The (partial) state of the mobile data market

Despite all the hype and excitement about the mobile data market, it is very difficult to get reliable data on how it's actually developing. The mobile operators don't like to release full details of their sales, and surveys of users cost a lot of money to conduct and therefore are usually available only to people who pay.

We're left to chew on anecdotes, partial information released by companies that are trying to push a point of view, and unscientific "polls" of online enthusiasts.

So I'm always on the lookout for more rigorous information. Recently I came across several fairly good sources of data, and they give some interesting perspectives on what's happening with mobile data. It is by no means a complete view, and most of it is US only. But I think it's worth sharing.


Steady, unspectacular growth

The overall picture of mobile data is one of steady but unspectacular growth. It's a bit like watching a tree grow -- you can't see anything changing day to day, but if you walk away and come back in six months you'll notice the difference. SMS continues to be the dominant service, especially in Europe, and there's no sign of some other service surpassing it.

Is the growth rate good or bad? It all depends on how much growth you were expecting, and how fast you wanted it to happen. The one thing I think is very clear is that each country market is different, and you can't classify any of them as leaders and laggards. They're just unique.

Here are the details:


Capabilities of mobile phones in the US

The Pew Internet organization has been surveying Americans on their Internet usage for years. A couple of the questions in their survey ask about the data capabilities of their mobile phones. In the most recent results, from early 2006, 75% of mobile phone users in the US said their phones are capable of texting. 63% said they can play games, and 39% said they have cameraphones. Here's the full chart:



Nothing there stands out as shocking, although I expected the penetration of cameraphones to be higher. My guess is it has gone up in the last year.

(Note that some people could have capabilities in their phones and not realize it. So the question tells us as much about awareness of features as it does about the phones themselves.)


What people do with their phones: Nothing else rivals SMS

The chart below examines the percent of mobile phone users in the US and several European countries who have ever performed various tasks with their mobile phones. The source is M:Metrics, Q4 2006, and the numbers were quoted in a presentation by Orange / France Telecom.

The figures show that there's no other mobile data service with near the penetration of short messaging service (texting). That's not really news, but it's striking to see the hard numbers. About 80-85% of people in most of the big European countries have ever sent a text message, with France lagging slightly (at about 75%). In the US, almost 40% of mobile phone users report that they have sent a text message.

The next closest service is picture messaging, with 20-30% of mobile users in the big European countries saying they have received photo messages at least once. In the US, the figure is 15%. It's ironic that photo messaging is in second place, since it's generally considered a major disappointment. What does that say about the other services? Well, none of them generally crack 10% usage.



Is the US really a laggard? The other thing in the chart that really stood out to me was that the adoption "lag" of US mobile users varies depending on service. The US is far behind in SMS, MMS, and playing music on the phone (the last one is, I'm sure, due to the strength of the iPod in the US). But in the other categories, the US is in the middle of the pack, or even ahead (somebody explain the ringtone result to me, please).

It's always fun to stereotype the US market as primitive in all areas of wireless, but the adoption numbers don't support that. It just looks different.

What does it all mean? Orange's spin was that it means we're just getting started in mobile data, and everyone should wait patiently for the good services to take off. They showed the following growth projection from Ericsson as evidence:



No offense to Orange, but that is basically a statement of faith rather than analysis. If you're a cynic, you'll point out that the chart assumes compound growth will continue uninterrupted for a decade, something that is often true for technology specs but is rarely true for technology markets.

What we really need is time-series data, so we can see what's growing and what isn't. Unfortunately, Orange didn't present any numbers like that, but the research firm Telephia did, in a separate presentation. Unfortunately, their numbers were US only, and they didn't cut the usage categories in the same way as France Telecom. But they still show some interesting trends...


Mobile data growth in the US

Telephia measures mobile data usage by analyzing the monthly bills of mobile phone users. This should give very accurate information on revenue and number of users, but it doesn't track physical usage. Because some services are billed per-use and some have monthly subscription fees, it's hard to tell how heavily people are using the services listed below.

Telephia reports that billings are growing steadily for a wide range of mobile data services. The chart below shows total US operator revenue for mobile data from Q3 2006 to Q1 2007. (These figures include anything that passes through the user's phone bill. Applications and services paid for separately by the user are not included.)



The chart is in billions of dollars, so it shows that in Q1 2007, total on-deck US data revenue was about $4.6 billion. Is that a big number or a small one? Well, total service revenue for the US mobile operators is about $32.5 billion per quarter, according to the CTIA. So mobile data is about 14% of mobile billings.

