business innovation for indonesian csp - public

Limited External | © Andreas Nataniel | 2013-11-17

Business Innovationfor Indonesian Communication Service Provider


The Author

• Telco Consultant for more than 12 years

• Professional experiences:• Telco Business Development for IBM Indonesia• Engagement Practice for Ericsson Telecommunication covering SEA & ANZA• Lead Solution Architect for Ericsson Indonesia• Lead Solution Architect for Jatis Solution

• Achievements:• Certified eTOM professionals• Globally certified Ericsson Solution Architect• Project Sales pioneer in Ericsson Indonesia• Ericsson High Performers

• Project references:• XL RBT 1818• Indosat mobile internet gateway• Telkom IMS


Executive Summary

• Business Issue• Market reach saturation point• Revenue growth is stagnant while expenses are increasing• OTT players like WhatsApp, Facebook as substitute telco as dumb pipe• Shifting in technology Innovation is required

• Business Solutions• Leverage network assets and embrace multisided business model• Payment – Advertising - Network APIs - Profile broker

• Implementation Plan• Business model development of mobile advertising as applicable business

innovation in Indonesia

• Conclusions


Agenda

• Introduction

• Business Issue Exploration

• Business Solution

• Implementation Plan

• Conclusions


Global MarketMobile traffic is growing impressively …

Just 4 years ago…

4B Mobile subscriptions

1,5B Internet users

30M Smartphones shipped Q1-08

…and now

6,4B Mobile subscriptions

2,3B Internet users

500MB Monthly usage per smartphone

150M Smartphones shipped Q1-12

>48 Bio Apps downloaded

Source: Ericsson 2012 Market Trends – Q4 2012

BusinessSituation


Global MarketMobile traffic is growing impressively – internet as growth engine

Global Total Data Traffic in Mobile Networks, 2007-2012

Source: Ericsson Mobility Report – February 2013

BusinessSituation

140 Mio subs add. in Q4 20123.1% growth for Q4 2012

300 PB/month add. in Q4 201228% growth QoQ / 200% growth YoY

9 X subscriber growth

Global Mobile Subscription by Region, Q4-2012


Indonesian MarketMobile Penetration vs Decreased ARPU

Key highlights:• 7 mobile operators competing in the same market – penetration rate more than 113%• Decreased ARPU due to DATA revenue cannot offset declining voice revenue & intense price competition• Postpaid user (high-valued user is only 1.4% of total users) is the growth factor for ARPU

Source: BMI – Indonesia Telecommunications Report Q3 2013

BusinessSituation


Negative EBITDA margin (8%) YoY

Indonesian MarketRevenue growth is stagnant while expenses are increasing

Indosat reported a loss of IDR 71 Billion • Increase in income due to subscriber growth• Increment in tower rental fee and frequency license fee. • EBITDA growth decreased by 13.8% compare to Q1 2012

Source: Indosat Info Memo 1Q 2013

XL Axiata posted a negative EBITDA growth • XL recorded gross revenue of IDR 5 trillion, a 2% YoY increase• Total operating expenses increased by 21% YoY to IDR 3 trillion• EBITDA growth decreased by 15% YoY to Rp2.0 trillion in 1Q13

Source: XL Axiata Info Memo 1Q 2013

Various M&A scenarios to survive the competition• Mobile-8 merged with Smart Telecom due to financial crisis on

Nov 2011.• XL Axiata to buy Axis Telecom to secure more radio frequencies

Source: Telecom Asia

‘unsustainable’ level of competition as a motivating factor in M&A scenarios

BusinessSituation


Consumer ViewMarket facts: no provider is seen as superior

• While consumers are somewhat satisfied with the affordable payment plan offered by providers, they are highly disappointed with the service

• Several issues commonly experienced:– “Internet lemot” (slow internet connection)– “Putus-putus” (suddenly disconnected)– “Blank spot” (no connection at all)– “Message pending lama banget” (long pending time)– “Cuma ada tanda muter-muter aja tuh, proses connect, tapi ngga nyambung” (only

connecting process but not connected at all)

“I feel like I can get violent with the provider (because I get frustrated with the Internet connection)” ... (user, 26-30 age group)

