When there is a mobile phone for half the planet: Understanding the biggest technology

We periodically report on the state of various technologies at this site, and my posting from last Spring reflecting on the final 2006 statistics "Putting 2.7 Billion in Context: Mobile Phones" has remained one of our best-read blog entries throughout last year. Now we have most of the relevant numbers for mobile phones for the end of the year 2007 and can make an update. And yes, as of November 2007 there were 3.3 billion mobile phone subscriptions around the world. At 6.6 billion people globally, yes, there is a mobile phone subscription for half of the planet. But that is not really the whole story. So lets delve deeper into these numbers.


UDATE Dec 10 2008 - I've just published my annual statistical review about the overall size of the mobile industry for end-of-year 2008. All new numbers so if you are interested in the "big picture", you may want to read this blog entitled Trillion with a T: Newest Giant Industry is Mobile

NOTE - that new blog story covers all of the topics in this, older blog posting, so unless you want to read about the history of mobile, I suggest you hop over to the newer blog where the current numbers are discussed.


OTHER TECHNOLOGIES

For a quick review of the context. There are about 1.3 billion fixed landline phones. So there are 2.5 times as many phone subscriptions as there are fixed landline phones. In Europe about a quarter of the homes have abandoned the fixed landline altogether and all family members use only their mobile phones (In Finland its more than half, even in the USA its already one in ten households where they have cut the cord). Contrasting with internet use, about 1.3 billion people use the internet worldwide. Or the other major technologies we could consider and compare, there are about 850 million automobiles in use worldwide. There are 1.5 billion TV sets in use, and 1.4 billion people own at least one credit card globally. But there are 3.3 billion mobile phone subscriptions !!

SUBSCRIBERS AND PHONES

So lets get the first point cleared. I make a point of talking about subscriptions, not phones. 3.3 billion mobile phone subscriptions as of November 2007 (Informa, Nov 2007) does not mean 3.3 billion different people have a phone. As we told you last year, already 28% of all mobile phone owners around the world have two or more subscriptions (Informa, Apr 2007). Or to put it in another way, 2.6 billion people have at least one phone and the remaining about 700 million subscriptions are with those people who have two or three or even more subscriptions.

SECOND SUBSCRIPTIONS

Some of the people with two or more are business execs who may have a business phone like a Blackberry for business use, and a personal phone for personal use. Others are people who have modest or low incomes and have multiple subscriptions to get the optimal telecoms pricing, with one network offering low cost evening calls, another low cost weekend minutes, etc. With the GSM based systems at over 80% of all subscribers (GSM Association Nov 2007), GSM has the SIM card module, which allows easy switching from one network to another without needing several phones. In some countries GSM phones are locked to one network such as mostly in the USA for example, so this may not be as easy, but in most GSM countries the phones are unlocked and users can easily change networks many times any day. As I said, more than one in four mobile phone owners has two or more phone subscriptions. Note that the other stats I mentioned also include multiple ownership or use. Many business execs may have one desktop PC for work, and a second laptop for occasional travel. The PC population of 900 million PCs actually hides a total unique PC owner number that is smaller than 900 million. The same is true of cars (some rich people own several cars) and TV sets (many young single people in the industrialized world have two TV sets, one in the living room, another in the bedroom) etc.

But as I've said in my telecoms marketing, churn, loyalty and segmentation workshops since 2003, the biggest group of new customers to get a second subscription is not business executive or the poor low income customer, but rather the first time employed. Half of British young employed adults report that they think its a sign of being important, or cool, to have two or more phones. Not subscriptions. Phones (Office Angels, Oct 2006). And now mobile operators admit publically what they've been saying in private to me in my workshops that it is true, the biggest customer group to get second subscriptions is the young adults as the Swiss mobile operator/carrier Sunrise reported at the Loyalty and Churn conference that I chaired in London in Nov 2006.

