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From 2G to 3G. Bjørn Erik Reinseth CEO 19 March 2002. Agenda. Operator options Business models Players Services Culture. 2G characteristica. No value chain – operators in full vertical control Limited service development – services specified by ETSI Low financial risk - PowerPoint PPT Presentation
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From 2G to 3G
Bjørn Erik ReinsethCEO
19 March 2002
Bjørn Erik Reinseth, March 2002 Page 2
Agenda
Operator options
Business models
Players
Services
Culture
Bjørn Erik Reinseth, March 2002 Page 3
2G characteristica
•No value chain – operators in full vertical control
•Limited service development – services specified by ETSI
•Low financial risk
•Creativity focused around network roll-out
•Extended lifetime – likely throughout 2012 => cash cow!
•Traffic generated by customer produced content (voice)
•Growth assured by increasing subscriber penetration
Bjørn Erik Reinseth, March 2002 Page 4
3G characteristica
•Operator control limited to customer administration & screening, billing and basic (carrier) services
•Traffic generated by third party content services as well as person-to-person communication
•Larger financial risks, especially with high licence fees
•No ”proof” yet of a working business model
•Growth must come from increased usage, which will be revenue streams from other business areas
•Increased ARPU, but reduced margins
Bjørn Erik Reinseth, March 2002 Page 5
The operator options
Network competition alone will not develop the mobile market according the stated objectives
Most consumer experienced development are results of service developments rather than network developments
A broad range of operator categories (SP, MVNO, MNO) is the only way of creating the wanted dynamic market
Bjørn Erik Reinseth, March 2002 Page 6
ESP
SP SP
MVNO
ESP
MVNO
MNO
Time
Investments
Margin
The operator options
Bjørn Erik Reinseth, March 2002 Page 7
Vertical options from 2G to 3GNO
SP
GSMUMTS
A
B
UMTSNO
GSMSP
CUMTS
SP
UMTSMVNO
D
GSM 1800 +roaming + VAS
GSMSP or MVNO
& VAS
Bjørn Erik Reinseth, March 2002 Page 8
Service ProviderInternational calls
Calls to other operators
Sense Billing and Customer Administration
Voice Mail
SMS-C
International calls
Calls to other operators
Sense core network
Telenor/NetCom Voice Mail, SMS-C,...
Telenor/NetCom radio network
Telenor/ NetCom
core network
or MVNO
Bjørn Erik Reinseth, March 2002 Page 9
MVNO vs Service Provider
MVNO Service Provider
Own operator code w/own SIM cards
YES NO
Swap customers between networks
Technically easy New SIMs required
International roaming Own agreements MNO agreements
Radio network (basestations) NO NO
Core Network (switches etc.) YES Not required
VAS platforms Own MNOs (today)
Complete call control YES NO
Bjørn Erik Reinseth, March 2002 Page 10
A business for (fixed) content?•Fixed line internet provides no business model for
content services (charging for traffic only)
•Content providers are (desperately, but in vain) seeking to get shares of traffic revenues
•Fixed internet users are spoilt with free of charge content services
•Paper media with decreasing popularity cannot in the long run finance internet services albeit increasing popularity
•Two main challenges:• Willingness from media players to limit distribution• Simple and working debiting principles
Bjørn Erik Reinseth, March 2002 Page 11
What happened to e-business?•Internet as a channel was no more than advanced mail
order
•Type of business was secondary to channel of distribution
•Focus was on atoms and not bits• Bits: Pictures, video clips, music, tickets, etc.• Atoms:Physical items
•No business model for trading of bits (credit cards most suitable for atoms)
Sense will focus on trading bits!
Bjørn Erik Reinseth, March 2002 Page 12
What about mobile content?•There is a willingness to pay for mobile content
(ref. premium rate SMS)
•There is limted content avable for free (WAP only), hence users are not too spoilt with free content.
•There is a business model for mobile content services (ref. premium rate SMS)
•SMS is slowly becoming a general currency despite shortcommings like:• Expensive for credited part• Hesitance by operators to boost phone bill
excessively
•A model similar to premium rate SMS must be the governing business model for 3G mobile content services
Bjørn Erik Reinseth, March 2002 Page 13
Mobile content servicesTwo regimes so far:
• Premium rate SMS• WAP (circuit switched)
Why was WAP (to date) a flop and premium rate SMS a success?