Where is e-mail? I can't find e-mail anywhere on the chart. I'm very surprised they didn't break it out separately.

Strangely consistent growth rates. The weirdest thing about the chart is that everything's growing at the same rate. In the real world, that sort of thing doesn't often happen. I wonder if a lot of the growth might be driven by people buying service bundles, where they pay a flat extra rate per month to activate a bunch of different services, and then the revenue gets allocated across the services by the operator. That would cause everything to grow in lockstep.

If that's what's going on, then these numbers really might not say much about usage -- what they'd be tracking is the ability of the operators to sell services bundles.

Anyway, the numbers show that the US operators are making pretty good revenue from mobile data. I didn't make a chart of this, but in general, the growth in mobile data billings is large enough to make up for the ongoing decline in mobile voice revenue. So the operators aren't getting rich, but data is helping to keep them from getting poor.

More details. Telephia lumps a lot of different things in the "Downloads" category. For Q1 2007, they gave more details on that category. So I can't give you a time series, but here's a more fine-cut look at how mobile data revenue looked in the US at the start of 2007:



Premium SMS is mostly ringtones paid for via SMS, plus voting for things like American Idol. Audio is downloading and streaming of songs. The other categories are self-explanatory. I feel bad about the tiny size of the applications category, but keep in mind that most smartphone apps are sold through the web and then synced onto the device, and so don't show up in operator billings.

Number of users per service. Telephia also reported the total number of users for each service. As we saw in the Orange chart, SMS has the most users in the US (although the gap between it and the other services isn't as large as in Europe).



Revenue per user. Combining the user and revenue data, we can estimate monthly billings per user for each service:



You can see why the operators like premium SMS. And look at WAP! It never lived up to the original hype that it would become the mobile version of the Web, but as a tool for getting things like sports scores and weather reports, it's not doing too bad. (Whether it's paying for all the money that was invested in it is another story.) Video's generating the most revenue per user, but with a very tiny user base. Audio revenue (which is revenue from listening to songs, not ringtones) is fairly close to what Apple gets from iTunes users (the average iTunes user downloads about 3.3 songs per month, or about $3.30) (link).

Usage doesn't follow capability. And now for the "big" mashup. We can combine Pew Internet's figures on phone capabilities with Telephia's numbers on service usage to figure out roughly what percent of US mobile customers who know they have a given feature on the phone ever actually use it. The results are interesting:



For communication-related services, the percentage of users is quite high (although remember that we don't know how heavily the features are being used). But most mobile users are not adopting the entertainment features in their phones. That's exactly what you'd expect if only a limited percentage of the population were interested in using their phones for entertainment, which is what a lot of user studies have shown (link).

The lesson: If you're an operator or handset vendor, be careful about pushing phones that are a kitchen-sink collection of expensive features. The odds are very good that you'll spend a lot of subsidy money on people who won't ever adopt the underlying services that were supposed to justify the subsidy. It's much better to offer a variety of phones specialized for different types of user, and let them pick the ones they want.

=====

As I said at the start, it's an interesting collection of tidbits, but far too US-centric. If you live outside the US and have information to add on your market, please post a comment.

Sources:
Total revenue of the operators: link
Orange's presentation at the Global Mobility Roundtable: link
Telephia's presentation at the GMR: link
Pew Internet: link

24 comments:

Bob Russell said...

A shift that's probably even harder to get a hold on is the shift toward user-controlled features and away from carrier features. By that I mean things like music -- moving away from carrier supplied downloads to user supplied mp3s (or even user supplied streaming music via services like Orb or Avennu). Same idea for video, of course.

As the network gets better and cheaper, and as phone capabilities increase, I think we should see a move toward phones that can do things without the content services, and only need the network for voice calls and data movement in general. Even voice is threatened in the long run with VOIP type services. Carriers will no longer be monopoly-like providers of content for phones, and will have to provide great content in a simple fashion at a reasonable price.

For future product planning, it becomes very important to know how far this shift will go, or how to retain/remove the (rediculous) profits for carrier supplied features like SMS and audio/video and navigation, etc.

Anonymous said...

I suspect email is bundled in WAP since most email clients are just another application as far as billing in mopst cases with the exception of the blackberry specific plans.

I wonder if the lack of ringtone downloads in europe is related to a sort of 'phone hacking' culture. Young people in europe are far more likely to be pluging a data cable between a PC and phone and customising the phone in various ways including ringtones without any operator participation. In fact the whole ringtone culture started in europe as a hack before there was any such thing as a 'downloadable' ringtone. Also per download premuim SMS does not always work on prepaid plans; thus eliminating access to the over the air ringtones for many customers.

