The decade ahead

Ten years is a long time in any industry, but especially in one that moves as fast as the mobile sector. The last decade has seen the industry ride out by far its toughest times and still manage to turn out truly world-changing products and services. Here we take a look at what we can expect to happen in the ten years that stretches ahead of us.

Ten years ago, the newly merged Vodafone Airtouch was sealing its hostile takeover of German carrier Mannesmann, a move which CEO Chris Gent promised would create “the world’s leading mobile multimedia operator”. Virgin Mobile, the world’s first MVNO had just announced its launch, and the must-have handset was the Nokia 7110—attractive not so much for its rudimentary WAP capabilities as for the spring-release cover that enabled its owner to answer calls in a way that briefly emulated Neo from box office smash The Matrix.

The year 2000 had been hailed by some as the ‘year of mobile data’ in what would soon prove to be a hopelessly optimistic assessment. That year’s GSM World Congress saw the first prototype GPRS network on display from Ericsson, including a much vaunted prototype handset. As onlookers applauded this achievement it is doubtful that they could have imagined the post-iPhone industry that would be gathering in Barcelona ten years hence.

In many ways, of course, it was a drastically different world from the one we know today. But a look back at a post World Congress report from the March 2000 issue of Mobile Communications International reveals that, while much of the technology has evolved, some core concerns remain unaltered.

As speakers and delegates contemplated services and business models based on WAP, they were asking: “What is the consumer ready to pay for? How can every organisation in the value chain realise their share of the money?” And in an observation of worries that proved decidedly well placed, telecoms.com noted: “Mobile internet services seemed to be at the forefront of many delegates’ minds. But many were concerned about the impact of fixed internet companies moving into the mobile environment.”

George Schmitt, a stalwart of the conference sessions during those years, and the head of US carrier Omnipoint (to be absorbed by T-Mobile down the line) also had his finger on a crucial point: “Our networks have their electronic eyes on everyone with a GSM handset, practically pinpointing our subscribers’ every move to within a couple of metres” he said. “It’s important that we use this power for good.” Today it is network functionality like location that operators are having to exploit for their own good, never mind anyone else’s.

Clearly the industry has made huge strides over the past ten years. But what kind of evolution can we expect to see over the next ten? To put it another way: If we take the Nokia 7110 as an emblem of 2000 and the iPhone 3GS as an emblem of 2010, what might be used to represent 2020?

Read CTO for Ericsson North Western Europe, John Cunliffe’s thoughts on managed services, LTE and the advances expected over the next decade

How about a refrigerator? Or an electricity meter? There seems to be an industry consensus that the next decade will see the creation of the “internet of things”. It can be summed up by Ericsson’s prediction that, by 2020, there will be 50 billion devices connected to wireless networks worldwide. The majority of this surge in connections will come from machine to machine applications, says John Cunliffe, chief technical officer at Ericsson UK. And this could have benefits beyond revenues for the cellular industry, he says.

“The ITC industry is responsible for two per cent of carbon emissions globally and we need to tackle that small chunk directly,” he says. “But the big benefit we can bring is to use our technology smartly and start to address the other 98 per cent from other industries. Ericsson predicts that this 98 per cent can be cut by 15 per cent through advances in telecoms. A smart meter, for example, could turn off a refrigerator for 15 minutes to avoid peaks in power demand on the grid,” he suggests.

And in a similar vein to Cunliffe’s eco-motivated application of technology, a service that was much on the industry’s mind ten years ago is being given another nod. “Mobile video calling will take off as companies and consumers start to see the benefit—both environmental and financial—of finding other ways to keep in contact over long distances without having to travel,” says Tom Alexander, CEO of Orange UK and, in 2000, the founding chief executive of Virgin Mobile.

Read Orange UK CEO Tom Alexander’s thoughts on HD voice, 3D and NFC

Video calling, of course, was the holy grail of 3G and the headline service around which it was launched. It soon become clear, however, that the experience was frustratingly poor, partly due to the networks but mostly because of the limitations of the handsets. It became more white elephant than holy grail. Today the handset technology is certainly in place and the challenge is more sociological: Can users be persuaded that video calling is a desirable, practical and preferable alternative to voice or text? The question is really no closer to being answered than it was a decade ago.

Irrespective of the appeal of individual applications, how can we expect the already staggering capabilities of mobile handsets to further evolve in the next ten years? Alexander has a few ideas. “Video calling, as well as other services, including digital pictures and video, will also benefit from the advent of projector-phone technology,” he says. “Being able to screen your films or photos on the wall next to you will be a new way of immediately sharing experiences with friends, family and colleagues.

“Furthermore, developments in 3D technology will only mean greater multimedia offerings for the consumers. With 3D films already being produced and 3D TVs currently a reality, it won’t be long before this technology finds its way onto mobile—allowing us to receive the full visualisation experience wherever we are,” he says.

Today handsets have evolved to encompass a huge variety of functionality. They serve as personal media players, still and video cameras, internet-capable computing devices, gaming consoles and mores besides. The telephony function is now just one of many and the fact that they are still called ‘phones’ is a legacy rather than an accuracy.

In fact the telephone functionality could be seen more as a limiting factor than anything else, given that handsets still have to be of a size and shape that allows them to be held to the face, listened to and spoken into. But, says Andrew Bud, chairman of mobile transaction specialist mBlox, this constraint may lessen as the decade draws on.

“The form factor of the handset will be dictated by its use as a ‘personal information terminal’, not a phone,” he says. “The trend to use separate wireless headsets rather than talking into the phone itself will continue and will have a profound effect on phone shapes and sizes. The personal information terminal will become a central source for a user’s entire access to culture, rendering obsolete the home book, the DVD, game and music library—why have collections on your shelf when you can carry them round in your pocket? The terabyte phone will see to that.”

If we take the Nokia 7110 as an emblem of 2000 and the iPhone as an emblem of 2010, what might be used to represent 2020?

The phone as storage device is one option, but industry consultancy Ovum believes that the future of applications and storage lies in ‘The Cloud’. By 2020, the firm posits in the executive summary of its industry wide ‘Telecoms in 2020’ report, most connected devices will have “direct access to web-based cloud content and applications through the widespread adoption of core web technologies and a small number of de facto standard RIA technologies on those devices.” This expanded cloud, Ovum says, will “act as both a source and store” for the huge range of direct to consumer services.

In turn this will impact both carriers and OEMs, Ovum suggests. Device-side software fragmentation will push innovation into the cloud, shifting responsibility for complex application development to cloud platform providers. These players will then sell their platforms to services providers on a managed services basis, drastically reducing the spend that operators are required to make in application platforms and development of their own. In Ovum’s world view, the OEMs will also cede responsibility in this area, leaving them more focused on brand and design competition, while their drop in investment should negate the need for costly device subsidies.

Nonetheless, there will be some constants, according to Bengt Nordstrom, head of Northstream Consulting. “In 2020, Nokia remains the largest player [in the handset market]” he predicts, “but it has been forced to surrender considerable market share globally; to North American players in the advanced device and smartphone segment, and to Chinese vendors in the midrange and low-end segments.”

