Mobile World Congress 2013 - Greenwich Consulting Coverage - Key outputs

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After another exciting year at Mobile World Congress 2013, which took place in Barcelona from February 25th to 28th, Greenwich Consulting share with you the main announcements that were made, and to put it in perspective with the major trends in the mobile industry.
Highlights of the paper include:
- Aggressive competition from Chinese handset vendors who could capture 1/3 of the global smartphones shipment volume by 2016
- The battle of mobile OS continues: the emerging market is identified as significant growth driver for handset manufacturers, with the goal to introduce low-cost Smartphones priced under 100$. In order to reach this psychological entry price point, they are looking at some ways to reduce costs, particularly on OS license fees. In this context, adopting alternative OS like Firefox mobile could represent an interesting opportunity vs. Android
- The new Samsung-VISA partnership in Digital-Payments, which is opposed to mobile operators’ SIM-centric NFC strategies and is another sign of the Korean manufacturer’s strategy to tackle Apple’s supremacy, especially in services innovation
- The come-back of Small cells: beyond LTE migration, telecom equipment vendors are being optimistic and plan to increase network infrastructure investments for very dense areas in mature countries, with the goal of increasing both coverage and capacity. Yet we don’t expect a general roll-out of this kind of technology, given the required additional investments and subsequent operational issues (Backhauling is a prerequisite for massive metro cell roll-out, and global maintenance costs can be prohibitive due to the large number of installations)
We hope you'll have a great reading and feel free to contact us with any comments or questions.

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Mobile World Congress 2013 - Greenwich Consulting Coverage - Key outputs

  1. 1. International Management Consulting 2013 Mobile World Congress Coverage Greenwich Consulting – The Institute March 2013
  2. 2. 2© 2013 Agenda Executive Summary – Four Key Outputs from the 2013 MWC MWC Theme 1: The Chinese Smartphone invasion begins MWC Theme 2: New Mobile Operating Systems: a threat to Android and iOS supremacy ? MWC Theme 3: Digital Payments: a test for NFC ? MWC Theme 4: Small Cells, now the beginning ?
  3. 3. 3© 2013 Executive Summary – Four Key Outputs from the 2013 MWC Chinese handset vendors • Chinese vendors are growing and offer lower-cost alternatives to high-end smartphones • Given the lower price level, the potential is significant, especially in emerging markets • Even if the competition will be fierce in more mature regions due to market consolidation, we think Chinese vendors will capture 1/3 of the Smartphone market by 2016 Digital Payments • Samsung and Visa announced a partnership that could help scale Digital Payments by integrating NFC & Visa technology directly in the shipped handsets • But these new strategies are opposing previous moves from other companies particularly MNOs, and should trigger further reaction from both operators and major handset vendors like Apple Mobile Network Infrastructure • The long-running story of Small cells has made its comeback at the 2013 MWC, riding the wave of booming capacity demands especially in urban areas • Yet, the introduction of Small cells must be evaluated carefully by MNOs, due to the potential additional complexity on existing networks and the risk of uncoordination New mobile Operating Systems (OS) • Android and iOS have reached a position of hegemony in the mobile OS ecosystem • Yet we see other OS trying to challenge this position: Blackberry and Windows 8 in mature markets, and new alternative open-OS like Firefox in emerging countries • The <100$ smartphone requires significant cost optimizations. The amount of patent fees having a clear impact on profitability, open OS like Firefox could represent a credible alternative to Android, providing that they effectively evade the patent trap
  4. 4. 4© 2013 Agenda Executive Summary – Four Key Outputs from the 2013 MWC MWC Theme 1: The Chinese Smartphone invasion begins MWC Theme 2: New Mobile Operating Systems: a threat to Android and iOS supremacy ? MWC Theme 3: Digital Payments: a test for NFC ? MWC Theme 4: Small Cells, now the beginning ?
