The Mobile Data Revolution

– Overview of trends and

impact on mobile operators

Ziv Baum

zbaum@cmu.edu

Executive Summary

The data revolution is already here

� Better devices

� Appropriate data plans

� Better user experience

iPhone was the break through

� Got people to really “eat all they can”

� Created new set of problem for operators

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Data is the new golden egg for all the players

� The open-mobile initiative is after the operators’ control

� Operators should consider new scheme for controlling the end-user

Building an operator platform is the best solution

� Give 3rd parties access to network assets

� Participate in revenue stream and maintain some control

Agenda

Overview of current trends

� The smartphone space

� iPhone saves the day

� Open mobile

� Wireless CE

Opportunities and risks

� The problems operators are facing

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� Opportunities and risks for mobile operators

Recommendations

� Analyzing the strategic choices available for operators

� Recommendations

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OVERVIEW OF CURRENT TRENDS

Smartphones – the Holy Grail of the Mobile Industry

Smartphones enable…

� OEMs to sell high priced product

� Dedicated, pure-play smartphone vendors

have become super-profitable. RIM, HTC

and Apple are all registering larger profit

margins than Nokia.

� Operators to attract high ARPU subs

� iPhone data ARPU: 35$/Month – X4 the

average data ARPU in the US

� And content providers to provide better

Global Smartphone Shipments and % of

Total Mobile-Device Shipments

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� And content providers to provide better content

� Larger, browser-friendly displays

� Messaging-friendly keyboards

� Expandable software

Global smartphone shipments will grow 3 times faster than the total industry average in 2008… and still 2 times faster by 2015

� More brands

� Lower ASP

Global Operating Margin for Handset

Division in 2007

* Data from Strategy Analytics / Sep 2008

The Power of the Smartphone wasn’t Unleashed Until the iPhone Appears

The chicken or the egg?

Implications of the iPhone revolution:

� Smartphone prices are going down

� iPhone 3G (8G) - $199, iPhone

EDGE - $499

� Unlimited data plans are more affordable

� iPhone 3G – 30$ unlimited data

� Intuitive UI and simplified user experience

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experience

� OEMs are finding “over-the-top” ways to end-users

� OVI, MobileMe, Google Maps

� Open Mobile, aka Mobile 2.0, is the new buzz word

� Not social networks but rather

open access

� The next holly grail is around the corner – monetizing the mobile applications – mobile ads and LBS

* Data from M:Mobile

The Next Big Leap – Open Mobile Ecosystem (1/2)

Application and content

Platforms Networks User Devices

Unmanaged “Over the

Top” services from online

players

Aggregation platforms where

developers and content

owners can directly reach

consumers

Networks allowing

external applications

and devices access to

core network functions

Devices with open

architecture upon which

developers can write tightly

integrated apps

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� Operator response to consumer and competitive pressures

� “All you can eat” data plans

� Consumer demand the same internet experience they get on their PC

� Operators are opening networks to external devices and application

� Open ecosystems facilitated by device development

� Better device capabilities

� OEMs want part of the pie

The Next Big Leap – Open Mobile Ecosystem (2/2)

� Increasing availability of

unmanaged applications

� Gmail, Google Mobile Maps,

Skype….

� Multiple device/network

agnostic platforms

� Android, Yahoo! Mobile SDK

Application Developers

Create a single application using Yahoo!

Mobile Developer Platform and SDK

Client side software to

Architecture of Yahoo! ‘Mobile Developer

Platform’

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� Android, Yahoo! Mobile SDK

� Hardware manufacturers will

want a piece of this pie as well

Client side software to

help access these

applications on

multiple handset types

Applications

are

viewed as

Mobile

Widgets

Wireless CE – The New Segment

How interested would you be in having one of these products connected to the internet?

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� New opportunities for operators to utilize their pricey 3G networks

� New revenue stream, possibly advertising based

� Most obvious candidates are Laptops and Navigation Devices

� But other will follow – mobile TV, Kindle..

� New class of products – Mobile Internet Devices will supply operators with even more opportunities

* Data from Compete.com

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OPPORTUNITIES AND RISKS

The Walled Garden is Open – Operators Need a New Plan

ARPU from voice is declining

� Verizon Wireless’ voice ARPU dropped by 11% from the end of 2004 to the end of 2006

Data is the new source of ARPU

� In order to promote more data consumption, some of the wireless industry paradigms should be examined

Worldwide Mobile Voice and Data Revenue,

2002-2011

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The biased model the operator enjoyed is out-dated and will disappear

� Customers demand it

� Other players push for it

� Operators need it as well

� 700Mhz auction put the last seal on it

Mobile advertising is at the doors

� This is the time to find new ways to control the user in order to better benefit from mobile ads

* Data from Strategy Analytics / Wireless Media Strategies

Worldwide Mobile Advertising Spending,

2002-2011

Opportunities and Risks for Mobile Operators

Opportunities

� Set up MobileMe & Appstore

equivalents to get control back in

services

� Provide APIs for third parties to

hook into wireless networks to

leverage customer relationships,

billing, services

Risks� Being left as the dreaded “dumb-

pipe”

� Industry growth is 6% and

saturating.

� Voice revenue growth is at 7%

� Growth stagnation in costumers

joining and voice revenue will

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billing, services

� Play greater role in helping users

find relevant third party services

and content (both mass market

and long tail)

� Promote new business models to

benefit from new class of

wirelessly connected CE

joining and voice revenue will

drive consolidation – be a big fish,

or be eaten

� Loss of costumer confidence

� Cannot support 3rd party

applications

� VOIP and video services consume

huge chunks of bandwidth

� The investment in the network and

in the upgrade needs to be covered

* Data from Strategy Analytics, Limbo

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RECOMMENDATIONS

Analyzing the Strategic Choices Available for Operators

Open

Network

Access

Free access to all applications. Operator is not an active participant in value chain

No operator control –3rd party controls the platform

Open access to thenetwork – ISP model

All external devices are allowed on the network

Application

and content

Platform Network User Devices

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Differentiated

Network

access

Owning the

Platform

Operator is involved in delivering some applications

3rd party aggregation platforms – operator may be involved

Prioritized access

Subscribers to premium plans get subsidies on handsets

3rd party applications + operator content and applications

Operator offers a platform withopen APIs, adevelopment toolkitand hosting and billingfunctions

Higher level of prioritized access –application/servicetype

Only authorized handsets on the network

* Data from TME

Owning the platform offers the most for operators

� Embrace and extend:

� Get 3rd parties to extend the application offering on the network

� Use data assets to participate in revenue sharing

� Use core network assets (voice, messaging) to participate in revenue sharing

� Applications are granted prioritized access to the network and at the same time are

adherent to the fair use rules

Recommendations

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adherent to the fair use rules

� Operators can supply applications with billing and hosting services

Operators should focus on owning the platform rather

than owning the network, the content and the devices

The result: revenue uplift in addition to retaining

significant control over the end-user

Questions + Answers

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Thank You

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