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Mobile Breakfast Series Event Roundup March 12, 2010

Posted by chetan in : 3G, 4G, AORTA, ARPU, CTIA, Carriers, European Wireless Market, International Trade, Japan Wireless Market, Location Based Services, MVNO, Middleware, Mobile Advertising, Mobile Applications, Mobile Content, Mobile Ecosystem, Mobile Entertainment, Mobile Traffic, Music Player, Privacy, Smart Phones, Speaking Engagements, US Wireless Market, VoIP, Wi-Fi, WiMax, Wireless Value Chain, Worldwide Wireless Market , 1 comment so far

Wednesday Morning we hosted the third edition (sold out) of the Mobile Breakfast Series and were grateful for the time and insights from two outstanding speakers. Thanks to our sponsors for the support: Motricity, Openwave, WDSGlobal, and Clearwire

First up was Kevin Martin, former FCC Chairman and current co-chair of the communications practice and partner at the leading law firm of Patton Boggs in Washington DC.

Second speaker was Rob Glaser, Chairman and Founder, Real Networks. This was his first public appearance since he stepped down as CEO of Real Networks.

Kevin talked about the National Broadband Plan that is going to be released this coming tuesday and Rob opined on the opportunities in mobile. I had the good fortune of asking and moderating the Q&A after the initial presentation.

Summary of his comments:

• In response to my question if we are becoming too dependent on the spectrum as a way to alleviate data congestion issues, he said that spectrum should be viewed as a renewable resource, however, we should look for expanding fiber as close to end point as possible, look for alternate ways to offload traffic (something I agree with completely)
• Technology advancements are allowing for more efficient use of the spectrum
• Current carriers have about 450 Mhz, broadband plan seeks to double the spectrum by adding another 500 Mhz though it will be hard to get given the constraints
• Broadcasters can make some spectrum available for auction and share the proceeds
• We are still early in the Open Access process but full impact is yet to be felt
• Beyond the carriers and airwaves, the regulatory authority of the FCC is limited as we go deeper into the ecosystem
• Wireline infrastructure shouldn’t be looked as a separate entity. Since there will be a lot of wireless traffic that will go over wireline, it is part of the same infrastructure
• USF could be used to expand the broadband services to the masses

Rob’s talk (embedded below) was about the opportunities created by the introduction of smartphone/superphones over the next 34 years.

Opportunities are:

• •“Digital Persistence”
• •Universal Access across Devices
• •Making Discovery Easy
• •Empowering Social Expression and Engagement
• •Leveraging The Global Nature of These Trends

and of course challenges are:

• •Delivering solutions that scale with variable bandwidth and device capabilities
• •Creating commercial models across an extremely complex value chain
• •Vertical versus horizontal industry structure
• •Media industry adaption of new business models
• •Educating users on privacy and social implications

In summary,

• The Next Mobile Revolution is both a huge opportunity and a massively disruptive force
  • §It will ultimately be bigger than the PC or Web 1.0 or 2.0 revolutions
• Cross-industry collaboration, while complex, is essential
  • §“We must all hang together, or most assuredly we shall all hang separately”

After the intense 30 minute talk that the sold out crowd tried to absorb as much as possible, I asked him what Real would do if he were starting today. And there was a similar question from Andy Kleitsch from Billing Revolution about advise to startups. Here is some of what he had to say (courtesy: Techflash)

On the question of vertical vs. horizontal integration (question from Tricia Duryee of Moconews), he had this to say (courtsey: Techflash)

His presentation below:

We also announced the June 10th event that will all about Mobile Startups. Registration is open. It should be a great discussion with startup CEOs.

Also, announced the Sept 8th event which is of the long-form (day long) – Mobile Future Forward. Great speakers and useful discussion. Stay tuned for more details. We are working feverishly on the details.

Many thanks to our generous sponsors who believe in the vision behind the MFF event – Real Networks and Millennial Media. Your support is much appreciated.

Finally, a personal thanks to all those of you who helped out. You know who you are. We are a pretty lean operation and need assistance from our friends to make every event successful and useful to the mobile community.

Overall, we had as much fun hosting the event as we had in preparing for it. Please let us know your feedback.

Some pictures from the event:

 

 

Some additional coverage of the event by some of the most outstanding reporters in the industry - Seattle Times, Techflash, Moconews, GigaOM, and PC World. Thanks.

http://seattletimes.nwsource.com/html/technologybrierdudleysblog/2011306485_rob_glaser_surfaces_outlines_m.html

http://seattletimes.nwsource.com/html/technologybrierdudleysblog/2011306195_former_fcc_boss_on_fedsfree_wi.html

http://techflash.com/seattle/2010/03/rob_glaser_on_apple_android_and_the_future_of_mobile.html

http://techflash.com/seattle/2010/03/rob_glasers_advice_to_startups.html

http://moconews.net/article/419-former-realnetworks-ceo-rob-glaser-says-for-now-apple-has-won/

http://moconews.net/article/419-fcc-former-chairman-says-concerns-for-open-access-persist/

http://gigaom.com/2010/03/10/rob-glaser-defines-the-superphone-and-predicts-the-mobile-future/

http://gigaom.com/2010/03/10/former-fcc-chair-lays-out-the-limits-on-the-agencys-authority/

http://www.pcworld.com/businesscenter/article/191195/former_fcc_chair_says_more_fiber_will_help_wireless_crunch.html

http://www.pcworld.com/article/191200/rob_glaser_thinks_mobile_is_the_next

2010 Mobile Industry Predictions Survey January 3, 2010

Posted by chetan in : 3G, 4G, AORTA, ARPU, BRIC, CTIA, Carnival of Mobilists, Carriers, Devices, Enterprise Mobility, European Wireless Market, Federal, Gaming, General, IP, IP Strategy, India, Indian Wireless Market, Infrastructure, Intellectual Property, International Trade, Japan Wireless Market, Location Based Services, M&A, MVNO, Mergers and Acquisitions, Messaging, Microsoft Mobile, Middleware, Mobile Advertising, Mobile Applications, Mobile Content, Mobile Ecosystem, Mobile Entertainment, Mobile Gaming, Mobile Search, Mobile TV, Mobile Traffic, Mobile Usability, Mobile Users, Mobile Wallet, Music Player, Networks, Partnership, Patent Strategies, Patent Strategy, Patents, Privacy, Smart Phones, Speaking Engagements, Speech Recognition, Storage, Strategy, US Wireless Market, Uncategorized, Unified Messaging, Usability, Wi-Fi, WiMax, Wireless Value Chain, Worldwide Wireless Market , 5 comments

2010 Mobile Industry Predictions Survey

http://www.chetansharma.com/MobilePredictions2010.htm

Mobile Predictions Survey (pdf)

Mobile Predictions Survey (ppt)

First things first. From all of us at Chetan Sharma Consulting, we wish you and yours a very happy, healthy, and prosperous 2010. Thanks to all who participated in our 2010 Mobile Predictions Annual Survey. We have found it is the best way to think about the trends coming our way.

Before we dive into the survey results, let’s do a quick wrap-up of the year that was. Well, since we  just completed one heck of a mobile decade, let’s do a quick jog down the memory lane.

The Last Decade: 2000-2009

Each new decade brings its own consumer and technology trends. During the 2000s mobile cemented its place in the global society fabric, the use of mobility became addictive and pervasive, to be without mobile seemed a curse and innovation blossomed and took user expectations to new heights.

From a pure statistical point of view, the global mobile subscription penetration grew from 12% in 2000 to approximately 68% in 2009 - phenomenal by any measure. The overall revenues grew over 400%, the data revenue grew 32,600% and the total subscriptions grew 563%. NTT DoCoMo paved the way with the i-mode launch in 1999 and they were the operator to emulate throughout the last decade, leading every single year in data revenues, in new application and service revenue sources, and in innovation and risk taking. They tried to export the success to other regions with little reward but DoCoMo clearly led the industry in taking mobile devices where they have never gone before.

China and India were late to the party but during the second half of the decade caught up with the western world and eventually surpassed all nations becoming number one and two nations by subscriptions respectively. In 2006, China Mobile became the most valuable operator passing Vodafone.

Mobile devices went significant transformation as well. From the early Bluetooth, camera, and music phones to the iPhones, the Storms, and the Androids, the industry was transformed by the introduction of Apple’s iPhone in 2007. While Bluetooth, sleek designs, camera phone defined the first half of the decade, the second half was all about the applications and the mobile web. While Nokia dominated the entire decade in terms of the sales and profits, having missed the touch revolution, it leaves the decade a bit battered and a bit behind playing catch-up to the newcomers who profoundly disturbed the status quo.

Razr carried Motorola through 2006 when its global share peaked but was left to reinvent itself during the second half. It seems to have redeemed itself with the successful launch of Droid and upcoming Android devices. While many in the industry predicted RIM’s demise, the company has only gotten stronger and is looking good for the 2010s. The emergence of Samsung and LG as strong players in the mobile ecosystem was also a big story of the decade with Samsung increasing its share by 380% and LG by 575% becoming the number 2 and 3 players respectively.

While Microsoft’s Windows Mobile had an early start and the enterprise market share, it lost its way through several missteps and is on dialysis as we enter the new decade. One shouldn’t count WM out though but there is a lot of work to be done before it can capture the imagination of the ecosystem which has been sequestered away by iPhone and Android.

While many new application areas were introduced during 2000s, none was able to displace SMS as the leading app category by usage and revenues. However, it’s relative share has started to come down especially in North America and Western Europe.

As data usage grew, so did the data traffic bringing many data networks to their knees. We expect the data traffic consumption to only accelerate. Many people are underestimating the growth rates (as they did previously) and the strain the increase in consumption will put on the unprepared networks. Projector phones will take media  consumption to a new level. Data management is going to be big business in the 2010s.

Overall, the mobile industry became a trillion dollar industry in 2008 and the data revenues are increasing in almost all regions. Voice is being commoditized at fast pace and that has put the traditional economics and ecosystem wealth distribution in topsy-turvy.

The US market also experienced tremendous growth with mobile data service revenues climbing 21,327% and becoming a mainstay in the mobile economy. In 2008 it crossed Japan as the most valuable mobile data market. US was late in adopting SMS but caught fire once American Idol started using it and even played a good role in the 2008 Presidential election in showcasing the power of mobile. Verizon started the decade being the number one operator and after trading places with Cingular and ATT grabbed the title back in 2009 (after the Alltel acquisition) to become the most dominant carrier in North America. Many smaller players competed by being innovative with Cincinnati Bell launching the fist UMA device, Sprint the first mobile eReader, and TMO launched the hotspot business which has now become an essential component of an operator strategy going forward.

Mobile is also replacing landline at a much faster pace than expected and within the first half of the new decade, we will have majority of the users using mobile vs. landline. Just like the last decade, this one starts with a new standard deployment of LTE that will keep operators and vendors busy throughout the decade. However, a lot of the developing markets will still be deploying 3G during the first half of the decade.

Infrastructure providers suffered the most in the decade bookended by the two recessions. Consolidation of giants (Alcatel Lucent, Nokia Siemens), bankruptcies of the famous (Nortel), and uprising of the upstarts (Huawei) pretty much defined the decade for the segment. Ericsson and Huawei enter the new decade from a strong position and looking to dominate the global markets.

The last decade was also marked by some prominent IP battles such as RIM vs. NTP, Qualcomm vs. Broadcom, Sony Ericsson vs. Samsung, Upaid vs. Satyam etc. (disclaimer: we worked on some of these cases and testified as an expert)

Here is our “subjective” list of movers and shakers of the last decade

2000-2009

2010-2019

Operator of the Decade

NTT DoCoMo

DCM led the way in almost all new category of apps and services. Its data service revenue was highest in each of the last 10 years

DCM will continue to lead along with KDDI and SKT. However, it might be the carriers with tremendous scale who will have the calling cards in the new decade. Watch for China Mobile, Vodafone/Verizon, Telefonica, Orange, Bharti, Unicom, Singtel

OEM of the Decade

Nokia

Nokia dominated in sales and revenues in each of the 10 years and while the last couple of years took some shine off its glorious past, the company nevertheless came out ahead

RIM, Apple, Nokia, Samsung

Smartphone OEM of the Decade

Apple

Smartphones as we know them were introduced by RIM but Apple defined the category and the subsequent ecosystem

This space will be very competitive with Apple still the gold standard to beat

Infrastructure Provider of the Decade

Ericsson

Its prime rivals struggled to stay afloat while Ericsson grabbed most of the revenues from infrastructure contracts and is very well positioned for the next decade

Ericsson is joined by Huawei as the two top infrastructure provider with Huawei giving tough competition for LTE contracts. ZTE and other Chinese infrastructure providers will also replace some of the incumbents

Nation that led in mobile data

Japan

This is a no brainer. Japan led with Korea a close second. Finland, UK also impressed

US, China, and India are well positioned to make an impression but most likely during the second half. Japan will still be a major player

Device of the decade

iPhone followed by Razr

iPhone impressed with form and function while Razr with its global sales making it a top selling device of all times

The field might get more crowded as all OEMs focusing on the smartphone category. However, OEMs who also focus on the 90% of the market w/o smartphones might win the top prize

The year 2009

Apple continued to dominate the headlines for the third straight year - whether it was the launch of 3GS or the upcoming introduction of the fabled tablet. Google too kept the ecosystem active. It has executed on its mobile strategy with brilliant acumen though causing significant consternation amongst its partners who it needs to be successful. It has been often misunderstood by competitors, regulators, and partners. Often, they have focused on Google’s tactics vs. its strategy. Look for these two players to be very aggressive as they try to fight for the mantle and the mindshare.

While Nokia leads the OEM space by a good distance, its momentum in the smartphone space left a lot of question marks. Motorola made a credible comeback with Cliq and Droid. Samsung and LG continued to innovate and expanded on their share of shipments and revenues.

India outpaced China in net-adds and crossed 500M though it is still quite behind China’s 750M. The M&A and the consolidation process became active in Asia with several of the big regional operators looking to flex muscles in the international markets. After several delays, China started deploying 3G while India again fumbled and postponed its 3G auction.

US mobile data market continued its pace in 2009 with each of the four quarters exceeding $10B in data service revenues. The gap between the top two operators and the rest grew to be the biggest in the decade and the industry weathered the recession with ease. There was a clear shift towards prepaid especially for Sprint, T-Mobile, and the tier 2/3 operators.

2009 was also defined by significant activity on the application front. With Facebook eclipsing 100M subscribers and Appstore exceeding 2.5B downloads, sky is the limit.

The year also saw an unprecedented growth in mobile data consumption. As we had predicted, for some of the networks, the growth proved to be a double-edged sword. Many in the industry are banking on LTE to help relieve the pain but will be surprised that depending solely on the upgrade strategy will not be enough. Declaring spectrum as a looming crisis, FCC also started tinkering with the mobile industry and the broadband plan.

Japan exceeded 90% in 3G penetration while US subscriptions ventured into the 90% territory. Most of western Europe is way past 130%.

All in all, a terrific year considering that we went through one of the worst recessions in a generation. As we bid goodbye to the last decade, Nexus One and iTablet only serve to whet our appetite of what’s to come.

On a personal note, we started our consulting practice this last decade as we were coming out of the bubble recession and have been fortunate to work with some of the brightest brains and companies in the global ecosystem. We also had a chance to work on some key initiatives that impacted the ecosystem in profound ways. Many thanks to our clients, colleagues, friends, and readers. We will be involved with many new initiatives over the next decade and are looking forward to the conversations through the research notes, books, speeches, panels, whitepapers, blog posts, facebook and twitter feeds, and more.

Thanks and Happy New Year. May the upcoming decade leave you happier, healthier, and more successful than the previous one.

As we eluded to earlier, 2010 will be a pretty eventful year from several perspectives: business models, user experience and expectations, ecosystem posturing, disruption, and friction. How are things going to shape up? What will be hot and what will fade into oblivion? How will competition shape up the new sub-segments?

We put some of the questions to our colleagues in the industry. We were able to glean some valuable insights from their choices and comments. This survey is different from some of the others in the sense that it includes industry movers and shakers participation. Executives and insiders (n=150) from leading mobile companies across the value chain and around the world opined to help us see what 2010 might bring.

11 names were randomly drawn for 3 special prizes. The winners are:

1. Claire Boonstra, Cofounder, Layar- INQMobile 3G Chat device

2. Michael Libes, CTO, GroundTruth - Open Mobile Book

3. Henri Moissinac, Head of Mobile, Facebook - Open Mobile Book

4. Subba Rao, CEO, TataDoCoMo - Open Mobile Book

5. Saumil Gandhi, Product Manager, Microsoft - Open Mobile Book

6. Sarah Reedy, Senior Editor, Connected Planet - Open Mobile Book

7. Mike Vanderwoude, VP & GM, Cincinnati Bell Wireless - 2010 Mobile Almanac

8. Pinney Colton, VP, GfK - 2010 Mobile Almanac

9. Tim Chang, Principal, Norwest Ventures - 2010 Mobile Almanac

10. Laura Marriott, President - 2010 Mobile Almanac

11. Asha Vellaikal, Director, Orange - 2010 Mobile Almanac

Thanks to INQMobile and my friend Ajit Jaokar for contributing the prize gifts.

Despite conventional wisdom, what will not happen in 2010?

There were many. Sampling - Verizon iPhone, Microsoft Phone, Sprint will not be bought, Femtocells won’t gain traction, RCS will not happen, Google will not enter handset market directly, iPhone won’t lose steam, Android won’t bring coherence, NFC won’t take off, WiMAX won’t disappear, Nokia won’t bounce back, Palm won’t die, “Year of Mobile” noise won’t subside, carriers won’t be delegated as dumb-pipes.

It is hard to cover the mobile industry in 20 questions. As pointed out by our panelists, there are a number of other issues and opportunities that will help shape our ecosystem - monetization of social networks, augmented reality, the fight for mobile advertising dollars, continued impact of globalization, security and privacy, NFC, IMS, VoIP, enterprise apps beyond email, battery improvements, new interaction modalities, health risks of RF radiation, Mobile 3.0, LTE, single purpose devices, 3G in India, Bada, app vs web, developer turmoil, featurephones, smart grids, M2M, Chrome, etc.

However, be rest assured, we will be tracking these and much more throughout the year and sharing them through various channels.

Thanks again to everyone who contributed. We will be calling on you again next year. We are clearly living in "interesting times" with never a dull moment in our dynamic industry. It has been a terrific year for us here at Chetan Sharma Consulting and we are looking forward to the next decade and seeing many of you along the way.

We hope you enjoyed gaining from the collective wisdom. Your feedback is always welcome.

Be well, Do Cool Work, Stay in touch.

Thanks.

With warm wishes,

Chetan Sharma

Disclaimer: Some of the companies mentioned in this note are our clients.