One of the defining competitive battles of the next decade will surely be for leadership in this new software platform space. Winners are doubtless already familiar faces within the industry. Google, Facebook, Apple, Nokia, Research in Motion and a number of carriers are among those in contention. By way of illustration, Nordstrom takes a punt on the 2020 Mobile World Congress awards. The event, he suggests, will be happening in Beijing. “’Facebook Free Talk & Chat’, already the world’s most popular voice and messaging service, also wins a GSMA award,” he predicts (although it will be surprising if the GSMA hasn’t had a rebrand of its own by this stage).

The role of the operator in this new world is a source of much debate. The most advanced carriers seem universally desperate to retain their position at the customer end of the value chain and are beginning to invest heavily in their own software platform programmes. Few seem willing to focus primarily on excelling in what have been their historical core competencies, as the shift to managed services—which can only gather greater momentum as the decade unfolds—clearly illustrates.

Ovum foresees two types of operator in 2020. SMART players (for Services Management Applications Relationship and Technology) play at the very front of the industry, while LEAN players (Low-cost Enablers of Agnostic Networks) represent the evolution of what today might be called the ‘dumb pipe’ model. For mobile operators that have grown up as the dynamic and glamorous element of the telecoms industry, the LEAN proposition offers insufficient flattery to the ego, says Tony Cripps, a senior analyst at Ovum.

“In many instances this ego-led business planning probably doesn’t make sense,” says Cripps. “In general we think that the SMART proposition is a difficult one because it is based around competencies in software infrastructure and application development platforms that the operators don’t really have.

“You hear about initiatives that operators have that see them moving in this direction but there’s a sense that the companies that do this as a core competency are not just already there—they’ve already moved on to the next level,” he continues. “Typically, and it may not even take ten years, it’s going to be companies for whom software platforms are already a core competence that will be likely to dominate this space.”

Read vice president of public affairs at Telefonica O2 Europe, Mike Short’s thoughts on the future of the  mobile network operator

It is unlikely that Ovum’s view will dissuade mobile operators from pursuing their glorious dreams but the networks do remain essential to all players in the mobile value chain. Software platforms aren’t much use if applications can’t be delivered to end users. So what will network competition look like in 2020; will it even exist? After all, the suggestion has been made more than once that multiple carriers should be able to compete using brand and proposition on a single, shared network. As Mike Short, CTO at Telefónica O2 Europe puts it: “Network as the primary differentiator has already ceased to be the main story in town.”

Ericsson’s John Cunliffe argues that regulatory pressures will ensure that multiple network markets perpetuate throughout the decade. “Maybe you could drop to two or three networks in each market but not one, because regulators will always want to see some physical competition out there,” he says. It follows that if the number of networks in each market does drop that network sharing will continue to be a popular option for mobile operators looking to cut network costs.

While in 2010 there are a good number of passive sharing deals in place whereby operators share sites and masts, operators have been far slower to embrace active sharing deals where all aspects of the network are commonly held. The MBNL joint venture between 3 and T-Mobile’s UK operation has broken ground in this area (the upcoming merger between T-Mobile and Orange will inject a new degree of complexity) and it seems a safe bet such deep integration will be necessitated and replicated in other markets as the squeeze on costs continues.

It won’t all be about sharing, though, and that squeeze will, for some operators, throttle them out of business altogether. “I don’t think it’s impossible that we will see some big telcos go bust over the next few years,” says Ovum’s Tony Cripps. “It’s not foolish for carriers to feel out these new areas of operation but it requires a level of commitment and investment that I don’t think many of them truly have.”

Read head of technology strategy at T-Mobile UK, Tony Weiner’s thoughts on the decade ahead

And in the best tradition of the value chain, any pain felt by the operators will undoubtedly get passed down the line to the vendor community. Those players that are building a solid business in managed services, with Ericsson being the leader, are more likely to prove resilient to a squeeze on the supply side. And those with markedly low cost bases, like the Chinese players, are best positioned to tough out leaner times. As Tony Weiner, head of technology strategy at German carrier T-Mobile’s British outpost says: “There will be major vendor consolidation in the next decade. In some ways it’s unfortunate but Huawei’s performance is staggering; they’re just sweeping the board.”

The Chinese vendors may well be positioned to take advantage of economic factors over the next ten years, but what about the country’s end users—customers, indeed, in all developing markets? Africa, Latin America, China, India and, to a lesser extent, Russia—these are the growth markets in 2010 and will fuel the land grab of the next decade. But will 2020 see a greater parity between the services available to customers in developed and developing markets?

It seems highly likely. For one thing, handset technology is increasingly being pushed down the product ranges so that even midrange handsets from the early part of the decade will be highly capable internet-enabled devices. And the lack of fixed reliable fixed infrastructure in many developing markets—which has made an enormous contribution rapid uptake of mobile telephony—is already fuelling carrier plans for mobile broadband. Bengt Nordstrom’s second prediction for the 2020 Mobile World Congress is that: “China Mobile is the first operator to demonstrate 5G technology, which is capable of delivering data speeds of up to 1Tbps. The first commercial launches are planned for 2021.”

And the argument applies not just to communications infrastructure. Hannes van Rensburg at mobile financial services outfit Fundamo believes that mobile will enable extremely rapid growth in banking services in developing markets that lack advanced financial sectors. “It’s taken around 100 years to ‘bank’ the majority of those in developed nations,” he says. “With the advent and accelerating growth of mobile financial services it could be only a matter of years to ban the remaining global unbanked population. By 2015, never mind 2020, the developing world will have superior financial services—more convenient, secure and ubiquitous—than the so-called developed world.”

The only truly reliable prediction one can make about the state of the mobile industry ten years from now is that there will be elements to it, products and services within it—even companies leading it—that, in 2010, do not exist and cannot be imagined. But the fact that central concerns from 2000 have resounding echoes in 2010 does indicate that we can make educated guesses as to how certain trends will shape out over the course of the decade.

Add your own predictions in the comments box below or read those of other industry leaders in 2020 Vision

Nexus One: The best Android phone to hit the market so far?

The much discussed ‘Google phone’ became a commercial reality at the beginning of the year, when the web giant unveiled the first of its own-brand devices – the Nexus One. The announcement raised a number of eyebrows and even more questions.

Traditional handset vendors got no let-up from the sector’s upstarts in the opening days of 2010. Before Apple had introduced us to a niche within a niche with its iPad as January drew to a close, internet heavyweight Google had thrown its hat into the ring with the launch of the Nexus One. This, the firm promised, would be the first of many Google-branded handsets, the arrival of which had been mooted since the firm bought Android in 2005.

Until January, Google had seemed content to let its handset manufacturing partners shoulder the developmental burden, relying on competition between them to generate to drive the most innovation from the Android platform. There were at least 20 Android handsets in the market at the close of 2009 and that number is likely to more than double in 2010. Perhaps Google was disappointed with the progress its partners had made, though.

The argument that pitches open source competition against a closed dictatorship will probably never be satisfactorily answered. But given that Google’s play with Android is all about driving more people to Google’s ever-expanding suite of internet based services and applications, it is perhaps not surprising that the firm should look to exert a little more control than it was able to muster by simply lobbing a new OS into the development arena.

Manufactured by HTC, the Nexus One features a 3.7″ OLED display, five megapixel camera and a 1GHz Qualcomm Snapdragon chipset. It runs on Android 2.1, the newest version of Eclair, and boasts features like a voice-enabled ‘keyboard’ allowing users to speak into any text field. It also comes with a host of popular Google applications, including Gmail, Google Voice and Google Maps Navigation.

