Expert View

January 15, 2004
New mobile devices to promote growth of data services: Frost

Geetanjali Wadhwa & Pradeep Chakraborty

MALAYSIA -- To offset the declines in their existing businesses, service providers across the region are striving to improve their return on investment (RoI). Some incumbents are considering the possibility of becoming regional players. With such intense competition, there is every likelihood of a potential wave of consolidation. Convergence plus met up with Manoj Menon, director, Technology Practice, Frost & Sullivan Asia Pacific, to find out what the future holds for the Asian telecom industry in general in the coming year. Excerpts from an interview:

Convergence plus: Are you seeing service providers across the region improve returns on their existing businesses?

Manoj Menon: In 2003 the focus of every large service provider, especially in developed markets has been to improve returns on existing businesses. They have gone about doing this in several ways:

• Reduction on capex;
• Reduce cost of operation by effective use of OSS; and
• Less emphasis on price-based competition.

CP: What are service providers doing to grow new business revenues quickly to offset decreases in their existing businesses?

MM: There has been a greater sense of urgency among the service providers to grow new business revenues quickly. In the last 12 months, service providers have accelerated their efforts in rolling out next-generation services. These include IP VPN, IP Centrex, managed services, etc., to name a few. There has been an increased focus on offering services, especially developed for the small and medium businesses.

On the consumer front, we are seeing moderate growth in data applications for mobile services. Service providers are beginning to get a handle on the ideal approach to developing this market. The ecosystem is currently evolving. Service providers have also been actively promoting the sale of new mobile devices with color screens, embedded cameras, polyphonic ringtones, etc. This will fuel the demand for data services over a period of time.

CP: Do you see incumbents shifting focus from local markets and becoming regional players?

MM: This is definitely a trend. However, we have only seen SingTel execute this effectively in this region. Weaker capital markets and poor sentiment, especially for telecom companies in particular, have slowed this trend. Incumbents in every developed market have no option but to go either regional or global.

CP: Given that there are so many competitive operators across Asia seeking funding, are they combining forces and becoming stronger regional entities?

MM: Competitive operators in the wireless space in Asia are extremely lucrative assets. The only way this consolidation can happen is if there is a large global player or an investment house that acts as a catalyst and drives this strategy forward. Though SingTel has been able to become a regional player, this has been accomplished over a period of time.

CP: How will that pave the way for a regional data focused service provider to emerge as a large operator?

MM: The market for data services is very fragmented. The incumbents dominate their respective country markets. Then, there are large global players like MCI, AT&T, Equant, Infonet and BT, who have had a fair bit of market share across the region. Leading Asian companies, include Asia Netcom, SingTel, PCCW, Telstra and XA-TMI. The competition is still intense and there will potentially be a wave of consolidation when market conditions improve.

CP: New businesses throw open opportunities for new players. What opportunities are now becoming available? Are greenfield operators participating in such activities?

MM: It has become extremely difficult for competitive operators given the tough market conditions. New service providers are focusing their efforts on delivering managed services. Channels and SIs are looking at delivering managed services. There is a definite opportunity there, though the sales cycle is slightly longer.

CP: How is wireless Internet ushering in a new wave of opportunities?

MM: The emphasis is now on wireless enabling existing enterprise applications within the enterprise. To make the applications available to the mobile sales force, wireless Internet will undoubtedly be the key engine of growth for the consumer market as well.

CP: Are IP telephony deployments in enterprise gathering momentum?

MM: Absolutely. There has been a dramatic growth in the number of IP telephony deployments in the enterprise. The growth has been very much in line with our earlier expectations. What has been encouraging is that IP telephony deployments have also gathered momentum even in developing markets like India. Most large organisations, especially the MNCs, are deploying IP telephony solutions or hybrid solutions, as compared to traditional TDM solutions.

CP: VoIP does not include any aspects of QoS that will propel it into the forefront of a "happening" technology. Do you agree?

MM: VoIP is clearly a happening technology. This has clearly been the most disruptive technology for the telecom service providers in terms of the impact on their business. The international and domestic voice business has been under tremendous strain due to competition as well as VoIP. QoS will improve. Service providers are already beginning to tier and offer different levels of VoIP services that are based on different pricing levels.

CP: There is a school of thought that believes companies that continue to charge for Wi-Fi access will find that the number of paying users will decrease during the year, not increase. Do you agree with this?

MM: No, we do not see this happening. Many smaller service providers in Asia Pacific have tried free access models in the past and none of them had worked. As more incumbent service providers enter the market, we may see them bundling wireless access with their broadband subscriptions for a nominal cost, but definitely not offer it for free.

If you are referring to community networks, which do offer the access free, these are again limited to only specific groups, there is no QoS and most of them are peer-to-peer.

CP: Can we expect to see many wireless devices capable of both wide-area and Wi-Fi VoIP?

MM: Yes, we can. There are companies that manufacture phones capable of handling voice over WLAN. As wireless embedded chipsets get more popular, we can see the number of Wi-Fi capable devices grow. Some companies in the US are already working on Wi-Fi enabling their Blackberry devices for handling both voice and data. Atheros, Broadcom, and Intel, all have plans to come out with Wi-Fi chipsets that consume less power for mobile devices.

CP: Is 2004 far too soon for Wi-Max to make any real progress?

MM: We do not think that Wi-Max deployments by operators would happen anytime before 2005, because even companies that are actively routing for this standard have said that 2005 is a realistic period for deployments. Commercial Wi-Max products will not be available anytime before mid-2004 and mass adoption could still be a couple of years away.

CP: Are developing countries using wireless broadband technologies to leapfrog ahead of the traditional wireline infrastructure?

MM: Wireless broadband has not yet made significant inroads. Broadband is clearly a game in which the economies of scale matter most. Pricing of broadband services is extremely competitive and you need to have a relatively large subscriber base to achieve profitability. As such, the incumbents with their huge financial muscle and existing fixed-line infrastructure have been best placed to succeed in broadband.

CP: How do you see push-to-talk taking off?

MM: Push-to-talk, a real-time voice communication services, differentiates voice service and provides a value-added element to the conventional voice communication service. Being an integral part of the IP multimedia platform allows the services to be "always on." Push-to-talk provides an opportunity for service providers to augment existing voice services/communications by offering such as differentiated voice communications, value-added service or bundled service. This is in line with the trend toward adding value to the existing voice communication services.

First introduced in the U.S., push-to-talk was warmly received, looking at Nextel's performance. A consortium of vendors (led by Nokia) is likely to introduce the service very soon in the Asia Pacific, to operators in the region. Handset vendors are currently pushing this technology and initial trials in the region are likely by the first quarter of 2004.