ernst & young‘s analysts report from the gsma‘s …...telecommunications analyst, ernst...

Mobile innovation in AsiaErnst & Young‘s analysts report from the GSMA‘s Mobile Asia Congress

Telecommunications operators are facing the challenges of growth, convergence, business transformation, technological change and regulatory pressures in increasingly difficult economic conditions. Operators choose Ernst & Young because they value our industry-based approach to addressing their assurance, tax, transaction and advisory needs. They know that they have much to gain from our clear understanding of the opportunities, complexities and commercial realities of the telecommunications industry — wherever in the world they’re operating. What gives us this understanding is our Global Telecommunications Center. Operating from Paris, Cologne, Johannesburg, Riyadh, Delhi, Beijing and San Antonio, the Center brings together people and ideas from across the world, to help our clients address the challenges of today — and tomorrow. Our clients benefit from our insights on key trends and emerging issues. These may relate to the economic downturn, next-generation services, infrastructure sharing, outsourcing, revenue assurance, operational efficiency, regulations, future growth markets or mergers and acquisitions. We help our clients react to trends in a way that improves the financial performance of their business. Learn more about our approaches and services by visiting our website: www.ey.com/telecommunications

About Ernst & Young’s Global Telecommunications Center

Mobile innovation in Asia

The view from our analystsThe theme of this year’s Mobile Asia Congress — Mobile Momentum — reflected Asia’s leading role in driving growth in mobile innovation, advancement and adoption. The conference featured innovative mobile solutions and initiatives from across the world.

The Asian mobile marketplace continues to grow rapidly, driven by the rise in numbers of connected devices. Fifteen million new connections are added each month worldwide, of which six million are in Asia.

Leaders of the mobile sector in Asia are still optimistic about the opportunities of mobile data, which are set to grow as smartphone penetration increases. The key to success will be how the network and handset companies work together.

Operators in Asia are forecasting that future revenues will come increasingly from data, with some leading carriers targeting aggregated ARPU growth within the next two years.

Telcos are looking to expand their networks and tackle the capacity challenges, but more importantly they are looking at how to expand the range of services. Cloud computing and machine-to-machine communications are viewed as being key growth drivers. To achieve that, operators will have to set up successful partnerships.

Throughout the event, we noted a number of key themes that were highlighted in different panel discussions.

Kevin LeeTelecommunications Analyst, Ernst & Young Hong Kong

Swapnil SrivastavaTelecommunications Analyst, Ernst & Young India


Foreword

The mobile industry in Asia today is transforming what the customer can do with a phone. As the apps market takes on a new momentum, it’s making the discussions of recent years all the more real — whether operators should be dumb pipes or something different.

As I talk to clients across the industry worldwide, they all look to Asia as the hotbed for innovative products, new business models and new relationships between operators and the wider market.

At the Mobile Asia Congress, Ernst & Young hosted — with the GSMA — a roundtable for Asia Telecommunications CFOs, and it’s clear that senior management is treading a difficult line between continuing investment to upgrade the network, and investor fears about where the return on that investment will be made. One thing is sure: none of us know where the future revenues will be found, but we can

confidently predict that the explosion in data services is going to throw up some incredible new services. This industry is in an enviable position as this new market opens up.

My thanks to everyone at the GSMA for running such a first-class event: it was truly inspiring. There is no other forum where the sector can review its strategic agenda at such a high level, and make the connections needed.

We look forward to next year’s Asia Mobile Congress!

Jonathan DharmapalanGlobal Deputy Telecommunications Leader

Ernst & Young

Jonathan DharmapalanGlobal Deputy Telecommunications Leader

Contents

The new world of applications

10LTE won’t ease network congestion

12Business model diversification

14Pressing for innovation

16Mobile money is revenue-generating

18Challenges shadow new mobile services

8

8

The new world of applications

“Innovation will create development momentum.”

Forum speaker

“Applications are changing the mobile ecology.”

Forum speaker


9

The proliferation of smartphones and mobile applications has dramatically changed the way people use their phones. At the Congress, it was argued that future revenues will come from the phone becoming an integral part of the customer’s daily life, with the application store at the center. Speakers argued that the industry should be pursuing strategies to provide ubiquitous content and applications.

