Slicing Up the Mobile Services Revenue Pie

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- In terms of mobile revenues, the worldwide mobile market stood at 718.4 billion at end-2006. It is expected to increase at a strong rate and reach 1,094.9 by end-2012. …

- In terms of mobile revenues, the worldwide mobile market stood at 718.4 billion at end-2006. It is expected to increase at a strong rate and reach 1,094.9 by end-2012.
- Advanced and emerging countries have different arrangements for sharing revenue generated from premium SMS services. In developed countries, content owners and
aggregators get a higher share than their counterparts in developing countries. In most of the emerging markets, the operators share is quite high (sometimes as high as 60 percent), as is the case in India and the Philippines. However, there are a few exceptions. In China, operators get only 20-30 percent of the total revenue through premium SMS services, while aggregators and content owners share the remainder.
- The worldwide mobile handset market is experiencing tremendous growth. It is estimated that
approximately 1,144 million handsets were shipped to customers worldwide in FY-2007, and the market is expected to be worth USD 166.1 billion. In 2006, the number of handsets sold worldwide exceeded 990 million. This number is expected to grow at a CAGR of just over
10.8 percent from 2006 to 2011.
- The revenue sharing arrangement in advanced markets such as the US and the UK is in favour of content providers. However, in emerging markets, such as
India, operators account for a larger share.

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  • 1. Slicing Up the Mobile Services Revenue Pie Portio Research Limited. Published January 2008 by Portio Research Limited © Copyright 2008. 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 licence is theft. It’s unethical, immoral and against the law. If you have any questions about the legal licence 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 licence to read this document. © 2007, Portio Research. All Rights Reserved 1
  • 2. Slicing Up the Mobile Services Revenue Pie Contents Introduction ..............................................................................................................................6 Worldwide Mobile Market ........................................................................................................9 Mobile Data Services .............................................................................................................18 Introduction ........................................................................................................................................ 18 SMS ................................................................................................................................................... 22 Market Overview ..............................................................................................................................22 Value Chain Analysis .......................................................................................................................24 Case Study 1 – India’s SMS Market.................................................................................................26 Case Study 2 – The UK’s SMS Market ............................................................................................30 Case Study 3 – The US’s SMS Market ............................................................................................34 MMS .................................................................................................................................................. 36 Market Overview ..............................................................................................................................36 Value Chain Analysis .......................................................................................................................38 Case Study 1 – The US’s MMS Market............................................................................................39 Case Study 2 – The UK’s MMS Market............................................................................................41 Case Study 3 – China’s MMS Market...............................................................................................43 Mobile E-mail ..................................................................................................................................... 45 Market Overview ..............................................................................................................................45 Mobile IM ........................................................................................................................................... 49 Market Overview ..............................................................................................................................49 Value Chain Analysis .......................................................................................................................52 Mobile Video Services (Mobile TV and Mobile Video Downloads)..................................................... 53 Market Overview ..............................................................................................................................53 Case Study 1 – Italy’s Mobile TV Broadcasting Market....................................................................59 Case Study 2 – South Korean Mobile TV Broadcasting Market .......................................................61 Mobile Music ...................................................................................................................................... 63 Market Overview ..............................................................................................................................63 Value Chain Analysis .......................................................................................................................68 Case Study 1 – UK’s Mobile Music Market ......................................................................................70 Case Study 2 – India’s Mobile Music Market....................................................................................73 Case Study 3 – The US’s Mobile Music Market ...............................................................................75 Mobile Games.................................................................................................................................... 78 Market Overview ..............................................................................................................................78 Value Chain Analysis .......................................................................................................................80 Case Study 1– Japan’s Mobile Gaming Market ...............................................................................83 Case Study 2 – The US Mobile Gaming Market...............................................................................85 Case Study 3 – The Mobile Gaming Market in the UK .....................................................................87 Other Services ................................................................................................................................... 89 Mobile Payment Services.................................................................................................................90 Mobile Gambling ..............................................................................................................................92 Location-based Services ..................................................................................................................94 Mobile Internet .................................................................................................................................95 Infrastructure Equipment Vendors.......................................................................................96 Market Overview ................................................................................................................................ 96 Mobile Handset Market ..........................................................................................................99 Market Overview ................................................................................................................................ 99 Conclusions......................................................................................................................... 104 Trillion Dollar Mobile.......................................................................................................................104 Shifting Trends in the Mobile Data Services Market.......................................................................114 Beyond Messaging.........................................................................................................................117 Infrastructure Equipment Vendors..................................................................................................120 Mobile Handset Market ..................................................................................................................120 Appendices .......................................................................................................................... 122 Glossary .........................................................................................................................................123 Portio Research Classifications......................................................................................................133 Companies Mentioned in this Report .............................................................................................134 About the Authors...........................................................................................................................136 © 2007, Portio Research. All Rights Reserved 2
  • 3. Slicing Up the Mobile Services Revenue Pie Also available from Portio Research Limited..................................................................................138 List of Figures Figure 1: Comparison of Mobile Market with Other Sectors – Revenue (In USD Billion, In 2006)........ 6 Figure 2: Comparison of Mobile Market with Other Sectors – Y-o-Y Growth Rate (2006).................... 7 Figure 3: Comparison of Mobile Market with Other Sectors – Y-o-Y Growth Rate (2007E) ................. 7 Figure 4: Worldwide Mobile Subscribers (In Million, 2004-2012E) ....................................................... 9 Figure 5: Net Subscriber Additions – Regional Break-out (In Million, 2007E-2012E) ..........................10 Figure 6: Worldwide Mobile Revenue (In USD Billion, 2004-2012E) ...................................................11 Figure 7: Worldwide Service Revenue and Equipment Sales (In USD Billion, 2004-2012E)...............12 Figure 8: Worldwide Mobile Service Revenue – Regional Break-out (2004 and 2012E)...................13 Figure 9: Worldwide Mobile Service Revenue – Voice-Data Split (2004 and 2012E)..........................14 Figure 10: Worldwide Mobile Voice Revenue (In USD Billion, 2004-2012E) ....................................15 Figure 11: Worldwide Mobile Voice Revenue as a percentage of Service Revenue (2004-2012E) .16 Figure 12: Worldwide Data Services Revenue – Break-out (2006 and 2011E) ................................19 Figure 13: Worldwide Data Revenue Sharing Arrangement (2006 and 2011E) ...............................20 Figure 14: MNOs share in Data Revenue Break-out (2006 and 2011E)...........................................21 Figure 15: Worldwide SMS Traffic Volumes (In Billion, 2006-2011E) ...............................................23 Figure 16: Worldwide SMS Revenue (In USD Billion, 2006-2011E) .................................................23 Figure 17: Premium SMS – Value Chain ..........................................................................................24 Figure 18: SMS-based Enterprise Services – Value Chain ..............................................................25 Figure 19: India – Mobile Data Services Revenue (In USD Billion, 2004-2007E).............................26 Figure 20: India – Mobile Data Services – Revenue Break-out (2006) .............................................27 Figure 21: India – SMS Revenue Break-out (2006) ..........................................................................27 Figure 22: India – Revenue Sharing Arrangement – Premium SMS Services (2006 and 2011E) ....28 Figure 23: India – SMS-based Enterprise Services – Revenue Break-out .......................................29 Figure 24: UK – SMS Traffic Volumes (In Billion, 2004-2007E)........................................................30 Figure 25: UK – SMS Traffic Volumes (In Billion, January-May 2007) .............................................31 Figure 26: UK – SMS Revenue (In USD Billion, 2005-2007E)..........................................................31 Figure 27: UK – Premium SMS Services – Revenue Sharing Arrangement in Case of Large Content Owners (2006).................................................................................................................................32 Figure 28: UK – Premium SMS Services – Revenue Sharing Arrangement in Case of Small Content Owners (2006).................................................................................................................................32 Figure 29: UK – Premium SMS Revenue Sharing Arrangement (2011E).........................................33 Figure 30: US – Premium SMS Revenue Sharing Arrangement (2006) ..........................................34 Figure 31: US – Premium SMS Revenue Sharing Arrangement (2011E)........................................35 Figure 32: Worldwide MMS Traffic Volumes (In Billion, 2006-2011E) ..............................................36 Figure 33: Worldwide MMS Revenue (In USD Billion, 2006-2011E) ................................................37 Figure 34: A2P MMS – Value Chain .................................................................................................38 Figure 35: US – Data Services Revenue Break-out (2006) ..............................................................39 Figure 36: US – Revenue Sharing Arrangement – MMS (Except P2P) (2006, 2011E) ....................40 Figure 37: UK – Data Services Revenue Break-out (2006) ..............................................................41 Figure 38: UK – Revenue Sharing Arrangement – MMS (2006).......................................................42 Figure 39: UK – Revenue Sharing Arrangement – MMS (2011E) ....................................................42 Figure 40: China – Revenue Sharing Arrangement – MMS except P2P (2003 and 2006) ...............44 Figure 41: China – Revenue Sharing Arrangement – MMS except P2P (2011E).............................44 Figure 42: Worldwide Mobile E-mail Revenue (In USD Billion, 2006-2011E) ...................................45 Figure 43: Worldwide Mobile E-mail Subscribers (In Million, 2006-2011E) ......................................46 Figure 44: Mobile Enterprise E-mail – Value Chain ..........................................................................47 Figure 45: Worldwide Mobile IM Subscribers (In Million, 2006-2011E).............................................49 Figure 46: Worldwide Mobile IM Revenue (In USD Billion, 2006-2011E) .........................................50 Figure 47: Mobile TV (Broadcast Based) – Value Chain ..................................................................54 Figure 48: Mobile TV (Cellular Based) – Value Chain ......................................................................55 Figure 49: Mobile Video Download – Value Chain ...........................................................................56 Figure 50: Worldwide Mobile TV Subscribers (In Million, 2006, 2007E and 2010E).........................56 Figure 51: Worldwide Mobile Video Services Revenue (In USD Billion, 2006-2011E) .....................57 Figure 52: Italy – Mobile TV Subscribers (In Million, 2006-2010E) ...................................................59 © 2007, Portio Research. All Rights Reserved 3
  • 4. Slicing Up the Mobile Services Revenue Pie Figure 53: Figure 54: Figure 55: Figure 56: Figure 57: Figure 58: Figure 59: Figure 60: Figure 61: Figure 62: Figure 63: Figure 64: Figure 65: Figure 66: Figure 67: Figure 68: Figure 69: Figure 70: Figure 71: Figure 72: Figure 73: Figure 74: Figure 75: Figure 76: Figure 77: Figure 78: Figure 79: Figure 80: Figure 81: Figure 82: Figure 83: Figure 84: Figure 85: Figure 86: Figure 87: Figure 88: Figure 89: Figure 90: Figure 91: Figure 92: Figure 93: Italy – Mobile TV Broadcasting – Value Chain.................................................................60 SK Telecom – Mobile TV Broadcasting – Value Chain....................................................61 Worldwide Mobile Music Revenue (In USD Billion, 2006-2011E)...................................63 Revenue Composition – Mobile Music (2006 and 2011E) ...............................................65 Worldwide Ringtone Revenue (In USD Billion, 2006-2011E) ..........................................66 Worldwide Streaming Audio Revenue (In USD Million, 2006-2011E)..............................66 Worldwide Full-track Mobile Music Download Revenue (In USD Million, 2006-2011E)...67 Worldwide Ring-back Tone Revenue (In USD Million, 2006-2011E)...............................67 Mobile Music Services – Value Chain .............................................................................68 Mobile Music Services – Revenue Sharing Arrangement (2006 and 2011E) ..................68 Penetration – Music-enabled Handsets (1 November 2006–31 January 2007)...............70 UK – Mobile Download Market – Break-out (2006) .........................................................71 UK – Revenue Sharing Arrangement of Polyphonic Tones (2006)..................................71 UK – Revenue Sharing Arrangement of True Tones (2006)...........................................72 Mobile Music Services – Revenue Sharing Arrangement (2006 and 2011E) ..................72 India – Mobile Music Download Break-out (2006) ...........................................................73 Mobile Music Service – Revenue Sharing Arrangement (2006 and 2011E) ....................74 US – Mobile Music Revenue (In USD Million, 2004-2006) ..............................................75 US – Changing Patterns of Ringtone Service (2004-2006) .............................................75 US – Revenue Sharing Arrangement of Polyphonic Tones (2006)..................................76 US – Revenue Sharing Arrangement of True Tones (2006)............................................77 Mobile Music Services – Revenue Sharing Arrangement (2006 and 2011E) ..................77 Worldwide Mobile Gaming Revenue (In USD Billion, 2006-2011E).................................78 Mobile Gaming – Value Chain .........................................................................................81 Worldwide Mobile Gaming – Revenue Sharing Arrangement (2006, 2011E) ..................81 Japan – Mobile Gaming Service Revenue (In USD Million, 2004–2006).........................83 NTT DoCoMo – Revenue Sharing Arrangement – Mobile Games (2006) .......................84 US – Mobile Gaming Services Revenue (In USD Million, 2004–2006)............................85 US – Mobile Gaming – Revenue Sharing Arrangement (2006, 2011E)..........................86 UK – Mobile Gaming – Revenue Sharing Arrangement (2006, 2011E)..........................88 Revenue from Other Data Services (In USD Billion, 2006–2011E) .................................89 Mobile Payment Services – Value Chain.........................................................................90 South Korea – Mobile Payment – Revenue Sharing Arrangement (2006) ......................91 Worldwide Infrastructure Vendor Revenue (In USD Billion, 2006–2011E) ......................96 Worldwide Handset Shipments (In Million, 2006–2011E) ................................................99 Worldwide Handset Revenue (In USD Billion, 2006–2011E).........................................100 Worldwide Handset Sales to Operators (In USD Billion, 2006–2011E) .........................100 Worldwide Market Share Comparison – by Handset Vendor (2005 and 2006) .............102 Handset Shipments – Regional Break-out (2006 and 2011E) .......................................103 Worldwide Mobile Revenue and Total Handset Sales (In USD Billion, 2004-2011E) ...104 Voice and SMS Revenue as Percentage of Service Revenue (In Percent, 2006-2011E) 105 Figure 94: Worldwide Mobile Market – Break-out by Services and Handset Sales (In USD Billion, 2006, 2007E and 2011E)...............................................................................................................106 Figure 95: Worldwide Mobile Market – Who makes how much? (2006 and 2011E).......................108 Figure 96: Worldwide Mobile Revenue – Regional Break-out (2006 and 2012E)..........................109 Figure 97: Worldwide Mobile Market – Service Revenue and Handset Sales – Regional Break-out (In USD Billion, 2006,2007 and 2011E).........................................................................................110 Figure 98: Worldwide Mobile Revenue – Regional Contribution (2006 and 2011E) .......................112 Figure 99: Worldwide Mobile Data Services Revenue – Regional Break-out (2004 and 2012E)...114 Figure 100: Data Services Value Chain (In USD Billion, 2006 and 2011E) ......................................119 List of Tables Table 1: Table 2: Table 3: 4 Regional Mobile Subscribers (In Million, 2004-2012E).........................................................10 Worldwide Mobile Revenue – by Region (In USD Billion, 2004-2012E)...............................11 Worldwide Mobile Service Revenue – by Region (In USD Billion, 2004-2012E) ..................12 © 2007, Portio Research. All Rights Reserved
  • 5. Slicing Up the Mobile Services Revenue Pie Table 4: Worldwide Mobile Voice Revenue – by Region (In USD Billion, 2004-2012E) .....................15 Table 5: Average Revenue per Minute (RPM) (In USD, Q2 2007).....................................................16 Table 6: Forecasted Worldwide Mobile E-mail Subscribers (In Million, 2006-2011E) ........................46 Table 7: Handset Vendors and Operating System Providers .............................................................48 Table 8: Worldwide Mobile IM Subscribers – Regional Break-out (In Million, 2006-2011E)...............50 Table 9: Worldwide Mobile Music Services Revenue (In USD Billion, 2006-2011E) ..........................64 Table 10: Quarterly Handset Shipments Worldwide (In Million, Q1, 2006 - Q3, 2007) ..................101 Table 11: Worldwide Voice and Data Services Revenue (In USD Billion, 2004-2012E)................113 Table 12: Worldwide Mobile Data Services Revenue –Regional Break-out (In USD Billion, 20042012E) 115 Table 13: Worldwide Mobile Data Services Revenue – Break-out (In USD Billion, 2006-2011E) .116 © 2007, Portio Research. All Rights Reserved 5
  • 6. Slicing Up the Mobile Services Revenue Pie Introduction In recent years, the mobile communication market has developed rapidly. Mobile services have touched the lives of millions of people worldwide. From being only a voice communication device, the mobile handset has gradually become part of the user’s personality. The mobile handset has evolved into a device that provides information and is a source of entertainment. Apart from the growth of mobile services in western countries, there has been a surge in the subscriber bases in the emerging economies of Asia, Eastern Europe, Latin America and Africa. In the Asia-Pacific region, the mobile subscriber base has already reached the 1 billion mark, with China and India being the largest markets in the region. Furthermore, the expected exponential subscriber growth in countries such as Indonesia, Bangladesh, Ukraine, Brazil, Mexico and Nigeria, will continue to stimulate the market in the near future. The worldwide mobile market was worth USD 718.4 billion at year-end 2006 in terms of operator revenues and is expected to exceed the 1 trillion mark in 2011. Upon comparison with other services, the mobile telecommunications sector has clearly outperformed (in terms of revenue) other sectors, such as financial services, pharmaceutical sales, travel and tourism, and IT services. The mobile and wireless industry, despite being a comparatively young industry compared to the other sectors listed, has attained great height in a short span of time. The following figure compares the revenue generated by different sectors for the fiscal year 2006. Figure 1: Comparison of Mobile Market with Other Sectors – Revenue (In USD Billion, In 2006) Revenue (In USD Billion) 800 672.3 718.4 604.5 600 472.6 400 260.2 280.0 Semiconductor Industry Consulting Services 200 0 Financial Services Pharmaceutical Sales IT services Mobile Market Source: Various, see footnotes 1 Moreover, for the year 2006, when the financial services and pharmaceutical sectors witnessed growth of 3.5 percent and 8.0 percent, respectively, the worldwide mobile market registered a growth rate of 16.6 percent. Figure 2 shows the year-on-year (y-o-y) growth rate of different sectors in fiscal year 2006. 1 Sources: http://www.gartner.com/it/page.jsp?id=495223; http://wistechnology.com/article.php?id=4300; http://www.edn.com/index.asp?layout=article&articleid=CA6436028; http://www.gartner.com/it/page.jsp?id=506001; http://www.vault.com/store/book_preview.jsp?product_id=43631 6 © 2007, Portio Research. All Rights Reserved The worldwide mobile market was worth USD 718.4 billion at year-end 2006 in terms of operator revenues, and is expected to exceed the 1 trillion mark in 2011.
  • 7. Slicing Up the Mobile Services Revenue Pie Figure 2: Comparison of Mobile Market with Other Sectors – Y-o-Y Growth Rate (2006) 16.6% Mobile Market 6.4% IT Services Travel & Tourism 4.6% Pharmaceutical 8.0% Financial Services 3.5% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% Source: Portio Research Ltd. According to our estimates, the mobile telecommunication sector will witness a y-o-y growth rate of 11.9 percent in terms of revenue in 2007. Furthermore, the sector is set to again outmatch the semiconductor industry, consulting services and financial services sectors. Figure 3 shows a comparison of different sectors in terms of the estimated y-o-y growth rate for fiscal year 2007. Figure 3: Comparison of Mobile Market with Other Sectors – Y-o-Y Growth Rate (2007E) 11.9% Mobile Market 7.1% Consulting Service Semiconductor Industry 8.1% 4.5% Financial Services 0% 2% 4% 6% 8% 10% 12% 14% Source: Portio Research Ltd. E – Estimated Mobile data revenue forms an important part of total mobile service revenues. As per our estimates, in 2007, it contributed approximately USD 135.7 billion to the overall mobile service revenue and is expected to contribute significantly in the coming years as well. The maximum contribution to data service revenue in 2007 was from SMS, followed by MMS. SMS contributed almost USD 66.5 billion in 2007 and is also expected to be the highest contributor in 2011. MMS too will be one of the major contributors. Also, Data services such as mobile music, mobile games, mobile video and mobile payments are expected to contribute significantly to the overall revenue generated from data services in the next five years. © 2007, Portio Research. All Rights Reserved 7
  • 8. Slicing Up the Mobile Services Revenue Pie The revenue generated from data services is shared among the players in the data services value chain. Mobile network operators get the maximum share in the value chain. Other players such as content owners and aggregators get a smaller share than do the operators. In 2006, the operators’ share in the value chain was almost USD 67.6 billion, which accounted for almost 66 percent of the total revenue generated from data services. In 2011, it is expected that the share retained by the operators out of total data services revenues will decrease, and other players such as the content owners and aggregators, will get an increase in their share of total non-voice service revenues. The demand for data services is expected to shoot up worldwide in the next five years. To provide the best service to their customers, mobile operators will invest heavily on infrastructure in the coming five years. This bodes well for the infrastructure vendors. The revenue generated in 2006 by infrastructure vendors was almost USD 60 billion and this is expected to increase at a steady pace in the next five years. The tremendous growth in the worldwide subscriber base and the demand for replacement handsets has helped the mobile handset market grow at a very fast pace. In 2006, the annual shipments of mobile handsets almost touched the one billion mark and it is estimated that full year figures for 2007 will exceed that magical mark of one billion. In 2006, of the total revenue generated from the sale of mobile handsets, the maximum revenue came from sales to operators. Sales to mobile operators accounted for almost 60 percent of the total sales in 2006. In the next five years, revenue from sales to mobile operators is expected remain steady at 60 percent of the total sales. With an increase in the subscriber base, the requirement of different kinds of data services has increased significantly. Due to advancements in mobile technology, newer features are being added to handsets. Subscribers now use their handsets to play games, listen to music, read news headlines, surf the Internet and make payments. The mobile industry has increasingly realised the need to explore the mobile data market and increase revenue by providing innovative options to subscribers. This has driven players to introduce better and more innovative concepts and services. The key features of this report include the following: • • • • • • 8 An introduction and overview of the worldwide mobile market. It analyses the worldwide subscriber base (2004-2012), total worldwide mobile service revenues (2004-2012), the break-out of the mobile service revenues into voice and data revenues, and the share of various data services from total non-voice revenues. The revenue generated by mobile network operators from mobile services and the share of various players, such as handset vendors, infrastructure providers, content providers, etc. in this revenue pie. An overview of the data services market. It also highlights the revenue generated from various data services in the period 2006 to 2011. A value chain analysis is done for various data services, which provides break-out of the revenue pie amongst the players involved in the value chain. Case studies – to understand the mobile data market in different countries. An overview of the worldwide handset market, the overall revenue generated from handset shipments and the revenue generated by handset vendors from sales through operators. An overview of the mobile infrastructure providers market. © 2007, Portio Research. All Rights Reserved The revenue generated from data services is shared among the players in the data services value chain. As of end-2006 the revenue sharing arrangement was largely in favour of MNOs while other players, such as content owners and aggregators, got a smaller share of the total revenue.
