Agenda - TKK

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© Sakari Luukkainen

Agenda

19.1. Introduction, Sakari Luukkainen26.1. Mobile market, Sakari Luukkainen 2.2. Theoretical frameworks, Sakari Luukkainen9.2. Theoretical frameworks, Sakari Luukkainen16.2. Open Telco, Vesa SuikkolaWeek 8 Winter holiday2.3. Mobile services research, Antero JuntunenWeek 10 Exam week16.3. Cloud computing, Sakari Luukkainen23.3. Mobile cloud computing, Yrjö Raivio30.3. Green computing, Teemu Muukkonen6.4. Online music business, Heikki Kokkinen 13.4 Industry case, N.N.

25.5. Examination

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Introduction

• The telecommunications industry has been a sector with a strong regulation of the spectrum, technologies, services and competition

• Regulation has been a tool for governments to control the balance between the national and international companies and their market positions in the country

• National regulative requirements lead in building barriers to entry for foreign competitors

• The role of the national regulation is decreasing owing to the global trend towards a less regulated international trade

• The primary goal is currently benefit the consumers through competition in the supply of products and services

• Deregulation consequences and political implications in 90´smonopoly PTT´s -> privatization, new operators -> competition

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Introduction• Traditional incumbent mobile telecommunications operators operate

based on walled garden business model where services available to endusers are fully controlled by them

• Voice IN service based walled garden model was extended into data services using WAP protocol

• The reason of failure were low level of relevant applications to endusers parallel with high pricing – high experimentation barrier

• The content providers get in walled garden model less than 50% of revenue compared to i-mode´s hybrid model in Japan where they get 91%

• Development of Internet and deregulation has started to disrupt walled garden towards open models

• Separation of service (MVNO) and network provision was supposed to drive price competition and service innovation in Europe

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Mobile market in Finland

• GSM was launched in 1991

• During the 1990s Finland was the forerunner in mobile voice and SMS

• Saturation of mobile subscriptions was reached quite early onin Finland

• Currently only slow growth

• Mobile voice and SMS dominant design, in new mobile multimedia services no forerunner position any more

Source: ITU, Haantie 2006

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Mobile market in Finland• The most significant development (25.7.2003): the

introduction of the number portability arrangement by regulator in order to reduce switching cost

• Made number portability easy for subscribers• Increased competition resulted in declining user loyalty

and increased customer churn (10->40)

• Finnish authorities also intervened to guarantee equal network usage fees to all service operators

• At the beginning of March 2004 network operators cut their fees to service operators by approximately 30%

• Diverse new entrants (MVNO) emerged in the market (full control over SIM cards, branding, marketing, billing and customer care, might have own CC, MSC, HLR, IN)

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Mobile market in Finland• Competition was price-based, revenue per subscriber (ARPU)

decreased significantly from 40 e to about 30 e / month, roaming still significant revenue source because of scarce competition

• Scarce competition through differentiation

• Mobile data services create low share of operators revenues (disappointment in WAP, MMS), flat rate data subscriptions have started to grow fast

• Incumbents started to make acquisitions - MVNO´s disappeared, offer of 3 G bundles and fixed term contracts - price competition settled down, incumbent operators started to increase their prices

• Market shares in 2009: Elisa 38 %, TeliaSonera 37 %, Dna 23 %, others 2 %, total market ca. 2 B €, content 200 M €

• Churn decreased to 20, currently legislation is changing again -subscriber is allowed to change operator during fixed term

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© Sakari LuukkainenSource: TeliaSonera 2009

Realized totals

Estimated totals

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Revenue effects

Expenditure Effects

New services

Subscriber growth Traffic growth Interconnect

CAPEX OPEXMarketing & SalesGeneral & AdministrationBillingHelpdeskOperation and MaintenancePowerRollout & IntegrationService DevelopmentInterconnectRoamingOther

Network buildService networkTransmissionCore networkAccess networkFrequency licensesBuildingsRolloutInstallation Site establishment Other

