JSON TV crew and analysts from J'son & Partners Consulting participated in Mobile World Congress 2014 - a key event of the world telecommunications market, held on February 24-27, 2014 in Barcelona, Spain. Traditionally, the Mobile World Congress can be divided into three key areas: consumer devices, network infrastructure, and the development of the overall mobile ecosystem. The first part of the story is devoted to the strategies of global carriers in a rapidly changing market, and the related development of mobile ecosystem. The leading consulting agencies, most innovative carriers and vendors, industry associations and others, as well as Ralph Simon - a man of legend, who was at the origin of mobile entertainment industry, shared with J'son & Partners Consulting their vision of the changes occurring in the world of mobile communications, as well as their assessment of efforts of the Russian mobile carriers. You can watch the videos at JSON TV portal.
Development of the mobile ecosystem as a whole is closely linked with the choice of further development strategies by global carriers. Strategy Analytics specialists say that, in general, these strategies can be divided into two key versions with different variations:
- Network Player strategy: by building the largest, most productive and efficient network with the lowest possible cost of ownership, the operator would be able to win by offering the cheapest data services on the market and beat the competitors’ prices;
- Becoming a Platform Vendor. This type of operator enters the market as the platform owner, providing a variety of television, broadcastings, gaming or financial services, M2M etc. and having all necessary licenses. Alternatively, you can create your own service brand.
In the opinion of Phil Kendall, Director of Wireless Operator Strategies, Strategy Analytics, all cellular operators in the world, regardless of their chosen strategies, experience very tough competition, actually surviving on the verge of profitability. So instead of mass breakthrough, currently there are many little loopholes to improve profitability (intelligent billing, content, partnership with other players of this and related markets, attempts to create the connected car, etc.). However, all of these niche revenue opportunities are intended mostly to compensate the loss of income caused by reduction of subscriber expenses on mobile communication, rather than creating new sources of income. You can learn more about the various survival strategies of global carriers in the first interview with Phil Kendall (here).
Speaking about Russian carriers, Mr. Kendall emphasized that compared with their Western counterparts, they were better prepared to work in conditions of a severe competition. Their key advantages are flexible approach to pricing and targeting of proposals. It is also interesting that Phil strongly rejects the myth of “mobile slavery” (MNP), popularized by the Russian press, noting that this phenomenon is rather typical for Western mobile carriers who try to “harness” the subscriber by subsidizing the smartphones. "And I think that with prepaid strength in Russia you couldn’t lock in your customers for two years (as it happens in the West under the phone subsidy model). Your relationship with customers is always about the last experience he had with you. You can’t rely on customer staying for two years. So you have to be a strong brand, to initiate some customer loyalty programs etc. I think the Russian market has a good structure, where users understand the value of hardware they are buying and then pick the services which meet their specific needs. In a subsidy model…we have to compromise these two sides of equation...” As a result, - Mr. Kendal said, - Russian mobile carriers always leave subscriber a choice. So the operator has to constantly improve the quality of service in order to ensure a positive user experience - otherwise the unbound subscriber could just move to another carrier. Thus, the operator builds a brand based on customer loyalty. In contrast, - the Western market is heavily damaged by subsidizing.
In his second interview with Alex Barkaloff, executive producer of JSON TV, Phil draws attention to another key advantage of Russian carriers - strong operator brands. Mr. Kendal admitted that they are probably the most powerful brands in the Russian market. In many other parts of the world, including the UK, there is no such thing. “For example, I might think of myself as a Google customer or Netflix video customer, and who my broadband or mobile operators – it is not really matter, because it is only delivering my services. But in some countries like China or Russia we see that mobile carrier’s brands are being so much stronger that able to stretch them further across the market in the way that Vodafone or Telefonica in Europe remain struggling to do" - says Mr. Kendall.
