windows Live Messenger where usage rose to a more impressive 10 per cent – or one in ten subscribers.

Comscore M:metrics which monitors the behaviour of its European mobile phone user sample group has found that IM usage is very low. Only 1.6 per cent of the sample employs a handset to check IM messages daily and only 5.1 per cent actually check for IM messages in a month. Significantly the majority of these mobile IM users access the service via the handset's built-in browser compared to a tiny minority – 0.9 per cent – who use a built-in IM client. Stonham argues that the operator's best tactic is to get customers used to the concept that they genuinely can get access to IM from their mobile handsets and then "migrate the perceived value" over to their own brand of IM.

Gateways to ISP services
For IM to be successful, operators need to install their own gateways to ISP-based IM services, Scott Stonham firmly believes. "Crucially, for mobile network operators the most successful IM offerings are when the subscriber has to go through the operator's own gateway to reach the desired IM service rather than going direct. The reason for this is that mobile connections are notoriously fickle. Hence, if the mobile subscriber is connecting directly, the fixed line 'buddy' might see their friend go offline and come back online repeatedly during a single session. By contrast, a good mobile IM gateway can iron out all of these failings and make the IM connexion appear much more resilient." Acision's, Steven van Zanen, points out that, "Already, IM to SMS connectivity is generating additional revenues rather than cannibalising the latter and once interoperability becomes reality it will create additional up- and cross-sell opportunities for all sorts of services."

Inter-operator interconnect
There's a strong feeling that inter-operator interconnects for mobile IM are just a paper proposition rather than a reality.  Colibria's Guy Reiffer disagrees, "It's very much a reality, with interconnects available to subscribers in contrasting markets across the globe." However, he points to markets outside Europe such as South Africa and Malaysia. "The importance of interconnect cannot be overlooked as it brings disparate communities together to form one large community," Reiffer commented. Again it seems to be a question of geography. "In Europe, IM uptake varies from country to country. Some have a very low penetration while others, such as Spain, have a much more advanced IM market," Acision's Steven van Zanen claimed. At CCSinsight, senior analyst, Paulo Pescatore, observed, "In France all the major operators have got together to make their own branded IM services interoperable. While this should be applauded, sadly France has so far proved to be the exception to the rule. The bottom line is that mobile IM has so far been very slow and unsuccessful. There just hasn't been mass market adoption of mobile IM."

"The reality is that operator interconnect – between the IM services offered by different mobile operators – is not a major issue because it is almost unneeded," Scott Stonham believes. "The interconnections between the rival IM communities happen at ISP level so the mobile operator is completely cut out of the loop. For example, why would the UK's Vodafone need to connect directly to France's Bouygues, when their respective customers are both using Microsoft Messenger? The IM service is performing the interconnect so a dedicated IM agreement between the two operators becomes redundant." Paulo Pescatore added, "The fact that it still impossible for some-one on Yahoo! mail to swap an IM message with another user of Windows Live Messenger shows that, while such offerings might be advanced Web 2.0 services, they're still proprietary and enclosed. That's why mobile operators have sought alliances with one of the leading players."

Originally, it was thought that IM would eventually replace SMS. However, IM is now largely viewed as a complementary service to SMS.  "The real driver for IM may well be mobile social networking and the key to its adoption will be tightly integrated presence," Pescatore suggested. "That will mean when subscribers look at their handset's address book they will be able to decide whether to communicate by voice, text or – thanks to presence- via IM. That's the vision is just that the industry hasn't got there yet."

Regulatory attempts to standardise around DVB-H are unnecessary and may prove harmful to the market regulators are trying to foster, argues Parks Associates' Director of Research, John Barrett

GSM (Global System for Mobile Communications) has been an unqualified technological and regulatory success. European governments collectively committed to a unified standard for mobile phones in the eighties and codified the GSM standard by the end of the decade. By the early nineties, European operators were launching commercial services, and by the mid-nineties, operators outside of Europe were following suit. Today there are over three billion GSM subscribers spread across more than 200 countries.

Several sage regulator decisions paved the way for GSM's success.For one, European governments coalesced around just two spectrum bands: 900 & 1800 MHz. This decision provided hardware manufacturers with additional economies of scale and allowed dual-band handsets to offer continent-wide roaming. Regulators in other countries followed Europe's lead, providing even greater economies of scale and roaming potential. Secondly, each GSM handset featured a removable Subscriber Identity Module card (SIM card), which identified the subscriber to the operator's network. By switching the SIM card into a new handset, subscribers could easily change phones. More importantly, they could change service providers by inserting a SIM card from another operator. The combined effect of SIM cards and common spectrum bands was a hypercompetitive market for both services and handsets.

