Analysis & forecasts for two key types of application-based charging / non-neutral mobile Internet business models. Zero-rating of mobile data is used to exempt certain applications or content from users' data plan quotas, and is used in both developing and mature markets. In essence, nobody pays for the data - although the mobile operator may work a revenue-share deal for paid content, or may look to upsell the users with more paid data access. Sponsored data is similar, but involves the content/app provider paying for data traffic on behalf of the user. It has been popularised by AT&T's announcement in January 2014, although it has gained only limited traction so far. This presentation, based on Disruptive Analysis' June 2014 on Non-Neutral Mobile Broadband models, examines the sub-segments and likely success factors for each type of offer.

1. Mobile Broadband Business Models:
Sponsored Data & Zero-Rate Charging
Dean Bubley, Disruptive Analysis
London, 30th June 2014
dean.bubley@disruptive-analysis.com @disruptivedean

2. About Disruptive Analysis
 London-based tech analyst house & strategic consulting firm
 Cross-silo, contrarian, independent
 Advisor to telcos, vendors, regulators & investors
 Research reports, internal workshops & advisory projects
 Clients include many top telcos, vendors, webcos & startups
 Speaking roles at 30+ events per year in Europe, US & Asia
 Research on “Telco-OTT Strategies”, WebRTC etc
 New Strategy Report on “Non-Neutral Broadband Models”
Twitter @disruptivedean Blog: disruptivewireless.blogspot.com
Copyright Disruptive Analysis Ltd 2014June 2014

3. Telecoms industry in a nutshell
Copyright Disruptive Analysis Ltd 2014June 2014
Flat/falling telephony
Declining SMS
Direct/Internet competition
Substitutes & alternatives
Costly infrastructure
Regulatory impact
Data still growing
Digital content
Verticals
Telco-OTT
APIs & partnerships
Better segmentation

4. The big problem for the mobile industry…
Copyright Disruptive Analysis Ltd 2014June 2014
0
200
400
600
800
1000
1200
1400
2012 2013 2014 2015 2016 2017 2018 2019
Voice telephony
VAS / digital
Internet/data access
SMS/MMS
$bn – Global Mobile
Operator Revenue
?
New/partner services?
Voice/video-based?
Verticals?
High-end mobile users
already nearing
saturation for mobile
Internet spendSource: Disruptive Analysis “Non-Neutral Mobile Broadband” report, June 2014

5. 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Huawei E220
USB modem
Original
iPhone
(browser
only)
iPhone
3G +
AppStore
H3G open-
Internet
access
(+Skype etc)
NTT DoCoMo
iMode, 1999
Nokia 9000
with HTML &
modem, 1996
O2/HTC
XDA
Facebook
Zero launches
Samsung
Galaxy
range
starts
Android
goes
mainstream
Kindle 3G
WhispernetT-Mobile
Web’n’Walk
Verizon
BREW app
store
AT&T
sponsored
data
1st LTE
network &
zerorated
music
iPad 3G
KPN threatens
OTT charging
Tuenti zero-
rates
TelcoOTT
WebRTC app
History of mobile data business models/devices
Galaxy
Note LTE
Phablet
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Open Internet access was not original intent for 3G data services

6. Mobile data: Tsunami or just normal rising tide?
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3G/4G Smartphone data use
• Disruptive Analysis has doubts on realism of some traffic forecasts
• Growth manageable with pricing, small cells, LTE, LTE-A. 5G is mostly hype for now
• “Spectrum crunch” narrative highly questionable (landgrab vs broadcast?)
0%
20%
40%
60%
80%
100%
120%
2012 2013 2014 2015 2016 2017 2018 2019
Growing usage per smartphone
Growing # smartphone subs
?
NB 2012-13 subs growth possibly skewed by
older smartphones without data plans
Smartphone data use growth year-on-year
c20-30% growth/user/yr
Source: Ericsson, Disruptive Analysis

7. Many issues for app-based biz models
Copyright Disruptive Analysis Ltd 2014June 2014
No clear
definition
of “app”
Business
model fit
Device
depend-
ency
Device
OS API
exposure
HTML5 WiFi fit
OSS /
BSS
head-
aches
Pricing,
selling,
support
Network
depend-
encies
Arbitrage
& other
side-
effects
Organis-
ational
troubles
Mobile
differs
vs. fixed
Non-neutral models of mobile broadband access face a broad range of
generic issues in implementation & commercialisation

8. Two different worlds for mobile data-plans
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Source: Disruptive Analysis “Non-Neutral Mobile Broadband” report, June 2014
Nobody who can afford the whole Internet will be happy with just half of it

9. Application-based mobile data models
Mobile Data
models
Neutral open
access
User pays
for all data
Certain data
zero-rated
Certain data
sponsored
Partial
Internet
access
Specific
applications
allowed
Specific
applications
blocked
Differentiated
Internet
access
Paid priority
“specialised”
services
Differentiated
Wholesale /
MVNO
Copyright Disruptive Analysis Ltd 2014June 2014
Many of today’s mobile broadband plans
“Fully neutral mobile Internet”
Data treated equally, charged
differently: “Grey Area”
Data treated differently by network
“Non-Neutral”

