A virtual, whistle-stop tour of the world, comprising snapshots of what’s going on in different regions or countries that illustrate, or sometimes alter, our impression of the overall picture there. At the very least, they present a starting point from which to gain a more in-depth understanding of local markets.

In 2010, world growth will be led by emerging market consumers. Morgan Stanley forecasts 4% global gross domestic product (GDP) growth this year. However, this number conceals two very different situations. For developed economies growth of 2% in average GDP is expected in the G10 economies.

The U.S. will lead with growth of 2.8%, the European Union is expected to grow by less than half that rate (1.2%), while Japan will hardly grow at all (0.4%).

However, the outlook for emerging markets is more positive, where Morgan Stanley forecasts “output to grow by 6.5% this year (China 10%, India 8%, Russia 5.3%, Brazil 4.8%), up from 1.6% in 2009. A rebalancing towards domestic demand-led growth in [emerging markets] is well underway.” The report concludes, “growth in emerging economies has staying power and has even been bolstered by the crisis.”

Emerging energy

What does this mean for the global communications market? It will continue to expand, with emerging markets offsetting the spending deceleration in advanced economies, according to Monica Zlotogorski, editor of TM Forum’s Inside Latin America and vice chair of TM Forum’s Latin America Advisory Board.

The growth of wireless services in emerging markets will compensate for the slowdown in the advanced economies. The expansion of the mobile sector in emerging markets has been a key building block to economic growth, so one supports the other.

The analyst firm Analysys Mason predicted in October 2009 that 3G networks and mobile data services will prop up the worldwide telecoms market, prompting it to grow at a 6% compound annual growth rate (CAGR) to reach $2.4 trillion in revenues in 2013.

The firm also reported that mobile data traffic will grow at a 131% CAGR through 2013. The key cause for this growth is the expected 3G network deployments in many emerging markets, such as China and India, in addition to Long Term Evolution deployments in mature markets during the next few years.
Zlotogorski writes, “In summary, more people will have access to the Internet in the next 10 years, the Internet will be wireless, and most of the growth will come from emerging economies. Consequently 2010 will be remembered as the beginning of the mobile Internet being driven by emerging markets.”

India's reality check

India is still the world’s single fastest growing market; it added nearly 20 million subscribers in January 2010, to bring the total to more than 545 million, which equates to a mobile teledensity of over 46%, according to the Telecoms Regulatory Authority of India.

Churn could be more of an issue here too than is widely understood, despite the lack of number portability. At the beginning of March 2010, the Financial Times reported that the true number of Indian mobile phone users is up to 40% lower than official numbers suggest. As the newspaper said, this raises questions over the true extent of India's telecoms boom and the valuations of its wireless operators.

Phones have just come onto the Indian market that allow the user to swap SIM cards, hence Indians are buying multiple SIM cards to get the best deals. Prices have fallen dramatically, with up to 12 competing operators in some areas of the country.

A large number of the SIMs are so-called lifetime cards that are considered active even when they are not, while analysts said some newer operators are also sending SIMs to retailers that have been activated before they are sold to end-users.

Syed Safawi, president of wireless at Reliance Communications, India's second largest mobile operator, was quoted saying, "It's for companies like us [to work out] how we can leverage [multiple SIMs] to our advantage." He estimates the ratio of SIMs to user in India at about 1.25.

Under-valuing prepaid

Prepaid fuels the growth in emerging markets and is often viewed as a hallmark of less mature markets that will graduate to the largely contract-based model of richer countries as they develop. Zlotogorski thinks this is wrong-headed and argues that developed markets will also see a shift towards prepaid, even after the economic crisis recedes.

There is considerable evidence to support her view. For instance, Pyramid Research predicts that over the next five years we will see more than 90 million new mobile broadband subscriptions in Europe. Pyramid thinks prepaid broadband will play a big role in this growth, since it has a large addressable market in high income markets with developed fixed broadband infrastructure (predominantly Western Europe) and in lowincome countries where there is a lack of fixed broadband (Central and Eastern Europe).

Operators that have invested heavily in 3G and are now beginning to invest in 4G need to make sure that they get the most revenue from that investment.

Operators are skilled at postpaid mobile broadband offers, Pyramid states, but prepaid mobile broadband is new. Success will depend on pricing mobile broadband perfectly in relation to two factors: Its affordability in relation to disposable income and the availability of fixed broadband, according to the research house.

Neil Heyes, regional member development director, Europe, TM Forum comments, “What we offer our members is not necessarily about differentiation – one broadband offering is much like another – it’s about helping them streamline and run a more efficient business so they have the resources to dedicate to ways of differentiating themselves.”

IDC pointed out that during the first part of 2009, the top 10 cellular carriers in the U.S. added just under 3.5 million retail net subscribers. Out of these, 75% were prepaid users, which in total make up 19.2% of the subscribers for the top 10 carriers in the U.S.

This is because the profile of phone users is changing. Those born after 1995 grew up with the Internet and don’t want to be bound by contracts. They have no loyalty to network providers, they’re more interested in trying out the next big thing. In Zlotogorski’s words, “they are of a prepaid mindset”.

She argues that prepaid doesn’t mean less opportunity. For example, it opens up the doors to more options to sponsor mobile products and services. She adds, “Clearly there’s a greater need for more operational flexibility, efficiency and adaptability than ever before. We are in great need of a new business model that can support such substantial transformation. CSPs from the U.S., Western Europe and some developed countries in Asia may have a lot to learn about surviving in a prepaid/low ARPU type of scenario.”

