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Mobile Telecom
Economics
Prepared By: Noha Mansour
Mahmoud Abdel Aziz
Mohamed El Dahshan
Mohamed Ibrahim
Presented To: Dr....
Mobile Telecom Economics-302
Industry Trends
Market Structure
Mobile Operator Costs
Pricing Models
Evolution of Subscriber...
Mobile Telecom Economics-303
Industry Trends
On the business side:
Competition and privatization
New market opportunities
...
Mobile Telecom Economics-304
Industry Trends
Mobile Telecom Economics-305
Industry Trends
Mobile Telecom Economics-306
Industry Trends
Mobile Telecom Economics-307
Industry Trends
Mobile Telecom Economics-308
Industry Trends
Mobile Telecom Economics-309
Industry Trends
Secrets of success:
Affordability
Mobile tariffs have decreased substantially...
Mobile Telecom Economics-3010
Industry Trends
Mobile Subscribers-Egypt
0
5
10
15
20
25
30
35
04-Q1
04-Q2
04-Q3
04-Q4
05-Q1...
Mobile Telecom Economics-3011
Industry Trends
Mobile Operat ors-Egypt
0%
10%
20%
30%
40%
50%
60%
04-Q1
04-Q2
04-Q3
04-Q4
0...
Mobile Telecom Economics-3012
Industry Trends
Market Structure
Mobile Operator Costs
Pricing Models
Evolution of Subscribe...
Mobile Telecom Economics-3013
Market Structure
Radio spectrum -the key input for the supply of mobile
telecommunications s...
Mobile Telecom Economics-3014
Market Structure
the first licenses were frequently granted by default to the
incumbent fixe...
Mobile Telecom Economics-3015
Industry Trends
Market Structure
Mobile Operator Costs
Pricing Models
Evolution of Subscribe...
Mobile Telecom Economics-3016
Mobile Operator Costs
1) “Personnel", "External" and "Other" cost types
2) Remaining cost ty...
Mobile Telecom Economics-3017
Mobile Operator Costs
Moore’s Law: performance of products doubles every 18
months
Main equi...
Mobile Telecom Economics-3018
Industry Trends
Market Structure
Mobile Operator Costs
Pricing Models
Evolution of Subscribe...
Mobile Telecom Economics-3019Mobile Telecom Economics 19
Pricing Models
Mobile Pricing
Retail Pricing Wholesale Pricing
Co...
Mobile Telecom Economics-3020
Pricing Models
Retail Prices
Connection:
• An up-front fee is usually charged for connecting...
Mobile Telecom Economics-3021Mobile Telecom Economics 21
Pricing Models
Wholesale prices
Roaming:
• For all inbound calls,...
Mobile Telecom Economics-3022
Industry Trends
Market Structure
Mobile Operator Costs
Pricing Models
Evolution of Subscribe...
Mobile Telecom Economics-3023
Evolution of Subscriber Base & Revenues
Subscriber growth drivers:
In the early 1980s the 1G...
Mobile Telecom Economics-3024
Evolution of Subscriber Base & Revenues
Evolution of revenues:
Total revenues for mobile com...
Mobile Telecom Economics-3025
Evolution of Subscriber Base & Revenues
Evolution of revenues (Cont.):
• Evolution of teleco...
Mobile Telecom Economics-3026
Industry Trends
Market Structure
Mobile Operator Costs
Pricing Models
Evolution of Subscribe...
Mobile Telecom Economics-3027
Case Study: Vodafone Egypt
  05-Q2 05-Q3 05-Q4 06-Q1 06-Q2 06-Q3 06-Q4 07-Q1
Revenue 1,270 1...
Mobile Telecom Economics-3028
Case Study: Vodafone Egypt
0
200
400
600
800
1,000
1,200
1,400
1,600
0 1,000 2,000 3,000 4,0...
Mobile Telecom Economics-3029
Case Study: Vodafone Egypt
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
0 1,000 2,000 3,0...
Mobile Telecom Economics-3030
Case Study: Vodafone Egypt
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200
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800
1,000
1,200
0 1,000 2,000 3,000 4,000 5,000
TP ...
