Disruptive business models for mobile networks in mature markets.

Disruptive Business Models for mobile networksin mature markets.ETSI’s Business Innovation Summit 2011, 4th October 2011..

Dr. Kim Kyllesbech Larsen, Technology Economics

Technology, Deutsche Telekom.

Changing business models …

2Dr. Kim Kyllesbech Larsen, ETSI’s Business Innovation Summit, October 4th 2011, London.

Mobile OperatorGarden

CS VoiceSMS

Mobile Data

NetworkSIM Bill ing

50 – 700MHzCloud

SIM

“New”Billing

Whitespace

OTT Apps

Coolstuff

Smartdevices Regulation

The mega disruptive challenges …


Mega bits

Mega bucks

Mega Hz

ARPU … OTT Mobile Apps topline impact.Mobile revenues in an Apps-centric world could decline rapidly.

4

22.41 23.01

12.7

1 Source 2010 & 2015 Pyramid Research March 2011 Western Europe.

2010A 2015EMobile centric(“worry-free”)

2015EApps centric

(“doom”)

(Free) OTT VoIP and Messaging Apps can lead to adramatic loss of most profitable MNO revenues

CS Voice SMS & MMS PS Data

15.7

3.4

3.3

13.0

3.8

6.2

6.5

6.2

Illustration

?By 2015

more than 70%of users have a smartphone

Dr. Kim Kyllesbech Larsen, ETSI’s Business Innovation Summit, October 4th 2011, London.

ARPU

• End of Profit in WEU next 5 years?

• Accelerate LTE deployment

• Manage traffic via pricing, policy & control.

• Spectrum re-purpose & acquisition.

• End of Profit in WEU next 5 years?

• Accelerate LTE deployment

• Manage traffic via pricing, policy & control.

• Spectrum re-purpose & acquisition.

Tellabs global study1 …The End of Profit.The end to the mobile-only business model as we know it?

5

Western Europe mobile carrier“End to Profit” (Tellabs study).

What can be learned?

Western Europe assessment

Businessmodelbreakdown

Mounting cashpressure

Annual Growth Projection until 2020.

5%

20%

70%

87%

47% 47%

0.5% 1.0%

61% 61%

28% 28%

0%

20%

40%

60%

80%

100% 2010 - 20152015 - 2020


New business models and operation will be required.


Total Revenue

Technology Cost (ca. 15% – 20%)

Usage Cost (Voice dominated 10% - 20%)−

Market Invest SAC & SRC (ca. 20%)

−

= EBITDA (WEU ca. 37% 1)

Personnel Cost (<20%)

Other Cost (5% - 10%)

−

−

−

Network depreciation (ca. <20% of Revenue)−

Spectrum Amortization−

Capex (ca. 7% to 15% of Revenue)−

Mobile Profit & Loss - Today

1 BoA ML Global Wireless Matrix 1Q11, margin data for 4Q 2010.

70% of Total Revenue Today

= Maintain Today’s EBITDA of ca. 37%

Mobile Profit & Loss - Tomorrow

Reduce Cost with 30%!

↓→

↑→

→

↑

New business, operation and cooperation modelsNew business, operation and cooperation models

•Network sharing (i.e., EE UK).

•Network Factory /Network spin-off.

• Increased purchasing powerDT-FT Procurement JV.

New partnership models – de-risk mobile.

•Network sharing (i.e., EE UK).

•Network Factory /Network spin-off.

• Increased purchasing powerDT-FT Procurement JV.

New partnership models – de-risk mobile.

New Business Models

↓

↓

Technology Cost (15% - 20%)

Personnel Cost (<20%)

Data demand exceeding spectral efficiency gains.”Houston we have problem”.

Spectral demand could exceed spectral efficiency by

as early as 2014.

Spectral demand could exceed spectral efficiency by

as early as 2014.


