Heavy Reading - Mobile Operator Perspectives: Monetization Optimization and Video

A Heavy Reading Custom Research StudyMobile Operator Perspectives: Monetization, Optimization & Video Prepared for Cisco by Gabriel Brown, Senior Analyst February 2011

Study Background •  Custom survey for Cisco generating exclusive results •  50 service provider professionals surveyed •  Reponses from broad geography and job roles •  Three areas of primary investigation •  Monetization Use Cases •  Network Technologies & Optimization •  Mobile Video •  Series of 20 in-depth interviews w/ senior technology and product management executives 2

Survey Demographics What is your primary job function? (n=55) Approximate annual revenues? (n=55) Engineering & Network planning 35 Less than $50 million 9 R&D & technical strategy 16 $50 million to $200 million 11 Corporate management 15 $200 million to $500 million 15 Sales & marketing 15 $500 million to $1 billion 16 Product & Service Management 13 $1 billion to $5 billion 24 Other 4 Customer support 2 More than $5 billion 25 0 5 10 15 20 25 30 35 40 0 5 10 15 20 25 30 % % Type of service provider you work for? (n=55) Where is your organization headquartered? (n=55) Africa U.S. Other 20% 7% Middle East 5% 11% Mobile operator pure- play Canada 18% 7% Asia Pac 20% Incumbent Central/South Mobile with mobile America/ division of an assets Caribbean incumbent 60% Central/ 5% operator 15% Eastern Western Europe Europe 19% 13% 3

Monetization 4

Importance of Monetization Use Cases How important will the following mobile data services be in generating revenues for your company over the next two to three years? (n=54) Ranked "4—Important" & "5—critically important" Speed Tiers (downlink) 32 44 Family or Group Data Plan 42 24 Hour/Day Pass 39 24 Mobile Video / TV 28 23 Parental & Cultural Controls 22 20 Turbo Boost 31 18 Mobile Advertising 37 15 Freemium Service Models 24 13 Toll-Free Mobile Broadband 27 6 0 10 20 30 40 50 60 70 80 % 4 5 (Very Important) •  Speed Tier s & Group Data Plan are most promising use-cases •  Toll Free Mobile Broadband is least attractive; less well known, complex 5

Use Case Penetration Expectations What proportion of your subscriber base will pay for, or generate indirect revenue from, the following operator-provided services over the next two to three years? (n=54) Family or Group Data Plan 15 26 Speed Tiers (downlink) 28 18 Turbo Boost 15 9 Hour/Day Pass 26 6 Mobile Advertising 26 6 Mobile Video / TV 28 5 Freemium Service Models 12 4 Parental & Cultural Controls 9 4 Toll-Free Mobile Broadband 8 1 0 10 20 30 40 50 % 20-30% More than 30% •  ~40 percent of respondents think they can monetize more than a fifth of subscribers with speed tiers and group data plans 6

Revenue Generation PotentialHow much additional revenue (in $US) would you expect of the following operator-provided services to generate per user, per month over the next two to three years? (n=54) Highest Revenue Per User Speed Tiers (downlink) 19 15 Family or Group Data Plan 23 13 Mobile Video / TV 21 6 Turbo Boost 13 4 Hour/Day Pass 16 4 Mobile Advertising 8 4 Freemium Service Models 6 2 Parental & Cultural Controls 9 Toll-Free Mobile Broadband 4 0 5 10 15 20 % 25 30 35 40 $5-$10 More than $10 •  Mobile Video / TV has good per user revenue potential •  Parental & cultural controls looks difficult to monetize 7

Revenue Generation PotentialHow much additional revenue (in $US) would you expect of the following operator-provided services to generate per user, per month over the next two to three years? (n=54) Lowest Revenue Per User Speed Tiers (downlink) 8 8 Family or Group Data Plan 8 8 Mobile Video / TV 13 10 Turbo Boost 12 19 Hour/Day Pass 14 22 Mobile Advertising 17 17 Freemium Service Models 18 20 Parental & Cultural Controls 19 28 Toll-Free Mobile Broadband 27 27 0 10 20 30 40 50 60 % Zero (or trivial) Less than $1 •  Toll Free Mobile Broadband has lowest monetization potential •  Parental Controls perhaps more viable as a loyalty mechanism 8

Monetizing Third Parties 9

Network Capabilities to Support Third Parties How important are the following mobile data network capabilities to generating revenues from partnerships with 3rd party application and content providers? (n=50) Ranked "5 (Critical)" Bandwidth Management (real-time control of network 55 resources, rate limit bandwidth, etc.) Traffic Optimization (Improve downlink throughput) 52 Priority Handling (Deliver QoS for specific applications) 49 Cloud services (applications are hosted in your data 18 center) Zero Rating (data usage not counted against user 10 quota) Reverse charge back (application provider pays for 4 connectivity) 0 10 20 30 40 50 60 % •  Surprise to see “zero-rating” and “reverse charge back” score so lowly •  Possibility the question was understood to be about general network capabilities, not 3rd party specific 10

Third Party Network APIs Which telecom network capabilities do you envisage making available to third party application developers for service innovation through open APIs? (n=50) •  Messaging & Billing APIs already widely supported •  Call control least likely to be exposed; arguably already supported via PSTN •  Is their a role for Policy-related APIs long-term? 11

