Posts Tagged Smartphones

The Unbearable Lightness of Mobile Voice.

  • Mobile data adaption can be (and usually is) very un-healthy for the mobile voice revenues.
  • A Mega Byte of Mobile Voice is 6 times more expensive than a Mega Byte of Mobile Data (i.e., global average) 
  • If customers would pay the Mobile Data Price for Mobile Voice, 50% of Global Mobile Revenue would Evaporate (based on 2013 data).
  • Classical Mobile Voice is not Dead! Global Mobile Voice Usage grew with more than 50% over the last 5 years. Though Global Voice Revenue remained largely constant (over 2009 – 2013). 
  • Mobile Voice Revenues declined in most Western European & Central Eastern European countries.
  • Voice Revenue in Emerging Mobile-Data Markets (i.e., Latin America, Africa and APAC) showed positive growth although decelerating.
  • Mobile Applications providing high-quality (often High Definition) mobile Voice over IP should be expected to dent the classical mobile voice revenues (as Apps have impacted SMS usage & revenue).
  • Most Western & Central Eastern European markets shows an increasing decline in price elasticity of mobile voice demand. Even some markets (regions) had their voice demand decline as the voice prices were reduced (note: not that causality should be deduced from this trend though).
  • The Art of Re-balancing (or re-capture) the mobile voice revenue in data-centric price plans are non-trivial and prone to trial-and-error (but likely also un-avoidable).

An Unbearable Lightness.

There is something almost perverse about how light the mobile industry tends to treat Mobile Voice, an unbearable lightness?

How often don’t we hear Telco Executives wish for All-IP and web-centric services for All? More and more mobile data-centric plans are being offered with voice as an after thought. Even though voice still constitute more than 60% of the Global Mobile turnover  and in many emerging mobile markets beyond that. Even though classical mobile voice is more profitable than true mobile broadband access. “Has the train left the station” for Voice and running off the track? In my opinion, it might have for some Telecom Operators, but surely not for all. Taking some time away from thinking about mobile data would already be an incredible improvement if spend on strategizing and safeguarding mobile voice revenues that still are a very substantial part of The Mobile Business Model.

Mobile data penetration is un-healthy for voice revenue. It is almost guarantied that voice revenue will start declining as the mobile data penetration reaches 20% and beyond. There are very few exceptions (i.e., Australia, Singapore, Hong Kong and Saudi Arabia) to this rule as observed in the figure below. Much of this can be explained by the Telecoms focus on mobile data and mobile data centric strategies that takes the mobile voice business for given or an afterthought … focusing on a future of All-IP Services where voice is “just” another data service. Given the importance of voice revenues to the mobile business model, treating voice as an afterthought is maybe not the most value-driven strategy to adopt.

I should maybe point out that this is not per se a result of the underlying Cellular All-IP Technology. The fact is that Cellular Voice over an All-IP network is very well specified within 3GPP. Voice over LTE (i.e., VoLTE), or Voice over HSPA (VoHSPA) for that matter, is enabled with the IP Multimedia Subsystem (IMS). Both VoLTE and VoHSPA, or simply Cellular Voice over IP (Cellular VoIP as specified by 3GPP), are highly spectral efficient (compared to their circuit switched equivalents). Further the Cellular VoIP can be delivered at a high quality comparable to or better than High Definition (HD) circuit switched voice. Recent Mean Opinion Score (MOS) measurements by Ericsson and more recently (August 2014) Signals Research Group & Spirent have together done very extensive VoLTE network benchmark tests including VoLTE comparison with the voice quality of 2G & 3G Voice as well as Skype (“Behind the VoLTE Curtain, Part 1. Quantifying the Performance of a Commercial VoLTE Deployment”). Further advantage of Cellular VoIP is that it is specified to inter-operate with legacy circuit-switched networks via the circuit-switched fallback functionality. An excellent account for Cellular VoIP and VoLTE in particular can be found in Miikki Poikselka  et al’s great book on “Voice over LTE” (Wiley, 2012).

Its not the All-IP Technology that is wrong, its the commercial & strategic thinking of Voice in an All-IP World that leaves a lot to be wished for.

Voice over LTE provides for much better Voice Quality than a non-operator controlled (i.e., OTT) mobile VoIP Application would be able to offer. But is that Quality worth 5 to 6 times the price of data, that is the Billion $ Question.

voice growth vs mobile data penetration

  • Figure Above: illustrates the compound annual growth rates (2009 to 2013) of mobile voice revenue and the mobile data penetration at the beginning of the period (i.e., 2009). As will be addressed later it should be noted that the growth of mobile voice revenues are NOT only depending on Mobile Data Penetration Rates but on a few other important factors, such as addition of new unique subscribers, the minute price and the voice arpu compared to the income level (to name a few). Analysis has been based on Pyramid Research data. Abbreviations: WEU: Western Europe, CEE: Central Eastern Europe, APAC: Asia Pacific, MEA: Middle East & Africa, NA: North America and LA: Latin America.

In the following discussion classical mobile voice should be understood as an operator-controlled voice service charged by the minute or in equivalent economical terms (i.e., re-balanced data pricing). This is opposed to a mobile-application-based voice service (outside the direct control of the Telecom Operator) charged by the tariff structure of a mobile data package without imposed re-balancing.

If the Industry would charge a Mobile Voice Minute the equivalent of what they charge a Mobile Mega Byte … almost 50% of Mobile Turnover would disappear … So be careful AND be prepared for what you wish for! 

There are at least a couple of good reasons why Mobile Operators should be very focused on preserving mobile voice as we know it (or approximately so) also in LTE (and any future standards). Even more so, Mobile Operators should try to avoid too many associations with non-operator controlled Voice-over-IP (VoIP) Smartphone applications (easier said than done .. I know). It will be very important to define a future voice service on the All-IP Mobile Network that maintains its economics (i.e., pricing & margin) and don’t get “confused” with the mobile-data-based economics with substantially lower unit prices & questionable profitability.

Back in 2011 at the Mobile Open Summit, I presented “Who pays for Mobile Broadband” (i.e., both in London & San Francisco) with the following picture drawing attention to some of the Legacy Service (e.g., voice & SMS) challenges our Industry would be facing in the years to come from the many mobile applications developed and in development;

voice_future

One of the questions back in 2011 was (and Wow it still is! …) how to maintain the Mobile ARPU & Revenues at a reasonable level, as opposed to massive loss of revenue and business model sustainability that the mobile data business model appeared to promise (and pretty much still does). Particular the threat (& opportunities) from mobile Smartphone applications. Mobile Apps that provides Mobile Customers with attractive price-arbitrage compared to their legacy prices for SMS and Classical Voice.

IP killed the SMS Star” … Will IP also do away with the Classical Mobile Voice Economics as well?

Okay … Lets just be clear about what is killing SMS (it’s hardly dead yet). The Mobile Smartphone  Messaging-over-IP (MoIP) App does the killing. However, the tariff structure of an SMS vis-a-vis that of a mobile Mega Byte (i..e, ca. 3,000x) is the real instigator of the deed together with the shear convenience of the mobile application itself.

As of August 2014 the top Messaging & Voice over IP Smartphone applications share ca. 2.0+ Billion Active Users (not counting Facebook Messenger and of course with overlap, i.e., active users having several apps on their device). WhatsApp is the Number One Mobile Communications App with about 700 Million active users  (i.e., up from 600 Million active users in August 2014). Other Smartphone Apps are further away from the WhatsApp adaption figures. Applications from Viber can boast of 200+M active users, WeChat (predominantly popular in Asia) reportedly have 460+M active users and good old Skype around 300+M active users. The impact of smartphone MoIP applications on classical messaging (e.g., SMS) is well evidenced. So far Mobile Voice-over-IP has not visible dented the Telecom Industry’s mobile voice revenues. However the historical evidence is obviously no guaranty that it will not become an issue in the future (near, medium or far).

