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Report: Sun Will Shine on Europe's Data Nets

European carriers are finally recovering from the hangover caused by the bubbly euphoria over the "mobile Internet" in the last few years and getting a grip on real data services, according to a new report from Unstrung's independent technology research service Wireless Oracle.

And -- shock! horror! -- the operators are actually poised to generate some serious revenue from packet-based data services over GPRS and 3G networks, the report says. Surprisingly, the report finds that existing wireless data services such as SMS and WAP -- the good cop/bad cop team behind initial implementations of the "wireless Web" -- will help operators achieve that goal. However, while the application technology might be largely the same, the services have been reworked and they're running over networks that can supply the horsepower to drive them. The report, “European Wireless Data: Steady as She Goes,” finds that the cycle of hype and despair that washed through the sector between 2000 and 2002 has run its course, leaving carriers in a more sober position to advance their next-generation data strategies. For sure, the first six months of this year was a torrid time for Europe’s listed wireless operators, whose share prices fell by an average of 45 percent. But behind the scenes, operators have been working hard to overcome the commercial and technical barriers to mobile data adoption and apply the unique lessons they have learnt over the last few years from deploying two-way text messaging (SMS) systems and WAP.

In short, there is now concrete evidence that European mobile users are prepared to spend hard-earned cash on non-voice services. The report reveals that leading operators such as Vodafone D2 in Germany or Amena in Spain are already generating more than 15 percent of their revenues from data services and finds that there is strong momentum behind data revenue growth across the sector. SMS does still account for nearly all non-voice revenues over currently active networks. But the report dispels the widely-held misconception that with the advent of packet-based GPRS services SMS and WAP are becoming irrelevant.

The success of premium SMS (alerts, games, chat, etc.), for instance, has been a real revelation over recent quarters and has become a great testing ground for developing service concepts that will migrate to richer, multimedia-capable networks and handsets.

Although less spectacular, page views at Europe’s top WAP portal, O2 Online, have also more than doubled over the past 12 months. Consequently, says the report, carriers are well on track to reaching their self-imposed target of generating 25 percent of revenue from data by 2005. What’s more, this growth in non-voice revenue has occurred against a backdrop of falling capital expenditure (capex) and subscriber acquisition costs and is therefore partly responsible for the wireless story of the past year and a half: margin expansion. At the top end, for instance, mature operators such as Telefónica Móviles España are now achieving EBITDA margins of around 50 percent, while operators in more competitive markets, such as Orange UK, are hitting around 30 percent. Looking ahead to 3G (UMTS) network rollout (small-scale base-station deployments are already underway in many West European markets) the report notes that operators will not abandon their new-found financial discipline. In fact, nearly every operator profiled in the report expects its capex/sales ratio to remain constant, or even decrease, through the 3G buildout phase. Similarly, operators are wary of reintroducing the hefty handset subsidies that created the boom in subscriber growth in the late nineties. MmO2 PLC (NYSE: OOM) and Vodafone Group PLC (NYSE: VOD), for instance, have indicated that they will retain regular contract customer subsidies for the new MMS phones that are just about to hit the market. Nonetheless, the report suggests that more generous incentives will likely be reintroduced for high-spending customers, once it is clear which services will be most popular, and that subsidies will help create steady, sustainable growth in the wireless data market. In conclusion, the European wireless sector is moving into a new phase of development that is characterized not just by new services, but also by a revenue-driven approach to investment that until recently was something of an alien concept in telecom.

— Dan Jones, Senior Editor, Unstrung
http://www.unstrung.com

Editor's Note: Light Reading is not affiliated with Oracle Corporation.
spc_King 12/4/2012 | 10:01:08 PM
re: Report: Sun Will Shine on Europe's Data Nets I find the conclusion in this report very naive.
One cannot draw a comparison with what is possible with todays GPRS networks and what will be possible for 3G networks just like that. GPRS service is based on minimal infrastructure costs while 3G service will have to pay for both completely new infrastructure as well as sky high frequency licence costs which are going to make sitting around nicely waiting for service to pick up a tremendously expensive strategy.
Yes, the handset subsidies of the past where hugely expensive, but can 3G licencees afford to not kick start 3G service ASAP??
IPobserver 12/4/2012 | 10:00:58 PM
re: Report: Sun Will Shine on Europe's Data Nets Of course I agree that 3G spectrum is expensive (who doesnG«÷t?) and that operators would like to see quick uptake of services.

But with limited ROI visibility it would be foolhardy to charge ahead and build out country-wide networks and massively subsidize handsets straight away.

This is pretty much the logic behind Telefonica MovilesG«÷s decision to pull out of Quam in Germany. Yes the license was expensive, and clearly it was a mistake to bid so much, but this is poor justification for pouring in yet more money.

Instead it is clear (from the data in the report) that operators will follow a two-pronged strategy that involves rolling out 3G in high density, high spending metro areas, with GPRS taking the strain in less attractive regions -- despite the huge technical challenges surrounding roaming between access methods.

