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NEWSLETTER

2008 UPDATE


NEWSLETTER

2007 began with a significant event in the international management consulting sector: the merger of Value Partners and Spectrum Strategy Consultants. Since then our respective clients have been able to draw on 3000 professionals from 25 nationalities working out of 14 offices in 10 countries. Spectrum is now the Value Partners telecom, media, broadcasting and entertainment competence centre. Our expertise encompasses strategic assessment, turnaround, change management and operational improvement. The merger brought together outstanding professionals who share the same passion for business and the same global scope. The satisfaction of over 300 clients we served in 2007 is testimony to the success of the merger to date.

2008 UPDATE

February 2008 IN THIS ISSUE: Value Partners turns fifteen

In this publication, we are focused on the evolution of the media and telecoms sector, in both mature and emerging markets. Indeed, 2007 offered the prospect of double digit growth to mobile operators in emerging markets with assets and licences being snapped up by Vodafone in India and Orange in Kenya. Forthcoming editions will also feature articles on the sectors that Value Partners traditionally serves – such as financial institutions, manufacturing, high-tech, oil & gas, luxury goods.

India on the brink

This edition also focuses on our achievements in 2007 - we are proud of what we have done together with our clients and we look forward to working with you again in 2008.

What is required for wireless broadband to be successful?

Just how close will fibre get to the home? Emerging markets: 3G or not 3G? Where next for the technology outsourcing market? Deal or No Deal?

The new ‘pay-as-you-go’ model Discovering the Hidden Value of Sports Sponsorship Increasing Website usability The UHF band: co-operation not Competition TV’s Martini Moment Getting the value from Value-Added-Services Dawn of a new media age in China

©Value Partners 2008 | valuepartners.com Printed on recycled paper

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NEWSLETTER

Value Partners turns fifteen

Value Partners is a European consulting firm with two sister companies: Value Partners Management Consulting and Value Team IT Consulting & Solutions.

Founded in Milan in 1993, the value created for clients generated the rapid growth of the firm: today it draws on 3,000 professionals from 25 nationalities, working out of offices in Milan, Rome, London, Helsinki, Istanbul, Sao Paulo, Rio de Janeiro, Buenos Aires, Mumbai, Shanghai, Beijing, Hong Kong, Sydney and Singapore. Value Partners has built a portfolio of more than 300 international clients - from the original 10 in 1993 – with a worldwide revenue mix. Value Partners Management Consulting has successfully handled turnaround and change management projects for major companies. These successes helped create and consolidate Value Partners’ corporate reputation and brand. Value Partners assists clients mainly in the Telco & Media, Energy, Manufacturing, Hi-Tech and Financial Institution sectors. At the beginning of 2007, Value Partners merged with Spectrum Strategy Consulting, a leading consultancy in the telecoms, media, broadcasting and entertainment sectors. In the late 1990s Value Partners decided to expand their service offerings beyond management consulting to include complex, innovative and business-critical IT services, today handled by Value Team. Value Team’s growth has accelerated due to several international acquisitions, such as Etnoteam, one of Italy’s longest-established ICT companies. Today Value Team competes along the entire value chain. It offers services ranging from customer relationship management, billing, content and knowledge management, business intelligence and, through three dedicated divisions, security, embedded systems and digital interaction (with E-Tree, one of the most acclaimed European web companies). The integrated expertise of Spectrum, Value Partners and Value Team has created the world’s leading company in Telecom and Media consulting. Value Partners’ growth and positioning has also been determined by its decision to focus the global scope on double-digit growth emerging markets, and to leverage the entrepreneurial expertise of its professionals. Its end-to-end offering, which answers its client’s specific needs, is the distinguishing feature. Companies choose Value Partners because they know and trust its ability to develop business strategies and to implement them through the best suited IT solutions.

In 2007, the Indian telecommunications and media sectors were dominated by discussion of the rapid growth and future potential of the domestic market. Prashant Gokarn Market valuations, private equity deals and interest in principal, Mumbai office Indian mobile licences reflected this. In contrast, 2008 will see the largest Indian telecom and media operators evolving from an exclusive focus on achieving domestic domination to a mixed approach that includes investment overseas.

