Diapositive 1

Frédéric PUJOLHead of Radio Technologies & Spectrum [email protected].: +33 467 144 450

Open Mobile

What is at stake in the battle between operating systems?What is at stake in the battle between app stores?Which new ecosystem will emerge from the mobile Internet?

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Open mobile

Mobile market status

What is at stake in the battle between operating systems?

What is at stake in the battle between app stores?

Which new ecosystem will emerge from the mobile Internet?

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Mobile market status Mobile revenues, the end of mobile voice “el dorado” for operators

The falling growth of mobile revenue The mobile communications market today is largely seen as having passed its growth phase, entering a state of saturation

Over the past few years, mobile revenue growth has seen a sharp decline for the EU5 and the USA

Japan, seen as one of the most advanced countries in the mobile field, has achieved ~0% growth for the past five years, and this trend is expected to be followed by the European countries and the USA.

China: 10.7 % in 2008 and 8% expected for 2009

Source: IDATE

Declining mobile revenues in Japan and Western Europe

In Western Europe, Germany, Italy, UK and Spain will experience declining mobile revenues in 2009

In Japan, mobile revenues started to fall in 2004

USA are still in a growth phase with a lower penetration rate

Annual mobile revenues

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€ m

illi

on

France

Germany

Italy

Spain

UK

USA

Japan

Mobile revenues annual growth rate, 2004-2009

-20,0%

-15,0%

-10,0%

-5,0%

0,0%

5,0%

10,0%

15,0%

20,0%

2004 2005 2006 2007 2008 2009F

France

Germany

Italy

Spain

UK

USA

Japan

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Mobile market status Mobile revenues, the growing importance of data revenues

Data & voice revenues

World mobile data and voice revenues, 2009 (USD Billion)

USA: an explosive growth of data revenues fuelled by 3G dongles and smart-phones

Asia: except in Japan, SMS represent the bulk of mobile data revenues

Western Europe: slower growth of data revenues than in the USA

Source: IDATE – Mobile VoIP: Plenty are talking the talk, but can it walk the walk? 2009 market report

7

10

37

43

44

79

67

131

126

107

0% 20% 40% 60% 80% 100%

Africa & Middle-East

Latin America

Europe

North America

Asia-Pacific

Mobile data revenues Mobile voice revenues

Western Europe: an increasing dependence on data revenue

Comparison of annual growth rates for mobile voice and data revenue, EU 2004-2009

Whilst the growth rates for both voice and data revenues are showing a gradual decline, the rate for data is considerably higher than that for voice revenue

Looking at the revenue shares of voice and data, data is gradually increasing its foothold

There are many reasons for this negative trend in mobile revenues: saturation of the mobile market, increased market competition and decreasing ARPU

Data

Voice

55

What is at stake in the battle between operating systems?The smart phones battle

Software layers in mobile phones:

The operating system is the heart of the mobile phones

Essential interface with applications

Source: IDATE

The OS smartphone market is fragmented

“New” players with Android:

Trends:

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What is at stake in the battle between operating systems? Horizontal and vertical strategies : A complex ecosystem for developers

Platform Native Code Managed Code

iPhone Objective C, C/C++ -

RIM - Java (JME)

Palm - Java, HTML 5

Microsoft C/C++ .Net Compact Framework

Symbian Foundation

C/C++ Java (JME)

Android C/C++ Java (Dalvik VM)

From few platforms available to develop applications or software code, the emergence of the smartphone market has greatly increased the complexity of developing applications

Fragmentation is constantly increasing with more OS (iPhone, Symbian, Android, Windows Mobile, Moblin Linux, Blackberry, etc), mobile browsers (Opera, Safari, Chrome, etc), application standards (Java, iPhone SDK, Symbian, Android SDK, Brew, 5+ different widget standards, etc).

