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Assessing the WLAN business opportunity

This assessment explores the WLAN business opportunity by analyzing key features of the developed business model, revenue and cost modeling, user segments, hot spot types, end-user usage patterns, and strategic concepts.

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Assessing the WLAN business opportunity

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  1. Assessing the WLAN business opportunity 2008

  2. WLAN opportunity assessment Key features of the business model already developed Environment overview Business plan support Six user segments with the option of six subscription packages and four prepay pricing packages for each segment WLAN business planning Strategic concept Revenue and cost modelling Twelve different hot spot types with three different revenue and cost share propositions with the hot spot owners Link between end-user usage patterns and backhaul requirements, including different backhaul options (ADSL, Frame relay) Primary research1 Service proposition modelling Multiple scenarios for user levels, speed of hot spot roll-out, level of own network vs. roaming and pricing to assess key sensitivities Project assessment (NPV and payback period) based on variable levels of WACC Opportunity assessment process Summary Analysys offers an established modular-based support to assess the WLAN opportunity Robust and modular project methodology In-depth understanding of key issues WLAN product offering Real WLAN project experience

  3. Analysys offers support in the WLAN opportunity assessment with varying degrees of prices and engagement levels Business plan assumptions validation 2-3 day workshop 4-5 weeks activity Business plan development 2-4 weeks activity Strategic concept development 6-8 weeks activity Primary market research

  4. Analysys overview Key developments in WLAN Key issues in the WLAN opportunity Areas of WLAN consulting support

  5. An integrated service portfolio Company & market data Client needs & our expertise Entrepreneurial ideas • Systems support: • Knowledge management • Web support systems Research Consulting Ventures • Deliverables: • Information design • Quality assurance Online intelligence services ·reports · papers Strategy · business plans· market forecasts · valuations · implementation Market entry support ·venture management

  6. Analysys Consulting: Advising clients across sectors through specialised internal groups Corporate Finance group Decision Systems Established operators group Wireless & Satellite group Pricing, Costing and Regulation group Media group Fixed, mobile and satellite operators Banks and investment institutions Regulators and policy makers Equipment, media and technology companies Large corporate users

  7. Analysys profile Since 1985, Analysys has provided strategic advice on telecomsmarkets across the world … Analysys offices Analysys projects Analysys associates

  8. Project expertise … working with the different industry stakeholders across a range of issue … Operators Licence acquisition WLAN strategy NGN / new technology assessment Tariff planning Market entry strategy Business planning Return on investment analysis Cost modelling Due diligence Suppliers Investors Infrastructure investments Spectrum management Tariff regulation Regulators

  9. Selected client list … assisting leading telecoms organisations across the world Some of our clients worldwide: Mobile operators Amena | MMO2 | Vodafone | Swisscom Mobile | Sonera | T-Mobile | StarHub | SmarTone Fixed-line / cable / satellite operators BT | AT&T | Deutsche Telekom | France Telecom | Telefónica | Retevisión | Inmarsat Regulators and industry organisations Oftel (UK) | ART (FR) | CMT (SP) | ICP (PT) | UMTS Forum | ECTA | ITU | BAKOM (CH) | MCMC Financial institutions BNP Paribas | Citibank | Deutsche Bank | JPM Chase | SSB | CSFB | Toronto Dominion Media and technology Reuters | ONO | MENTA | BBC | Multimedia Development Corporation | Transat Equipment vendors and users Alcatel | Canon | Lucent | Marconi | Nokia | Nortel | Siemens | Hewlett Packard | IBM

  10. Analysys overview Key developments in WLAN Key issues in the WLAN opportunity Areas of WLAN consulting support

  11. Walking speed WLAN overview Technology Public WLAN access will deliver limited mobility high-speed data access … 100Mbit/s 100Mbit/s Fixed LAN 50Mbit/s 50Mbit/s 802.11a HiperLAN2 10Mbit/s 10Mbit/s Transmission rate 802.11b/WiFi 1Mbit/s 1Mbit/s HomeRF HomeRF Bluetooth Bluetooth 500kbit/s 500kbit/s UMTS GPRS GPRS 50kbit/s 50kbit/s GSM GSM Blackberry (US) BlackBerry (USA) Driving Stationary speed Source: Public Wireless LAN Access: A Threat to Mobile Operators, Analysys Research, 2001

  12. … at prices significantly less than other wireless services Comparison of prices per mbyte for a selection of data and voice services (EUR) 0 0.01 0.10 1.0 10 100 1000 SMS (UK) BlackBerry (prepaid) i-mode (9.6kbit/s packet, Japan) GPRS UMTS Ricochet (128kbit/s) WLAN (flat rate, 500Mbyte/mth) PDA (19.2kbit/s, flat fee) Fixed dial-up (56.6kbit/s, flat fee) T1 Private WLAN ADSL (1.5Mbit/s/256kbit/s) Source: Analysys

