From 2G to 3G

1
From 2G to 3G

• Bjørn Erik Reinseth
• CEO
• 19 March 2002

2
Agenda

• Operator options
• Business models
• Players
• Services
• Culture

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 gt
  cash cow!
• Traffic generated by customer produced content
  (voice)
• Growth assured by increasing subscriber
  penetration

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

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

6
The operator options
Investments Margin
MNO
MVNO
MVNO
ESP
ESP
SP
SP
Time
7
Vertical options from 2G to 3G
8
Service Provider
or MVNO
9
MVNO vs Service Provider
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

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!

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

13
Mobile content services

• Two regimes so far
• Premium rate SMS
• WAP (circuit switched)
• Why was WAP (to date) a flop and premium rate SMS
  a success?

14
WAP vs Premium rate SMS
will be overcome with WAP over GPRS
15
Players in the 3G value chain

• Mobile operator (SP, MVNO or MNO delivers and
  charges for mobile content services)
• Content Provider
• Content Facilitators (prepares chargeable content
  for mobile devices and performs IPR management)
• Content Producers (e.g. Disney, CNN, NRK,
  Scanpix, National Library)
• Media Partners (e.g. magazines, newspapers,
  tv-channels, radio-stations)

16
Revenue breakdown (seen from MNOs)
17
Mobile content services (SMS, GPRS, 3G)
Sense will provide flexible billing solutions
for content
Content providers control own pricing and branding
18
MNO Content Provider relationship

• The 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

19
3G services

• The 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 Unkn
own wise guy
20
Market development - voice/non-voice (2G/3G)
soaring ARPU, plunging margins
Voice never dies
Source Lehman Brothers Research, 2000
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

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

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, whereas 3G is
about doing the right things!
24
Summary transition from 2G to 3G

• Desperate 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