Mobile Idate 2009

8/14/2019 Mobile Idate 2009

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TelecomServices &

Mobile Trends

MobileBroadband

MobileEquipmentDynamics

MobileHot Topics


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Introduction


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Mobile 2009 4

INTRODUCTION

T he world telecom services mar-ket is estimated at 1,365 billionUSD in 2008 a 4.2% increaseover the year before and is ex-pected to be worth over 1,416billion USD in 2009.

After having increased by an average 6%annually over the past three years, i.e. from2005 to 2007, the globes telecommunica-tions services market suffered a downswingin 2008, with growth dropping to 4.2%

generating a total turnover estimated at1,365 billion USD. The structural pressuresthat have been weighing on the sector forseveral years now (decline of the fixed voicemarket, advanced mobile markets reachingmaturity, etc.) are being compounded by thefirst effects of the global economic crisis andthe worsening financial climate.

Mobile services growth decreasesby 4 points and the decline of fixed

telephony becomes more acute

With a total turnover estimated at 742.2 bil-lion USD in 2008, mobile services account

for 54% of the telecom services market

and singlehandedly deliver all of the sec-tors growth. But the annual growth ratehas dropped from more than 12% in 2007to 8% in 2008. The mobile customer base

worldwide grew by another 17% in 2008,but is offset by a steady decline in averagerevenue per user (ARPU) which dropped to17.50 USD a month in 2008. Meanwhile,fixed network services are stagnating.The revenue generated by data services whose growth is being spurred chiefly

by broadband access rose by 20 billionUSD in 2008, while fixed telephony revenuedropped by as much, even if the impact onthe base is still limited: the number of fixedphone lines shrunk by just over 10 millionduring the year, i.e. by just under 1%. Thenumber of broadband connections grew by

close to 20% to 415 million at the end of2008: with an average density of 6.4 broad-band connections per 100 inhabitants, thismarket still has considerable room to grow,especially in emerging economies. In moreadvanced markets, broadband density isover 30%, i.e. between 70% and 80% of

households are already equipped.


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Mobile 2009 5

INTRODUCTION

Growth hits a record lowin industrialised countries

Accounting for two thirds of the marketsvalue, industrialised countries still dominatethe globes telecom services market by asizeable margin. But growth in those coun-tries, which has been moderate since thestart of the decade, dropped substantiallyin 2008 going from 4% in 2007 to 1.4%in North America and from 1.9% to 0.8% inthe European Union. The decline was similarin Asias industrialised nations, due in largepart to the -2.7% loss reported in Japan.The demand for new services (VoIP, IPTV,IM, mobile multimedia) in these countriesis only just offsetting the losses in value be-ing posted by traditional services. In 2009,growth in both industrialised and developing

economies is expected to drop once again,due to the global economic strain.

In this new edition of our Mobile yearbook,you will find valuable data on the centralcomponents of the mobile world, along withanalyses from IDATEs experts and a com-prehensive round-up of the highlights of theyear gone by:

Mobile Broadband dynamics

Mobile pricing Innovation

NFC timelines

Mobile Handset Dynamics

Mobile Churn ManagementRadio Spectrum issues

Mobile TV Solutions

New Communication trends

In your diaryDigiworld Summit 2009 17-18-19 November 2009


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Telecom

Services &Mobile Trends


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Mobile 2009 8

TELECOM SERVICES & MOBILE TRENDS

Sizeable drop in telecom services sector growth in 2008

The value of the world telecom servicesmarket increased by 4.2% in 2008

After a rebound that began in 2005, the tel-ecom services markets growth rate suffereda significant drop in 2008. Totalling 1,365billion USD, annual growth is estimated at4.2%: the lowest level for the global mar-ket since 2002, just after the dotcom bub-ble burst. While the financial crisis whichhas been deepening since autumn 2008 isnaturally aggravating the current situation,the dropping growth rate is due above allto structural pressures weighing on the glo-bal telecommunications market, includingthe fact that a number of markets that havelong sustained the sector are reaching matu-rity (especially mobile markets in advancedcountries), the impact of substituted and/ordemonetised applications, competitive and/ or regulatory pressure

In fixed markets, the Internets ongoinggrowth is only just offsetting the inexorabledecline of landline telephony, while growth inthe mobile services market was four points

below what it was in 2007.

With a total turnover estimated at 687.5 bil-lion USD in 2007 and 742.2 billion USD in2008, mobile services nevertheless contin-ue to account for all the growth in the tel-ecom services market, and have exceededfixed line services in value since 2003. Theirweight in the total equation continues to rise:since 2006 mobile services have accountedfor more than half of telecom services con-solidated turnover worldwide a proportionestimated at 54% in 2008. The mobile mar-kets growth is sustained by the increase

of the subscriber base, which grew by an-other 17% in 2008. At the same time, aver-age revenue per user (ARPU) has been drop-ping steadily, totalling 17.50 USD a monthin 2008, albeit with extreme variations fromregion to region.

Fixed telephony continues its decline whichbegan in 2002, and at an ever increasingpace. In 2008, the market lost another 5%of its total value worldwide, due to both anominal effect (a decrease of between 4%and 7% in the average revenue per linesince 2004) and a real effect (slow declinein the number of lines since 2006). In terms

of value, fixed telephonys contribution to


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Mobile 2009 9


the global telecommunications servicesmarket has gone from 48% in 2001 to 27%in 2008.

The data and Internet access services mar-kets are playing an increasingly large part inthe telecom services markets growth world-wide. In 2008, they generated 20 billionUSD more in revenue than the year before,for a total turnover of 256 billion USD. Theirweight in the equation is increasing steadily,going from 15% of telecom services revenuein 2001 to close to 19% in 2008, but theircontribution to overall growth is only just off-setting the losses being reported in fixed te-

lephony services revenue.

The market for data transmission services inthe business segment is growing very slight-ly, with near zero growth in Western Europe,and even decreasing in some cases (-0.5%in North America in 2008). It is the Internetmarket, and especially broadband that isenjoying the only remarkable growth tra-

jectory. There are an estimated 415 millionbroadband connections around the globe atthe end of 2008, or 67.5 million more sub-scribers than the year before an increaseequivalent to what was reported in 2007.The global base has doubled in three years.

At the end of 2008, broadband connectionsaccounted for close to three quarters of all

the worlds Internet connections.

Table 1: Worldwide - Telecom services market2005-2009

(Million USD) 2005 2006 2007 2008 2009F

Fixed telephony 421 837 405 827 386 447 366 394 349 467

Mobile services 546 365 612 379 687 490 742 241 790 464

Data and Internet 196 066 215 634 236 235 256 130 276 890

TOTAL 1 164 268 1 233 840 1 310 171 1 364 765 1 416 821Annual Growth Rate 5.7% 6.0% 6.2% 4.2% 3.8%

S o u r c e :

I D A T E


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Mobile 2009 10


Growth hits a record low inindustrialised countries

From a geographical standpoint, growth tra- jectories continue to vary a great deal, be-

tween mature regions and countries wheregrowth is now virtually nil, and emerging re-gions and countries which continue to reporta combined growth rate of just over 10% although there are still considerable dispari-ties inside each block.

Growth in North America, for instance, hasbeen higher that in the European Unionover the past three years (+4% vs. +1.9%in 2007, +1.4% vs. +0.8% in 2008), whileJapan stands out for having suffered nega-tive growth for two years in a row, first mod-erate in 2007 (-0.2%) and more severe in2008.

(-2.7%).The gap between the two sides ofthe Atlantic shrunk in the first half of thedecade: in 2001, growth in the EuropeanUnion was 10 points higher than in North

America but, since 2005, the EU has beenreporting lower growth rates than Canadaand the US. This is due to a combination of

two things:

the decline of fixed telephony, which ispicking up speed in Europe even thoughit is still less marked thank in North Amer-ica (-5.7% for the EU and -7.3% for North

America in 2008).

mobile services which have enjoyed asteadier growth path in North America,growing at double the rate of the Europeanmarket: close to +11% in 2006 and 2007,then +5.2% in 2008 for North America; justunder +5% in 2006 and 2007, then +2.7%in 2008 for the European Union).

Growth plummeted in industrialised coun-tries in Asia in 2002, going from 10% to 2%,and remained low but above zero in the yearsthat followed, before tumbling into the nega-tives in 2008 due in large part to a dramaticdecline in the Japanese market.

Accounting for two thirds of the marketsvalue, industrialised countries still domi-nate the globes telecom services marketby a sizeable margin. But growth in thosecountries, which has been moderate sincethe start of the decade, dropped substan-tially in 2008 going from 4% in 2007 to

1.4% in North America and from 1.9% to


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Mobile 2009 11


0.8% in the European Union. The declinewas similar in Asias industrialised nations,due in large part to the -2.7% loss report-ed in Japan. The demand for new services(VoIP, IPTV, IM, mobile multimedia) inthese countries is only just offsetting thelosses in value being posted by traditionalservices. In 2009, growth in both industrial-

ised and developing economies is expect-ed to drop once again, due to the globaleconomic strain.

