Sales numbers for Amazon’s Kindle are difficult to pin down, but the device appears to be catching on virally, aided by dedicated marketing on the part of Amazon. Wider acceptance of the Kindle among users could produce a win for the device’s embryonic business model, which could ultimately apply to a multitude of wirelessly enabled consumer-electronics devices.

The Kindle electronic-book device hit the market in November, selling out its first run in days despite a hefty price of US$399. The cost has since been reduced to US$359, but one can find used models on eBay for as low as US$200.

The device is unique in that it can access and download more than 150,000 sources of reading material - including books, newspapers, magazines and blogs - over the air via Sprint Nextel’s 1xEV-DO network, which Amazon refers to as Whispernet.

A Kindle user doesn’t have to have a wireless subscription. The mobile subscriber is Amazon itself, and the company is picking up the tab for the EV-DO service, figuring that it will make its money from fees for the reading material it delivers.

Amazon is keeping actual sales figures for the Kindle to itself, though over the past several months the company’s web site has repeatedly shown the Kindle at the top of its bestseller list in the electronics category.

On Aug. 1, Silicon Valley blog TechCrunch quoted a source close to Amazon as saying that 240,000 units had been sold. Some critics have stated that since the Kindle has been relentlessly promoted on Amazon’s home page, which receives millions of views, a sales figure of 240,000 indicates a low ratio of buys to ad views.

But sales could be ramping up. Scott Devitt, an analyst at Stifel Nicolaus, forecasts that Amazon will sell 500,000-750,000 Kindles in the next 12 months. And Citigroup analyst Mark Mahaney recently raised his forecast for Kindle sales in 2008 to 378,000, twice his previous prediction of 189,000. He also predicts sales of 934,000 units in 2009 and 4.4 million units in 2010.

Kindle has issues

Aside from the fact that the device is available for use only in the US, the Kindle’s biggest drawback involves Amazon’s stranglehold on the device and the material that it can download. A user can buy a new Kindle only through Amazon, and all Kindle e-books are downloaded via Amazon in its proprietary DRM format, which prevents them from being transferred to another device or computer. Not only that, Kindle users must abide by Amazon’s user agreement, which does not permit them to electronically share downloaded reading material. If a user violates Amazon’s rules, the firm can shut down that person’s Kindle service and remove access to previously purchased e-books.

Amazon.com sells music downloads without digital rights management, so many are disappointed that the firm is restricting the availability of reading material for the Kindle.

There are also technical and design problems with the Kindle. For instance, the device lacks an illuminated screen, making it difficult to read in dim light. Amazon has reportedly won a patent for an external light accessory designed by Utah-based ATL Technology, however, which some surmise might be used with the Kindle.

Rumors abound that future models of the Kindle are being worked on in Cupertino, CA, at Amazon subsidiary Lab126. In addition to producing lighter, more-attractive models, the lab is supposedly working to enable support for PDF files on the device.

Intriguingly, Mahaney’s estimate of first-year Kindle sales is the same as the number of Apple iPods sold in that device’s first year, leading some to compare the two devices, which is unfair. The iPod never needed downloaded music to be useful. Instead, it could be used to sideload songs from a PC, including music ripped from CDs or acquired via a peer-to-peer music-sharing network, such as Napster or Kazaa. What the iPod did was give users a portable device on which to listen to their existing digital-music collection. Kindle users, however, need to pay something for most reading material and fork out US$9.99 for every bestseller or newly released book.

Kindle vs. iPhone

But it’s not a stretch to see that the Kindle and the iPhone might become competitors. People already read books and other material on smartphones and PDAs, and there are programs that allow users to download e-books to the iPhone.

Some wonder whether the iPhone could come to dominate, or last least capture a significant share of, the mobile e-reader market. In numerous blogs, iPhone fans have said that they prefer the idea of reading e-books on their iPhone, which they always have with them, to the idea of carrying a separate e-reader.

But those who download books or anything else to their iPhone via a mobile network must pay for a mobile data plan that allows them to do so. And that comes back to the crux of the Kindle’s uniqueness: the fact that the mobile network enabling over-the-air downloads to the device is essentially transparent to the user, because the vendor of the device and e-book is picking up the cost of the mobile subscription.

Amazon will apparently be able to afford such a business model if its Kindle-powered e-book business takes off. Some Wall Street analysts, including Citigroup’s Mahaney and Stifel Nicolaus’ Devitt, predict that the Kindle will quickly grow into a US$1 billion business.

That is a huge vote of confidence for a consumer-electronics device and related service, and although it’s far from perfect, the Kindle is showing that a wirelessly enabled product can be a revenue generator even if the end-user is not a direct subscriber to the mobile network that serves the device. It opens the door to advertising-supported mobile services and many more business models under which customers can enjoy the benefits of mobile connectivity without having to pay a subscription fee.

 
 
 
 
South Korea’s Communications Commission (KCC) came into being in late February to streamline the regulatory process in the convergence era and end the years of stalemate caused by bickering between the broadcast and telecoms regulators.

In its five months of operations, the KCC has done an impressive job in some areas, most notably in the efficient progress it has made toward finalizing the IPTV-regulatory process, which had caused so much friction between its predecessors, the Ministry of Information and Communication (MIC) and the Korean Broadcasting Commission.

But the KCC’s latest policy proposal, to allow new operators to launch voice services over the country’s barely used WiBro networks, does not augur well for its major goals of creating greater competition in the mobile market and lowering mobile tariffs.

The KCC announced July 28 that it had directed researchers at the Korea Information Society Development Institute (KISDI) to investigate the long-term effects on the mobile market of allowing operators to offer voice services on WiBro networks.

KISDI is scheduled to submit its report to the KCC by the end of October, and local analysts suggest that KISDI is likely to recommend that new operators act as MVNOs on the WiBro networks of KT and SKT.

