Wireless communications technology has become more practical and cost-effective than wireline methods to connect the unconnected in many markets - particularly in developing economies. Since 2007, equipment manufacturers have been conducting WiMAX pilots in under-connected markets to provide voice (VoIP with IMS) and broadband data services to rural areas – an excellent example of killing two birds with one stone. Today, the number of mobile broadband (HSPA) connections in some countries has surpassed the number of fixed broadband connections. Wireless is now seen as not only a viable but a superior alternative to fixed broadband for many applications.

As HSPA mobile broadband makes its way to the homes of consumers, application features typically designed for mobile handset subscribers must be adapted to the home environment. Some time ago, I visited a country in South Asia to deliver technology information on internet Content Filtering solutions. The telecommunications authority in that country was conducting a study to assess the feasibility of mandating filtering of online content nationwide.

The feasibility study surfaced a problem. Each mobile subscriber is typically identified by the MSISDN embedded in the SIM. The content filtering profile associated with the MSISDN is then applied to the individual subscriber. In the HSPA home broadband scenario, a single MSISDN/SIM inserted in the router is shared by all members of the family, from parents to children. Therefore, the traditional method of identifying users by MSISDN is rendered useless.

Addressing this scenario, Bytemobile’s Solutions Engineering team designed a custom user authentication mechanism to distinguish minors from other family members and apply the appropriate content filtering profile to their internet access. This is just one example of many possible changes that could be required when mobile broadband moves to the home. Bytemobile is keeping abreast of this trend and building application features relevant to today’s requirements in specific markets.

-Kok-Bin Lee

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As part of our ongoing Q&A series with mobile and wireless industry influencers, we recently caught up with Mark Newman, chief research officer at Informa Telecoms & Media, to get his take on the latest issues facing mobile operators.                                                         

1) Your area of expertise is analyzing mobile operator strategies. From your point of view, what are operators doing well right now and what are the main areas in which they need to improve?
Mobile operators are managing their profit margins pretty effectively by trimming their cost base. This takes a number of different forms – from taking a more selective approach to handset subsidies to outsourcing a range of different network and service functions. Pan-regional operators seem to be getting a lot better at removing duplication across their different businesses.

I still believe that they need to develop a clearer, more coherent strategy with regard to their content strategies. The success of mobile broadband has demonstrated that there is a massive pent-up demand for portable and mobile access to the Internet. We believe that there is huge potential for operators to introduce different payment and access options rather than accepting that flat-rate pricing is going to be the dominant business model.

2) In the late 1990s and early 2000s, as adoption of wireless devices went mainstream, operators put tremendous focus on marketing to and acquiring new subscribers. We’re at a point now where operators have to focus on retention and luring non-subscribers away from competitors. How can operators differentiate, stay relevant and build competitive advantage?
During the 1990s – and even in the early years of the current decade in some countries – coverage for basic voice services was a key differentiator. New players tended to be more aggressive in their pricing because they had worse coverage and network quality than the incumbents. But over the last five years, voice coverage has ceased to be a differentiator and operators have attempted to develop their own new services and strong brands to differentiate themselves.

Now we may be about to see a swing back to coverage and quality being differentiators. Operators are at different stages of building out mobile broadband networks, and coverage and quality levels vary. We have seen Vodafone launch femtocells because they believe that offering better indoor coverage can be a strong lure for mobile users. They have stolen an important lead on their competitors, and their femtocell launch this month caught the industry by surprise.

This is not to say that operators are not continuing to invest in new services to provide these key differentiators. But their track record in building and bringing to market new services and applications is not great. However, some are beginning to realize that the mistake they made in the past was trying to generate significant businesses in their own right from these services rather than, for example, offering them for free and using them as a tool to retain customers.

