John Krzywicki Analysys Mason 12

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Facilitating Socio-Economic Transformation ThroughBroadband, Especially Mobile Video Enablement

Presentation for Latin American Spectrum Conference (Policy Tracker)

John Krzywicki, Partner , Analysys Mason

24 October, 2012


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Confidentiality notice

Copyright 2011. The information contained herein is the property of Analysys Mason Limited and is provided on condition that it will not bereproduced, copied, lent or disclosed, directly or indirectly, nor used for any purpose other than that for which it was specif ically furnished


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We have 12 offices serving over 300 clients in over 100 countries

Europe London Dublin Edinburgh

Madrid Milan Paris Cambridge Manchester

Asia Pacific New Delhi Singapore

Americas Washington DC

Middle East and Africa Dubai

Introducing Analysys Mason


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We have unique telecoms expertise in Latin America

Analysys Mason has worked extensively in Central and Latin America, including Mxico, Brazil,Chile, Peru, Aruba, Barbados, Bermuda, Cayman Islands, Grenada, Jamaica, Santa Lucia,Dominican Republic, El Salvador, Trinidad and Tobago, and Venezuela

Our clients include regulators, operators, investment banks and government bodies

Introducing Analysys Mason

EXAMPLES OF PROJECTS COMPLETED IN LatAm

Assessment of broadband environment in a LatAm country

Development of a top-down LRIC model for MTR

Pricing strategy and product positioning in the Caribbean

Development of strategic business and operations plans for C@ribNET, a regional education network

Review of the regulatory framework for a national regulator

Assessment of the competitiveness of the mobile market in aCaribbean country

Delivery of a communications infrastructure for the JamaicanMinistry of National Security

Cost modelling of a NGN core in Latin America

General competition plan, for an association of operators inBrazil

Service pricing study for a regulator
http://www.analysysmason.com/About-Us/News/Newsletter/Will-NGA-resolve-or-reinforce-digital-disadvantage/http://www.broadbanduk.org/component/option,com_docman/task,doc_view/gid,1036/Itemid,63/


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Introduction

The objective of the presentation is to:Explore the social impact of broadband, and especially the rise of video enabled devices

emphasise the social benefits which video enabled devices and their usage for socialnetworking may create

mention the challenges which obstruct the proliferation of video enabled devices

Suggest possible relevant actions which may enable the reaping of the benefits stemming fromthe use of video enabled devices for social networking

5Introduction


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Executive summary

In the last decade, Latin America (including the Caribbean,hereafter LAC) has caught up to the developed world in thepenetration of mobile services (mostly prepaid, with simplecheap devices)

In the developed world, video enabled social networking hastaken off

the rise of the iPad and other tablets, plus YouTube,Skype and many other services

Video enabled applications (real time, live) can greatlyfacilitate family interactions to improve health care,education, and other activities valued by societies, especiallysocieties in developing countries

This opportunity is particularly strong in LAC, because of thediaspora in the US, and the simple tendency to use USexperience to bootstrap improvements back into the homecountries

There are many barriers in LAC countries, barriers well

beyond the scope of the telecom regulators to fixa holistic approach across agencies is needed

IDB can be a tremendous catalyst for this on a great manyfronts

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Geographic distribution of mobile phone subscriptions

Executive summary

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 1 ( p o p . )

US & Canada Europe Asia Latin America Africa

P o p u l a

t i o n s p

l i t


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Broadband has economical and societal impact on multiple sectors

Broadband penetration leads to higher GDP growthincrease than fixed and mobile penetration

many sub-measures show improvement withhigher penetration (productivity, innovation, jobs insector, etc.)

Demonstrating the impact of new broadbandnetworks is more difficult as these have higher deployment costs

Also, new broadband networks have an impact over multiple sectors:

government services

financial services

education

Healthcare

IDB estimates for LAC only are much higher: 3.2%GDP increase after 10% broadband increase (March2012: Bridging Gaps, Building Opportunity)

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Impact of 10% penetration increase on GDP

Source: World Bank study

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

F i x e

d

M o

b i l e

I n t e r n e

t

B r o a d

b a n

d

I n c r e a s e i n

G D P g r o w

t h

High-income economiesLow- and middle-income economies

Why and how to stimulate the ICT sector


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Broadband penetration in LAC is currently significantly behind that of OECD countries

Currently, LAC countries have a much lower penetration of both fixed telephony and internet thanOECD countries

Mobile penetration of 100% exists, as is standardalmost worldwide now, but almost all phones arenarrowband and not smartphones

There are different socio-demographic andeconomic conditions to consider

Capital-intensive sector with sunk costs andsignificant O&M

There is a gap between the mobile penetration rateand mobile broadband penetration (growthopportunity)

