And the operators respond...

Last week Barclays fired the first salvo in the race to be mobile transaction leader with its sticky version of NFC.

O2 has now reacted by launching it's own mobile wallet.

It's not a replacement for NFC (which they say is still in the pipeline for launch in 2H/2012) - looks more like a complimentary product designed to quickly mark their territory on the battlefield.

Three is the magic number

Everybody knows that in writing three makes it easier to remember and tell a message. Some people would also be aware that, in mathematics, the rule of three is another name for the cross-multiplication which applies to the equation between 2 fractions. But only a happy few would know that strategy has also its rule of three (or four).

Two professors wrote a book "The Rule of Three: Why Only Three Major Competitors Will Survive in Any Market" about this simple and realistic dogma. The rule states that in any industry, in the long-term, there will only be 3 or 4 major competitors and a long tail of niche players. Examples can be found in many mature industries and experience has proved that rule true.

• UK supermarkets: Tesco, Sainsbury, Asda
• PC manufacturer: Dell, Lenovo, HP, Acer represent more than 60% of sales, the 5th one is Asus with 5% only
• Sport shoes: Nike, Addidas, Reebok, New Balance
• Game consoles: Nintendo, Sony playstation, Microsoft
• Online shopping: Ebay, Amazon, Alibaba
• UK Retail bank: Lloyds, RBS-Natwest, HSBC, Barclays 

More examples can be found across the world. Fundamentally, in any industry, in the long term, there will only remains three! Would this be applicable to any other areas such as geopolitics or your own social groups?...

Wifi on the platform

Transport for London has announced that, from June, commuters will  be able to access free wifi access on around 120 stations.

As for the speed offered, at a basic minimum it should provide EDGE-equivalent speeds of 500kbps per person. Given the average waiting time on a platform is around 6 to 7 minutes this just about provides enough time for you to check the news to see what the Metro missed, like some of your friend's pictures on Facebook and finish off by refreshing your email server.

Initially the service will be "free and unlimited"over Summer 2012. When this honeymoon period is over it will become a pay-per-use subscription service for anything but basic TfL information (e.g. tube disruptions, travel news).

Is there much of a market here?

By the time a new subscriber goes through the setup process they will be down the tunnel and out of reception. But even when you consider an commuter with an account, what will they be willing to pay for 6 mins (or less) of internet access in the underground?

BT Openzone costs around £6 per month for access to 380 000 'hot spots' across London.

Virgin's platform product can't compete with that. It has to have a wider purpose. Perhaps it's a leader towards  their own wifi 'cloud' product?

Returning fire on the telcos

Why leave NFC (near field communication) just to the telcos?

Barclays Bank have applied some clever lateral thinking to produce an innovative new product that will allow them to be active in the mobile payment market.

They are testing a 'sticky' card that can be attached to your phone (or indeed anything else) and used to make contactless payments.

Will this scuttle the plans of the "Oscar consortium" (Vodafone, O2, Everything Everywhere) to dominate the NFC market? And, will it effect the European Commission's ruling on whether their joint-venture is anti-competitive (a decision was due in August 2012)? 

The existence of non-mobile NFC options could actually work in their favour by fast-tracking retailer and consumer adoption and thereby increasing the size of the pie.

Mind the gap

Let's imagine that your a small business owner running a cafe. Your business is in a decent location surrounded by plenty of high density housing. You're confident that the venture has a strong potential for customers and, more importantly, making a profit. Apart from furnishing the cafe and organising a bank loan, you out-laid a decent amount of start-up capital to acquire various Council licenses (e.g. to sell food and drink). The licences are expensive but, hey, that's the cost of doing business, it will be a 'license to print money' when the business gets going.

Now look forward a few years into the operation. The cafe is set up 'just so', costs are under control, and, you hope to finally start making a positive return on your investment.

Then, out of the blue, the Council notifies that it's going to retract your license. Suffice to say you're not happy with the decision. So, you look at your balance sheet to see where the finances are at. Oh dear. It's not a pretty site. Revenue is decent but you're still in early years of your business plan and quite a long way behind recovering total costs. Also, local suppliers have heard you're going to be shut-down. Understandably they aren't so keen to do business with you anymore as you're seen as a credit risk. You would love to lodge an appeal in the Courts but, even if you could build an argument that would mean taking on more costs that you just can't afford. Against this backdrop you're left with little option but to cut your losses and shut up shop.

However, the Council wants to force you to stay open. It says you've got a responsibility to your customers to stay open until the very last day.

Hard to see the logic?  Incredibly this is the situation faced by some of India's mobile operators as the Regulator has told them that according to the fine print in their license conditions they are obligated  to continue offering services despite such licenses being retracted.

Is this a risk that the operators should have considered? The Regulator is correct that the license conditions did include such a clause and the operators agreed to it....But in that jurisdiction what was the likelihood that the situation would change? Are there any right of review processes? How flexible was the business plan to shocks?

The key with risk is that it's impossible to mitigate from a position of ignorance. Yet, unfortunately, regulatory risk is a variable that far too frequently is under-estimated or, worse, completely over-looked. We spend our entire lives managing risk - we look before crossing a road, pack an umbrella at the site of clouds, purchase travel insurance before a holiday. Businesses should treat regulatory risk no differently.

How much do we think before we lick?

"Hysteria" across some parts of the UK as the  price of stamps rises from 30 April next week with reports of shoppers seeking to hoard. Setting aside the extreme reaction, the price rises are actually substantial. A first-class stamp will increase from 46p to 60p and a second-class stamp will move from 36p to 50p. These price rises come after the postal regulator lifted a number of retail price controls.

