Case study: Smart’s Netphone © VisionMobile 2011 1 Case study: Smart’s Netphone About VisionMobile VisionMobile is an industry analysis and strategy firm. We offer research reports, executive workshops and strategy at the crossroads of telecoms innovation and software economics. VisionMobile Ltd. 90 Long Acre, Covent Garden, London WC2E 9RZ +44 845 003 8742 www. visionmobile. com/blog Follow us: @visionmobile About the sponsor This case study is sponsored by Red Bend Software, a key partner behind the launch of the Smart Netphone. VisionMobile has retained full editorial control of this study.
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Also by VisionMobile Mobile Industry Atlas | 4th Edition The complete map of the mobile industry landscape, mapping 1,350+ companies across 85+ market sectors. Available in wallchart and PDF format. www. visionmobile. com/maps Contents Key takeaways The Smart Netphone Behind the scenes: the making of Netphone Building on WAC technology Short tail strategy The agile telco: What other operators can learn from Smart 3 4 5 7 8 8 © VisionMobile 2011 2 Case study: Smart’s Netphone Key takeaways Smart Communications operates in a 99% pre-paid market with average revenues per user (ARPU) of only $4. Yet, it offers one of the most sophisticated service portfolios across most global operators. Offered services include mobile payments, streaming TV and a maps service. – The Netphone is a bold attempt by Smart to bring smart devices and services to the mass market. The initial Netphone device is a rebranded, revamped ZTE Blade projected to launch in July, 2011, priced at an expected 120-$140. From 2012, the Netphone will expand to feature phones at lower price points. The Netphone features a range of operator-developed apps, including prepaid balance check, unified chat, sender-pays email, connected address book, global directory, social radio, and Smart Money. The phone also comes bundled with applications from local service brands with whom Smart has established revenue share agreements for Netphone-initiated transactions. – The Netphone represents a major effort for the operator, involving an internal team of 300 staff, plus tens of business partners across six countries.
It aims to increase service usage in the mass market, and generate additional revenues by enabling partner transactions, such as shopping and food ordering. – The Netphone uses a software update technology that can update the platform and applications continually over the air. Such updates allow the operator and its business partners to extend service reach and reduce development costs. The differential update technology reduces network bandwidth usage during updates. When it ships in July, the Netphone is expected to be the first phone that builds on the WAC (Wholesale Applications Community) specifications. On top of the WAC runtime, Smart has added its own Looking Glass technology for advanced device and network integration. – In developing the Netphone, Smart has used an ‘agile’ development process. Rather than following the traditional RFI/RFQ ‘waterfall’ software procurement process, Smart has established joint operational and R&D teams with its suppliers.
The teams iterate continuously on the Netphone applications through three-month cycles of development, testing and user feedback. – Initial rollout goals are modest, with Smart planning to sell 200,000 Netphones by the end of 2011, with plans to address the mass-market with sub-$100 phones in 2012. – We believe that Smart’s Netphone offers three important lessons for the operator community. First, Smart has focused on its core services (messaging, address book, and mobile money), leaving all other applications to business partners.
Second, rather than use the traditional RFI/RFQ software procurement process, Smart has pursued an ‘agile’ development process with three-month develop-learn-fix cycles. Third, over-theair software updates mean new services can reach Smart’s entire base of deployed Netphones faster. © VisionMobile 2011 3 Case study: Smart’s Netphone Smart Communications: sophisticated services in an unsophisticated market Smart Communications is a wholly owned subsidiary of PLDT (the Philippine Long Distance Telephone Company).
PLDT is the leading fixed line telecoms provider in the Philippines, having been established for over 80 years. As the wireless division of PLDT, Smart Communications has 46M wireless subscriptions, which puts Smart within the top-20 operators globally by number of subscribers. In the Philippines, Smart has just over 50% market share. It competes with Global and Sun Cellular in a market that’s nearing saturation, with 88% mobile penetration at the end of 2010. Smart has a record of service innovation that is akin to what operators in North America and Europe have achieved in more developed markets.
