Cartagena Industry Perspectives - February 2008

Mobile World Congress Report from Barcelona

MWC 2008 Perspectives
by Dr. Mehmet Unsoy

Mobile World Congress (MWC) 2008 (aka 3GSM) was held for the third time in Barcelona, Spain, during Feb 11-14, 2008. Organizers claimed that there was a slight increase in the attendance (expected to be over 50,000) and 1,600 companies exhibiting, compared to 1,300 last year. But most of us felt that the attendance was about the same or even slightly lower, maybe because crowds and queues were better managed!

In this Industry Perspectives, I am giving my views and observations below. We also have Jane Zweig offering a rather different perspective on the overall direction of the industry [read article]. Finally, Alan Quayle, as a guest author, describes why he thinks the industry is at the crossroads [read article].

The major theme of this congress was mobile broadband. HSPA deployments have really taken off, with 174 commercial HSDPA deployments, 36 of them delivering 7.2 Mbps download speeds. They are targeting 42 Mbps and 12 Mbps for downlink and uplink respectively, using HSPA+/ HSPA Evolved by 2009. These are outstanding data rates! Also significant is that there are currently 420 HSPA enabled mobile devices, including the USB dongles, for laptops. Speaking of laptops, the mobile broadband Notebook competition was won by Dell and ECS, with HSPA embedded notebooks, at $550 price points, which is rather impressive! This HSPA enabled notebook market is estimated to be a $50B global market.

There were lots of talk, presentations and demonstrations on LTE. With the recent uptake of the HSPA based mobile broadband, there seems to be genuine pressure to realize LTE as early as possible. Ericsson, with their strong LTE commitment, demonstrated a first end-to-end phone call using LTE. There were long line-ups to see this Ericsson demo! Ericsson claims that they will have first commercial deployments of LTE by end of 2009. Nortel was also demonstrating LTE, with a target of commercial deployment with Verizon by end of 2009. However, these all sound awfully optimistic. Also, Alcatel-Lucent and NEC announced a major partnership to jointly develop LTE, but a few people I talked to were quite skeptical of such partnerships!

WiMAX was a relatively low-key topic at this show with only a few high-profile demonstrations. Cisco was demonstrating their recently bought Navini gear, which targets primarily the developing markets. However, the most interesting were the discussions/presentations around the relative positioning of WiMAX Mobile and LTE. Several industry leaders, including Vodafone’s CEO Arun Sarin, pushed for LTE making room for WiMAX Mobile, as part of the TDD solution, thus, creating a convergence of WiMAX and LTE. One implication of this is that those operators that deploy WiMAX Mobile in the next 2-3 years, can evolve to be part of LTE by 2010 or later. However, this view is not shared by everyone. China Mobile is collaborating with Vodafone and Verizon on LTE trials, but seems to be pushing TD-SCDMA as the TDD portion of LTE.

A couple of very interesting WiMAX related developments were a “WiMAX on an SD card” by Mitsumi using Sequans chip, showing a high degree of integration and NXP’s dual-mode EDGE-WiMAX reference design. Both of these are important steps in launching WiMAX services. One of the topics we had touched on in a previous “Cartagena Industry Insights” was the possibility of mobile TV over WiMAX and at this congress UDcast announced a mobile TV platform for WiMAX with broadcast and multicast capabilities. Also interesting was the seamless WiMAX - Wi-Fi roaming/ hand-off demo by Alvarion, Comfone and Intel, showing the complementary positioning of these two technologies.

Huawei had an impressive presence at the congress this year with a recent string of European operator successes. I was particularly impressed with the emphasis on “IP transport infrastructure for mobile evolution” for mobile networks. With mobile broadband demanding significant bandwidth and networking, this looks like the right emphasis for Huawei and others.

