As simple as one – two – 3G

Having spent billions on technology and licences, the mobile phone industry is concerned consumers will not take up third-generation services. Orange believes it can overcome market inertia by simplifying its pricing – but is this the answer,

Orange, which claims to be the UK’s leading mobile phone network, believes it has the answer to one of the toughest marketing challenges of recent times. The UK mobile industry spent more than &£22bn in 2000 securing licences to run third-generation (3G) mobile phone services. Throwing cash around during the new media boom was easy. Now comes the difficult bit: persuading UK mobile users to fork out for the futuristic new services.

Success – or failure – will largely be down to how the current GPRS (2.5G) and coming 3G services are marketed. Many agree that take-up of WAP – a limited Web-browsing service, available on GSM (2G) and 2.5G phones – was slowed down partly by inflated promises on the part of the mobile industry. Virgin Mobile brand director James Kydd fingers BT Cellnet as a prime culprit, for claiming that WAP was “Internet on your telephone” when it clearly wasn’t. But, above all, pricing will be a crucial determinant for the take-up of 3G. Mobile users have become used to a maze of tariffs from the big operators – there are some 60 different tariffs on offer in the UK for voice services – and the appearance of a multitude of new services could inject new levels of complexity into the market.

Fixed costs for varying purposes

Orange’s answer is to simplify its prices. Last week, the company announced the launch of “Your Plan”, which comes on stream on October 1. The operator is to introduce a single charging structure, which will be available to all customers. This will offer bundles of minutes for talk-time, SMS and picture messaging.

After bundles of talk-time are used up, national calls will be charged at 10p a minute to other Orange users and 35p a minute to other networks.

Orange head of small business and personal marketing Niall O’Keeffe says, without a hint of irony, that the network is “taking all of the confusion out of the market,” admitting afterwards that Orange itself has operated ten different tariffs for a considerable period of time. But he adds: “This lays the foundations for customers to buy new 2.5G and 3G services. The industry has got to move people on from just buying voice calls.” He adds that, in order to market new services such as picture messaging and video messaging – both of which are eventually expected to be fully available through all of the leading networks on 2.5G phones – it will be imperative to have a simple charging structure.

This week it has emerged that Hutchison Whampoa, the Hong Kong-based conglomerate that created and eventually sold off Orange, is considering its own simple 3G pricing structure, which will reportedly be low-priced and offer flat-rate voice call charges. Hutchison’s network – to be known as 3 – will be the first 3G network launched in Europe and if all goes to plan it will be introduced into the UK before the end of the year. It has a powerful weapon in exclusive rights to show clips from Premier League football, for which it paid &£35m, and has some 40 other content deals. To encourage the take-up of these, it is thought the company will introduce low-cost – or even, initially, free – phone calls with a single price tariff.

A spokesman for 3 says: “Our pricing is going to be simple and open,” though he refuses to give any details. He adds: “We are leading in 3G, as the only business focused solely on it.” He says, however, that 3 will initially have only partial coverage in the UK – it will be available to 45 per cent of the population. Outside these areas, 3 will not offer 3G services, but voice calls will be available through O2.

Analysts agree that a degree of simplification in charging will be important for new services – those that will be offered by 3G as well as those on offer through existing GPRS services. Datamonitor telecommunications analyst Richard Clifford says: “As we are heading for the era of data services, billing is going to be get more complex, so Your Plan does sound like a decent proposition.”

But other mobile phone industry players are sceptical about Orange’s claim that is going to change the way the market bills customers. Kydd says that his company (Virgin Mobile), rather than Orange, was the first to do just this: “I think the industry has finally woken up to the fact that this confusion marketing it has propagated does not cut through, particularly if you look at new services such as picture messaging.”

What’s the big deal?

Other operators reject the idea that their marketing sets out to confuse customers, or that they will follow on Orange’s heels by offering similar packages. A Vodafone spokesman says: “From Vodafone’s perspective, we feel our price plans are clearly laid out and quite simple. We believe few people can be confused by what they have. We offer advice from customer services if they are.”

O2 marketing director Will Harris says: “There’s a balance to be struck between simplifying and providing choice.”

T-Mobile personal customer marketing manager Chris Barrow says Orange’s price plan is, in effect, exactly the same as T-Mobile’s “customise your price plan” scheme, launched in July: “It is two months behind us, so I was surprised to hear the words ‘changing the way the market works’.”

The biggest challenge for mobile phone companies at present is to increase the average amount spent by each user. This has declined substantially over the past two years as people talk less on their mobiles, preferring to send text messages, or simply keeping their conversations short.

Vodafone, for instance, made an average of &£278 from each of its British customers in the year to the end of June, up from &£276 at the end of March, but down from &£291 a year ago. In line

with other industry players, Vodafone has been trying to reduce the number of pay-as-you-go customers, who tend to bring down the value of this average revenue per user (ARPU). Clifford says: “ARPU has been falling and that has been a major problem. I wouldn’t say usage has been lower, more that it is stagnant and there is nothing to drive it. SMS has been growing, so there is a need to drive users on to higher-value services.”

He points out that this should have happened six months ago with the launch of 2.5G, but the new services that it enables – such as picture messaging – have been slow to come on stream. With the launch of picture messaging by T-Mobile in June, there is at least now some additional use that can be made of the technology. But whether this will provide the sort of boost to the revenues companies are seeking is open to question.

If the ad doesn’t fit…

The launch of Your Plan should provide some focus for Orange’s advertising, which has meandered rather over the past few months. The problem was signalled last week by the resignation of Lowe from Orange’s &£41m advertising account after the agency admitted that it had been unable to deliver the sort of ads it thought Orange deserved (MW last week). One observer comments: “The ads Lowe has done have been very downbeat. When I saw the latest commercial, I thought it was for cancer research. It was a brilliant ad for a charity where people die a lot, rather than for a mobile phone company.”

And Robert Bean, chairman of ad agency Banc, says: “There used to a be a more ethereal and magical touch, which helped position Orange as a slightly mystical brand. These ads are more functional, and the misty, magical romance that Orange once had has gone. The brand has become more everyday.”

This may be down to the lifecycle of the market. In the early Nineties, people had to be persuaded that mobile phones really were a revolutionary new technology that would change the world. These days, people’s interest in mobiles has become somewhat muted, and the industry obsessed with targeting the youth market. Less a form of communication, the mobile is now positioned as a fashion accessory. This is all right – until the next fashion accessory comes along and replaces it.

Orange is holding a pitch for a new agency, headed by incoming brand marketing director Jeremy Dale, previously of ITV Digital.

He says: “I want to move the advertising on and refresh it. Orange’s advertising really stood out when it first came out, a lot of our competitors have tried to follow the kind of model Orange created.”

In the mobile industry, marketing, it seems, has been stood on its head. It is supposed to respond to consumers’ desires, and to develop simple ways of giving people what they need at reasonable prices. But the mobile industry is approaching this proposition in reverse. It is starting with the technology, then trying to recoup its investment by persuading the public to sign up for the services. Are mobile users really crying out to be able to send pictures to each other? Do they really want to be able to send video messages, or will they treat it as a gimmick that becomes boring after a few goes? For their balance sheets’ sake, the networks must persuade us that these services are what we wanted all along.

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