WhatsApp is rumoured to launch mobile voice calling as of first Quarter of 2015 … Will this event be the undoing of operator controlled classical mobile voice?  WhatsApp already has taken the SMS Scalp with 30 Billion WhatsApp messages send per day according the latest data from WhatsApp (January 2015). For comparison the amount of SMS send out over mobile networks globally was a bit more than 20 Billion per day (source: Pyramid Research data). It will be very interesting (and likely scary as well) to follow how WhatsApp Voice (over IP) service will impact Telecom operator’s mobile voice usage and of course their voice revenues. The Industry appears to take the news lightly and supposedly are unconcerned about the prospects of WhatsApp launching a mobile voice services (see: “WhatsApp voice calling – nightmare for mobile operators?” from 7 January 2015) … My favourite lightness is Vodacom’s (South Africa) “if anything, this vindicates the massive investments that we’ve been making in our network….” … Talking about unbearable lightness of mobile voice … (i.e., 68% of the mobile internet users in South Africa has WhatsApp on their smartphone).

Paying the price of a mega byte mobile voice.

A Mega-Byte is not just a Mega-Byte … it is much more than that!

In 2013, the going Global average rate of a Mobile (Data) Mega Byte was approximately 5 US-Dollar Cent (or a Nickel). A Mega Byte (MB) of circuit switched voice (i.e., ca. 11 Minutes @ 12.2kbps codec) would cost you 30+ US$-cent or about 6 times that of Mobile Data MB. Would you try to send a MB of SMS (i.e., ca. 7,143 of them) that would cost you roughly 150 US$ (NOTE: US$ not US$-Cents).

1 Mobile MB = 5 US$-cent Data MB < 30+ US$-cent Voice MB (6x mobile data) << 150 US$ SMS MB (3000x mobile data).

A Mega Byte of voice conversation is pretty un-ambiguous in the sense of being 11 minutes of a voice conversation (typically a dialogue, but could be monologue as well, e.g., voice mail or an angry better half) at a 12.2 kbps speech codec. How much mega byte a given voice conversation will translate into will depend on the underlying speech coding & decoding  (codec) information rate, which typically is 12.2 kbps or 5.9 kbps (i.e., for 3GPP cellular-based voice). In general we would not be directly conscious about speed (e.g., 12.2 kbps) at which our conversation is being coded and decoded although we certainly would be aware of the quality of the codec itself and its ability to correct errors that will occur in-between the two terminals. For a voice conversation itself, the parties that engage in the conversation is pretty much determining the duration of the conversation.

An SMS is pretty straightforward and well defined as well, i.e., being 140 Bytes (or characters). Again the underlying delivery speed is less important as for most purposes it feels that the SMS sending & delivery is almost instantaneously (though the reply might not be).

All good … but what about a Mobile Data Byte? As a concept it could by anything or nothing. A Mega Byte of Data is Extremely Ambiguous. Certainly we get pretty upset if we perceive a mobile data connection to be slow. But the content, represented by the Byte, would obviously impact our perception of time and whether we are getting what we believe we are paying for. We are no longer master of time. The Technology has taken over time.

Some examples: A Mega Byte of Voice is 11 minutes of conversation (@ 12.2 kbps). A Mega Byte of Text might take a second to download (@ 1 Mbps) but 8 hours to process (i.e., read). A Mega Byte of SMS might be delivered (individually & hopefully for you and your sanity spread out over time) almost instantaneously and would take almost 16 hours to read through (assuming English language and an average mature reader). A Mega Byte of graphic content (e.g., a picture) might take a second to download and milliseconds to process. Is a Mega Byte (MB) of streaming music that last for 11 seconds (@ 96 kbps) of similar value to a MB of Voice conversation that last for 11 minutes or a MB millisecond picture (that took a second to download).

In my opinion the answer should be clearly NO … Such (somewhat silly) comparisons serves to show the problem with pricing and valuing a Mega Byte. It also illustrates the danger of ambiguity of mobile data and why an operator should try to avoid bundling everything under the banner of mobile data (or at the very least be smart about it … whatever that means).

I am being a bit naughty in above comparisons, as I am freely mixing up the time scales of delivering a Byte and the time scales of neurological processing that Byte (mea culpa).

price of a mb 

  • Figure Above: Logarithmic representation of the cost per Mega Byte of a given mobile service. 1 MB of Voice is roughly corresponding to 11 Minutes at a 12.2 voice codec which is ca. 25+ times the monthly global MoU usage. 1 MB of SMS correspond to ca. 7,143 SMSs which is a lot (actually really a lot). In USA 7,143 would roughly correspond to a full years consumption. However, in WEU 7,143 SMS would be ca. 6+ years of SMS consumption (on average) to about almost 12 years of SMS consumption in MEA Region. Still SMS remain proportionate costly and clear is an obvious service to be rapidly replaced by mobile data as it becomes readily available. Source: Pyramid Research.

The “Black” Art of Re-balancing … Making the Lightness more Bearable?

I recently had a discussion with a very good friend (from an emerging market) about how to recover lost mobile voice revenues in the mobile data plans (i.e., the art of re-balancing or re-capturing). Could we do without Voice Plans? Should we focus on All-in the Data Package? Obviously, if you would charge 30+ US$-cent per Mega Byte Voice, while you charge 5 US$-cent for Mobile Data, that might not go down well with your customers (or consumer interest groups). We all know that “window-dressing” and sleight-of-hand are important principles in presenting attractive pricings. So instead of Mega Byte voice we might charge per Kilo Byte (lower numeric price), i.e., 0.029 US$-cent per kilo byte (note: 1 kilo-byte is ca. 0.65 seconds @ 12.2 kbps codec). But in general the consumer are smarter than that. Probably the best is to maintain a per time-unit charge or to Blend in the voice usage & pricing into the Mega Byte Data Price Plan (and hope you have done your math right).

Example (a very simple one): Say you have 500 MB mobile data price plan at 5 US$-cent per MB (i.e., 25 US$). You also have a 300 Minute Mobile Voice Plan of 2.7 US$-cent a minute (or 30 US$-cent per MB). Now 300 Minutes corresponds roughly to 30 MB of Voice Usage and would be charged ca. 9$. Instead of having a Data & Voice Plan, one might have only the Data Plan charging (500 MB x 5 US$cent/MB + 30 MB x 30 US$/cent/MB) / 530 MB or 6.4 US$-cent per MB (or 1.4 US$-cent more for mobile voice over the data plan or a 30% surcharge for Voice on the Mobile Data Bytes). Obviously such a pricing strategy (while simple) does pose some price strategic challenges and certainly does not per se completely safeguard voice revenue erosion. Keeping Mobile Voice separately from Mobile Data (i.e., Minutes vs Mega Bytes) in my opinion will remain the better strategy. Although such a minutes-based strategy is easily disrupted by innovative VoIP applications and data-only entrepreneurs (as well as Regulator Authorities).

Re-balancing (or re-capture) the voice revenue in data-centric price plans are non-trivial and prone to trial-and-error. Nevertheless it is clearly an important pricing strategy area to focus on in order to defend existing mobile voice revenues from evaporating or devaluing by the mobile data price plan association.

Is Voice-based communication for the Masses (as opposed to SME, SOHO, B2B,Niche demand, …) technologically un-interesting? As a techno-economist I would say far from it. From the GSM to HSPA and towards LTE, we have observed a quantum leap, a factor 10, in voice spectral efficiency (or capacity), substantial boost in link-budget (i.e., approximately 30% more geographical area can be covered with UMTS as opposed to GSM in apples for apples configurations) and of course increased quality (i.e., high-definition or crystal clear mobile voice). The below Figure illustrates the progress in voice capacity as a function of mobile technology. The relative voice spectral efficiency data in the below figure has been derived from one of the best (imo) textbooks on mobile voice “Voice over LTE” by Miikki Poikselka et all (Wiley, 2012);

voice spectral capacity

  • Figure Above: Abbreviation guide;  EFR: Enhanced Full Rate, AMR: Adaptive Multi-Rate, DFCA: Dynamic Frequency & Channel Allocation, IC: Interference Cancellation. What might not always be appreciate is the possibility of defining voice over HSPA, similar to Voice over LTE. Source: “Voice over LTE” by Miikki Poikselka et all (Wiley, 2012).