These platforms have their own programmation ecosystem (API) and use different native and managed code

Banned langages for iPhone are Ruby, Python, Perl, Java Android has its custom Java Virtual Machine called Dalvik to

have a tighter control on application development, whereas Java is controlled by Sun

No direct interoperability between platforms Developers have to rewrite most of the code for each

application depending on platform Major companies are spending enormous amounts of time

porting and maintaining their code If Google provided tools to help more quickly port the

BlackBerry Java app to an Android Java App for example, that could significantly reduce the time and effort required to get an app on Android, making the business case for doing so much more viable.

Developing 4 different OS versions of an application is possible although costly for most mobile services companies. Mobile game developers have dealt with this issue for some time with porting and testing costs making up as much as 80% of the total budgets which is bearable but certainly not profitable.

On the other hand, the iPhone is a single, consistent platform... a developer can build one app and have it reliably run on the millions of iPhone 2G, 3G and iPod Touch devices in market.

Consistency of Platforms appeal developpers

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.. to collaborative platforms

From Proprietary …

What is at stake in the battle between app stores?2008, the year Mobile Platforms broke

► Open Platforms and Open Software in the mobile market

First platforms introduced in 2002 However, success was low due to complex

APIs, high porting costs, poor tools, …

► 2008 : the turning point in the Mobile Software Market with a transition from closed to open ecosystem

The Open Handset Alliance led by Google introduced in October first Android phones for the T-Mobile network in the USA

Nokia bought Symbian in July and introduced the Symbian Foundation, an open version of Symbian platform, in the end of 2008

Apple launched in June the App Store for iPhone users

Many Applications Stores were launched in the second half 2008 by Platform provider (Android), Handset provider (Palm) and mobile operators (SFR, T-Mobile,..)

05000

100001500020000250003000035000400004500050000

Symbian BREW Java ME

Number of applications developed by platforms (from 2002 to 2008)

Source: IDATE

88

What is at stake in the battle between app stores? Mobile Platforms: building up the supply side

►Ecosystem of developers is key

►AppStore from Apple is most successful platform to date

1 year after introduction, 45 000 apps were available (200 at launch)

500 millions downloads in 6 months and 1 Billion in 10 months

► High impact on global mobile market

► Number of mobile devices compatible with an application store is an important parameter

The bigger the ecosystem, the more interested will be developers to target these devices (network effect)

Nokia’s Devices based on the S60 platform are for the moment the most widespread device, followed by Apple (iPhone)

► The widest offer available is in the game category (24% of available apps)

AppStore: number of downloaded applications & number of available applications

Source: IDATE

Platform # of Applications # of Compatible Phones

iPhone 100.000 33 M (as of end Sept 09)

RIM 3 100 12 M

Palm Web OS 250 Around 0.9 M

Microsoft Launched Oct 2009 Windows Mobile 6.5

Ovi Store 4 000 50 M

Android 14 600 3.5 M

-

500 000

1 000 000

1 500 000

2 000 000

2 500 000

-

20 000

40 000

60 000

80 000

100 000

120 000

Downloaded Applications (000) Number of applications

99

What is at stake in the battle between app stores? A « Standard » revenue sharing model

Market Entry Fees Revenue Share

Applica-tion Price

Payments Method

Apple 99 USD Standard

199 Enterprise

30-70% Free and 0.99 minimum

iTunes Platform

Microsoft 99 Standard - - -

Nokia Free 30-70% Free and paid Credit Card or operator billing

RIM 200 USD

admin fee for listing 10 apps

20-80%

developer pay 2.9% fee

2.99 minimum Paypal

Android 25 Standard 30-70% Free and paid Operator Billing

► Replication of the AppStore model: Revenue Sharing – a standard 30-70% model

where developers get 70% of revenue from Application sales

Desintermediation of the mobile application value chain

A fixed price to download the SDK (from 99 to 200 USD)

A catalogue of applications on a free or pay per download basis – Users can fix the price of applications

