New Lathia Business Considerations for migration to IMT-2000 · ITU-BDT Seminar on Network...

Business Considerationsfor

Migration to IMT-2000

© Siemens, 2003ITU-BDT Seminar on Network Evolution 21-24 January, 2003 Sofia, Bulgaria 1

Dr. Thomas Frisanco Kiritkumar Lathia, C.Eng., F.I.E.E,Director Marketing Vice President

ICM N M B PD Strategic Product PlanningStandards & Fora

Siemens AG Siemens Mobile CommunicationsGermany Italy

ITU-BDT Seminar on Network EvolutionSofia, Bulgaria 21-24 January, 2003


A real example from an Asia-Pacific country

Three mobile operators (Champion, Public, Mini)

Total population: about 24 million

Per capita: USD 3,600 increasing by approx. 4%pa

Business model for the life-cycle ( ~ year 2015)

Example of Business Plan


IMT-2000 standards

CDMA TDMA FDMA

IMT-DSDirectSpread

IMT-MCMulti

Carrier

IMT-TCTimeCode

IMT-SCSingleCarrier

IMT-FTFrequency

Time

EDGE

Source: ITU

UMTScore

TD-SCDMA

1xRTT1xEV-DOW-CDMA

1xEV-DV HSDPAHSDPA

cdma2000 GERAN

UTRA-TDDDECT

TDDFDD

ChineseTIA – AmericanCingularATT-WS43% US market

(UMTS-USA)(UMTS-Japan)(UMTS-Europe)

(UMTS-China)(UMTS-Europe)


Evolution paths

cdma2000cdma2000

UMTSUMTS

GSMGSM GPRSGPRS

EDGEEDGE

W-CDMAW-CDMA

IS-95IS-95 1xRTT1xRTT

1xEV-DO1xEV-DO

1xEV-DV1xEV-DV

PDCPDC

TDMATDMA

TD-(S)CDMATD-(S)CDMA

HSDPAHSDPA

3G


The real 3G system

1xRTT performance comparable to GPRS1xEV-DO supports data only

Data Rate

Time tomarket

5 Mbps

500 kbps

50 kbps

2001 20072003

1xEV-DO1xEV-DV

HSDPA

W-CDMATD-SCDMA

1xRTTGPRS

2G

3G


Support of Various Service Combinations

Real 3G

Voice activity Data activity GPRS 1xRTT 1xEV-DO 1xEV-DVTD-SCDMAW-CDMA

Example 3 High quality voice call

Information retrieval yes yes yes no yes

Example 2High quality

voice call(call-back)

Video conference no yes no no yes

Example 1 High quality voice call

High speedweb surfing no yes no no yes


IMT-2000 Requirements

Support up to 2 Mbps data ratesSupport multimedia servicesSupport of packet and circuit switched servicesSpectrum efficiency and high system capacityFlexible operating environments (Vehicular, Outdoor-to-indoor pedestrian, indoor office)Improved global roaming due to globalfrequency coordination with an IMT-2000spectrum in 2 GHz rangePacket data networkQuality of ServiceInteroperability with 2G networks

… but in North AmericaThis spectrum was just auctioned for PCS operators2G systems (e.g. PCS) just started service with large investments in spectrum and IS-95 equipmentNeed of different 3G migrationstrategy


Mobile Subscriptions: Year End 2001 – Total and GSM only

TotalSubscriptions

940‘≅ 100%

GSMSubscriptions

624‘≅ 66%

128‘

29‘

146‘67‘

53‘

50‘

45‘

36‘29‘

29‘

SpainKoreaBrazil

France

UK

Italy

GermanyJapan USA China

145‘ 53‘

48‘

45‘

36‘

29‘

21‘

20‘12‘11‘

Spain

Taiwan

TurkeyNetherlands

USA

France

UK

ItalyGermany

China

Other316‘≅34%

Source: ICM N M, Status: July 31st, 2002

GSM Association forecast = 1 billion for YE2003GSM Association forecast = 1 billion for YE2003


Business Casing References:The strength is in Long Term Partnership

Australia

Austria

GSM Projects

UK

UMTS Projects

Spain

Ireland

Philippines

Germany

Brazil Kenya

SwedenNorway

Russia

Thailand

Turkey

Indonesia

Portugal

Algeria

HongKong

Bulgaria

South Africa

Ukraine

VenezuelaEcuador

Colombia

Honduras

Ivory Coast

P.R. China

UAE

Luxembourg

India

Italy


Business Plan Development:An integral part of customer relationship

ICM Networks Marketing

PortfolioManagement

OperatorBusiness Plans

SpectrumEconomics

MarketAssessment

Network Economics

PDPortfolio Design

SBSolutionBuilding

.

