Detecon Opinion Paper Key to the wireless future: The quest for the ideal mobile device

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Key to the wireless future

The quest for the ideal mobile device

2008 / 03


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Key to the wireless future - the quest for the ideal mobile device

Opinion Paper 2 Detecon International GmbH

Table of Contents

1 Executive Summary ............................................................................................ 32 Understanding the market for mobile devices..................................................... 43 Key trends in the mobile device industry............................................................. 7

3.1 User-driven trends....................................................................................... 73.2 Services and Applications ........................................................................... 93.3 Device features ......................................................................................... 103.4 User Interface............................................................................................ 113.5 Device Technology.................................................................................... 123.5.1 Computing Platform: Operating System and Microprocessor ................... 123.5.2 Communication platform: base-band and radio-frequency chipsets ......... 15

4 Conclusion ........................................................................................................ 175 Recommendations ............................................................................................ 186 The Authors....................................................................................................... 197 The Company.................................................................................................... 20


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1 Executive Summary

Mobile devices are at the core of current developments in the wireless industry. With voice

and simple data revenues from SMS having reached their zenith in many markets, the futureof wireless services is evolving around customer lifestyles, mobile Internet, entertainment

services and location-based services. For all these, feature-filled and well-designed mobile

devices are a critical success factor.

This creates a number of challenges - both on the technology and the market side - for all

players in the industry. The mobile devices ecosystem has become highly complex,

encompassing everything from lifestyle brands, to Internet-centric media and entertainment

services, cameras and GPS receivers, industry-standard operating systems, highly-

advanced computing platforms and a myriad of communication technologies.

Drawing on many years of industry experience and world-wide client engagements,

Detecons Center of Excellence for Global Technology Intelligence has performed an

extensive analysis of the industry. To better understand the industry and derive

recommendations for managers both in marketing and technology functions, we have

developed a four-layer framework that elucidates the industry structure and points to key

battle grounds within the industry.

We see the industry at a critical inflection point and believe five areas will decide the future

path of most players: understanding the globalization of demand, leveraging brand equity,

delivering attractive services with a strong focus on usability, dealing the fast-paced device

technology evolution, and maneuvering between open and closed approaches for the

industry ecosystem and underlying technology architecture.

To succeed in this highly-dynamic environment, service providers, network operators, device

manufacturers and technology and component providers must excel at three things:

mastering the explosion of product and technology variants; keeping continuous vigilance on

market and technology trends and potentially disruptive developments; and achieving a

sustainable position in the industry by developing and executing a vertical competition

strategy.


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2 Understanding the market for mobile devices

Can there be such a thing as an ideal mobile device in the future?

Common notion might lead to the conclusion that there probably will be one available soon,

integrating all currently available features and services into one candy bar or clamshell

mobile. From a buyers perspective, the major trend in mobile handsets is feature

convergence. Everything seems to be converging into one mobile device exhibiting all

conceivable features and services, such as cameras, music playback, Internet browsing,

GPS navigation, multi-band capabilities and many more.

However, if one looks very closely at what is happening in the market, the number of

available variants from the major mobile phone manufacturers has multiplied significantly in

the last few years (see figure 1). Special purpose devices for mobile gaming, mobile

messaging or mobile web surfing add even more variants to the market. How can this

seeming paradox be reconciled? Mobile phone operators are already having a hard time

tracking these developments and selecting the handsets that will sell in conjunction with their

service contracts. What challenges do new mobile phone portfolios pose for players in the

markets? This Detecon Opinion Paper analyzes the market and guides towards possible

answers.

Figure 1: Increasing number of mobile phone variants

124

163

141

122

86

42

21

3

28

57

77

99

65

38

2836

45

6459

37

53

30

1117

179

232

193

139

105

66

43

17

43

66

4235

2322

31

2000 2001 2002 2003 2004 2005 2006 2007

LG

Motorola

Nokia

Samsung

Sony Ericsson

Source: Informa Telecoms & Media, Detecon analysis

Almost every person in the developed world already owns and carries at least one mobile

handset. Penetration rates have risen to more than 100% in several developed countries.

Sometimes the mobile phone even seems to be more important to users than other personal

belongings like keys or a wallet. Just ask anyone who has forgotten or lost their mobile

phone.


