The Trillion-Dollar Technology

By Antonio Varas, Boston Consulting Group

The smartphone is one of the most ubiquitous inventions in contemporary life. Ask anyone from teenagers to senior citizens – in industrialized countries, as well as emerging markets – about the wireless ways of their life, and they will tell you this.

But what is the economic impact of mobile? That is not as obvious.

The Boston Consulting Group (BCG) set out to answer this question. They measured the global economic impact of mobile technologies, conducting extensive research that included a survey and interviews with 7,500 consumers and some 3,500 managers of small and medium-sized enterprises in six countries representing about 47 per cent of global GDP. This research paid particular attention to the United States, Germany, South Korea, Brazil, China, and India. The work was sponsored by the mobile technology firm Qualcomm, but BCG was wholly responsible for all analysis and conclusions in the report.

What BCG found is that mobile is as present economically as it is socially:

Mobile communication is the most rapidly adopted consumer technology in history. The number of 3G/4G connections worldwide is already above 3 billion, and it is projected to exceed 8 billion by 2020. Globally, mobile technology has emerged as a primary engine of economic growth, stimulating enormous private sector investment in both R&D and infrastructure, and profoundly changing daily lives – everywhere.

Mobile is connecting and empowering consumers. Consumers derive enormous value from mobile services, particularly in emerging markets. Our research across six countries – the U.S., Germany, South Korea, Brazil, China and India, representing roughly 47 per cent of global GDP – reveals that the incremental value over service costs that consumers derive from mobile services ranges from $700 to $6,000 per user, exceeding 10 per cent of average consumer income in Western countries and 40 per cent in emerging markets. This amounts to $6.4 trillion of annual consumer value above the cost of the devices and services across these six countries.

Small and medium-sized enterprises (SMEs) that adopt advanced mobile technologies are the fastest growing. Our research shows that the 25 per cent of SMEs that use mobile services more intensively see their revenues growing up to 2 times faster and add jobs up to 8 times faster than their peers.

Mobile technologies are fueling economic growth, even in the context of the global recession. The mobile value chain generated about $3.3 trillion in revenue globally in 2013 and is directly responsible for 11 million jobs. In the six countries evaluated, the mobile industry contributes more than $1.2 trillion in GDP, and is growing at a 10 to 20 per cent annual rate. This equates to between 2 and 4 per cent of each country’s income, and 11 per cent in the case of South Korea, which has become a leading global net exporter of mobile technology.

Continued technology innovation, which drives dramatic performance and cost improvements, has propelled this success. The average price of mobile devices has been continuously coming down, and smartphones are now available for as little as $40. 4G networks offer 12,000 times faster data transmission speeds than 2G; simultaneously, the average cost per megabyte decreased 99 per cent between 2005 and 2013. These staggering improvements have resulted from massive, sustained investments in R&D and new infrastructure: $1.8 trillion in 2009-2013, enabled by an effective industry-wide collaboration model across the layers and countries integrated in the mobile value chain. This unique industry collaboration model has three key elements:

1. At the fundamental core technology level (2G, 3G, and 4G), strong intellectual property (IP) protection frameworks provide innovators with economic incentives to take risks to invest in developing next-generation technologies, more than 10 years in advance of any potential commercial deployment. Mobile technology innovators invest a larger share of their revenues (21 per cent) in R&D than those in any other industry except biotechnology – and more than companies in all other R&D-heavy industries, such as pharma (14 per cent).

2. Industry standards create an effective mechanism that brings together all innovators to solve the industry’s most complex technology problems through open and meritocratic processes. Both 3G and 4G standards entailed approximately 10 years of industry-wide effort involving 300+ companies from as many as 40 countries and consuming more than 1 million person hours. In return, standards eliminate technology risk for operators, which then invest $180 billion annually to build their networks.

3. Clear licensing arrangements make it possible for companies across the mobile value chain to access the most advanced technologies with lower barriers to entry. As an illustration, the availability of licensing models for standard essential wireless technologies, low power consumption chip designs, and advanced operating systems has led to an increase in the number of global smartphone makers from 71 to 172 in the period 2007-2014, including many new entrants from emerging markets like China or India. There have also been significant shifts in market shares amongst the top players and a reduction of the global average selling price of smartphones of 23-63 per cent across segments.

While other factors – such as spectrum availability, a balanced regulatory environment for operators, removal of trade barriers for technology products, and a thriving local digital content ecosystem – are also key requirements for widespread adoption of mobile services, technology innovation remains critical for future growth. Our research shows that 90 per cent of 3G and 4G consumers report they want more coverage, even faster data speeds, more battery life, and many other improvements. With global data usage doubling every year, data traffic will be 1,000 times greater within a decade. To continue realizing the enormous economic benefit of mobile technologies, the overall industry will need to invest approximately $4 trillion in R&D and capex by 2020. To ensure that the “Mobile Revolution” continues, policymakers must support an environment that enables innovation and investment. Future growth of mobile depends on sustaining the institutions and policies that have enabled the growth to date.

The Boston Consulting Group will be discussing the findings of the “Mobile Revolution” report at this week’s World Trade Organization Public Forum, Working Session ,64, “How innovation and trade in mobile technologies have driven inclusive growth”, October 2, 3:30 – 5:00 pm.

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Antonio Varas is a Partner and Managing Director in the Technology, Media and Telecommunications practice of The Boston Consulting Group (BCG), based in San Francisco. He is one of the co-lead authors of the report “The Mobile Revolution: How Mobile technologies drive over a trillion dollar impact”.

The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advisor on business strategy. Founded in 1963, BCG is a private company with 81 offices in 45 countries. For more information, please visit www.bcg.com.

Image Credits: Qualcomm