  • 9. Slicing Up the Mobile Services Revenue Pie Worldwide Mobile Market The worldwide subscriber base has witnessed rapid growth in recent years and is expected to reach the 50 percent penetration mark in early 2008. The increase from a 25 percent penetration level to 50 percent has occurred in a short span of time. Although it took approximately 15 years for mobile services to reach the first quarter of the world’s population, it took less than five years to reach the next quarter of the world’s population. This rapid growth has been witnessed in fast developing economies such as those in Europe, Asia, Latin America and the Middle East. The worldwide mobile subscriber base is expected to reach approximately 4.9 billion by end-2012. Emerging markets such as China, India and Brazil, are expected to continue to grow at a rapid pace. In addition, Africa will play a major role in the net subscriber additions in the future. Figure 4 shows the projected growth in the worldwide subscriber base from 2004 to 2012. Figure 4: Worldwide Mobile Subscribers (In Million, 2004-2012E) Subscribers (In Million) 6000 5000 3,901.3 4000 4,254.3 4,589.7 4,906.9 3,502.2 3,080.9 2,650.2 3000 2000 2,169.7 1,744.5 1000 0 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E Year Source: Portio Research Ltd. E – Estimated Figure 4 shows that the worldwide subscriber base grown at a compound annual growth rate (CAGR) of 23.25 percent between 2004 and 2006. A reduction in tariffs and subsidies on handsets has led to tremendous growth in the emerging countries. In terms of absolute subscriber volume, China has emerged as the largest mobile market in the world at end-2006, followed by the US and Russia. In 2007, India surpassed Russia and is now the third largest mobile market in terms of subscriber base. Table 1 shows the number of mobile subscribers by region. © 2007, Portio Research. All Rights Reserved 9
  • 10. Slicing Up the Mobile Services Revenue Pie Table 1: Regional Mobile Subscribers (In Million, 2004-2012E) N&W Europe C&E Europe North America Latin America Africa Middle East Asia Pacific Total 2004 358.7 198.6 199.8 176.2 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 2007E 437.9 397.4 277.5 315.0 211.1 84.4 1,357.5 3,080.8 2008E 447.3 416.6 297.6 351.7 257.5 103.8 1,627.5 3,502.0 2009E 454.8 430.5 314.7 384.7 306.3 122.8 1,887.6 3,901.4 2010E 459.8 439.5 332.9 415.7 351.4 138.1 2,116.9 4,254.3 2011E 464.8 445.8 344.6 446.0 399.7 151.3 2,337.6 4,589.8 2012E 468.2 450.8 353.6 469.3 444.2 162.1 2,558.7 4,906.9 Year Source: Portio Research Ltd. Projections in Table 1 show the growth rate of the worldwide subscriber base after it crosses the 3 billion mark by end-2007. Operators worldwide are expected to add another 1.9 billion subscribers by end-2012. As mentioned earlier, the majority of this subscriber growth is expected to come from the Asia-Pacific region, followed by Africa and Latin America. Figure 5 shows the regional division of the expected subscriber additions from end-2007 to end-2012. Figure 5: Net Subscriber Additions – Regional Break-out (In Million, 2007E-2012E) Subscribers (In Million) 1500 1,201.2 1000 500 30.3 53.4 Western Europe Central and Eastern Europe 76.1 154.3 233.1 77.7 0 Asia Pacific North America Latin America Africa Middle East Source: Portio Research Ltd. E – Estimated In terms of mobile revenues, the worldwide mobile market stood at 718.4 billion at end-2006. It is expected to increase at a strong rate and reach 1,094.9 by end-2012, which is shown in Figure 6. 10 © 2007, Portio Research. All Rights Reserved
  • 11. Slicing Up the Mobile Services Revenue Pie Figure 6: Worldwide Mobile Revenue (In USD Billion, 2004-2012E) Mobile Revenue (In USD Billion) 1200 803.7 874.3 936.0 993.6 1,045.7 1,094.9 718.4 800 616.4 519.7 400 0 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E Year Source: Portio Research Ltd. E – Estimated Table 2 shows the regional break-out of worldwide mobile revenue from 2004 to 2012 Table 2: Worldwide Mobile Revenue – by Region (In USD Billion, 2004-2012E) N&W Europe C&E Europe North America Latin America Africa Middle East Asia Pacific Total 2004 149.4 31.8 97.3 28.7 26.3 16.7 169.4 519.7 2005 161.2 38.7 131.3 41.4 30.9 19.3 193.7 616.4 2006 170.4 47.0 158.3 55.8 37.6 23.8 225.6 718.4 2007E 183.6 54.1 184.5 61.7 42.6 27.7 249.6 803.7 2008E 189.2 58.1 204.5 66.1 47.8 31.2 277.3 874.3 2009E 194.6 62.0 220.1 69.8 52.5 34.5 302.5 936.0 2010E 199.6 64.0 236.9 73.2 56.8 37.1 325.8 993.6 2011E 204.2 65.7 250.7 76.4 61.2 39.3 348.2 1045.7 2012E 208.2 67.2 263.6 79.4 65.1 41.0 370.3 1094.9 Year Source: Portio Research Ltd. Please note that the revenue generated by operators worldwide constitutes service revenue and equipment sales (i.e., from selling handsets and accessories). Revenues flowing directly from consumers to handset vendors, accessories vendors and non-voice revenues flowing directly to content providers are not included in these calculations. Figure 7 shows the worldwide mobile service revenue and equipment sales. © 2007, Portio Research. All Rights Reserved 11
  • 12. Slicing Up the Mobile Services Revenue Pie Figure 7: Worldwide Service Revenue and Equipment Sales (In USD Billion, 2004-2012E) (In USD Billion) 1200 800 91.1 85.8 81.2 95.7 100.3 104.3 108.4 69.3 840.3 941.4 986.5 637.2 783.2 893.3 717.8 2006 2007E 2008E 2009E 2010E 2011E 2012E 61.9 400 457.8 547.1 2004 2005 0 Year Service Revenue Equipment Sales Source: Portio Research Ltd. E – Estimated Table 3 shows the regional break-out of worldwide mobile service revenue from 2004 to 2012. Table 3: Worldwide Mobile Service Revenue – by Region (In USD Billion, 2004-2012E) N&W Europe C&E Europe North America Latin America Africa Middle East Asia Pacific Total 2004 135.9 30.4 80.4 22.8 24.0 15.2 149.2 457.8 2005 146.7 37.3 110.7 32.5 27.8 17.5 174.4 547.1 2006 157.2 45.4 135.2 46.3 34.1 21.6 197.4 637.2 2007E 170.2 51.5 159.9 50.4 38.7 25.3 221.8 717.8 2008E 176.1 54.6 179.2 54.3 43.4 28.5 247.2 783.2 2009E 181.4 57.1 194.4 57.5 48.0 31.5 270.6 840.3 2010E 185.7 59.0 211.2 60.5 52.1 33.8 291.0 893.2 2011E 190.2 60.6 224.6 63.4 56.3 35.8 310.4 941.4 2012E 194.1 62.1 237.0 65.8 60.1 37.6 329.7 986.5 Year Source: Portio Research Ltd. The worldwide service revenue is expected to increase at a CAGR 10.1 percent from 20042012. Figure 8 shows the change in contribution from various regions to the worldwide service revenue for the years 2004 and 2012. As you can see, where Europe was the most valuable market in 2004, by 2012 Asia will surpass Europe in terms of contribution, and North America will take the second place above Northern and Western Europe. 12 © 2007, Portio Research. All Rights Reserved
  • 13. Slicing Up the Mobile Services Revenue Pie Figure 8: Worldwide Mobile Service Revenue – Regional Break-out (2004 and 2012E) 2004 5.0% 17.6% 5.2% 6.6% 29.7% 3.3% 32.6% 2012E 6.7% 24.0% 6.1% 3.8% 6.3% 33.4% 19.7% N&W Europe Africa C&E Europe Middle East North America Asia Pacific Latin America Source: Portio Research Ltd. E – Estimated The revenue generated from mobile services consists of voice and data revenue. Initially, mobile services meant mostly voice services. Over time, people have started using their handsets for other purposes, such as sending SMS and MMS. As shown in Figure 9, the maximum revenue generated from data services in 2004 stood at 12.8 percent and the vast majority of total revenues were contributed by voice services. However, the trend is changing and data is now contributing more to the overall service revenue picture. Operators worldwide are focussing on compensating the declining voice ARPU by increasing the adoption of data services among users. Data is expected to contribute approximately 25.5 percent to total worldwide mobile service revenues in 2012. © 2007, Portio Research. All Rights Reserved 13
  • 14. Slicing Up the Mobile Services Revenue Pie Figure 9: Worldwide Mobile Service Revenue – Voice-Data Split (2004 and 2012E) 2004 87.2% 12.8% 2012E 74.5% 25.5% Voice Data Source: Portio Research Ltd. E – Estimated As the figure above shows, voice services clearly represent a major portion of the mobile services revenue pie. However, voice average revenue per user (ARPU) has been in decline in most countries in recent years. It is believed that voice ARPU will further decrease and voice revenue is expected to constitute 74.5 percent of the worldwide mobile service revenues by 2012. Mobile network operators are increasingly facing more stringent regulatory policy on mobile termination rates and, at the same time, competition on the price front is also making it difficult for operators to maintain current voice ARPU. Moreover, the continuing addition of low ARPU customers in emerging countries is contributing further to this decline. See the last page of this study for more details of our report “The Next Billion”, which looks in detail as forecast ARPU rates in fast growing emerging markets, Due to the rise in the subscriber base worldwide, the consolidated voice revenue is expected to be USD 734.6 billion by 2012. Figure 10 shows the worldwide mobile voice revenue from 2004 to 2012. 14 © 2007, Portio Research. All Rights Reserved Voice revenue is expected to constitute 74.5 percent of the worldwide mobile service revenues in 2012.
  • 15. Slicing Up the Mobile Services Revenue Pie Figure 10: Worldwide Mobile Voice Revenue (In USD Billion, 2004-2012E) Mobile Voice Revenue (In USD Billion) 800 600 534.8 582.1 622.5 657.5 687.6 712.9 734.6 2010E 2011E 2012E 468.2 399.1 400 200 0 2004 2005 2006 2007E 2008E 2009E Year Source: Portio Research Ltd. E – Estimated The figure above shows that mobile voice revenue grew at a compounded annual growth rate (CAGR) of 15.7 percent between 2004 and 2006. However, the growth rate of voice revenue is expected to slow down to a CAGR of 5.4 percent between 2006 and 2012. Table 4 shows the regional break-out of worldwide mobile voice revenue from 2004 to 2012. Table 4: Worldwide Mobile Voice Revenue – by Region (In USD Billion, 2004-2012E) N&W Europe C&E Europe North America Latin America Africa Middle East Asia Pacific Total 2004 116.9 27.9 76.4 21.7 22.8 14.0 119.4 399.1 2005 124.7 33.2 101.7 30.2 26.4 16.0 136.0 468.2 2006 132.2 40.2 118.9 41.9 31.9 19.5 150.1 534.8 2007E 136.2 43.8 131.1 45.1 36.0 22.5 167.5 582.1 2008E 139.1 45.9 140.6 47.8 39.9 25.1 184.2 622.5 2009E 141.4 47.4 148.7 50.0 43.7 27.4 198.9 657.5 2010E 143.0 48.4 157.3 52.0 46.9 29.1 210.9 687.6 2011E 144.5 49.1 162.9 53.9 50.1 30.5 221.9 712.9 2012E 145.6 49.6 167.1 55.3 52.9 31.5 232.4 734.6 Year Source: Portio Research Ltd. As mentioned above, the contribution of voice revenue to the mobile service revenue pie is in a period of steady decline. This is shown in figure 11. © 2007, Portio Research. All Rights Reserved 15
  • 16. Slicing Up the Mobile Services Revenue Pie Figure 11: Worldwide Mobile Voice Revenue as a percentage of Service Revenue (2004-2012E) 100 87.2 85.6 83.9 81.1 79.5 78.2 77.0 75.7 74.5 2008E 2009E 2010E 2011E 2012E Percentage 80 60 40 20 0 2004 2005 2006 2007E Year Source: Portio Research Ltd. E – Estimated Revenue per Minute (RPM) is another method of comparing prices across carriers and countries. The RPM rates have been declining worldwide for several years now. Table 5 shows the average revenue per minute and the average consumer’s minutes of usage per month for 10 selected countries. Table 5: Average Revenue per Minute (RPM) (In USD, Q2 2007) Average Revenue per Minute (Effective Price per Voice Minute, In USD) Average Consumer’s Minutes of Use per Month Canada 0.10 429 France 0.17 258 Germany 0.21 101 Italy 0.19 134 Japan 0.25 140 Spain 0.23 163 UK 0.20 168 USA 0.04 823 South Korea 0.11 321 Mexico 0.11 144 Country Source: Merrill Lynch Q2, 2007. It shows that the average RPM is the lowest in the US; the RPM has declined at the highest rate in the country. American subscribers use an average of 823 minutes of mobile service per month and this is nearly five times the use of an average mobile subscriber in an OECD top 10 country. 16 © 2007, Portio Research. All Rights Reserved
  • 17. Slicing Up the Mobile Services Revenue Pie The average monthly Minutes of Usage (MOU) is on the rise in the US. The average MOU in 2004 was 619 minutes, which increased to 789 minutes in 2006 and to 823 minutes in 2007.2 However, in Japan, where the average RPM is higher than other countries listed in the table above, the average MOU is declining—the average MOU were 167 minutes for year 2003 and 159 minutes for 2004.3 The figure reduced further to 140 minutes in the second quarter of 2007.4 The above table does not provide the MOU figures for the emerging markets. For operator China Mobile, the average MOU in June 2007 (January-June) was 440 minutes and then, showing slow but steady growth, the average in September 2007 (January-September) was 447 minutes.5 In India, the average MOU in 2004 was 309 minutes.6 According to a TRAI (Telecom Regulatory Authority of India) report, the minutes of mobile usage per subscriber have declined for the first time in the country. The MOU has fallen for mobile operators on both technology platforms; for GSM, the MOU declined from 476 minutes in June 2007 to 462 minutes in September 2007, while for CDMA players, the average MOU came down from 432 minutes in June 2007 to 413 minutes in September 2007. In a nutshell, it can be said that the worldwide share of voice revenue in total service revenue is expected to decline in the coming years. Operators are increasingly focusing on data services to compensate for this decline. The following section presents an overview of the worldwide mobile data services market, focussing on providing an understanding of the current relevance of data services. 2 Source: http://www.chetansharma.com/6.pdf; http://www.cwta.ca/CWTASite/english/pdf/WallWE.pdf; http://files.ctia.org/pdf/080108_US-OECD_10_Comparison_Ex_Parte.pdf; http://www.chetansharma.com/6.pdf 3 Source:http://www.atis.org.sg/__C1256EEF000E5F2F.nsf/webStdContent/C2BD2F5157EA7C1E48256EFB0020239 3/$file/ATIE2004Obi.pdf 4 Source: http://files.ctia.org/pdf/080108_US-OECD_10_Comparison_Ex_Parte.pdf 5 Source: http://www.chetansharma.com/6.pdf; http://www.chinamobileltd.com/ir.php?menu=12 6 Source: http://www.chetansharma.com/6.pdf © 2007, Portio Research. All Rights Reserved 17
  • 18. Slicing Up the Mobile Services Revenue Pie Mobile Data Services Introduction Because of stiff competition among MNOs, the ARPU generated from voice services is continuing to decline in many markets. Operators are increasingly relying on data services and focussing on adopting advanced network technologies, such as EDGE, UMTS, EV-DO 1X and HSDPA, to offer advanced messaging and other value-added data services. Wireless ARPU is declining even in countries such as Japan. Data services are currently an important component in the overall service revenue generation of most operators. Until recently, SMS has formed the mainstay of non-voice service revenues in most markets, with Japan being the exception. Now, more advanced data services, such as mobile gaming, music downloads and mobile TV, have been the major contributors towards increasing data ARPU for operators in the most mature markets. At the same time, revenue from basic data services such as SMS, MMS, ring-back tones and information services, are increasingly becoming an important component in operators’ service revenue generation in emerging markets. In 2006, the largest contribution to total worldwide data services revenue came from SMS, which generated approximately 58 percent of all revenues. The next biggest contributor to total non-voice revenue was MMS. However, the overall share of SMS and MMS in worldwide revenues from data services is expected to decline by 2011. Contribution from services such as mobile IM, mobile music, mobile games, mobile e-mail, mobile video, and mobile payments is expected to increase by 2011. Figure 12 shows the share of various data services in the worldwide mobile data services revenue in 2006 and the estimated break-out by 2011. 18 © 2007, Portio Research. All Rights Reserved In 2006, the largest contribution to total worldwide data services revenue came from SMS, which generated approximately 58 percent of all revenues.
  • 19. Slicing Up the Mobile Services Revenue Pie Figure 12: Worldwide Data Services Revenue – Break-out (2006 and 2011E) 2006 57.6% 13.3% 1.0% 3.9% 14.5% 2.5% 6.7% 0.4% 2011E 14.2% 2.2% 9.0% 3.5% 6.0% 7.9% 39.8% 17.5% SMS MMS Mobile IM Mobile Music Mobile Games Mobile e-mail Mobile Video Others Source: Portio Research Ltd. E – Estimated The revenue generated from data services is split among the players involved in the services’ value chain. The maximum share of the data revenue goes to the mobile network operator, however the share of other players in the value chain is rising. The figure below shows the data services revenue split between operators and other players in the value chain in 2006, as well as the estimated split in 2011. © 2007, Portio Research. All Rights Reserved 19
  • 20. Slicing Up the Mobile Services Revenue Pie Figure 13: Worldwide Data Revenue Sharing Arrangement (2006 and 2011E) 2006 66.1% 33.9% 2011E 49.2% 50.8% MNO Other Players Source: Portio Research Ltd. E – Estimated The share of revenues retained by the mobile network operators is expected to decline from 66.1 percent in 2006 to 50.8 percent in 2011 and conversely other players in the value chain are expected to increase their share from 33.9 percent in 2006 to 49.2 percent in 2011. Of the overall revenue generated by mobile operators from data services, the maximum share comes from P2P (peer-to-peer) SMS and MMS, and this trend is expected to continue in the next five years. In 2006, approximately 80 percent of the revenue generated by the MNOs from data services came from P2P SMS and MMS. However, the revenue generated from P2P SMS and MMS is expected to decline in the next five years as the revenue from A2P SMS and MMS and other data services pick up. Revenue from P2P SMS and MMS is expected to decline from 80 percent in 2006 to 69 percent in 2011. Figure 14 shows the revenue generated worldwide by MNOs from P2P SMS and MMS and from A2P SMS and MMS and other data services in 2006 and the estimated break-out in 2011. 20 © 2007, Portio Research. All Rights Reserved Of the overall revenue generated by mobile operators from data services, the maximum share comes from P2P (peer-to-peer) SMS and MMS, and this trend is expected to continue in the next five years.
  • 21. Slicing Up the Mobile Services Revenue Pie Figure 14: MNOs share in Data Revenue Break-out (2006 and 2011E) 2006 80.0% 20.0% 2011E 68.9% 31.1% A2P - SMS, MMS & Other Data Services P2P - SMS & MMS Source: Portio Research Ltd. E – Estimated In the following section, each data service has been analyzed in detail. A worldwide market overview is provided for each service and its value chain has been discussed in detail. The analysis talks about the players in the value chain and their revenue sharing arrangements. The revenue split among the players in the value chain is provided for the year 2006 and the expected split in the year 2011. © 2007, Portio Research. All Rights Reserved 21
  • 22. Slicing Up the Mobile Services Revenue Pie SMS Market Overview SMS, the cheapest and easiest form of long distance peer-to-peer (P2P) communication ever known, has undoubtedly been the most successful data service to date. SMS volume is growing in all regions worldwide and SMS messages are expected to remain the most widely used messaging format for years to come. SMS is the most successful data service to date. The adoption level of SMS has varied across different regions worldwide. It is the most popular messaging technology in Northern and Western Europe. Despite the mobile market in these regions having reached saturation in terms of the number of subscribers, SMS volume is still growing at a steady pace. SMS volume is also expected to continue growing exponentially in Central and Eastern Europe. After a slow start, the US market is witnessing a surge in SMS traffic volumes after the signing of SMS interoperability agreements among operators in 2005. Also, aggressive marketing strategies adopted by operators in the country and the popularity of TV voting applications have resulted in a tremendous increase in the uptake of SMS-based services. SMS usage rates, measured per-subscriber-per-month, are now higher in the USA than in most of Europe. However, the biggest contribution to total worldwide SMS volumes comes from the AsiaPacific region. The Philippines, which is known as the ‘SMS Capital of the world’, accounts for approximately 10 percent of the SMS volume worldwide. Smart Philippines’ (the leading operator in the country) strategy of targeting its low-income customer base with a low-cost pricing model has led to a high uptake of SMS.7 Some other large mobile messaging markets in the Asia-Pacific region are China, India and Malaysia. Also of note, Mexico, Brazil and Venezuela are the largest markets in the Latin American region, adding a further significant contribution to worldwide traffic. Latin America is also expected to witness significant growth in SMS traffic in the near future. Africa and the Middle East only accounted for approximately 3 percent of the total SMS traffic worldwide in 2006. However, with increasing mobile penetration (especially the addition of pre-paid customers), the region’s percentage contribution to the worldwide traffic is expected to increase. Worldwide SMS traffic volumes are expected to increase at a CAGR of 15.8 percent, up from 1,662.8 billion in 2006 to 3,463.6 billion in 2011, as shown in Figure 15. 7 To find out more please refer to http://www.portioresearch.com/Strategies_end_users.html 22 © 2007, Portio Research. All Rights Reserved Worldwide SMS traffic volumes are expected to increase at a CAGR of 15.8 percent, up from 1,662.8 billion in 2006 to 3,463.6 billion in 2011.
  • 23. Slicing Up the Mobile Services Revenue Pie Figure 15: Worldwide SMS Traffic Volumes (In Billion, 2006-2011E) SMS Volumes (In Billion) 4,000 3,463.6 3,173.0 2,844.9 3,000 2,482.5 2,088.5 2,000 1,662.8 1,000 0 20 06 2 007E 2 008E 2009E 2010E 2011E Year Source: Portio Research Ltd. E – Estimated Owing to strong growth in SMS traffic volume, SMS revenue is expected to grow at a steady pace. However, declining SMS tariffs worldwide will affect the revenue growth to some extent. Figure 16 shows the forecast for worldwide SMS revenue growth from 2006 to 2011: Figure 16: Worldwide SMS Revenue (In USD Billion, 2006-2011E) SMS Revenue (In USD Billion) 100 79.8 85.6 90.9 73.4 80 66.5 59.0 60 40 20 0 2006 2007E 2008E 2009E 2010E 2011E Year Source: Portio Research Ltd. E – Estimated P2P SMS volumes will continue to account for the largest proportion of the total worldwide SMS traffic volume. At the same time, SMS traffic volumes will also be driven by an increased use of application-to-peer (A2P) and peer-to-application (P2A) SMS services among subscribers. To increase the adoption of SMS among users, operators in many countries are focussing on premium SMS services, such as SMS TV voting, news, weather information and quizzes. Premium SMS is expected to contribute immensely not only to the total revenue of mobile operators, but also to other players involved in the value chain. It is important to understand the value chain existing in premium SMS and how this market will evolve in the coming years. The stakes are high for all players in the value chain and in the future, mobile services will not only mean voice, but also data and premium SMS services. © 2007, Portio Research. All Rights Reserved 23 SMS traffic volumes are expected to witness an increase with the rise in the usage of application-to-peer (A2P) and peer-to-application (P2A) SMS services.
  • 24. Slicing Up the Mobile Services Revenue Pie Value Chain Analysis The revenue generated from premium SMS is shared by various players in the value chain. The revenue sharing arrangement depends on the kind of value added by the player as well as on the bargaining power of different players. Figure 17 shows the premium SMS value chain. Figure 17: Premium SMS – Value Chain Content Owner Content Aggregator Mobile Network Operator Source: Portio Research Ltd. Advanced and emerging countries have different arrangements for sharing revenue generated from premium SMS services. In developed countries, content owners and aggregators get a higher share than their counterparts in developing countries. In most of the emerging markets, the operators share is quite high (sometimes as high as 60 percent), as is the case in India and the Philippines. However, there are a few exceptions. In China, operators get only 20-30 percent of the total revenue through premium SMS services, while aggregators and content owners share the remainder. In the case of SMS-based services that are used by enterprise service providers to connect to mobile users, the revenue earned from a premium SMS is shared between the short code owner and the operator. Enterprise service providers have recently started using premium SMS as a marketing tool. An example of this is the tracking of United Parcel Service (UPS) consignments through SMS. In this service, the subscriber sends an SMS to the operator, requesting the service, which is then routed to the short code owner. The short code owner then collects all the information on its server and then passes it to its client (UPS in this case). The operator gains revenue from two sources, one from the user and the other from the enterprise service provider. The value chain for such cases is shown in Figure 18. 24 © 2007, Portio Research. All Rights Reserved In developed countries, content owners and aggregators get a higher share than their counterparts in developing countries.
  • 25. Slicing Up the Mobile Services Revenue Pie Figure 18: SMS-based Enterprise Services – Value Chain Enterprise Service Provider Short Code Owner Mobile Network Operator End-user Arrows represent flow of money Source: Portio Research Ltd. There is a difference in opinion in terms of forecasting future revenue sharing arrangements among the players in the premium SMS value chain in developing countries. Some experts believe that operators will continue to have an upper hand and will command a higher share in the revenue break-out, whereas others believe that the future trend in developing countries will be similar to that in most of the European countries. They believe that in the next four to five years content developers will have a greater share as bigger companies ware likely to enter the market of content provision. Such companies will command a greater share as they will have the power to negotiate with operators. Therefore, operators’ exorbitant share in developing nations such as India is expected to drop from 60 percent to 30 percent. The remaining 70 percent share is expected to be divided among content owners and aggregators. © 2007, Portio Research. All Rights Reserved 25
  • 26. Slicing Up the Mobile Services Revenue Pie Case Study 1 – India’s SMS Market Market Overview In the recent past, the mobile market in India has witnessed tremendous growth, and is expected to continue to grow by adding approximately 6.5 million mobile subscribers every month for the next couple of years. Operators in the country are focussing on increasing their subscriber base by adding subscribers from rural regions, with a knowledge that this will lead to an inevitable decline in ARPU. Set against this rapid growth, declining voice tariffs are putting pressure on operators margins, due to which many players are now increasingly focussing on data services to maintain their profits. Moreover, voice is no longer helping operators in differentiating their services and thus data services are acting as a differentiating factor for operators to compete with their rivals. For operators, the revenue from data services varies from 5 percent to 15 percent of total service revenues. However, since the mobile market in India is still evolving, the share of data services is expected to increase in the future. The current growth in revenue from mobile data services is shown in Figure 19. Figure 19: India – Mobile Data Services Revenue (In USD Billion, 2004-2007E) Data Services Revenue (In USD Billion) 2.0 1.8 1.5 1.1 1.0 0.7 0.5 0.3 0.0 2004 2005 2006 2007E Year Source: Portio Research Ltd. E – Estimated In order to understand the Indian mobile data services market better, it is important to study the composition of data services in terms of revenue. The most popular data services in the country are SMS, mobile music and mobile games. The bulk of operator data revenue comes from these services. SMS constitutes the maximum share of about 55 percent of total data revenues. Figure 20 shows the share of different data services in the total revenue generated by mobile data services as of end-2006. 26 © 2007, Portio Research. All Rights Reserved For MNOs operational in India, the revenue from data services varies from 5 percent to 15 percent of total service revenues.
