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Insights: Ericsson Region Latin America and Caribbean

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Ericsson has been present in Latin America since 1896, with our first agreement in Colombia and delivery of equipment in the region. We expanded our presence in the 1900s with commercial deals in Argentina, Brazil and Mexico. Today, we have offices in more than 40 countries in Latin America and the Caribbean, with over 15,000 employees. We are the global leaders in radio access, telecom services and OSS/BSS, and we hold a greater than 50% market share in LTE in the region.

In our latest Region Latin America Insights brochure, we share recent findings from our consumer research, highlights from the Ericsson Mobility Report and stories with our customers in the region.

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Insights: Ericsson Region Latin America and Caribbean

  1. 1. October 2014
  2. 2. WELCOME Ericsson has been present in Latin America since 1896, with our first agreement in Colombia and delivery of equipment in the region. We expanded our presence in the 1900s with commercial deals in Argentina, Brazil and Mexico. Today, we have offices in more than 40 countries in Latin America and the Caribbean, with over 15,000 employees. We are the global leaders in radio access, telecom services and OSS/BSS, and we hold a greater than 50% market share in LTE in the region. In our latest Region Latin America Insights brochure, we share recent findings from our consumer research, highlights from the Ericsson Mobility Report and stories with our customers in the region. Information and Communication Technology (ICT) is poised to fundamentally transform the way we live and interact with our surroundings. While the past few decades of technology progress have taken great strides, they have merely laid the foundation for what is set to come. We are now at a pivotal stage where the next wave of transformation and creative innovation in the form of mobile, cloud and big data will be the catalyst for an entirely new society model. Ericsson is at the forefront of all this, leading the way through innovation, scale and highly skilled employees. Transforming Ind ustries ICT-enabled services are gaining momentum all over the world. This has been driven by the transformation of many industries, resulting in better lifestyle experiences and more efficient industrial processes. In many cases this will lead to gradually changing or completely redefined structures and industries. The effect is that barriers to experimentation are removed and everyone can contribute to innovation. The result of these changes is that a wide range of roles will become available in various industries – incumbents will be disrupted but others will make waves beyond their current industry. Future markets will be defined by their functional need and content perspective, rather than from physical proximity. This makes it possible to develop and serve small exclusive niche markets with a rich proposition, as well as high volume utility capabilities across a set of global customers. With connectivity, new layers of information will become available and radical ways to create services will form. Individual needs will move to the forefront compared with today’s mass production logic. As this happens across society, we can expect to see more 2 Insights: Region Latin America and Caribbean – October 2014 Sergio Quiroga da Cunha, President, Latin America and Caribbean We are committed to working with our regional customers and partners to expand the borders of telecommunications for the benefit of people everywhere. Regards, Sergio Quiroga convenient and efficient ways to serve people, as well as a reduced requirement for intensive resources. This will contribute to the much needed resolution of current global challenges.
