Executive Summary

In Q1 2009, the US market exceeded $10B in quarterly mobile data service revenues for the first time. The subscription penetration in the US is well past 90% and the mobile data usage is on the rise. While the rate of new subscriptions has slowed, the pace of innovation is going very strong. It is quite apparent that the mobile industry is going through a significant transition from voice to data, from making calls to getting lost in applications and from voice communications to multimedia communications. Helped by the ever expanding wireless broadband networks, and release of hit devices every quarter, and consumer’s insatiable appetite for information and content has brought us to the surge of a data tsunami that will shake the industry to its core.

As everything moves to digital, information repositories across the web are almost doubling every day moving rapidly to the yottabyte (YB) era. The information and the desire and the capability to consume oodles of data is increasing exponentially. As a result the traffic – both Wireline and wireless is also increasing at a predictably fast rate.

In 2009, the global yearly mobile data traffic will reach a new milestone – 1 Exabyte(EB) or 1 Million Terabytes (TB).By 2016-17, the global yearly mobile data traffic is likely to exceed 1 Zettabyte (ZB) or 1000 Exabytes. By 2014, in the US alone, the total yearly mobile data traffic is likely to exceed 40 EB. How do you go about managing such growth in a profitable manner when the cost of supporting such traffic will increase exponentially despite the move to 4G? Will the move to LTE offer some respite?

This paper discusses the analysis done by Chetan Sharma Consulting on the growth of mobile data traffic in the US market and how the ecosystem can apply some strategies to manage growth and profits. We built detailed models to estimate the rise of mobile data network traffic and discuss some solutions to handle such growth in this paper.

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Your feedback is always welcome.

Should you have any questions about navigating or understanding the economic and competitive icebergs, please feel free to drop us a line.

Thanks.

Chetan Sharma

Disclaimer: Some of the companies mentioned in this paper are our clients.

It is with great pleasure that I announce the launch of the Seattle Mobile Breakfast Series - a quarterly event to discuss all things mobile by bringing the best minds together. Seattle has long been on the forefront of the mobile evolution in North America going back tot he McCaw Days. In fact, many of the senior folks you will find in the region have had their early career exposure with McCaw Cellular. Since then, the industry has evolved and so has the region. Seattle is home to carriers AT&T, T-Mobile, and Clearwire, industry giants like Microsoft and Amazon, and industry pioneers like Motricity and Real, and a host of startups like Ontela, Zumobi, Cequint, and many others.

So, it is only fitting to bring together the enterprising folks from the region to network and brainstorm once a quarter at the “Seattle Mobile Breakfast Series.”

We are very fortunate to announce that three great sponsors have joined in as the founding sponsors: Clearwire, Motricity, and Openwave. My thanks to Ken Denman, Brendan Benzing, and Jeff Giard for their enthusiastic support of the idea. We couldn’t have done this without you.

What can you expect: In-depth panel discussions, stellar keynotes, networking, great breakfast, awesome views, and good reason to escape and relax.

Stay tuned for more. In the mean time,

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I will be releasing the paper next week. In the meantime, here is the Introduction

In Q1 2009, the US market exceeded $10B in quarterly mobile data service revenues for the first time.[1] The subscription penetration in the US is well past 90% and the mobile data usage is on the rise. While the rate of new subscriptions has slowed, the pace of innovation is going very strong. It is quite apparent that the mobile industry is going through a significant transition from voice to data, from making calls to getting lost in applications and from voice communications to multimedia communications. Helped by the ever expanding wireless broadband networks, and release of hit devices every quarter, and consumer’s insatiable appetite for information and content has brought us to the surge of a data tsunami that will shake the industry to its core.

As everything moves digital, information repositories across the web is almost doubling every day. The information and the desire and the capability to consume oodles of data is increasing exponentially. As a result the traffic – both Wireline and wireless is also increasing at a predictably fast rate.

In 2009, the global yearly mobile data traffic will reach a new milestone – 1 Exabyte (EB) or 1 Million Terabytes (TB). [2] By 2016-17, the global yearly mobile data traffic is likely to exceed 1 Zettabyte (ZB) or 1000 Exabytes. By 2014, in the US alone, the total yearly mobile data traffic is likely to exceed 40 EB. How do you go about managing such growth in a profitable manner when the cost of supporting such traffic will increase exponentially despite the move to 4G?[3] Will the move to LTE offer some respite?

This paper discusses the analysis done by Chetan Sharma Consulting on the growth of mobile data traffic in the US market and how the ecosystem can apply some strategies to manage growth and profits. We built detailed models to estimate the rise of mobile data network traffic and discuss some solutions to handle such growth in this paper.

[1] Source: US Wireless Data Market update Q1 2009, Chetan Sharma Consulting. It was also the first time any nation exceeded the $10B mark in a quarter for mobile data revenues.

[2] For reference, 1 TB = 10¹² bytes, 1 PB = 10¹⁵ bytes, 1 EB = 10¹⁸ bytes, 1 ZB = 10²¹ bytes, 1 YB = 10²⁴ bytes

[3] For the purposes of this paper, we consider LTE as a 4G technology though it hasn’t been officially designated as such. For more discussion on 4G, please see 4G: The State of the Union, Chetan Sharma, GigaOM, 2009

TiE Seattle

Mobile application industry is moving and shaking! Apple has proven that mobile applications can not only be highly monetizable, but that the really good ones can also become a phenomenon. A niche until Apple exploded it less than a year ago, the mobile app market will be worth $25 billion in five years, according to Juniper research.

The predictions state that games will remain as the most downloaded and most revenue-producing applications and multimedia and entertainment apps will contribute to the most value-added-service (i.e., subscriptions, premium events and additional content) revenues.

So, how do you benefit from this demand explosion in the complex mobile ecosystem? In this event, we are bringing together experts who will help you navigate the ecosystem as they focus on and address the following key questions:

• What are the major shifts currently happening in the mobile ecosystem?
• What does it take to create a successful mobile app?
• How do you deal with the diversity of handsets, platforms and carriers?
• What sales/distribution channel and pricing model should you use?
• How do you sustain yourself in this competitive market? How do you grow?

Who will benefit from this event?

• Entrepreneurs (and those waiting in the wings)
• Companies leveraging mobile channel
• Mobile app developers
• Service Providers, Consultants and Analysts
• Consumers and Prosumers

Whether you are a veteran in the industry, or an entrepreneur looking to secure your feet in this game, or someone who is providing services to the mobile ecosystem, join us for this discussion and be a part of this new evolving mobile world!

Speaker(s)

Keynote Speaker

Chetan Sharma, Founder and President, Chetan Sharma Technology 

Speaker

Shiv K. Bakshi, Principal Analyst and Founder, Mobile Perspectives 

Brendan Benzing, Senior Vice President, New Product Strategy & Marketing, Motricity 

Sajal Sahay, Executive Director, T-mobile 

John SanGiovanni, Co-Founder, Vice President, Product Design, Zumobi 

Dan Shapiro, CEO, Ontela, Inc 

MobileBeat 2009

9:30am - 10:15am: Finding a Role in the New World Order. There will be winners and losers in the new world of apps and services. No one wants to be a dinosaur in the age of the mammals, particularly as more and more consumers transition from the older cell phones to smart phones. This panel will address the strategy involving in making the shift toward finding or building an ecosystem that will survive.

Hope to see some of you there.

