Embedded Broadband on the Verge
Just as dongles swept datacards before them, embedded chipsets for broadband connectivity are about to sweep dongles away. The Telco 2.0 team believe that eventually they will become as ubiquitous as WiFi connectivity is in today's generation of laptops.
We can see the beginnings of a classic virtuous circle:
- for laptop manufacturers, who potentially sell more products in a shorter replacement cycle;
- for embedded chipset manufacturers, especially Qualcomm & Ericsson, who sell more product and indirectly create extra demand for their network equipment;
- for mobile operators who develop and sell more connections and therefore gain more service revenue; and
- users are offered ease of use and the potential to connect to any network where there is coverage - and the ability to change network over the approximate current 3-year lifespan of the laptop.
As production volumes increase silicon economics and miniaturisation will kick-in thereby opening up the market for a whole new series of devices with broadband data connectivity. In developed economies penetration of mobile device will shoot up towards the Verizon Wireless target of 400%.
However, challenges exist for mobile operators to develop an appropriate business model that not only provides a decent return for shareholders but also avoid the mistakes of the fixed broadband market.
In particular, whilst it's OK to be a dumb pipe, it's not OK to be a undifferentiated dump pipe where costs and revenue incentives are misaligned, and where there are no value-added upsell opportunities. Here's how to think about it:
Archetypical Silicon Shrinkage
Space within the modern laptop is rather limited and previous generations of mobile connectivity have plugged into external output ports, whether PCMCIA or USB. The new generation of embedded connectivity chipsets come in the form of a standard mini-PCI card which slips into one of the two slots on a standard laptop motherboard -- the other typically being taken by the WiFi card. The card is connected to an antenna which fits into the screen. This is important as the antenna is designed to minimise interference and is a big improvement on antennas in datacards and dongles.
The market leading modem chipsets from Ericsson and Qualcomm, both offer support for the full range of the 3GPP HSPA standards, as well as backwards compatibility with the old GPRS standards. Qualcomm additionally offer support for the 3GPP2 EV-DO standards which offers more network choice in the critical USA and Japanese markets. An international businessman can now buy a laptop which has the capability of connectivity at decent speeds in all the major world cities.
Connectivity and Authentication - made easy
An additional feature of the chipsets is that the modem software is now an image on the laptop - this means that the connectivity function can eventually be integrated into the operating system to simplify the whole connection process for the user and operator. This replicates the evolution of WiFi connectivity.
A SIM card is used for authentication and typically placed behind the battery. Operators face a challenge to develop a whole new range of roaming agreements to make connection to any network anywhere in the world simple and integrated into billing services. Most road warriors hate having to dig out their credit card for an hour of internet use. We've been impressed by services such as Boingo, where you open your laptop in the airport and it automagically works.
Embedded chipsets are currently more expensive than dongles and are targeted at high-end laptop models. The recent deal with Vodafone & Dell to put the Ericsson chipset in the lower end Inspirion Mini-9 netbook highlights that mass market adoption is not far away. Operators are starting to sell laptops on a monthly payment plan with connectivity included - this can only accelerate adoption.
The worldwide market for laptops is around 200m units and we estimate that by 2010 around 50% will have embedded chipsets. As production volumes increase, silicon economics will kick-in and pricing will drop eventually making broadband connectivity a standard feature.
Moving into 'Mobile Internet Devices' (MIDs)
Today all sorts of devices offer some type of connectivity, for example:
- Dedicated music players (eg Zune - Wifi),
- Book Readers (eg Kindle - EV-DO); and
- Navigation Devices (eg Tomtom with Bluetooth to handsets)
In another couple of evolutions of broadband chipset development, it is not beyond the realms of possibility to see a whole new class of devices connected to operator networks. Again, increased volumes will bring down prices.
This was one of the original promises for WiMAX networks - embedded 3G chipsets will put a heavy dent on the business case for WiMAX and probably be available before the WiMAX networks have decent coverage in most countries.
M2M - Rise of the Machines
Another couple of evolutions on - with further shrinkage of both form factor and price - and the machine-to-machine market will be open for everyday lower cost devices.
Assuming a development lifecycle of 18 months, this new mass market will only be six years away. It is not difficult to paint of picture of a future where within a decade mobile penetration hits 400%.
GPS - Yet to find its direction
Both the Qualcomm and Ericsson chipset offer GPS functionality as standard. Personally, we've never been satisfied with standard GPS which only seems to work outdoors. The Ericsson chipset also includes A-GPS which potentially offers a much better experience, but is not available on all networks. GPS is an important feature but currently doesn't have the ecosystem of applications which makes it really useful to the end-user.
Business Model Challenges
The biggest challenge for operators is building business models to support this future.
The most obvious pitfalls to avoid are the marketing of mobile broadband access as either "free" or "unlimited". Data traffic is already exceeding voice traffic on some European networks, although data access revenues are still a rounding error in overall revenues. It will be difficult to resist the temptation of unsustainable pricing in the forthcoming land grab.
The false assumption is that all this data needs to be sold to the end user directly in a bundled all-you-can-eat ISP plan. Instead, as well as retail, a rich wholesale market will need to emerge. Increasingly you will subscribe to services that are available across a range of connectivity options and devices, and come with "postage and packing" included. A mapping application that sucks up roaming data at £7.50/Mb could easily cost you more than hiring your holiday rental car -- or even the whole car!
The key here is to offer services beyond pure connectivity. Standard two-sided offerings, such as authentication, billing, customer care, are obvious value adds.
With the right business models, the future mobile data world is bright -- and becoming closer every day.
For those people wanting to find out more, our friends over at TelecomTV have conducted a very interesting interview with Ben Timmons of Qualcomm: