Huawei Technologies High Growth Markets Whitepaper

8/14/2019 Huawei Technologies High Growth Markets Whitepaper

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Extending the Reach of

Telecommunications Servicesin High Growth Markets

HUAWEI TECHNOLOGIES CO., LTD.

White paper Q4/09


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1 I EXECUTIVE SUMMARY

3 II DEFINING HIGH GROWTH MARKETS

5 III OPPORTUNITIES FOR OPERATORS

5 3.1 Declines in ARPU can be partially offset by a large

number of potential subscribers

6 3.2 Larger scale, better operating effect

6 3.3 Specic groups may bring vitality to your operation

7 IV OPERATOR STRATEGY

7 4.1 Increasing network and business coverage

7 4.2 Business innovation is key to acquiring low-income markets

8 4.3 Striking gold with high-return markets

10 V DEFINING SUCCESS FOR OPERATORS

10 5.1 Low-ARPU Network Solution

11 5.1.1 Affordable Network Construction Costs

13 5.1.2 Affordable Network Operating Costs

14 5.2 Mobile Broadband Solution

15 5.3 Smart services innovation platform

16 5.4 Customized Strategy Matched with Operator's

Terminal Roadmap

17 5.5 Wisdom in management and service solution

18 VI CONCLUSION

19 VII GLOSSARY

20 VIII REFERENCES

Contents


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I

EXECUTIVE SUMMARY

In recent years, the telecommunications industry has begun to unlock the

potential presented by high growth markets (HGM), but the industry has only

scratched the surface of this vital and dynamic market. HGMs offer operators

unprecedented opportunity in the new global telecommunications market. From

their tremendous, and often unconnected, population base, to the high-level of

business activity and tourism, this market is ripe for new technology.

Many HGMs have introduced open telecommunications regulatory policies aimed

at encouraging competition. External forces, such as the strengthening global

economy, convergence and penetration of the telecommunications industry, also

heighten the appeal. Many international telecommunications giants have shifted

their focus from mature and saturated markets to these new arenas. It suggests

that the cost of competition for more users continues to rise amid the straight

decline of ARPU.

To capitalize on the limitless opportunity while managing the challenges of this

dynamic market, many operators have found that business innovation is the key

to the rapid expansion of network coverage and acquisition of low-income users.

Delivering customized solutions to the high-value youth and business community

in HGMs has helped operators stand out from the competitive crowd, thus

expanding their customer base and increasing revenue.

For operators looking to realize their strategic goals in HGMs, it is important to

look across five major areas:


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( 1 ) Low-ARPU Solutions: Using customized low-ARPU solutions help

operators to provide basic communications services for more users byeffectively managing network construction costs and operating costs

( 2 ) Mobile Broadband Solutions: Solutions that increase quantity and

revenue are key to helping operators guarantee user experience in the most

cost-effective way under an intelligent network architecture, while protecting

their existing investment in the future-oriented evolution process

( 3 ) The Right Service Platform: A flexible and innovative service platform

is key to delivering a high-quality service experience, which in turn helps to

retain and secure more valuable customer resources

( 4 ) Terminal Roadmap Strategy: Finding the right strategy that matches

an operator's terminal roadmap, helps operators pursue refinement and

improvement based on their characteristics and needs throughout the

planning, manufacturing, marketing, and service furnishing process

( 5 ) Smart Strategic Partnerships: As operators focus on the core business,

it is imperative that their strategic partners provide smart management and

services solutions as well as dedicated service teams


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70 60 50 40 30 20 10 0 706050403020100

100+

95-99

90-9485-89

80-84

75-79

70-74

65-69

60-64

55-59

50-54

45-49

40-44

35-39

30-34

25-29

20-24

15-19

10-14

5-9

0-4

the other is the well-off consumer segment that has disposable income available

for high-tech purchases. Income levels of HGMs generally resemble a pyramid,

with the middle class showing the greatest potential for immediate growth. For

example, in India, the development of a booming IT service outsourcing industry

helped to establish mounts of middle class consumers. When the market

segments are further examined, evidence suggests that the true gap comes from

age disparity, rather than income, indicating that the highest growth potential

will come from the youth market.

