Guidemap to the Goldrush: A Mobile Welcome to Apple iPhone, Dell, Google, Blyk and others entering

This is a welcoming letter to the top managements at Apple, Dell, Google and Blyk; and to any other players interested in joining the mobile telecoms business whether as a handset maker or telecoms operator. There are various moves by companies from IT (Microsoft) to television (MTV) to radio (NRJ) to fashion (Prada) who already are in mobile in a limited way, and may be considering the viability of their future in this industry.

So Apple iPhone. Welcome. Your launch is on June 29 and it is the most eagerly awaited event in mobile telecoms since the first 3G network went commercially live by NTT DoCoMo in Japan in October 2001. The first ads for the iPhone have started running and are available at Apple's website. The phone and its user interface looks gorgeous and slick. Alan and I are great fans of Apple, this industry needs the innovation, we wish you the very best.

And Dell? The rumour is that there is an Asian project to deliver your smartphone as "The Fly" or something similar to that (my local Hong Kong newspaper South China Morning Post reported on this a week ago). Apparently the Dell smartphone is to run on the Microsoft Mobile operating system. We hope you Dell are successful in the transition from PC to mobile, following the global trend of where young users are also migrating their preferences.

Google is already big into mobile, but Google's CEO Eric Schmidt's big theme for over a year has been mobile, which he now often emphasizes in public exclaiming "Mobile, mobile, mobile!". Meanwhile expert communities on mobile telecoms like Forum Oxford, are a-buzz with gossip about a Googlephone (Goophone) and/or a Google MVNO (Mobile Virtual Network Operator). We applaud Google's strong drive from the legacy internet onto mobile and cherish the refreshing effect Google is already having to our industry.

Talking about MVNO's - Blyk is about to launch soon. Blyk is the advertising-driven mobile network operator first launching in the UK. Not much is known about Blyk, but a lot of speculation about it, as Blyk founders feature ex Nokia President Pekka Ala-Pietila and Antti Ohrling, Chairman of Contra the Finnish radically innovative marketing agency. Blyk includes a lineup of some of the very best minds around the cutting edge of mobile including Marko Ahtisaari who was Director of Design Strategy at Nokia. So while we've seen utter incompetence and Dot-Com era wasteful spending ruin recent MVNO entrants such as sports broadcaster ESPN who pulled out of the market and youth-oriented Amp'd who went bankrupt, here is one team that should be able to both make the MVNO model work well, and also to bring incredible innovation into mobile.

We've also reported here at our blogsite about recent entrants into mobile such as MVNOs including Helio in the USA with the Cyworld service; UK's SubTV the university broadcaster who have their university-student oriented MVNO named dot-mobi; and there is MTV who started their MVNO in Sweden and now are spreading in Europe for example in Germany; RTL the radio station a big MVNO in France and Belgium; or even such bizarre concepts as the bank, Privatbank, of the Ukraine which launched as an MVNO. You don't need to be an MVNO to share in the mobile opportunity: British cinema audiences can buy double movie tickets via the Orange network's Orange Wednesdays concept. We even learned Nielsen Ratings will enter the mobile industry to survey customers in this area.

The handset side has a lot of new players in it. Many are surprised to find that Microsoft has actually had its software in some smartphone handsets for five years already. Newer entrants include the cross-over co-branded fashion industry entrants such as Prada with LG, Dolce & Gabbana with Motorola and Benetton with NTT DoCoMo to name but three.

We welcome you all to our industry and wish you the best of success in mobile.

But let me expose you all to a few of the big myths of mobile and dispell some of the widely-held misunderstandings in mobile.

Size. Mobile telecoms is larger than its 100 year older fixed landline telecoms business. The mobile telecoms traffic industry alone (excluding handset and network equipment sales) is worth about 650 Billion dollars annually making it larger also than the IT industry (or the advertising industry for that matter). If we add handsets and network equipment, the industry is nearing the Trillion Dollar annual level, which is the rough size of the global automobile industry for example. We're in a really big business. There were 2.7 billion mobile phone subscriptions at the end of last year - twice as many as fixed landline phones in the world; twice as many people have a mobile phone as have a credit card; almost twice as many as have a TV set; three times as many mobile phones in the world as all PCs in use, meaning all laptops, desktops and servers combined. While more radios exist than mobile phones, the radios are disproportionately concentrated in North America and Western Europe with typical families having numerous radios inbuilt in the boom boxes, clockradios, automobiles, etc. For the most ubiquitous device, a mobile phone is the most widely spread technology on the planet.

