presentation slides

Emerging Markets - Leapfrogging to success with mobile

Panel Session

19 September 2005, Marrakech

Susan SweetOvum

© The MOCCA Consortium,

Agenda

10:30 - 10:45 Introduction and overview of Think Tank Findings, Susan Sweet

10:45 - 11:15 Building Cost Efficient coverage, Bodil Josefsson 11:15 - 11:45 Leapfrogging to success with mobile, Francis

Osakonor 11:45 - 12:00 Questions


Think Tank meetings

Thematic focus for each meeting: TT1 the social, cultural and economic impact on

user requirements TT2 the impact of user requirements on

technology TT3 government policy and regulation and its

relation to end user requirements

two case studies presented two scenarios discussed and developed www.ist-mocca.org


Think Tank Delegates

Representatives from 7 countries across Asia, Africa and Latin America

Dominican Republic Ecuador Mexico India Nigeria South Africa Tanzania

Expertise from stakeholders: mobile operators, a university, investment advisors


Defining the customers (users) Top 1 - 2% of the population the “masses” people “outside” the formal economy Government


Social, cultural and economic impact on customer requirements Language requirements require handset

adaptation for different character types requirements of women for handsets include

weight calculators, also important for social inclusion and participation in society

money is spent on what is immediately available

some cultures have an aversion to voicemail, a solution is a missed call alert

social value of the mobile


Social, cultural and economic impact on customer requirements -2 Unemployment, underemployment, political

turbulence, country location, limited financial networks and low purchasing power all impact user requirements

creates a need for different business models, innovative services (e-payments), very low denomination pre-pay cards


Impact of user requirements on technology Western regional influence creates diverse

mix of technologies, but no significant differences in underlying technology requirements but low cost solutions are important

Issues to address include: electricity shortages limited backbone networks wide range of terminal types needed and variety of

prices simplicity, long battery life, highly durable


Government policy and regulation and its relation to end user requirements Policy issues

proactive approach vs reactive or non-existent approach

mobile services - a key to growth or a luxury service?

The impact of import duties, high taxes and spectrum fees on handset costs, subscription fees and call charges

The role of regulation importance of a stable and reliable regulatory

environment for investment and user security


Government policy and regulation and its relation to end user requirements -2 A strong legislative framework and

independent regulator are very important to promote

fair competition control interconnect charges (and indirectly retail

prices) ensure the correct use of universal service funds

to reach rural and remote customers assist with infrastructure development at backbone

level where none exists


Key Recommendations

Mobile and wireless services must be seen as a necessity, not a luxury

the use of mobile phones as “mobile payphones” is greater in emerging markets

the pre-paid model will continue to be very important

new forms of partnerships will be needed in “high risk” countries

creation of a level playing field is key


Thank you!

Susan [email protected]

Building cost-efficient coverage

September 19th, Marrakech

Bodil Josefsson, Ericsson


Outline

Case study Cost-efficient coverage Capacity growth


Population in GSM Markets

without coverage

Population with GSM coverage,

but no subscription

GSM Subscribers

2,200

2,600

1,400Non GSM Markets

Cost efficient coverage

World population 6.4B

GSM provides global coverage


Case studyBackground

Developing Market Annual license fees ~ 1M USD Total number of subscribers ~ 300

000 GSM market share ~ 26% Net addition per month ~ 20 000 Churn ~ 6% per month Typical tariff ~ 0,27 USD Interconnect fee ~ 0.07 USD ARPU ~ 22 USD MoU ~ 85 min EBITDA ~ 20%


Source: Ericsson analysis

CAPEX DEPRECIATION OF CAPEX

“MINUTE FACTORY”

O&M, POWER, TRANSMISSION, SITE RENTAL

Subscriber acquisition

Other business related

NETWORK OPERATION

Subscriber acquisition

and retention

Subscription management

Network related

Interconnectand roaming

TOTALCOSTBEFOREINTERESTAND TAXES

FEES TO OTHEROPERATORS

M&S ADV/PROMOTIONHANDSET SUBSIDIESCOMMISSIONSDISTRIBUTIONSIM CARDSCUSTOMER SERVICEBILLING, BAD DEBT…

CALL TERMINATIONOUTBOUND ROAMING

ACQUIRING / RETAINING CUSTOMERS & SERVICE DELIVERY

Overheads GENERAL & ADMIN MANAGEMENT HEAD OFFICE ETC.

