business analysis for telecoms professionals september ... · nsn buys motorola networks nokia...

POSITIVELY DISRUPTIVEIt pays to look at the positive contributions that disruptive service providers and technologies can bring to the market

news in brief

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

network strAtegies

6 Voice over IP business models fixed and mobile carriers are using fast-growing VoiP services to drive new revenues, changing perceptions that the technology is a negatively disruptive force

technology trends

10Near-field communications operators have big plans for nfc, and some new developments over the summer herald a wealth of new applications—if the business models can be sorted out

business And finAnce

17 Mobile services in India new entrants with foreign backers had hoped to capitalise on rapid mobile growth in india, but now some are facing a quick exit amid new regulation

content strAtegies

20 MVNO models MVno launches are still gathering pace in the face of consolidation, but it pays to think carefully about how to differentiate services and content

LEadEr cOnTEnTS

Ian Kemp Editor

ian.kemp@ totaltele.com

BuSInESS anaLYSIS fOr TELEcOmS PrOfESSIOnaLS SEPTEmbER 2010

new entrants (upstarts) are often regarded with a large degree of circumspection,

but disruptive forces can soon turn into changes for good, as we show in this month’s total telecom Plus.

when it comes to voice over iP, the technology has evolved from a disruptive force into a mainstream service over which future strategies will be fought. As fixed and mobile operators continue to roll out their next-generation fibre and lte networks we are going to see a lot more innovative VoiP applications and services, altering our percep-tions of it as a voice killer towards a way to drive new revenue streams and business models.

operators such as Verizon and At&t, as well as service providers in france, already are demonstrat-ing how VoiP can provide an uplift (see story p.6). And some mobile operators argue it can drive up minutes of use and voice revenues, even when cheap or “free”.

but what of those upstarts? it’s hard to believe that skype is only seven years old, responsible as it was for 54 billion of the 406 billion minutes of international traffic last year (telegeography statistics). it’s

still struggling to find profits as our story shows, but it is marching ahead with consumer and business serv-ices and an iPo, and is latterly the subject of takeover rumours. google, too, is accelerating VoiP’s progress, in August integrating its voice appli-cation into gmail.

in the mobile space, new entrants are proving an equally irresistible force, with MVnos set to overtake the number of mobile network oper-ators globally in the next few years. MVnos are both driving consoli-dation and springing up as a direct result of it, most recently in the uk (see story p.20). still by far the biggest proportion of those MVnos are targeting low-cost services, but some network operators are using further segmentation to drive up users and revenues.

Mobile entrants in india are faring rather less well. network operators awarded new spectrum in 2008 had hoped to tap into the booming mobile industry there, but less than three years later they are struggling to sign up subscribers and roll out networks (p.17). now the regulator is considering policy amendments that could provide an exit route.

once more showing that disrup-tion can be a positive force, operators globally are starting to introduce near-field communications (nfc) services that could radically change the way we use mobile devices. on p.10 we get to the heart of the tech-nology and the latest projects. n

‘Disruptive forces can turn into changes for good’

Our customers say we offer personal service with quality wholesale connectivity and network reliability they can trust.* For your one connection to infinite possibilities, Rogers is the Canadian wholesale carrier solution for all your voice and data needs. www.rogers.com+1-416-935-6060

*Based on independent survey results collected by Atlantic-ACM 2010.

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September 2010 www.totaltele.com 3

took control of ukraine’s largest mobile operator kyivstar in April, is owned by telenor of norway and russia’s Alfa group.

Windstreambuysintofibreus rural operator windstream bought fibre services company Q-comm for us$782 million.

NETWORKS

Singapore launches NGNsingtel has launched services at speeds up to 200-Mbps on singapore’s national next-generation broadband network. retail and wholesale consumer and business services will be deployed on fibre infrastructure built by singtel and opennet. consumers can get tV and gaming services, as well as a home line with unlimited iP-based calls (see VoiP story p.6).

NSN wins big mobile dealsnokia siemens networks won a contract to supply equipment for the new 3g network of tata teleservices, beating off rivals ericsson, Alcatel-lucent and Zte. nsn will provide lte-ready wcdMA base stations, as well as network implementation and managed services to the indian operator. in July, harbinger capital Partners awarded a us$7 billion (E5.5 billion) eight-year contract to nsn to build its wholesale lte network, lightsquared.

BT broadband hits 15 millionbt says 15 million uk homes and small businesses now access broadband services through its network, five million of those directly from its retail unit.

TImELInE

cAiw and delta must allow tV providers to broadcast digital signals over their cable networks.

Vodafone to launch IPTVVodafone said it will launch iPtV services for its Adsl subscribers in spain by the end of the year.

Telekom Austria restructuringtelekom Austria said its ongoing reorganisation will cost E30-40 million in 2010, half its previous estimate. the company is merging its fixed-line and domestic mobile operations into one unit, A1 telekom Austria.

Telefonica wins Vivo battletelefonica ended its protracted battle to gain control of brazilian mobile operator Vivo, buying Portugal telecom’s stake for E7.5 billion. telefonica plans to merge Vivo with its fixed-line operator telesp, giving it 70 million customers in brazil, a full 25% of its total customer base. Portugal telecom in turn will use some of

BuSiNESS

Intel buying spreeintel bought texas instruments’ cable modem business, bringing it into its digital home group, which will supply the Atom chip for google tV. intel also bought internet security company McAfee for us$7.68 billion, and then snapped up the mobile device unit of german chipmaker infineon for us$1.4 billion.

EU appeals French state aidthe european commission is appealing a european general court decision that a E9 billion credit line offered to france telecom in 2002 by the french government wasn’t illegal aid.

Qualcomm mulls Flo TV unitQualcomm said it is in talks which could lead to a sale of its flo tV mobile broadcast unit.

NSN buys Motorola networksnokia siemens networks acquired Motorola’s networks business for us$1.2 billion to try to boost operations in key markets such as the us and Japan. the deal is expected to close by the end of this year, and will see about 7,500 Motorola employees transferred to nsn.

Dutch cable operator reprieveA tribunal in the netherlands overturned the telecoms regulator’s decision to force cable operators to open their networks to competitors. in March 2009 opta ruled that uPc and Ziggo should make their analogue cable infrastructure available to other companies and that they and

the proceeds to buy a 22.4% stake in rival brazilian company oi.

FTsetforfilmdealfrance telecom was close to signing a deal with Vivendi’s canal Plus to merge their movie channels tPs star and orange cinema series. chief executive stephane richard has been looking at ways to ease the cost of the operator’s content assets.

TeliaSonera sell-off prospectsweden’s government says it will reduce the state’s 37.3% stake in incumbent operator teliasonera if it wins another four-year term in the forthcoming elections. in May 2007 the government divested an 8% stake to institutional investors for sek18 billion (E1.9 billion).

Vimpelcom on acquisition trailrussia’s Vimpelcom entered into talks to buy stakes in mobile operators orascom in egypt and wind in italy. Vimpelcom, which

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

Source: Infonetics Research

Spending on networks and software rising again

% o

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Infonetics says spending on network and software equipment has picked up this year and will accelerate from 2011 through to 2014. Worldwide telecoms and datacom equipment revenues totalled US$153.8 billion worldwide in 2009, down 5.2% from 2008, but Infonetics expects spending to grow to $208.3 billion in 2014. The company tracked 11 major categories of enterprise and service provider equipment, with only IPTV and next-gen OSS growing in 2009.