  • 27. Slicing Up the Mobile Services Revenue Pie Figure 20: India – Mobile Data Services – Revenue Break-out (2006) 35.0% 55.0% 3.0% SMS Mobile Music 7.0% Mobile Games Others Source: Portio Research Ltd. and IMRB Research Figure 20 indicates that the maximum revenue generated in mobile data services in 2006 was from SMS. A large part of the SMS revenue, as shown in Figure 21 below comes from P2P SMS (almost 73 percent) and the rest comes from premium SMS services (i.e., P2A and A2P SMS). Figure 21: India – SMS Revenue Break-out (2006) 27.3% 72.7% P2P Premium SMS Source: IAMAI Revenue generated from P2P SMS is higher, as it is the most popular form of communication. However, premium SMS revenue is increasing at a rapid pace. A major reason for this is that SMS voting is becoming an integral part of many prime-time television shows in the country. The following section provides information on the existing value chain of premium SMS services in India and the revenue split among the various players involved in the process. It also provides an outlook on the revenue sharing arrangement among these players. © 2007, Portio Research. All Rights Reserved 27
  • 28. Slicing Up the Mobile Services Revenue Pie Value Chain Analysis With P2P SMS, the entire revenue generated by the service goes to the operators. It is the premium SMS services revenue which is more important for analysing the value chain. This value chain sometimes becomes very complex, as there is a possibility of backward and forward integration and a single player may perform more than one role at a time. Broadly speaking, the following are the three players involved in the value chain: • Content owners • Content aggregators • Operators In the Indian market, operators get the largest share of the revenue generated from premium SMS services. The premium SMS services market is broadly disorganised, with operators dominating the market. There are only a few big content owners that can influence the revenue sharing agreements. The share of the content owner is uncertain, as it depends on various factors, such as the size of the company and popularity of the content. The share of the content owner in the premium SMS value chain varies drastically from 5 percent to 50 percent. However, the revenue sharing arrangements in India are expected to change in the next five years, with content owners and aggregators gaining stronger negotiating powers. The market is expected to witness consolidation and bigger content aggregators should ensure a shift in the revenue from operators to themselves. Figure 22 shows the revenue sharing agreement among different players in the premium SMS services value chain in 2006 and the expected share of stakeholders in 2011. Figure 22: India – Revenue Sharing Arrangement – Premium SMS Services (2006 and 2011E) 2006 Content Owner 15.0% 2011E MNO 30.0% Content Owner 30.0% MNO 60.0% Content Aggregator 25.0% Content Aggregator 40.0% Source: Portio Research Ltd. and IMRB E – Estimated Currently, in the case of SMS-based enterprise services, operators in the Indian market again get the largest share. Figure 23 shows the existing revenue sharing agreement between operators and short code owners. 28 © 2007, Portio Research. All Rights Reserved MNOs get the largest share of the revenue generated from premium SMS services.
  • 29. Slicing Up the Mobile Services Revenue Pie Figure 23: India – SMS-based Enterprise Services – Revenue Break-out 30.0% 70.0% Mobile Network Operators Short Code Owners Source: IMRB Research As mentioned earlier, revenue is expected to shift from operators to content aggregators and content owners. The share for operators will likely decrease from 60 percent in 2006 to approximately 30 percent in 2011. The share of content aggregators is expected to grow to 40 percent in 2011. © 2007, Portio Research. All Rights Reserved 29
  • 30. Slicing Up the Mobile Services Revenue Pie Case Study 2 – The UK’s SMS Market Market Overview In the UK, data services contribute significantly to operator’s total service revenues. Data ARPU has always been comparatively high in the country, and in 2006, 3 UK became the first operator worldwide to cross the USD 30 data ARPU mark. SMS is by far the most popular data service in the country and constitutes a large portion of operators’ service revenues. Other services, such as music downloads, mobile gaming and mobile TV, are also slowly gaining popularity. In 1998, SMS gained instant success in the UK when interoperability agreements were signed. Currently, the UK is the largest SMS market in Europe and one of the key markets worldwide. The SMS market in the UK grew at a CAGR of approximately 25.6 percent from 2004 to 2006 and is expected to continue growing at a fast pace. Figure 24 shows the SMS volumes in the UK from 2004 to 2007. Figure 24: UK – SMS Traffic Volumes (In Billion, 2004-2007E) SMS Volumes (In Billion) 60.0 54.0 41.0 40.0 35.0 26.0 20.0 0.0 2004 2005 2006 2007E Year Source: Portio Research Ltd. E – Estimated During 2007, on average, Britons sent more than 6 million text messages every hour for the whole year. Figure 25 shows the SMS volumes in the UK from January to October in 2007. 30 © 2007, Portio Research. All Rights Reserved In 1998, SMS gained instant success in the UK when interoperability agreements were signed.
  • 31. Slicing Up the Mobile Services Revenue Pie Figure 25: UK – SMS Traffic Volumes (In Billion, January-May 2007) SMS Volumes (In Billion) 6.0 5.0 5.3 4.4 4.3 Mar 4.3 Apr 4.5 4.4 May Jun 4.6 4.8 4.9 Jul Aug Sep 3.9 4.0 3.0 2.0 1.0 0.0 Jan Feb Oct Month Source: www.text.it With the increased commoditisation of SMS, operators are facing pricing pressures. The revenue from SMS is not expected to increase at the same rate as the volume, primarily due to declining SMS prices. Figure 26 shows the overall SMS revenue for operators in the UK from 2005 to 2007. Figure 26: UK – SMS Revenue (In USD Billion, 2005-2007E) SMS Revenue (In USD Billion) 4.0 3.0 2.3 2.4 2.5 2006 2007E 2.0 1.0 0.0 2005 Year Source: Portio Research Ltd. E – Estimated Apart from P2P messaging, SMS traffic volume has been influenced by a constantly increasing stream of premium SMS services, such as mobile news, football scores, weather reports, WAP access notifications, SMS-based games and TV polling, and thus, premium SMS significantly contributes to the overall SMS volume. As revenue from premium SMS forms a significant part of the overall revenue generated by SMS services in the UK, it is important to understand the current status of the market and its evolution process. In the following section, an analysis of the premium SMS value chain will provide an understanding of the revenue sharing arrangement that exists between various players and of how this industry is expected to evolve in the coming years. © 2007, Portio Research. All Rights Reserved 31
  • 32. Slicing Up the Mobile Services Revenue Pie Value Chain Analysis As discussed, the entire revenue generated by P2P SMS goes to the operators, therefore premium SMS services (i.e., A2P and P2A) revenue is the most important for analysing the value chain. The following are the two widely accepted revenue sharing arrangements among operators, content owners and aggregators in the UK: • Revenue Sharing Arrangement in Case of Large Content Owners: In this case, the content owner receives approximately 75 percent of the total revenue primarily due to having greater negotiating power. Figure 27 shows the revenue sharing arrangement in this case. Figure 27: UK – Premium SMS Services – Revenue Sharing Arrangement in Case of Large Content Owners (2006) 5.0% 20.0% 75.0% Content Owner Content Aggregator Mobile Network Operator Source: Portio Research Ltd. • Revenue Sharing Arrangement in Case of Small Content Owners: In this case, the revenue sharing arrangement is balanced between the operator and the content owner, with their shares ranging from 45-65 percent and 30-50 percent, respectively. The share of content aggregators remains at 5 percent. Figure 28 illustrates the revenue sharing arrangement in this case. Figure 28: UK – Premium SMS Services – Revenue Sharing Arrangement in Case of Small Content Owners (2006) Content Owner (30-50%) Content Aggregator 5% Mobile Network Operator 45-65% Source: Portio Research Ltd. In the next five years, most of the mobile SMS content is expected to be generated by large owners, implying a lesser revenue share for operators by 2011. Figure 29 shows the anticipated revenue sharing arrangement in this space by 2011. 32 © 2007, Portio Research. All Rights Reserved Revenue sharing arrangement in the UK varies as per the negotiation power of the content owners.
  • 33. Slicing Up the Mobile Services Revenue Pie Figure 29: UK – Premium SMS Revenue Sharing Arrangement (2011E) 10.0% 15.0% 75.0% Content Owner Content Aggregator Mobile Network Operator Source: Portio Research Ltd. E – Estimated The figure above shows that large content owners will continue to enjoy the maximum share in the revenue pie. Furthermore, the services offered by aggregators to operators are expected to become more complex. The aggregators will provide user support and IT infrastructure for these services, and therefore, will demand a larger share. © 2007, Portio Research. All Rights Reserved 33
  • 34. Slicing Up the Mobile Services Revenue Pie Case Study 3 – The US’s SMS Market Market Overview Text messaging took a much longer time to gain widespread acceptance in the US than it did in European countries. However, the US market has witnessed strong growth in SMS volume since 2002. Currently, the level of SMS usage in the country is on a rise and has already surpassed the levels of Europe, expressed in terms of SMS-per-user-per-month. SMS usage levels in the US in full-year 2006 averaged 66 SMS per-subscriber-per-month as a national average. Some European countries (notably Denmark) have much higher usage levels and some much lower, but across Europe the average is only 38. The reason for this rapid growth witnessed in US SMS traffic can largely be attributed to growth in the subscriber base and the increased usage of SMS in reality TV shows such as American Idol. Consumers in the US are realising the advantages of using SMS. Operators are offering SMS bundles at lower prices and coupling the service with other messaging services, such as mobile IM and MMS to take full advantage of the rising awareness. The level of SMS usage in the US is on the rise and has already surpassed the levels in Europe, expressed in terms of SMS-per-user-per-month. Subscribers in the US sent approximately 158 billion SMS messages in 2006, up from 81 billion messages sent in 2005.8 The emergence of premium SMS has been one of the primary reasons for the growth in SMS usage. The service is used to provide information requested by a subscriber and in large-scale interactive marketing campaigns such as TV voting. Value Chain Analysis The premium SMS value chain consists of content owners, aggregators and operators. In the US, content owners currently get the maximum share in the revenue generated from premium SMS. Approximately 60 percent of the revenue generated from premium SMS goes to content owners. The share of revenue depends on the popularity of the content and the bargaining power of the content owner/aggregator. The operator keeps approximately 30 percent of the premium SMS revenue. The remaining share goes to the content aggregator. Figure 30 shows the revenue sharing arrangement between various players in the value chain in the US in 2006. Figure 30: US – Premium SMS Revenue Sharing Arrangement (2006) Content Owner (60-70%) Mobile Content Aggregator (5-10%) Network Operator (20-30%) Source: Portio Research Ltd. Figure 31 shows the expected sharing arrangement in 2011. 8 Source: http://www.cellular-news.com/story/22869.php 34 © 2007, Portio Research. All Rights Reserved As of end-2006, content owners’ share in the total revenue generated from premium SMS was approximately 60 percent.
  • 35. Slicing Up the Mobile Services Revenue Pie Figure 31: US – Premium SMS Revenue Sharing Arrangement (2011E) Content Owner (70-75%) Content Aggregator (5-10%) Mobile Network Operator (15-20%) Source: Portio Research Ltd. E – Estimated By 2011, the revenue sharing arrangement is expected to witness a slight change in the shares of various players in the value chain. Content providers will continue to exercise their negotiating power and may increase their share in the revenue to about 70-75 percent. Consequently, operators’ share in the revenue may reduce to about 15-20 percent. The share of content aggregators is expected to remain fairly constant. © 2007, Portio Research. All Rights Reserved 35
  • 36. Slicing Up the Mobile Services Revenue Pie MMS Market Overview MMS has not witnessed the kind of success that SMS has. The service is available on approximately 300 networks worldwide, but the uptake has been far slower than hoped for in many markets. Factors such as a lack of interoperability and roaming agreements between operators, a smaller available selection of MMS-enabled handsets in the early days and limited third-party business models have acted as barriers to the growth of MMS worldwide. Moreover, MMS messages usually cost considerably more than SMS messages, and this has been one of the factors that has prevented users from adopting this service. Although the success of MMS is only a fraction that of SMS, if seen in isolation, this service has been reasonably successful. The popularity of MMS has grown slowly but steadily in Europe with networks becoming fully interoperable, widespread adoption of MMS-enabled handsets and the lowering of MMS tariffs. In the US too, with the establishment of interoperability among networks in 2005, there has been a surge in the use of MMS and the volume has been growing ever since. North America witnessed an increase in MMS volume, from 541.5 million in 2004 to 1,239.8 million in 2005 after the introduction of interoperability among networks. Innovative marketing ideas in the US have helped operators to increase their revenue from MMS. Operators worldwide have taken a cue from the US and are now bundling MMS with other data services to increase its uptake. In the developing areas such as Asia and Latin America, the uptake of MMS has been low, largely because of the high cost of MMS-enabled handsets and the lack of MMS interoperability; Japan and South Korea are an exception to this. In Latin America, the only country with official interoperability is Brazil. In Africa and the Middle East, the service has not been very successful. However, MMS traffic is expected to grow at a CAGR of 15 percent in the next five years in Africa and the Middle East, from 675 million in 2006 to 1,385 million in 2011. Although MMS penetration has not yet been as high worldwide as many had hoped for, the volume is expected to rise in the next five years. MMS traffic volumes are expected to increase at a CAGR of 33.9 percent from 2006 to 2011. Figure 32 shows the worldwide growth of MMS, from 27.3 billion in 2006 to 117.6 billion in 2011. Figure 32: Worldwide MMS Traffic Volumes (In Billion, 2006-2011E) MMS Volume (In Billion) 125 117.6 100.0 100 82.1 75 62.0 44.5 50 27.3 25 0 2006 2007E 2008E 2009E 2010E 2011E Year Source: Portio Research Ltd. E – Estimated Worldwide MMS revenue is expected to grow at a CAGR of 16.9 percent from 2006 to 2011. 36 © 2007, Portio Research. All Rights Reserved Worldwide MMS traffic volumes are expected to increase at a CAGR of 33.9 percent, up from 27.3 billion in 2006 to 117.6 billion in 2011.
  • 37. Slicing Up the Mobile Services Revenue Pie Figure 33 shows the worldwide MMS revenue during 2006-2012. Figure 33: Worldwide MMS Revenue (In USD Billion, 2006-2011E) MMS Revenue (In USD Billion) 50 40 28.2 30 30.8 32.5 2010E 2011E 23.6 19.1 20 14.9 10 0 2006 2007E 2008E 2009E Year Source: Portio Research Ltd. E – Estimated The revenue generated from MMS is split among various players in the value chain. There are several factors that affect the revenue sharing arrangement among players in the value chain. It is important to analyse the MMS market and understand how it will evolve in the next five years. © 2007, Portio Research. All Rights Reserved 37
  • 38. Slicing Up the Mobile Services Revenue Pie Value Chain Analysis MMS can be either sent P2P or A2P. Naturally, in the case of P2P MMS, as with P2P SMS, all the revenue goes to the operator. It is A2P MMS where the revenue generated is shared among various players in the value chain. The value chain in A2P MMS comprises middleware providers, application providers, content providers, and operators. Figure 34 shows the MMS value chain. In the case of P2P MMS, all the revenue goes to the MNO. Figure 34: A2P MMS – Value Chain Middleware/ Application Provider Content Provider Mobile Network Operator Source: Portio Research Ltd. Middleware/Application providers offer applications and content adaption platforms and gateways. It also provides a gateway between the handset and the Internet. Content providers offer MMS content, i.e., picture, animation, audio, etc. The revenue sharing arrangement among players in the value chain differs from one country to another. The revenue sharing arrangement in advanced markets such as the US and the UK is in favour of content providers. In China content and application providers also get a bigger share of the MMS revenue pie. However, in other emerging markets, such as India, operators account for a larger share. The trend in advanced markets is not expected to change much and content providers are expected to get the maximum share. In emerging countries, where content providers get a smaller share, the trend is expected to change. With large companies entering into the business of content aggregation and development, the content providers share is expected to rise. 38 © 2007, Portio Research. All Rights Reserved The revenue sharing arrangement in advanced markets such as the US and the UK is in favour of content providers. However, in emerging markets, such as India, operators account for a larger share.
  • 39. Slicing Up the Mobile Services Revenue Pie Case Study 1 – The US’s MMS Market Market Overview That MMS would be successful became obvious when two of the largest operators in the US, Cingular Wireless and Verizon Wireless, signed an MMS interoperability agreement in March 2005. Many other operators followed this trend and MMS soon became a growing source of revenue. The country also witnessed an increase in the penetration of MMS-enabled handsets and wireless Internet services, and both these factors fuelled the growth of MMS use in the region. As a consequence, MMS traffic volumes in the US have been on the rise since the interoperability agreement was signed in 2005, and MMS traffic reached 3.7 billion in 2006. Moreover, the total revenue generated from data services in the US in 2006 was approximately USD 16.1 billion, of which MMS services contributed approximately USD 1.3 billion. The figure is expected to grow in the next five years. MMS traffic volumes in the US have been on the rise since the interoperability agreement was signed in 2005. Figure 35 shows the share of MMS revenue in the total revenue from data services in the US in 2006. Figure 35: US – Data Services Revenue Break-out (2006) 91.9% 8.1% MMS Other Data Services Source: Portio Research Ltd. MMS in the US has passed the introduction phase of its product life cycle and is currently in the growth phase. The market will remain in the growth phase until 2011, after which it is expected to slow down. The uptake of MMS is increasing in the US and it is important to understand the changes in the value chain. Service providers (content and middleware/application providers) play an important role in the MMS value chain. It is important to analyse the present revenue sharing arrangement and how it will evolve in the next five years. Value Chain Analysis The revenue generated from MMS is split between operators and service providers. Since the US is an advanced mobile market, content providers have a greater role to play in the value chain and a higher share in the revenue generated. Figure 36 shows the revenue sharing arrangement between the operator and service provider in 2006 and the expected figures in 2011. © 2007, Portio Research. All Rights Reserved 39
  • 40. Slicing Up the Mobile Services Revenue Pie Figure 36: US – Revenue Sharing Arrangement – MMS (Except P2P) (2006, 2011E) 2006 Mobile Nerwork Operator 20.0% Mobile Network Operator 25.0% Service Provider 75.0% 2011E Service Provider 80.0% Source: Portio Research Ltd. E – Estimated The share of content providers depends on the value of the content that the end-user perceives is being provided. If the content is very popular, content providers get as much as 80 percent of the total revenue generated. However, there is no fixed revenue sharing arrangement in the US. The content provider can achieve up to a share of 50-80 percent. On an average (as shown above), service providers account for almost 75 percent of the revenue with the remainder is retained by the network operator. However, with the entry of large companies in the business of content development and aggregation, the revenue sharing arrangement is expected to get more skewed in favour of service providers in the future. As shown in Figure 36, the share of service providers is expected to increase from 75 percent in 2006 to 80 percent in 2011. 40 © 2007, Portio Research. All Rights Reserved
  • 41. Slicing Up the Mobile Services Revenue Pie Case Study 2 – The UK’s MMS Market Market Overview The MMS market in the UK has grown considerably in the past few years. The growth in MMS revenue in Europe was approximately 33 percent higher in 2006 than in 2005, and this trend is expected to continue for the next five years. In August 2006, the number of MMS-capable handsets in use in the UK was more than 50 percent of the 67 million handsets in use during the period.9 About 88 million MMS messages were sent in the UK in Q3 2006. The figure for October was the highest (30 million) at that time. The number of people using MMS-capable handsets is increasing in the UK, and this has been a reason for the growth in MMS traffic volumes in the country. Improvements in handset technology have enabled its more creative use. Higher-resolution pictures can be scaled down and sent with hundreds of characters and voice clips. All of these features have driven the use of MMS in the UK. To encourage the use of MMS in the UK, the Mobile Data Association launched a Picture Messaging Campaign in early 2006. The association published information on one of its websites (www.text.it), educating subscribers how to use MMS services properly. The website also contains troubleshooting tips. All these efforts, coupled with the demand for user generated content, have led to strong growth of MMS traffic volumes in the UK, and this trend is expected to continue in the future. The number of MMS-capable handsets has also risen, and by end-2007, the handset compatibility rate is expected to be around 80-85 percent. In the UK, almost 1 million MMS messages were sent everyday in 2006. However, when compared with SMS volumes, the figure for MMS usage in the UK appears small. According to the Mobile Data Association, almost 41 billion SMS messages were sent by subscribers in the UK in 2006. Therefore, when compared with SMS, MMS still has to develop. The growth rate of MMS is, however, higher than that of SMS. The UK MMS traffic volume has continued increasing every month since the start of 2006. In 2006, the total data revenue in the UK was almost USD 6.5 billion. The contribution of MMS was approximately USD 189 million. Figure 37 shows the share of MMS revenue in the total revenue from data services in 2006. In the UK, almost 1 million MMS messages were sent everyday in 2006. Figure 37: UK – Data Services Revenue Break-out (2006) 97.2% 2.8% Other Data Services MMS Source: Portio Research Ltd. 9 Source: http://www.text.it/picturemessaging/press_releases.cfm © 2007, Portio Research. All Rights Reserved 41
  • 42. Slicing Up the Mobile Services Revenue Pie The share of MMS in the total data services revenue is expected to rise at a fast rate in the next five years as an increasing number of subscribers will buy MMS-capable handsets. The penetration of MMS-capable handsets is expected to reach 100 percent at some point in 2008. Since the use of MMS-capable handsets is on the rise, MMS volumes are expected to increase, leading to an increase in revenue. The following section illustrates the revenue split among the players in the value chain and how this is expected to change in the next five years. Value Chain Analysis Content providers receive the maximum share in the revenue generated from MMS. The share in revenue depends on the bargaining power of the various players in the value chain. The popularity of the content also determines the share of the content provider. Figure 38 shows the revenue split among various players of the MMS value chain as of 2006. Figure 38: UK – Revenue Sharing Arrangement – MMS (2006) Middleware/ Application Provider (5-6%) Mobile Content Provider (50-75%) Network Operator (20-45%) Source: Portio Research Ltd. The revenue shared by content providers can be between 50 percent and 75 percent, depending on their bargaining power and the popularity of the content. About 5-6 percent goes to the middleware/application provider and the operator’s share can be between 20 percent and 45 percent. However, in the next five years, content providers’ shares will increase as larger companies are expected to enter the content market as developers and aggregators of mobile content. Figure 39 shows the revenue split among various players of the MMS value chain as of 2011. Figure 39: UK – Revenue Sharing Arrangement – MMS (2011E) Middleware/ Application Provider (5-6%) Content Provider (70-75%) Mobile Network Operator (20-25%) Source: Portio Research Ltd. E – Estimated By the end of this decade, as shown above, content providers are expected to account for almost 70-75 percent of the revenue generated. The middleware/application provider will receive 5-6 percent and the remaining share will be attributed to the network operator. 42 © 2007, Portio Research. All Rights Reserved As of end-2006, the share of content providers in the total revenue pie was the maximum (50-75 percent). The share is anticipated to increase further as larger companies are expected to enter the content market.
  • 43. Slicing Up the Mobile Services Revenue Pie Case Study 3 – China’s MMS Market Market Overview In China, MMS was introduced in late 2002 by China Mobile. The uptake of MMS was initially slow because of the high cost of MMS-enabled handsets and a higher tariff for the service as compared to that for SMS. Since the market is still growing, there are ample growth opportunities for all players in the MMS value chain. The service is still in the starting phase and will take a long time before it reaches saturation. From the market-scale perspective, 150 million MMS messages were sent in 2003 through China Unicom and China Mobile’s networks. As the popularity of the service rose, the volume touched 600 million in 2004. The revenue generated from MMS in 2003 stood at USD 24.1 million and increased to USD 72.4 million in 2004.10 Since then, the MMS uptake has been on the rise. Over the next five years, the MMS market is expected to experience strong uptake as the service moves into the growth phase. Various factors will influence the growth of the MMS market in China. One of the positive factors is its similarity with SMS, as the use of MMS is much like that of SMS. Competition between operators has resulted in the development of richer MMS content, which has led to the increased usage of the service by end-users. Moreover, MMS-enabled handsets are gaining popularity, which has led to an increase in MMS users in China. However, the price of sending an MMS is relatively high compared to SMS, which could deter end-users from using this service as often as SMS. Since the time MMS services were initiated in China, service providers have been receiving the largest share in the revenue generated from this service. Service providers include the content provider and the middleware/application provider. Companies such as KongZongWang, TOM, Sina, NetEase and Sohu are the major service providers and account for the maximum share in the MMS revenue pie.11 It is important to understand how the MMS market operates and the revenue is distributed among various players in the value chain. Value Chain Analysis The charging mode of MMS is the same as that of SMS. Subscribers can choose to be charged either by month or the number of times the service has been used. Both the models have different charging rates. The revenue from MMS is collected by operators and after deducting some MMS channel costs, the remaining amount is shared between operators and the service providers (middleware/Application and content provider). Figure 40 shows the MMS revenue sharing agreement between service providers and operators in China in 2003 and 2006. In 2003, operators received 15 percent of the revenue generated from MMS. However, in 2006, the scenario changed a little in favour of operators and their share increased to 20 percent. 10 11 VAS China Project VAS China Project © 2007, Portio Research. All Rights Reserved 43 The uptake of MMS in China was initially slow because of the high cost of MMS-enabled handsets and a higher tariff for the service as compared to that for SMS.
