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    The Next Billion. Portio Research Ltd 2008 The Next Billion. Portio Research Ltd 2008 Document Transcript

    • The Next Billion Portio Research Limited Published October 2007 by Portio Research Limited. © Copyright 2007. www.portioresearch.com info@portioresearch.com Disclaimer and Legal Notices Disclaimer Every care has been taken in the preparation of this study to ensure that the information contained herein is accurate, factual and correct to the best of our knowledge, at time of publishing. All opinions, suppositions, estimates and recommendations included in this document are solely the opinions of the authors unless otherwise stated. Portio Research Limited accepts no liability for any loss or damage or unforeseen consequential loss or damage arising from the use of the information contained within this document. The opinions, suppositions, estimates and recommendations within this document cannot be guaranteed, and readers use this information at their own risk. The information published in this document is subject to change without notice at any time, and Portio Research Limited accepts no liability or obligation to inform the reader of such changes. Portio Research Limited do not promote or endorse any specific companies or products, the views and opinions we express in this document are wholly our own assessments, and independent from any external interest or influence. Many terms and phrases and trade names used in this document are proprietary and Portio Research Limited recognises and acknowledges that all trademarks are copyright, belonging to their respective owners. Where possible, this document accords such terms and phrases and trade names to their respective owners. All Rights Reserved. No part of this document can be copied, shared, redistributed, transmitted, displayed in the public domain, stored or displayed on any internal or external company or private network or electronic retrieval system, nor reprinted, republished or reconstituted in any way without the express written permission of the publisher. Forwarding of this electronic document without the correct legal license is theft. It’s unethical, immoral and against the law. If you have any questions about the legal license conditions under which this document has been distributed, please contact Portio Research on info@portioresearch.com If you did not buy this document and a colleague or associate has sent it to you, do not assume you are legally entitled to read it, it is your responsibility to ensure you have the correct legal license to read this document. © 2007, Portio Research. All Rights Reserved 1
    • The Next Billion Contents Introduction ..............................................................................................................................5 Demographic Analysis: Defining the Next Billion, who they are and where they live......9 China................................................................................................................................................15 India .................................................................................................................................................17 United States of America..................................................................................................................19 Pakistan ...........................................................................................................................................21 Nigeria..............................................................................................................................................23 Brazil ................................................................................................................................................25 Indonesia..........................................................................................................................................27 Bangladesh ......................................................................................................................................29 Mexico..............................................................................................................................................31 Iran ...................................................................................................................................................34 Business Models to Penetrate Low-Income Populations ..................................................36 Introduction ......................................................................................................................................36 Case Study 1: America Movil ...........................................................................................................38 Case Study 2: Telefonica Moviles ....................................................................................................40 Case Study 3: China Mobile.............................................................................................................42 Case Study 4: Smart Communications.............................................................................................44 Case Study 5: Bharti Airtel ...............................................................................................................46 Case Study 6: Rural Payphones ......................................................................................................48 Low-Cost Handset Initiatives ................................................................................................50 Overview ..........................................................................................................................................50 Initiatives by Handset Vendors.........................................................................................................53 Initiatives by Chip-Set Vendors and other OEMs .............................................................................56 Initiatives by Mobile Operators .........................................................................................................59 Conclusion .......................................................................................................................................60 Developments – Mobile Technology and Infrastructure....................................................61 Case Study 1: Nokia Siemens Networks Village Connection ...........................................................64 Case Study 2: Mobile Infrastructure Sharing....................................................................................66 Case Study 3: Alternative Sources of Power....................................................................................68 Case Study 4: Next Generation Mobile Base Stations ....................................................................69 Case Study 5: Low Frequency Spectrum ........................................................................................70 Worldwide Regulatory Scenario ...........................................................................................71 Regulatory Scenario – India .............................................................................................................73 Regulatory Scenario – Pakistan .......................................................................................................75 Regulatory Scenario – Nigeria .........................................................................................................77 Summary and Conclusions...................................................................................................79 Appendices .............................................................................................................................90 Glossary ...........................................................................................................................................91 Portio Research Classifications......................................................................................................100 Companies Mentioned in this Report .............................................................................................101 About the Authors...........................................................................................................................103 Also available from Portio Research Limited..................................................................................105 2 © 2007, Portio Research. All Rights Reserved
    • The Next Billion List of Figures Figure 1: Figure 2: Figure 3: Figure 4: Figure 5: Figure 6: Figure 7: Figure 8: Figure 9: Figure 10: Figure 11: Figure 12: Figure 13: Figure 14: Figure 15: Figure 16: Figure 17: Figure 18: Figure 19: Figure 20: Figure 21: Figure 22: Figure 23: Figure 24: Figure 25: Figure 26: Figure 27: Figure 28: Figure 29: Figure 30: Figure 31: Figure 32: Figure 33: Figure 34: Figure 35: Figure 36: Figure 37: Evolution of Mobile Subscriber Base – Worldwide ................................................................ 5 Geographical Distribution – Worldwide Mobile Penetration (2003-2011) .............................. 7 Worldwide Mobile Subscribers (2006-2011).......................................................................... 9 Geographical Distribution – Net Subscriber Additions (2007-2011) .....................................10 Geographical Distribution – Net Subscriber Additions (2007-2011) .....................................11 Geographical Distribution – Net Subscriber Additions (2007-2011) .....................................11 Top 10 Countries – Expected Annual Service Revenues (In USD Billion, 2011)..................13 Break-up of Net Subscriber Additions – Top 10 Markets (2007-2011) .................................13 Break-up of Service Revenues from Net Subscriber Additions (2011) .................................14 China – Mobile Subscribers (2006-2011) ........................................................................15 China – Snapshot of Estimated Mobile Subscriber Base (2011) .....................................16 India – Mobile Subscribers (2006-2011) ..........................................................................17 India – Snapshot of Estimated Mobile Subscriber Base (2011).......................................18 US – Mobile Subscribers (2006-2011).............................................................................19 US – Snapshot of Estimated Mobile Subscriber Base (2011)..........................................20 Pakistan – Mobile Subscribers (2006-2011) ....................................................................21 Pakistan – Snapshot of Estimated Mobile Subscriber Base (2011).................................22 Nigeria – Mobile Subscribers (2006-2011) ......................................................................23 Nigeria – Snapshot of Estimated Mobile Subscriber Base (2011) ...................................24 Brazil – Mobile Subscribers (2006-2011).........................................................................25 Brazil – Snapshot of Estimated Mobile Subscriber Base (2011)......................................26 Indonesia – Mobile Subscribers (2006-2011) ..................................................................27 Indonesia – Snapshot of Estimated Mobile Subscriber Base (2011) ...............................28 Bangladesh – Mobile Subscribers (2006-2011)...............................................................29 Bangladesh – Snapshot of Mobile Subscriber Base by 2011 ..........................................30 Mexico – Mobile Subscribers (2006-2011) ......................................................................31 Mexico – Snapshot of Estimated Mobile Subscriber Base (2011) ...................................32 Iran – Mobile Subscribers (2006-2011) ...........................................................................34 Iran – Snapshot of Estimated Mobile Subscriber Base (2011) ........................................35 Worldwide Handset Shipments........................................................................................50 Handset Shipments – Regional Break-up (2006) ............................................................51 Expected Initial Cost of Getting Connected .....................................................................52 Usage of New and Second-hand Handsets in BOP Segment .........................................52 Comparison of Tax Rates in Emerging Markets ..............................................................71 Geographical Distribution – Net Subscriber Additions (2007-2011).................................79 Geographical Distribution – Net Subscriber Additions (2007-2011).................................80 Entry Level Handset Costs - Worldwide (1990-2010E) ...................................................86 List of Tables Table 1: Regional Mobile Subscribers (2003-2012) ............................................................................ 6 Table 2: Geographical Distribution – Net Subscriber Additions (2007-2011) .....................................10 Table 3: Geographical Distribution – Net Subscriber Additions (2007-2011) .....................................10 Table 4: Asian “Big Cats” – Net Subscriber Additions (2007-2011)....................................................11 Table 5: Top 10 Countries – Net Subscriber Additions (2007-2011) ..................................................12 Table 6: Top 10 Countries – Expected Annual Service Revenues (In USD Billion, 2011)..................12 Table 7: Socio-economic Levels in Mexico (2005) .............................................................................32 Table 8: Quarterly Handset Shipments Worldwide – 2006 (In Million) ...............................................51 Table 9: Cell Radius of Different Frequency Waves...........................................................................70 Table 10: Asian Countries – Contribution from Urban and Rural Regions to the Net Subscriber Additions (2007-2011) .....................................................................................................................80 Table 11: Estimated Penetration in Urban and Rural Regions – Asian Markets (2011) ..................81 Table 12: Forecast Monthly ARPU – Asian Markets (2011) ............................................................81 Table 13: Top 10 Countries – Forecast Mobile Penetration and Blended ARPU (2011) .................82 © 2007, Portio Research. All Rights Reserved 3
    • The Next Billion Table 14: 4 Net Subscriber Additions (2007-2011) for Major Asian Growth Markets .........................84 © 2007, Portio Research. All Rights Reserved
    • The Next Billion Introduction The worldwide mobile subscriber base has witnessed significant growth in recent years, and it is fast approaching the 50 percent penetration mark, which should be passed in 2008. It took approximately 15 years for mobile services to reach the first quarter of the world’s population, taking from 1990 to 2003 to reach the 25 percent penetration level globally; these subscribers were predominantly the wealthy early adopters in Europe, Japan and Korea, South East Asia and North America. The next quartile has exploded at a comparatively meteoric pace, with worldwide penetration growing from 25 percent to 50 percent in just four years, this rapid growth in subscribers worldwide coming mostly from the mass markets of Eastern Europe, Asia, Latin America, and the Middle East. The worldwide mobile penetration is expected to reach the 50 percent mark by early 2008, which is shown in Figure 1. Figure 1: Evolution of Mobile Subscriber Base – Worldwide IV I 2011–20xx 25% 1990–2003 25% 2007–2011 25% 2003–2007 25% III II Source: Portio Research Ltd. The third quartile (III) in Figure 1 shows the subscriber group, consisting of a total of 1.5 billion new mobile subscriptions, which will increase the worldwide mobile penetration from 50 percent to 75 percent. Most of these subscribers are expected to come from fast developing nations, such as China, India and Brazil. In this report, we will focus on this 3rd quartile, often referred to in the mobile industry as “the next billion”, and we will direct the focus of our attention to subscribers from these major developing nations. The key features of this report include the following: • Introduction and overview of the worldwide mobile market. The report provides worldwide subscriber forecasts between 2007 and 2011. It highlights specific geographies with a key focus on countries that are expected to make the maximum contribution to the worldwide subscriber base during this period. • Demographic Analysis section highlights the top 10 countries that are expected to drive worldwide subscriber growth in the period 2007-2011. This section of the report discusses the demographic profile of the subscribers that are expected to be added to the worldwide mobile subscriber base and the ARPU levels that can be expected from them. • Business models/strategies adopted by operators in Asia, Latin America, and the Africa and Middle East region to target low income customers have also been discussed. © 2007, Portio Research. All Rights Reserved 5 In the period 2007-2011, a total of 1.5 billion new mobile subscribers are expected to be added to the mobile subscriber base worldwide.
    • The Next Billion • The report highlights the fact that a large number of the new subscribers expected over the next 4 years will reside in rural regions, and the report looks at the developments - in terms of technology and infrastructure - for extending mobile services to these rural areas in various developing nations. • The report studies initiatives taken by handset vendors and chipset manufacturers to reduce the cost of handsets, which is one of the biggest barriers to entry in increasing the level of mobile penetration among the low income segment in many country markets. • Discussion on the vital role a telecommunication regulatory body plays in the promotion of mobile services in a given country market. The worldwide mobile market is growing at a significant pace, especially in the Asia-Pacific region, where there is already well in excess of 1 billion mobile subscribers. With China being the largest market and India growing fast closely behind, the market is expected to reach new heights in the coming years. In recent years, a decline in the growth rate in Western and Northern European countries, such as Italy and Germany, has been compensated by growth in the subscriber base in emerging markets, such as India, China, Pakistan and Russia. Moreover, Indonesia, Ukraine, Brazil, and Bangladesh have also witnessed exponential growth in terms of the total number of wireless subscribers in 2006. Table 1 shows the trends and growth forecasts of mobile subscribers in different regions from 2003 to 2012. Table 1: Regional Mobile Subscribers (2003-2012) Year N&W Europe C&E Europe North America Latin America Africa Middle East Asia Pacific Total 2003 324.6 131.0 172.8 134.9 60.9 22.8 534.3 1,381.3 2004 358.7 198.6 199.7 176.2 79.7 28.7 702.8 1,744.5 2005 391.6 295.3 224.8 225.9 129.8 44.8 857.5 2,169.7 2006 425.2 365.5 251.6 273.0 168.7 64.5 1,101.7 2,650.2 2007 E 437.9 397.4 277.5 315.0 211.1 84.4 1,357.5 3,080.8 2008 E 447.3 416.6 297.6 351.7 257.5 103.8 1,627.5 3,502.2 2009 E 454.8 430.5 314.7 384.7 306.3 122.8 1,887.6 3,901.3 2010 E 459.8 439.5 332.9 415.7 351.4 138.1 2,116.9 4,254.3 2011 E 464.8 445.8 344.6 446.0 399.7 151.3 2,337.6 4,589.7 2012 E 468.2 450.8 353.6 469.3 444.2 162.1 2,558.7 4,906.9 Source: Portio Research Ltd Figure 2 shows the mobile penetration in each major geographical region at year-end 2003. Furthermore, it shows the estimated mobile penetration by year-end 2007 and 2011 in these regions. The figure shows the early adoption of mobile services in Western European and North American countries. Furthermore, countries in South East Asia, such as Japan and South Korea, had high mobile penetration by 2003. However, the mobile industry experienced a major increase in terms of subscriber addition between 2003 and 2007. In this period, there has been a sharp increase in the number of subscribers in Central and Eastern European countries, such as Russia and Ukraine, resulting in the increase of mobile penetration from 30 percent to approximately 100 percent in the region. 6 © 2007, Portio Research. All Rights Reserved A decline in the growth rate in Western and Northern European countries, such as Italy and Germany, has been compensated by growth in the subscriber base in emerging markets.
    • The Next Billion Furthermore, there has been a significant increase in terms of mobile penetration in Asia Pacific, Latin America, and the Africa and Middle East region. China and India have made the largest contribution to the mobile subscriber base in the Asia-Pacific region, adding approximately 296.7 million and 203.3 million subscribers, respectively, during 2003-2007. Most of this growth came from the urban regions in these countries. Similarly, Brazil and Mexico have been the key contributors in the Latin American region, while Nigeria and South Africa lead the growth in Africa. Figure 2: Geographical Distribution – Worldwide Mobile Penetration (2003-2011) 125% Penetration 100% 75% 50% 25% 0% Western Europe Central and Asia Pacific Eastern Europe 2003 North America 2007E Latin America Africa Middle East 2011E Source: Portio Research Ltd. E – Estimates By year-end 2007, the worldwide subscriber base is expected to be over 3 billion. After 2007, most of the new subscribers are expected to come from developing nations. Countries, such as India and China, Pakistan and Indonesia are expected to contribute the most in the future. In addition, regions such as Latin America and Africa will play a major role in terms of net subscriber additions in the period 2007-2011. As the worldwide mobile penetration level is approaching the 50 percent mark, a significant number of new subscribers are expected to be low-income customers living in the developing nations. To make mobile services affordable for these customers, both mobile network operators and handset vendors are adopting new, innovative business models. In countries such as China and India, which are expected to grow at a significant pace, mobile penetration is still insignificant in the rural areas where approximately two-thirds of the population lives. Leading Chinese mobile network operator China Mobile is aggressively focussing on the rural markets of the country. In 2006, approximately 50 percent contribution to the company’s subscriber additions of 54.5 million net additions came from the rural regions. The company’s focus on the development of its network coverage in the rural areas and its pricing strategies has been the primary factors driving this growth. The company launched innovative fee packages that were customised to meet the needs of many rural customers. Furthermore, the company focussed on information services to target the rural customers. The initial cost of buying a mobile handset is one of the biggest barriers to increasing mobile penetration in the low-income segment. Mobile vendors and chip manufacturers worldwide are increasingly focussing on ways to reduce the cost of ownership for the low-income segment. Motorola, the second largest handset vendor worldwide, has been actively taking various initiatives in this direction, with mixed results. The company has been focussing on © 2007, Portio Research. All Rights Reserved 7 In terms of new subscribers, developing nations are expected to contribute the most in the future.
    • The Next Billion manufacturing ultra-low-cost handsets which are designed to serve the handset markets in emerging nations. Furthermore, developments in terms of technology and infrastructure are expected to play a major role in driving growth in the mobile markets worldwide. For operators, more than twothirds of the total cost is incurred in the establishment of base stations.1 Various initiatives are being taken by leading infrastructure providers, such as Nokia and Ericsson, to lower the capital expenditure for operators, thus enabling them to increase their network coverage. This study aims to analyse this specific growth segment of the worldwide mobile market to enable operators, handset vendors, applications developers and content providers to identify the key trends influencing the mobile market and the future prospects of these markets. In short, we hope to identify who the next billion are, where they live and how much disposable income they may be likely to spend on mobile services in the coming years. Note: In this report, the period 2007-2011 has been frequently mentioned. It refers to the duration from year-end 2007 to year-end 2011. 1 Source : http://www.nokia.com/ 8 © 2007, Portio Research. All Rights Reserved
    • The Next Billion Demographic Analysis: Defining the Next Billion, who they are and where they live. As mentioned above, in recent years, the worldwide mobile subscriber base has increased rapidly and is fast approaching the 50 percent penetration mark. By end-2007, the worldwide subscriber base is expected to exceed 3 billion. However, most subscriber additions are expected from the developing nations in future. Countries, such as India and China, are expected to account for the maximum number of subscribers in future. In addition, regions, such as Latin America and Africa, will play a major role in net subscriber additions during 2007-2011. GSM is expected to remain as the most dominant medium for mobile communications. However, other standards, such as CDMA and WCDMA, will also be widely used in various countries. The worldwide wireless subscriber base is expected to increase at a CAGR of 11.7 percent from 2.6 billion in 2006 to 4.6 billion in 2011. Figure 3 shows the trends and growth forecasts of the worldwide subscriber base from 2006 to 2011. Figure 3: Worldwide Mobile Subscribers (2006-2011) Subscribers (In Million) 5000 4,589.7 4,254.3 3,901.3 4000 3,502.2 3,080.9 3000 2,650.2 2000 1000 0 2006 2007 E 2008 E 2009 E 2010 E 2011 E Year Source: Portio Research Ltd. E – Estimates Projections in Figure 3 show the growth rate of the worldwide subscriber base after it crosses the 3-billion mark by end-2007. Operators are expected to add another 1.5 billion subscribers globally during 2007-2011. Mobile markets in Asia Pacific are expected to contribute the maximum, i.e., approximately 1 billion customers during 2007-2011. In addition, significant contributions are expected from the African and Latin American markets that are expected to add 189 and 131 million subscribers, respectively, during the same period. Table 2 shows the division of forecasted subscriber additions in the period 2007-2011 by various regions. © 2007, Portio Research. All Rights Reserved 9 The worldwide wireless subscriber base is expected to increase from 2.6 billion in 2006 to 4.6 billion in 2011.
    • The Next Billion Table 2: Geographical Distribution – Net Subscriber Additions (2007-2011) Net Subscriber Additions (In Million) Regions Western Europe 26.8 Central and Eastern Europe 48.3 Asia Pacific 980.1 North America 67.1 Latin America 131.0 Africa 188.5 Middle East 66.8 Source: Portio Research Ltd. Figure 4 shows that approximately 67.0 million customers are expected to be added from North American markets during 2007-2011. The US market accounts for 60 million of these, and we believe that users with multiple subscriptions will drive maximum growth in the country. Figure 4: Geographical Distribution – Net Subscriber Additions (2007-2011) Subscribers (In Million) 1200 980.1 1000 800 600 400 200 26.8 Western Europe Central and Eastern Europe 67.1 48.3 131.0 188.5 66.8 0 Asia Pacific North America Latin America Africa Middle East Source: Portio Research Ltd. Asia Pacific mobile markets play the leading role in global subscriber growth, followed by Africa and the Middle East with consolidated additions of 255.3 million subscribers between 2007 and 2011. Table 3 and Figure 5 shows an alternative view of the geographical distribution of net subscriber additions in the period 2007-2011. Table 3: Geographical Distribution – Net Subscriber Additions (2007-2011) Regions Net Subscriber Additions (In Million) Europe 75.1 Asia Pacific 980.1 The Americas 198.1 Africa and the Middle East 255.3 Source: Portio Research Ltd. 10 © 2007, Portio Research. All Rights Reserved Asia Pacific mobile markets play a major role in global subscriber growth, followed by Africa and the Middle East.
    • The Next Billion Figure 5: Geographical Distribution – Net Subscriber Additions (2007-2011) 5.0% 16.9% 13.1% 65.0% Europe Asia Pacific Americas Africa and Middle East Source: Portio Research Ltd. Countries such as China, India, Indonesia, Pakistan and Bangladesh, will account for the majority of subscribers in the Asia-Pacific region. These emerging markets are referred to as the “Big Cats” as they are expected to contribute approximately 815.2 million customers, i.e., over 50 percent of the forecasted 1.5 billion additions (as shown in Table 4). Table 4: Asian “Big Cats” – Net Subscriber Additions (2007-2011) Net Subscriber Additions (In Million) Country China 439.1 India 240.7 Pakistan 53.3 Indonesia 42.9 Bangladesh 39.2 Total 815.2 Source: Portio Research Ltd. Figure 6: Geographical Distribution – Net Subscriber Additions (2007-2011) 13.2% 22.0% 10.5% 54.3% EMEA Asian "Big Cats" Rest of Asia Americas Source: Portio Research Ltd. Subscriber growth in Asia Pacific markets will continue in the coming years. There is huge potential for operators to grow in countries with large populations, such as China and India. Mobile penetration is still low in these countries, especially in rural areas. In Africa, Nigeria is © 2007, Portio Research. All Rights Reserved 11 China, India, Indonesia, Pakistan and Bangladesh are expected to add approximately customers.
    • The Next Billion the fastest growing market, which is expected to add another 47.6 million customers during 2007-2011. Table 5 shows the top 10 markets identified across various regions, which are expected to contribute the most to the estimated 1.5 billion worldwide subscriber additions during 20072011. Table 5: S. No. Top 10 Countries – Net Subscriber Additions (2007-2011) Country Net Subscriber Additions (In Million) 1 China 439.1 2 India 240.7 3 US 60.3 4 Pakistan 53.3 5 Nigeria 47.6 6 Brazil 45.7 7 Indonesia 42.9 8 Bangladesh 39.2 9 Mexico 29.4 10 Iran 24.8 Source: Portio Research Ltd. Although much of the growth in the future is expected to come from the emerging countries, the revenue generated by the operators in these countries will not be in line with the growth in the number of subscribers. This is primarily due to the addition of low-income groups in the subscriber base, which lowers ARPU levels in these geographies. Table 6 below shows the mobile service revenues2 expected to be generated by mobile network operators in the top 10 markets in 2011. Table 6: 2011) S. No. Top 10 Countries – Expected Annual Service Revenues (In USD Billion, Country Expected Annual Service Revenues (In USD Billion) 1 China 113.1 2 India 35.7 3 US 190.9 4 Pakistan 5 Nigeria 8.7 6 Brazil 22.3 7 Indonesia 8.3 8 Bangladesh 3.4 9 Mexico 18.0 10 Iran 6.3 6.4 Source: Portio Research Ltd. Although China will be the leading country in terms of mobile subscriber base, the expected service revenues for operators in the country will remain lower than for the operators in the US. Figure 7 shows the comparison of the total number of mobile subscribers and the expected service revenues from these subscribers in the top 10 markets in 2011. 2 Note: Service revenues expected from the total mobile subscriber base in a country in 2011. 12 © 2007, Portio Research. All Rights Reserved
    • The Next Billion 1,200 1,000 190.9 200 800 150 113.1 600 100 400 35.7 50 22.3 8.7 6.3 8.3 200 18.0 6.4 3.4 0 Ira n ic o ex M In do ne si a Ba ng la de sh Br az il N ig er ia Pa ki st an U S In di a 0 Mobile Subscribers (In Million, 2011) 250 C hi na Service Revenues (In USD Billion, 2011) Figure 7: Top 10 Countries – Expected Annual Service Revenues (In USD Billion, 2011) Source: Portio Research Ltd. During 2007-2011, maximum contribution to the worldwide subscriber base is expected to come from the Chinese mobile market. Figure 8 shows the break-up of the net subscriber additions (during 2007-2011) from the top 10 markets. Figure 8: Break-up of Net Subscriber Additions – Top 10 Markets (2007-2011) 4.2% 2.9% 3.8% 2.4% 4.5% 4.7% 42.9% 5.2% 5.9% 23.5% China Brazil India Indonesia USA Bangladesh Pakistan Mexico Nigeria Iran Source: Portio Research Ltd. The figure above shows that China is expected to contribute 42.9 percent to the 1.5 Billion net subscriber additions in the period 2007-2011. In the same period, the US contribution would be close to 6 percent. However, the revenue generated from the new subscribers in the US will be much higher than that from the developing markets. Figure 9 shows the same breakout by country, but illustrating their contribution to total service revenues, not subscriber net additions, for the top 10 markets, estimated again for the year 2011. © 2007, Portio Research. All Rights Reserved 13
    • The Next Billion Figure 9: Break-up of Service Revenues from Net Subscriber Additions3 (2011) 3.9% 1.0% 1.1% 2.8% 3.5% 2.0% 2.2% 40.2% 29.8% 13.5% China Brazil India Indonesia USA Bangladesh Pakistan Mexico Nigeria Iran Source: Portio Research Ltd. These 2 figures clearly illustrate that while the US may only contribute 6 percent of the “Next Billion” subscribers, these subscribers will in turn generate almost 30 percent of the growth in total service revenues that we can expect to see over the coming period. Furthermore, this following section provides a detailed demographic analysis of the top 10 markets in terms of net subscriber additions during 2007-2011. Some of the key questions answered in the analysis are: • What is the demographic profile of subscribers who are expected to be added to the mobile subscriber base in these countries? • What ARPU levels can be expected from them by 2011? • Where will the net subscriber additions originate from, mostly – rural or urban areas? Answering these questions will help us to understand where the growth is to be found, how much revenue it is likely to generate and what is going to have to be done in order to get this revenue flowing, and how it can be done to a profit. 3 Note: Service revenues expected from the net subscriber additions (during 2007-2011) in 2011. 14 © 2007, Portio Research. All Rights Reserved
    • The Next Billion China • Geographical Area: 9,596,960 sq. km. • Capital: Beijing • Population (December 2006 est.): 1,315.2 million • Mobile Penetration: 33.7 percent at yearend 2006 • Mobile Subscribers: 443.6 million at year-end 2006 • GDP per Capita (2006 est.): USD 7,530 The Chinese mobile market is the largest worldwide in terms of the number of subscribers with a total of 443.6 million subscribers as of year-end 2006. In terms of its subscriber base, the country witnessed a year-on-year growth of 18.5 percent in 2006 as compared to 2005. The mobile penetration in the urban regions of the country, which comprises about 40 percent of the population, was approximately 65 percent as compared to 11.5 percent in the rural regions. The Chinese mobile market comprises only two mobile network operators––China Mobile and China Unicom––both provide services across the country. As of 31st December 2006, China Mobile was the leading mobile network operator in the country with 67.9 percent market share. While China Mobile provides its services on GSM-based networks, China Unicom has both GSM and CDMA subscribers. In terms of subscriber growth, the mobile market in the country looks promising and is expected to add approximately 514.6 million subscribers in the period 2006-2011, reflecting an increase in mobile penetration from 33.7 percent in 2006 to 70.9 percent in 2011. Figure 10 shows the trends and forecasts of the Chinese mobile subscriber base from 2006 to 2011. Figure 10: China – Mobile Subscribers (2006-2011) Subscribers (In Million) 1200 958.2 1000 853.7 749.0 800 633.5 600 519.1 443.6 400 200 0 2006 2007 E 2008 E 2009 E 2010 E 2011 E Year Source: Portio Research Ltd. E – Estimates In the period 2007-2011, China’s subscriber base is expected to increase from 519.1 million to 958.2 million, contributing approximately 439.1 million customers to the 1.5 billion subscriber additions worldwide. The majority of subscribers are anticipated to come from rural areas. Mobile penetration in the rural parts of China is expected to reach approximately 56.0 percent by end-2011. The monthly ARPU levels in the Chinese mobile market are expected to remain constant at approximately USD 10, despite the declining trend in the ARPU levels globally. Currently, © 2007, Portio Research. All Rights Reserved 15 In terms of subscriber growth, the mobile market in China is expected to add approximately 514.6 million subscribers in the period 2006-2011.