Now onto the 2010 Mobile Industry Predictions Survey Results

The panel comprised of movers and shakers from around the world

What will be the biggest stories of 2010?

Jan seems to be the Google Phone vs. Apple Tablet matchup. Our panel though voted for the continued growth in mobile data as the top story.

Have we recovered from the recession? (Please select one)

Majority thought we are out of it though some might still feel the pinch

Who will be the most open player in the mobile ecosystem in 2010? (Please select one)

Google has done a great job at maintaining its image as THE open leader

Will Android handset sales exceed iPhone’s in 2010? (Please select one)

Despite Androids coming in droves, iPhone will still be the king of the hill

When will we see tiered pricing plans for smartphones in the US from tier 1 operators? (Please select one)

There are indications that this might happen sooner rather than later

What will happen to the mobile prepaid subscriber base in the US? (Please select one)

Prepaid made a strong comeback in 2009 and a good majority thought that the trend is likely to continue

By how much will the mobile advertising ad-spend increase in 2010? (Please select one)

Mobile Advertising was the only advertising segment with positive growth last year so it is no surprise that folks expect it to more than double this year

What will be the impact of the FCC’s national broadband plan on the mobile industry in 2010? (Please select one)

Not much is expected from the various rulings that might come this year with most expecting the courts to have the final word.

Who will be the mobile comeback story of 2010?

Having bet its future on Android, Motorola was voted as the comeback kid of 2010

What will be the impact of Google Phone?

It’s pretty clear, Google and Apple are duking it out for the developer mindshare. Google wins in either case.

Which areas will feel the most impact from FCC?

 

Net neutrality is the area where they will have the most impact

Which solutions will gain the most traction for managing mobile data broadband consumption?

While only a holistic approach can provide complete relief, tiered mobile data pricing might have the most impact

When will the carrier-branded appstores lose steam? (Please select one)

Most expect carrier-branded appstores to be a thing of the past in 2010

What will help mobile cloud computing gain traction in 2010?

Mobile cloud computing is gaining steam and the reason is storage and media

What will be the most successful non-mobile-phone category in 2010? (Please select one)

Netbooks seem to be the strongest category followed by eReaders, Tablet, and M2M

What will be the breakthrough category in mobile in 2010? (Please select one)

Mobile Advertising and Mobile Payments share the top honors

By the end of 2010, which will have more subscribers? (Please select one)

LTE might have the momentum but WiMAX has the subscribers

How will Netbooks do through the operator channel? (Please select one)

No major impact from the operator channel

Which standards will gain traction?

No major impact from the standards

What mode of mobile payments will get any traction in North America and Western Europe in 2010?

The category will expand in different ways with more items being charged on the operator bill

Roundup of second Mobile Breakfast Series event – Mobile Broadband December 6, 2009

Posted by chetan in : 3G, AORTA, ARPU, CTIA, Carriers, Indian Wireless Market, Infrastructure, Location Based Services, Mergers and Acquisitions, Mobile Advertising, Mobile Applications, Mobile Content, Mobile Ecosystem, Mobile Entertainment, Mobile Search, Mobile TV, Mobile Users, Mobile Wallet, Networks, Speaking Engagements, US Wireless Market, Wi-Fi, WiMax, Wireless Value Chain, Worldwide Wireless Market , 3 comments

 

 

The second Mobile Breakfast Series Event was held at the picturesque Harbor Club in downtown Seattle on Dec 4th. The topic was “The Impact and Evolution of Mobile Broadband.” The lineup of speakers was awesome with who’s who of the mobile broadband world opining about the state of the industry, the opportunities, and challenges posed by the growth in mobile broadband:

Neville Ray, Senior Vice President of Engineering, T-Mobile USA

Hank Skorny, Senior Vice President, Media Cloud Computing and Services, Real Networks

Ken Denman, CEO, Openwave

Dow Draper, Vice President, Technology Partnerships, Clearwire

Charlie Martin, Wireless CTO, Huawei Technologies

Stacey Higginbotham, Senior Writer, GigaOM (moderator)

First of all, a big thanks to our generous sponsors: Motricity, Openwave, and Clearwire of supporting the event series. I am happy to report that Motricity has signed up to be the sponsor for the entire 2010 season. So, thanks Jennifer Moranz and Brendan Benzing. Thanks also to Ken Denman and Lupe Downing at Openwave, and Jeff Giard and Scott Richardson at Clearwire for their support. Thanks also to our esteemed panelists who have taken the time out of their busy schedules to be here with us this morning, esp. Ken, Charlie, and Stacey who had to hop on a plane to be at the event. Also, thanks to GigaOM and Moconews for being such terrific media sponsors.

As our operators continue to enhance the infrastructure both in the US as well as abroad, it is creating new opportunities and challenges for the industry. As you know, our friends at the FCC are also very consumed by the task of creating a National Broadband Policy and mobile is a key component of that proposal.

It was one of the best discussions on mobile broadband I have heard all year long. Panelists were really frank and insightful.

The salient points of the 90 minute discussions were:

• The disparity between the available bandwidth and the bandwidth demand is becoming apparent and the industry is scrambling to find solutions to stay ahead of the curve.
• Even at these high usage rates, mobile data is quite profitable for the operators. Vendors typically don’t a full grasp of the carrier economics and end up making some product choices that are not that directly relevant or useful for the carriers.
• Consumers are willing to pay more for better access, higher speeds, and good content and significant opportunities await us in the coming years.
• There is no such thing as “free lunch” and someone has to pay for the bandwidth. Sometimes it feels that the pie is not big enough to feed all the hands that are the in the revenue share pot.
• Spectrum and capacity is king and whoever has a good spectrum tends to benefit competitively.
• Out of necessity, companies come up with innovative solutions e.g. T-Mobile focusing on WiFi in the early days when AT&T didn’t want to touch it and Verizon mocked it. Now WiFi is central to their mobile data strategy.
• Traffic from non-phones will exceed that from the typical feature and smartphones.
• Business and revenue models that will help sustain the industry are going to come from outside the industry.
• With so much at stake, carriers will figure out ways to participate the appstore value chain.
• Browsers have shattered the control of the ecosystem and we are just at the tip of the iceberg.
• We will soon see the return of the tier-ing price plans. QoS will enter the picture soon. Likely to have platinum vs. gold service concept emerge
• Solutions – mobile analytics, video optimization, traffic shaping – it comes down the “art of delivering a packet”
• Apps are not a zero-sum game.
• There will be a metamorphosis of physics and economics of mobile data, new group of players will emerge.
• Carriers have historically not done a good job of picking winning applications but they will figure ways to participate in the new ecosystem.
• Compared to the online Internet market, mobile Internet market is quite nascent and we are expected to see significant opportunities emerge in the next couple of years.
• While iPhone has been a great device, it is the Google applications that make it so popular.
• Presence, social networking, and connectedness will all help in creating a brave new world of mobile data services.
• More Carrier branded solutions to come.
• If carriers are cut of the revenue stream, they might have less incentive to upgrade their networks.
• Technographics, Psychographics, and Demographics data very useful for application developers and we can expect operators to open up consumer information gradually for the ecosystem.
• Some see Android getting more closed with each release, OEMs need to open up the device for app developers to take full advantage of capabilities.
• T-Mobile has been rapidly expanding their 3G footprint with expected coverage increase to 200M by end of the year.
• The levers operators can use to control data usage – pricing, QoS
• FCC’s action is having a positive impact on the industry though we need a lot of work (and a lot of spectrum)

Also, Tricia Duryee does a good summary of the discussion at Moconews

Our next event is looking to be another sellout affair with tech titan Rob Glaser, Founder, Chairman, and CEO of Real Networks headlining the event. Be sure to register early to avoid any sellout blues. Date: March 10, 2010.

Until then, a very happy new year to you and yours and have a terrific holiday season that helps you prepare for a successful 2010.

US Mobile Data Market Update Q3 2009 November 9, 2009

Posted by chetan in : 3G, 4G, AORTA, ARPU, BRIC, CTIA, Carnival of Mobilists, Carriers, Devices, European Wireless Market, IP Strategy, Indian Wireless Market, Japan Wireless Market, Location Based Services, M&A, MVNO, Mergers and Acquisitions, Messaging, Mobile Advertising, Mobile Applications, Mobile Content, Mobile Ecosystem, Mobile Entertainment, Mobile Gaming, Mobile Search, Mobile TV, Mobile Usability, Networks, Partnership, Speaking Engagements, US Wireless Market, Unified Messaging, Usability, Wi-Fi, WiMax, Wireless Value Chain, Worldwide Wireless Market , 4 comments

 

Download PPT | PDF

Executive Summary

The US wireless data market grew 5% Q/Q and 27% Y/Y to exceed $11.3B in mobile data service revenues and thus exceeded $10B for the third straight quarter. As we mentioned in our Q1 2009 research note, given the strong growth in data revenues and overall service revenues, the worst is over for the US mobile industry. The US market touched 25% penetration of smartphones in Q3 2009, a new milestone.

While the flailing economy hit certain segments of the wireless ecosystem hard esp. the infrastructure and handset segments, consumers haven’t really pulled back on the mobile data overall spending. Additionally, the CAPEX spending has stayed strong in 2009 given the activity around 3G/4G deployments and trials. As expected, there was an increase of prepaid subscribers which dropped the overall revenues for some of the carriers. The US subscription penetration was approximately 91.3% at the end of Q3 2009.

As we mentioned in our last three research notes that this time around, the fate of the US mobile industry is more closely tied to the overall economy compared to the previous recessions. As the consumer sentiment improved over the last two quarters along with better than expected Q1-3 2009 earnings from corporations, the mobile industry is back on track. While the structural flaws in various industry segments remain, the outlook for the Q4 2009 and 2010 remains bright and we are expecting the overall data revenues to now increase by over 30% compared to 2008 with a record-setting Q4.

Q3 2009 reported a 3.5% increase in GDP compared to the 1% decline in Q2 and 6.4% decline in Q1, thus marking the official (technical) end of the recession. The GDP is expected to change by 3.2% for 2009 and the service revenues are expected to  account for 1.13% of the US economy by year-end. Note: For a detailed discussion of the US wireless industry in recessions, please see 2008 US Wireless Market Update.

So, what does this mean? Well, the markets can still be volatile, but overall the market seems to be feeling better about the economy than it was in February. The Conference Board Consumer Confidence Index though retreated from June is at a healthy 47.7.

What to expect in the coming months?

The high unemployment has slowed the growth in the data card segment but the smartphone consumers have more than picked up the slack. Also, as expected, there was a shift from postpaid to prepaid in some user segments. For example, for T-Mobile, prepaid accounts for almost 20% of their customer base compared to 17% from an year ago. The fight for the low-end customer is also having an impact on the traditional prepaid players and the price pressure is reducing their margins. It is quite likely that 50-60% of such consumers don’t go back to postpaid thus permanently lowering the ARPU base for such customers and carriers who have experienced more postpaid to prepaid shift will have to make up for the lost revenues elsewhere.

In fact, the churning in the last few quarters has distanced the top two (AT&T and Verizon) and the next two (Sprint and T-Mobile) by the biggest gap in the history of the industry. By the end of 2009, this gap will rise to 36% compared to 28% at the end of 2008 and 21% in 2002.The "Rest" category has essentially diminished from the market dropping from a dominant 43% market share in 2002 to 12% in 2009.

The trend of the landline replacement by Mobile continued in Q3 2009, now reaching almost 25%. In the third quarter, messaging growth slowed down. The messaging volume was up only 4% and messaging revenues were up 3% QoQ. With its expanding 3G network, T-Mobile like its peers has started to benefit from smartphone penetration reaching to 6% of its subscriber base. Overall, The increased use of smartphones and datacards is putting a pressure on carrier networks and accelerating their strategies to deploy LTE/WiMAX. We estimate that by end of 2009, the US mobile data traffic is likely to exceed 400 petabytes, up 193% from 2008. To truly tackle the problem head-on, operators will need to adopt a multi-pronged strategy to manage their traffic more effectively. We discuss mobile data traffic in much more detail in our paper "Managing Growth and Profits in the Yottabyte Era." We will have more on this subject in the coming days (You can also read our RCR Wireless columns on the subject - Defining Mobile Broadband and Solutions for the Broadband World).

We will be keeping a very close eye on the micro- and macro-trends and reporting on the market on a regular basis in various private and public settings.

Against this backdrop, the analysis of the Q3 2009 US wireless data market is:

Service Revenues (Slides 11-12, 17, 19)

• The US Wireless data service revenues grew 5% Q/Q to $11.3B in Q209. Compared to Q308, the data service revenues grew 27%.
• Verizon and AT&T accounted for 80% of the increase in data revenues in Q3 2009.
• The US mobile data service revenues crossed $10B for the third straight quarter and stays ahead of Japan and China by a distance.
• AT&T experienced the most growth with over 6% increase Q/Q followed by Verizon and Sprint at 5%.
• Verizon’s data revenues exceeded $4B/quarter only inches behind the global leader of over 10 years NTT DoCoMo.
• AT&T and Verizon now account for 68% of the market data services revenues and 61.5% of the subscriber base.
• The average industry percentage contribution of data to overall ARPU is now 28%. US market is likely to touch the 30% mark in 2009 though it might not quite eclipse it.
• The top four US carriers are now a permanent fixture in the top 10 global operators by mobile data service revenues occupying #3, #4, #6, and #8 spot respectively. Apart from NTT DoCoMo and China Mobile, Verizon Wireless and AT&T are the only two other operators generating more than $3B in quarterly mobile data service revenues.

ARPU (Slides 13-15)

• Overall ARPU decreased by $0.14. Average voice ARPU declined by $0.57 while the average data ARPU grew by $0.43 or 3%.
• Verizon led in (blended) data ARPU with $15.59 followed by AT&T and Sprint. In terms of % contribution, Verizon exceeded 30% to become the first US operator to do so. It was followed closely by AT&T and Sprint respectively. T-Mobile also exceeded $10 in data ARPU for the first time.
• AT&T experienced something unique - an increase in voice ARPU (for the first time in 10 quarters). The voice ARPU increased $.03 in Q3 2009.

Subscribers (Slides 16-18)

• In Q309, the US market added approximately 2.7M new subscriptions down 1% from Q109.
• The number of data subscribers has been on the rise with Verizon leading the way. At the end of Q309, 67% of US subscribers were using some form of data services.
• The messaging volumes in the US market now average almost 568 messages/subscriber/month or at the frequency of almost a message/hour/sub thus reaching close to the messaging leader Philippines.
• In terms of net-adds, thanks to the boost from the iPhone, ATT again led in Q309 with 2M net-adds, edging its friendly rival Verizon which added 1.2M net subscriptions. Sprint lost 565K.
• T-Mobile lost customers for the first time in its history. It lost 77K customers in the quarter.
• The 3G penetration in the US stays at a healthy 43% in Q309. Verizon led the pack while T-Mobile is slowly expanding its 3G coverage. The growth in 3G and smartphones is helping offset some of the downward pressure on the data revenues and overall ARPU.
• The gap between the top two (AT&T and Verizon) and the next two (Sprint and T-Mobile) is at its maximum. By the end of 2009, this gap will rise to 36% compared to 28% at the end of 2008 and 21% in 2002.The "Rest" category has essentially diminished from the market dropping from a dominant 43% market share in 2002 to 12% in 2009.

Applications and Services

• Non-messaging services continue to grab 50-65% of the data revenues for the US carriers.
• The flat-rate pricing movement that was started by Willcom in Japan which moved to Europe became more prevalent in the US market with industry wide flat-rate pricing plans that included data. All the major carriers seem to be offering flat-fee access plans for most of the new smartphones being introduced in the market. Approximately 20% of the consumers have flat-rate data plans.
• There are probably 18-20 sub-segments within mobile data services and consolidation looms. While the valuations are still high for rapid consolidation, we think that due to recession pressure, the M&A scene is starting to heat up.
• The usage and data consumption trends are enabling carriers to accelerate their 4G plans and develop long-term business and technical strategies.

Handsets

• Nokia sold 100M+ units in Q3 2009. Samsung again had a solid quarter with over 60M devices sold inching its market share to almost 21%. LG Electronics at 11%, Sony Ericsson at 4.9%, and Motorola at 4.7% rounded up the top 5.
• The third quarter was again dominated by blockbuster launches of smartphones. Androids have been invading the industry en-masse and 2010 looks to be a terrific year for consumers and competition.
• The growth in smartphone usage is also putting pressure on the networks which are not able to handle the load during peak times in certain cities thus forcing carriers to look for alternate strategies to satisfy the demand for broadband - usage billing, UMA, Femtocells, Hotspots, WiMAX, LTE, and others.

Policy and Regulations

· Q3 also marked the start of an intense FCC scrutiny of the wireless industry. In outlining the four key principles of a) looming crisis of spectrum shortage b) removal of red tape c) enforce net-neutrality and d) open Internet, things have already started to change in the US Wireless Industry. Google has played the game of Armadaian tactics with Kasparovian acumen. The impact of the codified principles (and the subsequent court battles) can have a significant impact on not only the US wireless industry but the global ecosystem as well.

Open

• The appstores battle is intensifying with OEMs and carriers are announcing their plans and some of them are opening their wares to woo the developer community. In the midst of the appstores hoopla, Apple announced the passing of the 2 Billion download mark with increasing number of developers participating the ecosystem. The new functionality being released with 3.0 is taking the battle up a notch. The clear-cut business model of 30/70+ split is attractive to the long-tail of developers. While there is no dearth of applications, findability remains a challenge. Also, appstores are changing the monetization strategies for content and application developers.
• The App vs. Mobile Web debate is getting intense. The evolution is pretty clear - for the applications that don’t require significant UI resources, it will be better to develop in for the browser, for intensive games, the native platform will be ahead of the browser advances. The location API access on the iPhone browser is breakthrough to have developers start thinking about the webapps. But, what does it do to the control points and the revenue models?

· While there has been much consternation around the word "Open," one is hard pressed to find a consistent definition what it might actually mean. One could provide access to one API and declare themselves an open heretic while others could end up opening up their business more than needed and yet be accused of being closed. Clearly, the degree to openness is in the eye of the recipient. There is no black and white, just shades of grey and that’s where the battles will be won and lost. In the end, it is all about "access" to the market and the "freedom" to earn profits. Rest is noise.

· It is worth debating as to what can be mandated to be open, do the rules apply just to the operators and OEMs, or we should extend the courtesy to software platforms, search indices, aggregated user profiles, billing engines, etc.

· It is also becoming obvious that we need to redefine the device categories. Featurephones are no longer dumb terminals, many empower the users with smartphone functionality. Devices like iPhone, Droid, Pre no longer fit the smartphone stereotype, they need a separate category for themselves - appphones, ddhmvcs (data devices that happen to make voice calls), platformdevices, mobilecomputers, geniusdevices, agilechips, astuteconceirge, you get the point.

