Out of the 18 metro areas tested on the reliability metric, a clear “leader” exists in just four areas, while in 10 of the circles, there is a tie for first place.  In the remaining four areas, there is neither a clear leader nor a tie.   Further, the leader in network reliability is not always the leader in market share.  For example, Reliance is the “clear lead” in the Andhra Pradesh area (whose capital and largest city Hyderabad), while Airtel has the most market share.  Reliance had the highest network reliability in three areas (Andhra Pradesh, Madhya Pradesh and Tamil Nadu and Pondicherry), while TATA was top in UP and Uttaranchal.

“As Indian consumers consider network performance as a major selection and retention criterion, there is a huge opportunity for network leaders to educate consumers about the superiority of their network performance to gain subscriber base.  This can be a huge marketing differentiator in an industry that is reeling under hyper competition,” said Shankari Panchapakesan, Executive Director, Telecom Practice at The Nielsen Company.

India’s wireless market potential is second only to China – and is rapidly threatening to overtake it.  With 12 service providers across 23 wireless “circles” (metro areas), and six to eight providers in each circle, competition for customers is fierce.  It is expected to heat up even more with the auction of new 3G licenses and the introduction of mobile number portability.

The launch of the Droid by Motorola–which runs Google’s Android 2.0 operating system–is the latest smartphone to be tagged “game changing iPhone killer.”  We prefer to view it as simply a quality choice in a growing line of smartphones rather than something that will stifle the competition. With only 10,000 applications available in the Android market and more than 100,000 available for the iPhone, the Droid–or any Android phone–won’t be killing the iPhone anytime soon. What the Droid will do is advance the use and adoption of web content to a connected device. Android’s integration with popular and widespread Google applications such as Gmail, Google Calendar and Google Voice is a big help as is its ability to run multiple applications (up to six on the Droid). Most users do this on their computers so being able to listen to music while browsing the web and sending email makes a multi-tasking smartphone an appealing option.

The Competition to The Competition

The mobile marketplace is not just a faceoff between the iPhone and Droid; over the next few months, there are at least six new devices on deck that will have large screens like the Droid, keyboards (the Droid has both a virtual and physical keyboard), and an ever-increasing number of applications.

Nielsen’s data from Q3 2009 suggests that if you buy an Android phone, you’ll likely use more of the data features more often than if using any other smartphone.

Also, for the first time in Q3, Nielsen saw more users accessing the Internet on smartphone than that of feature phone users. If this trend continues, we’ll see more than 80% of the devices accessing the Internet being these advanced phones.

The Mobile Universe is Expanding

In Q3 2009, historically the slowest phone sales quarter, more than 25% of all phones sold were smartphones. Expect Q4 to have more than 40% of the new phones sold be smart devices. This is important to watch as smartphones are on track to be the majority of phones in the U.S. by 2011. Projecting Nielsen data out through 2010, we see smartphones crossing 50% of the market by the middle of 2011, roughly equal to 150 million users. This shift could happen much faster with the right conditions such as continued competitive price points on devices, lower “all you can eat” data packages and the increasing consumer need to be connected anytime, anywhere.

By mid-2011, the U.S. should be just over 300 million mobile subscribers. If we assume that we will have over 150 millions uses of smartphones (based on our projections) and that 80% of these users will access the Internet and 60% will access video (given the current data trend these assumptions may actually be low), this means that over 120 million mobile users will be on the Internet and 90 million will be watching video. What we have typically called the “third screen” is quickly becoming an extension of the first and second screens (TV and desktop viewing) especially in some key demographics. Note how Hispanics and African-Americans over-index on Mobile Video and Internet Usage.

Overall, we see mobile media growth accelerating over the next year with more users paying for video and premium content. Remember,  the mobile phone is the one media device that is always within reach. The trend in the U.S. is more interaction, more consumption, and more connected devices. While not a competition killer, the Droid is the next logical step in a market with a wide array of rich media devices. As that trend continues, the battle for better smartphones with better access to content will wind up seeing the consumer as the clear winner.

In Latin America, Nielsen reports sales of mobile phones have had a noteworthy increase in the last years, even though they are starting to have a diminution in the growth rate. Comparing the first quarter of 2009 against the same period of 2008, the sales rate has slowed down to 12%.

Countries such as Mexico and Brazil—where the density of devices per inhabitant is still smaller than that of the regional average—prompted sales with double digit unit gains of 20% and 16% respectively. Corresponding U.S. dollar sales rates were more modest, at 3% for Mexico and 6% for Brazil. Together, given their relative size, mobile device sales in these two countries offset the combined unit sales losses unilaterally in Argentina, Chile, Colombia and Venezuela.

Considering the market size in the region, if each mobile phone owner has at least one line, it is estimated that there are 460 million active lines in Latin America. This represents an important new growth channel and significant opportunities for the Telecom industry. It is estimated that in the next few years, sales of Smartphones will continue to increase, giving rise to the growth of the Value Added Services (VAS) penetration.

