2010 Monetizing Broadband: Asia Pacific

P432-63 May 2010

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Table of Contents

Slide Context Issues Opportunities About Frost & Sullivan 6 16 22 28

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List of Charts
Slide Broadband Services Market: Broadband Penetration (per 100 inhabitants) (Asia Pacific), 2009 Broadband Services Market: ARPU/GDP per capita (Asia Pacific), 2009 Fixed Broadband Market: Subscriber Base (Asia Pacific), 2004-2014 Broadband Services Market: Broadband Access Technology Mix (Asia Pacific), 2004-2014 Wireless Broadband Services Market: Broadband Access Technology Mix (Asia Pacific), 2006-2013 Broadband Services Market: Broadband Penetration and 3G Penetration (USA), 2001 to 2009 Broadband Services Market: Broadband Penetration and 3G Penetration (USA), 2001-2008 Broadband Services Market: Broadband Penetration and 3G Penetration (Philippines), 2001-2008 Broadband Services Market: Wireless Broadbands share of Incremental Broadband (World), 2006-2008 Broadband Market: Fixed vs. Wireless Net Subscriber Additions (Asia Pacific), 2008-2013 Broadband Services Market: Wireless vs Fixed Access (World), 2009 Broadband Services Market: Wireless Broadband Challenges (World), 1999-2009 Broadband Services Market: Wireless Broadband Usage (World), 2001-2009 Broadband Services Market: NPV Analysis (World), 2009 7 7 8 9 10 11 12 12 13 14 15 17 18 19

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Context

Broadband Adoption Is an Affordability Play

Broadband penetration is a function of affordability.

Penetration in APAC
Broadband Services Market: Broadband Penetration (per 100 inhabitants) (Asia Pacific), 2009
Broadband Penetration (%)
99

Affordability in APAC
Broadband Services Market: ARPU/GDP Per Capita (Asia Pacific), 2009

pa n

100 90 80 70 60 50 40 30 20 10 0

91
ARPU/GDP Per Capita (%)

50 40 30 20 10 0 1.3 4.7 1.4 2.2 3.2 2.4 19.0 5.1

60 51 44 39

13

12 3
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ra l

ne

si

po

Au st ra li a

Ch in a

Ja pa n

Au st

pp i

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Note: All figures are rounded; the base year is 2009. Source: Frost & Sullivan

Note: All figures are rounded; the base year is 2009. Source: Frost & Sullivan

Note: One fixed broadband on an average serves 2 users whereas a mobile broadband serves only the individual subscriber Broadband penetration is the sum of 2 times the fixed broadband subs and mobile broadband subs divided by the population

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Ne

Si

ng a

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Fixed Broadband Market is Growing

Broadband is the only real growth driver for fixed players; it is also a TINA effect. Fixed Broadband Market: Subscriber Base (Asia Pacific), 2004-2014
400,000 Subscribers (Million) Growth Rate (%) 342,910 310,862 300,000 Subscribers (Million) 244,592 212,654 200,000 155,171 150,000 108,713 100,000 63,102 50,000 84,300 10 130,391 182,042 20 277,711 30 Growth Rate (%)
8

40

350,000

250,000

0 2004 2005 2006 2007 2008 2009 Year 2010 2011 2012 2013 2014

Note: All figures are rounded; the base year is 2009. Source: Frost & Sullivan P432-63

Access Technology Mix Would Continue

Sweating of Copper infrastructure is still critical with exception of markets like Japan, South Korea and Taiwan.
Broadband Services Market: Broadband Access Technology Mix (Asia Pacific), 2004-2014
0.03 0.07 0.20 0.53 1.00 200 1.17 1.23 1.45 1.82 100 0.84 13.69 50 2.90 45.65 0 2004 1.58 19.19 5.48 58.03 24.32 9.09 90.51 109.19 130.03 24.85 13.45 155.70 27.58 16.93 210.77 182.81 30.98 19.49 238.83 33.15 22.17 266.00 35.93 24.54 38.64 27.04 41.26 29.34 43.38

350

Others Cable Broadband

300

FTTH xDSL

31.76

Subscribers (Million)

250

150

73.45

2005

2006

2007

2008

2009 Year

2010

2011

2012

2013

2014

Note: Others include Satellite and Fixed -Wireless broadband access

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Note: All figures are rounded; the base year is 2009. Source: Frost & Sullivan

Mobile Broadband is Here

2008 was the breakout year for HSPA.
Wireless Broadband Services Market: Broadband Access Technology Mix (Asia Pacific), 2006-2013