The KCC says allowing voice-over-WiBro services would promote use of the struggling WiBro networks - to which KT has attracted only 200,000 subscriptions and SKT only a few thousand - and provide new competition to the established big three mobile operators.

Some backers of the KCC’s plan say voice-over-WiBro could be the killer application the struggling service has been searching for and that allowing voice services to operate on the network could massively boost WiBro’s subscription base.

The KCC’s move to allow voice-over-WiBro services is a big departure from the policy of previous telecoms regulator the MIC, which had been resolutely against voice-over-WiBro for fear that it would damage the profitability of the three major mobile operators.

But with the KCC under pressure from the government of newly elected President Lee Myung-bak to find ways of lowering telecommunications expenses for financially struggling users, the regulator has had to embrace the possibility of introducing voice-over-WiBro services.

The big problem with the KCC’s voice-over-WiBro plan is that it will not lower mobile voice tariffs or boost the take-up of WiBro services, for three main reasons.

First, any MVNO offering voice services on the WiBro network will be at a huge disadvantage in terms of the pricing and range of handsets it will be able to offer. With the prices of HSPA handsets offered by mobile market leaders SKT and KTF - which already had a combined HSPA-subs count of 12.3 million at end-June - falling dramatically because of the huge global take-up of HSPA, there is no way that a WiBro voice operator could offer comparable handset pricing.

Second, the SKT/Hanaro merger and the move toward full IPTV services have meant that all three of the country’s major telecoms operators - KT-KTF, SKT-Hanaro and the LGT-LG Group - are offering quadruple-play services on their fixed and mobile networks.

In this kind of market, a stand-alone WiBro operator offering only wireless voice and data services would have almost no chance of remaining competitive, given that its rivals can offer high-speed fixed-broadband and IPTV services as part of a bundled offering.

Third, the KCC must realize that even if an MVNO were able to launch even moderately successful voice-over-WiBro services, the big three operators have the financial muscle and marketing power to make aggressive price cuts and eliminate the opposition in no time at all.

That would leave the KCC stuck between a rock and a hard place, given that pressure from the government means that it can’t block the price cuts from the big three, at the same as it is compelled to protect MVNOs’ voice-over-WiBro services from anticompetitive price cutting.

Voice-over-WiBro is a red herring, designed to buy the KCC time so that it can appear to be delivering on its promises to the government to lower mobile tariffs, while putting the real cause of high mobile tariffs - the cozy three-way mobile market - on the back burner.

The KCC knows that the only way to lower mobile tariffs is to introduce competition into the mobile market, either by finally introducing MVNOs or by issuing new licenses. South Korea’s three big cellcos - whose dominance has been entrenched nearly a decade - are staunchly opposed to the introduction of new competition, which they say will hurt their profitability and lessen their ability to upgrade networks.

It is little wonder that the firms are so adamantly opposed to new entrants when they are raking in huge profits. Even LGT, long considered the sickly child of the mobile market, recently reported net profits up 25 per cent year-on-year in 1H08, to KRW67.6 billion (US$67 million), and revenues up 7.8 per cent year-on-year, to KRW1.25 trillion, giving an indication of the riches on offer.

As a result, the KCC knows that it is going to come under huge pressure from the operators not to sanction any new entrants under the spectrum-reallocation program it plans to implement in 2011. As part of the program, market leader SKT is set to finally lose its exclusive access to the “golden” spectrum in the 800MHz band, which provides quality network coverage in the country’s rural mountainous areas and which KTF and LGT are desperate to access.

In breaking up the 800MHz spectrum, the KCC has its best chance to create a substantially more competitive mobile market, by granting some of the spectrum to new operators, though it retains the possibility of giving them access to the less desirable 700MHz and 900MHz bands.

The KCC appears to be heading toward providing a more competitive mobile market, but don’t place any bets on voice-over-WiBro to play anything other than a minor role.

 
 
 
 
Kuwait’s Zain has realized a major achievement in redefining what it means to be a truly regional mobile operator. The recent rebranding of all its subsidiaries in Africa to Zain and, more significantly, the eradication of roaming charges between all Zain operators have done nothing less than redefine what it means to be a truly regional player.

Without question, other, more established, regional operators, such as Vodafone, France Telecom and T-Mobile International, have a lot to learn from Zain’s abolition of roaming charges. But Zain also has a lot to learn from these operators’ experiences in coping with declining ARPU levels amid intensifying competition in once-sheltered operating conditions.

Roaming and rebranding

Let’s look first at the lessons other operators can learn from Zain’s considerable recent achievements, both financial and operational.

Zain has linked its One Network service in the Middle East and Africa, meaning that its low-cost international voice and SMS roaming offering is now available on 15 country networks.

One Network is now available between Africa and the Middle East, abolishing international roaming rates for Zain subscribers in countries where Zain is present. Zain prepaid and postpaid customers can now make calls and send messages at local rates when communicating with a Zain subscriber traveling abroad in either Africa or the Middle East.

The One Network service is automatically activated when a Zain customer crosses the geographical border into one of the countries in which Zain operates, with no registration or sign-up fee required. Prepaid subscribers can also top up accounts and recharge cards bought from either their home country or an outlet in one of the 15 One Network countries.

Zain initially launched One Network under its Celtel brand in Kenya, Tanzania and Uganda, in September 2006, before extending the network to countries in Central Africa in June 2007 and to Burkina Faso, Chad, Malawi, Niger, Nigeria and Sudan in November 2007. The network was extended to Bahrain, Iraq and Jordan in April.

Compared with European operators’ efforts on voice and SMS roaming, this is nothing short of revolutionary. Zain’s European counterparts resisted calls to lower voice roaming rates and are in the process of repeating history with SMS and data roaming, with intervention by the European Commission in September looking increasingly likely.

