1

Innovation in the mobile ecosystem

Prepared by Claudio Feijoo (Universidad Politecnica de Madrid),

Jean-Paul Simon (IPTS)for the Acorn-Redecom Conference, Brasilia May 14-15, 2010

European Commission - Joint Research Centre

Institute for Prospective Technological Studies - IPTS

http://ipts.jrc.ec.europa.eu/

DisclaimerThe views expressed are those of the presenter and may not in any circumstances

be regarded as stating an official position of the European Commission.

Neither the European Commission nor any person acting on behalf of the Commission

is responsible for the use which might be made of this presentation.

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IPTS

Part of DG JRC of the EC

Mission

“to provide customer-driven support

to the EU policy-making process by

developing science-based

responses to policy challenges that

have both a socio-economic as well

as a scientific/technological

dimension”

European Commission – Joint Research Centre

Institute for Prospective Technological Studies (IPTS)

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Summary

The state of the industry The global market

The US market

The EU market

Some trends

Key innovation areas

Appendix: case study The content provider view: Lagardère International

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The state of the industry The global market

The US market

The EU market

5

Market Data Summary (Q2 2009)

Source GSMA 2010

Africa 416,303,821

Americas 475,193,998

Asia Pacific 1,906,764,743

Europe: eastern 462,040,510

Europe: western 506,982,364

Middle East 243,953,091

USA/ Canada 299,057,084

World 4,310,295,611

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Market Data Summary

Source: ITU, IDATE 2010

3.058,83.410,7

3.818,94.272,5

4.714,75.198,0

5.756,9

0,0

1.000,0

2.000,0

3.000,0

4.000,0

5.000,0

6.000,0

7.000,0

2007 2008 2009 2010 2011 2012 2013

Mill

ion

s

Total mobile subscriber base evolution

11%

9%

13%

12%31%

10%

1% 13%

North America South America West Europe East Europe

Far East & China Indian Sub Continent Rest of Asia Pac Africa & Middle East

2009 world distribution of mobile

subscribers (ITU)

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Mobile Internet

Source: ITU, EC, Juniper, Informa 2009

Mobile penetration 2008 (%) Mobile internet penetration (%)

North America 70% 11%

South America 77% 4%

West Europe 119% 16%

East Europe 110% 15%

Far East & China 69% 19%

Indian Sub Continent 21% 5%

Rest of Asia Pacific 62% 8%

Africa & Middle East

57% 8%

8

World revenues

Source: IDATE 2009

610678

742

0

100

200

300

400

500

600

700

800

2006 2007 2008

World mobile revenues

($ billions)

22,4

20,16

18,96

17 $

18 $

19 $

20 $

21 $

22 $

23 $

2006 2007 2008

World average monthly

revenue per user –

ARPU ($)

9

ARPU breakdown into voice and data

Source: own estimations from industry data 2009

17,716,5

15,1

3,23,6

3,7

0,00 $

5,00 $

10,00 $

15,00 $

20,00 $

25,00 $

2006 2007 2008

Voice Data

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Mobile subscribers by technology

Source: own estimations from industry data 2008

2.314.889.685

943.649.298

375.985.267

51.605.821

62,8%

25,6%

10,2%

1,4%0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

500.000.000

1.000.000.000

1.500.000.000

2.000.000.000

2.500.000.000

2G 2,5G 3G 3,5G+

Global mobile susbscribers by access technology Access technology penetration

9,6%

10,9%

15,9%

13,1%

24,5%

8,6%

7,6%

9,8%

North America South America West Europe East Europe

Far East & China Indian Sub Continent Rest of Asia Pac Africa & Middle East

Distribution of subscribers of 2G+

mobile technologies

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Mobile handsets

Source: Gartner, IDATE 2009

Market share of smartphones

suppliers

29%

56%

5%

10%

Basic Phones Enhanced Phones

Smartphones — Entry Level Smartphones — Feature

9%11%

15%

54% 53%

39%

0%7%

17%

37%

29% 29%

0%

10%

20%

30%

40%

50%

60%

2006 2007 2008

RIM Nokia Apple Others

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Mobile applications

Source: Own elaboration from industry data 2010

0

50

100

150

200

250

jul-

08

sep

-08

no

v-0

8

en

e-0

9

mar

-09

may

-09

jul-

09

sep

-09

no

v-0

9

en

e-1

0

mar

-10

may

-10

Thousands of applications available in app stores

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

5

Billions of accumulated downloads in app stores

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The US market

14

Wireless Quick Facts I(Source: CTIA 2010)

