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ECON 314- Presentation

ECON 314- Presentation. Market in Mobile Network. Presentation Outline. Background of Mobile Market in Hong Kong After market services- Positive Network Effect Discounted prices of handsets for subscribers Different monthly charges and plans 4. Free value-added services

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ECON 314- Presentation

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  1. ECON 314- Presentation Market in Mobile Network

  2. Presentation Outline • Background of Mobile Market in Hong Kong • After market services- Positive Network Effect • Discounted prices of handsets for subscribers • Different monthly charges and plans • 4. Free value-added services • Mobile Number Portability • 3G service

  3. Background • Hong Kong's Position in the World of Telecommunications • Mobile Phone Penetration Rate**- 2nd Highest in Asia Pacific • Source: ITU Digital Access Index 2002 (Published in November 2003) • Keen competition among network providers after the implementation of Mobile Number Portability • The monthly charge drops sharply

  4. Telecommunication Indicators in Hong Kong for the fiscal year ending 31 March 2005

  5. The Mobile Market • 3G operators first launched its services in Hong Kong in 2004 • Competition in the 2G mobile market continues to be intense • Main mobile network providers in HK: Sunday, PCCW, Smartone, People, One2Free,…

  6. Various Services • Songs downloading $5/song • Banking services $8/month • Online betting services $8/month • International roaming services $55/month

  7. Why so many services?

  8. Network Effect The value of a network depends on the no. of people connected to it Increase the no. of users Increase the value of the network

  9. To attract more users Outcome: 1. more and more services 2. lower price provide more services more services attract more users Network Effect

  10. Positive Feedback the strong get stronger the weak get weaker  one single firm dominates the market But why still so many network providers?

  11. Collective Switching Cost • Better off if shifting to the best network • Due to intra network service, users stay in the network which his friends use • No one is willing to lead the move stay in the same network

  12. Buying Cell Phone • Can buy from everywhere • Specialty shop (Nokia, Samsung, Motorla) • Large supply chain (Boardway, Fortress, Wilson……) • Small retailer • Network provider

  13. Where to buy? • Specialty shop • Better confidence and better after sales services • Large supply chain • More gift • Small retailer • Cheaper • Network provider • Cheapest when sign contract with them

  14. Example • Nokia 6280 • Specialty shop : $ 2780 • Large supply chain :$ 2480 • Small retailer : $ 2280 • Network provider : $ 980 - $2480

  15. How can network provider charge such a low price? • Sign contract • The longer contract, the lower price

  16. Example (Con’t)

  17. How service provider get profit by selling in low price • Fixed Cost • The operation system, network etc. • Variable Cost is relatively low • i.e, with the increase of customer use their services, the total cost won’t increase much

  18. How service provider get profit by selling in low price (Con’t) • Attract customer by selling cell phone in low price • Not sure whether they will incur loss when selling cell phone • But we are sure if people buy cell phone in such low price, they need to sign contact to use their services for a period of time.

  19. Why people choose to sign contract? • After having a cell phone, they need an operator anyway. • Once the gain in price reduction is larger than the charge in monthly fee, they will sign the contract.

  20. Different Monthly Plan

  21. For example, in the $50 plan, it cost 1 dollar to have 6 minute, but if you exceed 300 minute, it cost you $1.1 per minute, so people will tend to choose $80 plan if they use around 300 minute in order to avoid high extra charge.

  22. Value-added Services • Text-messaging

  23. Value-added Services • Free Value-added Services: • Intra-operator SMS • Call forwarding • Caller number display • Call waiting • Voice mail • Conference call • Missed call alerts

  24. Example • SmarTone-Vodafone • Monthly Plan VS. Stored-Value SIM Card

  25. Monthly Plan

  26. Stored-Value SIM Card • Call minutes ($0.2/min) 550*$0.2 • Caller Number Display Free • Call waiting Free • Call Forwarding ($15/month) $15 • Voice Mail ($15/month) $15 • SMS ($0.2/intra sms) 10*$0.2 $142

  27. Implications • Bundling • Different services are bundled in a tariff plan • Customers are locked-in • Free intra-operator sms • Discounted intra-operator minutes

  28. Mobile Number Portability • Mobile Number Portability (MNP) • enables customers to retain their mobile telephone numbers when changing from one mobile network operator to another mobile network operator • Implemented from 1 March, 1999

  29. Benefits • avoid the costs and inconvenience associated with a number change • cost savings from not having to change mobile number • cost savings from switching to more efficient operators

  30. Benefits • keen competition among operators • improvements in efficiency • price reductions result from increased competition • avoid repetition and associated costs • savings as a result of there being fewer number changes

  31. Future trend: 3G Evolution start: since 1999 in Japan Now: 60 3G networks in 25 countries Reason for change: limited capacity of the existing 2G networks

  32. What is 3G? 1st generation (1980s): • Analogue network 2nd generation (1990s): • Digital network • Wireless telephone technology • Speed: 9.6 kilobits per second

  33. What is 3G? 3rd generation: • wireless mobile technology with data and voice transmission capacities • high speed mobile services ( Video calling, messaging, e-mail, games, news and information services) • Speed: Two megabits per second • UMTS (Universal Mobile Telecommunications Services)

  34. Strategy adopted Similar to the “Nintendo and Sega Case” 3G network providers: CSL, Hutchison, SmarTone, SUNDAY Others: “Wait-and-see” strategy

  35. Challenges for network provider 2G network: • Huge initial capital invested • Start from 1990s • Budget not yet recover High entry fee: • 3G service licenses • New network required

  36. Challenges for network provider • Lack of 2G mobile user buy-in for 3G wireless service • Lack of coverage • High prices of 3G mobile services • mobile phone handsets currently available failed to excite public imagination

  37. Cost Minimization Government: Flexibility in license payment Fixed license payment for the first 5 years Suggestion from Industry: Separating service provision from network operation Mobile Virtual Network Operator (MVNO)

  38. Thank You!

  39. Q & A

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