3G case- -
Tag： 3G excutive summary
3G Business Case: bid book versus reality, Annual 2001 p1
Executive summary.
Full Text: COPYRIGHT 2001 Informa UK Ltd.
Increasing concern is being expressed by both network operators and the investors regarding the viability of the 3G business case. It has been argued that the optimistic forecasts and planning that operators presented in their licence applications, or "bid-books", will not be sustainable in the real world. This report examines the viability of the 3G business case, by identifying the different factors affecting the 3G business case, and assessing their possible effects on the business plan in various scenarios.
The report identifies the Average Revenue Per User (ARPU) levels operators need to achieve in order to be profitable. Since uncertainties on potential revenues are very large, we do not estimate revenues directly, but rather estimate the required revenues to cover the costs, while providing an acceptable return. This is done using common financial techniques, including:
* Net Present value (NPV) is greater than zero
* assets are greater than liabilities over the whole period
* discounted payback is achieved in 2010 or earlier
* Internal Rate of Return (IRR) is 12% or higher.
Our analysis is applied to 16 different scenarios, each time changing one of the factors to measure their individual effects. The factors changed include coverage requirements, licence fee, population density, market share, etc.
3G and the opportunities it brings
The term 3G represents the third generation mobile telephony systems, which will replace the 2G mobile systems such as GSM, cdmaOne, and TDMA, and 2.5G systems such as GPRS. 3G refers to the IMT-2000 system, developed within the ITU, and will be implemented in many countries as Universal Mobile Telecommunications System (UMTS), which is based on the WCDMA technology.
The main improvements 3G will offer include bit rates up to 384 Kbps with limited mobility and 2 Mbps for stationary usage, higher spectrum efficiency than previous technologies, and a standardised service platform framework allowing flexible and fast introduction of new services.
The introduction of Wireless Application Protocol (WAP) services, mobile portals and, more recently, GPRS have helped the mobile operators and service providers to widen service offerings beyond traditional telecom services. As part of this new development, the operators and service providers have been forced to seek new partnerships and business models to offer a new generation of mobile Internet-based services. This has brought about enormous opportunities for network operators, as well as for other companies offering different types of services and applications. 3G is intended to develop this trend further.
Major factors affecting the 3G business case
Operators' 3G business cases are highly complex and include many assumptions and estimates regarding usage levels, availability of technology and equipment, competitive environment, etc. The 3G business case might be affected by numerous factors, both internal and external to the operators. Our main findings concerning the effects of these factors on the operators' 3G business case are summarised below:
Regulation
Regulators have a major impact on the 3G business case in defining the 3G `rules of the game'. They control the licensing method (auction vs. beauty contest), set the number of licences issued, and impose coverage, (Quality of Service) QoS, and national roaming requirements. Their impact can include:
* Imposing requirements that are too strict for coverage and service levels might lead to extremely high costs for operators, severely threatening the business case.
* The licensing method itself will affect the business case mainly through the licence fees that will be applied.
* The main effects of the number of licences awarded in each market will be the level of competition and the allocated spectrum. A high level of competition will put a cap on market share. The results of our scenarios show that a green-field operator that achieves market share of 15% by 2005, still lower than the incumbents' 20%, will need an ARPU about 18% higher than that required by a green-field operator with 20% market share, to achieve zero NPV. On the other hand, an incumbent operator that achieves market share 5% higher than the predicted 20% (in our base case) by 2005 will be able to achieve zero NPV with current levels of about 41 [euro]/month.
* High licence fees will put operators under financial pressure. Our calculations show that an operator that did not have to pay a licence fee will need ARPU levels over 30% lower than those of an operator who paid about 600 [euro] per capita, in order to achieve zero NPV. However, an incumbent mobile operator with 40% market share in a market similar to Germany (our base case) that has paid a high licence fee for a 3G licence, can continue to create value for shareholders as long as:
* ARPU level achieved starts to increase within five years and
* reaches a level of 44.9 [euro]/month (an increase of 11% compared to current levels) within 10 years.
