Vývoj mobilního broadbandu v Evropě - Frank Gothardt, Capgemini

Mobile Broadband in Europe

Frank Gotthardt
Executive Director Eastern Europe
Capgemini Consulting TME

Prague, 22nd April 2009

Capgemini Consulting is the strategy
and transformation consulting brand
of Capgemini Group

Contents

Research Highlights

Key Operator Initiatives to Drive Growth

Future Challenges and Mitigation

PRESENTATION MOBILE CONFERENCE_PRAGUE_APR 2009
2
_MOBILE BROADBAND_.PPT
Copyright © 2009 Capgemini. All rights reserved.

Although MBB is still in nascent stages, it is expected to grow robustly
and overtake fixed broadband within a few years
Estimated Global MBB Subscriptions1, Millions, 2009E - 2012E

1400

1200

1000

800

600

400

200

0
2009 2010 2011 2012

FBB Subscribers - as per Ericsson FBB Subscribers - as per eMarketer & In-stat
MBB Subscribers - as per Ericsson MBB Subscribers - as per Juniper Research

Analysts estimate MBB service revenues to reach $400 billion by 2012.

3

European MBB service revenues are estimated to grow robustly and
contribute significantly to operators’ revenue growth
Europe MBB revenue1 forecast, Expected Evolution of Various Components of
EUR billions, 2008-2012 Mobile Service Revenues, Selected 21
Operators in 7 EU Countries, 2008-2010E
12

<1% 4%
8%
10%
10
15%
15%
8

6
77% 71%
4

2

2008 2010
0
Voice Messaging
2008 2009 2010 2011 2012

Other non-SMS Data Mobile Broadband Access
Estimate by Berg Research Estimate by Oppenheim Research

By offering high speeds and convenience, MBB is expected to play a key role in driving consumer
uptake of non-SMS data services2 and thereby increasing operators’ data ARPUs further.
Note: 1. MBB revenues in Europe consists access revenues from data cards, USB dongles and embedded Laptops. Excludes smartphones and other 3G phones 2. Non-SMS data include mobile
internet access, video telephony, and instant messaging.
Source: Capgemini TME Strategy Lab analysis. ING, “European telecoms - When will mobile data make a real difference?”, 2008. Oppenheim Research, “Telecommunications Industry Driver
Mobile Broadband”, 2008. PRESENTATION MOBILE CONFERENCE_PRAGUE_APR 2009
4

Analysts project 1.2 billion MBB subscribers globally by 2012 with
WCDMA/HSPA to be the dominant technology (75%).

Percentage of Subscribers using MBB in Addition to
MBB Subscriptions1, Millions, Worldwide, Q3
and Instead of Fixed Broadband, UK, Q1 2008
2008

365
105

53%
67%
68% 70% 74% 75%
81%
60
143
116
87
40 0.7
21 200 47%
21
33%
32% 30%
58 26% 25%
94
82 19%
15
14
APAC Europe USA/Canada Worldwide Total 16-24 25-34 35-44 45-54 55-64 65+

Consumers Using MBB in Addition to Fixed BB
WCDMA HSPA EV-DO
Consumers Using MBB Instead of Fixed BB

MBB subscribers worldwide have grown by Almost 30% of consumers now use MBB as
41% from Q3-2007 to Q3-2008 a substitute for traditional fixed-line
broadband
HSPA has demonstrated high growth rates,
especially in Europe: The youth segments prefer MBB over Fixed
Broadband more than any other segment
Source: Capgemini TME Strategy Lab analysis. CDMA Development Group. GSM Association. Wireless Intelligence. UMTS Forum. Informa Telecom.
5

Contents

Research Highlights



6

The drivers of a robust MBB business are all focusing on a positive
customer experience

