right pricing mobile broadband ... examining the business case for mobile broadband
DESCRIPTION
Delivered this presentation at the Informa's Pricing Mobile Broadband conference 26 & 27th August 2012 in London. While some of the slides are similar to the ones in my Mind Share document you will find new slides and re-worked material giving another twist to Right Pricing Mobile Broadband. Enjoy and should you have any questions/comments just get in touch! Don't be a stranger!TRANSCRIPT
Right pricing mobile broadband.Examining the business case for mobile broadband.Informa’s Pricing Mobile Data Conference.27th June 2012, London, UK..
Dr. Kim Kyllesbech Larsen,
Technology, Deutsche Telekom AG.
Some key questions to be very passionate about.
Do we understand data profitability vis-à-vis demand, supply & cost?Do we understand data profitability vis-à-vis demand, supply & cost?
Do operators capture enough value of mobile broadband?Do operators capture enough value of mobile broadband?
How to change the pricing game from quantity to quality ... Is it possible?How to change the pricing game from quantity to quality ... Is it possible?
Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK. 2
Value of internet1…Worth massive lifestyle changes!What would you give up for a year for internet access.
80 80
75 74
68
48
3027
22
1 Source: The Boston Consulting Group Report on “The Internet Economy in the G-20”, March 2012.
Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK. 3
Value of internet1 …the customer perspective.Need, Love and (then) taken for granted?
Perceived Value of Internet
(relative to GDP per Capita)
1 Source: Analysis based on The Boston Consulting Group Report on “The Internet Economy in the G-20”, March 2012.
4
0%
10%
20%
30%
40%
0% 25% 50% 75% 100%
Perceived Value of Internet(relative to GDP per Capita)
Price of Internet(relative to GDP per Capita)
0%
10%
20%
30%
40%
0% 2% 4% 6%
Internet penetration < 50%
Internet penetration > 50%
Japen & South-KoreaTaken for granted
Internet Penetration
The perceived value of internet drops as internet becomes a commodityThe perceived value of internet drops as internet becomes a commodity
!
Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK.
Price setting in mobile.Today’s data price philosophies are volume centric.
1 Most price levels are NOT designed in isolation from competition, In fact often competition is the main “inspiration” for pricing. 2 Quality could be speed but is not exclusively so.
Price ( Volume ( Quality, Product, Time ) , Cost, Competition1, Regulation)
Volume Time
FUP basedfeedback
COST
mainly driven by Quality & Product
Quality2 Product
5
Illustration
e.g., MTR, roaming tariffs, …
Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK.
6Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK.
Price & profitability … Pricing the ByteVolume is easy and gives a (false) sense of being almost a voice minute
Minimum Cost per Byte
Volumetric networkcapacity
Maximum Cost per Byte
Volumetric customerdemand
Profitability can be “safely assumed” if the “Price per
Byte” is chosen somewhere in-between
REMINDER! Vastly different data-traffic profiles and Costcan result @ the same volumetric demand.
Conceptual
view
Marketing & Sales
Technology
Finance together with M&S
7Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK.
Why data profitability is a *****Every data service, mobile app, smartphone, contributes to the Busy Hour differently and thus COST and Profitability.
Mobile TV high BW impact but relative little volume in this illustration.
60%50%
40%
20%
8% 7%3% 2% 2% 1% 1% 0.5% 0.5% 0.5% 0.4% 0.2% 0.2%
100%
Mobile
TV P
rem
ium
Ser
vice
Mobile
TV B
asic
Ser
vice
Bus. F
ull Connec
tivity
Full Connec
tivity
Bus. A
t Hom
e Surfi
ng
Musi
c downlo
ad
Bus. E
mai
l Pull
Peer 2
Pee
rM
IM
Confined
Connec
tivity
Bus. C
onfined
Connec
tivity
Bus. E
mai
l Push
Mac
hine
2 M
achin
e
Real R
ing-to
nes
Emai
l Pull
MM
S outg
oing
MM
S inco
min
g
BH Throughput in Mbps
Volume in MB Home surfing (wireless DSL)
Conceptual
view
Home
Surfing (w
irele
ss D
SL)
Relative contribution to
BH bandwidth demand as
Function of service type
Note: the above example from the pre-smartphone pre-mobile-apps (2006) but nevertheless it illustrates the challenges we have when trying to define data profitability in a meaningful way.
400 600 800 1000 1200 1400 1600
Every new generation of smartphone increases data load above & beyond the old ... and thus Cost!
Source: Network data.
