The increase mobile data traffic from the emerging Internet services, especially multimedia, has posed considerable challenges for the telecom industry. Their initial mobile data services business models are generally not compatible with these emerging Internet services. Thus, there is a substantial need to investigate the suitable options to make media as a profitable telecom business sector. However, there are different challenges and opportunity factors in developing sustainable mobile media business in each market, due to the unique circumstances applied as the result of customer characteristics, mobile market situation and regulatory/law enforcement. The first purpose of this thesis is to explore the business model options to deliver media services on top of mobile broadband. Although, we limit our focus to Indonesia, we first analyzed the worldwide patterns toward the media services in order to get a broader view of the current trend. We mapped multitudes of actor involved in digital online / on the top (OTT) media service, which together they form different types of constellation in the value network, as well as service, delivery and revenue model. We also put our focus to get the lessons learned from Spotify’s business model, by framing it using Chesbrough and Rosenbloom’s model. The second purpose is to understand the Indonesian mobile user's characteristic toward the mobile media services. We conducted survey to 119 Indonesians, analyzed the result with one sample T-tests and validated it with the correlation tests (Cronbach Alpha and Pearson correlation), within the Unified theory of acceptance and use of technology (UTAUT) framework. Our findings confirm the low willingness to pay, but an open attitude for the services. The mobile device and network quality are not the barriers for them to adopt the services, and there is a tight connection between the decisions to adopt the services with the perception that the service is popular. Through those findings, we assessed the feasibility of the identified options and formulated the recommendations. We used our understanding about Indonesian market structure (telecom and media), regulation, and mobile user, as well as the lesson that we got from media services provisioning in Sweden and worldwide trend. We found that the pricing tiers, adjustable pricing, and differentiated features are some of the key success factors. Meanwhile, being part in the point-to-multipoint partnership with the well-known OTT player is the potential position that the Mobile network operators (MNOs) in Indonesia should take in provisioning OTT media services, rather than deliver the services by their own.

1. Business Models for
Mobile Broadband Media Services –
Case Study Indonesia Telecom Market
Laili Aidi
Jan Markendahl Greger Blennerud Konrad Tolmar
(Supervisor, KTH) (Supervisor, Ericsson) (Examiner, KTH)

2. Question
How to make media services
delivered on top of mobile broadband
as a profitable business
in Indonesia?
2

3. Outline
Background
Literatures Study
Methodology
Digital Music and Broadcasting
The Missing BRIC in the Wall
Looking Forward

4. Introduction
Shift in usage and expectation
Mobile broadband as preferred access
Potentials in multimedia services
Sustainable business challenges
Global
Indonesia
Background 4

5. Problem Definition
Who are the players ? How do they play ?
Mobile user characteristics ?
Potentials and challenges for MNOs ?
MNOs’ strategic options ?
Background 5

6. Objectives
Supply Side
Existing business models,
Indonesian Ecosystem (Regulation, Telecom, Media)
Recommendations
Feasibility of solutions,
Highlight suitable options
Demand Side
Consumption pattern,
Indonesian users’ characteristic
Background 6

7. Outline
Background
Literatures Review
Methodology
Digital Music and Broadcasting
The Missing BRIC in the Wall
Looking Forward

8. Business Models
Concepts categories and hierarchy *
L1 - Concept point of view
Definition and meta-models that should be found
in a business model
Functions of Business models*
Definition
value proposition
market segment
value chain structure
revenue generation and margins
Business model type X Business model type Y
value network
competitive strategy
Business model company A Business model case X
* C. Zott, R. Amit, L. Massa. “The Business Model: Theoretical Roots, Recent Developments, and Future Research”
“
* J.H. Chesbrough and R.S. Rosenbloom, The role of business model in capturing value from innovations: Evidence from Xerox Corporation’s technology spin-off companies”
Literatures Review 8