Key Operator Initiatives Driving Growth of Mobile Broadband Services

Speed Pricing

Key
Operator
Initiatives

Availability and Affordability
Content
of Devices

7

Growth of MBB is driven by increase in access speeds, aggressive
pricing, affordability of feature-rich devices and access to content
Key Operator Initiatives Driving Adoption and Usage of Mobile Broadband

Speed Pricing

Operators continue to invest in new and Falling prices with increase in inclusive data
improved technologies (HSxPA, HSPA+) to limits has lead to transparency and
support higher speeds (~7.2 Mbps) and data encouraged uptake
usage
Competitive pricing vis-à-vis fixed BB has
As of date, all EU countries have commercial encouraged substitution
HSxPA deployments

Key Operator
Initiatives
Wide range of handsets available with Access to rich mobile content like videos
pre-installed applications
Access to open Internet and partnerships
Affordability of feature rich handsets with content players like Google,
(~$200), USB dongles (~€ 30) and laptops YouTube, Napster etc. have enhanced
content availability for consumers
Bundling offers (with USB, laptops and
netbooks) to increase affordability of devices

Availability and Affordability of Devices Content

8

Operators continue to upgrade their mobile networks to deliver
enhanced speeds and user experience

Growth in Number of Commercial HSPA2
Comparison of Speeds of Various MBB
Technologies with those of DSL Installations, Worldwide, Dec2007-Dec2008
Downlink
Mbit/s

>1,000
252
100
~70 ~70
100
~52

12
50 VDSL22
14.4 14.4
129
12 12
14 12
8-10
WiMAX VDSL1
ADSL2 HSPA+
10
60
EVDO
8
~4
6
3.1
4
ADSL
1.9 ~1-2 ~1-2
1
EVDO HSDPA
HSDPA Deployments HSUPA Deployments
Bandwidth
HSUPA
EDGE Evolution
0,512

Dec-07 Dec-08
Peak Speed Practical Speed

MBB provides speeds comparable to DSL 112 HSDPA and 101 HSUPA networks are
planned or in deployment stage

9

Moreover, data traffic is expected to increase significantly faster than
revenues, leading to a monetization gap
In Sweden, average data usage through MBB has risen In 2007, revenues from mobile data traffic increased by
from 457 MB/month/user to 1,398 MB/month 60%, compared to 1000% growth in mobile data traffic

Growth in Data usage (MB/month/user), Sweden, Growth in MBB Revenues (mn SEK) and Mobile Data Traffic
H1 2007-H1 2008 (TBytes) , Sweden , H1 2007-H1 2008
5000 5000
1,398

Mobile Data Traffic (TBytes)

MBB Revenues (mn SEK)
4000 4000
~ 202%
3000 3000

2000 2000
Monetization
~ 1000% Gap
1000 1000
457
~ 60%

0 0
2006 H1 2007 2007 H1 2008

Increase in Mobile Data Traffic Revenues from MBB
H1 2007 H1 2008

As MBB adoption continues to grow and traffic volume skyrockets, increase in monetization gap can
have a far-reaching impact on profitability.
Source: Capgemini TME Strategy Lab analysis. Analysys Mason, “Mobile broadband high take-up but high usage can lead to low profits”, December 2008. Swedish Post and Telecom Agency
(PTS), December 2008. PTS, “The Swedish Telecommunications Market 2007”, June 2008.

_MOBILE BROADBAND_.PPT 10

European operators have reduced tariffs or increased monthly data
allowances to lower the unit price of data (€/MB) significantly

Comparison of entry level Mobile BB Prices and DSL Prices2, %, June 2008

MBB at a discount to DSL MBB at a slight MBB at a significant
premium to DSL premium to DSL
250%
MBB price premium over DSL(%)1