Bjørn Erik Reinseth, March 2002 Page 14
WAP vs Premium rate SMS WAP Premium rate
SMS Attention High, but plunging Low, but soaring
Bandwidth Medium Very narrow
Terminal availability Limited All
Charging principle Traffic only Content + traffic
Revenues to CP NO YES
Charge per piece of information
NO YES
Users pay for reading time YES* NO
* will be overcome with WAP over GPRS
Bjørn Erik Reinseth, March 2002 Page 15
Players in the 3G value chain
Mobile operator (SP, MVNO or MNO; delivers and charges for mobile content services)
Content Provider:1. Content Facilitators (prepares chargeable
content for mobile devices and performs IPR management)
2. Content Producers (e.g. Disney, CNN, NRK, Scanpix, National Library)
3. Media Partners (e.g. magazines, newspapers, tv-channels, radio-stations)
Bjørn Erik Reinseth, March 2002 Page 16
Revenue breakdown (seen from MNOs)
”Gross”Margin
NetworkCost
Inter-connect
Cost
2G (voice)
Inter-connect
Cost
NetworkCost
”Gross” Margin
ContentCost Media
Partner
ContentProduction
ContentFacilitator
3G (SMS, GPRS, UMTS)
Bjørn Erik Reinseth, March 2002 Page 17
Mobile content services (SMS, GPRS, 3G)
Sensecontent
&servicesstation
Contentprovider
Contentprovider
Contentprovider
Networkoperator
2G, 2.5Gor 3G
networks
@(www)
Sensewill provide flexible
billing solutions for content
Content providerscontrol own pricing
and branding
Standardisedinterface; technically
and comercially
Bjørn Erik Reinseth, March 2002 Page 18
MNO – Content Provider relationshipThe conseption of MNO purchased or controlled content
will never be accepted by Content Providers
Content Providers will never accept a limited distribution of their content (i.e. through selected operators only). Exclusive content deals will be time limited only.
The operator must accept Content Providers right to own:• Branding• Pricing• Editorial freedom
Bjørn Erik Reinseth, March 2002 Page 19
3G servicesThe mobile business will never re-experience a killer
application like mobile voice
There is no 3G killer application, so stop looking!
Three main driving 3G services (other than voice):• Internet surfing• MMS (third party content)• MMS (point-to-point)
”2G is a self playing piano.In 3G you must compose the music and play it yourself”
Unknown wise guy
Bjørn Erik Reinseth, March 2002 Page 20
Market development - voice/non-voice (2G/3G)
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Voice ARPU VAS ARPU
Month
ly A
RPU
/mobile
penetr
ati
on (
%)
Mobile penetration
Voiceneverdies
Source: Lehman Brothers Research, 2000
soaringARPU,
plungingmargins
Bjørn Erik Reinseth, March 2002 Page 21
3G pricing structures
Two main changes:• Towards fixed monthly
price for (non-voice) traffic
• Content charged per attributes, i.e. not for size or time
Traffic will be; voice, MMS, internet surfing, content download
Subscription/availability
Traffic
3rd partycontent
(charged byoperator)
Operator produced VAS
3rd partycontentchargedthrough
credit cards, accounts etc.
Bjørn Erik Reinseth, March 2002 Page 22
Cultural changes
Operators’ 2G experience and success is a big threat to the 3G development.
Looking for a 3G business model with a 2G business model in mind will fail
Organisations require different mindset, skills and attitude in a 3G world. This transitions will be an enormous challenge to organisations which have always experienced growth
Bjørn Erik Reinseth, March 2002 Page 23
Cultural changes
The engineers’ dominance in the mobile business must cease.
Must threat mobiles more like FMCG, but remember• get to know every customer,
not only the sum of customers
Mobile content is definitely like FMCG
2G is about doing things right, whereas3G is about doing the right things!
Bjørn Erik Reinseth, March 2002 Page 24
Summary – transition from 2G to 3GDesperate need of a sustainable business model
Large changes in organisational culture required
Operators will play a less significant role
Growth must come from increased usage