As for the data traffic monetization strategies, he said that due to the decline in revenue from traditional services around the world, this activity becomes absolutely critical. In general, he sees that the operators in one way or another try to stimulate the use of data transmission services, which allows them to increase their profits. And it is really amazing, because when operators were asked some 2-3 years ago, they all were concerned about how to get subscribers to transfer less data to avoid overloading the network. So carriers specially created the tariff plans under which the use of mobile Internet and other data transmission services was prohibitively expensive. There was a reason for it then: with the level of networks development, data transmission was too expensive for the carrier. Now it's the opposite - the operators try to stimulate data consumption and operators’ marketing services fight with the technical departments, urging them not to cut back the data transfer speed, or the subscribers won’t buy such a plan. You can learn more about Phil Kendall’s view on various data monetization strategies, as well as which country’s experience is most suitable for Russian carriers, from the second interview (here).
David MacQueen, Executive Director of Apps and Media, Strategy Analytics draws attention to the attempts of mobile carriers to find their place in the mobile ecosystem of digital content era. Many operators keep trying to find and occupy their niche in content distribution value chain. Some of them are looking to expand their product line by offering content delivery and broadcast services. And frankly, with rare exceptions, all these strategies have not been too successful. Therefore, operators are increasingly seeking partnerships with content providers, which are, indeed, media brands, and convey this brand partnership to the customers. The partnering approach integrates fairly well into the carrier's changed business model. For the same purpose, the operators start using bundling, i.e. when the client buys a data plan, he can purchase an add-on, such as unlimited access to, say, Spotify. Overall, the content purchase mode has changed to digital, and it is a positive factor, it is easier to fit into the essence of the carrier’s value proposal.
Generally speaking about the mobile carrier strategies in the new ecosystem, in Mr. MacQueen’s opinion, the operator must partner with media brands and content owners to include their content in operator’s bundle-rates. In addition, the carrier has to provide a payment platform for content, games and other online services - especially when it comes to subscribers without credit cards. Using both these options, the carrier can find its niche in the value chain and get the share of the profits, using relatively simple mechanisms. Thus, the prohibition of OTT services, such as WhatsApp, on carrier’s network, is a short-term and clearly losing strategy. You can learn more about key trends in the mobile media market and the strategies of mobile carriers in JSON TV interview with David MacQueen (here).
Also interesting for Russian mobile carriers may be the interview with Paul Lee, Head of Technology, Media & Telecommunications Research, Deloitte. According to him, considerable growth in ARPU in the Russian market will take a long time - it requires, first and foremost, a change of client’s consciousness, when gadgets and related activities are among the priority needs. Only then, - insist Mr. Lee, - instead of people spending money on some common product, for example, their first car, young subscribers spend this money on the latest consumer electronics, because this is the segment is of very high value for them. Mr. Lee exemplify Germany, where the average age of cars buyers of certain brand is 50, whereas 20-30 year old people spent more money on consumer electronics and related services.
However, Paul Lee stressed that the carriers’ “bit pipe” future, often perceived in a negative light, may not be so. "For many years I’ve been in consulting, carriers don’t want to be a "bit pipes", but actually being a pipe – is a different things. It could be connectivity for other commodities like oil and gas and can be a really lucrative business, if you have the best-in-class "bit pipes". That will never change... One thing where operators can have a role also – it is a payments, providing a billing platform for digital artifacts and physical goods transacting online. That is why you have services like App Store, Google Play which provides up sell service. And operators have a billing platform and already count hundreds of millions dollars transacted…” – said Mr. Lee. You can learn about other trends of the global mobile market in the interview with Deloitte’s global analyst Paul Lee here.
Finally, the JSON TV crew was able to meet and interview Ralph Simon - founder of the world mobile entertainment industry, the "father of the ringtone", Founder and Chairman Emeritus of the Mobile Entertainment Forum, CEO Mobilium Global Group Companies. Mr. Simon addressed the global audience by disparaging some formulaic stereotypes about Russia prevalent in Western companies, and highly praised the prospects of the Russian mobile innovation market. In his own words: "I love Russia! I love Russia so much! Why? Because people in Russia are really smart and entrepreneurial, and really understand about mobile...I am very interested in all aspects of mobile business in Russia with carriers like MegaFon, MTS, VimpelCom. I have some good friends who are also working at Government’s Ministry of economic development and the Ministry of communications. And over the last two years I’ve been involved in The Moscow Forum of Innovation Development, helping to bring some big speakers to Moscow and to develop companies all over Russia, not only from Moscow, but also from Kazan, Vladivostok, Yekaterinburg, etc. Because Russia – is a big country with incredible potential…I’ve been speaking with Russian Minister of Economic Development when I was in Moscow a couple of months ago, there is a lot of talent outside Moscow. Yes, Moscow - where power is, Moscow - where the Kremlin is, but there are many cities in the East, the Far East of Russia with really cool and interesting staff. There is a guy comes from Irkutsk, who has got a fantastic company that’s developing good linkage between Russia and Asia and even put a big event in Moscow…Because Russia and Indonesia, Russia and Vietnam, - there is a really interesting collaboration going on between Russian technologies and Malaysian or Indonesian technologies…I’m a big fan of Russia, as I said. Because people there are just great, smart and there is a spirit about Russia”.
