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Maximizing the emerging market BWA business plan

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WiMAX Forum Global Congress09, 2- 3 June 2009, RAI, Amsterdam, The Netherlands.

WiMAX Forum Global Congress09, 2- 3 June 2009, RAI, Amsterdam, The Netherlands.

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  • 1. Maximizing the Growth Market BWA Business Plan WiMax Forum Congress Global09 Amsterdam, June 3rd, 2009. Kim Kyllesbech Larsen Technology, T-Mobile International
  • 2. Story. T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. BWA Greenfield in growth markets. BWA spectrum availability. Maximizing the BWA value. Technology migration towards LTE * - when, why & how. Partnerships.
  • 3. Broadband wireless access vision. Technology enables Connected Life and Work …. At home. On the move. At work. Connecting the next 1 billion un-connected
  • 4. Connecting the un-connected at home. T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. Years Growth markets PC & FBB penetration (of Households) PC FBB: Fixed Broadband BB: Broadband FBB GROWTH MARKETS will drive the demand for Broadband Wireless Access will have a substantial proportion of HH un-connected. will have more than 60% of all new broadband connections fixed broadband infrastructure access is poorly developed. today will drive the demand for Broadband Wireless Access 50% BB ≥ PC Years Mature markets PC & BB penetration (of Households) today
  • 5. Internet connectivity is more than “just” fixed. T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. Years Growth market PC and broadband penetration (of population) FBB: Fixed Broadband WBB: Wireless Broadband today PC WBB FBB Fixed-based offering (i.e., CPE-based) is often the right starting point for a BWA startup business. Nomadic (i.e., dongles & data cards) and limited-mobility services (i.e., handsets) can be offered within the coverage footprint Explore enhancing the business model towards quadruple play service enablers Access, Voice/text, Broadcast & Mobility.
  • 6. Is a profitable BWA business viable in Growth Markets with very low ARPU? ARPU Zone T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. Nominal GDP per capita per month ARPU trends * Only major growth markets considered: China, India, Thailand, Philippines, Vietnam, Indonesia, Malaysia. $0 $10 $20 $30 $40 $0 $200 $400 $600 APAC * Source: Pyramid Monthly spend trends : Mobile <3.5 %> GDP/Capita DSL <10%> of GDP/Capita High prepaid share <87%> with typical >90%. Annual ARPU decline anticipated across all cats. xDSL / Cable Mobile Prepaid Mobile Contract Mobile blend India China
  • 7. Substantial difference in the Mobile and BWA business model logic and economics.
    • Mature and emerging markets
    • Aim near 100% pop & geographical coverage.
    • Multiple access technologies.
    • Mobile voice primary revenue stream and broadband data secondary.
    • Macro-mobility main value add.
    • High Opex is driven by country wide network coverage, market invest and usage-based cost.
    • Very high Capex pressure due to country-wide coverage.
    • Attractive in emerging markets
    • Dense-urban and urban city-based coverage, income-profit based rollout.
    • Single access technology.
    • Broadband wireless data primary revenue stream with premium ARPU. Voice over IP (VoIP) can be offered.
    • House-hold based DSL substitution, nomadic mobility and at later stage city-based mobility for data and VoIP.
    • Lower Opex due to city-based coverage strategy, often only broadband alternative with minor usage-based cost.
    • Lower overall Capex due to significant reduced rollout footprint.
    Mobile business model BWA business model
  • 8. The traditional Mobile network model The traditional Mobile network model – don’t go there with BWA (initially). T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. Top Cities Urban Sub-urban (SU) Rural (RA) Radio Nodes Traffic (Revenue) Total Cost
    • Coverage and mobility drives up site numbers.
    • 50% or more of total site count are RA & SU.
    • 70% or more of traffic is generated in Top Cities and Urban areas
    • Ca. 50% of (network) cost is driven by RA & SU.
  • 9. BWA network deployment in growth markets – a City-focused (inside-out) model. T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. Radio Nodes Traffic (Revenue) Total Cost
    • Target the Top Cities of growth markets.
    • Top-cities often have 5 -10 times the country GDP per capita.
    • Opportunistic-based rollout.
    • Develop BWA-based DSL propositions.
    • High-quality* customer value propositions.
    • Explore nomadic, VoIP, broadcast options.
