Whitepaper - The Future of Mobile Broadband

8/6/2019 Whitepaper - The Future of Mobile Broadband

1/32

The future of the mobile broadbandmarket

Eden Zoller

June 2008


2/32

THE FUTURE OF THE MOBILE BROADBAND MARKET 1

Ovum 2008. Unauthorised reproduction prohibited

The future of the mobile broadbandmarketMob i le b roadband i s ach iev ing s t rong take - up , p rov id ing add i t i ona l

i nc remen ta l r evenues to ope ra to r s , encourag ing use o f advanced 3G

ne tw orks da ta capab i l i t i es , and po ten t ia l l y genera t i ng h eavy t r a f f i c

g r o w t h f o r r e l a t i v e ly e m p t y n e t w o r k s . So l u t i o n s w i t h a t t r a c t i v e p r i ci n g a r e

m ee t ing use r b roadband and mob i l i t y dem ands and add ress ing new

c u st o m e r s i n o f t e n n e w l y - d e f in e d s eg m e n t s .

Executive summary

Prepare for a mobile broadband access dividend

The Internet is increasingly central to peoples lives and a mobile phone without an

Internet connection is beginning to have limited value. This is driving the need for

broadband anywhere connectivity, and combined with increasing laptop

penetration and the uptake of plug-and-play USB modems (dongles) is driving

huge adoption of mobile broadband. We see significant upside for mobile

operators, with new multiple connections and improved traffic revenues. This has

already proved the case for 3 in the UK. This will produce what we call a mobilebroadband access dividend not unlike the fixed broadband dividend.

But access w ill become commoditised think of smart value-added

services (VASs) and other ways to differentiate

The mobile broadband access dividend is good news for mobile operators but they

need to start thinking ahead now about how to drive revenues when access

becomes a commodity. This has already happened with fixed broadband and it will

be a similar story for mobile. The problem is that consumers are increasingly

unwilling to pay for existing mobile VASs while the Internet has a profound impact

in shaping consumer expectations that mobile Internet content services should be

free.

This means that operators will have to consider advertising-supported services,

which is the dominant approach online. They will also need to think of introducing

services that do not carry a premium but nonetheless have value, for example

security services that make consumers feel confident and hopefully more loyal to a

provider. They will also need to think of other ways to differentiate, for example

quality of service. Vodafone in Spain is doing just this by offering different speed

propositions depending on the customer segment. Another means going is for

operators to differentiate through customer management as users increasingly

have multiple mobile Internet devices and connections.


3/32



Operators still need to raise awareness of mobile broadband

Mobile broadband is still a relatively new service, so consumer awareness remains

relatively low compared to other mobile, even data, services. Therefore, much

work remains for operators to educate consumers of the advantages offered by

mobile broadband. Advertising and instore/online presence will be vital to ensure

that the correct offerings are communicated. It is also important not to damage

the markets potential by a focus on unrealistic mobile broadband speeds that will

inevitably cause disappointment among consumers .

Finding a profitable price point is challenging

Mobile operators need to think very carefully about pricing for mobile broadbandservices. Consumers understandably like unlimited data offerings and it does

encourage adoption and worry-free usage. But it can be dangerous for mobile

broadband operators. Data usage is generally growing quickly and flat rate plans

will fuel this trend, which can introduce capacity issues for networks and affect the

quality of user experience for some applications such as video. This will be

exacerbated by the onset of heavy fixed-type broadband usage of many data

hungry segments. This results in increasing costs and capex for operators needing

to improve capacity, and therefore thinner margins. The flat rate model is starting

to break down even in the fixed environment where more data caps are being

introduced, at least in the fine print. We recommend that mobile operators focus

on usage limits as a guard and balance against capacity issues.

The devices landscape for mobile broadband is looking healthy

The GSA recently announced (April) that 637 HSDPA devices have been launched

by 110 suppliers, and operators like 3 believe that the availability of handsets has

reached a tipping point. However, it is USB modems or dongles as they are called,

that has captured consumer interest and is helping to drive growth. Dongles appeal

because they are easy to install and are not too expensive, which is exactly what

consumers want. Going forward we expect to see the emergence of a market for

embedded cellular chipsets in a wider range of devices such as portable media

players and games consoles.

Femtocells can help improve the quality of experience

Mobile broadband can receive a reduced signal when indoors, which will impact on

any broadband service or application down to that device. TV and video services

will be particularly sensitive to any degradation in bandwidth due to a reduced

signal. Fixed broadband therefore has a distinct advantage of mobile broadband in

this area. This is where femtocells can help. Femtocells improve indoor mobile

coverage by placing a mini-mobile base station actually within the home. This not

only increases coverage, but also performance, with femtocells being able to

provide in excess of 5Mbps around the home. In theory this would help a mobile

broadband operator provide its mobile broadband portfolio down to the same

device whether the person was outdoors or indoors, although as a femtocell relies


4/32



on a fixed broadband solution, this would not allow that user to cut the fixed linealtogether.

Fixed-to-mobile broadband substitution (FMS) will not be mass-market

Even taking into account the fixed ISP users that could be churned to mobile, it

would be unlikely that mobile will account for the majority of broadband

connections in Western Europe. This is especially true when fibre deployments are

gathering momentum across the region and offer far higher access speeds.

We think that for the majority of customers, mobile broadband is a complement to

rather than a substitute for fixed broadband, which will be disappointing for

mobile-only operators looking at FMS as a core plank of their mobile broadbandstrategy. The exception to this is the mobile-only customer segments that do

present some good opportunities, for example, renters and sharers. The group

includes those who move too frequently to sign up for a fixed broadband contract

and can therefore take their mobile subscriptions with them when they next move.

Hybrid carriers are in a strong position

When it comes to basic broadband, there will be a segment of the market that will

drop their fixed broadband for a mobile broadband subscription students are a

good example. However, especially as broadband services become more

sophisticated, the majority will stick with a fixed solution for the greater bandwidth

and quality of experience.

When it comes to the concept of broadband everywhere therefore, converged

carriers with fixed and mobile broadband capability will carry the upper hand. This

will not mean they will not have issues to solve. Successfully integrating their

mobile and fixed divisions together, and solving strategic issues around cost and

revenue sharing are just some of the major problems that such operators will have

to work through. Get this right however, and they should be better placed to push

ubiquitous broadband than those w ith a pure-play mobile strategy, and not in

immediate danger of revenue cannibalisation.

A danger for hybrid operators is fixed-to-mobile broadband substitution and

therefore cannibalisation of fixed broadband revenues. We think the risk ofrevenue cannibalisation from fixed to mobile broadband is currently small.

However, there is a very real risk of revenue cannibalisation where dense, high

speed mobile network coverage does enable mobile broadband to be a substitute

for fixed, such as in Austria. It can become a greater risk if price wars eliminate a

mobile broadband premium. A combination of improving speed and falling prices

could then shift low volume and value users on to mobile broadband.


5/32



Trends and opportunities for mobile broadband

HSPA drives mobile broadband and delivers on the 3Gpromise

In Western Europe, HSPA (High Speed Packet Access) has proven critical in finally

providing the user experience promised by 3G. As a cellular technology it also

offers true mobility for broadband, as opposed to the patchy, nomadic coverage

offered by WiFi.

