Creating Value with Network Performance

Creating value
with
Network
Performance
CANTO @ Bahamas – August, 2014

Creating Value with Network Performance | Commercial in confidence | © Ericsson AB 2014 | 2014-08-13 | Page 2
2014 FIFA World Cup…

The Playing Field Continues to
be Changing…
?
New Market Dynamics…

MARKET TRENDS 2014
This slide contains forward-looking statements. Actual result may be materially different.
Digital lifestyle drives the demand for new and
innovative apps and devices
Superior network performance is essential for
differentiation and value capture
Increased focus on the complete customer
experience
A data-centric world is rapidly emerging, bringing
new business models
ICT, fueled by mobility, broadband and cloud,
transforms industries and creates value
Smartphone intensive markets defined as markets with smartphone penetration above 50 percent in 2013.
>75%
Mobile video traffic
growth will exceed
75 percent
Data will exceed
50 percent of
revenues
globally in
smartphone
intensive markets
Every other
subscriber will
have a
smartphone
1/2

By 2019…
700 M
PCs & Tablets
9.2 BN
Mobile Subscriptions
5.6 BN
Smartphone
Subscriptions
7.6 BN
Mobile broadband
Subscriptions

What's driving the
growth?
› Number, Availability and Price of Smartphones
› New connected devices
› Better User Interface
› Mobile Applications
› Laptop Penetration
› Cheap Dongles
› HSPA Networks
› Effective Pricing Plans
› Clients Usage Profiles

Good Start… But
tremendous upside.
Source: eMarketer/ Ericsson Research estimates 2014Note: One Subscriber may have more than 1 connection
5.2B
1.56B
2013
CAGR: 20%

Mobile Traffic Growth
Based on actual measurements
DVB-H, Wi-Fi, and WiMax are not included

Mobile Penetration
Source: Ericsson Mobility Report 6/14

Latin America Mobile
PENETRATION
Source: Statista 2014
93%
110%

Subscription density
in the Caribbean
Source: ICT Pulse - 2014

Avg. Subscription
Penetration Rates
Source: ITU, 2013
113%

Data Affordability in
the Caribbean
Source: Source: ICT Pulse - 2014
Portion of monthly income
consumed by a mobile/cellular
data plan with a 1 GB cap in
select Caribbean countries as at
July 2014

Data Revenues latam
4Q134Q12
Latam Latam ArgBrazilBrazil Latam Latam ArgBrazilBrazil
Mobile
Voice
Mobile
Data
Absolut (Reported Currency) Relative Percentage (100%)
Share of Mobile Data and Movile Voice Revenues (4Q12 to 4Q13)
50%
100%
Source: Ericsson analysis.
Latam Mobile Data Revenues <50% as Smartphone Penetration is Low (~30%)

Data Consumption per
device and Year
13 GB
4.5 GB
2.5 GB
2019
3.3 GB
1 GB
0.65 GB
2013
10X
growth in
mobile data
traffic
between 2013
and 2019
>50%
of TRAFFIC

Tablets –lots of room
to grow
Source: KPCB May 2014
56% of Laptops
28% of smartphones
8% of TV´s

Tablets growing
faster than pc´s ever..
52% in
2013

Media engagement
rises with # of screens

Global Mobile traffic
Growing at +1.5X year

Most Social Networks
are mobile first
Source: WSJ, Comscore, Statista 12/13

+20% of Latam users
on LTE in 2019
Source: Ericsson Mobility Report June14

Traffic mix for applications
and devices

Application mix similar on
3g & 4g
Video dominant on 3G and 4G
Social and IM large part of 2GSource: Ericsson Smartphone LAB deep dive
measurements for iPhones, advanced MBB market

el
sustainable
competitive
advantage through
quality &
performance

TIME TO CONTENT
CRITICAL FOR USER EXPERIeNCE
25%
OF Mobile users
ABANDON WEB PAGE
AFTER 4 SECONDS
50%
OF MOBILE USERS
ABANDON WEB PAGE
AFTER 10 SECONDS
”Just a second please”
Commercial in confidence, © Ericsson AB 2013

Digital Content grew
at +50% during 2013
Source: KPCB May 20141Petabyte = 1MM Gbytes; 1 Zetabyte = 1MM Petabytes

How to cope with
traffic growth?