Year (Year

End Figures)

2009 2005 2000 1995

Wireless

Subscribers(millions)

285.6 207.9 109.5 33.8

Wireless

Penetration (% of total U.S.

population)

91% 69% 38% 13%

Wireless-Only

Households (%

of U.S.)

22.7% 8.4% N/A N/A

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Internet: going mobile

« Broadband services have experienced explosive growth. The number of homes receiving broadband services increased twenty-fold between 2000 and 2007.”U.S. Dep’t of Justice, Voice, Video and Broadband: The Changing Competitive Landscape and Its Impact on Consumers (November 2008),

“Mobile wireless services are the fastest growing broadband segment”, id. “Symposium participants expected continued growth and competition among

telephone providers, cable companies, and other technologies, including wireless services” id.

Broadband wireless networks ( Wimax: Clearwire/ Sprint, 4G/LTE or meshed/ city networks) are seen as a potential alternative third pipe i.e in the 2010 National Broadband Plan

200,000 applications are available to U.S. consumers through four recently created application stores with three already existing stores 40% increase due to the “iPad effect”.

The U.S. has the highest percentage of consumers actively using mobileInternet capabilities more than any other country measured by Nielsen.

Subscriber counts for high-speed lines (over 200 kbps in at least onedirection) more than doubled and advance service lines (over 200 kbps inboth directions) more than tripled since 2007 the last year that FCC surveyed consumers. There are more new wireless Internet subscribers (approximately 58 million) than new cable and

DSL combined (approximately 41.5 million).

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The EU market (the EU success story)

0

20

40

60

80

100

120

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

USA Penetration

EU Penetration

… but in the EU we measure SIM cards, while in the USA one subscriber=one phone …

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The most dynamic of the electronic markets

Mobile services have enjoyed strong growth since their introduction in the early 1980s, accompanied by rapid network and service investments.

With total revenues of €174 billion (rising from €88 billion in 2000) Mobile now ranks amongst Europe’s most important industries

Mobile services are now available to nearly 100% of the population and 400 million Europeans have a mobile phone. Europe has the highest mobile penetration rates in the developed world, as a

result of high mobile handset subsidies and prepaid propositions The average EU penetration rate continued to grow and has now reached

119%. There are now only 4 Member States that have not exceeded 100% penetration. While this could be seen as a sign of a maturing market, notable increases are

still taking place in Member States with high penetration in previous years such as Italy with 152% and Lithuania with 149%.

Over the last decade, the use of mobiles has increased very strongly. On average, Europeans now make 116 minutes of calls from their mobiles and

send 42 mobile messages every month (per head of population). Though still emerging, use of mobile data services is starting to take off

The mobile market remains, along with fixed broadband, the most dynamic of the electronic communications markets, due to increasing call volumes and the take-off of mobile broadband.

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But a maturing market

The benefits of mobile are illustrated by very high levels of customer satisfaction. Consumers are far more satisfied with mobile than other services, including fixed-line, banking

and utilities

The mobile industry has enjoyed revenue growth of 10% per annum over the last eight years – however,the market is maturing and revenue growth rates now stand at 5% per annum

This has led to continued operator growth over the past year despite a further decline in voice revenues due to price decreases in domestic markets

Competition between mobile network operators is very intense

As illustrated by the growing share of third / fourth mobile operators and the additional pressure from the market entry of MVNOs (Mobile Virtual Network Operators) over the last five years. This competitive intensity is clearly evidenced by growing customer churn rates ( 22% on

average) and steeply declining prices – to an extent rarely witnessed in any other industry: across the

EU25, mobile prices fell by an average of 13% per annum between 2004 and 2006

The view from the industry: 2008 (for the 30 EEA countries) "This report shows the European mobile industry at a crossroads: through

innovation and further investment operators can maintain a growth path, albeit in a climate of intense competition which will require even more efforts on cost efficiency and industry consolidation". A.T. Kearney project leader, Laurent Viviez, for the GSMA, European Mobile Industry Observatory

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EU mobile broadband (1)

Mobile broadband in many Member States is now a reality thanks to investment in high speed Internet access and flat-rate charging mechanisms. Revenues from mobile Internet are increasing and are higher than

those of the US.

