1. © Analysys Mason Limited 2012 Operator responses to the OTT voice and messaging threat Presentation October 2012 Stephen Sale

2. © Analysys Mason Limited 2012 Quantifying the impact of OTT services Operator responses Issues to consider when formulating a strategy Contents 2

3. © Analysys Mason Limited 2012 Traditional services show signs of decline 3 Average SMS sent in selected marketsAverage MoU in selected markets

4. © Analysys Mason Limited 2012 Factors behind the crisis in legacy services  Voice and messaging services are mature; there are few growth opportunities remaining.  The economic downturn is putting pressure on consumer spending.  Alternative means of communication are substituting usage. 4

5. © Analysys Mason Limited 2012 Exposure varies significantly by country …  Exposure varies by market. The key criteria are:  smartphone penetration  reliance on out-of-bundle revenue  usage levels of traditional operator services  level of tariff rebalancing.  KPN’s 2011 profit warning offers a cautionary tale. Its pricing structures left it exposed to OTT services as smartphone penetration increased. 5 Relative exposure to SMS substitution

6. © Analysys Mason Limited 2012 … and so does OTT adoption 6 Penetration of communication services on smartphones, by country Figure source: Analysys Mason and Arbitron Mobile, 2012 Percentage of panellists

7. © Analysys Mason Limited 2012 New business models are emerging 7 Advertising Subscription Chargeable event Enhance value Direct Indirect

8. © Analysys Mason Limited 2012 Quantifying the impact of OTT services Operator responses Issues to consider when formulating a strategy Contents 8

9. © Analysys Mason Limited 2012 Examples of the different approaches 9 Block OTT services Stimulate usage Partner with OTT providers Offer RCS Offer ‘telco OTT’

10. © Analysys Mason Limited 2012 RCS is the collective industry response  RCS-e services have now been launched:  available in Spain and Germany.  Currently available as a downloadable app for Android. Native support to follow.  The main features are:  integration with address book  IM and group chat  file-sharing/video-streaming.  Data usage is typically zero-rated on specific tariff plans. 10 Screenshot of joyn

11. © Analysys Mason Limited 2012 Telefónica is leading the way in ‘telco OTT’ …  TU Me was the first consumer launch from the Telefónica Digital unit.  App available to any user irrespective of their network operator. Available for iOS and Android.  The main features are:  a single interface for basic communications needs  free calling and messaging  cloud storage  social customer care. 11 Screenshot of Telefónica’s TU Me service

12. © Analysys Mason Limited 2012 … and offering a telco OTT toolset to opcos  TU Go is a communications app from Telefónica Digital that:  builds on TU Me feature set, adding network selection and virtualisation of service across devices  is preloaded onto handsets to provide a next-generation communications experience by default.  Marketing and pricing of the service is implemented at country level. 12  The first launch is expected to take place in the UK during the fourth quarter of 2012. It is expected to be available to prepaid and contract customers.  Usage of TU Go services will be drawn down from customers’ prepaid credit or from bundles of minutes and messages.

13. © Analysys Mason Limited 2012 13 RCSTelco OTT Brand‘joyn’Own brand Features supported Variations on core GSMA specifications Varies significantly InterfaceEnabled address bookTypically standalone interface Partnership model Nationwide co-operation; interoperable Unilateral; closed user group Ecosystem ‘Telco API’Varies Geography Roll out on a country-by-country basis Typically available globally, regardless of network provider Client Standardised, typically native Customised, downloadable Comparing RCS and ‘telco OTT’

14. © Analysys Mason Limited 2012 Quantifying the impact of OTT services Operator responses Issues to consider when formulating a strategy Contents 14

15. © Analysys Mason Limited 2012 Timetable for innovation 15 201820162014201220102008 One Voice/ VoLTE initiative VoLTE launch  Will the market keep moving at the same speed?  How innovative do operators need to be?

16. © Analysys Mason Limited 2012 A realistic assessment of brand strength 16 InnovatorsEarly adopters Early majority Late majority Laggards Number of customers Telco x?  Can operators adjust to new forms of segmentation?  How much can operators leverage their strengths?  What balance between retail and wholesale/partners?

17. © Analysys Mason Limited 2012 Understanding the relative value of services  The value of the minute and message will diminish.  Operators must control price structures to discourage churn to alternative services:  reinforce legacy services where possible  self-cannibalise.  Many operators will want to bolster the value of the service component in bundles:  evolve the feature set  integrate with other applications. 17 Features Application integration Pricing

18. © Analysys Mason Limited 2012 Summary  Smartphones are changing user behaviour.  Exposure varies significantly between operators/countries.  A number of initiatives are underway:  RCS  ‘telco OTT’  partnerships  Operators need to make a call on their role in the value chain.  Pricing strategies need to underpin efforts. 18