For this to hold, market share will have to remain above 20%.
* We believe that providing extensive coverage is a key competitive advantage. Our calculations show that the actual ARPU required is almost identical when looking into high vs. low coverage requirements (80% vs. 99% of population) in a country like Germany. The increased CAPEX and OPEX related to the additional coverage requirements is offset by the additional users gaining access to the network, the increased ARPU due to improved functionality, the shift to high end users attracted by the high coverage and QoS, and reduced interconnection fees to other networks. This is true for countries with a population density similar to that of Germany.
* Most regulators do not go as far as imposing specific levels of QoS on 3G operators. Our findings show that an operator can achieve significant savings by having a well thought through QoS planning. In a fairly densely populated country, the network design parameter with the greatest effect on the business case is the QoS offering and not population coverage. A more conservative QoS dimensioning can reduce the required ARPU by up to 4%.
Population density and site sharing
Population density has a major effect on the viability of the 3G business case. Site sharing is a possible solution to make the 3G investment more feasible.
* Looking at the base case and changing one parameter only, low population density has the highest single effect on an operator's 3G business case. All other factors (licence fee, population, etc.) being equal, an incumbent operator in a country with population density similar to Sweden will need ARPU 125% higher than that of an operator in a country like Germany to achieve profitability. When combined with high coverage requirements, whether determined by the regulator or by market forces, the effect becomes even more marked. This makes the business case of operators in a country like Sweden for example, which received 3G licences almost for free, less profitable than those of operators in a country like Germany, which paid over 8.5 billion [euro]on average per 3G licence. A Swedish operator will require ARPU levels of about 90 [euro] (taking into account low population density, high coverage requirements, and no licence fee). This is mainly due to the high additional expenditure required in order to offer the high population coverage operators committed to in their beauty contest applications. However, Swedish operators can improve their business case by sharing sites with other operators. It is extremely difficult to have a profitable business case in a sparsely populated country unless there is site sharing among operators, the licence fee is dropped, or if the coverage requirements are reduced considerably.
* We believe that the 3G networks will be deployed as soon as possible in order to benefit from the potential revenues. However, operators are very likely to share as many sites and as much equipment as possible in the early stages, to reduce the necessary investment. In some cases, this might lead to a small number of 3G networks per country, shared by a few operators. However, the contribution of site sharing is not very high. For the high population density case, the improvement in required ARPU when site sharing is used is about 4%. For the low population density case the improvement in required ARPU is as high as 11% (ARPU of 90 [euro]). Despite this huge improvement in lowering the required ARPU, the business case for a sparsely populated country still looks very hard to sustain.
Operator background
The background of a 3G network operator is highly significant with regards to the potential success of the 3G business case. Key factors that can differentiate the business cases of operators with different backgrounds include: existing re-usable infrastructure, competence, subscriber base and organisation, and brand recognition.
* Both green-field and incumbent operators are subject to large capital expenditure, with some likely savings to incumbents.
* It will be very hard for a green-field operator to achieve profitability. The case where the operator can obtain the same market share as an incumbent, in the long run requires an ARPU increase of 37% compared with the incumbent. In the case where this market share cannot be reached, the ARPU required becomes even higher. For a green-field operator with 15% market share by 2005, the required ARPU is 60% higher than for an incumbent with 20% market share.
value web position
The mobile value chain is constantly changing, transforming into what we refer to as a value web. 3G opens new opportunities for operators to establish themselves in traditional as well as new parts of the value web.
* The position taken by an operator will have a large effect on the business case, affecting the CAPEX, OPEX, risk factor, revenues, and overall business success.
* Costs are reduced significantly when the operator becomes a bit-pipe provider. We have found that an operator operating as a bit-pipe operator will require ARPU levels 40% lower than those required by an operator that is also functioning as a service provider and a mobile portal. The revenues that are `lost' by the bit-pipe operator will be transferred to service providers and MVNOs.
* There are no fixed rules dictating which position an operator should take; an analysis should be undertaken on a per case basis.
