competitive edgeCompetition is back in the spotlight as operators try to tackle mobile and Internet service growth and look to build scale

news in brief

5 Timeline A roundup of some of the major stories reported in our daily news service www.totaltele.com

content strAtegies

8 Location-based services operators are looking for new business models to make revenues from location-based services.

business And finAnce

11 Competition in mobile markets A new report shows that regulation has had mixed results in terms of boosting competition in mobile markets globally, just as the us is set for further consolidation.

technology trends

15 Next-gen Internet business models as well as technologies will shape the next generation of internet services, as traffic growth spirals.

network strAtegies

19 WiMAX futures growth forecasts for wiMAX are still strong despite the uncertain future of some operators and the march of lte.

stAtistics

22 Prime numbers record mobile subscriber growth worldwide, mobile churn declines in europe, and hosted iP services.

leader contents

ian Kempeditor

Total Telecom+

Business analysis for telecoms professionals APRIL 2011

Many telecoms markets have opened up to much greater competition since

bt became the first national opera-tor to go down the path to privatisation some 26 years ago. today many mobile markets continue on that path, with new licence awards a regular occurence and virtual network operators receiving clearance from regulators to provide targeted services that give consumers greater choice than ever. regulators are also going to work on tariffs, with the uk and france in March announcing further mobile termination cuts over the next few years (see timeline).

but despite increased choice and

improved pricing, regulatory action has yielded mixed results in terms of mobile competition globally as we highlight in our analysis on p.11. last month’s big news—the proposed acquisition of t-Mobile usA by At&t—has once more raised the question of competition as operators look for scale through consolidation and governments and regulators seek the best way to ensure widespread next-generation mobile and broadband services.

competition takes on many guises

Regulatory action has yielded mixed results globally

clicK Here

to read on

your ipHone/ipad

and the telecoms landscape is chang-ing fast. As regulators mandate greater access to (former) incum-bent networks—bt faces further reductions in wholesale pricing after new proposals from ofcom—fresh players are springing up to deliver new services and in some cases bypass those networks altogether. where once operators hoped to take a lead in location-based services, now they are playing catch-up with internet and handset heavyweights and still trying to use their network assets to make revenues (p.8).

regulators have largely shied away from intefering with the internet, although the debates over net neutrality and prioritisation of traffic are far from over. regulation will surely play a part in the next generation of internet services, but so too will improving technologies and developing business models. operators are concerned about sky-rocketing traffic on their networks and how to fund infrastructure needed to support it and maintain quality of service: our technology trends this issue takes a look at this big subject and what operators such as At&t and Verizon are doing.

Mobile operators, too, are grap-pling with data growth, and many are building lte networks for their next-generation services. but we show that there is still life left in that other 4g-pretender, wiMAX, both as a complementary and competitive technology. n

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Source: Telegeography

$0 $5,000 $10,000

Median Monthly Lease Price (US$)

$15,000 $20,000

Long-haul Ethernet prices on key routes, Q1 2011

London - New York City

Hong Kong - Singapore

Hong Kong - LA

Hong Kong - London

Frankfurt - Paris

Miami - New York City

n Faste, eoMPLS n Faste, eoSdH

timeline

teliasonera, telenor and turkcell are reported to be among seven bidders for Polkomtel, which is 24.39%-owned by Vodafone.

Microsoft funds Nokia switch reports suggest Microsoft will give nokia us$1 billion for marketing and development costs to migrate to the windows Phone operating system.

KPN shuts down mobile TV kPn will shut down its dVb-h mobile tV service in June. subscribers have fallen from 40,000 to 20,000 after the service was launched in 2008.

TI raises Argentina staketelecom italia raised its stake in telecom Argentina from 18.3% to 21.1% by purchasing a further 10% of holding company sofora.

India set to cancel licences india’s regulators issued notices to idea cellular and etisalat in preparation to cancel their licences in regions where they have failed to roll out services, and geared up to cancel more.

America Movil expansion America Movil reached an agreement to buy digicel’s operations in el salvador and honduras and sell its Jamaican operator to digicel.

BT extends mobile agreementbt signed a five-year extension to its MVno agreement with Vodafone in the uk.

Centurylink-Qwest approvalus regulator the fcc approved centurylink’s purchase of Qwest

Regulators cut mobile rates uk regulator ofcom will mandate mobile termination rate cuts of 80% over four years starting from April. And french regulator Arcep plans to reduce termination rates from July until the end of 2013, bringing them down to E0.008.

France Telecom buys into Iraq france telecom and logistics company Agility together agreed to buy 44% of iraq’s third mobile operator korek telecom. france telecom’s 46% share of the venture will give it a 20% indirect stake in the operator.

NSN faces acquisition hurdle nokia siemens networks failed to gain approval from china’s antitrust regulators to acquire Motorola’s mobile network assets.

Qualcomm set to sell in India Qualcomm entered talks to sell its 2.3-ghz broadband wireless access spectrum in india to bharti Airtel for us$1.2 billion.

BUSINESS

AT&T moves for T-Mobile USAAt&t said it plans to acquire t-Mobile usA for us$39 billion, creating a market leader with 129.2 million customers . the deal raises questions about mobile competition in the us (see p.11).

Vodafone strengthens in India Vodafone will buy the 33% stake of its joint venture partner in india, essar group, for $5 billion, taking its holding to 75%.

Etisalat abandons Zain deal etisalat abandoned its deal to acquire 46% of Zain for us$12 billion. Zain had earlier last month accepted a bid from batelco and kingdom holding for its saudi Arabia operations, a condition of the etisalat deal.

EC action on telecoms taxes the european commission has referred france and spain to the eu’s court of Justice for continuing to impose levies of 0.9% on operators’ revenues to help fund public tV services.

Vimpelcom deal clearance russian mobile operator Vimpelcom received approval from shareholders and regulators to proceed with its us$6 billion acquisition of wind telecom and orascom assets.

Liberty’s German cable deal liberty global agreed to buy germany’s third largest cable operator, kabel bw, for E3.16 billion. liberty already owns the second-largest german cable company, unitymedia.

Qualcomm bought the licences last year for $1.05 billion.

Telekom Austria bid in Serbiatelekom Austria made a E950 million bid to buy 51% of fixed-line operator telekom srbija, but the government says the stake is worth E1.4 billion. telekom Austria owns the second-largest mobile operator in serbia, Vip.

Proposals for EU data privacy the ec is proposing new regulation to provide greater privacy over personal data supplied by internet users.

Telmex splits in two Mexican operator telmex will split into two companies, one of which will serve rural and marginalised areas. telmex has a roughly 80% share of fixed-line subscribers in Mexico.

Polkomtel sale extension the deadline for second-round bids for Polish mobile operator Polkomtel was extended to May.

A roundup of the major stories in telecoms in the past month, as reported in our daily news service www.totaltele.com

Telegeography research on long-haul ethernet services shows that ethernet over SdH/Sonet (eoSdH) services—which can provide value add such as guaranteed latency and restoration times, and specifi c routing and restoration paths—come at a price. On key routes 100-Mbps ethernet over SdH (eoSdH) services cost an average of 50% more than ethernet over MPLS.

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communications for us$10.6 billion a year after the deal was first announced.

Russian consolidation aheadAll seven regional subsidiaries controlled by russian state-run telecoms holding company svyazinvest filed applications for liquidation ahead of their integration with svyazinvest’s key subsidiary, rostelecom.