Misc.

• Not surprisingly, Venture capital market experienced a continued decline in 2009, with companies announcing $1.5B in financings vs. $3B for the same time period. (Source: Rutberg)
• In a sign of convergence battles to come, T-Mobile’s @Home and various Femto cell initiatives are taking hold. Cable operators are also aggressively seeking triple-play by providing the wireless component of the service.
• China crossed the 700M subscription mark in Q3. India crossed the 500M mark for telephone penetration (wireline + wireless) of which 472 are mobile subscriptions. In terms of net-adds, India has outpaced China for the last 16 months. The Indian market added almost 155M vs. 101M in China during the last four quarters. (more discussion on the international market in our global market update next year)

We will be keeping a close eye on the trends in the wireless data sector in our blog, twitter feeds, future research reports, and articles. The next US Wireless Data Market update will be released in Feb 2009. The next Global Wireless Data Market update will be issued in Mar 2010.

Watch out for our end of the year survey and commentary on global wireless markets and trends for 2010.

Your feedback is always welcome.

Should you have any questions about navigating or understanding the economic and competitive icebergs, please feel free to drop us a line.

Thanks.

Chetan Sharma

Disclaimer: Some of the companies mentioned in this note are our clients.

Carnival of the Mobilists #195 October 12, 2009

Posted by chetan in : CTIA, Carnival of Mobilists , 7 comments

Welcome to the 195th edition of Carnival of the Mobilists. It has been quite a start to the final quarter of the year. With CTIA just wrapping up last week, there was plenty of action. Folks are still recovering from the travel so posts have been light but an eclectic mix of viewpoints makes up this week’s carnival.

Andrew Grill of London Calling delves into the world of mobile and social networking. There is significant traffic due to social networking. Who monetizes the best is the question.

Enrique has a compelling presentations on the concepts and technologies behind real-time demand data, a topic near and dear to me. Thanks for sharing.

Dennis Bournique of WAP Review does a review of the Bolt Browser.

Jose from Mobile Strategy writes about mobile application development.

There has been a lot of discussion about mobile advertising. An industry veteran, Mark Jaffe opines in his series - Ten Reasons Why Mobile Advertising Has Not Reached Its Potential.

Belen Barros of iQblog has a post on Mobile reverse innovation inviting you to expand your thinking beyond the western markets.

Mobile VoIP made a lot of news last week. Tsahi Levent-Levi of VoIP Survivor and a frequent contributor writes 5 reasons why mobile VoIP =#FAIL

My own contribution to the carnival is in the form of our CTIA Wireless IT and Entertainment 2009 Roundup

Q4 is shaping up to be a great quarter for developments that will impact the mobile industry. Be sure to read the Carnival each week as the mobilists track the progress. Next week, the carnival moves to A Consuming Experience.

Thanks and happy surfing.

CTIA Wireless IT & Entertainment Roundup 2009

Posted by chetan in : 3G, 4G, AORTA, ARPU, BRIC, CTIA, Carriers, Devices, Enterprise Mobility, European Wireless Market, Federal, Indian Wireless Market, Japan Wireless Market, Location Based Services, M&A, MVNO, Microsoft Mobile, Middleware, Mobile Advertising, Mobile Applications, Mobile Content, Mobile Ecosystem, Mobile Entertainment, Mobile Gaming, Mobile Search, Mobile TV, Mobile Usability, Mobile Users, Networks, Smart Phones, Speaking Engagements, US Wireless Market, Unified Messaging, Wireless Value Chain, Worldwide Wireless Market , 3 comments

CTIA San Diego Roundup

San Diego is a casual town so this year’s CTIA fit nicely with an equally casual show, that felt more like a networking party sprinkled with some striking keynotes and engaging sessions. However, the biggest tremors were felt a day before the event started with Verizon getting in bed with Google and AT&T embracing VoIP with open arms. FCC’s curiosity into the wireless world has yielded more action in 3 months than many years combined before. I was drawn more to the policy debate and the implications to the wireless industry in the US and to the rest of the world. There was intense discussion on appstores and their place in the future, mobile advertising and its maturity, enhancing retail experience, accelerated growth in mobile health in recent times, and of course the tremendous growth in the US wireless data market but if you already knew that. This note summarizes the observations and opinions from the event, discussions, and briefings.

A friend of mine at the FCC invited me to the FCC Broadband Field Hearing occurring simultaneously with the CTIA at the University of San Diego. I am glad I went. The first panel was on the App Ecosystem with a diverse panel of industry verticals – rural, public safety, health care, environment, air quality, health care complimented by the discussion of the iPhone and its impact on the mobile industry. Chairman Julius Genachowski is to iPhone what President Obama was to Blackberry. He described his love for the apps with tender affection.

I am finding that the whole process of broadband planning to be quite interesting. The proceedings have been open and participatory, interest and feedback has been intense, and the principles have been clearly stated. This helped with a broader question that my CTO team for the FiREGlobal panel (to be held on Oct 15^th) is addressing. We are tasked with a unique challenge of coming up with technology solutions for better civic discourse and our team consists of experts in the public and private enterprise to give a set of recommendations. We are currently under intense discussions and will unveil our suggestions on thursday. Stay Tuned.

Coming back to the FCC talk, Julius described four key principles:

1. Most importantly he described the spectrum shortage as a looming crisis and that additional spectrum capacity is needed to handle the demand of data traffic from data cards and smartphones (something we have illustrated in detail in our paper - "Managing growth and profits in the Yottabyte era")
2. Removing red tape to allow wireless carriers to build their network faster, for example, the work with cell towers
3. Codify and enforce net-neutrality policies
4. Operate more openly

While 1) and 2) have been discussed in the industry for some time, it is the mention of 3) and 4) that has changed industry in more ways than one. AT&T’s Ralph de la Vega took the stage after the Chairman and gave a spirited defense of the industry that requires no regulation. Frankly, the mere mention of the word "open" has had quite an impact on the industry in last 3 months. (I will be moderating two panels at the upcoming Open Mobile Summit on "What open means to apps providers" and "Apps in the cloud" in Nov, 2009)

Of course, as always, it is from the details that the devil flexes it muscles. How FCC will end up defining "open," "net neutrality," "network management" and other key items will determine the course of the industry. I wrote a piece that appeared in RCR Wireless “Defining Mobile Broadband” that outlined some of the same principles but from an operator strategy point of view suggested a much broader strategic imperative of building intelligent platform to survive long-term. The recommendations we made in our Yottabyte paper are being adopted and discussed much more openly since it was released in July. Due to significant interest, we will some follow-up research on the topic in the coming days, so stay tuned. I will be giving a ISACA luncheon keynote on the topic on Oct 20^th. Of course, our Mobile Breakfast Series panel on mobile broadband will delve into the details of the broadband ecosystem on Dec 4th. Be sure to register.

Each year our small community in Issaquah, WA celebrates a festival “Salmon Days.” As I was strolling around the hatchery, it helped me prepare for my talk on the Appstore ecosystem. The fish traveling upstream has several parallels to the developers trying to make in the 80,000 db appond. So, I focused my talk on how the ecosystem needs to come together urgently to build the fish ladder to give more developers a chance to make it to the next level to create a vibrant and sustainable ecosystem. While Microsoft’s mobile strategy is disarray right now, they are one of the few companies who understand the caring and feeding of the developer ecosystem (another one is Ebay). If the ecosystem focuses primarily on their profits and margins, the rich ecosystem might be at a risk of collapsing.

I discussed several factors that can help foster a healthier ecosystem starting with fish ladder. If you are interested in the presentation, please drop me a line. There was pretty good discussion from some experienced and successful developers. The emergence of appstore mania has been a double-edged sword. Developers are back in demand but their attention is finite and they are forced to allocate resources accordingly. I was also surprised to find out about the level of piracy and counterfeit goods in the appstore and how little is being done to protect legitimate developers. Some of the ladder factors I discussed were: greater revenue share, connection with investors, iTunes and carrier billing, location and presence, user profile and context, reports and analytics, $0 signup and certification, better search and discovery, social interaction and virality, flexible payment and billing models, better networks and devices, reduced fragmentation, more open APIs and marketing dollars. If you are interested, drop me a line and I will send you the ppt.

I also had a chance to moderate a panel on Mobile Advertising and the current state of affairs. While mobile advertising is the only advertising sector that has shown growth this year, it is not breaking out to stand on its own. Large media companies are primarily looking mobile as a complimentary channel though they are clearly enamored by its potential. Lack of clear, uniform, auditable metrics is another issue though various industry bodies have been working together and some guidelines are expected to be released next quarter.

Overall, the show felt like a sponsored networking party with hardly any new announcements, the show floor was easier on the feet, the attendance was down again. However, the hallway conversations and running into friends and colleagues from the distant past is always priceless. The only newsworthy highlight for me was the emergence of mobile healthcare and mobile retail as separate categories at CTIA. There is clearly much potential and interest in these areas. We will have more on these topics in the coming months.

Some of the news worth items were:

• John Donovan, CTO of AT&T opined on the growth in data consumption and how the company is tackling the upsurge in usage
• Qualcomm released FLO TV service and devices but at $250 and $9/month, it, like Kindle seems to be stuck in the fidelity belly.
• A number of local search services/apps are popping up: Geodelic, Aloqa, Decarta, etc. I built my first location app in 1996. 13 years hence, market seems to be coming around to the concept of LBS.
• Number of mobile health companies were displaying their wares: Airstrip, Corventis, TotGuard, Sensiotec, and others. Lot of investment will flow into this sector in the coming days.
• Companies like Openwave and Bytemobile talked about solutions for mobile data management.
• Mobile Retail is picking up with NFC and now Nokia’s initiative of Global Retail Executive Council
• More Androids are slated for release in 2010

It was great catching-up with friends and colleagues. Looking forward to the next one.

Global Wireless Data Market Update - 1H 2009 September 21, 2009

Posted by chetan in : 3G, 4G, AORTA, ARPU, BRIC, CTIA, Carriers, Enterprise Mobility, MVNO, Mobile Advertising, Mobile Applications, Mobile Content, Mobile Ecosystem, Speaking Engagements, US Wireless Market, Wireless Value Chain, Worldwide Wireless Market , 6 comments

Global Wireless Data Market Update - 1H 2009

Download: PPT | PDF

Executive Summary

The Global Wireless Markets continued to grow rapidly especially in India and China where the carriers (together) are adding around 20M new subscriptions every month. China crossed the 700M subscriptions mark in July while India’s total went past 450 in Aug. Overall, the global subscriptions penetration is above 64%. During 2009, services revenues further tilted towards data services, increasing 21% from 2008 EOY.

The overall global mobile revenues (including equipment) for the year are expected to stay flat as the impact of recession was felt in many geographies in the first half of 2009. While countries like US, Japan, China, and India showed very little signs of pullback, most of Europe (except France) and the developing world are expected to experience a decline in overall service revenues in 2009. For the first time, mobile data contributes approximately quarter or 25% of the total global service revenues. Additionally, except for India, all major markets have their data contribution percentages above 10%.

For some leading operators, data is now contributing over 40% of the overall revenues. However increase in data ARPU is not completely offsetting the drop in voice ARPU for most operators. From the true and tested SMS messaging to the new services such as Mobile Advertising, Social Networking, Commerce, Mobile Wallet, and others, different services helped in adding billions to the revenues generated in 2009. US continues to lead Japan and China in total mobile data revenues by a healthy margin.

NTT DoCoMo continues to dominate the carrier ranking in terms of mobile data service revenues, however, Verizon Wireless which became #2 replacing China Mobile is slowly edging towards the #1 spot and is likely to overtake DoCoMo within the next few quarters.

The velocity with which the smartphones are being introduced into the market, one wonders if in five years, we will be using the moniker to describe devices and if the "dumbness" in the device market will be practically eliminated. Led by Apple’s Appstore success, significant investments are pouring into the appstore world. In parallel, the debate over apps vs. mobile web is intensifying. The implications of the transition will be significant on the ecosystem on many levels.

Though 4G as a standard hasn’t been defined yet, the discussions around LTE (and to some extent WiMAX) grew intense and started climbing the slippery slope of the hype curve. Many prominent operators have come out in support of LTE with Verizon being the most aggressive in launching their next generation network in 2010.

Chetan Sharma Consulting conducted its semiannual study on the global mobile data industry. We studied wireless data trends in over 40 major countries - from developed and mature markets such as Japan, Korea, UK, and Italy to hyper growth markets such as China and India.

This note summarizes the findings from the research with added insights from our work in various global markets.

Impact of Global Recession

• Telecom in general fared better than other industries. In some regions, it hardly caused a tremor. However, in most nations, the impact was acutely felt by the operators. Amongst the operators we studied, only 3, SK Telecom, O2 UK, Telefonica, T-Mobile Germany and Austria, Vodafone Germany and Italy, KTF experienced increase in both the data ARPU and overall ARPU during 1H09 (and some of increase was due to the fluctuation in international currencies).
• Looking at the data at a country level, almost all nations noted a decline in overall ARPU and majority in data ARPU. However, almost everywhere data for 1H09 improved over 2H08 indicating that the recession had a worse impact on the wireless sector last year compared to this year and in general the conditions in the telecom microcosm are improving globally.
• Rule of Three is kicking in most markets with smaller players having to consider the M&A option to remain viable. T-Mobile/Orange, Bharti/MTN tie-ups are just the start of that process.

Service Revenues

• US extended its lead over Japan as the most valuable mobile data market in service revenue with US adding $20.6B vs. $16B for Japan in 1H 2009. China with $8.6B was ranked number 3. US registered the highest growth amongst the top 3 with over 39% increase from EOY 2008 levels followed by Japan and China at 5%.
• The top 10 nations by service revenues are: US, China, Japan, France, Italy, UK, Germany, India, Spain, and Brazil.
• The top 10 nations by data service revenues are: US, Japan, China, UK, Italy, Germany, France, Korea, Spain, and Australia.
• NTT DoCoMo continues to dominate the wireless data revenues rankings with almost $8B in data services revenue in 1H09. Almost 45% of its overall revenue now comes from data services. DoCoMo also crossed the 50M or 90% 3G mark in June.
• NTT DoCoMo was followed by Verizon Wireless, China Mobile, AT&T, KDDI, Sprint Nextel, Softbank Mobile, T-Mobile USA, O2 UK, and China Unicom to round up the top 10 operators by wireless data service revenues.
• The top 10 global operator groups now account for over 63% of the global mobile data revenues.
• Each of the top 5 carriers are expected to exceed $10B in yearly mobile data service revenues in 2009
• Data revenues for the top 10 operators increased 10% from 2H 2008 and now account for almost 48% of the global mobile data revenues though their subscriber share is around 30%.
• The biggest jump in data revenues was experienced by Verizon, AT&T and Softbank. DoCoMo suffered a 2% decline compared to 2H08.
• Most of the operators in developed nations are contemplating future strategies to boost data revenues such that the decline in voice revenues is at least compensated for. There are very few operators who have experienced increase in overall ARPU.
• China reported approximately $8.5B in data revenues for 1H09 and the percentage contribution from data services is around 28%, data ARPU is around $2.7. For India, data ARPU continues to stay around $0.50 as most of the new adds are voice only subscribers and there is continued price pressure in the market.
• China Mobile remains the most valuable telecom operator with over $200B in market cap. It is followed by Vodafone at around $122B. Telecom groups in mature markets are under enormous pressure to either come up with a global expansion strategy or accelerate their existing plans.
• In 2009, SMS’s vice like grip on data revenues continues to loosen a bit with many carriers seeing an increase in non-SMS data revenues. On an average, Japan and Korea have over 70-75% of their revenue coming from non-SMS data applications, US around 50-60%, and Western Europe around 20-40%.
• NTT DoCoMo has been at the cutting edge of the mobile data evolution by creating new markets. They are exploring new technologies and social experiments ahead of almost anybody else in the market. Our long history with the Japanese and Korean markets has taught us that while the individual strategies in each market will differ, one should study the trends, technologies, and ecosystem dynamics in these markets to get a sense of what’s coming.

ARPU

• Most of the major operators around the world have double digit percentage contribution to their overall ARPU from data services. Operators like DoCoMo, and Softbank are over 44%. KDDI, 3 Australia, 3 Italy, 3 UK, Vodafone UK, O2 UK, KTF, Telstra, and 3 Sweden exceeded 30% and many others are on the verge of crossing the 30% mark.
• 3 Australia reported the highest increase in data ARPU from 2008 with 31% growth. Other notable percentage increases in ARPU were from 3 Italy, SK Telecom, KTF, T-Mobile Germany, 3 Sweden, and T-Mobile Austria. The Japanese operators saw a decline in ARPU by 3%. In terms of absolute dollar amount, NTT DoCoMo leads the pack with $25 data ARPU.
• The biggest percentage contribution by data ARPU has been consistently registered (since mid 2002) by two Philippines carriers – Smart Communications and Globe Telecom with over 56% (or $3) contribution coming from the data services. Philippines is also the most active messaging nations where users average a message/hr round the clock though US txters have had the most acceleration in use.

Mobile Data Traffic

• We have been calling attention to the tremendous increase in mobile data traffic for some time. The discussion has hit mainstream and many operators are scrambling to nail-down their short-term and long-term strategies to manage the data traffic growth in their networks. See our paper on the subject "Managing growth and profits in the yottabyte era." The recommendations discussed in the paper are slowly been adopted by various vendors and operators worldwide.
• The global mobile data traffic is expected to exceed an Exabyte for the first time in 2009. In fact, the data usage is growing so fast that next year, the two territories experiencing the most growth - North America and Western Europe are going to exceed an Exabyte in mobile data traffic.
• 2010 will also mark the first year when the total number of mobile broadband connections will exceed the total number of fixed broadband connections.

Subscriptions

• The global mobile market continues to grow at an explosive pace and is expected to go past 4.5B subscriptions in 2009 and is likely cross the 5B mark in 2010. The global mobile subscriptions now represent over 64% of human population on Earth.
• China and India continued their red-hot growth in 1H09. Combined, they added 132M new subscriptions with India easily surpassing China in each of the last 12 months in terms of net-adds.
• China crossed the 700M subscription mark in July while India’s total went past 450 in Aug. In total, China is still years ahead. In the meantime, US crossed the 90% subscriptions mark earlier this year.
• In the last 10 years, the growth patterns in the mobile industry have completely reversed. In 1998, the developed world accounted for 76% of the subscriber base, in 2008; the percentages have flipped with developing world now accounting for 76% of the subscriber base and are likely to increase to 85% by 2018.
• The top 10 nations by subscriptions are: China, India, US, Russia, Brazil, Indonesia, Japan, Germany, Pakistan and Italy.
• China Mobile became the first operator (and likely to be the only one for a very long time) to cross the 500M mark. It remains the #1 carrier in terms of the total number of subscriptions followed by Vodafone at 264M. Telefonica, América Móvil, Telenor, T-Mobile, China Unicom, TeliaSonera, Orange, and Bharti Airtel round up the top 10 largest telecom groups in the world.

