Cumbre de Buenos Aires para Proveedores de Servicio: Andres Maz

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Cisco Confidential 1 © 2013-2014 Cisco and/or its affiliates. All rights reserved.

Technology Policy Implications of Market, Technology, and Policy Trends in the Latin America Telecom Marketplace

Andres Maz Advanced Technology Policy Buenos Aires, June 2014

Cisco Confidential 2 © 2013-2014 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 2 © 2013-2014 Cisco and/or its affiliates. All rights reserved.

Program

Market, Technology and Policy Trends •  Premises for the Future •  Opportunities and Challenges for Telecom Operators

Impact to Business Model and Market Evolution •  Forces upsetting the equilibrium

Critical Success Factors

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Four Key Messages

Market, technology, and policy trends are upsetting the telecom market equilibrium forcing telecom operators to evolve business models to develop new sources of revenue growth value creation

Service providers’ greatest opportunity to create value will depend on their ability to monetize the network and capture new market adjacencies

In this dynamic and evolving market telecom operators’ JVs, partnerships and entrepreneurship ventures will be as important as horizontal and vertical consolidation to gain competitive advantage and market leadership

A change in mindset and even organization structure will be necessary to enable the evolution


Market, Technology and Policy Trends

Technology Policy

Market

•  Role of Government

•  Degree of regulatory

intervention

•  Cybersecurity

•  Data Privacy & cross

border data flow

•  Spectrum

•  Net Neutrality

•  IoE

•  Cloud

•  Smart Devices

•  Video Evolution

•  Traffic Growth

•  Voice Revenue

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Revenue Trends


Fixed Line Voice Subscriptions NOT Declining

Source: Informa Telecoms & Media

Switched Access Lines

The number of fixed voice subscriptions is on the rise in Latin America, whereas it is on the decline in most other regions

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Fixed Broadband ARPU Going UP

Findings

•  Broadband ARPU is on the rise in Latin America, whereas it is flat or falling in other regions •  ARPU higher than Asia, Eastern

Europe, and world average

Upside Potential •  ARPU •  Migration to faster connections

•  Triple/Quad Play is working

•  Subscriber base

Fixed Broadband ARPU

Source: Informa Telecoms & Media


Mobile ARPU Revenue Flat… Urgent Need to Evolve

•  Voice ARPU declining

•  Data ARPU growing… but not enough

•  ARPU flat

Pressure Factors

•  Fixed to Mobile Termination regulated rate down-path

•  Roaming rates’ pressure

•  New generation usage trends •  Telephone call?

•  Leapfrogging to video

Revenue Upside Potential •  4G

Fixed to Mobile Termination Rates

Source: Cullen International

Latin America - ARPU

Source: Informa/World Cellular Information Service

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Traffic Growth


The Traffic Challenge

Internet Traffic Growing Fast

•  How much CAPEX? •  Can faster and robust broadband network generate

higher revenues? •  Can fixed broadband compensate for fixed telephony

revenue decline? •  Can telecom operators establish commercial

agreements with OTTs for faster speeds and QoS?

CAPEX and ROI

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Smart Phone Adoption


Smart Mobile Devices Creating New Value Opportunities

Smart Devices Leading Market

•  Advertising value moving from fixed big screen to mobile-smart mobile devices

•  Critical elements: •  Content •  APPs •  Advertisement •  Data Mining •  Location based services •  Payment platforms

Advertising Value Migrating to Small Screen

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Video


Video to Exceed 72 Percent of Mobile Data Traffic by 2018

LATAM Mobile Data Traffic Growth / Apps

•  Multi-platform and mobile •  Netflix, Apple TV, Amazon fireTV, youtube

•  Telecom Operators’ online video offerings •  AT&T to start a venture to launch both online

video platforms and on-demand TV channels •  Horizontal Expansion

•  AT&T’s DIRECTV acquisition •  Policy Issues

•  Vertical integration (Comcast – Time Warner) •  Must Carry and Must Offer Regulations •  Bundling •  Policies for on-net vs. off-net content

e.g. Bandwidth cap exceptions for on-net content

On-line Video Platforms Disrupting the Market

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

2013 2014 2015 2016 2017 2018

Exab

ytes

per

Mon

th

Mobile File Sharing (3.4%) Mobile M2M (4.8%) Mobile Audio (10.3%) Mobile Web/Data (9.4%) Mobile Video (72.1%)

