Pal zarandy rewheel-masterclass-2_thurs

Data-centric market challenger strategies in Europe

LTE World Summit 2012, Barcelona

24th May 2012

© Rewheel Ltd. All rights reserved

Rewheelo n e • s t e p • a h e a d

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Strategic mobile data advisory Specialising into the mobile data transformation

Market modelling & commercial strategy

Technology strategy

Spectrum valuation & strategy

Strategic infrastructure procurement advisory

CEO, CTO, CMO, CFO, CSO, shareholder sponsored client engagements 10+ European operator clients (mostly challengers)

Several European regulators

Several European data-centric non-MNO-startups

5 European spectrum renewal/acquisition processes (800, 900, 1800, 2100, 2600 Mhz multi-band auctions) since H2 2011

EUR 1 bn+ of European spectrum investments/state proceeds impacted directly by Rewheel’s strategic advisory since H2 2011

Established in 2009 Team HQ in Helsinki

Tier 1 and most progressive data challenger clients, mainly in Europe

Rewheel – who we are

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External megatrend, everybody knows: surging demand for mobile data

The surge of mass consumer demand for smartphones poses a skyrocketing mobile data traffic demand worldwide

The traffic volume demand is growing both due to the rapid growth of the data-centric customer and device penetration and the average data usage per customer

Source: http://www.morganstanley.com/institutional/techresearch/pdfs/Internet_Trends_041210.pdf

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While the mobile data consumer demand surge is universal, the actual data uptake observed in different markets is often heavily constrained by local market specific constrains of supply

Source: EUROSTAT

Number of MNO players: 4th and 5th palyers are more incentivesed to disrupt the voice-centric status quo by driving data-centric market transformation

MNO ownership: is there at least one independent player not owned by incumbent Tier-1 telco groups? Are there independent players with fixed/cable ISP infra and customer base synergies?

Spectrum positions: do the MNOs that are the most incentivised in pushing mobile data have access to the needed low and high frequency spectrum?

Regulatory attitude: is there the willingness to push data uptake even if it takes heavy confrontations with the incumbent ”historic” telcos and their owners?

Market competitivenes

But local market specific constrains often throttle actual growth

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The local market specific factors typically constrain not only the penetration uptake but also the average volume generated by customer. In progressive markets, with unconstrained data offerings the usage per customer is set to rise, exceeding the 1GB per month per smartphone customer mark already today or in the near future.

Source: Elisa Finland

Source: T-mobile USA Q1 2011

Source: Telenor Group, Q1 2011

Source: TeliaSonera, Q1 2012

Source: Swedish Regulator (PTS), 2011 H2

Source: Three UK, Q1 2012

>1GB in 2012

3GB in 2017 (est)

579 MB in H1 2011

1 GB in 2015 (est)

300-600 MB in Q1 2011

>1GB in Q1 2011

Progessive markets: average smartphone usage is already on GByte level ...

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In progressive markets, where at least one MNO player strated driving the mobile data uptake truly aggressively, the combination of rising penetration and usage per customer results in sustained, sharp network traffic growth

Source: Austrian Regulator

Source: FICORA, Finnish Regulator

Finland 900 MB/month/capita

in H1 2011

Austria 400 MB/month/capita

in Q2 2011

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Moible Data Consumption per CapitaGB/month/pop in H2 2010

Source: Rewheel estimations based on various sources

The large per capita consumption observed in progressive markets already today projects ahead a high likelyhood of traffic exlosion in currently consumption constrained markets

... Driving steep, sustained aggregate traffic growth

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MNOs future, even if historic telcos are trying to slow down the transition ...

Yesterday Today

Mobile operator developed proprietary ”value added

services”: Vodafone live, Vodamail, Mobile TV, Ringtone, Permium voicemail, weather, stock news,

daily news, traffic info, navigation, mobile parking, music download,

game download

Voice & SMS services (MNO core business)

Mobile internet access (marginal)

Mobile internet access (main growth driver)

Voice & SMS services (MNO core business)

Mobile internet access (”bit pipe”)

(MNO future core business)

Layering (”Denial”) Utility (”Acceptance”)

Tomorrow

Vertical service centric

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... will be pure, no-frills mobile data connectivity

Source: Tele2 Capital Markets Day September 2011

Source: Telenor Group Q1 2011

Source: Vodafone Group CEO public presentation September 2011

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Europe: 900, 1800 MHz license re-auction ”avalanche” started in H2 2011 ...

