Mobile Business Briefing – in partnership with our colleagues at Wireless Intelligence – analyses the ten most prolific trends of a turbulent past twelve months. We also forecast likely developments for the year ahead as the mobile sector aims to return to growth…

 

 

1) Apple keeps the app store pretenders at bay
It’s amazing to think that mobile application stores didn’t exist 18 months ago, such has been their phenomenal impact on the industry. Launched in July 2008, Apple’s pioneering ‘App Store’ (now a colloquial term though still an Apple trademark) currently boasts over 100,000 applications and recorded its 2 billionth download in September; not bad for a device with a fraction of the installed base enjoyed by the big five device vendors. Apple has always played down the revenue-generating potential of App Store (preferring to position it merely as a tool to lock in customers to its platform), though analysts have predicted that it is likely to become a billion dollar business by year-end.

The inevitable rush by rivals to replicate the success of App Store was a key theme of this year, though none have yet to threaten Apple’s dominance. Indeed, some players seemed so desperate to join the apps party that they rushed out stores that were substandard by comparison. Nokia (still the clear market leader in apps-capable smartphones) is a good example; its attempt to combine its disparate array of services (and third-party apps) into its ‘Ovi Store’ was poorly received on launch and is planned for relaunch next year. Even Google’s attempt (Android Market) has recently attracted criticism. Such a disparate apps environment is unlikely to be sustained longer term, and we predict that there will be significantly fewer app store platforms up and running in a year’s time. Moreover, we predict that competition to Apple is likely to come from operator-backed stores rather than vendor efforts; the Joint Innovation Lab (JIL) initiative, the mobile software alliance comprising Vodafone, China Mobile, Japan’s SoftBank and Verizon Wireless, will be a serious contender in 2010.   (Matt Ablott)

 

2) Industry moves from global recession to rationalisation
Over the past 12 months, the global financial crisis has exacerbated already existing difficult market conditions in developed countries and, furthermore, led to a squeeze in capital expenditure. In 2009 we have seen mobile operators rationalise their strategies to reduce operating expenditure and to preserve cash flow generation (see Wireless Intelligence’s report ‘The Cellular Telecom Crunchonomics: One Year On’).

In 2010 we expect more operators in developed countries to report a sharp slowdown in net additions linked to user saturation. Voice revenues will keep falling – exacerbated by continued price-wars in the prepaid segment – but overall yearly growth will be balanced by more stable money markets. However, for most large operator groups in these economies, 3G data revenues are unlikely to offset declining GSM voice revenues mainly because the expected surge in demand for data consumption will not be met by required investments to improve network coverage and balance increasing infrastructure cost. On top of that, mobile operators will be rationalising their portfolios of handsets and services further by lowering the number of devices they offer and hedging their bets on high-margin/low-subsidy smartphones. Economies of scale and one-size-fits-all marketing packages will be a general rule across all large operator groups with a global footprint.

Even though most economies have now entered a slow recovery process, the effect of the downturn will be long-lasting and will reshape the telecom landscape. Consolidation and an increase in network sharing agreements will help some smaller players to face mid-term challenges; large groups are likely to sell some shares of their overseas operations whilst some handset vendors will go through a major overhaul (Motorola, Sony Ericsson). Finally, we expect regulators to moderate price-wars in the prepaid segment more closely in emerging markets such as India, Vietnam or Nigeria to ensure long-term solvency of their telecom sectors.   (Joss Gillet)

 

3) Devices get smart
The flurry of smartphone releases continued unabated throughout 2009, despite a slow start to the year given near-empty hands in the Android camp during February’s GSMA Mobile World Congress and ongoing delays from Microsoft to Windows Mobile 7. While 2008 saw an initial rush of vendors filling touchscreen-sized holes in their portfolios to match Apple’s initial momentum, 2009 saw a more measured approach alongside maturing platforms as well as the rebirth of an old friend, Palm.

If we already thought the ‘smart’ device market was confusing, 2009 only served to fragment its divisions. As rumoured, PC manufacturers such as Acer, Asustek and Dell moved into the sector in their masses, bringing handsets as well as a plethora of netbooks, lapped up by operators as ubiquitous-networking devices. Given the initial momentum behind netbooks, even Nokia answered long-running speculation by launching its Booklet netbook as part of its play to diversify (in contradiction to its strategy to halve its smartphone offerings in 2010). Downsizing further still was Qualcomm, which in June announced the ‘smartbook,’ a category we see amalgamating with netbooks and laptops, particularly if the use-case for the former two can’t displace that of a laptop for daily use.

In 2010 we see the inevitable (and continuing) push of the smart device down into the low-cost domain of mid-range and, particularly, prepaid devices. The smartphone category in particular will become more fragmented than ever and we expect to see traditional enterprise smartphone features dropped in lieu of differentiating consumer smartphones by their respective application stores. The shift will, however, bring good news for mid-range volumes, which have suffered this year in light of consumers opting for more powerful devices.

