telco 2020 ... a mature market outlook

Telco 2020 – A Mature Market OutlookTelecoms World ME, October 2nd 2012, Dubai.

Dr. Kim Kyllesbech Larsen, Technology Transformation,

Technology, Qtel Group.

Dr. Kim Kyllesbech Larsen, Telco 2020, Telecom World ME 2012, Dubai | 2nd October 2012 | 2

Changing business models …

Mobile OperatorGarden

CS VoiceSMS

Mobile Data

NetworkSIM Bil l ing

“New”Billing OTT Apps

Regulation

New SIMs

Internetof

ThingsSmart devices& smarter OS

Coolstuff

Cloud

Virtualization


EU Broadband Ambition …Digital Agenda Europe 2020.

2014+2 yrs

2012now

All Europeans

have access to

Broadband(wireless)

All have access to 30 Mbps or higher.

2020+8 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?

By 2013 at least 30k additional radio nodes to cover the EU 20+% population gap.

By 2020 most (if not all) base stations support LTE advanced (ca. 200+k nodes ).

More than 100MM Households connected to Fibre.

Total FTTH Investment >15 today’s fixed broadband earnings.

Internet-of-Things1:15+ Billion Devices of which 3.5+ Billion on mobile networks.

1 In Europe for every mobile device there will be 5+ IoT devices in 2020. 70% of IoT devices short-range nature primarily assumed to be connected to WiFi.

Ballpark ~ $4B on-off + $0.3B recurring

Ballpark ~ $10+B on-off wo FTTS considered

5 to 10 IoT devices for every mobile

2011 we had less than 2MM CAGR 50+%

Very (very) long term ROI horizon


Dreaming … “that’s the easy part” … now the challenge!

Tera bits

Mega bucks

Mega Hz


The Past & Future…. Europe 2020 vis-à-vis 2011

+6.8%pa

+7.0%pa +0.7%

pa

+2.8%pa

Inflation

2.1% paInflation

2.0% pa

Next 10 years will add 150+ MM Subs &

ONLY $13Bn of Revenues

Past 10 years added 245+ MM Subs &

$85Bn of Revenues PROFITABILITY

2002 - 2011 2011 - 2020


Europe 2020 … A soft landing?

Europe Mobile Revenue

Europe Mobile Opex

Europe Mobile Ebitda

2008

2002

2020

37%

38%

Just prior to crisis

2005

35%31%

38%

Constant margin

2010

-15%

+15%

Inflationary growth

CAGR 0.8%

CAGR 1.9%

Total Revenue

Technology Cost (ca. 15% – 20%)

Usage Cost−

Market Invest SAC & SRC

−

= EBITDA (WEU ca. 37% 1)

Personnel Cost

Other Cost

−

−

−

Network Depreciation−

Spectrum Amortization−

Capex (new rollout < +10+% of Revenue)−

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

Spectrum invest (0.8 – 0.05 € per MHz-Pop)−

Red color represent Technology driven cost

+ New Revenue?

Defend philosophy!Stop / Slow Revenue Decline

New business!QoS, IoT,, Media, FMC, …

Efficiency gameDefend / Slow Ebitda Decline

Increased cash pressureNew technology /

Modernize

The Hunt for $30+Bn

1.9%

0.8%


Internet of Things

$250Bn (total)

Social Media

$10+Bn

Mobile Entertain

$15+Bn

Mobile (consumer) Apps

$5+Bn

Sources: Apps from Berg Insight (2011), Social Media from Gartner (2011), Mobile Entertainment from Juniper Research (2011), Online Adds from MagnaGlobal (2011), Handsets from Markets (2011), Internet of Things from GSMA (2011) and Machina Resarch (2011).

Mobile M2M

$50+Bn (20%)

2020Mobile Revenues

$200Bn(60% from data)

New mobile revenue opportunities … 2020.How big could the piece of the cake be?

Online Ads

$50+Bn

Handsets$70+Bn


Internet-of-Things (IoT) & Web-of-Things (WoT)

$250 Billion revenues.

$50 Billion attributed to mobile.

3.4 Billion IoT (incl. M2M) devices.

5 - 20 IoT devices for every mobile.

70% short-range devices (e.g., WiFi)

New topline source for MNOs.

$250 Billion revenues.

$50 Billion attributed to mobile.

3.4 Billion IoT (incl. M2M) devices.

5 - 20 IoT devices for every mobile.

70% short-range devices (e.g., WiFi)

New topline source for MNOs.

Europe 2020 Projections

Question! are our people-centric mobile networks the best to serve IoT?Question! are our people-centric mobile networks the best to serve IoT?


We are getting older, live longer and more separated…

14%16%

17%

21%

26%

36+in 2011

56+in 2011

75+in 2020

100+MM (20+%) above 65 years.

Age group 55+ in 2011.

More 25% will live alone.

Many will have no children (at all / near)

Will have large social media network.