Online businesses are concerned that the price increases will dampen sales of internet goods. And, more generally, one may ponder whether hiking up the price of mail will be borne by the market given flagging demand.

For me this raises an interesting question - how much do people really care about the price of mail? 

Well, in general, postal products are relatively price inelastic.

The range of elasticities estimated in the literature has been relatively small and, those estimates have not changed much over time. Across most developed countries the price elasticity of mail products is less than -1.0 and somewhere in the region of -0.2 to -0.8 (and, for the non-economists, it means that a 10% change in prices will produce less than a 10% change in volumes). Worth noting that this aggregates all mail into one category (consumer, bulk mail, bills etc) whereas amongst the sub-products there are likely to be varying sensitivities.

One may expect that the elasticity will increase over time as substitutes (e.g. e-technologies mentioned before) take hold and preferences change, but in the short-term many consumers will simply go ahead and pay a bit extra.

Fast broadband or just dark fibre

The company building Australia's NGN network (NBN Co) has released it's latest performance report detailing operations over the last 6 months.

The report highlights some concerning results......

• Lower than expected capex and higher than expected opex - essentially this means that it is costing a lot more than NBN Co had originally planned. Not surprising giving the age of the existing access network but not helpful for the raw economics of the exercise (assuming there ever was any). 

• Interest but very few connections - of the 3000 applications to connect up to the network (covering 109,988 households) only 4% of these applicants ended up signing up for a live service. And, that's not a one-off. In the last 2 years there have only been 951 households connected. Sure there are many factors at play here (and relatively few premises passed) but again it's not helping the business case.

• Regulatory issues not squared away - the regulator is yet to complete its review of NBN Co's service undertaking (the SAU) and set the 'ground rules' for the way in which the new monopoly and industry interact. Against the backdrop of Federal election next year (and likely chage of Government) there is very little certainty for the market which is not conducive to investment.

• Already talk of a future sale into private hands - the report is quite bullish on the likelihood of a sale and this is worrying as whilst stakeholders are working on the assumption that a sale may occur in the long-term the purpose of the exercise is to create a public open-access good, providing returns to the nation. Indeed the regulator is conducting its review of NBN Co's wholesale pricing and product structure on this basis. However if NBN Co is to become a private monoploy sooner rather than later then the regulatory framework need to be sufficiently liquid to allow ex post changes. It's one thing to allow a public body to operate a monopoly network to return a public benefit, quite another to have that same power in the hands of an private investor.  

Tracking profitability by customer

You probably came across with a call centre agent who is trying to stop you from opting out from a service that you subscribed before. In most cases, they would offer you a package much cheaper than what you are currently paying. In some cases, they might even offer a custom package for you but sometimes they just don't do anything and say OK(like a quick good-bye) and unsubscribe you.

There can be two reasons for saying a quick OK to a customer about to leave;
1) The company does not have the ability to track its customers in customer level
2) The company has a system and the customer is not profitable at all thus better investing acquiring a new one rather then keeping the previous.

But there is only one chance if the agent coming to you with an attractive offer. The company has a customer level profitability solution.

Recently, I tried to opt out from Lovefilm when Netflix has been launched in the UK.The reason I wanted to change to Netflix was,  it was pure internet service without having to deal with DVDs in the posts. In addition, it was unlimited and same price with Lovefilm which was sending me 3 DVDs a month. The agent asked my reason to leave and I told him.

He waited for a moment and suddenly he changed to a robot(because it was obvious that he was reading from a script popped up on the screen) and after some bla bla sales talks he offered me the same package of Netflix for 1/5 price of it.(ie. Netflix was £5.99 a month and he offered £3.99 for three months) I accepted the offer because it was really cheap for the same service.(even though there are differences between Netflix and Lovefilm content archive) He quickly changed my package and activated my new package. Smoothly and quickly.

How could he do this? How did he give this decision to give me that package? Well, it is obvious that he is not making it up himself. The power lies behind the technology and process that Lovefilm has to track its customers. The system probably shows that I am not a heavy movie watcher and how profitable subscriber I am so offers the lowest it can get to prevent churn. If I was a home cinema freak, he might not offer the same price and package. Since he could see that I don't watch lots of movies in a month, instead of losing the customer, he almost gave away the service for free.

Now what happened? After three months I didn't watch lots of movies neither(even it was unlimited) and now I am switched to regular tariff which is back around £5 a month. If Lovefilm would have lost me, it would invest five times more than it did to acquire a new customer but power of customer level tracking provided Lovefilm to retain its customer.

BYOF

Economic crisis. Social media. Rent increase. What is the common point between these 3 trends?
Economic crisis = People cannot afford to pay expensive parties. 
Social media = People feel the need to socialise and meet their friends. 
Rent increase = People live in very small flats.

The solution I have seen these days is the 'Bring your own food' concept. In less than 3 months, I have experienced it twice. In practice, it's very simple. You book a table at the pub (e.g. for your birthday), you invite people to come, everyone bring their own food as it is a picnic. Unfortunately, you cannot bring your drinks.


The reality of the world we live in is 'people need to save cost' and 'continue to meet their friends'. In the past, we had 'Bring your own booze', ' Bring your own bag', today is 'Bring your own food', what will be the next big 'Bring your own X'? 'Bring your own film' at the cinema?...