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4 www.totaltele.com September 2010

Tata awards 3G contracttata teleservices awarded huawei technologies a contract to provide equipment for 3g networks in five of the nine telecoms circles in which it won spectrum earlier this year.

Chile to auction LTE spectrumchile will auction off spectrum in the 2.6-ghz band for mobile broadband services in december, with the winners awarded capacity in mid-2011.

3G auctions in Thailandthailand’s three main operators—Advanced info service, dtAc and true corp—are among 18 companies set to bid for 3g licences in the country. the auction for the three 15-year licences has been set for september 20-28, and foreign firms must form a joint venture with thai companies.

Australia delays NGN plansAustralia’s nbn co. put a freeze on its tendering and hiring process to build the country’s next-generation broadband network following a closely-contested election. with the balance of power not decided, the country could opt to continue with the A$43 billion fibre national broadband network proposed by Prime Minister Julia gillard and her labor Party, or an A$6.3 billion network that relies on a mix of fibre, copper and wireless technologies backed by tony Abbott and his conservative liberal-national coalition.

Mexico wireless auctionMexico’s second wireless spectrum auction ended with the award of a single nationwide licence to a consortium of media giant grupo televisa and nextel Mexico. regulator cofetel is aiming to bring more competition to an industry

dominated by Mexican billionaire carlos slim helu.

Pay-as-you-go WiMAXclearwire unveiled a new pay-as-you-go wireless broadband service on its wiMAX network in 49 markets in the us.

NewfibreserviceinItalyfastweb has launched a symmetrical 100-Mbps fibre service in italy to around 2 million households.

Indian infrastructure awardsindia’s state-run equipment company iti won two contracts worth a total of inr2.67 billion (E500 million) from bsnl to deliver 2g and 3g network equipment. And ericsson will work with local infrastructure provider radius infratel to provide 600,000 households and businesses with fibre connectivity in india.

PEOPLE

Hurd not seen any morehewlett-Packard chairman and chief executive Mark hurd resigned in the wake of a sexual harassment investigation that revealed he filed inaccurate expense reports. Along with options and benefits, hurd’s severance package could be worth more than $35 million.

Change at top for SafaricomMichael Joseph, ceo of kenyan mobile operator safaricom, will retire in november after 10 years leading the company. he will be replaced by bob collymore, who has been chief officer for corporate affairs at Vodacom and has been on the safaricom board for more than four years.

Sprint loses headssprint nextel’s senior VP of product development, kevin

TImELInE

chIna In hIS handSChina mobile, the world’s larg-est operator by subscribers, appointed Li Yue (pictured) as its chief executive, replacing Wang Jianzhou who will re-main as chairman and exec-utive director. The operator’s total subscribers reached 554 million at the end of June fol-lowing net additions of 31.76 million in the first half of the year. China mobile reported net profit of CNY57.64 billion ($8.49 billion) for the first six months, up from CNY55.33 billion in the same period last year. Revenues rose 7.9% to CNY229.82 billion from CNY212.91 billion, although ARPU slipped to CNY72 from CNY75 a year earlier. China mobile said it has now com-pleted construction of the third phase of its TD-SCDmA 3G network and had deployed 115,000 base stations across 238 cities by the end of June; it is targeting 200,000 base sta-tions by the end of the year. It had signed up 10.46 million 3G customers by the end of June, and had 2.7 million users of its mobile payment/wallet service by then, just over a month after launch. The company’s mobile reading service, also launched in may, had more than six mil-lion paying users by the end of June, while its music down-load service had over 3.2 mil-lion users and its mobile video service over six million. “De-spite rising competition we are confident that our net profit will continue to grow as growth in valued-added services such as mobile reading and music outpace the decline in voice tariffs,” Li said. In march Chi-na mobile bought a 20% stake in Shanghai Pudong Develop-ment bank to continue its di-versification into mobile finan-cial services.

Packingham, left the company in August. Packingham led the development of sprint’s flagship evo 4g and epic smartphones, the first devices to support its new wiMAX network. dan schulman, who ran sprint’s prepaid business, also left in August to take up a position at American express.

iPhone engineering departureMark Papermaster, Apple’s senior vice president for iPhone engineering, left the company shortly after it suffered complaints over reception issues related to its new antenna design.

New leader for MSN portalMicrosoft hired ted cahall as corporate vice president of its Msn portal. cahall, formerly cto at Aol, replaces erik Jorgensen, who will now oversee mobile and mapping for Microsoft’s bing search engine

Turk Telekom new CEOsturk telekom appointed hakam kanafani as group ceo from his position as oger telecom’s chief business development & synergy officer, and promoted k. gokhan bozkurt to ceo of turk telekom from his position as VP of human resources at the operator.

Singtel international headsingapore telecom appointed hui weng cheong as ceo international from december, succeeding lim chuan Poh who is retiring from the company.

Reliance 3G leaderreliance communications named Prashant gokarn to head the rollout of its 3g network.

Icahn buys into Motorolabillionaire investor carl icahn increased his stake in Motorola to about 10.6% by spending another $24.7 million on shares.

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Fixed and mobile carriers are using fast-growing VoIP services to drive new revenues, changing perceptions that the technology is a disruptive force. By Ingrid Lunden

V O I C E O V E R I P B U S I N E S S M O D E L S

IP FINDS ITS VOICE

only a few years ago people were talking about consumer VoiP as a revolutionary, disruptive force

in the telecoms industry. free, or at least very cheap, services were set to make traditional telco voice tariffs look exorbi-tant and drive many incumbent operators to block VoiP on their networks.

yet today Voyet today Voy iP has positively gone mainstream: countries like france can boast of VoiP penetration of fixed-line services approaching 40%, according to research from Point topic. topic. t elsewhere, tier-1 carriers such as Verizon in the usare selling VoiP as their default voice offering, with engineers going so far as to

rip out the copper when they come to install the new service.

but a recent iPo filing from the biggest VoiP provider of all, skype, shows just how challenging it can be to make money from a service originally sold as “free”. nevertheless, there is hope: the new breed of paid VoiP services from operators are showing a new route to revenue, rather than driving down ArPu.

Point topic figures from March esti-topic figures from March esti-tmate there are more than 110 million VoiP subscribers taking paid-for services worldwide (see table left). Many hundreds of millions more use soft-clients on a variety of devices from Pcs to mobile handsets: skype alone claims to have more than 500 million registered users; and google’s integration of google Voice with gmail—the result of the acquisitions of grand central and gizmo5—announced in August could add another 170 million internet-based VoiP users to the mix.

“i think [the industry] has been at VoiP for a while but things are really coming together now,” says John broten, product manager for fios digital Voice, the VoiP service that Verizon has implemented on

its fibre network since the end of 2008 but only widely since June. “[wonly widely since June. “[wonly widely since June. “[ ith new fibre networks] we’re getting to a level of quality that rivals what had been available in the circuit-switched arena.”