Others

• Messaging still accounts for the lion-share of data service revenues. However, other services such as Mobile Music, Mobile TV and video streaming, Voice navigation, PNDs, Mobile Games, IMS, LBS, Mobile advertising, and others have gradually chipped away the share from messaging. Alternate devices with wholesale cellular agreements are also flooding the market. In Japan, Mobile Commerce is expected to do much better than Mobile Advertising. Though not much talked about, enterprise applications are also being adopted widely esp. in North America as more workers become mobile and corporations seek efficiencies in their operations and supply-chain.
• After falling below the 100M/quarter in Q1, Nokia rebounded to sell 103M units in Q2 09. Samsung also exceeded 50M with a strong second finish at 52M. LG finished a strong third with almost 30M in its bag and Motorola showed signs of strength by selling close to 15M units.
• The second quarter was dominated by two blockbuster launches of iPhone 3GS and Palm Pre. While iPhone continued to attract new customers, Pre suffered from a less than adequate launch strategy. By lowering the 3G device price to $99, Apple set the new bar in smartphone pricing leaving the rivals scrambling for response. The release of a slew of Android handsets sets up the stage for fierce competition during the holiday season and into 2010.
• China and India represent the biggest opportunities for the Infrastructure providers. China launched 3G across the three operators earlier this year. India is also going through its 3G spectrum policy and is likely to resolve some of the contentious issues shortly. Some of the biggest infrastructure contracts are coming from these two countries as they look to expand coverage into rural areas.
• Deployment of 3.5G technologies is in full swing. However, it is the discussion of 4G that is occupying the headlines, even though 4G hasn’t been fully defined yet and the current candidates for 4G are nowhere near the performance goals of 4G (150Mbps/50+Mbps). Many larger operators have laid out their plans for deploying LTE starting next year.

As usual, we will be keeping a close eye on the trends in the wireless data sector in our blog, twitter feeds, future research reports, and articles. The next US Wireless Data Market update will be released in Nov 2009. The next Global Wireless Data Market update will be issued in March 2010.

Your feedback is always welcome.

Thanks.

Chetan Sharma

Disclaimer: Some of the companies mentioned in this note are our clients.

US Wireless Data Market Update - Q2 2009 August 8, 2009

Posted by chetan in : 3G, 4G, AORTA, ARPU, BRIC, CTIA, Carriers, Enterprise Mobility, European Wireless Market, Indian Wireless Market, Japan Wireless Market, Location Based Services, Mobile Advertising, Mobile Applications, Mobile Content, Mobile Ecosystem, Mobile Entertainment, Mobile Gaming, Mobile Search, Mobile Usability, Patent Strategies, Patent Strategy, Smart Phones, Speaking Engagements, Strategy, US Wireless Market, Unified Messaging, Usability, WiMax, Wireless Value Chain, Worldwide Wireless Market , 4 comments

US Wireless Data Market Update - Q2 2009

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Executive Summary

The US wireless data market grew 7% Q/Q and 30% Y/Y to exceed $10.6B in mobile data service revenues and thus exceeded $10B for the second straight quarter. As we mentioned in our Q1 2009 research note, given the strong growth in data revenues shown by the top carriers and the increase in service revenues overall, the worst is over for the US mobile industry. In summary, the recession has been all but a tiny blip in its growth trend and the US mobile market has weathered the downward spiral in economy better than its counterparts in other developed nations. Of course, recession doesn’t treat all players equally, so, some have had a negative impact and will need more resources and effective strategies to claw back to the their previous market position.

The US subscription penetration was approximately 90.4% at the end of Q209. The current rate of net-adds (subscription) is approximately 3 every second (compared to a net gain in population of one person every 10 seconds). While the flailing economy hit certain segments of the wireless ecosystem hard esp. the infrastructure and handset segments, consumers haven’t really pulled back on the mobile data overall spending. Additionally, the CAPEX spending will stay strong in 2009 given the activity around 3G/4G deployments and trials. As expected, there was an increase of prepaid subscribers which dropped the overall revenues for some of the carriers.

As we mentioned in our last two research notes that this time around, the fate of the US mobile industry is more closely tied to the overall economy compared to the previous recessions. As the consumer sentiment improved over the last 3-4 months along with better than expected Q1-2 2009 earnings from corporations, the mobile industry is back on track. While the structural flaws in various industry segments remain, and the economy is a crisis away from the double dip, the outlook for the remainder of 2009 remains bright and we are expecting the overall data revenues to now increase by 32% compared to 2008 with a record-setting Q4.

US Wireless Industry in Recession - The light at the end of the tunnel is indeed not from the oncoming train

Note: For a detailed discussion of the US wireless industry in recessions, please see 2008 US Wireless Market Update.

Q2 2009 reported a much better 1% decline (compared to 6.4% in Q1). On an yearly basis, the GDP is expected to change by 3.2% for 2009 and the service revenues are expected to  account for 1.13% of the US economy by year-end.

As mentioned in the previous reports, while in the past, the recession hardly impacted the wireless industry, this time around; it is going to be more tied to the recession. In the past couple of months, the consumer sentiment has improved and the Q109 earnings have been better than expected. While there are still many structural flaws in the financial and housing industries and the unemployment is at a 25 year high of 9.4% (though it dropped in July from 9.5% in June), consumers are feeling better about the economy and their own prospects in it.

So, what does this mean? Well, the markets can still be volatile, but overall the market seems to be feeling better about the economy than it was in February. The Conference Board Consumer Confidence Index though retreated from June is at a healthy 46.6.

Given that consumer sentiment is improving, it is clear that the US mobile data market is all but back from the recession. While some segments within the mobile industry might be suffering, there has been an increase in spending overall.

What to expect in the coming months?

We noted in our Q3 2008 note that we will get a better picture of the impact of the recession on the wireless industry in Q109 as it was the first full quarter after the seasonal holiday quarter. There are two micro trends that are clear. First, as expected, due to the high unemployment, the data card segment took a hit. It is starting to recover in due course as more of the workforce comes back over in the next 18 months.

Also, as expected, there was a shift from postpaid to prepaid in some user segments. For example, for T-Mobile, prepaid constituted 82% of the net-adds in Q209 up from 61% in Q109 and 21% in Q208. It is not clear if the good times will bring back the prepaid subscribers to the postpaid realm or like the consumers who are canceling their landline connections and moving to mobile, these customers will get used to savings and the prepaid lifestyle. The fight for the low-end customer is also having an impact on the traditional prepaid players and the price pressure is reducing their margins.

It is quite likely that 50-60% of such consumers don’t go back to postpaid thus permanently lowering the ARPU base for such customers and carriers who have experienced more postpaid to prepaid shift will have to make up for the lost revenues elsewhere.

The landline replacement by Mobile trend continued now reaching almost 24% by Q209. Messaging continues to grow. The messaging volume was up 15% and messaging revenue was up 11% QoQ. The data access (excluding data card) including flat rate data plan subscriptions have also show significant strength lately. In addition to smartphones, we are also seeing increased mobile data activity amongst feature phone users. With its expanding 3G network, T-Mobile like its peers has started to benefit from smartphone penetration reaching to 6% of its subscriber base. Overall, the US market will exceed 25% penetration of smartphones in Q3 2009.

The increased use of smartphones and datacards is putting a pressure on carrier networks and accelerating their strategies to deploy LTE/WiMAX. We estimate that by end of 2009, the US mobile data traffic is likely to exceed 400 petabytes, up 193% from 2008. To truly tackle the problem head-on, operators will need to adopt a multi-pronged strategy to manage their traffic more effectively. We discuss mobile data traffic in much more detail in our paper “Managing Growth and Profits in the Yottabyte Era.” (I will be giving keynotes on the subject at the Mobile Innovation Week in Sept and at the ISACA meeting in Oct)

The positive factors are helping negate the negative factors and given the strength of 3G and smartphone adoption, the increase in activity on the appstores front, and in general, a better awareness of mobile data services and applications amongst consumers, any decline due to the loss of data card revenue and postpaid transition to prepaid accounts has been taken care off. In particular, Verizon and AT&T have done really well. Smartphones remain a bright spot, which in turn has a direct positive impact on the data revenues. Even with the decline in handset sales, smartphone segment will continue to increase in 2009 accounting for almost 30% of the overall device shipments.

There is also a concerted effort underway to move beyond the traditional subscriptions and expand the mobile universe to wireless-enable other consumer devices (What did your refrigerator say to your microwave while you were gone?).

Coming back to the 2009 forecasts, we are raising our estimates for the mobile data service revenues to $45B for the year. We will be keeping a very close eye on the micro- and macro-trends and reporting on the market on a regular basis in various private and public settings.

Against this backdrop, the analysis of the Q209 US wireless data market is:

Service Revenues (Slides 11-12, 17-18)

• The US Wireless data service revenues grew 7% Q/Q to $10.6B in Q209. Compared to Q208, the data service revenues grew 30%.
• Verizon and AT&T accounted for 90% of the increase in data revenues in Q2 2009.
• The US mobile data service revenues crossed $10B for the second straight quarter and stays ahead of Japan and China by a distance.
• Verizon and AT&T experienced the most growth with over 8% increase Q/Q followed by T-Mobile at 6%.
• Verizon’s data revenues are now almost $4B/quarter only inches behind the global leader of over 10 years NTT DoCoMo.
• AT&T and Verizon now account for 69% of the market data services revenues and 61% of the subscriber base. Sprint had the fifth consecutive quarter of data revenue growth.
• The average industry percentage contribution of data to overall ARPU is now $27%. US market is likely to touch the 30% mark in 2009.
• The top four US carriers are now a permanent fixture in the top 10 global operators by mobile data service revenues occupying #3, #4, #6, and #8 spot respectively. Apart from NTT DoCoMo and China Mobile, Verizon Wireless and AT&T are the only two other operators generating more than $3B in quarterly mobile data service revenues.

ARPU (Slides 13-15)

• Overall ARPU decreased by $0.23 thus reversing the trend of the last three quarters. Average voice ARPU declined 13-15by $0.45 while average data ARPU grew by $0.68 or 5% and easily negated the drop in voice ARPU.
• Sprint led in data ARPU with $15.5 followed by Verizon at $14.96. In terms of % contribution, Verizon led with 29.28% followed by AT&T at 28.74%.

Subscribers (Slides 16-17)

• In Q209, the US market added approximately 2.8 M new subscriptions down 6% from Q109.
• The number of data subscribers has been on the rise with Verizon leading the way. At the end of Q209, 65% of US subscribers were using some form of data services.
• The messaging volumes in the US market now average almost 540 messages/subscriber/month or at the frequency of almost at a message/hour/sub thus reaching close to the messaging leader Philippines.
• In terms of net-adds, thanks to the boost from the iPhone, ATT led in Q209 with 1.4M net-adds, edging its friendly rival Verizon which added 1.1M net subscriptions. T-Mobile net-adds reduced to 325K while Sprint lost 214K.
• The 3G penetration in the US stays at a healthy 40%+ in Q209. Verizon led the pack while T-Mobile is slowly expanding its 3G coverage. The growth in 3G and smartphones is helping offset some of the downward pressure on the data revenues and overall ARPU. (I will be moderating a panel “Ultraband: A Fast Platform For Innovation” at GigaOM’s Mobilize in Sept. We will discuss the future of broadband and its implications)

Applications and Services

• Non-messaging services continue to grab 50-65% of the data revenues for the US carriers.
• The flat-rate pricing movement that was started by Willcom in Japan which moved to Europe became more prevalent in the US market with industry wide flat-rate pricing plans that included data. All the major carriers seem to be offering flat-fee access plans for most of the new smartphones being introduced in the market. Approximately 18% of the consumers have flat-rate data plans.
• There are probably 18-20 sub-segments within mobile data services and consolidation looms. While the valuations are still high for rapid consolidation, we think that due to recession pressure, the M&A scene is starting to heat up.
• The usage and data consumption trends are enabling carriers to accelerate their 4G plans and develop long-term business and technical strategies (We will be discussing the state of the industry and what lies ahead at the inaugural “Mobile Breakfast Series” on Sept 22nd in the panel discussion “State of the Union: Where do we go from here”)
• The appstores battle is intensifying with OEMs and carriers are announcing their plans and some of them are opening their wares to woo the developer community. In the midst of the appstores hoopla, Apple announced the passing of the 1.5 Billion download mark with increasing number of developers participating the ecosystem. The new functionality being released with 3.0 is taking the battle up a notch. The clear-cut business model of 30/70+ split is attractive to the long-tail of developers. While there is no dearth of applications, findability remains a challenge. Also, appstores are changing the monetization strategies for content and application developers and the industry is trying to figure out what “Open” means in the long-term. (Will be discussing this and more at CTIA in Oct)
• The App vs. Mobile Web discussion reached a surprisingly new crescendo. The evolution is pretty clear - for the applications that don’t require significant UI resources, it will be better to develop in for the browser, for intensive games, the native platform will be ahead of the browser advances. The location API access on the iPhone browser is breakthrough to have developers start thinking about the webapps. But, what does it do to the revenue model? (I will be moderating two panels on the subject in Nov at the Open Mobile Summit)

Handsets

• After falling below the 100M/quarter level in Q1, Nokia rebounded to sell 103M units in Q2 09. Samsung also exceed 50M with a strong second finish at 52M. LG finished a strong third with almost 30M in its bag and Motorola showed signs of strength by selling close to 15M units.
• The second quarter was dominated by two blockbuster launches of iPhone 3GS and Palm Pre. While iPhone continued to attract new customers, Pre suffered from a less than stellar launch strategy. By lowering the 3G device price to $99, Apple set the new bar in smartphone pricing leaving the rivals scrambling for response. T-Mobile launched another Android device last month.
• The growth in smartphone usage is also putting pressure on the networks which are not able to handle the load during peak times in certain cities thus forcing carriers to look for alternate strategies to satisfy the demand for broadband - usage billing, UMA, Femtocells, Hotspot buys, WiMAX, LTE, and others.
• Rest of 2009 is eagerly awaiting the release of Palm Pre, several Android handsets from HTC, Samsung, Motorola, and others, Windows devices along with follow on of Danger devices, new model(s) of iPhone, and other touch screen devices.

Misc.

• Not surprisingly, Venture capital market experienced a continued decline in thefirst half of 2009, with companies announcing $1.2B in financings vs. $1.6B for 2H08 and $2.1B for 1H08. (Source: Rutberg)
• In a sign of convergence battles to come, T-Mobile’s @Home and various Femto cell initiatives are taking hold. Cable operators are also aggressively seeking triple-play by providing the wireless component of the service.
• China crossed the 700M subscription mark last month. In terms of net-adds, India has outpaced China for every single month of the last one year. The Indian market added almost 140M vs. 100M in China during the last four quarters. (more discussion on the international market in our global market update next month)

We will be keeping a close eye on the trends in the wireless data sector in our blog, twitter feeds, future research reports, and articles. The next US Wireless Data Market update will be released in Oct 2009. The next Global Wireless Data Market update will be issued in Sept 2009.

Your feedback is always welcome.

Should you have any questions about navigating or understanding the economic and competitive icebergs, please feel free to drop us a line.

Thanks.

Chetan Sharma

Disclaimer: Some of the companies mentioned in this note are our clients.

US Wireless Data Market Update - Q1 2009 May 11, 2009

Posted by chetan in : 3G, 4G, AORTA, ARPU, BRIC, CTIA, Carriers, Devices, Enterprise Mobility, European Wireless Market, Mobile Applications, Mobile Content, Mobile Ecosystem, Mobile Entertainment, Mobile Gaming, Mobile Search, Mobile TV, Mobile Usability, Mobile Users, Networks, Speaking Engagements, US Wireless Market, Wi-Fi, WiMax, Wireless Value Chain, Worldwide Wireless Market , 4 comments

US Wireless Data Market Update - Q1 2009

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http://www.chetansharma.com/usmarketupdateq109.htm

Executive Summary

The US wireless data market grew 5% Q/Q and 32% from Q108 to reach $10B in mobile data service revenues. It marked the first time the US market has crossed the $10B milestone. Given the strong growth in data revenues shown by the top carriers and the increase in service revenues overall, it appears that at least for the time being that the worst is over for the mobile industry. In summary, the recession has been all but a tiny blip (from the service revenue perspective) in its growth trend and the US mobile market has weathered the downward spiral in economy better than its counterparts in other developing nations.

The US subscription penetration went passed 90%. While the flailing economy hit certain segments of the wireless ecosystem hard esp. the infrastructure and handset segments, consumers haven’t really pulled back on the mobile data overall spending. Additionally, the CAPEX spending will stay strong in 2009 given the activity around 3G/4G deployments and trials. As expected, the data card subscriptions were hit the hardest and there was an increase of prepaid subscribers which dropped the overall revenues for some of the carriers.

As we mentioned in our last research note that this time around, the fate of the US mobile industry is more closely tied to the overall economy compared to the previous recessions. As the consumer sentiment improved over the last couple of months along with better than expected Q1 2009 earnings from corporations, the mobile industry seems to be back on track. While the structural flaws in various industry segments remain, and the economy is a crisis away from the double dip, the outlook for the remainder of 2009 remains bright and we are expecting the overall data revenues to now increase by 24% compared to 2008.

US Wireless Industry in Recession - The light at the end of the tunnel might not be of the oncoming train

Note: For a detailed discussion of the US wireless industry in recessions, please see 2008 US Wireless Market Update.

The % GDP change dropped from 4.8% in 2007 to 2.3% in 2008. Q4 2008 reported a drop by 6.2% QoQ in one of the sharpest declines in the last quarter century. Q1 2009 reported a 6.1% decline. On an yearly basis, the GDP is expected to change by 3.2% for 2009 and the service revenues are expected to  account for 1.13% of the US economy by year-end.

As mentioned in the previous report, while in the past, the recession hardly impacted the wireless industry, this time around; it is going to be more tied to the recession. In the past couple of months, the consumer sentiment has improved and the Q109 earnings have been better than expected. While there are still many structural flaws in the financial and housing industries and the unemployment is at a 25 year high of 8.9%, consumers are feeling better about the economy and their own prospects in it. Most companies are being optimistic but cautious.

So, what does this mean? Well, the markets can still be volatile, but overall the market seems to be feeling better about the economy than it was in February. The Conference Board Consumer Confidence Index experienced a significant jump to 39 (relative scale of 100) from being at an all-time low of 25 in February.

