Converging communications Mobile ubiquity
Written by Pamela Weaver
indepth
MOBILE
Fashion accessory and status symbol it may be to many, but the mobile phone – and the services that come with it – is a vital business tool as well as a crucial driver of revenue in sectors as diverse as entertainment and business applications.
According to Wireless Intelligence, as of Q1 2009, world cellular penetration stands at 62% in a market that grew by 3.6% to reach 4.15 billion connections. Of these connections, prepaid is still king of the hill, accounting for 72% of total connections; the contract market continues to grow, however, posting 9.9% on a yearly basis.
MORE RING THAN BLING
Given its relative infancy, few technologies can be said to have exploded to the point of nearpervasiveness in so few steps as mobile. Voice has spent a long time in the driving seat but with a changed economic climate in which growth for many cellular operators has flattened out, it’s almost certain that the coming years will see a drive towards stimulating revenues through strategies aimed squarely at data service offerings.
That this shift will require no small amount of investment in network coverage improvement means that the need to strategise around revenue generation, operating profitability and capex will continue to pose something of a chicken-and-egg dilemma for operators. In South Africa, where providers have been forced to reduce what many believed to be excessive interconnect fees, the timing (from the service providers point of view at least) could not be worse. Just as they need to kick in hard on the infrastructure front, what cynics could be forgiven for calling an easymoney cash-cow is being put out to pasture.
Smart phones, smart money?
In a depressed handset market, the smartphone sector is the only one that appears to be smiling. IDC research reveals a flagging (if hardly flat) cellphone industry: 269.6 million handsets shipped in Q2 of 2009 – not bad, but still down 10.8% on the previous year, when over 300 million units shipped. IDC predicts worldwide sales to finish 13% down for 2009 – unless you happen to be in the smartphone business, which looks set to grow 8.9% this year before hitting the big-time with double-digit growth from 2010 onwards.
With Apple, Nokia, RIM and Samsung all reporting healthy growth in the smartphone department, it seems only a question of time before manufacturers seek to offset declining traditional handset sales with a break out into the services market. Many are already doing it: Nokia’s ‘Comes with Music’, which allows user to download free music for a year, and forthcoming ‘Nokia Money’ financial services (which will work with non-Nokia handsets) offerings are early indicators of how the handset giant is thinking.
Closer to home, MTN’s move to purchase 17 Musica retail outlets may have fallen apart, but does indicate its train of thought when it comes to driving flagging market share. Contracts geared towards music downloads are dovetailing with a data-friendly partnership with Neotel to roll-out a national, long-distance fibre optic network. Having lost 52 000 prepaid customers in the first half of the year, the provider clearly has some innovative thinking ahead of it if it is to grow its 34% market share. FierceWireless editor Sue Marek’s observation that “whoever owns the connection will own the relationship” with the customer makes the likelihood of further commoditisation and innovative bundling packages very real for the local market.
Is talk too cheap?
Last year, operators in Europe and Asia were off-setting falling prices by growing user talk time in markets where penetration was close to 100%. With the proliferation of IPbased voice services such as Skype, mobile voice tariffs are under huge pressure and many European-based providers are responding to this with a drive to convert prepaid customers – who account for more than 50% of the European market – into more lucrative contract customers.
As Wireless Intelligence points out, markets with high levels of prepaid connections tend to offer correspondingly-low voice tariffs on contract. In America, where the contract-based connections account for 82% of connections, Wireless Intelligence notes that although revenue per connection is declining, revenue per user is actually on the up and up, thanks to the use of multiple connections which are “most likely allocated to business customers on high-end tariffs using voice and data services.”
VoIP and bundled services are also radically changing the way in which services are offered to end- users. Wireless Intelligence points to VoIP as a disruptive influence on the future of voice services as global operators focus on offering all-in-one bundled packages of mobile, fixed and broadband to consumers. Predictably enough, partnerships that facilitate investment in the sort of infrastructure this requires will be driving all of this forward.
In the so-called emerging markets, high levels of prepaid contracts mean operators are constantly faced with the challenge of near-inevitable churn, which in turn drives up the costs associated with growing (and retaining) the customer base (according to Wireless Intelligence data, Vodacom had a monthly churn rate of 2.84% for Q2 2009, down from 3.34% in the previous quarter). One solution has been the introduction of a SIM-swap initiative that allows prepaid customers to retain their cellphone number – previously, customers faced with losing their number would feel there was little to lose by changing service providers.