WIRELESS June 14, 2009, 7:30PM EST

The iPhone’s Wary New Rivals

By cutting prices on some iPhones, Apple is moving its iconic handset onto turf held by low-end smartphones and full-featured cell phones

By Olga Kharif

New iPhone products and price changes are never cause for celebration among Apple’s rivals in the wireless industry. The latest additions to the iPhone family are no exception. This time around, Apple (AAPL) has lowered the handset’s price, moving the iPhone onto turf now occupied by low-end smartphones and full-featured cell phones.

On June 8, AT&T (T) began selling an iPhone for as little as $99 with a two-year contract. The new price should help Apple reach new, more budget-conscious buyers—people who have never purchased smartphones before. According to research recently released by Yankee Group, 41% of 1,500 Americans surveyed in February said they are likely to buy a smartphone, vs. a regular-featured phone, for their next mobile device. The price cut alone may increase demand for the iPhone by an extra 10%, estimates wireless expert Chetan Sharma.

Lowering the price moves Apple into new realms. “The phones that are most vulnerable are the less-advanced smartphones in the $100 range,” says Ross Rubin, director of industry analysis at consultant NPD Group. Samsung, LG, Sony Ericsson, and Pantechare in danger of losing some ground within AT&T stores, says Matt Thornton, an analyst at Avian Securities.

APPLE: DOUBLING GLOBAL HANDSET SHARE

These handset makers’ margins might erode as well. In the first quarter of 2009, the average smartphone sold for $155 after carrier subsidies, down from $204 in the year-ago quarter, according to NPD. Now smartphone makers must be prepared for another $50 price drop. “That sets the bar higher for the competition to undercut or match Apple,” Sharma says. “[Manufacturers] will have to cut their margins and carriers will have to match what AT&T offers.”

As it cuts prices on the existing generation of iPhones, Apple is also releasing a new device, the iPhone 3G S, which it says will have faster data transmission speeds. Apple says the new model can surf the Web twice as fast as the older iPhone 3G, offering video recording capabilities and longer battery life. RBC Capital Markets analyst Mike Abramsky expects Apple to have 2.4% of global handset market share by the fall of 2010, up from 1.1% last year.

Rivals may take some solace from analysts who say that while this iPhone is better than older iterations, its improvements are not as earth-shattering as those of earlier models. This “is not a huge, dramatic change for what people want it for,” says Michael Mace, principal at Rubicon Consulting. Arguably, prior-generation iPhones offered more drastic improvements. Introduced in 2008, the iPhone 3G came with a built-in Global Positioning System and an applications store, in addition to offering twice the speed of the original iPhone. The year before, the original iPhone was the first best-selling device to boast a touchscreen.

WOULD-BE 3G S UPGRADERS ARE FURIOUS

Indeed, rivals are also better prepared to meet the iPhone’s challenge head-on with their own best-selling products. “There’s a change now,” says NPD’s Rubin. All major U.S. carriers boast strong iPhone alternatives: Sprint Nextel (S) offers the Palm (PALM) Pre;T-Mobile USA sells the T-Mobile G1 smartphone, which runs the Android operating system put together by a Google (GOOG)-led coalition; and Verizon Wireless and Sprint, like AT&T, continue to sell versions of Research In Motion’s (RIMM) BlackBerry.

What’s more, some loyal Mac-heads are rebelling against high prices to upgrade to the iPhone 3G S. Existing users upgrading to a newer device typically account for about 20% of new-model sales during the first quarter of availability. But many 3G S upgraders will have to shell out an extra $200 to move to the new device. A petition circulating on the Twitition site asks Apple and AT&T to let existing iPhone users upgrade at the same rate as new users. It gathered more than 11,400 signatures in a matter of days.

But AT&T and Apple may have ways to create headaches for rivals. AT&T is considering reducing its iPhone plan rates. The company is finalizing a slew of new, more affordable family and business calling plans, as well as cheaper data plans that will be exclusive to the iPhone, says Richard Doherty, director at consultant Envisioneering Group. The new plans are expected to be announced in the coming weeks, though possibly not in time for the iPhone 3G S launch on June 19. For weeks, however, AT&T has been mum about any move toward more flexible iPhone pricing. “Our rate plans for iPhone 3G S are unchanged from iPhone 3G,” writes AT&T spokesman Mark Siegel. “We don’t have further comment on this.”

VERIZON AND SPRINT COULD SUFFER MOST

Today, an iPhone plan costs at least $1,680 over the two-year term of a contract. That amount needs to come down by at least $240 over two years for AT&T to grab mainstream phone buyers and boost iPhone sales by as much as 25%, Sharma estimates. Apple has sold 21 million iPhones in the two years that the device has been on the market. The boost would give AT&T even more of a lead in smartphone services; the company already claims it has twice as many smartphone users as any other U.S. wireless service provider.

As subscribers move to AT&T for the iPhone, Verizon Wireless and Sprint Nextel could suffer the most. While it has a temporary exclusive on the popular Palm Pre device, Sprint “does not have a product it can offer at $99 that can be a strong competitor to the iPhone,” Rubin says. As the next-largest rival, Verizon Wireless may have the most to lose, he says. T-Mobile USA may be on safer ground, he adds. “T-Mobile users tend to spend less on data, and it’s unclear if in this economy they’d make a jump to AT&T,” he notes.

Kharif is a senior writer for BusinessWeek.com in Portland, Ore.

(Image Source: Engadget)

It is not every week that you get two blockbuster announcements within a matter of 48 hours. Palm Pre which was introduced earlier this year took its sweet time to come to the market and was officially launched this weekend. Launching it two days before WWDC was always going to be a risk, and launching it many months after the introduction is never a smart idea, it gives competitors enough time to respond.

While, Pre is a solid device and has great features, strategically, it missed out. By keeping the inventory artificially low, the company made matters worse. Now, it has to also compete with a $99 iPhone and 3.0 and of course the HSDPA iPhone for the same price of $199. Apple is known to have products in the store within days of announcement and competitors should learn from that otherwise they will get creamed time and time again. Pre will push iPhone and others to be better devices but will it be worthy of being an effective competitor remains to be seen. All the indications are that it will sell well but will fall short of sales expectations.

Over the last 2-3 years, consumption of digital media has evolved significantly. As content is becoming more digital, as devices are becoming more powerful and able, and as the consumers are becoming dependent of mobile devices for their media needs, the wireless phone is playing an important role in how digital media is consumed around the world. The digital rush has helped make mobile a $1.1 trillion (as of 2008) industry. As the demand for mobile content consumption increases, service providers are being rushed to enhance their infrastructure and keep up with the explosion of content and consumer interest.

The main drivers for increased activity on the mobile devices are three-fold: better networks in the form of 3G (and future upgrades of 4G+), higher processing power devices being available for mass-market prices around the world, and consumers becoming not only the consuming but also producing content at an exponential pace. As such from the early days of ringtones and graphics, the mobile ecosystem has evolved into more rich content experiences such as high-fidelity and multi-user mobile games, very high quality video in the form of multicast (though unicast is the one that is widespread), and social networking applications like Facebook and Twitter.

Additionally, the smartphone boom that followed the iPhone introduction in 2007 clearly changed the dynamics of the market and how consumers view their mobile devices. It is interesting to note that on such integrated devices, consumers only spend less than 20% of their time on voice; rest is on other applications and services.
Such a shift is also changing the service provider business models and how they run their business and plan for future growth. Mobile media and data services are the only driver for growth as voice revenues plummet (worldwide). Significant mobile data usage is also putting strain on the operator’s network and as such they are forced to come up with data expansion (like 3.5/4G) and alternate (Wi-Fi/Femtocell) strategies so that they can profitably stay ahead of the curve.

