whitepaper - the future of mobile broadband
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The future of the mobile broadbandmarket
Eden Zoller
June 2008
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THE FUTURE OF THE MOBILE BROADBAND MARKET 1
Ovum 2008. Unauthorised reproduction prohibited
The future of the mobile broadbandmarketMob i le b roadband i s ach iev ing s t rong take - up , p rov id ing add i t i ona l
i nc remen ta l r evenues to ope ra to r s , encourag ing use o f advanced 3G
ne tw orks da ta capab i l i t i es , and po ten t ia l l y genera t i ng h eavy t r a f f i c
g r o w t h f o r r e l a t i v e ly e m p t y n e t w o r k s . So l u t i o n s w i t h a t t r a c t i v e p r i ci n g a r e
m ee t ing use r b roadband and mob i l i t y dem ands and add ress ing new
c u st o m e r s i n o f t e n n e w l y - d e f in e d s eg m e n t s .
Executive summary
Prepare for a mobile broadband access dividend
The Internet is increasingly central to peoples lives and a mobile phone without an
Internet connection is beginning to have limited value. This is driving the need for
broadband anywhere connectivity, and combined with increasing laptop
penetration and the uptake of plug-and-play USB modems (dongles) is driving
huge adoption of mobile broadband. We see significant upside for mobile
operators, with new multiple connections and improved traffic revenues. This has
already proved the case for 3 in the UK. This will produce what we call a mobilebroadband access dividend not unlike the fixed broadband dividend.
But access w ill become commoditised think of smart value-added
services (VASs) and other ways to differentiate
The mobile broadband access dividend is good news for mobile operators but they
need to start thinking ahead now about how to drive revenues when access
becomes a commodity. This has already happened with fixed broadband and it will
be a similar story for mobile. The problem is that consumers are increasingly
unwilling to pay for existing mobile VASs while the Internet has a profound impact
in shaping consumer expectations that mobile Internet content services should be
free.
This means that operators will have to consider advertising-supported services,
which is the dominant approach online. They will also need to think of introducing
services that do not carry a premium but nonetheless have value, for example
security services that make consumers feel confident and hopefully more loyal to a
provider. They will also need to think of other ways to differentiate, for example
quality of service. Vodafone in Spain is doing just this by offering different speed
propositions depending on the customer segment. Another means going is for
operators to differentiate through customer management as users increasingly
have multiple mobile Internet devices and connections.
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THE FUTURE OF THE MOBILE BROADBAND MARKET 2
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Operators still need to raise awareness of mobile broadband
Mobile broadband is still a relatively new service, so consumer awareness remains
relatively low compared to other mobile, even data, services. Therefore, much
work remains for operators to educate consumers of the advantages offered by
mobile broadband. Advertising and instore/online presence will be vital to ensure
that the correct offerings are communicated. It is also important not to damage
the markets potential by a focus on unrealistic mobile broadband speeds that will
inevitably cause disappointment among consumers .
Finding a profitable price point is challenging
Mobile operators need to think very carefully about pricing for mobile broadbandservices. Consumers understandably like unlimited data offerings and it does
encourage adoption and worry-free usage. But it can be dangerous for mobile
broadband operators. Data usage is generally growing quickly and flat rate plans
will fuel this trend, which can introduce capacity issues for networks and affect the
quality of user experience for some applications such as video. This will be
exacerbated by the onset of heavy fixed-type broadband usage of many data
hungry segments. This results in increasing costs and capex for operators needing
to improve capacity, and therefore thinner margins. The flat rate model is starting
to break down even in the fixed environment where more data caps are being
introduced, at least in the fine print. We recommend that mobile operators focus
on usage limits as a guard and balance against capacity issues.
The devices landscape for mobile broadband is looking healthy
The GSA recently announced (April) that 637 HSDPA devices have been launched
by 110 suppliers, and operators like 3 believe that the availability of handsets has
reached a tipping point. However, it is USB modems or dongles as they are called,
that has captured consumer interest and is helping to drive growth. Dongles appeal
because they are easy to install and are not too expensive, which is exactly what
consumers want. Going forward we expect to see the emergence of a market for
embedded cellular chipsets in a wider range of devices such as portable media
players and games consoles.
Femtocells can help improve the quality of experience
Mobile broadband can receive a reduced signal when indoors, which will impact on
any broadband service or application down to that device. TV and video services
will be particularly sensitive to any degradation in bandwidth due to a reduced
signal. Fixed broadband therefore has a distinct advantage of mobile broadband in
this area. This is where femtocells can help. Femtocells improve indoor mobile
coverage by placing a mini-mobile base station actually within the home. This not
only increases coverage, but also performance, with femtocells being able to
provide in excess of 5Mbps around the home. In theory this would help a mobile
broadband operator provide its mobile broadband portfolio down to the same
device whether the person was outdoors or indoors, although as a femtocell relies
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THE FUTURE OF THE MOBILE BROADBAND MARKET 3
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on a fixed broadband solution, this would not allow that user to cut the fixed linealtogether.
Fixed-to-mobile broadband substitution (FMS) will not be mass-market
Even taking into account the fixed ISP users that could be churned to mobile, it
would be unlikely that mobile will account for the majority of broadband
connections in Western Europe. This is especially true when fibre deployments are
gathering momentum across the region and offer far higher access speeds.
We think that for the majority of customers, mobile broadband is a complement to
rather than a substitute for fixed broadband, which will be disappointing for
mobile-only operators looking at FMS as a core plank of their mobile broadbandstrategy. The exception to this is the mobile-only customer segments that do
present some good opportunities, for example, renters and sharers. The group
includes those who move too frequently to sign up for a fixed broadband contract
and can therefore take their mobile subscriptions with them when they next move.
Hybrid carriers are in a strong position
When it comes to basic broadband, there will be a segment of the market that will
drop their fixed broadband for a mobile broadband subscription students are a
good example. However, especially as broadband services become more
sophisticated, the majority will stick with a fixed solution for the greater bandwidth
and quality of experience.
When it comes to the concept of broadband everywhere therefore, converged
carriers with fixed and mobile broadband capability will carry the upper hand. This
will not mean they will not have issues to solve. Successfully integrating their
mobile and fixed divisions together, and solving strategic issues around cost and
revenue sharing are just some of the major problems that such operators will have
to work through. Get this right however, and they should be better placed to push
ubiquitous broadband than those w ith a pure-play mobile strategy, and not in
immediate danger of revenue cannibalisation.
A danger for hybrid operators is fixed-to-mobile broadband substitution and
therefore cannibalisation of fixed broadband revenues. We think the risk ofrevenue cannibalisation from fixed to mobile broadband is currently small.
However, there is a very real risk of revenue cannibalisation where dense, high
speed mobile network coverage does enable mobile broadband to be a substitute
for fixed, such as in Austria. It can become a greater risk if price wars eliminate a
mobile broadband premium. A combination of improving speed and falling prices
could then shift low volume and value users on to mobile broadband.
