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December 2010

Yankee Group’s 2011 Predictions:


4G Fuels the Decade of Disruption

by Jason Armitage, Senior Analyst, jarmitage@yankeegroup.com


Contributors: Carl Howe, Declan Lonergan, Chris Nicoll, Brian Partridge, Eugene Signorini and Ted Julian

The Bottom Line


2011 is destined to be a big year for 4G, as many operators around the world are set to roll out major LTE, HSPA+ and WiMAX implementations. Here’s where
Yankee Group sees 4G headed in terms of deployments, adoption and overall impact.

Once a Decade Because the one force that drives the rate of disruption is
connectivity: Mobile connectivity lowers the barriers of entry
In May 2001, NTT DoCoMo soft-launched the first 3G service.
into new markets, and with the arrival of 4G, mobile bandwidth
Nearly a decade later, worldwide registered 3G lines broke
is about to get a lot cheaper. Once in place, 4G upgrades will
through the 1 billion mark. In the process, mobile usurped fixed as
have swift and profound impacts across the industry. Management
the leading telecom sector, accounting for 77 percent of consumer
should prepare their organizations now to adapt or die. Welcome
connections in 2010. In Q3 2010, NTT DoCoMo launched the Xi
to the next decade of disruption.
Brand for its LTE service. It joins a handful of mobile operators
around the world offering what have come to be termed 4G Below are the most significant developments we see for 4G in
services—those running over LTE, WiMAX and (in some specific 2011, concluding with our take on 2011’s winners and losers. Read
cases) HSPA+. The incremental pace of deployments is reminiscent on to see what organizations and technologies are best positioned
of 3G, but this time around, we believe 4G mobile upgrades will to become 4G leaders next year and beyond.
lay the foundation for the fundamental reshaping of the telecom
industry and commerce as a whole. Methodology
Yankee Group’s predictions for 2011 aim to answer three In the U.S., a “4G network” is one based on LTE, WiMAX or
questions: what are the considerations in upgrading networks, how HSPA+, but that definition is globally unique; elsewhere, LTE is
quickly will services be adopted and what broader impacts will commonly regarded as the primary 4G technology. For this report,
more bandwidth have? In all three stages, the message is there is we consider both definitions to denote “4G,” depending on the
no Big Bang in the pipeline. Spectrum auctions are still to be held geography examined. We base this report on our ongoing research
in key markets across the globe. Operators, content owners and into 4G and the nascent Anywhere Network®, and we use findings
consumers will tussle over Net neutrality, raising the likelihood of from several of our published reports as well as data from Yankee
protracted cycles of regulation. Early signs from the U.S. indicate Group’s August 2010 Anywhere Enterprise: 2010 U.S. Enterprise
partial coverage and confusing marketing will slow adoption. Why, Mobility/IT Decision-Maker Survey, Wave 1; our Anywhere
the reader may ask, are we focusing on 4G now? Consumer: US Consumer Survey - Wave 1-8 from September
2010 and Wave 1-9 from October 2010; and our Link Data: Global
ConnectedView Forecast, September 2010.

© Copyright 2010. Yankee Group Research, Inc. All rights reserved.


Yankee Group’s 2011 Predictions: 4G Fuels the Decade of Disruption

Prediction 1: 4G Will Be a Drop in the Ocean Exhibit 1: 4G Will Be a Slow Burner, Just Like 3G
Source: Yankee Group, 2010

The Upshot: Operators and infrastructure vendors always over-


Share of Global
estimate short-term demand for new wireless technologies. This will Mobile Lines
7%
happen again with 4G.
6%
By the end of 2011, the world’s most important 4G technology 5%
4% 3G (actual)
(LTE) will account for only 0.04 percent of all mobile lines.
3% 4G (forecast)
Penetration will be 0.33 percent in the U.S., but consumer
2%
awareness of 4G will remain stubbornly low. Despite operators’ 1%
substantial market budgets, by the end of 2011, less than 25 0%
percent of North American consumers will understand what 4G Year 1 Year 2 Year 3 Year 4 Year 5

means. We should not be surprised by this modest level of market


awareness and adoption. Until customers fully appreciate the link Prediction 2: 4G Will Fail to Win the Enterprise
between a new wireless network technology and the superior user
experiences it delivers, their interest in upgrading will naturally be The Upshot: Operators have a long way to go in conveying 4G’s value

muted. A slow ramp for 4G is OK. Remember, several companies proposition to enterprises. Marketing around speeds and technology

that were relatively late to 3G, such as Apple and Telefónica O2 in specs needs to take a back seat to demonstrating actual applications

the U.K., did just fine. Aggressive 4G players will be frustrated if and solutions enhanced by 4G.

they expect customers to flock to the new technology en masse in Wireless operators have mostly missed the mark when it comes
the first year (see our April 2010 report “4G Déjà Vu”). to marketing 4G services for business, and as a result, enterprises

