INSIGHTS. ot long ago, the only available on-ramp to the Internet highway was a fixed-network telephone connection.

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1 INSIGHTS COMMUNICATIONS,MEDIA &TECHNOLOGY GROUP VOL 6 ISSUE 2 Wireless Internet A Paradigm Shift at Internet Speed TheWireless Internet Revolution N ot long ago, the only available on-ramp to the Internet highway was a fixed-network telephone connection. For many users, it still is. But the pace of innovation in wireless technology is altering the landscape rapidly. Just as the use of mobile phones worldwide has increased exponentially over the past five years, the use of wireless Internet services is expected to do the same in the next five years, in all probability at a pace even faster than the initial uptake of wireless voice services. In fact, Booz Allen & Hamilton shares the view of many industry observers that by 2004, wireless devices to access the Internet will surpass PC-based access (Exhibit 1, p. 2) and by 2007, more than 60 percent of mobile users will be subscribing to wireless Internet services. In Japan, NTT DoCoMo s introduction of i-mode services has been an unparalleled success. This wireless online and service attracted 12 million customers in its first eighteen months of operation and has become the dominant Internet access provider in Japan. Several factors are driving this growth. They include: Ubiquity and personalization Wireless handsets have become (after wrist watches) the world s most widespread personal electronic devices. With a wireless handset, an individual can communicate, gather information and take action regardless of location. Overview The Wireless Internet Revolution will bring the Internet to the masses and will make wireless terminals the primary access devices to the Internet. This revolution offers the potential of generating revenues and value from new sources. This potential is not only open to mobile operators but to a number of players wanting to enter this market with high expectations. The value will be unlocked by the players who understand customer needs and are able to develop a constantly refreshed portfolio of applications and content. The shifts in the value chain will change the wireless landscape from well protected national oligopolies to global competition characterized by Internet rules. These changes are not happening gradually but in a paradigm shift. The speed of change will not only require a good understanding of the wireless and the adjacent markets but a new process of launch & learn with the right partners supporting the players.

2 Immediacy Users can access information and complete transactions in real-time, thus changing Internet access from a planned activity to a spontaneous one. Convenience The personal wireless device, which users can carry most of the time with them and which not only retains data but also offers access to information and services, will become the most convenient means for communication and data application use. Security With the development of new, secure m-payment solutions, wireless devices will become even more secure than PCs, thus overcoming some of the inhibitions people have about providing credit card information for e-commerce transactions. Localization The ability to seek and receive location-specific information represents a new added value to end users. Service providers can match merchants information and services to the users context-specific needs. As wireless communication becomes a primary medium for Internet access, players in the telecommunication and Internet-service arenas face exciting possibilities and enormous challenges. What Do Users Want? One can easily visualize a number of wireless killer applications that would be attractive to users in both the consumer and the business environments. The greatest demand for applications will be in areas that are time-critical, locationspecific, or spontaneous in nature, such as 1,400 1,200 1,000 ESTIMATED MOBILE USERS AND ACCESS TO THE INTERNET WORLDWIDE Millions Cellular Subscribers and unified messaging Banking and finance applications Entertainment timetables and ticketing Sports news Traffic and weather information Online games Despite commonalties in successful application categories, killer applications differ greatly by geography and by market segment. Booz Allen & Hamilton has conducted several market studies, focus groups, and expert interviews in Europe, Asia, and the Americas to assess the kind of services and applications in which users are most interested (Exhibit 2, p. 3, provides a summary of these findings). One of the most striking insights from this research is that, although there are some commonalties in successful application categories, so-called killer applications differ (EXHIBIT 1) Source: Morgan Stanley Dean Witter, Nokia, Booz Allen&Hamilton PCs connected to the Internet Web enabled Handsets Year greatly