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Mobile broadband for fixed players
Pierre Fortier
29 October 2009
Ref: 16109-434
2
Introduction
The development of mobile broadband
Mobile business models for fixed players
Substitution threat for fixed players
Conclusion
Table of contents
3
Introduction
� The popularity of mobile broadband* access via USB modems and smartphones
has taken European fixed and mobile operators by surprise:
w fixed operators are concerned because they are losing market share in the
area that has been a major engine of growth
w mobile operators are worried because competition in mobile broadband may in
some countries have driven down retail prices too far below cost
� In this presentation, we look into possible strategies and opportunities for fixed
broadband operators associated with the development of MBB, in particular:
w the fast development of MBB
w the substitution threat of MBB for fixed operators
w the different mobile business models for fixed players
*Mobile broadband and MBB are used interchangeably throughout this presentation
4
Introduction
The development of mobile broadband
Mobile business models for fixed players
Substitution threat for fixed players
Conclusion
5
MBB is proving popular in countries where
datacards are becoming inexpensive
Comparison of datacard current prices with penetration in Europe*
Source: Analysys Mason; * In August 2009;
** Based on cheapest contract offer available in the country in 2008 for a monthly traffic of 4GB
BE
UK
SE
ES
NL
IT
IEDE
FI
AT
0
10
20
30
40
50
60
0% 2% 4% 6% 8% 10% 12% 14%
Datacards penetration (as % of population)
Pri
ce
pe
r m
on
th (
EU
R V
AT
excl.)
Data cards prices (cost of 4GB)
This line shows the correlation between penetration of
datacards and the price of the cheapest offer for unlimited
usage** in August 2009
6
MBB represents a high share of broadband
connections and traffic in ‘advanced’ countries
Growth in H3G UK data trafficMBB versus fixed broadband take-up
in Europe (Q4 2008)
Source: Analysys Mason research division Source: H3G UK
0
2
4
6
8
10
12
14
16
Oct
200
7N
ov 2
007
Dec
200
7Ja
n 20
08Feb
200
8M
ar 2
008
Apr 2
008
Re
lative
tra
ffic
gro
wth
Total growth Uplink Downlink
More than 10x data traffic increase in
seven months UK
SE
ESNO
LT
IT
IE
FI
AT
50
55
60
65
70
75
80
85
90
95
0 5 10 15 20 25 30 35 40 45 50
Broadband subscribers using mobile (%)
Bro
ad
ba
nd
su
bscri
be
rs u
sin
g f
ixe
d (
%)
Austria is leading the pack with more than 36% of broadband subscriptions being
mobile
7
In this context, Analysys Mason expects
subscriber numbers to keep rising fast …
� MBB connections are growing fast
in Europe:
w driven by both complementary
and substitutive use
w 145 million MBB connections by 2014
w CAGR of 35%
� By 2014, 60% of European broadband
households will have an MBB connection
MBB connections in Europe
0
20
40
60
80
100
120
140
160
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
Su
bscri
be
rs (
mill
ion
s)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
MBB connectionsMobile share of broadband households
Source: Analysys Mason
8
... with a sharp increase in the average volume of
traffic per subscriber
� Cisco: mobile data traffic in Western
Europe to grow at 131% CAGR until 2013
� Such forecasts may be slightly agressive,
but average subscriber use might reach
levels similar to fixed broadband
Source: Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update, NITA, ECTA, PTS
Forecast for total mobile data demand
Pe
tab
yte
s/m
on
th
0
500
1000
1500
2000
2500
3000
20
08
20
09
20
10
20
11
20
12
20
13
N America W EuropeAsia-Pacific JapanLatin America C&E EuropeMiddle East & Africa Europe
1139Portugal
277Denmark
784Austria
1840Sweden
Data traffic per month
in MB (2008)
Country
Some European countries have
already reached high data traffic
per month
9
A mix of commercial and technical factors are
stimulating the development of MBB
Radio access
technology
Devices
Services
Tariff evolution•Flat-rate tariffs have triggered the take-up of MBB services
and the increase of traffic
•Technology evolution in the radio access network (HSPA,
HSPA+ and in future LTE) provides higher speeds and lower
latency, thus improving the end-user experience
•Device evolution (dongles, embedded PCMCIA data cards,
enhanced handsets such as the iPhone) is changing the
nature of the MBB market
•Connectivity solutions drive demand for MBB connectivity
•Handset availability and MBB drive new types of services
10
MBB is cheaper than fixed broadband in
many European markets
� In Austria, MBB is substantially cheaper
than DSL services
� Play in Poland offers the cheapest MBB
in Europe (EUR12.60 for 5GB per month)
� The lowest prices are being offered by
new entrant 3G-only players
� French and Swiss markets have not yet
taken off
� Norway is a high-cost, high-GDP market
0% premium
0
10
20
30
40
50
60
70
80
10 20 30 40
DSL (EUR per month VAT incl.)