If you do a Google Search on Mobile Voice you would get ca. 500 Million results (note Voice over IP only yields 100+ million results). Try that on Mobile Data and “sham bam thank you mam” you get 2+ Billion results (and projected to increase further). For most of us working in the Telecom industry we spend very little time on voice issues and an over-proportionate amount of time on broadband data. When you tell your Marketing Department that a state-of-the-art 3G can carry at least twice as much voice traffic than state-of-the –art GSM (and over 30% more coverage area) they don’t really seem to get terribly exited? Voice is un-sexy!? an afterthought!? … (don’t even go brave and tell Marketing about Voice over LTE, aka VoLTE).

Is Mobile Voice Dead or at the very least Dying?

Is Voice un-interesting, something to be taken for granted?

Is Voice “just” data and should be regarded as an add-on to Mobile Data Services and Propositions?

From a Mobile Revenue perspective mobile voice is certainly not something to be taken for granted or just an afterthought. In 2013, mobile voice still amounted for 60+% of he total global mobile turnover, with mobile data taking up ca. 40% and SMS ca. 10%. There are a lot of evidence that SMS is dying out quickly with the emergence of smartphones and Messaging-over-IP-based mobile application (SMS – Assimilation is inevitable, Resistance is Futile!). Not particular surprising given the pricing of SMS and the many very attractive IP-based alternatives. So are there similar evidences of mobile voice dying?

NO! NIET! NEM! MA HO BU! NEJ! (not any time soon at least)

Lets see what the data have to say about mobile voice?

In the following I only provide a Regional but should there be interest I have very detailed deep dives for most major countries in the various regions. In general there are bigger variations to the regional averages in Middle East & Africa (i.e., MEA) as well as Asia Pacific (i.e., APAC) Regions, as there is a larger mix of mature and emerging markets with fairly large differences in mobile penetration rates and mobile data adaptation in general. Western Europe, Central Eastern Europe, North America (i.e., USA & Canada) and Latin America are more uniform in conclusions that can reasonably be inferred from the averages.

As shown in the Figure below, from 2009 to 2013, the total amount of mobile minutes generated globally increased with 50+%. Most of that increase came from emerging markets as more share of the population (in terms of individual subscribers rather than subscriptions) adapted mobile telephony. In absolute terms, the global mobile voice revenues did show evidence of stagnation and trending towards decline.

mobile revenues & mou growth 

  • Figure Above: Illustrates the development & composition of historical Global Mobile Revenues over the period 2009 to 2013. In addition also shows the total estimated growth of mobile voice minutes (i.e., Red Solid Curve showing MoUs in units of Trillions) over the period. Sources: Pyramid Research & Statista. It should noted that various data sources actual numbers (over the period) are note completely matching. I have observed a difference between various sources of up-to 15% in actual global values. While interesting this difference does not alter the analysis & conclusions presented here.

If all voice minutes was charged with the current Rate of Mobile Data, approximately Half-a-Billion US$ would evaporate from the Global Mobile Revenues.

So while mobile voice revenues might not be a positive growth story its still “sort-of” important to the mobile industry business.

Most countries in Western & Central Eastern Europe as well as mature markets in Middle East and Asia Pacific shows mobile voice revenue decline (in absolute terms and in their local currencies). For Latin America, Africa and Emerging Mobile Data Markets in Asia-Pacific almost all exhibits positive mobile voice revenue growth (although most have decelerating growth rates).

voice rev & mous

  • Figure Above: Illustrates the annual growth rates (compounded) of total mobile voice revenues and the corresponding growth in mobile voice traffic (i.e., associated with the revenues). Some care should be taken as for each region US$ has been used as a common currency. In general each individual country within a region has been analysed based on its own local currency in order to avoid mixing up currency exchange effects. Source: Pyramid Research.

Of course revenue growth of the voice service will depend on (1) the growth of subscriber base, (2) the growth of the unit itself (i.e., minutes of voice usage) as it is used by the subscribers (i.e., which is likely influenced by the unit price), and (3) the development of the average voice revenue per subscriber (or user) or the unit price of the voice service. Whether positive or negative growth of Revenue results, pretty much depends on the competitive environment, regulatory environment and how smart the business is in developing its pricing strategy & customer acquisition & churn dynamics.

Growth of (unique) mobile customers obviously depends the level of penetration, network coverage & customer affordability. Growth in highly penetrated markets is in general (much) lower than growth in less mature markets.

subs & mou growth

  • Figure Above: Illustrates the annual growth rates (compounded) of unique subscribers added to a given market (or region). Further to illustrate the possible relationship between increased subscribers and increased total generated mobile minutes the previous total minutes annual growth is shown as well. Source: Pyramid Research.

Interestingly, particular for the North America Region (NA), we see an increase in unique subscribers of 11% per anno and hardly any growth over the  period of total voice minutes. Firstly, note that the US Market will dominate the averaging of the North America Region (i.e., USA and Canada) having approx. 13 times more subscribers. So one of the reasons for this no-minutes-growth effect is that the US market saw a substantial increase in the prepaid ratio (i.e., from ca.19% in 2009 to 28% in 2013). Not only were new (unique) prepaid customers being added. Also a fairly large postpaid to prepaid migration took place over the period. In the USA the minute usage of a prepaid is ca. 35+% lower than that of a postpaid. In comparison the Global demanded minutes difference is 2.2+ times lower prepaid minute usage compared to that of a postpaid subscriber). In the NA Region (and of course likewise in the USA Market) we observe a reduced voice usage over the period both for the postpaid & prepaid segment (based on unique subscribers). Thus increased prepaid blend in the overall mobile base with a relative lower voice usage combined with a general decline in voice usage leads to a pretty much zero growth in voice usage in the NA Market. Although the NA Region is dominated by USA growth (ca. 0.1 % CAGR total voice growth), Canada’s likewise showed very minor growth in their overall voice usage as well (ca. 3.8% CAGR). Both Canada & USA reduced their minute pricing over the period.

  • Note on US Voice Usage & Revenues: note that in both in US and in Canada also the receiving party pays (RPP) for receiving a voice call. Thus revenue generating minutes arises from both outgoing and incoming minutes. This is different from most other markets where the Calling Party Pays (CPP) and only minutes originating are counted in the revenue generation. For example in USA the Minutes of Use per blended customer was ca. 620 MoU in 2013. To make that number comparable with say Europe’s 180 MoU, one would need to half the US figure to 310 MoU still a lot higher than the Western European blended minutes of use. The US bundles are huge (in terms of allowed minutes) and likewise the charges outside bundles (i.e., forcing the consumer into the next one) though the fixed fees tends be high to very high (in comparison with other mobile markets). The traditional US voice plan would offer unlimited on-net usage (i.e., both calling & receiving party are subscribing to the same mobile network operator) as well as unlimited off-peak usage (i.e., evening/night/weekends). It should be noted that many new US-based mobile price plans offers data bundles with unlimited voice (i.e., data-centric price plans). In 2013 approximately 60% of the US mobile industry’s turnover could be attributed to mobile voice usage. This number is likely somewhat higher as some data-tariffs has voice-usage (e.g., typically unlimited) embedded. In particular the US mobile voice business model would be depending customer migration to prepaid or lower-cost bundles as well as how well the voice-usage is being re-balanced (and re-captured) in the Data-centric price plans.

The second main component of the voice revenue is the unit price of a voice minute. Apart from the NA Region, all markets show substantial reductions in the unit price of a minute.mou & minute price growth

  • Figure Above: Illustrating the annual growth (compounded) of the per minute price in US$-cents as well as the corresponding growth in total voice minutes. The most affected by declining growth is Western Europe & Central Eastern Europe although other more-emerging markets are observed to have decelerating voice revenue growth. Source: Pyramid Research.

Clearly from the above it appears that the voice “elastic” have broken down in most mature markets with diminishing (or no return) on further minute price reductions. Another way of looking at the loss (or lack) of voice elasticity is to look at the unit-price development of a voice-minute versus the growth of the total voice revenues;

elasticity

  • Figure Above: Illustrates the growth of Total Voice Revenue and the unit-price development of a mobile voice minute. Apart from the Latin America (LA) and Asia Pacific (APAC) markets there clearly is no much further point in reducing the price of voice. Obviously, there are other sources & causes, than the pure gain of elasticity, effecting the price development of a mobile voice minute (i.e., regulatory, competition, reduced demand/voice substitution, etc..). Note US$ has been used as the unifying currency across the various markets. Despite currency effects the trend is consistent across the markets shown above. Source: Pyramid Research.