    • The Next Billion there is huge demand for data services from mobile users in the country, including SMS, ringtones, ring-back tones, mobile gaming, etc. The increase in the popularity of data services and the expected launch of 3G services in early 2008 will play a major role in sustaining ARPU at the current level. In addition, basic data services, such as SMS, news, weather information services, etc., are expected to remain popular, even among the rural subscribers. Figure 11 shows the forecasted subscriber base in the urban and rural regions of China by 2011. Figure 11: China – Snapshot of Estimated Mobile Subscriber Base (2011) Key Statistics (2011E) Total Subscribers: 958.2 million Penetration: 70.9% Blended ARPU (monthly): USD 10.4 Expected Revenue: USD 113.1 billion Urban Population Total Subscribers: 547.3 million Penetration (2007): 72.5% Penetration (2011): 88.7% Additions (2007–2011): 143.7 million Monthly ARPU (2011): USD 12.5 Rural Population Total Subscribers: 410.9 million Penetration (2007): 15.1% Penetration (2011): 56.0% Additions (2007–2011): 295.4 million Monthly ARPU (2011): USD 7.5 Source: Portio Research Ltd Approximately 67.3 percent of the subscriber additions between 2007 and 2011 are expected to come from the rural areas. China Mobile, a leading operator in the country, is already making strategic moves to develop the rural market. These include lowering operational costs and providing tariff plans which are tailored to specific customer needs. 16 © 2007, Portio Research. All Rights Reserved The ARPU levels in the Chinese mobile market are expected to remain constant at approximately USD 10 per month.
    • The Next Billion India • Geographical Area: 3,287,590 sq. km. • Capital: New Delhi • Population (December 2006 est.): 1,095.3 million • Mobile Penetration: 13.7 percent at yearend 2006 • Mobile Subscribers: 149.6 million at year-end 2006 • GDP per Capita (2006 est.): USD 3,890 The Indian mobile market is one of the fastest growing markets worldwide. In terms of subscriber base, the country witnessed a year-on-year increase of 97 percent in 2006 as compared to 2005. Most of this growth came from urban regions, where mobile penetration crossed the 40 percent mark in 2006. However, mobile penetration in the rural regions remains insignificant at 2 percent, ensuring ample growth opportunities for operators in the future. Currently, 12 operators provide wireless services across India. The MNOs provide both GSM and CDMA-based services in the country. However, with a market share of approximately 70 percent, GSM-based services are currently most popular. Apart from the basic voice services, MNOs also offer services on EDGE and CDMA2000 1x networks. The Indian regulatory body, TRAI, is exploring the options for launching 3G services in the country owing to certain advantages such as spectrum efficiency. As of 31st December 2006, the mobile penetration rate in the country stood at 13.7 percent. Significant growth is expected in the future. The total number of wireless consumers in the country is expected to increase at a CAGR of 25.8 percent from 149.6 million in 2006 to reach approximately 472.5 million by 2011. Figure 12 shows the actual and forecast mobile subscriber base from 2006 to 2011. Figure 12: India – Mobile Subscribers (2006-2011) 472.5 500 Subscribers (In Million) 430.1 378.0 400 308.7 300 200 231.7 149.6 100 0 2006 2007 E 2008 E 2009 E 2010 E 2011 E Year Source: Portio Research Ltd. E- Estimates In the period 2007-2011, India’s subscriber base is expected to increase from 231.7 million to 472.5 million, contributing approximately 240.8 million customers to total subscriber additions worldwide. Most of the subscriber growth is expected to come from the rural regions, where mobile penetration is expected to reach approximately 25 percent by 2011. During the same period, the penetration in the urban regions is expected to surpass the 75-percent mark. © 2007, Portio Research. All Rights Reserved 17 The mobile subscriber base in India is expected to increase at a CAGR of 25.8 percent from 149.6 million in 2006 to reach approximately 472.5 million by 2011.
    • The Next Billion Overall ARPU is expected to decline due to high dependency on voice services, especially in rural regions. Overall monthly ARPU is expected to reach approximately USD 6.6 in 2011. The reduction in call tariffs will result in a decline in ARPU from urban subscribers as well. However, with the growth of data services in urban regions, the decrease in ARPU is expected to be much less when compared to rural regions. Figure 13 shows the forecasted subscriber base in the urban and rural regions of India by 2011. Figure 13: India – Snapshot of Estimated Mobile Subscriber Base (2011) Key Statistics (2011E) Total Subscribers: 472.5 million Penetration: 40.4% Blended ARPU (monthly): USD 6.6 Expected Revenue: USD 35.7 billion Urban Population Total Subscribers: 272.2 million Penetration (2007): 55.3% Penetration (2011): 75.8% Additions (2007-2011): 91.1 million Monthly ARPU (2011): USD 8.5 Rural Population Total Subscribers: 200.3 million Penetration (2007): 6.5% Penetration (2011): 24.7% Additions (2007-2011): 149.7 million Monthly ARPU (2011): USD 4.0 Source: Portio Research Ltd In India, there is a huge disparity between urban and rural regions in terms of mobile penetration. As of December 2006, the mobile penetration in rural regions was very low at 2 percent. In contrast, the penetration has already reached the 70-percent mark in the metropolitan cities in India, such as New Delhi, Mumbai, etc. However, overall penetration in urban regions is approximately 40 percent. Currently, operators are focussing on developing networks in rural regions. Between 2007 and 2011, approximately 62 percent of the total subscriber additions are expected to come from rural regions. 18 © 2007, Portio Research. All Rights Reserved In future, most of the new subscribers in India will come from the rural regions.
    • The Next Billion United States of America • Geographical Area: 9,631,418 sq. km. • Capital: Washington, D. C. • Population (December 2006 est.): 299.4 million • Mobile Penetration: 77.8 percent at yearend 2006 • Mobile Subscribers: 233.0 million at year-end 2006 • GDP per Capita (2006 est.): USD 44,237 The US is the second largest mobile market after China. As of 31st December 2006, the US mobile subscriber base stood at 233.0 million. In 2006, the mobile penetration rate in the US stood at 77.8 percent. The US mobile market is one of the most advanced markets worldwide. Mobile services based on 3.5G technology have already been launched in the country. There are four major mobile network operators in the US––Cingular, Sprint, Verizon, and T-Mobile – plus a number of smaller regional players and a large number of MVNOs. US operators provide services on both GSM and CDMA-based networks. The country’s mobile subscriber base is expected to increase at a CAGR of 6.3 percent and reach 317.1 million by 2011. Figure 14 shows actual and forecast growth of the subscriber base from 2006 to 2011. Figure 14: US – Mobile Subscribers (2006-2011) Subscribers (In Million) 350 300 250 256.7 290.2 274.9 306.8 317.1 2010 E 2011 E 233.0 200 150 100 50 0 2006 2007 E 2008 E 2009 E Year Source: Portio Research Ltd. E – Estimates Although the net subscriber additions have shown a decline in the recent years, there is sufficient scope for operators to strengthen their subscriber base. Between 2007 and 2011, the country’s subscriber base is expected to increase from 256.7 million to 317.1 million, contributing approximately 60.4 million to ‘the next billion’, or the 1.5 billion subscriber additions worldwide. Most of this growth is expected to come from multiple subscriptions and increased penetration among the population aged 50 and above. Dividing the total US subscriber base into three age groups–14 years and below, 15-49 years, and 50 years and above reveals that approximately 75 percent of the anticipated growth in subscriber base will come from the population aged between 15 and 49 years. By 2011, multiple subscriptions are expected to account for 30 percent of the total subscriber base in the US, i.e. 30 percent of all subscribers in the US will own multiple handsets/connections. © 2007, Portio Research. All Rights Reserved 19 Mobile subscriber base in the US is expected to reach 317.1 million by 2011.
    • The Next Billion Furthermore, there will also be a significant increase in the number of senior citizens subscribing to mobile services, leading to approximately 12 million subscriber additions in the age group 50 and above. The blended ARPU in the country is expected to remain stable at USD 51. Although voice tariffs are expected to decline in the future, the decrease will be compensated for by the increasing usage of data services among users in the country. In recent years, US mobile network operators have grown data ARPU to be among the best in the world, and this trend looks set to continue, keeping ARPU elevated against a worldwide backdrop of steadily declining voice ARPU. Figure 15 shows the forecasted subscriber base by age groups to 2011. Figure 15: US – Snapshot of Estimated Mobile Subscriber Base (2011) Key Statistics (2011E) Total Subscribers: 317.1 million Penetration: 101.3% Blended ARPU (monthly): USD 51 Expected Revenue: USD 190.9 billion 14 Years and Below Total Subscribers: 16.9 million Penetration (2007): 22.3% Penetration (2011): 25.7% Additions (2007-2011): 2.8 million Monthly ARPU (2011): USD 30.0 15–49 Years Total Subscribers: 242.7 million Penetration (2007): 131.5% Penetration (2011): 156.2% Additions (2007-2011): 45.6 million Monthly ARPU (2011): USD 55.0 50 Years and Above Total Subscribers: 57.5 million Penetration (2007): 51.2% Penetration (2011): 62.5% Additions (2007-2011): 12.0 million Monthly ARPU (2011): USD 40.0 Source: Portio Research Ltd The subscriber growth in the US will be largely driven by multiple subscriptions. The mobile corporate enterprise market is expected to be a major source of revenue for operators in the near future. Therefore, focus on advanced data services, such as mobile e-mail, information services, and mobile Internet, will help operators to further drive services forward in this market. 20 © 2007, Portio Research. All Rights Reserved The blended ARPU in the country is expected to remain stable at USD 51.
    • The Next Billion Pakistan • Geographical Area: 803,940 sq. km. • Capital: Islamabad • Population (December 2006 est.): 159.6 million • Mobile Penetration: 30.3 percent at yearend 2006 • Mobile Subscribers: 48.3 million at yearend 2006 • GDP per Capita (2006 est.): USD 2,580 Driven by substantial investments from global payers, such as Telenor, Warid Telecom, and China Mobile Communication Corporation, the mobile market of Pakistan has seen impressive growth in the last few years. The subscriber base in the country increased from 21.6 million at year-end 2005 to 48.3 million by 31st December 2006, reflecting a year-on-year growth of 123.6 percent. With improving economic conditions in the country and the increasing adoption of mobile services, the market is expected to follow a similar trend in the near future. The subscriber base of Pakistan is anticipated to reach approximately 130.9 million in 2011, taking overall mobile penetration close to 75 percent. Figure 16 shows the actual and forecast growth of the subscriber base from 2006 to 2011. Figure 16: Pakistan – Mobile Subscribers (2006-2011) 130.9 Subscribers (In Million) 140 110.6 120 96.5 100 77.6 80 60 119.2 48.3 40 20 0 2006 2007 E 2008 E 2009 E 2010 E 2011 E Year Source: Portio Research Ltd. E – Estimates During 2007-2011, Pakistan will contribute approximately 53.3 million customers to total subscriber additions worldwide. Most of this growth is anticipated to come from the rural regions with a significant contribution from urban areas. The rural regions are expected to contribute approximately 69 percent, i.e. 36.9 million customers, while the remaining 16.4 million will be contributed by urban areas taking the overall subscriber base of the country to 130.9 million by 2011. Furthermore, mobile penetration in urban and rural regions is expected to reach 90.5 percent and 65.6 percent, respectively, by 2011. As of 2006, the overall monthly ARPU of Pakistan stood at USD 4.5. ARPU and is expected to decline as most of the subscriber additions are expected to come from the rural regions. Overall monthly ARPU is anticipated to reach approximately USD 4.2 in 2011. © 2007, Portio Research. All Rights Reserved 21 The subscriber base of Pakistan is anticipated to reach approximately 130.9 million by 2011.
    • The Next Billion Figure 17 shows the forecasted subscriber base in the urban and rural regions of Pakistan by 2011. Figure 17: Pakistan – Snapshot of Estimated Mobile Subscriber Base (2011) Key Statistics (2011E) Total Subscribers: 130.9 million Penetration: 75.0% Blended ARPU (monthly): USD 4.2 Expected Revenue: USD 6.3 billion Urban Population Total Subscribers: 59.6 million Penetration (2007): 74.1% Penetration (2011): 90.5% Additions (2007-2011): 16.4 million Monthly ARPU (2011): USD 5.0 Rural Population Total Subscribers: 71.3 million Penetration (2007): 33.0% Penetration (2011): 65.6% Additions (2007-2011): 36.9 million Monthly ARPU (2011): USD 3.5 Source: Portio Research Ltd The subscriber base of Pakistan is expected to increase by approximately 53.3 percent during 2007-2011. Most of this anticipated growth will be contributed by the rural regions, where almost 65 percent of the total population currently resides. In order to capitalise on this growth opportunity, operators need to expand their mobile networks and increase coverage, but this must be done whilst keeping tight control of CAPEX budgets, as the rural subscribers are forecast to generate ARPU as low as USD 3.5, which is amongst the lowest in the world. Furthermore, in order to strengthen their revenues, operators also need to focus on promoting data services among urban mobile consumers, which will account for approximately 40 percent of the country’s total subscriber base in 2011. 22 © 2007, Portio Research. All Rights Reserved Most of the anticipated subscriber growth in Pakistan will be contributed by the rural regions.
    • The Next Billion Nigeria • Geographical Area: 923,768 sq. km. • Capital: Abuja • Population (December 2006 est.): 144.0 million • Mobile Penetration: 19.4 percent at yearend 2006 • Mobile Subscribers: 27.9 million at yearend 2006 • GDP per Capita (2006 est.): USD 1,500 Nigeria is the fastest growing mobile market in Africa. The Nigerian subscriber base has seen a year-on-year increase of approximately 50 percent in 2006 as compared to 2005. With mobile penetration reaching 27.9 million at year-end 2006, there is huge potential for operators to grow in this country. In 2007, Nigeria is expected to surpass South Africa in terms of its mobile subscriber base, and thus, lead the mobile market across the continent. The subscriber base is expected to increase at a CAGR of 26.3 percent and reach 89.7 million at year-end 2011 as compared to 27.9 million at year-end 2006. Figure 18 shows the actual and forecast growth of the subscriber base from 2006 to 2011. Figure 18: Nigeria – Mobile Subscribers (2006-2011) Subscribers (In Million) 100 89.7 80.3 80 69.0 56.9 60 42.1 40 27.9 20 0 2006 2007 E 2008 E 2009 E 2010 E 2011 E Year Source: Portio Research Ltd. E – Estimates During 2007-2011, the country’s subscriber base is expected to increase from 42.1 million to 89.7 million, contributing approximately 47.6 million customers to the total subscriber additions worldwide. Most of this growth is anticipated to come from the urban regions, where approximately 50 percent of the population resides. In terms of subscriber additions, urban areas are expected to account for 65 percent of the growth. By end-2011, mobile penetration in the urban and rural parts of Nigeria is expected to reach approximately 80 percent and 31 percent, respectively. The Nigerian mobile market is voice-centric, with very little focus on data services. With the inclusion of people belonging to the lower income groups, the overall ARPU in the country is anticipated to decline from approximately USD 14.5 in 2006 to USD 8.5 in 2011. © 2007, Portio Research. All Rights Reserved 23 The subscriber base of Nigeria is expected to reach 89.7 million at year-end 2011.
    • The Next Billion Figure 19 shows the subscriber base projections in the urban and rural regions of Nigeria by 2011. Figure 19: Nigeria – Snapshot of Estimated Mobile Subscriber Base (2011) Key Statistics (2011E) Total Subscribers: 89.7 million Penetration: 56.6% Blended ARPU (monthly): USD 8.5 Expected Revenue: USD 8.7 billion Urban Population Total Subscribers: 66.5 million Penetration (2007): 49.6% Penetration (2011): 79.5% Additions (2007-2011): 30.5 million Monthly ARPU (2011): USD 9.1 Rural Population Total Subscribers: 23.2 million Penetration (2007): 8.3% Penetration (2011): 31.0% Additions (2007-2011): 17.1 million Monthly ARPU (2011): USD 7.0 Source: Portio Research Ltd Nigeria has low ARPU, but by no means the lowest in the world. With the addition of subscribers from the rural regions and lower income customers in the urban regions, ARPU is expected to further decline and reach approximately USD 8.5 by 2011. Operators in the country are focussing on the development of networks in rural and urban areas. Furthermore, MTN has teamed up with Ericsson to set up a bio-diesel-powered base station solution in Lagos, and thereafter in the rural areas of Nigeria to minimise operational costs. 24 © 2007, Portio Research. All Rights Reserved ARPU level in Nigeria is expected to further decline and reach approximately USD 8.5 by 2011.
    • The Next Billion Brazil • Geographical Area: 8,511,965 sq. km. • Capital: Brasilia • Population (December 2006 est.): 186.8 million • Mobile Penetration: 53.8 percent at yearend 2006 • Mobile Subscribers: 100.5 million at year-end 2006 • GDP per Capita (2006 est.): USD 9,010 The Brazilian mobile market was stimulated by the introduction of pre-paid services and privatisation of the mobile sector. In terms of subscriber base, the market has seen a year-onyear growth of 15.6 percent in 2006 as compared to 2005. Fuelled by favourable economic conditions, Brazil’s mobile market is expected to strengthen its subscriber base and experience substantial growth in the near future. With the market growing at a CAGR of 9.9 percent, the subscriber base is estimated to reach 160.8 million by year-end 2011. Figure 20 shows the actual and forecast growth of the subscriber base from 2006 to 2011. Figure 20: Brazil – Mobile Subscribers (2006-2011) Subscribers (In Million) 180 160 141.7 160.8 129.5 140 120 152.1 115.1 100.5 100 80 60 40 20 0 2006 2007 E 2008 E 2009 E 2010 E 2011 E Year Source: Portio Research Ltd. E - Estimates During 2007-2011, Brazil’s subscriber base is expected to increase from 115.1 million to 160.8 million; contributing approximately 45.7 million customers to our ‘next billion’ total subscriber additions worldwide. Approximately 90 percent of this growth is expected to be contributed by urban regions during the same period. In contrast, the rural regions are expected to add approximately 3.8 million customers to the total subscriber base during the same period. Brazil, like several other countries profiled, is also a low ARPU nation, but as with Nigeria, ARPU in Brazil is not as low as in some of the Asian markets. Between 2007 and 2011, the overall ARPU for the country is expected to decline from USD 13.8 in 2006 to USD 11.9 by 2011 as most of the subscriber additions are expected to come from the low-income segments. © 2007, Portio Research. All Rights Reserved 25 Brazil’s mobile market is expected to show substantial growth in the near future. The subscriber base is estimated to reach 160.8 million by yearend 2011.
    • The Next Billion Figure 21 shows the forecasted subscriber base in the urban and rural regions of Brazil by 2011. Figure 21: Brazil – Snapshot of Estimated Mobile Subscriber Base (2011) Key Statistics (2011E) Total Subscribers: 160.8 million Penetration: 80.6% Blended ARPU (monthly): USD 11.9 Expected Revenue: USD 22.3 billion Urban Population Total Subscribers: 150.7 million Penetration (2007): 67.7% Penetration (2011): 87.2% Additions (2007-2011): 41.8 million Monthly ARPU (2011): USD 12.3 Rural Population Total Subscribers: 10.1 million Penetration (2007): 22% Penetration (2011): 37.9% Additions (2007-2011): 3.9 million Monthly ARPU (2011): USD 5.9 Source: Portio Research Ltd As of December 2006, the estimated population of Brazil was 186.8 million, with approximately 84.5 percent of the population residing in urban areas. With overall mobile penetration of 53.8 percent in 2006, there is scope for operators to strengthen their subscriber base in urban areas. Operators need to focus on maintaining a healthy contribution from data services to overall ARPU. Brazil’s subscriber base will be nearing saturation by 2011 and further revenue growth will result mainly from selling data services to the existing base of voice subscribers. 26 © 2007, Portio Research. All Rights Reserved In Brazil, there is scope for operators to strengthen their subscriber base in urban areas.
    • The Next Billion Indonesia • Geographical Area: 1,919,440 sq. km. • Capital: Jakarta • Population (December 2006 est.): 245.4 million • Mobile Penetration: 26.4 percent at yearend 2006 • Mobile Subscribers: 65.0 million at yearend 2006 • GDP per Capita (2006 est.): USD 3,780 The Indonesian mobile market is growing rapidly. In terms of subscriber base, the country has seen a year-on-year increase of 40.6 percent in 2006 as compared to 2005. As of 31st December 2006, mobile penetration in the country reached 26.4 percent, an increase of 38.0 percent from 2005. Mobile penetration is low, especially in rural areas, so there is a huge potential for operators to strengthen their subscriber base. The mobile subscriber base in Indonesia is expected to increase from 65.0 million at year-end 2006 to 124.6 million by year-end 2011. Figure 22 shows the actual and forecast growth of the subscriber base from 2006 to 2011. Figure 22: Indonesia – Mobile Subscribers (2006-2011) Subscribers (In Million) 150 116.9 124.6 107.1 95.7 100 81.7 65.0 50 0 2006 2007 E 2008 E 2009 E 2010 E 2011 E Year Source: Portio Research Ltd. E – Estimates During 2007-2011, Indonesia’s subscriber base is expected to increase from 81.7 million to 124.6 million, contributing approximately 42.9 million customers to the total worldwide subscriber additions. Growth in urban regions will play a major role in increasing the overall subscriber base in Indonesia. Rural regions will also make a significant contribution to the overall growth in the subscriber base. Approximately 72.1 percent of the total subscriber growth is expected to come from urban areas. Mobile penetration in the urban and rural regions is expected to reach approximately 74 percent and 17 percent, respectively, by 2011. The increase in competition and decline of infrastructure costs will contribute to the decline in mobile tariffs in the country. Overall ARPU is expected to decline from USD 7.9 at year-end 2006 to USD 5.7 by 2011. © 2007, Portio Research. All Rights Reserved 27 The mobile subscriber base in Indonesia is expected to reach 124.6 million by year-end 2011. Growth in urban regions will play a major role in increasing the overall subscriber base in the country.
    • The Next Billion Figure 23 shows the forecasted subscriber base in the urban and rural regions of Indonesia by 2011. Figure 23: Indonesia – Snapshot of Estimated Mobile Subscriber Base (2011) Key Statistics (2011E) Total Subscribers: 124.6 million Penetration: 47.6% Blended ARPU (monthly): USD 5.7 Expected Revenue: USD 8.3 billion Urban Population Total Subscribers: 104.8 million Penetration (2007): 59.3% Penetration (2011): 73.7% Additions (2007-2011): 30.9 million Monthly ARPU (2011): USD 6.0 Rural Population Total Subscribers: 19.8 million Penetration (2007): 6.3% Penetration (2011): 16.5% Additions (2007-2011): 12.0 million Monthly ARPU (2011): USD 4.0 Source: Portio Research Ltd Stimulated by the increasing popularity of mobile services among the urban population, the subscriber base of Indonesia is expected to increase by approximately 42.9 million between 2007 and 2011. To harness this potential base of urban consumers, the operators need to focus on providing better coverage and advanced services. 28 © 2007, Portio Research. All Rights Reserved
    • The Next Billion Bangladesh • Geographical Area: 144,000 sq. km. • Capital: Dhaka • Population (December 2006 est.): 144.5 million • Mobile Penetration: 14.7 percent at yearend 2006 • Mobile Subscribers: 21.30 million at year-end 2006 • GDP per Capita (2006 est.): USD 2,300 Bangladesh is one of the world’s major emerging mobile markets, and also one of the poorest and most densely populated countries on the planet. With the liberalisation of the mobile sector, the country has witnessed significant investments from some major global players, such as Telenor, Telekom Malaysia, Orascom, and SingTel. Furthermore, low penetration of wireline phones is acting as a driver to the growth of mobile services in the country. As of 31st December 2006, the total mobile subscriber base in Bangladesh stood at 21.3 million. Bangladesh’s mobile market has witnessed significant growth in the recent past. Furthermore, with the improving economic conditions in the country, the trend is expected to continue and the overall mobile subscriber base is anticipated to reach 74.8 million by yearend 2011. Bangladesh’s mobile market has witnessed significant growth in the recent past and the trend is expected to continue. The following figure shows the actual and forecast growth of the subscriber base from 2006 to 2011. Figure 24: Bangladesh – Mobile Subscribers (2006-2011) Subscribers (In Million) 100 74.8 80 65.1 56.3 60 46.4 35.6 40 21.3 20 0 2006 2007 E 2008 E 2009 E 2010 E 2011 E Year Source: Portio Research Ltd. E – Estimates In the period 2007-2011, Bangladesh’s subscriber base is expected to increase from 35.6 million to 74.8 million, contributing approximately 39.2 million customers to the 1.5 billion worldwide subscriber additions. Most of this growth is anticipated to come from rural regions where approximately 70 percent of the total population resides. Mobile penetration in these areas will reach approximately 40.0 percent in 2011. At the same time, urban regions will contribute approximately 13.2 percent to the total subscriber growth. As subscriber growth will primarily come from rural areas, ARPU is expected to decline in the coming years. ARPU is expected to reach USD 4.0 by 2011, from the current ARPU of USD 5.4. ARPU levels in rural Bangladesh are expected to reach a low of USD 3.0, which will likely be among the very lowest ARPU levels anywhere in the world. Network operators and other © 2007, Portio Research. All Rights Reserved 29 In the period 2007-2011, Bangladesh’s subscriber base is expected to increase from 35.6 million to 74.8 million.