Zain’s move has already forced other operators to react. Saudi Telecom, for instance, has said it will launch low-price roaming across a network of 30 foreign operators this month. Saudi Telecom’s Unified International Roaming service will cover most of the Middle East, Europe, Indonesia, Turkey and South Africa.

Discounts on calls in these countries will be up to 69 per cent on normal rates - still not quite the achievement of Zain, but it does price roaming services closer to cost than has traditionally been the case among European operators.

In addition to One Network, Zain rebranded all 14 Celtel operations in Africa as Zain in one clean sweep at the beginning of the month, supported by a major advertising campaign. Zain also plans to rebrand about 1 million point-of-sale outlets across the continent.

The rebranding to Zain is aimed at creating “a single, strong identity,” according to Zain Group CEO Saad Al Barrak.

Zain’s challenges

Now let’s turn to what Zain might learn from its European counterparts. Zain’s recent results are impressive reading. The operator reported strong figures for 1H08, boosted by a massive 58 per cent increase in its subscription count, which totaled 50.7 million across all its operations at end-June.

The operator had consolidated revenues of US$3.49 billion for 1H08, up 26 per cent year-on-year, while net income increased 7 per cent, to US$551 million, and EBITDA jumped 20 per cent, to US$1.3 billion.

“We have started to reap the rewards of our recent large investments, particularly in Iraq, Nigeria and Sudan, with these three countries now serving more than half of Zain’s 50 million customers, and we expect similar rewards when our operations in Saudi Arabia and Ghana commence commercial operations,” Al Barrak said.

But a closer look gives an insight into the more challenging conditions that might be awaiting the operator, ones that mirror those already experienced by operators in Europe.

Only four (Kuwait, Iraq, Jordan and Malawi) of the 19 operations Zain provided ARPU information for in its recent results saw a year-on-year increase in ARPU in 1Q08. These figures indicate that Zain has already moved from a rapid-growth phase of development to a more-stable-growth phase, just like its counterparts in Europe and other parts of the world.

What specific lessons can Zain learn from operators in mobile markets that underwent a similar development? Lessons from Europe and elsewhere show that brand is extremely important. In this area, Zain is already doing a good job, sparing no expanse in its recent rebranding exercise.

Another lesson Zain can learn from European operators is to outsource as much network maintenance as possible, enabling it to become a nimble outfit whose primary areas of focus are what really matter to end-users: the development, selection and marketing of services. This will help Zain focus on being a high-quality mobile services provider that can charge a premium for its services, compared with competitors that undercut it. To that end, its One Network offering is a great idea: It provides meaningful differentiation from rivals.

Zain should also learn from European operators and launch mobile broadband services, such as dongles and embedded modules in laptops, as soon as possible to secure the high-value segment of the market before it becomes commoditized, as has already happened in Europe. Finally, Zain’s economies of scale will also enable it to strike good deals with equipment manufacturers.

Zain is perfectly placed to be a truly modern telecoms operator - light on infrastructure and heavy on the launch of innovative and compelling services. Rivals should take note.

Take a look at our recent company profile on Zain

 
 
 
 
While seeking new business opportunities in today’s converging telecommunications market, operators are also looking to make best use of their capital investments and to minimise operational costs. One of the main challenges they face is to manage the explosive growth generated by emerging mobile broadband services. Will femtocells and alternative technologies have the potential to achieve this goal?

Early converts to femtocells such as NTT DoCoMo and Softbank in Japan, O2/Telefonica, T-Mobile Europe, Vodafone in Europe, Sprint, AT&T Mobility, Verizon in the USA, and Chunghwa in Taiwan are already testing the technology and some have already launched public trials.

Operators see cost savings as one of the key advantages of femtocells. By deploying femtocells in the home, operators have an efficient way of introducing additional coverage and capacity without incremental capital requirements to expand their cellular network. Operational expenses are reduced, since backhaul is essentially paid for by the consumer.

But there are additional benefits. Operators can use femtocells to gain competitive advantage, for example, by countering the threat of WiFi based technologies. The big advantage here is that standard handsets can be used rather than dual mode. Churn is also kept to a minimum as families are offered better quality of service within the home.

Femtocells also promise increased ARPU by ensuring higher data coverage and capacity and hence higher data speeds. As network upgrades come in the form of very high-speed mobile access technologies, mobile operators can potentially compete with the unlicensed spectrum technologies of Wi-Fi and WiMAX.

Finally, femtocells let carriers save on the cost and time of optimising the macro network and focus on an economical method of providing coverage where there is demand. After rolling out their 3G networks in order to meet licensing commitments, many operators are now looking for ways to increase their mobile broadband coverage and create more capacity via hotzones in residential areas.

The femtocell vendors hope that operators will increasingly divert their investments towards indoor basestations as essential components in the mobile broadband ecosystems. Vendors such as ip.access, Ubiquisys, Airvana, and Airwalk claim that the majority of the technical issues related to femtocells and alternative technologies have now been resolved and these technologies are now ready to make their way into the market.

However, a number of operators - notably T-Mobile - have expressed concerns about how slowly the standardisation of the network interfaces is progressing, and about the failure so far to fully resolve a number of technical issues including femtocell device management, radio interface issues, spectrum and interference management.

But the most important barriers that could still push the leading operators to have second thoughts about the femtocell market include the unclear business case for deploying the technology, the cost associated with CPEs or femtocell access points (FAPs), and the fragmented nature of femtocell technologies. In addition, there is the question of finding the right value proposition that will appeal to the end-user.

These issues must be addressed in the early stages of deployment for services to be rolled out smoothly.

Operators are now concerned about the high costs of implementing such an infrastructure and how they can justify these investments. Concerns are being voiced by a number of operators including the French mobile service provider SFR (of which Vodafone owns 44 per cent) which admitted this month that it is not only putting its plans to launch femtocell services on hold, but is testing an alternative technology in parallel.

