Industry analysts are always predicting what will happen in the future. David Braue went back in time five years to see how analysts expected the mobile comms market to evolve, and then compared it to what actually happened.
Juniper Research said the mobile 'adult content' market will generate $3.5 billion by 2010. Credit: Playboy
2003 was the year that 3 launched Australia's first third-generation (3G) mobile service. That same year, Australian Idol showed SMS-based voting could be turned into a multi-million dollar revenue stream. Yet 2003 also represented a turning point of sorts, with the introduction of new technologies that challenged many assumptions about the direction of Australia's mobile communications.
Industry analysts responded by forecasting dramatic changes in the world of mobility: growth in location-based services, widespread use of videoconferencing, and even enthusiasm over mobile banking and ticket purchasing. Mobile data, it was held, was going to change our lives in the same way that mobile voice had done in the decade before.
Who could blame their enthusiasm: despite what would seem to be an inherent limit in the size of the market, a continuous stream of innovations in mobile technology — and the surprising trend for many people to own more than one mobile phone — had pushed mobile penetration rates past 100 percent in many countries and, over the past decade, fuelled a rapid move from analogue to GSM to 3G.
Mobile content: not as expected
Yet while the mobile market has grown dramatically in the past five years, analysts have had trouble predicting its direction. One major shortcoming was in guessing the nature of upcoming mobile applications, particularly given the lingering "content is king" mindset.
From the get-go, the ability to make phone calls from anywhere seemed a no-brainer — and propelled the industry to dizzying growth rates as Australians snapped up the technology at record pace. The 2000 switch-off of analogue mobile services left most Australians using GSM and rural residents stuck with Telstra's CDMA network, which promised clearer communications and faster data speeds.
Yet while voice and SMS usage exploded in the early part of the decade, the natural extension of mobility — the use of GSM's GPRS overlay and CDMA's built-in data transmission capabilities to surf the Internet — failed to deliver.
Analysts and the entire mobile industry initially jumped at the potential of WAP, the standard designed to facilitate mobile banking, mobile marketing, mobile wallets, mobile gaming, and a whole host of other new services.
SMS remains the most accepted and understood mobile comms technology.
There was one problem: WAP, or more specifically the mobile networks underlying it, was slow and clunky. WAP sites had some novelty appeal, but the frustrating experience of using them limited their widespread adoption. The industry's vision of creating a kind of parallel Internet, dedicated to mobile-optimised content, failed to take off.
Within years, WAP lost favour to XHTML, a relative of HTML that could be more easily tailored to mobile device screens.
XHTML was just the beginning of the mobile content market schism. Over the years, it became quite clear that the kinds of services consumers wanted were different to the services analysts thought they wanted. Industry visions of mobile commerce revenues, and the occasional trial of mobiles for buying Cokes or paying parking meter fees, rarely became commercial realities.
That's not to say that consumers weren't interested in mobile data services - but rather that they are discriminating and unlikely to embrace mobile services simply for their novelty.
Location-based mobile services, for example, were held up for years as potentially amazing new applications for mobile phones — at a time when hardly any mobiles had GPS onboard. Early efforts used mobile phone tower triangulation to determine a user's location, but failed to resonate with consumers despite constant claims that location services would help them find the nearest Thai food no matter where they went.
It is only now — five years later, and with GPS firmly entrenched in the public's mindset — that location-based services are taking off. Gartner, for one, is predicting that location-based service subscribers will jump from 16 million in 2007 to 300 million by 2011.
That's all well and good, but remember that analysts were predicting an explosion in location-based services as early as five years ago. To go from zero to just 16 million users in that time is hardly explosive growth these days — especially as many of the world's mobile carriers will add that many customers in 2008. This is just one example of the importance of patience when it comes to mobile predictions.
Despite efforts to promote new services, it is SMS that remains the most readily accepted and understood mobile communications technology.
Telstra customers sent 4.9 billion SMS messages in 2007 - a 62.4 percent increase over 2006.
Highly successful early experiments such as Australian Idol's SMS-based voting, — which is estimated to have generated AU$11 million during the 2003 season alone — confirms that consumers do respond to the right mobile services.
This trend has continued: Telstra customers alone, for example, sent 4.9 billion SMS messages in fiscal 2007 - a 62.4 percent increase over 2006.
The success of SMS confirms that customers love using their mobiles - but content providers still face the challenge of figuring out how to turn that into revenues.
Some ventures appear to be paying dividends. In 2003, research firm Strategy Analytics suggested the market for "mobile adult-oriented services" could reach US$1 billion by 2008. Late in 2007, Juniper Research reported the market had reached more than US$700 million in Western Europe alone, and would reach $3.5 billion globally by 2010.
