© 2010 IBM Corporation

What future in store for Mobile Communications

Telco 2015

IBV Institute for Business Value

Rob van den Dam, Global Telecommunications Sector Leader IBV

3rd Annual China LTE Summit

4G Mobile Broadband: Getting There from Here

May 5 - 6, 2011, Beijing, China

© 2010 IBM Corporation 2

Content

US

11%

France

8%

Spain

7%

China

5%

Mexico

5%Japan

5%Greece

5%

UAE

3%Czech

3%Portugal

3%

Brazil

3%

Poland

3%

S. Korea

3%Belgium

3%Sweden

3%

Germany

3%

Australia

4%Italy

4%

India

5%Russia

5%

UK

7%

Netherlands

5%

• Spending and Usage patterns for 2011- 2013

• Customer Advocacy

• Adjacent Market opportunities

Telco 2015 Five telling years, four future scenarios

2011 Consumer Survey 22 countries surveyed

• Trends

• Four contrasting future scenarios

• Revenue and profitability outlooks

© 2010 IBM Corporation

The growing role of emerging markets: the mobile industry is increasingly being driven by emerging countries

Toward a new hierarchy

1. Mobile Revenue YoY growth 3Q10

– Western Europe: - 1.0% – Japan: - 0.4% – North America: + 6.3% – Latin America: + 10.6% – Emerging Asia: + 11.3% – China: + 12.1%

2. The emergence of new giants:

And all know how to make profit with ARPU

< US$ 5

2005

2010

Q3

Top 10 mobile markets worldwide

(M subs)

USA; 297

USA; 208

China; 833

China; 375 India; 75

Russia; 126

India; 688

Russia; 217

Japan; 116

Japan; 90

Brasil; 195

Brasil; 86

Italy; 90

Italy; 71

Germany;107

Germany; 79

France; 46

Mexico;

88

Nigeria;

84

UK; 68

Source: Global Wireless Matrix Q310, Merrill Lynch, IBM

Institute for Business Value (IBV)

Etc…..

© 2010 IBM Corporation 4

21%

15%19%19%

6%5%5%4%

43%

27%

17%

31%

21% 20%

37%

15%

6% 7% 8%10% 11% 11%

18%

12%

Uti

liti

es

(g

as

, e

lec

tric

ity,

wa

ter)

Fo

od

& D

rin

ks

Tra

nsp

ort

Mo

bile

Te

lec

om

Va

ca

tio

n

Pa

yT

V S

ub

s

Go

ing

ou

t (t

hea

tre)

Ele

ctr

ica

l A

pp

lia

nce

s

Mo

bile

Bro

ad

ba

nd

Sp

ort

s

Clo

thin

g

Lan

dli

ne

Incre

ase S

pen

din

g

De

cre

as

e S

pen

din

g

Consumer sentiment in emerging countries is much higher than in developed markets

Source: 2011 IBM Global Telecom Consumer Survey, 22 countries, N = 11315

Compared to 2010 and previous years, are you likely to spend less, the

same or more on the following products / services in the next 2-3 years?

11%

18%13%

18%

38%33%

28%24%

11%

20%

8%

14%

8%12% 14%

10%

38% 39% 40% 42% 42%45%

50%47%

Uti

liti

es

(g

as

, e

lec

tric

ity,

wa

ter)

Fo

od

& D

rin

ks

Tra

nsp

ort

Mo

bile

Te

lec

om

Va

ca

tio

n

Pa

yT

V S

ub

s

Go

ing

ou

t (t

hea

tre)

Ele

ctr

ica

l A

pp

lia

nce

s

Mo

bile

Bro

ad

ba

nd

Sp

ort

s

Clo

thin

g

Lan

dli

ne

© 2010 IBM Corporation

5

In Southeast Asian markets, more consumer than less expect to increase spending on Mobile Broadband usage

21%

13%14%15%

25%

18%

8%7%6%5%5%4%

8%

16%

8%13%14%

21%

14%13%

45%48%

42%

24%

18%18%

12%9%

China

Sweden

UK US

Australia

Portugal France

Netherlands Spain

Czech R.

Brazil

Poland

India S. Korea

SPENDING ON MOBILE BROADBAND USAGE

Inc

rea

se

Sp

en

din

g

De

cre

as

e S

pe

nd

ing

Q05 Compared to 2010 and previous years, are

you likely to spend less, the same or more on

the following products / services in the next 2-3

years?

