Mobile operators hammer on costs

Barcelona, Spain -- If there was one overriding theme for this year's 3GSM World Congress here last week, Siemens Communications CEO Thomas Ganswindt summed it up bluntly: "There is no such thing as easy mobile money anymore."

Mobile operators are facing a huge shakeout as average revenue per user (ARPU) drops dramatically for voice, and the only subscriber growth remains in the emerging markets.

The irony is that the two hottest emerging markets--mobile TV and a converged Wi-Fi and GSM phone using an unlicensed mobile network--can work independently of mobile operators' network infrastructure. The developers of these products have ways to bypass the network, unless operators make it worth their while not to.

Mobile TV, typically on a Digital Video Broadcast-Handheld (DVB-H) or Digital Multimedia Broadcasting platform, uses a broadcast network separate from an operator's cellular net. And unlicensed mobile access (UMA) technology provides access to GSM and GPRS mobile services over unlicensed spectrum technologies such as wireless local-area networks.

Meanwhile, many new data services and multimedia applications promised over the last few years haven't panned out. In the case of multimedia messaging, a lack of interoperability and usability, combined with ridiculously high fees imposed by the carriers, turned off customers.

Moving the venue of Europe's largest mobile-telephony conference from its previous home in Cannes--a cozy town on the French Riviera where industry executives hobnobbed on yachts with champagne glasses in hand--to a huge former World Expo site in Barcelona seemed to change the tone of the event from invincibility to introspection. An industry that used to be all about creating new revenue and adding bells and whistles has switched--in barely a year--to a focus on lower costs for everything from network infrastructure and capital expenditures to handsets.

"The entire signal chain is pressured for cost reduction," said Doug Grant, director of business development at Analog Devices Inc. Operators are demanding that chip companies and network equipment vendors engineer dramatic reductions in "component cost" and "energy cost" to build and run third-generation (3G) networks, Grant said.

"How operators will cope with such emerging trends as voice-over-IP [Internet Protocol] and broadcast technology still remains to be seen," said Gert-jan Kaat, senior vice president and general manager of mobile and personal electronics at Philips Semiconductors.

In sum, the big boys, primarily mobile-network operators, are starting to sweat.

Arun Sarin, CEO at Vodafone Group, acknowledged that only 9 percent of his company's revenue is coming from 3G. More new services are coming, "but they are still at a very early stage--things can turn on a dime." Sarin added, "Costs are hugely important to us--to build a new paradigm to attract new customers."

Wang Jianzhou, chairman and CEO at China Mobile, agreed. "If we can control the cost, we still keep the very good money," he said.

Technology suppliers are frustrated with the lack of solutions that would allow everyone, from chip vendors to tier-one handset suppliers and network operators, to keep the gravy flowing. Mobile TV is "so fragmented that its deployment is hindered," said Franz Fink, senior vice president and general manager of the Wireless and Mobile Systems Group at Freescale Semiconductor Inc., while UMA's business case for mobile operators "hasn't been sorted out." These promising technologies, Fink said, are "so messed up that no one can make money on [them] now, unless we come up with a scheme where everyone can get a fair share on services provided to consumers."

"Our industry will have to come to terms with moderate voice ARPU in the future," said Siemens' Ganswindt. However, it's unclear whether a rapid investment in 3G networks and a resulting increase in data ARPU can offset the shrinking premium on mobility for voice.

As David McQueen, principal analyst for handsets and services at Informa Research Services, put it, operators may no longer have "a God-given right to get a cut from every transaction over their network."

Leap of faith
Whatever the uncertainties on the business side, technology companies rushed to 3GSM with their latest wireless-LAN and cellular chips and handsets. Further, more than 40 vendors--chip, handset, software and broadcast equipment suppliers--had DVB-H-based mobile-TV demonstrations on the air in three multiplexes, transmitted by Abetris Telecom. With DVB-H not yet deployed commercially, Informa's McQueen called this trend "a leap of faith."

Nokia announced it would cooperate with Sony Ericsson on interoperability in DVB-H-enabled devices. This will "significantly boost the prospects for mobile TV," said Jorma Ollila, Nokia's chairman and CEO. To initiate interoperability with multivendor mobile-TV pilots, the companies will use the Open Air Interface implementation guidelines that Nokia made publicly available last August.