Source: ConsumerLab Qualitative 2011 Study – Smartphone (Indonesia)

BusinessSituation


External Environment AnalysisPESTEL

Telecommunication Industry

Economical• High unemployment rate (6.2%)• Indonesia GDP’s growth YoY is estimated to

be constant by 6%• Indonesia IT spending is predicted to grow

from 4 BUSD in 2010 to 10 BUSD in 2017

Social• Rise of digital media and smartphone has

made access to social networking sites easier. Thus drive internet penetration in Indonesia

• Indonesia ranked as the top 5 Twitter usage

Technology• There’s more device-enabled internet than

number of population in the world.• In Indonesia, it is estimated there will be

around 139 Million internet users by 2015 (APJII).

Environmental• Rise of the eco-friendly technology• Network sharing & virtualization to reduce

expenses

Legal• New regulation from Indonesia’s Ministry of

Communication & Information Technology has decreased content & VAS revenue by 29% (experienced by one of local telco).

Political• Upcoming presidential election in 2014 –

possible changes in Telecommunication regulation

BusinessSituation

ProblemAnalysis


Industry AnalysisPorter’s Five Forces Model

Threat of New Entrants• Driver: dominance of prepaid & multiple SIM

ownership• Various M&A scenarios may include foreign investment

Competitive Rivalry• Operators are continue to push attractive

prices to retain their subscribers.• Focusing on DATA as revenue stream

Threat of Substitute Product• Smartphone proliferation has made OTT players steal

voice, messaging and content revenue from operators• Telco operator becomes a “dumb” pipe

Bargaining Power of Buyers• Penetration rate already 113%• Dominance of prepaid shows lack of

brand loyalty. Tariff war made the switching barrier lower

• OTT provides attractive services

Bargaining Power of Suppliers• All suppliers (global & local) are not

exclusively bound to a single operator• Suppliers in a very niche areas has a

higher bargaining power

BusinessSituation

ProblemAnalysis


Technology Life CycleNew wave of innovation is required

Voice & SMS• Declining voice & SMS traffic per subscribers due to changes in

consumer’s behaviors• Tariff war among operators in these services to fully maximize

their network investments

Internet & Data • Currently serves as operator’s main revenue generator• From “all-you-can-eat” to “a la carte” model (sign of stagnation)• Operators start focusing on quality & user experiences to capture

high-valued subscribers

Next Wave of Innovation• Innovation is required as value differentiator• Operators are starting to focus on digital business such as mobile

advertising – mobile payment etc. • Data monetization (smart pipe) becoming the next focus area

1998 2003 2008 2013 2018

Technology Trends

Voice & SMS Internet & Data Next Innovation

Development

Perf

orm

ance

BusinessSituation

ProblemAnalysis


Value Chain AnalysisTraditional telecommunication value chain

Develop wireless technology and

integrated chipset for mobile devices

Technology& Chipset

Makers

NetworkInfrastructure

Suppliers

Provide network infrastructures

including applications /

enablers

MobileOperators

Deliver content and basic

communication services (voice,

SMS, data)

ContentDevelopers

Produce contents as value added

services

Subscribers

End consumers with smartphones enjoy content and

communication services

Key highlight:• Focus on mobile subscribers as revenue generator• Heavy dependency to deliver basic communication services and content (VAS) while content developers are ‘stealing’

away revenue from operators.

BusinessSituation

ProblemAnalysis


Indonesian Operator’s ChallengesIncreasing revenue vs reducing expenses

Reduce ExpensesIncrease Revenue

• Increase in expenses and high operating cost have a negative impact on operating profit. It resulted in various M&A scenario and loss reports.

• New trends in technology provides operators with the alternative to operate more efficiently (eco friendly technology – network virtualization)

• Fierce competition & declining ARPU has forced operators to innovate and to think outside the box. They cannot rely on traditional business model.

• There are lots of substitute products out there which are taking away VAS revenue from operators. Operators need to stay away from “dumb-pipe” paradigm.

