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Ronald Gruia

Principal Telecom Analyst - Emerging Communications

Next Generation Messaging Market Outlook

© 2008 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan.

Prague, October 21st, 2008

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Next Generation Messaging Market Outlook

“At a Glance” Agenda

1. Current State of the Market

2. Market Trends

3. Technology Trends

4. Future Trends

5. Conclusions

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1. Current State of the Market

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• How does one characterize the uptake of next-gen messaging platforms?

• Borrow a term from the music world: “Allegro ma non troppo”, which literally means “fast but not too much”

• Next-gen messaging platforms have been deployed throughout the world, but the uptake (from a business perspective) has not been as fast as some

industry pundits had originally forecast

Next-Gen Messaging Platforms Uptake

Best Characterized by a Musical Tempo

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NextNext--GenerationGeneration

Application PlatformApplication Platform

Older ServicesOlder Services

Overlay (2.5G) Overlay (2.5G)

Services (own)Services (own)Overlay NewOverlay New

(3G) Services(3G) Services

(in(in--house or house or

thirdthird--party)party)Application LayerApplication Layer

Data LayerData LayerMultimedia

IP Msg. Store

Subs.

InfoPresence

Access LayerAccess Layer

The advent of converged architectures and new reference models (e.g. Intel ATCA and IBM Blade Center) led to the integration of several VAS in a single platform. This addresses one of the biggest issues that SPs had with the older “silo”based approach to deploying new services.

Multimodal (VXML, SALT) support: DTMF, Voice,

Text, Visual, Stylus PDA / PC Tablet interfaces

Modular Next- Gen ESP Architecture Enables Component Re-use for Various Apps

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Next-Gen Platform Benefits

• OPEX savings (see example below and also lower maintenance/support)

• Better capabilities to serve the “long tail” subscribers with new combinational services and other VAS

• Greater architectural flexibility / more effective way to introduce new services

• Ability to blend in many communication paradigms (conversational, streaming, interactive download and store/forward) in a single platform; “converged mailbox” can aggregate e-mail, VM, SMS, MMS and IM messages and increase subscriber loyalty via a “sticky bundle”

0

1000

2000

3000

4000

2008 2009

Footprint

m2

3600 m2

0

1000

2000

3000

2008 2009

Power

kW

1900 kW

86 kW

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Operators Taking Their Time to Embark on a Full Migration

• Messaging typically considered a “medium priority” item, losing out versus 3G migration, RAN capacity addition, fiber/broadband build-outs, etc.

• Success of certain transitional solutions is extending the useful lifetime of the legacy messaging infrastructure

• Business case justification is difficult in certain cases and based mostly on existing platform obsolescence or OPEX savings

• Operators increasingly relying on a “just-in-time”model and on capacity additions instead of new CAPEX and over-engineering of the systems

• Converged carriers still going through the “organizational convergence” needed to bring in “bellheads” and “netheads” together

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2. Market Trends

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Economic Downturn Translates into Tighter Spending

• New models will be considered, including hosted, converting CAPEX into OPEX, and even revenue share models in certain cases

• Projects will typically become prioritized based on OPEX reduction considerations first (instead of new revenue generation)

• A more gradual build-out approach will be chosen particularly for newer applications and greenfield markets

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SaaS (Software as a Service) Trend

Source: Frost & Sullivan

Licensing Model

Perpetual Subscription/Utilization

Hosted

On Premise

SaaS Benefits:

•lower up-front financial commitment

• greater flexibility and scalability

•reduction of hardware/capital requirements

• lower maintenance and support costs.

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• All that the required development is a user-friendly GUI and a way to tap into the VM message store (via the IMAP interface). Any third party developer that can get API access to the VM message store can create a visual VM application

• Therefore, visual VM will be available not only on Apple iPhones, but also in a variety of other handset models (as a third party application designed by an ESP vendor or an ESP/client vendor combo)

• Key issue: client (MMS approach might be the way to go for now)

• Visual VM is expected to become more popular

• Users can listen to their voicemails by clicking directly on them via a GUI (shown in the left); this means they no longer have to listen to the messages in the classic sequential manner

• App is not new (i.e. existed in the enterprise market since the early 90’s) first as a precursor to UM and then as part of a UM solution

iPhone Impact to the VAS Market

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SS7 / SIGTRAN

network

WANSMSapplications

TekMedia™ SMS routing layerTekMedia™ TekMedia™ TekMedia™

TekMedia™TekMedia™ External access layer

IMS

Store & Forward layerTekMedia™TekMedia™

SMS Network

SM

SC

SM

SC

GW

GW

SS7 / SIGTRAN

network

SS7 / SIGTRAN

network

WANWANSMSapplications

SMSapplications

TekMedia™ SMS routing layerTekMedia™ TekMedia™ TekMedia™TekMedia™ SMS routing layerTekMedia™ TekMedia™ TekMedia™

