GSMA Market Trend-quarterly-review (Q2)

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ANALYSIS

Global cellular market trends

and insight — Q2 2014

June 2014

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2

GSMA Intelligence Global cellular market trends and insight — Q2 2014

Contents

Welcome to GSMA Intelligence’s twenty-third quarterly review of

regional mobile trends. In this Q2 2014 issue, our analyst team has

identified and summarised some of the key industry developments

and data trends that took place in each region over the past quarter.

We know that you are busy and don’t have time to scan the thousandsof operator data points captured in our online database each quarter,

so our analyst team has summarised the latest data trends for you in

this report.

We have improved the format of this report to emphasize the focus

towards key industry topics covered by our analysts and supported

by the vast amount of operator data captured. The developed and

developing regional split provided in this new format is explained in

the glossary page.

As always, we value your feedback, so please do contact us if you

wish to discuss this research with our analyst team.

Key industry developments: regional update Q2 2014

Financials...................................................................................................................3

Networks ............. ............. .............. .............. .............. ............. .............. .............. ..... 4

Spectrum ...................................................................................................................5M2M ............................................................................................................................ 6

Devices .......................................................................................................................7

Tariffs ..........................................................................................................................8

Internet...................................................................................................................... 9

Data insights Q2 2014

Impact of tax rises in Jordan felt by consumers

and mobile operators .........................................................................................10

Rapid 3G migration in Thailand ahead of

900/1800 MHz refarming ............. ............. .............. .............. .............. ............. . 11

Pakistan all set for 3G and 4G services ............ .............. ............. .............. .. 12

Brazilian tax breaks set to spur M2M growth ............ .............. .............. .... 13

Dynamics of the smartphone market changing in

the US and China..................................................................................................14

LTE adoption to boost demand for music streaming bundles ........... 15

Fast-growing messaging applications attract users and

investment ..............................................................................................................16

Additional research published this quarter ..........................................18





3


Financials

Developing economies

• Revenue growth in developing markets averaged 6.3% year-on-year in

Q4 2013, a decline of 3.1 percentage points on an annual basis• Mobile operators in the developing region generated $127.1 billion

revenues in Q4 2013, which represented 43% of total mobile revenuegenerated globally that quarter, up from 40% in Q4 2012

• China is the largest developing market, comprising one third of totaldeveloping market revenues; and continued its strong growth to date,up 11.3% during the year ended Q4 2013

• Nigeria was the strongest growing developing market among thosegenerating more than $1 billion in mobile revenues per quarter,experiencing 16% growth

• Following a number of years of decline as a result of price wars, Indian

ARPU continued its recent upward trend, growing 7.5% in Q4 2013

• However, price erosion in other developing markets meant that overallARPU contracted by 2.5%, an accelerated decline when compared to

the 1.8% fall observed during the year ended Q4 2012• In Kenya, a three-horse race to buy out Orange Group’s 70% stake in

Telkom Kenya is underway, with Viettel, MTN and an anonymous UK-owned company reportedly interested

• The Chinese telecom sector will be subject to a pilot programme forthe implementation of value-added taxes, which will see a charge of11% levied on basic telecoms services, and 6% for value-added services

• In order to provide a boost to its local smartphone industry, theIndonesian Government is considering imposing a 20% luxury sales taxon imported smartphones valued at more than IDR 5 million ($442)

• The Bangladeshi Government intends to raise the import tax on mobile

phones by one-third to 15%, in order to support local assembly ofmobile phones. However, there are fears that this move could stifleconsumer demand, while potentially fuelling the grey market

• The Rwandan Government plans to increase the tax on telecomsservices from 8% to 10% from 1st July, in order to plug a budget deficit

Developed economies

• Revenue growth in developed markets continued to slow in Q4 2013,

up a mere 1.5% year-on-year, a fall of 0.8 percentage points whencompared to Q4 2012

• There remains significant variation in revenue growth rates acrossdeveloped markets. Among European markets (with quarterly

revenues greater than $1 billion), Belgium witnessed a decline inrevenues of 14.8%, with Italy following close behind, down 11.7%

• This contrasts with other developed markets such as Taiwan and

Japan, which recorded revenue growth of 10.4% and 9.7% respectively• Developed market ARPU stabilised during Q4 2013, with a decline

of 2.0% representing a 0.6 percentage point improvement whencompared to Q4 2012

• The European Commission has approved Hutchison Whampoa’s

acquisition of O2 Ireland, subject to a number of concessions• After a period of exclusive talks, Vivendi Group selected an offer from

Altice, owner of French fixed operator Numericable, to acquire SFR• Unsuccessful talks with both Iliad and Orange over a potential sale

have led Bouygues Telecom to announce plans to cut 17% of itsworkforce, some 1,500 jobs. Following this statement French Economy

Minister Arnaud Montebourg stated that the Government would “useall means at hand to consolidate to three carriers in France”

• The Korean Regulator MSIP has barred mobile operators SK Telecom,

KT Corp and LG Uplus from signing up new customers for 45 days as aresult of their continued provision of illegal subsidies

• Struggling Canadian operator Mobilicity has accepted a takeover bidfrom Telus, having been operating under court approved protection

from its creditors for months• Broadband operator Yahoo! Japan has agreed to purchase mobile

network operator eAccess from Softbank Corp for $3.17 billion



4


Networks


• 3G now accounts for more than one in every four connections in the

developing region, up from around one in five a year ago (Q2 2013)• At 28 million, LTE represents only 0.5% of all connections, although we

expect LTE connections to quadruple by the end of 2014, primarily dueto the rapid rollout of TD-LTE services in China

• Six LTE networks and one TD-LTE network launched in the regionduring Q2 2014, giving a total of 108 LTE family networks as of17/06/14

• Vodafone India’s “accelerated 3G rollout” in Q1 2014 led to 3Gconnections increasing by 35% to 7 million; total data traffic increasedby a factor of 2.4 in the year to Q1 to 33PB per quarter, the largestvolume across the group; the operator explained that it was due to

having “50 million customers on data but only 7 or 8 on 3G”