The Global Mobile Suppliers Association (GSA) states that by April 2008 there were

103 HSDPA deployments in Western Europe see the GSA Fast Fact box below for

more details. The number of deployments is significant as it provides the

economies of scale in both network infrastructure equipment and devices that

make an upgrade even more affordable to an ever greater number of operators.

Furthermore, as HSPA implementations have evolved so the downlink speeds

offered have improved, reaching the sweet spot of a theoretical maximum

downlink of 3.6Mbps. This speed is seen as the minimum for offering mobile

broadband. The GSA reports that over 62% of HSPA deployments worldwide

support peak data downlink rates of 3.6Mbps or higher.

GSA fast facts

185 3G/HSDPA operators launched in 80 countries

103 HSDPA networks launched in Europe

637 HSDPA devices launched by 110 suppliers (GSA survey, 3 April 2008)

representing annual growth of 150%

116 HSDPA networks have launched 3.6 Mbps (peak) downlink service or

higher in 58 countries = 62.7% of commercial HSDPA operators, thus

establishing the baseline for mobile broadband services. 190 devices support

3.6 Mbps peak

38 HSDPA networks, i.e. over 20%, launched in 25 countries supporting 7.2

Mbps (peak); 128 devices support 7.2Mbps

34 HSUPA networks launched in 26 countries, plus another 24 network

commitments/deployments; 66 HSUPA devices launched

Almost 100 HSPA devices incorporate WLAN functionality

70 HSPA devices incorporate GPS/positioning functionality compared to 20 in

October 2007

Most WCDMA/HSDPA networks combine with EDGE for service continuity and

the best user experience. Over 70% of HSDPA devices also support

GSM/EDGE.

The main reason for HSPAs popularity for opera tors is that it offers a cost efficient

upgrade of existing UMTS infrastructure , as it is predominantly a software upgrade.


6/32



It is also an excellent way to maximise the 3G spectrum that was purchased atsuch great cost at the turn of the century.

As a result, HSPA connections in Western Europe are forecast to rise from just 1%

of total cellular connections in 2007 to become the dominant technology with 77%

in 2012. However, if WiMAX (both fixed and mobile) is added to the equation then

the dominance of HSPA as the key wireless technology in Western Europe for at

least the next five years is clear (see Figure 1).

There are also spectrum issues to consider. For example, the most widely

allocated 3.5GHz band is often limited to the provision of fixed wireless access

services. This may change in Europe as the EC has published a resolution that

recommends the 3.43.8GHz band to support fixed, portable and mobile services.

Figure 1 Western European connections by technology, 20072011

0

100,000

200,000

300,000

400,000

500,000

600,000

2007 2008 2009 2010 2011

Connections(0

00s)

2G GSM WCDMA HSPA WiMAX (fixed & mobile)

Source: Ovum

HSPA evolution

As the 3GPP has evolved the specifications for HSPA (see Figure 2), improvements

in the uplink (HSUPA) and downlink (HSPA+) will eventually see theoretical HSPA

downlink speeds reach 28Mbps and uplink reach 11.4Mbps. This could even make

it viable for a larger role in the mobile operators progression to LTE than was

originally envisaged for the specification. Before the end of 2008 several operators


7/32



are expected to trial both configurations of HSPA+, with commercial launchesexpected in 2009.

Figure 2 3GPP HSPA evolutionary path

Source: Ovum

Mobile broadband device types are proliferating

A major trend over the past two years has been the proliferation of device types

capable of supporting mobile broadband and data services.

Mobile phones better able to support mobile broadband access and data services

have grown dramatically over the last two years. 3G phones with large colourscreens, browsers and powerful operating systems are becoming mainstream in

developed markets and among certain segments in emerging markets. This has

largely been driven by the availability of more mid-range 3G phones. We expect

this to continue at a faster pace during 2008 as operators grow in confidence with

3G, and as economies of scale in handsets mean that 3G phones can be produced

at a lower cost. 2007 also saw the arrival of attractive HSDPA-enabled devices

from all the major manufacturers.

Datacards have been available since GSMs infancy and have been traditionally

focused on the enterprise sector. However, the biggest development in device

categories over the last 18 months has been the huge growth of USB modems

(dongles) for use with laptops. However, we expect to see much greater usage


8/32



across a range of devices, leading to the emergence of a serious market forembedded cellular chipsets in a range of consumer electronics. The sort of devices

we have in mind are portable media players and games consoles.

USB modems offer two very clear advantages over datacards:

they are extremely simple to install acting as part-memory stick USB

modems contain the required installation software, so are literally plug-and-

play although Mac users often require a CD install. This is in stark contrast to

the PCMCIA experience, which can prove frustrating for enterprise users even

with the backup of in-house IT support teams. As a consumer proposition this

is far easier to market, sell and support

they are cheap although the radio technology is little different, one of thekey drivers for USB modem uptake has been heavy support from the Chinese

vendors. Their cheap manufacturing and huge volumes have made the devices

so affordable that they are more often than not provided free of charge with

mobile broadband contracts. Again, an excellent facet of a consumer offering.

Demand for data services is grow ing

This section contains forecasts for operator content services (end-user) and it

would therefore be misleading to call them Internet services. Ovum does not have

forecasts for non-operator content related and data revenues, which is where a lot

of the Internet service revenues are coming from (D2C).

Anywhere Internet access is clearly core to the mobile broadband proposition, but

other applications and content services will play an increasingly important role,

particularly as access becomes commoditised as the market matures. We will

discuss this in detail in the section on VASs. What is encouraging here is that

consumer demand and revenues for data services are improving, as shown in

Figures 3 and 4.


9/32



Figure 3 Consumer content and associated data revenues (operators only) W estern Europe 2007 ($ 000s)

25,690386

710

1,961

444

2,568

4,145Messaging

Music

Games

Personalisation

TV and video

Other

Data

Note: The data category is based on users browsing and downloading content

25,690386

710

1,961

444

2,568

4,145Messaging

Music

Games

Personalisation

TV and video

Other

Data25,690386

710

1,961

444

2,568

4,145Messaging

Music

Games

Personalisation

TV and video

Other

Data


Source: Ovum

Figure 4 Consumer content and associated data revenues (operators only)

W estern Europe 2012 ($ 000s)

36,363

2,378

1,811

1,585

2,615

3,889

7,685Messaging

Music

Games

Personalisation

TV and video

Other

Data


36,363

2,378

1,811

1,585

2,615

3,889

7,685Messaging

Music

Games

Personalisation

TV and video

Other

Data

Messaging

Music

Games

Personalisation

TV and video

Other

Data


Source: Ovum

Mobile broadband is personal

Broadband, like the fixed phone before it, has historically been a family or

household purchase. Different terminals, personal and laptop computers,

networking, routers and WiFi have made it more personal but at a minimum the

bill is still communal.

Although, the broadband situation does not provide exactly the same comparison

with voice, there are similarities and mobile broadband does have potential to

change the dynamic as the mobile phone did for voice. This personal aspect of

mobile broadband makes mobile broadband appealing to numerous segments such

as those in a share houses who want an individual broadband connection or bill.


