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Mobile Telecommunications 2007:Challenge and Opportunity for ADR Professionals

World Intellectual Property Organisation6th International Mediation Interest Group

David Laurence KreiderChartered Arbitrator andGeneral CounselVodafone New Zealand

3rd September 2007Geneva

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Global Trends in Telecommunications

At Year end 2006• Mobile Phones in Service 2200 million• eMail boxes 1500 million• PCs installed 800 million• Internet users 1000 million• Mobile Internet users 600 million• Broadband Households 140 million

Mobile phone growth is 6X faster than fixed line growth1 in 2 people in the world will have a mobile by 2008*

* International Telecommunications Union Internet report 2006

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Key observations from the market• Mobility is the ONLY technology that has

achieved100% penetration• Broadband has brought the desktop

alive and with mobility will accelerate the growth of mobile devices

• The Mobile and Internet worlds are colliding not converging

– New business models will emerge, old ones die

• Technology hype cycles will continue to excite the media

– Customer behaviour changes will continue to lag expectations

– New customer opportunities are led by the Youth

• Our future is a connected personalised world

– The Internet goes mobile– Technology becomes very personal– Geography less important than being

connected

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ACCELERATING PACE OF TECHNOLOGY CHANGE

Internet

Home & Desktop PC

Mobile Internet & TV

Personal Laptop PDA / Mobile

Technology driven forces for change lead to rapid advances in network capacity …

Wireless network peak speed

2006 3.6 mbps2007-8 7.2 mbps2008-9 14.4 mbpsFuture 100 mbps

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From a computer on everyone’s desk, to a computer in everyone’s pocket

• Mobile storage and connectivity revolution

• Increasing broadband penetration in homes and a multiplicity of local connections enable new distribution channels

• Full WWW and Web 2.0 capability

• Apple i-phone • 20 GB sufficient for entire music

collection + photo album + 20hrs of home movies + 8 hours of DVD quality movies + a selection of games

•

Optional HDD10-20GB

Memory Card4GB

Embedded Flash4GB

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All seamlessly integrated into one devicedifferentiated devices against themes (experiences) or customer segment (style, price)

optimised browsing on open operating system (“OS”) devices mobile-rendered web sites, Microsoft, Symbian, Linux

personalisation options personalised portal, content and application catalogues

out-of-the-box services 1-click access to pre-installed services, on-device portal

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Mobile Internet extends traditional Internet interactions to the mobile

email IM

chat search

locate browse

organise

buy

community

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Opening up to empower our customers

“De-walling” the mobile Internet …

… providing access to the world’s leading social

communities

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Youth are driving the future of the Internet

• Ideas are coming from self-generated content

• In February 2007 alone 403.3 million unique users visited on-line community sites (ComScore)

• Demographic profile of community sites is 18-24 year olds

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The future

Or is it…..

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Vodafone seeks to provide a “best in class” Mobile Infotainment experience

Opening up the Internetfor mobile users. . .

Content deals signed with Group and announced at

3GSM 200 and first market introductions

to happen before summer 2007

Providing customers with access to the world's

leading social communities

Victoria…

Mobile AdvertisingThe Eyeball Business

“Mobile phones will replace TVs as the primary medium for advertising.”Andrew Robertson

CEO, BBDO Worldwide

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Advertising Expenditure (Gross)

Advertising - A €328 bn market

UK and Germany comprise38% of European market

Germany 18%€15.7bn

Global €328 bn (2006E) Europe €87 bn (2006E)

UK 20%€17bn

France 11%€9.9bn

Italy 10%€8.3bn

Spain 8%€6.6bn

ROE 33%€28.9bn

Europe 26%€87bn

North America 42%€139bn

ROW 6%€19bnAsia/Pacific 21%

€68bn

Latin America 5%€15bn

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Operators must broaden their thinking . . .

High pace of innovationAccountable to

advertisersDriven by audience

Telecomms Company Media Company

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Monetising mobile advertising

Securing mobile advertising revenues depends on:• Generating the reach to the advertising "eyeballs" - access and content• Providing relevancy to the customer and removing wastage for the advertiser• Engaging the customers in advertising and providing control• Providing data, reporting and campaign management to the advertising buyer• Building the sales and technology capabilities to create and serve the demand

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Mobile Advertising: providing customers with targeted offers and information of value to themKeyword search Banners Mobile TV Client

Enhanced byMore Info

All other Vodafone live! (4)

Ads by Google (3)

Enhanced by

Ringtone (32)

Picture (3)

Love at First Sight , Kylie Minogue(real music)Red Blooded Woman , KylieMinogue, by Jamba (real music)In Your Eyes , Kylie Minogue(polyphonic)

1.