• Indian rival Reliance Communications reported that its 12.9 million3G connections represented 34% of its mobile internet users,

meaning that some 25 million are still accessing the internet over 2Gconnections

• China Mobile reported “rapid growth in 3G customers” to 225 millionin Q1 2014, which was achieved through “increasing the sale of devices

and optimising its tariff structure”• Also, at Mobile Asia Expo 2014 the operator announced that its TD-LTE

network had accumulated 6.5 million connections across 300 cities,

since its launch in December 2013• While TD-LTE connections represent less than one percent of China

Mobile’s total, they contribute ten percent of total mobile data trafficand generate an ARPU three times greater than the operator’s average

• TIM Brazil added around 100 3G and 200 LTE base stations, 200 Wi-Fihotspots and 14 new cities in Q1 2014 as part of its mobile broadbandrollout; the operator had the country’s fastest quarterly LTE growth, up

67% to 676,000 connections• Turkcell said its 3G growth came via “device portfolio expansion”,

an “increase in smartphone sales” and “replacement offers fornonsmartphone users”

Developed economies

• LTE connections passed the quarter of a billion mark in the developed

region in Q2 2014 and now make up 18.5% of total connections• Having peaked at the end of 2012, the level of 3G connections in the

region has now declined to represent 55.0% of total connections• Four LTE networks and one LTE Cat. 4 network launched in the

region during Q2 2014, giving a total of 178 LTE family networks as of17/06/14

• South Korea has the highest LTE penetration globally (as a percentage

of connections) with 61% of connections, followed by Japan (37%) andthe USA (30%)

• In Europe, Switzerland currently has the highest proportion of LTEconnections at 19% of total, followed by the Netherlands (11%) and the

UK (10%)

• 29% of Orange Switzerland’s connections and 19% of Swisscom’s areon LTE; the latter reached 85% population coverage in Q4 2013

• In the UK, O2 highlighted “the success of [its]“O2 Refresh” (handsetupgrade) proposition” and “proactive upgrade of our customersto LTE”, which contributed to the operator passing 1 million LTEconnections in April this year

• Meanwhile, rival EE said in late May that it now sells more LTEcontracts than new 3G tariffs, and reported that it had 3.6 million LTEconnections at that time

• The number of Deutsche Telekom LTE base stations across Europeincreased 558% year-on-year in Q1; LTE connections in Germany wentup 229% to 3.5 million

• Despite slow initial take-up, the Nordics have the highest annual LTE

connection growth, with 140% in Denmark and 129% in Norway• During Q1, Verizon (USA) revised its pricing for customers who

buy devices on instalments to “help drive further penetration of 4G

smartphones and tablets”; LTE connections rose 12% to 47.9 million,the world’s largest 4G base

• Meanwhile, rival AT&T said its Next programme, which allowscustomers to upgrade handsets after a year, “accelerates the move to

LTE-capable devices”



5


Spectrum


• Cameroon’s Viettel applied for an extension of its two years exclusivity

on 3G services made possible through a new entrant clause in itslicence, which it hopes will start from September 2014

• Rivals MTN and Orange both dispute this exclusivity while MTNannounced a plan to invest XAF 600 billion ($1.2 billion) over three

years if granted a 3G licence• In Iraq, the Communications and Media Commission’s (CMC) is pushing

forward the 3G licencing process. CMC plans to award each of the

three operators 2x15 MHz of spectrum in 2100 MHz band at the priceof USD 307 million per licence

• Afghanistan, Burundi, Chad, Gabon, Nigeria and Zimbabwe all assignedmore spectrum to mobile operators paving the faster adoption of

mobile internet services

• In Belarus, insufficient network coverage claimed by Ministry ofCommunications and Informatization of Belarus resulted in Belcel not

having its licence renewed. The operator therefore stopped providingvoice and data services in late January

• Jordan’s Telecommunications Regulatory Commissions (TRC) hasapproved the request made by Orange Mobile to renew its 900 MHz

licence. The renewal fee set by TRC was JOD 156.4 million ($220million) for 15 years, a high price that could negatively impact theoperator’s return on investment in a challenging market environment.

As a result, Orange started negotiations for a shorter licence term offive years

• In Brazil, Anatel’s board approved the public consultation on the700 MHz spectrum auction rules and the interference regulation for

the tender due in August. The winners will incur the expenses formigrating TV channels from the band and for ensuring there will be nointerference with digital TV in adjacent frequencies

• Argentina, Brazil, Colombia and Paraguay announced their plans toauction spectrum for LTE in 2014 and 2015

Developed economies

• In Germany, if the Telefonica/E-Plus merger is approved by the

European Commission, German regulator Bundesnetzagentur(BNetzA) will reclaim and auction spectrum in the 900 MHz and 1800MHz bands

• In Ireland, the Commission for Communications Regulation (ComReg)

has announced that the leftover 2x15 MHz block of 1800 MHz spectrumfrom the multi-band auction in 2012 attracted no bids. The licencewould have expired in 2015 and spectrum will now remain unused until

July 2015 when it will become part of Hutchison 3G Ireland’s holding• In the UK, Ofcom has published its Spectrum Management Strategy

through which it highlighted its long-term spectrum policy plans andidentified six priorities for spectrum management: future mobile data

demand, future of 700 MHz band and Freeview TV, public sector

spectrum release, PMSE spectrum demands, Machine-to-Machineapplications and wireless communication needs of emergency services

• In Taiwan, National Communication Commission (NCC) plans torelease spectrum in 2600 MHz band currently used by Wimax serviceproviders for FDD and TDD-LTE use

• Finland and Sweden announced plans to reallocate the 700 MHz

band for mobile services from 2017. This band is currently used for TVbroadcasting

• After failing to secure 4G spectrum in last year’s auction in Norway,

Tele2 signed a national roaming agreement with Telenor• In Hong Kong, the Communications Authority (CA) has approved the

PCCW-CSL merger reducing the number of mobile operators from fiveto four, but set conditions. The two are to divest a total combined 29.6

MHz of 3G spectrum (by agreeing not to renew their existing licensesin 2016) and refrain from participating in any 3G auction for five years.CA plans to auction the 2100 MHz spectrum later in the year



6


M2M


• The developing region has recorded the fastest growth in Q1 2014 with

M2M connections annual growth of 39%, yet M2M only accounts forless than one in 50 connections in the region