REPLACEMENT CYCLES

Why do we care? Well, the young employed adult is the ultimate target audience. They are young enough to still want to try all cool new things, but have the disposable income to spend on anything they consider new and cool. So young first-time employed are the biggest group to have two or more subscriptions. They are also fully addicted to mobile phones. So for them definitely two subscriptions means two phones. Which brings us to replacement cycles. Where the average replacement cycle for PCs is about three and a half years, the replacement cycle for mobile phones is 18 months and still shrinking (Semiconductor Industry Association May 2006). If you have two phones on two networks, you then have an effective replacement cycle of 9 months. But in the most advanced markets like South Korea, Japan and Hong Kong, the market has already adjusted so far that young adults replace phones every 6 months as Jim O'Reilly and I report in my latest book Digital Korea. Note that with a 6 month replacement cycle for a new phone for young employed adults, that means that mobile phones are now being replaced in harmony with the fashion industry cycle: a Spring Fashion cycle and an Autumn Fashion cycle. As I was in Tokyo in January and September, I witnessed that very pairing of fashion cycles and the new flashy phones to reflect that pattern.

HANDSETS

Now as the phone handset makers like Nokia, Samsung, Motorola, SonyEricsson and LG ship over a billion phones annually (IDC, Jan 2007), we have a colossus of an industry of high tech pushing ever more powerful gadgets into our pockets. And yes, Nokia alone ships one million phones every day of the year, Saturdays, Sundays and Holidays included. For contrast note that the PC industry shipped 250 million new PCs in 2007, of which about 100 million are laptops (Computer Industry Almanac Jul 2007). TomiAhonen Consulting has updated the handset features numbers against all shipments, replacement cycles and installed base, and reports that at the end of 2007 of all world phones in use, 72% were data-capable so-called 2.5G phones on data technologies like GPRS, CDMA 2000 1xRTT, and EDGE - that is 2.4 billion phones or almost three times as many data capable mobile phones in use, as personal computers, laptops and desktops worldwide. Over half of mobile phones have bluetooth capacity (1.7 billion) and already 12% or 400 million mobile phones in use are fully 3G capable (or faster still). Again, that 72% of phones can access the internet or 12% are 3G capable does of course not mean that the phones are used that way, just like most music-capable phones are not used to consume music. But the numbers nonetheless are very impressive.

MOBILE INTERNET

But as I mention data-capable phones and internet use, lets talk internet. There are about 900 million personal computers in use and during this year 2008 the world will pass the 1 billion PCs in use level (Forrester June 2007). The growth of the PC population in use numbers have slowed for several years now and are nearly static (In Japan the annual PC/laptop sales numbers are already declining), while obviously mobile phone subscription and phone shipment numbers have kept on growing rapidly (we added 600 million new phone subscriptions last year which reflects a growth rate of 22%. But yes, what of the famous 1.3 billion internet users? How come there are more internet users than total PCs in use? There are three primary reasons for that. First is shared computers. A family may have a family computer for the children and parents to share. A small office may have a computer that is shared by two employees etc. The second factor is access by those who do not have their own computers so for example internet cafes and university computer labs. Finally there are of course those who access the internet via a mobile phone, which is already the majority of internet access in countries such as South Korea, Japan and India.

What? Mobile phone access to the internet? Yes. Real Networks reported in 2007 that 25% of all mobile phone users around the world access the internet on their phones. That is a staggering 825 million people already. And yes, please note that most of these users also have a PC to access the web, and use both a PC and a mobile phone. And early on, as users start the migration from PC use to partial (and for some even total) internet use on mobile, it will be a transition, and the usage on PCs will be more than on mobile phones. And as internet use on phones is often costly and internet speeds on (broadband) PC connections are faster, then the total internet traffic on PC based internet access will remain much larger than that on the mobile.

TomiAhonen Consulting tracking numbers are also updated for mobile, PC based, and combined access to the internet. So out of all 1.3 billion internet users, only 37% access exclusively by personal computers (desktops and laptops). This includes all access from internet cafes and computer labs and shared PCs. Another 33% of internet users access by both PC and mobile. And already 30% of all internet access in 2007 was exclusively from mobile phones. If you want to see the glass as half empty, you can fairly use the numbers and say that 70% of all internet users have access by PC/laptop and only 30% of the internet access comes from those users whose only access is a mobile phone. Or for the glass-is-half-full crowd, we can equally fairly use the same data and say that already 63% of all people who access the internet do so from their phones at least part of the time, and only 37% of internet users are accessing only from a personal computer/laptop.