India on the brink

The Indian telecom sector has prospered and grown to its current level despite significant hurdles, including: a lack of long-term regulatory policy, low pricing levels and spending power and some of the highest taxation rates in the world, to name but a few. Ironically, the conditions that had constrained the industry in India could provide the very platform to succeed in the global telecom markets. Lack of long-term clarity and frequent changes in policy have meant that Indian telecommunications companies work

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Value Partners’ growth has also been determined by its decision to focus on double-digit growth emerging markets and to leverage the entrepreneurial expertise of its professionals

2008 UPDATE


NEWSLETTER

in a power-centric fashion, whereby leadership and decision making is concentrated within very few positions. This enables quick decision making, high accountability and an implementation-led work ethos. Low consumer spending power, typical of a developing market, coupled with global cost structures in a high network capex industry have resulted in Indian telecommunications companies being unusually skilled at cost control and making money at the lower end of the spending pyramid.

2008 UPDATE

2008 will see the largest Indian telecom and media operators evolving from an exclusive focus on achieving domestic domination to a mixed approach that includes investment overseas

Management teams in Indian telecommunications companies have begun to realise that they could exploit these strengths to become global players. 2008 will offer both the opportunity for such a global play (with new licences being issued in developing markets and increased cost pressures) as well as the domestic drive from India, where the local market will see competition intensify, prices decline and regulatory uncertainty prevail. In addition, significant network expansion within India in 2008 could enable Indian telecommunications companies to use scale to drive procurement efficiencies not available to their global competitors. Developing markets, especially in Africa and Indo-China, will be the first targets for global expansion. A number of licensing and acquisition opportunities will present themselves over the next few months, particularly in Ghana, Lebanon, Angola, Tunisia, Zimbabwe, Kenya, Vietnam, Iran and Laos. However, opportunities are not necessarily limited to developing markets. Developed market opportunities will be two fold - one through costcontrol led (‘outsourcing’) opportunities and the other through targeted, high efficiency service provisioning. We have proven skills in estimating long-term strategic value, winning licence bids on behalf of our clients and working with clients on their global brand strategies. Specific examples include advising Indian operators on overseas investments in the US, UK, Europe, Middle East and Africa. We also advised global operators on entry options into India, assisting in due diligence and acquisition valuations.

During 2008, the pace of residential fibre deployment will accelerate dramatically. Governments and regulators across the globe are taking steps to facilitate or directly fund fibre Justin Jameson deployments. They see fibre as important in the principal, Sydney office battle for global competitiveness. Incumbents and challengers are lobbying hard to secure favourable outcomes and in many markets, the process is creating opportunities for both international entrants and financial investors.

Just how close will fibre get to home?

Operators and regulators need help. Whilst there is broad global consensus that ‘broadband is good for the economy’ and that a fine line needs to be trodden between preventing anti-competitive behaviour and allowing investors to earn a ‘fair’ return, there is no consensus as to the regulatory or commercial approaches that will best meet these broad goals. Certainly, from an operator perspective the typical business case for FTTx is challenging. Some Governments (e.g. Korea, Singapore and now Australia) are investing directly in their broadband infrastructures. Others (e.g. the US) are providing ‘regulatory holidays’ that guarantee no unbundled access to fibre networks. Yet others (e.g. the UK and NZ) are leaving things to the market, although they have not ruled out intervention. Some markets favour single national networks, whilst others continue to support facilities based competition. We are working with operators and regulators to define and execute their FTTx strategies. In Singapore, we are helping a consortium of challenger telcos and financial

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There is broad global consensus that ‘broadband’ is good for the economy but there is no consensus as to the regulatory or commercial approaches that will best meet these broad goals


NEWSLETTER

2008 UPDATE

investors to challenge for the NBN tender, developing its commercial, technical and financial strategy In Australia, we are providing strategic and bid management support to the Optus-led G9 Consortium as it seeks the right to build a national FTTN network. In the UK, we have been working with Ofcom as it defines it approach to next generation networks (NGNs). We have also led other NGN and FTTx projects in Italy, Brazil, Taiwan, Sri Lanka and New Zealand. We have a unique global understanding of the commercial, technical and regulatory challenges of pushing fibre closer to the home and we bring this international expertise to bear in local markets to the advantage of our clients.

