HighView Media - Fabrice de SezeLTE : Opportunity for a new business model

Mobile data usage forecasts1 Technology to carry the load

02

46

810

2010 2011 2012 2013 2014 2015

86

163Avg. sector throughput2

Peak rate

5

Average GB /user /month Throughput in Mbps (Downlink) HSPA+ and LTE comparedHigh scenario

Low scenario

The context : Explosion of Mobile Data

Mobile Data traffic will grow by more than 30 times by 2015

21

31

1813

LTE 4x4LTE 2x2HSPA+

Additional LTE performance improvements expected

over time due to ongoing development of standard

and roadmap (e.g. 4x4 MIMO, higher modulation,..)

01

23

45

2010 2011 2012 2013 2014 2015

European mobile data traffic (P-bytes/year)

0

1000

2000

3000

4000

5000

6000

7000

8000

2007 2008 2009 2010e 2011e 2012e 2013e 2014e 2015e

Mobile broad-band

Mobile internet

May 20, 2010

New spectrum will be made available all over Europe

In a 4 operator configuration, neither 800MHz nor 2.6GHz frequencies cannot be evenly

distributed

800 MHz

30 MHz available

Coverage

The context : New Spectrum

3

Coverage

Indoor penetration

5 MHz in LTE not enough to differentiate with HSPA+

2.6 GHz

70 MHz available

Dense Urban environment, hotspots

Optimal with 20 MHz

May 20, 2010

The context : New Spectrum – Example of Germany

4May 20, 2010

Growth in Mobile data can stabilize the top line but revenue generated by Mobile data

will hardly compensate voice and SMS revenue decrease

Telecom operators will need to significantly control their costs to maintain their

profitability

Delay CAPEX by using HSPA+ to cope with Mobile data growth

The context : Mobile Operators

5

Use of additional spectrum and LTE is unavoidable in medium term

Network sharing is clearly the best way to reduce network costs

May 20, 2010

LTE can be use as the platform for network sharing without expensive restructuring costs

Data services

Flat IP architecture

Limited impact on legacy

The proposed model

LTE offers new opportunities for network sharing

6

To build and operate a wireless broadband platform that is open to all operators and is

unrivalled in terms of both CAPEX / OPEX efficiency and geographical reach

To build a managed LTE access and core network and to offer network access and

resale of mobile telecommunications services to mobile network operators and service

providers on a wholesale basis.

Network capacity will be provided to other operators as managed capacity on a

wholesale basis only.

May 20, 2010

The new platform is based on LTE Greenfield case but

No subsidies for terminals

Very reduced sales and marketing costs

CAPEX for LTE transmission network is 40% lower than Greenfield due to synergies

with existing infrastructure

No direct sales – the new platform attracts fixed and mobile resale/wholesale partners by

LTE offers new opportunities for network sharing

7

No direct sales – the new platform attracts fixed and mobile resale/wholesale partners by

leading the market in terms of coverage, bandwidth capacity and cost efficiency

The efficiency of the model requires the commitment of two existing operators :

Economy of scale

Limit the fight for frequencies

Existing sites from both operator can be re-use

May 20, 2010

New model : Network Architecture

SGSN/ MME

GGSN/ P/S-GW

IP networks

SAE

IP networks

MNO ISPs

P/S-GW

BSCRNC

GSM, WCDMA

LTEMME = Mobility Management EntityP/S-GW = PDN/Serving gateway

POP/ MNO

LTE – Shared Network

May 20, 2010

Operators can focus on their customers & Go-to-market strategy while the new platform

takes care of design, build-out, operation & capacity billing.

The operator can avoid paying high sums for the licenses in 800 MHz band.

The new platform reduces the ramp up investments for the network, minimizes time to

market and bears the commercial risk of Mobile Broadband.

New Model : Benefits for Operators

9

Exclusion of direct sales to end-customers avoids channel conflicts.

The new platform will generate wholesale revenues with third parties thereby further

reducing the costs to wholesale partners.

The new model can be a first step to further network sharing.

May 20, 2010

The new platform offers the business and technical platform to “level the playing field” between

operators by creating tier-1 economics of scale for participants

� Exclusively wholesale model

� Common network platform shared by at least 2 MNOs creating economies of scale equal to competitors

� Further economies of scale gained by wholesale to larger established players (e.g. cable, largest ISPs) who also act as extended resellers of participating MNO's core products

Tier-1 economics

� Rapid roll-out of LTE technology nationally exploiting established infrastructures

� Best use of spectrums acquired from the Digital Dividend

� Made to work seamlessly with current technology deployments (HSPA, UMTS / voice)Best network

New model : key benefits

� Made to work seamlessly with current technology deployments (HSPA, UMTS / voice)

� Design criteria: “no capacity compromise” – afforded by fundamental proposition of sharing infrastructure

Best network

� Mobile data (data-cards)

� Smart Phone Data (LTE) + own 3G data and own voice

� Fixed Wireless AccessThe right products

� Tariff options and low prices (low costs) to meet specific needs of individual customer P&L’s

� Wide range of flexible wholesale tariff towards non-MNO customers – designed to attract the “long-tail” of service providers and consolidate them on this platform

Smart tariffs

May 20, 2010

The new model opens strategic options for other goals

� By mutualising network infrastructure costs the new platform can afford to be exemplary in its’ network design and dimensioning to enable at least peer if not superior technical performance of services offered compared to competition

� In no way does the new platform interfere with the competition at retail with existing MNO's

Differentiation

� By sharing costs of mobile broadband access, participating MNO’s have more options towards investments in, for example, fixed line infrastructure

� Participating MNO’s, still retain considerable alternative and fully independent infrastructures (2G Flexibility

New model : key benefits

� Participating MNO’s, still retain considerable alternative and fully independent infrastructures (2G to HSPA) which can remain as independent of collaborative as the two parties deem to be most beneficial

Flexibility

� It can be argued that by “levelling the playing field” between MNO's in terms of access to similar economies of scale at infrastructure level, then the level of competition at retail level is at least maintained if not strengthened

Regulation

� Over the next 10 years the transition to data centric services and pricing will take place

� The new platform offers a unique opportunity to exploit this transition by mutualising investments, risks and operational costs of network

Strategic opportunity

May 20, 2010

LTE - greenfield vs new model

Cum. Cash Flow

Total CAPEX

LTE -greenfield

1.6 BN EUR

2.9 BN EUR

New model

3.0 BN EUR

2.7 BN. EURTotal CAPEX(license cost included)

NPV (15%)

IRR

2.9 BN EUR

negative

14.9 %

2.7 BN. EUR

552 MM EUR

31.6 %

May 20, 2010

Greenfield approach suggests that a strong new operator could be established 20 years

after opening of the GSM-networks – an unrealistic assumption !

The new platform suggests leveraging on existing customers through resale /wholesale

partnership

The new model is superior in terms of risk, market entry speed, operational complexity,

Cash Flow, total CAPEX, NPV and IRR

Conclusion

May 20, 2010 13

Cash Flow, total CAPEX, NPV and IRR

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