MVNOs
Favourable regulations and the high cost of 3G licences bring new opportunities for service providers and MVNOs.
* Network operators have a tremendous opportunity to exploit their capacity more efficiently with MVNOs.
* MVNOs will lead to increased competition for most network operators.
* Wise network operators will partner with MVNOs to leverage complementary skill sets.
* Our scenarios show that an operator that will have 20% of its capacity used by MVNOs might require ARPU levels 15% lower than the base case.
Handset availability
The availability of 3G handsets has a crucial effect on the take up of 3G services. However, a delay in the availability of 3G handsets will create a problem for operators mainly if they have no alternative network and technology available to them.
* A delay in the supply of 3G handsets is one possible scenario that might increase the financial burden on operators.
* This might have a major effect on the acceptance of 3G services in general.
* The effect of handsets availability will be more severe on a green-field operator.
Handset subsidies
Handset subsidies are offered by operators in most countries and are likely to exist in 3G networks as well.
* The level of handset subsidies required has a substantial impact on the business case. It is not only the largest cost item in the sales and marketing budget, it is also the most uncertain.
* For an incumbent German operator, a twofold increase in handset subsidies (e.g. from 173 [euro] to 346 [euro] in 2001) will require approximately an 11% increase in ARPU levels to maintain profitability.
Competing technologies
A small number of technologies exist that will compete with some future applications of 3G technologies. These include wireless LAN and Bluetooth.
* Since implementation of these technologies is at a very early stage, it is hard to predict what exactly they will be used for, and how they will affect the success of 3G.
* It is likely that these technologies will complement 3G services and might even `steal' some 3G traffic, but they do not impose a major threat on the success of 3G.
So what is going to happen?
The results of the cost analysis we have made are quite encouraging. For most scenarios the required increase in ARPU in order to make 3G profitable is not excessive. However, two main conditions must be fulfilled:
* Higher ARPU levels must be reached. Although the overall trend in the market is still downward, there is already evidence in the market that the trend can be reversed through careful segmentation or innovative services.
* The projected number of subscribers must be reached. This requires high penetration (implying a probable need for handset subsidies), availability of technology and equipment and the existence of value-added, easy-to-use services.
When presenting the results of the business cases, we have in each scenario highlighted the required ARPU increases and also the assumed profitability margins. The reader is then invited to use his or her own judgement on whether these figures are achievable. We would, however, draw the reader's attention to some trends in the mobile industry that might have a profound impact on the industry as a whole. Looking at most of the scenarios we analysed in this report, we can see that rather high profitability margins will be required.
Although operators world-wide have historically shown high margins, we only need to look at an already highly competitive market, such as Hong Kong, to see how increased competition puts pressure on margins. In such markets, many operators are actually losing money already--even before high licence fees or expensive investments in 3G infrastructure.
Looking towards the future, we expect competition to increase. Not only will existing operators compete more fiercely, but we will also have new green-field operators, new players, such as MVNOs, new portals and even new technologies trying to establish themselves in this highly-competitive market. In short, the increasing competition inevitably leads to a situation where not all players will achieve the margins shown in this report or remain profitable - regardless of licence fees, expensive technology, etc.
However, neither financial difficulties, nor the consolidation of the market, have to be viewed from a negative point of view, and are not necessarily the result of high licence fees or large investments (although these might act as catalysts). Financial concerns, for some players, may be more a result of globalisation and increased competition or industry maturation rather than being specific to the implementation of 3G. There are always winners and losers in a healthy, competitive industry--and the fact that some players face financial troubles does not mean that the industry as a whole is doomed. We regard the more competitive environment rather as a positive element, forcing the players to be more innovative, agile and focused.
Operators need to understand and consider the factors that they can control, such as value web position and various operational decisions. They should define a clear 3G strategy that best suits their core competencies, while addressing different possible scenarios. They should prepare themselves to provide new types of services, using new technologies, to customers with new and rapidly evolving demands and usage habits.