Mobile operators in Europe decided over eight years ago whether or not to bid for new 3G licences. Their counterparts in emerging markets, such as Brazil and Rogerio Takayanagi, senior manager, Turkey, are only now facing this challenge. Sao Paulo office Important lessons can be learnt from previous bidding processes which will enable more realistic valuation scenarios to be developed, while reducing the risk of over-bidding. Operators in emerging markets also enjoy lower handset and equipment costs which will improve the overall business model. Nonetheless, operators in emerging markets face a set of unique challenges and opportunities that will impact their licence valuation and execution strategies.

Emerging markets: 3G or not 3G?

On the one hand, operators in emerging markets may struggle to galvanise fast 3G service uptake due to wide income disparity, lack of affordable handsets and geographic coverage requirements. On the other hand, there is a strong opportunity for wireless solutions that can reach geographic areas and population segments that wireline infrastructure failed to serve. This reach will help combat the digital divide while generating new, and lucrative, revenue streams. Over the past year, we have worked with operators in Brazil, Turkey, Hungary, India, Saudi Arabia and Kenya, ensuring they are in a strong position to overcome these challenges. We have worked on over 40 licensing engagements in mature (e.g. Hong Kong, Japan and Ireland) and developing (e.g. Indonesia, Malaysia and the Philippines) markets to support operators at all stages of the bidding process, including developing bidding strategies, building business plans and determining price targets.

Certainly the market for technology outsourcing across telecoms and media appears healthy, with rapid growth in the last two years and further double digit growth predicted over the next five. Growth Simon Crouch predictions may even be conservative if a senior manager, London office weak global economy results in a greater focus on cost cutting, and therefore interest in outsourcing, across the convergent sectors. However, despite this period of growth in outsourcing provision, the industry, has seen margins fall as a result of consolidation and intensive price driven competition, particularly in infrastructure provision.

Where next for the technology outsourcing market?

As a result, the major providers of technology outsourcing need to consider how to create tailored offerings which both fit within their existing frameworks and also provide tangible benefits, beyond pure cost savings, to content creators and

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Operators in emerging markets also enjoy lower handset and equipment costs which will improve the overall business model


NEWSLETTER

distributors in a market of rapid change. In this environment, outsource providers must consider carefully who their target customers are and how new ways of working can drive greater efficiency for telcos and broadcasters as they embrace end-to-end production digitisation and multi-platform delivery. Crucially, the outsourcers must also ensure that they are able to create a balanced business case which is mutually beneficial, in the longer-term, for both parties.

2008 UPDATE

The major providers of technology outsourcing need to consider how to create tailored offerings which both fit within their existing frameworks and also provide tangible benefits

We have excellent local market knowledge, an understanding of convergence trends in IP-based services and asset management across communications and entertainment players and understand the implications for operators’ Next Generation Network strategies. We also have first-hand experience of the problems faced by organisations across the media, technology and telecoms sectors. As a result, we are able to work closely with our client’s to develop their understanding of the market opportunities and customer requirements and to create compelling value-added outsource propositions for their customers. We helped Siemens to win the £2.2bn technology outsourcing contract with the BBC and have since worked with both parties to identify and develop collaboration opportunities, strategic alliances and frameworks for joint innovation.

Deal or No Deal? Alfonso Marone principal, London office

The television production sector has seen unprecedented levels of M&A activity over the past two years, originated by both private equity investors and industry majors.

Besides Endemol, the multibillion king of nonscripted entertainment, many other players across the globe are changing hands. Even Hollywood studios have set their International Television arms in acquisition mode, with the goal of scouting assets that can enhance their portfolios of TV comedies, drama series, factual entertainment, and quiz show formats. The intensity of activity around TV producer assets is explained by the strategic role that strong-rated content plays in the era of digital media: The proliferation of distribution platforms (which now range from digital terrestrial and satellite television to broadband channels, multimedia cellphones, and portable players) increases the competitive pressure for traditional TV channel aggregators to defend their share of eye-balls and the associated revenue streams. While industrial buyers can afford to play the long term strategic game to hedge the business planning risks implicit in owning hit-driven properties, private equity investors tend to experience a higher degree of discomfort in the valuation stage of a content production deal. Successfully gearing the balance sheet of a business characterised by a high-octane mix of aggressive growth targets, talent-driven properties, and unsecured sales pipelines requires alternative commercial due diligence and valuation methodologies. Quantifying the upside relies on an in-depth understanding of the new and fastchanging digital entertainment value chains and the technology enablers. Our Private Equity Advisory Practice has developed a commercial due diligence approach that relies on a balanced mix of bottom-up and top-down analysis of the typical value drivers for a content production business. Teaming up with our clients we have developed experience in performing a range of hard and soft assessments of the potential for post-deal value maximization; including portfolio lifecycle and hitrate performance, ancillary-sales, genre-longevity and new-media-readiness. We apply these proprietary methodologies to help our clients scout and screen potential targets. In addition, we provide a full due diligence service. Over the past 18