App coverage: new
dimension of performance
Can I
watch
the show
here?

Application coverage
& Flow of users
Application Coverage
Performance
User perspective
Flow of Users
Performance
Network perspective

App coverage
5% 48% 16%
1
100.1
>50%<1%
MBPS
DOWNLINK SPEED
Recommended
Grade of Service
>95%
Very Average User Throughput
comparing to Global Speeds

RECOMMENDED
GRADE OF SERVICE
Commercial in confidence, © Ericsson AB 2013
La networks among worst
performing in the world
>90%
DOWNLOADS
< 0.1 MBPS
DOWNLOADS
> 1MBPS
DOWNLOADS
> 10 MBPS
North America
78%5% 31%
Latin America
48%16% 5%
Eastern & Central Europe
55%18% 5%
Western Europe
78%6% 17%
Middle East
77%6% 27%
APAC
54%15% 8%
Africa
58%10% 7%
App coverage status, H1 2013
1
>90%
100.1
>50%<1%
MBPS
DOWNLINK SPEED

Latin america
Best Operators per CIty
DL > 1 Mbps vs. DL > 10 Mbps
January to June 2014 Cellular Data [%]
[%]
Download percentage > 1 Mbps
Downloadpercentage>10Mbps
Oper. B
DRClaro DR
0%
5%
10%
15%
20%
25%
30%
35%
40%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Oper. B
Buenos Aires
Oper. C
Bogota
Oper. C
Caracas
Oper. C
Guatemala
Oper. C
Kingston
Oper. B
LimaTelcel DF
Claro
Sao Paulo
Claro Rio
Oper. C
Chile
Oper. C
Cali
Better
Operators

Global Benchmark
DL > 1 Mbps vs. DL > 10 Mbps
Establish, Expand HSPA & Accelerate LTEJanuary to June 2014 Data
[%]
[%]
Download percentage > 1 Mbps
Downloadpercentage>10Mbps
Wanted
position
CLARO DR

Is there a recipe
for success?

CAGR 2009-2013
12.9 %
2.6%
Frontrunners
Outperforming revenue
growth
80%
90%
100%
110%
120%
130%
140%
150%
160%
170%
180%
190%
201220112010200920082Q07 2013
Peers
Frontrunners
Percent of 2Q07 levels
Source : Ericsson analysis – operator reporting (12 leading operators)
*) Average CAGR among analyzed operators

“Streetwise Metrics”
Experience-centric KPI:s
“Co-Partnering”
Visionary Collaboration
“Unboxing”
Redefine Subscription
“Show Casing”
Quality-led Marketing
“Ecosystematic”
Open-ended Innovation
“Gap Minding”
Visionary Investing
Lead by superior
network performance
Lead by innovative
Marketing & Offering
Six behaviors that set
them apart from their
peers

Leading
Revenue Growth
Data centricLeading
Profitability
Frontrunners
identified
Evaluated and Identified Based on 3 Key Parameters
Reaching towards 10% or higher
25-50% data revenuesGrowing EBITDA

Causal Relationship
between Variables
Source : Ericsson and Telecom Advisory Services LLM 2014
Base: Market data from Brazil, Mexico & U.S.

