The Two-sided Telecoms Business Model The new telco business model 30 May 2008 Martin Geddes, Chief Analyst, STL Partners [email_address]

Four messages Future growth: Reliant on new business model Two-sided telecoms ‘platforms’ could deliver $350bn+* Step-by-step journey – grows from existing consumer core business Needs collaboration and investment now * 12 top country markets (US, W. Europe, Japan) alone, per annum, from 2017 – STL Partners/Telco 2.0 Future Broadband Business Models Report (Jan 2008) & 2-sided Platform Opportunity Report (Mar 2008)

Future growth: Reliant on new business model

Two-sided telecoms ‘platforms’ could deliver $350bn+*

Step-by-step journey – grows from existing consumer core business

Needs collaboration and investment now

* 12 top country markets (US, W. Europe, Japan) alone, per annum, from 2017 – STL Partners/Telco 2.0 Future Broadband Business Models Report (Jan 2008) & 2-sided Platform Opportunity Report (Mar 2008)

Before we begin…

Telecoms is a freight business for bits 10100010111001001001011000110 10000101111101010010010101010 00101010111101010101010001010 010100110101010001001110101011010100100101011101010010101010001010111011110100010101010 01011100100010001011011001010 11100111010000001011001010100 Voice, video, web, messages

Container shipping: precedent Containers vs. IP packets

Container shipping lessons Value-based pricing of the containers doesn’t work #1

Container shipping lessons New technology and lowered costs are not enough #2

Container shipping lessons Increasing returns to scale for infrastructure #3

Container shipping lessons The ports get the money, not the shipping lines #4

Container shipping lessons People pay most for logistics solutions #5

… with a twist One sided market Multi-sided market

Telco 2.0 TM Framework

Let’s define ‘Telco’ Telco Utility (pipes and cell towers) Systems Integrator Distribution systems only Product + Distribution systems Product only Infrastructure IT & Professional services Packaging Plumbing Products (partners’) Products (own) Packets & Platters

Some companies have re-structured around this model Telco Utility Systems Integrator Packaging Plumbing Products (partners’) Products (own) Packets & Platters

Sorry… Can’t make the fibre fairy visit

Limits to retail growth

Pressure on core Voice & Data Services 2017 % of Total Mobile Voice Minutes, Europe 2007 2012 Traditional Telephony Enhanced Carrier Voice Private Voice Apps & Handsets Other Broadband Data (fixed/mobile ISP product)

e.g. BBC iPlayer breaks UK ISP model iPlayer = high quality streaming video, launched in UK end Dec 2007 Now available on: (iPhone & iPod Touch via WiFi not EDGE)

Impact: ISP streaming costs tripled in first month e.g. BBC iPlayer breaks UK ISP model Detailed analysis here: http://www.telco2.net/blog/2008/02/bbcs_iplayer_nukes_all_you_can.html

Video: Be a telco or a media company?

Future business models? (Telco 2.0 Survey, Sept 2007) ISP OK Triple or quad play OK New business model needed 20% 25% 55%

Introducing 2-sided markets

Today: Revenue only from 1 Side $ $ Suppliers = Costs End Users = Revenue Telco Content, Apps, Devices Network & Termination Interconnect & Storage Consumers Enterprises SMEs Multi-Nationals Products (partners’) Products (own) Packets & Platters

Tomorrow: Revenue from 2 sides $ ‘ Upstream’ Customers ‘ Downstream’ Customers Millions of Customers Thousands of Segments $ Developers Retailers Government Brand Advertisers Content Owners Telco – Retail Content Owners Telco

Telcos have many valuable but latent data assets MY PERSONAL DATA MY STUFF MY IDENTIFIERS MY INTERACTIONS MY RELATIONSHIPS MY CONTEXT MY DEVICES MY CREDIT Name Address Gender Profile Preferences SIM SoftSIM Serial Number Device details Location Presence On/Off Roaming Pictures Videos Calendar Address Book Bank School Friends Workplace Browsing History .mobi domains QR Codes Bad debt Demographics Average balance Number SIP address IP Address Email

Google Envies Operators in Key Areas Sub-Scale in: Voice & Messaging Billing & Payments Retail sales and customer care Interoperability Limited Knowledge of Customer Google increasingly paying for inventory, skills & data MY PERSONAL DATA MY STUFF MY IDENTIFIERS MY INTERACTIONS MY RELATIONSHIPS MY CONTEXT MY DEVICES Weak! MY CREDIT