Churn, churn, churn

Wally Swain, SVP Emerging Markets, Yankee Group, agrees, pointing out that “churn management becomes an even more critical issue…Prepaid churn management is all about using sophisticated data mining and customer relationship management techniques to target offers that appeal to a particular client’s profile,” in a recent column published in TM Forum’s Inside Latin America.

He added, “This is the operating system software (OSS) challenge; as penetration rises, growth slows and it is no longer sufficient to merely hang out a sign for clients to know where to sign up. Using advanced OSS tools to reduce prepaid churn and also the percentage of inactive customers is the route to an improved bottom-line in these difficult economic times.”

Far from Slim pickings

The world’s richest man (according to Forbes in March 2010) is concentrating on scale and integration better to oppose his nearest competition, Telefónica. Mexican billionaire Carlos Slim is to merge his assets across the Latin American region to create “a massive and integrated fixed/mobile group in most of the area's countries, some of which are seeing high mobile growth”, according to Caroline Gabriel, head of research, Rethink Wireless.

Slim's main vehicle is America Móvil, Latin America's largest cellco by subscribers. This will now acquire his Telmex and Telmex International units, which provide mainly fixed line services in Mexico and much of the rest of the Latin America, respectively.

Gabriel reckons this will give the combined entity huge economies of scale, plus the ability to offer flexible combinations of fixed and mobile services to drive ARPU and customer uptake – an advantage already gained in many markets by Telefónica.

Carlos Garcia Moreno, America Móvil’s finance director, told Bloomberg that the deal would reduce costs. "To maintain our competitiveness going forward in the medium and long term, it is of the essence that we end up running an integrated operation," he said.

Latin financial services

In Latin America the payment preferences of mobile users is being explored as a route to new services. NovoPayment, the region’s biggest prepaid card issuer, forecast that Latin America's pre-paid, general purpose, reloadable mobile and utilities card market could be worth nearly $160 billion a year by 2015.

This growth will be driven by the mechanism for prepaid being extended to a general
purpose payment instrument. NovoPayment’s CEO, Anabel Perez stated, “Prepaid generalpurpose cards are a value proposition for mobile and utilities service providers and their customers because they create loyalty, improve margins and connect the region’s largest consumer group – which make up the base of the pyramid – to a modern payments and services infrastructure.”

20 take control

That mobile services are increasingly a business of scale is underlined by the fact that the top 20 global cellco groups now control 57% of all the world's mobile connections. In summer 2009 Gabriel cited figures published by Wireless Intelligence that showed these top 20 carriers have about 2.4 billion connections, spanning 118 of 223 of the countries it tracks.

China Mobile leads the field with 11.5% of global connections, at 479 million – almost twice that of Vodafone Group, which has 247 million subscribers across 19 markets where it holds a majority stake in a cellco (10 of these are in Western Europe, the others spread around Eastern Europe, India, the Middle East and Africa). In close contention for third and fourth places come Telefónica and América Móvil of Mexico (which controls Telmex). These two operate in 13 of the same markets, and boast 190.1 million and 174.9 million connections respectively.

The rest of the top 20 in terms of total global mobile connections is as follows: China Unicom, Deutsche Telekom/T-Mobile, Telenor, MTS of Russia/CIS, Verizon Wireless, France Telecom/ Orange, pan-Middle East and Africa group MTN, AT&T, Telekomsel of Indonesia, Telecom Italia, Russia's VimpelCom, Weather Investments Group (controller of half of Orascom plus Wind, TIM Hellas and others), another Middle East and Africa giant Zain, Reliance of India, Orascom (its direct holdings), and with NTT DoCoMo bringing up the rear on 54.7 million connections.

Middle East and Africa

As 2008 gave way to 2009, the African land grab slowed down and investors started to take African markets more seriously, concentrating on providing coverage rather than simply obtaining operating licenses, according to Nasser Ballout, membership development associate, Middle East, TM Forum.

He says that while previously operators concentrated on urban areas, now they are turning their attention to suburban and rural areas; a good example is Etisalat’s build out in rural Nigeria.

While Africa’s astonishing growth defied the global slump, growing faster than in any other region of the world since 2003, the United Nations Conference on Trade and Development (UNCTAD) said in October 2009 that urgent action is needed to improve Africa’s slow, expensive Internet access. An UNCTAD report found monthly broadband access in Burkina Faso, the Central African Republic and Swaziland is the most expensive in the world, costing more than $1,300.

In mobile, content is beginning to make its presence felt in Africa, with sales of games, ringtones, music downloads and so on growing, and now accounting for 2% to 3% of African operators’ total income, while all non-voice activities account for between 8% and 12% of their total revenues, according to Ballout.

He thinks the arrival of a slew of Android handsets in 2010 will have a profound effect, with the advent of web-enabled phones for $30. “Even Nokia has bought into it. Web 2.0 is not a promise, but imminent via mobile, and the other most important development after Android this year is the arrival of the cloud. These two things together will drive profound change,” he claims.

Another important development is that, “Operators are finally beginning to see some of their suppliers as partners. For instance, Etisalat is in negotiation with companies such as Apple, Research in Motion and Google because they recognize the market is changing, the value chain is changing and so are their roles in it. Etisalat recognised that in two years’ time, providing voice services would not be enough, so it is working on transforming its business. If you want an iPhone, you have to sign up for a data plan.”

He concludes, “The real innovation is about how to deliver services efficiently, in particular it’s about controlling costs intelligently and time to market, although it is hard to overestimate the boost given by the FIFA [soccer] World Cup which is being held in South Africa in summer 2010. Sponsor MTN started building out additional infrastructure early in 2008."

With thanks to the TM Forum.