• China continues its lead as the largest M2M market within thissegment, with 55 million M2M connections as of Q1 2014, equivalent to

a 55% of all M2M connections in the developing segment• The world’s largest M2M operator, China Mobile, reached 32 million

M2M connections in Q4 2013, following a 60% year-on-year growth

• Second-placed China Unicom, with 10 million M2M connections, signedCubic Telecom’s M2M platform to enable M2M devices and OEMwireless connectivity

• Brazil’s M2M connections totalled 8.7 million as of Q1 2014, showing

a 20% year-on-year growth, with Telefónica almost doubling its base

to 2.6 million over the same period, and subsequently increasing itsmarket share from 20% to 30%

• MTS Russia has tested SIMs with multiple profiles for the ERAGLONASS emergency system together with Oberthur Technologies.The operator reported having 2.5 million M2M connections on itsnetwork in Q4 2013, a 28% annual increase, stating that “growth of the

M2M sales was driven by proliferation of GPS/GLONASS technologiesgrowing demand for M2M services in fleet management, securitysystem and payment terminals”

• In Sri Lanka, Dialog Axiata chose Ericsson’s Device ConnectionPlatform for M2M connectivity, a first dedicated M2M platform in thecountry

• Indonesia’s XL (Axiata) has reported that its M2M revenue doubled

in 2013 while its M2M connections quadrupled, partly due to thedeployment of Ericsson’s M2M platform in February 2013

• XL (Axiata) ended 2013 with 460,000 M2M connections, equivalent

to 0.8% of its total customer base. At the same time, rival Telkomsel,which had over 1 million M2M connections, partnered with IoT platformprovider Axeda, in addition to its existing relationship with M2Mplatform provider, Jasper Wireless

Developed economies

• The US remains the largest M2M market within the developed region,

with 34% market share in Q1 2014, followed by Japan (10%), France, UKand Italy with 7% each

• Telefónica and its M2M World Alliance partners will enable connectivityfor Tesla’s Model S in several European countries, including Germany,

the UK, Spain, the Netherlands• Telefónica Group reported that M2M revenue grew by more than 50%

year-on-year in Q1 2014, while M2M connections increased by 16%

annually to 8.3 million, despite 569,000 M2M SIMs disconnections inSpain in Q1 2014

• NTT DOCOMO and Vodafone Group announced an expansion of theirexisting partner market agreement to address the delivery of M2M

services to the global enterprise sector

• Vodafone plans to take over Italian based telematics firm CobraAutomotive Technologies as it looks to move up the M2M value chain

• The operator also signed a new agreement with Volkswagen and Audiin Europe to provide automotive connectivity, starting with new Audimodels from 2015. Vodafone stated that it achieved “good resultsfrom machine-to-machine. 21% growth in revenues and 16 million

connections; we have got Audi, we have got Volkswagen, we have gotBMW. There are some verticals in which clearly we have established aleadership here”

• GM revealed its LTE tariffs for its next generation of vehicles. Forexisting AT&T customers, LTE connectivity can be added to a MobileShare Value Plan for $10 per month

• Verizon’s CEO claimed that “the machine-to-machine piece is

beginning to take off for us. The Hughes asset that we bought is doingvery well, expanding with Mercedes and Audi and VW and others [...]and we’re seeing the healthcare piece and the transportation piece

take off as well in machine-to-machine. So whereas a year ago I wouldsay we were literally at the starting gate or maybe five steps behindthe starting gate on machine-to-machine, now I think we’re away andwe’re beginning to see some real pick up in volume”



7


Devices


• Kenya’s Safaricom increased the number of smartphones on its

network by 400,000 units during Q1 2014 to 1.9 million devices. Thiswas achieved through partnership with vendors and offering costeffective smartphones

• Reliance Communications of India has extended its “Zero Plan” to HTC

and Nokia devices following the success of this plan with iPhones• Xiaomi reported a 160% growth in smartphone units sold in 2013. The

company sold 18.7 million phones in 2013 and is aiming to double this

figure to 40 million smartphone shipments in 2014• Xiaomi entered the tablet computing market by releasing its first

tablet, called MiPad, in May. The 16GB version is priced at $240,cheaper than Apple’s iPad Mini and Samsung’s Galaxy Tab

• ZTE launched Open C, the first smartphone running the latest version

of Firefox OS in May 2013. The $99 Mozilla smartphone can bepurchased unlocked and contract free worldwide from eBay

• América Móvil started offering Mozilla Firefox OS devices since May2014. The company first introduced the Alcatel OneTouch Fire viaTelcel in Mexico

• Mozilla announced at Mobile Asia Expo in Shanghai that it has

partnered with two Indian low-cost handset manufacturers Intex andSpice. Mozilla aims to launch Firefox OS devices in India in the nextcoming months through this deal. “The platform will give us an edge in

upgrading buyers from feature phones to smartphones while makingit affordable for the mass market”, according to Intex’s head of mobilebusiness, Sanjay Kumar Kalirona

• BlackBerry unveiled in May a low-cost smartphone, Z3, exclusively

built for Indonesia. The company hopes that the $191-priced phone willappeal to price-conscious consumers in the emerging markets

• Millicom Group increased its handset subsidy total by 14% in local

currency in Q1 2014, with a mix targeting lower cost devices. Theymanaged to sell 3.2 times more smartphone units in Q1 2014 than ayear ago, which includes over 5,000 entry level phones

• Brazil’s Vivo (Telefonica) saw mobile handset revenue fell by 3.4% in

Q1 2014 over Q4 2013 as a result of rationalising handset subsidies. Themore restrictive subsidy policy only applies to handsets with 4G plans

Developed economies

• UK-based retail giant Tesco is planning to launch its first smartphone; it

will run on Android with similar specification to Samsung Galaxy S5• Tesco is hoping to have a similar success to its tablet Hudl which has

sold half a million units since launch in September 2013. Tesco Mobilehas 4 million connections, claiming to be the UK’s biggest MVNO

• Meanwhile, UK operator EE launched in May its own 4G tablet brandedEagle (priced at £200 on prepaid) following the positive reception ofits budget Kestrel smartphone earlier this year

• Deutsche Telekom Group reported that smartphones account for 74%of its contract connection base in Europe, up from 67% in Q1 2013

• Orange Spain has started selling unlocked phones and is hoping toprogress to offering only unlocked handsets by this summer

• O2 (Telefónica) reported that, in Germany, 78% of its smartphone base

was LTE-compatible in Q1 2014, up from 48% in 2013• Apple iPad shipments fell by 16% (3 million) in Q1 2014 comparing to

the same quarter last year. Apple only shipped 16.35 million iPads in Q12014, down by 10 million units compared to the previous quarter

• US bookseller Barnes & Noble (B&N) announced partnershipagreements with Samsung to develop co-branded tablets in June.

