From a report by MCF Corporation:

As deployment of 3G networks continues to grow, applications built for mobile entertainment should become more ubiquitous. According to Juniper Research, the value of the mobile entertainment market, including music, games, TV, sports and infotainment, gambling and adult content, could increase to nearly $77 billion by 2011 from $17.3 billion in 2006. Included in this forecast is the 50.2% CAGR of the mobile game
market by 2009 (to $10.9 billion from $3.1 billion in 2006). While one could argue the potential size of the mobile entertainment market, we believe that the transition to data has begun in an effort to reduce churn rates, preserve ARPU, and extend carrier brands.


The following highlights a few of the drivers:

Mobile entertainment and content. As deployment of 3G networks continues to grow, applications built for mobile entertainment should become more ubiquitous. According to Juniper Research, the value of the mobile entertainment market, including music, games, TV, sports and infotainment, gambling and adult content, could increase to nearly $77 billion by 2011 from $17.3 billion in 2006. Included in this forecast is the 50.2% CAGR of the mobile game market by 2009 (to $10.9 billion from $3.1 billion in 2006). While one could argue the potential size of the mobile entertainment market, we believe that the transition to data has begun in an effort to reduce churn rates, preserve ARPU, and extend carrier brands.

Location-based services (LBS): LBS is quickly emerging as a benchmark for service differentiation among mobile operators. According to ABI Research, GPS penetration in handsets could reach 1 billion by 2010 while Berg Insight projects 83% LBS growth in Europe, reaching a €5 billion market by 2010. We continue to expect LBS to be utilized for navigation, management/ tracking of assets, information (for example, mobile yellow pages) and emergency services. We are initially focusing on companies that offer machine-to-machine (M2M) applications which allow enterprises and consumers the ability to monitor and manage many types of assets (industrial vehicles, rental car fleets, real estate) in an effort to reduce costs and more efficiently operate.

Converged mobile devices, applications and services: According to IDC, the worldwide market for converged mobile devices increased 42% during 2006, reaching 80.5 million units, and is expected to cumulatively reach more than 1 billion units by 2011. Growth in shipments is primarily due to a greater selection of devices from which to choose and lower price points as mobile carriers look to differentiate their services. Many of these devices offer multiple features such as embedded cameras, MP3 players, GPS capability, and expended memory slots which allow subscribers the ability to carry only one device. We view the introduction of devices such as the iPhone as driving wireless data usage.

At the end of 1Q07, there were 2.8 billion wireless subscribers worldwide,
of which approximately 6%, or 172 million, were 3G subscribers. The 24% CAGR of total subscribers during the past four years has been driven by the rapid deployment of networks, availability and affordability of handsets, along with the introduction of new 3G services. We estimate 3G subscribers will grow at a 55% CAGR through 2010, reaching 652 million (approximately 14%) total estimated subscribers. We believe that wireless technology allows enterprises to become more efficient operators due to the lower costs to deploy and operate, comparable capacity to wireline solutions, increased functionality and productivity, and ability to track personnel and assets.

The chart above illustrates how data ARPU has stabilized total ARPU for AT&T Wireless/Cingular ($48-50 range), which has more than 62 million subscribers. AT&T currently reports approximately 33 million data customers (up more than 30% Y/Y) the growth of which has begun to reflect wider usage of its new 3G UMTS/HSDPA network (current coverage in 165 cities and is on schedule to cover virtually all of the top 100 U.S. markets by the end of 2007). The trend of wireless data
growth offsetting decreases in total ARPU is clearly evident below and is occurring throughout the industry.