rewheel - making money with mobile data as a digital utility provider

8/2/2019 Rewheel - Making Money With Mobile Data as a Digital Utility Provider

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Rewheelo n e s t e p a h e a d

www.rewheel.fi 2012 Rewheel

Making money with mobile dataas a digital utility provider

by Rewheel

The smartphone boom resets the mobile industry. We are witnessing datacentric phone manufacturers and OS makers dethroning the kings of the voicecentric era. Likewise, challenger network gear makers that took the firstmoves to launching all-IP, high capacity platforms and gigabyte friendlypricing deals, have multiplied their market share. The mass consumer demand

for smartphones has opened a similar window of opportunity for challengermobile operators to move their market share by leaping ahead in the datatransformation. The industry winners of tomorrow will be smart operators thatseize the opportunity and transform themselves into very efficient dataproduction factories with a sole purpose to serve their customers needs rather

than restricting them by volume caps and blocking mainstream internet

applications.


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Slide | 2www.rewheel.fi 2012 Rewheel

Strategic mobile data advisory

Specialising into mobile data transformation

Market modelling & commercial strategy

Technology strategy

Spectrum valuation & strategy

Strategic infrastructure procurement advisory

High calibre, multidisciplinary team

Commercial

Technology

Financial

Procurement

CEO, CTO, CMO, CFO, CSO, shareholder

sponsored engagements

Established in 2009

Team HQ in Helsinki

Tier 1 and most progressive

data challenger clients

worldwide

Rewheel who we are


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Digital utility provider - 4 key success factors

Core consumer value

proposition: unconstrained

fast mobile internet

affordable for all, on all

connected devices

1 2

3 4

Sustainable capacity

advantage

Lowest cost base, no

frills utility business

model

Partnerships with

competitors big enemies

Monetize on speed and

add-on devices

Europe: slow moving incumbents, falling behind in mobile data adoption

Fundamental industry transformation: mature 3G technology and ecosystem,

internet going mobile, infinite demand for capacity, mobile operators shifting to

utility role, eroding network effect


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Fundamental industry transformation:mature 3G technology and ecosystem

internet going mobileinfinite demand for capacity

mobile operators shifting to utility role

eroding Network Effect


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Fundamental industry transformation

mature 3G technology and ecosystem

Yesterday

(2006)

Today Tomorrow

Entry level Android smartphone

120 (unsubsidised retail price)

Entry level Android smartphone

150?Entry level 3G phone

400

Expensive

Big, heavy, clumsy

Poor battery life

Poor call quality

Primary use: calls

Very affordable

Light, very easy to use

Long battery lifeGood call quality

Primary use: internet

Very affordable

Light, easy to use

Ok battery lifeGood call quality

Primary use: internet

Immature 3G technology and non-user friendly phones were a serious drag on 3G standard

based new mobile entrants in 2003-2010. By today 3G handsets and devices became cheap,

very easy to use, reliable and mainstream.


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Fundamental industry transformationOld smartphones = niche

new superphones =

Productivity Tool

Nerdy: Niche market

Complementary to fixed/PC

Primarily voice centric usage

Fashion, social

Cool: Mass marketSigns of substituting some PC

apps (e.g. Facebook)

Primarily data centric usage!

mass market


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internet going mobile (1/2)

Source: http://www.morganstanley.com/institutional/techresearch/pdfs/Internet_Trends_041210.pdf


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internet going mobile (2/2)



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infinite demand for capacity



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Fundamental industry transformationmobile operators shift to plain access/connectivity utility role (1/2)

Telco mammuts losing out to IT titans in the service innovation battle

Yesterday Today

Mobile operator developed

proprietary value added

services: Vodafone live, Vodamail,

Mobile TV, Ringtone, Permium

voicemail, weather, stock news,

daily news, traffic info, navigation,

mobile parking, music download,

game download

Voice & SMS services

(MNO core business)

Mobile internet access (marginal)

Mobile internet access

(main growth driver)

Voice & SMS services

(MNO core business)

Mobile internet access(bit pipe)

(MNO future core

business)

Vertical service centric Layering (Denial) Utility (Acceptance)

Tomorrow


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Fundamental industry transformationmobile operators shift to plain access/connectivity utility role (2/2)

Source: Tele2 Capital Markets Day September 2011

Source: Telenor Group Q1 2011

Source: Vodafone Group CEO

public presentation September

2011


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Fundamental industry transformationeroding Network Effect easing land grab for new entrants

Network Effect (Metcalefs law): customers prefer to follow the crawd

and chose the largest operator because that way they can call and

SMS more people on cheaper on-net rates

Network effect has been the primary force that prevented late mobileoperator entrants from breaking out of the 10-20% market share

range

Anectodtical evidence says that Westel in the early 90s secured their

market dominance by seeding 40-50 thousand VIPs and key

corporate clients with free mobile subscriptions

However, as Mobile Termination Rates (MTR) are falling to zero and so drop the price of

mobile phone calls and SMSs, the network effect loses its power, alleviating the market

share grip of incumbents.