Although vendors claim that femtocells could help in making significant savings in overall capital and operations investments, how this will be achieved is far from clear, and it will depend on a number of strategic factors.

For example, how mobile traffic generated in the home - including both voice and data - evolves, and how mobile access at home influences the business of the operator, are both key. Against this background, are femtocells going to create disruption?

Whether femtocells can be deployed in line with traffic growth instead of implementing macrocells for additional capacity will be important, as will the break-even price of FAPs after which the Femtocell network becomes profitable.

Other questions still to be answered are who is the real audience for femtocell services, households, mobile subscribers or both? How should femtocell services be marketed and how should they be positioned in the retail environment? What attractive value propositions should operators base their business case on?

According to a new report from Informa Telecoms and Media, Mobile Broadband Access at Home: The business Case for Femtocells, UMA and IMS/VCC Dual Mode Solutions, the percentage of mobile voice minutes of use (MoU) in the home environment will approach 42 per cent of total mobile voice traffic by the end of 2008. As the price gap between fixed and mobile calls will narrow over the years, this ratio is expected to gradually increase to reach 49 per cent by 2013.

Mobile data usage is also expected to increase over the coming years, thanks to the aggressive flat-rate data-plans pushed by mobile operators, the rollout of mobile broadband networks and most importantly the advances in the mobile terminal software particularly the user interface, leading to the proliferation of new type of smartphones and mobile internet devices.

In 2008, the home environment will be responsible for 35 per cent of total mobile data traffic but this traffic is expected to predominate with an overwhelming 60 per cent in 2013. This growth will be driven by the fact that users will increasingly initiate longer and richer data sessions, in the relaxed environment of their home, through browsing internet, watching longer and richer video clips, downloading music video applications, exchanging pictures, or using VoIP chatting on-line.

This does not mean that mobile broadband services will fully substitute fixed broadband, but users would prefer to keep some applications in the vicinity of the private and intimate zone of their mobile devices.

These findings clearly illustrate the need for mobile operators to invest to create more cellular capacity and coverage to cope with the surging traffic in residential areas and ensure better service quality in this environment. Femtocells and alternative technologies could help mobile operators to offload a large part of this traffic to the subscriber fixed line, which could potentially lead to significant savings by relaxing network capacity upgrade requirements while enabling considerable improvement of both coverage and capacity of mobile broadband access in the home environment

Informa Telecoms & Media expects the number of femtocells deployed by the end of 2013 exceed the 40 million mark. This installation base could help operators to offload up to 8 per cent of total mobile traffic to fixed networks via the end-user subscriber line. Obviously this could imply mobile operators will make significant savings by reducing the need to create additional macro-cell capacity to cope with this traffic.

However, this is not obvious and will depend on the nature of the operator case by case, the mobile access technology involved, the value proposition to the end-user, the region targeted, and the level of investments the operator has already made in upgrading its mobile network.

In theory, if one takes into account capital expenditure related radio access infrastructure, operational costs and the mobile backhaul cost required for adding new macrocells to handle a traffic capacity equivalent to this carried over the new femtocell installation base, then this cost is evaluated at US$13.8 billion in 2013. This obviously implies operators have no spare capacity in their existing networks and they have to build this capacity from scratch.

However, in practice, when operators invest in widening the coverage of their networks they systematically create capacity redundancies, probably enough to handle a big part of this traffic anyway. Assuming that 33 per cent of the required capacity is provided by the existing macrocell coverage, then infrastructure expenditure investments required could be around US$ 9billion.

By comparison Informa Telecoms & Media estimates the capital expenditure related to implementing femtocell networks - representing 22million new net additions - would cost the industry about US$3.7billion, 85 per cent of which goes to FAPs. Thus, the industry could save at least US$5.3 billion or more in the network infrastructure if femtocell solutions are properly deployed using meticulous geonetwork planning.

Savings could be higher depending on whether these devices are fully subsidised or not. Also note that while there are potentials of savings in network expenditure when deploying 3.5G, WiMAX or LTE, this saving is less obvious for GSM/GPRS networks and WCDMA to a certain extent.

However this saving could be balanced by the cost related to marketing and promoting FAPs and femtocell services. Indeed, deploying femtocells requires a good understanding of market segmentation of both mobile consumer and household markets, meticulous planning and targeted marketing campaigns, which mean operators will have to invest substantial amount of money if they want femtocell services to gain popularity.

In addition, if femtocells are sold to customers in sporadic fashion via traditional mobile operators’ channels, then this may induce a huge scattering of femtocell deployment over large areas. Not only this will make it hard to manage the physically manage FAPS and related networks but most importantly this would mean the operator will not be able to make any CAPEX or OPEX savings.

Actually, In order for femtocell networks to effectively substitute the capacity of macrocell networks, they should be deployed in clusters otherwise their implementation could add additional burdens in terms of both capital and operation investments.

So despite claims that femtocells could help operators make some savings in terms of capital and operational expenditure, this will depend considerably on the individual operator, the mobile access technology supported, and on the region and type of area targeted. This means that operators will have to find ways of increasing both revenues and ARPU from femtocell services in order to make femtocells profitable.

For more information on Mobile Broadband Access at Home: The business Case for Femtocells, UMA and IMS/VCC Dual Mode Solutions, visit www.informatm.com/access

 
 
 
 
The successful commoditisation of high-speed wireless-internet access as “mobile broadband” may have eventually supplied 3G operators with the missing link in their service proposition - a “killer app”.

Recent announcements from two of the largest 3G operators in Western Europe have highlighted the increasing momentum behind mobile broadband from a customer perspective, although fears about the excessive cost of cross-border usage are continuing to limit the market for roaming.

The take-up of mobile broadband services has been inextricably linked to the supply of dongles for laptop and notebook connectivity on HSPA networks and has risen inexorably as more and more embedded devices come on the market.

