13 – 14 August 2002
The Marketing Intelligence Behind Effective Decisions
(Presented by Mr Leon Perera, Chief Executive Officer, Spire Research and Consulting Pte. Ltd during CA EXPO HK 2002)
Speech on Wireless WAN to CA Expo Hong Kong 2002
A very good afternoon to one and all. It’s my pleasure and privilege to be addressing the guests and participants at the CA EXPO Hong Kong 2002. My company Spire Research and Consulting is proud to be the Research Partner for this exciting event. Please allow me to outline the coverage of my short talk today. Spire Research and consulting provides Market Environment Research and Consulting services across the Asia Pacific region, with a heavy focus on Information and Communications Technology.
By Market Environment Research, I mean marketing intelligence on aspects of specific product or service markets in specific countries, such as market size, trend, competitive environment, pricing and regulation. Our company is not a technical or IT consultancy and I must apologize that I suffer from the major disadvantage of not being an engineer. Therefore my remarks today will be from the standpoint of a market research and marketing consulting company. We shall primarily address trends in demand and supply and we shall examine technology issues in so far as they impact demand and supply. My remarks will address the following areas:
First let me start with some definitions, so as to outline the scope of my remarks today. There are many of WANs from sources such as the Alliances for Telecommunications Industry Solutions and Computer Networking. For example, techdictionary.com defines a WAN as “A physical or logical network that provides capabilities for a number of independent devices to communicate with each other over a common transmission-interconnected topology in geographic areas larger than those served by local area networks.
“A wireless WAN is a WAN which spans a considerable physical distance. The distance demarcation between a LAN and WAN may be 1km or one mile, or longer, depending on which definitions we use. For the purpose of our speech today, we shall define a W-WAN as a network that spans at least 1km and has wireless connectivity. My remarks will focus more on W-WANs which have high-speed connectivity, of 100kbps to 2 Mgps or more. The need to develop wireless wide network stems for the needs to cover a large area, larger than the previous available wireless area network such as personal area and local area network. The PAN (Personal Area Network) is intended for close proximity device communication for ranges of less than 30ft. This standard is meant for low-level device recognition and communication and utilizes the 2.4 GHz frequency range.
A popular example of a PAN is bluetooth, which transfer data of 721 Kbps. The bluetooth capability is faster than serial infrared which can go up to 4 mega bits per second. For further distances, the wireless LAN is used as a median range wireless application for distances of less than 1000ft. Typically used within a building, a WLAN system is based on the basic network infrastructure of a traditional Ethernet system. Multiple 802.11 protocols are currently being deployed for these systems, utilizing both the 2.4GHz(802.11b) and the 5.2 GHz (802.11a) radio frequency. The primary difference between the protocols is bandwidth and range. Cellular or Wireless WAN is meant for wireless applications covering longer distances than LANs. The range is basically counted in miles or kilometers. A number of different standards apply, depending on the country of implementation.
Currently, mobile phone companies are the most common wireless WAN applications and they use various protocols for inter-connectivity between base stations and exchanges, such as GSM and CDMA. Depending on the country, the deployment of some W-WAN requires the user to hold government licenses while others are unlicensed. W-WANs comes in two forms – fixed or point-to-point and mobile or multipoint. Currently fixed accounts for most installations but we expect that the growth for mobile will be greater as the technology matures. A fixed W-WAN is a wireless link that employs specified parts of radio spectrum to transmit and receive data, where “line-of-sight” positioning of fixed equipment is needed. The frequency standards include RF IEEE802.11a, 802.11b, GSM and GPRS. A mobile W-WAN is a wireless link that employs terminals or receiving units that are mobile and not in a fixed position, such as a cellular phone. Next, let me turn to a brief overview of the history of W-WANs globally.