However, one of the big difficulties is trying to see how Russian Technologies can also be exported internationally. If you look at the carrier like VimpelCom that have a lot of subsidiaries on international market, that should be an opportunity for young Russian mobile innovators to allow them to expand technologies overseas. But there are many obstacles along the way, including language barriers and visa problems. The Russian Ambassador in the UK told Mr. Simon that issuance of visas by British officials for the Russian representatives took 6 weeks, while Chinese experts received their visas in 3 days. “What’s wrong with that? We have to change that!” – said Mr. Simon. You can watch the full interview with Ralph Simon here.
Iinterest to Russia does not weaken in the United States also. Heather Blanchard, Director, Wireless Internet Development, of CTIA -The Wireless Association, which unites the leading American mobile industry companies, via JSON TV invited Russian companies, including mobile carriers, to participate in the Super Mobile Week Forum, which will take place on September 9-11, 2014 in Las Vegas, NV. “What we should also share with you is that at CTIA we have Super Mobility Week in Las Vegas in September and we invite Russian developers and entrepreneurs there. Especially we have a wireless focus – that is we do by leading entire mobile ecosystem to come out. You can learn more about it at http://www.supermobilityweek.com/”. You can watch the invitation from CTIA - The Wireless Association in full here.
With regard to the development of the mobile ecosystem as a whole, in a context of stagnating market for traditional mobile services in developed countries, the mobile carriers seek to diversify their portfolio of services by developing new market niches, and particular emphasis today is on digital distribution, Mobile Health, mobile commerce, M2M services and especially the Connected Car, as well as OTT-services. His views on new directions for the development of one of the world's key operators shares the co-founder and CTO of Deutsche Telekom Hosted Business Services, Stas Khirman.
He said that there are not so many giant corporations in the world. And if we look, for example, at the US market, it is clear that small and medium business in aggregate earns much more money than big corporations. But the major telecom operators do not have the experience and tools to work with small and medium-sized businesses. Historically, their structure developed in such a way as to provide services to the residential sector and individuals, on the one hand, and large corporations – on the other. “That’s all about cloud capabilities and open idea that you could offer to small and medium business the same stack and quality level of communication services through cloud as was affordable only for big corporations previously. Deutsche Telekom Hosted Business Services is doing this exactly, moving the cloud practice of Amazon to practice of telecom. We don’t care about how big or small you are – you could by this services as well as big corporation standing next to you with the same quality…From one site, business telecom services could be delivered by traditional telcos, because they do know how to deliver high quality and high reliability services. On another site, they need to learn and this is what exactly we do, how to work with small and medium business”, - he said.
Speaking about the prospects of the Russian market, Stas Khirman notes that lagging behind the West by 5-10 years is not only a problem, but also a benefit. Sure, Russia does not have to be a pioneer and, therefore, to repeat the mistakes that West countries have made. But Russians could closely examine what went right and, more importantly, what was done wrong, and introduce just the right solutions. This way the West will be served as a guinea pig for Russian experiments. This issue is discussed in detail in Stas Khirman’s interview to JSON TV here.