Beyond 2011, however, the 4G market will ramp up steadily (see will be slow to warm to 4G. Although operators are banking on

Exhibit 1). The U.S. will lead the world in service adoption, and over business applications such as video conferencing, virtualization

one-fifth of all U.S. mobile lines will be LTE by 2014. This will far and machine-to-machine communications that will benefit from

exceed the global average of just 2.1 percent. During 2012, consumers’ the enhanced speeds and latency improvements of 4G networks

awareness of 4G will also increase significantly—it will climb to over to drive adoption among corporations, business decision-makers

50 percent in the U.S. All of this 4G growth will be driven by the don’t see the value—yet.

availability of more attractive devices and price plans, both fueled by Yankee Group’s Anywhere Enterprise: 2010 U.S. Enterprise
intensifying competition among the leading mobile operators. Mobility/IT Decision-Maker Survey, Wave 1 shows that less than

Incumbent operators deploying 4G networks will be the winners half of all mobility decision-makers say they strongly agree with the

because they will be able to align 4G investments with pragmatic statement “I understand what 4G wireless technology is.” More

adoption forecasts—unlike what happened with 3G. Examples importantly, only 29 percent strongly agree that “4G wireless

include AT&T, Vodafone and Telstra. The losers will be rich technology is important to enhancing the productivity of my

media or content companies such as the BBC, Sky and YouTube organization’s employees” (see Exhibit 2 on the next page).

that expect 4G to change the world—and drive their business


growth—within the next one to two years.

2 © Copyright 2010. Yankee Group Research, Inc. All rights reserved.


December 2010

Exhibit 2: 4G Will Hit the Enterprise Market With a Whimper


Source: Yankee Group’s Anywhere Enterprise: 2010 U.S. Enterprise Mobility/IT Decision-Maker Survey, Wave 1

On a scale of 1 to 10, how strongly do you agree or disagree with the following
statements? (1 means “Strongly disagree” and 10 means “Strongly agree”)

I understand what 4G wireless


7% 16% 30% 47%
technology is

Low (1,2,3)
4G wireless technology is important
Low-medium (4,5)
to enhancing the productivity of my 12% 28% 32% 29%
High-medium (6,7)
organization's employees
High (8,9,10)

4G wireless speeds will be a big


6% 20% 38% 36%
improvement over 3G speeds

0% 20% 40% 60% 80% 100%


n=217
Base: Asked to those who have deployed or plan to deploy wireless broadband

However, business users stand to be a key target for operators as Prediction 3: The 4G Killer Device Will Be
they launch 4G. With consumerization playing a significant role in a Hotspot
driving enterprise adoption of mobile technologies, the best near-
The Upshot: Personal hotspots allow consumers to choose which
term route for 4G business adoption is through users themselves.
connected devices need to be on a mobile plan. The result will be more
Similar to how smartphone growth expanded in enterprises,
devices connected to the same subscription and a loosening of operators’
end-users purchasing 4G adapters and dongles will demonstrate
customer control.
productivity benefits and business use cases for 4G applications.
To truly move the needle in enterprises, however, operators need Based on Yankee Group’s Anywhere Consumer: US Consumer
to be much more proactive in exposing the greater ecosystem of Survey - Wave 1-8, 2010, we find consumers continue to increase
application and solution providers to business decision-makers. their use of personal Wi-Fi hotspots (also known as MiFi
This could also mean creating white-label or jointly developed hotspots), and we expect this trend will accelerate in 2011 with
out-of-the-box solutions that show off the advanced capabilities of the arrival of faster 4G connections. Four devices sharing a 14-21
4G: Examples would be in the areas of virtualized applications and MB connection will still find performance far superior than that
unified communications/collaboration. experienced individually on a 3G connection.

In terms of the competitive landscape, Sprint is ahead of the game Before hotspots, multi-device users needed to deal with multiple
in the U.S. When asked who the leader in 4G is, decision-maker mobile device plans, one per device. In 2011, with an increasing
respondents select Sprint more than any other operator. Sprint’s number of smartphones and stand-alone devices offering
early mover marketing messages have at least resonated with its integrated Wi-Fi hotspots, users can pick which devices need
audience. The ultimate losers from ineffective 4G marketing are to be on a mobile plan and which can piggyback on a 4G device
enterprises, which could once again be underserved by operators connection via Wi-Fi. Consequently, personal hotspots will
that take the easier path of consumerization. dampen 4G subscription uptake and revenue.