By bundling in free or cheap calls and SMSs to any networks, the new entrant can (and

should) actively accelerate the erosion of the network effect.

For mobile internet centric smartphone customers operators customer base size will not any

more be an important selection factor.


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Source: TDC Group

Source: TeliaSonera Q1 2011

Source: DT Europe

Source: Leap Wireless USA Source: Verizon USA

Source: Elisa Finland

Source: Vodafone, May 2011

Fundamental industry transformation evidenceSkandinavian operators handset sales are almost

entirely smartphones


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Slide | 14www.rewheel.fi 2012 Rewheel a wake up call for for voice era telco incumbents too

Android iOS RIM Symbian Windows Mobile Other

Smartphone OS market shares (Gartner)

Wow!

Fundamental industry transformation evidenceHandset space: data challengers dethroned voice-era

incumbents overnight


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Source: Elisa Finland

Source: T-mobile USA Q1 2011

Source: Telenor Group, Q1 2011

Source: Danish Regulator H1 2010

connectivity

Fundamental industry transformation evidenceWhat consumers want from telcos

Time to face it: pure, cost efficient, high capacity, ubiquitous

d l d f d


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Source: Telenor Group, Q1 2011

TelenorNorway,incumbent,fixed+mobile,3M mobilesubs~ 20 Gbps in2015

Finland H2 2010:~ 20 Gbps(3 networks, 5million pop)

Source: FICORA

Source: Danish Regulator H1 2010

Denmark H1 2010(5.5. million pop)~ 6 Gbps

Source: ANACOM

Portugal Q42010:~ 15 Gbps(3 networks, 11

million pop)

Source: PTS

Sweden H12010~ 20 Gbps (9.3million pop)

Fundamental industry transformation evidenceMobile data traffic snapshots from some progressive markets

d l i d f i id


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Source: KPN Netherlands, May 2011

Over The Top Voice and SMSsubstitutes, integrated into the phonebooks, started to get viral

Q1 2011: First tangible signs ofserious revenue cannibalisation threat

Ouch!

Fundamental industry transformation evidenceYes, incumbents have a lot to lose from accelerating data

transformation OTT cannibalization started to bite

F d l i d f i id


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Source: KPN Netherlands May 2011

the other notable discussion on the Vodafone conference call was the disclosure

that Vodafone Netherlands as Internet Telephony (VoIP) enabled on only tariffs

more than EUR 40, at a monthly fee of EUR 5, which led to questions about net

neutrality, and how regulators view this situation.

Source: Mediamania.com May 2011

Unfortunately for KPN, this plan might actually backfire. The majority of the Dutch

parliament has spoken out against the plans and have urged the Minister to protect

net neutrality. Currently the Dutch Telecommunications Law does not provide a

good safe harbor for net neutrality, but it soon might... because of this. One

parliament member who is part of a ruling coalition party even suggested that if

telcos are going to charge more for usage, perhaps the tariffs for normal phone

calls should be lowered.

Source: Techdirt.com May 2011

Criticism is mounting of telecoms company KPN for using software known as DeepPacket Inspection to monitor what extra services mobile internet users are

accessing. KPN said on Thursday it used DPI to monitor use of the WhatsApp

application for smart phones but denied it analyses actual messaging and content.

Vodafone has also admitted using DPI to monitor mobile internet use. T-Mobile has

not admitted using DPI but does say it keeps an eye on what bandwidth mobile

internet users are taking up, to make sure there is enough capacity.

Source: www.dutchnews.nl May 2011Source: Vodafone Netherlands May 2011

Fundamental industry transformation evidenceSome dominant players taking desperate restrictive

countermeasureswith unintended consequences

F d l i d f i id


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And it did backfire...

Fundamental industry transformation evidenceand it did backfire

f d l l


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Flat or declinigCapex

guideance

despite 20x

traffic surge

Source: Telenor Group Q1 2011

Declining

Network Capex

Source: Vodafone European operations

Yes, by modernising the machinery and squeezing the

supply chain (just like in any competitive industry)

Business case for digital utilitiescan the demand surge be accommodated without

hurting operator margins?

