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Emerging Markets - Leapfrogging to success with mobile
Panel Session
19 September 2005, Marrakech
Susan SweetOvum
© The MOCCA Consortium, Page 2
Agenda
10:30 - 10:45 Introduction and overview of Think Tank Findings, Susan Sweet
10:45 - 11:15 Building Cost Efficient coverage, Bodil Josefsson 11:15 - 11:45 Leapfrogging to success with mobile, Francis
Osakonor 11:45 - 12:00 Questions
© The MOCCA Consortium, Page 3
Think Tank meetings
Thematic focus for each meeting: TT1 the social, cultural and economic impact on
user requirements TT2 the impact of user requirements on
technology TT3 government policy and regulation and its
relation to end user requirements
two case studies presented two scenarios discussed and developed www.ist-mocca.org
© The MOCCA Consortium, Page 4
Think Tank Delegates
Representatives from 7 countries across Asia, Africa and Latin America
Dominican Republic Ecuador Mexico India Nigeria South Africa Tanzania
Expertise from stakeholders: mobile operators, a university, investment advisors
© The MOCCA Consortium, Page 5
Defining the customers (users) Top 1 - 2% of the population the “masses” people “outside” the formal economy Government
© The MOCCA Consortium, Page 6
Social, cultural and economic impact on customer requirements Language requirements require handset
adaptation for different character types requirements of women for handsets include
weight calculators, also important for social inclusion and participation in society
money is spent on what is immediately available
some cultures have an aversion to voicemail, a solution is a missed call alert
social value of the mobile
© The MOCCA Consortium, Page 7
Social, cultural and economic impact on customer requirements -2 Unemployment, underemployment, political
turbulence, country location, limited financial networks and low purchasing power all impact user requirements
creates a need for different business models, innovative services (e-payments), very low denomination pre-pay cards
© The MOCCA Consortium, Page 8
Impact of user requirements on technology Western regional influence creates diverse
mix of technologies, but no significant differences in underlying technology requirements but low cost solutions are important
Issues to address include: electricity shortages limited backbone networks wide range of terminal types needed and variety of
prices simplicity, long battery life, highly durable
© The MOCCA Consortium, Page 9
Government policy and regulation and its relation to end user requirements Policy issues
proactive approach vs reactive or non-existent approach
mobile services - a key to growth or a luxury service?
The impact of import duties, high taxes and spectrum fees on handset costs, subscription fees and call charges
The role of regulation importance of a stable and reliable regulatory
environment for investment and user security
© The MOCCA Consortium, Page 10
Government policy and regulation and its relation to end user requirements -2 A strong legislative framework and
independent regulator are very important to promote
fair competition control interconnect charges (and indirectly retail
prices) ensure the correct use of universal service funds
to reach rural and remote customers assist with infrastructure development at backbone
level where none exists
© The MOCCA Consortium, Page 11
Key Recommendations
Mobile and wireless services must be seen as a necessity, not a luxury
the use of mobile phones as “mobile payphones” is greater in emerging markets
the pre-paid model will continue to be very important
new forms of partnerships will be needed in “high risk” countries
creation of a level playing field is key
Building cost-efficient coverage
September 19th, Marrakech
Bodil Josefsson, Ericsson
© The MOCCA Consortium, Page 14
Outline
Case study Cost-efficient coverage Capacity growth
© The MOCCA Consortium, Page 15
Population in GSM Markets
without coverage
Population with GSM coverage,
but no subscription
GSM Subscribers
2,200
2,600
1,400Non GSM Markets
Cost efficient coverage
World population 6.4B
GSM provides global coverage
© The MOCCA Consortium, Page 16
Case studyBackground
Developing Market Annual license fees ~ 1M USD Total number of subscribers ~ 300
000 GSM market share ~ 26% Net addition per month ~ 20 000 Churn ~ 6% per month Typical tariff ~ 0,27 USD Interconnect fee ~ 0.07 USD ARPU ~ 22 USD MoU ~ 85 min EBITDA ~ 20%
© The MOCCA Consortium, Page 17
Source: Ericsson analysis
CAPEX DEPRECIATION OF CAPEX
“MINUTE FACTORY”
O&M, POWER, TRANSMISSION, SITE RENTAL
Subscriber acquisition
Other business related
NETWORK OPERATION
Subscriber acquisition
and retention
Subscription management
Network related
Interconnectand roaming
TOTALCOSTBEFOREINTERESTAND TAXES
FEES TO OTHEROPERATORS
M&S ADV/PROMOTIONHANDSET SUBSIDIESCOMMISSIONSDISTRIBUTIONSIM CARDSCUSTOMER SERVICEBILLING, BAD DEBT…
CALL TERMINATIONOUTBOUND ROAMING
ACQUIRING / RETAINING CUSTOMERS & SERVICE DELIVERY
Overheads GENERAL & ADMIN MANAGEMENT HEAD OFFICE ETC.
