insights: ericsson region latin america and caribbean

October 2014

2 Insights: Region Latin America and Caribbean – October 2014

WELCOME

Sergio Quiroga da Cunha, President, Latin America and Caribbean

Ericsson has been present in Latin America since 1896, with our first agreement in Colombia and delivery of equipment in the region. We expanded our presence in the 1900s with commercial deals in Argentina, Brazil and Mexico. Today, we have offices in more than 40 countries in Latin America and the Caribbean, with over 15,000 employees. We are the global leaders in radio access, telecom services and OSS/BSS, and we hold a greater than 50% market share in LTE in the region.

In our latest Region Latin America Insights brochure, we share recent findings from our consumer research, highlights from the Ericsson Mobility Report and stories with our customers in the region.

Information and Communication Technology (ICT) is poised to fundamentally transform the way we live and interact with our surroundings. While the past few decades of technology progress have taken great strides, they have merely laid the foundation for what is set to come. We are now at a pivotal stage where the next wave of transformation and creative innovation in the form of mobile, cloud and big data will be the catalyst for an entirely new society model. Ericsson is at the forefront of all this, leading the way through innovation, scale and highly skilled employees.

Transforming Industries

ICT-enabled services are gaining momentum all over the world. This has been driven by the transformation of many industries, resulting in better lifestyle experiences and more efficient industrial processes. In many cases this will lead to gradually changing or completely redefined structures and industries. The effect is that barriers to experimentation are removed and everyone can contribute to innovation.

The result of these changes is that a wide range of roles will become available in various industries – incumbents will be disrupted but others will make waves beyond their current industry. Future markets will be defined by their functional need and content perspective, rather than from physical proximity. This makes it possible to develop and serve small exclusive niche markets with a rich proposition, as well as high volume utility capabilities across a set of global customers.

With connectivity, new layers of information will become available and radical ways to create services will form. Individual needs will move to the forefront compared with today’s mass production logic. As this happens across society, we can expect to see more

convenient and efficient ways to serve people, as well as a reduced requirement for intensive resources. This will contribute to the much needed resolution of current global challenges.

We are committed to working with our regional customers and partners to expand the borders of telecommunications for the benefit of people everywhere.

Regards,Sergio Quiroga

Ericsson has defined the six most important Game Changing trends shaping the future of TV and media as partof our vision for 2020. They bring together the impacts and influences across business, technology andconsumer fundamentals.

TV and media TRENDS

Consumers’ values and assumptions are rapidly evolving as they discover, access, pay for and share content-related experiences. TV players need to continually reassess how they can satisfy the most media-savvy and demanding TV consumers in history.

KEY POINTS

> Viewing time is increasing > Viewing habits are shifting towards on-demand

and time-shift platforms > We expect to see a 50 percent split between linear/live

and on-demand/time-shift content by 2020

Mobile and fixed IP broadband will transform the TV experience by extending access to content beyond the living room, reaching 15 billion video-enabled connected devices. This will radically change consumer expectations.

It is therefore important for all major players in the TV market to have an IP strategy.

KEY POINTS

> The number of connected devices globally will rise to 50 billion by 2020

> There will be 15 billion video-enabled devices by 2020> Mobility will be an important factor in video consumption> TV players will need to leverage broadcast and IP

delivery networks> An over-the-top (OTT) delivery model approach is

applicable to all

As brand advertisers look to build closer consumer relationships, they will shift their focus from working with content to creating it. Since this is likely to affect advertising spend, the resulting threats and opportunities need to be assessed throughout the media value chain.

KEY POINTS

> Brands are becoming online broadcasters, deepening consumer engagement

> Spending on advertising is shifting to personalization> Industry inertia and resistance to change means

adoption is slow > Personal data is becoming the new battleground

In the IP-fueled landscape of 2020, content remains king. But TV players’ strategies for bundling content, channels and services are being challenged as new aggregators leverage OTT delivery.

KEY POINTS

> TV & Media market will have strong growth, with revenuesrising from USD 530 billion to USD 750 billion by 2020

> Industry consolidation is driving scale. Subscriber growth leads to revenue growth, enabling exclusive content acquisition, which in turn encourages a further increase in subscribers

> TV service providers will have the opportunity to bundle all services, including broadband, telephony, mobility and TV management is a top priority

Consumers already expect to have access to TV content on any device, at any time, forcing content providers to connect to all platforms. Cloud approaches and web technologies will be crucial enablers in driving consumer behaviors and ensuring the ultimate aggregated TV service. This is what we call Pay TV at web speed.

KEY POINTS

> The cloud should be leveraged in terms of both content creation and processing, as well as consumer experience and delivery

> TV devices are becoming IP-centric and lower in cost> Home digital video recording (DVR) is shifting to the cloud

In the run up to 2020, TV service providers will have to deal with the emergence of disruptive new internet-powered rivals and business models.

