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    • K. Stordahl e al, International Telecommunication Society, 16th European Regional Conference, September 4-6, 2005, 1 Porto, Portugal LONG-TERM FORECASTS FOR THE MOBILE MARKET IN WESTERN EUROPE Kjell Stordahl*), Irena Grgic Gjerde, Rima Venturin *) Telenor Nordic Snarøyvn 30, N-1331 Fornebu, Norway. kjell.stordahl@telenor.com Keywords: New technologies, new devices, rollouts, diffusion models, market share forecasts Abstract The global mobile market is still foreseen to grow due to the potential of new markets, fixed-to-mobile substitution, and emerging technologies like EDGE, 3G – WCDMA, CDMA. The focal market is the mobile market in Western Europe, and the development of the number of users/subscriptions related to different access technologies is forecasted. The mobile market is rather complex and dynamic due to several reasons – various technologies implemented in the network infrastructure, strong regulation, migrations towards 3G and 4G, new roles and actors playing in the market, hard competition between the actors, a lot of new services offered to the users. The paper shows how forecasting models based on diffusion models are used to make long-term forecasts for GSM, GPRS, EDGE and WCDMA for the West European market. The migration effects between existing and emerging technologies are important parts of the models. 1 Introduction economic and strategic issues, for example In recent years, the global mobile market has designing business models, planning a strategy seen unprecedented growth in its subscriber or running a techno-economic analysis. base. Globally, the mobile subscribers overtook fixed-line subscribers in 2002 and This paper presents forecasts for the mobile now stand at around 1.5 billion. This growth is markets in Western Europe, and in particular expected to continue in the future due to the the development of the number of users and new emerging mobile technologies and number of handsets in use related to different services in mature markets, and the potential of access technologies. In addition, the the emerging markets. The mobile market is development of the mobile subscriptions per also rather complex and dynamic due to technology is described as well. When arguing several reasons – various technologies for the trends in the forecasts of the market implemented in the network infrastructure, development, different issues were taken into strong regulation, migrations towards 3G, new account – technologies available in both core roles and actors playing in the market, hard and access portions of the network, services competition between the actors, a myriad of foreseen to be offered and their expected services they offer to the users, who are usage, terminals capabilities and their requiring more and becoming steadily more evolution, and the natural development of the aware of technological advances that can society – population, consumers buying power improve their everyday life. Predicting the and average spending on the telecom and evolution of such market with respect to the content industries, etc. In addition, the 3G- number of subscribers, the way they will use rollout plans for different operators playing in the services, the amount of money they will the West European market were studied and spend on (tele)com services in the future, their considered in forecast data. choice of the technology and terminals development are some of the pivotal The results presented here were achieved in the ingredients for designing robust business CELTIC Eureka project – ECOSYS [1] by models and reacting effectively on the changes applying the forecasting models originally in the market. Forecasts on the above listed developed in the IST TONIC [6] and AC 364 topics are rather important when dealing with TERA [7] projects.