The advantage of this is that capex can be contained while services are developed, evaluated and refined. Then, as a picture emerges of which people use what services, investment in infrastructure and handset subsidies can be more effectively targeted.

Looking at the big picture, the report is positive on the prospects for 3G. For instance, it argues that existing data services that are already proving popular such as premium SMS provide valuable insight into the service concepts that appeal to mobile users -- whether it be receiving sports scores, location information or whatever. Many of these concepts will evolve into richer services that will work initially on GPRS and then 3G.

But the success of 3G also depends on sound financials. And one thing is clear; mobile operators, their investors and their bondholders have seen how the G«£build it and they will comeG«• strategy didnG«÷t work at Global Crossing and KPNQwest (for example) and are working to ensure that indiscriminate spending does not jeopardize the long-term success of the sector.

The license requirements for 3G network coverage are different in each country and in some cases could force the pace of deployment.

But mobile operators have a good track record when it comes to lobbying the regulators and, in Spain and Portugal for example, have already wrung concessions on the rollout timetable. And I donG«÷t see too many regulators that will insist on infrastructure deployment that could potentially bust the license holders or severely restrict their financial ability to subsidize data handsets when the time is right.

More likely, regulators will focus their efforts on cutting voice termination and roaming charges.

Gabriel Brown
Research Analyst, Wireless Oracle
spc_King 12/4/2012 | 10:00:53 PM
re: Report: Sun Will Shine on Europe's Data Nets Well, maybe it isn't really a wrong strategy from their side if they can manipulate the regulators.
So this talk about sensibility is a ploy to build out only the lucrative city and residential areas and avoid the mandated rural coverage which would just be a money-looser. I get it!

/X-Eri-the-cynic
jim_pacyga 12/4/2012 | 10:00:51 PM
re: Report: Sun Will Shine on Europe's Data Nets In your recent report about the upcoming imminent success of the European wireless data you state that GPRS is making SMS and WAP irrelevant. Given that you don't back this statement up with any specifics (i.e., what is replacing them), it is hard to evaluate. This is especially true since you are talking about two different parts of the protocol stack - apples and oranges.

GPRS is an infrastructure and RF protocol improvement designed to deliver packet services to GSM radio networks as well as appropriate gateway services to the Internet. WAP is equivalent to HTTP in wired internet. WAP is designed for small devices without the resources of systems using HTTP and is still the transport protocol used in the GPRS network for small devices like phones. WAP itself wasn't the major cause of wireless data market failures, it was Circuit Switched Data and poor implementations of WAP gateways and the services on them. In short, blaming WAP for the failure of wireless data services to take off is like blaming HTTP when you can't load a site on the wired Internet.

Despite this, WAP took the blame and the reasons most people hated it was three fold:

1) Circuit Switched Data was perhaps the most mismarketed feature for wireless phones, too slow for the phone paradigm to live up to the marketing hype of Internet on your phone. It was equivalent to doing dialup on the wired Internet. This is what GPRS replaces in the network (along with some gateway infrastructure) and it is more akin to always-on DSL or Cable Modems of wired Internet.

2) Poorly designed applications, usability is key especially on a phone and no one seems to have paid any attention to it. This is still true today as GPRS wireless portals are still saddled with this problem of useless applications or applications that are vitually unnavigable.

3) Poor infrastructure designs contributed to many service outages in the CSD days and even today there are quite a few issues getting GPRS to be useful in the consumer space (i.e., WAP gateway errors, service outages, etc).

In closing, WAP got a bad rap. It was the acronym picked up on by the press as the bad guy in wireless data. The reality was the painful slowness was really Circuit Switched Data while the interfaces were the fault of poor application design. There is no doubt WAP is more limited than HTML, it was designed to be that way for limited devices. As future devices become more capable, XHTML browsers using HTTP over 2.75G/3G fast packet systems will allow us to do even more just as MMS will replace SMS through natural evolution. However, for now, WAP is more than enough power for your black and white, small screen GPRS phone.

Jim Pacyga
joset01 12/4/2012 | 10:00:48 PM
re: Report: Sun Will Shine on Europe's Data Nets
I think the report says that GPRS will NOT make SMS and WAP irrelevant, quite the opposite.

As regards WAP's reputation, I agree. The WAP backlash was due to a lot of overhype (the "wireless web" c'mon!) and the unsuitability of circuit-switched networks for serious data services.

Basically, we shot the messenger or in this case, the transport protcol...

[email protected]
spc_King 12/4/2012 | 10:00:46 PM
re: Report: Sun Will Shine on Europe's Data Nets Agree with both of you. WAP got the blame for CSD. The timing was all wrong. They should have waited for GPRS (or it should have been used with CDPD?).

Will WAP get a second chance with the spread of GPRS and 3G networks/terminals?

If so, will it help OpenWave or are they being outmanouvered? Seems like sly move with the SignalSoft purchase, rebranding themselves as a LBS vendor. They must have more money than inhouse talent :-)

/x-Eri
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