Business Considerations for Migration to IMT-2000

Transcription

1 ITU-BDT Seminar on Network Evolution Sofia, Bulgaria January, 2003 Business Considerations for Migration to IMT-2000 Dr. Thomas Frisanco Director Marketing ICM N M B PD Siemens AG Germany Kiritkumar Lathia, C.Eng., F.I.E.E, Vice President Strategic Product Planning Standards & Fora Siemens Mobile Communications Italy ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

2 Example of Business Plan A real example from an Asia-Pacific country Three mobile operators (Champion, Public, Mini) Total population: about 24 million Per capita: USD 3,600 increasing by approx. 4%pa Business model for the life-cycle ( ~ year 2015) ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

3 IMT-2000 standards CDMA TDMA FDMA IMT-DS Direct Spread IMT-MC Multi Carrier IMT-TC Time Code IMT-SC Single Carrier IMT-FT Frequency Time (UMTS-Japan) (UMTS-Europe) W-CDMA HSDPA FDD 1xRTT 1xEV-DO 1xEV-DV cdma2000 (UMTS-China) (UMTS-Europe) UTRA-TDD TD-SCDMA HSDPA TDD (UMTS-USA) EDGE GERAN Chinese DECT TIA American Cingular ATT-WS 43% US market UMTS core Source: ITU ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

4 Evolution paths PDC PDC GSM GSM GPRS GPRS TD-(S)CDMA W-CDMA UMTS HSDPA TDMA TDMA EDGE EDGE 3G IS-95 IS-95 1xRTT 1xRTT cdma2000 1xEV-DV 1xEV-DO ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

5 The real 3G system Data Rate 5 Mbps W-CDMA TD-SCDMA 1xEV-DO HSDPA 1xEV-DV 3G 500 kbps 50 kbps GPRS 1xRTT 2G Time to market 1xRTT performance comparable to GPRS 1xEV-DO supports data only ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

6 Support of Various Service Combinations Real 3G TD-SCDMA Voice activity Data activity GPRS 1xRTT 1xEV-DO 1xEV-DV W-CDMA Example 1 High quality voice call High speed web surfing no yes no no yes Example 2 High quality voice call (call-back) Video conference no yes no no yes Example 3 High quality voice call Information retrieval yes yes yes no yes ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

7 IMT-2000 Requirements Support up to 2 Mbps data rates Support multimedia services Support of packet and circuit switched services Spectrum efficiency and high system capacity Flexible operating environments (Vehicular, Outdoor-toindoor pedestrian, indoor office) Improved global roaming due to global frequency coordination with an IMT-2000 spectrum in 2 GHz range Packet data network Quality of Service Interoperability with 2G networks but in North America This spectrum was just auctioned for PCS operators 2G systems (e.g. PCS) just started service with large investments in spectrum and IS-95 equipment Need of different 3G migration strategy ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

8 Mobile Subscriptions: Year End 2001 Total and GSM only France 36 Brazil Korea Spain 29 Other % 11 USA 12 Netherlands 20 Turkey 21 Taiwan Italy UK Germany Japan Total Subscriptions % USA China GSM Subscriptions % China Germany Italy Spain France UK GSM Association forecast = 1 billion for YE2003 Source: ICM N M, Status: July 31st, 2002 ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

9 Business Casing References: The strength is in Long Term Partnership Ireland UK Luxembourg Germany Italy Austria Ukraine Bulgaria Norway Sweden Russia Spain P.R. China Portugal HongKong Thailand Honduras Algeria Turkey Philippines Venezuela Ecuador Colombia Ivory Coast Brazil UAE Kenya India Indonesia South Africa Australia GSM Projects UMTS Projects ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

10 Business Plan Development: An integral part of customer relationship ICM Networks Marketing Portfolio Management Operator Business Plans Spectrum Economics Network Economics Market Assessment PD Portfolio Design DD Business Plan Due Diligence FP Frequency Policy CB Customer Benefits AS Market Analysis & Scenarios SB Solution Building. PD Business Plan Development IC Industry Co-ordination BI Business Impact CI Competitor Intelligence CV Customer Value Mgmt BC Budgeting & Controlling CS Customer Satisfaction AC Customer Analysis & Analyst Relations ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

11 Siemens is able to support the Strategy and Business Plan Development Various steps from conceiving a corporate vision up to detailing implementation activities are necessary. Vision and Concept Entry Strategy Company build up Implementation Vision Corporate philosophy International alliances Market Definition Assess market Understanding the market Positioning Develop a strategy - Business units - Products, Channels, Segments, Entry Regulator Business Planning Build a business case with const and turnover estimates Budgeting Investments Organization - Process driven - Customer oriented Integrated processes Technology and network planning IT Systems Key functions -Marketing - Sales - Customer Care Support functions Up-date strategy Implement the concept to build and develop core capabilities Focus resources on market entry date Integrated project management ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