200% Belgium

France
150%

100%

Spain
50% Norway

0%
Italy
UK
Ireland Sweden
-50% Finland
Austria
-100%

Many European operators have reduced average MBB prices by ~35% to 50%:
Latvia, Austria and the UK have experienced price declines of 53%, 43% and 35% respectively over the past
year
Operators have also increased the average inclusive data allowance by around 30 percent:
The average data allowance across various MBB tariff plans in Europe has almost doubled from 1.8GB in
2007 to 3.9GB in 2008
The most common monthly user data allowance offered in Europe is now 5-10GB, up from 1- 3GB in 2007


Further, innovative handsets such as iPhone support high end
applications, encouraging increased data usage and MBB uptake

New handsets such as iPhone and G1 encourage
…resulting in increased data traffic
uptake of high end applications…

Data Traffic over iPhone and Smartphones, %, 2008
iPhone Google’s G1
Used Email 26%
(work or personal)
70%

33%
Listened to music
70%

10%
Accessed a social
network site or blog 42%
Features Description
15%
• Large display Watched Mobile TV/Video
Handset 32%
• Long battery life
functions • Touch Screen
18%
Accessed Web search
57%
Operating
• Mac OS , Linux , Windows XP
systems Accessed news/information 32%
via browser 80%
• Support wireless internet through HSDPA,
Edge and Wi-Fi
Others 0% 20% 40% 60% 80% 100%
• High end applications like Gtalk, GPS, audio-
iPhone Smartphone
video streaming, download and playback etc.

Source: Capgemini TME Strategy Lab analysis. eMarketer.


Operators are now bundling MBB contracts with free USB dongles
and data cards to stimulate demand
Examples of Entry Level MBB Contracts Bundled with USB Dongles and Other Devices,
December 2008
Devices Speed / Monthly
Operators Offerings Offered for Data Rental / Success resulted in:
Free Download Contract Period

Orange UK’s USB dongle
“Orange Mobile
Up to 3.6MB / £15.00 / subscriptions surged by over
Broadband Everywhere
5GB 18 Months
2000% (January 08 to
– USB Modem”
December 08)

Vodafone’s European data
“Vodafone Mobile Up to 7.2MB / £15.00 /
card subscribers reached
Broadband - USB Stick” 5GB 12 Months
c2.6m subscribers (June 08)

“3 Mobile Broadband Plus
Hutchison 3G’s European
– USB Stick”
Up to 3.6MB / £15.00 /
mobile broadband users
• 500 minutes or texts
5GB 18 Months
reached around 1m (August
• Free unlimited 3-to-3
minutes 08)

Between February and June 2008, sales of USB dongles nearly doubled from around 69,000 per
month to 133,000 a month.
Source: Capgemini TME Strategy Lab analysis. Top 10 broadband website, 2008. Orange, “Orange Digital Media Index – Summer / Autumn 2008, 2008. Deutsche Bank, “ Mobile Broadband , A
silver lining among clouds”, October 2008.


Similarly, availability of advanced offerings has resulted in increased
uptake of mobile content and applications
…resulting in increased usage of mobile content
Mobile Content has evolved from basic monophonic ring
services
tones to music and video streaming…

Evolution of Mobile Content from Mobile Content used by US Mobile Phone Users, Sep
Ringtones to Richer Types of Multimedia 2007 - October 2008

15.6%
Searched Internet for
local products / services 9.8%

14.3%
Searched Internet for products /
6.4%
services outside my local area
13.7%
Got information about movies or
Infotainment On-demand
Revenue

8.2%
other entertainment
Video-based
Portals
Browsers
11.7%
Got information about
PC Stores Free Music
9.0%
Restaurants / bars
& Portals & Video
Java Storefronts
Streaming
9.6%
Free Music Connected with a social network 3.4%
Streaming
SMS WAP Ring tones Music 8.4%
Watched / purchased a music video /
Ring tones, Downloads
internet video (eg., YouTube)
Logos 4.4%
Phone to
PC Music
Music Clips 12.3%
Master Used instant messenger service
Tones
Monophonic
(eg., yahoo Messenger)
Polyphonic

Time 0% 5% 10% 15% 20%
September 2007 October 2007
Source: Capgemini TME Strategy Lab analysis. Forrester Research, “European Mobile Forecast: 2008 To 2013”, March 2008. Xellular website. eMarketer survey, “Mobile Content Used by US
Adult Mobile Phone Users”, October 2008.