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Trends and opportunities for mobile broadband
HSPA drives mobile broadband and delivers on the 3Gpromise
In Western Europe, HSPA (High Speed Packet Access) has proven critical in finally
providing the user experience promised by 3G. As a cellular technology it also
offers true mobility for broadband, as opposed to the patchy, nomadic coverage
offered by WiFi.
The Global Mobile Suppliers Association (GSA) states that by April 2008 there were
103 HSDPA deployments in Western Europe see the GSA Fast Fact box below for
more details. The number of deployments is significant as it provides the
economies of scale in both network infrastructure equipment and devices that
make an upgrade even more affordable to an ever greater number of operators.
Furthermore, as HSPA implementations have evolved so the downlink speeds
offered have improved, reaching the sweet spot of a theoretical maximum
downlink of 3.6Mbps. This speed is seen as the minimum for offering mobile
broadband. The GSA reports that over 62% of HSPA deployments worldwide
support peak data downlink rates of 3.6Mbps or higher.
GSA fast facts
185 3G/HSDPA operators launched in 80 countries
103 HSDPA networks launched in Europe
637 HSDPA devices launched by 110 suppliers (GSA survey, 3 April 2008)
representing annual growth of 150%
116 HSDPA networks have launched 3.6 Mbps (peak) downlink service or
higher in 58 countries = 62.7% of commercial HSDPA operators, thus
establishing the baseline for mobile broadband services. 190 devices support
3.6 Mbps peak
38 HSDPA networks, i.e. over 20%, launched in 25 countries supporting 7.2
Mbps (peak); 128 devices support 7.2Mbps
34 HSUPA networks launched in 26 countries, plus another 24 network
commitments/deployments; 66 HSUPA devices launched
Almost 100 HSPA devices incorporate WLAN functionality
70 HSPA devices incorporate GPS/positioning functionality compared to 20 in
October 2007
Most WCDMA/HSDPA networks combine with EDGE for service continuity and
the best user experience. Over 70% of HSDPA devices also support
GSM/EDGE.
The main reason for HSPAs popularity for opera tors is that it offers a cost efficient
upgrade of existing UMTS infrastructure , as it is predominantly a software upgrade.
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It is also an excellent way to maximise the 3G spectrum that was purchased atsuch great cost at the turn of the century.
As a result, HSPA connections in Western Europe are forecast to rise from just 1%
of total cellular connections in 2007 to become the dominant technology with 77%
in 2012. However, if WiMAX (both fixed and mobile) is added to the equation then
the dominance of HSPA as the key wireless technology in Western Europe for at
least the next five years is clear (see Figure 1).
There are also spectrum issues to consider. For example, the most widely
allocated 3.5GHz band is often limited to the provision of fixed wireless access
services. This may change in Europe as the EC has published a resolution that
recommends the 3.43.8GHz band to support fixed, portable and mobile services.
Figure 1 Western European connections by technology, 20072011
0
100,000
200,000
300,000
400,000
500,000
600,000
2007 2008 2009 2010 2011
Connections(0
00s)
2G GSM WCDMA HSPA WiMAX (fixed & mobile)
Source: Ovum
HSPA evolution
As the 3GPP has evolved the specifications for HSPA (see Figure 2), improvements
in the uplink (HSUPA) and downlink (HSPA+) will eventually see theoretical HSPA
downlink speeds reach 28Mbps and uplink reach 11.4Mbps. This could even make
it viable for a larger role in the mobile operators progression to LTE than was
originally envisaged for the specification. Before the end of 2008 several operators
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are expected to trial both configurations of HSPA+, with commercial launchesexpected in 2009.
Figure 2 3GPP HSPA evolutionary path
Source: Ovum
Mobile broadband device types are proliferating
A major trend over the past two years has been the proliferation of device types
capable of supporting mobile broadband and data services.
Mobile phones better able to support mobile broadband access and data services
have grown dramatically over the last two years. 3G phones with large colourscreens, browsers and powerful operating systems are becoming mainstream in
developed markets and among certain segments in emerging markets. This has
largely been driven by the availability of more mid-range 3G phones. We expect
this to continue at a faster pace during 2008 as operators grow in confidence with
3G, and as economies of scale in handsets mean that 3G phones can be produced
at a lower cost. 2007 also saw the arrival of attractive HSDPA-enabled devices
from all the major manufacturers.
Datacards have been available since GSMs infancy and have been traditionally
focused on the enterprise sector. However, the biggest development in device
categories over the last 18 months has been the huge growth of USB modems
(dongles) for use with laptops. However, we expect to see much greater usage
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across a range of devices, leading to the emergence of a serious market forembedded cellular chipsets in a range of consumer electronics. The sort of devices
we have in mind are portable media players and games consoles.
USB modems offer two very clear advantages over datacards:
they are extremely simple to install acting as part-memory stick USB
modems contain the required installation software, so are literally plug-and-
play although Mac users often require a CD install. This is in stark contrast to
the PCMCIA experience, which can prove frustrating for enterprise users even
with the backup of in-house IT support teams. As a consumer proposition this
is far easier to market, sell and support
they are cheap although the radio technology is little different, one of thekey drivers for USB modem uptake has been heavy support from the Chinese
vendors. Their cheap manufacturing and huge volumes have made the devices
so affordable that they are more often than not provided free of charge with
mobile broadband contracts. Again, an excellent facet of a consumer offering.
Demand for data services is grow ing
This section contains forecasts for operator content services (end-user) and it
would therefore be misleading to call them Internet services. Ovum does not have
forecasts for non-operator content related and data revenues, which is where a lot
of the Internet service revenues are coming from (D2C).
Anywhere Internet access is clearly core to the mobile broadband proposition, but
other applications and content services will play an increasingly important role,
particularly as access becomes commoditised as the market matures. We will
discuss this in detail in the section on VASs. What is encouraging here is that
consumer demand and revenues for data services are improving, as shown in
Figures 3 and 4.
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Figure 3 Consumer content and associated data revenues (operators only) W estern Europe 2007 ($ 000s)
25,690386
710
1,961
444
2,568
4,145Messaging
Music
Games
Personalisation
TV and video
Other
Data
Note: The data category is based on users browsing and downloading content
25,690386
710
1,961
444
2,568
4,145Messaging
Music
Games
Personalisation
TV and video
Other
Data25,690386
710
1,961
444
2,568
4,145Messaging
Music
Games
Personalisation
TV and video
Other
Data
Note: The data category is based on users browsing and downloading content
Source: Ovum
Figure 4 Consumer content and associated data revenues (operators only)
W estern Europe 2012 ($ 000s)
36,363
2,378
1,811
1,585
2,615
3,889
7,685Messaging
Music
Games
Personalisation
TV and video
Other
Data
Note: The data category is based on users browsing and downloading content
36,363
2,378
1,811
1,585
2,615
3,889
7,685Messaging
Music
Games
Personalisation
TV and video
Other
Data
Messaging
Music
Games
Personalisation
TV and video
Other
Data
Note: The data category is based on users browsing and downloading content
Source: Ovum
Mobile broadband is personal
Broadband, like the fixed phone before it, has historically been a family or
household purchase. Different terminals, personal and laptop computers,
networking, routers and WiFi have made it more personal but at a minimum the
bill is still communal.