© Copyright 2010. Yankee Group Research, Inc. All rights reserved. 3


Yankee Group’s 2011 Predictions: 4G Fuels the Decade of Disruption

Device manufacturers such as HTC, Motorola, Apple, Hewlett- U.S. 4G operators and consumers stand to lose out. The 4G conflict
Packard, Sony and Nintendo stand to benefit because if their started early in the U.S., with Clearwire and Sprint positioning
device has a Wi-Fi connection, it’s now a winner. The operators their WiMAX network as “4G” simply to separate it from current
lose on a number of fronts: Yes, they get the small additional 3G offerings—despite protests that no network technology would
ARPU bump provided by the Wi-Fi hotspot charge (typically $20 approach the International Telecommunications Union (ITU)-
per month), but they lose the valuable information associated defined 4G speeds of 100 Mbps connection for several years.
with understanding which devices are accessing the network. This led to T-Mobile positioning its HSPA+ network in the U.S.
Wi-Fi-attached devices are seldom provided by the operator, as 4G, based on its offering higher speeds than the Clearwire/
meaning a further loss of operator customer control and customer Sprint network, as well as higher speeds than the proposed LTE
relationship. 4G MiFi hotspots further reduce the operator to the network offered by Verizon. All in all, it spells a mess for consumers,
provider of a smart pipe. operators and the device manufacturers that will quickly confuse
users if they add a “4” to the name of any new device.
Prediction 4: Competition in the US Will
Create a 4G Marketing Mess Prediction 5: A Denial-of-Service Attack Will
Take a 4G Network Down
The Upshot: 4G marketing across multiple technologies is creating a
lot of hype and confusion in the U.S. Expect subscriber take-up to suffer The Upshot: Rabid mobile broadband demand and aggressive 4G
in consequence. rollout schedules will pressure operators to cut corners on security. This
is dangerous and will cost operators dearly down the road. In 2011, a
In Yankee Group’s October 2010 report “US and Europe: LTE’s
denial-of-service (DoS) attack will take down a 4G network, squandering
Tortoise and Hare?,” we find significant regional differences in
the affected operator’s opportunity to grow revenue and steal share.
how 4G networks are being marketed to consumers and in how
4G drives competition. Although Swedish operator TeliaSonera From a security perspective, 4G networks are a challenge for
rocketed to an early deployment lead in Stockholm and Oslo for mobile network operators because they are far more open and flat
its LTE network, we expect by the end of 2011, the U.S. will have than traditional operator network architectures. Securing them
rapidly overtaken Europe in LTE network coverage. A matter of effectively requires a different mindset and tools. This challenge
long-term concern, however, is the extent to which T-Mobile, by itself might not be so bad. Unfortunately, it’s happening in the
Clearwire, Sprint and Verizon Wireless are using the 4G moniker midst of chaos. Operators are scrambling under an avalanche of
as a marketing tool. mobile broadband demand to both roll out 4G access and shore up
3G deployments. Virtually all operators are fighting this battle. But
The lack of strong 4G momentum in the European Union reduces
AT&T’s struggle in the U.S. is particularly poignant as it strives to
the 4G marketing overload currently experienced by U.S. users,
meet iPhone demand on its 3G network at the same time it builds
who are just now recovering from confusing 3G marketing claims.
out its 4G offering. The resulting frenzy doesn’t position operators
According to Yankee Group’s Anywhere Consumer: US Consumer
well to build security into their 4G networks from the ground up.
Survey - Wave 1-9, 2010, over half of U.S. users don’t know
To meet deadlines, many will take shortcuts on security, hoping
what 3G is and two-thirds don’t know what 4G is. This creates a
to retrofit later on. This is dangerous, especially in competitive
marketing problem for operators trying to differentiate based on a
geographies like the U.S., where most customers have several
service that is poorly understood by the customer.
operators to choose from.
By contrast, European operators and consumers have had less of
an issue with competing 3G networks and services, plus they enjoy
a fairly clear message that LTE is 4G. Device manufacturers and
application vendors, therefore, can more clearly target which services
require a 4G connection or service, simplifying consumer decisions.

4 © Copyright 2010. Yankee Group Research, Inc. All rights reserved.


