New Revenues: Opportunities for growth

Nokia Siemens Networks New Revenues

White paper

Opportunities for growth

02/16 Nokia Siemens Networks – New Revenues

Contents

03 1. Executive summary

04 2. Global service provider revenue trends04 2.1 Broadband penetration – the key revenue enabler05 2.2 Voice remains an important cash cow – but margins

are under pressure

05 3. Changing user buying behavior05 3.1 Users are in search of a better usage experience 06 3.2 Bifurcation of user behavior

07 4. Revenue growth directions for Service Providers07 4.1 Managing customer experience – catching the low

hanging fruits09 4.2 Expanding to new segments – covering the white spots 10 4.3 Differentiating services – capturing up sell opportunities12 4.4 Implementing winning business models – entering

virgin soil

14 5. Supporting your revenue growth strategy

One of the major foundations of future revenues is making the best use of the coming broadband market revolution, while at the same time maintaining voice as a cash cow. There are four strategic directions of revenue growth:

1) Managing the customer experience: Customers are service providers’ most valuable assets. Taking care of these assets, by building stronger and more profitable customer relationships, is an effective way to increase revenues and improve customer loyalty. Managing the value of legacy services can maximize the customer life time value by 30 to 70%.1)

One of the most important aspects of user experience is voice quality as, despite the boom of broadband, classic voice is not dead. In realistic scenarios, HiFi-like voice quality can boost classic voice revenues by 20%. Users value the new dimension of naturalness in speech, with many regarding speech quality as more important than any Internet service.

In the broadband Internet segment, speed is a key enabler and at the same time a limiting factor for user convenience and the type of services that can be used with an acceptable quality. High Definition sets the benchmark for video services, providing room for competition based on nearly unlimited data rates via VDSL and by bringing fiber nearer to the user. In mobile markets, true broadband speed provided by HSPA and WiMAX is the kick-start for mobile

Internet use. Providers simply need to provide a reasonable speed and use will follow almost automatically.

2) Expanding to new segments to cover whitespots in terms of regions and customer types: Wireless broadband technologies can reach unconnected people in areas where the use of wireline technologies is not economically feasible, for example at remote sites with long copper lines. Additionally, VoIP and community services provide excellent opportunities for to reach users that are outside the provider’s own region.

One largely untapped customer segment is enterprises. Service providers can double their ARPU in this segment with Premium IP communication packages and enhanced mobility solutions.

3) Differentiating services: The success of services lies in the ability to create clear value for users by enriching their lifestyles. Users also expect to have greater control over the services they use. Addressing these needs with exciting and tailored service bundles requires a stronger focus on understanding users and their consumption patterns. Among a variety of innovation areas, TV services is one that is very obviously growing. There is clear demand for convenient and seamless TV services, anywhere, anytime and on any device, with consumers having full control of how they use the services. This change of mindset is strongly driven by Web 2.0.

IPTV and mobile TV services, such as those offered by Belgacom and KPN, have been found to have a large potential audience. Success stories in Asia and Europe indicate results above expectations, based on a solid, competitive differentiation by perceived quality and content. The TV business is not a ‘low hanging fruit’ but a strategic investment.

4) Implementing winning business models enlarges the addressable market. With multi-play packages – providing one-stop-shopping of high speed Internet access, fixed and mobile voice as well as TV – service providers are trying to maximize their share of the user’s wallet. Yet, these commercial bundles are mostly “me too” and therefore insufficient to ensure competitiveness. Competitiveness can be gained by simplicity – achieving a situation where access to personal services and communities is as simple as placing a voice call is today. This implies:• continued service between different

access types, independent of the location

• adapting applications to the capabilities of different devices, ranging from small handsets to large HD TV screens

• a simple “push button” like access to the personal service suite. Basics like the user profile and comfort functionality such as presence, location and profile based service selection and presentation should be available independently of the access and device type.

Advertising is another opportunity, with growth driven by Internet and mobile advertising. Key advantages are the opportunities of multi-channel advertising, personalization and the abilities to monitor the success of a campaign in realtime.

To sum up, true revenue generating and mass market capable services are based more on quality, user convenience and personalization and less on sophisticated functionality.

1. Executive summary

1) Nokia Siemens Networks, whitepaper “Managing the Customer Experience”, 2007


The service provider industry continues to be an arena for healthy business. Nokia Siemens Networks predicts a worldwide growth of service provider revenues of 4.2% a year until 2012. Whereas new growth markets like the Middle East, North and East Europe, Asia Pacific, China and Latin America show a strong revenue growth of up to 9%, the growth in more saturated markets like North America and Western Europe is slowing down. Growth segments in the market are fixed and wireless broadband, with mobile voice still growing in many countries.

