Mobile World Congress 2013 - Greenwich Consulting Coverage - Key outputs

International Management Consulting

2013 Mobile World Congress Coverage

Greenwich Consulting – The Institute

March 2013

2 © 2013

Agenda

Executive Summary – Four Key Outputs from the 2013 MWC

MWC Theme 1: The Chinese Smartphone invasion begins

MWC Theme 2: New Mobile Operating Systems: a threat to Android and iOS supremacy ?

MWC Theme 3: Digital Payments: a test for NFC ?

MWC Theme 4: Small Cells, now the beginning ?

3 © 2013


Chinese handset

vendors

• Chinese vendors are growing and offer lower-cost alternatives to high-end smartphones

• Given the lower price level, the potential is significant, especially in emerging markets

• Even if the competition will be fierce in more mature regions due to market consolidation,

we think Chinese vendors will capture 1/3 of the Smartphone market by 2016

Digital Payments

• Samsung and Visa announced a partnership that could help scale Digital Payments by

integrating NFC & Visa technology directly in the shipped handsets

• But these new strategies are opposing previous moves from other companies

particularly MNOs, and should trigger further reaction from both operators and major

handset vendors like Apple

Mobile Network

Infrastructure

• The long-running story of Small cells has made its comeback at the 2013 MWC, riding

the wave of booming capacity demands especially in urban areas

• Yet, the introduction of Small cells must be evaluated carefully by MNOs, due to the

potential additional complexity on existing networks and the risk of uncoordination

New mobile

Operating

Systems (OS)

• Android and iOS have reached a position of hegemony in the mobile OS ecosystem

• Yet we see other OS trying to challenge this position: Blackberry and Windows 8 in mature

markets, and new alternative open-OS like Firefox in emerging countries

• The <100$ smartphone requires significant cost optimizations. The amount of patent fees

having a clear impact on profitability, open OS like Firefox could represent a credible

alternative to Android, providing that they effectively evade the patent trap

4 © 2013

Agenda






5 © 2013

More than half of mobile phones sold today are still basic or feature phones,

costing less than 79$

Distribution of global smartphone sales per range (Million units, 2012)

326,3

249,5

211,1

Mid-priced

Smartphones

(150$ to 449$)

Low-cost Smartphones

(80$ to 149$)

High-end Smartphones

(>450$)

729,4

1.919,5

Feature phones

(40$ to 79$)

403,1

Ultra low-cost phones

(<39$)

Total

Source : Greenwich Consulting analysis, based on OVUM data (2012) and TomiAhonen Phone Book 2012

Estimates

6 © 2013

Yet handset vendors are highly interested in moving upmarket, because of

significantly higher operating margins

iPhone estimated

operating margin

~50 %

High-end

Smartphones

~30%

Mid-end

Smartphones

~20%

Low-end

Smartphones

~15%

Basic & Feature

Phones

~5 to 10%

20

12

es

tim

ate

d o

pe

rati

ng

marg

in b

y p

rod

uct

ran

ge

Ex

am

ple

s o

f re

ce

nt

mo

ve

s

by h

an

dset

ven

do

rs

Lumia 520

(Feb 2013)

Lumia 920

(Sep 2012)

Historic +

105, 301

(Feb 2013)

Vodafone

Smart (May

2011)

ZTE Ascend

G300 (May

2012)

Ascend P1,

Grand X

(Jul. 2012)

Galaxy S2

(May 2011)

Galaxy ACE

2 (Feb 2012)

Galaxy Mini

S2

(Apr 2012)

Ashe 305

(Q3 2012)

Source : Greenwich Consulting estimates

Estimates

Strategic Rationale

1.Enter with flagship product against Apple

to create brand-awareness

2.Use a brand strategy and enter low- and

mid-end segments

1.Reinforce position in feature phones

2.Enter low- & mid-end smartphone

market, launch emblematic product (920)

3. Penetrate emerging markets

1.Capitalize on cost-effectiveness to

address more mature markets

2.Go gradually upmarket to leverage on

higher margins

7 © 2013

Chinese vendors like Huawei and ZTE, as well as others like Nokia,

have made several smartphone-related announcements at the MWC

• Huawei’s main announcement were the launch of:

• their high-end, Android-based Ascend P2

(Release date expected in Q2 2013, entry

price of 399$ in Europe)

• the G350, mid-end smartphone based on

Android and water-resistant

• ZTE focused on both higher and lower-end

segments and launched two products:

