01 Feb 2007

Mobile operator 3 wants to transition to a broadband pricing model for its new mobile TV service - a move that could hit pay-TV revenues, argues Kate Bulkley.

When the Berlin Wall came down, it didn't collapse in a big pile of concrete overnight. Instead, it was chipped away at first and then deconstructed on a grand scale as the pressure mounted and it fell away.

The 'walled garden' of services and applications first built up by internet portals and, more recently, by mobile operators, is collapsing in the same way. AOL took a long while to dump its monthly portal access fees, but the reality of how the internet works finally persuaded even the mighty Time Warner to change its model.

In the mobile world, the 'walled garden' got hit by the first wrecking ball in November when Hutchison Whampoa's 3 decided to offer a series of core internet applications to customers willing to pay a flat monthly fee.

For those subscribers who buy one of its (heavily subsidised) new X-Series mobile phones, 3 is offering Google search, Microsoft IM, Skype VOIP calling, eBay and even access to your home TV - using the Sling Media technology - as well as access to your PC's content, using Orb Networks. None of these applications are new to net users, but for 3's mobile customers they are all bundled into a monthly mobile broadband subscription fee and pre-loaded into the X-Series phones. No hotspot, laptop or computer data card is required.

On the net you pay a monthly broadband subscription to get access to the 'free' internet. The mobile telephony model, by contrast, is to charge per minute, per message, per click, per event and per megabyte. 3's idea is to make the mobile payment model look more like the broadband internet model.

Customers who choose 3 X-Series Gold will be able to buy a Slingbox from 3 for the reduced price of £99 (€147). Any customers who already own a Slingbox can join 3 and opt for the X-Series Gold service.

3 has promised that the flat monthly fees it will charge for mobile broadband internet will be "significantly below" the cost of a monthly broadband connection for your PC.

"What we are doing is setting a direction for the broadband mobile internet business model," says Frank Sixt, group finance director of Hutchison Whampoa. "To us it just seems logical that as the internet and mobile come together the more successful model is the net model."

3's move is brave and bold and will be watched closely by the other mobile players, not to mention by broadcasters and pay-TV companies. 3 has decided that establishing a mass consumer business is the key to growing both its business and its margins. "The economics going forward should be that we can make a perfectly decent revenue and margin at scale off an internet access model," says Sixt. "That is the transition that we are trying to manage."

After spending billions on expensive 3G licenses, it is no wonder that most mobile operators are loath to give up 'per event' charging and the healthy 'data charge' fees they rack up when their customers go 'off portal'. But the trouble with this charging model is that it hasn't attracted users in their droves. If anything, people carefully limit what they do and the time they spend on their phones and that means less money for Vodafone, Orange and the others.

For broadcasters and pay-TV operators like Sky, the question is will consumers pay again for content they have already paid for, or for content available on an ad-supported basis on their TVs?

3 is pre-loading the Sling Media player on the X Series mobile phones to give customers access to their home TV on the move, including their Sky TV subscription. How many of us will pay Vodafone an extra £10 a month for access to a limited number of Sky channels on their mobile? Since the service launched early this year in the UK, 250,000 have signed up for Sky Mobile TV. It is highly unlikely that this model will stretch to the mass market. Indeed, according to research by Informa, people have a very low opinion of paying for mobile TV, with only 22% prepared to pay something for mobile TV and only 1% prepared to pay £10 or more a month.

"The mobile operators have tried to be the mobile equivalent of a cable MSO with a walled garden of content but people haven't come," says Blake Krikorian, CEO of Sling Media.

The same could be said for pay-TV operators: there is a limit to how much people will pay for the same content delivered to different screens. Getting your favourite TV show on the move is great, but if you have already paid to see on your TV, will you pay again to see it on your mobile? I know I won't.