2009: moment of truth for many says StrandConsult

Monday, 19 January 2009 01:00

How will the mobile market develop during 2009? Who will survive and who will enter into some type of consolidation? Well, StrandConsult believes certain key trends will dominate the 2009 mobile market.

This, for example, will be the year where almost all the world's mobile operators will primarily focus on mobile broadband. This market will grow, but competition will be so tough that it will result in very low prices on most markets. These low prices will over time result in operators having choices on how to continue to do business: reducing customers' consumption, launching a number of premium products, bundling services with a mobile broadband product and launching premium billing on mobile broadband are those identified by StrandConsult. 
What is more, StrandConsult believes that the services market we already know from the mobile market with premium SMS will spread to the mobile broadband market and that IP billing will become a natural part of the mobile broadband market and, later on, the traditional broadband market. The first operators will launch these types of services during the first half year of 2009 and these services will subsequently spread across large parts of the world during 2010.
 And the financial aspects?

The current financial reality will result in demand decreasing and a great deal of the sales created in 2009 will primarily derive from the innovation that the industry must deliver. This will come from new and smart handsets and new and innovative services which will create a large part of the revenue on top of the basic products and services that customers purchase. Those that do not understand the importance of innovation will experience a decreasing demand for their products and services during 2009.
 This will be the year where there is an extra large focus on cash flow. Some will have a positive cash flow they can take advantage of and some will have a negative cash flow and will one way or the other need to enter into some form of consolidation. 2009 will be the year where innovation is King and cash is King Kong.

Behaviour in 2009 - customers will discontinue some services, change behaviour

If you look at how customers will behave during 2009 you will see that their main focus will be on value for money. Companies that can give customers value for money will be successful - those that focus on premium products that do not differentiate from their competitors will experience a tough year. When customers experience a financial recession as now described by the media, they become much more price sensitive: this happens quickly. One of the areas where operators will quickly experience this will be the acceleration of customers migrating from fixed lines to mobile and an increasing number of customers will discontinue their fixed line phone subscription and instead use their mobile phone. We believe that this market development will be especially visible in countries like Spain and Germany. 
In countries where mobile broadband penetration is over 10-15%, DSL providers will experience an increasing number of customers that choose a mobile broadband connection rather than a DSL connection. We believe this market will be concentrated around the singles and youth segment - segments that perceive mobile solutions as a natural technology in their daily lives.

The handset market will be hit hard by market developments. We believe that the market will be divided between cheap basic handsets and new innovative products with smart designs. Today almost all sales are replacement sales, resulting in customers either choosing a cheap product with the functionality they require, or alternatively choosing a smart designer product with a high status symbol value. The market in-between these two types of products will be limited. 
For many years it has been the operators that have been the handset manufacturers' best friends. In 2009 the customers will take over the handset market. The limited subsidies will result in customers paying a larger share of the handset price in the future - the company that can deliver value for money will be the company that sells the customers their next mobile handset. 
Operators - MVNOs to go global

We believe that the MVNO market will continue to grow; we will see this market spread to South America, the Middle East and perhaps Asia. Successful MVNOs will move from being a European phenomena to becoming a global phenomena and new types of MVNOs will emerge. We believe we will see a number of data-based MVNOs across the world and some of these will emerge from the IT industry. Some of these MVNOs will focus on becoming mobile ISPs, while others will focus on delivering data services, including machine-to-machine solutions.

If you sell infrastructure, 2009 will be a tough year. We are certain that operators will focus on limiting their CAPEX and will focus on getting value for money. This will result in operators increasingly limiting their investments to the absolute minimum - competition will be tough. Operators will primarily purchase extra capacity and expansion of their mobile broadband networks, investments in improving coverage will be limited to a minimum.

