Key Issues facing Mobile Carriers

Matt DaveyDeputy Managing Director

OPTUS MOBILE

25th September 2003

Presentation Overview

• The “gold rush” is over. The industry has matured and is in transition

• There are four key levers which mobile operators can use to increase their value

– Subscriber numbers– Cost structure– ARPU– Capital efficiency

• With much work already in progress, we believe the most important issues going forward are:

– Retail commissions and channel consolidation– Development of Non-communication data services– Capital efficiency through cooperation in non competitive arenas

There are many challenges as the industry undergoes transformation

MobileOperators

Mobile Industry• New to market growth

slowing• Rates expected to continue

to fall

Customer behaviours• Still handset driven• Beginning to use phone for

more than just voice

Technology• Handset

evolving rapidly to colour screens

• Innovative 2.5G applications being developed

Competitive activity

• New data offers:

–GPRS–1X–3G

• New aggressive pricing offers

Competition has driven pricing down while penetration growth is slowing

Average rate per minute

0

10

20

30

40

50

60

12% annual decline

Source: Merrill Lynch Global Wireless Matrix – 2/04/03

There are four strategic levers for operators to increase their value

Strategic Levers Tactics

Increase share of subscribers

• Capture new to market• Port customers from other operators • Reduce churn in base

Reduce cost structure

• Headcount reduction / outsourcing• Handset subsidies• Channel costs

Grow ARPU per sub

• Communication• Entertainment• News/Information

Capital efficiency

• Sweating assets• Network sharing• Common platforms

Channel costs/commissions are costing the industry over $630M per year

Industry Revenues$Billion

0 2 4 6 8

PostPaid

Pre Paid

Commission ratesPercent

0% 5% 10% 15% 20% 25%

0

100

200

300

400

500

600

700

Total Commissions$Million

1.15b

6.6b

20%

6%

230M

400M

630M

There are close to 3000 points of post paid distribution in Australia

1200

630

250

100

500

200

40

Post Paid Distribution outlets by State

* Prepaid outlets estimated at 15000 nationally

We need to stimulate the market with non communication based services

Key Question

• How do we move beyond P2P communication and stimulate new data services?

• What new areas can operators take share?

– Entertainment (games, MMS, adult?, chat)

– Information (e-mail, news, sport)

– Location based services (where is, what’s on)

In some arenas cooperation will provide better outcomes for consumers and lower capital for operators

Regional coverage

M-commerce stimulation

3G migration

Optus’ current status Cooperation benefit

• Optus continuing to roll out base-stations in regional areas

• 3G trial in progress

• Developing EFTPOS based m-payment solution

• Billing on behalf for 3rd party content

• Enhanced coverage at lowest economic cost

• Closer matching of capacity to demand – lower overall prices for consumers

• Agreement of a common standard and approach will lead to greater take-up by merchants and consumers

Key issues

Conclusion

• With slowing penetration growth and falling mobile prices the industry needs to look to other levers for on-going profit growth

• Consolidation of channels and a reduction in total industry commissions are areas that need to be addressed

• Operators will need to become increasingly sophisticated in segmentation and marketing to stimulate information and entertainment revenues to support ongoing ARPU growth

• There are non-competitive areas where the industry can be more efficient in its capital and/or more effective in its service delivery

– Enhanced regional GSM coverage

– Stimulating 3G takeup via network sharing or roaming

– Developing an Australian M-commerce standard which is supported by all carriers and supports all mobile users (post & pre paid)