This changing customer behavior offers opportunities for mobile operators to move into other vertical markets. Yet the industry has to be vigilant about protecting their users’ privacy, to avoid the problems that arose, for example, when consumer data was passed to advertisers through applications.

While the new world of applications and smartphones offers a rare opportunity for operators to reverse declining ARPUs, they have to deal with them smartly. An open mindset is the key to success. Panelists agreed that operators need to explore different fields and new business models, cooperating with new partners to defend against the dominance of handset firms. Mobile operators can act as the bridge between all partners in this space, to benefit the entire value chain.

There are many operator-centric application stores in Asia. However, it was argued that it will be important to differentiate from the device-centric stores, and provide unique value and compelling services to customers. To this end, mobile carriers should leverage their own value-added functionality —such as authentication and billing — to enhance the user experience on smart devices. To enable diverse applications for diverse devices and audiences, one panelist suggested the creation of a Super Application Store, which would allow the free trade of content across the world. The creation of the Wholesale Applications Community (WAC) is a key milestone, as it encourages open, standardized technologies and drives scaled deployment across multiple platforms.

Cloud computing is undoubtedly going to play a critical role in the new world of applications. Handset vendors have already acted to take the user experience from the phone to the cloud. While Asian operators are already looking at the mobile cloud, they believed the biggest advances will come as operators roll out Long Term Evolution (LTE) networks. The low latency feature offered by LTE will facilitate many more compelling cloud services.


10


LTE won’t ease network congestion

“Mobile network capacity needs to increase by 500 times to cope with

new services and increased web usage, which will be achieved via

4G, re-farmed spectrum and dense networks of small cells.”

Forum speaker

“LTE must result in the reduction of

capex and opex per megabyte.”Forum speaker

As mobile broadband surges, LTE is intended to help telecom operators serve explosive demand.

LTE is set to become the new spotlight in the mobile industry in Asia: Hong Kong has just activated its LTE network, and Japan is preparing for a commercial launch by the end of 2010. Total LTE connections are expected to exceed 120 million by 2015, according to the GSMA, with China accounting for half that figure.

Spectrum re-farming is important for the mass rollout of LTE across Asia. The GSMA has urged Asian governments to take a coordinated approach, to allocate old analog broadcast spectrum for mobile broadband services. They estimate that turning digital dividend frequencies over to mobile could increase the GDP of the region by US$729 billion in the next decade. Failure to harmonize would significantly reduce the economies of scale benefit as it limits access to critical services, reduces connectivity significantly and induces higher prices.

Surging mobile data traffic has raised concerns over capacity constraints on operators’ networks. While the increased capacity from LTE migration offers a way of offloading network traffic, Asian operators believe the technology alone is not enough to ease network congestion. It is argued that operators should leverage alternative access technologies — including Wi-Fi and WiMAX — and other multicast technology that can reduce the strain on the cellular network. One panelist stated that his company would be running as many as five networks to support the needs of its potential customers and partners.


11

Business model diversification

“Maybe in the future mobile operators will be selling furniture … or vegetables!”

Forum speaker

12



13

“Long-term business planning in Asia

doesn’t really work.”Forum speaker

Asian telcos are talking a lot about diversifying their business to generate new revenue. Mobile operators have the advantage of enabling new income streams based on their powerful relationship with the customer. However, they don’t appear to be diversifying enough.

This led to a debate about how cloud computing might provide an opportunity for telcos to create a new business model, and steer away from being a dumb pipe. Although many major rivals are competing with telcos in this space, operators have a distinct advantage of owning their infrastructure, which allows them to offer carrier-grade services or guaranteed service level agreements (SLAs). However, for operators to succeed in managing cloud services, it was argued that they will need to collaborate with technology companies and other virtualization partners: IT services call for a different set of skills and expertise.

Telcos can also offer a choice between private and public clouds to meet customer requirements. As one executive remarked, the operator he worked for was pushing into the cloud with an initial focus on internal BSS/OSS and IT systems to improve processes. Once that had matured, it would open the cloud platform to its customers.