“Google sees these devices as a means to an end. And that end is to build a large user base for Google’s mobile services; to expose that user base to advertising; and to collect the data its user base generates…”

IDC’s research director John Delaney described the Nexus One as “the best Android phone to hit the market so far,” so perhaps the firm has achieved its goal in that respect. But the price of the unit, and the choice of sales channel, have been set in a way that might not necessarily encourage uptake in huge volumes. It was thought that perhaps Google would try and undercut Apple with its pricing, but that was not the case.

On its own, the phone retails for $529, which drops to $179 with a T-Mobile USA Even More plan, which starts at $39.99 per month. But the only place to buy the phone, either unlocked or on the T-Mobile network, is from the online Google store. Interested parties cannot get the handset from T-Mobile, which means that it cannot be sold as an upgrade to existing customers. Nevertheless, the operators seem to be on board. Google has promised partnerships with Verizon Wireless in the US and Vodafone in Europe in the near future.

So why is Google entering the phone business so directly at all? Delaney believes that Google sees these devices as a means to an end. And that end is to build a large user base for Google’s mobile services; to expose that user base to advertising; and to collect the data its user base generates. “In other words, Google wants to be everyone’s starting point when they use the mobile internet,” Delaney said.

The reality, however, may turn out different to the ambition. Google won’t be launching its own-brand Android devices into the vast and fast growing Chinese market. Indeed, the web services firm is threatening to pull its local search engine amid censorship concerns and allegations that Chinese hackers broke into Google’s email services and gained access to the email accounts of Chinese human rights activists.

Yet Android will find its way into the Chinese market by another route. Resurgent US vendor Motorola will launch its recently unveiled MotoRoi Android-based device in China via China Unicom and will also release OPhone devices based on China Mobile’s own Android-based platform.

The home grown OPhone open source platform is really just another branch of the Android operating system. The OPhone SDK 1.5 is compatible with Android SDK 1.5, so developers can use both OPhone APIs and Android APIs to develop OPhone applications.

To accompany the launch of the MotoRoi, Motorola recently opened the doors of its Android focused app store in China. The Shop4Apps, or Zhi-Jian-Yuan, which means “Place for Apps Wisdom” in Chinese, will allow users to download apps and customise their Android-based handsets with new services including a search provider of their own choice. The search providers available are the government sanctioned local providers like Baidu, and are likely exclude the likes of Google.

Motorola said Shop4Apps will give developers a path to promote their applications in the market through MotoDev, Motorola’s global developer program, and through other Android development ecosystems like OPhone.

Google's robotic dance

Android has been closely watched over 2009, seen by some to represent a clear threat to both the establishment bulk of Symbian and the new-world order of Apple.

As 2009 drew to a close, Motorola’s latest phone, the Droid (sold as the Milestone in Europe), was being heralded in some quarters as the saviour of the US vendor’s malingering handset unit. Based, as the name suggests, on the Google-owned Android operating system, the Droid, if it fulfils the potential some suggest it has for its manufacturer, will surely gain a status to match iconic predecessors like the Startac and Razr.

The suggestion that the Android operating system could be about to contribute to a turnaround in the fortunes of a fallen giant like Motorola speaks volumes about the progress the platform has made in 2009. This was a year, after all, which began with just one Android handset in the market-the HTC unit dubbed the Dream, nicknamed the Googlephone and marketed by T-Mobile as the G1.

In mid-November, at the time of writing, there are more than 20 Android handsets either in the market or in the offing, with a Christmas rush of models still expected to come. As well as HTC and Motorola, the likes of Huawei, Samsung, Acer, LG, Dell, Sony Ericsson and even Philips are name-checked in the lists of products that are commercially available or anticipated by year-end.

That represents substantial growth in terms of product portfolio over the year-albeit from the smallest of beginnings. So for Android these remains very early days indeed. Gartner analyst Roberta Cozza says the firm is predicting that Android will gain no more than five per cent of the smartphone market for 2009. In the third quarter of this year, she says, the platform’s share of this market was 3.5 per cent, which equates to around 1.5 million sales (Gartner does not track shipments into the channel, only sales to consumers).

But in the slightly longer term, Cozza says, Gartner’s forecast for the Android platform is “very positive”. She continues: “From 2010 we should start to see all the vendors that have picked Android up offering more devices; certainly the likes of Motorola and Sony Ericsson are saying this is what they are going to do. And, if we see lower end units it will become more mainstream. We’ve published a prediction that sees Android being the second most popular platform, behind Symbian, in 2012.”

One of Android’s successes has been the widespread backing it has gained, with carriers and handset vendors alike populating the Open Handset Alliance that was created to oversee the development of the platform and ecosystem. In October US carrier Verizon struck an agreement with Google that will see the two firms collaborate on bespoke Android handsets and applications, sharing the marketing distribution and service development workloads. T-Mobile has also nailed its colours to the Android mast, leading the way to market with HTC’s first Android product and following up with others.

2009 has seen further iterations of the operating system, with version 2.0-known as Éclair-released in November. But, while Google remains effectively in charge of the technical roadmap for the platform, one of the most substantial challenges that awaits Android is the level of fragmentation within its own community, says Gartner’s Cozza.

“The problem is that Google has a hands-off approach in the marketing of Android and prefers to leave it to each manufacturer to do their own thing. I think that this could backfire, because this will not improve the awareness among consumers of the Android platform and ecosystem. Consumers are attracted by a single ecosystem like you have with Apple and there’s a danger that the consumer will see Android as a number of different environments,” she says.

Cozza’s comments call forth one of the central debates within the handset sector at the moment: Are communities better at developing product than individual companies? The success of Apple’s iPhone and its wider ecosystem, arguably the most closely managed example the industry has to offer, seems to find in favour of autocracy. The sluggish pace of development at the Limo foundation, meanwhile, could be used to argue against the selection of true community development models.

Android sits somewhere in between. But while the backing of some of the industry’s big names is a boon for Android, there could indeed be consequences if Google doesn’t keep those names focused. Samsung is a useful example. While Taiwanese vendor HTC might have played the role of Android’s standard bearer-and although it is now making concerted efforts to push its own brand in the market, launching television advertising campaigns, among other strategies-it is simply not a tier one handset brand.

Samsung, on the other hand, is a heavy hitter, with a very large installed user base. Its presence in the Android camp is important. But, although the Korean vendor looks set to bring an end to its days of OS promiscuity, it will continue to develop handsets for Windows Mobile and its own new operating system, Bada. Should Android fail to capture the user’s enthusiasm because there is no unified marketing strategy, the likes of Samsung may not be particularly motivated to continue the push on their own.

“There are some really great location-based applications in Android Market [the Android application store],” says Cozza, by way of a warning. “But nobody really knows about them.”

The mass market will prove increasingly crucial to Android’s success, and here it will face stiff competition from Symbian and from vendors’ proprietary operating systems like Bada. HTC, continuing to break new ground for Android, recently released the Tattoo, targeted more a the mid than the top tier and Android will require more product in this range to get those all-important volumes up.

Some reluctance from Google to get truly stuck into the handset market might be understood. But in November the unveiling of the firm’s own operating system, Chrome, gave observers yet more reason to question the firm’s commitment to the success of Android. Since Android has been mooted as an operating system for crossover devices like netbooks and smartbooks, the presence of another OS from the same company-and one which, it has been said, will not necessarily be restricted to the PC/laptop market-does seem a little strange.