With European and American markets hitting near super-saturation point, innovation and infrastructure will be the order of the day. For developing markets – Africa, India, South America – the GSM Association estimates an investment of $50 billion in the next four years, building on the more than $35 billion invested to date.
The Association claims that for every 10% increase in cellphone penetration, annual GDP can be increased by as much as 1.2% (the association says that, in 2006, the mobile industry contributed 4.1% of GDP in SA). No doubt influenced by its status as an industry grouping, the GSMA has also urged sub-Saharan African governments to eliminate taxes on mobile-related products such as airtime. Its research indicates that, for every dollar the mobile industry invests, “around $0.80 will be earned in tax revenues by governments... the potential tax revenues could be even greater.” There’s a lot at stake. Expanding deeper into African markets and even further afield is just one option available to local providers. To keep South African users happy, price reductions and ramped-up service and data offerings are inevitable.
Africa keeps on growing
If providers in Europe and America are pondering ways to grow profits, it’s fair to say that African cellular operators are continuing to enjoy plenty of room for growth on the continent. 2008 was, once again, a bumper year as Africa retained its crown as the world’s fastest-growing cellular market. At time of writing, there were 414 717 640 connections – a feat that industry-supported Wireless Intelligence calculates a more than 30% annual growth. With penetration hovering around the 42% mark, it’s clear that there’s plenty of room for more. In terms of technology, GSM remains far and away the most popular choice, with almost 94% share compared to second-placed CDMA’s lowly 4.4% and WCDMA’s (including WCDMA HSPA) 1.8%. If WCDMA looks like the runt of the litter, it’s fair to say it could prove a slow burner, having grown by 20.7% between the end of 2008 and Q1 2009 – over 5 times more than GSM. Market growth in Africa continues, nonetheless, to be driven largely by GSM network roll-outs and the coming to fruition of long-anticipated regulatory changes along with political shifts and support for infrastructural growth.
Once again, the key challenges facing operators on the continent continue to be limited infrastructure and social issues; high-unemployment rates and relatively-low earning potential in largely-cash economies continue to dog providers in search of profits while slowing down the potential for adoption of more lucrative high-speed data services. South Africa’s Telkom recently joined the WCDMA party, bringing to 19 the number of such networks in service, with a further six in the works; there are 14 WCDMA HSPA networks, with Wireless Intelligence reporting over 2.45 million connections by the middle of 2009 (or .59% of all connections).
MOBILE DATA: BUILT FOR LOVE AND NOT FOR SPEED?
Even with flattening revenues and an African market with massive room for growth, voice is still the main reason anyone actually takes out a contract or buys a cellphone. It’s the gravy in the form of revenue from data services and bundled packages that the operators need to keep going forward – hardly surprising, then, that this is an area on which many of them are fixated. Data on global networks still only accounts for a relatively small portion of all revenue, even in Japan, where data services giant DoCoMo still derives most of its revenue from voice. The problem is, according to Gartner, not so much a question of operators innovating and delivering services, but of them innovating services that consumers actually want.
According to Gartner research, “in mature markets, few new services such as video, banking and TV are compelling. Most have less than 20% use and the number planning to use the service during the next 12 months is much smaller than the number using it now.” Gartner adds that mobile services are more interesting to subscribers in emerging markets, “perhaps because of less Internet availability and the potential for mobile devices to provide services, such as banking, that subscribers don’t yet have.”
Times are changing
Times are changing slowly, however. Telcos pushing services are gradually increasing the attractiveness of their products, although locally price remains the main issue on the mobile data uptake front. 2008 saw a projection of over $200 billion in mobile data for the first time, working out at around 20% of all revenue. Informa research estimated that non-SMS-related data was contributing $17.4 billion to that pot, accounting for just over 35% of total data revenues. In the UK, Vodafone bucked the downward trend with a 25% increase in global data revenues attributed to Internet services and mobile PCs. From this point of view, it seems that investment in 3G infrastructure in more developed markets is at last beginning to pay off.
It’s not all smooth sailing, though – in America, the proliferation of smartphones, particularly Apple’s iPhone is proving something of a double-edged sword for exclusive carrier AT&T.
With iPhone users chowing through an estimated 10 times the capacity of other smartphone users (with some reporting consumption in excess of 3GB per month), AT&T is beginning to suffer at the hands of a non-iPhone user backlash – dropped calls, patchy service, delayed messages and speeds more appropriate to dial-up in 1994 among them. Before the competing networks begin their celebrations, it’s only fair to point out that, rather than forming an isolated case, this is likely to be the shape of things to come as smartphone devices grow in popularity and, with them, customer expectations regarding services and usage. For many operators, 4G simply cannot come quickly enough.
