On the Edge: Devices at the Center of Change in Wireless

TMNG’s On the Edge: Devices at the Center of Change in Wireless is our forward-looking survey of critical global trends impacting wireless devices and service.

The mobile market is moving toward greater openness for consumers and increased collaboration between wireless carriers, device vendors, application providers, and other parties. Customers are being offered greater freedom and wider selection, while wireless carriers are retaining diminished control over key aspects of wireless service delivery. Against this backdrop, the device is emerging as a key competitive battleground in wireless. A number of new device-focused business models have emerged. We are witnessing increasing levels of investment in the device from players across the mobile value chain – service providers, portals, application vendors, consumer electronics vendors, and content owners, among others. The opening of wireless networks and devices to third-party involvement is a major factor driving increased emphasis on the device. This study examines the macro industry trend toward openness/collaboration and its implications for the high-end global handset market by addressing these key questions:

• As the mobile market evolves, who is best positioned to control service delivery and deliver value to end users: carriers, OEMs, OS vendors, or application providers?
  

• How will mobile data change the game for carriers and OEMs in relation to handsets?
  

• What type of collaborative/open models for wireless service delivery will prove most successful?
  

• What will OEMs (established and new entrants) need to do in order to compete successfully in the future?

This study provides a 3-5 year outlook for the global mid to high end device market. Our conclusions are organized around three major topics: specialized devices, carrier control, and mobile data.

Specialized Devices

Specialized device types will become increasingly important. Although mobile devices have, and will continue to incorporate advanced functionality over time, we see limits to the capabilities of the all-in-one device. Market and technological developments will combine to help specialized devices gain increased traction in the marketplace. This will create new opportunities for both new wireless market entrants and existing ecosystem participants.

Carrier Control

For at least the next 3-5 years, carriers will maintain their leading role in directing the overall mobile market evolution. Despite the growing importance of non-carriers in selected areas of service delivery, carriers will retain effective control over most customers. Controlling sales, handset subsidies, usage charges and billing will allow carriers to cede control in other areas: device access, operating systems, applications, content, and services. Third parties will have the greatest opportunity to collaborate or pursue standardization initiatives with carriers in these areas.

Mobile Data

The outlook for advanced mobile handsets and advanced mobile data services is increasingly interrelated, particularly within mature mobile markets. To a large extent, future high-end handset sales are tied to the success of advanced wireless data services. Expected developments over the next 3-5 years will reduce some, but not all of the material barriers to the success of advanced wireless data services. Significant technical barriers will likely remain, including battery life, size / form factor, cost, and user experience. Remaining business / ecosystem limitations include: limits on the growth of consumer spending; time required for mobile advertising ecosystem development; and the unproven viability of new business models and ecosystems.

This study provides a thorough assessment of the relevant market, business, and technological forces impacting the evolution of the mobile handset market. Our goal is to provide a 3-5 year outlook by focusing on developments at the mid to high end of the market. To do so, we will concentrate on the most developed mobile markets (specifically Western Europe, Japan, Korea, and the US) and evaluate regional differences for their impact on global trends. Our assessment centers on mass market trends, and is therefore weighted toward the consumer market. Enterprise considerations are evaluated primarily to provide added insight into the consumer market. We have chosen to constrain this study to demand-side issues, omitting analysis of manufacturing, sourcing, and other supply-side factors.

As part our context-setting research, we performed an exhaustive review of high-end devices released by the top 5 OEMs in 2007. We also evaluated the handset portfolios and device strategies of each of the major mobile operators in these markets: France, Germany, Ireland, Italy, Portugal, Spain, the UK, Japan, Korea, and the US. Our review of wireless and device market developments reflects events occurring through early March 2008.

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