Outlook 2012: De-risking the Broadband Business Model
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Outlook 2012: De-risking the Broadband Business Model

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De-risking the broadband business model was presented at Informa's Industry Outlook 2012. The starting point summarizes the challenges the incumbent Telco is facing with the emergence of the ...

De-risking the broadband business model was presented at Informa's Industry Outlook 2012. The starting point summarizes the challenges the incumbent Telco is facing with the emergence of the smartphone, mobile applications and social media. Then it takes you to the Digital Agenda 2020 for Europe and inspects what needs to happen to make it come through.

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  • In todays telecoms industry mobile operators have spend billions of Euro investing into deployment of the mobile networks, 2G and 3G.Ignoring 3G spectrum acquisition cost, substantial equity resides in the 2G/GSM networks despite being an ailing technology on the brink of phase-out.The legacy 2G spectrum is an important and strategic asset that will allow future growth and migration to LTE.Maybe it comes as a surprise (or maybe not;-) … there is no single European country with 100% 3G pop coverage. Thus before we can phase out GSM this 3G coverage gap needs to be closed (i.e., actually from a geographical coverage perspective the gap is even bigger).2G is expected to remain a sizable part of the mobile operators customer base in several years ahead.
  • In todays telecoms industry mobile operators have spend billions of Euro investing into deployment of the mobile networks, 2G and 3G.Ignoring 3G spectrum acquisition cost, substantial equity resides in the 2G/GSM networks despite being an ailing technology on the brink of phase-out.The legacy 2G spectrum is an important and strategic asset that will allow future growth and migration to LTE.Maybe it comes as a surprise (or maybe not;-) … there is no single European country with 100% 3G pop coverage. Thus before we can phase out GSM this 3G coverage gap needs to be closed (i.e., actually from a geographical coverage perspective the gap is even bigger).2G is expected to remain a sizable part of the mobile operators customer base in several years ahead.
  • In 2012 we will see many renewal spectrum auctions across Europe as well as digital dividend (800MHz) and remaining 2.6GHz auctions.Legacy GSM spectrum is in general carved up in 2x5 MHz chunks and then auctioned.Overall many regulators have reserved spectrum for New Entrants / Greenfield.Most auction structures open up the possibility for disruptive bidding where a new (or existing MNO) takes most or all of existing legacy spectrum away from an established MNO.Destroying (in worst case) the future growth possibilities and a substantial amount of value.
  • In 2012 we will see many renewal spectrum auctions across Europe as well as digital dividend (800MHz) and remaining 2.6GHz auctions.Legacy GSM spectrum is in general carved up in 2x5 MHz chunks and then auctioned.Overall many regulators have reserved spectrum for New Entrants / Greenfield.Most auction structures open up the possibility for disruptive bidding where a new (or existing MNO) takes most or all of existing legacy spectrum away from an established MNO.Destroying (in worst case) the future growth possibilities and a substantial amount of value.

Outlook 2012: De-risking the Broadband Business Model Outlook 2012: De-risking the Broadband Business Model Presentation Transcript

  • De-risking the Broadband Business ModelIndustry Outlook 2012 , November 24th 2011, London. Dr. Kim Kyllesbech Larsen, Technology Economics Technology, Deutsche Telekom.