Figure 1: Age distribution in HGMs [2]


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Average revenue per user (ARPU) is typically low in HGMs (Mostly between five

to 20 dollars and sometimes even less than three). What is the rationale behind

continuous investment by new operators in such a competitive and low ARPU

environment? The promise of huge subscriber numbers, a scalable business model,

and the value brought by various market segments.

Declines in ARPU can be partially offset by a large number of

potential subscribers

Two major trends are occurring in HGMs that affect the telecommunications

industry the institution of favorable laws and regulations that encourage foreign

and private investment and an extremely congested and competitive marketplace.

In 2008, mobile operators saw a rapid decline in RPM (revenue per minute) in

nearly all high growth countries.

The large amount of potential subscribers could partially offset the negative

effects caused by low ARPU. By 2013, telecoms industry analyst Ovum forecasts

5.63 billion connections, up 43 percent from 2008. High growth markets are key

to this continued growth. The China-India region (containing China and India, as

well as Pakistan and Bangladesh) will continue to be the main connections growth

engine, with a cumulative annual growth rate (CAGR ) of 12 percent up to 2013.

Penetration is forecasted to rise from 40 percent in 2008 to 67 percent in 2013.

Asia-Pacific and Africa are also expected to add to the number of connections.[3] It

is predicted that subscriber rates will continue to rise steadily in HGMs as current

telecom penetration remains low in these areas.

III

OPPORTUNITIES FOR OPERATORS

3.1


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Larger scale, better operating effect

Not having enough market share, or a scalable business model, is a losing

equation for telecom operators, in HGMs in particular. According to the Indian

operator Idea's Quarterly Report, the industry had a growth rate of ten percent

in total sales and 11 percent in EBITA during the third quarter of 2009, while

subscriber rates showed an 11 percent increase over the previous quarter. All of

which indicates that scalability plays a critical role in revenue and profits.

Increased scale, in combination with precision control, could help operators

to increase customer loyalty and create value. In order to gain an edge over

the fierce competition, operators should focus on rapidly expanding in the

marketplace, seizing opportunities through innovative solutions and business

models that allow them to break the broadband bottleneck and provide a

ubiquitous broadband experience. To achieve these goals, it is critical for

operators to work with a strategic partner who can offer end-to-end-solutions,

time-to-market delivery and tailored operational proposals.

Specific groups may bring vitality to your operation

Recently, the youth and business

communities have played a much more

important role in high growth countries.

The sheer number of young people in some

HGMs represents an opportunity in and of

itself. As of 2008, the average age of India's

population was 24.8, with 50.3 percent

being under 25. Similarly, the average age in

Pakistan was 20.1, with 59.5 percent being

under 25, and in Mexico, the average age

was 25.6, with 49 percent being under 25. [4]

To be successful with this up-and-coming market force, operators must develop

strategies targeted to these consumers, such as a focus on pop culture and

personalized media. For example, China Mobile, the biggest operator in China,

was able to achieve an ARPU of 17 dollars from its youth-based, pre-paid brand,

M-Zone. China Mobile's M-Zone brand succeeded because it took the interests

of the youth market into account by offering features specifically for them.

3.2

3.3

Country

India

Pakistan

Egypt

Turkey

Mexico

China

Average

24.8

20.1

24.3

28.2

25.6

33.6

Below 25

50.3%

59.5%

53%

55%

49%

37%

Source: U.S census bureau international data, India 2008


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IV

OPERATOR STRATEGY

Increasing network and business coverage

Pursuing large numbers of subscribers, without first having a wide and stable

coverage network, would be like a river without water or a tree without roots.

