Unstrung Insider: Decoding Open Access

The latest Unstrung Insider report highlights 'transcoding' mobile gateways, wireless Web technology that will become crucial for U.S. carriers as they move to a so-called "open access" model in the coming years.

Transcoding mobile gateways sit in the operator's network and enable a carrier to render standard Web pages on a user's mobile phone and other devices. Unstrung Insider chief analyst and author of the Open Mobile Networks & Internet Gateways report, Gabriel Brown, argues that the technology will provide users more Internet access while allowing the operator to maintain control over network traffic on these "open" networks. Although Brown questions what that term actively means in reference to the cellular market:

"If open means simply the ability to send packets and Hypertext Transfer Protocol (HTTP) traffic to the Internet without any shaping or interference, then that's unlikely to happen, due to the limited capacity available on mobile networks and a well-intentioned desire to manage the network efficiently," argues Brown. "It's also due in part to the operator's desire to act as an intermediary between consumers and services."

Nonetheless, operators have to open up some if they are to continue to grow revenues, Brown writes, because voice revenues are now actively falling in saturated markets such as Western Europe. Brown uses Vodafone Group plc (NYSE: VOD)'s Western European revenues as an example:
Revenue growth in this region was just 2 percent, with voice revenue falling 2 percent due to falling termination and roaming prices. Outgoing voice did manage a 0.3-percent increase, as per-minute price declines of 19 percent were offset by a 24-percent increase in usage of voice minutes.

Messaging (nearly all SMS) remained resilient, but there must be questions about how long that can continue to grow, given the large text bundles offered as part of most price plans. From a growth perspective, the real high point is data, which now accounts for 8 percent of revenue in Europe, up an impressive 40 percent from the previous six months.

Brown claims that in Europe and other established cellular markets voice revenues will peak in 2007 and remain steady through 2008 as volume growth and clever marketing counter price declines. He thinks that voice will naturally remain a big part of the picture for those years, but content services and Web access for both the consumer and enterprise market will help to actually grow revenue. These content services will include ringtones, MP3 downloads, mobile video, and local guides and mapping services.

This is where Internet gateways come in. These platforms allow the operators to transcode Web pages and compress content so that the Web can be delivered to users' phones efficiently, as well as enabling deep packet inspection (DPI) to better manage network traffic loads. Transcoding, compression, and DPI appliances are generally offered separately today. Brown, however, expects further integration, particularly with Nokia Networks and Starent Networks Corp. (Nasdaq: STAR) hooking in DPI with the core network elements.

Other vendors in this market include Allot Ltd. (Nasdaq: ALLT), Bytemobile Inc. , Ellacoya Networks Inc. , Flash Networks , InfoGin Ltd. , Openwave Systems Inc. (Nasdaq: OPWV), and Sandvine Inc. .

The adaptation of Web pages for mobile devices has been around for a long time, but is typically deployed as portal-based technology, such as by Google (Nasdaq: GOOG) or Yahoo Inc. (Nasdaq: YHOO). More recently, operators have begun to provide content adaptation services themselves, either via their mobile home pages, or by moving this transcoder function into the network, Brown says. This move to network-based transcoding will likely stimulate this market over the next few years, leading to more startup acquisitions in the sector.

— Dan Jones, Site Editor, Unstrung

The report, Open Mobile Networks & Internet Gateways, is available as part of an annual subscription (12 monthly issues) to Unstrung Insider, priced at $1,595. Individual reports are available for $900. To subscribe, please visit: www.unstrung.com/insider.

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