March II 2007

Fredric Morris
Editor-In-Chief
Connect-World

Mobile, place your bet
The 3 GSM show in Barcelona had spectres of markets past, present and future hovering overhead. The ghost of telecom markets past, fondly remembered, mingled with the dwindling, surviving, remains of traditional markets. The ghost of mobile commodity market future was an unspoken troubling presence. The ghost of mobile commodity present was just a pesky, persistent – nonetheless ominous, presence that everyone wished would go away.
The market is going through a profound transformation, IP driven and convergence carried, that is changing the way we think of communications, what we expect from communications and how we will pay for communications. No one is quite sure of the grounds they stand on.
Commodities markets may be low margin, but they can be enormous – they tend to be among the largest of markets. Commodity pricing is usually regulated by supply and demand, but in the case of a commodity/utility/service that regulatory authorities tend to watch quite closely wide price swings and unstable markets don’t seem quite as likely as they do, say, at the fuel pump.
The future might seem glum to mobile operators contemplating dropping prices and free-falling ARPU, but a rescuer might be galloping down the pike to save them – the advertising industry.
In recent years technology has made it harder and harder for a huckster to make an honest living. Newspapers and other highly ‘perishable’ publications are wondering just how to deal with an increasingly connected world, with increasingly chained-to-the-Net consumers that are becoming accustomed to read the news on-line almost as it happens. Most are migrating to a mixed print/digital strategy and others, as the New York Times recently announced, expect to become fully digital publications one day. The demand for printed versions won’t go away anytime soon, but newspapers are already feeling the crunch and the advertisers that depend upon them to announce special prices for orange juice or sausages are wondering where to go. Television viewers in many parts of the world, now that TIVO is becoming more common, are time-shifting much of their viewing and escape from many of the ads aimed at them. Once-again advertisers are wondering how to reach their market.
Mobile media may well be part of the answer for these advertisers. The Barcelona 3GSM show had companies exhibiting services designed to connect pre-qualified mobile consumers to advertisers; they pay the mobile user – yes, the user – for each ad they listen to or view. This reduces the subscriber’s cost for mobile services, makes the operators happy that more users can afford their services and pleases the advertisers who pay only for exposure to a select pre-qualified audience that belongs to a market group they are targeting.
The mobile advertising market will be hot. I’ve seen studies that claim close to 80 per cent of those questioned would be pleased, well at least not upset, to receive timely, relevant, advertising. Surprisingly, well over half these would even provide personal details to guarantee they were accurately targeted. Other studies have found that content – music, video – downloaders have opted 60 to 1 for advertising subsidised versions in place of the full-price, no advertising, version.
Newspaper and television advertisers are quite pleased with the potential of mobile marketing especially for localised, buy-it-now, type advertising. Also pleased are those that advertise on the Internet, since within a few years there will be more users accessing the Internet via their mobile phone than via a PC. The fact that Internet users will seek products and services on their mobile just as avidly as they do from a PC, has not escaped Web companies such as Google and Yahoo, that are running to prepare themselves for the day when much of their advertising will be accessed by a large new mobile audience, by users who don’t have PCs, who rarely, if ever, access the Net today.
The big difference from the advertiser’s point of view is the intensely personal, individualised, experience that mobile makes possible. The nature of the mobile connection makes possible a sort of loyalty that broadcast TV can’t hope to match. Although not much good for involved sales messages, technical pitches and such, mobile permits the sort of micro-targeting ideal for a ‘50 per cent off sale’ of women’s shoes, supermarket bargains, an instant offer of a cut-price weekend trip package and the like.
Some operators are beginning to see the light – the rising sun of a new mobile market. Access to instant messaging, IM, social networking and email services such as Yahoo, AOL and Google are already pushing operator’s revenues in the USA. It is Hutchinson’s new X-Series, though, that should serve as a wake-up call to the industry. By bundling a number of applications that everyone wants for an affordable flat fee – access to Google, Skype, Yahoo! Orb, eBay, Sling, among others – they have kicked off a business model that heralds the age of mobile commodity. Like it or not, the rest are sure to follow, probably much more quickly than they would like.
In my last eletter, I closed by saying that, “These low cost handsets will certainly become the developing world citizen’s primary access to the Internet, and may very well become our primary access as well”. They won’t all be low cost, though, full keyboard, relatively large screened devices, with seamless connectivity via mobile technology, WiFi, WiMax, Bluetooth UWB, will be increasingly important to business users and increasingly important to a flourishing mCommerce, mobile commerce, market.
Mobile devices that can pay bills, remotely keep track of your home, deal with your bank, save fuel by optimise your trip plan, warn of traffic, fit in your pocket but serve as an office away from your desk, will become necessary to our way of life. They will also determine the way businesses are run internally and how they reach their market. Indeed, they may well become so important to the overall functioning of the market that many businesses might subsidise them, if they can be used to direct business to their door. It might not always be worthwhile for a single company to do so, but a handset that directed business to a variety of non-competing companies, depending upon the users needs, might well be subsidised by a good number of such companies. I wouldn’t be surprised if competing mobile marketing cooperatives eventually evolved to appeal to specific types of consumers.
Can it be that the future of mobile, of the operator’s sacred ARPU, is bound not to the mobile user, but to the mobile seller? Could it be that the mobile dependant business, the standard bearers of the new mobile economy will have to pay a steep going rate to get their piece of the mobile consumer’s attention, much as detergent suppliers pay supermarkets for exclusive, eye-level shelf space for their product?
It’s a new game, place your bets!