Nonetheless, the transition is very powerful. Remember that user numbers are the first shift. The more relevant shift comes with usage. In Japan the regulator reported that 2006 was the first year when more internet access was also by mobile phones than by PCs. Flirtomatic, the UK based online dating service on PCs and mobile phones reports that they get 4 times more traffic from mobile internet (WAP) users than PC based web users of the same service. In America a November 2006 report by Telephia found that the first category of internet content to have migrated from PC based internet to mobile internet is weather information, with web sites such as Accuweather, The Weather Channel and Yahoo Weather all reporting much larger mobile usage than PC based internet use, up to four times heavier use from mobile phones than PCs.

Do not misunderstand me. There still are a little bit of more users accessing the internet from a PC than mobile phone at the end of 2007, but the trend is unstoppable now, and during 2008 we will see the cross-over point for users, where more internet access will be from phones than PCs. That is users, not usage. Where people have access to both methods, probably for many years more usage sessions and the duration of their internet access will be from PCs than from mobile phones. But as Japan often leads in these numbers, we've already seen the next stage, that more total usage will start to come from mobile phones, rather than PCs. And then after that, probably, the total traffic will also eventually migrate to the mobile internet. But do bear in mind, that this change will be more by phones similar to the Apple iPhone and the like, than the early WAP phones of the beginning of this decade. Google incidentially reports that access by iPhone users is much larger than by users of phones from other makers. This is part of that Era of Before iPhone and After iPhone that we blogged about a lot last year. There is a global transition going on to the newest mass media, mobile (or like I say, mobile is the 7th mass media). This is the biggest economic opportunity in our lifetimes. You don't want to miss it.

MOBILE CONTENT

Which brings me to the revenues of the mobile internet (or VAS, Value-Add Service) data services versus content revenues on the older PC based internet. We saw the cross-over point in 2004 where more content revenues were earned by mobile than fixed PC based internet. In 2006 the numbers were 25 billion dollars of internet content revenues vs 31 billion on mobile content (Guardian, May 2007). Now the latest numbers tell of the enormous growth in the mobile content revenues for 2007 with the total value of VAS content on mobile being worth 45 billion dollars (Informa Jan 2008). What does it consist of? The biggest internet content revenues are still the classic first categories for any new media, pornography and gambling. But even thought the mobile internet is much younger than the PC based internet, it has also matured much faster. Adult entertainment and gambling are on mobile phones as well, of course, but now the two largest categories of mobile content are music at 8.8 billion dollars (about 5 billion of that is ringing tones) and mobile social networking at 5.05 billion dollars worldwide.

SMS TEXT MESSAGING

But there is the truly enormous data application which I have not even mentioned yet. SMS text messaging. The most used data application on the planet. As addictive as cigarette smoking as the Queensland University study found and we've reported here and in my various books. CMG Logica reported that in January 2007 the world passed the 2 billion active uses of SMS text messaging threshold. That was 74% of all mobile phone users at the time (growing from 72% the year before). TomiAhonen Consulting has projected that to be 2.4 billion active users of SMS texting at the end of 2007. Even Americans get it now, as more than half of American cellphone owners have become active users of texting according to the CTIA, and a major driver of that has been voting for reality TV shows like American Idol, as Alan Moore reports in the SMLXL White Paper on Pop Idol.

So one in three people on the planet already uses SMS text messaging. Mobile phone users in the UK prefer SMS text messages to making voice calls (JD Power May 2007). And for most of the decade all use of SMS is preferred over email and instant messaging, even in America as their youth discovered this two years ago and now that trend is spreading (Comscore Jun 2006). But what of the contrast? The numbers are overwhelming. Internet based email has been around for almost two decades and has nearly 800 million individual email users, who maintain 1.45 billion email accounts (Vision Gain May 2007). eMail user numbers are very static, modest growth at best. So 800 million active users of email and 2.4 billion active users of SMS text messaging. That is yes three times as big. And what of IM Instant Messaging. I don't have the very latest numbers, but the magnitude is about half of email users, so if we're generous, lets call it 500 million IM users. SMS is nearly five times as big.

And what of the money involved? SMS user numbers grew by 16% from 2006. SMS traffic numbers grew by 50% (!!!!!) and inspite of big price wars in telecoms and the offers of big buckets of free messages, SMS revenues grew by 23% (Informa Q1, 2007). Duh... did someone say SMS is addictive? Will this growth stop? The total annual revenues earned by SMS text messaging passed 100 billion dollars in 2007 according to TomiAhonen Consulting. Yes, that is as big as total Hollywood box office, total Hollywood DVD sales and rentals, total music industry revenues and total videogaming software revenues in 2007 - combined. By contrast the total messaging revenues of email and IM are less than 5 billion dollars globally.