• the ZTE Grand Memo, high-end phablet

• the ZTE Open, low-cost device running on

Firefox OS

• Lenovo launched its high-end IdeaPhone K900

Phablet with a 5,5’’ display

Chinese vendors reinforce their position in

the low to high-end smartphone segments

• Nokia launched two new Feature phones at the

2013 MWC

• Nokia 105: expected to cost only 15$

• Nokia 301: costs 65$ and equipped with

HSPA, marketed as cheap device for mobile

internet and email

• Even if Nokia in the Smartphone segments is not in

the top five vendors, they still manage to be

number two worldwide for total mobile phone

sales

• In the same time, Nokia reinforced its low and

mid-end smartphone range with the Lumia 720

(~350$) and 520 (~200$)

While Nokia even wanted to target the

Feature Phones market

8 © 2013

The positioning of Chinese vendors looks promising, since the low-cost

segment should drive the growing smartphone penetration worldwide

Smartphones will drive the growth of the

mobile phone market worldwide

The global smartphone penetration should be

driven by the low-end segment

124 162 183 205 224

78

2010 2011

447

(36%)

1,243

572

(46%)

201

(30%)

2013e

482

223

(46%)

135

(28%)

2014e

325

156

(48%)

91

(28%)

2012

1,051

410

(39%)

436

(42%)

871

379

(43%)

309

(35%)

2015e

672

309

(46%)

High end (>500 US $)

Mid range (200-500 US $)

Low End (<200 US $)

Source : Greenwich Consulting analysis based on OVUM & Strategy Analytics data, 2012

CAGR 10-15

+ 23%

+ 23%

+ 44%

Worldwide Smartphone shipments (million units)

1.748

672

(35%)

1.248

(65%)

1.920

871

(42%)

1.222

(58%)

2.365

325

(21%)

1.231

(79%)

1.556

482

(28%)

1.266

(72%)

2010 2011 2012 2013e 2014e 2015e

2.093

1.051

(47%)

1.190

(53%)

2.242

1.243

(53%)

1.122

(47%)

Feature phones

Smartphones

Worldwide Smartphone shipments (million units)

Estimates

9 © 2013

We estimate that Chinese vendors, who represent today about 27% of the

total smartphone shipments, should capture about 1/3 of the market by 2016

2012 worldwide smartphone shipments

(million units)

2016 worldwide estimated smartphones

shipments (million units)

89

2030

43

182

(27%)

Total

Chinese

490

(73%)

672

Total

Worldwide

Other Other

chinese

vendors

Lenovo ZTE Huawei Other Total Chinese Total Worldwide

1.474,2

978,5

(66%)

495,7

(34%)

Source : Greenwich Consulting analysis based on OVUM, Gartner, and Company data, 2012

Estimates

10 © 2013

Agenda






11 © 2013

Three new operating systems were under the spotlight at the 2013

MWC, predicting an important rise of “alternative” Operating Systems

• Announcements

- Open source OS developed by

Mozilla Foundation

• Positioning

- Positioned as low-cost

alternative to major OS,

especially dedicated to emerging

markets

• Main partnerships announced

- Vendors: LG, Alcatel, ZTE, Sony

- Carriers: 17 companies, incl.

Telefonica, America Movil, China

Unicom, and Deutsche Telekom.

Firefox OS

• Announcements

- Open source, developed by

Intel and Samsung, part of the

Linux Foundation. (Follow-up

on Samsung’s “Bada” )

• Positioning

- Expected to debut on the high-

end segment


- Vendors: Samsung, Huawei

- Carriers: Orange and NTT

Domoco (H2 2013), Vodafone

Tizen

• Announcements

- Open Source OS developed by

Canonical, based on Linux

software platform

• Positioning

- High-end, fully multi-device OS

(PC, Tablet, and smartphone)


- No partnership announced

- First devices expected for late

2013 / early 2014

Ubuntu Phone

12 © 2013

These announcements have to be put in perspective with the current market

trends and the hegemony of iOS and Android

• iOS and Android have a dominant

position on the market and have created

sustainable lock-in effects. They should

still represent more than 2/3 of the

market by 2017, with Android alone

having almost a 50% share

• Blackberry and Windows Phone are

challengers in the smartphone market

• Nokia announcing new products at

the MWC 2013 and leading the

Windows Phone growth.

• Blackberry 10 product line recently

launched

=> New OS like Firefox, Tizen and Ubuntu

will have difficulties competing face to

face with these flagship players who have

built rich ecosystems patently-protected.

