1. Mobile broadband for fixed players
Pierre Fortier
29 October 2009
Ref: 16109-434

2. 2
Table of contents
Introduction
The development of mobile broadband
Substitution threat for fixed players
Mobile business models for fixed players
Conclusion

3. 3
Introduction
The popularity of mobile broadband* access via USB modems and smartphones
has taken European fixed and mobile operators by surprise:
Q fixed operators are concerned because they are losing market share in the
area that has been a major engine of growth
Q mobile operators are worried because competition in mobile broadband may in
some countries have driven down retail prices too far below cost
In this presentation, we look into possible strategies and opportunities for fixed
broadband operators associated with the development of MBB, in particular:
Q the fast development of MBB
Q the substitution threat of MBB for fixed operators
Q the different mobile business models for fixed players
*Mobile broadband and MBB are used interchangeably throughout this presentation

4. 4
Introduction
The development of mobile broadband
Substitution threat for fixed players
Mobile business models for fixed players
Conclusion

5. 5
MBB is proving popular in countries where
datacards are becoming inexpensive
Comparison of datacard current prices with penetration in Europe*
60
BE
Price per month (EUR VAT excl.)
50
This line shows the correlation
between penetration of
40 ES datacards and the price of the
cheapest offer for unlimited
NL usage** in August 2009
30
AT
20 DE
IE
UK
IT
10 SE
FI
0
0% 2% 4% 6% 8% 10% 12% 14%
Datacards penetration (as % of population)
Data cards prices (cost of 4GB)
Source: Analysys Mason; * In August 2009;
** Based on cheapest contract offer available in the country in 2008 for a monthly traffic of 4GB

6. 6
MBB represents a high share of broadband
connections and traffic in ‘advanced’ countries
MBB versus fixed broadband take-up Growth in H3G UK data traffic
in Europe (Q4 2008)
16
Broadband subscribers using fixed (%)
95
14 More than 10x data
Relative traffic growth
90 NO traffic increase in
UK
ES 12 seven months
85 IT
SE Austria is leading the
10
80 LT pack with more than
FI 36% of broadband 8
75 subscriptions being
IE
70 mobile 6
65 4
AT
60 2
55 0
8
ov 7
Ap 0 8
Fe 08
ar 8
ec 7
Ja 07
00
50
0
0
0
20
20
20
20
20
20
r2
0 5 10 15 20 25 30 35 40 45 50
n
b
ct
O
M
N
D
Broadband subscribers using mobile (%) Total growth Uplink Downlink
Source: Analysys Mason research division Source: H3G UK

7. 7
In this context, Analysys Mason expects
subscriber numbers to keep rising fast …
MBB connections in Europe MBB connections are growing fast
160 100%
in Europe:
140 90% Q driven by both complementary
80% and substitutive use
Subscribers (millions)
120
70%
100
Q 145 million MBB connections by 2014
60%
80 50% Q CAGR of 35%
60 40% By 2014, 60% of European broadband
30% households will have an MBB connection
40
20%
20 10%
0 0%
2013
2014
2007
2008
2009
2010
2011
2012
MBB connections
Mobile share of broadband households
Source: Analysys Mason

8. 8
... with a sharp increase in the average volume of
traffic per subscriber
Forecast for total mobile data demand
Country Data traffic per month
3000 in MB (2008)
Sweden 1840
Petabytes/month
2500 Some European
Portugal 1139 countries have
2000 already reached
Austria 784 high data traffic
1500 Denmark 277
per month
1000
500
0 Cisco: mobile data traffic in Western
2012
2013
2008
2009
2010
2011
Europe to grow at 131% CAGR until 2013
N America W Europe Such forecasts may be slightly agressive,
Asia-Pacific Japan but average subscriber use might reach
Latin America C&E Europe
Middle East & Africa Europe levels similar to fixed broadband
Source: Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update, NITA, ECTA, PTS

9. 9
A mix of commercial and technical factors are
stimulating the development of MBB
• Flat-rate tariffs have triggered the take-up of MBB services
Tariff evolution
and the increase of traffic
• Technology evolution in the radio access network (HSPA,
Radio access
HSPA+ and in future LTE) provides higher speeds and lower
technology
latency, thus improving the end-user experience
• Device evolution (dongles, embedded PCMCIA data cards,
Devices enhanced handsets such as the iPhone) is changing the
nature of the MBB market
• Connectivity solutions drive demand for MBB connectivity
Services
• Handset availability and MBB drive new types of services

