Thursday, 29 January 2009

Digital Britain Interim review - more questions than answers?

The UK's Department of Culture, Media and Sport today published the interim Digital Britain report. While it is a little light on detail, here are my hurried initial thoughts. In reality this interim document poses more questions than it answers.

With particular relevance to mobile broadband were the following two "Actions":

Action 6 - We are specifying a Wireless Radio Spectrum Modernisation Programme consisting of five elements:

  • Resolving the future of existing 2G radio spectrum through a structured framework, allowing existing operators to re-align their existing holdings, re-use the spectrum and start the move to next generation mobile services. It’s good to see someone expressly addressing this issue as it has been hanging over the heads of the mobile industry for a while. Without certainty over what will happen to existing 900MHz and 1800MHz spectrum it is impossible for MNOs to plan for further bandwidth requirements, most notably with reference to 2.6GHz frequency auctions. MNOs have been protesting about this for years and their appeal caused the deferral of last year’s 2.6GHz auction.

  • Making available more radio spectrum suitable for next generation mobile services. Specifically they’re talking about 2.6GHz spectrum and some of the digital dividend. Were we not expecting this already? All the most recent proposals over what to do with this spectrum has included some assumption that mobile broadband will be a major recipient. The digital dividend review in December 2007 stated that Ofcom would adopt a market-led approach although the implication is that broadband access will take a substantial chunk of that spectrum.

  • Greater investment certainty for existing 3G operators: The Government wishes to encourage the maximum commercially-sensible investment in network capacity and coverage…(E)xisting time-limited licences could be made indefinite and subject instead to AIP beyond the end of the current term. Hooray. No-one really ever thought it was likely that an incumbent network operator which was fulfilling its licence obligations would be stripped of its licence. This simplifies MNOs’ long-term planning.

  • Greater network sharing: the Government and Ofcom will consider further network sharing, spectrum or carrier-sharing proposals from the operators, particularly where these can lead to greater coverage and are part of the mobile operator’s contribution to a broadband universal service commitment. I read this as a presumption of approval of network sharing, albeit with a few USO strings attached. In a maturing industry, as we have with mobile, M&A activity is the best way to maintain profitability. However, in the interests of good competition, merger at the network level is more appealing.

  • Commitments by the mobile operators to push out the coverage of mobile broadband eventually to replicate 2G coverage and mark their significant contribution to the broadband universal service commitment. As competition in the mobile broadband market grows we’ll get towards 99% anyway, but it will be interesting to see exactly how Ofcom plans to enforce this. Public funding for a single operator who will provide this bridging of the digital divide as we’ve seen in Ireland? Or a further USO for each operator based in some way on the network sharing issue above?

Action 17 - We will develop plans for a digital Universal Service Commitment to be effective by 2012, delivered by a mixture of fixed and mobile, wired and wireless means. Subject to further study of the costs and benefits, we will set out our plans for the level of service which we believe should be universal. We anticipate this consideration will include options up to 2Mb/s. 2Mbit/s seems reasonable as a minimum obligation for extending the digital franchise. Based on the likely costs, one would have to assume that mobile would be the obvious way to fill in the gaps in the USO. A wired alternative would be substantially more expensive. Can mobile network operators expect to receive some state subsidy?

Tuesday, 27 January 2009

BT to join 3/T-Mobile's MBNL party?

Floating my boat today (well, yesterday actually but I've been collecting my thoughts) is this news report that BT is "planning a return to the mobile market" in conjunction with T-Mobile and 3, who are currently in the process of combining the network assets under the MBNL umbrella. No further details were forthcoming and I'm hesitant to speculate over what form such a collaboration could take. My assumption is that something relatively minor has been blown out of all proportion. Nevertheless one has to wonder whether a bit more network-level convergence might not be a good thing in these trying economic times. At face value there seem to be strong arguments in favour of getting BT involved.

Of course there's little to surprise us in the fact that operators are in talks about joint ventures, collaborative efforts, network sharing and the like. In mature competitive markets (think automotive, banking etc), particularly during periods of economic instability, the best way to remain competitive is to gain scale. Usually this is through M&A. In the vendor space we've seen this a lot recently (Nokia Siemens Networks, Alcatel Lucent). In the service provider/network operator space there have been a few examples. However, there is a ready-made alternative to full mergers: network mergers, i.e. sharing network assets but having separate sales/marketing organisations.