The GSM network run by Indian operator, Reliance, is a benchmark of the Indian

communications market, resulting from its excellent quality, high speed and rate

of business delivery. Reliance began initial deployment of this network in 2001,

and by 2008, it covered the entire country. The fast and high-quality delivery of

Reliance's GSM network allows the company to manage CDMA and GSM dual

network operations, while successfully preventing them from competing against

each other. Solid GSM network coverage helped Reliance become the number

two mobile communications company in India.For operators seeking to deploy new networks and solutions, finding the right

partner, who can help them realize their strategic goals, is an essential element

of delivering high quality services to end users.

Business innovation is key to acquiring low-income markets

It is forecasted that data, including messaging, revenue will increase at a rate

of 79 percent globally over the next five years.[5] Data services in HGMs cannot

succeed without focusing on low-income groups. Like with all market segments,

attracting and maintaining low-income subscribers requires operators to focus on

innovative services related to a community's consumption, educational pursuits,

and medical care needs, which can help to improve an operator's reputation,

adding value to their brand, and their wallets.

For the low-income groups, the service would be universally accepted only when

value is defined for them and realized by both the operators and the end users.

4.1

4.2


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An example of a breakthrough technology is the CellBazaar platform provided by

GrameenPhone Company, co-founded by Grameen Telecom and Telenor, which

won the "Best Use of Mobile for Social and Economic Development award

in 2009 given by global mobile awards of 3GSMA, for its applications to the

agriculture industry.

Previously, most rural dwellers in HGMs had limited access to telecommunications,

and thus little access to information critical to the agriculture marketplace, suchas pricing. Without this information, these dwellers were not able to determine

fair market value for their products, leaving most of the profits to the middlemen.

CellBazaar technology helps this population to access information about

agricultural products by establishing a direct channel between rural dwellers and

final buyers, which improves price transparency, reduces the need for a middle

man, and increases their income.

Striking gold with high-return markets

How can operators offer the diverse telecom services required in HGMs, while

gaining a significant increase in ARPU? By developing a strategy that serves

multiple needs and offers innovative solutions, tailored for each individual market

segment.

4.3


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As discussed earlier, the youth market represents an enormous opportunity for

operators in HGMs, as the 25 and under set make up a large percentage of these

populations. In view of this, and based on a full study on the youth market's

purchasing power and consumption behavior, it is important for operators to use

customized marketing strategies and solutions that enable them to get optimal

benefits. For example, to reach this market, Globe, a telecom operator in the

Philippines, has built partnerships with content service providers such as Yahooand Friendster. In addition, the company developed its own multi-play, integrated

application platform, combining Twitter, Facebook, Friendster, and other popular

social media platforms, together to simplify the customer experience. This

platform allows people to be able to keep in touch with friends on line when

they are, for example, out at a party.

However, finding a way to maximize value from an often highly transient

market has been a key concern for operators. In many HGM countries, the

underdeveloped rural economies urge many to move from home to the more

developed cities, resulting in tremendous population mobility. The economies

in the more developed regions and cities have resulted in higher numbers of

business people in these areas. Understanding each of these market segments

and carrying out a specific and targeted marketing program helps operators

increase profits.


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V

DEFINING SUCCESS FOR OPERATORS

Low-ARPU Network Solution

A low-ARPU solution can ensure business success for operators, while helping end users gain

equal access rights to information networks. With the help of the operator's network, a rural

mountain village can step into the digital world helping poor villagers to change their destinies

through modern communications.

Solution Measures Benefits to Customers

5.1

Reduce TCO, enhance network efficiency,

cut down network construction cost, and

expand market share.t

Reduce network operation cost and

realize carbon neutral and green GDP.

Provide intelligent network architecture,

improve wireless air interface

utilization, effectively identify P2P

traffic and management such traffic,

effectively ensure user experience, and

protect existing resources.

Meet the greatest differentiated andindividualized requirements in the market.

Offer one-stop billing solutions.

Meet various requirements in the terminal

market, build an industry ecosystem,

and provide customized terminals and

operating systems to end users.