While Western & Central-Eastern Europe (WEU & CEE) as well as the mature markets in Middle East and Asia-Pacific shows little economic gain in lowering voice price, in the more emerging markets (LA and Africa) there are still net voice revenue gains to be made by lowering the unit price of a minute (although the gains are diminishing rapidly). Although most of the voice growth in the emerging markets comes from adding new customers rather than from growth in the demand per customer itself.

voice growth & uptake

  • Figure Above: Illustrating possible drivers for mobile voice growth (positive as well as negative); such as Mobile Data Penetration 2013 (expected negative growth impact), increased number of (unique) subscribers compared to 2009 (expected positive growth impact) and changes in prepaid-postpaid blend (a negative %tage means postpaid increased their proportion while a positive %tage translates into a higher proportion of prepaid compared to 2009). Voice tariff changes have been observed to have elastic effects on usage as well although the impact changes from market to market pending on maturity. Source: derived from Pyramid Research.

With all the talk about Mobile Data, it might come as a surprise that Voice Usage is actually growing across all regions with the exception of North America. The sources of the Mobile Voice Minutes Growth are largely coming from

  1. Adding new unique subscribers (i.e., increasing mobile penetration rates).
  2. Transitioning existing subscribers from prepaid to postpaid subscriptions (i.e., postpaid tends to have (a lot) higher voice usage compared to prepaid).
  3. General increase in usage per individual subscriber (i.e., few markets where this is actually observed irrespective of the general decline in the unit cost of a voice minute).

To the last point (#3) it should be noted that the general trend across almost all markets is that Minutes of Use per Unique customer is stagnating and even in decline despite substantial per unit price reduction of a consumed minute. In some markets that trend is somewhat compensated by increase of postpaid penetration rates (i.e., postpaid subscribers tend to consume more voice minutes). The reduction of MoUs per individual subscriber is more significant than a subscription-based analysis would let on.

Clearly, Mobile Voice Usage is far from Dead

and

Mobile Voice Revenue is a very important part of the overall mobile revenue composition.

It might make very good sense to spend a bit more time on strategizing voice, than appears to be the case today. If mobile voice remains just an afterthought of mobile data, the Telecom industry will loose massive amounts of Revenues and last but not least Profitability.

 

Post Script: What drives the voice minute growth?

An interesting exercise is to take all the data and run some statistical analysis on it to see what comes out in terms of main drivers for voice minute growth, positive as well as negative. The data available to me comprises 77 countries from WEU (16), CEE (8), APAC (15), MEA (17), NA (Canada & USA) and LA (19). I am furthermore working with 18 different growth parameters (e.g., mobile penetration, prepaid share of base, data adaptation, data penetration begin of period, minutes of use, voice arpu, voice minute price, total minute volume, customers, total revenue growth, sms, sms price, pricing & arpu relative to nominal gdp etc…) and 7 dummy parameters (populated with noise and unrelated data).

Two specific voice minute growth models emerges our of a comprehensive analysis of the above described data. The first model is as follows

(1) Voice Growth correlates positively with Mobile Penetration (of unique customers) in the sense of higher penetration results in more minutes, it correlates negatively with Mobile Data Penetration at the begin of the period (i.e., 2009 uptake of 3G, LTE and beyond) in the sense that higher mobile data uptake at the begin of the period leads to a reduction of Voice Growth, and finally  Voice Growth correlates negatively with the Price of a Voice Minute in the sense of higher prices leads to lower growth and lower prices leads to higher growth.  This model is statistically fairly robust (e.g., a p-values < 0.0001) as well as having all parameters with a statistically meaningful confidence intervals (i.e., upper & lower 95% confidence interval having the same sign).

The Global Analysis does pin point to very rational drivers for mobile voice usage growth, i.e., that mobile penetration growth, mobile data uptake and price of a voice minute are important drivers for total voice usage. 

It should be noted that changes in the prepaid proportion does not appear statistically to impact voice minute growth.

The second model provides a marginal better overall fit to the Global Data but yields slightly worse p-values for the individual descriptive parameters.

(2) The second model simply adds the Voice ARPU to (nominal) GDP ratio to the first model. This yields a negative correlation in the sense that a low ratio results in higher voice usage growth and a higher ration in lower voice usage growth.

Both models describe the trends or voice growth dynamics reasonably well, although less convincing for Western & Central Eastern Europe and other more mature markets where the model tends to overshoot the actual data. One of the reasons for this is that the initial attempt was to describe the global voice growth behaviour across very diverse markets.

mou growth actual vs model

  • Figure Above: Illustrates total annual generated voice minutes compound annual growth rate (between 2009 and 2013) for 77 markets across 6 major regions (i.e., WEU, CEE, APAC, MEA, NA and LA). The Model 1 shows an attempt to describe the Global growth trend across all 77 markets within the same model. The Global Model is not great for Western Europe and part of the CEE although it tends to describe the trends between the markets reasonably.

w&cee growth

  • Figure Western & Central Eastern Region: the above Illustrates the compound annual growth rate (2009 – 2013) of total generated voice minutes and corresponding voice revenues. For Western & Central Eastern Europe while the generated minutes have increased the voice revenue have consistently declined. The average CAGR of new unique customers over the period was 1.2% with the maximum being little less than 4%.

apac growth

  • Figure Asia Pacific Region: the above Illustrates the compound annual growth rate (2009 – 2013) of total generated voice minutes and corresponding voice revenues. For the Emerging market in the region there is still positive growth of both minutes generated as well as voice revenue generated. Most of the mature markets the voice revenue growth is negative as have been observed for mature Western & Central Eastern Europe.

mea growth

  • Figure Middle East & Africa Region: the above Illustrates the compound annual growth rate (2009 – 2013) of total generated voice minutes and corresponding voice revenues. For the Emerging market in the region there is still positive growth of both minutes generated as well as voice revenue generated. Most of the mature markets the voice revenue growth is negative as have been observed for mature Western & Central Eastern Europe.

    na&la growth

  • Figure North & Latin America Region: the above Illustrates the compound annual growth rate (2009 – 2013) of total generated voice minutes and corresponding voice revenues. For the Emerging market in the region there is still positive growth of both minutes generated as well as voice revenue generated. Most of the mature markets the voice revenue growth is negative as have been observed for mature Western & Central Eastern Europe.

    PS.PS. Voice Tariff Structure

  • Typically the structure of a mobile voice tariff (or how the customer is billed) is structure as follows

    • Fixed charge / fee

      • This fixed charge can be regarded as an access charge and usually is associated with a given usage limit (i.e., $ X for Y units of usage) or bundle structure.
    • Variable per unit usage charge

      • On-net – call originating and terminating within same network.
      • Off-net – Domestic Mobile.
      • Off-net – Domestic Fixed.
      • Off-net – International.
      • Local vs Long-distance.
      • Peak vs Off-peak rates (e.g., off-peak typically evening/night/weekend).
      • Roaming rates (i.e., when customer usage occurs in foreign network).
      • Special number tariffs (i.e., calls to paid-service numbers).

    How a fixed vis-a-vis variable charges are implemented will depend on the particularity of a given market but in general will depend on service penetration and local vs long-distance charges.

  • Acknowledgement

    I greatly acknowledge my wife Eva Varadi for her support, patience and understanding during the creative process of creating this Blog. I certainly have not always been very present during the analysis and writing. Also many thanks to Shivendra Nautiyal and others for discussing and challenging the importance of mobile voice versus mobile data and how practically to mitigate VoIP cannibalization of the Classical Mobile Voice.

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    Mobile Data Growth … The Perfect Storm? (PART 1)

    The Perfect Mobile Data StormSmartphone Challenge and by that the Signalling Storm

    Mobile Operators hit by the Mobile Data Tsunami … tumbling over mobile networks … leading to

    Spectrum Exhaustion

    and

    Cash Crunch

    and

    Financial disaster (as cost of providing mobile data exceeds the revenues earned from mobile data).

    as Mobile Operators tries to cope with hyper-inflationary growth of data usage.

    Will LTE be ready in time?

    Will LTE be sufficient remedying the mobile data growth observed the last couple of years?

    The Mobile Industry would have been better off if Data Consumption had stayed “Fixed”? Right! …Right?