The first proof of concept the industry required from Android was the arrival of handsets from a range of manufacturers, and 2009 has seen this delivered. Now those handsets need to start moving in volume and the end user community has to be persuaded that they are worthy of selection. The handsets will likely be heavily subsidised in most markets, so cost is not the issue.

The increasing popularity of application-led mobile data usage means that consumers are now selecting handsets with the ecosystem in mind as well as the product itself. If the Android ecosystem continues to be given over to the vendors designing the handsets, and skinning them individually with their own user interfaces (HTC’s Sense, Motorola’s Blur), then perhaps there is a risk, as Cozza suggests, that the ecosystem may whither on the vine. Or that Android may simply not be a platform ecosystem of the kind that we have come to know.

A push from carriers like Verizon could help to keep the platform prominent, of course but, in the end, Google’s feelings for the Android platform will play a more decisive role in its future success. What those feelings are remains unclear, given the firm’s renowned taciturnity. One thing seems evident, though. The opportunity is there for Android to become one of the most widespread mobile platforms in the market; an opportunity that, at the start of the year, wasn’t necessarily so apparent.

Share and share alike

Leading operators in Western Europe have instigated infrastructure sharing and outsourcing deals, but carriers in developing markets are now beginning to look into alliances that would relieve them of heavy costs and speed expansion into rural areas.

Network infrastructure sharing and outsourcing is finding strong acceptance with mobile operators around the world as an effective way to cut down coverage costs, while reducing the time to market. Such initiatives are well established in Europe, where they have been adopted by leading players such as Vodafone and Telefonica, but they have also seen significant traction in India, and are poised to make their impact felt in the Middle East and Africa.

Operators across the world, both in mature and developing markets, face challenges in sustaining margins with declining ARPU. But population distribution patterns in developing markets complicate the situation, since access to telecom services varies significantly between urban and rural areas leaving operators in these countries to balance the cost of operations in congested and saturated urban setups with the costs of new network rollouts in other areas. So in many contexts, infrastructure sharing offers a compelling proposition.

In Europe, the UK makes an interesting showcase for network sharing, since Deutsche Telekom and France Telekom’s September announcement to merge their respective UK operations. The two European heavyweights plan to merge T-Mobile UK and Orange UK into a 50:50 joint venture, and the agreement, should it be approved by the competition authorities, will create a new market leader, with over 33 million subscribers and a 43 per cent share of the market, according to the latest figures from Informa’s WCIS. Current leader O2 has a user base of 22.44 million, which represents a 29 per cent market share.

The deal is expected to generate synergies in excess of €4bn, with estimated opex-based synergies reaching an annual run rate of over £445m from 2014 onwards, through saving in network and IT expenditure, marketing and distribution. The joint venture would also be expected to invest £600 – 800m in integration costs over the period from 2010 to 2014, related to the decommissioning of mobile sites and the streamlining of operations.

But more importantly, the UK deal brings the prospect of a single network market closer to reality. Orange and T-Mobile will have the opportunity to combine their 23,000 or so 2G base station sites as part of their merger. But any attempts to consolidate their 3G networks will bring Hutchison’s 3UK into the equation.

T-Mobile and 3 formed a 50:50 joint venture called Mobile Broadband Network Ltd (MBNL) in December 2007. This was the world’s largest known active 3G network sharing agreement at the time, and saw the two operators elect to share their masts and 3G access networks. MBNL was given the aim of making 13,000 combined base station deployments, and around 7,000 are currently in operation. The marriage of Orange and T-Mobile would bring another 7,000 3G sites to the table, and Hutchison wants to share the synergies afforded by the agreement, especially seeing as Orange UK already hosts 3’s 2G traffic. In a statement, 3UK said: “Our network infrastructure joint venture with T-Mobile inevitably makes us an interested party.”

The UK is one of the more interesting case studies in network sharing but in early 2009 the European market as a whole reached a tipping point-the result of a flurry of network outsourcing deals. An increasing number of mobile operators were deciding that running a network was no longer their core business.

As Informa analyst Kris Szaniawski points out, network sharing and outsourcing are increasingly popular strategies for operators in mature markets such as Western Europe as they are facing tremendous pressure to reduce opex and capex while coping with extreme growth in data traffic. Average cost savings of 20-25 per cent over the life of a managed services contract are a strong driver but not the only one. “Whereas two or three years ago the more adventurous operators were typically asking vendors to help them run their networks at reduced cost it is now as much to do with helping them transform their networks and business processes,” he says.

But in April 2009, a deal signed between Zain Kenya and Essar Telecom Kenya indicated a sea change in carrier strategy for developing markest, with operators in those territories following the lead of those in Europe by striking an agreement to share 300 base stations over 15 years in Kenya. According to the analysts, this move is almost certainly an indication that Zain will look to strike more infrastructure sharing deals in some of the 21 other countries in the Middle East and Africa where it operates. And such a move could have major significance for all operators in the region because, as with their peers in Europe, it will herald a shift in focus from operating networks to selling services.

Romain Delavenne, director of analyst Capgemini’s telecoms, media and entertainment consulting practice in the Middle East, said that cell towers constitute almost 50 per cent of an operator’s total capex. Yet while many operators in developed markets have moved on to sharing network elements to save costs, in emerging markets with low penetration levels, operators are faced with the dual challenge of maintaining margins, while ensuring rapid rollout to keep pace with the growth in subscriber numbers.

Capgemini’s estimates indicate that tower sharing could help operators in India and the Middle East achieve total savings of $4bn and $8b respectively in the next five years, with such savings resulting from the benefits of having reduced capex and opex. Operating costs associated with the running and maintenance of tower infrastructure, like diesel generators, air-conditioning equipment, and security and site rentals, form a significant portion (nearly 60 per cent) of operator opex. These costs are compounded in rural areas due to limited infrastructure facilities such as roads and a steady supply of electricity. For instance, in India the operational costs per tower have been estimated by analysts to increase by up to 20 per cent in remote inaccessible terrain.

For incumbent operators, sharing their existing tower assets helps in reducing the cost of network operations significantly. For instance, in the MEA region, it is estimated that tower sharing with a tenancy ratio of two would enable operators to achieve an annual tower opex reduction of 12-15 per cent resulting in savings of $1bn.

In most developing markets, incumbents are still expanding their networks to reach rural areas and improving coverage in dense urban pockets. Tower sharing benefits operators in achieving cost effective market coverage by helping reduce cost duplication. For example, in MEA, it has been estimated that an additional 100,000 towers would be required to extend reach in the next five years, a growth of over 50 per cent from current figures. Tower sharing could achieve potential savings of $8bn in that period, according to Delavenne.

As Chris Gabriel, chief executive officer of Zain Africa, puts it: “The rules of the game have changed with a paradigm shift from customer numbers to customer value (share of wallet) and business models must adapt to optimising asset utilisation through right sizing, outsourcing and infrastructure sharing.”

For new entrants the installation of cell sites is an expensive, complicated and labour-intensive process as there are a number of municipal clearances and government approvals required. For greenfield operators, partnerships in the form of joint ventures and sharing agreements with incumbent operators and tower companies are particularly attractive as they help reduce time to market significantly. For a mobile operator, more than 60 per cent of the total network rollout cost is accounted for by towers and accompanying infrastructure. For a new entrant, this translates into a significant financial burden which tower sharing and outsourcing helps to alleviate. According to analyst estimates, tower sharing can reduce overall cost of ownership after accounting for the tower lease costs, by 16 to 23 per cent.

