Newsletter: Is Barcelona losing its lustre?
Review of this years key mobile industry event
A cold, rainy and windswept Barcelona received tens of thousands of delegates for the 2010 version of the Mobile World Congress last week. This year the normally flamboyant Catalonian capital is in the throes of real economic distress: Spain is gripped by the worst recession in living memory and is losing 100,000 jobs a month. For the global mobile industry, times are not quite that bad. At least not yet.
The MWC is back in force, but the mobile industry may be heading for a deeper, more serious economic dip. Numbers from the OECD says mobile revenues in the West are declining at a slower rate than the GDPs (2009 numbers), but that the mobile industry is now clearly contracting, especially in Western Europe. At the same time, telephony is still responsible for 86% of operator revenues. Mobile broadband, apps, and touch-screen smartphones – this year’s focus of the MWC - are now everywhere, but they don’t seem to have made much of a dent in the crisis. Instead, a new breed of challenges is upon us.
The big challenge: tackling network overload
Can mobile broadband compete with fixed services? Possibly, but network overload seems to be one of the regrettable results. The density of mobile broadband subscribers in big European cities is massive, and data traffic is going through the roof with the advent of cheap dongles, flat-rate fees, and price wars. That’s a cocktail that cannot be sustained for long without serious repercussions. Allegedly, customers in one market are giving up mobile broadband in droves and reverting to DSL-subscriptions because of appalling service quality.
So what can be done? Answers range from moving away from flat-rate pricing schemes (this was suggested by at least one operator CEO at the conference), enforcing further caps on usage, inspection & prioritization of traffic (lots of vendors on hand at the MWC to provide solutions for this), to giving up trying to replace fixed (usually DSL or cable-based) services. Meanwhile, upgrading to faster and better technologies is happening, but may not be happening fast enough, as operators are understandably reluctant to invest in more capacity just to hang on to flat-rate users. Something’s clearly gotta give.
Although the problem is hardly just technical, there still exists a largely unexplored techie bag of tricks for improving network capacities and speeds, or even for bypassing the problem. Some of these were on display at the MWC, although the talk of LTE as the preferred high capacity access solution has subsided a lot this year. Henceforth follows a couple of interesting alternatives.
WiFi and WeFi
So why don’t mobile operators make more use of the ubiquitous and dirt cheap WiFi? Qualcomm offers a software feature that offloads 3G broadband data to WiFi on the fly (this is part of 3GPP Release 10, so probably other vendors offer it as well). It’s seamless - meaning it hands over without interrupting the data stream - and works a bit like a soft handover in 3G. The catch is that it requires IPv6. But that should only give everyone another good reason finally to migrate to IPv6 (or at least to dual stack IP).
The Israelis of WeFi have taken the sharing-capacity-with-WiFi concept a step further. Everyone knows that there is nearly a googol of WiFi routers installed across the globe. This clever solution enables operators to tap into close to 52 million of them to offload traffic. It’s not seamless, as it requires a handset client, but it could well be a step in the right direction.
Multi-bands means more bits
I’ve previously touched on the attractiveness on HSPA+ (or HSPA Evolved) as opposed to LTE, and this year the MWC provided more fuel for the same idea. Dual Carrier HSPA+ means that operators can pool two 5 MHz bands into a single 10 MHz band and in this way offer higher speeds to the end user. It hikes the peak user rate from 42 to 84 mbps. Ericsson and Huawei are already offering this kit commercially.
At the MWC NSN took the idea a step further by demoing the pooling together of four 5 MHz bands (Quad Band HSPA+) to get to 112 mbps peak data rates, although the commercial system won’t be ready before 2011. Whether dual or quad, multi-carrier is a useful concept, as many operators already hold the rights to using several 5 MHz slots, and because the development of MIMO is not proceeding quite as fast as expected.
Playing catch-up forever
The bigger, looming question is what’s going to happen to mobile broadband in the long run. The way I see it, mobile broadband operators are destined forever to be playing capacity catch-up, and it is not a game they are likely to win, particularly if the strategy is to go head to head with fixed broadband at flat rate fees. No mobile broadband technology that I know of can sustainably cope with an Internet traffic CAGR of close to 40% (figure courtesy of Cisco), and already today many users consume as much as 15-20 GB a month. That’s a huge amount of data that somehow needs to be squeezed through the radio access network.
MNOs – and the industry at large – somehow need an innovative strategy to tackle this problem, and I don’t believe the answer is to grow revenues by charging for apps. That market has long since been lost to Apple, Google and their ilk. It’s a contentious point, but I also can’t see MNOs moving away from being “dumb bit pipes” any time soon if ever - it’s really what they do best. It’s also what they apparently insist on continuing to do, despite ongoing complaints that Google and Apple are making all the dough.
Meanwhile, the repercussions of the mobile broadband data explosion are being felt deep in the murky innards of the mobile industry value chain, as was elegantly conveyed to me by a consulting colleague. To support the hike in data traffic, operators now need to buy more network kit, but they are not making the extra revenue to pay for it. That puts network vendors under pressure to throttle back on equipment prices. According to my source, the only thing left for most network vendors to cut back on is R&D expenditures. The vicious cycle is complete, and from here it undeniably looks like a spiral of death. Maybe a few more major vendors need to go bust before something is done in earnest.
Samsung looms large
But mobile broadband is of course not only about replacing fixed services. Internet-connected small screen mobility is still hugely attractive in its own right. Many new high-performance smart phones were released at the MWC again this year, although Nokia famously decided to stay away altogether either to save money or – as more sinister minds would suggest – perhaps to save face.
