22nd to 23rd August, 2013Shangri La Hotel

Singapore

A STRATEGY FOR ASEAN

Organiser Co-Organiser

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent

Network ASEAN Forum 2013CONNECTIVITY

22nd - 23rd August 2013

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 3SNG 130822 - Connectivity ro ... on v10

Connectivity context – Highly dynamic ecosystem with critical role for ASEAN economic development

• ASEAN telecommunications markets dominated by mobile - >2/3 of revenue in most markets except Singapore

• Continued strong growth rates beyond mobile penetration rates of 100%, with slight declines in ARPU

• Region characterized by high variance in market structure - by ARPU levels, pre- vs. postpaid, levels of data usage/smartphone ownership

• Competition tends to be highly concentrated around top 3 players (>80% share), still with strong role of domestic-only telcos with select regional players

• Ongoing massive shift to data and 3G on the back of rapidly declining smartphone prices; emerging markets to date showing better monetization on traffic than developed markets

• Fixed connectivity in most markets at low levels of development with <20 connections/inhabitants – however strong push across region on fiber rollouts, with Singapore and Malaysia as early movers

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 4SNG 130822 - Connectivity ro ... on v10

Agenda

•International roaming

•OTT in ASEAN

•New services - Mobile money/virtual CC; potential for mobile advertising

•Regulatory maturity in ASEAN – spectrum, interconnect, local content requirements

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 5SNG 130822 - Connectivity ro ... on v10

Roaming charges in ASEAN countries are significantly higher than in Europe and vary across Telcos

0

10

20

€30

Europe

0.5

0.5

Celcom (Malaysia)

4.5

Digi (Malaysia)

2.7

SingTel (Singapore)

15.6

Starhub (Singapore)

12.5

Telkomsel (Indonesia)

11.3

Indosat (Indonesia)

20.5

3.0

0.1

Data charges (per MB)

Voice charges - calls made

(per min)

Voice charges - calls

received(per min)

SMS charges

0.0

1.0

2.0

3.0

€4.0

Europe

0.2

Celcom (Malaysia)

0.4

1.4

Digi (Malaysia)

0.9

2.5

SingTel (Singapore)

3.7

Starhub (Singapore)

2.6

Telkomsel (Indonesia)

1.0

3.5

Indosat (Indonesia)

0.8

3.5

0.2 0.2

Range

0.0

1.0

2.0

€3.0

Europe

0.1

Celcom (Malaysia)

0.4

0.9

Digi (Malaysia) SingTel (Singapore)

1.2

Starhub (Singapore)

0.4

2.6

Telkomsel (Indonesia)

1.5

Indosat (Indonesia)

1.5

0.2

n/a

Note: Charges are for usage within/across ASEAN countries; charges vary based on call or usage destination; charges exclude VATSource: Telco websites

0.0

0.2

0.4

0.6

€0.8

Europe

0.1

Celcom (Malaysia)

0.1

0.2

Digi (Malaysia)

0.1

0.2

SingTel (Singapore)

0.2

0.4

Starhub (Singapore)

0.2

0.4

Telkomsel (Indonesia)

0.5

Indosat (Indonesia)

0.8

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 6SNG 130822 - Connectivity ro ... on v10

ASEAN

APT

APEC

Roaming regulations in ASEAN would need to be strengthened to reduce charges

EUROPE’S REGULATION ON ROAMING IS HOLISTIC & WELL-ENFORCED…

…INITIATIVES ACROSS ASIA NOT COMMONLY ENFORCED, THUS LESS IMPACTFUL

• Holistic regulatory approach to international data roaming services

• Protect consumer interest

• Good compliance in all member states

• Ofcom, UK communications regulator, helps enforce roaming regulation

2009

2011

2007

• Roaming III: Caps retail prices for data roaming - Customers can sign up for a mobile roaming contract with

foreign operators while traveling

• Public consultation on 2007 regulation; results not satisfactory

• Roaming II: Cut in SMS and wholesale data roaming charges

- Cut-off mechanism available once bill reaches €50

• Roaming I: Cap wholesale & retail charges for voice calls

Note: ATRC: ASEAN Telecommunication Regulators Council; APT: Asia Pacific Telecommunity; APEC: Asia Pacific Economic CooperationSource: Ovum “Regulatory Status of International Roaming”

• Adoption of the Addendum of ATRC* Intra-ASEAN Mobile Roaming Rates to reduce roaming charges; countries to implement when ready

• Bilateral initiatives common- Malaysia & Singapore- Malaysia & Brunei- Singapore & Brunei

1

2

3

• Addresses transparency measures & bill shock

• Aims to remove regulatory barriers that cause high input costs for roaming

• Issued guidelines on provision of info to consumers on roaming & substitute technologies

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 7SNG 130822 - Connectivity ro ... on v10

Agenda

•International roaming

•OTT in ASEAN

•New services - Mobile money/virtual CC; potential for mobile advertising

•Regulatory maturity in ASEAN – spectrum, interconnect, local content requirements

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 8SNG 130822 - Connectivity ro ... on v10

OTT services in ASEAN markets are growing; likely a threat to SMS revenue

0

20

40

60

80

100%

Messaging as % of Non-Voice

Revenue

Malaysia

49%

38%

Singapore

58%

49%

Thailand

36%

21%

Indonesia

81%

57%

SMS AS A SOURCE OF REVENUE HAS BEEN DECLINING… …LIKELY DUE TO GROWTH IN OTT SERVICES

Many market drivers supporting substitution to OTT services

• Increasing Smartphone penetration

• Low price compared to regular voice

• Ease of access- Apps and app marketplaces- Telcos start to bundle VoIP (in particular smaller Telcos in

fragmented markets)

• Technological development- Improved sound quality on 3G networks- Deployment of high capacity all-IP networks (e.g. LTE)- Availability of alternative networks (Wi-Fi)- Features e.g. video conferencing

• Net neutrality regulation undermine attempts to block VoIP in certain markets

• Increase in consumer demand as users of dedicated VoIP expect mVoIP

Note: Non-voice revenue include data, messaging & VAS; does not include all Telcos in each countries Source: Wireless Intelligence; Gartner; Ovum; Informa

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 9SNG 130822 - Connectivity ro ... on v10

ASEAN players are expanding networks, partnering with OTT players & pushing apps usage

• Focus on network upgrades, innovative pricing and product mix to increase data uptake

• OTT threat mgt. primarily through partnerships and own app stores

• Network expansion (3G)- >50% CAPEX in 2011 allocated for

this

• Launched money remittance service, tracking & monitoring system etc.

