MVNOs in Brazil Def[1]

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MVNOs in the Brazilian Mobile Market

Exploring the opportunity

This document has been created for the exclusive use of our clients. It is not complete unless supported by the underlying detailed analyses and oral presentation. It

must not be passed on to third parties except with the explicit prior consent of NEREO BUSINESS CONSULTANTS.

Sao Paulo, November , 2010

May you require further info, please contact:

Pedro Ruiz-Blanco(+34629369404,[email protected])


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MVNO Regulationin Brazil

INTRODUCTIONPurpose of the Document

NEREO presents the follow ing document to highlight the MVNO opportunity presentedby the current market and regulatory situation in Brazil

We are Strategy and Investment advisors in the TMT and Renewable Energy sector

We have assisted clients in launching over 20 MVNOs in more than 12 countries

Currently, in Latin America

We are developing the 1 st Full-MVNO in Central America

We are assisting one of the prestigious operators, with presence across the continent, indefining the strategy for w holesale business

Analyzing MVNO opportunities in more than 6 countries in Latin America

Biggest mobile market in Latin America and among the biggest in the world

4 major mobile operators with mature operations in the country Country broken up into regions ; each with its own license for mobile telephony

Rapidly approaching 100% penetration

ANATEL has recently launched a public consultation for MVNOs in Brazil

MVNO regulation is expected to be in force by the 3rd quarter of 2010

ANATEL has proposed 2 models, Credenciado de Red Virtual & Autorizado de Red Virtua l,

which will cover the following MVNO types: Reseller

Branded Reseller

Light MVNO

Full MVNO

NEREO intents to introduce the MVNO opportunity in Brazil through different conferences to be

held in Sao Paulo and Rio de Janeiro


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MVNO OPPORTUNITY - BRAZIL

NEREOs MVNO EXPERTISE

INDEX


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MVNO OPPORTUNITY - BRAZILMVNO

Agreement at price level

Quality management (SLAs/KPIs)

Mechanisms to garantee therelationships evolution (newservices, price updateprocedures,)

Value proposition (SAC, productsand services)

Efficient management of thecustomers retention (churn, SRC,customer care)

Essentially, MVN O business consists in managing tw o key relationships:

Mobile Netw ork Operator (MNO) and the end-user

MVNO

MNO END-CUSTOMERS

A Mobile Virtual Netw ork Operator (MVNO) provides mobile services without ow ningspectrum and usually relies on the Mobile Network Operators network infrastructure.


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Services &IT Platform

Ownershipand OperationOf the MobileNetwork

CustomerCare

Service

Marketing& Sales

Services &IT Platform

CustomerCare

Service

Marketing& Sales

Ownership ofMiblie Network

Distribut.

Distribut.Push

Leveraging on selected partners through outsourcingSpecific offers for each

market segment

Only one Market

Market Segments

Executed in-house Outsourced to an external partner (MVNO)

Befor

Currently

...by creating offersaligned to the needs ofeach of the existingsegments

...by dividing the valuechain and allowing theentrance of new playersthrough:

Radically reducing costs(increasing the EBITDA)

Reach new consumers in

market segments not yettapped into (newdistribution channels)

In saturated markets, competition becomes a market-share game, so this new challengeleads MNOs to seek for MVNO partnerships to sustain the overall market grow th

MVNO allow M NOs to address specific market niches which they have not yet tapped into, whileincurring low er Subscriber Acquisition Costs (SAC) adding efficiency to the value chain

Operation ofMobile Network

Pull

Distribut.

Distribut. Push

Pull

Pull

MVNO OPPORTUNITY - BRAZILHow MVNOs create value for MNOs


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Selecting an specific MVNO operational model depends mostly on the commercialstrategy that the new player w ishes to implement in order to tap into the market

-

+Reseller Service Provider Full MVNO Network Operator

Alternative MVNO structures

Level of ownership ofthe mobile networkinfrastructure

MNOsTelecommunicationcompanies.

MultimediaCompanies

Utilities RetailersNiche Operators

SIM: not self owned

Prices: are based onnegotiations with an MNO undera retail-minusregime for the

MNO prices Brand: own brand or co-

brandingwith the MNO( powered by ).