Source: 2011 IBM Global Telecom Consumer Survey, 22 countries, N = 11315

© 2010 IBM Corporation 6

The Southeast Asian consumers surveyed lead in daily accessing the Internet via the mobile phone or Laptop/Netbook

51%

39%37%

23%21%21%21%20%19%19%19%18%

11%9%

China

Sweden UK US Australia France Netherlands

Spain

Czech R.

Brazil Poland

S. Korea

Portugal

India MOBILE BROADBAND ACCESS

(daily access)

Q07 How often do you access the Mobile Internet via either the

Phone or Laptop/Netbook?

Th

rou

gh

mo

bil

e p

ho

ne

T

hro

ug

h lap

top

/Netb

oo

k

Source: 2011 IBM Global Telecom Consumer Survey, 22 countries, N = 11315

15% 15%

27%

8%

21%

14%

20%

27%

19% 13%

24%

46%

34%

43%

© 2010 IBM Corporation

An increasing number of mobile consumers use over-the-top services like mobile email, instant messaging and social networks

7

46%

66%

76%77%82%

87%95%97%97%

0%

20%

40%

60%

80%

100%

Ja

pa

n

Vie

tna

m

So

uth

Ko

rea

Ho

ng

ko

ng

Ind

ia

Sin

ga

po

re

Ind

on

esia

Ma

laysia

Ph

ilip

pin

es

With 221 million bloggers as of the end of December 2009, China had more than twice the number in the U.S.

Chinese video-sharing website

such as YouKu and social networking site Qzone are “one 100% replacements" for foreign sites such as YouTube and Facebook

Youku‟s video

software came

pre-Installed

on 50% of

smart phones

shipped in

2010 in China

June 2010

Mobile Social

Networking is

the fastest

growing Mobile

Content category

+56%

Dec „09

Dec „10

USA

Source: Comscore Media Metrix, June 2010 and February 2011

Percent of Internet users

visiting Social Networks

© 2010 IBM Corporation

This communication is increasingly augmented with videos, photos & other multimedia content resulting in phenomenal growth of data traffic

6 17 41 91201

397

80

182

406

867

65

158

342

615

15

37

89

34

207

483

1076

2184

85

2008 2009 2010 2011 2012 2013

Middle East & Africa

Latin Amercia

Central and Eastern Europe

Western Europe

Asia Pacific

North America

Mobile Internet /Data Traffic Petabytes/ month

135%

CAGR

SOUTHEAST

ASIA • 2007: 75% of traffic was fixed/mobile voice

• 2012: 90% of traffic is fixed/mobile data (2/3 of which is mobile data)

Source: Cisco Visual Networking Index, June 2009, IDATE, IBM institute for Business Value (IBV) Analysis

Mobile Internet

The AppStore

Smart phone

© 2010 IBM Corporation

Telecom revenues do not track the increases in network traffic anymore

Traffic

Telecom Revenue

Voice

Dominant

Data Dominant

Source: Nokia-Siemens; IBM Institute for Business Value (IBV) Analysis

Time

Traffic

Volume /

Revenue

Network Cost

(future

technologies)

Network Cost

(existing

technologies)

Value

Opportunity

Ecosystem Revenue

© 2010 IBM Corporation

Determining Trends

Underlying trends in the evolution of the

communications industry for which

there is very high degree of

certainty and consensus

Provide backdrop for the future of

telecommunications in 2015

After a decade of massive change what is the future of telecom?

2

Likely but uncertain trends

with potentially high

impact and multiple

outcomes

SCENARIO

SYNOPSIS &

OUTCOME

3

1

REALIZATION

PATH

4

Major economic, competitive

and technological events that

trigger each scenario

5

Telecom industry revenue and

profitability outlook for each

scenario by region and access

(fixed/mobile) for 2015

2008 Survivor

Consolidation

Market

Shakeout

Clash of Giants Generative

Bazaar

2008 Survivor

Consolidation

Market

Shakeout

Clash of Giants Generatiev

Bazaar

Revenues

Free Cash Flow (EBITDA - Capex)

© 2010 IBM Corporation

The interplay of addressable market growth and the competition/ integration structure produces 4 distinct future industry scenarios