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The television production sector has seen unprecedented levels of M&A activity over the past two years, originated by both private equity investors and industry majors


NEWSLETTER

2008 UPDATE

months alone, we have assisted industry majors, and leading private equity funds, in closing $6.4bn of media and entertainment deals. Despite the general credit-crunch, we expect that the M&A trend in this sector will continue, especially in the small and mid-cap segment.

2008 is shaping up to be a defining year in the development of wireless broadband globally. Deployment requirements for a successful Dan Kirk, principal, London office wireless broadband service and who and Richard Mooney, manager, Sydney office is best placed to compete for this opportunity are less easy to identify. Recent events have demonstrated that demand for wireless broadband exists. For example, following the launch of HSDPA, Australian incumbent Telstra has quadrupled its wireless broadband base to over 400k in a little over 12 months. In Korea, KT is finally seeing impressive growth for its WiBro service with a tripling of subscribers in three months (it has now surpassed 100k subs).

What is required for wireless broadband to be successful?

Additionally any supply side constraints (such as availability of spectrum, technology maturity, vendor alignment etc.) are easing considerably. For example, a significant amount of spectrum suitable for wireless broadband will be made available over the coming year (including spectrum released from digital switchovers in the US and UK). Strong vendor support and standardization for wireless broadband technologies such as HSDPA and WiMAX will drive economies of scale and further reduce costs. New entrants (such as Google) are targeting wireless to enter the broadband access market and challenge incumbents. This advent of wireless broadband has also been accompanied by significant uncertainties around technology choices (WiFi / WiMAX (fixed and mobile) / HSDPA / LTE / EV-DO etc.) and the associated commercial models. Despite these uncertainties, there are some basic requirements for successfully deploying wireless broadband. Firstly, it is necessary to understand the relative positioning of wireless broadband technologies both in terms of each other and with respect to fixed platforms. In developed markets, wireless broadband services will largely be complementary to existing fixed services. In emerging markets (or rural areas) there is a window of opportunity for wireless broadband to compete with under-built or poor quality fixed networks. There has been much debate on the relative benefits and costs of HSDPA vs. WiMAX and whether they are complementary or competing technologies. In reality, practical experience demonstrates that the capabilities are closer than previously thought and the standards will ultimately have a high degree of convergence. Currently, HSDPA benefits from having economies of scale following numerous global launches but interest in WiMAX continues to remain high, despite the delays. Secondly, spectrum allocations in lower frequency bands and the quantity of spectrum available are fundamental to the coverage and cost economics of wireless broadband. It is clear that the spectrum released via the digital switchover (in the 700Mhz band) has real value for the telecoms industry. Finally, the wireless broadband commercial case is highly dependent on identifying which customers to target, the ability to differentiate and drive ARPUs, the availability and cost of CPE, and the cost of the network roll out (or upgrade). New entrants will face challenging economics as they work to acquire new customers and rollout full network deployment. We are working with operators, vendors and regulators to define and execute their

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2008 is shaping up to be a defining year in the development of wireless broadband globally


NEWSLETTER

2008 UPDATE

wireless broadband strategies. In Asia Pacific, we have been working with a new entrant on developing a WiMAX strategy and business plan and has provided bid management support to a consortium looking to roll out a rural wireless broadband network. In Europe, we have been at the heart of the recent debate on the allocation of spectrum released via the digital switchover.

In a keynote speech delivered at the CTIA wireless conference in Orlando, Florida in March 2007, Visa USA chief executive John Philip Coghlan said mobile payment Stefano Core is at a critical moment in its development. principal, Rome office Realisation of its full potential requires close collaboration between the wireless and card payment industries. Although m-payments are not forecast to represent a major revenue stream for mobile operators (in 3-5 years revenues are estimated to reach 1 billion Euros in Europe, to be shared between all the players in the value chain - MNOs, banks and other service providers), mobile operators should take this opportunity to build ARPU and launch value added m-payment services that are likely to help reduce churn. Mobile Ooperators now face the challenge of executing this strategy in a way that minimises investment while maximising returns.