10. Tariff
evolution 10
MBB is cheaper than fixed broadband in
many European markets
In Austria, MBB is substantially cheaper Price comparison of MBB and DSL
than DSL services retail offers (June 2008)*
Cheapest MBB (EUR per month VAT incl.)
80
Play in Poland offers the cheapest MBB
70
in Europe (EUR12.60 for 5GB per month)
FR
60
The lowest prices are being offered by NO
new entrant 3G-only players 50 CH
0% premium
French and Swiss markets have not yet 40 ES
SK PT
taken off BG GR
30 CZ DK BE
RO
Norway is a high-cost, high-GDP market LT UK DE, IE, NL, SE
LV EE
20
HUIT AT
FI SI
10 PL
0
10 20 30 40
DSL (EUR per month VAT incl.)
* Based on incumbent DSL and cheapest MNO offering
Source: Analysys Mason research division including at least 3GB download per month, at June 2008

11. Tariff
evolution 11
In Austria, MBB access is a tough,
low-margin game
The cheap price of MBB compared to Monthly bundle prices for MBB access
fixed has triggered strong growth in
Bundle 500MB 3GB 6GB 10GB 15GB
the Austrian MBB market
prices (EUR)
Fixed broadband operators have A1 10 10 - 10 -
lowered prices, but net additional Orange - - - - 15
T-Mobile 10 10 - 10 -
subscriptions have slowed down Tele.ring - - 12 - -
significantly Note: Prices include current promotional offers
The long-term sustainability of
this situation is debatable Monthly prices for fixed-line broadband access
Monthly price (EUR)
Telekom Austria 34.90
Tele2 Austria 19.90
chello (UPC) 22.90
Inode (UPC) 17.90
Note: Fixed prices for services with equivalent speed to
mobile (i.e. 3072/512 or 3MB) and unlimited data usage
Source: Operators’ websites, Analysys Mason, February 2009

12. Tariff
evolution 12
Other countries have not seen such
cut-throat competition
In the UK, fixed broadband is still Monthly bundle prices for MBB access
cheaper and faster than mobile
Bundle 1GB 3GB 5GB 10GB 15GB
broadband for unlimited usage
prices (GBP)
For low usage, however, MBB can H3G 10 - 15 - 30
be better value O2 - 14.69 - 29.38 -
T-Mobile - 15 - - -
DSL penetration is high: Vodafone - 15 25 - -
Orange 9.79 14.68 - 24.47 -
Q MBB complements (rather than Note: Prices are based on 18-month contracts and include current
replacing) fixed-line access promotional offers
Monthly prices for fixed-line broadband access
Monthly price (GBP)
BT 24.46
Virgin Media 20.00
Tiscali 14.99
Sky 15.00
Note: Fixed prices for services with unlimited data usage
Source: Operators’ websites, Analysys Mason, February 2009

13. Radio access
technology 13
The 3GPP family is leading the technological
development of MBB
3GPP evolution peak data rates per technology
LTE
158Mbit/s
Peak downlink rate (per sector)*
(20MHz carrier)
HSPA+
80Mbit/s
42Mbit/s (4x4 MIMO &
10MHz carrier)
28Mbit/s (2x2 MIMO
& 64QAM)
(2x2 MIMO)
HSPA 21Mbit/s
(64QAM)
14.4Mbit/s
7.2Mbit/s
3.6Mbit/s 5MHz carrier
2005 2006 2007 2008 2009 2010 2011 / 2012
* Realised downlink rates are typically 2-3 times lower than peak rates
Source: Analysys Mason

14. Devices 14
Cheap and attractive devices have driven
the growth of mobile broadband
MBB dongles Laptops and netbooks
Generally offered for free with an With an MBB subscription, the price
MBB subscription is generally less than EUR400,
sometimes even offered for free with
24-month contracts
Archos 3G+
LG X110
Samsung Q10 Asus Eee PC
Source: Mobile operator websites

15. Devices 15
Device evolution will change the nature of
the MBB market
The Apple iPhone has revolutionised media
consumption on the mobile phone:
Q unmatched balance between features
and performance
3G iPhone users generate on average
around 2.5Gbytes of traffic per month
A range of factors is likely to drive strong
traffic growth:
Q new products from Apple/other players
Q increasing device penetration
Q changing consumption patterns
All trademarks and rights owners acknowledged