    At this time my Twitter Colleague Dean Bubley (@Disruptivedean) will be near critical meltdown 😉 …

    Dean Bubley (Disruptive Wireless) is deeply skeptical about the rhetoric around the mobile data explosion and tsunamis, as he has accounted for in a recent Blog “Mobile data traffic growth – a thought experiment and forecast”. Dean hints at possible ulterior motives behind the dark dark picture of the mobile data future painted by the Mobile Industry.

    I do not share Dean’s opinion (re:ulterior motives in particular, most of his other thoughts on cellular data growth are pretty OK!). It almost suggest a Grand Mobile Industry Conspiracy in play … Giving the Telco Industry a little too much credit … Rather than the simple fact that we as an industry (in particular the Marketing side of things) tends to be govern by the short term. Being “slaves of anchoring bias” to the most recent information available to us (i.e, rarely more than the last 12 or so month).

    Of course Technology Departments in the Mobile Industry uses the hyper-growth of Cellular Data to get as much Capex as possible. Ensure sufficient capacity overhead can be bought and build into the Mobile Networks, mitigating the uncertainty and complexity of Cellular data growth.

    Cellular Data is by its very nature a lot more difficult to forecast and plan for than the plain old voice service.

    The Mobile Industry appears to suffer from Mobile Data AuctusphopiaThe Fear of Growth (which is sort of “funny” as the first ca. 4 – 5 years of UMTS, we all were looking for growth of data, and of course the associated data revenues, that would make our extremely expensive 3G spectrum a somewhat more reasonable investment … ).

    The Mobile Industry got what it wished for with the emergence of the Smartphone (Thanks Steve!).

    Why Data Auctusphopia? … ?

    Let’s assume that an operator experienced a Smartphone growth rate of 100+% over the last 12 month. In addition, the operator also observes the total mobile data volume demand growing with 250+% (i.e., not uncommon annual growth rates between 2010 and 2011). Its very tempting (i.e., it is also likely to be very wrong!) to use the historical growth rate going forward without much consideration for the underlying growth dynamics of technology uptake, migration and usage-per-user dynamics. Clearly one would be rather naive NOT to be scared about the consequences of a sustainable annual growth rate of 250%! (irrespective of such thinking being flawed).

    Problem with this (naive) “forecasting” approach is that anchoring on the past is NOT likely to be a very good predictor for longer/long term expectations.

    THE GROWTH ESSENTIALS – THE TECHNOLOGY ADAPTATION.

    To understand mobile data growth, we need to look at minimum two aspects of Growth:

    1. Growth of users (per segment) using mobile data (i.e., data uptake).
    2. Growth of data usage per user segment (i.e., segmentation is important as averages across a whole customer base can be misleading).

    i.e., Growth can be decomposed into uptake rate of users  and growth of these users data consumption, i.e., CAGR_Volume = (1 + CAGR_Users) x (1+CAGR_Usage) – 1.

    The segmentation should be chosen with some care, although a split in Postpaid and Prepaid should be a minimum requirement. Further refinements would be to include terminal type & capabilities, terminal OS, usage categories, pricing impacts, etc.. and we see that the growth prediction process very rapidly gets fairly complex, involving a high amount of uncertain assumptions. Needless to say that Growth should be considered per Access Technology, i.e., split in GPRS/EDGE, 3G/HSPA, LTE/LTE-a and WiFi.

    Let’s have a look at (simple) technology growth of a new technology or in other words the adaptation rate.

    The above chart illustrates the most common uptake trend that we observe in mobile networks (and in many other situations of consumer product adaptation). The highest growth rates are typically observed in the beginning. Over time the growth rate slows down as saturation is reached. In other words the source of growth has been exhausted.

    At Day ZERO there where ZERO 3G terminals and their owners.

    At Day ONE some users had bought 3G terminals (e..g, Nokia 6630).

    Between Zero and Some, 3G terminals amounts to an Infinite growth rate … So Wow! … Helpful … Not really!

    Some statistics:

    In most countries it has taken on average 5 years to reach a 20% 3G penetration.

    The KA moment of 3G uptake really came with the introduction of the iPhone 3 (June 9 2008) and HTC/Google G1 (October 2008) smartphones.

    Simplified example: in 4 years a Mobile Operator’s 3G uptake went from 2% to 20%. An compounded annual growth rate (CAGR) of at least 78%. Over the same period the average mobile (cellular!) data consumption per user increased by a factor 15 (e.g., from 20MB to 300MB), which gives us a growth rate of 97% per anno. Thus the total volume today is at least 150 times that of 4 years ago or equivalent to an annual growth rate 250%!

    Geoffrey A. Moore’s book “Crossing the Chasm” (on Marketing and Selling High-Tech products to mainstream customers) different segmentation of growth have been mapped out in (1) Innovators (i.e., first adopters), (2) Early Adoptors, (3) Early Majority, (4) Late Majority and (5) The Laggards.

    It is fairly common to ignore the Laggards in most analysis, as these do not cause direct problems for new technology adaptation. However, in mobile networks Laggards can become a problem if they prevent the operator to re-farm legacy spectrum by refusing to migrate, e.g., preventing GSM 900MHz spectrum to be re-purposed to UMTS or GSM 1800 to be re-purposed to LTE.

    Each of the stages defined by Geoffrey Moore correspond to a different time period in the life cycle of a given product and mapped to above chart on technology uptake looks like this:

    In the above “Crossing the Chasm” chart I have imposed Moore’s categories on a logistic-like (or S-curve shaped) cumulative distribution function rather than the Bell Shaped (i.e., normal distribution) chosen in his book.

    3G adaptation has typically taken ca. 5+/-1 years from launch to reach the stage of Early Majority.

    In the mobile industry its fairly common for a user to have more than 1 device (i.e., handset typically combined with data stick, tablet, as well as private & work related device split, etc..). In other words, there are more mobile accounts than mobile users.

    In 2011, Western Europe had ca. 550 Million registered mobile accounts (i.e., as measured by active SIM Cards) and a population of little over 400 Million. Thus a mobile penetration of ca. 135% or if we consider population with a disposable income 160+%.

    The growth of 3G users (i.e., defined as somebody with a 3G capable terminal equipment) have been quiet incredible with initial annual growth rates exceeding 100%. Did this growth rate continue? NO it did NOT!

    As discussed previously, it is absolutely to be expected to see very high growth rates in the early stages or technology adaptation. The starting is Zero or Very Low and incremental additions weight more in the beginning than later on in the adaptation process.

    The above chart (“CAGR of 3G Customer Uptake vs 3G Penetration”) illustrates the annual 3G uptake growth rate data points, referenced to the year of 10% penetration, for Germany, Netherlands and USA (i.e., which includes CDMA2000). It should be noted that 3G Penetration levels above 50+% are based on Pyramid Research projections.

    The initial growth rates are large and then slows down as the 3G penetration increases.

    As saturation is reached the growth rate comes almost to a stop.

    3G saturation level is expected to be between 70% and 80+% … When LTE takes over!

    For most Western European markets the saturation is expected to be reached between 2015 – 2018 and sooner in the USA … LTE takes over!

    The (diffusion) process of Technology uptake can be described by S-shaped curves (e.g., as shown in “Crossing the Chasm”). The simplest mathematical description is a symmetric logistic function (i..e, Sigmoid) that only depends on time. The top solid (black) curve shows the compounded annual growth rate, referenced to the Year of 10% 3G penetration, vs 3G penetration. Between 10% and 15% 3G penetration the annual growth rate is 140%, between 10% and 50% its “only” 108% and drops to 65% at 90% 3G penetration (which might never be reached as users starts migrating to LTE).

    The lower dashed (black) curve is a generalized logistic function that provides a higher degree of modelling flexibility accounting for non-symmetric adaptation rate pending on the 3G penetration. No attempt of curve fitting to the data has been applied in the chart above. I find the generalized logistic function in general can be made to agree well with actual uptake data. Growth here is more modest with 72% (vs 140% for the Simple Logistic representation), 57% (vs 108%) and 35% (vs 65%). Undershooting in the beginning of the growth process (from 10% ->;20%: Innovators & Early Adopters phase) but representing actual data after 20% 3G penetration (Early and Late Majority).