  • 44. Slicing Up the Mobile Services Revenue Pie Figure 40: China – Revenue Sharing Arrangement – MMS except P2P (2003 and 2006) Mobile Network Operator 15.0% 2003 Mobile Nerwork Operator 20.0% 2006 Service Provider 85.0% Service Provider 80.0% Source: IMRB The revenue sharing arrangement is not expected to change much in the next five years. The figure below shows the expected revenue sharing arrangement as of 2011. Figure 41: China – Revenue Sharing Arrangement – MMS except P2P (2011E) 80.0% 20.0% Service Providers Mobile Network Operators Source: Portio Research Ltd. E – Estimated Among the service providers, a major share of the revenue goes to content providers, followed by middleware/application providers. The content provider has the upper hand, and this is expected to continue in the foreseeable future. 44 © 2007, Portio Research. All Rights Reserved
  • 45. Slicing Up the Mobile Services Revenue Pie Mobile E-mail Market Overview With about 175 billion e-mails sent daily in 2006, e-mail is one of the most popular activities on the wireline Internet and indeed one of the most popular forms of communication on Earth. The combined total number of consumer and enterprise e-mail accounts stood at 1.45 billion in 2006, meaning that worldwide, one in every five people had an e-mail account.12 This figure continues to increase as a growing number of people begin using the World Wide Web, and an e-mail account serves as an identity in the virtual world. Mobile e-mail is also experiencing strong growth, and the number of mobile e-mail accounts is expected to witness exponential growth as more and more e-mail inboxes are mobilised. Subscribers worldwide are becoming tech savvy and are gradually getting comfortable with using data applications on their mobile handsets. Based on our estimates, the revenue generated by mobile e-mail services worldwide should increase from USD 4 billion in 2006 to reach approximately USD 13.7 billion in 2011. Figure 42 shows the revenue forecast for this service from 2006 to 2011. The revenue generated by mobile e-mail services worldwide is expected to increase at a CAGR of 27.9 percent, up from USD 4.0 billion in 2006 to USD 13.7 billion in 2011. Figure 42: Worldwide Mobile E-mail Revenue (In USD Billion, 2006-2011E) 13.7 Mobile E-mail Revenue (In USD Billion) 15 12.0 10.0 8.5 10 6.7 5 4.0 0 2006 2007E 2008E 2009E 2010E 2011E Year Source: Portio Research Ltd. E – Estimated Furthermore, mobile e-mail subscribers are expected to increase from 62.2 million in 2006 to 395.9 million in 2011. Figure 43 shows the forecast for mobile e-mail users from 2006 to 2011. 12 Source: Visiongain report © 2007, Portio Research. All Rights Reserved 45
  • 46. Slicing Up the Mobile Services Revenue Pie Mobile E-mail Subscribers (In Million) Figure 43: Worldwide Mobile E-mail Subscribers (In Million, 2006-2011E) 500 395.9 400 293.5 300 211.3 147.0 200 100 62.2 98.1 0 2006 2007E 200 8E 2009E 2010E 2011E Year Source: Portio Research Ltd. E – Estimated Table 6, below, provides the regional forecast for worldwide Mobile E-mail subscriptions from 2006 to 2011. Table 6: Forecasted Worldwide Mobile E-mail Subscribers (In Million, 2006-2011E) Europe Middle East and Africa North America Asia Pacific Latin America Total 2006 22.02 1.62 20.20 17.17 1.21 62.22 2007E 32.98 2.44 29.25 31.55 1.92 98.14 2008E 46.06 3.41 40.47 54.26 2.77 146.97 2009E 61.37 4.54 54.22 87.36 3.78 211.26 2010E 79.06 5.82 70.91 132.72 4.94 293.47 2011E 99.32 7.28 90.93 192.09 6.28 395.90 Year-End Source: Portio Research Ltd. The markets in Europe, North America and Asia Pacific are expected to contribute the maximum number of Mobile E-mail users in the next five to six years. As the market grows, the revenue for the players involved in its value chain will also increase. An analysis of the value chain will provide an understanding of the share in the revenue generated from this service. Broadly, Mobile E-mail can be classified into the following two categories: • Enterprise Mobile E-mail • Consumer Mobile E-mail Enterprise Mobile E-mail Enterprise mobile services refer to wireless data applications accessible to employees on the go. Employees can access enterprise e-mail from anywhere outside their office through compatible handsets and mobile devices such as smartphones and PDAs. Users and vendors drive growth in the enterprise mobile e-mail market. According to Datamonitor, the potential market for enterprise mobile e-mail in 2006 was about 260 million subscriptions.13 This clearly indicates that there is tremendous growth potential in the enterprise segment. 13 Source: http://www.symbian.com/news/pr/2006/pr20063396.html 46 © 2007, Portio Research. All Rights Reserved The markets in Europe, North America, and Asia Pacific are expected to contribute the maximum number of mobile email users in the next five to six years.
  • 47. Slicing Up the Mobile Services Revenue Pie There are different players involved in the process of delivering mobile e-mail services to an enterprise. The following section discusses the value chain of the service. Value Chain Analysis In the enterprise segment, a number of players are involved in providing mobile e-mail to handsets. The value chain comprises six players, each of which performs an important function. Operating system providers supply the necessary software to handset manufacturers. The software enables the mobile handset vendors to manufacture handsets that can connect to the e-mail server and thus, enables access to enterprise applications. Mobile platform and middleware is a layer that connects enterprise applications with mobile handsets over a wireless network. The application provider provides connecting applications which enables access of enterprise applications on devices using the MNOs’ infrastructure. System Integrators help in customising mobile enterprise applications according to the enterprise. The value chain for enterprise mobile e- mail involves six players, each performing an important function. Figure 44 shows the value chain in case of enterprise mobile e-mail. Figure 44: Mobile Enterprise E-mail – Value Chain Operating System Provider Handset Vendor Platform and Middleware Provider Application Provider System Integrator Operator Source: Portio Research Ltd. Consumer Mobile E-mail Mobile consumer e-mail is widely used to keep in touch with friends and family members. The service is provided on e-mail-compatible handsets. The only difference between mobile enterprise e-mail and mobile consumer e-mail is that in the latter case, the e-mail service is delivered directly to the consumer. The opportunity for operators is huge in the consumer e-mail market. Since the number of addressable mobile subscribers is over 1 billion in advanced markets, most established players in the enterprise mobile e-mail market have started entering the consumer market. Mobile e-mail is popular in the Asian markets, especially in countries such as Japan. The use of consumer mobile e-mail has surpassed that of SMS to become the most popular mobile messaging service in Japan. The demand for the service is also growing fast in geographies such as North America and Europe. Value Chain Analysis Growth in the mobile e-mail market is being encouraged largely by handset vendors as they realise the huge potential of the market. They collectively act as a key player in the mobile email value chain. RIM was an early mover in the market as a vendor and currently has the largest share in the mobile enterprise market, with about 8 million subscribers worldwide as of March 2007.14 The maximum revenue generated from mobile e-mail goes to companies such as RIM that are both handset manufacturers and mobile platform and middleware providers. Operating systems are provided by companies such as Microsoft, Symbian, Java/Sun, PSI and Linux. Some of the key handset vendors and operating system providers are mentioned in Table 7. 14 Source: RIM Annual Report 2007 © 2007, Portio Research. All Rights Reserved 47 The use of consumer mobile e-mail has surpassed that of SMS to become the most popular mobile messaging service in Japan.
  • 48. Slicing Up the Mobile Services Revenue Pie Table 7: Handset Vendors and Operating System Providers Items Key Companies Handset Vendors Motorola, Nokia, Sony Ericsson, Samsung, LG, HP, Dell, Palm, Symbol, RIM Operating System Providers Microsoft, Symbian, Java/Sun, PSI, Linux Source: Portio Research Ltd. Mobile e-mail is very popular in the US enterprise market and in Europe the number of mobile e-mail users is on the rise. In addition, mobile e-mail is expected to show strong growth in other geographies. The developing markets of Asia Pacific and Latin America are expected to witness a strong growth rate in mobile e-mail in the coming years; however, the Latin American market is likely to see more growth in consumer mobile e-mail, not so much in the enterprise market. 48 © 2007, Portio Research. All Rights Reserved
  • 49. Slicing Up the Mobile Services Revenue Pie Mobile IM Market Overview As voice revenue is declining worldwide, operators are depending on mobile data to drive revenues. SMS has been by far the biggest single contributor to the growth in data revenue so far, however, in the future, the overall contribution of SMS to data revenue is expected to decrease, and to tackle this, operators are launching various advanced services. Instant messaging is one such service that is expected to gain popularity on the mobile platform. The service shares some similarities with SMS, and the idea is not to cannibalise the SMS revenue of operators, but to add another dimension to messaging by offering new opportunities to subscribers, and by leveraging the existing wireline IM community. Some operators are introducing their own branded instant messaging service, while others are collaborating with well-known wireline IM service providers including MSN, Yahoo! Messenger and AOL. To enable the use of IM applications on wireless systems, operators, IM application providers and network infrastructure and handset vendors have been working in tandem since 2000. The total number of mobile IM subscribers was estimated at 21.2 million in 2006. The number of mobile IM subscribers worldwide is expected to increase quite rapidly from 2006 to 2011, resulting in a mobile IM subscriber base of 184.1 million by end-2011. The number of mobile IM subscribers worldwide is expected to increase quite rapidly from 21.2 million in 2006 to 184.1 million by end2011. Figure 45 shows the forecast for mobile IM users from 2006 to 2011. Figure 45: Worldwide Mobile IM Subscribers (In Million, 2006-2011E) 184.1 Mobile IM Subscribers (In Million) 200 131.2 150 90.0 100 58.9 50 36.5 21.2 0 2006 2007E 2008E 2009E 20 10E 2011E Year Source: Portio Research Ltd. E – Estimated Table 8 shows the forecasts for worldwide mobile IM subscribers by region from 2006 to 2012. © 2007, Portio Research. All Rights Reserved 49
  • 50. Slicing Up the Mobile Services Revenue Pie Table 8: Worldwide Mobile IM Subscribers – Regional Break-out (In Million, 2006-2011E) Europe Latin America, Middle East and Africa Asia Pacific North America Total 2006 6.40 0.45 4.80 9.57 21.23 2007E 11.01 0.77 10.12 14.59 36.48 2008E 16.95 1.20 18.87 21.86 58.87 2009E 24.33 1.75 31.99 31.90 89.96 2010E 33.26 2.43 50.34 45.21 131.23 2011E 43.86 3.24 74.76 62.27 184.12 Year-End Source: Portio Research Ltd. The acceptance of mobile IM is expected to be lower in the European markets than in the markets in the US and some Asian countries such as Japan and South Korea. SMS is expected to remain the most popular and dominant messaging format in Europe until at least 2010. Traditionally, wireline IM has been more popular in the US; it has also been more popular in some Asian markets such as Japan and South Korea than in European markets. This is one of the reasons why mobile IM may take more time to gain popularity and acceptance in Europe. Mobile IM service revenue stood at USD 0.4 billion as of year-end 2006. According to our estimates, the revenue is expected to grow at a CAGR of 65.7 percent and reach approximately USD 5.0 billion in 2011. Figure 46 shows the revenue forecast for worldwide mobile IM services from 2006 to 2011. Mobile IM Rev enue (In USD Billion) Figure 46: Worldwide Mobile IM Revenue (In USD Billion, 2006-2011E) 7.5 5.0 5.0 3.9 2.7 1.7 2.5 0.4 0.9 0.0 2006 2007E 2008E 2009E 2010E 2011E Year Source: Portio Research Ltd. E – Estimated Regional Outlook The wireless IM market in North America is huge. In fact, it is the biggest market for this service worldwide. According to a research study by Morgan Stanley and Comscore Media Matrix, wireless IM is one of the most popular activities among Internet users in the region. There were approximately 9.6 million mobile IM users in 2006, and this figure is expected to grow to 62.3 million users by 2011. Many large operators in the US have collaborated with PC-IM providers to offer this service to their subscribers. 50 © 2007, Portio Research. All Rights Reserved The revenue generated by mobile IM is expected to grow at a CAGR of 65.7 percent and reach approximately USD 5.0 billion by 2011.
  • 51. Slicing Up the Mobile Services Revenue Pie The mobile IM market has not been so successful in Europe. There were approximately 6.4 million wireless IM users in 2006; this number is expected to grow to 43.9 million by end2011. According to a report published by Capgemini, the revenue generated by mobile IM services in the UK is set to reach between USD 1.05 billion and 1.09 billion by end-2012.15 Operators are not enthusiastic about this service as they feel that this could cannibalise their far more substantial revenues from SMS. They are, therefore, promoting their own brand of IM solutions instead of partnering with established wireline-based IM providers. However, in the future, they will be increasingly partnering with Internet-based IM providers such as MSN. Handset vendors have also launched a variety of handsets in the market, based on the IMPS standard developed by the Open Mobile Alliance. Moreover, operators have signed interoperability agreements to exchange IM across each other’s networks. All these factors have led to an increase in the use of this service and its acceptance by operators and mobile consumers. In Asia, the service was first launched in South Korea and Japan. There were approximately 4.8 million mobile IM users in 2006 in the Asia-Pacific region; this number is expected to grow to 74.7 million users by end-2011. Mobile IM is not very popular in Latin America, the Middle East and Africa. These regions had a combined subscriber base of 0.2 million in 2006; the number of subscribers is expected to reach 3.2 million by end-2011. The following section discusses the value chain of mobile IM services. 15 http://www.totaltele.com/View.aspx?ID=8239&t=1 © 2007, Portio Research. All Rights Reserved 51
  • 52. Slicing Up the Mobile Services Revenue Pie Value Chain Analysis There are several ways in which value can be created for the end-users of mobile IM. The players who operate in the end-customer interface are those who dominate the value chain. Moreover, the balance of power in the value chain also depends on the technology platform used to provide the service through licensing or hosting. The main players in the customer interface can be either operators or service providers offering Internet IM. In case of a service provider-led business model, end-users register for the service with service providers such as AOL, Yahoo! or MSN. The operators’ role here is to provide connectivity for IM players to bridge their services towards wireless. In this scenario, the operators lose their customer retention benefits and their direct link to customer data. In case of an operator-based business model, the operator acts as a service provider for the end-user. This business model allows some benefits for the operator. One of the benefits is increased ARPU, as the operator earns from both subscription fees and increased message traffic. Other benefits include reduced churn and a better brand value. In such cases, the operators acquire the technology from platform providers. The platform can be hosted or licensed. Another business model is the Wireless Application Service Provider (WASP) model. This model is a convergence of two trends––wireless communications applications and the outsourcing of services. The role of the operator in this model is limited to marketing the service to its end-users. The technical functionalities of the business, hosting, billing and support services are outsourced. This model is a low-risk solution that enables the operator to keep customer information and maintain its brand identity. The revenue generated from mobile IM is shared between the operator and the Internet service provider. The revenue sharing depends on the power balance between two players in the value chain. Moreover, the revenue sharing also depends on the type of business model adopted by the operator. If the operator decides to collaborate with a service provider, then revenues must be shared. However, if the operator decides to act as a service provider, it can retain all of the revenue generated. 52 © 2007, Portio Research. All Rights Reserved The balance of power in the value chain depends on the technology platform used to provide the service.
  • 53. Slicing Up the Mobile Services Revenue Pie Mobile Video Services (Mobile TV and Mobile Video Downloads) Market Overview The mobile video market is expanding rapidly and looks likely to attain widespread popularity in the next five years. The worldwide subscriptions of mobile video services increased sharply in 2006. Because of its growth potential, mobile video is set to become a new platform for media distribution and, therefore, mobile video has become popular across worldwide mobile markets. Moreover, the downward trend of voice ARPU is forcing operators to launch other data services such as mobile TV, which many hope will prove to be the next so-called ‘killer’ application in the worldwide mobile market. Mobile video services can be broadly classified into the following two categories: • Mobile TV • Mobile Video Downloads Mobile TV Mobile TV encompasses all broadcast, cellular and subscription TV services available on handsets or other mobile devices such as portable media players (PMPs). The service can be provided by operators or other third-party service providers. The mobile TV service can be provided by using the following two means: • Broadcast • Cellular Broadcast-based Service: Mobile TV broadcasting is similar to normal linear TV. The programme schedule is decided by the broadcaster or channels such as CNN or BBC. It is called broadcasting because the same signal is broadcast over a large area, without consideration as to the number of active viewers in any one area. Broadcasting is also known as multicasting, as the same service or signal is available to a large number of people in the area where the signal is being broadcast. The following three main technologies in mobile TV broadcasting are competing with each other to become the market leader: • • • Digital Multimedia Broadcasting (DMB): This technology is used to send multimedia content over the air to handsets or other mobile devices. It is based on the Digital Audio Broadcasting (DAB) radio standard. DMB was developed in South Korea and the service was launched officially in the country in 2005. It is strongly supported by the South Korean government and companies. It is used in Asia and Europe. Digital Video Broadcasting-Handheld (DVB-H): DVB-H is an extension of the international TV standard digital video broadcast (DVB) technology. It is actually the mobile version of DVB, which is used to transmit TV programmes onto a handset or other mobile devices. Italy was the first country to witness the launch of DVB-H-based mobile TV services in May 2006. This technology is mainly concentrated in Europe, but it is also being used in some other regions. DVB-H is also strongly backed by Nokia, the worlds leading handset vendor. MediaFLO: MediaFLO technology was developed by US technological giant Qualcomm. In MediaFLO, ‘FLO’ stands for ‘forward link only’. The technology enables the service provider to provide real-time video streaming, non-real time video streaming and other content onto handsets or other mobile devices. The technology dominates the North American market. © 2007, Portio Research. All Rights Reserved 53 Digital Multimedia Broadcasting, Digital Video Broadcasting-Handheld and MediaFLO are the three main technologies being used in mobile TV broadcasting.
  • 54. Slicing Up the Mobile Services Revenue Pie Broadcasting mobile TV is a relatively new concept as compared to cellular-based or streaming mobile TV and therefore its value chain is still evolving. The following section discusses the existing business model. Value Chain Analysis In cases where the mobile TV is provided using the broadcasting technologies as outlined above, the value chain or the business model generally followed worldwide is shown in Figure 47. The figure also shows how various players in the value chain are linked to each other. Figure 47: Mobile TV (Broadcast Based) – Value Chain Operator Content Aggregator Broadcasting Network Provider Content Provider Flow of Money Flow of Content Source: Portio Research Ltd. A content provider produces and holds the right to sell content, e.g., TV channels such as BBC and MTV. The provider supplies content to the content aggregator, who combines and delivers the content to other players. A broadcaster owns and maintains the broadcasting network used for delivering mobile TV and video services to the end-user. The content aggregator delivers the content to the broadcasting network provider, who provides mobile TV and video services to the operator’s subscribers. The operator charges the subscriber for the mobile video services used and shares the revenue generated with the content provider and the broadcasting network provider. A player in the value chain can perform more than one function. In most cases, the broadcasting network is owned by operators. In such a case, the value chain for broadcasting is similar to the value chain used for services distributed by streaming. Cellular-based Service: Mobile TV is also provided over any cellular network just like other services, such as voice calls and SMS. The service can be made available on almost all types of networks, including 2G, 2.5G and 3G. However, it is mainly provided by 3G network operators because of the higher data rate requirements of such services. Mobile TV services supplied over a cellular network are streaming in nature, and such services can be provided in two modes––unicast and multicast or broadcast. When mobile TV is streamed for only one particular person, for example, in the case of a video-on-demand service, it is called unicast. However, when it is broadcast to a larger audience using the same cellular network, it is known as multicast. 54 © 2007, Portio Research. All Rights Reserved The Mobile TV service can be provided over any cellular network just like other services, such as voice calls and SMS.
  • 55. Slicing Up the Mobile Services Revenue Pie Cellular-based broadcasting is different from usual broadcasting because it is broadcast over the cellular network. Also, the cellular-based mobile TV service can be interactive, i.e., the user can also communicate with the mobile TV server (the communication channel is two-way in nature). In contrast, in usual broadcasting, the user cannot interact with the mobile TV server. Moreover, since the cellular-based service is provided over the cellular network, MNOs directly participate in the value chain. This is not the case in usual broadcasting as the broadcasting network provider can be a third party. Value Chain Analysis The most common type of value chain of cellular-based mobile video services is shown in Figure 48. Figure 48: Mobile TV (Cellular Based) – Value Chain Content Provider Content Aggregator Mobile Network Operator Source: Portio Research Ltd. The value chain for streaming or cellular-based services is simpler than for broadcasting services. The content aggregator bundles and delivers content to the operator. The MNO distributes this content to its subscribers and charges them for the service. The revenue generated from the customer is shared between the MNO and the content aggregator, who further shares its part of the revenue with the content provider. Mobile Video Downloads A mobile video can be downloaded just like other mobile content, such as ringtones, logos and full music tracks. It does not require technologies such as broadcasting and streaming capabilities for this purpose. A mobile video can be downloaded even without subscribing to a mobile TV service, and indeed many network operators have been offering mobile video download services for some time, pre-dating mobile TV services. The mobile video download market is growing at a rapid pace and this trend looks likely to continue, as the penetration of video-compatible handsets is increasing. MNOs are investing in their networks to enhance their data rate to provide rich media services for increasing their ARPU. As described earlier, MNOs are directly involved in the value chain of this service. The value chain for mobile video download is shown in Figure 49. © 2007, Portio Research. All Rights Reserved 55 A mobile video can be downloaded even without subscribing to a mobile TV service.
  • 56. Slicing Up the Mobile Services Revenue Pie Figure 49: Mobile Video Download – Value Chain Content Provider Content Aggregator Mobile Network Operator Source: Portio Research Ltd. The content aggregator is responsible for the aggregation of content from various providers. After the bundling of the content, the aggregator delivers it to the MNO, which then provides this content to its subscribers. The revenue generated is shared among all players in the value chain. In developing mobile markets, such as India and the Philippines, MNOs get more than half of the revenue generated through mobile video services. However, this is not the case in developed mobile markets, where content providers and aggregators get a higher share of the revenue. The revenue sharing model in developing markets will most likely follow the same growth path as the current model in developed mobile markets. In the next five years, the mobile video services market is expected to grow significantly. The number of worldwide mobile TV subscribers stood at 16.9 million in 2006 and is expected to reach 488.8 million by end-2010.16 Figure 50 shows the growth in worldwide subscriber base of mobile TV services from 2006 to 2010. Figure 50: Worldwide Mobile TV Subscribers (In Million, 2006, 2007E and 2010E) 488.8 Subscribers (In Million) 500 400 300 200 100 59.6 16.9 0 2006 2007E 2010E Year Source: Gartner, Inc E – Estimated Countries such as South Korea, Japan, the US and Italy account for the majority of mobile TV users. Extensive trials for launching more mobile TV services are being conducted worldwide and receiving mostly enthusiastic responses from consumers, which is a positive sign for all players. 16 http://www.gartner.com/it/page.jsp?id=503578 56 © 2007, Portio Research. All Rights Reserved In developing mobile markets MNOs get more than half of the revenue generated through mobile video services. However, in developed mobile markets, content providers and aggregators dominate the revenue sharing arrangement.
  • 57. Slicing Up the Mobile Services Revenue Pie The total revenue generated worldwide from all mobile video services including mobile TV and mobile video downloads was approximately USD 1.0 billion in 2006; this is expected to reach USD 18.0 billion by end-2011. Figure 51 shows the revenue generated from mobile video services (worldwide). Figure 51: Worldwide Mobile Video Services Revenue (In USD Billion, 2006-2011E) Mobile Video Revenue (In USD Billion) 20 18.0 16 13.4 12 9.0 8 6.3 3.5 4 1.0 0 2006 2007E 2008E 2009E 2010E 2011E Year Source: Portio Research Ltd. E – Estimated The market for mobile video services is growing rapidly. As of October 2007, there were almost 6.8 million mobile video viewers in the US, which was 36 percent more than in January 2007. The number of subscribers who watched mobile video over the carrier’s network increased by 28 percent, from 2.1 million in January 2007 to 2.7 million in October 2007. Music videos remain the most popular form of mobile video content, with 34.8 percent of mobile video users watching them. Movie trailers, weather information and news came next in terms of popularity, watched by 29 percent and approximately 25 percent of mobile video users, respectively.17 Western Europe is also showing signs of growth in the mobile TV and video markets. Mobile TV in Western Europe is expected to generate over USD 150 million in 2007, and this figure is expected to reach USD 2.4 billion by end-2012; Italy will lead the market, followed by Germany and France.18 In a survey conducted on 14,000 subscribers in Western Europe by Ericsson’s Consumer and Enterprise Lab, it was found that users were willing to pay approximately USD 14–21 per month on Mobile TV, provided the content and the quality of the service were right.19 In a recent trial conducted by the Norwegian Broadcasting Corporation (NRK) and Ericsson, it was discovered that users liked the interactivity element in mobile TV, e.g., voting. Users spent almost twice the time watching mobile TV with interactive services as they did watching mobile TV with no interactivity-based services. This is a positive sign for operators, as the introduction of interactivity in their mobile TV/video services will result in increased traffic and revenues for the TV services and messaging involved with the interactivity. 17 18 19 http://www.cellular-news.com/story/26894.php http://www.fiercemobilecontent.com/story/western-european-mobile-tv-2-4b-2012/2007-10-19 http://www.eurocomms.com/features/111220/Mobile_TV:_the_business_model.html © 2007, Portio Research. All Rights Reserved 57 The total revenue generated worldwide from all mobile video services is expected to increase at a CAGR of 78.3 percent, up from USD 1.0 billion in 2006 to USD 18.0 billion in 2011.
