Ovum: Vodafone's deal to keep traffic on the wireless network

Michele Mackenzie at Ovum writes about Vodafone UK establishing a new wholesale package for wireless data traffic" that will allow independent content intermediaries such as MonsterMob and big brand content providers such as Ministry of Sound to buy wholesale data traffic packages at around £0.30 per Mb. For third-party providers, this would lower the barriers to entry to full-track music downloads and other premium services such as mobile TV, markets in which they have thus far been unable to compete."

According to Vodafone, "it plans to target content intermediaries, seeking to offer rich media services such as full-track music download and mobile TV. The offering is UK only and is initially designed for'rich media'. Obviously it could have wider competitive implications; for example, if it was widened out to VoIP."

Mackenzie predicts "other operators will follow suit fairly quickly," and states:

There is a big question mark over the viability of offering rich media applications such as full-track music downloads and video over the wireless network. Rich media is a much harder sell for wireless players, as they come up against fierce competition from the online players. Full track downloads over wireless are already sold at a premium to the fixed offering (£1.50 versus £0.70). Large players such as Vodafone, which can absorb the cost of the traffic for their on-portal offerings, have a chance to compete in this market - end users benefit from a bundled content/traffic charge. For smaller players that have to charge their end users a hefty traffic charge on top of the content charge, it severely limits their competitiveness. This wholesale deal will allow the independent players to offer a competitive, integrated price for rich media.

She thinks this is a good thing and will help lower the barriers to entry. She points out that network operators "want to avoid being locked out of the value chain at all costs. Providing wholesale traffic deals to third parties is a new revenue stream for them - better wholesale than "no sale", as they say. Other operators will need to follow quickly, or else they stand to lose out." Mackenzie concludes that:

It will be interesting to see how this service develops going forward. Operators might be willing to open up the network to third parties for rich media where the benefits to the network owner are more tangible. However, they might be less willing to open up to cheap voice players. Operators will be treading warily to protect their bread and butter voice revenues, which currently constitute around 85% of total revenues globally. They will also be watching closely to see how the first agreements between Skype and wireless operators E-Plus and 3 pan out.