3) Operators continue to report lucrative data revenue growth. What are the implications of this growth on networks and how might this affect subscribers down the road?
The introduction of flat-rate data pricing – and more importantly the launch of the dongle – has resulted in a colossal surge in data traffic on mobile operators’ networks. For the time being they are coping reasonably well – 3G networks have been sitting idle for several years and it is only now that they are being truly utilized. However, within the next one to two years, operators are going to face capacity bottlenecks. The problem will be in the home, where many mobile broadband users are using their connections to access high-bandwidth video services and in the backhaul where many mobile operators will need to upgrade their microwave links to DSL or fiber. This clearly involves substantial investment, and the price war that has broken out in the high street for mobile broadband services means that this investment is not always easy to recoup.

4) What other revenue opportunities are operators looking at - or should they be looking at - to help offset falling voice revenues?
Gone are the days when operators believed that non-voice services (beyond SMS) were an important new revenue stream in their own right. Operators have learned that they can monetize access to broadband networks, but charging for games, music or video has had only limited success.

Many operators are now looking to open up their networks to allow third parties – Internet or entertainment companies – to develop their own services. Operators hope that these companies will use some of their network assets - for example, location technology or core communications capabilities such as voice or SMS - to build into their applications. Operators can monetize these services either by charging for access to these “APIs” or sharing in the advertising revenues that can be generated off the back of these services.

Even if revenues are modest, operators believe these strategies and investments are worthwhile if they help to reduce churn.

5) From our point of view, it appears that European operators are more likely than their U.S. counterparts to deploy solutions that allow for a better user experience (e.g., multimedia content adaptation, optimization, etc.). Why do you think that is? Can you point to other notable differences between the U.S. and Europe in terms of operator strategies?
I think it’s a question of maturity more than anything else. European mobile operators have been focusing on new services for longer than their U.S. counterparts because the focus of their business has long since shifted away from building out their network coverage.

That said, if you look at the financials of European and U.S. operators, you will find that U.S. operators tend to have higher ARPU for non-SMS data services than European ones. ARPU levels in the U.S. are higher generally, and most mobile users are postpaid customers who are seemingly happy to pay $50 per month or more for a large bundle of services including voice, SMS and data.

If you have any questions you’d like us to ask in the future, feel free to leave a comment or send an email to sinfantino@bytemobile.com. 

-Stacey Infantino  

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In May, Bytemobile sat down with Ronan de Renesse of Screen Digest to discuss the state of mobile media. This week, Ronan has been kind enough to answer some questions for our readers.

1) Screen Digest recently published a report on the state of the 3G mobile broadband market. Where do you see 3G mobile broadband fitting into the overall mobile ecosystem today, and where do you see it in three years? How does this affect what carriers are doing, aren’t doing or should be doing?
Mobile broadband today is worth more than mobile TV, mobile video, mobile music, and mobile games combined. The number of mobile broadband connections has multiplied by 10 between 2006 and 2008 and is still rising. Five years after the launch of 3G, mobile operators have finally found a way to monetize their 3G licenses. However, the real potential for mobile broadband is as a primary home connection, and today’s services work well only as a secondary broadband connection. As a result, growth is likely to decline over the next couple of years until mobile broadband can become truly competitive with fixed broadband.

2) You frequently cover mobile video and mobile TV. How would you assess the current state of the mobile video and mobile TV industries? What is the key driver that will increase adoption (network solutions, handset advancements, content)?
Mobile TV/Video is the mobile content category that has suffered the most from the economic downturn. In 2008, we experienced drastic changes in business models with the emergence of mobile content bundles such as SFR Illymitics in France and disruptive technologies such Telegent Systems’ analog mobile TV chipset. The industry realized that mobility by itself does not justify a subscription fee for mobile TV. Quality of experience (i.e., large screens, premium content, good QoS) is key in order to drive the uptake of paid-for mobile TV services. With the increasing availability of free-to-air services, the industry runs the risk of consumers thinking of mobile TV as a feature (like a camera or FM radio) instead of a service. In 2008, 76% of mobile TV users watched it for free.