Vodafone recently reported a 19 per cent rise in group revenues to £9.8 billion (US$19.4 billion) in 2Q08, with data revenues excluding messaging increasing almost 51 per cent to £664 million. The group attributed the growth in data revenues to the penetration of mobile PC-connectivity devices and improved service offerings, with particular success coming from its Mobile Connect USB modem offering in the consumer segment.

As of June 30, Vodafone said a total of 6.7 million customers were connected via handheld business devices or mobile PC-connectivity devices, an increase of 105 per cent compared with end-2Q07. In Europe alone, Vodafone reported revenues of £7.2 billion, up 15.5 per cent on 2Q07, with data accounting for £552 million, a rise of 42 per cent. The growth in data revenues resulted primarily from an 84 per cent increase in sales of mobile PC-connectivity devices, driven by the promotion of “attractive” data tariffs across its European markets.

Informa Telecoms & Media forecasts that global mobile data service revenues are set to exceed US$200 billion this year, up from approximately US$157 billion in 2007. According to Informa, mobile data revenues in Western Europe were US$13.1 billion in 1Q08, accounting for 21 per cent of total revenues, while Eastern Europe generated mobile data revenues of US$2.9 billion, or almost 16 per cent of total revenues.

Meanwhile, 3 has announced that it has signed up a million broadband customers in its European markets, which include Austria, Denmark, Ireland, Italy, Sweden and the UK. At end-June, 3 had approximately 14.6 million subscriptions in these markets, giving it a mobile broadband penetration of almost 7 per cent of its European customer base.

“This milestone shows people everywhere want to access our mobile broadband services,” says Christian Salbaing, managing director of European telecoms at Hutchison Whampoa. “We have seen phenomenal growth from customers who are using it to both supplement and replace their fixed-line broadband.”

In the UK, the Mobile Data Association (MDA) predicts that mobile internet will become a true rival for traditional desktop internet access, with growth of about 20 per cent in 2009. The lack of a fabled “killer app” has seen traditional handheld mobile internet access fail to excite, with the latest figures from the MDA showing steady, if unexciting, growth in the UK.

The MDA says that 16.5 million people accessed the mobile internet in May, representing 25 per cent growth in the 24 months since May 2006. The majority of usage comes from MMS, with 10 million picture messages now sent every week in the UK.

“There remain a number of challenges that mobile operators need to address to accelerate the growth of mobile internet,” says Steve Reynolds, chairman of the MDA. “The MDA is calling for greater price transparency on the costs associated with using the mobile internet. The findings of this report suggest a real consumer appetite, but confusion and fear over costs may be holding back growth.”

Hutchison’s Salbaing also highlighted the fear of excessive costs, especially for consumers who use mobile broadband while travelling abroad. “Typical retail roaming prices are literally hundreds of times what customers expect to pay domestically,” he says.

The European Commission will put proposals to cut data roaming tariffs including SMS by as much as 62 per cent before the European Parliament in the autumn. “On seeing the latest price trends gathered by national telecoms regulators, I am particularly concerned by the high prices paid by consumers for text messages when they are travelling abroad,” says Commission president Jose Manuel Barroso. “There is also a danger that European businesses are put off by non-transparent roaming costs for mobile data services.”

Salbaing believes the Commission now has an opportunity to bring the same clarity and value to data roaming as it did so successfully with voice roaming last year. “The difference between domestic and roaming data rates is far greater than with voice, only wholesale action can put an end to charges that are sometimes hundreds of times greater than our customers pay at home,” he says. “A million connections in a matter of months from a comparatively small business make it abundantly clear that mobile broadband is already a mass-market proposition.”

 
 
 
 
You have to hand it to Apple. Although it was late to market on mobile, it is the industry outsider that has most wowed the mobile space since its debut a year ago.

It first created a sensation with the iPhone, which has become the handset that many veteran mobile-device makers are eager to copy. And it is now trying to claim a stake in the mobile-content and -applications market, through the launch last week of its App Store, alongside the new 3G iPhone.

Apple is eager to avoid the mistake it made in the desktop space, where it set the standard in computer design but saw Microsoft race ahead when its Windows operating system became the de facto platform for developers designing PC applications.

In the media-player arena, Apple married groundbreaking device design with an application - iTunes - that has become the web’s leading premium music- and video-download store, and it is that marriage that has ensured market dominance of the iPod.

The first version of the iPhone, launched last year, came installed with numerous applications that showed off the device’s cool capabilities, such as its touch-screen interface, rich graphics and motion-sensitive accelerometer technology. But it surprised and disappointed many observers by barring users from downloading applications to the device.

Apple never gave a satisfactory explanation as to why it did that. One reason appears to have been the fear of causing bugs on the iPhone operating system. Some believe, however, that Apple was trying to assuage operator fears that it wanted to compete with them on the mobile content front.

But no such scruples have held back Apple with its second iPhone offering, which not only enables downloads through the App Store but appears to have cut out operators from the value chain completely by billing downloads via iTunes, not users’ mobile bills.

Operators’ billing relationship with mobile users is seen as their strongest guarantee of customer ownership. So Apple is treading on sacrosanct territory by imposing an alternative way of paying for content and apps on its phones.

The possibility that Apple might have agreed to pay operators a small share of the revenue it will be making from App Store sales cannot be entirely dismissed - neither Apple nor operators have commented on the issue - but it looks unlikely.

Apple has a long way to go to catch up with other players in the mobile handset business - not least its old rival Microsoft - to become a leading magnet for mobile application providers. For example, about 18,000 applications have been developed for Microsoft’s Windows Mobile operating system. By comparison, the App Store featured only 500 applications when it was unveiled.

Nokia’s devices, meanwhile, are the handsets that developers most often design applications for. The Finnish giant’s huge share of the handset market ensures that content and application providers targeting the mass market put Nokia phones at the top of their list.