Given that consumer sentiment is improving, it appears that US mobile data market is all but back from the recession. While some segments within the mobile industry might be suffering, there has been an increase in spending overall.

What to expect in the coming months?

We noted in our Q3 2008 note that we will get a better picture of the impact of the recession on the wireless industry in Q109 as it was the first full quarter after the seasonal holiday quarter. There are two micro trends that are clear. First, as expected, due to the high unemployment, the data card segment took a hit. It will recover in due course as more of the workforce comes back over in the next 18 months.

Also, as expected, there was a shift from postpaid to prepaid in some user segments. For example, for T-Mobile, prepaid constituted 61% of the net-adds in Q109 up from 57% in Q408 and 25% in Q108. It is not clear if the good times will bring back the prepaid subscribers to the postpaid realm or like the consumers who are canceling their landline connections and moving to mobile, these customers will get used to savings and the prepaid lifestyle.

It is quite likely that 50-60% of such consumers don’t go back to postpaid thus permanently lowering the ARPU base for such customers and carriers who have experienced more postpaid to prepaid shift will have to make up for the lost revenues someplace else (or maybe they can hire Oprah to send a tweet to her followers to upgrade to Postpaid. It will crash the system but increase the ARPU).

Rising unemployment continues to accelerate another trend - landline replacement by Mobile which reached almost 22% by Q109 (of course this benefits the mobile industry). This trend is irreversible and requires fresh thinking.

Messaging continues to grow. The messaging volume jumped 27% and messaging revenue was up 7% QoQ. The data access (excluding data card) including flat rate data plan subscriptions have also show significant strength lately. In addition to smartphones, we are also seeing increased mobile data activity amongst feature phone users.

The positive factors are helping negate the negative factors and given the strength of 3G and smartphone adoption, the increase in activity on the appstores front, and in general, a better awareness of mobile data services and applications amongst consumers, any decline due to the loss of data card revenue and postpaid transition to prepaid accounts has been taken care off. In particular, Verizon and AT&T have done really well. Smartphones remain a bright spot, which in turn has a direct positive impact on the data revenues. Even with the decline in handset sales, smartphone segment will continue to increase in 2009 accounting for almost 30% of the overall device shipments.

We are likely to see continued price and margin pressure on subscription plans and as a result, voice ARPU will continue its downward trend and data ARPU will become a more prominent factor of the ARPU mix by the end of 2009 reaching over 30% of the service revenues.

This will lead to new business and pricing models for e.g. some will find the low flat rate pricing untenable in the long-run without a fundamental rethink of the network and business architecture.

Coming back to the 2009 forecasts, we are raising our estimates for the mobile data service revenues to $42B for the year. We will be keeping a very close eye on the micro- and macro-trends and reporting on the market on a regular basis in various private and public settings.

Against this backdrop, the analysis of the Q109 US wireless data market is:

Service Revenues (Slides 11, 18)

• The US Wireless data service revenues grew 5% Q/Q to $10B in Q109. Compared to Q108, the data service revenues grew 32%.
• It marked the first time the US mobile data service revenues crossed $10B. It is also the first time any country has reported a $10B quarter (for mobile data services).
• Thanks to the Alltel acquisition, Verizon’s data revenues grew the most - 18% QoQ and 46% YoY. AT&T experienced a 39% lift while T-Mobile reported a 24% increase in YoY data revenue growth.
• Last quarter AT&T surpassed Verizon in data revenues for the first time since 2005 and in Q109 Verizon duly took many of titles back from AT&T becoming the number 1 carrier in almost all the categories.
• AT&T and Verizon now account for 68% of the market data services revenues. Sprint had a fourth consecutive quarter of data revenue growth.
• The average industry percentage contribution of data to overall ARPU is now $26%. US market is likely to exceed the 30% mark in 2009.
• The top four US carriers are now a permanent fixture in the top 10 global operators by mobile data service revenues occupying #3, #4, #6, and #8 spot respectively. Apart from NTT DoCoMo and China Mobile, Verizon Wireless and AT&T are the only two other operators generating more than $3B in quarterly mobile data service revenues.

ARPU (Slides 12-15)

• Overall ARPU decreased by $0.91. Average voice ARPU declined by $1.17 while average data ARPU grew by $0.26 or 2% and couldn’t negate the drop in voice ARPU.
• Sprint led in data ARPU with $15 followed by Verizon at $14.16. In terms of % contribution, Verizon led with 27.91% followed by AT&T at 27.2%.

Subscribers (Slides 16-17)

• In Q109, the US market added almost 3M new subscriptions down 33% from Q108.
• The number of data subscribers has been on the rise with Verizon leading the way. At the end of Q109, 62% of US subscribers were using some form of data services.
• The messaging volumes in the US market now average 485 messages/subscriber/month or at the frequency of a message/sub every 1.5 hours. The leading messaging nation is Philippines where consumers routinely send a message/hr on average.
• In terms of net-adds, Verizon led in Q109 with 1.3M net-adds, edging its friendly rival AT&T which added 1.2M net subscriptions. Sprint losses reduced to 180K subscribers.
• With its Alltel acquisition, Verizon became the number one carrier in the US easily overtaking AT&T. It now has 86.6M subs and secured the bragging rights to being the biggest operator in the Americas.
• The 3G penetration in the US went past 40% in Q109. Verizon led the pack while T-Mobile is slowly expanding its 3G coverage. The growth in 3G and smartphones is helping offset some of the downward pressure on the data revenues and overall ARPU.

Applications and Services

• Non-messaging services continue to grab 50-60% of the data revenues for the US carriers. For the first time the non-messaging share exceeded 60%.
• The flat-rate pricing movement that was started by Willcom in Japan which moved to Europe became more prevalent in the US market with industry wide flat-rate pricing plans that included data. All the major carriers seem to be offering flat-fee access plans for most of the new smartphones being introduced in the market. Approximately 17% of the consumers have flat-rate data plans. We will see a further acceleration of this trend aided by the recession.
• There are probably 18-20 sub-segments within mobile data services and consolidation looms. While the valuations are still high for rapid consolidation, we think that due to recession pressure, the M&A scene is starting to heat up.
• The usage and data consumption trends are enabling carriers to accelerate their 4G plans and develop long-term business and technical strategies (I will be moderating a panel on “The future of Broadband” at the “Future in Review (FiRE)” conference on May 20th in San Diego where some of the best minds on broadband will be debating the evolution of our industry)
• The appstores battle is intensifying with OEMs and carriers are announcing their plans and some of them are opening their wares to woo the developer community. In the midst of the appstores hoopla, Apple announced the passing of the 1 Billion download mark with increasing number of developers participating the ecosystem. The new functionality being released with 3.0 is going to take the battle up a notch. The clear-cut business model of 30/70+ split is attractive to the long-tail of developers. While there is no dearth of applications, findability remains a challenge. Also, appstores are changing the monetization strategies for content and application developers (I will be moderating the panel “Wireless Monetization” at TiECON on May 16th in Santa Clara)
• Slowly but surely, mobility is becoming pervasive across industry verticals. Mobile Health looks very promising and the impact could be global. (I will be participating in a conference on mHealth being held in San Francisco on May 22nd by UN Foundation, Vodafone Foundation, UCSF Global Health Services, Berkley Engineering, Cisco, and NetHope)

Handsets

• After selling over 100M units for seven straight quarters, Nokia slipped to 93M handsets in Q109, still more than the next three players combined but an 18% drop from Q408 nevertheless. Samsung and LG have been really gaining on their rivals in the past year and are now at #2 and #3 respectively. Motorola and Sony Ericsson with 6% share each round up the top five.
• While Apple has been stealing all the press, RIM upped the ante by claiming leadership in the smartphone wars by outselling Apple in the first quarter of the year.
• The growth in smartphone usage is also putting pressure on the networks which are not able to handle the load during peak times in certain cities thus forcing carriers to look for alternate strategies to satisfy the demand for broadband - metered billing, UMA, Femtocells, Hotspot buys, WiMAX, LTE, and others.
• Rest of 2009 is eagerly awaiting the release of Palm Pre, several Android handsets from HTC, Samsung, Motorola, and others, Windows devices along with follow on of Danger devices, new model(s) of iPhone, and other touch screen devices.

Misc.

• Not surprisingly, Venture money in the mobile sector experienced a rapid decline. Compared to Q108, venture financing declined by 58%. (Source: Rutberg)
• In a sign of convergence battles to come, T-Mobile’s @Home and various Femto cell initiatives are taking hold. Cable operators are also aggressively seeking triple-play by providing the wireless component of the service.

We will be keeping a close eye on the trends in the wireless data sector in our blog, future research reports, and articles. The next US Wireless Data Market update will be released in Aug 2009. The next Global Wireless Data Market update will be issued in Sept 2009.

Your feedback is always welcome.

Should you have any questions about navigating or understanding the economic and competitive icebergs, please feel free to drop us a line.

Thanks.

Chetan Sharma

Disclaimer: Some of the companies mentioned in this note are our clients.

Carnival of Mobilists #169 April 12, 2009

Posted by chetan in : 3G, 4G, CTIA, European Wireless Market, Mobile Advertising, Mobile Applications, Mobile Ecosystem, Mobile Entertainment, Speaking Engagements, Wireless Value Chain, Worldwide Wireless Market , 7 comments

Last week at CTIA in Las Vegas I had the opportunity to meet many of my friends and colleagues, old and new. Such events remind us that it is the people you associate with that makes our industry vibrant and exciting. This week, it is my pleasure to showcase and celebrate the thinking and work of my friends, many of whom I have known for many years. Most have written important books for our industry and others have at least a tome in them.

 

In no particular order, they are:

First up is Ajit Jaokar, co-author of recent book “Social Media Marketing,” discussing an important issue of opening up the carrier network. He writes an in-depth post on how telecom companies should be thinking about open as we get into the 4G era. Very Interesting commentary.

Tomi Ahonen is one of the most prolific writers I have come across in the wireless industry. He has written more words than many read in a lifetime. Off late, our industry has been wondering if they will ever be able to monetize mobile social networking. Tomi in his usual flair points through case studies and examples, a way forward. Also, checkout his indispensable Pearls series.

At CTIA (BRIC event), I was impressed with the discussion of Zeebo by Mike Yuen at Qualcomm. Martin Sauter, author of Beyond 3G, an important book of the evolving ecosystem, writes about Zeebo: Gaming for the next billion.

Russ Buckley, a tireless advocate of Mobile Advertising and all things mobile pens a very interesting piece by tweaking George Orwell’s classic “1984.” Pour your tea and dive into the post.

Judy Breck, author of several books including the latest - Intertwingle, is the energy behind the Carnival who keeps all of us straight. She is also a big proponent of learning and education. A big cheer for her. She talks about Russ Buckley’s post on the new Sprint’s commercial.

Lately, our industry has been consumed by 4G. Volker Hirsch takes a look at how 4G might influence the mobile gaming environment.

Ernest Doku of Omio.com also writes about the theme that Ajit picked up - Should networks fear Skype?

James Cooper at mjelly summarizes the key iPhone app stats.

Andrew Grill, a great evangelist for the mobile advertising industry discusses the recent survey by KPMG which has some key insights into the mobile ad market.

Barbara Ballard, author of Designing the Mobile User Experience and an important voice of reason in the mobile industry writes about her latest initiative on mobile SEO. Check it out and contribute.

Tam Hanna looks at the Symbian ecosystem from a developer’s point of view.

James Pearce of dotMobi raises some interesting thoughts regarding mobile maps.

My own 2c to the conversation is in the form of my CTIA 2009 Roundup.

You can catch many of the the colleagues listed above at the upcoming Future Technologies Conference on April 24th.

Finally,  a shout-out to our friends at MOMO Amsterdam. They host some of the best MOMO events anywhere in the world and have a great line-up coming up on June 1.

I will encourage you to add these blogs to your RSS feed, follow these guys on twitter, chase them at conferences, and call upon them when in doubt.

Next carnival is going to be hosted at TamsBlackberry. Be sure to create and submit your best posts.

Until next time, best wishes.

CTIA 2009 Roundup April 6, 2009

Posted by chetan in : 3G, 4G, AORTA, ARPU, BRIC, CTIA, Carriers, Devices, European Wireless Market, IP, Indian Wireless Market, International Trade, Japan Wireless Market, Location Based Services, Mergers and Acquisitions, Mobile Advertising, Mobile Applications, Mobile Content, Mobile Ecosystem, Mobile Entertainment, Mobile Gaming, Mobile Search, Mobile TV, Mobile Usability, Speaking Engagements, Strategy, US Wireless Market, Unified Messaging, Wi-Fi, WiMax, Wireless Value Chain, Worldwide Wireless Market , 1 comment so far

CTIA 2009 Roundup

http://www.chetansharma.com/ctia2009.htm

CTIA 2009 in Pictures

CTIA provided a boost to the Las Vegas economy by hosting the 2009 International CTIA in the sin city. Prior to the show, we knew that the attendance will be down due to the economy and it was clear from day 1 that it will be a less busy event. Attendance was probably down 30-40%, Exhibitors seemed down by a good percentage as well with many opting for meeting rooms instead or skipping the show altogether. The big double story compounds were downgraded to smaller fields. Samsung and LG didn’t plaster the town with massive banners, taxis weren’t covered in advertisements. It was not all bad though, the probability of being trampled by humans reduced, taxi lines were shorter (though no less annoying) and the quality of the show was still pretty good. We had a jam packed schedule. This note summarizes the observations from the show.

Numbers CTIA released its semi-annual numbers. For 2008: 270M subscribers, $148 billion in service revenues, $32 billion in data revenues (just for reference, this is more than the total global Hollywood box-office revenue which came in at $28B), 2.2 trillion in MOU, 1 trillion TXT messages. You can checkout our annual US data market analysis which was released last month here.

Etech Contest – Prior to the event, CTIA invited us to judge the Emerging Technology Contest. It was fun reviewing the various entries. The award winners are announced here. Congrats to all.

My CTIA started early with a couple of sessions at the pre-conference event - BRIC Mobile Market Summit. The quality of the discussion was pretty good. I gave a talk on the Opportunities in the Indian and Chinese mobile markets and discussed where the opportunities in these two fastest growing markets as well as dispel some myths that engulf most companies.

After that, I joined the panel with other experts in the industry to have a lengthy discussion of the trends and opportunities in these markets including Latin America.

Unfortunately, our workshop on “Monetizing Mobile User Generated Content” got canceled due to low attendance or maybe folks are just not interested in monetizing these days. I will be discussing some of the similar themes in my talk at the NAB Show (MES) in Vegas on 22^nd April. I will also be moderating a panel on Innovations in Mobile Experiences.

If interested, clients of Chetan Sharma Consulting can request the slides from any of the talks.

Themes: The main themes of the conference were: Broadband (primarily around 4G and LTE with sprinkles of WiMAX) and data usage, Green, Mobile Health, Appstores, Rich Communication and Social Networking.

Broadband

4G – My first 4G project was back in 2003 for NTT DoCoMo when 4G didn’t even enter industry’s vernacular. Most operators were figuring out their 3G strategies. Six years hence, we have come a long way. Broadband, 4G, and LTE were the core themes of the conference and there was visible progress from the last CTIA with more test results, actual devices, and real demos. While the current reports suggest that some form of deployment will take place in 2010, we don’t expect the “real” commercial deployments before 2011, LTE voice will even take longer. So, where does this leave WiMAX. With each passing day, the role of WiMAX as a niche technology is affirmed. The backhaul bottleneck problem is also becoming prominent and the enhancement of backhaul is behind the RF infrastructure to provide any substantive improvements in data throughputs at least in the near future.

I will be moderating a panel on 4G at Future in Review (FiRE) conference considered by Economist the best Tech conference on the planet (panelists include executives from Telstra, Qualcomm, Clearwire, and others) to get delve deeper into the evolution of 4G.

The Broadband Stimulus – Many companies are eying the $8B broadband stimulus package. The process of how they are going to be granted seems chaotic with unintended consequences. My feeling is that it is a lost opportunity. Instead of just looking at incremental enhancements, US could have been bold and improved existing and new broadband deployments by over 50-60 times.  (More discussion here)

Mobile Health

Keynotes – I thought Dr. Eric Topol, Director, Scripps gave perhaps the most effective keynote addresses in recent memory. Keynotes are generally a drab affair. Instead of inspiring through vision many put the audience to sleep with their product announcements. Dr. Topol’s speech was so rich in content, his words were filled with such passion, and his articulation was so inspiring that most entrepreneurs in the room were energized to make a difference. I commend CTIA for inviting him. He is joining Qualcomm’s Don Jones (a fierce proponent of mHealth) and others to form the first ever Wireless Health Institute in San Diego. Expect some really cool stuff to come out of them. However, to be most effective, health institutions need to get on board with the program starting with the simplest of things like “txt messages.” Come on folks, move into the 21^st century!

Health – For the first time, there was significant discussion on mobile’s impact on the health care industry. My masters is in Biomedical Engineering so it is great to see the marriage between the two industries. I strongly believe if we can get past some of the bureaucratic nonsense, mobile can have a significant lasting impact on the quality of life and healthcare in both the developing and developed nations. Some of the stuff is really amazing (iBrain, iPill, iShoe, you get the picture). I will have more discussion on the subject in the coming days.  

Applications and Services

You say appstore, I say appworld, you say market, I say marketplace – I have been working on appstores for so long that I can’t help but be amused by the recent frenzy of appstores sprouting like mushrooms. I think overall it is good for the industry as each of the providers will push each other in areas of innovation and pricing models thus opening up the industry for developers and consumers. However, the fragmentation also increases as a result and something has to give because developer’s attention and resources are finite. There aren’t many companies who can pull-off a successful developer program (this is one area where Microsoft has some advantage because of significant experience in cultivating developers). Apple’s model has already forced carriers to accelerate their short-term and long-term strategies. T-Mobile USA saw the writing on the wall earlier than most and is further along in its plans. Current implementations are still quite primitive with much potential for improvement.

Rich Communication – Talked to some companies (Aylus, Ericsson, Alcatel-Lucent, etc.) about rich communication services that integrate various experiences on the mobile device including chat, voice, data, social networking, video, etc., onto a single screen. The user experience is enhanced leading to newer sources of revenues for operators.

Netbooks also seem to be on operator roadmaps with 33% of these devices expected to be sold through the carrier channels in 3 years. Will Nokia and Motorola get active in this space? Or will the new entrants use netbooks to enter the phone market? Inspired by Kindle, many players are getting bolder and investing in application specific devices (a trend we wrote about in our mobile advertising book last year). Examples: a cool new wireless video game console – Zeebo being launched in Brazil and nuvifone being launched by Garmin and Asus.