Sub-Scale in:

Voice & Messaging

Billing & Payments

Retail sales and customer care

Interoperability

Limited Knowledge of Customer

Multiple supply chains & customer bases ‘ Upstream’ Customers ‘ Downstream’ Customers Millions of Customers Thousands of Segments Sold to upstream customers Sold to downstream customers Three Core Propositions Four Product Sets 1. Bundled voice, video and data plus VAS 3. Logistics Services for Data 2. Bulk Wholesale Data by-products Developers Retailers Government Brand Advertisers Content Owners Telco – Retail Platform Products (partners’) Products (own) Packets & Platters Processes NEW! NEW!

Examples of 2-sided markets

Learning from the master

Google: Lowers transaction costs HUGE SCALE FREE products for end users CHEAP advertising for brands = + LOW COST per transaction + Massive investment in Google platform

HUGE SCALE

FREE products for end users

CHEAP advertising for brands

LOW COST per transaction

Massive investment in Google platform

Betfair: Stock Exchange for Gamblers Bookie Punter ‘ To Win the Champions League’

Strong Growth from Big Scale Platform Explodes in 2003 following launch of open API for bookies More transactions than all European stock exchanges COMBINED

Explodes in 2003 following launch of open API for bookies

More transactions than all European stock exchanges COMBINED

A New Telco Proposition?

Additional Telco Value Proposition Now: Bundled voice, messaging, video and internet access Next: Personalised Logistics Services for Data

Logistics Services in the Physical world 1. “Planes & Payloads” – Distribution Collection Multi-Modal Transport Delivery 2. “Processes” – B2B VAS Tax & Duty Management Documentation Management Denied Party Screening Scheduling & Supply Chain Management Systems Integration Tracking & Monitoring

‘ Personalised Logistics Services … for Data’ 1. Distribution Origination & Capture Multi-Modal Transport (Core+Edge assets) Termination & Display 2. “Processes” – B2B2C VAS Identity, Authentication, Security Advertising, Marketing Services Ecommerce Order Fulfilment Billing & Payments Customer Services Telco (2.0)

1. Distribution Platform

New Types of Wholesale Products Video Content delivery networks for 3 rd parties Data “ Postage and packing included!” – for data Become supplier for 3 rd party voice services Voice +

2. B2B2C Value Added Services Proceses

Current Approach: Media & Advertising… $ $ Upstream Customers Revenue Side 1 Downstream Customers Revenue Side 2 Telco Brand Advertisers Consumers Enterprises SMEs Multi-Nationals

… but market is too small! Revenue, $ Billions 2006 2010 $2,000bn $2,490bn $425bn $533bn $30bn $62bn Fixed and Mobile Telecoms Global advertising On-line and mobile advertising

Open Up More Markets for Telco Platform $ Millions of Customers Thousands of Segments $ B2B2C VAS Distribution Upstream Customers Downstream Customers Developers Retailers Government Brand Advertisers Content Owners Telco – Retail Content Owners Telco Platform

VAS: Help Customers Interact More Easily Barriers Identifying Other Party, Authorisation & Security Promoting Offer Conducting transaction Fulfilling Order Billing & Payment Service & Support Customers – Revenue Side 1 Customers – Revenue Side 2 Millions of Customers Thousands of Segments Developers Retailers Government Brand Advertisers Content Owners Telco – Retail

Barriers

Identifying Other Party, Authorisation & Security

Promoting Offer

Conducting transaction

Fulfilling Order

Billing & Payment

Service & Support

VAS: Telcos assets well suited Barriers Identifying Other Party, Authorisation & Security Promoting Offer Conducting transaction Fulfilling Order Billing & Payment Service & Support Customers – Revenue Side 1 Customers – Revenue Side 2 Telco Capabilities & Assets       Millions of Customers Thousands of Segments Developers Retailers Government Brand Advertisers Content Owners Telco – Retail

Barriers

Identifying Other Party, Authorisation & Security

Promoting Offer

Conducting transaction

Fulfilling Order

Billing & Payment

Service & Support

Value of the opportunity

Potential Market of $350+ billion?

