A year of dramatic change for the European cellular industry

Like at no other time in its relatively short history, the mobile industry now faces huge uncertainties as it enters 2009. These worries, driven almost exclusively by the worldwide economic upheaval, will fundamentally dictate the strategies and tactics adopted by mobile operators, infrastructure suppliers and handset vendors.

This credit squeeze--of unprecedented proportions--will see operators and consumers cut back on their spending and force the industry into looking afresh at its future in both the short to mid-term.

Although it’s always difficult to predict what the coming year will bring, here’s a list of what I believe will be key trends in 2009. I compiled this list with the assistance of Rob Westwick and Steve Griffin at PA Consulting. –Paul

Prediction No. 1: Efficient bit pipes become fashionable
As credit restrictions bite, and investments in new value-added services come under increasingly harsh scrutiny, operators will be forced to revise their views on the value of becoming an efficient data pipe. This position, something that operators have strived to move away from, will become much more attractive given the guaranteed margins that are obtainable from this business model.  

This shift will be helped by the growing trend towards the democratisation of mobile data--pushing it out to the mass market with innovative bundling that will attract a new market of mobile data consumers outside of today's business and smartphone users.

This year will see the further decline of the walled garden approach, with some operators openly declaring to focus on doing one thing only--transporting bits, but being the most effective at doing so.

Prediction No. 2: Femtocells become more attractive to operators, consumers
As mobile data traffic grows, and operators become squeezed for capacity, femtocells will become an increasingly interesting strategic option for operators. These devices could be part of the harsh cost-cutting exercise operators will need to undergo during 2009. Femtocells will allow operators to keep costs down as a result of not having to deploy new technology or purchase new spectrum.

There are questions, however, over whether consumers will readily accept the idea of the femtocell, or comprehend the need, to have a mini cellular base station in their home. 2009 will be a year when operators actively promote femtocells and deploy them commercially, but their success and longevity will not be proven until at least 2010.

If femtocells are able to prove their technical capabilities, together with their consumer acceptance, then they could start to impinge on the growing success of Wi-Fi for in-home mobile data coverage.

Prediction No. 3: LTE becomes part of the cost-cutting strategy
While 2009 will not be the year of LTE, we will see the first LTE-based products and trial networks prior to full commercial deployments in 2010. Given that this standard has now been frozen, operators will push the infrastructure suppliers to shorten their delivery deadlines given that the technology has the capability to significantly reduce the cost-per-bit.

However, this rush towards LTE has its own problems given that operators need to have 2x20MHz of contiguous spectrum in order to achieve the peak data rates promised by the technology. The need for this contiguous spectrum could see operators combining their bids for this scarce resource.

The pressure on infrastructure vendors to deliver will have the secondary effect of further closing the opportunity window for WiMAX. The relative lack of uptake for WiMAX could also trigger a shakeout of the major technology providers, as has already been seen with Alcatel Lucent’s recent announcement that they are shifting their priorities towards LTE and away from WiMAX.

In tandem with this shift towards LTE, operators will look for greater efficiencies from their existing networks by using more effective network optimisation techniques, for example. Outsourcing the management of these core networks and RAN sharing could also be jolted into movement having drifted over the last 12 to 18 months.

Prediction No. 4: Nokia pushes ahead with its services business
Albeit that the company seems in some disarray regarding its handset portfolio and device strategy, Nokia is determined to push ahead in 2009 with its services and location businesses. Using its Ovi platform, the company will try to compete with Google, Facebook, MSN and others in an attempt to secure incremental revenues that are not based on devices which are increasingly becoming commoditised.

Unfortunately, this push into the services market has confused and alienated mobile operators to date, something Nokia will need to firmly address if it is to be successful with this new strategy in 2009. However, if operators select the ‘efficient bit pipe’ option as part of their future strategy, this may play well for Nokia--given its technical capabilities and relative financial strength to implement a comprehensive and attractive mobile services solution.

Nokia also has the potential to build on its well-honed image of trustworthiness. As handsets and services become more complicated -- similar in nature to PCs--security will become an ever more important aspect during 2009. Nokia's experience in services, operating systems and mobile devices could attract consumers to the company as protection of individual data becomes a priority.

Prediction No. 5: Mobile data becomes important, at last
Unlike many other aspects of the mobile industry, developed markets--in particular Europe--will be the powerhouse behind the uptake of mobile data services. This growth will be driven by mobile broadband as opposed to SMS, which will see its price eroded in competitive markets.

To be successful in building strong revenue channels from mobile broadband, operators will need to form relationships with new partners from the Internet domain who are much better placed to understand what users want from high-speed content-based services. As opposed to worrying about the potential loss of services revenue to these new partners, operators should perhaps fear their existing rivals who might be more able to offer highly efficient and low-cost bit pipes.

What will be keenly followed is the attempt by 3UK to latch onto the booming social networking market with the launch of its INQ handset that has been designed specifically for Facebook use. This low-cost device is squarely aimed at generating high levels of mobile data traffic from an audience that is already familiar with using Facebook on the fixed line.

While these outlooks might give the impression that the cellular world is close to melt-down, the industry has exhibited a remarkable resilience in overcoming what can sometimes appear as insurmountable hurdles. During this year the number of cell phone users will continue to grow, developers of mobile services will work harder to make their applications more appealing to users, and operators will become even more inventive in packaging and pricing their offering.

For many, 2009 could be an uncomfortable year. But it might help to reflect on an old Africa proverb … Smooth seas do not make skillful sailors.