Research Notes

A look back at GSM World Congress 2006

The 3GSM World Congress is over, 4 fantastic days in Barcelona where 50.000 people that all live and breathe for the mobile universe met with the purpose of exchanging visions, ideas and information about how the mobile markets look and how they expect them to develop in the future. Strand Consult participated with five employees, we followed the conferences, had an enormous amount of meetings and enjoyed having our extensive knowledge supplied and updated with new inspiration about how the universe we are part of is doing today and how it is developing.

Many will probably agree with us if we call the 3GSM World Congress the biggest event of the year. It is where you meet, where you are seen and where you have the possibility to enter into a dialogue with so many exciting people and companies. The biggest problem about the 3GSM World Congress is that you constantly seem to have a bad conscience – not because you are not doing your job well enough – but because you get the feeling that you do not have enough time and attention to give to all the exciting and professional people you meet in Barcelona, attention that they really deserve. You seem to run around from conference to conference and meeting to meeting – and always just behind your planned schedule… Yes, the 3GSM World Congress is very hectic – but also very fascinating.

If we look at the main events at the Congress this year, we could start by looking at some of the prominent people that made an impact. On the one hand there was Steve Ballmer from Microsoft, whose energy and behaviour is reminiscent of something in between a TV preacher and one of those salesman you either meet in a shopping mall or see on the TV shopping channel. In contrast there was Nokia’s coming CEO, Olli-Pekka Kallasvuo, a very professional man with an impressive track record. But perhaps he ought to focus on running his company and let others tell about Nokia’s visions – that man could easily get a job as a model in a TV advertisement for sleeping pills!

They were all there:
Olli-Pekka Kallasvuo, President & COO (Elect), Nokia
Steve Ballmer,CEO, Microsoft
Ed Zander,CEO,Motorola
Mun Hwa Park,President & CEO, LG Electronics Mobile Communications
Carl-Henric Svanberg,President & CEO, Ericsson
Brad Boston,Senior VP & CIO,Cisco Systems
Shane Robinson,Executive VP & Chief Strategy & Technology Officer,HP

When you heard their presentations there was no lack of visions and fancy words about how, if operators just invested in exactly their technology, the operators CAPEX will decrease over time and ARPU increase significantly. If we look at the technology suppliers promises, they did not vary much from the previous years either. It seems like the road to growth in the mobile industry is new technology, regardless of whether customers need to adopt, purchase and pay for this new technology and at the same time having to be totally oblivious to what is otherwise happening in this industry.

Here at Strand Consult we love these words, we love people that come and give these kinds of promises to their customers, but how does the real world look, the real world where the 140 mobile operators that are our customers do business in? If we look at the promise of growth in the mobile industry, we have heard that same promise for many years, but it is a fact that the only growth the mobile industry has experienced up to now is the growth that comes from an increase in mobile penetration – a growth that is nonexistent in Europe today and that is close to disappearing in large parts of the rest of the world,

When Antonio Viana-Baptista from Telefonica Moviles, Arun Sarin from Vodafone and Wang Jianzhou from China Mobile participated in a debate, I asked them whether it was realistic to speak of growth on a mobile market where voice and SMS prices are plunging down, as we have seen in Denmark, Sweden, Finland, Germany, Switzerland, Austria and Poland etc. Strand Consult is having great difficulty seeing how operators in the middle of the technology shift from 2G to 3G can improve their bottom line by using new technologies. Arun Sarin from Vodafone seemed to agree with my views until Telefonica’s Moviles CEO Antonio Viana-Baptista took over and said that growth will come and they had already experienced this in Spain. However he forgot to mention where the growth was coming from and the effect the write-down of the number of prepaid customers can have on an operators key figures and also the effect of moving customers from prepaid to postpaid.

We know from our daily work that most operators will move some of the focus away from new technology and instead look at how they can postpone CAPEX and reduce their OPEX. It is a fact that even an explosion in the use of 3G services will not be able to compensate for the price reductions that many countries have experienced over the past months and it will be equally difficult in the short-term to pay for the investments that are needed in 3G through increased data usage, which is increasingly being sold at a flat-rate price.

To put it simply, one could say that there is a great distance between the operators on the one side and the technology suppliers on the other side. We hope that the technology suppliers will wake up soon and start accompanying their technologies with healthy and realistic business models that will enable some realistic propositions on how operators can create growth and return on investments in the future.

With the above in mind, let us take a look at some of the news and hype from Barcelona. Mobile TV could become very big, especially if it is delivered via DVB-H, but did anybody talk about the regulative questions, will it be the mobile companies or TV stations that run these networks and how will revenue for content be charged and shared? If you are like us working with a number of Europe’s most innovative TV stations on a daily basis, you will also have a little difficulty in seeing why DVB-H or DMB will have a future – all the professional players in the TV industry agree that the classical Flow-TV is dead, customers want TV on demand and do not want to have to wait until 8 pm to watch their favourite programme. They want to see programs when and where they want to, instead of when it suits the TV station or mobile operator to send it. It is tempting to say that Flow TV and mobility are two opposite things – almost like trying to talk about a democratic dictatorship! I cannot help wondering whether DVB-H will be as large a “success” as Nokia’s N-Gage was?

That the rollout of 3G was delayed was probably not a big surprise for many people, but who could have predicted that we would skip straight over the first generation of 3G and move directly on to the second generation? It is a fact that the most customers first 3G experience will be on a network that supports HSDPA, which in practice means that they will be able to have a 1 Mbit download speed on their mobile phone – a higher speed than most people around the world have today on their broadband Internet connection at home. The question is not whether the number of mobile broadband connections will overtake the number of ordinary broadband connections, but rather when this will happen; in 2008, 2009 or 2010?

Many talked about Voice over IP, about UMA and the many possibilities there are in using IP connections to transmit voice between two terminals. There were also a number of speakers that believed this could be a threat for the operators’ business case, but unfortunately no one talked about the business models and opportunities that VOIP actually can give. To be honest, calling from Spain to England via Skype on a mobile network is probably the most expensive form of communication that exists – one minutes conversation uses around 1 MB of data for both the sender and receiver, in other words you need to pay for 2 MB data per minute and with the data prices that the mobile operators are charging today, VOIP over the mobile networks becomes an extremely expensive form of communication. If you instead look at WLAN for that type of communication, there is today no cheap access to WLAN anywhere in the world and the number of open Wi-Fi networks that private people allow access to will over time decrease as more and more stories hit the media about how hackers, paedophiles or others misuse open Wi-Fi networks for illegal purposes. We do not believe that VOIP is a threat to the mobile operators; we believe it is an opportunity if you focus on developing the business models that the technology providers seem to have forgotten all about when they created the technology.

All in all the 3GSM World Congress was a huge success and we are already looking forward to next year, where even more people and companies will again meet to exchange visions, ideas and information about how they see the mobile market and how they expect it will develop in the future. Once again, Strand Consult will also be there, we will participate in the conferences, run from meeting to meeting, all with the one goal of increasing our knowledge with new inspiration and information about the universe we are an integrated part of and how this exciting and innovative industry will develop.

Yes, we love this business…

Yours sincerely

John Strand  

GSM World Congress – a Preview by Strand Consult

Contact us to get a copy of the report

Request the report