  3. 3. TV and media TRENDS Ericsson has defined the six most important Game Changing trends shaping the future of TV and media as part of our vision for 2020. They bring together the impacts and influences across business, technology and consumer fundamentals. Consumers’ values and assumptions are rapidly evolving as they discover, access, pay for and share content-related experiences. TV players need to continually reassess how they can satisfy the most media-savvy and demanding TV consumers in history. KEY POINTS > Viewing time is increasing > V iewing habits are shifting towards on-dema nd and time-shift platforms > W e expect to see a 50 percent split between linear/ live and on-demand/time-shift content by 2020 Mobile and fixed IP broadband will transform the TV experience by extending access to content beyond the living room, reaching 15 billion video-enabled connected devices. This will radically change consumer expectations. It is therefore important for all major players in the TV market to have an IP strategy. KEY POINTS > T he number of connected devices globally will rise to 50 billion by 2020 > There will be 15 billion video-enabled devices by 2020 > Mobility will be an important factor in video consumption > T V players will need to leverage broadcast an d IP delivery networks > An over-the-top (OTT) delivery model approach is applicable to all As brand advertisers look to build closer consumer relationships, they will shift their focus from working with content to creating it. Since this is likely to affect advertising spend, the resulting threats and opportunities need to be assessed throughout the media value chain. KEY POINTS > B rands are becoming online broadcaste rs, deepening consumer engagement > Spending on advertising is shifting to personalization > I ndustry inertia and resistance to change mea ns adoption is slow > Personal data is becoming the new battleground In the IP-fueled landscape of 2020, content remains king. But TV players’ strategies for bundling content, channels and services are being challenged as new aggregators leverage OTT delivery. KEY POINTS > TV & Media market will have strong growth, with revenues rising from USD 530 billion to USD 750 billion by 2020 > I ndustry consolidation is driving scale. Subscrib er growth leads to revenue growth, enabling exclusive content acquisition, which in turn encourages a further increase in subscribers > TV service providers will have the opportunity to bundle all services, including broadband, telephony, mobility and TV management is a top priority Consumers already expect to have access to TV content on any device, at any time, forcing content providers to connect to all platforms. Cloud approaches and web technologies will be crucial enablers in driving consumer behaviors and ensuring the ultimate aggregated TV service . This is what we call Pay TV at web speed. KEY POINTS > The cloud should be leveraged in terms of both content creation and processing, as well as consumer experie nce and delivery > TV devices are becoming IP-centric and lower in cost > Home digital video recording (DVR) is shifting to the cloud In the run up to 2020, TV service providers will have to deal with the emergence of disruptive new internet-powered rivals and business models. TV service providers therefore need to build the ultimate TV service and maximize their positions. KEY POINTS > Social networks must be leveraged for TV > Internet giants such as Apple, Google and Amazon have the potential to be powerful new competitors > New entrants can purchase exclusive content to drive uptake > OTT services will grow strongly by 2020, but will still account for only 10 percent of industry revenues FOREVER EVOLVING EXPERIENCES IP IMPE RATIVE BRAND-CASTING CHAN GING CONSUMPTION MODELS AND BUNDLES CLO UD AND WEB APPRO ACH TO TV NEW M ONEY NEW PLAYERS 3 Insights: Region Latin America and Caribbean – October 2014
  4. 4. value of performance Each new device, application and user has unique requirements, and operators are being challenged to meet them all. The key task is, therefore, to build superior performing networks that can handle different types of usage and beat expectations in every situation. We call this Real Performance. Ericsson recently commissioned a study to investigate the issue in more depth. It was carried out by Dr. Raul Katz, President of Telecom Advisory Services, and Director of Business Strategy Research Columbia Business School. The study, which was conducted in Brazil, Mexico and the United States, explored the relationship between capital investments in mobile telecom networks and the commercial and financial performance of their operators. The casual relationships between the variables analyzed in the quantitative study are shown right. The results from