T-Mobile and 3 have already locked in a network-sharing deal in the UK. Adding a further partner, in the form of BT, makes some sense. It could potentially introduce a further core and backhaul element into the network share, it would facilitate a move into quin-play/femtocells (neither 3 nor T-Mobile offers DSL in the UK) and BT would also be better positioned to address the enterprise segment than either of the consumer-focused mobile operators. BT would also potentially bring to the table some wireless assets in the form of Openzone and FON.

From BT's perspective it makes sense to get back into the mobile market at a time when its DSL revenue is under some threat from mobile broadband. The extent of that threat is frequently over-estimated but it does exist. Analysys Mason's forthcoming report Mobile broadband in Europe: forecasts and analysis 2009–2014, which will be published in a couple of weeks, will tell you exactly how much of a threat mobile broadband poses.

Friday, 23 January 2009

The digital leveller

It's sometimes nice to reflect on the positive work that's done by telecoms. In amongst all the hard-bitten competition we sometimes forget that this industry is (as Sellar and Yeatman would have said) "a good thing". Mobile broadband in particular offers an opportunity to bridge the digital divide that threatens the economic opportunities of rural populations across the world.

As one example of mobile broadband as digital leveller, the Irish government has announced a €223 million scheme to roll out services to the 10% of the population that currently have no access to broadband over the next 2 years. As the underserved are rural the lion's share of responsibility for connecting the unconnected will fall to mobile. The government has contracted 3 to provide HSDPA coverage at a cost of €19.99 per month. A small proportion of the population will also be connected by satellite.

With Keynesian economic theory once more to the fore in many European countries, I think we can expect a number of governments to pursue big ticket digital infrastructure projects and for many, mobile is the only realistic option.

Now I've got that out of the way, I'll return to my old cynical self.

Thursday, 22 January 2009

Regulation (even self-regulation) of advertised mobile broadband speeds will be a difficult trick to pull off

Mobile broadband service providers in the UK are set to sign up to a new voluntary code of conduct over advertised headline speeds for their services (see article in The Guardian). I'm sceptical.

It is true that up to now advertised speeds have been something of a joke. There is no way that MNOs can make reliable claims of 1.8, 3.6 or 7.2 Mbit/s when local environmental conditions (e.g. topography, distance from basestation, thickness of walls, contention) will have a massive impact on user experience. Arguably, environmental issues have a greater impact than the variety of HSPA that happens to be implemented in the local base station. In the UK even though MNOs are at different stages with the HSPA roll out (i.e. some at only 1.8Mbit/s while others provide 7.2Mbit/s), there is no consensus over which one provides the best speeds. Clearly local factors dominate in determining the user experience.

DSL providers implemented a code of practice in 2008 in the face of a threat of legislation from Ofcom. However, DSL speeds are far more predictable than mobile broadband. Any guidance from mobile operators on mobile broadband speeds will either be inaccurate or so complicated as to render them useless.

Users will have to get used to the fact that "up to" really does mean "up to". Any other definition would be a nonsense. However, MNOs do have a responsibility to ensure that they are saying "up to" and that the claimed speeds are at least possible. In 2008 Vodafone went to market with a headline rate of 7.2Mbit/s when that rate was limited to a selection of UK airports and roughly the area covered by the London congestion charge. In October the Advertising Standards Authority told them to stop it. Clearly the mobile industry needs to avoid the situation where an MNO can deploy a single LTE basestation and claim to have 43MBit/s, or even "up to 43Mbit/s". But, as the Vodafone example demonstrates, the ASA is more than capable of dealing with these kinds of issues.

Wednesday, 21 January 2009

Forecasting mobile BB market growth to 2014

I'm nearing completion of a comprehensive forecast of the mobile broadband market in Europe. We'll have a report out in time for Mobile World Congress and we'll be running some significant promotions around the release of the figures, but in the meantime I thought I'd tantalise you with a few predictions. By 2014...
  • There will be over 150 million mobile broadband connections in Europe

  • The growth markets of Russia, Turkey and Ukraine will account for over 30 million subscribers

  • The majority of mobile broadband will be prepay and complementary to a fixed connection, driven by large numbers of occasional casual users unprepared to abandon the fixed DSL/cable connection

  • ARPU will decline on average by 10% per annum, driven down by increasing competition and increasing numbers of low-spending casual subscribers

Stay tuned for more data. The report will be out in about 2-3 weeks.