B&N’s Nook segment (digital content, devices and accessories)declined by 50% between its fiscal Q3 2013-14 mainly due to the lackof new tablet products in the past holiday season

• Qatar has seen a rapid rise in tablet penetration since 2012.According to data published by Qatar’s Ministry of Information andCommunications Technology (ictQATAR), tablet penetration reached52% in Q1 2014, from 32% in 2012

• South Korea has passed a bill to regulate handset subsidy levelsand reduce the volatility in the market. This bill requires smartphonemanufacturers to unveil the factory price, the subsidy amount and the

recommended retail price to the ministry of Science, ICT and FuturePlanning (MSIP). This is a change in tactics as traditionally regulatorswere only penalizing operators for heavy handset subsidies. The threeSouth Korean operators have agreed to implement a “circuit breaker”

to avoid exceeding the regulatory handset subsidy limits



8


Tariffs


• Tunisia’s regulator (INT) announced in June that new rules will come

into force next week which will gradually unify mobile operators’ tariffsin the country by 2015. INT aims to establish a price floor for mobileservices and reduce the difference between on- and off- net calls

• In Sierra Leone, the regulator (NATCOM) announced that, effective 1

July 2014, all GSM operators in the country will convert their billing toLeones per second from the current units per minute billing

• In Namibia, second-placed operator Telecom Namibia has launched a

range of converged fixed/mobile services for corporate and residentialusers, branded ‘TN1’

• MTN Uganda announced that by Q1 2014, more than half of its 9.5million customers were using the network’s mobile money service

• MTN launched new mobile internet packages in South Africa withunlimited access to Wikipedia for R10 per month, whilst the R15monthly subscription includes messaging services, Facebook and free

Twitter usage until 31st July• China Mobile announced plans to reduce 4G tariffs by as much as 50%

from June 2014. The operator will reportedly launch a mobile datapackage including a monthly data allowance of 500MB for just CNY30

(less than £3)• Meanwhile, Chinese MVNO Telecom World launched in May promising

that, unlike the other providers operating in the market, data

allowances will carry over at the end of each month• In Thailand, True Move noted in Q1 2014 that it continued to acquire

customers in convergent plans, facilitating acquisition and retention inall core businesses

• According to its True Convergence Index, the operator earmarked 2.7million households with multi-play offers in February 2014, 72% ofwhich adopted dual-play offers, against 24% for triple-play and 4% for

quadruple-play tariffs• In India, Videocon Telecom has announced that it will offer 4G mobile

internet services at existing 2G and 3G prices. The company had earliersaid it will follow strategy to keep prices of telecom services 20-25%

lower than the competition

Developed economies

• Price competition continues to intensify in France as Orange and SFR

introduced ¤25-¤26 5GB 4G plans to compete with new entrant FreeMobile that is offering LTE capability at no additional cost.

• Similarly, Bouygues Telecom is offering 3GB for ¤24 with free access toits mobile TV streaming service (B.TV) until July 13th

• In the UK, fixed-wireless provider UK Broadband (PCCW) announcedin June the launch of a new LTE-based mobile broadband servicefor both residential and business users in London. Under the

‘Relish’ banner, the company has said it ‘aims to disrupt the Londonbroadband market with a combination of instant connection, unlimiteddata, and transparent pricing’, while it plans to expand across GreaterLondon and out to other UK towns and cities in the future. The

operator offers several tariff options, with prices based on monthlyusage allowance, starting at £10 for a 1GB cap, rising to £20 for a 35GB

• In Ireland, third-placed operator Meteor (Eircom) reported that 20%

of its contract connection base adopted 4G tariffs in Q1 2014, just twoquarters after launch

• In Spain, Movistar Fusion connections grew from 1.7 million in Q1 2013to 3.2 million in Q1 2014. Fusion penetration in mobile contract base

reached 50% in Q1 2014• Movistar explained that Fusion is helping to reduce churn while

maintaining ARPU at high-levels (¤70) because the lifetime of a Fusión

customer is much longer than on standalone services• In Qatar, Vodafone launched commercial LTE mobile broadband

services for all compatible handset, tablet or modem/Mi-Fi users. AllVodafone’s customers with a 4G-enabled device can automatically

access the LTE data services, at no additional subscription fees, usingtheir existing data bundles

• T-Mobile USA introduced changes to contract-free tariffs aimed at

lower end users. While customers will continue to receive unlimitedtalk and text on all plans, the free 4G option has been removed from$20 packages



9


Internet


• In April, Tigo and Facebook announced free access to the social

networking site in East Africa• Project Isizwe, a non-profit organisation aiming to bring internet to the

people of South Africa, partners with the government of Western Capeto launch free Wi-Fi

• Bharti Airtel (India) launched dedicated WhatsApp data plans for its2G and 3G users. Airtel is offering 200 MB of WhatsApp usage for onemonth starting from Rs 36 which varies across circles

• India is in focus of messaging applications: WhatsApp claims to have50 million active users in the country, Nimbuzz has 25 million activeusers and Viber passed 15 million registrations in February

• India’s third largest operator in terms of connections, Idea Cellular,

claimed last April that most of its “data consumers have adopted OTTapplication and a regular internet services”

• Idea Cellular added that it added 2.1 million Facebook users between

Q4 2013 and Q1 2014, against 0.9 million Youtube users added over thesame period, and 1.7 million WhatsApp net additions

• Meanwhile, Zimbabwean operator Econet Wireless launched anunlimited WhatsApp bundle in February. It reported in May that

WhatsApp usage represents more than 23% mobile data traffic• To facilitate access to social networks for its prepaid mobile users,

Maroc Telecom is expanding its Pass MT-Talk adding Twitter to

Facebook and Facebook Messenger and launches WhatsApp pass withunlimited WhatsApp messaging for a daily fee of MAD 1

• Chinese Alibaba led a new round of funding, investing $215 million inmessaging application Tango.