Also, the very definition of the mobile devices is changing. More and more consumer electronic devices are being launched with a wireless data connection (Wi-Fi or Cellular). Devices such as Amazon’s Kindle and Dash are introducing vertical devices that are changing the industry dynamics as well. Newer players are entering the marketplace and the competitive landscape is being impacted as well. Apple’s appstore changed the way applications found their way onto consumer’s handset. This made it easier and lucrative for a developer in a garage to launch new applications.
The increased mobile media consumption is also giving rise to a new category of services on mobile – advertising. As flat rate forces the operators to reduce the pricing on subscription plans, advertising provides a way to compensate for such pricing pressures. In developing countries like China and India which are the two biggest mobile markets in the world, it is particularly important as these mobile phones are the only digital channel available to the advertisers to reach consumers in an efficient manner.

While the opportunities to exploit mobile media remain strong, the ecosystem needs to worry about meeting the expectations of the consumers. They have to invest in infrastructure, developer ecosystem, and continuous flow of new and improved handsets to keep up with the growing interest. It is clear that as digital media consumption grows; mobile will be front and center of this evolution.

Cellphone Locator System Needs No Satellite

By JENNA WORTHAM

Published: May 31, 2009

BOSTON — Wanderers with phones and other devices that have GPS chips can figure out where they are using signals from satellites thousands of miles up, but those are easily blocked by walls or trees. The founders of Skyhook Wireless discovered some alternative navigational beacons: the signals coming from the Wi-Fi network in the coffee shop across the street, or the apartment upstairs.

Librado Romero/The New York Times - In Harlem, Nandor Sala scans for Wi-Fi signals to add to Skyhook’s database.

Skyhook Wireless - A day of lookups around Times Square.

Skyhook uses the chaotic patchwork of the world’s Wi-Fi networks, as well as cell towers, as the basis for a location lookup service that is built into everyiPhone, making it easier to pull up a map or find Chinese food nearby.

The start-up was founded in 2003 by Ted Morgan and Michael Shean, who traveled frequently for work and noticed the proliferation of wireless signals each time they cracked open their laptops to check their e-mail.

“We were amazed by the sheer growth of Wi-Fi,” Mr. Morgan said in an interview in April at the company’s offices here. “We knew there had to be a new model for mapping location using those signals.”

Wi-Fi signals travel only a few hundred feet at most, so if you have a map of the Wi-Fi networks in a given area, you can use those signals to pinpoint a phone’s location.

Making that map is the tricky part. When Mr. Morgan and Mr. Shean decided to pursue their idea, they started building a database of Wi-Fi access points, along with cellphone towers, which have much more powerful signals.

At first they tried paying taxi drivers to carry equipment that silently recorded the locations of networks as they roamed the streets, Mr. Morgan said. Then they hired full-time drivers to cover ground systematically, much asGoogle does for its Street View service. Skyhook says it has scanned areas containing 70 percent of the country’s population.

“It doesn’t seem realistic to drive up and down every street in the U.S.,” Mr. Morgan said. “But you can.”

Skyhook now employs a fleet of 500 drivers to feed a database that spans North America, Asia and Europe. The landscape of signals changes constantly as people and businesses set up and take down wireless networks, so the scanning process never ends.

Each Skyhook car contains a laptop outfitted with antennas and equipment that sends out short blasts of radio waves, called probe requests, to detect nearby cell towers and Wi-Fi networks. The system calculates the source of the signals based on their strength and the location of the car. That information is logged in the Skyhook database, which includes more than 100 million wireless networks and 700,000 cellular towers.

Skyhook’s big break came in August 2007 when Steven P. Jobs, Apple’s chief executive, requested a meeting with the company. Mr. Morgan said he initially deleted Mr. Jobs’s voice mail message, dismissing it as a prank, but soon realized his mistake.

Since then, Apple has sold 37 million iPhones and iPod Touches worldwide, all with Skyhook’s software on them. Mr. Morgan declined to detail specifics of Skyhook’s financial agreement with Apple, other than to say that his company collects a commission for each device sold.

When an iPhone owner starts up an application that involves location — like the restaurant finder Urbanspoon or the forecast service WeatherBug — the phone calculates whether it is likely to get the best and fastest information from its own GPS chip or from Skyhook’s system. Skyhook says it can provide a fix on location in seconds, versus up to a minute for GPS, although Skyhook is less useful in areas with few Wi-Fi networks.

Skyhook checks a list of nearby Wi-Fi access points and cell towers against its database and triangulates the device’s location within 30 to 60 feet. The company says it is not connecting to those Wi-Fi networks, just detecting their presence. (As a backup, the iPhone can also use cell tower information from Google.)

Any new access points and cell towers detected by the iPhone are automatically added to the Skyhook database, making it, in Mr. Morgan’s words, “self-healing.”

Apart from Apple, Skyhook also has partnerships with AOL to allow people to see the location of their chat buddies, and with Navteq, a maker of car navigation systems. Skyhook is even embedded into Eye-Fi memory cards for digital cameras, where it keeps track of where photos are taken. The company says it handles 250 million location requests a day.

Skyhook has raised $16.8 million in venture capital financing from investors including Bain Capital Ventures and Intel Capital. Mr. Morgan said it was not seeking more financing right now and was working on expanding the business. “If we do that successfully, there will be plenty of good choices for us,” he said, perhaps including a public offering.

As Skyhook finds success and more gadgets become “location-aware,” competitors are likely to stake out their own share of the market, said Chetan Sharma, an independent telecommunications industry researcher.

Mr. Sharma says that Mexens Technology has a system that relies on user contributions to build a signal map. And a Google service called My Location works on many phones and uses a combination of GPS, cellphone towers and Wi-Fi. A Google spokeswoman, Katie Watson, said the company collected its signal data from several sources, including phones running its software.

“Skyhook is certainly ahead of the curve with its service,” Mr. Sharma said. “Whether they will sustain their momentum for the next five years remains to be seen. But they have a lot of opportunities to make it work.”

Charles S. Golvin, a principal analyst at Forrester Research specializing in mobile devices and telecommunications, agreed that Skyhook was well positioned. “There are so many more phones coming to the market that have GPS and Wi-Fi,” he said.

Mr. Golvin added: “Think about all the other devices with Wi-Fi, like the Nintendo DS,Sony PSP, netbooks, digital cameras.”

Mr. Morgan and Mr. Shean are trying to get Skyhook onto as many devices as they can. Programmers who want to build location-based applications for phones other than the iPhone can license its software, and several do. The company has deals to put its software into chips made by Qualcomm and Broadcom, and it plans to announce a partnership with a major manufacturer of netbooks by the end of the year.

Mr. Morgan is aware of the competition. “There’s always the threat that Google or some other company will just give that information away for free,” he said. To that end, the company has filed for multiple patents, including ones to protect its methodology for updating its database. Several framed patents hang on the walls of its offices.

“But we’re hoping that our six years of driving around in cars, mapping out the various countries, will pay off,” he said. “We’ve done more than 2,000 cities. They have a long way to go.”

Business Week - GigaOM to Begin Subscription Service

GigaOM - Meet GigaOM Pro, Our Subscription-Only Research Service

TMCnet - AT&T Considers Cheaper iPhone Service, Device

Poynter - Summer 2009 Could Be Right Time to Expand Mobile News Services

Telephony - Verizon Wireless not messing with prepaid

Boston Globe - Surreptitious success

Business Week - Cheaper iPhone Plans from AT&T?