Our estimates put total world revenue in2006 at 1.2 billion USD, up 6.2% on the pre-vious year. Growth in 2007 can be expectedto be slightly lower at 6.0%.

Table 2: Worldwide - Telecom services markets by region2007-2008

Market value(million USD)

Annual growth rate(%)

2007 2008F 2007 2008F

North America 332 797 337 389 3.9 1.4

Europe 439 800 448 606 3.7 2.0

Asia-Pacific 341 560 357 167 5.7 4.6

Latin America 115 770 127 355 13.7 10.0

Africa & Middle East 80 244 94 248 23.7 17.5 S o u r c e :

I D A T E


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Mobile 2009 12


Trends by activity segment

Mobile services

Mobile services growth decreases by 4points and the decline of fixed telephony be-comes more acute

With a total turnover estimated at 742.2 bil-lion USD in 2008, mobile services accountfor 54% of the telecom services marketand singlehandedly deliver all of the sec-tors growth. But the annual growth rate hasdropped from more than 12% in 2007 to 8%

in 2008.The mobile customer base worldwide grewby another 17% in 2008, but is offset bya steady decline in average revenue peruser (ARPU) which dropped to 17.50 USDa month in 2008. Meanwhile, fixed network

services are stagnating. The revenue gen-erated by data services whose growth isbeing spurred chiefly by broadband access rose by 20 billion USD in 2008, while fixedtelephony revenue dropped by as much,even if the impact on the base is still limited:the number of fixed phone lines shrunk by

just over 10 million during the year, i.e. by just under 1%.

The number of broadband connections grewby close to 20% to 415 million at the end of2008: with an average density of 6.4 broad-band connections per 100 inhabitants, thismarket still has considerable room to grow,especially in emerging economies. In moreadvanced markets, broadband density isover 30%, i.e. between 70% and 80% ofhouseholds are already equipped


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Mobile 2009 13


Table 3: Worldwide - Mobile customers2005-2008

Mobile customers(thousands)

Mobile penetration(% of population)

2005 2006 2007 2008F 2005 2006 2007 2008F

North America 224 771 251 529 277 045 294 024 68.4 75.9 82.8 87.1

Europe 691 704 801 825 889 219 938 139 73.1 90.4 100.8 106.0Asia-Pacific 820 009 1 058 100 1 363 013 1 686 496 22.8 29.1 37.0 45.3

Latin America 232 042 296 117 362 393 425 571 43.1 54.4 65.8 76.3

Africa & Middle East 188 185 271 662 379 907 475 141 18.9 26.7 36.6 44.8

TOTAL 2 156 711 2 679 233 271 578 3 819 371 27.6 34.3 41.3 46.5 S o u r c e :

I D A T E


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Mobile

EquipmentDynamics

M bil 200916


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Mobile 2009 16

MOBILE EQUIPMENT DYNAMICS

Mobile Terminals

Amidst the global economic crisis, the glo-bal mobile phone market is facing difficulttimes and growth that were double digitsfrom 2002, are now experimenting the neg-ative impact of this economic turmoil. Witha volume growth stated at 15% in 2007,mobile phone sales should continue to beon the growth in 2008, but at a far lesserextent. IDATE states that volumes haveprogressed by 5% in 2008 reaching 1200units sold over the year, a forecast reevalu-ated to the downside after a negative fourth

quarter. If these numbers appear positivetaking into account the global crisis and theimpact it has on the IT and consumer elec-tronics industry, 2008 was a turning point inthe mobile phone industry.

First, the mobile phone market has beenhistorically one of the fastest growing

markets with double digits growth peryear, since the Internet Bubble burst of2001 and its economic downturn. Thefact that this year market growth may belimited to 5% is a sign of general slowdown of the industry as consumers areeither differing their handset replacement

or first purchase.

Second parameter is to be seen in the sec-ond half sales of 2008. In the first half of2008, handset sales were on the same trendas previous years with year on year salesbetween 13% to 15%. As of 3rd quarter of

2008, sales were down to 7.7% confirmingthe economic impact of the global crisis;and in the fourth quarter, sales were downby 10% YoY. Historically the third quarterhas been a ramp-up time for manufactur-ers to ship phones in preparation for theholiday season and growth have generallybeen on a 15% to 30% progression year

on year. With these low 3rd and 4th quartersales figures, market should prepare for low1st half in 2009 with a inevitable contractionin mature markets.

Starting in the second half of 2008, the eco-nomic slow down should continue in 2009 andincrease its impact on mobile phone sales. For

2009 perspective, after IDATE first stated thatmobile phone market growth should remainpositive between 1 to 4%, market warningsby major handset manufacturers and chipsetsuppliers, indicated that this year will remainextremely tough for every players of the mo-bile value chain. Sales should therefore be onthe downturn reaching 1130 to 1140 units, a 5

to 6% decrease in volume.

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Mobile 2009 17


Table 4: Mobile Handsets Market Breakdown by Region2005-2009

Million EUR 2005 2006 2007 2008 2009FAsia-Pacific 43 678 44 946 46 582 47 144 48 395

China 11 860 12 587 14 104 15 515 17 552India 3 123 5 472 6 582 8 990 11 164Japan 12 769 12 313 11 645 11 496 11 038

Other countries 15 926 14 574 14 252 11 143 8 641North America 22 276 22 537 22 604 22 725 23 169

USA 20 681 20 857 20 863 20 962 21 308Canada 1 595 1 680 1 742 1 762 1 862

Western Europe 22 886 23 465 24 053 24 269 24 518France 3 167 3 256 3 375 3 422 3 463Germany 3 792 3 890 3 966 4 033 4 078Italy 3 307 3 322 3 373 3 416 3 444Spain 2 820 2 929 3 025 3 058 3 095UK 4 688 4 833 4 963 4 944 4 925Other countries 5 113 5 236 5 352 5 396 5 513

Central and Eastern Europe 7 918 8 039 8 516 8 849 9 163Russia 5 198 5 050 5 249 5 410 5 561

S o u r c e :

I D A T

E

Figure 1. Worldwide handset shipments2006-2011, million units

0

200

400

600

800

1 000

1 200

2006 2008 2009E 2010E 2011E2007

1 400

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I D A T E

Figure 2. World handset providers2008, market share in %

Nokia, 39

Samsung , 16.4

Other, 19.7(HTG, Apple, RIM,...)

Sony Ericsson8.1

LG,8.4

Motorola, 8.4 S o u r c e :

I D A T E

Mobile 200918


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In the mobile access equipment market, over-all GSM sales led the good evolution of themobile market despite weaker deploymentsof WCDMA networks. Market also faced anintense consolidation inducing a fiercer com-petition between equipment providers. Themobile access infrastructure market includescellular network access base stations (BTS forGSM/GPRS/EDGE and CDMA, and Nodes Bfor UMTS networks), associated equipments(BSC, GGSN, SGSN) as well as Public Net-work WLAN access base stations (hot-spots),

based on WiFi, WiMax technologies.Despite the dynamic investment in mobilenetworks benefited mobile infrastructure sup-pliers caused by the intensifying competitionin Africa, India, Latin America, and Russia andprice erosion for GSM/EDGE/GPRS equip-ment, there were slowdown in the sector.

With the investment reduced from mobile car-riers, the mobile market had seen difficultiesin 2007 and had created a more considerable/ intensive competition between suppliers.

This segment had been the most impactedmarket with the emergence of Nokia Sie-mens Networks as a second and Alcatel-Lu-cent at the third place but finally the com-panies were not aggressive face to Ericssonwhich continued to grab market share. Thefear for the Swedish company could comefrom the Chinese manufacturers. Indeed,Huawei and ZTE had displayed the most im-portant growth rates in the industry thanks totheir success in emerging countries, whereinvestment remained robust and their abilityto come compete in the developed countriesas in Western Europe where they won sev-eral contracts

Mobile Access

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Table 5: Mobile Access Equipment Market Breakdown by Region2005-2009

Million EUR 2005 2006 2007 2008 2009FAsia-Pacific 6 513 6 550 7 459 8 377 9 267

China 2 318 2 450 3 108 3 715 4 095India 317 571 986 1 538 2 037Japan 2 299 2 429 2 227 2 095 2 013

Other countries 1 579 1 101 1 138 1 028 1 121North America 5 992 6 359 4 685 4 890 4 755

USA 5 655 6 007 4 283 4 247 4 129Canada 336 353 402 644 626

Western Europe 4 942 4 658 4 554 4 664 4 772France 778 807 759 805 828Germany 501 496 461 436 434Italy 763 710 646 630 616Spain 587 671 643 682 713UK 1 240 845 851 889 929

Other countries 1 074 1 129 1 195 1 222 1 252Central and Eastern Europe 1 591 1 472 1 585 1 631 1 693

Russia 856 728 815 838 870 S o u r c e :

I D A T

E

Table 6: Mobile Access Equipment Market Breakdown by Region2008, %

Rank Fixed Infrastructure Providers Global Market Share1 Ericsson 312 Nokia Siemens Networks 223 Alcatel Lucent 144 Nortel 75 Huawei 76 Motorola 67 NEC 5 S o

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I D A T E


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MobileBroadband

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MOBILE BROADBAND

Telecommunications equipmentsuppliers and operators see in mobilebroadband the growth driver that isindispensable for their expansion.But implementing data services onmobile networks pose a series of both

technical and economic problems for players in the ecosystem

The telecommunications industry is facedwith mobile broadbands rapid expansion.

