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Tuesday, April 22, 2008

What's in a number? Is 3 billion irrelevant?

The cellular industry is very fond of big numbers - 1 billion phones shipped, 3 billion subscribers, 3 trillion SMSs - I'm sure you recognise them. Obviously, these are all important and impressive achievements and should be applauded.

However, the industry is also very fond of quoting these numbers in contexts in which their relevance is marginal. A typical examples compares 3-4 billion mobile subscriptions with around a tenth of that figure for fixed broadband connections. Another is "Pah, WiMAX will never get the scale economies - there's a billion phones sold a year, how can a measly 50 million or fewer units possibly compete?". Similar examples are used to demonstrate relative importance against TVs, PCs, SMS vs IM or email and so on.

There is a very common theme of comparing apples with oranges here.

If you look at the handset market, a very large chunk is still cheap 2G phones used for nothing other than voice & SMS. There is no obvious sign that this part of cellular marketplace is rapidly evolving to 3G, extensive use of data services, smartphones or other high-end devices. To all intents and purposes, it is a separate market. Interesting from a statistical point of view, but also misleading. Yes, Nokia and Motorola and Samsung get some extra buyer power with their suppliers on components like filters or memory or screens. But hang on a minute, which are the companies developing WiMAX devices as well?

And in fact, the addressable market for the type of high-end products that WiMAX is targetting first (dongles, PC modems, PDAs, game & web consoles etc) is much smaller than 1 billion - and yet it is this consituency that is already driving most of the traffic on HSPA networks - not phones. I'd go as far as saying that 3.5G and 4G networks aren't about 3 billion, they're about perhaps 300 million potential customers, at least in the next 10 years. Including the other 2.7 billion in the discussion obfuscates the argument.

It's notable that the PC / Internet industry doesn't play the "zero's" game as much. It could trumpet 3-billion (approx) ethernet ports or a roughly similar number of USB devices. It could constantly talk up $7 trillion (or whatever this year's number is) in PC-mediated e-commerce. I read recently that foreign exchange trade volumes are in excess of $3 trillion per day, again mostly facilitated by traders with desktop computing hardware. That's a quadrillion dollars a year. But although it's an impressively big number, it's not relevant to most discussions about future technology.

So I'd challenge the mobile industry to be a bit more grown-up about the way it uses its statistics. I'd certainly agree that 3 billion people with access to telephony and messaging is incredibly impressive. A billion devices a year is almost incomprehensible. But don't wheel out the big numbers as PR collateral, just to support arguments that only apply to tiny fraction - it smacks of either insecurity or a lack of knowledge about how an addressable market is really defined.


Anonymous said...

Marketing people not telling the whole truth?

Who'd have thought it possible?

Anonymous said...


But here's where the relatively small yet (on the user side) significant WiMax numbers: 50M globally. Note: Globally

Problem is, and I keep coming back to this: The network needed to provide a decent experience to those 50M customers. This is where the numbers really matter. A BTS costs around $250-500k all-up to deploy from scratch. And you need many thousands to provide the sort of coverage users have come to expect, even in a pocket-handkerchief nation like the UK.

Case in point: how many corporates ask their users to only do the WiFi thing when out & about? I'd say: just about none. Even if it was free. People want coverage on their terms, not on the network's terms. Any operator looking to replicate the hotspot model with WiMAX had best read up on services like Rabbit, and why it failed despite thousands of locations.

...And hotspot it will be. At the likely frequencies, you'd be hard-pressed to get good in-building on-lap coverage with cells larger than a few blocks.

Again, it's not the absolute subscriber numbers. You could increase it tenfold, and the economics of replicating the 3G network infrastructure still wouldn't stack up.




Dean Bubley said...

The big difference between Rabbit and probable WiMAX or LTE deployments is this:

Rabbit was about phones & voice. Ubiquity & mobility is critical, as 50% of calls are (on average) incoming.

WiMAX and LTE are (initially) about laptops, games, enterprise gagdgets, web tablets etc. No phone numbers, no incoming calls, less mobility etc.

Hotspots/hotzones are adequate initially, I believe.

Although I certainly agree about in-building - although MIMO and beamforming may help a bit.

Anonymous said...

Why does eveyone assume operators will want to use LTE (or HSPA+ for that matter) in high bandwidths? And why does eveyone assume we as consumers will only want LTE (or HSPA for that matter) if we want high bandwidth services? Yes, it is capable of this, but surely phone calls and Internet Protocol based network rollout is really where the operators want us all to be? LTE is the most efficient means of providing this to date. HSPA+ is not far off but GSM and W-CDMA (R99) is way off. I don’t think they care if 1.25MHz or 20MHz achieves this, in fact if anything they would probably prefer 5MHz to save on already heavily spent capex. Operators do not want high bandwidth, they want efficient use of bandwidth resulting in high capacity which translates to high revenue.

If I were an operator I’d want you all using my spectrum in the most efficient manner possible, even if it were simply to place voice calls. In fact, I’d prefer voice calls in my current pricing because I can charge a premium for this real-time aspect. I as an operator would not be happy to give up this premium, but I may be prepared to evolve it. And evolution is the key word here, not revolution.

Todays data plans are sufficient to cover the data usage expected if all our “free” voice minutes were converted to data (say ontroversially as VoIP). The price for this data may have to rise, but then again maybe not. In the past we had “free” minutes, in the future we will likely get “free” megabytes. If we choose to spend these megabytes on voice calls, then so be it. And I bet we will too.

So really where I’m going with this is don’t assume operators want to put a 20MHz capable LTE or HSPA+ category 18 mobile in your pocket. I suspect they simply want you to carry an LTE or HSPA+ mobile that can do voice as efficiently as possible. They will still charge you the same.

Too many times in the last 8 years in this business have I heard the latest, the greatest, the fastest all being delivered by the next technology.

What is wrong with more of the same, only better, more efficient and cheaper? Not sexy enough I know, I know, but sadly reality often isn’t …