2.1 Broadband penetration – the key revenue enabler

Fixed and wireless broadband is booming, with new collaborative and interactive multimedia web applications driving broadband deployments. As a result, worldwide Internet traffic grew from 2003 to 2006 at a compounded annual growth rate of 75%.2) In particular, the explosive growth in the use of video services is filling broadband access networks and backbones. Until 2015, we estimate traffic will increase 100 fold. Broadband access can be offered in different ways, via DSL and fiber technologies, providing superior data rates, or via HSPA and WiMAX, providing superior mobility and coverage.

These trends lead to a heavy ramp up of broadband access lines, a process that started with fixed and is now continuing in wireless. Current worldwide fixed broadband household penetration is at 17% and expected to rise towards 25% until the end of 2012.3) In leading broadband markets like Korea, nearly every Internet household is already connected via broadband, leading to penetration figures of 80% and more.

Within the wireless segment, HSPA, as an upgrade of 3G for true broadband speed, is gaining momentum – about 90% of all WCDMA networks have already launched HSPA and more than 600 HSPA capable devices are available.4) As a result, 7% of worldwide 3G users were connected via HSPA by the end of 2007, a figure which we expect to approach 40% by the end of 2012.5) At this point, one quarter of worldwide mobile users will have Internet access via HSPA and mobile Internet browsing will start to complement other growing messaging services as a main revenue generator.

The broadband boom affects service providers’ revenue opportunities in several ways:• Mobile and fixed operators as well

as Cable operators and ISPs can still earn healthy ARPUs and margins with plain high speed Internet access.

• Broadband provides diversification opportunities – with broadband and IP the services become independent of the network. Therefore, broadband is the key enabler for making any kind of service available on fixed as well as on mobile access, breaking down market segment boundaries.

• On the other hand, an operator’s own broadband pipe is used for any kind of Internet services, making the vertically oriented “silo” model obsolete in the fixed segment. The same happens in mobile markets, changing actual business models.

2. Global service provider revenue trends

2) Business Week, “Telecom: Back from the Dead”, 25.06.20073) Nokia Siemens Networks Business Intelligence, 20074) GSA, 20085) Nokia Siemens Networks Business Intelligence, 2007

2.2 Voice remains an important cash cow – but margins are under pressure

The situation and trends for fixed and mobile voice are quite different. The fixed voice segment is shrinking for several reasons:• Continued fixed to mobile

substitution.• Accelerated shift towards cheap

flat rate VoIP on top of broadband access. In many of today’s broadband packages, voice is often offered without a separate price tag.

• Price competition from low cost no-frills providers.

• Massive inroads of Internet players who are using their large user base to offer cheap VoIP and other communication services.

In contrast, mobile voice continues to deliver cash reliably. Driven by a heavy price decline in many markets, sometimes even leading to a flat rate pricing model, the number of minutes of use worldwide will increase by nearly 70% during the next five years. In the same time frame, average worldwide prices per voice minute are expected to fall by more than 30%, leading to eroding margins per minute.6) In emerging markets, voice revenues will still be rising, while in mature markets we will see stagnation and even decline of voice revenues. The reason is that price elasticity in most markets is decreasing so that price reductions lead to a less than proportional increase of minutes.

3.1 Users are in search of a better usage experience

Nomadic user behaviorThe decline of subscriber loyalty is accelerating. According to our Pulse surveys in 2007, the likelihood of users changing their provider within the next three months has recently reached the highest value in nearly every market examined. Users select their provider mainly according to criteria related to costs, provider brand, network quality and – in the case of mobile operators – the attractiveness of the handsets. Apart from the associated customer acquisition costs, service providers are aggressive in subscriber acquisition in order to overcompensate for subscriber churn. As falling prices in all market segments show, the competition is mainly based on price and pricing structure, if particular minimum thresholds regarding factors like the offered DSL bit rate are met.

Apart from the rather nomadic selection of providers, users also change their use of new services. Most users do not have specific expectations of new applications, preferring to play around with the new features. Some of the new services are tested only once or twice but further usage stops due to usability, quality or cost concerns or the lack of partners to communicate with.

3. Changing user buying behavior

Internet economics also expand into the mobile segment By upgrading 3G networks towards HSPA on a wide scale and launching WiMAX, the open Internet model is also entering the mobile world. There are clear indications of mobile broadband subscribers who are using a huge variety of mostly free web applications.7) Users do not accept a limitation to the boundaries of the walled garden of a single provider. As a consequence, there is no longer a prime contractor that offers the whole service from access to application and bill. Users want the freedom of choice among a variety of applications that are available on the web.