The new ‘pay-as-you-go’ model

M-payments applications can take the form of micro-payments (merchant WAP sites), automated point of sale payments (vending machines, parking meters and ticket machines) and peer to peer (P2P) micro-money-transfer For M-payments to become mainstream, both a strong consumer demand and a secure, interoperable, technical infrastructure enabling transactions to be processed in a secure and realtime manner are required. Potential applications differ significantly from developing to developed countries. In the former, m-payments substitute banking transactions for the numerous “unbanked” citizens, while in developed countries the value proposition is the usability, convenience and speed of contactless payments enabled by mobile phones with embedded NFC (Near Field Communication) chips. In the Philippines, mPayment is bringing banking to the previously un-banked in many rural areas, and making P2P tiny micro-payments possible. Some 3.5 million people now use it, benefiting the economy, individuals, retailers and financial service providers. In South Korea, Visa partnered with SK Telecom in April 07 to launch a contactless payment application on a universal SIM card that is updated and personalized overthe-air (OTA). In addition, StarHub Mobile has teamed up with companies, including Citibank and Golden Village, to trial a contactless payment scheme that involves some 1,000 subscribers and taps a network of 20,000 acceptance points operated by its partner EZ-Link. Europe lags behind these markets in terms of the development of a mainstream mobile payments solution. A lack of a clear consumer need, given that Europe is far more of a cashless society than Asia, is the primary sticking point. In addition, co-operation between network operators and banks is hampered by the mobile operators’ desire to dominate the value chain which conflicts with the banks desire to own the customer relationship. Neither party seems able to agree how value should be shared and the retail infrastructure is not in place to enable the process. As a result, most European consumers have yet to be convinced by the argument of increased convenience and speed. We have been working with a range of players along the value chain, from mobile operators to banks and banking associations to help them evaluate m-payment initiatives. We have assessed the potential market for m-payment services, analysed

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Most European consumers have yet to be convinced by the argument of increased convenience and speed


NEWSLETTER

2008 UPDATE

business models implemented by other players, reviewed the technological requirements and prepared detailed business plans. Based on our unique understanding, we are in a position to work with all players along the value chain to evaluate the local options for a mobile payment system and identify the optimum way forward.

Over the last five years, the sponsorship market has outperformed the rest of the marketing industry globally, growing by William Field around two percentage points principal, London office more, each year. The market is dominated by sports sponsorship, with over 80% of reported deals in 2006. The growth of sponsorship spend matches the increasing attractiveness of sport as a vehicle for marketing messages: benefits include the ability to deliver mass media audiences in a generally fragmenting landscape, the opportunity to mobilise major affinity groups (sports fans) on behalf of a brand and the potential to reinforce or even overhaul a brand’s connotations, through association with a sports property that has an easilyidentified series of attributes. Alongside this market growth has come increasing sophistication in strategy development among both the sports properties and the sponsor brands, and, not least because of the growth in deal value, a greater focus on demonstrating the real business case for investment. This not only puts greater responsibility on sponsor brands to assess and evaluate investment opportunities properly but also means both the sports properties and the brands need to design deals that create greater value.

Discovering the Hidden Value of Sports Sponsorship

One of the most important - and, potentially, most difficult - aspects of a sponsorship to assess is the value that is specific to the sponsor. A sponsorship is essentially a brand partnership and therefore it is important not just to consider the sports property but the sponsoring brand too. Just because AIG is prepared to pay $99 million over four years to sponsor Manchester United, doesn’t mean that other brands would value the property at the same amount. The nature of the property would not necessarily change but what other brands could do with it (i.e. the way they would “activate” it) would - leading to different types (and values) of benefit. For brands, the starting place for understanding value must be the brand’s own strategic objectives. Starting with these objectives - and then determining metrics that will reflect performance towards them - can help make the valuation more realistic. Creating a bespoke means of measuring the return on investment - in the most recent jargon ‘return on objectives’ - helps design better deals; potentially creating greater value for both parties. During 2007, we used this approach to advise a range of clients (including major sports properties as well as global brands) on their sports sponsorship strategies and deals. Combining our strategic consulting skills and our unrivalled experience as a consultant to the sports sector, we have developed a rigorous, end-to-end approach to identifying, valuing, managing and monitoring sponsorship programmes. We work closely with management to understand and articulate objectives, and then forecast and measure performance against them. We then identify and help to secure deals that match these requirements. We expect the sports sponsorship market to continue to grow in 2008 - with prices for some major deals surpassing expectations. Whether these deals will all be underpinned by realistic business cases is another matter. We certainly hope to ensure they are.

