Will the device be king? The smartphones: a commodity in the Future of Mobile Internet?

17 November 2011 - Frédéric PUJOL f.pujol@idate.org

Content

► Introduction

► Mobile connectivity & smartphones

► LTE devices

► LTE networks status & tariffing

► LTE spectrum & strategies

► Questions

Introduction

Mobile status: Europe vs. USA

Mobile turnover +1% (2010/2009)

-3% (2Q11/2Q10)

+5,2% (2010/2009)

+6% (2Q11/2Q10)

Data revenues share (end-2010) 26.2%

29-32% (BoA)

33.2%

37% (BoA)

Mobile CAPEX Almost flat +18% (2Q11/2Q10)

LTE launch date/ pop. covered End 2009 (Sweden)

Limited launch except in

Germany

End 2010

VZW: 110 M pop (05/2011)

66% pop mid-2012

Mobile ARPU (end-2010) $22.5 $50 (-0.2% y-to-y)

Mobile penetration (end-2010) 128%

Fragmented markets

98.5%

4 carriers have 93% of the

subscribers

Smartphone penetration (end-2010) Vodafone: 19% Verizon: 32%

Source: IDATE & BoA

► The USA are clearly leading LTE deployments with massive coverage and heavy investments

Mobile status: GDP and mobile revenues

► Economic slowdown effect on wireless revenues

Source: BoA

► The 2008-2009 slowdown had a significant impact on wireless revenues in Europe

Mobile traffic increase Mobile traffic usage is getting close to DSL Mobile data consumption trends

Teliasonera Sweden: 14 - 15 GB

Yota Russia: 13 GB*

Clearwire : 7 GB

CSL HK : 6 GB

SK Telecom : 7 GB

Average traffic consumption per user observed

in 2010

Source: IDATE from operators

Mobile broadband traffic mimics the kind of traffic seen on fixed broadband networks

► Mobile users are running similar applications as on fixed networks: IM, Skype voice call, social Networking, video streaming…

Facebook increased its mobile traffic consumption by 200% during the 1H2010 while Twitter

grew by 310% in the meantime (Source: Allot)

Video represents 50% of the world's mobile traffic in 2010

► Moving from traditional voice in favor of data-centric, bandwidth-intensive applications

*One customer used 2 Terabytes of data in a single month (2010)

1 MB

1-2

GB

1 mn of MP3Monthly cap

for many 3G

subscriptions

7 GB

Monthly usage

on Clearwire’s

network

200

MB

2010 traffic figures

(per broadband subscription - not at scale)

Monthly usage

on DSL

networks

7-15

GB

Firtst monthly

cap for AT&T

6.6 MB per day 33 to 66 MB per day 233 to 500 MB per day233 MB per day

Mobile traffic forecasts 2010-2020

► Total worldwide mobile traffic will reach more than 127 EB in 2020, representing an 33 fold increase compared with 2010 figure.

► We anticipate that the total voice and data traffic will reach 45 EBytes in 2015 compared to less than 2 EBytes in 2009. The bulk of the traffic will be video traffic.

Network capacity units:

Source: IDATE for UMTS Forum

-

20.00

40.00

60.00

80.00

100.00

120.00

140.00

2010 2015 2020

Yearl

y t

raff

ic i

n E

B

Europe

Americas

Asia

Rest of the world

World

Total mobile traffic (EB per year)

Note: mobile traffic on licensed spectrum only (Wi-Fi excluded)

Total mobile traffic

Mobile connectivity & smartphones

Mobile Internet usage: already here, and geared for growth

2010: 21.2% mobile Internet penetration, or 1.1 billion subscriptions worldwide

2015: 37.0% mobile Internet penetration, or 2.67 billion subscriptions worldwide

► Leading region: Asia Pacific

● 27.0% penetration rate, or 691M users

● largely thanks to Japan, who has close to

80% mobile Internet penetration

► North America: 26.0% penetration rate

► EU27: 17.9% penetration rate

Mobile Internet penetration, 2008-2010 Mobile Internet penetration, 2011-2015 forecasts