Ch
ea
pe
st
MB
B (
EU
R p
er
mo
nth
VA
T in
cl.)
CH
AT
NO
FR
PL
BGGR
LT
FI SI
DE, IE, NL, SE
PT
ES
ROCZ
LV
HUIT
SK
BE
UK
DK
EE
* Based on incumbent DSL and cheapest MNO offering including at least 3GB download per month, at June 2008
Price comparison of MBB and DSL
retail offers (June 2008)*
Source: Analysys Mason research division
Tariff evolution
11
In Austria, MBB access is a tough,
low-margin game
� The cheap price of MBB compared to
fixed has triggered strong growth in
the Austrian MBB market
� Fixed broadband operators have
lowered prices, but net additional
subscriptions have slowed down
significantly
� The long-term sustainability of
this situation is debatable
Note: Fixed prices for services with equivalent speed to
mobile (i.e. 3072/512 or 3MB) and unlimited data usage
Monthly price (EUR)
Telekom Austria 34.90Tele2 Austria 19.90chello (UPC) 22.90Inode (UPC) 17.90
Note: Prices include current promotional offers
Bundle
prices (EUR)
A1OrangeT-MobileTele.ring
500MB
10-
10-
6GB
---
12
15GB
-15
--
3GB
-10
-
10
10GB
-10
-
10
Monthly prices for fixed-line broadband access
Monthly bundle prices for MBB access
Source: Operators’ websites, Analysys Mason, February 2009
Tariff evolution
12
Other countries have not seen such
cut-throat competition
� In the UK, fixed broadband is still cheaper and faster than mobile broadband for unlimited usage
� For low usage, however, MBB can be better value
� DSL penetration is high:
w MBB complements (rather than replacing) fixed-line access
BT 24.46
Virgin Media 20.00
Tiscali 14.99
Sky 15.00
Monthly price (GBP)
Note: Prices are based on 18-month contracts and include current
promotional offers
H3GO2T-MobileVodafoneOrange
Bundle
prices (GBP)10
---
9.79
1GB
-14.69
1515
14.68
3GB
15--
25-
5GB
-29.38
--
24.47
10GB
30----
15GB
Note: Fixed prices for services with unlimited data usage
Monthly bundle prices for MBB access
Tariff evolution
Source: Operators’ websites, Analysys Mason, February 2009
Monthly prices for fixed-line broadband access
13
The 3GPP family is leading the technological
development of MBB
3.6Mbit/s
7.2Mbit/s
14.4Mbit/s
28Mbit/s
21Mbit/s
42Mbit/s
80Mbit/s
158Mbit/s
HSPA
HSPA+
LTE
2005 2008 2009 2010 2011 / 20122006 2007
Peak d
ow
nlin
k r
ate
(p
er
secto
r)*
3GPP evolution peak data rates per technology
* Realised downlink rates are typically 2-3 times lower than peak rates
5MHz carrier
(64QAM)
(2x2 MIMO)
(2x2 MIMO
& 64QAM)
(4x4 MIMO &
10MHz carrier)
(20MHz carrier)
Radio access technology
Source: Analysys Mason
14
Cheap and attractive devices have driven
the growth of mobile broadband
Source: Mobile operator websites
� Generally offered for free with an
MBB subscription
MBB dongles
� With an MBB subscription, the price
is generally less than EUR400,
sometimes even offered for free with
24-month contracts
Laptops and netbooks
Asus Eee PC
Archos 3G+
Samsung Q10
LG X110
Devices
15
Device evolution will change the nature of
the MBB market
� The Apple iPhone has revolutionised media
consumption on the mobile phone:
w unmatched balance between features
and performance
� 3G iPhone users generate on average
around 2.5Gbytes of traffic per month
� A range of factors is likely to drive strong
traffic growth:
w new products from Apple/other players
w increasing device penetration
w changing consumption patterns
Devices
All trademarks and rights owners acknowledged
16
Non-telecoms players are also bringing
new business models to mobile
� An e-book reader launched by Amazon in
late 2007; it works over Sprint’s 3G
EVDO mobile network:
w currently no other deployments
outside the USA
� The Kindle gives access to:
w more than 275 000 books