    • K. Stordahl e al, International Telecommunication Society, 16th European Regional Conference, September 4-6, 2005, 2 Porto, Portugal 2 Mobile technologies from OVUM, Jupiter, Forrester and Strategy The technologies considered in the planning Analytics. However, their forecasts have not phase included cellular (GSM, GPRS, EDGE been directly used, but ECOSYS has and WCDMA), nomadic (WiFi, WiMax,), developed its own forecasts based on the mobile broadcasting (DVB-H, DAB, DMB) collected data. and Personal Area Network (Bluetooth, Ultra- wideband, etc.) technologies. For operators 3 Forecasting models and assumptions who did not get a 3G license an interesting The presented forecasts are long-term (dealing aspect will be to take in use Orthogonal within time frame up to 2012) and developed Frequency Division Multiplexing, OFDM. taking a selection of technologies and services Various versions of the OFDM are under foreseen to be offered and their expected development. Some of the nearest technologies usage/consummation of these on the Western are FlashOFDM (IEEE 802.20) and WiMax European market, terminals development and (IEEE 802.16e). The rollouts are expected to other important factors into account. Usually, be after year 2006 [4]. The potential effect of long-term forecasts are based on rather long this evolution could be included in updated time series of historical data, which is not forecasting models. available for the mobile technologies. Sufficient historical data are available only on In this paper we focus on the cellular GSM and GPRS but not on the technologies technologies - from 2G/GSM, via 2.5G/GPRS recently introduced. and 2.75G/EDGE, towards 3G/UMTS/ WCDMA. The other cellular technologies New and advanced mobile data services were not studied either due to insignificant require numerous functionalities to be included market presence (High-Speed Circuit-Switched into handsets. Their usage depends on the Data, HSCSD) or insufficient data on status capabilities of handsets. These reasons imply and roll put (High Speed Downlink/Uplink that the evolution of the handsets is an Packet Access, HSDPA/HSUPA). 4G will important factor to be considered when probably not be on the market before predicting the success of future mobile 2010-2011 and is therefore not in the scope of services. Similar to services, handsets can also this work. be classified based on different criteria – by functionality, by the access technology they The presence of different technologies differs support, etc. We focused on the functionalities from country to country. But, though the and the supported access technology, and picture of each particular market may reveal identified four main groups of handsets – some peculiarities, and the picture would differ GSM, GPRS, EDGE, WCDMA. Note however for the large country market (e.g. France, that the subscribers who own these handsets Germany) and for the small country market may not necessarily be using all the (like Scandinavian countries), we made technologies embedded in them. Therefore, it forecasts from an overall view based on a is not straightforward to devise a clear picture homogeneous picture that reflects the Western of the actual subscriber numbers for each European market as a total. The services access technology. The functionality these four considered as attractive to the market are based handsets’ groups assume along with the on the 3GPP’s services [5]. These are drivers popular names for the handsets are given in for demand for new system generations and Table 1. potentially for additional revenue. Table 1 Handset classification as considered Furthermore, we present here forecasts for in the ECOSYS handsets and subscriptions with respect to new technologies. Although forecasts on different Access Functionalities Voice Convergence market segments like: Consumers, SME and Technologies Phone WAP Phone Feature phone Speaker phone, Smart phone OS-based, Touch Phone Corporate important. Mobile market WAP browser, MMS, Camera, Java, MP3, Email screen, QWERTY Keyboard, Video information has been gathered from a lot of Voice & Polyphonic ringtones, client, IM Client, M-Wallet, PTT, player, Memory card, video PDA, WLAN interface, SMS Color, Presence, PIM conferencing DVB-H different sources. Project partners in the 2G/GSM x CELTIC project ECOSYS have collected up- 2.5G/GPRS 2.75G/EDGE x x X X x x x x x x to-date data of the mobile evolution. Other 3G/WCDMA x X x x x important sources have been consultant reports Also additional considerations were taken into