► North America to overtake Asia Pacific by 2015

● North America will climb to 43.6% penetration

● Asia Pacific to grow to 39.1% penetration

► EU27 will remain behind these two regions, but will enjoy healthy growth to 35.1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2008 2009 2010

France Germany Italy Spain UK

USA Japan South Korea Europe World

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2011 2012 2013 2014 2015

World Europe France Germany Italy

Spain UK USA Japan South Korea

Source: IDATE Source: IDATE

Mobile connectivity devices: not just about smartphones Connectivity devices provide the better value compared to smartphones…

… and overall shipments will maintain a steady growth

► ARPU for connectivity devices can be more than double that of smartphones

● Particularly strong with business use

● Also means they consume more traffic

► Tariffs for users are also more favourable

● Per GB price cheaper for connectivity devices

● Smartphone data tariffs are still unstable

Price per GB comparison between devices, UK

Shipment and breakdown of mobile connectivity devices, 2011-2015

(thousands)

► By around 2013, embedded connectivity devices will out-ship external ones

● Decreasing module prices, user friendliness

0

5

10

15

20

25

30

35

Smartphone iPad Dongles Netbooks/laptops

Note: the tariff with the best per GB value is shown in this figure

Source: IDATE Source: IDATE

Smartphone shipment penetration forecast Advanced countries: US, EU5 and Japan Emerging countries: BRIC

► USA: Currently leads, and will continue to lead smartphones shipment penetration

► EU5: Whilst behind the US, will show steady growth higher than worldwide penetration

► Japan: Starts as laggard, but expected to become one of the leaders in next few years

● Smartphone shipment penetration was lower than

that of the world up to 2010, but by end 2011,

expected to be one of the leaders

% of smartphone shipments, 2010 - 2015

Source: IDATE Source: IDATE

% of smartphone shipments, 2010 - 2015

► Brazil: Roughly in line with worldwide penetration

► China: Whilst they have a massive population, smartphone penetration expected to remain relatively low for now

► Russia: Expected to show steady growth, a little behind China

► India: Expected to show the least and slowest growth of penetration

0%

10%

20%

30%

40%

50%

60%

70%

2010 2011 2012 2013 2014 2015

World EU5 USA Japan

0%

10%

20%

30%

40%

50%

60%

2010 2011 2012 2013 2014 2015

World Brazil Russia India China

Review of LTE devices availability

Early LTE handsets:

Samsung Craft and

Galaxy Indulge

Voice supported on 3G networks

HTC Thunderbolt, Verizon, first

LTE Smartphone

Dongles and personal hot-spot devices prove to be popular

Tablets are an important part of the device offer Routers for rural areas (Germany, Verizon)

Novatel MiFi 4510L mobile hotspot

Dongles & mobile hot-spots

Tablets

Mobile handsets: early developments

Other connected devices

Motorola Xoom tablet

ZyXEL LTE fixed router

Sierra Wireless M2M LTE gateway

Samsung’s first LTE dongle

AT&T’s first mobile hotspot and dongle

AT&T’s first smartphones

Samsung’s GalaxyTab 10.1

►30 Modules, 11 Tablets, 10 Notebooks, 2 PC Cards, 27 Smartphones, 70 Routers, 47 Dongles - Source: GSA 11/2011

►700 MHz: 106, 800 MHz: 42, 1800 MHz: 41, 2600 MHz: 52, 800/1800/2600 MHz: 32, AWS: 35

LTE networks status & tariffing

LTE deployment roadmap Geographical mapping of early LTE commercial deployment

Major operators LTE commercial deployment schedule

Source: IDATE

Canada and USA

Europe

Asia

3GPP WCDMA

Operators

TD- SCDMA

3GPP2

CDMA

operators

2009 2010 2011 2012 2013

In September 2011, 30 operators had

launched LTE service and at least 16 more are

expected during the second half of the year

Major deployment for Verizon Wireless: 110 M

pop covered at end-2010 and 160 M at mid-

2011 (nationwide by 2013)