In a highly competitive environment, equip-ment suppliers must develop innovativesolutions to meet operators requirements.

Among the competing technologies, LTEis consolidating its strong position.

Operators are facing both technical andeconomic challenges. They are dependingon data services to stabilise their ARPU.But the explosion in traffic and the associ-ated rising costs threaten quality of serviceand financial stability. Courses of actionare gradually appearing: improved tech-nologies, access to more radio spectrum,network densification, operational cost re-ductions, etc. But none of the planned so-lutions will be able to provide a definitive

response by itself.

Mobile operators are depending onmobile broadband to stabilise ARPU

Voice/SMS services now represent between90% and 70% of revenue for mobile opera-tors in mature markets. In this environment,the primary short term financial risk for op-erators is the drop in voice and SMS reve-nue. Mobile operators see in data servicesa growth driver that is indispensible for theirexpansion. And we are actually seeing averitable take-off in mobile data services. 3Ginfrastructure has reached significant cover-age levels, and the number of 3G subscrib-ers is growing rapidly.

There are two types of mobile data services,the first coming from fixed Internet (messag-ing and Internet access services, for exam-

ple), the second being more specific to themobile ecosystem (services based on ge-olocalisation, m-payment, enhanced mobilecommunications services, etc.).

The adoption of data applications is mostlydriven by services taken from the fixed In-

ternet.

Impact on the telecom industry


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MOBILE BROADBAND

work costs. Operators increasingly preferan overall approach consisting of reducingthe cost of data transported (cost of an Mbtransported).

IDATE has created a model for the specificcase of an operator that already has a GSMnetwork, deploying 3G in 2004 and LTEstarting in 2012 (in high density areas).

The largest cost elements are shown in thetable below. It takes into account invest-ment costs and operational costs associ-ated with the core network, the informationsystem and the radio access portion (in-cluding the costs of radio spectrum usagelicences).

Improvements in technological performance

Economic conditions will improve as tech-nology moves towards LTE. Nevertheless,the improvement seems less significant thatthe operators expected, within the NGMN

Alliance, for example.

The relatively conservative hypotheses in our

model may explain this perception:

The LTE profile evaluated was not themost efficient of these expected.

Savings in terms of OPEX are not availableyet for LTE network deployments and were

not included in our model at this stage.The model does not include deploymentassociated with LTE networks and LTEfemtocells.

The model for deploying HSPA and LTE net-works developed by IDATE highlighted thelimits in terms of capacity available on HSPA networks by 2013. The problems with availa-ble capacity will appear in densely populatedurban areas and, by 2014 in suburban areas.

Faced with these limits, operators could de-grade the quality of their services (restrictingavailable capacity, reducing speeds, etc.) orcontinue with their deployments.

The schedule for deploying LTE will definitelydepend on the availability of radio spectrumand the operators technical economic trade

offs, notably between HSPA and LTE.

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More spectrum for greater capacity:a limited medium term solution

The schedule for spectrum allocation andfrequency distribution will be decisive, es-pecially in Europe and Asia. Too long of adelay could harm the expansion of the mo-bile broadband ecosystem, slowing both the

technology standardisation process and op-erators decisions on new investments.

Nevertheless, access to new frequencybands will quickly reach its limits. Eventhough circumstances differ, by 2012-2015,most of the frequencies for mobile broad-band services will be allocated in the majormarkets. In addition, refarming GSM bands,and over the longer term, 3G bands, is prov-ing to be difficult.

Network densification

Traditionally, network densification wasthe operators preferred solution to han-dling increased traffic. This movement toincrease the number of masts can be pur-sued in densely populated areas, where theconstraints on capacity are the strongestfor access technologies such as HSPA and

LTE.

Two phenomena will oppose an increase inthe number of access points held by opera-tors: the public and local authorities not ac-cepting having the operators access pointsand antennae nearby. This reduces the op-portunities for new installations.

In addition, the costs of access points and

their management have had a tendency toincrease over the last few years and heavilyimpact mobile operators economic condi-tions.

Femtocells and convergence between fixed and mobile networks

The femtocell solution lets mobile opera-tors play with two major cost areas: back-haul and energy. Actually, traffic backhaulis provided by the users DSL line, and theuser pays for the energy. In addition, froma perspective of growing capacity needs,

both in the amount of radio access as well asbackhaul, this solution significantly reducesthe amount of traffic load on the operatorsmobile network. This provides an inexpen-sive solution to the operators problems withindoor coverage for data services, as well ascore network and radio access network ca-

pacity problems.

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is about to become the preferred industrystandard for the nextgeneration of accesstechnologies.

The operators role appears to us to be cen-

tral in these choices, due to the importanceof services in the entire mobile ecosystemand by the driving effect of operators in-vestments in the equipment market.

In terms of ecosystem, LTE is overtakingWiMAX. The LTE ecosystem is more diversi-fied, and there are more players.

Above all, several leading global equipmentsuppliers and operators have announcedthat they will prefer LTE for their major mar-kets over other standards. This is notablythe case will all major European operatorsas well as AT&T, Verizon Wireless and NTT

DoCoMo.Recently, the NGMN Alliance included LTEtechnology as the solution for the nextgeneration mobile broadband access net-work. LTE is the first technology to be rec-ognised

Integrated operators, that have both mobileand fixed broadband networks, will benefitthe most from femtocell solutions. They cangenerate significant economies of scale bysharing core networks and backhaul for fixed

and mobile broadband users.

Equipment suppliers must meetoperators expectations

Operators expect to weigh in on the techno-logical choices that are made by equipment

suppliers for developing mobile broadbandaccess solutions. The major operators ini-tiative within the NGMN Alliance is an indica-tor of this strategy. In addition to cost reduc-tions, discussed above, equipment suppliersmust meet operators expectations in termsof performance, equipment availability es-pecially terminals and policies for manag-ing intellectual property.

3GPP/LTE ecosystem dominates

Compared to mobile WiMAX and TD SCDMA developed by the Chinese, it seems that LTE

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Figure 4. Deployment schedule andpopulation coverage in Western EuropeHSPA, HSUPA and LTE

2005 2008 201720142011 2020

0-50% population 50-80% population 80-95+% population S o u r c e :

I D A T E

HSDPA

HSUPA

LTE

Figure 3. 3G subscribersEnd 2007, % (subscriber base: 242 million)

Asia47.6

Europe29.8

Rest of the World, 4.9

North America17.7

S o u r c e :

I D A T E

Figure 5. The LTE Ecosystem

Network Equipment and Terminal Manufacturers

Huawei: Standard / Trials / Inter-op tests ZTE:Network NEC:Network LGE Electronics: Trials / Terminal Samsung: Chipset / Terminal

Nortel Networks: Network Motorola: Network Qualcomm: Chipset

Alcatel-Lucent: Standard / Trials / Inter-op tests_partnership with NEC NSN: Standard / Trials / Inter-op tests Nokia: Terminal Sony Ericsson: Terminal ST Microelectronics: Chipset NXP: Semiconductor

Telecom operators. LTE as preferred technological path

KT and SK Telecom Docomo (acceleration of LTE standarisation and market launch) Softbank Chinese operators: interested by UMTS / LTE technological path_depend on

industry restructuring and spectrum licenses allocation China Mobile: Trials TDD LTE / FDD LTE Indian operators: interested by UMTS / LTE technological path_depend on

spectrum licenses allocation

AT&T Verizon Wireless: Trials Rogers Telecom

Vodafone Telefnica Deutsche Telekom / T-Mobile France Tlcom / Orange Telecom Italia Orascom

E U R

O P E

/ M I D D L E E A

S T

U S / C A N A D A

A S I A

S o u r c e :

I D A T E


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MobileHot Topics

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MOBILE HOT TOPICS

Mobile Pricing Innovation

There is a flurry of innovations in the pric-ing strategies of the mobile phone market, inparticular the pricing schemes for the threemost commonly used services: voice calls,SMS and data transmission.

Innovation, a way to survive

The mobile market today is fast approachingsaturation and, in such a competitive market,pricing plays an important yet delicate role.Players have first to attract or indeed keep

customers on their own network, whilst atthe same time encourage them to increasetheir spending.

Basics of a mobile subscription

Charges for voice calls can vary according

to the duration, distance or destination ofthe call to name a few; but today, the ten-dency is towards charging for duration only.Pricing units range from linear charges suchas per second or per minute, to charging afull minute prior to a per second charge.