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Being a critical part of personal life, mobile handsets reflect a growing desire for owners to

express themselves, first by selecting the brand and model of the handset but also through

personalization of the device itself with ringtones, screensavers, wallpapers, colorful cases,

etc. A closer analysis reveals that preferences vary considerably around the globe: from

region to region and from person to person. One would of course expect that the needs

in developing countries differ from those in countries with already high mobile penetration but

we also find huge differences between countries with similar market acceptance of mobile

communications. How then, can stakeholders in the mobile device business respond to a

booming global market that is home to both rapid technological innovation and disparate

user needs, without having to be all things to all people?

To discern the fast-paced trends taking place, Detecon has developed a layered framework,

exhibited in figure 2, which facilitates a detailed description of current developments in the

mobile handset industry. By identifying the relevant influences on each of these layers we

arrive at an understanding of the key driving factors and interdependences between the

layers.

Figure 2: Detecon Mobile Device Framework

User Trendsand Needs

Services andApplications

Hardware-relatedDevice Features

Core DeviceTechnologyPlatforms

Voice/SMS/MMS

E-Mail

Navigation Service

Influenced by lifestyle, income, cultural preferences,socio-economic groups

Old vs. young

Business vs. consumer

User interface

Display

Design & Brand

Operating System (OS): Symbian, WindowsMobile, Linux

Microprocessor (P)

Base band/radio frequency chipsets

Layer Description/Examples

Camera

Memory

GPS receiver

Mobile TV

Ring tones

Mobile Internet

Source: Detecon

At the top, user needs are driving the market. Nowadays these needs are largely related to

personal lifestyle but also vary based on income, cultural preferences, world geography and

by the affiliation with socioeconomic groups, especially within youth culture. These needshave to be supported by the services and applications that are offered by the handset. In

turn, services and applications require certain hardware-related features in the devices.

A navigation service, e.g., typically requires an integrated GPS receiver.


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Adding more and more services and features to each new generation of mobile handsets

adds complexity. This has to be addressed by the design of the user interface. Usability can

be the main driver for the market success of a new device as discussed in chapter 3.4.

At the core of any modern mobile device are its computing platform, consisting of amicroprocessor (P) and a related operating system (OS), as well as the base band (BB)

and radio-frequency (RF) chipsets required for wireless connectivity. Sensing the strategic

importance of the computing platform from historic success of the Windows/Intel (Wintel)

platform in the PC industry, this area is currently under strong consolidation pressure. At the

same time, an explosion of new communication technologies such as WiFi, WiMax, HSPA,

UMB and LTE plus the availability of new frequency bands is creating strong industry

dynamics. Chapter 3 will take an individual look at the main trends within each layer before

we are able to draw overarching conclusions in chapter 4.


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3 Key trends in the mobile device industry

To fully understand the implications of the trends briefly described above, it is necessary to

take a closer look at key developments on each single layer. For a stakeholder in the mobilephone business whether a service provider, a handset manufacturer or a software

company this will help draw the conclusions necessary to making the right decisions on the

future of their own business.

3.1 User-driven trends

Mobile devices have evolved from being a business tool to now being a widely accepted

personal device that is always with us, both for business and private use. Of course this has

not happened in all markets in the same way or at the same time. Within the markets with

high device penetration, the mobile phone has become absolutely critical to the life of

customers. Most people probably will not leave the house without their keys, wallet and

mobile phone. Phones are customized with ringtones, wallpapers, screensavers, stickers,

key chains, colorful cases, leather wallets, and many other items. The mobile device reflects

its owners personality at least as much as the selection of a brand, type and color of a car.

Similar to the automotive industry where each limousine, hatchback, station wagon, coupe,

convertible, SUV, and pickup is built to suit the preferences of the customers, the mobile

phone industry has developed several form factors to meet its user needs. Typically one can

distinguish between clamshell, monobloc (or candybar) and slider styles as the main types of

mobile devices. The preferences differ widely around the world with the cultural context as

can be seen in figure 3.

Figure 3: Mobile phone form factors

20%

60%

47%

69%

2%4%4%3%

4%

74%

NorthAmerica

5%

30%

WesternEurope

6%

43%

Asia/Pacific

3%

26%

Rest ofWorld*

Other

Slider

Clamshell

Monobloc7%

46%38%

49%

6% 7% 7% 6%

11%

76%

NorthAmerica

12%

35%

WesternEurope

10%

45%

Asia/Pacific

10%

36%

Rest ofWorld*

Other

Slider

Clamshell

Monobloc

Form Factor Distribution 2006 Form Factor Distribution 2010 (expected)

* Rest of World: Central and Latin America, Central and Eastern Europe, Middle East and Africa

Source: Strategy Analytics

Clamshell is by far the best selling form factor for mobile phones in North America (74% in

2006) whereas every where else monobloc styling is the most preferred (only 43% in

clamshell phones in Asia Pacific and 30% in Western Europe). As user trends evolve, form

factor preferences are also expected to shift.