    • The Next Billion players in the value chain will be forced to run extremely cost effective operations in order to manage mobile services profitably for such markets. The following figure shows the forecasted subscriber base in the urban and rural regions of Bangladesh by 2011. Figure 25: Bangladesh – Snapshot of Mobile Subscriber Base by 2011 Key Statistics (2011E) Total Subscribers: 74.8 million Penetration: 47.2% Blended ARPU (monthly): USD 4.0 Expected Revenue: USD 3.4 billion Urban Population Total Subscribers: 29.9 million Penetration (2007): 64.3% Penetration (2011): 67.4% Additions (2007-2011): 5.2 million Monthly ARPU (2011): USD 5.5 Rural Population Total Subscribers: 44.9 million Penetration (2007): 10.0% Penetration (2011): 39.4% Additions (2007-2011): 34.0 million Monthly ARPU (2011): USD 3.0 Source: Portio Research Ltd The Bangladesh mobile market is expected to grow significantly in the next five years. Overall mobile penetration in the country is expected to almost double from approximately 24 percent in 2007 to 47 percent by 2011. Approximately 87 percent of this growth will come from rural regions. Operators need to focus on reducing their CAPEX and OPEX to enable them to offer cheaper services to lure these potential customers. In addition, MNOs can further capitalise on this growth opportunity by subsidising handsets and reducing the initial procurement cost for new consumers. 30 © 2007, Portio Research. All Rights Reserved Most of the subscriber growth in the country is expected to come from the rural regions.
    • The Next Billion Mexico • Geographical Area: 1,972,550 sq. km. • Capital: Mexico (Distrito Federal) • Population (December 2006 est.): 107.5 million • Mobile Penetration: 52.7 percent at yearend 2006 • Mobile Subscribers: 56.7 million at yearend 2006 • GDP per Capita (2006 est.): USD 10,820 Mexico is the second largest mobile market in the Latin American region, with 56.7 million mobile subscribers as of 2006. The Mexican mobile market has huge potential. It is driven by the boom in GSM technology, with market leaders—Telcel and Movistar—providing services to their customers via GSM/EDGE networks. The Mexican mobile subscriber base is expected to increase at a CAGR of 11.0 percent and reach 95.7 million by year-end 2011. Figure 26 shows the actual and forecast growth of wireless subscribers from 2006 to 2011. The mobile subscriber base in Mexico is expected to reach 95.7 million by year-end 2011. Figure 26: Mexico – Mobile Subscribers (2006-2011) Subscribers (In Million) 120 100 83.0 95.7 75.5 80 60 89.2 66.3 56.7 40 20 0 2006 2007 E 2008 E 2009 E 2010 E 2011 E Year Source: Portio Research Ltd. E – Estimates During 2007-2011, Mexico’s subscriber base is expected to increase from 66.3 million to 95.7 million, contributing approximately 29.4 million customers to the total worldwide subscriber additions. Although the country had a mobile penetration rate of 52.7 percent at year-end 2006, there is a large disparity between urban and rural penetration, and exact data segmenting these populations is difficult to calculate accurately. It is more meaningful to segment Mexico’s population by income, and in the coming years, the bulk of subscriber growth in Mexico is expected to come from the low-income population segments. According to a report published by Telecom CIDE, the population of Mexico is divided among the following socio-economic levels as shown in Table 7. © 2007, Portio Research. All Rights Reserved 31 In the coming years, the maximum subscriber growth in Mexico is expected to come from the low-income population segments.
    • The Next Billion Table 7: Level Socio-economic Levels in Mexico (2005) Population (In %) A/B 10.8 C+ Description Population with highest level of income in the country Population with slightly above-average income levels C 9.1 Population with medium income levels D+ 23.8 Population with slightly below-average income levels D 56.3 E Population with low income Population with lowest level of income Source: www.mitpressjournals.org Table 7 shows that about 80 percent of the population in the country belong to the belowaverage income groups. During 2007-2011, the population in the D/E segment will drive maximum growth in terms of mobile subscriber additions. Moreover, there will be significant mobile subscriber growth in the population belonging to the D+ segment. Average monthly ARPU for operators in Mexico was approximately USD 16.0 in 2006. During 2007-2011, despite the increase in the number of low-income mobile customers, the overall ARPU level in the country is expected to remain stable. Currently, data services contribute approximately USD 6.5 to overall ARPU. This trend is expected to continue, and thus, data services are expected to continue to deliver a healthy contribution to the overall ARPU in the future. Figure 27 shows the forecasted subscriber base for different socio-economic levels in Mexico by 2011. Figure 27: Mexico – Snapshot of Estimated Mobile Subscriber Base (2011) Key Statistics (2011E) ABC+ Population Total Subscribers: 95.7 million Penetration: 84.2% Blended ARPU (monthly): USD 16.2 Expected Revenue: USD 18.0 billion C Population Total Subscribers: 10.3 million Penetration (2007): 71% Penetration (2011): 100% Additions (2007-2011): 3.3 million Monthly ARPU (2011): USD 19.0 DE Population Total Subscribers: 48.7 million Penetration (2007):51.2% Penetration (2011): 76% Additions (2007-2011): 17.3 million Monthly ARPU (2011): USD 10.0 Total Subscribers: 12.3 million Penetration (2007): 93% Penetration (2011): 100% Additions (2007-2011): 1.4 million Monthly ARPU (2011): USD 35.0 D+ Population Total Subscribers: 24.4 million Penetration (2007): 65.7% Penetration (2011): 85% Additions (2007-2011): 7.4 million Monthly ARPU (2011): USD 18.0 Source: Portio Research Ltd Low-income customers are expected to account for 84 percent of the growth in total subscriber additions between 2007 and 2011. Operators in the country need to focus on 32 © 2007, Portio Research. All Rights Reserved During 2007-2011, the overall ARPU level in Mexico is expected to remain stable at the current levels.
    • The Next Billion strengthening their subscriber base by providing better services in the semi-urban and rural regions. Although the ARPU from these potential customers will be lower as compared to the current subscriber base, the decline in the overall ARPU will not be significant. © 2007, Portio Research. All Rights Reserved 33
    • The Next Billion Iran • Geographical Area: 1,648,000 sq. km. • Capital: Tehran • Population (December 2006 est.): 70.1 million • Mobile Penetration: 19.4 percent at yearend 2006 • Mobile Subscribers: 13.7 million at yearend 2006 • GDP per Capita (2006 est.): USD 8,700 The mobile market of Iran has seen impressive growth since 2005. The subscriber base of the country grew year-on-year by 60 percent in 2006 as compared to 2005. As of 31st December 2006, the total number of mobile consumers in the country reached 13.7 million, thereby taking the total mobile penetration to 19.4 percent. The primary reason for this growth is the increase in competition among operators and the introduction of pre-paid mobile services. Stimulated by the presence of a large pool of consumers willing to subscribe to mobile services, the mobile market of Iran is expected to increase at a CAGR of 26.7 percent from 13.7 million at year-end 2006 to 44.6 million at year-end 2011. Thus, the overall mobile penetration in the country is anticipated to cross the 60-percent mark by 2011. Figure 28 shows the actual and forecast growth of the subscriber base from 2006 to 2011. Figure 28: Iran – Mobile Subscribers (2006-2011) Subscribers (In Million) 60 44.6 38.9 40 33.7 27.0 19.8 20 13.7 0 2006 2007 E 2008 E 2009 E 2010 E 2011 E Year Source: Portio Research Ltd. E – Estimates During 2007-2011, the country’s subscriber base is expected to increase from 19.8 million to 44.6 million, contributing approximately 24.8 million customers to total worldwide subscriber additions. Almost 80 percent of this subscriber growth is anticipated to come from the urban regions, while the remaining 20 percent will come from rural areas. The blended ARPU for operators in Iran is expected to remain constant at the current level of USD 13. The primary reason for this is the lower share of rural consumers in the net anticipated subscriber growth. In addition, the increase in the usage of data services by urban mobile consumers will further help to counter the effect of the decline in voice tariffs in the future. 34 © 2007, Portio Research. All Rights Reserved The mobile market of Iran is expected to increase at a CAGR of 26.7 percent from 13.7 million at year-end 2006 to 44.6 million at year-end 2011.
    • The Next Billion Figure 29 shows the forecasted subscriber base in the urban and rural regions of Iran by 2011. Figure 29: Iran – Snapshot of Estimated Mobile Subscriber Base (2011) Key Statistics (2011E) Total Subscribers: 44.6 million Penetration: 60.8% Blended ARPU (monthly): USD 12.8 Expected Revenue: USD 6.4 billion Urban Population Total Subscribers: 39.6 million Penetration (2011): 77.2% Additions (2007-2011): 19.8 million Monthly ARPU (2011): USD 13.0 Rural Population Total Subscribers: 5.0 million Penetration (2011): 22.6% Additions (2007-2011): 5.0 million Monthly ARPU (2011): USD 11.0 Source: Portio Research Ltd Mobile services in Iran are primarily limited to the urban regions, where approximately 70 percent of the total population resides. As of year-end 2006, the total subscriber base was close to 13.7 million with insignificant mobile penetration in the rural regions. The mobile market is expected to see a net addition of approximately 24.8 million subscribers between 2007 and 2011, the majority of which will be urban consumers. In order to lure these potential customers, operators need to focus on providing innovative services with customised tariff plans. An effective distribution and sales channel will provide further impetus to mobile operations in the country. © 2007, Portio Research. All Rights Reserved 35 The blended ARPU for operators in Iran is expected to remain constant at the current level of USD 13.
    • The Next Billion Business Models to Penetrate LowIncome Populations Introduction In the period 2007-2011, maximum growth in terms of subscriber numbers is expected to come from the low-income and rural populations in the developing nations. Mobile markets in Asia are expected to lead in terms of net subscriber additions between 2007 and 2011. The ARPU from these potential customers will be lower when compared to that of the current subscriber base; therefore, operators need to focus on their business models to ensure that they can provide mobile services to these customers profitably. The mobile markets of China and India are expected to add 439.1 million and 240.7 million subscribers respectively between 2007 and 2011. Most of these customers will come from rural markets. China Mobile is the leading mobile operator in China and is already making inroads in the rural regions, with approximately 50 percent of its net subscriber additions in 2006 coming from these areas. The company initiated its network expansion in 2004 by introducing mobile services in 30,000 administrative villages and now the population coverage of its network has reached 97 percent. Furthermore, the company has entered the rural markets with a low cost business model; providing a customised tariff structure and subsidised handsets to lure customers in these regions. During 2007-2011, most of the subscriber growth worldwide is expected to come from the rural regions. China and India are expected to contribute the maximum to this growth. In terms of the size of the potential subscriber base, India is the only market which can be compared with China. While mobile penetration in the urban regions of India is close to 40 percent, mobile penetration in the rural regions is insignificant. However, there is huge growth potential for operators as approximately 60 percent of the net subscriber additions between 2007 and 2011 are expected to come from rural regions of the country. In the rural areas of India, power cuts are quite frequent and in certain places there is no power supply at all. Companies such as Ericsson and Idea Cellular have come up with the country’s first base station that runs on bio-fuel. The GSM Association is also a part of this pilot project. This initiative may help power mobile telephony in rural areas of the country. To tap the rural markets all major mobile network operators in India have begun investing heavily in network expansion. For instance, Airtel will invest USD 2 billion for the next two years to expand its network in rural regions. Also, the state-owned operator BSNL plans to invest USD 4 billion to extend its services in the rural regions. Furthermore, handset cost is one of the biggest barriers to increasing mobile penetration in the low income segment. To address this challenge handset vendors and chip manufacturers, as well as mobile network operators, are busy identifying ways and means to reduce the cost of ownership for the lowincome segment. For example mobile network operators such as BSNL and Reliance have launched handsets priced as low as USD 25 to target the low-income segment in India. Apart from China and India, other developing nations in Asia, such as Pakistan, Bangladesh, Indonesia, Philippines, etc. are expected to be major contributors to worldwide subscriber additions in the coming years. In these markets the major portion of the population lives in rural areas. Furthermore, there is a large portion of the low-income population living in the urban areas of these countries. For instance, approximately 50 percent of the population in Bangladesh lives on less then a dollar per day. However, despite such market conditions, mobile network operators in the country have successfully improved mobile penetration and are profitably adding customers from rural regions to their subscriber base. The ‘Grameen village phone’ project in Bangladesh has enabled poor woman to operate their own business. Furthermore, Grameenphone adopted various innovative strategies to effectively provide services to the rural subscriber base. The company introduced small denomination pre-paid vouchers, making them affordable for the BOP [Bottom-Of-Pyramid] segment. Also, it introduced PreTUPS (a prepaid mobile solution) – which enabled retailers to electronically recharge handsets by sending a SMS to the company. 36 © 2007, Portio Research. All Rights Reserved To tap the rural markets all major mobile network operators in India have begun investing heavily in network expansion.
    • The Next Billion With PreTUPS Grameenphone was able to profitably penetrate the low-income segment customers. Furthermore, the PreTUPS concept was adopted by operators in India, which is discussed later in this section. In Latin America, America Movil and Telefonica Moviles are the leading mobile operators. Both these companies consider price sensitive BOP customers an important group of customers and are expected to drive mobile growth in future. To target this low-income category, America Movil offers attractive pre-paid service plans along with subsidised handsets. At the same time, Telefonica is focussing on penetrating new markets with a new low-investment strategy. In Latin America, Price sensitive BOP customers are expected to drive mobile growth in future. Business models/strategies adopted by mobile network operators worldwide to provide profitable mobile services to low-income customers are discussed in the following pages. © 2007, Portio Research. All Rights Reserved 37
    • The Next Billion Case Study 1: America Movil Introduction America Movil, which was established in 2000 and is headquartered in Mexico, is one of the largest mobile network operators in Latin America. The company offers both wireline and wireless telecommunication services and has operations in 16 countries. Most recently, in March 2007, it entered the Puerto Rico market by acquiring Verizon’s operations in that country.4 As of 31st March 2007, America Movil’s wireless subscriber base reached 131.2 million. It registered a net addition of approximately 6.5 million subscribers in Q1 2007. It has its largest operations in Mexico, which contributes approximately 34 percent to the group’s subscriber base.5 This is followed by Brazil and Colombia, which have 24.6 million and 20.0 million subscribers, respectively. The company started its wireless operations using TDMA technology. However, in order to provide better and more cost-effective services, it shifted its focus towards GSM-based services in 2002. The move was primarily meant to accommodate new consumers and further penetrate the Latin American market. With a focus on GSM technology, America Movil gained the first mover advantage in important markets such as Mexico. The gradual process of providing GSM coverage to the entire region not only helped the company to strengthen its foothold in the market, but also enable it to increase its revenues by offering a wide range of value-added services. In addition, opting for GSM technology also provided it with the ability to offer low-cost handsets to price-sensitive consumers. This move resulted in active participation in the mobile revolution by people from low-income groups. As a result of its strong understanding of the Latin American market, which is dominated by people from low-income groups, the company offers attractive service plans to its consumers. The company continues to expand in rural areas offering services to new subscribers with low introductory rates. The following section discusses the key strategies of America Movil that enable it to generate revenues from the low-income group: Key Strategies • Pre-paid Services: To tap the unexploited market that comprised people with low disposable income, America Movil started providing services that did not require the use of credit cards or bank accounts. The initiative was a major boost enabling people belonging to the BOP (Bottom of Pyramid) category to obtain a mobile connection without the normal constraints. Thus, the company witnessed a sharp increase in the number of new subscribers in a short span of time. The strategy not only helped it to become the market leader in Mexico, but also paved the way for America Movil to provide its services to a new segment of potential consumers. As the market is mostly dominated by pre-paid customers, America Movil is trying to increase its pre-paid ARPU in countries, such as Mexico, by offering higher value-added services as well as customised services to these customers. • Subsidised Handsets: To strengthen its subscriber base, America Movil started offering subsidised handsets in the market. The move opened the market to people for whom the cost of a handset was a constraint. For instance, in Mexico, the company offered a startup package named ‘Amigo Kit’ that included a handset and accessories, such as charger and headset, at a subsidised rate to pre-paid subscribers. Furthermore, post-paid subscribers were also offered handsets at a subsidised rate, which they were allowed to retain even after the expiry of their service agreement.6 4 Source: Company Website st Note: As of 31 March 2007. 6 Source: http://sec.edgar-online.com/2002/07/02/0000950130-02-004814/Section3.asp 5 38 © 2007, Portio Research. All Rights Reserved To tap the unexploited market that comprised people with low disposable income, America Movil introduced innovative pre-paid services and offered subsidised handsets, enabling people belonging to the BOP category to obtain a mobile connection.
    • The Next Billion • Distribution Channels: With the launch of pre-paid services, America Movil opened the wireless market for people belonging to the BOP segment. In an attempt to further accelerate its growth, the company developed a web of sales distribution channels and made its services easily available to mobile consumers. The company also signed distribution agreements with leading retail corporations such as Grupo Elektra to make its brand ubiquitous in the Mexican market.7 Affordable pre-paid services backed by effective sales channels helped America Movil reduce the time it took for potential consumers to subscribe to its services. • Interconnection Costs:8 America Movil’s sister company, Teléfonos de México (Telmex), acquired Embratel, which was the largest long-distance operator in Brazil.9 The buyout helped America Movil’s Brazilian subsidiary Claro offer cheaper mobile services to consumers by reducing interconnection costs between the two networks (wireline and wireless). The strategy provided the company with a competitive edge, and thus, enabled it to further penetrate the Brazilian market, which is dominated by cost-sensitive customers. Outlook America Movil’s large mobile subscriber base in Latin America clearly indicates that it has a good understanding of this market. To sustain its growth, the company is continuing to focus on improving its network technology and quality to provide better services to its customers. To strengthen its subscriber base, America Movil will continue to offer subsidised handsets in the market. However, it believes that the handset cost is less important than actual per-minute costs and will therefore maintain a balance between the cost of handset and the structure of the tariffs it offers to its customers. In most Latin American mobile markets, such as Mexico and Brazil, there is huge scope for operators to increase their subscriber base. America Movil, being the market leader in these countries, is hoping to benefit the most from anticipated subscriber growth in this region. The company is expected to continue targeting low-income segments by providing attractive pricing schemes. 7 Source: http://www.wirelesstimesmag.com/mexico_print.htm Note: Interconnection costs are charged by the telephone companies to complete a voice call. 9 Source: http://www.answers.com/topic/telefonos-de-mexico-s-a-adr 8 © 2007, Portio Research. All Rights Reserved 39
    • The Next Billion Case Study 2: Telefonica Moviles Introduction Telefonica, S.A., headquartered in Madrid, Spain, is one of the largest telecommunication companies worldwide. The company was established in 1924 and now has an employee base of over 207,000.10 The total revenue of the company as of 31st December 2006 stood at USD 69.8 billion (EUR 52.9 billion). Its total wireless subscriber base11 was 145.1 million in December 2006. It has the largest subscriber base in Latin America (83.4 million). In terms of revenue, Spain and Latin America are its major markets, contributing 38 percent and 35 percent to its total revenues,12 respectively. The group has a presence in three continents, namely Latin America, Africa and Europe. It operates its wireless networks under the Movistar brand in Spain and Latin America. Moreover, it operates under the brand name of Telefonica O2 and Vivo in Europe and Brazil, respectively. The company provides services to meet the specific needs and requirements of the people of the country it operates in, which are reflected in its success in the Latin American market. Its operating margin in countries other than its country of origin is greater than many of its competitors. Telefonica considers BOP to be an important segment that offers strong growth potential in it for the future. Therefore, the company is expanding GSM coverage in the rural areas of emerging countries, such as those of Latin America. While this section is difficult to serve because it is price- as well as value-conscious, the company is focussing on business models that will help it capture a major share of this market. Moreover, the increase in subscriber base will help the company to compensate for lower ARPU in the future. The company is also providing data services to its existing customers in urban areas in order to sustain its ARPU. Some of the strategies that have been adopted by the company to target the BOP segment are listed below. Key Strategies • Corporate Social Responsibility: Telefonica plans to help bring about socio-economic development in the Latin American region. The region has huge potential to attract a large number of subscribers to the company’s wireless telecom business. Telefonica believes that the economic and social prosperity of the region will automatically translate into an opportunity for the operators in the region. Telefonica has taken various initiatives in this direction, some of these are as follows: ­ After the merger with Bell South in 2004, Telefonica Moviles Peru studied various alternatives to ensure mobile services are available to the BOP segment. The company plans to take its GSM network to 2,000 localities in the country. The first phase of the project was expected to be completed by June 2006; it involved increasing network coverage in 540 population centres in 17 departments (regions). These departments include the department of Apurimac, which is considered to have one of the highest levels of poverty. This indicates Telefonica’s rising interest in the poor regions of Latin America, which will generate revenues for the company in the future. ­ Since 2005, the group has been part of the ‘Connect the World’ initiative promoted by the International Telecommunications Union. The main purpose of this project is to bridge the digital divide by encouraging projects in which private and public bodies collaborate. 10 Note: As of November 2006 Note: Subscriber base includes the total number of subscribers of Telefonica Moviles Group and Telefonica O2 Group (the UK, Germany, Ireland and the Czech Republic). 12 st Note: Total revenue as of 31 December 2006 11 40 © 2007, Portio Research. All Rights Reserved Telefonica is focussing on business models that will help it capture a major share of the market that comprise of priceas well as value-conscious customers.
    • The Next Billion ­ The group has also launched educational programmes in Ecuador for working children and the Pronino programme to eradicate child labour in Latin America. Such initiatives are meant to create awareness about the brand and build a positive image of the company. This can later be leveraged to increase its subscriber base as the people of the region would already be aware of the positive impact of its social initiatives. • Low Cost and Reliable Technology: Telefonica is penetrating new markets with low investment by mixing its existing base with new towers and technology. It is also planning to increase its coverage and lower its operational expenditure by site sharing and network sharing and working on lowering non-network CAPEX by buying time as opposed to owning 100 percent of the bandwidth. Telefonica continues to invest in expanding its network to reach the remote areas of Latin America. In May 2007, one of its subsidiaries, Telefonica del Sur (Telsur), Chile, collaborated with UTStarcom to extend its existing IP-based Personal Access System networks to Coyhaique (the capital of the Aysen Region in Chilean Patagonia, one of the remotest areas in the country).13 This arrangement will help the company reduce its operating cost, and thus, provide a cost-effective wireless service that complements its traditional wireline service in the area. • Tariff Plans: Telefonica has introduced plans which offer huge discounts on calls (national as well as international) to specific numbers as selected by the customer. Even though the operating cost is not the same for rural and urban areas, the calling rates are the same. Such services have helped the company gain new subscribers from the low-income groups. Outlook The next billion subscribers that operators are targeting across the globe have some common features; for example, they are generally low-volume voice users; when it comes to data usage they primarily use SMS; and when it comes to handsets and tariffs, they seek the maximum value. The Latin American market offers a huge opportunity to operators, and Telefonica intends to make the most out of it. The company has invested a significant amount of time and resources in Latin America, and this trend is expected to continue in the future. Increasing competition has driven the company to introduce innovative services that suit the requirements of low-end mobile subscribers. In order to serve this segment better, the company is exploring various ways to reduce cost and offer services at affordable prices. 13 Source: http://biz.yahoo.com/prnews/070530/aqw110.html?.v=8 © 2007, Portio Research. All Rights Reserved 41 Telefonica is investing in low cost and reliable technology to increase its coverage.
    • The Next Billion Case Study 3: China Mobile Introduction China Mobile Limited (formerly known as China Mobile Hong Kong Limited), incorporated in September 1997, is the largest mobile network operator in the People’s Republic of China (PRC). It is also the world’s largest operator in terms of subscriber base, serving approximately 301.2 million customers as of 31st December 2006. The company provides mobile services in 31 provinces and autonomous regions in Mainland China and Hong Kong. As of 31st December 2006, the company reported operating revenues of USD 37.8 billion (RMB 295.4 billion). The total number of employees was reported to be 111,998. In 2006, apart from retaining its existing subscribers, the company focussed on strengthening its subscriber base in rural areas. China Mobile aggressively explored opportunities in the rural markets of the country. It amplified its efforts in developing the rural market by enhancing its network coverage in the area. As a result, the company’s subscriber base reached 301.2 million by December 2006, with almost 50 percent of these 54.5 million net additions in the subscriber base coming from the rural areas. The following section discusses the key strategies of China Mobile that has enabled it to increase its subscriber base in the rural areas of the country: Key Strategies • Network Coverage in Rural Areas: In 2004, China Mobile initiated the ‘Village Connected’ project. In 3 years, the company has expanded its network to approximately 30,000 administrative villages, which were not previously connected to the telephone system. This gave China Mobile an opportunity to provide wireless services to a large population living in these rural areas. Through the construction of base stations in these areas, the company was able to provide communication facilities in places that did not even have reliable roads or electricity to private dwellings. Currently, the population coverage of China Mobile's network has reached 97 percent. • Pricing, Sales and Marketing Strategies: The company has developed different fee packages to attract customers in the rural areas. These packages are customised to suit patterns of consumer behaviour, for example China Mobile launched something called ‘Shenzhouxing Village-only Card’ and aggressively marketed it in these areas. Furthermore, the company provided a range of services to its rural customers, such as handset repair, fee collection and over-the-air recharging. China Mobile made sure that marketing and service costs were kept low, largely through economies of scale achieved in such a vast market. The marketing and sales channels were also well-managed. Moreover, it enhanced resource utilisation and minimised subscriber acquisition costs through large-scale integrated sales, which provided the company with a significant edge over its competitors. • Information Services: China Mobile has focussed on providing information services to rural customers, which can effectively contribute to the growth of its business. The company launched an agricultural information service, which caters to the needs of its rural customers by providing useful information for the production, supply and the sale of agricultural products plus the management of rural administrative affairs, etc. Some farmers even use their handsets to check weather forecasts. Furthermore, China Mobile introduced a platform known as the Rural Information Network. It enables voice and SMS access to the www.12582.com website for information focussed on 10 major areas, including policies and regulations, news briefings, agricultural technology, price information, supply and demand information, weather forecasts and more. 42 © 2007, Portio Research. All Rights Reserved China Mobile had developed a different fee packages to attract customers in the rural areas. At the same time, it made sure that marketing and service costs were kept low.
    • The Next Billion These information services provided have also proved to be beneficial for the rural customers; they can now receive information on job opportunities in the agriculture domain. For instance, in 2006, the company sent out SMS messages to approximately 6,000 households in the country, providing information on a job opportunity in Xinjiang for cotton pickers. Information services for the rural areas aim at driving balanced development across the regions; they attract a large pool of customers by offering services that can be useful to people in their day-to-day lives. • Imparting Mobile Technology Training in Rural Areas: The company has taken several initiatives to impart basic training in mobile technology to the rural population to increase the rate of adoption of mobile services. In April 2006, China Mobile in collaboration with the Central Youth League launched the China Mobile Telecommunications Support Plan for the Rural Youth Centre and contributed approximately USD 5 million (RMB 40 million) to this establishment. The project aims at building 900 China Mobile information service outlets in these centres. Furthermore, by December 2006, the company provided basic technology training to over 1,200 village officials and other rural people. Outlook The rural mobile market of China has become the fastest growing sector in the country. This is mainly due to the strategies adopted by operators, specifically China Mobile. The demand for mobile services has also increased in the country due to the continuing growth of the Chinese economy. Mobile penetration in the rural regions is low, so there is a huge potential for operators to expand in terms of the number of subscribers and service revenues. In addition, SMS-based services such as information services are expected to become popular among the rural customers, and are expected to boost profits for operators. Apart from providing basic services in the rural markets, China Mobile is focussing on generating revenues from advanced data services. In 2004, the company signed an agreement to become a partner for the Beijing Olympics in 2008. The company aims to launch highly advanced data services for the Olympic Games on 3G networks. © 2007, Portio Research. All Rights Reserved 43 The rural mobile market of China has become the fastest growing sector in the country.
