Worldwide Wireless Data Trends - Mid Year Update 2006

 

 

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This research note summarizes the wireless data trends in over 40 countries and the analysis of over 30 prominent operators.

• Wireless industry crossed several milestones this past 6 months - 2 billion GSM subscribers and is on its way to the quickest billion subscribers within the next 2 years. 100M 3G subscribers with 66% coming from WCDMA (40% of these from Japan) and rest from EV-DO.
• Japan led the way with approximately $10B in wireless data service revenues for the first half of 2006. US and China followed with approximately $7B and $5.5B respectively.
• The #1 carrier worldwide in terms of total wireless data revenues for the first six months of 2006 is NTT DoCoMo with over $5.1B in data revenues. It was followed by China Mobile ($3.9B), KDDI ($3.3B), Verizon Wireless ($1.9B), and Cingular Wireless ($1.9B). Sprint Nextel, O2 UK, Vodafone Japan, SK Telecom, and China Unicom filled the rest of the top 10 slots respectively.
• China crossed the 400M subscriber mark and is on its way to cross the half billion subscriber mark in 2007. As first discussed in our “India’s Wireless Market” report, India is rivaling China’s monthly net adds of 5M/month and crossed the 100M subscriber mark making it the fourth largest subscriber base after China, US, and Russia. India will cross Russia later this year and the US by 2008 to become the second largest wireless market.
• Western Europe officially crossed the 100% wireless subscriber penetration mark (due to multiple SIMs) with several nations reporting up to 115-120% subscriber penetration. In spite of crossing 70% penetration mark, US wireless market shows no sign of slowing down and is strongly progressing towards another record year with over 25M net adds in 2006.
• In terms of total subscribers, China Mobile with 274M subscribers is way ahead of the second ranked Vodafone, which has 187M subscribers. China Unicom, América Móvil, Telefonica, SingTel, Deutsche Telekom (T-Mobile), and Orange (France Telecom) are the next six largest telecom groups in the world. In terms of individual carriers, Cingular and Verizon now occupy the #3 and #4 spot respectively ahead of NTT DoCoMo, which is at #5. The two Chinese carriers round up the top two positions and are likely to stay perched at their lookout vistas for some years to come. Telecom groups in mature markets are under enormous pressure to either come up with a global expansion strategy or accelerate their existing plans. Carriers in Japan and Korea are the most under duress.
• Japan became the first nation to have more than 50% of its subscribers using 3G. Korea is close second. 3G is starting to pick-up steam in both western Europe and North America as discussed in our cover story article “3G: Hitting the Mass Market” published in Moconews.net and Wireless World Magazine. Since then, we have presented our research at IEEE, CINA, EMC, Carriers in US; in Japan, Korea, and Russia; and later this year in India.
• China and India represent the biggest opportunities for Infrastructure providers. China has postponed its 3G decision for the umpteenth time and is having technical and political problems to get something in place before the 2008 Olympics. India is going through its 3G spectrum policy but unlike China is likely to resolve the issues in short order. Ericsson just scored a $1B contract with Bharti. BSNL’s tender is worth 2-3 times more.
• In terms of data ARPU, Japan continues to lead the pack with 28% of its revenues coming from data services amounting to almost $17 data ARPU. Ireland, Norway, Switzerland, UK and South Korea also registered significant data ARPU. US crossed the ($5, 10%) block, where $5 is the data ARPU and 10% represents the % share of overall ARPU. As of June 2006, US stood at ($6.3, 12%). For detailed US Wireless Market update, please see “US Wireless Data Market - Mid Year Update 2006” ( For more details, please refer to the 9-box diagram in the ppt or the 2006 paper – “Worldwide Wireless Data Trends”; for 2005 comparative numbers, please refer to our paper from last year titled “Perspectives: Wireless Data ARPU”)
• NTT DoCoMo’s position at the top of the wireless data world has been challenged recently by several carriers esp. by its archrival KDDI which surged past DoCoMo for two straight quarters. Their data coordinates respectively stand at ($17.3, 28.9%) and ($16.5, 28%). However, it is 3 UK that is inching towards ($20, 30%) mark with $19.3 data ARPU contributing over 25% to its overall ARPU. 3 Italy with ($15.6, 34%) is also amongst the leaders.
• The biggest % contribution by data ARPU has been consistently registered (since mid 2002) by the two Philippines carriers – Smart Communications and Globe Telecom with almost 50% (or $3) contribution coming from data services.
• Even though China reported approximately $5.5B in data revenues, and the % contribution is over 20%, data ARPU is around $2, confirming what we already know – it’s a volume game. For India data ARPU is just over $1.2. Approximately same for Brazil and Russia. Actually, in 2005 the overall wireless service revenues in US were two times the overall revenues of the four BRIC (Brazil, Russia, India, and China) countries combined. So, lessons are pretty clear as to which markets to approach for what products and services.
• We will have to look at the EOY 2006 numbers but there are some indications of cooling down of data ARPU growth in mature markets of Japan, Korea, and UK. So, while % contribution will increase due to declining voice revenues, data ARPU will not make up for the loss. Most of the mature markets face the same dilemma. In fact, comparing EOY 2005 to 2004 numbers, only a handful nations registered positive increase in overall ARPU with Canada ($3), Korea ($3), Mexico ($1), Taiwan ($1), Brazil ($1), and Chile ($1) showing an increase. For majority of the other nations, the ARPU declined, for example by $2 for US, Thailand, India, Australia, and Argentina. Nigeria recorded a massive $23 decline.
• All the carriers in the top 10 wireless carriers by wireless data revenues list exceeded $1B in data revenues for the first six months of 2006. China Mobile and China Unicom benefited from their huge subscriber base of 274M and 135M respectively while DoCoMo and KDDI did well because they are generating over $17 (or 28%) in wireless data ARPU.
• Carriers with nationwide 3G networks and good distribution of handsets are seeing up tick in data ARPU. The Japanese and Korean carriers along with operator 3, Verizon, Sprint Nextel are all seeing benefits of rolling out their 3G service. Deployment of 3.5G technologies such as HSDPA and EV-DO Rev A (and B) are also gaining momentum. Networks are getting deployed and market is being seeded with some of the early handsets.
• In terms of applications, messaging accounts for lion-share of data revenues. However, other services such as Mobile Music, Mobile TV and video streaming, Mobile Games, IMS, LBS, Mobile advertising, and others have captured industry’s imagination. Though not much talked about, enterprise applications are also being adopted widely esp. in North America as more workers become mobile and corporations seek efficiencies in their operations and supply-chain.
• In Japan and Korea, consumer messaging revenue only accounts for 30% of the data revenues, rest is from multimedia applications, browser traffic, and other infotainment applications. It is almost the reverse in Europe with 70-80% (on average) of the data revenue is coming from messaging. There are some exceptions like Vodafone Spain, Telefonica Moviles Espana, and Eurotel, who have over 40% of their data revenues coming from non-messaging applications. For North America, the data revenue from non-messaging applications (excluding transport) is around 20%.
• China Mobile is challenging Vodafone’s supremacy as most valued telecom operator. For a brief period in August, it was valued higher than Vodafone and is likely to overtake the crown as China continues to add significant number of subscribers while Vodafone struggles.
• WiMax is gaining some traction both in the developed and developing world. However, the case for mobile WiMax is still quite questionable. By the time the embedded devices come to fruition, 3G devices will be quite pervasive and the WiMax services will not be able to compete on price alone. And, a sub $30 WiMax handset for the developing world is nothing short of a pipe dream at this point. WiMax for backhaul makes sense, and some niche scenarios for fixed wireless services will also be successful, but clearly, we will not be witnessing replacement of cellular anytime soon. Free Wi-Fi movement scored more deployments around the world though the business model to support them long-term stays unproven.

