R O A D STo New Growth

#VideoPowersNewGrowth

June 2017 | Huawei Southern Africa Region

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To p i c s

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Foreword

Industry Insights & Trends

Huawei’s View

Success Stories

C O R E

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F O R E W O R D

Video Powers New Growth

As distribution of online video has scaled and become central to the commercial strategies of a host of companies, the industry is entering into a new phase regarding the technology and infrastructure that is being deployed to support the enormous growth in demand. This is a critical inflection point in the evolution of entertainment and enterprise video distribution. As the demand for all types of video services grows exponentially, there are huge opportunities and threats facing all segments of the value chain.

We believe that companies who wish to build sustainable video businesses must aggressively assert themselves to define and protect their roles in the video ecosystem. This is a period of significant change and while there are opportunities for each segment of the value chain.

Huawei aims to become the enabler of operator success in video. We want to help operators develop their video business and continue to grow.

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Video is becoming a new basic service which will open the doors to huge growth potential

On average, data accounted for more than 50% of total operator revenue from telecom services. Video and video-related traffic contributed 25%. We estimate that, by the year 2020, video’s contribution to operator revenue will surpass 50%, and will drive up the revenue generated from all data to more than 70%. For operators this means their role needs to be changed. They can no longer limit themselves to being network operators, but must also become digital content players too.

Operators need to think long and hard about how they can shift their video strategy from being reactive, to being proactive. Instead of positioning video as a value-added service, they need to treat it as a basic service, and then develop it like they did their voice and data services. In this process, they need to optimize their organizations, processes, operations, and capabilities to develop video as a strategic business.

1. In the video era, network experience is more important than ever

Over many years of operations, networks have become the core asset of operators around the world. We all know that network experience is critical. But networks themselves are cold and unintuitive. Consumers can’t perceive their existence. People need perceivable consumption—consumption that resonates with them on a visceral level. When selling home broadband, fixed network operators used to sell bandwidth, like 10 Mbps, 20 Mbps, or 50 Mbps packages, but users had no idea what that meant for them.

In the mobile industry, operators have grown accustomed to selling data traffic, for example, 1 GB, 2 GB, and 3GB per month. These aren’t readily perceived by users either. In the meantime, operators find themselves trapped in a price war, constantly fighting over whose data rates are cheaper.

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Industry Insights & Trends

But what if we changed the way we look at things? If we were to sell experience or content itself, the situation would become much different. Users can perceive the differences between ultra-HD TV, HD TV, and SD TV, and they can distinguish between different types of content. It doesn’t matter if you’re a mobile operator or a fixed network operator, both sides need to think about how they can shift from selling bandwidth or data to selling ultra-HD 4K video and HD video, or better-quality movies and TV programs.

This is the only way operators can sell more bandwidth and data, and get better returns on their investment in infrastructure. If we continue to use cold language like “bandwidth” and “data” to communicate with consumers it won’t resonate with them, and operators won’t receive a decent ROI. Therefore, operators need to treat video as one of their key businesses.

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4K and FHD are becoming the new norm in video consumption

Consumers today expect their video to be in full HD or ultra-HD 4K. Full-HD smartphone screens are now standard for all mid-range and top end phones. There are over 100 models on the market with screens that have full-HD resolution or higher.

In the global TV market, of all the new sets shipped in 2016, 46 million had 4K HD screens, and prices are now lower than ever. 4K TVs made up 20% of total shipments last year. There is an increasing amount of 4K content available too. In 2016 there were 95 4K TV channels, twice as many as in 2015. By 2018, this number will have grown to 180. At the beginning of 2016, more than 15% of YouTube content was in full-HD or ultra-HD 4K.

In South Africa, there are already more than 200 thousands 4K TVs, and the price of 4K TV is decreasing quickly and reached approximate 465USD.

One global survey found that 82% of users were willing to pay 10%–30% more for 4K content. To them, paying extra for a better experience or better content is worth it. We believe that consumer demand knows no bounds. They are always looking for something better and in the near future, virtual reality and augmented reality video services will become a basic service requirement.

In South Africa, there are already more than 200

thousands 4K TVs, and the price of 4K TV is decreasing

quickly and reached approximate 465USD

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Telecom operators face Fragmented content and experience measurement standard challenges when developing their video business

Fragmented content is the biggest challenge. Around the world, there are more than 1,000 content providers, 600 telecom operators, and 100 content operators. Video content is diverse and abundant, but it’s extremely difficult to aggregate and distribute to consumers in specific countries and regions.

For consumers, the best-case scenario is having a single point of entry that provides easy access to all the content they want to watch. One single account, one single payment. Telecom operators are best positioned to provide a single point of entry for all video content.

Absence of video experience measurement standard capable of supporting a good video experience in HD, 2K, or 4K. There is simply no standard of measurement for video experience, regardless of the operator, for both fixed and mobile networks alike. If we want to guide operators in building out and optimizing their networks, the industry will need to come up with standards for measuring video experience. This will ensure that the experience consumers are getting will be consistent.

Huawei has been working with Oxford University to develop a set of these measurement standards. We call them vMOS(video mean opinion score), and we hope they can serve to guide operators in the construction of their networks.

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I n d u s t r y I n s i g h t s & Tr e n d s

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Huawei’s View

The Typical Approach For African Operators To Succeed In Video Business

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Broadband Monetization is the mainstream in Africa, OTT cooperation is a typical approach

The Broadband Monetization concept is grounded in the shifting of carriers’ business from bandwidth-centric to video-centric. It is recognized that consumers, who have a solid grasp of the quality of video services, are willing to pay a premium price for high quality video content. The central principle of the monetization concept is the conversion of the carriers’ broadband network users into video services users. By binding content with broadband networks and, at the same time, by combining broadband and mobile networks, carriers can monetize and even increase the value of their network infrastructure by transferring the value in content to the networks.

