who pays for mobile broadband 2.0

Who pays for mobile broadband 2.0A European perspective.Open Mobile Summit , November 2nd 2011, San Francisco.

Dr. Kim Kyllesbech Larsen, Technology Economics

Technology, Deutsche Telekom.

Changing business models …

2Dr. Kim Kyllesbech Larsen, Open Mobile Summit , November 2nd 2011, San Francisco.

Mobile OperatorGarden

CS VoiceSMS

Mobile Data

NetworkSIM Bill ing

50 – 700MHzCloud

SIM

“New”Billing

Whitespace

OTT Apps

Coolstuff

Smartdevices

A typical data traffic day in Europe.


00:00 10:00 12:00 22:0017:00

Illustration

6:00 8:00

voicedata

@Work @HomeOn the

Go@Home

On theGo

Voice?

SMS ?

OTT Mobile Apps impact.Mobile Apps “attacks” the highest margin services.

4

22.4 1

12.7

1 Source 2010 & 2015 Pyramid Research September 2011 Western Europe.

2010AMNO Centric

ARPU

2015EApps Centric

ARPU

15.7Voice

3.4SMS

3.3Data

6.5Voice

6.2 1

Data

?By 2015

more than 70%of users have a smartphone

+9.7+Data

ARPU

ARPU

Death to SMS.

VoIP @Home

& maybe @Work.

Dr. Kim Kyllesbech Larsen, Open Mobile Summit , November 2nd 2011, San Francisco.

+43%

Postpaid traffic changes the last 12 month.


0 100 200 300 400 500 600 700MO MoU per Customer

2010

+12 Month

0 50 100 150 200 250 300 350MO SMS per Customer

2010

+12 Month

0 100 200 300 400 500 600Mega Byte per Customer

2010+12 Month

Illustration of a European Market

Declining minutes Declining SMS

Increasing Data

0 50 100 150 200Average Revenue per User (ARPU)

2010

+12 Month

Declining ARPU(and top-line)

#Customers #Customers

#Customers#Customers

Prepaid getting in on the mobile data feast…

6

MBoU doubled

-10% MO-MoU

-15% ARPU


Last 12 month

-20% MO-SMS

Illustration of a European Market

The mobile business model could breakdown within a few years with mounting cash and demand pressure.

7

Total Revenue

Technology Cost (ca. 15% – 20%)

Usage Cost (Voice dominated 10% - 20%)−

Market Invest SAC & SRC (ca. 20%)

−

= EBITDA (WEU ca. 37% 1)

Personnel Cost (<20%)

Other Cost (5% - 10%)

−

−

−

Network depreciation (ca. <20% of Revenue)−

Spectrum Amortization−

Capex (ca. 7% to 15% of Revenue)−

Mobile Profit & Loss - Today

1 BoA ML Global Wireless Matrix 1Q11, margin data for 4Q 2010.

70% of Total Revenue Today

= Maintain Today’s EBITDA of ca. 37%

Mobile Profit & Loss - Tomorrow

Reduce Cost with 30%!↑

↑

New business, operation and cooperation modelsNew business, operation and cooperation models

New revenue sources.

New cost reduction strategies.

New partnership models.

New revenue sources.

New cost reduction strategies.

New partnership models.

De-risk the mobile business model

↓

↓

Technology Cost (15% - 20%)

Personnel Cost (<20%)


↑

3G Growth …will continue … for some timeand eventually decline as subs convert to LTE.3G growth …will continue


Illustration of a European Marketwith ca. 50+% prepaid base.

2006 2017

3GContract

3GPrepaid

CAGR 75%@ 2006 - 2011

Total 3G Data Traffic1

3G LTEConversion

CAGR 45% @ 2012 - 2017

2025

GSM 3G Conversion

1 Note: Due to the complex dynamics of technology migration and dependency on operator policy the phase-off of 3G is highly uncertain.

Total growth … another leap with LTE.


Illustration of a European MarketLTE introduction 2013 earliest.

2012 2018 2025

Total Data Traffic

LTE CAGR 84%@ 2013 - 2018

CAGR 52% @ 2020 - 2025

3G LTE Conversionby 2025

500+ 2015 traffic@ 100% LTE share

LTE 2 3G Traffic@ 30% LTE share LTE

10 20 40 60 85 120 120 120 120 120 120

0

5

10

15

2010 2012 2014 2016 2018 2020

Total spectrum in use for mobile data

Inc

rea

se

ove

r 20

10

Spectral Efficiency (*)

Spectral demand (limited)

Spectral demand (unlimited) Spectral demand could exceed spectral efficiency

between 2014 - 2016.

Spectral demand could exceed spectral efficiency

between 2014 - 2016.

When data demand exceeds spectral efficiency gains.”Houston we have problem”.

10

1 Mobile operator with (1) 20MHz @ 800MHz (LTE), (2) 20MHz @ 900MHz (2GHSPA),(3) 50MHz @ 1800MHz (2GLTE), (4) 30MHz @ 2100MHz (HSPA+). Total spectrum position 120 MHz.

