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Monday, November 11, 2013

Mobile data traffic - some quick thoughts on Ericsson's latest update

Ericsson has just published the November edition of its Mobility Report.

I'm just going through a couple of stand-out items, especially about mobile data traffic. There's some good stuff about subscription growth, "app coverage" and small cells, but that's for another post.

Ericsson reckons that global mobile data traffic grew 10% quarterly between Q2 and Q3 2013, and 80% from Q3'12 to  Q3'13. The chart seems to suggest the beginnings of an S-curve tail-off in growth - the previous June report suggested 19% growth quarterly Q4'12-Q1'13, and the chart suggests c15% for Q1-Q2. The February report cited 28% quarterly growth for Q3-Q4'12. That said, the growth rates are quite "lumpy", although the last quarter showed the slowest growth in 2 years by a considerable margin.

Quarterly Mobile data traffic growth from previous Ericsson Mobility reports
Q4'11-Q1'12 = 19%
Q1'12-Q2'12 = 14%
Q2'12-Q3'12 = c20% (read from chart)
Q3'12-Q4'12 = 28%
Q4'12-Q1'13 = 19%
Q1'13-Q2'13 = c15% (read from chart)
Q2'13-Q3'13 = 10%

Overall, the global forecast is for a CAGR of 45% mobile data traffic growth between 2013 and 2019, with much greater traffic growth from smartphones, and comparative stagnation of mobile PC dongles, MiFis and the like. That's a slightly more realistic forecast than others have predicted, but I still think it's a too top-heavy, given the S-curve effect (ie quarterly growth has fallen from 28% to 10% in less than a year).

This forecast compares with Ericsson's earlier 50% CAGR for 2012-2018 - but in the June report, it said it expected 2012-13 growth to "continue doubling", which when calculated through implied the remaining 2013-2018 period to have CAGR of only 41%. It's possible that the shift to LTE (which often comes with bigger data buckets in plans) might drive a "double-S", but there's limited evidence of that so far.

My main problem with the analysis, is that the chart on page 11 suggests that smartphone mobile data subscriptions will triple between 2013 and 2019, and that average usage will simultaneously grow about 3.5x. I think that is unsupportable, as the next 3 billion smartphone users will be late adopters, often in low-ARPU markets with parsimonious data plans (or more likely, sporadic prepay top-ups). It suggests that smartphone user #5 billion, coming online in 2018, will instantly be using gigabytes per month from Day 1, unless user #1 billion is using about 20GB/month by then to skew the averages. In almost all maturing sectors, the laggards & late-adopters tends to be low, casual users. This suggests that Ericsson's forecasts are over-cooking things substantially.

Ericsson puts 2013 mobile data traffic as 35% video, and is predicting that to go to 50% in 2019. But interestingly, Cisco VNI had video at 50% in 2012 and forecast 66% by 2017. To my mind, that's partly because "video" is a useless concept bundling in hundreds of arbitrary and different elements - streaming, downloads, uploads, 2-way communications and so on, not to mention mashups (is Vine a video application, or social? How about sharing videos on Facebook?)

There is little mention in the report of the increasing use of (non-operator) WiFi on smartphones, which is up to 80% of total device use in some countries, even excluding WiFi-only tablets. There are a couple of mentions of "WiFi offload" being excluded, but as offload is probably (at most) 20% of total smartphone WiFi compared to private incremental non-offloaded use, that suggests that the numbers have very significant downside sensitivity, as free amenity WiFi proliferates around the world. Even in developing markets, it is common to have free WiFi in various public locations such as cafes, and savvy price-conscious users can be expected to exploit this, rather than paying for dataplans or prepay data credit where possible. In some countries, WiFi use is also increased by the risk of smartphone theft if the devices are used openly in the street - instead, people use their phones mostly indoors, in more secure (and WiFi-rich) environments.

Taken together, I'd say that Ericsson's numbers are starting to fall into the realm of sanity (unlike the continued breathless "exponential" hyperbole I heat in many presentations), but the forecasts are still too optimistic, given what we're seeing with both typical data allowances, and WiFi use. I haven't done a full analysis, but I suspect that a global mobile data traffic CAGR in the range 35-40% for 2013-2019 would be much more realistic, translating to perhaps 30-35% in developed markets and 40-50% in developing.

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