ANCHOR REPORT
Global Markets Research
Asia telecoms: The Dream-Pipe or a Pipe-Dream?
Finding new revenues
Many Asian telcos are struggling to grow, and concerns around
competition, cannibalisation and capex are prevalent, too. This is well
known. But telcos are taking various new initiatives to better link their
networks, scale and products to changing customer behaviour. These
initiatives aren’t well understood, and there is general scepticism on telcos'
ability to transform and compete.
29 January 2014
Research analysts
Asia Telecoms
Sachin Gupta, CFA - NSL
Leping Huang, PhD - NIHK
Neeraja Natarajan - NSL
We review five of these initiatives in this report – M2M, mobile advertising,
mobile banking, how to monetise video, and bundling. Most of these are in
early stages, but, individually and collectively, we think they have the
potential to add to earnings and, importantly, improve ROIC. The
integrated telcos fare a lot better given their network reach, product depth
and cashflows.
Eric Cha - NFIK
Key analysis in this anchor report includes:
David Hao – NIHK

Background and case-studies on machine-to-machine, mobile
advertising, mobile banking, how to monetise video and the impact of
bundling.

We assess the drivers and challenges of each of these initiatives, and
which telco in each market stands to benefit.
Pankaj Suri - NSL
Gopakumar Pullaikodi - NSFSPL
Eason Hung - NITB
Shweta Dixit - NSFSPL
Japan telecommunications
Daisaku Masuno, CFA - NSC
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Asia telecoms
EQUITY: TELECOMS
The Dream-Pipe or a Pipe-Dream?
Global Markets Research
Finding new revenues
29 January 2014
The Dream-Pipe: Assessing new revenue sources for telcos
It is no secret that many Asian telcos are struggling to grow, and there are
constant concerns about capex or OTT risks or regulations. Thus it is a tough
sector, and earnings are likely to be volatile. But the good thing is that a lot of
structural concerns are now known, and telcos are taking various initiatives to
offset this, and importantly, seeking new revenue drivers. In this report, we
discuss five of these initiatives which aren’t commonly understood – M2M, mbanking, m-advertising, monetising video and bundling. Overall we find that
that the integrated telcos with network advantage, scale and product depth are
relatively better positioned to benefit from these, which can drive earnings and
improve ROIC. But this won’t be an easy transition, and each market and
company will have different challenges, and upside too.
Low growth, high capex, but higher cash still
For the past three years, Asian telcos’ median revenue growth was 6% pa, but
EBITDA margins fell by 300bps, and NPAT growth was 3% pa. For the next
three years, we forecast 5-7% revenue, EBITDA and NPAT growth pa, but
competition or OTT services could drive this down. Capex is high as well, but
there is still plenty of cash for Asian telcos – current FCF yield is 4% and
gearing at 1.0x net debt to EBITDA – which telcos can deploy for growth.
Key initiatives and key stocks to watch (see Fig 7)
 M2M links two-or-more machines together allowing them to exchange
information, beyond the traditional handsets. This could be a USD7bn
market in Asia by 2017 as per IDC, and the integrated telcos can combine
LTE/ fibre/ WiFi, to increase ARPU and reduce churn. Stocks to watch:
Telstra, China Mobile, SingTel and the Japanese and Korean telecoms.
 Mobile-advertising is considered to be more effective than traditional
advertising, but can be more ad-hoc too. Many regional telcos are venturing
into this. SingTel is working with its regional associates. Telkom, XL and
Maxis have their own offerings too. In Japan, Google and Softbank’s
subsidiary Yahoo Japan are the main beneficiaries.
 Monetising video is a key focus – Ericsson expects video to represent 50%
of total data traffic by 2019. Top-down initiatives like data-pricing or WiFi are
widely discussed and implemented. But the bottom up initiatives like flat-fee
subscriptions, “free-mium”, affiliate revenues, etc can provide a further
kicker. On data re-pricing, stocks to benefit include SKT, LGU+, M1, KDDI.
Anchor themes
We explore how telcos are
exploiting their networks to
generate incremental revenues.
Research analysts
Asia Telecoms
Sachin Gupta, CFA - NSL
sachin.gupta@nomura.com
+65 6433 6968
Leping Huang, PhD - NIHK
leping.huang@nomura.com
+852 2252 1598
Neeraja Natarajan - NSL
neeraja.natarajan@nomura.com
+65 6433 6961
Eric Cha - NFIK
eric.cha@nomura.com
+82 2 3783 2337
Pankaj Suri - NSL
pankaj.suri@nomura.com
+65 6433 6965
Gopakumar Pullaikodi - NSFSPL
gopakumar.pullaikodi@nomura.com
+91 22 4053 3733
Eason Hung - NITB
eason.hung@nomura.com
+886 2 2176 9965
Shweta Dixit - NSFSPL
shweta.dixit@nomura.com
+91 22 672 35457
David Hao - NIHK
david.hao@nomura.com
+852 2252 2153
Japan telecommunications
Daisaku Masuno, CFA - NSC
daisaku.masuno@nomura.com
+81 3 6703 1180
 M-banking could be a USD165bn industry in Asia by 2016 as per Gartner.
Telcos such as Bharti, Telkom, SingTel, the Chinese and Philippine telcos
could benefit, due to their network and customer reach, along with their
more dedicated focus on this segment.
 Bundling not only improves churn, but ROIC has also improved for stocks
like Telstra, StarHub, SingTel, KDDI, and TM. Softbank, KT and Maxis also
appear active on bundling. Various EM telcos are offering bundles now too,
to offset voice/ SMS risks.
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | Asia telecoms
29 January 2014
Contents
Asian Telco Dream-Pipe Series
5
7
Key observations and stocks that could be impacted
Key conclusions from Dream Pipe Series Studies
10
10
M2M – Connecting bits and pieces can be powerful
11
Mobile advertising – A more personal touch
12
Monetising video – Pull & push factors
13
Mobile banking - Big hope and scope
14
Unbundling the bundle
What is M2M and what is its relevance?
16
17
2014 CES – a lot more chatter on M2M and wearable devices
19
Key drivers of M2M
20
What are connected devices?
21
What are the advantages for telcos?
21
What are the challenges?
22
Who is doing what on M2M?
Mobile advertising landscape, scope and issues
31
34
What can telcos offer to advertisers?
34
Scale matters, data matters, analysis matters
35
What are some of the revenue models for m-advertising?
35
How to monetise mobile advertising?
38
Potential market size
39
Key challenges for telcos
40
Mobile advertising in Asia
47
M-advertising offerings by Google and Facebook
2
Nomura | Asia telecoms
29 January 2014
Monetising Video
50
54
OTT video trends
55
Video – high data usage and revenue potential
56
Top-down pricing strategies to monetize video
58
Bottom-up pricing strategies to monetize video
61
Case study: Japan mobile video market
62
Smart TV increases convenience of OTT video
Mobile payments
65
65
A lot more developments since we last published…
66
Why is m-banking relevant for telcos?
67
Market potential & other tit-bits
67
What’s working & where?
71
Who is doing what in Asia?
79
Japan case study on mobile payments
82
Key considerations & issues
87
Different forms of m-banking
Reviewing bundling
93
95
What has been the impact on ROIC
99
Why bundle?
102
Issues and challenges with bundling
103
Bundling in Asia
3
Nomura | Asia telecoms
29 January 2014
112 Appendix: Telcos and digital aspirations
112
Telstra – riding on its data and IP infrastructure
115
SingTel – advertising and much more
120
PT Telkom – strong focus on getting the networks right for digital
services
122
XL – 6,000 partners now and growing
123
Telefonica – on the way to become a ‘digital telco’
125 Appendix A-1
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Nomura | Asia telecoms
29 January 2014
Asian Telco Dream-Pipe Series
• We begin the year by reviewing some ‘new’ revenue sources for telcos to exploit
their networks further in search of growth as technology and consumer trends
continue to evolve. This is on top of common measures such as data re-pricing
or WiFi offloads. With this exercise, we are trying to examine various new
revenue sources telcos talk about, but to which we don't normally pay much
attention.
• We explore developments into M2M, mobile advertising, online video, mobile
banking and bundling – their potential for monetization, key drivers and
challenges.
• As you may recall, we have undertaken a series of studies on various topics at the
beginning of each year, which we think are relevant within the telecom universe, and
can potentially help in identifying the next turning point (or better forecasting). It is also
meant to be an exercise for us to learn about new areas.
– In 2011, we explored Bharti’s 17-African markets in detail.
– In 2012, we conducted the Black-Swan series looking at various left-field events
which can have a material impact on valuations.
– In 2013, we had the i13 Series, which tried to identify major structural shifts such as
the impact of smart-TVs or WiFi or OTT risks and what are telcos doing about it.
• It’s no secret that telcos are struggling with growth – for the past three years,
median revenue growth has ranged in the 6-7% pa, EBITDA 1-4% and NPAT 2% to 4%
pa. Going forward, we currently forecast 5-7% growth pa (for revenues, EBITDA and
NPAT). The risk to this could be to the downside, unless telcos look to complement
some of the existing services with new revenues.
– Over the past five years, the average Asian telco EBITDA margins has dropped by
~400bps, we estimate.
– EBITDA growth moderated from 11 % from 2010 to 1% in 2012, in USD terms.
– OTT risks are becoming more pronounced – Ovum estimates OTT services will cause
operators to lose USD479bn from voice services by 2020F and USD54bn from SMS
by 2016F globally.
• Capex levels are elevated, but free-cashflows are strong still. Asian telcos’ capexto-sales in 2012 was 21% with total capex spend of USD40bn. This is compared to
USD38bn in 2011 and USD35bn in 2010.
– Despite this, we expect Asian telcos to generate USD17-33bn in surplus cash over
the next three years. In a scenario of the gearing rising from 1x currently to 2x
EBITDA provides another USD200bn financial capacity.
– How to generate incremental returns on this capex and deploy surplus capital remains
critical.
• Focus is turning more to digital services, which is essentially identifying new
product/ services portfolios on top of existing telephony businesses. The objective is to
leverage current customer scale, networks, knowledge and branding.
– SingTel, Telkom, XL, Telstra, KT, NTT DoComo and Bharti have made some
progress towards growing digital services.
– Networks matter... Most of the telcos that are venturing into digital services are
essentially #1 in network capacities in their respective markets.
– …and, so does scale. Telcos that are more active in the digital domain fare well on
scale, which they are likely to exploit further for growth. Scale benefits include
customer reach, data on customer preferences, and easier and quicker access to
suppliers and retailers.
– Most of the digital segments are sub-scale currently, so the key to monetization is
to utilize the existing mobile customer base (up-selling), for scaling up these
businesses to make them revenue-generative.
5
Nomura | Asia telecoms
29 January 2014
– Organizational structures are being restructured, too, e.g. SingTel, and a lot of the
incremental growth could be via acquisitions in this space, we think.
• Therefore, we review five key topics which we find telcos are focussing on more
commonly:
– M2M – machine-to-machine and its relevance
– The mobile advertising potential for Asian telcos
– How telcos are monetising video: top-down and bottom-up approaches
– Mobile banking
– Bundling and its impact on ROIC
• While the direct earnings contribution from the initiatives discussed in this report may
not be significant in the next 1-2 years, there will be various indirect benefits such as
lower churn or higher ROIC even. More important, any of the below have the potential
to become more meaningful than what is widely expected, in our view.
% change
200
30%
500
EBITDA
USD
25%
25%
35%
34%
15%
33%
10%
50
32%
31%
5%
30%
29%
0%
2007
2012
0
2012
0%
2011
0
2010
5%
2009
100
2008
10%
2007
200
36%
100
2011
15%
2010
300
2009
20%
37%
20%
150
2008
400
EBITDA margin
Source: Company data, Nomura research.
Source: Company data, Nomura research
Note: Growth rates in USD, hence different from local
currency growth rates.
Note: Growth rates in USD, hence different from local
currency growth rates.
Fig. 4: Asian telcos – capex trends
2012
% change
Fig. 3: EBITDA margin change
2008
Revenue
USD bn
600
Fig. 2: Asian telcos – EBITDA trends
2010
Fig. 1: Asian telcos – revenue trends
Source: Company data, Nomura research
Fig. 5: Asian telcos – strong cash outlook
(USDbn)
Cap ex-to-sales
208
215
Excess debt if ND/
EBITDA = 1.5x
Total capacity
100
208
20%
Total capacity
100
201
150
Excess debt if ND/
EBITDA = 1.5x
25%
201
200
120
Total capacity
30%
185
250
140
Excess debt if ND/
EBITDA = 1.5x
Cap ex
Source: Company data, Nomura research
2012
2011
2010
2012
2013F
Dividends 27
Surplus cash 8
Free cashflow 27
Dividends 26
0%
2009
0
2008
5%
2007
20
Surplus cash 7
40
0
Free cashflow 29
10%
Surplus cash 16
60
Dividends 26
15%
Free cashflow 36
50
80
2014F
Source: Company data, Nomura research
6
Nomura | Asia telecoms
29 January 2014
Fig. 6: Different themes and how telcos fare on each of these
M2M
Telstra
China Mobile
SingTel
NTT Docomo
Softbank
KDDI
SKT
KT
LGU+
Mobile advertising
SingTel
Softbank
Maxis
Telkom
XL
Monetising video
Integrated telcos
SKT
LGU+
M1
KDDI
Mobile banking
Bharti
PT Telkom
SingTel
China Mobile
PLDT/Globe
Bundling
Telstra,
StarHub
SingTel
KDDI
Softbank
KT
Maxis
Telekom Malaysia
Providers of M2M services – still a
relatively small revenue segment.
China Mobile has 27mn subs,
Telstra has 1mn, and there are a
total of 9mn in Japan.
Telcos have various m-advertising
offerings but mostly in early stages.
Challenges with monetization and
ROI remain. SingTel is active
through its subsidiary Amobee and
Softbank through its investment in
Yahoo! Japan.
Integrated telcos have access to
content and connectivity which, we
believe, give them a relative
advantage.
On using data re-pricing for
monetizing video activity, Korean
telcos, M1 and KDDI stand to
benefit.
EM telcos are naturally better placed
than the developed ones given the
limited banking accessibility contrast
to the high mobile penetration.
Telcos that have focused more on
bundling have seen improving ROIC
profiles of 100-300bps post the
bundling phase (largely due to better
asset-turn).
Source: Nomura research
Fig. 7: Stock that should fare well on themes
Stock
Ticker
Rating
SingTel
ST SP
Buy
TP (local cncy)
4.16
Price (local cncy)
3.55
Upside/Downside
17%
Softbank
9984 JP
Buy
10,880
7,922
37%
KDDI
9433 JP
Buy
7,420
5,781
28%
SKT
017670 KS
Buy
270,000
213,000
27%
LGU+
032640 KS
Buy
14,800
10,500
41%
XL
EXCL IJ
Buy
6,200
5,000
24%
M1
M1 SP
Buy
3.75
3.34
12%
Bharti
Bharti IN
Buy
350
306
14%
Telstra
TLS AU
Neutral
5.20
5.12
2%
China Mobile
941 HK
Neutral
80
74
8%
NTT Docomo
9437 JP
Neutral
1,640
1,631
1%
KT
030200 KS
Neutral
35,000
31,200
12%
PT Telkom
TLKM IJ
Neutral
2,100
2,150
-2%
Source: Nomura research. Pricing as on Jan 28, 2014
Key observations and stocks that could be impacted
• Integrated telcos fare well: Our review highlights that integrated telcos tend to be
better positioned to exploit M2M, mobile advertising, online video and bundling
strategies given their scale, networks, and databases. On the other hand M-banking is
more about scale and reach, where the wireless telcos in EMs are better positioned to
benefit more we think.
– Among integrated telcos, developed market telcos in Singapore, Korea and Japan
such as SingTel, Softbank, KDDI, SKT, LGU+ and Telstra tend to feature more
favourably across most of these new businesses. We also note that most of the telcos
that have done well haven’t been shy of spending on networks.
– Integrated telcos have also been more active in making acquisitions and building their
m-advertising and analytics capabilities, eg, SingTel and Softbank. Besides scale,
integrated telcos also have the advantage of offering cross-channel advertising
campaigns through mobile, fixed-line and pay-TV.
• On M2M, the key drivers are rising number of connected devices, faster networks,
global roaming capabilities, module cost prices and government-led initiatives. Based
on these, we think the integrated telcos should be better positioned to generate
incremental revenues where they can combine WiFi, and further leverage their
networks.
– Stocks to watch for are: Telstra, China Mobile, SingTel, and the Japanese and
Korean telecoms.
• On mobile-advertising, it is considered to be more effective than traditional
advertising (print or TV) as customer profiles can be better tracked through mobile
devices. But it is a competitive space (competing with Google and Facebook) and this
type of advertising can be more ad-hoc, we note.
7
Nomura | Asia telecoms
29 January 2014
– Many regional telcos appear to have some m-advertising offering – but there isn’t any
explicit financial data at this stage. SingTel is one of the more active operators; we
understand it is working closely with its regional associates to grow mobile advertising
further.
– In Japan, while mobile ad demand has expanded in line with the spread of
smartphones, the main beneficiaries of this have been Google and Softbank’s
subsidiary Yahoo Japan, which has helped Softbank in recovering its investment in
smartphones.
– Other telcos more active in this include Telkom, XL and Maxis.
• On monetising video, we look at various top-down (data repricing or WiFi offload, but
are commonly understood) and bottom up initiatives, which aren’t well discussed or
implemented. These include initiatives such as offering “free-mium” or generating
affiliate revenues. It is still difficult to provide a blanket conclusion on who gains and
who loses at this stage — we will need to keep monitoring this further. But again, the
focus comes back to connectivity more and more, where integrated telcos stand to
benefit more (relatively), in our view. ‘
– On the data re-pricing theme alone, we stocks that could benefit include SKT, LGU+,
M1, and KDDI.
• On m-banking, there have been various new developments in recent years – both on
the technology front (such as on Beacon devices or new apps like Zoosh) and also on
how telcos are approaching this. The EM telcos are naturally more excited than the
developed ones given the limited banking accessibility, but unlike Safaricom in Kenya,
there isn’t a clear successful case-study in Asia yet and many different approaches are
being pursued – however there is significant hope and scope, which we will continue to
monitor further.
– We think EM telcos such as Bharti, Telkom, SingTel, the Chinese and Philippine
telcos are some of the stocks to watch. This is driven by their network and customer
reach, along with their relatively more dedicated focus on this segment and market
demographics.
• On bundling, normally, the integrated telcos have focussed more on bundling, but now
the pure wireless operators are also looking at various forms to manage declining
voice/SMS risks. A well-known benefit of bundling is lower churn, which saves
acquisition costs, and there is enough evidence of that – be that PCCW or Telstra.
However, the other aspect, which isn’t often discussed, is the impact on ROIC – and we
find that telcos with bundles have seen more sustainable or even rising ROIC vs the
rest. In China, CT has emerged as third largest mobile operator in five years via
bundling with fixed line. With the new fixed line service, we also expect CM to actively
explore business opportunity in bundling service in 2014. Stocks like Telstra, StarHub,
SingTel, KDDI, Softbank, KT, Maxis and Tel Malaysia are some of the more active
ones on bundling.
8
Nomura | Asia telecoms
29 January 2014
Fig. 8: Telcos have the potential to be the key element in the
value chain
Fig. 9: But, OTT players appear to be moving faster for
capturing revenue
Source: Telefonica
Source: Informa
Fig. 10: Telcos rejigging their business models
Source: Company presentations
Fig. 11: SingTel, Telstra and Telefonica: revenues from digital life
USDmn
3500
Digital segment revenues
% of total revenues
7%
3000
6%
2500
5%
2000
4%
1500
3%
1000
2%
500
1%
0
0%
GDL (ann. 1H14)
M2M (FY13)
SingTel
Media ex. Sensis
(FY13)
Telstra
NAS (FY13)
Digital (FY12)
Telefonica
Source: Company data, Nomura research
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Nomura | Asia telecoms
29 January 2014
Key conclusions from Dream Pipe Series
Studies
M2M – Connecting bits and pieces can be powerful
Fig. 12: Telstra’s M2M example
Source: Telstra
What is M2M and what is its relevance?
M2M links two-or-more machines together allowing them to exchange information,
beyond the traditional handsets, such as cars (tracking system) or retail point of sales or
homes (alarm triggers), or logistics (inventory management) or hospitals (monitoring
patients). IDC estimates that Asia ex-Japan could have 73mn devices by 2017, making it
a USD7bn market by then. Only a handful of telcos provide explicit data at this stage –
China Mobile has 27mn subs, Telstra has 1mn, and there are a total of 9mn in Japan.
Key drivers of M2M
1) Rising number of connected devices, including tablets (Amazon’s LTE Kindle Fire
tablet is sold as an M2M device with USD50 per annum plan); 2) faster networks – fiber,
WiFi, LTE; 3) global roaming capabilities through partnerships between telcos; 4) module
cost prices; 5) government-led initiatives, e.g. smart cities in Korea and China. During
CES 2014, various industry stakeholders announced their solutions and commitment to
M2M and wearable devices. Major vendors such as Cisco and Ericsson presented their
solutions to utilise M2M to improve the intelligence in various scenarios such as Smart
Home, Smart Office, Smart shopping, etc.
Its benefits…
1) This is an incremental revenue opportunity, although the current contribution remains
limited at around 1-2%; 2) low capex – the additional investments required are not
significant as data is carried over the existing 3G/LTE/ fixed networks; 3) low churn –
government contracts can be for a duration of 10 years, we understand; and 4)
leveraging cloud.
10
Nomura | Asia telecoms
29 January 2014
The challenges
1) How much capex and what could be the ROI is a common question; 2) low ARPU is
another issue, hence scale is key – for example, Telstra reports M2M ARPU of AUD8
compared to its blended ARPU of AUD44; 3) no common standard for services and or
protocols and there isn’t a clear cost-efficient pricing model yet; and 4) regulations are
also an issue.
Stocks to watch for – integrated telcos fare better
Overall, the integrated telcos should be better positioned to generate M2M revenues
where they can combine WiFi, and further leverage their networks. Stocks to watch for
are: Telstra, China Mobile, SingTel, and the Japanese and Korean telecoms
Mobile advertising – A more personal touch
Fig. 13: Telcos in the mobile advertising value chain
Source: Booz & Company
In recent years, a number of telcos have made acquisitions to expand their m-advertising
capabilities, eg, SingTel acquiring Amobee, or Softbank acquiring a 35% stake in InMobi.
As well, various other telcos have established their own m-advertising platforms. Mobile
advertising is considered to be more effective than traditional advertising (print or TV) as
customer profiles can be better tracked through mobile devices. But it is a competitive
space (competing with Google and Facebook) and this type of advertising can be more
ad-hoc, we note. Thus, operators need decent connectivity and accessibility to both
publishers and advertisers – this won’t be an easy transition for most telcos, we think.
What is telcos’ edge in m-advertising
Gartner estimates m-advertising spend could reach USD11bn in Asia over the next three
years; we think telcos have scale, reach and technology to tap into this. Telcos should be
able to analyse vast amounts of data on customers’ interests, spending propensity,
location etc, which can make advertising more targeted and effective. As well, telcos
have established relationships with subscribers on service delivery and billing, and have
multiple media like mobile, fixed-line and pay-TV to offer to advertisers for cross-channel
advertising. There are opportunities in real-time bidding as well; SingTel is exploring this.
What are the challenges and how to monetise
Some of the challenges facing telcos are: 1) behavioural issues, that is, companies need
to change their spending pattern from traditional media to digital platforms; 2) technology
fragmentation; 3) privacy issues, and; 4) making content relevant. There are also
questions around how telcos will compete with the likes of Google or Facebook — as per
eMarketer, Google is estimated to take in over 50% of net mobile Internet ad revenues
worldwide in 2013 and Facebook is expected to record a 3x increase in its share to 16%.
However, we think telcos are not necessarily looking to compete head-on with such
players. In some cases, operators like SingTel, SKT and KT have tied-up with Google for
direct carrier billing service.
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Nomura | Asia telecoms
29 January 2014
Not many telcos have been able to monetise mobile advertising either (and some telcos
have even scaled back their push into this segment such as the Koreans or AT&T).
Advertisers also haven’t mentioned much about higher ROI either...perhaps its early
days still, so we will keep monitoring this.
Stocks to watch
In this note, we discuss what Asian telcos are currently doing on m-advertising, and a
number of regional telcos appear to have some m-advertising offering – but there isn’t
any explicit financial data at this stage. SingTel is one of the more active operators; we
understand it is working closely with its regional associates to grow mobile advertising
further. In Japan, while mobile ad demand has expanded in line with the spread of
smartphones, the main beneficiaries of this have been Google and Softbank’s subsidiary
Yahoo Japan, which has helped Softbank in recovering its investment in smartphones.
Monetising video – Pull & push factors
Fig. 14: OTT Video potential vs. network infrastructure rollout
Country
Telco revenue potential
from OTT video
Australia
High
Data penetration
as % of
revenues/subs
~40%
China
Not material yet
30%
10%
India
Not material yet, but picking up
~10% of revenues
Not material
Indonesia
Japan
Not material yet
High
15-20% of revenues
~70% of revenues
Malaysia
High
~22% of revenues
~5%
90% of HP cover/
13% of household
penetration (take up)
30%
Philippines
Not material yet
~10% of revenues
NA
90% of household
cover/48% of household
penetration(take up)
20% of households
covered
Not material
Singapore
High
>95%
South Korea
High
~25-30% of revenues 21% of broadband subs
are on fiber
>90% of subs
>60% of households
Thailand
Picking up
~20% of revenues
~20%
HH Fixed
broadband LTE rollout
penetration
~70% Telcos rolling out LTE on 900/1800
Fiber penetration/
take up
<5 % of households
50% Primarily 2G/3G. LTE netw ork
under construction
5-10% 2G mostly. Selective launch of LTE
still, nationw ide may be in 2014
Telcos are starting to
rollout more fiber w ith
data uptick
24%
>95%
2G mostly. 3G rollout selective
Nationw ide coverage more than
90%
Mostly 3G. LTE started on 2.6GHz
and 1.8GHz
Netw ork upgrade done in most of
areas.
Nationw ide LTE coverage. ~35%
of postpaid subs on 4G plans
Nationw ide coverage. ~50% of
total w ireless subs on LTE
netw ork
Selective LTE launch by TRUE on
2.1GHz. Focus on 3G
Source: Company data, Nomura estimates
We look at how telcos are monetising video, and what the challenges are. This is
important: 1) as per Ericsson, video will represent 50% of total data traffic by 2019, and
OTT viewership will be a key driver of this; and 2) there will be a significant gap between
pay-TV revenues and OTT video revenues (as per Informa, by 2016, global pay-TV
revenues will be USD200bn vs USD24bn for OTT video). In this note we review how
telcos are looking to close this gap via some of the common top-down initiatives such as
data repricing or bundles, and also some bottom-up initiatives such as offering “freemium” or generating affiliate revenues, which are less commonly discussed.
Top-down initiatives – more commonly discussed
Data has been repriced in many countries, and this is providing some relief to ARPUs,
but for how long this continues remains debatable. South Korea has been the most
successful with its 4G rollout in 2H12, charging a c20% premium over 3G for 4G tariff
plans. The rest is somewhat mixed. In EMs, there are specific plans just for video, eg
INR1 plans in India or Telkomsel’s ‘Video-500’.
Integrated telcos are exploring multiple strategies to leverage their networks and
monetise video. These include: 1) focus on bundling and broadband (triple/quad play); 2)
making content available on multiple platforms; 3) focus on content aggregation; 4)
partnerships with existing pay TV operators; and 5) integrating content delivery
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Nomura | Asia telecoms
29 January 2014
infrastructure (CDN) and OTT capability platforms to deliver video-on-cloud. We discuss
these in detail later in this report.
Bottom-up initiatives – not commonly discussed
Some of the common ‘additional’ video monetization strategies appear to be: 1) free, but
with a hook and with advertising upside; 2) flat-fee subscriptions; 3) micro transactions;
4) “free-mium”; 5) affiliate revenues (revenue share); and 6) licensing. These initiatives
include, for example, PCCW’s “free-mium” packages, or SingTel’s current offer of 10 free
channels until May 2014. In the US, telcos offer sponsored streaming, eg, Verizon
charging Youtube or NetFlix to carry HD video on their networks. These types of models
could be replicated in Asia, too, we think.
Stocks to watch
There are additional considerations with OTT video growth, such as potential pay-TV
cannibalization or more WiFi offload – some pluses and some minuses. It is difficult to
provide a blanket conclusion on who gains and who loses at this stage — we will need to
keep monitoring this further. But again, the focus comes back to connectivity more and
more, where integrated telcos stand to benefit more (relatively), in our view. Or, on the
data re-pricing theme alone, we prefer stocks like SKT (017670 KS), LGU+ (032640 KS),
M1 (M1 SP), and KDDI (9433 JP) — all rated Buy.
Mobile banking - Big hope and scope
Fig. 15: M-payment market segmentation
M-payment services
M-banking
• Bank led
• Extension of existing bank
a/c
• Telco led or in
collaboration with
a telco
• Use of SIM card to
store wallet details
M-wallet
M-payment transactions
Bank A/c transactions
•Account balance
•Account details
•Location-based services (ATM/ bank branch finder)
•Bank transfers
•Notifications
Cash in , cash out
Transfers
•Peer to peer transfers - salary transfers, government payments
•Remittances
Purchases
•Retail POS – Contactless (NFC) /Non-contactless
Micro payments
•Ticketing – movies, travel
•Bill payments
•Public transit payment
Carrier
billing
• Telco led
• Use of prepaid balance or
postpaid bill for transactions
Online purchases
• At online store fronts
•In-app purchases for games, content etc
Source: Nomura research
We assess how the mobile-banking landscape is evolving for Asian telcos. We first
studied this topic back in 2012 and since then there have been various new
developments – both on the technology front (such as on Beacon devices or new apps
like Zoosh) and also on how telcos are approaching this. The EM telcos are naturally
more excited than the developed ones given the limited banking accessibility, but unlike
Safaricom in Kenya, there isn’t a clear successful case-study in Asia yet and many
different approaches are being pursued – however there is significant hope and scope,
which we will continue to monitor further.
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The market potential…and how do telcos fit in?
Telcos are well positioned to exploit m-banking opportunities given their scale, networks,
and databases. There are indirect benefits also from saving on airtime distribution,
reduction in churn, and increased share of the wallet. Gartner estimates mobile
payments to be a USD165bn industry in Asia by 2016. Average commission rates are
sub-5%, which implies around USD5-8n revenue potential. SMS-based payments still
dominate with a share of 55% of global mobile payments, while NFC is just 2%, again
highlighting higher potential for EM telcos.
Recent developments highlight gradual progress
1) India now has around 53mn m-banking users as per the RBI, and AirTel Money is
offered in over 300 cities; 2) in China, m-payment is estimated to be a CNY800bn market
as per industry sources, but telcos aren’t capturing much of this yet – this is despite the
fact that 33% of transactions on Alipay, Alibaba's payment service, are through mobile
phones; 3) the three Indonesian telcos have introduced interoperability in m-wallets to
improve take-up rates; and 4) BoT estimated that, for 9M13, the value of mobile banking
transactions was THB523bn in Thailand.
For developed market telcos, m-payments have been largely for utilities like
transportation (e.g. EZ-Link in Singapore), plus some applications like electronic money,
mobile credit, and mobile internet banking. But it is still subdued overall. In South Korea,
for instance, KCC estimates that 74% of users who have NFC-compatible handsets have
never done NFC-based transactions.
Key hurdles
There are still many hurdles: fragmented ecosystems; interoperability issues in mpayment; no clear or specific standards on technology; and handset compatibility. There
are practical issues too – for retailers, adoption of mobile wallet adds additional costs for
installation of point of sale (POS) equipment.
Stocks to watch
We think EM telcos such as Bharti, Telkom, SingTel, and the Chinese and Philippine
telcos are some of the stocks to watch on m-banking. This is driven by their network and
customer reach, along with their relatively more dedicated focus on this segment and
market demographics.
Unbundling the bundle
Fig. 16: Bundling benefits from different types
Benefits:
•Increase ARPU
•Increases perception of value
Example: sale of IPTV or
higher speeds to existing
fixed broadband users (TM)
Up sell
Benefits:
•Increase ARPU
•Increases perception of value
Cross-sell
Example: Sale of mobile
lines to fixed line customers
(Singapore telcos)
Below-the-line sales
strategy (non-core
business)
Incremental- sell
Benefits:
•Build loyalty
•Reduces churn
Example: selling
multiple mobile SIMs
Source: Informa, Nomura research
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The ups & downs of bundling
We review the impact of bundling. Normally, the integrated telcos have focussed more
on this, but now the pure wireless operators are also looking at various forms to manage
declining voice/SMS risks. A well-known benefit of bundling is lower churn, which saves
acquisition costs, and there is enough evidence of that – be that PCCW or Telstra.
However, the other aspect, which isn’t often discussed, is the impact on ROIC – and we
find that telcos with bundles have seen more sustainable or even rising ROIC vs the rest.
This again ties with the network theme that even if a telco offers a discount to retain a
customer, there isn’t necessarily any incremental capex associated with it, so returns
aren’t bad. But the incremental risk on bundling we need to watch for is cheaper OTT
alternatives for all telcos.
Bundling benefits – the obvious ones…
The bundling benefits accrue from a combination of: 1) improving service adoption rates;
2) cross-selling products; 3) reducing churn; 4) mitigating cannibalisation, and; 5)
realising cost efficiencies – such as O&M (installation) and marketing or manpower
costs. Network expenses can be better managed by transferring mobile data traffic to the
fixed network.
Bundling challenges – pricing and regulations
Profit can be adversely impacted, especially in cases where the ‘affiliate product’ has a
lower margin than the ‘core product’. There are also issues such as getting pricing wrong
or the product-mix wrong or even execution. Regulations are also critical, especially if
bundling is used to create a price differential, such as on content exclusivity etc. Also,
with open access fibre rollout in many markets, the advantage of incumbent integrated
operators could come under pressure.
Stable ROIC is an additional benefit
A key focus of this report is to look at the returns (ROIC) impact of bundling – where we
decompose ROIC into asset-turn and operating margins. One key observation is that
those telcos that appear to have focussed more on bundling have seen a relatively
better/ improving ROIC profile (largely due to better asset-turn). For Telstra, PCCW,
KDDI or Tel Malaysia, ROIC has improved 100-300bps post the bundling phase.
StarHub and SingTel-Singapore have also seen improvements, we note.
Stocks to watch
Based on various case-studies featured in this report, stocks like Telstra, StarHub,
SingTel, KDDI, Softbank, KT, Maxis and Tel Malaysia are some of the more active ones
on bundling.
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What is M2M and what is its relevance?
• M2M (Machine to Machine) links two-or-more machines together allowing them to
exchange information, beyond traditional handsets, such as cars (tracking system) or
retail point of sales or homes (alarm triggers), or logistics (fleet/inventory management)
or hospitals (monitoring patients).
– IDC expects AEJ’s M2M connected devices to grow from 27mn in 2012 to 73mn by
2017, making it an USD7bn market by then.
– GSMA expects there could be around 12bn mobile connected devices globally by
2020.
IDC expects AEJ’s M2M
connected devices to grow from
27mn in 2012 to 73mn by 2017
making it an USD7bn market by
then.
– Cisco estimates that there could even be 50bn connected devices by 2020.
– It isn’t entirely clear what the definition or the assumptions are for each of the
estimates but, clearly, M2M is expected to grow fast from here on.
• This is an incremental revenue opportunity for telcos, although the current
contribution remains limited at 1-2%. Plus the additional investments required are not
significant too, we understand, as the data is carried over the existing 3G/LTE networks
or the fixed infrastructure.
GSMA expects there could be
around 12bn mobile connected
devices globally by 2020.
Cisco estimates there could
even be 50bn connected
devices by 2020.
• Revenue driven by volumes: Given the low ARPU of the M2M segment – Telstra
reported M2M ARPU of AUD8 compared to AUD44 for wireless – revenue growth will
be driven more by the volume of M2M SIMs sold, we note. Data usage is lower too –
most of the M2M services have low data requirement – ranging from 1MB to 10MB per
month but can be scaled up (digital signage can even be 300MB or up to 20GB per
month).
• Most of the contracts are based on a fixed subscription basis, hence there is lower
churn and/or subscriber acquisition costs are lower too. Government contracts come at
much higher duration (10+ years).
• Underlying technologies include – 3G, LTE, WiFi, RFID, bluetooth and fixed
networks – to enable remote data transmission and capture and monitoring. Telcos can
leverage 3G/LTE capabilities to gain revenue share. Integrated telcos could be better
positioned, we think, as they can offload some of the data onto WiFi – especially in
case of smart homes.
• What do telcos offer? Telcos provide M2M modules (SIMs) that are installed in
machines/vehicles/industries have different requirements in terms of ruggedness,
operational temperatures, endurance, etc. See Fig 21 for the description of multiple M2M
SIM card types provided by Telstra.
– Telcos also provide M2M control centre facilities, application development kits or
software platform (in partnership with developers such as Ericsson, Jasper, NSN, etc)
that provide access to provisioning and diagnostics tools and management of M2M
modules.
– Telcos provide managed services like call centre support/billing to M2M customers
and are also partnering with other M2M service providers for rolling out higher value
services like data analytics, system integration, etc.
– Telcos can leverage cloud infrastructure and provide cloud-based development
platforms. Verizon and AT&T are already offering managed security servicers and
cloud-based PaaS for the M2M segment.
• During Consumer Electronics Show (CES) 2014, various major industry
stakeholders announced their solutions and commitments to M2M communication and
wearable devices – for example, LGE’s Lifeband, Samsung’s watch, ZTE’s watch.
• What are the focus verticals? Telcos appear to be focusing on sectors like transport,
logistics, automobiles and utilities in the near term. Telstra notes that its focus verticals
are utilities, automotive, monitoring equipment, logistics, retail POS and security remote
monitoring. AT&T is working with car manufacturers to enable LTE in cars that allow
two-way monitoring and info/entertainment transmission. The European Commission
has mandated emergency eCall M2M module to be installed in all new models by 2015.
• So far this is a relatively small segment for most telcos – but various Asian telcos have
M2M services, including the Japanese, Telstra, SingTel, SKT, China Mobile, etc.
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– China Mobile has around 27mn M2M devices – one of the highest globally.
– Telstra is one of the few operators that provides financial information on M2M. It
currently has close to 1mn subs with AUD8 in ARPU, translating to around AUD70mn
in annual revenue, from virtually nothing a few years back. The company doesn’t
provide explicit margins for this – but we don’t think it may be too dissimilar to other
data services.
– In Japan, as at end-December 2013, the total number of module contracts were
9.2mn, which is a 7% penetration rate.
– An article in Response on 20 September 2013 stated that NTT Docomo’s
management is aiming for a 10x increase in sales at its M2M business, from its
current level of around ¥10bn, by March 2016.
• A lot of the telcos have formed partnerships to tap into this segment further:
– China Unicom, Telefonica and Telstra have partnered on the remote management of
M2M SIMs to provide subscription swapping services.
– Softbank has joined with TeliaSonera, Orange, DT and Telecom Italia’s Global M2M
Association to provide international footprint and interoperability and roaming.
– KPN, NTT Docomo, Rogers, SingTel, Telkomsel Telefónica, Telstra, Etisalat and
Vimpelcom have formed a M2M alliance to develop a unique SIM and web interface
along with a centralised management/control system.
• Globally, prices for M2M modules have been on a declining trend, but this also
varies based on the network technology. For example, as shown in Fig 6, an LTE
module costs USD80-120, while a GSM/GPRS module costs as low as USD10-12. But
with developed markets shutting down GSM networks and moving towards 3G/LTE,
customers will have to go for 3G/LTE modules, especially given that the contract life
time for some of the M2M projects is around 10+ years.
• Portable M2M SIMs to be rolled out in 2014: GSMA is looking at Over the Air (OTA)
provisioning of M2M SIMs which allow SIMs to be remotely provisioned instead of a
manual on-site activation. This will make SIMs portable, implying that, when an M2M
contract ends, the enterprise user can change the telco network operator who can
provision the SIM inside the M2M device remotely with their network specifications.
This is more or less similar to mobile number portability (MNP).
– For telcos, this implies lower SIM costs as M2M SIMS will come preinstalled into M2M
devices at the manufacturing stage. The European Commission has selected
embedded SIMs for its eCall (Emergency call) service.
– GSMA expects the first rollouts of such SIMS by 2014.
– This also standardises the segment to some extent with a common underlying
architecture and could reduce integration/testing costs, in our view.
2014 CES – a lot more chatter on M2M and wearable devices
• During Consumer Electronics Show (CES) 2014, various major industry stakeholders
announced their solutions and commitments to M2M communication and wearable
devices.
• On the chipset side, Qualcomm stated that it sees M2M as an extension of the
smartphone ecosystem, and announced its Smart Watch solution embedded with its
own low-power display technology Toq and wireless charging.
• Intel announced a new mini-computer Edison with SD card size targeting wearable
devices. It is based on extremely low-power Quark processor, and Bluetooth and Wi-Fi
wireless connectivity to communicate with other devices.
• Major consumer electronics vendors such as Samsung, Sony, LG Electronics, ZTE,
TCL, Panasonic, Toshiba announced their wearable devices, which can be
categorised as Smart Watch (with display) and Smart Band (band without display).
• Major network equipment vendors such as Cisco and Ericsson presented their
solutions to utilise M2M and wearable devices to improve the intelligence in various
scenarios such as Smart Home, Smart Office, Smart shopping, etc.
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• Many industry experts expect M2M and wearable devices to get a lot more attention
this year due to: 1) low power mobile device platform; (2) big data and computing
architecture; and 3) improved 4G network coverage and non-cellular (bluetooth)
network. This also reflects the industry’s need to find new growth drivers beyond the
existing smartphones.
Fig. 17: M2M value chain
Source: Mscmalaysia
Fig. 18: Connected devices in 2020
Source: Cisco
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29 January 2014
Key drivers of M2M
• Rising number of connected devices, including tablets.
– Amazon’s LTE Kindle Fire tablet is sold as an M2M device with an USD50 per annum
plan.
• Faster networks – fiber, WiFi and LTE/ 4G.
• Global roaming capabilities through partnerships between telcos. This allows
interoperability across different markets and networks.
• Module cost prices – Globally, the costs for M2M modules have been on a declining
trend, but these also vary based on the network technology. For example, as shown in
the figure below, an LTE module costs USD80-120 while a GSM/GPRS module costs as
low as USD10-12. But with developed markets shutting down GSM networks and moving
towards 3G/LTE, customers will have to go for 3G/LTE modules, especially given that
the contract life time for some of the M2M projects is around 10 years, in our view.
• Government-led initiatives – For example, “smart” cities in Korea and China. Mandatory
eCall service in the UK.
Fig. 19: M2M module costs for different network technologies
Source: Heavy Reading
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29 January 2014
What are connected devices?
• Traditional handsets.
• Tablets, smartphones – Amazon’s LTE Kindle Fire tablet is sold as an M2M device with
USD50 per annum plan.
• RFID Chips and sensors in retail outlets.
• Smart TVs.
• Connected cars – GM has tied up with AT&T for LTE-enabled cars.
• Energy efficient smart meters.
• Monitoring equipment that trigger alerts.
• Connected devices at homes.
Fig. 20: An illustration of how M2M works
Source: Juniper, 4G Americas
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29 January 2014
What are the advantages for telcos?
• This is an incremental revenue opportunity although the current contribution
remains limited at around 1-2%, we think. Plus additional investments required are not
significant, too, we understand as the data are carried over existing 3G/LTE networks
or the fixed infrastructure.
• Low churn. Typical contracts are long term – government contracts could be for a
duration of 10 years, we understand.
• Integrated telcos could be better positioned to generate M2M revenue where they could
combine WiFi, and further leverage their networks.
• Leveraging cloud – some of the telcos offer cloud-based managed services on M2M.
Verizon, for example, has launched cloud-based managed security services for M2M.
AT&T also offers cloud-based M2M developer kits which provide data storage and
transmission to application developers.
What are the challenges?
• How much capex and what could be the ROI? An Informa survey from 2012
indicates that low ARPU/low margin and low ROI are some of the entry barriers in the
M2M space. But for this to improve, telcos could gain scale or up-sell the M2M solution
to an enterprise/cloud partner for incremental ARPU and/or improve product
proposition, in our view.
• Low ARPU per sub hence scale is key – for example, Telstra reported M2M ARPU of
AUD8 compared with its blended ARPU of AUD40. This implies that revenue growth
could be driven by scaling up the customer base significantly, we believe.
• No common standard for services and or protocols – given that applications range
from vehicle tracking, inventory levels, fuel usage, digital signage, patient monitoring,
developing a common service layer to cater to diverse service requirements across
verticals is a challenge for telcos. Plus, standards of one particular industry,
government utilities for example, could be different from other, say transport and
logistics.
• A cost efficient pricing model yet to be in place – one of the barriers to the larger
adoption of M2M among enterprises could be the cost/investment required in the
implementation of this service, for example for automobiles.
• Regulations are in different stages of evolution. India, for example, will come out with
draft M2M regulations in early 2014F, we believe.
• Fragmented market still – telcos are looking at more alliances to support global M2M
services. Telcos are also partnering with M2M platform developers (SingTel, Telstra
etc) to develop services like integration and analytics over their M2M offerings.
• There are security concerns too on data protection/encryption.
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29 January 2014
Fig. 21: Telstra M2M SIM types
Source: Telstra
Who is doing what on M2M?
Telstra
• Telstra is one the few operators that provides explicit financials. It now has 970k M2M
subscribers as of June-13 with ARPUs of AUD8. M2M contribute around ~1% of
mobile.
• The current M2M data package includes M2M SIM cards and Telstra Wireless M2M
control centre that provides access to provisioning and diagnostics tools and
management of M2M SIMs.
• Some of the businesses in which this finds application are: 1) monitoring in the utilities
sector (smart meters for water, electricity etc), remote monitoring/diagnostics of
patients, vehicle tracking and home security. These require low data usage at 1-10MB;
2) applications like retail vending, inventory control, ticketing in public transport,
network gaming are medium data usage (10MB-300MB) applications; and 3) Telstra
also lists M2M applications in high data use applications (more than 300MB) like live
video streaming in video surveillance and digital advertisements.
Key takeaways from call with Telstra
• Telstra is predominantly focussed on enterprise M2M than on consumer.
• M2M is mostly offered on wireless and it is conceivable that it will be extended over
fixed networks as well.
• Revenue growth is driven by the volume of SIMs and it is not usage-driven.
• Typical contracts are of 3-5 year contracts.
• Current focus verticals on M2M are utilities, automotive, monitoring equipment, logistics
with freight companies, retail POS, security remote monitoring.
• For enterprises, the benefits from M2M are operational costs savings and better
integration.
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Fig. 22: Telstra – M2M trends
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
484
539
577
658
744
809
888
970
31
31
M2M subs (000s)
M2M Revenues (AUD mn)
ARPU (AUD)
32
37
40
40
44
46
9.7
9.8
9.6
8.5
8.7
8.3
Source: Company data
Fig. 23: Telstra – M2M trends
FY10
M2M estimates
Machine to machine revenue (AUD mn) 62
- % change
Machine to Machine subs
- monthly adds
Implied M2M ARPU
- % change
539
FY11
69
11%
FY12
80
16%
FY13
90
13%
658
10
10
809
13
9
-5%
970
13
8
-7%
FY14F FY15F FY16F
105
119
127
16%
13%
7%
1,210
20
8
-5%
1,390
15
8
-5%
1,546
13
7
-5%
Source: Company data
Fig. 24: Telstra – M2M a priority
Source: Company data
Fig. 25: Telstra – M2M
Source: Company data
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29 January 2014
Fig. 26: Snapshot of one of Telstra’s M2M solutions
Source: Telstra
Fig. 27: Telstra – M2M example
Source: Company data
NTT Docomo’s M2M business
Japan's module market is expanding
• At end-December 2013, the total number of module contracts in Japan, including both
modules for M2M products and devices aimed at individual consumers such as digital
photo frames, was 9.2mn.
– This includes 3.3mn for NTT Docomo, 3.5mn for Softbank, and 2.3mn for KDDI.
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Nomura | Asia telecoms
29 January 2014
– This further implies module penetration of 7%.
– Uses for modules include both M2M products aimed at companies and digital photo
frames aimed at individuals. Softbank has seen a rapid increase in demand for digital
photo frames over recent years, while demand for M2M products appears to have
been stronger at NTT Docomo.
Fig. 28: Module contracts for Japanese telcos
(mn)
10
NTT docomo
KDDI
Softbank
9
8
7
6
5
4
3
2
1
0
08
09
10
11
12
13 (CY)
Source: Nomura research, based on TCA data
NTT Docomo’s M2M business spans four main areas
• NTT Docomo’s M2M business can currently be broken down into the following four
areas: (1) location data; (2) telemetering; (3) mobile payment; and (4) business support
(Figure 16).
• In its location data services business, it uses modules for delivery management
systems, transport management systems, and anti-theft/crime prevention systems, for
example.
• Its telemetering services mainly involve modules for remote gas and electricity meter
reading systems, online calibration systems for vending machines, earth leakage
management systems, and healthcare management systems, and it has modules for
other uses such as debit payment systems and attendance management systems for
building management companies. The company also offers an international roaming
service.
Fig. 29: NTT Docomo’s M2M business
Business
Systems
Target companies
Location data
Delivery management systems
Home delivery/logistics companies
Telemetering
Transport management systems
Bus companies/security companies
Anti-theft/crime prevention systems
Construction machinery manufacturers/automotive-related manufacturers
Remote meter reading systems
Gas/electricity companies
Online calibration systems
Companies with vending machines
Earth leakage management systems
Facility management companies
Healthcare management systems
Healthcare companies
Mobile payment
Debit payment systems
Taxi/home delivery/insurance companies
Business support
Attendance management systems
Building management companies
Source: Nomura research, based on NTT Docomo data
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NTT Docomo is aiming for a 10x increase in sales at its M2M business from the
current ¥10bn
• An article in Response on 20 September 2013 stated that NTT Docomo's management
is aiming for a 10x increase in sales at its M2M business, from its current level of
around ¥10bn, by March 2016.
• NTT Docomo’s main focus is the automotive field, which it appears to expect to account
for close to half of its sales target for the year ending March 2016. For example, various
sensors with telecommunications functions are installed in automobiles, so a range of
data builds up on the ITS (intelligent transport systems) cloud, and it is possible to use
this data to supply NTT Docomo services to company smartphones and tablets.
• We also expect the company to look into offering recommendations for new autorelated products and introducing insurance products, for example.
NTT Docomo also provides a smartphone-based car navigation service
• NTT Docomo has taken a stake in car navigation company Pioneer, and from
December 2013 it is offering a new car navigation system service via smartphone. For
a monthly fee of ¥315, the user can receive traffic and related information, schedules,
and the latest news, and also make telephone calls and send and receive texts, simply
by talking to his smartphone, using NTT Docomo's speech recognition technology.
Fig. 30: NTT Docomo's smartphone-based car navigation system
Source: Nomura research, based on NTT Docomo data
Korea
SKT: Smart Farm Service
SKT is a part of the government consortium on smart city – Jeju island, to build various
M2M verticals that can result in energy efficiency.
SK Telecom has developed 'Smart Farm', a farm management remote control system
utilizing smartphones. SKT is currently providing Green House management solution,
which allows farmers to remotely manage irrigation, greenhouse temperature/humidity,
and supply of fertilizer in Jeju Island and SungJu area.
KT: Smart Home Service
KT provides ‘Smart Home Service’ which includes house surveillance, lighting control,
and meter reading. A user can monitor his/her house in real-time and can remotely
control simple tasks such as lightings and doors via smartphones. The service also
allows the home owner to receive fire alarms or intrusion alert.
LGU+: Smart transportation control service
By linking M2M platform and DTG (Digital Tacho Graph), LGU+ provides real time
vehicle control to commercial vehicles such as trucks, bus, and taxis. During 2012 Yeosu
Expo event, LGU+ provided LTE based M2M solution which managed event
transportations, feeding real-time information on vehicle speed/distance, crew members
to transportation control towers.
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Nomura | Asia telecoms
Fig. 31: SKT: SmartFarm Service
Source: KCA
29 January 2014
Fig. 32: KT: SmartHome Service
Source: KCA
Other telcos
• SingTel along with Optus has adopted the Jasper Wireless software platform for its
M2M control center. The key verticals for Optus M2M are government, transport and
logistics, retail, utility, insurance, mining and healthcare.
– SingTel has partnered with Wyless, a global M2M managed services provider, to
provide M2M connectivity and managed services in Asia/Pacific markets.
– SingTel offers its M2M developer kit for SGD250 – this includes three SIMs (30MB
and 30 SMS per month) and control centre access/testing facilities with service areas
across Asia.
• China is a global leader in connected devices. As per IDC, China will have 48% of
connections and 49% of global M2M spend by 2017, with a revenue potential of
USD3.3bn.
– This is expected to be driven by the ‘smart-city' initiatives of the government plus the
growth in resource industries and utilities-related M2M devices.
– China Mobile has around 27mn M2M devices – one of the highest globally.
• In the Philippines, PLDT has recently launched wireless M2M for enterprises - Smart
M2M Credit, M2M Sales, and M2M Pay. The M2M pay, for example, is a bundled app
that allows credit card payments to mobile devices. Globe is focussed on fleet/asset
management and security-related M2M.
• DiGi in Malaysia provides M2M on Ericsson’s Platform as a service (PaaS) to
enterprises.
• In India, IDEA provides M2M services including automatic meter, tracking, etc, to
enterprises, but the current scale is not significant.
Globally
• AT&T is working with car manufacturers like BMW, Nissan, Ford, GM and Tesla to
enable LTE/HSPA+ inside cars allowing video streaming from car cameras to remote
devices, built in hotspots for passengers, APIs that send metrics include speed, fuel
usage, performance, etc, to developers.
• Sprint has ~5mn mobile computing/M2M devices. It also provides Sprint Connected
Vehicle Platform and Sprint Velocity integrated telematics solution for the automobile
sector and works with asset tracking, retail and insurance verticals too.
• Verizon acquired Hughes Telematics to improve its network fleet M2M proposition. It is
mostly focussed on asset/fleet tracking, remote monitoring, smart meters and
connected vehicles
• In Europe, regulators have mandated an e-Call system which targets embedded M2M
module to be installed in ~20mn vehicles in Europe by 2015. In case of accidents, the
M2M module automatically dials an emergency number and forwards vehicle details,
location and time to a remote team.
• Telefonica is also expected to provide smart meter communication in the UK in a 15year USD2.3bn worth deal with the government. The project aims to deploy ~53mn
smart meters by 2020. According to the telco, “Machine-to-Machine is a key focus area
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Nomura | Asia telecoms
29 January 2014
for Telefónica Digital, the division formed to drive Telefónica’s transformation to
becoming a digital telco.”
• Telefonica has also entered into a deal to provide targeted insurance products to
individuals based on their driving record in Germany. The telco will install a M2M device
- telematics box – in the vehicles of customers which provides accident notification,
driving behaviour data and car tracking facilities.
• DT has set up M2M market place which is a dedicated online shopping portal for M2M.
• A lot of the telcos have formed partnerships to tap into this segment further:
– China Unicom, Telefonica and Telstra have partnered on the remote management of
M2M SIMs to provide services like swapping subscription between China Unicom and
Telefónica Spain, Telefónica UK, Telefónica Germany, and Telstra.
– Softbank has joined with TeliaSonera, Orange, Deutsche Telekom and Telecom
Italia’s Global M2M Association to provide international footprint and interoperability
and roaming on their M2M offerings.
– KPN, NTT Docomo, Rogers, SingTel, Telkomsel Telefónica, Telstra, Etisalat and
Vimpelcom have formed a M2M alliance to develop a unique SIM and web interface
along with a centralised management/control system.
– Vodafone and Verizon also announced similar partnerships to allow users monitor
and manage devices across both the networks in Europe and the US.
Fig. 33: M2M partnership summary
Telcos
M2M Partnership
KPN, NTT DOCOMO, Rogers
Communications, SingTel, Telefonica, Telstra,
VimpelCom and Etisalat
Plans to launch enable a single worldwide SIM
card via a web-based platform and thus simplify
global M2M deployments
China Unicom, Telefonica, Telstra
Partnered on the remote management of M2M
SIMs to provide services like swapping
subscription between China Unicom, Telefónica
Spain, Telefónica UK, Telefónica Germany, and
Telstra
Softbank, TeliaSonera, Orange, Deutsche
Telekom and Telecom Italia
Global M2M Association to provide international
footprint and interoperability and roaming on their
M2M offerings.
Source: Company data, Nomura research
Fig. 34: M2M profile of global telcos
Source: Deloitte
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29 January 2014
Fig. 35: AT&T connected car
Source: AT&T
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Nomura | Asia telecoms
29 January 2014
Fig. 36: Telco perception of M2M opportunities as per Informa survey 2012
Source: Informa survey 2012
Fig. 37: SingTel Enterprise focus
Fig. 38: SingTel m2M a focus vertical
Source: Company data
Source: Company data
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Nomura | Asia telecoms
29 January 2014
Mobile advertising landscape, scope and
issues
• A lot more newsflow and deals. In recent years, a number of Asian telcos have taken
steps towards their mobile advertising (m-advertising) capabilities.
– SingTel acquired Amobee for USD321mn in 2012. SingTel also manages a media
platform called iMedia that offers targeted SMS/ MMS, m-vouchers, location-based
services and tag-on SMS.
– Softbank continues to benefit from its investment in Yahoo Japan, which along with
Google, continues to take away share of mobile advertising revenues from NTT
Docomo and KDDI (these telcos had set up joint ventures called D2C and Mediba,
respectively with leading Japanese ad agencies). Softbank also made a USD200mn
investment in InMobi in 2011, but took an impairment loss on this last year.
– Telstra has invested in companies such as Ooyala and Mandoe Media.
– Various other Asian telcos such as Telkom, XL and Maxis now have m-advertising
platforms.
– Telcos are also collaborating with each other to expand m-advertising further – XL’s
AdReach service collaborates with Telkomsel and Indosat to deliver ad campaigns.
– Globally, we have seen tie-ups in the UK (O2, Vodafone and Everything Everywhere)
and between Telefonica and Sprint.
– The Koreans, on the other hand, appear to have slowed down given the domestic app
store market being increasingly dominated by Google/Apple's app store. This is a key
topic and concern for many other telcos – how to compete with global players like
Google etc.
• Why are telcos focusing on m-advertising?
– Telcos have scale, reach and technology. Asia today has around 2bn unique mobile
subscriptions vs 0.4-1bn PCs and TVs.
– Telcos are able to analyse vast amounts of data on customers’ interests, spending
propensity, location, etc, which we believe can make advertising more targeted and
effective.
– Telcos can also offer tools for real-time bidding – such as when a person is browsing
a travel website, he/ she may see travel-related advertisements. This requires
systems (algorithms) that allow ads to be bid for in real time (eg, Facebook
Exchange).
– Telcos have established relationships with subscribers on service delivery and billing
and these can be better utilised for gaining subscribers’ attention and additional ad
spaces such as envelops or bill inserts.
– Integrated telcos have multiple media like mobile, fixed-line and pay-TV to offer to
advertisers for cross-channel advertising.