Mobile Social Networking – Some interesting social networking features and functions are coming down the line. I am convinced that carriers need to treat social networking as a core service rather than a bolt on application. I almost wrote a book “The Facebook Effect” but 3 books in a year were too many so taking a break for now. (Maybe the next one will be “The Twitter Effect”).

Mobile Advertising – Though we have been involved with several mobile advertising projects, at the show, it felt the segment excitement was quite flat and many companies are struggling to stay in business. The consolidation hasn’t come yet but things are likely to start changing in the next few months. I also think that industry needs to start thinking about much more compelling and engaging closed-loop creative experiences rather than just impressions. Also, third party verification is needed (who is going to step up?). Finally, the role of the mediation layer is becoming important. The real substantive announcement came before CTIA with four major US operators agreeing to collaborate on best practices. Kudos to MMA for orchestrating the agreement.

Green

Green is the new black – With so much focus on cleantech and global warming, vendors are stepping up and making a dent in the carbon put out by the industry. There were some really cool solar chargeable devices as well as applications that keep the users green-aware. Being green is a competitive advantage.

Miscellaneous

Devices – The quality of devices that coming out keeps getting better. Stuff coming out from Samsung, LG, and INQ is pretty darn cool (Motorola, Nokia, Palm have some good stuff coming out as well). There were some neat concept phones on display as well (I know, I know, we are ways out but I think we will see some of these come to light sooner than we think). I thought one of the coolest new device was from LG – GD900 with transparent keypad. Samsung’s DLNA and AMOLED based devices were also quite good. They were also showing the WiMAX Smartphone Mondi. ZTE is also planning to enter the US market in a big way. While new Androids were hard to spot, several of them are scheduled to be released in the next few months.

NTT DoCoMo – Each CTIA, I love spending time in DoCoMo’s booth as they are always at the cutting edge of what’s to come. Downloading your digital key to your handset to open your hotel room by waving your phone, controlling every piece of equipment in your home via your cell phone, i-concier: your friendly on-screen butler, separable phones were some of the highlights.

Best booth: Most Creative – SpinVox, Most Hip – LG

Interesting companies – While it is difficult to meet each of the upcoming startups, couple of companies caught our attention: Waze out of Israel with its crowd-sourcing based approach to real-time traffic information and Kovio with its ability to lower the cost of printed silicon.

3G connection – My 3G connection was so good throughout the show that I didn’t need to lug my laptop around and did 100% of my communications for 3 days from my phone.

Your feedback is always welcome.

Thanks

Chetan

Disclaimer: Some of the companies mentioned in this note are our clients.

CTIA 2009 in Pictures

Posted by chetan in : 3G, 4G, AORTA, CTIA, Devices, US Wireless Market, Worldwide Wireless Market , 1 comment so far

 

Understanding the wireless opportunities in the world’s top two markets - China and India March 23, 2009

Posted by chetan in : BRIC, CTIA, Carriers, IP, IP Strategy, Indian Wireless Market, Wireless Value Chain, Worldwide Wireless Market , 3 comments

The first time I spoke on the topic of Opportunities in the BRIC Mobile Markets in a conference setting was back in the summer of 2006 in Moscow at the inaugural Interop conference. At the time, BRIC mobile markets were just emerging to be a big force. Net adds in the four countries amounted to 159M in 2005, in 2008, just India and China exceeded 212M. In the first two months of this year, India alone has added over 28M subscriptions. We were amongst the first ones to forecast this tremendous growth that was going to shake up the global mobile markets.

We summarized our observations in the special report for the Wireless World magazine.

Fast forward 3 years. I am putting together another presentation on the subject focused on India and China and the mobile opportunities in these markets. Interesting enough, some of the basics remain the same, and they have more to do with Business 101 than anything else.

The lure of a billion subscribers is quite tempting but these markets are not for the faint-hearted. If you go in without understanding the markets and how business is done, you will be spit out of the market in no time. The fate is similar for big and powerful players like Vodafone to small startups you may have never heard from. Companies like Real Networks who have had success worldwide learned the hard way that these markets are no walk in the park.

Here are some of the factors, IMHO, that any company needs to keep in mind before spending too much energy in these markets. They are:

Understand the market by spending time on the ground: Many a times, companies think they can enter the market from a distance, parachute some executives, and things will fall in place. Rarely are things that simple. One must spend time in the markets with potential customers, suppliers, partners, analysts, and others to get a “real” grip of the market.

Perseverance: The customers in India and China can wear you down and if you have the enough strength to last long, you are likely to be rewarded. That’s one of the reasons, even some of the stronger players didn’t succeed but smaller players like Venturi Wireless (Disclosure: VW is a client of ours) have done well with carriers in these markets.

Build Relationships: Relationships and trust matters more in Asia than in the western markets. If you have spent enough time building relationships with key companies, suppliers, individuals, it might take a long time, but in the end, that’s are what is likely to pay off.

IP Protection: IP has a different meaning in these markets. It is not enough to just file patents, technology must also be protected or else the probability of it being copied are high.

Hire local: To be successful, it is rare that you can manage and operate from afar. It is not only inefficient, it is also a risky proposition. You have to be close to the customer. Hiring local talent who understands how business is done and when “yes” actually means “yes” is critically important.

I will be discussing these and other areas in my talk at the BRIC Mobile Markets conference at CTIA on 31st March.

US Wireless Data Market Update Q408 and 2008 March 2, 2009

Posted by chetan in : 3G, 4G, AORTA, ARPU, BRIC, CTIA, Carriers, Devices, European Wireless Market, Indian Wireless Market, Japan Wireless Market, Location Based Services, Middleware, Mobile Applications, Mobile Content, Mobile Ecosystem, Mobile Entertainment, Mobile Search, Speaking Engagements, US Wireless Market, WiMax, Wireless Value Chain, Worldwide Wireless Market , 2 comments

US Wireless Data Market Update Q408 and 2008

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http://www.chetansharma.com/usmarketupdate2008.htm

Executive Summary

The US wireless data market continued to ignore the recession doldrums in Q4 2008 and grew 7.3% Q/Q and 38.7% from Q407 to reach $9.4B in mobile data services revenues. In 2008, the mobile data services revenues reached our original estimate of $34B. Even as the global industry crossed 4B in subscriptions and $1T in total revenues, the nervousness due to the current recession has been palpable. While the flailing economy has started to hit hard on the wireless data ecosystem esp. the infrastructure and handsets segments, consumers haven’t really pulled back on mobile data spending overall, just yet. There are sub-segments within mobile data revenue stream that are starting to feel the pinch like data card subscriptions and downloadables. Also, in an event of a longer recession, the fate of the US mobile industry will be more closely tied to the overall economy this time compared to the previous recessions.

US Wireless Industry in Recession - A collision of two perfect storms

Back in 2005, we published a paper titled “3G - Hitting the Mass Market” in which we presented the case for an explosive market growth in the US market riding on the back of 3G and posited that by 2009, US will become the leading nation in terms of the number of 3G subscribers. As of 2008, US crossed 100M 3G subscribers catapulting ahead of all industrialized nations in terms of total subscribers (% penetration was around 40%). The paper was based on our work in various markets and study of diffusion trends in the global markets. That study became the subject of several articles and cover stories and was one of the central documents (including our testimony in the case and a report to the President) referred to in one of the most prominent wireless industry cases in front of the US International Trade Commission. Our basic thesis was simple - once you have the favorable ecosystem factors in place, the market is ripe for explosive growth.

2008 was a key year for growth in the mobile data services adoption in the US market. The confluence of 3G, better devices and the smartphones, and the applications ecosystem set the stage for tremendous growth. We already saw signs of significant user adoption and the market grew 7-9% QoQ each quarter in 2008. From almost being in the bottom-most square in 2005 (in our 9-box ARPU charts), US market gained strength to find itself amongst the leaders by the end of 2008 (more on this in our Global Wireless Data Market update for 2008 coming out later this month). At mid-2008 point, 2009 looked to be another year of growth and adoption.

However, the current recession is not your parent’s recession. The problems with the economy are so deep and its impact on the consumer spending and sentiment is so massive that most economists are scrambling to make sense of it. Nobody really has a firm grip on how to fix the current mess because a recession of this magnitude complicated by a globalized economy hasn’t occurred before, so there is no playbook to lean on. We might get lucky and things could turn around in a couple of quarters but things could also take a turn for the worst that might take many more quarters to recover. Markets are incredibly volatile and so are the consumers. All consumer confidence indices are down to their worst ratings ever (The Conference Board Consumer Confidence Index was down to 25 (on a relative scale of 100) to reach yet another all-time low in February (index began in 1967)).

So, we stand at the junction of two perfect storms - one that has the promise of an incredible surf to take the mobile industry to new heights while the other is hell bent on destroying everything in its path. Will the growth surf be strong enough to absorb the economic tidal wave? or will it set us back in time? or will we end up somewhere in between?

The answer lies in how quickly the consumer sentiment and market psychology improves and stays consistently positive over a period of 3-6 months. If the situation improves in the next 1-2 quarters, the recession will be all but a blip in the overall US mobile data market historic charts. If however, this downward spiral continues and the confidence in the markets is not restored, consumers will start cutting some of the discretionary mobile data spending, even cutting down some family lines, and downgrading of mobile plans (including data) at an accelerated rate. If it is the latter, we are in for a fundamental reset of the economy as Steve Ballmer eloquently outlined in his talk to the Democratic Caucus in Feb.

Impact on the US Wireless Industry during Recessions (Slides 11 and 12)

The current recession is not the first one that the US wireless industry has faced but it is quite different this time around. The first one came in 1990 and lasted for one year and the second came amidst the dot-com bubble and terrorist attacks in 2001 and lasted for two years. Historically and logically, GDP and consumer spend is closely correlated. When the economy contracts, so does the consumer spending. A look into the income elasticity of demand indicates a change in consumer mobile services demand as a result of drop or change in consumer income. Different patterns of consumer demand emerge in different countries depending on the state of the industry during the specific downturn.

To put things in perspective, US represents 21% of the global economy and the US services revenue represents 1.1% of the US economy as of 2008. In access of 70% of the US economy is linked to consumer consumption so you can see the tight linkage between the GDP and the consumer spending (the US consumer spending alone is more than the economies of China and India combined).

If we compare the US GDP data to the mobile services revenues and subscriber data, there is some correlation during recessions i.e. service revenues contract but the state of the industry was quite different around on previous occasions. The % change in mobile services revenues and subscriptions went down with the drop in GDP in both instances and recovered as the GDP pulled back after the recession. During the first recession, mobile was a niche service. By 2001, mobile had passed the inflection point on to become a mass-market phenomenon but data services market was largely non-existent. By 2008, the US mobile market had matured with high-degree of subscriber penetration and mobile data had become a healthy and vibrant industry.

Let’s look at how the mobile industry behaved in the various recessionary periods over the past two decades.

1990-1991 The % GDP change (GDP compared to previous year) dropped from 5.8% in 1990 to 3.3% in 1991. The mobile services revenues % change dropped from 36% to 26% over the same time period, the subscriber % growth dropped from 51% to 43%. Subscriber penetration at the end of 1990 was around 3%. Given the smaller base, the drop in mobile numbers can be partially attributed to the fact that as the % subscriber penetration grows the % change numbers come down anyway. In 1992, when % GDP jumped to 5.7%, the % change in mobile services revenues and total subscribers jumped to 46% and 37% respectively, thus quickly reversing the downward trend.

2001-2003 The % GDP change dropped from 5.9% in 2000 to 3.2% in 2001. Over the same period, % change in mobile services revenues dropped from 31% to 24% and % change in total subscribers dropped from 27% to 17%. However, as you would see in slide 11, these numbers have been slowly dropping regardless of the recession as the subscriber and revenue base grew. The subscriber penetration in 2000 was 39%.

2007- The % GDP change dropped from 4.8% in 2007 to 2.3% in 2008. Q4 2008 reported a drop by 6.2% QoQ in one of the sharpest declines in the last quarter century. The nature of this recession is quite different as well. While the previous recessions were limited to certain segments of the overall economy, the current recession has touched almost all sectors with a vengeance. The subscriber penetration at the end of 2008 was 89%. The overall ARPU stayed pretty steady around $50 between 2001 and 2008, while data ARPU became a growing component of the overall mobile services revenue.

What to expect in the coming months?

As we noted in our Q3 2008 note, in some sense, the Christmas quarter might have masked some of the microtrends within the mobile data segment of the industry though Europe started to feel the pinch in Q4. If one looks deeper into the sub segments, as we contemplated in our Q3 research note, it is clear that the layoffs are having an impact on the data card revenues (which account for approx. 10-12% of the overall mobile data revenues in the US) as the enterprises are dropping access cards with employees. Downloadables revenues were down from some segments of the user base as discretionary spending tightens.

Also, there was a shift from postpaid to prepaid in some user segments. For example, for T-Mobile, prepaid constituted 57% of the net-adds in Q408 sharply up from 23% in Q407 (though Suncom subscriber base probably has something to do with it). Rising unemployment has accelerated another trend - landline replacement by Mobile which reached almost 20% by Q408 (of course this benefits the mobile industry). This trend is irreversible unless new experiences can be introduced.

Messaging continues to grow. The messaging volume jumped 15% and messaging revenue was up 5.5% QoQ. The data access (excluding data card) including flat rate data plan subscriptions have also showed significant strength offlate. In addition to smartphones, we are also seeing increased mobile data activity amongst feature phone users.

The key question is - will the increase in the mobile data subscriber base nullify the loss in data subscriptions? and the answer seems to be - likely yes. But, if the job losses continue at the current rate, we will start to see flattening of data revenues in Q109 for some operators and a gradual decline over the course of the year. We have already started to see infrastructure (operators are slowing down 3G/4G investment) and device segments (replacement cycles are getting longer) getting hit pretty hard. Smartphones remain a bright spot, which in turn has a direct positive impact on the data revenues. Even with the decline in handset sales, smartphone segment will continue to increase in 2009 accounting for almost 30% of the overall device shipments.

As we eluded to earlier, another factor at play is the growth in 3G and smartphone penetration in the US market, both of which have been responsible for increasing the usage and hence the data revenues. At the end of Q408, 3G penetration was approximately 40% and the data penetration had reached 60%. Smartphone penetration has been inching up as well. In fact, all the service providers and OEMs have been targeting sub-$200 price point, which seems to be a good sweet spot for consumer adoption. The above two factors have also been helping negate any cancellations or downgrading of data plans.

We are likely to see continued price and margin pressure on subscription plans and as a result, voice ARPU will continue its downward trend and data ARPU will become a more prominent factor of the overall ARPU mix by the end of 2009. The longer the recession lasts, the more permanent the shift in voice ARPU becomes. Customer retention will edge customer acquisition. Same would be true with the consumer behavior and expectations. This will lead to new business and pricing models for e.g. some will find the low flat rate pricing untenable in the long-run without a fundamental rethink of the network and business architecture.

The percentage contribution to the overall ARPU from data reached almost 25% in 2008 and is likely to exceed 30% by the end of 2009. For the first time since 1998, the voice ARPU dip below $40 in the US.

During the last downturn, the likes of Google emerged. These players didn’t have much to do with the mobile market at the time but have gradually put their indelible stamp on the future of the industry. It is almost certain that new media and telecom models will emerge as a result of the current crises with new players shaping the next decade of the mobile industry.

Whether this recession invites regulatory intervention remains to be seen. Government can encourage mobile adoption by reducing taxes and fees on mobile services, avoiding unnecessary regulations, making more spectrum readily available, increasing competition, investing and incentivizing in mobile broadband.

Also, will the industry price or innovate its way out of this recession? The short-term knee-jerk reaction is to generally lean on price-differentiation but innovative services and business models can lay the ground work for a more sustainable differentiation and long-term benefits from new services adoption.

Coming back to the 2008 forecasts, our estimate of the mobile data revenues was spot on. The annual mobile data services revenue stood at $34B. We will be keeping a very close eye on the micro- and macro-trends and reporting on the market on a regular basis in various private and public settings. Q109 numbers will give us a better insight into the impact of the current recession on the US mobile industry and the global markets at large.

The bottom line is that in an event of a long and deep recession (i.e. beyond 2009), which I am afraid seems to be the case, the fate of the US mobile industry will be more closely tied to the overall economy this time compared to the previous recessions. If the consumer and market sentiment improves within the next 3-6 months, the mobile data industry will continue its rapid growth. Despite a difficult environment, we expect the mobile data services revenues to grow by at least 15% YOY in 2009.

Against this backdrop, the analysis of the Q408 and 2008 US wireless data market is:

Service Revenues (Slides 14 , 21, 22)

• The US Wireless data service revenues grew 7.3% Q/Q to $9.4B in Q408. Compared to Q407, the data service revenues grew 38.7%.
• AT&T’s data revenues grew the most - 12% QoQ and 52% YoY. Verizon experienced a 42% lift and T-Mobile saw a 30% increase in YoY data revenue growth. As expected, both AT&T and Verizon became two of the four operators to exceed $10B in data revenues for the year for the first time by (global) operators besides NTT DoCoMo (China Mobile is the other carrier to join the club).
• AT&T surpassed Verizon in data revenues for the first time since 2005 though for the year Verizon still ended up being ahead for the third straight year.
• AT&T and Verizon now account for 62.5% of the market data services revenues. Sprint had a third consecutive quarter of data revenue growth after falling behind its peers for the past couple of years.
• The average industry percentage contribution of data to overall ARPU reached 25%. In 2007, the percentage contribution stood at approximately 19.3%. US market is likely to exceed the 30% mark in 2009.
• T-Mobile USA edged past O2 UK to secure the 8th spot in the top 10 rankings of global mobile operators by data revenues. For the year, Verizon and AT&T improved their rankings to #3 and #4 respectively at the expense of KDDI which dropped to #5. Sprint Nextel maintained its # 6 spot. AT&T and Verizon are in the select group of four global operators who are now generating almost $3B or more in data revenues/quarter (the other two are NTT DoCoMo and China Mobile).

ARPU (Slides15-18)

• Overall ARPU decreased by $0.36. Average voice ARPU declined by $1.13 while average data ARPU grew by $0.77 or 6% but couldn’t negate the drop in voice ARPU.
• AT&T led in postpaid data ARPU at $16.30 (or 27.35% of the revenues) followed by Sprint at $14.50 (or 25.89%).