100+MM (20+%) above 65 years.

Age group 55+ in 2011.

More 25% will live alone.

Many will have no children (at all / near)

Will have large social media network.

Health aspects very important.

IoT will play important role.

Wearable/bio-integrated devices.

Mobile Health Apps.

Monitoring, automation & alarm.

Security, etc….

Health aspects very important.

IoT will play important role.

Wearable/bio-integrated devices.

Mobile Health Apps.

Monitoring, automation & alarm.

Security, etc….

65+ in 2020

Share of 65+ in EU25

Connected at all times everywhere

Health care spend of GDP 10% 16% 20+%

Pharmaceutical sales in $Bn 240 360 700!?


22

Is internet worth massive lifestyle changes?What would you give up for 1 year of internet access.

80 8075 74

68

48

3027

Source: The Boston Consulting Group Report on “The Internet Economy in the G-20”, March 2012.


The customers perspective.Need, Love and then Taken for Granted…

Source: Analysis based on The Boston Consulting Group Report on “The Internet Economy in the G-20”, March 2012.

0%

10%

20%

30%

40%

0% 25% 50% 75% 100%

Perceived Value of Internet(relative to GDP per Capita)

Taken for granted!

Internet Penetration

The perceived value of internet drops as internet becomes a commodityThe perceived value of internet drops as internet becomes a commodity

!


The success of smartphones and mobile data ...Acceleration towards spectrum shortage.

Lots of Hz per customer. Higher speed. Great Quality of Experience.

Happy beginning … plenty of quality.

“Exponential” growth. Dramatic drop in Hz per customer. Demand more for efficient access. Demand for more capacity.

Tougher future … growth limitations.


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 2

01

0

Spectral Efficiency (*)

Spectral demand (limited)

Spectral demand (unlimited)

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

Illustration of a European market

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

3G LTE LTE-asubstitution

A lot more Complexity &Higher Capex & Opex demand.

A lot more Complexity &Higher Capex & Opex demand.

NOTGOODAT ALL

Spectral demand could exceed spectral efficiency

between 2016 - 2020.

Spectral demand could exceed spectral efficiency

between 2016 - 2020.

Leapfrog network capacity, e.g.,

Small cells topologies

Smart antennas

Early LTE deployment

Off-loading via Femto incl. WiFi

Price, Control & Policy.

More spectrum.

Leapfrog network capacity, e.g.,

Small cells topologies

Smart antennas

Early LTE deployment

Off-loading via Femto incl. WiFi

Price, Control & Policy.

More spectrum.

Mitigating “spectrum crunch”.


2020Between a rock & a hard place!


… The answer may be

Note: The reference to 42 comes from “Hitchhiker's Guide to the Galaxy” as being “the answer to Life, the Universe and Everything” it should not be taken more serious than the 1,000x.

Source: Qualcomm

×3 ×56×6

×1000+


?

?

Leapfrog cellular network capacity by 2020 (illustration).

𝐂𝐚𝐩𝐚𝐜𝐢𝐭𝐲=𝐁𝐚𝐧𝐝𝐰𝐢𝐝𝐭𝐡 ×𝐒𝐩𝐞𝐜𝐭𝐫𝐚𝐥𝐄𝐟𝐟𝐢𝐜𝐢𝐞𝐧𝐜𝐲 ×𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐂𝐞𝐥𝐥𝐬In MHz In Mbps per MHz per Cell #

10×10 MHz@ 2.1GHz

HSPA+ 42 DCDL 0.97 / UL 0.34

Urban “hot” zone1,000 Macro Cells1DL ca. 10 Gbps

UL ca. 3 Gbps

LTE LTE LTE

20×20 MHz@ 1.8GHz20x20 MHz@ 2.6GHz

LTE 2x2 (cat. 3)DL 1.45 / UL 0.86

Urban “hot” zoneUp-to 2,500 Cells 2

+1,500 on-topof macro

DL 100 GbpsUL 30 Gbps

Supplied (max)

Demand

@ 2011

@ 2020

CAGR ca. 35% 2 Small cells required!!!Femto cell off-load!!!

1 Urban “hot” zone cell is defined as a cell with a range less than 500 meter, 2 Assuming 70% load as design rule.

×4 ×1.5 ×2.5×15


Distribute mobile broadband traffic differentlyNatural convergence of fixed & mobile by 2020.

eNode-B

Up-to 7,000 active devicesper macro-cellular node

(i.e., urban hot zone)

100+ Mbpsshared with

up to 7,000 devices.

FTTS 100+ Mbps

Home Environmentwith ca. 2.3 people per Home

in-home backhaul Cable, VDSL or Fiber.

Up-to 100+ Mbpsshared by

2+ people.

LTE provides up-to 100 Mbpsper sector

100+ to40 Mbps

Illustration

AP (Femto: Cellular or WiFi)


DWDM

DWDM

DWDM

DWDM

100 GbpsDWDM

EvolvedPacketCore

LTE Backhaul requirements will pressure the Economics.