10/32



The personal nature and mobility also gives rise to different usage patterns forbroadband users a bit more like mobile phone usage for voice. Additionally, the

individual nature also makes the potential market significantly larger for mobile

broadband than household fixed broadband.

Femtocells can improve indoor coverage and servicequality

The emergence of femtocells is potentially important in the future development of

mobile broadband. Several trials are underway in Europe in 2008 and the first

commercial services could appear before the end of 2009. They are relevant from a

data perspective, as any improvement in coverage will also have a positive impact.

The key benefit of femtocells from a consumer perspective is the improved in-

building coverage they provide. For data services, being able to improve network

coverage to enable data speeds as close to the theoretical technical maximum is a

compelling concept. As several operator and vendor studies show, the majority of

mobile usage in mature markets, both voice and data, is generated in the home.

The most significant challenge for femtocell adoption is that a user needs a fixed

broadband line to enable the femtocell backhaul. This is no problem for integrated

operators, which can offer the fixed and mobile offerings in a converged bundle,

and they will leverage the femtocell opportunity.

However, mobile-only operators could find themselves in a situation where theyare effectively handing over their traffic to a competitor. This suggests a potentially

dangerous quality of service management issue. Who is to guarantee that a

broadband ISP will deliver voice and data at the same quality as the macro

network? There is certainly potential here for regulatory intervention to ensure

quality, but it would be foolhardy for a mobile operator to handover its traffic

without some service level agreement. Therefore, in the meantime we expect

mobile-only operators to only implement femtocells over broadband networks with

which they have an agreement.

Challenges for mobile broadband

Network speed

A mobile network will invariably compare unfavourably with a fixed broadband line,

as radio spectrum must be shared by all users in a cell, so the more active users,

the less the available bandwidth. According to our forecasts, in 2011 43.7 million

(45%) of Western European DSL connections will be 10Mbps or more. In addition,

a further 4.9 million connections will be fibre-to-the-premises (FTTP). Therefore,

mobile broadband will not be able to compete on IPTV (although mobile TV is an

option) and certainly not high-definition (HD) IPTV. Furthermore, uplink speeds are

slower, an issue as user-generated content (UGC) becomes a staple Web


11/32



application. Femtocells could make a difference, but are still unlikely to keep upwith other connected home technologies.

Therefore, as the main pipe into a bandwidth hungry home it is unlikely that

mobile offers a viable alternative to fixed broadband although it could of course

act as a complement. Additionally, the reality today is far from the maximum

theoretical rates offered by HSPA. For example, 3 UK states that in real-world

applications the speed achieved is more likely to be 12Mbps on 3.6Mbps HSPA

networks, which is likely to double on the upgrade to 7.2Mbps HSPA. From our

experience the reality can be even lower.

As a result we would advise mobile operators not to focus on speed as a core

message of their mobile broadband offerings, for two reasons: the greater bandwidth available on fixed broadband means that mobile

broadband will invariably lose any speed comparison.

fixed broadband ISPs are coming under increasing pressure from consumer

groups for misleading advertising, which claims the maximum theoretical

speed, but delivers far less. The situation could easily be replicated in mobile

broadband and generate a negative perception of the service.

The issue of misleading speed advertising has already arisen in the UK. Fifth

placed mobile operator, 3 UK, has reported Vodafone to the Advertising Standards

Authority for emphasising its warp speed mobile broadband at 7.2Mbps, when in

reality the speed was available only in central London and its airports. However, in

May 2008 Vodafone announced a major expansion of its service and an overhaul of

its messaging. In the future it will downgrade its marketing messaging emphasis

on speed and focus more on usability. Interestingly, Vodafone in the UK was, until

this point, the only company in the groups portfolio to place such an emphasis on

speed.

Coverage

Another network issue faced by mobile broadband today is that HSPA is an

immature technology and, as such, its availability is limited geographically.

Vodafone in the UK is embarking on a major expansion of its 7.2Mbps HSPA

network to increase the potential market for its mobile broadband offerings by 3million more people. Until now it has been limited on priority areas, although even

with the network expansion the highest speeds are not available nationwide.

Therefore, the scale of the mobile broadband opportunity is limited by where the

appropriate network technology is available.

In this case network sharing could bring major benefits. Aside from the capex and

opex reductions of a single network, it also boosts both geographic coverage and

coverage density. For example the T-Mobile and 3 network sharing deal in the UK

will ultimately cover 98% of the population. Crucially for mobile broadband, this

will be HSPA too, maximising both operators market potential and giving them a

competitive advantage in relation to quality of service.


12/32



Network capacity

There is no doubt that mobile data traffic is increasing. 3 UK saw throughput on

the network increase seven-fold between October 2007 and February 2008,

coinciding with the sharp uptake of mobile broadband. In Austria, 3 is averaging

1GB of data per mobile broadband user per month. The result is that within one

year network traffic increased by 3000% and only 10% of its network traffic is now

voice. 3 Austria offers mobile TV too, so this was not totally mobile broadband

related, but it highlights the huge volumes of traffic now hitting mobile networks.

Ovums discussions with operators make it clear that many networks will not be

able to handle the onset of heavy fixed-type broadband usage of many data

hungry segments. Unfortunately, this means that as capacity and speedrequirements increase even with mid-term technology developments (such as

HSPA+ and even LTE) that mobile networks will struggle to provide profitable price

points for the mass market.

3 Austria, along with its Swedish counterpart, has already experienced network

capacity issues, although the operators feel that all have now been addressed. In

the radio access network (RAN) 3 has had to deploy a second frequency at some

cell sites (it has three). In contrast, most other European mobile network operators

have not yet seen capacity issues in the RAN and in general feel they have

significant capacity available at this point.

Price can mobile compete w ith fixed broadband?

As Table 1 highlights, the offerings at the lowest end of the market can be

relatively competitive with fixed broadband in terms of monthly cost, but not in

terms of performance. If costs are comparable then the network speed of fixed

broadband is stronger. If network speeds are comparable (in the case of Vodafone

only and then solely in London and major airports to date) then mobile broadband

usage limits are far more restrictive than those in fixed. However, Table 1 does

show that there are opportunities at the low end of usage for mobile broadband to

pick up subscribers in some segments.

The phenomenon is not limited to the UK market. In Italy, Telecom Italias fixed

broadband packages cost around 15 per month for unlimited usage, compared toTelecom Italia Mobiles 20 for 100 hours of mobile broadband access.

However, the mobile price premium is most apparent at the high end of the market

where the mobile networks simply can not compete with the high speeds and high

data usage allowances offered by fixed broadband ISPs.


13/32



Table 1 UK fixed and mobile broadband cheapest price comparison

Network

type Operator

Cheapest monthly

consumer tariff

(excluding offers

& modem costs)

Maximum

theoretical

speed

(Mbps)

Usage

limit (GB)

BT 16.00 8 5

Virgin Media 15.50 2 n/a

Carphone Warehouse 16.39 8 40

Tiscali 14.99 8 unlimited

Fixed

Orange 12.00 2 6

O2 20.00 3.6 3

Orange 15.00 3.6 3

T-Mobile 15.00 3.6 3

Three 10.00 3.6 1

Mobile

Vodafone 15.00 7.2 3

Source: Companies

Roaming

Roaming is another area where high mobile pricing premium is apparent. However,

it should be remembered that at least mobile broadband can offer roaming, which

is something that isnt possible for fixed ISPs.