  5. 5. 5© 2013 More than half of mobile phones sold today are still basic or feature phones, costing less than 79$ Distribution of global smartphone sales per range (Million units, 2012) 326,3 249,5 211,1 Mid-priced Smartphones (150$ to 449$) Low-cost Smartphones (80$ to 149$) High-end Smartphones (>450$) 729,4 1.919,5 Feature phones (40$ to 79$) 403,1 Ultra low-cost phones (<39$) Total Source : Greenwich Consulting analysis, based on OVUM data (2012) and TomiAhonen Phone Book 2012 Estimates
  6. 6. 6© 2013 Yet handset vendors are highly interested in moving upmarket, because of significantly higher operating margins iPhone estimated operating margin ~50 % High-end Smartphones ~30% Mid-end Smartphones ~20% Low-end Smartphones ~15% Basic & Feature Phones ~5 to 10% 2012estimatedoperating marginbyproductrange Examplesofrecentmoves byhandsetvendors Lumia 520 (Feb 2013) Lumia 920 (Sep 2012) Historic + 105, 301 (Feb 2013) Vodafone Smart (May 2011) ZTE Ascend G300 (May 2012) Ascend P1, Grand X (Jul. 2012) Galaxy S2 (May 2011) Galaxy ACE 2 (Feb 2012) Galaxy Mini S2 (Apr 2012) Ashe 305 (Q3 2012) Source : Greenwich Consulting estimates Estimates Strategic Rationale 1.Enter with flagship product against Apple to create brand-awareness 2.Use a brand strategy and enter low- and mid-end segments 1.Reinforce position in feature phones 2.Enter low- & mid-end smartphone market, launch emblematic product (920) 3. Penetrate emerging markets 1.Capitalize on cost-effectiveness to address more mature markets 2.Go gradually upmarket to leverage on higher margins
  7. 7. 7© 2013 Chinese vendors like Huawei and ZTE, as well as others like Nokia, have made several smartphone-related announcements at the MWC • Huawei’s main announcement were the launch of: • their high-end, Android-based Ascend P2 (Release date expected in Q2 2013, entry price of 399$ in Europe) • the G350, mid-end smartphone based on Android and water-resistant • ZTE focused on both higher and lower-end segments and launched two products: • the ZTE Grand Memo, high-end phablet • the ZTE Open, low-cost device running on Firefox OS • Lenovo launched its high-end IdeaPhone K900 Phablet with a 5,5’’ display Chinese vendors reinforce their position in the low to high-end smartphone segments • Nokia launched two new Feature phones at the 2013 MWC • Nokia 105: expected to cost only 15$ • Nokia 301: costs 65$ and equipped with HSPA, marketed as cheap device for mobile internet and email • Even if Nokia in the Smartphone segments is not in the top five vendors, they still manage to be number two worldwide for total mobile phone sales • In the same time, Nokia reinforced its low and mid-end smartphone range with the Lumia 720 (~350$) and 520 (~200$) While Nokia even wanted to target the Feature Phones market
  8. 8. 8© 2013 The positioning of Chinese vendors looks promising, since the low-cost segment should drive the growing smartphone penetration worldwide Smartphones will drive the growth of the mobile phone market worldwide The global smartphone penetration should be driven by the low-end segment 124 162 183 205 224 78 2010 2011 447 (36%) 1,243 572 (46%) 201 (30%) 2013e 482 223 (46%) 135 (28%) 2014e 325 156 (48%) 91 (28%) 2012 1,051 410 (39%) 436 (42%) 871 379 (43%) 309 (35%) 2015e 672 309 (46%) High end (>500 US $) Mid range (200-500 US $) Low End (<200 US $) Source : Greenwich Consulting analysis based on OVUM & Strategy Analytics data, 2012 CAGR 10-15 + 23% + 23% + 44% Worldwide Smartphone shipments (million units) 1.748 672 (35%) 1.248 (65%) 1.920 871 (42%) 1.222 (58%) 2.365 325 (21%) 1.231 (79%) 1.556 482 (28%) 1.266 (72%) 2010 2011 2012 2013e 2014e 2015e 2.093 1.051 (47%) 1.190 (53%) 2.242 1.243 (53%) 1.122 (47%) Feature phones Smartphones Worldwide Smartphone shipments (million units) Estimates
  9. 9. 9© 2013 We estimate that Chinese vendors, who represent today about 27% of the total smartphone shipments, should capture about 1/3 of the market by 2016 2012 worldwide smartphone shipments (million units) 2016 worldwide estimated smartphones shipments (million units) 89 20 30 43 182 (27%) Total Chinese 490 (73%) 672 Total Worldwide OtherOther chinese vendors LenovoZTEHuawei OtherTotal Chinese Total Worldwide 1.474,2 978,5 (66%) 495,7 (34%) Source : Greenwich Consulting analysis based on OVUM, Gartner, and Company data, 2012 Estimates
  10. 10. 10© 2013 Agenda Executive Summary – Four Key Outputs from the 2013 MWC MWC Theme 1: The Chinese Smartphone invasion begins MWC Theme 2: New Mobile Operating Systems: a threat to Android and iOS supremacy ? MWC Theme 3: Digital Payments: a test for NFC ? MWC Theme 4: Small Cells, now the beginning ?