16. Devices 16
Non-telecoms players are also bringing
new business models to mobile
Amazon Kindle
An e-book reader launched by Amazon in In May 2009: Kindle sales were 35% of
book sales when Kindle editions are
late 2007; it works over Sprint’s 3G available. Unit sales are not public, but
EVDO mobile network: expected to be at 300 000 since launch
Q currently no other deployments
outside the USA
The Kindle gives access to:
Q more than 275 000 books
Q major US newspapers
Q more than 1500 blogs
Q Wikipedia for free
Users pay for each book or newspaper
issue they purchase and download, not
for the data traffic they generate
Source: Amazon website

17. Services 17
Streaming video to the iPhone is a
revolutionary experience
All trademarks and rights owners acknowledged

18. Services 18
Going forward, the availability of new devices and
Internet keys will drive new usage and traffic
iPhone all-time top paid applications (Oct 09) Device evolution is likely to generate new
applications, increasing exponentially the
traffic on mobile networks
Potential applications for residential users:
Q mobile social networking
Q games (including online games)
iPhone all-time top free applications (Oct 09) Q video/music streaming and download
Q gambling/adult
Q peer-to-peer file sharing
Q location-based services
Potential applications for corporate users
Q Mobile working
Q Remote access to content
Source: Apple. All trademarks and rights owners acknowledged

19. 19
Introduction
The development of mobile broadband
Substitution threat for fixed players
Mobile business models for fixed players
Conclusion

20. 20
In some countries, MBB is contributing to the
acceleration of fixed–mobile substitution (FMS)
Evolution of MBB usage Mobile-only households
50%
Complementary use
35%
Substitution
Mobile as % of broadband connections
30%
40%
25%
30% 20%
Early adopters
Austria
Underserved users
15%
20%
Business users
Italy 10%
Finland
10% 5%
UK
0%
Russia France Italy Spain Sweden UK
0%
TurkeyFrance 2003 2008
Time
Source: Analysys Mason’s estimates

21. 21
For instance, this is the case of Fastweb’s
‘Joy’ offer in Italy
Source: Fastweb website

22. 22
MBB appears to be both a complementary
service, and a substitute for fixed broadband …
Broadband subscribers in Austria In Austria, fixed broadband penetration
remained flat for three quarters in 2007
2.5 Q this strongly suggests a high
Broadband subscribers (million)
Complementary
usage proportion of substitutive and new
2.0 0.7 0.8 users
0.7 New and
0.6
0.5 substitutive According to Ofcom, in the UK at
0.4 usage
0.3 Q1 2008:
1.5
Other Q about 32% of subscribers used
1.0 1.1 1.1 1.1 Mobile MBB instead of fixed broadband
1.0 0.9 0.9 1.0
DSL
Cable
Q in the 16–24 age group, this
proportion was as high as 47%
0.5
0.6 0.5 0.6 0.6 0.6 0.6 0.6
0.0
1Q 2007
2Q 2007
3Q 2007
4Q 2007
1Q 2008
2Q 2008
3Q 2008
Source: Analysys Mason research division Source: Ofcom (2008), Total Telecom

23. 23
… some evidence suggests that fixed broadband
will remain strong despite cannibalisation
Despite the strong move towards Download speed ranges for available
MBB, fixed-line services will continue fixed and mobile technologies
to have a significant market share of
broadband going forward, due to: 1000 10
GPON
Download speed (Mbit/s)
Q mobile services’ limited ability to 500 GPON
provide high-bandwidth services
100
(such as ‘over-the-top’ video) VDSL LTE
Q market inertia 24
ADSL2+
HSPA+
Q fixed operators’ pricing strategy 10
8 ADSL2
Q fixed operators’ increasingly 4 HSPA
aggressive NGA strategies 1 ADSL
0.5 GPRS UMTS
2000 2002 2004 2006 2008 2010 2012
Fixed BB speed Mobile BB speed
(theoretical) (theoretical+shared among users)
Source: Alcatel Lucent

24. 24
Substitution may be driven in part by a tendency
for users to use mobile in the home
Mobile service consumption Online video consumption
Over 40% of calls are typically made Watching videos on the Internet is a
from the user’s own home prime activity:
Mobile TV trials by O2 in the UK Q German users: 119 videos/month
show that people tend to watch TV at
Q American users: 96 videos/month
home or at work, but barely on the
move: 36% of people used the Q French users: 88 videos/month
service mainly at home
However, users are really only
‘snacking’, and usually watch only a few
minutes of each video
Source: Strategy Analytics 2005, Swisscom, Source: Comscore November and December 2008
Innovation paper, 2004, O2, Analysys Mason