TV service providers therefore need to build the ultimate TV service and maximize their positions.

KEY POINTS

> Social networks must be leveraged for TV > Internet giants such as Apple, Google and Amazon have

the potential to be powerful new competitors> New entrants can purchase exclusive content to drive

uptake> OTT services will grow strongly by 2020, but will still

account for only 10 percent of industry revenues

FOREVER EVOLVING

EXPERIENCES

IP IMPERATIVE

BRAND-CASTING

CHANGING CONSUMPTION MODELS AND

BUNDLES

CLOUD AND WEB

APPROACH TO TV

NEW MONEY NEW PLAYERS


The results from the quantitative study prove that appropriately-targeted capital expenditure leads to improved network performance. This translates into better market performance, whichis shown to boost financial returns.

Changes following 10 percent increase in capex over a five-year period

BRAZILIAN OPERATOR

Increasing capex USD 156 million/yearly

Increase in service revenues

(percent)

Increase in EBITDA margin

(percentage points)

Increase in NVP of FCV (absolute)

Increase in NVP of FCV

(percent)

+5.5% +6.4% USD 128.61m 6.7%

MEXICAN OPERATOR

Increasing capex USD 72 million/yearly+1.9% +1.0% USD 297.88m 1.6%

US OPERATORIncreasing capex USD 432 million/yearly

NPV – net present value FCF – free cash flow from operations

+5.1% +6.8% USD 381.48m 17.1%

Source: Ericsson and Telecom Advisory Services LLC (2014)Base: Market data from Brazil, Mexico, US

Thus, the study conclusively demonstrates that investments in network quality ultimately translate into better financial returns for operators. These improved returns are derived not only from cost savings, but also from increased revenue.


value ofperformanceEach new device, application and user has unique requirements, and operators are being challengedto meet them all. The key task is, therefore, to build superior performing networks that can handledifferent types of usage and beat expectations in every situation. We call this Real Performance.

Ericsson recently commissioned a study to investigate the issue in more depth. It was carried out by Dr. Raul Katz, President of Telecom Advisory Services, and Director of Business Strategy Research Columbia Business School. The study, which was conducted in Brazil, Mexico and the United States, explored the relationship between capital investments in mobile telecom networks and the commercial and financial performance of their operators.

The casual relationships between the variables analyzed in the quantitative study are shown right.

1

2

3

4

CAPITAL EXPENDITURES

> Capacity upgrades> Network modernization> Product/service development

MARKET PERFORMANCE

> Market share> ARPU increase> Churn reduction

FINANCIAL PERFORMANCE

> Revenues> EBITDA> Free cash flow from operations

OPERATIONAL PEFORMANCE

> Accessibility and data completion rate> Percentage of connections over 1 Mbps> Speech call quality index> Latency reduction> Downlink broadband speed

Illustration of causal relationships between the variables in the quantitative study

Source: Ericsson and Telecom Advisory Services LLC (2014)


The ever-increasing ubiquity of smartphones has seen consumers accessing the internet more frequently throughout the day, both indoors and outdoors. Over time, apps and data have become just as much an integrated part of everyday life as SMS and voice calls. Operators are struggling to maintain their reputation within the mobile ecosystem alongside handset manufacturers, operating systems and content suppliers. This creates a challenging environment, with increased churn and customer disloyalty.

The results of the Network Performance study reveal that loyalty is lower than average among mobile

THE VOICE OF THE CONSUMERRecent research from Ericsson ConsumerLab

NETWORK PERFORMANCE

TV & MEDIA 2014

The results of ConsumerLab’s “TV & Media 2014” report show that streaming habits are closing in on linear TV. S-VOD (Subscription-Video On Demand) services accelerate binge watching; in Latin America, 57% of respondents want all episodes to be released at once, enabling them to binge watch. Consumers are willing to increase the amount they pay in order to have access anywhere. Content is king – content is becoming more important from the consumer perspective, and it is time to change the structure of TV services.

operators when compared to others players in the ecosystem. Consumers have high expectations, and this affects customer loyalty when they cannot reach at least the standard performance. Network performance is currently the main driver of loyalty to operators, which is closely linked with value for money. When network performance satisfaction improves, perceived values for money also improve. Consumer perception is that data speed and coverage are poor, especially on public transportation. Introducing measures to improve network performance would help to alter this perception and differentiate offerings. The bottom line: loyalty makes money.