What is the situation in
Latin America?
Users
Devices
Traffic
Capex Performance
Satisfaction
Profits
The RLAM operator situation 2012-2013

Finding proof that this
virtuous circle is true
Capital
expenditures
Operational
performance
Market
performance
Financial
performance

Conceptual model
Capital expenditures Operational performance Market performance Financial performance
To find the main drivers of performance the
model interlinks the different drivers in
each part of the chain
Capacity upgrades
Network modernization
Product/service
development
Accessibility & data
completion rate
Percent connections
higher than 1 Mbps
Speech call quality index
Market Share
ARPU increase
Churn reduction
Revenues
EBITDA
Free cash flow from
operations
Latency reduction
Throughput
Model aimed at defining the causal relationship from capital
expenditures to financial performance

3 markets
› Brazil
› Mexico
› United States
Selection based on:
– Investment growth forecasted
– Good cooperation with
Ericsson
– Challenged on quality
– Ericsson installed base
– All large operators per market
For our analysis We
collected historical data
from 3 markets

Descriptive statistics show
correlation between metrics
y = 0.1011x + 96.983
R² = 0.14301
96.5
97.0
97.5
98.0
98.5
99.0
99.5
0 2 4 6 8 10 12 14 16 18
SpeechCallQualityIndex
Average Annual CAPEX per Connec on ($R)
CAPEX VS.
SPEECH
CALL
QUALITY
y = 0.0113x ‐ 0.8086
R² = 0.73436
24%
25%
26%
27%
28%
29%
30%
31%
32%
94.5 95 95.5 96 96.5 97 97.5 98 98.5 99 99.5
MarketShareofConnecons(%)
Speech Call Quality Index
SPEECH
CALL
QUALITY
VS.
MARKET
SHARE
y = 158.08x ‐ 209.43
R² = 0.36229
2,000
2,500
3,000
3,500
4,000
4,500
15 17 19 21 23 25 27
QuarterlyRevenues(‘000’000R$)
ARPU (R$)
ARPU
VS.
REVENUES
CAPEX
VS.
LATENCY
LATENCY
VS. ARPU
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
80 100 120 140 160 180 200
QuarterlyRevenues(‘000’000MXM)
ARPU (MXM)
ARPU
VS.
REVENUES
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
0.00 50.00 100.00 150.00 200.00 250.00 300.00 350.00
Latency
Average Annual CAPEX per Connec on (MXM)
0
50
100
150
200
250
300
0 100 200 300 400 500 600 700
ARPU(MXM)
Latency
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
0 200 400 600 800 1000 1200
Churn(%)
Latency
LATENCY
VS.
CHURN
ARPU
VS.
REVENUES
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
900.0
1,000.0
0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00
Latency
Average Annual CAPEX per Connec on (MXM)
CAPEX
VS.
LATENCY
Brazil Mexico United States
Capital
expenditures
Operational
performance
Market
performance
Financial
performance

From correlation to
causality; regression
analysis
Capital
expenditures
Operational
performance
Market
performance
Financial
performance
Example: Impact of 1% improvement of Speech
Call Quality on ARPU, Market share and Churn
1 percentage point (p.p.) improvement in
Speech Call Quality (e.g. in case of Oi from
97.8037 to 98.8037) decreases churn by
0.2413 p.p. (e.g. in case of Oi from 2.60% to
2.36%);
The positive effect starts directly but reaches
maximum impact one quarter after quality
improvement (T+1);
Two stars (**) indicate a statistical
significance of 95%; there is a 5% change
that the observed effect is not causal but
random

correlation to causality;
regression Analysis
Capital investments
Operational
performance
Market performance
Financial
performance
Market ShareARPU
(***)
(***)
(***)
(***)
$RMillions
Churn
Percentage
points
0.000
0.100
0.200
0.300
0.400
0.500
ARPU
($R)
Mkt
Share
(%)
Churn
(%)
ARPU
($R)
Mkt
Share
(%)
Churn
(%)
ARPU
($R)
Mkt
Share
(%)
Churn
(%)
ARPU
($R)
Mkt
Share
(%)
Churn
(%)
Samples > 1
Mbps
Data
Completion
Data
Accessibility
Speech
Quality
T+2
(***)
(**) T+1
(**)
T+2
(**)
(***) T+1
(**)
T+1
(**) (***) T+1
(**)
(***)
T+1
(**)
T+3
(***)
(*) (***)
(**)
(***)
Percentage
points
(***) Statistically significant at 99% (**)
Significant at 95% (*) Significant at 90%
Source: TAS, Ericsson analysis