    • K. Stordahl e al, International Telecommunication Society, 16th European Regional Conference, September 4-6, 2005, 3 Porto, Portugal account when arguing trends in forecasts, and 4 Forecasting results in particular ARPU development (the The results of applying the forecasting combination of the mobile forecasts and the methodology on the market data and given the ARPU gives the revenue), the perspectives of other input info described above are presented fixed-to-mobile substitution, and also in this Chapter. EDGE/UMTS roll-out plans of different operators in Western Europe. Mobile forecasts – handset penetration The forecasting methodology used to make The handset mobile penetration, which is very predictions was originally developed in the IST close to the subscriber penetration, as shown in TONIC project [6] and ACTS TERA [7], Figure 1 for the period 1997 – 2003, and in where it was used to make different forecasts Figure 2 for the complete forecasting period for fixed and mobile market, [3], [8], [9]. It 1997-2012. directs first on developing a forecasting model Mobile handset penetration 1997 - 2003 for the total number of mobile handsets in use. 80 % We assumed that the number of handset in use 70 % is very close to number of subscribers, since it 60 % Penetration (%) is observed that a rather limited number of 50 % subscribers have two handsets. Consequently, 40 % the technology forecasts based on the handsets 30 % 20 % are very close to the mobile subscriber 10 % forecasts. However, the concept subscriber 0% related to a technology/handset is not precise 1997 1998 1999 2000 2001 2002 2003 when he has more than one handset. On the Figure 1 Mobile handset penetration in Western other hand, many subscribers have more than Europe 1997 – 2003 one subscription. It may be a combination of post and prepaid subscriptions, and the Since GSM was introduced in Europe and subscriber may very well have one handset but common standards and roaming were in place, different SIM cards (different subscriptions). it has witnessed a remarkable increase in Some of the subscribers also have an active number of mobile subscribers. The Nordic subscription and in addition a subscription countries had a significant demand even before which mainly is not in use. The model does not 1997, because of early deployment of the differentiate between the customers’ segments Nordic Mobile Telephone System (NMT) in (i.e. who is paying for the subscription), or the start of the 80’s. However, the West usage of services, or ARPU, but only the European market got a significant push after terminal capabilities. Predictions of the GSM was introduced in 1992. evolution of market share between different Total mobile handset penetration forecasts mobile technologies are developed based on a 100 % set of Logistic forecasting models. 90 % 80 % The extended four parameters Logistic model Penetration (%) 70 % is given by: 60 % 50 % 40 % Yt = M / ( 1 + exp (α + βt)) γ 30 % 20 % 10 % where Yt is the demand forecast at time t, M is 0% the saturation level and α, β, γ are growth 1997 1999 2001 2003 2005 2007 2009 2011 parameters. Figure 2 Mobile handset penetration forecasts for Migrations between technologies GSM, GPRS, Western Europe EDGE and WCDMA are handled. Finally, the mobile penetration forecasts for the After the prepaid cards were introduced technologies are found by multiplying the total the penetration increased even more. The forecasts with the market share forecasts for penetration shown in Figure 2 considers all the technologies. customers without differentiating between business and consumer market segments. The shape of the mobile subscriber evolution follows an S-shaped curve,
    • K. Stordahl e al, International Telecommunication Society, 16th European Regional Conference, September 4-6, 2005, 4 Porto, Portugal pointing thus diffusion models as the right a starting point. Figure 3 shows the evolution alternative for modeling the forecasts. A of plain GSM penetration in Western Europe. four parameters Logistic model has been The figure shows that the number of users of used. The long-term saturation is set to plain GSM has started to fall, e.g. comparing 93%. The question is of course at what to 2002 and 2003 results. In the modeling time young children will get their own approach, it is more interesting to investigate mobile handset, and how many persons the market share evolution where we study the will never have a mobile handset. relative share that a certain technology has on One could naturally argue that the saturation the market. The market share for GSM is level can be either lower (on the mean Western reduced from nearly 100% in 2001 to about Europe basis) or higher. For example, the 55% in 2002. The GPRS catches now saturation level could be lower if the starting significant