Maximizing the emerging market BWA business plan

T-Mobile International AG & Co. KG Confidential and ProprietaryAll rights reserved. No part of this report may be reproduced in any material form

without the written permission of the copyright owner.

Maximizing the Growth MarketBWA Business Plan

WiMax Forum Congress Global09Amsterdam, June 3rd, 2009.

Kim Kyllesbech LarsenTechnology, T-Mobile International

2

Story.

T-Mobile International AG & Co. KG Confidential and ProprietaryAll rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner.

BWA Greenfield in growth markets.

BWA spectrum availability.

Maximizing the BWA value.

Technology migration towards LTE* - when, why & how.

Partnerships.

3

Broadband wireless access vision.Technology enables Connected Life and Work ….

At home. On the move. At work.

Connecting the next 1 billion un-connected

4

Connecting the un-connected at home.


Years

Growth marketsPC & FBB penetration

(of Households)

PC

FBB: Fixed BroadbandBB: Broadband

FBB

GROWTH MARKETS will drive the demand for Broadband Wireless Accesswill have a substantial proportion of HH un-connected.

will have more than 60% of all new broadband connectionsfixed broadband infrastructure access is poorly developed.

today

BB ≥ PC

Years

Mature marketsPC & BB penetration

(of Households)

today

will drive the demand for Broadband Wireless Access

50%

5

Internet connectivity is more than “just” fixed.


Years

Growth marketPC and broadband

penetration(of population)

FBB: Fixed BroadbandWBB: Wireless Broadband

today

PC

WBBFBB

Fixed-based offering (i.e., CPE-based) is often the right starting point for a BWA startup business.

Nomadic (i.e., dongles & data cards) and limited-mobility services (i.e., handsets)

can be offered within the coverage footprint

Explore enhancing the business model towards quadruple play service enablers

Access, Voice/text, Broadcast & Mobility.

6

ARPU Zone

Is a profitable BWA business viable in Growth Markets with very low ARPU?


Nominal GDP per capita per month

ARPUtrends

* Only major growth markets considered: China, India, Thailand, Philippines, Vietnam, Indonesia, Malaysia.

$0

$10

$20

$30

$40

$0 $200 $400 $600

APAC*

Source: Pyramid

Monthly spend trends:Mobile <3.5 %> GDP/CapitaDSL <10%> of GDP/CapitaHigh prepaid share <87%> with typical >90%.Annual ARPU decline anticipated across all cats.

xDSL / Cable

Mobile Prepaid

Mobile Contract

Mobile blendIndia China

7

Substantial difference in the Mobile and BWA business model logic and economics.

Mature and emerging markets Aim near 100% pop &

geographical coverage.

Multiple access technologies. Mobile voice primary revenue

stream and broadband data secondary.

Macro-mobility main value add.

High Opex is driven by country wide network coverage, market invest and usage-based cost.

Very high Capex pressure due to country-wide coverage.

Attractive in emerging markets Dense-urban and urban city-based

coverage, income-profit based rollout.

Single access technology. Broadband wireless data primary

revenue stream with premium ARPU. Voice over IP (VoIP) can be offered.

House-hold based DSL substitution, nomadic mobility and at later stage city-based mobility for data and VoIP.

Lower Opex due to city-based coverage strategy, often only broadband alternative with minor usage-based cost.

Lower overall Capex due to significant reduced rollout footprint.

Mobile business model BWA business model

8

The traditional Mobile network model – don’t go there with BWA (initially).The traditional Mobile network model


Top Cities

UrbanSub-urban (SU)

Rural (RA)

Radio Nodes

Traffic (Revenue)

Total Cost

Coverage and mobility drives up site numbers. 50% or more of total site count are RA & SU.

70% or more of traffic is generated in Top Cities and Urban areas

Ca. 50% of (network) cost is driven by RA & SU.

9

BWA network deployment in growth markets – a City-focused (inside-out) model.


Radio Nodes

Traffic (Revenue)

Total Cost

Target the Top Cities of growth markets. Top-cities often have 5 -10 times the country

GDP per capita. Opportunistic-based rollout.

Develop BWA-based DSL propositions. High-quality* customer value propositions. Explore nomadic, VoIP, broadcast options.

Synchronizing cost with revenue. Build-to-need. Don’t compete with the mobile business model

* With high-quality should be understood better than existing fixed (and mobile) broadband packages in market, which can be very different from for example European quality levels.

Top Cities

10

T-Mobile UK& Orange TD-TV

TDD spectrum at lower frequencies are scarce.


UL(75 MHz)

DLUL(35MHz)

DL

UL(70 MHz)

TDD(50 MHz)

DL

900 MHz 1,800 MHz

2,500 MHz

UL(60 MHz)

DL

2,100 MHz

TDDpart TDD

2,300 – 2,400+ MHz

part TDDThis band provides interesting backhaul P2P

options in some Greenfield scenarios

3,400 – 3,500+ MHz

China: SD-CDMA alloc.

UL DL

400 MHz

UL DL

700 MHz

Coverage

Capacity

TDD

TDD

(20 MHz) (15 MHz)

(20 MHz)

Source: TeleGeography - WiMAX Research Service, Q4 2008.Note: Ignoring traditional WiMax frequency at 3.6 GHz, 4.9 GHz and 5.8 GHz.

Airway in China

TDD

BSNL in India

11

A quarter of WiMax deployments so far are at or below 2.6 GHz and primarily in Asia.


17% WiMax deployments @ 2.5 GHz of which 50% are in Asia of which 95% are in Growth Markets 50 MHz will be available in most WEU

countries within the next 1 – 3 years.

8% WiMax deployments @ 2.3 GHz. of which 75% are in Asia. of which 90% are in Growth Markets. Unlikely to be harmonized across EU,

high degree of occupation.

75% of WiMax deploymentsare above 2.5GHz

57% @ 3.5

2.52.3

WiMax deploymentdistribution

Source: TeleGeography - WiMAX Research Service, Q4 2008.

12

Some factors for technology selection.


Note: Logos depicted here are by no means all inclusive DT, simply examples of industry contact points.

Cost:Efficient Capex & Opex.Support (passive & active) network sharing.

Performance:Spectrally efficient and flexible.Continuous capacity & quality improvement.Future proof (i.e., at least 10 yrs).

Legacy Support & Ease of Migration:Smooth technology migration.Development backwards compatible with 802.16e.

Terminals/Ecosystem:Low-production cost.Significant scale (regional & worldwide).Terminal diversity: CPE, Dongle, “handsets”,...Diversity of applications: Access, Broadcast, VoIP, etc..

13

The potentially biggest entry opportunity in a Growth Market is by targeting the un-exploited households demand for internet access.


HH

PC

FBBtoday

+5 Years

10 mio

28 mio

62 mio +1.4% pa

0.7 mio

1.5 mio1.2mio0.8 mio0.4 mio0.1 mio

Subscriptions

Opportunistic business model targeting high-value city-based customer segment

providing high-quality* broadband wireless access.

ILLUSTRATION of TOP-20 City-basedcoverage business model:

* Compared to the relevant market.

14

Business model – building the network.


Years

New Sites /Nodes

Basic Sites

Special Sites

Capacity Nodes

Modernization Nodes

1 2 3 4 5 12

2 10 20 20Cities covered

2.5 5.2 6.8 7.7 In millionsHH coverage

1.0 3.3 5.4 5.71Area covered In thsd km2

0.1 0.4 0.8 2.3 In millionsSubscriptions 1.2 1.5

300 800 1,300 2,100 (unique sites)BWA Nodes 1,600

300

500

500

300

50 50 25 53 55 57 59 61

300

500

500

300 35

3

562

537

364

Illustration

15

Business model – capital expenditures.


Illustration

up to 70% RAN

ca. 5% Other

ca. 15% IT & VASca. 10% Core

CAPEX DISTRIBUTION

Absolute Capex levels lower than a mobile business model. 10 Yr average Capex to Revenue ratio 12 ± 2. Steady-state Capex to Revenue ratio < 8. Consider 5 year RAN wear-out cycles (obsolescence). Typically cash positive within 3 to 4 years after launch.

16

Business model – Operational expenditures.


Illustration

OPEX DISTRIBUTION

The BWA Opex distribution is fundamentally different from a mobile voice-centric business model.

The BWA’s Opex to Revenue ratio is more favorable than compared with a traditional mobile business.

Typically EBITDA positive within 2 to 3 years after launch. Maximum EBITDA margin over a 10 Yr period easily above 40%.

15% Usage cost

up to 35% Technology

ca. 5% Personnel30+% Market Invest

ca. 15% Other

17

Business model – financial dynamics.


1 2 3 4 5 6 7 8 9 10 11 12Years

Subscriptions

FinancialRevenue

Opex

Ebitda

GROWTH OPTIMIZATION

ARPU

$22 pm

$15 pm

2.3 mio

Illustration

0

0

Market

18

Business model – BWA quality does not need to be pricy.


0.1

0.7

1.3

1.9

2.5

3.1

3.7

4.3

4.9

5.5

6.1

6.7

7.2

Yr1 Yr1038

30

23

15

8

0

ARPU CAGR -3%

Subscriptions

NPV10Yr > 0

NPV10Yr< 0

Illustration

ARPUper

month

20

50

40

30

10

0

Fixed DSL price range in growth markets$20 – $40 per month

19

Migrating to the next radio access technology – how to continue?


Next-generation WiMax (802.16m/TDD-LTE) will become available in the next 2 to 5 years (2011 – 2014).

Spectrum management issues.

Use part of existing spectrum (if capacity allows).

Obtain additional spectrum (should always be pursued).

Backwards compatibility with previous technology should be safe-guarded (by standardization & innovation).

CPE equipment could be designed to be future proof.(i.e., supporting both 802.16e and LTE*).

LTE standard backwards compatible (e.g., 802.16m).

(if capacity allows).

(should always be pursued).

* Subject to chipset availability.

20

Migrating to the next radio access technology.


Assumptions: New technology introduction

after ca. 5 years. All Gross Adds adapt the new

technology. Increased & accelerated

voluntary CPE replacement of installed base.

No forced migration assumed (i.e., subsidies).

Illustration

37%

23%

11%3% 1%

53%

73%

0%

20%

40%

60%

80%

100%

1 2 3 4 5 6 7 8 9 10 11 12

WiMax802.16e

WiMax 16m(TDD-LTE)

Years

Access technology share of devices

TDD-LTE intro 2011 - 2014

Many years of technology overlap!

21

The Growth Markets BWA business model is highly promising.


Addressing inherent high demand for internet access.

BWA-based DSL is often only option for internet access.

Powerful substitute for poor fixed “DSL/cable”.

Potential to out-perform UMTS/HSPA in raw IP-throughput and scalability providing an equivalent grid.

TDD spectrum is relative cheap (compared to FDD).

WiMax is here now!.

22

The mature markets business model might not be as promising.


Broadband & PC penetration window closed.

High fixed broadband (i.e., >70%*) penetration.

Very high mobile (i.e., >100%) penetration (saturation).

Existing high-quality / multi-faceted broadband service offerings (i.e., multi-play) at relative low pricing.

Entering a saturated, highly competitive and efficient market with multiple mobile and fixed operations.

* In Western Europe

23

Greenfield challenges to look out for.


Information Technology

(not an afterthought)

Backhaul

connectivity

Service management

Measure your customer

Site sharing possibility

(speedy rollout)

The right partnering

(strategic & financial)

Manage bandwidth

Regulatory policy& support

Backbone & Interconnect

connectivity

Opportunity basedNetwork rollout

Network Turnkey &

managed services

Technology choicenow & tomorrow

24

Partnership.


Deutsche Telecom Group is one of the biggest Telco's in terms of purchasing power of Mobile and Fixed infrastructure.

Procurement benefits & synergies by leveraging on more than 160 thousand operational radio-nodes.

Benefit from network design, planning & operational excellence from operating 17 mobile networks and serving more than 120 mio. customers worldwide.

Leverage on Fixed, Mobile and ISP operational know-how.

25

Thank you for your attention.

Contact details:[email protected] +31 6 2409 5202http://www.linkedin.com/in/kimklarsen

Acknowledgement: Many thanks to Stefan Wilhelm (DTAG), Minoo Abedi (T-Mobile), Alan Yeo (DT Asia), Dirk Schoneboom (T-Mobile) for invaluable discussions and challenges and the many entrepreneurs that I have had the privilege to meet and discuss with over the last couple of years.