9. Business Models
Concepts categories and hierarchy *
L2 - Taxonomy point of view
Common characteristics do not necessarily apply
to businesses in general but to specific industries
Revenue streams in Online business*
Definition
Subscription
Brokerage
Advertising
Infomediary
Business model type X Business model type Y
Merchant
Manufacturer
Affiliate
Community
Business model company A Business model case X
* C. Zott, R. Amit, L. Massa. “The Business Model: Theoretical Roots, Recent Developments, and Future Research”
* Rappa, "Managing the digital enterprise - Business models on the Web”
Literatures Review 9

10. Business Models
Concepts categories and hierarchy *
L3 - Instant point of view
Real world case or firms’ business
model
• Xerox’s business model
Definition • HSPA roll out investment evaluation
with cost elements, forecasted traffic
& ARPU, profitability calculation*
Business model type X Business model type Y
Business model company A Business model case X
* C. Zott, R. Amit, L. Massa. “The Business Model: Theoretical Roots, Recent Developments, and Future Research”
“
* N.K. Elnegaard, K. Stordahl, J. Lydersen, T. Gunnar, Mobile broadband Evolution and the Possibilities”
Literatures Review 10

11. Network Centric Approach
..linking of activities and resources within a network as a primary task .. enterprise should be
conceived as a transaction function rather than a production function *
Actor, Relation, Activity (ARA) Modeling*
Activities B1, B2, B3
Actor A Actor B Network of
Actors D,E,F
Relation type X
Actor C
Line of reasoning to collaborate***
Co-specialization
Co-option
Learning and Internationalization
* H. Håkansson and I. Snehota. “No business is an island, the network concept of business strategy”
** J. Markendahl, “Mobile Network Operators and Cooperation - A Tele-economic study of infrastructure sharing and mobile payments services”
“
*** Y.L. Doz and G. Hamel, Alliance advantage: The art of creating value through partnering”
Literatures Review 11

12. Technology Acceptance
“The diffusion of a new technology is
a result of decision series and comparison factors
from user’s perception about benefits and costs of adoption”
Technology Acceptance Model (TAM)*
But..
 Inadequate to explain variances
 Cite success 17-53%
 Tested later, not during decision-making
Unified theory of
acceptance and use of
technology (UTAUT)*
Explaining 70% of observed variances
 Intention to use
 Usage Behavior
 Demographic factors
* F.D. Davis, “A technology acceptance model for empirically testing new end-user information systems: theory and results”
** V. Venkatesh, M.G. Morris, G.B. Davis, F.D. Davis. “User acceptance of information technology: toward a unified view”
Literatures Review 12

13. Outline
Background
Literatures Study
Methodology
Digital Music and Broadcasting
The Missing BRIC in the Wall
Looking Forward

14. Methodology
Mixed Research approach
Literature study
Business model concepts and frameworks
Technology Acceptance theories
Media Service related studies
Data collection
Secondary sources Qualitative interviews Online survey
(unobtrusive technique) (expert sampling) (simple random sampling)
• MNOs
• Market reports 119 Indonesians
• Scholarly journals - TeliaSonera (SWE) • Pearson correlation tests
• Business articles - Telkomsel (IND) • Cronbach Alpha tests
• Technology reviews - Axis (IND)
• Telecom regulator
BRTI (IND)
• OTT music provider
Spotify (SWE)
• TV broadcaster
TV4 (SWE)
• Mobile content provider
NST (IND)
Methodology 14

15. Methodology
Mixed Research approach
Data analysis
Network centric approach Pre - Study
Actors identification and constellation (ARA modeling)
“Taxonomy point of view” approach
Service, Distribution, Revenue models
“Instance point of view” approach
Spotify business model (Chesbrough and Rosenbloom)
Market scouting
Media and Telecom
Regulatory scouting
Post - Study
Policy and Law enforcement
Mobile media user characteristics
Mean measurement, Cronbach Alpha, Pearson correlation,
UTAUT
Final Conclusions
Findings Formulation
Actors’ roles, Value networks, Service models, Distribution models, Revenue models
Recommendation
Methodology 15

