Monday, 30 March 2009

Mobile broadband looms large over 3's 2008 results

Hutchison Whampoa, parent company to 3 Group published its full year financial results on Thursday. The impact of mobile broadband on 3's results is substantial.

The company reported over 2.5 million MBB subscribers at the end of 2008 a "healthy" 305% increase over the year. Healthy? I'd say that's positively chipper! In the UK subscriber numbers were up 23%, in Austria 28%, and Sweden/Denmark by 37%, largely on the back of MBB sales.

A simple bit of mathematics tells me that of the 3 million net additions that the group secured in 2008, 1.9m were mobile broadband subscribers. Let's see that again...62% of 3's net adds during the year were mobile broadband!

Due to the growth of (lower ARPU) mobile broadband ARPU naturally declined rapidly, down 16% y-o-y to €33.50. In many territories total revenue was up substantially: 9% in the UK/Ireland and 17% in Sweden/Denmark. Italy, however recorded a massive 15% dive and Austria was down 5%.

Sunday, 29 March 2009

Orange first with Apple - the headlines write themselves!

Several different news sources including Mobile Today are reporting that Orange UK has struck a deal with Apple to offer subsidised MacBooks bundled with 24 month mobile broadband deals. Not much in the way of detail yet and Orange isn't commenting.

Hopefully this isn't just a case of journalists assuming some sort of fruit-based approach to device/service bundling!

If true, this is a coup for Orange, being first to market with a subsidised Apple laptop. The MacBook is, of course, very appealing. Orange has seized upon one of the few methods of differentiating mobile broadband offers, i.e. the device.

Supporting the MacBook fits well with the optimum channel strategy for MNOs. They are unable to compete with the traditional IT channels for range of devices (PC World will always have more scale than the MNOs can manage). So, MNOs should cherry-pick particular models to stock and subsidise. MacBook is exactly the sort of laptop that any MNO should select. Ditto the Asus eeePC, which Orange also stocks.

More of the device market in my forthcoming Analysys Mason report Mobile Broadband Devices: From USB Modems to Where?

Wednesday, 25 March 2009

UK Broadband to move to WiMAX...and likely to feel the squeeze

I saw this posting on Sam Knows about the fate of UK Broadband/NOW. They're planning to dump their existing TD-CDMA solution (with which they're serving subscribers in Reading and a few other towns) in favour of WiMAX.

It doesn't take a genius to work out why. Effectively they're offering a DSL-replacement service which doesn't really deliver the goods. A maximum 1Mbit/s doesn't exactly set the pulse racing these days. It looks poor compared to the HSPA offers on the market, let alone cable or DSL options. As a result of the poor proposition they've struggled to sign up customers. So they need WiMAX to pep up their offer.

Even with the move to WiMAX they'll struggle. There are 5 mobile broadband players in the UK each of which will move fairly rapidly to HSPA+ and/or LTE, technologies which can compete well with WiMAX in terms of performance. Furthermore, it's too expensive to roll out national coverage making it difficult to compete in the 'mobile' or 'nomadic' markets. WiMAX, as UK Broadband will implement it, really only works as a DSL replacement. They will limit themselves to local implementations and try (mostly unsuccessfully) to compete with DSL.

Tuesday, 24 March 2009

Mobilkom Austria is 1st in Europe with HSPA+

Just a quickie to report yesterday's announcement that Mobilkom Austria is the first to commercially launch HSPA+. Press release from Ericsson here. Yet again Austria leads the way. Mind you, in such a competitive mobile broadband market Mobilkom needs every weapon it can get.

I've often been at pains to point out how what has happened in Austria is unlikely to be replicated exactly elsewhere in Europe. There are certain characteristics of the market that make it much more MBB-friendly. However, I think this technology arms race will likely be a feature of all markets.

Free Press Conference

An ex-colleague of mine from Yankee Group, Benoit Felten (check out his excellent Fiberevolution blog if you haven't done so already) has uploaded onto YouTube a video capture of French altnet Free's Press Conference last week.

The focus is mostly on fiber deployment, but also about Wimax, the upcoming mobile license bid, etc. which you might find interesting. Benoit has even been good enough to add English subtitles, which is beyond the call of duty.

Here are the videos:

Parts 3, 4 and 5 to come.

I'm on the road at the moment and haven't had time to check the presentations all the way through, so hopefully his subtitles aren't an early poisson d'avril.

Monday, 23 March 2009

Orange wants to supply national broadband network

More interesting news today. Orange has generously offered to roll out national broadband network to meet the requirements for national 2Mbit/s broadband as laid out in the Interim Digital Britain report. In return it's looking for some of that juicy 900MHz spectrum that Vodafone and O2 have been keeping to themselves. This is just another example of the inevitable horse-trading that will take place over the next 12 months.

