Delivered this presentation at the Informa's Pricing Mobile Broadband conference 26 & 27th August 2012 in London. While some of the slides are similar to the ones in my Mind Share document you will find new slides and re-worked material giving another twist to Right Pricing Mobile Broadband. Enjoy and should you have any questions/comments just get in touch! Don't be a stranger!

1. Right pricing mobile broadband.
Examining the business case for mobile broadband.
Informa’s Pricing Mobile Data Conference.
27th June 2012, London, UK.
.
Dr. Kim Kyllesbech Larsen,
Technology, Deutsche Telekom AG.

2. Some key questions to be very passionate about.
Do operators capture enough value of mobile broadband?
Do we understand data profitability vis-à-vis demand, supply & cost?
How to change the pricing game from quantity to quality ... Is it possible?
Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK. 2

3. Value of internet1…Worth massive lifestyle changes!
What would you give up for a year for internet access.
80 80
75 74
68
48
30
27
22
1 Source: The Boston Consulting Group Report on “The Internet Economy in the G-20”, March 2012.
Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK. 3

4. Value of internet1 …the customer perspective.
Need, Love and (then) taken for granted?
Perceived Value of Internet Perceived Value of Internet
(relative to GDP per Capita) (relative to GDP per Capita)
40%
40%
Internet penetration < 50%
Internet penetration > 50% 30%
30% Taken for granted
Japen & South-Korea
20% 20%
10% 10%
!
0% 0%
0% 2% 4% 6% 0% 25% 50% 75% 100%
Price of Internet Internet Penetration
(relative to GDP per Capita)
The perceived value of internet drops as internet becomes a commodity
1 Source: Analysis based on The Boston Consulting Group Report on “The Internet Economy in the G-20”, March 2012.
Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK. 4

5. Price setting in mobile.
Today’s data price philosophies are volume centric.
Price ( Volume ( Quality, Product, Time ) , Cost, Competition1, Regulation)
Volume Time
e.g., MTR, roaming
tariffs, …
FUP based
feedback
Quality2 Product
COST
mainly driven by Quality & Product
Illustration
1 Most price levels are NOT designed in isolation from competition, In fact often competition is the main “inspiration” for pricing. 2 Quality
could be speed but is not exclusively so. nd
Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27 2012, London, UK. 5

6. Price & profitability … Pricing the Byte
Volume is easy and gives a (false) sense of being almost a
voice minute
Volumetric customer Marketing &
demand Sales
Maximum Cost per Byte
Profitability can be “safely
assumed” if the “Price per
Finance together
Byte” is chosen somewhere
in-between with M&S
Minimum Cost per Byte
Volumetric network
capacity Technology
REMINDER! Vastly different data-traffic profiles and Cost
can result @ the same volumetric demand.
Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK. 6

7. Why data profitability is a *****
Every data service, mobile app, smartphone, contributes to the
Busy Hour differently and thus COST and Profitability.
Volume in MB Home surfing
100% (wireless DSL)
Relative contribution to
Mobile TV
BH bandwidth demand as high BW
impact but
60%
Function of service type relative
50% little
volume in
40%
this
illustration
.
20%
BH Throughput in Mbps
8% 7%
3% 2% 2% 1% 1% 0.5% 0.5% 0.5% 0.4% 0.2% 0.2%
Note: the above example from the pre-smartphone pre-mobile-apps (2006) but nevertheless it illustrates the challenges we have when
trying to define data profitability in a meaningful way. nd
Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27 2012, London, UK. 7

8. Every new generation of smartphone increases data
load above & beyond the old ... and thus Cost!
Data volume Improvements in
per Smartphone intrinsic smartphone speed
dramatically increases the data usage
AND COST!
×4
@ UL=5.8Mbps
Data volume
@ UL=384kbps
per Smartphone
GPRS ×6 iPhone
0 10 20 30
×5
Max. DL Speed in Mbps
×2.7
Improved air-interface speed
increases data usage 400 600 800 1000 1200 1400 1600
AND COST! Smartphone CPU clock frequency
Source: Network data.
Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK. 8

