ERICSSON: Powering Vodafone’s Growth

Team ERICSSON Bucharest

AnnachiaraNicholasNisargVidmantas

Challenge for ERICSSON

Can operators afford being ‘pipe owners’?

04080

120160

2006 2007 2008 2009 2010 2011

Huge market potential for multimedia

Consumer multimedia revenuesUS$ billion

Who will take a large share of the pie?

Operators are under threat as ARPU is almost stagnantARPU in Western Europe€/user/month

$27bn

$149bn

CAGR 41%

Source: IDC Jan ’08, mobile advertising report

The Looming Threat

Google A combination of WiMax and the

ANDROID platform threatens to squeeze mobile operators’ multimedia share

Apple iPhone opened up for developing

applications Venture Capital fund launched

Recommendation

An Open Garden

Mobile Advertising

Vodafone can stake their position in the future of mobile multimedia by trusting ERICSSON to lead the transformation of their mobile environment to a vibrant open eco-system

Harness the most efficient revenue model for mobile providers by developing a structured and dedicated mobile advertising solution

Focus of Project ‘Crystal Palace’ currently is developed markets (NA, EU, Japan & Oceania)

Presentation Structure

Future of multimediaFuture of

multimediaProject

Crystal PalaceProject

Crystal Palace ImplementationImplementation ImpactImpactFuture of multimediaFuture of

multimedia

The future of mobile multimedia is The Ideal User Experience

Watch

BollywooBollywoodd

Be

Future-proof platformDriven by

intended actionApplications bid

for attention

Who will capture the future value?

Intensity of competition

Web Consumer Insight

Prices close to web rates

Telecom

(Data)

IT/Internet

(Ads)

Media

(Content)

Key Drivers

High degree of competition

Limited capabilitiesStill charges for content & services

few big players (Google, Yahoo, Microsoft)

Key capabilityAdvertisement based free for consumer

Intense competition across various media types

Key capability amongst players like Youtube, Facebook etc.

Charges for premium content only

Presentation Structure

Future of multimediaFuture of

multimediaProject

Crystal PalaceProject

Crystal Palace ImplementationImplementation ImpactImpact

New business model for Vodafone in mobile multimedia

Realize ideal user experience

Most effective revenue model

Advertising model independent of search companies

“Open garden” model with limitless applications

Simple, total, customized web experience on converged media devices

Project Crystal Palace at VodafoneBusiness Model Innovation

The Open Garden

Vodafone’s networks must become mobile ecosystems that mirror the open ethos of the web

Transform into a platform for new applications

A larger share of multimedia value creation for Vodafone

Small share of multimedia value, reduced data profits

Small share of multimedia value, reduced data profits

Developing multimedia strategy

Vodafone 2011Vodafone 2008

Project Crystal Palace will increase Vodafone’s share of mobile multimedia market

Large share of multimedia value,

reduced data profit

Project Crystal Palace

Presentation Structure

Future of multimediaFuture of

multimediaProject

Crystal PalaceProject

Crystal Palace ImplementationImplementation ImpactImpact

Implementing Crystal Palace

Vodafone becomes one of the leading mobile multimedia companies

Project Crystal Palace

Independent advertising

modelValue Network

…

…

Fast development of

applications…

Open garden for content and

applications

Ideal user experience and sustainable revenue model

ERICSSON powering Vodafone’s growth

ERICSSON value proposition

Enable Vodafone independent advertising model

Manage transformation to Open Garden

Sony Ericsson strengthens Developer World

Reputation of industry shaper will attract the value network

Vodafone’s growth needs

Advertising competences

Move to open garden for content

Fast development of applications

Value network

Powered by

ERICSSON can develop key capabilities to power growth in multimedia

Advertising capabilities

Developing winning products for advertising

Partnership with Application Service Providers (ASP’s)

Establish focused advertising operation – try lure Yahoo employees

Open garden content support capabilities

Develop and acquire capabilities to manage open garden content

- E.g.: Acquire start-up PlayerX

Operation Crystal Palace Leadership

Jan WärebyHead of Business Unit Multimedia

Strong marketing background

Deep understanding of mobile environment

Part of the team to be based in Silicon Valley

Presentation Structure

Future of multimediaFuture of

multimediaProject

Crystal PalaceProject

Crystal Palace ImplementationImplementation ImpactImpact

Timeline for Project Crystal Palace

Q2 08 Q4 08 Q2 09 Q4 09

2010

Launch of Vodafone

“open garden”

Get value network partners on board for

“open garden” and advertising strategy

ERICSSON management

discusses strategy internally and with

R&D/product teams

ERICSSON and Vodafone management discuss strategy, ERICSSON

competences showcasedPublic

announcement of strategy

Launch of independent

Vodafone advertising

Launch of ERICSSON services to

other operators

Financial impact on Ericsson

Forecasts:

60% - expected mobile broadband's share (66% in 2012, according to Ericsson data)Ericsson's revenue - equivalent of 30% of operator's EBITDA

Assumptions:Scenarios for mobile multimedia (MM) Negative Neutral Positive

Expected operators' revenue share in MM, %: 10 25 40Operators' EBITDA margin on MM, % 5 10 15Discount rate 9.3%

* based on EV/Sales=0.7 (Deutsche Bank estimate of fair value, Feb 2008), discounted.

