Post-crisis changes in the global mobile phone industry
By Jon Fernquest
The
world of mobile phones, broadband,
and 3G is
changing quickly in the
wake of the global financial crisis.In today's article Bangkok Post tech reporter Don Sambandaraksa interviews the research director for Ovum consulting.
Article begins after vocabulary:
broadband -
high-speed data transmission used for high-speed
Internet access, fast enough to support applications such as streaming
video (See Wikipedia)
3G - third generation mobile phone, the next level of mobile phone services beyond the current second generation (2G), supports broadband internet, supports greater numbers of voice and data customers especially in urban areas (See Wikipedia on 3G)
in the wake of - after the destruction caused by some bad event
Ovum consulting - an IT consulting firm specialising in convergence across telecoms, IT services and software (See profile at website and website)
3G - third generation mobile phone, the next level of mobile phone services beyond the current second generation (2G), supports broadband internet, supports greater numbers of voice and data customers especially in urban areas (See Wikipedia on 3G)
in the wake of - after the destruction caused by some bad event
Ovum consulting - an IT consulting firm specialising in convergence across telecoms, IT services and software (See profile at website and website)
Tech News
Vendor financing changing telco world
'Chicken and egg' poser for next-gen broadband4/11/2009
Don Sambandaraksa
The telco landscape is changing, with hardware vendors taking the role of banks, telco operators focusing only on marketing and WiMAX acting more and more like copper in terms of where government subsidies fall. David Kennedy, research director for telecoms at Ovum, explains what has happened and how telcos are transforming in the wake of the financial crisis.
vendor - seller of
goods
vendor financing - when a seller of goods also provides a loan to buy the goods
hardware vendors - companies that sell telephone network equipment
telco - telephone company
telco landscape - the situation in the telephone industry
WiMAX - a wireless technology that provides high-throughput broadband connections over long distances, can be used for last mile broadband connections, Hotspots, cellular backhall and high-speed enterprise connectivity (See Telus glossary and Wikipedia)
copper - meaning here: old style telephone lines made of copper metal
subsidies - when the government pays part of the costs of an activity
vendor financing - when a seller of goods also provides a loan to buy the goods
hardware vendors - companies that sell telephone network equipment
telco - telephone company
telco landscape - the situation in the telephone industry
WiMAX - a wireless technology that provides high-throughput broadband connections over long distances, can be used for last mile broadband connections, Hotspots, cellular backhall and high-speed enterprise connectivity (See Telus glossary and Wikipedia)
copper - meaning here: old style telephone lines made of copper metal
subsidies - when the government pays part of the costs of an activity
The telco sector and 3G in particular has been surprisingly resilient, with some slowing off in capital intensity but absolute spending continuing to increase. In particular, mobile communication services are now essential for social and commercial interaction and the mobile phone is one of the last things people are willing to give up in hard times. That said, the global average length of individual handset use has risen from 12 to 18 months.
A lot of people regard mobile broadband as the bright spot in the industry. It is not all that clear where telcos can get growth if they do not go towards 3G, as 2G is saturated in terms of penetration. 3G is the only option and mobile broadband is the obvious application.
resilient - able to
get back after you fall down (recovers easily from problems or failure)
capital intensity - investing a lot in equipment, requiring a lot on investment funds to purchase equipment
handset - a mobile phone (the thing (set) you hold in your "hand")
mobile broadband - broadband over a mobile phone using 3G (allows you to connect to the internet with mobile phone)
2G - the current GSM mobile phone technology used in Thailand (See Wikipedia on GSM)
saturated - full, no more room for expansion
penetration - the percentage of possible customers who use a product
saturated in terms of penetration - cannot win any more customers (everyone is a customer already)
capital intensity - investing a lot in equipment, requiring a lot on investment funds to purchase equipment
handset - a mobile phone (the thing (set) you hold in your "hand")
mobile broadband - broadband over a mobile phone using 3G (allows you to connect to the internet with mobile phone)
2G - the current GSM mobile phone technology used in Thailand (See Wikipedia on GSM)
saturated - full, no more room for expansion
penetration - the percentage of possible customers who use a product
saturated in terms of penetration - cannot win any more customers (everyone is a customer already)
Fixed line operators have to be more realistic given the market reaction in developed economies such as Taiwan and Australia. The majority of people use only a basic broadband service at 1.5 MBPS or below and many are on 8 MBPS and nothing higher. Both countries have a lot of ADSL 2 infrastructure that could support between 12 to 20 MBPS but users are deliberately deciding not to take the step.
