iSight - 3i at 3GSM World Conference 2007
VoIP Goes Mobile
ISIGHT: You have over 30 years experience in the telecoms business. What are the big trends you see in today’s telecoms market?
Dr. Sachio Semmoto: If you look at the telecoms market overall, the most robust segment, with future potential growth, is mobile, not fixed line. The fixed-line business has reached saturation. The only area that can grow is mobile.
So if you look at the mobile market, and at the Asia Pacific market in particular, there is huge potential for growth in China, where the market is beginning to open up. India is
the same. The mobile market in these two countries has fabulous potential.
But in other developed countries, such as the US, UK and Japan, the story is different. Here the mobile technology market is already saturated. Mobile is becoming another commodity, and that will start to squeeze the market, making growth hard. There may be further disruptions from hyped technologies, such as Apple’s iPhone, but in terms of growth, conditions are very different to China and India.
As the telecom markets have developed, there’s been a shift in telephony moving to mobile, and now to broadband technologies. Where the two come together, with mobile broadband, is very interesting.
ISIGHT: You are currently gearing up for the launch of eMobile, a next-generation mobile operator. How does it address this opportunity you are speaking about?
Dr. Sachio Semmoto: Already in Japan, we are starting to see early signs that the traditional fixed-line telephony is dying. There are already over 10 million Japanese that have substituted their fixed lines for VoIP (voice over IP internet telephony). That has been driven largely by price: VoIP is much cheaper.
At the same time, in Japan there are a lot of customers who just use mobile. They have no fixed line. A whole generation has grown up living with their mobile – they only have one handset, and it’s a mobile one. Now there’s been a price premium to pay for that, but consumers have been willing to pay it.
With eMobile, we’re going to be the first entirely 3.5G mobile broadband operator, the sole new entrant just focused on mobile broadband. There are others who are building out similar networks, based on HSDPA (high speed data packet access – a technology for making 3G networks faster). But we are the first to build a new network, so we don’t have any legacy infrastructure, and there’s a lot of interest: we’ve raised over $3 billion.
That positions us to take advantage of the shift to mobile broadband, which we are already starting to see bloom in countries such as the US, Japan and Korea – those three have taken the lead. With 3.5G, and eventually 4G, networks, we can offer high-speed connectivity, and use IP-based technology to change telephony in the same way as the fixed-line market.
Now you won’t be thinking about how expensive mobile calls will be – especially international ones – you’ll simply have a cheap, convenient way to make calls.
ISIGHT: In this world of mobile broadband, how do you see other wireless broadband technologies, such as WiFi and WiMax fitting in?
Dr. Sachio Semmoto: Well eMobile is purely a 3.5G network – it’s where we think that the market will naturally move. But WiFi is ok in some circumstances, it’s nice to have in some cities, but there’s no real mobility.
With WiMax, I’m not even sure that there’s a demand for it. It’s very much an Intel-led thing, and it makes sense for them, as their core microprocessor business is stagnating. But I’ve not really seen any real interest from other potential partners, and that is crucial in telecoms. Intel are just doing the chips, and that’s not enough in telecoms. The approach is a bit egotistical; in telecoms you need to be more political, and make sure you have partners. If you look at something like GSM, it wasn’t the most advanced technology, but it built up a critical mass of partners to make it the winning technology. The mobile broadband market will be the same – it will be delivered by 3.5G and 4G technologies.
There is space for both WiFi and WiMax to exist alongside 3.5G and 4G, but it will be a matter of how they integrate into mobile broadband. The likes of Intel need to think about how to work with 3.5G, because WiMax isn’t going to be the major technology [for mobile broadband].
ISIGHT: In the UK, fixed-mobile convergence (FMC) has been seen as a starting point for users looking to move towards mobile broadband. Do you see this happening elsewhere?
Dr. Sachio Semmoto: In short: no. You have to understand that the UK is unique. There, BT lost its mobile arm, O2, but has had to come up with something to protect its
near-monopoly in fixed-line telephony. Its management know that it should get into the mobile broadband market, but it has no real chance from where it’s starting.
I don’t believe that FMC will be anything other than a short-term strategy. There’s no real chance that FMC will provide long-term growth in the fixed-line telephony market.
What I think you will see in the UK is that one of the mobile operators will take a risk and invest to accelerate the building of the infrastructure needed for mobile broadband. Whichever of them takes that risk will be the winner.
ISIGHT: Clearly you’re a strong advocate of mobile broadband technologies, but do you see any potential risks going forward?
Dr. Sachio Semmoto: The one big problem for all telecom companies is Skype. Skype is a monster. Look at what it’s done to the fixed-line telephony market: VoIP is killing traditional telephony. And Skype is even more of a problem.
Consider this: no operator can properly combat Skype today. They offer a service that consumers want. But if Skype comes along and beats all the existing telecoms companies that have built the broadband infrastructure, who is going to run the networks? You have to ask: Can these free riders be allowed to carry on? It’s an issue for government, and not an easy one, but they really have to think about how they will develop a workable solution that protects the national infrastructure.
Now, Skype has revolutionised traditional telephony so far. It could kill the mobile business soon, so the current mobile operators need to shift themselves to building out HSDPA-based networks soon. We have an advantage, we’re already ahead of the curve, but we recognise that Skype could really change the picture.
ISIGHT: You’ve been phenomenally successful in raising capital for eMobile, but if you were advising VC firms looking to invest in mobile broadband start-ups, what type of companies would you recommend?
Dr. Sachio Semmoto: I think it comes down to two main types: infrastructure companies and handset makers. These are both going to provide some of the necessary components to make mobile broadband succeed. In the handset market, it’s difficult: you have a growing vendor in Huawei in China – it is going to become the next Samsung, probably bigger than Samsung – so they can put enough focus on investing in handsets for mobile broadband.
But the really exciting area is around the small start-ups that creating brand new technologies for mobile broadband. Here I think the big winners are going to be the ones that are looking at security and content. So far, security hasn’t been a big part of telephony, but as more businesses move to an IP world, they’ll start thinking more and more about security.
As for content, it’s inevitable that it will be a big part of mobile broadband. It is 3.5G that really makes mobile video possible. And those companies that can identify compelling new ways to deliver content over mobile broadband will be successful. When you think about it, the customers don’t really care about 3.5G or 4G or whatever: they’re not interested in the technology, they’re interested in what it can do for them.