Mobile Telecom Economics-3031
Case Study: Vodafone Egypt
Conclusion:
Mobile Operators are expanding their businesses faste...
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Mobile telecom economics

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- Understand the mobile industry trends, market structure, cost drivers, pricing models, and the evolution of subscriber base and revenues.

- Case study: Vodafone Egypt

Published in: Economy & Finance
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Mobile telecom economics

  1. 1. Mobile Telecom Economics Prepared By: Noha Mansour Mahmoud Abdel Aziz Mohamed El Dahshan Mohamed Ibrahim Presented To: Dr. Samir Makari
  2. 2. Mobile Telecom Economics-302 Industry Trends Market Structure Mobile Operator Costs Pricing Models Evolution of Subscriber Base & Revenues Case Study: Vodafone Egypt Contents
  3. 3. Mobile Telecom Economics-303 Industry Trends On the business side: Competition and privatization New market opportunities Higher levels of investments and revenues New business models and technological innovations On the consumer side: Lower prices for corporate and consumers More consumer choices through new products and services Higher service levels
  4. 4. Mobile Telecom Economics-304 Industry Trends
  5. 5. Mobile Telecom Economics-305 Industry Trends
  6. 6. Mobile Telecom Economics-306 Industry Trends
  7. 7. Mobile Telecom Economics-307 Industry Trends
  8. 8. Mobile Telecom Economics-308 Industry Trends
  9. 9. Mobile Telecom Economics-309 Industry Trends Secrets of success: Affordability Mobile tariffs have decreased substantially over the last decade Accessibility In 2006, global mobile population coverage reached 79% Innovation in applications, services & devices Prepaid (flexibility & control, low-income groups) SMS (affordable, easy to use) Ultra-low-cost handsets
  10. 10. Mobile Telecom Economics-3010 Industry Trends Mobile Subscribers-Egypt 0 5 10 15 20 25 30 35 04-Q1 04-Q2 04-Q3 04-Q4 05-Q1 05-Q2 05-Q3 05-Q4 06-Q1 06-Q2 06-Q3 06-Q4 07-Q1 07-Q2 07-Q3 07-Q4 Millions 0 5 10 15 20 25 30 35 40 45 Subs. Penetration ARPU (USD)
  11. 11. Mobile Telecom Economics-3011 Industry Trends Mobile Operat ors-Egypt 0% 10% 20% 30% 40% 50% 60% 04-Q1 04-Q2 04-Q3 04-Q4 05-Q1 05-Q2 05-Q3 05-Q4 06-Q1 06-Q2 06-Q3 06-Q4 07-Q1 07-Q2 07-Q3 07-Q4 MarketShare MobiNil Vodafone Etisalat
  12. 12. Mobile Telecom Economics-3012 Industry Trends Market Structure Mobile Operator Costs Pricing Models Evolution of Subscriber Base & Revenues Case Study: Vodafone Egypt Contents
  13. 13. Mobile Telecom Economics-3013 Market Structure Radio spectrum -the key input for the supply of mobile telecommunications services- is a public good, but its use is exclusive The radio spectrum bottleneck, combined with the high sunk cost for network set up act as an entry barrier, and make the industry intrinsically oligopolistic. Spectrum assignment needs to be regulated. There are two main methods: Administrative: the government plays an active part in the assignment and advocates a central role in the development of the industry market-based: the government plays the role of a referee, setting the framework and letting firms decide on the implementation of measures for the development of the market
  14. 14. Mobile Telecom Economics-3014 Market Structure the first licenses were frequently granted by default to the incumbent fixed operators Additional licenses were initially granted through an administrative tender procedure, and then more and more through auctions The first firm in the market is usually able to attract the most profitable subscribers and therefore can quickly recover the capital costs of setting up the network If the second firm enters at a later stage, the first operator already has a large market share advantage. If two firms enter the market at the same time, they tend to split the market fairly evenly between them.