Data volumeper Smartphone
Smartphone CPU clock frequency
×5
×2.7
0 10 20 30
@ UL=5.8Mbps
@ UL=384kbps
iPhone
Max. DL Speed in Mbps
Data volumeper Smartphone
×4
GPRS ×6
Improvements in intrinsic smartphone speed
dramatically increases the data usageAND COST!
Improved air-interface speedincreases data usage
AND COST!
8Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK.
Right pricing mobile broadband…Changing the game!New philosophies … new dimensions.
Volume
Time
Quality1
Product
Reduce
Cost of Providing data
Differentiate on Quality.Speed & Latency.
Coverage (e.g., deep indoor)
Time.
Customer care & support,
Handset, device, etc..
Always-Best-ConnectedLeverage Fixed and Mobile.
Small Cell deployments.
WiFi / Femto-cell off-load, etc..
Product value add-onVoIP.
Msg & notifications.
Internet Access.
Social media.
Mobile media player.
Handset, etc..
Differentiate on Quality.Speed & Latency.
Coverage (e.g., deep indoor)
Time.
Customer care & support,
Handset, device, etc..
Always-Best-ConnectedLeverage Fixed and Mobile.
Small Cell deployments.
WiFi / Femto-cell off-load, etc..
Product value add-onVoIP.
Msg & notifications.
Internet Access.
Social media.
Mobile media player.
Handset, etc.. Illustration
9
1 Quality could be speed but is not exclusively so.
Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK.
FUP as top-lineremedy
0
200
400
600
800
1,000
1,200
250MB 500MB 800MB 1GB UNLIM
LIMIT
AV USAGE
… not all customers eat what they pay for!
10
Smartphone volume limit per price plan
MBytePolicy Limit
&Average Used
31%32%46%
58%
+60%
Illustration
Unlimited average usage is 60% higher than 1GB capped usage(in this example).
Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK.
Relative cost and pricing … where did my margin go?
0.00
0.50
1.00
1.50
2.00
Demanded Network BH Mbps(allowing for HSPA+ LTE LTE-advanced)
Technology Cost mobile broadband data
In€-cent per MB
Illustration
Min 0.10±0.05 €-cent per MB
Todays typical
Mobile data prices approx.
10 down to 0.5 €-cent per MB
11Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK.
Data pricing is in perpetual decline and will impact margin
& data profitability.
What you really should care about! … Absolute cost!The profitability auch! …
Network BH Mbps(or equivalent time scale)
RelativeMobile Data
TCO
Illustration
0
2
4
6
8
Todays Total Technology Cost Level
“Unlimited” resources
Limited resources
Profitability crunch exposure2014 – 2018 (pending on country and MNO)
! !
12
A Gap too far to bridge?
Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK.
Technology Mobile DataBaseline TCO
Business case logic
13Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK.
0%
10%
20%
30%
40%
50%
0% 20% 40% 60% 80% 100%
MNO C
MNO B
MNO A
Scale
Profitability
Customer market share
Disruptive region …Iliad Free 3% market share
in 6 month, Ebitda>0 @5% share
Total Revenue
Technology Cost (ca. 15% – 20%)
Usage Cost−
Market Invest SAC & SRC
−
= EBITDA (WEU ca. 37% 1)
Personnel Cost
Other Cost
−
−
−
Network Depreciation−
Spectrum Amortization−
Capex (new rollout < +10+% of Revenue)−
1 BoA ML Global Wireless Matrix 1Q11, margin data for 4Q 2010.
Spectrum invest (0.8 – 0.05 € per MHz-Pop)−
Red color represent Technology driven cost
+ New Revenue?
Defend philosophy!Stop / Slow Revenue Decline
New business!QoS, IoT,, Media, FMC, …
Incumbent region …Diminishing return of
most actions
Efficiency
Efficiency gameDefend / Slow Ebitda Decline
Increased cash pressureNew technology / Modernize
Spectrum position, investment & cost.2.6 GHz up-to 10× more costly to deploy compared to 800MHz.
800 MHz
DL power
Coverage area
UL power (typical limitation for coverage)
Illustration
×10 ×6 ×4.5 ×1 900 MHz – 800 MHz (digital dividend)
2.6GHZ
2.6 GHz
Available bandwidth
LargeVery small
LowHigh
190 MHz
2.1 GHz 1.8 GHz
2×60 MHz 2×75 MHz 2×35 MHz 2×30 MHz Total bandwidth
2×20 MHz 2×10+ MHz 2×20+ MHz 2×10 MHz 2×10 MHz Typical bandwidth per MNO
Re-farm
LTE HSPA+ LTE HSPA+ LTE
DWDM
DWDM
DWDM
DWDM
100 GbpsDWDM
EvolvedPacketCore
Backhaul will force re-thinking the network design.LTE’s extremely power-full air-interface, i.e., 100+ Mbps, will require extensive AND COSTLY backhaul fibre deployment.