Low average price of applications remain ~ USD 2.5

Application Providers are also beginning to offer monthly subscription for updating application, especially for games

0

0,5

1

1,5

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2,5

3

Average non-game App

Price

AverageGame Price

AverageOverall Price

Application Price

Average Price of iPhone Applications (USD)

iPhone App Store: A success with low revenues Average Price of Application remains very low (2,5 USD) Revenues from AppStore estimated to 25 to 45 Million USD Given that Apple sold 13.7m iPhones in 2008, the AppStore is not a meaningful direct contributor to their overall revenue. Much like iTunes, Apple is using the AppStore to drive demand for hardware and foster audience monetization

Source: IDATE

1010

What is at stake in the battle between app stores? What Impact on the Mobile Market?

The impact of Application Store on Mobile Device is still unclear

The bump of iPhone sales in June 2008 is due to the introduction of the new generation of iPhone 3G, bundled with the Application Store

Non-users of mobile data would consider download application and software over the air in the top five data services they intend to use (Source Nielsen)

Not all users have installed Applications on their iPhone App Store is viewed as a “nice to have” feature but

won’t be the first driver for users to buy iPhone

3G iPhone Introduction + AppStore

Which place for Mobile Operators? Smartphone and the ability to add 3rd party apps kills off

MO Wall Garden iPhone case has shown consumers were willing to

change of MNO for a device Operators can hardly compete with device

manufacturers in terms of apps catalogue

1111

Which new ecosystem will emerge from the mobile Internet?Mobile Internet Status

3G and 3G+ penetration is growing

Data traffic strong increase

Is LTE the solution?

Source: Nokia Siemens Networks, Nokia UK Smartphone Study

Smart phones functions will extend to midrange mobile phone

App stores have a strong impact on smart phone users

The end of the walled gardens?

The need for efficient mobile broadband

A change in users’ habits?

The mobile broadband growth

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Which new ecosystem will emerge from the mobile Internet? The data traffic increase

HSPA traffic growth – World average

A model for deploying 3G networks developed by IDATE highlighted the limits in terms of available capacity on HSPA networks by 2013. The problems will first appear in densely populated urban areas and, by 2014, in suburban areas.

Faced with these limits, operators could degrade the quality of their services (restricting available capacity, reducing speeds, etc.) or continue their deployments

Pressure on the RAN and on the backhauling network

Overall, global mobile traffic has more than doubled in the past year, reaching 33 Petabytes (PB) per month in 2008, and 85 PB per month in 2009

Increase network capacity

è add 2.6 GHz spectrum (LTE)

è buy additional 900, 1800 MHz or 2.1 GHz spectrum

è use WiFi hot spots

è add pico/femtocells

è add new cell sites

è use multiple antenna systems

2500 2690

2.6 GHzSolutions:

è use LTE with 10 MHz and 20 MHz channels

è add 800 MHz spectrum (LTE) 862

DD790

Source: Ericsson; IDATE – Radio Spectrum: which conditions for mobile broadband growth? - 2009 market report

Move to HSPA+

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Which new ecosystem will emerge from the mobile Internet?What solutions can LTE bring?

LTE (Long Term Evolution) is a new air interface with OFDM multiplexing and improvements in modulation and coding

LTE provides higher efficiency and will benefit from new spectrum resources to support mobile data growth

Part of the GSM/HSPA family

Flexibility in spectrum use: channel width, TDD/FDD duplex mode

Increased spectrum efficiency higher data rates (~40 Mbps today)

Full-IP & a flat architecture

Lower cost expected (improvements in modulation, SON, re-use of existing cell sites…)

But there will be a transition period: HSPA+ will benefit from many improvements (64 QAM, dual carrier) and will offer a similar spectrum efficiency when LTE starts

LTE architecture

Multiple antenna systems

OFDM multiplexing

Source: IDATE – LTE: a compelling answer? - 2009 market report

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Which new ecosystem will emerge from the mobile Internet?What solutions can LTE bring?

