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CTIA Wireless Wave Interview: A Continental Idea October 19, 2007

Posted by chetan in : US Wireless Market , trackback

CTIA’s Dr. Robert Roche and John-Paul Edgette interviewed me for this cover story article of the Fall issue of Wireless Wave magazine that is going to be released at CTIA’s Wireless IT & Entertainment show next week in San Francisco. You can pick up a copy of the issue at the event.

Fall 2007

A Continental Idea

By: John-Paul Edgette and Robert Roche

http://www.ctia.org/media/wireless_wave/

The U.S. or Europe. Who’s ahead in providing the best value to consumers? The facts show that a gap perceived by some is virtually non-existent. And, because Americans pay so much less for wireless service and use it so much more than Europeans and others, that America leads the world in wireless is a Continental Idea.

Every few years, a wave of stories appears comparing telecom services in the United States with those in Europe and Asia, but what are the facts behind these stories? Comparing the U.S. and other markets on a variety of metrics including cost, adoption and usage shows that the U.S. is the leader in wireless voice value, providing more wireless minutes at a lower cost than other developed countries. More than that, the U.S. is a strong competitor in the field of wireless data, striving to deliver more applications to more consumers at increasing speeds.

The Price is Right in the U.S.
Individual consumers’ readiness to use a particular application is shaped by their expectations and experiences with comparable products. This can range from comfort with an application, to the absence of an alternative, or to the economics of the alternatives. The high price of wireless voice service in Europe helps explain the lower volume of calls by Europeans as compared to calls in the U.S., and might have helped foster Europeans’ adoption of text messaging. But even as the price of wireless service in Europe has begun to fall, earlier this year Merrill Lynch reported that Europeans still pay an average of 19¢ per minute for an average of 153 minutes a month, compared to 5¢ per minute for 834 minutes a month for customers in the U.S. The U.S. is the leader in offering bucket plans, driven by competitive market forces to offer more minutes at a lower effective rate.

Of course, when comparing international markets, it’s important to recognize that there are economic, social, and geographic differences between countries and the performance of their markets is shaped by those factors. Whether comparing markets or the behavior of consumers globally in adopting or using similar products and services, it is important to consider these factors, and not rely on overly simplistic yardsticks.

Adoption and Applications
According to industry analyst Chetan Sharma, President of Chetan Sharma Consulting, “When comparing markets, some analysts generally look at only one factor mobile subscriber penetration. However, the picture is more complicated than that and it is better to take a look at the analysis holistically.” That makes it important to consider the availability of similar products and services, and how those options affect the adoption of other products. For example, the high penetration of mobile broadband in Japan and Korea is partly attributable to wireless being the cheapest, most widely available means of high speed Internet access in those countries. In the U.S., by contrast, Sharma notes “Because of the heavy penetration of the Internet over the desktop, as well as the late advent of 3G in the market, there was not a big driver for mobile Internet until the last one or two years. As 3G penetration has been increasing and now we’re up to 15 to 16 percent penetration (in the U.S.) we’re seeing that a lot of people are getting used to . . . the capability of Smartphones and phones like the iPhone” and “saying ‘oh, I can actually do some browsing on my cellphone.’”

Kanishka Agarwal, Vice President, Mobile Media, for Telephia, agrees that U.S. consumers’ experience with the traditional Internet and other products have been a factor in the takeup of mobile Internet in the U.S. But, he notes, “When you think about Internet, video and games, penetration of use in Europe versus the U.S., the difference is certainly narrowing  Europe is one to two percent penetration higher, that’s about it.”

Agarwal points out that “In the U.S., 15 percent of subscribers actively use mobile Internet on a regular basis every 30 days, in Europe it is about 18 percent.” Likewise, a mobile video market is now emerging in the U.S. and elsewhere. Agarwal says, “Video is actually rather small right now, four or five percent in the U.S. and Europe as well. When you look at games, it is about 9 or 10 percent in both the U.S. and Europe.”

M:Metrics - which conducts an on-going survey of thousands of wireless customers in France, Germany, Italy, Spain, the UK, and the U.S. – recently found that a slightly higher percentage of U.S. consumers browse wirelessly for news and information than their European counterparts. M:Metrics reports finding that users of the mobile web in Europe and the U.S. show pretty consistent interests in the nature of their browsing, with the exception of a greater interest in sports among European women, while American women appear to be more interested in accessing weather-related information via wireless.

It is important to keep in mind that the values and preferences of consumers of even similar services will likely differ from one country to another or one region to another, and also influence their purchase of products and services. Thus, a consumer in Milan might differ from a consumer in Sicily. One consumer might value rugged utility and efficiency; another consumer might prefer a product associated with a particular brand or designer. These are potentially purely cultural differences – it doesn’t make one superior to the other it simply reflects a different valuation.

Although a greater percentage of European users send text and photo-messages than U.S. consumers, the reverse is true when it comes to ringtones. Moreover, increasing familiarity with the capabilities of wireless devices is one reason why Sharma thinks that there is a “tremendous uplift” in wireless data going on in the U.S., and that wireless data revenues are “growing quite rapidly – even probably at a higher rate than Europeans are experiencing.”

Sharma also points out that the U.S. enjoys “a long history of strong enterprise focus and deployment,” with the result that “carriers in Japan and in Europe . . . look to the U.S. to figure out what the trends are in enterprise mobility,” since from “the applications perspective, those markets have not been that mature.”

As the European Commission says in its Twelfth Report on the European Electronic Communications market, data services other than SMS “still account for only a small percentage of total revenue, [though] non-SMS services such as access to internet via mobile devices and music downloads might in future become the primary driver for additional growth.” This is not to criticize providers of wireless data in Europe, it simply recognizes that the primary use of wireless communications devices remains communication often in the form of voice and text messaging. Other applications in the U.S. and around the world are still growing, while voice is a common and mature application.

