Strand Consult: Predictions for the Mobile Market in 2008
|Isolation is dangerous – especially if you have to venture out into the real world…|
|History and literature are replete with stories of people who’ve spent years in isolation but who suddenly, one day, have to enter the real world. A big problem with being isolated is that you miss out on the natural evolutionary process that others in society have to undergo. This means you lack the skills and experience you need to handle the daily life you suddenly find yourself a part of.|
Observing a person emerge from isolation often arouses pity – the thought that having spent all those years alone, and not being part of any social circle, the person has no idea of the history that has led to the present-day circumstances. The person is lost. This leaves one wondering whether it’s actually harder living in isolation, or returning from isolation back into the real world.
At Strand Consult, we make a living out of delivering strategic information and services to more than 140 MNOs and all of the world’s leading technology providers. As you can imagine, we come across a lot of interesting information, as well as facing plenty of tough questions. How we make our living is by telling our clients the truth (as we see it) about the future – and also by evaluating honestly the often over-optimistic claims of technology providers. We weigh these claims soberly, and in so doing have become experienced at predicting who will be winners and losers. In the coming year, we will take on projects in more than 25 markets, speak to players in numerous countries and conduct workshops for top management at small, medium and large operators.
Looking back, 2007 was a similar year in some ways to previous ones. However, we also have seen an unprecedented number of players coming out of what seems to be a long period of isolation. These companies now dream of making it in the mobile universe. But frankly speaking, they have no idea what life in the mobile world is really like.
Each year for the past several years, Strand Consult has put aside time during the hectic month of December to put together predictions for the coming year, and then passing on our musings to our clients and friends. Something else we always make sure we do is reevaluate our own predictions – simply by revisiting our previous year’s forecasts.
To say 2007 was an exciting year for the mobile industry would be an understatement. But what we’re rather excited about is that for the eighth consecutive year we’ve been virtually dead-on with our predictions. You can find all our predictions over the past eight years in the bottom of this page.
Don’t believe the hype – success is the ability to make things happen
The year 2007 was one where many companies ventured into the mobile universe, but where a lot of them forgot to understand the basic rules of navigation – to know where you are and where you want to go. How else can you navigate your way to success?
In the mobile world, we saw a lot of new entrants appearing, many of which are based in the US, with some having their roots in the internet and IT worlds. In our view, this qualifies as one of the most isolated backgrounds possible. The US accounts for just 15% of the world’s mobile users. America’s operators have also spent so much energy fighting each other that their presence outside their home markets has remained non-existent. American mobile technology providers have, one by one, succumbed to competition from European and Asian players, and very few American players are successful outside the US.
This year, we have seen a number of US players suddenly finding the mobile universe interesting. Everyone is now hungry to enter the mobile space. Suddenly Apple, Google, MySpace, YouTube etc., all have a mobile vision – based on an idea of how they will revolutionize the mobile universe and bring the internet onto mobile phones.
Judging by the press releases of these companies and their PR agencies, it seems as though they have appeared in the world after a long period of isolation. It would have been wise for them to open their eyes a lot earlier to what’s been taking place outside their home market, instead of believing that the entire world can be made to behave the way the Americans want. No one can alter the fact that the US lost the key battles around mobile phone technologies – GSM and UMTS won over CDMA, and the Europeans led by Nokia and Ericsson flattened their US rivals.
Over the years, Strand Consult has learned to live with the fact that our analysis sometimes rubs people up the wrong way, or makes them ‘pissed’, as our Americans friends would say. But our business isn’t about flattering our customers. Our task is to help them navigate the turbulent mobile market, and that means talking straight. We got a lot of heat from Apple fanatics, for instance, when we compared the iPhone to Paris Hilton. We said both were beautiful, but ultimately little more than media hype. Apple had a lot of success with its hype in the US, but when its devices hit Europe the results were mixed – reminiscent of RIM’s attempt to conquer Europe.