Smart has one of the widest service portfolios among global mobile operators, including mobile payments, mobile banking, money transfer, mobile streaming TV, maps, push email and propositions for niche segments (e. g. MomsClub). Data services currently make up just over 50% of Smart revenues, as of Q1 2011, with the majority coming from the one billion SMS texts being sent each day. Smart Money, a service that allows users to pay for goods by transferring money from their bank account, was launched in 2001, and counts more than 8. million customers. However, like many operators in developing economies, Smart is in a low-ARPU, prepaid market. Some 99% of Smart subscriptions are pre-paid, with the blended, pre-paid ARPU reported at just 169 pesos ($3. 9 USD) in Q1 2011. Overall wireless revenues for Q1 2011 were 21 billion pesos ($486 million). Faced with decreasing ARPU in a competitive market, Smart has embarked on a handset-led strategy to increase its revenues by bringing over-the-top services to the mass market of pre-paid customers. The Smart Netphone
The Smart Netphone presents a new series of mobile phones and tablets developed by Smart, aimed at bringing smart devices and services to the mass market. The first device – expected to launch in July, 2011 – is a rebranded, revamped ZTE Blade. This is the same handset that has been rebranded by Orange UK as the San Francisco and priced at 99 GBP (around $160) without contract, and not dissimilar to the Vodafone Smart handset by Huawei priced at 90 EUR (around $130). Although Smart has not announced pricing, we expect its Netphones to target image-conscious, affluent Filipinos willing to spend an estimated $120-$140. VisionMobile 2011 4 Case study: Smart’s Netphone Smart plans to launch flagship aspirational handsets in 2011, followed by devices across a wider spectrum of price points in 2012. Given that 70% of phones sold in the Philippines are priced below the $100 mark, this is the critical price point that Netphones will have to hit. “[The Netphone] is a strategic move to define what you do after voice and text. ” Orlando B. Vea Chief Operating Adviser Smart Communications A full line-up of Netphones will launch on Android 2. (Froyo) handsets from ZTE and Huawei, with feature phone handsets to follow at lower price points. The phone follows widget specifications from the Wholesale Applications Community (WAC) initiative, in addition to Smart’s Looking Glass technology stack, described later. The Netphone comes with a suite of widget-like applications on the phone’s home screen that provide access to Smart and partner services: – Balance Check for prepaid users, which comprise 99% of Smart’s subscription base – Unified Chat, allowing users to message their contacts with emoticons and video animations.
Chat integrates with Yahoo Messenger and Facebook – Sender Pays Email, which follows the SMS cost paradigm, but adds richer emoticons and video expressions to the messages – Connected Address Book, which integrates the user’s address book with Gmail and Facebook contacts – Global Directory, which integrates local Yellow Pages, and lists all users who use the Netphone (subject to privacy settings) – Social radio, which lets users share an FM station with a friend and tune into it in parallel – Smart Money, a service that allows users to pay for goods directly from their bank account or credit card – Emergency app, which offers one button calling to a doctor or other contact that can be assigned by the user – Partner apps like Jollibee (the number one fast-food chain in the Philippines), which allows users to browse the food menu, check out special offers, and order and pay for food delivery, directly from their phone. Behind the scenes: the making of Netphone The Netphone is not just an experiment for Smart. “It’s a strategic move to define what you do after voice and text,” according to Orlando B. Vea, Smart Communications’ chief operating adviser, and founding member of the company. The Netphone represents a major effort for the operator, with a team 300 staff developing the phone series over the last 18 months, together with an array of tens of partners across six countries. © VisionMobile 2011 5 Case study: Smart’s Netphone
As a phone series, the Netphone hits several firsts: it’s the first phone to be based on WAC widget specifications (see next section); it’s the first fully customized handset from a mobile operator in an emerging economy; and, along with the Orange San Francisco and Vodafone Smart, it’s one of the first attempts to sell smartphones to prepaid users. Since the concept phase almost two years ago, the Netphone series has had several design goals: Besides increasing own service revenues, the Netphone generates revenues by enabling partner transactions. For example, Smart gets a percentage of the revenue from every Jollibee fast food delivery transaction. a price point that customers can afford; around 70% of the phones in the Philippines are priced under $100 – ease of use; the phone had to be extremely easy to use, appealing to voice and text users accustomed to feature phone menus – services bundled; the Netphone had to come pre-bundled with communication and partner services that differentiated the phone – the phone series had to support Smart’s evolving service strategy, rather than just the services included at handset launch The Netphone has been designed with tangible revenue goals as well. Besides increasing own service revenues for Smart, the Netphone generates revenues by enabling partner transactions.
For example, Smart gets a percentage of the revenue from every Jollibee fast food delivery transaction. In designing the Netphone, Smart knew it faced a formidable challenge. In the Philippines, the average lifespan of a phone is five years – compared to three years in Indonesia and around six months for a high-end Android phone. That meant that Smart needed to come up with an evolving consumer proposition that stays relevant and fresh over time. Smart’s design team knew that offering an inexpensive data phone was not enough. They needed to build on existing usage paradigms beyond voice and text. The Netphone uses the address book as a cornerstone for connecting into social networks and partner services, as well as for chatting and texting.
Smart lined up several partners to realize the Netphone concept, including ZTE and Huawei (handsets), Qualcomm (Android chipset platform), IBM, Oracle, Huawei (back-end integration) and Red Bend Software (software management over the air). According to Smart, a key design decision has been using a software update technology that allows the Netphone platform and applications to be updated continually over the air (OTA). With the OTA update technology, Smart can minimize the runtime age of the WACbased platform runtime, ensuring that its Netphone applications run on the latest version of the platform. This addresses a common challenge faced by mobile application developers, who must port new applications to older runtimes. For example, about 25% of active Android handsets run on platform versions that are more VisionMobile 2011 6 Case study: Smart’s Netphone than 18 months out of date, according to Google data released in May 2011. Similarly, 20% of existing Apple 3GS devices had not yet been upgraded to the latest platform version two months after the introduction of iOS4, according to app analytics firm Localytics. In the case of the Netphone, the runtime is updated continuously across the life of the device. Computational delta technology is used to deliver updates that are a fraction of the size of full application or widget packages. The OTA update technology is similar to firmware over the air (FOTA) updating, but works at a component level.