Network Optimization 12

Optimization Technologies (I)How likely are you to use the following “Internet Offload” & optimization techniques in the next two to three years? (n=50) EVALUATING; WILL DEPLOY DEPLOY IN THE NO PLANS AT ALREADY IN- WITHIN 12 NEXT THREE DON’T KNOW PRESENT SERVICE MONTHS YEARS Managed WiFi Offload 24% 22% 30% 14% 10% 3G Femtocells & 14 12 25% 35% 14% Picocells DPI (Throttling of high b/ 8% 6% 37% 35% 14% w applications or users) Core network offload using an “Offload 36% 24% 12% 18% 10% Gateway” Internet Breakout using distributed GGSNs or P- 22% 20% 24% 20% 14% GWs Optimized routing of Applications over specific 16% 10% 32% 16% 26% transport routes •  Confirms DPI as a ‘core’ technology (70 percent deployed in 12 months) •  Internet breakout and core network offload score weakly; Perhaps partly explained by unfamiliarity with this new technology concept 13

Optimization Technologies (II)How likely are you to use the following “Internet Offload” & optimization techniques in the next two to three years? (n=50) •  Femtocells edging into main stream deployment •  Managed WiFi Offload faces headwinds •  Internet offload gateways don’t have much appeal 14

Mobile Video 15

Severity of Video Traffic Growth How much of a challenge will video traffic growth be to your network planning & performance? (n=51) 2 YEARS 5 YEARS N=50 FROM NOW FROM NOW Extremely 35 31 challenging A significant 27 24 challenge Moderately 24 29 challenging Slightly 6 7 challenging Not a challenge 6 10 at all •  Identifies video traffic as a significant challenge •  30 percent identify a severe problem over two- and five-years •  Should we worry about “confirmation bias”? (see over) 16

Video Traffic by Job Role How much of a challenge will video traffic growth be to your network planning & performance? (n=17) 2 YEARS 5 YEARS N=17* FROM NOW FROM NOW Extremely 13 40 challenging A significant 44 27 challenge Moderately 25 27 challenging Slightly 0 7 challenging Not a challenge 19 0 at all *Corporate management, Technical strategy or Engineering & network planning roles •  View of data by job role provides better insight •  Video is viewed as less of a challenge over a two-year view •  Concern increases markedly over five years 17

Opportunities to Monetize Mobile Video What opportunities to do you see to better monetize mobile video? (n=53) We don’t expect video services to generate significant 11 direct revenues We will generate some revenue directly from video services, but it won’t be a lot for the next two to three 34 years Most revenue we do generate from video will come 21 through partnerships with content providers Video services will be an important contributor to our value-added services revenue over the next two to 15 three years Being able to view video on mobile devices is a major 15 reason why customers subscribe to mobile data plans 0 5 10 15 20 25 30 35 40 % •  70 percent see video as a revenue-generating application in some form •  Uncertainties about direct monetization or partnership models •  General view is that video is an incremental opportunity at best 18

Usage of Video Content What proportion of your company’s consumer subscriber-base would you expect to regularly (at least once a month) use the following types of video services two to three years from now? (n=51) Over-the-top video (e.g. You Tube or user-generated 27% 35% 11% 19% 8% content) Professionally produced over-the-top content (e.g. 48% 36% 10% 4% 2% Hulu, iPlayer) Operator provided mobile TV or subscription video 52% 23% 11% 10%4% services Video conferencing (e.g. Apple Facetime, Skype 47% 23% 16% 6% 8% Video) Shared video clips (e.g. birthday videogram) 48% 29% 10% 11% 2% Mobile video as part of a 3-screen package 43% 35% 12% 8% 2% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Less than 20% 20-40% 40-60% 60-80% 80-100% •  OTT video is the service operators think most likely to go mass-market •  27 percent think more than half the subscriber base would use it once a month 19

Perception of Vendors’ Mobile Video Capabilities Please rate the following suppliers in terms of their overall capability to support your mobile video strategy? (n=36-42) Ranked “very competitive; among the market leaders” Cisco 37 Ericsson 28 Alcatel-Lucent 22 Nokia Siemens Networks 17 Huawei 13 Openwave 9 ByteMobile 8 Juniper 8 Mobixel 6 Flash Networks 3 0 5 10 15 20 25 30 35 40 % •  A big result for Cisco in the mobile market •  Opportunities for market share gain in data era 20

Managing Video Traffic Please rate the importance to your company of the following technologies for managing mobile video traffic (5 being “critically important” and 1 being “not important at all”) (n=50) Ranked "4—Important" & "5—critically important" Policy Control (throttling, and priority handling) 36 55 Adaptive bit rate streaming 50 20 Control plane optimization (e.g. TCP 49 20 optimization) Video transcoding / optimization (i.e. transform 40 18 video codec to optimize for device) Internet Offload (e.g. WiFi) 38 13 Edge caching solutions (i.e., Ingest and Store 21 12 transcoded content to prevent re-transcoding) Transrating ( reduce video bandwidth in real-time 46 10 by removing frames) 0 20 40 60 80 100 % 4 5 (critically important) •  Unambiguous result for policy control at 55 percent “critical” •  Loose definition of policy helps vs. specific alternatives 21

Video Optimization When do you expect to deploy a video optimization solution in your network? (n=52) Already deployed commercially 12 Will deploy within the year 17 Will deploy in 1-3 years 42 Will deploy in 3-5 years 13 Will deploy in 5+ years 4 No plans to deploy 12 0 5 10 15 20 25 30 35 40 45 % •  Emphatic result with strong endorsement for this technology •  In-depth interviews paint a more cautious picture, however 22

Efficiency Gains from Video Optimization When do you expect to deploy a video optimization solution in your network? (n=52) Less than 10% 12 Between 10 and 25% 46 Between 25 and 50% 19 More than 50% 2 Don’t know 19 Not interested in video optimization 2 0 5 10 15 20 25 30 35 40 45 50 % •  Clear result inline with other Heavy Reading surveys •  15 percent video efficiency gain is typically achieved today •  HD content provides more opportunity for efficiency gain 23

Thank You!(brown@heavyreading.com) 24

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