Andrea FumagalliPrincipal, A.T. Kearney

Roma 24 marzoOrganizzazione Key4biz

FORUM 2011

Sostenibilità della Rete e Nuovi Modelli di Business

Avaya Forum

Intervento di

Andrea Fumagalli, Principal A.T. Kearney

24 Marzo 2011

3

Overview of the Internet Value Chain

User InterfaceUser Interface Content Rights Content Rights ConnectivityConnectivityOnline ServicesOnline Services Enabling Technology / Services3

Enabling Technology / Services3

User-Generated Content

•Text/Images/Voice/Video

Media Rights Owners

•Video•Audio•Books•Gaming•Adult Content•Editorial Content

Search

Transactions

Advertising• Online ad agencies• Online ad networks/

exchanges• Third party ad servers• Ratings/Analytics Services

Support Technology• Web-hosting• Web-design/development• Content Management

Applications•Software•Media Players•Internet browsers

Billing & Payments•Online billing and payment system providers

Devices•PCs•Smart phones•Games consoles•Other Internet access hardware•Operating systems

Communications

Entertainment

General/Vertical Content

User

Retail Internet Access

Core Network

Interchange

4

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Evolution of market capitalisation by value chain market(base 100 in 2004)

5

Internet as a two-sided market

End Users

RANRAN

Last MileLast Mile

Backhaul/ AggregationBackhaul/

Aggregation

Internet Core

Internet Core

Connectivity ProvidersConnectivity Providers

Online Service Provider

Online Service Provider

Retail connectivity providerRetail connectivity provider

User InterfaceUser Interface Content Rights Content Rights ConnectivityConnectivityOnline ServicesOnline Services Enabling Technology / Services

Enabling Technology / Services

Enterprise Connectivity

Provider

Enterprise Connectivity

Provider

6

Internet traffic expected growth

*

*

*

*

*

YoY: *

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*

*

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*

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*

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*

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*

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Europe total Internet traffic projection- PB/month -

1217

764

399

18577

32

YoY:*

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Fixed

*

Mobile

7

Price signals in the current Internet model

Traffic

Online Service Provider

Current traffic delivery charge

Very weak price signal linked with

traffic generation

Time

Internet access charge

Traffic

No price signal linked with traffic generation

End User

Time

8

0%

4%

8%

12%

16%

20%

24%

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Capital intensity across the Internet value chain

2009 value of CAPEX Investment

CAPEX intensity vs. revenue growth 2009-14 by segment - B2C -(CAPEX as % of revenues vs. revenue growth)

Fuelled by video content growth

Fuelled by video content growth

Revenue growth remains modest due

to competition

Revenue growth remains modest due

to competition

9

Primary source of Internet traffic

Top 10 websites by country ─ US vs. selected European countries(as of 3Q 2010)

VS.

10

A new economic model for the Internet is required

Solve structural problem of lack of price signals

New revenue streams

Internet Value Chain

Modification of Retail Price Schemes

Modification of Retail Price Schemes

Traffic Dependent Charges for All Traffic

Traffic Dependent Charges for All Traffic

Enhanced Quality Services Over the

Public Internet

Enhanced Quality Services Over the

Public Internet

Enhanced Quality Services Based on

Bilateral Agreements

Enhanced Quality Services Based on

Bilateral Agreements

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Options considered Choice

Hybrid solution