CVCustomer

Value Mgmt

DDBusiness PlanDue Diligence

PDBusiness PlanDevelopment

FPFrequency

Policy

ICIndustry

Co-ordination

CBCustomerBenefits

BIBusinessImpact

BCBudgeting &Controlling

ASMarket Analysis

& Scenarios

CICompetitorIntelligence

CSCustomer

Satisfaction

ACCustomer Analysis &

Analyst Relations


•Vision

•Corporatephilosophy

•International alliances

Vision and Concept

•Assess market

•Understanding the market

•Positioning

Market Definition

•Develop a strategy- Business units- Products, Channels, Segments, Entry •Regulator

Entry Strategy

• Build a business casewith const and turnoverestimates• Budgeting• Investments

Business Planning

Company build up

•Organization- Process driven- Customer oriented•Integrated processes

•Technology and network planning

•IT Systems

•Key functions- Marketing

- Sales- Customer Care•Support functions

•Up-date strategy

• Implement theconceptto build and

develop core capabilities

•Focus resourceson market

entry date

Implementation

Integrated project management

Various steps from conceiving a corporate vision up to detailing implementation activities are necessary.

Siemens is able to support the Strategy and Business Plan Development


Business Plan Development – Customers benefit

Financial feasibility study

Investors Case

Development of fully comprehensive operators business plan

Strategy assessment

Business Development Process

• We intend to buy a 2G/3G license.

Could the project be feasible from a

financial point of view?

• How does market, penetration, ARPU etc.

look like? Can investors expectations be met?

• Is our strategy in line with my financial

expectations?

• When do we have to consider technology

migration?

• What new services do we need to improve

financial performance?

Typical questions to be answered Contribution of Siemens


Operator Benchmarking

Profitability Ratios

Cash FlowStatement

Profit / Loss Statement

Balance Sheet

Business Plan Methodology:

Business Plan Results:

Siemens Business Plan Support is modular

The market and revenue simulations are the key modulesof our business plan tool.

AccountingModule

OPEXModule

SubscriberModule

RevenueModule

CAPEXModule

ARPU

% marketNetworkplanning

network

P&LRoRNPVDSCR


Our services cover all market phases fromlate 2G entrant to future IMT-2000 incumbent

New entrantin delayed market

Migration2G → IMT-2000

“2nd wave UMTS” -UMTS new entrant

“2nd wave UMTS” -UMTS incumbent

Detailed subscriber modelMigration benefits,operators’ market attractiveness,competitive churn,technology churn,retention mechanisms

Stimulate investors

Position against “new comers”

Data revenues, applications/solutionscentric, bottom-up scenario modeling

Supplier/product related incrementalrevenues, OPEX, CAPEXLink to product business plans

Build key strategic relationships

Evaluate alternative relationships

Investors‘ caseFully comprehensivebusiness plan

Customer Market Phase


A real example from an Asia-Pacific country

Three mobile operators (Champion, Public, Mini)

Total population: about 24 million

Per capita: USD 3,600 increasing by approx. 4%pa

Business model for the life-cycle ( ~ year 2015)

Example of Business Plan


AccountingModule

OPEXModule

SubscriberModule

RevenueModule

CAPEXModule

Structure of Business Plan model:The customer (Subscriber) is the KING!

From market share growth to:- Reduce Churn- Increase ARPU- Increase use of services- Affordable new services

Considerations:- Regulations (old & new)- Purchasing Power (pre-paid)- GDP and major trade partners- Virtual Home Environment


Penetration (%) and ARPU (US$)

36,7%40,0%

42,6%44,8%

47,2%49,2%

51,0% 52,4% 53,5% 54,3% 54,9% 55,3% 55,6% 55,7%

22,5 21,7 21,222,6 23,6 24,5 25,4 26,4 27,3

28,4 29,424,226,0

21,6

0%

10%

20%

30%

40%

50%

60%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150

5

10

15

20

25

30

35

Penetration ARPU

Structure of Business Plan model:The customer (Subscriber) is the KING!

• Max 56%• Growth market• ARPU declinedue to market %

• From 2006 ARPUgrowth


Innovation Adoption Rates (%)

Source: Deutsche Bank

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

European 2G Penetration SMS Penetration GPRS/MMS Penetration 3G Penetration

Technology Adoption Rate:Users define it based on usefulness !

• “Killer” Servicesdefined by users!

• Ring tones askiller app.! ($1B)

•SMS failure in US• Photos (MMS)• Internet ???


