Spotlight on Asia - The key analyst takeaways from last week's GSMA Mobile Asia Congress in Hong Kong

Operators begin move to LTE; next challenge – voice!

Asia may have missed out to Europe on becoming the world’s first commercial LTE region, but this year’s event provided evidence that the continent’s operators are now firmly behind the next-generation technology. Forecasts from GSMA Intelligence at the beginning of the week helped set the tone, predicting that the number of LTE connections in Asia Pacific will exceed 120 million by 2015, spearheaded by China. GSMA Intelligence noted that Japan will lead the way in LTE initially, with NTT Docomo planning to launch its LTE service, branded Xi, in December this year. In addition SoftBank Mobile and EMOBILE are both planning on launching LTE services in 2011 and 2012 respectively, expanding their HSPA+ networks in the meantime, while SingTel is currently trialling LTE in four markets as part of a plan to establish a “regionally compatible LTE network” across its Asia Pacific footprint. Elsewhere it was local operator CSL that made headlines on the first morning, with CEO Joseph O’Konek claiming its LTE network is “being rolled out as we speak” and will launch by year-end. "For the first time in 30 years the industry has a global standard," he proclaimed. "You will feel the difference on LTE; now we have the bandwidth we can finally offer all those things we’ve been talking about for years." In total, 38 LTE networks are currently being planned across Asia Pacific. GSMA Intelligence suggested this figure would be higher still if governments in the Asia Pacific region all agree to harmonise the 700MHz band for mobile broadband/LTE deployment.

Meanwhile, industry momentum behind the switch from WiMAX to LTE continued at the event, with Russian operator Yota spreading the word that it aims to have made the technology switch in the vast majority of its markets by the end of 2013 and is currently on the hunt for network equipment vendors to do the job. With WiMAX operators deploying networks in TDD spectrum, and most LTE rollouts expected to occur in the FDD band, vendor ZTE talked up its ability to offer a “converged TDD/FDD solution,” appearing to answer the call of China Mobile at last year’s show. Other issues surrounding the move to LTE focused on the rather obvious – but technically challenging – need to enable voice services via the new technology. The Voice over LTE (VoLTE) initiative – championed at the GSMA Mobile World Congress earlier this year – appears to be making solid progress, with claims of more than 80 operator and vendor participants. CSL and partner ZTE demoed a VoLTE client at the show over a test LTE network. It’s clear though that not all operators will jump straight into VoLTE; Japanese operator KDDI said it is working on integrating LTE with its existing 2G/3G CDMA-based networks. But KDDI will initially use Circuit Switched Fallback (CSFB) technology for voice services on the new network, using VoLTE only in limited instances. “Our thinking is that we already have CDMA2000 1x and EV-DO networks nationwide so we want to use this existing network, hence going with a CSFB system,” said president and chairman, Tadashi Onodera. VoLTE proponents will be hoping that other operators do not follow KDDI’s strategy.

LTE alone will not be enough to ease the ‘Capacity Crunch’

No presentation at Congress appeared to be complete without a slide featuring a 'hockey stick' graph predicting unprecedented growth in mobile data traffic over the next few years. Alcatel-Lucent, for example, forecast a “conservative” 16-fold increase in mobile data traffic to 2015, but warned that it could grow as high as 40 times today’s levels. For those investing in next-generation networks to support new bandwidth-heavy mobile services, there was a feeling that even widespread deployment of LTE networks would not be sufficient to meet demand. This was a theme taken up by Tadashi Onodera, president of KDDI, who said the operator was planning to deploy LTE alongside a number of other technologies, including Wi-Fi, WiMAX, eMBMS [the broadcast technology] and its current CDMA-based networks and cable TV assets. In Asia, perhaps unsurprisingly, it is highly-advanced markets such as Japan and South Korea where the so-called ‘capacity crunch’ problem is most acute. KDDI’s strategy of supporting LTE with other technologies such as Wi-Fi echoes similar comments from rival Japanese operator SoftBank at last year's Congress. Meanwhile, South Korea’s SK noted this year that it has developed a concept known as ‘Stealth Wi-Fi’ aimed at integrating Wi-Fi technology into its mobile networks to improve data speeds. By re-using its existing 3G infrastructure with Wi-Fi, SK says it has achieved a 48 percent saving per cell site. But solutions to the capacity crunch should not just be about adding capacity. Alcatel-Lucent’s Asia president Rajeev Singh-Molares told delegates that mobile data growth would not be “uniform”, with different types of devices and applications making different demands on the network, noting that network intelligence should be deployed to indentify the best ways of handling traffic depending on the device and user. Although the dreaded capacity crunch loomed large over this year’s event, there was an upside: mobile data services are now generating significant revenue. This was highlighted by Docomo president Ryuji Yamada, who said that the Japanese operator was on track to generate higher revenues from data than voice within its current fiscal year, and that rising data revenue would see the firm reverse its declining ARPU trend within two years.