Andrius Biceika, Head of Business Development, Mobassurance, tells about one more direction of development of European operators’ service ecosystems, – about insurance products’ distribution through mobile carriers networks. "The benefits of partnership with us for the mobile carriers are obvious, - there are three main of them, at least. The first one is that bringing distributorship insurance to the customers they are increasing customer service level to the next level. So the customer would start to think about them as about really partner in everyday life, - in our case – in insurance. The second thing is so-called «up selling» or additional services sold through mobile operator – that also increases its ARPU which is quite relevant question for many mobile operators around the world. And the last thing is that mobile operators gets revenue share from this distribution as well. It works so simple that we were asked ourselves – how it turned out that we were the first...» - said Mr. Biceika. You can learn how Mobassurance service works, as well as company’s plans for entering the Western European market and Russian with one of the "big three" mobile carriers, in an interview with Andrius Biceika here.
Future of Traditional Operator Services and ОТТ
Although the new services have not yielded appreciable growth/stabilization of ARPU, however, in the long term, the operators are preparing themselves to an All-IP era, in which the voice is only one of many types of applications, along with data, video, etc. This vision of the forthcoming operators’ the future have repeatedly sounded at the MWC-2014 panel discussions by the representatives of the world's biggest carriers. In particular, CEO of Tele2 Mats Granryd officially voiced the thought that has long soared in the air – that operators should prepare to make profit only on the transmission of data, while voice and messaging will be free for the subscribers. VimpelCom CEO Jo Lunder agreed with his counterpart, stressing that "the industry has so far failed to achieve notable success in monetization of data services».
This change in business model must happen, sooner or later. The OTT-players already with increasing pace cannibalize the carriers’ revenue from traditional services, and the situation only gets worse for them. In particular, the congress participant Jan Koum, СЕО of WhatsApp, one of the world’s hottest messenger services with more than 500 Million users, announced the launch of their voice service in Q2 of 2014. WhatsApp users show extremely high loyalty and high level of use - they send 19 billion messages per day, which is almost equivalent to the cumulative daily volume of SMS/MMS for all of the world operators (22.4 billion messages a day, according to Portio Research). Therefore, support for voice by such a big player, given that the share of voice within the carrier's revenue today is up to 50-70%, has become a very serious challenge. This sheds a different light on the words of Mark Zuckerberg, CEO of Facebook, who said for the first time in Barcelona, that the cost of WhatsApp was higher than he was willing to pay for it. Another of WhatsApp’s indicant initiative is related to the upcoming partnership with German mobile carrier E-plus (KPN Group) and the readiness of the OTT-player to partnerships with other carriers. However, WhatsApp’s partnership with E-plus Germany can become a turning point in the development of the global mobile industry. It is supposed to run much deeper, and in all likelihood the plan is to launch WhatsApp brand of mobile service over the E-plus network, i.e., OTT- players could turn into MVNO with relevant redistribution of income sources for classical mobile carriers - "bit pipe" owners.
Partnership for mobile carriers with OTT-players in these conditions may be the only temporary way to protect the subscriber base. The need to develop new business models for such a partnership, in particular, was noted by СЕО of Middle Eastern Zain Group, Scott Getenheimer, but in the meantime, the basic model for cooperation of the carriers with OTT-players is revenue sharing or use of carrier billing. But the cooperation of mobile carriers with OTT-players gets closest to being mutually beneficial at the emerging markets. This is confirmed by Facebook CEO Mark Zuckerberg, who noted that "through access to Facebook and other services such as Wikipedia, the number of users of the data transmission services of the Philippine carrier Globe and Paraguayan Tigo has doubled in 3-4 months. And the users, after trying free Internet access, want to continue using the services, even for a fee. Facebook is planning similar partnership with 3-5 other mobile carriers.”
In developed markets, where penetration of data services does not require an external stimulation, mobile carriers are more aware of the prospect of becoming a "bit pipe" and seek to prevent this from happening by developing promising directions and services. Director of Product Department, NTT DoCoMo & Chairman of the Board, TIZEN Association Roy Sugimara told the JSON TV team about existing services, business prospects and about carrier involvement in TIZEN ecosystem. He also discussed the unique aspects of Japanese mobile market, traffic monetization strategy used by local carriers, development of innovative services, the carrier's work with business clients, and also called for more active participation of the world's mobile carriers in Tizen ecosystem. You can watch Roy Sugimara’s exclusive interview with JSON TV here.
