How mobile operators can monetize 3G investments through an effective applications platform

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1 Technology for Innovators TM How mobile operators can monetize 3G investments through an effective applications platform By Mike Yonker Director of Technology Strategy, Wireless Terminals Business Unit Facts Introduction Mobile operators worldwide have invested billions of dollars in 3G spectrum and network infrastructure deployments. Finally, 3G networks are being successfully deployed but the return on the investment seems far away. Why? Because, although 3G networks improve spectrum efficiency and lower network operating costs, they do little, by themselves, to increase service revenue and reduce handset and application costs. While there are network and infrastructure related issues that have constrained the deployment of new services, handsets have been a major source of problems for mobile operators. One the one side, handset software fragmentation means that is becoming increasingly complex and expensive to develop, test, and deploy new services across a broad range of handsets. One the other side, 3G phones are still architected like 2.5G phones, with minimal resources dedicated to run applications. While most 2.5G phones share the same resources for modem and applications, this architecture is, in most cases, not appropriate for 3G phones as both modem and applications requirements have increased dramatically and continue to increase at a significant pace. W H I T E P A P E R To solve these problems a robust and scalable application platform is required on the handset. The appropriate application platform can transform the handset into a powerful device that enables the deployment of new compelling and differentiating services that attract new subscribers, increase ARPU, and decrease churn, thereby increasing operators revenues. At the same time the right type of platform can reduce operators costs through the reduction of handset bill of materials (BOM) and the costs associated with handset and application development, testing, and support. This white paper explains how the combination of a software platform based on a High-Level Operating Systems (HLOS), such as Symbian, Microsoft Windows Mobile, and Linux, and a hardware platform based on a TI OMAP applications processor and TI OMAP-Vox chipset, represents the most effective application platform to enable mobile operators to monetize their 3G investments.

2 2 Mobile operators needs Mobile operators today face a number of challenges, from financial challenges to recoup 3G investments and to reduce subscribers acquisition costs, to competitive challenges posed by new players like MVNOs, to technological challenges associated with new disruptive technologies and with the increased pace of innovation. In this context, mobile operators are trying to: Increase revenues: By expanding their subscriber base By increasing ARPU By decreasing subscribers churn, especially of their most profitable customers Reduce costs: By reducing handset BOM By reducing application development, testing, and support costs Increase revenues An application platform based on a HLOS and an OMAP applications processor enables mobile operators to increase revenues as: HLOS enables platformization and differentiation by reducing fragmentation and drastically increasing the base and quality of independent developers, enabling more innovation. The OMAP architecture enables compelling services and optimum user experience through its concurrent multiprocessor architecture. These attributes enable mobile operators to expand their subscribers base, increase ARPU, and decrease churn. HLOS enables platformization and differentiation HLOS, such as Symbian, Windows Mobile, and Linux, enable platformization and differentiation, allowing mobile operators to quickly and efficiently develop and deploy new services across their entire product portfolio, and customize the phone s experience to their subscriber base. HLOS platformization and differentiation are achieved through a combination of: Hardware and manufacturer agnostic software platforms: HLOS platforms are hardware and manufacturer agnostic, allowing mobile operators to deploy a limited number of platforms across their entire handset portfolio, thereby reducing fragmentation of software solutions that proliferate in wireless handsets today. By deploying a limited number of platforms across their handset portfolio, mobile operators are able to more quickly and efficiently deploy new services, resulting in faster time to market and time to revenues.

3 3 A robust and flexible applications and services architecture: HLOS platforms provide the most robust and flexible architecture for applications and services deployment and management through sophisticated and extensible middleware architectures that are not just built for today s applications. HLOS platform also benefit from established testing methodologies, tools, and third party test houses. In this regard, some of the most important HLOS features are: Advanced security and digital rights management (DRM) Device management and firmware over-the-air updates (FOTA) Integrated multimedia players and multimedia subsystems and interfaces Integrated, proven telephony stacks Native, robust multitasking Robust networking, critical with IMS deployments and all-ip networks Advanced memory management, critical for independent development, by allowing a common, flat, and protected view of memory An extensive network of third-party developers: Symbian OS, Microsoft Windows Mobile, and Montavista Linux have the largest developers base in the industry. This is key for operators as a large developers base brings important benefits: It makes the HLOS platform richer and more complete, thereby attracting more subscribers and reducing churn It provides more applications subscribers can choose from and from which it is more likely a killer application can be found, thereby increasing subscribers ARPU It offers a lower cost resource base to help reduce applications and service development cost It drives quality and innovation The following chart, which is the result of a Microsoft s research on smart devices, proves how HLOS differentiation drives increased ARPU. The chart compares the ARPU for users of smart devices before and after the purchase of these devices, which are defined as running HLOS. The research shows that ARPU increases between +18% and +37%. It also shows that both data and voice ARPU increase.