16. Outline
Background
Literatures Study
Methodology
Digital Music and Broadcasting
The Missing BRIC in the Wall
Looking Forward

17. Digital Music
Core Actors and Networks
Revenue stream / sharing line
Core music actors Artist > Singer, composer, songwriter
network box > Recording contract, publishing
contract,
Major Record Label Publisher Indies Record Label > Blanket license, Individual
license,
> 360-degree agreement
Content Aggregator Collecting Society
Other Actor(s)
Typical Direct-To-Fan model
Core music actors Brand Partner
network box
Universal via getmusic.com.au (Label),
U2 via U2.com (Artist) Customer
MUSIC AND BROADCASTING 17

18. Digital TV/Video
Core Actor and Value Networks
Revenue stream / sharing line
Core broadcasting
actors network box
Studio
Content Aggregator /
TV Broadcaster Distributor
Other Actor(s)
Brand Partner Typical Direct-To-Fan model
Core broadcasting actors BBC (Youview, iPlayer),
network box Discovery Channel,
TV4 (TV4 Play)
Mobile Device OEM & CE Provider
OS Provider
Customer
MUSIC AND BROADCASTING 18

19. Service, Distribution, Revenue models (Music)
Service Model Delivery Model Revenue Model
Personalization Ring tone, RBT Retail, Subscription
DRM/Free-DRM à-la-carte
Ownership Retail, Subscription, Subsided
download
On-demand / Internet radio
Access Subscription, Subsided
streaming
Integrated
Telco’s Point of View
Cross- Stickiness
promotional
Up-selling Recur
“Media IAS Online Music Forecast, 2011-2015: Social Media, Subscriptions and the Cloud” -
Gartner
MUSIC AND BROADCASTING 19

20. Service, Distribution, Revenue models (Video)
Service Model Delivery Model Revenue Model
DRM/Free-DRM à-la-carte
Ownership EST (Retail)
download, physical delivery
On-demand / Live / Catch TV PPV (Rental), Subscription,
Access Subsided
streaming
Integrated
The local advertising is very very profitable for
TV4, and it's (a) growing business. The only
competitors.. today are only local newspaper, local
direct mailings, and so on..
How do you manage that on the mobile device
distribution? .. It’s not done yet. All channels
(around the world) that have regional versions, they
are facing the same problem (measure system).
Märta Rydbeck, Interviewed ““Over the Top (OTT) and Through the Middle (TTM) Video - Advertising, Subscription, Rental,
Ex-Director of Distribution and Affiliate sales at TV4 and Sale Markets”, ABI Research
MUSIC AND BROADCASTING 20

21. Telecom Actor’s Potential Positions (1)
Typical Point-to-Point
 Napster, iTunes, 7Digital, Hulu, Partnership
Neflix, Voodler, Microsoft (MSN)…
 TDC (YouSee Play), SK Telecom
(MelOn), Telefonica (Sonora), Customer
Orange (Orange Music), AAPT
(AAPT Music), Virgin Media (Virgin
Digital), BSkyB (Sky Songs), OTT Retailer and CSP CE Provider Mobile Device OEM
TeliaSonera (Musikbutiken), … Service Provider & OS Provider
 Sony (Sony music unlimited, PS),
Microsoft (Xbox), Nintendo (Wii), Core Music/Broadcasting
actors network box
Apple (Apple TV), Google (Google
TV), …
 Nokia (Ovi music store), Samsung
(Music Hub), Blackberry (BBM music
service), HTC (Mog), … We've taken the difficult decision to close Sky
Songs. Although we are extremely proud of
the service we built and the experience it
Platform offers, we just didn't see the consumer
development and demand we'd hoped for.
maintenance BSkyB’s Spokeman, 2010*
Sustainable and
updated contents
Effort Telco
Marketing and vs. vs. We reversed the business models.. They (MNOs)
branding Impact International OTT were very upset with Euro Sport at that time.. but
the thing was people like the channel.. so the
operators came back and said 'how much do you
want’?
Märta Rydbeck, Interviewed
Ex-Director of Distribution and Affiliate sales at TV4
* The Telegraph, “BSkyB to close iTunes rival Sky Songs due to weak demand”
MUSIC AND BROADCASTING 21