TMCnet - Smartphones Contribute to Mobile Ad Growth

BizReport - US mobile revenue tops $10 million

NY Times - US Pulls Ahead in Mobile Data Revenue

BusinessWeek - Wireless Industry: Engaged in Double Counting?

Washington Post - US Wireless Data Revenues Hit $10 Billion For the First Time Ever

TMCnet - US Mobile Data Services Revenues Top $10 Billion in Q1

Mediapost - Mobile Marketing Company Velti Acquires Ad Infuse

Telappliant VoIP News - US mobile broadband market grew by 24% in 2008

GigaOM - The iPhone Will Not Destroy the Wireless Business

FierceMobileContent - US mobile data revenues cross $10 billion milestone

Mediapost - US Mobile Data Revenue Hits $10 Billion in Q1

TelephonyOnline - Is prepaid growth an illusion?

Telephony - Verizon, Google duke it out for employees

Moconews - Dying or Thriving? The Debate Over CDMA

Over the course of last year, I did 25 different events, all of them focused on mobile. However, there was one event that truly stretched my thinking and worldview and that was the “Future in Review” conference (see last year’s review here) hosted by Mark Anderson, CEO of Strategic News Service (SNS). It exposes one to multidisciplinary subjects from global warming to nuclear weapons, from oceanography to medicine, from mobile to cloud, from economics to space rockets, it’s all here, nicely packed in a 3 day conference.

FiRe 2009 started with a brilliant keynote address from Prof. Veerabhadran Ram Ramanathan, Distinguished Prof of Climate Sciences and Director who is quite possibly the most authoritative person on the subject of climate change. He started his work way back in the 70s, decades before Al Gore made it glamorous. He is the one who has been measuring the impact on our planet one measurement at a time. He took us through the journey of his career culminating with a stark warning and a message of hope.

Things have deteriorated to such an extent that if we don’t check the downward spiral, many of the significant sources of water such as the Gangotri Glacier in India will disappear in 10-15 years. If you stop and think about it - that’s just stunning and has calamity written all over it. If the source of Ganges disappears, the life that has built around the river for thousands of miles before it goes into the Bay of Bengal will be unsustainable. I grew up in Roorkee, a town on the banks of the Ganges, so the point hit home very strongly. I have been thinking about this issue since the PBS documentary “On Thin Ice” by David Brancaccio and Conrad Anker - one of world’s leading high altitude climbers. 75% of the world’s fresh water is stored in glaciers and at the current pace of destruction, within 15-20 years most will be severely depleted. And there are still people in high places who don’t get it.

It was not all doom and gloom but a ray of hope in his experiments that left us less depressed by the end of the keynote. He is working on a number of experiments to identify and cure the main sources of pollution and carbon in the atmosphere like the Project Surya to reduce air pollution and global warming by cooking with renewable sources. Or the unmanned drones (pictures above) to measure brown cloud particulate composition to get a handle on how pollution travels (did you know that it only takes 2-3 days for pollution in China to come over the US and then another 2-3 days to reach Europe and the cycle continues - pollution is flat and globalized - thinking that it is only a developed world problem or developing world problem is foolish, also foolish is waiting on the other party to move first).

Best wishes to Ram and his team to educate, illuminate, and find solutions to the toxic problem of our times.

(with Mark Anderson)

Next day we moved into the full-fledged conference mode with 30 min rapid fire sessions from 8-5. The morning started with Mark talking to Stephen Evans of BBC World Service (he is a great interviewer btw) about how we recover from the current crisis and if technology will lead the rebound? Answer is Yes! and we are already seeing signs of it and others in the industry like Bill Gates and John Chambers have been echoing the same thing as well. Later Mark interviewed Mark Hurd, CEO of HP who had a hard time sitting on his feet so the discussion was done standing up.

(Mark and Mark)

He emphasized that the future is in the packaging of software, services, hardware, and network rather than siloed solutions. Haven’t we heard that before. Hurd is a numbers guy and can recite P&L spreadsheet from memory. He suggested that we will see more of the same for the reminder of the year and that the services business is yielding good profits for HP now. There was also quite a bit of discussion on the latest buzz word “Cloud Computing,” what it means and how does everyone profit from it.

Several industry heavyweights like Werner at Amazon, Amitabh at Microsoft, Russ Daniels at HP were at hand to discuss what CC means to them. While there is a lack of industry consensus on the meaning, it more and more looks like the reallocation and redistribution of resources - physical and electronic in a manner that drives efficiency and cost reductions for startups to behemoths. From a consumer point of view, it will always be a blend of solutions that take into account the privacy and security of data. My recent hard drive failures has forced me rethink my backup strategy.

(My panel on the future of Wireless Broadband - Fred, Chris, David, Hugh, and Rama)

Photo copyright © 2009 by Sandy Huffaker Jr

Later in the day, I had the privilege to host the only mobile session of the conference “The Future of Wireless Broadband” with five amazing panelists, Dr Fred Kitson, Corporate VP, Motorola, Chris Pearson, President, 3G Americas, Dr. Hugh Bradlow, CTO of Telstra, Dr. Rama Shukla, VP, Intel, and David Achim, President, SkyFiber. I have written about the subject in great detail over the last couple of years so it was great to bounce some questions to the best minds in the space. Highlights of the discussion:

• Hugh, ever a purist, defined 4G as 100Mbps.
• Not a surprise, but the latest surge of smartphones is causing the networks to panic and follow the upgrade path esp. for HSPA+, LTE, and WiMAX
• Rama said that 4G is more about the business model than about the technology. A business model that enables and opens up the ecosystem at a low price thus fostering innovation and services in an accelerated way
• Hugh added that it is also about the spectrum as what’s available and how it can be utilized for new services, new technologies, and new business models
• Being a provider of the backhaul technology (a choke point in the network evolution), David discussed how the backhaul technology will need to be upgraded at an accelerated pace if we are to deliver 10Mbps+ speeds.
• Fred brought in the perspective from the device and infrastructure provider and they are doing well with both WiMAX and LTE and that newer devices with much enhanced capabilities will drive more demand for bandwidth as well as the need to optimize applications to conserve batteries (which is another areas that needs innovation and breakthrough)
• Chris gave a summary of the LTE efforts of operators around the world with folks like Verizon accelerating their rush to 4G due to end of lifecycle of EV-DO while others like ATT are pursuing a slightly slower approach trying to maximize the output from HSPA+.
• Hugh has been playing with newer set of “alternate devices” like sensor networks, telemetry, projection glasses and so on and so forth and sees their importance in the growing ecosystem.
• Australia is dedicating $43B to broadband expansion to 90% of the consumers in the country. An equivalent US investment will be close to $350B and we are investing $7B (stimulus package). As I have said before, the stimulus package was a huge missed opportunity and the govt. could have done much better.
• The flat rate economy is not sustainable and something has to give in the future
• The availability of broadband impacts consumer behavior and we are likely to see very diverse models and services emerge in the coming days

There were other host of areas I wanted to get into but you can only do so much in 30 minutes especially if you have great panelists. Wish I could have a day long session to discuss the nitty-gritty in much more detail. In any case, great panel and insights. Joe Sterling was at hand as well to do an artist rendition of our panel, art below.

As I mentioned before, the conference was filled with very interesting discussions like Ambassador Dennis Hays from Thorium Power discussing a world where the capacity of making nuclear weapons can be taken out of the nuclear materials to only focus on nuclear energy for energy purposes. Boy! won’t that change the geo-political dynamics. John Hagel talked about shaping strategy based on this recent HBR paper and his upcoming book on the subject.