Already established in mature markets, tower sharing and outsourcing models offer growth paths to service expansion and enhanced subscriber penetration for incumbents, new entrants and regulators in developing markets. So says Informa research analyst Thecla Mbongue, “Operators need to expand into rural-and less profitable-areas, but the economic downturn has affected the availability of financing. Lack of financing leads investors to look at ways to cut operating expenses, so site-sharing and managed networks are expected to play a bigger role in the near future.”

Benefits of network sharing

Source: Capgemini

Land of challenges and opportunities

The prospect of consolidation among African and Middle Eastern operators has provided much fuel for the industry rumour mill in 2009, but the apparent collapse of talks involving the disposal of Zain Africa as well as those between Bharti and MTN has not diminished the appetite for expansion.

African telecoms operators have faced several challenges in 2009. The global economic downturn, a fiercely competitive landscape, and pressure to expand networks into rural areas have tested the mettle of the region’s carriers both big and small.

And yet, forecasts from Informa Telecoms & Media show that mobile subscription growth is still set to increase by 26.6 per cent year on year in 2009, with the total number of active subscriptions to exceed 473 million by the end of the year. This figure is projected to increase to approximately 800 million by 2014, by which time SIM penetration across the region should reach 70 per cent, the firm predicts.

It is this stellar growth that has attracted interest from both domestic and foreign investors. Yet progress on the region’s big M&A deals—the prospective sale of Zain Africa or a stake in Zain; and the cash and share-swap deal between Bharti and MTN—appears to have stalled.

In late September, confusion reigned as a consortium of buyers that included Indian operators BSNL and MTNL were thought to be carrying out due diligence on Zain. But nothing came of the supposed interest and at the Africa Com 2009 event in Cape Town in November, Chris Gabriel, CEO of Zain Africa repeated a number of times that “Zain Africa is not for sale. We are focused on our objective to become a top ten player by 2011 and we still have an appetite for expansion,” he said.

That may be so, but falling ARPU, rising competition and the biting recession have certainly forced investors to reappraise African markets—and some have decided that it is time to head for the exit. In Zain’s case, the company’s soaring ambition and presentational verve has not yet been matched by the performance of its operations in sub-Saharan Africa, where many of its units are loss-making.

Immediately after The Africa Com event, Zain reported that net profit for Q3 in 2009 fell almost 53 per cent year on year; a drastic fall. “The global economic crisis, unfavorable foreign currency fluctuations, particularly in many of our African operations coupled with reduced interest income and investment income plus higher financing costs, have had a significant impact on the company’s overall profit,” said chief executive Dr Saad Al Barrak.

Zain finessed the poor results by favouring the figures for the nine months to the end of September. Profits fell 17 per cent year on year to KWD195.7m ($677m), although revenues for the period were up 24 per cent year on year to KWD1.78bn. Even in the most positive light, it is clear that Africa is causing much of the financial pressure under which the company is labouring. The vast and capital intensive expansion of Zain’s network in key operations such as Nigeria, Zambia, Sudan, and Iraq, has resulted in increases in fixed costs from depreciation and amortization, with the company being further burdened by increases in financing costs.

Meanwhile, talks between Bharti and pan-African player MTN collapsed after being extended twice amid concerns on the part of the South African government that its national champion could fall into foreign hands.

Yet even Gabriel expects further consolidation within the region, led by a handful of major players. And the latest player to the table looks to be Singaporean carrier SingTel, owner of Optus. As the Africa Com event kicked off, SingTel’s chief executive Chua Sock Koong said that she was eyeing up Africa as a potential target for expansion. “Africa is a market that is definitely worth our interest,” Chua said.

The announcement came as SingTel reported quarterly financials for the three months to the end of September. Net profit at the group was up ten per cent year on year to S$956m, compared to S$868m in 2008, while revenues climbed 5.4 per cent year on year to S$4.1bn.

Singapore has a mobile penetration of 148 per cent and SingTel is looking further afield for growth opportunities. Given its 32 per cent holding in Indian operator Bharti Airtel, SingTel was one of the supporters of Bharti’s move to acquire a stake in MTN.

But this expected wave of consolidation could catch the incumbent carriers on the back foot. “The operating environment is a threat to incumbents,” says Nick Jotischky, regional research manager for Africa at Informa Telecoms & Media. “There is much more competition, new players, alternative players such as MVNOs,” acknowledging the success of Oman’s first MVNOs Friendi and Renna, the former of which notched up 100,000 subscribers in its first three months of operation.

“These MVNOs have ambitions to become regional players,” says Jotischky. “They show that there are opportunities for players big and small to enter new markets as long as the business model is good. And the MVNO business model is of interest in Africa. There are huge opportunities as many regulators would like to see MVNOs in their market. So incumbents have to ask whether they are an opportunity or a threat, but if they are an opportunity then the carriers need to make sure they have a strong brand, a focus on an underserved market, good market reach and distribution and relevant content to make it a success.”

Chris Gabriel acknowledges that the rules of the game have changed, speaking of “a paradigm shift from customer numbers to customer value (share of wallet) and business models must adapt to optimising asset utilisation through right sizing, outsourcing and infrastructure sharing.”

The Zain Africa chief believes that collaboration between regulators, industry players, carriers and vendors is key to success in creating new products, services, ventures and partnerships, and the potential for future growth remains.

Indeed, a sign of the harsh operating environment facing African telecoms firms is the need for operators to manage their costs and maintain margins. Informa’s Jotischky notes that offsetting the ongoing fall in voice revenues is becoming central to operator strategies across the world. Not only are data services important as an income generator, but they are also useful as a customer retention tool. Investing in infrastructure to provide reliable data services to corporate and consumers will also be a focus of discussions.

“Those operators that adapt to the increased intensity of competition and the evolving role of communications will be best suited to surviving a dynamic but harsh operating environment,” says Jotischky.

In fact, there is a great deal that the African communications sector can teach the rest of the world’s telecoms markets. “There is great potential and value in emerging markets—relevant, affordable and localised products and services together with a lean optimised business model are key to creating value in low ARPU markets,” says Gabriel.

It has also been noted that the arrival of new undersea cables on the coasts of sub-Saharan Africa could foster the emergence of a new generation of data services – though the terrestrial networks also need to be extended if the potential of these cables is to be realised. Figures from Informa show that data revenues in Africa increased 13 per cent in the second quarter of 2009 to reach over $1bn. But we’re not talking about mobile broadband or YouTube here, it is clear that data services have to provide timely and relevant content and information to the region’s subscribers.

A good example of this is Safaricom’s m-pesa initiative in Kenya, which analysts agree has shown the way in mobile banking, as a revenue generator as well as a customer retention tool. Themba Khumalo, CEO of MTN Uganda, said that there is increased access to bandwidth in the country because of the landing of submarine cables such as EASSy on the continent. “Prices will come down so we will have to look at our own business model and price ourselves correctly. Data is a key area of concentration, we need to deliver value and great experience,” said Khumalo. “While we still need to maintain expensive connections from satellite for some time, customers will eventually see reduction in tariffs, as attractive pricing from other developed markets is coming in.”