Although, the broadband situation does not provide exactly the same comparison
with voice, there are similarities and mobile broadband does have potential to
change the dynamic as the mobile phone did for voice. This personal aspect of
mobile broadband makes mobile broadband appealing to numerous segments such
as those in a share houses who want an individual broadband connection or bill.
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The personal nature and mobility also gives rise to different usage patterns forbroadband users a bit more like mobile phone usage for voice. Additionally, the
individual nature also makes the potential market significantly larger for mobile
broadband than household fixed broadband.
Femtocells can improve indoor coverage and servicequality
The emergence of femtocells is potentially important in the future development of
mobile broadband. Several trials are underway in Europe in 2008 and the first
commercial services could appear before the end of 2009. They are relevant from a
data perspective, as any improvement in coverage will also have a positive impact.
The key benefit of femtocells from a consumer perspective is the improved in-
building coverage they provide. For data services, being able to improve network
coverage to enable data speeds as close to the theoretical technical maximum is a
compelling concept. As several operator and vendor studies show, the majority of
mobile usage in mature markets, both voice and data, is generated in the home.
The most significant challenge for femtocell adoption is that a user needs a fixed
broadband line to enable the femtocell backhaul. This is no problem for integrated
operators, which can offer the fixed and mobile offerings in a converged bundle,
and they will leverage the femtocell opportunity.
However, mobile-only operators could find themselves in a situation where theyare effectively handing over their traffic to a competitor. This suggests a potentially
dangerous quality of service management issue. Who is to guarantee that a
broadband ISP will deliver voice and data at the same quality as the macro
network? There is certainly potential here for regulatory intervention to ensure
quality, but it would be foolhardy for a mobile operator to handover its traffic
without some service level agreement. Therefore, in the meantime we expect
mobile-only operators to only implement femtocells over broadband networks with
which they have an agreement.
Challenges for mobile broadband
Network speed
A mobile network will invariably compare unfavourably with a fixed broadband line,
as radio spectrum must be shared by all users in a cell, so the more active users,
the less the available bandwidth. According to our forecasts, in 2011 43.7 million
(45%) of Western European DSL connections will be 10Mbps or more. In addition,
a further 4.9 million connections will be fibre-to-the-premises (FTTP). Therefore,
mobile broadband will not be able to compete on IPTV (although mobile TV is an
option) and certainly not high-definition (HD) IPTV. Furthermore, uplink speeds are
slower, an issue as user-generated content (UGC) becomes a staple Web
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application. Femtocells could make a difference, but are still unlikely to keep upwith other connected home technologies.
Therefore, as the main pipe into a bandwidth hungry home it is unlikely that
mobile offers a viable alternative to fixed broadband although it could of course
act as a complement. Additionally, the reality today is far from the maximum
theoretical rates offered by HSPA. For example, 3 UK states that in real-world
applications the speed achieved is more likely to be 12Mbps on 3.6Mbps HSPA
networks, which is likely to double on the upgrade to 7.2Mbps HSPA. From our
experience the reality can be even lower.
As a result we would advise mobile operators not to focus on speed as a core
message of their mobile broadband offerings, for two reasons: the greater bandwidth available on fixed broadband means that mobile
broadband will invariably lose any speed comparison.
fixed broadband ISPs are coming under increasing pressure from consumer
groups for misleading advertising, which claims the maximum theoretical
speed, but delivers far less. The situation could easily be replicated in mobile
broadband and generate a negative perception of the service.
The issue of misleading speed advertising has already arisen in the UK. Fifth
placed mobile operator, 3 UK, has reported Vodafone to the Advertising Standards
Authority for emphasising its warp speed mobile broadband at 7.2Mbps, when in
reality the speed was available only in central London and its airports. However, in
May 2008 Vodafone announced a major expansion of its service and an overhaul of
its messaging. In the future it will downgrade its marketing messaging emphasis
on speed and focus more on usability. Interestingly, Vodafone in the UK was, until
this point, the only company in the groups portfolio to place such an emphasis on
speed.
Coverage
Another network issue faced by mobile broadband today is that HSPA is an
immature technology and, as such, its availability is limited geographically.
Vodafone in the UK is embarking on a major expansion of its 7.2Mbps HSPA
network to increase the potential market for its mobile broadband offerings by 3million more people. Until now it has been limited on priority areas, although even
with the network expansion the highest speeds are not available nationwide.
Therefore, the scale of the mobile broadband opportunity is limited by where the
appropriate network technology is available.
In this case network sharing could bring major benefits. Aside from the capex and
opex reductions of a single network, it also boosts both geographic coverage and
coverage density. For example the T-Mobile and 3 network sharing deal in the UK
will ultimately cover 98% of the population. Crucially for mobile broadband, this
will be HSPA too, maximising both operators market potential and giving them a
competitive advantage in relation to quality of service.
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Network capacity
There is no doubt that mobile data traffic is increasing. 3 UK saw throughput on
the network increase seven-fold between October 2007 and February 2008,
coinciding with the sharp uptake of mobile broadband. In Austria, 3 is averaging
1GB of data per mobile broadband user per month. The result is that within one
year network traffic increased by 3000% and only 10% of its network traffic is now
voice. 3 Austria offers mobile TV too, so this was not totally mobile broadband
related, but it highlights the huge volumes of traffic now hitting mobile networks.
Ovums discussions with operators make it clear that many networks will not be
able to handle the onset of heavy fixed-type broadband usage of many data
hungry segments. Unfortunately, this means that as capacity and speedrequirements increase even with mid-term technology developments (such as
HSPA+ and even LTE) that mobile networks will struggle to provide profitable price
points for the mass market.
3 Austria, along with its Swedish counterpart, has already experienced network
capacity issues, although the operators feel that all have now been addressed. In
the radio access network (RAN) 3 has had to deploy a second frequency at some
cell sites (it has three). In contrast, most other European mobile network operators
have not yet seen capacity issues in the RAN and in general feel they have
significant capacity available at this point.
Price can mobile compete w ith fixed broadband?
As Table 1 highlights, the offerings at the lowest end of the market can be
relatively competitive with fixed broadband in terms of monthly cost, but not in
terms of performance. If costs are comparable then the network speed of fixed
broadband is stronger. If network speeds are comparable (in the case of Vodafone
only and then solely in London and major airports to date) then mobile broadband
usage limits are far more restrictive than those in fixed. However, Table 1 does
show that there are opportunities at the low end of usage for mobile broadband to
pick up subscribers in some segments.
The phenomenon is not limited to the UK market. In Italy, Telecom Italias fixed
broadband packages cost around 15 per month for unlimited usage, compared toTelecom Italia Mobiles 20 for 100 hours of mobile broadband access.
However, the mobile price premium is most apparent at the high end of the market
where the mobile networks simply can not compete with the high speeds and high
data usage allowances offered by fixed broadband ISPs.