I have observed a degree of maturing in the Femtocell companies understanding and responding to the requirements and challenges they are facing. Even though I had been somewhat critical of the Femtocell companies in the recent past, I think they are developing capabilities and solutions to tackle interference issues, remote management, as well as bringing down the unit cost. Several young companies worth to mention here are ip.access, picoChip and Ubiquisys. Also, some companies are looking at merging Femtocell units with other devices at home, such as residential or home gateways.

On the mobile device side, the first surprise of the congress was Microsoft’s announcement of the Danger acquisition for $160M. Lots of people expressed puzzlement around this acquisition and various theories around the motivation of Microsoft and whether it has anything to do with their intended Yahoo acquisition to compete more effectively with Google/ Android/ gPhone, etc. This probably is a separate topic of discussion!

Apple was not really present at the congress, but their presence was felt enormously. First, there were numerous (hundreds of) new handsets announced and most of them with significantly improved “user experience”, some with a touch screen, obviously showing some iPhone and iTouch influence. Nokia announced their Touch UI, but are not sure when it will be available on handsets. SonyEricsson had their first Windows Mobile handset, Xperia X1, which looked superb! It has 9 panels or screens, each catering for different environments. It is not tied to Windows and they could change it to another OS later! With numerous handset announcements, it seems that Sony Ericsson is trying very hard to improve their market-share, currently #4 with 8.8%, after Nokia (38.1%), Samsung (14.5%) and Motorola (13.1%). Also there were lots of rumors about Motorola and what they may do with their handset division.

Incidentally Nokia had one very impressive handset announced, the N96, with 5 Megapixel camera, recording videos at 30 fps, supporting MPEG-4 as well as DVB-H,  16GB memory and  microSD slot. But you cannot get your hands on it until Q3 and it would cost you around 550 EUR.

LiMo Foundation announced the first wave of 18 new phones that are Mobile Linux based as well as their SDK strategy. These include handsets from LG, Samsung, Motorola, NEC and Panasonic and some prototypes from Aplix and PurpleLabs. This shows that LiMo can compete effectively with Google’s recently announced Open Handset Alliance (OHA), in offering an open operating system for mobile handsets that is hardware independent. LiMo Foundation needs to be taken more seriously thanks to increased membership recently including companies such as Access, AMD, Broadcom, Ericsson, Huawei, McAfee, Montavista, NXP, Open Plug, Softbank, ST, Trolltech and WindRiver.

Several OHA members such as Qualcomm, TI, ARM, NEC, ST and WindRiver also demonstrated some very early versions of the Android prototype platform. However, it will be late 2008 before any mobile handsets be available with such a platform. It is interesting to note that companies like Wind River are in both LiMo and OHA camps!

With the growing number of video and TV capable handsets, mobile TV is reaching a degree of maturity. There were solutions delivering mobile TV over 3G, HSPA, DVB-H, MediaFlo as well as over Wi-Fi. Alcatel-Lucent demonstrated the new satellite based DVB-HS system, together with DiBcom, Eutelsat, Sagem, SES Astra, TeamCast and UDcast. It was announced that Japan has reached the 20 Million mobile TV phone mark this month after only 2 years in service. New ABI research report predicts that by 2012 the mobile TV market will boast nearly half a billion subscribers. The growth of 3G/ HSPA will be a major factor in this growth.

Greening of the wireless industry was yet another theme at the congress. Most of the emphasis was in base-stations that used less power, less space, etc. But also, recycling of mobiles and batteries in China, for example, was noteworthy. Greening is particularly important since several countries are experiencing significant mobile penetration growth. China now has over 525M subs, with 39% penetration and 18% y/y growth, the USA has 254M subs, with 87% penetration, India has 237M subs, with 21% penetration and a whooping 60% y/y growth and Russia has 169M subs, with 120% penetration!! Interestingly enough, we observe several European countries with over 100% penetration, led by Italy (154%), followed by U.K. (122%) and Germany (117%).

Even though China and India attract lots of attention as key developing markets, the African market is experiencing the highest rate of growth these days. There are about 270M subs today in various African countries and most countries are experiencing over 60% annual growth with blended ARPU being around 10 EUR. We should expect all sorts of new solutions targeting such a growth market, but with a low ARPU.