Other mobile content, such as mobile ticketing and 'e-wallet' applications have faltered on a global scale, despite some regional successes. Indeed, until recently SMS was the single biggest money-spinning data service, challenged mainly by well-supported services such as the ability to download ring tones to phones.
It's clear that many people just want to use their mobile phone to make calls.
Lewis Ward, IDC
Difficulties in monetising the market for mobile content were reflected in a late-2006 survey by IDC that found US consumers simply aren't interested in mobile entertainment content. That survey found that 72.5 percent of respondents didn't use any data services outside of messaging. Of those who were using the services, 47 percent said the services were "too expensive".
This result "does not bode well for the future of this market," Lewis Ward, research manager for IDC's Mobile Consumer Services: Entertainment Program, reported at the time. "It's clear from the survey results that many people just want to use their mobile phone to make calls."
Australia, which has enjoyed faster adoption of 3G services capable of carrying video as well as voice and data, has seen a somewhat more receptive audience. Telstra CEO Sol Trujillo recently reported that non-SMS mobile data revenues had surpassed SMS revenues (around $1 billion at a putative $0.20 each), with video calling penetration on its Next G network four times higher than on its 2100MHz 3G network.
New services such as Telstra's mobile FOXTEL service has also proved successful — in the short term at least — with over 70,000 subscribers spending around $11 a month for an average of 54 minutes' viewing time. That equates to just $9.24 million a year in subscription revenues, a drop in the bucket compared with Telstra's multi-billion mobile business. It is promising, however, in a market that has proven less than enthusiastic about new forms of mobile content.
Analysts have picked up on the trend: in February, IDC senior analyst for telecommunications Waqas Javed predicted non-SMS mobile data services would enjoy a compound annual growth rate of 32.3 percent for the next five years. Juniper Research has predicted mobile music, games and TV will generate US$34 billion by 2010, driven by widespread adoption of 3G particularly in China and Far East markets.
Odds are that the nature of those services will also continue to change: whereas analysts five years ago were focused on downloadable content, the rise of Web 2.0 and real-time social networking has given more weight to online social interaction and real-time content delivery.
Telstra's forthcoming neTunity streaming music service, for example, has the potential to create a significant revenue stream, as will similar services from Apple. Appl's iPhone and associated Apps Store wirelessly stream content and applications to the handset. Research In Motion's Blackberry devices take a similar approach.
3G or not 3G?
The tight connection between network and content has been nowhere more evident than in the mobile industry, and in many ways the failure to meet early high expectations of data-based services can be pinned on the lack of a clear infrastructure path. Although data transfer is certainly possible over widely accessible GPRS technology, the grindingly slow speed made it unsuitable for general use.
Blackberry handhelds, which are exclusively linked to GPRS, have only managed to avoid this by stripping e-mails of everything but their basic text so slow transfer speeds are hidden. Apple's iPhone has been continually lampooned for its reliance on ultra-slow GPRS. Little wonder, then, that ever-faster 3G networks are finally driving a content revolution.
While 3G may be the clear path forward, however, analysts haven't always been so sure. As recently as late 2005, one Parliament of Australia analysis noted that "it is not clear whether 3G will survive as a technology platform winner", citing ongoing problems with commercial models and the risk of cannibalising 2G services.
Here, the report found, content and not technology itself would be the winner: "Demand for 3G will not be driven by the technology platform as such, unless 3G is seen to offer new, easy to use, innovative and useful personal services to now 'unaware' consumers," the report said.
In something of a Catch-22, many such services required more bandwidth than 3G alone could provide — but there was no incentive to invest in next-generation networks until 3G had proven itself.
This roadblock was resolved with the introduction of high-speed downlink packet access (HSDPA), which has breathed new life into broadband mobile communications and driven a wealth of new projects around the world.
This technology, which is widely available across Australia's city areas and is pushing its way into regional areas thanks to Telstra's Next G network and parallel efforts from Optus, Vodafone, and 3, looks set to be the shot in the arm that early pundits were forecasting years ago.
An increasingly technology-aware public, supported by innovative offerings from carriers and all-in-one devices capable of delivering location-aware and other applications that were pipe dreams just a few years ago — may well make high-bandwidth applications like downloadable music and video the killer app for 3G, in the same way that SMS proved to be the killer application for GSM.
If nothing else, the industry convergence around 3G has helped overcome early questions about its viability, which were fuelled by the exorbitant hype-driven prices paid at auction for 3G spectrum. Judging by the results of the recent US spectrum auction — which raised nearly US$20 billion for rights to soon-to-be vacated TV broadcast airwaves — industry observers hold out similar enthusiasm for fourth-generation mobile services.
Just what those services will be, remains unclear. But 3G has found its way, albeit over more time than pundits expected. Whatever the killer application for 4G is, history suggests that technology, too, will eventually find its way — even if it is outside of the five-year window of today's analyst views.