Mobile Video 72%

66% CAGR 2013–2018

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Cloud


0.0

0.1

0.1

0.2

0.2

0.3

0.3

0.4

2012 2013 2014 2015 2016 2017

Zetta

byte

s / Y

ear

Latin America Cloud Traffic Growth Cloud Traffic Will Grow 3.9 Fold from 2012 to 2017

31% CAGR 2012–2017

298 EB

249 EB

77 EB 117 EB

159 EB

203 EB

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Cloud: Opportunities and Challenges to Telecom Operators

Cloud Readiness •  Cloud applications’ network speed and quality requirement will add additional stress to

telecom networks

•  Network capacity upgrades will be necessary. Can investments be monetized?

•  What are the options?


Network Infrastructure Needed to Support to the Cloud Network Requirements for Concurrent Applications

Basic Cloud Apps Concurrency Bucket

Network Requirements: Download Speed: ~1900 kbps Upload Speed: ~600 kbps Latency: Above 160 ms

Intermediate Cloud Apps Concurrency Bucket

Network Requirements: Download Speed: ~7,000 kbps Upload Speed: ~2,600 kbps Latency: 159 - 100 ms

Advanced Cloud Apps Concurrency Bucket

Network Requirements: Download Speed: ~21,000 kbps Upload Speed: ~9,000 kbps Latency: Less than 100 ms

•  Text communications (email, instant messaging)

•  Web browsing •  File sharing

(low-res video) •  Web conferencing •  Social networking

(basic text only) •  Stream basic video/ music

•  File sharing (high-res video) •  IP Telephony •  ERP / CRM •  Basic gaming (single player) •  Basic video chat

(low-res video) •  IP audio conferencing •  Basic video conferencing

(low-res video) •  Advanced social networking

(multimedia/interactivity) •  HD video streaming

•  HD Industrial design collaboration •  Advanced gaming

(multi player) •  Advanced video chat

(high-res video) •  Advanced file sharing

(super high-res video) •  HD audio conferencing •  HD video conferencing

(high-res video) •  Stream super HD video

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Regional End User Cloud Readiness—2013 Supporting Business & Consumer Applications Today on Fixed Networks (Concurrent Apps)

Basic Cloud Application Ready

Intermediate Cloud Application Ready

Hi Lo Latency

Advanced Cloud Application Ready

WE APAC

CEE

NA

LATAM MEA

Uruguay

UAE USA

Romania

Hong Kong

Korea Lithuania

Luxembourg

Sweden

Lo

Hi

Average Broadband

Speed


Regional End User Cloud Readiness—2013 Supporting Business & Consumer Applications Today on Mobile Networks (Concurrent Apps)

Basic Cloud Application Ready

Intermediate Cloud Application Ready

Hi Lo Latency

Advanced Cloud Application Ready

NA

WE

CEE

MEA

APAC

LATAM

Singapore

Hong Kong

UAE

Kuwait

Lo

Hi

Average Broadband

Speed

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IoE

Cisco Confidential 22 ©2014 Cisco and/or its affiliates. All rights reserved.

Daily Data Growth

Exabytes (10^18) of new data are created every single day and 90% of the world’s stored data was created in the last two years alone.


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Internet of Everything

•  More Connected Devices that People

•  By 2020, the total number of connected devices will range from around 20 billion to 50 billion

•  Most applications do not exist today


IoE Transformation

Parking Increased compliance Reduced search times

Lighting OpEx reductions Crime reductions

Road Pricing Improved traffic flow City revenue

Particulate Monitoring Improved health Improved compliance to standards

Buses (Bus Stops) Reduced wait times

Higher occupancy

Toll Booths Faster processing times

Reduced traffic congestion

Waste Management OpEx reductions

Usage-based pricing

City •  Gas monitoring •  Video surveillance

•  Water management

•  Smart parking

•  Public transportation

•  Smart street lighting

•  Smart grid •  Disaster response •  Chronic disease

management •  Telework •  Smart payments •  Smart buildings •  Fleet management

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Technical Policy

Legacy Regulatory

Frameworks

Cross-border data traffic

Reliability

Scaling

Electrical Power

Policy and Technical Issues Facing Big Data and the IoE

Privacy & Security

Spectrum & Bandwidth Constraints

Standards & Interoperability

Network Intelligence


Internet of Everything Unlimited Opportunities for Service Providers to Create Value in the Ecosystem

