informa - telecom croatia_aug2010_final

8/8/2019 Informa - Telecom Croatia_Aug2010_Final

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11/08/10www.informatm.com Confidential 1

Make better business decisions


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/ /11 09 2009

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/ /08 11 2010

How are European MNOsadapting to meet thechallenges posed by todays evolving industry landscape?

Telecom CroatiaZagreb, Aug 2010

Thomas Wehmeier

Principal Analyst | Industry Research


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oday s operating:nvironment the age of

austerity

transformation

pragmatism

convergence

efficiency

transition

cost -cutting

capacity crunch

churn


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Europes mobile sector: a mature industry indecline?

Revenues in reverse

Margins under severe pressure Focus on cash-flow Consolidation Traditional players attacked from all sides

Operators under attackfrom all angles


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Revenue declines make great headlines, butregulation and economy hiding the real data story


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The world has changed.

I think what is fair tosay is

the value chain andwho plays what rolein that value chain is

very much to bedetermined.

Matthew Key, CEO,Telefonica Europe

factories

openness

access plus

Partnering

coopetition


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European operator landscape has converged

Status of incumbent players inWestern Europe, 2005 Status of incumbent players inWestern Europe, 2010


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Convergence is very much a reality in theEuropean arena

Networks (everything but the last mile)

Devices (femtocells, WiFi-basedsmartphones, MiFi, WiFi-on-a-SIM)

Services (triple-play, quad-play)

Retail (single retail footprints)

Customer interactions (single CRM teams)

Brand (movistar, Vodafone, aon)

Marketing (single marketing campaigns)

Service providers (integrated players)


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9

The impetus to respond to changes in the sector are forcing telcos to develop new partnerships

throughout their businesses

N e t w o r k

S e r

v i c e

sD

e v i c e s

Newrelationships

R e t a

i l


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Operators must choose multiple paths to meetthe innovation challenge


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Operators are finally rediscovering their love for their core businesses

The provision of pure access is

an attractive business

TeliaSonera, 2010

We are a telecoms group. In the end

you have to know what your business is.

Stephane Richard, France Telecom,July 2010


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Efficiency: operators are going lean, mean andagile

The drive for efficiency is not just acost benefit, but doing thingsbetter and more efficiently shownto drive greater overall servicelevels

Most operators seeking to reinvestOPEX gains into commercialactivities and revenue growth,e.g. into SAC, new technologies(NGA), store modernisation,brand campaigns

real estate

simplifiedproductportfolio

ITsimplification

BSSrationalisation

marketing

spend

acquisitioncosts

energy

network O&M

outsourcing

network-sharing

call centrecosts

unprofitablecustomer segments

groupprocurement

data centreconsolidation

headcount

self-provisioning

processoptimisation

SingleRAN

unified, all-IPnetworks


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Cost-cutting aside, four near-universal prioritieshave emerged for European telcos

Ubiquitous, high-speed broadbandfactories

Exceptional customer service & experience

Protect legacy voice

and SMS revenues

Seed and nurturenew revenue streams(data)

1.

4.

3.

2.


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Sweden shows the rest of Europe the light at theend of the tunnel

TeliaSonera Sweden rebased mobilerevenue growth, 1Q08-1Q10

TeliaSonera Sweden absolutemobile revenue, 1Q08-1Q10

TeliaSonera seeing healthy revenue uplift (8%yoy in 2009) thanks to benign voice market andstrong data pull through in a market defyingmacro-European trends

Mobile data revenues at 180% of its rebasedlevel in just two years with growth acrossconsumer and business

Majority of revenue uplift from migration of customers to mobile data access plans withsmartphones

Positive trends mirrored in TeliaSonerasbusiness in Norway, Denmark and Finland

Source: TeliaSonera


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All this despite revenue per gigabyte trends inSweden falling down the face of Everest

Source: PTS; Informa Telecoms & Media

2004-2009:Traffic = 2,700xRevenue = 17x


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Its really not hard to see why operators just lovesmartphones (despite opening the doors to

service-based competition from open internet)