by geography and by market segment. NTT DoCoMo in Japan, for example, initially targeted high-end business users with its i-mode service. They quickly discovered, however, that their services were also very successful with younger users. Today 52percent of i-mode users are students or teenagers vs. only 35percent of business users. There are some commonalties in the types of applications used by these different customer segments. For example, is the most popular application in all segment groups with over 90percent of users reporting use of this feature. But within NTT DoCoMo s official sites, more than 50 percent of i-mode visitors, most from the younger generation, go for entertainment services. In nearby South Korea, on the other hand, stock trading has become one of the most popular wireless applications. In Finland, directory services are in demand, but unexpectedly one of the most 2

3 SELECTED WIRELESS DATA PRODUCTS AND SERVICES (EXHIBIT 2) CONSOLIDATED RESEARCH FINDINGS Mobile Entertainment Mobile Commerce Mobile Information Mobile Communication Business-to-Consumer Business Solutions Definition Contains the offer of entertainment products on mobile platforms Includes the connection of game devices Is an adaptation of e-commerce to mobile platforms At least in the beginning mobility related, impulse and time critical products will dominate Is the dissemination of content to mobile devices Time critical and location specific information will dominate Is the ultimate form of unified messaging Allows users to receive and send messages anywhere regardless of the kind of message Is the natural extension of mobile voice Is the group of services that is used by consumers, yet provided by various businesses Allows cooperation between mobile workers and their offices and integrates wireless terminals into corporate solutions Examples 1. Mobile Games 2. Mobile Music 3. Mobile Video 4. Entertainment information 5. Lotteries/Gambling 6. Mobile Financial Services Banking Brokering Payments 7. Mobile Shopping 8. Mobile Ticketing 9. Mobile Auctions 10. Mobile Reservations 11. Mobile Advertising 12. General news 13. Sport news 14. Financial news 15. Travel information 16. Program information 17. Tourist and local information 18. Directory listings Unified messaging 21. Video Telephony 22. Mobile Instant Messaging 23. Mobile Chat 24. Telemetry 25. Mobile CRM 26. Mobile membership 27. Mobile loyalty programs 28. Mobile medical records 29. Mobile passport 30. Mobile office 31. Field Force Automation 32. Remote Collaborative working 33. Fleet management 34. Job dispatch 35. Mobile supply chain integration Market to Consumers Increasing business focus Market to Businesses Source: Booz Allen&Hamilton Knowledge base successful applications enables the downloading of ringing tones. In fact, this service is so popular that Nylon Beat (a local rock group) turned a recent hit single into a downloadable ring tone for mobile phones as a marketing tool before launching it on radio and CD. Success lies in continuous innovation which can only be attained through partnerships and open approaches. These examples (as well as our extensive research) indicate that there is no cookie-cutter approach to developing killer applications, and that, at least in the initial launch phases of wireless Internet services, successful applications may differ substantially from country to country. Success lies in developing a broad portfolio of content and applications and in continuous innovation. In the wireless Internet world, innovation can only be attained through partnerships and open approaches to making content available to end users. Key factors for winning customers will be: ease of use, convenience, location-specific content, value pricing, reliability, seamless integration and synchronization with PC-based usage (e.g., , scheduling), and market reach/branding. The New Landscape Mobile phone networks have been, in general, geographic oligopolies of three or four operators providing services within specified, highly regulated boundaries and therefore doing business in a limited competitive environment. The critical factors for their success have been: coverage, price, and marketing, and operators have focused largely on providing services in a single country or area, and expanding through the formation of partnerships, or mergers and acquisitions, in other geographic areas. Operators with a presence in more countries relied on highly independent local organizations. In this new landscape, the traditional mobileindustry value chain is undergoing dramatic changes. The world of wireless Internet services presents a very different landscape and includes a high number of content/internet companies and similar players who do not need to operate their own infrastructure (Exhibit 3, p. 4). This will change the competitive landscape substantially with many more players becoming active in the market. With the emergence of such international groups as Vodafone Airtouch, New Orange, and Deutsche Telekom s T-Mobile, along with a new breed of content providers, geographic boundaries are disappearing and new businesses are emerging. 3