NETWORKS

Biggest UK spectrum auctionuk regulator ofcom said it will hold its largest ever mobile spectrum auction, in the 800-Mhz digital dividend and 2.6-ghz frequencies, in the first quarter of 2012. operators will be set caps for how much of the 250 Mhz of spectrum they can buy.

Swedish spectrum auctionsweden’s auction of 800-Mhz ‘digital dividend’ spectrum raised a total of sek 2.05 billion (E233 million). hi3g Access, teliasonera and net4Mobility—the joint venture of tele2 and telenor—won 25-year licences.

Wholesale LTE in Russiarussian mobile wiMAX operator yota announced an agreement with the country’s leading mobile operators to roll out a wholesale lte network by 2014.

O2 sets German LTE launcho2 germany said it will launch lte services at the start of July. deutsche telekom, Vodafone and e-Plus are also trialling the technology in germany.

Hong Kong spectrumhong kong raised hk$1.952 billion in an auction of 20 Mhz of spectrum, with smartone and hutchison telecom paying $875m and $1.08bn for 850-Mhz and 900-Mhz frequency respectively.

3G launches in IndiaVodafone essar and idea cellular became the latest operators to launch 3g services in india. According to reports the two companies and bharti Airtel are close to signing an agreement to share 3g networks in some areas.

HSPA+ service launchesZain Jordan launched broadband services on its hsPA+ network; cell c will launch in south Africa in April; and china unicom will launch in 56 cities by May.

Iraq mobile licenceiraq plans to auction a fourth national mobile licence by the end of this year and raise up to us$2 billion.

China Mobile TD-LTE trialchina Mobile selected Alcatel-lucent and nokia siemens networks for its td-lte trial in six cities.

Dual-mode LTE networkZte will provide equipment for hi3g to build dual-mode lte tdd/fdd networks in sweden and denmark.

LightSquared LTE customersus wholesale lte operator lightsquared signed up leap wireless and the MVno arm of retailer best buy as customers.

China Telecom buys networkchina telecom will buy the cdMA2000 network it leases from its parent company by the end of next year, say reports.

Turkcell expands into Germanyturkcell will launch mobile services in germany after signing a wholesale deal with deutsche telekom last year.

Orange 3G in Kenyaorange has contracted Zte to roll out a 3g network in kenya

timeline

italian joBTelecom Italia is preparing a reshuffle in April that will see chief executive Franco Bern-abe (pictured) move to the role of executive chairman. Marco Patuano will become the new CeO, overseeing Italy, while TIM Brasil CeO Luca Luciani will head the company’s Latin American operations. Both will report to Bernabe, who will retain authority over extraordinary operations, legal issues, regulatory and institutional relations. Bernabe has been the CeO of Telecom Italia since december 2007 and has been credited for his strategy aimed at cutting the company’s debt while strengthening its international presence in Brazil and Argen-tina. But some shareholders have criticised his strategy in the domestic market, where the Italian operator faces growing competition and falling revenues in the mobile segment. Last month Telecom Italia signed a deal for Nokia Siemens Networks to upgrade its mobile network in Italy and provide 7,000 LTe base stations. New CeO Patuano currently heads operations in Italy and will be expected to turn round operations there. Telecom Italia’s revenues for 2010 rose 2.5% from the pre-vious year to E27.6 billion, but domestic revenues declined 7.4%. Net profit rose 98% to E3.12 billion after a stong performance in Luciani’s Brazil division. But his appoint-ment to head Latin American operations has been clouded by the news that he is under investigation by Milan pros-ecutors for alleged fraud, false statements and regulatory obstruction pertaining to the issue of more than two million false prepaid SIM cards.

set to launch in the first half of this year. orange has invested E33 million in the project.

Fibre launch in Indiabsnl lanched india’s first fibre-to-the-home services, in Jaipur.

PEOPLE

New BT Openreach chiefbt appointed olivia garfield as the new chief executive of its openreach division from 1 April, replacing steve robertson who has led the unit for six years.

South Africa CEO promotionnombulelo Moholi will become group ceo of south African operator telkom from 1 April, promoted from her current position of managing director.

Co-CEOs for Korean operatorsk telecom appointed ha sung Min and so Jin woo as joint ceos. ha is also president of the operator, while so will also be president of its platform business.

YouView hires chairmankip Meek, non-executive chairman of uk internet tV venture youView (formerly Project canvas), resigned and is succeeded by lord Alan sugar.

MTS appoints new headrussian mobile operator Mts appointed Andrei dubovskov as president and ceo, replacing Mikhail shamolin.

Ericsson fires and hiresericsson will cut 450 jobs in sweden, mainly in sales and administration, but will also hire 250 engineers to work on lte research and development.

Shaw cuts jobs in Canadashaw communications will cut 500 jobs or about 4% of its workforce in canada.

6 www.totaltele.com April 2011

8 www.totaltele.com April 2011

europe’s mobile operators are still struggling to make revenues from location-based services (lbs) a

decade after some of them started to develop their strategies. now they face being marginalised by internet and handset companies unless they can find new ways to harness their network and customer data assets.

when Vodafone acquired mobile navi-gation company wayfinder for 239 million kroner (E24 million) in december 2008, it was betting that customers would pay for location information services supported by the mobile operator’s extensive network data. but by March 2010, Vodafone had pulled the plug on its acquisition, with free services from big-hitters google and nokia having obliterated the business case for premium mobile mapping.

google showed that an internet company with databases and computa-tional power can bypass operators’ networks to provide location informa-tion, using a mix of gPs-enabled smartphones and crowd-sourcing. that effectively could take operators out of the business model when it comes to captur-ing location-based advertising spend, potentially a key segment of lbs reve-nues in future.

“the problem is that operators have been too slow to roll out services and have not been able to provide APis,” says John strand, ceo of analyst company strand

consult. “the two biggest potential [wholesale] customers—[facebook and google]—have created their own way to get location and bypass operators.”

the agreement between Microsoft and nokia in february to develop smartphone services promises to further intensify competition in the lbs space: nokia in 2007 bought location data company navteq for E5.7 million, and Microsoft for some years has used navteq traffic and mapping data in its applications. “Microsoft and nokia can now [combine mapping and location assets to] offer a…database of check-in spots with…maps and free navigation to app builders such as facebook, foursquare [and] gowalla,” said analysts from clarion consulting in a statement following the agreement.

certainly, the business opportunity is growing, with the valuation of online and mobile coupons company groupon illus-trating the perceived potential in the lbs market. groupon, which analysts esti-mate has 70 million users, reportedly has held talks with banks about an initial public offering that would value the company at up to us$25 billion; last december it turned down a takeover bid of us$6 billion from google.

gartner estimates revenues from loca-tion-based services worldwide will grow from us$2.5 billion in 2010 to us$2.9 billion this year (see table); further out, Juniper forecasts total revenues from

mobile lbs will grow to $12.7 billion worldwide by 2014, driven by smart-phones, a surge in application storefront launches and new developments in hybrid positioning technologies (see chart).

indeed, operators have not given up on lbs, even if they have missed the oppor-tunity for significant first-mover advantage. “the game isn’t over, but the low-hanging fruit has gone,” says strand.

