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Tuesday, June 19, 2007

Mobile Broadband in the UK

Vodafone announced today a reduction in Data Card pricing to £25/month for 3GB/month from around £45/month. Whilst not exactly coming close to the "free" home broadband pricing depths, data cards are starting to become affordable especially for the SME and fat personal wallet segments.

In the Press Release, Voda claim over 280k UK Data Cards which if average ARPU is £21.27 (ex-VAT) equates to a £64m/annum business. This scale of revenues is barely more than a blip on the Voda UK revenue radar (2006/7 - £5,124m) However with the Voda UK’s 2006/7 Free Cash Flow being £794m and revenue growth in voice drying up – data could either be a significant growth or protection story going forward.

Voda does not mention speed anywhere in the press release. Obviously with wireless spectrum being a shared resource, rates being proportional to distance from the cell site and rates varying with type and quantity of obstacles whether natural or manmade, any sort of quality of service is hard to guarantee. There is definitively fun to be had for some well resourced magazines to do bake-offs comparing data rates between the various mobile networks and wifi providers.

Network coverage is mentioned at 80% of the population which is pretty naff and probably means that outside of the major conurbations snail like and unusable GPRS is the only carrier.

The other side of the coin which some people will remember from the early days of mobile voice services in the UK is that you needed the muscles of Arnold Alois Schwarzenegger and the wallet of a City Trader to sign up for a mobile contract. It took three years after launch before Voda UK managed in 1986/7 to turnover £67m and five for voda uk to break the 300k subscriber count and become the largest cellular operator in the world in 1988/9.

In this historical perspective, the mobile data access business isn’t doing too badly at all.

The growth rate for data card subscriptions and revenues are not in the public domain, but voda uk publish the number of 3G devices connected as 190k by March 2005, 1,033k by Mar 2006 and 1,938k by 2007. Obviously the majority of these devices are handset rather than data cards, but I suspect 100% overall annual growth is not far short of the mark.

The billion dollar question is how big can the mobile broadband market be in the UK?

This is important not only for industry anoraks, but also for shareholders and most importantly for the value placed upon the spectrum about to be released and auctioned which has the potential of providing the bandwidth to take mobile broadband mainstream.

I can see the laptop market growing for the foreseeable future and my own gut feel is that once the £10/month access fee is reached then mobile broadband will become a mainstream proposition which (eventually) 10% of the population will take up. Even if we account for average fees being (ex-vat) £15/month taking into account heavy users – this only yields a total market of £1bn to be shared across all the mobile operators.

It is relatively simple to play with market penetration, ARPU and player variables but the truth is that standalone mobile broadband access will only represent a small proportion compared to the overall mobile market which includes both voice and data.

Of course there is the far bigger market, which is also less bandwidth intensive, of people occasionally accessing the internet with their primary voice, texting and timing device – the mobile handset. Here we have a totally different dynamic because I honestly believe the end game is that access will be ultimately be unlimited for all services whether voice, messaging or browsing. Content acquisition whether by broadcast, streaming or download is a totally different equation.

So the pertinent economics are how fast voice, messaging, device and operating costs can be reduced to ensure that browsing can be added to the “monthly bundle” rather than modeling browsing as additional revenues.

This is my own personal apocalyptic vision for the embryonic Wimax / WiFi industry – I just can’t see how on earth they can buy the spectrum, build a network with decent coverage, reach economies of scale with device costs and then sell and market differentiating services from the mobile industry.