Another highlight of the show is to gather the bright CTOs of leading corporations and give them a practical problem to solve like how to provide adequate safe water for future decades. Hosted by David Brin (cohost of TV ArchiTechs series), the panel delved into understanding the problem and delivering a framework for solutions. Not a typical session you see at a conference. Hey CTIA! how about putting together a problem solving panel for your next show?

I also was touched by the screening of the movie “The Cove” - winner of the 2009 Sundance Film Festival Audience Award. More details here. Synopsis:

In the 1960’s, Richard O’Barry was the world’s leading authority on dolphin training, working on the set of the popular television program Flipper. Day in and day out, O’Barry kept the dolphins working and television audiences smiling. But one day, that all came to a tragic end.

The Cove, directed by Louie Psihoyos, tells the amazing true story of how Psihoyos, O’Barry and an elite team of activists, filmmakers and free divers embarked on a covert mission to penetrate a hidden cove in Japan, shining light on a dark and deadly secret. The mysteries they uncovered were only the tip of the iceberg.

It will change your perspective of how you view dolphins for ever and those trips to seaworld will be ever so more poignant filled with self-introspection. More power to the activists like Richard O’Barry and directors like Louie Psihoyos for opening our eyes and making a remarkable piece despite the challenge.

Another highlight of the conference is the interviews of top technologists and emerging startups by BBC’s Stephen Evans. Each gets a sound byte to wow the world (the session is streamed to 150M people). Highlights - Xerox - how can we solve legal cases with technology? Radar Networks - NOW is the unit of change. Vlingo - Speech is changing. IMANI-Ghana - SMS to prevent drug counterfeits, Cisco - virtual reality, voice, and data are the three different waves of innovation, the opportunity for collaboration is immense, Liberty - 5 yr projection 1Gbps wired, 100Mbps wireless peak throughputs, avg - 200Mbps for wired and 10Mbps for wireless, Microsoft - it will be the Chinese century, companies shouldn’t worry about protecting their marketshare in China but worry about protecting their share from Chinese players overseas, Smaato - Mobile Advertising is going to be the most prevalent business model in mobile, and SIMtone - make terminals dumb again and have the network cloud take care of everything.

The current financial crisis was also discussed at length. Many thought Europe is in denial and lack fundamental understanding of the crisis, that China and US are intertwined more than ever before and will have to work together to lead the world out of the crisis, India is largely untouched and better days are ahead thanks to the recent electoral results.

(Larry with Kamran, Mark with Elon)

Larry Brilliant suggested that the vaccines are the best investment in human history. Can’t argue with that one. He also suggested that the world should be thankful to Mexico for releasing the data early and often enough for other countries to take precautionary measures (sometimes to the extreme, I might add). They have suffered significantly and have been ridiculed but hopefully they serve as a lesson for the world in future pandemics.

If FiRe represents the best in multidisciplinary thinking, Elon Musk represents the rare breed of multidisciplinary entrepreneurs. The guy can shift from intricacies of electric cars to the design of rocket ships to solar energy with ease.

(with Hugh at Calit2) Copyright© 2009 Calit2

My best session was at Calit2. I think Larry Smarr has the best office with many 10Gbps links and coolest toys to play with, especially the 125Mpixel Hyperwall. It was also nice to interact with Michael Sims, Manager and Planner for the Mars Rover at NASA and his team using the network and the wall. You can see some cool images below. The second set of pictures are an image of human brain where you can pick out the single neurons with ease.

Also, interacted with the next generation surface and touch technology that uses pressure as an input as well. Below is me doing a destructive face surgery on a poor soul.

Finally, I would be remiss if I didn’t mention the 0-60 mps in 3.9s experience in Tesla Roadster. That car is a rocket.

Overall it was a great conference. I left more curious about more things. The conference also has an intimate feel to it where you can discuss burning issues with top experts and award winners over coffee, stroll, and meals. Registration for 2010 is open now.

While I have been involved in various TiE events over the years, this was my first TiECOn down in the bay area. Even in this economy, this was a very well attended event with folks coming in from around the globe. The conference was quite diverse as well covering consumer web, internet infrastructure, cleantech, wireless, and software. I was there to moderate a panel on Wireless Monetization.

I was able to attend some really good keynotes, the most notable being Paul Maritz who talked about platforms, Tony Hsieh of Zappos on happiness, and Reid Hoffman, Linkedin. I found Martiz address on platforms and how the successful ones are generally created particularly interesting. He had some inside stories to share about Intel and Microsoft and how “accidental fortitude” seems to be the key of what became the changing platforms for our industry. Planning often doesn’t work that well when create mass-market phenomenon. The next areas of innovation and profits are: microfinance, biotech and information personalization.

What was unique and distinct about this conference was the “level of energy” amongst the entrepreneurs and participants. Despite the funding and economic climate, these guys were rushing to form the new company, start a new chapter, and create something unique in the market place. Some were serial entrepreneurs while others were just getting started.

The central theme of the conference was - if you were going to start a new business, this is the year, now is the time. While it has become a cliche, it is indeed true, best businesses are started in recessions and in the downturn - sometimes out of need other times out of opportunities. Bright brains rally and congregate to shake the cobwebs and look towards a new beginning. The energy was indeed infectious. My own consulting practice started during the last recession and 8 years later we are still around, so i say, all power and glory to the next generation of entrepreneurs who will create new technologies, paradigm shifts, and business models.

50 Startups were awarded the TiE50 awards - http://www.tiecon.org/home/tie

On to my panel - “Wireless Monetization - The Pot of Gold at the End of the Rainbow.”

My thanks to Arvind Gupta, Asha Vellaikal, and Savinay Berry for being the hosts and putting together the panel. Also, thanks to Ramneek Bhasin and Ujjal Kohli for their assistance.

The panelists were:

Michael Bayle, former Sr. Director, Mobile Monetization, Yahoo

Purnima Kochikar, Director, Nokia

Gary Kovacs, SVP, Sybase

Matt Litz, VP, Glu Mobile, and

Tina Unterlaendar, MD, AKQA

My questions were simply around what makes money, what’s working, and what’s coming? The brilliant panel had terrific insights.

Bottom line:

• Appstores are a way to experiment with pricing, gives users more control
• Different appstores might require different strategy for promotion, pricing needs to remain consistent across appstores, rev-shares with operators need to remain consistent
• Mobile Advertising is in its infancy, budgets mostly in experimental campaigns but the potential remains huge. The biggest problem is reach and fragmentation
• In the flat world, one must think of how the solutions will be adopted around the world not just in the developed nations
• India and China are the volumes business, get used to it
• Consumers are always looking for free so there is continuous price pressure, one has to consider alternate pricing or monetization strategies
• Companies like mig33 have been successful in alternate modes of monetization, advertising is a smaller piece of the puzzle
• Days of using mobile to purchase physical goods is coming
• Mobile Payments using NFC is still a far cry for the US market

Overall a great panel and a great conference.

Last year, I had the good fortune of working with the UN Foundation on a paper “Mobile Services Evolution 2008-2018.” It was presented at the Rockefeller Foundation sponsored Health conference in Bellagio, Italy in July. Since then the two foundations along with many other partners have progressed on creating the mHealth Alliance which was announced in Barcelona earlier this year. Last week, the group convened in San Francisco for its first meeting and I had the privilege to be one of the participants in this initial working group. The goal was to bring together some leading authorities from academic, industry, NGOs, governmental, foundations and others to share and discuss the way forward. Here are some initial thoughts on the summit and the program as a whole.