SURVIVOR CONSOLIDATION

Spectrum

Passive Infrastructure

Active Network

Support Infrastructure

Retail Channels

Devices

Customer

Few large

players

dominate

Market

MARKET SHAKEOUT

Spectrum Passive

Infrastructure Active

Network

Support Infrastructure

Retail Channels Devices

Brand Brand

Customer Customer

Many players - Fragmented

GENERATIVE BAZAAR

Enabling the two-sided business

SERVICE

PROVIDERS

CONSUMERS

NET CO-OPNET CO-OP

Banking &

Finance

Banking &

FinanceElectric

Utilities

Electric

Utilities Health Care Health Care Telecom

Retail

Telecom

Retail Media

Organizations

Media

OrganizationsAplication

Developers

Aplication

DevelopersDevice

Manufacturers

Device

ManufacturersBanking &

Finance

Banking &

FinanceElectric

Utilities

Electric

Utilities Health Care Health Care Telecom

Retail

Telecom

Retail Media

Organizations

Media

OrganizationsAplication

Developers

Aplication

DevelopersDevice

Manufacturers

Device

Manufacturers

$

$

CONSUMERS / BUSINESS

OPEN

ACCESS

Telco$

De

cli

nin

g/ S

tag

na

nt

Ex

pa

nd

ing

Ad

dre

ssab

le M

ark

et

Gro

wth

Concentrated / Vertical Fragmented /Horizontal

Competition/Integration Structure

CLASH OF GIANTS

Telco

OTT/

OEM

Spectrum

Passive Infrastructure

Active Network

Support Infrastructure

Retail Channels

Devices

Customer

Spectrum

Passive Infrastructure

Active Network

Support Infrastructure

Retail Channels

Devices

Customer

© 2010 IBM Corporation

Generative Bazaar represents the most optimistic outlook for telecoms, relative to the IMF’s global GDP forecast for 2011 – 2015

-1%

1%

3%

5%

7%

9%

11%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Global GDP vs.. Telecom Services Growth Scenarios

Source: International Monetary Fund (IMF), World Economic Outlook Database, October 2009; http://imf.org/external/pubs/ft/weo/2009/01/weodata/index.aspx, IBM

Institute for Business Value (IBV) and IDATE Analysis, 2004 - 2009 growth forecasts are based on IDATE "World Telecom Service Market", 2008 Edition - January

2009, revision in July 2009. 2010 -2015 are IBM Telecom 2015 scenario forecasts

Generative Bazaar

Clash of Giants

Market Shakeout

Survivor Consolidation

2010 – 2015 Telecom Growth Scenarios

Global GDP

Global Telecom

5.3%

3.3%

1.8%

0.2%

4.5%

Gro

wth

Developing Asia GDP 8,6%

© 2010 IBM Corporation

Strong growth requires the industry to act collectively to create the necessary conditions for the emergence of more profitable scenarios

Industry Collaboration to compete against

OTT

Cost-effective

Ultra-Fast

Broadband deployment

Stimulate a range of new

and exciting next gen Services

by OPEN INNOVATION

Leverage

Analytics for

Customer

Insight

Enhance

Role in

Vertical

Markets

© 2010 IBM Corporation

The race for mobile broadband has been decided in favour of LTE

71%

67%

44%

43%

27%

20%

8%

27%

33%

48%

48%

39%

42%

38%

7%

9%

34%

38%

54%

2%

0% 20% 40% 60% 80% 100%

FTTx

4G/ LTE

3G

xDSL

CATV

2G

WiMAX

Critical to Success Neither Not Critical to Success

Which of the following access technologies are going to be critically

important to the success of your business over the next 5 -10 years?

“WiMAX only relevant if 3G/4G spectrum lacking”

Head of Product-IT Development, European CSP

2009 IBM Institute for Business Value Telecom Industry Survey N=61

Major operators LTE deployment schedule

Geographical mapping LTE developments

Ult

ra-f

ast

Bro

ad

ban

d

© 2010 IBM Corporation

Some national governments fund open access network infrastructures to spur economic growth

15

A nationwide ultra high speed fibre

access infrastructure and a

complementary pervasive wireless

network to support various

vertical sector economies

NBN as „game changer‟ for

consumers and international

competitiveness:

- Fibre with speeds > 100 Mbps

- NGN Wireless with speeds > 12

Inn

ova

tio

n

© 2010 IBM Corporation

Today’s consumers are getting smarter – Customer Advocacy is key to retain customers

16

0%

20%

40%

60%

80%

100%

Sw

ed

en

Fra

nce

Sp

ain

US

UK

Au

str

alia

S. K

ore

a

Ch

ina

Advocates

Apathetics

Antagonists

Advocates = customers who :

1.Recommend their Provider to others

2. Increase purchases if their Provider offered “other provider” products

3.Stay with their Provider if another provider offered a better price and/or higher quality service/product

Antagonists = customers who say „no‟ to all three statements

China has the:

• lowest proportion of advocates

• highest proportion of Apathetics

Cu

sto

mer

Insig

ht

Source: 2011 IBM Global Telecom Consumer Survey, 22 countries, N = 11315

© 2010 IBM Corporation 17

Consumers now have access to a huge amount of information and are interconnected

66%

56%

45%

34%

20%

18%

8%

8%

72%

57%

59%

24%

15%

19%

10%

11%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Recommendations / advice from friends,

familiy, peers

Internet search on comparison sites

Social Media, blogs, discussion groups,

knowledge sharing web sites

Web sites of communication providers

Emails from communication providers,

including promotional offers

Traditional advertising

Shopping portals/auctions

Retail stores

All ages

< 25 year

Q19 What are your preferred sources of information when you are looking for

communications products and services?