Based on multimedia revenue forecasts for 2011

Mitigating risks in implementation

Risk Likelihood Mitigation strategy

Vodafone is resistant to change ++Reach innovative operators: e.g. Orange, T-Mobile, O2

ERICSSON unable to achieve scale by selling to other operators

++Adapt model to handset manufacturers, reach smaller operators

Google or new iPhone apps come to market before 2009

+++Project Crystal Palace is defensive measure

Consumers do not evolve to “ideal experience”

++“Open Garden” and advertising model will ensure web-like experience and prices

Risk of inaction would be higher than risk of implementing Crystal Palace

The future of Vodafone will be Powered by ERICSSON

A Thriving, Profitable Mobile Industry

Project Crystal Palace

Open Gardens

Mobile

Advertis

ing

Thank You

Thank You!!!

Back-up

How ERICSSON can support Vodafone

Influence

Positioning

Services

Turn around image of operators as slow movers

Get handset makers to focus on fast applications development

Existing services (Multimedia Communication Suite, Mobile TV, Billing solutions)

New services (Enablers supporting advertising, Data Mining, ad orchestration)

Communicate the need for change

Show Ericsson can power Crystal Palace

Propose to other telecom operators

Potential of mobile advertising

Example of Japan

Operators in advertising

Consumers accept mobile ads

Mobile subscriptions

Advanced generation handsets

Mobile advertising – Spam vs. Win-Win

A Winner Application

Loopt is being offered by Sprint and Verizon

- “Social Compass,” friend locating application

- Received coverage in WSJ, CNET, Gawker

Ideal user experience

Any content, any application, any device

User managed, easy to customize

In hardware, software and web experience

Action based look and feel

Open garden model

Customization

Simplicity in use

Choice of partners – Verizon

Customization of mobile web experience 89 web 2.0 applications based on data plan

revenue model Strong industry solutions and business

applications, fee-based Open Development : consumers can use any

device, application or software

Verizon Wireless has developed relevant capabilities. As has owned by Vodafone, closer cooperation is realistic.

Verizon Wireless

Choice of partners – NTT DoCoMo

NTT DoCoMo establishing strong advertising model JV with Dentsu (Japan's largest advertising agency) for mobile ad on i-

mode NTT DoCoMo plans to control its own inventory for ad placement

through i-mode portal

NTT DoCoMo has developed relevant capabilities in advertising. As Vodafone does not compete in Japan, partnership is realisitc.

NTT DoCoMo

Open Garden

Any content provider can bid to be on Vodafone network

Need to protect advertising revenue on open garden model

Vodafone needs help implementing the model

Ericsson can support Vodafone by providing the platform on which content is approved and managed

Fast development of applications

Open network to developers community

Push handset makers to open up to developers community

Promote open mobile platform

Ericsson can support Vodafone through Sony

Ericsson by further opening up their platform

Vodafone ERICSSON

Services and Content revenues

Services & content revenues

Premium content paid

Advertising on content

Sustainable revenues that fit consumers’ willingness to pay

Most content free

Developing advertising competences

• Vodafone does not know consumers’ buying intentions, unlike Google

Ericsson can help Vodafone acquire the competences and consumer knowledge needed for independent advertising model

Vodafone can build on its capabilities:• Knowledge of customer location in real time• Knowledge of services and applications used

And develop more:• Support investment together with Verizon Wireless• Partnerships with marketing agencies

Mobile Advertising Solution

"Mobile ads are twice as profitable or more as non mobile ads "Mobile ads are twice as profitable or more as non mobile ads because they are more personable“because they are more personable“

-Eric Schmidt, CEO Google

Targeting and Context

Build a “database of intentions” from user actions, location

BannersInteractive banners with click-to-call and click-through destination sites

SMS & MMS Ads

Annoying, forces opt-outs

Financial impact on EricssonForecasts:60% - expected mobile broadband's share (66% in 2012, according to Ericsson data)Ericsson's revenue - equivalent of 30% of operator's EBITDA

Scenarios for mobile multimedia (MM)Negative Neutral Positive

Expected operators' revenue share in MM, %: 10 25 40Operators' EBITDA margin on MM, % 5 10 15Operators' EBITDA on MM, $bn 0.7 3.7 8.9

Ericsson's revenue, $bn 0.2235 1.1175 2.682Ericsson's value, SEKbn 0.9 4.7 11.2Discounted Ericsson's shareholder value, SEKbn 0.71 3.57 8.56

Exchange rate (29/03/08) SEK/USD 5.9518Discount rate 9.3%* based on EV/Sales=0.7 (Deutche Bank estimate of fair value, Feb 2008), discounted.

Limited value for operators in mobile TV

• Only 1% of customers willing to pay for mobile TV (Jupiter research)

• At £3/month mobile TV subscription, Vodafone’s revenues are only £90 m/year

• Data revenues were £1 billion in y/e Nov 2007

Back of the envelop calculation on

Vodafone:

Advertising needed to drive value from mobile TV

Thank You

Thank You!!!

Discussion

Discussion