Anonymous said...

Would be interesting to see how the catagories use bandwidth. certainly SMS only a small slice and WAP/email taking up the majority. Also would not suprise me if the majority of all trafic in terms of volume is from the few people using unlimited data plans on laptops; although agian they only represent a tiny slice of total renenue.

It could be very hard for the operatores to sustain they 'narrow catagories' of billing much longer. A single wap application could incorporate all the other function into a package and eliminate charges for SMS/MMS, video, etc.

Moose6912 said...

Speaking from observation and anecdotal evidence in Singapore where I am based and from what I know about the South East Asia region. SMS is the main revenue generator for telcos after voice. There are a lot of people who do not mind paying a few cents more for sending a text message, but would balk at paying a few dollars for a mobile game download.

Mobile games account for a very small percentage of revenue as most mobile phone users do not know where to download games or feel that the pre-installed games on their mobile phones are good enough. Those who do pay for download tend to feel cheated when the game runs poorly on their handset.

Offering a variety of phones with specialized features seems to be the right choice. Sony Ericsson seems to be doing the right thing after their disastrous T6XX series phones. I've noticed people and friends selecting phones based on camera functions and music capability. 1 friend of mine got a K800 as he wanted the better camera quality and another chose a Walkman phone as she likes to listen to music on the go. These are just 2 examples out of the many that I have observed.

Anonymous said...

sorry if this is a bit off topic; i would love to hear feedback on an idea I had recently.

i was using youtube on an iphone when I suddenly wanted to share with a room full of people what I found.

what are some thoughts on the idea of incorporating a low power TV RF transmitter into cell phone and other mobile devices that would allow an instant simulcast of anything on the display to any nearby television with a conventional ariel? a small jack and cable could also be included for connection to sets without ariels attached.

i can actually see this making advanced wireless network the primary source of family entertainment in currently undeveloped parts of the world that do not have much in the way of television programing but increasing number of mobile phone owners.

Sippakorn said...

I think they are all about service charges like you used to say that users don't want to pay extra from their plans. I don't know if there is anywhere else that charges SMS for both sender and receiver like in the US.

And I bet that in Europe they charged only sender as same as in Asia. That's the real reason why the service usage is much higher comparing to the US. If US wireless carriers are willing to change to single-way charge--which can't be real, trends will be the same, I guess.

I have things that's really off-topic but I do wonder for a while: I really have no idea if I send an SMS to the wrong number, why does the receiver have to pay for that? does it make any sense to you?

Anonymous said...

the incoming SMS charge in the US is just an extension of the incoming charge on voice calls. the thing is a lot of americans do not think about voice minutes as charges. they buy a plan with far more minutes than they typically use and voice is free. on SMS they get hit with these charges; i have indeed seen people upset about friends sending them SMS's since it raise's their phone bill.

Tom said...

SMS in europe at least was completly free for years before the operators started charging a fee. Over the years this fee has gone up and gotten more complicated. For example some operators charge more for messages to other operators and even more to send internationally; it used be one flat rate any destination.

Michael Mace said...

Great comments, folks. Thanks.


Anonymous wrote:

>>I suspect email is bundled in WAP since most email clients are just another application as far as billing in mopst cases with the exception of the blackberry specific plans.

Ahh, very good thought. That would also help to explain why there's so much revenue in the WAP line. Nice.

>>I wonder if the lack of ringtone downloads in europe is related to a sort of 'phone hacking' culture.

Interesting thought; could be.


Anonymous wrote:

>>Would be interesting to see how the categories use bandwidth.

Good point. At the Global Mobility Roundtable, some of the speakers pointed out that if video services were widely adopted, they'd bring the network to its knees.

>>would not suprise me if the majority of all trafic in terms of volume is from the few people using unlimited data plans on laptops

Hmmm. I hadn't thought of that one. It would indeed be interesting to see those numbers.


Moose wrote:

>>Mobile games account for a very small percentage of revenue as most mobile phone users do not know where to download games or feel that the pre-installed games on their mobile phones are good enough.

Good info. Thanks.


Anonymous wrote:

>>sorry if this is a bit off topic; i would love to hear feedback on an idea I had recently.

Feel free.

>>i was using youtube on an iphone when I suddenly wanted to share with a room full of people what I found. what are some thoughts on the idea of incorporating a low power TV RF transmitter into cell phone and other mobile devices that would allow an instant simulcast of anything on the display to any nearby television with a conventional ariel?

