i-mode finally connects with the UK

O2 has launched the mobile internet service after signing an agreement with NTT DoCoMo

Précis: i-mode will be available to prepay and contract customers on both 2G and 3G devices. From early October, O2 will offer four handsets in the UK from NEC and Samsung, and a further Siemens handset in Ireland. These will be offered free of charge on a contract and cost from £80-280 on prepay.

Customers who wish to browse on a 'pay as a you use' model — which is open to prepay and contract customers — will pay £3 per MB. Customers who purchase bundles of data browsing up front in a subscription will get better value for money, at £3 per month for 2MB and £5 per month for 4MB. Again these are open to both prepay and contract customers. The bundles only lock customers in for one calendar month and they can unsubscribe at any time.

At launch, O2 has announced 80 content partners, rising to 100 by the end of the year. Every content provider will provide some element of 'free ' content — customers will only pay for the browsing and not pay an additional charge to the content provider — which is expected to be around 30 percent of each site. Customers who wish to access premium content will then sign up for additional subscriptions with the content providers — expected to range from £1-£3 per month. There is no event-based pricing, all charges are on a monthly subscription basis — other than the messaging i-mail service.

Comment: O2 has been talking about i-mode for a long time and it's good to see that it is now bringing the service to market. We think that the handset range at launch is probably too small — but we are assured further handsets are to come.

"The data pricing will be a new concept for most UK consumers, with most people having no idea of what a MB is. This will be one of the key challenges for O2 to communicate to the users. It has tried to install some simplicity in the pricing by...

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...offering the same rates for all users regardless of whether they are prepaid or contract and if they are accessing the service via a 2G or 3G handset. In other moves to simplify pricing, it is also changing the cost of the browsing bundles on O2 Active to be in line with the i-mode pricing. Interestingly, this has actually resulted in the Active browsing bundle increasing in price, as previously it was £4 for 5MB. To help educate customers, O2 will also be offering a free 'data counter' service where customers can see how much traffic they have used.

"O2 is right to use its launch promotion to get customers actively using the service — in moves to encourage this it is offering free browsing till the end of 2005 along with ten free premium content subscriptions. It is also offering free i-mail email and picture messaging services till April 2006. Following that, the pricing will be in line with the existing SMS and MMS pricing.

"The target market for i-mode is much broader than Active, which has predominantly been the younger generation. O2 states it is hoping to attract users that may have previously had a disappointing experience with WAP. It has thus signed content deals with more 'lifestyle ' brands such as Internet bank egg.com, job search engine Monster.com, Insurance broker Norwich Union and estate agent Rightmove.com. O2 hopes that these will appeal to the wider mass market, and that i-mode will be attractive to more than just early adopter techies or the youth-driven games segment.

"i-mode got off to a slow start in Europe, but we are now starting to see some encouraging results, particularly from players such as Bouygues and Telefonica. We think O2 was right to wait to launch i-mode. How it will work in Germany remains to be seen — after all, e-Plus has already launched the service there. We know that O2 will not be calling it i-mode, nor will it use the yellow i for its brand — which will feature prominently here in the UK and Ireland in its launch marketing.

"The other question is how O2 will continue to run the two data brands of Active and i-mode. O2 states it is not divesting itself of Active, but we can't see the long-term viability of both. For now, Active offers a wider handset portfolio, but once this is addressed by i-mode and we see an i-mode Nokia handset, then we would expect to see Active be withdrawn."

Carrie Pawsey is an analyst specialising in business strategy in Ovum's Wireless Group and has over 7 years of experience in the telecoms industry.