Wireless WANs originated to connect over distances which were larger than what could be covered by a wireless LAN. The telecommunications market has been and continues to be a major vertical market for W-WAN due to the need to connect base stations to one another and to central exchanges, over large geographic distances and all kinds of terrain. Other vertical segments have arisen around:
The wireless WAN market is still immature even in North America and Europe where the core technologies originated. This is because end-user awareness and acceptance is still not very high and the technology is seen as still requiring development to overcome issues such as the line of sight problem, interference from adverse weather conditions, and so on. In the US and Europe, most installed W-WAN systems are still fixed rather than mobile, and operates on frequencies licensed from the US Federal Communications Commission of the European Telecommunications Standards Institute. In the US, the adoption of W-WAN has to face keen competitors from alternative technologies for high-speed data connectivity such as fibre optic cable in the ground (of which there is about 100 million miles already laid in the US), and XDSL packages from telcoes.
It’s is a common view and one which we agree with, that the greatest potential for W-WAN expansion lies in those geographies where population density is high, incomes are rising, commercial or industrial activity is growing, and, at the same time, teledensity is low – that is to say that the ratio of installed telephone connections per head of population is low. W-WAN would need to meet the thirst for connectivity while avoiding the huge infrastructure costs and disruptions to urban life caused by the laying of new cable in the ground. For high-speed connections, W-WANs would also avoid the bottlenecks in supply and delivery of fibre optic cable which are often faced. Many of the emerging cities of Asia, particularly in or around large metropolitan areas in countries like China, India and Indonesia, would fit these criteria.
The relatively high penetration of satellite TV as opposed to cable TV in Indonesia, for example, illustrates the way in which wireless connectivity can meet the demand for connectivity in a manner that is competitive with cable. Next, I shall move to key trends which are shaping the wireless WAN world. These trends relate to technology, government regulation and the advent of 3G. First, I shall discuss factors which tend to drive the demand for W-WANs.
In order to underline the thirst for information and connectivity, I shall provide a few statistic on the Hong Kong market. This slide shows that in June last year, 60.6% of households had PCs at home, 49% were connected to the internet and of these households, about 40%, or about 20% of total households, were connected at broadband speeds. However by Feb 02, the no. of households connected to broadband had surged by about 50% to reach 30% of the total, or over 600,000 households. This is an incredible leap in the broadband household base in less than one year, and demonstrates the thirst for content. Let me now discuss some of the factors inhibiting the adoption of W-WAN.
As I mentioned earlier, one of the factors with the potential to slow down the deployment of W-WANs is the regulatory regimes associated with spectrum licensing. Spectra are licensed for use by service providers or other organizations. In some countries like Singapore and Taiwan, the spectra have been auctioned off. In other cases, licenses are awarded without an auction, as was the case in Hong Kong when the OFTC awarded its four 3G licenses.
However conditions applied the following : Winners will pay 50 million HK dollars ($6.5million) per year for the first 5 years. 5 percent of their 3G revenues will be paid each year thereafter for the 15-year license period. Among other requirements is a license condition that will force 3G operators to reserve at least 30percent of their network capacity for “mobile virtual network operators.”
While governments often have sound public policy grounds for introducing such requirements, the effect can sometimes be to complicate or slow down deployment of networks which are reliant on the licensed spectra. The issues of spectra licensing can inhibit deployment of W-WANs not only by creating time delays and limiting access to spectra, but also by creating uncertainty among manufacturers who are developing equipment to suit various spectra, particularly for systems which cut across national boundaries.
I would now like to comment on one of the inhibiting factors in a little more detail, which is the issue of sight limitations. This refers to the problems of transmitting radio waves across distances where there is no clear line of sight between two points, ie there are obstacles in the way which cause the radio waves to be deflected, diffracted and so on. Due to the presence of objects in the line-of-sight path of transmission, final signals reaching the end-users will be of various strengths, thus causing data distortion. Thus the challenge is to develop advanced modulation technology to ensure receiver getting a coherent and even signal.
Vendors have attempted to address these problems in a number of ways and the purpose of these slides is to show how this problem is on its way to being solved. One of these solutions is known as LMDS or Local Multipoint Distribution Systems. This refers to broadband wireless that transmit bi-directional high-speed signals at competitive cost.
One good example of LMDS deployment is in Philippines: In October 2001, the Fast Food Chain, Chowking Food Corporation (a subsidiary of Jollibee Foods Corporation, which is well known here in Hong Kong) replaced its leased line connection between its head office in Pasig City and its plant in Multinlupa with a wireless connection. The wireless infrastructure is predominately employ for email, Internet access and core applications such as distribution, inventory and financial processes. The wireless bridge removes the problems normally associated with leased lines such as frequent and time-consuming downtime.
