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Vision 2013: Key Trends, Challenges, and Opportunities

Telecom Asia 2013 Insights Summit Kuala Lumpur, 29th Nov 2012

Contents

About Value Partners Key trends, challenges and opportunities in 2013 Q&A

Value Partners: a global management consultancy

An international player Headquartered in Milan, with offices in 10 countries, including double-digit growth rate markets A strong team of professionals 25 partners, ~250 professionals, 23 nationalities An excellent track record Constant growth over the last 18 years A large and loyal customer base Over 350 client served in the past three years, 60% of which have been with us for over 8 years The first to successfully integrate business and IT expertise

Our TMT practice has advised the leading TMT organizations regulators and investors around the world
Telecoms clients Media clients Investment clients in TMT

SouthernCapital

In Asia Pacific, we have an extensive client base with presence in all major markets
Selected Asia Pacific clients
Office

Japan

China
Nepal Bangladesh India Thailand Philippines Sri Lanka Macau Hong Kong Vietnam Taiwan

Malaysia
Singapore

Indonesia

Australia

New Zealand
4

Value Partners TMT practice has assisted operators across the entire operator lifecycle
Selected Asia Pacific clients Start-up
Strategy
License bidding support Entry strategy definition (regional vs. national, positioning, ...) Business planning Launch commercial plan definition and implementation support Distribution and customer care dimensioning and footprint definition Launch portfolio definition VAS operational model implementation (e.g. revenue share, delivery platform)

Growth and consolidation

Regional expansion strategy definition Due diligence and acquisition support Post merger integration Multi channel strategy Customer segmentation and CRM strategy Shock campaign implementation Services and offers roadmap definition CRM and Marketing campaign management

Technological evolution
Technological migration/ evolution strategy (CDMA vs. GSM; UMTS vs. WCDMA) Convergence strategy definition (FM; Media + Telecom)

Value extraction
Business model review (e.g. complete network outsourcing) New revenue streams identification (e.g. MVNO, analysis; launch media company,...)

Marketing distribution and Customer care

Support in launch or innovative tariff plan (e.g. micro segmented, convergence) Development of VoIP offer Launch of multimedia innovative services (e.g. user generates content) Integration of fixed-mobile customer care processes and systems

Brand management strategy Tariff plan portfolio review and customer base migration Client lifecycle management strategy Sophisticated loyalty program Churn and number portability management program Customer Care innovation with Human Digital Assistant

Network & IT

Network architecture and Assessment and support of economic guidelines definition the end-to-end IT Support in the definition of operational model CRM, provisioning, Definition of infrastructure assurance, billing processes integration plan and systems

Technological (GSM/CDMA) Network/IT outsourcing overlay support strategy Definition of Infrastructure Network infrastructure sharing convergence plan with other operators IT evolution roadmap based on Infrastructure optimization business objectives support

Organization and Others

Organization and process definition and dimensioning

Service center development Performance Monitoring Dashboards Organizational restructuring

Regulatory strategy, planning and lobbying

Business processes outsourcing Antifraud/revenue assurance processes

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Contents

About Value Partners Key trends, challenges and opportunities in 2013 Q&A

Major developments in ASEAN in 2012 include the launch of new technologies and improved competitive landscapes
Myanmar:
Liberalization of telecoms industry with tender dates set for late 2012/early 2013

Thailand:
3G spectrum auction in Oct 2012

Mobile penetration across ASEAN - ~110%

Philippines:
Launch of LTE services in Aug 2012

Vietnam:
Exit of foreign telecoms operators

Cambodia:
Launch of independent telecoms regulator in Sep 2012

Smartphone penetration across major markets SG, MY, TH, ID, PH - ~16%.... with SG smartphone penetration reaching 90%
LTE deployments in 2 markets with 3rd coming online in the coming weeks

Singapore: Malaysia:
2m homes connected to HSBB with nationwide broadband network roll out LTE soon to be launched in 2013 Launch of LTE services in Sep 2012

Indonesia:
Strain on 2G and 3G networks with increased smart phone usage and repeated delays to 3G spectrum auction

Source: Telegeography, Euromonitor, WCIS, IDA, comScore, news clippings, Value Partners analysis 7

Going forward, the forces re-shaping the global telecommunications value chain are expected to intensify