22. Telecom Actor’s Potential Positions (2)
Typical Point-to-Multipoint
Partnerships
 Spotify (TeliaSonera, Virgin
Media, 3UK, KPN, MTV Mobile
Europe), Deezer (Orange, Customer
Belgacom, Everything
Everywhere, T-Mobile),
Rhapsody (MetroPCS, Comcast), Vehicle Provider
Wimp (Telenor, Canal Digital, CSP CE Provider Mobile Device OEM &
Portugal Telecom), … OS Provider
 Sonos (Rhapsody, Spotify, OTT Retailer and
Deezer, iheartradio, Last.fm, Service Provider
Napster), Sony (Netflix),
Samsung (Amazon LoveFilm), Core Music/Broadcasting
Dell (Rhapsody, Napster), actors network box
 HTC (Mog), …
 Pandora (Ford, BMW), ..
We actually started with our own service, much more like
Spotify…But it was not great.. we need to spend all our
communication explaining ‘what the service was’, ‘how it
works’, and ‘why you should get it’. (At the end) the
Churn rate Market share
perception and value we gained was very low…
They (OTT) focus on the quality, and we also (have) tried to
build (it through) our brand… but Spotify is extremely
oriented building the brand through the product.. We can't
really do that, because our competitor are following us
ARPU quite fast.
Lars Roth, Interviewed
Vice President Consumer at TeliaSonera
MUSIC AND BROADCASTING 22

23. Spotify
The idea is not very exclusive.. it's like 20 percent of the idea, 80
percent of the execution. And they’re excellent at the execution…
The Ingredient
Lars Roth, Interviewed
Vice President Consumer at TeliaSonera
Peer discovery strategy
Multiple data sources
Dual request mechanism
The Recipe
Multi-device integration
Price tiers & Demand-based pricing
Geographic segmentation
Feature differentiation
Revenue generation
The Freemium model Streaming subscriptions
(paid + subsided subscription )
Advertisement
The retail model
Free-DRM Download purchase
MUSIC AND BROADCASTING 23

24. TeliaSonera - Spotify
Alliance Model
Short -term agreement
post-paid (Triple-Play) and pre-
paid
Soft cap with Throttling
Discount arrangement
Values Exchanged
Resource acquisition
Specialization
Co-opetition
“Spotify monthly revenue by service type in Europe, Sept. 2008 – March 2011 ”, Analysis Mason
MUSIC AND BROADCASTING 24

25. Outline
Background
Literatures Study
Methodology
Digital Music and Broadcasting
The Missing BRIC in the Wall
Looking Forward

26. In the Spotlight
Demographic and Economics Aspects
GDP and domestic consumption
Middle-class income segment
Young population (57 %, ~27 years)
Bank account penetration (20 %)
Regulatory and Policy
No Entry barrier for cloud services
No QoS policy for broadband
Low TRE Score for mobile and broadband QoS
Internet lemot
(slow internet connection).
Cuma ada tanda muter-muter aja tuh, proses connect, tapi ngga nyambung
(only connecting process but not connected at all)
Customers’ quotes, 2012**
* “Smarter MBB Offering The Consumer View”, Ericsson Consumer Lab, March 2012
THE INDONESIAN MARKET 26

27. Telecom Market
Fixed network
Decreasing Fixed-line penetration
Low Fixed-broadband penetration (1.2 %)
The lowest penetration among BRICI countries (per 100 pop)
6.9 % PC ownership penetration
Perceived as expensive
Complex geographical split and terrain
“Fixed broadband penetration in the BRICI countries”, Deloitte
THE INDONESIAN MARKET 27