In the wake of such success, European governments have been quick to use the GSM approach when addressing other policy issues. In the late nineties, they decreed WCDMA (Wideband Code Division Multiple Access) would be the only 3G standard for Europe and mandated the use of a common spectrum band. More recently, they have come out strongly in favor of DVB-H (Digital Video Broadcasting-Handheld) as the mobile TV standard for Europe. Yet the danger of regulating in such a reflexive manner is that policymakers will overlook actual market and technological conditions. Every policy issue is seen as a nail because the hammer was previously successful.
The case with WCDMA illustrates the potential hazards of this regulatory approach. WCDMA promised to deliver robust mobile data services to consumers and handsome ARPU increases to operators.

These promises, however, came with high up-front costs for new network deployments and spectrum acquisitions. Moreover, market demand for such advanced services was unproven, introducing a high amount of risk into the deployment decision. Nonetheless, European governments, anxious not to fall behind technologically, put the appropriate spectrum blocks up for auction and set deployment deadlines for the winners. European operators thus faced a painful choice – commit to 3G, incur the heavy deployment costs, and hope for the best or forego 3G deployment and accept the risk of market marginalization.

Regulatory decisions, not market realities, created this painful choice. Prudence dictated that operators first test the market for data services using cheaper, interim technologies such as GPRS (General Packet Radio Services) and EDGE (Enhanced Data GSM Environment). Regulators demanded that operators commit to 3G before they had had sufficient time to test the waters. Logic called for operators to acquire spectrum as needed and use it for voice or data capacity, depending on their network needs. Regulators insisted that spectrum be used for WCDMA.

In the end, most European operators felt they had little choice and dove headlong into WCDMA, with dire consequences. The pressure for new spectrum and licenses drove auction prices into the billions.
Deployment costs added to the bill, and the dot.com crash made it hard to raise money. Operators suffered under the weight of heavy debts, and British Telecom was the biggest casualty. Saddled with enormous debt loads, the company eventually sold its cellular arm to Spain's Telefonica and to this day is a minor player in the U.K. mobile market.

European regulators have lately taken up the question of how to serve mobile TV. It is difficult for WCDMA technology alone to enable widespread mobile TV use. The one-to-one relationship between the content and the viewer means that every additional viewer further taxes the network's capacity. A sudden spike in viewers could potentially overload the network, interrupting other services including voice traffic. A new technology is needed, but which technology to use?

There are several candidates and European regulators are generally adopting the GSM approach: pick a single technology (in this case DVB-H) and mandate its use. Unfortunately, the market and technological conditions bare little resemblance to the GSM scenario regulators faced in the early eighties. For starters, spectrum availability differs from country to country. DVB-H is ideally suited for the UHF TV spectrum, but in some markets (the U.K., France, etc.), TV broadcasters are still using these frequencies and will not fully vacate them until around 2012. Secondly, the use of DVB-H denies operators the possibility of leveraging established network infrastructure. As a counterpoint to DVB-H, DMB (Digital Multimedia Broadcasting) technology is designed to piggyback on DAB (Digital Audio Broadcasting) radio networks, which are deployed extensively in Holland, the U.K., and Germany.
Mobile TV service is also, by its nature, very different from voice service. For the latter, roaming offers very tangible benefits. Travelers can continue using their same number and handset while on the road. For mobile TV service, however, the benefits of roaming are not as apparent. Even if the mobile TV service providers can establish roaming agreements (a considerable assumption) and even if handsets become equipped with multiband DVB-H capabilities (another considerable assumption), the channel lineup will change as subscribers move from one country to another. In most cases, the shows will also be in a different broadcast language. Faced with unfamiliar programming in an unfamiliar language, most mobile TV subscribers will have little interest in a roaming service -particularly if they are asked to pay a premium for it.

Given these market and technological conditions, the chief purported benefit of having a mobile TV standard is greater economies of scale in handset and equipment production. Unfortunately, this battle has already been lost. Mobile operators in the United States have firmly come out in favor of MediaFLO technology; Japan is solidly set on ISBD-T; Korea is committed to DMB technologies; China is set to use CMMB; and deployment of even more technologies is on the horizon. There is no prospect for a single, worldwide mobile TV standard akin to GSM. European regulators have set a mobile TV standard simply for the sake of having a European standard.

Standards can be a good thing; the GSM standard proved to be a great thing. Yet standards must be useful and not established simply for the sake of having a "standard." A European mobile TV standard will not enable lucrative roaming services, nor will it solve the economies-of-scale problem facing the market. It will, however, deny European operators the freedom to choose which technologies they need and also deny them the use of established network infrastructure. The DVB-H standard for Europe is a standard for standard's stake and a mistake. Regulators would be wise to recognize market realities, acknowledge their mistakes, and going forward consider the merits of standards on a case by case basis.

John Barrett currently analyses digital media and international trends for Parks Associates and also heads the company's consumer research team. He regularly advises companies from both the content and hardware industries on their digital media strategies and has authored dozens of industry reports.