Changing the rules of telecom

2007 is notable as the year of the most-anticipated product release in industry history. But Apple isn't the only one rewriting the telecom playbook. Telecom Asia editors have identified half a dozen other firms who are changing the rules of the business. Not all are from the telecom industry, and in some cases, like Google and Intel, it's not what they're doing today but what they threaten to do in the future. We also see that for all the attention paid to new tech, for the most part it's strategy, not technology, that is driving change among both carriers and vendors.

 

Device convergence made easy

Company: Apple Inc
HQ: Cupertino, California, USA
CEO: Steve Jobs
Impact: The iPhone lit a fire under the handset industry, not only showing the big guys how a converged device is done but creating unprecedented pre-launch excitement

The Apple iPhone is easily the biggest telecom success story of 2007, and will continue to dominate headlines in 2008 as it rolls out into more markets, including Asia. Much of that has been due to controversy over aggressive price cuts and the exclusive network lock-in, and it's nothing short of ironic that for all the noise over the iPhone, Apple's handset market share by the end of 2008 will be minimal. But in a way, all of that's beside the point. What Apple has really accomplished with the iPhone is to light a fire under the entire handset industry. Consider: feature-wise, the iPhone falls short on a number of levels - no 3G, no stereo Bluetooth, no MMS and dodgy texting, to name a few. And yet it's a triumph of design not seen since the Motorola RAZR. And even then, the RAZR's appeal was mainly physical. Where the iPhone really scores points is the user interface.

It's not just the touchscreen, mind. Apple wasn't the only company to think of stylus-free touchscreens on handsets. It's the software behind the screen that makes the iPhone a game-changer.

Not only is the UI intuitive enough to master in minutes, it's also the first UI that makes device convergence really seamless. On most other handsets, shuttling between the phone, camera and music player is a clunky experience. The iPhone UI is pleasurably smooth.

Put simply, it's everything thing that 'real' handset makers have been trying to achieve for years. And thanks to the Apple hype machine - as well as the fact that Apple knows how to sex up a gadget - the iPhone has raised the bar for every handset player in the game.Until the iPhone came along, how many handset vendors could get cellcos to pay a commission for handsets sold‾


Meet your new service provider

Company: Nokia
HQ: Espoo, Finland
CEO: Olli-Pekka Kallasvuo
Impact: Nokia to cellcos - if you can't develop killer apps, we'll do it for you

Having cemented its position as the world's biggest handset vendor, Nokia is clearly aiming to be something more.

 

It has already demonstrated that handsets are capable of also being digital cameras and music players, and no it isn't waiting for operators to create new multimedia apps and services. Someone's got to get the ball rolling in the post-3G age, after all.

To that end, with one eye on Web 2.0 trends and another on the rising importance of mobile advertising, Nokia's been on a spending spree, acquiring companies like social networking company Twango, mobile ad outfit Enpocket and navigation/mapping specialist Navteq.

Connect those dots with the GPS chips in its N95 and 6110 handsets, and you've got, say, the ability to build a mobile-accessible social networking platform with real-time geotag data that can deliver relevant, targeted ads based on the user's physical location.

Nokia has already shown it's serious with the launch of Ovi, a music and Web services platform that can (and probably will) be expanded to include games and other content. And while some cellcos aren't happy with one of their handset suppliers competing against their walled-garden service portals, others, like Vodafone and Telefonica, are prepared to sell Ovi to their users.

Nokia's service ambitions aren't without obstacles - such as its relative inexperience with point-of-sale retail - but for a handset vendor to take the lead in developing next-gen mobile services is a clear message to operators everywhere - if you can't lead the post-3G charge, then get out of the way.

 


Dragon rising

Company: Huawei Technologies
HQ: Shenzhen, China
CEO: Ren Zhengfei
Impact: Huawei has driven restructure of the vendor business through its leading products and aggressive strategies

Until recently an obscure electronics manufacturer, Huawei Technologies has helped up-end the cosy global equipment sector.

The privately-held firm is a hi-tech symbol of China's emergence on the global economic stage. It has transformed itself from PBX reseller into a multinational that plays in every part of the vendor chain, from DSL and optical to 3G and handsets.