FTTS1 100+ Mbps

LTE air-interface30mean to 100+peak Mbps

eNode

100GbE

Illustration


• Regulatory support (& drive).

• Spectrum sharing (demand for efficiency).

• Vehicle for multi-party sharing.

• Regulatory support (& drive).

• Spectrum sharing (demand for efficiency).

• Vehicle for multi-party sharing.

Quantum leap in network efficiency … Cloud & virtualization and all that Jazz …

Drivers

Network business model 2020

PrivateCloud:

ProvidesMobile Core

NetworkFunctionalities

NetworkCorporation

Content & ServicesCloud

BSS & OSSCloud:

ProvidesMobile Core

NetworkFunctionalities Access

off the shelf OSS& BSS-light due

to wholesalebusinessmodel

New business model

• Data-only + VoIP QoS-transparent network.

• Dedicated OTT network services.

• New partnership business models.

• Data-only + VoIP QoS-transparent network.

• Dedicated OTT network services.

• New partnership business models.

Ultra-efficient network factory.

3rd parties delivers BSS / OSS cloud(off-the-shelf) services

3rd party, media companies, MNO/MVNO CDN & SDNs.

3rd parties delivers core network functionality.(i.e., HSS, PCRF, etc..)


Rollout PhaseUK: 3G T-Mobile – 3 UK

Steady StateUK. T-Mobile UK – Orange JV (EE Ltd).

Stages of sharing benefits.The best sharing strategy depends on the business cycle and technology age.

High Capex prevention. Opex prevention. Cash optimized startup. Best network.

Little Capex benefits. Opex savings. Significant write-off. High re-structuring cost. Extended coverage.

High Capex prevention. Opex savings. Minor write-off. Re-structuring cost. Instant cell split. Better network.

< 5 years 5+ years

UMTS - GSM LTE

> 5+ years

UMTS

Passive sharing: Site Lease & Civil Works,Mast/Tower sharing, Ancillary & Rack sharing, and Backhaul Sharing.

Active sharing: e.g., Frequencies, TRXs, PAs, Baseband, CPU, ports, ….

ModernizationPoland: PTC – Orange incl. LTE

GSM – UMTS(LTE piggybacking)

Illustration


Frequency(MHz)

Site(acq. + build)

Radio(electronics)

Backhaul(transport)

Backbone(transport)

Core(switch & control)

BSS(bill & care)

Capex prevention

Efficiency enabler 40%-60% < 35% up-to 50% up-to 50% Partly

possible Less likely

Opex prevention

Efficiency enabler < 35% ca. 35% scale

discountscale

discountPartly

possible Less likely

Regulatory complexity HIGH LOW LOWER LOWER LOWER HIGH HIGH

Network Sharing can provide better economics, improved market timing, and a much better network.

BTS & NODE-B

eNodeBBSS

BSS

MNO 1Core

MNO 2Core

plmn 1

plmn 2

plmn 1 + plmn 2(optional)


2020 Western Europe.

2 mobile network infrastructures(per country) connected to

1 Fiber or DOCSISx network.(Only 1 GSM infrastructure per country)

2 mobile network infrastructures(per country) connected to

1 Fiber or DOCSISx network.(Only 1 GSM infrastructure per country)

Prediction 1

Most mobile devices will bethin-client based.

(more than 50% mobile data traffic being

off-loaded to fixed, cloud storage/computing)

Most mobile devices will bethin-client based.

(more than 50% mobile data traffic being

off-loaded to fixed, cloud storage/computing)

Prediction 3

Tier-2, 3 (& 4) MNOs have spun-offtheir mobile networks.

(mobile-fixed-media JVs, sharing partnerships

and mergers).

Tier-2, 3 (& 4) MNOs have spun-offtheir mobile networks.

(mobile-fixed-media JVs, sharing partnerships

and mergers).

Prediction 2

Application-orientedbusiness models rules across all

platforms & channels.(dominated by GSPs, i.e., Amazon, Google, Apple, ..)

Application-orientedbusiness models rules across all

platforms & channels.(dominated by GSPs, i.e., Amazon, Google, Apple, ..)

Prediction 4

How to manage spend

Vis-à-vis profitability

New partnership models

Monetize social media

Internet of Things

Revenue Decline

Profitability Squeeze

Business model

Breakdown

Data Tsunami

Spectrum

Crunch

TransformBusiness Model

Thank you for your interest!

Acknowledgement: Dr. Larsen acknowledge the Qtel Group’s support and interest in developing this presentation. I am indebted to my wife Eva Varadi for her great support and understanding during the creation process.

For further interest or contact please check out:http://nl.linkedin.com/in/kimklarsenhttp://www.slideshare.net/KimKyllesbechLarsenhttp://techneconomyblog.com/