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What do users want to do be doing with their stylish devices? What is the common

denominator a mobile phone manufacturer or service provider can count on? Of course the

basic needs have not changed much over the last few years: low cost and simple-to-use

voice- and SMS-centric phones mark the lower end of the market. Devices designed for

elderly people typically are based on this. They include large and easy to use keyboards and

displays which only show what necessary in large characters. Beyond these basic needs,

current devices need to support all types of activities and preferences of todays mobile

lifestyles: listening to music, taking and sharing photos, instant messaging, surfing the web,

gaming, tracking children, and many more, including business requirements such as instant

access to e-mails and contacts and secure access to enterprise data and applications.

As features abound, branding has become a more important criterion. As buying the right

brand is a fashion and lifestyle statement, co-branding with powerful luxury labels has

become popular in the mobile phone industry with the introduction of the designer cell

phones from Prada, Armani, Bang&Olufsen, Porsche Design and other global design and

fashion companies. Their success also demonstrates that the original equipmentmanufacturer sometimes does not really matter. Prada, the Italian fashion house, for

example has selected LG of Korea as the technical partner while Bang&Olufsen relies on

Samsung technology, and the Porsche Design phone is powered by Sagem. None of these

OEMs are able to command the hefty price premium of the designer brand.

Unforeseen highly-specialized applications have also sprung up. In many developing

countries money transfers via the mobile phone services have become an alternative to

other remittance services. Users who may not even have a bank account can transfer money

or accept payments. Mobile banking has proved important in developing countries where a

robust financial infrastructure is still being created. Similar service offerings in the Western

world, like Paybox, have not universally flourished but have currently found niche uses in

certain markets.

Figure 4: Net subscriber additions by regions 2007 - 2010

6%

5%

12%

52% Emerging Asia

2%

Developed Asia

Africa/Middle East

Central and Eastern Europe

4%

Latin America

North America

Western Europe

19%

Source: Pyramid Research


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By the end of 2010, nearly three-quarters (74 percent) of the worlds 4.2 billion mobile

subscriptions will be in emerging markets. Over the period 2007-2010, roughly 87 percent of

the expected 1.4 billion net subscriber additions will occur in developing regions. Emerging

Asia will lead the way with 52 percent of all net additions, followed by MEA at 19 percent and

Latin America at 12 percent (see figure 4).

To some extent, this trend will be driven by the fact that these markets have poorer land-line

infrastructures causing many consumers to jump straight to mobile devices. Even if such

markets remain dominated by lower-end, voice-centric users, their burgeoning numbers

alone will make them venues of key interest for vendors and suppliers, with larger potential

sales volumes for low-end devices at least for the next few generations. Instrumental to

Nokias phenomenal success in 2007 realizing a market share of 40%, bigger than the

added market share of the following three competitors has been focusing on simple

devices for emerging markets. Similarly, Sony Ericsson reported an increase in market share

by 2 percentage points as a result of increased attention to customers in emerging markets

in 2007.

3.2 Services and Applications

Voice and SMS, the dominant mobile applications of the 90s, are still the most popular

mobile services today. Yet, handsets nowadays offer a large number of installed non-voice

applications and also act as a platform for services delivered by network providers:

multimedia and instant messaging, e-mail, mobile TV, music and ringtone downloads,

Internet access, GPS navigation and many more.

Beyond the general adoption of mobile Internet browsing, the hype around Web 2.0 is

expected to create a strong push for mobile services like Twitter, YouTube Mobile or Yahoo!

Go 3.0. Device manufacturers and operators are already offering integrated applications thatnot only support media consumption but also content production. Sony Ericsson for example

makes it easy to upload content to weblogs and podcasts. Vodafone customers in the UK

can upload pictures and videos directly to their Facebook, YouTube, MySpace and Bebo

account direct from specific Nokia or Sony Ericsson handsets. MyFaves customers of T-

Mobile can easily share pictures and messages. We expect that mobile Internet and mobile

Web 2.0 of media sharing, content generation and social networking will be a significant

trend for the future.

As this development is still unfolding, it remains to be seen how deep the integration of the

online service into both the network and the device will need to be in order to be successful.