Description & Analysis

Source(s) : OVUM, 2012

2013-2016 estimation of worldwide smartphone OS

shipments (Million units)

1.051

37

(3%)

130

(10%)

116

(9%)

629

(51%)

331

(27%)

1.243

40

(3%)

43

(4%)

97

(9%)

543

(52%)

2014e 2015e

94

(9%)

2017e

458

(27%)

1.710

275

(26%)

2016e

173

(12%)

139

(9%)

728

(49%)

393

(27%)

1.474

46

(3%)

224

(13%)

163

(10%)

819

(48%)

455

(52%)

226

(26%)

871

80

(9%)

62

(7%)

48

(5%)

2013e

iOS

Android

Other

Blackberry

Windows (Mobile&Phone)

Estimates

13 © 2013

There is still potential for further Smartphone penetration in mature regions,

and a considerable market to create in emerging countries

Source(s) : OVUM, 2012

569519

460410

354296

955

783

641

516

376

0

10

20

30

40

50

60

70

80

90

100

1.400

200

2.200

2.000

1.800

1.600

0

1.200

1.000

800

600

400

1.141

59%

93%

2016e

51%

88%

2015e

44%

80%

2014e

38%

74%

Smartphones penetration

(% of total mobile shipments)

33%

66%

2012

27%

2013e

Smartphones shipments

(million units)

2017e

57%

MEA, Asia Pacific, South & Central America

North America & Europe

2012-2017 forecast of Smartphone shipments and penetration rate in two main regions

CAGR 12-17

+ 25%

+ 14%

Estimates

14 © 2013

Given the drop in Average Selling Price, the profitability of low-cost

Smartphones relies significantly on the amount of patent-related royalties

-100

0

100

200

300

400

-6

-4

-2

0

2

4

6

8

90$

6%

155$ 2%

5%

90$

-4%

90$

-42%

Handset ASP ($) Operating Margin (%)

The impact of patent-related royalties on operating margins is significant, and will determine Firefox

OS’s capability to help penetration of low-cost smartphones

Android low-cost smartphone

14$ / device

Open-OS low-cost smartphone (3 scenarios)

3$ / device 5$ / device 10$ / device

~100$ / device 65$ / device

Royalties

BOM & other costs

Source : Greenwich Consulting estimates, 2013

10% 10% Operating Expenses

Estimates

ASP 155 $ 80 $

Hypothesis:

Mid-case Worst-case Best-case

12% 12% Retail Margin

15 © 2013

In this market, alternative OS like Firefox have strong cost-related assets but

will have to face different challenges

• Firefox OS is developed to run on low-performance devices

• Open HTML5 –based platform, letting Mozilla evade the

patent trap

• Support from both Carriers and Handset vendors

• Brand awareness is low compared to other major OS

• Poor ecosystem compared to major OS who have

successfully gathered third-party developers around their

platform

Strengths Weaknesses

• Operators are often looking for alternatives to traditional OS

in order to

• Reduce amount of subsidies with lower-cost devices

• Gain visibility in the ecosystem

• Penetration potential for Smartphones, especially in

emerging markets

• Major OS could potentially file lawsuits against Firefox –

amount of royalties still has to be determined.

• Consequently, the exact impact on operating margin still has

to be evaluated.

Opportunities Threats

16 © 2013

Agenda






17 © 2013

Digital Payments were at the heart of the 2013 Mobile World Congress,

thanks to the Visa-Samsung partnership and other announcements

- Preloading Visa’s payWave technology on

several Samsung devices from 2013

- Provisioning service: easy way for banks and

operators to make users’ account information

available on their handset

- Non-exclusive alliance : Visa may plan to do the

same with other vendors or operators.

- In parallel, Samsung announced the deployment of

its digital wallet (competitor to Apple’s passbook)

on its Smartphones.

Visa – Samsung Partnership

- Mastercard

- Launch of MasterPass, Mastercard’s digital

wallet.

- Announced partnerships with major banks

(e.g. Citi, Commonwealth Bank)

- NFC payment service in Brazil with Paypass

technology in Pilot Phase

- Other Digital Payments initiative were announced

- Telenor partnered with DNB to rollout the

mobile wallet “Valyou”

- KPN anounced partnership with ABN Amro,

ING and Rabobank for a pilot project

Other related announcements

18 © 2013

The complexity of the digital payment value chain is slowing down adoption

of NFC and creating a conflict between pure internet players and telecom

operators

Role

• Provides NFC-enabled device

and Operating System (OS) Smartphone players

(OS & handsets)

Telco operators

Cloud-based digital

payment

Traditional payment

networks

Trusted services

managers

Banks

Retailers

• Ensures safety of data stored in

SIM card, can pre-install

payment applications

• Provides a cloud-based digital

payment solution

• Provides a trustable payment

solution

• Ensure fund transfers between

buyers and sellers

• Manage bank details

• Third-party that ensures

security of transactions

• Getting equipped with NFC-

enabled payment solutions or

QR codes to enable payments

Strategy

• Put the device at the heart of the NFC strategy

• Launch their own digital payment solution

(e.g. Google Wallet)