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Table 1 UK fixed and mobile broadband cheapest price comparison
Network
type Operator
Cheapest monthly
consumer tariff
(excluding offers
& modem costs)
Maximum
theoretical
speed
(Mbps)
Usage
limit (GB)
BT 16.00 8 5
Virgin Media 15.50 2 n/a
Carphone Warehouse 16.39 8 40
Tiscali 14.99 8 unlimited
Fixed
Orange 12.00 2 6
O2 20.00 3.6 3
Orange 15.00 3.6 3
T-Mobile 15.00 3.6 3
Three 10.00 3.6 1
Mobile
Vodafone 15.00 7.2 3
Source: Companies
Roaming
Roaming is another area where high mobile pricing premium is apparent. However,
it should be remembered that at least mobile broadband can offer roaming, which
is something that isnt possible for fixed ISPs.
Nonetheless, roaming prices are high, and with mobile broadband becoming an
increasingly consumer-oriented proposition there is an opportunity for one of
Europes major mobile operators to target data roaming, for both consumers and
enterprises. This should occur before regulatory intervention as there are already
stories of massive data bills being run up unwittingly and mobile broadband, by its
very nature transportable across borders, could well be on the EUs future agenda.
Even for enterprises, data roaming tariffs are expensive. For example, Vodafone
charges either 10 (12.50) per day or 95 (120) per month, with a usage cap of
5GB and excess data charged at 4.25 (5.35) per MB. However, this excess
usage fee is the equivalent to 4,325 (5,454) per GB, compared to the UK excess
charge of 15 (19) per GB.
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Strategic issues for operators
Critical success factors
The following critical success factors can be identified that apply to both integrated
and mobile operators:
best-in-class network capabilities: coverage, speed, capacity, scalability
and efficiency
timely device evolution: devices that optimise recent network upgrades
need to hit the market as soon as possible to keep operators ahead of their
peers functionality. Operators must also maximise the potential of new form
factors to steal first mover advantage from their rivals, such as the handset as
modem
simple, competitive offerings in each segment: a portfolio of offerings is
needed that targets the different elements of the customer mix
value-added services: the most common examples appear to be security,
roaming and backup services, but both corporate and consumer services are
under development
technical support: this is not just having helpdesk staff trained and available
to help customers, but also support for different PC operating systems, such as
Microsoft, Apple Mac OSX and Linux.
Market segmentation
Enterprise
This is the historical foundation of mobile broadband services and it would be
remiss to forget about them. They are also likely to invest more in services to
guarantee high quality of service and higher usage limits. Roaming is a key VAS.
However, with the development of USB modems and lower cost tariffs the divide
between business and consumer users is becoming blurred, particularly at the
smallest organisations.
Internet anywhere
This group has evolved from the previously labelled prosumers to embrace a
wider group of intensive Internet users who want to keep up to date with their
social networks and Web content. Unable to be parted from the Web, they are the
largest consumer generators of mobile broadband traffic on a per-user basis.
Therefore, spending on data services will be high.
They will view mobile broadband as more complementary than a substitute to fixed
(unless they also fall into one of the other segments). This also means that they
are an excellent target for integrated operators bundling fixed and mobile
broadband offers, potentially through a femtocell. They are also most likely to be
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attracted by messages highlighting the personal nature and mobility. However, aspower users of the Internet they would also be very aware of network quality,
most specifically in relation to network availability and speed they will ignore
maximum theoretical speeds and make great demands on the network.
Renters and sharers
This is the largest consumer segment by number and the first of the potential
targets for fixed-to-mobile broadband substitution (FMS). The group includes those
who move too frequently to sign up for a fixed broadband contract and can
therefore take their mobile subscriptions with them when they next move. They
are likely to be young professionals, so of high value. To date this group has
comprised predominantly males, although several operators see 2008 as the year
in which females will be increasingly targeted. Value-added services will be of most
interest here.
However, it may not be exclusively an FMS target segment. It could be that the
accommodation is served by DSL, but the prospect of a personal connection is
compelling.
Price sensitive
This group has low data usage requirements and will identify the opportunity to
save money by switching from the low end fixed broadband offering to a mobile
broadband equivalent. Being extremely cost conscious they will want the lowest
price, but also speeds and usage limits similar to those available through fixed.
Mobility is less of an issue as it is a true FMS target group. The segment is of a
reasonable size, but is also low value and highly likely to churn when a better offer
appears.
Casual users
This segment appreciates the mobility and simplicity messages, but their levels of
usage cannot justify committing to a two-year contract. Therefore, they will
appreciate the freedom of a prepaid tariff. Although the value to the operator will
be reduced, the incremental revenues generated would otherwise be lost if suchcasual users were to be ignored. This also has the potential to be a major segment
in terms of numbers of users.
Second homes
This group is relatively small, but likely to pay a premium for network availability if
it covers their second residence (often located in more remote areas). However,
providing the main broadband service to a second home is actually a
complementary service as the user will feel that the primary residence is the main
broadband service and will most likely have higher bandwidth demands for that
connection than a second home. In the second home the best connectivity will be
key. However, it is likely that once purchased, the mobile broadband service will be
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used not only at the second home, but also on the way there and even whenmobile near the primary residence.
As it also a temporary residence prepaid could be a viable offer to provide
incremental revenues to the operator if such segments feel that a full time contract
cannot be justified.
No broadband alternatives
The level of broadband penetration in Western Europe means that this is a very
small group, but distance from the exchange and issues in the network does result
in a segment that cannot physically receive fixed broadband services. Therefore,
these consumers are perfect for mobile offerings.
They are also likely to spend to achieve as close to a fixed broadband experience
as they can get, as it will be their only broadband connection. They will opt for the
highest speeds and largest data allowances. However, network availability will be
key. After their experience (or lack of) with fixed broadband they will only chose
the mobile broadband provider with the strongest signal. They are also likely to be
interested in VASs as they will have no fixed alternatives.
Students and itinerant w orkers
Both groups have two key attributes that make them similar mobile broadband
targets. Firstly they are in temporary accommodation and likely to movefrequently. Therefore, a broadband contract is irrelevant. Furthermore,
differentiating them from renters and sharers, they have relatively low disposable
income. Lower usage tariffs will be most appropriate to this group with an
emphasis on mobility. However, there are also likely to be users in the student
group that aspire to the Internet everywhere segment. Providing maximum usage
at the highest speed, but for the lowest cost, will be key to targeting this sub-
segment.
Low end connectivity
Any broadband users requiring (or currently on) a plan under 2Mbps with usage of
less than 5GB/month can be targeted. This will be applicable to many users in
emerging markets but also sectors of more mature markets where certain
segments have low disposable incomes. It could also apply, for example, to people
with credit history issues, who to date have been unable to subscribe to a fixed
broadband contract. Therefore, prepaid offerings will be of interest. Speed, usage
limits and VASs will be of little interest, as connectivity at a low, manageable cost
will be key.