25. 25
Longer term, MBB could be a defensive move for
fixed players to protect their core market
Broadband-equipped sites by technology type in Europe
200
180 32
25 29
160 20 Market opportunity
16
Households (millions)
140
11 for fixed operators
6 22 32 42 50 56 59
120 12 Need to partner with
2
6 an MNO if no mobile
100
network of its own
80
117
Core market for
60 113 114 109
97 103 99 97 fixed operators
40
Under pressure
20
from MBB
0
2007 2008 2009 2010 2011 2012 2013 2014
Fixed only Fixed and mobile Mobile only
Source: Analysys Mason research division

26. 26
Introduction
The development of mobile broadband
Substitution threat for fixed players
Mobile business models for fixed players
Conclusion

27. 27
MBB is beneficial for fixed players to develop
complementary usage and avoid cannibalisation
Protect market share Deepen the relationship with customer
Moving to mobile can be seen as a Mobility allows fixed operators to offer the
defensive move from fixed players to full portfolio of services (voice, Internet,
limit the effect of FMS TV) at fixed locations and on the move:
MNOs are challenging fixed operators: Q seamless access of residential users
to their digital ecosystem
Q they reach in the home to offer
Internet services and voice services Q seamless access of enterprise users
– the two core services provided by to their corporate applications
fixed broadband operators
Q Mobile devices give a strong and
direct access to the end user

28. 28
Case study: Virgin Media is the UK’s first
‘quintuple-play’ operator
Virgin Media’s MBB offer allows the operator to
create targeted bundles:
Q MBB services represent the fifth product
type in Virgin’s portfolio, complementing
its existing fixed broadband, fixed voice,
mobile voice and TV services
Q numerous service combinations are
possible, allowing for greater
differentiation and segmentation
Q each can be offered at a substantial
discount on the price of buying the
services separately
Virgin has already launched one bundle using
its new offering – a fixed broadband + mobile
broadband package that saves customers
GBP10 per month, compared to buying the
services separately
Source: Virgin Media website

29. 29
Fixed players can leverage on their market position
and strong assets to address the MBB market
Some fixed broadband operators benefit from access to audiovisual content (this
is particularly the case for cable operators, but also IPTV DSL players):
Q this access could allow for valuable content to be delivered to mobile users
Fixed operators can leverage on capillary transmission network to provide
backhaul facilities to mobile only operators:
Q In particular, with NGA roll-out, increased capacity in the fixed access network
(VDSL, FTTH) can help relieve the mobile backhaul bandwidth crunch
Cable and DSL operators would be in a unique position to take advantage of the
femtocell opportunity:
Q Fixed broadband operators could install femtocells with the broadband modem
and can control the quality of service of the broadband connection to backhaul
the mobile traffic originated at the femtocell

30. 30
Fixed players can help mobile-only operators cope
with fast-growing backhaul capacity requirements
Network capex and opex (%) – NPV Increasing capacity requirements generated
by MBB put significant pressure on MNOs’
Costs 6%
x 1.25
backhaul capacity
10%
7% in NPV This results in backhaul representing a
12% higher share of network costs’ total NPV
28%
11%
! MNOs need to invest in future-proof, next-
generation backhaul technologies to flatten
the cost curve
69% 55% Fixed broadband operators with VDSL/
FTTx are uniquely positioned to meet the
No MBB MBB stringent HSPA/LTE capacity requirements:
UTRAN+BSS Backhaul Q could provide rapid and cost effective
MSC/MSS/MGW Other network wholesale mobile backhaul solutions
Note 1: The main assumptions of the model are: 22% of mobile user take up an MBB
subscription; average consumption per subscriber is 500MB/month
Note 2: Model only uses E1 TDM links in the access network

31. 31
Femtocells could be win-win solutions for fixed
operators and mobile only MNOs
Femtocells allow to offload mobile traffic Integration of femtocells in a 3G network
onto the fixed network, through a unit
Call
installed in the WiFi/DSL/cable modem Call through 3G
through network
Femtocell
As in-home usage represents 40% of total femtocell
network traffic, the impact on MNO IP
backhaul can be substantial Network
Femtocells could be win-win solutions for
mobile-only MNOs and fixed operators: MNO Femto
controller RNC
Q MNOs benefit from improved service gateway
coverage and reduction of macro
network backhaul problem SGSN MSC
IMS
Q if launching an MVNO, fixed operators GGSN GMSC
could monetize the traffic offload and
negotiate a reduction in MVNO’s
wholesale access charges Circuit-switched
network
Source: Analysys Mason

