The irruption of data hungry devices such as smartphones and USB dongles is challenging most mobile operators to such an extent that their networks are getting congested at some sites. As a result, carriers are feeling forced to revise flat rate plans that had seemed harmless a few years ago. End-users, who quickly got used to cheap mobile broadband plans, are not open to pay more for what they are accustomed to getting, especially given the current global economic situation. 

What if they were offered a substituting free service that can modulate their data appetite? Back in May Netzclub, the first advertising-funded mobile broadband service in Europe (and I believe the world), was introduced by O2 Germany. In Poland a similar service called FreeM was announced last week by Belgian MVNO enabler Effortel. 

The proposition seems attractive since end-users can reduce their monthly bill significantly provided that they learn how to use mobile broadband the way carriers want. After analyzing the websites a FreeM subscriber is allowed to access for free, average user leisure and information needs seem to be covered: messaging with friends and relatives (social networking services including Facebook and Nimbuzz multi-chat); keeping up to date (general news from Twitter and sport news from Eurosport); quick searches for information (wikipedia); managing expenses (m.nokant.pl price comparator); and organizing your free time (cinema locator). Netzclub does not provide a concrete list of allowed websites, but forbids the use of VoIP, video telephony and peer-to-peer services. Therefore, although in two different ways, both FreeM and Netzclub are guiding their customers to use mobile Internet in a congestion-safe way, while their core business around voice and the foreseeable lucrative video telephony are preserved.

One important detail is that no minimum speed is guaranteed by either of the two services. This fact allows carriers to better manage the capacity of their networks by reducing subscriber access speed if necessary. As far as data consumption is concerned, FreeM subscribers get 500 KB or 30 minutes credit each time they view a full-screen advertisement. The operator does not specify how these advertisements are managed, but service is suspended in case no advertisement is consumed after credits run out. FreeM imposes a maximum daily data consumption of 30 MB, requiring the user to browse 60 advertisements per day. Given the constant interaction with the customer that FreeM provides to marketing campaigns, customer location data is very valuable information, which in fact is granted by end-users in their contract, although FreeM promises not to share the information with other companies.

The resulting monthly 900 MB for FreeM is considerably higher than the monthly 200 MB allowed by Netzclub. In the German case all the customer has to do is answering a single advertising campaign every month, and is provided with higher flexibility in terms of obligations and data consumption habits. Unlike FreeM, Netzclub offers voice, data and voice-plus-data services within its sponsored service. Netzclub has already gained Microsoft as a brand partner and shaving product vendor Wilkinson as one of its first advertisers. As an estimation of Netzclub’s impact, O2 expects to have 100,000 subscribers by the end of 2010, just six months after its commercial launch. 

What if the customer wants to access other services not included in the free offer? In both cases tariffs for voice, SMS and additional data traffic are available, although with Netzclub the restrictions on available applications remain in place. Given the higher monthly rate allowed, FreeM subscribers are charged higher than Netzclub for each additional MB (EUR 0.70 vs. EUR 0.24). It is important to note that Netzclub subscribers will continue to have GPRS connectivity when those 200 MB are already consumed, which are expected to be rather useless. Since both services are conceived as low cost plans, neither provides any user device, but a free SIM card that can be used in any unlocked device.

After analyzing the services that are allowed within each free subscription, advertising appears not to be the only purpose of free mobile broadband; strong network protection and a customer evangelization strategy are hidden behind these services. Over time it will be very interesting to know the evolution of advertising-funded subscriber traffic compared to usage before they joined the service, both in terms of data consumption and applications. In addition, advertising funding is a new mode of differentiation that will foster new MVNO operation and add to the network sharing trend I analyzed in the last issue of 4G Digest.

MARAVEDIS is a leading analyst firm focusing on disruptive technologies including smart networks using WiMAX, IEEE and 3GPP/LTE.

Author: Esteban Monturus, Market Analyst - Europe & Backhaul