For data transmission, the standard is tocharge by traffic volume, although some

operators also offer to charge by duration.Pricing units vary, Japan having a distinc-tive unit of 128 bytes called packets.

Subscribers also have the choice betweenpost-paid and prepaid subscriptions; theformer involves a contract where paymentis made according to the amount usedeach month, and the latter involves pur-chasing credits in advance.

Inclusive bundles, rollovers and top-ups

This concept has become very muchstandard in the mobile market; with flex-ible money bundles in Japan, and fixedservice bundles elsewhere. Some opera-tors in other countries also offer the flex-ible money bundles tariff, notably 3 in theUK. Their packages combine the simplic-ity of service bundles and the flexibility ofmoney bundles; they are set at 1 minute =1 SMS.

Some operators offer to rollover unusedinclusive bundles to the next month or be-yond to avoid underspending. Conversely,some operators offer hybrid subscriptions,

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usage restrictions, where the use of certainapplications or services is not allowed.Tariffs for unlimited Internet from mobilehandsets are often priced higher thanthose for use on mobile PCs; the opera-tors see them as having higher risks ofcannibalisation of other services.

Tariffs for unlimited Internet on the mobilePC is seeing a shift of targets from thebusiness to the consumer sector. Mostoperators now offer USB modems whichare much more user-friendly than the tra-ditional data card modems.

Handset subsidies, or discounts

With iPhone, Apple originally introduceda model which did not allow for handsetsubsidies, but has reverted to the tradi-tional model for the new 3G iPhones.

In Japan, subscribers have the optionof choosing between receiving handsetsubsidies or receiving a discount on themonthly invoice.

Three tariff structures

IDATE has identified three main patterns inhow operators structure their tariffs:

where top-ups are required after the bun-dles are used up, to avoid overspending.

Watch an ad, and call for free

Business models centred on advertising existin the mobile market too. Subscribers can usea certain amount of the network without pay-ing operators anything; in return, they watchadvertisements on their mobile. Blyk, in theUK, is a leading operator in this field, enjoyingconsiderable success and planning to expandinto other countries in the near future.

Unlimited offers have limits

Until recently, unlimited voice calls pack-ages came with restrictions such as spe-cific times or destinations only. But 2008saw a wave of offers without any such re-strictions being introduced, notably in theUSA and Germany.

Similar limits apply to unlimited SMS tar-iffs, but again some operators do offersuch tariffs without the restrictions, nota-bly in France, the UK and USA.

Unlimited offers for data transmission havediffering types of restrictions: a fair use pol-icy, where subscribers are often asked notto go over a certain prefixed amount; and


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MOBILE HOT TOPICS

within any one country, operators gener-ally offer similar tariffs. They would do wellto look beyond the borders to garner newideas for innovation.

These innovations have contributed to afragmentation of operator tariffs. With lessclarity now for the average subscriberabout their relative values, is there a riskof consumer backlash against operators?

Nowadays, online tools in most coun-tries compare all tariffs and calculate thecheapest one. Business models are evenevolving around such tools. It seems asif innovative pricing has wrapped such ablanket of fog over the clarity of the tariffsthat subscribers can no longer be interest-ed in their variety. A real case of not seeingthe wood for the trees?

Figure 6. Positioning of mobile innovative pricing strategies

Inclusive bundles

Multibranding

Home zones

Unlimitedtariffs

Fixed-mobileconvergence

Advertisementfunded calls

Servicebundling

Simplicity

Market Scale

SubscriberUsage levelPower usersEntry level users

Large / general market

Small / niche markets

S o u r c e :

I D A T E

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Near Field Communications

A revolution in the mobile handset market?

The introduction of NFC chipsets withinmobile phone could revolutionize how con-sumers interact with their environment and

transform handsets from a voice device toa personal assistant. If the NFC technologyis already in use in Asia, especially Japanfor mobile wallet application, NFC is slowlyramping up in North America and Europewith major trials on payment and ticketingservices taking place on these continents.

Emergence of NFC amongwireless connectivity solutions

For handset players, the growing portion ofwireless connectivity modules embeddedin handsets constitutes the first step to

enter the wireless ecosystem of opportu-nities. Today as more data transit throughmobile phones, development of wirelessecosystems from WLAN to WPAN whereinformation is transmitted thanks to shortrange technologies (Bluetooth, UWB, Zig-bee, NFC) could greatly impact the historicuse of operators network as primary data

transmitter but also represent a real op-portunity to diversify their business.

Established in 2004 by a group of majorplayers of the wireless ecosystem (Philips,Sony, Nokia), the NFC technology is ashort range (~20 cm) point to point wire-less connectivity technology. The fact thatNFC is based on RFID standards gives acompatibility of NFC with existing RFIDapplications such as transport ticketing,identification control,

A slow but promising market

NFC is a very recent technology and as anew technology, it needs an infrastructureto work, so the global process of adaptationhas been slow. There has been non-stand-ard payment and ticketing schemes in pub-lic use in Asia, but in North America andEurope the services have more or less onlybeen used in different piloting schemes. Itis essential to the adoption and growth ofNFC technology that all NFC-enabled de-vices interoperate seamlessly.

The NFC-embedded mobile handsetsmarket is emerging and in 2007, ship-

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ments reached 32 millions units, i.e. a3% penetration. However, following theseveral NFC projects led by Europeanand American carriers, the drop of NFCchipset cost and the increasing number ofNFC-enabled handset, the trend of adop-tion of NFC within handsets should be onthe rise from 2010, with a generalization

of the technology from 2012. By 2012,penetration should reach around 14% ofhandsets with North America and WesternEurope being heavily equipped with NFCtechnology.

Today, Sony and DoCoMo with Felica areamong the main players on the NFC mar-

ket as they were pioneers in this domain.However NXP has a strong position on thismarket of NFC and RFID solutions, withmore than 2 billion ICs shipped to date.

A great portion of contactless SmartCardsschemes worldwide use NXP MIFAREtechnology for electronic ticketing in pub-lic transport (London, Seattle, Sao Paoloand cities in China).

A Need for standardization

Standardization has been for now one ofthe main hurdle to overcome in the de-velopment of NFC technology. However

today, the fact that more than 130 com-panies are members of the NFC Forum,in addition to the industry acceptance ofthe NFC standard by GSMA and ETSI, isgiving a strong push forward the generaladoption of NFC.

The NFC Forum and the GSMA are active-ly pursuing their effort of standardization.For example, the GSMA launched the Pay-Buy-Mobile initiative, introducing require-ments that will help handset manufactur-ers develop NFC-enabled phones that arecompatible with operators planned mo-bile NFC services.

NFC Applications

For now, only the Payment and Ticketingapplications have been gaining tractionin the mobile ecosystem, with major tri-als being performed worldwide by mobileoperators. However numerous other ap-plications can be performed thanks to theNFC technology such as Smart Posters,where NFC is used to unlock anotherservice, such as opening another com-munication link for data transfer.

Peer to peer applications are also gainingtraction, as the NFC chipset can be usedas a set up technology to enable com-

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munication between two devices in fasterway than current technologies such asBluetooth. As NFC can be paired withBluetooth to initiate the connection be-tween devices, the association of the two

technologies could give a major boost tothe NFC chipset integration within hand-set.

The question of the Business Models

The main barrier to the integration of NFC

technology within mobile phones is thelack of a global business model embrac-ing the views of mobile operators, banksand other players in the mobile valuechain. Players have hitherto been devel-oping their best interest model to imple-ment mobile commerce services.

In this growing NFC market, financial in-stitutions and mobile operators need eachto buy a viable ecosystem as they controlthe major part of the value chain. Withoutthe interest of the operator, the availabil-ity of NFC-enabled mobile phones wouldbe low as operators, in most countries,provide the handset to the en user. How-

ever these operators need to co-operatewith banking institutions, whose exper-tise is to handle the payment processesand issues and already have a large baseof customers.

Which future to NFC?

The growth of NFC usage has been hin-dered by the familiar chicken and the eggproblem: since there are no NFC-basedservices, consumers do not demandNFC-equipped phones and the manufac-turers do not offer them and thus there isno incentive for infrastructure providers touse NFC.

The business model is the critical ele-ment in the evolution of NFC: all partnersmust have some interest (or necessity)in adopting the new technology beforeit can become established. In this sensethe NFC adoption will be more a businessmodel question than it is a technical, useracceptance or security issue.

Although the proliferation of NFC technol-ogy will come slower than was initially ex-pected, this does not mean that it will not

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have a deep penetration in the market inthe longer term. This can be compared toBluetooth, which took several years (from

1998 to recent years) to win acceptance,first from the manufacturers of digital de-vices and later from the users.

Figure 7. NFC Handset Market Forecast

1 1381 210

1 300

32 46 58 75120

210

1 390 1 4301 490

3.8%5.4%

14.1%

2.8%4.5%

8.3%

2007 2008 2009 2010 2011 2012

Total handsets

NFC handsets

% NFC

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Comparing churn rates between operatorsand countries where habits and culture aredifferent is also tricky.

