Powerpoint presentation of the thesis on: Emergent 4G LTE Opportunities and Innovative Business...
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Transcript of Powerpoint presentation of the thesis on: Emergent 4G LTE Opportunities and Innovative Business...
THE EVOLVING NATURE OF INNOVATION IN THE MOBILE ECOSYSTEM:EMERGENT GREENFIELD OPPORTUNITIES AND NOVEL BUSINESS MODELS FOR NEXT-GENERATION MOBILE OPERATORS
byErik Holthe Eriksen
“There are too many people working in telcos”-Peter Vesterbacke
Breakdown
• Understanding the technology
• Empirical findings
• Market opportunities and threats
• Business ideas
• Business modelling
Building a new Greenfield operator business is a complex and capital-intensive task
What I did…• Theory
– Business model ontology
– Porters 5 forces
– System dynamics
• Methods– Focus group at MIT
– Survey (300 respondents worldwide)
– Interviews in Helsinki (9)• Peter Vesterbacka of Rovio/Angry Bird • Visa Koivu - Senior communications consultant to the
Public Sector Finland• Leonard Scheepsma - Business Development Manager
Tekelec EMEA • Ian Opperman - Head of the ICT teams at CSIRO• Jouko Virtanen - CTO Helsinki University Hospitals• Antti Kohtala - Senior Advisor at the Ministry of Traffic
and Communications• Aki Siponen - CIO Ministry of Defense• Yrjö Pylvänäinen - Technology Director for State Security
Networks• Bill Rogas - IDC advisor within mobile networks.
EvolutionEvery 10 years…
• GPRS (2,5G): PS, 50 kbit/s
• EDGE (2,75G): 200 kbit/s.
• W-CDMA (3G): 384 kbit/s.
• HSDPA (3,5G), 8-10 Mbps
• HSUPA (3,75G), upload 5.76 Mbit/s.
• 4G LTE (3.9G) 100 Mbps, OFDMA
• WiMAX Competitor to LTE
• LTE-advanced (4G)
• 5G (2015/16) adaptive cognitive radio
Shortcomings:
• 1G: Inefficient use of spectrum limits number of users
• 2G: Low data transmission speed, high latency, inefficient
• 3G: Medium data transmissionspeed, medium latency
• 4G: Coverage
LTE has a potential of disruption
What performance matters?
LTE
3G
ArtifactsPublic Cloud spending of $23 billion, up 35%
700 million social networkers; “socialytic” apps
1 billion mobile Internet users; 500,000 mobile phone apps
630 million laptops in place; 80 million netbooks
50 million servers in place, half virtual
20 million smart meters in US
1.2 billion mobile phones ship; 220 million smart phones
7 billion communicating devices in place, 5 billion not computers
Source: IDC, 2010
Market overview
• Mobile broadband will overtake fixed broadband users by 2012. – penetration still low (13% in developed countries)
• The total market is enormous– top 20% of 4 billion users worldwide currently have access to mobile data connectivity.
• LTE is estimated to have almost 300 million connections by 2015– about 29 million in western part of Europe alone.
• While existing providers continue to offer complex voice and data service plans, consumers are demanding simpler, cheaper, data focused connectivity.
• Revenue growing slower than data traffic
Survey resultsKey findings:
– Smartphones (28% penetration 15-24 year olds) and tablets are getting adoption
– Subscribers demand more data services than operator can provide. OTT providers are getting adoption.
– Subscribers care less about the pipe and more about the features, QOS and devices
– Demographic and behavior shifts coming: end of voice, adoption of FB and VoIP
– High-ARPU opportunity: Age 25-45 willing to pay for data (38% for $100 unlim. data)
– Low-cost opportunity: Age <25 prefer low-cost high-speed data plans.
– Segments of current market are underserved by existing MBB
Consumer pains:
◦ Complexity
◦ Transparency
◦ Roaming costs
◦ High price and variable
◦ Lock-in
◦ Speed and consumption limits
Market dynamics
LTE plans4G-LTE is just now being deployed with expected substantial market and
profit gain from forecasted 300 million connections by 2015.
Market transformation
• Mobile telecom market itself is transforming– Voice service (high margin) is merging with data. New services arriving.
– Focus will be on connectivity, bandwidth, applications and features
• Incumbent operators are the gate-keepers and control important assets (spectrum, re-usable infrastructure). This is changing!– Incumbent players have structural challenges addressing market
– OTTs are leapfrogging Telcos. Are Telcos ending up as a utility provider burdened by existing infrastructure or will they succeed with their own “app stores”?
