Mobile Internet Startups predicting the next big win

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Mobile Internet Startupspredicting the next big
win

• Sanjay JhawarVice President, Wireless, cirlab!

July 2001
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The Parent CIR Group

• CIR Compagnie Industriali Riunite
• one of Italys most significant industrial
  groups, founded in 1976
• publicly traded in Milan (CIRX)
• FY2000 revenues 2.52 billion, capital employed
  1.05 billion, net income 86 million
• controlled by the De Benedetti family
• mission create shareholder value through
  dynamic management of investment portfolio and
  taking an active role in management of operating
  companies
• focus on media, utilities, telecom and automotive
  components
• some major telecom and new media investments by
  CIR
• LEspresso/Kataweb (49.6)
• leading Italian portal with 256 million monthly
  page views 6.6m unique users (March 2001)
• H3G (12.9)
• 3G wireless license winner in Italy, currently
  building mobile network. JV with Hutchison
  Whampoa (who owns 78.3)
• broadband access providers eVia and CasaWeb

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De Benedetti Group Success Stories

• (Hutchison, CIR)
• recently awarded 3G-UMTS operator license in
  Italy
• Europes largest wireless market with 73
  penetration
• (now part of Vodafone Group)
• established in 1994 within Olivetti
• 2nd wireless operator in Italy and Europe with
  10m customers, 43 market share
• largest value creation in Italy since WW II
• (now owned by ENEL/Wind)
• established in 1995 within Olivetti
• the 2nd fixed line operator in Italy with 5MM
  customers
• acquired by Vodafone in Mannesmann takeover,
  recently sold to Wind for 6.5bn Corporate
  Venture Capital Fund
• established in 1985 to focus on emerging
  technologies
• total investments for 200MM
• 29 IRR since inception, 35 IRR since 1992

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Who is cirlab?

• cirlab! is a seed and early-stage value-added
  venture investor founded in 1999 and funded to
  30m by CIR Group, focused on
• wireless Internet services, applications and
  software technology
• digital media and broadband content
• other software and services
• Objectives
• invest in European, US and Israeli businesses
  where Europe is the major market
• exploit Italys mobile market size and our
  connections here and elsewhere
• be active partners in building the business,
  spending a lot of time outside of board meetings
  working closely with management
• Team backgrounds
• seasoned entrepreneurs, technologists, marketers
  and finance professionals with top-level
  operational experience in the US and Europe in
  our chosen sectors
• extensive personal networks in Italy, UK, US,
  France, Sweden, Israel and elsewhere

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cirlab! mobile portfolio
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Current outlook for mobile Internet ?

• 3G delayed, slow start to GPRS
• Operators with high debt and declining ARPU
  cutting all non-essential spending, looking to
  share 3G radio access networks
• Nokia, Ericsson, Motorola, Siemens, Lucent,
  Alcatel cut earnings estimates, downsize and cut
  back vendor financing.
• Comverse warns but so far nothing from Openwave.
• Market slump causing venture investment slowdown
  many startups struggling to raise money.
• European wireless startup investments (data from
  Tornado Insider)
• 171m invested in March
• 227m invested in April
• 127m invested in May
• 92m invested in June

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Active mobile Internet subscribers

• DoCoMo 23.0m
• KDDI 7.2m
• J-Phone 6.7m
• Shinsegi (Korea) 0.5m
• Sprint PCS 1.3m
• Verizon 1.0m
• ATT Wireless 0.6m
• Nextel 1.1m

• BT Cellnet 1.5m
• France Telecom 0.7m
• Telefonica 0.5m
• Omnitel 0.1m
• TIM 0.1m
• Others 1.65m
• Total 46.0m

Source Motorola 5/01
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Current outlook for mobile Internet ?

• Regular mobile Internet users in Europe growing
  from 2.5m in 2000 to 170m in 2004 (Forrester,
  9/2000)
• GPRS commercial network launches in several
  countries, many in soft launch
• GPRS smart phones finally coming at the end of
  this year to Europe?
• NTT DoCoMo on track for October 3G commercial
  launch
• High hopes for XHTML (WAP/iMode convergence),
  Java phones, instant messaging, MMS
• Killer app is still mobile email but now for
  enterprises. Momentum behind standardised mobile
  middleware from IBM, Microsoft, Oracle
• 2nd generation operator mobile portals rolling
  out
• European mobile ASPs iTouch (UK), Acotel (Italy)
  Aspiro (Sweden) had successful IPOs in last 12
  months.
• No shortage of VC funds waiting the right mobile
  investment opportunity

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Predicting the next big win
Market timing is critical. Advanced technology is
not enough
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2.5G operators spend money on?