Getting the right device in usershands has become the single

biggest revenue driver for todays mobile operators. Where

once getting users to migratefrom 2G to 3G was seen as the

important shift, today it is allabout migrating users to

smartphones


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But whilst its tempting to think smartphone only, theaddressable data opportunity is so much bigger Smartphone users typically represent only one-

eighth of an operators active data user basetoday, but data usage is much more broadlyspread

Operators most address both the smartphoneopportunity, whilst remembering the substantialmajority of its users that are on dumber

phones

Expand base of devices that can consume dataand improve the data experience on non-smartphone devices

Develop data pricing for the mass market in

prepaid

Optimisation can provide significant user gainsthrough reduced data consumption, time-saving in downloading content and theenhancement of the quality, consistency &immediacy of user experience

Smartphone penetration of total base

Active data user penetration of total base

Vodafone Europe 11% 34%

Swisscom 15% 36%

Europeanaverage

10-15% 30-35%

Source: Vodafone; Swisscom; Informa Telecoms & Media


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From iPhone to Bic phone: device strategiesevolving with the times

Polarisation of the handset market reflects changing consumer behaviour in post-recession Europe and need to target acrossall tiers

Subsidies heavily concentrated on the customer lifetime valueopportunity and the drive to generate non-smartphone tosmartphone uplift

Low-cost smartphone-lites to minimise subsidy cost to servethose customers with lower spending profiles in prepaid

Direct retail takes on greater importance to drive the right devicefor the right person and control consumer buying experience.Missold devices not only reduce uplift potential, but also riskgreater post-sale costs, higher return rates and an overallhigher lifetime cost to operator


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A view from Tele2 on smartphones


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As users migrate to best-in-class smartphonedevices, video becomes the major traffic driver

Average data consumption by devicetype by application (Western Europe,2010)

Smartphones see around 20-foldtraffic multiple vs non-smartphones

A small, but growing sub-set of devices push trafficconsumption to new boundaries

Video overtakes browsing as thelargest driver of traffic with other bandwidth-intensiveapplications such as audiostreaming and mapping growingin weight

Signalling inefficiency of certainapplications placing hugeburden on radio networkcontrollers

2.1x

19x

Source: Informa Telecoms & Media


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As smartphones penetrate the market, networkquality has never been more transparent to end

users

I seem to spend more time waitingfor the stupid apps to load than I doactually using them. I really wish Id

chosen another network

The voice of a lonesmartphone useror theecho of a growing chorus

of dissatisfaction?


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Are we seeing the start of the great smartphoneand mobile broadband swindle?

Users feeling robbed by performance of their devices

Operators beginning to pull back from

marketing mobile broadband Reverse migration as users seeksanctuary on the fixed network

Emergency investments into networks

Source: Informa Telecoms & Media

I have an iPhone on XXXUK OperatorXXX and recently I have had problems withvoice calls. I have tried dialling numbersover and over again but the call wouldntgo through. Thats happened frequently

over the past 2 weeksiPhone user, London, Jun 2010


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The network is, always has been, and willbecome an even more important differentiator for mobile operators

Global mobile network traffic growth, 2008-2014


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An always most profitablyconnected model is inextricablylinked to the long-term strategicrelevance of the fixed network

Cost and speed advantages of fixed will maintainits relevance

Applications of intensive bandwidth consumptionwill stay on the fixed network where experience is

better and cost is lower resulting in segmenation of application usage by access technology anddevice

Fixed internet to capture the home whenconnected TVs, PCs, laptops, consoles and morebecome more commonplace

Mobile broadband prime role will be to complementthe fixed network for nomadic & mobile usagescenarios

Fixed backhaul and backbone imperative for profitable and high-quality mobile broadband


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Operators must adopt holistic and pragmaticstrategies to address network quality issues

On reflection, operators werent adequatelyprepared for the data deluge despite

spending years praying for its arrival, butoperators throughout Europe are activelyengaged in the implementation of some or all of these traffic management tools

A one one-size-fits-all approach will notemerge, but operators must adopt holisticstrategies encompassing a mixture of demand and supply-side measures


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Operators need to think about optimising user experience outside areas of high-speed data coverage

Source: Operator website

GSM

3G

Greater London

Coverage by technology in Greater London of Tier 1 MNO (June 2010)

European 3Gcoverage stillsurprisingly patchy

Fallback to older technologies critical for service continuity

How to achieve

optimal user experienceirrespective of accesstechnology?