Mobile Technology Split (%)

99,6%98,7%96,9%

92,8%

0,3%1,5%

4,8%

13,3%

27,4%

48,0%

69,1%

84,6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

3G Subs 2G Subs

Technology Migration:The “S” curve

Learning curveTiming / aggressiveTechnology churnCoverage


14.100 15.009 15.555 15.928

8.8549.819 10.593 11.200

11.54611.102

9.752

480 200 70

34 172 5821.702

3.682

6.714

9.979

12.554

4.469

2.2941.092

7.264

15.193 15.489 15.755 15.998

8.8549.819

10.62711.372

12.12812.804

13.43313.978

14.448 14.848

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.000

18.000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

3G Subs 2G Subs

Total Mobile Subscribers (000)

Subscriber Migration to new Technology:2G Networks will be with us for a long time!

2G/3G compatibilityARPU from 2G & 3GSubs servicesCompetitiveness


Total Mobile Subs per Operator (000)

5.592 5.985 6.306 6.621 7.032 7.392 7.651 7.839 7.978 8.095

3.8574.139

4.3874.647

4.9485.285

5.7726.180

6.6327.027 7.327 7.554 7.735 7.889

1.2141.339

1.4471.536

1.5881.535

1.3551.177

784429 215

5.1894.7934.3423.783

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.000

18.000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Champion Public Mini

Distribution of Subscribers per Operators

• Prepaid is norm

• Duopoly in longterm

•Market sharedepends on service offerings

• New subscribersstart with 2G


2G Subs per Operator (000)

5.286 5.099 4.3973.152

1.895954 447

4.671 4.468

3.999

2.935

1.790

911431

1.5881.535

1.355

1.177

784

429

215

4.7704.3423.7835.096

4.376

3.8574.139

4.569

1.214

1.339

1.5361.447

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Champion Public Mini

2G Subscriber Market Share:2G Networks will be with us for a long time!

• 3G starts to showfrom 2007 onwards

• 2G network will bephased-out due tofinancialnon-viability


3G Subs per Operator (000)

305 8861.909

3.4695.137

6.439 7.205 7.644 7.897 8.067

277816

1.773

3.245

4.842

6.116

6.8967.365 7.657 7.861

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.000

18.000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Champion Public

Subscriber Market Share:Mini will disappear (market consolidation)!


3G Market Gross Additions Structure (000)

228 5381.040

1.6692.253

2.665 2.911 3.056 3.148

275296 266 244

248

655

1.137

1.709

1.794

1.341 720 344 156

163

431

748

1.160

1.283 993

550269 124

163

240

188

1.270

612

280130138

34

411

1.086

1.885

2.8693.077

2.335

0

1.000

2.000

3.000

4.000

5.000

6.000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

3G G

ross A

ddito

ns

0

500

1.000

1.500

2.000

2.500

3.000

3.500

Tech

nolog

y migr

ation

2G to

3G

Churners within 3G First Mobile Users 3GRetained 2G to 3G Churners Non-Retained 2G to 3G Churners2G to 3G Churners

• Tech Migrators• Churn > 2 - 3 year

• Competition inservices / tariff


3G Subscriber Market:Migration from 2G to 3G and churn is norm!


Year Average Subscribers Total (000)

599 615 631 656 659 630 617 665 682 742 777 798

1.190 1.259 1.341 1.320 1.365 1.442 1.469 1.533 1.575 1.605

2.9163.256

3.5703.873 4.145 4.514 4.844

5.105 5.370 5.470 5.557 5.634

569498

1.120975 1.052830

1.9932.519

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

9.000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Corporate & Business Residential Postpaid Residential Prepaid

Champion’s Subscriber Market Segmentation:Prepaid Residential is key – not post-paid!

• Prepaid is norm

• user control fortelecom expenses

•Cash-flow & baddebt control



Subscriber Segment Split 2G (%)

13% 12% 11% 10% 8% 6% 4% 2%

21% 20% 20% 20% 20% 20%15% 15% 15% 15%

60% 62% 64% 66% 68% 70% 72% 74% 76% 78%85% 85% 85% 85%

14%15%

22%24% 23%

25%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015


Champion’s 2G Subscriber Market Segmentation:Early migrators are business post-paid !

• Price insensitivemigrate first

•Status symbol

•2G serving bad“debt rated”


Subscriber Segment Split 3G (%)

60%

40%30%

23% 20% 15% 12% 11% 10% 10% 10% 10%

50%

37%

28%

21%20% 20% 20% 20% 20% 20%

20%

40%52%

64% 68% 69% 70% 70% 70% 70%

40%

60%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015


Champion’s 3G Subscriber Market Segmentation:Early migrators are business post-paid !