• Tango has 200 million registered users of which 70 million are monthlyactive, and is available in 14 languages

• Meanwhile, Ooredoo group mentioned last May that “the majority [of

our customers] have got feature phones - or 2G phones - but thereare no OTT players, certainly in the developing market in Iraq andIndonesia and Algeria. The smartphone revolution is happening but it’snot there yet”

Developed economies

• Samsung’s new Galaxy S5 includes a Deezer’s Premium+ subscription

worth around $102 per year. This music streaming bundle will be madeavailable in 15 countries including UK, Netherlands and Germany

• Deezer currently has around 5 million users in over 180 countries• In April E-Plus launched a new prepaid tariff WhatsApp SIM with free

of charge data usage for WhatsApp. This partnership effectively makesWhatsApp an MVNO

• According to Vodafone, its bundled Red plans protect the group’s

revenue from the impact of OTT applications by stabilising ARPU• Vodafone Red topped 12 million connections in Q1 2014 with the

operator claiming that “the more successful we are in Red, the morerelaxed we are in the discussions with over-the-top [players]”

• Last February, Japanese online retailer Rakuten acquired mobilemessaging app Viber for $900 million. On the day of the deal, Viberhad almost 300 million registered users

• South Korea’s Kakao Talk registered 145 million monthly active usersand delivers over 6.5 billion messages every day. The company alsoreported 500 million accumulated subscriptions on its Kakao Gameplatform in May, against 400 million in November 2013.

• Kakao Talk is set to merge with internet portal Daum Communications,with a valuation of $3 billion

• Meanwhile, mobile messaging app Kik will stay independent because

“the opportunity is just so much bigger” according to its CEO. The appnow has 120 million users up from 100 million users in 2013

• Facebook’s mobile monthly active users surpassed one billion in Q12014, up from 945 million last quarter, representing a 6.7% growth. The

share of mobile in advertising revenue (which reached $2.27 billion)increased to 59% in Q1 2014, compared to about 30% in Q1 2013

• In the USA, Twitter monthly mobile users increased by 19% year-on-

year to 57 million• In February BlackBerry launched BBM Protected, the first solution

within the new eBBM Suite that will provide secure messaging serviceoptimised for enterprise customers. BlackBerry will price the service

on a monthly per user fee basis



10


Impact of tax rises in Jordan felt by consumers and operators

Tax in its various guises has been in the headlines of late across Asia, withChinese operators recently receiving confirmation that their services will

be subject to additional value-added tax (VAT) rates from 1st June, andreports that the Government of Indonesia is considering a luxury sales taxon high-end imported smartphones.

When considering the implementation of new taxes and tax rates withinthe telecoms sector, governments and regulators must ensure that they donot stifle industry growth and investment. The situation in Jordan provides

a good example of where new tax rates have negatively impacted themarket.

In July 2013, despite objections from the country’s mobile networkoperators, the Jordanian government doubled tax rates on both mobilephones (from 8% to 16%), and mobile subscriptions (from 12% to 24%). Thesector is already subject to direct taxation, paying both income tax and a

revenue sharing levy.

Prepaid accounts for the lion’s share of mobile connections (92%) in

Jordan, and with multiple SIM ownership a popular means of securingthe cheapest tariffs in the market, Jordanians on average own 1.8 SIMs.However, the new tax rates have dampened demand for multiple-SIMownership, with the number of prepaid customers in this ‘fast grower’

market falling by 2.7% during Q4 2013.

Having compiled a joint study on the impact of the new tax rates with

the country’s other mobile operators, in January 2014, Ihab Hinnawi theCEO of Umniah, claimed that since the tax was introduced, revenuesin the telecom sector had fallen by 9% while profits had fallen by 30%-40%. GSMA Intelligence data shows that total revenues (which include

fixed for Umniah), fell by 7.3% year-on-year in 2013. Conscious of thesedevelopments, the Government of Jordan has indicated that it is studyingthe impact of the new taxes on consumers, as well as its effect on

operator revenues.

0

2

12

M o b i l e c o n n e c t i o n s ( i n m i l l i o n s )

M o b i l em a

r k e t p en e t r a t i on

4

10

8

6

105%

110%

115%

140%

120%

135%

130%

125%

Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014

Figure 1: Mobile connections and market penetration, Jordan

Source: GSMA Intelligence

Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

-4%

-8%

-12%

-14%

-10%

-6%

6%

-2%

4%

2%

0%

Figure 2: % change in total mobile revenues (year-on-year), Jordan




11


Rapid 3G migration in Thailand ahead of 2G re-farming

Thailand is seeing phenomenal rates of 3G adoption as the deadline for re-farming 2G spectrum approaches. Regulator NBTC warned AIS and True

Move in April that their 1800 MHz and 900 MHz GSM networks must closeby July and September 2014 respectively, ahead of its auctioning of thefrequencies later this year.

AIS duly responded in May, saying that it had successfully closed its 1800MHz operation after seeing 3G growth of 264% during 2013, to end theyear with 16.4 million 3G connections – although 24.5 million connections

remain on its 900 MHz 2G network. Meanwhile True Move reported afourfold increase in 3G connections during 2013 from 2.9 mil lion to 12.2million, while 2G connections fell by 41% to 10.7 million. At this rate we

expect the operator to meet the July shutdown target for its sole 2Gfrequency.

Although the upcoming spectrum auctions will be technology neutral, it

is likely that the NBTC sees re-farming of the 1800 MHz band as key tosuccessful deployment of LTE in Thailand – where True Move and DTACare currently the only 4G operators. The benefit of this approach is that

operators can roll out LTE quickly in the re-farmed spectrum, as theyalready have the base stations in place – adding LTE to existing basestations is faster and less costly than building out new infrastructure.

Thailand is not the only country in the region taking this path. Lastyear, Hong Kong’s Smartone also reported that it had “accelerated themigration of [1800 MHz] 2G customers to 3G and 4G networks to free

up spectrum for further re-farming”, and DiGi in Malaysia has adopted asimilar strategy.

