Effects of RLAH for an MVNO

Michael KrammerFounder and CEO Ventocom GmbH

Brussels, 22.11.2018

26.11.2018© 2015, Ventocom

1

Facts from the harsh MVNO REALITY

• DSM became reality with RLAH for customers. Usagepattern changes

• DSM implies a market-imperfection framework through wholesale regulation. Usage increase > Wholesale decrease undermined ULB (Uni Lateral Buyer = Market Participant without Network) competitiveness through „Margin Squeeze“

• Wholesale regulation needs urgent review

• Market challengers in form of MVNOs and/or ULBs need to be protected

26.11.2018© 2015, Ventocom

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Introduction

26.11.2018© 2015, Ventocom

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Ventocom Group – Key Facts

CONFIDENTIAL/PRIVILEGED - 26.11.2018© 2018, Ventocom

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Company Founding 08/2013

Market entry Austria 01/2015, Market Share 6,5%

Market entry Slovenia 05/2017, Market Share 2%

Brands (Reseller) 5

Group Revenue 2017 53,45 Mio. €

Employees ventocom group 40

Employees ventoservice 30

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RTR Mobil funkindex

Gesamtindex Low-User Medium-User High-User Power-User

Mobile Market Pricing Index (RTR)

CONFIDENTIAL/PRIVILEGED - 26.11.2018© 2018, Ventocom

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Source: https://www.rtr.at/de/inf/odMFI

Merger AT

1. Orange AT Brand vanishes2. Less competitors and

increasing prices went handin hand

Ventocom launches HoT

Substantial and sustainabledecrease in marketwide prices

due to increased competition by„maverick“ entrant HoT.

Roaming Usage PatternProof of retail-market success due to RLAH

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Roaming Usage - Drivers

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Number of roaming users Usage pattern & utilization

1 2

2.3 x 2.3 x

2.6 x

2.0 x

2.3 x 1.9 x

1.9 x 2.0 x

2.1 x

0

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Jän Feb Mär Apr Mai Jun Jul Aug Sep

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Pre RLA H Post RLAH

Roaming users before and after RLAH

Since the start of RLAH the number of roamingusers has constantly increasedby the factor 2x. (independent of any seasonality)

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8.4 x 7.3 x

6 .9 x6 .3 x

4 .3 x

4 .2 x

4 .3 x 4 .0 x

3.8 x

0

1

1

2

2

3

3

4

4

Jän Feb Mär Apr Mai Jun Jul Aug Sep

Mill

ion

en

Pre RLAH Post RLA H

Utilization of roaming servicesVoice Minutes

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Utilization of voice minutes increased by factor 4.7x on average after RLAH.

Utilization of roaming servicesData

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Data consumption literally exploded after RLAH.The use volume increased by the factor 43.8x on average.

98.3 x122.0 x

97.0 x71.0 x

39 .1 x

40 .4 x

42.9 x 36 .7 x

32.5 x

0

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30

40

50

60

70

Jän Feb Mär Apr Mai Jun Jul Aug Sep

Mill

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Pre RLAH Post RLA H

Utilization of roaming services - overview2016 - 2018

26.11.2018© 2015, Ventocom

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Especially data and voice services experienced dramatic increases in utilization. A proof of high consumer acceptance and retail market success of RLAH.

2.8 x1.6 x

16.1 x

4 .7 x

1.8 x

4 3.8 x

Minutes SMS MB

20 16 20 17 20 18

Unilateral Buyer (ULB)The hard life of MVNO under the Roaming Regulation

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Roaming Business (traffic trading and steering between MNO’s)

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MNO Austria MNO Germany

Roaming Traffic

Roaming Traffic

Balanced trafficcharged at levelof wholesalecaps

Imbalanced trafficcharged at marginalCosts

Uni Lateral Buyer – not able to sell capacity, no trading possible

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MVNO Austria MNO Germany

Roaming Traffic

Roaming trafficcharged atwholesale caplevel

3.20

2.06

1.00

0.380.60

0.27

-36%

-62%

-55%

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Minute CAP EEA avg. Q1/18 SMS CAP EEA avg. Q1/18 MB CAP Q1/18 EEA avg. Q1/18

€-c

ents

Wholesale caps vs. EEA avg. wholesale prices paid

26.11.2018© 2015, Ventocom

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The regualted caps are by far higher than the avg. wholesale price actually paid.

Source: International Roaming BEREC Benchmark Data Report October 2017 - March 2018

https://berec.europa.eu/eng/document_register/subject_matter/berec/reports/8251-international-roaming-berec-benchmark-data-report-october-2017-march-2018

Weighted average overpricing for ULBs

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This leaves ULBs with a overpricing-disadvantage of 48% in costs!

48%

Q1/18

EEA avg Cost Overpricing to CAP

EU roaming margin: Revenue and costs forventocom2016 to 2018

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After the start of RLAH the costs by far exceed revenues from EEA roaming.

The main reason is that utilization increase by far exceeds the decrease in wholesale capprices.

0

200

400

600

800

1.000

1.200

1.400

Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18

Th

ou

san

ds

Revenue Cost

Start of RLAH

- 685k

- 889k

ventocom‘s roaming revenue and costs5 quarters before and after RLAH introduction in mio. €

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The main reasons for negative margins are that(i) the utilization increase by far exceeds the decrease in wholesale cap prices

and (ii) used services are mainly „in bundle“ after RLAH.

1,42

0,900,87

3,42

0

0,5

1

1,5

2

2,5

3

3,5

4

pre RLAH Post RLAH

Mil

lio

ns

Revenue Cost

Summary

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Summary

1. RLAH is highly accepted and welcomed by consumers. It realizes the visionof the Digital Single Market!

2. MVNOs act as driving forces in local telco-markets, driving competition and innovation

• Both is at risk on midterm basis because:• Decrease in wholesale caps are by far exceeded by the increase in service utilization

leaving MVNOs with negative margins

• MVNOs are mainly excluded from the roaming wholesalemarket, leaving the field toMNOs resulting in low or no competition, and charging of caps to ULBs despite lowercost-realities.

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What needs to be done?

1. A drastic reduction of the wholesale price caps is required for both DataAND Minutes.

2. A new mechanism for setting the wholesale caps (not only relying on MNO inbound roaming costs) is required. Beside the MNO’s inbound roaming cost model domestic retail and wholesale prices should be a reference.

26.11.2018© 2015, Ventocom

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domestic *)in 2013

EU15.6.2017

EU 1.1.2018

EU1.1.2019

EU 1.1.2020

EU 1.1.2021

EU 1.1.2022

costs per GB

1,7 € 7.7 € 6 € 4.5 € 3.5 € 3 € 2.5 €

costs per Min.

0,85 €cent 3,2 €cent 3,2 €cent 3,2 €cent 3,2 €cent 3,2 €cent 3,2 €cent

costs per SMS

0,34 €cent 1 €cent 1 €cent 1 €cent 1 €cent 1 €cent 1 €cent

*) Reference offer for H3A as a remedy for orange/ three merger

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WIR MACHEN MOBILFUNKANBIETER MÖGLICH