Beside price the usage experience becomes the dominant success factorUser research indicates a definite rank of criteria when it comes to the decision to use a service offering or not.1) Price – no surprise 2) Ease of access – simplicity is key3) Speed and quality – clear demand

for high speed broadband and crystal clear voice

4) The content – users assume that there is interesting content on the Internet

Beside this, most users – independent of their culture – demand a one-stop-shopping experience for different services like Broadband Internet, fixed telephony, mobile subscription and TV. Around 60% are in favor of service bundling.8)

6) Nokia Siemens Networks Business Intelligence, 20077) Nokia, Smartphone360 user study, 20078) Nokia, The Future of Voice Traffic, 2006


3.2 Bifurcation of user behavior

These decision making factors vary across user segments. Although there is a large number of lifestyle segments in the market, for clarity, they can be clustered into three main user types.

Due to their comparably low income, the “Still Disconnected” require basic services based on cost-efficient technologies in order to not exceed their budget limit, which in many emerging markets is below 5 EUR per month. They are the largest group in most emerging markets.

The “Consumers” dominate mature markets. Their rather low involvement in new communication and infotainment technologies and their pragmatic attitude are barriers for selling sophisticated service innovations. Key success factors are clearly defined packages, an extremely simple service access and intuitive and limited interactivity.

In contrast, the always-on “Prosumers” need their personal application and content suite everywhere. They like to communicate and share their content and opinions with others having the same interests. Blended communication services and broadband everywhere allow them to stay close to their community. The “Prosumers” are the drivers of the so called “Web 2.0” which describes the evolution of the Internet towards a more open, flexible and participatory platform for creating content, applications and business models.

Figure 1. Users split up into always on “Prosumers”, sometimes on “Consumers” and “Still Disconnected”.

“Consumers”• Bite-sized packages• Passive media consumption• High degree of classic TV style

infotainment utilization

“Still Disconnected”• Basic communication & infotainment

Affordability

“Prosumers”• All options everywhere• Active community membership• High degree of voice, Internet

and messaging utilization

Simplicity and personalization Always on & innovative services

Traditional• Planning reliability• Tidiness

Modern• Fun & independence• Performance

Basic user beliefs

Simplified user segmentation

Incomestratum

Low

High

Well known representatives of the Web 2.0 are social networking communities like Facebook and MySpace, as well as content sharing sites like the video sharing platform YouTube. Changing user behavior in four dimensions drives the “Web 2.0”:• Deep interaction in communities

with intensive communication over various channels in social networks

• Individual media discovery, where search and user generated content is replacing media company control

• Flexible consumption, meaning the freedom to use services at any time and place and on any device, according to personal preferences

• Strong multimedia orientation with strong focus on video – most Internet traffic is already video.

The Web 2.0 is a reality. There are more than 450 million registered social networking users worldwide, meaning that about one third of worldwide Internet users are currently engaged in social networks.9) Due to their communication intensity, the “Prosumers” are the potential early adopters of service innovations, but the mass market still mainly consists of “Consumers” and the “Still disconnected”.

9) Pyramid Research, Social Networking Goes Mobile”, 2008

Pure price reductions just produce additional revenues, as long as one is in the elastic area of the price response curve. The effects are only short-term, since this strategy sparks a pure price competition. Increasing demand will no longer over compensate for price reductions, because the price elasticity in the market decreases. Customers mainly compare prices and as a result, their loyalty is shrinking because of the few perceived differences between the service providers. However, there are four techniques to maximize service revenues in the long run:

1) Managing the customer experience: By enhancing the existing service offering with higher levels of customer experience, the market share within the currently addressed market can be boosted. User experience has a positive affect on the acquisition potential, customer lifetime, usage intensity and eventually price level.

2) Expanding to new segments: Covering white spots beyond the currently addressed market monetizes opportunities in new regions and market segments.

3) Introducing differentiating services: Broadband is the key enabler of Up sell opportunities, by providing access to own or 3rd party Internet like multimedia services.

4) Implementing winning business models means diversifying the service and market portfolio to tap

into new revenue sources. This is about doing things differently at a much larger market place.

The adopted strategy depends on the specific market, the assets and heritage of the provider: FNO, MNO, hybrid operator, ISP or cable operator.

4.1 Managing customer experience – catching the low hanging fruits

Improvements in customer experience have direct effects on revenueAs well as launching innovative services to develop new revenue sources, it is worth looking at the

user experience that is associated with the legacy offering: Are there any levers to boost intensity of service usage and the share in the presently addressed market? Most service providers worldwide, particularly in saturated markets, have customer experience management at the top of their agendas. Nokia Siemens Networks’ research into user experience has discovered that a significant increase in CLTV can be achieved through improvements in network quality, billing accuracy and customer service. Our investigations unveil that about 30% can be gained in mature markets and 70% in growth markets.10)

4. Revenue growth directions for Service Providers

Figure 2. Revenues can be expanded in four directions. Strategic revenue growth options for service providers.