4 TRADITIONAL VS. NEW WIRELESS INTERNET MARKETS (EXHIBIT 3) Traditional Wireless Markets Operator A Operator B Operator C Customers New Wireless Internet Markets Operator A Operator B Operator C Application/Internet companies + Customers In Finland, Sonera, a pioneer in this area, added its own wireless data portal (Zed) as a way of maintaining its customer relationships with the idea of rolling out the portal in other markets where Sonera is not yet present as a network operator. Operator D Three to four operators all have direct access to their customers. Former intermediaries, such as service providers are declining. Licences determine oligopolies in clearly defined geographic markets. The main factors for winning customers are: Price Coverage Marketing Source: Booz Allen&Hamilton Evolution of the Value Chain In this new landscape, the traditional mobile-industry value chain is undergoing dramatic changes and recent entrants will take their places in a highly competitive wireless communications market. The traditional value chain in mobile services is becoming decidedly more complex (Exhibit 4), with new entrants already beginning to occupy later steps of the chain as Operator D Internet companies, application providers, and others gain access to the customer. The importance of transport services is declining. Some of the companies will buy in transport services from various providers at the most economic price. The main factors for winning customers are: Innovative products Speed of innovation and product launching Quality of the brand Ability to provide solutions for customers they vie for customers. New business models have begun to emerge. As an example, Palm launched Palm.net as a way of providing wireless Internet and data services to users of its Palm VII hand-held PDA. In doing so, the company, acting as a wireless ISP, is occupying downstream steps of the value chain, and customers are unaware of who is actually providing the data transport services. The traditional value chain in mobile services is becoming decidedly more complex. Yahoo! is rolling out its wireless portal services, which include many personalized services (such as access, scheduling or personalized news) in many markets, including Canada and Germany. These wireless services are network and operator independent and can be accessed from any WAP phone. Yahoo! is seeking alliances with operators as a means of getting quick access to the operator s customer bases. Several new application providers are also entering this space. For example, InfoSpace has formed partnerships with more than 20 operators to develop and run their Wireless Application Protocol (WAP) portals. VALUE CHAIN SHIFT AND POSSIBLE NEW PLAYERS (EXHIBIT 4) Traditional Networks and Components Operation of Mobile Network Services Customer Care Voice Voice Services New Data IT-Networks and Systems Operating Systems for Terminal Software and Application Content Development Content Provisioning Access to Content Handsets Primary Entry Points for New Players Changes through Mobile Multimedia Source: Booz Allen&Hamilton,2000 4

5 COMPETITIVE MODELS (EXHIBIT 5) Operator Model Double Role Model Service Provider Model Customer Customer Customer Operator Internet Company Operator Internet Company Operator Internet Company The operator maintains its current position towards the customer. The operator buys in all Internet and content services or partly produces them itself. All Internet services and content are supplied to the customer by the operator. The customer buys transport services independently from Internet and data services, similar to many fixed net models. The customer therefore pays various subscriptions and holds several contracts. The Internet company entering the wireless market takes a dominant role towards the customer and acts as wireless ISP. The customer holds only one contract/ subscription with the mobile ISP. Source: Booz Allen&Hamilton, 2000 New business models are emerging (Exhibit 5) and it is likely that several of them will coexist in different markets. Development time for new offerings is now measured in weeks rather than months. What these emerging models suggest is that to be a player in the wireless Internet world, you need to understand a set of market dynamics which will reward fast innovation and successful brand communication. Development time for new offerings is now measured in weeks rather than months, and flexible, co-operative agreements and partnerships between transport providers and content bundlers will be necessary to stay in the game. Sorting the Options A wide range of players are eager to enter the wireless Internet and data market (Exhibit 