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Mobile telecoms – from technology to market
Bengt G Mölleryd Ph.D, PTS
Swedish Post and Telecom Agency
Guest researcher kth@wireless
January 29, 2010
Email: [email protected]
Presentation prepared for KTH IK2555 Mobile and Wireless Network Architectures
2010-01-30 2
Sweden - Stagnating market
…no value growth on the market for electronic communication, growth of mobile and broadband is not sufficient to offset declining PSTN
-6,0%
-4,0%
-2,0%
0,0%
2,0%
4,0%
6,0%
8,0%
10,0%
12,0%
14,0%
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Tillväxt telekommarknaden (inflationsjusterad) Telekom/BNP
Telekom/BNP 1.6%, down 40 bp 10 years
Total market: end customer revenues declined 5% 2008 (inflation adjusted)
2010-01-30 3
Global: Similar picture
• European mobile revenues down
3.5% y-o-y during Q309
• Japan is loosing ground
• Market mature, regulation,
competition, cyclicality
• Net addition down, voice
business stagnating
• ARPU/MoU down 10% y-o-y in
Q309
• Voice business deteriorating…
continued price pressure,
regulation, competition, VoIP…
Mobile revenues annual growth rate, 2004-2009
-20,0%
-15,0%
-10,0%
-5,0%
0,0%
5,0%
10,0%
15,0%
20,0%
2004 2005 2006 2007 2008 2009F
France
Germany
Italy
Spain
UK
USA
Japan
2010-01-30 4
Background
• Researcher at EFI, Stockholm School of Economics 1990-99
• Ph.D. Oct 1999 ”Entrepreneurship in Technological Systems - The Development of Mobile Telephony in Sweden”
• Analyst with focus on telecom
• AB Stelacon 1999 – 2001
• Evli Bank 2001-05
• Nordea 2005-06
• Standard & Poor’s 2006-07
• Handelsbanken 2007-09
• PTS 2009-
ST ELA CONM A R K ET IN G R ES EA RCH & CON SU LT IN G
2010-01-30 5
Topics
• SIM – number => termination – regulation - LRIC
• Spectrum – 800 MHz => more spectrum – lower capex
• Mobile broadband – exponential traffic growth => Revenue gap?
• Handset market => Apple shaking up the industry
• Mobile infrastructure => price erosion hitting Ericsson, Nokia
• Concluding
2010-01-30 6
Mobile Termination
2010-01-30 7
Subscriber Identity Module (SIM)
E.164
ITU recommendation for the international number plan that are used by PSTN
+
2010-01-30 8
Mobile termination – price regulation
• Monopoly on terminating calls (controlling the numbers)
• Regulated price to terminate calls
• Way to set the price - LRIC (Long run incremental cost)
• Break through for mobile data change the traffic balance
• EU directive on mobile termination (incremental cost)
2010-01-30 9
Mobile termination – glide path
• Updated LRIC model result 0,32 SEK/min
• All operators beside Tele2 adopted the price recommendation from PTS
• High profitability on termination
• Price plans
0.2130.2370.271
0.319
0.382
0.255 0.243 0.2330.208
0.182
0.0
0.1
0.2
0.3
0.4
0.5
2008/09 2009/10 2010/11 2011/12 2012/13R
eal 2
009
SEK
Highest Lowest
2010-01-30 10
Mobile termination going down in Europe
2010-01-30 11
European Commission is pushing
• EU recommendation on FTR/MTR
• ”Common cost” in Swedish law
• Implementation of reviewed EU directives in Swedish law
• Draft calculation 0,10 SEK/min eur 0,015-0,03
• PTS continue to work on long term solution
• Considering different solutions: Bill and keep with fall back solution is one option
• Europe following suit down the glide path…
2010-01-30 12
Ways to undermine the termination monopoly
• VoIP (SIP)
• Call back
• UMA
• Multiple SIM cards
• Possibility for receivers to pay
• Other options
2010-01-30 13
Spectrum
2010-01-30 14
Spectrum
• 800 MHz auction during H2, 2010• Impact assessment
• Decision process ongoing
• 900 MHz• Licenses awarded (decision appealed)
• Refarming ok, GSM directive not yet altered
• 1800 MHz • process ongoing
2010-01-30 15
The impact of amount of spectrum
0
10
20
30
40
50
60
70
80
90
100
0 10 20 30 40 50
MHz of spectrum
Num
ber o
f site
s
Spectral eff = 1,70(LTE type)
Spectral eff = 0,70(HSPA type)
Brazil
UK
Sweden- Operator ”3” - Telia- Tele2+Telenor
2010-01-30 16
Spectrum lowers capex
• Assumes 100 GB per user and month, 38% market share, 85% penetration
• Capex drop with SEK 6.8bn going from 10 to 20 MHz i rural
• Production cost drops with 91% going from 10 till 20 MHz
• In Suburban and Urban lowers capex with ca 30% for every 10 MHz
TeliaSonera Capex
0
2 000
4 000
6 000
8 000
10 000
12 000
14 000
16 000
30 MHz 40 MHz 50 MHz 60 MHz 70 MHz
Spektrum i sub-urban
mnkr
10 MHz 20 MHz 30 MHz
TeliaSonera - Annuitet capex per GB
0,00
0,50
1,00
1,50
2,00
2,50
3,00
3,50
4,00
10 MHz 20 MHz 30 MHz 40 MHz 50 MHz 60 MHz 70 MHz
kr
per
GB
Rural Suburban Urban
2010-01-30 17
Mobile broadband Revenue gap?