As per Gartner, m-advertising spend was USD13bn globally in 2013 and is
likely to record 30-40% growth p.a. over the next few years.
– Asia accounted for 38% of the global m-advertising spend (USD5bn) last year and is
estimated to more than double in size over the next three years.
As per Gartner, m-advertising
spend could be USD11bn in Asia
over the next three years
– A large bulk of the growth in m-advertising spend is expected to come from web
displays, search or ads placed inside apps. Significant growth is also expected in
spend on mobile audio/video-related advertisements.

Telcos currently don’t dominate this space – there are various other publishers
(who own ad space) and ad networks (who aggregate and connect advertisers with
publishers) that play an integral role too.
– As per eMarketer, Google is estimated to take in over 50% of net mobile Internet ad
revenues worldwide in 2013 and Facebook is expected to record a 3x increase in its
share to 16%.
– Telcos are not necessarily looking to compete head-on with Google either. In fact,
operators such as SingTel, SKT and KT have tied-up with Google for direct carrier
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Nomura | Asia telecoms
29 January 2014
billing service, which implies telcos charge their subscribers directly to their monthly
mobile bill or prepaid account for Google play (Android app market) purchases.

Some challenges include: 1) behavioural issues, that is, companies need to
change their spending pattern from traditional media to digital platforms. 2)
Technology fragmentation; 3) privacy issues, and; 4) making content relevant. A
number of telcos have actually scaled back their m-advertising aspirations – eg,
Korean telcos.
– For the Koreans, we understand that the initial strategy of telcos’ mobile ad platforms
was to leverage their proprietary mobile app stores and their relationship with the app
developers. However, with the domestic app store market being increasingly
dominated to Google/Apple's app store, we think that Korea telcos bargaining power
weakened. Moreover, SKT's social platform (run by its subsidiary SK Planet) Cyworld
had lost active users to Facebook and KakaoTalk's newsfeed SNS, KakaoStory,
which also hurt any leverage it had over the competitors, in our view.

How to monetise this? Monetising m-advertising hasn’t been easy or is not
common as yet. There are challenges around different sizes of screens (and
therefore ads), and their effectiveness, pricing models etc. Even from the
perspective of advertisers, there isn’t clear evidence of higher ROI either. Perhaps, it
is still early days – and we will keep monitoring this space.