*in this context our definition of Europe is all countries, including Russia, Ukraine and Turkey

Monday, 19 January 2009

Mobile broadband and the threat to Public WiFi: A lesson from history

Mobile broadband clearly poses a threat to public WiFi. But how big a threat? Will users continue to pay to use public hotspots in hotels, restaurants, airports etc once mobile broadband is pervasive. The answer must be a resounding "no".

History tells us that when you give someone a personal product it sounds the death knell for the public equivalent, even if the quality of service is worse. The use of public telephones declines dramatically as mobile phone penetration grows. Clearly the analogy isn't quite a fair one. Public telephone boxes were never truly located where you wanted to make a call whereas the mobile phone always was. WiFi, however, is more often present in those places where users want to access web services, so it should have a longer shelf life. However, to mitigate this aspect in WiFi's favour, there will be substantial user push-back against paying additional charges for WiFi when they have an existing mobile broadband subscription.
So, the future of public WiFi is two-fold. Firstly it will be given away free by hotels, restaurants etc as an additional benefit of using their facilities. For 5 years or so people have been predicting this as the route for public WiFi. Mobile broadband will make it a reality. Secondly it will be a differentiator for mobile broadband offers, giving better in-building coverage in certain hotspots. We have already seen several operators including O2 and T-Mobile bundle WiFi access in with their mobile broadband contracts. It represents a strong way of differentiating the offer.

Friday, 16 January 2009

Analysing end user metrics - the next battleground in mobile broadband?

I had an interesting meeting the Simon Bransfield-Garth, European MD of Carrier IQ this morning. We discussed the applicability of Carrier IQ's user experience analytics tool to mobile broadband. It's a target segment for them and they are certainly making strides.

The principle is that mobile broadband device vendors can embed a client in a USB modem (or other device) to inform MNOs of what the user is experiencing. Not what the user experience should be, but what it actually is.

There are a number of smart applications for this kind of information:
  1. Customer service can use it to analyse the source of a client's problem. They will be able to pinpoint which element of the service is underperforming. As a result they will be able to tailor upgrades, refunds and repairs much more accurately.
  2. Retention will be able to identify which groups of users are more or less attractive for retention and tailor their offers as appropriate.
  3. CTO can use it to identify gaps in coverage. MNOs today know theoretically where their coverage is good but gaining insight on the actual user experience for their customers will allow them to determine where there are gaps that need filling.
  4. Propositions can use it as a stepping stone towards offering different grades of service. This is an appealing prospect for MNOs given the commoditised nature of mobile broadband. However it is impossible to offer grades of service without being able to measure and validate user experience.

In short, in a highly commoditised and rapidly maturing market, customer analytics allow MNOs to deliver mobile broadband more efficiently, wringing every cent out of its subscriber base in the most efficient manner.

Thursday, 15 January 2009

Embedded laptops: the hidden cost

I'm currently working on a report on mobile broadband devices which should be out in time for Mobile World Congress. As part of that process my thoughts naturally turned to how quickly embedded laptops will take off. There seems to be an emerging assumption that embedded will come to dominate the market. It's superficially more user-friendly and manufacture and distribution costs would be lower.

However, the most obvious drawback for the end user is that it will be expensive to upgrade. Currently we're seeing very fast technology evolution, from HSDPA to HSUPA to HSPA+ to LTE. Much faster than the laptop replacement cycle. So if anyone wants to keep up with technology evolution they'll need to replace their laptop every 1-2 years, which is unlikely. But, that presupposes that people are bothered about keeping up, which is probably a rash assumption. Experience with mobile broadband is so variable that few subscribers will make their decision based on what the nominal speed is. According to a recent Ofcom report the average fixed broadband users only gets 49% of their headline rate, but they don't seem to care, with 93% satisfied with the experience they receive. As long as the service does what users want it to do, they won't care about the headline rate. In the mobile world the link between headline and actual rates will be even more tenuous.

What really should be worrying MNOs is that a greater demand for embedded laptops will result in higher churn. The impetus to replace a laptop will be far greater than to replace a USB modem and with far greater cost to the MNO. With higher churn MNOs will be compelled to start subsidising devices in an attempt to acquire and retain this high churn segment, with potentially disastrous consequences for their bottom line.

More on this as the report progresses.

Tuesday, 13 January 2009

Asus T91: a boon to mobile broadband but a bane to smartphones?

