Can telcos disrupt themselves?
Let us look at an example.
Mobile phones are build to support voice calls and SMS as they did as twenty five years ago. The mobiles just got smaller, lighter and cheaper compared to the old car-phone when using them as a phone.
RCS or Rich Communication Services is the incumbent’s answers to the competition from software companies and services providers with a computer heritage. It is a transition of messaging and voice capabilities from circuit switching technology to an all-IP world. I.e. integration with computers and leverage the possibilities of new technologies as LTE.
What is RCS?
The Rich Communication Services program is a global initiative to deploy inter-operator services within an industry ecosystem.
Main features of RCS are:
- Enhanced Phonebook: service capabilities and enhanced contacts information such as presence and service discovery.
- Enhanced Messaging: enables a large variety of messaging options including chat, emoticons, location share and file sharing.
- Enriched Calls: enables multimedia content sharing during a voice call, video call and video sharing (see what I see)
The service was launched free of charge, but will be a paid service in the future. (1)
The forecast for RCS according to an analyst (2) is
- 15 Million RCS users worldwide by 2013, expected to reach 73.6 Million by 2016
- 9 out of top 10 OEMs have committed to launching native RCS devices in 2013
LTE is a pre-requisite for more advanced functionality and I will therefore start looking at the adoption rate for LTE on a world-wide scale.
LTE Development worldwide
What is the forecast for development for LTE in different countries around the world?
The worldwide LTE equipment market has seen major growth in the past few years, with activity initially in the U.S. and Scandinavian markets spreading steadily to other markets. As of January 2013, there were a total of 145 LTE networks in operation in 66 countries, according to the Global mobile Suppliers Association (GSA).
Based on operator reports, the GSA expects 209 networks commercially launched in 75 countries by the end of 2013. With nearly all operators utilizing 3GPP (Global System for Mobile Communications [GSM]/UMTS) or 3GPP2 (CDMA) and WiMAX technologies poised to migrate to LTE at some point in the next 10 years, success in LTE is crucial to the future of network equipment vendors providing radio equipment. (3)
I have found two public datapoints about LTE growth and they are:
Worldwide LTE Subscribers Hit 130 Million in November 2013 (4)
By 2014, the number of LTE subscribers will hit 303.1 million (5)
This is not much data to work with, but at least a start.
I think we can make a assumption of near linear growth of more than 200% per year until the market is saturated. If we do a linear extrapolation will we reach 1650 M LTE subscribers by end of 2016.
It took only 2.5 years for LTE to reach 90.2 percent of U.S.households so the assumption is not totally improbable.
Estimated smartphone shipments until 2016 and installed base
The estimates for smartphone shipments in 2016 according to analysts (6) are 1,3 billion units. We have to interpolate the number of shipments for each year in order to know the installed base of smartphones.
If we assume a two year replacement cycle as average, does this mean that we will have 2490 M smartphones as an installed base in 2016.
Compared with number of extrapolated LTE subscriptions does this mean that we have 66% LTE subscriptions for the shipped smartphones during 2015 and 2016. This is not way off compared to LTE reach in US today.
If we then compare the estimate of 73.6 M RCS users in 2016 is this 4% of extrapolated number of LTE subscribers.
It is even less compared to number of smartphones in use. All of them are smartphones that gives the possibility of RCS comparable services from other market players as Apple, Google, Microsoft and others.
So can this be a disruption to the market? After four years do we have an estimated 4% market share for our new service that are going to replace the old one in order to compete with new market player.
In the next article, Can telcos disrupt themselves, part II will we look at mobile eco-systems, apps & services and number of subscribers. How does this look from a telecom operator perspective?
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(1) Wikipedia: January 2014
(2) Gartner: Hype Cycle for the Telecommunications Industry, 2013
(3) IDC MarketScape: Worldwide LTE Radio Infrastructure 2013 Vendor Analysis
(4) Taiwan’s MIC Worldwide Mobile Subscriber database, November 2013
(5) Bedford Report: Alcatel Lucent and JDS Uniphase - Key Players in LTE's Rapid Growth, November 2011
(6) IDG: Top five smartphone vendors, shipments and marketshare in 2012