    Finally, I have also included the Gomperz function (also sigmoid) represented by light (grey) dashed line in between the Simple and Generalized Logistic Functions. The Gomperz function has found many practical applications describing growth. The parameters of the Gormperz function can be chosen so growth near lower and upper boundaries are different (i.e., asymmetric growth dynamics near the upper and lower asymptotes).

    As most mature 3G markets have passed 50% 3G penetration (i.e., eating into the Late Majority) and approaching saturation, one should expect to see annual growth rates of 3G uptake to rapidly reduce. The introduction of LTE will also have a substantial impact of the 3G uptake and growth.

    Of course the above is a simplification of the many factors that should be considered. It is important that you;

    1. Differentiate between Prepaid & Postpaid.
    2. Consider segmentation (e.g., Innovator, First Adopter, Early Majority & Late Majority).
    3. Projections should Self-consistent with market dynamics: i.e., Gross Adds, Churn, hand-down and upgrade dynamics within Base, etc…

    THE GROWTH ESSENTIALS – THE CELLULAR USAGE.

    In the following I will focus on Cellular (or Mobile) data consumption. Thus any WiFi consumption on public, corporate or residential access points are deliberately not considered in the following. Obviously, in cellular data demand forecasting WiFi usage can be important as it might be a potential source for cellular consumption via on-loading. In particular with new and better performing cellular technologies are being introduced (i.e., LTE / LTE advanced). Also price plan policy changes might result in higher on-load of the cellular network (at least if that network is relative unloaded and with lots of spare capacity).

    It should come as no surprise that today the majority of mobile data consumers are Postpaid.

    Thus, most of the average data usage being reported are based on the Postpaid segment. This also could imply that projecting future usage based on past and current usage could easily overshoot. Particular if Prepaid consumption would be substantially lower than Postpaid data consumption. The interesting and maybe somewhat surprising is that Active Prepaid mobile data consumers can have a fairly high data consumption (obviously pending price plan policy). In the example shown below, for an Western European Operator with ca. 50%:50% Postpaid – Prepaid mix, the Postpaid active mobile data consumers are 85% of total Postpaid Base. The Mobile Data Active Prepaid base only 15% (though growing fast).

    The illustrated data set, which is fairly representative for an aggressive smartphone operation, have an average data consumption of ca. 100MB (based on whole customer base) and an Active Average consumption of ca. 350MB. Though fairly big consumptive variations are observed within various segments of the customer base.

    The first 4 Postpaid price plans are Smartphone based (i.e., iOS and Android) and comprises 80% of all active devices on the Network. “Other Postpaid” comprises Basic Phones, Symbian and RIM devices. The Active Prepaid device consumption are primarily Android based.

    We observe that the following:

    1. Unlimited price plan results in the highest average volumetric usage (“Unlimited Postpaid” & “Postpaid 1″ price plans are comparable in device composition. The difference is in one being unlimited the other not).
    2. Unlimited average consumption dominated by long tail towards extreme usage (see chart below).
    3. Smartphone centric postpaid price plans tend to have a very high utilization percentage (90+%).
    4. Active Prepaid Data Consumption (200MB) almost as high as less aggressive smartphone (210MB) price plans (this is however greatly depending on prepaid price policy).

    The above chart “Cellular Data Consumption Distribution” illustrates the complexity of technology and cellular data consumption even within different price plan policies. Most of the distributions consist of up-to 4 sub-segments of usage profiles.Most notably is the higher consumption segment and the non-/very-low consumptive segment.

    There are several observations worth mentioning:

    • Still a largely untapped Prepaid potential (for new revenue as well as additional usage).
    • 15% of Postpaid consumers are data inactive (i.e., Data Laggards).
    • 40% of active Postpaid base consumes less than 100MB or less than 1/4 of the average high-end Smartphone usage.

    Clearly, the best approach to come to a meaningful projection of cellular data usage (per consumer) would be to consider all the above factors in the estimate.

    However, there is a problem!

    The Past Trends may not be a good basis for predicting Future Trends!

    Using The Past we might risk largely ignoring:

    1. Technology Improvements that would increase cellular data consumption.
    2. New Services that would boost cellular data usage per consumer.
    3. New Terminal types that would lead to another leapfrog in cellular data consumption.
    4. Cellular Network Congestion leading to reduced growth of data consumption (i.e., reduced available speed per consumer, QoS degradation, etc..).
    5. Policy changes such as Cap or allowing Unlimited usage.

    Improvements in terminal equipment performance (i.e., higher air interface speed capabilities, more memory, better CPU performance, larger / better displays, …) should be factored into the cellular data consumption as the following chart illustrates (for more details see also Dr. Kim’s Slideshare presentation on “Right Pricing Mobile Broadband: Examing The Business Case for Mobile Broadband”).

    I like to think about every segment category has its own particular average data usage consumption. A very simple consideration (supported by real data measurements) would to expect to find the extreme (or very high) data usage in the Innovator and Early Adopter segments and as more of the Majority (Early as well as Late) are considered the data usage reduces. Eventually at Laggards segment hardy any data usage is observed.

    It should be clear that the above average usage-distribution profile is dynamic. As time goes by the distribution would spread out towards higher usage (i.e., the per user per segment inflationary consumption). At the same time as increasingly more of the customer base reflects the majority of the a given operators customer base (i.e., early and late majority)

    Thus over time it would be reasonable to expect that?

    The average volumetric consumption could develop to an average that is lower than when Innovators & Early Adopters dominated.

    Well maybe!? Maybe not?!

    The usage dynamics within a given price plan is non-trivial (to say the least) and we see in general a tendency towards higher usage sub-segment (i.e., within a given capped price plan). The following chart (below) is a good example of the data consumption within the same Capped Smartphone price plan over an 12 month period. The total amount of consumers in this particular example have increased 2.5 times over the period.

    It is clear from above chart that over the 12 month period the higher usage sub-segment has become increasingly popular. Irrespective the overall average (including non-active users of this Smartphone price plan) has not increased over the period.

    Though by no means does this need to be true for all price plans. The following chart illustrates the dynamics over a 12 month period of an older Unlimited Smartphone price plan:

    Here we actually observe a 38% increase in the average volumetric consumption per customer. Over the period the ca. 50% of customers in this price plan have dropped out leaving primarily heavy users enjoy the benefits on unlimited consumption.

    There is little doubt that most mature developed markets with a long history of 3G/HSPA will have reached a 3G uptake level that includes most of the Late Majority segment.

    However, for the prepaid segment it is also fair to say that most mobile operators are likely only to have started approach and appeal to Innovators and Early Adopters. The chart below illustrates the last 12 month prepaid cellular consumptive behavior.

    In this particular example ca. 90% of the Prepaid customer base are not active cellular data consumers (this is not an unusual figure). Even over the period this number has not changed substantially. The Active Prepaid consumes on average 40% more cellular data than 12 month ago. There is a strong indication that the prepaid consumptive dynamics resembles that Postpaid.

    Data Consumption is a lot more complex than Technology Adaptation of the Cellular Customer.

    The data consumptive dynamics is pretty much on a high level as follows;

    1. Late (and in some case Early) Majority segments commence consuming cellular data (this will drag down the overall average).
    2. Less non-active cellular data consumers (beside Laggards) ->; having an upward pull on the average consumption.
    3. (in particular) Innovator & Early Adopters consumption increases within limits of given price plan (this will tend to pull up the average).
    4. General migration upwards to higher sub-segmented usage (pulling the overall average upwards).
    5. If Capped pricing is implemented (wo any Unlimited price plans in effect) growth will slow down as consumers approach the cap.

    We have also seen that it is sort of foolish to discuss a single data usage figure and try to create all kind of speculative stories about such a number.

    BRINGING IT ALL TOGETHER.

    So what’s all this worth unless one can predict some (uncertain) growth rates!

    WESTERN EUROPE (AT, BE, DK, FIN, F, DE,GR,IRL,IT,NL,N,P, ESP, SE, CH, UK,)

    3G uptake in WEU was ca. 60% in 2011 (i.e., ca. 334 Million 3G devices). This correspond to ca. 90% of all Postpaid customers and 32% of all Prepaid users have a 3G device. Of course it does not mean that all of these are active cellular data users. Actually today (June 2012) ca. 35% of the postpaid 3G users can be regarded as non-active cellular user and for prepaid this number may be as high as 90%.

