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Ovum predicts short-term slowdown of mobile revenue growth

Ovum previously predicted that carrier service revenues would surpass $1 trillion in 2010, but due to the recession, the research firm now expects this barrier to be broken in 2011.

The greatest impact of recessionary forces is seen in the short term. Ovum has revised its revenue forecasts for 2009 down by 9 percent compared to its previously published figures, yet by 2013 the difference is just 1.7 percent lower. The result of the economy will be downward pressure on carriers' Average Revenue Per User, leading to an increasing need for network efficiency, and in mature markets such as the U.S., this will drive the uptake of LTE over WiMax, according to Ovum.

"As far as U.S. carriers hurt most by the recession, Sprint went into it in poor shape, so I'm not sure how much the recession has impacted the company," said Steven Hartley, senior analyst for Ovum, London. "People are more wary of where they want to spend money, so people will shy away from the weaker operators, so Sprint is an obvious but possible unfair example.

"The other one that's been hit hard is T-Mobile -- mainly the parent company has taken a hit from international currency fluctuations," he said. "T-Mobile USA is actually driving revenue, and T-Mobile was doing great in 2008, but that growth has slowed over the past couple of quarters, because the parent company has been most impacted by the recession.

"We're not talking Armageddon here, just a logical connection between the recession and carriers' revenue."

In fact, the recessionary impact on the wireless ecosystem will be relatively muted compared to other industries, and mobile is expected to recover strongly from 2011, according to Ovum.

By 2014 Ovum expects total carrier service revenues to reach $1.114 trillion.

Voice will continue to be the largest revenue generator worldwide, accounting for 69 percent of revenues on a global basis and for no less than 60 percent in any region in 2014.

As a result, voice will continue to be mobile's killer app, according to Ovum, so carriers must not ignore this fact in the race for data revenues.

"Two distinct types of operators that have benefitted from the recession are leaner eat-it-all bundled providers, for example Leap Wireless has an all-you-can-eat data plan for $50 a month," Mr. Hartley said.

"You get a slightly smaller bundle of minutes for half the price of other carriers, so they've done particularly well," he said.

MVNOs, which for the most part focus on the prepaid model, have also fared well.

"Tracfone [TrackPhone Wireless] and Virgin Mobile are offering competitive rates, and they offer on the prepaid model with no credit check required, so consumers only pay for what they use," Mr. Hartley said. "If you restrict your usage, you'll save money, so on the lower end of market, the trend is toward the prepaid model.

"T-Mobile had been doing quite well, but lost its way, in part because other carriers are getting more aggressive with pricing, thereby attracting customers that may have overlooked them in the past," he said. "Consumers are being a little bit more careful.

"Enterprises will cut mobile spend, because even if it's not unemployment that is shedding contracts, it could just be spending restrictions, and clearly that's going to start affecting revenues slightly."

However, in the U.S., mobile data usage continues to grow exponentially.

"In the U.S. market in particular, mobile data services are growing at such an astronomical rate, so pretty tough to find much of an impact, particularly on the top end with Verizon and AT&T," Mr. Hartley said. "Things like USB modems, data cards and the iPhone are driving data usage.

"Growth hasn't been affected by the recession at all, which certainly helps to counteract the recession," he said.

Emerging markets to continue their inexorable connections growth
By the end of 2014 Ovum forecasts 6.42 billion connections, up 59 percent from 2008, and a CAGR of 8 percent.

However, potential for growth will remain as global penetration will be 89 percent in 2014, with 69 percent in Africa and 78 percent in Asia-Pacific.

Elsewhere mobile penetration will reach almost 100 percent or more, but further growth will still be possible from multiple SIM ownership in heavily prepaid markets or through uptake of data-centric devices.

As such, population penetration is ceasing to be a useful indicator.

China and India will dominate connections and will account for 30 percent of total worldwide connections by 2014.

However, the countries' penetration rates will be just 76 percent and 69 percent respectively by 2014.

Massive population growth will continue to fuel mobile demand as new, unconnected users join the market.

The enormous growth in connections has financial implications for carriers, as they are expected to grow by 59 percent from 2008 to 2014, while revenues grow by 33 percent.

Furthermore, mobile outgoing minutes of usage are set to rise 109 percent between 2008 and 2014, but voice revenues will rise just 15 percent.

Both comparisons highlight the influx of ever-lower ARPU customers from emerging markets and price erosion in mature markets, even for data services, according to Ovum.

Therefore, efficient networks, enabling competitive pricing, will be critical in both highly saturated mature markets and low-ARPU emerging markets, according to Mr. Hartley.

LTE to dominate 4G migration as the window closes on mobile WiMax
By 2014, LTE will have 109 million connections worldwide. In comparison, mobile WiMax -- championed by Clearwire and Sprint -- will have almost 55 million connections.

This is in stark contrast to 2013, when parity between the two technologies is expected.

The level of carrier support and the rapidly burgeoning ecosystem will ensure that mobile WiMax becomes increasingly marginalized, according to Ovum.

Although data services are now here to stay, carriers will generally only succeed in generating income from Web access, and here competition will ensure that prices erode rapidly, just as traffic increases, according to Mr. Hartley.

Therefore, the aforementioned need for improved network efficiency partly points towards the need for next-generation access networks.

However, connections growth for LTE and mobile WiMax should be put into context.

Both technologies combined will account for just 2.6 percent of global connections by 2014.

In comparison, HSPA will contribute 11 times that number, according to Ovum.

Therefore, Ovum predicts that the migration to 4G will be neither easy nor will it happen overnight.

Ovum's forthcoming series of reports focusing on the LTE business case have found that the availability of spectrum and devices, as well as existing infrastructure requirements and market competition, will have a major bearing on the timelines for LTE deployments.

"LTE is all about economies of scale, globally operators are coming online, including CDMA players like Verizon that haven't followed the same path of evolution as other carriers," Mr. Hartley said.

"There will be better value for your spend ultimately investing in LTE, as the window for WiMAX is closing," he said. "Operators are not picking it up, so it won't get more affordable over time, whereas the scale of LTE will make it cheaper over time.

"Players like Verizon with CDME are transitioning to a more global standard, and LTE will be the most supported mobile technology in five years time -- in 2013 there will be a parity of LTE and WiMax, and by 2014, LTE connections will go rapidly past as more and more operators come online with commercial services."

And what does all this mean for mobile marketing and advertising? Will carriers make it more of a priority?

"The future outlook of industry makes mobile advertising an interesting opportunity for operators, as voice pricing always follows a trend toward zero and will decline, and operators are selling access to the Internet, which is not necessarily premium content, so those prices will be driven down, they need to find other revenue streams," Mr. Hartley said.

"That will encourage carriers to take another look at mobile marketing and advertising, although I don't believe that will completely replace revenues lost from declining voice and data revenues," he said. "Carriers need to make their networks more efficient so the cost of carrying a voice call or a megabyte of data goes down and they can manage that as efficiently as possible.

"In the U.S., data still quite expensive, per gigabyte about 10 times more expensive than the U.K. or Austria, where things are getting very, very aggressive -- the U.S. hasn't matured as quickly as Europe, the price competitiveness is not quite there yet, but as the market begins to saturate, data revenues will decline."