    • Synchronizing cost with revenue.
    • Build-to-need.
    • Don’t compete with the mobile business model
    * With high-quality should be understood better than existing fixed (and mobile) broadband packages in market, which can be very different from for example European quality levels. Top Cities
  • 10. TDD spectrum at lower frequencies are scarce. T-Mobile UK & Orange TD-TV T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. UL (75 MHz) DL UL (35MHz) DL UL (70 MHz) TDD (50 MHz) DL 900 MHz 1,800 MHz 2,500 MHz UL (60 MHz) DL 2,100 MHz TDD part TDD 2,300 – 2,400+ MHz part TDD This band provides interesting backhaul P2P options in some Greenfield scenarios 3,400 – 3,500+ MHz China: SD-CDMA alloc. UL DL 400 MHz UL DL 700 MHz Coverage Capacity TDD T D D (20 MHz) (15 MHz) (20 MHz) Source: TeleGeography - WiMAX Research Service, Q4 2008. Note: Ignoring traditional WiMax frequency at 3.6 GHz, 4.9 GHz and 5.8 GHz. Airway in China TDD BSNL in India
  • 11. A quarter of WiMax deployments so far are at or below 2.6 GHz and primarily in Asia. T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner.
    • 17% WiMax deployments @ 2.5 GHz
    • of which 50% are in Asia
    • of which 95% are in Growth Markets
    • 50 MHz will be available in most WEU countries within the next 1 – 3 years.
    • 8% WiMax deployments @ 2.3 GHz.
    • of which 75% are in Asia.
    • of which 90% are in Growth Markets.
    • Unlikely to be harmonized across EU, high degree of occupation.
    75% of WiMax deployments are above 2.5GHz 57% @ 3.5 2.5 2.3 WiMax deployment distribution Source: TeleGeography - WiMAX Research Service, Q4 2008.
  • 12. Some factors for technology selection. T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. Note: Logos depicted here are by no means all inclusive DT, simply examples of industry contact points.
      • Cost:
        • Efficient Capex & Opex.
        • Support (passive & active) network sharing.
      • Performance:
        • Spectrally efficient and flexible.
        • Continuous capacity & quality improvement.
        • Future proof (i.e., at least 10 yrs).
      • Legacy Support & Ease of Migration:
        • Smooth technology migration.
        • Development backwards compatible with 802.16e.
      • Terminals/Ecosystem:
        • Low-production cost.
        • Significant scale (regional & worldwide).
        • Terminal diversity: CPE, Dongle, “handsets”,...
        • Diversity of applications: Access, Broadcast, VoIP, etc..
  • 13. The potentially biggest entry opportunity in a Growth Market is by targeting the un-exploited households demand for internet access. T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. HH PC FBB today +5 Years 10 mio 28 mio 62 mio +1.4% pa 0.7 mio 1.5 mio 1.2mio 0.8 mio 0.4 mio 0.1 mio Subscriptions Opportunistic business model targeting high-value city-based customer segment providing high-quality * broadband wireless access. ILLUSTRATION of TOP-20 City-based coverage business model: * Compared to the relevant market.
  • 14. Business model – building the network. T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. Years New Sites / Nodes 1 2 3 4 5 12 Illustration Basic Sites Special Sites Capacity Nodes Modernization Nodes 2 10 20 20 Cities covered 2.5 5.2 6.8 7.7 In millions HH coverage 1.0 3.3 5.4 5.7 1 Area covered In thsd km 2 0.1 0.4 0.8 2.3 In millions Subscriptions 1.2 1.5 300 800 1,300 2,100 (unique sites) BWA Nodes 1,600 300 500 500 300 50 50 25 53 55 57 59 61 300 500 500 300 353 562 537 364
  • 15. Business model – capital expenditures. T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. Illustration up to 70% RAN ca. 5% Other ca. 15% IT & VAS ca. 10% Core CAPEX DISTRIBUTION
    • Absolute Capex levels lower than a mobile business model.
    • 10 Yr average Capex to Revenue ratio 12 ± 2.
    • Steady-state Capex to Revenue ratio < 8.
    • Consider 5 year RAN wear-out cycles (obsolescence).
    • Typically cash positive within 3 to 4 years after launch.
  • 16. Business model – Operational expenditures. T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. Illustration OPEX DISTRIBUTION
    • The BWA Opex distribution is fundamentally different from a mobile voice-centric business model.