Business Model:

Revenues:based onrevenue sharing with theMNO

Costs: marketing, sales,distribution

Branded Reseller

SIM: self owned Prices: own and independent

from the MNO Brand: own brand or co-

brandingwith the MNO( powered by ). Clientownership possible

Business Model:

Revenues:from traffic ofits own customers

Costs: wholesale accesstariffs, marketing, sales,distribution. OPEX andCAPEX associated to ITplatforms

No network infrastructure Can potentially have a VS

platform No capability to set prices No ownership of the client

Radio Access Network Complete networkinfrastructure

No network infrastructure Own VAS platform Own billing platform

Own Customer Care Ownership of the client

With network infrastructure(no radio) Own VAS platform

Own billing platform Own Customer Care Ownership of the client


from the MNO

Brand: own brand. Completeownership of the client

Business Model:Revenues:from traffic of

its own customers

Costs: wholesale access

tariffs, marketing, sales,

distribution. OPEX and

CAPEX associated to IT

platforms


from the MNO Brand: own brand. Complete

ownership of the client Business Model:

Revenues:from traffic of

its own customers

Costs: wholesale access

tariffs, marketing, sales,

distribution. OPEX and

CAPEX associated to IT

platforms and network

elements

MVNO OPPORTUNITY - BRAZILFunctional model Characterisation

No network infrastructure Can potentially have a VSplatform

Capability to set prices Possible ownership of theclient


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MVNO OPPORTUNITY - BRAZILMVNOs in Europe

Number of MVNOs and their market share in Europe (end of 2009)

MVNOs have been quite successful in garnering market share in most European countries

Source: Nereo Analysis with company data

15%

MVNOsMarket share

Spain: 22(Simyo, Lebara)

Portugal: 5(UZO, Tele2)

France: 11(Carrefour, Tele2, Virgin)

Luxembourg:2(KISS, Transatel)

Belgium: 35(Simyo, Transatel)

Netherlands: 39(Simyo, Tele2)

Norway: 16(Mobyson, Sense Talkmore)

U.K.: 25

(Virgin, Tesco)

Finland: 9(Saunalahti, Oyj)

Sweden: 18

(ACN, Sense)

Germany: 29(Ay yildiz, Simyo)

Austria: 5(Yesss!, Tele2)

Denmark: 16(CBB Mobil, Telmore)

Italy: 14(COOPVoce)

Switzerland: 5(COOP Mobile, Tele2)


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Brazil is among the leading countries in terms of mobile penetration in Latin America

Mobile Penetrat ion Brazil v/ s LATAM

BRAZILIAN MOBILE MARKETKey Indicators

Communicat ions Market Situat ion - Brazil

Market Leader

(Q3 2010; market share in terms of subscriptions in %)(Penetration in %; GDP per capita in 000s USD; 2009 E)

Brazil has a favorable mobile penetration-GDP ratio in comparision w ith other countries in LATAM

Source: TRAs, CIA Factbook, NEREO Analysis

Mobile Fixed Broadband

Telefonica/Vivo

Embratel/Claro/Net

Oi/Brasil Telecom

TIM

30.1 %

25.5 %

19.5 %

24.5 %

27.1 %

15.4 %

50.0 %

0.0 %

24.2 %

25.3 %

35.1 %

0.0 %

Each of the Fixed Line players is a leader in their license region

Region 1- OiRegion 2 Brasil TelecomRegion 3 - Telefonica


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CATEGORIES

ARPU

PricingCapabilities

Interconnection

MVNO OPPORTUNITY - BRAZILMVNO Models Comparison

CustomerOwnerships

N/ A

CREDENCIADO DE RED VIRTUAL

BRANDED RESELLERRESELLER

% revenuesharing over basicservices ARPU

Outbound ARPU

N/ A

N/ A

N/ A

N / A

AUTORIZADO DE RED VIRTUAL

FULL MVNOSERVICE PROVIDER

Outbound +Inbound (rev.Sharing) ARPU

Outbound +Inbound ARPU

Does not rely onMNO infra. forpricedifferentiation

YES

Own rating &bil l ing capabilities

Advertising& Marketing

expenses

MNO bears all theoperational andmarkeriting cost

The MNO partiallycontribute to theSAC expenditure

MVNO bears allthe operationaland markerintgcost

MVNO bears allthe operationaland marketngcost

NO NO YES YES

Traffic Costs

Ow nNumberingResources

N/ A Wholesale cost

(diff. Cost perdestination)

