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Broadband Monetization Challenge for Telcos

Broadband Monetization Challenge for Telcos. Dr. Markus Steingröver, June 2011. Main Assumptions & Key Questions. Our key assumptions set the frame in which the key question - How can a telco effectively monetize broadband to recoup the required investments - has to be answered.

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Broadband Monetization Challenge for Telcos

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  1. Broadband MonetizationChallenge for Telcos Dr. Markus Steingröver, June 2011

  2. Main Assumptions & Key Questions Our key assumptions set the frame in which the keyquestion - How can a telco effectively monetize broadband to recoup the required investments - has to be answered. • Broadband capacity build up is without any alternative for telcos • The build up requires significant investments • There is no “one solution” broadband access technology • Connectivity business has few possibilities for differentiation, leaves most of the value chain to others and provides no real growth perspective • In Indonesia Internet will be mobile Detecons Key Assumptions Key Questions • How can a telco optimize the required capacity build up • How can a telco effectively monetize broadband? Focus of today’s discussion • What are profitable mobile data business models? • What pricing schemes optimize my revenues? • What options does a telco have to capture a share of the Over-the-top business?

  3. How can a telco optimize the required capacity build up? Central Questions Geomarketing Optimal network upgrade requires a paradigm change from technology-driven to demand driven rollout - based on current service usage – with the help of network measurements. “Traditional Rollout” Demand Driven Rollout What services are demanded? Who has the demand? 2 1 Cash Contribution CAPEX Cash Contribution CAPEX Revenues OPEX Revenues OPEX Where is the demand? 3 Which quality the users expect? Cash Contribution [mEUR] Cash Contribution [mEUR] Revenues, techn. Opex, techn. Capex [mEUR] Revenues, techn. Opex, techn. Capex [mEUR] 4 How much service is requested? 5 Positive cum.cash contribution Positive cum.cash contribution When is the demand? 6 10 11 12 13 14 15 16 17 18 19 20 10 11 12 13 14 15 16 17 18 19 20 28.8 (MIMO) LTE LTE 28.8 (MIMO) 14.4 14.4 3G Footprint 3G Footprint Page2

  4. What are profitable mobile data business models? New mobile data business models allow for easing network utilization at peak times as well as for an increase of downstream and upstream revenues. Mobile Data Business and Technical Solutions Optimizationof network Utilization/Offloading • Network/App Analytics • Hotspot Utilization/traffic offload • Shifting usage to non-peak times • Service oriented billing with defined QoS For example, AT&T retired its unlimited data 3G plans in 2010, in favour of a metered data usage model • Full connectivity of device or app paid by partner For example, Amazon pays for Kindle’s 3G wireless connectivity • Specific connectivity of device or app paid by partner • Connectivity can be data volume, access time, content, app feature, etc. • Split billing between content provider and operator for network consumption by a user Downstream (end user) revenues Upstream (3rd party) revenues Page3

  5. What are profitable mobile data business models? Various services allow Telcos to benefit from their core competencies and to add a new revenue stream. Video Telephony Streamed Video Gaming Mobile & Hybrid IPTV +463% 45.362 Traditional* 4.058 32.533 Total OTT TV Revenue 4,10 Telepresence Online 743 0,73 Mobile Mobile VT 2010 2014 2009 2014 2010 2014 *Traditional = Computer + Console Sources: IDC 2010, ABI Research 2010, IDATE 2010, The Diffusion Group 2010 Page4

  6. What are profitable mobile data pricing schemes? Monetize customer preferences Operators have to move beyond the “one size fits all” flatrate to win new users and to reinstate the correlation between usage and revenues. Strategic Threads Relevant Segments Pricing Principles Defend margins in the heavy user segment • Young adults: • Students and young employees • Low income • P2P & video streaming • Tariff plan with real-time notification if usage limit is reached and either additional charges per MB or option to reset volume → Shorten payment period • Postpaid plan with usage cap and Speed-Step-Down after usage limit is reached Young Professionals: • Tech-Savvys with multiple devices • Newly hired, medium income • Music & video streaming Win new users and monetize casual and medium users • Parent not at work: • Mostly mum with kids • Medium / high income • Online-Shopping, Reading • Prepaid plans with extended credit lifetime (useful for thin and sporadic bandwidth usage, e.g. eBooks downloading) • Postpaid plan with combined package (e.g. laptop and Sim-card) and service contract MBB PRICING STRATEGY.PPT Digital Seniors: • Basic technology usage • High income • News, browsing, email Page5