Google also has big ambitions. It has put together a ‘Dream Team made up primarily of companies who all dream of success in the mobile market. Many of them have tried several times in the past without much luck. For us, it’s hard to believe Google will succeed with Android, as we pointed out earlier this year: http://www.strandreports.com/sw2916.asp
Looking at the regulatory climate, 2007 was the year EU commissioner Viviane Reding finally proved she had no insight into the telco industry and that she, as a political person, thought only about consumers when making policies – rather than the impact on competition within the industry, or how those policies might influence technological developments. We wrote on this subject earlier this year too: http://www.strandreports.com/sw2626.asp
The most exciting thing this year, however, is that mobile broadband finally took off. It was also the year that many operators went from a single-brand strategy to a ‘multigrain’ (combined with an aggressive MVNO) strategy. It was the year where a number of operators moved away from running their own networks, and instead outsourced part of their operations, at the same time as signing network sharing agreements with competitors to reduce CAPEX and OPEX. The operators who today are successful are in fact the ones that followed the path we have recommended in our reports over the past 3–5 years.
Who’ll win and lose in 2008?
Looking at the way the market is heading, mobile broadband is the thing to look out for. It will become the big thing, and a number of countries will see between 30-50% of all new broadband connections becoming 3G connections. This development will for some countries mean that broadband penetration will race towards the 100% mark – and within the next few years surpass 100% (mobile penetration is measured against inhabitants, broadband penetration against the number of households.) This explosion in connections will help give some telco stocks a boost as the stock market takes note of the new wave sweeping the industry.
Most classical broadband providers will expand their product offerings to include mobile products, including telephony and mobile broadband. But these providers will find that attracting mobile customers is not as easy they thought. On the other hand, some will launch products whereby you can make free calls between a number of different phones – belonging to the family or some other selective group.
We will see the operator 3 trying to become a supplier of mobile broadband services to different MVNOs and ISPs present in their own markets. The entire MVNO market will also get even more focus in 2008. Significant MVNO growth has until now been limited to a number of smaller and medium-sized markets, with the exception of Germany. We will now see MVNOs growing in markets such as Spain, Italy and the UK. We believe the MVNO market in 2008 will be dominated by large players such as retail chains, others with a broad distribution channel, and players using the classical no-frills model invented by Telmore and CBB in Denmark.
In our mind, 2008 will also be the year where the mobile industry will experience even more hype around products. It will be a great year for PR companies, which will be busy finding new and exciting ways to hype up new players, new technologies and new products. We will find operators, ISPs, technology manufacturers and terminal manufacturers still believing that more hype equals more sales, and hence more commercial success. The problem is that consumers today are more intelligent, and have learnt how to see through the hype. They also understand their own needs a lot better.
Consumer behavior in 2008
This will be the year when we start to experience a new breed of consumers more intelligent than the industry ever imagined – and who have learnt from their past mistakes. Many years have passed since the first mobile terminals came onto the market. And having changed terminals, operators and services many times in their lives, the industry now faces what we could call the ‘educated’ customer. Not only this, but many consumers are increasingly focused on obtaining value for money, and this will also help determine which players succeed and fail in 2008.
The market will also become even more segmented, and different customer segments will not be shy about choosing the operators, MVNOs and terminals they like the most. We will experience an explosion in the number of customers using the terminal for more than just voice and SMS. At the same time, the segment traditionally viewed as ‘late adopters’ will start to use the mobile for more than voice too. The image of grannies sending text messages will become as commonplace as the business professional checking his email and reading news on the mobile.
Simply put, consumers themselves will evolve in 2008 as it becomes possible to tailor devices to individuals bundled with either free services or services that can later can be added using operators’ billing systems. Customers’ new motto will be: if it suits us, we’ll use it. They will decide whether manufacturers are Hot or Not. In short, in the coming period the power will lie with the customer.
The operator’s business
We still see consolidation ahead for the telco industry among the smaller and medium players. Everyone can see that too many players exist in the market, and that more are also coming. Combine this with the fact that many fixed, mobile and TV providers are starting to offer complimentary products, and you can see that competition will only increase, leading to price drops in many markets. Triple play will have a new meaning – take three services, and pay for one.
We believe that the growing competition will have three key impacts on operators:
1. An increase in outsourcing, where operators leave smaller or larger parts of their operations to be managed by third parties who will run everything from networks, services and customer service to distribution and logistic.
2. An increasing number of operators will start participating in network sharing and other forms of technology sharing. The goal will be to minimize CAPEX and OPEX and the risk of investing in new technology platforms and services.
3. In a number of countries, we’ll see players taking on the role of consolidator in each country. The model we would point to is the one Network Norway is using in Norway together with Tele2. These players have created a plant ‘manufacturing’ the different telco services, where several different players sell the same services under one brand, or under their own brand. Only by consolidating a number of different players is it possible to create a serious countrywide or regional alternative to the large players present in each market around the world.