Verizon has not publicly given figures for the take-up of fifif os digital Voice, but broten says VoiP rather than circuit-switched has been the “lead offer” in its fifif os bundles and “a significant portion” of those who have signed up to fifif osbundles are taking the voice service. Verizon reported 196,000 net fifif os internet and 174,000 net fifif os tV customer addi-tions in the second quarter, taking its totals to 3.8 million internet and 3.2 million tV customers respectively.

AtAtA &t has offered its Vot has offered its Vot iP digital home Voice service on the u-Verse iP network for two years. in its second-quarter results in July it announced a 209,000 net gain in tV subscribers to reach 2.5 million, with two-thirds of subscribers taking u-Verse Voice. AtVoice. AtVoice. A &t saw a 32% year-on-year t saw a 32% year-on-year tgrowth in consumer iP revenues (tV, broadband and voice), while ArPu for u-Verse triple-play customers was nearly us$160, up 13.8% year on year.

fierce competition is also driving tech-nology innovation behind new VoiP services: “cable competition was one reason for our move to digital voice,” says broten at Verizon. “before, the cable oper-ators had a more robust product with feature sets, which we offer now too.”

others say the bigger competitive threat comes from mobile substitution. “fixed-line carriers are seeing their revenues erode, with mobile becoming a primary number, so [cable and telco operators] are looking to integrate a lot more into their VoiP services to compete,” says leslie ferry, VP of marketing for VoiP vendor broadsoft, which provides a white-label VoiP solution to major operators includ-ing Verizon.

indeed, citi investment says 30% of ushouseholds have now switched off their

nETwOrK STraTEraTEra gIES

IP telephony take-up and revenue estimatesuser examples number of users Target market Penetration monthly aonthly aonthly nnual

(000s) (000s) % arPu (uS$) revenue (uS$m)High income countries 95,286 274,000 34.8% 12 13,721Lower income countries9,160 142,500 6.4% 10 1,099Totals 104,446 416,500 25.1% 11.82 14,820

Source: Point Topic

Top 10 Countries, VoIP subscribersrank cank cank ountry VoIP subscribers1 US 22,704,900 2 Japan 21,368,000 3 France 16,125,000 4 Germany 8,100,000 5 China 5,000,000 6 South Korea 4,846,839 7 Italy 4,187,000 8 Canada 3,607,318 9 Netherlands 3,446,400 10 UK 2,950,000 not softclient Source: Point Topic

Fixed VoIP penetration of population by country

40%

35%

30%

25%

20%

15%

10%

0%2006

% of population

2007 2008 2009 2010 2011 2012 2013

Source: IDATE

— France— Netherlands— UK— US— Japan— Germany— Italy— Sweden— Spain


landline (circuit-switched) service. what’s more, newly published figures from regu-lator the fcc show there were 21 million interconnected—over a broadband or cable connection—VoiP subscribers in the country, from a total of 162 million connec-tions, as long ago as the end of 2008.

operators have also realised that VoiP can help them claw back margins on their voice products when it is offered over fibre-based broadband. “iP-based infra-structure is much cheaper to maintain because it’s not nearly as distributed in terms of having all the necessary class-5 switching centres and the rest,” says broten at Verizon. “if someone were to build a network today, it would be a far more centralised architecture than what you have today. switch maintenance, power…[all] become less costly in an iP-based architecture.”

despite the cost savings to the carrier, fios digital Voice is being priced at a similar level to the legacy service: in other words, Verizon’s own margins on digital Voice are much higher than those on its traditional voice service. while it does not break out ArPu for digital Voice, consumer ArPu for wireline services was $80.76 in the second quarter, up 11.4% compared with the second quarter of 2009, while ArPu for fios customers was more than $145, says Verizon.

enhanced services over VoiP may well become the area where telcos will look to differentiate in future. ferry at broadsoft says new functions will start to come out in the next 12 months, features that “inte-grate the mobile, the tV, even an alarm clock and other devices”. operators are already taking a page from skype’s note-book, and are looking to integrate functions such as instant messaging into their VoiP services.

“you will see chat functions, call control and account management delivered through a tV interface,” says ferry. “your tV becomes a multi-tasking device.” in August At&t introduced an account management function to enable u-Verse customers to manage their service through the tV screen.

while there may always be free serv-ices, operators are also looking at ways to implement paid-for VoiP products to provide a better class of service for those

who are prepared to pay for it.“we’ll ultimately end up with a varie-

gated model,” says cassandra Millhouse, director of product marketing at Amdocs’ oss division. “there will be those that continue to be free, but they will be at the lowest quality. An urban professional, for example, may want something better and is willing to pay for it.” she says several of Amdocs’ operator customers are looking at how they can translate those different classes of service into VoiP products.

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Historically, over-the-top VoIP providers—those that offer IP-based voice services but do not own network, such as Vonage or Skype—have made much of their free or cheap voice services compared to those on traditional circuit-switched networks. but as these players have matured, they too have been searching for ways to monetise their services.

Vonage in August announced a new mobile app that can be used with Apple and Android devices, enabling users instantly to call Facebook contacts for no additional cost to their operator data plan (the receiving party also needs to have the app installed to get the call).

Skype, meanwhile, as well as partnering with mobile operators 3 and Verizon Wireless, is starting to work more with consumer electronics companies. First up are alliances with LG, Panasonic and Samsung, which are all developing connected devices such as Internet-enabled televisions. Skype has also launched SkypeKit, a series of APIs for third-party developers to embed Skype into other products.

Yet so far such developments have not provided much in the way of stated revenue to Skype. In August, the company, recently spun off from ebay, announced it would issue an initial public offering to raise $100 million. In its S-1 filing to announce the IPO, Skype says it made $406.2 million in revenues in the first six months of 2010, but 87% of that was from one service: people buying SkypeOut credit, which enables Skype users to make calls to other networks. Other paying services include SkypeIn, which gives a user a phone number for off-net calls, voicemail, SmS and its WiFi access product SkypeAccess. Together with SkypeOut, these accounted for 94% of revenues in the period.

Skype subscribers currently number 560 million globally, but only 124 million of these are “active” users and just 8.1 million are designated paying users. The rest use the free service, which lets them make voice and video calls and exchange instant messages with other Skype users. Skype made a net profit of just $13 million for the six months to the end of June.

The number of paying users is growing, but not at a rate that is keeping up with the growth of free users: in the three months to the end of June monthly connected users grew by 36% compared to the same period a year before, but paying users grew by only 23%.

Skype cites three main areas it hopes will contribute to more revenues: It is focusing on a new tier of premium (paid-for) services, such as group video calling; it hopes to use its scale to grow its advertising and marketing business, which consists of services such as in-stream ads and “click & call” buttons for business sites; and it wants to grow Skype for business. In the six months to the end of June, these types of products generated around $93 million.

In August Skype launched a voice service for businesses that integrates free and low-cost calling into SIP-based corporate IP PbXs. Calls to landlines and mobiles made using Skype Connect will be billed at Skype’s standard calling rates worldwide.