  13. Private WLAN penetration is a critical catalyst for the success of public WLAN Increase in demandfor public access Involvement of major players 802.11 NIC penetration for private WLAN • Funding for infrastructure • Establishment of roaming agreements • Improved end-user interface Increase in public WLAN number of users and in revenues Number ofhotspots

  14. Revenues from equipment sales 300 500 450 250 400 350 200 300 150 250 USD millions (total market) USD millions (by segment) 200 100 150 100 50 50 0 0 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 Enterprise SOHO Total market size Private WLAN is already a significant market • Chip shipments are estimated at 15-20 million in 2002 from a base of 8 million in 2001 • Unit prices have fallen dramatically from 1Q 2001 to 2Q 2002 • access points have dropped on average from USD600 to USD450 • broadband gateway prices have dropped from USD260 to USD160 • NICs have fallen from USD160 to USD90 • Increasing competition in the market – nearly 70 vendors in the market, and products increasingly standardised and certified by WECA Source: Dell O’Loro, Analysys

  15. Some major players are already involved… Telia Home Run is run independently of the mobile operator Copenhagen airport running its own WLAN service TDC Mobile targeting 100 hot spots BT Openzone has a major thrust Natario launching in Manchester Cloud has announced plans to launch 3000 sites China Mobile aggressively developing hot spot strategy Services are available in most major US airports and increasingly at hotel and café chains – 3400 hotspots Key players include Wayport, Voicestream/T-Mobile and AT&T/Intel: (Cometa) Swisscom acquisitions of WLAN AG and Megabeam has resulted in the first pan-European WLAN network Five country operators have formed a WLAN roaming alliance in South East Asia

  16. …with nearly 5000 hot spots already deployed in USA and W. Europe • Significant expansion expected in the USA with Cometa • European deployment significant in Austria and Scandinavia, expansion expected in the UK and Germany Hot spots (Jan 2003) 4000 3500 3000 2500 2000 1500 1000 500 0 USA Western Europe Source: Analysys Research (2003)

  17. Analysys overview Key developments in WLAN Key issues in the WLAN opportunity Areas of WLAN consulting support

  18. The nature of the public WLAN business Business users are expected to be the key drivers for initial WLAN take-up Role of WLAN in overall telecoms portfolio needs to be considered Nature of hot spots expected to be a key driver for revenues Backhaul costs form a significant part of network related costs Different types of operators have different areas of competitive advantage

  19. Business users are expected to be the main users using laptops as access devices • Laptops are expected to be the primary form of access devices for the next couple of years • As these are currently focused on business users (although there is increasing home penetration), business users are expected to be the main users • Business users are expected to constitute in excess of 60% of total users even by 2006 • In South Korea, the market has developed on the basis of residential users, primarily because of high residential broadband penetration. Other countries are not expected to follow this trend Source: Analysys Consulting project results (2003)

  20. Nature of hot spots is expected to be a key revenue driver 6 Public spaces Airports large Cafes and restaurants 4.5 Corporate offices Years to positive cashflow Train stations small Hotels small 3 Train stations large Hotelslarge Airports small Conference facilities 1.5 0 15 000 30 000 45 000 60 000 75 000 90 000 Cumulative capex until 2005 Note: Size of bubble indicates contribution to total revenues Source: Analysys Consulting project results (2002)

  21. Fixed operators are well placed to exploit the network economics Network-related cash outflow components 100% 90% 80% 70% 60% 50% Percentage of total cash outflow 40% 30% 20% 10% 0% 2002 2003 2004 2005 2006 2007 Capex Opex Rent Backhaul Source: Analysys Consulting project results (2002)

  22. Fixed operators Access to business customers Favourable network economics Opportunity to provide private WLAN as part of business solutions arm Mobile operators Strong understanding of mobility needs of business SIM-based authentication for secure user validation WLAN is a direct threat to a portion of mobile data revenues So who is best placed to own the end customer? WSPs/hot spot owners • Have access to prime hot spots (WSPs have been first movers) • Limited resources • Absence of a customer base

  23. Key strategic questions still need to be answered • What is the overall business opportunity for WLAN? • What is the retail/wholesale opportunity? • What is the role for private WLAN – for businesses and residential broadband? • What is the most appropriate organisation structure to deliver customers: • Utilise strength of existing sales organisation? • Create a separate ‘venture’ enabling flexibility and speedy decision making? • What role should the operator take in the overall value chain? • Build own hotspot network or buy wholesale? • Roaming arrangements and partners required in-country and internationally? • Revenue-sharing arrangements with different value chain entities? • What is the service proposition to offer (in terms of types of tariffs)? • What should be the range of subscription and prepaid and level of pricing?