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One of the most important - and, potentially, most difficult - aspects of a sponsorship to assess is the value that is specific to the sponsor


NEWSLETTER

2008 UPDATE

Usability is ‘the extent to which a product can be used by specified users to achieve specified goals Simo Säde with effectiveness, efficiency and principal, Helsinki office satisfaction in a specified context of use’, according to the International Standards Organization (ISO). Usability is one of the most important factors in the success of any web or portal page design, both fixed and mobile. The user must be able to do what they want, when they want, with ease and effectiveness.

Increasing Website usability

Good website and portal usability can both save, and make money, for a business. Curbing the loss of visitors due to poor usability can generate savings (58% of visitors experiencing usability problems on a web site don’t return according to Forrester Research), while money can be made by increasing conversion from existing visitors (according to Gartner 50% plus of online sales are lost because visitors can’t find what they want). According to IBM research, every pound invested in ease of use returns £10 to £100 to the business. To achieve the best possible user experience, usability should be considered in every phase of technical product development: we specialise in improving the digital user experience by developing digital media applications and solutions. The user experience team is based in Finland, but operates worldwide. Our usability consultants work on the interaction between the user and the interface to provide empirical data and insight during the whole lifecycle of the product, from initial plans to actual implementation. Individual services offered include field studies, user requirements definition, scenario-based design, concept creation, user interface design, usability expert evaluation and usability testing. Our goal is to ensure a high level of user experience for end-users, and a minimized product development risk for clients, through building simple and effective value generating solutions. Our customer base includes mobile operators, device manufacturers, and media companies, including TeliaSonera and Nokia, with whom we have a long history of collaboration.

The UHF band: co-operation not competition Mike Papadimitriou senior associate, London office

European policymakers at the World Radiocommunications Conference 2007 agreed to allocate 60MHz at the top of the UHF band for mobile services for use from 2015. This may be the first step in sharing the band’s beneficial propagation characteristics

- but is this “too little, too late”? Other regions represented at the WRC-07 had already proposed to allocate some of their UHF spectrum for mobile services at the Conference (or even before). The United States plans to auction more than 60 MHz of ‘digital dividend’ spectrum – the spectrum freed up from the switching off of analogue television – in January 2008, with industry analysts predicting proceeds of at least $25bn. The UHF band has historically been the default allocation for terrestrial broadcasting due to its effective propagation and coverage characteristics. Broadcasting in the band already generates enormous value and, in the future, broadcasters will need to occupy adequate spectrum to provide consumers with enhanced services such as HDTV, as well as to drive digital take-up to unlock the value created from switching off analogue signals.

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Usability is one of the most important factors in the success of any web or portal page design, both fixed and mobile. The user must be able to do what they want, when they want, with ease and effectiveness


NEWSLETTER

However, the characteristics of the UHF band would also enable mobile operators to roll out additional services, such as rural broadband, more efficiently than at other frequencies – offering consumers a more affordable and higher quality mobile broadband experience. Although UHF spectrum is a scarce commodity, Spectrum Value Partner’s research suggests that it is possible for broadcasters and mobile operators to share the band – allowing as many consumers as possible to have access to a wide range of broadcast and broadband services. The key challenge is to find the right balance. Three key actions will help generate this value: an early allocation of spectrum, the migration of DTT networks to MPEG 4 and DVB-T2 technologies and regional harmonisation of the released spectrum. An early allocation of spectrum would facilitate the swift launch of advanced broadcast and mobile services, such as HDTV and high-speed mobile broadband by removing uncertainty and allowing broadcasters and operators to plan for the future. The migration of DTT networks to MPEG 4 and DVB-T2 technologies would help achieve the spectrum efficiency necessary to sustain high definition on the terrestrial broadcast platform and release spectrum in capacity constrained markets, such as The Netherlands and Germany. Regional harmonisation of the released spectrum, wherever possible, would allow mobile operators to maximise benefits from the mass production of handsets and allow broadcasters to plan their DTT networks. None of these actions are easy. Regulators, broadcasters, operators and others will need to work together to unlock the real potential of the UHF band. Over the second half of 2007, Spectrum carried out a detailed independent economic assessment of the value of UHF spectrum, on behalf of a mobile operator industry consortium, comparing several mixes of spectrum allocation (between broadcasters and mobile operators). Of utmost importance was the understanding of the key opportunities (and barriers) that both will face and how regulators could be thinking about the value of the band. As such, Spectrum Value Partners is well-placed to help all parties think through specific issues and unlock the potential value in this critical spectrum band.