Growth. They sell almost 1 billion phones per year. The majority of phones go as replacements, and the phone replacement cycle is down to 18 months compared with 42 months for personal computers. New growth in mobile is much in the BRIC countries (Brazil, Russia, India, China) and Africa is the next big market. European mobile phone penetration is at over 105% per capita (and still growing), leading countries like Taiwan, Hong Kong, Israel and Italy are at 125% per capita (and still growing). America has reached 80% penetration and is nowhere near saturation. What is also vital to understand is that more than one in four mobile phone owners has already two or more subscription, which often means also two phones. For them an effective replacement rate is then 9 months. Every 9 months a new phone. 2 megapixel, 3 megapixel, 5 megapixel, etc. This industry changes really rapidly. The Motorola Razr was the hot phone last year and suddenly nobody buys Motorolas this year. The rapid replacement also means very volatile tastes by a fickle buying public.

Generation C (Community Generation) prefer mobile. We've written about the youth extensively, and devote a whole chapter to Gen-C in our book Communities Dominate Brands. The youth preferences are obvious. Yes, they love their Playstation Portables and iPods but the number one gadget for any kid is the mobile phone. Cameraphones, disposable memories, using the speakerphone feature for play with a group of boys calling a group of girls, etc. Some recent stats on how far the youth have come with the phone. 48% of UK teenagers admit to sending text messages while talking to another person and 37% admit to avoiding contacts by their parents made to their phone ie the kids screen the calls and don't answer sometimes if the parent calls. More than half of Belgian teenagers have awoken at night to an incoming text message from friends; 20% regularly do. 39% of British under 14 year olds use their phone as a toy (in playing). But for all its addiction to the mobile phone, please don't assume Gen-C is exclusively on mobile, Generation Community is exceptionally aware of multiple overlapping networks and will optimize. Like Peter Miles the CEO of UK university broadcaster SubTV likes to say, the youth are multimedia, multitasking multiplatform. Mobile may be most important, but mobile is not their only channel. On the other hand, the top 10% of British students send over 100 text messages every day; in South Korea already 30% of students average over 100 text messages daily.

SMS text messaging is the most used data application on the planet, with more than 1.8 billion people using SMS text messaging - twice as many active users as email users on the internet; and with 99% of all mobile phones able to receive SMS text messages today, you can reach more than 3 times larger audience via SMS than you can via email. Instant messaging (IM) is a miniscule portion of these numbers while of course growing. SMS texting is proven to be addictive - the most addictive of any communication tools - as addictive in fact as cigarette smoking; so there is totally no going back or somehow abandoning SMS for other communication methods. Teenagers all over prefer SMS to email and voice calls; the total British population - not only teenagers - has already adopted texting as their preferred means of communication with voice calls diminishing and SMS texting replacing that decline in communication. Oh, SMS texting is worth over 80 Billion dollars worldwide and generates 90% profit. Those who are new to mobile, please understand, Blackberry is totally trivial in the big picture (six years from its launch today only 8 million out of 2.7 billion phones are Blackberries; but 1.8 billion people actively send SMS text messages) - the only truly addictive service is SMS text messaging. Brits send 6 SMS per person, South Koreans send 10, Singaporeans 12 and the Philippinos 15 SMS text messages on average every day. SMS is more important than music, internet, TV, voicemail, even voice calls. Make sure your device or service makes SMS text messaging a superior experience, or else your proposition will falter.