As a result, many european operators have been moving to a business model of giving away location services such as mapping in order to hold on to customers and keep their brand in sight. “the whole navigation on mobile phones [strategy] is more of a churn stopper,” says Annette Zimmermann, a principal research analyst at gartner.

yet operators desperately need to start increasing ArPus from data services, as we showed in our analysis in total telecom Plus october. new wireless intelligence research shows rising mobile data revenues still are not compensating for sharp declines in mobile voice reve-nues in europe. the research company says total mobile ArPu across the 27 european union countries has fallen by 20% over the past three years, from E25 in 2007 to E20 in 2010 on average (see chart). Mobile data ArPu doubled to just under E3 over the past three years, but still accounts for less than 15% of total ArPu.

some operators in europe are stepping up their lbs strategies, but they are not prepared to reveal revenues. telefonica’s o2 Media in the uk employs over fifty staff with a background in advertising, media planning and data analytics. o2 encourages customers to sign in to its More service and register their prefer-ences in order to receive offers and information from companies that include l’oréal and starbucks.

over 2 million o2 customers had signed into More by March, according to the operator, but it will not give an indication of what revenues it expects to generate

Operators are looking for new business models to make revenues from location-based services, having fallen behind Internet and handset companies. By joanne taaffe

L O C A T I O N - B A S E D S E R V I C E S

local KNOWLedge

content strategies

Location-based services: building on social networks

januaryn Facebook built on its location-based service Places by launching Places deals in europe. The mobile retail service offers discounts and special deals according to customers’ locations. marchn Mobile “check-in” social network Foursquare launched a new venue database—initially numbering 15 million venues—that can be incorporated into third-party applications for other location-based services.n gowalla expanded its location-based mobile social networking application by launching it on Android devices (it was previously available for Apple’s iPhone, Palm WebOS and RIM’s Blackberry). n Mobile social LBS company Loopt introduced what it calls a real-time element to its service, providing limited-time deals to users at specific locations.

April 2011 www.totaltele.com 9

content strategies

from the service. “i think [the question of revenue] is a one-dimensional view,” says shaun gregory, director of o2 Media. “we look at it from [the point of view of]…revenue…the customer perspective and…the brand.” o2 says its precise knowledge of both customer location and identity—accrued from subscriber sign-up and network activity data—gives it an edge over internet companies when it comes to signing deals with retailers. “facebook…think they know who you are, but you could be anybody and they rely on you browsing at a particular time,” says gregory.

but in many instances operators are finding that there is little or no uptake by customers of premium location-based applications. Analysts, although they cannot give figures, say us operators have generated sizeable revenues from services that enable customers to track their chil-dren and alert them to their safe arrival at a destination. Verizon, for example, adver-tises its family locator at $9.99 per month, but does not publish subscriber numbers or revenues for the service.

but european customers on the whole are not ready to pay for such services. “it’s a question of mentality,” says Zimmermann at gartner. “it’s a service that’s demanded in the us. several oper-ators have tried it [in europe],” she says,

but it hasn’t taken off. in the uk, trace a Mobile charges upwards of 17 pence per search for mobile tracking and location services, for example.

but others agree with gregory that revenue generation is not the crucial element just yet. Motti kushnir, chief marketing officer at telmap, says ensur-ing that customers use operator-branded services justifies investment if it prevents telcos turning into a low-margin pipe. “in order to keep a 15% margin you need to keep a brand. if you’re a utility you have a 3% margin,” says kushnir, whose company sells mapping services to opera-tors including Vodafone and orange.

nevertheless, telmap is altering its business model away from simply charg-ing operators a monthly licence fee towards revenue-sharing agreements based on premium services linked to location. in israel, for example, telmap provides a service with operator Pelephone communications that enables customers to find parking spots in a city, explains kushnir. typically, says strand, operators can expect to secure a 30% share of reve-nues in such commercial agreements.

in addition, europe’s service providers are betting on future revenue growth from advertising. “operators do have a chance to be successful in location-based advertising,” says gartner’s Zimmermann.

“they do have lots of information” about the customer, including their identity and billing details.

with o2’s service customers sign in to receive alerts to their mobile phone regardless of which web page they may be browsing. o2’s investment in More makes the operator well positioned to capture both consumer interest and part-nerships, believes Zimmermann.

some analysts believe concerns over privacy will push consumers towards operators, which already have built up trusted billing and service relationships with users. “there is the potential…that i trust my operator more than a third party,” says thomas husson, a senior analyst at forrester research. france’s online privacy watchdog last month fined google E100,000 for unauthorised data collection via wireless networks through the company’s street View mapping service and location app latitude.

nevertheless, operators will face stiff competition from google, which already is a major force in online advertising and location; and facebook, which can rely on its social network customers to gener-ate recommendations. facebook says more than 200 million active users now access the application through their mobile devices; the company generated an estimated us$1.86 billion in advertis-ing revenues worldwide in 2010, according to eMarketer.

Another option for operators would be to package location as a service-enabling product for third parties. “localisation has gone from being a service to being an enabler,” says forrester’s husson. operators can no longer charge merely for providing navigation, but instead need to incorporate location into other services or provide it as a loss-leader.

operators are also more likely to succeed if they can combine scale and flexibility. “it’s the biggest [telcos] that can differentiate long-term. the tier-two operators will mostly outsource,” says husson. “companies [the size of] Vodafone and orange need to be interop-erable and mix localisation with other insights such as billing…and have a multi-screen and multi-platform approach.” n

revenue in us$ (m) 2008 2009 2010 2011 2012 2013 2014

worldwide 1,938.0 2,334.6 2,546.2 2,916.5 3,819.5 5,467.7 8,263.5

Source: gartner

Location-based services revenue forecast

EU 27 mobile ARPU (euros)

Source: Wireless Intelligence

25

20

15

10

5

02007 2008 2009 2010

n Blended n Voice n Non-voice (inc. messaging) n data

Total LBS and apps revenues ($m)

$14,000

$0

Source: Juniper Research2009 2014

n Africa & Middle eastn Rest of Asia Pacn Indian Sub Continentn Far east & Chinan eastern europen Western europen South American North America

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What we’re talking about in 2011:The Content Battle - 19 May Recent discussions around a two-tier Internet have reawakened the debate about customer satisfaction, maximising the commercial opportunities of content and content delivery networks.

Mobile Traffic Offloading - 13 July Demand for smart devices and explosive growth in data usage are grinding mobile networks to a halt. The only choice is to offload traffic: Total Telecom looks at the options.

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In light of the proposed AT&T/T-Mobile deal a new report shows that regulation has had mixed results in terms of boosting competition in mobile markets. By ian Kemp

concentration LeVeLSM O B I L E C O M P E T I T I O N

the prospective acquisition of t-Mobile usA by At&t has once more thrown into sharp relief the

question of competition in telecoms markets around the world, and in partic-ular in the fastest growing segments of mobile and broadband services. new research shows that measures taken by national regulators to boost competition in mobile markets have produced mixed results globally, with north America among the areas where market power increasingly is dominated by just a few large players.

but increasingly the biggest operators are railing against the view that scale militates against competitiveness and fair consumer pricing in markets. they cite the challenge from new wholesale operators which can also give smaller players a boost, as well as the ability of largescale operators to extend broadband services to regions that would otherwise not be served.