But on the other hand, certain markets are likely to be much slower in adopting data services. Nagi Abboud, CEO of Atlantique Telecom, based in Cote d’Ivoire, said that most of his business is still based on voice. “The cost of data is still very high, and customers are not willing to pay,” he said. “But as more cables land prices will come down.”

Mobile broadband: A victim of its own success?

Global subscribers to mobile data services reached 186 million in 2008 largely thanks to the adoption of the iPhone and Android devices. But the impact has been on more than the top line as networks strive to reduce traffic and increase capacity.

Mobile broadband is fast becoming the key revenue driver for operators in mature markets, spurred on by the rapid adoption of data-hungry smartphones. But as data usage increases, so does network congestion, and key players have been found to be providing a sluggish user experience.

In the last couple of years the industry has experienced something of a perfect storm, with data friendly devices coming along in the shape of smartphones like the Apple iPhone, Google‘s Android and the Palm Pre; network technology such as HSPA providing enough throughput; and mobile internet access via dongles becoming affordable. As a result, global subscribers to mobile broadband services reached 186 million in 2008, and figures are set to soar by the end of 2009.

But this long awaited mass adoption of mobile data services has hit the network operators hard and at a time when further investment in infrastructure and operating expenditure is an unwelcome consideration.

A recent comment from Derek McManus, chief technology officer for O2 UK, which has seen the effects of this explosive adoption of data services first hand, as the exclusive carrier of the Apple iPhone in the UK for two years, puts this phenomenon in context. “Watching a YouTube video on a smartphone can use the same capacity on the network as sending 500,000 text messages simultaneously,” he said.

Moreover, this perfect storm of devices, throughout and affordability has brought about a sea change in the way consumers and businesses use their devices. “In the past 12 months the mobile industry has seen an unprecedented change in demand. The introduction of world-class devices, in combination with a wide variety of data applications, has brought about a dramatic change in customer behaviour and created an exponential demand on mobile data networks,” McManus said.

Towards the end of November, O2 UK announced plans build out 1,500 new network sites in 2010, in order to beef up capacity across the country. Over 200 new sites are planned for London alone, 40 of which will be live by Christmas 2009. McManus said the investment will cost hundreds of millions of pounds and follows a £500m investment over the last two years in order to meet fast growing demand for data services. A precursor to this investment and a move to reduce opex was seen earlier this year when O2 and Vodafone announced a pan-European network sharing agreement that in the UK will see both companies focus on joint building of new sites and the consolidation of existing 2G and 3G sites. (For more information on network and infrastructure sharing see our feature on p32.)

This hefty investment may come at just the right time. Recent research released by Informa Telecoms & Media and mobile internet platform provider Bytemobile highlights the effect of download speeds and file size on the mobile broadband user experience in the UK.

Informa tested the UK’s mobile broadband networks including O2, Vodafone, T Mobile, 3UK and Orange, and MVNO offerings from BT and Virgin Mobile between June and August of 2009. The research measured total webpage size and download time with Amazon, Facebook, Lycos, Orange, Starbucks and Informa’s homepages using two netbooks when networks were under the most strain across five locations in Greater London.

A selection of urban sites were chosen, including dense office locations during mid-morning hours and lunchtime, residential areas during evening hours and train stations during early morning hours. Netbooks were chosen in favour of notebooks since operators are now bundling them with mobile broadband connections. Moving forward, it is expected that this set up will be one which most users are likely to be using outdoors with a mobile broadband connection.

During the tests, T-Mobile, O2, BT and Vodafone—which all use optimisation software for their mobile broadband services—consistently showed a better performance when compared with the rest of UK operators, illustrating that optimisation plays an important role in reducing traffic and indirectly increasing capacity.

Measurements indicate that file size is significantly reduced when optimisation is used, without any noticeable difference in image quality from a user perspective. In several cases where static web pages were measured, file size reduction was as high as 45 per cent, indicating an effect similar to that of increasing radio capacity.

Informa discovered that the costs of delivering data and subscriber data consumption (including gaming and video) outweigh an operator’s ability to improve network infrastructure as two per cent of subscribers consume 50 per cent of network capacity. So how are operators going to address the influx and demand on data? Optimising through packet handing uncovers capacity constraints and compression is not the silver bullet as web content is complex; containing rich animated multimedia images as well as objects like Adobe Flash.

According to Informa, there are three choices available for operators: experience saturation; upgrade hardware at base station level; or deploy the cost efficiencies of optimisation without upgrading infrastructure. In this case, mobile broadband optimisation can cuts file sizes and create an increase in radio capacity, more space for new customers and an enhanced browsing experience without disrupting quality.

Access to an adequate mobile broadband service is also high on the government’s agenda. At the end of October the UK put into action plans to bring enhanced mobile broadband coverage to as much as 90 per cent of the country, following recommendations made by the Independent Spectrum Broker (ISB), Kip Meek, on how to make the best use of the country’s digital spectrum.

Meek’s proposals were welcomed by the government’s Digital Britain report, and will make available parts of the spectrum suitable for mobile broadband and 3G to offer more sophisticated services and applications. The plans also address mobile phone ‘not spots’ – coverage dead zones in some rural areas.

Commenting on the proposals, UK minister for Digital Britain, Stephen Timms said: “This package will free up the airwaves for the expansion of wireless and 3G services, increasing their reach to consumers and businesses across as much as 90 per cent of the country, including rural communities.”

African development continues apace

At the start of 2006 it was clear that the African market was making an appearance on the radars of international companies. The following three years have been characterised by increased investment into the African continent, and the telecommunications industry can be seen as the perfect showcase for this activity.

The prominence of this industry and the international attention it has garnered could be put down to the simple fact that it is critical to the broader industrial development of Africa. Without the enabling technology provided by the telecommunications sector, the ability of any industry segment to be a viable competitor on the world stage is severely curtailed.

In the past, the regulatory environment for communications in Africa has proved to be cause for concern as many governments adopted measures tantamount to protectionism. This trend has changed dramatically as the benefits of ensuring an open market have been proved time and time again. In some cases, the other extreme is true and regulators allowed too many operators into the market as they enjoyed the financial gains earned from pricey license fees. This practice is now less common, although it is still something to be monitored. The greatest challenge resulting from this trend is the lack of available spectrum for operators. This has occurred in markets such as Ghana, Nigeria, Tanzania and the Democratic Republic of Congo. Operators, regulators and infrastructure providers alike are now challenged to overcome this issue.

The implementation of international best practice in terms of regulation continues to gain momentum and most operators have started the process of change in their respective markets. Importantly, this is true of the satellite market as well and there are a number of regional agencies working together to achieve the harmonisation of regulatory frameworks. This example is being followed at a national level by various regulators and there are hopes that the entire process will be almost complete by 2015, in line with the Millennium Development Goals.

Improved regulation has paved the way for the progress made in the various undersea cables destined to bring the African continent closer to the rest of the world. A shining example of the promise of these cables is the SEACOM project, which was completed earlier this year. The landing of the cable in countries such as South Africa, Tanzania and Kenya was watched from a global stage and the success of this project shows what is possible when the true spirit of international cooperation is followed.

This is just the first of many cable projects underway for Africa. Angola has a noteworthy project that will connect six of the country’s coastal provinces and the length of the west coast of Africa is to be serviced by two additional cable projects. These cables are not only to support the existing SAT3 cable (which was recently upgraded), but are destined to eventually replace the aging infrastructure, which has a lifespan of about fifteen years.  The Uhurunet and Cable One projects are examples of this. The much publicized EASSy cable looks set to reach conclusion in 2010 or 2011 and the TEAMS cable is also expected to make landing during this period.

