Mobile Operators Target Developing Markets

SINGAPORE — Mobile operators can rely on emerging markets to sustain their future growth, but only if issues such as the relatively high cost of handsets and regulatory gaps are addressed, experts told a June 20 conference here.

Speakers at the CommunicAsia summit said it was the largely untapped segment of poor in markets such as China and India, not new value-added services, that would counter dwindling revenues for the wireless industry in developed countries.

Andrew Buay, chief operating advisor at the Philippines' Globe Telecom, said the wireless industry "will get growth from the poor," noting countries like Indonesia and the Philippines currently offered operators some of the highest operating margins in the world.

"Value-added services, content and the Internet are more uncertain" sources of revenue, he said.

Abdul Wahid bin Omar, group CEO of Telekom Malaysia, also admitted mobile operators "are struggling to push non-voice revenues," adding that the 3G takeup in countries like Malaysia had proven "slower than expected."Representatives of emerging Asian markets said the mobile sector was in the throes of breakneck expansion, driven mainly by a rising middle class and falling handset and tariff costs.

Atul Bindal, an executive director for India's Bharti Airtel, said compound annual growth for local wireless service subscribers reached nearly 90 percent over the last five years. Mubashir Naqui, head of commercial operations at Pakistan's Ufone, noted that mobile handset penetration in Pakistan had soared over 50 percent in the first half of 2006 to around 20 percent of the population.

James Fergusson, regional director of technology at Taylor Nelson Sofres, painted a similar picture for China, where the most recent figures show nationwide subscriber growth of over 17 percent year on year—and growth of up to 30 percent in some remote provinces.

In Indonesia, the compound annual growth rate for the mobile market has hit 67 percent, said Kiskenda Suriahardja, CEO of Indonesia's PT Telkomsel. He said the relatively low national penetration rate of around 22 percent represented a "big opportunity" for service providers.

But executives said handset manufacturers, telecom companies and regulators would all have to modify their approaches to benefit from the possibilities emerging markets represent.Globe Telecom's Buay said operators needed to develop applications that can "tap into the cash flow constraints" of lower income earners and are offered in a "sachet" format where they can be purchased on a day to day, rather than a monthly, basis.

Fergusson said improving distribution of low-priced prepaid cards in far-flung areas would prove key to accessing the lower end of China's mobile market, while the more affluent wanted "easy to use" converged devices.

Others noted that regulatory uncertainties were making planning future moves difficult. Naqui said operators were waiting for authorities in Pakistan to introduce the number portability among carriers and auction off parts of the 3G spectrum over the next year. The Indonesian government has yet to complete the 3G licensing process or design an interconnection regime to replace the revenue-sharing arrangements mobile providers currently adhere to.

Delegates cited relatively high handset prices as the largest barrier to new wireless subscribers in developing countries.

Naqui said operators in Pakistan are forced to subsidize handsets for consumers, and called on manufactures to "pay attention and find a way to reduce prices.""The cost of going mobile continues to be a challenge as the Indian market does not subsidize [handsets]," added Bharti's Bindal, saying for wider adoption in India mobile phones would have to be priced below $20.

Manufacturers said they were pursuing lower prices through technological and design advancements.

Jeffery Torrance, vice president for fixed/mobile convergence solutions at CSR, said the firm will launch a single chip that integrates baseband, RF, power management and Wi-Fi functions. The result will be cheaper Wi-Fi handsets.

Wi-Fi phones would also provide a means for operators to increase capacity or provide number portability without making significant investments in infrastructure, he said. CSR expects rapid development of the Wi-Fi handset market in the next two years, with over 300 million Wi-Fi handsets sold by 2010.

Steve Lalla, vice president and general manager for mass market products at Motorola, said that cutting manufacturing costs would require standard chip sets, identical displays and "massive economies of scale."Motorola announced the launch here of a discount camera phone, the W375, as well as two bargain CDMA models.

Lalla said a mobile model costing less than $20 would be "very achievable" soon as technology costs continue to drop.