Risk sharing for the employment of new

technology and networks

Focus on the core business technology

Simplify the management and

maintenance

All-IP

Larger capacity and wider coverage

Smooth evolution

Solutions such as "Two-Cloud" and

Single RAN

NGN mobile communication

technologies such as HSPA+ and LTE/

SAE

IPN

"Platform + service + operation""Platformconverged billing solution"

Terminal planning conducted based on

customer requirements

Chip selection and production according

to product planning

Bundled sale of products and services

Green and energy efficient solution

for emission reduction

EOT

Outsourcing

Multi-operators management

and maintenance

Low-ARPU network

solutions

Quantity + revenue

increase mobile

broadband solutions

Smart businessinnovation platform

Customization strategy

matched with operator's

terminal roadmap

Smart management

service solution


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5.1.1 Affordable Network Construction Costs

Given the large proportion of network infrastructure investment costs in telecom

operators' operating costs, it is crucial for operators to manage network

construction costs. Compared with developed countries, the HGM countries

enjoy low land, capital construction, and human cost advantages. Their major

network cost pressure comes from network facilities. In fact, network equipment

prices are not very flexible. To drastically slash costs, the operators have no other

alternative but to pursue technological innovation in addition to adopting cost-

effective site design.

All-IP Solutions Reduce TCO

In the past several years, the maturation of IP technology has brought about

all kinds of miracles including the efficient utilization of network resources and

simplification of network structure, all of which have greatly reduced costs, to

the surprise and delight of operators. Operators in China, India, Indonesia, Brazil

and other countries have realized that the All-IP-based network, ranging from

core network to wireless/wired network, builds strong data telecom technology

that boosts capability and competitiveness.

Strong partnerships are again key to success in this area. Operators should

seek partners that advocate All-IP-based networks in ICT, are dedicated to

introducing IP technologies to telecommunications networks, and are committed

to enhancing the commercial interests of all telecom operators in HGMs. These

elements will help operators to protect their existing investment and realize

smooth and cost-effective evolution to All-IP networks resulting in commercial

success.


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Larger Capacity and Wider Coverage Boost Network Efficiency

Operators seeking networks that offer large capacity, high density, and low

energy consumption, should incorporate large-capacity networking solutions

in the areas of optical transmission, data communications, and core network.

These types of solutions have been successfully deployed for high-capacity events

such as during the Pilgrimage to Mecca, Diwali Festival in India, and Ramadan in

Muslim countries. To meet high growth market demand for reducing network

deployment costs, wireless access technology solutions help operators to realize

maximum coverage with the minimum number of sites. Some solutions provide

coverage solutions that increase the radius by more than 20 percent above the

average and increase the area of coverage by 40 percent. Such a coverage level

is sufficient to reduce 30 percent of base stations.

Smooth Migration and Evolution Protect Carrier Investment

In a high growth market, the latest technologies often coexist with the most

traditional services (such as the coexistence of 2G/3G and the evolution to

LTE). It is therefore imperative for telecom operators to protect their investment

without losing their leadership position. Operators do this by using solutions that

provide end-to-end support for smooth evolution from 2G to 3G, while helping

them realize carrier-level reliability and ensure effective protection for investment.

Application scenarios are changing rapidly in high growth markets. Having

solutions that offer unified network management for access to PDH, SDH,

ATM, Ethernet, and xDSL through any media such as optical, wireless and

cable TV are critical. The leading ASON technology, unified platform, network-

based microwave system, and microwave are coupled with integrated wireless

installation and designed to realize low TCO throughout the life cycle of the

transmission network. With a large 2G subscriber base, the high growth marketsare riding a wave of LTE and solutions are necessary that deliver features such

as PDH/SDH convergence, TDM/packet convergence, optical and wireless

convergence solutions to realize smooth network migration.


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5.1.2 Affordable Network Operating Costs

Network operating costs directly affect each operator's profitability and present a

common issue to operators in emerging countries. A complete and mature low

OPEX solution can help operators reduce network operating costs.