Your comments are always welcome.

See you at CTIA.

China 3G

Bloomberg.com reports China may delay issuing licenses for high-speed mobile-phone services to the first half of 2007 because locally developed network technology isn’t ready for commercial use, researcher Norson Telecom Consulting said. Telecommunication cos in China, the world’s biggest wireless mkt by subscribers, are looking to 3G services, which offer users faster downloads of videos and music on their handsets, to spur spending.

INTEROP Russia: BRIC Wireless Markets

6 cities, 5 time zones, 4 countries, 10 days. Last week was quite hectic but it was great. From the exquisite towering cathedrals in St. Petersburg and Kremlin to serene Stockholm, from a midnight stroll in daylight by river Neva in St. Petersburg to 4am walk in Gamla Stan (Stockholm), from reading the subway maps in Russian to catching a soccer match in Amsterdam, the trip was quite memorable. In Moscow, I was speaking at the INTEROP conference on the topic of “BRIC wireless markets – lessons, opportunities and challenges.”

This note highlights some of the points discussed during the talk.

BRIC which stands for Brazil, Russia, India, and China collectively represent the biggest and fastest growing wireless subscriber block. While the sheer volumes represent enormous opportunities for the near and distant future, there are significant challenges and risks associated with these markets as well. Unprepared and naïve companies have been chewed and spat out in no time.

