Towards
a Convergent Future
Boring telecoms
Telecommunications used to be a dull industry, a boring
business where engineers tinkered with radio waves,
soldering irons and wires all day. It was not a very
dynamic, exciting business full of trendy young people
playing with 'cool' technology and 'awesome' new value
added consumer services, like multi-player interactive
online gaming, music downloads, animated screen savers,
personalised information services and digital cameras.
What a different industry the telecoms business is now
and what a different world we live in today.
The Internet, possibly the most significant single
technological invention in the world since the automobile,
has only just begun to realise its full potential to
change the way almost every person on the planet lives
and works. The Internet has changed the way we live,
shop, communicate, work and socialise in ways never
before imagined. The Internet has changed the way business's
communicate, coordinate and integrate and this has had
an impact on everything around us, the goods we purchase
in shops, the clothes we wear and the food we eat. Email
has become the world's favourite form of communication
and spam has become our favourite form of annoyance,
and running up high credit card bills has never been
easier! And now, as we move towards ubiquitous broadband,
things are just set to move up a gear and soon the world
will start to see what the Internet can really do.
But before we get too carried away with the future
of broadband, let's take a quick look at what else has
been changing in telecommunications and consumer electronics
in recent years.
Gadgets galore!
The 21st century is awash with electronics and computer
technology in jaw-dropping quantities, quite unlike
anything we could have imagined just 20 or 30 years
ago. Since Apple and Microsoft revolutionised personal
computing power for us all to enjoy, across Europe,
North America and parts of Asia it is now common to
find several computers in most homes, not just one.
The boom in semiconductor technology and the rising
popularity of electronic devices has seen tumbling prices
in consumer electronics year after year, and as technology
gets smaller and semiconductor production gets cheaper,
computers are permeating every area of our lives.
Plasma screen TV, DVD players, games consoles, media
centre PC's controlling our TVs, webcams, home cinema
systems, Wi-Fi networks, multi-screen TV, Internet chatrooms,
interactive TV, an internet enabled domestic refrigerator
(really, it's true), everything controlled wirelessly
by remote control, everything connected to a Bluetooth
hub, a PC controlling all your home systems then connecting
your home to the outside world through residential broadband
gateways - the level of technology in our homes now
is mind blowing, and the technology in our pockets even
more so - iPod, Bluetooth, digital camera, pocket games
consoles, smartphones and PDAs - technology that would
have filled a room 20 years ago, no bigger than a packet
of cigarettes today.
As computers find their way into everything so today's
younger generations are growing up with a sense of familiarity
with electronic devices like never before. Computers
in school, Internet cafe's, we have computers in our
cars now, satellite navigation systems, in car DVD entertainment,
cruise control, engine management systems, safety warning
for every imaginable thing, a voice telling you to put
your seat belt on, mobile phones and radio tracking
devices built into the dashboard - some cars have 4
or 5 onboard computers controlling different features,
and telematics is still in its infancy.
And within the industry we hear talk of the next generation
of consumer electronics heading our way...RFID tags
attached to everything on the planet; wearable technology
allowing our clothing to communicate with our Bluetooth
enabled devices and homes, while advertisements and
shop fronts can communicate with our clothing; mobile
comms devices built into sunglasses, shirt collars and
wrist watches - with so much ahead it seems the possibilities
are endless.
There is little doubt that the Internet is at the
very core of the consumer electronics boom, and accessing
the Internet wirelessly is clearly an essential extension
of that core technology. Everything connected, everything
online, invisibly updating itself and repairing itself
without us even knowing. It may sound like science fiction
but soon your car might be able to deliver self-administered
diagnostics back to your local dealer without your knowledge
and should a repair be required, or scheduled maintenance
be due, maybe the car will check your family diary online
and then automatically book itself in for maintenance
at a time most convenient to you all. What next, will
it learn to drive itself there using sat nav for guidance,
service itself in the middle of the night and return
home while you sleep? Sounds like science fiction, and
for now it probably is, but in principle most of that
technology already exists, so just look out for empty
cars driving themselves around town at three in the
morning...
Mobility - personal communications has never been
so personal.