  11. 11. 11© 2013 Three new operating systems were under the spotlight at the 2013 MWC, predicting an important rise of “alternative” Operating Systems • Announcements - Open source OS developed by Mozilla Foundation • Positioning - Positioned as low-cost alternative to major OS, especially dedicated to emerging markets • Main partnerships announced - Vendors: LG, Alcatel, ZTE, Sony - Carriers: 17 companies, incl. Telefonica, America Movil, China Unicom, and Deutsche Telekom. Firefox OS • Announcements - Open source, developed by Intel and Samsung, part of the Linux Foundation. (Follow-up on Samsung’s “Bada” ) • Positioning - Expected to debut on the high- end segment • Main partnerships announced - Vendors: Samsung, Huawei - Carriers: Orange and NTT Domoco (H2 2013), Vodafone Tizen • Announcements - Open Source OS developed by Canonical, based on Linux software platform • Positioning - High-end, fully multi-device OS (PC, Tablet, and smartphone) • Main partnerships announced - No partnership announced - First devices expected for late 2013 / early 2014 Ubuntu Phone
  12. 12. 12© 2013 These announcements have to be put in perspective with the current market trends and the hegemony of iOS and Android • iOS and Android have a dominant position on the market and have created sustainable lock-in effects. They should still represent more than 2/3 of the market by 2017, with Android alone having almost a 50% share • Blackberry and Windows Phone are challengers in the smartphone market • Nokia announcing new products at the MWC 2013 and leading the Windows Phone growth. • Blackberry 10 product line recently launched => New OS like Firefox, Tizen and Ubuntu will have difficulties competing face to face with these flagship players who have built rich ecosystems patently-protected. Description & Analysis Source(s) : OVUM, 2012 2013-2016 estimation of worldwide smartphone OS shipments (Million units) 1.051 37 (3%) 130 (10%) 116 (9%) 629 (51%) 331 (27%) 1.243 40 (3%) 43 (4%) 97 (9%) 543 (52%) 2014e 2015e 94 (9%) 2017e 458 (27%) 1.710 275 (26%) 2016e 173 (12%) 139 (9%) 728 (49%) 393 (27%) 1.474 46 (3%) 224 (13%) 163 (10%) 819 (48%) 455 (52%) 226 (26%) 871 80 (9%) 62 (7%) 48 (5%) 2013e iOS Android Other Blackberry Windows (Mobile&Phone) Estimates
  13. 13. 13© 2013 There is still potential for further Smartphone penetration in mature regions, and a considerable market to create in emerging countries Source(s) : OVUM, 2012 569 519 460 410 354 296 955 783 641 516 376 0 10 20 30 40 50 60 70 80 90 100 1.400 200 2.200 2.000 1.800 1.600 0 1.200 1.000 800 600 400 1.141 59% 93% 2016e 51% 88% 2015e 44% 80% 2014e 38% 74% Smartphones penetration (% of total mobile shipments) 33% 66% 2012 27% 2013e Smartphones shipments (million units) 2017e 57% MEA, Asia Pacific, South & Central America North America & Europe 2012-2017 forecast of Smartphone shipments and penetration rate in two main regions CAGR 12-17 + 25% + 14% Estimates
  14. 14. 14© 2013 Given the drop in Average Selling Price, the profitability of low-cost Smartphones relies significantly on the amount of patent-related royalties -100 0 100 200 300 400 -6 -4 -2 0 2 4 6 8 90$ 6% 155$ 2% 5% 90$ -4% 90$ -42% Handset ASP ($) Operating Margin (%) The impact of patent-related royalties on operating margins is significant, and will determine Firefox OS’s capability to help penetration of low-cost smartphones Android low-cost smartphone 14$ / device Open-OS low-cost smartphone (3 scenarios) 3$ / device 5$ / device 10$ / device ~100$ / device 65$ / device Royalties BOM & other costs Source : Greenwich Consulting estimates, 2013 10% 10%Operating Expenses Estimates ASP 155 $ 80 $ Hypothesis: Mid-case Worst-caseBest-case 12%12%Retail Margin