First, let’s do the numbers:

•         Over 682M subs by 2005

•         BRIC markets will account for over 50% net adds 2005-9

–        Net adds – 159M in 2005

•         Subscribers – Brazil (87M), Russia (125M), India (75M), and China (393M)

•         Penetration – Brazil (46%), Russia (86%), India (6.3%), and China (30%)

•         ARPU is low – Brazil ($13), Russia ($7), India ($10), China ($10)

•         Data ARPU is low - $0.8-$1.5

Of course, since Dec 2005, the growth has continued unabated. China surpassed the 400M mark while India crossed the 100M mark and both countries show signs of continued growth. India is on the verge of another surge due to rural network expansion in 2006. However, both countries have some tough 3G spectrum decisions to take care of (have been delayed several times), particularly in China where the government is favoring the controversial TD-SCDMA and carriers opting for standards such as WCDMA. With Olympics looming in Beijing, this makes for an interesting dynamics.

BRIC markets share some characteristics but are also unique in how they have progressed and in how they should be approached. The primary growth drivers with some degree of variability have been:

•         Prepaid dominates

•         Pent-up Rural demand

•         Market reforms driving the industry

•         Competitive pressures on big carriers

•         Low-priced handsets

•         Some of the lowest infrastructure costs

•         Lowest tariffs

•         Carriers profitable despite low ARPUs

As highlighted in our report “Indian Wireless Market” back in May, India and China are adding on an average over 5M subs per month. That is in contrast to 5M net sub adds per quarter in the US and less than a million net adds per quarter in Japan and Korea. With the penetration rate at 12% and 30% respectively for India and China, these nations will continue to add approx 60M subs per year for the next 3-5 years.

Despite the growing subscriber numbers, pressure on ARPU remains strong and the ARPU has been on the decline in all BRIC countries. Data ARPU for BRIC countries is also small compared to some of the other established markets and is bound to stay that way for the foreseeable future. We will cover worldwide ARPU trends in a forthcoming paper. Stay tuned.

Summary of Lessons and observations

•         Government participation essential – Unified telecom Policy

•         Highly price sensitive markets

•         Data applications used as a churn-prevention tool

•         Role of competitive forces an foreign investment is quite important – lowers costs to consumers which stimulates growth

•         Low or zero import subsidies on parts or finished goods

•         Operators control the value chain

•         Operators can lower cost of infrastructure by accepting lower busy-call completion rates

•         Revenue-sharing arrangement with vendors vs. pure licensing deals

•         Low price demands innovation, participation in local economy

•         Network-sharing for rural expansion

•         Role for lower frequency bands (450MHz)  is important

•         Localize data applications

•         E.g. India – Cricket, Bollywood, Education, etc.

•         Significant IP issues especially in China

•         Rural markets key to future growth

•         Consumer driven markets, Poor Enterprise markets

•         Minimal market for foreign application developers

•         Should partner, acquire, or build-up local expertise

•         WiMax is attractive but cost considerations are more important

•         BRIC markets important for infrastructure players, not that much for application developers

•         3G is in planning stages, spectrum issues need to be resolved quickly

•         Considerations for other growing markets like Indonesia and US

Overall, BRIC markets represent significant opportunities but they are not for the faint-hearted. Amidst all the talk of BRIC wireless markets, it is easy to forget that US still remains and will remain the highest revenue generating market in the world for some time with close to $44B in carrier revenues in 2005, almost twice to the second player — Japan and twice of the revenues generated by the carriers in BRIC countries, combined. However, US market presents its own set of challenges and idiosyncrasies. Wireless is doing wonders in BRIC markets and there are tremendous opportunities.

There were also a couple of interesting INTEROP keynotes from Steve Wozniak and Kevin Mitnick.

Overall, it was an action packed conference, covering variety of themes including Wireless, VoIP, and Security. The trip left me longing to return to the region at the next available opportunity.

Your comments are always welcome.

Chetan Sharma

IP Issues in China

This is an incredibly important issue for China. The way it reacts and tackles the IP cases esp. the prominent will define the next 10 or more years. http://www.wirelessweek.com/article/CA6347969.html talks about Nokia’s lawsuit against Chinese manufacturers. Similar issues plague other manuf and infra players. In software, things are even worse. The way Chinese courts handle these cases - both in terms of timely decisions as well as the decisions will be critical and important to watch

Greetings from Russia

It has been a fascinating week in Russia. First in St. Petersburg and then in Moscow. One thing that jumps out right away is he way Samsung (and to some extent LG) dominate the advertising billboards, just like they do in other major cities. They are clearly out to make their brand within top 2. More on my talk on BRIC wireless markets at Interop next week.

Interop Russia

Leaving for Moscow next week to speak at Interop Moscow on the topic of BRIC wireless market.

In the past few months, wireless subscriber growth has been most explosive in BRIC - Brazil, Russia, India, and China. Most of the future growth will also come from these four countries. With China, India, and Russia adding almost 5 million subscribers a month, there are tremendous opportunities. But the markets are also fraught with risks. As such, one has to take a look at the what works and what doesn't. We will take a look at the lessons learned from the market growth in these countries and discuss the opportunities and challenges.

more on the conference later in the month ..