December 2010

4G networks are too new for their threat profiles to be known. Prediction 6: Chinese Vendors Will Beat 3G
Lots of things could go wrong and some will. But Yankee Group Incumbents in Their Own Backyards
expects a DoS attack will render a substantial segment of a major
operator’s 4G network unavailable in 2011. There will be other The Upshot: The breach of established infrastructure vendor accounts
outages due to overwhelming demand; what we’re predicting is an will keep the pressure on Nokia Siemens Networks (NSN), ALU, Ericsson
outage that’s the result of malicious intent. After all, 4G networks and NEC. But competition will benefit Tier 1 infrastructure vendors: They
offer attackers not only rich targets (relatively well-to-do early will need to get better at everything they do to ensure survival.
adopters), but also unproven technology with security issues that The pressure on incumbent telecom infrastructure vendors exerted
haven’t been worked out and a relatively flat architecture with by Huawei and ZTE has been steadily increasing for years, as
fewer protection points. To make matters worse, such an outage evidenced by their strong top-line sales growth while established
can occur in many ways: bandwidth exhaustion, signaling overload vendors such as ALU and NSN have struggled. Both Huawei and
or application-level attacks are all quite capable of making a ZTE have benefited greatly from their pole position on immense
network unavailable to subscribers. network build-outs covering their domestic 1 billion-plus population,
With clean-up costs (including the network, IT, customer care, comparatively lower cost R&D and aggressive financing capacity.
media relations, etc.), fewer new subscriptions and increased To maintain their gaudy growth aspirations, Huawei and ZTE have
churn, the bill for this DoS outage will be a minimum of U.S.$10 sought to aggressively expand their presence in all other regions
million in the first month alone. Factor in the lifetime value of these of the world and are targeting and winning key projects in the
lost subscribers, especially in competitive markets, and the longer transition to LTE. Huawei in particular came strong out of the
term impact could increase the cost by an order of magnitude and gates: It won a part of the first LTE network at TeliaSonera, added
depress the stock price. design wins at WIND, Telenor, Vodafone Germany and Belgacom,
The winners include vendors like Arbor Networks and Radware and gained the pole position in China Mobile’s TD-LTE rollout. The
that help operators address these issues. But equipment vendors TD-LTE win is important because it represents a viable path to LTE
like Alcatel-Lucent (ALU), Cisco, Ericsson and Huawei will also be for WiMAX network operators. For its part, ZTE notched LTE
called on to assist, as will their professional services organizations. wins at Pannon (part of Telenor Group) in Hungary and Optimus
in Portugal.
The losers in this scenario include the affected network operator,
its network operations staff and its customers. Should the outage These vendors’ paths are not completely fated for success,
coincide with a 4G launch and/or hot handset rollout, the brand however. In a reversal of fortune, TeliaSonera chose NSN (along
impact could be devastating as customer acquisition numbers with Ericsson) over Huawei for its LTE expansion project,
aren’t met and churn increases. As a result, revenue targets won’t demonstrating the Chinese can still be beaten by proper
be met at the same time expenses climb to clean up after the motivation and commercial terms. The U.S. will also remain a
mess. These losses are particularly painful since the migration to challenge for Huawei and ZTE because geo-political security
4G represents a rare opportunity to steal share for operators that concerns hold back U.S. Tier 1 operators from large-scale
play their cards right. A massive DoS outage just as momentum is commitments to either company, with a few exceptions. That said,
building could squander that opportunity. the days when Tier 1 competitors could simply dismiss Chinese
vendors as offering low-cost, technically inferior solutions are
behind us. Yankee Group predicts the encroachment of Chinese
competition into the Western world will only accelerate over the
next five years.

© Copyright 2010. Yankee Group Research, Inc. All rights reserved. 5


Yankee Group’s 2011 Predictions: 4G Fuels the Decade of Disruption

Prediction 7: 4G Users Will Spend Twice as as mobile Web use increases with 4G. Similarly, free or near-free
Much Time on the Mobile Web as Their Non- audio and video content companies such as Pandora, Spotify,
4G Counterparts YouTube and Hulu.com will continue to see mobile use grow.
Finally, companies with operations in mobile advertising—including
The Upshot: 4G will increase the average amount of time consumers Apple, Google AdMob and Jumptap—will have an opportunity to
spend on the mobile Internet. Companies that invest in mobile Web sites increase their revenue.
and free or near-free rich media content are best positioned to benefit.
In contrast, businesses that assume 4G users are all on PCs and
Yankee Group’s Anywhere Consumer: US Consumer Survey - therefore don’t prioritize on-the-go user Web content will see
Wave 1-8 finds non-4G consumers currently spend an average their Web user bases decline, even as bandwidth availability goes
of 18 minutes a day browsing the mobile Web for both work and up. Oddly, mobile carriers such as Verizon, AT&T and T-Mobile still
personal reasons. By the end of 2011, we predict that figure will don’t provide mobile Web sites today, and as such, are poised to
reach more than 36 minutes a day for 4G users. Based on the miss out on the 4G boom.
faster and more responsive mobile Web experiences provided by
4G, we further predict Web browsing will continue to dominate
Prediction 8 : Mobile Video Will Not Drive
consumer 4G network use, comprising more than 75 percent of
Consumers to 4G
all consumer network requests on 4G and exceeding the request
rates of audio, video and mobile apps. The Upshot: Despite huge bandwidth demands, video won’t move
consumers to 4G. Mobile apps and Web browsing will continue to drive
4G speeds will help the mobile Web to flourish. In just the last
revenue on upgraded networks.
two years, mobile Web sites have grown from a hobby to mobile
destinations that can serve nearly every type of mobile phone (see 4G consumer adoption will ramp up the mobile app gold rush
the October 2010 Yankee Group Report “Best of the Anywhere going on today (see the March 2010 Yankee Group Report, “The
Web 2010”). 4G speeds will just accelerate that trend. Mobile App Gold Rush Speeds Up”). The average 4G user today
downloads eight apps every 90 days compared with only six apps
Companies such as Google, Bing, Walmart, JetBlue, Amtrak and
every 90 days for non-4G users. Based on this fact and our prior
BART.gov that invest in high-value mobile Web sites targeted at
research, Yankee Group predicts mobile apps will exceed U.S.$5.4
the needs of on-the-go consumers will garner even more traction
billion globally in app revenue for 2011 (see Exhibit 3).

