The Truth of Mobile Data Growth 2 PDF

Operational efficiency benchmarking reveals:
The truth of mobile data growth

In the smartphone hype: Dongles still drive revenues
Even though voice still stands for the majority of mobile service revenues globally, Figure 1 shows that the non-voice percentage of service revenues has grown year by year. The growth in mobile data revenues has contributed significantly. It is also attributable to the price erosion of voice, though. Mature 1 markets have had a faster increase in non-voice % than maturing1 markets due by a higher penetration of dongles and smartphones and a much wider deployment of 3G and LTE networks.
35% 31,1% 30% Mature markets 25% 21,4% 20% Maturing markets 15% 10% 5% 0% 2007 2008 2009 2010 1H 2011
Figure 1. Development of average non-voice % of service revenues globally. Reported data from 200+ mature market operators and 100+ maturing market operators collected by Nokia Siemens Networks.
Some operators KDDI, DoCoMo & Softbank from Japan, 3 in Austria, Ireland & Hong Kong and Smart & Globe from the Philippines even report a non-voice percentage of above 50% for 1H 2011. Having created this new and important revenue stream, it is surprising that only a handful of operators report mobile data traffic. Less than 2% of the operators reporting mobile voice traffic are reporting (or even indicating) mobile data traffic. Those who do (or where regulators do) are shown in Figure 2.
Mature: Markets with very high or high UN Human Development Index 2010 (>0,677) and high or upper ITU ICT Development Index 2008 (>3,64). Maturing: Other markets.
This brief paper is brought to you by the operational efficiency benchmarking team in Nokia Siemens Networks. Please email us at efficiency.benchmarking@nsn.com or visit http://www.nokiasiemensnetworks.com/portfolio/operational-efficiency-benchmarking 28 November 2011
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Average monthly Mbytes per any SIM
1200 1000 800 600 400 200 0

Bouygues Telecom, FR 3, DK TDC, DK Telia, DK Telenor, DK TeliaSonera, Group Cosmote, GR Vodacom, ZA 1) Zain, Group Telia, SE Mobily, SA Orange, SK Omnitel, LT Bit, LT T-Mobile, AT Vodafone, Group 1)
162 153 144 138 112 99 90 76 68 66 46 40 38 23 17 1150 Regulator reported Operator reported or indicated
10
10
Figure 2. Operator or regulator reported mobile data traffic 2010 . Reporting of more than 400 operators checked by Nokia Siemens Networks; this is believed to be the full list. 1) Year to March 2011
Figure 3 compares the Mbytes per any SIM with the minutes per any SIM.
500
400
Operator or regulator reported Operators benchmarked by NSN
More data than voice More voice than data
300
200
100
0 0 100 200 300 400 500 600 Average monthly minutes per any SIM 700
Figure 3. Monthly data traffic per any SIM vs. monthly voice traffic per any SIM 2010. Data (if available) from the latest 19 benchmarked operators in Nokia Siemens Networks operational efficiency benchmarking combined with the operators from Figure 2 for which minutes per SIM is available.
The value of 3 in Denmark is extremely high, but in spite of being the smallest of the Danish operators, it has the by far largest market share of mobile broadband-only subscriptions and traffic
2
Mobistar, BE
Tele2, LT
It can be seen that already in 2010, some operators are having higher data volumes per SIM (in Mbytes) than minutes per SIM. Since the data traffic volumes are increasing quickly (see Figure 4), we can expect to see many operators moving into the upper left corner in 2011. Fast Mbyte price erosion but still total revenue growth Nokia Siemens Networks operational efficiency benchmarking done in 2011 shows that the erosion on the unit revenue for one Mbyte of mobile data is very fast. Figure 4 shows that it is typical to have eroded the revenue per Mbyte with around 40% in 2010.
Revenue per Mbyte erosion, 2009-2010
0% -10% -20% -30% -40% -50% -60% -70% -80% 0% 100% 200% 300% Data traffic per any SIM growth, 2009-2010 400%
Total data revenue declines
Total data revenue grows
Figure 4. Revenue per Mbyte erosion vs. data traffic per any SIM growth 2009-2010. Data (if available) from the latest 19 benchmarked operators in Nokia Siemens Networks operational efficiency benchmarking.
Luckily, demand is in all but two cases growing quicker than the erosion in revenue. One could argue that the revenue per Mbyte is falling as a consequence of a general increase in data traffic following a general Internet traffic trend rather than by the market responding to unit price reductions. Even if so, the traffic growth still brings additional revenue to most operators. And contrary to voice revenues total data service revenue grows. The average data revenue growth for the operators in Figure 5 was 40,8% in 2010. Total voice revenue declined 1,5%.