Hard currency: over-the-top providers search for revenues


SEcTIOn hEadEr

mobile trend: Juniper research says some 15 billion minutes of mobile VoiP minutes will be carried on 3g and 4g networks this year, rising to 470.6 billion minutes by 2015. Juniper estimates there will be some 100 million mobile VoiP users this year and 107 million by 2012.

but the downside is that a substantial amount of mass-market mobile VoiP traffic will bypass those mobile networks: the apps from skype, Vonage and other VoiP providers such as truphone often use a wifi link for connectivity. Juniper research believes that mobile VoiP deliv-ered over wifi could cost mobile operators some us$5 billion in revenues globally by 2015.

there have been very few mobile VoiP offerings from carriers to date, and in some markets that feature unlimited data plans they are being blocked altogether because operators claim the cost of VoiP

Moreover, over-the-top VoiP services such as skype could be proving a boost to their partners’ revenues if not their own. Mobile operator 3, which waives all data charges for skype calls on its network, says those skype users account for 14% less churn than other users and provide a “margin uplift” of more than 20%. what’s more, 3 says they generate 60% more voice revenue than other users because they typically talk more and accumulate more non-skype voice minutes—although whether that is a direct result of having the skype application is open to interpretation.

well over 1 billion minutes of skype calls have been made since 3’s service went live in 2008. Verizon wireless also started a service with skype this year, but the operator has not yet reported any usage or revenue statistics.

skype’s success with 3 is part of a bigger

is too high on their current data networks. however, some mainstream operators are now starting to test the water: in July telefonica announced it will roll out mobile VoiP services across its o2 busi-nesses in europe, starting with germany, following its purchase of iP telephony firm Jajah last december for $207 million; in the same month sk telekom announced a mobile VoiP service in korea.

indeed, when mobile operators move to lte broadband networks it is likely that some will follow in the footsteps of their fixed counterparts, moving their voice services onto the data network while maintaining pricing levels. emin gurdenli, VP of network for everything everywhere, says lte will lead to a tenfold reduction in the cost of moving a megabyte of data, leading to higher margins for operators regardless of which flavour of VoiP they choose to run. n

nETwOrK STraTEgIES

Operator developments and analyst forecasts show that VoIP services for enterprises are also forging ahead, and in future will take a bigger share of the mix. AT&T in August became the latest operator to add IP voice services to its virtual private network services offering, delivered over its global cloud network. Features include caller ID, voicemail, conferencing and local number portability.

Infonetics Research estimates residential/SOHO customers account for roughly three quarters of all VoIP service revenues worldwide currently, but says business VoIP services will grow to about one third of total VoIP service revenues by 2014 (see chart below left). Total service provider revenue from residential/

SOHO and business VoIP services increased 20% between 2008 and 2009, to US$41.6 billion globally, it says.

Session border controllers (SbC) and media servers will be the main growth engines of the carrier VoIP equipment market this year, with SbC growth of 70% year-on-year in the second quarter “showing that IP-to-IP connectivity continues to overtake IP-to-TDm connectivity” says Infonetics. The total service provider VoIP equipment market was $564.7 million in the second quarter, including trunk media gateways, SbCs, media servers, softswitches and voice application servers.

Leading the way among vendors for carrier VoIP and ImS equipment revenues is US

company Genband, which in February bought Nortel’s carrier VoIP and Application Solutions (CVAS) assets for US$182 million. Infonetics forecasts service providers will spend a cumulative US$4.4 billion on ImS equipment over the five-year period from 2010 to 2014, as carriers migrate VoIP services to ImS and VoIP services continue to grow.

meanwhile another Infonetics report from August shows bT, T-Systems and Vodafone leading the way in EmEA for hosted business VoIP services. The research company says there are now over 100 service providers offering business VoIP services in EmEA, with the top providers all close to or exceeding 100,000 IP Centrex seats.

Business VoIP services rising fastest

BusinessVoIP

business VoIP share of VoIP service revenues

Residential /SOHO VoIP

BusinessVoIP

Residential /SOHO VoIP

Top 5 carrier VoIP and ImS vendors by revenues, 2Q2010

Others

Genband

Huawei

ZTE

Alcatel-Lucent

Nokia Siemens Networks

Source: Infonetics ResearchSource: Infonetics Research 2009 2014

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values globally will exceed us$110 billion by 2014, rising from us$30 billion in 2012 (see chart on opposite page). “nfc is part of an overall move by a lot of mobile oper-ators into mobile payments,” points out howard wilcox, a senior analyst at Juniper research. “nfc enables operators to provide users with mobile wallets.”

that has been possible in Japan for some five years through the sony-developed felica contactless payment mobile wallet technology. felica is compatible with other nfc standards and was specified by the nfc forum as one of the tag formats in 2007, according to Juniper. significantly, in May kddi began trials of international-standard nfc technology with a view to commer-cial rollout in the near future. Among its partners until the end of the year will be ibM, toyota, hitachi, ntt data, Japan Airlines and All nippon Airlines.

operators view nfc as an enabling technology, with payment and ticketing schemes the first and most prominent of many services. “we believe that nfc is very significant,” says Mung ki woo, vice president of electronic payments and transactions at orange. “it is going to add an entirely new universe of services, enabling the mobile phone to link the online world with the physical world.”

in one example given by nokia, a user listening to music through a mobile

nfc is a two-way communication scheme (also known as iso 18092) that enables compatible devices to communi-cate when within several centimetres of each other. it transfers data at up to 424-kilobits-per-second using the 13.56-Mhz unlicensed industrial, scientific and medical band, and is based on standards ratified by iso, etsi and ecMA.

communication takes place via an nfc reader/writer (such as a mobile handset) and a passive nfc tag embedded in an object such as a poster or point-of-sale terminal. in short there are three modes of nfc operation. the first is card emula-tion that enables the handset to act as a contactless card. such contactless cards use radio frequency identification (rfid) to communicate with a reader through the use of a magnetic loop antenna oper-ating at 13.56 Mhz, enabling applications such as payments and ticketing.

the second mode, peer-to-peer, is used for sharing information and for pairing, such as swapping business card details or transferring photos by bringing handsets together, or enabling a bluetooth headset to be paired with a handset by touching the two together. the last mode is reader-writer, a one-way scheme where one side is read. examples include a user at a bus-stop wanting timetable data, or remote healthcare applications.

Juniper forecasts nfc transaction

some key announcements around near-field communications (nfc) over the summer months indicate

operators and handset makers are finally ready to bet big on the technology.

the significant hurdles that have been limiting mobile services based on nfc are being overcome. Mobile operators in europe, the us and Asia have big plans for the short-distance communication scheme, with the use of handsets for payments and ticketing the first main applications already in service.

from a national nfc infrastructure plan in france to cross-border schemes in Asia, developments are gathering pace (see box p.12). nevertheless, most opera-tors have only got to the pilot stage with their plans and analysts expect it will take another decade before the technology’s full potential is realised.

one key piece in the jigsaw, handset makers are starting to pledge support: nokia, for example, in June announced that nfc technology will be embedded in its symbian smartphones from 2011. Juniper research estimates one in six mobile subscribers will have nfc-enabled handsets by 2012.

“operators want the handset to become a major focal point for consumers to inter-act with everything in their environment,” says John griffin, an analyst at telecom Pragmatics. “nfc enables that.”