  • 58. Slicing Up the Mobile Services Revenue Pie Italy and South Korea are among the worlds most advanced markets for mobile video services. Since these countries have been early movers in introducing this service, it is important to study these markets to understand how the service has evolved there and how the market will perform in the future. 58 © 2007, Portio Research. All Rights Reserved
  • 59. Slicing Up the Mobile Services Revenue Pie Case Study 1 – Italy’s Mobile TV Broadcasting Market Market Overview Italy was the first market in Europe to witness the launch of mobile TV using the DVB-H broadcast technology. 3-Italia was the first to launch this service on 5 June 2006. The response to this service was so strong that the company registered 111,000 subscribers within the first six weeks of operation. The service was launched with the start of the FIFA World Cup 2006 and then continued to register strong growth even after the conclusion of the event. Telecom Italia Mobile (TIM) and Mediaset followed 3-Italia by launching the service on 9 September 2006, whereas Vodafone Italy entered the market a little later in December 2006. The total number of mobile TV service subscribers in Italy by end-2006 was approximately 400,000, with 3-Italia leading the market with approximately a 75 percent share. According to merchant bank Société Générale, the total number of mobile TV subscribers in Italy is estimated to touch 1.4 million by end-2007; that number is then expected to grow to reach 6.6 million users by end-2010. Figure 52 shows the growth in the number of mobile TV subscribers in Italy from 2006 to 2010. Figure 52: Italy – Mobile TV Subscribers (In Million, 2006-2010E) Mobile TV Subscribers (In Million) 10.0 7.5 6.6 5.0 4.1 2.8 2.5 1.4 0.4 0.0 2006 2007E 2008E 2009E 2010E Year Source: Societe Generale E – Estimated The total revenue generated from mobile TV services in Italy in 2006 was approximately USD 64 million; this is expected to exceed USD 1.9 billion before end-2011.20 At present, the mobile TV market is witnessing rapid growth in Italy and this trend is expected to continue in the future. Operators are planning to tap this potential. Under the current business model, operators are directly involved in the value chain and bill the end-user for using the services. Figure 53 shows the existing mobile TV value chain in Italy. It also shows how various players in the value chain are interlinked. 20 http://www.nagravision.com/pdf/NV_CS_3Italia.pdf © 2007, Portio Research. All Rights Reserved 59 The total number of mobile TV subscribers in Italy by end2006 was approximately 400,000.
  • 60. Slicing Up the Mobile Services Revenue Pie Figure 53: Italy – Mobile TV Broadcasting – Value Chain Operator Content provider Broadcasting Network Provider Source: Portio Research Ltd. The mobile TV value chain in Italy is broadly similar to the value chain for broadcasting as shown previously, as the service is based on the DVB-H broadcast technology. The revenue generated from the service is shared between various players of the value chain. The MNO retains about 25-30 percent of the total revenue and the remainder is distributed between the broadcasting network provider and the content provider. 60 © 2007, Portio Research. All Rights Reserved
  • 61. Slicing Up the Mobile Services Revenue Pie Case Study 2 – South Korean Mobile TV Broadcasting Market Market Overview South Korea is the most developed mobile TV market in the world. It was the first to launch mobile TV services using the broadcasting technique (in May 2005). The broadcast of mobile TV in South Korea is based on DMB technology. In fact, it is the only standard mobile TV broadcasting service in South Korea. However, the DMB-based service is further divided into two types––S-DMB (Satellite-DMB) and T-DMB (Terrestrial-DMB). The T-DMB service is free of charge. TU Media Corporation is the only provider of S-DMB-based mobile video services in South Korea. SK Telecom has a major share in TU Media. The company also has an agreement with KTF to provide S-DMB based mobile TV services to KTF’s customers. Big national TV broadcasters, such as KBS and SBS, broadcast mobile TV using T-DMB, which is free-ofcost for end users. The number of users subscribing to mobile TV services based on broadcasting is growing at a rapid pace in South Korea. The number of mobile TV subscribers for the DMB service was about 2.5 million at end-2006, of which about 1 million subscribed to TU Media Corporation services. The number of mobile TV users in South Korea is expected to reach 21 million by end-2011.21 The total revenue generated from the DMB-based mobile TV broadcast services in South Korea was estimated to be approximately USD 150 million at end-2006.22 Although the T-DMB-based service is free in South Korea, the S-DMB-based mobile TV service has to be paid for. The value chain and the revenue split of SK Telecom’s S-DMB-based mobile TV service are shown in Figure 54. Figure 54: SK Telecom – Mobile TV Broadcasting – Value Chain Content Provider TU Media Corp. 75% SK Telecom 25% Source: Portio Research Ltd. Content providers deliver the content to TU Media, which is responsible for content aggregation and broadcasting. A customer using the mobile TV service is billed by the MNO and the revenue generated is shared among all the players in the value chain. SK Telecom retains approximately 25 percent of the revenue generated through the service, and the remaining 75 percent is shared between the other players in the value chain, TU Media, and the content providers. 21 22 http://www.eetasia.com/ART_8800445184_480700_NT_aa340f20.HTM http://www.3g.co.uk/PR/May2006/2995.htm © 2007, Portio Research. All Rights Reserved 61 The number of mobile TV users in South Korea is expected to reach 21 million by end-2011.
  • 62. Slicing Up the Mobile Services Revenue Pie MNOs favour the S-DMB-based broadcasting method, as it generates significant revenue. According to the current business model in South Korea, MNOs get a direct share in the revenue generated from the mobile TV service if the service is based on S-DMB. However, this is not the case if the mobile TV service is provided using the T-DMB technology as they are not part of the value chain and end users are not billed for this service. Although the Korean mobile market is one of the most advanced markets worldwide, there is still some time before it will reach its saturation level. T-DMB is expected to become the market leader; however, much will depend on the quality of the content and the service provided. Users are more interested in the type of content provided than in the type of technology used. 62 © 2007, Portio Research. All Rights Reserved
  • 63. Slicing Up the Mobile Services Revenue Pie Mobile Music Market Overview Mobile music is one the fastest growing mobile content services worldwide. The service is not only being adopted rapidly by subscribers in emerging markets such as India and China, but is also one of the most popular content services in advanced markets such as the US and the UK. For instance, music bought over a handset is the fastest growing segment in the UK music market.23 Furthermore, in emerging markets such as India, mobile music sales (in terms of revenue) outnumbered the sale of music through CDs in the first quarter ending 31 March 2007.24 Total worldwide mobile music revenue is expected to increase at a CAGR of 24.4 percent, from USD 6.9 billion in 2006 to USD 20.6 billion by end-2011. Figure 55 shows the growth of worldwide mobile music revenue from 2006 to 2011. Figure 55: Worldwide Mobile Music Revenue (In USD Billion, 2006-2011E) Mobile Music Revenue (In USD Billion) 24.0 19.7 20.0 20.6 18.1 15.5 16.0 12.7 12.0 8.0 6.9 4.0 0.0 2006 2007E 2008E 2009E 2010E 2011E Year Source: Portio Research Ltd. E – Estimated Table 9 shows the worldwide revenue break-out of different services in mobile music in 2006 and the expected corresponding figure in 2011. 23 24 Source : http://www.three.co.uk/threefiles/pdf/MusicReport.pdf Source : http://www.thehindubusinessline.com/2007/07/01/stories/2007070150250600.htm © 2007, Portio Research. All Rights Reserved 63 Total worldwide mobile music revenue is expected to increase at a CAGR of 24.4 percent, from USD 6.9 billion in 2006 to USD 20.6 billion by end-2011.
  • 64. Slicing Up the Mobile Services Revenue Pie Table 9: Worldwide Mobile Music Services Revenue (In USD Billion, 2006-2011E) Revenues in 2006 (In USD Million) Projected Revenue by end- 2011 (In USD Million) 5,600 11,300 Streaming Audio 200 2,100 Full-track Music Downloads 400 3,500 Ring-back Tones 700 3,700 6,900 20,600 Service Ringtones Total Source: Portio Research Ltd. The worldwide mobile music industry is expected to witness a change in the percentage revenue contribution of various services covered under mobile music. The contribution of ringtones in the total revenue is expected to decrease from 81.2 percent in 2006 to 54.9 percent by end-2011. During the same period, the full-track music download service is expected to gain momentum, and contribute approximately 17 percent to the total revenue by end-2011, up from 5.8 percent in 2006. Figure 56 shows the contribution of different music services in the total mobile music revenue as of end-2006 and end-2011. 64 © 2007, Portio Research. All Rights Reserved
  • 65. Slicing Up the Mobile Services Revenue Pie Figure 56: Revenue Composition – Mobile Music (2006 and 2011E) 2006 81.2% 2.9% 10.1% 5.8% 2011E 10.1% 54.9% 17.0% 18.0% Ringtones Streaming Audio Full-track Music Downloads Ring-back Tones Source: Portio Research Ltd. E- Estimated Based on our estimates, the contribution of ringtones in the total revenue pie is expected to be at an all time high by end-2011. However, the ringtone market is expected to witness great changes over the coming five years. The use of basic tones such as monophonic and polyphonic tones is anticipated to decline while that of true tones is expected to increase. Figure 57 shows the forecast of the revenue expected to be generated by the ringtone service from 2006 to 2011 © 2007, Portio Research. All Rights Reserved 65 The use of basic tones such as monophonic and polyphonic tones is anticipated to decline while that of true tones is expected to increase.
  • 66. Slicing Up the Mobile Services Revenue Pie Ringtone Rev enue (In USD Billion) Figure 57: Worldwide Ringtone Revenue (In USD Billion, 2006-2011E) 15 10.6 11.1 11.3 2009E 9.7 2010E 2011E 8.6 10 5.6 5 0 2006 2007E 2008E Year Source: Portio Research Ltd. E-Estimated The market for streaming audio services is still at a nascent stage. However, sales in this market are expected to rise steadily over the next five years. The revenue generated by streaming audio is expected to increase from USD 200.0 million in 2006 to USD 2,100.0 million by end-2011, registering a CAGR of 60 percent. This is shown in Figure 58. Streaming Audio Revenue (In USD Million) Figure 58: Worldwide Streaming Audio Revenue (In USD Million, 2006-2011E) 2,500 2,100.0 1,800.0 2,000 1,500.0 1,500 1,100.0 1,000 500 600.0 200.0 0 2006 2007E 2008E 2009E 2010E 2011E Year Source: Portio Research Ltd. E-Estimated Driven by the increase in the shipments of handsets with sufficient memory and features to support music downloads, the revenue generated by full-track mobile music download services is expected to witness tremendous growth. Based on our estimates, the revenue is expected to increase from USD 400 million in 2006 to approximately USD 3,500 million by end-2011. Figure 59 shows growth in revenues from mobile music download. 66 © 2007, Portio Research. All Rights Reserved
  • 67. Slicing Up the Mobile Services Revenue Pie Figure 59: Worldwide Full-track Mobile Music Download Revenue (In USD Million, 2006-2011E) 4,000 3,500.0 (In USD Million) 3,100.0 2,600.0 3,000 1,900.0 2,000 1,100.0 1,000 400.0 0 2006 2007E 2008E 2009E 2010E 2011E Year Source: Portio Research Ltd. E-Estimated The revenue from ring-back tone services is expected to increase from approximately USD 700 million in 2006 to USD 3,700 million by end-2011, registering a CAGR of 39.5 percent. Apart from the emerging markets, growth opportunities exist in the advanced mobile markets of Europe and North America as well.25 Figure 60 shows the revenue forecast for ring-back tone services from 2006 to 2011. Ringback Tone Revenue (In USD Million) Figure 60: Worldwide Ring-back Tone Revenue (In USD Million, 2006-2011E) 4,000 3,600.0 3,700.0 2010E 3,400.0 2011E 2,800.0 3,000 2 ,400.0 2,000 1,000 700.0 0 20 06 2007E 2008E 2009E Year Source: Portio Research Ltd. E-Estimated To understand how the mobile music industry will evolve in the future, it is important to understand the balance of forces between players in the value chain. The demand for a service determines the share of a particular player in the value chain. The following section discusses the revenue sharing arrangement among various players in the value chain and the expected split in revenue in the next five years. 25 Source: http://docs.real.com/docs/pressinfo/RN_Ringback%20Tones_Aug07_fin.pdf © 2007, Portio Research. All Rights Reserved 67
  • 68. Slicing Up the Mobile Services Revenue Pie Value Chain Analysis The following three players are primarily involved in the value chain of the mobile music market: • Content Owner • Content Aggregator • Mobile Network Operator The figure below shows the various players involved in the mobile music value chain. Figure 61: Mobile Music Services – Value Chain Mobile Content Aggregator Content Owner Network Operator Source: Portio Research Ltd. The revenue share prevalent between the players involved in the value chain is expected to change over the next four to five years. Figure 62 shows the revenue share among players in the mobile music value chain in 2006 and the expected division for the year 2011. Figure 62: Mobile Music Services – Revenue Sharing Arrangement (2006 and 2011E) 2006 MNO 30.0% Content Aggregator 40.0% 2011E Content Owner 30.0% MNO 25.0% Content Owner 40.0% Content Aggregator 35.0% Source: Portio Research Ltd E – Estimated 68 © 2007, Portio Research. All Rights Reserved
  • 69. Slicing Up the Mobile Services Revenue Pie In 2006, the maximum share in the revenue generated by the service was accounted for by content aggregators (approximately 40 percent). The remaining share was equally divided between MNOs and content owners. Since ringtones have been a major contributor to the overall revenue generated from mobile music, and because the content aggregators play an important role in developing ringtones, they have a majority share in the revenue pie. However, with the increase in the contribution of full-track downloads in the total revenue, the scenario is expected to change in the next five years. The share of content owners is expected to increase from 30 percent in 2006 to 40 percent by end-2011. The share of MNOs and content aggregators will therefore experience a proportionate decline. © 2007, Portio Research. All Rights Reserved 69 With the increase in the contribution of full-track downloads in the total mobile music revenue, the revenue sharing arrangement is expected to move in the favour of content owners in the future.
  • 70. Slicing Up the Mobile Services Revenue Pie Case Study 1 – UK’s Mobile Music Market Market Overview With mobile penetration in the UK surpassing the 100 percent mark, the country is one of the most advanced countries worldwide in terms of mobile services. The increasing use of mobile services has allowed for the development of other applications such as mobile music and mobile games. Furthermore, as the average age of subscribers in the country is declining, with mobile users as young as 10 years of age and younger, the mobile music industry has witnessed impressive growth in the recent past. Moreover, as the adoption of 3G-compatible handsets is witnessing a steady rise, the trend is shifting towards the increasing use of highend applications such as full-track music downloads. According to a recent research study conducted by mobile consultancy M:Metrics, approximately 40 percent of the UK’s total population owns a music-enabled handset. The UK, along with Italy, also dominates Western Europe in terms of penetration.26 Furthermore, mobile music downloads in the country are also higher than that in any other market.27 Figure 63 shows the comparison of the UK with other western European countries in terms of penetration of music-enabled handsets. Figure 63: Penetration – Music-enabled Handsets (1 November 2006–31 January 2007) 50.0 Penetration (in %) 40.0 34.0 32.0 29.0 23.0 25.0 0.0 The UK Germany Italy Spain France Year Source: M:Metrics, Inc. The mobile download market in the UK is dominated by mobile music services. As of 2006, mobile music contributed approximately 40 percent to total mobile download revenues, followed by mobile games, which accounted for a 25 percent share. During the same year, the value of the mobile music market in the country stood at USD 335 million.28 Figure 64 provides a break-out of the UK mobile download market in 2006. 26 Source:http://www.mmetrics.com/press/PressRelease.aspx?article=20070321-musicphones Source:http://www.pcw.co.uk/computeractive/news/2191850/uk-mobile-users-driving-growth 28 Source:http://www.ukinvest.gov.uk/UKTI-publications/4012312/en-GB.html 27 70 © 2007, Portio Research. All Rights Reserved As of 2006, mobile music contributed approximately 40 percent to total mobile download revenues.
  • 71. Slicing Up the Mobile Services Revenue Pie Figure 64: UK – Mobile Download Market – Break-out (2006) 25.0% 40.0% 35.0% Mobile Music Mobile Games Others Source: Portio Research Ltd. Value Chain Analysis The revenue sharing arrangement for ringtone services varies according to the nature of the ringtone. As of 2006, the share of MNOs in the revenue pie varied from approximately 20 percent for true tones to approximately 45 percent for polyphonic tones. However, the share of content aggregators stood constant at 40 percent for both ringtone services. Furthermore, the royalty obtained by content owners was higher with true tones than with polyphonic tones. Figure 65 shows the revenue sharing arrangement among players in the value chain of polyphonic tones in the UK in 2006. Figure 65: UK – Revenue Sharing Arrangement of Polyphonic Tones (2006) 45.0% 40.0% 15.0% MNO Content Aggregator Content Owner Source: Portio Research Ltd. Figure 66 shows the revenue sharing arrangement among players in the UK true tone value chain in 2006. © 2007, Portio Research. All Rights Reserved 71 As of end-2006, the share of MNOs in the revenue pie varied from approximately 20 percent for true tones to approximately 45 percent for polyphonic tones.
  • 72. Slicing Up the Mobile Services Revenue Pie Figure 66: UK – Revenue Sharing Arrangement of True Tones (2006) 20.0% 40.0% 40.0% MNO Content Aggregator Content Owner Source: Portio Research Ltd. With increasing penetration of high-end music-enabled handsets, the mobile music market in the country is expected to witness significant growth in the next five years. However, the market for basic tones such as polyphonic tones is expected to witness a decline. In contrast, the use of true tones and full-track music downloads is expected to witness a surge, thereby impacting the revenue sharing arrangements in the country. Figure 67 shows the revenue sharing arrangement among players in the mobile music value chain in the UK in 2006 and the expected division in 2011. Figure 67: Mobile Music Services – Revenue Sharing Arrangement (2006 and 2011E) 2006 2011E Content Owner 25.0% MNO 35.0% Content Owner 35.0% MNO 40.0% Content Aggregator 35.0% Content Aggregator 30.0% Source: Portio Research Ltd E – Estimated As shown in the figure, the share of content owners in the revenue pie is expected to increase from 25 percent in 2006 to 35 percent by 2011. In contrast, the share of MNOs and content aggregators is expected to decline to compensate for the increased dominance of content owners. 72 © 2007, Portio Research. All Rights Reserved
  • 73. Slicing Up the Mobile Services Revenue Pie Case Study 2 – India’s Mobile Music Market Mobile music is the second most popular service among Indian mobile consumers after SMS. Moreover, it is one of the fastest growing mobile services in India.29 According to estimates from the Cellular Association of India, the mobile music segment contributed approximately 7 percent to total operator revenues in 2006.30 For GSM cellular operator IDEA, ringtone downloads accounted for approximately 5 percent of the company’s total value-added service revenue. This figure is expected to reach 10 percent in the near future.31 The total mobile music services revenue increased from approximately USD 245 million in 2005 to USD 385 million in 2006, an increase of 57.1 percent. The increasing popularity of mobile music services was reflected in the increased sales of music-enabled handsets in the country. In fiscal year 2006, approximately 10 million music-enabled handsets were sold in the country. The number is expected to surpass the 24 million mark in 2007.32 Because of the increasing penetration of mobile services in the country, the mobile music market is expected to witness significant growth in the next five years. To exploit the potential in mobile music, MNOs are primarily planning to expand the service in the suburban and rural parts of the country. For instance, the launch of ‘Airtel Easy Music’ by Bharti Airtel in 2006 was one such step in this direction that was meant to facilitate the adoption of the service by new subscribers beyond the core urban markets. As of 2006, ringtones and ring-back tones dominated the mobile music market. Furthermore, monophonic tones were the most downloaded tones in the ringtones segment. However, with the rise in the sale of the high-end music handsets, the market for streaming audio and fulltrack music downloads is expected to rise rapidly. On the basis of the type of content, approximately 85 percent of the content downloaded is Bollywood (Hindi film) music. The remaining is distributed between regional and other (including international) music. Figure 68 shows the break-out of the total music downloads on the basis of the nature of content. Figure 68: India – Mobile Music Download Break-out (2006) 85.0% 5.0% Bollywood Regional 10.0% Others Source: Portio Research Ltd. 29 Source:http://timesofindia.indiatimes.com/articleshow/1363310.cms Source:http://www.coai.com/dgs_report.html 31 Source:http://timesofindia.indiatimes.com/Business/India_Business/Mobile_music_rings_in_revenue_for_cell_firms/ articleshow/msid-1363310,curpg-2.cms 32 Source:http://economictimes.indiatimes.com/News/News_By_Industry/Mobile_cos_tune_in_to_beat_iPhones_India _entry/articleshow/2208804.cms 30 © 2007, Portio Research. All Rights Reserved 73 The total mobile music services revenue in India increased from approximately USD 245 million in 2005 to USD 385 million in 2006, an increase of 57.1 percent.
  • 74. Slicing Up the Mobile Services Revenue Pie The following section provides information on the revenue sharing arrangement between various players in the mobile music value chain in India. It also discusses the way in which the industry is evolving and how this is going to affect the revenue sharing arrangement in the next five years. Value Chain Analysis As of 2006, the mobile music market in India was skewed towards MNOs with their share being 60 percent in the revenue pie. However, with the emergence of large content aggregators and content owners, the market is beginning to consolidate and orient in their favour. These large players offer a range of services and options to MNOs, which is expected to increase their negotiating power. Figure 69 shows the revenue sharing arrangement among players in the mobile music value chain in India in 2006 and the expected division in 2011. Figure 69: Mobile Music Service – Revenue Sharing Arrangement (2006 and 2011E) 2006 2011E Content Owner 25.0% MNO 30.0% Content Owner 30.0% MNO 60.0% Content Aggregator 15.0% Content Aggregator 40.0% Source: IMRB E – Estimated As shown in the figure, the share of the MNOs in the revenue pie will be approximately 30 percent in 2011, down from 60 percent in 2006. Furthermore, content aggregators will likely dominate the market with approximately 40 percent revenue share by 2011. 74 © 2007, Portio Research. All Rights Reserved As of 2006, the mobile music market in India was skewed towards MNOs with their share being 60 percent in the revenue pie.
  • 75. Slicing Up the Mobile Services Revenue Pie Case Study 3 – The US’s Mobile Music Market Mobile entertainment in the US, especially the mobile music segment, has been witnessing a strong growth rate in the recent past. Based on our estimates, the mobile music market in the US grew from approximately USD 300 million in 2004 to USD 1,195.0 in 2006, registering a CAGR of approximately 99.6 percent. This growth can be attributed to the increase in the use of ring-back tones and true tones. Figure 70 shows the revenue generated by the mobile music industry from 2004 to 2006. Figure 70: US – Mobile Music Revenue (In USD Million, 2004-2006) Mobile Music Revenue (In USD Million) 1500.0 1,195.0 1250.0 1000.0 670.0 750.0 500.0 300.0 250.0 0.0 2004 2005 2006 Year Source: Portio Research Ltd. The US mobile music market has witnessed a significant change in the usage pattern of different types of ringtones. The market, which was primarily dominated by polyphonic tones in 2004, saw a rise in the use of true tones thereafter. By the end of 2006, the contribution of mono tones had practically disappeared altogether, and that of true tones was almost equal to that of polyphonic tones. The primary reason for this change is the increase in the penetration of high-end music-enabled handsets. Figure 71 shows the change in the usage pattern of ringtones from 2004 to 2006. With the increase in the penetration of high-end musicenabled handsets the usage of true tones has increased significantly. Figure 71: US – Changing Patterns of Ringtone Service (2004-2006) Revenue Contribution (In %) 100% 80% 65.0% 60% 50.0% 45.0% 45.0% 35.0% 40% 20.0% 10.0% 5.0% 20% 10.0% 7.5% 7.5% 0.0% 0% 2004 2005 2006 Year Monophonic Polyphonic True Tone Others Source: Portio Research Ltd. © 2007, Portio Research. All Rights Reserved 75
  • 76. Slicing Up the Mobile Services Revenue Pie The mobile music market in the United States is expected to witness impressive growth in the future as well. Most of this anticipated growth can be attributed to the increasing popularity of full-track music downloads. The following section discusses the revenue sharing arrangement among players in the value chain in 2006 and how this is expected to change in the next five years. Value Chain Analysis The revenue sharing arrangements for ringtone services varies considerably for content aggregators and content owners in the country. As shown in Figures 72 and 73, the market is primarily oriented towards content aggregators in the case of polyphonic tones, while content owners dominate the market in the case of true tones. Figure 72: US – Revenue Sharing Arrangement of Polyphonic Tones (2006) 50.0% 35.0% 15.0% MNO Content Aggregator Content Owner Source: Portio Research Ltd. The share of MNOs for both polyphonic and true tones is 35 percent. The revenue share of content owners is 15 percent for polyphonic tones and 50 percent for true tones. Figure below shows the revenue sharing arrangement of true tones in 2006. 76 © 2007, Portio Research. All Rights Reserved The market is primarily oriented towards content aggregators in the case of polyphonic tones, while content owners dominate the market in the case of true tones.
  • 77. Slicing Up the Mobile Services Revenue Pie Figure 73: US – Revenue Sharing Arrangement of True Tones (2006) 15.0% 50.0% 35.0% MNO Content Aggregator Content Owner Source: Portio Research Ltd. Figure 74 shows the revenue sharing arrangement among players in the value chain in 2006 and the anticipated share of players in 2011. Figure 74: Mobile Music Services – Revenue Sharing Arrangement (2006 and 2011E) 2006 2011E Content Owner 30.0% MNO 35.0% Content Aggregator 35.0% MNO 30.0% Content Owner 40.0% Content Aggregator 30.0% Source: Portio Research Ltd E – Estimated As the sale of true tones and full-track music downloads is expected to increase in the future, the share of content owners is expected to increase from approximately 30 percent in 2006 to 40 percent in 2011. This is likely to lead to a decline in the share of MNOs and content aggregators in the future. © 2007, Portio Research. All Rights Reserved 77
  • 78. Slicing Up the Mobile Services Revenue Pie Mobile Games Market Overview Mobile games, one of the most challenging types of mobile content to develop, are also one of the fastest growing mobile content services available. The task of developing mobile games is difficult as a game needs to run on thousands of different types of handset. The service has become one of the key applications for handsets along with music and video. As an increasing number of people turn to their mobile handsets for entertainment purposes, the chance that services such as music and games will become popular increases. One factor that has led to the increased uptake of games services has been the emergence of advanced 3G handsets. These advancements in handsets have helped mobile gaming reach new levels in terms of graphics quality and user experience. Moreover, mobile networks are expanding capacity and capabilities to offer better service to its customers and also more online and richer gaming contents are entering the market. When compared with other data services such as SMS and MMS, the revenue generated from mobile games is still very small. The service contributed only 2.5 percent of total data services revenues in 2006. In the next five years, the mobile gaming industry is expected to grow, not only in terms of revenue, but also in terms of audience and game capacity. Figure 75 shows the worldwide growth of revenue from mobile games from 2006 to 2011. Figure 75: Worldwide Mobile Gaming Revenue (In USD Billion, 2006-2011E) Mobile Games Revenue (In USD Billion) 10 7.1 6.5 7.6 8.0 The revenue generated by mobile gaming services is expected to increase at a CAGR of 25.2 percent and reach USD 8.0 billion in 2011 as compared to USD 2.6 billion in 2006. 4.5 5 2.6 0 2006 2007E 2008E 2009E 2010E 2011E Year Source: Portio Research Ltd E – Estimated The market for mobile games has been dominated by the Asia-Pacific region. Since Japan and South Korea were the early adopters of mobile gaming services, their share in the overall revenue generated from this service worldwide has been the highest. In the coming five years, the region is expected to contribute the largest share to the overall revenue, followed by Europe and North America. Asia Pacific has high data consumption, particularly in Japan and Korea, and this too has been one of the reasons for the high consumption of services such as games and music. It is expected that countries such as China will also turn into a high-growth market for gaming services in the coming five years. In Japan, operators are very optimistic about the growth potential of mobile gaming. Companies such as NTT DoCoMo expect mobile gaming and mobile music to be major contributors to their revenues generated from i-mode services. Over the past few years, the company has witnessed significant growth in revenue from mobile gaming. 78 © 2007, Portio Research. All Rights Reserved The market for mobile games has been dominated by the Asia-Pacific region.