More interesting things first. I am always more excited about the demos and meeting new companies than listening to prepared material. The areas where mobile makes the biggest impact is in: information dissemination, data gathering and transmit, compliance, monitoring and diagnosis, training and education. While progress in any one of these will be great, progress in various areas will impact different set of demographics and countries. For example, while sophisticated measurement and transmit might become normal course in the developed nations (at the consumer level), due to lack of infrastructure, education, awareness, and compliance are the biggest areas of improvement in the developing world.

Below are the pictures of the various devices for capturing various medical information that can be transmitted over wireless. First one is a point of care immunoassays that a company called Silicon Biodevices has developed which  can quickly detect viruses. These can be eventually be sold in stores for consumers to conduct tests on their own.

(Device by Silicon Bio Devices)

(Cellphone Microscope)

The second device is a microscope attached to the camera which can take the image of the sample being looked at and transmit via MMS or email, again, very handy for remote diagnosis.

The third device is a pulsometer which can measure pulse, heart rate, O2/CO2, etc. and then using the netbook can transmit of sync up data to a medical facility.

These tools are not going to be available to consumers in the developing world anytime soon but they can improve care at remote hospitals or point-of-gathering and can allow a visiting physician to quickly detect, monitor, and analyze results w/o the setup of a professional lab.

There were a number of leading technology players represented - Intel, Qualcomm, Cisco, Microsoft, Google, and others who are looking to push their solutions and platforms to take advantage of this emerging opportunity. I think the lowest hanging fruit is services using SMS which is a universal tool for communication. A startup in Ghana is using SMS codes to counter drug counterfeits which can help save 20% of the drug costs for the country.

As I said in my paper, Mobile does two things really well - compress time and distance - and thus connect, enable, and empower participants in the healthcare ecosystem to reduce costs and errors, and increase productivity, access, and efficiency.

There was a lot of conversation about “reuse” of knowledge and tools and inclusion of various players in the ecosystem so that the solutions take off the ground quickly. While there was a lot of optimism to do a lot of good in the world, there was a lingering skepticism of how all the talk translates into actual results. The bureaucracy and infighting is stifling progress and the solutions are not always replicated easily. In the case of mobile, without strong involvement with the countries operators, many of these initiatives won’t go too far or fall short of expectations. It is good that Vodafone is deeply involved in the process and can influence its peers.

There was debate about whether you do the technical work (software) on the ground or build solutions beforehand. As usual, it depends on the circumstances of a particular situation and project. My belief is that each country should have a platform available for launching national health services. Governments should either enable the process by working hand-in-hand or fund and get out of the way of the private industry. Just like roads and electric grids, health platforms should be a matter of national importance and unless there is this realization, the fragmentation of technology will continue.

Another area of improvement is data sharing which various projects seldom do and as such the cycle is reinvented when people could be learning from each other. MHealth Alliance is taking up the challenge to foster the growth and coordinate the ecosystem. I wish them nothing but the best and will try to contribute when and where I can.  Overall, a good start to the process.

I will be contributing with some reports on mobile. The first is on 4G: The State of the Union. We also will be distributing some of our Quarterly Market Updates via GigaOM Pro. These quarterly reports will still be available for free on our website in the Research section.

TELECOM May 18, 2009, 12:01AM EST

Cheaper iPhone Plans from AT&T?

AT&T may offer lower-cost data plans for iPhones, which would attract new subscribers and force smartphone rivals to cut prices, too

By Olga Kharif

Victor Lin wants an iPhone, but he’s put off by the price. The smartphone costs at least $199 up front, and if he wants unlimited Web and e-mail access in addition to calling, he’ll need to pay an additional $70 a month. “I like the idea of having a full-featured Web browser,” says Lin, a 43-year-old San Francisco software engineer. “However, I think the monthly fee is a little bit too high.”

AT&T (T) may have gotten the message. The exclusive U.S. iPhone service provider is considering cutting the price of its monthly service package or offering a range of lower-priced plans, say people with knowledge of the company’s thinking. One plan that could be introduced as early as late May would include limited data access at a $10 monthly reduction, the people say.

The possible price cut likely reflects the back-and-forth between AT&T and Apple (AAPL) as they work out whether and under what terms AT&T would remain the sole U.S. iPhone carrier. Apple may want flexibility in pricing as a condition, analysts say. “We understand it’s part of the extension [of its contract] that AT&T wants to maintain,” Richard Doherty, director at consultant Envisioneering Group, says of the prospect of lower data-plan prices. As Apple considers whether to widen its circle of U.S. providers, AT&T may have less ability to balk at Apple’s requests. Representatives of Apple and AT&T declined to comment.

AT&T and Apple also have added scope for price reductions as iPhone manufacturing costs decline. Apple plans to introduce a new version of iPhone software in June, and it may unveil a new, cheaper device in June or July. New devices may cost as much as one-third less to produce than earlier versions, Doherty says. The cost of touchscreens, the most expensive component, has declined by more than 30% in the past year, estimates Michael Cote, an analyst at consultant Cote Collaborative Wireless Strategy.

Lower-priced data plans would probably lure a lot of fence-sitters, including students and consumers with lower incomes. A reduction could boost AT&T’s iPhone subscriber additions by 20% to 25%, estimates wireless industry consultant Chetan Sharma. A survey late last year by comScore (SCOR) indicated that 43% of iPhone buyers earned more than $100,000 a year. But many of the wealthiest subscribers have already signed up. In the first quarter, AT&T activated 1.6 million iPhones, and 40% of those activations were for users new to AT&T. “[A price reduction] absolutely makes sense,” Sharma says. “AT&T is starting to hit a wall in terms of new subscribers.” In the first quarter of 2009, AT&T’s net subscriber additions were 5.6% lower than in the year-earlier period.

A $99 IPHONE OR A PREPAID IPHONE?

Some analysts have speculated that in addition to cutting the price of service plans, AT&T will also reduce the up-front price of the new iPhone by as much as $100, to $99. Apple is even toying with the idea of coming out with a prepaid iPhone, opening up the device to mainstream consumers, Doherty says.

A cheaper plan, coupled with new and possibly cheaper iPhones, could give AT&T a larger share of the U.S. smartphone market. “They are going to give AT&T the bulk of smartphone users [in the country],” Doherty says. And unless prices drop on other smartphones in AT&T’s stable, those rival handset makers, such as Research In Motion (RIMM), could end up losing market share in AT&T’s stores. The plan could also make it more difficult for the new Palm (PALM) Pre, expected from Sprint Nextel (S) in June, to gain share. “That would definitely push the pricing on high-end smartphones down,” Sharma says.

A new plan could also usher in an era of tiered wireless data plans for consumers from other carriers, too. Already, AT&T offers corporate data plans for BlackBerry devices, among other gadgets; these include the unlimited option, as well as cheaper plans with caps on monthly data usage. Some data plans also allow for so-called tethering, which lets users cut costs by using the phone—instead of a wireless data card—to get wireless broadband access on a computer. But there’s less flexibility for consumers that way; data plans for smartphones typically include unlimited data and go for a flat $30 a month. Many analysts think it may make sense to offer a cheaper limited option for, say, $20 a month.

