Why Mobile Operators Want to Sell Notebooks

By: Svetlana Grant, Senior Contributor, Pyramid Research
(Business News & Technology News, 10 Mar 2008)

In February 2008, MTS, Russia's largest mobile operator, announced plans to expand into selling notebooks with built-in 3G modules, in addition to mobile data cards and USB dongles. The notebooks will be bundled with a monthly mobile broadband data plan and targeted at consumers. The announcement follows similar moves by such providers as Telefonica O2, T-Mobile, Orange, Vodafone, Globul and PLDT in Central and Eastern Europe as well as Asia.

That mobile operators are diversifying into selling notebooks poses a question: just what is it that attracts them to selling consumer laptops, which requires them to add expertise in retailing as well as computer hardware and desktop application support? Several factors do in fact contribute to the decisions by MNOs to go into the laptop business:

- Mobile broadband HSPA networks have now come of age: mobile network operators have completed the first phase of their HSPA network rollouts and now face the pressing need to start recovering the investment. The actual speeds on the existing HSPA networks are between 1Mbps and 8Mbps, which in some markets are fully competitive against DSL speeds. There are already plans for further HSPA+ upgrades to the theoretical speeds of 21Mbps and 28Mbps in 2009, giving MNOs the incentive and confidence to take on the task of rolling out mass-market mobile broadband services.

- Maturing mobile markets, in the meantime, require an increased level of attention to customer retention and service diversification. Bundling mobile broadband and notebooks is expected to cut the level of churn, tying a customer into a contract for one to three years; it will also drive uptake of mobile broadband services and create opportunities to cross-sell broadband services for integrated fixed-mobile providers.

- Last but not least, in many markets subscription-based notebook-broadband bundling lifts the main barrier to home PC ownership and Internet usage—that of a hefty upfront payment. Notebook PCs are already in high demand among consumers: Pyramid Research's MBPC survey, conducted in 12 markets in different regions globally in summer 2007, discovered that the potential addressable market for mobile broadband-embedded notebooks is about 70m units globally. High prices have historically kept notebooks unaffordable for mass-market consumers, but this situation is starting to change. Notebooks' share of total sales is growing: in North America and Western Europe, notebooks now exceed desktops in sales. In emerging markets, they also drive growth in computer usage: in Russia, for example, notebook PC sales grew by 64 percent year-on-year in 2007, compared with 2% growth in desktops sales.



There are strong drivers behind bundling, yet these offerings are not so easy to commercialize. Among the biggest challenges is the skew of emerging market customers toward prepaid mobile plans and their lack of recorded credit history. Partnerships need to be formed with banks and notebook manufacturers to provide consumer credit. Also, investors are keen to understand whether selling a notebook PC in installments means an increase in the level of device subsidies, what impact it will have on margins, and what kind of financial risks MNOs are ready to take.

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