LTE spectrum: the Digital Dividend…

Digital Dividend (800 MHz in Europe, 700 MHz in the USA) will play a key role in LTE deployments

NRAs positions will be key on the distribution of the spectrum between actors: bandwidth (5, 10 MHz), RAN sharing, Spectrum caps…

400 600 700 800 900 1 GHz

UHF

470 862

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915 925380

IMT

790

Mobile services (IMT) PMR Broadcasting

Configuration for the 800 MHz band in Western Europe

63 64 65 66 67 68 69

Downlink UplinkDuplex gap

30 MHz 11 MHz 30 MHz

791 MHz

862 MHz

821 MHz

832 MHz

6261

Guard band

5 MHz

1 2 3 4 5 6

791 796 801 806 811 816 821

5 MHz

1 2 3 4 5 6

832 837 842 847 852 857 862

790 MHz

… and the 2.6 GHz band

… FDD/TDD distribution in the 2.6 GHz band

The 2.6 GHz band not fully harmonized in Europe:

2 GHz3 GHzUnlicensed 2.4UMTS core

S band

IMT

2500 26902483240023002010-2025 2110 2170

2200IMT

FDD Uplink blocks

Flexible FDD/TDD

CEPT option 1

CEPT option 2

CEPT option 3

Norway

Netherlands

UK

Sweden, Finland

2500 MHz 2570 MHz 2620 MHz 2690 MHz

FDD Downlink BlocksTDD

FDD Uplink blocks FDD Downlink BlocksFDD Downlink External

FDD Uplink (8 blocks)

TDD(5 blocks)

FDD Downlink (8 blocks)

TDD(3 blocks)

TDD (3 blocks)

Paired blocks

2540 MHz

2660 MHz

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FDD

TDD

FDD or TDD

Guard band

Source: IDATE – Radio Spectrum: which conditions for mobile broadband growth? - 2009 market report

Open spectrum?

Unlicensed/Licensed & « White space » concept

Impact of new radio technologies?

1515

Which new ecosystem will emerge from the mobile Internet? LTE deployment roadmap – starting end of 2010

► Earliest LTE deployments announced for end-2010; many more operators are set to follow

The forerunners of LTE deployment are NTT DoCoMo of Japan and Verizon Wireless of the USA

A host of other big-name MNOs is committed to deploying the technology from 2011 onwards

Geographical mapping of early LTE commercial deployment

Major operators LTE commercial deployment schedule

Source: IDATE

Source: IDATE – LTE: a compelling answer? - 2009 market report

1616

Which new ecosystem will emerge from the mobile Internet? LTE forecasts: 380 millions subscribers in 2015

Global LTE adoption forecast (End-2012 to end-2015) (Million subscribers)

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End-2012 End-2015

China EU5 + Scandinavia Japan + South Korea USA

Source: IDATE

USA USA is a battlefield for competing mobile

technologies Verizon Wireless early LTE deployment will be a

game-changer and will lead to faster adoption by AT&T

Japan and South Korea They lead the world in terms of 3G penetration and

will be pace-setters for LTE

Europe Depending on the competition and the spectrum

allocation schedule Major European operators may decide to act more

cautiously and opt to first observe and learn from the other pioneering countries

China Operators deploy both 3G and TDD LTE

simultaneously, much of the equipment can be shared

China will drive TD-LTE market

Source: IDATE – LTE: a compelling answer? - 2009 market report

1717

Questions

► Mobile broadband is already here thanks to 3G/3G+ services - growth has started but an higher expansion will happen during next years

► Facing to voice revenue decrease, how to raise data revenue?

► Operating Systems for smart phones: who will dominate this booming market?

► App Stores: a radical impact on the value chain?

► This strong growth of data traffic is already creating congestion on current networks. How to handle it?

► Is LTE the solution for facing data traffic increase?

Thank you!