Broadband Report 3

Mobile broadband - the 'killer ap' for in -Pacific?

The author, Janice Chong, is an industry manager at global growth consulting company Frost & Sullivan. She spearheads research in mobile and wireless communications, covering services, applications and devices in the Asia Pacific telecommunications

ive years on from its initial launch in applications, there is little that differenti- F Japan and South Korea, 3G (third ates 3G from 2. services. The latter is generation) network deployment is on a already capable of delivering most mobile global scale. With the exception of , services and applications over its existing and Thailand, the 3G movement has network. The only compelling proposition permeated the Asia Pacific region, ranging that 3G offers is user experience due to from the highly saturated to the emerging its bigger bandwidth pipe, which allows for markets. Apart from the mature (tier-i) 3G shorter download time and better quality of markets i.e. Japan and South Korea, coun- service. As it stands, the lack of compelling tries that have launched 3G services now content and a business case for users to include Hong Kong, Australia, New Zea- embark on this migration path has inhib- land, Singapore and (collectively ited the mass adoption of 3G. known as tier-2 3G markets). The strategic positioning for 3G services The 3G subscriber base in Asia Pacific so far has mainly centred on price plays grew 54.7 percent (year-on-year) in 2006 as an immediate means of enticing users reaching 90.6 million subscribers, which to migrate onto the 3G platform. However, represent close to ten percent of the affordability is not the only criterion for region's total cellular subscribers. Japan pricing models - transparency and simplic- and South Korea alone accounted for ity also playa pivotal role in promoting 88.4 percent of the total 3G subscribers market education. A la carte pricing and in the region. Beyond these two markets mini-packages give users the flexibility to however, finding the business case for 3G choose desired content with relative ease. has not been straightforward. The tier-1 markets possess distinct mobile spend- This pricing model, which is widely used ing behaviours and cultural attributes that by cable TV operators, has proven to be set them apart from other countries in the popular with mobile TV and video applica- region. tions. Pricing models which encourage subscriber experimentation are also impor- Unlike Japan and South Korea, the tier-2 tant in driving 3G, especially in highly price 3G markets have mainly been operator- sensitive markets. Mobile TV launches in driven, where operator-push strategies certain markets such as Malaysia have were largely responsible for the rapid taken this approach by offering unlimited . To date, tier-2 3G markets daily downloads. comprise only 10.5 million subscribers or 11.6 percent of the total 3G subscribers in The iPod experience would suggest that the region. Even so, the actual number of developing a conducive ecosystem in the active 3G users is estimated to be only a telecommunications world is a critical suc- fraction of this. cess factor. Apple Inc. has successfully built a complete ecosystem of partners As pervasive as 3G networks may be around its iPod model, allowing music across the region, there is still a longand record companies to combat piracy challenging road ahead as far as 3G serv- and benefit from the sale of intellectual ices are concerned. Apart from mobile TV property. Ultimately, the primary role of

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COUNTRY 3G subscribers Main operators in 2006 (mil- lions)

Australia 2.6 Telstra, Hutchison, ,

Hong Kong 1.26 Hutchison, SmarTone, Hong Kong CSL, SUNDAY Communications (trial only)

Indonesia 1.14 PT Mobile-8 Telecom (trial only), PT Sampoerna Tel- ekomunikasi (trial only), PT Telekomunikasi Selular, PT Excelcomindo Pratama Tbk, PT Indosat Tbk, PT Cyber Access (expected early 2007), PT Natrindo Telepon Selular (expected early 2007)

Japan 63.22 NTI DoCoMo, Vodafone, KDDI

Malaysia 0.39 Berhad, (Malaysia) Berhad, MiTV Corp (expected early 2007), TIME dot- Com (expected mid-2007)

New Zealand 0.25 Telecom New Zealand, TelstraClear (expected mid- 2007)

