Tuesday, June 22, 2004

Daiwa EuroTelcoblog No. 50 - Tuesday, 22nd June, 2004: Generational changes in mobile

We've written and talked a lot about the importance of generational change in determining new consumer behaviors and demand patterns for telecom/internet services, and also as a source for disruption of the incumbent business model. A report out today from UK research consultancy Teleconomy (www.teleconomy.com) gives some further interesting insights into the dynamics at work in the UK mobile market. The fourth annual update of its "Me, My Mobile and I" series summarizes interviews with 1,400 UK consumers over attitudes towards their mobile phone, and reveals a growing dependency across society generally, as well an emerging generational gulf on several levels.

The survey in 2003 segmented the adult subscriber base into three groups: 1) Cyborgs - those whose life is seriously traumatized by the absence of a mobile phone; 2) Prosthetics - those who view the handset as an essential tool, but not an intimate object; and 3) Connected but Unattached - Those who view the mobile as useful, but would not miss it if deprived of it. For the 2004 edition, Teleconomy has identified a fourth set of users, the "Deniers," those who claim to be detached from the handset, but whose usage patterns suggest otherwise. The 2004 survey found that the Cyborg element of the market has grown from 18% of total last year to 26% this year, and the Prosthetics are also up from 27% to 32%. The Deniers group accounts for 18% of the sample, and apparently 30% of this group regularly exceed their inclusive minutes limits.

The generation gap revolves around the group identified as "M-Agers," or those children aged 10 - 14 who have never known a world without mobile phones. This segment demonstrates a much higher level of awareness of advanced features (64% awareness of Java applications vs. 44% for adults, 55% awareness of video capture vs. 37% for adults), and a much higher level of demand for further advancements. For example, on a desirability scale of 1 - 9, M-Agers rated a mobile TV service 8.4 (vs. a rating of just 4.8 by adults) and a mobile payment function 7.4 (vs. just 4.6 by adults). This level of interest could bode well for operators as M-Agers grow into more affluent consumers, but the head of the Teleconomy research effort himself notes a reticence to spend, and we wonder what implications this attitude may have for premium applications over the long run if it becomes deeply entrenched: "M-Ager's have proved themselves to be light users of their mobile phone network at present because regardless of how much they love their phone, they cannot afford to use it for communication. This group are heavy users of functions that don't cost money such as java games or camera features." Indeed, another finding of the survey was that camera phone users were largely bypassing MMS messaging, using the phone instead as a portable photo album.

One other generational issue arises in the area of handset choice, which was absent from the Teleconomy press release, but appeared in coverage of the report in today's Financial Times' Creative Business supplement. The table below was recreated by us from this article, and shows Teleconomy's findings regarding handset distribution by age group. It is interesting to see Nokia's market share concentrated in the "mature" segment of 26 - 35 year olds, while Samsung has real clout with the under-25's and SonyEricsson seems to have captured the imagination of the under-18's.

Handset distribution, by age group (%)
15-18 19-21 22-25 26-30 31-35
------- ------- ------- ------- -------
Nokia 53 43 53 59 61
Samsung 8 15 20 15 10
Motorola 5 8 6 7 8
Siemens 4 6 4 4 5
SonyEricsson 13 9 6 4 5
Sagem 8 7 3 3 2
Panasonic 3 3 2 3 2
Sharp 4 5 2 3 2
Other 2 3 2 1 2
Source: DIR, from Financial Times, from Teleconomy

Our main takeaways from this are: 1) that there is a clear case for a more cautious view on "hard" mobile substitution (mobile substitution as the primary form of telephony access) in the UK, as dependency levels are way up YoY; 2) awareness of advanced features is generally high, though the consumer's willingness to pay is open to question, particularly in the youth segment; 3) generational conditioning towards use of cheap or free services/features calls into question when the mobile data "revolution" may deliver a decisive pay-day for the operators. Performance expectations of the handset seem to be rising, but whether or not this translates into an opportunity to be monetized is unclear.

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