Broadband mobile with UMTS benefits Copyright Ovum 2005
Broadband mobile with UMTS - benefits © Copyright Ovum 2005 Presenter: Martin Garner, Director Wireless Intelligence Email: mng@ovum. com Direct line: +44 20 7551 9253 Date: 22 nd September 2005 www. ovum. com
Agenda § What can we expect in the Polish cellular market over the next few years? § The evolving broadband market § Applications § Segments § Strategic issues § Close 2 © Copyright Ovum 2005
What can we expect in the Polish cellular !!Level 3 market in the next few years? © Copyright Ovum 2004 www. ovum. com
Market penetration will continue to grow Poland Source: Wireless Intelligence, September ’ 05 4 © Copyright Ovum 2005 § Growth rate will slow down § Ovum forecasts penetration will reach 94% in 2009
ARPU will flatten Poland Source: Wireless Intelligence, September ’ 05 5 © Copyright Ovum 2005 § ARPU falling today because of strong growth in low usage segments § Ovum forecasts Polish ARPU at 19 euros by 2009
Minutes of use per user should rise Poland Source: Wireless Intelligence, September ’ 05 6 © Copyright Ovum 2005 § Price elasticity on mobile tariffs § Fixed mobile substitution
Price per minute is likely to fall Source: Wireless Intelligence, September ’ 05 7 © Copyright Ovum 2005 § Stable until 2003 § Falling since then
Price per minute is likely to fall § Price per minute has been driven down by: § market saturation § discount MVNOs § regulation to increase competition § 3 G new entrants § Source: Wireless Intelligence, September ’ 05 8 © Copyright Ovum 2005 Price per minute comparison: § US euro 0. 07 § China euro 0. 03
Revenue growth will slow down. . . § High revenue growth today § Subscriber growth § Mo. U growth § As ARPU flattens, revenue growth may accelerate § There is some evidence that price elasticity is >1 § Price cuts could drive future revenue growth § But. . . Source: Wireless Intelligence, September ’ 05 9 © Copyright Ovum 2005
… and revenue may even fall § But. . . § Rapid price drops put significant pressure on revenues § People are fairly slow to adjust their behaviour § Telia. Sonera Finland forecasts mobile revenue down 20% in 2005 Source: Wireless Intelligence, September ’ 05 10 © Copyright Ovum 2005
Capex comparison § Capex effect of 3 G can be large § Scope for balancing with GSM investment § There are dis-economies in running 2 networks § The effect is to push up opex § Depreciation § Operations Source: Wireless Intelligence, September ’ 05 11 © Copyright Ovum 2005
Key take-aways § Market growth will slow down § Initially it will feel ok § § Acquisition / retention costs rising § ARPU likely to rise § Need to invest in 3 G network AND run a 2 G network § Mo. U rise § Revenue continues to grow § But, competition and regulation will increase § Price per minute will fall § Churn will rise § SACs / SRCs rise § Voice commoditises § Revenue growth will slow § 12 © Copyright Ovum 2005 and revenue could even fall As revenue flattens shareholders still want rising profits, but § Expect an opex squeeze soon
Operators’ options at this point Revenue growth § Migrate subscribers from pre-paid to contract § Fixed voice substitution § Invest significantly in broadband data Minimise costs § Cut operating costs § Become a low-cost operator - mainly voice - compete with MVNOs § Position 3 G as an efficient voice network 13 © Copyright Ovum 2005
The evolving broadband market Level 3 - applications © Copyright Ovum 2004 www. ovum. com
Ovum view of applications Mass market Niche Messaging SMS MMS Email IM Personalisation Logos Ringback Skins Ringtones Mastertones Music downloads TV streaming Video downloads Multi-player games Entertainment Games downloads Sports Adult content Gambling Mobile office Field operations Machine to machine Enterprise 15 Many segments © Copyright Ovum 2005 Push to talk
Too much focus on fun in W. Europe § Global $$$$ Fun Most development is on “fun” applications § This is fine, but limited § Target group is young consumers who have lots of debt and not much cash $$$$ $$ lifestyle § More effort is needed on utility § Utility applications are § More boring § More locally customised utility Local 16 © Copyright Ovum 2005 § Extremely useful!
