As a young, tech-savvy middle class continues its explosive growth in emerging markets, the Cisco Internet Business Solutions Group sees great opportunities for service providers. The key lies in offering enhanced, connected-life services through the mobile cloud. Download the paper: http://cs.co/9006VA4E

1. The Road to Cloud Nine
How Service Providers Can Monetize
Consumer Mobile Cloud
HenkyAgusleo
NeerajArora
February 2013
For more information: http://cs.co/9006VA4E
Cisco IBSG © 2013 Cisco and/or its affiliates. All rights reserved. Cisco Public Internet Business Solutions Group 1

2. Globally, Consumer Spending Patterns
Are Shifting Significantly
Worldwide population distribution
Middle class1
Middle-class1 consumers are 27%
Others
rapidly increasing and would 6.8 B
41%
8.3 B
outnumber others 59%
73%
2010 2030
Middle-class spending, $ trillion
Middle-class in Emerging 17 Developed
Countries2 would outspend 39 Emerging
14
Developed Countries 8
2010 2030
Distribution of population in 2030, %
Developed Countries are
aging, while Emerging Developed 16 48 36 100% = 1.3 B
Countries would remain
young and tech-savvy Emerging 24 58 18 7.0 B
<15 Yrs. 15-55 Yrs. >55 Yrs.
1. Expenditures between $10 to $100 per day, 2005 PPP
2. Developing APAC, Middle East and Africa, and LATAM , whereas Developed include Europe and North America
Source: Cisco IBSG SP, Kharas, “The Emerging Middle Class in Developing Countries,” OECD; US Census Bureau
Cisco IBSG © 2013 Cisco and/or its affiliates. All rights reserved. Cisco Public Internet Business Solutions Group 2

3. OTTs (not Service Providers) Have Taken the
Lead in Connected-Life Experiences
>150 million users Mobile Connected-Life Service Comparison
Google
Apple
Usage intensity
China
Mobile
Facebook
Nokia Tencent
China AT&T
Telecom Verizon LinkedIn
Deutsche Telecom OTT/ Device OEM
MTN Amazon
Orange SP
Telecom Italia
>100,00 services
Service maturity
Note: Usage intensity based on number of users. Service maturity determined by number of years since service launch and size of offer portfolio.
Source: Cisco IBSG, SP analysis; ABI; press search
Cisco IBSG © 2013 Cisco and/or its affiliates. All rights reserved. Cisco Public Internet Business Solutions Group 3

4. Four Key Areas Offering
Mobile-Cloud Service Opportunities
A Vision of Mobile-Cloud Service Evolution
Medium term Long term
Current / near term
1  Platform convergence  Personalized, intellige  Immersive, augmented-
Learn and Play  „Social‟ experiences nt content push reality enabled
5-D1 experiences
More
2  Integrated voice  Emotion recognition-  Nanotech-enabled Immersive,
Communicate and video based intelligent embedded Integrated
communication communication and
Intelligent
 Banking/commerce  Improved experience  Internet of
Shop & Play services and through intelligence Everythingenabled, proac
payments tive/ automatic commerce
3
 Proprietary  Cloud-based,  M2M-enabled automated
Monitor & Control controller-based Big Data-enabled workflows/predictive
automation / automation / security decision making
4 security
1. Five dimensions include space, time, and senses
Source: Cisco IBSG SP
Cisco IBSG © 2013 Cisco and/or its affiliates. All rights reserved. Cisco Public Internet Business Solutions Group 4

5. By 2016, $64B Direct-Service Opportunity;
$335B Broadband Pull-Through Potential
2012-16 Mobile-Cloud Opportunity ($Billion)
70 By 2016: Direct Service
64.0 Opportunity
$400B direct & pull-through opportunity,
60 33% of total mobile service revenue 55.4 11.4 Monitor & Control
50 48.7 3.0 Shop & Pay
43.5 8.1 Communicate
40 39.2
30
41.5
20 Learn & Play
10
0
2012 2013 2014 2015 2016
Cloud
pull-through1 258 276 294 314 335
1. Cisco VNI: 70-80% of data traffic from video streaming, file/content sharing, online gaming, M2M addressable through mobile cloud
Source: Ovum, 2011; Gartner, 2011; ABI Research M2M, 2011; eMarketer 2012; IAB 2012; Cisco IBSG analysis
Cisco IBSG © 2013 Cisco and/or its affiliates. All rights reserved. Cisco Public Internet Business Solutions Group 5

6. For SPs, Mobile-Cloud Services Bring Up to
$7 in Revenue per Dollar Invested
What an SP’s $1 Investment in Mobile Cloud Service Can Bring
Base service
$4-5
(e.g., N-screen)
+ Value Features +15-20% from
(e.g., turbo mode) $5-6
basic subscription
Learn & Play
+ Advertisement +10-30% from
revenue $6-7
subscription
+30-40% from
+ Personalization $6.5-7.5 non-targeted ad
Base service
$2-4
(e.g., m-Payment, m-Ad)
Shop & Pay
+ Targeting +$1.5-2 due to
$3.5-5.5
(e.g., locationbased) location-based targeting
Base service
$2.5-5.5
(e.g., social media)
Communicate
+ Personalized +30-40% from
advertisement $3.5-6.5 non-targeted ad
M2M-based
Monitor & Control automation
$1.5-2
Source: Cisco IBSG, SP analysis
Cisco IBSG © 2013 Cisco and/or its affiliates. All rights reserved. Cisco Public Internet Business Solutions Group 6