Mobile advertising was still a hot topic in this show, with over 30 companies (maybe more!) offering various solutions, some end-to-end, some partial, for this potentially explosive area. The global advertising market is considered to be about $640B and there is lots of debate as to what percentage of this can be expected to be shifted to mobile. Also, if X% is shifted from print or on-line to the mobile medium, it would be worth substantially more due to better targeting and higher response rates. Analysts estimate the mobile ad market as $12B by 2011. Several industry collaborations also announced during this congress, showing that the mobile operators are taking this more seriously and are attempting to regulate themselves. They are starting to realize that rich media mobile content delivery will have to rely on an advertising based business model as opposed to a simple subscription based model if it is going to succeed.

Social Networking was also a hot topic at the congress, with Facebook’s and MySpace’s initiatives in the mobile area attracting lots of attention. But also RIM’s co-CEO Jim Balsillie emphasized that Blackberry’s future depends on business-oriented social networking. Mobile phones are becoming so much better tool for generating user generated content (UGC). Thus, mobile becomes such an important part of social networking. Analysts are expecting 600 Million active users for mobile social networks by 2012.

Mobile VoIP deployments have taken off partially due to mobile broadband deployments around the globe. Most of the mobile VoIP deployments are said to be mobile operator-friendly, i.e. conducted in collaboration with the mobile operators. VCC (Voice Call Continuity) solutions are now available for hand-offs between mobile and Wi-Fi networks. There is also a strong element of social networking in the XoIP service deployments.

Increased penetration of GPS integrated handsets is now enabling a series of interesting Location Based Services. Nokia and Navteq had various product announcements. Yahoo announced oneConnect that alerts you when friends are in town. It also aggregates social network connections from Facebook, MySpace, etc. and delivers your email!

There were a lot of interesting companies worth to mention at the show, but I can only highlight a few of them:

Finally, the Mobile World Congress is becoming less and less mobile operator centric. However, there is a need for further openness. Google, Apple and other internet players are at the gate and they should be invited and given a more active role at the future MWCs.

Dr. Mehmet Unsoy
Partner, Cartagena Capital
munsoy@cartagena-capital.com
www.cartagena-capital.com

Mobile World Congress – Gloom, Doom or Boom?
by Jane Zweig

Mobile World Congress as always appears to be as though we’re stars in a Fellini movie – some absurd, some common themes or buzzwords, some realities, much hype and serious techno-babble. Here are a few observations about the cast of characters and plots.

It seems as though an advertising agency must have sent an email to marketing executives suggesting that companies focus discussions on the following – currency of change (not sure what that is), mobile broadband, transformation, transition, consumers and simplicity. Of course, throwing in the alphabet of acronyms to support the buzzwords is a prerequisite.

Is the mobile industry in a transformation? A transition (to what)? Yes, simplicity is key but the industry is ever more complex.

And is mobile broadband here as reality or is it really a dream of vendors and operators to reap revenues from networks which have yet to see a return on investment?

And currency of change – are we to believe that change will happen in the same manner, at the same cost, or that end-users will move forward uniformly? That hasn’t happened in the Euro zone nor will it happen in this industry. Mobile is about personalization, uniqueness supported by some user generated content – therefore, it cannot happen in the same way for everyone in the ecosystem.

Consumers were the talk of the town. We do not dismiss the importance of a mass market consumer-based proposition at all. In fact, we have been arguing for a decade that end-users must be at the center of this industry since without the end-user mindset nothing but expenses and liabilities will move forward.

But this year consumer applications crowded out corporate and specialist user applications both of which remain fiscally important.

Public protection, disaster relief and emergency service provision for example provide a profit opportunity, which may be easier to realize than consumer revenues based on users increasingly accustomed to the “perception” of free.

