OPTIMUS

Disruption Along the Wireless Value Chain

October, 2000

“If you you’re not confused, you do’t know what’s going on!”

Jach Welch

“If you think you are in control, you’re not going fast enough!”

Mario Andretti

So, how do you feel today?

DISRUPTION ACROSS INDUSTRIES “NEW TECHNOLOGY” CHANGING THE BASIS OF COMPETITION

1975 1980 1985 1990 19951

10

100

1,000

10,000

Mainframes

Minicomputers

Desktop PCs

Portable PCs N

oteb

ook

PCs

PDAs

Source: Clayton Christensen, The Innovator’s Dilemma.

Average Capacity (MB)

New technologies are often the source of fundamental changes in market position.

IMPACT OF DISRUPTIVE TECHNOLOGIES UPTAKE OF NEW TECHNOLOGIES

0

10

20

30

40

50

60

70

80

90

100

1 10 20 30 40 50 60 70 120

0

10

20

30

40

50

60

70

80

90

100

Cell Phone(1983)24.4%

Internet(1991)26.0%

PC(1975)20.0%

Telephone(1876)93.9%

MobileInternet(2000E)25.0%

Percentage of Ownership

Number of years (year 1=year invented)

DISRUPTION ACROSS INDUSTRIESTHE WIRELESS INDUSTRY

Wireless and its extensions will face greater pressure than almost any industry.

Source: Goldman Sachs Estimates, Cluster Analysis. (1) Based on GS US market projections and projected US share of world market (18%). (2) Based on GS Estimates, Roper Starch Worldwide trends on commerce penetration as a share of online penetration.

UPTAKE OF VARIOUS TECHNOLOGIES WORLDWIDE

0

200

400

600

800

1,000

1,200

'98 '99 '00 '01 '02 '03 '04

Subscribers (mm)

Wireless 19%

Mobile internet (1) 64%

M-commerce (2) 132%

3 Year CAGR

DISRUPTION IN WIRELESSIMPACT OF BANDWIDTH EXPANSION

New technologies will allow for the appearance of innovative products...

98/99 99/00 00/01 01/02

2.0

Wireless Voice

10 kbpsGSM/TDMA14.4 kbpsXXX One

2.5

Different flateon usage115 kbps

GPRS64 kbps 15-95B

2.75

WirelessInternet115/384

kbpsEDGE

144 kbps1XRTT

3.0

WirelessMultimedia384 (512)

kbps widearea

(2 Mbps) local

WCDMA 2.4 Mbps

HDR

PAST TODAY 2001-2002

Mobile VoiceCommercial

Mobile Information

Mobile e-commerce

Voice

AOL

Email

Instant messaging

Travel updates

Yellow Pages

One-clicktransactions

Navigational aids

Events-driventransactions

Online auctionbidding

Stock trading

Travel reservationsand bookings

Location-specifictransactions

…and there will be more and more room for differentiation. In order to guarantee a leading position in the future what should mobile operators start doing now?

CONTENT VALUE

“BEST IN CLASS”

“MORE OF THE SAME”

“LAGGARD”

2G2G 2.5G2.5G 3G3G

DISRUPTION IN WIRELESSIMPACT OF BANDWIDTH EXPANSION

In the old value chain, roles where clearly defined and boundaries somewhat respected.

Content players, including aggregators, news, games, and other types of content

Resellers of mobile services

Makers of mobile devices

CONSUMER

Internet service provider gives connection to mobile Internet

Wireless Transport Network and connection to customer

ENABLERS

DISTRI-BUTION

DEVICEMANUFAC-

TURERS

ACCESS

MOBILEISP

NETWORKACCESS

CONTENT &COMMERCE

APPLICA-TIONS

& ENABLERS

Application developers, commerce and mobile Internet enablers

DISRUPTION IN WIRELESSPLAYERS AND THE VALUE CHAIN

CONTENT & PORTAL

As opportunities become more evident and attractive players start reaching out beyond the boundaries of their former spaces