While the significance of these cables cannot be underestimated, it is very important to emphasise the greater importance of ensuring that there is sufficient terrestrial infrastructure in place. This is the only way to realise the full potential of the additional bandwidth capacity brought to bear by the undersea cables. At present this is lacking in most of the African continent and there are various reasons for this. One of the most important is the fact that governments are faced with other resourcing priorities, such as education, sanitation and healthcare (although there is growing recognition that effective telecommunications would be of significant help to these sectors). This leaves the telecommunications industry a little way behind in attracting government investment. The current high cost of project finance is another obstacle, as is a lack of project management expertise necessary for the successful completion of these projects.

Whilst there is greater momentum towards completing these projects, they are definitely still a work in progress and additional emphasis is required to ensure their completion. Innovative partnerships between the public and private sector are only one example of how African companies and countries are addressing this challenge.

Partnerships, strategic alliances and merger and acquisition activity have been making headlines this year. The most notable event in this regard was the unbundling of Vodacom shares by Telkom and the listing of this company on the Johannesburg Stock Exchange as Vodafone increased its shareholding in the African operator to 65%. Vodacom’s listing was a great success and despite some operational hiccups in the form of the decision to pull out of the DRC and an inability to reach CAPEX goals, the company looks in fine form.

MTN is another Pan-African operator which continues to capture news headlines. The talk of a possible merger between the operator and India’s Bharti Airtel was a global news story for many months. Although the deal failed to materialise, this type of negotiation serves to demonstrate the increased international interest in the African continent and the synergies that exist between emerging market operators.

Other examples of international interest in the telecommunications market in Africa include the increased investment by France Telecom. It has a direct stake in a national operator and is also present in more than ten African countries through its Orange subsidiary. Frost & Sullivan expects this level of interest to continue to grow.  Vodafone is likely to expand its presence on the continent with direct investment and Vodacom’s footprint expansion will be worth watching.

The market looks set to continue its development well into 2010 as the FIFA World Cup comes to South Africa. The tournament is expected to have an incredible impact on the continent and this is just the first of many landmark developments that are expected to touch the continent in the next five years. While the past five years have provided unprecedented levels of exciting developments, Frost & Sullivan expects this is only the beginning, as the market will truly take off in the next five years.

Tower sharing offers opportunities for emerging markets

While the large operators in Western Europe like Telefonica or Vodafone have instigated advanced active infrastructure sharing and outsourcing, telecom operators in developing markets are now beginning to look into alliances that would help relieve them of heavy costs and speed their expansion into rural areas.

Network infrastructure sharing and outsourcing is finding strong acceptance with mobile operators around the world as an effective way to cut down coverage costs, while reducing the time-to-market. These initiatives have already seen significant traction in India, and are poised to make their impact felt in the Middle East and Africa (MEA).

Operators across the world, especially those in developing markets, face challenges in sustaining margins with declining ARPU. Population distribution patterns in developing markets complicate the situation since access to telecom services varies significantly between urban and rural areas leaving operators in these countries to balance the cost of operations in congested and saturated urban setups with the costs of new network rollouts in other areas. In this context, tower sharing offers a compelling proposition.

In a whitepaper entitled Mobile Tower Sharing and Outsourcing: Benefits and Challenges for Developing Market Operators, Romain Delavenne, director of Capgemini’s telecoms, media and entertainment consulting practice in the Middle East, reveals that towers constitute almost 50 per cent of the total capital expenditure (CAPEX) for an operator. Yet while many operators in developed markets have moved on to sharing both active and passive network elements to save costs, in emerging markets with low penetration levels, operators are faced with the dual challenge of maintaining margins, while ensuring rapid rollout to keep pace with the growth in subscriber numbers.

Capgemini’s estimates indicate that tower sharing could help operators in India and the Middle East achieve total savings of $4bn and $8b respectively in the next five years, with such savings resulting from the benefits of having reduced CAPEX and operating expenditure (OPEX).

Tower sharing has largely been an operator-led initiative in most developing markets, however regulators have also played a significant part in ensuring uptake of tower sharing initiatives. Tower sharing prevents the proliferation of masts thereby reducing the environmental and visual impact of operator networks especially in urban and ecologically sensitive areas. Tower sharing also helps in spurring competition due to a reduction of entry barrier for new operators. More importantly, from a regulatory perspective the pooling of tower infrastructure helps operators expand into rural markets achieving the objectives of universal coverage, while ensuring that operators do not incur significant CAPEX in doing so.

Operating costs associated with the running and maintenance of tower infrastructure, like diesel generators, air-conditioning equipment, and security and site rentals, form a significant portion (nearly 60 per cent) of operator OPEX. These costs are compounded in rural areas due to limited infrastructure facilities such as roads and a steady supply of electricity. For instance, in India the operational costs per tower have been estimated by analysts to increase by up to 20 per cent in remote inaccessible terrain.

For incumbent operators, sharing their existing tower assets helps in reducing the cost of network operations significantly. For instance, in the MEA region, it is estimated that tower sharing with a tenancy ratio of two would enable operators to achieve an annual tower OPEX reduction of 12-15 per cent resulting in savings of $1bn.

In most developing markets, incumbents continue to expand their networks to reach out to rural areas and improve coverage in dense urban pockets. Tower sharing benefits operators in achieving cost effective market coverage by helping reduce cost duplication. For example, in MEA, it has been estimated that an additional 100,000 towers would be required to extend reach in the next five years, a growth of over 50 per cent from current figures. Tower sharing could achieve potential savings of $8bn in that period.

Establishing a separate tower company helps incumbents to unlock the inherent value of their physical infrastructure. Forming independent tower companies that attract additional tenants can aid operators to generate additional revenues, thereby creating value from an otherwise depreciating asset. With incremental operating costs being low, additional tenants on towers lead to very high margins. In developing markets the tenancy ratio per tower ranges between 1.1 and 1.3 compared to 2.2 -3.0 in developed markets such as the US12. Capgemini’s estimates indicate that a typical breakeven tenancy ratio per tower site in developing markets of Asia, Middle East and Africa is 1.5.

For new entrants the installation of cell sites is an expensive, complicated and labour-intensive process as there are a number of municipal clearances and government approvals required. For greenfield operators, partnerships in the form of joint ventures and sharing agreements with incumbent operators and tower companies are particularly attractive as they help reduce time to market significantly. For a mobile operator, more than 60 per cent of the total network rollout cost is accounted for by towers and accompanying infrastructure. For a new entrant, this translates into a significant financial burden which tower sharing and outsourcing helps to alleviate. According to analyst estimates, tower sharing can reduce overall cost of ownership after accounting for the tower lease costs, by 16 to 23 per cent.

Capgemini concludes that tower sharing and outsourcing have a significant role to play in developing markets in order to promote universal telecommunication access and especially so, given the background of the global economic turmoil which has affected investment pipelines. For incumbents, new entrants and regulators in developing markets, tower sharing and outsourcing models offer growth paths to service expansion and enhanced subscriber penetration. However, tower sharing brings in its wake numerous challenges. Operators and independent tower companies need to clearly identify the path most suitable to their needs to avoid the pitfalls and realize the potential benefits.

If they build it, will they come?

