Rethinking the Telcos business

models in the age of 5G _

Digiworld. Montpellier 20/11/2014

Carlos López Blanco

Public Affairs & Regulation

Telefónica, S.A.

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Who is going to lead next generation in digital industry?

‣ Designed for voice

‣ Improved coverage

and capacity

‣ Digital standards

(GSM, CDMA)

‣ Data for mobile:

SMS, MMS

Every wave of innovation gives opportunities to rebalance leadership between companies, industries and geographies

2

‣ Basic voice service

‣ Analog based

protocols

‣ Designed for voice

with some data

consideration

(Multimedia, Next

Internet)

‣ First Mobile

broadband

‣ Designed primerily

for high data

transmission

‣ IP based protocols

(LTE)

‣ High mobile

broadband

19911979 2001

1981

‣ High data transmission

+‣ Lower battery

consumption

‣ Higher versatility and

scalability (more

connected devices,

with different needs)

‣ Converged fiber-

wireless network…2,4 kbps 64 kbps 2.000 kbps 100.000kbps

The need for speed

20112021?

1G 2G 3G 4G 5G

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Growth

5G happens in a whole new world. We are living a digital revolution !

3

Rise of emerging markets (North vs. South)

Connected things as a growth opportunity

200 M

10.000 M

50.000 M

1995 2000 2013 2020

PCs Mobility/

BYOD

Internet

of

“things”

Internet of

“everything

”

Smart TVSmart

Wearables

Connected

carsSmart

CitiesDrones

Connected

Home

Source: CISCO

Traffic per customer600

MB

2013 2019E

2,2

GB

Source: CISCO & GSMA Intelligence

A growing data-centric business

Source: Ericsson mobility report Nov.2013

More mobile

€4.3trn

in 2012Total ICT

Market size

+€0,9trn

12-16

Internet Access

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How could the world of Telecom be like in the era of 5G?

4

Device

virtualization

& hosting

Smaller

cells

FTTx

Cloud

servicesIP

networks

All mobile experience for customers & devices and

Evolution to IP & cloud based network architectures

World seamless mobile

(e.g. mobile and Wifi),

multidevice and

multichannel

(app/web/”real world”),

even if there is a need of

underlying fixed

infrastructure to provide

digital services.

Cloud: SaaS Software as a

service and Network

functions virtualization,

and Software Defined

Networking.

Internet of Things (IoT):

Higher versatility and

scalability (more

connected devices, with

different needs)

Internet of

Things (IoT)

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Telecom is not a closed ecosystem anymore. It is part of a

broader digital ecosystem competing with OTT

Services that were traditionally offered

separately…

… are now part of one single universe where

Operators compete with Internet players

Telecom network & services:

‣ Fixed/mobile/core/intal networks

‣ Fixed/Mobile Voice/VoIP to number

‣ SMS

‣ Internet Access (Data)

‣ TV

Internet services

‣ Web based contents

‣ E-commerce

‣ Hosting services

‣ Search engines

‣ VoIP PC to PC

‣ E-mail

‣ Instant messaging / Social

Communication and Online Services:

‣ Fixed/mobile/core/intal networks

‣ Fixed/Mobile Voice/VoIP

‣ SMS/Instant messaging

‣ TV/Video/Web based contents

‣ Internet Access (Data)

‣ Hosting services

‣ E-mail

‣ E-commerce

‣ Search engines

Apps

OS

Contents

Devices

Telco players:Connectivity

andSolutions

5

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Operators are at a crossroad in Europe: declining revenues,

unleveled playing field, increased investments needs

-2,4% p.a

6

Negative outlook on EU telecom revenues:

Europe is the only region decreasing revenues

Source: IDC Worlwide

Blackbook 2014.

Communication

Content

Devices & OS

Commerce

OTT ecosystem dominated by a few players

creating new monopolies

‣ Value distribution of 64 Internet

companies with market capitalization

over 1.5 billions $ (end 2012)

83%

9%

2%4%2%

TELCO sector and Europe

are falling behind digital industry

Source: McKinsey. Regulation Needed for a New Investment Wave.

February 21, 2013.

Big investments needed

to achieve digital Agenda

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How will operators handle the challenge ?

Living a new digital revolution

Leveraging the central role

of connectivity in digital

customer experience

Coping with risks from

cross market competition

Regulation needs to

evolve with market &

industry

OpportunitiesCross-Market

CompetitionRegulation

Reinforce position investing

in best access networks,

customer care & becoming

partner of choice.