TekMedia™TekMedia™ External access layer

IMS

TekMedia™TekMedia™ External access layer

IMSIMS

Store & Forward layerTekMedia™TekMedia™

SMS Network

Store & Forward layerTekMedia™TekMedia™

SMS Network

SM

SC

SM

SC

SM

SC

SM

SC

GW

GW

GW

GW

Architectures for Comverse SMS Router (left) and Tekelec TekMedia™ (right)Source: Comverse, Tekelec

• OPEX Savings: in the range of 40 to 65%,

due to fewer T1 lease costs and lower customer trouble management (includes

billing inquiries, network build-out, customer provisioning and network

management).

• CAPEX Savings: typically

anywhere from 50 to 70% depending on the percentage of

spam traffic. With an SMS router, instead of being clogged by spam, network resources could

be applied to accommodate more SMS. This results in CAPEX

savings, since fewer SMSC capacity additions are needed.

SMS Routers: Helping Operators Increase Their Profitability

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New Business Models Examples

• Service providers will have to create more differentiate services to meet the

demands of the “long tail” and cater to various user segments.

• As a result, we believe that we will see the introduction of a variety of

innovative promotions and loyalty programs

• Examples include Sugar Mama (Virgin Mobile USA program that gives

users free airtime for viewing sponsored ads - up to $5/day) and Promo

Tonos (Orange Spain program offering discounts to subscribers willing to

listen to musical ads while making a call)

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3. Technology Trends

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Josef’s moustache and Leonid’s eyebrows represent the same line of hair,

except the latter is vertically shifted upwards…

That sounds a lot like a computer scientist’s solution to a problem: redefine

it to a higher layer of abstraction! (the abstraction in this case is the

“horizontalization” of common functions that can be re-used with IMS).

Defining IMS in Layman’s Terms

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IMS: A More Efficient Service Implementation

PSTN

“Stovepipe” Service Model IMS Service Approach

WLANRAN

IP Multimedia Subsystem

. . .

Application Servers

Network Subsystem

Base Station Subsystem

Control

Layer

Application

Layer

Transport

Layer

Access

Layer.. .

...

Multi-service IP Network

Pu

sh

to

Ta

lkS

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Qo

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Billin

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OS

S

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. . .

. . . . .

Inte

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eG

am

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Se

rvic

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Qo

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Billin

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OS

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. . .

. . . . .

Vid

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ea

min

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. . .

. . . . .

Billing / OSS

QoS

Presence

Session Management

and control

Common functions are replicated Common functions are reutilized

Source: Frost & Sullivan

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Technology Perspective: We Believe IMS Is Ready, But…

• Even in the worst-case scenario in which IMS does not achieve the goals of AIN, it will at least be a good means to an end, by getting carriers and vendors to speak the same language and accelerating service delivery.

• IMS introduces standards/web-based programming models based on well known specifications such as SIP rather than closed, proprietary systems entailing a higher overall level of programming complexity

• IMS will provide operators with the ultimate sandbox to experiment with different applications and find the right combination for a certain customer segment

• IMS will allow operators to fail more often and fail more cheaply

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Legacy Subscriber Base

RevenuePotential

L e g a c y M a r k e t

A host of companies will be providing solutions here (e.g. Tekelec - SIP-SS7 Service Mediation; AppTrigger – ASC; NEVs (Ericsson, NSN, ALU, etc.), messaging vendors (Comverse, Unisys, HP, Intervoice, etc.) and other players

SAVE MONEYMAKE MONEY

Make Next Generation Services Available to Legacy Subscribers

A GOOD TRANSITIONAL STRATEGYMake IN/AIN Services Available to IMS Subscribers

Next Gen Subscriber Base

N e x t G e n M a r k e t

RevenuePotential

MaximizeRevenues

Makes the IMS Business Case Work

Until We Get There… Transitional Solutions

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4. Future Trends

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• RCS (Rich Communications Suite) consortium created by the top 5 handset vendors, operators (France Telecom/Orange, Telefonica, TeliaSonera, AT&T, Telecom Italia – some joined early, others later) and NEVs (Ericsson, Nokia, Alcatel-Lucent)

• Objectives: revitalize IMS market, drive common spec for new apps (presence-enabled address book, enhanced messaging, video telephony, gaming, etc.), stimulate interoperability testing

• Announced at MWC (Barcelona Feb. 2008) and demoed in Paris at the IMS World Forum (April 2008) with Sony-Ericsson, Nokia and Samsung handsets

• The key question is… will RCS help operators solve the current client conundrum? If so, that could fuel more growth for visual VM solutions.