  15. 15. 15© 2013 In this market, alternative OS like Firefox have strong cost-related assets but will have to face different challenges • Firefox OS is developed to run on low-performance devices • Open HTML5 –based platform, letting Mozilla evade the patent trap • Support from both Carriers and Handset vendors • Brand awareness is low compared to other major OS • Poor ecosystem compared to major OS who have successfully gathered third-party developers around their platform Strengths Weaknesses • Operators are often looking for alternatives to traditional OS in order to • Reduce amount of subsidies with lower-cost devices • Gain visibility in the ecosystem • Penetration potential for Smartphones, especially in emerging markets • Major OS could potentially file lawsuits against Firefox – amount of royalties still has to be determined. • Consequently, the exact impact on operating margin still has to be evaluated. Opportunities Threats
  16. 16. 16© 2013 Agenda Executive Summary – Four Key Outputs from the 2013 MWC MWC Theme 1: The Chinese Smartphone invasion begins MWC Theme 2: New Mobile Operating Systems: a threat to Android and iOS supremacy ? MWC Theme 3: Digital Payments: a test for NFC ? MWC Theme 4: Small Cells, now the beginning ?
  17. 17. 17© 2013 Digital Payments were at the heart of the 2013 Mobile World Congress, thanks to the Visa-Samsung partnership and other announcements - Preloading Visa’s payWave technology on several Samsung devices from 2013 - Provisioning service: easy way for banks and operators to make users’ account information available on their handset - Non-exclusive alliance : Visa may plan to do the same with other vendors or operators. - In parallel, Samsung announced the deployment of its digital wallet (competitor to Apple’s passbook) on its Smartphones. Visa – Samsung Partnership - Mastercard - Launch of MasterPass, Mastercard’s digital wallet. - Announced partnerships with major banks (e.g. Citi, Commonwealth Bank) - NFC payment service in Brazil with Paypass technology in Pilot Phase - Other Digital Payments initiative were announced - Telenor partnered with DNB to rollout the mobile wallet “Valyou” - KPN anounced partnership with ABN Amro, ING and Rabobank for a pilot project Other related announcements
  18. 18. 18© 2013 The complexity of the digital payment value chain is slowing down adoption of NFC and creating a conflict between pure internet players and telecom operators Role • Provides NFC-enabled device and Operating System (OS)Smartphone players (OS & handsets) Telco operators Cloud-based digital payment Traditional payment networks Trusted services managers Banks Retailers • Ensures safety of data stored in SIM card, can pre-install payment applications • Provides a cloud-based digital payment solution • Provides a trustable payment solution • Ensure fund transfers between buyers and sellers • Manage bank details • Third-party that ensures security of transactions • Getting equipped with NFC- enabled payment solutions or QR codes to enable payments Strategy • Put the device at the heart of the NFC strategy • Launch their own digital payment solution (e.g. Google Wallet) • Generate incremental revenues by monetizing SIM-based services • Promote their close relation to end-users • Extend their cloud-based solutions to traditional payment methods (especially with small local merchants) • Protect their positioning between pure web players and telecom operators • Promote innovative uses & practices • Collect more data on customers • Be considered as essential intermediary, promoting the need for more security on transactions • Improve customer journey and increase customer loyalty • Improve knowledge on customer base
  19. 19. 19© 2013 The Samsung-Visa partnership opposes operators’ strategies on this market and should triger further reaction by telcos and other handset vendors • Other handset vendors like Apple or Nokia are not yet positioned in this market, but could try to imitate Samsung • Carriers are bypassed by this partnership and are losing control over the payment process • Pure cloud based solutions are bypassed by Samsung’s proprietary application & Visa direct integration • Other transaction processing companies (Mastercard) should try to integrate with either operators or handset manufacturers to get a foot in the market … which will certainly trigger reaction from other players Visa-Samsung’s positioning in the value chain is disruptive … Smartphone (OS & handsets) Telco operators Banks SIM-based NFC strategy. Operators as intermediary between Handset vendors & Banks 1. MNOs lead M-Payment effort 2. Cloud- based players disrupt 3. Samsung- Visa partnership Pure online digital wallet, combined with POS solutions Handset- centric NFC & integrated Digital Wallet. Transaction processing & Integration with major banks Typical players Cloud-based digital payment Traditional Payment networks