Illustration of a European market 1

(*) realWireless report for Ofcom,: 4G Capacity Gains, Final Report, January 2011, 2 Note: smart antennas included DAS based solutions.


3G LTE LTE-aConversion

Leapfrog network capacity, e.g.,

Densification

smart antennas2

Early LTE deployment

Price, Control & Policy.

More spectrum.

Leapfrog network capacity, e.g.,

Densification

smart antennas2

Early LTE deployment

Price, Control & Policy.

More spectrum.

The spectrum crunch.

A lot moreComplexity, Capex and Opex

A lot moreComplexity, Capex and Opex

NOT GOODAT

ALL!

How to uplift the mobile data business case.Demand for new revenue, partnerships & collaboration models.

11

Economics of mobile data

Free Cash Flow

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Businessmodel

breakdown

Innovation

Increased spectrum availability.

Early LTE deployment.

Mobile – Fixed partnership models.

Increased spectrum availability.

Early LTE deployment.

Mobile – Fixed partnership models.

Structural off-loading1

Network APIs.

Smarter & network friendlier devices.

Femtos cells.

Network APIs.

Smarter & network friendlier devices.

Femtos cells.

Network Aware Apps & Devices

Internet of Things

Location / Notifications / Payments

Customer insights

Internet of Things

Location / Notifications / Payments

Customer insights

New revenue streams


HSPA only, no LTE

HSPA + LTE w. 50% off-load from 2012

Illustration of a European market

1 Note: off-loading here means any traffic migration from legacy technology or legacy spectrum bands to something else.

LTE

Mobile revenue opportunities (worldwide) by 2015.

12

Mobile Revenues$1,200 Bn

Internet of Things$1,200 Bn

???

Social Media

$30+ Bn

Mobile Entertain

$55+ BnOnline Ads

$100+ Bn

Handsets$340+ Bn

Apps

$12+ Bn


1 Sources: Apps from Berg Insight (2011), Social Media from Gartner (2011), Mobile Entertainment from Juniper Research (2011), Online Adds from MagnaGlobal (2011), Handsets from MarketsandMarkets (2011), Internet of Things from GSMA (2011)/

Vision - network aware mobile apps (1 of 2).Optimized service delivery – macro-level.

Traffic Profile

30+% in-fill possibility.

Cognisant network required.

Optimized service delivery

Network friendly apps.

Cloud-Device optimization.

E2E SON.

30+% in-fill possibility.

Cognisant network required.

Optimized service delivery

Network friendly apps.

Cloud-Device optimization.

E2E SON.voice

data

13

Primary indoor usage → off-load possibilitiesPrimary indoor usage → off-load possibilities

What can be learned?

Off-busy-hour In-fill deliveryOff-busy-hour In-fill delivery


Vision - network aware mobile apps (2 of 2).Collaboration across network, device and apps.

14

BH time frame (sec by sec)

Averageload

Capacity limit

Smar

t (in

terc

onne

cted

) dev

ices

Self-Optimized & Cognisant Network

Network optimized O

S & Apps


E.g., Synched notification

E.g., Ad-hocOptimized route

When Network is NOT a differentiator.

SUBSTANTIAL financial benefits.

NOT a solution to spectrum CRUNCH.

COMPLEX Governance.

When Network is NOT a differentiator.

SUBSTANTIAL financial benefits.

NOT a solution to spectrum CRUNCH.

COMPLEX Governance.

Decreasing margins & increasing cash pressureforces network consolidation & new partnerships.

15

Sharing logic

Experience.

Economics

Total Opex100%

Technology

Network 10%

RANsaving

RAN 7%

Cluster Opex40%

Rollout<5 years

Steady State in 5 years

Modernization> 5+ years

LTE HSPA+ HSPA UMTS + GSM (→LTE)

Significant Capex prevention.

Substantial Opex prevention.

Bets network … more for less.

Significant Capex prevention.

Substantial Opex prevention.

Bets network … more for less.

Rollout

Little Capex benefits.

Substantial Opex savings.

High write-off & restructure cost.

Little Capex benefits.


High write-off & restructure cost.

Steady State

Capex prevention (sharing of modernization).


Minor write-off & contract termination cost.

Capex prevention (sharing of modernization).


Minor write-off & contract termination cost.

Modernization


What we need to be passionate about.

16

How to spend it

How to earn it back

Kim Kyllesbech Larsen, Mobile Open Summit 2011, June 8th, 2011, London, UK.

Internet of Things

Monetize social media

Monetize (non-linear) TV

TransformBusiness Model

The key value proposition of a mobile network is ....

Freedom

Contact: [email protected]: +31 6 2409 5202http://nl.linkedin.com/in/kimklarsen

Acknowledgement: I am indebted to Xi Bin, Dejan Radosavljevik and Veli–Pekka Kroger, as to the rest of my Technology Economics Team, for being patient with my data requests, and for their great suggestions in creating and improving this presentation.

& Mobility

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who pays for mobile broadband 2.0

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open mobile summit

mobile broadband

kim kyllesbech larsen

mobile data feastillustration

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ott mobile apps impact

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