The only applications that need high speed broadband are IPTV and the big commercial database applications such as supply chain integration. The rest can get by with moderate speeds. That leaves IPTV as the only application for the consumer and this leads to a chicken and egg situation. Without high speed broadband, IPTV does not have a market; without IPTV, there is no demand for high speed broadband.
For Thailand, the question is priorities for investment; whether to invest in extending the reach of broadband networks as basic connectivity or for high speed broadband.
fixed lines - old
style telephones "fixed" at a home or business
fixed line operators - the old style telephone companies
ADSL (asymmetric digital subscriber line) - a technology for transmitting digital information at a high bandwidth on existing phone lines, unlike dial-up Internet service ADSL provides continuously available connectivity (See Telus Glossary)
deliberately - not an accident, they really want to do this
users are deliberately deciding not to take the step - users really do nto want to do this
IPTV (Internet Protocol Television) - digital television delivered over the internet (See Wikipedia)
a supply chain -the steps in different firms and locations needed to produce a final good from raw materials and intermediate goods, ending with final assembly and distribution of goods in consumer stores (See Wikipedia)
integration - joining different things into one functioning whole
supply chain integration - putting all the supply steps used to build a product into one huge database (to monitor steps)
chicken and egg situation - "which came first the chicken or egg" or "Which came first, X that can't come without Y, or Y that can't come without X?" , when a result is claimed to be the cause (See Wikipedia)
priorities - the most important things that you must do first (before other less important things)
priorities for investment - the investments that must be made first
fixed line operators - the old style telephone companies
ADSL (asymmetric digital subscriber line) - a technology for transmitting digital information at a high bandwidth on existing phone lines, unlike dial-up Internet service ADSL provides continuously available connectivity (See Telus Glossary)
deliberately - not an accident, they really want to do this
users are deliberately deciding not to take the step - users really do nto want to do this
IPTV (Internet Protocol Television) - digital television delivered over the internet (See Wikipedia)
a supply chain -the steps in different firms and locations needed to produce a final good from raw materials and intermediate goods, ending with final assembly and distribution of goods in consumer stores (See Wikipedia)
integration - joining different things into one functioning whole
supply chain integration - putting all the supply steps used to build a product into one huge database (to monitor steps)
chicken and egg situation - "which came first the chicken or egg" or "Which came first, X that can't come without Y, or Y that can't come without X?" , when a result is claimed to be the cause (See Wikipedia)
priorities - the most important things that you must do first (before other less important things)
priorities for investment - the investments that must be made first
In Australia, there is a proposal for a national fibre backbone network, estimated at AUS$25 billion (766 billion baht). However the benefits of fast broadband are hard to quantify. A high speed network is a platform for innovation, but innovation is unpredictable. Indeed, one estimate by Goldman Sachs has put the value of the network to the Australian economy at minus 16 billion dollars; that is, it costs the economy 16 billion once the cost and benefits have been accounted for.
Then there is the political question, and it must be a political question: Does a country spend 25 billion on connectivity or does it spend 5 billion on a VDSL upgrade that would provide 40 MBPS to half the population and spend the rest on schools and hospitals?
extending the reach of a network -
increasing size of network so that more people can use it
national fibre backbone network - the main network that connects major regions of country with fibre optic cable
fiber optic communication - high speed communication with light sent through cable (See Wikipedia)
benefits of fast broadband are hard to quantify - cannot say exactly how many dollars of extra income fast broadband will provide
platform for innovation - a system on top of which innovative technologies can be built (but no guarantee they will be built)
the cost and benefits have been accounted for - once all the costs and benefits have been identified and recorded
national fibre backbone network - the main network that connects major regions of country with fibre optic cable
fiber optic communication - high speed communication with light sent through cable (See Wikipedia)
benefits of fast broadband are hard to quantify - cannot say exactly how many dollars of extra income fast broadband will provide
platform for innovation - a system on top of which innovative technologies can be built (but no guarantee they will be built)
the cost and benefits have been accounted for - once all the costs and benefits have been identified and recorded
This incremental approach is attractive as countries fear ending up with huge big-bang infrastructure projects that are underutilised, but it leads to the problem of "why them, not me?" when some areas have access to high speed networks and others do not.