B i f di it l tiliti


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0

0.10.2

0.3

0.4

0.5

0.60.7

0.8

Moible Data Consumption per Capita

GB/month/pop in H2 2010

Suggests large room

for accomodating

3G/HSPA traffic

Rewheels home country

3 3G/HSPA networks (LTE deployments just started)

Dongle penetration > 32% pop, overtook fixed BB in H2

2010

Unlimited MBB offers with speed tiers prevail

Source: Rewheel estimations based on various sources0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

De

c-08

Mar-09

Ju

n-09

Se

p-09

De

c-09

Mar-10

Ju

n-10

Se

p-10

De

c-10

Mar-11

Monthly Mobile Data Volume (GByte)

Unnamed European Country

Country total

Challenger (3rd)

player with

challenger,low cost

network vendor

Not all challengers are

strategically incentivised

in becoming data

challengers. Members of

large telco groups are

often draged back by

their parentsSource: local Regulator

Business case for digital utilitiesclearly, existing (dominant) players in different markets are

not equally eager to unleash their data pipes



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0

100

200

300

400

500

600

700

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

Market service revenue forecast by device category

Machine-machine

connections

Mobile broadband &

tablet connections

Smartphones

Voice only phones

Multiple, inactive,

sporadic SIMs

Data centric customersMarket trigger: very cheap

(sub 150) touchscreen

smartphones

Primary use: Data

Key selling point: unrestricted

data use

Voice + SMS + Data Revenues

Higher ARPU, growth market

No price warRevenue CAGR ~30%

Concentrated in urban areas

2G network irrelevant

Traditional customersPrimary use: Voice & SMS

Key selling point: price

Collapsing market

Subject to price war

Fast eroding ARPU (accelerated

by MTR cuts, data centric push,

voip and SMS substitution)

Low ARPU users with cheapest

2G only phonesSource: Rewheel analysis and bottom-up market modelling

Old market:

voice centric /

services

New market:

Data centric /

Digital utility

Business case for digital utilitiesThe rise of affordable smartphones erodes

traditional voice centric subscriber base



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Business case for digital utilitiesImplemented from the No. 1 mobile operator Elisa in Finland

Mobile consumer subscriptions in Finland 1,979,500 2,308,800 2,591,000 2,765,000

Mobile corporate subscriptions in Finland 562,400 662,100 767,700 852,000

2008 2009 2010 Q3/11

Finland is a 5 million country

Elisas profit before tax for the three

quarters of 2011 increased from 16%

to 17% (driven by mobile)

Elisa added 100k subscriptions in the

3rd quarter of 2011

B siness case for digital tilities


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Smartphone capacity friendly spectrum (Europe: 2.1 GHz, HSPA+)

LTE (1800 MHz, 2.6 GHz) will not be supported by affordable mainstream smartphones inthe next 2-3 years

Some Smartphone coverage friendly spectrum (Europe: 900 MHz, HSPA+)

Without sub-GHz frequencies the footprint will be limited to urban areas but achallenger does not necessarily need to shoot on the entire country to crack the market

800 MHz (LTE) will not be supported by affordable mainstream smartphones next 2-3 years

Slow moving voice centric telco competitors preferably owned by large incumbent

slow moving telco groups

Existing internet subscriber base, brand, distribution network and IP

backbone/backhaul infrastructure (fixed broadband operators)

Existing mobile operator business, all-IP infra, base, brand, etc

Needed:

Nice to have:

Useful synergies:

Business case for digital utilitiesThe smartphone transformation resets competitive

landscape and opens window of opportunity for mobile data challengers

what does it take to become one?

h l


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Rewheelo n e s t e p a h e a dThank you

Visit insights.rewheel.fi for more

Or contact us at [email protected] / +358 44 203 2339

About Rewheel

Rewheel is an independent consultancy specialising in the mobile data transformation. We provide strategic advisory

and solutions for mobile operators, their investors and telecoms regulators.

Apart from global tier-1 telco groups and many local independent operators our clientele includes the world's most

progressive mobile data challengers, one step ahead in the mobile data transformation.

Our key competence areas and main engagement points are business planning, pricing and commercial strategy,

network and financial data impact analysis, technology strategy, spectrum strategy and valuation as well as strategic

network procurement advisory. Rewheel is network vendor independent.

Rewheel is headquartered in Helsinki, Finland and our main operating footprint is Europe.

rewheel - making money with mobile data as a digital utility provider

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