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Tuesday, January 01, 2008

Mobile and wireless predictions for 2008

I think that 2008 is going to be a tough year for the mobile industry. With economic clouds gathering, saturation in major markets, competitive and regulatory impacts on margins, and little traction for new services, I'd say that developed-world operators are facing an unpleasant background to the new year.

But the grey outlook for operator services doesn't equate to the whole of the mobility and wireless industry. New business models and products will gain traction. Above everything is the impact of Moore's Law and the power of the handset vendors. Increasingly, the phones have the ability to tell the network(s) how to behave. There is clearly a pent-up demand for access from mobile devices to 'the real Internet'.

I've put together 10 predictions which I'm expecting to evolve into recurring themes over the next 12 months:

1) There is a notable shift towards non-operator unlocked 'vanilla' handsets

Globally, about 50% of phones are sold through operator channels - although it is much higher in operator-controlled markets like the US and Japan, as well as those with an addiction to subsidy, like the UK. Various trends are emerging that will start to reduce this in 2008, although change will be slow in markets where operators retain stiff control over retail outlets.

  • Firstly, the US is starting to wake up to the idea of unlocked phones, courtesy of non-AT&T iPhone angst and the new 'bring your own phone' openness pitch by Verizon.

  • Secondly, Moore's Law & scale economies are bringing down the price of really quite good non-subsidised phones to below important thresholds like €100 or £100.

  • Thirdly, operators' attempts to lock people into 18 or 24 month contracts will mean they get hungry for cool new devices long before they're due for upgrades.

  • And fourthly, some segments like VoIP users or enterprises will recognise that 'there's no such thing as a free lunch' and realise they're better off with vanilla devices rather than subsidised ones locked-down and larded with operator menus.
Expect alternative options for handset financing, a healthy second-hand market for phones, and a slew of new retail, B2B and online options for acquiring devices.

2) The European Commission cracks down on data roaming prices.
You've been repeatedly warned that this is on the watch list. Yet many operators still charge around €10 per megabyte for roaming for mainstream customers. There are a few exceptions - Vodafone's €12 per day cap, and Three's free data while on-net. But as we move to flatter networks, flatter tariffs and split-tunnels breaking out Internet traffic in the radio access network, the current prices start to look more like those of a cartel. Pricing needs to have at least 1 zero, and arguably 2 or 3, chopped off. Expect Ms Reding to take action.

3) Mobile broadand continues its rapid growth - but 3G-embedded laptops lose out even further to USB-based 3G modems
External USB modems are now a massmarket proposition. They're available in pink, even. They work with anyone's existing laptop, they selfload software, they don't require that operators put the PCs themselves through testing labs, they're easily understandable and upgradeable. Sure, an operator would love to tie a PC user to a single access service for the life of the device. But it's not going to happen - unless they fancy subsidising computers down to free. In enterprise, they overcome sales channel issues that mobile operators aren't great at explaining computer features, and IT hardware salespeople aren't experts on HSPA. But unless you're absolutely cast-iron sure that your behaviour (or competitors' prices or coverage) won't shift over the 3 years or so you've got the notebook, you'd be crazy to go with an integrated solution. A possible solution is a good 'universal connection manager' as part of Windows, rather than risking layers of operator-customised software on your PC. Expect the USB approach to accelerate even further away from 3G built-in PCs in 2008.

4) At least one mobile operator will face an investigation over reported numbers
I've posted several times before about operators fudging their reported KPIs, using opaque or arbitrary definitions. One of my more vitriolic blog comment critics has even claimed, as an insider, that carriers regularly overstate subscriber numbers to appeal to investors' superficial analysis - and seemed quite sanguine about this. I've had private discussions with other analysts where we've looked in disbelief at some published data. Sure, internal management have access to more 'real' figure - but that doesn't excuse them from providing it externally as well, as most are public companies. I suspect that a serious financial miss, or a whistleblower, could provoke some more serious scrutiny into irregularities, if obfuscation turns out to actually mean misleading.