Pure content creators, including news, games, and other types of content

General interest applica-tion and content packa-gers

Resellers of mobile services

Makers of mobile devices

CONSUMER

Internet service provider gives connection to mobile Internet

Wireless Transport Network and connection to customer

ENABLERS

DISTRI-BUTION

DEVICEMANUFAC-

TURERS

ACCESS

MOBILEISP

NETWORKACCESS

CONTENT &COMMERCE

APPLICA-TIONS

& ENABLERS

Application developers, commerce and mobile Internet enablers

Applica-tion and content packagers focused in one area or interest

DISRUPTION IN WIRELESSPLAYERS AND THE VALUE CHAIN

CONTENT & PORTAL

GENERALISTPORTAL

SPECIALISED

PORTAL

DISRUPTION IN WIRELESS AVAILABLE OPTIONS

EXAMPLE CONSUMER

In order to secure portal power, Optimus will have to compete for the customer ownership… but ownership is not guaranteed, as customer options increase and competition intensifies.

ENABLERSCONTENT & PORTAL ACCESS

MOBILEISP

NETWORKACCESS

CONTENT &COMMERCE

APPLICATIONS& ENABLERS

GENERALISTPORTAL

SPECIALISEDPORTAL

DISTRI-BUTION

DEVICEMANUFAC-

TURERS

DISRUPTION IN WIRELESS CURRENT SITUATION

Other Other OperatorsOperators

OPERATORS AS INCUMBENTSOPERATORS AS INCUMBENTS OPERATORS AS COMPETITORSOPERATORS AS COMPETITORS

COMPETITORS OPPORTUNITIES

Content & Commerce

Data Content

Voice Content

Commerce

Voice Services

Unpenetrated Population

New Voice Opportunities

- Wholesale

- Carrier VASCO

MP

ET

ITO

RS

DE

FE

ND

ER

S

Operators have critical areas of DEFENSE and ATTACK.

Voice Services Provision Network Ownership Installed Customer Base

DISRUPTION IN WIRELESS KEY ISSUES

ATTACKATTACK

ANALYSISANALYSIS ACTIONACTION

DEFENSEDEFENSE

Where do we focus?

How do we act?

What is at greatest risk?

How do we defend?

Will others leverage off their assets to enter our value chain?

Can we leverage off our wireless assets to enter adjacent value chains?

In order to take action in all these issues, operators will need to rethink themselves, their organisation and business model

DISRUPTION IN WIRELESS ORGANISATION DRIVERS

TODAY (2000) TOMORROW (2005)

VALUEBALANCE

ACCESSVSCONTENT

Optimusclients

Non-Optimusclients

ACCESS CONTENT

VALUE

ACCESS CONTENT

VALUE

ACCESS CONTENT ACCESS CONTENT

Business is driven by “access business” rules

Business is driven by “content business” rules

BUY ACCESS AND GET CONTENT

BUY CONTENT, ACCESS IS A COMMODITY

THE 3G MOBILE OPERATORTHE GAP

TRADITIONAL MOBILE OPERATOR

ACCESS DRIVENORGANISATION

INTERNET COMPANY

CONTENT DRIVENORGANISATION

GAP

Business Model:• The main revenues of a TMO come from traffic and

VAS• Other sources of revenues are monthly fees,

activation fees and incoming interconnection tariffs

Key success factors:• Technical capabilities (coverage and network

quality)• Targeted marketing• Competitive commercial offers

Business Model:• In a pure Internet company the main revenues

come from VAS, e-commerce commissions and referrals and on-line advertising

• In those internet companies that provide access, it could be the main source of revenue

Key success factors:• Speed to market• Content management• Personalised marketing• Customer profiling• Virtuous cycle generation (content - visits)

• TMO have been focused on acquiring new customers and generating traffic.

• Segment-oriented approach has resulted in more complex structures, with little flexibility but with higher accountability

• Successful IC are focused on content management and on reducing production cycles to shorten time to market.

• This has resulted in more flexible and flatter structures that promote creativity at all levels

CONCLUSIONS

• Latest and future technological disruption in telecoms will completely reshape not only telecommunication companies but also every single industry in the economy

• Traditional firms carry the weight of their own heritage and that’s what makes them so fragile in the “new economy” battle field

• Mobile operators have an enormous challenge ahead meaning that they have to learn how to manage a content driven business while getting most revenues from access

• They also need to figure out how to shape “new economy” companies out of “old economy” carcasses

• And finally they need to learn that their competitors are no longer other operators only but they could also be independent portals and Internet players, credit card issuers, media companies, banks, car manufactures etc.