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Who pays for mobile broadband 2.0

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Had the pleasure to deliver " Who pays for mobile broadband 2.0" at the Open Mobile Summit 2011 conference in San Francisco. The 2.0 as it is an extension and further thoughts on my delivery at Open …

Had the pleasure to deliver " Who pays for mobile broadband 2.0" at the Open Mobile Summit 2011 conference in San Francisco. The 2.0 as it is an extension and further thoughts on my delivery at Open Mobile Summit in London 2011 also named " who pays for mobile broadband".

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  • 1. Who pays for mobile broadband 2.0A European perspective.Open Mobile Summit , November 2nd 2011, San Francisco.Dr. Kim Kyllesbech Larsen, Technology EconomicsTechnology, Deutsche Telekom.
  • 2. Changing business models … Dr. Kim Kyllesbech Larsen, Open Mobile Summit , November 2 nd 2011, San Francisco. 2
  • 3. A typical 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, Open Mobile Summit , November 2 nd 2011, San Francisco. 3
  • 4. OTT Mobile Apps impact.Mobile Apps “attacks” the highest margin services. ARPU 22.4 1 By 2015 ? 3.3 Data + 3.4 9.7+ +43% SMS more than 70% Data of users have 12.7 ARPU a smartphone 6.2 1 15.7 Voice Data SMS ? 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, Open Mobile Summit , November 2 nd 2011, San Francisco. 4
  • 5. Postpaid traffic changes the last 12 month. Illustration of a 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, Open Mobile Summit , November 2 nd 2011, San Francisco. 5
  • 6. Prepaid getting in on the mobile data feast… Illustration of a European Market -20% MO-SMS MBoU doubled -10% MO-MoU -15% ARPU Last 12 month Dr. Kim Kyllesbech Larsen, Open Mobile Summit , November 2 nd 2011, San Francisco. 6
  • 7. The mobile business model could breakdown within afew years with mounting cash and demand pressure. Mobile Profit & Loss - Today Mobile Profit & Loss - Tomorrow Total Revenue ↓ 70% of Total Revenue Today− Usage Cost (Voice dominated 10% - 20%) Reduce− Market Invest SAC & SRC (ca. 20%) Cost− Personnel Cost (<20%) with New business, operation− Technology Cost (15% - – 20%) Technology Cost (ca. 15% 20%) ↑ and cooperation models 30%!− Other Cost (5% - 10%) ↓ Maintain Today’s EBITDA of ca. 37% == EBITDA (WEU ca. 37% 1) De-risk the mobile business model− Network depreciation (ca. <20% of Revenue)− Spectrum Amortization ↑ New revenue sources. New cost reduction strategies.− Capex (ca. 7% to 15% of Revenue) ↑ New partnership models. 1 BoA ML Global Wireless Matrix 1Q11, margin data for 4Q 2010. Dr. Kim Kyllesbech Larsen, Open Mobile Summit , November 2 nd 2011, San Francisco. 7
  • 8. 3G Growth …will continue … for some time growth …will continueand eventually decline as subs convert to LTE. Illustration of a European Market with ca. 50+% prepaid base. Total 3G Data Traffic1 CAGR 45% @ 2012 - 2017 GSM 3G Conversion 3G Prepaid 3G LTE CAGR 75% Conversion @ 2006 - 2011 3G Contract 2006 2017 2025 1 Note: Due to the complex dynamics of technology migration and dependency on operator policy the phase-off of 3G is highly uncertain. Dr. Kim Kyllesbech Larsen, Open Mobile Summit , November 2 nd 2011, San Francisco. 8
  • 9. Total growth … another leap with LTE. Illustration of a European Market LTE introduction 2013 earliest. CAGR 52% @ 2020 - 2025 Total Data Traffic by 2025 3G LTE Conversion 500+ 2015 traffic @ 100% LTE share LTE CAGR 84% @ 2013 - 2018 LTE 2 3G Traffic @ 30% LTE share LTE 2012 2018 2025 Dr. Kim Kyllesbech Larsen, Open Mobile Summit , November 2 nd 2011, San Francisco. 9
  • 10. When data demand exceeds spectral efficiency gains.”Houston we have problem”. Illustration of a 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 antennas2 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, 2 Note: smart antennas included DAS based solutions. Dr. Kim Kyllesbech Larsen, Open Mobile Summit , November 2 nd 2011, San Francisco. 10
  • 11. How to uplift the mobile data business case.Demand for new revenue, partnerships & collaboration models. Economics of mobile data Structural off-loading1 Illustration of a 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 Business Femtos 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, Open Mobile Summit , November 2 nd 2011, San Francisco. 11
  • 12. Mobile revenue opportunities (worldwide) by 2015. 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)/ Dr. Kim Kyllesbech Larsen, Open Mobile Summit , November 2 nd 2011, San Francisco. 12
  • 13. Vision - network aware mobile apps (1 of 2).Optimized service delivery – macro-level. Primary indoor usage → off-load possibilities Traffic Profile What can be learned? 30+% in-fill possibility. Cognisant network required. data Optimized service delivery Network friendly apps. Cloud-Device optimization. voice E2E SON. Off-busy-hour In-fill delivery Dr. Kim Kyllesbech Larsen, Open Mobile Summit , November 2 nd 2011, San Francisco. 13
  • 14. Vision - network aware mobile apps (2 of 2).Collaboration across network, device and apps. E.g., Synched Capacity limit notification E.g., Ad-hocOptimized route Average load BH time frame (sec by sec) Self-Optimized & Cognisant Network Dr. Kim Kyllesbech Larsen, Open Mobile Summit , November 2 nd 2011, San Francisco. 14
  • 15. Decreasing margins & increasing cash pressureforces network consolidation & new partnerships. Sharing logic Economics LTE HSPA+ HSPA UMTS + GSM (→LTE) Total Opex Rollout Steady State Modernization 100% <5 years in 5 years > 5+ years Cluster Opex Rollout 40% Significant Capex prevention. Technology Substantial Opex prevention. Network 10% Bets 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, Open Mobile Summit , November 2 nd 2011, San Francisco. 15
  • 16. What we need to be passionate about. How to spend it Internet of Things Monetize social media How to earn it back Transform Business Model Monetize (non-linear) TV Kim Kyllesbech Larsen, Mobile Open Summit 2011, June 8th, 2011, London, UK. 16
  • 17. The key value proposition of a mobile network is .... Freedom & MobilityAcknowledgement: I am indebted to Xi Bin, Dejan Radosavljevik and Veli– Contact: kim.larsen@t-mobile.nlPekka Kroger, as to the rest of my Technology Economics Team, for beingpatient with my data requests, and for their great suggestions in creating and Mobile: +31 6 2409 5202improving this presentation. http://nl.linkedin.com/in/kimklarsen