Broadband in LAC

Source: IDB, OECD

Fixed line and internet penetration

0% 10% 20% 30% 40% 50% Argentina

Brazil

Colombia

Chile

Guyana

Peru

Suriname

Bolivia

Ecuador

Paraguay

Uruguay

Venezuela

OECD

Penetration

Internet Fixed line

8


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LAC is connected at very low speeds and at high prices, which are notaffordable to many

Average broadbandspeed offered

Average priceper MB

Broadband in LAC

Source: Galperin and Ruzzier (2010, 2011)

Average broadbandplan price

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Telecoms indicators suggest growth and improvement in Latin America,however, it is still behind the developed world

Latin America has experienced a surge in PC penetration

PC penetration in Latin America has grown from 5% in2001 to 18% in 2011 and is expected to reach 34% by2020

such statistics may not reflect the impact of tablets

PC penetration in Latin America has grown at CAGR of 13% between 2001-2011, while in North America 5%

Latin America has also experienced growth in Internet

penetrationInternet penetration in Latin America has grown from 6% in2001 to 39% in 2011 and is expected to reach 53% by2020

Internet penetration in Latin America has grown at CAGRof 21% between 2001-2011, while in North America 5%

Mobile penetration in Latin America is relatively high, above120%

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PC population penetration

Telecoms indicators in Latin America

Source: Euromonitor International, ITU

Internet population penetration

0%

20%40%

60%

80%

100%

2000 2005 2010 2015 2020

I n t e r n e

t p e n e

t r a

t i o n

Asia Pacific Eastern EuropeLatin America Middle East and AfricaNorth America Western Europe

0%

20%

40%

60%

80%

100%

120%

2000 2005 2010 2015 2020

P C p e n e

t r a

t i o n

Asia Pacific Eastern EuropeLatin America Middle East and AfricaNorth America Western Europe


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The deficiency of broadband is compounded by the lack of resources inmany LAC countries

GDP per capita in IDB countriesGDP per capita in OECD countries

Broadband in LAC

Source: EIU

0

10

20

30

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A U

A T

C A

C Z

D K

E E F

I F R

D E

G R I S I E I L I T J

P K R

L U

N L

N Z

N O P

L P T

S K S

I E S

S E

C H

T R

G B

U S

G D P p e r c a p

i t a

( U S D t h o u s a n

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)

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A R

B Z

B O

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C L

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G T

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H N

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J M

M X N

I P A

P Y

P E

S R

T T

U Y

V E

G D P p e r c a p

i t a

( U S D t h o u s a n

d s

)

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The rise of social networking has transformed both the developed and thedeveloping world

The advent of social networking has contributed to a widerange of transformations, with direct effect on:

human relationships

communication and interaction access any time, anyplace

ability to organise and incite social and political change

promotion of education and news

targeted marketing and advertisement

Social networking has had an impact on both the developedand the developing world, despite the lack of robust landlinebroadband services in many parts of the latter

US: Facebooks role in the elections

Middle East: political shifts

China: censure

Brazil: 3rd

top Twitter nation

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Social networking: connecting the world

Social networking and video enabled devices: background


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Unlike simple mobile voice communication, video-enabled devices facilitatehigh quality real-time interactivity

Majority of long-distance communication is still insufficientlyinteractive:

voice-based (usually via mobile or fixed networks)

written (electronic or via a mobile network e.g. SMS)

The demand for greater interactivity has been evidenced bythe growth of applications such as Skype

in Q4 2010, Skype had about 145 million connected users

42% of the calls made were video calls

Unlike simple mobile voice communication, video-enableddevices can enable high quality real-t ime interactivity

when executed over good quality uncongested network,video calls may act almost as a substitute of in personcommunication

in the US, far over-represented among early adopters of tablets are grandparents

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Real-time interactivity via video call



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Prices for video enabled devices are still prohibitively high for citizens of developing countries, however, future price decrease may stimulate uptake

Current prices for video enabled devices are prohibitively

high for citizens of developing countries compared to their income

an iPad 3 with 32GB costs USD1011 in Brazil, where theGDP per capita at PPP is estimated at USD11 900

in contrast, in the US which has a GDP per capita at PPPof about USD48 350, an iPad 3 with 32GB costs USD729

The high production costs of video enabled devices deter themass adoption of these devices

however, the anticipated decrease in prices is likely to leadto an increase in uptake

Future affordability of smart phones and tablets is likely to beespecially important in countries below the top 40 in GDP per capita

This is the tip and maybe half of the iceberg country bycountry there are also services taxes and other economicbarriers; spectrum issues abound; international connectivitylimitations will have to be solved; intellectual property issuesare also likely to be encountered

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Comparative pricing for iPhone 4S