I'm almost certain that it would be illegal -- I think you're not allowed to transmit anything on the television frequencies. But you could probably do it on a different frequency (WiFi or an unregulated frequency, perhaps) to a converter box cabled to the TV.

>>i can actually see this making advanced wireless network the primary source of family entertainment in currently undeveloped parts of the world that do not have much in the way of television programing but increasing number of mobile phone owners.

I like the spirit of what you're saying. I don't know much about the state of television offerings in the developing world, but I worry that the bandwidth needed to stream TV would quickly overwhelm the mobile network if the service became popular.


Sippakorn wrote:

>>I don't know if there is anywhere else that charges SMS for both sender and receiver like in the US.

Good question. Anyone know the answer to that one?

I know my European buddies are shocked when they hear about it

Anonymous said...

>>i was using youtube on an iphone when I suddenly wanted to share with a room full of people what I found. what are some thoughts on the idea of incorporating a low power TV RF transmitter into cell phone and other mobile devices that would allow an instant simulcast of anything on the display to any nearby television with a conventional ariel?

I'm almost certain that it would be illegal -- I think you're not allowed to transmit anything on the television frequencies. But you could probably do it on a different frequency (WiFi or an unregulated frequency, perhaps) to a converter box cabled to the TV.

I am quite sure FCC regs would allow transmitters that broadcast a maximum of 3 meters. I seem to recall some video game consoles in the early 80's worked this way. It is similar to transmiting from an MP3 to your car stereo. If WiFi was used it would be ideal for the reciever to be a stub that screws onto the coax antenna jack.

Michael Mace said...

>>I am quite sure FCC regs would allow transmitters that broadcast a maximum of 3 meters.

Thanks! This is another example of why I like having comments on the blog.

Moose6912 said...

Hi Tom,

SMS used to be free of charge in Singapore too until people started to use SMS for communication more than voice calls and telcos were not turning a big enough profit. So the telcos switched to a plan where only X amount of SMSes are free per month and anything above X will incur a small free. With that plan, people don't use SMS as much anymore, but it is still common to send SMS jokes and short messages.

What drive adoptability is ease of use and knowledge of use. SMS is still a big hit although the technology is years old as almost everyone I know knows how to send a SMS and SMS capability is built into a handset and there is no need to call a number or configure some obscure setting.

Whereas for MMS and WAP, some handsets do not come with the settings being auto-configured for you. So you have to download the settings via SMS or give the customer hotline a call. With so many hoops to jump through. No wonder MMS and WAP failed to take off. Exorbitant pricing played a part too.

Jason Devitt said...

Mike,

It is extremely difficult to track this market - no standard terms, no meters for most phones. I appreciate the effort, but I wouldn't even try to combine data from two different sources (like Telephia and Pew) and even looking at a single source it's easy to get confused.

Take your ringtone puzzle: more people in the US have ever downloaded a ringtone than in Europe? No way. First I looked at the Orange presentation. The caption is 'Q4 2006 consumption', not 'ever'. Then I looked at mmetrics web site. I can't find summary data for Q4, but look at the February data in this press release: http://mmetrics.com/press/PressRelease.aspx?article=20070417-graphics

It's 'purchased' a ringtone, not 'downloaded'. Orange misquoted the source. A higher percentage of cell phone subscribers in the US purchased a ringtone in the US in Q4 2006 than in Europe, which makes sense because Europeans are ahead of Americans in making their own ringtones for free and exchanging ringtones with friends via Bluetooth (which some US carriers block altogether).

Telephia's data is for Mobile Content. It does not include straightforward Internet access, i.e. data plans for your smartphone or broadband card. Most email use falls into the latter category. But it isn't a subset of WAP; it's a whole other category, not included in Telephia's numbers, and roughly 1 billion dollars per quarter. I think.

WAP - I think - refers to content plans like MediaNet on AT&T, where the subscriber pays $5 to $10 per month for access to the mobile web sites. These plans are typically for featurephones, not smartphones. But many of the plans include text message bundles, so you are right about why they are increasing in lockstep.

The graph you label 'number of users' is actually 'number of subscribers in Q1 2007' according to Telephia. I assume this means number of unique subscribers who purchased service x at least once in Q1, but I could be wrong. And I am not sure how useful that is; subscribing to MediaNet so that you get a bundle of text messages does not mean that you have ever visited a mobile web site. Telephia only knows what it says on your bill.

The lack of data and the quality of the data that is available is a huge problem for everyone in the industry.

Best,
Jason

Anonymous said...