9. Right pricing mobile broadband…Changing the game!
New philosophies … new dimensions.
Differentiate on Quality.
FUP as
Speed & Latency.
top-line
Coverage (e.g., deep indoor)
remedy
Time.
Quality1 Volume
Customer care & support,
Handset, device, etc..
Always-Best-Connected
Leverage Fixed and Mobile.
Reduce
Small Cell deployments.
WiFi / Femto-cell off-load, etc..
Product value add-on
VoIP.
Product Time
Msg & notifications.
Internet Access.
Social media.
Mobile media player.
Cost of
Handset, etc..
Providing data Illustration
1 Quality could be speed but is not exclusively so.
Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK. 9

10. … not all customers eat what they pay for!
MByte
1,200
Policy Limit LIMIT
& AV USAGE
Average Used 1,000
800
Unlimited average
600 usage is 60%
+60% higher than 1GB
capped usage
400 (in this example).
31%
200 46% 32%
58%
0
250MB 500MB 800MB 1GB UNLIM
Smartphone volume limit per price plan
Illustration
Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK. 10

11. Relative cost and pricing … where did my margin go?
Technology Cost
mobile broadband data
In 2.00
€-cent per MB
Todays typical
1.50
Mobile data prices approx.
10 down to 0.5 €-cent per MB
1.00
Data pricing is in perpetual
decline and will impact margin
& data profitability.
0.50
Min 0.10±0.05 €-cent per MB
0.00
Demanded Network BH Mbps
(allowing for HSPA+ LTE LTE-advanced) Illustration
Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK. 11

12. What you really should care about! … Absolute cost!
The profitability auch! …
Profitability crunch exposure
Relative 2014 – 2018 (pending on country and MNO)
Mobile Data
8
TCO Limited resources
6
A Gap too far to bridge?
4
“Unlimited” resources
2 ! !
Technology Mobile Data Todays Total
Baseline TCO
Technology Cost Level
0
Network BH Mbps
(or equivalent time scale) Illustration
Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK. 12

13. New business!
Defend philosophy!
QoS, IoT,, Media, FMC, …
Business case logic Stop / Slow Revenue Decline
+ New Revenue?
Disruptive region …
Iliad Free 3% market share Total Revenue
Profitability in 6 month, Ebitda>0 @5% share
− Usage Cost
50% Efficiency game − Market Invest SAC & SRC
Defend / Slow Ebitda Decline
40% − Personnel Cost
Efficiency
− Technology Cost (ca. 15% – 20%)
30% Incumbent region …
Diminishing return of − Other Cost
20% most actions
= EBITDA (WEU ca. 37% 1)
MNO C
10%
MNO B − Network Depreciation
MNO A
0%
0% 20% 40% 60% 80% 100% − Spectrum Amortization
Customer market share
Increased cash pressure − Spectrum invest (0.8 – 0.05 € per MHz-Pop)
New technology / Modernize
Scale
− Capex (new rollout < +10+% of Revenue)
Red color represent Technology driven cost
1 BoA ML Global Wireless Matrix 1Q11, margin data for 4Q 2010.
Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK. 13

14. Spectrum position, investment & cost.
2.6 GHz up-to 10× more costly to deploy compared to 800MHz.
DL power
UL power
(typical limitation for coverage)
2.6
GHZ
800 MHz
Very small Large
Coverage area
10 6 4.5 Re-farm 1
2.6 GHz 2.1 GHz 1.8 GHz 900 MHz – 800 MHz (digital dividend)
190 MHz 2 60 MHz 2 75 MHz 2 35 MHz 2 30 MHz Total bandwidth
2 20 MHz 2 10+ MHz 2 20+ MHz 2 10 MHz 2 10 MHz Typical bandwidth per MNO
High LTE HSPA+ LTE HSPA+ LTE Low
Available bandwidth Illustration

15. Backhaul will force re-thinking the network design.
LTE’s extremely power-full air-interface, i.e., 100+ Mbps, will
require extensive AND COSTLY backhaul fibre deployment.
LTE air-interface
30mean to 100+peak Mbps
(per sector)
100 Gbps Evolved
eNode DWDM Packet
Core
100
GbE
FTTS 100+ Mbps
eNodes per element 32:1 320:1 3200:1
BH Throughput 3+ 32+ 320+ In Gbps
Illustration
Dr. Kim Kyllesbech Larsen, ETSI’s Business Innovation Summit, October 4 th 2011, London. 15