No one can deny that the speed of the rise of mobile
has been breath-taking. From just a few million subscribers
in 1990, 15 years later over 2 billion people own and
use a mobile phone, 2005 will see worldwide mobile service
revenues well in excess of half a trillion US Dollars
and collectively subscribers worldwide will send slightly
over 1 trillion SMS messages. A $500 Bn US Dollar business
from nothing in 15 years, that's pretty impressive by
any standards, and the growth surges forward, subscriber
numbers look set to double over the next 5 or 6 years
and new services are trying to revolutionize the mobile
phone, to become a camera, music player, games console,
personal organizer, pocket computer, Internet connection
AND communications centre all in one device. But let's
not ignore the fact that so far, for most of those 15
years the mobile phone has been and continues to be,
principally, a telephone in your pocket.
People love to talk. People NEED to talk. It's how
we meet, how we do business, how we fall in love, learn
things, strike deals, have arguments, spread rumours,
tell jokes, arrange meetings and keep in touch with
our friends and families, talking is an essential human
activity that we love to engage in whether we are face
to face or separated by a physical distance. The new
found portability of the telephone has taken away almost
ALL the excuses we ever had for failing to talk to each
other. Now, you can never be out, you can never say
you weren't near the phone, you can never say you didn't
find a public phone box, now every one of us has our
phone with us at almost all times, and any caller dialling
your number knows it's you they will get, not someone
else in the house or office, but you. This level of
personal communications has never before been available,
and the younger generations growing up with mobility
as a part of their lives will probably look on the idea
of a "communal phone" in an office or family
home as a bizarre and somewhat pointless idea.
Despite the hype of 3G and the mobile Internet, basic
voice and text messaging seem hard to beat.
Mobile voice has yet to reach its full potential, and
SMS too, while other non-voice services are set to remain
niche applications for a long time to come.
Just 20 years ago, the first generation of mobile
and wireless technology was still being invented; even
10 years ago, it was just starting to emerge to the
attention of the mass market, with only 50-60 million
mobile subscribers worldwide in early 1995. In the last
10 years this industry has grown from 60 million subscribers
to approximately 2 billion, in just a decade, and that
number should comfortably double again in the next decade
to 2015. By 2010, global penetration of mobile phones
should be in the region of 50%. This growth is staggering
by any measure and the industry as a whole has done
extremely well to maintain the momentum of this growth.
Still, in 2004/2005, mobile only accounts for approximately
25% of global telephone traffic, despite the fact that
there are now twice as many mobile phones on the planet
as fixed telephone lines, and still almost 50% of the
worlds population have no access to a telephone (of
their own) at all.
As of June 2005, approximately 27% of the world’s
population had a mobile phone, and of those 1.8 billion
people, it is likely that many of those same people
are the owners of the vast majority of the world’s
fixed-line telephones too. As mobile penetration pushes
from 25% to 50% globally over the next 5 or 6 years,
and with increasing fixed-mobile substitution, the growth
potential for basic mobile services such as voice and
SMS are still awe-inspiring, and the next 20 years should
continue to see constant growth in this area. Mobile
network operators and the investment community should
take note; this can all be achieved with little further
investment in new technologies or new networks, just
deliver the basic voice and text services that are already
popular and profitable to ever more people at ever cheaper
prices, and there is no reason why the global mobile
market will not double, in terms of traffic volumes,
over the next 5 years.
In 2003, global output rose by 3.7%, led by China
(9.1%), India (7.6%), and Russia (7.3%). This growth
continued in 2004 as these big countries with big populations
continued this strong economic growth. As is true in
many other sectors, the mobile business is gaining from
this economic growth and subscriber numbers grow unabated
across this central bulk of the Asian land-mass (from
Turkey across Pakistan, China, Russia, India and other
countries). Other emerging market opportunities offer
plenty of growth too, such as Latin America and Africa,
both regions experiencing strong growth in subscriber
numbers (particularly prepaid) and hence growth of revenues
from voice and SMS.
The Potential of Fixed-Mobile Substitution.
Huge opportunity still exists in mature markets such
as Western Europe and North America. The telephone was
invested back in the 19th Century, and telephony has
been an accepted part of life in the Western world for
more than 100 years now. By the middle of the 20th Century,
over half of Western European and North American households
had access to a telephone, and by the time mobiles were
invented, fixed line telephone services had reached
almost-100% penetration in all homes and business's
across these regions (Europe, North America), as we
are all aware. This means that every single person alive
today in these regions has grown up with the telephone,
and for every one of those people aged over 10 years
old, the telephone has long been seen as a fixed device
in a fixed location, to be used while stationary. The
only people in these markets who have grown up thinking
of the telephone as an entirely mobile device are children
presently aged [mostly] below the age of 10 years old.