Margin squeeze on core telco business

3 2

Paradigm shift from walk & talk to sit & play

Forces reshaping telecommunications

Traditional and OTT voice & SMS competition threat

Rise of internet of things

Deploying LTE has been one of the ways to keep up with data demands and deal with pricing pressures
Global LTE deployments as at June 2012
NON EXHAUSTIVE
Commercial LTE deployment Planned/In trial countries Top 15 LTE operators by subscriber base

LTE has already been commercially deployed by more than 50 operators in more than 30 countries with another 300 operators planning to launch LTE services in next 2-3 years
Source: Value Partners/Telecom Asia perspective LTE: What happened and whats next; Press reports, LTE Maps, operator websites 9

Taking a closer look at the LTE first movers show reveal some interesting observations and lessons
Top LTE operators by subscriber base
Ranking Jun-12 Dec-11
1
2 3 4 5 6 7 8 9 10 11 12 13 14 15

Operator
Verizon Wireless
SK Telecom AT&T Mobility USA NTT DoCoMo LG U+ KT Corp Metro PCS Rogers Wireless Communications Telstra Yota Bell Wireless Affiliates Vodafone D2 TeliaSonera Sweden T-Mobile Germany Tele2 Sweden

LTE Subscribers (000) Jun-12

10,900
2,933 2,838 2,736 2,040 863 743

LTE subs as % of total subs Jun-12

67% population 9.7%
10.8% 2.7% 4.5% 20.6% 5.0% 8.0%

Network coverage Dec-11

50% population
Capital city, Seoul 20% population

Bands Jun-12
700MHz
800 MHz 1800 MHz

Dec-11 Jun-12 Dec-11

5,330
500 747 1,139 557 N.A. 500

Dec-11
700MHz
800 MHz 1800 MHz

1
5 3 2 4 N.A. 5 11 7 N.A. 9 8 11 10 14

4.9%
1.9% 0.7% 1.9% 5.9% N.A. 5.3%

Nationwide coverage 24% population

700 MHz 700 MHz 1.7/2.1 GHz (AWS) 1.7/2.1 GHz (AWS) 1.5GHz 1800 MHz 1800 MHz 1.5GHz 1800 MHz N.A.

30% population, 70% by end 30% population 2012 Nationwide coverage Nationwide coverage 14 metropolitan areas 35% residential areas, 60% population by end 2012 82 cities N.A. 14 metropolitan areas 8 million or 24% population

1.7/2.1 GHz (AWS) 1.7/2.1 GHz (AWS) 1.7/2.1 GHz (AWS) 1.7/2.1 GHz (AWS) 1800 MHz 2.6 GHz 1800MHz 2.6 GHz

600 20 6.4% 0.2% Observation 2: Very very fast2.6% network 383 100 0.8% rollout possible 350 N.A. 100.0% N.A. nationwide coverage 224 50 3.0% 0.7% in 6 mths in Korea 193 150 85 88 20 47 0.6% 2.3% 0.2% 0.3% 0.3% 0.1%

100 regional and metropolitan 80 regional and metropolitan centres centres 3 cities, 5 cities by Sept 2012 N.A 16 million or 48% population 40% pop coverage 61% population 8 million or 24% population

1.7/2.1 GHz (AWS) 1.7/2.1 GHz (AWS) 2.6 GHz 800MHz 2.6 GHz 800 MHz 2.6 GHz

1,500 municipalities at end of 800MHz May 2011 161 cities around Sweden 800 MHz 2.6 GHz 800 MHz 1800 MHz 800 MHz 1800 MHz 2.6 GHz 1800 MHz 2.6 GHz 2.6 GHz

17 19 21

13 14 14

Polkomtel T-Mobile Austria Telia Denmark

Observation 1: 70 6 1.9% 0.2% Very very rapid adoption from 9m to 60 10 0.4% 0.1% 20 6 0.5% 25m subs in just 6 0.1% 15 1.0% 0.4% months 6

Observation 3: 50 cities, 1,800 rural areas 1,800 rural areas League leaders using lower 60% population 30% population bands 700-800MHz and 1800MHz; even early 28% population on 2.6GHz deployments22% population are 12% population bands adding lower7% population
75% population 60% population

1800 MHz 2.6 GHz 2.6 GHz

Source: Value Partners/TelecomAsia perspective LTE: What happened and whats next, Informa, press reports, LTE Maps, Value Partners analysis 10