Evolution of the service proposition
Mobile operators typically offer mobile broadband services based around the
following propositions:
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get connected with your PC anywhere, based on a laptop/dongle or datacardcombination. This is primarily focused on being an access provider
the Internet on your mobile phone. This is focused on being a service provider
for personalised mobile Internet. This has been difficult to get right but is
improving. This is because of better device interfaces and capabilities,
operators moving to a more open environment through developments around
un-metered tariff and partnerships with content providers and Internet players
that extend outside of the operator-controlled portal. And of course mobile
broadband infrastructure is helping with improvements in quality and
performance.
At the moment operators are selling the two propositions as separate services.
This is understandable as it enables them to grow the number of connections via
additional SIM cards and revenues. Most opera tors will pursue this path, or at least
as long as possible, but we think others will look at a single mobile broadband
access package for both types of proposition. The consumer could leverage a single
data tariff across laptop or mobile phone, increasing data traffic as mobile data use
becomes easier. Ultimately, device choice would simply come down to a choice of
the form factor most relevant to the users needs at the time.
In this context there is the potential for the handset to act as the modem for
connectivity, an idea currently being investigated across Western Europe. With the
high penetration of Bluetooth in both laptops and handsets, connectivity between
devices is already possible. The service logic is simple too, as it provides anextremely streamlined solution for the user. Just one device, the device most likely
to be carried everywhere, is needed to gain access through either the mobile
device screen or the laptop.
This might prove particularly appealing to mobile-only operators as the market
matures. This strategy could provide differentiation, provide convenience and value
to the consumer, and by doing so foster loyal and hopefully attract new users. We
believe 3 is interested in this approach.
However, this is a disruptive model and despite these positives there are two
major obstacles that could prevent it becoming a mainstream proposition:
it eradicates the need for a separate connection and therefore subscription tomobile data services. This undermines the entire revenue and connection
growth opportunities from mobile broadband
the innumerable connectivity options between network operator, handset
hardware, handset OS, laptop hardware and laptop OS make this a technical
minefield today, and far less simple than it could be. If promoted today it
would result in unnecessary support costs. Before it is viable a technical
solution will be needed to make it far less complex and far more reliable.
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Pricing strategies
Mobile broadband tariffs today typically apply a capped usage limit. This is because
a true flat rate model could drive usage to the point that it might affect network
capacity and the quality of service for some applications.
By far the most common limit is 3GB per month, which accounts for 38% of the
tariffs in the UK, Italy, Austria and Germany. However, 1GB is proving a useful
low-level entry point for a low monthly contract value. Similarly, 5GB and 7GB
offerings are becoming increasingly common as more mature mobile broadband
markets such as Austria and Norway evolve and operators are able to target
higher-spending power users or differentiate their offerings. Both instances
highlight the need for operators to offer a portfolio of mobile broadband offeringsto serve their target segments.
In all instances, when the usage limit is exceeded an additional charge is incurred,
ranging from 0.10 to 0.25 per MB, depending on the operator and plan.
However, another tactic is to throttle back performance once the limit is reached.
This is used by Vodafone in Spain and Telenor in Norway, but although protecting
the quality of the service for other users, this does create a danger that the largest
users will resent the change in performance.
We would suggest that it is far more commercially viable to charge users for extra
usage as that is ultimately the objective of offering such services. However, such a
tactic could be useful to impose on repeat offenders to protect the network. Itwould also act as a good deterrent, with the ultimate sanction of disconnecting
users continually abusing their contract terms.
Its not just about gigabytes
Although the vast majority of mobile broadband offerings are focused on capped
usage there is a danger that the limit is meaningless for a user. How much data is
used by accessing a Web page? Or checking email? Or watching a video?
In response, some operators have taken an alternative approach, most notably
through imposing time-limited access. An excellent example is Telecom Italia
Mobiles recent mobile broadband tariff, which charges 20 per month for 100hours of mobile broadband access. T-Mobile in Germany also offers time-based
tariffs for 100 and 40 hours.
There is an issue that such metered usage harks back to the early days of dial-up
Internet access where consciousness of the time spent creates a desire to get
offline as quickly as possible. DSL has been hugely successful in marketing the
idea of always on connectivity, and has helped place Internet connectivity more
centrally in peoples lives. There is a risk that a step backward in mobile broadband
offerings will mean that they do not compare at all favourably with unmetered
fixed broadband.
However, it is important to understand the positioning of mobile broadband in
these circumstances. Neither Telecom Italia Mobile or T-Mobile use time as the sole
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basis of their offerings. It is simply another way for users to select their services.Furthermore, mobile broadband is predominantly seen as complementary to its
fixed counterpart in Western Europe. Finally, the allowances of 100 hours are quite
reasonable and equate to 3 hours 20 minutes per day.
Combining the factors of choice of offerings, a complementary to fixed
perspective and high allowances makes time-based tariffs a useful addition to an
operators mobile broadband tariff portfolio. Nonetheless, we do not expect time to
become a core basis for mobile broadband offerings.
The prepaid mobile broadband opportunity
At present there is a great deal of emphasis on contract plans that tie in customersfor a set period of time, usually two years. This is completely understandable as a
stable revenue stream can be achieved over the length of the contract. As
operators build their mobile broadband portfolios we would expect to see fixed
term contracts continue as the dominant format.
However, we believe that there is a major opportunity for prepaid mobile
broadband offerings as part of this service portfolio. This is especially true where
mobile broadband is marketed as complementary to fixed services
Prepaid is also a viable option in markets where prepaid makes up a significant
share of voice connections, for example Italy where 87% of connections are
prepaid. In these cases prepaid mobile broadband offerings are attractive simplybecause that is how the majority of users are accustomed to paying for mobile
services.
Prepaid tariffs do exist today and the main barrier to uptake is the cost of an
unsubsidised modem or datacard. However, several offerings in the more mature
market of Austria show how prepaid mobile broadband offerings can evolve to look
very similar to their prepaid voice cousins, with the device and some data bundled
into an initial starter pack. Furthermore, as device volumes, USB modems in
particular, increase dramatically over the next two years we expect to see the
prices fall. Given that this will coincide with a more intensified competitive
landscape in Western Europe, prepaid could well be the mobile broadband
battlefield.
Exploring value-added service revenues
At the start of this report we predicted that mobile broadband access will see a
similar growth curve experienced by fixed broadband access what we term the
mobile broadband dividend, as shown in Figure 5. This is great news for mobile
operators desperate to make money from their 3G investments, particularly data
services. But they need to start thinking ahead now about how to drive revenues
from mobile broadband when access becomes a commodity and competition
intensifies. This has already happened with fixed broadband and it will be a similar
story for mobile.
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Figure 5 The mobile broadband dividend
Total
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
19
81
19
84
19
87
19
90
19
93
19
96
19
99
20
02
20
05
%o
fGDP
Total
Fixed
Mobile
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
%o
fGDP
Total
Fixed
Mobile
Fixed network
broadband dividend
Mobile broadband
dividend
Fixed network
voice revenues
Note: this data only refers to access revenues
Total
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
19
81
19
84
19
87
19
90
19
93
19
96
19
99
20
02
20
05
%o
fGDP
Total
Fixed
Mobile
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
%o
fGDP
Total
Fixed
Mobile
Fixed network
broadband dividend
Mobile broadband
dividend
Fixed network
voice revenues
Note: this data only refers to access revenues
Source: Source ITU
When considering VASs we need to keep in mind the key usage scenarios for
mobile broadband will vary according to whether consumption is based on a
laptop, mobile phone or other handheld device. The form factors and capabilities of
each are very different and this will clearly have an impact on the services each is
best positioned to support.