In general, by mid-2014 NTT DoCoMo intends to start paying more attention to the development of applications, services and partnerships than to infrastructure development (LTE-Advanced launch is expected by 2015). NTT DoCoMo President & СЕО Kaoru Kato explains it by the need to “align the position of the operator with new players, which can also mean their acquisition”. In addition, the Japanese carrier already successfully develops the "d-market" online store, with number of users reaching 7 million and turnover of US$ 0.3 billion in 9 months.
Maсhine-To-Maсhine (M2M) and Internet of Things (IoT)
NTT DoCoMo СЕО Kaoru Kato also added that the company expects revenue growth of up to US$ 10 billion in IoT (Internet of Things) segment by 2016. In his comment, he particularly stressed the importance of the Mobile Health segment. Young Sohn, President and CSO of Samsung Electronics, also confirms this sector’s high promise. By Mr. Sohn’s estimate, the overall annual volume of the world healthcare market exceeds US$ 12 trillion. So the new development at the junction of the two industries is of particular interest in Europe, South Korea and Japan, where the population ageing is especially noticeable. It is likely that mHealth here would be one of the key growth drivers of wearable devices market. Speaking about prospects of the M2M (Machine-to-Machine) segment and even wider, about IoT (Internet of Things) in general, Cisco CEO John Chambers estimates that the IoT market potential in the next decade will reach US$ 19 trillion, of which US$ 14.4 trillion will be in the private sector, and the rest of the government/public sector. And, according to him, the fragmented mobile applications (within households or the city) will not create the economic effect - here we are talking specifically about integrated solutions. In general, according to GSMA, the number of M2M connections in the world in 2010-2014 grows with a CAGR of 38%, and by the end of 2014 it will reach 250 million. However, the proportion of M2M in global subscriber base increased in 2013 by 3% vs. 1% three years earlier.
Connected Car is, probably, the most interesting and promising segment of M2M, and both Ford and General Motors made announcements about their respective programs at the MWC-2014. The national projects, such as eCall in Europe, Era-Glonass in Russia and SIMRAV in Brazil, as well as the recent announcement from the US National Highway Traffic Safety Administration (NHTSA) on communications between vehicles, are the most important drivers of the M2M development in this vertical market. Still, the business model for direct monetization of M2M in the automotive industry has not been built yet, notes Kanwalinder Singh, VP for Business Development, Qualcomm. From the point of view of the automaker, mere access to information about the car is not creating apparent profits. But when it comes, for example, to routine or unscheduled maintenance (data from M2M sensors can be passed directly to the service center, which will notify the vehicle owner), in this case, the benefits to the auto industry ecosystem are obvious.
With regard to the mobile ecosystem of financial services, in the developed countries the main market driver is further penetration of NFC and mobile commerce, while in the developing countries, it is the capacity to provide primary financial services in the absence of a developed banking system (money transfers, payments, microfinance, etc.). This is confirmed by the data of the last GSMA studies, indicating that the mobile money services for the end of 2013 were provided by 219 operators in 84 countries around the world, and the number of users has reached 61 million (37 million a year earlier). However, half of them are in Africa, where in 9 countries, the number of mobile wallets surpassed the number of bank accounts. With regard to the development of mobile payment services in developed countries, it is directly related to the growth of the NFC ecosystem. Moreover, as proved by the United States, (Isis - mobile wallet with NFC - is a joint project of Verizon Wireless, AT&T and T-Mobile) the effectiveness of such technology is achieved only by simultaneous and integrated application.
MWC-2014 showed that the industry is ready for this, giving three examples of such launches in individual countries as well as whole regions. First of all, MasterCard, following the recent announcement of a partnership with the UK’s Weve (JV of mobile carriers Vodafone UK, EE UK, O2 UK), announced in Barcelona similar partnership with the leading German mobile carriers (local affiliates of Deutsche Telekom, Telefonica and Vodafone). The plan involves developing a joint NFC platform for mobile payment which aims to significantly simplify the integration of banking and mobile services. VISA and CaixaBank, leading Spanish bank, of Spain, also announced similar national-level partnership in Barcelona. Partnership with local affiliates of Telefonica, Vodafone and Orange, which together control 80 percent of the subscriber base of the country, will give the project necessary scale of deployment of NFC services, common service standards and client experience. At the same time, 4 mobile carriers of Asia-Pacific countries (Japanese KDDI, Chunghwa Telecom of Taiwan, Hong Kong’ HKT and South Korean’ SK Planet) with the assistance of the GSMA created Asia NFC Alliance for joint promotion of NFC and creating a unified cross-border service ecosystem on the basis of common standards of customer service over the partners’ combined networks.