In many developed markets, led by the UK, TV is fast reaching what Director General of the BBC Mark Thompson described as its Rachel Healy ‘Martini Moment’ - meaning that content senior manager, London office will be available to consumers anytime, anyplace, anywhere. The U.K. has the fifthhighest broadband connections in the world, with 13 million households subscribing during 2007, according to Screen Digest. The majority of these households now have broadband at speeds fast enough to enable satisfactory consumption of audio-visual content online. In addition, advertising funds flowing into the internet have reached a tipping point. According to Zenith, 2007 saw UK internet spend reach over £2bn and the end of 2006 saw U.K. online ad spending overtaking national newspapers. Combined, these factors signal that the internet is now a significant distribution and advertising platform. In the words of Rupert Murdoch ‘a new generation of media consumers has risen, demanding content delivered when they want it, how they want it and very much as they want it’. For media players, it is no longer a question of when to invest in the internet space; now the challenge is how to invest for profitability and sustainability.

TV’s Martini Moment

UK broadcaster responses have been significant, and encouragingly flexible, over the last year. Firstly, C4 launched 4oD in December 06, as a mainly pay-per-view download service; offering the majority of its shows for between 99p and £1.99. By March 07, the market had spoken and Channel 4 acknowledged the need to offer content ‘for

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2008 UPDATE

Broadcasting in the band already generates enormous value and, in the future, broadcasters will need to occupy adequate spectrum to provide consumers with enhanced services


NEWSLETTER

2008 UPDATE

free’ (i.e. advertising funded) to drive take-up. A few months later, ITV launched ITV. com, offering not only a ‘free’, but also a ‘click- to-play’ model, betting that the take-up of online services would be driven even faster by removing the barrier to adoption of having to download a player. In addition, the BBC has committed £131m of licence fee money into the iPlayer, which also launched in summer 2007 in the UK. Although a download model, the BBC has big cross-platform visions for the iPlayer. It has already started to extend the iPlayer to conventional TV services such as Virgin Media’s cable based platform and, on this basis, the BBC trust has forecast that 1/3 of all BBC viewing will be on demand by 2011. UK broadcasters now also face new competition online, in the form of video aggregators like Apple, Joost and Babelgum. The challenge for UK broadcasters is to maintain relevance in a world where content is disaggregating. Much is talked about the rise of the programme brand and the demise of the channel brand. However, in a world of infinite choice the role of the trusted aggregator becomes ever more important. The opportunity for UK broadcasters is to be that aggregator of choice in the on-demand space. The risk is to be pushed out of that market by already successful online aggregators.

In many developed markets, led by the UK, TV is fast reaching what Director General of the BBC Mark Thompson described as its ‘Martini Moment’ - meaning that content will be available to consumers anytime, anyplace, anywhere

This is why leading broadcasters are now starting to pursue what Sir Martin Sorell calls ‘frenemy’ strategies; whereby they partner with traditional enemies to ensure survival. This logic has recently driven what John Smith, Chief Executive of BBC Worldwide, describes as a ‘historic agreement’ between UK’s largest broadcasters. The three UK terrestrial companies (BBC, ITV, Channel 4) have announced that they are co-operating on an internet joint venture - project Kangaroo - that will offer 10,000 hours of BBC, ITV and Channel 4 archive programmes on demand. While an understandable and potentially exciting move, it could yet be the cross-media ambitions of Kangaroo that prove most interesting. Latest signs are that while the future of TV is online, the consumption of the majority of that content is still likely to happen in a lean-back manner in the living room. The demarcation between lean-forward and lean-back content consumption has begun and can be linked to the difference between long and short-form content. This could explain why Google pulled out of longer-form video last year, exiting Google Video in favor of You Tube. If the living room is the future of long-form TV viewing, then it will be when the TV and PC link, so that programmes can be viewed via the television, from the internet, that things will really start to change for broadcasters. Kangaroo will reportedly be working on advanced set-top boxes and forming partnerships with other operators to allow televisions to be plugged directly into the net. If it can bring an intuitive, affordable, easy to use media centre offer to consumers then Kangaroo has the power to make home hubs mainstream in the UK. Perhaps Kangaroo can act as the springboard to this new future in the year ahead. Spectrum Value Partners has unique strategic and practical experience at the cutting edge of this field, having worked with a range of broadcasters both in the UK, Italy and Asia in both the creation and implementation of their broadband strategies in 2007. We understand the strategic issues and the complexities of implementation and can offer unrivalled understanding and capability to help our clients build profitable and sustainable growth in the internet TV space.