the quantitative study prove that appropriately-targeted capital expenditure leads to improved network performance. This translates into better market performance, which is shown to boost financial returns. Illustration of causal relationships between the variables in the quantitative study Changes following 10 percent increase in capex over a five-year period BRAZILIAN OPERATOR Increasing capex USD 156 million/yearly OPERATIONAL PEFORMANCE > Accessibility and data completion rate > Percentage of connections over 1 Mbps > Speech call quality index > Latency reduction > Downlink broadband speed Thus, the study conclusively demonstrates that investments in network quality ultimately translate into better financial returns for operators. These improved returns are derived not only from cost savings, but also from increased revenue. Increase in service revenues (percent) Increase in EBITDA margin (percentage points) Increase in NVP of FCV (absolute) Increase in NVP of FCV (percent) +5.5% +6.4% USD 128.61m 6.7% MEXICAN OPERATOR Increasing capex USD 72 million/yearly +1.9% +1.0% USD 297.88m 1.6% US OPERATOR Increasing capex USD 432 million/yearly +5.1% +6.8% USD 381.48m 17.1% NPV – net present value FCF – free cash flow from operations Source: Ericsson and Telecom Advisory Services LLC (2014) Base: Market data from Brazil, Mexico, US 4 Insights: Region Latin America and Caribbean – October 2014 1 2 3 4 CAPITAL EXPENDITURES > Capacity upgrades > Network modernization > Product/service development MARKET PERFORMANCE > Market share > ARPU increase > Churn reduction FINANCIAL PERFORMANCE > Revenues > EBITDA > Free cash flow from operations Source: Ericsson and Telecom Advisory Services LLC (2014)
  5. 5. THE VOICE OF THE CONSUMER Recent research from Ericsson ConsumerLab NETWORK PERFORMANCE The ever-increasing ubiquity of smartphones has seen consumers accessing the internet more frequently throughout the day, both indoors and outdoors. Over time, apps and data have become just as much an integrated part of everyday life as SMS and voice calls. Operators are struggling to maintain their reputation within the mobile ecosystem alongside handset manufacturers, operating systems and content suppliers. This creates a challenging environment, with increased churn and customer disloyalty. The results of the Network Performance study reveal that loyalty is lower than average among mobile WHAT DRIVES LOYALTY IN LATIN AMERICA Network performance 24% Ongoing communication about services TV & MEDIA 2014 The results of ConsumerLab’s “TV & Media 2014” report show that streaming habits are closing in on linear TV. S-VOD (Subscription-Video On Demand) services accelerate binge watching; in Latin America, 57% of respondents want all episodes to be released at once, enabling them to binge watch. Consumers are willing to increase the amount they pay in order to have access anywhere. Content is king – content is becoming more important from the consumer perspective, and it is time to change the structure of TV services. 5 Insights: Region Latin America and Caribbean – October 2014 operators when compared to others players in the ecosystem. Consumers have high expectations, and this affects customer loyalty when they cannot reach at least the standard performance. Network performance is currently the main driver of loyalty to operators, which is closely linked with value for money. When network performance satisfaction improves, perceived values for money also improve. Consumer perception is that data speed and coverage are poor, especially on public transportation. Introducing measures to improve network performance would help to alter this perception and differentiate offerings. The bottom line: loyalty makes money. Customer service Offer Marketing Network 15% Source: ConsumerLab Network Performance 2013 Study Base: Smartphone users in Brazil, Chile & Mexico who use their smartphones to access the internet at least once a week 11% 10% 9% 9% 6% 6% 6% 5% Value for money Customer support Price plan/tariff options Account management Billing and payment Handset/Devices offered Rewards for being a loyal customer Initial purchase process Average hours watching video on each device per week Device viewing Smartphone and tablet users have increased their total viewing time more than 30% since 2012. 0 2 4 6 8 10 12 14 16 18 TV-screen 2014 TV-screen 2012 Desktop computer 2014 Desktop computer 2012 Laptop 2014 Laptop 2012 Smartphone 2014 Smartphone 2012 Tablet 2014 Tablet 2012 Other screen 2014 Other screen 2012 In home Away from home hours Source: ConsumerLab TV & Media 2014 Study Sample: People with internet access that watch at least any TV/Video content once a week at any device Network performance and value for money are the key drivers of operator recommendation.