Overall, JSON TV crew made at MWC 2014 about 40 videos that are available on JSON TV website. Among them is Qualcomm’s concept of Smart Home, interviews with South Korean operator SK Telecom, visits to Ericsson’s key exhibition stands, and a lot more. The next JSON TV report from MWC-2014 will be devoted to the network infrastructure development.
Interviews with Ralf Simon, Strategy Analytics, Deloitte, Deutsche Telecom, NTT DoCoMo, Mobassurance and other reports from MWC-2014 are available at JSON TV portal:
1. MWC-2014. Phil Kendall, Director of Wireless Operator Strategies service, Strategy Analytics. February 2014. Spain. Operator revenue growth strategies. Phil explains how to increase revenues in the harsh market conditions and severe competition; why he likes Russian mobile carriers, how they are different from their European colleagues and how to increase ARPU.
2. MWC-2014. Phil Kendall, Director of Wireless Operator Strategies service, Strategy Analytics. February 2014. Spain. Data monetization. Mr. Kendall talks about different strategies of data services monetization. Which country’s example Russian operators should follow in their development.
3. MWC-2014. David MacQueen, Executive Director of Apps and Media, Strategy Analytics. February 2014. Spain. Mobile media market. Mr. MacQueen talks about key trends in the mobile media market, changing role of the mobile carriers in the new ecosystem, and about models of interaction with OTT players.
4. MWC-2014. Paul Lee, Global Head of Technology, Media & Telecommunications Research, Deloitte. February 2014. Spain. Deloitte’s vision of key trends in the global mobile market, ways to increase subscriber ARPU in the CIS countries based on the experience of European carriers.
5. MWC-2014. Ralf Simon, CEO Mobilium International Group; Founder and Chairman Emeritus of the Mobile Entertainment Forum – Americas; Global Ambassador for CTIA. February 2014. Spain. Why do I love Russia?
Founder of the world mobile entertainment industry, the "father of the ringtone", Ralf Simon tells about his experience of working with Russian businesses, states the need to “export Russian innovations and technologies” abroad.
6. MWC-2014. Stas Khirman, Cofounder & CTO Deutsche Telekom Hosted Business Services. February 2014. Spain. Special for Json TV. Specifics of B2B business, Deutsche Telekom offerings for SMB.
7. MWC-2014. Andrius Biceika, Head of Business Development, Mobassurance. February 2014. Spain. Mobile insurance service: Where and how it works, how it helps the mobile carriers to avoid the ghost of “bit pipe” and increase revenues; prospects for Russia.
8. MWC-2014. Roy Sugimara, Director of Product Department, NTT DoCoMo & Chairman of the Board, TIZEN Association. February 2014. Spain. TIZEN ecosystem and NTT DoCoMo strategy.
The reasons for which the carriers participates in the development of TIZEN ecosystem, and its prospects. Vagaries of Japanese market, NTT DoCoMo current business, traffic monetization, development of innovative services.
9. MWC-2014. Heather Blanchard, Director, Wireless Internet Development & Jeffrey J. Simmons, Assistant Vice President, Technology Programs, CTIA - The Wireless Association. February 2014. Spain. CTIA invites Russian companies to participate in Super Mobility Week 2014
The leading American association CTIA - The Wireless Association welcomes Russian companies to visit the Super Mobility Week 2014 (September 9-11, 2014, Las Vegas, NV).
This Information Note is Prepared by J’son & Partners Consulting, We strive to provide factual and prognostic data that fully reflect the situation and are available to us before issuing the material. J’son & Partners Consulting reserves the right to revise the data after publication of new official information by the market players.