    For Western Europe, I do not see much more 3G additions in the Postpaid segment. It will be more about replacement and natural upgrade to higher capable devices (i.e., higher air interface speed, better CPU, memory, display, etc..). We will see an increasing migration from 3G Postpaid towards LTE Postpaid. This migration will really pick-up between 2015 and 2020 (Western Europe lacking behind LTE adaptation in comparison with for example USA and some of the Asian Pacific countries). In principle this could also mean that growth of 3G postpaid cellular data consumption could rapidly decline (towards 2020) and we would start seeing overall cellular data usage decline rather than increase of 3G Postpaid data traffic.

    Additional Cellular data growth may come from the Prepaid segment. However, still a very large proportion of this segment is largely data in-active in Western Europe. There are signs that, depending on the operator prepaid price plan policy, prepaid consumption appears to be fairly similar to Postpaid on a per user basis.

    3G Growth Projections for Western Europe (reference year 2011):

    Above assumes that usage caps will remain. I have assumed this to be 2GB (on average for WEU). Further in above it is assumed that the Prepaid segment will remain largely dominated by Laggards (i.e., in-active cellular data users) and that the active Prepaid cellular data users have consumption similar to Postpaid.

    Overall 3G Cellular data growth for Western Europe to between 3x to no more than 4x (for very aggressive prepaid cellular data uptake & growth) over the period 2011 to 2016.

    Postpaid 3G Cellular data growth will flatten and possible decline towards the end of 2020.

    More agresive LTE Smartphone uptake (though on average across Western European appears unlikely) could further release 3G growth pains between 2015 – 2020.

    Innovators & Early Adopters, who demand the most of the 3G Cellular Networks, should be expected to move quickly to LTE (as coverage is provided) off-loading the 3G networks over-proportionally.

    The 3G cellular growth projections are an Average consideration for Western Europe where most of the postpaid 3G growth has already happen with an average of 60% overall 3G penetration. As a rule of thumb: the lower the 3G penetration the higher the CAGR growth rates (as measured from a given earlier reference point).

    In order to be really meaningful and directly usable to a Mobile Operator, the above approach should be carried out for a given country and a given operator conditions.

    The above growth rates are lower but within range of my Twitter Colleague Dean Bubley (@Disruptivedean) states as his expectations for Developed Markets in his Blog “Mobile data traffic growth – a thought experiment and forecast”. Not that it makes it more correct or more wrong! Though for any one who spend a little time on the growth fundamentals of existing Western European mobile data markets would not find this kind of growth rate surprising.

    So what about LTE growth? … well given that we today (in Western Europe) have very very little installed base LTE devices on our networks … the growth or uptake (seen as on its own) is obviously going to be very HIGH the first 5 to 7 years (depending on go to market strategies).

    What will be particular interesting with the launch of LTE is whether we will see an on-loading effect of the cellular LTE network from todays WiFi usage. Thomas Wehmeier (Principal Analyst, Telco Strategy, Informa @Twehmeier) has published to very interesting and study worthy reports on Cellular and WiFi Smartphone Usage (see “Understanding today’s smartphone user: Demystifying data usage trends on cellular & Wi-Fi networks” from Q1 2012 as well as Thomas’s sequential report from a couple of weeks ago “Understanding today’s smartphone user: Part 2: An expanded view by data plan size, OS, device type and LTE”).

    THE CLIFFHANGER

    Given the dramatic beginning of my Blog concerning the future of the Mobile Industry and Cellular data … and to be fair to many of the valid objections that Dean Bubley‘s has raised in his own Blog and in his Tweets … I do owe the reader who got through this story some answer …

    I have no doubt (actually I know) that there mobile operators (around the world) that already today are in dire straits with their spectral resources due to very aggressive data growth triggered by the Smartphone. Even if growth has slowed down as their 3G customers (i.e., Postpaid segment) have reached the Late Majority (and possible fighting Laggards) that lower growth rate still causes substantial challenges to provide sufficient capacity & not to forget quality.

    Yes … 3G/HSPA+ Small Cells (and DAS-like solutions) will help mitigate the growing pains of mobile operators, Yes … WiFi off-load too, Yes … LTE & LTE-advanced too will help. Though the last solution will not be much of a help before critical mass of LTE terminals have been reached (i.e., ca. 20% = Innovators + Early Adopters).

    Often forgotten is traffic management and policy remedies (not per see Fair Use Policy though!) are of critical importance too in the toolset of managing cellular data traffic.

    Operators in emerging markets and in markets with a relative low 3G penetration, better learn the Growth Lessons from the AT&T’s and other similar Front Runners in the Cellular Data and Smartphone Game.

    1. Unless you manage cellular data growth from the very early days, you are asking for (in-excusable) growth problems.
    2. Being Big in terms of customers are not per see a blessing if you don’t have proportionally the spectrum to support that Base.
    3. Don’t expect to keep the same quality level throughout your 3G Cellular Data life-cycle,!
    4. Accept that spectral overhead per customer obviously will dwindle as increasingly more customers migrate to 3G/HSPA+.
    5. Technology Laggards should be considered as the pose an enormous risk to spectral re-farming and migration to more data efficient technologies.
    6. Short Term (3 – 5 years) … LTE will not mitigate 3G growing pains (you have a problem today, its going to get tougher and then some tomorrow).

    Is Doom knocking on Telecom’s Door? … Not very Likely (or at least we don’t need to open the door if we are smart about it) … Though if an Operator don’t learn fast and be furiously passionate about economical operation and pricing policies … things might look a lot more gloomy than what needs to be.

    STAY TUNED FOR A PART 2 … taking up the last part in more detail.

    ACKNOWLEDGEMENT

    To great friends and colleagues that have challenged, suggested, discussed, screamed and shouted (in general shared the passion on this particular topic of Cellular Data Growth) about this incredible important topic for our Mobile Industry (and increasingly Fixed Broadband). I am in particular indebted to Dejan Radosavljevik for bearing with my sometimes crazy data requests (at odd h0urs and moments) and last but not least thinking along with me on what mobile data (cellular & WiFi) really means (though we both have come to the conclusion that being mobile is not what it means. But that is a different interesting story for another time).

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    Mobile Data Consumption, the Average Truth? the Average Lie?

    “Figures often beguile me” leading to the statement that “There are three kinds of lies: lies, damned lies, and statistics.” (Mark Twain, 1906).

    We are so used to averages … Read any blog or newspaper article trying to capture a complex issue and its more than likely that you are being told a story of averages … Adding to Mark Twain’s quote on Lies, in our data intense world ” The Average is often enough the road to an un-intentional Lie” .. or just about “The Average Lie” .

    Imagine this! Having (at the same time) your feet in the oven at 80C and you head in the freezer at -6C … You would be perfectly OK! On average! as your average temperature would equal 80C + (-6C) divided by 2 which is 37C, i.e., the normal and recommended body temperature for an adult human being. However both your feet and your head is likely to suffer from such an experiment (and therefore really should not be tried out … or left to Finns used to Sauna and Icy water … though even the Finns seldom enjoyed this simultaneously).

    Try this! Add together the age of the members your household and divide by the number of members. This would give you the average age of your household … does the average age you calculated have any meaning? … if you have young children or grandparents living with you, I think that there is a fairly high chance that the answers to that question is NO! …  The average age of my family”s household is 28 years. However, this number is a meaningless average representation of my household. It is 20 times higher than my sons age and about 40% lower than my own age.

    Most numbers, most conclusions, most stories, most (average) analysis are based on an average representation of one or another Reality …. and as such can easily lead to Reality Distortion.

    When we are presented with averages (or mean values as it is also called in statistics), we tend to substitute Average with Normal and believe that the story represents most of us (i.e., statistically this means about 68% of us all). More often than not we sit back with the funny feeling that if what we just read is “normal” then maybe we are not.

    On mobile data consumption (I ll come back to Smartphone data consumption a bit later) … There is one (non-average) truth about mobile data consumption that has widely (and correctly) been communicated …

    Very few mobile customers (10%) consumes the very most of the mobile data traffic (90%).

