outlook 2012: de-risking the broadband business model

De-risking the Broadband Business ModelIndustry Outlook 2012 , November 24th 2011, London.

Dr. Kim Kyllesbech Larsen, Technology Economics

Technology, Deutsche Telekom.

Changing business models …

2

Mobile OperatorGarden

CS VoiceSMS

Mobile Data

NetworkSIM Bill ing

50 – 700MHzCloud

SIM

“New”Billing

Whitespace

OTT Apps

Coolstuff

Smartdevices Regulation

Dr. Kim Kyllesbech Larsen, Industry Outlook 2012, November 24th 2011, London, UK.

A typical mobile data traffic day in Europe.

3Dr. Kim Kyllesbech Larsen, Industry Outlook 2012, November 24th 2011, London, UK.

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

Illustration

6:00 8:00

voicedata

@Work @HomeOn the

Go@Home

On theGo

EU Broadband for All & Everything…Digital Agenda Europe 2020.

4

2013+2 yrs

2011now

All Europeans

have access to

Broadband(wireless)

All have access to 30 Mbps or higher.

2020+9 yrs

50+% HH subscribe

to 100 Mbps.

<80%HSPA pop coverage

60% 3G adaptation

<20% HSPA

adaptation

<95%DSL

coverage

<50% cable

coverage

FTTx

>20%+

100% LTE+

FTT-eNB

+>50%FTTH

/DOCSISx


+ IoT 1

1 IoT = Internet of Things.

Closing coverage

gap

Digital Agenda Europe 2020 ... What does it mean.

5

By 2013 at least 30k HSPA BTS to cover the EU 20+% pop gap.

By 2020 most (if not all) base stations support LTE advanced (<200K×2).

More than 100 million HH connected to fibre by 2020.

FTTH Investment >15 today’s fixed broadband earnings.


Internet-of-Things (IoT) Network for the 15+ Billion projected devices1

1 In Europe for every mobile device there will be 20+ IoT devices in 2020.

900 MHz2×35 MHz

(GSM)

900 MHz2×35 MHz

(GSM)

1800 MHz2×75 MHz

(GSM)

1800 MHz2×75 MHz

(GSM)

2100 MHz2×60 MHz

3G core band

2100 MHz2×60 MHz

3G core band

3G

5 5 5 5 5 5 5 5 5 5 5 5

2600 MHz2×70 MHz +

50 MHz (TDD)(Tech neutral)

2600 MHz2×70 MHz +


70

Spectrum challenge 2012 - Pre-auction days.

page 6

10

FBO 1

20

FBO 2

10 20

2G(3G) 3G 2G

(3G) 3G 2G(3G) 3G

2G(LTE) LTE 2G

(LTE) LTE 2G(LTE) LTE 2G

(LTE) LTE 2G(LTE) LTE LTE LTE LTE LTELTE

IllustrationUplink onlyAll FDD

Un-used spectrum

MNO 1 MNO 2 MNO 3

Note: MNO = Mobile Network Operator & FBO = Fixed-Broadband Operator.

10


900 MHz2×35 MHz

(GSM)

900 MHz2×35 MHz

(GSM)

1800 MHz2×75 MHz

(GSM)

1800 MHz2×75 MHz

(GSM)

2100 MHz2×60 MHz

3G core band

2100 MHz2×60 MHz

3G core band

3G

5 5 5 5 5 5 5 5 5 5 5 5

2600 MHz2×70 MHz +


2600 MHz2×70 MHz +


70

Spectrum challenge 2012 - Pre-auction days.

page 7

10

FBO 1

20

FBO 2

10 20

2G(3G) 3G 2G

(3G) 3G 2G(3G) 3G

2G(LTE) LTE 2G

(LTE) LTE 2G(LTE) LTE 2G

(LTE) LTE 2G(LTE) LTE LTE LTE LTE LTELTE

IllustrationUplink onlyAll FDD

Un-used spectrum

MNO 1 MNO 2 MNO 3


10

Billions of Euro in mobile network assets.

2G and 3G tightly integrated.

By 2012 still more than 20% on 2G.

No 100% 3G pop/geo coverage.

Billions of Euro in mobile network assets.

2G and 3G tightly integrated.

By 2012 still more than 20% on 2G.

No 100% 3G pop/geo coverage.


900 MHz2×35 MHz

(Tech neutral)

900 MHz2×35 MHz

(Tech neutral)

1800 MHz2×75 MHz

(Tech neutral)

1800 MHz2×75 MHz

(Tech neutral)

2100 MHz2×60 MHz

3G core band

2100 MHz2×60 MHz

3G core band

3G

5

MNO

2

MNO

3

MNO

1

3G 3G

5 5 5 5 5 5 5 5 5 5 5 5

2600 MHz2×70 MHz +


2600 MHz2×70 MHz +


70

Spectrum challenge 2012…major disruption possible.

page 8

10

FBO 1

20

FBO 2

10 20

2G(3G)

3G 2G(3G)

3G 2G(3G)

3G

5 5 5 5 5 5

2G(LTE)

5

LTE 2G(LTE) LTE 2G

(LTE) LTE 2G(LTE)

5 5 5 5 5 5

LTE

5

2G(LTE) LTE LTE LTE LTE LTE

5 5 5 5 5 5

LTE

5

800 MHz2×30 MHz

(Tech neutral)

800 MHz2×30 MHz

(Tech neutral)LTE

5

LTE LTE LTE LTE LTE

5 5 5 5 5 IllustrationUplink onlyAll FDD


Greenfield reservation

Secure min. 2×10 MHz


Secure min. 2×20+ MHz


MNO 2 loose

spectrum game!