BusinessSituation

ProblemAnalysis

MainIssues


Agenda

• Introduction




• Conclusions


The Changing LandscapeMulti-sided business model

Telco Assets

• Network connectivity• Secure infrastructure• Billing and payments• Multiple customer

channels• Customer data &

information

Partners / EnterprisesRetailers

Developers

Advertisers

Content Owners

Mobile Banking

Machine to Machine

Other NetworksAnd many more …

$

Telco operators are moving from a direct business model where they control the assets they sell, to a multi-sided model with diverse partners and suppliers. They need to monetize numerous relationships and services with special emphasis on handling vast amounts of data in real time

SubscribersSubs

crib

ers

$

$

$

$

Telco operators should embrace the multi-sided business model working with partners to bring increased value to their customers or risk becoming a “dumb-pipe” provider.


DATA

MY PERSONAL DATA

Name

Address Gender

ProfilePreferences

MY DEVICE(S)

IMEI Model

OS & MemoryDevice details

MY CONTEXT

Location Presence

On/OffRoaming

MY CONTENT

Pictures Videos

DocumentsMusic

MY CONTACTS, GROUPS & APPS

Contacts Newsfeeds

Social networksCookies

MY COMMS

Messages Voicemail

ClicksCall log Texts log

MY BILL & SERVICE

Payment & collection

Balance Spend

MY CONTRACT & PRODUCTS

Number SIM

Contract datesPackage

Options

Monetize your assetsWhat to leverage – Operator’s pot of gold

Source: Telco 2.0


Interesting Business Driver for Telco OperatorsTelecom operator in the center of information stream

NEW DEVICES NEW SERVICES

VARIOUS INDUSTRIESVARIOUS MEDIA & ENTERTAINMENTS

Internet

Telco Operatorin the center

Vast amounts of diverse data

Millions of customers

Billions of transactions

per day


Mobile PaymentSkype implements direct-carrier-billing to widen its market reach

Skype

PayPal

Credit card

Bank transfer

Direct carrier billing

MACHpayment

aggregator

Curr

ent t

op-u

p m

etho

ds

Cash

Ops A

Subscriber SubscriberCustomer relationship

with telco ops and Skype

Top-up methods

Ops B

Ops C

Direct Carrier Billing

Business drivers:• Direct carrier billing provides access to market and sectors that Skype

currently finds hard to reach

• Conveniences compare to other payment methods

Collaboration:• Skype works together with MACH (managed hosted solution)

Benefits:• Some surveys indicate that direct carrier billing can drive up sales by

as much as 400%

• Paid Skype services are available to larger number of people

• Telco operators get revenue from popular OTT servicesSource: Analysys Mason - Direct carrier billing: giving CSPs a share of the mobile payments market

Mobile Advertising

Open Network

Profile BrokerPayment


Location Based Advertising O2 More UK and AT&T uses location data for marketing campaigns

Mobile Advertising

Open Network


O2 More UK:• More than 1000 brands

• Approx. USD 8 million revenue per year for O2 based on advertising messaging rates

• Now joined with other operators in UK for providing advertising scale called “Weve”

• Weve opt-in database has reached 15 million subs, mainly O2

ShopAlerts by AT&T:• Generated USD 3.3 billion in revenue in 2011 (down from USD3.9

billion in 2010).

• Local Ad Network includes more than 300 affiliated mobile, online publisher websites nationwide and over 71 million monthly unique visitors.

• Approximately 700 000 advertisers across the USA promote business through Yellow Pages advertising products.


Open Network APIBlueVia – Telefonica & Telenor joint initiative

Mobile Advertising

Open Network


• A global developer platform from Telefonica & Telenor that helps developers to design, build, test and take ideas to market across telco’s group.

• Exposing network assets as API for global developers

• Customized business models for different countries and different API

• Tight collaboration with developer community


Open Network APITurbo boost to enhance quality of services

Your standard subscription QoS(Quality of Services)

Boosted QoS for durationof the movie, great for larger screens

Mobile Advertising

Open Network


• Verizon Wireless differentiates themselves from the competition by giving its subscribers an alternative to enhance streaming quality on the fly

• Subscribers have the option to pay for extra bandwidth via micro-transaction API


Aspect Details

Product

Telefónica will collect and package anonymised data (such as gender and age).

The first product, Smart Steps, will use anonymised data to understand the factors that influence the number and profile of people visiting a physical location (such as a retail store) at any time.