An interesting comment was made by a speaker from an emerging market operator. He believed the biggest priority was to find and retain talent. As operators outsource their network and other functions, they are becoming sales and marketing organizations that offer highly competitive products: staffing is becoming their major differentiator.

14

Pressing for innovation

“Developed markets can learn ‘innovative services which change lives’ from developing markets.”

Forum speaker



15

Telecoms is transitioning from hardware, walled gardens and wireline, to software, open ecosystems and wireless. Internet players and handset makers are challenging the telco’s traditional business model in this age of one person, multiple devices. Research would suggest that telcos have not been active innovators. To deal with this, Asian telcos should take advantage of their own strengths in network assets and service provision to innovate. For example, it was suggested that they could expand the lineup of connected devices to enable human-to-human, human-to-machine and machine-to-machine communications.

Speakers argued that telcos should guard their relationship with the end user, despite being challenged by new players. One executive commented that operators should focus on a smart-pipe approach, by combining the role of a service enabler and traditional connectivity. He shared his experience of building a mobile

media innovation hub, which facilitates applications development and service innovation. Citing examples of mobile banking, mobile health and advertising as key target segments, the speaker argued that revenue opportunities are best captured by working with adjacent industry partners.

It was also argued that data price plans need to change. Economic data pricing is proving to be an effective way to improve customer segmentation. One panelist shared his strategy for tailoring mobile broadband service offerings to a low-ARPU, pre-paid market through tiered tariff plans for specific sites (e.g., social networking). In addition, Asian operators increasingly use Wi-Fi to offload data traffic from their overstretched 3G networks. To make it effective globally, one panelist urged the industry to collaborate to build global, free Wi-Fi roaming.

15


Mobile money is revenue-generating

“Telcos need to develop a strong focus on customer experience.

There is a need for a strong global brand with strong global service specifications, testing

and certification. It is simple but incredibly difficult to achieve.”

Forum speaker

16



17

Mobile money is seen as key for many operators in Asia to provide value-added services to the customer. Operators in the emerging markets — such as those from the Philippines and Bangladesh — are expanding mobile money services to the large unbanked population. Operators in developed markets are targeting e-wallets at the smartphone user.

While there were mixed responses about the profitability of mobile money services, telcos generally agree that these services generate reasonable revenues and help to reduce customer churn.

In a mobile money panel moderated by Jonathan Dharmapalan, Ernst & Young’s Global Deputy Telecommunications Leader, panelists discussed the mobile money strategies from the perspectives of the operators and financial institutions. One panelist reflected that mobile money has moved from being a channel model to being a bilateral model today. And that it will ultimately move toward becoming a hub for an open ecosystem of financial transactions.

Risk is another critical aspect of mobile money services. The panelists concurred that while human error is high, fraud risks are relatively low. They argued that the imperative would be to control systematic risks by adhering to local, financial regulations.

“Telcos must stop thinking like ‘only a GSM operator,’ but

think of how they can provide life changing services.”

Forum speaker

“Mobile near field communication (NFC) services are gaining momentum in developed markets. 2011 will be

a key year for contactless services, as telcos are aiming for full international interoperability.”

Forum speaker

18

Challenges shadow new mobile services“Telcos need a simple, well-articulated message that resonates politically and economically with policy-makers, so that the value proposition of M2M is fully understood.”

Forum speaker


Machine-to-machine (M2M), or connected devices, attracted huge interest at this year’s Congress.

Operators are recognizing the potential of embedded mobile to drive a new wave of growth. One note of caution was raised by a representative of a European operator: M2M connections generate lower revenue per connection, and are an unattractive proposition for investors. Also, the cross-border nature of M2M services has been driving up costs.

While 2G is a low-cost, mature and reliable platform today, one analyst firm has warned that M2M using 2G frequencies could create long-term problems: as operators plan to decommission their 2G networks and re-farm the spectrum for 3G services, 2G embedded modules would likely increase the total cost of ownership of M2M systems going forward.