12 Business Plan Development Customers benefit Typical questions to be answered Contribution of Siemens Business Development Process We intend to buy a 2G/3G license. Could the project be feasible from a financial point of view? How does market, penetration, ARPU etc. look like? Can investors expectations be met? Is our strategy in line with my financial expectations? When do we have to consider technology migration? What new services do we need to improve financial performance? Financial feasibility study Investors Case Development of fully comprehensive operators business plan Strategy assessment ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

13 Siemens Business Plan Support is modular The market and revenue simulations are the key modules of our business plan tool. Operator Benchmarking Business Plan Results: Network planning Business Plan Methodology: network % market OPEX Module Profitability Ratios Cash Flow Statement Profit / Loss Statement CAPEX Module Subscriber Module Accounting Module Balance Sheet ARPU Revenue Module P&L RoR NPV DSCR ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

14 Our services cover all market phases from late 2G entrant to future IMT-2000 incumbent Customer Market Phase New entrant in delayed market Migration 2G IMT nd wave UMTS - UMTS new entrant 2 nd wave UMTS - UMTS incumbent Investors case Fully comprehensive business plan Detailed subscriber model Migration benefits, operators market attractiveness, competitive churn, technology churn, retention mechanisms Data revenues, applications/solutions centric, bottom-up scenario modeling Supplier/product related incremental revenues, OPEX, CAPEX Link to product business plans Stimulate investors Position against new comers Build key strategic relationships Evaluate alternative relationships ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

15 Example of Business Plan A real example from an Asia-Pacific country Three mobile operators (Champion, Public, Mini) Total population: about 24 million Per capita: USD 3,600 increasing by approx. 4%pa Business model for the life-cycle ( ~ year 2015) ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

16 Structure of Business Plan model: The customer (Subscriber) is the KING! OPEX Module From market share growth to: - Reduce Churn CAPEX Module Subscriber Module Accounting Module - Increase ARPU - Increase use of services - Affordable new services Revenue Module Considerations: - Regulations (old & new) - Purchasing Power (pre-paid) - GDP and major trade partners - Virtual Home Environment ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

17 Structure of Business Plan model: The customer (Subscriber) is the KING! Penetration (%) and ARPU (US$) 60% 50% 40% 30% 20% 26,0 36,7% 24,2 42,6% 40,0% 22,5 44,8% 47,2% 21,7 21,2 49,2% 51,0% 52,4% 53,5% 54,3% 54,9% 55,3% 55,6% 55,7% 29,4 28,4 27,3 26,4 25,4 24,5 23,6 22,6 21, Max 56% Growth market ARPU decline due to market % From 2006 ARPU growth 10% 5 0% Penetration ARPU ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

18 Technology Adoption Rate: Users define it based on usefulness! 100% 90% Innovation Adoption Rates (%) 80% 70% 60% 50% 40% 30% 20% Killer Services defined by users! Ring tones as killer app.! ($1B) SMS failure in US Photos (MMS) Internet??? 10% 0% European 2G Penetration SMS Penetration GPRS/MMS Penetration 3G Penetration Source: Deutsche Bank ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

19 Technology Migration: The S curve 100% 90% 80% 70% Mobile Technology Split (%) 84,6% 69,1% 92,8% 98,7% 99,6% 96,9% Learning curve Timing / aggressive Technology churn Coverage 60% 50% 48,0% 40% 27,4% 30% 13,3% 20% 10% 0,3% 1,5% 4,8% 0% G Subs 2G Subs ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

20 Subscriber Migration to new Technology: 2G Networks will be with us for a long time! Total Mobile Subscribers (000) G/3G compatibility ARPU from 2G & 3G Subs services Competitiveness 3G Subs 2G Subs ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

21 Distribution of Subscribers per Operators Total Mobile Subs per Operator (000) Prepaid is norm Duopoly in long term Market share depends on service offerings New subscribers start with 2G Champion Public Mini ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

22 2G Subscriber Market Share: 2G Networks will be with us for a long time! G Subs per Operator (000) 3G starts to show from 2007 onwards G network will be phased-out due to financial non-viability Champion Public Mini ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

23 Subscriber Market Share: Mini will disappear (market consolidation)! G Subs per Operator (000) Champion Public ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

24 3G Subscriber Market: Migration from 2G to 3G and churn is norm! 3G Market Gross Additions Structure (000) Tech Migrators Churn > 2-3 year 3G Gross Additons Technology migration 2G to 3G Competition in services / tariff New subscribers start with 2G Churners within 3G Retained 2G to 3G Churners 2G to 3G Churners First Mobile Users 3G Non-Retained 2G to 3G Churners ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