market share from GSM. The age of having a mobile handset moves to 8-10 question is how long the GSM handsets will be years. We can point it out on a Norwegian in the market. In addition, the EDGE system is case. In 1999 8-years old children were not now introduced in many West European included in statistics since only few of them countries, while it is expected that also the had a mobile, but in 2004 every fourth 8-year WCDMA will be introduced in many of the old child in Oslo had a mobile handset. In countries by the end of 2004. Therefore, plain addition, as much as 90% of all 12-years old GSM will during the next years lose its market and 100% of youngsters age 16-21 years have share significantly. One important factor is the mobile nowadays, contribute to the lifetime of the handsets, which is currently expectations of 93% saturation level for the about three years, but is expected to decrease Western Europe on average. Another argument further. When a customer needs a new handset, in support the saturation level to be higher than there will be a rather high probability that the 93% is that the youngsters who are already customer chooses a handset with the new or accustomed to the mobile usage and handsets newest technology if the subscription charge will in 10 years be in the working segment of remains the same, i.e. as for the old technology population with their own income, and the (e.g. GSM to UMTS handset upgrade). people now being older than 70-75 years who Therefore handset vendors roll out plans are are having mobile handsets will be in the group also important to study. of very old people. In addition, the question is Based on the historical evolution and for how long time will the last skeptics neglect knowledge, a Logistic four parameters model mobile technology given for instance new is applied to model the forecasts for the sum of services and values that the mobile can bring to GPRS+EDGE+WCDMA. The plain GSM them (e.g. eBank, eLearning, eWallet). forecasts are found by taking the difference The next step is to make market share between 100% and the accumulated predictions for each technology: Plain GSM, penetration for the new technologies. The GPRS, EDGE and WCDMA. As already forecasts are shown in Figure 4. pointed out, historical data are rather important for making forecasts, and we use them here as Market share forecasts for GPRS+EDGE+WCDMA, and GSM handsets GSM handset penetration 1997-2003 120 % 70 % 100 % Market share (%) 60 % 80 % 50 % GPRS+EDGE+WCDMA Penetration (%) 60 % GSM 40 % 40 % 30 % 20 % 20 % 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 10 % 0% 1997 1998 1999 2000 2001 2002 2003 Figure 4 Market share forecasts for GSM handset and the sum of GPRS, EDGE and WCDMA Figure 3 GSM handset penetration in Western handset for Western Europe Europe 1997 - 2003 The market share for plain GSM is foreseen to decrease significantly in the coming years.
    • K. Stordahl e al, International Telecommunication Society, 16th European Regional Conference, September 4-6, 2005, 5 Porto, Portugal Different countries will phase out the system in Figure 5 Market share handset forecasts for different time. Therefore, it is difficult to WCDMA, GPRS+EDGE, predict at what time the system will be GPRS+EDGE+WCDMA for Western Europe eliminated from the West European market. The figure shows that GPRS and EDGE are But, current development points out that after loosing their position to WCDMA in the long 2007, there are reasons to believe that number run. WCDMA is predicted to have about the of plain GSM subscribers will be very limited same market share as GPRS+EDGE at the end (less than 2%). As pointed out, one important of 2009. Here, the proportion of the GPRS and reason is the short lifetime of the handsets. EDGE includes the uncertainty regarding the lack of historical information and the exact The most important mobile system the coming facts on the strategic decisions operators will years is WCDMA or UMTS. After a slow start, make. In case many decide to go for the EDGE caused by high license fees in many European as the natural step towards the UMTS, the countries, lack of handsets with adequate EDGE share could be somewhat stronger than capabilities, WCDMA is now deployed in what is shown in current forecasts. almost all of the West European countries. An overview of the status and the roll-out When discussing the proportion of the market plans for the EDGE and WCDMA for a presence between the EDGE and GPRS, it is selection of West European countries per useful to recall that both of them are the 4Q2004 is published in [2] and reveals rather members of the GSM family – 2.5G and aggressive roll out plans for the WE operators. 