March I 2007

Fredric Morris
Editor-In-Chief
Connect-World

The Wall
The 3GSM show, in its second year in Barcelona, has been constantly growing since its years in Cannes. The movement, and the number of exhibitors, is greater each year year. Vendors and operators vie to show off their latest and greatest equipment, services and plans. The talk is optimistic, hype – bull – abounds. The bull must have moved across the plaza in front of the 3GSM show from Barcelona’s now closed Monumental Bullring – currently shrouded, top to bottom, in 3GSM related advertising.
Bull apart, the major presence at the show was neither much noted nor commented; it was the Wall, with the chilling word, COMMODITY, writ large upon it. It might even have been the same wall upon which the biblical warning to the Persian king was written – Mene, Mene, Tekel, Upharsin – roughly, you have been weighed and found wanting, your days are numbered and your kingdom is done.
Wireless operators, like it or not, will soon be facing the same fate as fixed operators; they will, as well, inevitably become purveyors of a commodity. Wired and wireless operators alike both tend toward becoming BFDCP – big, fat dumb, cheap, pipes. There is nothing wrong with BFDCP; lots of money can be made providing them, but competition is tough, the margins are low and growth – if any – after a given point, is predictable.
Services, applications and content they say is the way to go, to build relevance, market share and a bullet-proof future. Content is king! Kinging, is good work if you can get it, but from Ozymandias to today’s mostly ornamental monarchs, it has not proved to be as good a job as legend would suggest. Kings die, are killed, deposed or just sort of run out of steam – they generally don’t have much of a future.
At the 3GSM show, content and multimedia had a hall to itself this year. With a number of notable exceptions, the representatives were too often more seedy than kingly. The problem with content over the long term is that it suffers from some of the same problems as the ‘pipe’ – people can spend just so much. There is always pressure for fixed commodity priced solutions that users can pick and choose among to ‘personalise’ their experience. Over time, given competition, and the need to keep the churn down, prices will drop and more and more content will be bundled in fixed-price packages. The BFDCP will be filled with BFSCP, big, fat, smart, cheap (content and application) packages, a truly nice commodity fit that will get, smarter, fatter and cheaper as time goes by.
Businesses will spend what they must for the services they need until another provider – as always happens – does it better or cheaper. Network owners, though, are uniquely positioned to provide a number of user management and security services, among others, that only the network controller has the ability to provide. The key word is control. Today, the big operators control their networks, but equipment manufacturers are pushing the day when users will have seamless access to whatever networks happen to provide the best (commodity) service, and (commodity) price for whatever users need wherever they happen to be at the moment. When this day comes, the network operator’s current advantage in this domain will vanish and a host of new management and security problems will appear. Protecting intellectual property rights, and controlling seamless access rights and security over a constantly changing network configuration, will bring especially challenging problems I can barely begin to imagine.
Mobile operators do well, despite the need to heavily subsidise handsets in many major markets to ‘buy’ and keep subscribers. The subsidies let them control the handsets and the services that can be accessed by their subscribers; operators often disabling access to services and applications, such as Skype, harmful to their revenues. Although subsidies cut the subscriber’s initial investment, at times to zero, it also means operators must charge more; none could survive at the US$7 ARPU (average revenue per user) that some of India’s mobile operators are said to make a profit on.
The push by handset and network equipment manufacturers toward seamless interoperability and WiFi enabled handsets has most wireless operators worried. Few, for example sell WiFi enabled handsets and most are betting their future – at least short term – upon finding network strategies that will allow them to maintain their control over mobile access.