Mobile Intranet/Extranet AccessCustomised InfotainmentMultimedia Messaging ServiceLocation-Based ServicesRich Voice and Simple Voice

Mobile Termination Rate (MTR) Originating/terminating inter-network calls

BTAs

Investment decision

Regulations

Legacy

End users

Brand imageStrategyOther

Existing networkExisting technology

CompetitionExisting competitorsIndustry convergenceThreat of new entrants

MVNO customers

Source: Katajala 2005

Operator business

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Revenue sources by generic mobile service type

Service / revenue

Internet access

Content SMS/MMS Location Voice

Airtime x x x

Message x

Monthly fee x x x

Advertising x

Transaction x

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Mobile content economicsUnited Kingdom Capacity needed Price to end-user Operator (€/MB)

SMS 160 bytes 0.15 € / message 937.50

MMS 30 kB 0.41 € / message 13.70

Voice 16 kb/s 0.30 € / min 2.50

GPRS 115-348 kb/s 4.80 € / MB 4.80

Music streaming 128 kb/s 1.5 € / min 1.60

Finland Capacity needed Price to end-user Operator (€/MB)


MMS 30 kB 0.39 € / message 13

Voice 16 kb/s 0.08 € / min 0.67

GPRS 115-348 kb/s 2 € / MB 2


Video streaming 384 kb/s 1 € / min 0.35

Germany Capacity needed Price to end-user Operator (€/MB)


MMS 30 kB 0.39 € / message 13

Voice 16 kb/s 0.27 € / min 2.25

GPRS 115-348 kb/s 3 € / MB 3


Source: Luukkainen, Haantie 2006

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© Sakari LuukkainenSource: Cisco 2009

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Source: Eylert 2005

Mobile data pricing

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• Content providers rarely pay network operators to deliver their services

• Content providers expect a revenue share

• Competition between network operators to attract content providers soon becomes fieerce

• Competition focuses on attractive revenue-share arrangements for content providers, reducing the margins of network operators

• Content providers exhibit little loyalty to network providers

• Network operators are often the targets of bad publicity resulting from inappropriate or addictive content

• The responsibility for handling customer complaints is often unclear

Lessons of existing content revenue models (IN, i-mode, SMS, WAP)

Source: Eylert 2005

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Business models


Closed Model Hybrid Model Open Model

IMS

Open Telco

Flat Rate

Degree of openness

MP2P

Push PullSMS

IM

MobileWeb 2.0

DRM

Creative Commons

WAP

DynamicFlat Rate

iMode Broker

RESTIN

Super distribution

N-sidedmodel

Area

Long Tail

B-partypays

Web Services

P2P

Web 2.0

MSSPoC

PremiumSMS

0700 &0800

VoIP

PTT monopoly

Service

Technology

Organization

Finance

Mobileadvertizing

Source: Raivio, 2009

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Mobile business value network

Source: Haantie, 2006

Content fee

Terminal fee

Traffic fee

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© Sakari LuukkainenSource: Distimo, Foresman, 2010

Manufacturers entering service business

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OS 2009 2010 2011 2014Symbian 46.9 40.1 34.2 30.2Android 3.9 17.7 22.2 29.6RIM 19.9 17.5 15 11.7iOS 14.4 15.4 17.1 14.9Windows 8.7 4.7 5.2 3.9Other 6.1 4.7 6.3 9.6

Smartphone OS global market shares (%)

Source: Gartner, 2010

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Company1Q10 Market

Share (%)1Q09 Market

Share (%)Nokia 35 36.2Samsung 20.6 19.1LG 8.6 9.9RIM 3.4 2.7Sony Ericsson 3.1 5.4Motorola 3 6.2Apple 2.7 1.5ZTE 1.7 1.3G-Five 1.4Huawei 1.3 1.2Others 19.2 16.5Total 100 100

Mobile terminal global market shares (%)

Source: Gartner, 2010

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Evolution of mobile networks

Incremental change

Discontinuous change

Mag

nitu

de o

f Cha

nge

TimeSource: adapted from Tushman, 1997

1 G NMT

2 G GSM

3 G UMTS4 G LTE

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• ARP mobile networks in Nordic countries were in the beginning of 1980´s the largest in the Europe

