Asia Mobile Telecom Innovations Solidiance MMA

A paper on the emerging trends in mobile communications growth in Asia

October 2009

asia mobile telecommunication

innovations

2

Mobile telecommunications has impacted societies invarious ways across the globe. In Asia, it has driven avariety of changes that have altered the lives of manyranging from professionals to rural shopkeepers. Acrossemerging markets in Asia, mobile phones have served as‘enablers’ for a large number of consumers thatpreviously had been isolated due to a lack of access tocommunications. Here we will look at some of the driversbehind mobile telecommunication adoption in this region.

Within Asia, the entire spectrum of demographics can beseen, which also provides for a range of emerging trendsthat are distinct to the region. Whereas in maturemarkets such as Singapore and Hong Kong emergingtrends are tied to the adoption of Smartphones and 3Gtechnology, in emerging markets such as India, the trendsare premised upon mobile phone proliferation allowingconsumers to perform fundamental tasks that theypreviously had been unable to do. Handset prices and thecost of services have dropped significantly across manyAsian markets, which has served to democratize mobilecommunications in a way that has changed the lives formany.

Mobile Telecommunications in AsiaA paper on the emerging trends in mobile communications growth in Asia

The high penetration of mobile

devices as compared with personal

computers presents us with the

opportunity to convert a technology

product into a medium for

personalized engagement.

Rohit Dadwal – Managing Director, Mobile

Marketing Association ”“

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Asian mobile users consist of roughly a third of theworld’s overall market, which crossed the 4bn mark nearthe end of 2008; many anticipate the majority of the nextbillion users coming from Asia.

In addition to the mature markets, many Asian emergingcountries are quickly becoming larger and moresophisticated mobile telecom markets. A quick review ofsome Asian mobile telecom markets shows 20-30%annual growth across many countries, driven in part bythe demands of a tech-savvy younger generation.

Growth across all areas of mobile telecom in Asia –whether it be infrastructure, mobile phonesubscriptions, mobile Internet, SMS, or gaming – ishappening at an explosive pace. Adoption of mobilecommunications is outpacing internet adoption across theregion, and by substantial amounts (see graph). As anexample of the growth being seen in parts of theindustry, revenues from mobile gaming for the AsiaPacific region have increased from $1bn USD in 2002 to$2.3bn USD in 2008, making it the largest regionalmarket; this growth is expected to continue with themarket forecasted to reach $3.4bn USD by 2011. Indiahas been leading the way in terms of growth within thisspace; between 2007 and 2008, the number of mobilegamers grew from 153.4m to 237m users.

On the mobile value added services side, the Asia Pacificregion has seen consistent growth in SMS usage. The lowcost and ease of use that drives SMS usage globally arein essence the same drivers in this market. An exampleof SMS adoption in the region is the Philippines, wherethe average user sends 400 SMS per month (highest inthe world). Comparatively, the average user in the USsends roughly 60 SMS per month.

Sizing up the Asian Market

Source: Solidiance Connectivity trends, 2009

Country Mobile Penetration Rate (2008)

Hong Kong 167%

Singapore 131%

Australia 109%

Malaysia 99%

Thailand 97%

Japan 86%

Philippines 78%

Vietnam 73%

Indonesia 65%

China 49%

India 31%

Asia - Mobile versus internet subscribers (2008) in Millions


0

100

200

300

400

500

600

700

800

900

1000

China India Vietnam Philippines Thailand Malaysia Singapore

Internet

Mobile

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Mobile phone adoption in Asia is being driven by variousfactors, with functionality and affordability leading the wayamong consumers. A key barrier to adoption had beenthe price of a handset, but industry players have madedramatic strides in recent years to remove this barrier. Akey example in the Indian market was the ‘Pioneerpromotion’ offered by Reliance in 2002, which included afree handset to customers. Initiatives such as this havebeen a catalyst for growth across the region.

Affordability has been driven not only by the availability ofaffordable handsets for low income consumers, but alsoby lower service prices driven by highly competitivemarket places.

Indonesia is an example of a market where price warshave driven down the cost of service for consumers. As aresult, the number of subscribers in Indonesia has beengrowing at a blistering pace (see graph). Operators face acatch-22, as ARPU figures are falling, but lower pricesare drawing in consumers living on the margin.