  7. Mobile Broadband Pricing - Case Study “Claro Brazil” Claro Brazil cancelled the unlimited data plans to reduce heavy usage and offers now data packages tailored to usage patterns. • Claro is the largest mobile operator in Americas, part of America Movil and was launched 2003 in Brazil. • First operator in Brazil offering mobile broadband services in November 2007. Claro Brazil Tariff Example MBB Market Brazil • Claro offers a wide range of data packages for mobile broadband on handset and per USB dongle to address different usage patterns. Oi TIM 9.8% Vivo 6.6% 43.0% 40.6% Operators Benefit Claro • Reducing heavy usage on the network (Claro said that 86 % of its mobile broadband customers use less than 3 GB of data a month, so they do not require unlimited plans). • Offering user packages tailored to usage patterns. • Most of the operators have unlimited data plans with different speed levels or speed reductions: • Pushing USB dongles and data flatrates resulted in a rapid rise of network traffic with little revenue. MBB PRICING STRATEGY.PPT * Churn rate per year **Connections CAGR 2009-2015 Page6

  8. What options are there to capture a share of the Over-the-top business? Customers of premium services are willing to pay for convenience, convergent and trusted services. Convenience Bundles leverage core Telco assets. Leverage on clear Telco Assets Content Provider • Seamlessness: Offer more than a bundle of products offer a whole solution • Convenience: Telcos are local players  Offer installation and service on-sight in customer homes. • Local Context: Integrate special regional services • Trust: Embrace the customer relationship to establish the future convergent home. • Content: A telco cannot keep pace with rapid service innovation. Utilize OTTs to create new revenue streams – then participate Media Communication Advertisers Finance Allow Access to 3rd Party Content Seamless Device IntegrationBundle + + Fixed Mobile IPTV • Seamless Integration requires a comprehensive platform strategy • Android is currently the best option Co-operation Convergence Enabler Eg. Femtocells could enable mutliscreen support and provide a secure handover

  9. Key Take Aways Reflecting on our key question of today’s discussion: How can a telco effectively monetize broadband to recoup the required investments – monetize broadband? • A demand driven rollout is essential - avoid technology driven rollout! • Mobile data business models aim to ease peak network utilization as well as increase of downstream and upstream revenues. • Mindset Change: Co-opete not compete • Keep the customer relationship – bundle services with key assets • Enable 3rd parties - expose selected functions • Move beyond the “one size fits all” flatrates to win new users and to reinstate the correlation between usage and revenues. • Adding revenue streams is key by leveraging key telco assets: • Local, seamless convenient solution of devices & services while allowing 3rd party content • Video/Telepresence, Streamed Gaming, Mobile & Hybrid IPTV/VOD • Use your network experience to increase the customer experience Detecons take aways

  10. Detecon International GmbH Oberkasseler Str. 253227 Bonn · Germany Phone (+49 228) 700-0Frankfurter Str. 2765760 Eschborn · Germany Phone (+49 6196) 903-0 www.detecon.cominfo@detecon.com Your contact person: Dr. Markus Steingroever Manging Partner Phone: +49 228 700 1513 Mobile : +49 171 3315876 Fax: +49 228 700 1507 e-Mail: markus.steingroever@detecon.com

  11. What are profitable mobile data business models & pricing schemes? In the short run, operators face capacity crunches during peak times. In the long run, they cannot cope the huge demand without investment or adaption of pricing strategies. Network Utilization Network Capacity Demand and Supply Demand Maximum utilization level 4G Supply 3G Data becomes primary demand driver Demand and supply* Traffic load* 2G Optimum utilization level Mass market adoption of mobile voice Time Time (24h) • Operators are losing revenues due to up to 50% unused capacity of their networks. • On the other hand subscribers facing the problem of very slow or no connectivity during peak times. • O2 UK and AT&T are major examples which are facing congestion issues. • Although new mobile broadband technologies like LTE have higher capacities, the problem of capacity constraints will still remain. • Congested networks lead to a poorer user experience which could deter potential new users and increase churn. MBB PRICING STRATEGY.PPT Source: Barclay, HSBC, Detecon Analysis, Informa, *Bandwidth Page10

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