Placement Offered in UK. Initial target in Germany but launch was cancelled

due to privacy concerns with German regulator.

Pricing Pricing is yet unknown to the public, but it is expected to have a relatively low price.

Partnership Telefónica has partnered with market research

company GfK, which specialises in selling knowledge.

Profile BrokerTelefónica uses customer insight as a direct revenue source

Source: Analysys Mason - Big data analytics: how to generate revenue and customer loyalty using real-time network data

Mobile Advertising

Open Network



Business SolutionsCourage to begin one or more alternatives

Business Solution Drivers Challenges

Mobile Payment through Direct Carrier Billing

Today, telco operator already has a billing relationship with its subscribers & it can increase its customer experiences

Access to OTT revenue proportion Access to unbanked population – emerging markets with

low penetration of banking service Addressing security concern on online payment

Limited to digital goods & services due to legal reasons and lack of maturity in policies

New payment method with lower pay-out rates and will bring in lower revenue compare to other payment method

Need to have an initial investment in technology to broker operator’s billing capability towards application providers

Lack of standardization among operators

Mobile Advertising

Mobile as personal device has make it as an ideal target for personalized advertising

Provides a secondary revenue not just for telcos but also for app developers

Increase of online advertising budget worldwide (example Facebook and Google)

Inexpensive advertising platform / very low entry barrier

Maturity of telco operators to understand advertising business Fragmented inventories between operators and among operator

itself. Advertisers lack information about the effectiveness of mobile

advertising campaign which undermine willingness to spend. Advertiser’s lack of campaign control versus operator’s policy

regarding spamming.

Open Network API Tapping to OTT revenue proportion Increase OTT reach towards local market Service differentiation by riding on top of OTT popularity

High investment in architectural changes due to operator’s network are not designed for external exposure.

Lack of standardization makes each integration requires customization on both sides, operator and OTT player

Expensive marketing cost to maintain developer community

Profile Broker

Reuse existing information / data from the network – even today operators already extract and analyse information from their network

Retailers and advertisers are willing to spend their budget on a very targeted information

Limitation on type of information that can be sold due to legal reasons on privacy.

Need to have mature procedures for cross-department coordination in data refinement process – The analytics projects need to be aligned with organization business outcomes.


Agenda

• Introduction




• Conclusions


Mobile Advertising Value ChainTelco operator’s position in the overall value chain

Advertising Engine

Ad sales

Network integration

BudgetMarkupfixed feeXX

The soccer results are sponsored by:

Internet

Advertising Industry


SMS


Apps

BrandsAd-spend for a mobile campaign

Media AgenciesIdentify the most suitable marketing mix and buy inventory

Media SellerSell ad space based on specialized inventory over commissions

Technology ProviderAn orchestration platform to best utilize mobile display and deliver a targeted campaign

PublisherCampaign publishers such as SMS broadcast engine, internet gateway

Media OwnersInventory owners where ads are displayed such as mobile apps, SMS infra. & internet sites

10%

20%

10%

60%

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Vast amount of

diverse data

Value PropositionWhat to offer – Operator’s pot of gold

Internet Based Ad

Ad-Placement(Inventories)

Volume(Reach)

Enhanced Profiles(Relevancies)

Millions of customers

Billions of transactions

per day

Key Resources

Key Processes

Profit Formula

Value Proposition


Value PropositionWho to target – Bring values to different stakeholders

Brands & Media Agencies• Find and deliver new mechanism to reach mobile subscribers with

relevant advertisements• Enable interactive & “always-on” channel to deliver advertisements

Online Media Seller / Ad-network• Provides alternative channels besides publisher website to deliver

advertisement (inventory variety)• Increase volume of inventories due to high volume of traffics

Mobile Subscribers• Receive personalized, relevant and non-intrusive offerings• Increase easiness of accessing different promo / offerings from the

brands

Key Resources

Key Processes

Profit Formula

Value Proposition


Program M

anagement

Key ResourcesBusiness Operational Readiness

C-Suites Sponsorship (CMO – CTO / CIO)

Business ControllerOversee end-to-end advertising operation

Account ManagerOn-board agencies, advertisers and sales house into ecosystem

Technology Operational SupportResponsible for technology enablers to deliver advertisements