Big guns out to support mobile apps

China Mobile and China Unicom were the heavy-hitters using the event to talk-up their application store strategies, with both becoming more active in recent weeks and months. Certainly the pair have scale on their side when it comes to wooing the developer community: China Mobile’s subscriber base has passed the 575 million mark, while Unicom has more than 160 million customers. While Unicom is the smaller of the two, and has taken a more measured approach to mobile apps, this should not be interpreted as a lack of ambition. The company is looking to offer products to customers beyond its own customer base, as well as leveraging its strength in providing services to its own subscribers, and has set aggressive growth targets for the next few years. Across-the-board, it was noted that having an appealing app portfolio is key to attracting and retaining customers, and to deliver this a deep engagement with the developer community is vital. Fighting hard to steal the limelight was news from the Wholesale Applications Community (WAC), including its alignment with the GSMA’s OneAPI initiative to enable developers to access data from the operator network. The use of network APIs was highlighted as a path for developers to unlock additional revenue and create more feature-rich products, although it was also noted that this is unlikely to be commonplace until the whole process becomes easier – which OneAPI is intended to enable. With Sharp and Sony Ericsson now supporting WAC alongside Samsung, LG, Huawei and ZTE, there is certainly the potential for a wide range of devices to support WAC apps, although there are still notable absences – Nokia, for example – and there is a long way between pledging support for a technology and actual products reaching real customers. WAC was certainly generating a lot of interest from operators, but due to the currently unproven nature of the proposition, most stopped some way short of a wholehearted endorsement. Certainly the economies of scale that it can deliver was welcomed by some of the smaller operators in the region, as a way of providing a portfolio that will enable them to compete with their larger international rivals. There is also an intention to continue support for vendor and platform stores such as Android Market and Nokia’s Ovi Store, in order to benefit from the breadth of the products that these can deliver.

Asian companies have heads in the cloud

For the first time, cloud computing was a core focus at the show, with operators and vendors agreed that the sector will be a key growth driver for mobile in the next few years. The event came only a week after the formation of the Asia Cloud Computing Association – which touts members such as Alcatel-Lucent, Cisco, Microsoft, NSN, Telenor and Verizon – and keynote speakers at the show appeared determine to hammer home the benefits of the mobile cloud. Peter Chou, CEO of fast-rising smartphone vendor HTC, claimed that his firm is embracing cloud computing as a way to expand the power and functionality of its smart devices. "Cloud computing will play a critical role in the smartphone experience," said Chou. "As the mobile becomes more powerful we can’t store everything on the device; we need the cloud." Chou pointed to the launch of HTC's new service HTCSense.com as an example of how its smartphones can leverage the power of cloud computing. The service – launched last month – allows users of HTC's Android-based smartphones to manage smartphone data such as messaging on a regular website. "HTCSense.com is about the connected service experience, linking the phone to the cloud," said Chou. Meanwhile, Hyun-Myung Pyo, President of the Mobile Business Group at Korean operator KT, argued that carriers are well placed to benefit from cloud computing given their infrastructure and service assets. Elsewhere, Ryuji Yamada, president and CEO of NTT Docomo, claimed that LTE technology will be a catalyst for the success of cloud computing services. HTC’s comments in particular follow previous efforts by other smartphone companies to jump on the cloud bandwagon, especially for media services. Hewlett-Packard executives hinted in September that HP will deliver a cloud-based streaming music service to its Palm webOS smartphones, while Google has also suggested it will add a streaming music service to Android.