  • 79. Slicing Up the Mobile Services Revenue Pie The mobile game market in Europe is close behind that of Asia Pacific. Mobile handsets have become ubiquitous in most European countries and are being used by many subscribers as a gaming console. In some Western European countries, game downloads have overtaken the download of ringtones. When compared with Asia Pacific and Europe, North America has been slow in adopting mobile gaming. One of the reasons for this was the slower adoption of wireless technologies until very recently. Even though North America comprises developed nations such as the US and Canada, the use of mobile gaming prior to 2006 was very low indeed compared to other developed countries worldwide. The mobile gaming industry is characterised by the convergence between the video game industry and the telecommunications industry. The value chain that exists in the industry is analysed in the following section. © 2007, Portio Research. All Rights Reserved 79 When compared with Asia Pacific and Europe, North America has been slow in adopting mobile gaming.
  • 80. Slicing Up the Mobile Services Revenue Pie Value Chain Analysis The mobile value chain broadly consists of the following players: • • • • Content Owner Game Developer Game Publisher Mobile Network Operator Content Owner Most of the games that are available in the market are based on licensed IP from content owners. Also known as IP owners, they are paid a license fee by the publisher as a royalty. Generally, the payment made by the publishers is partially split into an upfront payment and partially paid over time, often in the form of royalties. Some of the key IP owners are Hasbro, Microsoft, Warner Brothers, Fox Sports, Konami, Cartoon Network, Sega and Atari. Game Developer Game developers are the creators of the game concept. They develop the final playable version of the game from the initial concept. They not only create a gaming concept, but also ensure that the games run on a range of mobile handsets. A game might run smoothly on a particular handset; however, it may need to be re-designed to work on another. Moreover, there are different software platforms for different handsets, increasing the complexity of the game development process for the developers. An analysis of the value chain shows that the game developers are not the ones who have the greatest say. The value chain is dominated by mobile network operators, game publishers and licence holders. Since this is the trend noticed in most countries, many game developers are now starting to integrate to become licensors. Game Publisher The game publisher, also known as the aggregator, acquires the rights to different games developed by the games developer or internally. They fund the development of the game and bring it to the market, ready for the end-user. They also invest in making the game compatible with various handsets and software platforms. They bring the game to the MNO and are crucial to the mobile gaming industry. Moreover, they receive the largest share of the mobile gaming revenue pie. Mobile Network Operator Mobile network operators provide the network that is used to provide gaming services to endusers. They are, therefore, a vital link between the publishers and the end-users. As they have control over subscribers, operators receive the second largest share of the industry revenue after game publishers. Apart from the above-mentioned players, handset vendors are an important part of the mobile gaming industry. The handset is the platform on which the game is played. The first game to be introduced on any mobile handsets was ‘Snake’, which was introduced by Nokia. Handset vendors are the mobile industry’s equivalent of game console manufacturers. Figure 76 depicts the mobile gaming value chain. 80 © 2007, Portio Research. All Rights Reserved
  • 81. Slicing Up the Mobile Services Revenue Pie Figure 76: Mobile Gaming – Value Chain Handset Vendor Content Owner Game Publisher Mobile Network Operator Game Developer Flow of Money Source: Portio Research Ltd. End-users buy the mobile game from the operator and it is charged to their monthly bill or deducted from their prepaid account, depending on their service plan. The game publisher receives its share of the revenue in 30-90 days, depending on the agreement. The game publisher then passes on the royalties to the game developer, who may have to wait for about 1-3 months after the publisher is paid. Among the various players in the value chain, it is the game publisher that walks away with the maximum share of the revenue pie. Figure 77 shows the revenue split among the players in the value chain in 2006 and the expected revenue split in 2011. Figure 77: Worldwide Mobile Gaming – Revenue Sharing Arrangement (2006, 2011E)33 2006 2011E Mobile Network Operator 30.0% Game Publisher 50.0% Mobile Network Operator 20.0% Game Publisher 55.0% Content Owner 20.0% Content Owner 25.0% Source: Portio Research Ltd E – Estimated 33 Note: In the figure it is assumed that the game publisher develops the game using an internal team. i.e. we have combined Game Developers and Game Publishers. © 2007, Portio Research. All Rights Reserved 81
  • 82. Slicing Up the Mobile Services Revenue Pie As is shown in Figure 77, in 2006, game publishers were the biggest winners, followed by mobile network operators. In the next five years, mobile operators are likely to lose some share, which will be absorbed by game publishers and content owners. 82 © 2007, Portio Research. All Rights Reserved
  • 83. Slicing Up the Mobile Services Revenue Pie Case Study 1– Japan’s Mobile Gaming Market The mobile gaming market in Japan has witnessed significant growth and holds tremendous potential. The country has been a leader in the worldwide mobile gaming market and is expected to remain a key player in the coming years. As is the case in most developed nations, voice revenue in Japan is stagnating due to competition and market saturation. Operators have therefore shifted their focus to non-voice services, such as mobile gaming, MMS and m-commerce, in order to increase revenues and reduce churn rates. Figure 78 shows the revenue generated from mobile gaming service in Japan from 2004 to 2006. Mobile Gaming Revenue (In USD Million) Figure 78: Japan – Mobile Gaming Service Revenue (In USD Million, 2004–2006) 650.0 700 600 535.0 500 400 380.0 300 200 100 0 2004 2005 2006 Year Source: Portio Research Ltd. Mobile gaming has witnessed significant improvements with the success of NTT DoCoMo’s FOMA and i-mode services, and other series of developments such as improvement in downloadable technologies and the emergence of advanced handsets. Operators have been a major factor contributing to the success of mobile games in Japan. For example, NTT DoCoMo has adopted various strategies to promote its gaming services. The company has built an efficient system to generate revenue from this service. The operator has properly defined the role of each player in the value chain and provides the service to the end-user at the most lucrative prices. NTT DoCoMo’s strategy of developing a clear and well-defined value chain for mobile games has helped boost Japan’s mobile gaming industry. Each player in the value chain has a clearly defined percentage share in the revenue generated from mobile games. The strategy has helped the company establish an extensive distribution channel and has enabled timely delivery of mobile games to the end-user. Figure 79 shows the distribution of the revenue generated from mobile games among various players in the value chain. The figure also shows how NTT DoCoMo has established the revenue sharing arrangement among various players in the value chain. © 2007, Portio Research. All Rights Reserved 83 Operators have contributed majorly to the success of mobile gaming in Japan.
  • 84. Slicing Up the Mobile Services Revenue Pie Figure 79: NTT DoCoMo – Revenue Sharing Arrangement – Mobile Games (2006) Game Developer (8–12%) Game Publisher (70–80%) NTT DoCoMo (10–12%) Source: Portio Research Ltd. The revenue split among the players in the mobile gaming value chain elsewhere in Japan is similar to NTT DoCoMo’s revenue sharing arrangement. Operators get 10-12 percent of the revenue generated, and game developers and publishers/licensors walk away with 85-90 percent. One major reason for the growth of mobile gaming in Japan has been the launch of advanced handsets that can support Java downloads and higher bandwidth GPRS and 3G networks. In Japan, mobile game customers can be classified into two categories—customers who play games in their free time and those who are hardcore gaming fans. Many companies, including NTT DoCoMo, have identified these categories of players and have developed games that suit the requirements of both categories of customers. NTT DoCoMo has launched ‘Casual Games’ for customers who like to play games in their free time and ‘Hardcore Games’ for serious gamers. The availability of 3G handsets has enabled NTT DoCoMo to provide the best quality of mobile gaming experience to both categories of game players. Globally, the growth of the mobile gaming market is being driven by casual games. When it comes to playing games on a mobile handset, hardcore games are quite popular, but not as popular in the mass market as casual games. Casual games are developed with the aim of helping users spend leisure time and this has been the reason for the growth of this service. This particular trend is noticed in Japan as well. Consumers perceive mobile games as an ‘anytime, anywhere’ gaming platform and this has led to its popularity in Japan and in other countries worldwide. 84 © 2007, Portio Research. All Rights Reserved Share of the MNOs is about 10-12 percent of the total revenue generated by the mobile gaming service in Japan.
  • 85. Slicing Up the Mobile Services Revenue Pie Case Study 2 – The US Mobile Gaming Market The US mobile gaming market has also witnessed strong growth in the recent past. The market reached USD 550 million at end-2006, up from USD 200 million at end-2004, registering a CAGR of 65.8 percent. One of the major reasons for this surge in the market has been an increase in the penetration of handsets with colour display and multimedia functionalities. Figure 80 shows the revenue generated by the mobile gaming service from 2004 to 2006. The US mobile gaming market reached USD 550 million at end-2006, up from USD 200 million at end-2004. Mobile Games Revenue (In USD Million) Figure 80: US – Mobile Gaming Services Revenue (In USD Million, 2004–2006) 600 550.0 500 400 350.0 300 200.0 200 100 0 2004 2005 2006 Year Source: Portio Research Ltd. Simple puzzle games dominate the mobile gaming market in the US. The primary reason for this is the compatibility of these games with almost all types of available handsets. Furthermore, mobile sales are currently limited to the revenue generated either by games sold or subscriptions obtained. However, with the development of multiplayer online gaming options, revenue could be generated through advertising, thereby boosting sales. In order to increase the popularity of mobile games in the country, game developers are focussing on integrating features such as touch screens, cameras and GPS in their games. Furthermore, options such as online social networking and 3D graphics are also being explored.34 A market for mobile educational gaming is also prevalent in the US. These games use techniques such as role playing and simulation for educational purposes (such as language learning). As of end-2006, this sub-segment contributed approximately 4-6 percent to the total mobile gaming revenue generated in the country.35 Value Chain Analysis As of end-2006, the mobile games market in the US was dominated by publishers with approximately 50 percent share in the revenue pie. The presence of large players with more negotiating power, such as EA Mobile, Gameloft and Glu, is the reason for the publishers’ large share in the total revenue generated. In addition, content owners’ and MNOs’ shares were approximately 20 percent and 30 percent, respectively. With the industry trying to explore a variety of options to accelerate sales (as discussed above), the market is expected to move in favour of the game publishers. Figure 81 shows a comparison of the revenue sharing arrangement among the players involved in the value 34 35 Source: http://www.rcrnews.com/apps/pbcs.dll/article?AID=/20071103/SUB/71102012/1012/allnews Source: http://campustechnology.com/articles/52681/ © 2007, Portio Research. All Rights Reserved 85 As of end-2006, the mobile games market in the US was dominated by publishers with approximately 50 percent share in the revenue pie.
  • 86. Slicing Up the Mobile Services Revenue Pie chain of the mobile gaming industry in 2006 and the expected split in 2011. Figure 81: US – Mobile Gaming – Revenue Sharing Arrangement (2006, 2011E)36 2006 Mobile Network Operator 30.0% Content Owner 20.0% Game Publisher 50.0% Mobile Network Operator 20.0% 2011E Content Owner 25.0% Game Publisher 55.0% Source: Portio Research Ltd E – Estimated As shown in the figure above, game publishers will dominate the market with 55 percent share in the revenue pie in 2011. The share of the content owners is also expected to increase to 25 percent in 2011 from 20 percent in 2006. 36 Note: In the figure it is assumed that the game publisher develops the game using an internal team. 86 © 2007, Portio Research. All Rights Reserved
  • 87. Slicing Up the Mobile Services Revenue Pie Case Study 3 – The Mobile Gaming Market in the UK The mobile gaming era started in Europe in late 2002 with operators offering Java games to subscribers. Despite the poor penetration of Java-enabled handsets, the market responded positively to this new segment. The primary reasons for instant uptake of this service were: • A wide array of choices available to the subscriber • Replication of already popular console and PC games as mobile games. • Aggressive efforts on the part of operators to inform subscribers about mobile games services such as those available on Vodafone Live! The UK is one of the most advanced mobile gaming markets in Western Europe. As of end2006, the total revenue generated by mobile games was approximately USD 200 million. During the year, the segment contributed approximately 25 percent to the total revenue of the mobile content download market. Operators and game publishers are actively collaborating to accelerate the uptake of mobile games among subscribers. In a recent development, game publishers such as Electronic Arts, Glu Mobile, Gameloft and I-play joined hands with the five MNOs operational in the country—3, O2, Orange, T-Mobile and Vodafone—to launch key games over the networks of all five operators concurrently. The move was primarily aimed at increasing awareness about mobile games among subscribers. The move also enabled subscribers to download games of their choice, irrespective of their MNO.37 The following section talks about the revenue sharing arrangement prevalent in the mobile gaming market in the UK. Value Chain Analysis As of end-2006, the mobile game market in the UK was oriented in favour of operators; the share of operators was almost half of the total revenue generated. Game developers and game publishers got 20 percent and 30 percent, respectively. Figure 82 shows the comparison of the revenue sharing arrangement in 2006 and the expected revenue sharing arrangement in 2011. 37 As of end-2006, the mobile games market in the UK was oriented in favour of MNOs. Source: http://www.mobilegd.com/news-stream/elspa-got-4-publishers-to-launch-simultaneously-in-the-uk.html © 2007, Portio Research. All Rights Reserved 87
  • 88. Slicing Up the Mobile Services Revenue Pie Figure 82: UK – Mobile Gaming – Revenue Sharing Arrangement (2006, 2011E)38 2006 2011E Content Owner 20.0% Content Owner 25.0% Mobile Network Operator 35.0% Mobile Network Operator 50.0% Game Publisher 30.0% Game Publisher 40.0% Source: Portio Research Ltd E – Estimated It is expected that in 2011, game publishers will dominate the market and will hold the maximum share of the revenue generated. Their share is estimated to increase to 40 percent. The share of content owners is also expected to increase to about 25 percent by 2011. 38 Note: In the figure, it is assumed that the game publisher develops the game using an internal team. 88 © 2007, Portio Research. All Rights Reserved
  • 89. Slicing Up the Mobile Services Revenue Pie Other Services Apart from the services that have already been discussed in this study, various other nonvoice data services are offered by mobile network operators worldwide. The total revenue generated by these services in 2006 was USD 13.6 billion. With increasing awareness among subscribers, the revenue is expected to reach USD 39.9 billion in 2011. Figure 83 shows the forecast of the revenue generated by these services collectively from 2006 to 2011. The revenue generated from other services is expected to increase at a CAGR of 24.0 percent and thereby reach USD 39.9 billion in 2011 from USD 13.6 billion in 2006. Revenue from Other Services (In USD Billion) Figure 83: Revenue from Other Data Services (In USD Billion, 2006–2011E) 45 39.9 40 32.6 35 28.0 30 2 5.1 21.7 25 20 13.6 15 10 5 0 2006 2007E 2008E 2009E 2010E 2011E Year Source: Portio Research Ltd E – Estimated The services that are discussed in this section include: • • • • Mobile Payments Mobile Gambling Location-based Services Mobile Internet access © 2007, Portio Research. All Rights Reserved 89
  • 90. Slicing Up the Mobile Services Revenue Pie Mobile Payment Services Mobile payment Services include services, such as payment of bills, account transactions, payment of tickets, P2P money transfer and purchase of goods using a mobile device such as a handset or a PDA. The services are generally performed via SMS, mobile Internet or by specific software applications downloaded onto the handset. Mobile payment services have witnessed phenomenal growth in the recent past and are expected to grow at an even faster rate in the next four to five years. These services have been available in countries with developed mobile markets (Japan, South Korea and several countries in Europe) for a longer period of time than they have in countries with developing mobile markets. The services have been a huge success in many of the developed mobile markets. Regions with developing economies, such as Asia and Africa, are expected to record a fast growth in this area with rapid increase in mobile penetration. Mobile payment services have witnessed phenomenal growth in the recent past and are expected to grow at an even faster rate in the next four to five years. Figure 84 shows the most common value chain in the case of mobile payment services excluding P2P transfer. Figure 84: Mobile Payment Services – Value Chain Acquirer POS Issuer Payment Network Source: Portio Research Ltd. A Point of Sales (POS), as the name suggests, is the place where a product or a service is sold. It can be a shop, a restaurant, or a ticket counter. POS accepts the payment made by the user. The request is then forwarded to the acquirer (an entity that holds the merchant’s account and manages the transaction information), which could be a financial institution, an MNO or a third party. The request then reaches the payment network, which is responsible for connecting and switching transactions through its own network or any other existing network. The transaction is then authorised by the issuer, who manages the mobile banking accounts of the subscriber. As mentioned in earlier sections, one player in the value chain can play more than one role. This can also be the case in the mobile payments value chain. Depending on who dominates the value chain, it can be classified into four categories: • • • • MNO-dominated value chain MNO-Financial service provider-collaborated value chain Financial service provider-dominated value chain Third-party-dominated model An example of the MNO-dominated value chain is the M-Wallet system launched by NTTDoCoMo in Japan, using Sony’s FeliCa technology. In this case, NTT-DoCoMo plays all the 90 © 2007, Portio Research. All Rights Reserved The value chain of mobile payment services can be classified into different categories depending on who dominates the value chain.
  • 91. Slicing Up the Mobile Services Revenue Pie roles, from acquirer to issuer. Therefore, the operator gets all the revenue earned through this service. The MNO-Financial service provider-collaborated business model is currently in operation in the South Korean mobile market. The revenue earned through this service is shared among different players in the value chain. The approximate value chain split is shown in Figure 85. Figure 85: South Korea – Mobile Payment – Revenue Sharing Arrangement (2006) 45.0% 50.0% 5.0% Acquirer Payment Network Issuer Source: Portio Research Ltd. In South Korea, MNOs hold approximately 45 percent of the revenue generated from these services. About 50 percent goes to the acquirer and the remaining 5 percent to the payment network. MasterCard’s mobile payment trial conducted in Dallas and New York in November 2006 was based on the financial service provider-dominated value chain. MasterCard leveraged the services of existing acquirers, and took on the roles of acquirer and payment network in the value chain. However, the banks continued to act as issuers. This type of model is not likely to succeed in places where the MNOs have a dominant relationship with the device manufacturers, as operators are unlikely to settle for playing such an inactive position in the value chain. In the third-party-dominated value chain, the roles of acquirer, payment network and the issuer are performed by one single player, which is neither a financial institution nor an MNO. PayPal and Obopay in the US provide online and mobile banking services based on this model. The mode of transaction in this case is via SMS. This model is not expected to see fast growth in the near future; without any partnerships with operators or banks, it will be extremely difficult for a third party to gain the trust of subscribers, unless they are individuals who use and trust these services in the fixed wireline Internet environment. Moreover, if MNOs become aggressive, they can stop this service by blocking the short code messages that the services use, as SMS messages travel through their networks. Although the value chains in the mobile payments sector are still evolving, the revenue generated through this service is following a steep upward curve and the trend is expected to continue in the next five years. It was estimated that mobile payment services generated USD 5.9 billion in end-2006 and are expected to contribute approximately USD 18.3 billion to operators’ revenue by end-2011. © 2007, Portio Research. All Rights Reserved 91 The revenue generated by mobile payment services is expected to reach USD 18.3 billion by end-2011.
  • 92. Slicing Up the Mobile Services Revenue Pie Mobile Gambling Gambling has always been a popular business. Online gambling is now also gaining popularity and is already a multibillion dollar business. Gambling via mobile handsets or other wirelessly connected devices is also picking up briskly. Mobile gambling services can be divided into three segments: • • • Casino Style Gambling Lotteries Betting Casino Style Gambling: Handset-based casino gambling in appearance is similar to other graphic mobile games currently on the market. Users can either play these games for fun or can actually gamble in real time with a server hosted by a casino. Lotteries: Providing lottery services on handsets is expected to be highly beneficial to lottery operators and other service providers. The main reason for this estimate is the fact that a large percentage of the population worldwide regularly plays the lottery and therefore, with handset penetration on the rise worldwide, there is a vast potential market. Betting: Most of the betting that takes place over mobile handsets is on sports. The mobile gambling market is projected to grow significantly in the near future. It is a big business driver for MNOs, irrespective of whether these operators form a part of the value chain or not. Operators stand to earn in either case as their network is used by the subscribers and the service providers. Moreover, the service does not have any particular technological constraint. It can work on any type of network—2G, 2.5G or 3G. The worldwide market for mobile gambling services in 2005 was USD 1.2 billion and is expected to generate revenues of USD 7 billion by end-2010. Europe is the largest contributor to the mobile gambling market in terms of revenue. Europe is the highest contributor to the mobile gambling market in terms of revenue. In countries such as the Netherlands, Sweden, Germany and the UK, subscribers regularly use their handsets for betting and to buy lottery tickets. Large operators, such as O2 and 3, are also promoting mobile gambling content. An estimated USD 665 million39 worth of bets were placed by subscribers in 2006 in Europe alone. Europe is expected to generate USD 3.2 billion in annual revenue by end-2010 and will be followed by Asia Pacific, which will contribute USD 2.7 billion, where the mobile gambling market is growing fast too. The number of gambling services users is expected to reach 201.4 million by end-2010, up from 48.1 million in October 2005. The number of mobile gamblers in Asia Pacific alone will rise to 96.7 million from 22.1 million during this time period.40 Since the gambling is conducted over a mobile handset and all the betting and purchasing of lottery tickets through the operators’ networks, it is expected that MNOs will involve themselves directly in the value chain of mobile gambling. They would prefer not to lose the opportunity to earn profits from this up and coming service. For example, in the UK, which is considered to be one of the most advanced mobile gambling markets, MNOs are directly involved in providing these services to their subscribers by working in collaboration with a betting or gambling service provider. The operator 3 has teamed up with Ladbrokes and O2 with Bet2Go to provide gambling services to their subscribers. The revenue generated is shared between these two players in the value chain. Though the market for mobile gambling is rising and is expected to grow in the near future, there are certain minor issues that need to be addressed. First is the problem of age verification. Since gambling is meant only for adults, regulators want to ensure that young children are not able to use these services. Measures are being undertaken to restrict young 39 40 http://www.technewsworld.com/story/55741.html http://www.iht.com/articles/2005/11/13/business/wireless14.php 92 © 2007, Portio Research. All Rights Reserved The number of gambling services users is expected to reach 201.4 million by end2010.
  • 93. Slicing Up the Mobile Services Revenue Pie children from using these services by introducing various age verification procedures. Another main issue is the legality of the service in certain countries. For example, mobile gambling is not allowed in the US. Although these problems are considered temporary, it will be a matter of time before we see how things shape up and what governments in the concerned countries plan to do to address these issues. © 2007, Portio Research. All Rights Reserved 93
  • 94. Slicing Up the Mobile Services Revenue Pie Location-based Services Location-based Services (LBS) are personalised services that are provided to subscribers based on their location in real time. These services use the knowledge of the location of the handset user and allow the user to access content and services relevant to their location. The following are some of the services that generally fall into this category: • • • Maps and driving directions in the area Location of points of interest, such as ATMs, petrol stations, restaurants and parks Tracking of friends The method of finding the user’s location is based on two technologies: one is Global Positioning System (GPS) or Galileo and the other is the triangulation technique, which is based on the signals exchanged between the handset and the cell sites serving the handset. The service provider can locate the user either by using one of the two available technologies or by using a combination of both. Location-based services were launched for the first time in Europe in 1999. These services, however, have not been successful and the failure is attributed to the lack of network capabilities and infrastructure. However, with increasing advances in the technology available on handsets and within network infrastructure, LBS services are expected to be more successful in the next five years. In Europe alone, the LBS services market is expected to be worth USD 244 million by the end of 2007.41 The worldwide revenue generated by October 2006 from LBS was USD 150 million and is estimated to reach USD 3.1 billion by end-2010.42 The number of GPS-enabled locationbased service subscribers is also expected to rise from 12 million at end-2006 to 315 million by end-2011.43 41 http://www.3g.co.uk/PR/July2004/8027.htm http://www.news.com/Mobile-phones-that-track-your-buddies/2100-1039_3-6135209.html 43 http://www.3g.co.uk/PR/Sept2006/3701.htm 42 94 © 2007, Portio Research. All Rights Reserved Global Positioning System (GPS) or Galileo and the triangulation technique are the two technologies used to detect a user’s location.