This will be a crucial factor in determining the relative power of device manufacturers,network operators and Internet service providers. Experiences from the past show, that there

is no single path to success. The iMode Service very successful in Japan did not thrive in

the European market where it was introduced by KPN. Early attempts to build WAP-based

mobile portals by Vodafone (Vodafone Live!) and T-Mobile (t-zones) also did not live up to

expectations. The customers were not satisfied with the portal offerings in the providers

walled garden. On the other hand, the RIM Blackberry push email service, which consists

of a deeply integrated application on the device and a matching Internet service, has

become perhaps the most successful mobile Internet service to date. Apples iPhone has

followed a similar path. Under the brand name Ovi, Nokia is investing heavily in web-based

services such as navigation, gaming and music downloads for integration into their cell

phones. Additional services such as online dating have already been announced as Ovi

has become an integrated feature on Nokias future phone offerings. This strategy mightbring the company into potential conflict with some of its major customers, which are offering

similar services of their own.


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Many of the services mentioned above increase the spectrum of mobile phone usage, thus

bringing new revenues to operators and service providers alike. Other services such as

mobile VoIP and Instant Messaging have sometimes been seen as a threat to existing voice

and messaging revenues. An early reflex of some mobile operators therefore was to ban

these services on their networks. However, recent success stories question this strategy.Swisscom, as well as German service provider Debitel, are successfully selling IXIs OGO

mobile messaging device which integrates email and instant messaging for a flat monthly

fee. Similarly, China Mobile has launched an IM service called Fetion (pronounced:

Fashion) that integrates mobile instant messaging as well as PC-based participants. With

currently 50 million users (2007) the service has proved to be successful. Fetion includes

free PC-to-phone messaging and voice conferences for up to 8 participants. Its key feature

is ensuring that the user is always on-line. In the UK, network provider 3 has just

launched a tariff that includes free VoIP/Skype calls via UMTS data connections. 3 not only

explicitly allows the use of Skype but also supports it by providing a handset that integrates

Skype software and a direct access button prominently displayed next to the keypad. It also

uses Skype prominently in marketing.

As these examples demonstrate, the market for mobile services and applications has

strongly grown in variety and richness and continues to exhibit very strong dynamics. It has

become a central battleground of the industry, pitting network operators, device

manufactures and service providers at times against each other and at times in successful

collaborations. Markets such as Korea and Japan are already giving us a glimpse at the next

level of application evolution: handsets there are already being used for wave-and-pay

wireless payment, online gaming, broadcast TV or household automation.

3.3 Device features

Size, weight, battery life, screen color and multi-band capabilities were once the maindifferentiators of mobile phones. This has changed drastically within the last few years. The

number of available hardware-related features of currently available mobile handsets has

grown with an astonishing rate, including: integrated picture and video cameras, music

players, GPS Navigation, FM Radio, Bluetooth and Wi-Fi compatibility and even broadcast

TV receivers (DVB-H, DMB).

We expect the continuation of fierce competition on technical differentiators, e.g. the size,

resolution and color depth of the display, the capacity of the integrated storage, or the photo

resolution of the integrated camera, even though the willingness to pay for the device

remains unchanged. High device subsidies in many markets have brought down the

perceived value of any mobile device to almost free. Given the physical limitations of

handheld devices, embedding features on a mobile phone will always involve trade-offs,

such as battery life versus multi-standard capabilities. While consumers often equate more

features with a better device, the constraints mentioned above necessarily prevent

manufacturers from becoming all things to all people, as much as they might like to try.

Beyond physical limitations, there is also the issue of usability, since the result can be an

overwhelmingly complex device (see next chapter).


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Figure 5: Mobile phone feature evolution

20052003 20072001 20092006 200820042002 2010

WLAN

Expandable Memory

Integrated Camera

Display 262k colours

Bluetooth

Display 65k colours

Display 4096 colours

Broadcast TV

< 10% 10-50% > 50%< 10% 10-50% > 50%

Source: Informa Telecom & Media

Nevertheless the feature war will continue. By 2011, research company Informa expects,

that well over 50 percent of all handsets will include a 65k color display and expandable

memory, as well as MMS and video capabilities; in addition, most of them will be Bluetooth-

and Java-enabled. Only up to half of those devices sold, however, will handle e-mail and

have Wi-Fi connectivity. In addition, up to 10 percent will be able to receive broadcast TV

(see figure 5).

3.4 User Interface

With more and more features and applications being integrated into the mobile device the

user interface has become a key factor with this development.