  15. 15. Mobile Telecom Economics-3015 Industry Trends Market Structure Mobile Operator Costs Pricing Models Evolution of Subscriber Base & Revenues Case Study: Vodafone Egypt Contents
  16. 16. Mobile Telecom Economics-3016 Mobile Operator Costs 1) “Personnel", "External" and "Other" cost types 2) Remaining cost types (e.g. advertisement, rental and lease, license and vendor maintenance, power, …) Total Costs of a Mobile Operator Non-mobile or non-operational activities • Fixed-line offerings • Wi-Fi • Network • Sales • Marketing & Product dev. • Customer Management • IT • Support & Overhead IndirectIndirect CostsCosts Process- related costs1) Direct CostsDirect Costs Investments • Subsidies • Commissions • Interconnection • Roaming • Network infrastructure • IT infrastructure • Call-Centre infra-structure • Other infrastructure (e.g. buildings) IndirectIndirect costscosts Remaining costs2) OPEX CAPEX
  17. 17. Mobile Telecom Economics-3017 Mobile Operator Costs Moore’s Law: performance of products doubles every 18 months Main equipment and operating costs are declining thanks to substantial economies of scale & scope Network operation costs: Leasing the backbone infrastructure Centralization and automation Interconnection rates Handset subsidies and other subscriber acquisition costs: Subsidizing the handset ( Prisoner’s dilemma) Turnover of the subscribers (5 Y), Churn Investment cost: Analogue Tech (900+ 1500), Digital Tech (350+100) License fees: Very high cost, auctions (Opposite movement) Mobile Telecom Economics 17
  18. 18. Mobile Telecom Economics-3018 Industry Trends Market Structure Mobile Operator Costs Pricing Models Evolution of Subscriber Base & Revenues Case Study: Vodafone Egypt Contents
  19. 19. Mobile Telecom Economics-3019Mobile Telecom Economics 19 Pricing Models Mobile Pricing Retail Pricing Wholesale Pricing Connection Subscription Airtime Roaming Interconnection
  20. 20. Mobile Telecom Economics-3020 Pricing Models Retail Prices Connection: • An up-front fee is usually charged for connecting new subscribers to the network • The reason for this is to compensate for the costs the operator incurs to register a new subscriber and for the SIM card Subscription: • With post-paid subscription, a fee is typically charged on a monthly basis for access to the mobile network Airtime: • Air charges are usually based on a per-minute charge. • Airtime is normally charged only for outgoing calls, unless the receiving party is ‘roaming’. • Price competition in many countries is reducing the metering unit from minutes to seconds. • Calling charges are differentiated by time of the day (peak vs. off-peak) and by destination (on-net vs. off-net). Mobile Telecom Economics 20
  21. 21. Mobile Telecom Economics-3021Mobile Telecom Economics 21 Pricing Models Wholesale prices Roaming: • For all inbound calls, the mobile subscriber ‘roaming’ abroad has to pay a fee • The pricing of ‘roaming’ services is undertaken in a two-step procedure, the first is wholesale pricing, the second stage is retail pricing Interconnection: • Interconnection pricing concerns the price of services of a given network to other networks for access to the network’s customer. Fixed to Mobile: • The termination charge set by a mobile firm does not directly affect the customers of its own network, but does affect the price set for the fixed line subscriber
  22. 22. Mobile Telecom Economics-3022 Industry Trends Market Structure Mobile Operator Costs Pricing Models Evolution of Subscriber Base & Revenues Case Study: Vodafone Egypt Contents
  23. 23. Mobile Telecom Economics-3023 Evolution of Subscriber Base & Revenues Subscriber growth drivers: In the early 1980s the 1G system was introduced in monopoly regimes. These networks were based on incompatible technologies. The subscriber capacity of these early networks was limited and penetration of the population remained low. In mid-1990s, a major breakthrough occurred with the switch to digital technology (GSM). This introduction was coupled with an efficient regulatory environment which facilitated the spread of the technology. USA was steps behind Europe in this technology, due to the absence of a uniform standard of mobile technology. This deprives users of several benefits: • Nationwide “roaming” • Changing service provider without changing handset • Cheaper and wider choice of handset