With regards to functionality, the market for Smartphoneshas been growing across Asia Pacific. By the end of2009, this region will account for nearly 30% of the overallmarket for Smartphones. This highlights an emergingpolarity in the handset market, as growth is being drivenfrom the ‘ends’ of the consumer spectrum.

Affordability and functionality driving growth

Countries With Most Affordable Handsets in Asia (in order of ranking)

China

India

Indonesia

Pakistan

Bangladesh

Thailand

Philippines

0

50

100

150

200

250

300

350

400

450

2006 2007 2008 2009f 2010f 2011f 2012f 2013f


Indonesia mobile subscribers – 2006 -2013 MillionsSource: Solidiance Connectivity trends, 2008

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Case Study: CellBazaar

In 2005, Kamal Quadir was struck by the fact that a $20mobile phone had the same processing power as a 1968super-computer. With that in mind, the MIT Sloan Schoolof Management graduate created CellBazaar, a mobilead-listing service that acts in a way similar to Craigslist oreBay, allowing potential buyers and sellers to connectremotely before ultimately exchanging goods in person.

“In poor countries, telephone operators can address thebarrier of low purchasing power by simply seeing thetelephone as a productivity tool,” Quadir remarks. “Theyshould see their consumers as producers.” Since helaunched the service in Bangladesh in 2006, farmers andfisherman can check the prices their goods will be sold atfrom a standard mobile handset, taxi drivers can use theservice to run a side business for extra income, andwomen in remote villages can support their families byreselling mobile phone services.

According to the World Bank, a 10% increase in mobilephone penetration increases GDP growth by 0.6%. Moretangibly, it can limit unnecessary travel. For someoneliving in a rural area who must travel 5-10km on foot toreach their local store or doctor, the ability to getinformation before hand regarding the availability of thedoctor or a product serves as tremendous value.

In this way, mobile phones are serving to fundamentallychange societies to an extent similar to the internet indeveloped economies. Among those who use mobilesas a device for buying and selling, CellBazaar opens upopportunities for entrepreneurs who want to find a newchannel in the mobile space, as well as those seeking tostart a business but either want to bypass the expenseof investing in a bricks-and-mortar shop or who lack theopportunity to properly launch a business (e.g. stay-at-home women entrepreneurs). In under threeyears, CellBazaar has become the largest m-commercecompany in Bangladesh with 60% of its users comingfrom rural villages.

This is only one example of a phenomenon that can beseen throughout Asia. In China, mobile phones areused to close business deals on the spot, to checkinventories for time-to-market status, to choreographbusiness meetings and to access entertainment, withnew and innovative uses constantly being introduced.

In Asia people in developing

countries treat the phone as a

business investment that quickly

pays for itself. They use it as a device

to facilitate business transactions.

Kamal Quadir – CEO, CellBazaar, 2009

”“


Choice

Control

Customization

Consideration

Constraint

Confidentiality

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Mobile marketing: the next big thing

According to Rohit Dadwal:

The speed of mobile device proliferation has surpassedthat of previous technologies like television, radio and theInternet. Early this year, it was estimated that over 2billion cellphone subscriptions were active in the AsiaPacific region, more than half the global count.

As emerging and mature markets co-exist in theregion, mobile is the common connector, greatlyexceeding PC penetration in a number of countries. In thePhilippines, for example, we see over 70% mobilepenetration as compared to PC penetration of less thanhalf.

Undoubtedly, the mobile device is the most personaltechnology in use today, a fact that presents immensepotential for engagement through mobile advertising andmarketing.

Both mobile banking and mobile gaming, throughSMS, WAP, Bluetooth and in-application advertising areproving to be ready channels for connecting withcustomers.

In addition, the increase of function-rich smart phones inthe market with larger screen size, better web browsingcapabilities and longer battery life, combined with “allyou can eat” data packages is driving the growth of themobile Internet.

Rules of customer engagement on

mobile


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On the high end, Smartphones and data services are inincreased use, but are no longer limited to niche businessusers. The price of data service has had downwardpressure fuelling adoption, and Smartphones are widelyavailable at multiple price points.

