Communications

Another analyst under estimates mobile subscriber growth

From a recent press release

Worldwide mobile subscriptions will rise from 3.9 billion in 2008 to 5.6 billion in 2013, according to a new Strategy Analytics report.

Sorry guys, you're forecast has fallen into the same trap as almost all the five year forecasts I've seen since 1995.  About the only credible analyst's statement in this area is one by Mark Newman, head of research at Informa, who said (in 2007):

The mobile industry has constantly outperformed even the most optimistic forecasts for subscriber growth.

The problem is analysts' forecasts are consistently pessimistic.  Consider Strategy Analytics' numbers.  They project 1.7 billion new subscribers in 5 years (60 months).  By every measurement I've seen, mobile subscription growth has been over 50M per month at least since 2004-2005.  For example, 2 billion subscriptions in September 2005 and 3.3 billion subscriptions in November 2007 comes out at 52 million new subscriptions per month.  If you believe Strategy Analytics' forecast of 3.9 billion by the end of 2008, that's 54 million more per month for the balance of 2008.  If we merely sustain current rates, we will hit Strategy Analytics' December 2013 forecast in just 31 months, i.e. in July 2011.  So they expect current growth rates to decline rather substantially in coming years. 

Why would they think this?  I haven't spoken with anyone at Strategy Analytics, but in discussions with other analysts over the past ten+ years, a frequent answer is "current growth rates will have to slow as we're running out of people who can afford mobile phone service."  Wrong!  This is the view of someone who doesn't understand Moore's law.  Whether it's transistor density or wireless performance, innovation drives exponential improvements in price-performance.  Per-capita GDP is improving slowly, but the cost of mobile phone infrastructure and mobile handsets is dropping substantially every year.  Today, those at the bottom of the pyramid are in a position to at least use a phone and increasingly to acquire their own mobile phone.

In addition to innovation ― at work since the introduction of mobile services ― political obstacles are falling in many countries.  Since 2000 it's become clear, mobile phone adoption brings significant economic advantages, and the best way to get mobile phone adoption is to attract multiple competitive mobile phone operators to your country.  Increasingly, even the most backward dictators are realizing there's more money to be made taxing multiple competitive mobile phone services than in keeping all the profits from one government phone company.  So country after country are encouraging competitive mobile phone operators and allowing substantial foreign investment.  This political trend serves to increase mobile phone adoption rates.

Of course, adoption rates will saturate at some point.  When might that be?  The best evidence we have is for 2G and 2.5G services in developed countries.  It appears things slow down a bit around 120 subscriptions per 100 people.  Of course this may change with 3G.  It's too early to tell.

Technology adoption generally follow an S-curve:

If saturation is at 120 or above, and we're currently around 50, we have at least another five years of rapid growth.  Perhaps a five year forecast made in 2013 will be justified in projecting a decrease in adoption rates.  But by then we'll also understand the impact of 3G.  Who knows? 3G may drive things even faster. 

Or perhaps by 2013, I will have a single mobile data subscription for a gateway device on my body, that in turn provides connectivity for all my other devices.

In any event, I expect 5.6 billion mobile phone subscriptions by the summer of 2011 and more than 6 billion by mid 2012.

Mobile video-on-demand Yes! Mobile broadcast TV not so hot

I have an article, Going Mobile (TV), that's recently been published by MobileIN, a wireless and mobile information site.  In it I basically argue that major investments in mobile TV broadcast capability are less likely to pay off than investments mobile video-on-demand.

The biggest trend in commercial television viewing is personal video recorders like TiVo.  People want to watch TV content when they want, not when broadcasters schedule it.  The only exception is major sports events (the Superbowl or World Cup matches).  Even the evening news is frequently rescheduled for later in the evening.

The second relevant trend is growth in YouTube and similar web-based video content.  Broadcast TV went from 2-3 channels in the 1950s to hundreds of channels on a typical cable system today.  But consumers are also interested in the long tail of millions of videos that can only be served over the Internet today and, potentially, over the mobile Internet in the future.

Finally, survey's of early adopters of mobile video show music videos, movie trailers, weather, sports action clips, comedy videos, cartoons and amateur video shorts – typically a few minutes long at most – are the most popular content. In addition, it appears 85 percent of mobile video viewers watched viral videos (content sent or pointed out by others) rather than content they found themselves.

All and all, mobile consumers are looking for video -on-demand, not pre-scheduled broadcast TV.