Operators have big plans for near-field communications, and new developments herald a wealth of applications if the business models can be sorted out. By roy rubenstein

N E A R - F I E L D C O M M U N I C A T I O N S

PLaYIng TAG

TEchnOLOgY TrEndS

NFC-enabled handsets worldwide

250

02009 2010 2011 2015

Source: AbI Research

milli

ons

Mobile commerce growth by segment: 2012 transaction value vs. 2010 (%)

200%

0%

Source: Juniper Research

Digital goods

Physicalgoods NFC Ticketing Coupons banking money

transfer

0.07 million

0.96 million

3.88 million

247.04 million


SEcTIOn hEadEr

this shows is that the market is going to take a long time to develop,” says John devlin, principal analyst, smart cards & embedded security, Abi research. “this figure is less than 20% of the total hand-sets forecast to ship in 2015, so while it is significant it is nowhere near any kind of saturation point.”

Mobile operators want a choice of nfc-enabled handsets to entice consum-ers, while handset makers have been waiting for operators to place orders for nfc-enabled devices. “i wouldn’t say we are totally out of this [chicken and egg scenario], but more and more parties are making steps, and [those steps] are getting bigger,” says woo. “nokia’s [nfc-enabled smartphone] announcement is a big step; what we have announced [national roll-out by orange in 2011] is a big step.” orange has said the launch in nice is a rehearsal for the national deployment that it is planning for next year.

these are two developments that yankee’s holland highlights and says will kick-start nfc’s prospects: “for years i have said this is two years off; i can actu-ally now say it is two years off.”

in his view the driver for nfc will not be the mobile operators but the developer community. “what would be a much more interesting scenario is if Apple dropped nfc into the next iPhone and let the application developers community

handset and headphones can switch to listening through a music system by simply tapping the nfc-enabled handset on speakers. coupons stored by tapping on nfc-enabled posters and redeemed at the point of sale are another application cited by vendors and operators, while in-car services and electronic driving licences are also in the pipeline.

Moreover, nfc will not be confined to handsets, and operators hope that could drive uptake in the same way that dongles have engendered a surge in mobile data usage. “laptop manufacturers…are putting nfc in their laptops today,” says nick taluja, head of connectivity market-ing at st-ericsson. “At least one significant manufacturer will have an nfc-enabled laptop this year.”

nfc-enabled laptops could have a concomitant security benefit. when a user moves away from a laptop with their nfc-enabled handset they will automati-cally be logged out, preventing anyone else from using the device. when they return, the proximity of their nfc handset will log them back in.

with all the benefits being touted, it is perhaps surprising that getting nfc technology to the status of commercial deployment has taken years. Part of the reason is that mobile operators have had to work with new partners in the finan-cial, retail and transport sectors, testing technologies as well as working out busi-ness models.

“the big issue still remains getting the merchants to buy in, and that is what has really stalled all contactless initiatives that have happened so far,” says nick holland, senior analyst at yankee group. one of the issues for retailers is that debit cards can cost as much as four times more to process than cash transactions, say some retailers, making it a costly proposi-tion to replace currency with contactless cards and nfc phones.

nfc has also required the development of work practices and standards by the gsM Association (gsMA) and the nfc forum: the latter alone has published 15 specifications. such standards need to be supported in silicon and software,

integrated within handsets and tested in pilot schemes involving mobile operators, retailers and banks. nokia, for example, says it has been involved in 70 pilots globally, spanning early technology to consumer deployments.

but if the widespread pilot schemes have proved that nfc technology is no longer seen as a major sticking point, challenges remain. one technical chal-lenge involves the antenna for nfc: getting the communication between the handset and terminal to work is not always straightforward, says taluja at st-ericsson. handsets already have several antennas for the various radio standards and nfc is, in effect, an after-thought. “Antennas for cellular get the first dibs, followed by bluetooth and wifi,” he says. “nfc comes at the end, but that will change [as nfc grows in importance] in the next 2-3 years.”

Another issue all analysts highlight is infrastructure: point-of-sale terminals and handsets. “in a lot of countries there simply aren’t the number of readers installed that are needed,” says wilcox at Juniper research.

As for handsets, only 960,000 devices out of a total of well over one billion ship-ments worldwide this year will be nfc-enabled, according to Abi research, although it says that will grow to 247 million by 2015 (see chart left). “what

TEchnOLOgY TrEndS

Total value of NFC transactions 2009 to 2014 (US$)

Source: Juniper Research

2009 2014

Wor

ldw

ide

valu

e of

NFC

tr

ansa

ctio

ns p

er a

nnum

n Africa & middle Eastn Rest of Asia Pacificn Indian sub continentn Far East & Chinan Eastern Europen Western Europen South American North America

‘The big issue still remains getting merchants to buy in, and that has stalled NFC initiatives’

$110 billion


SEcTIOn hEadEr

work it out,” says holland. “i think you would get some incredible innovation if that happens.”

in fact Apple has issued several patents involving nfc and in August appointed nfc specialist benjamin Vigier as its product manager for m-commerce. Vigier had previously been product manager for mobile wallet, payment and nfc at us m-commerce company mfoundry and also held nfc-related positions with french mobile operator bouygues.

but other analysts are cautious. telecom Pragmatics believes it will take up to ten years before nfc technology becomes ubiquitous, particularly in the us. “it’s inevitable [nfc-enabled handsets and services] will happen,” says Mark lutkowitz, a principal at the research

‘The business model has been the sticking point. Everyone needs to get a slice of the cake’

TEchnOLOgY TrEndS

• One of the most ambitious countries in Europe when it comes to NFC schemes is France, where the government is part-funding projects with the aim of developing a nationwide NFC infrastructure rollout by 2012. French mobile operators Orange, bouygues, SFR and NRJ Mobile (a bank-owned MVNO) have been running a joint commercial pilot called Cityzi in Nice since May, in conjunction with banks, the city council and transport companies. Orange says its users get a pack of tags with their NFC-enabled handset which can direct them to an Orange mobile Internet page as well as provide news, weather and TV information. “Already with that there is value with NFC,” says Woo.

Handsets can also be used to purchase tickets for buses and trams, while bus stops have tags which provide real-time data of bus arrival times. Local retailers have also installed point-of-sale terminals. “We are working on a number of additional services in the next few months around loyalty,” says Woo.

According to Peter Preuss, NFC Forum marketing committee chair, once one application is launched other retailers follow. “After the French operators announced the project in Nice, auto-maker Renault expressed an interest in testing NFC for unlocking car doors,” he says.

• In July, Japanese mobile operators KDDI and Softbank mobile, together with South Korean operator SK Telecom, detailed an NFC scheme that will extend mobile payment services to both countries. “A Japanese visitor in Korea will be able to purchase items at stores using his mobile phone,” says Sangwoo Yu, manager, global alliance team, global service strategy office, SK Telecom.

The payment scheme will also cover bus, subway and taxi fares. Tourists visiting museums or other attractions can use their handsets to read “smart posters” providing relevant information, and can receive mobile coupons and discounts at duty free shops.

The three operators plan to have the pilot service for mobile credit cards and smart posters running this year. “From next year, we plan to promote a compatible environment for mobile coupons and transportation cards,” adds Yu.

• Telefonica in May launched a commercial NFC service in the Czech city of Pilsen and said commercial launches could follow in the UK and Spain by the end of this year or in early 2011. A local card held on a Nokia phone will enable residents in Pilsen to pay for transport services and goods in shops, get tickets for events, and receive retail discounts.