Like their North American counterparts, Latin Americans were interested in mobile phone features. In the last year, handsets sold in the region included camera (61%), radio (55%) and MP3 player (35%). All of these features showed considerable growth when compared to the previous year.

Motivating factors
An in-depth segmentation analysis in Brazil was conducted to understand what cell phone users in the region were looking for—convergence, greater connectivity, more entertainment or features. Four distinct segments of cell phone consumers were identified: 16% of Brazilian subscribers use only voice features, 28% use voice and SMS capabilities, 37% use features offline (such as; camera, MP3 player, etc.) and finally, 19% use value-added services, which include Internet access, ringtone downloads, etc.

Value-added service users accrue greater expenses—bills are typically 20% more than the average voice-only mobile user’s tab. These consumers tend to be younger (almost two-thirds are under age 34) and 40% reside in more affluent socio-economic levels, which makes the middle class an important market opportunity for expansion.

In Brazil, the VAS consumers are using the device as a downloader tool, when going online.

Understanding the particular segmentations in each market becomes crucial in order to reach the consumer with the most appropriate offer. This kind of analysis provides a more complete and insightful look into subscribers to understand motivations that drive the decision-making process.

What outlook should we have when contemplating the future of mobile video? For content providers, carriers, advertisers and consumers, mobile video is often a glass-half-full / glass-half-empty scenario. Yes, the industry is placing tremendous attention and investment in the medium – but, by comparison its reach is fairly humble. And yes, the possibility for future growth is enormous when we consider content and commerce potential– but, it’s a complicated path to that future.

For some perspective, we turn to Nielsen’s latest Mobile Video Report, which paints the picture either way: It provides affirming insights on mobile video’s best year yet. Nonetheless, it highlights substantial limitations and challenges ahead.

Glass Half-Full – Mobile Video’s Best Year Ever

• Reach, up 70 percent year over year, crossed the 10 million active viewer mark in 2008 and kept going – up to 15.3 million active viewers as of Q2 2009 (that’s roughly 7% of all US mobile subscribers)
• With “All You Can Eat” mobile data packages and increased access to mobile video over the mobile Web, access to mobile video content is more affordable than ever. A subscriber with a data package that includes video now pays $5.73 a month, on average, compared to $8.32 a year ago. Meanwhile, most mobile video viewers today aren’t even paying for a special package, but instead access mobile web through mobile Web access, simplifying the means to mobile video
• Though average subscription cost of mobile video is down, added reach still helped carriers claim a record $308 million in mobile video subscriptions in Q2 2009, up 11% compared to the prior quarter

Glass Half-Empty – Many phones not answering the call

• Half of U.S. mobile subscribers still carry phones that aren’t even capable of viewing video (52%), that’s just a marginal improvement over two years ago (62%). The adoption rate of mobile-video capable phones slowed as the economy weakened
• Among mobile video viewers, satisfaction with the overall experience went down over the last year (74% in Q2 2008 to 65% in Q2 2009). Even more troubling, consumer satisfaction decreased around undeniably improving components such speed, reliability, content, price and general audio and video quality.
• The mobile video audience is churning quickly. Disproportional to year-over-year audience growth, today’s mobile video audience is made up mostly of viewers still in their first year of use (78%). Since its introduction, the adoption rate of mobile video has been governed by a revolving audience of mobile video “testers,” viewers who try out the medium for under a year and then ditch it. Mobile video today still lacks the stickiness it needs for more rapid growth.

A mixed bag for sure, but no matter your take on mobile video, today, it’s hard to deny that a confluence of factors — better devices, faster networks, dedicated programmers, consumer interest – prime the pump for the broader, if bumpy, adoption of the platform. In short, the catalysts for growth are now in place.

A different kind of growth

Perhaps adoption of mobile video may look more like the gradual, linear adoption of DVRs than the exponential growth of portable MP3 players and the similarity wouldn’t be a coincidence. DVRs and mobile video are analogous in their transformational nature: technologies that fundamentally alter the time or place of media consumption. That’s a very distinct evolution from a technology such as the MP3 player, which did not change the time or place of the portable CD player, but simply refined the user experience of that medium – thus the adoption of the MP3 player was a logical adoptive progression for the consumer. The extent to which mobile video asks consumers to fundamentally alter their consumption patterns should not be understated.

Choose (cautious) optimism

At 6.5% penetration, it’s easy to be a pessimist about mobile video, to see the half-empty glass. But after posting its best year yet, after 70% year over year growth, it’s wiser to be a cautious optimist. Mobile video is a transformational technology that will require real changes or additions to the consumer media diet. As such, it may have a long way to go before making a dramatic impact on our media economy. When it does, though – when mobile video adoption further dissolves barriers of video’s time and place – the beneficiaries will be those who participated in its evolution, those who anticipated and planned for this demand.