• Generate incremental revenues by monetizing

SIM-based services

• Promote their close relation to end-users

• Extend their cloud-based solutions to

traditional payment methods (especially with

small local merchants)

• Protect their positioning between pure web

players and telecom operators

• Promote innovative uses & practices

• Collect more data on customers

• Be considered as essential intermediary,

promoting the need for more security on

transactions

• Improve customer journey and increase

customer loyalty

• Improve knowledge on customer base

19 © 2013

The Samsung-Visa partnership opposes operators’ strategies on this market

and should triger further reaction by telcos and other handset vendors

• Other handset vendors like Apple or

Nokia are not yet positioned in this market,

but could try to imitate Samsung

• Carriers are bypassed by this partnership

and are losing control over the payment

process

• Pure cloud based solutions are

bypassed by Samsung’s proprietary

application & Visa direct integration

• Other transaction processing

companies (Mastercard) should try to

integrate with either operators or handset

manufacturers to get a foot in the market

… which will certainly trigger

reaction from other players

Visa-Samsung’s positioning in the value chain is

disruptive …

Smartphone

(OS &

handsets)

Telco operators

Banks

SIM-based

NFC

strategy.

Operators as

intermediary

between

Handset

vendors &

Banks

1. MNOs lead

M-Payment

effort

2. Cloud-

based players

disrupt

3. Samsung-

Visa

partnership

Pure online

digital

wallet,

combined

with POS

solutions

Handset-

centric NFC

& integrated

Digital

Wallet.

Transaction

processing

& Integration

with major

banks

Typical players

Cloud-based

digital payment

Traditional

Payment

networks

20 © 2013

Agenda






21 © 2013

Small cells have long been considered as a game changer for the telcos, the

concept gained a lot of momentum and buzz this year at MWC 2013

Small cells with lower transmission power are positioned within the

coverage area of a macro cell to enhance capacity and coverage

The objective of Heterogeneous Networks (NetNets) is to complement and enhance the macrocell

layer by deploying low-power nodes like femtocells and WiFi to increase coverage and capacity

Heterogeneous Network

Macrocell

Femtocell

Metrocell Picocell

WiFi

Smart, self-organizing wireless ecosystem

• Intelligent multi-cell, multi-vendor coordination & optimization

- Between the macro cell layer and the small cell layer

- Within the small cell layer

• Inter-cell interference

• Small cell backhauling

HetNet challenges

According to vendors, HetNets will

increase capacity and coverage

*Simulations based on a downlink traffic of 3 GB/month per user

Source: Ericsson, February 2012

User

Throughput

(Mbps)

Coverage probability (%)

Improved and densified macro + 21 pico

Smallcells

22 © 2013

Alcatel is a promoter of heterogeneous network deployment and has already

developed an extended range of Small cells products and services

Source: Vendors websites, February 2013

23 © 2013

Major RAN vendors like NSN promote Outdoor Metro cells, the rationale is

to combine metro cells in small numbers with a macro cell coverage

• Smart WiFi – End-to-end solution for building and

controlling WiFi networks that integrate with cellular

networks

• Small cell products – Micro and picocell base stations for

LTE and Wi-Fi, HSPA+ and LTE femtocell

• Hetnet services – Services for customer experience

management, hotspot traffic analysis and higher backhaul

capacity

NSN highlighted its HetNet vision

• Microwave small cell (concept unveiled at MWC 2012,

made commercially available at MWC 2013) – Enhanced

backhauling solution for LTE small cells

• 8 x 8 MIMO active antenna system – Concept for the

world's smallest small cell active antenna system

Ericsson introduced its MINI-LINK backhaul

solution

Pro

du

ct

/ S

erv

ice

s a

nn

ou

nc

ed

Source: Vendors websites, February 2013

24 © 2013

Pro

du

ct

/ S

erv

ice

s a

nn

ou

nc

ed

At the opposite, IP new entrants like Cisco or Qualcomm are more

focused on Residential and Enterprise Small cells

• Ultrason – Network deployment model termed

“Neighborhood Small Cells” (NSC) consisting of very

dense deployment of small cells providing both indoor

and outdoor coverage

• Small cell products – Micro and picocell base stations for

LTE and Wi-Fi, HSPA+ and LTE femtocell

Qualcomm promotes very dense deployment

model with proliferation of small cells

• 3G small cell

• 3G plug-in module – For existing enterprise & public

WiFi access points

• Routers – Optimized for the backhaul of multi-vendor

heterogeneous small cell networks

• Software suite – Designed to better analyze and

monetize 3G, 4G and WiFi data traffic

Cisco entered

the cellular base station market

Pro

du

ct

/ S

erv

ice

s a

nn

ou

nc

ed

25 © 2013

47 operators have rolled out the Small cell technology and various

leading MNOs have made HetNet-related announcements at the MWC

Korean operators already use

small cells as LTE traffic booms

• Demonstrated its combined

LTE/WiFi small cell

• Deployed over 6K indoor small

cells to date, mostly in public areas

(mid-2013 goal = 18K cells)