Acclaimed travel writer Bill Bryson once remarked: “We used to build civilizations. Now we build shopping malls.” In 2009, that observation became a theme for the mobile space. Mobile platform developers, handset manufacturers and operators alike have unanimously moved on from building up their developer communities and have switched their focus to opening virtual marketplaces in a bid to tap into a promising revenue stream.

Since Apple ignited the app store revolution in mid-2008 with the opening of its own, aptly named, App Store, both rivals and partners have been falling over themselves in the hope of replicating the firm’s success in the space. In July, Apple said that iPhone users had racked up more than 1.5 billion application downloads in the first year since launch. Apple’s storefront now boasts more than 65,000 apps available to consumers in 77 countries and more than 100,000 developers in the iPhone Developer Program.

These are big numbers, and they’ve been duly noted by other players in the industry. But Apple has capitalised on the ‘vertical stovepipe’ model it uses to lock down its revenues and is still the only firm to really drive home the app store concept via its marketing and advertising campaigns.

Without the same level of control over both the hardware and software, some of the other app storekeepers are facing a challenge in the form of market fragmentation. When asked why the Symbian Foundation didn’t open its own store, instead opting to let Symbian developers pitch their apps to the numerous operator or vendor run initiatives, Laura Merling, acting head of developer programmes says: “We don’t want to compete with our members. We want to bring them value and grow the ecosystem. Most consumers don’t know they have Symbian on their phone. They know which vendor made their phone, and they know their carrier. It’s not like Apple, which is all in one,” Merling says.

“But as soon as it starts getting out on other devices, then you’ll have the same fragmentation issues. So those different apps are going to be in different stores again. It fragments distribution. We don’t want another store. We want to help the developers and the stores to get more apps in the stores.”

To date, Nokia’s Ovi has been the de facto store for Symbian apps—at least in publicity terms. But this is probably down to the Finnish firm’s historical affiliation with the platform and there’s nothing to rule out other handset vendors or operators building their own app stores around Symbian offerings. The Foundation certainly hopes so and wants to be there to help them with that process. Other shop fronts that feature Symbian goods are the Samsung Application Store and US carrier AT&T’s Media Mall.

“Look at Ovi, they’ve said ‘here’s the type of apps we want in our store, if you can help us find those and help us supply those’,” Merling says. “The great part is we can go to the developer community and tell them these are the top types of apps companies are seeking for their stores. Some might focus on entertainment, others on media, or utilities. They might not have focused on local search and local discovery. Every app store has its things that it’s missing and we can act as a facilitator of that on a broader scale,” she adds.

Key to this approach is an efficient publishing platform for applications, which for Symbian is Horizon – an initiative described by programme leader Sean Puckrin as “equivalent to a record label in the music business”. The aim of Horizon is to offer a range of services to developers to help them get Symbian-friendly versions of their applications into various stores, thus lowering the cost of distribution.

“What we’ve looked at is two areas in which Symbian could help the broader ecosystem,” Merling explains. “One of them is starting with the processing of apps. If you think about a developer, the market for Symbian is pretty fragmented. There are 25 different stores that you might deploy your app into to get distribution. With the Apple iPhone there’s just one store. So how do you get enough apps in the store if you’re the store owner—and, if you’re the developer, do you want to choose one store over another? You want the broadest distribution, so you want to be in all of them. But there are time and money costs associated with that. So our goal with the Horizon platform is an app publishing platform. The goal is to minimise the cost to the developer for getting distribution.”

For the likes of Apple, this isn’t an issue. The company benefits from an almost fanatical developer base and, along with Research In Motion (RIM), Microsoft and Palm, a single channel to market. Android, the mobile OS venture backed by Google and the Open Handset Alliance (OHA), differs slightly from this crowd due to the fact that it has a single app store—Android Market—but it also has strong operator backing because of its open and accommodating attitude towards the carrier community. As a result, operators are able to take more control of the applications their users are downloading and offer Android-based applications through their own app stores.

However, there is a common issue that crops up time and time again, affecting the closed distribution models as much as it affects the open ones. How much control should the operating system developers exercise over the application vetting process?

Apple’s vetting process for applications, at times seemingly random, has caused plenty of controversy, with a number of applications bouncing in and out of the app store like yo-yos as Apple apparently vacillates over their validity. Developers have complained that Apple has been less than forthcoming with explanations as to why certain apps have been removed, but some commentators believe operator partners have had a word in Apple’s ear about certain applications, such as VoIP apps or those that allow tethering, which they don’t want running on their networks.

Conversely, Android has caught flak for being too lax in its own vetting policies which, when the Android Market first opened its doors in 2008, resulted in a certain amount of malware or virus-infected applications being released through the official channel. Then again, Android has also pulled applications from its own storefront after carriers complained they violated certain terms and conditions. Once again, VoIP was a common culprit.

It’s still early days for many of the other app stores. RIM only recently showed off its BlackBerry Widget Software Development Kit (SDK), a suite of tools allowing third party application developers to build rich, web-based applications for BlackBerry handsets, and Palm will officially open the doors to its Palm webOS developer programme in December. Meanwhile Microsoft has already drawn its line in the sand, releasing a list of what it will and won’t allow Windows mobile applications sold in its store to do, when it launches in the fourth quarter of this year.

But the lack of consistency and regulation in this nascent market has already caught the attention of the authorities. The US Federal Communications Commission recently took its first look into the business, having sent letters to Apple, its US carrier partner AT&T and Google asking for answers as to why Apple blocked Google’s VoIP application, which enables AT&T subscribers to make free voice calls.

That particular case is ongoing and its outcome will likely set a precedent for the rest of the industry. Not least because it has the potential to exacerbate the bottleneck problem likely to arise from the application inspection process as app stores rise in popularity. Screening each and every application to be made available for a certain platform is a timely process as well as an expensive one – more so for fragmented platforms like Symbian and Linux – and for developers who depend on getting their wares into the market as soon as they’re released time is indeed of the essence.

“Every store does its own signing and testing – these things that every store has to do, but the reality is that a huge chunk of it is similar across all the stores,” says Symbian’s Merling. “So if the Foundation can act as a moderator—the place that all Symbian apps get processed—we become the testing ground, create a set of tools that let people create device independent apps and test them for them, approve them and get the distribution. A moderator which removes that cost from them in terms of managing that store; we see that as a big opportunity.”

The big test will be whether the storekeepers can assess and improve each application submitted in an efficient and fair manner, giving adequate feedback to application developers. When Verizon recently launched its developer community initiative (VDC), giving developers who have created apps for platforms such as Java, BREW, Android, Windows Mobile and others the opportunity to submit their creations for deployment in the company’s soon to be launched app store it promised a streamlined testing and certification process with the goal of having apps approved within 14 days of submission.

“The large number of platforms makes developing applications to work on a number of devices very expensive,” says Pascal Thomas, vice president of digital innovation and communities at Orange. So it might be that to combat fragmentation expenses, developers choose a single platform and stick to it, in which case it won’t necessarily be the biggest, but the most customer relevant shopping mall that provides the biggest pull. Then again, in order to maximise potential revenues, developers will need to get their goods into as many stores as possible, which will mean addressing fragmentation itself, both on the same platform and across different platforms. In this case, perhaps the industry needs to adopt a standards-based approach. “The industry needs to work together to develop some rules to gather developers together so we can have success like the Apple’s app store has had success,” Thomas adds.