Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
Happy belated birthday to you, GSM. Last month, GSM technology celebrated its 21st birthday – quite remarkable considering that the average life cycle in the technology world is only about five years. With W-CDMA now the largest driver of the total mobile infrastructure market, and 4G now in its infancy, the big question remains how much longer we may expect this 21-year-old technology to survive.
While the significant growth in data traffic is the main driver of growth in the W-CDMA market, the growth in voice traffic, a product of the rapidly growing subscriber base, is the main driver of growth in the GSM market. The total GSM subscriber base currently stands at three billion – four times the number of W-CDMA and CDMA subscribers combined. In the second quarter of this year, the GSM market had net subscriber additions of 546 million over the second quarter of 2007. This was more than three times the number of W-CDMA and CDMA net additions combined. To support this large incremental growth, the second largest number ever of GSM base stations was deployed, resulting in solid year-over-year revenue growth.
India, China and Africa
So where are we seeing this “emerging” growth of GSM? While we are now seeing a migration of GSM subscribers to W-CDMA subscribers in developed regions such as North America and Western Europe, strong and sustained subscriber growth in emerging regions such as India, China and Africa (the three largest areas of GSM growth) is spurring significant GSM network rollouts. China and India each average nearly 9 million new subscribers per month. Even with such enormous growth, the mobile penetration rate in each country has yet to rise above 50% (as compared with over 90% penetration in the developed world). With such low penetration, these regions offer tremendous growth opportunities.
Growth in India’s GSM subscriber base has become so rapid that many networks have approached their maximum capacity. In a region where price elasticity is very high, the affordability of mobile handsets is becoming an increasing contributor to the growth in GSM subscribers. We expect phone prices to decline to the “magic” price point of $20 in 2009, which will encourage even greater GSM growth. BSNL, with its network currently running at full capacity, has been unable to grow its GSM subscriber base as fast as the other large Indian operators. Therefore, the operator currently is floating a $9 billion tender to remedy its network constraints. In addition to BSNL, Indian operator Datacom also currently is floating a tender of significant size, valued at $5 billion, to meet the growing demand of the expanding subscriber base.
In China, China Mobile’s second-quarter 2008 subscriber base grew by its second largest number of net additions ever (second only to its first quarter of 2008), and China Unicom’s GSM subscriber base experienced its third largest number of net subscriber additions ever. Both Chinese operators recently have given guidance that they plan to increase their capex towards their GSM networks. For the rest of 2008, China Mobile has increased its capex guidance by approximately $2 billion, and China Unicom expects to increase its capex by approximately $5 billion. While both operators plan to begin investing in 3G networks (TD-SCDMA and W-CDMA, respectively), they also plan to continue to invest in both the coverage and capacity of their GSM networks.
In Africa, with subscriber net additions of nearly 6 million over the last 12 months, the subscriber base has grown to nearly 300 million, a 30% growth rate, over the same period. Africa is one of the fastest growing mobile markets in the world, with Nigeria, South Africa and Egypt being the fastest growing markets in the region. With mobile penetration under 40%, Africa represents another region poised for tremendous growth.
3G in the mix
So how will 3G in the emerging regions impact the GSM market? While the China restructuring is underway, and 3G licenses should be issued upon completion of the restructuring, we don’t believe the Chinese market will materially impact the W-CDMA market until 2010. China Unicom has announced plans to spend nearly $15 billion on its network, but not until after it receives its W-CDMA license. 3G licenses are now being issued in India, but here again, we do not expect 3G to have a material impact on the market until 2011 (though small deployments will begin before then). Voice is by far still the leading driver of growth in India, and therefore investment there will be focused on building out GSM networks. Africa, like India, is a very low ARPU region. Africa is seeing some W-CDMA deployments; however, once more we expect GSM to continue to drive the region for the next several years.
Given the strong influence of these emerging regions, we believe the GSM market will continue to see very strong net subscriber additions (over 100 million), and we expect base station deployments to peak in 2010. By 2011, the GSM subscriber base finally will begin to flatten as the rate of migration of GSM subscribers to 3G networks, particularly in emerging regions, begins to increase rapidly. In 2012, we expect that over 60% of base station shipments will be for equipment refresh and modernization rather than network expansion. Operators will need to continue to maintain their GSM networks – even as the mass migration of GSM subscribers to W-CDMA commences – because the GSM networks will continue to provide highly profitable roaming charges as well as supplemental and redundant coverage for W-CDMA and next-generation networks (e.g., LTE and WiMAX). In addition, in the early years of 4G commercial service, operators will provide mobile devices that use legacy GSM networks for voice traffic and push the high-bandwidth data traffic to the next-generation networks.
While it is clear that the growth of the W-CDMA market will be the most significant driver of the total mobile infrastructure market for many years to come, we do not believe that W-CDMA success will come at the expense of the GSM market. Put another way, we believe the two technologies will co-exist, which means we fully expect to be wishing GSM a happy birthday for many more years to come. In fact, we would not be too surprised if GSM reaches the big 3-0 (in 2015), at which point we may (finally) find ourselves saying a last farewell and thanking it for its many years of great service.
Questions or comments about this column? Contact Scott atscott@delloro.com or contact RCR Wireless News atrcrwebhelp@crain.com.
