US Wireless Data Market - Mid Year Update 2006

Download PPT - http://www.chetansharma.com/midyearupdate06.htm 

• US wireless data market is growing at an impressive rate. Top 4 US carriers (Cingular, Verizon, Sprint Nextel, and T-Mobile) accounted for over $6.3B in wireless data revenues for the first half of 2006. Overall, wireless data service revenues exceeded $7B and the figures are likely to exceed $15B for the year 2006. This is almost a 75% jump from end-of-2005 number of $8.6B. The growth rate slowed down only slightly from 2004-2005 growth rate of 87%. SMS and data transport still drives bulk of data revenues but their percentage share is declining.
• Among the top 4 US carriers, Verizon has made the most impressive strides in the last 4 quarters, increasing their wireless data revenues by a whopping 114%. Next Sprint with 71%, T-Mobile with 65%, and Cingular with 54% also netted impressive gains.
• Verizon became the first US carrier to net over $1B in wireless data revenues in a quarter. Cingular was close second with $979M and Sprint with $935M are likely to cross the $1B mark next quarter.
• Sprint retains its leadership position of highest wireless data ARPU in terms of absolute dollar amount at $7.25 but lost its number one spot in the % data ARPU to Verizon which now leads the US carriers at almost 13%. Average data ARPU is now $6.3 or 12%.
• Overall ARPU (voice + data) increased slightly from Q106 but declined $0.27 from Q405. The general trend is towards slow decline. Data revenue is barely keeping up with the decline in voice ARPU. On an average voice ARPU has declined 8% from a year ago and data ARPU has increased 48%. Average Overall ARPU was $53.04. Sprint led with $62 followed by T-Mobile at $51, Verizon at $49.7, and Cingular with $48.4.
• If the current trends hold, Verizon Wireless is likely to surpass Cingular Wireless as number 1 US carrier by Q307.
• US had about 7M 3G subscribers by Q206, primarily from Verizon and Sprint Nextel. With Cingular joining the fray, the 3G growth is expected to accelerate with 2007 being the inflection year.
• US wireless subscriber penetration stands at approximately 74% and is likely to exceed 78% by the end of the year.
• Top 4 carriers added 12.7M subscribers from Jan-Jun 2006.
• The top 4 US carrier account for 79% of the subscribers, 86% of the service revenues, and approximately 95% of the wireless data revenues.
• US Off-net revenues for the year are likely to exceed $750M.
• Data ARPU of CDMA/EV-DO carriers was 20% higher than GSM/WCDMA carriers.
• Several high-profile MVNOs were also launched in the last few months and the overall results have been disappointing primarily due to poor execution, instant crowding effect, and competition from big 4.
• US wireless carriers are steadily climbing in their wireless data performance as compared to their peers worldwide. Verizon, Cingular, and Sprint ranked number 4, 5, and 6 respectively, amongst the top 10 operators worldwide in terms of total wireless data revenue generated for first half of 2006.
• The #1 carrier worldwide in terms of total wireless data revenue for the first six months of 2006 is NTT DoCoMo which has maintained its position for a number of years. It is now generating almost $900M/month from wireless data revenues.
• The top 10 carriers in terms of total wireless data revenues for 1H06 in order of rank are NTT DoCoMo, China Mobile, KDDI, Verizon Wireless, Cingular Wireless, Sprint Nextel, O2 UK, Vodafone Japan, SK Telecom, and China Unicom. (6 Asian, 3 US, 1 Europe. Who says US is behindJ). Vodafone Germany, TMO Germany, and TMO US are also closing in.
• All the top 10 carriers in the 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.
• The top 10 carriers accounted for almost $24B in wireless data revenues for the first six months of 2006. The top 10 carriers account for approximately 700M (or approx 28%) subscribers worldwide.
• In terms of wireless investments, over $2.8B was invested in wireless related companies/startups from Jan-Jun 2006 (this figure jumped to $4.1B in July). Source: Rutberg. Mobile TV/Video, Mobile Personalization, Mobile Search and Advertising, Semiconductor, Carrier infrastructure, Device design and development are hot areas. M&A activity also picked up quite significantly.
• WiMax industry got a big boost with almost $1B investment in Clearwire and due to Sprint Nextel’s announcement of WiMax deployment. Sigh of relief for Intel and Samsung. Puts pressure on Qualcomm. Maybe Intel will renegotiate with Clearwire.
• Worldwide Handset market share: Nokia and Motorola dominated with 35% and 23% market share respectively. Samsung with 12% stands third. Source: iSuppli. Though Apple’s iPhone rumors have been clouding the market, it is Motorola which continues to lead in launching must-have handsets. Windows mobile is starting to make serious inroads in the handset market but performance issues and high price points deter mass market adoption.