28. Telecom Market
Mobile network
High mobile penetration (113 %)
98 % Pre-paid subscription
146 % High churn rate
Multiple SIM ownership (starter pack, numbering cost, GSM vs. CDMA, number portability)
Mobile internet: a Leapfrog trend
Fast increase smart phone
ARPU
Decreasing trend in total ARPU (26000 IDR)
Increasing contribution trend from data ARPU
“Mobile phone penetration in the BRICI countries ”, Deloitte
THE INDONESIAN MARKET 28

29. Mobile Media Market
Digital Piracy
Twice legal market value (88 %)
Digital Music
Low law enforcement
Personalization services (RBT)
Retail and Subscription revenue model
Monthly, weekly, ..
Point-to-point partnerships
MNO, Mobile device OEM & OS provider, local OTT
Digital TV/Video Domination of MNO’s role and appearance
50-50 sharing, cost excluded
Access-based services (Live streaming)
Subsided-based revenue (Ads)
Why RBT? Because it is the most easiest,
the internet connection (for most cases) is not really good
Direct-to-fan model …
Local TV Broadcasters In Indonesia it's hard (to take off those digital services), it (piracy
products) is really cheap here. Who will care about piracy acts?
Yose T. Arizal, Interviewed*
* General Manager of Business development and support system at Axis Telekom Indonesia
THE INDONESIAN MARKET 29

30. The Indonesian mobile user
Behavioral Intention Effort & Performance expectancy
WTU Compared with physical
products..
Positive attitude to use the services (Video
streaming, Music download)
Video and Music streaming turns as the most “These services are more useful’
attractive service, if it is free “Using these services saves more money”
WTP “Using these services saves more time”
Low willingness to pay for all the services “These services are not complicated to use”
Highest proportion of rejection to pay
for Music streaming (~ 75 %),
followed by Video download (~ 67 %)
Facilitating condition Social Influence
Mobile Network and billing
Respondents think the services will be popular
“Mobile network is not a barrier to use these among Indonesians
services”
“I will not have to pay a lot for mobile account Respondents don’t think they’ll get any positive
billing because of using these services” attention from others because of using the
services
Mobile devices
The willingness to adopt the services correlates
“My mobile device supports these services”
with a perception that the services would be
“I can afford to buy a mobile device that supports popular among other Indonesians
these service”
THE INDONESIAN MARKET 30

31. Outline
Background
Literatures Study
Methodology
Digital Music and Broadcasting
The Missing BRIC in the Wall
Looking Forward

32. Findings Formulation
The players and the games
Actors
Pure players
Diversified players
Vertically-Integrated players
Network
Telco-centric, Device centric..
Aggregator centric, Service provider centric .. Important Aspects
Missing prominent international OTT players
Piracy level and law enforcement
Dependency to mobile & MNO’s bargain
Bank account penetration
country’s economy & young population
In Indonesia, mostly the goal is not to decreasing the churn rate, but
more into increasing ARPU. The (MNOs') network quality is almost
same... we mainly play here with a tariff war…
Yose T. Arizal, Interviewed*
* General Manager of Business development and support system at Axis Telekom Indonesia
Looking forward 32

33. Positioning Options
“Do nothing”
Immature market (WTP, WTU, Piracy)
Too low impact
“Do it alone”
Vertically integrated player
Point-to-point partnership
“Collaborating”
Aggregator centric / service provider centric
Active role for a better bargain
Integrated billing, product bundling, data delivery optimization, customer data,…
Non-equity model
Looking forward 33

34. Tack Så Mycket

35. User Survey
Behavior Intention - WTU
Behavior Intention - WTP
USER SURVEY DATA 35

36. User Survey
Facilitating Condition – Mobile network and billing
Facilitating Condition – Mobile device
USER SURVEY DATA 36

37. User Survey
Effort and Performance
Expectancy
Social Influence
USER SURVEY DATA 37