While the mobile phone has achieved near-saturation
penetration levels in Western Europe, North America
and some South East Asian countries, this does NOT mean
there is no further growth opportunity in those markets,
and it also does NOT mean that the only future revenue
growth opportunities come from non-voice services.
The potential for fixed-mobile substitution is vast,
as the established cultural patterns of 100+ years of
human habit-forming behaviour face a shift to a new
mentality. As the children growing up today reach maturity
and become adults, the telephone as the principal communications
device will be accepted as an "anywhere-anytime"
personal possession, rather than today's prevalent,
ingrained view, that the telephone is an item of "fixtures
and fittings" in a home or office. This pattern
of adoption takes time, but it has been seen many times
throughout history.
Of course, fixed-mobile substitution is not a new
subject, and operators and others in the telecoms community
have been discussing this issue for some years, but
the potential seems to have been somehow side-lined
lately in the frenzy of 3G launches, HSDPA, Wi-Fi, WiMAX,
PTT, IMS and other new technologies and services. Presently,
in 2005, there are a total of over 700 million mobile
subscribers between Europe and North America, yet many
of these subscribers are still ‘light’ mobile
users, preferring to switch to a fixed line at home
or in the office when one is available. Network availability
and reliability are still an issue for many, and sound
quality can be a problem, but the main barrier to greater
fixed-mobile substitution is still price, especially
as these other issues are fast receding as operators
improve their networks and coverage.
Within the private individual’s home the vast
majority of householders across Europe and North America
still revert to their fixed line for most calls, especially
long-distance calls, calls to other mobiles and peak-time
calls, partly through the "habitual culture"
discussed above and partly through concerns with mobile
services, mostly price. Only when voice is much cheaper
will the mass population be happy to give up their fixed
line phone altogether and switch exclusively to their
mobile phones for all voice calls. Re-educating millions
of people who have been using a telephone for 30 or
40 years takes time and incentive....if mobile remains
more expensive, there is little incentive to make that
switch, especially as the growth of mobile over the
last 10 years has driven down the cost of using a fixed-line
phone at home. Mobile to mobile calls, mobile calls
across competing networks, and international calls,
are still far too expensive, and this is the single
biggest factor holding back high, long-term growth in
voice traffic.
Vodafone announced its March 2005 year-end annual
results a few months ago, and in those results it confirmed
the launch of a new service called “Vodafone Simply”,
described as “a new, easy to use service for customers
who want to use voice and text services with minimum
complexity”. In the same press statement, Arun
Sarin, CEO of Vodafone Group, confirmed that the additional
capacity Vodafone has available to it through the use
of its 3G networks allows it to make inroads into winning
more basic market share from fixed (wireline) markets.
As this example shows, some of the biggest names in
the telecoms world are again looking hard at fixed-mobile
substitution, and with expensive 3G networks to fill,
there has never been a better time to push into those
segments of the market that remain ‘light’
users, the grey market and SME business markets being
obvious key examples.
As a caveat to the fixed-mobile substitution discussion,
operators must make sure that reducing voice tariffs
does not cannibalize SMS revenues. In some markets SMS
has gained popularity because voice tariffs are comparatively
expensive, so SMS use has grown as a cheap alternative.
However, in other markets voice tariffs are extremely
low, and in these cases SMS has not produced such results
for the MNOs in those markets, as the cost saving argument
is less compelling. MNOs must think their tariff structures
through carefully, offering voice tariffs that tempt
wireline local and long-distance traffic over to mobile
networks, whilst keeping SMS services priced at a level
that encourages subscribers to keep using SMS as a cheap
alternative to voice.
So if all that voice traffic migrates to mobile,
what does that mean for wireline carriers?