Another important factor to be aware of is that not all VASs will command a
premium, but can nonetheless add value in other ways, for example by providing
consumers with useful tools and an improved user experience.
Communications services
Email and instant messaging (IM) are two of the most important applications in
driving PC Internet usage and it is assumed these cant live without services will
be core to a mobile broadband proposition. We think that, broadly speaking, this is
true particularly for a laptop/dongle scenario. But we need to be careful not to
oversta te the assumption regarding email and IM access via a mobile phone over
broadband, as people's need to communicate while on the move is already
satisfied to a large degree by voice and SMS.
Content services
The increased capacity and speed offered by mobile broadband generally improve
the quality and user experience of mobile multimedia services such as games,
music, TV and video. For example, less latency for games, faster downloads for
music and videos, better image quality for TV. Mobile broadband will also play well
to services that need frequent updating or to be accessed on a regular basis.
Examples here include social networks and information services such as news,
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weather and travel. However, many of these services are already low cost or freeand we do not think mobile broadband will change this, which is where mobile
advertising revenues come into play. We will discuss this in more detail below.
However, there is a scenario where mobile broadband could have a negative
impact on the quality of experience for some services and that is when inside
buildings. Mobile broadband can receive a reduced signal when indoors, which will
impact on any broadband service or application down to that device. TV and video
services will be particularly sensitive to any degradation in bandwidth due to a
reduced signal. Here, femtocells could play a role improving this scenario.
Security
In particular virus protection is already being promoted by several operators. For
example, Vodafone has launched it in some of its markets already. In such cases,
the emphasis will need to be more on mobile protection to prevent offering nothing
in addition to existing security offerings. The alternative would be that security
becomes an incentive to attract customers rather than a revenue generating
service.
Laptop client software
There is interesting potential for operators to optimise the laptops control panel
software. Today most simply install a brand version of the client software provided
by the modem vendor. Vodafone is currently developing its Dashboard, which ithas designed to deliver service updates and software patches. It is also going to
use it to go beyond adding value to its offering, by delivering additional, revenue
generating services, such as VPN access for enterprises, and music and content for
consumers.
Other means of differentiation
Quality of service
It is also possible to use quality of service to differentiate between an operators
own offerings as well as competitors. For example, Vodafone in Spain offers
different speed propositions depending on the segment. The highest speed
(7.2Mbps) is aimed at enterprises, while the lower cost offering provides a slower
(3.6Mbps) speed. Furthermore, if the lower speed users data allowance is
exceeded then the users traffic speed is downgraded. Vodafone are keen to stress
that the offering isnt driven by network management concerns, but it is a means
to enable differentiated offerings.
Customer management
Moving further forward there is also potential for operators to differentiate through
the customer management offered to consumers. Today mobile broadband adds an
extra SIM to a users account, but what happens if the user of the future has a
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mobile handset, USB modem and multiple mobile Internet devices (MIDs)? Howdoes the operator manage the true value of that account rather than the SIM?
Today consumer customer management is handled at a SIM model, but as SIM
ownership multiplies in the future there are two models today that may provide an
insight.
Firstly, family tariffs are already forcing operators to manage multiple SIM
accounts, albeit from a predominantly voice perspective. However, these will also
need to evolve as data becomes more important to the offering, but they could
form the nucleus of interesting household offerings based around femtocells.
The second is to view the individual consumer with multiple connections or
households as an SME. For example, an SME today with a voice account can
consist of ten connections. A household with handsets, mobile broadband and MIDs
could easily approach that number of connections. Therefore, the customer
management principles applied to maintaining SMEs today could be applied to such
households. Of course, as consumers and not business customers, the value of the
total account will most likely be smaller, making it a challenge to provide such a
service cost effectively.
Operator positioning
Hybrid operators: a converged balanc ing act to avoidcannibalisation
Mobile broadband offers an excellent opportunity to integrated or hybrid operators
(those with both fixed and mobile offerings), as long as they can avoid falling into
the trap of cannibalising fixed broadband revenues.
The central platform of an integrated offering is, as Telenor describes it, to provide
the best possible broadband experience wherever you are. By combining fixed
and mobile broadband with WiFi hotspots, users with integrated operators
effectively achieve best available access to the Internet via a PC. In this scenario
mobile broadband is complementary to fixed broadband, rather than a substitute.
This converged approach is most evident in Telenors enterprise mobile broadband
offering. The services software enables users to switch seamlessly between fixed,
WiFi and cellular access. Access to WiFi is also included in all its mobile broadband
offerings, as is the case for T-Mobile in the UK.
In the UK, Orange now offers a fixed and mobile broadband package for 22 (28)
per month and O2s mobile broadband is available only to existing fixed broadband
or mobile customers. Telekom Austria has also launched a combined fixed and
mobile broadband offer, through which fixed broadband customers can add mobile
services for 14.90 per month. Telecom Italia Mobile has also stated to Ovum its
intention to launch an integrated offering in the near future.
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Of course, there is an issue with such a converged solution as to how the packageis priced. A per usage model on the mobile broadband element would undermine
the premise in the home if WiFi is available. A flat rate bundle comprising all of the
connectivity elements is far simpler to understand and prevents revenue leakage.
Revenue cann ibalisation: generally not a threat, yet
The danger for integrated operators is fixed-to-mobile broadband substitution and
therefore cannibalisation of fixed broadband revenues. We think the risk of
revenue cannibalisation from fixed to mobile broadband is currently small. Network
speeds mean that mobile broadband is being marketed as a complementary
service rather than as a substitute to fixed. Therefore, marketing should highlight
mobility and convenience.
However, there is a very real risk of revenue cannibalisation where dense, high
speed mobile network coverage does enable mobile broadband to be a substitute
for fixed, such as in Austria. Telekom Austria is already reporting some
cannibalisation, but it feels that currently the growth opportunity is outweighing
the threat. Nonetheless, integrated players such as Telekom Austria will be
focusing on more converged offerings to avoid the trend becoming too damaging.
Furthermore, as mobile broadband network coverage develops across the rest of
Europe, fixed broadband revenue cannibalisation could become a greater threat to
incumbent operators. It can also become a greater risk if price wars eliminate a
mobile premium. A combination of improving speed and falling prices could then
shift low volume and value users onto mobile broadband, eradicating the additional
value created by mobile broadband offerings.
Mobile-only segments are also open to integrated operators
Despite the focus on the fixedmobile converged offering, integrated operators can
also target the mobile-only customer segments, described above, for which fixed
broadband is not desirable or not an option, for example customers too far from
the exchange for fixed broadband or those in temporary accommodation (such as
students, house sharers or migrant workers). However, the mobile-only operators
will be focusing their attention on these segments, so competition will be fierce.