Download PPT http://www.chetansharma.com/midyearupdate06.htm 

Click to call: New revenue models from Mobile Search

From time to time, I will be contributing some posts to Ajit’s Open Garden Blog - http://opengardensblog.futuretext.com/. This post is first in the series.

“What we find changes who we become” – Ambient Findability, Peter Morville

As the discoverable content increases in depth and breadth, it is inevitable that mobile search will drive user navigation on devices. Whether it is by user keying in a few keywords or short cuts or search engine generating a personalized, to-the-minute “always-active” user interface that directs user navigation, mobile search strategies will start taking center-stage for most consumers.

There are several differences between Internet (aka Google) search and mobile search. While Google on desktop might return a useless list of 2M hits (the useful results are generally in the first dozen links), mobile search needs to take in more variables before it figures out the “answer” to the user input. These variables are driven by context, history, preferences, and social network. You weir off a bit and the experience starts to waffle. Understanding “user’s intent” is key.

The business models are also different. While Google might present the paid-search-results on top, on the side or even blended in the main body, search results needs to very optimized and customized to the query and context. In addition, several new models come into play like “click-to-call” or “push-to-call” where real money is to be made. Click-to-call has a simple revenue model which most businesses understand. It is conceptually same as ‘referral fees’. Some calls such as in real-estate or mortgage business can yield over $30-40 per call for referrals. Some of the emergency services like plumbers, dentists, locksmiths have up to 50-60% conversion rates. You can do the math. The provider who has the best and most updated inventory has a big leg up in the race for mobile search domination. Local inventory plays a huge role, the hard part is to keep the numbers refreshed and encourage the ecosystem to participate and update the information while also getting involved in the advertising side of the business. Click-to-call already exists on Google on the Web http://www.google.com/help/faq_clicktocall.html . But on mobile devices, it takes on a much more useful and immediate dimension due to the nature of the medium.

Advertising also takes a new dimension with mobile. The wealth of user information and the capability to have 1-to-1 relationship with the user makes it a very powerful platform for the multi-billion dollar advertising industry. Advertisers design their campaigns based on the hard and real user demographic information and also get the confirmation of a “view” which is gold for advertisers. Having said that, a few missteps can also alienate users for months. Advertisements and/or promotions will also have the “click-to-call” functionality. Several travel agencies and big brands have already experimented with clickable ad campaigns. Earlier this year, Google filed the patent application for the same. Similar functionality could be built for audio content and other pieces of content types. Click-to-call will also become a very social and viral feature.

Click-to-call in combination with automated attendant is also very disruptive to the multi-billion directory-assistance (DA) and yellow page industry. If a smart analytical engine backs up the voice recognition system (could be tied to mobile search), majority of the consumer queries can be taken care of without reaching a live person thus deceasing the $1-$2 per call charge to the consumer.

Click-to-call can also be offered as a customer service-enhancing tool by the carrier or as an instant survey or feedback tool for different industries.

The majority of the searches initially will happen via browser and by using keypad input from the user but will gradually be integrated tightly across applications and platforms and will accept voice, image, bar code, and others input mechanisms. Mobile search will also renew the “dumb-pipe” debate, disrupt the value chain, and force players to form new alliances that weren’t conceivable before. New business models such as “click-to-call” will bring new sources of revenue to the wireless industry. In the end, mobile search will help drive quality of content and better user experience.

I welcome your thoughts on this model and others in relation to Mobile Search.

Mobile Search

MMA released their findings from a research study on Mobile Search http://www.mmaglobal.com/modules/news/article.php?storyid=72

The study’s key findings include:

• Mobile search is in its early stages of adoption, but there is significant upside potential. Thirty-one percent of respondents used mobile search for the first time in the past month. Current users conducted an average of nine searches in the past month.

• Cell phone owners who aren’t aware of mobile search recognize its benefits after they’re introduced to the technology. Half of non-users were interested in trying mobile search over the next few months. Forty-eight percent of non-users expect to start using mobile search at least once per week.

• Approximately 41% of all respondents indicate that sponsored links would not have an impact on their use of mobile search.

• Current mobile search users represent several attractive market segments for advertisers. Respondents with an annual household income of $50,000-$75,000 conduct an average of almost 16 searches per month, the most of any demographic segment. Consumers age 45-54, college grads and people with children at home all reported using search more than 11 times per month.

• Sixty-nine percent of respondents prefer advertisements that are related to local products and services.

• The ability to search by voice was the top-rated feature. Thirty-seven percent of current mobile search users would be “a lot more likely” to use mobile search if voice control were added.

Tech heavyweights team up on 3G

http://news.com.com/Tech+heavyweights+team+up+on+3G/2100-1039_3-6099393.html?tag=sas.email

A group of tech heavyweights have teamed up to develop hardware and software for third-generation cell phones.