Successful LTE first-movers have incorporated volumebased pricing plans to drive LTE adoption whilst managing network usage
Commercial LTE offering from LTE first-movers
LTE priced at premium most European operators and positioned as extension to current mobile internet offering
Monetization but at expense of slower take-up Key factor in driving LTE adoption US and Korean operators most successful Leverage LTE hype while managing user expectation of imperfect technology Simplest and most straightforward Killer application in driving adoption 15% of SKTs new customers cite T freemium as reason for taking up LTE Simplest and most straightforward; may be due to frequency limitations Attractive, highly desirable and/or affordable handsets and tablets device not longer barrier to adoption

Tariff structure

Volume-based pricing with no differentiation between 3G or LTE and bucket plans American and Korean operators - access to LTE speeds is purely dependent on the subscriber device and network coverage LTE as value-added service for a flat fee M1 in Singapore with volume cap applied across both 3G and LTE Service is currently being offered FREE to new iPhone 5 subscribers Mainly data/dongle offering most operators with faster speeds as main selling point Bundled with exclusive content SKTs T freemium offering where attractive content, e.g., Korean dramas, apps, music, etc, is given free with LTE plans Mainly data/dongle offering most European operators with limited handset offerings

Service offering

Devices

Wide variety of handset and tablet offerings Verizon Wireless with ~20 LTE smartphones and ~10 LTE tablets at similar price points to 3G phones Killer device i.e., iPhone 5 and the new iPad

Source: Value Partners/TelecomAsia perspective LTE: What happened and whats next, Informa, press reports, Value Partners analysis

Operators with strong take-up are those who offer at least 2 of the 3 elements non-premium tariff + attractive device (US operators) or non-premium tariff + attractive content (Korean operators)
11

Trends of declining ARPU & EBITDA margins are becoming apparent as markets saturate and competition intensifies
Declining ARPU trend as markets saturates
ARPU as % of Dec 2010 ARPU
3 Indonesia XL Axiata Indosat MobileOne Axis SingTel Telkomsel StarHub

Declining EBITDA % as competition intensifies

EBITDA margin as % of Dec 2010 EBITDA margin
Telkomsel DiGi XL Axiata AIS MobileOne DTAC Celcom

Celcom
Smart

DiGi
AIS

Maxis
DTAC

Globe
True Move

110% 105%

115%

105% 100% 95% 90% 85% 80% 75% 70% 65% Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 65% Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 75% 85% 95%

Source: WCIS+, Value Partners analysis 12

with market leaders in several markets showing signs of declining MOU

Declining MOU trend in market leaders

Total MOU as % of Dec 2010 ARPU
Indosat Celcom Telkomsel DiGi MobileOne Maxis SingTel AIS StarHub DTAC

130%

120%

110%

100%

90%

80%

70% Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12

Source: WCIS+, Value Partners analysis 13

SingTel is attempting to diversify into mobile advertising, m-commerce and digital services
Case study SingTels strategies to seek alternative revenues streams
Enter mobile advertising by acquiring capability and real estate

- acquired Amobee (mobile advertising agency), Pixable (online photo aggregator) and invested in 2359 Media (rich media creative agency)
Enter m-commerce/payments space starting with mremittance and further developing NFC

- launched mRemit in collaboration with Globes GCASH targeting Filipino workers in Singapore - part of consortium to launch nation-wide NFC-based mobile payment system in Singapore - mobile wallet virtual holder for cards, coupons, etc - being developed
Acquire and develop digital services and content - developed and launched a number of consumer digital services deF!nd (concierge), skoob (ebook), IloveDeals (app aggregating credit card offers), Amped (music service), Loop & Meet (events site), etc - acquired Hungrygowhere (food review site) to strengthen content on InSing.com portal
Source: Company reports, news clippings, Value Partners analysis
14

while Telefonica is focusing on identifying and developing innovative services with the target of achieving EUR 5bn of digital revenues by 2015
Case study Telefonicas strategies to seek alternative revenues streams
Focus on Digital Services and bringing innovative products and services to market in eight key sectors
- Financial services digital wallets, digital remittances, micro credits & insurance
- Advertising mobile advertising, location-based services, loyalty schemes/offers - Video & Media IPTV, OTT video, CDNs, Terra - Cloud virtual data centres, SaaS, BPaaS - M2M transport, utilities, smart industry, smart cities - eHealth remote patient monitoring, tele-consultation, telecare, demand and access management - Security managed security services, clean pipes, mobile & PC security - Applications BlueVia, WAC
IP Telephony solutions company Global digital media company and content producer serving Hispanic community

