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Revenue Sharing Agreement Iphone

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									Price Sensitivity Analysis to Subscription, Revenue and Profit
Across 6 Diverse Geographical Markets.

                Mr Swadesh Kumar Samanta
             Price Based on Cost of Provisioning

                                                              Other Networks
                                                  GMSC        (PSTN, Mobile &
                                                              CSPDN)
                                    VLR           MSC
MS                       BSC
             BTS
                                 HLR/AuC/EIR
                         BSC       IN/Billing        SMSC   MMSC
       BTS         BTS


MS                       BSC      Packet Handling              Internet
                                  Nodes
                                   PCU      Router


                                   SGSN         GGSN




     Separated into three parts: Access, Transport and Connection
                                                        Cost of Provisioning Access
                    450
                               Access
                    400
Upfront Cost in $




                               Network
                    350

                    300
                               Handset
                    250

                    200

                    150
                                                                  Access
                    100

                     50

                      0
                               2G         2.5G         3G                                     Other Networks
                                                                                  GMSC        (PSTN, Mobile &
                                                                                              CSPDN)
                                                                     VLR          MSC
                                                            BSC
                          MS              BTS
                                                                  HLR/AuC/EIR
                                                            BSC    IN/Billing        SMSC   MMSC
                                    BTS          BTS


                          MS                                BSC    Packet Handling             Internet
                                                                   Nodes
                                                                    PCU     Router


                                                                   SGSN         GGSN
                                                        Cost of Provisioning Transport

                        120
Cost per Channel in %



                        100
                         80
                         60                                                Transport
                         40
                         20
                          0
                              0        50         100         150
                          Radio Channels per site                                                     Other Networks
                                                                                          GMSC        (PSTN, Mobile &
                                                                                                      CSPDN)
                                                                            VLR           MSC
                                                                    BSC
                                                  BTS
                                                                          HLR/AuC/EIR
                              MS
                                                                    BSC    IN/Billing        SMSC   MMSC
                                            BTS         BTS


                                  MS                                BSC   Packet Handling              Internet
                                                                          Nodes
                                                                           PCU      Router


                                                                           SGSN         GGSN
                               Cost of Provisioning Connection

•Connection cost is dependent on the number
of simultaneous calls to be switched.
                                                                            Other Networks
• Negligible compared to the transport Cost.
                                                              GMSC          (PSTN, Mobile &
                                                                            CSPDN)
                                                 VLR          MSC
                                 BSC
                   BTS
                                           HLR/AuC/EIR
    MS
                                 BSC           IN/Billing        SMSC    MMSC
             BTS         BTS


     MS                          BSC           Packet Handling                Internet
                                               Nodes
                                                PCU     Router
Cost is dependent on:
                                                                        •Connection cost is dependent
                                               SGSN         GGSN
1. Number of users subscribed                                           on number of messages to be
   to data service.                                                     stored and forwarded in one
2. Percentage of those active.                                          hour.

3. Overall data throughput.                                             •Increase in volume does not
                                                                        increase the MSC load.
                                                 Modelling Mobile Subscription & Call Usage

                                                                                                      120              Access Charge/Income
                                                                                                                       Call Charge/Income                                    104
                      400                                                                             100              Penetration




                                                                                           In Percentage
Percentage Change




                      300                                                                                                                                         78
                                                                                                           80                                          69
                      200
                                                                                                           60                               55
Base = 100




                      100
                                                                                                           40                    35
                          0
                          2                                                                                            15
                                                                                     400
                                                                                                           20   12.3        10
                                    1.5
                                                                         300                                                          2.6        1.9        1.6        1.2
                                             1                    200
                                                                                                            0
                                                  0.5   0
                                                            100                                                 India       China Brazil           USA       Japan UK

                                                                                                 •Non linear demand elasticity.
Percentage Change




                    300                                                                          •Subscription demand elasticity is more on
                    250                                                                          access price compared to call price.
                    200

                    150                                                                          •Trade-off between subscription and usage.
                                                                                                 •Overall call volume increases by 30%
                    100

                     50

                     0
                                                                                                 whereas revenue increases by 40%.
                     2
                              1.8                                              150               •Negative access price (subsidized handset)
                                     1.6                           100
                                           1.4              50                                   provide more revenue.
                                                   0
                                                                        Data Pricing Strategy of Different Countries
                                                                                                      Japan
                                            50
                                                                                                      UK         Data Charges:
Charges as a % of ARPU




                                            40
                                                                                                      USA
                                            30
                                                                                                                 • Uniform rate for Pre-Paid and Post-Paid in
                                            20
                                  250
                                            10
                                                                                                                 Japan.
                                                                                                                 •In Japan charges are based on volume of
                                  200        0
                                                 0         1       2      3        4
                                  150
                                                                                                                 packet.1 packet = 128 Bytes.
                                                                                                                 •In USA Pre-Paid rate is five times more than
                                  100