What Orange's offer has done is highlight that all of the spectrum issues that are being thrashed out at the moment (900 refarming, 2.6 awards, digital dividend) and wider discussions related to 'digital britain' are all massively interwoven. What's needed is a holistic approach.

Vodafone/Telefonica network sharing is go...

The big news this morning is obviously the agreement between Vodafone and Telefonica for pan-European network sharing. Vodafone press release here. As discussed on a blog not a million miles from here there are some powerful arguments for network sharing in times of economic hardship.

Initially this is a site-sharing deal, with a joint approach to rolling out new sites as well as consolidating existing ones. The implications of this arrangement for service differentiation are fairly modest initially. While BTS location obviously has an impact on user experience, we're still a long way from having a single shared network. There is no commitment to RAN sharing or backhaul. However, the joint press release promises that "further areas of co-operation are actively being explored on a market by market basis, such as sharing of transmission infrastructure, among others".

Wednesday, 18 March 2009

Portugal's National Technological Plan: what every country needs

I'm flying out to Lisbon tomorrow for some client and prospective client meetings. I've not been over there for a little while and I'm hearing really good things about the strides being made in pushing mobile broadband adoption.

If you've been watching the market you'll have probably seen this announcement back in May 2008, that mobile broadband connections now exceed fixed. There is a definitional issue around what counts as "mobile broadband" and the growth of laptop connectivity has been slightly less spectacular, but even stripping out handset-based mobile internet, the figures are still impressive. Portugal has one of the highest mobile broadband penetration rates in the world.

The reasons for this aren't the same as they are in other high penetration markets such as Austria (i.e. poor DSL infrastructure and high DSL prices, very competitive market, greenfield 3G operator). In Portugal it can be much more closely attributed to government strategy.

With the publishing of the National Technological Plan in 2005 the Portuguese government committed itself to (amongst other things) increasing spending on technology R&D, investing in IT training and providing broadband connectivity to schools through the e.escola initiative. Mobile broadband has been one of the major beneficiaries of government intervention. Laptop penetration has grown massively, not least because they have been given out to hundreds of thousands of school pupils. Of course the mobile operators have also been integral to the success of the government plans and are directly responsible for making the NTP a success.

I should have more on the state of MBB in Portugal when I return.

Friday, 13 March 2009

The migration from dongles to embedded modems will have serious ramifications

This week I've been wrestling with the thorny issue of devices. What will the mobile broadband devices market look like in 5 years time and what are the implications?

The USB modem totally dominates today (although reports of the demise of the datacard have been much exaggerated). We can safely assume that in 5 year's time everything will have gone embedded. There are a lot of implications. Here are just a smattering that spring to mind:
  1. IT channels become more important in distributing broadband connectivity. MNOs can't compete with the IT channels in range of devices, so they'll end up selling more contracts through those stores. Also they'll be selling an increasing amount of SIM-only mobile broadband.
  2. Home hubs, such as the T-Mobile Sharedock or the Huawei D100, will become obsolete. Why share your connectivity when all laptops have an embedded modem? To save on cost? Actually that won't be necessary thanks to shared plans, as launched by 3 Australia recently.
  3. No need for handset-as-a-modem functionality. Why connect to the wide area network via bluetooth to you handset when your laptop has its own modem?
  4. WiFi won't die out. It'll be a brave laptop manufacturer that first strips WiFi out of their product. Plus, it's perfect for in-home higher capacity connectivity.
  5. Rapid upgrades to end-user equipment will be difficult, mitigating the need for escalation of the technology arms race. As we get towards market saturation with most users using an embedded modem there's less of a requirement for MNOs to upgrade their networks. Modem upgrades will follow the laptop upgrade cycle, i.e. about every 3 years, making it more difficult for existing subscribers to take advantage of higher network speeds.

And there are many more, but you'll have to wait for the release of Mobile broadband devices: from USB modems to where? for the rest of my conclusions on this fascinating area.

Thursday, 12 March 2009

Does network sharing make sense in a mobile broadband world?

Today saw yet another twist in the ongoing network sharing saga in the UK. Speculation is rife that Vodafone will soon announce that it is tying up with O2, forgoing its existing deal with Orange, who are allegedly looking to join up with T-Mobile and 3's MBNL project.

We can speculate on the reasons for changing partnerships. Possibly O2 was conscious of being the only one at the party without a date and so realised that some serious flirting was necessary to ensure it didn't go home alone. Alternatively, maybe they're conscious of 900MHz refarming and are realigning to accommodate that. The issue for me is whether the logic of network sharing is destroyed by the growth of mobile broadband.

