Creating Value with Network Performance

Creating valuewith

Network Performance

CANTO @ Bahamas – August, 2014

Creating Value with Network Performance | Commercial in confidence | © Ericsson AB 2014 | 2014-08-13 | Page 2

2014 FIFA World Cup…


The Playing Field Continues to be Changing…

?

New Market Dynamics…


MARKET TRENDS 2014

This slide contains forward-looking statements. Actual result may be materially different.

Digital lifestyle drives the demand for new and innovative apps and devices

Superior network performance is essential for differentiation and value capture

Increased focus on the complete customer experience

A data-centric world is rapidly emerging, bringing new business models

ICT, fueled by mobility, broadband and cloud, transforms industries and creates value

Smartphone intensive markets defined as markets with smartphone penetration above 50 percent in 2013.

>75%Mobile video traffic growth will exceed

75 percent

Data will exceed 50 percent of

revenues globally in

smartphone intensive markets

Every other subscriber will

have a smartphone

1/2


By 2019…

700 MPCs & Tablets

9.2 BNMobile Subscriptions

5.6 BNSmartphone

Subscriptions

7.6 BNMobile broadband

Subscriptions


What's driving the growth?› Number, Availability and Price of Smartphones› New connected devices› Better User Interface› Mobile Applications› Laptop Penetration› Cheap Dongles› HSPA Networks› Effective Pricing Plans› Clients Usage Profiles


Good Start… But tremendous upside.

Source: eMarketer/ Ericsson Research estimates 2014Note: One Subscriber may have more than 1 connection

5.2B

1.56B

2013

CAGR: 20%


Mobile Traffic Growth

Based on actual measurementsDVB-H, Wi-Fi, and WiMax are not included


Mobile Penetration

Source: Ericsson Mobility Report 6/14


Latin America Mobile PENETRATION

Source: Statista 2014

93%

110%


Subscription density in the Caribbean

Source: ICT Pulse - 2014


Avg. Subscription Penetration Rates

Source: ITU, 2013

113%


Data Affordability in the Caribbean

Source: Source: ICT Pulse - 2014

Portion of monthly income consumed by a mobile/cellular data plan with a 1 GB cap in

select Caribbean countries as at July 2014


Data Revenues latam

4Q134Q12

Latam Latam ArgBrazilBrazil Latam Latam ArgBrazilBrazil

Mobile Voice

Mobile Data

Absolut (Reported Currency) Relative Percentage (100%)

Share of Mobile Data and Movile Voice Revenues (4Q12 to 4Q13)

50%

100%

Source: Ericsson analysis.

Latam Mobile Data Revenues <50% as Smartphone Penetration is Low (~30%)


Data Consumption per device and Year

13 GB

4.5 GB

2.5 GB

2019

3.3 GB

1 GB

0.65 GB

2013

10Xgrowth in

mobile data traffic

between 2013 and 2019

>50%of TRAFFIC


Tablets –lots of room to grow

Source: KPCB May 2014

56% of Laptops28% of smartphones

8% of TV´s


Tablets growing faster than pc´s ever..


52% in 2013


Media engagement rises with # of screens



Global Mobile traffic Growing at +1.5X year



Most Social Networks are mobile first

Source: WSJ, Comscore, Statista 12/13


+20% of Latam users on LTE in 2019

Source: Ericsson Mobility Report June14


Traffic mix for applicationsand devices


Application mix similar on 3g & 4g

Video dominant on 3G and 4GSocial and IM large part of 2GSource: Ericsson Smartphone LAB deep dive

measurements for iPhones, advanced MBB market

elsustainable competitive advantage through quality & performance


TIME TO CONTENTCRITICAL FOR USER EXPERIeNCE

25%OF Mobile users

ABANDON WEB PAGEAFTER 4 SECONDS

50%OF MOBILE USERS

ABANDON WEB PAGEAFTER 10 SECONDS

”Just a second please”

Commercial in confidence, © Ericsson AB 2013


Digital Content grew at +50% during 2013

Source: KPCB May 20141Petabyte = 1MM Gbytes; 1 Zetabyte = 1MM Petabytes


How to cope with traffic growth?


App coverage: new dimension of performance

Can I watch

the show here?


Application coverage & Flow of users

Application CoveragePerformance

User perspective

Flow of UsersPerformance

Network perspective


App coverage

5% 48% 16%

1

100.1

>50%<1%

MBPSDOWNLINK SPEED

Recommended Grade of Service

>95%

Very Average User Throughput comparing to Global Speeds


RECOMMENDEDGRADE OF SERVICE

Commercial in confidence, © Ericsson AB 2013

La networks among worst performing in the world

>90%DOWNLOADS

< 0.1 MBPSDOWNLOADS

> 1MBPSDOWNLOADS

> 10 MBPS

North America

78%5% 31%Latin America

48%16% 5%

Eastern & Central Europe

55%18% 5%

Western Europe

78%6% 17%

Middle East

77%6% 27%APAC

54%15% 8%Africa

58%10% 7%

App coverage status, H1 2013

1>90%

100.1

>50%<1%

MBPS

DOWNLINK SPEED


Latin americaBest Operators per CItyDL > 1 Mbps vs. DL > 10 Mbps

January to June 2014 Cellular Data [%]