  20. 20. 20© 2013 Agenda Executive Summary – Four Key Outputs from the 2013 MWC MWC Theme 1: The Chinese Smartphone invasion begins MWC Theme 2: New Mobile Operating Systems: a threat to Android and iOS supremacy ? MWC Theme 3: Digital Payments: a test for NFC ? MWC Theme 4: Small Cells, now the beginning ?
  21. 21. 21© 2013 Small cells have long been considered as a game changer for the telcos, the concept gained a lot of momentum and buzz this year at MWC 2013 Small cells with lower transmission power are positioned within the coverage area of a macro cell to enhance capacity and coverage The objective of Heterogeneous Networks (NetNets) is to complement and enhance the macrocell layer by deploying low-power nodes like femtocells and WiFi to increase coverage and capacity Heterogeneous Network Macrocell Femtocell Metrocell Picocell WiFi Smart, self-organizing wireless ecosystem • Intelligent multi-cell, multi-vendor coordination & optimization - Between the macro cell layer and the small cell layer - Within the small cell layer • Inter-cell interference • Small cell backhauling HetNet challenges According to vendors, HetNets will increase capacity and coverage *Simulations based on a downlink traffic of 3 GB/month per user Source: Ericsson, February 2012 User Throughput (Mbps) Coverage probability (%) Improved and densified macro + 21 pico Smallcells
  22. 22. 22© 2013 Alcatel is a promoter of heterogeneous network deployment and has already developed an extended range of Small cells products and services Source: Vendors websites, February 2013
  23. 23. 23© 2013 Major RAN vendors like NSN promote Outdoor Metro cells, the rationale is to combine metro cells in small numbers with a macro cell coverage • Smart WiFi – End-to-end solution for building and controlling WiFi networks that integrate with cellular networks • Small cell products – Micro and picocell base stations for LTE and Wi-Fi, HSPA+ and LTE femtocell • Hetnet services – Services for customer experience management, hotspot traffic analysis and higher backhaul capacity NSN highlighted its HetNet vision • Microwave small cell (concept unveiled at MWC 2012, made commercially available at MWC 2013) – Enhanced backhauling solution for LTE small cells • 8 x 8 MIMO active antenna system – Concept for the world's smallest small cell active antenna system Ericsson introduced its MINI-LINK backhaul solution Product/Servicesannounced Source: Vendors websites, February 2013
  24. 24. 24© 2013 Product/Servicesannounced At the opposite, IP new entrants like Cisco or Qualcomm are more focused on Residential and Enterprise Small cells • Ultrason – Network deployment model termed “Neighborhood Small Cells” (NSC) consisting of very dense deployment of small cells providing both indoor and outdoor coverage • Small cell products – Micro and picocell base stations for LTE and Wi-Fi, HSPA+ and LTE femtocell Qualcomm promotes very dense deployment model with proliferation of small cells • 3G small cell • 3G plug-in module – For existing enterprise & public WiFi access points • Routers – Optimized for the backhaul of multi-vendor heterogeneous small cell networks • Software suite – Designed to better analyze and monetize 3G, 4G and WiFi data traffic Cisco entered the cellular base station market Product/Servicesannounced