10


900 MHz2×35 MHz

(Tech neutral)

900 MHz2×35 MHz

(Tech neutral)

1800 MHz2×75 MHz

(Tech neutral)

1800 MHz2×75 MHz

(Tech neutral)

2100 MHz2×60 MHz

3G core band

2100 MHz2×60 MHz

3G core band

3G

5

MNO

2

MNO

3

MNO

1

3G 3G

5 5 5 5 5 5 5 5 5 5 5 5

2600 MHz2×70 MHz +


2600 MHz2×70 MHz +


70

Spectrum challenge 2012…major disruption possible.

page 9

10

FBO 1

20

FBO 2

10 20

2G(3G)

3G 2G(3G)

3G 2G(3G)

3G

5 5 5 5 5 5

2G(LTE)

5

LTE 2G(LTE) LTE 2G

(LTE) LTE 2G(LTE)

5 5 5 5 5 5

LTE

5

2G(LTE) LTE LTE LTE LTE LTE

5 5 5 5 5 5

LTE

5

800 MHz2×30 MHz

(Tech neutral)

800 MHz2×30 MHz

(Tech neutral)LTE

5

LTE LTE LTE LTE LTE

5 5 5 5 5 IllustrationUplink onlyAll FDD


Greenfield reservation





MNO 2 loose

spectrum game!New entrant buying existing incumbent spectrum.

Possible (catastrophic) loss of spectrum.

(catastrophic) Loss of Value and Operation.

Loss of future growth possibilities in LTE.

New entrant buying existing incumbent spectrum.

Possible (catastrophic) loss of spectrum.

(catastrophic) Loss of Value and Operation.

Loss of future growth possibilities in LTE.

10


De-risking disruptive spectrum moves.

10

Spectrum partnership alliance(s).

Value at risk game rather than incremental value add play.


Higher degree of network in-dependence … Network Factory / Sharing.

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 problems”.

11

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 the European market 1

(*) realWireless report for Ofcom,: 4G Capacity Gains, Final Report, January 2011.

3G LTE LTE-aConversion

Leapfrog network capacity, e.g.,

Densification

smart antennas

Early LTE deployment

Price, Control & Policy.

More spectrum.

Leapfrog network capacity, e.g.,

Densification

smart antennas

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!


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

12

22.4 1

12.7

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

2010AMNO Centric

ARPU

15.7Voice

3.4SMS

3.3Data

6.5Voice

6.2 1

Data

By 2015

more than 70%of users have a smartphone

ARPU


13.0Voice

3.8SMS

2015EMobile Centric

ARPU

6.2 1

Data

23.0

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

13

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

MoIP Death to SMS.

+43%

VoIP @Home & maybe @Work.


Traffic & revenue changes in the last 12 month.

14

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 the 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


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

15

Economics of mobile data

Free Cash Flow

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Mobile 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.

Femto cells.

Network APIs.

Smarter & network friendlier devices.

Femto 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 the European market

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

LTE


New mobile revenue opportunities … making up lost.How big will the piece of the cake be?

16

Mobile Revenues$1,200 Bn

Internet of Things$1,200 Bn

?Social Media

$30+ Bn

Mobile Entertain

$55+ Bn

Online 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).


Synched notificationAd-hoc optimized route

Vision - network aware mobile apps (1 of 2).Innovation is important remedy to mitigate risk.

17Dr. Kim Kyllesbech Larsen, Industry Outlook 2012, November 24th 2011, London, UK.

Optimized service delivery

Traffic Profile

voice

data

Primary indoor usage → off-load possibilities.

Primary indoor usage → off-load possibilities.

Off-busy-hour In-fill delivery.Off-busy-hour In-fill delivery.

N × Eventsvs

1 × Event

Vision - network aware mobile apps (2 of 2).Collaboration across Network, Device and Apps.

18

Smar

t (in

terc

onne

cted

) dev

ices

Self-Optimized & Cognisant Network

Network optimized O

S & Apps


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 pressureNetwork consolidation & new partnerships.

19

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.

Best network … more for less.

Significant Capex prevention.

Substantial Opex prevention.

Best 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


• Transparent off-loading strategies.

• Inside-out coverage with in-home backhaul connectivity (i.e., via VDSL, Fiber, …).

• Honest always-best-connected offers.

• Transparent off-loading strategies.

• Inside-out coverage with in-home backhaul connectivity (i.e., via VDSL, Fiber, …).

• Honest always-best-connected offers.

Fixed – Mobile Convergence.Technology & business reasons for FMC.

20

Mobile & Fixed the ideal partnership

Fixed & Mobile enables:

Most mobile data traffic is fixed-like.

0.2 2.4

13

39

81

196

501

1,082

2,495

5,959

11,864

24,409

0.04

0.8

4.3

12

24

48

97

171

327

594

1,373

2,389

0.02 0.4

2.2

6

11

21

36

53

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

5th Ranked Site

4th Ranked Site

3rd Ranked Site

2nd Ranked Site

Main Site

Usage category

80% of traffic in 2 sites or less

Node

Sharing 100 Mbps with up-to

7000+ devices

per macro-cellular radio node

FTTS 100 Mbps

FTTH 100+ MbpsCable 100+ MbpsVDSL 40+ Mbps

AP (e.g., WiFi or Femto,..)

Out-side in coverage

Home Environment with ca. 2.3 peopleper Home

versus

In-side out coverage

Data distribution across sites


What we need to be passionate about…De-risking the broadband business model.

21

How to spend it

How to earn it back

Internet of ThingsMonetize social media

TransformBusiness Model

New partnership models


Thank you

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

Acknowledgement: Many thanks to Bin Xi, Claire Hilton, Minoo Abedi and Richard Marijs in particular and of course to my fantastic Technology Economics team for great suggestions and kind advice on how to improve the presentation.

mailto:[email protected]