2.

3.

Cowgirl Kylie (wallpaper)Kylie on tour (wallpaper)Hippy Chick Kylie (screensaver)

1.2.3. Music (23)

Love at First Sight (track), KylieMinogueRed Blooded Woman (track),Kylie Minogue

1.

2.

Outside Vodafone live! (2345)

1. Kylie Minorgue, Offical site,kylieminogue.comMore Mobile resultsMore Web results

Home | Menu | My Page | Search

Search Results

Celebrity Gossip, Kylie's publicistdenies all-clear report.

1.

Vodafone live! results (62)

Kylie concerts in London, Buy Kylie Minoque tickests, CallKylie’s Newest CD, 12 small hits…, majorrecords.comLook Glamorous, With the newenhanced GLAM!, glam.co.uk

Idle screenAd funded content

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Mobile advertising an integral partof Mobile Internet

Banner

Keyword Search

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Key challenges

• Educating the market

• Defining standards

• Lack of Pre-pay data for targeting

• Data protection

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DSL Broadband

• Arcor connects 2,000,000th customer

• Germany, Italy, the UK and Malta have launched DSL Broadbandservices, partnering with Arcor, Fastweb, BT and Melita, respectively

• New Zealand provides DSL service through ihug

• Egypt provides DSL service through Raya

• Spain launched DSL for business customers in January ‘07,available alongside their existing fixed mobile substitution tariff

• Portugal commences Local Loop Unbundling (“LLU”) programme

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Vodafone has entered the broadband market for four main reasons

1. Customers are interested in converged fixed-mobile services based on DSL

2. DSL is increasingly a competitive requirement – vs. fixed and mobile players

3. DSL is a critical enabler that creates a platform to deliver new Internet Protocol (“IP”) services

4. We can capture incremental revenues and margins from the large, growing DSL market

•250k Unique subs in FR

•200k UK mobile/DSL subs

•“4 for £40” quad play

•30k FMC customers

•Renewed push with Wi-Fi handsets

•Plans for Pico cell/ DSL router

•CZ - FMC test bed

•80% of consumers interested in getting mobile and broadband products from a single supplier. (Voda D2, Quant research, March 06)

•74% of SMEs and 80% of corporates are quite/very likely to purchase voice and data from same provider in next 2-4 years. (On Campus Data, primary research)

“Best in class mobile service”

“Integration of mobile and Internet/PC services”

“Complete on and off premise communications provider”

Vodafone At

Home (FMC)IP-Comms

Vodafone At

Home (Voice)

Fixed and Mobile

Unified Comms

Desktop VAS

Mobile

(Wireless Office)

Indicative DSL economicsYear 5 after launch - 1 million customers (10-15% market share)

Wholesale Full ULL

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Sources: JP Morgan; Merrill Lynch

•11% CAGR in European broadband market, ’05-10

•£16bn revenue market size in VF markets in 2010

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How DSL works

Access Network

IP-Network

PSTN

Modem

NTBA

DSLAMPSTN + ADSL

Local Loop(copper pair) Data

Voice

Split

ter

Broad-band

Narrow-band

BRAS

MDF / CO

Customer premises Incumbent premises

Services Platforms

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45

27 2623

10

35 35

30

15

50

41

16

0

10

20

30

40

50

60

2001 2002 2003 2004 2005

512kb/s 1Mb/s >1Mb/s

The DSL market is extremely dynamic – while speeds are increasing rapidly, prices continue to fall

Access Technologies Milestones- 1980 to date -Max. Speed

(Downstream)

Launch year1980 1985 1990 1995 2000 2005

300 baud

9.6 Kbps14.4 Kbps28.8 Kbps56.6 Kbps64.0 Kbps

384 Kbps

5 Mbps10 Mbps15 Mbps20 Mbps30 Mbps40 Mbps50 Mbps

100 Mbps

Acoustic coupler

ISDNTechnology

First cable modem

CableTechnology

ADSL Technology

ADSL 2ADSL 2+

VDSL

VDSL2

Modem Technology

ADSL

ISDN Access(1 channel)

ADSL

Source: Booz Allen Hamilton Analysis

Partnerships must integrate this market uncertainty and dynamism: changing technologies, services, business models

Broadband Price Evolution- UK Example, £/month -

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0

100

200

300

400

500

600

700

800

900TByte IP-Traffic per Day

Need to manage growth of IP traffic: Internet Growth versus Arcor Voice Traffic

Arcor PSTN127 Mio. min./day results in~ 150 TByte allocated bandwidth

x7 in 28 mo.