Average Mobile Operator’sCost Structure


Scenario 1 (Base Case):

No Expander solutions used in cell planning

50% of Sites connected to power grid

Powered from back-up generator 30% of time

17kVA generator sets + 15000 btu A/C units

50% of Sites solely using power generated on site

2 x 17kVA generator sets + 15000 btu A/C units

Generator consumes 3 liters Diesel per hour

1 liter of delivered Diesel costs $0.83

Scenario 2 (Expander Solutions):

TCC

4-Branch Rx Diversity

SmartRange

TMAs

Scenarios 1 & 2: Reducing the number of BTS sites


Scenario 3: Smaller A/C units and Generator Sets:

2 x 7.5 kVA generator sets on each site + 9000 btu A/C units

Generators consume 1 liter Diesel per hour

Scenario 4: Using RBS 2106 instead of RBS 2206 (23 sites)

Capex: Higher cabinet cost is offset by savings on shelter and A/C

Opex: improvement in power consumption with eco-cooling

Scenario 5: Running BTS sites on Bio-Diesel instead of Petro-Diesel

Biodiesel = Alcoholic trans-esterfication of vegetable oils, resulting in Glycerol and Fatty Acid Alcohol Esters, commonly know as “Bio-Diesel”.

1 liter of delivered Bio-Diesel can cost 20-35% less than Diesel

Scenarios 3-5: TCO improvements on site level


GSM Radio Access NetworkTotal Cost of Ownershipper Subcriber per Year

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

USD

GSM Equipment 3.81 3.59 3.59 4.05 4.05

Site Equipment 6.01 5.99 5.99 5.67 5.67

Civil Works 2.83 1.89 1.89 1.49 1.49

GSM NRO 0.47 0.35 0.35 0.35 0.35

O&M 4.62 3.65 3.60 3.60 3.54

Site Rental 3.97 2.69 2.69 2.69 2.69

Power 8.52 5.82 2.79 1.88 1.55

Transmission 6.01 4.07 4.07 4.07 4.07

Spares, Support, Training 2.44 2.30 2.30 2.30 2.30

Base Case Scenario 2 Scenario 3 Scenario 4 Scenario 5

Results from African GSM Case Study

Results Base Case 53 Sites Expander 41 Sites

Base Case:$38.39 per sub per year =$3.20 per month

Expander Radio Solutions:$29.78 per sub per year =$2.48 per month

7.5 kVA Generators:$26.70 per sub per year =$2.22 per month

RBS 2106 with Eco-Cooling:$25.53 per sub per year =$2.13 per month

Biodiesel:$25.13 per sub per year =$2.09 per month


TCO RAN$2.10

Total Expenses $4.65/sub

At this cost level, an ARPU of $5.80 per month would provide EBIT of 20%*

*excluding goodwill amortisation

TCO CN/SN$0.7025%25%

75%75%

Network Operations

Capex (Depreciation)

TCO NetworkOperations

$2.80

60%60%

Subscriber Management

Interconnect / Roaming

Marketing & Sales

General & Administrative

40%40%

BusinessOperations

$1.85

Relating TCO to ARPU (an Extrapolation)


Network issuesCoverage at lowest Total Cost of Ownership

Mobile Softswitch

Shared Networks

Transmission Network

Radio Access Network Radio NetworkRadio Network

Core NetworkCore Network

Transport NetworkTransport Network


Radio NetworkDifferent approaches

Low pricedRBS Low cost

Site

Lowest TCO for the whole

Network


Radio NetworkFewer sites for rural coverage

CAPEX & OPEX reduced with > 30%

-70 dBm Urban indoor-77 dBm Suburban indoor-90 dBm Rural

52 sites 29 sites

Same capacity!


Functionality for coverage enhancements

Downlink enablers:High output powerMS receiver sensitivity

Uplink enablers:RBS receiver sensitivityTMA4-Way RX diversityMS output power

Common enablers:Low frequencyAntenna GainTower heightDesign marginal

Down link

Up link

Cell Range

Down link

Up link

Cell Range


Expand with speed, flexibility and control

Any capacity – any media Scalability for future growth Balance the cost for

aggregation vs bandwidth

Leased lines

Microwave

Satellite

Fiber

Transmission

Efficiency requires a network perspective


Population in GSM Markets

without coverage

Population with GSM coverage,

but no subscription

GSM Subscribers

2,200

2,600

1,400Non GSM Markets

Capacity Growth

World population 6.4B

GSM provides global coverage


Utilize the full potential of a limited spectrum 1

2

3

Take advantage of a large spectrum

Build for coverage and plan for capacity

Grow radio networks3 scenarios


Combine Coverage and Capacity

Add capacity easilyTRX:s for Coverage combined with TRX:s for Capacity in same cell

Maximize site grid Start with coverage

1 1

1 1

1 12

22

2 2

2

4 44

-> A traffic expansion with 1440% without any new sites !

-> With AMR HR: +2880% without any new sites


Conclusion

The network view (=fewer sites) gives lowest TCO

Flexible capacity growth Future proof investments No compromise on quality!