Exhibit 3: Global Mobile App Revenue Is on the Rise


Source: Link Data: Global ConnectedView Forecast, September 2010

App Store Revenue


Smartphones (in Thousands) (in Millions of U.S. Dollars)
1,600,000 $25,000

1,400,000
$20,000
1,200,000

1,000,000 $15,000
800,000

600,000 $10,000

400,000
$5,000
200,000

0 $0
2010 2011 2012 2013 2014

Number of Smartphones In Use Worldwide Global App Store Revenue

6 © Copyright 2010. Yankee Group Research, Inc. All rights reserved.


December 2010

Despite the prodigious amounts of network bandwidth video In addition, next-generation network technologies will improve the
applications consume, they do so largely on behalf of only 30 performance of Web apps. Faster download speeds will negate the
percent of mobile users—those who watch video at least once a difference between content that resides on the device and content
week. Mobile video use isn’t just constrained by bandwidth, but that is based in the cloud. Web apps hold the key benefit of easy
also by how much undivided attention mobile consumers can portability across platforms.
spend on video. Without today’s constraints on mobile bandwidth,
Growth in Web authoring will not loosen the grip of the OS
we see consumers increasing their use of music services such as
vendors. Apple’s iOS and Google’s Android platforms are becoming
Pandora and Slacker—which can be enjoyed while consumers do
the best served in terms of Web authoring tools, and native apps
other mobile activities (such as driving or walking)—more than
show few signs of declining popularity. Specifically, we expect the
their video consumption. We expect Web browsing and mobile
apps consumers are willing to pay for—such as leading games—will
apps to remain the vast majority of 4G network use for the
be developed for specific devices. In channel terms, apps reach
foreseeable future.
the end-user by three means: the device (preloaded), the app
Companies such as Smule, Chillingo, DataViz and others that have storefront and the Web browser. An increased number of apps
invested in serious mobile app development and production will residing in the cloud will benefit the browser.
either grow to become mega-businesses or be acquired by other
Sadly for operators, Apple and Google own the most popular
companies that already are mega-developers.
mobile Web browsers and are well-positioned to optimize these
The losers will be those companies that have spent millions to for app discovery and search. Revenue from this channel will
develop pay mobile video platforms that largely go unused through continue to evade operators. Players such as Vodafone and Orange
95 percent of a 4G user’s day. Companies such as Flo TV have that have invested in storefronts have the most to lose.
already gone bust; expect more to join their ranks as unpaid video
distributors such as YouTube continue to dominate the majority of Prediction 10 : MVNO Hype Will Build, But
4G video usage. Most of It Will Lead to Nothing
The Upshot: 4G does not represent a significant market opportunity
Prediction 9: The Web Will Not Save
for most new entrant mobile virtual network operators (MVNOs).
Operators in the Mobile Apps Market
In theory, 4G should lend itself to the MVNO model. Spectrum
The Upshot: Operators think a bigger role for the Web in mobile apps
fees and the capex required to build 4G networks are
will throw them a lifeline. Think again. In 2011, Apple and Google will lead in
considerable, and companies that build 4G networks need to
Web authoring and discovery through the browser.
ensure they’re filled with profitable data traffic. Meanwhile, smaller
In 2011, the Web will increase its role in the mobile apps market players with limited funds will perceive an opportunity to carve
in two key ways: the development and distribution of mobile apps. out a piece of the 4G action without the need for huge upfront
Operators have welcomed the increased importance of the Web investments. In theory, therefore, the 4G MVNO business should
as an opportunity to boost their own profiles in apps development be a booming one. But it won’t be. Most of the hype will lead
and distribution. The reality is that apps authored in Web to nothing. MVNO business plans—and, in some cases, MVNO
environments and the browser offer no escape from the expanding launches—will fail for the same reasons the majority of 2G and 3G
ecosystems controlled by Apple and Google. MVNOs failed: Most don’t understand how to truly complement
their hosts’ businesses. Like a small bird on an elephant’s back, if
The provision of software development kits (SDKs) for native
an MVNO can establish a symbiotic relationship with its host and
apps has drawn developer mindshare to OS owner storefronts.
provide some direct commercial benefits, it can flourish. But it’s
In 2011, developers with a preference for Web authoring will
critical the MVNO does not compete to any meaningful degree
have a wider choice of frameworks and tools. Developers will
with the host. First and foremost, both parties cannot target the
also use components of the HTML5 specification to deliver more
same customers.
responsive, richer Web apps.

