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Rewheel
Strategy Delivered
Understanding
The
Profitability Dynamics
of Mobile Data
© Rewheel
TM
* Except for certain markets having usage/carrier number based frequency fee components
Capacity upgrades
CAPEX
“Pay as you grow”
Radio, Access Transmission, PS Core, PS Backbone
3rd WCDMA
Carriers
PS Core,
2nd WCDMA
RNC Carriers
capacity, RAN
CAPEX
Software
Channel
Elements version Capacity
upgrade
NodeB CAPEX
Baseband
NodeB initial HS Codes The incremental
config, Backhaul one-off network
installation, capacity CAPEX of
etc
adding a
5GB/month user can
exceed 500 €*
Coverage
CAPEX
The initial 3G network configuration can accomodate a certain number of data subscribers without signiciant
incremental capacity related expenditures. But soon additional CAPEX and OPEX will need to be spent for
every single subscriber added on the network, representing a major share of overall MBB producion costs.
OPEX
Driven by
traffic level
Increase in yearly OPEX
[Permanent OPEX level increase]
After the inital network capacities are saturated, the growth of traffic will trigger substantial
incremental CAPEX and increasing yearly OPEX. The CAPEX is driven by the change (growth)
of traffic demand, while the yearly (recurring) OPEX is driven by the actual traffic level.
www.rewheel.fi Slide | 6
TM
€/Month
Vendor platforms
HW ready for large capacity?
HW expansion needed when traffic grows?
ARPU
Unitary vendor prices
HW and SW Licence prices
SW upgrade prices
Support & Maintenance costs
Vendor pricing mechanisms
USAGE (MB/Month)
Pay (or Pray?) As You Grow?
Or software licences disconnected from traffic? * Directly traffic driven variable network costs
Target User QoS
1 Mbit/s vs 3 Mbit/s per user in the busy hour?
Or ”Best effort”?
Production costs directly depend on the targeted user experience. If operator decides to delay
adding extra capacity, marginal production costs can be squeezed down dramatically. The
question is, until what point will the market tolerate the degrading broadband experience.
© 2009 Rewheel www.rewheel.fi Slide | 7
TM
When adding a
Yearly Directly Data Traffic
Driven CAPEX & OPEX per subscriber, the network OPEX
capacity needs to be
upgraded according to CAPEX Network CAPEX
its data usage investments of ten
trigger recurring
Subscriber
A single €/Mbyte cannot adequately capture the cash implications of incremental data traffic
on the network. The only way to frame the true cost dynamics is breaking down the high level
€/Mbyte cost benchmark to one-off and recurring cost components.
© 2009 Rewheel www.rewheel.fi Slide | 8
TM
Smart phones
Complementary connections
Substitutive
Years
The first year of typical PC connectivity user is characterised by heavy incremental network
capacity investments and significant subscriber acquisition costs (sales commissions +
dongle/netbook/laptop subsidy)
© 2009 Rewheel www.rewheel.fi Slide | 9
TM
Smart phones
Cash flow
Complementary connections
Substitutive
Years
The CAPEX intensive nature of MBB turns the PC connectivity (heavier usage) subscriber cash
flow negative in the 1st year. Operators accept to pay this price for gripping the long term
potential in mobile data.
© 2009 Rewheel www.rewheel.fi Slide | 10
TM
Smart phones
Complementary connections
Substitutive
Years
While on subscriber level the cumulative cash flow turns positive in the 2nd year, this is not
necessarily true for the entire segement. Every year more money needs to be spent in capacity
upgrades an A&R expenditures than the cash generated by subs added in earlier years.
© 2009 Rewheel www.rewheel.fi Slide | 11
TM
Cash flow
Cash flow
Cash flow
The uncertainty of future demand of mobile data subscribers poses an enrmous profitability
risk for the operatos. In reality, operators will not afford to invest the required cash which
means the network congestion will dramatically degrade broadband user experience.
© 2009 Rewheel www.rewheel.fi Slide | 12
TM
Smart phones
Cash flow
Mobile broadband bunded with fixed No subsidies
and sales
Complementary connections
commissions
Substitutive
Years Years
Combining the low margin, CAPEX intensive MBB business with extensive terminal subsidies
may not be sustainable in the long run. Excluding acquisition & retention the picture looks
much nicer.
© 2009 Rewheel www.rewheel.fi Slide | 13
TM
Cash flow
Cash flow
Years Years
Deploy techology features Ensure that the cost of such Maximise ARPU by
necessary for differentiated features is in-line with the segmented mobile data
Customer treatment of different market associated economic benefits propositions
Segmentation segments
Reconsider level of terminal
subsidies