By analyzing the OPEX of telecom operators, Huawei has found that energy

consumption accounts for 50 percent. Therefore, the operators can realize OPEX

reduction targets by deploying a green and energy saving solution for emission

reduction. If one combines this solution with a TCO evaluation, the result is an

emission reduction solution with higher economical feasibility. Based on an in-

depth analysis of many customers' incumbent network data with respect to energy

consumption, Huawei has found that operators' energy consumption can be mainly

attributed to electrical energy and power consumption concentrated in the access

network, including wireless sites and broad access sites. Wireless site energy

consumption accounts for over 70 percent of the total energy consumption of

many mobile operators, whereas fixed line operators consume a smaller proportion,

just over 40 percent, of energy consumption in the access part of the network.

Consequently, the focus of network energy efficiency shall be on access network

sites, followed by core central offices and transmission networks. In addition,

new logistics technology can be used to achieve energy efficiency and emission

reduction targets for packaging and transportation in the manufacturing industry.

For many years, the people of the remote southern Pakistan village of

Theri Mirwah suffered from poor telecommunications network quality

for the low coverage density which was a result of its remote location.

The cost of maintaining traditional base stations in the region was

prohibitively high.

Huawei's "Village Connection Solution" addressed this challenge. In

2008, leveraging the abundant sunlight in the area, Huawei developed

a tailored solution adopting solar base stations for the village. Within

two months and in spite of significant challenges, including stifling

daytime temperatures of 60oC - the country's first solar-powered base

station was built. This solar solution meant reduced operating costs

and improved network coverage in Theri Mirwah.


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5.2

Under an alternative energy solution, solar/wind power and diesel generators are

used to reduce network damage due to power supply interruption and greatly

save power supply consumption. In the area of fixed line access, the power

consumption of a DSL line accounts for approximately 40 percent of the entire

port's power. The DSM technology can automatically adjust the PSD template

of each DSL line, eliminate crosstalk, boost the line rate by 15 percent, and

effectively reduce port power consumption by about 40 percent. The first key

energy efficiency measures for the core central office, is to replace traditional

servers with blade servers and thus realize drastic reduction in emissions from

hardware. For DSL equipment, effective DSM technology can be used to reduce

meaningless power consumption by eliminating crosstalk. By deploying an

end-to-end green solution, the operators can realize drastic OPEX reduction.Meanwhile, the green solution plays a pivotal role in making operators carbon-

neutral and turning a green GDP.

Mobile Broadband Solution

In the vast and sparsely populated rural areas of most high growth market

countries, telecom operators face enormous network construction difficulty due

to complex topography. The traditional fixed line telephony and broadband

access mode require hefty investment, whereas mobile broadband is more cost-

competitive. Compared with fixed line broadband, mobile broadband can offer

greater convenience. In urban areas, the key subscribers of mobile broadband

are most likely young people and business people. These two customer groups

are the focus for high growth market operators.

The traditional mobile broadband solution faces a conundrum that the operator's

service revenue cannot grow in proportion to the surging data service traffic.

According to our research, when mobile data service traffic grows 50 to100

fold, the corresponding data service revenue grows only by 10 to 20 percent.As a result, the operators have to take into account cost and revenue factors

when they make mobile broadband network investments, which adversely affect

network construction and operation.


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5.3

Solutions are available to operators that can help solve these programs.

Intelligent architecture-based broadband network solutions that provide an

intelligent network architecture for operators, help them to guarantee user

experience in the most cost-effective way. While also enhancing user experience,

these solutions can significantly boost wireless air interface utilization efficiency

and reduce cost per bit. Combined they can reverse the trend of increasing

traffic, without matching revenue gains.

Smart services innovation platform

Value-added services and high-quality network operation are the most important

driving forces to improve customer experience. Innovative applications can

provide excellent user experience that help operators to maintain and obtain

more valued customers, while also pushing network transformation and bringing

in create profits.