Developer API and SDK provider

Invest in or acquire innovative digital services companies Leverage Venture Capital to seeks out and invest in the best upand-coming technology companies and identify tomorrows opportunities Has Innovation and R&D arm to connect, develop and deliver the best digital products for Telefnica
SIM-only low-cost network targeting 18-22 year olds in Ireland Source: Company reports, news clippings, Value Partners analysis UK-based MVNO; pioneered concept of member-helpmember Spanish social communications platform

Wholesale distribution of pay TV and internet, exclusive and distinctive content production, and the sale of advertising
15

The variety and volume of internet access devices is expected to grow exponentially and customers are moving from walk & talk to sit & play
% 3G+4G subscriptions

2%

4%

5%

7%

10%

12%

18%

26%

38%

51%

63%

74%

From basic phones and services

to feature and smartphones

to super smart phones, tablets and rich content

Talking and texting on the go Minimal time spent on device No. of mobile subscriptions in ASEAN (million) 900 800 700 600 500 400 300 200 100 0

Getting info and casual gaming Some time on device time filler

Watching movies, playing action games Significant leisure time on devices

4G 3G 2G

2006

2007

2008

2009

2010

2011 2012F 2013F 2014F 2015F 2016F 2017F

16

Source: WCIS+, Value Partners analysis

Philippines SMART has successfully facilitated the emergence of smartphone experience by introducing its own branded low-cost smartphones
Case study SMART Communications
Customer value proposition
Netphone product is offered through 2 mobile devices Netphone 701 OS: Android Froyo 2.2 Qualcomm chipset Price: PHP 9,900 Samsung Galaxy Y OS: Android 2.3 Gingerbread Price: PHP 4,990 through SMART rewards

Innovative suite of applications under SmartNet brand

Innovative product features

The Worlds first Operator-Managed Smartphone with Wholesale Applications Community (WAC) widgets SMART will be able to control mobile user experience by managing its suite of SMART-branded embedded software and applications Allows SMART to drive new services and business models by monetizing WAC widgets, and offer the same software-managed user experience across different device price points and mobile platforms, including Android and Brew MP
Source: Company reports, news clippings, Value Partners analysis

- Easy to use SMART centre Customer Service Assistant at a click - Netphone Messenger free messaging and FX Messaging emotive messaging - Free messenger services to chat on Facebook and Yahoo - Cloud storage for storing contacts, music, media, etc. - Browsing features to save from unintended browsing charges - Integrated twitter and Facebook access through MyGroups portal
As at end 2011, SMART has sold more than 100K Netphones, making it the best- and fastest-selling phone in the companys history
17

while Thailands 3G first mover bundles attractive content and applications to maintain its lead over the competition
Case study True Move H
Music download service with latest Thai and intl pop Certain tracks available free to H subscribers Local and international channels from True Visions H subscribers can watch in HDi for free Travel review site Include social elements - celebrity forum and photo sharing forum

Local news and celebrity gossip site Include social elements share a news story forum

Movie-on-Demand service offering Thai and international content

Streaming service for local radio stations

H subscribers get 30 free movies a month

H subscribers get significantly more privileges than regular subscribers

Source: Company reports, news clippings, Value Partners analysis
18

M2M connections within Asia Pacific is expected to grow nearly twice as fast as globally...

Projected M2M Connections in APAC

Millions
117 Others India CAGR

Projected M2M Connections in selected Asian countries

Millions +50%
2.3

+40%
2.4

+48%
2.7

+41%
61

85

Indonesia
Malaysia Australia South Korea

42 29 21

Japan China 0.5 0.5 0.5

2011 2010 2011 2012 2013 2014 2015

2015

2011

2015

2011

2015

Source: Frost and Sullivan, Value Partners analysis

Driven by Telematics, mPayments, Tracking and mHealth

Driven by Telematics, mPayments and mHealth

Driven by Telematics, Remote Monitoring, M-Payments, and mHealth

19

primarily driven by smart grid, vehicle telematics, consumer connectivity and bespoke applications
Millions
100% = Others* POS/Payment Security Remote Monitoring Track and Trace Connectivity (Consumer) Vehicle Telematics 21 12% 5% 7% 4% 4% 4% 29 10% 5% 8% 42 12% 5% 7% 5% 5% 5% 22% 61 85 117

New bespoke M2M applications are expected to emerge

14% 5% 7% 5% 5% 6% 20%

16% 4% 7% 4% 5% 7%
18%

16% 4% 7% 4% 5%
9% 17%

5% 5% 4%
23%

Connected devices expected to grow faster than average

Vehicle Telematics and Smart Grid still bulk of connections although growing more slowly than average