6, p. 6), and as we have learnt from our discussions and research, each will have specific challenges and opportunities. Newcomers pose a significant threat to the established operators. Wireless Operators For wireless operators the market will probably change most of all. On the one hand wireless Internet and data services have the potential to reverse the downward trend of ARPUs (Average Revenues per User). On the other hand new entrants moving at Internet speed are entering the market and fighting for customer access. These newcomers pose a significant threat to the established operators who have so far focused mainly on their voice businesses. However, operators can use their customer access advantage and go into partnership with newer companies to transform their traditional organization. Vivendi and Vodafone were the first to take this route by creating a joint venture called Vizzavi which holds both companies wireless portal and service activities. This new company will poll the wireless Internet resources from each of Vivendi s and Vodafone s subsidiaries in Europe. Similarly, T-Mobile with its international alliances and joint ventures has also gone this way by founding a new subsidiary with T-Online, Deutsche Telekom s Internet subsidiary. The new subsidiary called T-Motion is combining both competency areas in order to be successful in the wireless Internet area. Handset Manufacturers For handset manufacturers competition will also increase. So far the market has been dominated globally by a few big players such as Nokia, Motorola, Ericsson and Siemens. These established mobile phone manufacturers have lately ventured into smart phones and some product extensions. But producers of PDAs are stepping in to enable their products to be linked to wireless networks. Palm was one of the first to take this step in the USA with its Palm VII and lately in Europe, where coverage and penetration of wireless networks is significantly higher than in the USA. 5

6 Industry Entrants Players: Companies from non-telco industries Examples: banks, car manufacturers New channels to the customers Strengthening customer relationships Content Providers Players: Publishers, news agents, major Internet Players Examples: Reuters, Yahoo! Maximize leverage of content Create direct channel to customer Source: Booz Allen&Hamilton,2000 Besides the PDA producers, the established manufacturers too will experience strong competition from Asian players (such as Samsung, Panasonic and NEC) who already have experience with the wireless Internet by providing i-mode handsets. For manufacturers solving the limiting factors of battery life, small screens and the chips to integrate them will be critical. Furthermore they will need to produce multimode handsets allowing customers to use GSM networks as well as UMTS, GPRS and others. Ensuring an adequate supply of components and enough manufacturing capacity will also be important. MARKET PLAYERS (EXHIBIT 6) Operators Players: Incumbents, new entrants and Network Access Providers Examples: Sonera, DoCoMo Grow ARPU Gain market share Create international platforms Wireless Internet and Data Opportunities Application Developers Players: Platform, Browser and Application Developers, Boutiques Examples: Microsoft, Oracle, Phone.com, space2go Establishing standards for own technology Selling of own applications Handset Manufacturers Players: Phone, PDA, manufacturers Examples: Ericsson, Nokia, 3Com Create new demand from technology-driven replacement Strengthen customer relationship (create own customer interface) System Integrators Players: System Integrators Examples: Cap Gemini, CMGI Potential revenue stream from new products and services Strengthen outbound features of current product packages System Integrators For system integrators the wireless market so far has been rather a niche market, although there have been some efforts to integrate wireless devices into existing solutions (for example) in the logistic industries. This has been rather limited because of the low bandwidth available. However, this will change allowing wireless devices to become an equal part in solutions. System integrators will therefore need to build up expertise in wireless products and solutions. They might partner or acquire developers of wireless solutions to speed up their own development. Application Developers For application developers market development will be fast and mainly driven by the consumer segment s need for new applications such as games, chat, mobile banking and Internet access. This will require application providers to develop a whole portfolio of consumer applications quickly hoping that one or more will prove to be a killer application. One important aspect for larger players will be their ability to capture and develop ideas within their own corporations. At the moment there are a large number of small application developers. Fast