Mobile's next inflection point

25 Jun 2008

If you're in the mobile business today, you've got two angles to work: emerging markets and smartphones.

For what it's worth, Asia Pacific is unusual as a region that is important to both of those. A lot of the talk at CommunicAsia this week will be driven by companies working one or both sides of that street.

The smartphone story of course has been dominated by the iPhone. For a product that has shipped roughly 0.5% of all devices sold in the past year, it's an amazing performance.

Like all good category leaders, it has changed the business - or at least the handset part. (On the carrier side, its revenue share deals haven't worked so well; it has now reverted to a more standard distribution arrangement, with operators frontloading subsidies.)

But vendors like Samsung - the world's No. 2 device-maker - have been quick to incorporate some of the iPhone's features, like the touch-screen.

The result is smartphone sales are climbing sharply. The industry shipped 32.2 million units in the first quarter of 2008 - a fraction of the 294 million handsets sold worldwide, says research firm Gartner. But that's up 29% from Q1 2007.

That adds up to more than 100 million this year, and at this rate that will more than double by 2010. When you're talking phones costing US$200 or more, that's a sizeable market.

Support for data

The iPhone's other claim to success is that it's a device that can, finally, drive mobile data usage. AT&T, the exclusive iPhone channel in the US, saw data go from 16% to 22% of total wireless revenue in the first three quarters selling the device.

The average US iPhone user spends US$90 a month, compared to US$50 for AT&T's customers.

Then we have the emerging markets story.

Some 203 million - or 69% - of the handsets sold in Q1 were bought by users in developing markets, according to Gartner. Sales were up 28% in Latin America and 27% in Asia Pacific.

The Asian number was driven by continued demand in India and by fresh round of price-cutting in China. Since government-mandated tariff cuts last year, China Mobile and Unicom have gone through another growth spurt, between them adding 87 million customers in 2007 - their biggest year ever - to take the total to just under 500 million.

But it's not just about individual countries. Emerging markets are key too.

That's evident in the attempts first by Bharti Airtel and then Reliance Infocomm to merge with South African-based MTN. The other challengers include Orascom, a developing market specialist, China Mobile, which last year acquired a small Pakistan operator, Telefonica, the biggest mobile operator in Latin America, SingTel, which part-own operators throughout Asean, and Vodafone, which has a stake in Essar in India and several African cellcos.

But it is Africa that is in the mobile sweet spot. African operators added 70 million mobile connections in 2007, taking the total to 282 million, according to GSMA figures.

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