[%]

Download percentage > 1 Mbps

Dow

nloa

d pe

rcen

tage

> 1

0 M

bps

Oper. BDRClaro DR

0%

5%

10%

15%

20%

25%

30%

35%

40%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Oper. BBuenos Aires

Oper. CBogota

Oper. C Caracas

Oper. C Guatemala

Oper. C Kingston

Oper. B LimaTelcel DF

Claro Sao Paulo

Claro Rio

Oper. CChile

Oper. CCali

Better Operators


Global BenchmarkDL > 1 Mbps vs. DL > 10 Mbps

Establish, Expand HSPA & Accelerate LTEJanuary to June 2014 Data[%]

[%]

Download percentage > 1 Mbps

Dow

nloa

d pe

rcen

tage

> 1

0 M

bps

Wantedposition

CLARO DR


Is there a recipe for success?


CAGR 2009-201312.9 %2.6%

Frontrunners Outperforming revenue growth

80%

90%

100%

110%

120%

130%

140%

150%

160%

170%

180%

190%

201220112010200920082Q07 2013

PeersFrontrunners

Percent of 2Q07 levels

Source : Ericsson analysis – operator reporting (12 leading operators)*) Average CAGR among analyzed operators


“Streetwise Metrics”Experience-centric KPI:s

“Co-Partnering”Visionary Collaboration

“Unboxing”Redefine Subscription

“Show Casing”Quality-led Marketing

“Ecosystematic”Open-ended Innovation

“Gap Minding”Visionary Investing

Lead by superior network performance

Lead by innovative Marketing & Offering

Six behaviors that set them apart from their peers


Leading Revenue Growth

Data centricLeadingProfitability

Frontrunners identified

Evaluated and Identified Based on 3 Key Parameters

Reaching towards 10% or higher

25-50% data revenuesGrowing EBITDA


Causal Relationship between Variables

Source : Ericsson and Telecom Advisory Services LLM 2014Base: Market data from Brazil, Mexico & U.S.


What is the situation in Latin America?

UsersDevicesTraffic

Capex PerformanceSatisfaction

Profits

The RLAM operator situation 2012-2013


Finding proof that this virtuous circle is true

Capital expenditures

Operationalperformance

Marketperformance

Financial performance


Conceptual model

Capital expenditures Operational performance Market performance Financial performance

To find the main drivers of performance the model interlinks the different drivers in

each part of the chain

Capacity upgrades

Network modernization

Product/service development

Accessibility & data completion rate

Percent connections higher than 1 Mbps

Speech call quality index

Market Share

ARPU increase

Churn reduction

Revenues

EBITDA

Free cash flow from operations

Latency reduction

Throughput

Model aimed at defining the causal relationship from capital expenditures to financial performance


3 markets› Brazil› Mexico› United StatesSelection based on:

– Investment growth forecasted– Good cooperation with

Ericsson– Challenged on quality– Ericsson installed base– All large operators per market

For our analysis We collected historical data from 3 markets


Descriptive statistics showcorrelation between metrics

y = 0.1011x + 96.983 R² = 0.14301

96.5

97.0

97.5

98.0

98.5

99.0

99.5

0 2 4 6 8 10 12 14 16 18

Speech

Call Q

uality Inde

x

Average Annual CAPEX per Connec on ($R)

CAPEX VS. SPEECH

CALL QUALITY

y = 0.0113x ‐ 0.8086 R² = 0.73436

24%

25%

26%

27%

28%

29%

30%

31%

32%

94.5 95 95.5 96 96.5 97 97.5 98 98.5 99 99.5

Market S

hare

of C

onne

con

s (%)

Speech Call Quality Index

SPEECH CALL

QUALITY VS.

MARKET SHARE

y = 158.08x ‐ 209.43 R² = 0.36229

2,000

2,500

3,000

3,500

4,000

4,500

15 17 19 21 23 25 27

Quarterly

Reven

ues (‘000

’000

R$)

ARPU (R$)

ARPU

VS. REVENUES

CAPEX VS.

LATENCY

LATENCY VS. ARPU

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

80 100 120 140 160 180 200

Quarterly

Reven

ues (‘000’000

MXM

)

ARPU (MXM)

ARPU

VS. REVENUES

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

0.00 50.00 100.00 150.00 200.00 250.00 300.00 350.00

Latency

Average Annual CAPEX per Connec on (MXM)

0

50

100

150

200

250

300

0 100 200 300 400 500 600 700

ARPU

(MXM

)

Latency

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

0 200 400 600 800 1000 1200

Churn (%

)

Latency

LATENCY VS.

CHURN

ARPU

VS. REVENUES

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

1,000.0

0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00

Latency

Average Annual CAPEX per Connec on (MXM)

CAPEX VS.