• In August, US mobile operators Verizon, T-mobile and AT&T—working with barclays and Discover Financial Services—were reported to be readying a contactless payment scheme using NFC technology, although no further details have yet been revealed. The initiative is viewed by Yankee’s Holland as being a significant development because it will offer retailers an alternative to the duopoly of mastercard and Visa. “This is something that has not been an option for retailers for a long, long time,” he says.

• Bank of America is trialling a mobile NFC payment service with Visa in the New York area until the end of the year, enabling customers to use their smartphones to fund retail purchases, according to Juniper Research. The NFC function is expected to involve interim solutions such as SD cards or

cases, rather than embedded NFC phones.• NFC handsets are also being used

for welfare applications such as a home healthcare initiative in the Netherlands involving 35,000 nurses. Each home patient has a record book that includes a readable NFC tag. When an attending nurse reads the tag using an NFC-enabled phone, that nurse is registered as being in attendance and is linked to the Internet to highlight the patient’s treatment for the day. The nurse then uses the phone to sign off each completed treatment.

“This also has a direct impact for the health insurance paying for this service, as well as logging a nurse’s time and attendance and their pay,” says Romen at Nokia.

In the UK, National Health Service (NHS) authorities are testing NFC technology for home care visits. Authorities are trialling O2’s NFC-based Homecare system, enabling carers to download patient records and care requirements by touching their NFC-enabled handsets on tags installed in a patient’s home. Among other applications, patients can use alert tags to notify healthcare workers of an emergency, and use NFC tags placed on medicine bottles to identify prescription details. Similarly, staff at ADmR, the French national association that provides home care services, are also being given NFC handsets to send real-time information back to the service provider and register staff attendance.

• In August, China Unicom signed a deal with the Chongqing municipal Government to develop a centre for NFC manufacturing in China. In return, the Government will provide tax breaks to NFC suppliers that base themselves in the city, where Unicom has already launched initial services.

Gathering pace: some key NFC projects worldwide

company. “i’m just not ready to jump on the bandwagon that it will happen in two years just because nokia is putting out new phones.”

commercial models also need to be ironed out. “each operator will have to work out the business model with a range of partners,” says wilcox at Juniper. “And the business model has been the sticking point. there are several parties to each transaction and everyone needs to get their slice of the cake.”

certainly, mobile operators view nfc as a way to expand their service offerings while growing revenues. ticketing and

purchasing are key, says taluja at st-ericsson, alone justifying the cost of integrating nfc technology within the handset. “All the other applications are then side benefits,” he says.

Moreover, payment and ticketing trans-actions are enhanced using nfc-enabled handsets rather than conventional credit cards. “At the moment of the transaction it is exactly the same as using a [credit/debit] card, but you have to look before and after the transaction” to see the real value-add, says woo at orange. before a purchase, for example, the handset can deliver recommendations as well as tokens

or coupon offers; after the purchase, a user can exploit the handset’s keyboard, display and online connection to view their account status.

when it comes to mobile payments there are three solutions available for handsets which differ according to where the ‘secure element’— the payment appli-cation—resides. the first solution is siM card-based and is the approach promoted by the gsM Association together with the backing of mobile operators. because it is siM-based, it is transferrable between handsets, complies with encryption and tamper-proof standards and can be updated over-the-air.

here the application, whether a payment, ticketing or a store loyalty scheme, resides within the universal universal uintegrated circuit card (uicc). the uicc communicates with the nfccontroller, an nfc chip within the handset, using the single wire protocol standard defined by etsi. the nfc

controller is then coupled to the handset’s nfc antenna for communication with the contactless reader or a tag.

the second approach, pursued by handset makers including nokia, is an embedded solution hardwired within the phone. the communication between the embedded secure element and the nfccontroller here has not yet been standard-ised, according to the gsMA. transferring transferring tapplications, such as ticketing and purchasing schemes, to another handset is also not straightforward.

the third approach uses a removeable memory card, a solution favoured by certain banks. “you can imagine what you can imagine what ymobile operators think if someone gets a little microsd [flash] card from their bank and pushes it into their mobile phone, paid for and subsidised by the operators,” says nav bains, senior director, mobile money, at the gsMA.

According to bains, by being able to partition applications on the siM card

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each bank and retailer can segment its own application and protect it with its own encryption keys. that opens up issues of who owns the rental space for the application—operator, bank or handset maker—and the subsequent busi-ness models.

the gsMA, fighting the corner for operators, and the european Payment council, which represents some 8,000 european banks, have jointly developed requirement documents for how mobile payment applications run within the siM. “we facilitate what the ecosystem wants,” we facilitate what the ecosystem wants,” wsays gerhard romen, director of alliances and communications for mobile financial services at nokia. “the gsMA represents 700 operators so you have a very clear view from them; if you ask the banks, they have another view.”

st-st-st ericsson is also open to all three approaches, according to taluja: “taluja: “t but the trend is towards [the adoption of] the siM card,” he says. n

TEchnOLOgY TrY TrY EndS

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the call for change in the world’s most fiercely competitive mobile market is coming from all sides.

Price wars triggered by the arrival of new players hit india’s established mobile operators hard this year, leading them, and market analysts, repeatedly to point to the need for consolidation. now the newcomers, many of which are facing censure for failing to meet their network and service rollout requirements, have joined the chorus and regulators appear poised to make much-needed policy adjustments that will provide them with an exit route.

“the government should cancel their licences and take back [the] spectrum to be sold at the right price,” says brijendra k syngal, senior principal at dua consulting, referring to the companies that won licences and gsM spectrum in 2008, but have made little headway in rolling out services .

in late August reports suggested some of the new licensees had approached the department of telecommunications (dot) seeking to hand back their conces-sions in return for a refund of the licence

fee. unnamed dot officials were quoted in the indian press as saying that the government department is discussing “exit options”, including sanctioning mergers and acquisitions for new operators and relaxing rules on the amount of spectrum incumbent mobile operators are able to hold. At the time of writing there had been no official announcement.

the move backs up what the bigger telcos, and analysts, have been saying for some time: the market simply cannot sustain the current number of players.

“[competition in india] is unsustaina-ble,” Angel dobardziev, emerging markets practice leader at ovum, told total telecom in June. “until there is a way out…lots of people are destined to lose lots of money.”

currently, there are 15 mobile provid-ers operating in india. the top seven between them account for 96.35% of india’s 635.51 million mobile subscribers as of the end of June, according to the latest figures from the telecom regulatory Authority of india (trAi), leaving the newcomers to battle it out for the scraps (see pie chart below left). in

comparison, there are just 36.18 million fixed-line subscribers in the country.