Marketing

Customer service

Offer

Network

Base: Smartphone users in Brazil, Chile & Mexico who usetheir smartphones to access the internet at least once a week

Source: ConsumerLab Network Performance 2013 Study

Network performance 24%

15%

11%

10%

9%

9%

6%

6%

6%

5%

Value for money

Customer support

Price plan/tariff options

Account management

Billing and payment

Handset/Devices offered

Rewards for being a loyal customer

Initial purchase process

Ongoing communication aboutservices

Average hours watching video on each device per week

0 2 4 6 8 10 12 14 16 18

TV-screen 2014

TV-screen 2012

Desktop computer 2014

Desktop computer 2012

Laptop 2014

Laptop 2012

Smartphone 2014

Smartphone 2012

Tablet 2014

Tablet 2012

Other screen 2014

Other screen 2012

In homeAway from home

hours

Source: ConsumerLab TV & Media 2014 StudySample: People with internet access that watch at least any TV/Video content once a week at any device

Device viewing Smartphone and tablet users have increased their total viewing time more than 30% since 2012.

Network performance and value for money are the key drivers of operator recommendation.

WHAT DRIVES LOYALTY IN LATIN AMERICA


Latin America is an economy very much built on cash. Many employees, especially those informally employed, receive their salaries in cash, and it is very common to save money at home rather than relying on bank accounts. In many places, cash is the only means of payment. High mobile penetration and a small proportion of banked consumers in the

region mean that the conditions for m-commerce are very favorable. As much as 74% of people who are not using m-commerce today are interested in starting to use at least one such service on their mobile phone. 66% percent of this group are interested in mobile shopping, and 44% percent feel positive about starting to use mobile banking.

M-COMMERCE IN LATIN AMERICA

Source: ConsumerLab M-Commerce Latin America 2013 study Base: ConsumerLab Analytical Platform 2012

INTEREST IN M-COMMERCE

Latin America

Argentina Brazil Chile Colombia Mexico

M-Commerce

Mobile Banking

Mobile Wallet

Mobile Shopping

74% 60% 73% 80% 80% 79%

44%

42%

66%

30%

27%

55%

57%

56%

62%

43%

42%

72%

44%

46%

71%

47%

43%

70%

The main reason to start using m-commerce is convenience, but this means different things depending on economic status and whether consumers have a bank account. For unbanked consumers, the main benefit is avoiding time-consuming lines when paying bills or withdrawing money from ATMs, as well as improved security from not having to carry cash. For consumers who are already banked, m-commerce would mean a more flexible everyday life, where payments, shopping and other transfers can be handled from anywhere, at any time.

Convenience is a key driver for m-commerce for both strugglers and achievers.

Safety and control are essential forLatin Americans.

Consumers lack overall trust in institutionsand network performance.

Main consumer take-aways for m-commercein Latin America:


DRIVING CLOUD TRANSFORMATION

INNOVATIONOperators can innovate with a rich environment . By harnessing the power of the Cloud, you can cost-efficiently try out ideas and flexibly scale those that are successful in generating new revenue. It is estimated that 80 percent of enterprises will have adopted the SaaS model by 2020 and a typical enterprise will run nearly 70 percent of its infrastructure in the cloud or other locations outside its own data center (source: Real Performance for Enterprises, Ericsson, April 2014). Operators can provide value by opening up the network for innovation and providing APIs for enabling third party development, helping to integrate ICT into other industry value chains.

EFFICIENCY Today’s networks are often complex, with dedicated nodes taking up a lot of power and space and many different operational support systems to supervise.This leads to costly operations. Cloud and virtualization provides an opportunity for operators to transform their organization with simplified processes and tools, delivering high performance when needed, and low total cost of ownership when not, as well as being able to automate tasks as much as possible to reduce opex. With open virtualization format (OVF), nodes can be built up automatically, dramatically reducing set-up time.

SPEED

It often takes too long to roll out new services. Costs become tied up in the organization, and it takes much longer to generate revenue. In some cases, services might take several months to roll out due to the complexity of the network and related support systems. With a pool of hardware resources available for different virtual network functions, you can scale capacity for existing and new functionality on an on-demand basis. In a virtualized environment operators can develop their communications offerings, e.g. by flexibly moving resources from MSS to IP-based VoLTE/IMS communication.

SUPERIOR PERFORMANCENetwork performance has the biggest impact on customer satisfaction compared to any other factor. This was the discovery in a recent Ericsson ConsumerLab report.

Ensuring superior performance, while gradually moving to a virtualized environment, requires an overall orchestration and management capability that can cater for both legacy and virtualized environments. We are actively working on securing a superior cloud performance, for example by optimizing for low latency. We have also suggested a number of factors in OpenStack that need improvements to create a true carrier-grade environment, in areas such as resource allocation and security.