  24. 24. Mobile Telecom Economics-3024 Evolution of Subscriber Base & Revenues Evolution of revenues: Total revenues for mobile communications are increasing faster than revenues for fixed communications (due to strong growth in subscribers) The revenues for mobile services are for a large part generated by traffic & tariffs Usage patterns & average revenue per user (ARPU): • ARPU is one of the most important business parameters for mobile phone operators and a benchmark for the profitability of a firm • ARPU used to be very high in mobile communications because in the early phase of the industry the typical subscriber was the business user • ARPU declines as the penetration rate increases and low-usage subscribers are attracted by low tariffs
  25. 25. Mobile Telecom Economics-3025 Evolution of Subscriber Base & Revenues Evolution of revenues (Cont.): • Evolution of telecommunications markets has the similar stages of start-up, expansion, and maturity: – Start-up: limited competition. Monopolies or duopolies penetrated the segment of high-spending, price-insensitive users. operators then start penetrating more price-sensitive segments (e.g. SMEs) – Expansion: growth in subscribers is strong. There can be a strong competition in duopoly, usually a third entrant is required to start competition (addressing low-spending users) – Maturity: when no additional subscribers can be added to the market. Here price competition will be intense. ARPU will stabalise
  26. 26. Mobile Telecom Economics-3026 Industry Trends Market Structure Mobile Operator Costs Pricing Models Evolution of Subscriber Base, Revenues & Costs Case Study: Vodafone Egypt Contents
  27. 27. Mobile Telecom Economics-3027 Case Study: Vodafone Egypt   05-Q2 05-Q3 05-Q4 06-Q1 06-Q2 06-Q3 06-Q4 07-Q1 Revenue 1,270 1,566 1,489 1,620 1,738 2,102 2,096 2,196 Cost 810 957 943 995 1,067 1,126 1,245 1,487 EBIT 460 609 546 625 671 976 851 709 MOU 1,982 2,345 2,278 2,442 2,869 3,462 3,670 4,156 Objective: apply “theory of the firm” on Vodafone Egypt Scope: study the cost, revenue and profit as functions of the total production Data source: quarterly financial statements Timeline: two years (2005-2007)
  28. 28. Mobile Telecom Economics-3028 Case Study: Vodafone Egypt 0 200 400 600 800 1,000 1,200 1,400 1,600 0 1,000 2,000 3,000 4,000 5,000 TP (MOUs) TC 0.25 0.27 0.29 0.31 0.33 0.35 0.37 0.39 0.41 0.43 0 1,000 2,000 3,000 4,000 5,000 TP (MOUs) LAC TP Ξ MOU (Minutes Of Use) Cost = Revenue – EBIT LAC = Cost/MOU Optimum level of output is 3,462 million minutes Total cost is 1,126 million LE Average cost is 0.33 LE per minute
  29. 29. Mobile Telecom Economics-3029 Case Study: Vodafone Egypt 1,000 1,200 1,400 1,600 1,800 2,000 2,200 2,400 0 1,000 2,000 3,000 4,000 5,000 TP (MOUs) TR 0.45 0.50 0.55 0.60 0.65 0.70 0 1,000 2,000 3,000 4,000 5,000 TP (MOUs) AR AR = Revenue/MOU Total revenue is 2,102 million LE Average revenue is 0.61 LE per minute
  30. 30. Mobile Telecom Economics-3030 Case Study: Vodafone Egypt 0 200 400 600 800 1,000 1,200 0 1,000 2,000 3,000 4,000 5,000 TP (MOUs) TProfit T Profits = EBIT Total Profit has a maximum of 976 million LE
  31. 31. Mobile Telecom Economics-3031 Case Study: Vodafone Egypt Conclusion: Mobile Operators are expanding their businesses faster than their ability to employ tight cost control measures Mobile operators, however, can’t stop expansion or they will be lagging fierce competition To achieve profit maximization, mobile players, then, have to focus closely on their costs, while carefully designing their pricing plans

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