                                  50                                                                             Post –Paid.
                                   0
                                        0             20           40         60       80       100        120   •In China and Brazil charges are based on
                                                                        Data in MB                               usage but the rate is higher in Brazil.
                                                                                                                 •Initial charges are more in India.
                                  250
         Charges as a % of ARPU




                                                     China
                                                     India
                                                                                                                 •Charges are more in developing countries
                                  200
                                                     Brazil                                                      compared to developed countries for same
                                  150                                                                            volume of usage.
                                  100                                                                            •The countries with higher initial charge has
                                                                                                                 lower unit rate.
                                   50
                                                                                                                 •No operator implemented time dependent
                                    0
                                            0                  2               4            6               8
                                                                                                                 pricing.
                                                                        Data in MB
                                  Cost and Price in Developed Countries

Cost Based on:                                               SMS, MMS and Data Provisioning Cost
                                                             Compared to one Minute Voice Call
• GSM technology.
                                                                      120
• A single SMS consists of 160 alphanumeric                           100




                                                          Cost in %
character.                                                            80
                                                                      60
• Average MMS contains 70 KB of data.                                 40

• Data transport rate is based on                                     20

GPRS/EDGE.                                                             0
                                                                            SMS   MMS 100 KB Data


               SMS, MMS and Data Price Compared to one   Price in Japan, UK and USA:
                             Minute Call
                                                         • Based on unit price of Pay & Go
             450
                   SMS                                   scheme.
             400
             350
                   MMS                                   • Price of SMS in Japan is same across
                   100 KB Data                           all the plans.
Price in %




             300

             250
                                                         •Charge of MMS in Japan is based on
             200
                                                         packet communication charge.
             150
             100
                                                         •MMS price in the UK is same across all
             50                                          plans and independent on the volume.
              0                                          • In USA, SMS and MMS charges are
                      Japan         UK            USA
                                                         same for post-paid users.
                                                  Data Subscription & Revenue in Developed Countries
                                         100           Subscription                                    90               Revenue
                                                                        SMS                                 Non-Voice
            Subscription in Percentage



                                          90                                                           80




                                                                               Revenue in Percentage
                                                                        Data                                Voice
                                          80                                                           70
                                          70
                                                                                                       60
                                          60
                                                                                                       50
                                          50
                                          40                                                           40
                                          30                                                           30
                                          20                                                           20
                                          10                                                           10
                                           0
                                                                                                        0
                                                Japan        UK        USA                                   Japan       UK       USA
                                         80                 Revenue Growth
Growth Over Last Year in %




                                               Non-Voice                       •SMS contributes 80% of Non-Voice
                                         70
                                               Voice                           revenue in UK – saturation?
                                         60
                                               Combined
                                         50                                    •Volume of MMS is negligible; average
                                         40                                    one 1.5 MMS compared to 100 SMS per
                                         30                                    subscriber/month in USA- Tariff
                                         20                                    balancing between pre and post-paid?
                                         10
                                                                               •High data revenue growth in USA is due
                                          0
                                                                               to 30% data subscription growth – AT&T
                                  -10
                                               Japan        UK        USA      annual report Q12007.
                                     Cost and Price in Developing Countries
  Cost Calculated Based on:                                          SMS, MMS and Data Provisioning Cost
                                                                     Compared to one Minute Voice Call
  • GSM technology.
                                                                           120
  • A single SMS consists of 160 alphanumeric                              100




                                                               Cost in %
  character.                                                               80
                                                                           60
  • Average MMS contains 70 KB of data.                                    40

  • Data transport rate is based on                                        20
                                                                            0
  GPRS/EDGE.                                                                     SMS   MMS 100 KB Data

                   SMS. MMS and Data Price Compared to         Price in China, India and Brazil:
                             one Minute Call
             600
                                                               • Derived based on unit price of Pay &
                                                 SMS           Go scheme.
             500                                 MMS           • Price of SMS in China is fixed.
                                                 100 KB Data
Price in %




             400
                                                               • Charge of MMS is same across all
             300                                               plans in all countries.
             200                                               • Charges for SMS and MMS are very
                                                               high in India.
             100
                                                               •Indian operators charges additional
              0                                                price for data service.
                       China         India        Brazil
                                              Data Revenue in Developing Countries

                        100                             Revenue                                         90   Non-Voice
                                                                                                                         Revenue Growth




                                                                           Growth Over Last Year in %
                               Non-Voice
                         90                                                                             80   Voice
Revenue in Percentage




                               Voice
                         80
                                                                                                        70   Combined
                         70
                                                                                                        60
                         60
                                                                                                        50
                         50
                                                                                                        40
                         40
                         30                                                                             30
                         20                                                                             20
                         10                                                                             10
                          0                                                                             0
                              China             India          Brazil                                         China      India   Brazil

                        50    47              Data Revenue in China       •SMS contributes 60% of Non-Voice
Revenue in Percentage




