Barriers and Enablers to Sustainable Growth in Emerging Marketspeople.dsv.su.se/~mad/IB7200/IB7200F4.pdf · 2007. 5. 7. · • Abis over Satellite • Local switching • Enable

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Low ARPU/High Growth

Barriers and Enablers to Sustainable Growth in Emerging Markets

Bengt Wattenström

Director Business DevelopmentEricsson Global [email protected]

mailto:[email protected]

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Source: World Resources Institute Eradicating Poverty Through Profit conference

Building a sustainable development

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Global market development

Mobile Operators are now targeting spending levels at 5 USD/month

Addressable market vs telecom spending

Sources: Ericsson estimates

80 % of Subscriber growthwill come from emerging markets

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Low ARPU, where?

Potential, low income subscribers in urban areas with coverage

Potential, low income subscribers in rural areas without coverage

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Low cost cellular business model… Low ARPU high EBITDA margin how do they do it ?

Source: Pyramid, October 2006http://bic.ericsson.se/sources/pyramid/RPLOWCOSTMODELS.pdf

http://bic.ericsson.se/sources/pyramid/RPLOWCOSTMODELS.pdf

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Communicationfor All

WHY What

HOW WHERE

Ask the basic questions

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Potential Adressable Market for Developing Countries

680 million households in 20 emerging markets making less than US$ 6000 annually / householdTotal households annual earning, US$ 2 trillionWillingness to spend 5% on telecom connectivity (excluding applications & enterprise)Total annual potential market, more than US$ 100 billion

“The dominant assumption is that the poor have no purchasingpower and therefore do not represent a viable market ”

CK Prahalad, The Fortune at the Bottom of the Pyramid

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Economic value

Generating income

Gives savings

Shared usage

Receive calls/SMS only

Beeping

Contacts to earn a living / survival

Replace postal services, travel,...

Information, business & education

Games, entertainment

Social networking

Social value

Personal phone

TV, ...

Source: DFID livelihoods researchP2P contacts, the initial enabler for improved living conditions

Affordability

Low-Spending SegmentUser behaviour from Needs to Wants

Triggers

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Barriers & Enablers Creating a sustainable Business Framework

Infrastructure

Applications

ServiceDelivery

Low cost Phones

Business Models

Regulationand Taxation

SPC

Network

Consumers

Operator 1

Operator 2

Operator 3

Financing

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Opportunities for Users

Opportunities for Society

Opportunities for Operators

Mobile Voice a killer application

Mobile Communication triggers sustainable socio-economic growth to Emerging markets

Access to new subscribers in rural and underserved areas with maintained profitability

Building a sustainable business



New Business Models



Objectives & Solutions for Low ARPU Segment

Objectives Solutions Implications to the Operators

Network Sharing (NetCo)• Pay only for capacity utilized• Do away with high implementation cost

Site Sharing (Prime Integrator)• Reduce CAPEX and OPEX of site

deployment by sharing sites with other operators

Capacity Growth • Increase capacity at lower cost by maximising capacity per siteTo provide affordable capacity and coverage

To lower cost of establishment

Coverage Expansion • Reduce the number of sites needed to meet coverage requirements

Biofuel • Provide an alternative source of fuel which is cheaper than diesel

Remote power • Reduce CAPEX by centralizing power in one site

To provide remote areas with mobile services

• Abis over Satellite• Local switching

• Enable inaccessible areas to be reached, generating extra revenue

To reduce cost of power in rural areas

Objectives & Solutions for Low ARPU Segment



Case Study: Coverage Expansion (Morocco)Meet coverage requirements with less sites

Environmental constraints. Expander does not work well in cities with water and hills.