Globally, of the 258 operators that currently have live LTE networks, some

119 of them have launched the technology in the 1800 MHz band, andGSMA Intelligence data demonstrates that markets where LTE operateson 1800 MHz tend to have the fastest rates of adoption of the technology.

From a sample of 17 operators that had reported sufficient data, theaverage LTE penetration (as a percentage of connections) one year afterlaunch for 1800 MHz operators was 16%, compared to 9% for operatorsthat do not use 1800 MHz spectrum. For the same reason we expect those

markets where 1800 MHz re-farming has occurred to see more launches ofLTE-Advanced technologies in the coming years.

Figure 3: Mobile connections by network technology, Thailand


0%

5%

35%

Number of

quarters after

LTE launch

10%

30%

25%

20%

15%

0 1 2 3 4 5 6 7 8

Linear

(Non-1800 MHz)

Linear

(1800 MHz)

Figure 4: Average LTE share of connections by quarter after launch,

1800 MHz and non-1800 MHz operators


Note: represents operators that report LTE connections only

0

20

120

40

100

80

60

2011 2012 2013 2014 2015

4G

3G

2G

( i n m i l l i o n s )



12


Pakistan all set for 3G and 4G services

After spending almost seven years attempting to assign spectrum for 3Gservices, the recently concluded auction marks the end of a long journey

for Pakistan. The successful winners of the long awaited 3G/4G auctionspent a total of USD 1.1 billion for 40 MHz of paired spectrum in 1800 MHzand 2100 MHz bands.

All four operators who bid in the auction were able to acquire spectrum:Mobilink and Zong (China Mobile) each purchased 10 MHz of pairedspectrum in 2100 MHz band paying USD 300.9 million and USD 306.92

million respectively, while Telenor and Ufone bought 5 MHz of the same forwhich they each paid the reserve price of USD 147.5 million. However, onlyone operator (Zong) bagged 1800 MHz frequency for 4G deployment.

Although Ufone had previously expressed interest in 4G spectrum, theauction rules stated that bidders could only be awarded a 4G licenceif they had secured 10 MHz paired spectrum in the 2100 MHz band -

something that Ufone failed to do. Therefore, 10 MHz of 4G spectrum in1800 MHz band remained unsold. Another block in the 850 MHz band wasleft unsold – this has been reserved for a new entrant but none chose to

take part in the auction.

After the auction concluded, operators were reminded that they haveto pay a 10% advance tax on auction sale prices. This tax is not a new

measure, but is part of the range of mobile-specific withholding taxes thathave been hitting operators in the country.

Sector-specific taxes levied on mobile consumers and operators inPakistan are known to be at one of the highest levels in the world,continuing to create an obstacle for mobile penetration growth. SIM, usageand handset taxes as well as high corporate and additional regulatory fees

applied in Pakistan all have a strong impact on infrastructure investment,mobile penetration and mobile service usage.

This auction marks an important milestone for Pakistan as mobileoperators can now provide the long awaited 3G and 4G services. However,in a market with such low ARPU ($1.71 in Q1 2014), if licencing authoritieswant to entice investors’ interest they should ensure that mobile operators’

spending on spectrum licences, network deployments and taxation isaligned with potential return on investment.

17%

31%

22%

17%

13%

20%

20%

20%

20%

20%

Mobilink (Global Telecom)

Telenor

Ufone (PTCL)

Warid

Zong (china Mobile)

Total spectrum % holdings

post-2014 auction

Total spectrum % holdings

pre-2014 auction

Figure 5: Total spectrum % holdings pre- and post-2014 auction, Pakistan


Pre-2014 auction Post-2014 auction

(MHz) 900 1800 1800 2100

Mobilink (Global Telecom) 15.2 12.0 20.0

Telenor 9.6 17.6 10.0

Ufone (PTCL) 15.2 12.0 10.0

Warid Telecom (Abu Dhabi) 9.6 17.6

Zong (China Mobile) 15.2 12.0 20.0

Table 1: Total spectrum allocation by operator (MHz), Pakistan




13


Brazilian tax break set to spur machine-to-machine growth

In May 2014, the Brazilian government passed regulation approvingtax breaks for M2M connections. The decree reduces two fees in the

Telecommunications Inspection Fund (FISTEL): the Installation InspectionTax (TFI), which is charged when a SIM is first activated, from R$ 26.83($11.82) to R$ 5.68 ($2.50); and the Operation Inspection Fee (TFF), an

annual charge on each active SIM, from R$ 8.94 ($3.91) to R$ 1.87 ($0.82).

The new regulation is positive news for the largest M2M market in LatinAmerica, which had 8.3 million M2M connections in 2013, equivalent to 3%

of total connections. M2M connections grew at a CAGR of 48% in the pastfour years, mainly driven by Point-of-Sale (PoS) terminals connected viaGPRS and the migration of payment cards to the EMV standard (Europay,

MasterCard and Visa).

These tax reductions have had a substantial impact on the M2M market inBrazil. As we stated in our previous report, M2M connectivity ARPU ranges

between $2 to $5, with Vivo Brazil executives indicating that M2M monthlyARPU stood at R$5 ($2.20) in 2012. Thus, a year one fee of $15.80 on anannual ARPU of $26.40 poses a significant burden on operators’ M2M

business model and a major barrier to adoption.

The Brazilian market has been looking forward to this regulation. In ourrecent conversations with Brazilian operators, they quoted taxation as one

of the main obstacles to fast growth of M2M market. Operators indicatedthat reductions in taxation of as little as 20% would “make a big impact”,adding that it would allow them to provide even more attractive M2M

services. Similarly, operators expect lower taxes to trigger a substantialreduction in churn by lowering the overall cost of service, thereforetranslating into substantial savings for operators.

As it stands, this tax break is subject to a Public Consulting process led byAnatel which is issuing a new Regulation Document that would include thespecific rules along with a revised M2M definition.

Additionally, we expect the lower taxes to reduce the total cost of service,hence allowing for further penetration of M2M services, while boostingthe business case for innovative M2M services, targeting smaller, more

cost-conscious enterprises, and low margin industries such as farming andsocial services.