Getting the value from Value-Added-Services Saul Attie principal, Buenos Aires office

Fixed-line teledensity in Argentina is around 22%, similar to Brazil and Chile. Like elsewhere in Latin America, the shift is away from traditional telephony and towards mobility. The Argentinean wireless subscriber base has grown from 6.7 million in 2001 to over 39 million by the end of 2007 – a figure that

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Value Added services have the potential to offset the overall decline generated by flat average revenues per user on voice


NEWSLETTER

2008 UPDATE

is well above the Latin American average. Until recently, local operators focused on building and retaining customers by expanding their geographical coverage, improving customer care, and maintaining a leading-edge handset portfolio mix. However, things have started to change. Generating alternative revenue sources is now a priority for these operators, due to the flat, or even declining average revenues per user on voice: Value Added Services (VAS) have the potential to offset this overall decline, by increasing ARPU and reducing churn. In Western Europe, consumer VAS revenues already represent 14% of total revenues. VAS users also have significantly lower churn rates than non-VAS users; particularly in the business segment, where switching between operators is rather difficult. Additionally, VAS penetration is higher amongst top value customers, strengthening the “lock in” effect on these high value customers (according to a benchmark analysis in South America while VAS represents less than 5% of total revenues, revenues originated from VAS users account for almost 80% of total revenues). In order to maximise value from VAS services, operators need to adopt new product development process, driven by a needstate analysis approach, rather than following a classical technology-driven strategy. The new marketing focus seeks to identify appropriate market segmentation, to understand consumption habits, and to offer the best customized product to meet the identified consumer need. Segmentation criteria such as age, gender and social-economic group, should be used as criteria to help select which mobile content to offer and to drive the development of new value added products and services. In addition, VAS represents a new paradigm in terms of service dynamics, presenting the management challenge of operating short multi-product life cycles. This is in contrast to voice telephony’s traditional mono-product with long service life cycle. In the VAS market, the first mover advantage is quickly offset by other operators: a quick time to market is critical, on a continuous basis. The relevance of Value Added Services cannot go unnoticed: Wireless operators must redefine their business models to adapt to the customers’ new needs and to the proliferation of products with shorter life cycles. An end-to-end VAS process will have to be implemented to ensure success – ranging from product development, through pricing and channel definition and the design of internal processes and organization, to the identification of key performance indicators and the subscription of revenue agreements.

China is one of the fastest growing economies in the world, with real GDP growth forecast to be 10% in 2008 and 9.3% in 2009, according to EIU. Growth in the media Laurie Patten market in China reflects this general trend. senior manager, Hong Kong office The television advertising market alone is estimated to be worth US$6bn by the end of 2008 and is forecast to rise to US$9.1bn by the end of 2010, equal to a CAGR of 16%. In the broadcast sector, we are witnessing increased investment in production assets and new media. We are also seeing growth in the value of content rights, specifically sports rights, as the market for content becomes ever more competitive.

Dawn of a new media age in China

China is expected to become the world second largest advertising market, next to U.S.A., within the next three years. As a result, a significant number of media groups are expanding heavily into China and the level of investment has significantly increased since the opening of the advertising market at the end of 2005. According to ResearchInChina, the top five world advertising groups had established 38 branches

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China is expected to become the world second largest advertising market, next to U.S.A., within the next three years


NEWSLETTER

via joint venture in China by May 2006 and in 2005-2006 alone, WPP Group established 4 joint-venture companies including Mindshare Chengdu, Grey Global, Neo@Ogilvy and Beijing Hua Yang Lian Zhong Advertising Co. Such activity suggests that investment and competition in the Chinese advertising market will intensify going forward, both for, and amongst, incumbent and international players.

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2008 UPDATE

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