Share your thoughts below or email me for more on Nielsen’s latest Mobile Video Report nic.covey@nielsen.com.

Beyond the typical issues such as values, morality, ethics, politics and religion, the generation gap extends to attitudes toward media.  For example, younger people still watch a significant amount of TV (those age 25-34 watch more than 150 hours per month), but people age 65 and over watch 38 percent more.  People age 35 and over spend more time online compared to the young.  But when it comes to mobile phones, the young are the clear leaders in adopting and embracing new technology and products.  For example, they are more likely to forsake landline phones in favor of mobile.  They send texts with abandon – the average teenager sent or received over 35,000 messages in 2008!  That’s 163 times more than the average 65 year old.

The U.S. in 2020 will be a very different marketplace from 2009, and the generation gap – the differences in values, outlooks and political perspectives – combined with the major demographic changes we analyzed last month, will play a starring role in shaping how media and technology are used.

Read a full analysis of the generation gap in the August edition of Consumer Insight.

Perhaps as a sign of the times, the second and third fastest growing sectors were food and cooking, which saw a 56 percent increase in unique UK visitors, and coupons and rewards, up 55 percent.  Promotions offering discounts on holidays boosted traffic to Ribena’s site, from 12,000 unique UK visitors in July 2008 to almost 950,000 in July 2009.  Coupons and rewards web sites saw 10.9 million visitors in July 2009, up from 7 million a year ago.  The ability to earn reward points or getting discount vouchers towards purchases drove traffic to sites such as Nectar and MyVoucherCodes.co.uk.

“Although saving money is a major theme across the fastest growing online sectors, the variety of sectors – from mobile phones to food and cooking, from automotive and health to technology and parenting – shows the diminishing areas of daily life that aren’t being significantly enhanced or touched by the Internet.  Strong growth online isn’t just about social media,” said Alex Burmaster, Communications Director at Nielsen’s Online Division in the UK.

Read the full press release.

Close to one in five (18%) of Indian mobile customers said that they would change their operator if they have the ability to retain their number.  For some mobile services, this news might cause some concern: a quarter of customers of Reliance and Tata Indicom said that they would be keen to change if MNP becomes reality, while 19 percent of BSNL subscribers would do the same.   

Those most likely to switch: high spenders, postpaid subscribers and business subscribers indicated a higher tendency to change carriers versus prepaid and low to medium spenders.  Postpaid spenders have almost double the minutes usage of prepaid subscribers, and also have a far higher usage of data applications. 

“When MNP was introduced in the U.S., price and promotions were by far the leading drivers of acquisition.  Ultimately, the operator who leveraged the consumer propensity to choose based on those criteria was successful in riding the MNP wave.  In India, MNP can be leveraged by operators through smart, targeted marketing and promotions to coincide with the introduction of MNP.  It presents a powerful opportunity for operators to drive in-bound porting of high-value subscribers provided they have a good understanding of who is more likely to switch and why,” said Shankari Panchapakesan, Executive Director, Telecom Practice at Nielsen India. 

According to Nielsen’s research, 39 percent of those surveyed said they selected their mobile operator based on price, while network quality was the driver of choice for 36 percent.  Promotion, reputation and customer service were also identified as considerations.

Nielsen’s Mobile Consumer Insights study surveyed 12,500 Indian mobile subscribers across 50 metropolitan areas.

Nielsen also studied CDMA and GSM network performance in 39 key markets, including Mumbai, Ahmedabad, Hyderabad, Pune, Delhi, Kolkatta, Chennai and Bengaluru.  CDMA technology was found to have a distinct edge over GSM across all six of the top data network performance metrics, particularly in HTTP download data rate.  Ahmedabad, the largest city in the state of Gujarat, took top honors in two key categories: average connect success rate and average data rate.  Mumbai was the poorest performing metro area in the first category, while Bengaluru fared worst in the latter category.

“The first phase of our survey found stark variation in data network performance between market leaders and market average, creating opportunities for differentiation in key cities,” said Shankari Panchapakesan, Executive Director of the Telecom Practice Group at Nielsen India.  “Meanwhile, our consumer insights found that overall satisfaction is a function of network coverage. Initiatives such as 3G and mobile number portability will further catalyze market sentiment.  CDMA operators should leverage their inherent network advantage to drive consumer perception of their network.”

Roger Entner, SVP, Head of Research and Insights, Telecom Practice
As widely expected, Apple announced the new iPhone 3GS at its Worldwide Developers Conference in San Francisco. This latest iPhone offers incremental improvements over the iPhone 3G at the existing $199/$299 price points. The bigger news that few, if any, expected was that the older iPhone 3G was going to continue to be sold, but at the new $99 price point.  It is self-evident that this price cut will drive sales. According to Nielsen’s Mobile Insights survey, which asks 25,000 Americans every month about their wireless attitudes and behaviors, the second most important factor-noted by 20% of respondents-as to why people did not pick the iPhone was its price.