Most advanced mobile. The countries with most advanced mobile services are South Korea and Japan. With both countries having more than half of all mobile phones migrated to the third generation or 3G, and both countries also supporting the world leading adoptions of broadband internet; highest sustained broadband speeds; lowest costs of broadband; and remarkably advanced fixed-mobile converged solutions; South Korea and Japan lead the rest of the world in the mobile internet experience, showing a clear view of the near future of advanced mobile telecoms. In South Korea half of all music sold is not only digital (like under 10% in the USA is on iTunes) but in South Korea 45% of all music is sold directly to musicphones. In Japan 54% of consumers willingly accept advertising to mobile phones, and the ads are so compelling that 44% of Japanese consumers actively click on ads. Both countries have seen the majority of internet user migrate from the PC to the mobile phone. Japan is already reporting further that total amount of internet use is more frequent on mobile than on PCs; and that while sales of mobile continue to grow, Japan became the first industrialized country where PC sales turned into decline last year - as more and more Japanese consumers now migrate to the mobile internet. It is important to note, that both Japan and South Korea are not the most evolved mobile telecoms countries, as still today, their mobile phone penetration rates are below the industrialized world average. In these two countries, especially in Seoul and Tokyo, you can see the future. But these societies have not evolved as far as those countries which have had phones in all of society the longest.

Most evolved countries. While they don't have the 3G penetration rates of South Korea or Japan, the leading markets for mobile phones changing society continue to the Nordic countries, Finland, Norway, Sweden and Denmark. Italy, Israel, Singapore, Taiwan, Hong Kong are also very advanced in how much society is changing due to mobile; with UK, Austria, Portugal, Netherlands very closely following those. For example, 54% of Helsinki public transportation single tickets to the trams and subways are paid by mobile; Finnish libraries and dentist offices etc send alerts to their customers via SMS. Singapore decided last year that all e-government initiatives will be enabled via mobile phone (and accessed by SMS). But innovative countries in mobile are all over - in Slovenia all vending machines, all taxis, all McDonald's restaurants etc accept payment by mobile. In South Africa you can have your full paycheck sent to you onto your mobile phone.

Mobile Internet. The fixed internet is 13 years old, reaches 1.1 billion internet users (of whom a quarter already access exclusively via mobile and more people have both PC and mobile access than have only PC access), generates an enormous amount of traffic on free sites, but the content industry on the fixed internet is worth 25 billion dollars. The fixed internet derives its greatest paid content revenues from adult entertainment and gambling. The mobile internet is only 8 years old, reaches a potential of 2.7 billion users - depending on which measure is used, mobile data is used by anywhere from 540 million (internet access via mobile) to 730 million (internet services used on mobile) to 1.1 billion (non-SMS mobile data services used on mobile) to 1.8 billion (mobile data including SMS). Mobile content generates 31 billion dollars, and the largest paid mobile content categories are music and social networking on mobile. The mobile data industry is not only more mature or "healthy" (adult entertainment and gambling of course also exist on mobile like they do on all new media but no longer sustain the mobile data industry), it is younger, larger, and growing faster. And all this before the content industry has even "gotten serious" about mobile - with most major media brands not sure what to make of the 7th Mass Media, but likely now to wake up with the iPhone.

Media migration to mobile. Music industry clearly is migrating now to mobile (music sold on mobile is 8 times larger than all music sold online including iTunes). Videgaming is migrating to mobile (videogames already generate 50% more revenues than videogaming on the internet/broadband). Virtual societies, social networking, digital communities - is already twice the size on mobile as on fixed internet. Magazines, newspapers are migrating towards mobile. TV and radio will be on mobile. Advertising is discovering mobile. Hollywood movies see their future on the fourth screen (mobile) and now even the books publishing/printing industry is witnessing a move to mobile.

So we hope to have dispelled some of the myths around mobile. Each of the above paragraphs has a link to some further blogs about those topics if you want to follow up on those. I have written a two-piece Thought Piece on the Size of the Mobile industry with the various stats and sources that I briefly mention in the above. If you'd like a free copy of that Thought Piece on the Mobile Industry Size, please write to me at  tomi at tomiahonen dot com

We also recommend strongly two longer items to understand mobile telecoms: Mobile as 7th Mass Media

And the impact of the iPhone - Entering the iPhone Era (Before iPhone and After iPhone).

Comments

[Zec]

Welcome Google, indeed. The most awaited presence in telecom for years. Not as a java app, but much bigger show ;))

[Simon]

I can't disagree with the scale of the opportunity. But the phenomena in question is "mobility" of which mobile operators are but a part (albeit dominant at this point). The age of integrated mobile/Wi-Fi devices is upon us and I think we will see this as a catalyst for an explosion of the activity you predict. Lower cost/higher bandwidth has always been a critical driver of networked activity. But while the scale of mobile operators is huge, by and large the bulk of their revenues remains voice derived (60-70% typically). I'm not convinced these guys can change fast enough to a 2.0 world, with a few notable exceptions. I'm watching WiFi operators and the growing confidence of device players to pick up the mantle.