Huawei has used its experience competing against global leaders in its home market to challenge them around the world. It has taken advantage of government subsidies and low production costs to capture market share by offering bids with prices often 30% lower than its rivals.

This has also driven a race to the bottom, culminating in mergers last year between Alcatel and Lucent and Nokia Networks and Siemens.

Despite the low pricing, Huawei's products are world-class thanks to its heavy R&D investment, and as a result it increasingly able to crack tier one customers - in recent years it has snapped up Vodafone, Telefonica, Orange and BT contracts.

A notoriously secretive company - CEO Ren has not been interviewed for the best part of a decade - Huawei keeps its financial, ownership and performance details to itself.  It has no IPO plans and is financed by Chinese bank loans and an employee shareholding scheme which enlarges the capital base every year.

 

Huawei said it signed $11 billion in contracts in 2006, 65% of them abroad.  It won 28 UMTS/HSPA commercial contracts, and boasted 21% of market share in the global GSM market.

Huawei's challenge will be to keep its costs down and to find a way of competing in the fast-growing services segment.

 


Outsourcing pathbreaker

Company: Ericsson
HQ: Stockholm, Sweden
CEO: Carl-Henric Svanberg
Impact: Ercisson has been the pioneer in persuading operators to loosen up and put their networks in the hands of technology specialists

Ericsson might be the biggest supplier of wireless kit, yet it's not a company known for radical ideas or creating new trends.  And right now it's stock has been discounted after missing its numbers this quarter.

But there's one area of its business that is buoyant, and that is its services group.

In the latest quarter, with group sales rising just 6%, Ericsson's professional services business expanded 26% and managed services spiked 50%. Total services revenue accounted for a quarter of all revenue.

As the company points out, more than two-thirds of professional services revenues are recurring.
Ericsson can rightly be regarded as a pathbreaker in the field. It was the first vendor to form a services group in the late 1990s, and it won the industry's first GSM network outsourcing contract from Telfort in 2002.

Today the biggest part of Ericsson's services business remains professional services, such as systems integration and customer support. The managed network services, which covers everything from planning and design to operations, is the fastest-growing.

Stefan Jelvin, from Ericsson's global services business unit, says while emerging and greenfields operators were the logical target customers at the outset, today most of the network services business comes from western Europe.

Hutchison subsidiaries 3 UK and 3 Italy have both outsourced all of their network operations and management to Ericsson. Increasingly, tier one operators are paying attention; T-Mobile recently contracted out its German microwave network and its UK network management to Ericsson.

Jelvin says cost reduction is always an element in any outsourcing deal, but carriers are finding other reasons, too, such as technology risk and the complexity of running IP, mobile radio and data networks.

A classic example was Bharti Airtel, now India's biggest GSM operator.  It decided four years ago that the pace and scale of its buildout would be best done by specialists, so it outsourced network operations to Ericsson and its IT to IBM and rewards them for meeting performance targets.

Network outsourcing means one less distraction for carriers trying to build a business.

 

It's a proposition mobile operators are finding increasingly hard to resist.

 


Global footprint

Company: Vodafone Group
HQ: Reading, UK
CEO: Arun Sarin
Impact: With a business that straddles both developed and emerging markets, Vodafone now has diversity as well as scale

Vodafone has long been the biggest guy on the mobile block.  With 275 million customers it has an unequalled global footprint.  Yet not long ago it was struggling with unhappy ventures in Germany and Japan, it posted a 14.5 billion-pound loss - a British corporate record.

Now it is beating a path back to profit by straddling both developed and developing markets.

First, however, the UK-headquartered operator had to beat off an attempted boardroom coup by founder Sir Chris Gent against his successor, Arun Sarin. In the 18 months since, Vodafone has picked up the pieces. Its share price has risen 40.5% in the past year and it has just recorded a 6.1% higher interim operating profit of $8 billion in the face of some tough European regulatory decisions.  Emerging markets contributed 25% of revenue and recorded 16% growth.

Now it is showing the way for aspiring global cellcos: while its European and US customers are using the phone for more than just voice and text (and prompting a rise in forecasts), emerging market operators just keep signing up new subs. 