Nonetheless, roaming prices are high, and with mobile broadband becoming an

increasingly consumer-oriented proposition there is an opportunity for one of

Europes major mobile operators to target data roaming, for both consumers and

enterprises. This should occur before regulatory intervention as there are already

stories of massive data bills being run up unwittingly and mobile broadband, by its

very nature transportable across borders, could well be on the EUs future agenda.

Even for enterprises, data roaming tariffs are expensive. For example, Vodafone

charges either 10 (12.50) per day or 95 (120) per month, with a usage cap of

5GB and excess data charged at 4.25 (5.35) per MB. However, this excess

usage fee is the equivalent to 4,325 (5,454) per GB, compared to the UK excess

charge of 15 (19) per GB.


14/32



Strategic issues for operators

Critical success factors

The following critical success factors can be identified that apply to both integrated

and mobile operators:

best-in-class network capabilities: coverage, speed, capacity, scalability

and efficiency

timely device evolution: devices that optimise recent network upgrades

need to hit the market as soon as possible to keep operators ahead of their

peers functionality. Operators must also maximise the potential of new form

factors to steal first mover advantage from their rivals, such as the handset as

modem

simple, competitive offerings in each segment: a portfolio of offerings is

needed that targets the different elements of the customer mix

value-added services: the most common examples appear to be security,

roaming and backup services, but both corporate and consumer services are

under development

technical support: this is not just having helpdesk staff trained and available

to help customers, but also support for different PC operating systems, such as

Microsoft, Apple Mac OSX and Linux.

Market segmentation

Enterprise

This is the historical foundation of mobile broadband services and it would be

remiss to forget about them. They are also likely to invest more in services to

guarantee high quality of service and higher usage limits. Roaming is a key VAS.

However, with the development of USB modems and lower cost tariffs the divide

between business and consumer users is becoming blurred, particularly at the

smallest organisations.

Internet anywhere

This group has evolved from the previously labelled prosumers to embrace a

wider group of intensive Internet users who want to keep up to date with their

social networks and Web content. Unable to be parted from the Web, they are the

largest consumer generators of mobile broadband traffic on a per-user basis.

Therefore, spending on data services will be high.

They will view mobile broadband as more complementary than a substitute to fixed

(unless they also fall into one of the other segments). This also means that they

are an excellent target for integrated operators bundling fixed and mobile

broadband offers, potentially through a femtocell. They are also most likely to be


15/32



attracted by messages highlighting the personal nature and mobility. However, aspower users of the Internet they would also be very aware of network quality,

most specifically in relation to network availability and speed they will ignore

maximum theoretical speeds and make great demands on the network.

Renters and sharers

This is the largest consumer segment by number and the first of the potential

targets for fixed-to-mobile broadband substitution (FMS). The group includes those

who move too frequently to sign up for a fixed broadband contract and can

therefore take their mobile subscriptions with them when they next move. They

are likely to be young professionals, so of high value. To date this group has

comprised predominantly males, although several operators see 2008 as the year

in which females will be increasingly targeted. Value-added services will be of most

interest here.

However, it may not be exclusively an FMS target segment. It could be that the

accommodation is served by DSL, but the prospect of a personal connection is

compelling.

Price sensitive

This group has low data usage requirements and will identify the opportunity to

save money by switching from the low end fixed broadband offering to a mobile

broadband equivalent. Being extremely cost conscious they will want the lowest

price, but also speeds and usage limits similar to those available through fixed.

Mobility is less of an issue as it is a true FMS target group. The segment is of a

reasonable size, but is also low value and highly likely to churn when a better offer

appears.

Casual users

This segment appreciates the mobility and simplicity messages, but their levels of

usage cannot justify committing to a two-year contract. Therefore, they will

appreciate the freedom of a prepaid tariff. Although the value to the operator will

be reduced, the incremental revenues generated would otherwise be lost if suchcasual users were to be ignored. This also has the potential to be a major segment

in terms of numbers of users.

Second homes

This group is relatively small, but likely to pay a premium for network availability if

it covers their second residence (often located in more remote areas). However,

providing the main broadband service to a second home is actually a

complementary service as the user will feel that the primary residence is the main

broadband service and will most likely have higher bandwidth demands for that

connection than a second home. In the second home the best connectivity will be

key. However, it is likely that once purchased, the mobile broadband service will be


16/32



used not only at the second home, but also on the way there and even whenmobile near the primary residence.

As it also a temporary residence prepaid could be a viable offer to provide

incremental revenues to the operator if such segments feel that a full time contract

cannot be justified.

No broadband alternatives

The level of broadband penetration in Western Europe means that this is a very

small group, but distance from the exchange and issues in the network does result

in a segment that cannot physically receive fixed broadband services. Therefore,

these consumers are perfect for mobile offerings.

They are also likely to spend to achieve as close to a fixed broadband experience

as they can get, as it will be their only broadband connection. They will opt for the

highest speeds and largest data allowances. However, network availability will be

key. After their experience (or lack of) with fixed broadband they will only chose

the mobile broadband provider with the strongest signal. They are also likely to be

interested in VASs as they will have no fixed alternatives.

Students and itinerant w orkers

Both groups have two key attributes that make them similar mobile broadband

targets. Firstly they are in temporary accommodation and likely to movefrequently. Therefore, a broadband contract is irrelevant. Furthermore,

differentiating them from renters and sharers, they have relatively low disposable

income. Lower usage tariffs will be most appropriate to this group with an

emphasis on mobility. However, there are also likely to be users in the student

group that aspire to the Internet everywhere segment. Providing maximum usage

at the highest speed, but for the lowest cost, will be key to targeting this sub-

segment.

Low end connectivity

Any broadband users requiring (or currently on) a plan under 2Mbps with usage of

less than 5GB/month can be targeted. This will be applicable to many users in

emerging markets but also sectors of more mature markets where certain

segments have low disposable incomes. It could also apply, for example, to people

with credit history issues, who to date have been unable to subscribe to a fixed

broadband contract. Therefore, prepaid offerings will be of interest. Speed, usage

limits and VASs will be of little interest, as connectivity at a low, manageable cost

will be key.

Evolution of the service proposition

Mobile operators typically offer mobile broadband services based around the

following propositions:


17/32



get connected with your PC anywhere, based on a laptop/dongle or datacardcombination. This is primarily focused on being an access provider

the Internet on your mobile phone. This is focused on being a service provider

for personalised mobile Internet. This has been difficult to get right but is

improving. This is because of better device interfaces and capabilities,

operators moving to a more open environment through developments around

un-metered tariff and partnerships with content providers and Internet players

that extend outside of the operator-controlled portal. And of course mobile

broadband infrastructure is helping with improvements in quality and

performance.

At the moment operators are selling the two propositions as separate services.

This is understandable as it enables them to grow the number of connections via

additional SIM cards and revenues. Most opera tors will pursue this path, or at least

as long as possible, but we think others will look at a single mobile broadband

access package for both types of proposition. The consumer could leverage a single

data tariff across laptop or mobile phone, increasing data traffic as mobile data use

becomes easier. Ultimately, device choice would simply come down to a choice of

the form factor most relevant to the users needs at the time.