At&t already has said that regional carriers such as MetroPcs and leap are taking share in key markets in the us, while lightsquared and clearwire are developing national wholesale lte and wiMAX networks respectively. Analyst company wireless intelligence highlights At&t’s assertion that us retail mobile prices declined by 50% between 1999 and 2009 despite widespread market consoli-dation (see chart).

if At&t’s us$39 billion acquisition is to go through, the fcc and department of Justice (doJ) are likely to require that it divest significant portions of t-Mobile’s network and operations, say analysts, pointing out that Verizon wireless was forced into similar concessions in order to buy Alltel in 2008. At&t could be mandated to divest assets where it would have excessive market concentration, and give competitors access to infrastructure such as spectrum and base stations.

nevertheless, many expect approval to be given, creating the biggest mobile

operator in the us with 129.2 million subscribers at the end of last year, compared to 102.2 million for Verizon wireless and 49.9 million for sprint nextel. should the deal go through the top three operators would have 91% share of total connections, based on current figures (see table p.13).

At&t/t-Mobile are playing the broad-band card to try to persuade regulators, in line with the government’s plans to deliver nationwide coverage. At&t says it will expand its future lte network to cover 95% of the us population—294 million people, reaching an additional 46.5 million beyond current stated plans—while both operators point out that t-Mobile usA does not have a clear path to delivering lte alone.

what the regulators must decide is how such scale, achievable by just a few opera-tors, could impact on consumers and competition in specific markets. the us wireless industry has already gone through significant rounds of consolida-tion in the past decade: deutsche telekom paid $50.7 billion for Voicestream wireless in 2000 to get a foothold in the us market and later rebranded as t-Mobile

usA; cingular wireless—a joint venture between sbc and bellsouth—bought At&t wireless for $41 billion in 2004 and was rebranded At&t Mobility following the subsequent consolidation of sbc, bellsouth and At&t; sprint acquired nextel for $35 billion in 2005; Verizon wireless bought Alltel wireless for $28.1 billion in 2008; centurylink—then centurytel—acquired embarq for $5.8 billion in the same year; and in 2009 sprint nextel bought Virgin Mobile usA for $483 million.

but what impact has that had on compe-tition, and how has it affected the prices operators charge for services?

A new Wireless Intelligence report, Competition and concentration: The distri-bution of market power in the global cellular industry, uses the herfindahl-hirschman index (hhi)—a measure of market concentration often used by regulators—to determine levels of competition in national mobile markets and outlines how regulatory initiatives and M&A activity are shaping competitive land-scapes. wireless intelligence divides markets into those which are concen-trated—when few mobile operators own

Business and finance

Normalised HHI in the US: how market concentration is rising

0.30

0.25

0.20

0.15

0.10

0.05

0

Source: Wireless Intelligence

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

The biggest operators are railing against the view that scale militates against competition

12 www.totaltele.com April 2011

Business and finance

Competition and concentration: how mobile markets are faring worldwide

The Herfindahl-Hirschman Index (HHI) is calculated by taking the sum of the squares of operator market shares by connections, giving a normalised index between 0 and 1, says Wireless Intelligence. For example, if a market has three mobile operators with market shares of 40%, 30% and 30%, the HHI would be calculated as 0.40 squared + 0.30 squared + 0.30 squared, resulting in an index of 0.34.

A market is classified as unconcentrated if it has an HHI lower than 0.1, moderately concentrated between 0.1 and 0.18 and highly concentrated above 0.18. A decreasing HHI “indicates a reasonable disparity in market power among mobile operators and therefore intensifying competition”.

The US (HHI 0.18) is far from being one of the most concentrated markets: In the Americas half of all markets are classified as highly concentrated (with an HHI above 0.18), and in Africa that rises to more than two thirds of countries. Norway (where Telenor is dominant with 58% of connections) is the most concentrated market in Western Europe (HHI 0.27); Mexico (HHI 0.4) in the Americas (America Movil has 70% of connections); Iran (HHI 0.32) in the Middle East (MCI has 55% share); and Kenya (HHI 0.58) in Africa (where Safaricom has 80% share). Canada, where Bell and Rogers jointly controlled over two thirds (65%) of total connections last year, has an HHI of 0.26.

Western europe and the Middle east come out as the most competitive cellular regions, with the majority of markets fragmented. In europe, Sweden, Norway, denmark, Switzerland and Portugal are considered to be concentrated, all having had a dominant operator controlling the majority of total connections over the past decade. But over the past five years all have shown a decrease in HHI indicating that market power is being redistributed and competition is increasing, in large part because of the introduction of MVNOs.

In China’s concentrated mobile market China Mobile’s share of connections is being eroded by both China Unicom and China Telecom, but Wireless Intelligence expects the incumbent’s dominance to remain strong in the near term. China Mobile added 61.7 million mobile subscribers last year to reach 584 million at the end of 2010; China Telecom last year added 34.43 million mobile subscribers to reach 90.5 million.

In future, consolidation in major mobile markets such as Russia and India could see a reduction in competition levels similar to the US. Russia has 12 operators but the market is dominated by three big players with 80% of connections—VimpelCom, MTS and MegaFon—and their market power could increase as they acquire smaller local players, leading to an increased HHI. “Similar levels of consolidation are expected in India over the coming years. But…the fiercely competitive nature of the Indian mobile sector means market power would still remain fairly well distributed even if the number of players is reduced,” says Wireless Intelligence.

The analyst company acknowledges limitations with the HHI methodology, including the fact that it does not take into account the impacts of convergence; basing the index solely on share of connections; the fact that some operators report active connections and others all registered SIM cards; and lack of correlation between changes in market share with changes in price and supply elasticity.

the largest share of total connections—and those which are fragmented, “when there is no dominant player and a reason-able disparity in market shares”. the index is calculated by taking the sum of the squares of operator market shares by connections, with a higher hhi indicat-ing greater concentration and generally weaker competition (see box).

wireless intelligence says over the past decade the us has moved from being a fragmented to a concentrated cellular market dominated by a few operators, with an increase in hhi due to M&A activity indicating an overall decrease in competition. At present—before the At&t/t-Mobile deal—80% of total us

connections are jointly controlled by the leading three mobile operators—At&t, Verizon and sprint nextel—compared to 48% in 2000.

globally, the study also finds a correla-tion between market concentration and pricing levels, and while there is some good news on pricing for consumers the effect on competitive operators should be of concern to regulators. “the average effective price per minute in highly concentrated markets is slightly lower than in fragmented markets, suggesting that price pressures for competing opera-tors are more intense in markets where a single operator is dominant,” it says (see chart). “in addition, despite strong price

pressure in the prepaid segment, the blended ArPu of dominant mobile oper-ators in highly-concentrated markets tends to be around 30% higher than that of competing local operators.”

the average effective price per minute (ePPM)—average revenues per user divided by minutes of use per user, per month—worldwide has declined from us$0.25 in Q4 2000 to us$0.11 in Q3 2010 for concentrated markets, and from us$0.33 to us$ 0.13 over the same period in fragmented markets. overall, price competition is more intense in concen-trated markets where new entrants or local operators often rely on discounted pricing strategies, says the analyst company.

sprint and lightsquared already have formally objected to the At&t/t-Mobile deal, saying that it would dilute competi-tion. if it goes through lightsquared could lose one of its biggest potential customers: t-Mobile. but lightsquared also last month announced deals with retailer bestbuy and operator leap wireless to use its network, and report-edly is also in talks with sprint nextel and time warner cable.

in fact some analysts argue that smaller value-focused operators could benefit from the At&t/t-Mobile deal: consumer choice over tariffs could be as crucial as the number of operators in markets.

