New Horizons for Mobile – UCB Gloabal Tech

 November 18, 2011, A. Richard Newton Global Technology Leaders Conference, Mountain View, CA–Arun Sarin currently advising Kohlberg, Kravis & Roberts and former CEO of Vodaphone talked about the transition from land lines (POTS: plain old telephone service) to wireless (PAN: personal area network).

Although mobile phones were invented before this year, in ’84 the transition to mobile started. At that time, forecasts for cell phone penetration were to crawl up to 15 percent penetration. Now, there are 5B phones for the 7B people on the planet. In ’07, the industry made another major change.

The introduction of the iPhone and mobile data speeds of 500 kb/s made new content exist, which further drove wireless data growth. The intersection of all these factors is driving data volumes to continue its geometric growth. The number of players in the industry also is increasing, to include the giants Apple, Google, Facebook, Amazon, and many other gaming and content companies.

The industry now has lots of moving parts, and determining where and who has money is the name of the game. The usual suspects in the chase are the OS providers, phone makers, carriers, apps developers, and even the network and infrastructure manufacturers. The most valuable properties are the phone and OS people, followed by the game and content developers.

As voice and data volume increase, the infrastructure ecosystems will see more competition. The changes in the use models will change the value systems in the industry, so it will result in the strongest positions moving. This brings up the question – will the OS, operators or content providers be the dominant players?

Another question is who owns the customer? Right now the operators are in control, but the operator subsidized phones will give way to prepaid phones. This reduction in leverage will create new business models. Some of the winners will be Android and iOS. Any others will be distant followers, so the next set of players is now unknown. The OSs need apps for validation, and the competition will be for developers’ share of mind.

In devices, HTC, iPhone, Google (and their Motorola acquisition) will be fine. The other brands will displace Nokia and eventually the industry will consolidate down to 5-7 realistic brands per market. In the infrastructure space, Huawei and Cisco will remain while Ericsson and the other manufacturers will become part of the consolidated industry. Only 3 or 4 companies will survive.

Operators are in similar positions. How many carriers are there in the world? In-market consolidation will result in large markets having 2 major carriers and 2 small ones. Small markets will have 2 large operators and only 1 small one. There will be a big industry-wide shakeout since the large operators my want to be large in all the big markets.

LTE is going to be the standard or expected platform for future networks. In the next few years, 5-7 Mb/s will be available in many areas, which will enable the proliferation of sensor nets. The operators will have to invest to provide the broadband utilities everyone desires.

The next big are will be machine-to-machine communications, the Internet of things. The problems will be in developing an ecosystem that allows players in the value chain to make money. All industries need sufficient income for all players or they cease to exist. The machine-to-machine market will be very big, but will also be very fragmented.

Any niche will be highly vertically focused. Consumers will want a complete solution to work, and don’t want to get into development science projects. The opportunities will be big, but the time for implementation will shorten to consumer-product levels. One example of a sector is in digital coupons and similar functions. This product area will require much more research in near field communications chips and infrastructure.

The portable financial field needs critical mass to survive and includes enhanced phone-wallets, cards, and the readers for both. Consumers are expecting any new technology to be transparent and trouble-free. Privacy and security are an essential part of the whole package.

Emerging markets present large growth opportunities coupled with large business challenges. In many areas, land liens are not available, so communications and Web traffic are entirely on mobile platforms. The advent of the new technologies requires cultural and societal changes that some countries may not want to accept. In comparison, the US has high infrastructure costs and many self-interested parties in the system.

The emerging markets have very different expectations for costs. In the US, monthly charges average $50 and per minute charges are around $0.05 -0.07/minute. Emerging markets have populations that only make $2-5 per day, so monthly charges have to be in the $5-6 range. Per minute charges have to be below $0.01. Nevertheless, margins have to be around 30 percent for the carrier to be viable.

The good thing is that costs for much of the infrastructure can be shared, unlike the US where the networks are independent. In addition, many functions can be outsourced from the operator to other parts of the system. This is a front-end market with the back-end operations like billing outsourced to others.

One example is in Kenya. There the mpesa, an electronic currency, is used for most financial transactions. It even has become a separate banking system within the country, because a good banking system doesn’t exist. Workers even get their pay in mpesa so they don’t have to exchange currencies to go shopping.

Emerging and continuing trends include cloud, mobile video, etc. The public policies may need intervention to retain stability. There are privacy and spectrum issues that need to be addressed before the full capabilities of the mobile systems can be realized. Ten years ago, everyone asked “what is your Internet strategy?”. Now, everyone has some Internet presence, so the question is “what is your mobile strategy at the enterprise level?”

The fun is just beginning in the mobile world. Plate tectonics will lead to vigorous competition and the goal will be to serve customers well to make money.