[Tomi T Ahonen]

Hi Zec and Simon

Thank you for visiting our blog and commenting

Zec - yes, of the players not fully in mobile, who could make a difference in terms of their global size, and who seem to have the right focus and drive, Google is perhaps best poised today - although, Apple in my mind runs a close second, and both of these far ahead of their near rivals be they Yahoo, Microsoft, Dell etc.

Google took a stated mobile direction last year when their CEO Eric Schmidt wrote his feelings of the future in the long article in the Financial Times, and concluded that the future of the internet was mobile. It was the public catalyst to activate the Google staff to all think mobile. Since then we've seen many moves by Google into this space.

It does take about 18 months to go from clean slate to mobile phone in the store, so if last spring Google decided to enter this space, the Autumn of 2007 is about the time a first phone could be out there.

Obviously Google doesn't need to have a phone to be ever more present in the mobile area, but if they wanted, Google is one of the few that could disrupt the whole ecosystem if they so decided.

Now notice, Microsoft has been in mobile for five years, has targeted mobile even longer, but are a total bit player today, with a small fraction of the 120 million smartphones sold this year, and by no means seen as a visionary company in mobile. They haven't made mobile a priority.

I'd say its probably similar with Yahoo, they are moving in the direction, but not with "reckless abandon" like Google. I think when Steve Jobs announced the iPhone and simultaneously said Apple Computer will be renamed Apple Inc, and Jobs said the iPhone is their most important launch ever - this does signal that Apple is dead-serious of a radical shift in their strategy.

That is why I do think Apple is easily in a similar class of "total commitment" to mobile as Google. And they do face a wide range of very strong rivals already entrenched in this industry, who often have enormous advantages - Nokia, Motorola, Samsung, SonyEricsson and LG - enormous handset manufacturers with scale and speed. Apple seems to have one new phone (technically two models at launch) now in June and likely another two variants for the European launch (likely with 3G) for the Autumn. Thats four phones. Nokia releases four new phones every month.

And on the other side of the aisle are the mobile operators (carriers). Our American readers should totally dismiss their domestic American experiences with Cingular, Sprint, AT&T, Verizon, Nextel (and Canadian carriers) and simply understand that far more advanced carriers are out there, offering very advanced services, at reasonable costs, on networks that are far more reliable and on services that are far more user-friendly.

NTT DoCoMo and KDDI in Japan are at the far end of the spectrum. I visited KDDI's experience store in Tokyo this January - similar to Apple and Nokia showcase stores - and the KDDI store is truly that particular, that you cannot sign a contract, buy a handset or do any real business in the store that runs three stories high. Its just a showcase for KDDI near future, to let its customers come in and browse, to play with the prototypes, talk to the knowledgable staff etc. But if they want to buy something, they need to go to their "normal" KDDI store near their home. This kind of customer service and leadership.

South Korea is similar to Japan in the far lead in how advanced the carriers are - at times even more advanced than Japan's. In Scandinavia we tend to see the most advanced European mobile operators (with apologies to Italy, Austria, Portgual). They were among the first in the world where mobile phone voice minute charges were lower than fixed landline call costs.

The underground trains/subways in Helsinki serve as bomb shelters, they are drilled ten stories underground into hard concrete. But with rush hour traffic in the subway? Perfect cellphone coverage 100 feet underground and in the trains as they speed through the tunnels under Helsinki. Yet even in an otherwise advanced England, go to London with your mobile phone, take the elevator (lift) down ONE storie underground, and you lose the signal. Then be out of coverage for the 30 minutes of your journey (plus the inevitable London subway delays of an extra 15 minutes) and your mobile achieves reconnection to the network as you walk up the stairs and can see daylight. Its that bad. This in a major European capital city. Shame !