  6. 6. M-COMMERCE IN LATIN AMERICA Latin America is an economy very much built on cash. Many employees, especially those informally employed, receive their salaries in cash, and it is very common to save money at home rather than relying on bank accounts. In many places, cash is the only means of payment. High mobile penetration and a small proportion of banked consumers in the INTEREST IN M-COMMERCE Latin America Argentina Brazil Chile Colombia Mexico M-Commerce Mobile Banking Mobile Wallet Mobile Shopping 74% 60% 73% 80% 80% 79% 44% 42% 66% 6 Insights: Region Latin America and Caribbean – October 2014 region mean that the conditions for m-commerce are very favorable. As much as 74% of people who are not using m-commerce today are interested in starting to use at least one such service on their mobile phone. 66% percent of this group are interested in mobile shopping, and 44% percent feel positive about starting to use mobile banking. 30% 27% 55% 57% 56% 62% 43% 42% 72% 44% 46% 71% 47% 43% 70% Source: ConsumerLab M-Commerce Latin America 2013 study Base: ConsumerLab Analytical Platform 2012 The main reason to start using m-commerce is convenience, but this means different things depending on economic status and whether consumers have a bank account. For unbanked consumers, the main benefit is avoiding time-consuming lines when paying bills or withdrawing money from ATMs, as well as improved security from not having to carry cash. For consumers who are already banked, m-commerce would mean a more flexible everyday life, where payments, shopping and other transfers can be handled from anywhere, at any time. Main consumer take-aways for m-commerce in Latin America: Convenience is a key driver for m-commerce for both strugglers and achievers. Safety and control are essential for Latin Americans. Consumers lack overall trust in institutions and network performance.
  7. 7. FAST FLEXIBLE AND IN CONTROL DRIVING CLOUD TRANSFORMATION Cloud is the largest disruption to the global ICT infrastructure market. By 2018 we estimate the value of cloud managed solutions to be more than USD 53 billion (source: ESF 2013, IDC, Infonetics). This will be higher than the value of traditional software and hardware solutions used for computing and storage. Below are some of the key drivers for transforming to a cloud environment. INNOVATION Operators can innovate with a rich environment . By harnessing the power of the Cloud, you can cost-efficiently try out ideas and flexibly scale those that are successful in generating new revenue. It is estimated that 80 percent of enterprises will have adopted the SaaS model by 2020 and a typical enterprise will run nearly 70 percent of its infrastructure in the cloud or other locations outside its own data center (source: Real Performance for Enterprises, Ericsson, April 2014). Operators can provide value by opening up the network for innovation and providing APIs for enabling third party development, helping to integrate ICT into other industry value chains. 7 Insights: Region Latin America and Caribbean – October 2014 EFFICIENCY Today’s networks are often complex, w ith dedicated nodes taking up a lot of power and space and many different operational support systems to supervise.This leads to costly operations. Cloud and virtualization provides an opportunity for operators to transform their organization with simplified processes and tools, delivering high performance when needed, and low total cost of ownership when not, as well as being able to automate tasks as much as possible to reduce opex. With open virtualization format (OVF), nodes can be built up automatically, dramatically reducing set-up time. SPEED It often takes too long to roll out new services. Costs become tied up in the organization, and i t takes much longer to generate revenue. In some cases, services might take several months to roll out due to the complexity of the network and related support systems. With a pool of hardware resources available for different virtual network functions, you can scale capacity for existing and new functionality on an on-demand basis. In a virtualized environment operators can develop their communications offerings, e.g. by flexibly moving resources from MSS to IP-base d VoLTE/IMS communication. SUPERIOR PERFORMANCE Network performance has the biggest impact on customer satisfaction compared to any other factor. This was the discovery in a recent Ericsson ConsumerLab report. Ensuring superior performance, while gradually moving to a virtualized environment, requires an overall orchestration and management capability that can cater for both legacy and virtualized environments. We are actively working on securing a superior cloud performance, for example by optimizing for low latency. We have also suggested a number of factors in OpenStack that need improvements to create a true carrier-grade environment, in areas such as resource allocation and security. FRESH DATA An agile operator combines big data with real-time capabilities. They look at different data sources, correlate them, analyze the results and provide actionable insights that an be used right away. SMART BLOCKS An operator who is agile takes a modular approach to designing IT systems, based on standardized components with built-in intelligence and infinite configurability – rather than custom-made systems that are rigid and inflexible to change. SELF-STEERING An agile operator allows their network and subscribers to take care of themselves. This is achieved by using automated systems that can detect and solve issues, along with user self-service which puts your subscribers in control of their own spending, services and subscriptions . ECOSYSTEMATIC An agile operator is always ready to collaborate. An eco-systematic approach focuses on more cooperative ecosystems. It enables you to establish value-added services, and expand your offering alongside external partners. 3D VISION Finally, the agile operator proactively combines network and user data to optimize service delivery and address user needs more effectively. The essence of 3D vision is a focus on breaking down the walls within your organization and making the user your core priority. MEET THE AGILE OPERATOR Success in the Networked Society is all about agility. For operators, this translates to being fast, flexible and in control: delivering great experiences to consumers, operating efficiently and developing innovative new offerings for a rapidly diversifying market. Our experience in operations and business support systems shows that with a modular and configurable approach, operators can reduce launch time for new services from 26 weeks to one week. In addition, maintenance and development costs can be lowered as much as 30 percent. An agile network that can fine tune and maintain itself for constantly changing environments can cut opex by up to 40 percent. Below, you will find the characteristics shared by successful operators. Combined, we call them the Agility Formula.