                                                                          revenue in India; 50% in Brazil.
                        40             Data Revenue in China
                                                                    32    • Volume of MMS is negligible; average
                        30                                                0.3 MMS compared to 100 SMS per
                                                                          subscriber/month in China –High Price?
                        20
                                                  9.7    9.9              •Higher volume and growth of data
                        10                                                revenue in China is due to usage based
                                        1.4
                                                                          charging leading to 96% mobile data
                         0
                              SMS      MMS Ring Tone WAP          Other   subscription-Financial report China Mobile
                                         Data Subscription & Usage of BSNL Calcutta Customers

                                                                     Charges                                                            SMS Subscription
      Price Relative to Call




                                                                                       Percentage of Mobile User
                               350
                                                                                                                   90                   Data Subscription
                               300
                                                                                                                   80
                               250
                                                                                                                   70
                               200
                                                                                                                   60
                               150                                                                                 50
                               100                                                                                 40
                                   50                                                                              30
                                   0                                                                               20
                                        SMS MMS Data                                                                      1.2     2.2             2.6
                                                                                                                   10
                                                                                                                   0
       Two data plans: Data 5MB: $1.25 and                                                                              LUG     MUG           HUG
       Data Unlimited: $ 5.0.                                                          LUG: Low Usage Group. MUG: Medium Usage
       Data Rate: 2.5 cents per 100KB.                                                 Group and HUG: High Usage Group

                                                  Revenue: Non-Voice/Total             • Groups are according to three plans
                                                  Revenue: Data/Non-Voice              with different access charge and call
                         12                       Subscription: Data Unlimited/Total
                                                                                       charge. Higher access charge is
In Percentage




                         10                                                            beneficial for users with more call.
                               8
                                                                                       •SMS, MMS and Data rate is same.
                               6
                               4
                                                              3.3             2.9
                                                                                       • Volume of MMS is negligible.
                               2
                                              0
                                                                                       •Usage based charge @4.0 cents/100KB
                               0                                                       introduced recently.
                                        LUG            MUG              HUG
                                              Performance of the Operator

                            OIBDA Margin                                                                         EBITDA Margin
                45          Bank's Lending Rate                                        60                        Bank's Lending Rate
                                                                                            54
                            GDP Growth                 38.9                                                      GDP Growth
                40
                                                                                       50
                35   31.7




                                                                       In Percentage
                                                                                                            37
In Percentage




                30                                                                     40
                                       25.6
                25
                                                                                       30
                20
                                                                                                                              13.25
                15                                                                     20                            14.4
                                                                                                    13.89                   12.3
                10                                                                               6.12                              8.14
                        0.75              5.25            5.25                         10                        6
                                                 2.8             3.4
                5           1.29
                0                                                                      0
                      Japan               UK            USA                                  China           India           Brazil

•For USA the OIBDA margin is on service                                •For Brazil the EBITDA margin is based on
revenue. The overall OIBDA margin may be                               overall (Fixed + Mobile) revenue. The value
less.                                                                  related to Mobile service is expected to be
                                                                       more.
•Compared to the GDP growth the
performance of the operator in Japan is                                •The performance of China mobile need
better.                                                                further investigation?
•Compared to competition and market                                    •The margin is less for a country with high
saturation the performance of the operator                             penetration- dictates a proper balance
in the UK is better.                                                   between subscription and usage.
                                                                        How to Increase Data Revenue

Increased Subscription: User’s Side                                                                  O2 beats rivals in battle for the
•Subsidised Handset Provisioning.                                                                    rights to Apple’s iPhone
•Reduced rate for the user who owns the handset.                                                     Apple’s agreement with O2 is
•Uniform access policy for all user groups- as Japan.                                                thought to include a continuing
                                                                                                     share of the revenues generated by
•Sharing revenue with the handset manufacturer.                                                      each iPhone customer.

                                     120
                                               Week Day
                                                                                                     Increased Usage: Network Side
Erlang Traffic as a % of Peak Load




                                     100
                                               Saturday
                                                                                                     •   More than 40% of the time the
                                               Sunday
                                                                                                         network usage is less than 60%.
                                      80
                                                                                                     •   Time dependent pricing:
                                      60                                                             •   Not dependent with the availability of
                                                                                                         both parties as in voice.
                                      40
                                                                                                     •   Charges are based on volume of
                                      20                                                                 data plus premium.

                                       0
                                                                                                     •   What wrong with MMS forecast?
                                           3    5    7    9   11   13   15   17   19   21   23   1   •   Cost based pricing and tariff
                                                               Hours of the Day                          balancing.
                  Thank You

We are forming MS-PEG (Mobile Service-Pricing Expert
Group) consisting members from Industries, Academic
Institutes and Research Organisations of India and UK.


Please join us:
E-mail: sksamanta@bsnl.co.in ; ssksam@essex.ac.uk

								
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