Invest Northern Ireland: The European Wireless Opportunity
Wearing my InnovationWorld hat, I'm moderating a panel today in Palo Alto, I'll be blogging as we go along, to the extent possible while being an attentive and engaged moderator.
A few notes before the event begins:
It is a mistake to think about wireless as a monolithic market that is largely constructed, complete and represents a shrinking opportunity. Instead, it is an increasingly heterogeneous technological environment where new layers of opportunity open up all the time.
Opening remarks by John Lindfield, Invest UK
Paul Lee, Gartner
Let's not talk numbers but look at data in the context of analogs in business decision-making. The wireless data market in Western Europe provides lots of opportunities for creating new value. Over the past year, 802.11 has become a much larger factor, alongside 2G, 2.5G, 1xrtt, GPRS and GSM.
Making forecasts is dicey business these days. Western Europe is the second largest mobile market in the world (behind Asia/Pacific) with 312 million connections. Wireless growth is outpacing wired and has overtaken wired connections already, while U.S. crossover will not happen for several years.
If you are here trying to draw analogies to the U.S. market, this is a picture of what will come.
Adoption is flattening, handset growth is declining, but has slowed. In wireless data, however, there is continued growth while voice growth is almost flat. Wireless voice growth will grow 8.6 percent a year between 1999 and 2006. Wireless data will grow at an average rate of 24.8 percent a year -- even in the current environment.
There is a significant bifurcation between consumer and enterprise data use. In the U.S., heavy wireless usage is in transportation and logistics, so much so that Nextel is rebranding itself to address that market.
We've moved from hype to a growing reality. All the pieces of the puzzle are not in place as soon as Gartner thought they would be, and are falling into place now. By 2006, they will all be in place (billing, data prioritization, fraud prevention, etc.).
The telecom industry business model is failing. Only in recent months have all-in-one pricing packages coming into wide use, and that is a good sign.
Voice is still the "killer app" (though it really just an artifact of how we used phones before) and there are problems in the huge amounts of debt and a poor economy. But, at the same time, we'll see a huge migration from GSM to data services like GPRS, from 10 to 140 million users. GPRS is the primary enabler for application growth in the next three to five years.
The UK is a mature telecom market and a good place to launch Western European network while other regions (Scandanavia, France, Germany, etc.) have seen companies back away from promised new services. BT and Hutchison have sustained their commitment to wireless data.
With new intelligent devices coming out, handset purchases are increasing again, because people want to access new services. There is no killer app in wireless data today, but a lot of promising ones: SMS, MMS, polyphonic sound, and so forth. But from the consumer standpoint they are low-bandwidth and the business market is the first place where substantial increases in wireless data consumption.
What is the difference between mobile and wireless? 802.11 is a surprisingly important factor that changes how we think of the way we use spectrum. And mobility and wireless will converge through a variety of technologies that take advantage of different connection modalities. Mobile technology is more expensive than 802.11 and a convergence event will drastically change the wireless opportunity [this could come with VoIP over 802.11 when your phone is able to access a WLAN, but it uses a carrier's network when moving between hotspots].
Middleware will be the glue that holds this new environment together. So, ask yourself:
What's happening at the handset level?
How fast will carriers provide support for these services?
Who has the capability to deliver these new capabilities?
This will help to navigate the risks and provide better returns.
Risk factors include:
Carrier consolidation
Mobile standards will be uncertain as they evolve
All value chain participants in driving apps to market, no one can do it alone
Infrastructure changes can happen more slowly than you'd like.
Paul Longhenry, 3i Group
Multinational investors in technology, ranging from seed stage to capital for expansion and PIPEs. One of the largest investors in wireless. We like companies that are international in their nature, and wireless fits that bill.
Asian wireless penetration is growing substantially in China, Korea, India, unlike Europe where initial penetration has been achieved. We don't necessarily think a company based on a particular company must succeed first in their home markets.
Areas that are attractive to 3i: Identify pain points for the customer.....
Carriers have seen declining voice ARPU with moderate growth in data revenues, but that's not enough based on current financing strategies. So, we look for accelerating data usage as a pain point.
Emergence of ODMs as providers of commodified handsets, which makes hardware cost reductions a significant pain point.
Where do the wireless/wireline convergence actually happen.
Our companies need to establish sustainable barriers to competition.
Roger Priestly, BT
We use Northern Ireland as a test market, because it is an IT literate community with more fiber per mile than anywhere in Europe. Wireless penetration in Northern Ireland is at 75 percent.
Interesting: Wired data usage exceeded voice usage several years ago, but that hasn't happened in wireless yet. This, despite 1 Billion text messages sent each year in the UK and growing by 20 percent a year.