A typical approach of broadband monetization in Africa is aggregating diverse OTT video service, such as a video mall provided by operators. In this phase operators provide and control the contact point of users, cultivate users’ video consumption habits.

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By binding content with broadband networks,

carriers can monetize and even increase the value of

their network infrastructure. Increase ARPU, broadband revenue and market share,

and reduce user churn.

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H u a w e i ’s V i e w

Experience Monetization approach in the second phase

Having established this base of video services users, carriers need to consider their monetization strategy. It is broadly accepted that consumers will only pay for video services that deliver a premium user experience. The Experience Monetization concept can be justified by the fact that increasing number of carriers are launching their content recommended 4K, video communications services with zero latency capability. Carriers need to build their own integrated video platforms and network infrastructure which is optimized for video service as well as aggregate customized high-quality content, so that they can offer the best video experience to their customers.

In this phase, Africa operators should also attempt some typical video scenarios match the requirements of Africa consumers, such as video clip service in mobile network, or live channels broadcasting in mobile and fixed network, bonded by better interactive feature provided by IP network.

Eco-system Monetization as the video strategy vision

Ultimately, carriers need to explore the business opportunities that exist in vertical areas. They should open their video capabilities to uses in other vertical markets and monetize these capabilities to generate revenue in different business scenarios, such as B2B, B2V and B2B2C, etc. The opening-up of video capability is the key to this stage, allowing carriers to breakthrough into vertical markets with solutions such as Smart City, Safe City, Remote Healthcare and Advertising.

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Success Stories

Challenges

In 2015, T-Mobile was facing high pressure in the U.S. market, the traditional mobile business was growing slowly and they needed a new service engine like video to drive the revenue growth. In that year AT&T announced acquisition of satellite TV provider DirectTV for $50 billion, Verizon purchased AoL for its wide-ranging video content and mobile device-related advertisements, this market was fiendishly competitive. Meanwhile end users’ demand kept changing, the mobile phone became the first screen for video watching, and luckily T-Mobile had the highest percentage of streaming content usage among major carriers. Also T-Mobile had the fastest LTE speed and best coverage, how to increase the asset value of the network was an urgent problem.

T-MOBILE BINGE ON: EASY GO, QUICK WINSolutions

The new plan “Binge On”, released with video service to all of T-Mobile’s MBB users. By the end of 2015, when users subscribed to the data bundle with more than 6 GB resource, they can watch the major OTT videos (480p) totally free traffic under Binge On mode. From then on, Netflix, HBO, Hulu… more than 60 OTT players joined the group to cooperate with T-Mobile, they can choose to optimize the video’s resolution by themselves or limited by T-Mobile. This model brought in more users and quickly strengthened their profitability. For end users, Binge On realised their requirements, created their habits and improved their experience. Through this, T-Mobile was able to attract more new users, increase ARPU and revenue with the controlled pipe. Binge On is a “Multi-Win” business model for the market.

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Business Success

According to the 2016 Q2 statistics, T-Mobile had a 1.9M net customer increase, 12% service revenue increase, a 36% EBITA growth YoY and a 6% ARPA(Average Revenue Per Account) growth YoY. The average daily data usage and daily usage time by T-Mobile users was obviously higher than other carriers’. “Binge On” helped T-Mobile improve their brand significantly and enabled them to at last win the prestigious Yearly Best Carrier award

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According to the 2016 Q2 statistics, T-Mobile

had a 1.9M net customer increase, 12% service

revenue increase, a 36% EBITA growth YoY and a 6% ARPA(Average

Revenue Per Account) growth YoY.

S u c c e s s S t o r i e s

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Challenges

Deutsche Telekom Germany started its TV services more than 10 years ago. However, its legacy video platform was a closed video system, it took a long time to onboard new services. With the inconsistent video experiences provided by the two video platforms for home and mobile, more and more subscribers complained and that brought high cost to DT’s operation.

Solutions

Facing the challenges of revenue declining and losing high value users, DT set a new group strategic target - to become a leading European Telco. DT focused on the following aspects for their NGTV:1.Unified video platform supporting fixed and mobile TV experience.2. Unified client providing an excellent and consistent experience across STB and mobile devices3. Simplify the integration with 3rd party content and applications

DT chose to cooperate with Huawei to develop the next generation TV. With this new platform, they first shortened the time of zapping and EPG loading by the FCC and Poster acceleration which enhanced the core TV experience for viewers. Secondly, more abundant functions were added by NGTV like “Instant Restart” for subscribers who miss their favorite programs. “PreTV” that allows users to watch TV the following day with extra payment, and so on… All of these were aimed to provide the best TV experience for their subscribers.

LEADING EUROPEAN TELCO BT PROVIDING BEST VIDEO EXPERIENCE

DT provides an intelligent search crossing of all content which includes self and 3rd party partners like YouTube and Sky. This gives viewers a single application where they can effectively find all their favorite content regardless of where it comes from.

Business Success

With this converged, open and smart NGTV, DT steadily grew their subscribers, and the majority of existing TV subscribers were willing to switch to new product bundles.

Huawei Technologies South Africa (Pty) Ltd

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Sandton, 2196, Johannesburg, South Africa

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