24%

Smart Grid

39%

41%

40%

40%

38%

37%

2010

2011

2012

2013

2014

2015

*Others include remote medical consultation, content and customized applications that do not fall under the categories Source: Frost and Sullivan, Value Partners analysis
20

M2M is about collaborating to bring appropriate solutions to the market

Recent developments in M2M
EE and NSN partner to bring wireless vending machines to the UK using NSNs Vend Me application Customized application combining POS, telematics, fleet management, and smart advertising Partnership combines expertise Deutsche Telekom provides a different kind of connectivity through its M2M Marketplace M2M Marketplace connects M2M players across the value chain and customers to these players Also acts as a channel for Deutsche Telekom to provide SIMs Brings additional revenue stream through marketplace subscriptions Possible through combined efforts of different members Sprint in the US also offers the same with their Collaboration Centre

Service Providers Device Vendors

Revenue Flow Service Flow

Customer M2M Marketplace Service Enablers System Integrators

Source: NSN, Deutsche Telekom, Current Analysis, Value Partners analysis

21

more examples of M2M collaborations closer to home

Recent developments in M2M (2/2)
Maxis launched Maxis Managed M2M in Feb 2011, the first in Malaysia Partnered with KiddyTrack to launch child locator service in Oct 2011
Web-based self service platform allows bulk SIM customers to log in and manage M2M solutions (device or subscription) Application Programming Interface (API) for developing custom business applications Obtained deals in payphone management, ATM connectivity management, location-based services and fleet management through the platform

XL Axiata has been active in the M2M and cloud space by partnering with leading international M2M and cloud players to bring M2M and cloud services to Indonesia Wide press coverage creates awareness and draws businesses to XLs M2M offering Targeted to draw 500,000 subscribers by year end
M2M

Source: Operators, Current Analysis, Value Partners analysis 22

Given the high complexity of the value chain, operators have adopted a variety of business models
Developed and launched its own service delivery platform in 2010

Proprietary delivery platform

Formed a dedicated M2M focussed team, helping Vodafone to establish position as the likely go-to-provider of M2M services in EU Offer special tariffs with in-country local pricing within EU 27 countries and some countries in AP and Africa

Created out of Telenor Sweden M2M BU Telenor Connexion focuses on international M2M market

Spin-off SBU

Operates a dedicated core network for switching subsequently sold to Ericsson and Telenor Connexion is now a pure service provider Beyond revenues from data traffic, it charges professional fees around design, test and management of customers products Exclusive agreement with Jasper Wireless to use its platform capabilities in Australia, focusing on revenues from transport of M2M data alone

Coordination with a 3rd party

Partnered with Jasper Wireless for its connected device platform and offers low cost single SIM connectivity with global coverage Partnerships with Jasper Wireless and regional operators to offer seamless services across the region, providing services like data analytics and advisory Clearly emerging as a global M2M partner and alliance

Source: Current Analysis, Operators, Value Partners analysis

23

The world is changing - what does it mean for ASEAN telecoms?

3 4

Defending against margin squeeze

How can technology be used to reduce bandwidth burden without hurting revenue? How can LTE be positioned to best extract value from the customer and ourselves to be ahead of the competition?

Defending against eroding revenues from OTT and competition

What other alternative revenue streams are worth pursuing? How should these capabilities be acquired? In-house development, acquisition or incubation?

Preparing for Sit & Play

What needs to be offered to customers in terms of content / services and devices to ensure an engaging experience? How can a seamless always-on anytime anywhere service be delivered? And with appropriate QoS at reasonable cost? How best to play in the M2M space? Which part of the value chain? What competencies are needed? How should these capabilities be acquired? In-house / acquire / partner?

Preparing for the Rise of the Internet of Things

Source: Operators, Value Partners analysis

24

What are the opportunities in 2013? - Some possible ideas

1. 1

Seize the LTE opportunity to re-price data Build the foundations for better yield and profitability Embrace 3rd-party/OTT services partner them, complement them, integrate them and own them Use Big Data data-directed decision-making to improve internal efficiency and as revenue stream

1. 2

1. 3

25

Contents

About Value Partners Key trends, challenges and opportunities in 2013 Q&A

26

SIN-AXTne-111115-P27

Contact information
www.valuepartners.com
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