  • Changing business models … Dr. Kim Kyllesbech Larsen, Industry Outlook 2012, November 24 th 2011, London, UK. 2
  • A typical mobile data traffic day in Europe. Illustration data voice 00:00 6:00 8:00 10:00 12:00 17:00 22:00 On the On the @Home @Work @Home Go Go Dr. Kim Kyllesbech Larsen, Industry Outlook 2012, November 24 th 2011, London, UK. 3 View slide
  • EU Broadband for All & Everything… Digital Agenda Europe 2020. Closing coverage + >20% <95% gap 100% LTE All have DSL <80% coverage + access to HSPA pop 30 Mbps coverage All FTT-eNB or higher. Europeans have 60% 3G access to adaptation <50% cable Broadband coverage (wireless) 50+% HH + subscribe >50% to 100 <20% Mbps. HSPA FTTH adaptation / FTTx DOCSISx 2011 2013 2020 + IoT 1 now +2 yrs +9 yrs 1 IoT = Internet of Things. Dr. Kim Kyllesbech Larsen, Industry Outlook 2012, November 24 th 2011, London, UK. 4 View slide
  • Digital Agenda Europe 2020 ... What does it mean. 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). Internet-of-Things (IoT) Network for the 15+ Billion projected devices1 More than 100 million HH connected to fibre by 2020. FTTH Investment >15 today’s fixed broadband earnings. 1 In Europe for every mobile device there will be 20+ IoT devices in 2020. Dr. Kim Kyllesbech Larsen, Industry Outlook 2012, November 24 th 2011, London, UK. 5
  • Spectrum challenge 2012 - Pre-auction days. Illustration Uplink only 900 MHz 2 35 MHz MNO2G 3G 1 3G MNO 2 2G 3G MNO 3 2G 3G All FDD (3G) (3G) (3G) (GSM) 1800 MHz LTE 2G LTE 2G LTE 2G LTE 2G LTE 2G Un-used spectrum 2 75 MHz (LTE) (LTE) (LTE) (LTE) (LTE) LTE LTE LTE LTE LTE (GSM) 5 5 5 5 5 5 5 5 5 5 5 5 2100 MHz 2 60 MHz 3G core band 10 20 10 20 10 2600 MHz 70 2 70 MHz + FBO 1 FBO 250 MHz (TDD)(Tech neutral) Note: MNO = Mobile Network Operator & FBO = Fixed-Broadband Operator. Dr. Kim Kyllesbech Larsen, Industry Outlook 2012, November 24 th 2011, London, UK. page 6
  • Spectrum challenge 2012 - Pre-auction days. Illustration Uplink only 900 MHz 2 35 MHz MNO2G 3G 1 3G MNO 2 2G 3G MNO 3 2G 3G All FDD (3G) (3G) (3G) (GSM) Billions of Euro in mobile network assets. 1800 MHz 2G 2G 2G 2G 2G Un-used spectrum 2 75 MHz (GSM) 2G and 3G tightly integrated. LTE (LTE) LTE (LTE) LTE (LTE) LTE (LTE) LTE (LTE) LTE LTE LTE LTE LTE By 2012 still more than 20% on 2G. 5 5 5 5 5 5 5 5 5 5 5 5 2100 MHz 2 60 MHz 3G core band No 100% 3G pop/geo coverage. 10 20 10 20 10 2600 MHz 70 2 70 MHz + FBO 1 FBO 250 MHz (TDD)(Tech neutral) Note: MNO = Mobile Network Operator & FBO = Fixed-Broadband Operator. Dr. Kim Kyllesbech Larsen, Industry Outlook 2012, November 24 th 2011, London, UK. page 7
  • Spectrum challenge 2012…major disruption possible. 5 5 5 5 5 5 Illustration 800 MHz Uplink only 2 30 MHz LTE LTE LTE LTE LTE LTE(Tech neutral) Secure min. 2×10 MHz All FDD 5 5 5 5 5 5 5 Greenfield reservation 900 MHz 2 35 MHz 3G 2G (3G) 3G 2G (3G) 3G 2G (3G) 3G MNO 2 loose(Tech neutral) Secure min. 2×10 MHz spectrum game! 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 1800 MHz 2G 2G 2G 2G 2G 2 75 MHz LTE (LTE) LTE (LTE) LTE (LTE) LTE (LTE) LTE (LTE) LTE LTE LTE LTE LTE(Tech neutral) Secure min. 2×20+ MHz 5 5 5 5 5 5 5 5 5 5 5 5 2100 MHz MNO MNO MNO 3G 3G 2 60 MHz3G core band 2 3 1 10 20 10 20 10 2600 MHz 70 2 70 MHz + FBO 1 FBO 250 MHz (TDD)(Tech neutral) Secure min. 2×20+ MHz Note: MNO = Mobile Network Operator & FBO = Fixed-Broadband Operator. Dr. Kim Kyllesbech Larsen, Industry Outlook 2012, November 24 th 2011, London, UK. page 8
  • Spectrum challenge 2012…major disruption possible. 5 5 5 5 5 5 Illustration 800 MHz Uplink only 2 30 MHz LTE LTE LTE LTE LTE LTE(Tech neutral) Secure min. 2×10 MHz All FDD 5 5 5 5 5 5 5 Greenfield reservation 900 MHz 2 35 MHz 3G 2G (3G) 3G 2G (3G) 3G 2G (3G) 3G MNO 2 loose(Tech neutral) New entrant Secure min. 2×10 MHz buying existing incumbent spectrum. spectrum game! 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 Possible (catastrophic)2Gloss of spectrum. LTE 1800 MHz LTE 2G LTE 2G LTE LTE 2G LTE 2G LTE LTE LTE LTE 2 75 MHz (LTE) (LTE) (LTE) (LTE) (LTE) (catastrophic) Loss of MHz(Tech neutral) Secure min. 2×20+ Value and Operation. Loss of future growth possibilities in LTE. 2100 MHz 5 5 3G 5 5 5 5 5 5 5 5 5 5 3G MNO MNO MNO 2 60 MHz3G core band 2 3 1 10 20 10 20 10 2600 MHz 70 2 70 MHz + FBO 1 FBO 250 MHz (TDD)(Tech neutral) Secure min. 2×20+ MHz Note: MNO = Mobile Network Operator & FBO = Fixed-Broadband Operator. Dr. Kim Kyllesbech Larsen, Industry Outlook 2012, November 24 th 2011, London, UK. page 9