- 作者： seasonsmile 访问统计：3 2005年07月26日, 星期二 19:11 加入博采
Tag： 3G excutive summary
3G Business Case: bid book versus reality, Annual 2001 p1
Executive summary.
Full Text: COPYRIGHT 2001 Informa UK Ltd.
Increasing concern is being expressed by both network operators and the investors regarding the viability of the 3G business case. It has been argued that the optimistic forecasts and planning that operators presented in their licence applications, or "bid-books", will not be sustainable in the real world. This report examines the viability of the 3G business case, by identifying the different factors affecting the 3G business case, and assessing their possible effects on the business plan in various scenarios.
The report identifies the Average Revenue Per User (ARPU) levels operators need to achieve in order to be profitable. Since uncertainties on potential revenues are very large, we do not estimate revenues directly, but rather estimate the required revenues to cover the costs, while providing an acceptable return. This is done using common financial techniques, including:
* Net Present value (NPV) is greater than zero
* assets are greater than liabilities over the whole period
* discounted payback is achieved in 2010 or earlier
* Internal Rate of Return (IRR) is 12% or higher.
Our analysis is applied to 16 different scenarios, each time changing one of the factors to measure their individual effects. The factors changed include coverage requirements, licence fee, population density, market share, etc.
3G and the opportunities it brings
The term 3G represents the third generation mobile telephony systems, which will replace the 2G mobile systems such as GSM, cdmaOne, and TDMA, and 2.5G systems such as GPRS. 3G refers to the IMT-2000 system, developed within the ITU, and will be implemented in many countries as Universal Mobile Telecommunications System (UMTS), which is based on the WCDMA technology.
The main improvements 3G will offer include bit rates up to 384 Kbps with limited mobility and 2 Mbps for stationary usage, higher spectrum efficiency than previous technologies, and a standardised service platform framework allowing flexible and fast introduction of new services.
The introduction of Wireless Application Protocol (WAP) services, mobile portals and, more recently, GPRS have helped the mobile operators and service providers to widen service offerings beyond traditional telecom services. As part of this new development, the operators and service providers have been forced to seek new partnerships and business models to offer a new generation of mobile Internet-based services. This has brought about enormous opportunities for network operators, as well as for other companies offering different types of services and applications. 3G is intended to develop this trend further.
Major factors affecting the 3G business case
Operators' 3G business cases are highly complex and include many assumptions and estimates regarding usage levels, availability of technology and equipment, competitive environment, etc. The 3G business case might be affected by numerous factors, both internal and external to the operators. Our main findings concerning the effects of these factors on the operators' 3G business case are summarised below:
Regulation
Regulators have a major impact on the 3G business case in defining the 3G `rules of the game'. They control the licensing method (auction vs. beauty contest), set the number of licences issued, and impose coverage, (Quality of Service) QoS, and national roaming requirements. Their impact can include:
* Imposing requirements that are too strict for coverage and service levels might lead to extremely high costs for operators, severely threatening the business case.
* The licensing method itself will affect the business case mainly through the licence fees that will be applied.
* The main effects of the number of licences awarded in each market will be the level of competition and the allocated spectrum. A high level of competition will put a cap on market share. The results of our scenarios show that a green-field operator that achieves market share of 15% by 2005, still lower than the incumbents' 20%, will need an ARPU about 18% higher than that required by a green-field operator with 20% market share, to achieve zero NPV. On the other hand, an incumbent operator that achieves market share 5% higher than the predicted 20% (in our base case) by 2005 will be able to achieve zero NPV with current levels of about 41 [euro]/month.
* High licence fees will put operators under financial pressure. Our calculations show that an operator that did not have to pay a licence fee will need ARPU levels over 30% lower than those of an operator who paid about 600 [euro] per capita, in order to achieve zero NPV. However, an incumbent mobile operator with 40% market share in a market similar to Germany (our base case) that has paid a high licence fee for a 3G licence, can continue to create value for shareholders as long as:
* ARPU level achieved starts to increase within five years and
* reaches a level of 44.9 [euro]/month (an increase of 11% compared to current levels) within 10 years.