“not only will the fcc have to examine regional markets to see if the merged company would create too little competi-tion in certain areas, but they will have to take into consideration that t-Mobile subscribers pay on average 6.4% less than At&t subscribers and are more heavily weighted towards prepaid plans,” says Pyramid research analyst emily smith in a research note on the deal. but she says in some markets other “value players” could attract customers who do not want to move to higher tariffs: “MetroPcs, leap wireless, boost Mobile, and MVnos like tracfone could stand to gain many of t-Mobile’s former subscrib-ers over the next several years as t-Mobile is phased out.”

individual us state attorneys already are lining up to review the proposed deal, with the new york Attorney general

April 2011 www.totaltele.com 13

Business and finance

leading the way in looking at the impact on consumers and pricing in different areas of the state.

currently, a new wave of attempted acquisitions and consolidation by opera-tors and vendors globally is being met with mixed responses by regulators aiming to provide competition for consumers or, in some instances, citing the need to protect national interests. in the us, regulator the fcc last month gave final approval for centurylink to buy Qwest communications for us$10.6 billion—the doJ and the federal trade commission cleared the deal as long ago as July 2010—to form the third-largest telecoms company in the us behind At&t and Verizon.

but in so doing the fcc said it had “imposed protections against the risk of harm to competition” and taken meas-ures to ensure that the merged company will “significantly expand its network and launch a major broadband adoption programme for low-income consumers”. Among measures stipulated by the fcc, the merged company must offer low-income households broadband starting at less than us$10 per month , as well as services at speeds of at least 4 Mbps to 4 million additional homes and businesses.

nokia siemens networks has not had the same regulatory fortune in its attempts to buy the wireless assets of Motorola. in March china’s antitrust regulators failed to approve the proposed us$1.2 billion deal in the face of opposi-tion from huawei, which has worked with Motorola for a decade and fears the trans-fer of its intellectual property. in turn, huawei has faced opposition from us authorities citing security concerns to its attempts to sign deals with operators in the country; in the past few years huawei has also reportedly been stopped from buying 3com, assets of Motorola and, in february, 3leaf systems.

when it comes to mobile markets, some particularly ambitious attempts to create powerful regional operators have also met with mixed fortunes recently. last month russian mobile operator Vimpelcom received approval from shareholders and some regulators to

Effective price per minute, linear average, fragmented and concentrated markets

0.30

0.25

0.20

0.15

0.10

0.05

0

Source: Wireless Intelligence

2000 2001 2002 2007 2008 20092003 2004 20062005

n Fragmentedn Concentrated

A new wave of attempted acquisitions globally is being met with mixed responses by regulators

proceed with its us$6 billion acquisition of wind telecom and orascom assets. the deal, now expected to be completed in the first half of this year, will create the world’s sixth largest operator with over 173 million mobile subscribers .

but etisalat abandoned its deal to acquire 46% of Zain for us$12 billion in part citing “extensive due diligence”, complicated by the conditions of the deal: Zain had earlier last month accepted a bid from batelco and kingdom holding for its saudi Arabia operations, a key condi-tion of the purchase due to etisalat owning a controlling stake in saudi’s second-largest mobile operator Mobily.

elsewhere a spate of newly announced deals (see timeline p.5)—mostly involv-ing mobile assets—will now fall under the scrutiny of regulators: liberty global’s proposed E3.16 billion purchase of kabel bw in germany, for example, means it would own the second and third largest cable companies in the country; Philippines operator Pldt’s agreement to acquire a controlling stake in rival digitel would combine the country’s first and third largest operators; and telekom Austria, which is bidding to buy 51% of dominant fixed-line operator telekom srbija, already owns the second-largest mobile operator in serbia, Vip . n

total cdma gsm wcdma lte iden wimaX

at&t 95.5 31 - 59 88 - - -

t-mobile 33.7 11 - 40 12 - - -

combined

(pro forma) 129.2 42 - 99 100 - - -

verizon wireless 102.2 33 61 - - 52 - -

sprint nextel 49.9 16 24 - - - 97 -

metropcs 8.2 3 5 - - 48 - -

us cellular 6.1 2 4 - - - - -

leap wireless 5.5 2 3 - - - - -

clearwire 4.1* 1 - - - - - 99

others 7.4 2 4 1 - - 3 1

total 312.6 100 100 100 100 100 100 100

Source: Wireless Intelligence

US mobile connections and market shares, Q4 2010| market shareconnections

* Mobile WiMAX only

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tecHnology trends

operators are in danger of not being able to make the network investments needed to accom-

modate iP traffic growth unless they capture a greater share of the wealth created by the internet. that is the conclusion of a report by At kearney which highlights a projected shortfall in the capital expenditure needed if european operators are to meet traffic growth without suffering network performance degradation (see chart).

the report also argues for commercial changes to boost operators’ revenues to fund the required investment. such developments, as well as new technolo-gies and regulation, together will shape the next generation of internet services.

operators already are adopting a range of strategies to manage network constraints. last month, for example, At&t introduced data usage caps for its iPtV and broadband services.

network planners remain confident that new technologies and the move to next-generation networks will suffice in meeting future capacity demands. “At least for the next few years we are not going to run into any performance or congestion problem,” says barry bosik, executive director, networking planning, at At&t. yet operators in the longer term are concerned about how they will continue to fulfil users’ internet expecta-tions without securing new revenues from those services.

According to cisco systems’ Visual networking index (Vni) forecast, global iP traffic will grow at a compound annual rate of 34% between 2009 and 2014, amounting to a fourfold increase over the period (see box p.16). Verizon says its traffic growth exceeds 50% yearly: “our iP traffic has grown fivefold over the last five years, and we expect it to grow another fivefold in the next five years,” says ihab tarazi, vice president of global network planning at Verizon. And content delivery specialist Akamai technologies

says in one week it now delivers as much data as it did in all of 2005.

Mobile data traffic is growing far faster: 159% in 2010 alone, according to cisco’s latest Vni global mobile data forecast, although it still only represents 1%-3% of total iP traffic. “fixed traffic networks are still the vast majority of iP traffic,” says thomas barnet, senior manager of service provider marketing and chief analyst for cisco’s Vni forecast.

cloud computing is another fast-grow-ing development with its own demands for network capacity. “you move the processing power from your Pc to centralised resources accessed over a network,” points out Jurgen wittkopp, expert in communications and electronic systems at PA consulting group. “traffic previously generated internally will need to go over the network in future.”

taken together, there is cause for concern for operators in future. “going from where we are to these forward-look-ing traffic projections is where things start to get out of line and become unsus-tainable,” says Mark Page, a partner in At kearney’s telecoms practice, and one of the authors of the report A Viable Future Model for the Internet, commis-

sioned by four european incumbents .operators have long had joint peering

agreements to carry each other’s traffic. but the rise of internet content providers and their services—and in particular video-based services—that run across backbone networks are a key cause of traffic growth. that is altering commer-cial imperatives and has led to protracted debates on net neutrality.

“Video, such as the bbc iPlayer in the uk, is an example of a few-to-many communications [service],” says colin rand, a manager in At kearney’s tele-coms practice. “this changes the many-to-many [services] that used to be the internet [model] and which favoured peering and the equal exchange of traffic.” cisco estimates internet video made up almost 40% of consumer internet traffic by the end of last year, not includ-ing video exchanged through peer-to-peer (P2P) file sharing.

“we do see that misalignment in traffic,” says cameron rejali, managing director of products for bt wholesale. in the past three years bt says it has seen clearly identifiable traffic blips in the months when Apple’s iPhone and the bbc iPlayer were launched.

