Cost of Mobile Broadband
By the end of 2006, the device vendor average sale price (ASP) for HSDPA devices will be as high as $350 versus $370 for EV-DO Revision A (EV-DOrA) devices, according to analysis in Future Mobile Broadband: HSPA, EV-DO, WiMAX<E, a new strategic report by Informa Telecoms&Media. This means the retail price of these devices will be around $450 or higher. The average bill of materials (BOM) for a handset supporting HSDPA is expected to be in the region of $200 vs $215 for a device supporting EV-DOrA. In comparison the BOM for HSUPA mobile phones is estimated at $250 in 2008 when these devices will be first launched.
A great deal of progress has been made rolling out WCDMA and EV-DO Release 0 (EV-DO) 3G networks worldwide. The industry is now focusing on developing higher bandwidth, 3.5G networks - here referred to as mobile broadband networks (HSDPA/HSUPA, EV-DOrA and EV- DOrB). These networks are promising mobile phone users a broadband experience with throughputs exceeding several megabytes per second.
However, mobile broadband applications require powerful devices with sophisticated computing performance and good battery life. To enhance enduser experience and make good use of mobile broadband services, mobile devices will require high processing speeds, large RAM memories, wide highresolution displays and large storage capacities. This implies that the cost of building such devices will be much higher than that of their predecessors.
It is the objective of all handset manufacturers to minimise as far as possible the production cost of a mobile broadband device in order to target lower tiers of the mobile handset market. Not only does this make their handset more profitable, but it also makes it more attractive to both operators and end users. The bill of materials optimisation has become ever more crucial, and the raft of outsourcing agreements in the industry is a symptom of the need to reduce costs. The industry is also adopting more integrated reference design approaches with the aim to reduce component counts which significantly help in reducing the overall cost of the device.
However, it is important to note that with increased complexity in designing mobile broadband devices - and the desire for added functionality and features - comes an increased bill of materials. Wider and high-resolution colour displays, needed for a better mobile broadband experience, are obviously more expensive than screens used in typical 2.5G and 3G devices.
Mobile broadband devices also need to be powered by faster, less power consuming and therefore more expensive processors. These devices will also embed high resolution camera modules exceeding 3 megapixels and will come with extra capabilities such as GPS, Bluetooth, WLAN and other functionalities.
These will further increase the cost of the hardware required and the total production cost due the extra development and integration to time involved.
In addition, mobile broadband services will initially be launched in hotspotmetropolitan areas. To ensure always-on connectivity to the mobile network, device vendors will need to integrate multimode modems supporting both new mobile broadband networks (e.g. HSDPA) and legacy networks (e.g. GSM, GPRS, WCDMA). Consequently, these multimode handsets supporting mobile broadband services may be more expensive than expected, and may also consume more power than anticipated.
Furthermore, while traditional devices are based on relatively simple software solutions, mobile broadband handsets may require advanced OS, microbrowsers and memory management units. These enable them to manage data content, ensure realtime data exchange and provide users with an enhanced experience through manipulation of the user interface.
In short, 3.5G mobile broadband handsets including HSDPA, HSUPA, and EV-DOrA devices will require much higher performance hardware and software components than these used in their 3G predecessors to be able to offer appropriate experience and quality of service to mobile broadband services.
The hardware manufacturing costs of handsets are viewed as being volume/time-elastic as, for example, whenever production is doubled, a significant reduction in manufacturing cost is achievable due to the increased economies of scale. As a technology such as HSDPA becomes more popular, the cost of components, such as HSDPA chipsets, will fall significantly as economies of scale in manufacturing the components and therefore the handsets themselves reap cost benefits. Many of the technologies that will be involved in mobile broadband handsets have only recently been introduced and there is some way to go before the cost of implementing these technologies into mass market handsets is realistically achievable.
However, Informa Telecoms&Media expects to see a marked decrease in the manufacturing costs of some components used in mobile broadband devices including displays, processors, DSPs, memory and others. This reduction will be partly due to the high volume production associated with demand from other consumer electronics products such as feature-rich phones, digital cameras, and portable multimedia devices.
On the other hand, Informa Telecoms&Media expects to see only a slight decrease in manufacturing costs of mobile broadband chipsets because of the complexity of designing, testing and implementing these components. It will therefore take some time for the technology related to mobile broadband chipsets to mature, which will impact both the volume and cost of production of these components.
Intellectual property rights (IPRs) and royalties associated with different software platforms and wireless technologies are other factors influencing the ASP of mobile phones. IPRs are generally very high when new technologies are introduced to the market. IPRs associated with WCDMA technology, for example, are still very high, in the range of 25 per cent, while IPRs associated with HSDPA devices are expected to be much higher because these phones handle a number of high-end features. In 2006, software royalty fees together with IPRs are expected to account for up to 33 per cent of the total cost of HSDPA devices while these fees (royalties and IPRs) could be as high as 39 per cent for EV-DOrA devices.
While handset manufacturers are basing their business models on low margins and high volume supply for traditional phones, they will be banking on high margins and low volumes for mobile broadband mobile phones. Given the relatively high cost and low volume demand of these devices, manufacturers are forced to base their profit on the value of the device rather than on volume. The average vendor margin for mobile broadband phones is expected to be relatively high compared with that of traditional phones. There will be a significant gap between the ASP of mobile broadband phones on one hand, and 3G and 2.5G phones on the other hand.