Basically, low/good rates may hide prob-lems because losses of revenues dependon customer values that have just beenlost.

Churn has a different impact whether thevalue segment from which the subscriberbelongs to is of high or of low value.

A 1% churn reduction has more impact(and is much more difficult to obtain) whenthe overall churn is lower.

Marketing budget for subscriber loyaltyshould be allocated taking into accountsubscriber value segmentation. Gain andloss strongly depend on the customer life-time value or CLV.

Analysis show significant churn

performance discrepancies

On a worldwide basis, churn rates are in-creasing mainly due to higher competitionin national markets. Increase in global churnrates is driven by inflating churn rates inemerging regions especially emerging Asiaand Latin America.

Emerging Asian countries show the highestchurn rates on a worldwide basis. Across

Asia, churn rates vary tremendously.

Churn levels in advanced Europe or North America are higher than in developed Asia.NTT DoCoMo in Japan, which has a cus-tomer base that is almost entirely post-paid, maintains the best churn rate in theindustry, with less than 1% of its custom-ers switching to a competitors networkeach month.

Rates analysis shows a certain numberof rules. Countries where competition isfierce face higher churn rates. Challengerswith low brand power show higher churnrates. Post-paid churn rates are alwayslower than blended churn rates. As withina given MNO significant discrepancies inchurn performance between subsidiaries,local excellence is key.

And helps define the nature of churn

Churn is pervasive. The churn is part ofthe entire wireless industry. Statistics fromaround the world all issue the same mes-sage about churn. Even in emerging mar-kets where the market is buoyant, mobileoperators have already experienced churn

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but do not care because subscriber acqui-sition is still easy.

Churn is inevitable. The telecommunica-tion industry has a built-in product obso-lescence cycle that guarantees that churnis going to be a continuous problem. Churncould then be considered as an opportu-nity to evolve.

Churn is expansive. The biggest conse-quence of churn is, of course, the loss ofrevenue assuming that the average cus-tomer brings in anywhere from 5 EUR to 80

EUR per month. Despite their best efforts toprevent churn, the company will lose someof its customers to the competition sooneror later and try to win them back by runningreacquisition strategies. These campaignsmight be successful but entail costs. Cus-tomer retention costs are also increasing.In addition, when churn starts, one of thefirst thing a mobile operator does, is to in-crease its advertising to have more mediaface time than the competitor.

Churn is manageable but often at the ex-pense of inflating subscriber retentioncosts. In the context of falling ARPU, mo-bile operators face the challenge to re-

duce churn and costs. High cost of cus-tomer acquisition and customer educationrequire companies to make large upfrontinvestments in customers. Churn leadsto higher subscriber acquisition or reten-

tion costs (SAC/SRC) and invariably cheaper products and services to try andbeat off rivals offers.

Churn drivers

Deregulation imposed by regulators is

increasing the rate at which competitorsenter into the market place. Introducedin most industrialised countries, the obli-gation of number portability is one of theregulatory elements enabling competitionwithin the market to grow.

Consumers take dozen of factors into ac-

count when they churn in a never-endingcombination of complex mental and emo-tional calculations. Customers receive nu-merous incentives to switch and encoun-ter numerous disincentives to stay. Cus-tomer surveys that report the top churnreasons (price, quality) only provide arough summary if those churn decisions.

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Churn management approaches

Basically, three fundamental strategic ap-proaches are possible for a mobile opera-tor to maintain when it comes to issues tochurn. All of them are legitimate with theirown strengths and weaknesses, and can beeffective in their own way. The objective is

to make the optimum investment to reducethe risk of customer churn, especially in theshort term.

The most commonly effected strategy, es-pecially during the early phases of churnproblems, is for the company to ignorethe loss of customers and try harder toacquire new customers as replacements.Emerging Asian countries currently showthis type of strategy.

The second most common strategy pur-sued by companies that are loosing cus-tomers is to try to steal customers fromtheir competitors to make up from thelosses.Eventually, most firms come to realizethat their acquisition efforts alone are notenough to truly address churn issues. Ascompanies mature and as their analyti-cal and operational capabilities becomemore sophisticated, they begin to build

customer churn management capabili-ties.

Most operators in advanced markets havecome to this approach.

The key is to better know the customer

Predictive campaigns attempt to identifywhich customers are able to switch andwhen and the reasons why. The CRM ap-proach helps the service provider to re-duce customer churn by anticipating andaddressing customer issues and increas-ing customer satisfaction. Effective busi-ness processes enabled by technologycan help reveal customer behavior pat-terns and aid in assessing the profitabil-ity of various customer segments, whatis important to them, and how the carriercan build loyalty within the most valuedcustomer sets. The outcome of applyingdata warehousing, mining, and visualiza-tion tools is a set of models that supportspredictions of those customers most likelyto churn and, possibly, when and why.These models help identify interventionstrategies that can reduce churn amongparticular customer segments.

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Rewarding customers who are loyal seemsan obvious way to reduce churn. Based onthe market segmentation, different loyaltyprograms have to be made to respond tothe needs and the criteria of those particu-

lar markets. Independent of the segment,the sub-segment addressed, the loyaltyprograms mainly have the same main ob-

jectives: reduce churn, increase the emo-tional link with customers and increasetheir satisfaction, better know the cus-tomers and better respond to their needs

stimulate customer development, give thecustomer the feeling he is unique, makethe customer loyal to the mobile operator,use the program as a reference tool forcustomer acquisition. But depending on

the segment and sub-segment, the valueof the customer and his particular needs,the characteristics of the program shouldbe different: the beneficiary is different, soshould be the reward (fun, money base,dedicated serving) and the communica-tion (marketing oriented, informative).

Figure 8. Levels of churn prevention initiatives

C u s t o m e r S e r v i c e E f f i c

i e n c y a n d O p t i m i s a t i o n

C u s t o m e r E x p e r i e n c e

M a n a g e m e n t

R e a c t i v e

C a m p a i g n s

P r o a c t i v e

C a m p a i g n s

L o y a l t y P r o g r a m BA C K O F F I C E

( n o c o m. t o e n t i r e b a

s e )

F R O N T O F F I C E

O P E X / C A P E X

Impact on churn S o u r c e :

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Figure 9. Resultant incremental CLV with different hypotheses of churn reductionand ARPU levels

From 20% to 19%

From 20% to 18%

From 20% to 17%

From 20% to 16%

From 20% to 15%

+3.2 months

+6.7 months

+10.6 months

+15 months

+20 months

20% 14%15%16%17%18%19%

15

40

100

Churn Rate Reduction

ARPU = 15 ARPU = 40 ARPU = 100 Gross Profit Margin: 40%, Inflation Rate: 2%

SubscriberARPU (in )

126 265 419 592 786

50 106 168 237 315

19 40

63 89 116

S o u r c e :

I D A T E

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Mobile Handset Dynamics

Evolution of mobile phone electronics

With the surge of the wireless communi-cation market, the complexity of handsetelectronics has grown exponentially, from

delivering a basic voice functionality to en-abling access to real time videos and dataservices anytime, anywhere.

With the development of multimedia appli-cations on mobile, speedier and more en-ergy-efficient components are needed, aslow-power applications are one of the keyfeatures of the wireless communicationsmarket.

From very few components embedded onthe first voice communication-only hand-sets models, the electronic layout of thelatest phones is becoming increasinglycrowded as they take on a growing numberof mainstream multimedia tasks.

But, of course, not all phones are createdequal, and their embedded componentshave a decisive effect on the features theydeliver and on their performance.

Along with the development of the handsetindustry, the embedded components thatconstitute the modern handset or elec-tronics building blocks have evolved intoa high potential and fiercely competitive

market.

Better, faster, smaller processors

In the early days of mobile telephony, thearchitecture of a handset was rather sim-ple and consisted of a discrete single mi-

crocontroller (MCU) core controlling anumber of analogue circuits. At the heartof the mobile phones electronics lies thecore processor, also referred to as thebaseband processor, which is dedicated tohandling the real time voice features. WithGSM technology, there was generally only

a single core processor with enough powerto cover the main functionalities offered by2G handsets.

The evolution from 2G to 3G technologiesand the development of new applicationsfor handsets, introduced the need for ad-ditional components to perform complex

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tasks. The switch from analogue to digitaltechnology drove the need for a digital sig-nal processor (DSP) core to be added to thearchitecture. Dual-core architectures, con-sisting of an MCU and a DSP, also evolvedfrom several discrete parts to a single ASICthat can be assimilated to the digital base-band chipset and the application media

processor.From an economic perspective, the base-band chipset market is enjoying a steadygrowth momentum, but it is also havingto contend with increasing competition asoutside players are making their way ontothe scene. In 2007, the volume of basebandchipset sales reached 1,143.5 million units a 16% rise over 2006. This market is high-ly concentrated, with the top four vendorsaccounting for 86% of sales in 2007. TexasInstruments is the leader in this market witha 45% market share in 2006, followed byQualcomm, Freescale and NXP.