Need to manage quality of service

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Key issues and overview

• In retail markets prices fall quickly – operators must retain flexibility to remain competitive

• New services are introduced and generalised rapidly – operators must have access to new services on non-discriminatory terms, and complete prudent cost modelling before rolling out new services

• Regulation can have significant impact on the viability of services / cost base – will lower costs be passed through to retail customers, or pocketed by the incumbent fixed line carrier?

• LLU requires heavy up-front investment but has low marginal costs – operators must prudently manage the timing and cost of network roll out to ensure achieving the requisite economy of scale for a sustainable cost base (10-15% market share)

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Key issues and overview (2)

• Volume growth can be very rapid, which impacts Quality of Service (“QoS”) issues and infrastructure requirements

• The ordering and provisioning process is very complicated – the clearly defined roles of suppliers must be carefully monitored, escalation and ADR procedures, and proportionate penalties to suppliers may be in order

• High cost (typically 50 – 90 € per line), and negative impact on the brand constrains the migration of lines and favours long term partnerships

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Network sharing

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Key issues to resolve

• Set up without infringing competition law– Negotiation phase– Operational phase

• Are we putting in equal assets?• Regulatory / Competition clearance / 900Mhz Refarming• What happens if one party is far more successful?• What happens if one party wants to invest more, e.g. rollout

Wimax?

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Summary of lessons learnt

• Pick your partner wisely

- Remember: Divorce is not an option!

• Maximise scope to maximise savings potential

• Treat competition law seriously

• Keep the size of the prize in mind when negotiating!

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Supporting emerging growth

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Ultra Low Cost Handsets

• Delivered from May 2007

• 14 markets(emerging & developed)

• Current forecast 2.7m

Mediation clauses are the norm where competitors must “get along” and pricing issues are frequent • Network interconnection• Local Loop Unbundling (“LLU”)• Co-location and site sharing• National / international roaming• Carrier regulatory undertakings• Wholesale agreements• Mobile Virtual Network Operators (“MVNOs”)• Numbering administration• Spectrum licensing, interference disputes• Disputes with dealers and sales channels• Local Mobile Number Portability (“LMNP”)• Technology outsource and supplier relationships

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My view of the role of ADR in the telco industry

• The telecommunications industry is insular, and often subject to extreme competitive and political pressures

• Substantial bargaining inequality is common, pitting those who have taken risks investing in infrastructure, against those who have not

• The “soft” skills of partnering and collaboration are not emphasized

• The roles of mediation and neutral third-party facilitation are poorly understood by in-house counsels and negotiation teams

• ADR provisions are often included in contracts, but are seldom invoked in practice, because the incentive to do so is lacking

• Mediation may only become the norm within the industry if disputing parties are compelled to attend the opening mediation session

• Thereafter, the parties must be free to leave at any time, so mediation remains a voluntary process

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My thoughts about drafting ADR clauses

• Limit the number of escalation tiers, each with an objectively verifiable start / finish, leaving nothing to be “agreed by the parties”

• Either party may commence litigation / arbitration, even while mediation is underway, but authorise the court / tribunal to stay proceedings while mediation continues (empanelling a tribunal may take considerable time)

• Empower the court / tribunal in your contract to award costs against a party that refuses to attend the initial mediation session, without a good and sufficient reason

• Coercion to attend mediation is necessary at the outset – people often don’t know what is best for them – such is the “human condition”

• After parties “show up” for mediation, the agreement must leave them free to walk out at any time, with no fear of sanction

• A great mediator helps the decision-makers to see all sides of the issues – it is not just about “getting to yes” and checking the box – (please don’t boast to me about your win / loss record)

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Thank you.

David Laurence KreiderChartered Arbitrator AndGeneral CounselVodafone New Zealand

david.kreider@vodafone.com