    • The Next Billion Case Study 4: Smart Communications Introduction Smart Communications is the leading mobile network operator in the Philippines. In terms of mobile subscribers, the company has the largest market share at approximately 58 percent. As of March 2007, the company’s GSM subscriber base reached 25.5 million. Smart is a wholly owned subsidiary of the telecommunication carrier, Philippine Long Distance Telephone Company. The company also provides fixed wireless broadband services and satellite phone services in the country.14 Wireless service revenues for the company in Q1 2007 were USD 0.4 billion (20.8 billion pesos). Data revenues contributed USD 0.2 billion (10.5 billion pesos), i.e., 50.5 percent of the total wireless service revenues. This was primarily driven by innovative text packages offered by the company to its subscribers. The high uptake of SMS among Smart’s subscribers can be attributed to its BOP business model, which has revolutionised the mobile market in the Philippines by enabling significant numbers of consumers in the low-income segment to have access to mobile services. The company has focussed on innovating continuously in its SMS-based service offerings and pre-paid services. The following section discusses the company’s strategies to strengthen its low-income customer base in the Philippines: Key Strategies • BOP Model to Target Low-income Customer Base: Smart’s strategy of focussing on addressing the needs of the mass market BOP consumers, which constitutes more than 50 percent of the Philippines’ population, helped it to become the dominant operator in the country. It has launched a number of innovative SMS-based services to meet the demands of low-income consumers. The strategy was so successful that more than 98 percent of the subscriber base of Smart now constitutes pre-paid customers, who are price-sensitive and the most frequent users of low-cost services such as SMS. Smart achieved success by adopting a unique business model and developing marketing and distribution strategies, especially designed to meet the needs of a wide range of customers in the low-income group. The business model was to develop the Smart Load system, which would load airtime credits over-the-air (OTA) from a retailer’s pre-paid account after receiving an SMS request from the subscriber, thus eliminating the need for any recharge vouchers. The business model helped the company to significantly reduce its distribution costs. The savings were used to develop a strong network of retailers, enabling SMART to keep the cost of sending SMS messages low. Furthermore, the initial cost for establishing the retail network was minimal, so that Smart retailers are present virtually everywhere in the country. • Low-cost Pricing Models: To make mobile services affordable to the BOP market, Smart developed low-cost airtime packages. This self-sustaining model helped Smart gain access to a vast cost-conscious consumer group and drove SMS growth among them. A number of initiatives taken by the company led to a huge uptake of SMS among the lowincome group in the Philippines. Some of these initiatives are as follows: ­ The company launched a low-cost, high-coverage service in 2000 called SmartBuddy, offering text-only SIM cards, which can be reloaded by purchasing ‘call and text’ cards in small denominations, such as USD 5.38 (PHP 300), USD 8.97 (PHP 500) and USD 17.95 (PHP 1,000). ­ Smart launched a text-only card service PureTxt 100 for USD 1.8 (PHP 100) in August 2002. The service offered subscribers an opportunity to stay connected to the network even when they had very little disposable income available, and as a text-only service, it included 10 free text messages, valid for 1 month. The service was highly 14 Source: http://www.smart.com.ph/Corporate/About/Company/ 44 © 2007, Portio Research. All Rights Reserved Smart achieved success by focussing on addressing the needs of the mass market BOP consumers.
    • The Next Billion appreciated and became an instant success among the public, reducing churn for Smart and also encouraging people who could not previously afford high-denomination cards. The price of a single SMS was kept as low as USD 0.02 (PHP 1) in comparison to the price of a voice call (USD 0.14 during peak hours and USD 0.07 during off-peak hours). ­ Furthermore, Smart, has continued to target low-income groups, introducing the Pasa Load service in December 2003, which further fuelled growth in the number of subscribers. The service offered airtime recharges in denominations of USD 0.03 (PHP 2), USD 0.08 (PHP 5) and USD 0.27 (PHP 15). • Innovative Marketing Strategies: The company adopted a unique business model and developed innovative marketing and distribution strategies to meet the needs of a wide range of customers in the low-income segment. The company advertised its new unlimited SMS offerings extensively, using billboards in rural areas and through vans and threewheelers, the most common means of transportation in the Philippines. As a result, there was a huge uptake of SMS within a year, with the SMS traffic volumes increasing from 44 billion in 2005 to 110 billion in June 2006. Outlook The mobile market in the Philippines has seen significant growth in the last few years. At year-end 2006, the wireless penetration rate in the country was approximately 46.6 percent. SMS has been immensely successful, and the territory is popularly known as the ‘SMS capital of the world’. There is still huge growth potential for operators in the Philippines, and SMS is expected to continue playing the most important role in driving mobile penetration in the country. © 2007, Portio Research. All Rights Reserved 45 The company’s unique business model and innovative marketing and distribution strategies were targeted to meet the needs of customers in the low-income segment.
    • The Next Billion Case Study 5: Bharti Airtel Introduction Bharti Airtel Limited (Airtel) was established in 1995 and is headquartered in New Delhi, India. It is the largest mobile network operator in India; it had a 25.2 percent market share in terms of subscriber base as of December 2006. As of 30th June 2007, the company’s wireless subscriber base reached approximately 42.7 million after adding 5.6 million customers in the last three months of the year. The company’s consolidated revenues for the financial year 2006 was USD 4.2 billion (INR 185.2 billion).15 The company offers GSM-based mobile services, wireline telephones, digital subscriber line (DSL) broadband services, long-distance services and enterprise solutions to businesses in India. Airtel is the first private operator with a footprint in all 23 telecom circles (circles are geographical zones in the Indian telecom industry) in the country. India’s mobile market is entering into a new phase of growth. As of December 2006, mobile penetration in urban regions was about 40 percent. However, mobile penetration in rural areas was as low as 2 percent. Because there is huge potential for mobile services in rural areas, operators, such as Airtel and Reliance, are expected to expand their networks aggressively in these areas. Subscriber growth in the past 12 months has largely been driven by subscribers in towns and rural areas. Apart from operators, handset vendors are also focussing on driving growth in the low-income segment. Handset prices in the country have fallen as low as USD 25, making them accessible to the rural population of the country. The cost of voice calls in India is among the lowest worldwide, i.e., approximately 2 cents per minute. India is also among the lowest ARPU nations in the world. Operators are adopting various strategies to generate growth from rural areas, while still maintaining profits. Some of the strategies adopted by Airtel in this direction are as follows: Key Strategies • Expansion of Network in Rural Areas: In July 2007, Airtel announced that it signed a contract with Ericsson worth USD 2 billion to expand its network in rural areas. This is in line with the company’s strategy to increase its subscriber base in the country.16 Under the terms of the contract, Ericsson will design and manage Airtel’s network in 15 of the 23 telecom zones in India over the next 2 years. Furthermore, also in July 2007, the company has also signed a USD 900 million deal with Nokia Siemens to expand its network to 8 of these zones.17 This signifies the growth potential in India and Airtel’s strategy to maintain its market leadership. • Pricing and Sales Strategies: In an effort to penetrate the rural areas with mobile services, Airtel introduced lifetime validity products which are designed to last for the subscriber’s lifetime. Mobile subscribers can get a lifetime pre-paid connection for USD 11.2 (INR 495). The calling rates in this scheme are low. These products have enabled the company to dramatically expand its subscriber base in recent past. According to the trend recorded by the company, the usage is low during the first month when the customer buys a lifetime connection; however, it increases in the subsequent months. Furthermore, Airtel has introduced various schemes to make its services affordable so that even rural customers can subscribe to mobile services. One of these schemes includes selling of handsets with mobile connections as a bundle. Under this scheme, the company is providing feature-rich handsets with strong after sales support, which it believes is important for penetrating the rural markets. 15 Source: Company website Source : http://uk.biz.yahoo.com/18072007/323/ericsson-wins-2-billion-deal-india-s-bharti-airtel.html 17 Source : http://www.tmcnet.com/usubmit/2007/08/19/2872740.htm 16 46 © 2007, Portio Research. All Rights Reserved Airtel has begun to invest heavily in expansion of networks in the rural areas.
    • The Next Billion Moreover, as many customers in the rural regions are illiterate, the company has introduced an easy recharge scheme, in which subscribers do not need to read and follow the instructions provided on the recharge coupons. Their handsets can be recharged by the retailers electronically by sending an SMS to the company. This further reduces the operational cost incurred in printing, packaging, transportation, warehousing, insurance, inventory and sales tracking. • Focus on Back-end Processes: To match the pace of growth which is expected in the rural regions of the country, the company is focussing on improving its back-end operations. Airtel management believes that it is important to have sound back-end IT systems and processes, such as CRM and support services, etc., to cope with the challenges involved with penetrating rural markets. Outlook The Airtel management believes that there is immense growth potential in the Indian rural market. In 2007, rural areas accounted for a net addition of approximately 20 percent of the number of subscribers. This figure is expected to grow exponentially in the future. In India, between 2007 and 2011, approximately 62 percent of the net subscriber additions are expected to come from rural areas. © 2007, Portio Research. All Rights Reserved 47 Airtel has introduced various schemes to make its services affordable so that even rural customers can subscribe to mobile services.
    • The Next Billion Case Study 6: Rural Payphones In countries such as Bangladesh, India and Pakistan, where the majority of the population lives in rural areas, telecom services seem to play an important role in driving the country’s economic growth. Factors, such as low-income levels and limited purchasing power, severely restrict penetration in rural areas. Operators in these developing countries are focussing on providing services to the large rural population instead of those with high incomes. Operators, such as Grameenphone in Bangladesh, Mobilink in Pakistan, Idea Cellular in India and MTN in Africa, have deployed wireless PCOs (Public Call Office) or payphones to facilitate communication in underdeveloped areas of their respective countries. In these schemes, the operator provides the opportunity to individuals living in the rural or semi-urban regions to earn extra income. This section discusses some of the initiatives taken by the Asian operators in this direction: • Grameen Village Phone: The Grameen Village Phone (GVP) project, started by Grameen Telecom in 1997 in Bangladesh, has enabled women from low-income groups to operate their businesses. Grameen Telecom is a non-profit organisation and is a sister concern of Grameen Bank, with a 38 percent stake in the country’s leading mobile network operator Grameenphone. It provides dedicated telecommunication services in rural areas. Grameen Telecom, through the GVP project, has driven the use of handsets among rural people, most of which are women. Under the scheme, an individual can purchase a handset along with a subscription by a loan from Grameen Bank; Grameen Telecom officials provide training on how to use handsets. The Village Phones act as an owneroperated pay phone, enabling individuals to earn by charging others for the calls. This project has been a huge success in Bangladesh. In 2006, the total number of village phone operators increased to 260,000 in more than 50,000 villages around the country.18 • Mobilink PCO Self-employment Scheme: In 2006, Mobilink launched the PCO selfemployment scheme in Pakistan. Under this scheme, an individual can purchase a fixed wireless handset with a pre-paid connection, and then can earn an income through it by charging for the calls according to the tariff plan provided by the company. The PCO kit box provided by Mobilink includes a fixed wireless handset, a pre-paid connection equipped with tariff posters, a scratch card, a pen, a calculator and a notepad. As of July 2007, the cost for the complete PCO kit was USD 74.6 (PKR 4,500).19 The PCO selfemployment scheme enables an individual to start his or her own business very quickly. The PCO service has proven to be a major success for Mobilink. The company provides network coverage in more than 1200 cities, towns and villages in the country. Currently, the service is providing sustenance to over 30,000 families in Pakistan. • Idea Cellular Shared Access: Idea Cellular is the fifth largest mobile network operator in India. The company is now focussing on creating an additional revenue stream by providing mobile services to low-income customers. In 2006, the company launched the Shared Access (voice and data) programme for the rural population in India. The scheme focuses on sharing handsets, and thus creating an income opportunity for low-income handset owners living in rural areas. It enables individuals to start their business at the same cost as that required for owning a handset. As with the Grameen Village Phones scheme, the mobile owner can earn by charging for outgoing calls. Furthermore, the company provides specially devised software with a printer to print a bill for the customer. In addition, the handset owner can earn by charging for sending SMS messages. 18 19 Source: http://www.grameenphone.com/index.php?id=79 Source: http://www.mobilinkgsm.com/about/media/press/pco2_PR.pdf 48 © 2007, Portio Research. All Rights Reserved Operators, such as Grameenphone in Bangladesh, Mobilink in Pakistan, Idea Cellular in India and MTN in Africa, have deployed wireless PCOs or payphones to facilitate communication in underdeveloped areas of their respective countries.
    • The Next Billion The strategies adopted by mobile operators in Asia to penetrate the rural markets have also been used by operators in African countries, such as Kenya, Uganda, Zambia and Rwanda. Celtel, one of the leading regional operators across Africa, is focussing on promoting its payphone service in several African countries including Malawi, Kenya and Uganda among others, under the brand One4All. © 2007, Portio Research. All Rights Reserved 49
    • The Next Billion Low-Cost Handset Initiatives Overview The cost of a handset is one of the main inhibitors of mobile penetration in the low-income segment. To counter this challenge, mobile vendors, chip manufacturers and service providers are identifying ways and means to reduce the cost of ownership in this segment. Connecting the next billion subscribers, a majority of whom are from the low-income segment, does not only serve a social purpose, but also makes business sense. Since most of the developed markets are saturated and expanding handset sales in these markets is difficult, handset vendors consider this an enormous opportunity in the developing markets. In recent years, most of the growth in mobile services has come from developed countries, but this scenario has changed and the maximum growth is now expected to come from emerging markets, particularly from the low-income segment. Even market surveys reveal that these potential subscribers are interested in owning a handset. This new market segment has the potential to add more than 1 billion subscribers in the next 5 years. Though the opportunity is huge, the subscriber base can not grow unless low-cost handsets are introduced into these emerging markets. The global mobile handset market has seen substantial growth in the past five years, especially in 2006. More than 990 million handsets were sold in 2006, an increase of 21.3 percent over 816.6 million handsets sold in 2005. Worldwide handset shipments from 2002 to 2006 are shown in Figure 30. Figure 30: Worldwide Handset Shipments 990.8 Handset Shipments (In Million) 1000 816.6 800 682.8 600 513.7 423.4 400 200 0 2002 2003 2004 2005 2006 Year Source: Gartner and Portio Research Ltd. The phenomenal growth in the number of handsets sold can be attributed to increasing demand in the emerging markets in Asia Pacific, Central and Eastern Europe, the Middle East, Africa and Latin America, coupled with healthy handset replacement rates among the ever-increasing installed subscriber base. With the number of new subscribers growing at an exponential rate in the emerging markets worldwide, some sources expect the annual shipment figure to reach 1.5 billion worldwide by 2011.20 According to data for annual shipments in 2006, Nokia rather unsurprisingly remained as the market leader. It shipped 347.5 million handsets in 2006, accounting for a 35.1 percent market share. Motorola ranked second, with 217.4 million handsets. The other leading vendors were Samsung, Sony Ericsson and LG. These five companies together accounted for approximately 80 percent of the global market. 20 Source: http://www.analysys.com/default_acl.asp?Mode=article&iLeftArticle=2181&m=&n= 50 © 2007, Portio Research. All Rights Reserved The cost of a handset is one of the main inhibitors of mobile penetration in the low-income segment. Mobile vendors, chip manufacturers and service providers are identifying ways to counter this challenge.
    • The Next Billion Table 8 provides the handset shipments of leading handset vendors worldwide. Table 8: Handset Vendor Quarterly Handset Shipments Worldwide – 2006 (In Million) Q1 2006 Q2 2006 Q3 2006 Q4 2006 Total Nokia 75.1 78.4 88.5 105.5 347.5 Motorola 46.1 51.9 53.7 65.7 217.4 Samsung 29.0 26.3 30.7 32.0 118.0 Sony Ericsson 13.3 15.7 19.8 26.0 74.8 LG 15.6 15.3 16.5 17.0 64.4 Source: Company websites The regional break-down of handset sales in 2006 reveals that the emerging markets account for a major share of handset sales. The break-down is as follows: • In Asia Pacific, the increase in the total sales of handsets was 47 percent over that in 2005. The figure stood at 301 million units in 2006. • In Africa, Middle East and Eastern Europe, the number of handsets sold was 185 million, reflecting a 21 percent increase over 2005. • Latin America showed strong growth of 16 percent over 2005. The number of handsets sold was approximately 118 million units in 2006. • In Japan, handset sales increased by 5 percent over that in 2005. • In North America, total handset sales was approximately 164.2 million units. • In Western Europe, growth in sales was 7 percent over that in 2005. The regional break-down of handset sales is shown in Figure 31. Figure 31: Handset Shipments – Regional Break-up (2006) Japan 4.8% Western Europe 17.7% Asia Pacific 30.4% Latin America 11.9% North America 16.6% Eastern Europe, Middle East, Africa 18.7% Source: Gartner and Portio Research Ltd. According to a Vodafone report, an extra 10 handsets per 100 people in an emerging country increases the GDP growth by 0.6 percent. The world is expected to register 50 percent mobile penetration in 2008 and nearly 80 percent of the developing world population is now covered by mobile networks; this figure is growing continuously. Even though a large section of the world population has access to mobile networks, the lack of affordability of handsets has limited the use of mobile services among the low-income segment. There are significant numbers of people worldwide who live in areas where wired telephones do not yet exist. The only cost-effective way to connect them is through mobile services. In order to lower the entry barrier in emerging markets, initiatives have been taken to introduce low cost handsets. This initiative is expected to bridge the digital divide and © 2007, Portio Research. All Rights Reserved 51 Lack of affordability of handsets has limited the use of mobile services among the low-income segment.
    • The Next Billion increase mobile penetration, thus assisting the social and economic development of the emerging countries. Handset prices have been reduced as part of this initiative. According to a report by LirneAsia, a large number of people (79 percent) who do not own mobile handsets in the BOP segment of countries, such as Pakistan and India, expect the cost of a new handset to be less than USD 25. Therefore, subscribers in this segment resort to the use of second-hand handsets. Non-owners in BOP Segment Figure 32: Expected Initial Cost of Getting Connected 100% 3 18 3 18 80% 52 70 60% 40% 79 79 38 20 20% 10 Pakistan India Less than USD 25 USD 26-55 10 Sri Lanka 0% Philippines USD 55 and above Source: LirneAsia In countries such as the Philippines, about 40 percent of the mobile owners in the BOP segment own second-hand mobile handsets. Similarly, in countries such as India, Sri Lanka and Thailand, about 30 percent of the mobile owners in the BOP segment use second-hand handsets, which come at almost half the price of a new handset. Figure 33: Usage of New and Second-hand Handsets in BOP Segment Handset Owners in BOP Sement 100% 80% 64 60 72 72 28 60% 28 India Sri Lanka 66 40% 20% 36 40 34 Philippines Thailand 0% Pakistan Using second-hand handsets Using brand new handsets Source: LirneAsia In many countries, a significant percentage of the overall handset cost is tax. Taxes include import duties, sales tax, VAT and handling taxes. All these constitute part of the overall price of the handset. On an average, these taxes account for approximately 20 percent of the overall handset cost. Mobile penetration would undoubtedly increase if these taxes were reduced in emerging mobile markets. Operators argue that if taxes are reduced they will be able to attract new subscribers. Once these subscribers start using the service, they will pay service tax which in the long term will prove more beneficial for governments. In addition, a reduction in taxes will also restrict the black market. 52 © 2007, Portio Research. All Rights Reserved To cater to large section of population in the emerging countries, the cost of handsets is expected to decline.
    • The Next Billion Initiatives by Handset Vendors Motorola Motorola, headquartered in Illinois, US, is a Fortune 100 company and a global communications leader. It is the second largest handset vendor worldwide. The company provides seamless mobility products and solutions across wireless networks, embedded systems and broadband. The company is a member company of the GSM Association’s Emerging Market Handset Initiative. The initiative was launched at the 3GSM World Congress in February 2005 to bridge the digital divide and provide mobile access to that section of the world which has not yet been able to use these services. The objective is to provide mobile access to 80 percent of the world’s population by 2010. The initiative has proved successful and the handset industry has been able to introduce handsets at wholesale costs of less than USD 30. In September 2005, Motorola was announced as the supplier of the sub-USD 30 handset in phase two of this initiative. The company submitted two types of handsets in its proposal—C113 and C113a. These handsets were designed to serve the handset markets of the developing nations. Motorola also won phase one of the initiatives. Its handsets based on the C11X platform were chosen to be supplied to 17 countries (India, South Africa, Nigeria, DRC, Egypt, Algeria, Tunisia, Bangladesh, Turkey, Thailand, the Philippines, Malaysia, Indonesia, Pakistan, Yemen, Sri Lanka and Kenya) through 10 mobile operators. These handsets enabled many people to use basic mobile communication services. According to a report by Lehman Brothers, the Motorola C115 handset helped GSM operators in India increase their monthly net subscriber additions by one-third to 1.6 million in June 2005. Motorola is focussing on increasing its handset sales by introducing low cost handsets to cater the low income customers in the emerging countries. Motorola has been able to manufacture ultra low-cost handsets that consume less power and have a talk time of 340-700 minutes and standby time of 175-450 hours. These handsets have been manufactured using single-chip platforms from Freescale Semiconductors, formerly a Motorola subsidiary. Motorola was selected by the GSM Association (GSMA) to supply 12 million of these handsets to 10 telecom operators in developing markets. In an initiative to ‘connect the unconnected’, the GSMA recently selected Motorola as the lead vendor to address the demand for low-cost handsets. Motorola’s 2G GSM handset Motofone F3 was selected as the best ultra low-cost handset. Sony Ericsson Sony Ericsson, headquartered in London, was established in October 2001. The company provides multimedia devices and related accessories, and is one of the world’s leading handset vendors. It is a 50:50 joint venture between Sony Corporation and Ericsson AB. In its effort to increase its low-cost handset portfolio, the company is planning to manufacture such handsets in India. The company has entered into an agreement with Flextronics and Foxconn to manufacture these handsets, and it expects to manufacture 10 million handsets annually in India by 2009. The handsets will have features such as colour screen, music functionalities and other customised features, designed for the Indian market. They will have local content and customised keypads for the Indian market. Since these handsets will be manufactured in India, it will lead to cost efficiency and enable the company to price them competitively. Sony Ericsson will also set up an R&D facility in the country to take advantage of low labour costs and India’s booming mobile handset market.21 This step is part of the company’s global strategy to make the most of the growing handset market in the developing 21 Source: http://www.itpro.co.uk/servers/news/103512/sony-ericsson-to-make-lowcost-phones-in-india.html; http://www.networkworld.com/news/2007/062107-sony-ericsson-setting-up-rd.html?inform © 2007, Portio Research. All Rights Reserved 53 In its effort to increase its lowcost handset portfolio, Sony Ericsson is planning to manufacture such handsets in India.
    • The Next Billion regions worldwide. This is predicted by some sources to spur growth, and help Sony Ericsson become one of the top three handset vendors in the world. In 2006, Sony Ericsson announced the launch of a number of low-cost entry-level handsets. In 2007, the company announced a partnership agreement with Sagem Communications to introduce low-cost entry-level handsets. The two companies have signed licensing and Original Developer Manufacturer (ODM) agreements to manufacture entry-level GSM, GPRS and EDGE mobile handsets. According to the agreement, Sagem Communications will licence hardware and software technologies related to mobile platforms to Sony Ericsson and provide a number of Sony Ericsson handsets as part of the ODM agreement. This initiative will allow the company to increase its presence in the low-cost handset market, and thus take advantage of growing handset sales in the developing markets. LG Electronics LG Electronics, headquartered in Seoul, South Korea, is one of the world’s leading manufacturers of consumer electronics, home appliances and mobile communication products. The company was established in 1958 and employs more than 82,000 people. The company has four business divisions—mobile communications, digital appliances, digital displays and digital media. The GSM Association’s ‘3G for All’ campaign is driving vendors and OEMs to introduce lowcost technologies, which will eventually make 3G mobile services accessible to a large section of the low-income segment. LG Electronics has launched a slim, low-cost, multimedia handset, which was selected by 12 leading mobile operators to spearhead this campaign. The operators will enable LG to achieve economies of scale in manufacturing, logistics and marketing, and thus produce the handset at a price which would be about 30 percent less than that of a typical entry-level 3G handset. The handset has been developed by using a chipset supplied by Qualcomm. It supports a number of functions, such as video calls, highspeed Internet access, multi-tasking and a wide range of multimedia services. Royal Philips Electronics Royal Philips Electronics is based in the Netherlands and is a global leader in healthcare, lifestyle, and technology products and services. The company has a presence in more than 60 countries worldwide. The company expects to introduce mobile handsets, which will be priced below USD 20, for the world’s emerging markets. As part of its overall initiative to develop ultra low-cost mobile communication solutions for emerging markets, Royal Philips Electronics has set up a new design centre in Shanghai, China. The centre is part of the company’s initiative to address increasing consumer demand for ultra low-cost handsets in developing markets. The demand for such handsets is very high in India, China, Africa, Latin America and Eastern Europe. The company expects to reduce the overall cost of handsets to less than USD 15 by 2008. The centre works in association with European design facilities and its India-based innovation campus to help ODMs, OEMs and operators reduce handset costs. This centre provides local technical support, the latest development equipment, expertise on hardware and software design to its clients. The company has introduced a cellular system called Nexperia, which contains hardware, software and other tools necessary for producing low-cost handsets. The company has collaborated with China TechFaith Wireless Communication Technology Limited, a handset solution and application software provider, to produce a reference phone. This handset has been designed to meet the demand of consumers in emerging markets. Nexperia provides manufacturers with access to tried-and-tested, ready-to-produce handsets. This technology was used by Haier Electronics Group Co. to manufacture mobile handsets. Vendors, such as Nokia, LG and Motorola, are making efforts to increase brand awareness in Indian villages through ‘touch-and-feel’ experiences. They plan to make the low-priced entrylevel handsets available in mandis, haats (these are types of market in India) and rural retail 54 © 2007, Portio Research. All Rights Reserved Royal Philips Electronics expects to introduce mobile handsets which will be priced below USD 20.