Contents

Research Highlights




Operators face challenges to enhance capacity, improve profitability and
increase revenues from MBB
Summary of Key Challenges and Mitigation Strategy for Operators Offering MBB

Challenge Key Area of concern Mitigation Strategy
Capacity constraints on access and Enhance RAN capacity by investing in additional
backhaul networks carriers, spectrum, technology upgrades and new
1
towers
Enhance
Traditional backhaul solutions won’t
Capacity
be sufficient and cost effective to Migrate from leased-lines to microwave and fiber
meet expected traffic growth based backhaul solutions

Increase in monetization gap
2 Adopt tariff schemes such as tiered pricing, prepaid
Pressure on resulting in lower profit margins plans to increase revenues and implement fair-use
policy to control data usage
Profit Margins
Replace backhaul opex with capex, share networks
Rise in backhaul cost likely to reduce and offload traffic to Wi-Fi and Femtocell sites
EBITDA margins by 1.5%-3%

Lower capital efficiency of MBB and Offer a bouquet of value-added services and
3
falling data tariffs applications, either stand-alone or through
Avoid Becoming partnerships, to maximize share of consumer
a Dumb-pipe Limited data ARPU growth from flat spend on content accessed through MBB
rate pricing models and limited share
of consumers’ expenditure on
services and applications

Source: Capgemini TME Strategy Lab analysis.


In Europe, expected 10-fold rise in wireless data traffic can exhaust 1
current network capacities by 2010
Factors Driving Growth of Wireless Traffic Expected Wireless Download Traffic growth in
Europe, PB1 / month, 2008-2015E

Usage Growth
Description
Drivers

280
• Flat rate pricing and increase in data
Flat-rate usage allowance are encouraging
Tariffs consumers to use more data
210
services
Current Europe Broadband
Access Capacity2, 2008
• Devices such as I-phones, 3G ~ 10x 150
Uptake of (~44 PB/month)
embedded Laptops, Smart-phones and
High-end
PDAs are increasing usage occasions
Devices 100
of wireless data
80
55
38
28
Popularity of • Peer-to-peer sharing, video streaming
Bandwidth- and music downloads are exerting
intensive additional pressure on wireless
2008 2009 2010 2011 2012 2013 2014 2015
Applications bandwidth

Consequently, operators need to make further investments in RAN3 as well as in backhaul
infrastructure to combat capacity constraints.


MBB is also less capital efficient (lower revenue per MB) compared to 2
other services

Compared to other services, MBB is less Moreover, average data tariffs are expected to
capital efficient decrease further by 10% annually

Comparison of Capital Efficiency of Different Expected Decrease in Data Tariffs, € per MB,
Services, Revenues in USD per MB, August 2008 2008-2011
1.18

1
14
0.9
12
0.8
0.7
0.6
0.6
0.5
0.45
0.4 0.38 0.36
0.42 0.39 0.38 0.36 0.32
4 0.3
0.22 0.20 0.19
0.18 0.18 0.17
0.008 0.004
2005 2006 2007 2008 2009 2010
Mobile 1
Small- Ringtone MMS Mobile TV
screen download Broadband
browsing
US and Canada Asia Pacific
Eastern Europe Western Europe

Note: 1. Based on € 20 for 3 GB per month tariffs available in most of the European markets.
Source: Capgemini TME Strategy Lab analysis. Nokia Siemens, “Optimize backhaul to increase mobile data profits”, 2008. Capgemini TME Strategy Lab analysis. Company websites. Analysys
Mason, “Are mobile operators rapidly becoming low-cost data pipes”, August 2007.