study in 3 American markets
confirms a robust relation between
investments, performance and
financials
How much would a 10% incremental increase in CAPEX impact operational
and market performance for an operator in the following markets*?
Accessibility rate increase (same quarter)
Data completion rate increase (same quarter)
Percent connections higher than 1 Mbps (same quarter)
Speech call quality index (same quarter)
Latency reduction (same quarter)
Downlink broadband speed increase (same quarter)
-
-
5.5 %
-
10.9%
-
1.8 %
2.4 %
4.7 %
0.3 %
-
-
-***
-
-
-
53.4%
59.3%
Market Share increase (same quarter)
Churn reduction (after one quarter)
ARPU increase (after one, two or three quarters)
1.7%
3.7%
1.1%
4.0%
12.0%
4.9%
3.0%
-
21.0%
*Statistical simulation model applied to actual operators
**Time lag effects differ between different markets
***No data available
Impact on variable (and time lag to the beginning
of observed effect)**
Brazil USMexico
Operational
Performance
Market
Performance

Impact of 10% Capex
Increase over 5 years
Source : Ericsson and Telecom Advisory Services LLM 2014
Base: Market data from Brazil, Mexico & U.S.

Customer experience
Source: Ericsson ConsumerLab
Initial
Purchase
Billing
& Payment
Account
Management
Service
& Support
Network & Service
Performance
Tariff plans/
Offers
Smartphone
Apps/Eco system
Customer Relation
Service Usage
Loyalty
building

what drives loyalty in
latam?
MarketingCustomer service Offer Network
Base: Smartphone users in BR, CHL, MXSource: Network Performance study 2013
Shapley regression analysis, showing the relative impact
between each driver and loyalty to operator brand (NPS)

Improving network
performance by 10%
impacts CTV by 14%
Network
Performance Today:
6.43 (Mean)
Promoters
Detractors
Network
Performance +5%:
6.75 (Mean)
Network
Performance +10%:
7.07 (Mean)
Network
satisfaction
CTV $1211 $1325
(+3%)
(-4%)
(+7%)
(-6%)
(+0.2) (+0.4)
(+$53) (+$168)
Improving network performance
(+5%) (+14%)
Source: Network Performance study 2013
$1157
Base: Smartphone Users in BZ, MX, CHL

Improving data reliability
by 10% increases ctv by 14%
Data Reliability
Today: 6.40 (Mean)
Promoters
Detractors
Data Reliability
+5%: 6.72 (Mean)
Data Reliability
+10%: 7.04 (Mean)
Network
satisfaction
CTV $1203 $1323
(+3%)
(-3%)
(+7%)
(-6%)
(+0.2) (+0.4)
(+$46) (+$166)
Improving Data Reliability
(+4%) (+14%)
Source: Network Performance study 2013 Base: Smartphone Users in BZ, MX, CHL
$1157

Better User Experience,
Higher Margin
Japan USA South Korea
Softbank NTT
DoCoMo
KDDI
21%
18%
24%
EBIT / Revenue
AT&T Verizon
26%
32%
EBIT / Revenue
-3%
Sprint
SKT
15%
LGU+
5% 5%
VFE India
Room for Further Fight Very Clear Win-Lose Very Clear Win-Lose
EBIT / Revenue
Source: Speed test Q4 2013 on Median 50%
user downlink throughput
Source: Speed test Q4 2013 on Median 50%
Source: Bench Bee samples on Median 50%

LTE Leadership
SMARTPHONE TRAFFIC
THROUGH OUR NETWORKS

it is not about the
killer application, but
the killer experiencE...

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