But I digress, yes, European carriers are far ahead of American ones and Scandinavia leads the way with this. Telenor in Norway was the first European operator to offer full credit card functionality on their phones (with Visa). Danish operators invented the Home Zone concept of clever pricing, which is killing the business of corporate/enterprise customers with fixed landline phones (they give free calls on the mobile in a "Home Zone" which is defined as roughly the area of your office building(s) and its very immediate surrounding. When you step out of the office for lunch in town or to stop by at the bank, that is when normal mobile telecoms charges are levied. This means every employee can have - and indeed should have - a mobile phone from work rather than a fixed landline phone - and it means the employer will discontinue paying for its fixed landline telecoms service to the fixed telecoms provider/incumbent altogether. A clever move by pure-mobile players. Home Zone was the reason in Germany this Spring for example that T-Mobile/Deutchse Telekom the incumbent said they stop their fixed-convergence product.

But yes, I digress. My point was that even with Google and Apple (and Dell and Blyk) and others coming in, this is an industry which is very hot, growing very fast, and generally tends to be profitable. They arrive against entrenched competition of companies mostly larger than them, who are in it to win. We will see a lot of exciting moves in this industry as the giants clash.

But yes, your point, we definitely welcome Google very much as a force for change.

Simon - good point, and I've been monitoring that fixed-mobile convergence (and fixed-mobile substitution) since I was the Project Manager 11 years ago at Elisa Corporation/Helsinki Telephone with Radiolinja (the world's first GSM operator, part of our Group) and launched the world's first fixed-mobile service bundle in 1996. I then was sent to participate in telecoms standardization around fixed-mobile convergence for a couple of years and again at Nokia my first job was with the fixed-mobile convergence unit of Nokia at the time and my white paper on Indirect Access was indeed the first document to discuss how internet services could be provided by mobile operators. Its been a very close area of interest to me, which is partly why I was chairing the big Fixed-Mobile Convergence conference in Paris last year etc.

You make a good point that wireless data access ie WiFi today, WiMax also in the future will be a significant part of the move to mobile and wireless communication. I accept that.

I do think, however, looking at this situation from a global perspective, that WiFi has lost the battle. It will be a supplementary technology, in some markets, some countries (Singapore is rolling out free WiFi to the whole country, but it is a city-state, so this is relatively easy to do if you only need to cover one city) and some instances.

Today there are about 350 million laptops in use (WiFi for a desktop is no mobility, only a modem replacement technology). Out of the 350 M, only a small fraction are moved daily to the Starbucks to write blogs or at airport business lounges used by jetsetting road warriors. Is it one in ten, or one in five, certainly most laptops remain in the home, office, university, and are not moved outside of those three domains on a daily basis, often even not on a weekly basis.

So even though a vast majority of the laptop population today (remember PCs are replaced on average every 3.5 years) have WiFi, only something between 35 - 70 million of them are actually used in "mobile" ways. And not all of them even seek a wireless connection - due to the way laptops/PCs are used. Take me, for example, I am an author. When I write my books, I don't need an internet connection (in fact, it would be a distraction). This is why I like to write in airplanes for example when I travel. Nothing to break my concentration in my writing. Now obviously I also blog, so I am very much in need of my daily fix of connectivity, but I can - and at times I do - blog from a phone, so when we discuss laptop use, for some of my main reasons to have a laptop - I need a full-size keyboard obviously to type, I'm of the age who learned to touch-type, and can't imagine trying to write long texts without keys that are full-size on a PC - so yes, my main need of the computer (book authoring tool) does not need a network connection at all (most of the time), and certainly not a wireless one.

But for my blogging use. I had a broadband connection and a WiFi connection when I lived in London. Then Vodafone launched its 3G service - I took it for my laptop, and almost immediately cancelled my broadband connection and the WiFi subscription. While 3G is not as fast as WiFi, it is quite fast enough, but the full mobility far outweighs the marginal speed difference. If I still now lived in London, I'd be signed up to the 3.5G service (HSDPA) which is as fast as broadband and WiFi.

So yes, Simon, WiFi will be relevant, but its a very small market opportunity. The WiFi "operators" who all launched with much fan-fare a couple of years ago, tend to mostly have gone out of business. Its not a good business model. If you offer WiFi for free, you get lots of "heavy users" like multiplayer gamers and video bloggers and movie downloaders who hog up your capacity. They are low on their funds (often students) and couldn't care less about the ads that may be run to sustain the service. But as they swarm to free WiFi spots, they crowd out the "regular users".