  • De-risking disruptive spectrum moves. Spectrum partnership alliance(s). Value at risk game rather than incremental value add play. Higher degree of network in-dependence … Network Factory / Sharing. Dr. Kim Kyllesbech Larsen, Industry Outlook 2012, November 24 th 2011, London, UK. 10
  • When data demand exceeds spectral efficiency gains.”Houston we have problems”. Illustration of the European market 1 The spectrum crunch. Total spectrum in use for mobile data 10 20 40 60 85 120 120 120 120 120 120 15 Leapfrog network capacity, e.g., Spectral Efficiency (*) Spectral demand (limited) Densification Spectral demand (unlimited) Spectral demand couldIncrease over 2010 10 smart antennas exceed spectral efficiency 3G  LTE  LTE-a Early LTE deployment between 2014 - 2016. Conversion Price, Control & Policy. 5 NOT GOOD AT More spectrum. ALL! 0 2010 2012 2014 2016 2018 2020 1 Mobile operator with (1) 20MHz @ 800MHz (LTE), (2) 20MHz @ A lot more 900MHz (2GHSPA),(3) 50MHz @ 1800MHz (2GLTE), (4) 30MHz @ 2100MHz (HSPA+). Total spectrum position 120 MHz. Complexity, Capex and Opex (*) realWireless report for Ofcom,: 4G Capacity Gains, Final Report, January 2011. Dr. Kim Kyllesbech Larsen, Industry Outlook 2012, November 24 th 2011, London, UK. 11
  • OTT Mobile Apps impact.Mobile Apps “attacks” the highest margin services. ARPU 22.4 1 23.0 By 2015 3.3 6.2 1 Data Data 3.4 SMS more than 70% 3.8 of users have 12.7 SMS a smartphone 6.2 1 15.7 Data Voice 13.0 Voice 6.5 Voice 2010A 2015E MNO Centric Mobile Centric ARPU ARPU 1 Source 2010 & 2015 Pyramid Research September 2011 Western Europe. Dr. Kim Kyllesbech Larsen, Industry Outlook 2012, November 24 th 2011, London, UK. 12
  • OTT Mobile Apps impact.Mobile Apps “attacks” the highest margin services. ARPU 22.4 1 By 2015 ? 3.3 + Data 9.7+ +43% 3.4 Data SMS more than 70% ARPU of users have 12.7 a smartphone MoIP  6.2 1 15.7 Data Death to SMS. Voice VoIP @Home 6.5 Voice & maybe @Work. 2010A 2015E MNO Centric Apps Centric ARPU ARPU 1 Source 2010 & 2015 Pyramid Research September 2011 Western Europe. Dr. Kim Kyllesbech Larsen, Industry Outlook 2012, November 24 th 2011, London, UK. 13
  • Traffic & revenue changes in the last 12 month. Illustration of the European Market #Customers #Customers 2010 2010 +12 Month +12 Month Declining Minutes Declining SMS 0 100 200 300 400 500 600 700 0 50 100 150 200 250 300 350 MO MoU per Customer MO SMS per Customer #Customers #Customers 2010 2010 +12 Month +12 Month Increasing Data Declining ARPU (and top-line) 0 100 200 300 400 500 600 0 50 100 150 200 Mega Byte per Customer Average Revenue per User (ARPU) Dr. Kim Kyllesbech Larsen, Industry Outlook 2012, November 24 th 2011, London, UK. 14
  • How to uplift the mobile data business case.Demand for new revenue, partnerships & collaboration models. Economics of mobile data Structural off-loading1 Illustration of the European market Increased spectrum availability. Early LTE deployment. Free Cash Flow Mobile – Fixed partnership models. Network Aware Apps & Devices LTE Network APIs. Smarter & network friendlier devices. Innovation Mobile Business Femto cells. model breakdown 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 New revenue streams Internet of Things HSPA only, no LTE Location / Notifications / Payments HSPA + LTE w. 50% off-load from 2012 Customer insights 1 Note: off-loading here means any traffic migration from legacy technology or legacy spectrum bands to something else. Dr. Kim Kyllesbech Larsen, Industry Outlook 2012, November 24 th 2011, London, UK. 15
  • New mobile revenue opportunities … making up lost.How big will the piece of the cake be? 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). 16 Dr. Kim Kyllesbech Larsen, Industry Outlook 2012, November 24 th 2011, London, UK.