© Copyright 2010. Yankee Group Research, Inc. All rights reserved. 7


Yankee Group’s 2011 Predictions: 4G Fuels the Decade of Disruption

There will, however, be opportunities for companies that learn come built-in as standard. This started with 3G (e.g., Amazon’s
from today’s relatively few successful MVNOs. In cases where Kindle) but it will really take off with 4G as operators try to fill
the host network is not in the retail business, genuine 4G MVNO their data pipes with profitable data from a wide variety of sources.
opportunities will emerge. The LightSquared model in the U.S. is
The end result of this pricing innovation is that 4G users, unlike
one such example. Other viable opportunities for virtual players
most of their 2G and 3G counterparts, will learn to live with
will be in key verticals where operators need help to build the
customized and tiered data packages. Insistence on flat rate
market and distribute their products. Examples include the
will give way to acceptance of “you get what you pay for.” As a
connected vehicle and specialist enterprise mobile data services.
result, 4G pricing—unlike that used for most 3G services—will
But overall, the 4G MVNO space will be characterized by a
enable rich and sustainable user experiences and a model that is
relatively small number of focused players. 4G will certainly not
economically sustainable for network builders. Every player in
herald a tidal wave of new MVNO market entrants because the
the mobile ecosystem will ultimately benefit from this, although
2G/3G lessons are still relatively fresh in entrepreneurs’ minds.
some won’t appreciate it at the time (we discuss mobile broadband
The winners will be MVNOs that know how to complement pricing options in detail in Yankee Group’s December 2009
their host operator’s own 4G business and have a clearly defined Report “The Holy Grail of Mobile Broadband Pricing”). Exhibit 4
addressable market that is not being well served by the host. All summarizes the key findings.
other 4G MVNOs will fail.

Prediction 11: Pricing Will End in Tiers Exhibit 4: The Holy Grail of Mobile Broadband Pricing:
Personalized, Converged and Dynamic
Source: Yankee Group, 2009
The Upshot: 4G will herald the introduction of more innovative and
tiered mobile data pricing models. Flat-rate pricing will be gone forever.

Tiering of 4G mobile data propositions will become the norm in


2011 and beyond. These will typically feature a combination of data
Personalized
Flexible price plans
volume (measured in gigabytes) and network speed (measured in and usage thresholds
are customized to
Mbps). Quality-based or performance-based pricing will also be individual needs and
introduced widely. These plans will usually feature two to three Converged preferences.
Dynamic
Land-line/mobile
main service tiers. Vodafone has already deployed a version of broadband connectivity Pricing based
and mobile handset-based on individual
this in Spain with its 3G services. Based on results there, the context and
services (voice, messaging,
variable network
company intends to extend this approach to other markets. Most applications and mobile
parameters
Web) are integrated.
operators will follow in Vodafone’s footsteps. Operators will do enables targeted
real-time offers.
everything possible to draw attention to 4G technology’s superior
performance as a way to encourage customers to upgrade.

With 4G, operators will also introduce more flexibility into their
price plans. Consumers will be offered data connectivity as a
stand-alone product, to be used to connect a wide variety of
communications and consumer electronics (CE) devices. In other
cases, where the business model supports it, connectivity will

8 © Copyright 2010. Yankee Group Research, Inc. All rights reserved.


December 2010

Yankee Group expects several types of companies to profit from OTT companies that provide voice and unified communications
innovative pricing models. Mobile broadband end-users with light- services are clear winners here. With operators currently choosing
to-medium usage will benefit from customized data offers and to partner rather than compete, OTT players like Skype, Google,
attractive price points. Early innovators such as TeliaSonera can Vonage and others will retain their loyal customer base in 2011.
achieve a price-based competitive advantage. Policy management We also expect these companies to enrich their services in 2011
vendors (including Telcordia, Mobixell, Acision, Bridgewater, to take advantage of 4G networks’ improved performance (and
Tekelec, ALU and Ericsson) can provide the solutions operators spotty coverage). Users also win because they will be able to take
need by supporting differentiated 4G services and pricing. advantage of different price points for different voice services.

