Slicing Up the Mobile Services Revenue Pie

Portio Research Limited.
Published January 2008 by Portio Research Limited © C...
Slicing Up the Mobile Services Revenue Pie

Contents
Introduction ...........................................................
Slicing Up the Mobile Services Revenue Pie

Also available from Portio Research Limited......................................
Slicing Up the Mobile Services Revenue Pie

Figure 53:
Figure 54:
Figure 55:
Figure 56:
Figure 57:
Figure 58:
Figure 59:
F...
Slicing Up the Mobile Services Revenue Pie

Table 4:
Worldwide Mobile Voice Revenue – by Region (In USD Billion, 2004-2012...
Slicing Up the Mobile Services Revenue Pie

Introduction
In recent years, the mobile communication market has developed ra...
Slicing Up the Mobile Services Revenue Pie

Figure 2: Comparison of Mobile Market with Other Sectors – Y-o-Y Growth Rate (...
Slicing Up the Mobile Services Revenue Pie

The revenue generated from data services is shared among the players in the da...
Slicing Up the Mobile Services Revenue Pie

Worldwide Mobile Market
The worldwide subscriber base has witnessed rapid grow...
Slicing Up the Mobile Services Revenue Pie

Table 1:

Regional Mobile Subscribers (In Million, 2004-2012E)
N&W
Europe

C&E...
Slicing Up the Mobile Services Revenue Pie

Figure 6: Worldwide Mobile Revenue (In USD Billion, 2004-2012E)

Mobile Revenu...
Slicing Up the Mobile Services Revenue Pie

Figure 7: Worldwide Service Revenue and Equipment Sales (In USD Billion, 2004-...
Slicing Up the Mobile Services Revenue Pie

Figure 8:

Worldwide Mobile Service Revenue – Regional Break-out (2004 and 201...
Slicing Up the Mobile Services Revenue Pie

Figure 9:

Worldwide Mobile Service Revenue – Voice-Data Split (2004 and 2012E...
Slicing Up the Mobile Services Revenue Pie

Figure 10: Worldwide Mobile Voice Revenue (In USD Billion, 2004-2012E)

Mobile...
Slicing Up the Mobile Services Revenue Pie

Figure 11: Worldwide Mobile Voice Revenue as a percentage of Service Revenue (...
Slicing Up the Mobile Services Revenue Pie

The average monthly Minutes of Usage (MOU) is on the rise in the US. The avera...
Slicing Up the Mobile Services Revenue Pie

Mobile Data Services
Introduction
Because of stiff competition among MNOs, the...
Slicing Up the Mobile Services Revenue Pie

Figure 12: Worldwide Data Services Revenue – Break-out (2006 and 2011E)
2006
5...
Slicing Up the Mobile Services Revenue Pie

Figure 13:

Worldwide Data Revenue Sharing Arrangement (2006 and 2011E)

2006
...
Slicing Up the Mobile Services Revenue Pie

Figure 14:

MNOs share in Data Revenue Break-out (2006 and 2011E)

2006
80.0%
...
Slicing Up the Mobile Services Revenue Pie

SMS
Market Overview
SMS, the cheapest and easiest form of long distance peer-t...
Slicing Up the Mobile Services Revenue Pie

Figure 15: Worldwide SMS Traffic Volumes (In Billion, 2006-2011E)

SMS Volumes...
Slicing Up the Mobile Services Revenue Pie

Value Chain Analysis
The revenue generated from premium SMS is shared by vario...
Slicing Up the Mobile Services Revenue Pie

Figure 18: SMS-based Enterprise Services – Value Chain

Enterprise Service
Pro...
Slicing Up the Mobile Services Revenue Pie

Case Study 1 – India’s SMS Market
Market Overview
In the recent past, the mobi...
Slicing Up the Mobile Services Revenue Pie

Figure 20: India – Mobile Data Services – Revenue Break-out (2006)

35.0%
55.0...
Slicing Up the Mobile Services Revenue Pie

Value Chain Analysis
With P2P SMS, the entire revenue generated by the service...
Slicing Up the Mobile Services Revenue Pie

Figure 23: India – SMS-based Enterprise Services – Revenue Break-out

30.0%

7...
Slicing Up the Mobile Services Revenue Pie

Case Study 2 – The UK’s SMS Market
Market Overview
In the UK, data services co...
Slicing Up the Mobile Services Revenue Pie

Figure 25: UK – SMS Traffic Volumes (In Billion, January-May 2007)

SMS Volume...
Slicing Up the Mobile Services Revenue Pie

Value Chain Analysis
As discussed, the entire revenue generated by P2P SMS goe...
Slicing Up the Mobile Services Revenue Pie

Figure 29:

UK – Premium SMS Revenue Sharing Arrangement (2011E)

10.0%

15.0%...
Slicing Up the Mobile Services Revenue Pie

Case Study 3 – The US’s SMS Market
Market Overview
Text messaging took a much ...
Slicing Up the Mobile Services Revenue Pie

Figure 31: US – Premium SMS Revenue Sharing Arrangement (2011E)

Content
Owner...
Slicing Up the Mobile Services Revenue Pie

MMS
Market Overview
MMS has not witnessed the kind of success that SMS has. Th...
Slicing Up the Mobile Services Revenue Pie

Figure 33 shows the worldwide MMS revenue during 2006-2012.

Figure 33: Worldw...
Slicing Up the Mobile Services Revenue Pie

Value Chain Analysis
MMS can be either sent P2P or A2P. Naturally, in the case...
Slicing Up the Mobile Services Revenue Pie

Case Study 1 – The US’s MMS Market
Market Overview
That MMS would be successfu...
Slicing Up the Mobile Services Revenue Pie

Figure 36: US – Revenue Sharing Arrangement – MMS (Except P2P) (2006, 2011E)
2...
Slicing Up the Mobile Services Revenue Pie

Case Study 2 – The UK’s MMS Market
Market Overview
The MMS market in the UK ha...
Slicing Up the Mobile Services Revenue Pie

The share of MMS in the total data services revenue is expected to rise at a f...
Slicing Up the Mobile Services Revenue Pie

Case Study 3 – China’s MMS Market
Market Overview
In China, MMS was introduced...
Slicing Up the Mobile Services Revenue Pie

Figure 40: China – Revenue Sharing Arrangement – MMS except P2P (2003 and 2006...
Slicing Up the Mobile Services Revenue Pie

Mobile E-mail
Market Overview
With about 175 billion e-mails sent daily in 200...
Slicing Up the Mobile Services Revenue Pie

Mobile E-mail Subscribers (In
Million)

Figure 43: Worldwide Mobile E-mail Sub...
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Slicing Up the Mobile Services Revenue Pie
Upcoming SlideShare
Loading in...5
×

Slicing Up the Mobile Services Revenue Pie

4,475

Published on

- 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.

Published in: Technology, Business
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
4,475
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
74
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Slicing Up the Mobile Services Revenue Pie

  1. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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.

×