3) How do you see the growth in adoption of mobile video and mobile TV affecting network infrastructure? Networks already seemed to be bogged down with data traffic. Are they ready for widespread adoption of mobile video and TV?
The rise of mobile broadband, added to the increasing popularity of smartphones (typically sold with flat-rate data plans), has certainly put a lot of pressure on 3G networks lately. Mobile operators are doing a lot to upgrade their networks as quickly as possible in order to accommodate the demand for mobile data. Fixed networks can only handle widespread adoption of online video and TV, and mobile networks are very far from it - especially considering that there are far more mobile connections in the world than fixed ones. However, there are other ways to get content on your handset than through the 3G networks. Over 90% of videos and music tracks on mobile phones are side-loaded from the PC. Taking control of this delivery mechanism and monetizing or reducing it is a big challenge for handset manufacturers and operators.

4) You recently published a report that discussed how, as the walled gardens come down, handset manufacturers are moving in to provide services to operators. Will handset manufacturers continue to drive and influence the wireless industry? Does anything threaten this influence?
The success of mobile broadband and flat-rate data packages has shown several mobile operators that they are better at selling access than content and that opening the walled gardens can work to their advantage. Mobile operators are therefore increasingly opening up to third-party service providers. Handset manufacturers, on the other hand, are suffering from a difficult economic context where mobile users opt for SIM-only contracts instead of handset upgrades. Handset manufacturers are therefore looking at alternative revenue streams and/or new ways to differentiate from their competitors, and content is coming up as a relatively good option. In addition, Apple has proved with its App Store that vertical integration of hardware, software and services works well in mobile.

5) Forrester recently published a report declaring that the term “smart phone” is dying off. Is there a future for mass-market handsets? Why or why not?
There is certainly still a future for mass-market handsets, which will be primarily driven by growth in emerging markets such as China and India. The recession has also helped to keep low-end handsets in the market. However, there has been cannibalization between feature phones and smartphones which are typically populating the mid-range and high-end device segments in Western markets. Smartphones have been taking market share from feature phones for the past 12 months, as smart phones become more accessible in terms of price and feature-rich. I would say that the term “feature phone” is more likely to die than the term “smart phone.”

Stay tuned for commentary from other key industry influencers on the trends and issues important to the mobile internet ecosystem. If you have any questions you’d like us to ask, feel free to leave a comment or send an email to sinfantino@bytemobile.com.

-Stacey Infantino

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The current trend in Europe is for mobile operators to become internet service providers (ISP).  Recently, an Austrian operator told me that this year it has sold more ISP connections than mobile connections.  In Sweden, mobile broadband is being offered at a price similar to that of fixed broadband, suggesting that Austria is not unique.

Over the last decade, mobile operators have slowly but surely eroded the hold that fixed operators have had on the consumer.  First, it was voice, and now it seems the same is happening for the Internet — witness the exponential rise in the popularity of the USB dongle.  The attraction for the user is obvious: one relationship for all services, no installation charges and the ability to be truly mobile.  Today, many operators offer a free laptop in exchange for an 18-month commitment.  How can you lose?

How will fixed line operators respond to this threat?  They have already made their network investments, so all they need to do now is utilize their assets.  With multimedia rapidly becoming a pervasive force, network capacity and effective bandwidth will be critical factors.  In such circumstances, won’t the fixed line operator have the upper hand?

I’m not so sure.  Mobility is a key criterion.  Freedom is something that users will always want; once they have it, they will never give it up.  For the vast majority of consumers, mobile networks will impose no bandwidth restrictions.  Operators are constantly investing in their networks.  Thanks to data optimization and media transcoding, most users will be hard-pressed to discern the difference between a fixed network and a mobile network — nor will they even care.  For mobile operators, there is also an effective one-to-one brand relationship with end users.  Thus, they can deliver a truly personalized and relevant consumer service across an entire portfolio of offerings — something that fixed line operators will find difficult if not impossible to match.

Infrastructure providers offering service delivery platforms to the consumer will turn up the heat on the ISP market.  When that happens, we should all expect some dramatic changes in the road ahead.

- Graham Carey

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