LTE
Note: All figures are rounded; the base year is 2009. Source: Frost & Sullivan P432-63 10

Mobile Players Attack Fixed Line Players With HSPA

Wireless players are trying to gain market share through aggressive pricing in growing broadband markets.
Wireless Broadband Services Market: Wireless Services Offerings (Asia Pacific), 2009

Fixed Substitute Mobile-only operator

Similar performance to fixed broadband at lower prices O2 Ireland ONE Austria Lower prices bundled with fixed and lower download limits Mobikom in Austria In markets like Indonesia and Philippines

Fixed Complement
Cheaper than broadband M1 Singapore FET Taiwan fixed

Integrated operator

Capped usage similar prices and bundling with fixed TeliaSonera (Sweden) More expensive than fixed KT in Korea

Growing broadband market

Saturated broadband market

Source: Frost & Sullivan

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Broadband Evolution Developed VS. Developing Markets

The dynamics between wireless and wireline technologies differ by market maturity.

Developed mobile

Markets:

Fixed

leads

Developing Markets: Fixed usually lags mobile

Broadband Services Market: Broadband Penetration and 3G Penetration (Philippines), 2004-2009
8

Broadband Services Market: Broadband Penetration and 3G Penetration (USA), 2001-2009

100 90

Penetration (%)

Penetration (%)

80 70 60 50 40 30 20 10 8 0 0 2001 12 0 2002 20 2 0 2003 2004 5 2005 45 26 35 10 15 53

6 6 4 4 5 2 2 1 0 2005 2006 2007 2008 2009 2 3 0 0

58

26

00 2006 2007 2008 2009

3G Mobile Penetration

Fixed Broadband Household Penetration

0 2004

3G Mobile Penetration

Fixed Broadband Household Penetration

Note: All figures are rounded; the base year is 2009. Source: Frost & Sullivan

Note: All figures are rounded; the base year is 2009. Source: Frost & Sullivan

Fixed Broadband remains the speed and experience leader Mobile Broadband plays catch-up
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High costs of fixed line deployment Pent-up demand in certain areas Wireless broadband subs are more than fixed in markets like Indonesia
12

And Mobile Broadband is Succeeding

Mobile broadband is gaining between 30-50% of incremental broadband additions in most markets after launch of HSPA and 3G data cards.
Broadband Services Market: Wireless Broadbands Share of Incremental Broadband (World), 2006-2008

Wider coverage and UMTS to HSPA migration USB Dongles gaining incremental broadband share Flat rate pricing packages

Mobile Share of Broadband Net-adds

Note: All figures are rounded; the base year is 2009. Source: Frost & Sullivan

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13

External Devices are Making a Difference

3G Dongles are taking Asias telecommunications landscape by storm and many markets now have more dongle users than DSL users. Broadband Market: Fixed vs. Wireless Net Subscriber Additions (Asia Pacific), 2008-2013 Broadband Net Additions (000s)

40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2008 2009 2010 2011 2012 2013

40 35 30 25 20 15 10 5 0

Fixed Broadband Net Additions (000s) External 3G Device Net Additions (000s) External 3G Device Net Additions as a Percentage of Total (%)

Note: All figures are rounded; the base year is 2009. Source: Frost & Sullivan

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Total (%)

14

Making Mobile Broadband a Serious Alternative

Mobile broadband has a larger addressable market , technological scale and good incremental rollout economics at sub 1Mbps speeds

Speeds

Larger addressable Market

Broadband Services Market: Wireless vs Fixed Access (World), 2009

FTTH

PCs, laptops, netbooks and smartphones User ARPU rather than HH ARPU Shipments of netbooks plus smartphones to overtake PC shipments in 2010 globally

Technological Stability ADSL 2+

LTE

Clear roadmap to LTE Over 230 HSPA deployments Global scale and support

HSPA

ADSL
UMTS

Competitive at Sub 1 Mbps speeds

Urban centers Sweating of investments 3G network

Source: Frost & Sullivan

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Issues

16

De-Coupling of Traffic Volumes With Revenues

The challenges of fixed broadband economics are beginning to show in mobile broadband as well
Broadband Services Market: Wireless Broadband Challenges (World), 1999-2009

Huge data traffic volume increase; data > voice in most HSPA networks. More than 50% data traffic video and P2P. Most pricing models all you can eat. Declining Average Profit per Megabyte (APPMB). Cost curve potential to overtake revenue curve.