Surge of storage capabilities

Due to the increased number of applica-tions available on mobile phones, a need forgreater memory capacity emerged, makingit possible to store more user information

directly on the handset, along with music,pictures and video files. From only a fewkbits on the first generations of handsets,the latest smartphones can now hold up toseveral Gbits of data in their internal mem-ory component.

Flash technology is currently the most com-monly used technology for data storage inhandsets, offering a number of propertiesideally suited to mobile applications: nonvolatility, low power consumption, fast ac-cess read times

Mobile multimedia spurring the need for powerful and smarter devices

The development of mobile multimedia ap-plications such as gaming, mobile TV andthe mobile internet in general are drivingthe growing need for increased processing

power for core components, combined withhigh storage capacity directly embedded ina handset or in a memory card. The pro-gressive integration of connectivity mod-ules has also become a must-have in thelatest phones which are evolving into smartand interactive devices.

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If the current battlefield between componentsuppliers is the development of the most cost-effective solutions for their clients, the playersare also steeling themselves for future battles,with chipset suppliers making forays into the

next generation of components that will un-leash the power of mobile devices. However,as components are reaching atomic-scaledimensions, collaboration will be needed todevelop innovative solutions.

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Figure 10. Forecast breakdown of building block ASP

8.5

29.9

7.5

4.3

13.9

9.6

9.6

4.3

4.3

4.3

10.7

11.9

8.7

26.9

6.9

4.0

12.8

8.9

8.9

4.0

4.0

4.0

9.9

11.0

9.4

26.0

6.9

3.9

12.8

8.9

8.9

3.9

3.9

3.9

9.8

10.9

9.8

24.4

6.7

3.8

12.4

8.6

8.6

3.8

3.8

3.8

9.5

10.6

10.4

23.2

6.5

3.7

12.1

8.4

8.4

3.7

3.7

3.7

9.3

10.4

10.8

22.0

6.4

3.7

11.9

8.2

8.2

3.7

3.7

3.7

9.1

10.1

Memory

Processors

RF

Battery

PCB

Keypad

LCD

Charger

Earpiece

Packaging

Mechanical

Gross margin

GB per device

2006 2007 2008 2009 2010 2011

2006 2007 2008 2009 2010 2011

2006 2007 2008 2009 2010 2011

9,4

118.8 110.0 109.1 105.8 103.5 101.5 S o u

r c e :

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Radio Spectrum

Outcome of WRC-07 and itslikely consequences

The World Radiocommunication Conference(WRC-07) took place in Geneva in October-November 2007. For the telecommunica-tions sector, the main topic of interest wasnew frequency allocations and sharing is-sues for mobile services.

New spectrum was identified for mobileservices which will enable growth of thissector for the 10 years to come

The new bands for mobile terrestrial sys-tems are: 450-470 MHz, 790-862 MHz,2300-2400 MHz and 3400-3600 MHz

Prior to the Conference, the IP-OFDMA standard (also called mobile WiMAX orIEEE 802.16e) was accepted as an IMT ra-dio interface. This can be considered asa real victory for the WiMAX camp whichhas spent a lot of energy during the pastfew years to get access to and to harmo-nise spectrum.

The removal of the barriers between thegenerations of mobile systems: spectrumidentified as IMT spectrum corresponds toIMT-2000 (3G) and IMT-Advanced (4G)

Spectrum for mobile services will allowmany technologies to develop but the in-tegration into the 4G family of the WiMAXfamily and the GSM/HSPA family is notlikely on the short term

The identification of the harmonised UHFsub-band and its designation for mobileuse is only a first step. Each State now hasto take the appropriate measures in orderto authorise the use of this frequency bandby the mobile operators.

There is a trend towards more flexibility inspectrum management

Conclusions on the digital dividend

The Digital Dividend is certainly the spec-trum hot topic for 2008-2009.

The analogue to digital switch of televisionand the associated increased spectrum ef-ficiency allow transmitting the same numberof TV channels in a more limited chunk ofspectrum (approximately 6 TV channels in aDTV multiplex are using the same spectrumas a analogue TV channel). Mobile services

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are among the candidates for the use of the

Digital Dividend in the upper UHF band.The Digital Dividend (harmonised UHFsub-band identified at WRC-07 - 790-862MHz) has a very high value for mobile op-erators and for new comers

USA took the lead and auctioned the sec-

ond part of its Digital Dividend in early2008

The 700 MHz auctions in the USA were areal success even though the D block wasnot allocated. The reserve price ($10bn) waslargely exceeded as the winning bids reached$18.9bn. This confirms the high interest ofthe UHF band for mobile operators.

Situation in Western European countriesvaries: if Sweden has already identifiedthe UHF sub-band for use by electroniccommunication services, the situation isnot clear at the moment in Italy where the

UHF band is heavily used with a lot of lo-cal TVs.

There is a risk for Western Europe if harmo-nisation is not quickly reached for the sub-band to see the USA take the lead on the700 MHz band with LTE equipment man-ufacturers could develop in priority equip-

ment for the 700 MHz band rather than for

the European harmonised sub-bandBroadcasters and mobile operators arecompeting in order to get access to theharmonised UHF sub-band. In somecountries, the defence sector is still usingpart of the UHF sub-band. The ProgramMaking and Special Events (PMSE) usersof such objects as wireless microphonesare also concerned about the likely limita-tions coming from a more intensive use ofthe band in the future.

In countries like the UK, the regulator willauction the spectrum on a technology-

neutral and service-neutral basis: the mar-ket will select the most appropriate serv-ices and technologies

Japan anticipated the Digital Dividend along time ago and has already allocatedthe corresponding resource

The White Space concept or overlay useof the UHF band is under debate in theUSA and in the United Kingdom. This con-cept refers to using the UHF spectrum,used for TV broadcasting, in places whereno TV signal is received and could providean alternative solution for the provision ofInternet access.

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What is the value of new frequency bands?

The value of the spectrum depends onmany factors: spectrum below 1 GHz hasa very high value, degree of harmonisationof the band, restrictions affecting the band(geographical constraints, duplex mode,channel bandwidth, risks of interference)

Many frequency bands will be made avail-able in the coming years (2.6 GHz, digitaldividend, 3.5 GHz, L-Band. This will pro-vide opportunities for new comers.

The 2.6 GHz band in Western Europe willallow to deploy both LTE with large ra-dio channels (up to 20 MHz) and mobileWiMAX

We anticipate a lower cost of MobileWiMAX spectrum compared to cellularspectrum

The WiMAX licenses in Europe were main-ly regional licenses in the 3.5 GHz band;licenses in the 2.6 GHz are both nationaland regional ones

National licenses are more expensive thanregional ones

The limitation of the 3.5 GHz band to fixedor nomadic services is progressively dis-appearing in Europe. Mobility will be man-datory in this band from 2012 on. This willgive more value to the 3.5 GHz band eventhough it will only be a complement for amobile operator

Technology neutral licenses is becomingthe rule for new spectrum allocation eventhough the distribution between FDD andTDD bands limits the choices for the op-erators

Distribution of new frequency bands suchas the 2.6 GHz band between the FDDand TDD duplex modes: it is not cleartoday how many countries will adopt theCEPT scheme for the 2.6 GHz band whichfavours FDD systems

Flexibility has a cost: it imposes technicalconstraints which limit the spectrum effi-ciency of a given frequency band

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Figure 11. Value of spectrum for mobile / BWA actors

Factors increasing thevalue of the spectrum

Factors decreasing thevalue of the spectrum

Low frequency band

FDD spectrum

Clean spectrum

Competition in themobile / BWA sector

High frequency band

TDD spectrum

Need for coordination(adjacent channels, borders, guard bands...)

Spectrum withpotential interferences

Harmonisedspectrum

Non-harmonisedspectrum Harmonisation

Nationallicense

Regionallicense Type of license

AuctionsBeautycontest Award mode

S o u r c e :

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Scenarios and trends 2009-2014

Broadband mobile services and the ex-plosive growth of data services will impactspectrum usage and valuation in the com-ing years. It will reinforce the interest ofmobile operators for both lower frequencybands (such as the Digital Dividend) forcoverage of rural areas and in-buildingpenetration and high frequency bands forcapacity

The strong increase of data traffic on mo-bile networks will also increase the needfor more backhauling using microwavelinks and point to multipoint systems invarious frequency bands (3.5 GHz, 10 GHz,26 GHz, 38 GHz). This will also raise theinterest for these bands above 5 GHz andtheir cost on the longer term.