• “Rich” pre-paidmigrate first


2G (Voice/Data), 3G (Voice/Data) and Blended ARPU (US$/month)

27,2

23,120,6

18,9 18,0 16,9 16,3 16,618,7 19,5 19,6 19,6 19,8 19,9

0

5

10

15

20

25

30

35

40

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Blended ARPU

Champion’s ARPU:Budgetary and affordability constrains !

• Price competitionkeeps ARPU low

• Other networkstake some of thetelecom budget


Revenues (US$ m) and Data Share of Revenues (%)

1.113 1.156 1.158 1.162 1.196 1.204 1.2281.315

1.5691.729

1.803 1.860 1.912 1.956

0

500

1.000

1.500

2.000

2.500

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150%

5%

10%

15%

20%

25%

30%

35%

3G Revenues 2G Revenues Data Share of Revenues

Champion’s Revenues

• Subscriber growthkeeps revenuehigh up to 2006

• 3G revenues from2006 onwards

• Data revenuefrom 5% to +30%

• 3G revenues arecritical post 2007


Blended ARPU

0

5

10

15

20

25

30

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Voice SMS EMS, MMS, IMSUMS Mobile office File Transfer, IntranetVideo Phone/ Conferencing Internet Customised Content / Portal Fleet Management Gaming Sports (AFL)

UMTS Launch UMTS Success “Dip in the middle”:1.) Still few UMTS Subs2.) “Applications Bottleneck”

Blended ARPU (US$)

0

5

10

15

20

25

30

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Voice SMS EMS, MMS, IMSUMS Mobile office File Transfer, IntranetVideo Phone/ Conferencing Internet Customised Content / Portal Fleet Management Gaming Sports (AFL)

3G Launch 3G Success “Dip in the middle”:1.) Still few 3G Subs2.) “Applications Bottleneck”

• Dips due:• lower ARPU from2G and transition

• 3G services have“launch” problems

• Interoperability• retention of “high

value” customers

Champion’s blended ARPU (ARPU / services)


Operating Costs (US$ m)

267 277 289 290 287 289 295 316 376 415 433 446 459 470111 116 127 128 132 132 123 132

157173 180 186 191 196

150 162 163 167 156 160 171

204225 234 242 249 254

8193 93 96 84 86

92

110121

126 130 134 137

145

78

601 624 625 627 646 650 663710

847933

974 1.004 1.032 1.056

0

200

400

600

800

1.000

1.200

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Total CoGS Total Network Operating CostsTotal General & Administrative Costs Total Sales & Marketing Costs

Champion’s OPEX breakdown

• Attention to IPRcosts for networkoperations !!!

• IPR costs for “contents” not included

•OPEX dip due to“stable-state” 3Gnetwork

•OPEX broadly inline with networkinvestments


0

50

100

150

200

250

300

350

400

450

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Network Investment (US$ m)

Champion’s CAPEX breakdown

• Peaks due:• initial 3G launch• capacity increase• Interoperability


Operating Cash Flow and Cash Flow After Investing (US$ m)

0

100

200

300

400

500

600

700

800

900

1.000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Operating Cash Flow Cash Flow After Investing

Champion’s Revenues & cash-flow breakdown


Year Average Subscribers (000)

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

9.000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Subscribers with 3G Subscribers without 3G

Champion’s future without 3G - # of subscribers


Revenues (US$ m)

0

500

1.000

1.500

2.000

2.500

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Revenues with 3G Revenues without 3G

Champion’s future without 3G - revenue


Cash Flow After Investing (US$ m)

0

100

200

300

400

500

600

700

800

900

1.000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Cash Flow After Investing with 3G Cash Flow After Investing without 3G

Champion’s future without 3G – Cash flow


Users do not care about technology but services!

3G investments is a must for “Champion”

Market consolidation and “phase-out” of Mini

Already we see that small operators are leavingmarket in Europe

Market consolidation will happen in USA as well

Business model for the life-cycle ( ~ year 2015) and network operation IPR costs can dramatically impact the scenario negatively!

Conclusion of Business Plan


Thank Youvery much!

Dr. Thomas Frisanco Kiritkumar Lathia, C.Eng., F.I.E.E,Director Marketing Vice President

ICM N M B PD Strategic Product PlanningStandards & Fora

Siemens AG Siemens Mobile CommunicationsGermany Italy


Business Considerations forMigration to IMT-2000

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