Average Mobile Operator’sCost Structure
© The MOCCA Consortium, Page 18
Scenario 1 (Base Case):
No Expander solutions used in cell planning
50% of Sites connected to power grid
Powered from back-up generator 30% of time
17kVA generator sets + 15000 btu A/C units
50% of Sites solely using power generated on site
2 x 17kVA generator sets + 15000 btu A/C units
Generator consumes 3 liters Diesel per hour
1 liter of delivered Diesel costs $0.83
Scenario 2 (Expander Solutions):
TCC
4-Branch Rx Diversity
SmartRange
TMAs
Scenarios 1 & 2: Reducing the number of BTS sites
© The MOCCA Consortium, Page 19
Scenario 3: Smaller A/C units and Generator Sets:
2 x 7.5 kVA generator sets on each site + 9000 btu A/C units
Generators consume 1 liter Diesel per hour
Scenario 4: Using RBS 2106 instead of RBS 2206 (23 sites)
Capex: Higher cabinet cost is offset by savings on shelter and A/C
Opex: improvement in power consumption with eco-cooling
Scenario 5: Running BTS sites on Bio-Diesel instead of Petro-Diesel
Biodiesel = Alcoholic trans-esterfication of vegetable oils, resulting in Glycerol and Fatty Acid Alcohol Esters, commonly know as “Bio-Diesel”.
1 liter of delivered Bio-Diesel can cost 20-35% less than Diesel
Scenarios 3-5: TCO improvements on site level
© The MOCCA Consortium, Page 20
GSM Radio Access NetworkTotal Cost of Ownershipper Subcriber per Year
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
USD
GSM Equipment 3.81 3.59 3.59 4.05 4.05
Site Equipment 6.01 5.99 5.99 5.67 5.67
Civil Works 2.83 1.89 1.89 1.49 1.49
GSM NRO 0.47 0.35 0.35 0.35 0.35
O&M 4.62 3.65 3.60 3.60 3.54
Site Rental 3.97 2.69 2.69 2.69 2.69
Power 8.52 5.82 2.79 1.88 1.55
Transmission 6.01 4.07 4.07 4.07 4.07
Spares, Support, Training 2.44 2.30 2.30 2.30 2.30
Base Case Scenario 2 Scenario 3 Scenario 4 Scenario 5
Results from African GSM Case Study
Results Base Case 53 Sites Expander 41 Sites
Base Case:$38.39 per sub per year =$3.20 per month
Expander Radio Solutions:$29.78 per sub per year =$2.48 per month
7.5 kVA Generators:$26.70 per sub per year =$2.22 per month
RBS 2106 with Eco-Cooling:$25.53 per sub per year =$2.13 per month
Biodiesel:$25.13 per sub per year =$2.09 per month
© The MOCCA Consortium, Page 21
TCO RAN$2.10
Total Expenses $4.65/sub
At this cost level, an ARPU of $5.80 per month would provide EBIT of 20%*
*excluding goodwill amortisation
TCO CN/SN$0.7025%25%
75%75%
Network Operations
Capex (Depreciation)
TCO NetworkOperations
$2.80
60%60%
Subscriber Management
Interconnect / Roaming
Marketing & Sales
General & Administrative
40%40%
BusinessOperations
$1.85
Relating TCO to ARPU (an Extrapolation)
© The MOCCA Consortium, Page 22
Network issuesCoverage at lowest Total Cost of Ownership
Mobile Softswitch
Shared Networks
Transmission Network
Radio Access Network Radio NetworkRadio Network
Core NetworkCore Network
Transport NetworkTransport Network
© The MOCCA Consortium, Page 23
Radio NetworkDifferent approaches
Low pricedRBS Low cost
Site
Lowest TCO for the whole
Network
© The MOCCA Consortium, Page 24
Radio NetworkFewer sites for rural coverage
CAPEX & OPEX reduced with > 30%
-70 dBm Urban indoor-77 dBm Suburban indoor-90 dBm Rural
52 sites 29 sites
Same capacity!