Business models as well as technologies will shape the next generation of internet services as operators strive to accommodate rapid traffi c growth. By roy rubenstein

net gAINSN E X T - G E N E R A T I O N I N T E R N E T

Capex to fund incremental capacity, fi xed Internet networks, Europe

Source: Oppenheimer, AT Kearney

2006A 2007A 2008A 2009A 2010 2011 2012 2013 2014

n Additional capex required n Capex trendline(E million) Cumulative

E9.8 billion

5,21

9

5,51

6

5,23

8

4,39

0

5,23

826

3

5,23

81,

484

5,23

82,

352

5,23

82,

661

5,23

83,

013

Using an average capex per PB/month from 2008-2009 and applying a 15% cost improvement thereafter. Assuming 20% of total capex is for internet investment.

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‘Taking forward-looking traffi c projections things start to become unsustainable’

16 www.totaltele.com April 2011

luigi gambardella, executive board chairman of etno—the european telecommunications network operators’ Association—points to a “structural disconnect” between the rapid increase in internet traffic and operator revenues. “this situation is exacerbated by the fact that internet content providers have limited economic incentives to use the available bandwidth in an efficient way,” he says.

As a result, they put more pressure on operators’ networks. “what some [content provider] players do [during congestion] is swamp the network,” says Page at At kearney. “they send the same signal four times assuming that through internet redundancy one of those will get there faster while the [end] customer’s device will pick up that the other three [streams] are redundant.”

internet content players can point to the fact that they have benefited opera-tors’ revenues by providing content that has grown broadband subscribers, says Page. “but now there are fewer users to sign up, and the volumes of traffic associ-ated with that content are growing so fast you can’t put up prices in line with the extra traffic coming through,” he says.

network planners confirm that dealing with traffic growth within allocated budgets is a key challenge they face. “but there are multiple means to deal with the challenge of the growth of the internet,”

says At&t’s bosik, whose task is to ensure capital expenditure is largely fixed each year while growing bandwidth to main-tain customers’ quality of experience.

technological developments with equipment are an important aid. “bigger routers, larger dwdM systems, better unit cost,” says bosik. “this is certainly a significant part in how we accomplish our goal of keeping our capex in check.”

According to Michael howard, princi-pal analyst, carrier and data centre networks, at infonetics research, such equipment declines in price by 15% a year. while that sounds impressive, new equipment runs for years alongside exist-ing platforms while the price declines don’t come close to matching the annual growth in iP traffic. Moreover, the capital intensity—the ratio of capex spending to revenues—remains constant at between 11% and 13%, says howard.

At&t uses routing techniques to make better use of its existing network capac-ity. for example, the operator currently uses the open shortest Path first (osPf) protocol, which routes traffic on the iP network according to the shortest path available, leading to greater network effi-ciency. using techniques that involve the engineering of diverse MPls tunnels, alternative paths can be taken to ease congestion when it occurs and better use all the capacity available between the traffic source and destination.

the operator also uses multicasting to minimise traffic on its iP backbone. using multicast technology, a simultane-ous event—for example, a webcast or broadcast video—need only be sent once from the origin server across the back-bone and is then replicated at the network edge near to customers.

“Multicast traffic in the backbone in the past has not been sufficiently large to warrant the investment,” says bosik. “it doesn’t come for free.”

Verizon highlights its co-ordinated networking strategy to meet growing traffic demand. the operator has intro-duced the Partner Port programme, which gives content providers 10-gigabit ethernet services to interface directly to its internet backbone network—bypass-ing the traditional backbone peering process. other strategy elements include the adoption of 100-gigabit-per-second (gbps) lightpaths and more recently a 100-gbps iP backbone; investing in lte for mobile and fibre-to-the-home (ftth) fios fixed broadband access technologies; and deploying content delivery networks.

Verizon has deployed content delivery technology in the network core to improve video delivery while optimising network capacity. this provides content cacheing to enable such services as flex View, where content viewed at home can also be viewed on a handset, tablet or Pc when on the move.

tarazi points out that cacheing equip-ment is deployed according to the services delivered. “for us the services we have launched are supplements to fios,” he says. “fios is a cable tV service so does not use iP streaming to the home, but it does use iP for companion devices such as cell phones and watching content on laptops when away from the home.”

At&t’s u-verse tV service is iP-based—using fibre-to-the-node and Adsl/Vdsl technology—but bosik stresses that its traffic is well defined. “we provide so many channels, we stream them all the time, and as such it does not contribute to the large peaks in traffic,” he says. “[u-verse traffic] is consistent, we know exactly what it is, we’ve put in

tecHnology trends

Capex to fund incremental capacity, 3G/LTE mobile networks, Europe

Source: Oppenheimer, AT Kearney

2006A 2007A 2008A 2009A 2010 2011 2012 2013 2014

n Additional capex required n Capex trendline(E million)

Cumulative E21 billion

13,3

45

12,5

74

12,6

27

10,7

59

12,0

34

12,4

565,

984

12,8

915,

548

13,3

435,

097

13,8

104,

630

Baseline capex 2012-2014 extrapolated using a 2006-2011 CAgR of 3.5% above historic levels.

}

‘Content providers have limited economic incentives to use bandwidth efficiently’

April 2011 www.totaltele.com 17

the capacity for it and we’re done.”catering for traffic peaks is a key issue

for operators in avoiding network conges-tion. “with more and more video on the network, the gap between peak-to-aver-age actually grows,” says Arielle sumits, manager of service provider marketing and analyst for cisco’s Vni forecast.

for At&t, it is over-the-top video from content providers that is unpredictable. As well as multicasting in the backbone the operator uses video optimisation techniques such as video pacing, which caches content such as a youtube clip just ahead of viewing and stops the download when the user ends the session to avoid carrying the whole video clip. At&t is on record as saying that content delivery technology, which it is also embracing, is currently the only feasible approach to manage expected network traffic growth cost-effectively.

“what we see is that more intelligent ways of managing the traffic through things like [content] cacheing, and doing it intelligently within the network, can add significant amounts of capacity at relatively low cost compared to building out transmission facilities,” says bobby blumofe, Akamai’s senior vice president of networks and operations.

but industry observers disagree that networking developments and content delivery intelligence are sufficient to meet growing traffic demand; they say

operators must charge for usage as well as add intelligence to the network. “in the us it’s striking that the mobile plans are starting to charge for usage and fixed broadband has to start charging for usage as well,” says howard at infonetics.

At&t last month announced that from May it will impose limits of 250 gigabytes of data per month for u-verse broadband and 150 gb for dsl broadband users; customers exceeding this limit will be charged $10 per 50 gb. Verizon said it does not currently have plans to intro-duce such charges.

the introduction of tiered pricing for fixed networks in north America has already impacted traffic, according to operators, as has data capacity restric-tions for mobile. “we found in mobile in 2009 that the top 1% of users generated 30% of the traffic, and after data caps were instituted they generated 20% of the traffic,” says cisco’s barnet.

but bt questions the feasibility of imposing limits and extra charges for intensive users; last month the operator said it would scrap its fair-usage policy on higher-end fibre and Adsl packages, providing unlimited downloads for premium customers. “it is very hard to begin to charge a lot for the end user,” says rejali. “ultimately you will have to invest competitively to [support the traffic], or even if you are successful in charging, what you are doing is stopping

the market [from] growing.”new networking technologies may

reduce the cost of transmitting a gigabit of data, but at the board level operators are being forced to think about overall return on investment, says Page at At kearney. “that is not sustainable unless you can come up with additional revenue sources; these [revenues] pay the bills and provide an additional tool to manage traffic,” he says.