49%51%

34%

66%

Developing region

Developed region

2013

2010

Figure 7: Regional share of global M2M connections, 2010-13


Figure 6: Global M2M connections


0

50

200

100

150

0%

3%

1%

2%

2010 201320122011

M2M as % of total

M2M connections


https://gsmaintelligence.com/files/analysis/?file=140217-m2m.pdf

https://gsmaintelligence.com/files/analysis/?file=140217-m2m.pdf



14


Dynamics of smartphone market changing in the US and China

The dynamics of the smartphone market are changing as developedmarkets are reaching saturation point, while competition is intensifying

in developing economies. Both operators and handset vendors havereported challenges in increasing smartphone volumes.

In the US, smartphone penetration growth in the contract segment atAT&T Mobility, Verizon Wireless, Bell Mobility (BCE) and Rogers Wirelesshas been slowing down in Q1 2014. To address this issue, AT&T has alreadybegun targeting the prepaid market for future smartphone growth. The

operator stated last January that “we’ll be very assertive and aggressiveon pushing smartphones on prepaid.”

As the smartphone market in developed countries is maturing and growthis mainly driven by handset replacement, the established smartphonemanufacturers are facing challenges to maintain their sales figures.Samsung, the world’s biggest mobile phone manufacturer, saw its mobile

unit sales figures fall by 4% in Q1 2014.

In the developing region, China’s State-owned Assets Supervision and

Administration Commission of the State Council (SASAC) issued arequirement that in order to maintain profitability, Chinese operatorsshould reduce subsidy costs by RMB 10 billion ($1.6 billion) during 2014.

SASAC’s requirement will see Chinese operators focus more heavily onsubsidising 4G devices, at the expense of 3G. In the midst of booming LTEadoption in the country, Chinese operators are likely to favour subsidies

for lower-cost LTE devices, giving a boost in particular to local handsetmanufacturers.

Meanwhile, Chinese manufacturers such as Xiaomi, ZTE, Coolpad and

Huawei are either pushing to enter emerging markets or already have astrong presence in those markets thanks to a range of affordable devices.For instance Xiaomi is planning to expand its international foothold by

entering into ten new countries this year: Malaysia, Philippines, India,Indonesia, Thailand, and Vietnam, followed by Russia, Turkey, Brazil, andMexico.

0%

10%

70%

20%

80%

90%

60%

50%

40%

30%

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Bell Mobility (BCE) Rogers Wireless

Verizon WirelessAT&T Mobility

Figure 8: Smartphones as % of contract connections, US/Canada


Figure 9: Network technology split (as % of total connections), China


63%

36.7%

85%

15%

3G 4G

Q1 2014

Q1 2012

0.3%

2G



15


LTE adoption to boost demand for music streaming bundles

This quarter, Samsung and Deezer - the music streaming provider -cooperated on a venture providing new S5 customers with temporary

free access to the subscription-based music service. This move shows thegrowing importance of content and bundled services for both vendorsand operators to differentiate their offers in the midst of intensifying

competition.

According to the International Federation of the Phonographic Industry,streamed music is seeing the largest growth of all music industry verticals,

with revenues increasing by 51.3% in 2013. This trend represents asubstantial revenue opportunity for both operators and vendors to placemobile connectivity at the forefront of this phenomenon, and a way to

fight churn in markets where customer retention is a challenge.

The positive impact that bundled services and partnerships with contentproviders could have on vendors and operators volumes has already been

demonstrated. At Mobile World Congress in February 2014, Dropboxclaimed that of consumers that were aware of the Dropbox/Samsungpartnership, 18% said the integrated cloud service was instrumental in

their device purchase decision. In addition, several mobile operators havealready reached agreements with media streaming companies, with EEoffering its customers a free Deezer subscription in the UK while AT&T inthe USA is offering significant Beats Music discounts.

Operators in developed markets are likely to see a higher demand forbundled services as the adoption of LTE smartphones continues to rise.

According to EE in the UK, 50% of all 4G audio data is utilised on Deezeror Spotify, while only 14% is used on the services by their 3G customers.Similarly, in May, Vodafone New Zealand reported that its 4G users were87% more likely to stream music than 3G users.

Regarding opportunities in emerging markets, Dennis Kooker, Presidentof Global Digital Business & US Sales at Sony Music Entertainment, claims

that digital growth in emerging markets is already exceeding that of therest of the world. Alongside device affordability and mobile broadbandaccess, operators will have to find new innovative ways to offer and pricebundled services and subscriptions to a cost-conscious audience that is

largely prepaid.

0

10

15

5

30

20

25

2010 2011 2012 2013

8

13

20

28


Figure 10: Global music subscribers

(million)

Source: IFPI

0

4

5

3

8

6

2

1

7

2010 2011

3.7

7.4

( i n b

i l l i o n s )

Figure 11: Global number

of streamed songs (billion)

Source: IFPI

-20% -10% 60%0% 10% 20% 30% 40% 50%

Subscription Streaming Services

Advertising Supported Streaming Services

Digital Downloads

Performance Rights

Synchronisation Deals

Physical Music Sales -12%

-3%

-2%

19%

51%

18%

Figure 12: Global audio media revenue annual growth, 2013

Source: IFPI



16


Fast growing messaging apps attract users and investments

In February Facebook announced its acquisition of mobile messagingapplication, WhatsApp, for $19 billion in cash and shares. The news drew

attention to the messaging application landscape, notably regardingusage growth and potential M&A activity.

Over-the-top (OTT) messaging applications continue to experience rapidgrowth in terms of registered users. WhatsApp reached a milestone of500 million regular users across the world, LINE signed up 420 millionusers, Tencent’s WeChat/Weixin increased its monthly active users to 396

million, Viber registered 345 million unique phone numbers, Tango nowhas 200 million users, Kakao Talk attracted over 140 million users and Kikhas 120 million users.

Similarly, the increasing popularity of these messaging services is drivingusage to higher levels. LINE reported a daily record of 10 billion messagessent on March, 21. WhatsApp announced that 20 billion messages were

sent in a single day, while its users also share more than 700 millionphotos and 100 million videos a day.