These segments are therefore the most likely to see the greatest pricing pressure.
Femtocells add to the offering
As discussed above, integrated operators are best positioned to benefit from
femtocell technology to serve the home. An integrated opera tor controls the traffic
over both mobile and fixed networks, thereby avoiding any quality of service issues
that could arise from handing backhaul over to a third party.
To the user it becomes practically irrelevant as to which network is used at home.
Femtocells also provide an opportunity to provide users with a single home
gateway device, which integrates the fixed broadband modem, WiFi router and
femtocell. That way the user can access the Internet at home regardless of device
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laptop or mobile handset. There is also the opportunity for voice revenuesthrough the femtocell, which should not be ignored, although of course the risk of
cannibalisation from the fixed network is heightened.
Mobile-only operators: fixed-to-mobile broadbandsubstitution?
For operators with just mobile networks (and not even a fixed DSL offering) the
mobile broadband proposition is both simplified and complicated. The simplification
arises from the fact that there is no conflict of interest within the organisation. The
mobile broadband strategy is the broadband strategy. Mobile operators have carte
blanche to highlight mobile broadband as the best choice for broadband access.
Messages should focus on the simplicity, flexibility and personal nature of mobile
broadband. Furthermore, the messaging can be clear and uncompromising to other
services. All segments can be safely targeted and, in the consumer space, much
emphasis can be placed on the fact that HSPA offers sufficient speeds for average
Internet usage. In this scenario fixed ISP customers can be targeted head-on.
Fixed-to-mobile broadband substitu tion: the exception rather than the
rule
For the majority of customers, mobile broadband is a complement to rather than a
substitute for fixed broadband. The exception to this is the mobile-only customer
segments.
Even taking into account the fixed ISP users that could be churned to mobile, it is
unlikely that mobile will account for the majority of broadband connections in
Western Europe. This is especially true when fibre deployments are gathering
momentum across the region and offer far higher access speeds. In addition, fixed
services can offer sufficient bandwidth for IPTV to consumers and corporate
networking, which is out of touch for mobile.
Of course there are always exceptions, and Austria has proven that mobile
broadband can substitute for fixed. Indeed, 3 Austria claims that mobile will be the
access technology of choice in the future. However, as the case study below
highlights, there were particular factors shaping the markets evolution that dont
appear across the rest of Western Europe. The mobile broadband providers are
also facing renewed pressure from the fixed ISPs, so it is not certain that the
current scenario will continue in the long term.
Mobile broadband wholesale ISPs?
Although not actively pursued as a strategy to date, there is an opportunity for
mobile operators to enhance revenues by offering wholesale data access to third-
party ISPs wishing to offer mobile broadband services. As in the fixed broadband
space, this could be a way of generating new revenues through the optimisation of
another brands strength.
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In particular, existing fixed ISPs taking advantage of local loop unbundling (LLU)may see this as an excellent way to complement their existing offerings. For
mobile operators it would be a cheap way of selling into a niche customer base
that may otherwise be difficult to target, as the current MVNO model allows.
However, as with wholesale voice services today, operators must also be wary of
cannibalising their own revenues.
Again, the key would be for the network to make this option cost effective, but 3
Austria claims that a wholesale mobile broadband offering could be more cost
effective than unbundling a fixed line, which currently costs a minimum of 10 per
line.
Case studies
Telekom Austria
Austria is one of the most advanced mobile markets in Western Europe, with
mobile penetration in 2007 of 119%. Furthermore, FMS in the voice space is well
established, with Telekom Austria (operating as A1) reporting that 70% of its voice
minutes are carried over the mobile network. Almost half of new households wont
take a fixed line.
In the mobile broadband space, there were 500,000 net adds in 2007, half of all
broadband connections. Telekom Austria had 290,000 mobile broadband
subscribers in 4Q07. However, Telekom Austria launched its mobile Internet
services to business customers in 2004. So why has the Austrian market taken to
mobile broadband so enthusiastically over the past 18 months?
First and foremost, Austrias mobile networks are of a high quality. The Austrian
operators believe the density of basestations per kilometre is higher than
elsewhere in Western Europe. This provides good geographical coverage across the
country and ensures capacity at the basestation is maximised. In addition, the
networks are advanced in terms of network technology. Telekom Austria now
offers a maximum speed of 7.2Mbps in the downlink and, importantly in
comparison to other Western European markets, 1.4Mbps in the uplink. Combining
the speed with the network coverage gives a compelling offering.
However, Austria also displays a significant push factor away from fixed
broadband. In 2007 we estimate that broadband penetration was 24%, the tenth
highest in Western Europe out of 20 markets. The reason for this was that
broadband was relatively expensive compared to other markets. Therefore, as
Table 2 shows, mobile broadband pricing was extremely competitive.
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Table 2 Austrian mobile broadband pricing
Consumer
pricing
Highest
monthly fee
Lowest
monthly fee
Usage/ time
limits/ unlimited
Telekom Austria $62.67 $24.99 Usage; Unlimited
UPC $111.78 $23.74 Unlimited
Tele2 $50.11 $21.98 Usage; Unlimited
Fixed
iNode (UPC) $111.78 $22.48 Unlimited
3 $91.37 $10.84 Usage
A1 (Telekom
Austria)
$46.46 $23.23 Usage
T-Mobile $38.72 $23.23 Usage
Mobile
One $77.44 $15.49 Usage
Source: Ovum, companies
In addition to price, the tariff plans were simple and capped. Our discussions with
the Austrian operators highlighted the danger of offering unlimited packages. All
operators offer a range of tariffs tiered around monthly usage limits ranging from
300MB to 30GB at 3. Prices start at 7 for the former plan and go up to 59 for thelatter. The standard contract length is 24 months for all operators, although 3s
300MB offer is just 13 months. Furthermore, prepaid offerings from Telekom
Austria and T-Mobile completed the tariff portfolio in the market.
The final factor in 2007 was the introduction of USB modems. Once the
convenience of mobility and ease of install were combined with the simple and cost
effective pricing, the drivers for uptake were complete. Customer segmentation is
less of an issue for Austrian operators as mobile broadband is marketed as the
broadband of choice
However, Telekom Austria reports that despite the convenience of mobile, only a
small proportion of users are utilising the mobility of the service. They have found
that two-thirds of a subscribers mobile broadband use occurs through the same
base station, effectively making it a fixed offering. This also effectively makes it a
FMS offering and Telekom Austria is already seeing a cannibalisation effect on its
revenues, as it is also the largest fixed broadband ISP.
As a result, Telekom Austria is focusing on products combining fixed and mobile
broadband access, which are to launch in mid-2008. The company predicts that the
convenience and pricing of the converged offering will be key to its successful
market acceptance.
Moving forward, the mobile operators in Austria see a reinvigorated fixed
broadband sector reducing prices as becoming more competitive. However, as a
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case study in the potential for mobile broadband, given the right marketconditions, Austria is unique in Western Europe.