An example of a utility application Spread betting § Launched mobile trading service Sept ’ 03 § After 2 months 20% of electronic trades are wireless § Wireless traders trade 2 x more than web traders § Growth of wireless use in the November ‘ 03 § Share of all trades: +33% § User numbers: +25% § Overall trading volume has also “grown significantly 17 © Copyright Ovum 2005
Integrated campaigns are more successful than point applications T-Mobile NL, EURO 2004 § T-Mobile International a major sponsor § Exclusive handset, Sharp TM 100 § Customised for Euro 2004 content § Sold with a NL team football shirt § MMS alert service for each NL match highlights § Option for other teams § 18 Pre-paid credit 1 euro for each goal scored by NL © Copyright Ovum 2005
Mobile Music § Mass appeal § Attractive handsets are arriving § Mobile + music is a natural combination of features § How to approach mobile music § Don’t hype it § Only push it hard when investing fully in 3 G network and services § Use all-you-can-eat data tariffs § § Issues: § Slow take up of 3 G § High prices § § airtime songs § DRM too restrictive § people want to move their music § Too much hype § A good substitute exists - PC 19 © Copyright Ovum 2005 or a capped bundle e. g. 75 Mbyte / month § Work with the industry to address DRM § Think of it as an important part of a triple-play strategy
Mobile TV § § 6, 000 Entertainment, news, trivia, sports remain the most popular Vo. D categories 5, 000 § 20 Scope to do more in personalisation § TV is a number of services § Broadcast TV § $ million Restricted by slow take-up of 3 G networks in most markets § Korea and Japan a long way ahead § Important to get market positioning of the service right $330 m market by 2008 (subset of video content revenues) § Very high response in market research § But how much will people pay for it? © Copyright Ovum 2005 Video content revenue 4, 000 3, 000 2, 000 1, 000 0 2003 2004 2005 2006 2007 2008 Total video content revenues to operators and non-operators (excl. traffic & porn)
Applications - implications for usage ARPU, Blended § 3 has succeeded in attracting high ARPU customers § Voice pricing has driven this initially Source: Wireless Intelligence, September ’ 05 21 © Copyright Ovum 2005
Usage - initial high ARPU will fall § EV-DO example § KDDI WIN ARPU § May ‘ 05: § 92% of au customers use 3 G § 3 G voice and data ARPU trending downwards § -15% in 12 months § This is because normal users are supplementing highspending early adopters § This is bound to happen as 3 G networks fill up 22 © Copyright Ovum 2005
High usage is not just voice 23 Source: 3 Austria © Copyright Ovum 2005
High usage is not just voice § 3 G Geo under promotion (free in February 2005) Source: 3 Austria 24 © Copyright Ovum 2005
Applications take-aways § § There are several applications with mass market appeal Fixed broadband is a friend an enemy § Users will want the full suite of applications § Gives people the broadband experience Point applications are more successful if they are built into an integrated campaign § Gets the behaviour patterns going § Some key applications do not need broadband - email § Cheap voice may drive initial uptake § But data behaviour is encouraging 25 § © Copyright Ovum 2005 § Sets expectations. . . § § of service of pricing § … and is a good substitute § The good news is that broadband is a one-way street § no-one goes back to dial-up or GPRS
The evolving broadband market Level 3 - segments © Copyright Ovum 2004 www. ovum. com
Segmentation in the broadband world is more difficult § Top level segmentation still holds § Enterprise / consumer § Within these it’s more tricky § Enterprise segmentation is poorly understood § Consumer segmentation needs to move on from Contract / Pre-paid § incorporate interests / lifestyle 27 © Copyright Ovum 2005
Enterprises § Myth! § “Enterprises are an attractive segment because they are full of heavy users who are not price sensitive” § Where are Concert and Unisource now? § Actually § They are demanding, sophisticated buyers who are price sensitive § But they are great users. . § They use a lot of traffic § They have low churn § There are several segments of users within an enterprise § Recommendation: § start with email, worry about the rest later § treat the IT manager as a channel partner 28 © Copyright Ovum 2005
Consumers: many operators focus too much on the youth segment § Much of the effort for new services is going into people who are already heavy users § Usage § 29 Youth © Copyright Ovum 2005 Middle § Older Youth They do not have lots of money § Credit card debt § Student loans § First mortgage § Lower parental support § Pension? ? ? What about the large % who have never sent a text message?
Consumer segmentation example Demographic / lifestyle based Children Tweenies • Useful for estimating Early-teens • Take up Youth Middle-Youth Mature Retired 30 © Copyright Ovum 2005 Conformists Nesters Solid Worth Silver Survivors Hedonists Creative Mis-users Status Seekers • Application mix üDeveloped markets • Beyond basic needs • Affluent middle class Explorers Silver Surfers • User needs Main adopters of new services üEmerging economies • China / India û Very poor countries
The evolving broadband market Level 3 - strategic issues © Copyright Ovum 2004 www. ovum. com
It takes a year for a W-CDMA network to settle down § Operators usually launch with limited coverage § this makes adoption slower Source: Wireless Intelligence, July ’ 05 32 © Copyright Ovum 2005 § Setting up a W-CDMA network is very different from GSM § Optimising it takes some time
Mobile broadband is taking on a new importance in the longer term § Old assumption: § Mobile networks will always be slower than fixed networks § Where the fixed network is not so strong § Fixed incumbents will take the lead on triple-play § Mobile broadband could be the first experience of broadband for many people § Their position will be re-inforced by their mobile networks § Mobile could become a good DSL substitute Now: § 3 G upgrades (HSDPA / HSUPA) allow us to question that § Mobile operators will be able to take a lead role themselves § A more level playing field (subject to regulation, of course) 33 § © Copyright Ovum 2005
Levellastly And 3. . © Copyright Ovum 2004 www. ovum. com
Close § The Polish cellular market is in a “golden age” § Make the most of it § But assume it will not last § Investing in the broadband market § It will be different, difficult and expensive § Timing: probably best to do it while 3 G in other markets is growing strongly – from 2006 § Suppliers have improved significantly in products, support and expertise § Many applications do not need 3 G - build up market experience with these now § Monitor the lessons of early 3 G operators in other countries carefully 35 § As the telecoms landscape changes, mobile can play a leading role © Copyright Ovum 2005
Level 3 you Thank © Copyright Ovum 2004 www. ovum. com
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