Devices and Choices
As Agarwal notes, “The way in which consumer demand engages with the mobile supply is different in different geographies.” Consumers in many countries first shop for a handset and then for service, while in the U.S. it has generally been the other way around. Consumers in the U.S. can choose to purchase handsets directly from service providers or from third-party retailers, although most choose to purchase discounted handsets directly from carriers. While the store-front display of devices emphasizes the wide variety of handsets available to consumers, a review of wireless service providers’ and third-party retailers’ websites recently indicated that the number of handsets available in the U.S. is three or more times the number available in other countries, such as the UK.

Likewise, although a wide variety of handsets are available around the world, they share many similar features in the U.S. and other countries, from texting and photo capability, to web access. Moreover, while there are heavy users and early adopters of advanced capabilities everywhere, consumers’ interest in using those features will vary. A recent Harris interactive survey asking 1,092 U.S. wireless subscribers what they wanted in their next wireless device found that 39 percent say they “just want a simple mobile phone with less bells and whistles.” The top three ‘wants’ mentioned by these users are: more battery life, “less bells and whistles,” and more economical access.

Of course, the sheer number of wireless consumers means that there will be a wide variety of interests including consumers interested in the most advanced applications and features, as well as consumers interested in the simplest offerings. Thus, the iPhone and other Smartphones co-exist with the Jitterbug™. Dual-mode Wi-Fi/cellular service also known as Unlicensed Mobile Access or UMA was recently introduced, and is currently being offered by two U.S. carriers, and four providers in seven other countries (including two in Britain, one in Holland, Poland, and Spain, one in Finland, one in Italy, and one in Denmark). The recent launch of this service in these countries means that it is too early to judge the comparative performance of the different markets. Indeed, there was a relative scarcity of dual-mode devices worldwide until relatively recently.

Content and Variety
Just as consumers can choose to go to their carrier or a third-party for a handset, they can choose to go to their carrier or go off-deck for games, music, wallpaper or other content. In Europe, revenues from content are split 50-50 between on-deck and off-portal sources. In the U.S., it’s been estimated that the split last year was 70-30 for on-deck and off-deck sources. More recent data suggests that the U.S. split is shifting towards more off-deck purchases.

Although some critics argue that U.S. consumers’ options have been limited, carriers have introduced expanded options, including competing browsers (leading to mobile-optimized content or the larger Internet), and the ability to tailor the consumers’ display to highlight their application and content preferences. Agarwal believes that “the carrier portals have done a good job in the U.S. but I think they can do a whole lot more with search technologies and so on, and once consumers can get to what they want with a few keystrokes, I think that will drive adoption as well.”

In judging the take-up of different mobile services, it is also important to keep in mind that, as Agarwal notes, “There may be better alternatives to reach that content.” Consumers are aware that “you can reach the mobile web and mobile video, but they cost money, and consumers have to make trade-offs am I willing to pay a little extra for that anytime, anywhere access, or would I rather just wait? Given that the alternatives here in the U.S. are pretty strong, mobile really ends up being more of an extension of those traditional media than a substitute.” This is not to suggest that mobile has less of a value to consumers in the U.S., rather it is a growing complement that allows consumers to access content on their mobile in addition to checking it on their PCs. Given the history of the Internet and telecom in the U.S., mobile access has emerged here as a complementary means of access, while it was the primary means of access in Japan.

Innovation and Investment
Wireless carriers in the U.S. have been deploying higher-speed networks over the past few years, providing faster download and upload speeds to customers. Although dealing with a larger geography than individual Western European countries, Korea, or Japan, American companies currently offer next generation technologies that deliver average speeds ranging from 400-700 kbps, bursting up to 2 Mbps, in markets covering more than 210 million Americans. They continue to spend more than $20 billion annually in upgrading their networks, and have spent billions more acquiring additional spectrum to deliver more advanced applications to a growing number of consumers.

This is not to say providers and customers will or should take anything for granted. Everyone is interested in pushing the boundaries improving technologies, finding products and services that meet or define new needs, and satisfying customers. This is true both in the U.S. and abroad. As Christopher Guttman-McCabe, Vice President, Regulatory Affairs, CTIA-The Wireless Association®, observes, “The ways in which people engage with the mobile ecosystem have evolved over 20 years, with market forces driving end-to-end competition in the U.S. Tampering with the existing business model in the U.S. isn’t necessary, and might produce entirely unanticipated and undesirable results. We shouldn’t assume that the differences existing between one nation and another, or one model and another, means anything other than that we are different. Both the U.S. and European systems have delivered competitive products and services, but the U.S. model is certainly allowing American consumers to talk a lot more for a lot less than those in any other developed country. With the number of subscribers here approaching one quarter of a billion, it’s obvious wireless is an increasingly popular part of American life.”

Comments»

1. Jennifer Carole - October 20, 2007

This article is incredibly interesting and I have to say, in some regards, our research with our Teen Lab bares it out. We just posted part one of our mobile research results (part two going up Monday) and no matter what, our Lab Members (youth market) want their darn phone to work better when accessing the Internet - regardless of where they live (the panel has members from around the world). They also the phone as one of many tools they use and they have a better vision of convergence than most (because they know what they want to do and just can’t do yet!).

2. Always On Real-Time Access » CTIA podcast - November 1, 2007

[...] CTIA did a podcast to coincide with their cover story article “The Continental Divide.” You can listen to it by going here, then click on Conventions and expand Audio under CTIA Wireless IT & Entertainment 2007. The podcast is available under the heading “Global Mobile Markets: Does the US Measure Up?” [...]