Reduce number of sites from 50 to 25, resulting in CAPEX and OPEX savings

As part of the strategy to target new market segments, there is a need to provide mobile coverage to sparsely populated rural areas over 4200 sq km

By using coverage expansion solution (formerly known as Expander), less sites are needed as the cell radius of each site is extended

New Subscribers: 60,000

Traffic: 10 mErlang per subscriber

ARPU: USD10 per month

Network Profile Key Benefits

Key Success Factors

Situation Overview



Coverage Expansion – FinancialsEBITDA and EBIT Margin

37%

55%50%

59%

0%

10%

20%

30%

40%

50%

60%

70%

EBITDA Margin EBIT Margin

Traditional Expansion Coverage Expansion

1Note: Total Cost of Ownership is the addition of Network OPEX, Service OPEX and CAPEX Depreciation

Total cost of USD68/year per subscriber with traditional network expansion, reducing to $48 using Coverage Expansion solution

With lower total cost, the operator could achieve better EBITDA and EBIT margins

1Total Cost Per Year/Sub

$68

$48

0

10

20

30

40

50

60

70

80

TCO Per Year

USD

Traditional Expansion Coverage Expansion



Ericsson’s Rural Business Model

A means to create wealth and opportunities for people in developing economies by providing affordable high quality telecom services

A way to generate return on capital invested for all the involved business partners

A means to lower the entry hurdles for operators and subscribers, thus encouraging rapid expansion and positive cash flow



Reasons why operators don’t build rural coverage in developing countries

Many operators earn good money where they aretoday (Urban)

Many Operators struggle with Opex issues

If they would go rural with the traditionalbusiness model, they have to build their own network in parallel with their competitors.

Therefore they are not so eager to take the financial and operational risk



Ericsson Rural Business Model

The Operator doesn’t have to own the network

Operators share network and sites

World Bank (or similar) provides credit

Ericsson builds a shared network

Ericsson takes the operational risk

The Operator takes the market risk

Pay-as-you-grow model



The Rural Business ModelExample from Tanzania

Equity owners

NetworkCommercial Bank(s)

Consumers

Operator 1 Operator 2 Operator 3

Sida

Infrastructure and Operations

Infrastructure owner and License holder

Technical training and application support

• Ericsson• Financial Institutions• Local investors

Rural NetCoLtd.

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System solutions and Applications



Many people see technology as the problem behind the digital divide. Others see it as the solution. Technology is neither. It must operate in conjunction with business, economic, political and social system.

User applications based on local information

Healthcare • information• campaigns• treatment

Education • information sharing• Internet access

Mobile banking• money transfer• mobile wallet

B2B trading• pricing / market info• hiring

Facilitated by Ericsson Mobility World

Healthcare • information• campaigns• treatment

Education • information sharing• Internet access

Mobile banking• money transfer• mobile wallet

B2B trading• pricing / market info• hiring

Facilitated by Ericsson Mobility World



Site Solutions

http://zooma.semcon.se/ViewImage.aspx?ViewMode=1&Id=5B469CF7-F388-4732-8E1C-213A1929B9F7



System solutions: Satellite for backhaul, Local Switching and Local Breakout.



Biodiesel Solution for Emerging Markets

GSM RBS 2116

Biofuels processing equipment, photo courtesy of Ageratec

Peanuts

Environment friendlyLower costJob creation



What if………..

Satellite Transmission cost could be lowered with 60-70%Calls could be switched locallyComplete radio sites could be built 60% cheaperCore network could be sharedAccess network could be sharedFinancial risks was sharedPower was a non issue and creates local jobs.Tariffs could be lowered way below 10 UScents /minute with maintained profitability



Conclusions

It is possible to provide affordable and profitable communication in emerging marketsThe business models from Western Europe cannot be cut and pasted into high-growth emerging marketsAccess to communications results in undisputed socio-economic benefits to the user

Fresh fishfor sale



Global market developmentLow ARPU, where?Low cost cellular business model�… Low ARPU high EBITDA margin how do they do it ?Potential Adressable Market for �Developing CountriesLow-Spending Segment�User behaviour from Needs to WantsBarriers & Enablers �Creating a sustainable Business FrameworkObjectives & Solutions for Low ARPU SegmentCase Study: Coverage Expansion (Morocco)�Meet coverage requirements with less sitesCoverage Expansion – FinancialsEricsson’s Rural Business ModelUser applications based on local informationSystem solutions: Satellite for backhaul, Local Switching and Local Breakout.Biodiesel Solution �for Emerging MarketsConclusions

Documents

Barriers and Enablers to Sustainable Growth in Emerging Marketspeople.dsv.su.se/~mad/IB7200/IB7200F4.pdf · 2007. 5. 7. · • Abis over Satellite • Local switching • Enable