LATENCY

Brazil Mexico United StatesCapital

expenditures

Operational

performance

Market

performance

Financial

performance


From correlation to causality; regression analysisCapital

expenditures

Operational

performance

Market

performance

Financial

performance

Example: Impact of 1% improvement of Speech Call Quality on ARPU, Market share and Churn

1 percentage point (p.p.) improvement in Speech Call Quality (e.g. in case of Oi from

97.8037 to 98.8037) decreases churn by 0.2413 p.p. (e.g. in case of Oi from 2.60% to

2.36%);

The positive effect starts directly but reaches maximum impact one quarter after quality

improvement (T+1);

Two stars (**) indicate a statistical significance of 95%; there is a 5% change that the observed effect is not causal but

random


correlation to causality;regression Analysis

Capital investments

Operational performance

Market performance

Financial performance

Market ShareARPU

(***)

(***)(***)

(***)

$R M

illion

s

Churn

Per

cent

age

poin

ts

0.000

0.100

0.200

0.300

0.400

0.500

ARPU ($R)

Mkt Share (%)

Churn (%)

ARPU ($R)

Mkt Share (%)

Churn (%)

ARPU ($R)

Mkt Share (%)

Churn (%)

ARPU ($R)

Mkt Share (%)

Churn (%)

Samples > 1 Mbps

Data Completion

Data Accessibility

Speech Quality

T+2(***)

(**) T+1(**)

T+2(**)

(***) T+1(**)

T+1(**) (***) T+1

(**)(***)

T+1(**)

T+3(***)

(*) (***)(**)

(***)Per

cent

age

poin

ts

(***) Statistically significant at 99% (**) Significant at 95% (*) Significant at 90%

Source: TAS, Ericsson analysis


study in 3 American markets confirms a robust relation between investments, performance and financials

How much would a 10% incremental increase in CAPEX impact operational and market performance for an operator in the following markets*?

Accessibility rate increase (same quarter)

Data completion rate increase (same quarter)

Percent connections higher than 1 Mbps (same quarter)

Speech call quality index (same quarter)

Latency reduction (same quarter)

Downlink broadband speed increase (same quarter)

-

-

5.5 %

-

10.9%

-

1.8 %

2.4 %

4.7 %

0.3 %

-

-

-***

-

-

-

53.4%

59.3%

Market Share increase (same quarter)

Churn reduction (after one quarter)

ARPU increase (after one, two or three quarters)

1.7%

3.7%

1.1%

4.0%

12.0%

4.9%

3.0%

-

21.0%

*Statistical simulation model applied to actual operators

**Time lag effects differ between different markets

***No data available

Impact on variable (and time lag to the beginning of observed effect)** Brazil USMexico

Operational

Performance

Market

Performance


Impact of 10% Capex Increase over 5 years

Source : Ericsson and Telecom Advisory Services LLM 2014Base: Market data from Brazil, Mexico & U.S.

Whatdrivesloyalty?


Customer experience

Source: Ericsson ConsumerLab

InitialPurchase

Billing& Payment

AccountManagement

Service& Support

Network & ServicePerformance

Tariff plans/Offers

SmartphoneApps/Eco system

Customer Relation

Service Usage

Loyaltybuilding


what drives loyalty in latam?

MarketingCustomer service Offer Network

Base: Smartphone users in BR, CHL, MXSource: Network Performance study 2013

Shapley regression analysis, showing the relative impact between each driver and loyalty to operator brand (NPS)


Improving network performance by 10% impacts CTV by 14%

Network Performance Today:

6.43 (Mean)

Promoters

Detractors

Network Performance +5%:

6.75 (Mean)

Network Performance +10%:

7.07 (Mean)

Network satisfaction

CTV $1211 $1325

(+3%)

(-4%)

(+7%)

(-6%)

(+0.2) (+0.4)

(+$53) (+$168)

Improving network performance

(+5%) (+14%)

Source: Network Performance study 2013

$1157

Base: Smartphone Users in BZ, MX, CHL


Improving data reliability by 10% increases ctv by 14%

Data Reliability Today: 6.40 (Mean)

Promoters

Detractors

Data Reliability +5%: 6.72 (Mean)

Data Reliability +10%: 7.04 (Mean)

Network satisfaction

CTV $1203 $1323

(+3%)

(-3%)

(+7%)

(-6%)

(+0.2) (+0.4)

(+$46) (+$166)

Improving Data Reliability

(+4%) (+14%)

Source: Network Performance study 2013 Base: Smartphone Users in BZ, MX, CHL

$1157


Better User Experience,Higher Margin

Japan USA South Korea

Softbank NTTDoCoMo

KDDI

21% 18%24%

EBIT / Revenue

AT&T Verizon

26%32%

EBIT / Revenue

-3%

SprintSKT

15%

LGU+

5% 5%

VFE India

Room for Further Fight Very Clear Win-Lose Very Clear Win-Lose

EBIT / Revenue

Source: Speed test Q4 2013 on Median 50% user downlink throughput

Source: Speed test Q4 2013 on Median 50% user downlink throughput

Source: Bench Bee samples on Median 50% user downlink throughput


LTE Leadership

SMARTPHONE TRAFFICTHROUGH OUR NETWORKS

it is not about the killer application, but the killer experiencE...


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Q & A


Date post:	18-Jan-2015
Category:	Technology
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