The US Consumer Electronics Show in Las Vegas featured more than its fair share of interested mobile broadband gadgets. Top billing for me goes to Asus's new T91 Convertible Tablet.
There's little doubt that Asus has done some sterling work developing the low-cost mass market netbooks that are a necessity for mobile broadband to flourish. I suspect they'll have another winner on their hands with the T91, unless price ends up being too high because they've jammed it so full of features. I won't bore you with all the details (you can find them here), but as a flavour, it features a touch screen, embedded GPS, a TV tuner, WiMAX and a swivel display.

But, haven't we heard this all somewhere before? It's a combination of the iPhone and Nokia's N77, albeit rather larger, with WiMAX thrown into the mix. As such, Asus seems to be approaching the smartphone market from a different angle. Priced sub-€500 and with an operator subsidy it almost represents a threat to the smartphone market. Slim it down a little more and work on the form factor and we could see some damage done to the smartphone market as people opt for a simple voice phone and a webbook. With regard to the inclusion of WiMAX, we'll wait with bated breath to see if there will be an embedded HSPA version. It would seem inevitable.

Picture source: Asus

Monday, 12 January 2009

Nokia's USB Modem strategy

At the tail end of 2008 I commented to Total Telecom that its move into the USB market with the CS-10 was not a very Nokia thing to do. It's a highly commoditised market with little opportunity for differentiation and some very tough competitors in Huawei and ZTE. As such it diverges from Nokia's recent focus on controlling the user experience as we've seen with initiatives such as Ovi.

I recently had the chance to discuss this with Nokia as part of my research for a forthcoming report on mobile broadband devices. The overwhelming sense I get of this move is that it is pragmatic. USB modems will represent a growth sector in a devices market that will struggle in 2009. Nokia has an opportunity to take a share of this segment and its scale and technology platforms mean that it can gain some market share.

However, it will take a lot to move into the territory to successfully and comprehensively occupied by the low-cost Chinese vendors. There is also an issue of perception. Speaking to a few operators, Nokia isn't even on their radar yet for supplying modems.

The best opportunity for Nokia will be in those markets where MNOs don't control device distribution and/or subsidies are banned, e.g. Belgium, Finland, Italy, Russia. Here Nokia can potentially make a virtue of its branding.

For details on the device spec click here.

Friday, 9 January 2009

SIM-only mobile broadband? No point before 2012.

I saw this article on The Inquirer yesterday about the lack of SIM-only mobile broadband options provided by UK operators. They asked all the UK operators (5 MNOs plus Virgin Mobile) and some admitted that the SIM could be removed from the USB modem and used in a different device but none has a dedicated SIM-only offer.

This is far from surprising. The reason for the growth in SIM-only in the handset space is that there are tens of millions of spare handsets sitting around which only require an active SIM to be placed into them to bring them back into service. Mobile broadband has no such installed base of equipment. USB modems have only been selling for a little over a year meaning there are only a few million devices in the market of which most are still under contract and few can be considered spare. Even when there are a large number of USB modems in the market, most people will opt to simply buy a cheap new modem (prices are steadily dropping) rather than get a new SIM for an old one which by then will be labouring on the previous generation of technology.
There will only be a viable market for SIM-only when large numbers of laptops are in the market with embedded MBB functionality and no ongoing contract. That won't be much before 2012.

Dawn of a New Blog

Happy New Year and welcome to "Future of Mobile Broadband".

My Analysys Mason new year resolution was to start blogging on the wonderful world of mobile broadband. It's a ripe subject. To quote myself:

"The evolution from narrowband to broadband is the single most disruptive change facing the mobile industry over the next ten years. The future shape of the telecommunications industry will be determined by how telcos (both fixed and mobile), device and infrastructure vendors and others in the value chain deal with this seismic shift."

Never has a truer word been said*. Mobile broadband represents a massive growth opportunity for MNOs at a time when growth is hard to find. Meanwhile for fixed line incumbents the competitive threat is substantial, meaning they too must keep a close eye on the mobile broadband landscape.

The purpose of this blog is two-fold. Firstly to keep tabs of the rapidly changing mobile broadband market and provide some much needed insight on the host of thorny problems relating to marketing and technology that still need to be resolved by mobile operators. Secondly to promote all of the outstanding work that Analysys Mason is doing in this area.

*This may be a slight exaggeration