In this context there is the potential for the handset to act as the modem for

connectivity, an idea currently being investigated across Western Europe. With the

high penetration of Bluetooth in both laptops and handsets, connectivity between

devices is already possible. The service logic is simple too, as it provides anextremely streamlined solution for the user. Just one device, the device most likely

to be carried everywhere, is needed to gain access through either the mobile

device screen or the laptop.

This might prove particularly appealing to mobile-only operators as the market

matures. This strategy could provide differentiation, provide convenience and value

to the consumer, and by doing so foster loyal and hopefully attract new users. We

believe 3 is interested in this approach.

However, this is a disruptive model and despite these positives there are two

major obstacles that could prevent it becoming a mainstream proposition:

it eradicates the need for a separate connection and therefore subscription tomobile data services. This undermines the entire revenue and connection

growth opportunities from mobile broadband

the innumerable connectivity options between network operator, handset

hardware, handset OS, laptop hardware and laptop OS make this a technical

minefield today, and far less simple than it could be. If promoted today it

would result in unnecessary support costs. Before it is viable a technical

solution will be needed to make it far less complex and far more reliable.


18/32



Pricing strategies

Mobile broadband tariffs today typically apply a capped usage limit. This is because

a true flat rate model could drive usage to the point that it might affect network

capacity and the quality of service for some applications.

By far the most common limit is 3GB per month, which accounts for 38% of the

tariffs in the UK, Italy, Austria and Germany. However, 1GB is proving a useful

low-level entry point for a low monthly contract value. Similarly, 5GB and 7GB

offerings are becoming increasingly common as more mature mobile broadband

markets such as Austria and Norway evolve and operators are able to target

higher-spending power users or differentiate their offerings. Both instances

highlight the need for operators to offer a portfolio of mobile broadband offeringsto serve their target segments.

In all instances, when the usage limit is exceeded an additional charge is incurred,

ranging from 0.10 to 0.25 per MB, depending on the operator and plan.

However, another tactic is to throttle back performance once the limit is reached.

This is used by Vodafone in Spain and Telenor in Norway, but although protecting

the quality of the service for other users, this does create a danger that the largest

users will resent the change in performance.

We would suggest that it is far more commercially viable to charge users for extra

usage as that is ultimately the objective of offering such services. However, such a

tactic could be useful to impose on repeat offenders to protect the network. Itwould also act as a good deterrent, with the ultimate sanction of disconnecting

users continually abusing their contract terms.

Its not just about gigabytes

Although the vast majority of mobile broadband offerings are focused on capped

usage there is a danger that the limit is meaningless for a user. How much data is

used by accessing a Web page? Or checking email? Or watching a video?

In response, some operators have taken an alternative approach, most notably

through imposing time-limited access. An excellent example is Telecom Italia

Mobiles recent mobile broadband tariff, which charges 20 per month for 100hours of mobile broadband access. T-Mobile in Germany also offers time-based

tariffs for 100 and 40 hours.

There is an issue that such metered usage harks back to the early days of dial-up

Internet access where consciousness of the time spent creates a desire to get

offline as quickly as possible. DSL has been hugely successful in marketing the

idea of always on connectivity, and has helped place Internet connectivity more

centrally in peoples lives. There is a risk that a step backward in mobile broadband

offerings will mean that they do not compare at all favourably with unmetered

fixed broadband.

However, it is important to understand the positioning of mobile broadband in

these circumstances. Neither Telecom Italia Mobile or T-Mobile use time as the sole


19/32



basis of their offerings. It is simply another way for users to select their services.Furthermore, mobile broadband is predominantly seen as complementary to its

fixed counterpart in Western Europe. Finally, the allowances of 100 hours are quite

reasonable and equate to 3 hours 20 minutes per day.

Combining the factors of choice of offerings, a complementary to fixed

perspective and high allowances makes time-based tariffs a useful addition to an

operators mobile broadband tariff portfolio. Nonetheless, we do not expect time to

become a core basis for mobile broadband offerings.

The prepaid mobile broadband opportunity

At present there is a great deal of emphasis on contract plans that tie in customersfor a set period of time, usually two years. This is completely understandable as a

stable revenue stream can be achieved over the length of the contract. As

operators build their mobile broadband portfolios we would expect to see fixed

term contracts continue as the dominant format.

However, we believe that there is a major opportunity for prepaid mobile

broadband offerings as part of this service portfolio. This is especially true where

mobile broadband is marketed as complementary to fixed services

Prepaid is also a viable option in markets where prepaid makes up a significant

share of voice connections, for example Italy where 87% of connections are

prepaid. In these cases prepaid mobile broadband offerings are attractive simplybecause that is how the majority of users are accustomed to paying for mobile

services.

Prepaid tariffs do exist today and the main barrier to uptake is the cost of an

unsubsidised modem or datacard. However, several offerings in the more mature

market of Austria show how prepaid mobile broadband offerings can evolve to look

very similar to their prepaid voice cousins, with the device and some data bundled

into an initial starter pack. Furthermore, as device volumes, USB modems in

particular, increase dramatically over the next two years we expect to see the

prices fall. Given that this will coincide with a more intensified competitive

landscape in Western Europe, prepaid could well be the mobile broadband

battlefield.

Exploring value-added service revenues

At the start of this report we predicted that mobile broadband access will see a

similar growth curve experienced by fixed broadband access what we term the

mobile broadband dividend, as shown in Figure 5. This is great news for mobile

operators desperate to make money from their 3G investments, particularly data

services. But they need to start thinking ahead now about how to drive revenues

from mobile broadband when access becomes a commodity and competition

intensifies. This has already happened with fixed broadband and it will be a similar

story for mobile.


20/32



Figure 5 The mobile broadband dividend

Total

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

19

81

19

84

19

87

19

90

19

93

19

96

19

99

20

02

20

05

%o

fGDP

Total

Fixed

Mobile

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

%o

fGDP

Total

Fixed

Mobile

Fixed network

broadband dividend

Mobile broadband

dividend

Fixed network

voice revenues

Note: this data only refers to access revenues

Total

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

19

81

19

84

19

87

19

90

19

93

19

96

19

99

20

02

20

05

%o

fGDP

Total

Fixed

Mobile

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

%o

fGDP

Total

Fixed

Mobile

Fixed network

broadband dividend

Mobile broadband

dividend

Fixed network

voice revenues

Note: this data only refers to access revenues

Source: Source ITU

When considering VASs we need to keep in mind the key usage scenarios for

mobile broadband will vary according to whether consumption is based on a

laptop, mobile phone or other handheld device. The form factors and capabilities of

each are very different and this will clearly have an impact on the services each is

best positioned to support.

Another important factor to be aware of is that not all VASs will command a

premium, but can nonetheless add value in other ways, for example by providing

consumers with useful tools and an improved user experience.

Communications services

Email and instant messaging (IM) are two of the most important applications in

driving PC Internet usage and it is assumed these cant live without services will

be core to a mobile broadband proposition. We think that, broadly speaking, this is

true particularly for a laptop/dongle scenario. But we need to be careful not to

oversta te the assumption regarding email and IM access via a mobile phone over

broadband, as people's need to communicate while on the move is already

satisfied to a large degree by voice and SMS.