• NMT 450 and 900 networks continued this forerunner role competing in fragmented market with english TACS, US AMPS, German Netz-C, Italy RTS, no economies of scale in equipment, no roaming, limited spectral efficiency, services and security

• EU started to play major role in mid 1980´s and ETSI was set up to standardize GSM

• Co-operation between operators has been facilitated by MoU, e.g. roaming agreements, rollout timetable to 1991, tariffing

Case GSM

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• EU´s liberalization of telecom market (deregulation) opened the competition for GSM

• All European countries awarded licenses to 2-3 operators

• Added value compared to NMT: Mobile voice incremental, pricing, roaming, SMS discontinuous and unexpected success, mobile data, SIM reduced the switching cost of terminal and operator, fast coverage expansion

• In USA (D-AMPS, CDMA) and Japan (PDC, CDMA) there where several competing standards, which could not evolve to global mass markets at similar extent like GSM

Case GSM

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• Separation of numbering space enabled calling party pays

• First commercial service launch 1991 in Finland in time

• Critical mass easily created, global market selected GSM as dominant design

• 1992 commercial GSM services were initiated in 15 and 1996 in 103 countries by 167 operators

• 1997 number of subscribers started to increase from 50 million exponentially, 2004 billion subscribers

• 2001 also main US operators transferred to GSM in 1900 MHz, GSM technology accounted about 60 % of global mobile communications market

Case GSM

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Case UMTS

• the first actions in 3G evolution were the spectrum allocation in 2 GHz band by the World Radio Conference in 1992

• the original success of GSM created excessive expectations of the market demand for the third generation mobile technologies

• originally 3G was planned to be a revolutionary concept especially in the research domain, which would renew the whole 2G network infrastructure

• EU’s research projects investigated the suitability of different radio access technologies for the 3G systems

• their work became the basis of the standardization work of ETSI, which decided to select WCDMA (Wideband Code Division Multiple Access)

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Case UMTS

• NTT DoCoMo was also the first operator who offered commercial 3G services, which began in Japan in 2001 by the name FOMA (Freedom of Mobile Multimedia Access)

• when the mobile hype was in the hottest phase, several European countries decided to award UMTS licences for the operators on the basis of an auction procedure

• the fear of getting out of the market raised the price of the licences to incredibly high levels especially in Germany and England

• this got the operators into financial trouble and the whole industry stagnated

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Source: Eylert 2005

Ahead in overall - delay in 3 G market growth

2009: 4,6 billion subscribers,market volume ca. 600 billion €

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• competitive operator environment

• choice between competing standards and technologies

• coverage required

• market expectations

• traffic characteristics impact to the network evolution

Radio spectrum licensing

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Radio spectrum licensing

• selection of the operator

• first come first served, beauty-contest, lottery, auction

• use of spectrum pricing as an instrument of taxation

• impacts on society

• Consequences for the industry

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Source: Eylert 2005

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Source: Eylert 2005

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Case UMTS

• the introduction of video into the mobile environment did not create enough value added • because of these experiences many operators in Europe delayed their commercial 3G launches until 2004 • the operators that made an earlier start suffered from a shortage of terminals • thus the original timetables set by the European Union could not be reached • it was also decided that it is an evolutionary approach of GSM, same services – faster data• in 2005 there were globally 41 million 3G subscribers and 82 networks in 37 countries, which was 3 years behind what was originally forecasted

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Case UMTS• because GSM networks will still be able to serve all the demand for the basic voice call service cost efficiently for a long time, the only way for 3G to differentiate are the mobile data services

• lower frequencies increase the range of the base stations and thus decrease the network investment

• operators have started to move their existing customer base mainly using the voice/SMS services from GSM to UMTS and take the 900 MHz band incrementally in UMTS rural usage, the 3G network investments could be profitable in the long run

• by analogy with this, there will then be a transition similar to the one in NMT to 900 and in GSM to 1800 MHz

Agenda - TKK

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