Platform (inventory) offering from telcos – telcos’ ad inventory consists of display
banners, WAP, SMS/MMS push (opted-in users), quick response codes, websites
and portals. This inventory is sold to advertisers and its pricing is based using these
metrics – cost per thousand impressions (number of times an advertisement loads
onto a user’s screen), or CPM, cost per click (CPC) and click per action (CPA).
– Using inventory as the underlying media, services that are offered include standard
advertisements, location-based services, mobile-coupons/ vouchers, tag-on SMS etc.
– There is a rising focus on real-time bidding, and SingTel is tapping into this segment
too. Its mobile advertising subsidiary Amobee connects advertisers with publishers
(i.e. owners of sites or apps), and is essentially playing role of a ‘broker’.
See our recent report on
SingTel’s Digital Life business
“What is Digital L!fe all about?”
Fig. 39: Telcos in the mobile advertising value chain
Source: Booz & Company
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29 January 2014
Fig. 40: Asia – unique mobile
subscriptions TVs, PCs
(mn)
Fig. 41: Asia – m-advertising spend
(USDmn)
No. of units (LHS)
Mobile Web display
Search/maps
SMS/MMS/IM
16,000
Penetration (RHS)
3,000
Fig. 42: M- advertising spending by
format, Worldwide
90%
14,000
100%
80%
70%
2,000
60%
4%
6%
8%
10%
40%
40%
39%
36%
30%
29%
29%
28%
28%
26%
24%
23%
23%
24%
27%
29%
12,000
40%
30%
8,000
Source: WCIS, Informa, Frost & Sullivan, Nomura
research
Fig. 43: Mobile Internet ad share
40%
4,000
20%
2,000
2017
2016
2015
2014
2013
2012
0
2011
PC
TV Sets
Mobile
subscription
0%
34% 31%
6,000
2010
0
13%
60%
20%
10%
11%
80%
10,000
50%
1,000
In-app display
Audio/video
0%
2012 2013 2014 2015 2016 2017
Source: Gartner
Source: Gartner
Fig. 44: Facebook – mobile ad revenue as a percentage of
advertising revenue
49%
41%
30%
1Q13
Source: Company reports, eMarketer
2Q13
3Q13
Source: Facebook
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Nomura | Asia telecoms
29 January 2014
What can telcos offer to advertisers?
Fig. 45: Key initiatives from telcos and examples
Telcos' current/ potential offerings How it w orks
Databases
Information for targeted
advertising:
- Subscriber’s interests and
hobbies
- Brow sing patterns
- Location
- Capacity and propensity to
spend on telecom services
Exam ples
• SingTel’s iMedia helps to advertise based on subscribers'
names, age, postcode, gender, race, nationality
• Am obee PULSE (SingTel subsidiary) provides telcos' data
based enhanced targeting
• Weve (by O2, Vodafone and Everything Everyw here) offers a
consolidated anonymised database of subscribers to
advertisers.
Subscriber relationships
• SingTel's iMedia places advertisements on envelopes and
Utilizing existing customer
relationships w ith the end-users bills, targeting audience by geographic area or dw elling type
for gaining ad view ership
• MTS and Tata DoCoMo provide free voice minutes to existing
subscribers on w atching video advertisements
Cross channel advertising
Integrated telcos offers ability to • SingTel offers the opportunity to advertise over these
advertise across various
channels – mobile, mioTV and portals (mioStadium) amongst
channels such as mobile,
others.
portals and IPTV
Inventory management
Managing sale of inventory
• Bharti has tied up w ith Mogae Media for its advertising
inventory management.
Source: Company website, press articles
Scale matters, data matters, analysis matters
• Telecom operators can use subscriber data better to analyse interests, browsing
patters, location, capacity and propensity to spend on different services. This
information is then used for targeted and location-based advertisements. There are
various restrictions and regulations around m-advertising to protect privacy and misuse
of information.
– SingTel’s subsidiary Amobee provides a platform called Amobee PULSE which
allows telcos to carry out enhanced targeting based on demographics, page context,
keywords, etc.
– Location-based services are widely available. Some names include SingTel,
Maxis, XL, Telkom amongst others.
• Exploiting existing relationships with subscribers. The operators generally have
service and billing relationships with the end-users –ad space on envelopes and bills
can be sold, which is more relevant for developed markets.
• Cross-channel advertising. Integrated telcos can offer advertisers an opportunity to
market across various channels such as mobile, fixed-line, IPTV etc. Singtel offers the
opportunity to advertise over these channels – mobile, mioTV and portals (mioStadium)
amongst others. Telefonica also plans to leverage its combined product offerings in
mobile, video distribution (IPTV, DTH etc), online and other communication services to
grow mobile advertising.
• Better inventory management. Proper management and sale of inventory is the key
to monetisation. Some telcos have also signed agreements with third-parties for better
results.
– Bharti’s advertising inventory management is handled by Mogae Media for selling
advertising space on mobile, DTH and broadband services; it also manages special
offers and freebies for its mobile commerce segment – this is based on a revenuesharing model. (Source: ‘Airtel Launches Mobile Advertising Platform; External
Inventory?’, Medianama, 28 May 2012 ).
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Nomura | Asia telecoms
29 January 2014
What are some of the revenue models for m-advertising?
Again, there isn’t much information available on this, but the on-line advertising market
relies on some of the measures discussed below. Based on Telecom Circle, we
understand that the m-advertising charging model isn’t too dissimilar either.
• CPM (Cost per Thousand Impressions): The ad server tracks the number of times an
advertisement loads onto the consumers’ screen, which is called an impression. CPM
refers to the price of thousand of these impressions.
• CPC (Cost per Click): The advertiser pays based on the number of clicks;
• CPA (Click per Action): The advertiser pays based on user action beyond a click.
How to monetise mobile advertising?
• Monetising mobile ads has not been easy. Google was impacted from the
slowdown in ad price declines with greater migration to mobile and then changed its
pricing to integrate mobile and desktop ads better. (Source: Google Still Suffering Ad
Price Declines As Search Goes Mobile Ad Age; 18 July 2013)
– AT&T recently shut down most of its AdWorks advertising division after it found
difficulty in ad placements on the basis of customer profiling. (Source: AT&T Shows
Mobile Ads Can Be A Hard Dollar; WSJ, 11 Oct 2013)
• Different display sizes could be another challenge. Given the size difference
between small screens and large screens, the effective monetisation of mobile
advertisements still remains challenging, we think.
– There’s more work to be done to address this issue, as the webpage design has to be
more adapted to both mobile as well as a tablet screen sizes to give the user a more
continuous experience.
– As quoted by the founder of a digital advertising solution provider, “Migration to
mobile isn’t stopping. If you see that it is 25% of your traffic now, it will be 50% next
year. And if they don’t create mobile-specific campaigns and invest in innovative
mobile sites, it is going to be a real challenge to remain relevant in 2013 and 2014
and beyond.”
• Hence, the evidence of improving ROI is critical for advertisers to increase
spending on mobile ads, in our view.
• Facebook and Google have made attempts to better integrate pricing on
desktop and mobile ads as they try to improve monetisation from mobile ads.
Google requires advertisers to place a desktop bid price as a percentage of bids they
place for mobile ads, while desktop and mobile news feed is sold at similar prices at
Facebook. (Source: How Facebook Mastered Mobile Ads, Ad Age, 26 July 2013)
• iOS reportedly leads in terms of mobile ad monetisation. It has close to 44% of
mobile traffic and 49% of ad revenue. (Source: iOS Still Top Platform For Monetising
Mobile Ads, TechCrunch, 18 April 2013)
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Nomura | Asia telecoms
29 January 2014
Fig. 46: Illustrative flowchart for using subscribers’ information for mobile advertising
Source: Broadband Systems ApS
Fig. 47: SingTel iMedia – targeted SMS/MMS
Fig. 48: SingTel iMedia – advertisements on mioTV
Source: Company website
Source: Company website
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Nomura | Asia telecoms
29 January 2014
Fig. 49: Operator's advertising inventory
Source: Comverse
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Nomura | Asia telecoms
29 January 2014
Potential market size
• As per Gartner, global mobile advertising spend could rise to USD42bn in 2017F
from USD13bn last year — a CAGR of ~35% over 2013-17F.
• A large bulk of the growth in m-advertising spend is expected to come from web
displays, search or ads placed inside apps. Significant growth is also expected in
spend on mobile audio/video-related advertisements.
• Asia accounted for 38% of the global mobile advertising spend (USD5bn) last year, and
is estimated to grow more than double in size over the next three years, as per Gartner.
Fig. 50: Mobile Advertising Spending by Format, Worldwide, 2010-2017
USDmn
2010
2011
2012
2013
2014
2015
2016
2017
Fig. 51: Mobile Advertising Spending by
Format, Worldwide, 2010-2017
CAGR
(2012-17)
Mobile Web display
601
1,265
2,238
3,075
4,207
5,725
8,374
12,110
40%
In-app display
375
1,307
2,747
3,824
5,182
6,710
8,639
10,802
32%
Search/maps
862
2,306
3,690
5,191
6,969
8,576
10,479
13,115
29%
Audio/video
44
151
361
802
1,408
2,238
3,368
5,531
73%
SMS/MMS/IM
99
177
213
250
289
311
328
344
10%
1,981
5,205
9,249
13,142
18,054
23,561
31,186
41,902
35%
Total
Mobile Web display
Search/maps
SMS/MMS/IM
100%
In-app display
Audio/video
4%
6%
8%
10%
40%
40%
39%
36%
30%
29%
29%
28%
28%
26%
24%
23%
23%
24%
27%
29%
11%
13%
80%
34% 31%
60%
40%
Source: Gartner
20%
0%
2012 2013 2014 2015 2016 2017
Source: Gartner
Fig. 52: M-Ads: spend breakdown
Fig. 53: M-Ads: spend breakdown
2012
2014
North
America
35%
Rest of
World
6%
North
America
39%
Asia/
Pacific
37%
Source: Gartner
North
America
39%
Asia/
Pacific
36%
Western
Europe
18%
Western
Europe
17%
Source: Gartner
2016
Rest of
World
6%
Rest of
World
6%
Asia/
Pacific
42%
Fig. 54: M-Ads: spend breakdown
Western
Europe
19%
Source: Gartner
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Nomura | Asia telecoms
29 January 2014
Key challenges for telcos
• Based on our discussions with some operators, one of the challenges is actually
behavioural. That is, companies need to change their spending pattern from traditional
media to digital platforms. This takes time, and can be complex.
• Technology fragmentation – mobile subscribers access advertisements over a wide
variety of devices, which have different OS, form factors, browsers and these link to
different networks such as 2G/3G/4G/ Wi-Fi. Provisioning of the ad service for all
possible devices is challenging.
• Privacy issues – this is critical, and regulations are not completely refined yet. But in
most countries, telcos are required to get adequate permissions from customers before
sending them ads. “Opt in” systems become vital here.
• Making content relevant – mobile advertising is all about personalisation and
targeting. Even with relevant data and systems, it can still be a challenge to make it
engaging. Telcos are therefore looking at various M&A or outsourcing scenarios.
Fig. 55: Key challenges for mobile advertising (based on Ovum survey)
Source: Ovum
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Nomura | Asia telecoms
29 January 2014
Mobile advertising in Asia
Fig. 56: Mobile advertising in Asia – snapshot of key players
Market
Singapore
Japan
Population
Internet
penetration
Smartphone
penetration
Which telcos are involved in
mobile advertising?
mn
%
%
5
84%
59%
SingTel
StarHub
Location based advertising
127
85%
50%
Softbank (Yahoo Japan, InMobi)
No1 portal in Japan,global ad network
KDDI (mediba,Nobot,ScaleOut)
e-mail/banner ads,ad network, ad
distribution system
e-mail/banner ads
NTT Docomo (D2 Communications)
Services offered
Partnerships with?
Amobee: Inventory Mgt/Campagin Mgt/Ad
serving/ reporting;provide services to
publishers etc; iMedia platform
Australia
23
82%
54%
Telstra (acquired Mandoe Media,
Oayala & Kony)
Optus
Partnered with Amobee
South Korea
49
84%
70%
SKT (T Ad)
SKT partnered with #1 start-up mobile
ad platform Cauly
KT (Olleh Ad)
LGU+ (U+Ad)
Malaysia
India
Indonesia
Philippines
30
1,259
251
99
66%
15%
26%
43%
32%
6%
13%
14%
Digital signages, media content
management and analytics, mobile
enterprise application development
platform
SMS, MMS, banner ads, LBS based ads,
rewards ads, QR ads
LGU+ partnered with Google's AdMob
to co-develop SDK (system
development kit) and put AdMob ads
on U+Ad platform
DiGi
SMS, MMS, WAP Link/Banners (iDeal
Out There Media
Maxis
Out There Media
MTS
My deals (Permission based advt),
MYLAUNCHPAD (discovery portal),
Location based advt, SMS, Mobile
banners
Inventory mgt, Campagin Mgt, reporting &
analytics
Video ads
Aircel
Permission based advertising
Bharti airtel
Tata Docomo
Video ads
Telkomsel
Location based advt; WAP banners,
Interactive services, Bulk SMS/MMS
Indosat
i-klan, Mobile off portal advertising
XL
SMS, MMS Location based advt, Real
time bidding, Mobile coupon, Interstitial
page
Permission based advertising
Globe
Partnered with Veserv.mobi in 2013
Partnered with Amobee in 2013
In 2010, Globe partnered with Out
There Media in launching its own
mobile advertising platform - My
Rewards, My Globe Plus
Also, Partnered with Amobee in 2013
Note: list of services and partnerships might not be comprehensive.
Source: Company data, WCIS, Informa, EIU, Press articles, Nomura research
SingTel: Amobee and much more…
• Mobile advertising is a large part of SingTel’s Group Digital L!fe (GDL). The company
has made a few acquisitions to grow this segment, of which, the biggest till date is that
of US-based mobile advertising company Amobee for USD321mn which was done in
2012. The deal price implied an acquisition multiple of 10x sales then.
• Amobee is essentially a ‘broker’ connecting advertisers with publishers (i.e.
owners of sites or apps). We understand that the inventory of spaces and ads are
matched manually today and the acquisition of Gradient X, a real-time inventory
matching platform, should further improve GDL’s positioning.
– Management notes that in mobile advertising, contracts are typically very short, thus
providing a lot of opportunity to bid for new publisher spaces.
• Monetisation is on a revenue share basis – ie, the advertiser will pay the publisher
on the basis of metrics such as ‘pay per click’ or ‘pay per view’ basis, and Amobee gets
a share of this.
• The focus is increasingly on real-time bidding between the advertisers and platforms.
SingTel recently acquired Gradient-X to tap into this further.
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Nomura | Asia telecoms
29 January 2014
• It has also acquired Adjitsu – a 3D mobile ad provider which could help increase
engagement levels and improve monetisation from mobile advertisements, in our view.
According to Amobee, 3D ads increase click-through rates by 5x and interaction time
by ~4x.
• Amobee also provides location-based ad placement for advertisers which could help
more targeted/contextual ads – for example, advertisers can choose a retail store and
push ads onto mobiles in that location.
• Apart from Singapore, Amobee now provides mobile advertising platforms to
Globe in the Philippines, Optus in Australia and New Zealand and Telkomsel in
Indonesia.
– Its other customers include AT&T and Sprint in the US, Vodafone and Telefonica.
Fig. 57: Amobee services
Source: SingTel
SingTel iMedia platform
• Apart from Amobee, SingTel offers the following services in Singapore through its
iMedia platform.
– Targeted SMS/ MMS, m-vouchers, location-based services, tag on SMS.
– SingTel Mo4U – targets customers that are looking for attractive deals by offering
mobile vouchers.
– iLoveDeals – this app provides updated information on options for dining in
Singapore, and offers that are being provided with these.
– Property Buddy – this provides a virtual map of properties based on a combination of
graphics and real-world information. For getting the required information, the user just
has to face the mobile phone’s camera towards the property he is interested in.
– Price Pal – this app uses a bar code of products (which is scanned by the user using
the phone camera) to give insights on how it is being priced.
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29 January 2014
Fig. 58: SingTel – iMedia services
Source: Company website
Other Singapore telcos
• StarHub launched location-based advertising services in 2008, based on which
subscribers receive a promotional SMS when they are close to a pre-defined area.
(Source: Telecompaper, 24 Apr 2008)
• In 2011, 24 MAS announced that it has tied-up with StarHub to offer ad-driven/funded
mobiles games via StarHub games store. Mobile users are able to download and play
games in lieu of watching short mobile advertisements.
Japan – mobile carriers' ad businesses continue to struggle
• Mobile carriers such as NTT Docomo and KDDI were previously able to boost their
sales by building their own mobile portals and platforms for feature phones, and
expanding their shares not only of mobile email and banner ads but also of mobile
search ads.
– NTT Docomo established D2Communications, a joint venture with Japan's largest ad
agency; similarly, KDDI set up a joint venture Mediba with Hakuhodo, the number two
ad agency in Japan.
• However, with the shift to smartphones, mobile search ad revenues have shifted to
search engine operators Google and Yahoo Japan, with mobile carriers seeing ongoing
decline/weakness in ad revenues. We estimate 13/3 ad revenues at around ¥20bn at
NTT Docomo and ¥7bn at KDDI. Softbank has a 35% stake in ad network InMobi,
which delivers more than 93.4bn impressions per month to 691mn users in 165
countries. However, InMobi does not disclose financial data, and in 13/3 Softbank took
an impairment loss on the USD200mn initial investment it made in 2011.
• That said, overall mobile ad demand in Japan has expanded in line with the spread of
smartphones. The main beneficiaries of this have been Google and Softbank
subsidiary, Yahoo Japan. The strength of Softbank's business model stems from its
having a leading Internet company as a subsidiary, thus enabling it to recover its
investment in smartphones as a mobile carrier. Yahoo Japan's mobile ad revenues
were ¥10.4bn for the Jul-Sep 2013 quarter, up 65% y-y from ¥6.3bn a year earlier, with
mobile ads now accounting for 20.0% of total ads, up from 14.5%. KDDI has been
bolstering its smartphone ad business, by acquiring ad network Nobot for ¥1.5bn in July
2011 and ad delivery system operator ScaleOut in August 2013.
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Nomura | Asia telecoms
29 January 2014
Fig. 59: Yahoo Japan – mobile advertising revenues
( ¥ｂｎ)
Smartphone advertising revenue
Feature phone advertising revenue
12
10
8
6
10.1
4
5.5
2
0.8
0.3
0
'12/7-9
'13/7-9
Source: Nomura, based on company data
South Korea: m-advertising is 20% of the total
• Driven by rapid smartphone penetration, the mobile ad market in Korea is scaling up fast,
and currently accounts for c. 20% of the online ad market, on our estimates. Smartphone
penetration is already at c.70%, but we expect higher engagement in mobile applications
and improvement in mobile ad analytic tools to further support strong market growth.
Fig. 60: Korea smartphone penetration
Fig. 61: Average daily users' time spending by platform
(Korea, 1H13)
(mins)
250
80%
70%
200
60%
50%
150
40%
100
30%
20%
50
10%
0
0%
2010
2011
2012
2013E
PC
2014F
Source: KTOA, Nomura estimates
TV
Mobile
Source: Nielson Korea
Fig. 62: Korea mobile ad market outlook
(KRWbn)
800
Mobile ad market (LHS)
growth (RHS)
200%
180%
180%
700
160%
600
140%
500
120%
400
100%
96%
300
75%
80%
60%
200
40%
100
20%
0
0%
2011
2012
2013E
2014F
Source: KCC, Cheil Worldwide, Nomura estimates
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Nomura | Asia telecoms
29 January 2014
• Portals appear to have the upper hand with existing online advertisers: The
migration of online ad spending to mobile, which is the key growth driver currently are
largely exploited by the portals which have close relationships with online advertisers –
both on search and display ad (mobile web + mobile app). Also, we believe there are
incentives for advertisers as well since the portals are operating online and mobile
platforms, it is easier for advertisers to mix their budget between the two, in our view.
• Korea telcos saw opportunity in in-app ads platform biz but are currently rather
passive: Mobile ad platforms such as Google's Admob help app developers to
monetise their apps while providing marketing solutions to the advertisers who want to
leverage the increasing time spent by smartphone users on apps.
– This particular segment is led by Korea's #2 portal Daum's 'AD@m' (mobile ad
platform) and start-up company, Futurestream Networks' 'Cauly'. Korea telcos had set
up their own mobile ad platforms in late-2010 to 2011. (SKT's T-Ad, KT's Olleh Ad,
and LGU+' U+AD) There was many news flow related to telcos’ entrance into the
mobile ad platform business up to 1H12 but not much thereafter, in our observation.
Korea telcos currently do not provide data points on this part of business progress.
Our discussion with Korea telcos’ IRs also hinted that the mobile ad business is
not much of a focus currently.
• Why Korea telcos are taking the back seat: We understand that the initial strategy of
Korea telcos’ mobile ad platforms was to leverage their proprietary mobile app stores
and their relationship with app developers. However, with the domestic app store
market being increasingly dominated by Google/Apple's app store, we believe Korea
telcos’ bargaining power has weakened. Moreover, SKT's social platform (run by its
subsidiary SK Planet) Cyworld, rapidly lost active users to Facebook and KakaoTalk's
newsfeed SNS, KakaoStory, which also hurt any leverage it had over competitors, in
our view.
Fig. 63: Monthly PV per platform (Jul.2012)
(bn)
16
14
12
10
8
6
4
2
0
AD@m (Daum)
Cauly
Admo b (Google)
T Ad (SKT)
U+AD (LGU+)
Source: Company data
China – limited presence from telcos
• According to iimedia, an independent data mining and marketing agency in the mobile
Internet, china mobile ads market was estimated to be CNY3.5bn in 2011 (+53% y-y)
and CNY6.1bn in 2012 (+75% y-y), on its way to reach CNY20bn in 2015.
• China mobile ads contributed to 8% of China Internet ads revenue of CNY75.3bn in
2012.
• Baidu, Taobao, and Tencent are the major players in the Internet advertising market
with 32%, 27%, and 7% market shares respectively in 3Q13.
– According to Baidu, mobile daily active user has reached 130mn in 3Q13 and the
revenue contribution versus PC is rapidly closing.
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29 January 2014
• On the other hand, telecom operators have very limited presence on this market since
operators generally lack an effective ads distribution platform; instead, operators` value
add services mainly generate revenue from subscription fee from consumers.
Indonesia – incumbent leading the way
• The mobile advertising market in Indonesia is expected to be worth IDR4tn (USD300400 mn) by 2015F, with Telkomsel looking to capture 40-50% of this segment. (Source:
“Telkomsel ramps up mobile ad service”, The Jakarta Post, 23 May 2013).
• Telkomsel’s key mobile advertising services include:
– Location-based advertising: As of 2012, this segment covered key cities in Indonesia,
such as Jabodetabek, Bandung, Surabaya, Medan and Palembang, with almost
3,000 sites (malls etc.).
– WAP banners.
– Interactive services that allow advertisers to directly reach Telkomsel subscribers.
– Bulk services, which refer to personalised advertising and information broadcasts to
brand communities via SMS and MMS.
– In November 2012, Telkomsel tied-up with Amobee for an integrated campaign
management system.
• In 2011, Indosat launched Indosat Mobile Off Portal Advertising, based on which ads
can be placed on the top and the bottom of a portal.
• XL offers m-advertising services like SMS, MMS, location-based, real time bidding,
mobile coupons and interstitial pages. Also, its AdReach service collaborates with
Telkomsel and Indosat for delivery of ad campaigns.
Fig. 64: Telkomsel – advertising services portfolio
Source: Telkomsel
India – attracting users by free minutes
• According to Mobile Marketing Association, the Indian mobile advertisement spend is
estimated at INR3bn (~USD50mn), and is expected to reach INR4.3bn in 2014F.
• In May '12, Bharti launched its mobile advertising services, which allows advertisers to
contact their (potential) customers in a "targeted and personalised fashion". This
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Nomura | Asia telecoms
29 January 2014
platform can cater to advertisers' needs for inventory management, campaign
management, reporting and analytics.
– With this service, advertisers can use the following tools: mobile Internet (WAP),
messaging services and Airtel digital TV.
– Last year, Bharti signed up with mobile advertising firm Vserv.mobi for its product
AudiencePro, which uses telcos’ data to provide better consumer targeting. (Source:
“Vserv Launches AudiencePro With Airtel; Targeting Mobile Ads With Telco Data”,
Medianama, 14 Jan 2013)
• MTS, one of the smaller telcos, launched the “MTS mAd” service in Oct ’12, which
offers free mobile minutes to subscribers for watching advertisements.
– Brands which are associated with mAd include Coca-Cola, Pepsi, Mentos, Center
Fresh, Fiat, Kelloggs, Titan and Lenovo.
• Aircel launched permission-based advertising, “Blyk” in 2010-11, under which
subscribers choose to receive updates on some brands and are given bonus talktime or
other freebies. (Source: “Aircel creating Primary Demand, Others reaping benefit..”,
teleguru.in, 2 January 2011).
• Tata DocoMo has also launched “GET (Get Easy Talktime)”. As part of this service,
subscribers can choose if and when they want to watch a video advertisement and, in
return, they are given free talktime. (Source: “Tata Docomo offers free talktime to
subscribers for watching advertisements”, bgr.in, 20 Nov 2013)
Fig. 65: Airtel has signed up for Vserv.mobi’s product AudiencePro
Source: Medianama.com
Malaysia – Maxis is active
• Maxis, along with Out There Media, launched permission-based advertising “myDeals”
in 2010, wherein customers get points for receiving ads and those points can be
redeemed for SMS or voice minutes.
– As of June 2013, myDeals had 4mn customers.
– In 2012, it launched an integrated digital services platform for advertising called “Best
Integrated Go-To-Market (B.I.G)”. The platform includes the following:

myDeals;

MYLAUNCHPAD, which is a discovery portal that provides latest news,
entertainment, music and games downloads, and hence, good advertising
opportunities;

Location based advertising;

Text alerts, and;

