It's practically a cliche, but a reasonably accurate one: Apple's iPhone and App Store have turned the mobile industry on its head, changing the way people use handsets, how they access mobile content and how much of it they download.
The latter has sent data usage into the stratosphere well ahead of earlier projections, forcing cellcos to worry both about the capacity of the network to handle that growth, and the unlimited data plans they've been relying on to build up their mobile broadband subscriber base.
Here at the end of 2010, the mobile sector has a pretty good idea of where everything is going to go in terms of the technology evolution (LTE RAN, all-IP networks, etc). The question, as always, is how to get there, and how much of their business needs to change to do so.
Or, to put it simply, "What now?"
Telecom Asia put that question to some of the top analysts and experts in Asia (and a couple of editors as well). The answers are far from a complete manual for preparing mobile operators for the next decade of growth, but they should give cellcos an idea of where to start.
- Transition from voice to low-margin data
- Define an OS platform strategy
- Bank on smartphones to drive growth
- Finally, mobile video calls (over the top)
- Content partnerships: time to sleep with the enemy
- RAN sharing: now is the time
- Go into the white-box handset business
- Get smart on data pricing
- Plan carefully for femtocells
Plan carefully for femtocells
Service providers across Asia Pacific are in various stages of trialing and commercializing femtocells, with the technology having been adopted by players including China Unicom, Softbank, NTT DoCoMo and StarHub and shunned by others like Telstra. While femtocells present a compelling value proposition, many operators still struggle with several key challenges.
Who pays, and what for? Within many operator organizations, it is unclear whether femtocells should be financed by marketing or network organizations. Often neither organization is sufficiently incentivized to drive commercial trials to mass-market deployments. From the consumers' perspective, a femtocell purchase depends on it addressing a tangible need, which tends to be primarily coverage as opposed to capacity.
How are femtocells positioned relative to Wi-Fi? Although industry players generally position femtocells as complementary to Wi-Fi, they contemporaneously state that Wi-Fi is inferior. While this might be true from a pure technology perspective, it's also shortsighted. Wi-Fi represents an important complementary market channel for femtocells to drive the market scale necessary to support unit price-points below $50 for basic units. For this channel to be realized, the industry as a whole must drive standardization to ultimately enable "white-label" femtocell platforms.
What is the right model for operationalizing femtocells? From the outset, femtocells cannot be operationalized as an extension of the macro network. While many operators acknowledge this fact, they are challenged in implementing operational models to address the scale and meet the automation requirement for mass-market femtocell implementations. Femtocell operational models will ultimately parallel many of the characteristics we see in the DSL and cable markets today.
Are femtocells uniquely positioned to address long-term demands for mobile broadband? Ironically, mobile broadband services will be increasingly delivered over local area as opposed to wide area wireless networks. As this occurs, the femtocell will become the hub for service discovery and personalization. Services that would have ordinarily been streamed over macro networks will be time shifted to be delivered over local area networks and cached on the device.
- Phil Marshall, chief research officer, Tolaga Research
Transition from voice to low-margin data
Over the next three to five years, mobile operators across Asia will have to confront the inherent difficulties associated with transiting from predominantly voice-centric service providers to an increasingly more data-centric environment.
In particular, a key risk is that data networks may result in the disintermediation of existing operators (i.e. third parties will be able to access end-users directly, as in the fixed-line sector) which could both reduce the ability of mobile operators to develop new data/content revenues as well result in the more rapid cannibalization of existing higher margin voice and SMS revenues. For example, all-IP networks could encourage the rapid take-up of VoIP while the take-up of smartphones could also result in instant messaging platforms resulting in the erosion of SMS.
This is not to say that mobile operators will disappear, but they need to recognize that the future mobile data-centric business case will be materially different than the current voice-centric one, and operators need to prepare for this - otherwise the transition could be painful.
Operators need to improve network efficiency significantly, especially as data networks are likely to be far more capital intensive with lower returns than voice-orientated networks; operating expenditures need to be managed more aggressively if the relatively high historic margins in the sector are to be maintained; handset subsidies should be far more critically assessed (some operators are already trying to reduce their involvement in the handset subsidy race); and operators need to be far more active in sourcing and developing new content and services so that they, rather than third parties, remain the primary providers of services to their end-users.