In Australia there is a trend to the separation of operators; breaking Telstra's network into wholesale and retail. It is easier for governments to invest in wholesale networks that everyone can access rather than in a sole operator.
This means it is also network technologies such as WiMAX, which as a DSL substitute is practically a fixed line technology rather than mobile, that are more likely to receive government investment subsidies to roll out coverage to bridge the digital divide.
incremental approach -
achieving goals gradually by completing series of steps
big-bang infrastructure projects - infrastructure projects that cost a lot of money
underutilised - few people use it (or at least much less than planned)
roll out coverage - provide different areas of the country with phone service
X has access to Y - Y is available to use and X has skills needed to access Y
the digital divide - differences in internet and technology access between the rich and poor and between different parts of the world or within countries (city vs. countryside) (See Wikipedia)
bridge the digital divide - give access to technology and internet to the poor
big-bang infrastructure projects - infrastructure projects that cost a lot of money
underutilised - few people use it (or at least much less than planned)
roll out coverage - provide different areas of the country with phone service
X has access to Y - Y is available to use and X has skills needed to access Y
the digital divide - differences in internet and technology access between the rich and poor and between different parts of the world or within countries (city vs. countryside) (See Wikipedia)
bridge the digital divide - give access to technology and internet to the poor
Direct government spending is beginning to supplement universal service obligation (USO) funds. USO has traditionally been based on an industry levy (6 percent in Thailand), yet the problem is the scale of investment needed cannot be sustained unless the levy is so high that it distorts the market, thus the trend is for governments to do away with USO and directly fund network infrastructure expenditure through national budget allocation.
The other transformation is the change of the role of equipment vendors to being a financier and network operator. Ericsson and Alcatel in particular are now being drawn more and more to network design and construction, leveraging the experience they have. However, the market-facing activities are a different kettle of fish, requiring local knowledge that has nothing to do with network operations. It is possible to gain efficiency by structuring a company along those lines.
In mobile, there has been a increase in vendors offering finance. This started with the Chinese offering funds backed by the government and later Western companies responded by making agreements with finance houses in New York and London. Vendor financing is a trend that will continue with equipment vendors looking for local partners with marketing expertise.
universal service obligation
(USO) funds - money contributed to provide affordable
telephone service to everyone everywhere (See Wikipedia)
levy - tax
distorts the market- leads to a dangerous situation where supply and demand no longer determine prices in a market
budget allocation - planned goverment spending given to a particular use
directly fund network infrastructure expenditure through national budget allocation - when the government pays for a country's telephone network
transformation - change
equipment vendors - companies that sell equipment
leveraging the experience they have - using experience gained in one area to solve problems and succeed in another area
a different kettle of fish - something completely different
structuring a company along those lines - building a company in that way
finance houses - banks
local partners - companies within a country that work together with a large multinational on a project
marketing expertise - special knowledge of marketing
levy - tax
distorts the market- leads to a dangerous situation where supply and demand no longer determine prices in a market
budget allocation - planned goverment spending given to a particular use
directly fund network infrastructure expenditure through national budget allocation - when the government pays for a country's telephone network
transformation - change
equipment vendors - companies that sell equipment
leveraging the experience they have - using experience gained in one area to solve problems and succeed in another area
a different kettle of fish - something completely different
structuring a company along those lines - building a company in that way
finance houses - banks
local partners - companies within a country that work together with a large multinational on a project
marketing expertise - special knowledge of marketing
(Source: Vendor financing changing telco world, 'Chicken and egg' poser for next-gen broadband, 4/11/2009, Don Sambandaraksa, link)