3 UK
The company says that customers are finally entering 3 retail stores to ask
specifically for data products, and part of the reason is mobile broadband. 3 says
there is clear evidence that mobile broadband drives data traffic, which has grown
seven-fold since the introduction of mobile broadband in October 2007. Between
October 2007 and February 2008, data throughput grew from 200Mbps to
1400Mbps, as shown in Figure 6. CEO Kevin Russell believes that with mobile
broadband 3s market opportunity has come of age.
Figure 6 Data throughput on 3 UK network October 2007 March 2008
-
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
12/10/2007
19/10/2007
26/10/2007
02/11/2007
09/11/2007
16/11/2007
23/11/2007
30/11/2007
07/12/2007
14/12/2007
21/12/2007
28/12/2007
04/01/2008
11/01/2008
18/01/2008
25/01/2008
01/02/2008
08/02/2008
15/02/2008
22/02/2008
29/02/2008
07/03/2008
14/03/2008
21/03/2008
28/03/2008
04/04/2008
Rela
tiveTrafficGrowth
Downlink Uplink Total Growth
Source: 3 UK
Russell stresses the importance of network coverage and depth in driving mobile
broadband. 3 has a 3G network sharing deal with T-Mobile to address this, and by
early 2009 the two operators will have 13,000 cell sites between them. This
compares to 7000 sites for 3 alone today. Currently 3 can offer top theoretical
speeds of 3.6Mbps, which will increase in the second half of 2008 to 7.2Mbps.
The issue of network capacity remains a nagging doubt if data traffic were to
explode, and Russell concedes that 3 is still feeling its way around the impact on
the network. He also conceded that 3 Austria and 3 Sweden had experienced some
network congestion as a result of data uptake. However, he was confident that
there was 'significant capacity' in the UK radio network and that the core network
could be easily upgraded to cope with demand. 3 believes the availability of
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handsets is approaching the tipping point where vendors include HSPA functionalityby default. The GSMA recently announced that 467 HSPA handsets are now
available. However, 3 says it is HSPA dongles that are attracting user interest, with
the UK market reporting a total of 55,000 sold in January 2008.
Russell is keen to stress that simplified pricing has been crucial to consumer
uptake. The company recently cut the price of a 2.8Mbps connection to 5 per
month for existing customers. The 3 networks 5 Broadband Lite service includes
1GB of downloads, an 18-month contract length, and the latest Huawei E169G
dongle. Excess downloads cost 0.10 per MB over the 1GB allowance.
Alternatively, a 3GB and 7GB download limit will set existing users back 7.50 and
12.50 per month, respectively. Rivals Vodafone and Orange charge 15 a month
for a service based on 3GB of downloads per month, while O2 charges 20 per
month for roughly the same.
Russell says 3 is not yet ready to offer an unlimited data package, as the potential
impact on capacity of high traffic applications, such as file-sharing, was still
unknown.
3 UK has embraced an open access model and has pretty much opened up its
network to any application. This will continue and Russe ll says the company will
put less emphasis on developing content services such as mobile TV. He thinks
that VoIP, email and instant messaging (IM) are the key services for mobile
broadband and 3 wants to get ahead of its rivals with these, rather than be
distracted by content. It is allowing partners like Skype, Yahoo, Microsoft and
Google to offer some of these key communications services. This kind of strategy
calls to mind a fixed broadband ISP, rather than a traditional mobile operator.
Vodafone Group
Vodafone has become increasingly active in setting the technology agenda. Recent
examples include Vodafones involvement in setting up the OMTP in 2004, and its
unilateral initiative of 2006 to reduce fragmentation in the handset environment,
known as the Terminal Platform Programme. In the development of standards for
4G mobile networks, Vodafone turned heads in 2007 by joining the WiMAX Forum,
and by suggesting that WiMAX and LTE could end up converging into a single set of4G standards. At the 2008 Mobile World Congress, CEO Arun Sarins keynote
address focused on urging the mobile industry to make faster progress with 4G.
Vodafone is one of the few operators to combine the scale and the geographic
scope required to drive the development of mobile technology. For this reason, we
believe that Vodafones technology agenda is worthy of close attention.
In a recent technology roundtable for analysts, Vodafone highlighted the following
points:
in the next generation of mobile networks, LTE and WiMAX may both play a
role. It may be that each predominates in different parts of the world. So there
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is a need to couple LTE and WiMAX developments more closely together, sothat 4G can deliver one global standard one phone that works everywhere
access bandwidth is increasing rapidly: 3G only turned on in 2004, now HSPA
is already delivering up to 7.2Mbps, with plans to upgrade to 14.4Mbps in
some hotspots by the end of 2008, and to trial 28.8Mbps commercially soon
afterwards. At 28.8Mbps, HSPA users can get real, consistent data speeds
around the 3Mbps mark. Thus, HSPA now enables a mobile broadband service
that can fulfill the same needs as home DSL and indeed, it is already being
marketed in that way with some success in some of Vodafones markets, such
as Portugal and Ireland.
Vodafones mobile roadmap to what it calls 4G is based on an evolutionary
approach, as shown in Figure 7. Vodafone is active in trialling both LTE and WiMAX,
and is influencing the development of both technologies via membership of 3GPP,
NGMN and the WiMAX Forum. Vodafone notes that both LTE and WiMAX are
founded on a set of common technologies (such as OFDM and MIMO), so the
operators approach (broadly speaking) is to push for a global 4G standard of
which LTE and WiMAX could ultimately become variants. A key distinction between
the two is that LTE predominantly uses FDD (frequency division duplex or paired)
spectrum, while WiMAX predominantly uses TDD (time division duplex or
unpaired) spectrum. One plausible scenario, therefore, is a global 4G standard
with an FDD flavour and a TDD flavour, with regional deployment determined by
whether FDD or TDD spectrum is available for use, and with devices that can
support either one and are thus able to work anywhere in the world.
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Figure 7 Vodafones network technology roadmap
Source: Vodafone
Vodafone is comfortable that its current spectrum holding in Europe is adequate to
support its medium-term network development plans. Moreover, there are likely to
be further attractive acquisition opportunities during the next few years, especially
in the 700MHz range as analogue TV switch -off proceeds.
Voice service pricing will continue to experience downward pressure, and the mix
of voice and data traffic in the network is shifting towards data at an acceleratingrate. At current rates of growth, the number of terabytes in Vodafones network
generated by voice is likely to overtaken by the number generated by data
sometime in 2008.
For both of these reasons, network development strategy needs to focus on
optimising capacity, both in access and in backhaul. Although this gives rise to
some long-term requirements in terms of spectrum and site density, progress in
expanding capacity can also be addressed to a large extent by more immediate
projects. Through a combination of power boosting in selected sites, implementing
new releases of HSPA, using remote radio heads and treating interference with
DSP-based methods, capacity improvements in the order of 20x can be achieved.
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Another potentially important network technology that Vodafone is currentlytrialling is femtocells. The aim is to assess the potential of femtocells to improve
indoor 3G coverage, and to reduce the cost and capacity requirement of future
network rollout. Vodafone has no current plans to use femtocells for FMC or other
home location-based services, although such services could clearly become a
feature of its femtocell trials later on.
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