The rest of the industry will likely mirror AT&T’s moves into tiers of personal wireless data services to stem iPhone-related subscriber defections. “It seems to me if there’s one carrier who is more at risk [of losing subscribers], it’s Sprint,” says Charles Golvin, an analyst at Forrester Research (FORR). “Their marketing has been about their unlimited plan being a better value.” But Verizon Wireless and T-Mobile may need to take a page from AT&T’s playbook as well.

Kharif is a senior writer for BusinessWeek.com in Portland, Ore.

Washington Post - US Wireless Data Revenues Hit $10 Billion For the First Time Ever

TMCnet - US Mobile Data Services Revenues Top $10 Billion in Q1

Mediapost - Mobile Marketing Company Velti Acquires Ad Infuse

Telappliant VoIP News - US mobile broadband market grew by 24% in 2008

Thanks all

NY Times - US Pulls Ahead in Mobile Data Revenue

BusinessWeek - Wireless Industry: Engaged in Double Counting?

GigaOM - The iPhone Will Not Destroy the Wireless Business

FierceMobileContent - US mobile data revenues cross $10 billion milestone

Mediapost - US Mobile Data Revenue Hits $10 Billion in Q1

TelephonyOnline - Is prepaid growth an illusion?

Download PPT (2.8MB)

Download PDF (1.8MB)

http://www.chetansharma.com/usmarketupdateq109.htm

Executive Summary

The US wireless data market grew 5% Q/Q and 32% from Q108 to reach $10B in mobile data service revenues. It marked the first time the US market has crossed the $10B milestone. Given the strong growth in data revenues shown by the top carriers and the increase in service revenues overall, it appears that at least for the time being that the worst is over for the mobile industry. In summary, the recession has been all but a tiny blip (from the service revenue perspective) in its growth trend and the US mobile market has weathered the downward spiral in economy better than its counterparts in other developing nations.

The US subscription penetration went passed 90%. While the flailing economy hit certain segments of the wireless ecosystem hard esp. the infrastructure and handset segments, consumers haven’t really pulled back on the mobile data overall spending. Additionally, the CAPEX spending will stay strong in 2009 given the activity around 3G/4G deployments and trials. As expected, the data card subscriptions were hit the hardest and there was an increase of prepaid subscribers which dropped the overall revenues for some of the carriers.

As we mentioned in our last research note that this time around, the fate of the US mobile industry is more closely tied to the overall economy compared to the previous recessions. As the consumer sentiment improved over the last couple of months along with better than expected Q1 2009 earnings from corporations, the mobile industry seems to be back on track. While the structural flaws in various industry segments remain, and the economy is a crisis away from the double dip, the outlook for the remainder of 2009 remains bright and we are expecting the overall data revenues to now increase by 24% compared to 2008.

US Wireless Industry in Recession - The light at the end of the tunnel might not be of the oncoming train

Note: For a detailed discussion of the US wireless industry in recessions, please see 2008 US Wireless Market Update.

The % GDP change dropped from 4.8% in 2007 to 2.3% in 2008. Q4 2008 reported a drop by 6.2% QoQ in one of the sharpest declines in the last quarter century. Q1 2009 reported a 6.1% decline. On an yearly basis, the GDP is expected to change by 3.2% for 2009 and the service revenues are expected to  account for 1.13% of the US economy by year-end.

As mentioned in the previous report, while in the past, the recession hardly impacted the wireless industry, this time around; it is going to be more tied to the recession. In the past couple of months, the consumer sentiment has improved and the Q109 earnings have been better than expected. While there are still many structural flaws in the financial and housing industries and the unemployment is at a 25 year high of 8.9%, consumers are feeling better about the economy and their own prospects in it. Most companies are being optimistic but cautious.

So, what does this mean? Well, the markets can still be volatile, but overall the market seems to be feeling better about the economy than it was in February. The Conference Board Consumer Confidence Index experienced a significant jump to 39 (relative scale of 100) from being at an all-time low of 25 in February.

Given that consumer sentiment is improving, it appears that US mobile data market is all but back from the recession. While some segments within the mobile industry might be suffering, there has been an increase in spending overall.

What to expect in the coming months?

We noted in our Q3 2008 note that we will get a better picture of the impact of the recession on the wireless industry in Q109 as it was the first full quarter after the seasonal holiday quarter. There are two micro trends that are clear. First, as expected, due to the high unemployment, the data card segment took a hit. It will recover in due course as more of the workforce comes back over in the next 18 months.

Also, as expected, there was a shift from postpaid to prepaid in some user segments. For example, for T-Mobile, prepaid constituted 61% of the net-adds in Q109 up from 57% in Q408 and 25% in Q108. It is not clear if the good times will bring back the prepaid subscribers to the postpaid realm or like the consumers who are canceling their landline connections and moving to mobile, these customers will get used to savings and the prepaid lifestyle.

It is quite likely that 50-60% of such consumers don’t go back to postpaid thus permanently lowering the ARPU base for such customers and carriers who have experienced more postpaid to prepaid shift will have to make up for the lost revenues someplace else (or maybe they can hire Oprah to send a tweet to her followers to upgrade to Postpaid. It will crash the system but increase the ARPU).

Rising unemployment continues to accelerate another trend - landline replacement by Mobile which reached almost 22% by Q109 (of course this benefits the mobile industry). This trend is irreversible and requires fresh thinking.

Messaging continues to grow. The messaging volume jumped 27% and messaging revenue was up 7% QoQ. The data access (excluding data card) including flat rate data plan subscriptions have also show significant strength lately. In addition to smartphones, we are also seeing increased mobile data activity amongst feature phone users.

The positive factors are helping negate the negative factors and given the strength of 3G and smartphone adoption, the increase in activity on the appstores front, and in general, a better awareness of mobile data services and applications amongst consumers, any decline due to the loss of data card revenue and postpaid transition to prepaid accounts has been taken care off. In particular, Verizon and AT&T have done really well. Smartphones remain a bright spot, which in turn has a direct positive impact on the data revenues. Even with the decline in handset sales, smartphone segment will continue to increase in 2009 accounting for almost 30% of the overall device shipments.

We are likely to see continued price and margin pressure on subscription plans and as a result, voice ARPU will continue its downward trend and data ARPU will become a more prominent factor of the ARPU mix by the end of 2009 reaching over 30% of the service revenues.

This will lead to new business and pricing models for e.g. some will find the low flat rate pricing untenable in the long-run without a fundamental rethink of the network and business architecture.

Coming back to the 2009 forecasts, we are raising our estimates for the mobile data service revenues to $42B for the year. We will be keeping a very close eye on the micro- and macro-trends and reporting on the market on a regular basis in various private and public settings.

Against this backdrop, the analysis of the Q109 US wireless data market is:

Service Revenues (Slides 11, 18)

• The US Wireless data service revenues grew 5% Q/Q to $10B in Q109. Compared to Q108, the data service revenues grew 32%.
• It marked the first time the US mobile data service revenues crossed $10B. It is also the first time any country has reported a $10B quarter (for mobile data services).
• Thanks to the Alltel acquisition, Verizon’s data revenues grew the most - 18% QoQ and 46% YoY. AT&T experienced a 39% lift while T-Mobile reported a 24% increase in YoY data revenue growth.
• Last quarter AT&T surpassed Verizon in data revenues for the first time since 2005 and in Q109 Verizon duly took many of titles back from AT&T becoming the number 1 carrier in almost all the categories.
• AT&T and Verizon now account for 68% of the market data services revenues. Sprint had a fourth consecutive quarter of data revenue growth.
• The average industry percentage contribution of data to overall ARPU is now $26%. US market is likely to exceed the 30% mark in 2009.
• The top four US carriers are now a permanent fixture in the top 10 global operators by mobile data service revenues occupying #3, #4, #6, and #8 spot respectively. Apart from NTT DoCoMo and China Mobile, Verizon Wireless and AT&T are the only two other operators generating more than $3B in quarterly mobile data service revenues.