Although softkeys and graphical menus are standard on most mobile handsets, the

proliferation of options and their increased complexity has created devices that are so

complicated to use that they are practically unusable. Remote setup and configuration can

help eliminate incomprehensible configuration menus. But the main challenge, being able to

interact with all features, applications and services a device offers in an intuitive and

satisfying way, needs to be addressed with improvements of the user interface.

Industry focus on the user interface has received a strong stimulus from Apples successwith the iPhone. Apple has taken a different approach to usability by focusing solely on

touchscreen-control of the device (except for a single button remaining). By integrating multi-

touch capabilities, Apple was able to add gesture-control functionalities. This has been

perceived as a significant improvement over most previous touchscreen implementations

that rely mostly on single-touch functionality.

Other vendors have taken up the challenge. Taiwans HTC adds a new user interface called

TouchFLO on top of Microsofts Windows Mobile operating system for its Touch product

line. Many press reviews and analysts view have seen HTCs development primary as a

marketing and eye-candy move, since most use scenarios force the user to interact with the

original windows look and feel buried beneath the sleek Touch interface. Nonetheless, it is

also seen as a step in the right direction and can be seen to act as a wake up call forMicrosoft to rethink their mobile device interface design.


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Even the world leader in mobile phones - Nokia - makes moves to redefine their user

interface strategy: While remaining the major stakeholder in Symbian Software, Nokia

recently acquired Trolltech which focuses on integrated application platforms for Linux based

mobile phones. Trolltech has begun integrating F-Origins IRIS touch screen, gesturing and

motion-control technology into its Qtopia mobile device platform. It is not clear yet whetherNokias own advanced user interface developments, which are based on Symbian, will

become obsolete or whether the acquisition of Trolltech was just a move to keep competitors

out of the playing field.

While it seems that touchscreen user interfaces seem to be a major trend now, they also

have their drawbacks and limitations. The maximum typing speed is limited by the capability

of the touchscreen and the satisying mechanical feedback of a conventional keyboard is

missing. With touchscreens, a lot of user interactions also make it necessary to use both

hands and therefore impose limits on the device usage.

Leaving the current touchscreen hype aside, current user interfaces of mobile devices are

influenced largely by the three separate paradigms: the classic telephone with its original

number keypad that has already evolved into a simplified alphanumeric keypad via, e.g. T9

technology; consumer electronics devices, where turning knobs and pushing buttons are

dominant to change volumes and select album tracks; and, of course the standard WIMP

(Windows, Icons, Menus and Pointing Devices) user interface of the desktop PC and the

Internet. As none of the historic paradigms is best suited for all types of applications, we

expect a new breed of interfaces that combine selected attributes of these known interfaces

with new ones which are unique to mobile devices. Motion control where movements of the

mobile phone (e.g. tilting) act as a part of the interaction is an example. Future interface

will also include tight interaction with the mobile Internet and other services, leveraging

location-data, calendar-data, and other information to improve contextual capability and

improve mobile device usage.

The user interface is where the entire chain of mobile networks, services and devices meet

the end user. We expect the UI to be another key battleground for the industry, where again

both network operators, device manufactures plus application and service providers will want

to create commitmentby creating interfaces that are easy and fun to use.

3.5 Device Technology

3.5.1 Computing Platform: Operating System and Microprocessor

Unlike in the PC market there is no single dominant operating system in the mobile device

market at least not yet. Early GSM phones relied largely on simple proprietary operating

systems developed by the phone manufacturers. Simple devices for developing markets still

do, while high-end smart phones are using fully-fledged operating such as Symbian,

Windows Mobile, Palm OS or Mobile Linux.


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When Microsoft entered the market targeting first handheld (a.k.a. PDAs) and later mobile

devices, many industry observers expected that it would quickly gain the status as the

dominant player for operating systems much like in the PC market. Although strong

consolidation is under way, the Nokia-dominated Symbian continues to be the worldwide

market leader. PalmOS is losing ground while Blackberry OS has carved out a significant

niche. Apples OS X and Linux have strong future potential (see figure 6).

Figure 6: Smart phone operating system market share

84%

8%5%1%2%

5%

21%

46%

13%

16%

34%

1%1%64%

78%

17%

3%2%

49%

Symbian

8%

MSFT

7%

RIM

2%Palm

31%

Linux

Apple

2%

Western Europe (WE)North America (NA)

Rest of the World (RoW)Asia Pacific (APAC)

Global/Regional Market Share of OS in Smart Phones Year 2007

Global

Global WE NA APAC RoW

Symbian 49% 84% 5% 34% 78%

MSFT 8% 8% 21% 1% 17%

RIM 7% 5% 46% 0% 0%

Palm 2% 1% 13% 1% 3%

Linux 31% 0% 0% 64% 2%

Apple 2% 2% 16% 0% 0%

Source: Strategy Analytics

In Asia/Pacific Linux based smartphones are already leading the market. The upcomingAndroid system promoted by the Mobile Handset Alliance (a consortium under the lead of

Google) is a software stack for mobile devices also based on Linux. With its recent

acquisition of Trolltech (see above), Nokia might also be thinking about enlarging its options

at least for a part of its product range.