According to Analysis Mason, by the end of 2008, mobile accounted for 20–30% of broadband subscribers in the more-advanced Western European markets, such as Austria and Ireland. The rise in data traffic carried over wireless networks in developed

markets has taken many network operators by surprise. At the same time, revenue per megabyte is continuing to fall, driven

down by increasing competition and the introduction of flat-rate pricing.

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EU mobile broadband (2): various models

DSL replacement: Homezone offers also used on mobile broadband plans in Portugal and

Germany Common offers in these 2 markets, even from operators with DSL propositions

Alternative to fixed broadband: 24% of Austrian 3G subscriptions are PC cards & USB modems

Fixed broadband penetration is slowing at 45-50%, with over 15% of homes just use 3G broadband;

40% of Austrian homes have no fixed line and just use mobiles for voice. These have been the main target of 3G broadband services.

Over 90% of consumer mobile broadband users use it as their only residential broadband service.

As a complement: Over 20% of 3G Subs in Sweden are PC Cards & USB modems

consumers growing fast in 2008 to account for 2/3rds of data cards; 14% of consumer 3G subscribers are data cards, compared with 24% business

3G subscribers. Mobile broadband use largely complementary to DSL

2nd-home ownership in Sweden a good source of mobile-only solutions for both voice and broadband data;

Telia pushing DSL/3G broadband bundles.

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Changing business models

New players from the on-line world are also challenging the « walled garden » model and lobbying in the EU as well for « openness » “Open systems and their impact are inevitable. It is clear that recreating existing business models will

not work. Savvy companies like Nokia, Google, Opera and Apple are leading the way in this space.” Ajit Jaokar (Futuretext)

Beyond the industry first defensive arguments Exclusivity and long-term contracts are the counterpart of subsidized handsets The success of iPhone is nevertheless generating second thoughts about the willingness to pay for

expensive/ fancy terminals

… the mobile industry is answering that « real openness » may well be on its side

As the on-line world is caracterised by fragmentation and a lack of interoperability,this is especially true of: Mobile applications: applying Apple winning model and opening up for developpers increase

fragmentation (handset makers, cellcoes, GYM (GoogleYahoo Microsoft )…) Instant messaging: Microsoft was the uncontested leader with Hotmail/Live Messenger (320m users).

Instant messaging has now become a commodity in Facebook, MySpace, Twitter, BeBo, QQ, etc. Mobile 2.0: the communities (Facebook, My Space, Twitter) are « closed », not interoperable

On mobile, only voice and SMS are interoperable with open and public specifications and interconnection protocols With its « rich communication suite » (RCS) initiative to go beyond voice and SMS: with NGN/IMS

improved networks, a standard in GSMA A growing RCS community: Acme Packet, Alcatel-Lucent, Aylus Nteworks, Ericson, Gemalto, Nokia, Solaiemes…

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Some trends

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Gartner (August 2009): smartphones continued to outperform the overall mobile

devices market in 2Q09, and were a key factor in consumers upgrading devices.

IDC (2010): 56.7% YoY growth, 54.7 millions smartphones as of May 2010

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25

Trends

Forecast of mobile social networking users (Millions) in comparison with world mobile subscribers and mobile Internet users.

Source: C.Feijoo & al, « Mobile social computing and the increasing relevance of users in the mobile ecosystem » out of

data from 2008 data of ABI Research, eMarketer, ITU, Juniper Research, Informa Telecoms & Media, and Netsize. .

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Trends: the technology roadmap

Spectrum availability and spectrum management?