Limited coverage for European operators

except Germany

LTE subscribers figures Sept. 2011

Verizon Wireless: around 3

million

DoCoMo: 390,000 Xi (LTE) subscriptions, with a full-year target of 1.3 million

Enablers of mobile traffic and tariffing trends

Source: IDATE

►Towards more differentiation (device type, speed…), more QoS management

LTE tariffing TeliaSonera (Sweden) - 2009

► EUR 62 per month including the usage of 30 GB data per month

► Additional data volume costs € 8.7 per 2GB and € 12.9 for 5GB

MetroPCS (USA) - 2010

► The $55 plan includes unlimited voice, texting and LTE data access

► LTE-capable Samsung Craft for $299

A1 Telekom (Austria) - 2010

► Plans LTE commercial service in Vienna in the 2.6 GHz band

► 30 GB of data a month at speeds of up to 150 Mbps for €90 per month

Vodafone (Germany) - 2011

► 7.2 Mbps downstream for €39.99 per month with a cap of 10 GB

► For a downlink speed of 50 Mbps and 30 GB cap, the monthly cost is

€ 69.99

Source: IDATE

Plan Monthly fee Monthly data

Allowance

Overage fee

4G mobile broadband plans (for 4G USB modems) USD 50 5 GB USD 10 per 1 GB

USD 80 10 GB USD 10 per 1 GB

Mobile broadband connect and 3G mobile hotspots

(for smartphones and feature phones)

USD 20 2 GB USD 20 per 1 GB

Mobile broadband plans (tablets, netbooks) USD 20 1 GB USD 20 per 1 GB

USD 35 3 GB USD 10 per 1 GB

USD 50 5 GB USD 10 per 1 GB

USD 80 10 GB USD 10 per 1 GB

Name and scope of rate plan Speed/

‘Surfzone’

hotspot

speed

USB-modem

(for contract

of 18 months)

Data

volume

Monthly tariff/

rate with

discount 1

Mellan 4G (‘Intermediate 4G’)

5-10

Mbit/s

<22 Mbit/s

Included 10 GB SEK 299

SEK 249

Stor 4G (‘Grand 4G’) – Promotion

price

10-20

Mbit/s

<22 Mbit/s

Included 20 GB SEK 349 for

18 months2/

SEK 299 for

18 months3

Total 4G – Promotion price 10-80

Mbit/s

<22 Mbit/s

Included 30 GB SEK 349 for

six months4

SEK 249 for

6 months5

The LTE wholesale model

Source: IDATE

Sells Mobile

WiMAX

capacity

Will sell LTE

capacity

Provides cells

sites and

helps building

theterrstrial

LTE network

Build a common GSM and LTE

network (Sweden)

Will sell LTE

capacity to

MVNOs and

distributors Sells LTE

capacity

Sharing

agreement?

Sells LTE

capacity?

Builds a wholesale LTE network in

the 2.3 GHz band for rural areas

Builds a wholesale LTE network in

the 1800 MHz band (Poland)

Plans to build a wholesale LTE

network in the S-band (USA)

Many actors using new

spectrum (satellite L-

Band, S-band, 2.3

GHz…)

Consolidation likely in

the USA

Difficulties in Russia

Sharing and wholesale

model can be

combined

LTE subscribers forecasts

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

Asia-Pacific 1,066 8,383 29,260 70,402 133,310

Western Europe 1,103 4,292 14,946 44,607 85,246

Central & Eastern Europe 68 1,547 3,600 11,592 21,879

North America 11,635 32,588 58,323 85,535 118,955

Latin America 247 1,027 3,402 11,128

Africa-Middle East 223 1,469 5,298 8,493

Total 13 872 47,280 108,624 220,836 379,012

2011 2012 2013 2014 2015

Source: IDATE (June 2011)

► By the end of 2015, we forecast that overall there will be more than 379 million LTE subscribers (worldwide).

► We forecast 13.8 million LTE subscribers at the end of 2011 with the USA representing the bulk of this figure with 11.6 million subscribers.

► At the end of 2015, Asia-Pacific should represent 35.2% of the total, North America 31.4% and Western Europe 22.5%.