Growth through stimulating

adoption, limiting the

unlimited and bundling.

Risk of commoditizing Telco

companies and losing customer

relationship

Risk of losing connectivity of

IoT services

Risk of losing management of

network and services

Innovation & Investment

friendly area

Efficient market

structure

Level Playing field

7

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Opportunities come from reinforcing position investing in

connectivity, partnership, customer and environment

CONNECTIVITY

DEVICES

APPS AND CONTENT

DISTRIBUTION

CUSTOMER

EXPERIENCE

Connectivity is

at the center

of customer

experience and

the link

between

devices and

services in the

cloud.

REINFORCE

POSITION

INVESTING IN

CONNECTIVITY

CUSTOMER

OPPORTUNITIES

OF GROWTH BY

Stimulating adoption

of mobile data

Promoting usage

through tiered

pricing

Enriching customer

experience by

bundling with digital

services, and

convergent 4P

bundles.

Best access networks & operational

efficiency…

… with a best-in-class approach to

customers and customer care…

ENVIRONMENT

… fostering new policies and skills

so to open the possibilities of

technology.

PARTNERSHIP

… becoming the partner of choice

for the best digital products /

apps…

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• Best multichannel UX

+ Agility to create / sell

service bundles

+ Fast service

integration in our

channels

Excellence in basic assets as a lever to become the partner

of choice for others

CONTENT

OWNERSAPP

DEVELOPERS

DEVICE

VENDORS

Premium

digital

customer

experience

BEST IN CLASS

NETWORK AND

CUSTOMER CARE

Our

segmentation

and targeting

capabilities

Our

distribution

reach

Billing

capabilities

Subsidy their

apps and/or

connectivity

Main motivators for 3rd parties to join us

9

CONNECTIVITY-CENTRIC ECOSYSTEM

Network capabilities

• Coverage + Best UX

+ Network intelligence

+ Selective network

capabilities open to

third parties

Customer care

• Best cost

+ Fastest execution

+ Fast / efficient service

integration with

internal operations

Efficient operations

Partnership Platform

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E-SIM

(e.g. Apple)

Operators face challenges from cross-market competition

10

Risk of commoditizing Telco

companies and losing customer

relationship

Risk of losing connectivity of IoT

services

Spectrum & Low Power

Wide Area (LPWA)

(e.g. SIGFOX)

Risk of losing management of

network and services

Proxy

(e.g. Google)

Excellence in basic assets (network capabilities, customer care, operations) and

partnerships skills will enable operators face the challenges ahead

While up to now threats to the Telco industry were related to surrounding

businesses, current threats target business basics

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Operators have to face challenges, but it is not enough ! A

regulatory framework adapted to the new world is needed

Innovation &

Investment

friendly area

Efficient

market

structure

Level Playing

field+ +

Consolidation & competition

framework revisited.

Speed to scale: Allow

efficiencies when competing

with global champions, in new

digital industry.

More market led, less

regulatory driven.

Allow market innovation

and favour investment, by

removing excessive ex-ante

regulatory pressure

Not to miss the boat of global digital industry in Europe,

a real change in policy is needed to go from diagnosis to delivery !

Same services-same rules

to all elements

of value chain

(&with other regions)

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Telefonica’s proposal for a better Digital Ecosystem

10 policy recommendations to create an open and safe Internet experience

for all and unleash the full potential of the Digital Economy

http://www.digitalmanifesto.telefonica.com

10.6. 7.

3. 4. 5.1. 2. Create a Portable Digital Life for consumers by allowing them to use their data, information and applications regardless of their devices or platforms

Build Digital Confidence through a safer Internet experience and by empowering citizens to be in control of their personal data.

Open up mobile Operating Systems, App Stores and other digital platforms to increase users’ freedom, choice and competition

Promote interoperable Internet applications,communication and messaging services to improveconsumer experience and foster competition

Improve transparency about the conditions of use for Internet services and the distinction between information and advertisement in online search results

Evolve the policy models of Global Internet Governance by building on its existing foundations and through involvement of all stakeholders in an open manner and on equal footing

Make Internet available to everyone by establishing adequate conditions for private investment in broadband infrastructure

Create fairer policy frameworks by establishing the same rules for the same digital services and smarter regulation by relying more on outcome-based policy making and case-by-case supervision

Promote Open Innovation and Open Standards principles and prevent that undue Intellectual Property protection restricts innovation in the Digital Economy

Transform education, learning and teaching by widely adopting digital technologies and services based on Open Resources and Standards.

9.8.

12

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