200% 150% 100%
74,6% 66,0%
195,7%
50% 0% -50%
1,5%
44,5% 32,4% 26,4% 15,2% 0,4% -0,4% -3,1% -9,4% -17,8% -9,6% -22,3% 23,0%
45,5% 26,1% 18,9% 4,2% 23,3% 18,9% 13,6% 4,9% -6,3% -4,9% -18,1%
40,8%
7,8% -1,5%
Operator C
Operator D
Operator H
Operator G
Growth in voice service revenue 2009-2010
Growth in data service revenue 2009-2010
Figure 5. Voice and data service revenue development 2009-2010. Data (if available) from the latest 19 benchmarked operators in Nokia Siemens Networks operational efficiency benchmarking.
Dongles3 vs. smartphones There has in essence been two ways to create and grow the mobile data revenue stream: Mobile broadband-only subscriptions dongles (2004 onwards) Smartphones (2007 onwards)
Dongles seem to have divided the operator world in two parts: Those that embrace them and those that try to ignore them. These following quotes show how different two operator groups and competitors in the UK mobile market view dongles:
3: Mobile broadband access customers characteristically generate lower ARPU, but higher gross margins than handset customers
Hutchison Whampoa Annual Report 2008, 2009 & 2010
Telefnica: Focused on value, not volume: Under-indexed on low value dongle market in UK
Telefnica Investor Conference 2011
Much of the dongle criticism has been around the traffic volume created saying that the network cost incurred would be too high in relation to the revenue generated. Figure 6 shows that a high share of mobile broadband-only (dongle) SIMs in the subscription base does lead to high average data traffic per any SIM:
Mobile data-only subscriptions often used with USB dongles, datacards or PCs with inbuilt modem. Referred to as dongles here even though these subscriptions do not always come with a dongle
Operator M
Operator N
Operator A
Operator F
Operator B
Operator E
Operator J
Operator K
Operator I
Operator L
Average