Administration SupportResponsible for settlement, invoicing and administrative matters

Mobile Advertising Business Ecosystem

Key Resources

Key Processes

Profit Formula

Value Proposition


Mobile Internet WAP / WEB

In-content

Others

Downloads (music-content)

MMS

Search

Display

In-App

SMS

IVR-voice

Idle-screen advertising

Messaging

Mobile Advertising

• MMS Advertising• Internet Advertising

• Click-to-buy• Click-to-call

• In-App Advertising• Mobile TV• USSD Notification

Key ResourcesTechnology

A variety of technologies to deliver advertisements *Illustration

Key Resources

Key Processes

Profit Formula

Value Proposition


Key ProcessesStepwise approach for entering mobile advertising business

Learn from each and every result that get smarter with every campaign outcomes – consider customer experiences

Continuous journey for building a full mobile advertising ecosystem

Align your capabilities – but don‘t limit yourself with available inventories – enhance data mining capabilities to support targeted advertising

Connect with various players in the ecosystem – media agencies, advertisers / brands, sales house

Choose your starting point and has the highest value opportunities

1. Admission 2. Connect 3. Align

5. Transform

4. Learn

Key Resources

Key Processes

Profit Formula

Value Proposition


Key ProcessesImportant processes to note

Segmentation• Choose appropriate channels as ad

inventories – example: mobile internet (high traffics)

• Target subscribers based on segmentations (demographics, handset type, transaction behaviors)

Ecosystem - Partners & Channels• Operators need to have a 3rd party

media seller who has relationships with brands and agencies

• Partnership with global ad-network to ensure inventory fill-rates

• Partnership with technology providers who can bring in technical capabilities such as data mining for profiles, location based technology, etc

Align capabilities• Ensure the advertisements are non-

intrusive and relevant to subscribers without reducing overall user experiences.

• Check for local & global legal implications.

• Prioritize technical capabilities with marketing plan to come up with end-to-end advertising service roadmap.

Key Resources

Key Processes

Profit Formula

Value Proposition


Profit FormulaCost drivers vs Revenue drivers

Subscriber Base

Inventory

Mobile channels

X

X

X

Fill Rates

Available Inventory

Available Inventory

X

Campaign Price (CPM)

Gross Revenue

Technology

Operational Activities

Infrastructure Connectivity

+

Business Management

Cost

+

+

Available Inventory

X

Campaign Price (CPM)

Gross Revenue

Operator Sales House

3rd Party Sales House

Key Resources

Key Processes

Profit Formula

Value Proposition


Profit FormulaBasic Assumptions – Available Inventories

Inventory Conservative Realistic OptimisticOpt-in Rate 4.0% 4.5% 5.0%WAP/MMS Penetration 40% 40% 40%Smartphone/Dongle Penetration 9% 9% 9%

Unique WAP Visitors 2% 3% 3%Visits Per Month 2 3 4Pages Per Visit 2 3 4Ad Zones 2 2 2Unique WEB Visitors 8% 9% 10%Visits Per Month 3 4 5Ad Zones 4 4 4# SMS per month 4 8 10Targeting Rate 10% 15% 20%

Inventory Sold by Sales House Conservative Realistic OptimisticSMS Fill Rate 7.00% 7.50% 8.00%Growth Per Quarter 0.75% 1.00% 1.25%MMS and Applications Fill Rate 0.25% 0.50% 0.75%MMS and Applications Growth Per Quarter 0.05% 0.08% 0.10%WAP Fill Rate 3.00% 5.00% 7.00%WAP Growth Per Quarter 1.00% 1.50% 2.00%WEB Fill Rate 3.00% 5.00% 7.00%WEB Growth Per Quarter 1.00% 1.50% 2.00%Click-Through Rate 2.00% 3.00% 4.00%

Inventory Sold by Operator Conservative Realistic OptimisticSMS Fill Rate 4.00% 6.00% 8.00%Growth Per Quarter 0.25% 0.50% 0.75%MMS Fill Rate 0.25% 0.50% 0.75%MMS Growth Per Quarter 1.00% 1.25% 1.50%WAP Fill Rate 5.00% 7.50% 10.00%WAP Growth Per Quarter 1.00% 1.50% 2.00%WEB Fill Rate 1.00% 3.00% 5.00%WEB Growth Per Quarter 1.00% 1.50% 2.00%Click-Through Rate 2.00% 3.00% 4.00%

• Recommend “opt-in” approach to ensure quality and encourage acceptance.