Mobile banners

DiGi too launched a mobile advertising program “iDeal” in 2011. Through this
service, registered users receive promotional offers, product information or any
other information, via SMS, MMS, WAP link and/or WAP banners. The service also
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Nomura | Asia telecoms
29 January 2014
includes the web interface for DiGi iDeal. (Source: “Digi launched Mobile Ad called
iDeal”, Malaysia wireless, 7 January 2011)
• Celcom Axiata also has a similar mobile advertising program “Get MAd”
Fig. 66: Maxis – myDeal promotional offer
Fig. 67: Maxis – myDeal promotional offer
Source: Company website
Source: Company website
The Philippines – early days
• Globe has its mobile advertising platform ‘My Rewards My Globe Plus’, and is investing
in IT infrastructure to analyse subscriber data - demographics/preferences/usage
patterns etc - to allow brands to develop more targeted ads. Globe has more than 2mn
opt-in subscribers on this platform.
Australia – a AUD680mn potential
• By 2018F, the Australian m-advertising spend is expected to be around AUD682mn, as
per Frost and Sullivan, which is a ~40% CAGR from now. It also stated that ~80% of
Australian companies will increase their m-advertising expenditure by 10% y-y.
(Source: “Frost & Sullivan: Australian mobile advertising market to reach $682 million in
2018”, Nov 2013.)
• Telstra has made the following acquisitions that relate to mobile advertising:
– Mandoe Media is an Australian firm that deals in digital signages and software. Its
revenues come from licensing its software and the provision of hardware for them.
– Ooyala (US-based company) provides services for media content management,
monetisation and analytics. Its key customers are ESPN Sports, Bloomberg, Miramax
and Yahoo Japan.
– Kony is a US-based mobile enterprise application development platform (MADP)
provider
• In Feb’13, Optus tied up with Amobee for growing mobile advertising services
M-advertising offerings by Google and Facebook
• Currently, Google and Facebook are two of the key global publishers. As per
eMarketer, Google is estimated to gain over 50% of net mobile Internet ad revenues
worldwide in 2013, and Facebook is expected to record a 3x increase in its share to
16%. We discuss below some of the services these two companies offer to advertisers.
Google
• Based on the keywords used by customers, Google’s AdWords service displays
advertisements whose description matches with the keywords. These ads can be
seen next to or above Google search results.
– With AdWords’ enhanced campaigns launched in Feb ’13, advertisers can use one
single ad campaign for multiple devices.
• Google’s advertisements are divided into – search ads and display ads.
– Search ad types are used to attract new customers and increase conversions. These
include: text ads, click-to-download, call extensions, location extensions, seller
ratings, mobile ad sitelinks and location extension with multiple advertisements.
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29 January 2014
– Display ads are used for engaging consumers. Types include interactive video ads,
interactive interstitial ads, canvas and expandable ads, tablet image banners, and
click-to-download app ads.
• Google also offers video ads on You Tube. The key ad types are:
– In-stream video ads: These ads are promoted on You Tube or the Google display
network. The user-requested video is preceded by a mandatory video advertisement
which the user may skip after five seconds.
– In-search video ads: Such ads are shown next to the search results on You Tube.
– In-display video ads: These ads are promoted next to You Tube videos or other
content on the Google display network.
• Making ad offerings more suitable for mobiles. In 2011, Google launched
“HowToGoMo.com" for creating mobile-friendly websites. It has also taken steps to
customise its ad offerings for different mobiles, such as text ads for high-end mobile
phones and WAP mobile ads.
• Venturing into in serving in-app mobile advertising. In 2009, Google acquired the
mobile advertising serving/design platform AdMob, which specialises in serving in-app
mobile advertising. AdMob provides Google with a source of in application mobile
monetisation beyond its core search product.
Fig. 68: Google and AdMob
Source: biztechday.com, Nomura research
Fig. 69: Google's acquisitions
Company
acquired
Acquisition
year
Acquisition
cost
Company description
You Tube
2006
USD1.65bn
Video sharing website
Double Click
2007
USD3.1bn
AdMob
2009
USD750mn
Mobile advertising platform
WildFire
2011
USD450mn
social media marketing software provider
Admeld
2011
USD400mn
Provides technology and help online
publishers to sell ad inventory
Internet ad services
Source: marketingland.com, Nomura research
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29 January 2014
What is Facebook up to?
• Facebook ads are targeted according to users’ profile data such as age, location,
education, relationship status, interests like favourite movies, music etc. which makes
them more effective.
• Facebook’s 3Q13 advertising revenue was USD1.8bn, of this 49% was contributed by
mobile advertising.
Fig. 70: Facebook monthly active users
Fig. 71: Facebook mobile monthly active users
(mn)
(mn)
1,400
1,000
1,200
900
819
751
604
543
200
200
432
300
488
400
680
500
376
1,189
1,155
955
901
845
400
800
600
1,110
600
1,056
800
1,007
700
874
800
1,000
100
0
0
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13
Source: Facebook , Nomura research
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13
Source: Facebook , Nomura research
Fig. 72: Facebook Mobile ad
Fig. 73: Facebook Mobile ad
Source: PPC.com
Source: onbile.com
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29 January 2014
Monetising Video
• OTT video viewership is on the rise globally – aided by faster networks, fibre/LTE
rollouts, WiFi proliferation, and also rising smart TV penetration. Changes in content
regulation as well as open access fibre projects are also changing the landscape for
many players.
– As per Ericsson, video accounted for 35% of mobile data traffic in 2013 and is
expected to grow to more than 50% by 2019.
– YouTube now has more than 1bn unique users per month, with around 6bn hours of
videos watched per month.
As per Ericsson, video
accounted for 35% of mobile
data traffic in 2013 and is
expected to grow to more than
50% by 2019.
– NetFlix, Hulu, although predominantly still US-centric, now have ~44mn subscriptions
in total, and this compares with total pay TV subs of 100mn in the US.
• But there is a revenue mismatch. As per Informa, globally pay-TV revenue is
currently USD181bn and is expected to rise to USD206bn by 2016. Although a
significant portion of video access is shifting to OTT, Informa expects OTT video
revenue to rise from USD12bn now to USD24bn in 2016, or ~12% of pay-TV revenues.
Therefore, there will still be a large revenue gap between what pay-TV operators grab
vs traditional telcos. We acknowledge there will likely be additional access revenues
such as broadband connection, which are likely not captured in these numbers above.
Fig. 74: Video’s share of traffic
Source: Ericsson
• What are telcos doing to monetize this – top-down & bottom-up? We discuss two
things in this report relating to video monetisation: 1) some of the common initiatives
such as repricing data or moving more to bundles, which is more top-down; and 2)
some of the additional initiatives, which are more bottom-up and less commonly
discussed.
• Top-down: Data has been repriced in many countries and it is providing some
relief to ARPUs, but how long this continues for remains debatable.
– A more common initiative by most operators, especially in developed markets, is to
increase the data price and / or move to tiered pricing plans, which is essentially the
more you use, the more you pay. In EMs, there are specific plans just for video
usage, such as Telkomsel’s ‘Video 500’ and Bharti's INR1 pay-per-use video plan in
India, and bundling is becoming more common, too.
– South Korea has been the most successful with the 4G roll out in 2H12 – they moved
away from unlimited data plans (compared to 3G tariff plans which offered unlimited
data from 52K plans), and importantly they charged c.20% premium for 4G tariff plans
over 3G. The current focus now is on increasing special data tariff plans which allow
subscribers to get additional data for an incremental price. The catch is the
subscribers are only allowed to spend this data on the telcos’ proprietary contents,
which could see incremental ARPU uplift from this as well as incremental revenue
from VODs.
– The Japanese telcos have also introduced premiums on 4G tariffs.
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29 January 2014
– In HK, CSL charges HKD99 per GB for excess data on 4G. CSL also has an
infotainment package with channels that allow 500 videos a month, and thereafter
charges apply at $3 per video.
– In Singapore, M1 and SingTel have doubled the excess data charges from SGD5.30
to SGD10.7 per month per GB.
– Overall, many developed Asian markets are now charging USD 8-15 per additional
GB over the data cap.
• Top-down: Integrated telcos are exploring multiple strategies to leverage their
networks and monetise video. This includes: 1) Focus on bundling and broadband
(triple/quad play); 2) Making content available on multiple platforms ; 3) focus on
content aggregation; 4) partnership with existing pay TV operators; 5) integrating
content delivery infrastructure (CDN) and OTT capability platforms to deliver video on
the cloud. We discuss these in detail later in the report.
• Bottom-up: What are some of the ‘additional’ video monetization strategies, over
and above the data re-pricing initiatives? We review a mix of what the telcos are
doing and what other OTT players are doing to monetize video.
– Some of the common strategies are: 1) Free, but with a hook and with
advertising upside; 2) flat-fee subscriptions; 3) micro transactions; 4) Freemium; 5) affiliate revenues (revenue share); 6) licensing. We discuss these in
detail later, but some of the examples of these strategies are:
– SingTel allows mio TV subscribers to watch 10 channels (including EPL) free on their
mobile phones (data charges apply), until May 2014, and intends to charge SGD5 per
month.
– South Korea telcos are shifting their mobile IPTV to open service from previously
limiting to their own subscribers to expand their subscriber base. LGU+ was the first
to do this as it opened up its Uplus HDTV service to subscribers from all these
operators from July 2013.
– An example of free-mium is PCCW’s offer of one BPL channel for free and a Super
HD pass with 5 channels at a premium.
– Telcos could charge websites for preferential access too. In the US, telcos are
now allowed sponsored streaming, where telcos can charge websites for carrying
data-rich web services. For example, Verizon can charge Youtube or NetFlix to carry
HD video on their networks. This model could be replicated in Asia too, we think.
AT&T has launched sponsored data services where mobile users can stream video
without incurring data charges up to a certain data limit.
– Telcos have also employed device bundling strategies with Smart TVs, which
increases convenience of OTT video – in Malaysia, TM is offering discounted smart
TVs bundled with its UniFi packages.
– Japan has been slightly different due to the launch of paid video services at an early
stage by mobile carriers. Rapid growth has continued among mobile video services
such as NTT Docomo's pay video service, d-video, owing to low prices and
aggressive sales promotions at mobile phone shops. The number of subscribers to
mobile carriers' monthly pay mobile video services is expected to grow from 5.86mn
at end-13/3 to 9.30mn at end-14/3, or 11.10mn including mobile broadcasts,
equivalent to 63% of the number of conventional pay TV multichannel broadcasts, we
estimate.
– The wireless telcos can also gain incremental revenue from providing their own form
of OTT video and charging for subscriptions, such as Bharti and IDEA’s INR1 plans
for video or Telkomsel’s ‘Video 500’ service.
• There are additional issues for telcos with OTT video growth, such as pay-TV
cannibalization (for integrated telcos) or more WiFi offload or competing with
many other players such as Youtube.
– The increasing prevalence of OTT video could divert incremental PayTV revenue
away from telcos, but we think this risk / opportunity can be managed and should vary
by market depending on the extent of substitutes. See our i13 report Is Internet-TV a
threat to PayTV aspirations? where we discuss this impact in more detail.
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Nomura | Asia telecoms
29 January 2014
– Devices such as Apple TV, Google Chromecast, Roku allow streaming of online
video/music onto TVs. Aereo is an online service which streams OTT TV broadcasts
onto the iPhone/iPad apps which can be streamed to Apple TV.
– With OTT video, telcos have to compete with additional players. For example,
YouTube has 21% share of the US video ad market, with video ads contributing to
~USD850mn to its revenues in 2013.
We don’t discuss WiFi potential
in this note – but refer to our
report Is WiFi a friend or foe of
telcos, dated 16 January 2013
for details.
• The focus will come back to connectivity for telcos, where networks can be
exploited further. Consumers would ideally require a minimum of 10Mbps to stream
OTT video and the need for instantaneous and HD video streaming would likely drive
upgrades. This should result in higher fixed ARPU (depending on the extent of
infrastructure-based competition and any government pricing restrictions).
– Some telcos have even imposed data caps for home broadband usage – AT&T
placed 150GB and 250GB data caps on DSL users.
– Integrated telcos also have the advantage of utilizing WiFi offloading to reduce
wireless network congestion while allowing for faster speeds.
– For fixed telcos, most fiber packages are offered at a premium to DSL, such as in
markets like Malaysia, Singapore, or Australia.
– The ARPU differential for TM in Malaysia between fibre and DSL has been significant,
at around 2x.
– Singapore Telcos have priced their finer packages at a premium to DSL.
Fig. 75: OTT Video potential vs. network infrastructure rollout
High
Data penetration
as % of
revenues/subs
~40%
<5 % of households
China
Not material yet
30%
10%
India
Not material yet, but picking up
~10% of revenues
Not material
Indonesia
Japan
Not material yet
High
15-20% of revenues
~70% of revenues
Malaysia
High
~22% of revenues
~5%
90% of HP cover/
13% of household
penetration (take up)
30%
Philippines
Not material yet
~10% of revenues
NA
90% of household
cover/48% of household
penetration(take up)
20% of households
covered
Not material
Singapore
High
>95%
South Korea
High
~25-30% of revenues 21% of broadband subs
are on fiber
>90% of subs
>60% of households
Thailand
Picking up
~20% of revenues
~20%
Country
Telco revenue potential
from OTT video
Australia
Fiber penetration/
take up
Telcos are starting to
rollout more fiber w ith
data uptick
HH Fixed
broadband LTE rollout
penetration
~70% Telcos rolling out LTE on 900/1800
50% Primarily 2G/3G. LTE netw ork
under construction
5-10% 2G mostly. Selective launch of LTE
still, nationw ide may be in 2014
24%
>95%
2G mostly. 3G rollout selective
Nationw ide coverage more than
90%
Mostly 3G. LTE started on 2.6GHz
and 1.8GHz
Netw ork upgrade done in most of
areas.
Nationw ide LTE coverage. ~35%
of postpaid subs on 4G plans
Nationw ide coverage. ~50% of
total w ireless subs on LTE
netw ork
Selective LTE launch by TRUE on
2.1GHz. Focus on 3G
Source: Company data, Nomura estimates
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Nomura | Asia telecoms
29 January 2014
Fig. 76: Pay-TV vs. OTT revenue - Global
Pay TV (LHS)
OTT (LHS)
OTT as a % of pay TV (RHS)
(USDbn)
250
200
Fig. 77: Pay-TV vs. OTT revenue - Asia
14%
60
12%
50
10%
150
Pay TV (LHS)
OTT (LHS)
OTT as a % of pay TV (RHS)
(USDbn)
7%
6%
5%
40
4%
8%
30
3%
6%
100
20
2%
4%
50
2%
0%
0
2010
2011
2012
10
1%
0
0%
2010
2013 2014F 2015F 2016F
2011
2012
Source: Informa
Source: Informa
Fig. 78: Global Pay - TV subs
Fig. 79: Asia Pay - TV subs
Cable TV subscribers
IPTV subscribers
Pay Digital DTH subscribers
(mn)
600
500
2013 2014F 2015F 2016F
Cable TV subscribers
IPTV subscribers
Pay Digital DTH subscribers
(mn)
900
800
700
400
600
500
300
400
200
300
200
100
100
0
0
2010
2011
2012
2013
2014F 2015F 2016F
2010
2011
2012
2013
2014F 2015F 2016F
Source: Informa
Source: Informa
Fig. 80: Singapore data repricing
Fig. 81: Korea Telcos – pricing LTE higher
Source: Company data, Nomura research
Source: Company data, Nomura research
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Nomura | Asia telecoms
29 January 2014
Fig. 82: Japan Telcos – pricing LTE higher
2013 LTE networks
Softbank
KDDI
NTT docomo
LTE Android ¥5,985 （7GB）
LTE Android ¥5,985 （7GB）
WiMAX
3G　¥5460
3G
+¥525
+¥525
+¥525 LTE iPhone ¥5,460 （7GB）
LTE iPhone ¥5460 （7GB）
¥5,985 （7GB）
LTE Android
¥5,985 （7GB）
LTE Android
（for 2 years,can't apply au FMC LTE iPhone
discount ）
¥5,460 （7GB) (for 2 years）
¥5,460 （unrestricted）
¥5,460
¥5,460
3G Android
-¥525
+¥1,050
LTE Android ¥4,935 （3GB）
LTE iPhone(upgrade) ¥4,410（for 1 year; Students for 2 years）
3G iPhone
¥4,410
3G iPhone family
¥0～¥4,980 (for 2 years）
3G Android family
¥0～¥5,985 (for 2 years）
Source: Company data, Nomura research
Fig. 83: StarHub broadband ARPU (SGD)
Fig. 84: Telstra – ARPU (AUD)
49
60
48
58
47
56
46
54
52
45
50
44
48
43
Source: Company data, Nomura research
1H13
2H12
1H12
2H11
1H11
2H10
1H10
1H09
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
40
3Q10
40
2Q10
42
1Q10
44
41
2H09
46
42
Source: Company data, Nomura research
OTT video trends
• Ericsson expects 10x growth in smartphone data traffic over 2013-2019F. The
bulk of this (more than 50%) is expected to come from video.
• Average data consumption per month on mobile is 600MB now and is expected to grow
to 2.2GB by 2019F, as per Ericsson. In most developed markets, we are already
reaching 2GB levels of data usage per month, we note.
• In revenue terms however, online video is USD1.2bn and is expected to rise to
USD3bn by 2016F, as per Informa. In comparison, the pay-TV market is pegged at
40bn and is expected to rise to USD51bn by 2016F.
• More than 50% of online video revenues comes from advertising. YouTube for
example has 21% share of the US video ad market, with video ads contributing to
~USD850mn to its revenues in 2013.
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29 January 2014
Fig. 85: Asia OTT video and mobile market revenue
Service
Transaction revenues
Subscription revenues
Advertising revenues
Total
% of global revenue
Asia Pacific total mobile video revenue (US$ m)
Type
Downloads
Streaming
Asia Pacific total mobile video revenue (US$ m)
2011
95
151
317
563
8%
2012
125
224
466
815
9%
2013
175
330
697
1,203
10%
2014
239
459
1,013
1,711
11%
2015
334
619
1,407
2,360
12%
2016
486
793
1,868
3,147
13%
2011
53
112
165
29%
2012
59
147
206
25%
2013
65
190
255
21%
2014
70
245
315
18%
2015
74
309
383
16%
2016
75
376
450
14%
2013
28,844
2,205
8,785
12
39,846
2014
31,335
2,681
9,650
41
43,707
2015
34,023
3,158
10,481
87
47,749
2016
35,700
3,570
11,255
141
50,666
Source: Informa
Fig. 86: Asian pay TV revenue
Asia Pacific pay TV revenues (USDmn)
Cable TV revenues
IPTV revenues
DTH revenues
Pay DTT revenues
Total
2011
24,237
1,410
6,921
1
32,569
2012
26,307
1,764
7,887
3
35,961
Source: Informa
Video – high data usage and revenue potential
• Data consumption from video is comparably much higher than other applications like
email/web browsing etc. For illustrative purpose, as per Verizon’s data calculator, on a
3G/4G smartphone,
– Streaming 10 minutes of 4G video per day implies 1.7GB data usage per month
– 3G video streaming for 10 minutes daily will use 1.25GB data per month.
Compared to this
– 100 Emails (text only) per day will use only use 30MB data a month
– Browsing 25 webpages daily will use 300MB data
– Streaming 15 minutes of audio daily implies 450MB per month data usage.
• Viewing HD (High Definition) videos consumes much higher data. For example
streaming just 2 minutes of HD videos daily uses 2GB data per month on 4G mobile
broadband as per Verizon.
Fig. 87: Monthly data usage (MB) trends
2,500
2,000
1,500
1,000
500
0
Stream 2 mins Stream 10
of HD video mins of 4G
video
Stream 10
15 mins of
Browse 25
mins of 3G audio stream web pages
video
100 text
emails
Source: Verizon
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29 January 2014
Top-down pricing strategies to monetize video
Data re-pricing – more for wireless carriers
• Developed market telcos have repriced their data packages on LTE by charging a
premium.
– In Singapore, M1 and SingTel have doubled the excess data charges from SGD5.30
to SGD10.7 per month per GB.
– In South Korea, with 4G roll out in 2H12, the telcos have successfully re-priced data
bundle. They have not introduced unlimited data plans (compared to 3G tariff plans
which offered unlimited data from 52K plans). Moreover, based on faster network
throughput, the telcos have successfully been able to charge a c.20% premium for 4G
tariff plans over 3G ones. The current focus of the Korea telcos is data special tariff
plans which allows subscriber to get additional data for an incremental price. The
catch is the subscribers are only allowed to spend this data on the telcos’ proprietary
contents. The telcos are hoping to see incremental ARPU uplift from this as well as
incremental revenue from VODs.
– Japanese telcos have also introduced premiums on 4G tariffs.
– In HK, CSL charges HKD99 for excess data on 4G. CSL also has an infotainment
package with a channel that allow 500 videos a month, and thereafter charges apply
at HKD 3 per video.
– For fixed telcos, upgrading users to fiber packages for faster OTT video streaming
could potentially double ARPUs.
Bundling and aggregation – more for integrated carriers
• Integrated telcos are exploring multiple strategies to leverage their networks and
monetise video and also to manage cannibalisation risks of their pay-TV ARPUs.
This includes: 1) focus on bundling and broadband (triple/quad play); 2) making content
available on multiple platforms ; 3) a focus on content aggregation; 4) partnership with
existing pay TV operators; 5) integrating content delivery infrastructure (CDN) and OTT
capability platforms to deliver video on cloud.
• Focus on bundling and broadband will rise: With data usage expected to grow
significantly, and telcos predominantly being the distribution channel, the focus will
largely be on pricing fixed broadband.
– Malaysia has been the one market which has seen higher pricing for fibre vs. ADSL,
and subscribers are willing to pay more for better quality and speeds.
– In Singapore, telcos have priced fibre at a premium compared with a DSL/cable
broadband connection. StarHub has seen some decline in broadband ARPU, though
this has been largely attributed to competitive fibre offerings.
– PT Telkom has embarked on a fibre rollout program which is called the TITO (trade in
trade out) initiative, wherein it plans to rip out existing copper cables and wires in the
ground, sell them, and replace these with fibre — this should bode well for expanding
its IPTV customer base.
Fig. 88: Malaysia – pricing fiber higher
Fig. 89: Singapore – premium on fiber
TM Streamyx Broadband ARPU
TM HSBB ARPU
Telco implied Wireless broadband ARPU
200
60
50
180
40
160
Source: Company data, Nomura research
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
40
SingTel fibre
0
60
MyRepublic
fibre
80
StarHub
fibre
10
M1 fibre
100
SingTel DSL
20
StarHub
Cable
120
Tradeshow
promotions
30
140
Source: Company data, Nomura research
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29 January 2014
• On content, telcos are making content available on multiple platforms. Telcos with
existing pay-TV offerings are now making their content available on multiple screens
and building up an OTT presence too. Bundling remains telcos’ key value proposition
where external providers cannot (and will not) be able to compete, we think. Once
again, this could be more prevalent in developed markets where telcos can find the
‘right’ pricing model to adequately cover the transmission costs in the event of the user
using more external content.
– For example, SingTel, StarHub have mobile apps which provide some TV channel
content.
– PLDT has tied-up with Clickplay.ph to stream movies on its fibre broadband.
– TM has HyppTV Everywhere for its UniFi and high speed Streamyx (4Mbps/8Mbps)
subscribers that allows subscribers to watch HyppTV on smartphones/tablets through
an app.
• Content aggregation: Integrated telcos are increasingly looking at aggregating content
on their pay TV offerings. This improves the content proposition, but will also imply
higher content costs on the more popular packages like the BPL.
– The OTT content players will likely take some share away, but the traditional and
integrated pay-TV operators will still have an advantage on content aggregation, we
believe. The subscribers may individually subscribe to a few OTT content providers,
but individual subscription to multiple OTT operators could be cumbersome to
manage. On the other hand, a single subscription to a pay-TV operator with a wide
bouquet of content could be simpler and more cost effective.
– As more content is accessed directly from the web and also through multiple devices,
the broadband providers and pay-TV players with bundled broadband offerings are
likely to be key beneficiaries.
– Telcos could also look to acquire content creators. PLDT for example in Philippines
has acquired a content creator.
• Partnership with pay TV players: Integrated telcos are partnering with existing pay
TV/cable operators to carry content on their networks.
– In Australia, Telstra has chosen a partnership model with Foxtel (via its 50%
ownership of Foxtel). Telstra offers Foxtel either through bundling the services with its
core Telco services or via offering Foxtel content on its T-Box IPTV service.
– Telekom Malaysia has entered into a content sharing agreement with Astro, the
dominant TV operator, to carry select EPL channels on TM’s fiber. For TM, this
implies an improved content portfolio, and lower churn benefits. For Astro, this deal
helps manage content costs better
– Some telcos are even launching their own OTT services, such as Celcom in Malaysia,
which has launched its OTT service Escape TV. Maxis has created a business unit
with a view to monetise its VAS content while DiGi launched its Diesel music service
and is working with Telenor on more partnerships.
• WiFi offloading: With video streaming generating large amounts of data traffic, further
services to support online video usage would be WiFi hotspots which would help
offload data from 3G/4G networks while also allow for faster speeds. Integrated telcos
will have an edge over wireless operators and keep their costs much lower given their
fixed network advantage.
• Telcos are also integrating infrastructure – both hardware on content delivery
network (CDN) and OTT software platforms. This helps telcos add content delivery
capability to their own cloud.
– KT has partnered with Akamai in Korea, while Verizon has acquired Edgecast, which
has a CDN of distributed servers.
– NetFlix is also rolling out its own CDNs (OpenConnect) to have geographically
distributed servers that will help them to have content physically closer to consumers.
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29 January 2014
Fig. 90: PCCW – looking at multiple options including apps/TV everywhere/on demand service
Source: PCCW
Bottom-up pricing strategies to monetize video
Fig. 91: Telco initiatives on pricing videos
Pricing strategies
Telco examples
Free
Singtel allows mio TV subscribers to watch 10 channels (including EPL) free on their mobile phones
(data charges apply), until 31 May 2014. Thereafter, Singtel intends to charge SGD 5 per month
StarHub charges SGD27/month on streaming to mobile without any additional GPRS data charges
PCCW charges HKD 208/month for 5 additional channels and HKD 28/month for the Super HD pass
to watch BPL via mobile and Celcom expected to charge RM 25/month.
Flat fee subscriptions South Korea telcos are shifting their mobile IPTV to open service from previously limiting to their
own subscribers to expand subscriber base.
IDEA manages WAP services ‘Video Vogue’ and ‘Video Adda’ that provide video content, where
charging is done based on number of videos downloaded.
Pay per use
StarHub charges SGD1 a day for post paid customers and SGD2 per day for per paid
Bharti launched a 'Rs 1 for a video' campaign
IDEA also operates service called “Idea Re 1 Bazaar” where it offers video and music content over
WAP
Telkomsel’s ‘Video 500’ service targets both smartphone and feature phone users
Free-mium
PCCW offers one BPL channel for free and a Super HD pass with 5 channels at a premium.
SKT bundling popular content for free with higher-tier packages
Advertising
Affiliate revenue
Licensing/Content
production
Telco tend to offer ad-free video streaming but this might change as advertising becomes important
for monetization
AT&T introduced “sponsored data” which allows users to stream video without using their data
allowance while Sponsors pay for the data. Netflix for example will pay for 5GB user data on mobile
app streaming for customers.
For telcos, creating own content can be difficult, given the lack of expertise. Some of the integrated
Telcos with pay TV offerings (TM/STH etc) have flagged content acquisition as a key strategy to
improve bundling.
Source: Company data, Nomura research
Free, with a hook and advertising upside
• A lot of the content can be accessed at no cost – this is often used as a hook too. Over
time, this can be supported by advertising or affiliate revenue or the content provider
could look at introducing other services which can be priced eventually. YouTube is an
example of a free site that is ad-supported. Hulu was originally free, but now requires a
subscription fee.
– Telcos have offered free streaming services for pay-TV subscribers as a differentiator
to their competitors.
– For example, SingTel allows mio TV subscribers to watch 10 channels (including
EPL) free on their mobile phones (data charges apply), until 31 May 2014. Thereafter,
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29 January 2014
Singtel intends to charge SGD5 per month. This is an additional service that Singtel
can provide over Starhub in the hopes it can retain subscribers because the mobile
platform was not covered the Media Development Authority's cross-carriage
agreement.
• We believe advertising will be a key source of monetization for online content. Gartner
estimates m-advertising spend could reach USD11bn in Asia over the next three years;
we think telcos have scale, reach and technology to tap into this. Telcos should be able
to analyse vast amounts of data on customers’ interests, spending propensity, location
etc, which can make advertising more targeted and effective. As well, telcos have
established relationships with subscribers on service delivery and billing, and have
multiple media like mobile, fixed-line and pay-TV to offer to advertisers for crosschannel advertising.
– Refer to our recent report, The Appeal of mobile advertising, dated 17 January 2014
for more details.
Flat fee subscriptions
• In this case, the subscription is based on a flat fee but offers an ‘all you can eat’
service. Ideally, the price shouldn’t be too high, but at the same time slightly higher than
what a user may have spent in a month on a-la-carte purchases.
– This is a common pricing strategy that telcos use for OTT services. For example
StarHub charges SGD27/month for streaming to mobile without any additional GPRS
data charges.
– PCCW charges HKD 208/month for 5 additional channels and HKD 28/month for the
Super HD pass to watch BPL via mobile, and Celcom is expected to charge RM
25/month for 30-day all access, as per press reports.
– NetFlix charges USD8 a month and has a compelling pricing proposition in the US
market.
– Amongst EMs, IDEA manages WAP services such as ‘Video Vogue’ and ‘Video Adda’
that provide video content, where charging is done based on the number of videos
downloaded.
– Grameenphone in Bangladesh offers three packs for video streaming – light, medium
and heavy, which can be subscribed to for validity of a day or week or month. No
additional data charges are applicable.
• The wireless telcos can also gain incremental revenue from providing their own
form of OTT video and charging for subscriptions.
• In EMs,
– Vodafone India offer WeeBox — a plug and play keyboard on the Android platform —
which allows subscribers to watch online content on a television.
– Celcom in Malaysia has launched its OTT service Escape TV.
– Grameenphone in Bangladesh offers three packs for video streaming, which can be
subscribed to for validity of a day or week or a month. No additional data charges are
applicable.
• In DMs,
– M1 has launched the Mi Box – an Android box to stream content.
– South Korea telcos are shifting their mobile IPTV to open service, from previously
limiting to their own subscribers to expand their subscriber base. LGU+ was the first
to do this as it opened up its Uplus HDTV service to subscribers from all thee
operators from July 2013 (SKT and KT have not opened up their mobile IPTVs yet).
According to Etnews (January 16, 2014), despite having the lowest subscriber market
share, LGU+’s mobile IPTV has the largest mobile IPTV subscriber base of 5mn,
compared to SKT’s 2mn and KT’s 3.4mn.
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29 January 2014
Fig. 92: IDEA cellular – video content charges
Video Vogue and Video Adda
Pack
Price & Validity
Monthly Pack
Rs.50/ 30 days
Weekly Pack
Rs.15/7 days
Daily Pack
Rs.3/1 day
Benefits
50 video downloads
15 video downloads
3 video downloads
!dea Seedeo Movie Store
Price point (in Rs.)
Pack validity (in days)
Benefits
100
30
Content worth Rs 200
Prepaid/Postpaid
50
15
Content worth Rs 100
Prepaid/Postpaid
25
10
5
2
45 (Channel)
7
3
1
1
30
Content worth Rs 50
Content worth Rs 20
Content worth Rs 10
Content worth Rs 5
1 clip per day
Prepaid only
Prepaid only
Prepaid only
Prepaid only
Prepaid/Postpaid
Applicability
Prepaid & Postpaid
Prepaid
Prepaid
Applicability
Source: Company website
Fig. 93: Grameenphone – packs for Mobile TV & Live Video Broadcast
Source: Company website
Micro transactions or ‘pay per use’ or ‘pay per download’
• This is similar to Apple’s iOS store/iTunes model. Amazon has adopted a pay per view
option in Japan. Telcos also widely offer video-on-demand options which are priced per
video/movie downloaded.
– Most Telcos also employ the pay per view model on a per-day or per-download basis.
StarHub charges SGD1 a day for post paid customers and SGD2 per day for pre
paid.
– This strategy is relevant for emerging markets and was particularly successful for
Bharti when it launched an 'INR1 for a video' campaign, with a library of over 3mn
videos.
– IDEA also operates a service called “Idea Re 1 Bazaar” where it offers video and
music content over WAP. It also manages other services such as ‘Video Vogue’ and
‘Video Adda’ that provide video content, and charging is done based on the number of
videos downloaded.
– Telkomsel’s ‘Video 500’ service targets both smartphone and feature phone users –
the company has kept the price of watching videos affordable at IDR500 (plus tax),