Or then you offer a paid service, and suddenly you have something that is very bad in coverage compared to 3G or 3.5G which can offer similar speeds but universal coverage. A very bad business proposition. And customers vote with their dollars, 3G modems are selling better than any of the operators expected in major markets. And now 3.5G modems - Spain offers (almost) unlimited internet access for 1 Euro per day; Singapore offers a free month of (almost) unlimited 3.5G access for 20 US dollars per month.

It comes down to the devices. There are dozens of top end smartphones which have WiFi built in - I'm onto my fourth WiFi-combined cellphone today. I use 3G on my phones, and I do occasionally use WiFi. But guess what, I only use WiFi if it is free. I do at times observe say at an airport that it has free WiFi (say Singapore for example) or a given business lounge of an airport, etc. But paid WiFi. Couldn't bother. I have 3G already, that is good enough, and I've paid for a data package.

So with handsets we're looking at the total user numbers. There are over 200 million 3G phones in use. It will be about 350-400 million by end of this year. A tiny fraction of those have WiFi.

So for the person who is mobile, moving around with a data device that can access WiFi, or access 3G, we already are at the point where 3G is much larger, and growing much faster. This means the 3G operators will continue to make money, and the WiFi operators will suffer. Not all will die, not all will be out of business, but its a bad business to be in.

Now, the battle is re-joined with WiMax, there we have a new area where yes, a new wireless technology with further reach and different economics come into play. WiMax I would not count out. But WiFi, no, that battle was lost a couple of years ago. It will be there, but only as a marginal offering.

Notice that total PC shipments are at peak, starting to decline - this is seen in Japan for example, and Apple referenced it as part of its decision to drop Computer from its name and shift to the mobile market. In three countries already more internet access comes from mobile than from a PC - Japan, South Korea and China - and in Europe already many countries are in the 30% range of migration from PC to mobile phone based internet access.

Mobile phones are replaced globally every 18 months on average. 28% of mobile phone users have two phones. Thus the effective replacement rate for heavy users of mobiles is 9 months. Larger screens, faster internet access, more computing power, more applications, more content, more services. The shift is going on from a PC based (and broadband) internet to a mobile based (and 3G/3.5G) mobile world.

What you will find, Simon, is that the most bullish WiFi players are American - because they have not yet seen the full scope of mobile. Bear in mind, Scandinavia has near identical levels of PC penetration, internet penetration, broadband penetration, cable TV penetration, and wealth - as the USA - but Scandinavia has nearly twice as many cellphones per population as America does - and all Scandinavian incumbents - Telenor in Norway, TeliaSonera in Sweden and Finland, TDC in Denmark and Siminn in Iceland - are also major WiFi operators in their countries.

What do these incumbents in leading countries, who really know mobile and internet and WiFi - say about WiFi? They say the future belongs to mobile... WiFi is necessary for them as a gap-filler technology, a supplementary technology, for some specialized uses yes, but the majority of their countries and users will be on mobile.

In Finland we've already seen the first country which once had 100% fixed landline penetration in the homes, now have more than half of homes abandon fixed landlines altogether in favour of mobile phones - AND last year Finland became the first country where residential broadband penetration is greater than residential fixed landline penetration (as you can get broadband on cable modem, 3G etc)

Don't get me wrong Simon, yes WiFi will be there, and measuring it from the IT industry - the opportunity is big. But compared to mobile, WiFi is a nuisance at best, a trivial marginal factor. Yes, some phones will support it, yes some customers will at times split their traffic; but not enough for any mobile operator really to get worked up about.

But WiMax.. the jury is still out on that, the WiMax vs 3.5G battle will be interesting. There we may well see a major shift in the industry, perhaps. I'd still bet on the cellular telecoms/mobile side, but WiMax can well make this a new ball game.

Thanks for writing

Tomi Ahonen :-)

[jackson123r]

There are already a number of so-called iPhone applications in beta stages that you can test on supported browsers like Safari, IE7 and Firefox

www.iphone-converter.org/convert-iphone/

[Santana at Feedables]

Being users & fans of the Apple iPhone, we at Feedables have made an iPhone application which will allow you to get your Feedables on on the go! Check us out at http://feedables.com

[refurbished computers]

The phone and its user interface looks gorgeous and slick. I am great fans of Dell, this industry needs the innovation, we wish you the very best.

[plantronics wireless headset]

This phone is genius. The design is outstanding and I would see a lot of consumers purchasing it.