Implementing winning business models• Diversify the revenue

source

Introducing differentiating services• Upsell with differentiating

services

New services

Expanding to new segments• Expand in new regions

and markets

Managing the customer experience• Increase usage by service

enhancements

Legacy services

New markets

Legacy markets

Market

Serviceportfolio

“Far

min

g”

“Hunting”

10) More at: https://inside.nokiasiemensnetworks.com/global/Work/Sales/Sales+Materials/OBS+Sales+Material/Marketing_themes/Managing+Customer+Experience.htm


Enhanced voice quality increases voice revenues by addressing the most attractive user segmentsOne key lever of user experience is voice quality, since voice is used by nearly everyone on a daily basis. With the exception of video, it is the most lively and human communication. That means voice quality affects all users and improvements have a good chance of being perceived.

Voice quality is not perceived by users as a big problem in current networks but moving from good to excellent voice quality provides an obvious upside. Effects on user behavior and spending have been intensively analyzed. Nokia Siemens Networks performed a user study together with a large European operator.11) Users compared different sound samples (WB-AMR coded, NB-AMR coded, ISDN and others) in different scenarios: with or without background noise, male or female voice, different radio conditions. Measurements show that HiFi-like WB-AMR is perceived to be of significant higher quality than legacy codecs. Consequently, the majority of users stated that their expectations were met or even surpassed by the improvement.

The initial target segments for improved voice quality can easily be spotted by looking at subscribers’ usage behavior: business users who use voice communication a lot and consumers who like to use their phone for longer conversations. They have the following in common:• High voice quality is highly beneficial

to them. For business users, the decrease in stress through enhanced voice quality plays an important role.

• To them, improved voice quality justifies an increase in the monthly bill. For the target consumer segment, high voice quality is even more important than the amount of the monthly bill!

• They have a disposition to change the provider to get better voice quality.

According to the study, improved voice quality has at least three direct effects on revenues:• By improving voice quality, the

provider can attract more users

(those who value voice quality highly) and retain more of the current users by removing quality constraints as a reason for churn.

• An improvement in voice quality leads to higher Minutes of Use per subscriber. This benefit will come automatically, since the user does not have to make an intentional buying decision: the more fun, the more talk.

• Mobile operators can enforce fixed line substitution: As many users still use a fixed line for voice quality reasons, HiFi like quality overcomes this obstacle.

A revenue model based on primary user research reveals an opportunity of about 20% additional voice revenues.

Figure 3. Enhanced voice quality lifts voice revenues by addressing the most attractive user segments.

Gaining market share and retaining users

Increased fixed line substitution

Increased Minutes of Use

0%YE 1 YE 2 YE 3 YE 4 YE 5

30%

10%

20%

“I use my mobile phone for business.”

“I also like to use my mobile phone for longer calls when on the move.”

“I only switch my mobile phone on to be reachable.”

“I only use my mobile phone if I have a quick message to somebody.”

Voice user segments

Reaction of target user segments

• They notice and highly appreciate enhanced voice quality

• Willing to accept an increase in the monthly bill

• Would switch their current provider for better voice quality

Assumptions80% penetration of WB-AMR phones after 5 yearsResults based on user study

Voice revenue delta in % due to enhanced voice quality (WB-AMR) – per annum –

28%

39%11%

22%

11) Siemens Communications, “Voice Quality – The End-Users’ View”, 2006

Revenues follow data rates – The snowball effect of a true broadband experienceThe coherence sounds simple, but it is true – as soon as users are provided with the experience of a high speed connection to the Internet, they use it and pay for it.12)

User expectations of bandwidth have grown quickly. Current DSL entry packages start at 2Mbit/s, 6Mbit/s connections are common and up to 20Mbit/s are offered at the high end with ADSL2plus. The quality demands of a user generation that gets used to HDTV can only be met by VDSL, which can provide up to 100Mbit/s in either direction if the DSLAMs are close to the subscriber. VDSL provides enhanced interactivity options and the parallel use of several high-definition TV channels, high speed Internet access and premium VoIP services. Further developments within VDSL and fiber based Passive Optical Networks (PON) technologies provide nearly unlimited performance at a significantly higher network reach. With GPON, symmetrical data rates of 100 Mbit/s can be achieved over distances of 20 km. The fast diffusion of broadband access in mature Asian and European countries, with about three quarters of all Internet households accessing the Internet via Broadband at ARPUs around 40 EUR per month13), indicate the compelling effect on the user experience.