Opportunity into perspective

Making it happen

Five things to get right Scale Packaging Rewards Privacy Reliability

The Two-sided Telecoms Market Opportunity THANK YOU More info at www.telco2.net/blog

Appendices

Telcos have many under-exploited assets, capabilities and resources to enable these new models. Here’s a map, centred around the most important: DATA WEB 2.0, CEBP Rating & billing Hosting, personal vault & data storage Customer service, support & CRM Brand & promotional partners Usage metrics, data mining and analytics Enabling Capabilities Retail distribution, provisioning & logistics Payment handling & online transactions Advert inventory, insertion and tracking Credit, fraud & revenue management Developer program Content acquisition & management Wholesale provisioning & payments Legal intercept SUPPLY CHAIN SERVICE CREATION & DISTRIBUTION PLATFORMS UPSTREAM CUSTOMERS & SERVICES Portals, Content Aggregation & Retail Mobile Devices Application Environment Search (via partners) Service deployment & execution Content & service Personalisation CONSUMER & ENTERPIRSE USERS & CUSTOMER RELATIONSHIP Social Networking (via partners) DISCOVER DELIVER DEVICE Access Network IP Access (with QoS) NGN Voice RAN Security Environment (e.g. SIM, managed certs) Voicemail SMS & MMS Other IP Services Circuit voice Device Management Operator VAS e.g. music, games User Interface (e.g. EPG, on-device portal) 3rd Party Access Platform IPTV Home Hub STB or Media Server Local access (L1/L2) CDNs DEPLOY ENABLING DATA RESOURCES Core customer data Name, Address, Gender, National ID, Profile & Preferences MY PERSONAL DATA Digital Lifestyle Aggregators & PIM Pictures, Videos, Bookmarks, History, Files ; Calendar, Address Book, To Do, Notes MY STUFF Identity and persona creation for user Number, address or ID provisioning; porting; avatars MY IDENTIFIERS Naming and tracking non-human resources .mobi domains, web browsing history, QR codes read MY INTERACTIONS Knowledge of personal and business interactions My bank, school, workplace, friends MY RELATIONSHIPS User real-time activity and environment Location, Motion, Temperature, On/Off, Roaming, In-call MY CONTEXT User ID linked to physical device or token; configuration SIM, USIM, SoftSIM, serial number, profile & settings MY DEVICES IDENTITY MANAGEMENT Technology Standards Standardised Deployment Regulatory & Legal Compliance Privacy, Security & Trust Pervasive Activities Roaming & Interoperability User Experience Integration

Today’s telco business model – coming to ‘end of life’ Revenues: Voice & messaging plans ISP Plans Bundles 3 rd party products Hosting Customer Relationships: Low-intimacy recurring subs Prepaid subs Resources: Voice Network Msg Network Video Streaming Internet Access Activities Network Mgt Content Handsets Incumbent svcs Value Proposition: Bundled voice, messaging, video and internet access Customer Segments: Consumers SMEs Enterprise Distribution Channels: Independent retailers Own retail Online retail Affiliates Costs: Network Ops Access Termination Content Device subsidy Marketing Subscriber mgt Partners: ODMs NEPs Portals MediaCos IT Integrators Success or Failure?

Revenues:

Voice & messaging plans

ISP Plans

Bundles

3 rd party products

Hosting

Customer Relationships:

Low-intimacy recurring subs

Prepaid subs

Resources:

Voice Network

Msg Network

Video Streaming

Internet Access

Activities

Network Mgt

Content

Handsets

Incumbent svcs

Customer Segments:

Consumers

SMEs

Enterprise

Distribution

Channels:

Independent retailers

Own retail

Online retail

Affiliates

Costs:

Network Ops

Access

Termination

Content

Device subsidy

Marketing

Subscriber mgt

Partners:

ODMs

NEPs

Portals

MediaCos

IT Integrators

Key elements of tomorrow’s telco business model Revenues Slice n Dice Connectivity Data logistics B2B2C VAS Consulting Integration svs Customer Relationships 2-sided Markets Indirect retail channels Resources Customer Data Distribution platform: CDNs, IP networks, Home networks SDPs Billing & Provisioning Systems Activities Customer management Identity managment CRM & Data mining Fine-grained wholesale OSS/BSS APIs Value Proposition Personalised Logistics Services for Data (Multi-modal delivery services, B2B VAS) Customer Segments Advertisers MediaCos Merchants ISVs SIs Banking E-Commerce Government Enterprise IT Distribution Channels Aggregators SIs Middleware vendors OSS/BSS Vendors CDN operators Costs Equipment Operations Biz Devt Insourced customer data and access Partners IT Vendors Handset Vendors Consumer Electronics Success or Failure?