Source: Apple website, operators website, EIU

Device Operator Price (USD) Price(local)

iPhone 4S 16GB Apple onlinestore, BR

986 BRL1999

iPhone 4S - 16GB Apple onlinestore, MX

754 MXN9699

iPhone 4S - 16GB Apple onlinestore, US

549 USD549

Device Operator Price (USD) Price(local)

iPad 3 32GBWi-Fi + 3G

Apple onlinestore, BR

1011 BRL2049


Apple onlinestore, MX

863 MXN11 099


Apple onlinestore, US

729 USD729

Comparative pricing for iPad 3


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and stimulate positive externalities such as improved healthcare andeducation

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Promoting healthcare via video enabled devices

Benefits of using video enabled devices for social networking

Education

Intensified interactions which putparents more squarely in themiddle of the learning processes

E.g. iMeet application is used for remote parent/teacher conferences

Healthcare

Greater interaction between familymembers when it comes tohealthcare

E.g. Patients Know Best, an onlineconsultation record based on Skype,allows patient-doctor communication

Other usesAmbulance and mobile medicalpersonnel, police, social workers,first responders and front line in-the-field people


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Video enabled social networking may be capable of stimulating positivechange with a success rate greater than other projects like distance learning

Video enabled social networking may be capable of

stimulating positive change in habits in the LAC regionsocial networking is driven by users , not imposed

LAC residents are enthusiastic adopters of socialnetworking applications

Emerging market citizens are willing to spend on telecoms

middle class Brazilians are willing to spend 3% of incomeon telecoms

Previous projects have had limited success due to lack of real-life interactivity

MIT Media Lab USD100 Netbook

distance learning

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Social networking may stimulate domino effect in human behaviour

Benefits of using video enabled devices for social networking

Social Networking is thespoonful of sugar that helps

the medicine go down


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The experience of OATS (Older Adults Technology Services) in the USoffers a compelling analogy as to why our thesis will work [1]

As nothing like what we have been suggesting has had the time to penetrate LAC, we looked for an analogy in the US a

technology challenged group that would, upon being enabled, use technology as the means to many other ends. That led us toOATS

OATS, founded in 2004, has taught over 5,000 elder Americans in Brooklyn how to use laptops, PCs, tablets and other tech devicesfor a wide variety of purposes

20- 25% of their constituency is Latino

We interviewed their founding Director, Thomas Kamber, a recognized authority in technology issues for older adults. Key findingsof their experience include

Tablets are potentially the best medium yet, because the live video is more impactfulTablets are especially useful for their Latino constituency keyboards and mouses are a hindrance for the barely literate, and for the English challenged. The widely recognized intuitiveness of the iPad greatly eases the process of learning to use, andgreatly encourages use and participation

For all constituencies, in the US the laptop/PC interfaces for health care interactions are catastrophically bad authenticationgets in the way, and video can solve that

17Benefits of using video enabled devices for social networking


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The experience of OATS (Older Adults Technology Services) in the USoffers a compelling analogy as to why our thesis will work [2]

Kamber embraces the theory of the spoonful of sugar than helps the medicine go down

A course on health care applications drew a modest response. Courses on how to use tablets/pcs for a range of fun anduseful applications draws far better He said it was best to do travel, entertainment, social networking, and health care andeducational topics all together

For a specific five week course, OATS did a study of 66 seniors, before, during and after the course. The results are stunning:

His opinion is that the LAC diaspora is especially ripe for video enabled social networking because the interfaces are so mucheasier to use, and the desire for social networking, especially within the extended family units, is so strong

The video format is an equalizer

Id be an optimist about use by Latinos

18Benefits of using video enabled devices for social networking

When tracked, 71% of the seniors used their new

found skills to do health care research


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Latin America can tap on strong connections to the US to develop ICTusage benefits locally

There are one million or more foreign born in the US from Brazil and the Dominican Republic, while for Mexico, this figure is 10M

The US communities can be surprising large compared to the home population: for every 7 Dominicans in the DominicanRepublic, there is 1 Dominican in the US (for El Salvadorans the ratio is 4 back home to 1 in the US)

Today the strength of the bonds between migrants and their home country can be measured in the level of remittances

The World Bank estimates that USD325 billion will flow back to developing countries in 2010, of which USD58 billion will go toLatin America and the Caribbean alone

In some countries, these remittances can add up to a significant impact in 2009, remittances contributed 19% of the GDP of Honduras, 17% for Guyana, and 16% for El Salvador

Family calling patterns between the US and these countries of weekly and often nearly daily are common, especially in LACcountries

Migrants can contribute far more to their home countries, both in their traditional family role as parent, spouse, or child, but also inmany cases leveraging their professional roles as doctors, teachers, or lawyers

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Source: WorldBank, US Census Bureau

Opportunities in Latin America


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For the EU, Analysys Mason reviewed 100+ studies of the benefits of broadband the analysis goes far beyond what is presented today