In the mobile segment, Internet use is gaining momentum for one major reason – the upgrade of 3G networks with HSPA. HSDPA provides maximum downlink data rates of 14.4Mbps and HSUPA enables uplink rates of up to 5.76Mbps. With HSPA+ maximum data rates are moving towards 28.8 Mbps at the downlink with an upside potential of 43.2Mbps and 11.5Mbps at the uplink. Additionally, the flat Internet-HSPA network architecture clearly improves the user experience by lowering latencies. The result is a shortened round trip and channel set-up time, which is similar in importance to the actual peak rate for many applications like video, fast e-mail synchronization, real time gaming and VoIP.

The availability of HSPA boosts revenues in all known markets. Providers aggressively promoting HSPA reach data ARPUs and growth far above market average. Data revenue growth for such operators in Europe is about 40–60% compared to an 11% market average, already resulting in a double digit share for broadband in total revenues.14)

An alternative to HSPA/LTE is WiMAX. WiMAX and HSPA/LTE have been developed in parallel and show similar performance characteristics for comparable scenarios. Both technologies will co-exist, each addressing different operator types. WiMAX is especially tailored to new wireless broadband entrants with an Internet centric offering.

4.2 Expanding to new segments – covering the white spots

Providers can develop new markets by expanding their geographical reach and addressing new user segments.

Enlarging the regional coverageWireless can provide ubiquitous broadband Internet access in white spot areas where the use of wireline technologies is uneconomic, for example in remote areas with long copper lines. Typically, mobile operators position their HSPA based broadband offering from a price point of view as an alternative to DSL. At the same time, they extend their broadband coverage beyond metropolitan areas to cover DSL white spots. An efficient option is to refarm existing GSM spectrum in the 850 or 900MHz band. This means using this spectrum for GSM as well as for WCDMA/HSPA with obvious advantages – the lower the carrier frequency, the further radio signals can travel. Therefore it takes fewer radio cells to cover the same area, enabling extended coverage at minimal cost.

Also, fixed broadband providers are able to cover their DSL white spots with new cost efficient wireless technologies like WiMAX. The willingness-to-pay for a mobility premium varies by country – while the Germans are reluctant, the British are willing. Anyhow, existing fixed broadband prices clearly set a benchmark.

12) Nokia, Smartphone360 user study, 200713) Nokia Siemens Networks Business Intelligence, 200714) Nokia Siemens Networks / InCode, “Global Market Watch”, 2007

Nokia Siemens Networks – New Revenues10/16

A different way of extending the regional reach is using the access independence of the Internet. A service provider’s own subscribers can access services from “foreign” provider access networks or its own services can also be used by subscribers of a “foreign” access provider. Excellent opportunities are provided by VoIP and community services.• With VoIP, service providers can

extend their reach by out-of-region plays. Additionally, fixed mobile convergence makes use of numerous fixed and mobile access networks. Even business users need such services for calls from abroad.

• Providers can leverage scale effects by providing an Internet based Web 2.0 community platform which is open to any Internet user in the world. Even if the community is exactly tailored to special interests and therefore only attracting a niche in the regional market, it can be scaled to a mass market on a world wide basis.

Enlarging the market coverageFor many service providers, the enterprise segment is a largely untapped customer group, despite the large revenue opportunities. Enterprise users’ ARPU is typically higher than consumer ARPU while being more loyal. Market benchmarks illustrate that up to 25% of mobile users are from enterprise customers and generate up to 40% of total revenues. Global enterprise service revenues are expected to grow at an annual rate of

more than 5% during the next five years, fostered by a strong outsourcing trend. Providers with enterprise packages are successful – a European mobile operator gained 16% user growth and 12% revenue growth in the enterprise segment with a tailored offering to SMEs within one year.15)

There is a clear trend towards an “Everywhere Enterprise” to accelerate the company’s business processes through fast communication and the capture of actual information from anywhere. This significantly improves the service to their customers, allowing faster response to customer queries. In particular, this improves the productivity of mobile job functions like sales and service.

Hosted IP communication solutions ideally meet those expectations by providing the same suite of applications with feature transparency, independent of the geographical area and device. At the same time, upfront investments for PBXs and their associated maintenance costs can be substituted by a service fee. With a hosted service, a North European operator achieved around 50% additional ARPU from enterprise customers. By up selling industry specific features, a service provider can achieve the status of an all-in-one provider.

4.3 Differentiating services – capturing up sell opportunities

Developing a successful portfolio of innovative value-added services is a pre-requisite for healthy revenue growth for retail providers in the future. Among a variety of innovation areas, TV services are one of the very obvious growth opportunities.