w major US newspapers
w more than 1500 blogs
w Wikipedia for free
� Users pay for each book or newspaper
issue they purchase and download, not
for the data traffic they generate
Amazon Kindle
Source: Amazon website
In May 2009: Kindle sales were 35% of
book sales when Kindle editions are
available. Unit sales are not public, but
expected to be at 300 000 since launch
Devices
17
All trademarks and rights owners acknowledged
Streaming video to the iPhone is a
revolutionary experience
Services
18
Going forward, the availability of new devices and
Internet keys will drive new usage and traffic
� Device evolution is likely to generate new
applications, increasing exponentially the
traffic on mobile networks
� Potential applications for residential users:
w mobile social networking
w games (including online games)
w video/music streaming and download
w gambling/adult
w peer-to-peer file sharing
w location-based services
� Potential applications for corporate users
w Mobile working
w Remote access to content
iPhone all-time top paid applications (Oct 09)
iPhone all-time top free applications (Oct 09)
Source: Apple. All trademarks and rights owners acknowledged
Services
19
Introduction
The development of mobile broadband
Mobile business models for fixed players
Substitution threat for fixed players
Conclusion
20
In some countries, MBB is contributing to the
acceleration of fixed–mobile substitution (FMS)
0%
5%
10%
15%
20%
25%
30%
35%
France Italy Spain Sweden UK
2003 2008
Evolution of MBB usage Mobile-only households
Time
Unders
erv
ed u
sers
Busin
ess u
sers
Early
adopte
rs
Com
ple
menta
ry u
se
Substitu
tion
TurkeyFranceRussia
UK
FinlandItaly
Austria
10%
20%
30%
40%
50%
0%
Mo
bile
as %
of
bro
ad
ba
nd
co
nn
ectio
ns
Source: Analysys Mason’s estimates
21
For instance, this is the case of Fastweb’s
‘Joy’ offer in Italy
Source: Fastweb website
22
MBB appears to be both a complementary
service, and a substitute for fixed broadband …
� In Austria, fixed broadband penetration remained flat for three quarters in 2007
w this strongly suggests a high proportion of substitutive and new users
� According to Ofcom, in the UK atQ1 2008:
w about 32% of subscribers used MBB instead of fixed broadband
w in the 16–24 age group, this proportion was as high as 47%
Broadband subscribers in Austria
Source: Analysys Mason research division Source: Ofcom (2008), Total Telecom
0.6 0.5 0.6 0.6 0.6 0.6 0.6
0.9 0.9 1.0 1.0 1.1 1.1 1.1
0.3 0.40.5
0.60.7 0.7 0.8
0.0
0.5
1.0
1.5
2.0
2.5
1Q
20
07
2Q
20
07
3Q
20
07
4Q
20
07
1Q
20
08
2Q
20
08
3Q
20
08
Bro
ad
ba
nd
su
bscri
be
rs (
mill
ion
)
Other
Mobile
DSL
Cable
New and
substitutive
usage
Complementary
usage
23
… some evidence suggests that fixed broadband
will remain strong despite cannibalisation
� Despite the strong move towards
MBB, fixed-line services will continue
to have a significant market share of
broadband going forward, due to:
w mobile services’ limited ability to
provide high-bandwidth services
(such as ‘over-the-top’ video)
w market inertia
w fixed operators’ pricing strategy
w fixed operators’ increasingly
aggressive NGA strategies
Source: Alcatel Lucent
Download speed ranges for available
fixed and mobile technologies
2000 2002 2004 2006 2008 2010 2012
0.5
1
4
8
10
24
100
500
1000
GPRS UMTS
HSPA
HSPA+
LTE
ADSL
ADSL2
ADSL2+
VDSL
GPON
10 GPON
Do
wn
loa
d s
pe
ed
(M
bit/s
)
Fixed BB speed
(theoretical)
Mobile BB speed
(theoretical+shared among users)
24
Substitution may be driven in part by a tendency
for users to use mobile in the home
Source: Strategy Analytics 2005, Swisscom, Innovation paper, 2004, O2, Analysys Mason