Subscribers (Slides 19-20)

• In 2008, the US market added almost 15M new subscriptions down 32% from 2007. Q4 also saw a decline from Q3 net-adds for the first time in recent memory.
• The number of data subscribers has been on the rise with Verizon leading the way. At the end of Q408, Verizon had 74% of its subscribers using some form of data services. The messaging volumes in the US market now average over 110B messages/month or at the frequency of a message/sub every 2 hours. In comparison users in Philippines average routinely send on an average, a message every hour.
• In terms of net-adds, AT&T led in Q408 with 2.1M net-adds, edging its friendly rival Verizon which added 1.4M net subscriptions. Sprint lost another 1.3M in Q408.
• With its Alltel acquisition, Verizon became the number one carrier in the US easily overtaking AT&T. It now has 80M subs and secured the bragging rights to being the biggest operator in the Americas.
• The 3G penetration in the US touched 40% in Q408. Verizon led the pack with over 65% 3G subscriber penetration. T-Mobile is slowly expanding its 3G coverage. The growth in 3G and smartphones is helping offset some of the downward pressure on the data revenues and overall ARPU.

Applications and Services

• Non-messaging services continue to grab 50-60% of the data revenues for the US carriers.
• The flat-rate pricing movement that was started by Willcom in Japan which moved to Europe started to take firm roots in the US market with industry wide flat-rate pricing plans that included data. All the major carriers seem to be offering flat-fee access plans for most of the new smartphones being introduced in the market. Approximately 15% of the consumers have flat-rate data plans. We will see a further acceleration of this trend aided by the recession.
• There are probably 18-20 sub-segments within mobile data services and consolidation looms. Who will be the last man standing post the nuclear winter? While the valuations are still high for rapid consolidation, we think that due to recession pressure, the M&A scene will heat up by Q309.
• Will Mobile Advertising be the rising star from the crisis or one of its victims? Clearly, there are a number of advertisers and brands that are scaling back on the experimental dollars thus shrinking the mobile ad spend. On the other hand there are some savvy brands that are pulling back from the traditional mediums like print which don’t really work and putting more money into digital including mobile. Mobile offers the best ROI of all mediums but there is lot of ground work to be done before it becomes a thriving advertising channel. In fact, for the mobile media and content ecosystem, mobile advertising lends very well to the belt-tightening trends. It will be interesting to see if operators use this opportunity to lay the foundations of a long-term mobile advertising strategy or ignore it completely. Stay tuned for some of our thoughts on the subject. Incidentally, this week marks the one year anniversary of our best-selling Mobile Advertising book. Our thanks to all the readers and companies who have adopted it into their education and sales curriculums and product strategies making it a worldwide success.
• As we had mentioned back in July, Apple easily surpassed its 10M target in Q308 buoyed by its 100 country expansion plan. The broadband and appstore capabilities are quite attractive to consumers and it shows. VPN and direct access to Exchange is helping in getting many more users into the mix and making IT folks less apprehensive. The clearcut business model of 30/70 split is also attractive. While there is no dearth of applications, findability remains a challenge.
• Apple’s success is inspiring carriers and OEMs to launch similar app-stores. Many operators launched an upgraded version of their existing Appstore offerings (and so did Google and RIM, even Microsoft and Nokia) along the lines of Apple’s initiative with promises of greater control to the application developers. However, many of such initiatives will fall flat due to weak developer ecosystems.

Handsets

• Nokia eclipsed 100M unit sale in Q408 for the seventh straight quarter. It sold over 113M handsets in the quarter, more than the next three players combined. Nokia’s global market share stood at 38.6%. Samsung surged to 52.8M in handset sales for the quarter. For the year, the industry again eclipsed the 1 billion handset mark for 2008 and had a modest growth of 3.5% but the overall handset sales are likely to decline by 10-15% in 2009 (though still exceeding 1B).
• The growth in smartphone usage is also putting pressure on the networks which are not able to handle the load during peak times in certain cities thus forcing carriers to look for alternate strategies to satisfy the demand for broadband - metered billing, UMA, Femtocells, Hotspot buys, WiMAX, LTE, and others. We deal with the whole topic of Wireless Broadband in great detail in our recently released book “Wireless Broadband - Conflict and Convergence” (IEEE Press/John Wiley). We will have more to say on the subject in the coming days and months.
• Q4 also saw the launch of the fabled G-phone as G1 Google phone launched by T-Mobile in the US market and it is slowly making its way into Europe. While G1 is no iPhone, it introduced long-awaited features such as multiple processes, more open APIs, and others. Motorola, HTC, and others are said to be planning to launch more Android devices in 2009. The smartphone segment has clearly shaken up the market with Apple, Google, RIM, and Nokia being the main competitors. Microsoft appears to be waking up from its slumber and is rethinking its mobile strategy starting with an easy button.

Misc. (Slide 23)

• Not surprisingly, Venture money in the mobile sector experienced a rapid decline. Compared to Q407, venture financing declined by 36%, and the yearly totals are 26% lower than what they were a year ago. (Source: Rutberg)
• While WiMAX was launched with great fanfare with several key players participating in the investment pool, its long term prospects look uncertain as the delays in getting a nationwide network by a major operator in a major economy threatens the underpinnings of this nascent industry segment. To be relevant, the WiMAX fraternity needs to figure out some solutions in a hurry.
• In a sign of convergence battles to come, T-Mobile’s @Home and various Femto cell initiatives started to take hold. Cable operators are also aggressively seeking triple-play by providing the wireless component of the service. Don’t be surprised by some acquisitions in 2009.

Preliminary Global Update (Slides 21-22)

• China and India continued their red-hot growth throughout 2008. Combined, they added 212.8M new subscriptions with India edging China by 15% for the first time in yearly net-adds. India made mockery of the current economic climate by its unprecedented growth. In fact, for the past 5 months, India has been displaying Phelpsesque like flair (minus the pot excursion) in setting and beating its world record for 6 straight months. For the last 5 months, the market has been exceeding 10M net-adds/month with Jan 09 being at a whopping 15.4M making it a record for monthly net-adds in a given country at anytime in the history of the industry or any industry for that matter (we are still trying to figure out what led to such a jump).
• NTT DoCoMo continues to dominate the wireless data revenues rankings with over $4B in data services revenue in Q408 and almost $15B for the year. Almost 42% of its overall revenue now comes from data services. DoCoMo also crossed 88% in 3G penetration in Q408 and will cross the 90% mark this week.
• Most of the major carriers around the world have double digit percentage contribution to their overall ARPU from data services. Many operators are consistently exceeding 30% with DoCoMo and Softbank being over 40%.

We will be keeping a close eye on the trends in the wireless data sector in our blog, future research reports, and articles. The next Global Wireless Data Market update will be issued in March 2009 and the next US Wireless Data Market update will be issued in May 2009.

To the 1% of you who have made it this far, thanks very much for your time and attention.

Your feedback is always welcome.

Should you need assistance in navigating or understanding the economic and competitive icebergs, please feel free to drop us a line.

Thanks.

Chetan Sharma

Disclaimer: Some of the companies mentioned in this note are our clients.

Mobile Industry Predictions 2009 January 1, 2009

Posted by chetan in : 3G, 4G, AORTA, ARPU, BRIC, CTIA, Carriers, Enterprise Mobility, European Wireless Market, Gaming, Indian Wireless Market, Infrastructure, Intellectual Property, Japan Wireless Market, Location Based Services, M&A, MVNO, Mergers and Acquisitions, Microsoft Mobile, Mobile Advertising, Mobile Applications, Mobile Content, Mobile Ecosystem, Mobile Entertainment, Mobile Gaming, Mobile Search, Mobile TV, Mobile Usability, Mobile Users, Mobile Wallet, Music Player, Privacy, Speaking Engagements, Strategy, US Wireless Market, Wi-Fi, WiMax, Wireless Value Chain, Worldwide Wireless Market , 3 comments

Mobile Industry Predictions 2009

http://www.chetansharma.com/MobilePredictions2009.htm

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First things first. From all of us at Chetan Sharma Consulting, wish you and yours a very happy and prosperous 2009.

Before we get into what’s to come, let’s do a quick wrap-up of the year that was.

While 2007 was remembered as “the year of the iPhone,” in 2008, though iPhone and Appstore again dominated the headlines as “Touch” became the new black, iPhone shared the spotlight with Android and the resurgent RIM. The deafening roar of “Openness” that started to bubble up during Q407 permeated the ecosystem in 2008. Responding to the iPhone, OEMs raced to introduce Touch phones - Instinct, Armani, Storm, N2, Glimmer, Vu, G1, Diamond, Dare, N97, 5800, and others.

Apple reached its 10M goal a full quarter early and Gphone’s 1M number was impressive. The Clearwire deal was consummated though it meanders through the clouds of uncertainty. Blyk continued to defy expectations. We made significant headway in energizing the mobile advertising sub segment but the tough problems of privacy, education, control, fragmentation, and user experience remain. LBS picked up steam and mobility started to get into the alternate consumer device universe which with the help of Amazon kindle and PNDs have started a new chain of AORTA devices.

In terms of actual numbers, the mobile industry exceeded 1 Trillion USD in revenues for the first time with services revenue making up 80% of the mix and 20% being contributed by infrastructure, handsets, and misc. Several operators are now exceeding $2B/quarter in data revenues.

Several subscription milestones throughout the year: 50% penetration, almost 4B worldwide, 600M China, 300M India. India and China both added more than 100M subs in 2008. As expected, 3G crossed the inflection point in the western markets (30%+ penetration) while in Korea and Japan, it was getting hard to find people without 3G (85%+ penetration). Mobile web penetration is above 25% and is becoming quite significant.

Thanks to the iPhone, we seem to have settled on sub-$200 smartphones with race to $150 and $100 on the cards. Flat-rate data subscriptions went above 10% in the western markets. Over 20% of the global service revenues are not dependent on data while non-SMS revenues surged past 40%. With the advent of Femto and UMA, we might see a new front in the battle for the digital home, esp. as bundling and quad-play offers become common place and convergence starts to take different shapes, forms, and business models. Carriers are starting to worry about mobile data usage and looking for alternate strategies and business models. Chinese OEMs started to become more dominant and started to win some major accounts. Don’t be surprised by a major acquisition by them in 09.

Among other events of significance: Mobile TV continued to suffer from highpricendititis, Helio shut down, China and India delayed 3G, WM got updated as MS got behind, Yahoo cemented some impressive operator deals as GYM got more active in mobile, Microsoft entangled Yahoo in a mating dance, Mobile Open got into the industry physce, 700 MHz auction drama ensued, Beijing Olympics rocked, SMS handed the presidency to Obama, Whitespaces and FCC tangled, LTE dominated, UMB died, Admob exponentiated, M&A slowed, IP scuffles continued, over 1.2B new devices shipped, Nokia sold more than 100M devices in each quarter, Samsung surged, Motorola pondered, AT&T iJoyed, Vodafone said Namaste India, US edged past Japan in mobile data revenues, DoCoMo continued to dominate the mobile data revenues rankings, India edged past US in total mobile subscribers, Mobile Facebook spread, Twitter tweeped, Symbian went open source, Sequoia panicked, INQ launched, Economy tanked, WalMart started selling iPhone, Palm got a lifeline, Change was in the air.

We covered these is much detail in our regular industry research notes, books, whitepapers, blog posts, speeches, panels, and more. Look forward to continuing the conversation this year.

2009 will also be a pretty eventful year from several perspectives: business models, user experience and expectations, ecosystem posturing, disruption, and friction. How are things going to shape up? What will be hot and what will fade into oblivion? How will competition shape up the new sub-segments?

We put some of the questions to our colleagues in the industry. We were able to glean some valuable insights from their choices and comments. This survey is different from some of the others in the sense that industry movers and shakers participate. Executives and insiders (n=200) from leading mobile companies across the value chain and around the world opined to help us see what 2009 might bring.

Six names were randomly drawn for one of our three books released in 2008 (Mobile Advertising, Enterprise Mobility and Wireless Broadband)

The winners are:

1. Akio Orii, CFO and VP, Toyota

2. Declan Carew, New Product Strategy Manager, Vodafone

3. Helen Keegan, Consultant, Beep Marketing

4. Rich Begert, CEO, Singlepoint, and

5. Russ McGuire, VP, Sprint Nextel

6. Jonathan Ebinger, General Partner, Blue Run Ventures

Congrats and Thank You.

Now onto the survey results.  The makeup of the respondents below:

Will we see a pull-back in mobile data spending globally/in the US?

The wireless data industry has been somewhat unharmed so far (though OEMs and Infrastructure providers are bearing the brunt of the economic storm). Flat rate pricing, smartphones, 3G networks, better UX are all helping in the continued surge of mobile data consumption and hence revenues. Most expect that though we might see some scaling back in mobile data spending, overall, the growth will continue. The global markets will be slightly better off than the US.

Will Android handset sales exceed iPhone’s in 2009?

The overwhelming majority thought that iPhone will continue to dominate Android in 2009 though 2010 could be a different story. Android has had a good start and if the number of handsets keep on increasing with more carriers carrying it in more countries, Android might not exceed but can come awfully close.

Mirror, Mirror on the wall, who will be the most open of them all?

“OPEN” was the biggest buzzword of 2008 though it means different things to different people. Almost everyone thinks, Google is likely to set the agenda on “open” for others to follow.

Will Apple launch new iPhone models in 2009?

The answer is yes but will they be just minor upgrades or shake-the-market new models. With Android, Nokia, and RIM breathing down its neck, Apple will need more than just upgrades to maintain the limelight.

Will Mobile Advertising see a rise in ad-spend in 2009?

There might be some slow down but mobile advertising ad-spend will keep on increasing. Targeting capability is increasing and CPMs are coming down making for a more efficient mobile channel for advertising. In our own work, we have seen brands fall into two camps: one who are scaling down on inefficient channels like print and radio and moving money into digital including mobile and the others who don’t have quite the appetite for mobile and want to keep investing in channels that they are most familiar with.

Will India and China launch nationwide 3G in 2009?

After many years of delay, the two powerhouses set to launch 3G in 2009. China with TD-SCDMA/WCDMA and India with WCDMA are set to doll out some of the largest contracts seen in the industry.

Will Mobile Payments get any traction in North America and Western Europe?

The plans for mobile payments launch will get pulled back a bit due to the economic crisis. Limited rollouts and trials to continue. Some progress will be made in international mobile remittances.

Will Microsoft launch its own mobile phone?

Will they, Won’t they? How can they not? The probability increased from last year for an Mphone coming to a store near you. But, with the boeingification of Microsoft, it is hard to get any decisions to the market quickly.

Will Clearwire meet the 1.3 million subscriber target in 2009?

The economic climate might force slow-down of expansion and thus the optimistic subscriber forecasts could be impacted.

Will Mobile Open Source mitigate fragmentation?

Not a clear cut answer. Depends on how other versions of Android phones do in the market and if the application development remains a challenge across the Android and Symbian family of devices.

Will cable companies make a major play in wireless in 2009?

Quad-Play is the name of the game. Cable companies have invested half-heartedly thus far. 2009 might be the year they move in aggressively.

Will Microsoft buy RIM?

RIM has become too big and powerful to be consumed by Microsoft easily but desperate times call for desperate measures.

Will Obama’s administration have a major impact on network neutrality and open networks debate?

Not a priority for now. No high expectations, just regular bureaucratic grind.

Will carriers start launching Apple/Android style appstores?

Opinions remain divided. I think most are tempted to build but will outsource the development.

Will Microsoft make windows mobile free to OEMs?

Android (and to some extent Symbian) has pushed Microsoft in a corner. Will it preempt the demise of its pricing strategy? Reduction in price might be the safest bet at this time.

Will the smartphone penetration hit the inflection point in the western markets?

We are getting to that inflection point. 2009 seems to be the year with major implications for the ecosystem.

Will UMA/Femtocells cement their place in the mobile ecosystem?

As 3G networks get burdened by data usage, carriers will look to making UMA and Femtocells as a critical piece of their network strategy

Will consumer privacy and data security rise to be one of the important issues of 2009?

Privacy? What Privacy? Another celebrity mishap might pull this issue to the front burner.

Despite conventional wisdom, what will not happen in 2009?

There were many. Sampling - Microsoft will not buy Yahoo. US Cellular will not be sold. Global economy will not recover in 2009. LTE won’t be commercially deployed. India and China will struggle to get substantial progress with 3G. Motorola will not breakup. Nortel will not disappear. 2009 won’t be the year of mobile advertising.

It is hard to cover the mobile industry in 20 questions. As pointed out by our panelists, there are a number of other issues and opportunities that will help shape our ecosystem - monetization of social networks, the fight for mobile advertising dollars, continued impact of globalization, security and privacy, NFC, IMS, VoIP, enterprise apps beyond email, battery improvements, new interaction modalities, health risks of RF radiation, OpenSocial, GF/FB Connect, Comes with Music, Mobile Widgets, Mobile 3.0, LTE, MIDs, Off-portal, Embedded Mobile, M2M, and others.

However, be rest assured, we will be tracking these and much more throughout the year and sharing them through various channels.

Thanks again to everyone who contributed. We will be calling on you again next year. We are clearly living in “interesting times” with never a dull moment in our dynamic industry. It has been a terrific year for us here at Chetan Sharma Consulting and we are looking forward to 2009 and seeing many of you along the way.

Your feedback is always welcome.

Thanks.

Chetan Sharma

Disclaimer: Some of the companies mentioned in this note are our clients.

2009 Events December 28, 2008

Posted by chetan in : 3G, 4G, AORTA, ARPU, BRIC, CTIA, Carriers, Speaking Engagements, US Wireless Market, Wireless Value Chain, Worldwide Wireless Market , add a comment

Here are some of the events I will be participating in starting Jan 09.

On the 18th (Jan), I am heading to beautiful Vancouver BC to participate in the Leadership Summit at the Annual Pacific Northwest Wireless Summit that brings some of the noted executives in the mobile industry for an afternoon of pondering and contemplation. On 19th, I will participate in the day long conference on mobile. I participated in last year’s event and enjoyed it. In fact, launched our Mobile Advertising book at this event, so fond memories.

On 27th Jan, will be going south to Palo Alto to first mingle with the staff at PARC (XEROX) and then moderate a panel on “Location Based Advertising” for the Wireless Communications Alliance (WCA) SIG for LBS. We will be finalizing the program early Jan so stay tuned, should be a great discussion.

Then at CTIA in early April, will be joining my friend and colleague from across the pond - Ajit Jaokar to participate in the discussion on the BRIC markets. Conference agenda is shaping up well. More details to come.

Later in April, Ajit is also putting together “Mobile Web Mega Trends” Conference series with the first one being in Singapore. More details as they become available. Be sure to check them out.

Carnival of the Mobilists #141 September 15, 2008

Posted by chetan in : AORTA, CTIA, Carriers, European Wireless Market, Location Based Services, Mobile Advertising, Mobile Applications, Mobile Content, Mobile Ecosystem, US Wireless Market, Worldwide Wireless Market , 2 comments

Welcome back to Always On Real-Time Access or AORTA. Last week, folks in the industry were busy with several events including CTIA, TC50, DEMO, Mobile Web Strategies, and many others. Here are the gems from the week.