  24. Analysys overview Key developments in WLAN Key issues in the WLAN opportunity Areas of WLAN consulting support

  25. Review and development of a new business plan for an European incumbent. The project involved a detailed assessment of the market forecasts, propositions for end-users / hot spot owners and an understanding of the sensitivities on pricing. The project also recommended organisational improvements Currently developing a white paper to support an aggregator in the USA in assessing and quantifying the benefits on WLAN roaming For a US WLAN technology company, evaluation of the business plan and presentation of our recommendations for positioning of the company within the WLAN value chain, the market potential, the marketing potential and we explored opportunities for strategic partnerships For a company developing software enabling new WLAN applications, we wrote a white paper on the opportunity that WLAN services can offer to wireless service providers Supporting a fixed and mobile operator in Europe in validating key assumptions in the business plan For a major European mobile operator, we carried out a study into the corporate wireless LAN market in the operator's home country and other European countries. The study involved research among decision-makers, influencers and end users, using telephone interviews and focus groups, and the preparation of forecasts of market size in several European markets. Our client used the study, as input into their strategic planning process. Public Wireless LAN Access: Market Forecasts. This Analysys Research report describes the prospects for the public WLAN opportunity in Europe and provides market forecasts in terms of equipment, hotspot locations, users, pricing, ARPU and revenues. Analysys brings relevant experience in WLAN from live and commercial networks and technologies …

  26. Hot spot owners WISPs … with several major players involved in the WLAN value chain Authenticationandsecurity Billingandroaming Customerownership Hotspotownership Networkprovisioning Provisioning specialists WISPs Technology enablers Aggregators Telecom operators

  27. We have developed a robust modular methodology through our extensive project work in WLAN WLAN opportunity assessment Environment overview Business plan support WLAN business planning Strategic concept Revenue and cost modelling Primary research1 Service proposition modelling 1 Questionnaire design and interpretation of results undertaken by Analysys Research. Actual research undertaken by local agency appointed by Analysys or Turk Telekom

  28. Output: strategic options identifying role in value chain, market opportunity, key areas of immediate focus Environment overview Strategic concept External factors would be critical to further define strategic options Market scenarios Competitive threat • Identification of key competitors –companies known to be launching similar services and companies that are likely to do so • Potential threat in terms of role in value chain, potential service offering • Understanding of key market drivers (penetration, usage, pricing) and initial assumptions regarding market development • Definition of key scenarios, and elaboration of market potential (type of end user) in each scenario Strategic options • Regulatory issues surrounding spectrum utilisation • 802.11a vs. b vs. g vs. …. • Security and authentication • Seamless technology roaming • Assessing different options for position inthe value chain – in terms of being anintegrated operator or a virtual operator (roaming on others’ networks) • Assessing investment requirements, existing hot spot availability Role in value chain Regulatory and technological issues

  29. Environment overview Primary Research Analysys Research supports the structuring, research and interpretation of results Decision maker questionnaire Research results Research brief • Laptop, PDA take-up • Private WLAN status • Geographical usage patterns • … Results interpretation End-user questionnaire Analysys Local agency to administer questionnaire

  30. Capex Opex Business plan support Revenue and cost modelling Analysys has already developed a business model structure to assess the WLAN opportunity … Demand inputs (Analysys forecast model) Cost inputs (Analysys and client) WLAN users WLAN hotspots Hotspot costs(*) Customerservice costs WLAN traffic Retail revenues Wholesale revenues REVENUES COSTS/INVESTMENTS Cash flows (*) Only for integrated operators

  31. Business plan support Revenue and cost modelling … with a range of flexibility critical to assess the complexity of the WLAN business opportunity Key features of the business model already developed Six user segments with the option of six subscription packages and four prepay pricing packages for each segment Twelve different hot spot types with three different revenue and cost share propositions with the hot spot owners Link between end-user usage patterns and backhaul requirements, including different backhaul options (ADSL, Frame relay) Multiple scenarios for user levels, speed of hot spot roll-out, level of own network vs. roaming and pricing to assess key sensitivities Project assessment (NPV and payback period) based on variable levels of WACC

  32. Analysys offers support with varying degrees of prices and involvement Business plan assumptions validation 2-3 day workshop 4-5 weeks activity Business plan development 2-4 weeks activity Strategic concept development 6-8 weeks activity Primary market research

  33. For further queries or consulting support, please contact: Amrish Kacker Senior Consultant amrish.kacker@analysys.com Analysys Consulting Limited 24 Castle St, Cambridge, CB3 0AJ, UK Tel: +44 1223 460 600 Fax: +44 1224 460 866 www.analysys.com

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