Nokia has also been the most aggressive of the traditional handset players on the content front, exemplified by the unveiling last year of its Ovi mobile Internet offering, combining music, games, location-based services and more.

But neither Nokia nor Microsoft - nor any other traditional player - has the head start that Apple has in digital-content downloads and payments, in the shape of iTunes. Nokia is hoping to bill for Ovi content through the operators. This is one of the things it is looking to secure in its Ovi partnership deals with the big carrier groups - not always successfully. Orange, for example, is enabling access to Nokia’s music store alongside its own on Orange-branded Ovi handsets but won’t allow downloads from the store to be charged on users’ phone bills.

Getting users to pay for content on their mobile via credit or debit card has proved difficult.

The iPhone, and iTunes for that matter, are still very niche compared with the market reach that cellcos and their billing systems have across the globe. But if iPhone sales continue to pick up pace, and if the handset continues to draw the interest of mobile-data-services enthusiasts, Apple could capture a large slice of the mobile content market - and all within its own walled garden.

 
 
 
 
The rapid and widespread success of mobile broadband services-which now have more than 100 million subscribers worldwide using more than 300 live networks-is sparking a data traffic boom that will revive the struggling mobile base station market, according to Mobile Networks Forecasts: Future Mobile Traffic, Base Stations & Revenues, a new strategic report and forecasts from Informa Telecoms & Media.

There is also good news for operators, given clear evidence that the mobile broadband boom is helping mobile operators achieve one of their key strategic goals-increasing mobile data revenues in a bid to offset declining voice revenues. For example Vodafone, the world’s largest mobile operator by revenues, reported £2.2 billion in non-messaging data revenues for the year ended March 31 2008, up 55 per cent from £1.4 billion in 2007, due to “strong growth in business email and PC connectivity devices” along with “strong takeup of mobile broadband USB modems.” The operator says it signed up 2 million consumer customers to its flat-rate mobile Internet plans in 2007.

However the bad news for Vodafone and virtually all other operators ramping up mobile broadband services is that data traffic is growing much faster than data revenues, partly due to the launch of flat-rate mobile broadband tariffs. Vodafone notes that data traffic increased by more than tenfold in the year ended 31 March 2008 compared to 2007, versus a 55 per cent increase in data revenues. And the trend is widespread-T-Mobile reported a 10-fold increase in WCDMA/HSPA traffic in first-half 2007 compared to first-half 2006, and operators reporting at least a four-fold increase in mobile data traffic in 2007 include AT&T and Telecom Italia Mobile. Similarly, Swedish telecoms regulator PTS reports that mobile broadband subscribers in the country increased three-fold from 92,000 in 2006 to 376,000 in 2007, but over the same period mobile data traffic increased nearly ten-fold, from 203 to 2,191 terabytes.

The bottom line is that all mobile operators are facing the same dilemma, and it is only going to get worse. Informa Telecoms & Media forecasts that global mobile data revenues will increase 77 per cent from 2007 to 2012, but global mobile data traffic will grow far faster, increasing more than 1000 per cent over the same period. The traffic boom will be driven by a dramatic increase in the use of advanced applications such as mobile browsing and video-for example mobile video traffic will grow more than thirty-fold by 2012, according to Mobile Networks Forecasts. The bulk of the traffic boom will naturally happen on advanced networks such as HSPA, EV-DO, WiMAX and LTE, with LTE for example seeing a 70-fold increase in global traffic from 2010 to 2012.

The de-coupling of network traffic-which has a direct impact on costs-and revenues means mobile operators and vendors will have to reinvent their strategies, products and services to cope with the realities of the new mobile broadband era. This helps to explain why operators and vendors are actively pursuing or exploring everything from network outsourcing, network sharing and spectrum refarming to the launch of new and potentially lower-cost systems such as femtocells and next-generation networks.

Another impact of the traffic boom is that it will lead to rebound in the mobile base station market, which is currently flat due to restrained operator investment and fierce price competition. That has led to tough times for mobile infrastructure vendors, and the reality is that the tough times will continue for several years. But Informa Telecoms & Media forecasts that global base station unit sales and revenues will rebound starting in 2011 as operators are forced to add capacity to existing systems and in some cases to upgrade to next-generation networks such as WiMAX and LTE. In fact the traffic boom helps to explain why WiMAX will overtake CDMA to become the third-largest segment in the mobile infrastructure market, according to the base station unit sales and revenues forecasts in Mobile Networks Forecasts.

Apart from seeing a rebound in base station revenues, Informa Telecoms & Media forecasts that 2011 will also be a watershed in that it will be the year when mobile data traffic overtakes mobile voice traffic, which has always driven mobile network design, rollout and operation.

Clearly the transformation of mobile networks from narrowband to broadband and from voice to data will also raise larger strategic questions for operators. For example, many operators are already moving more strongly into mobile Internet content and services, given the higher margins and stock valuations prevailing in those segments. If their strategies are successful they may exit mobile networks entirely, via sales to new dedicated infrastructure players which may in turn rely heavily on infrastructure vendors to operate the networks.

As mobile operators move into mobile broadband content and services, they will naturally have to decide how to cooperate with and compete against the Internet giants such as Google and Yahoo, which have made no secret of their ambitions add mobility to their hugely successful Internet services. In fact a host of operators are already doing deals with major Internet players, though it is too early to gauge the success of the partnerships.

In other words, the mobile industry is still largely structured around its key product to date, narrowband voice, but that structure is breaking down fast due to the boom in mobile network traffic, which is in turn driven by the boom in mobile broadband services. The mobile industry’s transition to mobile broadband is underway, and mobile operators and vendors may never be the same again.

Last week, Oman’s telecoms regulator awarded five “reseller” licenses, allowing the new licensees to launch MVNO services, subject to agreements with host operators. The regulator insists on the term “reseller” rather than MVNO, but in effect they are MVNO licenses.

