1. Mobile Market in Finland Mathias Tallberg TKK Helsinki University of Technology mathias.tallberg@tkk.fi

2. Slide 2 Helsinki University of Technology Mathias Tallberg 29/03/2007 Outline Introduction The Finnish Mobile Market The Influence of Price Competition Impacts of 3G Handset Bundling Conclusions

3. Slide 3 Helsinki University of Technology Mathias Tallberg 29/03/2007 Introduction The nature of the mobile communications market is seeing rapid change Convergence of networks, services and devices Evolution towards all-IP The mobile networks are evolving towards: –higher data speeds and capacities, land lower latencies –reasonably priced connections Declining ARPUs It has become very difficult to predict what will happen in the future (market uncertainty). Possible reasons may be e.g.: –deregulation of telecommunications in general; –technology evolution; –convergence of networks, services and devices; –new services that are disruptive by nature; –emergence of new and innovative business models.

4. Slide 4 Helsinki University of Technology Mathias Tallberg 29/03/2007 Introduction Much has happened during the last five years on the Finnish mobile communications market. Recent developments include: –the introduction of mobile number portability (MNP) in July 2004 –the emergence of mobile virtual network operators (MVNO) –price war and hyper-competition followed by consolidation –late deployment of 3G networks, however, with early upgrades to HSDPA –the allowing of 3G handset bundling.

5. Slide 5 Helsinki University of Technology Mathias Tallberg 29/03/2007 The Finnish Mobile Market Fresh studies and statistics (Ficora, 02.03.2007) –According to market research done by Ficora approximately 100 000 bundled 3G-subscriptions was sold in Finland between October 2006 and December 2006 (Q4) –These accounted for approximately 32% of all “new” subscriptions during this period –Increase in usage compared to the same time period in 2005 e.g.: growth in mobile voice usage 23% growth in SMS usage 22% growth in MMS usage 35% growth in mobile data traffic nearly 300%

6. Slide 6 Helsinki University of Technology Mathias Tallberg 29/03/2007 The Influence of Price Competition Huge impact on the profitability of all Finnish mobile operators One of the most important factors was the introduction of MNP in July 2004 –a total of over 3 million mobile numbers have been ported during the period between July 2004 and the end of 2006 –recently, there has however been a decline in the amount of ported numbers –started already before the start of 3G handset bundling in 2006 –market consolidation had an impact already before April 2006. Market consolidation –the acquisition of Saunalahti by Elisa –market exits (Tele2 and ACN Finland) Finland was the 35th country in the world to open commercial 3G operations –Sonera opened its 3G network for commercial use in Q3/2004 –Elisa followed soon after by opening their network Q4/2004 (HSDPA Q1/2006) –DNA in late in year 2005 (HSDPA Q1/2007)

7. Slide 7 Helsinki University of Technology Mathias Tallberg 29/03/2007 Impacts of 3G Handset Bundling Bundling of handset and subscription allowed for 3G from April 2006 –slow progress of 3G and mobile data services has motivated the regulator to allow bundling –for a 3 year period, max. 2 year contracts etc. Why did mobile operators start offering bundles after the law change? –because bundling helps to reduce churn –because bundled subscriptions bring higher ARPU –a new way to handle marketing and sales of subscriptions –to improve the handset base

8. Slide 8 Helsinki University of Technology Mathias Tallberg 29/03/2007 Framework: Impacts of 3G Handset Bundling on Mobile Data Usage in Finland

9. Slide 9 Helsinki University of Technology Mathias Tallberg 29/03/2007 Impacts of 3G Handset Bundling Rapid transition from no-bundling to 3G handset bundling Ignores non-usage consequences of handset bundling –also non-bundling factors affecting service usage Bundling of 3G handsets seem to work in Finland –Bundling of 3G handsets has played a big role on total amount of sold 3G handsets since April 2006 –300 000+ 3G bundles sold by the end of 2006

10. Slide 10 Helsinki University of Technology Mathias Tallberg 29/03/2007 Impacts of 3G Handset Bundling What has happened in Finland? –Regulatory action –Market consolidation => –Improved base of sophisticated handsets –Less focus on price competition (both for bundled and unbundled) –More focus on mobile data services –Faster build-out of 3G network coverage and capacity => –More usage of mobile data services

11. Slide 11 Helsinki University of Technology Mathias Tallberg 29/03/2007 Impacts of 3G Handset Bundling April 2006Before (Jan 06)After (Jan 07) Handset bundlingNot allowedAllowed - Targeted CompetitionHeavily on priceServices and 3G-packages Mobile handset base~0,5% 3G~10% 3G Marketing of mobile dataNoStill No Usage of mobile dataX MB(3-4)*X MB Customer churn>15%<15% Switching costLowHigher Sources: COIN Project, Operators, Ficora, Numpac

12. Slide 12 Helsinki University of Technology Mathias Tallberg 29/03/2007 Conclusions The nature of the mobile communications market is seeing rapid change Price competition has had a huge impact on the profitability of all Finnish mobile operators Targeted 3G handset bundling, if carefully tuned by regulator, can have a positive impact on the adoption of new mobile data services Bundling of 3G handsets has worked in Finland, at least until now –However, similar positive impacts may not be easy to achieve in the future

13. Thank You!