Revenues

Slice n Dice Connectivity

Data logistics

B2B2C VAS

Consulting

Integration svs

Customer Relationships

2-sided Markets

Indirect retail channels

Resources

Customer Data

Distribution platform: CDNs, IP networks, Home networks

SDPs

Billing & Provisioning Systems

Activities

Customer management

Identity managment

CRM & Data mining

Fine-grained wholesale

OSS/BSS APIs

Customer Segments

Advertisers

MediaCos

Merchants

ISVs

SIs

Banking

E-Commerce

Government

Enterprise IT

Distribution Channels

Aggregators

SIs

Middleware vendors

OSS/BSS Vendors

CDN operators

Costs

Equipment

Operations

Biz Devt

Insourced customer data and access

Partners

IT Vendors

Handset Vendors

Consumer Electronics

New two-sided business model Revenues: Voice & messaging plans ISP Plans Bundles 3 rd party products Hosting Customer Relationships: Low-intimacy recurring subs Prepaid subs Activities Network Mgt Content Handsets Incumbent svcs Value Proposition: Bundled voice, messaging, video and internet access Customer Segments: Consumers SMEs Enterprise Distribution Channels: Independent retailers Own retail Online retail Affiliates Costs: Equipment Operations Biz Devt Insourced customer data and access Access Termination Content Device subsidy Marketing Subscriber mgt Success or Failure? Revenues Slice n Dice Connectivity Data logistics B2B2C VAS Consulting Integration svs Customer Relationships 2-sided Markets Indirect retail channels Resources Customer Data Internet, Voice, Messaging, & Video Networks Distribution platforms: CDNs, NGN IP networks, Home networks SDPs Billing & Provisioning Systems Value Proposition Personalised Logistics Services for Data (Multi-modal delivery services, B2B VAS) Customer Segments Advertisers MediaCos Merchants ISVs SIs Banking E-Commerce Government Enterprise IT Distribution Channels Aggregators SIs Middleware vendors OSS/BSS Vendors CDN operators Two-sided market pricing Cross subsidy PLATFORM CAPABILITIES PLATFORM USERS PLATFORM USERS PLATFORM USERS Partners: ODMs NEPs Portals MediaCos Activities Customer management Identity managment CRM & Data mining Fine-grained wholesale OSS/BSS APIs IT Vendors Handset Vendors Consumer Electronics

Revenues:

Voice & messaging plans

ISP Plans

Bundles

3 rd party products

Hosting

Customer Relationships:

Low-intimacy recurring subs

Prepaid subs

Activities

Network Mgt

Content

Handsets

Incumbent svcs

Customer Segments:

Consumers

SMEs

Enterprise

Distribution

Channels:

Independent retailers

Own retail

Online retail

Affiliates

Costs:

Equipment

Operations

Biz Devt

Insourced customer data and access

Access

Termination

Content

Device subsidy

Marketing

Subscriber mgt

Revenues

Slice n Dice Connectivity

Data logistics

B2B2C VAS

Consulting

Integration svs

Customer Relationships

2-sided Markets

Indirect retail channels

Resources

Customer Data

Internet, Voice, Messaging, & Video Networks

Distribution platforms: CDNs, NGN IP networks, Home networks

SDPs

Billing & Provisioning Systems

Customer Segments

Advertisers

MediaCos

Merchants

ISVs

SIs

Banking

E-Commerce

Government

Enterprise IT

Distribution Channels

Aggregators

SIs

Middleware vendors

OSS/BSS Vendors

CDN operators

Two-sided market pricing

Cross subsidy

Partners:

ODMs

NEPs

Portals

MediaCos

Activities

Customer management

Identity managment

CRM & Data mining

Fine-grained wholesale

OSS/BSS APIs

IT Vendors

Handset Vendors

Consumer Electronics