    (see for example: http://www.nytimes.com/2012/01/06/technology/top-1-of-mobile-users-use-half-of-worlds-wireless-bandwidth.html/).

    Lets just assume that a mobile operator make claim to an average 200MB monthly consumption (source: http://gigaom.com/broadband/despite-critics-cisco-stands-by-its-data-deluge/). Lets assume that 10% of customer base generating 90% of the traffic. It follows that the high usage segment has an average  volumetric usage of 1,800MB and the low usage segment an average volumetric usage of only 22MB.  In other words 10% of the customer base have 80+ times higher consumption than the remaining 90%. The initial average consumption (taken across the whole customer base) of 200MB communicated is actually 9 times higher than the average consumption of 90% of the customer base. It follows (with some use case exceptions) that the 10% high usage segment spends a lot more Network Resources and Time. The time the high usage segment spend actively with their device are likely to be a lot higher than the 90% low usage segment.

    The 200MB is hardly normal! It is one of many averages that can be calculated. Obviously 200MB is a lot more “sexy” than to state that 90% of the customer base consumes typically 22MB.

    Created using PiktoChart http://app.piktochart.com.

    Do Care about Measurement and Data Processing!

    What further complicates consumptive values being quoted is how the underlying data have been measured, processed and calculated!

    1. Is the averaging done over the whole customer base?,
    2. Is the averaging done over active customers?, or
    3. A subset of active customers (i.e., 2G vs 3G, 3G vs HSPA+ vs LTE vs WiFi, smartphone  vs basic phone, iPad vs iPhone vs Laptop, prepaid vs postpaid, etc..) or
    4. A smaller subset based on particular sample criteria (i.e., iOS, Android, iPad, iPhone, Galaxy, price plan, etc..) or availability (mobile Apps installed, customer approval, etc..).  or …

    Without knowing the basis of a given average number any bright analysis or cool conclusion might be little more than Conjecture or Clever Spin.

    On Smartphone Usage

    One the most recent publicized studies on Smartphone usage comes from O2/Telefonica UK (Source: http://mediacentre.o2.co.uk/Press-Releases/Making-calls-has-become-fifth-most-frequent-use-for-a-Smartphone-for-newly-networked-generation-of-users-390.aspx). The O2 data provides an overview of average daily Smartphone usage across 10 use case categories.

    The O2’s Smartphone statistics have been broken down in detail by one of our industry”s brightest Tomi Ahonen (A Must Read http://www.communities-dominate.blogs.com/ though it is drowning in his Nokia/Mr. Elop “Howler Letters”). Tomi points out the Smartphone’s disruptive replacement potential of many legacy consumer products (e.g., think: watch, alarm clock, camera,  etc..).

    The O2 Smartphone data is intuitive and exactly what one would expect! Boring really! Possible with the exception of Tomi’s story telling (see above reference)! The data was so boring that The Telegraph (source: http://www.telegraph.co.uk/technology/mobile-phones/9365085/Smartphones-hardly-used-for-calls.html) had to conclude that “Smartphones Hardly Used for Calls”. Relative to other uses of course not really an untruth.

    Though The Telegraph did miss 9or did not care) the fact that both Calls and SMS appeared to be what one would expect (and why would a Smartphone generate more Voice and SMS than Normal? … hmmmm). Obviously, the Smartphone is used for a lot of other stuff than calling and SMSing! The data tells us that an average Smartphone user (whatever that means) spend ca. 42 minutes on web browsing and social networking while “only” 22 minutes on Calls and SMS (i.e., actually 9 minutes of SMS sounds more like a teenager than a high-end smartphone user … but never mind that!). There are lots of other stuff going on with that Smartphone. In fact out of the total daily usage of 128 minutes only 17% of the time (i.e., 22 minutes) is used for Plain Old Mobile Telephony Services (The POMTS). We do however find that both voice minutes and legacy messaging consumption are declining faster in the Smartphone segment than for Basic Phones (which are declining rapidly as well) as OTT Mobile Apps alternatives substitute POMTS (see inserted chart from http://www.slideshare.net/KimKyllesbechLarsen/de-risking-the-broadband-business-model-kkl2411201108x).

    I have no doubt that the O2 data represents an averaging across a given Smartphone sample, the question is how does this data help us to understand the Real Smartphone User and his behavior.

    So how did O2 measure this data?

    (1) To be reliable and reasonable, data collection should be done by an App residing in the O2 customer’s smartphone. An alternative (2) would be deep packet inspection (dpi) but this would only capture network usage which can (and in most cases will be) very different from the time the customer actively uses his Smartphone. (3) Obviously the data could also be collected by old fashion Questionnaires being filled in. This would be notoriously unreliable and I cannot imagine this being the source.

    Thus, I am making the reasonable guess that the Smartphone Data Collection is mobile App based.

    “Thousand and 1 Questions”: Does the data collected represents a normal O2 Smartphone user? or a particular segment that don’t mind having a Software Sniffer (i.e., The Sniffer) on the used device reporting his behavior? Is “The Sniffer” a standard already installed (and activated?) App on all Smartphone devices?, only on a certain segment? or is it downloadable? (i..e, which would require a certain effort from the customer), is the collection done for both prepaid & contract customers, both old and new smartphones (i.e., usage patterns depends on OS version/type, device capabilities such as air interface speed DL & UL, CPU, memory management, etc..) … is WiFi included or excluded?, what about Apps running in the background (are these included), etc…

    I should point out that it is always much easier to poke at somebody else data analysis than it often is to collect, analyse and present such data. Though, depending on the answer to the above “1,000 + 1” questions the O2 data either becomes a fair representation of an O2 Smartphone customer or “just” an interesting data point for one of their segments.

    If the average Smartphone cellular (i.e., no WiFi blend) monthly consumption in UK is ca. 450MB (+/-50MB) and if the consumer had on average cellular speed of 0.5Mbps (i.e., likely conservative with exception of streaming services which could be lower), one would expect that Time spend consuming Network Resources would be no more than 120 minutes per month or 5 minutes per day (@ R99 384kbps this would be ca. 6 min per day). If I would chose a more sophisticated QoS distribution, the Network Consumption Time would anyway not change with an order of magnitude or more.

    So we have 5 minutes of Mobile Data Network Time Consumption daily versus O2’s Smartphone usage time of 106 minutes (wo Calls & SMS) … A factor 22 in difference!

    For every minutes of mobile data network consumption the customer spends 20+ minutes actively with his device (i.e., reading, writing, playing, etc..).

    So …. Can we trust the O2 Smartphone data?

    Trend wise the data certainly appear reasonable! Whether the data represents a majority of the O2 smartphone users or not … I doubt somewhat. However, without having a more detailed explanation of data collection, sampling, and analysis it’s difficult to conclude how representable the O2 Smartphone data really is for their Smartphone customers.

    Alas this is the problem with most of the mobile data user and usage statistics being presented to the public as an average (i.e., have had my share of this challenge as well).

    Clearly we spend a lot more time with our device than the device spends actively at the mobile network. This trend has been known for a long time from the fixed internet. O2 points out that the Smartphone, with its mobile applications, has become the digital equivalent to a “Swiss Army Knife” and as a consequence (as Tomi also points out in his Blog) already in the process of replacing a host of legacy consumer devices, such as the watch, alarm clock, camera (both still pictures and video), books, music radios, and of course last but not least substituting The POMTS.

    I have made argued and shown examples that Average Numbers we are presented with are notorious by character. What other choices do we have?  Would it be better to report the Median? rather than the Average (or  Mean)? The Median divides a given consumptive distribution in half (i.e., 50% of customers have a consumption below the Median and 50% above). Alternative we could report the Mode which would give us the most frequent consumption across our consumer distribution.

    Of course if consumer usage was distributed normally (i.e., symmetric bell shaped) Mean, Median and Mode would be one and the same (and we would all be happy and bored). Not so much luck!

    Most consumptive behaviors tends to be much more skewed and asymmetric (i.e., “the few takes the most”) than the normal distribution (that most of us instinctively uses when we are presented with figures). Most people are not likely to spend much thought on how a given number is calculated. However, it might be constructive to provide a %tage of the customers for which their usage is below the reported average. The reader should however note that in case the percentage figure is different from 50%, the consumptive distribution is skewed and

    onset of Reality Distortion has occurred.

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