2.75G, respectively. EDGE is using the same platform as GPRS, but offers higher capacity The WCDMA system is superior to the and supports customers’ demands for services preceding mobile systems due to additional that need higher bandwidth and QoS. The functionality and capacity. The investments in EDGE system is more effective than GPRS the 3G (licenses and systems) were rather high, and the investments in upgrade are not very and the operators want to get a significant high. Some European countries have been return on their investment as fast as possible. A installed or are installing EDGE as a natural set of different factors as the market, the step to the pure 3G, e.g. in Norway it is functionality, new and enhanced services, commercially available since 3Q2004. The content possibilities, the tariffs, and question is how fast the system will be competition between the other mobile systems implemented in the other West European will influence the future penetration. New countries. Handsets with EDGE and GPRS business models like flat rate tariffs for data or functionality are already available at the even for voiced (like introduced by Vodaphone market, but due to the stronger capabilities of in Germany) can accelerate WCDMA slow the EDGE system one can expect that the take off. GPRS handsets will be phased out after some years. We used a four parameters Logistic model forecast the future market share for WCDMA. Figure 6 shows how the proportion of EDGE The market share forecasts for WCDMA, handset increase compared with the EDGE and GPRS+EDGE, GPRS+EDGE+WCDMA are GPRS total (GPRS+EDGE). It defines the shown in Figure 5. market share evolution for GPRS and EDGE. Market share of GPRS+EDGE+WCDMA, GPRS+EDGE EDGE proportion of EDGE +GPRS and WCDMA 120 % 120 % GPRS+EDGE+WCDMA GPRS+EDGE 100 % 100 % WCDMA Market share (%) Proportion (%) 80 % 80 % 60 % 60 % 40 % 40 % 20 % 20 % 0% 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
    • K. Stordahl e al, International Telecommunication Society, 16th European Regional Conference, September 4-6, 2005, 6 Porto, Portugal Figure 6 Forecasts of EDGE handset proportion compared with EDGE seems to reduce the of EDGE + GPRS handsets maximum penetration of EDGE. An overview of the market share forecasts for all four technological solutions, i.e. GSM, Subscription forecasts GPRS, EDGE and WCDMA is shown in A rather simple forecast model has been Figure 7. developed for the mobile subscription Mobile technology market share evolution forecasts. It is assumed that the long–term 120 % GSM saturation is 115% for the subscriptions. The 100 % GPRS EDGE saturation level was 93% for the subscribers. It WCDMA is assumed that number of additional subscriptions is proportional with the Market share (%) 80 % 60 % penetration of each technology. 40 % Three subscription classes were considered – 20 % GSM, GPRS+EDGE (these are quite similar and using the same network platform. 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Therefore, it is expected that these technologies will constitute a common Figure 7 Market share forecasts for GSM, GPRS, subscription class), WCDMA. The resulting EDGE and WCDMA handsets for Western penetration development is shown in Figure 9, Europe where we see that the subscription penetration The figure shows that GSM is loosing market reaches nearly 110% in 2012. Since the share significantly in the coming years. GPRS subscription penetration is evolving reaches its maximum level at the end of 2006. continuously in the period 2001–2012, the The WCDMA technology is predicted to be WCDMA subscription penetration is expected the dominating technology in Western Europe to reach the peak level of GPRS+EDGE in from the end of 2008. 2012/2013. Mobile subscription penetration forecasts As a result of the market share forecasts and 120 % GSM the total mobile handsets forecasts, the 100 % GPRS+EDGE WCDMA penetration forecasts for each technology are Sum 80 % found by multiplying the mobile handset Penetration forecasts with each market share forecasts. The 60 % handset technology penetration forecasts are 40 % shown in Figure 8. 20 % Evolution of technology generations 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 70 % GSM 60 % GPRS EDGE Figure 9 Mobile subscription forecasts for GSM, 50 % GPRS, EDGE and WCDMA for Western Europe Penetration (%) WCDMA 40 % 30 % 5 Summary 20 % 10 % Long-term mobile forecasts presented in the 0% paper have been developed for the Western 1997 1999 2001 2003 2005 2007 2009 2011 Europe as a whole. The forecasts are made for handsets and for subscriptions and segmented Figure 8 Handset (technology) penetration in Plain GSM, GPRS, EDGE and forecasts for GSM, GPRS, EDGE and WDCMA WCDMA(UMTS) technologies. While for Western Europe historical data for GSM are available, only The figure reflects the penetration forecasts for limited demand data exist for the new all of the considered technologies. GPRS will technologies - GPRS, EDGE and WCDMA. A in a year or two reach the same penetration reason for that is simple – these technologies level as GSM had in 2001, and it is interesting were no present in the market long enough - to note that “early” introduction of WCDMA GPRS has been on the market for about two years, while the EDGE and WCDMA are