    • The Next Billion chains. Nokia, in an effort to localise its handset, has already started developing regional content capabilities. In addition, it is launching a new range of handsets starting from USD 40 with features such as FM radio, General Packet Radio Service (GPRS) and camera. One of the best features in the handset is the cost tracker (It tells users how much talk time is available and the cost per call). Key Highlights • The GSMA launched the Emerging Market Handset initiative to bridge the digital divide and increase the penetration of ultra low-cost handsets in the low-income segment of the world’s emerging markets. The association’s ‘3G for All’ campaign aims to provide a wider user base for 3G mobile handsets. • Motorola’s Motofone F3 was selected as the best ultra low-cost handset by the GSMA for its initiative ‘connect the unconnected’. The GSMA chose Motorola to supply 12 million handsets to 10 mobile operators in these emerging markets. • Sony Ericsson plans to produce 10 million handsets annually in India by 2009. The company is also planning to set up an R&D facility in the country to take advantage of the low cost of labour in the country. • LG Electronics’ handsets were selected by the 12 leading mobile operators to spearhead the ‘3G for All’ initiative. • Royal Philips Electronics plans to introduce handsets that cost less than USD 20 for the emerging markets, falling to USD 15 in a couple of years time. In addition, it has set up a new design centre in Shanghai, China, to address the increasing demand for ultra low-cost handsets in the emerging markets of Asia. © 2007, Portio Research. All Rights Reserved 55
    • The Next Billion Initiatives by Chip-Set Vendors and other OEMs In an effort to lower the cost of handsets, vendors are seeking handsets that use cheap components. One of the ways to do this is through the use of low-cost chip platforms. Some of the world’s biggest chipmakers, such as Infineon Technologies, Qualcomm, Motorola, Philips and Texas Instruments, have already begun to work on lowering the chip cost. In fact, they have already introduced low-cost mobile chips that have helped to reduce the cost of mobile handsets. Efforts are also being made to lower energy consumption as low-income subscribers seek handsets that have longer standby and talk times. Texas Instrument Texas Instrument (TI) based in Dallas, US, was founded in 1930. The company is one of the world’s leading semiconductor and computer technology developers. The company is a leader in the supply of chips for mobile handsets as well as the production of digital signal processors and analogue semiconductors. TI has been able to enter the emerging markets by developing single-chip systems with its digital RF processor technology. The single-chip handset has been developed to target the low-income voice-centric markets. In order to reduce costs, the company has integrated all the handset electronics into a single chip. This reduces power requirements, the board and silicon area, and facilitates the design of low-cost handsets.22 Its first SoC [System-on-aChip], based on 90-nm CMOS circuits, has been branded as LoCosto. This technology was selected by TCL Communication Technology Holdings, based in Shenzen, China, for its handsets. To target entry-level markets, Nokia also chose TI’s technology. Lenovo Mobile, China’s leading handset vendor selected TI’s LoCosto single-chip platform for a new range of low-cost, multimedia-rich cell phones. In an initiative to ‘connect the unconnected’, the GSMA and the operators recently praised a 3G handset from Nokia. This handset can support a range of 3G multimedia services and has been developed using TI’s chipset, which has been designed according to the specifications provided by Nokia. LoCosto ULC Solutions: TI’s LoCosto ULC single-chip portfolio (TCS2305 and TCS 2315) is the company’s 3G GSM-based solution for the ultra low-cost entry range handsets targeted at emerging as well as cost-sensitive developed markets. The solution has reduced the number of components used, the board space, power consumption, and thus the overall cost of the system. The component count has been reduced by about 40 percent. Reduced power consumption has led to a 30 percent increase in talk time and about 60 percent increase in standby time. USB charging has been made possible, which enables universal and easy charger access. This solution has helped with the manufacturing of low cost handsets, which are small in size and offer economic power consumption. The manufacturing of ultra small and slim handsets has been made possible by the use of TI’s LoCosto ULC initiative; since the component count has reduced, the board space has shrunk, and this has enabled the handsets to support bigger batteries. The use of large batteries has increased the standby and talk time. The quality of voice is on par with that offered by the more expensive handsets, even double talk time and voice chopping has been reduced to a large extent. The use of TI’s hardware-based M-ShieldTM technology in the LoCosto ULC solution has increased the security of mobile handsets. This technology not only secures the handset owner’s sensitive information, but also reduces the possibility of being able to unlock the handset’s SIM code. This kind of security is possible only in the hardware-based security system offered by TI. 22 56 Source: http://www.mobilepundit.com/2006/09/19/bsnl-to-launch-sub-1000-handsets/ © 2007, Portio Research. All Rights Reserved Chipmakers, such as Infineon Technologies, Qualcomm, Motorola, Philips and Texas Instruments, have already begun to work on lowering the chip cost.
    • The Next Billion The solution delivers the lowest cost colour handset, smooth user interface processing, MP3 and polyphonic ringtones, better voice quality, improved loudness, FM radio connectivity and the ability to record FM radio. It is well-known that most of the next billion subscribers will come from the emerging, costsensitive markets of India, China, Brazil and the other Asian, African and Latin American nations noted in this study. TI’s solution is well-suited to such markets as it has a sustainable low-cost structure. At the same time, the solution is also suited to established markets and other regions as it has several advanced features, which are in tune with demand in those markets. The solution has given operators and handset vendors in emerging as well as mature markets, the ability to differentiate their products on the basis of cost. TI’s DRP RF architecture has been used in TCS2305 and TCS2315 solutions to reduce the cost of handsets. Transmitting and receiving information wirelessly involves cost and requires power; the use of DRP technology reduces both. Use of this technology has enabled different functions to be implemented on a single chip. This was not possible previously as it required discrete devices to implement different functions. Since analogue functionalities have been digitised, the manufacturing time has been reduced; this has led to a reduction in cost resulting from a reduction in the size of the underlying platform. Infineon Infineon Technologies, headquartered in Munich, Germany, was established in April 1999 as a spin off from Siemens AG. The company offers semiconductor and system solutions for application in telecommunication, automotive and industrial sectors. Infineon, in its first-generation low-cost SoC platform for cheap handsets, was able to successfully reduce the number of electronic components from 200 to 100 by combining the baseband and RF components into a single chip. The ULC1 platform was the first system solution from Infineon that targeted the ultra low-cost handset market. Later, in its secondgeneration reference design ULC2, it reduced the number of components to less than 50. The company is currently working on reducing the total platform material cost from the second generation’s USD 16 to USD 10. ZTE Corporation has selected Infineon Technologies as the supplier of ULC2, which is based on the single-chip E-GOLD™voice solution. ULC2 will be integrated into the new ZTE phone models to lower their cost. This solution is designed for voice-centric handsets with features such as colour display, text messages and polyphonic ringtones. TechFaith Wireless TechFaith Wireless, headquartered in Beijing, China, is one of the leading designers and developers of mobile handset software and design solutions. The company was established in July 2002 and has the largest and most advanced handset R&D team in China. The company is planning to launch two ultra low-cost 3G handsets. These handsets are being manufactured to target the emerging markets of India, Southeast Asia, Russia, Eastern Europe and Latin America. These handsets would be based on Qualcomm’s single-chip MSM 6245 solution. The company recently entered into a joint venture (JV) with Arasor to expand wireless handset opportunities to the emerging markets worldwide. The funding for this is to be provided by Arasor, whereas TechFaith will provide product development engineers, testing equipment, working facilities and intellectual property. The main objective of the JV is to develop handsets which are of a low cost and equipped with features that are required by the consumers of the developing world. The company is targeting markets such as India, the Middle East and Southeast Asia. © 2007, Portio Research. All Rights Reserved 57 Infineon was able to successfully reduce the number of electronic components from 200 to 100.
    • The Next Billion QUALCOMM QUALCOMM, headquartered in San Diego, US, was founded in 1985. It is a wireless telecommunications research and development company. The company is a leader in developing digital wireless communications products and services based on CDMA and other advanced technologies. In 2006, QUALCOMM introduced its first-generation QUALCOMM Single Chip™ (QSC™) solutions—QSC6010™, QSC6020™ and QSC6030™—for CDMA2000® 1X networks. The solution offered significant benefits to handset vendors as it had a low cost, was small in size and allowed longer talk times for entry-level CDMA2000 handsets. The second generation of QSC products—QSC6055™ and QSC6065™—address multi-band RF and simultaneous GPS requirements. These products offer some key features required for building low-cost handsets. The chip uses less power and is smaller in size than its first-generation solution. LG Electronics’ low-cost slim, multimedia handset, which was selected by 12 leading mobile operators, to spearhead the ‘3G for All’ campaign is developed using chipsets supplied by QUALCOMM. The chip enables the handset to support a number of functions, such as video calls, high-speed Internet access, multi-tasking and a wide range of multimedia services. Tata Teleservices’ ultra low-cost CDMA handset’s chip was also developed by Indian engineers working at QUALCOMM’S Hyderabad centre. Key Highlights • TI’s LoCosto single-chip platform has enabled the production of a new range of low-cost, multimedia-rich handsets. • Infineon’s single-chip E-GOLD™ voice solution platform was selected by ZTE Corporation for building ultra low-cost handsets. • TechFaith Wireless entered into a JV with Arasor to develop low-cost handsets for emerging markets, such as India, Middle East and Southeast Asia. • Qualcomm QSC™ solutions, QSC6010™, QSC6020™ and QSC6030™ are used for CDMA2000® 1X to help reduce the size and cost of handsets and increase standby and talk time by lowering power consumption. • LG Electronics’ low-cost handset was selected by GSMA to spearhead the ‘3G for All’ initiative; the handset was developed using QUALCOMM’s chipset. 58 © 2007, Portio Research. All Rights Reserved
    • The Next Billion Initiatives by Mobile Operators In an effort to reach low-income groups in emerging markets and bridge the gap between need and affordability, mobile operators in emerging countries are taking initiatives to launch low-cost handsets. Companies are collaborating with various mobile vendors who can offer handsets at low cost. A large number of leading operators are working jointly with the GSMA to launch initiatives for building low-cost handsets, which will cater to the demands of emerging markets. In India, state-owned mobile operator Bharat Sanchar Nigam Limited (BSNL) is planning to launch a sub-USD 25 (INR 1,000) handset for the rural market. The company is in talks with Taiwanese handset vendor Compal and Chinese handset vendor TCL Communication Technology (TCT) to launch these single-chip GSM handsets. The mobile handset will function on the BSNL network only and the SIM card will be non-removable. Reliance Communication took a similar initiative by launching its ultra low-cost handset to target the low-income segment. These handsets are made by Chinese vendors and are available in a price range of USD 19 and USD 22. These are the cheapest handsets ever launched by Reliance. Nokia introduced new handsets to target first-time users and lowincome consumers. These handsets have been priced between USD 55 and USD 120. A large number of leading operators in various countries are taking initiatives to launch low-cost handsets, which will help providing mobile services to low income customers. Tata Teleservices, the parent company of Tata Indicom mobile services, recently launched its ultra low-cost CDMA handsets at USD 42 (INR 1,699). With this handset, subscribers will get a pre-paid SIM with an offer of free incoming calls for a year. This low-cost handset’s chip has been developed by Indian engineers working in QUALCOMM’s design centre in Hyderabad 23 To target the low-income segment, China’s second largest mobile operator China Unicom plans to purchase 2 million ultra low-cost CDMA handsets. These handsets will be supplied by vendors including Motorola, Nokia, LG Electronics, Samsung Electronics, Huawei Technology, ZTE Corp. and Hisense. The handsets will be sold for around USD 50. China Mobile has been working with handset vendors, such as Motorola, Bird and Nokia, to launch low-price handsets with limited features to lower the price entry-barrier for rural customers. Vodafone recently launched its first Vodafone-only branded ultra low-cost handsets— Vodafone 125 and Vodafone 225—aimed at the low-income segment in the developing markets. Mobile technology is the only viable cost-effective telecom service in many of the world’s emerging markets; the launching of low-cost handsets will help Vodafone to extend its services to the emerging markets, especially the rural regions. These handsets launched by Vodafone will help increase mobile penetration and provide access to services for customers in the emerging markets. The handsets are likely to be priced between USD 25 and USD 45, depending on the model and local market conditions. These handsets have been manufactured by China’s ZTE Corporation. Highlights • BSNL is in talks with vendors in Taiwan and China to launch sub-USD 25 handsets for the rural market. • Reliance launched its cheapest handsets in the price range of USD 19 and USD 22 for the low-income segment in metros, small cities and rural areas. • Tata Teleservices launched its ultra low-cost CDMA handsets based on chipsets supplied by Qualcomm. • China Unicom plans to purchase 2 million ultra low-cost CDMA handsets to target the rural population in China. • Vodafone launched its first Vodafone-only branded ultra low-cost handsets—Vodafone 125 and Vodafone 225—aimed at the low-income segment in the developing markets. 23 Source: http://www.hindu.com/2007/03/02/stories/2007030201301800.htm © 2007, Portio Research. All Rights Reserved 59 China Mobile has been working with handset vendors, such as Motorola, Bird and Nokia, to launch low-price handsets in the country.
    • The Next Billion Conclusion Universal access to communication is essential for the overall growth of a country. In today’s emerging markets, this can be achieved only when mobile handsets are made available to the low-income segment of the society at an affordable price. The issue of the digital divide can be addressed to a large extent by making wireless telecommunication available to the large unconnected part of the world. One of the biggest barriers to the adoption of mobile communication in emerging markets is the handset cost. Mobile vendors, operators, OEMs and trade associations such as the GSM Association have taken various initiatives to lower the handset cost. Keeping this in mind, various stakeholders initially tried to reduce the handset cost to less than USD 40, and then to less than USD 30. In recent times, efforts have been made to reduce this further. The GSMA launched the Emerging Market Handset initiative to bridge the digital divide and the ‘3G for All’ campaign to provide 3G mobile handsets to a wider user base. As the bulk of growth in the handset market is expected to come from the emerging markets, such as Asia Pacific, Latin America, Middle East and Africa, it is important for the vendors, operators and OEMs to come up with handsets that meet the demands of customers in these regions. Some industry experts believe that it would be unwise on the part of the vendors to manufacture handsets which can offer only voice and text messaging services. The lowincome segment wants handsets that are less costly, small and sleek, and use less power, but still they want some reasonable level of functionality. Keeping this in mind, chip manufacturers are planning to add features to their low-cost platforms. In countries such as China, FM radio is a must-have feature of many handsets, thus the manufacturers have to keep these local differences in mind while designing their handsets. Companies, such as Motorola, Sony Ericsson, LG and Philips, have been able to come up with solutions to lower the price of entry-level handsets. Motorola has come up with ultra-low cost handsets catering to the needs of consumers in emerging markets. Its handset was chosen by the GSM Association as the best ultra low-cost handset. Sony Ericsson decided to build 10 million handsets annually in India by 2009 and also decided to set up a major new R&D facility in India to take advantage of low labour costs. LG Electronics came up with a low-cost handset which was selected by 12 leading mobile operators to spearhead the ‘3G for All’ initiative. Royal Philips Electronics has already expressed its intention to come up with handsets costing below USD 20 for emerging countries, and eventually even cheaper, down to USD 15. It has also opened a new design centre in Shanghai, China, to address the increasing demand for ultra-low cost handsets in the emerging countries. Chip manufacturers, such as Texas Instrument, Infineon, TechFaith and QUALCOMM, have been able to reduce the chip size, and thus, enabled the manufacturing of low-cost handsets which are small in size and low on power consumption. These chips are being used by various mobile vendors to build low-cost handsets. Mobile vendors in the emerging countries are trying their best to attract the low-income customers by launching mobile handsets at affordable prices. In countries such as India, state-owned operators such as BSNL are planning to launch handsets at sub-USD 25. Chinese operator China Unicom has decided to purchase 2 million ultra low-cost handsets to increase mobile penetration in the rural market. All these initiatives will increase the penetration of mobile handsets in the low-income segment, and efforts to reduce the cost of handsets will help to connect parts of the world with those that remain unconnected. Universal access to mobile communications will be to the benefit of all. 60 © 2007, Portio Research. All Rights Reserved As the maximum growth in the handset market is expected to come from the emerging markets, it is important for the vendors, operators and OEMs to come up with handsets that meet the demands of low income customers.
    • The Next Billion Developments – Mobile Technology and Infrastructure As we have discussed, with global mobile penetration crossing the 50 percent mark by mid2008, the industry is primarily focussing on emerging markets, such as India and China, for continued growth. A majority of the anticipated growth will come from the rural regions (which are dominated by the low-income groups) of these countries. The contribution of these potential consumers in the overall ARPU will be low for the MNOs planning to expand in these regions. In addition, the lack of basic infrastructure such as electricity will create further challenges for operators. Operators can counter this situation by lowering their capital and operational expenditure, and by offering well-tailored tariffs, hence strengthening their otherwise slim profit margins. More than two-thirds of the total cost incurred by an operator while increasing its coverage lies in the establishment of base stations; the other major item of expenditure is the establishment of the core network.24 The primary reason for this is the large number of base stations established as compared to the installation of the other components of a mobile network. Thus, by reducing the average expenditure on a base station, MNOs can significantly reduce CAPEX, and improve their profit margins, while deploying services to rural areas. In an attempt to decrease the total cost, operators need to consider the following: • Selection of Best Site/Land to Establish a Base Station: An operator can reduce its cost considerably by selecting a suitable site for the establishment of a base station. An appropriate selection eliminates the need for multiple base stations in a region. In addition, the operator should focus on maximising the average density of mobile subscribers catered by each base station. This reduces the number of towers required, leading to a reduction in costs. An alternative solution for operators to lower their CAPEX is to use smaller base stations such as Nokia’s MetroSite. The energy consumption of these base stations is quite low, thereby reducing the MNO’s operating expenditure. In addition, the operator’s focus towards high-end solutions such as Femtocells for urban areas will help it to strengthen its subscriber base. A Femtocell is an indoor wireless access point that uses a high-speed Internet connection to route a call to an operator’s switching station from where it is directed to its destination. The primary advantages of this technology are as follows: – Good network coverage inside homes – Increase in the mobile handset’s battery life – High-speed mobile data service – Cheaper call rates In addition, as the call originating from home via a Femtocell does not use the wireless network, it substantially increases the wireless capacity of an operator. The revenue thereby collected can be used by the MNO to increase its presence in the rural regions. • Countering Lack of Basic Infrastructure Facilities: The lack of availability of electricity is one of the major problems that operators face while expanding in the rural areas of many countries. To effectively counter the problem, MNOs need to focus on alternative solutions such as the use of solar energy, lowering power consumption by reducing the 24 Source : http://www.nokia.com/NOKIA_COM_1/About_Nokia/Press/Press_Events/zz_New_Potential/White_paper_Acceleratin g.pdf © 2007, Portio Research. All Rights Reserved 61 An appropriate selection of site/land to establish a base station can help an operator to reduce its cost.
    • The Next Billion use of air conditioning, etc. In some markets where no electricity infrastructure is available, base stations have been powered using diesel generators. This in itself causes problems because the generator requires constant refuelling and maintenance, and cases have been recorded in some countries, particularly in Africa, where such equipment has been sabotaged and the generator has been stolen. As solar power and wind power become more mainstream, network operators have an opportunity to relieve such problems in the future. Equipment vendors, such as Nokia Siemens Networks, Ericsson and Motorola, offer just such solar and wind powered solutions. Apart from MNOs, mobile network infrastructure manufacturers also plan to expand their mobile telecommunication services in the largely unexplored regions of the emerging markets. To accelerate the rate of ongoing development, they have introduced relatively cheaper infrastructure solutions for operators. The primary objective of the manufacturer is to lower the total cost of ownership of network infrastructure incurred by an operator. The following section provides information on major players in the mobile network infrastructure domain, the initiatives taken by them, and the solutions they offer to lower the total cost of ownership of mobile infrastructure: • Ericsson: Established in 1876, Ericsson is one of the world’s leading providers of mobile network infrastructure. The organisation operates in 175 countries. The primary objective of Ericsson has been to focus on R&D activities, and thereby offer innovative solutions to operators. With the focus of the mobile industry shifting towards low ARPU Asian markets, such as India, Pakistan and Bangladesh, low-cost network solutions have gained importance. To facilitate the expansion of the mobile network in the sparsely-populated underserved areas, the company has introduced a cost-effective solution called Ericsson Expander (EE). EE is an appropriate solution for MNOs wishing to serve low-income segments. Its advanced radio performance improves the coverage area of a mobile base station and reduces the number of sites by approximately 50 percent.25 The solution reduces the CAPEX and OPEX of an operator by about 30 percent. Furthermore, EE can be scaled up to meet future requirements. Apart from infrastructure solutions, the company also suggests various optimised business approaches to operators. The Rural Business Model proposed by Ericsson is based on infrastructure sharing. Through this solution, Ericsson will build a network in a region without network coverage with the help of a creditor. The network can then be leased by MNOs planning to launch their services in the area. Hence, operators do not need to install their own network and can buy capacity and coverage from Ericsson. More than one operator will share the network and offer services under their own brand name. The primary advantage of this model is that an operator dramatically reduces any financial outlay and operational risk involved while providing its services in the rural regions. In addition, as installation, operation and management will be undertaken by Ericsson, the OPEX, as well as CAPEX, of MNOs will be significantly reduced (by approximately 20 percent).26 This enables these operators to focus on customer acquisition and retention, and handle any market risk involved. This solution is a type of “pay as you grow” model. This approach has been effectively used in expanding mobile network coverage in Tanzania with the support of the World Bank and the United Nations Development Program.27 25 Source: http://www.ericsson.com/ericsson/press/releases/20060621-1058846.shtml Source: http://www.businessdayonline.com/?c=51&a=6756 27 Source: http://www.osiptel.gob.pe/ 26 62 © 2007, Portio Research. All Rights Reserved Low cost network solutions are gaining importance in low ARPU Asian markets.
    • The Next Billion In addition, Ericsson is also focussing on optimising the energy efficiency of mobile network components. The objective behind this is to reduce operational costs and provide affordable communication facilities to consumers. The company has introduced a plan to reduce the energy requirement of a mobile base station located in an isolated region. Traditionally, a base station in an off-grid area was powered by two generators (each used for half a day) to provide round-the-clock service. Ericsson proposes the use of a single generator with a battery back-up. The battery can be used up to half its capacity and then can be charged by using the installed generator. This decreases the operational cost incurred by an MNO by reducing the fuel requirement. In addition, the company is also promoting the use of alternative sources of power, such as solar energy, fuel cells and biofuel, to further lower operational costs. • Nokia Siemens Networks: Nokia Siemens Networks (NSN) is one of the major players in mobile network infrastructure. The company has a strong presence in 150 countries and approximately 600 customers worldwide.28 NSN was formed after the merger of Siemens AG’s Communications division and Nokia’s Network business group in 2006. NSN offers end-to-end solutions for operators to broaden their mobile networks in rural and isolated regions of the emerging mobile markets. The company offers innovative solutions to operators under the names Flexi Base Station, Shelterless Base Station, and others; these solutions significantly reduce the time span for installation as well as capital expenditure and operational costs. The primary ideology behind these new generation base stations is to make the components smaller and more energy-efficient, and optimise the use of the land/site. The company also offers solutions such as eRefill (electronic refill). Under this, an operator can use text messages to lower the cost of pre-paid mobile processes such as recharging. Recently, Thai mobile network operator DTAC has used NSN’s eRefill solution to consolidate its operations in the rural regions and increase its subscriber base.29 The following section provides some case studies that demonstrate how cost-effective mobile services can be extended into rural regions. 28 29 Source: http://www.nokiasiemensnetworks.com/global/AboutUs/Company+Profile/?languagecode=en Source: http://www.nokiasiemensnetworks.com/ © 2007, Portio Research. All Rights Reserved 63 Nokia Siemens offers end-toend solutions for operators to broaden their mobile networks in rural and isolated regions of the emerging mobile markets.
    • The Next Billion Case Study 1: Nokia Siemens Networks Village Connection Introduction NSN’s Village Connection is an innovative solution for MNOs to enable them to extend their presence in rural areas. The solution enables operators to provide both voice and basic data services such as SMS to villagers with a relatively low investment as compared to conventional services. A Village Connection comprises Access Points and Access Centres. The Access Point is located at the local level while the Access Centre is found at the regional level. A single Access Point can handle approximately 80 mobile consumers and an Access Centre is connected to about 200 Access Points. The connectivity between an Access Point and a handset is GSM-based, while that between an Access Point and Access Centre is Internet Protocol (IP)-based. In addition, the Access Centres are connected to route calls between different regions and are also integrated with other mobile and wireline networks. The solution has been successfully piloted in India and is anticipated to be launched in other emerging markets in the future. Implications The Access Point of a Village Connection, which is located at the village level, is based on the simple plug-and-play model, and is easy to install and operate. In addition, its power requirement is met by using solar panels and batteries, thus eliminating the risk of the lack of connectivity with an electric grid. The solution is suitable for rural areas in emerging markets, such as India and Pakistan, where the non-availability of electricity to power the base stations is one of the major challenges faced by MNOs. The main advantage of Village Connection is its distributed management model. The model primarily constitutes the following: • Local entrepreneur • GSM operator The local entrepreneur manages the Access Point. Operations, such as equipment maintenance, sale of mobile handsets, billing, etc., are handled by the local franchisee. This reduces the need for support by trained personnel, and thus, reduces the operating expenditure. The GSM operator remains responsible for mobile traffic channelling and providing connectivity with other networks. The distributed management of a Village Connection reduces the CAPEX and OPEX of an operator as an Access Point is locally based and managed. The network can be established in a short span of time requiring less expenditure. Furthermore, as a local entrepreneur handles operations and deals with mobile consumers, the acquisition of new subscribers is also relatively fast and cheap. To meet the needs of subscribers, the local franchisee can provide a wide array of options to customers such as • • • • A flat rate for all local calls Pre-paid services Post-paid services Local product support Thus, once established, a Village Connection can prove to be useful for the network operator. It provides connectivity to otherwise unconnected regions. The entrepreneurial model creates jobs, helping in promoting prosperity in a region. Furthermore, the operator is able to strengthen its subscriber base at a comparatively lower acquisition cost with less expenditure. 64 © 2007, Portio Research. All Rights Reserved Village Connection solution enables operators to provide both voice and basic data services such as SMS to villagers with a relatively low investment.