10 20 40 60 85 120 120 120 120 120 120

0

5

10

15

2010 2012 2014 2016 2018 2020

Total spectrum in use for mobile data demand

Inc

rea

se

ove

r 20

10

Spectral Efficiency (*)

Spectral demand (limited)

Spectral demand (unlimited)

Data demand:CAGR 71% < 2015CAGR 61% 2016

1 Illustration for a mobile operator with 20MHZ @ 800 MHz, 20MHZ @ 900MHZ, 50MHZ @ 1800MHz and 30MHZ @ 2100MHZ.

Illustration 1

(*) Report for Ofcom,: 4G Capacity Gains, Final Report, January 2011.

More spectrum.

Leapfrog network capacity:

Pico – Femto cells.

Smart antenna systems.

White-space systems.

Price, Control & Policy.

More spectrum.

Leapfrog network capacity:

Pico – Femto cells.

Smart antenna systems.

White-space systems.

Price, Control & Policy.

Leapfrog network Innovation!


Mobile data growth in for a crash ... unless managed.”

• 80% of data traffic carried by 3 sites.

• 20% of users generate 80% of traffic.

• Off-loading is an effective financial remedy … but not easy to achieve!

• 80% of data traffic carried by 3 sites.

• 20% of users generate 80% of traffic.

• Off-loading is an effective financial remedy … but not easy to achieve!

Off-loading benefits are tremendousBut it demands new partnership models for mobile-only.

9

Off-loading Economics.


Mobile data is “80% fixed”

31

2 3 4 3 3 2 2 2 1 1 1 1

0

5

10

15

20

25

30

35100% traffic80%+ traffic

“20% data mobility”

Data traffic per user

Free Cash Flow

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

HSPA only, No LTE HSPA + LTE 50% off-load from 2012

Businessmodel

breakdown


Innovation

LTE deployment requires available spectrum.

UL(75 MHz)

DL

UL(35MHz)

DL

UL(70 MHz)

TDD(50 MHz)

DL

900 MHz (2G → 3G)

1,800 MHz (2G LTE)

2,6001 MHz (LTE)

UL(60 MHz)

TDD(100 MHz) DL

2,100 MHz (3G)

3GTDD

part TDD(mainly APAC)

2,300 – 2,400+ MHz

FDD part TDDThis band provides interesting backhaul P2P

options in some Greenfield scenarios

3,400 – 3,500+ MHz (WiMax → LTE)

White-space

TDD

(20 MHz)

(20 MHz)

3GTDD

1 The shown structure consistent with European band plan. In USA this band is held by Clearwire and primarily used forTDD WiMax.

UL(30MHz)

DL

800 MHz (LTE)

UL(58 MHz)

DL

1,500 MHz (MSS L-band)

TDD

10

UL DL

2,100 MHz (MSS S-band)


700 MHz50 MHz

Data traffic trend to be considered.Optimized service delivery – macro-level.

Traffic Profile

30+% in-fill possibility.

Cognisant network.

Optimized service delivery

Network friendly apps.

Cloud-Device optimization.

E2E SON.

30+% in-fill possibility.

Cognisant network.

Optimized service delivery

Network friendly apps.

Cloud-Device optimization.

E2E SON.voice

data


Primary indoor usage → off-load possibilitiesPrimary indoor usage → off-load possibilities


Off-busy-hour In-fill deliveryOff-busy-hour In-fill delivery

The cognisant network experience.Cognisant experience – aggressive innovation.


BH time frame (sec by sec)

Averageload

Capacity limit

Smart & Interconnected (ad-hoc) Devices

Self-O

ptim

ized

& Cog

nisa

nt N

etwor

kNetwork optim

ized OS & Apps

Rural / Nation-wide: Digital dividend up-to 900 MHz

Cost-optimized LTE deployment models.Availability of a wide range of frequencies will be essential for economical network deployment.

13

Urban – Suburban:

Up-to 2100 MHz

Hot-Spots

2.3To

3.6 GHz

Throughput / Capacity

2.3 - 3.6 GHz Typical BWs/Operator > 40 MHz

Femto/Pico cells & smart-antenna systems.