In a voice/SMS-oriented market, network sharing makes total sense. MNOs want to cut costs and they've not really competed on network coverage for years. One operator's 99% population coverage is much like another's. So it makes sense to pool resources and compete where they can differentiate, e.g. propositions, price, customer service etc. This is particularly true in mature markets where growth opportunities are limited and there is significant pressure on cost.

In a mobile broadband market this is turned on its head. The service is so commoditised that network coverage and capacity are critical elements in the value proposition and MNOs must seek to differentiate themselves. If they are all using the same network(s) this becomes impossible.

The question is: can any single operator build up their network to such an extent that they build an unassailable lead over their competitors? It seems unlikely. The competition is unlikely to give up the chase. The capacity arms race will continue. As a result it will be very difficult to actually develop an effective differentiator. This limits the appeal of keeping a stand-alone network, particularly as network sharing will bring significant benefits in network economics.

So the conclusion must be that even with the growth of mobile broadband, network sharing is a logical choice.

Wednesday, 11 March 2009

Lies, damn lies and mobile broadband surveys

Not one but two surveys were released today on who provides the best mobile broadband in the UK and from two respected sources. Do they agree? Of course not. Which? reckons Virgin Media's offer to be the best on the market, while YouGov puts T-Mobile top of the heap. There is at least some consensus in that they both run on T-Mobile's network. By my reckoning, that takes to five the number of UK operators who have the best offering according to independent testers. Back in December Orange gained the accolade acccording to YouGov (again), while in October a survey by put 3 top. Vodafone has to rely on a June 2008 survey conducted by itself...ahem...I mean independent wireless engineering company LCC International to put itself in top spot.

Of course it's all nonsense. Are we seeing regular radical overhauls of networks that would mean that network providers are overtaking each other in terms of network capacity? Of course not. So why the disparity? It's because there are so many variables associated with the user experience (distance from the base-station, contention ratio, height of the antenna, thickness of walls) of mobile broadband that generalisations about "the best network" are meaningless.

This won't stop MNOs from trumpeting their success in these polls of course, but in reality, user experience will bear little resemblance to the results of all these surveys. MNOs need to do two things.

Firstly they need to ensure that these polls continue to give out - at least - mixed messages. Ideally, of course, an MNO would want to be #1 in every poll. The bare minimum required is that they do not allow themselves to drop too far behind their competitors. Once there is consensus on 'the best' or 'the worst' network it will be a difficult barrier to overcome, even if there is no grounding in reality. A good reputation will allow MNOs to charge more, while those with a bad reputation will be forced to compete more aggressively on price. This requires that MNOs continue to invest in network upgrades.

Secondly they need to allow users to try before they buy. That way they can do the comparison that matters, i.e. how do the various offers match up in my front room, office, local pub etc. rather than depend on YouGov, Which? or whoever doing that research in a small random selection of locations.

Monday, 9 March 2009

TalkTalk customers want mobile broadband

I just spotted some news from the end of last week that UK ISP Talk Talk has issued an interest nugget from a recent user survey. Apparently 16% of their surveyed subscribers would be "likely" or "very likely" to take up mobile broadband. TalkTalk particularly specifies that users would be interested in doing so as a complement, but I'm not au fait with the actual wording of the question, so it's difficult to know exactly how they're qualifying the interest.

This is interesting for two reasons:
  • Firstly that Carphone Warehouse is associating its TalkTalk brand with mobile broadband. We should expect an MBB complement to their TalkTalk DSL offering soon. That said, CPW's forays into the voice market as an MVNO/service provider have been largely unsuccessful. But it looks like they have realised that including a mobility element in DSL offers will become increasingly important.
  • Secondly, Talk Talk customers are amongst the most price-sensitive in the market. Anyone prepared to go through this (and many peoples' experiences were equally terrible) for 'free' broadband must be. One-sixth of those users are apparently interested in mobile broadband. So if the service is affordable and priced right, it is definitely a mass-market phenomenon.

Tuesday, 3 March 2009

More capacity is a mixed blessing

I know it might sound like heresy, but could it be that more spectrum might do more harm than good to the nascent mobile broadband market?
In markets worldwide, huge amounts of additional bandwidth (freed up by activating more existing carriers, 900 MHz refarming, digital dividend and 2.6GHz spectrum auctions, HSPA/LTE upgrades) will soon be unleashed on waiting subscribers, with severe implications for supply, and thus demand.

Today demand exceeds supply. Obviously it's not an easy thing to prove, but I think it's reasonable to assume that I'm not the only one who finds himself fuming as his mobile broadband connection speed drops to a snail's-pace. This is indicative of substantial demand, without the capacity to meet it. Where demand exceeds supply there is little incentive for MNOs to engage in fierce price wars. They wouldn't be able to support the customers. So prices should stay artificially high.