    • The Next Billion Outlook This innovative method of providing connectivity to the rural population through a Village Connection eliminates the need to establish costly base stations and mobile switching networks. The Village Connection is a cost-effective solution that transfers the network and business responsibilities to a local level, thereby reducing the total cost of owning a handset. This is a viable solution for emerging markets, such as India and Pakistan, where a large percentage of the population has still not experienced the mobile service revolution. Furthermore, it can be scaled up to support services, such as roaming and Internet access, to meet possible future demands. © 2007, Portio Research. All Rights Reserved 65
    • The Next Billion Case Study 2: Mobile Infrastructure Sharing Introduction Mobile infrastructure sharing is a viable solution for accelerating and facilitating the roll out of network coverage in the rural areas of emerging markets. It is an effective method for operators to reduce their CAPEX and OPEX costs. Network sharing can be broadly classified into the following two categories: • Passive Infrastructure Sharing: This comprises sharing of land/sites, towers, power supply, etc. • Active Infrastructure Sharing: It is the common use of active elements, such as RAN, Node B and Back haul, among operators. According to estimates, the passive components of a mobile network constitute approximately 60 percent of the total cost as compared to 40 percent for the active components.30 Furthermore, the passive infrastructure sharing solution is comparatively easier to implement as compared to the active infrastructure sharing model. In the latter case, the model requires considerable coordination and cooperation among MNOs, although the decrease in costs and time span in rolling out a network is effectively reduced. In the current scenario, emerging markets, such as India, Pakistan and Bangladesh, consider passive infrastructure sharing as a viable option. This will not only help operators to expand their presence in rural regions quickly, but will also help them reduce costs. Some countries, such as France, the UK, Switzerland and Malaysia, have already explored the concept of infrastructure sharing. Indeed, basic infrastructure sharing is the norm in many markets, for instance in the US market major infrastructure vendors such as American Tower and Crown Castle own thousands of towers and rent space on those towers to MNOs, broadcasters and other communications companies. In many countries CAPEX can be reduced by mounting infrastructure equipment on existing towers and structures, such as electricity grid distribution towers. Furthermore, an early infrastructure sharing solution was successfully piloted in Delhi, India, under the name Project MOST (Mobile Operators Shared Towers). Under this project, six cell sites were shared among MNOs operational in the region.31 The Indian government now plans to use this model to provide mobile services in the rural regions. In addition, the latest entrant in the country, Vodafone, has signed a MoU with Bharti Airtel (the largest MNO in the country), to develop this concept further. Implications In a country such as India, where approximately 70 percent of the population lives in villages, the demographic spread in the rural areas is diversified. On a broader level, approximately 33 percent of the villages comprise 75 percent of the total rural population, while the rest reside in the remaining 67 percent. Mobile infrastructure sharing is a feasible solution for maintaining existing profitability levels while operating in these sparsely populated regions. The approach will not only eliminate infrastructure duplication in the region, but will also help operators to reduce their expenditure by 15-20 percent.32 The sharing of infrastructure also helps operators to improve their quality of service, especially in congested urban regions where the establishment a new base station is either not possible or fraught with difficulty. 30 Source: http://www.trai.gov.in/trai/upload/ConsultationPapers/98/consultationpaper29nov06.pdf Source: http://www.hindu.com/2006/07/06/stories/2006070602881800.htm 32 Source: http://www.thehindubusinessline.com/2007/02/14/stories/2007021404720400.htm 31 66 © 2007, Portio Research. All Rights Reserved France, the UK, Switzerland and Malaysia have already explored the concept of infrastructure sharing.
    • The Next Billion Furthermore, by using the passive infrastructure sharing model, MNOs operational in a region can enter a lease agreement with other operators who are trying to expand their services in the region. The revenue generated in this way can be used to further penetrate other areas in the country. Outlook In markets such as India and Pakistan, where mobile services are currently primarily limited to the urban regions of the countries, the current ARPU levels are low when compared to the western regions. With the focus shifting towards the rural population as potential consumers, ARPU levels are expected to decline even further in the future, thereby creating pressure on the MNO’s profit margins. In such a scenario, the approach of sharing mobile infrastructure is both attractive and feasible. © 2007, Portio Research. All Rights Reserved 67
    • The Next Billion Case Study 3: Alternative Sources of Power Introduction As MNOs are trying to expand into the rural regions of many emerging markets, the lack of basic infrastructure in most of these regions is a major obstacle for them. In countries such as India and Pakistan, and across many countries in Africa and the Middle East, rural areas either face a shortage of electricity or do not have access to a power supply of any kind. As a majority of the overall subscriber growth in the future is anticipated to come from these areas, there is a need to find a solution to this problem. To accelerate the ongoing development of mobile services in rural areas, a consolidated effort A consolidated effort is being is being made to test the feasibility of various alternative sources of power, such as solar, made to test the feasibility of wind, and biodiesel. the alternative sources of For example, • After the success of a pilot project undertaken by Motorola at its facility in Swindon, UK, MTC Namibia is working with Motorola on establishing a wind- and solar-powered base station in Namibia.33 Further to this project, Motorola is planning to work with MNOs in other countries as well. • Ericsson, the GSM Association’s Development Fund and Indian mobile network operator Idea Cellular are trying to use biodiesel to power a number of mobile base stations in rural India.34 In a pilot project in Maharashtra (a state in western India), the three organisations are examining the viability of using non-edible plant-based fuels, such as cotton and jatropha. This would be followed by the establishment of a supply chain using locally grown crops to produce biodiesel. This would further be used to fuel 5-10 base stations in the region. A similar project is also being tested at Lagos, Nigeria.35 These projects aim to reduce the dependence on the availability of electricity from the power grid, and simultaneously, increase mobile penetration in underserved rural regions. Implications With reduced dependency on conventional power sources, the mobile industry will witness dual advantages. The roll out time in establishing power sources dependent on renewable energy, such as solar and wind, is much less when compared to that of their conventional counterparts. In addition, the operating costs involved are much less in the case of solar/windpowered electric sources, although the CAPEX is almost comparable in both the cases. The use of biodiesel has several advantages in contrast to conventional diesel. It can be grown and processed locally, thus creating job opportunities in rural areas. Furthermore, the cost of logistics and transportation is also reduced, thus decreasing operational cost. Moreover, in contrast to diesel, biodiesel is a clean fuel with a lower negative impact on the environment. Outlook The early adoption of these fuel sources to power base stations would help operators to expand their coverage in remote regions of the emerging mobile markets. The endeavour will not only be advantageous for MNOs, who will see a surge in their subscriber base, but also for consumers, who will witness social and economic benefits due to the availability of mobile services. 33 Source: http://news.bbc.co.uk/1/hi/technology/6353741.stm Source: http://www.cxotoday.com/India/ 35 Source: http://press.arrivenet.com/technology/article.php/948197.html 34 68 © 2007, Portio Research. All Rights Reserved power. For example, Idea Cellular is trying to use biodiesel to power its mobile base stations in rural India.
    • The Next Billion Case Study 4: Next Generation Mobile Base Stations Introduction A considerable portion of the investment required to extend the coverage of a mobile network is the establishment of a base station (BTS). This involves expenditure on base station equipment and land/site. Moreover, operators need to ensure that a BTS caters to a certain number of subscribers to provide the optimal quality of service. The shelterless BTS, manufactured by Nokia, is a low-cost solution for operators to expand their services. This is an innovative solution in which the equipment is kept at the top of the tower instead of the base. Implications In a shelterless BTS, the size of land/site required to establish it is considerably reduced. In addition, the need for shelter and fencing is eliminated, leading to further reduction in the installation cost incurred by an operator. Thus, it is a commercially viable solution for MNOs trying to expand their presence in the urban regions of emerging mobile markets. The shelterless BTS is a lowcost solution for operators to expand their services. Moreover, its power requirement is considerably lower than a normal BTS and its installation process is also easier and faster when compared to conventional BTS installation. The low power requirement and the comparatively faster installation process make the shelterless BTS a better approach for MNOs targeting rural regions. This will not only help them to counter the lack of basic infrastructure facilities, such as electricity, in these regions, but also provide them with a first-mover advantage. Outlook Mobile network operators face a number of hurdles rolling out services to rural populations. Obviously rural communities are far more geographically dispersed than urban communities, with considerably lower population density, and generally rural mobile subscribers are primarily low ARPU consumers, though in some cases use of basic services is minimising this issue. The shelterless BTS solution can be helpful to MNOs wishing to maintain strong profit margins while operating in these sparsely populated areas. According to estimates reported by the manufacturers, the solution reduces the financial burden on operators by about 40 percent.36 The resultant savings can be used to provide better services to mobile consumers. With the initial launch in Russia, India and Brazil, this technology is anticipated to be widely used in the future. 36 Source:http://www.nokia.com/NOKIA_COM_1/Operators/Systems_&_Solutions/Mobile_Entry/Newsletter/Newsletter _Archive/pdf/nokia_newhorizons_issue_q1_2005.pdf © 2007, Portio Research. All Rights Reserved 69
    • The Next Billion Case Study 5: Low Frequency Spectrum Introduction One of the major disadvantages in providing connectivity to the rural regions is that fewer numbers of mobile subscribers are catered for by a single mobile BTS. Owing to the lack of adequate potential consumers in these areas, the installation of a regular GSM or CDMA BTS is not usually financially viable in the long term. In such a scenario, expansion needs to be carried out by using lower frequency technologies such as CDMA 450, which is a 3G technology that uses the CDMA 2000 1X air interface. The primary advantages of this technology are as follows: • As lower frequency waves travel without significant degradation, the penetration of CDMA 450 is better than the higher frequency technologies. This leads to longer range, increasing the BTS coverage radius substantially. Table 9 shows the cell radius and the area of different frequency waves. Thus, the cell radius of CDMA 450 is quite large when compared to traditional GSM and CDMA networks. Table 9: Cell Radius of Different Frequency Waves S. No. Frequency (MHz) Cell Radius (Km) 1 450 48.9 Cell Area (Km2) 7,521 2 850 29.4 2,712 3 950 26.9 2,269 4 1,800 14.0 618 5 1,900 13.3 553 6 2,500 10.0 312 Source: Lucent Technology and ANATEL • CDMA 450 technology has flexible cell sizes, and hence its performance can be adjusted according to the capacity and coverage demand. The technology adapts dynamically when higher capacity is required by adjusting its coverage. Thus, the technology is equally efficient in the sparsely populated rural regions where the coverage is the determining factor as well as in the urban regions where capacity is a primary concern. • CDMA 450 is fully compatible with future upgrade paths such as EVDO 1X. Implications As the coverage area of a BTS using CDMA 450 technology is quite large as compared to the higher frequency technologies, the number of BTS required to provide connectivity across a region is considerably reduced. This reduces the capital expenditure incurred by an operator expanding in rural areas. Furthermore, since the cell size is flexible, it eases the pressure on an operator in terms of cell placement planning.37 Outlook The combination of the wireless local loop (WLL) model with CDMA 450 technology is an efficient and cost-effective route for operators looking to broaden their coverage in rural areas and isolated regions in emerging countries. Furthermore, as the technology is CDMA-based, it can be used to meet the data service needs of consumers. Although it has some drawbacks in terms of mobility, the technology ensures a lower cost of ownership for operators. 37 Source : http://repositories.cdlib.org/cgi/viewcontent.cgi?article=5499&context=postprints 70 © 2007, Portio Research. All Rights Reserved The coverage area of a BTS using CDMA 450 technology is quite large as compared to the higher frequency technologies
    • The Next Billion Worldwide Regulatory Scenario A telecommunication regulatory body plays a vital role in the promotion of mobile services in a market. From spectrum allocation to monitoring the quality of services, the regulatory body is at the heart of the functioning and development of the mobile telecommunications sector in a country. Helping to facilitate the expansion of mobile networks in un-served and underserved regions is another important task of a regulatory body. As discussed throughout this report, the industry is now focussing on emerging markets for continued growth, such as India, China, Nigeria and Brazil. To stimulate growth in these emerging markets, the regulatory bodies of these countries are primarily focussing on providing an efficient environment for MNOs. Furthermore, in order to accelerate growth and catalyse mobile infrastructure development, these organisations also intend to make the sector conducive for investors. The authorities also plan to offer packages such as subsidies and tax incentives to MNOs to encourage them to expand their network coverage in the rural and isolated regions. Apart from the regulatory guidelines and policies in terms of operations, the tax regime followed by a regulatory authority is a critical issue. Since most new mobile subscribers in these markets belong to lower income groups, a high tax rate on new handsets can stifle the growth of mobile services in a market, negating the efforts of handset vendors to bring handset prices down to affordable levels. According to the GSM Associations global mobile tax review, taxes in the emerging markets, such as Brazil and Bangladesh, are above the global average, which can severely affect growth in these two countries. However, the tax rates in China are the lowest. Low tax rates can be considered to be one of the major factors driving the widespread use of handsets in a country. Figure 34 shows taxes as a share of the total cost of ownership in emerging markets. Figure 34: Comparison of Tax Rates in Emerging Markets Tax Rates (in percent) 30 28.1 25 18.8 20 16.5 15.4 15 11.9 11.2 10 5.8 5 4.6 0 Brazil Bangladesh Mexico Pakistan India Indonesia Nigeria China Country Source: Deloitte and GSMA As discussed earlier, a majority of the anticipated growth is expected to come from Asian countries, such as China, India and Pakistan. The primary objective of the telecommunications regulatory body in these fast-growing markets is to spread mobile services in the rural and isolated areas, where the majority of the population resides. In order to facilitate this, organisations are trying to explore various approaches, such as mobile network infrastructure sharing, alternative sources to power networks, etc. To catalyse the © 2007, Portio Research. All Rights Reserved 71 A telecommunication regulatory body plays a vital role in the promotion of mobile services in the country.
    • The Next Billion ongoing growth in the world’s largest mobile market (China), China’s regulatory body, the Ministry of Information Industry (MII), aims to broaden network coverage in the rural regions by providing them with priority in terms of frequency resources over their urban counterparts. In addition, the MII is also trying to work with research institutions and manufacturers to develop telecom equipment suited for the un-served rural regions. Meanwhile in India, the regulatory body - Telecom Regulatory Authority of India (TRAI) - plans to explore solutions such as mobile number portability and active/passive mobile network sharing to accelerate the uptake of mobile telecommunication services, Similarly, the regulatory body of Pakistan - Pakistan Telecommunication Authority (PTA) – has issued various licences to catalyse the development of mobile network infrastructure in the country. In contrast, the focus of regulatory bodies in the US and Latin American countries, such as Brazil and Mexico, is promoting advanced technologies such as 3G and 3.5G in the region. The major concern of the Federal Communications Commission (FCC), the regulatory body in the US, is to increase the use of advanced data services and tariffs in the country. FCC, in its effort to promote cellular services in the rural regions, provides support to operators through its universal service fund. In order to ensure affordable voice and data tariffs, the organisation has also recently issued guidelines to operators regarding roaming connections. According to the new directive, operators need to offer services to a competitor’s subscriber at a reasonable cost. The guideline targets provide a level playing field to small operators primarily based in the rural regions of the country. With the widespread social and economical advantages that mobile services bring, an appropriate regulatory framework is of paramount importance. Regulatory authorities worldwide are trying to harness the current growth opportunities and aim to make handsets ubiquitous in their territories. The key initiatives of the regulatory bodies of India, Pakistan and Nigeria, which are deemed to be the fastest growing markets, are discussed in the subsequent section. 72 © 2007, Portio Research. All Rights Reserved The regulatory bodies of India and Pakistan are exploring various options to accelerate the uptake of mobile telecommunication services in their respective countries.
    • The Next Billion Regulatory Scenario – India The mobile market of India is expected to see phenomenal growth in the future. The subscriber base of the country is expected to increase from 149.6 million in 2006 to 472.4 million in 2011. Most of this growth is anticipated to come from rural areas. However, as these regions are sparsely populated, providing mobile telecommunication services in these areas is a challenge for operators. The TRAI was formed in 1997 to regulate the telecom sector in the country and since establishment the organisation has endeavoured to encourage competition. Its focus has been to promote affordable tariffs along with quality services. The primary objective of the regulatory body is to complete the field work for the smooth transitioning towards the convergence of fixed and mobile services. When this has been achieved, operators will be able to offer their services on a mobile network, fixed network or a combination of both to the same customer base. With a large consumer base located in the rural regions of India, promoting mobile services in these areas is one of the priorities of the TRAI. To increase the uptake of mobile telecommunication services in these regions, the authority aims to work in collaboration with MNOs. To facilitate the process, the authority is even considering plans for public-private partnership in the near future. Some of the key initiatives undertaken by the TRAI to facilitate reforms in the telecom sector in the country are as follows: • Universal Service Obligation Fund (USOF): In an attempt to promote quantitative growth without compromising the quality of services in the rural regions, the TRAI has been collaborating with the Government of India, and to this end the government formed USOF. The primary objective of this fund is to meet the requirements of the Universal Service Obligation plan, which is to provide telecommunications and other services throughout the country. Some of the initiatives suggested by the TRAI to the government to catalyse the ongoing expansion of cellular services in the rural and underserved areas are as follows: – – – – Sharing of mobile network infrastructure Incentives in annual licence fee and spectrum charges for operators to provide services in the rural areas No spectrum fees for the use of 450 MHz technologies Financial support for niche MNOs in the regions The TRAI has also recommended financial support of approximately USD 0.08 million for operators who share their mobile base tower stations with other operators.38 • Mobile Number Portability: In order to increase competition among MNOs in the country, the regulatory body plans to introduce MNP in the future. The provision will enable subscribers to retain their present mobile number while changing their cellular provider. The primary objective for introducing MNP is to reduce tariffs by stimulating competition, and thereby, making mobile services more affordable for low-income customers. The low tariffs would also increase the number of subscriptions in the rural and underserved regions of the country. • Spectrum Regulation: The TRAI has played an important role in promoting effective utilisation of spectrum, a scarce resource. With the country poised to see significant subscriber growth in the future, the proper use of radio spectrum is of prime importance. To ensure this, the organisation constantly monitors the spectrum allocated to operators for a region and the total number of consumers catered for by the MNO in that area. In 38 Source: http://www.ciol.com/ciol-techportal/content/mobility/features/2007/20703231391.asp © 2007, Portio Research. All Rights Reserved 73 The primary objective of the government formed Universal Service Obligation Fund in India is to accelerate growth in the rural regions of the country.
    • The Next Billion addition, the regulatory body has been working in close coordination with the government to facilitate the transition of the present cellular services to 3G mobile telecommunication services. To broaden network coverage further in the rural and underserved regions, the TRAI also plans to use lower frequency spectrum in the future. • Ensuring Quality Services: In order to offer quality services to subscribers, the TRAI has maintained a proactive approach. The organisation constantly monitors the performance of operators. With the aid of specialised agencies and quarterly reports submitted by the operators, the regulatory body continuously tracks the quality of services (QoS) offered by MNOs. In addition, a survey pertaining to QoS is also produced and published by the TRAI. Constant monitoring of services helps the TRAI to effectively address customer complaints. Because the rate of return on investment while operating in the rural regions is not on par with that of urban areas, MNOs do not as a rule invest so much on network infrastructure in these regions. This compromises service quality. By constant monitoring, the TRAI is able to monitor quality of service and point out when it is less than optimal to the operator concerned. India is one of the fastest growing mobile markets worldwide. The TRAI has followed a proactive approach to stimulate growth in the mobile telecommunication sector. In order to sustain strong growth, the TRAI is focussing on launching 3G services in the future. In addition, it also aims to explore the option of launching MVNOs in the country to further benefit mobile consumers by providing lower call rates. This would also improve mobile penetration in the rural regions. 74 © 2007, Portio Research. All Rights Reserved
    • The Next Billion Regulatory Scenario – Pakistan The mobile market of Pakistan is one of the fastest growing markets worldwide. The subscriber base of the country saw strong growth of 123 percent in 2006 over 2005. On an average, 2.2 million subscribers were added per month in 2006. Furthermore, with a large population of the country underserved in terms of mobile telecommunications services, the country is expected to witness significant growth in the future. Pakistan Telecommunications Authority (PTA) is the regulatory body in the country. The primary objective of the authority has been to make the mobile market investor-friendly. The organisation’s regulatory measures have paved the way for making the telecommunication sector the largest contributor of FDI (Foreign Direct Investment) in the country. The sector contributed approximately 54 percent of the total FDI in 2006.39 The authority is also focussing on improving the mobile penetration rate in the rural regions of the country. With its regulated efforts, the organisation has motivated the country’s MNOs to improve their operations in these regions, and thereby, provide social and economic benefits to consumers. Some of the key initiatives taken by the authority to stimulate growth in the mobile telecommunications sector are as follows: • Focus on Infrastructure Development: The PTA has been aggressively trying to promote mobile services throughout the country and even cover the rural and the isolated regions. To accelerate the development of mobile infrastructure, the authority has allotted separate infrastructure licences to organisations. These corporations can lease the mobile network infrastructure to MNOs. This would help operators to cover the underserved areas in a relatively short span of time and at a relatively low capital expenditure. This would also ensure collective responsibility, and thereby catalyse mobile network expansion in the underserved and un-served areas of the country. • Improving the Status of Mobile Services in Rural Areas: The expansion of mobile services in the rural regions, where approximately 65 percent of the total population lives, is one of the targets of the PTA.40A Rural Communication Cell has been established by the authority to primarily focus on these regions. To facilitate the development of cellular services in these areas, a Universal Service Fund has also been set up to cater to the financial requirements of the project. • Increasing Competition Level: In an attempt to increase competition among MNOs in the country, the PTA has implemented MNP. The objectives of this plan are to improve the quality of services being provided to subscribers and ensure a level playing field for any new entrants. The increase in competition would also reduce call tariffs, and thereby, encourage the low-income segment to subscribe to mobile services. • Ensuring Quality of Services and Consumer Rights: The PTA has been active in ensuring the quality of mobile telecommunication services provided to subscribers by operators. Regular surveys and inspections are conducted by the authority in this regard. Furthermore, complaints lodged by consumers against operators are analysed by the authority which takes proper action against MNOs. The constant monitoring also helps the PTA to check the pace of ongoing mobile infrastructure development in the rural and isolated areas of the country. 39 40 Source: http://www.techpolis.com/mobile_tax.htm Source: http://hdr.undp.org/hdr2006/statistics/countries/ © 2007, Portio Research. All Rights Reserved 75 Pakistan Telecom Authority has been aggressively trying to promote mobile services throughout the country. A Rural Communication Cell has been established by the authority to primarily focus on expansion of networks in the rural regions of the country.
    • The Next Billion The mobile market of Pakistan is expected to see significant subscriber growth in the next four to five years. Mobile penetration in the country is expected to increase from 30.3 percent in 2006 to 75 percent in 2011. The PTA is maintaining a transparent regulatory framework in order to ensure that current growth patterns continue. It is also striving to launch 3Gcompatible services in the future. The necessary arrangements in terms of spectrum reframing and allocation are already being studied. In addition, as a majority of new subscribers are anticipated to come from the rural regions of the country, the PTA has been focussing on mobile infrastructure development in these regions with the help of the operators. One such step that the organisation has taken is to establish approximately 400 ‘Rabta Ghar’ in the underserved regions. These cater to the communication needs of the rural population. Under this provision, equipment, such as payphones, computers and printers, will be provided free to people across the rural regions. This set of people would then offer services to others. The primary objective of this project is to cover the underserved areas of the country. Once the pilot phase is over, operators can scale up the project to meet individual demands. 76 © 2007, Portio Research. All Rights Reserved
    • The Next Billion Regulatory Scenario – Nigeria The Nigerian Communications Commission (NCC) is the regulatory body of the country. The primary objective of the organisation is to create a competitive environment for operators and an efficient telecommunication framework in the country. The country is one of the fastest growing mobile markets worldwide and saw an overall increase of approximately 50 percent in 2006 in terms of subscriber growth as compared to 2005. The reason for this is the lack of wireline phones in the country. In such a scenario, a mobile handset is very important for the people in Nigeria and is often used as a shared device. However, the low rate of literacy in the country is one of the major obstacles in the growth of the mobile industry. In order to stimulate the penetration of handsets and extend telecom services among the lowincome and rural segment, the regulatory body is focusing on cost-effective measures, such as infrastructure sharing, alternative sources of power, etc. Furthermore, a reduction in cost tariffs to accommodate the large underserved population is another agenda that the organisation plans to address. The key initiatives identified by the NCC in this direction are as follows: • Universal Service Provision Fund (USPF) Project: In order to connect the un-served and underserved regions, the regulatory body has initiated a project named USPF. The project is funded through a component of the operating charge imposed on operators in the country. The primary objectives of the project are as follows: – Establish a micro-financing mechanism to promote mobile telecommunication services in rural areas – Study the feasibility of alternate power sources to satisfy the power requirements of mobile base stations – Determine rural interconnection rates and call tariffs In addition, under the Accelerated Mobile Phone Expansion project undertaken by USPF, the NCC plans to subsidise the roll out of mobile base stations in rural areas where none of the incumbent operators currently provide services. To get the most out of this initiative, the government is also inclined to explore the benefits of the public-private partnership model. This would ensure combined ownership in the implementation and realisation of the project. • Infrastructure Sharing: To encourage MNOs to offer their services in rural regions of the country, the NCC is trying to explore mobile infrastructure sharing options. The regulatory body has already issued guidelines to promote passive infrastructure sharing among MNOs, which includes sharing of masts, poles, ducts, electric power, etc. This will help operators to minimise their CAPEX on supporting infrastructure and concentrate their financial outlay on core network equipment. • Effective Administration: To ensure reliable and affordable mobile telecommunication services in the country, the NCC plans to conduct regular market monitoring. Furthermore, the commission also plans to develop and publish a tariff policy and a cost model for the industry. The organisation also aims to control the utilisation of foreign exchange by operators. To ensure rapid development of mobile networks in rural regions of the country, the NCC plans to determine the appropriate interconnection rates for these regions. In addition, the organisation also plans to draft an effective regulatory policy with timelines set for the mobile network expansion project. It also plans to conduct regular studies and surveys to identify locations requiring special measures, such as subsidies and tax exemption, to promote mobile telecommunications services in these areas. © 2007, Portio Research. All Rights Reserved 77 The NCC is trying to explore mobile infrastructure sharing options in Nigeria.