In Jordan, two license-holders are planning to launch MVNO services, though progress has been held up as a result of a successful lawsuit brought by Orange Jordan against the Jordanian regulator’s legal framework for MVNO operations in the country. But the regulator expects to be able to issue a revised framework shortly, which will allow the two licensees - Friendi Mobile, which also holds one of the new Omani licenses, and the retail chain i2 - to move ahead with their plans.

In both Jordan and Oman, licensees say they expect to launch MVNO services by the end of the year. In addition, Bahrain’s regulator said earlier this year that it will allow MVNOs if agreements are reached between MVNOs and MNOs.

In key markets, such as Egypt and Saudi Arabia, the introduction of MVNOs is still thought to be some way off - about three years away, according to industry insiders - but the regulators in those countries are likely to be studying developments in Jordan and Oman closely. And MNOs in Egypt and Saudi Arabia will most likely be trying to assess what the introduction of MVNOs in their markets means for them.

In Africa, there is only one MVNO: South Africa’s Virgin Mobile. (Operations that are described as MVNOs are not permitted in South Africa, so Virgin Mobile is officially a joint venture of Virgin and host network Cell C.) Africa needs more MVNOs, according to Virgin Mobile CEO Peter Boyd. After a somewhat shaky start, Virgin Mobile has experienced strong subscription growth lately, which seems to confirm that there is a demand for the service. Virgin Mobile had signed up just 100,000 customers a year after its June 2006 launch, but on its second anniversary that number had risen to 495,000.

There is a fairly strong case for MVNOs in the Middle East and Africa. Most countries have or will soon have two, three or more MNOs. And when there are already several MNOs in a market, each with its own network, introducing another MNO that will have to incur the costs of building another network might not be the most effective means of increasing competition.

An MVNO, on the other hand, does not have to build its own network - instead, it uses spare capacity on the network of its host - so its pricing can be competitive. An MVNO can also target particular market segments that are overlooked by MNOs, which tend to focus on the mass market. That niche segment might be the fans of a particular soccer team or, even more specifically, Omani fishermen, who might find it useful to have a service that sent them a text message with the latest prices of hamour.

Or an MNO could use an MVNO partnership as a spoiling tactic against a rival MNO. For example, an MNO that concentrates on the upper end of the market but has a successful rival targeting the lower end could link up with an MVNO to also target the lower end without compromising its premium brand.

MVNOs, like other ventures, are not always successful. US MVNO Amp’d, which targeted the youth market, was one notable failure, filing for bankruptcy in 2007.

But MVNOs have enjoyed fairly strong growth in Western Europe, where they accounted for 7.73 per cent of all mobile subscriptions at end-2007, according to Future MVNO Strategies: Customer Segmentation and Market Evolution, a report published by Informa Telecoms & Media last month.

MVNOs have not achieved as high a level of penetration in Asia Pacific, but this year saw the high-profile launch of Virgin Mobile in India.

MVNOs have been slow to get off the ground in the Middle East and Africa, but perhaps this is where the next big launches could come.

 
 
 
 
The WiMAX-vs.-LTE debate has been contested furiously by backers of the technologies for years, and the weight of industry opinion has appeared to swing in recent months firmly behind LTE as the dominant technology-migration path - largely because of the lethargic pace of global WiMAX deployment.

But although WiMAX might be getting pushed further into the margins, too many commentators are jumping on the bandwagon and criticizing the technology.

Although LTE is the chosen migration path for the world’s leading mobile operators - and HSPA/LTE is going to clean up in developed markets, where subscribers will supplement or even replace their fixed-line residential broadband connections with high-speed HSPA/LTE wireless-broadband service - WiMAX, for all its technical and strategic frailties, still has a potentially huge role to play in the global wireless-broadband market.

It will have no better opportunity to prosper than in Asia Pacific, where billions of people have no means of accessing a fixed-line broadband service.

The industry must remember that fixed broadband remains a relatively niche service in Asia Pacific, which had only 125 million broadband subscriptions at end-2007, compared with 1.34 billion mobile subscriptions.

Developed markets in Asia Pacific will approach broadband saturation over the next few years, and billions of potential broadband subscribers in developing markets are still unable to obtain fixed-line broadband services because no fixed-line infrastructure exists to provide connectivity.

Wireless broadband services are therefore going to be the primary source of Internet connectivity for such markets, and they need to be durable enough to withstand heavy demand for data from billions of users who have been locked out of the Internet era.

Those who tout wireless broadband services delivered over HSPA/LTE networks to give these users their much-needed connectivity should remember that such networks are primarily voice-based and are not designed to provide core broadband services to millions of subscribers.

Data-traffic volumes on HSPA operators’ networks are about 1% as high as those on their fixed-line counterparts’ networks, and HSPA networks are delivering speeds far below their theoretical maximum, even with such relatively light usage.

As a result, there is still a massive case to be made for a specialist data-transmission technology, such as WiMAX, to deliver primary broadband services to billions of subscribers in Asia Pacific, most notably in the potentially huge markets of India, Bangladesh and Pakistan.

There are, of course, problems of affordability, a lack of PCs and a lack of literacy in these countries, shrinking the available market for wireless broadband services. But these three countries have a combined population of 1.5 billion, so there will still be rich pickings available for operators.

In addition, early signs from even chronically poor Bangladesh show that there is a huge pent-up demand for broadband. Mobile operators are already seeing strong growth in the market for even snail’s-pace GPRS/EDGE wireless broadband services.

But despite the potential golden opportunity for WiMAX to deliver connectivity in areas where fixed-line networks are simply never going to be rolled out, WiMAX has some serious problems to overcome if it is to make its case in developing markets.

The first is that mobile WiMAX is jumping around the spectrum band like some sort of crazed rabbit, with deployments taking place across the globe in the 3.5GHz, 2.3GHz and 2.5GHz spectrum bands.