  25. 25. 25© 2013 47 operators have rolled out the Small cell technology and various leading MNOs have made HetNet-related announcements at the MWC Korean operators already use small cells as LTE traffic booms • Demonstrated its combined LTE/WiFi small cell • Deployed over 6K indoor small cells to date, mostly in public areas (mid-2013 goal = 18K cells) • Showed its LTE HetNet Solution, SuperCell, developed by Ericsson and Samsung, which aims at for 100x capacity at 10x cost • Deployed 3K LTE femtocell (goal= 40K LTE femtocell) US carriers announced successful results with LTE small cells • Plans to deploy public access LTE small cells in 2013 • Admitted that deploying LTE small cells comes with backhaul and site acquisition challenges • 2 small cell trials in 2012 (2015 goal = 40,000+ small cells) • Increased capacity & coverage in a building with multiple ‘dead zones’ and a busy neighborhood UK operators are testing public small cells • Is currently testing 1000 public small cells • Plans to start rolling out tri-mode models (3G, 4G & Wi-Fi) by March 2013 • Announced its intention to trial rural small cells to fill the coverage gaps in its network, including in area where it has traditionally been uneconomical Source: Small Cell Forum, February 2013
  26. 26. 26© 2013 Vendors push Small Cell technologies, which they expect to grow eightfold in the next 4 years, driven by urban area capacity upgrades Vendors present Small Cells as the best tool for carriers to bring extra capacity in busy urban areas Forecast for the Small Cell base (2013-2016, million units) 97% 11 million 63% 2012 2016 92 million % of all base stations globally Global Small Cell installed base Mobile Operator Network Macrocell Internet Residential Femtocell Enterprise Picocell Outdoor Metro cells • Capacity equivalent to a full 3G network sector • Low transmit powers • No need for WiFi enabled handsets • Better in-building coverage • Higher data rates • Lower capital costs • Cost effective solution • Better local coverage • Greater capacity • Macro network traffic offload • Cost-effective alternative in remote rural areas Benefits communicated by vendors Source: Informa Telecoms & Media, February 2013
  27. 27. 27© 2013 With the multiplication of Outdoor Metro cells, operators will have to face deployment challenges and booming OPEX Metro cell key components and related considerations for their deployment Site Radio Backhaul • New types of sites with potentially unsuitable conditions (e.g. lack of a power source or bad overall physical condition) • New site acquisition issues - Multiplication of locations - New stakeholders & permitting processes • Fast development cycles • Low prices thanks to competition and open standards • Large number of new backhaul links required (mitigated need for operators with a dense fiber network) • Potentially complex deployment due to cell locations The development of metro cells will have an impact on the operators’ current business  ?  Backhauling and deployment costs Operational challenges Spectrum, interference and coexistence issues 100s of additional Metro cells Higher monitoring needs Higher maintenance needs New procedures & higher OPEX *Including the Small Cell itself, site acquisition, construction and permitting costs Source: Public Wireless, 2011 • One of the major challenges with deployment of small- cell architectures is how to provide backhaul to the cell. While fiber is the ideal solution, that is not always physically possible with small cells • Smaller Unit size / More testing for throughput and reliability are needed for wide-scale roll out • Interference – Possibility of interference between the macro & small cell network layers if they share spectrum • Coexistence / risk of uncoordinated network – Concern around the use of cells from different vendors Positive impact for operators  Negative impact for operators 
  28. 28. Your personal contacts: International Management Consulting Frederic Huet +44 789 128 4551 fred.huet@greenwich-consulting.com Pierre Borg +33 6 85 30 27 38 pierre.borg@greenwich-consulting.com Axel Duplan +33 6 31 27 41 83 axel.duplan@greenwich-consulting.com About Greenwich Consulting Greenwich Consulting is a leading management consulting firm specialized in the Telecom, Media & Utilities industries, providing its clients with unique sector-based expertise, in more than 80 countries in the last 18months. Greenwich Consulting has developed a strong expertise on key telecom issues in Emerging and Mature Markets through market analysis, strategic planning, and by delivering numerous C-level business consulting assignments for leading regional players. For more information please visit www.greenwich-consulting.com

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