Broadband benefits

Community Crime and

public safety

Education andskills

Economy and employment

Healthcare

Equality and

inclusion

Finance andincome

EnvironmentWell-

being

eGovernment

Many studieshave attempted

to quantifybenefits

Somequantification of

benefits fromparticular

applications

Evidence of benefits largely

anecdotal

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The proliferation of video enabled social networking is constrained by theinfrastructural challenges in Latin America

Broadband uptake is deterred by:

poor or non-existent landline infrastructure

high digging up/ replacement costs

New mobile technologies such as LTE offer an alternative:

higher throughput than 3G

lower operating costs

2G mobile services (no broadband) are widely available,

however, 3G (reasonable broadband, but not excellent) israther limited. 4G (excellent broadband) is in distant future

Overall, mobile broadband penetration in developingcountries is much lower than in the developed world

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Comparison between developed and developing countries

Challenges deterring the proliferation of video enabled devices

Source: ITU

0

20

40

60

80

100

120

140

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

P e n e

t r a t

i o n p e r

1 0 0 I n h a

b i t a n

t s

Mobile Cellular Subscriptions Developed Countries

Mobile Cellular Subscriptions Developing CountriesMobile Broadband Subscriptions Developed Countries

Mobile Broadband Subscriptions Developing Countries

This chart says, withoutintervention, the pattern of

mobile broadband growthwill repeat the one of mobilesubscribers growth, with a

loss of benefits to LAC


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Most countries have so far mostly concentrated on coverage andpenetration

22Why and how to stimulate the ICT sector

Coverage Penetration UsageIntensity of

usage

As regards to broadband take-up stimulation plans, developed countries have so far mostly concentrated their efforts on increasing penetration of ICT services and

broadband network coverage, through a set of regulatory and policy implementationtools targeting access and market efficiency issues

Broadband stimulation targets


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Developing LAC countries should stimulate usage intensity to exploitbroadband benefits

Broadband benefits

Coverage Penetration UsageIntensity of

usage

While supporting coverage and penetration increases, developing countries should shift their efforts from the supply side to the demand side, by stimulating broadband usage, and high-

intensity usage in particular. These are the new conditions for access regulation to stimulateICT growth and growth in the economy

(consumer and enterprise)

Broadband stimulation targets

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The challenges facing LAC are easy to list but hard to solve. #1 is a lackof resources. Here are the next big six (which of course are related to #1):

Lack of backbone (or very high costs)

Lack of final mile access (fixed and mobile)

While not the focus of this presentation, Analysys Mason did a nine country study elsewhere in the developing world (all but onecountry had similar GDP/capita to most of LAC). Even with the comparatively benign geographies involved, mobile wasconsistently the only viable answer to reach 60% or more of the population

High cost (and often limited) international connectivity

High cost devices

Lack of spectrum (see item two)

Lack of IT literacy/capability in the general population

24Challenges facing LAC


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In LAC a holistic, multi-agency approach will be needed, with in countryexecutive branch participation, if not leadership

The telecom regulator, while mostly sympathetic to the overall thesis, has no control over many of the barriers (e.g., tariffs, taxes,even international telecom capacity)

let alone the ability to develop and promote heath care or educational programs

e.g., the telecom regulator in Panama understands this

In a situation where the benefits cut across many sectors, national executive leadership will be an important catalyst

This is an opportunity for a catalyst, like the work of this conference, and the work of multinational bodies, and simple concertedeffort in each country

25Actions: national governments


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Contact details

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CambridgeTel: +44 (0)845 600 5244Fax: +44 (0)1223 [email protected]

DubaiTel: +971 (0)4 446 7473Fax: +971 (0)4 446 [email protected]

DublinTel: +353 (0)1 602 4755Fax: +353 (0)1 602 [email protected]

EdinburghTel: +44 (0)845 600 5244Fax: +44 (0)131 443 [email protected]

LondonTel: +44 (0)845 600 5244Fax: +44 (0)20 7395 [email protected]

MadridTel: +34 91 399 5016Fax: +34 91 451 [email protected]

MilanTel: +39 02 76 31 88 34Fax: +39 02 36 50 45 [email protected]

New DelhiTel: +91 11 4700 3100Fax: +91 11 4700 [email protected]

ParisTel: +33 (0)1 72 71 96 96Fax: +33 (0)1 72 71 96 [email protected]

SingaporeTel: +65 6493 6038Fax: +65 6720 [email protected]

Boston/Burlington MATel: +1 202 331 3080Fax: +1 202 331 [email protected]

Manchester Tel: +44 (0)845 600 5244Fax: +44 (0)161 877 [email protected]

John KrzywickiPartner

[email protected]

Analysys Mason15 New England Executive Park,Burlington, MA 01801

Global mobile: +1 617 759 2105

John Krzywicki Analysys Mason 12

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