7. Optimizing Key Revenue and Cost
Components Can Improve Profit by 50%
Description Value of Lever
Subscription Paid revenue from users for services 10-15%
by pricing to customer value
Revenue from advertisers/agencies
Grow Revenues Advertisement or revenue share from content 15-20%
providers of subscription revenue
35-40%
Add-on revenue from offering 5-10%
Personalization targeted ads / content of subscription revenue
Profitability
Cost to build and operate
40-50% Data Center cloud-based data center
30-50%from DC cost via
virtualization
Cost to transport content/apps
IP Transport throughout network 5-10%
via optimized CDN caching
Reduce Costs
Mobile access
Cost to build and operate mobile 30-80%
access network of access platform cost by
10-15%1
using Wi-Fi vs. 3G/4G2
Cost to lower entry barrier for 10-15%
Customer
consumers (e.g., by providing of device subsidy by going to
acquisition device subsidy) cheaper thin-client devices
Note:1) Assume COGS at 50% of OpEx, SG&A at 30%, D&A at 20%. 2) 3G/4G costs exclude spectrum costs.
Source: Cisco IBSG SP analysis
Cisco IBSG © 2013 Cisco and/or its affiliates. All rights reserved. Cisco Public Internet Business Solutions Group 7

8. Mobile-Cloud Services Produce EBIT
Margin of 30%; Cash Flow Margin of 25%
Money Flow Based on $1 Paid Revenue
(Average across mobile cloud service categories)
Value pricing 0.35-0.40 1.35-1.40 0.90-0.95
Advertisement 0.10-0.15
Personalization
0.15-0.20
1.00 0.05-0.10
0.40-0.45 0.10-0.15
EBIT
0.35-0.40
0.30-0.35
After
25-30% 20-25%
0.15-0.20
of total of total
reduction
revenue revenue
DA
Paid Revenue Levers Total OpEx EBITDA CapEx Free
Revenue Revenue Cash Flow
(Base)
Note: 30% EBIT margin improvement assumes full utilization of all revenue and cost levers
Source: Gartner 2011; ABI Research M2M 2011; eMarketer 2012; IAB 2012; Cisco IBSG analysis
Cisco IBSG © 2013 Cisco and/or its affiliates. All rights reserved. Cisco Public Internet Business Solutions Group 8

9. Advertising Business Moving To
Performance-Based, Targeted Model
Orange’s Video Ad CPM Rates Internet Advertising
(Euro) Revenue Mix
80%
Performance
based 64%
60%
+85% +40%
40%
Impression 31%
65 based
49
20%
35 Hybrid 5%
0%
2006 2007 2008 2009 2010 2011 2012
• Revenue share from impression-based (CPM) ad model
Mass ads Targeted ads Targeted ads continues to decline
at Homepage at Homepage at Theme pages
(orange.fr) (socio-demographic (Finance, Sports, • Maximizing benefits from performance-based model (CTR)
targeting) Automotive) requires sophisticated targeting provided by analytics
Source: Orange Ads Rate Card, 2011 Source: Cisco IBSG analysis
Cisco IBSG © 2013 Cisco and/or its affiliates. All rights reserved. Cisco Public Internet Business Solutions Group 9

10. Powering Mobile-Cloud Growth: Platform
Convergence, Big Data, Immersive Interface
Medium term Long term
Current / near term
 Platform convergence  Predictive intelligence  5-Dimensional
(managed/ unmanaged enabled, push-based (sight, hearing,
content, N- personalized services touch, smell, taste)
screen, linear / non- (customer user interface for
linear content) context, location, time, p immersive
 Embedded „Social‟ lace) experiences
experiences (in  Real-time interactivity
gaming, video, etc.) and role plays with
on-screen characters
Selected innovations
 IP networks  Big Data (customer and  Human-Machine Interface(e.g. wearable devices)
 Digital media cloud network side analytics)  Augmented reality
Source: Cisco IBSG SP
Cisco IBSG © 2013 Cisco and/or its affiliates. All rights reserved. Cisco Public Internet Business Solutions Group 10

11. Key Success Factors for SPs To
Realize Mobile-Cloud Success
Key Success Factors Mobile-Provider Actions
Contents & apps are foundation Multi-screen concept combining
Innovations of services. Explore app stores, traditional and Web 2.0 digital media
PaaS developer communities. content delivered to mobile, TV, and
PC.
Advertisement as second source of SingTel bought Amobee mobile ad
Advertisement solution provider for $321M.
revenue to subsidize deficiency from
revenue subscriber revenue. Globally, ad is expected to comprise
24% of mobile-cloud revenue in 2016.
Users value targeted content and ads. Social media (e.g., Twitter) analysis
Personalized
Cloud brings personalization to users —subscriber profiling for campaign
services anywhere, anytime. assessment.
Mobile providers cannot do this alone. Mobile Market—World‟s largest
Ecosystem of Need content mobile provider‟s app store with
partners providers, advertisers, content 160 million users, 630 million
developers to participate in value chain. downloads, revenues U.S. $8 billion.
Source: Cisco IBSG Press search and analysis
Cisco IBSG © 2013 Cisco and/or its affiliates. All rights reserved. Cisco Public Internet Business Solutions Group 11

12. For further information:
http://cs.co/9006VA4E