Rural Fixed-likeTypical BWs/Operators < 20 MHz

LTE connectivity

Illustration


DWDM

DWDM

DWDM

DWDM

100 GbpsDWDM

EvolvedPacketCore

Backhaul will force re-thinking the network design.LTE’s extremely power-full air-interface, i.e., 100+ Mbps, will require extensive backhaul fiber deployment.

14

FTTS1 100+ Mbps

LTE air-interface30mean to 100+peak Mbps

(per sector)

eNode

100GbE

Illustration

32:1 320:1eNodes per element 3200:1

BH Throughput 3+ 32+ 320+ In Gbps


Our Connected Life ... @Home, @Work and on-the-Go The drive and strive for convergence

Node

Sharing 100 Mbps with up-to 7000+ devices

per macro-cellular radio node.

FTTS 100 Mbps

AP (e.g., WiFi or Femto,..)

Out-side in coverage

Home Environment with ca. 2.3 people

per Home

versusIn-side out coverage

FTTH 100+ MbpsCable 100+ MbpsVDSL 40+ Mbps

• Transparent off-loading strategies.• Boost out-side in coverage-capacity

Fiber-to-the-Site.• Inside-out coverage

In-home “backhaul” connectivity.• Always-best-connected offers.

• Transparent off-loading strategies.• Boost out-side in coverage-capacity

Fiber-to-the-Site.• Inside-out coverage

In-home “backhaul” connectivity.• Always-best-connected offers.


Technology trends

• Network Factory concept• Beyond network sharing.• Multi-party sharing (>2 parties).

• Mobile-Fixed JVs.• Network spin-offs.

• Network Factory concept• Beyond network sharing.• Multi-party sharing (>2 parties).

• Mobile-Fixed JVs.• Network spin-offs.

New partnership models

2020 Western Europe

Max 2 mobile network infrastructures (per country)

connected to 1 Fiber or DOCSISx networks(1 pan-European mobile LTE network incl.

S-band & white-space).

Max 2 mobile network infrastructures (per country)

connected to 1 Fiber or DOCSISx networks(1 pan-European mobile LTE network incl.

S-band & white-space).


Prediction 1

Cognisant network and massive interconnected smart-devices.(more than 50% mobile data traffic being

off-loaded to fixed, cloud storage/computing)

Cognisant network and massive interconnected smart-devices.(more than 50% mobile data traffic being

off-loaded to fixed, cloud storage/computing)

Prediction 3

Most MNOs have spun-offtheir mobile networks or

leasing their infrastructure to Global Service Providers.

(mobile-fixed-media JVs and mergers).

Most MNOs have spun-offtheir mobile networks or

leasing their infrastructure to Global Service Providers.

(mobile-fixed-media JVs and mergers).

Prediction 2

Smart-device and application oriented business models rules across all platforms & channels.

(provided by GSPs)

Smart-device and application oriented business models rules across all platforms & channels.

(provided by GSPs)

Prediction 4

Re-think the Mobile-only business model.What we need to be passionate about.

New partnership models optimizing across Mobile, Fixed & Device.New partnership models optimizing across Mobile, Fixed & Device.

Mitigate spectrum crunch → acquisition, off-loading & policy. Mitigate spectrum crunch → acquisition, off-loading & policy.

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Innovation across network, device & OS → The Cognisant Network.Innovation across network, device & OS → The Cognisant Network.


New financing structures → public funding, supplier financing, …New financing structures → public funding, supplier financing, …

Thank you for your interest!

Contact: [email protected]: +31 6 2409 5202http://nl.linkedin.com/in/kimklarsen

Acknowledgement: I am indebted to my fantastic team for always being patient with my data requests, for their great suggestions and support in creating this presentation.

mailto:[email protected]

Disruptive business models for mobile networks in mature markets.

Technology

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