Recently, Strategy Analytics analyzed current 2G/3G de-networking trends and 4G user migration opportunities based on its free report Low Cost 4G Phones: Market Dynamics and Opportunities, combined with the latest industry developments.
4G dominates the current mobile market
At the beginning of the year, 2G and 3G users accounted for 46% of the world’s mobile users, but contributed only 27% of global mobile revenue, according to Strategy Analytics’ latest wireless market forecast. By 2023, that share of revenue will fall to 10 per cent. Africa can be considered a special case, where countries have ARPU values of less than $2, so there is limited scope for user migration to be facilitated through subsidies.
However, Africa and other developing regions have also made good progress in promoting 4G services, such as Airtel’s 4G network expansion and “big package packages” in Africa, which have driven users to 4G, with a significant increase in data usage and data ARPU values, with 3/4 of the past year’s revenue growth coming from data, with 4G accounting for more than 60 per cent of data revenue from data users in March 2020, compared with 18 per cent from last year and 4Gair’s share of revenue.
2G/3G de-networking process is in full swing
Similar to Airtel, the main drivers of carrier-driven user migration to 4G include: increased revenue, increased spectrum efficiency, reduced OPEX CAPEX expensedue from multi-network operations, and the original multi-network operation problems, such as EMF restrictions, site or space limitations due to the deployment of 5G.
More and more operators have announced 2G/3G de-networking plans, some countries in North America and Asia-Pacific are at the forefront of the global 2G/3G de-networking process, and the process of 2G/3G de-networking in other regions is also in full swing, for example, the Indian market has accelerated to 4G, India Airtel has closed its 3G network in phases; FoneZiggo closed 3G in the Netherlands in February; Telia and Telenor’s Danish joint venture TT-Netvaerket will phase out 3G from April 2021; and Vodafone’s CTO also talked about closing 3G europe by 2022 at a recent Vodaone business analyst meeting. Moving from 3G to 4G is relatively easy, and operators can easily persuade users to switch from 3G to 4G, while persuading people with 2G capabilities to switch to 4G smartphones is much harder.
2G off-grid usually requires a longer preparation time, especially when it comes to the migration of 2G physical services, in which case the operator may focus on shutting down the 2G mobile phone business and retaining only a 2G thin network to serve 2G residual joint users. In Africa, there is also a need to focus on the importance of 2G USSD capabilities to mobile paymentservices, which is an important source of revenue for some operators.
Low-cost phones are key to accelerating user migration
The final process of migration to 4G depends on the segment of the user that contributes the least to the operator’s revenue, and these low ARPU users are even sensitive to price differences of less than $5 between 2G and 4G phones, which involve too wide-ranging carrier subsidies. At an online roundtable, Kaios VP Joyce Wang shared the success of low-cost 4G smart function machines, which Strategy Analytics sees as an important factor in the success of user migration in developing regions. India’s Reliance Jio has launched Jio Phone, based on the Kaios operating system, successfully developing some of its rival 2G and 3G users into Jio’s 4G users, a move that has also affected the 4G process in the Indian market, with Airtel shutting down its 3G network and shifting resources to 4G.
To cite several examples of low-cost mobile phones launched by operators and terminal value chain partners: Thailand’s True Move has seen a huge increase in market share in recent years, thanks in part to its True Smart range of cheap smartphones, while in Indonesia, XL Axiata has introduced local electronics assemblers to produce a range of smartphones such as Evercos Xtream, which now dominates XL’s data traffic, and XL plans to optimize its spectrum mix by 2020. Match the downward trend of 23G traffic, gradually reduce 23G network capacity until it is shut down, and release spectrum to 4G to meet the growing capacity demand for 4G networks.
In addition to manufacturing, operators are also looking for other ways to reduce end costs, although terminal subsidies are limited, but we see players in the industry chain willing to contribute to subsidies, such as retailer Alfamart subsidized WizPhone WP006 in Indonesia prices down to $7; MTN, on the other hand, focuses on SIM cards; mobile loans are also an excellent way to increase affordability, in line with the growing trend in mobile currencies and microfinance in developing markets, as mentioned in Kaios Joyce Wang’s speech.
These initiatives are being used to increase affordability for price-sensitive populations, which are necessary as 2G and 3G network benefits are increasingly inconsistent with their cost and resource needs. It is encouraging that a growing number of operators in Southeast Asia, Africa and Latin America have successfully found strategies for optimizing the allocation of network resources to 4G and ways to push 4G technology further to price-sensitive populations.
In developing countries, government tax cuts on mobile phones and services are also important measures to reduce end-costs and make users more affordable, including import tariffs and sales taxes. In addition to terminal prices, operators need to seriously consider that once a de-networking schedule has been established, it is necessary to manage 2G and 3G user development strategies, including mobile phones and IoT terminals, in addition, 4G network access VoLTE is an important prerequisite for 2G/3G de-networking (of course, the default opening of VoLTE on the terminal side is also critical).