  • 95. Slicing Up the Mobile Services Revenue Pie Mobile Internet Mobile Internet services are provided by almost all mobile network operators worldwide. A few years ago, Web-enabled handsets were not as prevalent as they are today. The increasing level of penetration of these handsets has led to an increase in mobile Internet users too. India is a very good example to substantiate this. At the end of June 2007, India had about 9.27 million fixed Internet connections, compared to 31.3 million subscribers who accessed the Internet using their mobile handsets. It was also noted that in India, out of the 65 million handsets sold in 2006, 35 million were Web-enabled.44 Furthermore, in China, the number of mobile Internet users is expected to have reached 100 million by year-end 2007.45 The Asia Pacific in general is showing huge growth in the use of mobile Internet services. The In Asia, the number of mobile uptake is estimated to be growing at a rate of 50 percent per year, which is twice the rate at Internet users is expected to which PC-based Internet users are increasing. By end-2011, it is estimated that the number of reach 800 million by 2011. mobile Internet users will reach 800 million in 2011, accounting for almost 63 percent of all the users connecting to the Internet in Asia.46 In the US, the number of mobile Internet users is expected to reach 92 million by end-2012.47 Tipped as one of the hottest growth services in non-voice mobile services, mobile search is expected to bring in most of the revenue from mobile Internet use in the US market, reaching USD 715 million by end-2011.48 With the increasing penetration of net-enabled handsets and advances in higher capacity networks, the use of mobile Internet services will continue to increase sharply in the next five years. This is good for the MNOs as well as other Internet companies. It will add to the data revenue of the MNOs as their network is the medium through which the subscribers surf the Web. 44 http://economictimes.indiatimes.com/Indians_prefer_to_surf_Net_on_the_go/articleshow/2183516.cms http://www.swbusiness.fi/portal/news/article_of_the_month/ 46 http://www.nokia-asia.com/A4418020?newsid=-6232 47 http://www.arnnet.com.au/index.php/id;1726876317;fp;16;fpid;1 48 http://www.bizreport.com/2007/07/mobile_search_to_reach_715_million_by_2011.html 45 © 2007, Portio Research. All Rights Reserved 95 Mobile search is expected to bring in most of the revenue from mobile Internet use in the US market.
  • 96. Slicing Up the Mobile Services Revenue Pie Infrastructure Equipment Vendors Market Overview Infrastructure vendors are benefitting as operators worldwide expand in both developed and emerging markets. As the use of data services builds over time, the demand for infrastructure is expected to increase. With third-generation infrastructure investment starting to give results in developed markets, a large number of base stations will be deployed in the coming years in these markets. Moreover, emerging markets will gradually move from 2G and 2.5G networks to more advanced networks such as 3G. Consequently, the coming five years will witness the demand for new network-compatible devices required for network upgrades. The revenue generated by infrastructure vendors worldwide is growing at a steady pace. The total revenue generated in 2006 was USD 60 billion and is expected to reach USD 71.5 billion by end-2011. The market is expected to grow at a CAGR of 3.6 percent. Ericsson is the single biggest player in the market, followed by Nokia-Siemens Networks. Figure 86 shows the revenue generated by infrastructure vendors worldwide from 2006 to 2011. Figure 86: Worldwide Infrastructure Vendor Revenue (In USD Billion, 2006–2011E) The revenue generated by infrastructure vendors worldwide is expected to grow at a CAGR of 3.6 percent, from USD 60.0 billion in 2006 to USD 71.5 billion in 2011. Infrastructure Revenue (In USD Billion) 100 80 60.0 62.3 2006 2007E 68.0 65.8 70.1 71.5 2009E 2010E 2011E 60 40 20 0 2008E Year Source: Portio Research Ltd E – Estimated Global mobile penetration is expected to cross the 50 percent around the end of 2007 or early in 2008 and as that penetration figure grows form 50 percent to 75 percent, a major chunk of new subscribers will come from the emerging markets, such as China and India. Rural regions in emerging countries are expected to contribute majorly to the much anticipated growth of mobile markets. In the coming five years, operators will strive to set-up their infrastructure in these rural regions, which will bring increased opportunities to infrastructure vendors. Currently, there are three main mobile communication technologies in deployment worldwide—GSM, CDMA and W-CDMA. W-CDMA acts as an underlying interface for several other technologies including UMTS and HSPA. GSM is the most popular mobile communication standard used outside North America. CDMA technology was introduced after GSM and it offers higher capacity and is more reliable than previous digital cellular systems. The technology has been deployed primarily in the US and in Asia and, to some extent, in Eastern Europe and Africa. CDMA accounts for almost twothirds of North American MNO’s CAPEX compared to almost 8 percent of total global CAPEX. 96 © 2007, Portio Research. All Rights Reserved Rural regions in emerging markets such as India and China are expected to contribute majorly to the much anticipated growth in the mobile markets.
  • 97. Slicing Up the Mobile Services Revenue Pie W-CDMA is the official third generation network evolution of 2G GSM networks deployed worldwide. The technology uses the CDMA signalling method and currently accounts for less than 5 percent of the worldwide mobile subscriber base. Various other 3G/4G broadband wireless standards such as WiMAX are in different stages of development in various markets around the world. Some major consolidations took place in 2006. Nokia and Siemens formed a joint infrastructure business venture called Nokia Siemens Networks. Alcatel merged with Lucent Technologies to form Alcatel-Lucent. The GSM market was led primarily by European vendors, such as Ericsson, Nokia, Siemens and Alcatel. The combined market share of these companies was just over 80 percent in 2006. Ericsson has been the leader in the GSM infrastructure market to date. The company’s market share was just over 40 percent in 2006. Nokia Siemens Networks’ market share was almost 31 percent, and the next largest company in terms of market share was AlcatelLucent. Motorola, Nortel and Huawei Technologies are some other smaller players in the GSM infrastructure market. Ericsson has been the leader in the GSM infrastructure market to date. GSM networks have reached maturity in most of the advanced markets where the technology has been deployed. However, some less mature markets, such as that of India and some countries in Africa and Latin America, are still witnessing growth in their GSM infrastructure. The leaders in GSM networks have also been successful in carrying forward their leadership into newer technologies. Companies such as Ericsson, Nokia Siemens Network and AlcatelLucent (including Nortel’s UMTS assets) dominate almost 75 percent of the W-CDMA market. The uptake of CDMA declined in 2006, as operators in Asia now seem to favour GSM technology. When compared with GSM, the deployment of CDMA-based networks in some developing countries in Asia, Africa and Latin American have been very low. Moreover, infrastructure vendors such as Ericsson have aggressively marketed their GSM-based infrastructure products in these regions. The expenditure on CDMA-based infrastructure in 2003 was about 40 percent of the total mobile network infrastructure expenditure in Asia, although this figure declined drastically to just over 20 percent in 2006. However, the scenario in North America has been quite different. The North American mobile market has witnessed significant growth in the CDMA domain. Major operators in the region have been investing significantly in upgrading their existing CDMA networks. Investment in the CDMA networks is expected to continue to increase in the region in the future. Lucent is the market leader in terms of providing CDMA infrastructure. Nortel comes next in terms of market share, followed by Motorola. Samsung also has some market share due to its presence in Korea. However, Korea is deploying W-CDMA, which might reduce Samsung’s share in the future. Lucent has been the leader because of its dominance in Asia’s and North America’s CDMA-based mobile infrastructure market. Nortel has taken advantage of the increase in deployments of CDMA networks in the US. Motorola also has a presence in the market and is comparable to Nortel in terms of market share. The company provides network solution to Sprint Nextel and Verizon, through which it generates the bulk of its revenue. The mobile infrastructure market, including GSM, CDMA and W-CDMA, did not enjoy much growth in 2006. That scenario, however, is expected to change in FY-2007, with the market expected to experience single digit growth of somewhere between 4 and 5 percent. It is estimated that in the next five years, WiMAX deployment will be a new source of revenue growth for infrastructure vendors; however, its overall contribution is not expected to exceed 5 percent of the overall mobile infrastructure market. It is expected that the WiMAX deployment will generate revenue of USD 2 billion by end-2011 with GSM, CDMA and W-CDMA-based infrastructure generating about USD 45 billion. The overall mobile infrastructure market is expected to grow at a faster rate than the wireline infrastructure market in the coming five years. The combined growth of GSM and W-CDMA is © 2007, Portio Research. All Rights Reserved 97 Lucent is the market leader in terms of providing CDMA infrastructure.
  • 98. Slicing Up the Mobile Services Revenue Pie expected to be between 5 and 10 percent (CAGR); CDMA, however, is expected to grow at a slower rate than GSM and W-CDMA combined.49 EDGE and W-CDMA have been rolled out in various systems worldwide and both these interfaces will continue to grow in the coming five years. CDMA2000 is also expected to expand its presence in the same time period. GSM will continue to grow in emerging countries across Asia, Africa and the Middle East. The high demand for GSM is primarily due to network deployments and capacity expansions in the emerging high-growth markets. Mobile traffic is expected to accelerate in the coming years because of the increased use of voice and multimedia services. To provide good quality services to their customers, operators worldwide are focussing on investing in new and improved infrastructure. Investment in infrastructure has varied considerably across different markets, as it depends on the technology being adopted by operators in the region and on local regulatory requirements. Operators worldwide are replacing existing infrastructure with new and advanced infrastructure, which reduces their overall operating costs (OPEX). As a result, the replacement market is growing and infrastructure vendors are able to increase their revenues accordingly. Data traffic is also expected to grow at a fast rate, which is promising for infrastructure vendors supplying an ever increasing demand for bandwidth. 49 Source: Prudential Equity Group, LLC, Industry Review and Outlook 98 © 2007, Portio Research. All Rights Reserved In order to provide good quality services to their subscribers, MNOs worldwide are focussing on investing in new and improved infrastructure.
  • 99. Slicing Up the Mobile Services Revenue Pie Mobile Handset Market Market Overview The worldwide mobile handset market is experiencing tremendous growth. It is estimated that approximately 1,144 million handsets were shipped to customers worldwide in FY-2007, and the market is expected to be worth USD 166.1 billion. In 2006, the number of handsets sold worldwide exceeded 990 million. This number is expected to grow at a CAGR of just over 10.8 percent from 2006 to 2011. Worldwide handset shipments from 2006 to 2011 are shown in Figure 87 Figure 87: Worldwide Handset Shipments (In Million, 2006–2011E) Worldwide handset shipments are expected to grow at a CAGR of 10.8 percent, up from 990 million in 2006 to about 1.6 billion in 2011. Handset Shipments (In Million) 2000 1,556.4 1,657.2 1,411.4 1500 1,144.4 1,258.9 990.0 1000 500 0 2006 2007E 2008E 2009E 2010E 2011E Year Source: Portio Research Ltd. E – Estimated Handset shipments worldwide are being driven by the rapid growth in the number of subscribers in the emerging markets of Asia, Africa and Latin America, as well as by enhanced replacement sales in developed nations. Although handset shipment numbers are increasing, the average selling price of handsets is declining. This is mainly because the operators worldwide are now focussing on the emerging markets where subscriber additions will be the highest. Since growth in mobile services is expected to come from the low-income segment, handset vendors are introducing more lowcost handsets, which is bringing down the average handset sales price. The worldwide revenue from handset sales is expected to increase at a CAGR of 8.5 percent from USD 145.0 billion in 2006 to USD 217.9 billion by end-2011. The worldwide handset revenue from 2006 to 2011 is shown in Figure 88. © 2007, Portio Research. All Rights Reserved 99 Driven by the rapid growth in the number of subscribers in the emerging markets of Asia, Africa and Latin America, as well as by enhanced replacement sales in developed nations, the worldwide handset market is expected to reach USD 217.9 billion in 2011.
  • 100. Slicing Up the Mobile Services Revenue Pie Figure 88: Worldwide Handset Revenue (In USD Billion, 2006–2011E) Handset Revenue (In USD Billion) 300 200 166.1 174.9 2007E 193.3 2008E 210.5 218.0 2010E 2011E 145.0 100 0 2006 2009E Year Source: Portio Research Ltd. E – Estimated Handset vendors worldwide sell their handsets either directly to mobile network operators or to the end-customers through their wide sales networks of retail stores and third party resellers. Operators account for a major share of the sales. In 2006, the revenue generated from sales through mobile operators was approximately 60 percent of the total revenue generated from sales worldwide. Figure 89 shows the worldwide revenue generated for handset vendors from sales through mobile operators from 2006 to 2011. Figure 89: Worldwide Handset Sales to Operators (In USD Billion, 2006–2011E) Handset Revenue (In USD Billion) 150 126.3 130.8 2010E 2011E 116.0 99.7 100 104.9 88.5 50 0 2006 2007E 2008E 2009E Year Source: Portio Research Ltd. E – Estimated Remaining quite consistent, by end-2011, it is expected that sales through operators will account for close to 60 percent of the worldwide revenue generated from sale of handsets. In 2006, Nokia continued to dominate as the market leader in terms of the number of handsets shipped worldwide. The total number of handsets shipped by the company during 100 © 2007, Portio Research. All Rights Reserved In 2006, the revenue generated from handset sales through mobile operators was approximately 60 percent of the total revenue generated from handset sales worldwide.
  • 101. Slicing Up the Mobile Services Revenue Pie the year was 347.5 million, accounting for almost 35 percent of the overall market. Motorola, which shipped 217.4 million handsets, came in second. The other leading vendors were Samsung, Sony Ericsson and LG. Together, these five companies accounted for almost 83 percent of the global market. As this report was being completed Kyocera Corporation has signed a tentative agreement to acquire Sanyo Electric’s mobile handset business. If this deal completes on target by April 2008, the new combined entity will have an approximate global market share of 10 percent in the CDMA handset business, according to press reports. Table 10 provides the handset shipments of leading handset vendors worldwide. Table 10: Quarterly Handset Shipments Worldwide (In Million, Q1, 2006 - Q3, 2007) Handset Vendor Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Nokia 75.1 78.4 88.5 105.5 91.1 100.8 111.7 Motorola 46.1 51.9 53.7 65.7 45.4 35.5 37.2 Samsung 29.0 26.3 30.7 32.0 34.8 37.4 42.6 Sony Ericsson 13.3 15.7 19.8 26.0 21.8 24.9 25.9 LG 15.6 15.3 16.5 17.0 15.8 19.1 21.9 Source: Company websites Figure 90 depicts the market share comparison of the top five global handset vendors, based on handset shipments in 2005 and 2006. © 2007, Portio Research. All Rights Reserved 101
  • 102. Slicing Up the Mobile Services Revenue Pie Figure 90: Worldwide Market Share Comparison – by Handset Vendor (2005 and 2006) 2005 12.6% 17.9% 6.3% 6.7% 32.4% 24.1% 2006 21.9% 11.9% 7.5% 6.5% 35.1% 17.0% Nokia Motorola Samsung Sony Ericsson LG Others Source: Portio Research Ltd. In 2006, sales in Asia Pacific totalled approximately 301 million units, an increase of 47 percent over 2005. Sales in Eastern Europe, Middle East and Africa reached approximately 185 million units, an increase of 21 percent over 2005. In Western Europe, the increase in handset sales over 2005 was approximately 7 percent and the number of units sold was 175 million. In North America, the annual sales in 2006 stood at 164.2 million units, whereas in Latin America, it was 118 million units. In Japan alone, the sales figure in 2006 was approximately 47.3 million units, an increase of 5 percent over the previous year. The regional break-out of handset sales in 2006 and 2011 is shown in Figure 91. 102 © 2007, Portio Research. All Rights Reserved
  • 103. Slicing Up the Mobile Services Revenue Pie Figure 91: Handset Shipments – Regional Break-out (2006 and 2011E) 2006 18.7% 16.6% 11.9% 35.2% 17.7% 2011E 21.0% 11.4% 44.8% 9.5% 13.3% Asia Pacific North America Western Europe Eastern Europe, Middle East, Africa Latin America Source: Portio Research Ltd. and CIBC World Markets As shown in figure 91 above, the Asia Pacific region is expected to continue to be the largest single handset market worldwide in 2011. Sales in the region would be approximately 44.8 percent of the total worldwide handset shipments. Driven by the increase in the subscriber base in the Middle East and Africa the consolidated share of Eastern Europe, Africa and Middle East is expected to increase from 18.7 percent in 2006 to 21.0 percent in 2011. On the other hand, while handset shipments will continue to grow, the relative contribution of North America, Latin America and Western Europe is expected to witness a decline during the same period, as organic growth in Asia outstrips all other regions. © 2007, Portio Research. All Rights Reserved 103
  • 104. Slicing Up the Mobile Services Revenue Pie Conclusions Trillion Dollar Mobile Much of this report was researched and written during the last quarter of 2007, so verified full year 2007 data was not available for many of the data points we have covered, and probably won’t be available for some months to come. However, as we now find ourselves publishing this finished study in early 2008, it seems we have arrived in the year that the mobile industry worldwide looks set to achieve yet another exciting new milestone. It looks like 2008 will be the year that the worldwide mobile industry will become a ONE TRILLION US Dollar industry. 2007 became the year to see worldwide mobile handset shipments exceed 1 billion for the first time, and as 2008 begins so the world also crosses the highly significant 50 percent mobile penetration point, and now the industry enters a year where gross industry revenues should reach 1 trillion Dollars. Truly the mobile industry must deserve a pat on the back like never before? For an industry to go from zero to USD 1 trillion in just 20 years is a staggering achievement, possibly unequalled by any other industry at any time in human history. The CAGR of the worldwide mobile industry from 1988 to 2007 was approximately 29.2 percent. From the start, this report set out to answer three key questions: 1) What is the overall value of the worldwide mobile industry? 2) Where does the money come from? 3) Where does the money go to? We wanted to answer those questions for today’s market, and we wanted to understand what is likely to grow and change over the next 5 years. We also wanted to answer those questions form two different angles, firstly segmenting the market by services and then segmenting the market geographically. Let’s now look at the answers to those questions. What is the overall value of the worldwide mobile industry? As stated above, 2008 looks set to become the year that the mobile industry reaches a worldwide value of approximately USD 1 trillion. Figure 92: Worldwide Mobile Revenue and Total Handset Sales (In USD Billion, 2004-2011E) Revenue (In USD Billion) 1200 1000 1,077.8 1,132.9 774.9 800 600 944.3 870.1 1,013.4 670.4 567.7 400 200 0 2004 2005 2006 2007E 2008E 2009E 2010E 2011E Year Source: Portio Research Ltd. E – Estimated 104 © 2007, Portio Research. All Rights Reserved
  • 105. Slicing Up the Mobile Services Revenue Pie In 2008 we estimate MNOs worldwide will collect total revenues of USD 874.3 Billion, and additionally handset vendors will collect a further USD 70 billion beyond that revenue which comes via the MNOs. Add to this the additional revenue generated worldwide by sales of accessories, mobile phone insurance, content sales that bypass MNOs (such as ringtones and other content sold directly off the web) and other miscellaneous products and services, and we estimate the total value of the mobile industry worldwide will total almost USD 1 trillion by year-end 2008. Using that same calculation, the total industry was worth approximately USD 900 billion in full year 2007. The total value of the mobile industry worldwide, measured as total revenue flows from consumers into the hands of MNOs and handset vendors, is forecast to approximately double from 2004 to 2012. Our data shows the 2004 value as USD 567.7 billion and we forecast the 2011 value of the industry to be approximately USD 1133 Bn. With growth still pushing forward at such a pace, the mobile industry still promises to be an extremely exciting and profitable industry for many years to come. Where does the money come from? Interestingly, voice and SMS get little publicity in the mobile world these days. Just take a look at the conference agenda for the annual Mobile World Congress in Barcelona in February 2008. Looking down the list of topics covered in the 4 day conference, all the talk is about mobile TV and video, HSPA, mobile IM, DRM, mobile finance, mobile search, social networking, data pricing and mobile enterprise solutions. All of these are exciting growth areas and most of these topics offer a great deal of promise for the future. But amid all this excitement, there is barely one mention of voice as a subject, and barely any mention of SMS as an application, yet voice and SMS generate almost 90 percent of the total service revenues flowing into this industry right now, and it’s predominantly voice and SMS that have built this USD 1 trillion business over the last 20 years. Figure 93: Voice and SMS Revenue as Percentage of Service Revenue (In Percent, 2006-2011E) 94 93.20 (In Percent) 92 90.40 88.90 90 87.70 88 86.60 85.40 86 84 82 80 2006 2007E 2008E 2009E 2010E 2011E Year Source: Portio Research Ltd. E – Estimated Even in 2011, 75.7 percent of all service revenues will still come from voice, and a further 9.7 percent of total service revenues worldwide will still be generated by SMS. In 2011, we forecast that 62.2 percent of all non-voice revenues will still be coming from messaging, twothirds of it from SMS (39.8% of total non-voice revenues being SMS). © 2007, Portio Research. All Rights Reserved 105
  • 106. Slicing Up the Mobile Services Revenue Pie Figure 94: Worldwide Mobile Market – Break-out by Services and Handset Sales (In USD Billion, 2006, 2007E and 2011E) 2006 2007E 534.8 58.4 1.0 13.6 582.1 4.0 6.9 0.4 2.6 14.9 4.5 19.1 59.0 64.5 3.5 66.5 21.7 0.9 6.7 12.7 2011E 712.9 8.0 13.7 82.9 18.0 40.0 5.0 32.4 20.6 90.9 Voice Mobile Gaming MMS Mobile Music Mobile E-mail SMS Mobile IM Other Data Services Mobile Video Handset Sales Source: Portio Research Ltd. © 2007, Portio Research. All Rights Reserved 106
  • 107. Slicing Up the Mobile Services Revenue Pie As the detailed charts on the previous page show, the vast majority of the money flowing into the mobile industry, now and in 2011, comes form voice, SMS and handset sales. However, remember that these pie charts represent a massive trillion dollar industry, and the numbers shown are in billions, so even the smallest slices shown on those charts represent huge amounts of consumer spending. For example, the charts show mobile video and TV services growing from a mere billion in 2006 to USD 18 billion in 2011. If nothing else that is some impressive growth rate, and an 18 billion dollar business is an extremely significant proposition. Clearly the vast majority of the revenue flowing into the mobile industry is paid directly to the worlds MNOs from mobile consumers and enterprise clients. Worldwide, in 2007, mobile network operators took total revenues of USD 803.7 billion, up from USD 718.4 billion in FY 2006. And where does the money go to? If we analyze 2006 in detail (at time of writing, full year verified data for 2007 is not yet available) then we can pull together a complete image depicting the flow of money from mobile subscribers to MNOs and then the flow out from the MNOs to other players in the industry, including handset and equipment vendors, content partners, financial partners and so on. The figure below illustrates this flow for 2006 and 2011 for comparative purposes. © 2007, Portio Research. All Rights Reserved 107
  • 108. Slicing Up the Mobile Services Revenue Pie Figure 95: Worldwide Mobile Market – Who makes how much? (2006 and 2011E) Source: Portio Research Ltd. E – Estimated This figure shows us clearly that voice, SMS and handset sales are the major revenue generators, as noted above, though of course they are not necessarily the major PROFIT generators. This picture also looks set to remain largely unchanged in 2011, but we expect to see major regional variations. As organic growth continues to sustain profits in emerging markets, non-voice services will gain ever greater importance in creating service differentiation and in sustaining profits in more mature regions. 108 © 2007, Portio Research. All Rights Reserved
  • 109. Slicing Up the Mobile Services Revenue Pie Regional differences The Asia Pacific region and Europe are currently the two largest mobile markets worldwide, generating slightly over 30 percent and 31 percent of total worldwide mobile revenues respectively. While these two key regions will remain in the lead to 2011, the contributions are shifting, as Europe’s overall share will be reduced by greater contributions growing from Asia Pacific and North America. Central, Eastern and Southern Europe should maintain its contribution, with the pressure being felt in Western and Northern Europe, where markets are already matured and saturated. Figures 96 and 97, shows the regional contributions, in terms of percentages and Dollar values, in 2006, 2007 and 2011. Figure 96: Worldwide Mobile Revenue – Regional Break-out (2006 and 2012E) 2006 7.8% 22.0% 5.2% 3.3% 6.5% 31.4% 23.7% 2012E 7.2% 24.1% 5.9% 3.7% 6.1% 33.8% 19.0% N&W Europe Africa C&E Europe Middle East North America Asia Pacific Latin America Source: Portio Research Ltd. E – Estimated © 2007, Portio Research. All Rights Reserved 109
  • 110. Slicing Up the Mobile Services Revenue Pie Figure 97: Worldwide Mobile Market – Service Revenue and Handset Sales – Regional Break-out (In USD Billion, 2006,2007 and 2011E) Source: Portio Research Ltd. © 2007, Portio Research. All Rights Reserved 110
  • 111. Slicing Up the Mobile Services Revenue Pie By looking at the different geographic regions one by one, comparing the year-end 2006 data with our forecast 2011 data, we can see the potential growth in each region for service revenue growth and continued handset sales growth. Figure 98 below and over the page, illustrates the flow of revenue in and out of the MNOs again, this time highlighting the revenue flows by region. Clearly we can see the massive contribution from Asia, and the massive 50 percent plus growth that market will witness to 2011. Indeed while services revenues in Asia Pacific look set to grow by more than 55 percent, handset revenues look set to almost double. Significantly, North America will take over from Northern and Western as the second largest single regional market, in terms of service revenues, a position it already holds in terms of handset revenues. North America promises to be one of the most exciting and profitable markets in the world over the next few years. Revenues are forecast to grow to a quarter of a trillion US Dollars by year-end 2011 and ARPU levels are already some of the highest in the world, and we believe they are set to stay that way. Both Central and Eastern Europe and Latin America are forecast to record healthy growth in service revenues, in excess of 33 percent, and in handset sales both those regions are looking strong, especially in Central and Eastern Europe, where handset sales are forecast to grow rapidly. Service revenues and handset sales in Africa and the Middle East are all set to enjoy rapid growth, with a forecast 65 percent lift in mobile service revenues across the regions and a similar healthy boost in handset sales revenue too. © 2007, Portio Research. All Rights Reserved 111