• Disruption in the industry will come from the changes in the business model, which the operators are incapable of adopting rather than new technologies, which they control
• Inertia of the incumbents. It has happened before: fixed telecom, airline industry
Opportunities• There are opportunities for greenfield LTE (long term evolution – 4G) operators with no legacy cost
– highly profitable business in most markets
– transition and period of rationalization presents a great opportunity for a new entrant
– Spectrum/license will dictate new opportunities.
– LTE offers several key advantages over exiting 3G
• Large markets highly competitive, but opportunities exist in smaller markets
– High entrance barrier and complex ecosystem!
– Profitable models exist for low-cost operators in small and emerging markets.
• Strategic alliances with network equipment providers, VOIP providers, global web 2.0 players, content providers, billing systems, regulators, policy management, marketers and operational support systems are key for gaining differential advantage.
• Alternative strategies: MVNO model by leasing backhaul, backbone and RAN.
• The market will most likely experience difficulty with increasing ARPU
• Revenue sharing opportunities exist, e.g. consumer brands (Redbull), IT and infrastructure sharing, content providers (Facebook) and service providers (Salesforce.com).
• A new entrant, whom with no legacy investment, is free to choose the best technology and best commodity business model.
• There is need for transparent, simple and inexpensive value proposition. Incumbents’ value proposition is voice/minutes based complex bundle - the same as ten years ago.
Key decisions
• Metro-only coverage, or whole country
• IP-only or VAS (value-added services)
• MVNE-only, or also MVNO
• Support 2G/3G compatibility
• Charge model: bandwidth or volume?
• International Roaming?
• Advertising subsidies
• Provide devices?
Profitability vs coverage• Important variables: coverage, population, cell size, network
equipment capex, network opex, average revenue per user (ARPU), market share and license cost (unknown).
• Targeting high-density urban areas, adopters of mobile broadband, e.g. youth and businesses, and avoiding high-cost roaming users maximize profits while avoiding capital costs
• Coverage above 80% is very expensive: Norwegian regulators want 97% coverage!!!
0
20 000 000
40 000 000
60 000 000
80 000 000
100 000 000
11 % 30 % 52 % 80 % 100 %
OPEX/CAPEX
5%/60
5%/120
5%/240
10%/60
10%/120
10%/240
Coverage
Market share/ARPU
Net revenue (by market share and ARPU) vs. Cost (red)Assumes medium network cost model
Possible value propositionProviding fast and inexpensive data plans for both voice (VoIP) and data with:
• Lean operation: Taking advantage of new IT support systems resulting in less opex
• Simplicity in access: Consumers are pushing for clarity, predictability and value in their
mobile service without excessive fees, roaming charges or data caps (similar to what fixed
broadband has experienced). Enable on-demand bandwidth priority.
• Low-cost plans: Transparent, simple and contract-free pricing plans, consider free
connectivity services for some segments by earning additional revenue from services,
upgrades and self-serve on-demand, e.g. HD video.
• Differentiating on QOS and providing business-class service: Focused on regional businesses
as a means to sell the high-priority connections at higher margins with bandwidth throttling.
• Provide fast and inexpensive data (cost leadership) connection focused on dense urban areas
while avoiding build-out of rural areas with low returns.
• Partner with existing brands to acquire and retain customers as well as to develop additional
revenue streams through data mining and co-marketing. Partner with HW and SaaS providers
to drive down CAPEX, OPEX and reduce risk
• Development of a turnkey/franchise ‘LTE in a box’ business.
• Open innovation: open up for 3rd party service providers (app stores, “skype”, FB)
Recommended studies
• Understanding of – key markets where new spectrum will be made available
– emerging markets and countries with infrastructure struggles
• Develop a business plan for each market
• Develop the right partnerships with particularly investors, network equipment and software providers.
• Consider the MVNO model that represents a less capital-intensive option where radio networks are leased.
Online articles published
• The interview with Peter Vesterbacka of Rovio/Angry Bird was published in Dagens Næringsliv newspaper, http://www.dagensit.no/article2079580.ece
• MIT entrepreneurship review, http://miter.mit.edu/article/angry-birds-will-be-bigger-mickey-mouse-and-mario-there-success-formula-apps.
• Thesis: http://www.scribd.com/doc/53332644/Emergent-Green-Field-Opportunities-and-Innovative-Business-Models-in-the-Mobile-Ecosystem-Erik-Holthe-Eriksen-2011
Thank you!