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Mobile Subscribers Yearwise comparision

Global Uptake - Strong growth in mobile data services

July 15, 2010

With penetration rates in the developed markets at over 100 per cent, revenue growth strategies rooted in customer acquisitions have now been rendered ineffective. As a result, operators are now shifting their focus from voice to data services. Even in emerging markets like India and China that have now attained significant telecom penetration levels, there is a noticeable shift towards data applications, which will get a further impetus with the recent launch of 3G services in China and the expected launch of these services in India by end-2010.

This shift has primarily been driven by voice commoditisation, the decreasing growth of voice revenue and increasing pressure on voice margins. Mobile end-user ARPUs dropped between 6 and 9 per cent globally in September 2009 vis-à-vis September 2008. India, the world's second largest market in terms of subscribers, witnessed an over 10 per cent decline in ARPUs in the same period, as new operators and the introduction of per-second billing put pressure on voice revenues.

With voice ARPUs expected to fall by almost 20 per cent during the next five years, the main driving forces behind improving ARPUs will be mobile internet services and entertainment services.
According to ABI Research, ARPU decline is likely to flatten out in developed markets in Europe and North America with mobile data revenues increases.

In addition, with most countries still on their way to economic recovery, there is pressure on mobile operators to compete on price, particularly with undifferentiated voice services. Mobile data services and value-added services (VAS) will enable operators to counter that pressure.For instance, even though North America has been hit the hardest economically, according to ABI Research, mobile data services growth is expected to exceed 8 per cent through 2014 even in the worst recovery scenario and will shield mobile service revenues against growing voice pricing pressures.

Size and growth
A study by Informa Telecoms & Media forecasts that the global mobile VAS market will grow at a compound annual growth rate (CAGR) of 4.8 per cent, from $85.4 billion in revenues in 2009 to $108 billion in 2014.

In the Asia-Pacific region, according to Informa Telecoms & Media, the mobile VAS market, which was valued at $82.9 billion in 2009, is expected to grow at the rate of 11 per cent annually over the next five years, to generate revenues of $137.3 billion by 2014. Messaging, including peer-to-peer (P2P) SMS, accounted for nearly half of the region's mobile VAS market (46.7 per cent of the total VAS revenue) in 2009 while mobile entertainment VAS, including mobile music, games, images, TV and video, contributed 13.2 per cent. Mobile internet revenues accounted for 32.9 per cent and other VAS, including social networking and mobile banking and payments, contributed the remaining 7.2 per cent share.

Similarly, in Latin America, the mobile VAS market will grow at a CAGR of 15.1 per cent in the next five years -­ three times faster than the average global growth -­ to reach revenues of $21.6 billion in 2014, up from $10.8 billion in 2009. In this region, mobile messaging accounted for the lion's share of the VAS revenue in 2009, and is likely to continue to be a dominant segment through 2014, followed by mobile internet and mobile entertainment. Latin America will account for nearly 20 per cent of global mobile VAS revenues in 2014, up from 13 per cent in 2009.

In Europe, mobile media and entertainment revenues were estimated to be over $3.5 billion as of 2009 and account for less than 5 per cent of mobile revenues in 2010.

Key trends
Mobile technology market watchers are always on the lookout for the next killer application, and, according to ABI Research, mobile financial services have the potential to overtake mobile TV and premium mobile content in terms of subscriber numbers.

Mobile financial services are of three kinds: mobile banking, mobile domestic person-to-person payments, and international person-to-person payments.

While mobile banking services are likely to find their biggest market in the industrialised world, mobile domestic and international person-to-person payments may be game-changing developments in less prosperous regions, enabling commerce, extending services to rural regions, and possibly even helping people previously excluded from the financial system to improve their economic condition.

Mobile banking has witnessed rapid growth in the Asia-Pacific region, which accounted for a major chunk of the world's 52.2 million mobile banking subscribers in 2009. The number of subscribers more than doubled globally between 2008 and 2009, and is expected to almost double again in 2010. This growth can be seen everywhere, but Asia, led by India, is pushing it particularly hard.