At kearney in its report sets out several ways operators can accrue greater reve-nues, although it admits that none are likely to be a silver bullet. these include charging end users based on usage, and payment to operators that terminate the traffic—similar to voice charges. At the same time there are clear regulatory and competitive issues to be taken into account with any new models, the report points out.

“if operators knew 20 years ago how data traffic would evolve it would have been implemented, but [new termination charges] is a difficult model to introduce now,” says Page. the report also explores possible models based on enhanced quality of service for which content providers will pay operators.

bt wholesale, through its wholesale content connect service, offers isP customers the ability to give content providers enhanced service delivery in return for additional payment. “from [an end] user’s perspective this is the most logical model,” says steve haines, chief operating officer at bt wholesale. “the key would be: would the content provider pay the network transport provider for high-quality delivery?” but rejali accepts that other models may prevail: “what could happen is we never reach agree-ment and isPs charge their end users more, and that may not work.”

Page at At kearney is optimistic that the revenue issues will be resolved, although he does expect problems with traffic growth and a fairer distribution of revenues to remain. indeed, bt’s rejali says “the jury is out” on how to solve such problems. “it is not obvious that any one of these options necessarily will work and we do see the accident coming.” n

tecHnology trends

Rocketing traffic: Cisco’s VNI forecasts

Cisco Systems’ Visual Networking Index (VNI) forecast brings together analyst projections for Internet, broadband, video and mobile growth. Among the projections—from June last year—it says the internet will be four times larger in 2014 than it was in 2009. Global IP traffic grew 45% during 2009 to reach an annual run rate of 176 exabytes per year or 15 exabytes per month; in 2014, global IP traffic will reach 767 exabytes per year or 64 exabytes per month, says Cisco. To put that in perspective, the average monthly traffic in 2014 will be equivalent to 32 million people streaming the film Avatar in 3D, continuously for the entire month, it says.

The Index estimates that global internet video traffic surpassed peer-to-peer (P2P) traffic by the end of last year, making it the largest internet traffic type for the first time since 2000. P2P as a percentage of consumer Internet traffic will drop to 17% by 2014, down from 39% at the end of 2009. In contrast, internet video streaming and downloads will grow to nearly 60% of all consumer internet traffic in 2014, up from 40% at the end of last year.

Consumer internet traffic will represent 66% of all IP traffic by the end of 2014, followed by consumer managed IP—TV and video on demand—which will represent 17% of traffic. Business internet will account for 8% and business managed IP services for 4%; the remainder is made up of consumer mobile data (4%) and business mobile data (1%). Business IP traffic will grow at a CAGR of 21% and a factor of 2.6 from 2009 to 2014, reaching 8.1 exabytes per month, while business video conferencing will grow ten-fold over the forecast period.

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T H E F U T U R E O F W I M A X

maXimum MOMeNTUMWiMAX has taken a back seat to LTe recently, but growth forecasts are still strong despite the uncertain future of some operators. By ingrid lunden and ian Kemp

As recently as 2008 wiMAX was big news at Mobile world congress in barcelona, with high-profile

announcements from vendors including intel and Motorola. in a keynote speech at the same show a year earlier, former Vodafone ceo Arun sarin had talked of the potential disruption from wiMAX, citing the need to avoid “the situation where lte is still in the standards defini-tion stage while wiMAX is in operation”.

fast forward to today, and lte domi-nates broadband wireless strategies: significantly, even the two leading wiMAX operators by subscribers—sprint-backed clearwire in the us (see box) and yota in russia—have not formally committed to the technology for the long term. so where next for wiMAX?

At the start of the year there were 13 million wiMAX users globally across some 600 networks, according to research company Maravedis. it says the top 50 operators accounted for 8.34 million of those subscribers, indicating a highly concentrated industry.

in fact analyst figures for wiMAX subscriber forecasts vary considerably. telegeography says by the end of last year there were some 11 million subscrib-ers worldwide, accounting for a roughly 2% share of all fixed broadband users,

and estimates that will rise to more than 30 million by 2015; isuppli says 33.4 million by 2014. but specialist broadband wireless analyst company senza fili consulting forecasts wiMAX subscrib-ers will number as many as 90 million globally by 2014 (see chart).

Monica Paolini, president of senza fili, says the majority of those users will be for mobile rather than fixed wiMAX services: accessed from smartphones and other handheld devices, as well as laptops. she says because wiMAX is now an estab-lished technology and relatively easy to deploy, it represents an opportunity for smaller operators to offer mobile broad-band to specific communities. “i would not expect a major mobile operator to now announce a wiMAX investment, but if you are a small operator in a rural market or aiming to serve the sMe/resi-dential markets…[you would be] better off with wiMAX,” she says.

indeed, Maravedis’ list of the leading wiMAX operators by subscribers after clearwire and yota demonstrates that they are smaller players in developing countries or specific—often rural—areas

of developed markets: they include inukshuk in canada, south korea’s kt, Axtel (Mexico), uQ communications (Japan), wateen telecom (Pakistan) and Packet one networks in Malaysia.

the lack of large operators driving developments can cause difficulties in terms of the equipment ecosystem and the ability to build economies of scale. “with wiMAX we had to push equip-ment vendors and end user device makers to create the market,” yota’s director of business development, yegor ivanov, told Total Telecom Plus when the russian oper-ator lit up its first lte network, in kazan, last october. “in the case of lte we do not need to make any additional effort; it’s an open market.” the operator had around 600,000 wiMAX subscribers at the end of 2010—including in central and south America—but has said that it could switch off services altogether within three years as its lte networks come on stream. “we are still investing in wiMAX where we already have it, but where we plan to deploy new networks we want to move to lte,” said dennis sverdlov, the ceo of yota.

networK strategies

‘With WiMAX we had to push equipment vendors and device makers to create the market’

WiMAX/LTE subscriber growth

Source: Telegeography

250

200

150

100

50

02009 2011 2013 2015

n LTe n WiMAX

WiMAX service revenue growth WiMAX subscribers by region

25

20

15

10

5

0

100

80

60

40

20

0

Source: Senza Fili Consulting Source: Senza Fili Consulting

2009 20092010 20102011 20112012 20122013 20132014 2014

n Western europe n North America n Middle east / Africa n Latam n eastern europe / Russia n Asia Pacific

n Western europe n North America n Middle east / Africa n Latam n eastern europe / Russia n Asia Pacific

Ser

vice

reve

nues

(US

$ bi

llions

)

Sub

scrib

ers

(milli

ons)

Sub

scrib

ers

(milli

ons)

other operators have struggled to make a business case for large-scale wiMAX networks. in india, bsnl last year received a government grant after stating that it needed more funding to build wiMAX networks in rural areas, and reportedly has looked at infrastructure-sharing deals with other operators. And reliance industries, which bought a nationwide broadband wireless access licence in india last year and had been expected to opt for widespread wiMAX rollout, confirmed that it would focus on td-lte technology for its commercial service launches.

despite such economic issues, wiMAX is still a significant market in terms of equipment revenues: “with the high volume of lte news, people tend to over-look the fact that the wiMAX equipment market…remains bigger than the lte market, and continues to show healthy growth,” says richard webb, directing analyst for wiMAX, microwave and mobile devices at infonetics research, in a report. infonetics says wiMAX equip-ment revenues jumped 85% in 2010 to reach us$1.7 billion worldwide, and fore-casts equipment and device revenues will reach $3.4 billion in 2014.

what’s more there are other potential economies of scale driven by synergies between lte and wiMAX. Paolini says the fact that both are built on a similar framework—they have an 80% technol-ogy overlap and both have an all-iP core—means that operators can upgrade from wiMAX to lte at a later date, with the transition to the tdd variant the

most straightforward. french company sequans, which provides chips for the wiMAX devices made by htc for both sprint and kddi, in february announced 4sight, an upgrade initiative that includes a dual-mode chip that works on both wiMAX and lte and allows for handoffs between the two.