New mass services in sightBeside voice and Internet, TV is the most widespread medium worldwide. In contrast to other communication services and electronic media, TV is also preferred by people with a rather inactive lifestyle – the “Consumers”. But the passiveness of TV is changing and the recipients want the freedom to choose the content they like and consume it when and where they like on their preferred device. This attitude is strongly driven by Web 2.0 video services. At the same time, user expectations regarding video and audio quality are steadily rising. HDTV quality is setting the benchmark for all video services.

These trends can ideally be met with IPTV, a platform for multimedia services delivered over IP based networks with a premium visual and audio quality, reliability, interactivity and security. In principle, IPTV can be used from any IP capable device. Typical components of IPTV are dedicated TV channels, time shift TV and Video on Demand as well as value added services such as electronic program guides and communication services such as video telephony.

15) Yankee Group, 2007

IPTV is a platform for different revenue streams:• Differentiation of the plain

broadband access to gain more broadband market share

• A premium subscription fee for dedicated channels usually not available on free TV

• (Near) Video on Demand fees on a subscription or pay per view basis

• Advertising fees for targeted and even personalized advertising, a great advantage compared to ordinary broadcast

• Current market response looks promising: About half of salient broadband users are interested in IPTV and 6% of fixed line owners already use IPTV.16) Success stories of user take up, revenue growth and increasing customer loyalty are quite encouraging – already, only two and a half years after market launch, IPTV services contributed nearly 5% to the total revenues of an Asian operator while also stabilizing the fixed line business. Also, European operators claim that their expectations regarding users and revenues were exceeded and that their IPTV offering – although in an early phase of the lifecycle – measurably supports their core business. For example, Belgacom reported 250,000 users in September 2007 – the service was launched in June 2005 – and an IPTV revenue of nearly 16 EUR per subscriber.

Beside IPTV, mobile TV services are also gaining momentum. According to Nokia Siemens Networks’ user research, more than 60% of the mobile users worldwide are interested in TV on mobile. Increasing wireless Internet access further raises expectations regarding the ubiquitous availability of content. There is a measurable need for different use cases, such as Live TV, video on demand and video download. About half of the target users would use the service on a daily basis. TV and music account for more than 50% of the users’ willingness-to-pay for new mobile services.

Key factors for a successful TV business are:• Differentiation with exclusive

content, quality and flexible pricing schemes right from the start. This is particularly important in markets with considerable Free TV and Pay TV competition.

• Users are in convenient control of the entire consumption process from purchase (order and pay), program navigation (browse, preview and search), controlled consumption (pause, continue, replay, record and store). The possibility of time independent media consumption provides a decisive added value compared to broadcast.

• Complementing the TV content with Internet and communication services, usable with the TV.

• Brand extension towards an entertainment brand and even positioning as a prime TV contender.

Evolution of TV towards a multi-access personal entertainment solutionDue to its development prospects, TV should be seen as a strategic investment. TV services can be evolved towards a multi-screen, interactive and personalized entertainment solution. • Interactivity: Web 2.0 influenced

“Prosumers” can be targeted with enhanced interaction capabilities such as advanced interactive program guides, voting, chatting, messaging and gaming applications, as well as the possibility of sharing user generated content.

• Simplicity: “Consumers” in particular appreciate intuitive and instant connectivity to their preferred media. This can be achieved by a high degree of personalization: user profile based selection of content, individual play lists and advertising.

• Personal media: TV can be developed into a central entertainment and communication portal with the possibility of storing, accessing and sharing personal content and music – also addressing non PC users.

• Personal content anywhere: The anywhere and anytime user attitude in the context of Web 2.0, together with the parallel uptake of IPTV and Mobile, results in a market for access independent “3 screen” TV.

16) Average value of ten examined markets, Nokia Siemens Networks, Pulse 2007


4.4 Implementing winning business models – entering virgin soil

Diversification means exploiting new revenue sources in market segments that have not been addressed before. The goal is to extend the addressable market by implementing new bundles and business models, as well as providing new use cases to the customer. Diversification is the most effective lever of revenue growth.

Broadband everywhere enables multi-play servicesProviders from different heritages – FNOs, MNOs, hybrid operators, ISPs and Cable operators – are competing for the entire telecommunication and infotainment budget of the users. In order to maximize their share, these providers have to cover different use cases: at home and on the move, Internet applications and more TV style infotainment.