    • The Next Billion The mobile market of Nigeria is expected to see an addition of approximately 47 million subscribers from 2007 to 2011. To accommodate and provide quality services to these new mobile consumers, the NCC is aiming to ensure proper monitoring of the scarce radio frequency spectrum. To promote efficient utilisation of the allocated spectrum, the commission has drafted an incentive package to encourage MNOs to surrender any unused spectrum. In addition, the NCC has recently allocated 3G licences to four operators –– Alheri Engineering (an existing long-distance landline operator), Celtel Nigeria, Globacom and MTN Nigeria Communications. The initiatives launched by the authority are expected to promote continued future growth in the country’s telecom sector. 78 © 2007, Portio Research. All Rights Reserved
    • The Next Billion Summary and Conclusions The next billion In recent years, throughout the worldwide mobile industry, there has been much discussion regarding the so-called “next billion” in terms of mobile subscribers. As 2007 draws to a close there are approximately 3 billion mobile devices in use, and that figure is expected to reach approximately 3.3 billion some time in mid 2008, at which point the world will have achieved 50 percent mobile penetration. Who are they? We believe that the “next billion” consumers to adopt mobile services, whom will actually number approximately 1.5 billion in total and will drive worldwide mobile penetration from roughly 50 percent to roughly 75 percent, will purchase their first mobile handset between the end of 2007 and the end of 2011, and they will mostly live in Asian countries with comparatively low per-capita income levels. Figure 35: Geographical Distribution – Net Subscriber Additions (2007-2011) Net Subscriber Additions (in Million) 1200 1000 980.1 800 600 400 198.1 255.3 200 75.1 0 Asia Pacific Americas Africa and Middle East Europe Source: Portio Research Ltd. © 2007, Portio Research. All Rights Reserved 79
    • The Next Billion Figure 36: Geographical Distribution – Net Subscriber Additions (2007-2011) 5.0% 16.9% 13.1% 65.0% Europe Asia Pacific Americas Africa and Middle East Source: Portio Research Ltd. We further believe that in Asia, approximately 63 percent of these people will likely live in rural communities, many of which are currently underserved by mobile networks. Table 10: Asian Countries – Contribution from Urban and Rural Regions to the Net Subscriber Additions (2007-2011) Country China Urban Regions (In Percent) Rural Regions (In Percent) 32.7 67.3 India 37.8 62.2 Pakistan 31.0 69.0 Indonesia 72.1 27.9 Bangladesh 13.2 86.8 Beyond Asia, further considerable contributions to this total will come from Africa and Latin America, again with a high contribution from rural-based populations. Where do they live? Markets vary from country to country, and while we forecast growth in China, India, Pakistan and Bangladesh to come from predominantly - on average 72 percent - rural communities, conversely, a higher percentage of growth in Indonesia, Iran, Brazil and Mexico is forecast to come from urban communities. One thing all these communities will have in common is that these new mobile consumers are ALL likely to come from low-income segments of the market, and in most markets ARPU is set to trend downwards over time as these markets mature. Naturally, with ARPU reaching new lows in some markets, only the sheer speed of this rapid volume growth will sustain traditional business models and, hopefully, continuing profits. 80 © 2007, Portio Research. All Rights Reserved
    • The Next Billion Table 11: Country Estimated Penetration in Urban and Rural Regions – Asian Markets (2011) Urban Regions (In Percent) Rural Regions (In Percent) 88.7 56.0 China India 75.8 24.7 Pakistan 90.5 65.6 Indonesia 73.7 16.5 Bangladesh 67.4 39.4 While the vast majority of net additions in this time frame will come from Asia (approximately 65 percent), the North American market will actually be of just as much, or even more, interest. While the North American market is forecast to add only 67 million new users over this 5 year period, compared to 980 million new users in Asia, the financial value of those North American users will almost certainly be substantially higher than their Asian counterparts. How much money are they likely to spend? ARPU from subscribers living in low-income rural communities is forecast to drop as low as USD 4.0 per month in India, USD 3.5 per month in Pakistan and even USD 3.0 per month in Bangladesh. Mobile network operators are going to have to run networks under extremely cost effective business models to ensure bringing these subscribers online at a profit, and handset prices still present a serious barrier to entry for many. Table 12: Forecast Monthly ARPU – Asian Markets (2011) Country Urban Regions (In USD) Rural Regions (In USD) 12.5 7.5 China India 8.5 4.0 Pakistan 5.0 3.5 Indonesia 6.0 4.0 Bangladesh 5.5 3.0 Despite popular misconceptions, quite a few African country markets are not the basketcases many people think. Compared to these low ARPU figures for Asia, Nigerian ARPU is forecast to run at USD 8.5 by 2011, USD 7.0 in rural regions, which is considerably better than the expected figures for India, Pakistan, Indonesia and Bangladesh. With average ARPU across these key Asian markets is forecast to be running at an average of USD 7.28 per month in 2011, compared to ARPU in the USA in the same year, which we forecast to remain over USD 50 per month, each North American subscriber is worth 7 new subscribers in Asia. Comparing the US market to, say, the market in India, Pakistan or Bangladesh, we may reasonably expect to see ARPU from US subscribers reaching a figure MONTHLY, than Indian-subcontinent subscribers may only achieve YEARLY. Such is the difference in potential value. Expressed in these terms, in contrast to all the media attention that the Chinese and Indian markets generate, the North American market could potentially be the most exciting and lucrative mobile growth market anywhere in the world over the coming five years. Our service revenue forecasts predict that the US market should generate mobile service revenues of some USD 191 billion in 2011. According to the CTIA, the US market was worth USD 125 billion in 2006, therefore we forecast a massive USD 66 billion annual opportunity in © 2007, Portio Research. All Rights Reserved 81
    • The Next Billion the growth in the US market alone, making it by far the single most lucrative growth market studied in this report. Additionally, in the US, we forecast 156 percent penetration among the crucial 15-49 year olds, that’s 3 devices/connections for every 2 people – and all at an average of USD 55.0 ARPU. This is a huge chunk of consumers, many of them in the wealthiest demographic group on the planet, all using multiple devices and consuming numerous data services and content offerings. Table 13: Top 10 Countries – Forecast Mobile Penetration and Blended ARPU (2011) China Mobile Penetration (In Percent) Blended ARPU (In USD) 70.9 Country 10.4 India 40.4 6.6 Pakistan 75.0 4.2 Indonesia 47.6 5.7 US 101.3 51.0 Bangladesh 47.2 4.0 Brazil 80.6 11.9 Nigeria 56.6 8.5 Mexico 84.2 16.2 Iran 60.8 12.8 There is no doubt that the growth potential in Asia represents an opportunity for many in the industry – most notably handset vendors, but also network operators, applications developers and content owners alike. Our forecasts show the key Asian countries [covered by this study] will be adding approximately 386 new mobile subscribers every minute throughout the entire 5 year period 2007 to 2011 – day and night, 365 days per year for 5 years. This staggering growth rate offers a wealth of opportunity for handset sales, for voice and SMS growth and for simple downloads, such as ringtones, logos, basic games and maybe simple banking services and other basic online services too. Equally, the Latin American market offers exciting potential, with some 131 million net additions forecast in this report. With much higher ARPU levels forecast than in most of the big Asian markets, considerable opportunities are available across the Latin American region, where SMS markets are among the healthiest and fastest growing in the world. Africa also offers great future potential, and – as mentioned above – ARPU levels not as low as many markets in Asia, and Africa is also home to some of the fastest growing mobile markets in the world today. With a massive population of over 900 million people, Africa is the largest low-penetration market in the world and growth has been surging forward over the last 3 or 4 years. Establishing services in Africa in the recent past may not have been as lucrative as in some other markets, in Europe and Asia for instance, but after the end of this decade Africa is likely to represent the bulk part of the last quartile, what we may come to call “the last billion”. It is likely that those players dominating market share in African markets now, such as Vodacom, Celtel, MTN Group, Orange and others will become the last great growth players in the next decade, when markets everywhere else are reaching saturation. Obviously, big players in the worldwide mobile industry cannot afford to ignore any region: • • • • 82 Asia and the Middle East for massive organic growth in subscriber numbers North America for high-value growth in a fast-consolidating, high-ARPU market Africa if you want a strong position in the ‘markets of tomorrow’ or ‘the last great frontier’ Latin America for continued growth of basic services but at better ARPU than much of Asia, the Middle East and Africa © 2007, Portio Research. All Rights Reserved
    • The Next Billion • And finally, of course, Europe which remains, arguably, the best mobile market in the world – three quarters of a billion mobile consumers at some of the world’s highest ARPU rates and with rapidly expanding 3G penetration (2G subs are finally in decline, many years after most industry analysts first thought, as 3G heads for mass market adoption) But of course a market like Europe is also fiercely competitive, swamped with hundreds of players and often fought on the very tightest of margins and punishing high churn rates. Plenty of evidence already exists of success stories in emerging growth markets that do not need to be fought quite as fiercely as the ‘turf wars’ of the European industry. Making a profit at the bottom of the pyramid In 2006, China Mobile was able to aggressively enhance its subscriber base across rural areas. As discussed previously in this report, the company's initiative of expanding its network to these rural areas, along with customised fee packages and low-cost sales and marketing strategies, helped it to successfully penetrate deeper into many rural regions with mobile services. Through the Village Connected project, over 3 years the company has expanded its network to approximately 30,000 administrative villages, which were not previously connected to the telephone system. Currently, the population coverage of China Mobile's network has reached 97 percent, and almost 50 percent of 2006 net additions to the company’s subscriber base came from rural areas. We expect this trend to continue for some time to come, as China still has many millions of new subscribers to add over the next few years. Following these developments in China in recent years, in 2007-2009 India might just be the market to watch, as operators in the country are shifting their focus from the big cities to rural villages. Airtel, the leading mobile operator in India, recently entered into an alliance with Nokia to target the mid- and low-income segment customers in largely rural areas of the country. The companies plan to combine their advertising and marketing initiatives and come up with strategies such as using rural vans and running outlets to promote their services across the country. Additionally, Airtel is investing USD 2 billion for the next two years to expand its network deeper into rural regions. Also, State-owned operator BSNL is planning a USD 4 billion investment to boost its network presence across the rural regions. Clearly MNOs in all regions are turning their attention to rural communities and networks are expanding into rural regions across countries in Brazil, Mexico, India, China, Nigeria and many more markets besides. As this expansion continues MNO’s will need to closely monitor expenditure and customer acquisition costs, and as ARPU declines OPEX will come under increasing pressure. With financial pressure in mind, operators must balance network expansion with well targeted marketing. Customized tariffs plans, small denomination prepaid vouchers, subsidised handsets (or low cost handsets) and basic training are all effective sales and marketing strategies which have proven to help boost profitable growth among the low-income population segments of many markets. In the Philippines, Smart's strategy of focussing on addressing the needs of the mass market BoP consumers helped it in driving SMS growth among price-sensitive customers. The strategy was so successful that more than 98 percent of the subscriber base of Smart now constitutes pre-paid customers, who are price-sensitive and generally the most frequent users of low-cost services such as SMS. Also, the second largest operators in the country, Globe Telecom, launched an m-commerce service (G-Cash) in October 2004. The G-Cash service enabled Globe subscribers to make electronic transactions, enabling them to send and receive cash, and make payments via SMS. The key success factors of this service include the high-volume and low-price model. As the service is an SMS-based model and does not necessitate any additional costs for acquiring technology, it enabled customers in the rural areas, who may not even have a bank account, to make low- cost transactions. Such a service, which effectively gives banking facilities to low-income populations who have © 2007, Portio Research. All Rights Reserved 83
    • The Next Billion never previously had such facilities, can be community-changing for many of these people, and have proved immensely popular. Also, such mobile banking facilities seem promising for many African countries, where the banking sector is often underdeveloped. Companies such Wizzit and CelPay, which are cellphone-based banking companies, are already benefiting from building a solid customer base among low-income populations residing in South Africa and the Democratic Republic of Congo, respectively. Currently, CelPay accounts for 500,000 transactions per month. 41 In addition, mobile operators are promoting mobile banking in the region. In August 2005, MTN formed a joint venture with Standard Bank to provide mobile banking services to customers in South Africa, and also Vodacom recently launched its mobile banking services in South Africa to target the low-income segment customers. Affordability is one of the biggest constraints in most of these emerging countries when dealing with BOP customers. In recent years, Grameen Phone, which is the leading mobile operator in Bangladesh, has successfully managed to attract BOP customers to the mobile services it offers by focussing on spreading its services to previously untapped segments of the market. Instead of focussing on ARPU, the company believes that a subscriber with low usage does not automatically make him unprofitable, a thought echoed in China and India and more widely across the region. As discussed earlier in this report, the company's innovative pricing strategies, such as PreTups and providing micro-payments facilities, have proven to be the key success factors. As a result, Grameen Phone's subscriber base increased by 94 percent from 5.5 million to 10.7 million in 2006. Table 14: Net Subscriber Additions (2007-2011) for Major Asian Growth Markets Country Net Subscriber Additions (In Million) China 439.1 India 240.7 Pakistan 53.3 Indonesia 42.9 Bangladesh 39.2 Total 815.2 Source: Portio Research Ltd. Many of these examples show us that there is profit to be made at the bottom of the pyramid, simply because the customer base is so vast. As the numbers in Table 14, above, remind us, the key big Asian growth markets covered in this report are forecast to add an additional 815.2 million new mobile subscribers over the 2007-2011 period. Just to put that in perspective, that’s the entire 2007 human population of the European Union, plus the entire 2007 population of the United States plus the entire 2007 population of both Australia and New Zealand, all added together – all from these 5 growth markets. With so many new subscribers coming online, a tiny profit per subscriber is enough to make these business models sustainable. China Mobile has developed different fee packages to attract customers from rural areas. These packages are customised according to the consumption pattern of customers, and many services are tailored to the farming community which features so predominantly in rural Chinese communities. While network operators like China Mobile still pay close attention to ARPU figures from urban subscribers, who use mobile Internet services, content downloads, games, music, etc., out in the rural heartlands ARPU has not fallen off as dramatically as many thought it might; so far. Where rural subscribers may not use such a wide range of sophisticated data services, they have proved to be quite heavy users of basic voice and SMS services. By pricing such basic services low, operators have stimulated growth and usage and ARPU is maintaining profitable levels as the customer base grows. 41 Source: http://cgap.org/press/press_coverage60.php 84 © 2007, Portio Research. All Rights Reserved
    • The Next Billion Similarly in India, in an effort to penetrate the rural areas with affordable mobile services, Airtel introduced lifetime validity products, which have proven extremely popular and the company has witnessed a major expansion in its subscriber base since these services were introduced. Following this trend, in markets where the cost of purchasing a handset is still a prohibitive barrier to entry for many individuals, wireless PCOs or payphones are proving popular. Payphones are gaining popularity in underdeveloped regions of Bangladesh, Pakistan, India and numerous markets in Africa. The payphone enables operators to derive tiny revenues from multiple individual users while providing a business opportunity for the payphone operator. Naturally, this habit-building behaviour will slowly help pave the way towards even greater mobile phone use in the future as handset costs slowly decrease. Handset markets It looks certain that 2007 will be the year the handset industry finally crosses the one-billionhandsets-shipped-in-one-year barrier. This must be recognized as an amazing achievement, still less than 2 decades since the first mobile handsets become widely available. Nonetheless, while hundreds of millions of feature-packed advanced mobile handsets ship to wealthy subscribers in mature markets, handset cost still represents the single biggest barrier to entry for many would-be mobile subscribers in the emerging markets. The cost of a handset is one of the main challenges that hinder mobile penetration in the lowincome segment. A large number of people in the BOP segment of countries such as Pakistan and India, approximately 79 percent, who do not currently own a mobile handset, expect the cost of a new handset to be less than USD 25. Facing such price targets, the GSM Association, and many major companies in the industry, have been working hard to produce ultra-low cost handsets targeted mainly at Asian and African markets. The GSM Association’s ‘Ultra-Low Cost Handset Initiative’ and ‘3G for All’ initiative have both been instrumental in driving forward the low cost handset business, and many vendors and their suppliers have risen admirably to the challenge. Vendors Motorola, Sony Ericsson, LG and Philips have all made considerable effort to bring down handset prices for the emerging markets, and all promise more developments in the future. One major factor in the price of a mobile handset is the prices of its constituent parts. Among the most expensive parts of any handset is the chipset, and to this end several chip manufacturers have made huge strides forward by bringing single-ship systems to market at greatly reduced prices. Not only does this save money on the chipset itself, but by manufacturing a handset with only a single chip, other savings can be made in space, weight and power requirement. As basic handset prices decline through the USD 40, USD 30 and USD 20 barrier, so that major price hurdle for many people will be removed. In many markets, such as the Philippines, about 40 percent of the mobile owners in the BOP segment own second-hand mobile handsets. Similarly, in countries such as India, Sri Lanka and Thailand, about 30 percent of the mobile owners in the BOP segment use second-hand handsets, which come at almost half the price of a new handset. As new handsets become more affordable no doubt the grey - and black - market for second hand handsets will shift on to the next level down on the demographic wealth scale. While there are still, sadly, many people in the world for whom any handset, even a one Dollar handset, will continue to be too expensive, it is clear that we are eventually heading for the ultimate low cost USD 10 handset, which could be as close as only 5 years away. © 2007, Portio Research. All Rights Reserved 85
    • The Next Billion Figure 37: Entry Level Handset Costs - Worldwide (1990-2010E) Handset Costs (in USD) 1200 1000 800 300 400 150 50 15 0 1990 1995 2000 2005 2010 E Year Source: Portio Research Ltd. While all these developments are excellent for new mobile subscribers in low-income per capita markets, vendors and their suppliers must be cautious not to rush in too far, too fast. While Motorola have clearly led the way into the ultra-low cost market, winning both the first and second round of the GSM Association’s Ultra-Low Cost Handset Initiative, during the same time frame Motorola’s corporate finances have suffered. It runs beyond the scope of this report to enter into a deep analysis of the financial difficulties Motorola have suffered in mid-2007, but among the super-successful RAZR reaching the limits of its life span and certain internal structural problems, it seems certain that Motorola has paid a heavy penalty for devoting so much time and expense to ultra-low cost handsets. Low-cost generally means low-margin, and shipping millions of handsets at almost no profit cannot have helped Motorola this year. There is no doubt that the “RAZR years” have been an enormous boost for Motorola and the company’s strengthening position as the worlds second largest vendor must have helped Nokia to keep focused on keeping its lead and not get complacent. Also, Motorola must be congratulated for their achievements in ultra-low cost handsets during this period, but financial lessons must be learned. It is quite possible that as the coming years unfold we will see the most successful low-cost handsets designed, built and distributed more locally, in China, India, Mexico, Nigeria and other emerging markets. Where low-cost handsets have yet to reach, and where ARPU can sustain it, some MNO’s continue to use handset subsidies to win new business. Once handset prices in Asia, the Middle East and Africa decline to the ultimate low price of 10 USD, maybe then MNOs will reach a point where they give the handsets away free with higher denomination prepaid cards, the ultimate subsidy if you will. Until then, in some markets handsets are still subsidised, such as in Latin America. To strengthen its subscriber base, America Movil plans to continue to offer subsidised handsets, however, it believes that the handset cost is less important than actual per-minute costs and thus will maintain a balance between the cost of the handset and the per-minute usage cost of its voice tariffs. Reducing network deployment costs So far we know that the bulk of the remaining organic market growth worldwide is going to come from customers who are mostly in emerging markets, mostly living in rural areas and mostly living on quite a low income. Exceptions to these generalizations exist, most notably in North America, but for the most part, the next great phase of worldwide market growth 86 © 2007, Portio Research. All Rights Reserved
    • The Next Billion involves taking mobile services to the mass market at the BOP, the bottom of the wealth pyramid. We have ascertained that there is actually plenty of opportunity to service this end of the market and we have seen many examples of services structured to fit low-income, rural communities which have been extremely successful, generating healthy profits for network operators. We have seen how tailoring services to fit certain market needs is essential, and we have learned that in most markets, the emphasis needs to be on basic services such as voice and SMS, but that regional preferences and specific needs for select other non-voice services must not be ignored. Next we learned that one of the biggest obstacles would-be mobile subscribers face is the initial cost of purchasing a mobile handset. We looked at what efforts handset vendors and others in the industry have been making to reduce the cost of basic handsets, and we learned how cheaper chipsets and cheaper handsets are bringing millions of new low cost handsets onto the market, with mixed results for the handset vendors. But while these efforts are helping to bring down costs for the consumers, one major obstacle holding back rural network roll-out is the high capital expenditure costs network operators face deploying new networks into sparsely populated areas. Not only is network roll-out expensive, but MNOs also face problems powering the network infrastructure in areas where there is no electricity infrastructure, or where physical network security is a potential problem. Solutions are now coming to market to help MNOs deploy networks into these difficult conditions at a considerably lower cost than regular network deployment. Infrastructure equipment vendors, such as Ericsson, Nokia Siemens Networks and Motorola, are now offering smaller, cheaper base stations or base stations powered using solar or wind power. Such solutions enable MNOs to roll-out the network into rural areas at much lower costs, enabling them to offer services to less densely populated communities and still make a profit. New business models are also evolving, enabling MNOs to share or rent network infrastructure, such as towers and power supply, while maintaining control of their own BTS, reducing build time and cost. By sharing network infrastructure MNOs can radically reduce CAPEX and ongoing OPEX, and there are obvious environmental benefits too – such as a reduction in the number of towers and lower energy consumption. Other solutions include switching to CDMA 450 or using Femtocells, or using a solution such as NSNs Village Connection, which provides a local wireless access point but connects back into the national network via a fixed line IP connection. The role of regulation Governments in many of the growth markets we have studied recognize that mobile communications offer significant social and economic benefits to their people. In many rural areas fixed line telephony is still not ubiquitous, so mobile networks offer some of these communities their first ever telephony connection. This imparts benefits that offer improved communication with friends, family and colleagues, helps small business, helps farmers and has beneficial implications during natural disasters or other difficult times. In many of the markets we have studied the regulatory authorities have recognised such benefits and they are actively working with network operators and equipment vendors to help deliver mobile services to the broadest possible base within the population. As the major urban centres in these countries are now fully covered, driving mobile networks into the rural regions has become the core focus in achieving equal opportunities for all. In many of these markets, such as India, Pakistan and China, the majority of the population live in rural areas, so extending mobile services to these populations is likely to have a dramatic impact on the lives of many millions of people. © 2007, Portio Research. All Rights Reserved 87
    • The Next Billion In the main part, regulators have been working to help MNOs roll out services profitably, setting standards that must be achieved to ensure a certain quality of service, and also helping MNOs build out their networks with the most profitable business models to ensure ongoing commitment to the rural drive. Regulatory authorities can help ease the tax burden on new handsets, and they can help drive initiatives in rural communities by offering tax breaks and other subsidies to help small business use the services once they become available. In almost all the emerging markets we studied, the governments have established a fund to accelerate the development of mobile infrastructure in the rural regions and thereby achieve the targets of universal access. According to the GSMA global mobile tax review, taxes in some of the emerging markets, such as Brazil and Bangladesh, are above the global average, which could severely affect growth in those two countries. However, the tax rates in China are the lowest, which may be a contributing factor to why China now has mobile coverage for some 97 percent of its population and China has already become the largest mobile market in the world. The next billion and the last billion The focus of this report is the 1.5 billion new mobile subscribers that we believe will join the mobile world over the next 4 years, taking the world from 50 percent mobile penetration to 75 percent penetration by the end of 2011. While we believe that a small but extremely valuable portion of these new subscribers live in the wealthiest nation on Earth, the USA, a great majority of these people, probably 70 percent or more of them, live in rural communities in relatively poor countries, mostly in Asia, which have previously been underserved or completely un-served by telecommunications services. It would be easy to think that as mobile services reach these people, most of them will only be interested in voice and maybe SMS, and in the immediate future that might probably be true. However, longer term, as handset costs continue to decline and network speeds continue to improve, hundreds of millions of these people may start looking to their mobile handset for their first experience of connecting to the Internet. In rural communities where no fixed line services have previously been available, and where a PC with a modem is a rare personal possession, the arrival of mobile telecoms could herald the arrival also of the chance to join the connected world. In the Asian markets we have studied, on average Internet penetration still stands in single figures at less than 10 percent, except in China, and in Latin America it is nearer 20 percent and in Africa and the Middle East it is considerably lower. Delivering mobile communications to this vast group of people, in the long term, could have an immense impact on many of their lives. Over the next 4 or 5 years as these people purchase their first handset and start using mobile services for the first time, voice and text will probably form the mainstay of their usage habits. But given time, it is likely that hundreds of millions of these consumers will be interested in handsets offering a greater degree of functionality. They will want ringtones, games, Internet connectivity and possibly mobile payment services, such as have been successful in Bangladesh and the Philippines. As such services have become popular in the Western markets of Europe and North America, they have largely been mobile versions of existing online services. This model may not work among the new subscribers of ‘the next billion’, who have no such fixed-line online experience to compare their mobile Internet experience to. These new consumers will want services designed for the mobile platform from the ground-up, games and gambling applications could be immensely popular if they are designed to be easy and cheap to play. Online payment 88 © 2007, Portio Research. All Rights Reserved
    • The Next Billion service could open up banking services to hundreds of millions of low-income consumers who previously had no such services available to them, and mass market consumer online Internet services will need to be designed exclusively for the mobile platform, rather than mobilized versions of existing web services. For many years to come, the mature markets of Europe, North America and South-East Asia, and the comparatively wealthy urban communities elsewhere will remain far ahead of poor, rural communities in terms of technology adoption. But for the rest of the world, the other 50 percent or more who do not have fixed line telecoms services in almost every home and office, the arrival of mobile communication services means the dawning of a whole new world. Network operators, service providers, handset vendors and applications developers who can ‘get it right’ now, stand to make great gains in the coming years as the second half of the worlds population get connected. We don’t yet know how long it will take to connect the 4th quartile to mobile services, maybe this report will be followed by “The Last Billion” report next year or the year after, but we do believe that business models and services that emerge as winners over the next 2 or 3 years are likely to act as blueprint services for the future. In short, get ‘the next billion’ right and you stand a good chance of being in the right place to serve ‘the last billion’ too. © 2007, Portio Research. All Rights Reserved 89
    • The Next Billion Appendices This market study has been written in a way that avoids too much use of market acronyms (except where appropriate) and industry technical talk, as we have tried to keep the text open to all readers, not just those with in-depth knowledge of the world’s mobile markets. Because this study covers all geographical regions and many emerging markets, a great deal of the data contained within this study will potentially be of interest to investors, financial analysts, consultants, venture capitalists and others all around the world who do not work within the mobile industry itself every day of their lives. Too many of these people, some of the industry technical talk and acronyms may be confusing, so we have attempted to write this study in a self explanatory way that assumes little prior knowledge, but in doing this, some of the speech chosen may seem somewhat "obvious" to our more knowledgeable readers. We hope this offers the best possible solution to everyone, and we hope this does not cause any confusion or inconvenience. Where we have used technical terms or acronyms, we offer an explanation of those expressions below. 90 © 2007, Portio Research. All Rights Reserved