Radio Spectrum Policy Programme (RSPP)

EU Bands harmonised for high speed data: 800, 900, 1800, 2100, 2600, 3400-3800

Historic bands: 900, 1800, 2100 New bands: 800, 2600, 3400-3800

Fit for MNO strategies: 800, 2600 Currently free or occupied by analogue television or military radars

Currently Assigned Blocks of 900, 1800, 2100

Currently Unasigned Blocks of 900,1800, 2100

Strong MNO strategic and

valuation interdependencies

FWA: 3400-3800

GR RO IR CH NL A ... Europe 2020

Strategy A Digital Agenda

For Europe

: typical scope of combined multi-band auctions

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... is disruptive for ”historic” telcos, catalyst for new data-centric utilities

Core consumer value proposition: unconstrained

fast mobile internet affordable for all, on all

connected devices

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Sustainable capacity advantage Comparable spectrum Less customers

Lowest cost base, no frills utility business model

Partnerships with competitors’ big enemies

Monetize on speed and add-on devices

Europe: slow moving incumbents, falling behind in mobile data adoption, facing expensive license renewal investments

Fundamental industry transformation: mature 3G technology and ecosystem, internet going mobile, infinite demand for capacity, mobile operators shifting to utility role, eroding ”network effect”

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From the digital mobile utilities’ perspective this is a new, growth market 2

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Market service revenue forecast by device category

Machine-machine connections

Mobile broadband & tablet connections

Smartphones

Voice only phones

Multiple, inactive, sporadic SIMs

Data centric consumer needs Market trigger: very cheap (sub €150) touchscreen smartphones Primary use: Data Key selling point: unrestricted data use Voice + SMS + Data Revenues Higher ARPU, growth market No price war Revenue CAGR ~30% Concentrated in urban areas 2G network irrelevant

Source: Illustrative extract from a Rewheel market entry business plan

”Historic” consumer needs Primary use: Voice & SMS Key selling point: price Collapsing market Subject to price war Fast eroding ARPU (accelerated by MTR cuts, data centric push, voip and SMS substitution) Low ARPU users with cheapest 2G only phones

Historic market: Voice-centric / services

New market: Data-centric / Digital utility

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“Smartphone capacity friendly” spectrum (Europe: 2.1 GHz, HSPA+)

Nonexistent or small “historic” voice/SMS centric revenue streams (= new entrant or existing MNO with small existing mobile base) – as part of those will be cannibalised inevitably LTE (1800 MHz, 2.6 GHz) will not be widely supported by affordable mainstream smartphones in the next 2-3 years

Some “Smartphone coverage friendly” spectrum (Europe: 900 MHz, HSPA+)

Without sub-GHz frequencies the footprint will be limited to urban areas – but a challenger does not necessarily need to shoot on the entire country to crack the market 800 MHz (LTE) will not be supported by affordable mainstream smartphones next 2-3 years

Slow moving voice centric telco competitors – preferably owned by large incumbent slow moving telco groups

Existing internet subscriber base, brand, distribution network and IP backbone/backhaul infrastructure (fixed broadband operators, ISPs, cable-cos) Existing lean mobile operator business, all-IP infra, base, brand, etc

Needed:

Nice to have:

Very useful synergies:

What does it take to become a mobile digital utility in Europe?

The ongoing and planned multi-band 800 and 2600 MHz auctions combined with 900, 1800, 2100 MHz re-auctions open an attractive window of opportunity for data-centric new entrants in Europe. While incumbent telcos put a large demand for these spectrum assets, hence driving the market value high, EU Regulators often reserve blocks for potential new entrants, substantially lowering the barrier of new entries.

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Thank you

Visit insights.rewheel.fi for more Or contact us at [email protected] / +358 44 203 2339

Rewheel is specialised into being in the forefront of the mobile data transformation

Since 2009 we have advised over 10 European mobile operators, including independent players and Tier-1 OpCos, as well as several regulators and a number of private equity and institutional investors and various mobile-date centric startups.

Since the onset of the mobile broadband centric 900, 1800 and 2100 MHz license renewal avalanche in 2011 in Europe we have been providing strategy, spectrum valuation and auction theory advice (together with our world class CCA/SMRA auction theorist partners) to five European award processes (operator or regulator side depending on country), including new entrants and acquisitions as well as license renewals in multi-band (typically 800,900,1800,2100 and 2600 MHz) auctions. So far our advisory support has been directly impacting over EUR 1bn of European spectrum investments/state proceeds.

Rewheelo n e • s t e p • a h e a d