Many operators have through the years been very focused on CAPEX, while their focus on limiting OPEX has been limited to what their organisation believed they could handle in a natural fashion. We believe that handset subsidies and dealer commissions will come under great pressure in 2009 and only those dealers that can create added value for the operators will have a chance of making good money. 
Difficulties for mobile broadband - price will be king

Regarding the mobile broadband market, the main focus will be on winning mobile broadband market shares and retaining market shares on mobile voice traffic. All operators know that the mobile broadband market will be enormous and will use all means at their disposal to acquire as large a share as possible of this market. The problem is that when all operators have the same prerequisites for doing business on this market, the primary competitive parameter will quickly become the price of mobile broadband. We will experience this development on almost all mobile broadband markets. 
The largest challenge on the mobile broadband market will be that the largest voice operators will face difficult times. Quite simply one could say that the larger market share you have on voice traffic, the more difficult it will be to gain large market shares on mobile broadband without losing your voice market shares. 
Outsourcing will also grow in 2009, primarily driven by the desire for right-sizing. An increasing number of operators will use project outsourcing to achieve a leaner organisation. Focus will be on who can produce a voice minute minute, SMS and a megabyte at the cheapest price. The winners will be the operators that run the most cost efficient organisation. 
The network technology business - winners and several losers

During 2009 there will be a great deal of focus on a number of technologies. The media will be flooded with stories about DSL, Fibre-to-the-Home (FTTH), Femto cells, WiMAX, CDMA, LTE, HSUPA, GSM/CDMA-450Mhz, UWB and DVB-H. On the whole a lot of this communication will be driven by the technology providers that make a living from selling these technologies - they will all claim that they are selling the winning technology but many of them will fail - and only a few will be successful.

Regarding FTTH, we have little doubt that most fibre providers are having difficulty getting their business cases to work. There is no doubt that there is a market for fibre and a need for FTTH. The big question is, however, whether the providers can attract enough customers to achieve a RoI on the enormous investments that FTTH requires? 
We believe that the roadmap is GSM, UMTS and then LTE and we believe that the evolution that started with the introduction of 3G and UMTS will quickly develop. The market for portable PCs with built-in mobile broadband will result in what started as an evolution will develop into a revolution, with customers adopting these products in a large scale. There is no doubt that CDMA is a dead technology and that an increasing number of CDMA operators will choose the GSM/UMTS path as their roadmap - a strategy which will prove successful. 
We believe that Femto cells will run into the same problems that UMA experienced. There will most probably be a number of operators that will test this technology, but regarding the business case they will find that SAC and customer care costs will exceed the advantages that operators believed Femto cells will give. Basically Femto cells will increase an operator's SAC and OPEX but not decrease their CAPEX as many thought would be the case.

Handsets - moment of truth occurs the moment the customer chooses

Just as in 2008, 2009 will also see many new products launched. We believe the actual number will be slightly smaller, but on the other hand those that are launched will represent a wider spectrum. There is no doubt we will experience the "Apple" effect and this will result in many new and exciting products. On the other hand a market player like Apple will probably experience a greater resistance than  had expected and unless it launches new products its role might quickly be marginalised - once again innovation is needed to drive new sales. 
A market player like Nokia will maintain position and launch many new products, designs and form factors, and will have an extreme focus on services, all resulting in a great deal of attention during 2009. We believe that most of Nokia's handsets will feature GPS and that they will do everything they can to create an alternative to Google Maps - an US$8 billion investment in Navteq can only be justified by being successful with its GPS handset offerings. 
If you take a look at the other handset manufacturers you could generalise by saying that those companies that are currently experiencing tough times will face worse times and those that are currently doing well will do even better in 2009. The largest challenge for the handset manufacturers will be adapting to the new reality where an increasing part of the market will be driven by the consumers and the number of operators moving large numbers of handsets with the help of subsidies will be limited. 
Conclusion

2009 will be an exciting year and the press will be busy describing the Moment of Truth - reporting financial results and reporting about those that give up. We know that customers will focus on prices/services and flexibility when choosing the products and services that they feel give them value for money. We are looking forward to the Mobile World Congress in Barcelona where we will probably see the first guidelines for which direction things are moving in and thereby an indication of whether our 2009 predictions will come true. 
Perhaps readers do not agree with our predictions but on the other hand our predictions are not created based on the hype generated by the media or because we want to market and sell some new technology. We make a living out of helping our customers navigate a turbulent mobile world and it is our company goal to ensure that our customers' shareholders are successful. We are confident about our own judgements and predictions.

More info:

• http://www.strandreports.com

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