So what's the logic for massive investments in spectrum, followed by even more money in new wireless infrastructure, followed by the need to sell everyone new handsets that can receive the new broadcast mobile TV channels?

The end of Yahoo, and the end of Microsoft

If you are not familiar with Umair Haque &/or don't regularly read his Bubble Generation blog, read Umair's views on this potential merger. 

He begins with "Yahoo + Microsoft isn't just a mistake - it's a double suicide."

It gets better. 

And his argument is independent of the culture clash between the these two companies (a subject eloquently raised by his first commenter).

How tiered Internet pricing could actually facilitate P2P

Time Warner Cable's planned experiment with tiered charging for Internet access has generated a flurry of coverage in the blogsphere, but no new insights (at least that I've seen).

The primary problem ISP's complain about is that 5% of their customers use 90% of the available bandwidth and when they examine this traffic, it's mostly peer-to-peer file sharing.  A reasonable question is how to allow as much of this traffic as possible without increasing an ISP's variable costs or slowing down their other users.

This may not be as difficult as it appears.   Indeed if Internet access was as competitive as mobile telephony, we might already have seen what I'm about to propose — a combination of bundled pricing equivalent to mobile's "free nights and weekends" and "free on-net calls" with a way to facilitate P2P traffic that leverages exactly these "free" periods.

An ISP's costs

ISPs have some costs which are relatively fixed and others that are tied to usage.  A network is a relatively fixed cost and when it's not full, the incremental cost of adding traffic is zero!  This is the reason mobile operators give away free nights and weekend.  They've built their mobile network for the peak daytime traffic, so it costs them nothing to run promotions that add incremental traffic at off hours.  Peak hours and off hours may be different for an ISP, but the concept is the same. When a data pipe is lightly loaded the ISP's cost of adding incremental traffic is zero.

On the other hand, some ISP costs are usage based, for example "IP Transit" or more properly, Internet Transit.  This is the ISP's upstream cost to send and receive traffic to/from the rest of the Internet.  However, even here, usage-based costs occur at heavy usage.  Light usage periods don't save money.  To understand what's happening, it's worth a digression on Internet Transit.

Internet Transit

Internet access is monopoly or duopoly or a heavily regulated industry.  The middle mile connections from the local network to the Internet backbone may or may not be competitive depending on where you are.  But the Internet backbone itself is extremely competitive.  If you can get to a major Internet Exchange Point in the US or Europe, there are many providers offering extremely competitive rates for Internet Transit.  Typically these services are priced on a megabit per second per month basis (Mbit/s/Month) with lower rates for higher volume commitments.  The other key idea is that charges are based on the 95th percentile of all the five minute data rate samples taken during the month.  So an ISP can have a few bursts above their typical rate, as long as they represent less than 5% of the sampled intervals.

But this also means there is no extra cost to run at or near the typical rate at all times.

Local traffic

Even more important, if file sharing is done with other computers on the same ISP's network, then there is no need to pay for Internet Transit at all.  The question is how to figure out which potential peers are "on-net" and which are "off-net."

Sending signals to P2P software

Most P2P file sharing software has relatively little knowledge of locality.  Some P2P software practices "prefix awareness," for example, Joost gives preference to peers in the same /24 IP address block when they are available.  But if a major operator provided an automatic way for P2P client software to determine whether a prospective peer's IP address was currently reachable "for free", it seems likely the file sharing community would leap on it, and if there's money to be saved, active file sharers would download the new clients immediately.

A standard way to present such information might be via an extension to the XML-based response codes in one of the whois information exchange proposals, e.g. from ICANN or from APNIC.  Also, while what I'm proposing might start as a pricing plan rather like a mobile operator's "free nights and weekends" and "free on-net calling," it's not hard to see extensions where an ISP could offer dynamic access to underused capacity to those programs that were prepared regularly interrogate an ISP's server and use just the advertised off-hours capacity.

In closing

People liked fixed price deals.  Unlimited is great, but there's plenty of experience with bundles of minutes and the idea of data bundles has already showed up in 3G mobile data plans.  The combination of several tiered data bundle prices with the availability of "free" connectivity for "on-net" peers and during off peak intervals is likely to appeal to file sharers and produce better results for both the sponsoring ISPs and file sharers alike.

Global mobile network operators subscriber data

There's an interesting free source of market data that I've been using for the past two years.  Until two hours ago, I hadn't given this much thought, but when I mentioned it to some colleagues, their reaction was:  Wow!  This is really cool. 

So I thought I'd share it more widely. It's Wikipedia's List of Mobile Network Operators.