“Most markets in the world generally have four to five operators and just the top two or three make money,” said sanjay kapoor, ceo of bharti Airtel’s india and south Asia business, speaking during a results call earlier this year. “india is a larger market and probably five or six will prevail, but anything over and above that is a crowd, and obviously some M&A activity will come to surface the moment [the] government liberalizes the stance on it for consolidation to happen.”

the market congestion stems back to January 2008 when five new players—loop Mobile, datacom solutions (Videocon), swan telecom, s-tel, and unitech (uninor)—were awarded univer-sal access service licences. controversially, they were later awarded spectrum in various service areas (circles) at prices that had been fixed as long ago as 2001. At the same time, four existing telecoms operators—tata teleservices, shyam telelink (sistema), spice telecom and idea cellular—added additional licences to their footprints, enabling them to offer gsM services in certain circles.

the new licensees had stringent requirements placed upon them, designed to ensure a prompt rollout of services and

Just two years ago new entrants with foreign backers hoped to capitalise on rapid mobile growth in India, but now some are facing a quick exit. By mary Lennighan

TOO manY COOKSM O B I L E S E R V I C E S I N I N D I A

‘The government should cancel the newcomers’ licences and take back the spectrum to be sold’

BuSInESS & fInancE

Wireless service provider market shares, June 2010 Fixed service provider market shares, June 2010

Source: TRAI Source: TRAI


Bharti21.50%

BSNL74.46%

Reliance17.44%

Vodafone 17.16%

Tata11.41%

Idea10.84%

Aircel6.56%

BSNL11.44%

Videocon 0.31% HFCL 0.49%Sistema 0.10%

Stel 0.21%HFCL 0.11%Etisalat 0.003%

Unitech 0.95%

Loop 0.46% Reliance 3.29%MTNL 0.82%Sistema 0.80%

Tata 3.31%

MTNL9.63%

Bharti8.71%


BuSInESS & fInancE

to prevent them selling on the spectrum at inflated prices. furthermore, spectrum ownership in india is capped, preventing the main players from snapping up the smaller ones for their valuable assets.

the controversy over the price of the 2008 spectrum awards deepened when a number of the new licensees sold stakes in their businesses to foreign partners. united Arab emirates incumbent etisalat paid us$900 million for a 45% stake in swan telecom (since rebranded as etisalat db telecom) in september 2008; swan had paid just 15.37 billion rupees (about us$390 million) for its spectrum in 13 circles. similarly, unitech paid 16.51 billion rupees for its spectrum (it is licensed in all 22 circles and holds spec-trum in 21) and subsequently sold 60% of its shares to norway’s telenor for 61.20 billion rupees.

Adding insult to injury, the new licen-sees have largely failed to meet the rollout requirements applied to their licences, and most are facing dot fines for delayed service launches.

As a result, dua consulting’s syngal doubts that those which wish to surren-der their licences will receive any kind of refund. “on the contrary, they should pay squatting charges for hoarding of a resource,” he says.

“they have caused losses to the govern-ment first by getting spectrum dirt cheap, and then by not rolling out network[s] they have deprived the government of licence fee, spectrum charge and service charge,” says syngal. he points out that lending bankers have also lost money as a result, and the state should seek to cover those losses with a new spectrum sale.

india’s regulators have a number of options open to them and untangling the complex market situation will doubtless take some time, but the authorities will have to act.

“there could be a bit of loosening up in the M&A activity, but…the government is well within its rights to ask for spec-trum transfer charges and also ask the merged entity to either surrender excess spectrum or pay for it as decided by [the] regulator,” syngal explains. “the problem there is that recommendations on excess

spectrum and its charging are yet to be accepted by the government.”

whatever the outcome, the incumbent mobile service providers, which have faced challenging times over the past year, will only stand to benefit. “even the leading players have very thin margins,” said ovum’s dobardziev earlier this year. despite subscriber growth rates of 40%-50%, “revenue growth is in the mid-single-digits on average,” he said.

indeed, first-quarter results announce-ments made this summer showed that while the telcos’ revenues are still on the up, lower call rates dragged down ArPus and margins, hitting their bottom lines.

Market leader bharti Airtel saw ArPu fall to 215 rupees (€3.54) in the April-June quarter, down from 220 rupees in the first quarter and 278 rupees in the year-ago period. it is a similar story for number two player reliance communications, which remains primarily a cdMA opera-tor albeit with a growing gsM base. its ArPu slid to 130 rupees in Q1, from 139

rupees the previous quarter.“there is already an indirect consoli-

dation beginning to happen as a lot of new players have not rolled out the required towers in the last three to four quarters,” said syed safawi, president and ceo of reliance communications’ indian mobile business, presenting the operator’s first quarter results. “Probably it will take about two to three years to consolidate into six to seven key players.”

the most successful of the new players is telenor-backed unitech wireless, which operates under the uninor brand. uninor had a strong start, launching services in december 2009 and racking up 1.2 million customers in its first month of operation. And according to trAi’s figures, it took 5.62% of the 17.98 million net new mobile customer additions india recorded in June, the same percentage as state-owned bsnl.

telenor invested a further 20.22 billion rupees (about €316 million) in unitech

wireless in february, taking its stake to 67.25%. At the time uninor managing director stein-erik Vellan said the funds would be used “as working capital to strengthen its operations in the eight circles launched last year and launch operations in new circles in 2010.”

but having originally said it would complete its rollout by mid-year, uninor is now aiming for the end of 2010. to date, it has added five new circles this year, but it is sticking by its target of reaching an 8% market share by 2018, up from almost 1% currently.

Among the other new operators, Videocon took 3.05% of new mobile customers in June while sistema took 2.6%. the other newcomers failed to break the 1% barrier. that compares to net additions among the big players of 16.69% for bharti, 15.76% for reliance, 15.09% for Vodafone and 12.94% for tata.

And although ArPu numbers show the big guns are still suffering, there are signs of optimism, with many noting that price

wars have come to an end. “[in the March-June quarter] we saw the bigger players with bigger networks, stronger brands and customer service beginning to take back minutes from the new entrants, plus no material price reductions from the market leaders,” said Andy halford, Vodafone cfo, during a results call in July. Vodafone’s indian operations turned operating free cash flow positive in the first quarter.

the travails of the indian companies and their foreign backers that some three years ago made a bid to break into the mobile space can only be good news for the large-scale mobile providers. “the established players have nothing to lose, but only to gain,” says dua consulting’s syngal. “they are now better placed in all aspects of business.”

now they will hope to forge ahead with 3g rollouts following amendments in september to the telecoms licensing rules that clear the way to deployment. n

‘Operators surrendering their licence should pay squatting charges for hoarding a resource’

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SEgmEnTIng SUCCESSMVNO launches are still gathering pace, but it will pay to think carefully whether to opt for a content strategy or another form of differentiation. By Ian Kemp

when it comes to starting an MVno business it pays to consider carefully your target

customers and pricing strategy, but there’s nothing like a market in consoli-dation to kick-start your prospects. launch announcements in the uk over the summer indicate that network opera-tors there are aiming to drive up their MVno activities and revenues on their networks, in the wake of the merger between orange and t-Mobile, as they t-Mobile, as they tjostle for market share.

Analysts at MVno specialist strand consult had predicted as much in the immediate melée to dissect the orange-t-Mobile formation of t-Mobile formation of t everything everything eeverywhere earlier this year: “everywhere earlier this year: “e simply put, the uk is the next battlefield and the merger between orange and t-Mobile is t-Mobile is tthe fuse that will ignite competition and fuel the role of MVnos in the future,” they said in a report. “the uk will expe-rience an explosion in the number and types of MVnos on the market and we believe that the market will come under pressure from a combination of the exist-ing large MVnos (Virgin, tesco, tesco, t lyca, lyca, llebara etc.) and a number of new market players, a scenario we have already expe-rienced in denmark, norway, germany, belgium and holland.”

fast forward to July, and fast forward to July, and f everything everything e

everywhere announced its first MVeverywhere announced its first MVe nodeal, with south Africa’s econet wireless group. econet will focus on providing low-cost international calls to African communities in the uk, with the service running initially on orange’s network. later that month talktalkt talktalk alk talk t group, which offers fixed-line broadband and voice services in the uk, announced a deal with the wholesale arm of Vodafone to provide mobile services. talktalkt talktalk alk will introduce talk will introduce tpost-paid mobile voice tariffs and mobile broadband from the third quarter.

while econet is targeting a specific customer segment, talktalkt talktalk alk will hope to talk will hope to tdrive bundled subscriptions in the increasingly competitive uk multiplay market. but strand consult founder, John strand, has a warning for service provid-ers that might revisit the idea of using content to underpin their strategy.

