Events & presentations

18/06/2002

Mobile data - The engine for growth

The mobile telecoms industry stands at a watershed today. On one side of the watershed it sees a maturing stream of voice-based revenues; on the other the potential acceleration of a flood of strong new revenues from mobile data services, building on today's success of text messaging.

Clearly, the growth of mobile data will be a crucial element in the future expansion of the mobile telecoms industry. There is some cynicism about the prospects for mobile data due to relatively modest uptake of the medium-speed GPRS or 2.5G services to date and the resultant claim that there is no market for mobile data services. Another common misconception appears to be that data is synonymous with 3G.

But this ignores the fact that mobile data is a firm reality today, in the shape of the burgeoning market for SMS messages while WAP, although an unfriendly technology, is still used by millions of consumers. Developments are now taking place in the mobile telecoms industry that have the potential to create a further step-change in demand for mobile data services. In the rest of this paper we will list and examine those developments.

First we will put mobile data into perspective from mmO2's point of view.

mmO2 in mobile data

In the final quarter of our 2001/2 financial year, mmO2 outstripped its competitors in mobile data. For 2001/2 as a whole, data revenues were £431m or 11.7pc of total service revenue, a figure rising to 13.4pc in the final quarter.

More than half O2 customers are currently using data services and O2 is one of the leading European mobile portals with 1.64m active WAP users at the end of 2001/2.

We have taken the lead in SMS, carrying 5.3 billion SMS messages across O2's networks in 2001/2.

GPRS has been launched by all our operating businesses with more than 50,000 active users at the end of May 2002. In the Isle of Man we have successfully trialled the first high-speed 3G network carrying a variety of mobile data applications, including video streaming and location based services.

This year we intend to maintain our data leadership and have set a target for data services of 16pc of total service revenues. In 2004, we expect the figure to rise to 25pc.

The mobile data opportunity

Mobile data is a reality today. At the moment mobile data usage is dominated by SMS, but this is just the springboard for future growth. There is, in any case, still significant potential for growth in SMS driven by wholesaling opportunities, inter-network broking, premium SMS services and SMS-based applications in games, chat, alerts and information.

Beyond that there is a greater opportunity. In future mobile data services will become the principal channel for interactive services. Despite the recent turmoil, independent forecasts remain firm and project a potential Euro 45bn market for mobile data services in Western Europe in 2005, of which around 45pc lies within mmO2's footprint.

But how does the mobile telecoms industry drive widespread adoption of mobile data services? How do we replicate the mass-market adoption of SMS? How do we move from technology- push to consumer-led demand, from the technologically aware "early adopter" to the mass market?

We have all learned an important lesson from the launch of GPRS. Essentially the industry focused on building out the technology before establishing what the customer would want to use it for. Adoption was held back by the limited number of handsets and compelling applications, complex set-up requirements and an unsatisfactory interface between GPRS devices and the services on offer.

The industry has taken these lessons to heart. Beyond the "early adopters", potential mobile data customers will not buy technology; they will buy applications that are of clear benefit to them. And they will expect the experience of using devices and services to be as simple as possible.

Dovetailing of Content, Devices and ease of use

Today, the key point is that for the first time, content, devices and ease of use are coming together in a full customer proposition, creating the conditions for mass market adoption of mobile data services.

Applications or content are coming of age, providing a new range of mobile data services that will be attractive to a broad market. At the same time, devices are becoming available that make these applications a reality.

In the near future, there will be a significant expansion of messaging in its generic sense from mobile, "always on" e-mail, to Multi Media Messaging with its ability to send messages from handset to handset that include still pictures, video clips and audio content.

Java games and polyphonic ring tones, far richer than those currently available, will soon be downloaded to mobile handsets. Full colour web browsing will become a reality.

There will be an expansion of interactive services. Good current examples are the services O2 provides to Big Brother with its success in texting, WAP page and on-line interaction. We have also packaged content for football fans with interactive games and World Cup scores. Further potential exists for location-based services providing maps, traffic news and information on hotels, bars and emergency services.

Mobile data customers will be able to make use of these new applications thanks to the devices now becoming available - the BlackBerry email on the move, Handspring Treo smartphone and the xda from O2. Our xda is the first integrated colour pocket PC pda and GPRS enabled mobile phone, providing access to full colour web pages and email.

Camera phones are also coming soon to drive Multi Media Messaging together with the ability to download music with an MP3 player.

There is no doubt that the availability of new applications and devices will help to drive the adoption of mobile packet data.

Ease of Use

But ease of use is critical. Customers want what works. Just like automobiles, early users of PC's were interested in the technology. Now they are very much less interested in what happens "under the bonnet". They value an application and service for "what it can do" to enhance their lives.

Our approach is clear. We will seek to eliminate complexities of set-up by pre-configuring devices in our shops or on line, giving "out of the box" usability. Devices may be pre-loaded by manufacturers or in the SIM card. Content, function and pricing could be bundled together in a package that is intuitive and reliable. We believe that customers will value highly a "walk out working" result when they visit an O2 shop

Implementing 3G

It is important to realise that the adoption of mobile data services does not depend on the implementation of 3G. As we have seen, mobile data has been with us for the past four years. The driver has been SMS, an almost accidental success driven completely by user demand, valued by customers for its cheapness and non-intrusive qualities.

3G does nothing that GPRS cannot do - it just does it very, very much faster. Having learned important lessons from the launch of GPRS, in particular its focus on technology at the expense of the customer's needs, we will be taking a completely different approach to the roll-out of a 3G service.

Our strategy will be to use our medium speed GPRS network to stimulate the acceptance of mobile data services. Today's data customers using SMS and WAP will be tomorrow's users of medium and high- speed data services. But we have to demonstrate clearly and powerfully what customers "can do" with new data services, devices and technology.

Once we have achieved momentum, and as customers become firmly established and make a commercial decision to require high speeds, we will then start to build out our 3G network. On current expectations, limited service will begin from the summer of 2003, with the aim of providing a nationwide service by 2004 or 2005.

We have no intention of building out a 3G network for the birds to sit on, so to speak. Our measured approach will give us a high degree of flexibility in matching our network spending with the rise in demand for mobile data services.

Driven by new applications, new devices and ease of use, mobile data will provide the engine for growth in the mobile telecoms industry. By 2004 more than 90pc of all revenue growth for all operators will be coming from mobile data services. Mobile data revenues will represent 50pc of total revenues by the end of the decade. mmO2 firmly intends to maintain its position at the forefront of this growing new market.

ends

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