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Low ARPU/High Growth
Barriers and Enablers to Sustainable Growth in Emerging Markets
Bengt Wattenström
Director Business DevelopmentEricsson Global [email protected]
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Source: World Resources Institute Eradicating Poverty Through Profit conference
Building a sustainable development
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Low ARPU/High Growth
Global market development
Mobile Operators are now targeting spending levels at 5 USD/month
Addressable market vs telecom spending
Sources: Ericsson estimates
80 % of Subscriber growthwill come from emerging markets
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Low ARPU/High Growth
Low ARPU, where?
Potential, low income subscribers in urban areas with coverage
Potential, low income subscribers in rural areas without coverage
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Low ARPU/High Growth
Low cost cellular business model… Low ARPU high EBITDA margin how do they do it ?
Source: Pyramid, October 2006http://bic.ericsson.se/sources/pyramid/RPLOWCOSTMODELS.pdf
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Low ARPU/High Growth
Communicationfor All
WHY What
HOW WHERE
Ask the basic questions
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Low ARPU/High Growth
Potential Adressable Market for Developing Countries
680 million households in 20 emerging markets making less than US$ 6000 annually / householdTotal households annual earning, US$ 2 trillionWillingness to spend 5% on telecom connectivity (excluding applications & enterprise)Total annual potential market, more than US$ 100 billion
“The dominant assumption is that the poor have no purchasingpower and therefore do not represent a viable market ”
CK Prahalad, The Fortune at the Bottom of the Pyramid
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Low ARPU/High Growth
Economic value
Generating income
Gives savings
Shared usage
Receive calls/SMS only
Beeping
Contacts to earn a living / survival
Replace postal services, travel,...
Information, business & education
Games, entertainment
Social networking
Social value
Personal phone
TV, ...
Source: DFID livelihoods researchP2P contacts, the initial enabler for improved living conditions
Affordability
Low-Spending SegmentUser behaviour from Needs to Wants
Triggers
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Low ARPU/High Growth
Barriers & Enablers Creating a sustainable Business Framework
Infrastructure
Applications
ServiceDelivery
Low cost Phones
Business Models
Regulationand Taxation
SPC
Network
Consumers
Operator 1
Operator 2
Operator 3
Financing
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Low ARPU/High Growth
Opportunities for Users
Opportunities for Society
Opportunities for Operators
Mobile Voice a killer application
Mobile Communication triggers sustainable socio-economic growth to Emerging markets
Access to new subscribers in rural and underserved areas with maintained profitability
Building a sustainable business
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Low ARPU/High Growth
New Business Models
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Low ARPU/High Growth
Objectives & Solutions for Low ARPU Segment
Objectives Solutions Implications to the Operators
Network Sharing (NetCo)• Pay only for capacity utilized• Do away with high implementation cost
Site Sharing (Prime Integrator)• Reduce CAPEX and OPEX of site
deployment by sharing sites with other operators
Capacity Growth • Increase capacity at lower cost by maximising capacity per siteTo provide affordable
capacity and coverage
To lower cost of establishment
Coverage Expansion • Reduce the number of sites needed to meet coverage requirements
Biofuel • Provide an alternative source of fuel which is cheaper than diesel
Remote power • Reduce CAPEX by centralizing power in one site
To provide remote areas with mobile services
• Abis over Satellite• Local switching
• Enable inaccessible areas to be reached, generating extra revenue
To reduce cost of power in rural areas
Objectives & Solutions for Low ARPU Segment
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Low ARPU/High Growth
Case Study: Coverage Expansion (Morocco)Meet coverage requirements with less sites
Environmental constraints. Expander does not work well in cities with water and hills.
Reduce number of sites from 50 to 25, resulting in CAPEX and OPEX savings
As part of the strategy to target new market segments, there is a need to provide mobile coverage to sparsely populated rural areas over 4200 sq km
By using coverage expansion solution (formerly known as Expander), less sites are needed as the cell radius of each site is extended
New Subscribers: 60,000
Traffic: 10 mErlang per subscriber
ARPU: USD10 per month
Network Profile Key Benefits
Key Success Factors
Situation Overview
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Low ARPU/High Growth
Coverage Expansion – FinancialsEBITDA and EBIT Margin
37%
55%50%
59%
0%
10%
20%
30%
40%
50%
60%
70%
EBITDA Margin EBIT Margin
Traditional Expansion Coverage Expansion
1Note: Total Cost of Ownership is the addition of Network OPEX, Service OPEX and CAPEX Depreciation
Total cost of USD68/year per subscriber with traditional network expansion, reducing to $48 using Coverage Expansion solution
With lower total cost, the operator could achieve better EBITDA and EBIT margins
1Total Cost Per Year/Sub
$68
$48
0
10
20
30
40
50
60
70
80
TCO Per Year
USD
Traditional Expansion Coverage Expansion
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Low ARPU/High Growth
Ericsson’s Rural Business Model
A means to create wealth and opportunities for people in developing economies by providing affordable high quality telecom services
A way to generate return on capital invested for all the involved business partners
A means to lower the entry hurdles for operators and subscribers, thus encouraging rapid expansion and positive cash flow
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Low ARPU/High Growth
Reasons why operators don’t build rural coverage in developing countries
Many operators earn good money where they aretoday (Urban)
Many Operators struggle with Opex issues
If they would go rural with the traditionalbusiness model, they have to build their own network in parallel with their competitors.
Therefore they are not so eager to take the financial and operational risk
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Low ARPU/High Growth
Ericsson Rural Business Model
The Operator doesn’t have to own the network
Operators share network and sites
World Bank (or similar) provides credit
Ericsson builds a shared network
Ericsson takes the operational risk
The Operator takes the market risk
Pay-as-you-grow model
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Low ARPU/High Growth
The Rural Business ModelExample from Tanzania
Equity owners
NetworkCommercial Bank(s)
Consumers
Operator 1 Operator 2 Operator 3
Sida
Infrastructure and Operations
Infrastructure owner and License holder
Technical training and application support
• Ericsson• Financial Institutions• Local investors
Rural NetCoLtd.
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System solutions and Applications
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Many people see technology as the problem behind the digital divide. Others see it as the solution. Technology is neither. It must operate in conjunction with business, economic, political and social system.
User applications based on local information
Healthcare • information• campaigns• treatment
Education • information sharing• Internet access
Mobile banking• money transfer• mobile wallet
B2B trading• pricing / market info• hiring
Facilitated by Ericsson Mobility World
Healthcare • information• campaigns• treatment
Education • information sharing• Internet access
Mobile banking• money transfer• mobile wallet
B2B trading• pricing / market info• hiring
Facilitated by Ericsson Mobility World
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Low ARPU/High Growth
Site Solutions
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Low ARPU/High Growth
System solutions: Satellite for backhaul, Local Switching and Local Breakout.
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Low ARPU/High Growth
Biodiesel Solution for Emerging Markets
GSM RBS 2116
Biofuels processing equipment, photo courtesy of Ageratec
Peanuts
Environment friendlyLower costJob creation
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Low ARPU/High Growth
What if………..
Satellite Transmission cost could be lowered with 60-70%Calls could be switched locallyComplete radio sites could be built 60% cheaperCore network could be sharedAccess network could be sharedFinancial risks was sharedPower was a non issue and creates local jobs.Tariffs could be lowered way below 10 UScents /minute with maintained profitability
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Conclusions
It is possible to provide affordable and profitable communication in emerging marketsThe business models from Western Europe cannot be cut and pasted into high-growth emerging marketsAccess to communications results in undisputed socio-economic benefits to the user
Fresh fishfor sale
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