www.ovum.com

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Global Trends in Broadband -

Combining technology and marketing for success

Julie Kunstler, Principal Analyst

julie.kunstler@ovum.com

Alcatel-Lucent’s Ultra-Broadband Symposium - 19 November 2014 - Hong Kong

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The grass is not greener on the wireless side

LTE was meant to be a premium service.

Orange - October 2012 - “There will be an

LTE premium… We want to accelerate the

LTE rollout in France to get ahead of the

competition.

Orange - December 2013 - “Sosh, the

digital commitment-free brand, will include

4G in its €24.99/month mobile package,

which features 5G of mobile internet.”

Orange - April 2014 - “Prices have reached

floor level in France -- there can still be

wars, but not on tariffs…operators are

coming back to a more classic approach,

fighting on promotions, marketing and

costs.”

Monthly mobile traffic continues to grow:

Which leads to continuous growth (and cost) of

mobile data backhaul traffic.

M2M/IoT increases # of connected devices but does it

increase profit margins for communications service

providers?

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Consumers:

Want content all the time.

Want content everywhere.

Want multiple sources for content.

Want to pay less.

Are very sensitive to quality.

Some like bundling, some not so

much.

Do not think in terms of loyalty.

CSPs are responding:

Wireless - wireline acquisitions for

everywhere services.

Partnering with OTTs - benefit from

adversaries.

Moving to all-IP networking to reduce

capex and improve flexibility.

Building their own DCs to support

consumer and enterprise services.

Many moving away from “NIH”.

Owning subscribers requires improving the experience

Transforming from a pipe operator to a service provider means supporting subscribers with quality applications,

the ability to add/drop applications quickly and fast network resizing on-demand.

Wireline broadband solutions are abundant. Prices are continuing to decline.

Transformation requires intense cooperation between the pipe team and the marketing team.

SMBs and Enterprises:

• Want flexible networks to meet fast

changing requirements.

• Want managed services.

• Want seamless international services

at reasonable price points.

• Want secure, cloud-based services

with ability to quickly add/drop

services and applications.

• See CSPs as strategic business

partners rather than just necessity.

• Are very sensitive to quality.

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2014 - strong year for wireline broadband access equipment shipments

• 3Q14 preliminary data - shipments remain

high:

• Several vendors, including Alcatel-

Lucent, reached record levels.

Source: Ovum quarterly market share report

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Case studies: Vodafone - aiming for FMC (fixed mobile convergence)

AT&T - overcoming xenophobia

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Vodafone - buying into wireline

Acquisitions include:

August 2014 - Greece - Hellas Online

Vodafone agreed to acquire 72.7% for €72.7 million,

following its strategy to buy fixed network assets in markets

where it already provides mobile services.

March 2014 - Spain - Ono

Vodafone agreed to buy cable operator Grupo Corporativo

Ono in a €7.2 billion deal to boost TV and broadband

offerings.

June 2013 - Germany - Kabel Deutschland

Vodafone agreed to buy Germany’s largest cable operator,

Kabel Deutschland, for €7.7 billion adding TV and fixed-line

services to defend against mounting competition in

Germany.

2012 - UK - Cable and Wireless

Vodafone acquires Cable and Wireless for £1.044bn. Cable

& Wireless operates 20,500km of fibre-optic cables in UK.

Vodafone investor presentation on Kabel

Deutschland acquisition

Vodafone will use DT’s VDSL network under a bitstream (layer 3) agreement.

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Vodafone - power of fixed + mobile, expand revenues, save costs

Why acquire fixed networks? First stage of FMC - “relatively” simple:

Use acquired fiber networks for mobile

backhaul:

Save on leasing fiber, leading to lower

opex.

Lease fiber to other CSPs, leading to

increased revenues.

Offer quad-play services to consumers:

Support content everywhere.

Increase ARPU.

Reduce churn which saves on marketing

costs.

Use acquired data centers:

Offer data center services to customers,

leading to increased revenues.

Continue expansion of SaaS partnerships.

Strengthen financials

and competitive positioning

Quad play services for consumers

Expand into data center business

Use wireline network for

MBH (reduce leasing costs)

Expand services for enterprise customers

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Vodafone - managing many services, across many countries

Second stage of FMC - more complex, many variables:

Networks and operations in each country.

Revenues, earnings, subscriber forecasts by country.

Vodafone Group’s financial situation and macro-economics.

Vodafone Carrier Services - launched in May 2013

Grown its capabilities and credibility, has become a

leading player in the international wholesale

market, with one of the largest footprints in the

world.

Cutting cost was primary focus by bringing

Vodafone Group traffic on-net. Growing the group’s

international wholesale business is secondary goal.