Content services

The increased capacity and speed offered by mobile broadband generally improve

the quality and user experience of mobile multimedia services such as games,

music, TV and video. For example, less latency for games, faster downloads for

music and videos, better image quality for TV. Mobile broadband will also play well

to services that need frequent updating or to be accessed on a regular basis.

Examples here include social networks and information services such as news,


21/32



weather and travel. However, many of these services are already low cost or freeand we do not think mobile broadband will change this, which is where mobile

advertising revenues come into play. We will discuss this in more detail below.

However, there is a scenario where mobile broadband could have a negative

impact on the quality of experience for some services and that is when inside

buildings. Mobile broadband can receive a reduced signal when indoors, which will

impact on any broadband service or application down to that device. TV and video

services will be particularly sensitive to any degradation in bandwidth due to a

reduced signal. Here, femtocells could play a role improving this scenario.

Security

In particular virus protection is already being promoted by several operators. For

example, Vodafone has launched it in some of its markets already. In such cases,

the emphasis will need to be more on mobile protection to prevent offering nothing

in addition to existing security offerings. The alternative would be that security

becomes an incentive to attract customers rather than a revenue generating

service.

Laptop client software

There is interesting potential for operators to optimise the laptops control panel

software. Today most simply install a brand version of the client software provided

by the modem vendor. Vodafone is currently developing its Dashboard, which ithas designed to deliver service updates and software patches. It is also going to

use it to go beyond adding value to its offering, by delivering additional, revenue

generating services, such as VPN access for enterprises, and music and content for

consumers.

Other means of differentiation

Quality of service

It is also possible to use quality of service to differentiate between an operators

own offerings as well as competitors. For example, Vodafone in Spain offers

different speed propositions depending on the segment. The highest speed

(7.2Mbps) is aimed at enterprises, while the lower cost offering provides a slower

(3.6Mbps) speed. Furthermore, if the lower speed users data allowance is

exceeded then the users traffic speed is downgraded. Vodafone are keen to stress

that the offering isnt driven by network management concerns, but it is a means

to enable differentiated offerings.

Customer management

Moving further forward there is also potential for operators to differentiate through

the customer management offered to consumers. Today mobile broadband adds an

extra SIM to a users account, but what happens if the user of the future has a


22/32



mobile handset, USB modem and multiple mobile Internet devices (MIDs)? Howdoes the operator manage the true value of that account rather than the SIM?

Today consumer customer management is handled at a SIM model, but as SIM

ownership multiplies in the future there are two models today that may provide an

insight.

Firstly, family tariffs are already forcing operators to manage multiple SIM

accounts, albeit from a predominantly voice perspective. However, these will also

need to evolve as data becomes more important to the offering, but they could

form the nucleus of interesting household offerings based around femtocells.

The second is to view the individual consumer with multiple connections or

households as an SME. For example, an SME today with a voice account can

consist of ten connections. A household with handsets, mobile broadband and MIDs

could easily approach that number of connections. Therefore, the customer

management principles applied to maintaining SMEs today could be applied to such

households. Of course, as consumers and not business customers, the value of the

total account will most likely be smaller, making it a challenge to provide such a

service cost effectively.

Operator positioning

Hybrid operators: a converged balanc ing act to avoidcannibalisation

Mobile broadband offers an excellent opportunity to integrated or hybrid operators

(those with both fixed and mobile offerings), as long as they can avoid falling into

the trap of cannibalising fixed broadband revenues.

The central platform of an integrated offering is, as Telenor describes it, to provide

the best possible broadband experience wherever you are. By combining fixed

and mobile broadband with WiFi hotspots, users with integrated operators

effectively achieve best available access to the Internet via a PC. In this scenario

mobile broadband is complementary to fixed broadband, rather than a substitute.

This converged approach is most evident in Telenors enterprise mobile broadband

offering. The services software enables users to switch seamlessly between fixed,

WiFi and cellular access. Access to WiFi is also included in all its mobile broadband

offerings, as is the case for T-Mobile in the UK.

In the UK, Orange now offers a fixed and mobile broadband package for 22 (28)

per month and O2s mobile broadband is available only to existing fixed broadband

or mobile customers. Telekom Austria has also launched a combined fixed and

mobile broadband offer, through which fixed broadband customers can add mobile

services for 14.90 per month. Telecom Italia Mobile has also stated to Ovum its

intention to launch an integrated offering in the near future.


23/32



Of course, there is an issue with such a converged solution as to how the packageis priced. A per usage model on the mobile broadband element would undermine

the premise in the home if WiFi is available. A flat rate bundle comprising all of the

connectivity elements is far simpler to understand and prevents revenue leakage.

Revenue cann ibalisation: generally not a threat, yet

The danger for integrated operators is fixed-to-mobile broadband substitution and

therefore cannibalisation of fixed broadband revenues. We think the risk of

revenue cannibalisation from fixed to mobile broadband is currently small. Network

speeds mean that mobile broadband is being marketed as a complementary

service rather than as a substitute to fixed. Therefore, marketing should highlight

mobility and convenience.

However, there is a very real risk of revenue cannibalisation where dense, high

speed mobile network coverage does enable mobile broadband to be a substitute

for fixed, such as in Austria. Telekom Austria is already reporting some

cannibalisation, but it feels that currently the growth opportunity is outweighing

the threat. Nonetheless, integrated players such as Telekom Austria will be

focusing on more converged offerings to avoid the trend becoming too damaging.

Furthermore, as mobile broadband network coverage develops across the rest of

Europe, fixed broadband revenue cannibalisation could become a greater threat to

incumbent operators. It can also become a greater risk if price wars eliminate a

mobile premium. A combination of improving speed and falling prices could then

shift low volume and value users onto mobile broadband, eradicating the additional

value created by mobile broadband offerings.

Mobile-only segments are also open to integrated operators

Despite the focus on the fixedmobile converged offering, integrated operators can

also target the mobile-only customer segments, described above, for which fixed

broadband is not desirable or not an option, for example customers too far from

the exchange for fixed broadband or those in temporary accommodation (such as

students, house sharers or migrant workers). However, the mobile-only operators

will be focusing their attention on these segments, so competition will be fierce.

These segments are therefore the most likely to see the greatest pricing pressure.

Femtocells add to the offering

As discussed above, integrated operators are best positioned to benefit from

femtocell technology to serve the home. An integrated opera tor controls the traffic

over both mobile and fixed networks, thereby avoiding any quality of service issues

that could arise from handing backhaul over to a third party.

To the user it becomes practically irrelevant as to which network is used at home.

Femtocells also provide an opportunity to provide users with a single home

gateway device, which integrates the fixed broadband modem, WiFi router and

femtocell. That way the user can access the Internet at home regardless of device


24/32



laptop or mobile handset. There is also the opportunity for voice revenuesthrough the femtocell, which should not be ignored, although of course the risk of

cannibalisation from the fixed network is heightened.

Mobile-only operators: fixed-to-mobile broadbandsubstitution?