At the same time it has also made clear it is going to leverage its developing markets with new applications, in particular with a focus on financial services to the millions of 'unbanked' in Africa and India.

Admittedly it paid heavily for Orascom's stake in Essar business in India, but Vodafone now has a competitive presence in one of the world's growth hotspots. But its 3% stake in China Mobile, acquired six years ago, is now worth $13 billion.

Now Vodafone has not just global scale but balance as well. China Mobile take note - this is a model for aspiring global players.

 


In search of infrastructure and Androids

Company: Google
HQ: Mountain View, CA
CEO: Eric Schmidt
Impact: Google bids for spectrum, plans a subsea cable and sparks up the mobile web. This is not your father's search firm

Ten years ago, if a search engine proposed buying up spectrum, investing in submarine cables and creating an open-source operating system for mobile phones, they'd have been told, they 'just don't get it'. Now, Google is drawing admiring crowds for all of the above. 

Google has long since built up the cash and the clout to push its boundaries beyond the search-engine business. And that ambition reportedly reaches as far as building a trans-Pacific subsea cable called Unity, which Google has been discussing with a number of telecoms players.

 

Google has never formally confirmed this, but it has a history of building up its own infrastructure - it is believed to own the world's biggest data center, with hundreds of thousands of Google-built servers.

Likewise, the aim of the G-cable would be to reduce costs and, at a time when carriers are looming as adversaries, allow the Google to peer directly with Asian ISPs.

Indeed, Google's infrastructure investments are at least partly about gaining more control over all the internet traffic it generates. That includes wireless, as evidenced by Google's plans to bid for 700-MHz spectrum on the block in the US.

Google has taken its ambitions to the mobile device space in open source form. Rather than developing the G-Phone that observers had been predicting, it plans a Linux-based platform called Android, backed by the 34-member Open Handset Alliance.  The aim is to create a mobile internet ecosystem that will spark up demand for mobile apps, including of course search, navigation and other Google apps.

While it's not the first effort at mobile Linux, Google's fabled backstory and deep pockets mean few are willing to bet against the giant of the web becoming a master of mobile.

 


Disruptive wireless

Company: Intel
HQ: San Francisco, USA
CEO: Paul Otellini
Impact: Even if the chip guys don't make it as wireless wizards, their specter hangs heavily over the mobile business


Wimax has yet to deliver a commercial mobile phone call and its most promising project, the $5 billion Sprint rollout, is in doubt. Yet the specter of Wimax looms heavily over the mobile business.

The Wimax standards have been developed in the IEEE over the past several years and backed by the Wimax Forum.  While the forum has made the day-to-day running, Wimax is really the unlikely child of Intel - the chip giant that began in computer memory, transitioned to processors is now setting itself as a wireless heavyweight.

Intel pioneered Wimax as a follow-up to its unexpected hit in Wi-Fi, the short-range wireless LAN technology that went commercial at the same time as 3G. In contrast to its over-capitalized cellular rival, Wi-Fi has propagated successfully in grassroots fashion.

The connection between Wi-Fi and Wimax is not straightforward - Intel is just today rolling out the first integrated chipset. Wimax offers a notional 70 Mbps over short distances, and a range of up to 30 or so kilometers. Typically it is claimed to provide 10 Mbps shared over 10 kilometers.
Today, virtually all of the 350 or so Wimax rollouts or trials are for the fixed version.  But mobile Wimax's time is near, as emphatically underlined by its admission into the IMT-2000 family.

Short-term, that's largely a symbolic achievement. But ITU's imprimatur will help it overcome its biggest obstacle, which has been access to spectrum.

 

Joe Nardone, general manager of Intel's Wimax solutions group, says this will help in emerging markets, which take their lead on standards from the ITU. Developing markets are one of the natural targets for Wimax, as they are for China's TD-SCDMA, hence the loud screams from Beijing over the ITU decision.

But the real potential of Wimax will probably lie in its 4G capabilities. Wimax 2.0, or 802.16m, is likely to be integrated into LTE and become part of the IMT Advanced process. 'It's understood that there will be some crossover,' said Nardone.

At the technology level, 4G will be based around OFDMA and will be optimized for IP.   Wimax is built around both of those. While the wireless sector preps for 4G, Wimax is nearly there.

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