Traditionally, handset vendors have been the beneficiaries of the operators' drive to increase subscriber numbers. Operators purchased handsets and then sold them on reduced price to encourage service uptake. This practice is commonly called device subsidy. However, increased device pricing for mobile broadband handsets will make it difficult for operators to subsidise them, which could deter users from upgrading their existing devices to new mobile broadband devices, because the price differential between the existing and mobile broadband devices is too great for the perceived additional benefit.
For more information on Future Mobile Broadband: HSPA, EV-DO, WiMAX<E, please visit www.informatm.com/futuremobilebroadband.
© Copyright 2006 Informa UK Ltd. All rights reserved.
It is the objective of all handset manufacturers to minimise as far as possible the production cost of a mobile broadband device in order to target lower tiers of the mobile handset market. Not only does this make their handset more profitable, but it also makes it more attractive to both operators and end users. The bill of materials optimisation has become ever more crucial, and the raft of outsourcing agreements in the industry is a symptom of the need to reduce costs. The industry is also adopting more integrated reference design approaches with the aim to reduce component counts which significantly help in reducing the overall cost of the device.
However, it is important to note that with increased complexity in designing mobile broadband devices - and the desire for added functionality and features - comes an increased bill of materials. Wider and high-resolution colour displays, needed for a better mobile broadband experience, are obviously more expensive than screens used in typical 2.5G and 3G devices.
Mobile broadband devices also need to be powered by faster, less power consuming and therefore more expensive processors. These devices will also embed high resolution camera modules exceeding 3 megapixels and will come with extra capabilities such as GPS, Bluetooth, WLAN and other functionalities.
These will further increase the cost of the hardware required and the total production cost due the extra development and integration to time involved.
In addition, mobile broadband services will initially be launched in hotspotmetropolitan areas. To ensure always-on connectivity to the mobile network, device vendors will need to integrate multimode modems supporting both new mobile broadband networks (e.g. HSDPA) and legacy networks (e.g. GSM, GPRS, WCDMA). Consequently, these multimode handsets supporting mobile broadband services may be more expensive than expected, and may also consume more power than anticipated.
Furthermore, while traditional devices are based on relatively simple software solutions, mobile broadband handsets may require advanced OS, microbrowsers and memory management units. These enable them to manage data content, ensure realtime data exchange and provide users with an enhanced experience through manipulation of the user interface.
In short, 3.5G mobile broadband handsets including HSDPA, HSUPA, and EV-DOrA devices will require much higher performance hardware and software components than these used in their 3G predecessors to be able to offer appropriate experience and quality of service to mobile broadband services.
The hardware manufacturing costs of handsets are viewed as being volume/time-elastic as, for example, whenever production is doubled, a significant reduction in manufacturing cost is achievable due to the increased economies of scale. As a technology such as HSDPA becomes more popular, the cost of components, such as HSDPA chipsets, will fall significantly as economies of scale in manufacturing the components and therefore the handsets themselves reap cost benefits. Many of the technologies that will be involved in mobile broadband handsets have only recently been introduced and there is some way to go before the cost of implementing these technologies into mass market handsets is realistically achievable.
However, Informa Telecoms&Media expects to see a marked decrease in the manufacturing costs of some components used in mobile broadband devices including displays, processors, DSPs, memory and others. This reduction will be partly due to the high volume production associated with demand from other consumer electronics products such as feature-rich phones, digital cameras, and portable multimedia devices.
On the other hand, Informa Telecoms&Media expects to see only a slight decrease in manufacturing costs of mobile broadband chipsets because of the complexity of designing, testing and implementing these components. It will therefore take some time for the technology related to mobile broadband chipsets to mature, which will impact both the volume and cost of production of these components.
Intellectual property rights (IPRs) and royalties associated with different software platforms and wireless technologies are other factors influencing the ASP of mobile phones. IPRs are generally very high when new technologies are introduced to the market. IPRs associated with WCDMA technology, for example, are still very high, in the range of 25 per cent, while IPRs associated with HSDPA devices are expected to be much higher because these phones handle a number of high-end features. In 2006, software royalty fees together with IPRs are expected to account for up to 33 per cent of the total cost of HSDPA devices while these fees (royalties and IPRs) could be as high as 39 per cent for EV-DOrA devices.
While handset manufacturers are basing their business models on low margins and high volume supply for traditional phones, they will be banking on high margins and low volumes for mobile broadband mobile phones. Given the relatively high cost and low volume demand of these devices, manufacturers are forced to base their profit on the value of the device rather than on volume. The average vendor margin for mobile broadband phones is expected to be relatively high compared with that of traditional phones. There will be a significant gap between the ASP of mobile broadband phones on one hand, and 3G and 2.5G phones on the other hand.
Traditionally, handset vendors have been the beneficiaries of the operators' drive to increase subscriber numbers. Operators purchased handsets and then sold them on reduced price to encourage service uptake. This practice is commonly called device subsidy. However, increased device pricing for mobile broadband handsets will make it difficult for operators to subsidise them, which could deter users from upgrading their existing devices to new mobile broadband devices, because the price differential between the existing and mobile broadband devices is too great for the perceived additional benefit.
For more information on Future Mobile Broadband: HSPA, EV-DO, WiMAX<E, please visit www.informatm.com/futuremobilebroadband.
© Copyright 2006 Informa UK Ltd. All rights reserved.
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