Many device manufacturers are using several operating systems in their portfolio. Motorola,

which recently got into trouble by not being able to catch up with a successor to its Razr V3

product, is known to offer phones based on Symbian, Windows Mobile, Linux and its own

proprietary environment.

Given the current strength of each of the operating systems, we do not expect strong

consolidation onto one major platform to take place in the foreseeable future. This willcontinue to create challenges for application developers and service providers as they have

to accommodate multiple platforms and test for compatibility. Most people draw the lesson

from the history of the PC industry that the operating system constitutes a strategic industry

control point which they are reluctant to see in the hands of one player. This is where

industry alliances such as the Open Handset Alliance (better known for Googles Android

initiative) or the LiMo Foundation try to overcome the deadlock. The development of the

operating system landscape will be another area where the future of the mobile industry will

be shaped.


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On the microprocessor side, just like in the PC world, which is dominated by the x86

architecture, most mobile phones are based on the so-called ARM architecture, which is

claimed to have a market share of more than 80%. However, unlike the PC world, where

there are only two major manufacturers, Intel and AMD, with Intel being by far the dominant

one, there are currently many makers of microprocessors for mobile devices. These include

TI, NXP, ST, Marvell, Qualcomm and AMD. These all license intellectual property from AMD

for the core of their system designs.

The latest developments of the leading mobile device chipmakers are all focusing on

computing and graphics power. With special graphics processor functionality e.g. the AMD

Imageon high-end mobile devices are already faster when it comes to 3D-graphics or high

resolution video playback than a standard PC five years ago. Quite recently, graphics

specialist Nvidia announced their entry into the mobile market.

With its Ultra Mobile PC and Mobile Internet Device (MID) initiatives, PC market leader Intel

keeps pushing into this market as well. Coming from a strong roadmap of multiple coresolutions for pure desktop power machines (in the sense of the word) and migrating to low

power consumption solutions adapted to the mobile computing device environment these

solutions and their evolutions will be also compatible with a pure mobile device environment.

The key behind the considerable power-saving capabilities at the same or even higher speed

is Intels enhanced 45 nm technology. Chipset platforms like Montevina and Menlow will

appear in early versions in 2008 and include powerful microprocessor cores and already

include a selection of wireless base band (mainly modem and MAC) technologies starting

with Wi-Fi and Mobile WiMAX (IEEE 802.16e).

The high fragmentation of the market at the P-manufacturer level indicates that no

dominant design has emerged yet. The development in the PC world proved that the

standardization of microprocessors and surrounding hardware will alter a technology marketsignificantly. Device manufacturers such as Dell, HP, Lenovo and Acer have found

themselves in a very competitive market, and many of them have been struggling with profit

levels while platform makers Intel and Microsoft thrived. Manufacturers of mobiles device

might also be marginalized by one OS and one P vendors if a single dominant design were

to emerge. Thus we expect to see only slow consolidation at the P and OS level driven by

need to utilize economies of scale to bring down costs and speed up development but

hampered by vertical competition strategies.


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3.5.2 Communication platform: base-band and radio-frequency chipsets

Base band (BB) and radio frequency (RF) chipsets are the core parts of any mobile device

whether it is a basic model or multimedia loaded smart phone. While the RF component acts

as a radio transmitter via the connected antenna, the attached base band processorencodes and decodes according to the standard used by the device and network, e.g. GSM

or UMTS. In the early days of the wireless industry adding multi-band capabilities e.g. for

the GSM bands of 900 MHz, 1800 MHz and 1900 MHz was sufficient and could be

implemented relatively easy from a technological perspective.

Currently we are experiencing a multiplication of transmission standards and variants, like

GSM, UMTS, HSDPA/HSUPA, EDGE, LTE, WiMAX, WiBro, Wi-Fi (most of them with

generation-specific subsets) and TD-SDCMA (the Chinese home grown standard for 3G)

and component makers struggle to implement these within their chipsets.