Operating in the 5.7Ghz frequency band, the company is able to transmit data at speed of 1.2mbps over a distance of 20km. The company also indicated a possible link between its head office and 2 locations in Tunasan and along Taft Ave. The link with Taft Ave is around 10mbps. Packet Switching, shown here, is a method of transmitting messages through a communication network, in which long messages are subdivided into short packets and routes to its final destination. Circuit Switching is a method of communicating in which a dedicated communications path is established between two devices through one or more intermediate switching nodes. Unlike packet switching, digital data are sent as a continuous stream of bits. Bandwidth is guaranteed, and delay is essentially limited to propagation time.
Advanced Modulation Technology: Orthogonal Frequency Division Multiplexing (OFDM) is a digital modulation technology where a signal is split into several narrowband channels at different frequencies, the reflected signals reaching the receiver at the same time. To maintain a high bit rate, multiple carriers are employed to send multiple low speed messages simultaneously and then combined by the receiver as a highspeed message. Before each low speed message, there is a prefix to cushion the variations caused by multipath or reflections. These then, are examples of how the Line of Sight issue is being addressed in the W-WAN world. DSSS and FHSS are two other solutions which I want to touch on briefly, without getting into too much technical detail about which others are better qualified to speak than myself. These solutions are encryption technologies which address the issue of security.
I share earlier that W-WAN technology is still seen as immature by many endusers. In spite of the solutions I outlined earlier, packet loss and quality distortion can still occur due to objects in the line of sight, adverse weather conditions and so on. However, the advent of 3G promises to address these problems comprehensively. The popularity of wireless WAN is expected to grow with the roll out of 3G services, to which we must turn our attention. The current 2 and 2.5G technologies are facing issues, such as: Data Packet Loss and quality distortion Slow transfer speed. 2G: 10kbps and 2.5G: 64 – 144 kbps However, with 3G technologies in place, the technological limitations will be alleviated. The four main factors that are expected to power the 3G W-WAN adoptions include the following: – 1stly, Increasing Broadband Connectivity and Higher PC Penetration: With a high PC penetration, PC users are hungering for broadband connectivity to fully enjoy applications like
The increasing demand for high-speed transmission will encourage service providers to explore new full broadband connections such as a 3G W-WAN. – 2ndly, Less Costly 3G licenses in Asia. In Asian countries, the auction costs of 3G licenses have been much cheaper compared to those of Western counterparts. (Refer to figure on slide) Companies that paid large sums of money for their 3G licenses might suffer financial constraints due to debt servicing costs, resulting in possible delay in the deployment of Wireless WAN infrastructure.
However, Asian auction prices are much lower and thus the Asian 3G service providers have greater financial strength to build their architecture. 3G is able to transmit 2 Megabits/second or higher of data for indoor traffic. Some other technical specifications of the 3G standard are outlined in this slide, but I shall not repeat them here in detail. In the evolving 3G W-WAN industry, Spire foresees 3 key challenges for W-WANs system integrators and vendors. They include
Now that we’ve discussed the technology and regulatory factors behind the deployment of W-WANs systems, let us now turn our attention to what wireless WANs are being used for, and by whom. This next section looks at vertical segments and horizontal applications segments together with a few examples of deployments. To date, most wireless applications have focused on vertical industries within nine industries accounting for the majority of wireless data subscribers. The industries are:
A significant but small minority of employees in these industries already use wireless date communications on the job. In terms of wireless revenues, the financial/insurance/real estate, transportation and professional services industries will probably generate the greatest revenue of all nine industries (excluding the communications sector, of course). Several business trends are driving the wireless revenue growth for the financial services industry.
Among them are direct selling of financial products such as stocks and bonds via the Web and call centers; wireless access of bank accounts; and a push toward transacting as much business as possible over the Internet. These vertical segments have demand for different horizontal applications. What we would like to do now is to share with you some examples to show how specific wireless WAN applications have benefited different vertical segments in specific industries.