4 4 Impact of acquisition of smart devices on ARPU $140 $120 $100 $80 $60 $20 $40 0 $84 $113 $85 $80 $62 $69 $57 $67 Windows Mobile Symbian RIM Palm OS Before Aquisition After Aquisition Windows Mobile provides the highest ARUP uplift, according to primary research done by Edge Strategies. Source: Edge Strategies, December 2004 Source: Strength in Numbers Microsoft 2005 TI was the first wireless system vendor to offer comprehensive support for all major HLOS (Symbian, Windows Mobile, and Linux) on mobile phones, and has the more than 100 shipping phone models running HLOS, much more than any semiconductor manufacturer. Starting HLOS porting and integration in 1998, TI has accumulated the most expertise in HLOS and built a time-to-market advantage of 4-5 years over competitors. This level of experience enables TI to more effectively support handset manufacturers and mobile operators migrate from older software platforms to HLOS. TI has productized dozens of HLOS releases based on different hardware and UI platforms. In 2004 and in 2005, TI delivered about 25 different HLOS releases per year through a combination of different HLOS on different target silicon. This effort has equipped TI with unique expertise in all HLOS and related UIs, and in all aspects of HLOS porting and integration, from base port to multimedia to telephony to UI to debugging and tools to system integration and validation, and to operators FTA. TI has currently several hundred people dedicated to porting and integrating Symbian OS, Microsoft Windows Mobile, and Montavista Linux on mobile phones. In addition, TI has developed close relationships with all HLOS vendors (Symbian, Nokia, Microsoft, Montavista, ). The great majority of Symbian-based devices, Microsoft Smartphones, and Montavista Linux phones sold are based on TI OMAP platform. Most of TI HLOS partners also use TI Software Development Platforms (SDP) as their reference development environment, thereby pipelining development on TI platforms and improving quality of the system solutions.

5 5 Finally TI has built an extensive ecosystem of specialized partners with expertise in all aspects of HLOS, telephony, and multimedia development, integration, and validation. This network of partners complements TI expertise and services and help handsets manufacturers customize their products and get to market faster through a host of services: Hardware: Schematic and board layout System software: OS BSP, bootloader, HAL, device driver configuration Customization: device drivers, multimedia codecs, applications System integration and testing OMAP architecture enables compelling services and optimum user experience New complex multimedia and advanced connectivity applications are becoming available on mobile phones and are expected to grow exponentially over the next few years. In addition new complex usage models are expected to emerge through the combination of existing and new applications. End-users will run multiple applications in parallel, whether they do it consciously or not. In all cases they will expect the handset to perform with little or no degradation of performance and with instantaneous response. Some of these new usage models are: Watching live TV while receiving an incoming phone call, which requires concurrent: DVB-H radio tuner H.264/WMV video decode 64-voice polyphonic MIDI ring tone 3G cellular network connection and live call Video conferencing while recording, which requires concurrent: MPEG4 or H.264 video encode and decode AAC+ audio encode & decode MMC record 3G cellular network connection Over the air synchronization while listening to MP3 songs, which requires concurrent: Synchronization protocol MP3/WMA audio playback 3G cellular network connection