Source: Frost & Sullivan

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Making Unlimited Packages Uncompetitive

Mobile broadband would find it tough to compete when usage goes beyond 4-5 GB a month and will have unfavourable economics Broadband Services Market: Wireless Broadband Usage (World), 2001-2009 Usage in MB per month Mobile will reach fixed type usage behavior in 2-3 yrs Share of users Leading to a change in economics of mobile broadband
Backhaul Kbps per provisioned user At 4-5 GB per month

Developed market fixed bb Develping market fixed BB Current Mobile BB avg usage iPhone

10,000

Pay as you go Avg = 200 MB Flat rate with fair usage policy Avg = 1 GB

40
...

4,000

Current

1500
Fully unlimited package Avg = 3-5 GB

3
12-15 times increase in backhaul capacity More number of cells to manage RAN capacity Limited availability of spectrum Significant increase in capex per sub: $350 400

900
Heavy p2p users MB/month/user

Source: Frost & Sullivan 18

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And Making Pricing Decision a Profitability Determinant

Getting the pricing right is critical for profitability of the mobile broadband business case
Broadband Services Market: NPV Analysis (World), 2009

NPV Analysis

Source : JP Morgan Analysis, Frost & Sullivan

For an usage level of 1 GB per month, the positive NPV generation ARPU should be close to $20 per month (assuming 65% of new capex goes for data and 60% of peak utilization and no increment from voice). The above can be reduced to $15 per month based on various market and operator conditions.

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Smart the Pipe: Bite the App(le)

The app store success has significant implications for telcos

Rapid change within a year

Implications for telcos Creates an open source innovation platform Single marketplace, Centralized billing Immediate provisioning On-device discovery Revenue distribution model App stores being developed by operators as well like T-Mobile and O2 What should be the number of apps to start with and the pricing of the same?

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But is It Another Walled-Garden Trap With a Fancy Name?

Operators are ramping up their capabilities to compete with app stores Options O2 Litmus Orange Vodafone
Do nothing: Pocket the data ARPUs by benefiting from the ecosystem

Doing it on their own

Partnering

JIL Group formed by China Mobile Softbank Verizon Wireless Vodafone Amdocs App Store Framework Ericsson hosted services

Build an App Store: Leverage the subscriber base and lead through unique differentiated esp.. for emerging markets

Helped by Vendors

Create the App Store using white label APP Stores and other enablers in the ecosystem: Work with the participants in the app store ecosystem to create a ready to serve App Store

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Opportunities

22

Business Model Choices

Not so much about networks after all
Data usage per month

What is the alternative and what is your promise? Is it a fixed line replacement, complement or a new experience? Entry point inflection Recurring pricing Tiered bandwidth

Digital natives > 4 devices Productivity seekers ~ 2 devices First internet experience device

Device affordability and ownership

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Reduce the Cost Per Bit

Broadband costs can easily spiral out of control if not managed properly.

Network criticalities Anticipation of data growth

Key characteristics of the services Data vs. voice vs. video traffic Flexibility and time to market Traffic dimensioning Level of control and integration Service awareness Security

Degree of integration/ Sharing

Ownership of backhaul infrastructure Integrated/converged strategy: consumer vs. enterprise vs. wholesale Infrastructure sharing

Re-use of core and backhaul networks Multi-service network design

Operational efficiency

Multi-tiered bandwidth Reduction in cost per bit

Scalability Transport and backhaul efficiency Cost reductions

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Expand the Addressable Market

Important to expand the addressable market

Expansion of access devices

Expansion of applications

Expansion of attention

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Evaluate the App Store Opportunity

Operators are ramping up their capabilities to compete with app stores Options Do nothing: Pocket the data ARPUs by benefiting from the ecosystem Change the VAS business model: View the entry of app stores to re-orient the organization but dont build an app store Evaluate owned App Store: Leverage the subscriber base and lead through unique differentiated esp. for emerging markets Our Recommendation

Evaluate the App store for strategic reasons Fit with vision Emerging market focus weak in current app store initiatives Bottom-up innovation benefits that mitigate risk of disintermediation The financial expectation gets determined by the Do Nothing option floor (base case). Utilize this project evaluation as a process to see the alignment on VAS/Service strategy and readiness across various group cos (the Trojan horse).

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Key Issues to be Addressed

Cost effective infrastructure (incl. backhaul) expenses Rigorous Network dimensioning Right Portfolio Mix Differentiated Services Network exposure Open Innovation planning and

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28

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