Mobile Broadband in 2009: 'Credit Crunch' and 'Capacity Crunch' demand new business models
In a previous article for Telco 2.0, Dean Bubley of Disruptive Analysis discussed the likely slow adoption of embedded-3G laptops. Now, having published the full report on Mobile Broadband Computing, he examines what happens when huge long-term potential market growth clashes with more short-term business model challenges.
2008 has been a banner year for mobile broadband computing. It is already one of the most successful new service areas for wireless operators. In parallel with their well-publicised adoption of smartphones, business and consumer users have also demonstrated a huge appetite for mobile Internet access on laptops.
The picture varies significantly by region and country - in the US, wireless carriers have largely kept focus on the business user marketplace, with monthly price plans typically at $60 and above. Elsewhere, various countries in Europe and Asia have seen the mass consumer market targeted, with tariffs dropping to $15 and below. Among the brightest spots in terms of uptake have been Austria, Singapore, Sweden, the UK, Australia and Portugal. 3G dongles have been a huge success in retail channels, representing easy-to-understand propositions for both customers and sales staff.
But despite this growth, some of the short-term optimism is unjustified.
Above all, the global economy faces a vicious downturn in 2009, which will impact notebook and "gadget" sales. The debate about embedded vs. non-embedded becomes moot if nobody is buying anything. The recession will make customers and OEMs cautious, spendthrift and slow to make decisions. It will focus minds on inventories and margins. It will make distribution channels fragile and prone to cashflow problems.
Moreover, it will also impact the telecoms operators. CFOs will look to delay capex on network upgrades. Investors will look nervously at profitability metrics and encourage management to be wary of customer acquisition costs. There will be other constraints, like a lack of easy supply of cheap debt to fund spectrum purchases and large-scale deployments of new technology. There may be a fear that device subsidy (especially on laptops) starts to look like a cheap and therefore risky alternative to consumer credit.
These are not the fault of the mobile broadband industry - they are largely external, and beyond its control. The glass may turn out to be half-full, with strong recovery in 2010, but it is nevertheless prudent to call it as half-empty, based on current trends.
In addition to economic problems, Disruptive Analysis also believes that some of the mobile broadband business model assumptions have serious flaws.
Although the market for datacards and dongles has grown up on long-term, monthly contract subscriptions for data usage, there is a natural limit to this. Many consumers will not want an additional monthly commitment - especially if they already use cheap prepaid models for their cellphones. WiFi has gained mass adoption mostly through session-based, free or "sponsored" use in homes, offices and hotspots, not through subscriptions. Mobile broadband must adopt similarly flexible models.
At the same time, some operators' marketing teams have become over-zealous about competing with fixed broadband. In some markets, HSDPA is now cheaper than ADSL/cable. This is unsustainable, as the cost structures differ hugely. There are physical limits to the capacity of mobile data networks, which will rapidly be reached with the explosion of low-cost traffic. Some cellular networks now see more than 90% of 3G traffic from PCs.
Mobile operators are hoping that their customers only use a fraction of their allocated 3GB or 10GB monthly caps. But that means that they are now hostage to future high-bandwidth Internet applications gaining viral adoption among mobile users. And where they are pitching HSPA or EVDO as a straight alternative to fixed home broadband, they also geared into the ever-rising amount of video traffic consumed by people sitting on their sofas, from YouTube, iPlayer, Hulu and social network sites.
The popularity of flatrate data plans and cheap HSDPA modems has accelerated the market to reach 35 million subscribers worldwide at the end of 2008, more than doubling in a year. New innovations like "free" subsidised netbooks, perhaps sold through mobile carriers' channels, are driving expectations of a continued explosion in 2009 and 2010. Looking further out, over 340 million users of mobile-enhanced notebooks, netbooks and new, smaller "MIDs" (Mobile Internet Devices) are expected by 2014.
Disruptive Analysis identifies a significant risk. The impact of the recession and "credit crunch" on customers, vendors and operators will coincide with a "capacity crunch" as networks become congested by cheap mobile data traffic. The combined effect of price erosion, sudden traffic increases and capex constraints on upgrades does not bode well.
One outcome will be a shift to new business models for mobile broadband. As well as revised prices and bandwidth caps, and a reversal of ADSL/cable replacement marketing strategies, Disruptive Analysis expects to see new payment mechanisms emerge, including:
- Prepay ("pay as you go") accounts are already popular in some markets and this will increase.
- Session-based access, similar to the familiar WiFi hotspot model.
- Bundling of mobile broadband with other services, for example as an adjunct to fixed broadband or mobile voice services.
- Free, guest or "sponsored" mobile broadband, paid for by venue owners or event organisers.
- "Comes with data included" models, where the upfront device purchase price includes connectivity, perhaps for a year.
- Two-sided business models, with mobile access subsidised by "upstream" parties like advertisers or governments, rather than direct end-user payment.
Transition to these models will not be easy. There are question marks about the convenience of using physical SIM cards, especially for temporary access. Distribution, billing and support models will need re-evaluation. Definitions and metrics will need reevaluation. Terms like ARPU and "subscription" will have less relevance as conventional "subscribers" drop to 40% of the overall MBC user base. Operators and vendors need to face up to these challenges as soon as possible.
Overall, Disruptive Analysis believes that Mobile Broadband will continue to thrive in the medium term. But 2009 might not be quite as euphoric for market participants as 2008 as been.
(All this ignores some of the more apocalyptic scenarios proposed for the recession - but if we really are facing the "End of Days" or a rerun of the Fall of Rome AD479, we'll all have better things to worry about than dongles).
For more details on the Disruptive Analysis report on Mobile Broadband Computing, please click here.