Locally, data continues to represent pretty small beer. MTN averages around 5% in content for total data revenues in emerging markets, with 20% in the more developed areas. Vodacom, meanwhile, reports a 50% increase in data revenue (including SMS), reporting that it accounts for just over 13% of total service revenue. Across the South African networks, data as a whole accounts for around 10-15%; the large youth market continues to drive SMS usage, which itself continues to account for the bulk of the data carried. Music is increasingly playing a role here too.
The neutral thorn in mobile’s side
An interesting sideline issue to the data explosion is the area of Net neutrality. With carriers looking to increase revenues even as developers come up with new applications to make money from things such as advertising, some Canadian businesses have been suggesting that carriers are impeding application developers by adding extra costs to SMSs with attached advertisements or making it harder to carry advertising on mobile sites... all while the carriers themselves work frenetically to come up with their own, competing offerings.
With mobile bandwidth still a relatively scarce resource, it’s likely that the issue of net neutrality and the ethics behind providers controlling what they carry on their networks is likely to be at least as contentious as its predecessor in the wired world. Others point to the initial reluctance with which Apple’s iPhone was met by operators wary of a handset offering services – until the near-hysterical consumer uptake and the consequent growth in ARPU driven by those services opened minds to the possibilities. At time of writing, the American government was set to roll-out proposals that would require providers to treat all legal Web traffic equally, sparking outcry from cell carriers outraged at the suggestion that they can be told how to run their networks, even as the likes of Google and Amazon voiced approval.
The knock-on effect of such proposals are illustrated in efforts such as AT&T’s limiting of the use of Skype on its iPhones or continued barriers to cellphone tethering. Carriers cite traffic congestion; all consumers see is a big business trying to prevent them from shopping around for a better deal. Whatever way you look at it, the debate serves as a microcosm of where the cellular world is being pulled by convergence – if all players are offering services, games and communication for example, maintaining an identity in order to ensure survival is never going to be harder.
BEYOND THE EDGE
MTN was the first local provider to offer EDGE (Enhanced Data Rates for GSM Evolution) in South Africa, a technology that allows speeds of up to five times those of GPRS on enabled phones. Although it’s never going to outpace the speeds offered by WCDMA or HSDPA (the former is the runaway technology leader in Africa), at around 210Kbps, EDGE can do pretty much anything 3G can – as long as you’re not hoping to stream television or make video calls anyway. All in all, it’s a cost-effective bridge to 3G-style services that allows network providers to overlay existing GSM infrastructure while still being able to extend services.
3G FOR HIGHER SPEEDS
At heart, a mobile technology designed to utilise high-tech handsets and infrastructures to deliver high-speed (around 384Kbps), high-quality services, 3G is anything but the straightforward evolutionary technology footstep that its name suggests. First launched as a proposed single global standard, it subsequently split into two incompatible camps: Wideband-CDMA (WCDMA) and CDMA 2000 – same species, different genus. As mentioned before, WCDMA is the runaway leader in Africa.
According to the UMTS Forum, there are over 300 million subscriptions to 3G networks worldwide and over 100 million use HSPA. Two-thirds of these connections are, according to the Forum, using UMTS (WCDMA and HSDPA).
HSDPA – DOWN GOES UP...
High Speed Downlink Packet Access (HSDPA) does for 3G what EDGE does for GPRS – increases data rates (in the download department, at least). As such, it is often humorously referred to as 3.5G. Locally, a maximum speed of 1.8Mbps is on offer, although real-world speeds are generally lower and the theoretical maximum speed is five times greater. HSDPA saw South Africa making its mark on the global roll-out front, with MTN and Vodacom both getting into the game well ahead of their international counterparts. Both providers are predicting more than a million users in the next 3-5 years but Wireless Intelligence research pinpoints network coverage and handset affordability as the main barriers to faster adoption.
The HSDPA standard was developed by the 3G Partnership Project (3GPP) and is an extension of WCDMA technology, with which it is backwards-compatible. Generally, all that’s required is a software upgrade for existing WCDMA base stations, although backhaul issues usually require further investment to cope with increased speeds and capacity. According to the UMTS Forum, “This compatibility is an important characteristic of 3GPP standards, allowing phased upgrades and a choice of evolution paths for operators.” Because it enhances the downlink component of WCDMA, HSDPA is able to drive “asymmetric” services such as Internet, TV, video-on-demand or MP3 while offering business users a serious broadband option with mobility as a bonus. UMTS Forum research predicts that “HSPA technology will succeed GSM as the workhorse of cellular. It is set to be the dominant mobile data technology for the rest of the decade.”
Too local to be lekker?
HSDPA coverage in South Africa is still largely limited to urban areas, which can cause frustration for higher-end users accustomed to steady, high-quality service regardless of their location. Where HSDPA isn’t available, users are connected to the next-best available option – 3G, EDGE, GPRS or GSM; quite a rollercoaster for those in search of consistency.
Despite seemingly perennial predictions of a forthcoming price war (to which the recent landing of new cables has added further momentum), there is currently little to differentiate offerings. And price, it seems, is the ultimate key to creating the kind of critical mass necessary to truly kick off mobile data uptake anywhere – the UMTS Forum attributes the current boom in America to “an innovative approach to tariffing.” According to the Forum, the widespread deployment of HSPA networks “has given birth to a range of flat-rate data tariffs which have dramatically boosted mobile broadband adoption... fixed-fee, unlimited data use is now the preferred subscription model for mobile data users.”
It’s ironic to think that many South African users would settle for that option on their fixedline broadband offerings. Nonetheless, another key to mobile data’s success locally could come via the increasing availability of suitable devices. Mobile operators have expanded their range from data card offerings to USB modems, dongles, desktop routers and, of course, smartphones.
SUPA-D UP DATA SPEEDS
High Speed Uplink Packet Access (HSUPA) does for uploading data what HSDPA did for download speeds. First launched in SA by Vodacom in 2008 and followed shortly afterwards by MTN, HSUPA offers users theoretical upload speeds of 1.4Mbps and downloads of up to 3.6Mbps. The possibility of mobile “broadband in both directions” as the marketers like to put it will offer business users some extra punch but will also help drive opportunities in the interaction and services space, not least in the consumer market where MySpace, Facebook and YouTube are honing a market that’s only really interested in being online if that means full interactivity.
Some observers see HSUPA as capable of stealing ground from the potential market for mobile WiMAX. The only real certainty arising from a landscape of competing, equally exciting technologies is that all players will be looking for that unique selling point or brand/service differentiator in an effort to adapt to a mobile market as exciting as it is wide open.
LONG TERM EVOLUTION
As the name suggests, Long Term Evolution (LTE) is widely seen as the evolution and extension of 3G networks on the road to their 4G destination. According to the UMTS Forum, LTE builds on “the technical foundations of the 3GPP family of cellular systems that embraces GSM, GPRS and EDGE as well as WCDMA and now HSPA” to offer a “smooth evolutionary path to higher speeds and lower latency.” Add to this the capacity to make more economical use of spectrum – it offers a theoretical downlink speed of 100Mbps per 20MHz of spectrum – and you’re left with a technology capable of supporting a broad range of rich mobile services. The UMTS forum suggests that the cost per Mb for LTE services will be 83% lower than WCDMA and 66% lower than HSPA, making it a very attractive prospect for providers looking to expand reach as well as profit margins. As the Forum points out, the shift from mobile voice to data “demands an entirely new approach to network design, implying flat, all-IP architectures without a circuit switched domain.” As LTE is based on TCP/IP, it’s right at the heart of that action.
The 3GPP released its finalised standards for LTEs in 2007, giving a solid foundation of core features on which operators and developers alike can build new, richer offerings.
FEMTOCELLS TO THE 3G RESCUE?
Essentially a mobile mast that is small enough to operate inside a user’s home or office, femto-cells are widely tipped to play a major role in 3G and 4G/LTE networks. The prefix “femto” actually means “one quadrillionth”, which is something of an exaggeration when it comes to describing the actual size of a femtoc-ell, which bears more resemblance to a router. Despite the increasing popularity of mobile data and the freedom it offers, the reality is that most usage takes place indoors, where signals are typically weaker. This is where femto-cells come in, connecting mobile users to their networks using broadband and (so the operators are hoping) boosting mobile data usage. The technology has yet to take off in any significant way, but with increasing mobile data use, it seems it’s only a matter of time before providers and customers alike look to sidestep the traffic jams for smoother, more cost-efficient service. Accordingly, Juniper Research is predicting in excess of 15 million subscribers by 2012, driven by demand for improved reception for residential mobile voice and broadband use. The research goes on to suggest that, while femto-cells are currently standalone units, they will eventually “become integrated into the home wireless router... to form a ‘multi function mix and match’ home network services gateway: router vendors are already working towards this.” Such integrated units will, according to Juniper, be the big sellers by 2014, with revenues derived from advanced femto-cell services gaining traction as early as 2011.