10. Zero-rated data: 4 sub-types
• “Data inclusive” for video, music, gaming etc. sold by telco
• Long history of zero-rating eg for MMS, BlackBerry data traffic
• Competitive advantage in deal-making, not data subsidy
Paid bundled
apps / content
• Mostly used in developing markets; Facebook/WikiPedia Zero
• Risks of market distortion vs. benefits of digital inclusion
• Already very widely-used (but now banned in Chile)
Free apps /
content
• Most operators developing own comms/content apps
• Available to all Internet users, but poss. free for on-net subs
• Helps bridge Digital/OTT efforts with existing bundles
Telco-OTT apps
• Long history of zero-rating data for OSS/BSS purposes
• Self-care, updates, billing portals, customer service helpdesks
• Mostly not Internet-based but private internal data network
Self-care & self-
service
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11. Zero-rated data – attractiveness matrix
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Good
Fair
Poor
Bad
Source: Disruptive Analysis “Non-Neutral Mobile Broadband” report, June 2014
Attractiveness for mobile operators vs. key criteria
Telco-
OTT
apps
Paid
apps /
content
Free
apps /
content
Self-
care &
service
Ease of implementation
Ease of selling by telco
Ease of buying by client
Revenue potential
Impact on network
Reputational risk
Market maturity required
Workarounds/"gotchas"
Adjacent revenues/costs
Prevalence 2014
Prevalence 2019
Sponsored data for:

12. Zero-rating examples are already widespread
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13. Use of zero-rating will continue to grow strongly
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0
200
400
600
800
1000
1200
1400
1600
1800
2000
2012 2013 2014 2015 2016 2017 2018 2019
Global mobile Internet
users exploiting zero-rated
data, m, year-end, est.
Source: Disruptive Analysis “Non-Neutral Mobile Broadband” report, June 2014
Note: excludes non-Internet zero-rating eg of MMS & BlackBerry BIS data

14. Sponsored data: 4 sub-types
• Advertiser pays to send ads/promos/demo etc
• Fits into existing ad-buying value chain
• Consumers resent paying to “be advertised at”
• Concept believed to be invented by Disruptive Analysis in Nov 2010
Paid advertising
traffic
• Data relating to specific URLs is paid by site owner
• Highly unclear there is either demand or robust technologyPaid website traffic
• Certain applications’ data traffic is paid-for by app provider
• At least 10 separate major problems. Almost unworkable
• In extremis, risks replacing retail data fees with cheap wholesale
Paid app data
(1-800 apps)
• Companies pay for employees’ work data used on own devices
• Potential to combine with VPN/BYOD & other solutions
• Moderate potential but business-case unproven
Enterprise/BYOD
paid data
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15. Sponsored data – attractiveness matrix
Copyright Disruptive Analysis Ltd 2014June 2014
Ads Web Apps BYOD
Ease of implementation
Ease of selling by telco
Ease of buying by client
Revenue potential
Impact on network
Reputational risk
Market maturity required
Workarounds/"gotchas"
Adjacent revenues/costs
Prevalence 2014
Prevalence 2019
Sponsored data for:
Good
Fair
Poor
Bad
Source: Disruptive Analysis “Non-Neutral Mobile Broadband” report, June 2014
Attractiveness for mobile operators vs. key criteria

16. Sponsored data…. so far, mostly just AT&T
Copyright Disruptive Analysis Ltd 2014June 2014
?
Plus one or two other
unproven rumours (trials?)
Advertising partners Enterprise mobile
app partners
Very few sponsored-data customers
announced or reported by users
As well as many technical complexities,
sponsored data models need strong
partnerships to sell/support

17. Sponsored data – limited growth potential
Copyright Disruptive Analysis Ltd 2014June 2014
Sponsored Mobile
Data revenues,
worldwide, $bn
Source: Disruptive Analysis “Non-Neutral Mobile Broadband” report, June 2014
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
2012 2013 2014 2015 2016 2017 2018 2019
Advertising traffic
Other use-cases
Sponsored data expected to be <1% total mobile broadband revenue in 2019
Sponsored data may reach 3-5% total mobile advertising budgets

18. Successful non-neutral models
Legally
permissible
Technic
–ally
feasible
Consumer
demand
App /
content
player
appeal
Copyright Disruptive Analysis Ltd 2014June 2014
Practical forms of non-neutral
mobile broadband only a
small % of the conceptual
variants & use-cases

19. Policy & innovation…… …..vs. politics
Copyright Disruptive Analysis Ltd 2014June 2014
Strategy
Mobile
broadband
control
In-house
apps &
content
Marketing
/ Product
ITCore
network
Radio
network
Devices
Legal
Tensions
Tensions
Distance

20. Net/Not neutrality won’t stop data flattening too
Copyright Disruptive Analysis Ltd 2014June 2014
Sponsored data, paid-priority QoS etc will have negligible financial impact
Source: Disruptive Analysis Non-Neutral MBB Report

21. Conclusions
 Mobile operators hope to increase data revenues & control
 Developed markets: segmentation, loyalty & bundling add value
 Developing markets: converting low-ARPU voice users to data
 Pricing differentiation easier & less controversial vs. QoS
 Two-sided business models sounds theoretically appealing…
 … but are virtually impossible to create for mobile data
 Zero-rating already widely used & will grow further
 Applicable to free & paid content, plus admin & self-care tools
 Some questions over neutrality, but arguments mostly weak
 Sponsored data largely unworkable, except for advertising
 Generic 1-800 apps model almost impossible to create, sell or manage
 Bottom line: Zero-rating is key “mostly neutral” model
Copyright Disruptive Analysis Ltd 2014June 2014

22. Copyright Disruptive Analysis Ltd 2014June 2014
Published June 2014:
Non-Neutral Mobile Internet
Business Models Report
On request: private workshops &
expert advisory retainers
For details email
information@disruptive-analysis.com

23. www.disruptive-analysis.com
disruptivewireless.blogspot.com
@disruptivedean
information@disruptive-analysis.com
Skype:disruptiveanalysis
Copyright Disruptive Analysis Ltd 2014June 2014