• Showed its LTE HetNet Solution,

SuperCell, developed by Ericsson

and Samsung, which aims at for

100x capacity at 10x cost

• Deployed 3K LTE femtocell (goal=

40K LTE femtocell)

US carriers announced successful

results with LTE small cells

• Plans to deploy public access LTE

small cells in 2013

• Admitted that deploying LTE small

cells comes with backhaul and site

acquisition challenges

• 2 small cell trials in 2012

(2015 goal = 40,000+ small cells)

• Increased capacity & coverage in a

building with multiple ‘dead zones’

and a busy neighborhood

UK operators are testing

public small cells

• Is currently testing 1000 public

small cells

• Plans to start rolling out tri-mode

models (3G, 4G & Wi-Fi) by March

2013

• Announced its intention to trial

rural small cells to fill the coverage

gaps in its network, including in

area where it has traditionally been

uneconomical

Source: Small Cell Forum, February 2013

26 © 2013

Vendors push Small Cell technologies, which they expect to grow eightfold in

the next 4 years, driven by urban area capacity upgrades

Vendors present Small Cells as the best tool for

carriers to bring extra capacity in busy urban areas Forecast for the Small Cell base

(2013-2016, million units)

97%

11 million

63%

2012 2016

92 million

% of all base stations globally

Global Small Cell installed base

Mobile Operator Network

Macrocell Internet

Residential

Femtocell Enterprise

Picocell

Outdoor

Metro cells

• Capacity

equivalent to a full

3G network sector

• Low transmit

powers

• No need for WiFi

enabled handsets

• Better in-building

coverage

• Higher data rates

• Lower capital

costs

• Cost effective

solution

• Better local

coverage

• Greater capacity

• Macro network

traffic offload

• Cost-effective

alternative in

remote rural areas

Benefits communicated by vendors

Source: Informa Telecoms & Media, February 2013

27 © 2013

With the multiplication of Outdoor Metro cells, operators will have to face

deployment challenges and booming OPEX

Metro cell key components and related

considerations for their deployment

Site

Radio

Backhaul

• New types of sites with

potentially unsuitable

conditions (e.g. lack of a

power source or bad overall

physical condition)

• New site acquisition issues - Multiplication of locations

- New stakeholders &

permitting processes

• Fast development cycles

• Low prices thanks to

competition and open

standards

• Large number of new

backhaul links required (mitigated need for operators

with a dense fiber network)

• Potentially complex

deployment due to cell

locations

The development of metro cells will have an

impact on the operators’ current business

?

Backhauling and deployment costs

Operational challenges

Spectrum, interference and coexistence issues

100s of

additional

Metro cells

Higher monitoring needs

Higher maintenance needs

New procedures & higher OPEX

*Including the Small Cell itself, site acquisition, construction and permitting costs

Source: Public Wireless, 2011

• One of the major challenges with deployment of small-

cell architectures is how to provide backhaul to the cell.

While fiber is the ideal solution, that is not always

physically possible with small cells

• Smaller Unit size / More testing for throughput and

reliability are needed for wide-scale roll out

• Interference – Possibility of interference between the

macro & small cell network layers if they share spectrum

• Coexistence / risk of uncoordinated network –

Concern around the use of cells from different vendors

Positive impact for operators

Negative impact for operators

Your personal contacts:

International Management Consulting

Frederic Huet +44 789 128 4551

[email protected]

Pierre Borg +33 6 85 30 27 38

[email protected]

Axel Duplan +33 6 31 27 41 83

[email protected]

About Greenwich Consulting

Greenwich Consulting is a leading management consulting firm

specialized in the Telecom, Media & Utilities industries, providing its

clients with unique sector-based expertise, in more than 80

countries in the last 18months.

Greenwich Consulting has developed a strong expertise on key

telecom issues in Emerging and Mature Markets through market

analysis, strategic planning, and by delivering numerous C-level

business consulting assignments for leading regional players.

For more information please visit www.greenwich-consulting.com

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