In this broadband multi-play arena, the fixed Internet usage including voice provides the largest ARPU for communication providers, since most of the use, from voice to high speed Internet, takes place at home or in the office. Also, many mobile service providers target the fixed home broadband market – an original use case and market of FNOs and ISPs. Once the fixed use case is covered, there is a great opportunity for a fully fledged home entertainment solution. Users are willing to pay for premium content combined with interactivity and thus the provider is able to enlarge

his user base with more TV style “Consumers”.

As the “Prosumers” want to be always on in order to stay connected with relevant content and peers, Internet and TV on the move is a key differentiator. The fixed use cases promise more ARPU, but communication and infotainment on the move is essential for “Prosumer” acquisition and retention, providing a seamless experience.

Since multi-play strategies can be seen as a common practice today, the question is how sustainable current strategies will be in the mid-term future. Providers have to differentiate themselves by providing a better user experience than the competition. A major deterrence for adoption is complexity. “Consumers” in particular hate complex functionality which is hard to understand. Getting access to personal communities and services has to be as uncomplicated as placing a voice call. Yet today, users are often

confused in the face of an exploding variety of services, bundles, applications, content and technologies. A convincing multi-screen “Always best connected” strategy prevents pure price competition.

Always...Seamless mobility in the sense of roaming and handover between different access technologies, e.g. DSL when the user is at home and HSPA when he is on the move, is a key differentiator: The user does not have to think about the location because the personal service suite can be used anywhere with the same look and feel.

Best ...The capabilities of different broadband access technologies and device types are considered automatically. The most obvious adaptation needs are for video, since different qualities ranging from TV on a small mobile phone to high definition TV on a large flat screen at home must be supported. In order

Figure 4. Multi-play bundles are common in leading broadband markets. Overview on leading DSL countries (status 2007). Source: Ovum 2007, provider websites.

Leading DSL markets

Multiplay packages Value added services

Fixed Mobile TV

Music Pay-TVVideo on demand

Online gamesPSTN VoIP CS voice DTT IPTV

Korea

France

Taiwan

Japan

Netherlands

Germany

UK

Italy

US

Hong Kong

% of countries 100% 90% 80% 80% 90% 60% 100% 100% 50%

Service launched

to ensure high speed connectivity, especially for real-time applications, providers must have efficient bandwidth management. Providers stay in control of the traffic by differentiating applications with Deep Packet Inspection and prioritizing different traffic types.

ConnectedThe Internet and the personal service suite are accessible at a single point. Basics like the user profile and comfort functionality such as presence, location and automated terminal configuration should be made available independently of the access type. In order to integrate different applications into one service, a single user centric charging policy must be in place. This also allows for efficient charging of up sells.

In a typical always best connected scenario, users can, for example, select IPTV content on the move and start watching it on their mobile phone. Users can also program all VCR functions on their mobile device. Arriving home, they can seamlessly continue watching, now in HD quality on the TV set, where the latest messages can also be answered in parallel. In this way, different wireline and mobile access pipes are combined into a single solution, hiding all the network complexity.

Diversification means to provide the user with numerous relevant use cases, while at the same time keeping it very simple. Access dependent service availability provides a much

tighter subscriber lock-in than pure commercial bundles.

Advertising revenues become more significantAnother form of diversifying revenue sources is advertising business. The advertising market continues its healthy growth. Total Advertising expenditures in Western Europe crossed USD100 Bn in 2006 and are expected to reach almost USD130 Bn by 2011.17) The main segments are classic media, followed by TV. Yet, primary drivers of growth are the Internet and mobile advertising.18) In markets like the UK, mobile advertising accounted for about 1% of total mobile operators’ revenues in 2006.19) The appealing opportunity in mobile lies in its promise of highly segmented advertising and large numbers of reachable users. The more targeted the advertising is, the more valuable it is for advertisers. The success of the advertising will depend on its acceptance by users – at a minimum, it needs to be relevant, non-intrusive and personally beneficial.

There are three basic types of advertising from which a provider can earn a direct or indirect fee:• Sponsored content: This reduces

the user barriers to mobile advertising. With sponsored content, the user gets a piece of content free of charge in exchange for watching the sponsor’s advertisement. Sponsored content or minutes can even be the basis of completely new business models where advertising is the

main source of revenues.• Direct marketing: In the mobile

segment, SMS and MMS are “pushed” to the user. Direct marketing can also take the form of “idle screen marketing” were the phone screen runs the advertisements while idle. In most of our examined markets, less than 20% of users find adverts they receive on the mobile phone interesting,20) which indicates some room for improvement.

• On-portal advertising: Portal advertising can take the form of banner ads, search advertising or any other form used in online advertising.

Communication providers are becoming more attractive to advertisers for several reasons:• Based on multi-play services,

multi-channel advertising campaigns across different media can be started. For example, with Virgin Media in the UK, the advertiser can plan a campaign including TV, Internet, and mobile.