    • K. Stordahl e al, International Telecommunication Society, 16th European Regional Conference, September 4-6, 2005, 7 Porto, Portugal being introduced now. Important elements in assume that fixed and mobile networks support the forecasting input are techno-economic the traffic coming from either fixed or mobile evaluations of the technologies, roll out plans terminals, and the services are provided to the operators, handset technologies and independently of the underlying network handset lifetime. Additional uncertainty brings infrastructure, but depending on the context the variation in EDGE and WCDMA roll out (location, terminal capabilities, personal plans in the different West European countries. preferences, etc.). In such case the WLAN The long-term forecasts show that GSM needs to be considered along with the cellular handsets penetration will be quite low in 2007. technologies, which is not the case for the The GPRS technology is taking over followed forecasts presented in the following. by EDGE, which is using the same platform. The WCDMA technology enters the market Acknowledgment based on significant roll out and launching in The material presented here is based on the 2004. The handset (in use) penetration as a work done in the CELTIC project ECOSYS, in mean for Western Europe is about 70% in the activity related to the forecasts for both 2002 and is expected to reach 90% in 2010. fixed and mobile markets. Although the material presented in this paper is solely the responsibility of the listed authors, discussions 6 Further work with other project participants are recognised. The West European long-term forecasts show The contributions from K. R. Renjish Kumar the future evolution of the new mobile and Timo Smura from the Helsinki University technologies EDGE and WCDMA. The results of Technology, and Jarmo Harno and Ilari are used as input to techno-economic Welling from Nokia Research Center, are evaluation of mobile business cases and roll appreciated in particular. out strategies. New forecasts, limited to specific country groups or countries, will be References developed as input to the different techno- [1] ECOSYS project site. URL: www.celtic- economic analysis. These forecasts will reduce ecosys.org. the uncertainty to some extent, because the [2] ECOSYS Deliverable 2, “Overview of the possibility to include more precise information demand forecasts for the fixed and mobile like roll out plans and other type country networks and services in Europe”, October specific information. 2004. [3] IST TONIC, Deliverable 8, “Market Models for IP services”, 31. May 2002 So far High Speed Downlink/Uplink Packet [4] ECOSYS Deliverable Deliverable 9 “Report on Access systems, HSDPA and HSUPA and 4G emerging mobile network technologies and are not included in the forecasts, neither economics”. June 2005 OFDM technologies like WiMax or Flarion [5] 3GPP TS 22.105 v6.2.0 “Services and service FlashOFDM. It will be relevant to expend to capabilities (Release 6)” forecasting models taking into account the [6] The TONIC Project site. URL: http://www- impact of these new technologies. nrc.nokia.com/tonic/ [7] The TERA Project site. URL: 4G as a term is still under big discussion and http://www.telenor.no/fou/prosjekter/tera/index therefore such new technology will probably .htm [8] Katsianis D, M Ylönen, D Varoutas, T not be on the market before 2010-2011. Sphicopoulos, N K Elnegaard, B T Olsen, L Therefore it was not in the scope of this work Budry, “The financial perspective of the so far. mobile networks in Europe”, IEEE Personal Communications Magazine, Vol. 8, No. 6, pp The issues of WLAN hot spots, and the 58-64, Dec 2001. strategic questions whether the mobile or fixed [9] IST TONIC, Deliverable 2, “Demand models network operators will go for such solution is and preliminary forecasts for IP services”, June highly dependent on many factors, incl. the 2001 focal market, company organisation and vision, competition picture, etc. In the ECOSYS project, we have plans to investigate the so-called convergence case, where we