[The Netphone is a bold attempt by Smart Communications – one of the top 20 MNOs globally – to bring telco services to the mass market But will the Netphone’s blend of WAC and Android succeed? Research Director Andreas Constantinou goes behind the scenes into the Netphone project to find out, as part of our latest case study, sponsored by Red Bend Software – click here for a free download]
Smart Communications: sophisticated services in an unsophisticated market
Smart Communications – the telco behind the first WAC phone – has over 50% market share in the Philippines with 46M wireless subscriptions, which puts them within the top-20 operators globally.
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 8.5 million customers.
However, like many operators in developing economies, Smart is in a low-ARPU, pre-paid 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.
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.
An Introduction to Netphone: The first WAC phone
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.
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 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.
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.
The Netphone has been designed with tangible revenue goals. 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.
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 WAC-based 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 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.
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.
For Smart, WAC represents an industry-endorsed software platform on top of which its partners can build HTML-based applications (also known as widgets). Moreover, widgets are familiar to a broad base of web developers, who are accustomed to HTML or JavaScript development.
On top of the WAC widget specifications, Smart has layered its Looking Glass, a device and network technology umbrella that implements the array of Smart services on the Netphone.
On the device side, Looking Glass includes technology that WAC does not yet cover, such as over-the-air software updating (based on OMA DM SCOMO standard) and additional access into device capabilities like FM radio. 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 SIM-encrypted (DUKPT) transactions.
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.
Short tail. 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.
Agile development. 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 clearly wouldn’t work here,” comments Ibasco, who has been a key proponent of the Netphone project since its inception.
Ongoing updates. 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.
The future of the Netphone
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.
Read the full case study and tell us what you think.
– Andreas