If telcos do not adapt their business strategies for the new reality, then the underlying risk is that telcos will become nothing more than access only "dumb pipe" utilities, like many of their fixed-line cousins, with much of the new data related revenue growth leaking from the sector to new service providers. That is not to say that an access "dumb pipe" utility model is not long-term sustainable, but we would expect such a model to have lower financial returns than currently enjoyed and from that perspective, operators do need to try and maintain a content/service focus in the increasingly data-centric world.
- William Bratton, head of telecom research, Deutsche Bank
The views expressed are those of the author and do not necessarily reflect the official views of Deutsche Bank or its related entities.
NEXT: Define an OS platform strategy
Define an OS platform strategy
As mobile handsets become smarter, product and service differentiation are increasingly based on the user experience of multimedia content, wireless apps and always-on connectivity. In this new landscape, successful business models will have to be built around solid technology platforms and ecosystems, where the device features and capabilities are tightly integrated with applications, networks and services.
The days of mobile operators' walled-garden services are nearly over. Operators are trying to decide whether to build their own platforms or accept that internet and OS players will dominate. The popularity of Android and iPhone devices has led mobile operators, developers and handset manufacturers alike to re-focus on the smartphone platform.
Some operators are attempting to build open developer communities. Many have thrown their weight behind a global initiative called the Wholesale Applications Community (WAC). Pitted against these ventures are not only the open-developer initiatives, such as the LiMo Foundation and the Open Handset Alliance, led by Google (Android), but also closed systems such as iOS and BlackBerry OS.
While the Android platform offers mobile operators the opportunity to provide differentiation, initiatives such as WAC probably represents their last trump card to influence mobile content development. Failure in this will reduce (although we would argue it could potentially elevate) operators' role to that of a smart pipe.
The problem for operators is that there isn't just one major battle over platforms they need to engage in, but two. Operators not only need to take a position on where they sit in relation to smartphone platform development, they also need to create the best delivery mechanism - the network - for content, regardless of who has created it.
The outcome of this positioning will determine who the winners and losers are in the battle to derive maximum value from the development and penetration of the smartphone platform.
- Dave McQueen, principal analyst at Informa Telecoms & Media
BACK TO: Transition from voice to low-margin data
NEXT: Bank on smartphones to drive growth
Bank on smartphones to drive growth
LTE is largely seen as a silver bullet for many of the growth challenges facing mobile operators in the region, and in the long term it certainly will be the next gateway for mobile operators to offer a variety of new services. However, there are still many operational challenges that operators will have to address before this becomes a reality.
The recent announcement from NTT DoCoMo concerning its LTE pricing underscores one of these key issues. DoCoMo's Xi LTE brand is offering a 37.5-Mbps connection over a wireless dongle for only $80 per month - but that starts with just 5 GB of data, underscoring the fact that radio technology is evolving faster than capacity is being added. Therefore, issues like migration to packet transport networks and new backhaul technologies are needed now to ensure future capacity for 4G wireless networks.
There are actions that mobile operators can take, however, most notably on the device front. It has been demonstrated time and again that smartphone adoption does in fact increase ARPU, and smartphone adoption is still by and large low with only 4.5% of the region's devices sold in 2009 classified as smartphones. This will grow exponentially going forward, but operators must do all that they can to encourage adoption.
Indosat in Indonesia recently unveiled its own smartphone using Android to present a low-cost alternative to their local market while several vendors in India such as LAVA and MicroMax are pushing the envelop in the sub-$50 smartphone space.
Many operators in the region, particularly in Southeast Asia, have also found success in the prepaid mobile broadband space and these business models should be expanded.
Our estimates show that Asia's mobile penetration rate will pass 100% by 2013, foreshadowing an end to the organic subscriber growth still enjoyed by emerging markets and the developed market operators that have invested in them. Mobile broadband can and will be the solution to this slowdown, but investments will have to be made now to profitably capture the opportunity.