Emerging Markets - Leapfrogging to success with mobile

Panel Session

19 September 2005, Marrakech

Francis OsakonorAnderberg International

South Africa


Market Growth in Africa/ Emerging

Wireless is the dominant network with higher penetration than the fixed network in the developing world

Mobile is becoming the universal service Market growth will be very fast with the leapfrogging of

technologies Deploy / Implement new technology – enough critical mass of

new mobile usage Develop the technology and applications in Europe but usage

will be wider in emerging markets Distinct requirement of developing markets Government policy has a big effect on market growth in

developing regions ( mobile as a development tool ) New business models called for in developing markets,

predictability difficult, yet experience has shown huge growth


Leapfrog Scenario Definition of leapfrog:

To skip from one generation of technology to another (2G to 4G and bypassing 3G) This does not have to happen quickly but rather the process of going from 2G to 3G is by passed thus the technology evolution is different to developed markets. Eg in some markets the first and last phone for use will be the mobile phone.

An alternative is that developing countries actually move more quickly in implementing a new technology than the developed countries.

To evolve from one service to another (applications may leapfrog from say X to Y)

Another form of leapfrog was the “literary/educational” leapfrog where Internet and digital information enables developing regions to “skip” the requirement for books/libraries and still develop

Intercept – this means that technologies and services evolve and follow the leading /mature markets but may do so quite quickly and more quickly than the developed country experience

Not all developing markets will leapfrog either technology or serv


Market Segments

There are two or sometimes three market segments The rich people who want the expensive services and can pay for

them The mass market with a very low ARPU and to whom services

migrate slowly The government is the third market segment

To the groups in the market (rich, poor and government) one must add the group of people who are not in the market at all. An approach oriented purely on market consideration will miss out this part of the population.

There is the possibility of the emergence of the 4th market driven by policy rather than margins (less than USD1 per day large part of the population)

Remove commercial burden from operators to afford the 4th market opportunity to use services


Defining the customers-(Users) Top 1 - 2% of the population comparable to

Europe the “masses” with less than USD10 ARPU people “outside” the formal economy Rural vrs

Urban dwellers. Lifestyle changes in surprising ways. Initial adoption sluggish but accelerates faster

than developed market Huge numbers of users in the lower segments Government


Usage/Applications -1

For services, there may not be a distinct requirement whereas for applications, there are very distinct requirements

A given application could be deployed at different times in different markets, as it may be the cheapest option at any given time

Electronic payment and money services are much more important in developing environment than in Europe

Service usage and applications are very different to Europe (e-money etc) Application of payments- No second rate solutions

Limited language ability and limited ability to use a complex device

Calling party pays, changes the traffic model and allows mobile network to afford having customers with limited number of outgoing calls (reverse charge)


Usage / Applications -2

Applications and content will drive market growth, emanating from emerging markets, and mobile wireless has overtaken fixed in usage

Emerging markets leapfrog technology application with Usage patterns been main driver in the next 10 years – India, China & Africa

Developing countries relying on same technology and similar basic services differentiating on applications

Convergence for generics - differentiating on applications Leading-edge users differ – in developed countries business is

the first usage customer, in developing countries governments are more important as they have a need for low-cost essential services

Roll-out of e-whatever is faster – Mobile and other e-services are faster and cheaper than the options existing in developed countries (eg library)


Emerging Markets Business Model-1

Capital investment is a barrier for growth in rural areas Differentiation of technology is not evident Business models are different (operator and user) depending on

the country There is no one single recipe for developing countries – ARPU

can be high in rural areas as there is no option of using a fixed network, but can be very low in others due to purchasing power or population density

Strong segmentation of the markets- different financing models Role of government is very important in developing regions Small business drives usage with calling party paying and pre-

paid business models dominating Franchises are widely used for distribution – Distribution cost as

a variable cost counted by heavy investment in electricity and security infrastructure


Emerging Markets Business Model-2

Return on Investment vs Universal Access –private models can be sustained only if they have positive return on investment. Lack of subsidies and infrastructure punishes penetration in rural/poor areas

Access to credit- lack of credit evaluation tools and credit bureau result in use of the pre-paid model- 90 % of customers are prepaid. In this context Recovery of investment is strongly influenced by incoming traffic (calling party pays)

Prepaid customer is a price hunter- this results in low customer loyalty and high turnover/churn

Fixed and Variable expenses in the business model –operators are transforming what is usually considered fixed costs into variable, taking advantage of outsourcing several areas which in developed countries are usually kept under the operator structure- Call centre, Activations, Distribution of prepaid cards and Sales usually outsourced to small businesses and franchises

Handsets: Subsidizing handsets is a problem when there is little customer loyalty. Very strong grey market not controlled by the operators

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