For this to hold, market share will have to remain above 20%.
* We believe that providing extensive coverage is a key competitive advantage. Our calculations show that the actual ARPU required is almost identical when looking into high vs. low coverage requirements (80% vs. 99% of population) in a country like Germany. The increased CAPEX and OPEX related to the additional coverage requirements is offset by the additional users gaining access to the network, the increased ARPU due to improved functionality, the shift to high end users attracted by the high coverage and QoS, and reduced interconnection fees to other networks. This is true for countries with a population density similar to that of Germany.
* Most regulators do not go as far as imposing specific levels of QoS on 3G operators. Our findings show that an operator can achieve significant savings by having a well thought through QoS planning. In a fairly densely populated country, the network design parameter with the greatest effect on the business case is the QoS offering and not population coverage. A more conservative QoS dimensioning can reduce the required ARPU by up to 4%.
Population density and site sharing
Population density has a major effect on the viability of the 3G business case. Site sharing is a possible solution to make the 3G investment more feasible.
* Looking at the base case and changing one parameter only, low population density has the highest single effect on an operator's 3G business case. All other factors (licence fee, population, etc.) being equal, an incumbent operator in a country with population density similar to Sweden will need ARPU 125% higher than that of an operator in a country like Germany to achieve profitability. When combined with high coverage requirements, whether determined by the regulator or by market forces, the effect becomes even more marked. This makes the business case of operators in a country like Sweden for example, which received 3G licences almost for free, less profitable than those of operators in a country like Germany, which paid over 8.5 billion [euro]on average per 3G licence. A Swedish operator will require ARPU levels of about 90 [euro] (taking into account low population density, high coverage requirements, and no licence fee). This is mainly due to the high additional expenditure required in order to offer the high population coverage operators committed to in their beauty contest applications. However, Swedish operators can improve their business case by sharing sites with other operators. It is extremely difficult to have a profitable business case in a sparsely populated country unless there is site sharing among operators, the licence fee is dropped, or if the coverage requirements are reduced considerably.
* We believe that the 3G networks will be deployed as soon as possible in order to benefit from the potential revenues. However, operators are very likely to share as many sites and as much equipment as possible in the early stages, to reduce the necessary investment. In some cases, this might lead to a small number of 3G networks per country, shared by a few operators. However, the contribution of site sharing is not very high. For the high population density case, the improvement in required ARPU when site sharing is used is about 4%. For the low population density case the improvement in required ARPU is as high as 11% (ARPU of 90 [euro]). Despite this huge improvement in lowering the required ARPU, the business case for a sparsely populated country still looks very hard to sustain.
Operator background
The background of a 3G network operator is highly significant with regards to the potential success of the 3G business case. Key factors that can differentiate the business cases of operators with different backgrounds include: existing re-usable infrastructure, competence, subscriber base and organisation, and brand recognition.
* Both green-field and incumbent operators are subject to large capital expenditure, with some likely savings to incumbents.
* It will be very hard for a green-field operator to achieve profitability. The case where the operator can obtain the same market share as an incumbent, in the long run requires an ARPU increase of 37% compared with the incumbent. In the case where this market share cannot be reached, the ARPU required becomes even higher. For a green-field operator with 15% market share by 2005, the required ARPU is 60% higher than for an incumbent with 20% market share.
value web position
The mobile value chain is constantly changing, transforming into what we refer to as a value web. 3G opens new opportunities for operators to establish themselves in traditional as well as new parts of the value web.
* The position taken by an operator will have a large effect on the business case, affecting the CAPEX, OPEX, risk factor, revenues, and overall business success.
* Costs are reduced significantly when the operator becomes a bit-pipe provider. We have found that an operator operating as a bit-pipe operator will require ARPU levels 40% lower than those required by an operator that is also functioning as a service provider and a mobile portal. The revenues that are `lost' by the bit-pipe operator will be transferred to service providers and MVNOs.
* There are no fixed rules dictating which position an operator should take; an analysis should be undertaken on a per case basis.