What has been largely overlooked is the impact of the iPhone 3G price cut on the industry as a whole.  It is hard to overestimate the impact that a $99 iPhone has on the wireless carriers and handset manufacturers in the US. The new $99 price point for the iPhone 3G completely changes the value proposition of every handset at every carrier in the US. Some observers have commented that the $99 price point “kneecaps the Palm Pre,” but the kneecapping does not stop there. The dozen or more Google Android handsets that are being launched in the second half of the year will have prices that either make them look non-competitive or extremely margin-challenged. Actually, any device over $49 looks outright overpriced, and the feature phones in general have become a commodity. As a result, the relative value proposition and price matrix of every carrier’s handset portfolio has to be remapped. This has massive repercussions for the entire handset business model. Handset subsidies have to go up while the price to consumers has to go down to maintain a relative value proposition. Carriers will share the pain of lower handset prices with device manufactures whose margins will be further compressed, adding to the pressure they feel with the slowdown in the global economy. Carriers also have to think about if they can or want to shift the up-front cost of owning a device to the monthly recurring charge. It remains to be seen how much price elasticity exists in an economy that is still struggling and will shed jobs for a long time. AT&T could scorch the earth for its competitors by introducing a lower cost data plan that brings the minimum monthly cost of carrying an iPhone below $70, addressing the number one reason people passed on the iPhone. The competitive reaction to such a move would demand would be as value destructive as Verizon Wireless’ introduction of the $99 unlimited plan, which was simply matched by the competition without a meaningful realignment of market share — it would be another example of how industry players have acted diametric to Pareto-optimality.

The implied point of view and resulting strategy is that voice has been commoditized and has become table stakes. Defendable differentiation will come from devices and data. Now that might be true in the longer run, and especially as long as one has the iPhone exclusively. While the exclusive Apple relationship is a pillar of strength for AT&T and a large factor in its continued and future success, AT&T has to be painfully aware that its fortunes are tied to that exclusivity. More than 80% of AT&T’s net adds in Q1 2009 came from the iPhone. While the other carriers have to plan on how to compete in the next few quarters, AT&T has to figure out what success will look like after the Apple exclusivity runs out and it has to live in the world it delivered.

Today, the Big 4 national carriers are increasingly challenged by regional carriers that exclusively sell unlimited plans. These “All You Can Eat” (AYCE) carriers offer unlimited service in the $40-$50 per month range. Their services lack many of the capabilities of the Big 4’s offerings, but for budget-challenged consumers who don’t travel frequently, they are an attractive option.

The largest AYCE carriers, MetroPCS and Cricket, serve 13 and 78 metropolitan markets, respectively. Boost Mobile, a subsidiary of Sprint, recently launched a similar service nationwide. In total, there are only 12.1m subscribers on AYCE plans in the US or 5% of the total wireless market. However, because the AYCE carriers only provide service in certain markets, the national subscriber numbers don’t tell the real story.

Nielsen measures subscriber counts and market share in each of the top 75 metropolitan areas in the US via its Subscriber Flowshare Metrics service, and tracks growth of AYCE carriers to analyze their long-term impact on the category. One of the most interesting markets is Las Vegas, where both Metro and Cricket launched over a year ago. Boost launched its unlimited service there in January 2009.

Across the U.S., AYCE services still claim a relatively low 6% of total market [chart]. However, AYCE carriers have been gaining subscribers [chart] (positive net additions) for each of the last 12 months while the Big 4 as a group have lost subscribers (negative net additions) for every month except during December’s holiday push.

Why Does It Happen In Vegas?

There are several reasons Las Vegas is an extra attractive market for AYCE carriers. It has been hard-hit by the recession. Its flat topology allows new carriers to build network coverage cost effectively. It is an insular market without any closely adjacent metropolitan areas, making local-only wireless service more attractive.

However, even considering these local factors, subscriber growth in AYCE services in Vegas has been impressive and the message for the Big 4 is cause for concern. Both Cricket and Metro acquired significant amounts of new spectrum aiding their reach. T-Mobile is clearly concerned that what happens in Vegas may not stay in Vegas. The smallest of the Big 4, T-Mobile began offering an Unlimited Loyalty plan that provides unlimited calling for $49.99 to subscribers with longer than 22 months tenure.  Most recently, TracFone has launched its Straight Talk service on Verizon’s network at $30 per month for 1,000 minute, 1,000 text messages and 30 MB data, clearly aimed at the more budget-conscious buyers of the AYCE target audience. This offer is a competitive response from Verizon to increase the pressure on AYCE providers in their existing markets and scorch the earth in their expansion markets.