- Marc Einstein, industry manager for Asia Pacific at Frost & Sullivan
BACK TO: Define an OS platform strategy
NEXT: Finally, mobile video calls (over the top)
Finally, mobile video calls (over the top)
The recent history of mobile is the history of missed opportunities. The next big thing will be the revival of an opportunity that went begging in 3G - mobile video calling.
What will make it happen will be the arrival of 4G, with even more bandwidth at lower cost, and Skype. Already 40% of Skype minutes are video - an extraordinary number for a service that mobile operators believed dead.
When 3G was widely introduced in 2004, cellcos heavily promoted mobile video because it was the only obvious differentiation with 2G. But it satisfied a need that didn't exist. Consumers spurned it and instead bought 3G for the lower prices.
Now millions of people talk with their families or collaborate with their colleagues over desktop broadband every day.
It's not a big step to do that on mobile. Of course, thanks to 3.5G, smartphone users are already watching their favorite TV programs or YouTube clips on the go.
For video calling, consumers will need friendly calling plans and reliable QoS. Step forward, Skype, which offers both of those under a familiar brand.
That's why Skype is keen to strike deals to integrate its app into operators' services. Operators - including Tier 1 players such as Verizon Wireless and KDDI - are happy to reciprocate because Skype users are actually heavy mobile customers.
Operators will be sure to dust off their video telephony marketing plans and join the battle. As well they might.
Cisco's authoritative Visual Networking Index (VNI) says mobile video of all kinds will account for most of the mobile data growth over the next four years, and by 2014 will comprise 66% of all mobile data traffic.
Research firm In-Stat predicts that the mobile video calling market will be worth $1 billion by 2015, growing at 115% CAGR. More than half of those calling minutes will be in Asia.
- Robert Clark
BACK TO: Bank on smartphones to drive growth
NEXT: Content partnerships: time to sleep with the enemy
Content partnerships: time to sleep with the enemy
Presuming that cellcos have worked out the timelines for migrating to HSPA+ and/or LTE, their other big priority should be figuring out just where they sit in the mobile content value chain - or rather, where they want to sit - and how to achieve that.
Easier said than done, obviously, as there are a myriad of options, and the mobile content landscape is a fragmented one. But cellcos don't have much choice. Thanks chiefly to Apple and Google, the mobile broadband goalposts have shifted from a future where dongles and HSPA-embedded laptops will drive mobile data usage back to a paradigm where handsets do matter, as does the content ecosystem attached to it. That in turn is changing the expectations of consumers in terms of what content they want and how they get it.
Consequently, many cellcos are starting to admit that they can no longer do it all and are starting to look seriously at partnerships with over-the-top content and service providers like Skype, Google and others.
Such companies have long been viewed by cellcos as competitors and/or bandwidth freeloaders, but the awful truth is that they provide content and services that mobile users want.
That said, part of the key to mobile content strategies lies in the fact that operators are sitting on assets that OTT content players - VoIP players, streaming music/video providers, cloud-based service providers, etc - can leverage to distribute their services, from location-based data and billing APIs to network optimization platforms, especially for real-time apps like video and online games. That B2B approach opens up a potentially lucrative revenue stream that could pay off even more in cases where cellcos can work out a revenue-sharing arrangement for premium OTT services.
Those same assets can also be leveraged by cellcos to build their own value-added services in areas ranging from mobile payments to customized services for vertical industries such as financial, healthcare and public safety.
- John C. Tanner
BACK TO: Finally, mobile video calls (over the top)
NEXT: RAN sharing: now is the time
RAN sharing: now is the time
One of the greatest challenges for mobile operators today is the management of mobile data capex requirements while achieving higher ARPU from rising data usage. Maturing markets and economic realities are forcing operators to find new ways to reach financial targets. Mobile operators now have the opportunity to reshape their access network economics by forming partnerships to split the cost of mobile data.
There are also several other factors leading to an increase in access network partnerships. For a start, network upgrades are necessary to keep up with data growth. Global LTE infrastructure investment is estimated to reach $14 billion by 2015. Such investment in a climate of already low and decreasing retail prices presents a challenging stand-alone business case.