500

R = 0,86
400
300
200
100
0 0% 2% 4% 6% 8% 10% 12% 14% Mobile broadband only SIMs of total SIMs 16%
Figure 6. Monthly data traffic per any SIM vs. share of mobile only SIMs in the subscription base 2010. Data (if available) from the latest 19 benchmarked operators in Nokia Siemens Networks operational efficiency benchmarking.
The two operators with 12-14% share of mobile broadband-only SIMs have more than 400 Mbytes of data traffic per any SIM and month. So dongles drive data traffic. But do dongles drive data revenue? Figure 7 shows that the higher growth an operator has in mobile data-only SIMs (dongles), the faster growth it has in total data revenue growth.
200% Total data revenue growth, 2009-2010
R = 0,76
150%
100%
50%
0% 0% -50% 50% 100% 150% 200%
Mobile data only SIM growth, 2009-2010
Figure 7. Total data revenue growth vs. mobile data only SIM growth 2009-2010. Data (if available) from the latest 19 benchmarked operators in Nokia Siemens Networks operational efficiency benchmarking.
For data revenue growth, it is therefore still essential to have growth in the dongle segment. The risk of inappropriate use of dongles can be controlled by tiered pricing and/or fair usage policy. Another reason why operators should stop any ignore the dongles strategy is that tethering, i.e. using a smartphone as a modem connecting a laptop to the Internet, is increasing since the gap in transmission speed between dongles and smartphones is no longer really an issue. Tethering can lead to the same data traffic as dongles since it is in both cases the laptop that generates the traffic.
In addition, operator-embraced tablets (like iPad) will be closer to a dongle usage pattern than a smartphone usage pattern. What about regular smartphones then? Arent they good for business? Without a doubt, smartphones have increased operator revenue, even if much of it is driven by the hardware sale4 as such. It has also improved customer loyalty at least as long as exclusivity was there and unsubsidized prices were high. The effect on the total operator data revenue is there but small when comparing to the effect dongles have. Lets also consider if it really is the data volume (the Mbytes) that loads the network. Table 1 shows two operators that are somewhat extreme when it comes to their dongle vs. smartphone mix. Operator 1 Mobile broadband-only (dongle) SIMs of total SIMs Average Mbytes per any packet data session 2% 1 Mbyte Operator 2 14% 32 Mbytes
Table 1. Mbytes per packet data session for two operators with very different share of mobile broadband-only SIMs within its subscriber base 2010. Data from Nokia Siemens Networks operational efficiency benchmarking.
In the case of Operator 1, an average of 1 Mbyte is transmitted before the session is ended. In the case of Operator 2, 32 Mbytes is averagely transmitted in each session. The amount of network signaling is not proportionate to the data within a session. During regular smartphone data use (not tethering), small chunks of data are typically transmitted by the various smartphone apps, making the signaling part of the traffic very high. In addition, most smartphones maximize battery lifetime by frequently disconnecting from the network, which also increases signaling volumes. Operators like AT&T in the US experienced significant increase in network load and downgrading of network quality when the smartphone driven signaling exploded with an increasing smartphone penetration. Smartphones also generate more signaling than laptops because they are more frequently used when the subscriber is out and about. A moving user leads to additional signaling. To summarise: There are pros and cons with both dongles and smartphones. Go for both. For dongles (and tablets and tethering), it is important to apply tiered pricing and/or fair usage policy. For smartphones, it is essential to limit the signaling load on the network by use of network features. What about costs then? In Figure 6 & 7, weve seen that mobile broadband drives data traffic and data revenues. But does it also drive costs?
4
Most often subsidized, so it has a negative effect on margin even though positive on revenue.
A higher use of mobile data will drive costs both directly and indirectly. An increased traffic level regardless of it being data or voice will ultimately require more capacity once the capacity headroom is filled. In addition, dongle and smartphone use will change customer usage patterns and behavior. This will lead to a higher customer expectation on coverage and quality everywhere. Indirectly, operators will therefore need to optimize, improve and potentially expand networks to be competitive. So data obviously drives costs but the question is to what extent. When presenting its annual results to 31 March 2011, Vodafone Group said 5 that they have experienced a 66% growth in mobile data traffic in Europe compared to the previous year. During the same time, mobile CAPEX grew 4,1% and technology OPEX fell 4,4%. Even if Vodafone certainly has leveraged network cost saving initiatives during this period, the comparison of these three figures isnt supporting the opinion that the mobile data traffic growth would come with a high cost. Vodafones outcome is in line with Nokia Siemens Networks operational efficiency benchmarking KPIs: In our mature peer groups, neither Networks CAPEX nor Networks OPEX has on average increased even though data traffic has boomed. Table 2 samples the Networks CAPEX and Networks OPEX development for three operators in mature markets with a very high absolute increase in data. As can be seen, the development of Networks cost is not following the increase in data traffic
Operator A Annual increase in data traffic, 2009 to 2010 Annual increase in Networks CAPEX, 2009 to 2010 Annual increase in Networks OPEX, 2009 to 2010 200% 8% -11%
Operator B 172% 12% -5%
Operator C 121% -12% 1%
Table 2. Annual trend in data traffic, Networks CAPEX and Networks OPEX for three operators in mature markets with a very high absolute increase in data. Data from Nokia Siemens Networks operational efficiency benchmarking.
See page 46 in
http://www.vodafone.com/content/dam/vodafone/investors/financial_results_feeds/preliminary_results_31march2011/p_prelim2011.pdf

Conclusions
Non-voice share of revenues is increasing year on year explained by increasing data revenues, but also by price erosion on voice Price erosion on Mbytes is very fast, but usage grows even faster Dongles or smartphones? Both.
Dongles are not only the main driver of data traffic, but also the main driver of data revenue Mobile data traffic growth does not seem to increase Networks CAPEX or OPEX but changed usage patterns and behavior of customers might reveal weaknesses in network design

The Truth of Mobile Data Growth 2 PDF

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Operational efficiency benchmarking reveals:

The truth of mobile data growth

1200 1000 800 600 400 200 0

Average monthly Mbytes per any SIM

Total data revenue grows

Growth in voice service revenue 2009-2010

Growth in data service revenue 2009-2010

Average monthly Mbytes per any SIM

0% 0% -50% 50% 100% 150% 200%

Mobile data only SIM growth, 2009-2010

Operator B 172% 12% -5%

Operator C 121% -12% 1%

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