Philippines 0.02 ,

a mobile operator is in serJice enabling vvork access. Just as voice has been a rather than content creation. A mobile lucrative business for carriers, the ultimate operator's role is to provide optimal user source of revenue for mobile data is in the experience by creating a plug-and-play access charges itself. In Japan and South environment, introducing simplicity and Korea, data access charges account for 85 transparency in pricing, and providing the percent of operator-generated mobile data service platform for third party content. revenue, while messaging and premium content make up the remaining 15 percent. 3G operators in Japan and South Korea have acquired stakes or formed alliances Japan and South Korea's high proportion with broadcasting companies, equipment of data access charges has enabled carri- vendors and record label companies to ers to maintain a revenue-sharing structure secure a continuous stream of content. of 91:9 and 85:15 respectively in favour of Such partnerships reduce time-to-mar- third party content providers. Carriers in ket and help operators establish instant China and Australia are beginning to follow branding for their content. For example, suit by employing the i-mode pricing model SK Telecom has recently acquired stakes where airtime traffic charges contribute a in movie production and music recording significant portion to mobile data revenues. companies, enabling it to offer a constant flow of new content which it can feed to its However, elsewhere in the region, where subscribers. After all, content is king. SMS-based applications are highly popu- lar, carriers would typically have to contend While the race to secure continuous con- with low data traffic. Without a certain level tent is essential to mitigate falling voice of revenue from data usage, carriers nor- ARPU (average revenue per user), the mally seek higher returns/revenue share true gold mine for operators lies in its net- from content downloads to compensate for

18 Volume 35 Number 1 February-March 2007 www.iicom.org Broadband Report 3

the low data traffic revenue. As the mobile bandwidth location-based applications. data market matures and data traffic rev- enue increases relative to SMS-based For pure mobile operators with limited applications, the revenue share model access to last-mile connections, HSDPA would gradually shift more in favour of provides a sound strategy for these carri- content providers. ers to venture into residential broadband, further expanding the size of the cellular If revenue from data traffic charges is to be market, particularly in a saturated market. the carriers' main source of data revenue, perhaps the key lies in high bandwidth net- With proper service offerings, this is almost work access, accompanied by bandwidth- certain to provide mobile operators with hungry data applications. And if so, mobile the much-needed boost in ARPU. Mobile broadband could perhaps be the killer broadband is likely to generate a new application that carriers are in search of. stream of income for mobile operators, previously unattainable over networks. However, a current 3G network need not be the ideal technology for mobile Driven by the scarcity of 3G spectrum allo- broadband, given its limited bandwidth. cation and the importance of high-speed The business case for 3G need not lie in access, the business case for 3G could 3G itself, but in 3.5G or what is commonly also include being a pure access network known as High Speed Downlink Packet provider. Selling 3G bandwidth and voice Access (HSDPA). 3G ultimately provides a minutes would provide 3G wholesalers platform for enabling 3.5G. with the advantage of scalability and effi- ciency. The quest for high-speed data access is underscored by the launch of multi- Service enabler ple technology platforms by the Korean and Japanese operators, ranging from The service enabler role of a carrier means digital mobile broadcasting and wireless that it is primarily responsible for provid- broadband to wireline fibre network - which ing a conducive environment and proper have demonstrated that users are willing infrastructure to optimize user experience. to pay for high-speed access. Backed by its scalability advantage, car- riers are also in the best position to offer Recognizing this, Australian incumbent content management and digital rights operator,Telstra, has embarked on its Next management, thus providing an optimal G HSDPA nationwide network to provide platform for third party content providers to superior coverage and greater speed. offer compelling content. Telstra has the widest 3G coverage in the country, offering services to 98 percent of The reality is that justifying the business the population (with superior in-building case for 3G has never been easy since penetration at 850 MHz compared to the the weak demarcation between 3G and 2100 MHz offered by the other 3G opera- 2G revenue creates a vague understand- tors). ing of the actual return on 3G investments. Perhaps the real ROlon 3G investments is Its closest competitor in Australia in terms the launch-pad it provides for 3.5G. of 3G coverage is Hutchison, which cov- ers 55 percent. In terms of speed, Telstra's After all, HSDPA requires the WCDMA Next G HSDPA network offers average (Wideband Code Division Multiple Access) speeds of 550 Kbps to 1.5 Mbps, a peak 3G standard as the underlying infrastruc- network downlink speed of 3.6 Mbps at ture. While finding a case for a new tech- the moment, and is currently testing 14.4 nology has never been clear cut, mobile Mbps - comparatively higher than the broadband could be a key service differ- average end-user throughput of 400-500 entiator that may just prove to be the busi- Kbps. Superior speed and wider coverage ness case for 3G. are expected to put Telstra at the forefront of the cellular industry by enabling high

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