6 6 Enabling these complex applications and usage models allows operators to deliver seamless operation to the user while deploying new compelling services that attract new subscribers, increase ARPU, and decrease churn, thereby increasing revenues. However this involves significant complexity and increasing performance requirements that can be addressed only through a powerful, scalable, and future-proof application platform. Today, for example, these scenarios would only be enabled on classically-architected phones through challenging development cycles by the phone manufacturer, which likely would affect a phone s time to market. This also leads to a very sensitive software stack that can not grow easily for other complex scenarios as the operator identifies them. TI s OMAP platform is the market leading applications processor, a technology that is becoming the centerpiece of 3G handsets by enabling HLOS and advanced applications on mobile phones. The first OMAP processor, the OMAP1510, started shipping in volumes in 2002 and has contributed to NTT DoCoMo s FOMA success. The OMAP architecture has been adopted by all major phone manufacturers and has shipped several tens of millions units. OMAP was the first applications processor to support all major HLOS (Symbian, Windows Mobile, and Linux), enabling the most robust, complete solutions with the quickest time to market. TI s OMAP 2 architecture, the second generation of the OMAP family, is based on a multi-core architecture that extends the capabilities of the OMAP dual-core architecture (ARM + DSP) that has been the trademark of this platform from the beginning. In its new architecture, multiple independent engines are dedicated to carrying out processing intensive tasks (see picture below): ARM: Dedicated to run HLOS and applications DSP: Dedicated to accelerate audio Graphics Engine: Dedicated to accelerate 2D and 3D graphics IVA: Imaging and Video Accelerator dedicated to accelerate still imaging and motion video while delivering a consumer electronics experience These multiple, independent engines allow simultaneous parallel processing, at optimal power consumption required for mobile phones, therefore enabling these new applications and usage models. They also guarantee the best user experience through no degradation in quality of service, low latency, and flicker-free video and click-free audio during multi-tasking.

7 7 ARM DSP 3D Graphics Engine Video/Imaging Accelerator Digital Baseband OMAP 2 architecture allows mobile operators to effectively deploy and monetize services such as: Premium content gaming Video and audio streaming Video conference Camcorder and still pictures Digital TV and radio broadcast In summary, the OMAP 2 architecture is a powerful, scalable, and future-proof application platform that enables new complex applications and usage models. In doing so it enables mobile operators to deploy new compelling services and content attracting new subscribers and inducing existing subscribers to use more and pay more. Reduce costs In addition to enabling increased revenues, an application platform based on HLOS and TI OMAP-Vox chipsets enables mobile operators to reduce costs as: HLOS enable economies of scale through platformization and optimized software development OMAP-Vox platform enables cost optimized 3G handsets through integration, digital RF, and leading process technology These attributes benefit mobile operators through reduced handset BOM, and reduced application development, testing, and support/maintenance costs. HLOS enables economies of scale HLOS platforms allow more cost-efficient software development and life cycle management while providing a large developer network that effectively meets mobile operators and end-users requirements. In this respect, HLOS provides several advantages over other applications environments:

8 8 Standard APIs allow developers to more efficiently develop applications, reducing development time and costs, while increasing portability with optimal performance from generation to generation. These APIs also allow manufacturers and mobile operators to easily port the same applications across different platforms. Stable User Interface (UI) and broadly used and richer development tools allow developers to lower pre-sale development costs and operators to lower post-sale support costs. Advanced security and device management mechanisms allow mobile operators to lower post-sale support costs through over the air update and configuration. A structured architecture provides maximum flexibility and scalability to add innovative applications in the future without the need to re-architect the platform. A large developers network provides a large pool of applications from which to choose, creating economies of scale for mobile operators and making 3G compelling for end-users. Pre-integration of many components and applications that are usually not available in other software frameworks and applications environments allow manufacturers to lower applications development and integration cost and to cut time to market. In addition, HLOS enables the most economies of scale in software development. As software development for mobile phones is becoming increasingly complex and expensive, relying on proprietary solutions increases fragmentation and does not help mobile operators create economies of scale, which are required in order to drive quality up and cost and time to market down. Economies of scale can be created only when mobile operators adopt solutions that have the following characteristics: Are developed by entities that are financially sound and focused on this task. Are scalable across segments and products Have a large developers networks HLOS platforms are the only solutions that meet all these requirements. Most of all, HLOS platforms are hardware and manufacturer agnostic, allowing mobile operators to deploy a limited number of platforms across their entire handset portfolio, thereby reducing fragmentation of software solutions. This in turn allows mobile operators to dramatically reduce applications and services development, testing, deployment and support costs.