    • The BWA’s Opex to Revenue ratio is more favorable than compared with a traditional mobile business.
    • Typically EBITDA positive within 2 to 3 years after launch.
    • Maximum EBITDA margin over a 10 Yr period easily above 40%.
    15% Usage cost up to 35% Technology ca. 5% Personnel 30+% Market Invest ca. 15% Other
  • 17. Business model – financial dynamics. T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. 1 2 3 4 5 6 7 8 9 10 11 12 Years Subscriptions Financial Revenue Opex Ebitda GROWTH OPTIMIZATION ARPU $22 pm $15 pm 2.3 mio Illustration 0 0 Market
  • 18. Business model – BWA quality does not need to be pricy. T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. Yr1 Yr10 38 30 23 15 8 0 ARPU CAGR -3% Subscriptions NPV 10Yr > 0 NPV 10Yr < 0 Illustration ARPU per month 20 50 40 30 10 0 Fixed DSL price range in growth markets $20 – $40 per month
  • 19. Migrating to the next radio access technology – how to continue? T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. Next-generation WiMax (802.16m/TDD-LTE) will become available in the next 2 to 5 years (2011 – 2014). Spectrum management issues. Use part of existing spectrum (if capacity allows). Obtain additional spectrum (should always be pursued). Backwards compatibility with previous technology should be safe-guarded (by standardization & innovation). CPE equipment could be designed to be future proof. (i.e., supporting both 802.16e and LTE * ). LTE standard backwards compatible (e.g., 802.16m). (if capacity allows). (should always be pursued). * Subject to chipset availability.
  • 20. Migrating to the next radio access technology. T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner.
    • Assumptions:
    • New technology introduction after ca. 5 years.
    • All Gross Adds adapt the new technology.
    • Increased & accelerated voluntary CPE replacement of installed base.
    • No forced migration assumed (i.e., subsidies).
    Illustration 37% 23% 11% 3% 1% 53% 73% 0% 20% 40% 60% 80% 100% 1 2 3 4 5 6 7 8 9 10 11 12 WiMax 802.16e WiMax 16m (TDD-LTE) Years Access technology share of devices TDD-LTE intro 2011 - 2014 Many years of technology overlap!
  • 21. The Growth Markets BWA business model is highly promising. T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. Addressing inherent high demand for internet access. BWA-based DSL is often only option for internet access. Powerful substitute for poor fixed “DSL/cable”. Potential to out-perform UMTS/HSPA in raw IP-throughput and scalability providing an equivalent grid. TDD spectrum is relative cheap (compared to FDD). WiMax is here now!.
  • 22. The mature markets business model might not be as promising. T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. Broadband & PC penetration window closed. High fixed broadband (i.e., >70% * ) penetration. Very high mobile (i.e., >100%) penetration (saturation). Existing high-quality / multi-faceted broadband service offerings (i.e., multi-play) at relative low pricing. Entering a saturated, highly competitive and efficient market with multiple mobile and fixed operations. * In Western Europe
  • 23. Greenfield challenges to look out for. T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. Information Technology (not an afterthought) Backhaul connectivity Service management Measure your customer Site sharing possibility (speedy rollout) The right partnering (strategic & financial) Manage bandwidth Regulatory policy & support Backbone & Interconnect connectivity Opportunity based Network rollout Network Turnkey & managed services Technology choice now & tomorrow
  • 24. Partnership. T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. Deutsche Telecom Group is one of the biggest Telco's in terms of purchasing power of Mobile and Fixed infrastructure. Procurement benefits & synergies by leveraging on more than 160 thousand operational radio-nodes. Benefit from network design, planning & operational excellence from operating 17 mobile networks and serving more than 120 mio. customers worldwide. Leverage on Fixed, Mobile and ISP operational know-how.
  • 25. Thank you for your attention. Contact details : [email_address] M +31 6 2409 5202 http://www.linkedin.com/in/kimklarsen Acknowledgement: Many thanks to Stefan Wilhelm (DTAG), Minoo Abedi (T-Mobile), Alan Yeo (DT Asia), Dirk Schoneboom (T-Mobile) for invaluable discussions and challenges and the many entrepreneurs that I have had the privilege to meet and discuss with over the last couple of years.