which also includes data access costs.
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29 January 2014
Free-mium
• Here, the basic or early offerings are offered for free and ideally, end users are charged
for premium content/services or for wider access. Hulu has adopted this model by
offering some video content for free while providing full access for Hulu plus members.
– For Telcos, the free-mium model involves offering some access for free and
encouraging subscribers to upgrade to the full pack.
– For example, PCCW offers one BPL channel for free and a Super HD pass with 5
channels at a premium.
Affiliate revenue
• This model allows the OTT service user to be redirected to an affiliate (partner) site and
receive a revenue share for transactions that are completed. For example, Shazam
provides a link to affiliate sites to purchase/download songs. There is a revenuesharing agreement with the affiliate’s site in this case.
– AT&T has launched sponsored data services where mobile users can stream video
without incurring data charges up to a certain data limit. Rather the sponsor, say
NetFlix, will foot the bill for up to 5GB of user data.
– AT&T is looking to promote this to video advertisers who want preferential access for example, ads, movie trailers, games or apps through “free” data.
– This is potentially a new opportunity for telcos, we note. Recent developments in the
US media/OTT market imply that telcos could charge OTT websites like NetFlix and
Youtube for carrying data-rich services on their networks.
Licensing
• For content owners, licensing has been the key way for monetization. This is revenueaccretive for content owners and content costs rights become a key concern for OTT
providers. Some OTT players (NetFlix for example) are also exploring production of
own content. For some OTT providers, the ability to license their services/platforms is
also a source of revenue.
• According to our US media analyst “Netflix’s success with original content provides an
ongoing boost for its brand. Given this type of content is exclusive and unique to
Netflix, it is helpful for driving customer acquisition and retention, as Netflix offers
customers content that traditional distributors cannot. In addition, original content helps
Netflix to hedge its relationships with larger, well established Media content companies
– like Disney, CBS, or Time Warner – as Netflix was (prior to Originals) beholden to
these content providers for substantially all of its content”
• For telcos, creating own content can be difficult, given the lack of expertise. And
acquiring content means higher content costs. Content licensing agreements need to
be addressed for every individual market, and regulations on content exclusivity implies
that economics of this differ on a case by case basis.
• Some of the integrated telcos with pay TV offerings have flagged content acquisition as
a key strategy to improve bundling. But this is not outright ownership of content, rather
rights to broadcast popular content.
– TM in Malaysia has entered into agreements with Astro to carry select BPL channels
on its network.
– SingTel acquired rights to carry BPL on its network and now has to cross carry it to
StarHub customers too.
Case study: Japan mobile video market
Slowing trend in paid subscription volume for traditional video services
Following KDDI's acquisition of the biggest Japanese cable TV company Jupiter
Communications, KDDI has become the largest cable TV operator in Japan. KDDI has
converted Jupiter Communications into a subsidiary and in April 2014 plans to merge it
with the CATV sector’s second largest company, Japan Cable Network (JCN). However,
paid subscription volume for broadcasting services in Japan has stagnated for both
CATV and satellite services. The only area where growth has continued is the IP TV
services provided by NTT, Hikari TV.
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Rapid growth has continued among mobile video services
In Japan, US-style OTT content has not found success, and although Hulu has not
disclosed subscriber figures, we estimate the company has garnered only limited market
share. Netflix has not launched its services in Japan either. Meanwhile the monthly paid
services portfolio for Nico Nico Douga (Japan's version of YouTube) has been
successfully expanded, and we look for the number of paid service subscribers to reach
1.19mn as of end-14/3. What sets Japan apart from other markets is the launch of paid
video services at an early stage by mobile carriers. Rapid growth has continued among
mobile video services such as NTT Docomo's pay video service, d-video, owing to low
prices and aggressive sales promotion at mobile phone shops. The number of
subscribers to mobile carriers' monthly pay mobile video services is expected to grow
from 5.86mn at end-13/3 to 9.30mn at end-14/3, or 11.10mn including mobile
broadcasts, equivalent to 63% of the number of conventional pay TV multichannel
broadcasts.
Recent slowdown in mobile video services growth
Subscription volume for d-video has most recently stagnated, however, due mainly to a
delayed initial response to NTT Docomo’s launch of iPhones and NTT Docomo banning
mobile phone shops from taking down-payments for handset purchases. We thus see a
need to monitor developments. Furthermore, the mobile broadcasting business started
by NTT Docomo, mmbi, is limited to NTT Docomo’s Android handsets. The Android
weighting has also fallen at NTT Docomo since it introduced iPhones.
Fig. 94: Paid subscriptions to broadcasting and video services in Japan
('000 contracts)
08/3
09/3
13,080
6,751
6,079
250
13,882
7,190
6,142
550
192
311
Monthly fee(¥)
10/3
11/3
12/3
13/3
14/3(E)
Private-sector
Multichannel pay TV total (cable, satellite, IPTV)
Cable TV
3,000–5,000
Private-sector satellite (Sky PerfecTV!, WOWOW) 2,300-3,200
IPTV (NTT's Hikari TV)
Around 3,000
Terrestrial IP rebroadcast (NTT's Flet's TV)
650
PC video (Nico Nico Douga premium)
500
Mobile broadcasts (mmbi/NTT DoCoMo)
400
Mobile video
BeeTV (NTT Docomo)
300
Video Store (NTT Docomo)
500
UULA(Softbank)
490
Video pass (KDDI)
590
NHK
NHK basic
NHK satellite
NHK VOD (NHK On Demand)
Around 1,200
Around 2,100
24,386
13,423
900
24,203
13,999
14,430 15,079 16,306
7,243 7,429 7,940
6,178 6,237 6,362
1,009 1,413 2,004
270
772
592
1,190
861
1,590
1,071
1,071
1,546
1,546
2,437
1,699
738
24,180 24,079 23,778
14,752 15,672 16,496
440
640
880
16,863
7,950
6,460
2,453
17,536
7,960
6,576
3,000
1,003
1,890
684
5,860
1,250
4,130
280
200
1,190
2,240
1,800
9,300
800
5,500
1,500
1,500
23,453
17,376
1,050
23,200
18,200
1,150
Source: Nomura, based on company data
Smart TV increases convenience of OTT video
• According to Digital TV Research, China’s total video service market reached USD23bn
in 2012, including USD21bn in TV advertising revenue, USD1bn in paid-TV
subscription revenue and USD1bn in IPTV advertising. This market is dominated by TV
stations and local cable TV service providers currently.
• New IPTV service providers such as Youku-Tudou don't have access to TV screens
since they can only reach users via PCs, smartphones, and tablets.
• By launching Smart TVs, these IPTV service providers may gain access to living room
screens, as a result capturing part of the USD22bn TV advertising and paid TV market
at the expense of TV stations, in our view.
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• In addition, unlike traditional delivery of TV ads, Smart TV service providers can apply
big data analytics to track and analyse viewing behavior to improve accuracy and
effectiveness in ad delivery.
• From the viewpoint of traditional TV vendors, while they lack the expertise in content
and subscription services, some TV vendors have formed partnerships to test-trial new
business models. In December 2012, Skyworth announced its paid subscription service
“Hollywood Express” would provide Hollywood movies to its Smart TV users at an
annual subscription fee of CNY360. In this service, Skyworth linked with SMC (the
license holder) and Voole (content provider). According to Skyworth’s management,
about 2% of new TV buyers have subscribed to this service currently.
Fig. 95: Comparison between TV, Telecom, and IPTV market
sizes and ARPUs in China
Fig. 96: Market share of paid-TV, TV ads, and IPTV ads
revenue
(USDbn)
Service Revenue (LHS)
(USD)
100%
1,000
ARPU (RHS)
1,000
90%
Others
80%
70%
100
100
60%
Provincial
Satellite TV
(40
channels)
50%
40%
178
10
10
30%
21
20%
1
10%
1
1
1
Paid TV
TV Ad
Telecom
Others
LeTV
Tencent
Sohu
iQIYI
(PPS)
CCTV (16
channels)
Youku
Tudou
TV ads (2012)
IPTV ads (4Q12)
0%
IPTV Ad
Source: Digital TV Research, China Mobile, China Telecom, China Unicom, SARFT,
Nomura research
Source: Enfodesk, SARFT, Nomura estimates
• Unlike the US, China’s TV market started off as a free-subscription business; thus the
nurturing and adoption of paid-TV was painful and slow. Although the penetration rate
of paid-TV service subscribers in China was 42% in 2012, vs 86% in the US, which
doesn’t seem to be far behind, the ARPU gap between China and US audiences is
huge, roughly USD7 vs. USD888 per year. The chart below shows an example of the
pricing difference between cable and internet video service providers in China and the
US.
Fig. 97: Comparison of Paid TV service ARPU
Operator
Country/Region
ARPU (CNY) per month
OCN
Shanghai
HK Broadband
Network
Time
Warner
Cable
23
73
615
LeTV China
33
Skyworth
Hollywood Netflix US
Express
30
74
Programme
TV Channels
151
50
100+
CNTV
n/a
Few
VOD
Yes
Yes
Yes
100k+ hrs
10k+ hrs
1mn+ hrs
Source: Company data, Nomura research
• According to Digital TV Research, at end-2012, China had 187mn paid TV households,
87% more than the 100mn paid TV households in the US. However, China’s paid TV
subscription fees in 2012 amounted to only USD1bn, a fraction (1.5%) of the USD89bn
paid by US audiences. We believe Smart TVs may help unlock the paid subscription
potential in China. Assuming annual APRU will increase to 20% of the amount paid by
US households at USD178 by the end of 2020, the incremental growth in China’s paid
TV market size could be as much as USD33bn.
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Fig. 98: Potential room for growth in China paid-TV market [2013-20]
(USDbn)
Paid TV
Potential growth (LHS)
ARPU (RHS)
100
888
90
80
(USD)
1,000
USD178
70
100
60
50
40
30
20
10
7
USD33bn
10
0
1
China
US
Source: Digital TV Research, Nomura estimates
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Mobile payments
• The developed markets telcos, who have had some form of m-banking services for
years, have seen limited traction or financial impact, and are still naturally less excited
about the underlying potential – this is also due to easier banking accessibility for its
customers. But they are still trying various initiatives to further leverage their scale and
reach and also to reduce churn – we discuss this in more detail in the note.
• For emerging market (EM) telcos, there is more hope and scope – mobile penetration
in a lot of EMs is now 70-80%, vs a sub-30% banking ratio with accessibility even
lower. But there are still challenges for telcos to tap into this segment smoothly, be that
on finding the right business-model, technology or platform, or even on increasing
awareness.
• Of the topics explored so far as part of the Dream-Pipe series, this one will be more
gradual but also more transformational we think.
A lot more developments since we last published…
There have been numerous developments since we published our Mobile-banking – right
size, wrong shape report in July 2012.
• We have seen a pickup in m-payment related applications/platforms –
smartphone-based payment apps like Zoosh or platforms like Boku are some
examples Popular chat applications like WeChat, Line, etc, allow mobile users to make
purchases/coupons, etc, online.
We had published a detailed
report on mobile-banking
opportunity in July 2012
Mobile-banking – right size,
wrong shape
– 32% of Line’s registered users have accessed such coupons, as per the company.
• Xiaomi sold 150k smartphones through WeChat in 10 minutes in an experimental sale
which Xiaomi did in November last year.
• Blackberry’s mobile payment service in Indonesia – BBM Money – which allows money
transfer through BBM, signed up 60k customers in three months of launch with a target
of 200k for 2013.
• Telcos are making more progress on m-payments and banking too, but it is still not
easy to identify a "clear" and successful case-study, or any meaningful financial
contribution – many different models are being pursued still. Admittedly a lot of the
benefits will be in-direct too, such as lower churn, which can improve overall returns.
– In Indonesia, all three telcos have introduced interoperability in m-wallets by jointly
developing a common protocol.
– India now has around 53mn m-banking users as per the Reserve Bank of India (RBI),
which is less than 5% of the population.
– Bharti has launched AirTel Money in India and several of its African businesses. In India, it
is available in 300+ cities across 7,000 merchants. The company identifies mobile money
as one of the top three growth drivers in Africa, apart from data and VAS.
– According a report from Research Center of the State Council, the mobile payment
market in China could be in excess of CNY800bn (USD130bn) in 2013. The market is
witnessing increasing transaction volumes through phones – 33% of transactions on
Alipay, Alibaba's payment service, were through mobile phones.
– China Tel has launched a Near Field Communication-based (NFC-based) E Surfing
Mobile wallet in tie-up with banks. This requires an NFC-enabled smartphone. The
telco targets 30mn SIM cards and ~40 handset models that will support its NFCbased service in 2014.
– In Singapore, telcos share NFC infrastructure with backing from the government and
have partnered with EZ-Link, which is the contactless card for the nation’s transport
system – but there still isn’t any meaningful financial contribution we understand.
– Operators in Japan and South Korea, who launched various m-payment type services
many years ago, have also only seen subdued response. In South Korea for instance,
according to the Korea Communications Commission (KCC), 74% of users who have
NFC-compatible handsets have never done NFC-based transactions.
NTT Docomo's mobile credit
card business finally moved into
operating profit eight years after
launch
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Fig. 99: Mobile payment types
Source: Mobilepaymentstoday
Why is m-banking relevant for telcos?
• Scale: Telcos in markets like India, Indonesia, and China have scale advantages on
subscriber base, which can be leveraged better. Even operators like SingTel or Axiata
are looking to roll out services like m-commerce across their regional associates. This
can improve stickiness and enhance ARPUs too.
• Networks: Emerging market telcos have “reach” (coverage) advantage – mobile
penetration of 70% compares to banking access of sub-50% in these markets. For
example, Airtel is extending Airtel Money services across Africa where there is a real
gap to fill, and can leverage its existing customer relationships.
• Database: This has multiple aspects. For basic financial access, subscriber information
in telco databases (HLR/VLR/SIM), etc, makes the whole subscriber
identifications/KYC norms easier, and at a lower cost too.
• Indirect benefits. Indirect benefits from a mobile money service include savings from
airtime distribution, reduction in churn, and increased share of wallet for voice and
SMS. NTT Docomo allows its subscribers to make transactions – payments/map
downloads etc – with their NFC handsets when roaming to Korea.
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Market potential & other tidbits
• Gartner estimates mobile payments to be a USD165bn industry in Asia by 2016.
Average commission rate per transaction is sub-5% which translates into around
USD5-8bn revenue potential.
• Asia has 93mn mobile payment customers as of end-2013 which could grow to 128mn
by 2016, as per Gartner.
According to GSMA, the number
of mobile money services
globally has increased from 178
services in 2012 to around 208
by Oct-2013.
• Compared to this, Africa’s mobile payment market has 67mn customers in 2013 and is
estimated at USD83bn and could grow to USD160bn by 2016, according to Gartner.
Africa has ~53% of global mobile money deployments as of Oct-2013, as per GSMA.
• SMS-based payments still dominate with a share of 55% of global mobile payments
while NFC is just 2%, according to Gartner.
• According to GSMA, the number of mobile money services globally has increased from
178 services in 2012 to around 208 by Oct-2013.
Fig. 100: Asia Mobile payment users outlook
Fig. 101: Value of mobile payment transactions, Asia
M-payment users ('000)
140,000
3.6%
120,000
3.4%
3.2%
100,000
3.0%
80,000
2.8%
60,000
2.6%
40,000
2.4%
Source: Gartner
2016F
2015F
2014F
2.0%
2013F
0
2012
2.2%
2011
20,000
M-payment value (USD mn)
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
2011
2012
2013F
2014F
2015F
2016F
Source: Gartner
What’s working & where?
• Emerging market telcos have been aggressively promoting/talking about mbanking potential, but we are yet to find many successful case studies in Asia,
which are material to their financials yet.
– Safaricom in Kenya is still one of the leading examples for EMs globally – it now has
around 12mn active customers and generates around 18% of group revenues.
Safaricom in Kenya is still one of
the leading examples for EMs
globally – it now has around
12mn active customers and
generates around 18% of group
revenues
• Money transfer and airtime top-ups still account for a bulk of the transactions, we think.
Retail payments are yet to pick up given the lack of ecosystems (handset, point of sale
equipments), and concerns on regulations and security in these markets.
– Indonesian telcos have recently enabled interoperability in m-wallets, meaning that a
Telkomsel Tcash subscriber can transfer money to an XL Tunai subscriber. The
telcos expect around 20% increase in P2P-based transactions on back of this.
– India has made regulatory progress in this with the Telecom Regulatory Authority of
India (TRAI) coming out with draft guidelines on tariffs on USSD-based (Unstructured
Supplementary Services Data-based) mobile banking. Airtel Money and Vodafone
MPesa have rolled out their mobile based payment platforms in partnership with
banks. Currently there is no interoperability though, i.e, an Airtel wallet only allows
transactions within the Airtel network.
– Chinese telcos too have launched NFC-based offerings and have tied up with banks
to develop remote payment solutions too.
– Telenor in Pakistan acquired a 51% stake in a bank and uses agents (over the
counter) for its m-payment solution, Easypaisa, given that mobile wallet-based money
transfer has not picked up due to low awareness and high implementation costs.
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• The developed market telcos have made some progress, but m-payments have
been largely for utilities like transportation, plus some applications like electronic
money, mobile credit, and mobile internet banking.
– Most of this has been based on NFC technology which requires the subscriber to get
an NFC-enabled SIM/handset. This gives telcos control of subscribers through the
SIM card and provide access to demographic details, usage behaviour, purchase and
spending pattern etc.
• M-wallets which manage numerous membership cards and coupons for the user
are popular in Korea – The average user in Korea has ~6 cards stored in his/her
mobile wallet. Korea telcos have been one of the first to enter the m-cards (i.e mobile
credit cards) business, based on their credit card subsidiaries (SKT's Hana SK Card
and KT's BC Card).
– Korean telcos’ m-cards are based on NFC technology and about 1.97mn cards have
been issued as of October 2013; however, the NFC dongle requirement at the retail
stores as well as rising competition from native app based m-cards from other credit
card companies pose challenges.
• Japan has been the country quickest to see uptake of mobile-phone settlements,
but still the market has not expanded as much as initially projected – mainly due
to handset incompatibility.
– KDDI operates Japan’s only dedicated mobile internet bank while Softbank has tied
up with Paypal on a 50:50 JV.
• Hong Kong telcos have developed a series of partnerships with banks to enable mpayment.
– PCCW-HKT has partnered with banking consortiums to enable NFC payment to allow
credit cards from ~30 banks on their m-wallet. CSL has developed mPOS (mobile Point of
sales) that allow businesses with a mobile sales force to accept card payments.
• In Singapore, telcos are part of the government’s NFC infrastructure project to enable
local transport with NFC-enabled handsets. There has not been much take-up here too
given the lack of handset compatibility.
– SingTel’s Digital Life has digital commerce platform as one of the focus areas of growth.
Key considerations and issues
• Fragmented ecosystem: Mobile payment system has a fragmented ecosystem with
almost all stakeholders having their own mobile payment applications. This includes
banks, third-party digital wallets like Paypal, card companies and applications.
Therefore, monetising this means growing both the user base on m-payment and
widening merchant partnerships.
– M2M devices like Paypal beacon or Apple’s iBeacon also aim to tap this segment.
• There are interoperability issues in m-payment. Indonesian telcos have recently
enabled interoperability in m-wallets from which telcos expect a 20% increase in
transactions. This isn’t common elsewhere yet we understand.
• Handset compatibility is critical for adoption of m-payments, as the Japan example
shows. In some of the other markets too, NFC-based payments hasn’t picked up as
originally anticipated by the industry due to the lack of handset ecosystem.
– China Mobile has alluded to handset compatibility issues in achieving its NFC targets.
According to the company "a lack of mass-market NFC handsets, complex SIM card
upgrades and insufficient experience in making and accepting transactions among the
public and businesses has left mobile payments languishing on a small scale in China".
• NFC is not the de facto standard yet for m-payments, but telcos prefer this
technology as it gives them control over subscribers through the NFC SIM – still, there
is mixed evidence on this globally too.
– While NFC is being used in Google wallet, Apple and Paypal however have opted for
other technologies in their mobile payment solution. While Apple doesn’t support NFC
in its iPhone 5 phones, PayPal has launched a mobile payment system based on
Bluetooth LE (low energy).
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29 January 2014
– Telefonica's O2 UK and Bouygues in France have put their mobile wallet plans on hold.
– Vodafone on the other hand has plans to launch its SmartPass NFC mobile payment
app in multiple countries in Europe.
– According to Gartner, “NFC has been disappointing in all markets in 2012 and some
high-profile services, such as Google Wallet and Isis, are struggling to gain traction”.
• For retailers, adoption of mobile wallet creates additional costs for installation of
POS (Point of Sale) equipment and thus questions on ROI. There are multiple
access technologies in this space – NFC, Bluetooth, RFID (Radio Frequency
Identification), etc – and hence no clear standard or dominant technology is available at
this stage, which makes retailers somewhat sceptical, we think.
• For consumers, apart from a fragmented market which offers too many options
and makes it confusing, there are issues of security and privacy which are not fully
addressed yet. Handset availability is also an issue. Hence, there is some caution from
consumers too in mass adoption of m-wallet based payment.
• Regulations around m-banking could be another hurdle which slows down the
take-up rates. Some of the markets like the Philippines have stringent regulatory
restrictions in terms of customer verifications.
Different forms of m-payment includes…
• Mobile wallet – Use of SIM card to store information on cash balance, account and
transaction information. Telcos such as SingTel, the South Koreans, Japanese, Airtel
(Money) and Globe (GCash) offer these.
• Carrier billing – In this form, any charges for mobile transactions/add/game downloads
are charged directly onto the mobile bill or prepaid accounts.
– SingTel for example has entered into a direct carrier billing partnership with carrier
billing platform Boku.
• M-banking (mobile banking) – Direct access to the subscriber’s bank services and
information via the mobile device. This is more relevant in emerging markets given the
lack of banking accessibility.
Approaches to m-banking services
There have been four approaches to m-banking – primarily depending on which
participant is leading the initiative.
• Operator-centric model, where the operator invests in developing the m-banking
ecosystem starting from offering the application/service to users and enabling
agents/retailers with POS devices or appropriate mechanisms to conduct transactions.
The operator-centric model can be seen in markets such as Kenya and other African
markets, as well as Japan, for example.
• Bank-centric model has largely been a case of extending the existing credit/debit
card/ payment infrastructure for the mobile platform. This involves the use of SMS or a
specialized mobile app to allow transactions from the phone.
• In a collaborative approach, several participants, such as banks and mobile
operators, come together to offer the service. This approach appears to be more
dominant in developed markets and also as m-banking solutions have moved more
towards mobile Internet and NFC-based.
• Disintermediation or independent service provider model involves the entry of an
entirely new player (not a bank or a MNO) offering m-banking services.
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Fig. 102: M-payment market segmentation
M-payment services
M-banking
M-wallet
M-payment transactions
• Bank led
• Extension of existing bank
a/c
Bank A/c transactions
•Account balance
•Account details
•Location-based services (ATM/ bank branch finder)
•Bank transfers
•Notifications
• Telco led or in
collaboration with
a telco
• Use of SIM card to
store wallet details
Cash in , cash out
Transfers
•Peer to peer transfers - salary transfers, government payments
•Remittances
Purchases
•Retail POS – Contactless (NFC) /Non-contactless
Micro payments
•Ticketing – movies, travel
•Bill payments
•Public transit payment
Carrier
billing
• Telco led
• Use of prepaid balance or
postpaid bill for transactions
Online purchases
• At online store fronts
•In-app purchases for games, content etc
Source: Nomura research
Fig. 103: M-banking services – four key models
Source: “Mobile payments in Asia Pacific”, KPMG, M.Stomar, “Mobile Payment Value chain and Business Model”, Mobey
Forum www.mobeyforum.org
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Fig. 104: Mobile payment options
Source: Standard Chartered
Fig. 105: Share of different technologies – 2016
USSD
7%
Fig. 106: Share of different transactions – 2016
NFC
4%
Bill Payments
5%
SMS
46%
Airtime TopUps and
Others
2%
Merchandise
Purchases
23%
Ticketing
1%
Mobile Web
43%
Money
Transfers
69%
Source: Gartner
Source: Gartner
Who is doing what in Asia?
Singapore – slow still
• In Singapore, telcos share NFC infrastructure with backing from the government and
have partnered with EZ-Link, which is the contactless card for the nation's transport
system. Users however will have to upgrade to NFC-enabled SIM cards to access the
services, which now have been extended to retail outlets, movie tickets, etc.
• SingTel has entered into a Direct Carrier Billing Partnership with carrier billing platform
Boku. This can allow SingTel’s postpaid users to pay at select stores using their mobile
accounts and get it in their bills.
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• SingTel has also partnered with Visa for mobile payments on its mCash mobile
payments solution. It also provides mobile wallet apps on Android App Store and
Google Play.
On m-wallets
• SingTel’s m-Wallet stores credit card information, transport cards and mobile money
service on the NFC card. This can also be used to remit money.
• StarHub allows storage of credit cards, loyalty cards and coupons on its m-wallet. This
requires NFC-enabled SIM cards to access services and is available to StarHub’s
postpaid users. There is a one-time SIM charge of SGD37 for a new user.
• M1 has an NFC-enabled m-wallet service and has tied up with Mastercard, DBS bank
and EZ-Link to enable contactless payment. The NFC card costs SGD37.45 with
activation charges of SGD9.
Fig. 107: Focus areas for group Digital L!fe in FY14
Fig. 108: SingTel mcash
Source: SingTel Investor day presentation Sep 2013
Source: SingTel
Korea – high penetration, low usage
• M-card market is currently split into telco-led NFC-based m-cards and credit card
companies' native app-based m-cards.
• Telco-affiliated credit card companies such as HanaSK Card and BC Card are
concentrating on USIM-based (Universal Subscriber Identity Module-based) m-cards
whereas the others are focused on smartphone-based native applications.
• The recent numbers imply the telco-based credit card companies are marginally
leading: as of October 2013, 1.97mn (BC Card: 1mn, HanaSK Card: 0.95mn) USIMbased mobile credit cards were issued, while for smartphone native app-based cards
1.5mn were issued (Shinhan 850K, KB Kookmin 440K, Lotte Card 150K, etc.).
• Despite a larger user base, NFC-based USIM m-cards are not taking off as initially
expected as, according to KCC, 74% of users who have NFC-compatible handsets
have never done NFC-based transactions. The biggest impediment to NFC-based
transactions is the requirement of a dongle that costs about USD100~200 for the
retailers.
• Other segment in m-payment is m-wallets. The telcos have dominance in this segment;
however, m-wallets are more focused on membership cards and coupon management
compared to actual payment. LGU+ has launched 'Paynow' which adds a payment
function to its existing m-wallet platform.
NFC-based USIM m-cards are
not taking off as initially
expected in Korea.
According to KCC, 74% of users
who have NFC-compatible
handsets have never done NFCbased transactions. The biggest
impediment to NFC-based
transactions is the requirement
of a dongle that cost about
USD100~200 for the retailers
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SK Telecom – Smart Wallet
• Launched in April 2010, SK Planet's (SKT subsidiary) Smart Wallet has ~11mn subs as
of November 2013. The retail partners pay ~50cents to m-wallet to register the card
and ~10cents when the card is used.
• Almost half of the handsets sold by SKT come preloaded with Smart Wallet.
• This wallet is compatible with any network operator, implying that subscribers of
KT/LGU+ can download this onto their mobile phones. This also allow customers to
switch operators without losing the content in their mobile wallets.
KT – MoCa Wallet
• MoCa Wallet was launched in November 2011.
• KT offers P2P transfer and coupon/loyalty membership benefits. KT has partnered with
~86% of credit card companies and ~70% of banks in the market on its wallet.
• KT also has agreements with China Mobile and NTT Docomo that allow users to
redeem coupons of merchants in these markets as well.
• As of 1Q13, ~40+% of KT’s subs are on NFC-based handsets, allowing transactions
such as contactless payments and transit ticketing. .
Fig. 109: SKT: Smart Wallet snapshot
Fig. 110: KT: MoCa Wallet snapshot
Source: SKT
Source: KT
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Indonesia – working on interoperability
• All three telcos offer mobile banking solution – XL Tunai, Telkomsel Tcash and Indosat
Dompetku.
• Telcos have recently enabled mobile transactions across all networks, i.e. introduced
interoperability in m-wallets by jointly developing a common protocol. This implies that a
Tcash subscriber can transfer money to an XL Tunai subscriber. The telcos expect
around 20% increase in P2P-based transactions on the back of this. This is based on a
revenue sharing mechanism between telcos and hence mutually beneficial too.
Fig. 111: Example of how interoperability works in Indonesian mobile payment
Source: GSMA
Fig. 112: XL has indicated M payment as one of the focus areas
Source: Company data
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Fig. 113: Telkomsel – payment focus in its digital service strategy
Source: Company data
India – big potential
• India has around 53mn m-banking users as per RBI, which is less than 5% of
total population.
• Airtel Money and Vodafone MPesa are the mobile based payment platforms rolled out
by telcos in partnership with banks.
• Tata Docomo has also announced plans to launch its own mPayment platform mRupee
in tie-up with ICICI bank.
• The country is also seeing regulatory developments with the TRAI coming out with draft
guidelines on tariffs on USSD-based mobile banking (at INR1.5 per USSD session).
• Currently the transaction fee is ~1.6-3.6% to open an m-wallet and to remit bank
accounts. The central bank (RBI) has removed the daily transaction limits and is
pushing for inter-bank mobile payments.
• Cash withdrawals are still not allowed outside the banking system. Airtel Money for
example has a tie-up with Axis Bank to allow cash withdrawals.
• Mobile balances (talktime) cannot be a substitute for merchant payments yet.
• M-Wallets are on closed networks, i.e, an Airtel wallet allows transactions only within
the Airtel network.
Airtel Money
• Bharti has launched AirTel Money in India and several of its African businesses. In
India, it is available in 300+ cities across 7,000 merchants.
• It uses USSD-based menus for enabling various transactions and can be made
available across all phones and support transactions including P2P transfers, bill
payments and is also roping in retail merchants. Airtel has linked with local banks to
offer money transfer facilities too – for example cash out facility with Axis bank.
• Airtel notes that mobile money is one of the top three growth engines in Africa, apart
from data and VAS.
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Fig. 114: India – existing mobile payment options
Telco led
Bank Led
Card Led
Ngpay/Paypal
Mobile payment options in India
Airtel Money, Vodafone Mpesa and mRupee from Tata Docomo
Most of the banks provide mobile based platforms to allow users to make transactions
Movida, which is a payment company of VISA and Monetise have partnered with ICICI and
HDFC to offer mobile payment
Ngpay is an online mall that offer mobile application to users to shop at its merchant partners
Source: Deloitte
Fig. 115: India – Evolution of mobile payments
Source: Deloitte
China – slow too
• China Mobile and Shanghai Pudong Development Bank (SPDB, 600000 CH) launched
near-field and remote mobile payment services in China last year for NFC and remote
payment:
– SPDB will offer mini-size IC cards (to be carried as a mobile phone accessory) and
China Mobile will launch new mobile phones supporting NFC functionality. Users
carrying such IC cards or mobile phones can make payments on all POS (point of
sale) machines (e.g. at subway stations and convenience stores). Both standalone IC
cards and NFC phones comply with the PBOC’s (People’s Bank of China) IC
standard, PBOC 2.0.
– Remote mobile payment: China Mobile subscribers can settle monthly phone and