9 9 OMAP-Vox platform enables cost optimized 3G handsets TI is committed to make 3G handsets cost optimized through the same, well defined cost reduction strategy successfully implemented multiple times in its history as the leading wireless system provider. This enables mobile operators to adopt this application platform across multiple segments from the high-end to the low-end. This in turn creates economies of scale for the industry at large, which will continue to drive the application platform on a cost optimization path. TI s OMAP-Vox family of integrated chipset solutions is the centerpiece of TI s strategy for cost reduction in 3G. OMAP-Vox architecture enables cost optimized 3G handsets through: Applications and DBB integration: In OMAP-Vox chipsets the applications processor and the modem digital base band (DBB) are integrated into one single chip. This generates significant cost savings by sharing the same system resources (memory and power management) between the applications processor and the modem digital base band. In high-end OMAP-Vox solutions separate cores within the same chip are dedicated to the applications processor and the modem digital base band (one chip two cores). In low-end OMAP-Vox solutions the same core is shared between the applications processor and the modem digital base band (one chip one core) to further reduce costs. RF integration DRP technology: TI is the leader in RF integration through DRP, which allows integrating RF into the digital base band using a digital CMOS process while reducing time to market and costs associated with expensive and difficult RF testing and tweaking. TI has introduced the industry s first single-chip GSM/GPRS solution using DRP to integrate all essential components of a phone into a single chip. RF integration allows to further reducing costs and board space. By leveraging RF integration through DRP, TI plans to drive 3G chipsets to a single chip solution. Industry leading process technology: Process technology has always been one of TI s key assets. TI has been the first wireless system provider to deliver a cellular solution in 90 nm and in 65 nm. By leveraging process technology TI can drive down costs and boost performances, while the underlying chipset architecture is maintained unchanged and software is re-used. Process technology will continue to be leveraged by TI to further optimize 3G chipsets cost structure.

10 By combining these three approaches, TI OMAP-Vox architecture enables cost optimized chipsets today and tomorrow, thereby driving 3G handsets BOM down. Conclusions TI has developed the OMAP and OMAP-Vox platforms optimized for HLOS specifically to help mobile operators monetize their 3G investments. With this approach operators can efficiently deploy a robust and scalable application platform on their handsets. This in turn enables more efficient deployment of new, compelling, and differentiating services that attract new subscribers, increase ARPU, and decrease churn, thereby increasing operators revenues. At the same time this platform enables to reduce handsets BOM as well as application development, testing, and support costs, thereby reducing operators costs. The combination of a software platform based on a High-Level Operating System, such as Symbian OS, Microsoft Windows Mobile, and Montavista Linux, and a hardware platform based on TI OMAP applications processor and TI OMAP-Vox chipsets, represents the most effective application platform for 3G handsets. This approach enables operators to increase revenues as: HLOS enables platformization and differentiation OMAP platform enables compelling services and optimum user experience In addition it enables operators to reduce costs as: HLOS enables economies of scale OMAP-Vox platforms enables cost optimized 3G handsets As 3G is shifting operators focus from voice to data services and manufacturers focus from modem centric to application centric designs, such an application platform represents the solution operators have long waited for to generate a healthy return on 3G investments and more potential growth to fuel the future. Statements contained in this white paper regarding the growth of the 3G handset market, TI market penetration and qualification of TI products and other statements of management's beliefs, goals and expectations may be considered forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995, and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by these statements. The following factors and the factors discussed in TI's most recent Form 10-K could cause actual results to differ materially from the statements contained in this white paper: actual market demand for 3G products in general and TI semiconductor products specifically, and actual certification test results relating to TI products. TI disclaims any intention or obligation to update any forward-looking statements as a result of developments occurring after the date of this white paper. Technology for Innovators, the black/red banner, SmartReflex, OMAP, IVA, M-Shield, OMAP-Vox, DSP/BIOS and TMS320C55x are trademarks of Texas Instruments. All other trademarks are the property of their respective owners Texas Instruments Incorporated SWSY002A

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