N / A N/ A

Wholesale cost

(diff. Cost perdestination)

Wholesale cost(airtime) +

Interconnectioncost

Shortcodes/premiumnumbers forCustomer Care

Own IMSI range,NRN, SPC

ANATEL has proposed the follow ing two models which wil l serve to categorize thetypes and characteristics of permitted MVNOs

9


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MVNO OPPORTUNITY BRAZILProjected Evolution of the Brazilian Mobile Market

Mobile Revenue Project ions Brazi l

(2010-2015; USD millions)

Project ions Brazil ian Mobile Subscript ions

MNOs MVNOs

(2010-2015; millions of SIMs; % of SIMs)

MVNOs Business in Brazil wil l account for more than $1 Bil l ion in 2015

Source: www.eMarketer.com, IBGE, NEREO Analysis

MVNO Market Share

Brazil w il l continue to maintain a CAGR of 2.7% to reach 229 mil l ion subscriptions byend-2015

2010 2013 2015

28,146 29,376 30,440

Mobile Revenues MVNO Revenues

MVNO

Revenues

0 798 1,109


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MVNO OPPORTUNITY - BRAZIL

NEREOs MVNO EXPERTISE

INDEX


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NEREO has an extensive experience in the mobile telecoms space worldwide.

CREDENTIALSTelecom Practice

Assistance in thevaluation of a local GSMoperator

Assisting a MNO indefining its MVNOstrategy in the country

Assessing the feasibility ofMVNO business for a Saudibased company

Valuation of afixed and mobiletelecom player

Negotiating a MVNOagreement in Oman for aBahraini Telecom Firm

Assistance in thedevelopment of a PrivatePlacement Memorandumfor a Kuwaiti Firm

Entry strategy within theSpanish market for one ofthe leading pan-European

mobile operators

Providing support to oneof the Spanish MNOs inconnection with regulatoryissues

Carrying out Due

Diligence processes onEuropean MVNOs for aMiddle-Eastern client withaims of acquiring saidoperators

MVNO strategy in Spainfor a well known

American Media andMovie Company

Assistance in theacquistion of a TVBroadcast Infrastructure

Provider in Spain

Developing the entry strategywithin several European marketfor one of the leading pan-European mobile operators

Developing the entrystrategy into theSpanish market for aGerman MVNO

Consultancy formultinational IT firm forSMS Premium serviceswithin the Spanish market

Assistance to amultinational IT firm intopics related to Mobile

Number Portability

MVNO strategy andnegotiations for an ethnicMVNO

Defining the MVNOstrategy and Negotiationswith Host MNO for an

Islamic MVNO in Malaysia

MVNO strategy andlaunch activities in CostaRica


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NEREO has gained a unique experience in developing projects of all business models indifferent countries of the world

COUNTRY MNO MODEL

FULLMVNO

FULLMVNO

FULLMVNO

FULLMVNO

FULLMVNO

ON GOING

FULL

MVNO

FULLMVNO

FULLMVNO

FULLMVNO

FULLMVNO

COUNTRY MNO MODEL

14

CREDENTIALSOur MVNO Expertise (II)


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BRANDEDRESELLER

SERVICEPROVIDER

SERVICEPROVIDER

SERVICEPROVIDER

BRANDEDRESELLER

BRANDEDRESELLER

n/ d

COUNTRY MNO MODEL COUNTRY MVNO MODEL

FULLMVNO

FULLMVNO

FULLMVNO

FULLMVNO

15

CREDENTIALSOur MVNO Expertise (III)

SERVICEPROVIDER

n/ d

FULL

MVNO


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www.nereoconsulting.com

MVNOs in Brazil Def[1]

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