MOBILE LOCATION-BASED SERVICES

MOBILE LOCATION-BASED SERVICES SUMMARY Summary Executive summary Even though many mobile location-based services (LBS) have not become as successful as anticipated a few years ago, some location services already show much promise in several European countries. The most successful services, in terms of revenues, are turn-by-turn navigation services, corporate fleet management and tracking solutions, in addition to location-based voice and data tariffs. In 2007, about seven years since the launch of the first services, European mobile LBS revenues amounted to roughly 157 million. Several important drivers are finally about to bring a breakthrough for LBS in Europe. With mobile penetration reaching saturation, intensified competition and regulations driving call prices down, mobile network operators increasingly seek new ways of maintaining revenue growth. Increased focus on delivering value added services, including various location-based services, is one means of achieving this. The performance of new handsets is gradually improving, with a growing share of handsets featuring larger displays with higher resolution. Moreover, because of improving coverage of high speed 3G networks, increased availability of reasonably priced flat rate data plans, as well as better browsers in handsets, usage of mobile internet services are increasing at a fast rate in Europe. Meanwhile, new possibilities to access suitable location data is emerging for service providers. EU E112 regulations mandating location of emergency callers have prompted operators to install positioning technology in their networks. To leverage the investments, more and more operators open their platforms to third party developers and location aggregators to enable deployment of commercial services. Some service providers, such as Google, even compile their own databases of cell tower locations that can be used as free alternatives, albeit with lower initial availability in some regions. 2008 is well set to become the breakthrough year for GPS-enabled handsets in Europe as more manufacturers are finally launching a growing number of models. These new handsets feature user plane assisted GPS, enabling deployment of assistance services with lower network impact and lower cost compared to control plane implementations in the past. STRATEGIC LBS RESEARCH SERIES 1

SUMMARY MOBILE LOCATION-BASED SERVICES Greater availability of GPS handsets has proven especially important for turn-by-turn navigation services that require high accuracy location data, but are less sensitive to availability of position data indoors. In contrast to early adopters, mass-market users have not been willing to use external GPS receivers. Current navigation services are centred on in-car navigation, but most service providers are introducing new features to drive usage and add value in every-day situations, for instance pedestrian and multimodal navigation, local search, social networking and location sharing. Many new services being launched, including location-enhanced social networking, search and information services, in addition to turn-by-turn navigation services, are intended to be funded primarily through advertisements. The number of users is still low but grows fast. At the moment, most ads are in the form of banners and interstitials that are not served based on the users location. However, many actors in the value chain show great interest in providing targeted ads based on user s current location. Nevertheless, several issues, such as user privacy, pricing of location data, along with scalability of the location technology need to be resolved before location-based advertisement campaigns can leave the trial stage and contribute significantly to overall LBS industry revenues. Berg Insight forecasts European LBS revenues to grow to about 421 million in 2012. Including location-based tariffs for data and voice calls, total revenues are estimated to reach 1,816 million. Although location-based tariffs may not be introduced in all European countries due to specific market characteristics, there is still considerable potential in markets were fixed to mobile substitution has not progressed far yet. STRATEGIC LBS RESEARCH RESEARCH SERIES SERIES 2

MOBILE NAVIGATION SERVICES SUMMARY Summary Executive summary The personal navigation solution markets in both Europe and North America are still dominated by the Personal Navigation Device (PND) segment. However, more and more handset owners are discovering mapping and navigation software and services for mobile phones. Navigation services are available as on-board solutions with map data stored in the memory of the handset, and off-board services that rely on maps stored on a server. These solutions are gradually converging into hybrid services that store frequently used maps in the internal memory of the device and leverage wireless connectivity to access new maps, dynamic content such as traffic information, fuel prices and weather, and location-based services like location messaging and sharing of geo-coded content. Multiple navigation solutions and device types are likely to co-exist also in the future. Although PNDs and in-car navigation systems often provide a better user experience than many handset-based navigation services, new handset models designed especially for navigation services will close the gap considerably. Moreover, handset navigation services are also well suited as a complement to other solutions, especially for use outside the car. Pedestrian navigation features gradually being introduced include improved map data and multimodal navigation, which will enable users to plan routes taking into account all available modes of transportation, including trains, busses, trams, ferries and airplanes. Navigation services are marketed by network operators, handset vendors and various service providers. Even though the most common offering in both Europe and North America is daily or monthly subscriptions, both network operators and handset vendors have introduced onetime fees for lifetime use. Moreover, advertisement funded services have been launched in several markets by various actors, including mapping and directory providers. In the future, more services are likely to combine subscriptions with advertisement funded service components. Significant revenues from advertisements are not likely to materialise until usage increases substantially and more partnerships have been formed. STRATEGIC LBS RESEARCH SERIES 1