Markets such as Singapore, Hong Kong and Korea areoften thought of as ‘leading indicators’ for the mobiletelecom market, with consumers being early adopters ofadvancements in the industry. Smartphones have gaineda foothold in the region, with the 2009 Asia Pacific marketestimated to be 52m devices. The iPhone is one of theseSmartphones that we profile below.

iPhone

The iPhone has enjoyed considerable success in Europeand the US. According to Mark Randolph, ManagingDirector of Motorola Singapore Innovation Center: “TheiPhone was innovative. Apple leveraged their capabilitiesin media and music to jump into an entirely tangentialmarket of mobile telecoms. No one else has been able todo that yet. The term ‘iPhone killer’, testifies to itssuccess. The Asian market is hungry for a phone withextensive media capabilities”.

Despite small nuances that set the iPhone apart, thetechnology itself is not wholly remarkable. “It has the bestbrowser to date,” Randolf adds. “Using the touchscreen, you can navigate everything with your thumb;there is no need for a stylus.”

29% of China’s Internet users access the web via theirmobile phone. In Japan, more people use a mobile thana laptop to access the Internet. Indeed, as Randolphnotes: “Mobile Internet user interface, especiallysearch, is an area of great potential.”

Smartphones

Device Key Functionalities

iPhone Media Player

Camera Web Browsing

Wifi compatible

Blackberry Push Email

Internet Faxing

Web Browsing

GPS like map capabilities

Quick Stats

Asia-Pacific Handset Market 228m

Smartphone % of Overall Asia Pacific Handset Market

26.5%

iPhones Sold Globally (through June-09) 18.7m

iPhones sold in India ~50k


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Smartphones

According to Damien Duhamel:

“Innovation within the iPhone is incremental at best. It istruly beautiful, but it is not disruptive per se; it will notsend tremors throughout the mobile phone world. Apple’scommercial magic remains centered on borrowingexisting technologies, magnifying them, packaging theminto stylish design and creating best-of-breed marketingbuzz. No other consumer electronics manufacturer hasreached the same level of ‘Brand Coolness’ as Apple.The iPhone will be a status icon, just like the iPod.

However Asia is not Europe and the US.Here, consumers are much more tech-driven thanWestern counterparts, regularly changing phones andbrands. Apple can forget about submerging Japan andKorea with its phone; their markets remain quasi-lockedto outsiders. India and China may be the biggest mobilemarkets in the world but few will want to pay $200-300USD for a phone with a hefty monthly subscription. Thatleaves smaller markets such as HongKong, Taiwan, and Singapore, to boost Apple’s globalsales.”


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We expand on the phrase ‘functionality’ by showing twosnapshots of emerging mobile functionalities that aredriving growth in Asia. Each targets a different customersegment, which provides a glimpse as to how mobilephones have become versatile tools with featurescatering to a variety of needs.

Emerging Functionality (1)

Mobile Payment

Driven in large part by remittance payments from Asianworkers sending money to their countries of origin; theusage of mobile phones for other payment options isstarting to emerge in areas including payments tomerchants for purchases.

Rohit Dadwal MMA “Financial services worldwide arefacing tough market conditions and with over 150 millionsubscribers accessing banking services by 2011reviewing transactions, paying bills etc and thisrepresents a huge opportunity to engage with theconsumers through mobile marketing”

Functionality driving growth

Emerging Functionality (2)

Mobile Gaming

This market has been in existence for much of the lastdecade, but has continued to evolve with handsetsoffering more robust platforms. As such, the increasedlevel of sophistication seen in mobile games hasattracted many across Asia, in particular younger mobilephone users.

Mobile advertising is rapidly growing sector providingbrands, agencies and marketers the opportunity toconnect with consumers beyond traditional and digitalmedia and directly on their mobile phones. The deliveryof advertising within mobile applications ( games) is stillat an early stage and creates new revenue stream forpublishers, distributors and service providers. And mostimportantly the revenue may be used to partially orcompletely subsidize the price of mobile games/services that the application provides. – Rohit Dadwal


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Emerging Sector (1) – Asia Mobile Payment

The electronic payment industry in Asia is less maturethan in more developed markets such as Singapore orHong Kong. The industry is growing rapidly and providessignificant opportunities for all electronic paymentchannels, namely those on mobile platforms.