Figure 7: Examples of mobile device chipsets

Intel WiMAX connection 2250Intel WiMAX connection 2250

Multimedia ChipsetWiMAX Chipset

GSM/GPRS Chipset

Overall Chipset Solutions

Intel WiMAX connection 2250Intel WiMAX connection 2250

Multimedia ChipsetWiMAX Chipset

GSM/GPRS Chipset

Overall Chipset Solutions

Source: Texas Instruments, Intel

Many players, such as for example COMSYS Ltd., are looking for assemblies addressing theclassical (narrowband) cellular technologies with their existing infrastructures and adding a

broadband wireless MAN (Metro Area Network, i.e. WiMAX/IEEE 802.16) or PAN (Personal

Area Network, i.e. Wi-Fi/IEEE 802.11) component. Such solutions aim to be compatible with

GSM, GPRS, EDGE and WiMAX air interfaces simultaneously. As such a solution has to

support a high number of modulation formats (BPSK, GMSK, QPSK, 8-PSK, 16 QAM, 64

QAM) the design of an associated base band processor is highly complex. Compared to

existing approaches supporting 2G, 2.5G and 3G (3GPP) in one BB chipset, the problem is

hidden behind the higher RF linearity requirements for OFDMA (WiMAX). Another challenge

will be to combine legacy, i.e. TDM, and NGN capabilities (IP based) in a single unit without

deteriorating size and power consumption. In this highly dynamic environment we see niche

players, such as COMSYS competing against much larger industry giants such as Intel.


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4 Conclusion

Mobile devices are at the center of current developments in the wireless industry. With voice

and simple data revenues from SMS having reached a zenith in many markets, the future ofwireless services is evolving around customer lifestyles, mobile Internet, entertainment

services and location-based services. For all these to find success, mobile devices are

critical.

This creates a number of challenges - both on the technology and the market side - for all

players in the industry. From a technology perspective, there is a discernable trend towards

more standardization, although on none of the layers of the Detecon framework neither a

single dominant player nor a group of players has emerged yet.

The frequently-cited parallel to the PC industry can prove valuable guidance. However, since

the stakes are so large for all players involved, we do not believe that the mobile device

industry will follow the exactly same path as the PC industry did more than 20 years ago.

Rather we expect to see the evolution of a very complex industry centered on a number of

key questions:

Brand equity: Will the traditional brands of the mobile industry carry enough

momentum to sustain their customer relationship or will players from other

industries, such as Internet services, media, or consumer electronics, gain traction in

a market dominated by convergence?

Globalization of demand: The wireless industry is the first high-tech industry that is

not threatened by what has been called the digital divide. On the contrary,

emerging markets are expected to dominate mid-term development across theindustry. How can players be successful on a global scale, effectively understanding

and meeting regional demands in a highly competitive marketplace?

Attractive, usable services: What is the best approach to deliver exciting remote

services onto handheld devices? Who will create the user interface paradigm of the

21st

centurys wireless world?

Open vs. closed approaches: Will the advantages of standardized platforms and

open approaches, such as economies of scale, variety of choice and safeguarding of

investments, outweigh those of closed approaches, like end-to-end quality, time-to-

market and customer lock-in?

Fast-paced technology evolution: Continued exponential technology advance is

pressuring time-to-market, confusing consumers with more features, creating

challenges for product portfolio strategies, straining both R&D and marketing

resources and increasing the complexity of the whole value chain. What

organizational approaches can players in the industry develop to remain competitive

in the market?


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5 Recommendations

For stakeholders in the mobile phone business, answering these questions and finding the

right approach to the dynamic mobile market is of utmost strategic importance. Serviceproviders, network operators, device manufacturers, and component and technology

providers all need to find ways to match the global diversity of user needs and preferences in

an effective and cost-efficient way with the plethora of technology choices. Industry decision-

makers should focus their efforts on three activities:

Mastering the explosion of variants. The industry is well on its way to require strong

elements of mass customization and modular production along most of its value

chain. Looking at best-practice strategies and examples from other industries will

yield insights towards finding success in the mobile arena. All players should

develop very robust portfolio management capabilities that are highly effective at

matching market demand with production efficiency. This will entail carefullyselecting the right platform approaches, building modularized production systems

with careful variant planning and coping with the complexity effects of the increased

number of versions.

Continuous vigilance of trends and potentially disruptive developments.

Understanding and integrating user-driven service innovation is not only relevant to

service providers and network operators but also to handset and component

manufacturers to be prepared for the requirements of an Internet-centric mobile

future. Similarly, understanding the implications of quickly-changing technology

developments is not only mandatory for technology players but also for brand-driven

and customer-centric service providers and device vendors.