Operators should also aim to reduce opex through various cost 2
management initiatives

Cost Management Initiatives to Reduce Operating Expense

Reuse Existing Civil
Invest in Fibre based
Infrastructure
Backhaul

Cost
Management
Initiatives

Offload traffic to Wi-Fi
& Femtocells to improve
Network Sharing to reduce
coverage & ease traffic on
Capex and Opex
core network


D

Sharing of passive and active networks can provide significant capex
e
v
i
c
e
1 2

and opex savings for operators
s
t
r
a
3 4

t
e
g
i
e
s

Network Sharing Alternatives and Expected Savings

Passive Sharing1 / Sharing of Site
RAN Sharing2 Sharing Regional Infrastructure3
Rentals

Subscribers Subscribers Subscribers Subscribers Subscribers Subscribers
database database database database database database

Core Core Core Core
Core Core
network network network network
network network

Network Network Network Network
Network controller
controller controller controller controller

Base station Base Station Base station Base station

• RAN cost savings of around 10% • RAN cost savings of up to 20% • RAN cost savings of up to 25%

Note: 1. Passive sharing includes sharing site rental, masts, power, lighting and air conditioning. 2. RAN sharing includes sharing antennae, base station equipment and transmission 3. MNO
keeps base station sites and equipment separate, but its network interacts with that of another operator, thereby enabling customers' phones to connect through either network.
Source: Capgemini TME Strategy Lab analysis. Vodafone, “Annual Report FY2008“, 2008. Analysys Mason, “Cost minimization strategies are key as MNOs invest in mobile broadband”, August
2008.

D
e

Offloading data traffic to cheaper Wi-Fi hotspots can provide cost
v
i
c
e
1 2

s
t

savings and faster speeds
r
a
3 4

t
e
g
i
e
s

Examples of Operators Bundling MBB & Wi-Fi

Operator Offer Details Operator Benefits

Mobile broadband bundled with DSL and Wi-Fi
Helps offload traffic to
Offers a free 8Mbps DSL connection for one year
cheaper Wi-Fi hot-spots
and access to 7,500 Wi-Fi hotspots
to ease-out heavy traffic
Priced at GBP20 per month with data usage limits on cellular networks
of 3GB per month

Includes 8MB fixed line broadband, free 500 Wi-Fi Automatically switches
minutes from BTOpenzone and free mobile between Wi-Fi and 3G to
broadband provide fastest possible
speeds and optimize
Offers unlimited data over fixed line and 1
network utilization
GB/month data limit for mobile broadband
Package offer priced at GBP 40 per month

Source: Capgemini TME Strategy Lab analysis. Company websites.


D

Using Femtocells can provide cost savings by offloading traffic from
e
v
i
c
e
1 2

operators’ access networks
s
t
r
a
3 4

t
e
g
i
e
s

Schematic Representation of a Femtocell
Deployment Femtocells are smaller mobile base
stations that can be kept indoors to
GSM/3G
increase coverage:
Handset
When When
A femtocell is placed inside the customer premise
Outdoors Indoors
to act as an extension of the cellular access
network
The user is provided a normal 2G or 3G handset
Indoor area
(home/office)
The handset uses the cellular network when
covered by
Cell Site
outdoors and ‘roams’ into the range of the
Femtocell
femtocell when indoors
The fixed broadband network is used to backhaul
Cellular
Network
the femtocell to the core cellular network
VoIP
Gateway Femtocells help increase indoor coverage
Interconnect at low costs and are suitable for
IP Network deployment even in residential homes:
Femtocell provides improved indoor coverage by
bringing dedicated 3G coverage into the home
Wireless Access Femtocell helps to offload heavy data users from
Switched Voice
wide area network, resulting in reduction in
VoIP
required RAN capex
Source: Capgemini TME Lab analysis. Techworld, “Femtocells use set to soar”, March 2007. Telephone Magazines’ Complete Guide to IMS, “On the Go, In the Home - Femtocells “, May 2007.