RCS: Key IMS Client Initiative

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• It is all about mashups (combining web based API to create a new

services) – e.g. life2life (Second Life & Amazon), WeatherBug

(WeatherBug & Virtual Earth), Zillow (Real estate info & Virtual

Earth), etc.

• Third party developers can download APIs for free or use “plug-ins”

Telco 2.0 and the Emergence of Web Mashups

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• Over-the-top players and web mashups means that a response is needed

from the telco world

• WIMS 2.0 (Web 2.0 and IMS) is Telefonica’s response, proposing a two-

sided strategy for convergence, offering IMS capabilities to the Web 2.0

environment and using web 2.0 services and technology to enrich telecom

services

• Telefonica created WIMS

and Open Movilforum to

expose IMS capabilities

• This is just one initiative

that will raise the value for

both IMS and Web 2.0

services

Telcos Are Beginning to Respond

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Industry Will Shift to Newer Media Revenue Models

• The convergence of the Web 2.0 and the Telco worlds will

also mean that the traditional telecom business models will eventually change

• This will lead to the advent of blended models in which advertising will become a

bigger part of a carrier’s revenue mix

Consumer Pays Hybrid Advertiser Pays

iTunes Cable TV Network TV

Consumer pays 30% advertising Free to consumer

Music / TV / Movies 70% consumer pays Fully ad sponsored

Source: IBM Institute for Business Value (IBV) and Economist Intelligence Telecom Industry

Executive Survey (n=252)

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5. Conclusions

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Service Platforms

Messaging & Enabler

Circuit Switched - Core Network - Packet Switched

Service Delivery Platform Network Service Platform

ASMP, WAP GW, Radius, ... IN / NGIN

Text & Multimedia Voice & Video Service Enabler SIM Development

NSS Planning Traffic Planning IP Nets Mobile Packet Core

SMS, MMSVMS, IVR,

Voice Portal, ...LBS, Video Tel,

Streaming, J2ME, ...SIM, OTA

MSC, HLR MSC, HLR GPRS, PTT, IMS, ...WLAN, LAN, IPC, DataGuard, ...

Here’s Mobilkom Austria’s suggestion for organizational restructuring to support

IMS, based on the experience for this Austrian wireless incumbent

The Emergence of the Horizontal Organization

Source: Mobilkom Austria

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Emerging Market Expansion Will Require Solutions for Low ARPU Users

GSM Access Point in a Village

• A new generation of applications will need to cater to the

needs and budgets of low ARPU subscribers

• These include: GSM access point in a village, pre-paid

apps, SMS payments, SMS ad insertion, etc.

Source: NSN

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• Austrian economist who greatly influenced the

economic development theory and coined the famous

term "creative destruction".

• Innovation cycles are disruptive in nature: new firms

and existing ones that can adopt the new technologies

can thrive under this environment, whereas others

eventually vanish because they cannot make the

necessary adjustments.

• In deploying some of these next-generation services,

incumbent carriers will have to balance pricing

discipline and the Schumpeterian Wave, but eventually,

if they do not end up cannibalizing their own revenues

other competitors will do so.

Joseph Schumpeter (1883-1950)

Don’t Forget About Joseph Schumpeter…

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Ronald F. Gruia

Program Leader - Emerging Telecoms, Principal Telecom Analyst

� rgruia@frost.com � +1-416-490-0493

Thank You

Q & A Session

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Report FeaturesNext-Gen Messaging Platform Uptake: “Allegro Ma Non Troppo”

• 135 slides

• Key market trends, including feedback obtained in recent shows (MWC, CTIA, etc.)

• Feedback received from over 60 operators globally

• Impacts of NGN Transition, IMS, 3G Migration, Move to IP Platforms

• Special section on the iPhone and the impact to the VAS marketplace (Visual VM)

• 100+ graphics / charts

• 360 view of the competitive landscape

• Outlook on emerging technologies, including mobile advertising, telco 2.0, SaaS

• Special section on SMS Routers

• SMS / MMS Forecasts and impacts on the ESP marketplace

• Clients and RCS initiative

• Pricing models, demographics and other strategies to help operators succeed

• Uncovering opportunities in the emerging markets

• The advent of new common multi-VAS platform

• A look at voice SMS, video SMS and speech-to-text solutions

• Forecasts, segmentation, including detailed look at the assumptions (including pricing)

• RFP outlook

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A 360 View of the Global Messaging Market

Order at the VMA show and receive a discount - please see me during a break

Geographical Regions Covered

• North America (NA)

• Caribbean And Latin America (CALA)

• Europe, Middle East and Africa (EMEA)

• Asia Pacific (APAC)

NA

CALA

EMEA

APAC