As a result, the market saw a number of mergers and acquisitions over thepast few months. Along with the Facebook/WhatsApp deal mentionedpreviously, Japanese e-commerce company Rakuten acquired Viber for$900 million, Chinese e-commerce giant Alibaba invested $215 million in

Tango, while both LINE and Kakao Talk were reported to be consideringan IPO in the future. The latter will merge with internet portal DaumCommunications to intensify future growth. The equity swap merger sets a

$3 billion valuation of Kakao Talk.

Interestingly, Ted Livingston, founder and CEO of mobile messaging appKik, said that despite of resent mergers and acquisitions the company

would stay independent because “the opportunity is just so much bigger”.

The most popular messaging apps announced big goals for the future.

LINE aims to reach 1 billion users in 2015. Facebook CEO Mark Zuckerbergenvisages WhatsApp to hit 1 billion users in the next few years. WeChatfocuses on international expansion. As competition increases we expect tosee more investments and M&A activity in messaging applications in the

future.

Figure 13: Registered users, selected mobile messaging applications

Source: Company data

Figure 14: Volumes of messages sent per day

Source: Company data

500


400

300

200

100

0Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Kakao Talk

Tango

Viber

Line

WeChat

WhatsApp

0

5

20

10

15

WhatsApp SnapchatKakao TalkLine

( i n b

i l l i o n s )



17


Glossary

Developed and developing classification

GSMA Intelligence classifies developing countries and economies

as defined by the World Bank. Economies are divided according to

2011 gross national income (GNI) per capita into low-income ($1,025or less), lower and upper middle-income ($1,026–$4,035 and

$4,036–$12,475) and high-income ($12,476 and over) (July 2012).

Countries that fall within the low- and middle-income brackets

are then classed as developing markets. Note that this definition

is subject to annual change as the income brackets and GNI per

capita of each market are reviewed and if necessary, revised, by the

World Bank at the end of June. Data is released 12 months behind

the current calendar year.

Within GSMA Intelligence, developed and Developing economies

are available as regional filters in applicable tools, for example the

operator and market list.

Map of developed economies,

(Based on World Bank definition) Map of developing economies

(Based on World Bank definition)

http://data.worldbank.org/about/data-overview/methodologies

https://gsmaintelligence.com/metrics/171/1501/data/?show=2&date_type=Y

http://data.worldbank.org/about/country-classifications

https://gsmaintelligence.com/operators/

https://gsmaintelligence.com/markets/

https://gsmaintelligence.com/markets/

https://gsmaintelligence.com/operators/

http://data.worldbank.org/about/country-classifications

https://gsmaintelligence.com/metrics/171/1501/data/?show=2&date_type=Y

http://data.worldbank.org/about/data-overview/methodologies



18

About the authors

Nika Naghavi

Analyst

Andrey VoltornistContent Manager

Dennisa ChuangAnalyst

Matthew IjiAnalyst

Calum DewarManager

Sylwia KechicheSenior Analyst

Mark GilesSenior Analyst

Additional research published this quarter

• The global MVNO landscape, 2012-14

June 2014, Calum Dewar

• Half a billion Chinese citizens have subscribed to the mobileinternet

June 2014, Joss Gillet, Mark Giles

• Mixed picture for 4G in Asia Pacific as lack of low-frequency

spectrum limits coverage

June 2014, Dennisa Nichiforov-Chuang

• Measuring mobile penetration

May 2014, Joss Gillet

• Market consolidation aims to address rising investment costs for

European operators

May 2014, Mark Giles

• Infographic: Defining mobile penetration in India: population,

subscribers and connections

May 2014, Joss Gillet

More research notes, reports and infographics are available in our

online research archive.

https://gsmaintelligence.com/analysis/2014/6/the-global-mvno-landscape-201214/433/

https://gsmaintelligence.com/analysis/2014/06/half-a-billion-chinese-citizens-have-subscribed-to-the-mobile-internet/432/


https://gsmaintelligence.com/analysis/2014/06/mixed-picture-for-4g-in-asia-pacific-as-lack-of-low-frequency-spectrum-limits-coverage/431/


https://gsmaintelligence.com/analysis/2014/05/measuring-mobile-penetration/430/

https://gsmaintelligence.com/analysis/2014/05/market-consolidation-aims-to-address-rising-investment-costs-for-european-operators/429/


https://gsmaintelligence.com/analysis/2014/04/infographic-defining-mobile-penetration-in-india-population-subscribers-and-connections/428/


https://gsmaintelligence.com/research/

https://gsmaintelligence.com/research/





https://gsmaintelligence.com/analysis/2014/05/measuring-mobile-penetration/430/





https://gsmaintelligence.com/analysis/2014/6/the-global-mvno-landscape-201214/433/



19

About GSMA Intelligence

GSMA Intelligence is the definitive source of mobile operator data,

analysis and forecasts, delivering the most accurate and complete

set of industry metrics available.

Relied on by a customer base of over 800 of the world’s leading

mobile operators, device vendors, equipment manufacturers and

financial and consultancy firms, the data set is the most scrutinised

in the industry.

With over 20 million individual data points (updated daily), the

service provides coverage of the performance of all 1,140 operators

and 1,153 MVNOs across 3,505 networks, 65 groups and 236 countries

worldwide.

For more information, visit gsmaintelligence.com/about/

Whilst every care is taken to ensure the accuracy of the information contained in this material, the facts,estimates and opinions stated are based on information and sources which, while we believe them to bereliable, are not guaranteed. In particular, it should not be relied upon as the sole source of reference in

relation to the subject matter. No liability can be accepted by GSMA Intelligence, its directors or employeesfor any loss occasioned to any person or entity acting or failing to act as a result of anything contained in oromitted from the content of this material, or our conclusions as stated. The findings are GSMA Intelligence’scurrent opinions; they are subject to change without notice. The views expressed may not be the same asthose of the GSM Association. GSMA Intelligence has no obligation to update or amend the research or tolet anyone know if our opinions change materially.

© GSMA Intelligence 2014. Unauthorised reproduction prohibited.

Please contact us at [email protected] or visit gsmaintelligence.com. GSMA Intelligence doesnot reflect the views of the GSM Association, its subsidiaries or its members. GSMA Intelligence does notendorse companies or their products.

GSMA Intelligence, 5 New Street Square, New Fetter Lane, London EC4A 3BF

gsmaintelligence.com • [email protected] • @GSMAi

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