For operators with just mobile networks (and not even a fixed DSL offering) the

mobile broadband proposition is both simplified and complicated. The simplification

arises from the fact that there is no conflict of interest within the organisation. The

mobile broadband strategy is the broadband strategy. Mobile operators have carte

blanche to highlight mobile broadband as the best choice for broadband access.

Messages should focus on the simplicity, flexibility and personal nature of mobile

broadband. Furthermore, the messaging can be clear and uncompromising to other

services. All segments can be safely targeted and, in the consumer space, much

emphasis can be placed on the fact that HSPA offers sufficient speeds for average

Internet usage. In this scenario fixed ISP customers can be targeted head-on.

Fixed-to-mobile broadband substitu tion: the exception rather than the

rule

For the majority of customers, mobile broadband is a complement to rather than a

substitute for fixed broadband. The exception to this is the mobile-only customer

segments.

Even taking into account the fixed ISP users that could be churned to mobile, it is

unlikely that mobile will account for the majority of broadband connections in

Western Europe. This is especially true when fibre deployments are gathering

momentum across the region and offer far higher access speeds. In addition, fixed

services can offer sufficient bandwidth for IPTV to consumers and corporate

networking, which is out of touch for mobile.

Of course there are always exceptions, and Austria has proven that mobile

broadband can substitute for fixed. Indeed, 3 Austria claims that mobile will be the

access technology of choice in the future. However, as the case study below

highlights, there were particular factors shaping the markets evolution that dont

appear across the rest of Western Europe. The mobile broadband providers are

also facing renewed pressure from the fixed ISPs, so it is not certain that the

current scenario will continue in the long term.

Mobile broadband wholesale ISPs?

Although not actively pursued as a strategy to date, there is an opportunity for

mobile operators to enhance revenues by offering wholesale data access to third-

party ISPs wishing to offer mobile broadband services. As in the fixed broadband

space, this could be a way of generating new revenues through the optimisation of

another brands strength.


25/32



In particular, existing fixed ISPs taking advantage of local loop unbundling (LLU)may see this as an excellent way to complement their existing offerings. For

mobile operators it would be a cheap way of selling into a niche customer base

that may otherwise be difficult to target, as the current MVNO model allows.

However, as with wholesale voice services today, operators must also be wary of

cannibalising their own revenues.

Again, the key would be for the network to make this option cost effective, but 3

Austria claims that a wholesale mobile broadband offering could be more cost

effective than unbundling a fixed line, which currently costs a minimum of 10 per

line.

Case studies

Telekom Austria

Austria is one of the most advanced mobile markets in Western Europe, with

mobile penetration in 2007 of 119%. Furthermore, FMS in the voice space is well

established, with Telekom Austria (operating as A1) reporting that 70% of its voice

minutes are carried over the mobile network. Almost half of new households wont

take a fixed line.

In the mobile broadband space, there were 500,000 net adds in 2007, half of all

broadband connections. Telekom Austria had 290,000 mobile broadband

subscribers in 4Q07. However, Telekom Austria launched its mobile Internet

services to business customers in 2004. So why has the Austrian market taken to

mobile broadband so enthusiastically over the past 18 months?

First and foremost, Austrias mobile networks are of a high quality. The Austrian

operators believe the density of basestations per kilometre is higher than

elsewhere in Western Europe. This provides good geographical coverage across the

country and ensures capacity at the basestation is maximised. In addition, the

networks are advanced in terms of network technology. Telekom Austria now

offers a maximum speed of 7.2Mbps in the downlink and, importantly in

comparison to other Western European markets, 1.4Mbps in the uplink. Combining

the speed with the network coverage gives a compelling offering.

However, Austria also displays a significant push factor away from fixed

broadband. In 2007 we estimate that broadband penetration was 24%, the tenth

highest in Western Europe out of 20 markets. The reason for this was that

broadband was relatively expensive compared to other markets. Therefore, as

Table 2 shows, mobile broadband pricing was extremely competitive.


26/32



Table 2 Austrian mobile broadband pricing

Consumer

pricing

Highest

monthly fee

Lowest

monthly fee

Usage/ time

limits/ unlimited

Telekom Austria $62.67 $24.99 Usage; Unlimited

UPC $111.78 $23.74 Unlimited

Tele2 $50.11 $21.98 Usage; Unlimited

Fixed

iNode (UPC) $111.78 $22.48 Unlimited

3 $91.37 $10.84 Usage

A1 (Telekom

Austria)

$46.46 $23.23 Usage

T-Mobile $38.72 $23.23 Usage

Mobile

One $77.44 $15.49 Usage

Source: Ovum, companies

In addition to price, the tariff plans were simple and capped. Our discussions with

the Austrian operators highlighted the danger of offering unlimited packages. All

operators offer a range of tariffs tiered around monthly usage limits ranging from

300MB to 30GB at 3. Prices start at 7 for the former plan and go up to 59 for thelatter. The standard contract length is 24 months for all operators, although 3s

300MB offer is just 13 months. Furthermore, prepaid offerings from Telekom

Austria and T-Mobile completed the tariff portfolio in the market.

The final factor in 2007 was the introduction of USB modems. Once the

convenience of mobility and ease of install were combined with the simple and cost

effective pricing, the drivers for uptake were complete. Customer segmentation is

less of an issue for Austrian operators as mobile broadband is marketed as the

broadband of choice

However, Telekom Austria reports that despite the convenience of mobile, only a

small proportion of users are utilising the mobility of the service. They have found

that two-thirds of a subscribers mobile broadband use occurs through the same

base station, effectively making it a fixed offering. This also effectively makes it a

FMS offering and Telekom Austria is already seeing a cannibalisation effect on its

revenues, as it is also the largest fixed broadband ISP.

As a result, Telekom Austria is focusing on products combining fixed and mobile

broadband access, which are to launch in mid-2008. The company predicts that the

convenience and pricing of the converged offering will be key to its successful

market acceptance.

Moving forward, the mobile operators in Austria see a reinvigorated fixed

broadband sector reducing prices as becoming more competitive. However, as a


27/32



case study in the potential for mobile broadband, given the right marketconditions, Austria is unique in Western Europe.

3 UK

The company says that customers are finally entering 3 retail stores to ask

specifically for data products, and part of the reason is mobile broadband. 3 says

there is clear evidence that mobile broadband drives data traffic, which has grown

seven-fold since the introduction of mobile broadband in October 2007. Between

October 2007 and February 2008, data throughput grew from 200Mbps to

1400Mbps, as shown in Figure 6. CEO Kevin Russell believes that with mobile

broadband 3s market opportunity has come of age.

Figure 6 Data throughput on 3 UK network October 2007 March 2008

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

12/10/2007

19/10/2007

26/10/2007

02/11/2007

09/11/2007

16/11/2007

23/11/2007

30/11/2007

07/12/2007

14/12/2007

21/12/2007

28/12/2007

04/01/2008

11/01/2008

18/01/2008

25/01/2008

01/02/2008

08/02/2008

15/02/2008

22/02/2008

29/02/2008

07/03/2008

14/03/2008

21/03/2008

28/03/2008

04/04/2008

Rela

tiveTrafficGrowth

Downlink Uplink Total Growth

Source: 3 UK

Russell stresses the importance of network coverage and depth in driving mobile

broadband. 3 has a 3G network sharing deal with T-Mobile to address this, and by

early 2009 the two operators will have 13,000 cell sites between them. This

compares to 7000 sites for 3 alone today. Currently 3 can offer top theoretical

speeds of 3.6Mbps, which will increase in the second half of 2008 to 7.2Mbps.