utility (e.g. water, electricity, gas, cable-TV and health insurance) bills via SPDB’s
bank tellers, and carry out wire transfers between different regions in China.
– UnionPay serves as the sole clearance house for all near-field mobile paymentrelated transactions; however, direct transactions between shops and telecom
operators are not allowed. This is based on an agreement reached between banking
and telecom sectors in 2011.
• China Tel has launched an NFC-based E Surfing Mobile wallet in tie-up with banks.
This requires an NFC-enabled smartphone. The telco targets 30mn SIM cards and ~40
handset models that will support its NFC-based service in 2014. It notes that NFC will
be enabled in its 4G handsets and its customized 3G handsets. China Telecom is
working with China UnionPay to develop large-scale commercialization of m-payments
in China.
• According a report from Research Center of the State Council, the mobile payment
market in China could be in excess of CNY800bn (USD130bn) in 2013. The market is
witnessing increasing transaction volumes through phones – for example, 33% of
transactions on Alipay, Alibaba’s payment service, were through mobile phones.
• WeChat and Baidu have also launched mobile payment platforms to capture this
market.
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Fig. 116: China UnionPay Mobile payment scheme
Mobile payment Content
service platform
Banking
system
Mobile
communication
network
China
UnionPay
network
CUPMobile core function
Mobile
payment
service
gateway
Remote
payment
CUPMobile bank card
application
Inter-connection standard 2.0
( supports CUPMobile)
Near Field
Payment
Dual IC cards
handset
Finance Smart
Card
Touchless card
reader
POS terminal standard
(supports CUPMobile)
Merchant in
Terminal
Source: China UnionPay, Nomura research
Thailand
• According to the Bank of Thailand, for 9M13, the value of mobile banking transactions
was THB523bn from about 39mn total transactions.
• While AIS and TRUE have their own m-payment platforms – AIS mPay and TRUE
Money – DTAC offers this through ATM SIM and has partnered with a bank to offer
mobile payment services.
Other regional/ global case-studies
Sri Lanka eZ Cash from Dialog Axiata (launched in June 2012)
• This m- payment service allows money transfer and utility bill payments. It has more
than 1mn subs, with ~20% active subs. Transactions are based on USSD channel and
users are authenticated by PINs. Customer verification is done from Dialog's SIM
database.
Telenor Pakistan’s Easypaisa (launched in 2009)
• Telenor’s Easypasia acquired a 51% stake in a microfinance institution (Tameer Bank)
in Pakistan and does most of the transactions through agents rather than through
customers’ mobile wallets.
• The country had 45mn branchless banking transactions with 83% through OTC worth
~USD1.2bn in 2Q13. Comparably, mobile wallets accounted for ~5% of transaction
volumes and value in the market during the same period.
• The OTC model in the market is attributed to: 1) low banking penetration of ~12-14% vs
70% mobile penetration; 2) low penetration of mobile banking account given higher
customer verification costs and unclear regulations; also very few merchants in the
market are still comfortable with mobile-based payment system, we understand, hence
the m-wallet ecosystem is yet to evolve; and 3) initial registration costs for m-wallet is
expensive in the market.
• Easypaisa has more than 7mn customers and ~64% market share of number of
transactions. Telenor has ~25% mobile subscriber market share.
• Telenor operates on a revenue sharing basis with Tameer Bank where the telco
manages distribution and marketing while the bank handles operations and risk/liquidity
functions.
• However, given that ~50% transaction revenues are paid out in commissions, the OTC
based model has low margins we think. Telenor notes that it is looking to increase takeup of m-banking based money transactions by offering discounts and credit and/or
insurance offers, etc.
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Fig. 117: Mobile banking models in Pakistan
Source: EFSE
M-Pesa – Safaricom Kenya (launched in 2007)
• M-Pesa – M-Pesa’s mobile payment platform is also based on money transfer using
secure SMS. M-Pesa too operates a network of agents and the telco notes that mobile
payment agent commission is one of the highest cost drivers. The company could be
also looking to increase non-agent-based money transactions.
• As of 1H14, M-Pesa has ~11.6mn active users and contributes to 18% of group
revenues.
Fig. 118: M-Pesa - non-voice revenues for Safaricom
Source: Company presentation
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Japan case study on mobile payments
The mobile settlement market has not grown as much as initially expected.
• Japan has been the country quickest to see uptake of mobile-phone settlements, but
the market has not expanded as much as initially projected.
• This is true of every part of the market, including electronic money, mobile credit, and
mobile internet banking.
– In our view, this reflects the penetration of iPhones without mobile settlement
compatibility, as well as many Android global smartphone handsets not being
compatible with Japan's FeliCa contactless IC card chip.
• We think it will be difficult to resolve the mismatch between the penetration of global
smartphones and domestic service standards in the near term, and that developments
here need to be watched closely.
Apple and Google reach revenue sharing agreement for mobile agency payment
collection services
• In Japan, mobile carriers initially set commissions for fee collection services for mobile
content with feature phones at 9-11% in global terms. This relieved mobile content
providers from the problem of collecting fees and helped drive strong growth in the
mobile content market.
• With smartphones, Apple and Google are providing direct apps for distributing stores
that charge commissions of 30%.
• As a countermeasure, Japanese mobile carriers have established original markets
offering various proprietary services not only with Google Play but also with iOS.
Commissions of 30% on these markets are shared between the carriers and
Google/Apple.
• As such, the carriers continue to generate some level of revenues from agency fee
collection services even in the smartphone era. In the case of NTT Docomo, we
estimate such revenues in the year ending March 2013 were around ¥23bn.
Mobile electronic money impeding spread of global smartphones
• There are six main postpaid electronic money services centering on those offered by
railway companies and retailers and their use has continued to expand.
• According to the Nikkei, ¥2.6trn was paid using the six types of e-money in 13/3, up
around 20% y-y. Within the sector, Edy was absorbed by Japan's largest e-commerce
company Rakuten forming Rakuten Edy, with Rakuten aiming for synergies with its own
e-commerce business. Penetration of mobile e-money, however, has been slow.
• In the case of East Japan Railway's Suica, for which card issuance figures are
available, for example, there were 42.17mn e-money compatible Suica cards issued as
of end-September 2013, but only 3.23mn Mobile Suica members.
• Postpaid e-money is labeled electronic money, but in essence it is a form of
credit card settlement. Of the six types of postpaid e-money in Japan, the most widely
used is iD, which was launched by NTT Docomo in 2005.
– As of end-September 2013, iD had 19.61mn users, the iD platform for e-credit cards
had 497,000 payment terminals installed, and 21.26mn payments were being settled
a month. All the same, the number of users was up only 12% y-y, versus 17.56mn as
of end-September 2012.
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Fig. 119: Japan's prepaid/postpaid e-money
No. of monthly
transactions in 2013
H1
('000）
Prepaid
nanaco (Seven & i HD)
WAOM (AEON)
Rakuten Edy (Rakuten)
Suica (East Japan Railway)
PASMO
ICOCA (West Japan Railway)
TOTAL
Postpaid
iD (NTT DoCoMo)
Number of cards
issued
Number of places
where cards accepted
('000）
84,833
73,500
32,733
70,992
20,932
4,232
287,222
25,050
35,900
78,000
42,170
23,640
8,530
213,290
135,500
170,000
365,000
234,820
235,000
234,820
21,260
19,610
497,000
Source: Nikkei Marketing Journal. Note: Number of cards issued and number of places where cards accepted as of endSeptember 2013. The number of Suica cards issued is minus cards that cannot be used for shopping payments. The
number of Suica transactions includes transportation charges, including for West Japan Railway's Nimoca.
NTT Docomo's mobile credit card business finally moved into operating profit
eight years after launch
• NTT Docomo launched its DCMX e-credit card storable in mobile phones in 2005,
around the time it started iD. However, issuance slowed after the number of
subscribers reached 10mn in 2009, with the number at end-September 2013 standing
at 15.09mn, up 12% y-y from 13.43mn at end-September 2012.
• We estimate that the amount settled through DCMX broke above ¥1trn in 13/3, but this
only ranked it around 15th among Japan's established credit card companies. In terms
of operating profits, too, the business appears only to have finally moved into the black
eight years after launch.
• We see this as reflecting the absence of high-margin credit-facility operations, with
revenues being related almost entirely to product sales.
Fig. 120: NTT Docomo's DCMX mobile credit service subscriber numbers
('000)
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
3/2009
3/2010
3/2011
3/2012
DCMX subscriptions
3/2013
3/2014
(Full-year
forecasts)
(Revised)
Note: Inclusive of DCMX mini subscriptions. Source: Nomura research, company data
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KDDI operates Japan’s only dedicated mobile internet bank
• KDDI established Japan's only dedicated internet bank, Jibun Bank, in 2008, as a
50:50 joint venture with Bank of Tokyo-Mitsubishi UFJ. Although the number of
subscribers has grown, revenues have been below initial projections owing to use of
the service chiefly as an ordinary savings account, and the business sustained ongoing
recurring losses. Subsequently, in 2012, the consumer finance business of Mitsubishi
UFJ Financial Group (MUFG) took it over, and, in the year ending March 2013, it
recorded its first recurring profits, of ¥1.8bn. Jibun Bank ranks fifth among internet
banks by number of accounts, with 15.07mn, and sixth by assets, with ¥566bn. We
think measures are needed to boost fund volume.
Fig. 121: Earnings at Japan's internet banks
Equity stake　(％)
No. of accounts ('000)
Total funds
Gross business profits
Recurring profits
Date of establishment
Japan Net Bank
Seven Bank
Sony Bank
13/3
13/3
13/3
Yahoo Japan
41.16%,Sumitomo
Mitsui Banking
41.16%
Seven & i
Holdings
45.8%
2,460
509
10.1
2.5
Dec-00
1,066
395
80.0
32.0
May-01
Sony
Financial HD
100%
920
1,857
18.5
4.2
Jun-01
Rakuten Bank SBI Sumishin Net Bank AEON BANK
13/3
13/3
13/3
Jibun Bank
Daiwa Next Bank
13/3
13/3
50% Sumitomo Mitsui
50% KDDI, 50%
Daiwa Securities
Rakuten 100% Trust Bank, 50% SBI AEON 100% The Bank of Tokyo100%
Holdings
Mitsubishi ＵＦＪ
4,250
836
25.6
8.2
Jul-01
1,647
2,691
23.1
7.8
Sep-07
3,060
1,220
22.1
5.9
Oct-07
1,507
566
11.0
1.8
Jul-08
719
2,211
10.5
5.0
Apr-11
Source: Nomura, The Financial economist
Even with Softbank’s launch of PayPal Here, uptake unclear
• In Japan, sector companies have started smartphone settlement services that use
small credit card readers.
• In a 50:50 joint venture with PayPal, telecom carrier Softbank established PayPal
Japan, which launched its PayPal Here smartphone payment service.
• Sumitomo Mitsui Card has teamed up with US company Square, Credit Saison has
taken an equity stake in independent smartphone settlement service developer Coiney,
and Rakuten has started its Rakuten Smartpay mobile payments service.
• PayPal Here commissions were initially expected to be around 5%, but with Square
setting them at 3.25% other companies subsequently lowered them to a similar level. It
is unclear how far these services have actually penetrated, since none of the
companies has yet released details on the number of outlets using the service or
reader sales volumes.
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Key considerations & issues
Fragmented payment systems
• We haven’t seen significant pick-up in adoption of mobile payment/digital wallet
in some of the developed markets in Asia. This could be partly attributed to a
fragmented ecosystem with almost all stakeholders having their own mobile
payment applications.
– Banks have their own payment platforms.
– There is a wide range of technology used in proximity payments – NFC, Bluetooth,
etc – so there is a lack of standard here. While Google Wallet supports NFC, there
are not many equipments that work with this technology.
– There are third-party digital wallets like Paypal which has recently launched
mo.bi.pay, its mobile payment platform in Asia-Pac. Others like Google Wallet, Apple
Passbook, etc, too offer digital wallet features.
– Visa and Mastercard too offer mobile-based payment.
– Then there are telcos with own payment platforms.
– Applications like Boku, Zoosh, WeChat, etc, offer payments.
– There are merchant specific platforms too – Starbucks has seen significant traction in
its payment platform.
• This means that standardisation of payment platform has not materialised, and there
could be interoperability issues too. Hence, a common platform where bulk of the
payments can be made is not available at this stage, we note.
Fig. 122: Multiple payment systems available on mobile
Source: AT Kearney
NFC – not a de facto standard yet
• Developed market telcos have adopted NFC as a technology for mobile payments –
given that it is tightly integrated with the telco SIM card, it provides telcos with greater
control and access to subscriber purchase data to some extent.
• While NFC based m-payment transfer is picking up in markets like Korea, Japan
and Singapore, penetration is low given the nascent device ecosystem.
• SMS-based payments still dominate with 55% of global mobile payment revenue while
NFC is just 2%, as per Gartner, and as per its forecasts NFC contribution is expected to
be just 5% of global payments in 2017.
• While NFC is being used in Google Wallet and Samsung Galaxy phones, Apple doesn’t
support NFC in its iPhone 5 phones and PayPal has launched a mobile payment
system based on Bluetooth. There is also a lack of NFC-enabled devices – both in
consumer handsets and retailer equipment - which has slowed down the traction of this
technology.
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• NFC with support from the governments on basic uses like local transportation is
required to drive early adoption and scale – key factors required for the success of a
new technology.
• In Japan too, m-payment market has not expanded as much as initially projected. In
our view, this reflects the penetration of iPhones without mobile settlement
compatibility, as well as many Android global smartphone handsets not being
compatible with Japan's FeliCa contactless IC card chip.
• In China, telcos are planning NFC-based contactless payment services. CT has
partnered with China Merchants Bank for m-payments on NFC devices, and the
company is targeting 30mn NFC SIMs and 40 NFC handsets by 2014.
– But it is important to note that China Mobile had alluded to handset compatibility
issues in achieving its NFC targets. According to the telco, "lack of mass-market NFC
handsets, complex SIM card upgrades and insufficient experience in making and
accepting transactions among the public and businesses has left mobile payments
languishing on a small scale in China". As of October 2013, CM had 2.5mn handsets,
600K SIM’s and 1.4mn POS (Point of Sales) terminals that are NFC enabled.
• Globally, while some of the telcos have scaled back NFC plans, some are pushing
ahead to increase NFC adoption among the user base.
– Telefonica's O2 UK and Bouygues in France have put their mobile wallet plans on
hold.
– Vodafone, on the other hand, has plans to launch its SmartPass NFC mobile payment
app in multiple countries in Europe
Other challenges – for merchants and consumers
• For retailers, adoption of mobile wallet creates additional costs for installation of POS
(Point of Sale) equipment and thus questions on ROI. There are multiple access
technologies in this space – NGC, Bluetooth RFID etc – and hence no clear standard or
dominant technology is available at this stage, which makes retailers somewhat
sceptical, we think.
• For the consumers, apart from a fragmented market which offers too many options,
there are issues of security and privacy which are not fully addressed yet with instances
of data theft. Handset availability is an issue. Hence, there is some caution from
consumers too in mass adoption of m-wallet based payment.
Fig. 123: Some of the challenges in mobile wallet adoption
Source: Letstalkpayments
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App-based mobile payments … increases options to users, but not for telcos
• Apart from PayPal and Google Wallet, smartphone application developers too have
launched mobile payment options inside their apps. Credit card players like Mastercard
and Visa too have their own mobile wallets. This suggests a more crowded market, with
each platform trying to get more partners. Google Play has In-app Billing which multiple
applications can use to sell their content on Play Store.
• Chatting apps like WeChat, Line, etc, allow users to make retail purchases. For
example, Line allows retailers to sell content and coupons. Around 32% of Line’s
registered users have accessed such coupons. Xiaomi sold 150k smartphones through
WeChat in 10 minutes in an experimental sale which Xiaomi did in November last year.
• Sina Weibo, Chinese social network has introduced mobile payments on its iPhone and
Android apps – note that Alibaba has acquired an 18% stake in Sina Weibo for
USD586mn.
• Merchants have launched their specific payment apps. Starbucks, for example, has
more than 10% of its in-store purchases through mobile payment app.
• Game-based smartphone apps – Angry Birds, etc – allow transactions to purchase
virtual goods/credits. Mobile-based games accounted for 14% of the global video
gaming market in 2013, as per Gartner, and as smartphone penetration picks up and
faster networks are rolled out, mobile gaming will increase share, and hence payments
through mobile too, we believe. In Asia, China, Japan, Korea and Taiwan are the
largest markets for mobile games.
• While telcos do benefit from higher data traffic through mobile applications, extending
payments to smartphone apps could impact the potential revenues for telcos.
Fig. 124: 30-40 apps are installed in smartphones on avg in Australia, Japan and
Korea
Source: Statisia
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Fig. 125: Potential of using WeChat, Line and similar Chat Apps for Mobile commerce
Source: Techinasia, TNS
M2M in payments – Apple iBeacon – offering alternative option
• iBeacon is a software built into iOS7 which allows communication between a
beacon device – a transmitter – and the smartphone over Bluetooth Low Energy.
This could be extended to NFC or WIFi too.
• Retail stores can set up the beacon inside their stores and can communicate to the
user smartphone. iBeacon software within these devices can exchange location
information, alert mobile users of any messages/promotions/product price, etc, based
on user preferences that are analysed earlier.
• Press articles indicate that Apple could be looking to extend this to m-payments
too through iBeacon. However, some of the issues like enabling payment at POS
through iBeacon, and the ability to support high data throughput in case of mass
adoption in a store, are not clear yet. Nevertheless, this is one more technology which
targets the mobile advertising and mobile payment market.
• Paypal has also introduced beacons based on Bluetooth Low Energy which
allows hands-free payment. It allows hands-free checkout and payment at stores for
the user.
– How does it work? The user sets the preferences in the Paypal App. When the user
is shopping, the beacon in the retail store identifies the user, and communicates to
the Paypal app in the user’s smartphone. After purchase, the user informs the store
that the payment is to be made through Paypal. The app in the user’s phone
seamlessly connects to the beacon device installed at the POS sales terminal of the
store and makes the payment. Similar to Apple iBeacon, retailers can push relevant
promotions/coupons to users based on privacy settings. This is based on Bluetooth
Low Energy and can support both Android and iOS.
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Fig. 126: Apple m-payment architecture
Fig. 127: Paypal’s Beacon device
Source: BGR
Source: Techcrunch, Business wire
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Different forms of m-banking
Services offered by providers
• M-wallet (mobile wallet): Use of the SIM card to store information on cash balance,
account and transaction information. Here, the subscriber is not necessarily required to
have a banking account, e.g. Airtel Money and GCash. In developed markets, this is
expanded to also include credit card information, e.g. NTT DoCoMo’s mobile wallet
includes prepaid as well credit card and ID card information.
• Carrier billing: This includes purchases that are billed directly to the subscriber mobile
phone bill – such as when subscribers purchase ringtones or games from the carrier
using prepaid or postpaid accounts. For example, Facebook is working with Indian
telcos to facilitate in-application purchases (for games, credits, etc.) which can be
directly billed to the user’s bill or prepaid balance.
• M-banking (mobile banking): Direct access to the subscriber’s bank services and
information via the mobile device. This is typically offered by the bank as an extension
of its existing banking services, e.g. an alert when making a banking transaction or
access to bank accounts through a specialized app provided by the bank.
Fig. 128: M-payment market segmentation
M-payment services
M-banking
M-wallet
M-payment transactions
• Bank led
• Extension of existing bank
a/c
Bank A/c transactions
•Account balance
•Account details
•Location-based services (ATM/ bank branch finder)
•Bank transfers
•Notifications
• Telco led or in
collaboration with
a telco
• Use of SIM card to
store wallet details
Cash in , cash out
Transfers
•Peer to peer transfers - salary transfers, government payments
•Remittances
Purchases
•Retail POS – Contactless (NFC) /Non-contactless
Micro payments
•Ticketing – movies, travel
•Bill payments
•Public transit payment
Carrier
billing
• Telco led
• Use of prepaid balance or
postpaid bill for transactions
Online purchases
• At online store fronts
•In-app purchases for games, content etc
Source: Nomura research
Mobile wallet models
• M-wallets use SIM cards to store information on cash balance, account and transaction
information. Here, the subscriber is not necessarily required to have a banking account,
e.g. Airtel Money and GCash. In developed markets, this is expanded to also include
credit card information, e.g. NTT DoCoMo’s mobile wallet includes prepaid as well
credit card and ID card information.
• Google Wallet, for example, allows storing debit/credit card information and
discounts/loyalty information, etc. Though it uses NFC as the technology, the company
recently announced a version which allows money transfer via email.
• There are different partnership models in place to roll out m-wallets.
– Standalone model - an operator/bank independently rolls out the wallet. e.g.
Safaricom‘s M-Pesa
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– Bilateral partnership: Telcos/handset makers partner with banks to rollout m-payment
platforms, e.g. Airtel Money.
– Multi-lateral partnerships – In this model, multiple players are involved. For example,
Google Wallet had Google, Citi, MasterCard, First Data and Sprint coming together to
rollout the application.
Fig. 129: Mobile wallet ecosystem in US
Source: Letstalkpayments
Fig. 130: Google wallet charges
Fig. 131: Apple passbook
Google Wallet Pricing
Sending money
Google Wallet Balance
Bank account
Credit or debit cards
No fee
No fee
2.9% per transaction (minimum
$0.30)
Receiving money
Free
Making a purchase
Wallet Card purchase
Tap and pay purchase
No fee
No fee
Wallet Balance transfers
Adding money to Wallet Balance from
checking account
Adding money to Wallet Balance from
credit or debit card
ATM & cash withdrawals
Cash back at point of sale (i.e. at a
grocery store checkout)
Over-the-counter cash withdrawals at a
bank
Checking your Wallet Balance online or
with the app
Checking your Wallet Balance at an
ATM
ATM withdrawal
No fee
2.9% fee with a $0.30 minimum
No fee
No fee
No fee
Google charges no fee. ATMs may
charge a fee
Google charges no fee. ATMs may
charge a fee
Source: Digital trends
Source: Company data
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Fig. 132: Parameters affecting success of Mobile Money Services
Socio-economic
context
Financial access
• Urbanization
•Geographic area
•Remittance f low
•GDP/capita
•Card penetration
•Mobile penetration and
coverage
•Agent network
•3G penetration/ take-up
•Use of cash
•Competition and Churn
Unbanked population
•-
Mobile market situation
Existing payment
systems
•POS terminal penetration
•Mass payment acceptance
•Third-party payment
processes
Demand potential
•Bill payment, Transport
•P2P and G2P transfer
•International remittances
•Micro credit
Regulations
User perception
•Trust in mobile operators
•Willingness to pay for m-money service
•KYC norms
•M-money license
•Agent regulation
•Interoperability
•Pricing restrictions
Business model for m-banking
Source: IFC report, Nomura research
M-banking transactions
• Peer-to-peer transfer or m-remittances: This refers to money transfers between two
users using their mobile numbers. Telcos tend to charge a commission either as a flat
free or as a percentage of the amount transferred. This is the ‘initial opportunity’ in the
under-banked segment, which can be expanded to include:
– Government payments, such as pension payments.
– B2B/salary payments for small enterprises, particularly in rural areas.
– International remittances – The Philippines, for example, sees international
remittances of USD20bn pa and in India this is around USD35bn, we estimate.
• Micro payments, which are low-value but high-volume payments:
– In-application or online payments for small value purchases like games, or ringtones
or prepaid coupons.
– Payments for transactions such as utility bill payment, public transit.
• Other payments:
– Retail purchases where the provider enables the m-wallet to be used at the point of
sale. This is either through an SMS-based authentication or through the use of NFC.
– M-commerce – direct payment on vendor sites for purchase of goods/services.
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Types of technology channels for m-payment
• SMS channels – SMS messages were the earliest means (and common still in many
countries) of enabling m-banking transactions, especially as these services took off in
emerging markets. However, SMS channels could pose some security challenges.
• USSD channel – Unstructured Supplementary Service Data (USSD) is a protocol used
to offer basic data services on a wide range of handsets. Unlike SMS, USSD creates a
real-time connection with the server and allows for two-way communication, making it
more interactive than SMS. USSD is used for services such as prepaid callback, P2P
money transfers, and menu-based information services.
• Mobile browser/applications channel – This uses the mobile Internet either through
the browser or through applications for customers to engage in transactions. This
medium provides more interactivity and a much better user experience. However,
mobile Internet also allows OTT operators (Google, for example) to directly reach out to
the subscribers and hence there is a risk of telcos being excluded from the value chain.
• NFC (near-field communication) and contactless mobile channel – NFC uses a
chip that enables machine-to-machine communication to enable contactless payments.
NFC, however, would apply more to point-of-sale transactions and is likely to co-exist
with the mobile Internet based channel and is mostly a focus in developed markets.
• Given that early m-banking efforts have targeted the ‘unbanked’, where affordability
was low and proliferation of sophisticated handsets have been low, m-payments have
been delivered through SMS or USSD which is deployable across mobile phones.
These have been led predominantly by the telcos, hence giving them a more dominant
role.
Fig. 133: Example of SMS banking
Fig. 134: Mobile banking over USSD
Source: mynetsec.com
Source: themobileindian.com
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Fig. 135: SIM based NFC applications
Source: Reed Peterson, Head of business and market development, Business lead mobile NFC services, June 21, 2012
Approaches to m-banking services
There have been four approaches to m-banking – primarily depending on which
participant is leading the initiative.
• Operator-centric model, where the operator invests in developing the m-banking
ecosystem starting from offering the application/service to users and enabling
agents/retailers with POS devices or appropriate mechanisms to conduct transactions.
The operator-centric model can be seen in markets such as Kenya and other African
markets, as well as Japan, for example.
• Bank-centric model has largely been a case of extending the existing credit/debit
card/ payment infrastructure for the mobile platform. This involves the use of SMS or a
specialized mobile app to allow transactions from the phone. Banks may also work with
a telco for a revenue share agreement to make some services available to users. This
requires the user to have a bank account, and there haven’t been many examples of
banks expanding beyond their branches to tap into the unbanked opportunity.
• In a collaborative approach, several participants, such as banks and mobile
operators, come together to offer the service. This approach appears to be more
dominant in developed markets and also as m-banking solutions have moved more
towards mobile Internet and NFC-based.
• Disintermediation or independent service provider model involves the entry of an
entirely new player (not a bank or a MNO) offering m-banking services. For example,
Wizzit originally started as a third-party m-banking provider before aligning with a bank.
Zong was a m-payment provider which tied up with both operators, online merchants
and consumers to enable billing directly to the carrier’s bill.
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Fig. 136: M-banking services – four key models
Source: “Mobile payments in Asia Pacific”, KPMG, M.Stomar, “Mobile Payment Value chain and Business Model”, Mobey
Forum www.mobeyforum.org
Fig. 137: MNO-centric
Fig. 138: Bank-centric
Source: IFC Mobile Money Study 2011
Source: IFC Mobile Money Study 2011
Fig. 139: Collaborative
Fig. 140: Mobile banking models – where do the lines get
drawn?
Source: IFC Mobile Money Study 2011
Source: “Improving Access to Finance through Mobile Financial Services”, Francesc
Prior Sanz IESE Business School, February 2011
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Reviewing bundling
We review the impact of bundling. The integrated telcos tend to focus more on
bundling due to their network advantages rather than just the pure wireless or fixed
companies we find. But this is changing to some extent now – especially as voice and
SMS is being replaced by data – and wireless companies too are focusing more on
bundling.
As widely understood, one of the key appeals of bundling is to reduce churn, which
saves acquisition costs, and there is enough evidence of that – be that PCCW or Telstra.
However, the other aspect, which isn’t often discussed is the impact on ROIC – and we
find that many telcos with bundles have seen sustainable or even rising ROIC vs the rest
(this obviously doesn’t apply to all telcos – such as the Koreans, where bundling is
common but competition has adversely impacted returns). But overall, this ties with the
network theme that even if the telco offers a discount to retain a customer, there isn’t
necessary any incremental capex associated with it, so returns aren’t bad. But we need
to watch for an incremental risk to bundling, that is cheaper OTT alternatives.
• Why telcos bundle? In order to monetise networks more effectively, telcos offer
bundles with a focus on one or a combination of the following: 1) improving service
adoption rates; 2) cross-selling products; 3) defending existing revenue by reducing
churn, and; 4) mitigating cannibalisation.
– Bundling also helps realise cost efficiencies in terms of O&M (installation) and
marketing or manpower costs. Network expenses can be managed better by
transferring mobile data traffic into a fixed network.
• Better networks = better bundling. Our review of some of the Asian telcos highlights
that telcos that have done well with bundles, haven’t been shy of spending (or leasing)
on networks.
– PCCW spent close to USD2bn over 1999-2002, before launching IPTV (now TV) in
September 2003. Its multi-play offers helped it not only to arrest the fixed-line decline,
but also to expand share in fixed broadband.
– Telstra in Australia is another example – it continues to gain market share across all
key segments – which is partly due to its superior execution, but is also more a
reflection of superior networks (Telstra’s average annual capex has been around
AUD4bn for the past 6-7 years vs around AUD1bn p.a. for Optus – we acknowledge
there is a difference in business mix too).
– Telekom Malaysia is another example – the company has spent around USD2.5-3bn
on fibre and has been able to bundle and up-sell – 16% subscribers now subscribe to
premium channels.
– SingTel acquired Barclay Premier League content back in 2010 to better monetise its
DSL infrastructure, and has been able to increase market share in pay-TV
significantly and importantly, gained a significant edge/ mind-share with NBN
transition. It now has >50% fibre share in Singapore. Its annual Singapore capex is
around SGD700-800mn for the past 4-5 years.
– Network spend for the Korean telcos has also been high in recent years – average of
USD1.5-3bn each pa for the past years, or 15-20% of sales. The Korean telcos have
previously been passive about bundling fixed and mobile due to its S-T negative
impact on top line; however, with the MNP market cooling down and focus shifting to
retention, the Korean telcos have been very active in introducing diverse bundling
plans between mobile and fixed, which has helped pressure down churn rates. KT’s
bundled ratio for Broadband is 72% whereas for mobile it is 32% as of 3Q13, and
rising.
– KDDI uses its own fibre in Tokyo and Nagao, but also those of partner cable TV and
fibre companies. It also leases fibre from NTT, and now covers 70% of the country
with fibre.
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Nomura | Asia telecoms
29 January 2014
• Differences between DM and EM bundles
– For developed market telcos, bundles include: 1) on wireless, voice/SMS/ data
bundles, which also include contracts for handsets in some cases; and 2) on fixed,
integrated telcos offer bundles that include broadband and pay TV. Telcos also offer
wireless and pay-TV bundles.