Cloud-based offerings - just a few:

Vodafone Italia - JV with Artax Consulting for cloud-

based FMC solutions as well as Microsoft Office

365.

Vodafone Romania - storage, backup and restore.

Vodafone Qatar - mobile device management to

enterprises including GPS location, managed apps.

Vodafone UK - Vodafone and BAE signed a five

year partnership to supply businesses with secure

communications products and services.

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Vodafone - will need to expand OTT partnerships to wireline

Vodafone has expertise in building OTT partnerships for mobile delivery, a few

examples: Nov-13 Vodafone Ireland partnered with Spotify to offer Spotify services as part of its high-data plans. For Vodafone,

Spotify becomes a key brand attraction, making their smartphones instantly-enabled mobile music

machines. Subscribers can choose from a range of plans which include RED plan, Spotify Premium plus

250MB extra data for €5.99 per month, and Spotify Premium to ones existing bill pay plan for €9.99 per

month.

Ireland Spotify Music services

Sep-13 Dutch operator Vodafone began offering three months of free video-on-demand streaming via HBO Go with

its Red plans, as a campaign running until year-end to promote its 4G launch. At the end of the three-month

period, HBO Go access will revert to its usual price of €14.95 (US$19.70) a month.

Netherlands HBO Video service

Sep-13 Vodafone Ghana launched a promotion for the Nokia Asha device, under which prepaid subscribers who

buy a Nokia Asha 210, 302 or 206 will receive free access to WhatsApp for 30 days.

Ghana WhatsApp Messaging

Sep-13 Vodafone Ghana announced its plans to provide a 30-day trial of free access to WhatsApp on Nokia mobile

phones.

Ghana WhatsApp Messaging

Aug-13 Vodafone plans to bundle free access to pay-TV service Sky Go into its forthcoming Red subscription plans

for 4G. Free access will be for upto 2 years, depending on the plan.

UK BSkyB Video service

Aug-13 Vodafone plans to bundle free access to music streaming service Spotify into its forthcoming Red

subscription plans for 4G. Free access will be for up to 2 years, depending on the plan.

UK Spotify Music services

Jul-13 Vodafone India partnered with Twitter to provide the OTT service to its subscribers for free for a span of three

months. As per the agreement, the subscribers can access Twitter and tweet without being charged for data

usage.

India Twitter Social media

Jul-13 Vodafone Greece signed a partnership with Napster. The deal gives Vodafone Greece subscribers access

to a huge list of Greek and international music tracks. The service is offered free of charge for the initial three

months to both prepaid and postpaid customers. After the trial period, the users can access the service with

selected Vodafone products.

Greece Napster Music services

May-12 Vodafone Romania and Shazam signed a deal to offer Shazam to the operators prepaid customers. The

service is available at €5, €7, and €9 per month.

Romania Shazam Music services

Strong base in

mobile OTT

partnerships.

Must

extend/expand

service

offerings to

wireline

subscriber

base.

Source: Ovum OTT partnership tracker

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AT&T - the US leader has to evolve…and it won’t be easy

AT&T - 2nd largest wireless in US (behind Verizon), 2nd largest wireline (behind Comcast).

• November 2014 - AT&T plans to

acquire Mexican wireless company

Iusacell for $2.5 billion.

• AT&T will acquire all of Iusacell’s

wireless properties, including licenses,

network assets, retail stores and

approximately 8.6 million subscribers.

• Iusacell offers wireless service under

both the Iusacell and Unefón brand

names with a network that today covers

about 70% of Mexico’s approximately

120 million people.

• AT&T plans to expand Iusacell’s

network to cover millions of additional

consumers and businesses in Mexico.

• “Our acquisition of Iusacell is a direct

result of the reforms put in place by

President Peña Nieto to encourage

more competition and more investment

in Mexico. Those reforms together with

the country’s strong economic outlook,

growing population and growing middle

class make Mexico an attractive place

to invest,” said AT&T chairman & CEO.

Source: Ovum

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AT&T - success with bundles, acquiring Latin America TV market

Plans to acquire DIRECTV:

Drives AT&T’s ability to compete in

TV sector beyond current 22 state

area.

Drives AT&T as a leading pay TV

provider in Latin America where

DIRECTV has more than 18 million

subscribers.

Drives AT&T’s strategy to provide

video across all screens - laptops,

tablets, connected cars, airplanes.

Successful bundled-services strategy:

U-verse has more than 11 million subscribers, more than 2/3rds

take three or more services.

ARPU of $170 triple-play services (voice, video, data).

Primarily FTTN (node) but this year announced GigaPower -

expand ultra-fast fiber network - up to 100 candidate cities.

Source: AT&T and news reports

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AT&T - driving services, driving services and driving services

High-speed Internet Service for Fiber-Ready Buildings –

launching AT&T Business Fiber, a new U-verse High Speed

Internet solution for businesses. It is now available to

companies in AT&T Fiber Ready buildings in six markets.