  8. 8. EXPLORING THE REGION At Ericsson, we pride ourselves on our history of innovation and technology leadership. Below you will find examples of where we have really pushed the boundaries, working to meet the evolving needs of our customers throughout Latin America and the Caribbean. WORLD CLASS SERVICE DURING WORLD CUP Our Key Event Experience ensured users on Telefónica’s and TIM Brazil’s networks excellent network quality during the 2014 football World Cup. BANKING ON FINANCIAL INCLUSION We partnered with ASBANC, Peru's National Bank Association, to design and implement Mobile Money to benefit 2.1 million Peruvians to own a mobile wallet by 2019. ON BOARD FOR BIG DATA Partnership between Entel, Ericsson and Chile’s Undersecretary for Transport analyzes user data to enable better transportation management in Santiago. SOLVING PROBLEMS BEFORE THEY START Our Proactive Services ensure Entel, Chile continuous proactive monitoring and improvement of the network, preventing critical issues from causing downtime or service degradations. IMPROVING CUSTOMER SERVICES We are providing managed services to Cable & Wireless/LIME in the Caribbean, helping the company to improve services to their users. THE CITY GOES DIGITAL We’re teaming up with Telefónica to provide smart lighting and parking solutions in the Águas de São Pedro digital city project in São Paulo, Brazil. NEXT-GENERATION TV IN BRAZIL Telefónica chose our AVP 4000 Encoder Family in order to bring the most advanced video processing technology to Brazil. FAST-FORWARD FOR 5G Our partnership with the Federal University of Ceará in Brazil is accelerating research into 5G technology. LTE MARKET LEADERS LTE is the global standard for the fourth generation of mobile networks supported by all major players in the industry, and we hold a greater than 50 percent share of the LTE market in the region. SMALL CELLS DELIVER BIG QUALITY Our small cell solutions, such as the RBS 6402 and Radio Dot System, address customers’ needs for high speeds and improved coverage in indoor and small spaces. Ericsson at a glance #1 MOBILE INFRASTRUCTURE Ericsson is a world-leading provider of communications technology and services. We are enabling the Networked Society with efficient real-time solutions that allow us all to study, work and live our lives more freely, in sustainable societies around the world. Globally: 114,000 employees OSS/BSS SERVICES TV & MEDIA DELIVERY 180 countries with customers USD 5 billion invested in R&D annually 50% global LTE smartphone traffic handled by our networks 40 countries with Ericsson offices 35,000 granted p atents 123 years in Latin America 2.5 billion subscribers supported by us USD 34 billion net sales 20 13 USD 1 billion in R&D in 15+ years 1 billion subscribers on networks managed by us 25,000 R&D employees Regionally: 15,000 employees 64,000 service professionals 13,000 service professionals Ericsson SE-126 25 Stockholm, Sweden Telephone +46 10 719 0000 ERC-14:000287 Uen www.ericsson.com @Ericsson AB 2014

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