MOBILE GOES VOIP
In South Africa, mobile VoIP is widely seen as a threat to traditional GSM revenues, not least because voice continues to form the core revenue stream for providers. This threat is offset to an extent by the ability to charge higher tariffs for VoIP packets than for standard downloads, buying mobile operators time to get in on the act. Continued adherence to this way of looking at things indicates reluctance to recognise the attractiveness of the proposition of carrying VoIP calls over HSDPA/SUPA networks; rather than threatening revenues, it could be argued that such a service would actually drive revenues and services upwards.
In any case, painstaking as it is to do it, it’s possible for VoIP providers to encrypt traffic in such a way that cellular operators cannot discern the difference. Logic would appear to be pointing towards the “If you can’t beat ‘em... ” sign, but ongoing arguments surrounding the imminent, government-enforced reduction in interconnection fees is no doubt a distraction.
Gartner research is predicting that over 50% of mobile voice traffic will move end-to-end on VoIP by 2019 and that the real driver of this will be the mass-scale implementation of 4G networks from around 2017 on. Gartner estimates that the next decade will see more than 30% of voice traffic moving through third-party portals such as Google, Facebook and Yahoo, all of which will have implemented VoIP as an additional service. In a global mobile voice market that Gartner values at $692.6 billion, it would seem that sticking your head in the sand and hoping mobile VoIP goes away or can be blocked is not going to be a solution that pays off.
Convergence and the technologies driving change in the mobile space are fomenting a fundamental shift in the role of operators internationally. Voice may not be making way entirely for new, data-driven services, but increased consumer and business demand are joining with technological capability to carve out something more than a niche for themselves. And when 4G/LTE do finally become a reality, it’s a safe bet that data, data, data is going to be centre stage.
Mobile must get moving
As technologies converge, the mere fact of mobility is no longer enough of a value proposition on its own. Mobile voice and data users are increasingly indoor users where, interestingly, conditions are more conducive to the consumption of premium, multimedia content and services. High quality coverage indoors is essential to any effort to exploit this revenue stream. With an ever-widening array of devices and networks, operators are acting as intermediaries with services becoming agnostic as they switch seamlessly from Wi-Fi to Bluetooth to cellular according to the best available route.
Research house Ovum estimates that mobile operators will carry as much as eight trillion voice minutes annually by 2015 – over 60% of the total voice market. With mobile users increasingly staying indoors, there’s no shortage of competing technologies available to soak up a slice of that action. Internet Protocol’s growing presence on the communications landscape means users can communicate across any channel they choose. In this environment, “the case for 3G has to be based on a compelling set of arguments that make the availability of faster, cheaper Wi-Fi or WiMAX networks irrelevant,” according to BenQ’s Clemens Joos.
Welcome, then, to the world of the bundle: Voice, messaging, TV, Internet, portals, gaming – all offered by operators. Continued boom times at the social networking and user-generated content party offers those canny enough to roll exploitative applications out to a new and possibly extremely lucrative revenue stream – most of whom seem perfectly happy to give up their personal information/preferences/location details to services such as Twitter and so, have marketers hoping they’ll show a similar lack of inhibition when it comes to being advertised at.
It’s open season
Even as much of the mobile world heads for the great indoors, the potential revenue streams are stretching out into new territories. Whatever the convergence future brings, it’s certain there’ll be a cellphone/smartphone/netbook/dual-mode device somewhere at the centre of things, doing everything from mobile payments to streaming television or checking what’s in your fridge.
The race to diversify in a $40 trillion+ market is well underway, kicked into action in no small way by Apple’s iPhone and the “little shop of horrors” (well, to rivals at least) that became the AppStore and triggered a stampede to get in on a share of an increasingly lucrative market. While the jury is still very much out on which mobile platform is going to take the spoils, all eyes continue to be fixed on Google. Its Android platform arrived on the scene with near-perfect timing – and unlike competitors, the search-giant had already spent year developing applications that appeal to users and can easily be incorporated into an offering that’s almost irresistibly headed towards a data-intensive future. Attracting developers away from Apple’s extremely success offering will be a challenge however, especially for Microsoft, which many feel came a little too late to the game.
As NTT Communications’ Tetsuya Funabashi has said of convergence, “the underlying technology will always matter less than the services we deliver on it.” How operators can adapt and change to avoid the dreaded “dumb pipe” status is the latest challenge. It remains to be seen what local players do with the concept – the only real certainties are growth and change. Again.