SingTel and StarHub offer triple-play (fixed-voice, broadband and pay TV), and
provide further discounts if a mobile SIM is taken too (quad play). M1 also offers
some discount when fibre is subscribed along with mobile connections, plus if a
customer buys multiple mobile lines.
In Australia, Telstra offers an AUD20 discount per month for fixed broadband and
voice bundles, with a 24 month contract and a further 10% of monthly pay TV
subscription. Optus offers unlimited fixed-voice for an additional AUD10-15 (giving
an AUD 30-35 discount) with a broadband subscription.
All three operators in South Korea have adopted wireless bundling
(voice+SMS+data) since the smartphone tariffs were introduced, which largely
provide protection from voice/data cannibalization. Handset bundling is also a
popular practice in Korea due to Korean's preference for high-end smartphones and
expensive handsets. By providing subscribers option to pay in installments and also
offering deep discounts when subscribers sign up to high ARPU plans (largely
above KRW62K level), the telcos have rapidly increased smartphone penetration in
relatively short time and were able to turn around its wireless ARPU trend.
In Japan, bundling appears to be more around smartphones – these are bundled
with fixed-line, WiFi routers and iPads.
Malaysia has seen a change in market landscape with HSBB – multi-play services
are being offered by TM and Maxis.
– For emerging market telcos, the main focus is on wireless bundling (voice/ SMS/
data bundles) given the limited fixed-line infrastructure, or due to wholesaling rates
(which are less compelling).