• Network expansion (3G)- Contracted NSN in 2012

• Expanding mobile data and VAS offerings like app store, music, games etc.

INDONESIA SINGAPORE

*Rich Communications Services provide similar rich-featured messaging standards as OTT appsSource: Analyst reports; Bain analysis

• Expanding its LTE network

• Working with alliance partner Vodafone Group on an interoperable RCS* platform

• Expanding VAS offerings like NFC movie ticketing service, e-bookstore, NFC app etc.

• Upgrading its 4G & LTE network

• Launched new VAS offerings such as several mobile apps, mobile payment service using NFC, e-book service etc.

MALAYSIA

• Focuses on content bundling to promote wireless data services

• Offers deals with OTTs such as Skype & Deezer (music streaming service)

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 10SNG 130822 - Connectivity ro ... on v10

Agenda

•International roaming

•OTT in ASEAN

•New services - Mobile money/virtual CC; potential for mobile advertising

•Regulatory maturity in ASEAN – spectrum, interconnect, local content requirements

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 11SNG 130822 - Connectivity ro ... on v10

0

20

40

60

80

100%

Singapore

8%

92%

Malaysia

22%

78%

Thailand

39%

61%

Philippines

45%

55%

Indonesia

53%

47%

Vietnam

81%

19%

Banking penetration across SE Asia, 2012

A significant portion of the ASEAN population is still not served by the formal financial sector

Note: Banked population defined as percentage of the population 15 years and older that has a formal relationship with a bank or other financial institution via a current savings account, checking account, credit card or a combination of these products”

Source: Euromonitor

Banked

Unbanked

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 12SNG 130822 - Connectivity ro ... on v10

0

50

100

150

200

20

05

20

06

20

07

20

08

20

09

20

10

20

11

Population with mobile access vs.

formal financial services access (M )

Bank/BPR/Coop

Mobile

Subscribers

Rapid growth in mobile usage presents a unique channel to reach both banked and unbanked segments

Source: USAID, Sybase, Bain analysis

In contrast [to the banking sector], the Indonesian telco sector has been extremely effective in moving down market. … Combining FS expert with the broad market capabilities of the mobile telco channel presents a unique opportunity for gov’t and commercial entities to develop new business opportunities

- USAID Report

“

”

With the Indonesian population at approximately 250 million people, these new mobile banking services will help us attract new customers and expand our market share significantly

- Strategy & Finance DirectorCIMB Niaga

”

“

EXAMPLE INDONESIA - MOBILE PENETRATION OVERTOOK BANKING PENETRATION SINCE

’06…

…PRESENTING AN OPPORTUNITY TO TARGET BOTH BANKED AND UNBANKED SEGMENTS IN

INNOVATIVE WAYS

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Opportunities in mobile money along three categories of usage

Transactions Services Mobile Commerce Mobile Banking

Source: Bain analysis

1 2 3

• Utility bill payments

• Remittances (domestic, international)

• Cash-in/cash-out - Via banks, retailers, agents- Including government cash

payments

• Stored value account

• Mobile top-up

• Mobile wallet-to-wallet transfers (P2P)

M-Wallet

Traditional Payments- E.g., online shopping, online

games, media, virtual products

Mobile consumer services

Mobile shop/portal services

Mobile Banking

• Banking inquiries - E.g., account balances, SMS

alerts

• Mobile/online savings accounts

• Mobile/online loan applications and disbursements

• Insurance

- E.g., customer loyalty, mobile ads, coupons and offers

Mobile marketing services

- New mobile merchant payment technology (mobile POS, P2P on the spot, …)

Mobile merchant services

- New mobile consumer payment technology (NFC, QR code, …)

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 14SNG 130822 - Connectivity ro ... on v10

Agenda

•International roaming

•OTT in ASEAN

•New services - Mobile money/virtual CC; potential for mobile advertising

•Regulatory maturity in ASEAN – spectrum, interconnect, local content requirements

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 15SNG 130822 - Connectivity ro ... on v10

Regulatory challenges across ASEAN similar with potential for learning from other markets – select examples

Spectrum Interconnect Fiber rollout

• Various approaches to shaping competition, from focusing on few key players to fostering new entrants

• Increasing emphasis on assigning common spectrum blocks across ASEAN to facilitate connectivity (e.g. digital dividend blocks by 2020)

• General trend to reduce interconnect charges across markets, e.g. recent efforts in Thailand, which typically enable more level playing field for challengers

• Few exception like SMS Interconnect in Indonesia to reduce amount of spamming

Local content

• Emerging trend to push local economic participation in technology sectors related to telecoms, with efforts particularly in Indonesia

• Questionable net benefits as competition gets disrupted

• Only Singapore and Malaysia with broad rollout to date

• Key future challenge to enable broad-based rollout in other ASEAN markets, where telco economics often do not justify investments but significant multiplier benefits for other sectors are expected – various forms of public/private partnerships can be used

THANK YOU

Organiser Co-Organiser