ARPU (Slides 12-15)

• Overall ARPU decreased by $0.91. Average voice ARPU declined by $1.17 while average data ARPU grew by $0.26 or 2% and couldn’t negate the drop in voice ARPU.
• Sprint led in data ARPU with $15 followed by Verizon at $14.16. In terms of % contribution, Verizon led with 27.91% followed by AT&T at 27.2%.

Subscribers (Slides 16-17)

• In Q109, the US market added almost 3M new subscriptions down 33% from Q108.
• The number of data subscribers has been on the rise with Verizon leading the way. At the end of Q109, 62% of US subscribers were using some form of data services.
• The messaging volumes in the US market now average 485 messages/subscriber/month or at the frequency of a message/sub every 1.5 hours. The leading messaging nation is Philippines where consumers routinely send a message/hr on average.
• In terms of net-adds, Verizon led in Q109 with 1.3M net-adds, edging its friendly rival AT&T which added 1.2M net subscriptions. Sprint losses reduced to 180K subscribers.
• With its Alltel acquisition, Verizon became the number one carrier in the US easily overtaking AT&T. It now has 86.6M subs and secured the bragging rights to being the biggest operator in the Americas.
• The 3G penetration in the US went past 40% in Q109. Verizon led the pack while T-Mobile is slowly expanding its 3G coverage. The growth in 3G and smartphones is helping offset some of the downward pressure on the data revenues and overall ARPU.

Applications and Services

• Non-messaging services continue to grab 50-60% of the data revenues for the US carriers. For the first time the non-messaging share exceeded 60%.
• The flat-rate pricing movement that was started by Willcom in Japan which moved to Europe became more prevalent in the US market with industry wide flat-rate pricing plans that included data. All the major carriers seem to be offering flat-fee access plans for most of the new smartphones being introduced in the market. Approximately 17% of the consumers have flat-rate data plans. We will see a further acceleration of this trend aided by the recession.
• There are probably 18-20 sub-segments within mobile data services and consolidation looms. While the valuations are still high for rapid consolidation, we think that due to recession pressure, the M&A scene is starting to heat up.
• The usage and data consumption trends are enabling carriers to accelerate their 4G plans and develop long-term business and technical strategies (I will be moderating a panel on “The future of Broadband” at the “Future in Review (FiRE)” conference on May 20th in San Diego where some of the best minds on broadband will be debating the evolution of our industry)
• The appstores battle is intensifying with OEMs and carriers are announcing their plans and some of them are opening their wares to woo the developer community. In the midst of the appstores hoopla, Apple announced the passing of the 1 Billion download mark with increasing number of developers participating the ecosystem. The new functionality being released with 3.0 is going to take the battle up a notch. The clear-cut business model of 30/70+ split is attractive to the long-tail of developers. While there is no dearth of applications, findability remains a challenge. Also, appstores are changing the monetization strategies for content and application developers (I will be moderating the panel “Wireless Monetization” at TiECON on May 16th in Santa Clara)
• Slowly but surely, mobility is becoming pervasive across industry verticals. Mobile Health looks very promising and the impact could be global. (I will be participating in a conference on mHealth being held in San Francisco on May 22nd by UN Foundation, Vodafone Foundation, UCSF Global Health Services, Berkley Engineering, Cisco, and NetHope)

Handsets

• After selling over 100M units for seven straight quarters, Nokia slipped to 93M handsets in Q109, still more than the next three players combined but an 18% drop from Q408 nevertheless. Samsung and LG have been really gaining on their rivals in the past year and are now at #2 and #3 respectively. Motorola and Sony Ericsson with 6% share each round up the top five.
• While Apple has been stealing all the press, RIM upped the ante by claiming leadership in the smartphone wars by outselling Apple in the first quarter of the year.
• The growth in smartphone usage is also putting pressure on the networks which are not able to handle the load during peak times in certain cities thus forcing carriers to look for alternate strategies to satisfy the demand for broadband - metered billing, UMA, Femtocells, Hotspot buys, WiMAX, LTE, and others.
• Rest of 2009 is eagerly awaiting the release of Palm Pre, several Android handsets from HTC, Samsung, Motorola, and others, Windows devices along with follow on of Danger devices, new model(s) of iPhone, and other touch screen devices.

Misc.

• Not surprisingly, Venture money in the mobile sector experienced a rapid decline. Compared to Q108, venture financing declined by 58%. (Source: Rutberg)
• In a sign of convergence battles to come, T-Mobile’s @Home and various Femto cell initiatives are taking hold. Cable operators are also aggressively seeking triple-play by providing the wireless component of the service.

We will be keeping a close eye on the trends in the wireless data sector in our blog, future research reports, and articles. The next US Wireless Data Market update will be released in Aug 2009. The next Global Wireless Data Market update will be issued in Sept 2009.

Your feedback is always welcome.

Should you have any questions about navigating or understanding the economic and competitive icebergs, please feel free to drop us a line.

Thanks.

Chetan Sharma

Disclaimer: Some of the companies mentioned in this note are our clients.

First up is TiECON 15-16th May. I will be moderating a panel on “Wireless Monetization - The Pot of Gold at the End of the Rainbow”

Saturday, May 16, 2009
11: 45 AM - 02:30 PM

Historically there has been a lot of buzz around mobile advertising, commerce and payments. This session will address the topic - Where do things stand today and what is the promise for the future? Currently, there are four ways applications can be monetized: subscription (or one-time download), advertising (in-application and banner), virtual goods (primarily for games), and rev-share (mostly for apps native to carriers). There have been differential rates of growth and adoption in different countries. Why is that? The panel will be challenged to address the issues around how does the pervavsiveness of applications, content and services, and, the emergence of mobile application stores impact each of these areas, and, what are the opportunities and pitfalls for entrepreneurs going forward.

Key Takeaways:
The attendee/entrepreneur can expect to listen to not only an analysis of what monetization scheme works, but also why it works. Further, the discussion will focus on what monetization schemes work for what type of applications in what kind of platforms.

This panel will aim to synthesize the conversations in the previous panels and dive into where the rubber meets the road for making money.

TiE Host(s):
Savinay Berry, Granite Ventures
Arvind Gupta, Former Yahoo & Oracle
Asha Vellaikal, Orange Labs

Moderator(s):
Chetan Sharma, Chetan Sharma Consulting

Panelist(s):
Michael Bayle, Yahoo!
Purnima Kochikar, Nokia
Gary Kovacs, Sybase
Matt Liszt, Glu Mobile

Then hop over to San Diego for “Future in Review” hosted by Mark Anderson of the SNS fame. I will be moderating a panel on “The Future of Wireless Broadband.” on 20th

1:00p - 1:30p
“The Future of Wireless Broadband”: A panel with Hugh Bradlow, CTO, Telstra; Scott Richardson, Chief Strategy Officer of Clearwire; Fred Kitson, Vice President, Motorola; and Chris Pearson, President, 3G Americas; hosted by Chetan Sharma, President, Chetan Sharma Consulting

Then finally on May 22nd, I will be attending the mHealth invite-only conference in San Francisco. My thanks to UN Foundation and Vodafone Foundation for inviting me to the event.

Will of course have coverage of these events as we get into them. So, Stay Tuned.