Squeezing a profit from emerging markets

Always of interest at the Asian event is the contrast between the region’s highly-developed markets and fast-growing emerging markets, though Bharti CEO Sanjay Kapoor told delegates that this distinction was “really shrinking” as less developed economies made the leap to 3G and 4G technologies. The Indian-based operator presented itself as the benchmark for success in low-value, high-growth markets, noting how it was in the process of replicating its hugely-successful outsourcing and “minute factory” model deployed in India across its recently-acquired African footprint and elsewhere. Economies of scale, noted Kapoor, were the key to squeezing a profit from the tiniest of margins. Speaking on the same platform, Telenor – which is in markets such as India, Pakistan, Bangladesh and Thailand - appeared to take a slightly different approach, arguing that it was important that it maintained a localised view of the emerging markets where it was active. “In every market where we operate, the customer is different,” said Sigve Brekke, head of Telenor Asia, noting that the Norwegian firm was not looking to deploy a common operating platform across its Asia footprint. But even in these low-value markets, the mobile data revolution is still taking place. This was outlined by Nicky Santiago, CMO at Indonesia’s XL Axiata, who described how the operator was driving mobile data services despite operating in a fragmented devices market where smartphone penetration is just 2.5 percent. He noted that over 50 percent of its customer base used mobile Internet on the back of a storefront that is able to deliver highly personalised content to individual users. Elsewhere at the event, executives from Vodafone and Telenor Pakistan outlined how they were expanding their hugely-successful mobile money transfer products (M-PESA and easypaisa, respectively) to include new services such as saving accounts, micro credit lending, insurance and international remittances. While Vodafone’s head of mobile payment solutions, Greg Reeve, said that existing services were primarily about creating “stickiness” with consumers rather than generating revenue, the expansion of mobile money services into new areas has the potential to be a lucrative new source of income for emerging market operators. Telenor, for example, is targeting 10 percent of its Pakistan revenues to come from easypaisa in three years time, up from just 0.4 percent today.

Exploring embedded as a future growth driver

Many of the operators attending the show had (unsurprisingly) similar views of the industry, and the potential sources of future growth, as markets that were recently categorised as “emerging” begin to reach saturation point. One of the areas where there is a shared confidence is the machine-to-machine (M2M) sector, where APAC operators are echoing the optimism of their counterparts in other global markets. A previously cited number of 50 billion M2M connections by 2020 was reiterated several times, with forecasts that M2M connections will outstrip human-to-human accounts by a factor of 30. With M2M currently on the edge of a commercial explosion, much of the attention was focused on future-proofing investments to support the evolving nature of the mobile industry, and there were warnings that operators may not have done enough groundwork to deliver success in what is still a largely unproven market – with many potential customers still needing to be educated on the benefits of embedded mobile connectivity. A significant issue for operators is making the correct technology choices now, informed by the long-term development the mobile industry is likely to witness. Unlike consumer mobile devices, which have a relatively short replacement cycle, M2M modules can have a much longer economic life, meaning it makes sense to consider future business models when rolling out M2M solutions now. For example, the potential to re-farm 2G spectrum for 3G is one such issue for older embedded modules, as these will no longer work when the 2G network is switched off – meaning that a large-scale field replacement programme would be necessary. The GSMA and Analysys Mason published a report urging operators to embrace 3G modules due to the lower total cost of ownership these can deliver, arguing that this is lower than for 2G modules “for almost all applications in almost all scenarios.” The GSMA’s work in developing SIMs that can be remotely activated is also a significant development, in that it will make the rollout and provisioning of new M2M-enabled equipment easier, improving flexibility and reducing costs.