HDPA (3,5 G) LTE (4G) Femtocells Mobile WiMAX

(4G) IMT Advanced (4,5 G)

NFC – Wireless

sensors

Cognitive radio and

mesh networks

Context – awareness

and cognitive

technologies

Theoretical

maximum data

rates

14 Mb/s (downstream)

5,6 Mb/s (upstream)

100 Mb/s

(downstream)

50 Mb/s

(upstream)

- 50 Mb/s 1 Gb/s - - -

Typical data rates

3,6 Mb/s (downstream)

2 Mb/s (upstream)

- - 10 Mb/s 100 Mb/s 1 Mb/s - -

Begin of massive

deployment 2008 - 2010 2009 - 2012

2009 - 2010

2010 - 2011 (for

handsets)

2009 -2011 2013 - 2017 2013 - 2017 2013 - 2017 2013 - 2017

Enhanced version

HDPA+

40 Mb/s (downstream)

- 100 Mb/s - - -

Critical

technologies MIMO OFDMA Management OFDMA

Dynamic spectrum

management

UWB and similar

Spectrum management

Dynamic spectrum

management

3D real virtual

integration

Artificial intelligence

Main advantages Evolutionary from

existing 3G

Evolutionary

from 3,5 G

Fixed-mobile

convergence

Increase of coverage

Not a legacy

technology Evolutionary from 4G Smart environment

Data rates

Coverage

Integration in daily life

Main

disadvantages Transition technology

Time-to-

market

Integration in

existing networks

Business case for

new technology

Still in early stages of

standardization process

Business case for

deployment

Early development

state

Very early development

state

Source: own elaboration from industry data

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Trends: a complex ecosystem

Creation - development - production

Distribution - access

Use - consumption - interaction

X

Communication users

Entertainment users

Internet users

Social networking users

X

Mobile

Internet

Media

+ 200000 applications

+ 4,500 millions downloads

+ 150 smartphones

+ 20 operating systems

Variables: Technologies Infrastructures Platforms Standards Interoperability Business models Players’ strategies Users’ demands …

The value networkThe users’ demands

The industries aims

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Trends: a complex ecosystem

Cre

atio

n –

dev

elo

pm

ent

-p

rod

uct

ion

Ser

vice

Net

wo

rks

Dis

trib

uti

on

-ac

cess

Use

Co

nsu

mp

tio

n

Inte

ract

ion

APPLICATION /

SERVICE LAYER

INFRASTRUCTURE

LAYER

Mobile social computing users

Mobile content users

Mobile communication and broadcasting networks

(UMTS, HSPA, LTE, WiMax, 4G, DVB-H, …)

Communication services

Content/applications distribution platforms

Broadband wireless access

(WiFi, Bluetooth, …)

Mobile web platforms

Location based services Context-aware and user profile services

Mobile device applications and interfaces

Mobile advertising

Mobile searchMobile social applications

Chipsets

Batteries

Memories

Displays

Cameras

Suppliers

Mobile devices

suppliers

Mobile devices operating system suppliers

Mobile user-generated

contentMobile web contentLicensed / own content

Content/applications-enabling platforms

Mobile Internet applications

Mob

ile c

omm

unic

atio

n us

ers

Internet mobile users

Context –aware content

and applications

Mobile devices software platforms

So

urc

e: F

eijo

o e

t a

l (2

01

0)

A plaformisation of the industry (Ballon, 2009) and a fight for the gatekeeping role

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Key innovation areas

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Key innovation areas (1)

The disruptive trends in technology

1. LTE-4G

2. Cognitive technologies

3. Artificial intelligence

4. Internet of things

5. New user interfaces

6. Location awareness of presence

7. Semantic structured knowledge

8. Cloud computing

9. Augmented reality – 3D

10. Mobile P2P – Mesh networks

Relevance Time frame (order of apparition)

1. Location awareness of presence

2. Cloud computing

3. LTE-4G

4. Cognitive technologies

5. Semantic structured knowledge

6. New user interfaces

7. Internet of things

8. Mobile P2P - Mesh networks

9. Augmented reality – 3D

10. Artificial intelligence

Source: panel of mobile content and applications experts (IPTS workshop 2009)

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Key service innovation areas (2)

Source GSMA

Mobile entertainment. An entertainment platform for usage on the move. Initially, mobile operators and content providers focused on providing basic

mobile music, gaming and short video services. Increasingly, mobile services will include multimedia-rich content. For example, mobile broadcasting services are under development in a number

of European countries – with the first commercial launch by Hutchison 3G in Italy in June 2006.