“globally, many MVnos have tried to use content as a load-bearing part of their strategy,” he says. “[bstrategy,” he says. “[bstrategy,” he says. “[ ut] no MVnos have been successful with the strategy, and the likelihood that you can create a success-ful MVno which relies on content is…not realistic.” Among high-profile MVno failures over the past five years have been content-focused us operations disney Mobile, sports channel esPn and n and nyouth-focused Amp’d Mobile.

strand suggests mobile network

operators (Mnos) in the uk have not been aggressive enough with their MVnostrategies to date. but he says they could now follow the example of kPn-owned e-Plus in signing up multiple MVnos in different market segments, with everything everything e everywhere likely to lead the everywhere likely to lead the eway. he points out that the deputy ceoof the newly merged company, richard Moat, was ceo of orange in denmark where tdc and telenor followed aggrestelenor followed aggrest -sive MVno strategies through telmore telmore tand cbb, forcing orange to sell to teliateliat sonera in 2004. “when orange’s operation was sold in denmark they lost about E1 billion and [Moat] knows what a successful MVno strategy can mean to an operator,” he says.

strand consult has long maintained that the way to success for Mnos is to drive minutes of use (Mou) through segmented MVnos and low-cost busi-ness models and tariffs: it points to the success of operators such as tele2 in tele2 in tsweden, telfort in the telfort in the t netherlands, kPn’s base in belgium and telmore in telmore in tdenmark, in increasing traffic and lower-ing subscriber acquisition costs.

yet a no-frills strategy is by no means a yet a no-frills strategy is by no means a yguarantee of success. easyMobile pulled the plug on its low-tariff uk operations in 2006 after 18 months, and the advertis-ing-funded MVno blyk closed its “free” service in the country a year ago to focus on mobile messaging services in partner-ship with operators in europe.

still, by far the most prevalent model to date has been the discount MVno (see table). one of the most successful MVnos has been Virgin Mobile, which uses t-Mobile’s network in the t-Mobile’s network in the t uk. Virgin has exported its predominantly prepaid and youth-centred model from the uk to seven other countries since launching in 1999: the us, Australia, canada, france, south Africa, india (through a joint venture with tata tata t teleservices), and teleservices), and tlatterly in May this year in Qatar through a brand partnership with Qtel.

MVNO market by regionregion mVnOs Operator-owned

brandsAfrica 5 1Americas 4 3Asia Pacific 72 12Europe: Eastern 34 19Europe: Western 357 110middle East 5 8USA/Canada 72 9International 53 -

602 162Source: Wireless Intelligence

MVNO market by categorycategory mategory mategory VnOs Operator-owned

brandsDiscount 168 71Telecoms 117 14Retail 77 14migrant 64 11media/Entertainment 63 45business 56 6Roaming 46 1m2m 11 -

602 162Source: Wireless Intelligence

‘The Uk will experience an explosion in the number and types of MVNOs on the market’


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Virgin Mobile claims some 15 million customers globally, but it has not all been straightforward empire building. Virgin was forced to close down its MVno oper-ations in singapore in 2002 after just nine months, abandoning hopes to expand its partnership with singtel throughout Asia. And its us operations were acquired in July 2009 by sprint nextel, which this June duly pulled the plug on the helio post-paid MVno service bought by Virgin in 2008.

in its home market Virgin is working to shift the balance away from pre-pay and towards more lucrative post-pay subscribers. Virgin says contract subscrib-ers have grown 40% in the uk in the past year to reach 1,097,200 and now make up some 36% of its total mobile subscribers.

As MVnos emerge to create further competition, that in turn has driven a degree of consolidation in europe. orange, in addition to selling its opera-tions to teliasonera in denmark, in 2007 sold its business in the netherlands to t-Mobile for E1.33 billion; telfort was also snapped up by kPn in the same country for E980 million in 2005. And in finland, elisa acquired saunalahti in 2005, while tdc bought telmore in denmark in 2004. “we expect that the next consoli-dation will occur in countries like germany—o2 and e-Plus should go into consolidation—[and] in spain [where]

teliasonera should allow yoigo to go into a consolidation [agreement],” says strand.

All the while, MVno growth shows no signs of slowing down. research from wireless intelligence published in June shows there are now over 600 MVnos globally, and at current growth rates they will surpass the number of mobile network operators in mid-2013 (see box). some 35 new MVnos launched world-wide in the first half of this year. Among the latest, ireland’s national postal opera-tor An Post launched an MVno service on Vodafone’s network in August; while in france, state-owned la Poste is nego-tiating a similar agreement with sfr.

what’s more, some countries with potentially explosive growth are set to introduce MVno services for the first time, with regulators showing signs of easing restrictions. in August korea telecom struck agreements with three operators to provide the first MVno services in the country. the three will adopt varying strategies: entaz, for example, will risk the content path by providing a mobile portal service with games, cartoons and e-books; while evergreen Mobile will offer prepaid voice and data services targeting temporary customers such as foreign visitors.

reports suggest india will lift its ban to allow MVnos, although no timeframe has yet been indicated. n

Discount MVNOs—which primarily offer low-cost pre-paid services—represent 28% of the total 602 MVNOs identified by Wireless Intelligence across eight categories. So-called telecoms MVNOs, which provide a range of telecoms services such as fixed and broadband, make up the next largest category with 19% share (see tables below left).

In Western Europe, germany alone has 103 of the 357 MVNOs, a long way ahead of the next highest markets of the Netherlands (42), Denmark (36), France (29), the UK (29), Spain (27), Belgium (23) and Norway (19). Western Europe accounts for 110 of the 162 operator-owned brands globally. The proliferation in Germany is in large part down to the segmentation approach adopted by KPN-owned E-Plus, which has 15 brands of its own and in addition hosts 38 MVNOs according to Wireless Intelligence: “E-Plus’ approach prompted the other German operators to follow suit in launching their own operator-owned brands and reach MVNO agreements and is a major factor in germany having the second-lowest ARPU in Western Europe,” say the analysts in the report.

latin America currently has only a handful of MVNOs, but regulator Anatel has published guidelines preparing the way for their entry in brazil, and Argentina and Ecuador could follow. The first MVNOs in the Middle East launched last year, in Oman, and Jordan became the second market in June when Friendi Mobile introduced services. Israel awarded its first MVNO licence in June to Telecom 365, which plans to launch next year.

Australia is home to over half of the 72 MVNOs in Asia Pacific, although last year there were four launches in both New Zealand and Thailand, and two in Malaysia.

Multiple choice: segmenting MVNO strategies

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