Resources for 4G: in order to benefit fromthe high data rates promised by 4G tech-nologies, it will be necessary to allocatelarge portions of spectrum for large radiochannels (up to 20 MHz)

The allocation processes for new spec-trum will enable new comers to becomemobile operators

In Western Europe, more flexibility is intro-duced by regulatory bodies in spectrum

management and in the conditions of newlicences: technology neutrality will becomemore and more common in spectrum auc-tions/allocations. However, flexibility inspectrum management has a cost: it im-poses technical constraints which limit thespectrum efficiency of a given frequencyband.

Refarming the spectrum: most of the GSMand UMTS spectrum will be used by 4Gtechnologies such as LTE (Long Term Ev-olution) in the medium to long term. Therefarming processes are likely to posechallenges for regulators and mobile op-erators in a number of countries.

New radio technologies will continue toimprove spectrum usage and efficiencyand will allow more sharing of the spec-trum on the longer term.

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Figure 12. Mobile frequency bands in Europe after WRC-07

400 600 700 800

1 GHz

300 900200100 MHz

IMT/GSM & UMTS core

UHFVHF

L-Band

Unlicensed 2.4UMTS core

S band

Unlicensed 5 GHz

IMT

174 223 470 862

2500 2690

3400 3800

248324002300

5470 5725

410

430

450

880 960

GSM

4200

500

1452

5150 5350

C band

915 925

1710 1785 1805 1880

2010-2025 2110

19801900

2170

1920

DECT1479.5

380

1375 1400 1517

14271350

3600

C band

2200

IMT

790

1164Aeronautical

IMT2 GHz

3 GHz

4 GHz

5 GHz

1 GHz

Unlicensed 5 GHz6 GHz

2 GHz

3 GHz

4 GHz

5 GHz

IMT

Fixed wireless access

1492

Mobile services (IMT) PMR Broadcasting Fixed services Unlicensed Satellite S o u r c e :

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Is profitability possible?

While the number of effective launches andannounced broadcast mobile TV solutions ismultiplying, great uncertainty still surroundsthe business model and expectations forprofitability from this type of service. Parti-sans of both free and fee-based solutionsare putting up their arguments, while eachplayers role in the value chain (whether a TVchannel or mobile operator, etc.) has yet tobe defined.

Broadcast mobile TV in 2008: new servicelaunches and multiple standards

2008 will continue to be an important yearin the development of broadcast mobileTV, particularly in Europe where four serv-

ices have been launched in recent months,in Switzerland, the Netherlands, Austriaand Germany.

Different standards and technologies canbe used to distribute terrestrial broadcastmobile TV. These solutions require spe-cific frequencies to be used and new net-

works to be built, either purely terrestrialor hybrid satellite/terrestrial:

- terrestrial mobile broadcast solutions:DVB-H, ISDB-T, T-DMB and MediaFLO;

- hybrid satellite/terrestrial mobile broad-cast technologies such as S-DMB andDVB-SH.

Such diversity in standards causes a lack ofharmony globally: while the United Stateshas opted for MediaFLO, most Europeancountries have adopted DVB-H, while Brazil

and Japan prefer ISDB-T.Great uncertainty still surrounds the broad-cast mobile TV business model and feed-back from services already launched hasyet to dispel such uncertainty.

Fee-based model structuredaround mobile operators

Introduced in Europe (Italy, Netherlands,Switzerland and Germany) and the UnitedStates, this model is built around a fee-based solution commercialised exclu-sively by a mobile telephony operator to

Broadcast Mobile TV

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its customer base, for whom it subsidises

the purchase of broadcast cell phones inexchange for their signing up for a furthertwelve or twenty-four months.

The strength of this business model isclearly its ability to rely on stable and siza-ble revenues generated by subscriptions.

The capacity to subsidise compatiblehandsets is also a key factor in this mod-els success, encouraging the penetra-tion of each operators mobile subscriberbase.

The mobile TV solutions launched using thismodel have failed to achieve the desiredsuccess. Their disappointing results can beexplained particularly by overly high rates,which are out of step with the actual level ofmobile TV usage, which has yet to becomea real consumer habit for mobile customersand around which regular and sustainableusage must still be built. Consumption ofTV programmes on mobile phones is still

in its infancy, practised occasionally by aminority of mobile users for whom suchaudiovisual snacking does not justify in-creasing the cost of their monthly subscrip-tion by 10 or even 20 EUR per month.

Furthermore, the programming offeredwith these broadcast mobile TV services

still fails to meet consumer expectations,

who primarily want to view the same pro-grammes they watch on their fixed TV set,on their cell phones.

The free-to-air model structuredaround broadcasters: Japaneseand South Korean examples

In Japan and South Korea, the free ter-restrial mobile TV offerings launched therenow compete with an existing fee-basedsatellite mobile TV solution.

Boosted by a free service and attractiveprogramming (simulcasting of the main

free-to-air channels on the fixed network),these services are proving very success-ful: the package offered by the South Ko-rean channel, T-DMB, registered 10.3 mil-lion users in March 2008 (compared with1.3 million for TU Media, the satellite pay-TV solution), while in Japan, a little over 20million cell phones were compatible withTNTs mobile solution, One-Seg, in serviceat end-2007 (while the fee-based satelliteservice, MobaHO!, announced its closurefor March 2009, having attracted just 100000 users after four years of existence).

The main weakness with this model is itspoor revenue performance. While free ter-

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restrial mobile TV solutions in South Koreaand Japan have guaranteed the success ofsuch services, they have still been unableto ensure profitability. In both cases, chan-nel editors have chosen advertising as theirsole source of revenue which, for the timebeing, is proving largely insufficient.

In 2007, the service offered by South Ko-reas TDM-B generated revenues of just 6million USD, while its operating costs wereapproximately 40 million USD.

In order to offset these poor revenues,

equipment manufacturers have beenforced to help fund the operating costs ofSouth Korean broadcasters by paying theequivalent of 2 EUR for each T-DMB mo-bile handset sold.

The business model for these solutionscould soon evolve: in South Korea, mobileTV service operators expect to capitaliseon their audience success to develop afee-based service solution (content down-loads, useful services such as weatherand road traffic updates, etc.) and thus di-versify their sources of revenue in order tono longer depend exclusively on revenuefrom advertising.

Cooperative model: Austria

In Austria, the licence to build and operatethe DVB-H network was granted via a callfor tenders by the regulator KommAustria.

Applicants had to follow a very preciseset of specifications, notably requiringthem to sign commercial agreements withcontent providers (primarily broadcast-ers) and content aggregators (primarilymobile operators) before submitting theirapplications. This cooperative approachimposed by the Austrian regulator helpedbring together most key players in the mo-bile TV sector as part of a common projectled by the DVB-H licence holder, namelythe broadcast network operator, MediaBroadcast, a subsidiary of the Frenchgroup TDF.

Launched on 6 June 2008, just in time forthe EURO 2008 kick-off, Austrias DVB-Hservice has the advantage of comprising 15channels (including the countrys main free-to-air TV channels), and of being distributedfree of charge by mobile operators for sixmonths, to entice subscribers to try out thesolution and encourage its take-up.

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The mobile TV service model adopted by

Austria seems to be inspired by the bestof those approaches already implementedto develop a commercially-oriented regu-latory framework for stimulating coopera-tion between the different players (contentproviders, network operators and contentaggregators/service distributors).

Main lessons learnt from these models

Among the main lessons drawn from thethree models considered above, the follow-ing three points are worth noting:

A free service accompanied by advertising

is very favourable for developing usagebut does not ensure service profitability inthe short term. As witnessed in Japan andSouth Korea, the success of a free mobileTV service does not guarantee its profit-ability. The only revenues generated aresolely from advertising, and these are stilllargely insufficient to offset the operatingcosts.The basic package must be commercial-ised based on a low-cost model. A basicmobile TV solution with ten or so simul-cast channels or ones adapted from fixedTV should not be billed for more than 5or 6 EUR a month. This price range regu-

larly recurs in poll results and feedback as

an acceptable ceiling rate for a subscrip-tion to a mobile TV solution for most con-sumers.

Regulators may introduce a regulatoryframework that favours market develop-ment. The case of Austria proves the im-portant role of the regulator in defining the

economic framework of a broadcast mo-bile TV service. By forcing applicants fora DVB-H licence to negotiate commercialagreements with other players in the valuechain, KommAustria has contributed con-siderably to establishing optimal marketconditions for introducing the service andhas encouraged its swift launch.

Agreements between mobile operatorsand broadcasters are essential. The pres-ence of TV channel editors and mobileoperators is a key factor for establishing abalanced and viable broadcast mobile TVvalue chain. Channel editors supply thecontent and cover the broadcasting costs,while mobile operators distribute the serv-ice to end customers and subsidise com-patible handsets.

The prime appeal of mobile TV today ac-cording to users resides in service con-tinuity with the fixed network in a nomadicor mobile situation. By simulcasting fixed

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feeds to the mobile broadcast networkor picking up a selection of programmesfrom the major terrestrial channels in theform of best-of mobile channels, mobileTV guarantees viewers ser vice continuitywith the content they consume at home.