Therefore, operators face the challenges of identifying additional data
3
revenue streams and monetizing them
Challenges for Mobile Operators for Increasing Mobile Data Revenues

Flat-rate deals encourage adoption of new services, but can limit revenue growth once
the customer base is established

Limited ARPU Once “all you can eat” plans are introduced price revisions are difficult due to
Growth with Flat competitive pressure and customer expectations
Rate Pricing
Markets like Sweden and Austria have witnessed sharp decrease in MBB prices (from
GBP30 per month to GBP15 per month for a 3GB allowance) due to competitive
prices from Hutchison

Services from Napster and iTunes are data intensive but provide only a modest share
of revenue to operators:
Limited Share of
– MusicStation, supported by Vodafone, allows unlimited downloads for just
Consumers’
GBP2 per week
Expenditure on
Services and
Third party applications like Google Maps, social networking sites threaten operators
Applications
revenue

Operators face the threat of being reduced to a ‘dumb- pipe’, gaining revenues from access, but little
from services.

Source: Capgemini TME Strategy Lab analysis. Analysys Mason, “ Mobile operators’ data ambitions may be pipe dreams”, August 2008. Company websites.


Operators can adopt different positioning strategies to achieve
3
differentiation and enhance data revenues
Positioning Strategies for MBB Operators
1
Basic Mobile Internet Provider

Differentiation: Price and product simplicity
Target price conscious consumers looking
at MBB as an alternative to DSL

4 2
Mobile Internet and Solution
Integrated Communication Provider
Provider
Strategic
Differentiation: Advanced Differentiation: Operators’ self
Options
convergence services delivering owned services such as music
triple or quadruple play library, mobile gaming, portal etc.
Cross sell products based on
customer usage patterns
3
Mobile Internet Provider and Solution
Aggregator

Differentiation: Wide selection of own and
third-party services such as search, file
sharing, navigation, social networking, etc.
Target customers who value services more
than the access product
Source: Capgemini TME Strategy Lab analysis.


Operators such as Orange, Maxis and Vodafone are offering innovative
3
services to differentiate and increase data revenues
Operators Initiatives to Enhance Data Revenues
Strategic
Operator Initiatives Key Success
Positioning

Mobile Internet Differentiation through innovative services like Video In March 07, data revenues
and Solution Call, Maxis TV, gaming and community services like rose 21% over the
Provider MBlog etc. corresponding quarter last year

Real-time policy control and
Mobile Internet Differentiation through services like Wallet Manager,
flexible charging mechanisms
and Solution Time Manager and GPS targeted towards kids
have helped in mass-
Provider
customisation

Mobile Internet Partnered with Google, Yahoo, YouTube and
Provider and Facebook to enhance user experience through Data revenues (non-SMS)
Solution services like search, social networking and IM increased at a CAGR of 41%
Aggregator (2006-2008) to € 2,180 million
Also offers a bouquet of self-owned services like
in March 2008
gaming, music, maps through Vodafone live

Number of mobile TV/VoD
Bundling of mobile broadband with IPTV sessions increased at a CAGR of
74% (2005-2007) to 70 million
Integrated
subscribers in 2007
Communication
Provider
Since July 08, there has been a
Partnered with Bebo, My Space and Facebook to
40% increase in customers using
provide social Networking services to its customers
social networking in September 08

Source: Capgemini TME Strategy Lab analysis. Company websites. Total telecom Mobile Broadband Watch, “Evolving Business Models”, November 2008.


For further information please contact :

Frank Gotthardt

Executive Director Eastern Europe
Consulting Services

Capgemini TMN GmbH
Vaclavske Namesti 19
110 00 Praha 1, Czech Republic

Phone: +420 731 401 800
E-Mail: frank.gotthardt@capgemini.com


Vývoj mobilního broadbandu v Evropě - Frank Gothardt, Capgemini

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