5) Android... hmmm, it's just another platform. I really can't see what the fuss is about Android yet, especially outside of open smartphone-starved North America. That said, I'm not going to write it off - clearly the Big G holds a few cards up its sleeve. But one thing I'm pretty certain of - it ain't changing the world in 2008. We'll be back here in 12 months saying that Google's Android might be a big deal in 2009.

6) Technologies for exploiting end-user context and state become the hot topic of the year. At the moment, mobile 'presence' (IMS or proprietary) is pretty lame. The user is registered to the network.... hasn't been 'active' on a call for 79 minutes, has a self-set status they've forgotten to update.... and that's it. How much richer would it be if the network could extract more useful 'state' information about the device and/or user, especially if it is enriched with embedded sensors... "phone on charge", "user is on a Bluetooth headset", "battery low", "at location xyz", "moving in a way that looks like it's on train", "in a darkened room" and so on....

7) Operators realise that knee-jerk attempts to block VoIP are counterproductive.

2007 has seen many operators move towards flatrate data for both PCs and smartphones. But quite a few have used restrictive T's and C's, or in some cases port-blocking or other network means, to try and stop people using VoIP over wireless networks. A few have tried to charge VoIP-able 3G flatrate as a premium service, although a few more enlightened operators have shrugged and adopted an 'anything goes' approach to their data pipes. Expect many more to follow suit in 2008. The possible cannibalisation threat is overstated - and is more than balanced by the benefits of mobile broadband service contracts. In any case, things like mashups, VPNs and non-telephony VoIP will make it much trickier to isolate VoIP as a distinct "service" in future. Net result - pragmatism, and some of the more visionary operators exploiting VoIP rather than fearing it - either launching their own fully mobile VoIPo3G services, or partnering with players like Skype, Truphone or fring.

8) Femtocells have a year of ups and downs. Some niche success, but practicalities will mean it's H2'09 or 2010 before massmarket deployment.
Sure, we'll see some headline "deployments" in 2008, much like we've already seen Sprint's much-ballyhooed Airave launch. But these will mostly be v0.9 soft launches, not full, production-ready offerings that are able to be sold in their millions to Mr Joe Average Punter. Operators will realise that the proposition, while sounding good in paper, has a million niggly little issues around user experience, management, billing, regulation, emergency calling, numbering and so on. The business model will also need to evolve beyond purely coverage-based or macro-offload. As per normal, more attention has been lavished on the network aspects than actually thinking through user experience and requirements. There needs to be more standardisation, a recognition that there could be lots of multi-femto households, guarantees that femtos work nicely when colocated with WiFi and so on. And, whisper it.... but I think that there might need to be some optimisations or modifications to handsets, to make them work nicely in a femto context.

9) OK, this might be wishful thinking, but I'm hoping to see more pragmatism & innovation around the concept of mobile multiplicity.
Lots of people already have multiple phones, SIMs, numbers, identities and so on. While some purists may bemoan the inelegance of this "oh, if they just had the right offer, they'd only want one", they are flat-out wrong. People are happy with complexity. The software in your brain is much more flexible about choosing appropriate modes of communication than the software in the network. People like multiplicity. They want multiple service providers. They often don't care about multiple bills or logins. They are not loyal. So live with it - and exploit it where possible. Offer people ways to federate messages or numbering across multiple carriers. Give them ways to manage the richness. Offer them second SIMs or phones for the same number, or multiple numbers on a single device. Don't try & shoehorn them into your marketing department's polarised view of what a user experience should be. Sure, give them incentives to be stay with & extend their business with a single provider (ie bribe them), but also recognise that coercion or bloody-mindedness isn't conducive to loyalty.