SUMMARY MOBILE NAVIGATION SERVICES Following the introduction of new GPS handsets, OEM and aftermarket sales of on-board navigation software for smartphones increased to more than 1.3 million licenses in 2007. In Europe, where a clear majority of on-board software was sold, handset vendors and network operators have marketed numerous GPS handset and software bundles. In North America, network operators have focused on off-board navigation services. Following the breakthrough in 2006, operators have even managed to increase net subscriber additions and the total subscriber base reached 4.7 million active subscribers in North America in Q4-2007. In Europe, where the availability of GPS-enabled handsets is still much lower, the off-board navigation subscriber base grew to 1.5 million in Q4-2007. However, increasing availability of mass-market GPS handsets is likely to allow the larger European mobile market to surpass the North American market also for navigation services. Berg Insight forecasts the number of active navigation service subscribers, i.e. those that have used a navigation service at least once in the past quarter, to reach 40 million in Europe and 30 million in North America in 2014. By then, most GPS-enabled handsets are likely to have mapping and navigation software as part of the standard feature set, similar to media players today. STRATEGIC LBS RESEARCH RESEARCH SERIES SERIES 2

PERSONAL NAVIGATION DEVICES SUMMARY Summary Executive summary The personal navigation market continues to grow rapidly in Europe and North America. Personal Navigation Devices (PNDs), i.e. transferable devices with integrated GPS receivers and digital maps primarily designed for car navigation, have gained mass-market acceptance. In Europe, PND shipments grew to 16.5 million units in 2007, up from 9 million units in 2006. Despite the economic slowdown and weakening consumer confidence, sales can still grow to roughly 20 million units in 2008. In North America, very strong sales during the holiday season contributed to remarkable growth in 2007, to about 11 million units shipped. Moreover, in 2008, sales can well reach about 17 million units if the macroeconomic situation does not affect consumer spending too severely. The rapid growth has gained the attention of numerous actors in many industries. There are over 100 PND brands on the market in Europe and North America. The vendors have a background in various industries, including the GPS device, navigation software, consumer electronics and car infotainment industries. While many of the major vendors, notably TomTom, Garmin, Magellan and Mio Technology/Navman, develop navigation software inhouse, others usually base their PNDs on software from white-label developers such as decarta, Elektrobit Corporation, Intrinsyc Software, NAVIGON and NavNGo. For consumers, the value for money has gradually improved as performance has increased and cost has declined. However, industry competition has increased substantially in the last few years and lower component costs and product engineering measures have not fully compensated for declining average selling prices. Going forward, the PND industry is likely to see increasing consolidation and exits as fewer vendors are able to maintain sufficient margins. The four largest vendors Garmin, TomTom, Mio Technology/Navman and Magellan, have managed to increase their combined market shares in Europe and North America to 80 percent in H1 2008. STRATEGIC LBS RESEARCH SERIES 1

