Talking convergence with Nathalie Bernier

EDGE: You recently conducted a major global study on the topic of convergence. What did you learn and do you see any major shifts in the way technology is being used?

BERNIER: We interviewed almost 4,000 consumers around the world. We wanted to find out attitudes, behaviour and preferences for electronic devices in their day-to-day life. We asked several questions about convergence, and the cell phone was definitely the preferred device.

We see the cell phone replacing the fixed telephone, and being used to get all kinds of information from different service providers, but they want it all from one company using one device. That’s what we call convergence.

EDGE: It sounds like customers want more simplicity, especially with so many different gadgets out there and so many service providers. Does this mean we will see consolidation?

BERNIER: Well, consolidation in the sense that carriers will become the aggregators of all these services. You will see the consolidation of content providers with broadcasters with telecom carriers, but in other situations, you will see more partnerships where the carriers have a strong loyal customer base and want to offer that base to various partners such as content providers, whether it’s video, music, whatever. You will see more partnerships across the spectrum and some mergers among content providers and carriers.

EDGE: There are huge questions around the revenue model as it applies to content and information services. Where will that come from? Most content offered over the Internet is free.

BERNIER: For the carriers to provide these services to their customers, it will be more in terms of creating loyalty rather than revenue generation.

You are very right that there is all this content and consumers are not willing to pay. I know that right now they are paying for those services but they are clearly indicating in the survey that they will not want to pay a premium for these services in the future. They are used to easy access to content on the Internet but they don’t pay anything for it. The perception is that content is free.

The other thing is that because there is fierce competition in the telecom market, carriers quickly commoditize these services, and it is hurting the profitability of the industry. In addition to subscription fees, they will have to look for other revenue streams. But there will definitely be value in carriers bringing their customers to these service providers.

EDGE: In the media industry, the question has always been whether to go with a subscriber or an advertising revenue model, and it almost doesn’t matter what kind of media it is, it usually goes the way of the advertiser. Do you find that to be true as well?

BERNIER: Subscription fees will definitely remain, but look at the advertising revenues for cell phones, at about $35 million in 2005, and it will go up to $1.25 billion in 2009.

But as people use their phones differently, there will have to be a change in the subscription model. If customers use their phones for a long period of time to dial up music or video, they will not be able to use the same model as they are using now. As customers request these type of services, the carriers will have to change their model.

EDGE: What advice would you give to carriers who have to change their business models?

BERNIER: The carriers will have to view their customers differently than they are viewing them right now. For the carriers, it will be finding better ways to keep their customers loyal.

At the same time, it will be very attractive to get niche advertisers, and carriers need a better understanding of the segmentation of those customers, instead of looking at it as one big customer base. We see this as a key differentiator. When we look at the traditional carriers, if they want to compete, this is the area of the future for them, it’s the segmentation of their base. We see it happening in Asia, where they are more sophisticated users of the cell phone but we see it slowly coming to Europe and North America.

EDGE: What are some of the technological challenges that will have to be overcome?

BERNIER: While we definitely see the cell phone being the preferred choice, it will have to change in the future to be able to provide all these types of content. You will have to be able to get more broadband, portability will continue to be an issue and they will have to improve the camera and the video capability of the phone and the resolution of the screen.

There will be all kinds of new technology coming from the hardware providers, but the cell phone definitely will be the device of the future.

EDGE: If customers are not willing to pay for these services, how will the carriers justify making these investments in content?

BERNIER: We have an idea called “wallet share,” which means taking the wallet of the customer and trying to get as much of it as we can, charging as much as we can so we can get a bigger share of the customer’s wallet.

When we talk about sharing the wallet, it means that the subscription fees will be limited. The customer will not want to pay a premium for these services, and if we know that we have a specific portion of this wallet, then we need to share it with other people. The carrier will have access to this wallet but will have to share the revenues with content providers and other partners.

EDGE: Will the carriers be willing to share or pass along this revenue?

BERNIER: Yes. At the same time, they will be able to generate revenue by charging the content provider and the advertiser for access to their customer base. So although they are sharing the revenue with other content-providers, at the same time, they will be able to make additional revenue by giving access to their customer base. It will work both ways. For carriers to maintain their profitability, they will need to look for other streams of revenue, and content providers and advertisers are the way to go.

EDGE: Where does the end-user customer fit into all of this?

BERNIER: The survey has indicated that the customers are sophisticated. They know what they can get from their mobile devices. For them, there is no limit on the use of their cell phone. At the same time, it is very encouraging for all these providers to get direct access to these customers.

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Jim Love, Chief Content Officer, IT World Canada

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