10) No, No, No, No, No

- Mobile search. Still pointless. Haven't you realised by now that people just want normal, full-fat Google on their phones?
- Mobile advertising will definitely grow - but it's not going to get beyond a few % of ARPU in the foreseeable future except for a handful of segments
- Mobile centrex. I stand by what I've been saying for years. Hosted/centrex enterprise telephony has an opportunity for gaining 10-20% of total business lines. Mobile hosted services only have an opportunity for 10-20% of the 10-20%.
- UMA dual-mode services. OK, maybe we'll get to 2-3 million users in 2008. Wow, that'll really set the handset industry on fire....
- Unfortunately, we'll still have mobile industry dinosaurs referring to handsets as 'terminals', as if they were mainframe-style dumb endpoints. Mind you, it's a good filter to see who really doesn't 'get' what happens to mobility when it intersects with Moore's Law. Unfortunately, I predict we'll still have the word 'terminal' at the end of the year. (And 'seamless', too, ugh)
- Unlicenced-spectrum wide area wireless. Some people have been talking up 2.4GHz WiMAX to me recently. And of course there's the ever-delayed xMax as well. Maybe it'll work in a couple of rural areas where there's not much interference, but unfortunately I can't see city-wide unlicenced data working.
- GSMA's IPX. Sorry, but this just won't work in the real world apart from maybe some internal peering arrangements between operators. End-to-end multi-operator IMS-based QoS? Oh, please.


Anonymous said...

I wonder how this column would sound in non-acronym laden English that a non-industry outsider could understand?

Dean Bubley said...

It would be a lot longer as I'd need to explain more. My clients are predominantly industry insiders, and it's written for their benefit.

If you'd like me to advise you on mobile industry trends in layman's terms, contact me and we can sort out a contract.

shakandah said...

By saying that xmax will work in a rural environement, then you imply that xmax is not a sham and a worth while technology to follow. By saying it will not work in an urban area again you imply that the xg most secret the filter is not efficient enough to block the high noise and interference level in such surrounding. What is your basis for that as I understand that you doynot the privilage in knowing what kind of filter is and how does work. Your comment on this will be highly appreciated

Dean Bubley said...


My comment was primarily about WiMAX and its potential to work in unlicenced spectrum.

My mention of xMax was in passing & I have no intention of making it a big deal in the context of the other (much more important) trends I discuss in this post. I don't think it's a complete sham, but neither do I think it'll be very important in the general world of mobile & wireless. It's niche at best.

If you want to debate it, save it for the iii investor board or the syndicated version of this post that's on the Seeking Alpha site.

Anonymous said...

I'm intrigued about your comment on the GSMA's IPX. Please can you explain a little more behind your thought process?

Keith Breed said...

Dear Dean,
Some interesting predictions, not sure about VoIP and the mobile operator though in 2008. It is more likely that pressure will come from other new mobile entrants rather than the operators themselves. I am involved in putting together a conference called "Telecoms Cannibalization" at the end of January which looks at the substitution effect. More details are at: www.mobilepricing.com.

Keith Breed said...

Dear Dean,
Some interesting predictions, but a bit unlikely that in 2008 that the mobile operators will all allow VoIP. It is more likely that fixed line operators will offer a disruptive mobile VoIP service as they will not care about substitution. We are organising a conference on "Telecoms Cannibalization" at the end of January which looks at these issues, more information is at: www.mobilepricing.com.

Dean Bubley said...

Anonymous - I'll comment more fully on IPX another time, but some of the issues I see are:

- it's only about QoS in the core network. I think that for many services, radio-layer QoS will be a bigger determinant of overall user-perceived quality.
- IPX seems to be focused primarily at well-defined IMS services like videoshare & PoC. However, these are unlikely to be very important in the bigger scheme of IP-based mobile applications.
- It isn't obvious why any of the non-operator service providers (eg Skype, Google) would want to sign up, or what commercial/technical hoops they'd have to jump through
- it doesn't appear to have a mechanism for dealing with services that users are happy to receive on a best-efforts basis
- it seems pretty distant from developers of next-gen IP services like Web 2.0 or mashups. How would you ensure QoS for FaceBook, where a page might include 20 out of a possible 30,000 software components? The user-perceived application isn't always going to be voice, or a single streamed video - they will want overall 'quality' of the mashed-up meta-application.
- more pragmatically given this was a 2008 predictions post, IPX is still going to be in trial in 2008 (at least that's what a GSMA representative said at a recent conference)

Anonymous said...

so you do not believe in mobile centrex. what about solutions like those from ascendant?