It is in the mass market where operators can’t monetize their investments and the “crisis in cash and confidence” from the vendors hails its roots.

In talking with major infrastructure vendors last week in Barcelona, one key perception emerged. It wasn’t one of content and materials presented or discussed (though that certainly played into it). Rather it was an uncomfortable body language. Vendors have been so beaten up by financial communities that it was hard to believe that anyone was comfortable with products they were selling or messages they were conveying.

Vendors lack the confidence for fear they will be beaten down again. After a few of these sessions, we walked away speechless and feeling sad. It is hard to imagine that all of these “world-class” companies will survive – and in fact, next year we would be surprised to see all of them back again.

It is this vicious cycle that still rules the mobile industry. Operators cannot make money unless a great end-user experience is provided. Operators cannot provide this experience without a great network. But operators can’t make money from business as usual. Mass-market consumers have a perception of free. Operators still continue down a path of greed to make money. Vendors can’t sell more “stuff” as operators aren’t making more money. And so it goes.

And operators still speak of controlling the experience and the customers. Until mobile operators understand what their real asset is – that of the network – nothing will move forward. The “bit pipe” isn’t a bad thing – in fact it can be profitable.

We hope that while a mobile industry “transition” is in place (at least two years by our accounts) that financial markets won’t give up hope and will continue to support the innovation that small companies can bring.

Jane Zweig, CEO, The Shosteck Group
Executive Advisor, Cartagena Capital
jzweig@shosteck.com
www.shosteck.com

An Industry at the Crossroads: MWC ‘08 Summary
by Alan Quayle

My impression of MWC (Mobile World Congress, nee 3GSM) is it was quieter than last year, less hype and less people; however, the organizers claim attendance was up 3000, perhaps they were all the pick-pockets?

I think the industry is at a crossroad, in my discussions with operators internet access is the product that’s selling at the moment, with operators facing the same operational challenges of broadband ISPs (Internet Service Providers) as traffic grows exponentially. Some mobile operators are seriously asking if being a mobile broadband ISP is really that bad. This question sets up the crossroad, do operators take a left and follow the ISP route, or continue along the current strategy, or perhaps take a right along a path that enables and enhances services over their network (the nebulous open network initiative).

The flight to and from MWC was full of misbehaving adolescents playing with the toys bought by their parents and ignoring the flight-crew’s instructions to turn them off. Unfortunately, the ‘adolescents’ were middle-aged telecom workers playing with iPhones. However, it certainly provided a clear example of why the industry continues to over-estimate what customers can do with their mobiles. I felt the need to rebel, so I brought out my seven year old Nokia 6130i and pointed out to my neighbour that it would not run out of battery during the show, he then brought out an equally old Moto phone and agreed with me.

Top two topics: Mobile Advertising and LTE/ HSPA Evolved (HSDPA+).

The focus on LTE/HSDPA+ (Long Term Evolution/ High Speed Downlink Packet Access) is a natural extension to the success some operators have in providing competitively priced internet access with HSPA. There were many announcements on this topic with Telstra moving to HSPA Evolved (21/42 Mbps) this year, with LTE (160 Mbps) on the roadmap. Ericsson estimates there are 174 HSPA networks in 76 countries with an estimated 180 million HSPA subscribers. Alcatel-Lucent and NEC are teaming on development of LTE with the creation of a new joint venture, which given Ericsson claims LTE will be commercially available in 2009, means the new JV needs to work fast.

Mobile Advertising is a simple label, but it leads to misconceptions. A more appropriate, though not as succinct, label could be: Advertising over the mobile channel as part of a digital media campaign. At the show, most applications had a “mobile advertising” component, most network elements gathered business intelligence for “mobile advertising” and most service platforms included the ability to insert “mobile advertising”. As I’ve unfortunately slowly learnt through my career, understanding your customer in-depth and providing a simple to understand (for them) solution to their immediate problem is the only way to extract cash. In advertising, media buyers and advertising agencies are the customers (the ones with the cash). Very few companies were talking the advertiser’s language, e.g. giving them ‘slots’ for their ‘campaigns.’ Instead assuming the customer will change the way they do business given the unproven richness of mobile. However, the announcement from Vodafone, Orange , O2, T-Mobile and Three that they are working together to develop common measurement standards for mobile advertising is a great first step.