Mobile commerce. Mobile offers new, more convenient mechanisms for carrying out payments, transfers, ticketing and other transactions. Public authorities are using mobile services to provide more convenient, cost

effective means of payment for transport and parking, banks are offering mobile banking services, and airlines are introducing mobile ticketing.

According to Telecoms Market Research, 87 million mobile users in Europe will be using their mobiles for mobile ticketing by 2010.

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Key service innovation areas (3)

Source GSMA

Mobile monitoring and surveillance. Mobile is enabling companies to monitor equipment, people and the natural environment remotely. For example, farmers are using wireless weather stations to monitor environmental

conditions and maintain healthy crops, healthcare providers are using mobile to monitor heart patients for abnormal heart

activity, and security and law enforcement agencies are using mobiles to track criminals

and carry out surveillance. With mobile technology, these new applications are allowing companies to reduce

costs while increasing safety / security and speed / quality of service.

Mobile advertising. Mobile provides new ways for companies to reach potential customers, with opportunities to communicate with customers in more personalised and interactive ways. Marketeers are exploring a wide range of different mobile advertising options

including SMS texts, video clips, location-based advertising and click-to-call advertising.

Industry analysts Informa Telecoms & Media predict that mobile advertising will be worth $11.5 billion by 2011.

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New business models

Advertising (columns 1-4) being a fundamental business models

Packaging (columns 5-7) in new ways, not traditional “walled garden”

Services (columns 8-11) is the preferred category, in particular premium

Standards de facto and community (columns 12-13): skepticism

Public provision (column 14): non-negligible

Business models (%)

0%

5%

10%

15%

20%

25%

30%

35%

advert

isin

g

advert

isin

g +

pro

duct pla

cem

ent

merc

handis

ing / a

ffili

atio

n

user

pro

filin

g

packa

ged w

ith d

evi

ce

packa

ged w

ith m

vo s

erv

ices

packa

ged w

ith g

ood/s

erv

ice n

on-I

CT

pre

miu

m s

erv

ices

valu

e-a

dde

d s

erv

ice

s

pay-a

s-yo

u-g

o

subsc

ription

critic

al m

ass

of users

user

com

munity

public

serv

ice

Source: mobile search scenarios Delphi (IPTS 2009)

Key innovation areas (4)

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New user role

Key innovation areas (5)

35

Some conclusions

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Some conclusions (1)

Uncertainties about demand as macro environment

remains challenging

Therefore innovation is key

4G is coming

The deployment of wireless broadband is on its way “Mobile Broadband” is a key part of many operators’ strategies though a clear

picture on value creation is missing However, business models are still unclear

How to monetize services perceived as free v. standard charging schemes for mobile?

Role of advertising: now seen seen as a main future avenue by industry

The exploding smartphone markets may not be the ultimate solution for carriers: “Apple's iconic iPhone device may be a hit with consumers but it is doing little to

increase operator profits, Strand Consult”. Mobile Business Briefing, August 18, 2009.

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Consensus from industry on: increased value of the user profile in the mobile domain

But dangers of an excess of commercialisation of user profiles without the tools and the institutional regimes to empower users

importance of the moment and circumstances of usage

role of the mobile device as the tool in between the real and virtual worlds

long-tail of applications and niche markets derived from the variety of daily activities, local cultures and lifestyles of mobile users

limited role of mobile operators or device suppliers as “packagers”

relevance of interfacing and interoperability issues

Some conclusions (2)

38

Thanks

cfeijoo@cedint.upm.es

http://upm-es.academia.edu/ClaudioFeijoo

Jean-Paul.Simon@ec.europa.eu

JRC-IPTS-idea-TEAM@ec.europa.eu