•  IoE Lead Player

•  Partnerships and Entrepreneurship • APPs networks inter-dependence • High dependence on entrepreneurship and new ventures • Degree of Service Providers integration with the ecosystem

•  Bandwidth and platform provider

•  Payment Platforms

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Policy & Regulation


Evolution ICT Ecosystem – Networked Readiness Index

30

40

50

60

70

80

90

100

110 2009 2010 2011 2012 2013 2014

Networked Re

adiness R

anking

Argen1na Brazil Chile Colombia Mexico Peru

High

Low

Chile

Colombia

Brazil

Mexico

Peru

Argentina

WEF GITR

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Key Policy and Regulatory Issues

Role of Government

Degree of Regulatory Intervention

Cybersecurity

Data Privacy & Cross Border Data Flow

Spectrum

Net Neutrality


Changing Views on the Role of Government

Regulated Market + State

Owned Telecom Company

Free Market

Regulated Market

State Monopoly

Regulatory Intervention

Gov

ernm

ent I

nves

tmen

t

+

+

- -

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Degree of Regulatory Intervention The Regulatory Tool Kit

State Intervention

• Wholesale • Retail

Wholesale

• Access to network elements / unbundling • Transparency • No discriminatory obligations • Accounting Separation • Price Controls / Cost Oriented Rates • Functional Separation

Retail

• Price Controls • Bundling limitations • No discrimination


Cybersecurity

•  Network security as a national priority •  Concerns:

•  -Law enforcement and intelligence •  -National Security •  -Citizen’s privacy rights

False Choice. Security by Decree •  Data localization requirements •  Security certifications •  Domestic technology mandates

Government’s Response Changing Landscape

Comprehensive National Security Strategy •  National security frameworks •  Investment in security •  Government-to-government collaboration •  Industry – government partnership

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A growing list of issues and ideas to regulate

• Data localization requirements • Data controller requirements • Data processors requirements and liability • Breach notifications • Consultations with data protection authority • Data storage regulation • Right to be forgotten • Data portability • Standardization • Network information security


Spectrum

700 MHz Spectrum critical to accelerate 4G networks build out -Auction timelines -Spectrum Caps -Wholesale Single Networks -Price / Conditions WiFi off-load critical to alleviate network congestion

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Net Neutrality

Net Neutrality regulation could weaken network resiliency, limit innovation and new business models, and increase network vulnerabilities


Implications Net Neutrality Regulation

•  Use of traffic management tools to resolve congestion. Regulations could require equal treatment to different types of traffic independent of the applications’ needs

•  Data mining •  Agreements with OTTs •  Sponsored access data •  Low cost limited packages •  Value Added Services

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Lessons Learned From The EU Impact To Telecom Operators’ Financial Health

Arthur D Little National Fibre Strategies www.adl.com/Fibre


Impact to Business Models and Market Evolution

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Forces Upsetting The Equilibrium IoE

Cloud

Video Evolution

Traffic Growth

Role of Goverment

Degree of Regulation


Spectrum

Net Neutrality


Business Model and Market Evolution

Service Aggregation

Value Creation

Niche Services

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Business Model and Market Evolution

Service Aggregation Niche Players

Smaller but Specialized Networks

•  Ability to differentiate product and segment markets

•  Commercial agreements to access third party last mile and transport networks (market or regulatory driven)

Large and Complex Networks

•  Ability to aggregate services •  Landline, mobile, broadband, pay-tv, cloud

•  Robust and wide high-speed fiber networks

•  Room for consolidation •  M&A, JVs, partnerships •  Policy understanding and Strategy


Market Evolution Vertical and Horizontal Market Moves

Fixed Voice

Mobile Voice

& Data

Broad- band

BroadcastTV

Pay-TV on-net

Pay-TV off-net DC Cloud IoE

Horizontal Expansion: Organic, Acquisitions, JVs, Partnerships

Con

solid

atio

n

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CRITICAL SUCCESS FACTORS


Critical Success Factors Major Industry Transformation And Game Changers

Unlimited opportunities to create new sources of value • Revenue and growth

Identifying and capturing opportunities will require: • Enable intelligence in the network • Business development & market intelligence • Partnerships • Pro-innovation regulatory environment

Dynamic organization structure

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Thank you [email protected]