Amman, Jordan, 4 – 7 December 2006 Strategic Management – Part II Forecasting Lecture 9

1. Amman, Jordan, 4 – 7 December 2006 Strategic Management – Part II Forecasting Lecture 9 Impact of New Pricing Structure on ARPU ITU/BDT/ HRD Corporate Strategic Management

2. ARPU = Revenue / Subscribers Price Competition ARPU Products Customer Segment ITU/BDT/ HRD Corporate Strategic Management

3. Revenue Elements ITU/BDT/ HRD Corporate Strategic Management

4. ARPU examples for mobilesThe percentage of data ARPU / total ARPU illustrates the maturity of the business of a mobile operator ITU/BDT/ HRD Corporate Strategic Management

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8. Need for new services portfolio to develop competitive advantages Other sources of revenue are necessary to offset the revenue declining of voice telephony. Past: voice telephony prevails on circuit-switched network designed for voice-telephony. Future: To offer multi services and multimedia based on broadband all-IP network, with a variety of packages designed for specific market segments with specific needs There is no “one fits all” solution. The customer segmentation depends on the features of the new offered services. It is crucial to ensure a satisfying margin on every offering and to focus marketing on the profitable packages. ITU/BDT/ HRD Corporate Strategic Management

9. Industry Trends vs Business Needs Operators Needs, Goals, and Problems • Drive growth via adoption and usage of new products and services (triple play, broadband, content, etc.) • Manage churn • Increase bundle penetration (improves retention, doubles revenue) • Create consistent customer experience across products and channels Key Industry Trends • Commoditization of traditional communications products • Low switching & transmission costs • Substitution and loss of customers to new competitors (mobile and VoIP) • Greater network speeds (3G services, fiber) • High margin on data services ITU/BDT/ HRD Corporate Strategic Management

10. Broadband Services $ Address new audiences (PC, TV, console) with new services (gaming, personal communication, content sharing) Massive number of users Residential Multimedia Build on existing infrastructure & start with underserved SOHO segment Bundle of services Business Access Move aggressively into HSI High Speed Internet access Today TIME Operators grow broadband services value in three waves ITU/BDT/ HRD Corporate Strategic Management

11. 1 2 3 4 Broadband Services Combined fixed and traffic dependent rates • Combined fixed and variable tariffs has best flexibility • for customers, operators and business ITU/BDT/ HRD Corporate Strategic Management

12. Broadband Services Impact of service mix • Due to the cost and revenue drivers for different services , the mix of services on an NGN has a fundamental influence on profitability. • Costs are distributed and assigned among services as follows: • Common cost to all network • Common costs to the BB and multiservice platforms • Specific costs for each service introduction and operation • Higher number of NGN services (and not only VoIP) will increase overall profitability and each service profitability by the common cost sharing among them. ITU/BDT/ HRD Corporate Strategic Management

13. End user tariff End user tariff Voice calls Cap monthly download Voice service subscription ISP service fee Voice calls DSL subscription fee ISP service fee DSL & voice subscription fee Usage Usage Broadband Services Illustration for tariff strategy Bandwidth On demand ITU/BDT/ HRD Corporate Strategic Management

14. Revenue per volume Revenue per volume Revenue per volume 1: Decreasing by substitution 2: Volume increase by lower price 3: Revenue increase by new associated services 3 Traffic by circuit mode calls Traffic by circuit mode calls 2 Traffic by circuit mode calls 1 Volume Volume Volume Initial Future(no innovation) Future (Proactive VoIP) Broadband Services Impact on revenues as a function of the operator strategy Revenue due to existing offer Revenue variation due to the change of offer Incremental revenue with the new offer Revenue due to each solution ITU/BDT/ HRD Corporate Strategic Management

15. Evolution of BB • Customer requesting higher bandwidth • Incumbents starting transition to Broadband (better service higher ARPU) • OLOs following step with Resell Broadband causing increase of competition and pressure on ARPU and margins • OLOs investing in own networks (LLU/FTTH/Cable) to regain the lost margins • Increased competition among new network operators forcing all key players to increase bandwidth to keep the price point • Further price and margin compression impacting ISPs with infrastructure ITU/BDT/ HRD Corporate Strategic Management

16. 2-Play---3-Play • ISPs focusing on dual-play to gain back ARPU and AMPU • All players moving in the same way causing the next flow of prices and margins reduction • Customers getting used to get the service at lower and lower cost • A European survey (by Forrester) in early 2005 showed that for 50% of interviewed people the main reason to sign up for bundles was a discount on monthly bill • The percentage increased to 67% among the broadband subscribers ITU/BDT/ HRD Corporate Strategic Management

17. Price-Speed Evolution ITU/BDT/ HRD Corporate Strategic Management

18. Introduction of Triple-play ITU/BDT/ HRD Corporate Strategic Management

19. Playing of Customer Perceptions:Same portions of the bundle are sold at “perceived” different prices ITU/BDT/ HRD Corporate Strategic Management

20. IPTV Price Elements ITU/BDT/ HRD Corporate Strategic Management

21. Key Observations • Triple play is not the product of “upfront” strategies of the key • players, but more the result of increased competition and customer • demand • Triple play offers “look” similar, but are not equal as they are • positioned differently • When building your triple-play offer consider your asset as a costly value, find ways to “sell” this value, don’t give it for free. Conversely give for free what your competitors would consider an asset To launch a triple play offer you need to have access to “costly” content ITU/BDT/ HRD Corporate Strategic Management