internationalization or even global roll out will provide the way for these firms to achieve critical mass as the market consolidates, but poses significant challenges. There is room in the market for application and content aggregators consolidating the various products and offering them in bundles to operators, portals and other players. Larger players will scout for talented establishments to enrich their portfolio and the smaller developer will seek co-operation with larger players to increase global market access. One important aspect for larger players will be their ability to capture and develop ideas within their own corporations. Early on Nokia set a standard here by founding Nokia Ventures to develop and incubate ideas within and outside Nokia. Several blue chips companies have followed suit and we are expecting many more to imitate their example. 6

7 Content providers will need to develop essential customer intelligence which can be speeded up by co-operating with wireless operators. Content Providers For content providers the wireless Internet world opens up new channels through which they can deliver their assets to customers and therefore offers new market potential. Limited bandwidth over the next few years as well as small screens and the limited battery life of handsets all pose a challenge for content providers to repackage and bundle their content in a way which is useful and meaningful to wireless customers. For most content providers and aggregators serving wireless customers is something new. They will need to develop essential customer intelligence which can be speeded up by co-operating with wireless operators. Industry Entrants The wireless Internet also opens up opportunities for operators to access new industries and conversely, for actors in these industries to penetrate the wireless world. For example, the Financial Services industry offers mobile operators the possibility of using many of their existing competencies to shore up their declining ARPUs with a stable stream of new revenues thus helping them to justify their high valuations. The wireless Internet market will grow and most likely at a rate which few are used to. Similarly, financial institutions are finding that they are being compelled by customer demand and declining margins to open up cheaper (mobile access) channels to their services. This has resulted in much recent joint venture activity; operators and financial institutions, such as the Mobilpago JV and Telefonica Moviles and BBVA are creating a new mobile payments platform across Europe, while the joint venture KPN/ABN Amro JV (called Money Planet ) is aiming at e-commerce and e-banking. Another example of cross-fertilization can be seen in the Automotive Industry. Wireless solutions enable car manufacturers to monitor continuously the performance of the cars they produce and offer drivers access to new services such as locating a hotel or a business. It is not surprising, therefore, that most car manufacturers have announced plans to develop mobile portals and equip their cars with wireless Internet access. Though it is much too early to predict exactly how the wireless Internet market will develop, there is no doubt that it will grow and most likely at a rate which few are used to, even in the Internet world. The time to act is now. Booz Allen&Hamilton Approach Booz Allen & Hamilton has developed a strong expertise in wireless Internet working with clients in Europe, Asia, and the Americas: Wireless operators in strategies for the wireless Internet and data world, market assessments, business plans, and product launches, license bidding, international expansion, technology assessments, m-commerce solutions, innovation strategies, and network-rollout issues Handset and network manufacturers in innovation strategies, product development, market assessments, innovative deal structures with operators, and in-house incubating Portals and content providers in strategies, business models, customization strategies, launch preparation, partner selection and alliance strategies Industry players in strategies, business planning and implementation for banks, financial institutions, car manufacturers and others Start-ups in strategy, business plans, financing, organization, start-up support, getting customers, and launch of services Application developers in defining market entry strategies, developing international growth plans, forming and co-operation with aggregators, and issues of application hosting In Booz Allen & Hamilton s assessment across all sectors of this emerging market the rewards will go to those who have not only thoughtfully analyzed their current positions, their opportunities, and the threats, but who have also jumped into a new process of launch and learn where they introduce new ideas quickly into the marketplace and adapt them in response to market reaction. 7