Recommendations from

friends/ family/peers, Internet

search on comparison sites,

and Social Media are the

preferred sources of

information.

Cu

sto

mer

Insig

ht

Source: 2011 IBM Global Telecom Consumer Survey, 22 countries, N = 11315

© 2010 IBM Corporation

Consumers do not always let their provider know about problems which is fundamental to their business

18

29% 33% 33% 37%45% 46%

52% 53%

65% 69%75%

71% 67% 67% 63%55% 54%

48% 47%

35% 31%25%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

US

A

Au

str

alia

UK

Sw

ed

en

Sp

ain

Glo

ba

l

Ko

rea

Fra

nce

Ch

ina

Bra

zil

Ind

ia

No

Yes

Do you ever complain to your service provider when you are disconnected

from the network during a conversation, a voice call or internet session?

Cu

sto

mer

Insig

ht

Source: 2011 IBM Global Telecom Consumer Survey, 22 countries, N = 11315

© 2010 IBM Corporation 19

But they do tell their friends/family and that can be damaging

34%

14%

8%

8%

40%

37%

35%

28%

24%

26%

20%

43%

40%

50%

38%

31%

5%

6%

10%

14%

30%

33%

14%

9%

Attempt to re-dial/re-

connect

Tell friends/family about

my poor experience

Avoid providers

friends/family have poor

experiences with

Contact customer

service

Switch providers – e.g.

use different SIM

My provider contacts me

when I have a poor

nework experience

Always Most of the time Sometimes Never

95% Attempt Redial/

Reconnect

94% Tell friends/family

about their poor

experience

89% Avoid Providers with

poor experience

What happens when you are disconnected from a mobile, landline

or broadband during a voice call or when accessing the Internet?

Cu

sto

mer

Insig

ht

Source: 2011 IBM Global Telecom Consumer Survey, 22 countries, N = 11315

© 2010 IBM Corporation 20

Apart from Banks/Government, CSPs are among the more trusted to manage identity and private/personal information

48%

33%

24%

20%

20%

17%

15%

15%

11%

45%

52%

63%

65%

67%

67%

59%

65%

58%

7%

15%

13%

15%

13%

16%

26%

20%

30%

Most trusted Moderately Least

Banks

Government Local autorities

CSPs

Healthcare organisations

Retail stores

Online stores

Insurance companies

ISPs (Google, etc.)

Social Networks

CSPs using

personal

data

for

Managing identity

Customizing Products

15%

16%

17%

18%

19%

20%

37%

38%

35%

38%

35%

38%

47%

46%

48%

45%

46%

43%

Object Don't Mind Don't Care

Online history with consent

Payments on Internet/Mobile

Advertising

80% don‟t mind/care

Online history without consent

Private data

Vert

ical M

ark

ets

Source: 2011 IBM Global Telecom Consumer Survey, 22 countries, N = 11315

© 2010 IBM Corporation

Vertical Market opportunities ranked as number one by consumers surveyed in China

21

Retail/Shopping Financial Services Healthcare

Public Services Utilities Travel & Transport

Nbr 1: Receive Mobile

coupons/Discounts (57%)

Nbr 1: Manage bank account

though mobile (59%)

Nbr 1: Reminders for

medications/appointments (54%)

Nbr 1: Authenicate for public/

local services (56%)

Nbr 1: Pay for public

transportation (60%)

Nbr 1: Alert when monthly usage

reach a pre-set threshold (61%)

Vert

ical M

ark

ets

Source: 2011 IBM Global Telecom Consumer Survey, 22 countries, N = 11315

© 2010 IBM Corporation

Mobile network operators face new challenges as data becomes the majority of the content they deliver

Our world is becoming

INSTRUMENTED

Our world is becoming

INTERCONNECTED

Virtually all things are becoming

INTELLIGENT

... The world need smarter networks

© 2010 IBM Corporation

Rob van den Dam

Global Telecom Industry Lead,

IBM Institute for Business Value

rob_vandendam@nl.ibm.com

www.ibm.com/iibv

Thank

you! 謝謝