� Over 40% of calls are typically made
from the user’s own home
� Mobile TV trials by O2 in the UK
show that people tend to watch TV at
home or at work, but barely on the
move: 36% of people used the
service mainly at home
Mobile service consumption
� Watching videos on the Internet is a
prime activity:
w German users: 119 videos/month
w American users: 96 videos/month
w French users: 88 videos/month
� However, users are really only
‘snacking’, and usually watch only a few
minutes of each video
Online video consumption
Source: Comscore November and December 2008
25
Longer term, MBB could be a defensive move for
fixed players to protect their core market
Source: Analysys Mason research division
Broadband-equipped sites by technology type in Europe
97113 117 114 109 103 99 97
6
1222 32 42 50 56 59
2
6
1116
2025 29 32
0
20
40
60
80
100
120
140
160
180
200
2007 2008 2009 2010 2011 2012 2013 2014
Ho
use
hold
s (
mill
ion
s)
Fixed only Fixed and mobile Mobile only
� Market opportunity
for fixed operators
� Need to partner with
an MNO if no mobile
network of its own
� Core market for
fixed operators
� Under pressure
from MBB
26
Introduction
The development of mobile broadband
Mobile business models for fixed players
Substitution threat for fixed players
Conclusion
27
MBB is beneficial for fixed players to develop
complementary usage and avoid cannibalisation
� Moving to mobile can be seen as a
defensive move from fixed players to
limit the effect of FMS
� MNOs are challenging fixed operators:
w they reach in the home to offer
Internet services and voice services
– the two core services provided by
fixed broadband operators
� Mobility allows fixed operators to offer the
full portfolio of services (voice, Internet,
TV) at fixed locations and on the move:
w seamless access of residential users
to their digital ecosystem
w seamless access of enterprise users
to their corporate applications
w Mobile devices give a strong and
direct access to the end user
Protect market share Deepen the relationship with customer
28
Case study: Virgin Media is the UK’s first
‘quintuple-play’ operator
� Virgin Media’s MBB offer allows the operator to create targeted bundles:
w MBB services represent the fifth product type in Virgin’s portfolio, complementing its existing fixed broadband, fixed voice, mobile voice and TV services
w numerous service combinations are possible, allowing for greater differentiation and segmentation
w each can be offered at a substantial discount on the price of buying the services separately
� Virgin has already launched one bundle using its new offering – a fixed broadband + mobile broadband package that saves customers GBP10 per month, compared to buying the services separately
Source: Virgin Media website
29
Fixed players can leverage on their market position
and strong assets to address the MBB market
� Some fixed broadband operators benefit from access to audiovisual content (this
is particularly the case for cable operators, but also IPTV DSL players):
w this access could allow for valuable content to be delivered to mobile users
� Fixed operators can leverage on capillary transmission network to provide
backhaul facilities to mobile only operators:
w In particular, with NGA roll-out, increased capacity in the fixed access network
(VDSL, FTTH) can help relieve the mobile backhaul bandwidth crunch
� Cable and DSL operators would be in a unique position to take advantage of the
femtocell opportunity:
w Fixed broadband operators could install femtocells with the broadband modem
and can control the quality of service of the broadband connection to backhaul