Reading these posts I tend to think that the popularity in europe of smartphone functions is largly the result free low cost but high usage paterns.

I have lived on both continents and this is my feedback: it is not so much that operators in europe are promoting more open platforms but that the combination of people buying phones idependent of the agreements limits the ability a bit for the operator to control customer experience. But the much larger thing is that a 'phone hacking' culture where lots of people find engenuis ways of loading ringtones, apps, games, etc. onto there phones without operators intervention. You can find plenty of blogs that talk about total replacements of cell phone firmware with opensource programing; these blogs are dominated by europeans and asians.
Lots are of german or slavic tongues.

The one area that the US is ahead on is the adoptation of blackberry/treo type devices in the corporate market; but europe is catching there.

As for a feeling about where the 'phone hacking' culuture of europe came from. I suspect from years of easy network entrance via prepaid card/used phone that mean a hobyist can easily have a half dozen or more interesting phones with active sim cards that were aquired for little or no investment and do not require constant payment to keep going.

Michael, I have read several of your posts about the need to remove the middle man and I agree. But the middle man is not going to volunteer to go away; no matter what google or sprint/clearwire claims on any given day. If its not fees it will be annoying advertising. What we can do (and silicon valley startups can encourage) is to go around the middle man. The voice/data plans do not excpicitly prohibit us from loading our own apps onto the phone that work over the web. WAP browsers can also pull up all kinds of HTML but there is not that much of interest and value out there. The thing is that the carriers are not going to encourage, promote or even admit to what we can acheive with our phones/devices plus third party software.

I would suggest developers team with the handset manufactures to intergrate new platforms and applications. The iPhone proves that attractive handsets sell without subsidies. GSM handsets could be sold independent of any contract and used with any data enabled plan.

Rick said...

Most ringtones in the US are sold by the operators. In europe it is far more popular for purchased ringtones to be bought from third parties. Often through pay per call phone numbers that than send them over the air to your handset. These numbers might not be included as ringtone sales.

I believe europeans consume far more of everything data on their mobiles. What they do not do is pay for overpriced services from the operators. Therefore the consumption does not show up on the charts.

The operators do try hard to get consumers to pay them for all types of services but they have not been as sucessfull as in the US where they dominate market.

Anonymous said...

very interesting report by the european commision:

http://www.edis.sk/ekes/eur21673en.pdf

Erkko said...

great post once again!

One thing that is bound to grow the mobile data usage is the approach companies like apple, nokia, and motorola are taking to integrating applications to internet services. This will make data usage more transpparent for users and the experience actually fun, not painfull.

Tommi Vilkamo said...

Once again, Michael, great stuff!

But I got this nagging feeling that you are asking a wrong question. In my humble opinion, the whole term "mobile data market" is becoming obsolete. For comparision, if somebody would ask what is the state of "fixed data market", it would sound a bit silly.

But then again, I don't know what would be a better question.

But as the writer of this post, I'm sure you'll figure it out :)
http://mobileopportunity.blogspot.com/2007/02/rise-of-information-ecosystem-how.html

Anonymous said...

Mike,

Great post.

Can you explain a little bit about the thoughts expressed in GMC on "how increased video usage will bring down the network" ?

Michael Mace said...

>>Can you explain a little bit about the thoughts expressed in GMC on "how increased video usage will bring down the network" ?

I covered it in a post on mobile video a couple of months ago.

The key factoid: Supposedly on a typical 3G system, if 40% of the users watched video six minutes a day, they would saturate the network.

That's why there's so much interest in MediaFlo and DVB-H. Unfortunately, both of them carry scheduled programming, not streaming on demand, so it's a very different use of video than we've been led to expect.

Anonymous said...

I am very interested in hearing about the impact so far of youtube via the iPhone has had on AT&T. I wonder if the whole lack of 3G on the iPhone is really about keeping the vomumn per second of data down. If

Anonymous said...

sorry. i somehow lost half my posting above.

I was been suspecting that mabye apple and AT&T wanted to limit the amount of data per second by not offering 3G on the iPhone, they could then stealthly intrduce narrow channel 3G for increased capacity not higher speeds.

Anonymous said...

Hi folks,
I am looking for some recent data about the overall market size of the mobile devices, including the growth rate, do you have any guidance? Thanks!

Michael Mace said...

Hi, Anonymous.

I wish there were one place I could point you toward that had all the numbers, but it doesn't exist. I wrote about the situation here.

Sometimes CTIA and the GSM Association publish figures on total mobile phone shipments worldwide. You might check the press sections on their websites to see if there's anything recent.

Hope that helps.