Mobile does transform the way advertising works, but equally Facebook (the online world) has lots of information about me, yet it still keeps inserting adverts for 30+ singles in my area. No wonder some social networks are seeing click-through rates of 2-4 per 10,000 impressions; that’s not a campaign; that’s an accident. In the many pitches on mobile advertising at the show only one company had a complete end-to-end business intelligence and ad insertion solution: IMImobile [www.imimobile.com]. The wrinkle is you would need to adopt their complete managed VAS solution for that to be the case.

Other interesting insights from the show

The variety of mobile phones and mobile enabled devices at the show was astounding, hundreds of new devices, at the high end Sony Ericsson's first Windows Mobile handset the Xperian 1, Nokia’s N96 and Samsung’s Soul should provide current iPhone users a reason to change their device by the middle of this year. 

SUPL (Secure User Plane Location) is an IP based method to get the AGPS (Assisted GPS – cheaper GPS unit that needs to know roughly where it is before it works) unit up and running on a phone without the cost and complexity of a control plan solution. TCS [www.telecomsys.com] were demonstrating their SUPL based navigation solution. Available under a rev-share managed service framework this provides an ideal first step for smaller operators or those operators with limited geographic coverage or those not yet convinced on LBS (Location Based Services).

Android from Google was capturing the attention of the press. However, there were lots of demos for the competing LiMo (Linux Mobile) at least 10 handsets from 5 companies. Most of the demos were pedestrian from a user experience perspective. Customers really care about how the phone looks, the price, the battery life, how easy it is to use, the bundled applications and even the ease to sync with their corporate or personal email; OS is far down the list. As A la Mobile pointed out when they announced their Android demo back in January, “despite the open-source nature of the Android framework, developing a complete mobile system solution with customized, differentiated features continues to present major technical challenges requiring considerable time, effort and resources”. Open source OS are not really free given the lack of a common hardware architecture like the PC.

SpinVox [www.spinvox.com] continues its progress, launching with Vodafone Spain . A simple voice to text service provided as a managed service.

Open Network is a nebulous term. However, the SDP (Service Delivery Platform) is becoming a focus for many operators as they look to make it easy for 3rd parties, enterprises and their own services to use network capabilities such as billing, profile, single sign-on, presence, location, etc. This was one of the topics of discussion with many operators at the show.

Start-ups to keep an eye-on:

- Cibenix [www.cibenix.com]: sometimes it’s a matter of stamina, the ODP (On Device Portal) is in a renaissance with successful deployments in operators such as Three and Vodafone and Cibenix is one of the few ODP remaining.

- eBIZ.mobility [www.ebizmobility.com] enables operators to become a PayPal for online purchases using their existing billing system.

- IMImobile [www.imimobile.com] has created a strong position in APAC, LATAM and MEA. A simple managed VAS solution, e.g. content, content management and the gateways to deliver the content, all provided under a revenue share framework. Several operators and suppliers were commenting on the difficulty to make money on content, I pointed them to look at an out-sourced model that is making money on content for over 200 operators today.

- Useful Networks [www.useful-networks.com] and ULocate [www.ulocate.com] are saving the operator the problem of managing the ‘long tail’ of LBS by aggregating all those weird and wacky apps and making discovery easy.

- Wadaro [www.wadaro.com] has a cute little app on the OS or SIM that monitors how calls or data sessions fail/ terminate and reports the stats back to a managed platform - a simple way to find problems and focus network investment to improve the basic mobile experience.

Alan Quayle
Guest Author
alan@alanquayle.com
www.alanquayle.com , www.alanquayle.com/blog