MVNOs
Favourable regulations and the high cost of 3G licences bring new opportunities for service providers and MVNOs.
* Network operators have a tremendous opportunity to exploit their capacity more efficiently with MVNOs.
* MVNOs will lead to increased competition for most network operators.
* Wise network operators will partner with MVNOs to leverage complementary skill sets.
* Our scenarios show that an operator that will have 20% of its capacity used by MVNOs might require ARPU levels 15% lower than the base case.
Handset availability
The availability of 3G handsets has a crucial effect on the take up of 3G services. However, a delay in the availability of 3G handsets will create a problem for operators mainly if they have no alternative network and technology available to them.
* A delay in the supply of 3G handsets is one possible scenario that might increase the financial burden on operators.
* This might have a major effect on the acceptance of 3G services in general.
* The effect of handsets availability will be more severe on a green-field operator.
Handset subsidies
Handset subsidies are offered by operators in most countries and are likely to exist in 3G networks as well.
* The level of handset subsidies required has a substantial impact on the business case. It is not only the largest cost item in the sales and marketing budget, it is also the most uncertain.
* For an incumbent German operator, a twofold increase in handset subsidies (e.g. from 173 [euro] to 346 [euro] in 2001) will require approximately an 11% increase in ARPU levels to maintain profitability.
Competing technologies
A small number of technologies exist that will compete with some future applications of 3G technologies. These include wireless LAN and Bluetooth.
* Since implementation of these technologies is at a very early stage, it is hard to predict what exactly they will be used for, and how they will affect the success of 3G.
* It is likely that these technologies will complement 3G services and might even `steal' some 3G traffic, but they do not impose a major threat on the success of 3G.
So what is going to happen?
The results of the cost analysis we have made are quite encouraging. For most scenarios the required increase in ARPU in order to make 3G profitable is not excessive. However, two main conditions must be fulfilled:
* Higher ARPU levels must be reached. Although the overall trend in the market is still downward, there is already evidence in the market that the trend can be reversed through careful segmentation or innovative services.
* The projected number of subscribers must be reached. This requires high penetration (implying a probable need for handset subsidies), availability of technology and equipment and the existence of value-added, easy-to-use services.
When presenting the results of the business cases, we have in each scenario highlighted the required ARPU increases and also the assumed profitability margins. The reader is then invited to use his or her own judgement on whether these figures are achievable. We would, however, draw the reader's attention to some trends in the mobile industry that might have a profound impact on the industry as a whole. Looking at most of the scenarios we analysed in this report, we can see that rather high profitability margins will be required.
Although operators world-wide have historically shown high margins, we only need to look at an already highly competitive market, such as Hong Kong, to see how increased competition puts pressure on margins. In such markets, many operators are actually losing money already--even before high licence fees or expensive investments in 3G infrastructure.
Looking towards the future, we expect competition to increase. Not only will existing operators compete more fiercely, but we will also have new green-field operators, new players, such as MVNOs, new portals and even new technologies trying to establish themselves in this highly-competitive market. In short, the increasing competition inevitably leads to a situation where not all players will achieve the margins shown in this report or remain profitable - regardless of licence fees, expensive technology, etc.
However, neither financial difficulties, nor the consolidation of the market, have to be viewed from a negative point of view, and are not necessarily the result of high licence fees or large investments (although these might act as catalysts). Financial concerns, for some players, may be more a result of globalisation and increased competition or industry maturation rather than being specific to the implementation of 3G. There are always winners and losers in a healthy, competitive industry--and the fact that some players face financial troubles does not mean that the industry as a whole is doomed. We regard the more competitive environment rather as a positive element, forcing the players to be more innovative, agile and focused.
Operators need to understand and consider the factors that they can control, such as value web position and various operational decisions. They should define a clear 3G strategy that best suits their core competencies, while addressing different possible scenarios. They should prepare themselves to provide new types of services, using new technologies, to customers with new and rapidly evolving demands and usage habits.
- 作者： seasonsmile 访问统计：3 2005年07月26日, 星期二 19:11 加入博采
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