Anthony Hand at Hand Interactive educates us about the screen capture techniques on various phones. Quite Handy.

James Cooper at MJelly opines on “Why South Africa is leading the mobile Internet revolution” Good insights, data, and case studies.

Tsahi Levent-Levi at VoIP Survivor posts an interview with a TD-SCDMA chipset vendor and their launch in the Chinese market during the Olympic games.

Martin Sauter at Mobile Society and author of Communications Systems for Mobile questions the use of Narrow band codecs for SIP to SIP calls.

John Boxall at Handi Mobility writes about Python S60 Bluetooth Console on Mac OSX using pictures.

Igor Faletski at Mobscure discusses some guidelines for supplying context indicators in mobile applications.

Ram Krishnan at Mobile Broadband Blog discusses mobile broadband pricing.

Carlos Enrique Ortiz points that “one click” interactions are necessary for barcodes and NFC to take off. He also has pictures from MobileWidget Camp in Austin.

Andrew Grill of London Calling talks about the Blogloc service that enables users to post their location.

My contribution to the carnival - CTIA IT and Entertainment 2008 roundup.

Finally, my vote for the best post of the week goes to Ajit Jaokar at Open Gardens who discusses cloud computing in “Cloud or Fog? The battle for supremacy in the cloud is not a dogfight but will be fought in the trenches.“

Next week, hop over to Next Generation Mobile Content hosted by Ofir Leitner for #142 COM. Until then, happy reading.

CTIA Wireless IT and Entertainment 2008 Roundup September 12, 2008

Posted by chetan in : 3G, 4G, AORTA, ARPU, BRIC, CTIA, Carriers, Enterprise Mobility, European Wireless Market, Indian Wireless Market, Japan Wireless Market, Location Based Services, M&A, Mobile Advertising, Mobile Applications, Mobile Content, Mobile Ecosystem, Mobile Entertainment, Mobile Gaming, Mobile Search, Mobile Usability, Privacy, US Wireless Market, Wireless Value Chain, Worldwide Wireless Market , 1 comment so far

CTIA Wireless IT and Entertainment 2008 Roundup

http://www.chetansharma.com/ctiawirelessit2008.htm

CTIA in pictures

San Francisco hosted the CTIA Wireless IT and Entertainment 2008 show earlier this week. In addition, there were some pre-show events like Billboard’s Mobile Entertainment Live and Mobile Web Strategies. This note summarizes our impressions from the week.

First, Let’s do the numbers CTIA released its mid-year survey results. Bob Roche and John-Paul Edgette at CTIA do a great service to the industry by compiling 6-month of useful data and making it available at each CTIA. In Summary -  262.7M subs, $14.78B in data revenues accounting for 20.3% service revenues, 75B TXT messages/month. We released our US Mobile Data Update for Q208 last month, Global Update coming later this month.

Overall Impression – This year’s show was one of the dullest in recent memory, devoid of any buzz, energy, or announcements. Maybe it was due to the 50,000 other events happening the same week (many in San Francisco). Or maybe, Bernanke’s congressional testimony is playing out in the wireless industry. Or maybe it is just conference-fatigue.

My week started early as I had the honor of giving a keynote address to a group of influential executives at major international operators and agencies worldwide at a well-organized private event. The topic was “US Mobile Advertising: Today and Tomorrow.” We delved into what’s working and what’s not and what will it take to get the industry to the next level, which players are likely to succeed and why?

Next day, I split my time between Mobile Entertainment Live organized by BillBoard and Mobile Web Strategies chaired by our friend Ajit Jaokar. While most of it was rehash of previous events, presentation by Jouko Ahvenainen of Xtract was probably the standout for me where he talked in detail about the importance of “analytics” and “intelligence” in advertising and social media. One of the interesting announcements/discussion was from Nokia regarding “Comes w/ Music” to be launched in UK next month - music subscription is bundled with the device as long as the device is from Nokia. Reliance Entertainment also announced its aggressive push into the US market.

Trip down the memory lane US Wireless Industry is celebrating 25 years of existence. Steve Largent invited Craig McCaw and John Stanton to reminiscence about the good old days - $4000 phones, hundreds of dollars of monthly bills, no roaming, 30 min talk time, obligatory 100 lbs bricksters. Craig emphasized on innovation while Stanton accurately put his finger on the big picture – US operators aren’t thinking like global companies or the media companies and can’t succeed in the new economy over the long haul. Spot On, John.

My first job was with a company that wrote the billing software for McCaw Communications in the early nineties (at that time, I was writing code for fraud prevention using RF fingerprinting for GTE, Ameritech, Bell Atlantic, Nynex, Airtouch, and the likes .. those were the days)

Open is in the Air With each CTIA over the last 18 months, carriers’ embrace of “Openness” is getting tighter and more nuanced. It is amazing how competitive threat can help disrupt the status-quo. While the keynote session sounded very scripted, each of the 3 CEOs from T-Mobile (Dotson), Sprint Nextel (Hesse), and Verizon (Lowell) are putting in place their “Open” Strategy (the current no. 1 operator was MIA). T-Mobile is launching an Apple-like App-Store next week with 50-50% rev-share which goes up to 30-70% in favor of the app developer but advertising is allowed (unlike iPhone Appstore). Streaming is also not allowed. Tricia at Moconews has more details. The balance between open network, customer care cost, and application performance can be a tricky one and everyone is tiptoeing the boiling waters carefully.

My favorite quips:

Hesse – “We have opened the network, Knock yourself out”

Lowell – “Our definition of open is irrelevant, it is what the customer wants”

Dotson – “Walled garden is a thing of the past”

It should be noted that two of the biggest success stories in the industry - iPhone and Blackberry are closed systems. Everything boils down to user-experience and value. We shouldn’t lose sight of that in the Open debate.

Yahoo’s oneConnect Marco Boerries, EVP, Yahoo! (read the piece he wrote for our Mobile Advertising book here) gave a keynote second CTIA running. These guys aren’t distracted by the Microsoft acquisition drama and remain the bright spot in an otherwise flailing organization. Over the past few months, they keep on refining their distribution and monetization strategy but they do need to attract droves of developers to make the initiative successful. Marco announced the launch of “Blueprint” – a framework for building mobile Internet apps and services. The trick is of course to attract developers. AOL is also pursuing a similar strategy.

Mobile Advertising There was a lot of discussion around mobile advertising each day with some new players emerging. Companies like Hipcricket (and many many others) are making real progress but I get a sense of “being stuck” from some of the players. Maybe, it is a function of the economy, or perhaps – fragmentation, lack of education, metrics, is keeping the industry from opening up.

CTIA released a whitepaper on 2D bar code scanning. Good to see some progress but the big question is – who takes the initiative to spend marketing dollars to educate the consumers and to make 2D bar codes pervasive in the US.

Carriers are getting more active in pursuing their mobile advertising strategies but I still see some fundamental missteps. Keep an eye on some of the work we will release later in the year to help guide the discussion, hopefully, in the right direction.

Mobile Social Networking Lot of discussion around mobile social networking (infact too much at times, even the mobile email player Visto considers itself a social networking company now), mobile only social networking, monetization challenges and opportunities. Most of the players are just aggressively focused on building an audience as quickly as possible. The monetization strategies include advertising, value added services, app store. Verizon and ATT announced their social networking strategies (built on the back of Intercasting’s platform) which essentially focus on social networking aggregation. This keeps them pretty safe and relevant. Current monetization model is that of subscription and maybe advertising down the road. For mobile only players the models varies from advertising heavy (Mocospace) to VAS heavy (mig33).

M2M The percentage of M2M companies in the mix increased compared to last time. For the first time I saw, carrier booths in M2M pavilion which was quite interesting. They clearly see this is a growing segment.

Smartphone Mania Devices like iPhone and Instinct are accounting for a disproportionately high share of the mobile download business now. And if data services is the only growth engine, why worry about launching sub-ARM9 devices, the economics is pointing towards cheaper smartphones on a fast network, it doesn’t make sense to port to 50 other devices when 80% of the revenue will come from a small subset of the devices.

For those of you attended the show, hopefully, it warmed you up for a really great mobile event being organized by GigaOM – Mobilize. Some terrific set of speakers and panels. I will be moderating two excellent panels (details below).

Your feedback is always welcome.

Thanks.

Chetan Sharma

Disclaimer: Some of the companies mentioned in this note are our clients.

US Wireless Data Market Update - Q2 2008 August 10, 2008

Posted by chetan in : 3G, 4G, AORTA, ARPU, BRIC, CTIA, Carriers, Devices, Enterprise Mobility, European Wireless Market, Indian Wireless Market, Japan Wireless Market, Location Based Services, M&A, Mergers and Acquisitions, Mobile Advertising, Mobile Applications, Mobile Content, Mobile Ecosystem, Mobile Entertainment, Mobile Gaming, Mobile Search, Mobile Usability, Smart Phones, Speaking Engagements, US Wireless Market, Wireless Value Chain, Worldwide Wireless Market , 4 comments

 

 

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http://www.chetansharma.com/usmarketupdateq208.htm

The US wireless data market grew 40% in Q208 compared to Q207 to reach $8.2B in data revenues. The total for 2008 stands at $15.7B for the first six months, 38% higher than the total for the same time period in 2007. The news of Alltel acquisition, iPhone 3G, and the flat rate pricing wars dominated the news. Though the infatuation for iPhone was a few degrees lower, Apple managed to keep the device front and center of the news cycles. US again exceeded Japan in mobile data service revenues for the quarter and the market is on track to reach $34B in data revenues for 2008.

• The US Wireless data service revenues grew 8.6% Q/Q to $8.2B in Q208. Compared to Q107, the data service revenues grew 40%.
• Overall ARPU increased by $0.46. Average voice ARPU declined by $0.05 while average data ARPU grew by $0.50 or 5%.
• Verizon lead in data ARPU with $12.58 (or 24.41% of the revenues) closely followed by Sprint at $12 (or 21.4354%), AT&T at $11.59 (or 22.91%) and T-Mobile at $8.60 (or 17%).
• The strongest growth in Q208 came from Verizon with 13% increase in data revenues from Q108. Verizon generated an industry record $2.6B in data revenues closely followed by AT&T at $2.5B. Both AT&T and Verizon are on target to exceed $10B in data revenues for the year for the first time by any operator worldwide besides NTT DoCoMo (the two US carriers are already close to 50% of the target). AT&T and Verizon now account for 62% of the market data services revenues. Sprint reversed its decline in data revenues during last quarter to increase its data revenues by 3% in Q208. T-Mobile registered a 5% uptick.
• The average industry % contribution of data to service revenues exceeded 21% and now stands at 21.41%. A year ago, the % contribution stood at approximately 17%.
• The number of data subscribers has been on the rise with Verizon leading the way. At the end of Q208, Verizon had that 49.6M (or 72%) data subscribers. Verizon, AT&T and T-Mobile subscribers joined to send over 169 Billion text messages in Q208 translating into almost a message every 2 hours or so. This compared to users in Philippines where average routinely surpasses a message every hour.
• In terms of net-adds, Verizon continued to lead with 1.5M net-adds again edging AT&T by 200K subscribers for the quarter.
• For the first time, T-Mobile USA entered the top 10 rankings of global mobile operators by data revenues replacing SK Telecom which suffered decline for the second straight quarter. In fact, SKT got pushed to the 12th spot by Orange France. The top three US carriers again maintained their respective rankings amongst the top 10 global carriers in terms of data revenues. For the quarter, Verizon, AT&T, and Sprint Nextel stood at #4, 5, and 6 respectively with Verizon and AT&T closing in on China Mobile (2nd) and KDDI (3rd). AT&T and Verizon are in the select group of five global operators who are now generating $2B or more in data revenues/quarter (the other three are NTT DoCoMo, China Mobile, and KDDI).
• Non-messaging continues to grab 50-60% of the data revenues for the US carriers.
• The flat-rate pricing movement that was started by Willcom in Japan which moved to Europe started to enter the US market with industry wide flat-rate pricing plans that included data. Sprint has been the most aggressive with its “Simply Everything” plans that include data services. 30% of its $100 plan is assigned to data revenues (for accounting purposes).
• Q208 saw the blockbuster acquisition of Alltel by Verizon which is likely to close by end of the year. The $28B acquisition will catapult Verizon ahead of AT&T in total number of subscribers by a big margin (10M or so) and make it a leader in almost all major categories.
• There continues to be tremendous activity in the area of Mobile Advertising. AdInfuse, Admob, Amobee, Millennial Media, Nokia, Rhythm New Media, Yahoo, and others ran compelling campaigns. There was also meaningful activity on the carrier front with industry wide initiatives.

• Venture money experienced a decline into the mobile sector. During the first half of the year, private wireless companies announced $1.8B in 173 financings, compared to $2.7B in 209 financings for the same time period last year. (Source: Rutberg)
• Nokia eclipsed 100M unit sale in Q208 for the fifth straight quarter. It sold over 122M handsets in Q208 (out of the total 297M), almost as many as the next four combined. Nokia’s global market share edged past 41%. Samsung at 15%, Motorola with 9.5%, LG with 9.3% and Sony Ericsson with 8% rounded out the top five. For the year, the industry looks to again eclipse the 1 billion handset mark for 2008
• 3G penetration in the US went past 30% in Q208, with Verizon leading the pack with over 60% 3G subscriber penetration compared to 25% 3G subscriber penetration at AT&T. T-Mobile is slowly expanding its 3G coverage. 3G subs have over $23 in data ARPU. These trends are expected and the diffusion of mobile broadband will continue to create new opportunities and revenues for the ecosystem.
• Apple announced a 3G iPhone in June and launched an aggressive expansion plan to reach 70+ countries. The broadband and appstore capabilities are quite attractive to consumers and it shows. VPN and direct access to Exchange will get many more users into the mix and IT folks less apprehensive. The clearcut business model of 30/70 split is also attractive. Apple is likely to announce in Sept (may wait for its quarterly results in Oct) that it has reached the 10M goal for iPhone.
• Feeling the threat from Apple and Google, Nokia bought the remaining portion of Symbian and announced the plan to open-source the OS, making things interesting in the wireless ecosystem. It puts Microsoft on the defensive and will be forced to reduce its licensing fee per device closer to zero. While Apple basked in the glow of iPhone 2.0, Google spent time swatting rumors of Android delay. Giving the changing dynamics in the industry, Google might be forced to play its gPhone hand earlier than it had anticipated.
• After raising $14.5B from friends and family, Clearwire’s net-adds dropped in Q208. It needs to get its content and handset strategy in place in short-order.
• In a sign of convergence battles to come, T-Mobile’s @Home and Sprint’s Femto cell initiatives started to take hold. Cable operators are also aggressively seeking triple-play by providing the wireless component of the service.

Global update

• China and India added approximately 52M subscriptions combined in Q208 with China marginally edging out India. For the year, both countries have added almost identical number of subscriptions (53M). By comparison, US added 7.5M for the same time period.
• NTT DoCoMo continues to dominate the wireless data revenues rankings with almost $3.4B in data services revenue in Q208. Almost 40% of its revenue now comes from data services. DoCoMo also crossed 84% in 3G penetration in Q208 and is expected to cross 90% by early 2009.
• Most of the major carriers around the world have double digit percentage contribution to their overall ARPU from data services. Operators like KDDI, DoCoMo, and O2 UK are consistently topping 30%.

          More details in our worldwide wireless data market update in our Global Wireless Data Market Update Sept 2008.

Your feedback is always welcome.

Thanks.

Chetan Sharma

Disclaimer: Some of the companies mentioned in this note are our clients.

New Paper: Mobile Services Evolution 2008-2018 July 11, 2008

Posted by chetan in : 3G, AORTA, ARPU, BRIC, CTIA, Carriers, Intellectual Property, Japan Wireless Market, MVNO, Mobile Advertising, Mobile Applications, Mobile Content, Mobile Ecosystem, Smart Phones, Speaking Engagements, US Wireless Market, Wi-Fi, WiMax, Wireless Value Chain, Worldwide Wireless Market , 2 comments

Mobile Services Evolution 2008-2018

Bellagio, Italy. July 13 - Aug 1, 2008

This project has been made possible by the generous funding from THE UNITED NATIONS FOUNDATION Download PDF

 

http://www.chetansharma.com/UNF-MobileServicesEvolution.htm

This weekend in Bellagio, Italy begins a 4 week long dialogue on the subject of eHealth. The Conference - Making the eHealth Connection: Global Partnerships, Local solutions is being organized by the eminent Rockefeller Foundation. It will bring in experts and organizations from around the world to discuss, share, develop, agree on solutions going forward. Each week deals with a different nuance of the eHealth framework. This will allow for an in-depth study and discussion. Full conference info here.

Week 3 deals with mHealth and Mobile Telemedicine being organized by The UN Foundation, Vodafone Group Foundation, and the Telemedicine Society of India. As part of this conference The Rockefeller Foundation and its partners have released a series of white papers on various subjects. I was asked by The UN Foundation to look into the potential Mobile Services Evolution going forward and how a platform could be developed that will enable a number of applications focused on enterprise, health, public safety and associated sub-segments. While it is difficult to predict with any precision what might happen 10 years from now, one can try to understand the evolution of technologies, business models and their interrelated ecosystems and see the impact on various vertical segments where we use technology to solve some basic problems. Most of the time, technology itself doesn’t cut it, it requires partnerships, collapsing of the bureaucracy, innovative funding means, and just the burning desire to make a difference that matter the most. I strongly believe in Mobile’s central role in a number of social and public services. Mobile Services Evolution 2008-2018 is a small effort to forward that discussion.

Abstract

Over the last 10 years, the progress made in the global mobile industry has been truly stunning. Mobile device ownership has gone from being a luxury item to necessity as the feverish rate of adoption has spread mobile technologies into every corner of the world. As we look into the next 10 years, it is certain that the mobile phone will be used for much more than just voice communications. There is an opportunity for private institutions and public enterprises to build a vision of cohesive mobile services platform that enables and engages the masses to both fundamentally enhance the quality of their daily existence as well as lead to new opportunities globally. This paper takes a look at the potential evolution of mobile technology and services over the course of the next 10 years and discusses an M-Services framework for building and deploying diverse mobile services. The paper also looks into the challenges of such an endeavor and steps that will be needed to achieve the vision.

Table of Content

 

Abstract	3
Introduction	4
Mobile device: The Remote control of our lives	5
Mobile Technology Evolution 2008-2018	7
Deployment and adoption of mobile technologies in the developing countries	9
Mobile Services Platform	10
What does it take to make it happen?	15
Conclusions and Recommendations	18

 

Download Complete Paper - PDF

Thanks to THE UNITED NATIONS FOUNDATION for making this work possible. I will be presenting the paper at the conference later this month.

Your feedback is always welcome.

Thanks

Chetan Sharma

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