the mobile traffic originated at the femtocell
30
Fixed players can help mobile-only operators cope
with fast-growing backhaul capacity requirements
� Increasing capacity requirements generated
by MBB put significant pressure on MNOs’
backhaul capacity
� This results in backhaul representing a
higher share of network costs’ total NPV
� MNOs need to invest in future-proof, next-
generation backhaul technologies to flatten
the cost curve
� Fixed broadband operators with VDSL/
FTTx are uniquely positioned to meet the
stringent HSPA/LTE capacity requirements:
w could provide rapid and cost effective
wholesale mobile backhaul solutions
Network capex and opex (%) – NPV
55%
28%
10%6%
UTRAN+BSS Backhaul
MSC/MSS/MGW Other network
Note 2: Model only uses E1 TDM links in the access network
Note 1: The main assumptions of the model are: 22% of mobile user take up an MBB
subscription; average consumption per subscriber is 500MB/month
MBB
69%
11%
12%7%
No MBB
Costs
x 1.25
in NPV
!
31
Femtocells could be win-win solutions for fixed
operators and mobile only MNOs
� Femtocells allow to offload mobile traffic
onto the fixed network, through a unit
installed in the WiFi/DSL/cable modem
� As in-home usage represents 40% of total
network traffic, the impact on MNO
backhaul can be substantial
� Femtocells could be win-win solutions for
mobile-only MNOs and fixed operators:
w MNOs benefit from improved service
coverage and reduction of macro
network backhaul problem
w if launching an MVNO, fixed operators
could monetize the traffic offload and
negotiate a reduction in MVNO’s
wholesale access charges
Integration of femtocells in a 3G network
IMS
IP Network
Circuit-switched network
Femto controller
gateway
SGSN
GGSN
MSC
GMSC
RNC
Call through 3G
network
Call through
femtocell
MNO
Femtocell
Source: Analysys Mason
32
Many of the main players are at different stages of
femtocell trials and deploymentsTelefónica O2 Europe
(trials, 2009)
Telecom Italia Mobile (trials planned)
StarHub, live since November 2008
Vodafone (live since June 2009)
T-Mobile International AG (opportunity
assessment, 2009)
Softbank Mobile, live since January 2009
TeliaSonera (trials, 2009)
Sprint, live since September 2007
AT&T (trials, 2009)
Verizon, live since January 2009
NTT DoCoMo (live since July 2009)
Mobilkom Austria (pilot project, 2009)
Different trials are being held around the world, mainly based on the delivery of
high-speed wireless data and voice services to home and business locations
Source: Analysys Mason
33
MBB revives the long awaited / never fully
realised prospects of fixed–mobile convergence
� FMC has been touted as ‘the next big thing’ for several years now
� However, no real solution has emerged
� Recent market developments indicate that this could gain traction soon and change
the structure of the telecoms market quite dramatically:
w major mobile operators have been investing heavily over the last two years to
enter the fixed broadband market (e.g. Vodafone, Orange and O2)
w the surge of MBB is pushing operators to think about convergence in a different
manner and broaden their scope from only voice services to broadband and
other data-enabled applications
� Femtocell solutions that bridge mobile and fixed networks are now becoming a
reality and will enable cost savings in the provision of mobile voice and broadband
access from within the home
34
Several strategies could be pursued by fixed
operators in moving to MBB
Strategic
partnership with
mobile-only MNO
Acquiring MNO
licence
MVNO launch
•Kabel Deutschland (Germany, 2009)
•ONO (Spain, 2009)
•Jazztel (Spain, 2009)
•Fastweb (Italy, 2008)