15
FTTS 100+ Mbps
LTE air-interface30mean to 100+peak Mbps
(per sector)
eNode
100GbE
Illustration
32:1 320:1eNodes per element 3200:1
BH Throughput 3+ 32+ 320+ In Gbps
Dr. Kim Kyllesbech Larsen, ETSI’s Business Innovation Summit, October 4th 2011, London.
LTE the ultimate off-load weapon for HSPA in overload.More LTE spectrum available across a wider range of frequencies BUT will not replace HPSA for quiet some time.
16Dr. Kim Kyllesbech Larsen, ETSI’s Business Innovation Summit, October 4th 2011, London.
17%
32%
0%
10%
20%
30%
40%CEE
WEU
6%
11%
0%
10%
20%
30%
40%CEE
WEU
HSPA uptake LTE uptake
Early adaptors
35%
66%
50%
83%
0%
20%
40%
60%
80%
100%CEE
WEU
Smartphones
Source: Pyramid Research, March 2012.
& WiFi capable!
Geo coverage 80+%
Geo coverage 50+%
As long as LTE has not reached critical mass (i.e., >20%) WiFi will remain a
strong off-load enabler
Rural / Nation-wide: 800 MHz LTE & 900MHz HSPA
Cost-optimized mobile broadband deployment models. A wide range of frequencies will be essential for economical deployment reducing cost while coping with future demand.
17
Urban – Suburban:
1800 MHz LTE – 2100MHz HSPA
Hot-Spots
2.6GHzLTE
Throughput / Capacity
up-to 3.6 GHz (TDD & FDD) Typical BW per Operator ≥ 2×20 MHz
Femto, small cells & smart-antenna systems.
Rural Fixed-like & deep indoor coverageTypical BW per Operator ca. 2×10 MHz
Illustration
Dr. Kim Kyllesbech Larsen, ETSI’s Business Innovation Summit, October 4th 2011, London.
Note: main LTE bands in USA are the 700MHz and AWS bands, with some PCS band LTE deployment as well (i.e., Sprint). In Asia LTE is more concentrated around TDD and the 2.3 and 2.6GHz bands.
More fixed-DSL substitution (FMS) business model: P2P / CPE-based.
LTE connectivity @ 800MHz
New business models
to emerge.
So speed differentiated pricing is the solution?QoS or Speed guaranty in a radio environment is very difficult1!
1 Some may even argue that it is impossible to provide a guarantied cellular service. Though one may not need to be exactly right but only statistically right to the level where the customer perceive his service to be in line with the price paid. 2 A customer may have paid for high speed price plan but dominantly using lower bandwidth applications.
Cost
Minimum Profit
PriceRange
Price X for up-to 3.6Mbps
Price Y for up-to 7.2Mbps
Price Y for up-to 14.4Mbps
Cost
Minimum Profit
Price Range
Cost
Minimum Profit
Price Range
<Speed> higher than 7.2MbpsStdev less than 14.4 - <Speed>
<Speed> between 3.6 – 7.2 MbpsStdev less than 7.2 - <Speed>
<Speed> < 3.6Stdev less than 3.6 - <Speed>
Illustration
18
Speed differentiated pricing might not be the magic bullet
as use cases might not be consistent with high speed reqs 2
Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK.
NOTE! LTE & LTE-advanced does provide an easier bandwidth –
speed-based QoS differentiation.
What we need to be (insanely) passionate about.
Price innovation! … changing from quantity to quality based pricing.Price innovation! … changing from quantity to quality based pricing.
Understand data profitability vis-à-vis demand, supply & pricing.Understand data profitability vis-à-vis demand, supply & pricing.
Understand mobile data is fundamentally different from mobile voice.Understand mobile data is fundamentally different from mobile voice.
Narrow the gap between customer perceived value and actual price.Narrow the gap between customer perceived value and actual price.
Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK. 19
Thank you for your interest!
Contact: [email protected]: +31 6 2409 5202http://nl.linkedin.com/in/kimklarsenhttp://www.slideshare.net/KimKyllesbechLarsen
Acknowledgement: To my great team behind the scene for their insights, support and suggestions. Also many thanks to Olga Holin, Zahid Ghadialy and Paul Cosway for suggestions and making me think about new ideas. Last but not least I am indebted to my wife Eva Varadi for her great support and understanding during the creation of this presentation.
The key value proposition of a mobile network is ....
Freedom& Mobility