Will have several hundred wireless hotspots in NI in a year, more than the rest of the UK.
The market is 99 percent small and medium size enterprises, which makes it an interesting challenge and one where applications must fourish.
If we don't lick the broadband problem, there won't be any BT. Wireless is a key technology for meeting this challenge.
At your desk, you'll have your personal area network, surrounded by our local area network (where you'll use 802.11) which include hotspots in public places. On the move, GPRS and 3G will eventually make this market happen at higher speeds (Hutchison -- now "3" -- has rolled out 3G in Northern Ireland) and you'll begin to think in terms of where you do fat bandwidth work and other areas where we rely on slower networks.
NI is a "surgical test market" because it is cleanly separated from the rest of the UK.
Question: What are the top apps?
You've got to the quandary for us -- we're in an age where all companies are saying let's get back to what we do well and we're good at providing connectivity. We are good at partnering with companies, and praying that companies will make use of our connectivity.
The handset is not the be all and end all. Looking to PDAs to be a part of the environment.
Penetration of hotspots has to be strategic to provide maximum connectivity at the lowest capital expenditure. Need roaming deals and are working actively on that. Payment models are very uncertain. We're looking for ways to develop meaningful partnerships to make WLAN useful -- will do revenue sharing on subs and pay-as-you-go payments systems.
Fredrik Skantze, Openwave
We make mobile application and services software. The traditional model of selling minutes of voice connectivity is dying and we're looking now at a transtion to selling transactions or buckets of transactions. It is like being a media company and very uncomfortable for carriers.
Data services is becoming the front and center positioning issue for carriers. See Sprint "vision" and the launch of Vodafone launch in Europe to sell media-ready phones (using Openwave software) and spending hundreds of millions on branding the service.
The devices we've been talking about for years are really starting to come out now -- XHTML color devices with MMS and rich media. The carriers are not launching vertical systems as often (voice mail, WAP end-to-end, etc.) and moving to horizontal systems based on standards that can be interchangeble and customized rapidly.
Openwave has a big development center in Belfast and in Japan. We service 85 mobile operators worldwide and 150 cable and telcos with new application services. Software on 350 million phones. Email is where we come from, but we have OS-Java systems and MMS is what we are doing today.
KDDI (Japan) has 54 percent of its customers using data services. J-Phone has 6 million picturephone users. Telesp Celular (Brazil) has 22 percent data usage among mobile customers. The US? 10 percent of mobile phones. About the same in Europe.
Belfast office: 150 employees, 100 of which are developers. Not contract or outsourcing, it is a core unit of the company. The 5th largest IT co. in Belfast, which makes it easy to attract talent (in a smaller market than the U.S.).
Jim McGibbon, Invest Northern Ireland
Talk a little about Northern Ireland.
Population: 1.69 million
Size of Connecticut
70 percent of population is within 25 miles to 30 miles of Belfast.
The UK is a half-hour by air; Western Europe an hour and a half to major cities.
There is substantial development after the peace process began and is now the fastest-growing region of the United Kingdom. Unemployment is around five percent, lower than the rest of the UK.
The 90s were characterized by a huge shift toward knowledge industries and Northern Ireland and companies have made huge investments.
Strong university presence, a well-educated workforce and high wireless penetration.
Employment costs: 32 percent lower than the U.S. (according to US Bureau of Labor Statistics) and 25 percent lower than the European average. The cost is 60 percent lower than West Coast of the United States.
Engineers: $30,000 for a five-year veteran.
Openwave says it is 50 percent cheaper to employ someone in its Belfast center than on the West Coast.
At every level the difference in costs are 35 percent lower, but that wouldn't matter if the quality wasn't good. Our educated workforce and Belfast center of excellence gives you comparable quality at these lower costs.
45 percent of the NI population is under 30 and many are multilingual (it's mandatory in schools). 3,500 IT graduates a year. Turnover is between five percent and seven percent, even during a boom time -- a strong work ethic.
Universities are concentrated on technology, especially telecom at Queens University. Many competencies in various technologies.
If you are an investor going to Europe, if you look at Europe and Northern Ireland you will not be the first to go there -- lower risk of making a mistake for young companies and solid performance for mature companies.
Invest NI will help make connections, links to universities, sales development and partnership/JV/collaboration development. Finally, Invest NI will support foreign direct investment assistance (money and tax incentives): employment grants; training support (50 percent subsidy); R&D programs; rent breaks; capital grants; equity finance; professional services assistance.
Posted by Mitch Ratcliffe at March 25, 2003 02:57 PM | TrackBack