To give their networks the competitive edge they need to survive, operators are placing their hopes upon newer, faster, versions of mobile technology, such as LTE (Long Term Evolution), to outperform the WiFi and WiMAX services they will compete with. Vodafone’s CEO Arun Sarin, made the stakes clear with his keynote speech warning that, “We need to make sure that LTE is not still at the standards stage, while WiMAX is a commercial reality.” Mr Sarin also threatened to consider using the promising OFDM (Orthogonal Frequency-Division Multiplexing) technology if LTE did not move faster.
WiMAX, especially the newly standardised mobile version, is a greater threat to mobile operators than WiFi because of its much greater range, its mobility and flexibility. Fortunately for the mobile operators, WiMAX, according to a number of engineers at the show, is having teething problems, mainly with network element interoperability that will delay its full scale deployment until they are all sorted out. Apparently the much heralded standardisation of its mobile features left a bit too much room for interpretation. Differing interpretations have caused problems when integrating equipment from diverse manufacturers.
Despite their attempts to block handset access to WiFi and WiMAX, the operators know they are only fighting a delaying action. Recent court challenges in the USA based upon the Carter decision that loosened AT&T’s monopoly over the equipment used on its network will probably force the mobile operators to let unblocked handsets access all the services and features of their networks. Similar efforts are underway in Europe.
The use of unblocked equipment – including, in the future, software configured ‘cognitive radios’, which automatically make the best use of whatever spectrum is available – and IP across-the-board for all communications, will make possible seamless access to almost any network. It also might destroy the mobile operators’ current, lucrative, revenue model. This won’t destroy them, any more than the fixed operators have been destroyed by mobile, but their world will never be the same.
Seamless access will be truly disruptive to all; there is hardly a facet of the business that will be left untouched. It will even disrupt the business models of handset providers accustomed to sell specially configured, blocked phones to providers. The changing business models will increasingly force handset manufacturers to sell directly to a very price sensitive public. The growth of this sort of model for handset sales will tend to force prices down. Still, recent experience with ultra low cost handsets (ULCH), handsets that cost less than US$30 ex-factory in developing markets proves there is a lot of fat to cut not only in basic models, but in larger screen, full keyboard, broadband capable models. It may take a few years, but we are sure to see under US$100 and, eventually, under US$50 full keyboard, colour screen broadband, WiFi, WiMAX, and GPS enabled handsets.
These low cost handsets will certainly become the developing world’s primary access to the Internet, and might well become our primary access as well.
One thing is sure; although not all those in the sector believe the handwriting on the wall, few are very comfortable about the looming industry shakeout.

Our next Connect-World Europe Issue will be published later this month. This edition of Connect-World will be widely distributed to our reader base and, as well, at shows where we are one of the main media sponsors such as: MVNO (27-28 March, Madrid), Sviaz / Expo Comm (14-18 May, Moscow), FT Mobile Media Conference (15-16 May, London), Wimax World Europe (29-31 May, Vienna), and Von Europe (11-14 June, Stockholm).

The theme for this issue will be, The network business – strategies for tomorrow.
When speaking of networks, conventional wisdom and traditional business models no longer work as they did. The lines are blurring in the fixed, mobile and even broadcasting markets. Wired networks now handle traffic once thought suitable only for wireless and wireless is substituting wired in a broad range of applications. Seamless handoffs between wired and wireless networks –and, indeed, mergers, partnerships and consolidations bringing together networks and players of all sorts – further confuse the once prettily organised networking landscape.

This issue will examine what these changes in technologies and the market mean for the sector. How can the residential and business consumer best be served? What does the future hold for network operators of all types?