A vertical competition strategy. In this complex ecosystem, no player will - in our

opinion - be able to achieve long-lasting market success by itself. Continuous co-

operation and competition will be the norm as the future of the global mobile device

market unfolds. All players therefore need to have a clear picture of their own vital

interests and understand the strategic objectives of their peers, partners and

competitors. As a strategy aimed at pure market dominance is likely to fail, finding

partners and defining their minimum economic interest is necessary for long-term

success.


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6 The Authors

This Opinion Paper was written by Detecons Center of Excellence on Global

Technology Intelligence - a worldwide network of highly motivated consultants combining adeep-rooted understanding of global and regional telecom market trends with world-class

technology competencies. The Center of Excellence provides Detecons clients with direct

access to latest technology and market trends from the most dynamic world regions.

Dr. Volker Rieger leads the Global Technology Intelligence Center of Excellence. He is also

head of the Technology Portfolio Strategy competence group at Detecons Bonn

headquarters. He has more than ten years of professional experience in the information and

communication industry focusing on business and innovation strategies.

He can be reached at: +49 228 700 1920 or [email protected]

Dr. Hans-Peter Petry is a Managing Partner of Detecon and directs the group Radio Access

and Transport. His outstanding experience in the field of wireless technologies and their

applications is coupled with many years of management experience in the vendor industry,

where he has held various positions in research & development, product management, and

business development.

Burin Itsarachai is a Consultant with Detecon Asia-Pacific, Ltd., in Bangkok, Thailand, with

more than ten years of international experience in the telecom industry. The focus of his

work has been on technology and business strategy for next-generation system

architectures and networks.

Riadh Marrakchi is a Senior Consultant in the Radio Access and Transport group. He hasmore than five years of experience in the mobile industry supporting operators inprocurement and service optimization of latest-generation mobile networks, turnaround andtechnology strategies, and implementation.

Hiten Parmar is a Consultant with Detecon, Inc. in the Silicon Valley, San Mateo, California,

U.S.A. His area of expertise is telecom product and services trends in the North American

market with a particular focus on wireless data services and mobile market analysis.

Marco Rder is a Consultant in the Technology Portfolio Strategy group. He has on

numerous occasions led large international teams performing strategic analyses of global

telecom and vendor markets for global clients.

Qin Weijie is a Senior Consultant with Detecon Consulting Co., Ltd. in Beijing, China. He

has almost ten years of experience in the Chinese telecom market. His consulting focus is

on strategic and marketing topics for Chinese operators.


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7 The Company

Detecon International GmbH

Detecon International is a leading worldwide company for integrated management and

technology consulting founded in 2002 from the merger of consulting firms DETECON and

Diebold. Based on its comprehensive expertise in information and communication

technology (ICT), Detecon provides consulting services to customers from all key industries.

The company's focus is on the development of new business models, optimization of

existing strategies and increase of corporate efficiency through strategy, organization and

process improvements. This combined with Detecon's exceptional technological expertise

enables us to provide consulting services along our customers' entire value-added chain..

The industry know-how of our consultants and the knowledge we have gained from

successful management and ICT projects in over 100 countries forms the foundation of our

services. Detecon is a subsidiary of T-Systems, the business customers brand of Deutsche

Telekom.

Integrated Management and Technology Competence

We possess an excellent capability to translate our technological expertise and

comprehensive industry and procedural knowledge into concrete strategies and solutions.

From analysis to design and implementation, we use integrated, systematic and customer-

oriented consulting approaches. These entail, among other things, the evaluation of core

competencies, modular design of services, value-oriented client management and the

development of efficient structures in order to be able to distinguish oneself on the market

with innovative products. All of this makes companies in the global era more flexible and

faster at lower costs.

Detecon offers both horizontal services that are oriented towards all industries and can entail

architecture, marketing or purchasing strategies, for example, as well as vertical consulting

services that presuppose extensive industry knowledge. Detecon's particular strength in the

ICT industry is documented by numerous domestic and international projects for

telecommunications providers, mobile operators and regulatory authorities that focused on

the development of networks and markets, evaluation of technologies and standards or

support during the merger and acquisition process.

Detecon International GmbH

Oberkasselerstr. 2

53227 BonnTelefon: +49 228 700 0

E-Mail: [email protected]

Internet: www.detecon.com

Detecon Opinion Paper Key to the wireless future: The quest for the ideal mobile device

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