    • The Next Billion Glossary 1G or First Generation Packet Data Networks Packet data networks include Cellular Digital Packet Data (CDPD), Advanced Radio Data Information Service (ARDIS) and Mobitex are regional as opposed to national networks. 2G or Second Generation Packet Data Networks The second-generation packet networks recently introduced consist of combined voice and packet data networks based on global standards. 2.5G 2.5G describes the state of wireless technology and capability usually associated with General Packet Radio Services (GPRS) - that is, between the second and third generations of wireless technology. The second generation or 2G-level of wireless is usually identified as Global System for Mobile (GSM) service and the third generation or 3G-level is usually identified as Universal Mobile Telecommunication Service (UMTS). Each generation provides a higher data rate and additional capabilities. There is also a fourth generation (4G) of technology in the planning and research stages. 2.5G protocols extend 2G systems to provide additional features such as packet-switched connection (GPRS) and enhanced data rates (HSCSD, EDGE). 3G or third generation 3G is an International Telecommunication Union (ITU) specification for the third generation (analog cellular was the first generation and digital PCS42 was the second generation) of mobile communication technology. Third generation Wireless Wide Area Networks (WWAN) communication systems are characterised by high-speed data rates (144 Kbps43 to 2+ Mbps44) suitable for multimedia content. 3G technologies typically are packet-switched and use Code Division Multiple Access (CDMA) technology to communicate. Examples of 3G include EDGE45, 1xRTT, HDR and W-CDMA46. 3G protocols in mobile telephony support higher data transmission rates, measured in Mbps, intended for applications other than voice. 3G support broadband and bandwidth applications, such as full-motion video, video conferencing and Internet access. 4G or fourth generation 4G or fourth generation WWAN communication systems are characterised by high-speed data rates at 20+ Mbps, suitable for high-resolution movies and television. The initial deployment of 4G communication systems is expected in 2006-2010. The proposed features of these systems include 100 Mbps speed, location sensing and self-tailoring to user needs. AAC Advance Audio Coding: It is an advanced audio compression algorithm used for downloading music files, streaming video, audio and satellite-radio applications. AMR Adaptive Multi-Rate: It is a data compression tool used for coding audio forms, such as speech. It makes use of different modes of encoding, such as ACELP, DTX, VAD and CNG, to tackle unlikely network conditions 42 Personal Communications Service (PCS) Kilobits per second (Kbps) 44 Megabits per second (Mbps) 45 Enhanced Data for Global Evolution (EDGE) 46 Wideband Code Division Multiple Access (W-CDMA) 43 © 2007, Portio Research. All Rights Reserved 91
    • The Next Billion AMPS Advanced Mobile Phone System: A 1G standard, which operates in the 800-900MHzfrequency band. It is still widely used in the United States. ARPU Average Revenue per User: Measures the average monthly revenue generated for each customer unit, such as a handset or pager that an operator has in operation. Backhaul It refers to the process of transmitting voice and data traffic from a remote site to a central site. BMP BMP is an extension for files containing graphics. It is used as a graphics file format on the Microsoft Windows platform. It stores image formats of different bit sizes. It regenerates the image in its own form and does not have any compressing capabilities. However, it can adapt itself to other image software’s running on other operating systems. This graphic format also comes with .DIB (device-independent bitmap), .XBM, .XPM and .TGA extensions. BMP files can support lossless data compression algorithms because of their spare capacities. BoP Bottom of Pyramid: It refers to poorest socio economic groups. BREW Binary Runtime Environment for Wireless: It is an application development platform developed by Qualcomm. It enables wireless users to download and run applications, such as enhanced e-mail, location positioning, games, etc., to BREW-enabled handset. BREW was first introduced and developed for CDMA handsets, but it now supports GSM/GPRS and UMTS handsets as well. Broadcast Technologies for Mobile TV Some of the broadcast technologies for mobile TV around the world are: DVB-H47 (Digital Video Broadcast – Handheld): DVB-H technology allows simultaneous broadcast of television, video and radio channels on mobile, and helps operators to preserve network bandwidth for other data and voice services. It has been accepted as the standard by the European Telecommunications Standards Institute (ETSI). ISDB-T (Integrated Services Digital Broadcast – Terrestrial): It is the transmission standard that has been developed in Japan to help the radio and television stations support digital content. DMB (Digital Media Broadcast): It is a transmission standard, which transmits video feed via satellite (S-DMB) or terrestrial (T-DMB) mode. The standard is currently deployed in Korea and is being increasingly used in other parts of Asia as well as Europe. MBMS (Multimedia Broadcast/Multicast Service): This standard allows the transmission of multimedia content over the UMTS and GSM network. BTS Base Transceiver Station: It is the equipment that facilitates the wireless communication between user equipments such as mobile handsets, computers etc., and the mobile network. CAPEX Capital Expenditure: It refers to the cost of developing a product or system. 47 Source: http://www.strategiy.com/inews.asp?id=20041127000355 92 © 2007, Portio Research. All Rights Reserved
    • The Next Billion CDMA Code Division Multiple Access: In a CDMA system, each voice circuit is labelled with a unique code and transmitted on a single channel simultaneously along with many other coded voice circuits. The receiver uses the same code to recover the signal from the noise. CDMA2000 1x CDMA2000 1x: This is regarded as the first phase of CDMA2000 technology used for providing voice and data services over mobile networks. Data speeds of 307kbps are using a single channel while with two channels speeds of 614kbps are possible. Churn Rate It is the rate at which the subscribers cancel their subscription with the existing operator and sign up with another operator. DoJa It is a JAVA-based technology/application developed for DoCoMo's i-mode mobile handset. It allows users to access more interactive applications or content than the conventional HTMLbased i-mode content. DRM Digital Rights Management: It refers to a set of technologies used for the administration of digital content. It authorises the nature and restricts the frequency of the usage based on the administrative policy settings. It sustains the revenue of the mobile network operator by regulating the usage of content at end user. DSL Digital Subscriber Loop: It is a technology that provides digital data transmission over the copper lines of a PSTN network. EDGE Enhanced Data rates for Global Evolution: An enhanced modulation technique designed to increase network capacity and data rates in GSM networks. EDGE should provide data rates up to 384 Kbps. EDGE will let operators without a 3G license compete with 3G networks offering similar data services. EV-DO Evolution Data Only, Evolution Data Optimised: It is a wireless radio broadband data protocol being adopted by many CDMA operators. It is being used as a part of CDMA2000 networks in Japan, Korea, the United States and Canada. It provides better data speeds in comparison to GSM technologies like GPRS and EDGE. ExEn Execution Environment: It is an application developed by Infusio for developing games for higher-end mobile devices. GIF Graphics Interchange Format: It is a file extension to a different kind of bitmap image. This format of file is capable of compressing the size of the file, unlike a normal BMP format file. The compression process does not result in loss of data. This feature ensures the quality of image by simultaneously reducing the downloading times by a considerable amount. This format is only suitable for images of 256 and less colours. It causes limitation in formatting picture files. GPRS General Packet Radio Service (GPRS) is a packet-based standard for mobile communication, which runs at speeds up to 115 kilobits per second, compared with GSM systems' 9.6 kilobits per second. © 2007, Portio Research. All Rights Reserved 93
    • The Next Billion GPRS supports a wide range of bandwidths and makes efficient use of limited bandwidth. It is particularly suited for sending and receiving small bursts of data, such as e-mail and web browsing, as well as large volumes of data. Applications for GPRS may include any of the following: chat, text and visual information, still images, moving images, web browsing, document sharing/collaborative working, audio, job dispatch, corporate e-mail, Internet e-mail, vehicle positioning, remote Local Area Network (LAN) access, file transfer or home automation. GSM Global System for Mobile communications, the most widely used digital mobile phone system and the mobile telephone standard in Europe. It was originally defined as a pan-European open standard for a digital cellular telephone network to support voice, data, text messaging and cross-border roaming. GSM is now one of the world's main 2G digital wireless standards. GSM is present in more than 160 countries and according to the GSM Association, accounts for approximately 70 percent of the total digital cellular wireless market. GSM is a time division multiplex (TDM) system. Implemented on 800, 900, 1800 and 1900 MHz frequency bands. GUI Graphical User Interface (GUI) is the front-end interface and navigation design of an application. This includes standard formats for representing text and graphics. GUIs have become the standard ways for interaction between users and digital devices. HTML Hyper Text Mark-up Language: It is a syntax based language used for designing web pages. The content of HTML, written in standard syntax, when opened in a web browser takes the form of Web page. The nascent version of HTML was used with easy syntax rules in comparison to existing HTML and MHTML versions of it. In recent times, the official standards of World Wide Web recommend Web developers to use XHTML 1.1, XHTML 1.0 and HTML 4.01 versions. iMelody It is a standard format through which music tones can be transferred between devices. The format has volume modifiers to vary the volume throughout the tone duration, codes for flashing phone’s backlight and other features. iMelody was developed by the irDa association (infrared communications). Instant Messaging Instant Messaging is an Internet-based service that alerts users when their friends or colleagues are online and allows them to communicate with each other in real-time through private online chat areas. With instant messaging, users create a list of other users with whom they want to communicate. When a user from their list is online, the service alerts them and enables an immediate contact with the other user. While instant messaging has primarily been a proprietary service offered by Internet service providers such as AOL and MSN, businesses are starting to employ instant messaging to increase employee efficiency and make expertise more readily available to employees. Intranet The intranet is a private network inside a company or an organisation, and uses software similar to that used on the Internet. Companies use intranets to manage projects, provide employee information, distribute data and information, etc. i-mode i-mode is a proprietary packet-based information service for mobile handsets. It delivers information (such as mobile banking, and train timetable) to handsets and enables exchange 94 © 2007, Portio Research. All Rights Reserved
    • The Next Billion of e-mail from mobile handsets on the PDC-P network. Launched in 1999 by NTT DoCoMo, imode is very popular in Japan (especially for e-mail and transfer of icons). IMPS IMPS (Instant Messaging and Presence Service) is an instant messaging system designed for mobile environments. Presence refers to the availability of a user for communication. IMS IMS IP Multimedia Subsystem is an extension of the GSM / 3GPP GPRS core Network. It uses SIP (Session Initiation Protocol) to set up, maintain and terminate packet-switched voice and multimedia sessions. Interoperability This is defined as the ability of a network to operate with other networks, such as two systems based on different protocols or technologies. J2ME Java2, Micro edition: The Micro Edition of the Java 2 Platform provides an application environment that specifically addresses the needs of commodities in the vast and rapidly growing consumer and embedded space, including mobile handsets, pagers, personal digital assistants, set-top boxes, and vehicle telematics systems. Java A simple platform-independent object-oriented programming language used for writing applets that are downloaded from the World Wide Web by a client and run on the client's machine. JPEG Joint Photographic Experts Group: This is the most commonly used format for storage and transmission of images on the Internet. The format uses lossy compression techniques wherein the compressed data is very close to the original form. An advanced form of the JPEG standard known as JPEG File Interchange Format (JFIF) is capable of formatting the size of graphics according the storage capacity of computer and transmission medium. LTE Long-Term Evolution (LTE) is the standard being developed by 3GPP to achieve download rates of 100Mbps, and upload rates of 50Mbps for every 20MHz of spectrum and is termed as a 4G standard. LTE will have support for bandwidths ranging from 1.25MHz to 20MHz. The LTE group is expected to come up with concrete recommendations by September 2007. MIDI Musical Instrument Digital Interface: It is a protocol which acts as an interface between musical notes of an electronic instrument and computer. The orchestral performance and notes are defined (formatted) into a form, which can be understood and played by computers, i.e., MIDI is capable of playing the actual piece of orchestra unlike a recorded version. MNP Mobile Number Portability: MNP is a facility which allows mobile subscribers to retain their mobile number when moving between mobile networks. MP3 It is an expert compressing tool, which has been widely used in musical content rendering. It is capable of compressing audio files up to 10 percent of its original size. MPEG layer-3 (MP3) format can retain the full quality of an actual song by unperceivable deviations. © 2007, Portio Research. All Rights Reserved 95
    • The Next Billion MVNO Mobile Virtual Network Operator: Term used for a mobile operator who does not own its own spectrum and usually does not have its own network infrastructure. Instead, MVNOs have business arrangements with traditional mobile operators to buy minutes of use (MOU) for sale to their own customers. Node - B It is a term used in Universal Mobile Telecommunications System (UMTS) to refer to the Base Transceiver Station (BTS). Nokia Binary It is an audio format developed by Nokia, which allows mobile users to send ringtones to some Nokia handsets and other brands. It is also known as SCKL, since all the messages begin by //SCKL. OPEX Operating Expenditure: It refers to the ongoing costs for running or operating a product or system. Packet Data Packet data is a method of transmitting information in small packets each containing a certain amount of the information. Packet data networks allow transmission of high-speed data to and from devices connected to the network. Packet Data is similar to dial-up Internet access available in homes or in businesses with cable modems, ADSL48 lines, etc. PCO Public Call Office: It refers to the telephone facility located in a public place. PCS networks Personal Communications Service Networks: In the U.S., the 1.9 GHz band has been allocated for PCS systems; the allocated spectrum is 120 MHz wide and is licensed as two 30 MHz segments for the 51 major trading areas, and three 10 MHz segments for the 493 basic trading areas. PDA Personal Digital Assistant: A portable computing device capable of transmitting data. This device makes possible services such as paging, data messaging, electronic mail, computing, facsimile, date book and other information handling capabilities. PDC This stands for Personal Digital Cellular, a Japanese cellular standard. PHS system This stands for Personal Handy phone system, a Japanese cordless standard. PIM Personal Information Manager: Also known as a "contact manager," is a form of software that logs personal and business information, such as contacts, appointments, lists, notes, occasions, etc. PNG Portable Network Graphics: This tool replicates the GIF format in it’s functioning with compression as an added feature. This format similar to GIF is capable of working on different platforms, backed by library functions. It is a non-lossy compression tool. 48 Asymmetric Digital Subscriber Line (ADSL) 96 © 2007, Portio Research. All Rights Reserved
    • The Next Billion PTT Push to Talk is a two way communication system which allows only one user to talk at any given time. This system, comparable to walky-talky is unlike mobile handsets which allow multiple users to speak at the same time. QCP QCP is a format used for ringtones. The format was developed by Qualcomm PureVoice. RAN Radio Access Network: It is a component that exists between the mobile handset and the core network. It performs the radio functionality of the network and provides connection to the core network. SIM card It is a smart card that gives GSM handset its user identity. The card is inserted into a GSM/TDMA or GSM-only mobile handset containing subscriber-related data. The card contains 18 digits code for GSM markets and 20 digits code for TDMA markets. SIM Toolkit Subscriber Identity Module Application Toolkit: It is used by network operators to provide a user friendly interface on a subscribers’ handset to access value-added services provided by them. These applications also provide a mechanism for storing and using any service specific parameters. These applications are built within a SIM card by mobile network operators. SIMPLE SIMPLE (Session Initiation Protocol for Instant Messaging and Presence Leveraging Extensions) is an open standard instant messaging (IM) protocol. SIP Session Initiation Protocol or SIP is a standard multimedia and telephony protocol for initiating an interactive user session over mobile networks. The services under SIP may include call forwarding, number delivery, authentication and other telecoms applications. Smartphone Smartphone is a phone with a microprocessor, memory, screen and built-in modem. The Smartphone combines some of the capabilities of a PC in a phone device. Most of the current models also include a Web browser. SMS TV This is defined as the use of SMS for variety of applications, such as voting, teletext chat for TV programmes. SMSC Short Message Service Centre (SMSC) provides the routing of all SMS or text messages in any mobile network. Similar to e-mail server, the SMSC handles large volumes of messages sent between two mobile handsets or a mobile handset and a software application. SoC System on Chip: It refers to the process of integrating all the components of an electronic system into a single integrated circuit or chip. SS7 SS7 is a global standard for telecommunications defined by ITU Telecommunication Standardisation Sector (ITU-T). The standard defines the procedures and protocol by which network elements in the public switched telephone network (PSTN) exchange information over a digital signalling network to effect mobile (cellular) and wire-line call setup, routing and control. © 2007, Portio Research. All Rights Reserved 97
    • The Next Billion TIFF Tagged Image File Format: It is a platform free image format, which enables reproduction of an image created on a platform, such as Macintosh, on other platform such as an ordinary PC. It is an advanced tool for storing bit map or graphic image on different platforms. TIFF format supports scanned image, fax and other applications involving editing of image. TDD Time Division Multiplex: This is a scheme for allowing simultaneous transmission and receiving of data at the same frequency, but with the different time slots allocated to them. TDMA Time Division Multiple Access: A TDMA channel is a single FDMA channel divided up in time into multiple time slots. TDMA system is able to transmit multiple voice circuits per channel. Three users can take it in turn to share one radio channel. The channels can vary in bandwidth and depending on the type of system, the time slots can transmit all or part of a voice circuit. Each user's speech is stored, compressed and transmitted as a quick packet, using controlled time slots to distinguish them-hence the phrase 'time division'. It uses 30 KHz channels and a vocoder rate of 8 Kbits/sec. At the receiver, the packet is de-compressed. UMTS Universal Mobile Telecommunications System: This is the future transmission network for third generation mobile telephones, as defined by the International Telecommunications Union (ITU). In time, UMTS could reach transmission capacities of 2 Mbits/sec. (compared to 9.6 Kbits/sec. for GSM). Initially UMTS will offer rates of 144 to 384 Kbits/sec. This standard will make the development of new multimedia services having very wide bands and new uses, notably in the transmission of video, images and sound possible. UMTS TDD Universal Mobile Telecommunication System (UMTS) Time-Division-Depleting (TDD): UMTS TDD Mobile Broadband technology is a packet data implementation of the international 3GPP UMTS standard and is designed to work in a single unpaired frequency band. It is designed to generate typical data transfer rates of up to 2 Mbps. UMTS FDD Universal Mobile Telecommunication System (UMTS) Frequency Division Duplex (FDD): It is designed to generate typical data transfer rates of up to 384 Kbps and is suitable for wide area coverage due to potentially high reach. VAS Mobile operators offer various services which add value to the basic voice and data services that are available on mobile networks. These include services such as WAP, voicemail, call diversion, etc. vCalender It is a standard format used to exchange information about schedules and activities electronically via an e-mail attachment. vCalender requires a personal information manager (PIM) type of application program. The format was developed by a consortium founded by Apple, AT&T, IBM and Siemens. vCard vCard is an electronic business card used for exchanging personal information digitally. It contains name, address information, company logos, URLs, photographs and sound clips. It was developed by a consortium founded by Apple, AT&T, IBM and Siemens. WAP Wireless Advance Protocol: WAP is a specification for a set of communication protocols to standardise the way mobile devices, such as handsets and radio transceivers, can be used 98 © 2007, Portio Research. All Rights Reserved
    • The Next Billion for Internet access. The WAP standard is based on Internet standards (HTML, XML and TCP/IP). It consists of a Wireless Markup Language (WML) specification, a WMLScript specification, and a Wireless Telephony Application Interface (WTAI) specification. The WAP protocol is the leading standard for information services on wireless terminals such as digital handsets. Some examples of WAP for accessing information include the following: checking train timings, purchasing tickets, flight check–in, viewing traffic information, checking weather conditions, looking up stock values, looking up phone numbers, looking up addresses or looking up sport results, and there are countless more. WAV It is a widely used audio format for wireless devices which is limited to files less than 2 GB in size. WBMP It is a graphic file format used for sending Web content to wireless devices. The format is designed to support multiple image types for WAP-enabled wireless phones. WLL Wireless Local Loop: It refers to the wireless devices that are situated in fixed locations. The signal transmissions occur through the air and it provides connectivity to the users in remote and isolated areas without the need for laying new cables. WMA Windows Media Audio: It is a compression format with Digital Rights Management features incorporated in it. It compresses the content to half of what an MP3 can do with the same content. This feature makes it more adaptable to lower memory devices such as handsets. WML Wireless Mark-up Language is an XML and a HTML-based language used for creating content, which can be delivered to wireless hand-held devices. This language supports WAP (Wireless Application Protocol) standards just as HTML supports World Wide Web (http) standards. WML is useful in accessing text on web pages over hand-held devices. W-CDMA Wideband Code Division Multiple Access: The third generation standard offered to the International Telecommunication Union by GSM proponents. This is a 3G technology that increases data transmission rates in GSM systems by using CDMA instead of TDMA. W-CDMA has become the Direct Sequence mode in the ITU's 3G specification, which includes the 1x Multi-Carrier mode (1x MC) and 3x Multi-Carrier mode (3x MC). 1x MC (formerly known as cdma2000) and 3x MC comprise the 3G upgrade paths for operators already using CDMA. © 2007, Portio Research. All Rights Reserved 99
    • The Next Billion Portio Research Classifications Geographical Regions: There is sometimes a difference in the way research firms classify the major geographical territories. At Portio Research, we follow 'obvious' geographical lines, but for the record, here are the regional definitions we follow, unless otherwise stated in the report: Western Europe: Standard classification includes Iceland and various islands Central and Eastern Europe: Includes standard list of Central and Eastern European countries, and the Baltic states, Balkans, Russia, Greece and Turkey Asia Pacific: Includes Australasia, the Indian Sub-Continent, Pakistan, Afghanistan, Sri Lanka, Maldives and the Former Soviet Union Central Asian republics North America: Standard classification, including Hawaii and islands to the North Latin America: Includes all South and Central American countries including Mexico, The Caribbean and The West Indies Middle East: Includes Israel and all Middle Eastern countries East of Egypt, South of Turkey and West of Afghanistan Africa: Standard classification includes territories in Western Indian Ocean Mobile Subscribers Generally, we count active SIMs, and we consider active as being used within 3 months, but, of course there is some room for variance, depending on what figures operators themselves publish or report to us when we interview them. When running spot-checks on operator numbers, we are governed by the figures they give us, and as we are all aware, many individuals and companies around the world count their subscribers/subscriptions by a number of different criteria. We refer to "total subscribers" for a network/country or globally, as a count of the total number of active subscriptions those networks have, and as such this can cause a slight distortion of any country-penetration rate. Currency and Monetary Values All monetary values quoted in this report are in US Dollars as the most widely recognised benchmark internationally. The currency conversion has been done on the year average basis. Whilst researching global mobile markets, we use http://www.xe.com/ for all currency conversion calculations. 100 © 2007, Portio Research. All Rights Reserved
    • The Next Billion Companies Mentioned in this Report Mobile network operators Airtel – www.airtelworld.com America Movil – www.americamovil.com Bell South – www.bellsouth.com BSNL – www.bsnl.co.in China Mobile – www.chinamobileltd.com China Unicom – www.chinaunicom.com.cn Celtel Nigeria – www.ng.celtel.com/en Cingular – www.wireless.att.com/home Claro – www.claro.com.gt Embratel – www.embratel.com.br Globacom – www.gloworld.com Grameen Phone – www.grameenphone.com Idea Cellular – www.ideacellular.com MTC Namibia – www.mtc.com.na MTN – www.mtn.com Mobilink – www.mobilinkgsm.com Movistar – www.movistar.com Orange – www.orange.com Orascom – www.orascomtelecom.com Philippine Long Distance Telephone Company – www.pldt.com.ph Reliance Communications – www.reliancecommunications.co.in SingTel – welcome.singtel.com/default.asp Smart Communications – www.smart.com Sprint – www.sprint.com Tata Teleservices – www.tatateleservices.com Telecom Malaysia – www.tm.com.my Telefonica Moviles – www.telefonica.es Teléfonos de México (Telmex) – www.telmex.com/mx Telefonica Moviles Peru – www.telefonica.com.pe Telefonica del Sur (Telsur), Chile – www.telsur.cl Telenor Mobile – www.telenor.com Telcel – www.telcel.com T-Mobile – www.T-Mobile.com Verizon Wireless – www.verizonwireless.com Vodafone – www.vodafone.com Vodacom – www.vodacom.com Warid Telecom – www.waridtel.com Handset vendors, network infrastructure vendors and solution providers American Tower – www.americantower.com Arasor – www.arasor.com.au Crown Castle – www.modeo.com Compal – www.compal.com Ericsson – www.ericsson.com Flextronics – www.flextronics.com Freescale Semiconductors – www.freescale.com Foxconn – www.foxconn.com Haier Electronics Group Company – www.haier.com Hisense – www.hisense.com/en/index.jsp Huawei Technology – www.huawei.com Infineon Technologies – www.infineon.com Lenovo Mobile – www.lenovomobile.com LG Electronics – www.lge.com Motorola – www.motorola.com © 2007, Portio Research. All Rights Reserved 101
    • The Next Billion Nokia – www.nokia.com Nokia Siemens – www.nokiasiemensnetworks.com Qualcomm – www.qualcomm.com Royal Philips Electronics – www.philips.com Sagem Communications – www.sagem.com Samsung – www.samsung.com Sony Ericsson – www.sonyericsson.com TCL Communication Technology Holdings – www.tclcom.com TechFaith Wireless – www.techfaithwireless.com Texas Instrument – www.ti.com UTStarcom – www.utstar.com ZTE Corporation – www.zte.com.cn Others Grameen Bank – www.grameen-info.org Grupo Elektra – www.grupoelektra.com.mx Lehman Brothers – www.lehman.com Standard Bank – www.standardbank.co.za Wizzit – www.wizzit.co.za 102 © 2007, Portio Research. All Rights Reserved
    • The Next Billion About the Authors Priyanka Agrawal Priyanka Agrawal, co-lead author for this report, works as Manager for Portio Research and Evalueserve, and is responsible for project planning, client interface and quality ownership of report projects. She is a post graduate in Business Management from International Management Institute, Delhi. She has been working with Portio Research and Evalueserve since May 2004. Akshay Taneja Akshay Taneja, co-lead analyst for this report, is working as a Senior Business Analyst with Portio Research and Evalueserve. He has worked on various projects related to telecom domain. He graduated from Nagpur University, India with a Bachelor’s Degree in Electronics and Telecommunication Engineering. He has been working with Portio Research and Evalueserve since January 2006. Rakesh Kumar Rakesh Kumar is working as a Senior Business Analyst with Portio Research and Evalueserve. He has worked on various projects related to telecom domain. He is a post graduate in Business Management from International Management Institute, Delhi. He has been working with Portio Research and Evalueserve since May 2007. Gaurav Narula Gaurav Narula is working as a Business Analyst with Portio Research and Evalueserve. He has worked on various projects related to telecom domain. He graduated from IT-BHU, Varanasi, India. He has been working with Portio Research and Evalueserve since March 2007. John White John White has been Editor and contributing author for this report. John is Business Development Director for Portio Research and has over 17 years experience in the technical publishing industry. Working in the IT sector previously and in the telecoms industry for the last 10 years, John has extensive experience in the mobile sector. © 2007, Portio Research. All Rights Reserved 103
    • The Next Billion Feedback Form Please use this form to provide feedback about this report. Your feedback is valuable, both to us and also to you – the more you tell us then the better we can make our future reports and directories and hence the better we can serve you in the future. Please be as honest as you like – you can tell us anything here, good or bad - and then you can fax this page to us, anonymously if you prefer, to +44 (0)1249 656967 Mobile Messaging Futures 2007-2012 Please tell us what you like about this market study? Please tell us what you don’t like about this market study? Anything else you want to say? Optional: (If you would like a response, further information or further assistance) Your Name: __________________________________________ Your Job Title: ________________________________________ Company: ____________________________________________ Your E-mail Address: ___________________________________ Thank you! We truly appreciate your feedback and we will study your comments carefully, and in the strictest confidence. 104 © 2007, Portio Research. All Rights Reserved
    • The Next Billion Also available from Portio Research Limited Portio Research Ltd is a UK-based research company focussing on the mobile space, providing reports, handbooks, directories and database products. Current Product Portfolio 2007: Strategies for Creating End-User Demand for Mobile Data Services This detailed resource book offers you all the essential market data required for business strategy and planning purposes - including in-depth subscriber growth forecasts for leading countries, KPIs of leading network operators, market share data, handset shipment figures broken out quarterly and regionally, handset vendor profiles, player rankings, ARPU data, churn figures and much more. You will find this huge 251-page market report invaluable throughout the year and you will find yourself referring to these figures again and again for meetings, presentations and business plans. Click here to read full details and contents of this exciting new report. Digital Music Futures 2007-2011 Mobile messaging is an integral part of the mobile industry and contributes significantly to total mobile service revenues. Indeed, in 2006 SMS contributed between 70% and 80% of total non-voice mobile service revenues worldwide. This new Portio Research report offers a complete study of the worldwide mobile messaging market, forecasting SMS and MMS volumes and revenues for the period 2007-2012, and detailed growth forecasts for mobile email and mobile IM (instant messaging) take up in the coming years. Click here for more details. Strategies for Creating End-User Demand for Mobile Data Services As mobile operators worldwide face increasing pressure on profitability so revenues from data services become increasingly important. Voice revenues continue to fall and growth has slowed in mature markets, and the long awaited launch of 3G services has failed to lift ARPU as quickly as was hoped for in Western Europe and North America. As all eyes stay fixed on the all-important 'data-as-a-percentage-of-revenue' metric, many non-voice services have failed to provide a significant boost to ARPU. This new study looks at 'best-of-breed' nonvoice services around the globe and identifies areas of best practice in driving higher usage from mobile data services. Click here for more details. If you have any questions or if we can be of any assistance to you, please contact us by e-mail: info@portioresearch.com Copyright 2007. Portio Research Limited 2007 www.portioresearch.com © 2007, Portio Research. All Rights Reserved 105