2. A Changing Market Context
14.0% 15.0%
12.0%
10.0% 10.0%
8.0%
6.0%
5.0%
UK Monthly ARPU Performance and Forecast 4.0%
2.0% z
Source: Ofcom, Enders Analysis, Ovum 0.0%
0.0%
-2.0%
-4.0% -5.0%
-6.0%
-8.0% -10.0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2500 P B
2000 P B
Network Traffic
1500 P B
UK Monthly Mobile Network Traffic Forecast
Source: Cisco VNI June 2009 1000 P B
500 P B
0 PB
2008 2009 2010 2011 2012 2013
▌1
3. Strategic priorities
Run for Efficiency Stabilise and [Obtain Return] Innovate and Grow Rapidly
Networks
Basic Service
and
Services Innovation
Coverage
Customer
Content
Care
Devices Applications
Outsource Scale up operations Rapid prototype and product launch
Partner Efficiency Programmes Beta Products
Systems Development Collaborative Development
How do you enable network operators to focus on delivery of value from these growth areas?
▌2
4. Neutral Host: The Alternative Model
Internet
SLA
MNO A
MNO B
Peering Points Core Network Aggregation Sites and Active Electronics
To the Internet, MNO With support for multiple Backhaul, Routing and Provision of coverage and
Networks and Back architectures including Traffic Management capacity via shared infrastructure
Office Systems national roaming and active electronics
E2E Monitoring and Optimisation
Full network control, management, operation and
▌3 maintenance via a NOC and national field force
5. Neutral Host: The Alternative Model
Neutral Host Ecosystem
Infrastructure
Provider
Passive Infrastructure Assets
Property and Implementation
Operations and Maintenance
Capital
Technology Site Connectivity
Network Monitoring Peering Points
Integration Data Offload Provision
IT Systems UK Data Spine
Equipment Backhaul
Vendor/s Provider/s
▌4
6. Revenue and cost: The current situation
£bn P1: Roll Out P2: Mass Adoption P3: Maximise Value??
Actual Revenue
Total Network Cost
Time
▌5
7. Neutral Host: Revenue and Cost Dynamics
A model that links subscriber take up with costs is critical to ensure shared incentives…
£bn P1: Roll Out P2: Mass Adoption P3: Maximise Value
Actual Revenue
Neutral Host Cost
Time
▌6
8. Case Study: Providing data services to ‘not spots’
Digital Britain established an aspiration that all UK households receive 2Mbps broadband by 2012
1.3m households that are greater than 3km from an exchange, using traditional services, are unlikely to be
served by fixed networks
What is the optimal way of providing 2Mbps broadband to these 1.3m households?
Deployment of a Neutral Host wireless LTE network providing wholesale access, solving the current digital
divide and providing an EBITDA opportunity to network operators at no capital cost
1 2 3 4
The addressable Roll out of BET will To maximise MNO ROI Delay of roll out is
market does not require substantial their capex is best damaging to the UK’s
support economically subsidy compared to utilised developing economic growth and
viable independent wireless and neutral services and investing inhibits social inclusion
network roll out host networks in dense urban areas
▌7
9. Case Study: Basic Cost Savings to MNOs
Consumers are beginning to demand data ubiquity, as per voice, this needs to be delivered
economically…
Delivery of Service TCO (Capex + Opex) over 20 Years1
▌ Incremental EBITDA of circa £25m p.a. for each 1500
MNO assuming a 33% market share of c.1m £165m
households 1250 £363m
▌ Saving of circa £170m of capex
1000
£401m £198m
Additional Capacity for Device Traffic 750
▌ The neutral host network can be leveraged to £1,068m
provide capacity for mobile data traffic 500
£667m
▌ This saves a further £165m over a 20 year period
250
▌ Revenue implications from additional coverage
have not been included in projections Cost Per MNO Saving Per MNO Neutral Host
Cost Per MNO
▌8
1Source: Arqiva Internal Analysis, Value Partners
10. Case Study: Business Case for Operators
A flexible commercial model results in attractive returns for MNOs:
Commercial Model
▌ Low annual fixed access fee provides long term certainty of service
▌ Price per subscriber ties network success to operator
▌ Zero network capital expenditure for the operator
▌ Utilisation of existing retail and sales channels
Neutral Host Financial Returns Individual Network Financial Returns
▌ 10 year cumulative revenue of c.£600m ▌ 10 year cumulative revenue of c.£600m
vs.
▌ No network capex only CPE ▌ Capex commitment c.£170m + CPE cost
▌ Y3 EBITDA stream of c.£25m ▌ No EBITDA in Y1 – Y3
▌ 10 year NPV: £200m1 ▌ 10 year NPV: £(28)m1
▌9
NPV calculated on a 12% discount rate and 8.75 terminal value
1
11. Neutral Host: Delivering broadband for all - economically
Provides Cost Savings to MNOs for new
and existing networks to counter
reducing ARPU
Generation of producer and consumer
surplus due to economies of scale
Delivery of digital inclusion agenda and
wider economic benefits
▌10