16. LTE the ultimate off-load weapon for HSPA in overload.
More LTE spectrum available across a wider range of frequencies
BUT will not replace HPSA for quiet some time.
40% HSPA uptake 40% LTE uptake
CEE CEE
WEU 32% Geo coverage 80+% WEU
30% 30%
20% 20%
17% Geo coverage 50+%
Early adaptors
10% 10% 11%
100% Smartphones 6%
CEE
0% 80% WEU 0% 83%
66%
60%
50% As long as LTE has not reached critical
40% mass (i.e., >20%) WiFi will remain a
35% strong off-load enabler
20%
& WiFi capable!
0%
Source: Pyramid Research, March 2012.
Dr. Kim Kyllesbech Larsen, ETSI’s Business Innovation Summit, October 4 th 2011, London. 16

17. Cost-optimized mobile broadband deployment models.
A wide range of frequencies will be essential for economical
deployment reducing cost while coping with future demand.
Throughput / Capacity
up-to 3.6 GHz (TDD & FDD)
New business Typical BW per Operator ≥ 2×20 MHz
models Hot- Femto, small cells & smart-antenna systems.
to emerge.
Spots More fixed-DSL substitution (FMS)
business model: P2P / CPE-based.
2.6
GHz Rural Fixed-like & deep indoor coverage
LTE Typical BW per Operator ca. 2×10 MHz
Urban – Suburban: LTE connectivity @ 800MHz
1800 MHz LTE –
2100MHz HSPA
Rural / Nation-wide: 800 MHz LTE & 900MHz HSPA
Illustration
Note: main LTE bands in USA are the 700MHz and AWS bands, with some PCS band LTE deployment as well (i.e., Sprint). In Asia LTE is more concentrated around
TDD and the 2.3 and 2.6GHz bands.
Dr. Kim Kyllesbech Larsen, ETSI’s Business Innovation Summit, October 4 th 2011, London. 17

18. So speed differentiated pricing is the solution?
QoS or Speed guaranty in a radio environment is very difficult1!
Price X for Price Y for Price Y for
up-to 3.6Mbps up-to 7.2Mbps up-to 14.4Mbps
Speed differentiated pricing
might not be the magic bullet
<Speed> higher than 7.2Mbps Price
as use cases might not be Stdev less than 14.4 - <Speed>
consistent with high speed reqs 2
Range
Minimum
<Speed> between 3.6 – 7.2 Mbps Price Profit
Stdev less than 7.2 - <Speed> Range
Price Minimum
Range
<Speed> < 3.6 Profit
Minimum
Stdev less than Profit
3.6 - <Speed> Cost Cost
NOTE! LTE & LTE-advanced does
Cost provide an easier bandwidth –
Illustration speed-based QoS differentiation.
1 Some may even argue that it is impossible to provide a guarantied cellular service. Though one may not need to be exactly right but only statistically right to the level where
the customer perceive his service to be in line with the price paid. 2 A customer may have paid for high speed price plan but dominantly using lower bandwidth applications.
Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK. 18

19. What we need to be (insanely) passionate about.
Understand data profitability vis-à-vis demand, supply & pricing.
Price innovation! … changing from quantity to quality based pricing.
Understand mobile data is fundamentally different from mobile voice.
Narrow the gap between customer perceived value and actual price.
Dr. Kim Kyllesbech Larsen, Pricing Mobile Data, June 27nd 2012, London, UK. 19

20. The key value proposition of a mobile network
is ....
Acknowledgement: To my great team behind the scene for their insights, Contact: kim.larsen@telekom.de
support and suggestions. Also many thanks to Olga Holin, Zahid Ghadialy Mobile: +31 6 2409 5202
and Paul Cosway for suggestions and making me think about new ideas.
http://nl.linkedin.com/in/kimklarsen
Last but not least I am indebted to my wife Eva Varadi for her great support
and understanding during the creation of this presentation.
http://www.slideshare.net/KimKyllesbechLarsen