 

There's quite a bit of information, by country and by operator, for example:

I've been tracking mobile subscriber growth for more than ten years, in part by purchasing ITU data every other year or so; in part by getting copies of any data than any NMS business unit purchases from traditional market analysts and in part by capturing anything that's published in press releases or other teasers from analyst firms.

Wikipedia doesn't have all data for all operators, but they have almost everything and it's very credible.  They also cover countries that I have never seen in traditional analyst reports, for example:

Somolia is famous for having no functioning central government, no spectrum regulation and no telecom regulations, but none-the-less having the lowest international calling rates in Africa.

Ringback Tones Adoption Rates — Culture, Biz Model or Marketing Savvy?

Ringback tone services have been wildly successful in many parts of Asia and they are emerging as a major money maker, not to mention a major music distribution channel, in many other countries, but not in the US or the EU.

Nearly 55% of Korean subscribers have ringback tone service.  China Mobile has close to 50% adoption.  Yet, as of September, adoption rates in most of Europe were below 10% (the UK was at 2%) and US adoption was only 5%.  Since our LiveWire Mobile division provides white label managed ringback tone services and sells ringback tone service platforms, I'm obviously interested in understanding more.  And, with 30+ operators on six continents using LiveWire Mobile platforms or services, I have some access to comparative data.

A late start is only part of the story.  Korea went from 0 to 30% penetration in just nine months (April to December, 2002).  China took a bit longer as the service only became available in stages across China Mobile's 31 separate, relatively autonomous, provincial units.  That roll out took from mid-2003 to early 2004.  But by the end of 2004, China Mobile had 30 million ringback tone subscribers (then 69M by 12/05 and 144M by 8/06).  And yet after ~2 years of service, the US has only 12M subscribers or 5% penetration.

One clear difference in Korea and China, versus the US and EU, is the number of independent marketing organizations directly or indirectly promoting the new service.  I remember visiting Seoul Korea in January 2003 and having a billboard pointed out to me where a Korean rock star was advertising his latest hit and how you could make it your color ring tone. I was told there were more than 20 independent organizations providing content for SKT's Color Ring service at that time.  More significantly, revenue splits were such that these independent organizations found it worth while directly promoting their content to mobile subscribers.  That means there were 20+ marketing teams with independent activities that all served to increase subscriber awareness.

Compare this with the typical operator in the US or EU where the only source of information or content is the operator's portal and the only service promotion activities are those of the operator.  That means there is one product manager focused on ringback tones, they have a limited budget and they must compete with their associates for position on the operator's WAP deck.  Is it any wonder awareness is low?

Of course other factors also contribute to service success.  Our LiveWire Mobile team has accumulated a set of best practices based on discussions and consulting work with operators around the world.  They have a formal service offer of course, but I'll endeavor to summarize some of their learning in a future blog post.

LiveWire Mobile — new brand for well established business

This morning, NMS Communications launched LiveWire Mobile as a new brand for our mobile applications business.  I'm leery of re-branding exercises but this was long overdue as our mobile applications business is substantially different and independent of our traditional developer focused business.  Now LiveWire Mobile is operating as a distinct division of NMS with this new logo:

LiveWire Mobile focuses on mobile personalization services, including our well established ringback tones business.  That makes LiveWire Mobile a market leader from inception, as our ringback tone service is deployed with over 30 operators around the world.  The most recently new operator announcement also came today — it's Virgin Mobile USA.

Mobile Personalization

Mobile personalization services hit some years ago with ringtones and wall papers.  Many think of ringtones as a content business, and yes, there is a content sale in many cases.  But whether it's ringtones or ringback tones, the key motivation is the human desire to personalize our possessions and our environment. 

Today, ringtones are widespread and revenue growth is slowing.  However, ringback tones are still in the early growth phase, at least in Europe and North America.  Ringback tone penetration is over 55% in Korea, but less than 10% in the US.

Besides the established ringback tones base, LiveWire Mobile has plans for additional network-based message and subscriber-focused personalization services — stay tuned.

UPDATED:  Here's the link to a press release with more info (in PR prose...).

Managed Storage Futures

Recently I wrote about differences in the exponential growth rates of computing and networking and promised to say more about how these differences cause substantial shifts in the technology landscape.  Managed storage is one example.  The relevant doubling rates (from that earlier post) are:

Doubling Rates

Technology Measure	Months
Computing performance	18
Storage capacity	12
Networking performance	15
Access connectivity	20-26

The increase in storage capacity per dollar has been phenomenal and is one of the reasons that Google can offer Gbytes of free storage for email and that Amazon can offer their Simple Storage Service (Amazon S3) at extremely low rates.