In terms of internals, we expect existing high-performance architectures to be pushed across smart gadgets (evident, for example, in the range of devices planned on Qualcomm’s Snapdragon platform) and equally, more affordable, architectures of similar capability to drive low-cost smartphone volumes. For software, we expect more platforms to expand into non-cellular devices such as the iPod Touch, but which benefit from the application ecosystem of the OS – steps into which are just becoming evident on Android.   (Will Croft)

 

4) LTE gets into gear. Now don’t over rev the engine!
2009 was the year that technology talk turned to LTE. In February, at the Mobile World Congress, Verizon CTO Dick Lynch announced his choice of main vendors (Alcatel-Lucent and Ericsson) for the operator’s aggressive deployment plans and promised coverage in 25 to 30 markets in 2010, covering approximately 100 million people. Although Europe’s TeliaSonera has stolen an early march on Verizon by this week switching on the world’s first commercial LTE networks in Oslo and Stockholm, Verizon remains the ‘one-to-watch’ for many, based on its size and status.

By the end of the year a number of major global operators – including Telefonica and SingTel – were planning to trial the technology in various markets, whilst other operators (for example, MetroPCS and NTT Docomo) are promising commercial launches in 2010. Wireless Intelligence believes that 58 operators worldwide have already committed to LTE plans, trials or deployments. Interestingly, some operators such as Vodafone are content to extend the life of their existing HSPA networks rather than move to LTE in the short-term.

Setting realistic goals and keeping a lid on hype will be critical to early-mover LTE success in 2010. Verizon should be applauded for publicly stating that average downlink data rates per user are likely to be in the range of 5-12 Mb/s, whilst, worringly, other operators and vendors continue to bang the ‘theoretical peak 100 Mb/s’ drum. Frustratingly, TeliaSonera is marketing its LTE service as ‘4G’, a technology that hasn’t even yet been officially defined. At least it has set very attractive prices for launch. Next year’s global launches of LTE services will be accessed via dongles, with embedded modems following. LTE will not become a mass-market phenomenon until 2012 at the very earliest, by which time LTE handsets will be in supply and the technology issues of providing voice services over LTE will be fully resolved.

LTE’s biggest technology competitor, WiMAX, had a mixed 2009. Although WiMAX’s largest service provider supporters – Clearwire and Sprint Nextel – launched networks in major markets, subscriber takeup remains relatively low. Towards the end of the year Clearwire received a boost with new investment totalling almost US$2.3 billion but, with US rival Verizon set to unveil LTE in 2010, the window of opportunity for Clearwire is closing fast.   (Justin Springham)

 

5) OS wars heat up
With approximately 5-10 operating system (OS) platforms across the major vendors – including Apple’s iPhone OS, Google’s Android, Microsoft’s Windows Mobile, Nokia’s Maemo and Symbian’s S60, Palm’s WebOS and RIM’s BlackBerry OS – 2009 saw a dizzying array of choice for consumers and, more importantly to platform momentum, developers.

Importantly, however, the confusion has brought a good measure of healthy competition and innovation to market, with Google snatching ‘most improved OS’ of 2009 and Palm pioneering a truly web-based development approach to mobile applications. While Symbian continued to lead in market share, despite dropping percentage points, public-facing development appeared stagnant as the newly formed Symbian Foundation found its feet, prompting parent Nokia to shift its high-end ‘mobile computing’ focus away from Symbian’s S60 and towards Maemo, later acknowledging the former’s poor match to today’s UI requirements at its recent Capital Markets Day. Most recently announced as a potential contender for the mid-range is the Samsung Bada platform, bringing control over software innovation back into the vendor’s own ballpark. From a developer standpoint, some vendors worked to ease the pain of OS fragmentation, offering cross-platform SDKs.

In 2010 we expect consolidation in the OS platform market as vendors streamline their portfolios and focus development efforts. Third-party development will, of course, fuel and ultimately define which platforms sink and swim in this arena. In particular, we believe operators will push for (or initiate) consolidated application storefronts and billing given the ever-growing plethora of options today; this will only be helped by a thinning of choices at the OS level. Initiatives such as the ability to use carrier billing for Android Market purchases will thrive.