While the penetration of mobile phones continues to growacross Asia, many in the industry believe the growth ofmobile payments will be enabled by physical cards /scratch cards as opposed to online access, givenbandwidth and internet penetration issues.

With a potential 200bn USD plus of global remittancemoving through the Asian population, analysts believe itwill be a key adopter of mobile payments.

With a focus on services/product

innovation, mobile operators and

value added services providers are

aggressively working on payment

options through mobile platforms –

which will be the most lucrative

segment in the medium term across

Asia.

Damien Duhamel – Managing Director, Solidiance”

“

Embryonic Early stage Developing Advanced Mature

Market maturity stage

Relative

m—paym

ent maturity*

* Compared to mature market

Singapore

Korea

China

Indonesia

India

Hong Kong

Thailand

Philippines

Malaysia

Vietnam

100%

0%

50%

Mobile payment market maturity, 2009

28

26.5

18

7.5

7

6.86

160

India

China

Philippines

Bangladesh

Pakistan

Indonesia

Vietnam

Others

Global remittances to developing countries – 2008 USD Billion



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Emerging Sector (2) – Asia Mobile Gaming

While mobile gaming across European markets and theUS saw moderate growth in 2008, Asia Pacific (inparticular India) witnessed significantly stronger growth.Rising mobile penetration, increased adoption ofSmartphones, and a large segment of young mobilephone users have combined to drive growth in mobilegaming.

As an example, India witnessed sharp growth in 2008revenues from mobile gaming. With a growing pool ofmobile gaming developers and better integration amongmobile operations, handset manufacturers and softwareproviders, an ecosystem has been established to put outthis increasingly popular value added service for Indianconsumers. Analysts estimate the current market size forthis industry in India to be 15m USD, a substantialamount for a market that is very much still in its infancy.

Asia Pacific is an emerging market in

the gaming space. With the growing

adoption of gaming across

platforms, its a lucrative market in

the short term.

Nelson Allen – Director, Xbox Hardware APAC and

Greater China , March 2009 ”“

0 1000 2000 3000 4000

Asia Pacific

Western Europe

North America

Rest of the World

2011

2008

Asia mobile gaming revenue forecast (2011) in USD million



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Emerging Sector (3) – Asia Mobile Healthcare

Asia Pacific is prime testing ground

for Mobile Healthcare. Asia is

wired, adopts technologies faster

than any other continents, and

there are billions of dollars pumped

into the Asia healthcare industry to

improved the current infrastructure.

Mark Lee – Medtech Practice Head - Solidiance

”

“

Mobile healthcare is another fast growing segment in AsiaPacific. In a recent study Solidiance estimated that theAsia mobile healthcare business is currently growing at80% year on year. With a booming Asian ageing but tech-friendly population mobile healthcare is poised to boom. In2010 the Asia Pacific mobile healthcare business will beestimated to be worth just under USD 1 Billion with 70% ofusers in more advanced economies. The business iscomprised of software/applications development, systemintegrators, mobile integrators, mobile marketing, mobileoperators and handset players, and hospitals. Applicationsare as wide as remote patient monitoring, mobilenursing, mobile medical records access, access to freemobile healthcare information, …

Mobile healthcare innovation seems to be driving fromAsia. Already Japan, Korea and Australia have seen homegrown firms taking the lead in the region. Korea-basedHealthpia launched the world's first diabetic phone--thatis, a mobile phone (Iphone friendly) with the ability tomeasure the blood sugar levels of diabetic users--in Seoulin May. Users place a drop of blood on the end of a strip oftesting paper, stick the paper into a sensor located in theextra battery pack, and get a reading on the phone screen.The reading is stored in the phone and also forwarded toan online database, which can be accessed not only by thepatients, but doctors. Another example is Taiwan MobileHealthcare Services. It provides high-bandwidth links fordoctors treating patients at Taipei Medical UniversityHospital, Tri-Service General Hospital and Taipei City-WanFang Hospital. As part of the government’s M-Taiwaninitiative, a wireless solution gives doctors virtual access topatient medical records, monitors the condition of long-term sufferers of chronic diseases, provides high-qualitydiagnostic images and video, and provides remoteoutpatient registration to improve healthcare services.