SUMMARY PERSONAL NAVIGATION DEVICES Increasing competition from handset-based navigation services and low cost in-dash navigation systems, as well as the growing installed base of PNDs, will eventually limit shipment growth for PNDs. Berg Insight forecasts that PND shipments in Europe will peak around 2011 2012 at roughly 28 million units per annum and decline to about 26 million units in 2014. North American annual PND shipments will peak at approximately 28 million units, sometime around 2012 2013 and decline to 27 million units in 2014. While sales of conventional in-dash navigation systems and PNDs have been lower in North America than in Europe, off-board navigation services for mobile phones have already surpassed 7 million paying subscribers. In Europe, greater availability of GPS handsets have led to accelerated growth in handset-based navigation services and there are currently about 5 million active paying users in the EU 25+2 countries. However, multiple navigation solutions and device types are likely to co-exist also in the future. Although PNDs and in-car navigation systems often provide a better user experience than many handset-based navigation services, new handset models designed especially for navigation services will close the gap considerably. Moreover, handset navigation services are also well suited as a complement to other solutions, especially for use outside the car. Pedestrian navigation features gradually being introduced include improved map data and multimodal navigation, which will enable users to plan routes taking into account all available modes of transportation, including trains, busses, trams, ferries and airplanes. PND vendors are increasingly looking at service revenues as device revenue growth slows. In Europe, total device revenues peaked in 2007 and revenues will likely peak in North America in 2008. In order to make navigation services useful in everyday situations for more people, introducing wireless connectivity to PNDs can enable integration of online services such as local search, enhanced traffic information and automatic map updates. Vendors are also adding new features and refining the user interface to facilitate command and control, as well as improve the information presentation. New models will, for instance, gradually introduce automatic speech recognition technology, 3D map features and photo-realistic textures. New features and services will likely be crucial for convincing existing customers to upgrade their existing devices to more advanced models. STRATEGIC LBS RESEARCH RESEARCH SERIES SERIES 2

GPS AND MOBILE HANDSETS SUMMARY Summary Executive summary The primary driver for mass adoption of GPS enabled handsets has been the Enhanced 911 mandate in the US. The Federal Communications Commission (FCC) has required all mobile operators to introduce high-accuracy positioning in order to enable precise location of mobile callers placing 911 emergency calls. So far, iden and CDMA operators have chosen A-GPS as the means of complying with these regulations. Moreover, these operators have launched several successful commercial services, especially turn-by-turn navigation services that leverage the large installed base of GPS-enabled handsets. CDMA operators in countries such as Japan and South Korea have also deployed numerous location-based services that utilise GPS. Although the first GSM handsets with integrated GPS were launched already in the late 1990 s, broader availability of consumer-oriented handsets with GPS did not appear until late 2006, primarily in Japan. Outside Japan, numerous smartphone vendors have introduced handsets with GPS during 2007. Moreover, the largest handset vendor in the world, Nokia, accelerated its LBS initiative by acquiring the leading digital map provider NAVTEQ. In response to increasing interest in location-based services, as well as to comply with regulations, all major handset vendors have now presented GPS-enabled GSM/WCDMA handsets. Compared to a few years ago, GPS technology for handsets has matured considerably, offering much better performance in terms of sensitivity, power consumption, size and price. What is more, the OMA SUPL A-GPS standard has enabled lower cost deployment of A-GPS services that ensure a better and more consistent user experience necessary for the mass consumer market. The SUPL A-GPS standard allows network operators or handset manufacturers to deploy assistance services that reduce the time to first fix, lowers the power consumption, and enhances the sensitivity of the GPS receiver. The SUPL standard uses User Plane communication channels such as SMS and GPRS to transport the aiding data, as STRATEGIC LBS RESEARCH SERIES 1

SUMMARY GPS AND MOBILE HANDSETS opposed to the control plane channels in networks, thereby reducing the load on the networks, as well as complexity and cost of service deployment. New business models have also become possible, ranging from hosted services for operators that want to minimise capital investments, to services deployed by handset vendors for end-users that cannot get similar services from their network operator yet. The major handset software platforms and operating systems are evolving, ensuring easier integration of GPS functionality for handset manufacturers and more powerful features for application developers. Along with the improving performance of handsets, in terms of screen size, processing power and memory size, current handsets thus provide much better platforms for location-enabled applications and services than before. The GPS value-chain was reshaped considerably in 2007 as several specialist GPS technology developers were acquired by wireless chipset vendors. These transactions are likely to enhance the possibilities to meet handset manufacturers demand for integrated connectivity solutions that include GPS at ever lower price points to enable true mass market deployment. Sales of GPS-enabled GSM/WCDMA handsets grew to about 24.5 million units in 2007. Although the number is very small in comparison with the 150 million GPS-enabled CDMA handsets sold, the number is growing rapidly. Berg Insight estimates that shipments of GPSenabled GSM/WCDMA handsets will grow to 370 million units in 2012, the equivalent of more than 26 percent of all GSM/WCDMA handsets sold that year. Including CDMA handsets, GPSenabled handsets sales are estimated to reach about 560 million, or 35 percent of total handset shipments in 2012. STRATEGIC LBS RESEARCH RESEARCH SERIES SERIES 2