•Wholesale femtocell launched by
Sprint and targeted at fixed-line and
cable partners (USA, 2009)
•Tellas merger with Wind
(Greece, 2008)
•Cox (USA, 2008)
•Videotron (Canada, 2008)
•RomTelecom (Romania, 2008)
•RCS&RDS (Romania, 2006)
Recent international examples
•Zon (Portugal, 2008)
•Numericable (France, 2008)
•Telenet (Belgium, 2006)
•Strategic partnership between
Vodafone and Hellas Online
(Greece, 2009)
•Neuf / SFR integration
(France, 2007)
• Free is candidate to the fourth
3G licence (France, 2010)
• Telenet has expressed interest
for the fourth 3G licence
(Belgium, 2010)
Source: Analysys Mason
35
Fixed players moving to MVNO should look into full
MVNO options to maximise synergiesLicensed reseller
EnhancedMVNO
FullMVNO
MVNO does not own MVNO may or may not own MVNO owns
Potential positioning for a fixed operator
Key components SP MVNO
Branding, sales and marketing
Operations
Content and applications
Enabling infrastructure and network provision
Femtocells
Network switching
VAS
Service Platform
SIM card
Billing
Customer care
Pricing capability
Distribution
Provisioning
Own brand
Mobile broadband MVNO examples:
Carphone
Warehouse (UK)
Auchan Mobile (France)
Numericable (France)
Virgin
Media (UK)
Radio spectrum
Possible rollout in coming years to realise FMC
synergies
36
In bringing any MBB proposition to market, a
number of practical issues need to be addressed
� Proposition development
� Distribution
� Fulfilment
� Technology
� Financial
37
Introduction
The development of mobile broadband
Mobile business models for fixed players
Substitution threat for fixed players
Conclusion
38
Conclusions: fixed-only operators should
seriously examine moving into mobile broadband
� The MBB market is rapidly evolving:
w subscriber growth is rising strongly
w traffic growth is rising exponentially
� Today, MBB market growth is based on
PC use. Going forward, devices like the
iPhone will increasingly change the
nature of the MBB market
� MBB is both a complementary and
substituive service for fixed broadband
� Fixed-only operators could benefit
significantly from a move to MBB
� Fixed players could leverage valuable
assets when moving to mobile
� Several mobile strategies can be explored:
becoming a MVNO; establishing strategic
partnerships with mobile-only MNOs;
acquiring a mobile licence
� All options require a thorough assessment
of market potential, technology, negotiation
and proposition design
39
Analysys Mason is the world’s premier
adviser in telecoms, IT and media
� Analysys Mason provides strategy advice, operations support and market intelligence to
leading market players
� Our work has had a major influence on the industry for more than 20 years:
w established many of the core principles and policies used by telecoms regulators across
Europe and Asia to govern the operation of the sector
w mediated in key issues of policy for both commercial parties and regulators
w supported major transactions for operators and financial institutions
w provided operational support in the roll-out and expansion of leading operators
w delivered significant financial benefits to clients that are procuring new networks and
services
� We excel at solving the toughest problems facing our clients
in all areas of their business
� The benefits we deliver are based on our core
differentiators of intellectual rigour, independence
and operational experience
Analysys Mason is the world’s premier adviser in
telecoms, IT and media
40
Pierre Fortier
Analysys Mason Limited
66 avenue des Champs Elysées
75008 Paris, France
Tel: +33 (0)1 72 71 96 96
Fax: +33 (0)1 72 71 96 97
www.analysysmason.com