Asia mobile healthcare revenue forecast (2010) in USD million

490

160

80

75

35

15

135

Japan

Korea

China

Australia

Taiwan/HK

Singapore

Rest of Asia

0

1000

2000

3000

4000

5000

6000

7000

2000 Offline

2000 Mobile

2000 PC

J J J J J J J J J J J JK K K K K K K K K K K K

2000 2001 2002 2004 2005 2006 2007 2008 2009 20102003 2015

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Emerging Sector (4) – Asia Mobile Music

Mobile operators may soon be your music supplier . Withthe fast disappearance of CDs, new music distributionmodels are springing up around Asia .

Korea is already the world leader in online music saleswith just over 90% of music sales coming from onlinetechnologies which puts Korea #1in the world. In2009, mobile music sales in Korea will hit USD 390million and at the current growth rate the industry shouldhit USD 500 million by 2015. Similar trends areobserved in Japan.

Mobile operators in Korea have been the fastest toinnovate and capture the mobile music market. Since2008, Korean mobile carriers, especially SK Telecomview music streaming and downloading as the next cashcow for data services. In a quasi coup d'état the Koreanmobile operators have transformed the music distributionplatforms.

SK Telecom, has provided a mobile music portal servicecalled ‘MelOn’ since 2004. MelOn is the firstintegrated, wired and wireless, music service that allowsusers to enjoy music virtually anytime, anywhere using aportable MP3 player, a PC, or a mobile phone. The keyMelOn interface is a music download and streamingInternet portal, www.melon.co.kr. The service is similar toa rental service, with users “renting” tracks on a monthlybasis for use on various terminals. MelOn users pay a5000 won (US$4.50) monthly subscription to streammusic or download tracks to their phone as long as theirsubscription is current. To download tracks onto thehandset, users pay for airtime at regular callrates, regardless of the size of the track.

This end-user friendly platform has completely changedthe music landscape and is now being reproduced inAustralia, Hong Kong, Singapore, Thailand by localmobile operators.



Japan – Korea 2000-2015 music sales USD Billion

How did the Korean mobile operators innovate and transform the music industry?

-Thanks to its mobile music platform convenience and affordability, musicpiracy in Korea has dramatically dropped to negligible levels.

-The Korean music industry has been revived after a few years of limitedgrowth.

-Content providers are either being acquired / merged or forced out ofbusiness by the mobile operators which are now becoming musicintegrators more than just distributors.

- With 30% margins, the Korean mobile operators commend the highestdistribution margin in the Korean music value chain

- With the artists themselves, mobile operators have become by far the maindrivers and key success factors of music in Korea.

-Only smart phones need to apply...

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Summary

The mobile communications market in Asia is changingthe livelihoods of those living on the margin, and offeringever increasing functionality to users in mature markets.Mobile service has yet to become a commodity due to thefact that it is constantly evolving; with downward pressureon the price of having mobile service serving todemocratize what was once a convenience item limited toa small portion of society, the ripple effects associatedwith higher mobile penetration are starting to emerge. Forcertain low income markets, mobile phones are gaining afoothold where computers and the internet havenot, bringing many of the same features but without thehigher costs. If a single force can be identified as drivingAsia’s poor closer towards a middle class life, mobilepenetration would rank at the top of the list.

With regards to the trends in more maturemarkets, increasing functionality and the proliferation ofSmartphones has had ripple effects different than thoseseen in emerging markets.

The iPhone, Blackberry devices have served, in a veryshort time frame, to dramatically increase the capabilitiesconsumers can access through their handsets. WithSkype, email, web browsing, and a variety of otheroptions made available in a single handhelddevice, Smartphones have essentially integrated thefunctionality of computers and mobile phones. This trendof convergence and increased functionality will befurthered by Google’s entrance into this space with theAndroid device. The impact of these devices onbusinesses and normal consumers has been dramatic; ifSmartphones follow the same trend as traditionalhandsets in their proliferation among low incomeusers, there is a high likelihood of an even more dramatic‘enabling’ effect for consumers living on the margin.