In the Philippines, which has 70 million cell phone users, over 1 billion messages

are sent every day, with an average of 14 messages per person [6]. This high

messaging volume has brought about even greater industrial value through

advertising messages. Offering the right services can supply customers with a

greater experience and greater value. Huawei has partnered with an intelligent

service provider, specializing in music, to build theDigital Music Alliance,

which aims to provide a customized integrated solution - Platform +Services+

Operation, that meets the needs of differentiation and personalization in

developing digital music market.


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5.4

Under the trend of industrial integration and transformation, customers have put

more emphasis on services and operations. Integrated service solutions including

3G, Full-service and IMS, can operate in a variety of heterogeneous networks,

helping operators rapidly deploy new businesses. Huawei's unified and powerful

platformConvergent Billing Solution, combines the strengths of CAPEX

and OPEX and aims to provide one-stop billing service for all users and to help

operators reduce CAPEX and OPEX. It can also supply a flexible tariff strategy

and specific operation model, helping to enhance subscribers' loyalty.

Customized Strategy Matched with Operator's Terminal

Roadmap

Mobile terminals have entered a development stage full of change and vitality. On

one hand, the increasingly powerful hardware platform enables mobile terminals

to carry an increasing number of functions. New terminals are launched one

after another and terminal devices have been changed substantively over recent

years. On the other hand, fast-growing mobile communications services in

the global high growth market present tremendous growth potential for entry-

level terminals. Telecom operators, software providers and service providers are

actively exploring a suitable terminal development path based on their respective

strength according to the characteristics of high growth markets.

Operators looking to enhance their terminal program can work with partners

from the earliest stages of technology development to ensure high returns.

Operators can work with partners on the product planning stage, where together

they develop market segmentation strategies based on detailed customer

behavior characteristic data in the operator's operation and maintenance system,

and then formulate a terminal product plan based on customer segmentation

and customer behavior trends. The product manufacturing stage would


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involve selecting the appropriate terminal chip platform and entrusting the

manufacturing of the terminal device to this partner. The right partner can

help operators at the sales stage as well, to leverage their combined channel

advantages and realize the bundled sales of terminal products and services.

During post-sale, partners work together with the operators to customize the

system of operation and undertake refinement and improvement under an open-

source operating system in accordance with the operator's characteristics and

needs.

Wisdom in management and service solution

How can operators improve their business, gain customers, and overcome

fierce competition? By paying more attention to the core business in HGMs.

For operators looking to save on network management and maintenance,

gain benefits in rapid deployment, lower costs, have predictable network

performance and simplify network management, they should adopt diverse and

customized all network E2E solutions including EOT, outsourcing services, multi-

operators management and co-dimension. For operators needing to deploy a

new network or adopting new technology, entering into the market quickly and

reducing network deployment and maintenance has been their focus. Solutions

that provide services including maintenance organization/process establishment

and daily network maintenance can to help operators to reduce risk in new

technology/network deployment.

Solutions are also available for operators wishing to delegate the duties

of daily operation of their core business to strategic partners, including

outsourcing services such as NOC maintenance, on-site maintenance, spare

parts maintenance and network performance management. For operators with

equipment from different providers, there are multi-operators management

solutions available to simplify the management complexity.

5.5


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VI

CONCLUSION

High growth markets offer enormous untapped opportunity for the

telecommunications industry. By focusing on specific market segments, such

as the youth and business communities, operators can increase subscriber

numbers, loyalty and increase revenue. Customized, tailored solutions can

help operators distinguish themselves in this highly competitive market. The

key areas of strategic focus for operators in HGMs are implementing low-

ARPU solutions, cost-effective mobile broadband solutions, innovative and

flexible platforms, appropriate terminal roadmap strategies, and forming smart

strategic partnerships.


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VII

REFERENCES

[1] Informa, October 19, 2008. Global Mobile No.11.

[2] U.S census bureau international data, 2008.

[3] Ovum, Global Mobile Market Outlook 2008-2013.

[4] U.S. Census Bureau International Data, 2008.

[5] Ovum, Global Mobile Market Outlook: 2008-2013.

[6] ZDNet Asia, September 12, 2009. Philippine SMS tax 'burden' and 'dangerous'.


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