This has massively reduced the potential for WiMAX operators to benefit from the substantially lower prices that would result from standardized network and end-user equipment.

Given the fact that the technology’s key opportunities are in some of the poorest markets on the planet, WiMAX operators must keep affordability in mind and need to do all they can to drive the price of network and customer equipment as low as possible to make the technology accessible to the mass market.

Despite the limitations of HSPA/LTE core broadband networks, mobile operators are going to try bundling wireless broadband with voice services to take advantage of the opportunities being offered by markets with low broadband penetration. And the huge scale of their existing mobile operations means that they will be able to offer HSPA/LTE modems and wireless broadband services at a significantly lower price than WiMAX operators.

That means that WiMAX operators must not only drive their prices as low as possible by pushing for standardization of equipment but must also offer an innovative service that capitalizes on the advantages they have over mobile operators in terms of downlink speeds.

Many mobile operators are highly skeptical of WiMAX’s operating performance in a commercial setting. Nikolai Dobberstein, chief strategy officer of Malaysian operator Maxis, was particularly scathing about WiMAX’s technical capabilities during a panel session at the recent CommunicAsia Summit in Singapore.

Dobberstein told delegates that he had major concerns about WiMAX’s ability to deliver quality in-building reception and said he was skeptical about WiMAX base stations’ ability to deliver reliable services over areas as wide as its backers say it will, especially in a commercial environment.

There is only one way for WiMAX to get past such doubts about its technical abilities: The technology must get out into the market and prove its many critics wrong.

With commercial WiMAX launches scheduled in India, Bangladesh, Taiwan and Malaysia by year-end - and on the horizon in Indonesia, Thailand and the Philippines - the opportunity is right there for WiMAX to grasp. The question is whether it can do so.

 
 
 
 
The European Commission’s latest attempt to iron out the wrinkles in Europe’s mobile landscape has already led to howls of dissent from operators, which claim the action to reduce mobile termination rates (MTRs) could radically change the appearance of the industry in Europe forever.

In the past five years, Brussels has assessed more than 770 proposals by national regulators, taken advice from the European Regulators Group (ERG) and concluded that price regulation of MTRs across Europe lacks consistency and that a new pricing mechanism is required.

Under the proposed mechanism, only the proportion of costs related to increased capacity requirements for carrying wholesale voice traffic would be included.

The Commission says that, on average, 75 per cent of the costs of mobile call termination are network-related, with the radio access network generating slightly more than half. The remaining 25 per cent is typically accounted for by spectrum costs, business overheads and wholesale commercial costs.

The Commission claims it is merely attempting to spur competition among operators and reduce mobile phone bills by about 70 per cent over the next three years. The ERG itself recommended only a 40 per cent reduction in termination rates in this period - from an average of about Eur0.09 (US$0.14) a minute now to about Eur0.055 a minute in 2011 - so the final outcome is far from certain.

Termination rates are at present determined by individual national telecoms regulators and range from Eur0.02 a minute in Cyprus to more than ?0.18 a minute in Bulgaria.

EU telecoms commissioner Viviane Reding says that termination fees currently account for approximately 20 per cent of operator revenues but do not reflect the cost of providing the service; they are also nine times higher than fixed-line termination rates, she says.

Moreover, the Commission says that fixed operators and their customers are indirectly subsidising mobile operators by paying higher termination rates for calls made from fixed lines to mobiles. This cross-subsidisation was estimated at Eur10 billion in Germany for 1998-2006 and Eur19 billion in the UK, Germany and France for 1998-2002.

Nevertheless, the European Telecommunications Network Operators’ Association (ETNO) says the alignment of mobile termination rates to rates in the fixed sector is not appropriate, as the two networks are totally different, and lead to different termination costs.

ETNO also claims that mobile users are already seeing prices fall by an average of 10 per cent a year, with MTRs themselves falling 40 per cent over the past four years. The association said that radical changes to the method of calculating termination rates may result in consumers having to pay to receive calls or the removal of some cheap tariffs or prepaid packages.

Hamid Akhavan, chief executive officer of Deutsche Telekom, also says the Commission proposal is “too drastic”, while Richard Feasey, director of public policy at Vodafone, said it would fundamentally change the way mobile operators cover the cost of operating a network. What’s more, he said, the proposal could lead to calling-party pays (CPP) giving way to the receiving-party-pays (RPP) model prevalent in Canada, Singapore, Hong Kong and the US, whereby customers end up paying to receive calls.

Brussels says that a settlement system of this type avoids the deficiencies of the CPP system, namely high termination rates, and enables consumers to respond to charges where more competitive alternatives exist.

Some leading operators also reckon that large decreases in revenues from termination would signal the end of handset subsidies in Europe, increasing the cost of ownership for customers, lengthening replacement cycles and affecting overall handset sales across the region.

Credit Suisse points out that the reduction in handset subsidies in Europe and North America in 2001 caused handset demand to weaken dramatically, along with the replacement rates for several quarters. “While this remains a risk, especially if subsidies were cut, we believe that the impact may be more minimal now than in the past,” stated Credit Suisse in a report.

The bank says that if replacement rates do moderate as consumers postpone purchases because of the lower subsidies, global volumes are likely to fall by only 2 per cent. Kevin Russell, CEO of 3, says talk of ending subsidies is merely scaremongering by the likes of Vodafone, O2, T-Mobile and Orange. “From 3’s standpoint, our prices would not go up, our handset subsidies would not reduce, and we would be able to put more value in our bundles, which would effectively mean reducing prices,” he says.

Of course, 3 pays out more in termination fees than it receives, so Russell would welcome a reduction regardless. Nevertheless, beyond a short-term reduction in termination rates, the Commission does not expect a fundamental shift in the way mobile operators conduct their business. The public consultation will run until September 3, and the Commission will issue a final recommendation in October.