2010-01-30 18
Findings from current development
• Mobile broadband unable to drive revenues
• Operators forced to look for new revenue streams
• Lower termination fees puts pressure on ARPU
• Lower free cash flow restricts capex
~1% of the price per MBCompared to voice
~10% annual price erosion for voice
26% cut in Sweden
priority to hold up FCF, funding is now normalized
2010-01-30 19
Mobile broadband: revenue gap?
Traffic
Revenues
Network Cost
TimeVoice is dominating
Data isdominating
Amount of- traffic- revenues- costs
?
?
Traffic
Revenues
Network Cost
TimeVoice is dominating
Data isdominating
Amount of- traffic- revenues- costs
?
?
2010-01-30 20
Operator options
• Network sharing
• Spectrum refarming
• Offloading heavy data traffic to local networks
• Pricing strategies and service differentiation
• New types of services and revenues
~20-40% saving
Femotcell, WiFi (hot spots) (reduce need to upgrade)
Raise prices, caps, reduce usage
From access to VAS
~40-60% saving
2010-01-30 21
Operator challenges
• Flat rate subscriptions
• Scalability of cellular systems
• Cost structure of cellular systems
• Changes in the business landscape
€ 20 tipping point
Coverage vs capacity,peak load (busy hour)
Radio, core, backhaul
Telecom vs Internet view
2010-01-30 22
Support from mobile internet• SMS is maturing, non-SMS data
ARPU, Boosting the sector by ~2%
• Mobile internet in Europe is rather smartphones rather than dongles
• Vodafone Europe: 20% of handsets are smartphones, aiming for 30-40% 2010
• Only 10% of customers pay a data bundle
• Vodafone Europe mobile internet revenues +30% y-o-y in H1 FY 2010
• US explosive growth of data, revenues fuelled by 3G dongles and smart phones
2010-01-30 23
Operators loosing ground
• Operators loosing ground in the Apps battle
• Handset and Apps developers gaining ground, but ongoing battle on open vs closed systems
• Access to one Internet in focus, giving US firm an advantage
• …but it is also a question of innovation…where Europe is laggards
Mobile web sites share of UK mobile internet users
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Carriers
BBC
Nokia
Yahoo
Microsoft
Wikipedia
2007 2008
Previous NowDeveloper 20% 70%Publisher 20% 0%Aggregator 20% 0%Operator 40% 0%Handset supplier 0% 30%
Revenues from applications
2010-01-30 24
Focus on access and/or services• Operators focusing on services
or only access?• A myriad of services: each
being small versus operators’ revenues• Digital content, music, social
networks, location based, apps
• Different business models: more complex to handle for operators• Pay-by-click, subscription, ads
• Many new competitors with established brands: operators market share will be small• Web and software players,
hardware, content
• Enabler, 3rd party service
Comparison of annual growth rates for mobile voice and data revenue, EU 2004-2009
Data
Voice
2010-01-30 25
Mobile infrastructure
2010-01-30 26
Network infrastructure market
• Networks and related services
will decline 10-15% y-o-y in
2009 (EUR)
• NSN forecasts a flat market for
2010 (including services),
skeptics expect the market to
decline 5-10%.
• Telenors 4G deal (EUR 50m)
replacing its entire mobile
infrastructure in Norway (GSM,
3G, 4G) and a path to migrate to
IP
Ericsson
Nokia
SIX Generalindex
Cisco goes after mobile infrastructure market with $US2.9b Starent purchase (Oct 2009)
"global mobile data traffic to more than double every year through 2013, with a 66-fold increase in mobile data traffic between 2008-2013. Service providers need a completely new approach to deliver these new services and build efficient mobile networks for this enormous growth in traffic.
2010-01-30 27
Mobile handsets
2010-01-30 28
Nokia aiming to strike back
• Iphone has fundamentally shaken up the industry (8.7m Iphone sold, compared to 126m by Nokia druing Q409)
• Continued severe price pressure in all segments, but Nokia expect its ASP will decline less than the industry average, but ARPU for smartphones EUR 186)
• Symbian is under pressure, Nokia aiming to strike back plan to launch smartphones based on Symbian 4 in H2 2010
• Microsoft losing ground…
• Apple, Android and RIM gaining ground
Handset ARPU
0
100
200
300
400
500
600
700
Nokia
Sony
Erics
son
Motor
ola
Sam
sung
LG E
lectr
onics
Blac
kber
ry
Appl
e
HTC
Tota
l
US
D
2008 2009e
Smartphone OS market shares
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Symbian RIM Apple Microsoft Android Others
Q308 Q309
6x
2010-01-30 29
…but is by far the largest
• Industry expect 10% y-o-y volume growth and 5% y-o- y value growth for the overall handset industry in 2010
• Focus on smartphones, customers want touch screens…
Handset shipment
471
68 69
252
120
37 33 130
50100150200250300350400450500
Nokia
Sony
Erics
son
Motor
ola
Sam
sung
LG E
lectro
nics
Blac
kber
ry
Appl
e
HTC
Million u
nits
2008 2009e 2010e
18x
2010-01-30 30
Concluding• Termination charges coming down – going
towards Bill and Keep. And new technology undermining termination monopoly
• Spectrum will be key when migrating to LTE (lower equipment prices)
• Mobile broadband reshaping the operator business
• Operators loosing the mobile Apps race and is focusing on network enhancements in order to make a business on mobile access
• Differentiate access services, bundling and QoS in order to generate revenues…