However, if you put MNOs in a situation where they can support 3 or 4 times as many customers, won't they simply cut prices to attract them, ultimately compromising the profitability of their existing subscriber base. Experience from the voice market seems to suggest so: in many cases prices have been cut to little more than the marginal cost of providing the service. Making more bandwidth available to operators - and thus customers - will simply encourage MNOs to race for the bottom in terms of price.

OK, so I'm playing devil's advocate a little here. The addition of further bandwidth will improve the user experience and hopefully alleviate my fury. It also allows mobile to more closely replicate the broadband experience by enabling higher bandwidth applications such as over-the-top video. But, to be worth implementing, it must be possible for MNOs to monetise the increasing capacity and bandwidth. Giving users a better service must translate into additional revenue, either through more subscribers or higher ARPU. History suggests that it will be very difficult for MNOs to increase prices as they ramp up bandwidth. So far there has been an inverse relationship between price and capacity/speed.

It would be a very foolish MNO that did not pursue additional capacity given that competitors will be so doing. If more bandwidth means lower prices (e.g. through greater spectral efficiency), you don't want to be the MNO that can't compete. MNOs need to participate in the arms race, rather than risk being left behind.

Sharer plans will stimulate subscriber growth

Hopefully you will by now have seen the mobile broadband forecasts that I've put out in my capacity as Principal Analyst as Analysys Mason. In the forecasts I'm fairly bullish about the prospects for the growth in connections over the next 5 years. A number of factors will stimulate growth including increasing competition, faster networks and more appealing tariffs. I'm also assuming that MNOs will find increasingly innovative ways to spread connectivity out to the mass market, grabbing the opportunity presented by massively increasing laptop penetration and the virtual ubiquity of embedded modems in the future.

One example struck me last week. 3 in Australia (ever a testbed market for the rest of the mobile broadband world) launched a sharer plan for business, allowing corporate or SME accounts to share a bucket of data between multiple users. There's nothing new about sharer plans in voice and it's a natural extension to open this out to mobile broadband for businesses, and eventually families.

With group plans, mobile broadband becomes a more affordable option if individual usage is low. Today MNOs penalise and put off occasional users by requiring a minimum monthly spend or charging a higher per-GB fee. By bundling users into a group plan MNOs can provide novice users with the opportunity to experience and (hopefully) come to value mobile broadband, ultimately driving growth in usage and spend.

RIM and Nokia into the netbook market

Nokia seems to be plotting entry into the netbook space with a range of Symbian-based devices. RIM, meanwhile, has demonstrated more modest yet substantive ambitions in its plans announced so far. Rather than getting into the hardware market it is focusing on putting BlackBerry functionality onto devices, specifically Lenovo ThinkPads. It uses an Express Card to hook up via Bluetooth to the BlackBerry, synchronising mail to the laptop, even if the laptop is off. This is a fairly modest entry into the laptop space, but I suspect it is just a case of testing the water. Historically RIM's success has been tied to end-to-end management of the user experience. So a BlackBerry netbook is surely not far away.

The appeal of getting into the laptop space is obvious.
  • The growth of PC mobility. Do I really need to go over the stellar growth of mobile broadband and the anticipated continuing growth? Not to readers of this blog surely?

  • Device convergence looks to be occuring from both directions. So rather than just focusing on the increasingly smart handsets, it's natural to also focus on increasingly connectivity-oriented (dumb, arguably) PCs, in the form of netbooks. Will they ever meet in the middle? I doubt it. There is a fundamental shift between a mobile device and a portable device and you can't be optimised for both. Anything in the middle ends up being as successful as the Spork. Actually I may be being a little unfair to the spork, which graces countless prepacked salads and camping kits around the world.

  • Keeping up with the Joneses. Other OSes look set to bridge the gap between handset and PC and provide a seamless user experience. Windows Mobile 6.5 is a huge leap forward for Microsoft in bringing Windows to the smartphone. It still demonstrates very little joined up thinking in terms of linking up the various platforms, but that will come with version 7 I'm sure. Similarly Google will doubtless be looking to transport Android onto PCs. In this environment, Symbian's lack of PC pedigree would stand it in poor shape.
Clearly some adaptation would be required to shift Symbian or BlackBerry OS into the PC space. In the case of BlackBerry the logical option would be to partner to run BlackBerry functionality on existing OSes on a BlackBerry branded device, rather than attempting the heavy lifting required to develop a PC version of BlackBerry OS. Nokia probably does have both the brand and the scale to make a success of the netbook.
EDIT: I forgot to mention in the initial post that I will be publishing a new report looking at mobile broadband devices "Mobile broadband devices: from USB modems to where?" in April.