The Indonesian telcos are looking to mitigate the impact of data cannibalisation of
voice/ SMS by offering voice/ SMS/ data bundles. Telkom is also investing in triple
play.
In India, the focus is more on bundling handsets with data allowances (no voice/
SMS offered) – this is good for data growth, but may lead to some cannibalisation.
PLDT is now offering pay-TV bundles to complement its fixed-line broadband
offering.
• Bundling challenges
– Aggressive discounts, as part of the bundle, can lead to a reduction in the entire
revenue pie of the industry. Limited examples from Asia currently, but for Spain, our
EU colleagues estimate that the discounts are likely to contract overall market
revenue by more than 15% over the next 4-5 years.
– Profits can be adversely impacted especially in cases where the ‘affiliate product’
has been of a lower margin than the ‘core product’ (which is connectivity). For
example, bundles around devices (subsidies outweigh incremental service usage and
revenue) and TV content can adversely impact profitability.
– Related to regulations, especially if bundling was used to create a price differential.
For example, regulations are making content exclusivity incrementally challenging.
Also, with open access fibre rollout in many markets, the advantage of incumbent
integrated operators could come under pressure.
• Bundling benefits
– Service adoption rates can rise by offering a discount on a bundle.
– Bundling is also used to launch new services, i.e., a new product is bundled with
one that is already well-penetrated to drive faster adoption of the second product.
Triple play has been reasonably successful where telcos have leveraged existing
broadband connections as a means to drive pay-TV adoption.
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Nomura | Asia telecoms
29 January 2014
– Bundling as a competitive advantage or a barrier to entry. Content
variety/exclusivity has proved out to be a differentiator too. For instance, SingTel
since the BPL launch has seen its pay-TV subscriber base rise from 60k in 2008 to
404k currently.
– Bundling can reduce churn / manage cannibalisation, e.g., the Indonesian telcos
launched voice/ SMS/ data bundles to mitigate the impact of voice and SMS
cannibalisation.
Some examples…
• TM, SingTel and PCCW were able to slow the decline of fixed-voice users by using
bundles. TM’s fixed-line net losses have reduced from an average of 58k users in
2011per quarter to 35k per quarter in 2013, SingTel’s net losses fell to an average of 6k
in 2013 from 12k per quarter in 2009 and PCCW’s fixed-line losses stabilised from an
average net loss of 68k per quarter.
• KDDI and Softbank started offering discounted smartphone/iPad bundles in November
2013, which have been positively appraised, with monthly usage charges for the
iPhone discounted for the first two years at ¥1,050 (¥2,850/month from the third year),
and the iPad price also approximately ¥10,000 lower than for the WiFi version. Data
usage of 7GB for each device is available up to May 2014, with a total of 9GB (7GB for
the smartphone, 2GB for the tablet) to be shared by the two devices from June 2014.
These are thus shared data plans, and we expect they will contribute to tablet uptake.
• Operating costs related to installation can be shared between provisioning of different
services – same fibre carries IPTV, broadband and voice services. Marketing and
administrative costs can also be better managed with bundling.
• For wireless services, integration of wireless and WiFi services is both beneficial to the
telco, which is able offload traffic from congested networks and save network costs –
good for the customer too. Softbank promoted this with its iPhone launch in 2008 by
offering free routers and simplifying the set-up and authentication process; this was
also followed by KDDI.
• In Korea, telco operators started focussing on WiFi offload in 2009/10, but at that time,
with low data prices and high allowances, WiFi usage was very low. However, with the
launch of LTE plans, unlimited plans have been terminated, leading to rising WiFi
traffic.
What has been the impact on ROIC
• A key focus of this report is to look at the returns (ROIC) impact of bundling – in the
Figure below, we decompose ROIC into asset-turn and operating margins. One key
observation is that those telcos that appear to have focussed more on bundling have
seen a relatively better/ improving ROIC profile. This obviously doesn’t apply to all
telcos and can’t be just looked at in isolation – such as the Koreans, where bundling is
common but competition has adversely impacted returns.
– Telstra’s ROIC has improved from 16% in mid-05 to around 20% currently on our
estimates – again this is due better asset turnover.
– PCCW has seen its ROIC improve from 9% to 11%, an average of 80bps y-y over
2006-09. But in recent years it has been broadly stable at 10%, some due to
competitive issues in the market. ROIC improvement is largely due to an increase in
operating asset turnover, which in turn is driven by higher ARPU and sub growth visà-vis capex.
– TM’s ROIC has risen from 7-8% in 2008 to around 11% currently.
– KDDI’s ROIC has also risen, as is the case for StarHub and SingTel-Singapore.
– We acknowledge that these are integrated businesses and not all of this improvement
can be attributed to bundling alone – some of this is also due to the competitive or
regulatory landscape, and execution too.
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Nomura | Asia telecoms
29 January 2014
Fig. 141: ROIC of wireless and integrated telcos
ROIC
Bloom berg
Stock
Operating profit m argin
Operating asset T/O
ticker
2009
2010
2011
2012
2009
2010
2011
2012
2009
2010
2011
2012
ADVANC TB
21%
34%
55%
79%
18%
20%
19%
25%
1.2
1.7
2.9
3.2
Wireless
AIS
Axiata Group
AXIATA MK
7%
10%
12%
13%
16%
17%
20%
19%
0.5
0.6
0.6
0.7
Bharti Airtel
BHARTI IN
22%
10%
6%
3%
22%
13%
9%
5%
1.0
0.8
0.6
0.7
China Mobile
941 HK
26%
23%
20%
18%
25%
23%
22%
20%
1.1
1.0
0.9
0.9
10.1
DiGi.com
DIGI MK
n/m
n/m
n/m
n/m
21%
22%
22%
19%
2.5
3.6
5.7
Far EasTone
4904 TT
13%
8%
15%
18%
14%
9%
12%
13%
0.9
0.9
1.2
1.4
Globe Telecom
GLO PM
21%
18%
16%
10%
18%
15%
14%
9%
1.2
1.2
1.1
1.1
Idea Cellular
IDEA IN
8%
6%
6%
6%
11%
8%
7%
7%
0.7
0.8
0.8
0.8
Maxis
Maxis MK
18%
19%
20%
16%
26%
28%
31%
23%
0.7
0.7
0.7
0.7
MobileOne
M1 SP
29%
26%
27%
24%
19%
16%
15%
14%
1.5
1.6
1.7
1.8
NTT DoCoMo
9437 JP
11%
11%
11%
10%
12%
12%
12%
12%
0.9
0.9
0.9
0.9
PT XL Axiata
EXCL IJ
11%
19%
15%
14%
18%
23%
19%
18%
0.6
0.8
0.8
0.8
Reliance Com
RCOM IN
7%
4%
4%
5%
17%
11%
14%
14%
0.4
0.4
0.3
0.3
SK Telecom
017670 KS
13%
12%
11%
8%
14%
11%
11%
8%
0.9
1.1
1.0
1.0
Taiw an Mobile
3045 TT
28%
35%
25%
25%
27%
30%
18%
15%
1.0
1.2
1.3
1.6
Total Access
DTAC TB
10%
18%
21%
19%
12%
16%
15%
13%
0.9
1.1
1.4
1.5
Average
16%
17%
18%
18%
18%
17%
16%
15%
0.9
1.0
1.1
1.2
Median
13%
18%
15%
14%
18%
16%
15%
14%
0.9
1.0
1.0
0.9
Integrated
China Telecom
728 HK
6%
5%
5%
4%
9%
7%
6%
5%
0.7
0.7
0.9
0.9
China Unicom
762 HK
5%
2%
1%
3%
8%
4%
2%
3%
0.6
0.6
0.7
0.8
Chunghw a
2412 TT
15%
17%
16%
13%
22%
24%
21%
19%
0.7
0.7
0.7
0.7
KDDI
9433 JP
9%
9%
9%
10%
8%
8%
8%
9%
1.2
1.1
1.2
1.2
KT Corp
030200 KS
10%
11%
6%
4%
7%
9%
5%
3%
1.3
1.3
1.2
1.2
LG Uplus
032640 KS
9%
0%
7%
4%
11%
0%
5%
2%
0.9
1.4
1.6
1.7
NTT
9432 JP
5%
6%
6%
6%
7%
7%
7%
7%
0.8
0.8
0.8
0.8
PCCW
8 HK
11%
10%
10%
10%
13%
12%
12%
13%
0.8
0.8
0.8
0.8
PLDT
PT Indosat
TEL PM
ISAT IJ
20%
5%
26%
5%
24%
6%
25%
6%
20%
11%
26%
20%
20%
12%
19%
11%
1.0
0.5
1.0
0.5
1.2
0.5
1.3
0.6
PT Telkom
TLKM IJ
28%
26%
23%
27%
31%
27%
26%
24%
1.1
1.0
1.0
1.1
SingTel
ST SP
14%
14%
11%
11%
26%
24%
23%
24%
0.6
0.6
0.6
0.5
SingTel (SG only)
ST SP
38%
43%
56%
32%
24%
23%
20%
19%
1.6
1.9
2.7
1.7
Softbank
9984 JP
9%
14%
15%
13%
10%
12%
12%
13%
0.9
1.1
1.2
1.0
StarHub
STH SP
43%
46%
65%
89%
16%
13%
14%
15%
2.7
3.6
4.6
5.8
Telekom Malaysia
T MK
7%
9%
10%
11%
8%
10%
10%
12%
0.8
0.9
0.9
1.0
Telstra
TLS AU
16%
18%
18%
18%
18%
19%
17%
16%
0.9
1.0
1.1
1.1
Average
13%
13%
13%
12%
14%
14%
13%
12%
0.9
1.0
1.1
1.0
Median
10%
11%
10%
11%
12%
13%
12%
12%
0.9
0.9
1.0
1.0
Source: Company data, Nomura research
96
Nomura | Asia telecoms
29 January 2014
Fig. 142: Kinds of bundling – rationale and challenges
Bundled offering
Rationale for bundling?
Challenges
Dual play - fixed voice + broadband
Drive adoption of 'upgrade' product (broadband) while
defending 'at risk' product (fixed voice)
Customer are not convinced of the value of fixed
voice, chooses broadband only
1) Drive pay-TV penetration; 2) Increase wallet share of
Triple play - fixed voice + broadband + payspend; 3) Differential pricing vs players who have only BB;
TV
4) payTV content as a differentiator
The bigger challenge here is that pay-TV is of
lower margin and hence, bundling lowers margins
of the core product
Quad play - wireless + triple play
Differential pricing vs players offering only one solution
Heavy discounting may erode margins and even
revenues
Device + service bundling
Drive device adoption which is key for service adoption
Incremental usage of device insufficient to offset
device subsidy.
Voice+data+SMS bundling
Drive adoption of 'upgrade' product (data) while defending 'at
risk' product (voice/SMS)
Data + WiFi package
Reduce congestion on wireless networks by offloading to
WiFi and managing network costs
Capex for building out WiFi network
Data+Apps
This could be an emerging trend
If Apps are seen as 'free', it may not be value
enhancing
Voice/ SMS cannibalisation
Source: Nomura research
Fig. 143: Bundling benefits from different types
Benefits:
•Increase ARPU
•Increases perception of value
Example: sale of IPTV or
higher speeds to existing
fixed broadband users (TM)
Up sell
Benefits:
•Increase ARPU
•Increases perception of value
Cross-sell
Example: Sale of mobile
lines to fixed line customers
(Singapore telcos)
Below-the-line sales
strategy (non-core
business)
Incremental- sell
Benefits:
•Build loyalty
•Reduces churn
Example: selling
multiple mobile SIMs
Source: Informa, Nomura research
97
Nomura | Asia telecoms
29 January 2014
Fig. 144: SingTel – stabilising broadband market share with
content/ IPTV bundling
SingTel Pay TV subs (LHS)
Fixed line net losses (RHS)
SingTel PayTV market share (RHS)
SingTel BB market share (RHS)
Singtel wins BPL
rights for 3 years
500
Total internet revenues (LHS)
Fixed line net losses (RHS)
Implied broadband ARPU (RHS)
60%
Broadband share stabilizes
as pay TV subs increase
400
Fig. 145: TM – fibre has helped arrest fixed-line decline
700
50%
600
300
400
100
300
80
200
60
100
Dec '08
Dec '09
Dec '10
Dec '11
-10%
M1
0
-200
Mar '10
Mar '11
Mar '12
Mar '13
Source: Company data, Nomura research
Fig. 146: Singtel – capex vs peers
StarHub
20
-100
Dec '12
Source: Company data, Nomura research
900
800
700
600
500
400
300
200
100
0
40
0
0%
Fixed line voice net losses fell
120
30%
10%
0
140
500
20%
100
160
40%
200
-100
Dec '07
Fiber BB (only sold as a
triple play bundle) was
introduced increasing ARPU
and reducing fixed line
losses
800
Fig. 147: TLS – capex vs peers
SingTel
(AUDmn)
VHA
Optus
Telstra
5,000
Fig. 148: TM – capex vs peers
(MYRmn)
Maxis
Digi
Axiata
TM
3,500
3,000
4,000
9M2013
2012
2011
2010
2009
2008
2,500
Source: Company data, Nomura research
3,000
2,000
2,000
1,500
1,000
1,000
500
0
0
2008
2009
Business
2011
2012 2013F
Source: Company data, Nomura estimates
Fig. 149: PCCW – benefits on fixed-line losses
(000)
2010
2008 2009 2010 2011 2012 2013F
Source: Company data, Nomura estimates
Fig. 150: In Europe and the US, fixed–mobile bundling
appears to be reducing churn
Residential
1,800
1,600
1,400
Declining
Stablized
1,200
1,000
800
600
400
200
1H03
2H03
1H04
2H04
1H05
2H05
1H06
2H06
1H07
2H07
1H08
2H08
1H09
2H09
1H10
2H10
1H11
2H11
1H12
2H12
1H13
0
Source: PCCW
Source: Analysys Mason
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Nomura | Asia telecoms
29 January 2014
Fig. 151: Who is offering what in Asia?
Market landscape
Optus
Australia
Telstra
Entrenched incumbent
integrated player
Singtel
Singapore
Starhub
Entrenched incumbent
integrated player
M1
Hong Kong
PCCW
Voice/SMS/
Data +
Data + Handset WiFi
Data +
Apps
√
√
√
√
√
√
√
√
√
√
√
√
√
Single integrated
player
√
√
√
√
√
√
√
√
√
√
√
KDDI
√
√
√
√
Sotbank
√
√
√
√
√
√
Incumbent integrate
player but SKT leads
on wireless
√
√
√
Competitve market
Japan
NTT DoCoMo
NTT
Bharti Airtel
RCOM
Fragmented market
IDEA
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
PT Telkom
Indosat
Maxis
Malaysia
Axiata
TM is the only fixed
player.
Evenly split across
three wireless telcos
Digi
Globe
PLDT
China
No
√
√
√
TM used fiber bundles to increase IPTV
penetration and to compete against
Maxis' IPTV offering
√
√
Incumbent integrated
player
√
√
√
No
√
√
√
√
TRUE
√
√
√
China telecom
√
√
√
√
√
√
√
√
√
√
√
√
China Mobile
NTT group is not allowed to offer
exclusive bundle services
Not yet, but could be a focus going
forward
√
DTAC
Korea telcos have previously been
passive about bundling fixed and mobile
√
AIS
Thailand
PCCW is the only quad play offering
√
Entrenched incumbent
integrated player
XL
TM
SingTel and StarHub being integrated
Telcos can offer mobile/broadband
home bundles. M1 is looking to offer
MiBox/ fiber bundles to gain customers
√
√
LG Uplus
Philippines
Both telcos offer triple play bundles;
Telstra has a stronger payTV offering.
Potential for quad play offering.
√
SKT
Indonesia
Dual / Triple Mobile +
play
fixed
Bundling as a differentiator?
√
South Korea KT corp
India
Fixed +
WiFi
Entrenched incumbent
wireless
Competitve market
China Unicom
No. But Telcos are competitive on
voice/data bundled with handsets. True
has the potential to offer quadplay
All three Telcos are able to offer bundles
Source: Company Data, Nomura research
Why bundle?
• Increase adoption rates – attract customers. For example, In Thailand, Telcos are
aggressively bundling voice/data on 3G handsets to get more customers in the
transition.
• Bundling is also used to launch new services. A new product is bundled with one
that is already well penetrated to drive faster adoption of the second product. For
example, TM’s HSBB offering is a good example here.
• Driving data growth. In most Asian markets, telcos have been bundling handsets,
both smart-devices and feature phones, to increase data adoption in the market. With
subsidies being involved, another benefit is locking in the subscriber for 1-2 years, but
then costs need to be carefully considered, too.
99
Nomura | Asia telecoms
29 January 2014
• Bundling as a competitive advantage or a barrier to entry. Content
variety/exclusivity has also proved to be a differentiator.
– Integrated players offer bundles of mobile services with pay TV and broadband
services, making it difficult for wireless operators to compete. Both StarHub and
SingTel offer discount on mobile contracts and handset upgrades (12 months vs the
usual 24 months) if subscribers take on triple-play bundles.
– SingTel’s ability to bundle exclusive BPL content with its pay TV services has led to
an increase in its sub numbers from 59k in 2008 to 414k currently.
– PCCW has maintained its lead in the Hong Kong IPTV market on the back of its
appealing content and networks. Its customer base has risen from 147,000 in 2003 to
more than 1.2mn in 1H13; while ARPUs have increased from HKD27 in 1H04 to
around HKD170 currently.
– TM bundled its IPTV (launched in 2012) with fiber as a triple-play offering and has
been successful in maintaining its leadership in both segments. Also, this has helped
it to mitigate potential churn from Maxis’ multi-play service bundled with Astro’s
channels – TM’s subscriber adds of ~40k per quarter in 2013 is well above Maxis’ 6k.
• Bundling to reduce churn / manage cannibalization.
– A few years back, fixed-line voice struggled due to rising mobility penetration
(substitution), and telcos bundled voice with broadband (which was the new product
then) to slow down the rate of decline.
– TM, SingTel and PCCW were able to slow the decline of fixed voice users by using
bundles. TM fixed-line net losses have reduced from an average of 58k users per quarter
to 35k per quarter, SingTel net losses fell to an average of 6k from 12k per quarter and
PCCW fixed line recovered from an average net loss of 68k per quarter to net adds.
– As data rises in the wireless mix, there is cannibalisation of voice/SMS, and telcos are
increasingly looking at bundled packages to slow this down, too – the Indonesians are
a good example of this: XL’s “Paket Kapan Saja” offers talktime of 200mins, 200 SMS
and 20MB of data for IDR25,000.
– Bundles tend to include lock-in periods of at least one year, and there are other
benefits such as accelerated handset upgrades. This helps reduce churn, especially
during down cycles when customers are more likely to terminate services, or less
likely to dismantle a bundle.
• There are some cost benefits, too.
– Operating costs related to installation can be shared between provisioning of
different services – same fibre carries IPTV, broadband and voice services.
Marketing and administrative costs can also be better managed with bundling.
– The integration of wireless and WiFi services is beneficial in terms of traffic offload, as
well. Softbank promoted this with its iPhone launch in 2008 by offering free routers
and simplifying the setup and authentication process; this was also followed by KDDI.
– In Korea, telco operators started focussing on WiFi offload in 2009/10, but at that
time, with low data prices and high allowances, WiFi usage was very low. However,
with the launch of LTE plans, unlimited plans have been terminated, leading to rising
WiFi traffic.
100
Nomura | Asia telecoms
Fig. 152: TM’s HSBB offerings
29 January 2014
Fig. 153: SingTel – triple and quadplay offers
Mobile ,
SGD 35.91
Mobile ,
SGD 29.93
PayTV,
SGD 29.9
Fiber +
Voice + TV,
SGD 69.9
Fiber
(200MBPS)
+ Voice,
SGD 49.9
Triple play
Quad play
Source: Company website
Source: Company data, Nomura research
Fig. 154: Maxis – promoting 4G and fibre services with Astro
content
Fig. 155: XL's bundled package called Paket Kapan Saja
Paket Kapan Saja (Talk Time + SMS + Internet)
Call 25 Min + SMS 25 + 2 MB for 1 day
Rp 2,500,-
Call 50 Min + SMS 50 + 5 MB for 5 days
Rp 5,000,-
Call 100 Min + SMS 100 + 10 MB for 14
Rp 10,000,-
Call 200 Min + SMS 200 + 20 MB for 30
Rp 25,000,-
Source: Company data, Nomura research
Source: Maxis
101
Nomura | Asia telecoms
29 January 2014
Issues and challenges with bundling
• One key challenge is in the overall profitability of the bundled strategy. Even
though bundling results in end users subscribing to additional services, it does not a
guarantee profitability or sustained success for provider. Designed or executed
incorrectly, bundling may cannibalize more profitable sales, resulting in lower
consolidated margins.
– In many cases, the ‘affiliate product’ has been of lower margin than the ‘core product’
(which is connectivity). While the bundling may have originally helped in the adoption
of a new service, this kind of bundling can adversely impact margins/profitability,
especially with an increase in competition.
– For example, with handset+ service bundling, handsets are of much lower margins.
Although telcos expected to overall generate more value from higher service
revenues (offsetting subsidies offered), the evidence has been mixed. Moreover, as
subscribers have moved to higher-end smartphones, the discounts have increased,
while the incremental service revenues have not increased as much.
– In case of pay-TV plus broadband bundling, pay-TV is typically of lower margin.
However, this relies on the same fixed infrastructure invested and hence, incremental
margins could likely be higher.
• What all can telcos get wrong?
– Getting pricing wrong. Heavy discounts can drive sales and hence revenue, but can
impact margins. On the other hand, an extremely low discount won’t be compelling to
stimulate additional demand, and could give peers an advantage.
– Getting the product or the product-mix wrong. When customers are not convinced that
the bundle meets their needs – customers may be reluctant to pay more (even if
heavily discounted) for an additional service.
– Getting marketing/ execution wrong. The right product at the right price also needs
proper communication to the subscribers, and needs to be followed with good
execution during service provisioning and maintenance.
• Competition on bundle price tends to result in lower industry revenues and
profitability. There have been limited examples from Asia currently, but for Spain, our
EU colleagues estimate that the discounts are likely to contract the overall market
revenue by more than 15% over the next 4-5 years.
• Another aspect of competition is that with the rise in OTT content, unbundled
solutions now being made available for similar or lower prices; which reduces the
appeal in telcos’ bundles.
2 key regulatory challenges
• Open access fibre projects can reduce the advantage of fixed + pay-TV
bundles…
– Malaysia, Singapore and Australia are seeing open-access fibre rollouts. This will
allow pure-play wireless operators to also offer fixed-line solutions, essentially
reducing the bundling advantage that integrated players had, to some extent.
However, the open-access projects have had varying degrees of success, and we
believe this shift could take time to occur.
• …and, so can content exclusivity on IPTV and pay TV bundles. Attractive content
was seen as a differentiation for pay-TV, which also helped with the overall bundling
proposition. Not only is there competition from OTT content, but some regulators like
Singapore’s MDA has mandated content cross carriage, which implies that operators
won’t have exclusive access to content.
102
Nomura | Asia telecoms
29 January 2014
Fig. 156: How can margins come down with bundling?
Source: BCG experience (BCG report from bcgperspectives.com), Nomura research
Bundling in Asia
PCCW case-study
• PCCW’s IP-TV service (now TV) was launched in September 2003, and since then it
has been able to grow and maintain its dominance.
• Significant capex had been spent on networks preceding the launch – close to USD2bn
between 1999-2002, and another USD2bn in the previous three years. In the past ten
years, capex has averaged around USD300mn pa.
What’s on offer?
• Triple play was launched in 2003, and was upgraded to quad play with the acquisition
of Sunday Communications in 2005.
– now TV offerings includes premium sports content such as BPL, NBA, on demand
learning content for kids, and international movie channels such as Fox Movies
Premium.
– now TV is also engaged in content generation and is a major producer of local
content to lure customers.
– now TV has launched its now Free TV app with three free channels to increase its
viewer base.
– now TV offerings are also made available to StarHub's pay TV viewers in Singapore,
TM's subscribers in Malaysia and Cable Thai's users in Thailand. Besides Asia, now
TV services are also available in the US and Canada.
What’s been the result?
• The customer base of now TV has risen from 147,000 in 2003 to more than 1.2mn in
1H13.
• IPTV ARPUs have increased from HKD27 in 1H04 to around HKD170 currently.
• PCCW was able to stabilize fixed-line additions, which were declining previously (lines
lost ~700k in 2001-2003). As well, it witnessed double-digit growth in its mobile
subscribers during 2H06 to 1H09.
• PCCW saw its ROIC improve from 9% to 11%, an average of 80bps y-y over 2006-09.
But in recent years it has been broadly stable at 10%, some due to competitive issues
in the market. The ROIC improvement is primarily due increase in operating asset
turnover, as ARPUs and subscriber numbers have grown.
103
Nomura | Asia telecoms
29 January 2014
Fig. 157: PCCW’s now TV trends
Fig. 158: PCCW mobile and fixed broadband subscribers
ARPU (HKD/month)
27
1H04
2H04
1H05
2H05
1H06
2H06
1H07
2H07
1H08
2H08
1H09
2H09
1H10
2H10
1H11
2H11
1H12
2H12
1H13
400
Source: Company data, Nomura research
1H13
600
2H12
67
1H12
87
55
2H11
80
800
1H11
125
94
2H10
172
1H10
167
2H09
165
169
1H09
1000
171
Broadband Subs
1800
1600
1400
1200
1000
800
600
400
200
0
2H08
1200
169
200
180
174 160
140
120
100
80
60
40
20
0
173
169
1H08
153
174
2H07
171
1400
Mobile subs
(000)
1H07
Installed base (000)
Source: Company data, Nomura research
Fig. 159: PCCW’s fixed-line subscribers
Business
(000)
Residential
1,800
1,600
Declining
1,400
Stablized
1,200
1,000
800
600
400
200
1H13
2H12
1H12
2H11
1H11
2H10
1H10
2H09
1H09
2H08
1H08
2H07
1H07
2H06
1H06
2H05
1H05
2H04
1H04
2H03
1H03
0
Source: Company data, Nomura research
Fig. 160: PCCW: capex trajectory
HKT cable & wirless
merged with PCCW
(HKD mn)
7,000
Launched quad Launch of now
now TV launched play
Hong Kong
channel (in-house
production by
now Tv)
6,000
5,000
4,000
3,000
Launch of
Eye2
Capex of USD3.6bn
2,000
1,000
1H13
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
0
HKT cable & wirless
Source: Company data, Nomura research
104
Nomura | Asia telecoms
29 January 2014
Fig. 161: PCCW vs iCable – IPTV trends
iCable
(000)
Fig. 162: PCCW – ROIC chart
Operating profit margin
PCCW
ROIC
Operating asset turnover (RHS)
1,400
1,200
1,000
20%
0.9x
16%
0.8x
12%
0.7x
8%
0.6x
800
600
2013F
2012
2011
2010
2009
2H03
1H04
2H04
1H05
2H05
1H06
2H06
1H07
2H07
1H08
2H08
1H09
2H09
1H10
2H10
1H11
2H11
1H12
2H12
1H13
0
2008
2006
200
2007
400
Note:1H13 numbers are annualised for 2013F
Source: Company data, Nomura research
Source: Company data, Nomura research
Telstra – leading & gaining
• In Australia, bundling is more common, but Telstra has been more successful in recent
years, we think. Its network reach and depth remains far superior to its competitors’. As
can be seen in the following figures Telstra has gained share, increased margins and
improved returns all at the same time in recent years, despite PSTN and Sensis
overhangs. Admittedly, its wireless segment is a key driver of this growth.
– Fixed bundles have increased from 0.4m in FY10 to 1.6m in FY13, representing 59%
of its fixed broadband base, while fixed broadband margins have improved from 31%
in 2011 to 42% in 2013.
• Telstra’s ROIC has improved from 16% in mid-2005 to around 20% currently on our
estimates – again, this is due better asset turn.
Fig. 163: Margins have improved with bundling, especially
for fixed broadband
Product profitability EBITDA margins
Mobile
Fig. 164: Australian telcos – capex trends
(AUDmn)
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
29%
36%
34%
38%
37%
39%
5,000
4,500
Fixed broadband
34%
31%
35%
40%
41%
43%
PSTN
59%
59%
60%
60%
62%
63%
Data and IP
61%
64%
63%
65%
65%
65%
4,000
Sensis
41%
65%
28%
61%
23%
55%
3,500
Telstra group
37%
44%
38%
43%
40%
44%
3,000
Source: Company data, Nomura research
VHA
Optus
Telstra
2,500
2,000
1,500
1,000
500
0
2008
2009
2010
2011
2012
2013F
Source: Company data, Nomura research
105
Nomura | Asia telecoms
29 January 2014
Fig. 165: Mobile subscriber share
VHA
Operating profit margin
ROIC
Operating asset turnover (RHS)
49%
46%
43%
23%
31%
32%
25%
42%
40%
33%
28%
30%
33%
26%
40%
32%
26%
50%
42%
60%
20%
20%
20%
Optus
1.2x
31%
TLS
Fig. 166: Telstra – ROIC trends
1.1x
15%
1.0x
0.9x
10%
Source: Company data, Nomura research
10%
2013
F
0.8x
2012
Jun-13
2011
Jun-12
2010
Jun-11
2009
Jun-10
2008
Jun-09
2007
Jun-08
2006
0%
Source: Company data, Nomura research
SingTel – BPL… good or bad?
• SingTel launched its IPTV service mio-TV back in 2007, and in 2009 it acquired BPL.
Since then, there has been a significant increase in its pay-TV share – and ARPUs
have increased too, but there is still a significant gap between StarHub’s.
– SingTel has also been able to improve broadband market share and also general
awareness on its ability to offer a bundle.
• On NBN, it now has around 55% market share, we estimate.
• SingTel’s total group ROIC has dropped to around 11% from mid-teens – which is
predominately due to weakness at the Associates. Stripping out Associates and Optus,
its Singapore ROIC has also improved we note – but we acknowledge that this is a
more difficult exercise for SingTel, as we don’t have a stand-alone balance sheet for its
wholly owned businesses.
Fig. 167: SingTel – stabilizing of broadband market share
SingTel Pay TV subs (LHS)
SingTel PayTV market share (RHS)
450
400
350
300
250
200
150
100
50
0
-50
-100
Dec '07
Fixed line net losses (RHS)
SingTel BB market share (RHS)
Singtel wins BPL rights for 3 years
Broadband share stabilizes
as pay TV subs increase
60%
50%
40%
30%
20%
10%
0%
Fixed line voice net losses fell
Dec '08
Dec '09
Dec '10
Dec '11
-10%
Dec '12
Source: Company data, Nomura research
106
Nomura | Asia telecoms
29 January 2014
Fig. 168: SingTel outspends competitors on networks
Quarterly capex (SGD m)
Fig. 169: Post-paid wireless market share
300
50%
44%
45%
44%
46%
47%
250
45%
200
40%
150
35%
100
30%
28%
28%
28%
27%
27%
25%
28%
27%
27%
27%
26%
2008
2009
2010
2011
2012
50
0
20%
Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep
'10 '10 '10 '10 '11 '11 '11 '11 '12 '12 '12 '12 '13 '13 '13
StarHub
M1
SingTel
StarHub
Source: Company data, Nomura research
M1
SingTel
Source: Company data, Nomura research
TM – bundling broadband and TV
• TM now has 607k UniFi fibre-subs or a 42% conversion, and ARPUs are holding
steady at MYR180 vs MYR80 for DSL.
• TM has been able to maintain its fiber ARPU premium over DSL – on the back of which
internet revenue has grown by an average 18% y-y over the past 10 quarters.
• TM bundles its IPTV (launched in 2012) with its fibre as a triple play. This bundling
strategy is more of an attempt to address churn – given Maxis Astro tie-up to offer
Astro’s TV channels over Maxis fiber. TM has been successful in maintaining its
leadership in fiber, its fiber adds of ~40k per quarter in 2013 is well above Maxis’ 6k.
• TM has been building its content appeal, too – its recent agreement with Astro to carry
select EPL channels, for example. Currently around 16% of users have subscribed to
premium channels on Hypp TV.
• TM’s ROIC has risen from 7-8% in 2008 to around 11% currently.
Fig. 170: TM – HSBB subscribers
Fig. 171: TM – % of IPTV subs on premium channels
120
HSBB Susbcribers (000's, LHS)
Conversion rate of premises passed (RHS)
600
500
400
300
200
100
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
2Q10
0
Premium channels subs as % of total base
100
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
700
Source: Company data, Nomura research
25%
Premium channels subs (k)
20%
80
15%
60
10%
40
5%
20
0%
0
Mar '12
Sep '12
Sep '13
Source: Company data, Nomura research
107
Nomura | Asia telecoms
29 January 2014
Fig. 172: TM versus Maxis – fibre adoption
Fibre trends
Subs ('000)
TM
Maxis
Total
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
164
2
166
237
4
240
316
5
321
384
9
393
427
19
447
483
26
508
532
31
563
577
36
613
607
43
650
Conversion
15%
20%
26%
31%
34%
37%
40%
43%
44%
Subs share
TM
Maxis
99%
1%
99%
1%
98%
2%
98%
2%
96%
4%
95%
5%
95%
5%
94%
6%
93%
7%
72
2
74
79
2
81
68
4
72
43
10
53
55
6
62
49
5
54
45
5
50
30
7
37
6%
7%
6%
4%
5%
4%
4%
3%
98%
2%
98%
2%
94%
6%
81%
19%
90%
10%
91%
9%
89%
11%
81%
19%
Net Adds (000)
TM
Maxis
Total
Incremental rate of conversion
Net adds share
TM
Maxis
Source: Company data, Nomura research
Others in Malaysia
• Maxis offers fibre internet and IPTV services as package. Maxis offers of choice of fibre
internet packages (MYR148-248 per month) to be clubbed with various IPTV packages.
Subscribers may or may not opt for a fixed-line subscription, which is being offered at
MYR20/month. For example 10Mbps fiber internet package along with Astro
Superpack1 will cost MYR256/month to a subscriber. Maxis has tied up with TM in
2010 for 10 year wholesale HSBB (Access) and is currently having 43k subs as
compared to TM’s 607k. The fibre take-up by Maxis users has been low even though
the plans were at a 20-26% discount to TM’s price plans for 10-20Mbps. Maxis signed
an agreement with Astro in 2013 to offer IPTV to its customers along with fibre.
• Celcom Axiata has also inked an MoU with TM for HSBB access in 2011and launched
its fibre offerings in 2012. The packages offered were including fibre and fixed line
together, similar to Maxis.
• DiGi, being a wireless player, is primarily engaged in using voice, data and SMS/MMS
offerings to differentiate its products.
Japan
• Fixed-mobile bundled services from KDDI: KDDI's au Smart Value fixedline/smartphone discount service introduced in January 2012 offers its fixed-line voice
and internet services subscribers a basic monthly data rate discounted by JPY1,480 in
the first two years of the contract and JPY980 in the third year. With eligible fixed-line
services spanning not only the company's own service but also those of partner cable
TV companies and FTTH companies, subscriber numbers have been growing at a
steady pace. We project 6.9mn subscribers at end-14/3, 7.9mn at end-15/3 and 8.6mn
at end 16/3. In terms of household numbers, we project that 33% of the 12mn
households receiving KDDI fixed-line services at end-15/3 and 24% of the 16mn
households receiving its mobile services at end 16/3 will have signed up for au Smart
Value.
108
Nomura | Asia telecoms
29 January 2014
Fig. 173: Subscriber forecasts for KDDI's au Smart Value service
12/3
13/3
14/3E
15/3E
('000)
16/3E
No. of smart value subscribers (FY-end, '000)
Net adds (FY-end, '000)
FY-avg ('000)
As % of total (ex. Modules, %)
660
660
330
1
3,860
3,200
2,260
7
6,900
3,040
5,380
14
7,900
1,000
7,400
19
8,600
700
8,250
21
No. of smart value households (FY-end, '000)
Net adds (FY-end, '000)
FY-avg ('000)
Fixed line subscriber households ('000)
Subscriber ratio (%)
Mobile subscriber households ('000)
Subscriber ratio (%)
440
440
220
10,000
4
16,000
3
2,120
1,680
1,280
12,000
18
16,000
13
3,450
1,330
2,785
12,000
29
16,000
22
3,900
450
3,675
12,000
33
16,000
24
4,100
200
4,000
12,000
34
16,000
26
Source: Company data, Nomura research
• Effects from new bundling of smartphone and fixed-line services: Demand has
been strong for smartphone/fixed-line bundled services offered by KDDI.
– From end-2013, KDDI and Softbank also started offering smartphones bundled with
TDD-LTE mobile WiFi routers. After discounting, two-year contracts for TDD-LTE
mobile WiFi routers cost JPY3,880/month for the first two years JPY4,405/month from
the third year) or JPY4,935/month (JPY5,460/month) in the case of such routers also
compatible with FDD-LTE services from KDDI.
– Furthermore, charges for two to four years are discounted by JPY980/month in the
case of contracts for TDD-LTE-compatible mobile WiFi routers combined with
smartphones. We thus expect some degree of contribution to mobile net adds from
15/3 owing to new tapping of demand from the likes of people living in condominiums
located in urban centers.
• Start of smartphone/iPad bundling by Softbank and KDDI: KDDI and Softbank
started offering discounted smartphone/iPad bundles in November 2013. These
bundles have been positively appraised, with monthly usage charges for the iPhone
discounted for the first two years at JPY1,050 (JPY2,850/month from the third year),
and the iPad price also approximately JPY10,000 lower than for the WiFi version.
– Data usage of 7GB for each device is available up to May 2014, with a total of 9GB
(7GB for the smartphone, 2GB for the tablet) to be shared by the two devices from
June 2014. These are thus shared data plans, and we expect they will contribute to
tablet uptake.
South Korea
• All three operators in South Korea have adopted wireless bundling (voice+SMS+data)
since the smartphone tariffs were introduced, which largely provide protection from
voice/data cannibalization.
• Handset bundling is also a popular practice in Korea due to Korean's preference for
high-end smartphones and expensive handsets. By providing subscribers the option to
pay in installments and also offering deep discounts when subscribers sign up to high
ARPU plans (largely above KRW62K level), the telcos have rapidly increased
smartphone penetration in a relatively short time and were able to turn around their
wireless ARPU trend.
• The Korean telcos have previously been passive about bundling fixed and mobile due
to its S-T negative impact on top line; however, with the MNP market cooling down and
focus shifting to retention, the Korean telcos have been very active in introducing
diverse bundling plans between mobile and fixed, which has helped pressure down
churn rates. KT’s bundled ratio for Broadband is 72% whereas for mobile it is 32% as of
3Q13, and rising.
109
Nomura | Asia telecoms
29 January 2014
• SKT provides various bundling plans between its wireless lines and
broadband/IPTV/VoIP services from its affiliate SK Broadband.
– SKT offers KRW8,000 discount for broadband service when bundled with 1 wireless
line with +62K tariff plan. SKT provides additional discounts with regard to
broadband/VoIP service when it is bundled with more than one wireless line.
Fig. 174: Wireless/fixed discounts per # of wireless line bundled
# of wireless
lines
2
3
4
Bundling benefits
KRW10K discount for VoIP or broadband
KRW20K discount for broadband
KRW30K discount for broadband and VoIP
Source: Company reports, Nomura research
• KT provides LTE bundling with broadband and IPTV. If per household there are 2 LTE
lines (both signed with > LTE67K), broadband will be provided for free. If one
household has 3~4 LTE lines (regardless of tariff), broadband will also be free.
– If a household should add IPTV, they would receive 20% discount (KRW11,200 * 20%
= KRW2,200).
Fig. 175: KT’s bundling discounts
(KRW)
1 LTE line
2 LTE lines
3 ~ 4 LTE lines
Broadband* Alright discount benefits
LTE34K ~ KRW52K
LTE52K ~ KRW67K
-5,000
-7,500
-12,500
-25,000
> LTE67K
-10,000
-25,000
(KRW)
olleh tv live** Alright discount benefits
1 ~ 4 LTE lines -2,200
* broadband full price is KRW25,000
** olleh tv line full price is KRW11,200
Source: Company reports, Nomura research
• KT has recently been active in bundling its wireless service to its mobile app service
such as Genie (music streaming service) and mobile IPTV.
– When LTE subscriber bundles with Genie, the subscriber is able to stream music for
free with no data limit (for monthly subscription fee of KRW6,000).
– KT also offers LTE bundling with its mobile IPTV, which they call Olleh TV Mobile
Pack which provide additional 6GB (can only be used for KT’s mobile IPTV) for
monthly subscription fee of KRW5,000.
110
Nomura | Asia telecoms
29 January 2014
Fig. 176: KT’s bundling offers
Source: Company reports, Nomura research
111
Nomura | Asia telecoms
29 January 2014
Appendix: Telcos and digital aspirations
Telstra – riding on its data and IP infrastructure
• Telstra is looking at new revenue streams, such as Network Application Services (NAS)
which include cloud, unified communication and managed services, M2M, media, ehealth among others to monetise its networks better; however, unlike SingTel or
Telefonica, etc, it has not undertaken any major organizational restructuring to pursue
these aggressively.
– In half-year ended Jun 2013, these services contribute around 17% of the company’s
total revenue. Within this, the contribution from NAS has edged up to 6% now, media
revenue has stayed in the range of 7-12%, while M2M is still quite small at sub-1%.
Fig. 177: Telstra: NAS, media and M2M – key trends
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
612
480
553
484
659
575
688
635
849
Pay TV bundling
234
247
264
286
298
302
301
302
293
T-Box
-
-
1
22
18
20
24
19
27
13
(AUDmn)
NAS revenues
Media revenues
IPTV
5
4
5
8
11
8
12
12
33
37
37
41
39
41
38
36
33
1,134
870
1,078
708
1,096
548
965
479
857
Content
Sensis & Advertising
Cable
Total
Machine to Machine (M2M) revenues
45
35
50
38
64
58
60
61
59
1,451
1,193
1,435
1,103
1,526
977
1,400
909
1,282
-
31
31
32
37
40
40
44
46
5%
4%
4%
4%
5%
5%
5%
5%
6%
2%
2%
As % of total
NAS revenues
Media revenues
Pay TV bundling
T-Box
IPTV
2%
2%
2%
2%
2%
2%
2%
0.01%
0.18%
0.14%
0.16%
0.19%
0.15%
0.21%
0.04%
0.03%
0.04%
0.07%
0.09%
0.06%
0.09%
0.10%
0.10%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
9%
7%
9%
6%
9%
4%
7%
4%
7%
0.4%
0.3%
0.4%
0.3%
0.5%
0.5%
0.5%
0.5%
0.5%
Total
11%
10%
11%
9%
12%
8%
11%
7%
10%
Machine to Machine (M2M) revenues
0.0%
0.3%
0.2%
0.3%
0.3%
0.3%
0.3%
0.3%
0.4%
Total contribution
16%
14%
16%
13%
17%
13%
16%
13%
17%
484
539
577
658
744
809
888
970
Content
Sensis & Advertising
Cable
Machine to Machine (M2M) customers (k)
Source: Company data
Networks continue to play their role
• Despite Telstra’s unparalleled networks, management continues to focus on enhancing
the company’s network capabilities; currently, Telstra invests around AUD3.7bn pa, and
a significant portion of this goes to improving networks, we believe.
• With the rise in mobile data traffic, Telstra’s wholesale data products have an apt role to
play, we believe. Its wholesale data services portfolio is based on a variety of
bandwidth options (a range of technologies namely ethernet access, ethernet backhaul,
managed leased line, wavelength and wholesale internet), and has an appealing
coverage.
• Capex of 15% of sales to help sustain network dominance. Telstra’s capex
guidance for 2014 is 15% of sales, which amounts to AUD3.9bn, on our estimates, or
Cloud is all new money for Telstra,
every cent of that is new money to
Telstra, and we’re delivering share
gains, not only in the IP network
spaces; we’re also delivering share
gains in each of the categories of
network applications and services.
So the last point I guess I want to
make is this company doesn’t
move one inch away from its
relentless focus to continue to win
IP market share. - Philip Jones,
Executive Director of Data and IP
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Nomura | Asia telecoms
29 January 2014
+2% y-y. Over the next few years, we expect the accrued capex to continue to be
around 15% of sales.
Fig. 178: Telstra’s IP networks are gaining traction
Source: Company reports
Fig. 179: Data and IP access portfolio
Fig. 180: Telstra – capex outlook
Source: Company reports
Source: Company reports, Nomura estimate
NAS
• The fact that 47% of its IP customers now have NAS products evidences that Telstra is
able to capitalise well on its IP networks. Under this segment, Telstra has ramped up a
broad range of capabilities in each of the key categories such as cloud services, unified
communications and managed services, targeted at the SME, government and
enterprise segments.
• Telstra’s key cloud services include:
– SaaS, or software as a service. Key applications are office productivity/email, CRM,
finance, HR and IT security. Telstra also offers managed and hosted business-critical
applications from SAP and Microsoft.
– IaaS, or infrastructure as a service such as servers/hosting.
– PaaS, or platform as a service like Windows Azure.
– Unified Communications as a Service (UCaaS) is a broad range of services such as
voice, multi-media, unified messaging, presence management, mobility, and
automation services all wrapped in a single unified platform. Telstra acquired NSC in
Aug 2013, a leading provider of UCaaS, managed network services and associated
integration/ consulting services, for this.
• Telstra’s growth strategy for NAS has three parts –
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Nomura | Asia telecoms
29 January 2014
– Grow its core: this includes targeting new customers and achieve customer service
excellence.
– Expand the offer roadmap and continue to drive AUD800mn investment in cloud
through to 2016.
– Grow Internationally: by leveraging its domestic strengths and international footprint.
• This business grew 10-18% pa in the past two years. Going forward, we forecast 1215% pa growth.
Fig. 181: Telstra – NAS offerings
Source: Telstra investor day presentation, 23 October 2013
Fig. 182: Telstra – current cloud pricing
Source: Company reports, Nomura research
M2M
• Telstra now has around 970k subs for M2M. The company is now working together with
solution partners such as Tech Mahindra and Wipro which are global system
integrationists to grow in this segment.
• Given below is a summary of sectors which can benefit from Telstra’s M2M service
portfolio –
– Industrial and manufacturing industries, for detecting problems proactively.
– Mining sector: for remote monitoring and remote control
– The agricultural and natural resource sector: for managing assets remotely, and
saving time and travel.
– Consumer
– Utilities
– Health management
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Nomura | Asia telecoms
29 January 2014
– Retail
– Public safety
– Finance and business
• The current M2M data package from Telstra includes M2M SIM cards and Telstra
Wireless M2M Control Centre that provide access to provisioning and diagnostics tools
and management of M2M SIMs.
• Telstra plans to use its connectivity and storage capabilities to grow in the e-health
sector. It is focusing on telehealth, care co-ordination, consumer health portals,
enabling technologies, and data analytics.
• The strategy is to build these capabilities through a combination of investments and
partnerships with eHealth companies.
– Telstra recently picked up a substantial stake in pharmacy software provider Fred IT
as part of its investment strategy.
– For consumer self-service, Telstra is working with US company Get Real Health to
integrate its personal health record platform, Instant PHR, into the Telstra
environment.
• Key drivers which led Telstra to venture into the health care segment include: 1) health
sector is growing well, from AUD120bn in 2010 and Telstra estimates it could reach
AUD200bn by 2020; and 2) the Australian health system has major problems which are
amenable to eHealth solutions. Telstra have identified include creating a safer and
more efficient pharmacy system, improving the integration of health information, looking
at home healthcare applications to provide real-time diagnostic information that can
connect to GPs and nurse care coordinators and patient service portals.
Fig. 183: Telstra eHealth ecosystem
Fig. 184: Telstra eHealth initiatives
Source: Company reports
Source: Company reports
SingTel – advertising and much more
• SingTel announced a new organizational structure in March 2012 across product
groups, rather than geographies, and also created a new business under Mr Allen Lew
(CEO, Group Digital L!fe) called Group Digital L!fe (GDL).
• The underlying objectives of the business are to develop content, product and services
and make investments that complement SingTel’s existing telephony businesses,
leverage its extensive regional scale (~480mn regional subs), and better monetize
data, in our view.
• Mobile advertising is a large part of GDL and mobile ad company Amobee is its
largest investment so far at USD321mn.
– “Consumers now look to their mobile devices for immersive content,
entertainment and commerce” as per SingTel’s 2013 annual report. Mobile apps
allow for a much higher level of engagement with customers than was previously
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Nomura | Asia telecoms
29 January 2014
possible as a pure telco customer (as per the company’s comment, an average
smartphone customer spends around four hours a day on his/her phone).
There is rising focus on real-time bidding. SingTel is tapping into this segment,
too. Amobee is essentially a ‘broker’ connecting advertisers with publishers (i.e.
owners of sites or apps). We understand that the inventory of spaces and ads is
matched manually today and the acquisition of Gradient X, a real-time inventory
matching platform, should further improve GDL’s positioning.
The core strategy…
• The core strategy, we understand, is to invest in digital businesses which are
essentially linked to its traditional business, and where it can leverage its scale
(~480mn regional subs) and monetize data better.
• As per its 2013 annual report, “As an established telco, the SingTel Group has
distinctive assets and expertise in the mobile business, such as our customer base of
468 million across Asia and Africa, deep customer knowledge, extensive customer
touch points and payment mechanisms.
Group Digital L!fe’s strategy is to pursue target areas in the digital space where our
assets give us an advantage over competition and where we can deliver better value
propositions.
To take full advantage of SingTel Group’s scale, we have also developed our strategy
alongside our regional mobile associates, and are working closely with them to grow in
the digital space.”
• Driving the adoption of mobile apps also means that data usage continues to rise,
which can be beneficial for telcos as they increasingly look to monetise data.
• The focus areas are: 1) global (mobile) advertising; 2) life-style (such as Hungry Go
Where); 3) digital commerce platform; 4) social interaction platform; and 5) pay-TV
platform.
• A key objective of Digital L!fe is also to work with its operating companies to bundle
content with access.
The investment criteria…
• GDL is looking at companies in various stages – some of which are start-ups but yet to
be monetised and some which have some revenue monetisation already.
• One of the critical considerations is that the strategic objectives/vision of any business/
investment should match that of GDL.
• The businesses have to have strong engagement with the customer and it closely
tracks metrics such as MAU and DAU (monthly and daily active users).
• The broader return criterion is for investments to be cash flow positive within three-five
years, we understand.
– GDL has people based on the Silicon Valley, Singapore, Israel and Beijing constantly
seeking and reviewing various opportunities. It also works closely with Innov8 on this.
• Valuations in the start-up space, especially in early stages, can be wide and varied,
especially in cases where there is just a significant user community but no revenue
streams established, in our view.
– Management uses a combination of customer engagement benchmarks, MAU values,
platform, etc, to derive valuations for these businesses.
How to monetize this?
• Monetisation has two steps – 1) scale user base to be able to be revenue generative;
and 2) sell it/list it. Monetisation by selling the asset, however, can occur even before
revenue monetisation in some cases. So far, the focus is on the former (i.e. revenue
monetisation) and less on the latter, we understand.
– The timing and the ability to monetise will depend on the stage of investment, too, and
if there is a differentiated value proposition.
– So far no investment has been sold, and no major provisions taken either, we
understand. Most of them are still in early stages and still need more scale.
• The initial focus for most investments (apps) is to scale users. However, a successful
investment should see revenue monetisation by around five years, beyond which its
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Nomura | Asia telecoms
29 January 2014
value proposition may have to be re-evaluated altogether – e.g. if something isn’t
generating revenue within five years, then one has to question its value proposition
altogether, we believe.
• Arguably, the app is originally free, but for successful apps, users are willing to spend
for premium services. Management noted that with the emerging generation of mobile
internet users, the willingness to spend isn’t an issue. For example, in KakaoTalk, users
pay for value-added services of emoticons, etc.
• SingTel is also seeing user willingness to pay for premium cloud services, for data
storage, etc.
• Digital advertising could also prove to be one of the sources of monetisation for many
applications, especially in early days or for the versions that are free – we discuss this
in more detail later.
– For example, one of the lifestyle apps – hungrygowhere.com in Singapore now has
added functionality for restaurant booking and is now seeing revenue inflow.
• As stated earlier, GDL is running at EBITDA losses in excess of SGD100mn pa. There
are no explicit break-even targets, and it will largely depend on what else it buys, in our
view. More acquisitions could mean more losses in initial years.
• Value realisation from GDL? Monetizing some of these assets over time could occur via
an IPO, which has been the typical exit route in this space.
• Unlike Google, there are not explicit plans to combine all these investments into a
single brand.
• SingTel may be open to consider strategic partners for this business, but the main
focus remains on seeking compatible investments for now.
Fig. 185: Focus areas for group Digital L!fe in FY14
Source: SingTel Investor day presentation, September 2013
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Nomura | Asia telecoms
29 January 2014
Fig. 186: GDL investment focus
SingTel also notes that it also look at video and payments opportunities
Source: SingTel Investor day presentation March 2013
Fig. 187: SingTel’s recent acquisitions
Target
Date
Deal size
US$321mn
Description of the company
Any metrics
Mobile marketing solutions provider
Net asset value of USD0.6mn as of Nov 2011
~USD30mn pa in revenue
SingTel notes a range of 13-30x price to sales multiples
as a benchmark for similar transactions in the industry
Amobee
Mar-12
AdJitsu
May-12 NA
Provides 3D Mobile Advertising and interactive features to mobile
customers. Acquired by Amobee
GradientX
Sep-13
USD15mn
Real Time Bidding platform for ads
Net tangible liabilities of USD1.1mn as of May 2013
TheMobileGamer
Sep-12
S$1.8mn
(US$1.5mn)
Mobile social gaming platform. Involved in
developing/aggregating/distributing mobile gaming software
SingTel holds 41% stake in this. Softbank is a co investor
Net asset value of TMG was $224k as of Dec 2011
Users browse ~80m pages per month on the company's
games
Pixable
Sep-12
USD26.5mn
Social photo aggregation provider. Uses analytics to prioritise photos on
social networks on smartphone application. Acquired 100% stake.
Has more than 4mn users.
HungryGoWhere
May-12 S$12mn
Restaurant review portal in Singapore + online presence in Hong Kong,
Malaysia, Australia etc. SingTel targeted to combine this with its
inSing.com's food channel.
As of Feb-2013, it had +1.1mn unique visitors per month
Eatability
Jul-12
Restaurant review portal in Australia
Net asset value was A$70k as of Dec 2011
A$6mn
Source: Company data, Nomura research
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Nomura | Asia telecoms
29 January 2014
Fig. 188: Leveraging associates
Source: SingTel Investor day presentation, March 2013
Fig. 189: Digital L!Fe financials
S$ mn
Group Digital L!fe
Revenue
- % Change (yoy)
Fig. 190: Breakdown of GDL personnel in Jan-13
1Q13
2Q13
1Q14
2Q14
20
29
30
50%
42
45%
Expenses
Selling & administrative
22
33
29
50
Staff costs
19
22
29
28
2
4
2
1
2
45
2
61
2
62
3
82
38%
34%
Cost of sales
Others
Total Opex
- % Change (yoy)
EBITDA
- % margin
(24)
(31)
(32)
-107%
(40)
-95%
EBIT
- % margin
(36)
(47)
(44)
-147%
(51)
-121%
Source: Company data, Nomura research
Source: SingTel
119
Nomura | Asia telecoms
29 January 2014
PT Telkom – strong focus on getting the networks right for
digital services
• In Indonesia, Telkom looks best positioned to grow digital services given its scale, and
networks (owns extensive backhaul, fibre and submarine cables). Despite this, its
strategy for digital services includes not only developing applications/ services, but also
further ramping up its network infrastructure to support rising data traffic.
• Focus is on these 4 key portfolios – digital lifestyle services, mobile payment and digital
money, digital advertising, and enterprise digital services.
• Alongside, for enhancing its networks capabilities, Telkom launched the Indonesia
Digital Network (IDN) programme in 2012, which comprises three sub-parts -Indonesia Digital Access (id-Access), Indonesia Digital Ring (id- Ring) and Indonesia
Digital Convergence (id-Con).
– id-Access: development of access networks into a high speed broadband access
using fiber and WiFi.
– id-Ring: development of transport infrastructure into an IP-based and optical
backbone.
– id-Convergence (“id-Con”): convergence of the node service network into an
integrated NGN.
• The group plans to invest around 20-25% of revenue of capex this year, which amounts
to ~USD1.5bn, we estimate (and 60% for Telkomsel), and we expect its capex level to
remain elevated – this should improve networks further for growing digital services, in
our view.
At Telkomsel too, digital services are getting lot of focus. Telkomsel has set its vision
towards becoming a “world-class, trusted provider of mobile digital lifestyle services and
solutions”.
– In 2012, Telkomsel launched a transformation program, ‘Telkomsel 2.O’ to reposition
the “business, organization, culture and people” for growing its data services.
The game-plan for growing/ monetizing digital services
– For advertising, Telkomsel plans to target certain user segments and offer them
relevant content.
– For payments, the growth strategy is built on these key steps: 1) launch a prepaid
card for transit and toll payments; 2) expand card acceptance to retail points; 3)
expand reach using NFC solutions; and 4) expand NFC-backed offerings.
– For lifestyle services, it plans to use its extensive customer scale, and lure them using
services that are relevant to their likings, or interests, as in video/ audio content.
Fig. 191: Telkom – digital services is part of the growth strategy
Source: Telkom presentation, September 2013
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Nomura | Asia telecoms
Fig. 192: Telkom – Indonesia Digital Network 2015
29 January 2014
Fig. 193: Telkom – optical fiber
Source: Telkom presentation
Source: Telkom presentation
Fig. 194: Telkom’s – submarine cables
Fig. 195: Telkom, Telkomsel – capex trends
25,000
Telkom: capex (IDRbn)
Telkomsel: capex (IDRbn)
Telkom: capex/ sales
Telkomsel: capex/ sales
35%
30%
20,000
25%
15,000
20%
10,000
15%
10%
5,000
5%
0
0%
2009 2010 2011 2012 2013F 2014F 2015F
Source: Telkom presentation, 2012
Source: company data, Nomura estimates
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Nomura | Asia telecoms
29 January 2014
Fig. 196: Telkomsel – digital services game-plan
Source: Telkomsel’s latest annual report
XL – 6,000 partners now and growing
• XL has established a special vertical led by Ms Dian Siswarini (Chief Technology &
Digital Services Officer) to run the digital services business.
• Its goal for digital services is to provide existing and new customers with further
reasons to use data and to expand beyond traditional data services.
• The current focus is on mobile payments, mobile advertising, M2M, cloud and content
among others.
– Mobile payments. These are provided under the brand XL-Tunai. Services have
been expanded by associating with several merchants such as restaurants and
supermarkets. Users of XL Tunai grew by 20% q-q compared to the number of users
9M2013.
• XL has partnered with a major industry player in building the ecosystem of each subverticals, and it now has more than 6,000 partners.
– Partners include Huawei, Ericsson, Alfamart (major convenience store), Blue Bird
(major taxi player), among others.
– It has also tied up with We-Chat, and with Line for messaging services.
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Nomura | Asia telecoms
29 January 2014
Fig. 197: XL – digital services portfolio
Source: Company reports
Telefonica – on the way to become a ‘digital telco’
• In 2012, Telefonica formed a new company ‘Telefónica’s Digital Solutions’ led by Mr.
Matthew Key to focus on digital services. The company contributed a revenue of
approximately €2.4bn in 2012, and Telefonica targets to grow this to €5bn by 2015.
• What’s the goal and how to achieve it?
Telefonica’s goal is to transform itself into a digital telco. While the company is looking
to leverage its global scale to progress on this front, it acknowledges that it can’t do this
alone, and hence needs to:
– Partner with category leaders to provide end-to-end solutions
– Invest in or acquire other companies, which can complement its existing capabilities
– And, along side, it is developing its own platforms in the areas in which its core
capabilities are strong/unique.
• It covers seven key segments – financial services, M2M, eHealth, advertising,
video and media, security and cloud computing.
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Nomura | Asia telecoms
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Appendix A-1
Analyst Certification
I, Sachin Gupta, hereby certify (1) that the views expressed in this Research report accurately reflect my personal views about
any or all of the subject securities or issuers referred to in this Research report, (2) no part of my compensation was, is or will be
directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of my
compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc.,
Nomura International plc or any other Nomura Group company.
Issuer Specific Regulatory Disclosures
The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its affiliates or subsidiaries, and may refer to one or more
Nomura Group companies.
Materially mentioned issuers
Issuer
Ticker
SK Telecom
KT Corp
LG Uplus Corp.
China Mobile
KDDI
NTT Docomo
Softbank
Bharti Airtel
XL Axiata
M1
Singapore Telecom
Telkom Indonesia
Telstra Corporation
017670 KS
030200 KS
032640 KS
941 HK
9433 JP
9437 JP
9984 JP
BHARTI IN
EXCL IJ
M1 SP
ST SP
TLKM IJ
TLS AU
Price
KRW
216,500
KRW 30,800
KRW 10,950
HKD 74.45
JPY 6,044
JPY 1,651
JPY 7,819
INR 302
IDR 4,990
SGD 3.37
SGD 3.54
IDR 2,230
AUD 5.10
Price date
Stock rating Previous rating
Date of change Sector rating
29-Jan-2014
29-Jan-2014
29-Jan-2014
29-Jan-2014
29-Jan-2014
29-Jan-2014
29-Jan-2014
29-Jan-2014
29-Jan-2014
29-Jan-2014
29-Jan-2014
29-Jan-2014
29-Jan-2014
Buy
Neutral
Buy
Neutral
Buy
Neutral
Buy
Buy
Buy
Buy
Buy
Neutral
Neutral
02-Dec-2008
06-Jan-2012
06-Jan-2012
16-Mar-2012
07-Sep-2012
06-Feb-2012
06-Jan-2009
06-Sep-2013
27-Jun-2013
30-Oct-2008
30-Nov-2012
24-Feb-2012
25-Nov-2010
Strong Buy
Buy
Neutral
Buy
Neutral
Buy
Not Rated
Neutral
Neutral
Neutral
Neutral
Buy
Reduce
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
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The distribution of all ratings published by Nomura Global Equity Research is as follows:
42% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 43% of companies with this
rating are investment banking clients of the Nomura Group*.
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11% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 26% of companies with
this rating are investment banking clients of the Nomura Group*.
As at 31 December 2013. *The Nomura Group as defined in the Disclaimer section at the end of this report.
125
Nomura | Asia telecoms
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