Thus, it allows OEMs to decouple their own applications and user experience from the underlying Android firmware base, which opens the door to ‘agile’ differentiation on Android by both OEMs and network operators. Note that the same over-the-air update technology can be used across incremental runtime updates, Netphone application updates, as well as the entire Android-based firmware. Moreover, the OTA software management solution allows Smart and its partners to target the entire installed base of Netphones, by remotely installing applications posthandset-launch rather than waiting for users to discover these applications on their own. Updates can be also scheduled during quiet periods, so that they don’t clog the network. Building on WAC technology
The Netphone series includes the first phones based on specifications defined by the Wholesale Applications Community (WAC). Launched in February 2010, WAC is a cross-operator initiative aiming to develop a cross-device platform and app store framework to drive operator services. Since its foundation, WAC has amassed 34 operator members and 39 other partners, bringing in a total of over $10 million in annual funding. Smart has a seat on the board of directors of WAC, alongside Vodafone, AT&T, China Mobile, NTT DoCoMo and other major telcos. The Netphone represents an important breakthrough for an industry initiative that has been criticized for its slow device rollout.
On the network side, the Looking Glass technology umbrella provides access into Smart’s services, such as connected address book, advanced messaging, email integration, location-based services and Smart Money. Smart’s network APIs extend the GSMA One API specifications by adding XMPP for advanced messaging, billing & payment, and SIMencrypted (DUKPT) transactions. © VisionMobile 2011 7 Case study: Smart’s Netphone Short tail strategy Smart is an atypical innovator—a top-20 mobile operator in a region dominated by prepaid subscribers. Rather than take the conventional route of long-tail apps on Android, Smart’s app strategy has three tiers: 1. ‘Massively relevant’ services such as voice and emotive messaging, which Netphone has developed in-house An RFP or waterfall development process clearly wouldn’t work here. ” Alex Ibasco Chief Innovation Officer Smart Communications 2. ‘Significantly relevant’ services such as food, healthcare and media, where Netphone apps are developed by leading brands in the Philippines market 3. ‘Uniquely relevant’ services, where Smart is planning to adopt a long tail strategy open to all web developers With the launch of the Netphone, Smart has invested heavily in its own ‘massively relevant’ services as well as ‘significantly relevant’ services from business partners. “We are partnering with established businesses in the Philippines that have existing brand relationships to end users.
The Netphone becomes a platform from which those partners can reach the Filipino consumer, and from which Filipinos can interact with their favourite brands,” according to Alex Ibasco, chief innovation officer at Smart. The agile telco: What other operators can learn from Smart Many telcos have ventured into the world of handset software to deliver their own services and differentiated user experience. The most well-known examples are Vodafone (Live! , VFX, VSCL, 360), Orange, Verizon and, of course, DoCoMo. Smart also has had a tradition of developing services in-house, including Smart Money and its own airtime pre-loading solution. Yet, Smart has taken a different approach from most operators.
That approach offers three important lessons for the operator community. First, rather than deploying own-brand services exclusively, the operator has focused squarely on business partners with established consumer brands. It has allowed brands to deliver local consumer differentiation, and to share revenue on transactions. In so doing, it has provided brands with an additional channel to consumers. Second, the operator has used an agile development process. Rather than set specifications in stone at the beginning of the project, Smart’s featured Netphone applications have been iterating continually through a cycle of development, testing and user feedback.
Moreover, rather than use the traditional RFI/RFQ ‘waterfall’ software procurement process, Smart has established joint operational and R&D teams with its many suppliers for Netphone, and has adapted the software specifications during the course of the Netphone project. The project has already cycled through four iterations, averaging once every 3 months. Another iteration is planned before launch. “An RFP or waterfall development process © VisionMobile 2011 8 Case study: Smart’s Netphone clearly wouldn’t work here,” comments Ibasco, who has been a key proponent of the Netphone project since its inception. Third, the over-the-air software update mechanism allows Smart to deploy new features and updates throughout the lifetime of the device.
It also allows Smart to extend its addressable market for new services to the entire base of deployed Netphones, not just the most recent line-up of handsets shipped. Initial rollout goals are modest, with Smart planning to sell 200,000 Netphones by the end of 2011. Assuming Smart can hit sub-$100 price points in early 2012, it has a chance to rapidly ramp up these volumes, and address a substantial portion of its 46M subscriptions base. For now, the operator community is looking at the Smart initiative with anticipation; Netphone marks the latest telco attempt at innovating in the era of software, by building on both the telco (WAC) and software (Android) worlds. . © VisionMobile 2011 9 knowledge. passion. innovation.