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A brief history of mobile data pricing

Pay-per-MBPay-per-event

Buckets & bolt-onsUnlimited flat-rate

Where next?

10s of millions

Usageperuser

2003:3G

launch

Feb 2006:HSPA

launches

Nov 2006:3s X-Series

Oct 2005:T-Mobileswebnwalk

May 2010:AT&T/O2

kill flat-ratedata

Jun 2007:iPhone

launches

2000:GPRSlaunch

Active data users 100s of millionsAfewMB

100sofMB


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Its coming early operator moves will heraldthe arrival of more advanced pricing

customisation

tated, segment-orientated tariffs, and whether that will result in higher or lower prices, well, it


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Customisation and personalisation will be key to drive upperceived value of mobile broadband services


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Case study: Vodafone Spains QoS-baseddifferential mobile data pricing the first of many?

Tariff is branded as Calidad Oro, meaningGold Quality

User guaranteed a prioritised serviceduring periods of high network load, butno guarantee of a minimum speed. Ineffect, they are offered a guaranteed ahigher QoS relative to lower-valuecustomers.

Where network resources allow, users arepermitted maximum speeds even whenexceeding their usage cap.

Ericsson/Huawei-supplied solutionunderpins the tariff

Seeking to leverage MBB market churn to

attract higher-value, less price sensitiveusers Key challenge has been to market the

service transparently and educateusers about the benefits of the valueproposition

Tariff Price per month Inclusive data Price per additional MB

Internet Express 32 Unlimited (throttledspeed of 128kbpsafter 1Gb)

0.00

Navega Plus 39 Unlimited (speedsmay decrease after 4GB consumed)

0.00

Calidad Oro 49 Unlimited (speedsmay decrease after 10GB)

0.00


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Case study: Skylink Russia build data tariffsbased on application and time of day

Early mover in seeking to differentiate in acompetitive data market

Tariffs built around unlimited access topopular online services

Differentiating different protocols by offering

unlimited http/https, but additionalcharges for other P2P protocols Warnings highlighting hidden costs (e.g. of

apps running in the background) Using Flash Networks technology to drive

its policy engine Early results indicate more satifsied

customers, effective acquisition tool andoptimized network utlilisation this hasled to an expanded contract beingawarded to Flash Networks

Russia CDMA operator Approx. 1 million subs Data offered via EV-DO

Content-based tariffs include: Unlimited Classmates (popular SNS) Unlimited LiveJournal (popular SNS) Unlimited Web (unlimited http/https traffic)


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Transparency and user education will be the major hurdle to the spread of differentiated pricing

Gamestation inserted a clause intotheir terms & conditions to say itlegally owned the soul of each

customer 9 out of 10 purchasing from site

agreed to the conditions Transparency and customer

education needs to extend far beyond the T&Cs

Regulatory pressure to increasetransparency is likely


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How to balance transparency, loyalty andmaximising profits?

Consumption metering apps

SMS notifications Notification when automaticupdates occurring

Roaming alerts


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Croatia: key market drivers

macro environment

structural impacts

market drivers


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Croatia: a chip off the EU-27 block?


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Croatia: key opportunities & recommendations

1. Expand the reach of high-speed wireless broadband (FTTx, HSPA(+), WiFi) to build aleading platform for the enablement of connectivity

2.3. Leverage position as integrated incumbent player to drive the penetration of convergent

offerings and enhance customer loyalty4.5. Grow penetration of data usage through the i mplementation of data tariff plans that are

appealing to the dominant prepaid segment (add-ons, micropayments,microsubscriptions, opt-in, loss leaders)6.7. Profitably target the mobile broadband segment with the introduction of sustainable

pricing models and experiment beyond pricing based on volume/time8.9. Bring affordable smartphones to market to grow the addressable market for advanced

data-centric devices. Work closely with handset manufacturers such as RIM that canhelp grow adoption of data services (e.g. BBM) and target subsidies strategically ondevices proven to generate higher customer lifetime value

10.11.


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Croatia: key opportunities & recommendations

7.

9.

11.

13.

15.16.17.


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