And why is SMS text messaging so addictive? it is the most discrete (secret) form of communication and it is also the fastest way to communicate. It is preferred by kids in school attempting to cheat in class to busy business executives who need something more powerful than wireless email on a Blackberry. A May 2007 survey by 160 Characters found that 84% of active users of SMS text messaging expect a reply within 5 minutes !!!  On email we're happy to get a reply within 24 hours. On voicemail who knows if we ever get a reply. Like we've reported, even the Finnish Prime Minister says on his voicemail recording, don't leave me voicemail, send me SMS. Or how about the Finnish libraries who send alerts via SMS and the Finnish dentists who replace cancelled appointments via SMS. One in five London car drivers pays the congestion charge by mobile phone using SMS text messaging. One in two Helsinki public transportation user pay for the single tram tickets using SMS text messaging. Or the heavy users, 10% of British students thumb out 100 SMS text messages per day - in South Korea 30% of students average 100 SMS text messages sent per day. What is the global average? 2.6 SMS messages sent per day. The leading countries, Singapore users average 12 per day and phone owners in the Philippines are the world leaders averaging 15 SMS sent per day. Even laggard USA is following in lock-step with this growth curve and now USA cellphone owners average over 1 SMS sent per day.

INDUSTRY SIZE

So - it is the monster technology on the planet. A subscription for half of the planet. The total service revenues for mobile already passed 720 billion dollars last year (Informa Jan 2006). Toss in another 100 billion for handset sales and some more for network infrastructure and we're at a total industry of over 875 billion in size by 2007 - well on target to hit a trillion dollars as an industry by the end of the decade - then in size with the global automobile industry or global armaments industry for example.

NEAR FUTURE

Every year we've heard many pundits and so-called telecoms experts (often based in the USA) forecast that the mobile industry is about to get into a downturn, that the growth rate has to stop, by whatever distorted logic they may have used. I said in my second book, m-Profits, in 2002 that this industry was poised for enormous growth until the industrialized world would hit averages of 125% mobile phone subscription penetrations when measured per capita. Well, today 59 countries have passed the 100% per capita subscrition penetration (Informa Nov 2007). Hong Kong, Taiwan, Israel, Italy etc have penetration rates of 130% and above and European aveage penetration is about 110% (USA is at about 85%). I also reported in my book at the time that SMS was addictive, so there was no slowing this trend.

How long can it continue? I am not sure. But don't be fooled into thinking that somehow the "laptop" internet on wireless technologies etc will have any chance of catching up - much less than half of the world's PCs are laptops and the PC industry sold about 100 million laptops in 2007. The laptop industry is the very small little brother to the giant mobile telecoms industry, in users, in devices deployed, in revenues, in growth rates, in profits. Whatever measure you want. The PC and internet industry is focusing on broadband migration as its saviour. Even broadband is migrating to mobile now with so-called 3.5G technologies (HSPDA) led by countries like South Korea, Singapore and Hong Kong and about 20% of all global broadband internet access is already mobile as well (Informa 2008).

ALSO MORE INFO IN THOUGHT PIECE

So, that is my update to the status of the mobile industry for the new year 2008. If you would like a collection of the main thoughts and statistics and facts, in one of my Thought Pieces (a concise two page intense white paper) - please send me an email to   tomi at tomiahonen dot com  and I'll send you the free Thought Piece "Mobile Telecoms Industry Size 2008" in return (please don't leave a comment asking for the Thought Piece, its faster if you send me an email so I can respond directly to your email. But obviously we'd welcome any discussion about these numbers and this blog - as any blog we post - so please do post discussion comments here, of course). Oh, and if you have received the older Thought Piece last year, this is thorougly updated, so you may want the newer version.

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UDATE Dec 10 2008 - I've just published my annual statistical review about the overall size of the mobile industry for end-of-year 2008. All new numbers so if you are interested in the "big picture", you may want to read this blog entitled Trillion with a T: Newest Giant Industry is Mobile Laga Sony Xperia Z3 display