On the side of the core OS, key priorities for 2010 will include the continued evolution of social networking, to the extent of the full integration of services similar to FourSquare and Gowalla, as well as fully location-aware devices with the benefit of switching modes based on a GPS location or connectivity options. This will be augmented by the next strides into mapping. We also see a push towards higher-definition entertainment and media. Content wrappers such as the iTunes LP could well make their way to mobile, particularly as a method of selling entertainment packages in the round, across film, music, books and more.   (Will Croft)

 

6) Network market undergoes shakeup
2009 saw the beginning of a changing of the guard in the mobile network infrastructure space, in part reflected by the astonishing demise of one-time giant Nortel Networks. Traditionally a sector dominated by incumbents Ericsson, Nokia Siemens Networks (NSN) and Alcatel-Lucent, this year will be remembered as one where China’s Huawei and ZTE established themselves as more than just cheap kit suppliers but serious top three challengers with innovative offerings. Huawei in particular has cemented its position as a major contender for tier one operator honours, having ousted Ericsson and NSN from a lucrative Telenor deal, following earlier success at Vodafone and TeliaSonera.

Market leader Ericsson has not been immune to the economic downturn and is embarking on a US$1.4  billion cost-cutting programme led by incoming chief executive Hans Vestberg. However, we believe the Swedish vendor is well-placed to maintain market share in 2010, especially in light of the company’s strong track record in the high-profile managed services arena (witness its US$5 billion win with Sprint announced in July). Alcatel-Lucent is beginning to turn itself around following the disastrous trans-Atlantic deal between both companies in 2006. An early LTE win at Verizon underscored the US operator’s confidence in its ability to deliver on such a massive scale, and CEO Ben Verwaayen appears to be moving the company in the right direction with one eye on services. A bigger question mark hangs over the fate of NSN. The vendor is undergoing a major restructuring and remains insistent it is in the business for the long-run. But rumours concerning a potential takeover by a rival have dogged the company all year (Huawei is a likely candidate), and only last week senior execs of Siemens and Nokia were moved to send a joint letter to operator customers affirming their support for its future. Consolidation in the network vendor market is expected in 2010, and NSN is a favourite to be swallowed.

As well as the threat from China, we expect the ‘big three’ vendors to face strong competition in 2010 from some less prolific players. NEC will pose a challenge for network business in Asia Pacific (following an LTE deal with Japan’s KDDI), whilst Motorola – recovering from a disastrous 3G network contract campaign – could yet turn out to be a dark horse of the LTE market. Like NEC it has also scored a deal with KDDI for LTE deployment and will be desperate to ensure it does not repeat its 3G failure. It has embarked on an aggressive marketing campaign touting its LTE credentials and is also strongly pitching for China Mobile’s TD-LTE business. A commercial win at China Mobile would be the catalyst it needs for global growth.  (Justin Springham)

 

7) Operators suffer data network indigestion
For years, mobile operators have been attempting to migrate users to new revenue-generating data services. It is an irony, therefore, that many of those that have been successful are now suddenly faced with mobile data networks that are approaching full capacity. One of the most high-profile firms to admit to the problem is US number-two AT&T, which earlier this month said that mobile data usage was at such a high-level that it was beginning to affect network performance. Telefonica’s O2 UK was another to announce recently that unprecedented mobile data usage had driven it to embark on a network upgrade worth “hundreds of millions of pounds” to meet demand. To demonstrate the new scale of bandwidth required, O2 noted that watching a YouTube video on a smartphone can use the same capacity as sending 500,000 text messages simultaneously.

In both cases, the operators pointed to users of top-end devices such as the iPhone as being responsible for the explosion in usage; although it didn’t note any specific devices, AT&T – the exclusive iPhone distributor in the US – said that 40 percent of AT&T’s data traffic came from just 3 percent of its smartphone customers. What is gradually being acknowledged by mobile operators in such positions is that the current prevalence of “all you can eat” mobile data models is largely responsible. Therefore, in 2010 we forecast that operators in highly advanced markets will begin to return to some form of per-megabyte or capped mobile data pricing in a bid to curb what they deem as “excessive” usage. In markets where consumers are well-used to “all you can eat” tariffs, a return to metered usage will prove controversial. 

Meanwhile 2010 will be another year of poor 3G network coverage in developed countries as rural areas will largely remain unconnected and the relevancy of 3G as a mass market solution will be questioned. Large operator groups will feel the heat as competition from new local 3G entrants will increase and we can expect more network sharing agreements to settle some of those challenges. In contrast, fast growing markets (especially India and China) will drive overall 3G growth as operators are investing in attracting demand and developing users’ appetite for data consumption.   (Matt Ablott)

 

8) Nokia refocuses for success
In 2009 Nokia – the world’s largest device manufacturer – managed to ride out the financial storm by throwing out costly components but failed to come up with appealing new devices in time for the Christmas season. In the mid- to high-end price segments, Apple, Samsung and HTC have been gaining strong momentum by expanding and refreshing their data-friendly capabilities whilst Nokia has been building on the legacy of its Comes with Music and navigation portfolios based on its rigid 10 year-old Symbian OS. Moreover, Nokia announced that it will reduce the number of smartphone models next year from 20 to 10 despite the fact that it foresees a 10% rise in global device shipments in 2010 and intends to connect 300 million users to its Ovi platform by the end of 2011 as part of its major new push into Internet services.