8 Communications, Media& Technology Group Abu Dhabi Charles El-Hage, Vice President Amsterdam Rob Schuyt, Vice President Buenos Aires Jorge Forteza, Vice President Düsseldorf Christian Fongern, Vice President Klaus Mattern, Vice President Geza Mayer, Vice President Helmut Meier, Sr. Vice President René Perillieux, Vice President Wolfgang Schirra, Vice President Gerd Wittkemper, Sr. Vice President London Wolter Mannerfelt, Vice President Mark Page, Vice President Madrid Xavier Garay, Vice President Emilio Montes, Vice President Mexico City Raul Katz, Vice President Munich Adam Bird, Vice President Christian Burger, Vice President Rolf Habbel, Vice President Gregor Harter, Vice President Steffen Leistner, Vice President New York Richard Gay, Vice President Marty Hyman, Vice President Barry Jaruzelski, Vice President Carolina Junqueira, Vice President Mike Katz, Vice President Raul Katz, Vice President Bill Michels, Sr. Vice President Joe Nemec, Sr. Vice President Geoffrey Sands, Vice President Jeff Tucker, Vice President Reggie van Lee, Vice President Vincent Walker, Vice President Michael Wolf, Sr. Vice President Paris Pierre Peladeau, Principal Bob Preston, Principal Patrick Zerbib, Vice President Rome Fernando Napolitano, Vice President San Francisco Charles V. Callahan, Vice President Gerald Horkan, Vice President Bruce Pasternack, Sr.Vice President São Paulo Jackson Tong, Vice President Seoul Jong H. Chang, Vice President Sydney Marion Skulley, Principal Tokyo Toshi Imai, Vice President Vienna Christian Fongern, Vice President Warsaw Leszek Stachow, Sr. Associate Washington Ed Cornet, Vice President Dennis Doughty, Vice President Zurich Rolf Habbel, Vice President Claudia Staub, Vice President Wireless Internet Booz Allen&Hamilton Authors Christian Fongern Christian Fongern is a Vice President in the Communication, Media and Technology Practice of Booz Allen&Hamilton based in Düsseldorf. Mr Fongern has worked for many mobile operators across Europe since the beginning of GSM driven market growth. He has supported several operators in their start-ups and through the development phases. Recently he has been working with Internet service providers, application developers and operators on issues arising from the advent of mobile data and Internet. Mr Fongern is heading the Worldwide Wireless Internet and Data Taskforce of Booz Allen&Hamilton. Mr Fongern can be reached on or at fongern_christian@bah.com Toshi Imai Toshi Imai is a Vice President with Booz Allen&Hamilton s Communication, Media and Technology Practice based in Tokyo. Before joining Booz Allen&Hamilton, Mr Imai worked for Fujitsu as a direct sales representative in charge of accounts in process industries. Mr Imai advised computer vendors, SIers and telcos on strategic planning, market analysis and alliances. Mr Imai can be reached on or at imai_toshiya@bah.com Carolina Junqueira Carolina Junqueira is a Vice President and Partner with Booz Allen&Hamilton s Communication, Media and Technology Practice based in New York. Ms Junqueira has worked for several wireless operators in the United States, Europe and Latin America. Most recently, she has supported operators in the development of a wireless data service offering, development and implementation of an alliance strategy, infrastructure deployment and service launch. Ms Junqueira can be reached on or at junqueira_carolina@bah.com Bernhard Kerres Bernhard Kerres is a Senior Associate with Booz Allen & Hamilton based in Vienna. Mr Kerres has worked with several mobile operators in Europe and Asia on mobile Internet and data strategies. He has also supported start-ups in this area. Mr Kerres can be reached on or at kerres_bernhard@bah.com Haruo Koyama Haruo Koyama is a Principal in the Communication, Media and Technology Practice of Booz Allen&Hamilton based in Tokyo. Mr Koyama advised computer vendors, service providers and high tech manufacturers on strategic planning, new business development and alliances. Mr Koyama can be reached on or at koyama_haruo@bah.com Pierre Peladeau Pierre Peladeau is a Principal in Booz Allen&Hamilton s Communication, Media and Technology Practice based in Paris. Mr Peladeau has worked with mobile operators since the onset of GSM. He has worked with several European mobile operators and mobile Internet start-ups on issues of mobile Internet and mobile data as well as on customer lifetime value. Mr Peladeau can be reached on or at peladeau_pierre@bah.com Booz Allen&Hamilton is a leading international management and technology consulting firm committed to helping senior management solve complex problems. In more than 75 countries, in hundreds of the world s leading industrial, service, and governmental organizations, our team of more than 9,800 employees has one goal to help our clients achieve and sustain success. The Communications, Media&Technology Group (CMT) is one of the industry practices within the firm s Worldwide Commercial Business. Printed 10/2000 8