32. 32
Many of the main players are at different stages of
femtocell trials and deployments
Telefónica O2 Europe Mobilkom Austria TeliaSonera T-Mobile International
(trials, 2009) (pilot project, 2009) (trials, 2009) AG (opportunity
assessment, 2009)
Vodafone (live
since June 2009)
NTT DoCoMo
Verizon, live since (live since July 2009)
January 2009
Sprint, live since Softbank Mobile, live
September 2007 since January 2009
AT&T (trials, 2009)
StarHub, live since
November 2008
Telecom Italia Mobile
(trials planned)
Different trials are being held around the world, mainly based on the delivery of
high-speed wireless data and voice services to home and business locations
Source: Analysys Mason

33. 33
MBB revives the long awaited / never fully
realised prospects of fixed–mobile convergence
FMC has been touted as ‘the next big thing’ for several years now
However, no real solution has emerged
Recent market developments indicate that this could gain traction soon and change
the structure of the telecoms market quite dramatically:
Q major mobile operators have been investing heavily over the last two years to
enter the fixed broadband market (e.g. Vodafone, Orange and O2)
Q the surge of MBB is pushing operators to think about convergence in a different
manner and broaden their scope from only voice services to broadband and
other data-enabled applications
Femtocell solutions that bridge mobile and fixed networks are now becoming a
reality and will enable cost savings in the provision of mobile voice and broadband
access from within the home

34. 34
Several strategies could be pursued by fixed
operators in moving to MBB
Recent international examples
• Kabel Deutschland (Germany, 2009) • Zon (Portugal, 2008)
• ONO (Spain, 2009) • Numericable (France, 2008)
MVNO launch
• Jazztel (Spain, 2009) • Telenet (Belgium, 2006)
• Fastweb (Italy, 2008)
• Wholesale femtocell launched by • Strategic partnership between
Strategic Sprint and targeted at fixed-line and Vodafone and Hellas Online
partnership with cable partners (USA, 2009) (Greece, 2009)
mobile-only MNO • Tellas merger with Wind • Neuf / SFR integration
(Greece, 2008) (France, 2007)
• Cox (USA, 2008) • Free is candidate to the fourth
3G licence (France, 2010)
Acquiring MNO • Videotron (Canada, 2008)
licence • Telenet has expressed interest
• RomTelecom (Romania, 2008)
for the fourth 3G licence
• RCS&RDS (Romania, 2006) (Belgium, 2010)
Source: Analysys Mason

35. 35
Fixed players moving to MVNO should look into full
MVNO options to maximise synergies
Licensed Enhanced Full Potential
Key components reseller SP MVNO MVNO MVNO positioning for a
Radio spectrum fixed operator
Enabling Femtocells
infrastructure and
network provision Network switching Possible rollout
in coming years
VAS to realise FMC
Content and
applications synergies
Service Platform
SIM card
Billing
Operations
Pricing capability
Provisioning
Customer care
Branding, Distribution
sales and
marketing Own brand
Mobile broadband Carphone Auchan Mobile (France) Virgin
MVNO examples: Warehouse (UK) Numericable (France) Media (UK)
MVNO does not own MVNO may or may not own MVNO owns

36. 36
In bringing any MBB proposition to market, a
number of practical issues need to be addressed
Proposition development
Distribution
Fulfilment
Technology
Financial

37. 37
Introduction
The development of mobile broadband
Substitution threat for fixed players
Mobile business models for fixed players
Conclusion

38. 38
Conclusions: fixed-only operators should
seriously examine moving into mobile broadband
The MBB market is rapidly evolving: Fixed-only operators could benefit
significantly from a move to MBB
Q subscriber growth is rising strongly
Fixed players could leverage valuable
Q traffic growth is rising exponentially
assets when moving to mobile
Today, MBB market growth is based on
Several mobile strategies can be explored:
PC use. Going forward, devices like the
becoming a MVNO; establishing strategic
iPhone will increasingly change the
partnerships with mobile-only MNOs;
nature of the MBB market
acquiring a mobile licence
MBB is both a complementary and
All options require a thorough assessment
substituive service for fixed broadband
of market potential, technology, negotiation
and proposition design

39. 39
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40. 40
Pierre Fortier
pierre.fortier@analysysmason.com
Analysys Mason Limited
66 avenue des Champs Elysées
75008 Paris, France
Tel: +33 (0)1 72 71 96 96
Fax: +33 (0)1 72 71 96 97
www.analysysmason.com