LTE spectrum & strategies

LTE spectrum

► Regional harmonisation likely to be the first step

Americas: DD (700 MHz), AWS, 2.6 GHz

Europe: DD (800 MHz), 1800 MHz, 2.6 GHz

Asia Pac: 2.3 GHz, 2.6 GHz

► In the USA, LightSquared will use specific bands (1.4-1.6

GHz…)

► Roaming is not a priority today

Source: IDATE

Main LTE frequency bands

Fragmentation is here Countries Existing frequency bands New frequency bands

Europe 900 MHz

1800 MHz

2.1 GHz

800 MHz (790-862 MHz – Digital Dividend)

2.6 GHz

USA 850 MHz

1.7/2.1 GHz (AWS)

1900 MHz (PCS)

2.6 GHz

700 MHz (698-806 MHz)

1.4-1.6 GHz (LightSquared)

S-band (Dish)?

South America 1.7/2.1 GHz (AWS)

1800 MHz

1900 MHz (PCS)

700 MHz (698-806 MHz)

2.6 GHz

China 2.3 GHz

2.6 GHz

Japan 850 MHz

1.7/1.9 GHz

2.1 GHz

700 MHz (698-806 MHz planned)

1.5 GHz

South Korea 1800 MHz

2100 MHz

800 MHz

Rest of Asia-Pacific 1800 MHz 700 MHz (698-806 MHz planned)

2.3 GHz

2.6 GHz

Legend: Currently used by LTE Likely use by LTE Other mobile frequency bands

5.1

84.2

29.9 20.3

49.6 50.670.3

518.2

10.7

54.531.1

71.4

0

100

200

300

400

500

600

Australia 850

MHz 2004

Canada

AWS 2008

France

UMTS core

band 2001

France Free

2009

France 2.1

GHz Orange

2010

France 2.1

GHz SFR

2010

Germany

800 MHz T-

Mobile 2010

Germany

UMTS core

band

Germany

2.1 GHz

2010

Spain 800

MHz 2011

Sweden 800

MHz 2011

USA 700

MHz 2008

Premium spectrum (€ cents per MHz per pop)

► EUR 70 cents per MHz per pop in Germany for

the DD: very close to the level reached in the

USA. In Sweden it sold for EUR 31 cents, in

Spain for EUR 54 cents and in Italy for 85 cents.

► 2.6 GHz spectrum much cheaper: in the EUR

0.1-10 cents range

► France 2.6 GHz: € 11 cents

► Italy 2.6 GHz: € 6 cents

Spectrum price

21

Need for

additional

capacity

Reduce costs

Competition

Increase

ARPU

Provide

higher data

rates

Need for

additional

capacity

Reduce costs

Competition

Increase

ARPU

Provide

higher data

rates

Need for

additional

capacity

Reduce costs

Competition

Increase

ARPU

Provide

higher data

rates

Need for

additional

capacity

Reduce costs

Competition

Increase

ARPU

Provide

higher data

rates

Need for

additional

capacity

Reduce costs

Competition

Increase

ARPU

Provide

higher data

rates

Need for

additional

capacity

Reduce costs

Competition

Increase

ARPU

Provide

higher data

rates

Reduce costs

Competition

Increase

ARPU

Reduce costs

Competition

Increase

ARPU

Reduce costs

Competition

Increase

ARPU

Need for

additional

capacity

Need for

additional

capacity

Need for

additional

capacity

Provide

higher data

rates

Provide

higher data

rates

Provide

higher data

rates

Source: IDATE

LTE strategies

IDATE has identified five key drivers as reasons for MNOs to migrate to LTE: ►Reduce costs ►Need for additional

capacity ►Increase ARPU ►Provide higher data

rates ►Competitive pressure

Questions

Is the feature phone dead?

What could be the features and functionalities of future smartphones?

What price range for smartphones in 2012?

How many operating systems will survive?

What will be the economic burden of the associated application stores?

Is there a real risk of operator disintermediation via Soft SIM card strategies?

THANK YOU!

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