© The MOCCA Consortium, Page 25
Functionality for coverage enhancements
Downlink enablers:High output powerMS receiver sensitivity
Uplink enablers:RBS receiver sensitivityTMA4-Way RX diversityMS output power
Common enablers:Low frequencyAntenna GainTower heightDesign marginal
Down link
Up link
Cell Range
Down link
Up link
Cell Range
© The MOCCA Consortium, Page 26
Expand with speed, flexibility and control
Any capacity – any media Scalability for future growth Balance the cost for
aggregation vs bandwidth
Leased lines
Microwave
Satellite
Fiber
Transmission
Efficiency requires a network perspective
© The MOCCA Consortium, Page 27
Population in GSM Markets
without coverage
Population with GSM coverage,
but no subscription
GSM Subscribers
2,200
2,600
1,400Non GSM Markets
Capacity Growth
World population 6.4B
GSM provides global coverage
© The MOCCA Consortium, Page 28
Utilize the full potential of a limited spectrum 1
2
3
Take advantage of a large spectrum
Build for coverage and plan for capacity
Grow radio networks3 scenarios
© The MOCCA Consortium, Page 29
Combine Coverage and Capacity
Add capacity easilyTRX:s for Coverage combined with TRX:s for Capacity in same cell
Maximize site grid Start with coverage
1 1
1 1
1 12
22
2 2
2
4 44
-> A traffic expansion with 1440% without any new sites !
-> With AMR HR: +2880% without any new sites
© The MOCCA Consortium, Page 30
Conclusion
The network view (=fewer sites) gives lowest TCO
Flexible capacity growth Future proof investments No compromise on quality!
Emerging Markets - Leapfrogging to success with mobile
Panel Session
19 September 2005, Marrakech
Francis OsakonorAnderberg International
South Africa
© The MOCCA Consortium, Page 32
Market Growth in Africa/ Emerging
Wireless is the dominant network with higher penetration than the fixed network in the developing world
Mobile is becoming the universal service Market growth will be very fast with the leapfrogging of
technologies Deploy / Implement new technology – enough critical mass of
new mobile usage Develop the technology and applications in Europe but usage
will be wider in emerging markets Distinct requirement of developing markets Government policy has a big effect on market growth in
developing regions ( mobile as a development tool ) New business models called for in developing markets,
predictability difficult, yet experience has shown huge growth
© The MOCCA Consortium, Page 33
Leapfrog Scenario Definition of leapfrog:
To skip from one generation of technology to another (2G to 4G and bypassing 3G) This does not have to happen quickly but rather the process of going from 2G to 3G is by passed thus the technology evolution is different to developed markets. Eg in some markets the first and last phone for use will be the mobile phone.
An alternative is that developing countries actually move more quickly in implementing a new technology than the developed countries.