It’s all about keeping production costs down. And in the struggle to optimize basic operations, a number of sacred cows will be sacrificed in 2008. We believe that you will see some of the most conservative operators in the world starting to outsource and share technology with their competitors in 2008.
The markets that will attract a lot of attention in 2008 will be ones in the Middle East, Asia and Africa. These markets will use new technologies in advanced ways, and we will see operators in these regions continue to grow their customer numbers, turnover and profit. Maybe in 2008 the term ‘emerging markets’ ought to be abolished, and we should recognize that consumers in these regions are actually active and advanced mobile consumers.
The handset business – new players, new dreams
The terminal market will be an exciting one to follow in 2008. It will be a year when new players such as Apple and Google will need to prove they are a commercial success or fade away. We believe both players will have a hard time, and struggle to reach the sort of volumes this industry demands. Apple will have a hard time penetrating Europe, and will be forced to reckon with its ignorance and recognize that European and other markets are much more fragmented than their home market.
Who will be the winners in 2008? We believe it will be Nokia, Nokia, Nokia and Nokia. Some of the other players will also ship a phone once in a while. Motorola will spend much of 2008 getting its bearings, so it will be a while before it’s able to create a blockbuster anything like the classical Razr. SonyEricsson, Samsung and LG will keep launching exciting products, but our question is how many new unique products will sell in large volumes?
Who will surprise us? In 2008, HTC will again have a number of exciting consumer products and terminals with Wimax etc., which will help the company gain respect and attention. We believe the press will focus on players known only to a few, but who really sell the devices. Here we are talking about the 3G modem manufacturers. The open question is if we will see consolidation on the device side. We believe this is probable, or else that we will start seeing platform and technology sharing.
Distribution-wise, Brightpoint after its merger with Dangaard will be an exciting player in 2008. We believe that it will enter into a number of exciting partnerships, and that an increasing number of operators will want to partner up with it. This will be the year where Brightpoint not only increases its customer base, but also its service offerings.
The internet world is dreaming, but can the dream become real?
2008 will be a year where much of the focus is on the mobile services market. We will experience four key types of player aiming for the limelight in the mobile universe.
1. Internet players who dream of becoming successful in the mobile market and who believe the future is internet on the mobile, and who have faith in an ad-based model. They are in for a big surprise when they realize the mobile market is very different, and significantly more advanced, than the internet market.
2. Media companies with local media and with customers they communicate with daily. These companies will see an explosion in traffic to their micro sites and mobile portals.
3. Terminal manufactures with platforms and services preinstalled on the device. They will use make use of the operators’ revenue-share models and shift part of their marketing focus onto the services on their terminals. They will also try to get agreements with ‘super brands’ to enhance their own brand image.
4. Operators who own the SIM cards and have a billing system that can be used to get paid for mobile services. These are probably the players that will have most success in 2008 – not measured in traffic to their mobile portals, but traffic on their networks and through their billing systems. We will see a number of operators who will view internet and media companies, and terminal manufacturers, as good traffic generators on their networks and to their billing systems. This traffic will help them reduce their investments in their own services, portals and service platforms, and not least the marketing of these.
We believe the internet players who wish to be successful in the mobile universe will create much hype around their offerings, but basically this market will be dominated by media companies who have access to cheap marketing, and terminal manufacturers who can bundle services with the phones. Operators will handle the payments and revenue-sharing with players that create traffic to their billing system. Traffic is king; cashflow is King Kong.
2008 will be an exciting year in which the press, too, will be very busy. Hype will be the order of the day, and many players who have until now lived in isolation will try to move aggressively into the mobile world. We don’t think consumers will buy into the hype, and will rather be careful to look for products and services that give them good value for money. We look forward to 3GSM in Barcelona, now renamed The Mobile World Congress, where we expect to see the first signs of which direction the industry is heading, and be in a position to judge whether our predictions this year are likely to hold.
Maybe you don’t agree with all our predictions. But one thing’s for sure – they’re not based on years of isolation, nor years spent hyping up new technology. On the contrary, our job is to help our clients be successful in a turbulent world, and to improve their chances of success.
We are confident, of course, about our own judgments. But don’t judge us merely by what we say today about the future. Just look at what we said about the present in the past. You can find our predictions for the past eight years here:
2002 UK predictions