Cloud is the largest disruption to the global ICT infrastructure market. By 2018 we estimate the value of cloud managed solutions to be more than USD 53 billion (source: ESF 2013, IDC, Infonetics). This will be higher than the value of traditional software and hardware solutions used for computing and storage. Below are some of the key drivers for transforming to a cloud environment.

FAST FLEXIBLE AND IN CONTROL

FRESH DATA

An agile operator combines big data with real-time capabilities. They look at different data sources, correlate them, analyze the results and provide actionable insights that an be used right away.

SMART BLOCKS

An operator who is agile takes a modular approach to designing IT systems, based on standardized components with built-in intelligence and infinite configurability – rather than custom-made systems that are rigid and inflexible to change.

SELF-STEERING

An agile operator allows their network and subscribers to take care of themselves. This is achieved by using automated systems that can detect and solve issues, along with user self-service which puts your subscribers in control of their own spending, services and subscriptions .

ECOSYSTEMATIC

An agile operator is always ready to collaborate. An eco-systematic approach focuses on more cooperative ecosystems. It enables you to establish value-added services, and expand your offering alongside external partners.

3D VISION

Finally, the agile operator proactively combines network and user data to optimize service delivery and address user needs more effectively. The essence of 3D vision is a focus on breaking down the walls within your organization and making the user your core priority.

MEET THE AGILE OPERATORSuccess in the Networked Society is all about agility. For operators, this translates to being fast, flexible and in control: delivering great experiences to consumers, operating efficiently and developing innovative new offerings for a rapidly diversifying market.

Our experience in operations and business support systems shows that with a modular and configurable approach, operators can reduce launch time for new

services from 26 weeks to one week. In addition, maintenance and development costs can be lowered as much as 30 percent. An agile network that can fine tune and maintain itself for constantly changing environments can cut opex by up to 40 percent.

Below, you will find the characteristics shared by successful operators. Combined, we call them the Agility Formula.

EricssonSE-126 25 Stockholm, SwedenTelephone +46 10 719 0000www.ericsson.com @Ericsson AB 2014

EXPLORING THE REGIONAt Ericsson, we pride ourselves on our history of innovation and technology leadership. Below you will find examples of where we have really pushed the boundaries, working to meet the evolving needs of our customers throughout Latin America and the Caribbean.

WORLD CLASS SERVICE DURING WORLD CUP

Our Key Event Experience ensured users on Telefónica’s and TIM Brazil’s networks excellent network quality during the 2014 football World Cup.

BANKING ON FINANCIAL INCLUSIONWe partnered with ASBANC, Peru's National Bank Association, to design and implement Mobile Money to benefit 2.1 million Peruvians to own a mobile wallet by 2019.

ON BOARD FOR BIG DATAPartnership between Entel, Ericsson and Chile’s Undersecretary for Transport analyzes user data to enable better transportation management in Santiago.

SOLVING PROBLEMS BEFORE THEY STARTOur Proactive Services ensure Entel, Chile continuous proactive monitoring and improvement of the network, preventing critical issues from causing downtime or service degradations.

IMPROVING CUSTOMER SERVICESWe are providing managed services to Cable & Wireless/LIME in the Caribbean, helping the company to improve services to their users.

THE CITY GOES DIGITALWe’re teaming up with Telefónica to provide smart lighting and parking solutions in the Águas de São Pedro digital city project in São Paulo, Brazil.

NEXT-GENERATION TV IN BRAZILTelefónica chose our AVP 4000 Encoder Family in order to bring the most advanced video processing technology to Brazil.

FAST-FORWARD FOR 5GOur partnership with the Federal University of Ceará in Brazil is accelerating research into 5G technology.

LTE MARKET LEADERSLTE is the global standard for the fourth generation of mobile networks supported by all major players in the industry, and we hold a greater than 50 percent share of the LTE market in the region.

SMALL CELLS DELIVER BIG QUALITYOur small cell solutions, such as the RBS 6402 and Radio Dot System, address customers’ needs for high speeds and improved coverage in indoor and small spaces.

114,000 employees

180countries with customers

USD 5 billioninvested in R&D annually

40countries with Ericsson offices

123 years in Latin America

USD 1 billionin R&D in 15+ years

1 billion subscribers on networks managed by us

15,000employees

2.5 billion subscribers supported by us

25,000 R&D employees

35,000 granted patents

50% global LTEsmartphone traffic handled by our networks

64,000 service professionals

USD 34 billionnet sales 2013

Ericsson at a glance#1 MOBILE INFRASTRUCTURE

OSS/BSS SERVICESTV & MEDIA DELIVERY

Ericsson is a world-leading provider of communications technology and services. We are enabling the Networked Society with efficient real-time solutions that allow us all to study, work and live our lives more freely, in sustainable societies around the world.

13,000 service professionals

Globally:

Regionally:

ERC-14:000287 Uen