• High sensitivity to “fill rates” due to large subscriber numbers• Slow uptake in inventory selling is the main potential challenge

MAIN

Key Resources

Key Processes

Profit Formula

Value Proposition


Profit FormulaBasic Assumptions – Rate Card

Sales House Rates (USD) Fixed Fee Conservative Realistic OptimisticSMS CPM Rates 7.92 13.75 16.50 20.90MMS CPM Rates 7.92 16.50 19.25 20.90Targeted WAP CPM Rates 5.50 11.00 11.00 11.00Generic WAP CPM Rates 2.75 8.25 5.50 8.25Targeted WEB CPM 2.75 8.25 8.25 8.25Generic WEB CPM 2.75 5.50 5.50 5.50Cost-Per-Click 0.05 0.10 0.10 0.10RBT CPM Rates 4.95 11.00 11.00 11.00Application CPM Rates 4.95 11.00 11.00 11.00

Operator Rates (USD) Conservative Realistic OptimisticSMS CPM Rates 8.8 8.8 8.8MMS CPM Rates 11.0 11.0 11.0Targeted WAP CPM Rates 8.3 1.5 8.3Generic WAP CPM Rates 5.5 1.0 5.5Targeted WEB CPM 8.3 1.0 8.3Generic WEB CPM 5.5 0.5 5.5Cost-Per-Click 0.1 0.1 0.1RBT CPM Rates 8.3 8.3 11.0Application CPM Rates 8.3 8.3 11.0

• Media buyers use “CPM” or “Cost-Per-Mille” when buying media, equivalent to the cost of 1000 ad impressions.

• “Cost-Per-Click” (CPC) when users click on a banner or link.

• Fixed fee is operator rate card for selling inventory to Sales House. For Sales House, this fee is the minimum cost that they need to pay to operator

MAIN

Key Resources

Key Processes

Profit Formula

Value Proposition


Profit FormulaBusiness Case Overview

Y0Q4 Y1Q1 Y1Q2 Y1Q3 Y1Q4 Y2Q1 Y2Q2 Y2Q3 Y2Q4 Y3Q1 Y3Q2 Y3Q3 Y3Q4$0

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

Forecasted Revenue

Cummulative Revenue (Conservative) Cummulative Revenue (Realistic)Cummulative Revenue (Optimistic) Cummulative Cost

Costs (USD) CAPEX OPEXYear 0 Year 1 Year 2 Year 3 Total OPEX

Hardware 258,522

Software 128,273

Delivery Services 225,306

Support 88,000 90,000 92,000 270,000

Hosting 40,000 40,000 40,000 120,000

Connectivity 28,000 28,000 28,000 84,000

Business Management 0 80,000 80,000 80,000 240,000 612,101 236,000 238,000 240,000 714,000

Revenues (USD)Yearly Revenue

Year 1 Year 2 Year 3 Total

Conservative Scenario 137,208 444,412 1,217,311 1,798,931

Realistic Scenario 388,589 1,229,043 3,292,546 4,910,179

Optimistic Scenario 662,934 2,487,702 6,933,923 10,084,560

Key highlights:• Profitable business over 3 years period showed in different scenarios• Initial cost in early year is operator’s investment to gain potential revenue in the following years.

*Illustration

Key Resources

Key Processes

Profit Formula

Value Proposition


Produce relevant data and measure campaign effectiveness

End-to-end knowledge & competencies in advertising industry

Perseverance for continuous changes in business transformation

Implementation ChallengesRoadblock ahead

Tight collaboration between telco, advertisers and regulator

Keep the balance between supply and demand


Agenda

• Introduction




• Conclusions


ConclusionsKey take away …

• Telecommunication in Indonesia provides a promising opportunity

• Competition is fierce among operators and with over-the-top players

• Differentiations and innovations are required

• Lots of ideas out there – courage to begin one or more business innovations

• Commitment and perseverance are required to adapt towards changes