• Subscriber acquisition in highly penetrated
  markets and for newer entrants
• Subscriber retention and ARPU protection for
  established players
• Manage GPRS expectation gap optimized
  applications
• Avoiding SMS gt GPRS revenue transition issues
• Threat from internet portals subscriber
  ownership
• Migration of legacy architectures to Internet
  accessibility
• Voicemail, IN, billing
• Working with their portal partners, introduce new
  applications on Internet time yet integrate with
  an existing telecom architecture
• Integration of user experience across architecture

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3G operators spend money on?

• build brand - new technology image
• rapid time to market
• start generating cashflow asap to cover interest
  payments
• new entrants must get established before
  incumbents can migrate legacy systems
• fill bandwidth
• price to stimulate demand, maximum possible
  proportion of data revenue
• minimize costs of providing commodity voice
  services
• capture customers from 2.5G
• new entrants encourage number portability
• allow users to migrate existing services with
  better QoS
• new terminal types to support new applications
• reduce costs of software upgrades
• open services mode for new entrants
• differentiated middleware, external apps
• improve periods of under utilization

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Other motivated buyers

• MVNOs
• Service differentiation without Radio Access
  Network
• Subscriber acquisition
• Cross branding tie-ins
• Well funded mobile portals and ASPs
• Especially operator owned entities eg Vizzavi
  etc.
• Application integration with telecom services, to
  capture operator revenue sharing
• Large enterprises
• Mobile office
• Mobile business process support - vertical
  applications

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End-user value-for-money
special device

• Reduce airtime needs, device costs
• Allocate bandwidth to higher value services
• Increase dynamic personalization
• Address intrusion
• Careful with easy of configuration and use,
  intelligent design for latency etc.

personalized
dynamically context aware(relevant, appropriate)
airtime
urgent
extra monthly fee
value
cost
intrusion
-
delay
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Value chainlocation based services

• Still evolving
• Several pieces not yet in place
• Issues not yet well addressed
• cost of location sampling
• push services
• privacy/availability

apps
transactionand billing
positioningtechnology
locationmiddleware
proximity detection
privacy availabilitycontrol
appplatform
CPSSnaptrackCellpoint
Signalsoft Xypoint
Teltier Personity Phone.com
InirU iProx
MicrosoftIBM Sun
Portal s/w Geneva
Webraska Akumitti ItsAlive GeePS Airflash uBmobile
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Value chainmobile advertising

• Early days
• Many pieces not yet in place
• Issues not yet well addressed
• privacy
• anti-spam
• reverse billing to advertiser, or credits to
  users
• balance between richness of media and cost of
  delivery
• integrating multiple touch points TV,
  billboards, Bluetooth, web, print

availabilitycontrol
contextawareness(e.g location)
brandowners/retailers
advertisingagencies
mediabuyers
profiletargeting
privacycontrol
contenttransfor-mation
pushservices
Phone.com CMG Ecrio Airflash
NikePGStarbucks
McCannJWT
Mediatude Lumeria
InitiativeMedia
Privada Ayeca Angara
Teltier
Teltier Personity
Phone.com IBM Oracle
interactivity
CMG, Hiugo, Iteru
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Value chainmobile media distribution

• Still evolving
• Several pieces not yet in place
• Issues not yet well addressed
• billing other than for traffic
• QoS
• broadcast and point-to-multipoint to reduce
  spectrum needed for distribution

mediacreators
contenttransform-ation
transactionand billing
pt-to-pt,multicast,broadcastgateway
radioequipment
digitalrights mgmnt
DSPCPU
Clientsoftware
Real Networks Microsoft
Disney Atomfilms CNN Universal BMG Sony
Microsoft
Real NetworksMicrosoft
Celltick Fantastic Streamingvendors
ARMTI Motorola Intel Analog Dev
Ericsson Nokia Motorola Lucent
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Technology Megatrends

• Signalling telecom protocols gtgt Internet
• Parlay
• SIP
• OSA
• Internet megaservices distributed component
  services, usable by 3rd party general internet
  applications
• SOAP
• .NET/Hailstorm
• AOL IM, ICQ, Yahoo Messenger, MSN
• Mobile mass storage
• 512MB compact flash cards
• 1GB CF size microdrives

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Moores Law not the whole story
Processor power at constant cost 2X in 18mo
Log(performance)
Moores Law
Mobile WANs and 3G phones will beclient-server
NOT network computers
t
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Insights for potential startups

• Critical gaps needing solutions
• Cached media, overnight delivery, digital rights
  management
• Server management of rich clients
• Internet applications accessing telecom functions
• Integrated voice/visual interface billing
  network presence
• Quality of Service management on 2.5G
• IP multicast/broadcast over 3G
• Cross application megaservices
• application pre-rating
• proximity detection, cellular positioning and
  Bluetooth
• mobile media distribution over multiple
  operatorsa mobile Akamai
• dynamic personalization bridging internet and
  telecom