NEC, Matsushita Electric Industrial and Texas Instruments announced Thursday that they have formed a joint venture, called Adcore-Tech, that aims to create “a competitive communications platform” for 3G handsets. The partnership also includes NEC unit NEC Electronics and Matsushita subsidiary Panasonic Mobile Communications.

It will be interesting to see if this stays afloat one year from now.

India - Driving the Next Phase of Global (Wireless) Expansion

the article is online now http://www.chetansharma.com/India_July06.pdf

Cingular Numbers

Cingular was first amongst its peers to report the Q2 numbers. ARPU is following the trendline. Voice ARPU 59c while Data ARPU increased by 55c (12% of overall ARPU) with a overall decline of 4c. Carriers should be going after the data market like their life depended on it. Though things have improved over the last 18 months (Data ARPU approx doubled), more can and should be done to educate the end-user and make the user-experience on the device much better. UMTS/HSDPA will be key to that strategy but Cingular needs to get its act together and start deploying handsets into the market. They are already behind their competitors and behind in their plans. UMTS is now in 27 key markets but number of devices in the market are woefully short of what they need to be.

Verizon and Sprint are next.

We will be doing a detailed paper on worldwide ARPU trends. Stay tuned.

Mobile Game Conference Roundup

Over the last couple of years, Seattle has become a Mecca for digital and interactive media. Seattle hosted the Mobile Gaming Conference on the 13^th and 14^th. Next year’s World Cyber Games 2007 will elevate its status further to a new level. Several key players were at hand to talk about the status of mobile gaming industry and where it is headed. WSA’s Gaming SIG also organized an event “Value Models of Mobile Games” to coincide with MGC (on the 13^th). I had the privilege of moderating an experienced panel that included Derrick Morton, GM Mobile Games, Real Networks; Jeff Davis, CEO, GoGoMo; Tom Meigs, Executive Producer, Yahoo Mobile Games; and Scott Wallin, CEO, Metaplay. This note summarizes the thoughts, observations, and discussions from the two events.

First, let’s do the numbers. According to the two leading industry players (rivals) – Telephia and M:Metrics, who measure the US mobile market, mobile gaming segment, is growing. By how much is anybody’s guess?

• Game downloads represent approximately 6% (approx $50M/month revenue) of the mobile data revenues (compared to say Japan which is over 15-20%) and have approximately 5% subscriber-penetration in the US
• While the number of first time buys is increasing (1.6M in May), repeat purchases are not scaling up
• US has about 2% smart phone penetration but over 22% of such subscribers downloaded mobile games. Over 18% of the 3G users downloaded games – which is obvious – better user experience leads to more interactivity
• The mobile game industry is growing. The number of downloads increased from 6M to 11M in a period of 7 months (Nov 05 to May 06) and the revenue jumped from approx $40M/month to $100M/month.
• Not surprisingly, 13-24 age demographics is making majority of the purchases
• 40% of mobile games played come embedded with the phone
• Online promotion leads to 5-10X increase in mobile game sales
• There is significant dispute over the leading games list published every month list (we will get to the “statistical discrepancy” or as someone would say “fuzzy math” a bit later)

Trends –

Current landscape – Carrier has the power, Deck placement rules, meager carrier staff to review games. Independent developers at a big disadvantage. Mobilized Classic games still the front runner. Big head is developing (top 5 mobile game providers have over 60-65% of the market share, EA Mobile with over 30-35%), no efficient way to leverage the long tail. Multi-player and cross-platform games only exist on powerpoint decks, limited interoperability across carriers and platforms. Single digit subscriber penetration, no gaming specific wireless devices. Business models straightforward – subscription or download purchase. IP primarily relates to content and licensing. Catalog on the server. Microsoft a fringe player. For D2C players, only marketing drives sales. Poor discovery and distribution. Insignificant use of other phone features (camera, haptics, broadcast, music, SIP, IMS) into the game environment. Development cycles shorter than legal and payment cycles for the smaller developers.

Future landscape – Community driven market place. Tight integration of other mobile technologies (music, video, IM, advertising, location, etc.) with games. More consolidation (intra- and inter-segment). D2C rules. Mobile search drives growth for independent and small publishers, new business models are introduced. Carrier product managers leave their power jobs for industry positions. Multi-player and cross-platform games the norm. 50% or higher subscriber penetration, substantial improvement in handset features that enhance the gaming experience. More innovative business models, more bundling with other apps and services. IP relates to technology and innovation in addition to content. Catalog on the device. Microsoft a dominant player. Significant use of all available features on the handset and the network. Legal and payment aspects of content are all automated.

Community – If one had to pick a theme for the conference, it definitely was “community, community, community.” Small and big players alike expounded on the importance of community and communication though there seems to be some confusion as to what “community” actually means. Trip Hawkins talked at length about community and social computing driving mobile game sales while Microsoft is pushing its “Live AnyWhere” platform. More on LAW shortly.