Gives businesses access to AT&T’s high-speed fiber

backbone with available upload and download speeds of 300

Mbps, with future plans to offer speeds up to 1 Gbps.

Highly Secure, On-demand Access to IBM Cloud via

AT&T NetBond – Customers will be able to extend their

VPN to SoftLayer, an IBM Company. As a highly-secure on-

ramp to the cloud, AT&T NetBond also dynamically allocates

VPN bandwidth, allowing customers to use as much or as

little as they need. SoftLayer is the latest addition to growing

cloud services in the NetBond ecosystem, which includes

IBM, Microsoft, HP, CSC, Equinix, salesforce.com™,

VMWare and Box.

New API Platform for Resellers – AT&T announced a new

API that will help speed cycle times for select AT&T products

and give more control of the quoting and ordering experience

to solution providers participating in the company’s AT&T

Partner ExchangeSM reseller program.

Digital Life - AT&T has entered the home-automation segment

with its Digital Life service, which merges home-security

monitoring with functions such as motion sensing and energy

monitoring.

The company’s intent is to provide an ecosystem and a platform,

meaning users don’t have to deal with multiple apps to control

multiple devices in their home.

Digital Life is an alternative to Pulse, from home-security company

ADT. However, it is vulnerable to cheaper, DIY home-monitoring

solutions, such as Dropcam.

Package Monthly

price

Description

Simple Security $29.99 Professional installation and monitoring; access via PC and

mobile; wireless communication

Smart Security $39.99 Same as Simple Security, plus ability to add automation

packages

Add-on automation packages

Video-camera package $9.99 One outdoor camera; live or recorded video; motion sensing

Door package $4.99 Garage-door controller, pushbutton-door lock, or touch-screen

door lock; control locks/openers from mobile device or P;, keyless

entry

Energy package $4.99 Light-switch control, smart plug, thermostat; adjust lights and

temperature from mobile device or on set schedule

Water detection $4.99 Three temperature and water sensors; leak notifications and

ambient temperature monitoring

Water control $9.99 Water controller, three temperature and water sensors; same as

water-detection package, plus ability to turn off water remotely

Sources: AT&T and Ovum

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AT&T - SDN and IP plans underway, regulator issues continue

Network On Demand SDN

(announced September, 2014):

Will enable companies to order,

add, and alter their own network

services on the fly using a self-

service online portal.

The service will launch

commercially in Austin (Texas) in

late November.

AT&T intends to expand the rollout

to select U.S. markets in 2015.

Benefits include provisioning new

communications ports in days

compared to weeks.

AT&T wants to shut-down its PSTN and move to an all IP

network. Goal is to do so by 2020.

AT&T is working with the FCC (Federal Communications

Commission).

Major issues concern rural telephony and emergency call

services.

March 2014, AT&T filed a petition to trial an all-IP phone

network in two cities. It noted:

In the 22 states where AT&T is the legacy ‘phone company,’

more than 70% of residential consumers have abandoned

legacy phone service choosing instead to go with wireless

services or VoIP services.

Number of housing units still connected to circuit-switched

services provided by the legacy phone company has dropped

below 20 percent in some areas.

Cannot sustain a shrinking TDM network in parallel with a

growing IP network.

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M2M and IOT - revenues yes, but how profitable?

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M2M and IoT - an older Informa report on Vodafone’s M2M business

• Vodafone is a major

competitor in both

national and

international M2M

markets.

• Vodafone is known to

acquire companies with

specialist M2M

knowledge.

• Vodafone provisions all

Amazon Kindles that

are sold outside of

North America.

(2012 data)

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M2M and IoT - revenues yes but what about profitability?

Total Cellular M2M Service Provider Revenues by Service Layer -

Global

Global cellular M2M service revenues reached $25bn in 2013 and will

rise to $66bn by year-end 2019, for a CAGR of 18%.

Where is there profitability for CSPs?

Likely in managed connectivity for

SMBs and enterprises.

Vodafone’s “Project Spring” plan:

Development of enterprise products

and services: extending our M2M

reach to 75 countries.

AT&T’s M2M solution:

M2M Control Center

M2M Application Platform

Pre-configured M2M Applications

Global SIM

Source: Ovum

Sources: Vodafone and AT&T websites and press releases.

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Summary thoughts…

From the wireline network

perspective - the broadband

solution toolbox is robust

(finally).

The challenge is how to use

the tools to develop strategic

and profitable products for a

wide range of customers.

And many customers operate

over numerous geographies.

And many customers have

numerous choices regarding

service providers.

Paragon Innovations - 2005

And while we are not building a swing, many challenges

remain the same.

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Thank you

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