To evolve from one service to another (applications may leapfrog from say X to Y)
Another form of leapfrog was the “literary/educational” leapfrog where Internet and digital information enables developing regions to “skip” the requirement for books/libraries and still develop
Intercept – this means that technologies and services evolve and follow the leading /mature markets but may do so quite quickly and more quickly than the developed country experience
Not all developing markets will leapfrog either technology or serv
© The MOCCA Consortium, Page 34
Market Segments
There are two or sometimes three market segments The rich people who want the expensive services and can pay for
them The mass market with a very low ARPU and to whom services
migrate slowly The government is the third market segment
To the groups in the market (rich, poor and government) one must add the group of people who are not in the market at all. An approach oriented purely on market consideration will miss out this part of the population.
There is the possibility of the emergence of the 4th market driven by policy rather than margins (less than USD1 per day large part of the population)
Remove commercial burden from operators to afford the 4th market opportunity to use services
© The MOCCA Consortium, Page 35
Defining the customers-(Users) Top 1 - 2% of the population comparable to
Europe the “masses” with less than USD10 ARPU people “outside” the formal economy Rural vrs
Urban dwellers. Lifestyle changes in surprising ways. Initial adoption sluggish but accelerates faster
than developed market Huge numbers of users in the lower segments Government
© The MOCCA Consortium, Page 36
Usage/Applications -1
For services, there may not be a distinct requirement whereas for applications, there are very distinct requirements
A given application could be deployed at different times in different markets, as it may be the cheapest option at any given time
Electronic payment and money services are much more important in developing environment than in Europe
Service usage and applications are very different to Europe (e-money etc) Application of payments- No second rate solutions
Limited language ability and limited ability to use a complex device
Calling party pays, changes the traffic model and allows mobile network to afford having customers with limited number of outgoing calls (reverse charge)
© The MOCCA Consortium, Page 37
Usage / Applications -2
Applications and content will drive market growth, emanating from emerging markets, and mobile wireless has overtaken fixed in usage
Emerging markets leapfrog technology application with Usage patterns been main driver in the next 10 years – India, China & Africa
Developing countries relying on same technology and similar basic services differentiating on applications
Convergence for generics - differentiating on applications Leading-edge users differ – in developed countries business is
the first usage customer, in developing countries governments are more important as they have a need for low-cost essential services
Roll-out of e-whatever is faster – Mobile and other e-services are faster and cheaper than the options existing in developed countries (eg library)
© The MOCCA Consortium, Page 38
Emerging Markets Business Model-1
Capital investment is a barrier for growth in rural areas Differentiation of technology is not evident Business models are different (operator and user) depending on
the country There is no one single recipe for developing countries – ARPU
can be high in rural areas as there is no option of using a fixed network, but can be very low in others due to purchasing power or population density
Strong segmentation of the markets- different financing models Role of government is very important in developing regions Small business drives usage with calling party paying and pre-
paid business models dominating Franchises are widely used for distribution – Distribution cost as
a variable cost counted by heavy investment in electricity and security infrastructure
© The MOCCA Consortium, Page 39
Emerging Markets Business Model-2
Return on Investment vs Universal Access –private models can be sustained only if they have positive return on investment. Lack of subsidies and infrastructure punishes penetration in rural/poor areas
Access to credit- lack of credit evaluation tools and credit bureau result in use of the pre-paid model- 90 % of customers are prepaid. In this context Recovery of investment is strongly influenced by incoming traffic (calling party pays)
Prepaid customer is a price hunter- this results in low customer loyalty and high turnover/churn
Fixed and Variable expenses in the business model –operators are transforming what is usually considered fixed costs into variable, taking advantage of outsourcing several areas which in developed countries are usually kept under the operator structure- Call centre, Activations, Distribution of prepaid cards and Sales usually outsourced to small businesses and franchises
Handsets: Subsidizing handsets is a problem when there is little customer loyalty. Very strong grey market not controlled by the operators