Money appears to be no object for Samsung, judging from their massive stand. Samsung’s new Wave is a touch-screen phone á la iPhone (the UI appears to be a direct copy) that sports a super high-resolution screen of - frankly - exquisite beauty. Samsung’s perfected iPhone concept seems to have left Apple behind, at least technically. The Wave has an undeniable wow-effect and is extremely fast with a 1 GHz processor at its heart. As usual a lot of other iPhone look-a-likes were on hand aplenty at the MWC, including a new operating system from Microsoft, dubbed Windows Phone 7.
The other Korean bellwether – LG – had apparently also decided to boycott the MWC this year, but for a different reason. Rumour has it that a Chinese company last year managed to copy an LG MWC-released product so quickly, that the copycat phone flooded the Chinese market before LG’s original product ever hit the stores. My friendly Korean source insists - with a little sly humour thrown in – that copying is still the mainstay of the Chinese electronics industry.
Are Apps in the Cloud a Pie in the Sky?
Perhaps most disappointing this year was the MWC’s App Planet showcase intended to usher in a new era in mobile apps. Frankly, you get a lot more inspiration browsing through iTunes on line. Many companies make the basic mistake of plastering their names and logos all over their stands instead of explaining clearly what they do. It’s just plain terrible marketing, and it results in nothing but frustration and sensory overload for visitors.
Among the few app companies (or app enablers rather) that stand out was Norway’s Rubberduck. The company with the catchy name offers streamed mobile TV services to many operators in Scandinavia. The services look simple and attractive. If my service provider – Telenor Denmark – did not suffer from appalling 3G coverage I would try out the Rubberduck-enabled service: 12 live TV channels streamed to your phone for around 15 USD per month. Not a bad deal - I might still do it just for interest.
Another clever app - at least in theory - is Mecanto. Mecanto is an app and service for uploading your music to the Internet – the Cloud (why do I hate that word?) – and streaming it back to your device when you need it. The UI is well designed, and could turn out to be a winner. But the cloud-based scheme still begs the question: What happens if you’re outside 3G coverage? Answer: No music! Fortunately for Mecanto there’s an off-line version. But I still maintain that there is a real elephant in the room for cloud-based mobile apps. The coverage is still not there yet. Knowing the state of the industry today - and the reluctance of operators to invest in coverage - it may never get there. Sob.
Overall the presence of Asian companies at the MWC was palpable this year. NSN’s nemesis network supplier Huawei appears transformed. From being the world champions of non-marketing, Huawei’s stand was bright, friendly and bursting with applications. Especially the projected 6 to 16-person panoramic telepresence screen is an impressive piece of large-scale gadgetry. The main Huawei hall was by invitation only, but a friend tells me that Huawei has even started segmenting the dongle market! The company is also the only remaining vendor still to be a one-stop-shop for all your mobile equipment needs - from terminals to services to networks, you name it.
Among solutions for developing countries was a huge stand with a so-called “zero OPEX” solar powered GSM base station site from Indian start-up VNL, and a new Vodafone-branded 15 USD super cheap phone for emerging markets. It is in some ways disappointing to see that so little is being done to seriously address rural coverage for developing countries. I suspect that attacking such markets – which are marginal at the best of times – is really not high on the agenda during an industry downturn.
A couple of companies I liked
I nearly regret announcing in my previous newsletter my intention to hunt down and present any promising young industry hopefuls. In my view there weren’t any really exciting ones, but here follows couple of companies that at least caught my eye.
Hutchison INQ’s youthful phones
INQ Mobile is a relatively new phone company owned by Hutchison Whampoa of Hong Kong but run out of London, U.K. The odds against their phones succeeding are probably very high, but they are making a point. The small handsets are nifty pieces of design with direct and easy access to lots of ready-made social networking apps. INQ phones look kind of attractive, and if I were a bit younger, I might go for it. Full marks to INQ for trying something a bit new.
Fibre without the fibre with fSONA
Canadian company fSONA offers optical transmission equipment for mobile backhaul (meaning the kit for connecting mobile base stations to core networks). The concept can best be described as optical fibre technology without the fibre. Instead their systems use lasers pointing at each other through the air over long or longish distances (OK – I admit this appeals to the techie nerd in me). The benefit is high transmission rates of up to more than two gigabit per second over Ethernet, which a lot of operators a looking for to back mobile broadband networks. The company claims high reliability despite some sensitivity to weather conditions. It could be worth a closer look.
One in a hundred odds. Would you back it?
Finally a comment about my friends the Israelis, who once again outdid themselves at the MWC with 65 companies exhibiting. I posed one of their trade officers the question: How does Israel produce so many start-ups? Are Israeli companies smarter, richer, more heavily subsidized, or what? The answer – it seems – is twofold and probably mostly cultural.
Firstly - and let this be a lesson to all of us pseudo-neurotic, risk-averse Europeans - Israelis are allegedly not afraid of failure. If you’ve not gone bust a few times already, you’re really not on your way to success. That’s one heck of an attitude (or have they been reading a lot of Seth Godin lately?) but it seems to be working, judging from the successes of their IT- and telecoms industry at large. The second reason appears to be a lot of venture capital. Backing a start-up is a one-in-a-hundred gamble, but once in a blue moon it pans out just right. The audacity alone is something to admire, I think.
Date: 22-02-2010
Author: Claus Hetting
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