  • Vision - network aware mobile apps (1 of 2).Innovation is important remedy to mitigate risk. Ad-hoc optimized route Synched notification Optimized service delivery Traffic Profile N × Events vs data 1 × Event Primary indoor usage → voice off-load possibilities. Off-busy-hour In-fill delivery. Dr. Kim Kyllesbech Larsen, Industry Outlook 2012, November 24 th 2011, London, UK. 17
  • Vision - network aware mobile apps (2 of 2).Collaboration across Network, Device and Apps. Self-Optimized & Cognisant Network Dr. Kim Kyllesbech Larsen, Industry Outlook 2012, November 24 th 2011, London, UK. 18
  • Decreasing margins & increasing cash pressureNetwork consolidation & new partnerships. Sharing logic Economics LTE HSPA+ HSPA UMTS + GSM (→LTE) Total Opex Rollout Steady StateModernization 100% <5 years in 5 years > 5+ years Cluster Opex Rollout 40% Significant Capex prevention. Technology Substantial Opex prevention. Network 10% Best network … more for less. RAN 7% Steady State RAN Little Capex benefits. saving Substantial Opex savings. High write-off & restructure cost. Experience. When Network is NOT a differentiator. Modernization Capex prevention (sharing of modernization). SUBSTANTIAL financial benefits. Substantial Opex savings. NOT a solution to spectrum CRUNCH. Minor write-off & contract termination cost. COMPLEX Governance. Dr. Kim Kyllesbech Larsen, Industry Outlook 2012, November 24 th 2011, London, UK. 19
  • Fixed – Mobile Convergence.Technology & business reasons for FMC. Mobile & Fixed the ideal partnership Most mobile data traffic is fixed-like. Sharing 100 Mbps with up-to Data distribution across sites 100% 2,389 53 171 1,373 594 36 80% of 0.02 7000+ devices 327 90% 21 11 0.4 6 2.2 97 traffic in 2 0.04 80% per macro-cellular radio node 48 24 sites or less 12 70% 0.8 4.3 Node 60% 5th Ranked Site FTTS 100 Mbps 50% 24,409 11,864 5,959 4th Ranked Site 2,495 1,082 40% 501 3rd Ranked Site 0.2 196 Out-side in coverage 81 39 30% 2.4 13 2nd Ranked Site 20% Main Site versus 10% AP (e.g., WiFi or 0% Femto,..) In-side out coverage Usage category Home Environment Fixed & Mobile enables: with ca. 2.3 people per Home • Transparent off-loading strategies. FTTH 100+ Mbps • Inside-out coverage with in-home backhaul Cable 100+ Mbps connectivity (i.e., via VDSL, Fiber, …). VDSL 40+ Mbps • Honest always-best-connected offers. Dr. Kim Kyllesbech Larsen, Industry Outlook 2012, November 24 th 2011, London, UK. 20
  • What we need to be passionate about… De-risking the broadband business model. How to spend it Internet of Things Monetize social media How to earn it back Transform Business Model New partnership models Dr. Kim Kyllesbech Larsen, Industry Outlook 2012, November 24 th 2011, London, UK. 21
  • Thank youAcknowledgement: Many thanks to Bin Xi, Claire Hilton, Minoo Abedi andRichard Marijs in particular and of course to my fantastic Technology Contact: kim.larsen@t-mobile.nlEconomics team for great suggestions and kind advice on how to improve Mobile: +31 6 2409 5202the presentation. http://nl.linkedin.com/in/kimklarsen