Value-chain collaboration – Asian economies are better at value chain collaboration than their western counterparts. Daishiro Okada gave an example of the partnership of DoCoMo, Panasonic, NEC, and Square Enix to enhance the mobile gaming experience. Similarly, DoCoMo had worked with SEGA to develop some neat experiences and offerings in the early 2000s. SK Telecom and KTF also work closely with both device manufacturers and content providers to have a more consistent content and enhanced user experience strategy. US carriers have started to change their attitudes towards wireless data in general but they still work in silos internally and there is less collaboration between different entities within the company such as procurement, marketing, mobile gaming, messaging, etc. Unless one takes a holistic view, final products will miss the mark.

RIM – a gaming platform? RIM had a booth trying to woo the developers to consider Blackberry as a gaming platform. They might do well in corporate thriller or corporate scandal game category.

Microsoft’s entry into mobile gaming space – Microsoft is one company that can take a holistic view of things and change the industry. What’s impressive about the vision is its inclusion of different platforms and development environments. It is not usual for Microsoft to promote or target J2ME and BREW platforms but they are going after them to build a rich ecosystem of devices that can be supported and can talk to their XBOX platform and perhaps even tie-in other gaming communities as well. Can you imagine the wealth of user, device, and network data that will be captured as a result? Hello advertising. Yahoo and Google should be afraid. This will also lead to some disruptive business models and interesting carrier conversations. Imagine migrating the model to other areas such as enterprise applications. How well Microsoft is able to execute its strategy worldwide will define the next shift in mobile gaming.

McDonalds vs. Starbucks – Publishers are aiming to become the Starbucks of the mobile games market where people come in, pay a premium to a commodity offering, spend time in the environment, commune, spend more money, and come back again for more. This versus the current fast-food environment with low spending desire.

Licensed vs. original content – Big brands still drives the sales. Every now and then there will be a game based on original content and vision that will be do well but for the most part without some branded (meaning licensed content) equity, the chance of making a “hit” drops faster than the temperature on mountain top after the sunset. That means only innovation can get you attention.

Fuzzy Math – Telephia, M:Metrics and others regularly publish the top selling mobile games, their market share, the revenues generated etc. These lists have significant impact on how the games and the players are perceived within the industry and hence can harm or benefit a company (especially smaller ones) depending on which side of the equation they end up. Many of the publishers – big and small, and carriers seemed frustrated at the wide discrepancies in the results from both Telephia and M:Metrics. For e.g. Telephia results indicate a gender-gap while M:Metrics’ don’t. Publishers indicated that the order of their top hits published by research vendors is inconsistent with their internal numbers. Carriers also noted that they have never heard of some of the games that appear on the top 10 list which points to some sampling issues. Since these numbers have a direct impact on strategies, planning, marketing, execution, and revenues of many companies, much more transparency in sampling and statistical methodologies and validation of results is warranted.

Missing the big picture – Except for some of the seasoned industry veterans like Daishiro Okada (Square Enix), Trip Hawkins (Digital Chocolate), Chris Early (Microsoft), Mark Pierce (SHFF), and some others, most (esp. the smaller players) seemed to be operating in a world of their own, unaware or uninterested in what’s currently going on outside the mobile gaming space and how it might impact their respective businesses. As pointed out above, mobile gaming is shifting gears and people who aren’t watching for trends and developments outside their sub-segment will be creamed within the next 12 months. Developers will benefit from looking at the developments in the areas of mobile music, mobile search, voice recognition, mobile video & broadcasting, mobile advertising, near field communications, etc. As Mark Pierce noted, his experience in working on projects with Jumptap (mobile search), v-enable (voice search), Autodesk (location), Mobot (visual search), Vibetones (vibration), GestureTech (motion, tilt) helped him gain a broader perspective of the industry that he can apply to his passion of building mobile games. Conference attendees would have also benefited from the perspective of infrastructure vendors like Ericsson and Motorola – what’s coming and when? For e.g. SIP and IMS will have a direct impact on the mobile gaming market but they were barely uttered by any of the speakers. 3G will hit the inflection point next year but not much was discussed except EA Mobile demonstrating 3G only games.

Such focused conferences (vs. say CTIA) do elevate the issues and there are more direct conversations and less ducking the critical questions.

Overall a great show pointing to interesting times ahead.

Your comments are always welcome.

Chetan Sharma

(http://www.chetansharma.com/mgc2006.htm)

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

Enterprise Mobility Cover Story

Our cover story on Enterprise Mobility in Wireless World Magazine June 2006

http://www.chetansharma.com/JUNE_cover%story.pdf

Microsoft and Qualcomm partnership on mobile phones

This is significant for CDMA markets sort of like the wintel partnership

http://www.qualcomm.com/press/releases/2006/060504_microsoft_revolutionize_next.html