Meanwhile, spectrum is being reallocated and new frequencies are being awarded through auctions that often encourage bid-consortiums; technology is reportedly maturing to a point where multiple frequencies, technologies and operators can be served out of one "box"; equipment vendors are increasingly keen to promote 4G technologies; and private equity firms are eyeing opportunities in new generation access, given the rising demand for high-speed data.
While the technical aspects of access sharing need detailed joint design and planning, a partnership's greatest challenges relate to the legal structure, valuation, commercial models and operational management. There are several key considerations that impact the chances for a successful RAN partnership.
How does each potential partner view its radio access assets - are they predominantly revenue differentiators or opportunities for cost reduction?
Regulators will scrutinize any indication of reduced competition, so infrastructure cooperation has to be distinctly separate from retail competition to avoid objections.
Commercial models need be to designed to be as pragmatic and simple as possible.
Finally and most strategically, when a potential cooperation is considered, the best partnering options are determined quickly. Now is the time to be smart on partnerships and, while we are still in the early days of this game, great opportunities exist in most markets.
- Karim Taga, managing director, Arthur .D. Little
BACK TO: Content partnerships: time to sleep with the enemy
NEXT: Go into the white-box handset business
Go into the white-box handset business
Handset capability is the biggest hurdle to the adoption of data services, particularly in emerging markets in Asia where more than 50% of the handset base has no GPRS capability, although this is set to shrink to 36% by 2013.
One major factor helping transform the handset market is the success of "white-box" handsets - typically standard modules from companies like MediaTek that are assembled by Chinese companies and branded/distributed by local entities in their markets (e.g. Nexian in Indonesia and Micromax in India). These handsets already make up 30% of the installed base in several markets. In India, they constitute 55% of new handset sales.
The phenomenal growth of these products has been driven by product innovation (dual SIMs, QWERTY keypads) at price points 30% lower than international branded phones of a similar specification. However, the rapid growth of white-box handsets is leading to fragmentation of handset platforms and making it technically challenging for operators to deliver data services.
An increase in the number of operators entering the handset business in 2011 will provide a catalyst for enabling services in the data market - as well as drive new revenues through handset sales. Enabling data services will be driven through one-click services (such as integrated Facebook/Yahoo! as done by Nexian/XL in Indonesia and Tata DoCoMo/Yahoo!/Alcatel in India) and the launch of application-specific phones (e.g. Bakrie's Hidayah and Music phones, and Aircel Peek email device).
Operators are also adopting different business branding and distribution models for handset sales. Companies like Bakrie Telecom (Indonesia) have their own branded/own distribution approach. Joint or partner branded/distribution reduces brand risk. Partner branded/partner distribution lowers risk for the operator but also reduces differentiation.
- Amrish Kacker, partner for strategy consulting, Analysys Mason
BACK TO: RAN sharing: now is the time
NEXT: Get smart on data pricing
Get smart on data pricing
Asian mobile operators should not be asking, "What Android device should I be selling?" but "How should I be selling mobile broadband?" and "How can I squeeze that extra ARPU out of my customer?"
It will be a brave operator that tries and tests different mobile broadband pricing strategies. Asia is starting to see some innovativeness in pricing, such as speed-based tariffs in Hong Kong and Indonesia, but there is a lot more to be done.
Vendors are aware of the data conundrum and have some innovative pricing strategies that are at least worth listening to if you are an operator. But the next couple of years should see operators more than just talk about pricing strategies.
Next year should be the year that operators really start concerted efforts to better monetize their data offerings. I say "should" because the reality may be quite different.
More moves toward personalization of services through smarter pricing has to be one of the key priority for operators, especially with LTE on Asia's doorstep. Android devices, tablets and other smartphones will sell themselves.
By now, Android and tablets will already be on most operators' "what's next" lists, and in some cases, LTE will make the cut as well.
Android devices should result in a more level playing field between those operators that have iPhone exclusivity and those operators that don't.
Tablets will also find a niche too, and it won't just be the iPad that sells. Nor will tablets be just for workers. Families and schools will increasingly jump on the tablet craze. The biggest loser here will be netbooks.
- Nicole McCormick, senior analyst, Ovum
BACK TO: Go into the white-box handset business
NEXT: Plan carefully for femtocells