The issue of network capacity remains a nagging doubt if data traffic were to

explode, and Russell concedes that 3 is still feeling its way around the impact on

the network. He also conceded that 3 Austria and 3 Sweden had experienced some

network congestion as a result of data uptake. However, he was confident that

there was 'significant capacity' in the UK radio network and that the core network

could be easily upgraded to cope with demand. 3 believes the availability of


28/32



handsets is approaching the tipping point where vendors include HSPA functionalityby default. The GSMA recently announced that 467 HSPA handsets are now

available. However, 3 says it is HSPA dongles that are attracting user interest, with

the UK market reporting a total of 55,000 sold in January 2008.

Russell is keen to stress that simplified pricing has been crucial to consumer

uptake. The company recently cut the price of a 2.8Mbps connection to 5 per

month for existing customers. The 3 networks 5 Broadband Lite service includes

1GB of downloads, an 18-month contract length, and the latest Huawei E169G

dongle. Excess downloads cost 0.10 per MB over the 1GB allowance.

Alternatively, a 3GB and 7GB download limit will set existing users back 7.50 and

12.50 per month, respectively. Rivals Vodafone and Orange charge 15 a month

for a service based on 3GB of downloads per month, while O2 charges 20 per

month for roughly the same.

Russell says 3 is not yet ready to offer an unlimited data package, as the potential

impact on capacity of high traffic applications, such as file-sharing, was still

unknown.

3 UK has embraced an open access model and has pretty much opened up its

network to any application. This will continue and Russe ll says the company will

put less emphasis on developing content services such as mobile TV. He thinks

that VoIP, email and instant messaging (IM) are the key services for mobile

broadband and 3 wants to get ahead of its rivals with these, rather than be

distracted by content. It is allowing partners like Skype, Yahoo, Microsoft and

Google to offer some of these key communications services. This kind of strategy

calls to mind a fixed broadband ISP, rather than a traditional mobile operator.

Vodafone Group

Vodafone has become increasingly active in setting the technology agenda. Recent

examples include Vodafones involvement in setting up the OMTP in 2004, and its

unilateral initiative of 2006 to reduce fragmentation in the handset environment,

known as the Terminal Platform Programme. In the development of standards for

4G mobile networks, Vodafone turned heads in 2007 by joining the WiMAX Forum,

and by suggesting that WiMAX and LTE could end up converging into a single set of4G standards. At the 2008 Mobile World Congress, CEO Arun Sarins keynote

address focused on urging the mobile industry to make faster progress with 4G.

Vodafone is one of the few operators to combine the scale and the geographic

scope required to drive the development of mobile technology. For this reason, we

believe that Vodafones technology agenda is worthy of close attention.

In a recent technology roundtable for analysts, Vodafone highlighted the following

points:

in the next generation of mobile networks, LTE and WiMAX may both play a

role. It may be that each predominates in different parts of the world. So there


29/32



is a need to couple LTE and WiMAX developments more closely together, sothat 4G can deliver one global standard one phone that works everywhere

access bandwidth is increasing rapidly: 3G only turned on in 2004, now HSPA

is already delivering up to 7.2Mbps, with plans to upgrade to 14.4Mbps in

some hotspots by the end of 2008, and to trial 28.8Mbps commercially soon

afterwards. At 28.8Mbps, HSPA users can get real, consistent data speeds

around the 3Mbps mark. Thus, HSPA now enables a mobile broadband service

that can fulfill the same needs as home DSL and indeed, it is already being

marketed in that way with some success in some of Vodafones markets, such

as Portugal and Ireland.

Vodafones mobile roadmap to what it calls 4G is based on an evolutionary

approach, as shown in Figure 7. Vodafone is active in trialling both LTE and WiMAX,

and is influencing the development of both technologies via membership of 3GPP,

NGMN and the WiMAX Forum. Vodafone notes that both LTE and WiMAX are

founded on a set of common technologies (such as OFDM and MIMO), so the

operators approach (broadly speaking) is to push for a global 4G standard of

which LTE and WiMAX could ultimately become variants. A key distinction between

the two is that LTE predominantly uses FDD (frequency division duplex or paired)

spectrum, while WiMAX predominantly uses TDD (time division duplex or

unpaired) spectrum. One plausible scenario, therefore, is a global 4G standard

with an FDD flavour and a TDD flavour, with regional deployment determined by

whether FDD or TDD spectrum is available for use, and with devices that can

support either one and are thus able to work anywhere in the world.


30/32



Figure 7 Vodafones network technology roadmap

Source: Vodafone

Vodafone is comfortable that its current spectrum holding in Europe is adequate to

support its medium-term network development plans. Moreover, there are likely to

be further attractive acquisition opportunities during the next few years, especially

in the 700MHz range as analogue TV switch -off proceeds.

Voice service pricing will continue to experience downward pressure, and the mix

of voice and data traffic in the network is shifting towards data at an acceleratingrate. At current rates of growth, the number of terabytes in Vodafones network

generated by voice is likely to overtaken by the number generated by data

sometime in 2008.

For both of these reasons, network development strategy needs to focus on

optimising capacity, both in access and in backhaul. Although this gives rise to

some long-term requirements in terms of spectrum and site density, progress in

expanding capacity can also be addressed to a large extent by more immediate

projects. Through a combination of power boosting in selected sites, implementing

new releases of HSPA, using remote radio heads and treating interference with

DSP-based methods, capacity improvements in the order of 20x can be achieved.


31/32



Another potentially important network technology that Vodafone is currentlytrialling is femtocells. The aim is to assess the potential of femtocells to improve

indoor 3G coverage, and to reduce the cost and capacity requirement of future

network rollout. Vodafone has no current plans to use femtocells for FMC or other

home location-based services, although such services could clearly become a

feature of its femtocell trials later on.


32/32

THE FUTURE OF THE MOBILE BROADBAND MARKET

Client re-use disclaimer This is a verbatim reproduction of independent material that has

previously been published by Ovum within the last 6 months

Ovum operates under an Independence Charter. For full details pleasesee www.ovum.com/about/charter.asp

Ovum may have been paid by the client for the right to re-use thematerial

Ovum may have a deal with the client to supply research orconsultancy. However, no other relationship exists between the 2

companies (e.g. shareholdings, loans, non-executive directorships etc)

While we take every care to ensure the accuracy of the informationcontained in this material, the facts estimates and opinions stated are

based on information and sources which, while we believe them to be

reliable, are not guaranteed. In particular, it should not be relied upon

as the sole source of reference in relation to the subject matter. No

liability can be accepted by Ovum, its directors or employees for any

loss occasioned to any person or entity acting or failing to act as a

result of anything contained in or omitted from the content of this

material, or our conclusions as stated

This material is the copyright of Ovum Europe Ltd.

Whitepaper - The Future of Mobile Broadband

Documents

Transcript of Whitepaper - The Future of Mobile Broadband