The growth of this market in Europe and North America has been somewhat limited so far because, in contrast to banks elsewhere, the financial institutions in these areas have been offering mobile banking primarily to existing users of their online banking services. Wide access to computers and easy access to bank branches have reduced consumers' need to adopt the mobile banking model. However, Wells Fargo bank in the US has recently launched text-based mobile banking services, which greatly expands the number of mobile devices that can access such services. Developments like this are likely to lead to a new wave of mobile banking growth outside Asia.

Interactive voice response (IVR) is also playing an important role in driving the growth of the mobile VAS market in AsiaPacific. IVR portals are already well established in most countries including India, China, Pakistan and Bangladesh, and are being used by mobile operators to offer, market and promote mobile VAS. Indian companies such as Comviva and IMI Mobile have also been successful in exporting their IVR and other mobile VAS solutions and business models to other emerging markets in Africa, the Middle East and Latin America.

Business models
Meanwhile, the traditional mobile model which has seen operators sell services to end-users with little or no involvement from other stakeholders in the value chain (such as content developers), is going to evolve over the next few years.Operators will need to collaborate with handset vendors like Nokia and music streaming services like Spotify (to provide mobile music).

This becomes particularly relevant given that telecom and web convergence are well-developed concepts and the cloud is becoming increasingly important to the success of any player in the mobile space.The threat to telecom operators is no longer only from their counterparts; it has expanded to include internet-based companies (such as Google) and other parts of the telecom value chain focused on winning a share in the services arena.

While operators have a distinct advantage of owning networks, opening up these networks will not only enable direct service provision to consumers but also act as an enabling platform for an unlimited tail of other applications that can leverage the capabilities of mobile networks. Moreover, by offering network assets to developers and effectively outsourcing service creation and development, operators can reduce the cost and risks attached to service development and improve their time-to-market.

Finally, by developing an open, nextgeneration service delivery platform, an operator will be able to attract new customers as well. This is especially true where strong brands from the world of internet can be embraced as partners and used to attract customers to their networks. For instance, in Sweden, TeliaSonera, the incumbent mobile operator, has partnered with Spotify to deliver enhanced music services, with the primary goal being to drive acquisition and retention in a competitive climate. Similarly, Verizon Wireless has joined forces with Skype to create a global mobile calling community. Even in the case of mobile music, Hutchison 3 has tied up with Spotify.

Pricing strategies
As a result of the explosion in data usage triggered by the introduction of flat rate charging policies and the availability of the iPhone 3GS and a wave of smart devices, over the past two to three years, some operators have been caught short by the sheer scale of uptake. They have become victims of their own marketing push offering "unlimited" data usage for relatively low subscription charges. For instance, AT&T failed to deliver a sufficiently robust network to cope with the iPhone's uptake.Similarly, in the UK, operator O2 is setting up an additional 1,500 cell sites to address its iPhone-induced network issues.

Mostly due to the flat billing rate for data, the explosion in data traffic has not led to sufficient, corresponding revenue generation to cover the cost of service provision. As a result, it has become increasingly evident that the flat rate data subscription model has had its time in the sun and is now on its way out.

Operators the world over are now considering the tiered pricing strategy that will see them charge users a premium for guarantees of faster network speeds or greater data allowances. Some proposed solutions are based simply on usage limits and speed while others are more sophisticated and relate to a combination of factors such as usage patterns, particular applications and the time of day. So an operator might de-prioritise P2P traffic coming from one subscriber in favour of any service for VIP subscribers who are paying a premium for their status. The operators' control over the network gives them a distinct advantage as only they are in a position to guarantee end-to-end quality of service for anything being consumed over their network.

Another related model that has come up on the industry's radar envisages operators charging originators of traffic for delivery. While subscribers are paying for access, the organisations that provide the content to subscribers are incurring no cost for its delivery. Recently, both Telefónica and Vodafone have suggested that companies like Google ought to be charged a fee to this effect, either on a wholesale model or as revenue share.

Even as operators are developing solutions to address issues like the lack of network performance, given the exponentially growing data traffic and pricing strategies, the mobile VAS industry is clearly on a rapid growth trajectory.While sufficient uptake of mobile data services has been a long time coming, it is now clearly here to stay.


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