We believe that capability has always been Nokia’s biggest stumbling block: it lacks the breakthrough innovation that will disrupt the market (especially from a user interface perspective), but it definitely has the intent factor to become a threat since it is highly skilled in scaling out global mass-market solutions. The Finnish vendor has at least recently answered certain questions related to the capability challenge by stating that it will migrate smartphones to lower price tiers and will launch more Qwerty and touchscreen devices based on its upcoming new Symbian user interface, as well as its Maemo 6-powered mobile computer by the middle of 2010.  

Nokia could regain momentum in the US market (where shipments dropped by 31 percent in Q3 2009 year-on- year) as Motorola’s mobile arm is less of a threat and is likely to be traded out next year. RIM and Apple will be the two strong contenders to outperform in the large US enterprise segments. In addition, Sony-Ericsson is likely to undergo a massive shake-up as well under which Sony Japan might gain more control over the failing joint-venture. Time to market is critical for handset vendors; get it wrong and it could rapidly shake up an entire company – but Nokia knows it.  (Joss Gillet)

 

9) MVNOs break new ground
2009 witnessed the arrival of around 70 new MVNOs. Many of these were triple/quad play offerings or targeting the usual market niches e.g. migrants.  However, 2009 also witnessed MVNOs breaking new ground with a number of launches outside North American and European markets. The first MVNOs were launched in Oman, Senegal and Thailand, while major expansions of MVNO activity were also witnessed in Malaysia and New Zealand. The established Western European MVNO markets of Germany, Italy and Spain all saw a number of launches. One of the more interesting arrivals was Kirene Mobile in Senegal (Kirene is a brand of mineral water). Besides Yemba in Cameroon, however, MVNOs still remain largely unknown outside South Africa. A higher profile launch was Nokia’s upmarket Vertu Club in Japan, following its withdrawal from the country’s fiercely competitive handset business. 

As usual a number of MVNOs found themselves being ‘disconnected’ during the year, including UK ad-funded MVNO blyk. Qwest also exited the US MVNO market to become a Verizon reseller while Tele2 bailed on its French MVNO by selling out to Virgin Mobile. However, the Western European MVNO market is also showing signs of reaching saturation point with Belgium and the Netherlands seeing a number of unloved smaller players departing. Some more well-known MVNO names also exited the sector, including Virgin Mobile USA (following its acquisition by Sprint) and Virgin Mobile Canada (following its acquisition by Bell Mobility). 

Although not an MVNO, O2 brand giffgaff launched in the UK with an alternative business model that involves getting customers to do much of the promotional/customer care work. How they perform will be watched closely by the industry in the year ahead, where we expect the number of operator owned sub-brands to continue to proliferate in mature markets as operators seek to tap every possible market segment for growth. (Jon Groves)

 

10) US market boosted by prepay
The US prepaid market saw intense activity during 2009 as growth in contract subscribers dwindled to 1 percent. In contrast, prepaid connections have recorded year-on-year growth of 20 percent. January witnessed the launch of Boost Mobile’s (Sprint’s prepaid unit) US$50/month ‘unlimited’ offer that brought them into competition with perceived ‘value’ operator T-Mobile and regional prepaid specialists MetroPCS and Leap Wireless (the parent of ‘Cricket’).

In 2008 Sprint’s prepaid connections steadily declined while T-Mobile (prepaid), MetroPCS and Leap Wireless all grew strongly. Less than 12 months later the changed market dynamics were apparent in Q3 2009 results, with Sprint adding 2.1 million prepaid connections over the first three quarters. Despite starting the year with record net additions, MetroPCS and Leap reported weak growth in Q3. Meanwhile, T-Mobile reported its Q3 prepaid net additions fell to only 63,000, from 377,000 a year earlier.

Following the success of Boost’s offer, Sprint announced it would bring a further 5 million prepaid subscribers on board via the acquisition of Virgin Mobile USA (its former MVNO) and adopt a dual prepaid brand approach. Another notable launch was ‘Straight Talk’ in June by America Movil-owned MVNO Tracfone Wireless, offering a US$45/month unlimited plan running on Verizon’s network. T-Mobile USA belatedly unveiled its ‘Even More Plus’ unlimited offer from US$49.99/month in October.

Given signs that the US economy will remain subdued and with intense competition driving down the cost of unlimited prepaid offers, 2010 will see continuing market growth but individual operators are likely to be squeezed. The nationwide US roll-out of Straight Talk in October – with the distribution strength of Wal-Mart and appeal of Verizon’s network – will place further pressure on other players.  A long-speculated merger between Leap and MetroPCS would not be a surprise if it finally comes to fruition next year.   (Jon Groves)