Ultra-heavy mobile broadband users will lose their near-unlimited The operators stand to lose out in the short term. All 4G
flat-rate offers. Operators that try to stick with today’s flat-rate operators to date, TeliaSonera, Clearwire/Sprint and now Verizon
structures will also suffer. Their networks will be swamped by the Wireless (which launched its network Dec. 5), are pushing voice
heaviest and most unprofitable 4G users. In this case, a short-term to their 3G networks or do not directly support Vo4G offerings.
competitive advantage will give way to unsustainable bandwidth Only T-Mobile and other operators using HSPA+ carry voice
economics. In addition, bandwidth hogging application providers natively on their “4G” networks. The longer users avail themselves
such as YouTube will see lower overall usage as subscribers of alternative service offerings such as Skype, Google Voice and
become more frugal with their data consumption. others, the deeper those services become ingrained in users’
habits. While some users will always gravitate to the free/lowest
Prediction 12: Carrier VoIP Will Still Be cost option and some will always gravitate to the higher cost/
AWOL, Despite 4G higher quality option, the real battle is for the users in between.
As the XYZ generations and their voice-limited habits arrive,
The Upshot: Operator-provided VoIP services over 4G are not likely to operators face the loss of significant voice revenue in the long run
launch in the market in a large way until 2013. This leaves the door open for one way or another.
over-the-top (OTT) companies to gain an early lead.

Based on our interviews with operators and results from our Prediction 13: Google Will Take the Wheel in
Anywhere Consumer: US Consumer Survey - Wave 1-8, we find Mobile Data
operators are still in the early strategy, planning and testing stages
The Upshot: Google will move to a dominant position in the mobile
when it comes to delivering VoIP across their mobile networks.
data value chain as next-generation deployments roll out. More
Early operator trials with OTT services have been limited in
bandwidth means more data traffic, and Google is the most successful
scope and success, and the voice-over-4G (Vo4G) standards such
company at monetizing that traffic.
as VoLTE are not yet mature. We believe 4G networks need to
achieve a level of consistent coverage before Vo4G rolls out, and Google has created a rich ecosystem on the Android platform, but
we predict it will be 2013 before operator-provided Vo4G comes its business objective in this space is simple. The leader in online
to market in a large way. marketing wants to extend its dominion to mobile data. Acquiring
a mobile OS, launching the Android Market, deal-making with an
4G improves the multimedia experience, but it’s just not needed
enormous list of partners—all these investments are steps toward
for voice. Over 10 years ago, operators believed voice ARPU
this single objective.
would shrink and data ARPU would increase, as users needed
voice less and it decreased in importance. Instead, voice ARPU In 2010, Android proved three points about Google in the mobile
has remained flat and its traffic has decreased only slightly, while space: its ability to create a popular platform for a wide base
data volumes have soared, creating problems for operators (see of partners (operators, handset vendors and developers); its
the October 2010 Yankee Group Report “Early 4G Leaders and leadership in online marketing, regardless of network or device;
Followers”). Even with the move to 4G, 3G and 2G networks will and its knack for making money (as of Q3 2010, Google’s mobile
remain viable for the next several years, possibly into the next business is already turning over U.S.$1 billion a year).
decade, negating the need for a quick move of voice onto high-
performing 4G data networks.

© Copyright 2010. Yankee Group Research, Inc. All rights reserved. 9


Yankee Group’s 2011 Predictions: 4G Fuels the Decade of Disruption

Why does Yankee Group highlight Google as the mobile player to ecosystem, using clear marketing targeted at core early adopters,
watch in the coming year? After all, Symbian and iOS outstripped leading on innovative pricing and maintaining adequate levels
Android in terms of device activations by a wide margin in 2010. of security. Internet players and service providers should build
And Google makes less money from dynamic sectors of the mobile conservative forecasts for short-term revenue from business plans
data market (e.g., apps) than Apple. We cite one statistic to built around 4G.
support our contention: In Q3 2010, Google announced its mobile
Operators, OS vendors and Internet players will find the
search queries had increased by five times in two years. Simply, the
same rules apply across the board: More connectivity speeds
giant from Mountain View is primed to extend its lead in online
competition and reinforces first-mover advantage; core activities
marketing to mobile. Mobile marketing is just getting started. The
should be placed at the root of the business; and opening internal
combination of search, location and mobile payment systems will
resources to the wider ecosystem of partners will be critical to
create whole new markets in mobile commerce.
remaining competitive.
Note also the levels of competition in mobile devices and software.
In 2011, the growth of all vendors will be hit by Google’s disruptive Further Reading
tactic of offering a leading mobile OS for free. Dominance in
mobile marketing holds three advantages over devices and Yankee Group Research
software: the market is nascent; global expansion requires lower
investment; and leadership is nearly impossible to assail, as online “Best of the Anywhere Web 2010,” October 2010
marketing is far more prone to network effects.
“US and Europe: LTE’s Tortoise and Hare?” October 2010
Yankee Group recognizes a question mark hangs over the last
“Early 4G Leaders and Followers,” October 2010
point. All leading players are prone to disruptive market entrants.
Google will keep an eye on Facebook, which is taking a new “Preparing for 4G Video Services,” July 2010
approach to marketing and this year turned its attention to the
“2010 Global Telecom Capex Forecast: As North America
mobile opportunity. But the hypothetical emergence of a Google
Recovers, Asia-Pacific Falls,” April 2010
challenger will offer little relief to existing players in the mobile
value chain. OS vendors, including Apple, Nokia and RIM, will “4G Déjà Vu,” April 2010
struggle to compete, while operators will be shut out from mobile
marketing revenue. “The Mobile App Gold Rush Speeds Up,” March 2010