In a word, broadband. The future for wireline carriers
lies in broadband, and lots of it. Speculation about
broadcast services (television), broadband and wireline
networks converging is not new, this is a subject which
has been under discussion for years, but what's different
now is that it is actually starting to happen. Broadcasters
acquiring ISP's, broadcasters producing IPTV content,
testing TV over broadband in Europe, IPTV services gaining
users in Asia (Korea and China), higher speed broadband
services on offer, cable companies merging with ISP's,
HD television on the way in Europe, residential broadband
services now ramping up to 4MB and 8MB ADSL lines and
so it goes on. Clearly the previously ill-defined convergent
future is now almost upon us and it's time the majority
of wireline service providers start paying attention
and moving with this changing market, or they risk being
left behind. In terms of public image and perception,
mobile operators and ISP's have left the fixed line
providers far behind, leaving the wireline carriers
looking like decrepit great dinosaurs in an age of fast
paced sleek young technology start-ups run by 20-somethings
in sports cars, such is the dated image of many wireline
carriers.
We believe that it is high time these long established
players, wireline carriers and TV broadcasters, face
up to the changing reality of the future and start to
embrace new technologies with open arms, before they
get left behind. Denying the changes any longer would
be foolish, it's time to be a part of the future, not
a part of the past. We firmly believe the future for
ISP's, TV broadcasters and wireline carriers lies in
converging around broadband, creating multi-media corporations
who can supply fat pipes of mixed media and entertainment
to every home, huge reliable data pipes to businesses
and essential hosting and backbone carrier services
to the industry. We envisage a future where every home
is connected to a huge high speed (upstream as well
as downstream) data line supplying Internet connectivity
for all household devices, supplying digital TV and
radio, music and video downloads on demand and picture-perfect,
real-time video conferencing on any chosen TV screen
in the home.
While homes and offices take broadband to the next
level, the majority of voice traffic will gradually
migrate to mobile networks, stimulated by ever decreasing
prices and ever increasing quality. As the current youth
generation who have grown up with mobile devices in
their pockets become the parents and business leaders
of tomorrow, so the old notion of a fixed phone at the
centre of the family home will start to disappear and
more people will feel familiar with the principle of
calling the person they want to speak to, rather than
the home or building that person lives in. By mid 2005
still only 27% of the worlds population owned a mobile
phone, and we forecast that figure to double over the
next 5 or 6 years. Also, in 2005, still only 25% (approximately)
of the worlds voice traffic is carried on mobile networks.
As the mobile phone penetrates deeper into society and
as attitudes and prices change, mobile network operators
will witness immense growth in voice traffic, and in
SMS.
Of course some voice traffic will naturally be carried
as VoIP, and some technologies come along and plant
themselves right in the middle of everything, wire-line
and wire-less, causing everyone a headache. WiMAX threatens
to be just such a technology, offering all the benefits
of limited-range mobility but hooked to the fixed wireline
network for speed, bandwidth and reliability. How such
technologies will play out remains to be seen, few can
accurately forecast the future for such new and emerging
technologies with any certainty.
Keep it simple, stylish and desirable.
At the heart of all of this fast-paced technological
progress it is important to remember that all this new
technology is not our master, but our servant. Industry
has often fallen foul of hype, and particularly the
mobile industry, as new technologies are invented and
pushed out to consumers without any real value proposition
to the end user. Network operators, ISPs, device manufacturers
and consumer electronics vendors should all remember
that just because you 'can' doesn't mean you 'should',
and it equally doesn't mean that the consumers will
'want'. Endless surveys, studies and opinion polls have
shown over and again that in general, consumers are
more interested in quality, reliability, desirability
and customer service than in function and technological
wizardry.
When purchasing a new widescreen TV to form a focal
point in your family home, price and novelty functions
are rarely the most important criteria for selecting
the product. Image quality, looks, styling and reliability
are usually all more important than price and gimmicks.
Apple have proven time and again that style, design
and image command a premium price that other business's
envy, and the success of iPod in recent years has reaffirmed
this point once again. Similarly, the slow uptake of
3G in the mobile world, coupled with the fact that the
most popular services on 3G networks are still voice
and SMS, show that what consumers want are the simple,
useful services, not the gimmicks.
As we move into the convergent future, which may or
may not unfold into the possible scenario we have described
in the paragraphs above, those players guiding the media
and telecoms worlds together should concentrate on quality,
connectivity, compatibility, collaboration, simplicity,
style and reliability as the major keys to success,
and finally shake off your past as boring engineers
- among your customers no one cares what you can do,
they only care what you can do for them.
For more on SMS, see The
Success of SMS
For more on mobile messaging, see Mobile
Messaging Futures 2005-2010
Disclaimer:
Portio Research Limited.
Published 2006 by Portio Research Limited. © Copyright
2006.
www.portioresearch.com
info@portioresearch.com
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