Broadcast mobile TV needs 3G: this cel-lular technology has an important role toplay in completing coverage and providesan ideal return link for interactive servicesto be developed with broadcast mobile TVsolutions.

Market forecasts

IDATEs modelling for the broadcast mo-bile TV market highlights the main vari-ables that influence the profitability ofplayers in the value chain: the choice ofbusiness model, the subscription rate (for

a fee-based model), whether or not tosubsidise handsets and the extent of cov-erage (which has a direct impact on chan-nels broadcasting costs).

Whatever the player (generalist channel,

made for mobile channel or mobile op-erator), the strategy of free-to-air TV solu-tions seem difficult to sustain during themarkets start-up phase, since the growingaudience base generated by free access isunable, with revenues from advertising, tocompensate for the subscriptions received

from a hypothetical pay-TV solution.The key component for a profitable broad-cast mobile TV service is its subscriptioncost: a fair rate should be defined, onewhich will ensure sufficient revenues for op-erators and channels, while guaranteeing asufficiently broad base of subscribers.

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Figure 13. Changes in the number of subscribers to the S-DMB mobile TV services in South Korea

0

2 000

4 000

6 000

8 000

10 000

sep-05 dec-05 mar-06 jun-06 sep-06 dec-06 mar-07 jun-07 sep-07 mar-08

TU Media (S-DMB)

T-DMB

S

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Figure 14. Broadcast mobile TV value chain in Austria

Main content provider Network operators Service providers

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Will open solutions competewith 3G & broadcast?

The Mobile TV market is a myriad of con-solidation, and solution vendors are runninghard to adapt. Their services can be based

on linear TV channels, on-demand con-tents or rich media applications. The deliv-ery vector could be existing cellular mobilenetworks, dedicated broadcast solutionsor alternative provisioning, notably throughopen systems. And they have to deal with avariety of standards and formats.

No wonder, then, that mobile video deliv-ery solutions often seem closer to best-ofbreeds than uncluttered end-to-end kits. Itis indeed a complex ecosystem, occupiedby wary Tier 1 vendors of equipment andsolutions along with specialized companiesand new entrants.

Choice is not only between managed cellular and dedicated broadcast networks. Its more.

Broadband cellular-based solutions areby far the core of mobile TV market today.Despite the implementation of multicast-

ing, they are expected to be limited bynetwork capacity for linear TV channelsdelivery. The three main categories are:

- Unicast downloads

- Unicast streaming

- 3G multicast

Dedicated broadcast solutions will neednew spectrum allocations and a complete-ly new infrastructure. In the roll-out stage,significant investment is needed to createnetworks that will enable indoor reception.Standards include DVB-(S)H, MediaFLO,T-DMB or DAB-IP.

Alternative solutions, sometimes seemingcloser to nomadism than the classic mo-bility concept include:

- Web-based Mobile TV solutions suchas WiFi/WiMAX for outdoor reception orplace/device shifting.

- Indoor or sideloading: file transfer via lo-cal home networks for indoor or outdooruse, transfer through WLAN, femtocellssolutions and sideloading.

Mobile TV Solutions

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A complex technical chain

The delivery of a mobile video content,with assurance of good quality experi-ence, involves technologies from both thetelecom world (for the network) and thecontent world (for content technology).

The focus on mobile TV solutions will be onthe concept of Content Delivery Solution(CDS) providers, recovering content man-agement segment and eventually the con-tent creation part of the chain. In any case,the CDS links all the elements of the mobileTV delivery system, all along the chain, upto the client software in the terminal.

Market trends by region

Cellular-based video services, first com-ers in the market, are the most developedplatforms in the world. 3G developmentsare driving the market.

Dedicated broadcast is gaining ground inthe market with the US market capturedby MediaFLO, and DVB-H being the fa-voured solution in Europe.

Asia is still dominated by the coexistenceof local standards in particular in China,Japan and South Korea.

Solution vendor contracts show that mo-

bile TV is being launched or placed highon the agenda by MNOs worldwide.

Vendor positioning

The technical ecosystem of mobile TV re-mains very complex, and fragmented. A lotof small specific players operate alongsidethe major equipment and solution vendors.Moves towards integrated solutions couldbe managed by the telecom operator/serv-ice provider, the major solution vendor orthird parties such as consulting companies.

Solution providers derive from encod-ing specialists (Envivio), IP encapsulation(UDCast), Web content adaptation on mo-bile (Mobixell), content delivery platformand equipment providers (RealNetworks,Thomson, Ericsson and Nokia, inter alia),and advanced application providers (suchas Expway).

These providers are not generally active on

a single product and they tend to offer so-lutions for a whole segment (for instance,head-end integration with Vidiator or Globe-cast) and further to develop an ecosystem ofpartners to provide end-to-end solutions.

Tier 1 solution providers, with an eye ontheir assets, have selected different ap-

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proaches, with Nokia and Thomson mov-ing ahead on DVB-H, Ericsson addressing3G (MBMS) solutions, and Qualcomm fo-cusing on its proprietary solution while Al-catel-Lucent supports DVB-SH solutions inparallel with its cellular-based solutions.

Issues at stake

Despite some uncertainties about con-sumer behaviour and relevant businessmodels, mobile TV definitely is following anupward trend. In some cases, the lack ofnecessary frequencies could hamper mo-bile TV development and/or limit the scopeof corresponding delivery solutions.

For different levels of services (quality), ofdelivery modes (broadcast linear or on-demand) and business model, the costranking order of mobile delivery networksshould, starting from the most CAPEX-in-tensive, be: dedicated terrestrial broad-cast, satellite-based mobile broadcast,3G cellular and finally alternative solutionsusing unlimited data plans.

Despite their apparent appeal, multi-plat-form video solutions have not been con-

verted into contracts. Solutions are read-ily available, but there is no demand fromMNOs as of today.

Alternative solutions

Web-based Mobile TV solutions includethe use of WiFi/WiMAX for outdoor recep-tion. Place-shifting platforms provide veryattractive alternative solutions, mainlythough open Internet.

Indoor (WLAN, femtocells) solutions andsideloading could also help to deliver vid-eo on mobile devices.

Mobile network operators could, however,regard these indoor solutions as com-petitors, while content delivery processesfunction independently of their networksor as an opportunity to save bandwidthduring peak time.

The openness of cellular-based video de-livery will depend on whether MNOs are,strategically speaking, willing or not to freeaccess to Web-based contents on theirdata network (bandwidth limitation). Thetrend already started through alternativenetworks and solutions or sideloading.

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Access everywhere

Better video quality Hybrid Unicast / Broadcast

Unlimited usage

Alternative to 3G

Unlimited usage

Interactivity

Figure 15. Trends in mobile TV distribution

2008 20092006 2010-20302007

Mobilenetworks

Broadcastnetworks

WiMAXnetworks

Broadcastnetwork

Unicast video over 3G HSPDA MBMS service launches 4 G

DVB-HS-band trials

DVB-H S-bandBroadcast terrestrial launch

Unicast videoover WiMAX

Possible broadcastimplementation

DVB-H band trials DVB-H local implementation From 2010: MassiveDVB-H deployment

plus

2005

DVB-H S-bandBroadcast national coverage

UMTS(2110-2170 MHz)

WiMAX(2.3-3.5 GHz)

DVB-H in UHF(470-700 MHz)

(2170-2200 MHz)DVB-H

M a s s m

a r k e t f o r m

o b i l e T V

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Figure 16. New scope of Mobile TV solutions

iPhone3G

Off network Dedicated broadcast network

On net cellular video

Unlimited data plan

GSmartT600

3G MBMS

Walledgarden

Opensystem

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The digital home: spurringchanges in the TV market

What is the current status of the digitalhome? Virtually all French households arenow equipped with a TV set, a DVD player

and a mobile phone. On the computer side ofthings, PCs and broadband continue to makeinroads, gradually becoming commonplaceitems in every home (45% of householdsequipped with fixed broadband in 2007, in-creasing to 57% by 2011). Running parallel tothis trend are the swift developments affecting

the TV market, starting with digital terrestrialTV (DTT) which, in a matter of years, has beenadopted by a quarter of all households. Weestimate that it will become the most popu-lar form of free to air TV, and will be compet-ing with traditional premium television accesstechnologies (satellite and cable), with a baseof 3.2 million paid subscribers by 2011. IPTVwill also continue to make strides, to reach5.3 million paying households in 2011. Onthe equipment side of things, the flat screenTV market is in particularly good shape, withprices having dropped enough to create amass market momentum (10% of householdsequipped in 2006, 35% in 2007).

Other products are not faring so well, how-ever, including home cinema systems whichare still beyond the reach of many budgets;camcorder and PDA sales are growing onlyslightly and being replaced by other devices;despite the success of the Wii, home con-soles have not yet managed to build a largertarget market (outside of families with chil-dren). Meanwhile, sales of other productssuch as MP3 players, laptop computers andDVRs are progressing, although their take-up levels still vary.

Although consumers changing ICT behav-iour patterns, partic

Mobile Idate 2009

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