“The Holy Grail of Mobile Broadband Pricing,” December 2009


Conclusions
“Huawei Shows Impressive Growth, but the US Market Is Still
4G’s full effects will not be experienced in 2011, but companies Elusive,” May 2008
across the industry need to position themselves for the coming
changes. Network vendors are already locked into fierce Yankee Group Data
competition; operators are balancing investments in upgrades with
the challenges of monetizing mobile data; and Internet players and Anywhere Consumer: US Consumer Survey - Wave 1-9,
value-added service providers are poised to unlock the potential of November 2010
all-IP infrastructure.
Anywhere Consumer: US Consumer Survey - Wave 1-8, October
The disruption and competition under way creates opportunities 2010
and new markets across the industry. Exhibit 5 on the next page
Link Data: Global ConnectedView Forecast, September 2010
and our predictions indicate there will be winners and losers across
the industry. As the largest upfront investors, operators stand Anywhere Enterprise: 2010 U.S. Enterprise Mobility/IT Decision-
to lose the most in the first stage of rollouts. Steps that will help Maker Survey, Wave 1, August 2010
them position themselves for the mid term include harnessing the

10 © Copyright 2010. Yankee Group Research, Inc. All rights reserved.


December 2010

Exhibit 5: 2011’s Winners and Losers


Source: Yankee Group, 2010
Winners Losers
1 4G Will Be a Drop in the Ocean Incumbents like AT&T, Vodafone and Telstra Content companies like the BBC, Sky
and YouTube

2 4G Will Fail to Win the Enterprise Sprint Enterprises

3 The 4G Killer Device Will Be a Hotspot Device manufacturers like HTC, Motorola, Operators
Apple, Hewlett-Packard, Sony and Nintendo

Competition in the US Will Create a 4G Operators in EMEA U.S. 4G operators, consumers and
4 Marketing Mess device manufacturers

A Denial-of-Service Attack Will Take a 4G Companies like Arbor Networks and The affected network operator, its
5 Network Down Radware, plus equipment vendors like network operations staff and its
Alcatel-Lucent (ALU), Cisco, Ericsson and customers
Huawei (and their professional services
organizations)

6 Chinese Vendors Will Beat 3G Incumbents in Huawei and ZTE Companies like Nokia Siemens
Their Own Backyards Networks (NSN), ALU, Ericsson and
NEC

4G Users Will Spend Twice as Much Time on Companies like Google (with AdMob), Bing, Companies like Verizon, AT&T and
7 the Mobile Web as Their Non-4G Counterparts Walmart, JetBlue, Amtrak, BART.gov, Apple, T-Mobile
Jumptap

8 Mobile Video Will Not Drive Consumers to 4G App development companies like Companies that have spent millions
Smule, Chillingo and DataViz to develop pay mobile video
platforms

The Web Will Not Save Operators in the Companies like Apple and Google Companies like Vodafone and
9 Mobile Apps Market Orange that have invested in their
own storefronts

10 MVNO Hype Will Build, But Most of The few 4G MVNOs that know how to Most 4G MVNOs
It Will Lead to Nothing complement their host operator’s own
4G business

11 Pricing Will End in Tiers Most users, plus companies like TeliaSonera, Ultra-heavy MBB users and
Telcordia, Mobixell, Acision, Bridgewater, bandwidth hogs like YouTube
Tekelec, ALU and Ericsson

12 Carrier VoIP Will Still Be AWOL, Despite 4G Companies like Skype, Google and Vonage Companies like TeliaSonera,
Clearwire/Sprint, Verizon Wireless

13 Google Will Take the Wheel in Mobile Data Google Companies like Apple, Nokia, RIM
and operators

© Copyright 2010. Yankee Group Research, Inc. All rights reserved. 11


Yankee Group—the global connectivity experts
The people of Yankee Group are the global connectivity experts—the leading source of insight and
counsel trusted by builders, operators and drivers of connectivity solutions for 40 years.
We are uniquely focused on the evolution of Anywhere, and chart the pace of
technology change and its effect on networks, consumers and enterprises.

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consumer applications and media. In this role, he focuses on analysis of changing consumer demand, new
product/service innovation, emerging business models and market forecasting.

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