II International Workshop on Challenges and Trends on Broadband Wireless Mobile Access Networks – Beyond LTE-A

1. Leveraging 4G to thrive in new market conditions
Marcelo Abdo
Strategic Planning Manager
November 5th, 2014

2. Index
•New Trends are reshaping our market
•Several challenges arise from these trends
•How the world is addressing these challenges
•Why Brazilian specificities pose additional difficulties
•Technology: embedded in our strategy

3. New Trends are reshaping our market

4. CHANGING
The world is
Pope Benedict XVI
2005
Pope Francis I
2013

5. Smarts (phones, grid, wearables, toys) will PREVAIL
Shifting voice and SMS paradigm to drive data traffic growth
Source: Ericsson Mobility Report
2011 2012 2013 2014 2015 2016
Featurephones
Smartphones
15%
52%
85%
48%

6. Source: Ericsson Mobility Report
29%
53%
> 50% of traffic will come from video
Video traffic will grow 13X in the next few years
Video traffic’s share of total traffic
2011
2019

7. Mobile data traffic will EXPLODE
Networks will be under pressure across the world
Source: Ericsson Mobility Report
2013 2014 2015 2016 2017 2018 2019
Mobile PC/ Router/ Tablet
Smartphones
2 EB/m
20 EB/m
~50%

8. Several challenges arise from these trends

9. Revenue growth rate is DECELERATING
Traditional pricing strategies no longer suffice
Customer Revenues
Traffic Volume
Decoupled

10. Networks demand different solutions
Simultaneous users are expected to increase
X2
2013 2014 2015 2016 2017
Projected simultaneous users evolution

11. Therefore, we need to LEVERAGE LTE
It will allow us to offer the required bandwidth controlling costs
Source: Booz&co, LTE: Delivering the future of Wireless
1: Total Cost of ownership
100%
14%
3%
2G 3G 4G
Relative Cost¹ per Mbps

12. How the world is addressing these challenges

13. Traffic growth DIFFERS among markets
North American data consumption is soaring
119%
54%
North America
Western Europe
Source: Analysis Mason, Wireless network traffic worldwide forecasts
Mobile Data Traffic Growth 2012-13

14. Consumer HABITS differ significantly
Americans consume more data traffic than Europeans
Source: Cisco, Visual Networking Index Mobile Forecast Highlights, 2013 - 2018
1.2
GB
0.5
GB
Monthly data traffic per smartphone, 2013

15. Asymmetrical STIMULI to MBB growth
American environment stimulate operators to invest in 4G
Source: Financial Times, Digital divide exacerbates US inequality; BofA Merryl Lynch, Global Wireless Matrix and Analysis Mason, Wireless network traffic worldwide forecasts
1: Fixed Broadband
2: Removed in 2003
Consumption occasion
On the go
At home
FBB¹ Penetration (%)
73%
88%
ARPU (USD/m)
49
18
Monthly Mobile Churn (%)
1,7%
1,9%
Spectrum Cap
No2
Yes

16. Changing technological evolution PACE
55%
% of US mobile traffic in 4G
in 2013
% of European mobile traffic in 4G in 2013
11%
Few Vodafone’s European customers use a 4G capable device
The bulk of AT&T’s postpaid smartphone customers use a 4G capable device
Source: Cisco, Visual Networking Index Mobile Forecast Highlights; 2013 – 2018; AT&T Annual Report, 2013; Vodafone 4G Webinar
US subscribers are embracing 4G faster than Europeans

17. Why Brazilian specificities pose additional difficulties

18. Deployment started with 2,5 GHz
The 700 MHz is crucial to maximize CapEx efficiency
0
2
4
6
8
10
5.800
2.100
850
700
<700 MHz
Cell Radius (km)
Source: GSMA, Mobile Broadband Spectrum Roadmap
10
1
Cells
Required

19. Low FBB penetration, continental country
MBB will be predominantly substitutive to FBB, adding pressure on NW
36%
62%
59%
68%
76%
Source: TIC Domicílios e usuários 2013
73%
88%

20. Price-sensitive, lower value customers
Making more challenging the return on invested capital
Source: BofA Merryl Lynch, Global Wireless Matrix
* 48 country average
9
49
26
Brazil US
USD/m
USD/m
USD/m*

21. A huge base remaining in 2G
Increased migration efforts to 3G and 4G
Source: Anatel; McKinsey, Connecting Brazil to the world: A path to inclusive growth; Ericcson Mobility Report and AppleStore
2013 Technological Mix
32% 27%
62%
40%
70%
28% 37%
3% 1%
North
America
Western
Europe
Brazil
2G 3G 4G
iPhone 5S
Price (USD)
549 871
GDP per
Head (USD)
54,920 10,860

22. And a starting point with fewer sites
The major cities are lagging regarding base stations
3G Equipments/inhabitant¹
1,00
0,91
0,26
0,38
London Berlin Sao Paulo Rio de Janeiro
1: Normalized to London

23. Technology: embedded in our strategy

24. Focus on high-value to speed up evolution
The highest ARPU in the market benefits us
Source: 2Q14 Operator Reports
R$ 23
R$ 18
Vivo 2nd Highest ARPU
+32%

25. We are broadening our 4G spectrum
The 700 MHz acquisition will allow us to:
Source: Teleco
Increase indoor 4G signal quality
Increase network capacity saving costs
Offer cutting edge products like VoLTE and IoT

26. We will INVEST to meet growing demand
We will build more sites and connect them with fiber
Total Base Stations
Source: Telefônica’s Strategic Plan
2013
2014
2015
2016
2017
~x2

27. We need to DIVERSIFY our solutions…
It is important to address local challenges at a micro level
Source: Telefônica’s Strategic Plan
...will require tailor- made network strategies encompassing:
Demand differences
among geographies...
•Wi-Fi offload
•Small Cells
•4G acceleration in largest cities

28. … COUNTING on technology evolution
Helping us to sell more 4G devices and conceptualize our NGN
•Affordable and compatible 4G devices
•Flawless HetNet deployment
•IP transformation
•Convergent network elements
•SON, SDN, NFV, 5G, etc...
•Deliver superior return to shareholders
•Enhance users’ Quality of Experience
•Increase spectrum efficiency
What we want
How you can help

29. Thank you!
marcelo.andrade@telefonica.com