  • 112. Slicing Up the Mobile Services Revenue Pie Figure 98: Worldwide Mobile Revenue – Regional Contribution (2006 and 2011E) Source: Portio Research Ltd. E – Estimated 112 © 2007, Portio Research. All Rights Reserved
  • 113. Slicing Up the Mobile Services Revenue Pie Voice and Data As noted earlier, voice revenue forms the bulk of all service revenues worldwide, and of course voice is still and, arguably, will always be, the number one function of a mobile phone. Yet voice attracts little attention in the mobile industry these days, probably due to the comparatively low margins MNOs make on voice business. The revenue generated from data services in 2004 stood at 12.8 percent and the remaining portion of total service revenues came from voice services. However, the percentage contribution from data services has been steadily rising since 2004 and in FY 2007 that contribution, worldwide, reached 18.9 percent. Our forecasts estimate that data will contribute 25.5 percent of service revenues worldwide by 2012. The following Table shows the revenue generated from voice and data services from 20042012. Table 11: Worldwide Voice and Data Services Revenue (In USD Billion, 2004-2012E) Voice Revenue (In USD Billion) Data Revenue (In USD Billion) Total (USD Billion) Data Revenue as Percentage of Service Revenue (In Percent) 2004 399.1 58.7 457.8 12.8% 2005 468.2 78.8 547.1 14.4% 2006 534.8 102.4 637.2 16.1% 2007E 582.1 135.7 717.8 18.9% 2008E 622.5 160.7 783.2 20.5% 2009E 657.5 182.9 840.3 21.8% 2010E 687.6 205.6 893.3 23.0% 2011E 712.9 228.5 941.4 24.3% 2012E 734.6 251.9 986.5 25.5% Year Source: Portio Research Ltd. © 2007, Portio Research. All Rights Reserved 113
  • 114. Slicing Up the Mobile Services Revenue Pie Shifting Trends in the Mobile Data Services Market We mentioned the North American market earlier, and to confirm the strong growth we see in this market in the coming years, just take a look at the forecast growth of non-voice mobile services. In FY 2004 the North American mobile market contributed just 6.7 percent to total worldwide mobile data services revenues, yet our forecasts show this figure rising to a massive 27.8 percent by 2012. The figure below shows the forecast regional changes in contribution to total worldwide data services revenues between 2004 and 2012. Figure 99: Worldwide Mobile Data Services Revenue – Regional Break-out (2004 and 2012E) 2004 6.7% 1.9% 1.9% 2.1% 4.1% 50.9% 32.5% 2012E 4.2% 27.8% 2.9% 2.4% 4.9% 38.6% 19.3% N&W Europe Africa C&E Europe Middle East North America Asia Pacific Latin America Source: Portio Research Ltd. E – Estimated While revenues from Northern and Western Europe are set to double from 2006 to 2012, the region’s contribution to the worldwide total still appears to drop significantly from 32.5 percent to just 19.3 percent, but this is simply because other regions, mostly Asia and North America, are growing so much faster. Asia remains the largest contributor to worldwide totals throughout the period, which is not surprising given the vast size and rapid growth of the Asian market. 114 © 2007, Portio Research. All Rights Reserved
  • 115. Slicing Up the Mobile Services Revenue Pie Table 12 below shows the regional break-out of worldwide mobile data services revenue from 2004 to 2012. Table 12: Worldwide Mobile Data Services Revenue –Regional Break-out (In USD Billion, 20042012E)50 N&W Europe C&E Europe North America Latin America Africa Middle East Asia Pacific Total 2004 19.0 2.4 3.9 1.1 1.1 1.2 29.8 58.7 2005 22.0 4.1 9.1 2.3 1.5 1.6 38.4 78.8 2006 24.9 5.1 16.3 4.4 2.2 2.2 47.4 102.4 2007E 34.0 7.7 28.8 5.3 2.7 2.8 54.4 135.7 2008E 37.0 8.7 38.5 6.5 3.5 3.4 63.0 160.7 2009E 39.9 9.7 45.7 7.5 4.3 4.1 71.7 182.9 2010E 42.7 10.6 53.8 8.5 5.2 4.7 80.0 205.6 2011E 45.6 11.5 61.8 9.5 6.2 5.4 88.5 228.5 2012E 48.5 12.4 69.9 10.5 7.2 6.0 97.3 251.9 Year Source: Portio Research Ltd. As you can see from the data in the table above, C&E Europe, North America, Latin America, the Middle East and Asia Pacific are all set to approximately double non-voice service revenues in the 5 year period from year-end 2007 to year-end 2012. Africa is set to grow even faster and only N&W Europe is facing a slightly slower, but still respectable, 43 percent growth rate. This slower rate in N&W Europe is surely only due to the fact that the region already has the worlds most mature regional data services market in 2007. Messaging is still King… Rather unsurprisingly, a vast portion of the total non-voice service revenues worldwide will come from peer-to-peer messaging, especially P2P SMS. During FY 2006, approximately 76.5 percent of the total revenue generated by MNOs worldwide from data services came from messaging, mainly SMS (57.6 percent of total) and MMS. However, revenue from P2P SMS and MMS is expected to decline to approximately 69 percent of total data services revenues by 2011. Data services such as mobile music, mobile games, mobile video and mobile payments are expected to contribute more significantly to the overall revenue generated from data services in the next five years. Forecasts show that SMS is set to grow more than 50 percent over the coming years, from the USD 60 billion plus industry that it is today, to generate revenues in excess of USD 90 billion in 2011. Likewise MMS looks assured of even more aggressive growth, more than doubling from 2006 values of some USD 15 billion to reach an annual value of more than USD 32 billion by the end of 2011. Still with messaging, the value of the worldwide mobile e-mail market is forecast to more than double from USD 6.7 billion in 2007 to USD 13.7 in 2011, and even more impressively, mobile IM is set to grow from USD 900 million in 2007 to reach USD 5 billion by the close of 2011. 50 Please Note: In this table, sum of mobile data services revenue by regions may not be equal to the total figure due to rounding-off errors. © 2007, Portio Research. All Rights Reserved 115
  • 116. Slicing Up the Mobile Services Revenue Pie Beyond messaging, mobile TV and video services are forecast to more than quadruple from revenues of USD 3.5 billion in FY 2007 to a massive USD 18 billion in 2011, while mobile music and mobile games are both set to almost double in value in the same time frame. The table below shows the break-out of worldwide data services revenue by type of service. Table 13: Worldwide Mobile Data Services Revenue – Break-out (In USD Billion, 2006-2011E)51 SMS MMS Mobile Music Mobile Games Mobile E-mail Mobile IM Mobile Video Others Total 2006 59.0 14.9 6.9 2.6 4.0 0.4 1.0 13.6 102.4 2007E 66.5 19.1 12.7 4.5 6.7 0.9 3.5 21.8 135.7 2008E 73.4 23.6 15.5 6.5 8.5 1.7 6.3 25.2 160.7 2009E 79.8 28.2 18.1 7.1 10.0 2.7 9.0 28.0 182.9 2010E 85.6 30.8 19.7 7.6 12.0 3.9 13.4 32.6 205.6 2011E 90.9 32.4 20.6 8.0 13.7 5.0 18.0 40.0 228.5 Year Source: Portio Research Ltd. …and SMS still wears the crown SMS volume is still growing in all regions worldwide and this service is expected to remain the most widely used messaging format for years to come. Aggressive marketing strategies adopted by operators and the popularity of TV voting applications have resulted in a tremendous increase in the uptake of SMS-based services, with usage rates booming in North America and Asia, and popularity still growing all the time in Europe and Latin America. Worldwide, Europe, Asia and Latin America are SMS strongholds, and countries such as the Philippines, Venezuela, Norway, Singapore, Malaysia and Mexico are hot-spots of high SMS use. The Philippines, which has long been known as the ‘SMS Capital of the world’, accounts for approximately 10 percent of total SMS traffic worldwide. While P2P SMS accounts for the bulk of worldwide traffic, premium A2P/P2A messaging services are growing aggressively. The revenue sharing arrangements amongst operators, content owners and content aggregators are quite different for advanced and developing markets. In advanced markets, content owners and aggregators get a higher share of the revenue generated from premium SMS services. However, in developing markets, mobile network operators keep a higher share of the revenue pie. In most of the emerging markets, the share kept by the network operators is sometimes as high as 60 percent, as is the case in India and the Philippines. However, there are a few exceptions, such as in China, where the network operators only retain 20-30 percent of the total revenue generated through premium SMS services, while aggregators and content owners share the remainder. 51 Please Note: In this table, sum of mobile data services revenue by regions may not be equal to the total figure due to rounding-off errors. 116 © 2007, Portio Research. All Rights Reserved
  • 117. Slicing Up the Mobile Services Revenue Pie MMS still struggling to catch up MMS has never enjoyed the kind of success that SMS has. As of year-end 2006, the contribution of MMS to the total data services revenue pie was approximately 14.5 percent and that figure is expected to decline a little to be approximately 14.2 percent by year-end 2011. While MMS is available on approximately 300 networks worldwide, uptake has been slow in some geographies and the service has been held back by a variety of technical challenges and unrealistic pricing. After a slow start prior to 2005, the US MMS market is now growing fast thanks to innovative service pricing and bundling among other factors, and MNOs from other regions are learning from this growth. However, as mobile e-mail moves into the mainstream MMS faces new challenges. If MNOs don’t reduce MMS prices and stimulate massive demand, mobile e-mail threatens to replace MMS in the coming years as the preferred premium multimedia messaging format. Portio Research will be watching developments in this market carefully over 2008 and we will be publishing our third report in the popular ‘Mobile Messaging Futures’ series late in 2008 or early in 2009 to include extensive coverage of this area. The number of mobile e-mail accounts active worldwide is expected to witness exponential growth in the coming years as more and more e-mail inboxes are mobilised. As the use of non-voice services on mobile handsets gains acceptance with subscribers worldwide, actively encouraged by MNOs and handset vendors alike, so the mobile e-mail market is expected to grow from a USD 4 billion market in 2006 to a value of approximately USD 13.7 billion in 2011. Growing just as fast is mobile IM, though IM seems to face more regional restrictions. While IM is extremely popular in North America, the biggest market for mobile IM, elsewhere it is less well received. Some Asian countries are keen on using IM, though no large audience has yet transitioned to mobile IM, while other Asian countries prefer other messaging formats. Japan, for example, is a hot mobile e-mail market, Japanese mobile subscribers preferring email as a messaging format over IM, SMS and MMS. Equally, in Europe Mobile IM faces an uphill fight against the widespread popularity and ubiquity of SMS. Numerous European network operators have launched mobile IM offerings, but few are priced or promoted very aggressively, as almost all European MNOs enjoy excellent SMS revenues, and there is great resistance to sacrificing these revenue flows for any alternative messaging format. Beyond Messaging Mobile handset as an entertainment device Consumer attitudes are slowly changing and as they do, so the mobile handset is being accepted by an ever increasing segment of the population as a device that can be used for so much more than just making phone calls. As penetration of video-compatible handsets broadens, so the video download market is growing fast, and as of October 2007, there were almost 6.8 million mobile video viewers in the US alone, which represents 36 percent growth since January 2007. © 2007, Portio Research. All Rights Reserved 117
  • 118. Slicing Up the Mobile Services Revenue Pie Additionally, the number of mobile TV subscribers worldwide stood at 16.9 million in 2006, and is expected to reach 488.8 million by the end of 2010.52 Currently, countries such as South Korea, Japan, the US, and Italy account for the majority of mobile TV users. Mobile TV in Western Europe is expected to generate over USD 150 million in 2007, and this figure is expected to reach USD 2.4 billion by end-2012; Italy will lead the market, followed by Germany and France.53 While the ringtone industry is undoubtedly in decline in mature markets, facing tough competition from more advance mobile music offerings, growth in developing markets will sustain the service for some years to come. While ringtones contributed 81.2 percent to total mobile music service revenues in 2006, this figure will slowly decline to 54.9 percent by end2011. During the same period of time, more sophisticated full-track music download services are expected to gain momentum, and contribute approximately 17 percent to the total revenue pie by the end of 2011, up from 5.8 percent in 2006. Over the last 2 or 3 years, the growing penetration of 3G handsets, with more advanced software, bigger screens and better graphics capabilities, has boosted growth in mobile gaming markets. While gaming is still a niche sector, and hardcore gaming will likely always remain a niche, better handsets and better games make gaming a reality for a much wider audience. Gaming continues to be popular in Asia, particularly in Japan and South Korea, and other regions are also witnessing growth. As noted previously, the mobile gaming sector looks set to double, in terms of worldwide total revenues, from FY 2006 to end of 2011. Other entertainment services follow a less certain future. It seems clear that adult entertainment and gambling are both on the rise in the mobile world, but such services face regulatory challenges in many major markets – the US, China, India, etc, and so mass market acceptance of these services will be a slower process. Winners and Losers In FY 2006, from total non-voice service revenues of USD 102.4 billion, MNOs worldwide retained a very healthy USD 67.6 billion, which equates to almost 66 percent of the total revenue flowing through the data services value chain. As huge global brand names shift increasing financial resources on to new media platforms, so mobile network operators will be able to offer an ever-broadening spectrum of new content to their subscribers. While that is undoubtedly good news for subscribers, it will inevitably place pressure on operator’s margins and the MNOs will be faced with a declining share in the value chain. We forecast the share of mobile operators to decline from 66.1 percent in 2006 to 50.8 percent in 2011 and other players in the value chain are expected to increase their share from 33.9 percent in 2006 to 49.2 percent in 2011 respectively. While MNOs will have to face declining margins, when set against a growing market, all parties will continue to see revenue growth every year. Obviously P2P SMS and MMS will be unaffected by these changes, and MNOs will continue to retain all of this revenue, proving yet again that voice and SMS are the unsung heroes of many operators’ balance sheet. Figure 100, below, illustrates this shift in margin for the MNOs from 2006 to 2011. 52 53 Source: http://www.gartner.com/it/page.jsp?id=503578 http://www.fiercemobilecontent.com/story/western-european-mobile-tv-2-4b-2012/2007-10-19 118 © 2007, Portio Research. All Rights Reserved
  • 119. Slicing Up the Mobile Services Revenue Pie Figure 100: Data Services Value Chain (In USD Billion, 2006 and 2011E) 2006 54.1 34.8 Other Players MNOs 67.7 13.6 2011E 80.1 112.4 Other Players MNOs 116.2 36.1 Other Players MNO - P2P SMS & P2P MMS MNO - A2P SMS, A2P MMS & Other Data Services Source: Portio Research Ltd. E – Estimated The decline of the MNOs share in the value chain can be broadly attributed to the increasing negotiation power of the content owners and aggregators. The primary reason for this is the emergence of big content owners entering mobile markets, as well as increasing pressure from content aggregators. As an example, we can look at the shift in the mobile music market from the dominance of ringtones to the growing popularity of full track music downloads. Content aggregators (with direct relationships with MNOs) played an important role in taking ringtones from vendors to the networks. Ringtone vendors tended to be small, niche players, and so the MNOs had considerable leverage in any negotiations. Under the new order, with full track downloads gaining popularity, now the MNOs need the content as much as the content owner needs the network (route to market), so some of the negotiating power has shifted to the content owner, who now tends to be larger, more powerful music companies. © 2007, Portio Research. All Rights Reserved 119
  • 120. Slicing Up the Mobile Services Revenue Pie Changes such as these will see a reduction in the MNOs slice of the pie, and also a reduction in the content aggregators share, as some of the power, and hence more of the revenue, shifts to the content owners. This is just one example of the changes the industry is now going through, as a result of the shifting focus away from basic communication services and on to more advanced non-voice content and services. Network operators face pressure from all sides…intense competition and commoditised prices have been forcing MNOs to look beyond voice for new sources of revenue, but by deviating from core communications services, which an MNO can provide alone, without engaging partners, the MNOs have been forced into a market involving many more players, and hence many more hands wanting a slice of the revenue pie – hence the name of this report. Infrastructure Equipment Vendors As the demand for data services worldwide grows steadily over the next five years, in order to provide the best possible service to their customers, mobile operators will likely invest heavily in new infrastructure equipment. While adding more financial pressure to MNOs, this bodes well for the infrastructure equipment vendors. Equipment vendors should see steady revenue growth over the coming years, as network operators in the most mature markets add equipment to aid the speedy and efficient delivery of ever more complex services. At the same time, operators in slightly less mature markets continue rolling out new 3G networks and 2.5G upgrades, while operators in developing markets are now turning their attention to expanding their networks into large, previously untapped, rural communities. With growth at every level of the industry, the total revenue generated by infrastructure vendors in 2006 was USD 60 billion and is expected to reach USD 71.5 billion by end-2011. Mobile Handset Market The worldwide mobile handset market continues to experience tremendous growth year after year. As networks expand into previously un-serviced markets so the number of new handsets shipped every year continues to grow organically. Along side this growth, the existing installed base continues to renew their handsets on a regular basis, certainly in mature markets, and so the handset market keeps growing. 2007 saw the magic milestone of handset shipments surpassing 1 billion units annually, in all our estimates suggest that approximately 1,144 million handsets were shipped worldwide in FY 2007, and the market is estimated to be worth USD 166.1 billion. In 2006, the number of handsets sold worldwide exceeded 990 million, generating total revenues of USD 145 billion. In 2006, sales of mobile handsets to network operators accounted for almost 60 percent of the handset vendors total sales worldwide. It seems unlikely that this ratio will change greatly over the forecast period of this study, so we expect the handset vendors to continue seeing approximately 60 percent of their sales going to the operators for the next 5 or 6 years at least. Although handset shipment numbers are increasing, the average selling price of handsets is declining, mostly because of the ongoing push into developing markets. The recent industry focus on producing ultra-low cost handsets for poor rural markets has been great news for 120 © 2007, Portio Research. All Rights Reserved
  • 121. Slicing Up the Mobile Services Revenue Pie expanding mobile networks into low-income parts of Asia and Africa, but this has driven down worldwide average handset selling prices. As this trend continues, handset vendors may find shipments continuing to rise, but margins slowing as sales revenue grows more slowly than total shipments. Forecast worldwide revenue from handset sales is expected to increase from USD 145.0 billion in 2006 to USD 217.9 billion by end-2011. © 2007, Portio Research. All Rights Reserved 121
  • 122. Slicing Up the Mobile Services Revenue Pie Appendices This market study has been written in a way that avoids excessive 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. To 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. 122 © 2007, Portio Research. All Rights Reserved
  • 123. Slicing Up the Mobile Services Revenue Pie 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 PCS54 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 Kbps55 to 2+ Mbps56) suitable for multimedia content. 3G technologies typically are packet-switched and use Code Division Multiple Access (CDMA) technology to communicate. Examples of 3G include EDGE57, 1xRTT, HDR and W-CDMA58. 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 54 Personal Communications Service (PCS) Kilobits per second (Kbps) 56 Megabits per second (Mbps) 57 Enhanced Data for Global Evolution (EDGE) 58 Wideband Code Division Multiple Access (W-CDMA) 55 © 2007, Portio Research. All Rights Reserved 123
  • 124. Slicing Up the Mobile Services Revenue Pie 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-H59 (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. 59 Source: http://www.strategiy.com/inews.asp?id=20041127000355 124 © 2007, Portio Research. All Rights Reserved
  • 125. Slicing Up the Mobile Services Revenue Pie BWA Broadband Wireless Access: It is a form of fixed wireless access system. CAPEX Capital Expenditure: It refers to the cost of developing a product or system. 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 © 2007, Portio Research. All Rights Reserved 125
  • 126. Slicing Up the Mobile Services Revenue Pie 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. 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. 126 © 2007, Portio Research. All Rights Reserved
  • 127. Slicing Up the Mobile Services Revenue Pie 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 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. © 2007, Portio Research. All Rights Reserved 127
  • 128. Slicing Up the Mobile Services Revenue Pie 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. 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, ADSL60 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. 60 Asymmetric Digital Subscriber Line (ADSL) 128 © 2007, Portio Research. All Rights Reserved
  • 129. Slicing Up the Mobile Services Revenue Pie 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. 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. © 2007, Portio Research. All Rights Reserved 129
  • 130. Slicing Up the Mobile Services Revenue Pie 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. 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. 130 © 2007, Portio Research. All Rights Reserved
  • 131. Slicing Up the Mobile Services Revenue Pie 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 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. WiBro Wireless Broadband: The technology was formulated by South Korean telecom industry as an equivalent to mobile WiMAX international standard. Wi-Fi Wireless Fidelity: It is used to provide wireless local area network through enhanced interoperability of the network. Services such as Internet, VoIP phone access, and gaming, etc., can be provided using Wi-Fi. WiMAX Worldwide Interoperability for Microwave Access: It is a telecommunication technology used for wireless data transfer over long distances through point-to-point links as well as mobile cellular type access. It is based on standards that are useful in wireless broadband access. Wireless MAN Wireless Metropolitan Area Network: The technology is used to provide wireless network over a larger area as compared to local area network. 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. © 2007, Portio Research. All Rights Reserved 131
  • 132. Slicing Up the Mobile Services Revenue Pie 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. 132 © 2007, Portio Research. All Rights Reserved
  • 133. Slicing Up the Mobile Services Revenue Pie 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. Methodology We have arrived at the worldwide mobile revenue figures by adding the total revenue (service revenue + other revenues) generated by mobile network operators worldwide. © 2007, Portio Research. All Rights Reserved 133
  • 134. Slicing Up the Mobile Services Revenue Pie Companies Mentioned in this Report 3 – www.three.co.uk 3-Italia – www.tre.it Alcatel-Lucent – www.alcatel-lucent.com AOL – www.aol.com Atari – www.atari.com BBC – www.bbc.co.uk Bharti Airtel – www.airtel.in Capgemini – www.capgemini.com Cartoon Network – www.cartoonnetwork.com China Mobile – www.chinamobileltd.com China Unicom – www.chinaunicom.com.hk Cingular Wireless – www.wireless.att.com CNN – www.cnn.com Comscore Media Matrix – www.comscore.com Dell – www.dell.com EA Mobile – www.eamobile.com Electronic Arts – www.ea.com Ericsson – www.ericsson.com Fox Sports – msn.foxsports.com Gameloft – www.gameloft.com Glu – www.glu.com Hasbro – www.hasbro.com HP – www.hp.com Huawei Technologies – www.huawei.com Idea Cellular – www.ideacellular.com I-play – www.iplay.com Java/Sun – www.java.com KBS – www.kbs.co.kr Konami – www.konami.com KongZongWang – www.kongzhong.com KTF – www.ktf.com LG – www.lge.com Linux – www.linux.org M:Metrics – www.mmetrics.com MasterCard – www.mastercard.com Microsoft – www.microsoft.com Morgan Stanley – www.morganstanley.com Motorola – www.motorola.com MSN – www.msn.com NetEase – www.163.com Nokia – www.nokia.com Nokia-Siemens Networks – www.nokiasiemensnetworks.com Nortel – www.nortel.com Norwegian Broadcasting Corporation – www.nrk.no NTT DoCoMo – www.nttdocomo.com O2 – www.o2.co.uk Obopay – www.obopay.com Orange – www.orange.co.uk Palm – www.palm.com PayPal – www.paypal.com PSI – psi-im.org Qualcomm – www.qualcomm.com RIM – www.rim.com Samsung – www.samsung.com SBS – www20.sbs.com.au Sega – www.sega.com Siemens – w1.siemens.com Sina – corp.sina.com.cn 134 © 2007, Portio Research. All Rights Reserved
  • 135. Slicing Up the Mobile Services Revenue Pie SK Telecom – www.sktelecom.com Sohu – www.sohu.com Sony Ericsson – www.sonyericsson.com Sprint Nextel – www.sprint.com Sun – www.sun.com Symbian – www.symbian.com Symbol – www.symbol.com.au Telecom Italia Mobile – www.telecomitalia.it T-Mobile – www.t-mobile.com TOM – pr.tom.com TU Media Corporation – www.tu4u.com United Parcel Service – www.ups.com Verizon Wireless – www.verizonwireless.com Vodafone – www.vodafone.com Warner Brothers – www2.warnerbros.com Yahoo – www.yahoo.com © 2007, Portio Research. All Rights Reserved 135
  • 136. Slicing Up the Mobile Services Revenue Pie About the Authors Akshay Taneja Akshay Taneja, lead author 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. Gaurav Batra Gaurav Batra is working as a Business Analyst with Portio Research and Evalueserve. He has worked on various projects related to telecom domain. He graduated from NSIT, New Delhi, India. He has been working with Portio Research and Evalueserve since August 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. 136 © 2007, Portio Research. All Rights Reserved
  • 137. Slicing Up the Mobile Services Revenue Pie 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 Slicing Up the Mobile Services Revenue Pie 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. © 2007, Portio Research. All Rights Reserved 137
  • 138. Slicing Up the Mobile Services Revenue Pie 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 2008: The Next Billion: Strategies for driving growth and making profits in low-ARPU mobile markets Worldwide mobile penetration is due to pass 50 percent in early 2008, and now the wealthiest half of the planet all have a mobile phone, the question is "who will the next billion be?" This report answers that question - who are they, where are they and how much money do they have to spend. This report analyzes the world's top growth markets and the strategies mobile network operators and handset vendors are using to drive penetration forward into low-ARPU, rural markets. Click here to read full details and contents of this exciting new report. Worldwide Mobile Market Statistics 2007 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. Mobile Messaging Futures 2007-2012 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. 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 2008. Portio Research Limited 2008 www.portioresearch.com 138 © 2007, Portio Research. All Rights Reserved