Attractiveness of the Asia Pacific markets surveyed formobile marketing activities. The size of the market islarge and mobile phone users are receptive to thisapplication of the technology.

The importance of the mobile phone in daily life is also apredictor of its potential value as a marketing vehicle.Most users in China (71%) and India (76%) attach highimportance to their mobile phones and also are verydependent on these devices– 60% and59%, respectively. Users in Japan (39%) and Australia(42%) also place high importance on their mobilephones.

Use of multiple phone features bodes well foracceptance of mobile marketing as it indicates anopenness to using the device for different applicationsalong side the immediacy of the information andconvenience are perceived as the greatest benefits.


Prior to joining Solidiance, Damien started out

his career in 1995 by setting up a boutique

business-consulting firm in Ho Chi Minh City

helping foreign companies to enter and

capture market share in Vietnam. The

company was sold early 2000. In 1990

Damien was the first French student to join

the Hanoi University since Vietnam’s

independence. Damien has worked on

dozens of Vietnam engagements with Fortune

500 clients. He is a recognized innovation and

competitive strategy expert and has been

numerously interviewed on the subject. In

2006, Damien was listed in the International

Who’s Who. His articles on Vietnam strategy

are regularly published in leading publications.

Damien holds a business bachelor degree

from the Victoria University and a MBA from

the Chicago University. He speaks

English, French, Vietnamese and “survival

Japanese”.

Damien Duhamel – Managing Director

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Solidiance is a marketing and innovation strategy consulting firm with focus on growth in Asia Pacific. We are devoted to working side-by-side with our clients to outpace thecompetition, close gaps in growth and deliver breakthroughs in performance and profitability. Our Asia focus provides our clients with a better understanding of intrinsic regional issues.

The Mobile Marketing Association (MMA) is the premier global non-profit trade association established to lead the growth of mobile marketing and its associated technologies. The MMA isan action-oriented organization designed to clear obstacles to market development, establish mobile media guidelines & best practices for sustainable growth, & evangelize the use of themobile channel. MMA has more than 700 member companies, representing over 40 countries around the globe, include all members of the mobile media ecosystem. www.mmaglobal.com

To subscribe to further white papers and to learn more about Solidiance please visit: www.solidiance.com

Suite 17-01High Street Center1 North Bridge RoadSingapore 179094Tel: +65 6408 8208

Singapore

Suite 801Hong Kong Plaza283 Huaihai Road CentralShanghai 200021Tel: +86 21 5168 8905

China

Suite 32-05Interchange 21399 Sukhumvit RoadBangkok 10110Tel: +66 (0)2 660 3638

Thailand

Rohit Dadwal is Managing Director (MD) for

the Mobile Marketing Association’s Asia

Pacific (APAC) branch, running the regional

headquarters in Singapore. He joined the

Mobile Marketing Association (MMA) in

November 2008, having spent eight years at

Microsoft during which time he participated in

MMA activity as a board member. In his role

as MD, Rohit is focused on building a

sustainable ecosystem for the mobile

marketing industry in the APAC

region, promoting the MMA as the leading

association for region-wide consultation on

key industry issues such as measurement and

metrics, mobile advertising guidelines, codes

of conduct and consumer best practices.”.

Rohit Dadwal – Managing Director, MMA

Mark is a Principal based in the Singapore

office with more than ten years of consulting

experience. Mark has a strong focus on

quantitative based projects. Previous roles

include being regional manager for Synovate

Business Consulting in Singapore, handling

projects for MNCs across Asia, focused

predominantly on the healthcare and medtech

space. Mark managed most medical

technology projects for MNCs where he

advises companies on market entry, customer

segmentation prioritization and growth

strategies. Having worked for five years in the

M&A team of a Korean Conglomerate in

Spain, Mark also has vast experience with

mergers and acquisitions in Europe, Asia and

Africa. Mark is fluent in Korean, English and

Spanish. He holds a BS in mechanical

engineering, from the Worcester Polytechnic

Institute (United States) and a MBA from the

University of Rochester.

Mark Lee – Principal

Asia Mobile Telecom Innovations Solidiance MMA

Business

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