• The available information about the subscriber allows segment specific and even personalized advertising. Only relevant advertisements are presented to the users. Furthermore, the interactive nature of services like IPTV provides a more intensive communication with the potential customer than is possible with classic one-way media such as broadcasting and print.

• Success metrics for the campaign are instantly available.

Advertising is a new business model that requires new skills and capabilities. In the eco-system for advertising, operators can select different roles that fit best into their core competences and overall service strategy.

17) Strategy Analytics, 200718) Strategy Analytics, 200719) Nokia Siemens Networks / inCode, 200720) Nokia Siemens Networks, Pulse survey, 2007


5. Supporting your revenue growth strategy

Broadband – the foundation for revenue growthNokia Siemens Networks’ portfolio of fixed and wireless broadband solutions is the widest in the whole industry, ranging from all DSL variants to different fiber options. In the wireless area, Nokia Siemens Networks is able to offer HSPA with a clear evolution towards LTE as well as WiMAX as a complementary technology. Together with the experience of numerous successful implementations, customers can count on us to select the best solution.

Bringing it all togetherFar beyond connectivity, Nokia Siemens Networks provides all components for providing the seamless user experience of being always best connected, independent of the specific fixed or wireless access network. We support multi-play strategies based on a proven track of innovative solutions like IPTV and Mobile TV, designed for a rich and convenient user experience.

Working closely with each customer to understand local opportunities and challenges, we offer consulting services for business model and business case, E2E solution architecture and integration and license application.

Whatever services or business models our customers wish to deploy, Nokia Siemens Networks can integrate all products and services, together with the ability to operate, host and manage the whole network. On the delivery side, we provide integrated solutions covering devices, access network, distribution and core network, service systems, user experience tracking and customer identity management.

Leveraging user data for new revenuesToday’s repositories of customer data – demographic, behavioral and contextual – plays an essential part of the Nokia Siemens Networks strategy for service innovations. Around this data, our customers are able to build innovative multi-play service bundles matching users’ personal lifestyles.

In addition, our market insights, based on permanent customer business talks, the presence in all important industry fora and our systematic market research, help service providers ensure that new service offers are compelling, useful and easy to access.

Glossary

ADSL Asymmetric DSLAMR Adaptive MultirateARPU Average Revenue Per UserCLTV Customer Lifetime ValueDSL Digital Subscriber LineDSLAM Digital Subscriber Line Access MultiplexerFNO Fixed Network OperatorFTTx Fiber To The Home / Building / CurbGPON Gigabit PONHD High DefinitionHDTV High Definition TVHSPA High Speed Packet AccessHSDPA High Speed Downlink Packet AccessHSUPA High Speed Uplink Packet AccessIP Internet ProtocolIPTV Internet Protocol TVISDN Integrated Services Digital NetworkISP Internet Service ProviderLTE Long Term EvolutionMMS Multimedia Messaging ServiceMNO Mobile Network OperatorNB-AMR Narrowband AMRPON Passive Optical NetworkSMS Short Messaging ServiceTV TelevisionVDSL Very high speed DSLVoIP Voice over IPWB-AMR Wideband AMRWCDMA Wideband Code Division Multiple AccessWiMAX Worldwide Interoperability for Microwave Access

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A license is hereby granted to download and print a copy of this document for personal use only. No other license to any other intellectual property rights is granted herein. Unless expressly permitted herein, reproduction, transfer, distribution or storage of part or all of the contents in any form without the prior written permission of Nokia Siemens Networks is prohibited.

The content of this document is provided “AS IS”, without warranties of any kind with regards its accuracy or reliability, and specifically excluding all implied warranties, for example of merchantability, fitness for purpose, title and non-infringement. In no event shall Nokia Siemens Networks be liable for any special, indirect or consequential damages, or any damages whatsoever resulting form loss of use, data or profits, arising out of or in connection with the use of the document. Nokia Siemens Networks reserves the right to revise the document or withdraw it at any time without prior notice.

Nokia Siemens Networks and the Wave-logo are registered trademarks of Nokia Siemens Networks. Nokia Siemens Networks product names are either trademarks or registered trademarks of Nokia Siemens Networks. Other product and company names mentioned herein may be trademarks or trade names of their respective owners.

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Copyright © 2008 Nokia Siemens Networks. All rights reserved.Nokia Siemens Networks and the wave logo are registered trademarks of Nokia Siemens Networks. Other company and product names mentioned herein may be trademarks or trade names of their respective owners. Products and solutions herein are subject to change without notice.Product code B301-00216-RE-200804-1-EN – Indivisual

New Revenues: Opportunities for growth

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