But it's also caused headaches for IT directors, as installed equipment becomes obsolete long before it's fully depreciated, and employees and department heads grip about inflated internal billing rates for storage.  Pity the IT staffer who sends a broadcast message justifying corporate email storage limits because "it costs the company X cents per megabyte per month."  I've seen such messages, and the employee ridicule they engender.

This sounds like a perfect opportunity for a managed service — provide an interface that looks a storage area network or network attached storage, using multiple (for reliability and arbitrage) Internet-based storage services to provide the actual storage.  But now differential growth rates become a factor.

Storage costs decline a bit more rapidly than the cost of Internet transit.  So, already it's the case that network-based storage is extremely low cost for backup but less affordable for transactions.

But the real problem is the cost of access connectivity.  If you're selling managed services to IT departments, you need to provide services at their premises.  Local connectivity is not fast, cheap or reliable, and the pace at which it improves is glacial in comparison with storage or Internet transit.

Has this prevented the emergence of managed storage solutions?  Of course not.  But most existing solutions focus on remotely managing equipment that's physically on the enterprise premises.

Is there opportunity for network-based managed services.  Also, yes.  But you will need considerable focus on local connectivity, both for the numbers you use in your business plan and for the specifics of how you implement the service.  Some thoughts:  interface your managed service via a remotely managed on-premise box that includes caching?  use a dedicated access link to guarantee QoS?  ???

In any event, three years from now, you can count of disk storage being ~8X more affordable, Internet transit being perhaps 4x more affordable, but local connectivity only 2x or 2.5x.  Don't give up your great  business idea, but plan accordingly.

Making a significant contribution -- Hamming's career advice

While following an entirely different thread, I stumbled on a blog post by Giacomo 'Peldi' Guilizzoni which lead me to the transcript of this really significant talk that Richard Hamming gave in March 1986.  I printed it out a few weeks ago and just read it today. 

Wow!

His title is "You and Your Research" and he discusses what it takes to do really great work and what are the differences, among otherwise smart people, that cause some to do great work and others to be forgotten.  Hamming was a mathematician (familiar to EEs for Hamming codes and to DSP engineers for Hamming windows) and this talk is about what he saw among scientific colleagues at Los Alamos, Bell Labs and the Navel Post Graduate School.  However, what he says is broadly applicable to any field of endeavor.

Read "You and Your Research."

Watching the leaks about Google's Open Handset Alliance

11:15am EST and the Open Handset Alliance website is (finally) live.

I'm subject to an NDA, so I've just watched the leaks without comment.  The Wall Street Journal carried the first news almost a week in advance, but without any mention of the name Open Handset Alliance.

I began intermittently checking the results of a Google search on the complete phrase "Open Handset Alliance" in anticipation of leaks in advance of the actual announcement.  Up through Friday, there were zero hits.  Likewise on Saturday morning, at least for a web search, but a Google news search returned the first hit.  It was this from CNET News at 6:25pm Pacific time on Friday evening.  From the text, they may have gotten their information from someone in Japan.

By Sunday midday, the conventional Google web search was returning this one article from Friday midnight (Pacific time) which credited the CNET News story from earlier that evening.  However, a Google news search gave the CNET article directly (as the 3rd item) with two more recent articles above it.  This situation remained stable through Sunday evening (eastern US time).  But by Sunday evening, there were 24 blog posts tagged "Open Handset Alliance" on Technorati.  They all traced back to the CNET News or an alternate copy of the same story.  Finally, sometime between 7pm and 9pm Sunday evening, Google must have updated their database as suddenly they were reporting 14,900 hits for the complete phrase "Open Handset Alliance."  By Monday morning this was 31,200.

Sunday also saw a New York Times background article – an in depth article about Andy Rubin (the lead for the OHA software project) that had obviously been set up with cooperation from Google.   As a cooperative venture, this article did not mention the term "Open Handset Alliance."

So across all the noise, it appears there were only two significant leaks:

1. On Tuesday the 30th, the Wall Street Journal said the announcement would come within two weeks and gave quite a few details.  Then on Thursday the 1st, they pinned it down to Monday the 5th.
2. On Friday the 2nd, CNET News broke the name "Open Handset Alliance."

Rather impressive secrecy for an effort involving more than 30 companies.