Mobile health is another potential driver of growth. The industry is seeing great opportunities in this sector, particularly in emerging markets, as the health care sector shifts from being hospital-

centric to patient-centric. However, the ecosystem has not yet reached maturity, requiring significant support from health care and insurance companies, government and patients.

Another big hurdle to the uptake of many mobile services — including mobile money, mobile health and M2M — is interoperability. In the case of health care, there is little or no interoperability between health care systems, and between hospitals and government departments. The same applies to mobile money, where there is limited interoperability between financial services providers and players in other markets.

This is going to be one of the most critical issues for the industry to address, to enable long-term service innovation.

19



20

Conference agenda at a glance

Wednesday, 17 November 2010 Wednesday, 18 November 2010

09:00–11:00

Keynote 1

Changing Business Realities in the world of Mobile Applications

09:00–10:15

Keynote 5

A Vision of 2020 — Asia‘s Influencers of Innovation

Networking break

11:30–12:45

Keynote 2

The Dawn of a New Era for Voice and Data Services

10:45–12:15

Mobile Applications — Opening the Portal to Create, Distribute and Profit from Mobile Apps

Mobile Broadband — Service Differentiation in a World of Super Speeds

Embedded Mobile — The internet of Things Reaches New Frontiers

Mobile Money Strategies, Part One — Defining a Successful Mobile Money Strategy

Networking break & discussion groups

14:00–15:15

Keynote 3

Operator Strategies in High-Growth Markets

13:45–15:15

Mobile Advertising — Partnering to Drive Engagement

Network Capacity — Mobile Data Explosion, Myth or Reality?

mhealth, Part One — Key Challenges to Make mhealth a Mainstream Business

Mobile Money Strategies, Part Two — Achieving Execution Excellence for Mobile Money

Networking break

15:45–17:00

Keynote 4

What Does the Future Hold for the Mobile Internet?

15:45–17:15

mPublishing — From Print to Pixels

Mobile Internet — Fast, Smart and Profitable

mHealth, Part Two — Where will Technology Take mHealth?

mGovernment — The Rise of the Mobile Society

For further information about the event, which is run by the GSMA, please refer to www.mobileasiacongress.com


21

President, Asia Pacific

Alcatel-Lucent

President and CEO

China Mobile

CEO & Member of the Board

GSMA

President and Chairman

KDDI

CEO QTel

President and CEO

SINA Corporation

CEO SK

Communications

President ZTE

President and CEO

NTT DOCOMO

President Mobile Business

Group and Member of the Board of

Directors KT Corp.

CEO HTC

Chief Marketing Officer Huawei

Technologies

Executive VP and Head of Asia Telenor

CEO Bharti Airtel Ltd.

Rajeev Singh-

Molares

Li Yue

CEO CSL

Joseph O'Konek

Robert Conway

Tadashi Onodera

Dr Nasser Marafih

Charles Chao

Hyungchul Joo

Shi Lirong

Ryuji Yamada

Hyun-Myung

Pyo

Peter Chou

Yu Cheng Dong

President China Unicom

Lu Yimin

Sigve Brekke

Sanjay Kapoor

Foru

m

spea

kers


23

Global Telecommunications Center contactsVincent de La Bachelerie Global Telecommunications Leader

[email protected]

Jonathan Dharmapalan Global Deputy Telecommunications [email protected]

Adrian Baschnonga Global Telecommunications Senior [email protected]

Marc Chaya Global Telecommunications Markets [email protected]

Steve Lo Global Telecommunications Center — [email protected]

Holger Forst Global Telecommunications Center — [email protected]

Prashant Singhal Global Telecommunications Center — [email protected]

Serge Thiemele Global Telecommunications Center — [email protected]

Wasim Khan Global Telecommunications Center — [email protected]

Mike Stoltz Global Telecommunications Center — San [email protected]

For more insights about the global telecommunications sector,

please visit:

www.ey.com/telecommunications

Ernst & Young

Assurance | Tax | Transactions | Advisory

About Ernst & YoungErnst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 141,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com © 2011 EYGM Limited. All Rights Reserved.

EYG no. EF0090

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

ernst & young‘s analysts report from the gsma‘s …...telecommunications analyst, ernst...

Documents