“the same chipsets are there for wiMAX and lte. that means the price will go down. i will be able to buy a single solution from huawei, for example, running both lte and wiMAX,” says sean bolger, the ceo of irish wiMAX operator imagine. “wiMAX will get the same benefit of scale and that will drive down the price.” in support of wiMAX, he points out that the ecosystem, particu-larly for fixed wiMAX, is “fully developed and deployed. you just don’t have the full benefit of that in lte yet.”

infonetics says service providers includ-ing Japan’s kddi argue that lte is not sufficient to address capacity issues, and that they will adopt a broadband wireless strategy that includes wifi and wiMAX as complementary technologies. but the analyst company backs up the assertion that in large part its use will be restricted to smaller pockets of deployments in devel-oped markets. “wiMAX likely will become established as the solution of choice for niche applications, such as supporting the smart grid, public safety, private city-wide communications segments, as well as more basic broadband needs,” says webb.

the bad news for operators is that those niche segments could also result in lower ArPu. senza fili says emerging markets

account for 65% of all wiMAX subscrib-ers today, but that will grow to 76% by 2014 when Asia Pacific will account for 47% of users: “we expect wiMAX opera-tors to launch prepaid and/or lower-cost plans that are more affordable to reach wider segments of the addressable market. As a result of these trends, we expect to see ArPu erosion over time, with global monthly ArPu declining from $28 to $22 over the period from 2009 to 2014.” last september clearwire launched a pay-as-you-go wireless broadband service on its wiMAX network in the us.

yet proponents are still bullish about their services. bolger says imagine’s service in ireland has met with a “fantas-tic” response, picking up 25,000 users in its first five months. “we’ve got a demand for 10,000 sign-ups a month,” he says, “but we can only satisfy about 40% of that with existing coverage.”

Analysts including Paolini point out that ireland is one of the few markets in western europe where there is potentially a big opportunity for wiMAX, because of a lack of broadband competition. bolger says imagine, which got a headstart in its deployment by buying up the irish assets of clearwire, is aiming to complete its rollout in the next 18 months.

“if you forget all the past hype about wiMAX and focus just on the next five years, it actually has a bright future,” says telegeography analyst Pete bell in the company’s research on 4g subscriber growth. “you can expect to see wiMAX achieving average annual growth in excess of 30% over that period.”

but that is put in perspective by the fore-cast growth of lte, with the gsA citing 196 operators in 75 countries now investing in that technology. telegeography says wiMAX subscribers “will very quickly be dwarfed by those using lte”—by a factor of more than seven to one in 2015. even senza fili sounds a cautionary note: “operators plan to use lte in [the 2.6-ghz] band, so wiMAX will be mostly confined to the 3.5-ghz band which is…not well suited for mobility outside high-density urban areas.”

while the future for wiMAX is not all bleak, Vodafone ex-ceo sarin, it seems, need not have been concerned about the long-term disruptive effect of the tech-nology after all. n

Clearwire: an uncertain future for the biggest WiMAX operator

Clearwire is by some distance the world’s biggest WiMAX operator. The company in its latest results for full year 2010 says in total it had 1.1 million retail and 3.3 million wholesale subscribers. Clearwire says its aim is to double its total subscriber base this year, having signed up 1.5 million users in the fourth quarter of last year, but its future strategy remains uncertain. Founder Craig McCaw resigned from his position as chairman in January, and last month CeO Bill Morrow left suddenly. At the end of last year the company cut 15% of its workforce—around 600 employees—and it is reportedly looking to sell some 20% of its wireless spectrum for around US$2 billion to fund its strategy.

Clearwire provides wholesale services to its investor partners Sprint—it holds a majority 54% stake in the company—and cable operators Time Warner and Comcast, but in March the operator said it would also retain its retail operations. In the same month Clearwire signed another wholesale deal, with US retailer BestBuy for a “4g mobile broadband service for computing devices”. Clearwire’s consolidated ARPU was $16.07 in the fourth quarter, composed of retail ARPU of $45.10 and wholesale ARPU of $3.52.

Clearwire has also carried out tests of LTe. Sprint, too, says it is evaluating LTe, but for now continues to forge ahead with its strategy to launch new WiMAX devices and expand its network. At the CTIA show in March Sprint announced two more devices, both made by HTC, taking the total number of WiMAX devices on its network to 22.

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116 millionmobile payment users worldwide this

year, rising to 375 million in 2015. (In-Stat)

european moBile cHurn decliningAnalysys Mason says mobile operators in europe and the us can expect churn to continue to decline, largely as a result of stable pricing and longer contracts. its connected consumer research, based on 6,000 respondents in europe and the us, found that the proportion of mobile handset subscribers planning to change operator has decreased from 14% in 2009 to 9% last year. in fact the actual mobile churn rate in developed markets was about 30% in 2009—more than twice the percentage of survey respondents who said they intended to churn that year—but Analysys Mason says the discrepancy is partly due to some operators counting as churn instances of customers changing contracts but not provider.

record moBile risethe october to december period last year marked the biggest ever increase in mobile subscribers worldwide for a quarter, a net increase of 196 million subscribers says telegeography; the previous record of just fewer than 190 million was set in Q4 2007. Mobile users grew by almost 690 million globally in 2010, to over 5.3 billion. india’s mobile operators added 63 million subscribers in the three-month period, with china showing the second highest increase. while mobile subscribers in india grew by 42% in 2010, china’s mobile base grew by just 14%—the biggest operator china Mobile added 61.7 million to reach 584 million—and there is now just a 90 million gap between the two countries. the next highest ranked countries for subscriber growth were brazil, indonesia, the us, nigeria and egypt.

US$54 billion mobile entertainment service revenues world-

wide by 2015, up from $33 billion in 2010. (Juniper Research)

service delivery platform riseinfonetics research forecasts the worldwide service delivery platform (sdP) market will reach us$5.2 billion in 2015, for software and services combined, driven partly by the need for operators to support on-demand, real-time service requirements for cloud computing. ericsson currently leads the way for sdP service revenues and oracle for software revenues, it says, while Huawei leads the overall market (see chart). in a separate report infonetics says enterprise video conferencing and telepresence system revenues grew 18% in 2010 to $2.2 billion worldwide, and will grow to $5.0 billion by 2015.

Hosted ip servicesA new report from frost & sullivan shows that the hosted iP telephony and unified communica-tions services market in europe accounted for revenues of E0.9 billion in 2010. the company estimates that will reach E4.9 billion in 2016, and says the economic slowdown and limited capital availability for investments has urged many enterprises to consider alternative communica-tions delivery methods.

Other

ericsson

Huawei

HPOracle

NSN

Alcatel - Lucent

No data for Spain and US in 2009. Source: Analysys Mason

100%

80%

60%

40%

20%

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n No Change n Change contract; same providern Change provider n give up mobile

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ents

Q which best describes your mobile service plans in the next year?