25 Champion s Subscriber Market Segmentation: Prepaid Residential is key not post-paid! Year Average Subscribers Total (000) Prepaid is norm user control for telecom expenses Cash-flow & bad debt control New subscribers start with 2G Corporate & Business Residential Postpaid Residential Prepaid ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

26 Champion s 2G Subscriber Market Segmentation: Early migrators are business post-paid! 100% Subscriber Segment Split 2G (%) 90% 80% 70% 60% 62% 64% 66% 68% 70% 72% 74% 76% 78% Price insensitive migrate first Status symbol 60% 50% 40% 30% 20% 10% 0% 85% 85% 85% 85% 25% 24% 23% 22% 21% 20% 20% 20% 20% 20% 15% 14% 13% 12% 15% 15% 15% 15% 11% 10% 8% 6% 4% 2% G serving bad debt rated Corporate & Business Residential Postpaid Residential Prepaid ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

27 Champion s 3G Subscriber Market Segmentation: Early migrators are business post-paid! Subscriber Segment Split 3G (%) 100% 90% 80% 70% 60% 50% 40% 60% 20% 50% 40% 52% 64% 68% 69% 70% 70% 70% 70% Rich pre-paid migrate first 40% 30% 20% 10% 0% 37% 28% 60% 21% 20% 40% 20% 20% 20% 20% 20% 30% 23% 20% 15% 12% 11% 10% 10% 10% 10% Corporate & Business Residential Postpaid Residential Prepaid ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

28 Champion s ARPU: Budgetary and affordability constrains! 2G (Voice/Data), 3G (Voice/Data) and Blended ARPU (US$/month) Price competition keeps ARPU low ,2 23,1 20,6 18,9 18,0 16,9 16,3 16,6 18,7 19,5 19,6 19,6 19,8 19,9 Other networks take some of the telecom budget Blended ARPU ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

29 Champion s Revenues Revenues (US$ m) and Data Share of Revenues (%) % % 25% 20% Subscriber growth keeps revenue high up to G revenues from 2006 onwards Data revenue from 5% to +30% % 10% 3G revenues are critical post % 0 0% G Revenues 2G Revenues Data Share of Revenues ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

30 Champion s blended ARPU (ARPU / services) UMTS 3G Launch Launch Blended Blended ARPU ARPU (US$) Dip in the middle : 1.) Still few UMTS 3G Subs Subs UMTS 3G Success 2.) Applications Bottleneck Dips due: lower ARPU from 2G and transition 3G services have launch problems Interoperability 10 5 retention of high value customers Voice SMS EMS, MMS, IMS UMS Mobile office File Transfer, Intranet Video Phone/ Conferencing Internet Customised Content / Portal Fleet Management Gaming Sports (AFL) ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

31 Champion s OPEX breakdown Operating Costs (US$ m) Attention to IPR costs for network operations!!! IPR costs for contents not included OPEX dip due to stable-state 3G network OPEX broadly in line with network investments Total CoGS Total General & Administrative Costs Total Network Operating Costs Total Sales & Marketing Costs ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

32 Champion s CAPEX breakdown Network Investment (US$ m) Peaks due: initial 3G launch capacity increase Interoperability ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

33 Champion s Revenues & cash-flow breakdown Operating Cash Flow and Cash Flow After Investing (US$ m) Operating Cash Flow Cash Flow After Investing ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

34 Champion s future without 3G - # of subscribers Year Average Subscribers (000) Subscribers with 3G Subscribers without 3G ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

35 Champion s future without 3G - revenue Revenues (US$ m) Revenues with 3G Revenues without 3G ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

36 Champion s future without 3G Cash flow Cash Flow After Investing (US$ m) Cash Flow After Investing with 3G Cash Flow After Investing without 3G ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

37 Conclusion of Business Plan Users do not care about technology but services! 3G investments is a must for Champion Market consolidation and phase-out of Mini Already we see that small operators are leaving market in Europe Market consolidation will happen in USA as well Business model for the life-cycle ( ~ year 2015) and network operation IPR costs can dramatically impact the scenario negatively! ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

38 ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,

39 Business Considerations for Migration to IMT-2000 Thank You very much! Dr. Thomas Frisanco Director Marketing ICM N M B PD Siemens AG Germany Kiritkumar Lathia, C.Eng., F.I.E.E, Vice President Strategic Product Planning Standards & Fora Siemens Mobile Communications Italy ITU-BDT Seminar on Network Evolution January, 2003 Sofia, Bulgaria Siemens,