As highlighted in a recent feature in Fortune Magazine, a company based in Bangalore and known as Encore Software has helped make handheld devices available to farmers in India. Simputer, a term for Simple Inexpensive Mobile Computer, combines the functionality of an Internet connected computer and a personal digital assistant. Simputer were first deployed as a security device to transfer deposits from India farmers to the bank, because roving deposit collectors had been cheating illiterate farmers by issuing doctored receipts. The bank then asked Encore Software to deliver a handheld device that can print a receipt on the spot and record the amount electronically for less than 10,000 rupees (about US$200). The result was a 32MB Linx-based handheld to voice device that runs on three AAA batteries.
When a farmer touches a potato’s image on the screen, a voice will tell him in any of radio’s 16 official languages, the latest market price. One Simputer is typically used by a group of ten villagers so that they can share the price of US$20 each. For an additional US$2, each co-owner receives a smart card to insert to the Simputer for other transaction – money transfer, email, downloading MP3 songs, and so on. In 1996, UPS began its wireless implementation to provide same-day packagetracking information for all air and ground packages.
By providing UPS staff with its delivery information acquisition device (or DIAD, a custom-built electronic data collector), UPS is able to capture both delivery information and customers’ signatures. This data is entered into the cellular network through cellular telephone modems and transmitted to the UPS mainframe in Mahwah, New Jersey. Once the information is incorporated into the delivery-status database, it is available to the company’s customer service representatives. Utilizing cellular technology and a broad alliance of more than 70 cellular carriers, it is possible to provide this service across countries.
UPS has extended this service to the Asia Pacific region, to cover data capturing in national languages, which means people in Japan can receive their package information in Kanji Script. Hong Kong was in fact the first market outside the United States to implement this technology in 1999. The service has been extended to other ports of Asia Pacific including Japan, Korea, Australia and Singapore. UPS has reported several gains it experienced through implementing this strategy, namely:
Following their success with the DIAD, UPScan – brand name of UPS’s future parcel tracking application, has started investigating both Bluetooth and wireless LAN technologies for local area access within its warehouses and customer drop off centers in order to automate various business processes to a greater degree than what it was able to do before. This example shows how wireless WAN enabled a wine vendor to improve the productivity and effectiveness of its sales force.
Up until 2001, the sales representatives of South Wines and Spirits of California were writing their orders on hand and generating 500,000 sheets of paperwork per week. They could place the orders electronically over phone lines using a slow-moving data transfer system known as a Brick. But the system led to errors and fulfillment delays of up to seven days. SWS tackled the problem by hiring a system integrator known as Advanced BusinessLink to develop handheld computers called Pocket StrategIT.
The applications of this device allow sales reps to use browser-like functions on the Windows CE device that links to an IBM iSeries server. The handheld can store most of the information sales representatives need on clients and product availability. When the device is connected to the server. Pocket StrategIT also allows the sales reps to automatically send orders and update data that is stored on their hand-helds. Pocket StrategIT can transmit data on a wireless network so that orders could be made in real time and other information could be updated continuously.
With just 700 sales representatives using the device, SWS has started realizing significant cost savings, along with gains in employee productivity. For example: Sales reps who use the handheld device now make one to three additional sales calls per day. The new ordering system helped generate an annual sales increase of more than 5 percent. Additionally, thanks to greater order accuracy, customer returns have declined by 12 percent. The examples of the Simputer, UPS and Southern Wines and Spirits has shown how the spread of W-WANs to more vertical segments will fuel the deployment of more horizontal applications. Overall, the fastest growing horizontal applications in the WWAN space include:
[bullet text=” Field Service and Sales Automation – as the examples from the wine industry showed, W-WAN can benefit the sales function, but also the field service function. This application will allow the sales force to access corporate and client information while on the road and submit sales orders without returning to the office. Inventory can be committed in real time and the shipping process can start immediately. The
Spire Research and Consulting is the leading research consultancy in global emerging markets. Spire's competitive advantage lies in its ability to deliver actionable intelligence on the external business environment in support of its clients’ strategic decision-making in marketing and business development. Spire's clients include 50 Global Fortune 1000 companies and government agencies in 15 countries. For more information, please visit www.spireresearch.com.