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Catching the hen’s egg -


moving pictures on mobiles
2008 / 11

www.detecon.com
Catching the hen’s egg – moving pictures on mobiles

Table of Contents
1 Executive Summary............................................................................................. 2
2 Bright prospects despite mixed success to date ................................................. 3
3 Mobile TV is not just traditional TV on a mobile device ....................................... 4
3.1 Towards an integrated approach of transmission technologies................... 4
3.2 Content composition – positive user experience is key ............................... 7
4 Defining the business model remains to be a challenge ..................................... 9
4.1 Positioning decisions need to be made early .............................................. 9
4.2 Pricing – hybrid approach the most promising........................................... 10
5 Conclusions & recommendations ...................................................................... 12
6 The Authors ....................................................................................................... 13
7 The Company .................................................................................................... 13

Opinion Paper 1 Detecon International GmbH


Catching the hen’s egg – moving pictures on mobiles

1 Executive Summary

Mobile-TV has been discussed for many years now. It has still not demonstrated market
success across the board. Nevertheless we see a bright future for Mobile-TV, or rather
moving images on a mobile handset as the necessary prerequisites are now coming into
place: growing access bandwidths, improved device usability, consumer oriented data plans,
increasing availability of made-for-mobile content among others. And after all, there are more
mobile handsets out there than TV sets. The probability to attract significant absolute
numbers of users is high.

There are important lessons to be learned from past attempts to make Mobile-TV successful.
It must be clear that the user experience will remain very limited when the linear broadcast
signal of traditional TV is merely transferred to the mobile device. Users are not interested in
watching lengthy formats when they are on the move. They might want to interrupt watching
a video or TV format to take a call or write a message and comfortably switch back to the
video afterwards.

To cater for such usage patterns a mix of technologies will be required – depending on the
usage context, the type of content and the size of the viewer group for which the content is
relevant. Broadcasts technologies scale best for mass relevant content such as live
transmitted soccer events. Unicast technologies will be most effective for video-on-demand
services. A Mobile-TV platform should be able to support the integration of theses different
technologies.

The technology used does not only influence the proposition. It also determines the business
model. Since telco operators are the ones running unicast networks, they are typically in
control of the value chain. Control over the broadcast business model, however, is not pre-
determined. It can be with any player in the value chain, depending on who acquires the
respective licenses.

Telcos must decide how deeply they want to get involved and what the right time to enter the
market is. The US market shows that a reseller model with less involvement can be a
workable approach for telco operators. A more integrative approach as practiced by Orange
in France, for example, can be an alternative. The right strategy is a function of regional
market conditions and corporate strategic objectives. In most regions of the Middle East the
Mobile-TV market is still evolving. Telcos should make use of the opportunity to establish a
carrier-led model before the window of opportunity closes.

Opinion Paper 2 Detecon International GmbH


Catching the hen’s egg – moving pictures on mobiles

2 Bright prospects despite mixed success to date

It is a compelling notion to deliver moving images to the 3.4 billion mobile handsets across
the globe (Strategy analytics for 2008). Clearly, the chance to dramatically increase the
reach of television has been and will remain a strong driver for Mobile-TV. Meanwhile, the
preconditions to make moving pictures on the mobile handset a success are becoming more
favorable every day. The telecom and media convergence in the Middle East has taken on a
new dimension. Mobility and interactivity are the catchwords under the customers and telco
carriers have to react with an appropriate supply of their customer to enlarge their position
within the liberalized and increasing competitive markets in Middle East.
Technology and distribution facts:
Q 340 satellite channels and 140 pay TV channels in Middle East & North Africa
(Arab Advisors Group, 2008)
Q More than 50% of mobile content revenues in the past years in Western
Europe came from outside the four leading entertainment categories music,
sports, film and adult content (Analyses, 2006)
Q Chinese IM service Tencent generates 25% (92 million US$) of its revenues
with mobile value added services, faster networks are necessary to maintain
market growth (Detecon Research, 2008)
Business facts:
Q Estimated willingness to pay is heterogeneous: 7 - 11 % of all mobile users in
Europe and North America will pay for Mobile TV basic content (Me:mi, 2006)
Q 65% of all experts see tracking and targeting as the most import impact factor
for video advertising. Ad price premium for tracking 5%, for targeted ad play out
10% (Detecon Research, 2008)
Q End-users in Middle East have above-average willingness to pay for premium
content e.g. for Pay TV (Arab Advisors Group, 2008)
Q The growth of the total advertisement revenue in Middle East is estimated at
17% for 2008 and provides a basis for advertisement business models for
Mobile-TV (Detecon Research, 2008)

Mobile-TV as part of the diversification strategies of telco carriers has become a significant
revenue driver for telco carrier. Given these positive trends, it may not be surprising that
analysts predict strong growth rates for Mobile-TV. The market research institute Jupiter
research forecast a worldwide revenue of 23 bn. US$ in 2010, which is shared in 18.4 bn.
US$ of broadcast Mobile-TV and 4.6 bn. US$ of video streaming via unicast technologies.
Mobile-TV has become mature in Middle East. The starting DVB-H-licensing processes in
Qatar and U.A.E. has underlined the potential of Mobile-TV as a stand-alone medium, which
can be generated by four key strategic success factors.
Despite these bright prospects, it must not be forgotten that the success of Mobile-TV to date
has been mixed – at best. There is also a hen and egg problem: the limited reach of mobile
motion pictures often does not justify additional production cost while market progress is
hampered by the lack of the right type of content. There are striking examples of market
failure. Germany, where Mobile-TV is still waiting for its breakthrough so far, like many
others, which demonstrates the relevance of the strategic success factors in technology and
business issues to ‘catch the hen’s egg’.

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Catching the hen’s egg – moving pictures on mobiles

3 Mobile TV is not just traditional TV on a mobile device

What is Mobile-TV? The term suggests the rendering of traditional TV programming on a


mobile device and certainly many people think in such categories. The term Mobile-TV is
misleading because it is too narrow when interpreted as linear TV programming only. We
therefore prefer to talk about motion pictures or moving images which includes everything
from linear TV (fixed scheduled programming) to non-linear formats such as video-on-
demand, web video services such as YouTube and embedded downloadable videos that
enrich news feeds and other textual media.

A Mobile-TV proposition, which is based on the traditional notion of TV, is likely to fail from
the very beginning. It is tempting to put existing linear TV on mobile handsets because this is
the easiest way to get the service up and running. Such an approach does not take into
account the specific usage patterns of watching motion pictures on a device that has a small
screen and is usually used when on the move. In fact, there is a technological evolution
visible starting at SMS services in 1992 and we believe that Mobile-TV is a peak within the
visual evolution on mobile handsets. However, Mobile-TV as unique selling proposition is a
strategic factor to establish an important competitive advantage in the liberalized and
increasing competitive telecommunication markets in Middle East.

Evolution of mobile content

Revenue

Broadcasting
Infotainment
portals
Full music &
PC stores video streaming
& portals
Java Full music
storefronts streaming
SMS, WAP Music
ring tones, ring tones downloads
logos Phone
to PC music
Music
Master Clips
Mono- Poly- Tones
phonic phonic

Time

3.1 Towards an integrated approach of transmission technologies

Mobile-TV, defined as the transfer of moving pictures to handsets, takes the liberty to use
different technology standards. Each technology is characterized by different strengths and
weaknesses, which make it differently suitable for the circumstances and purposes of each
market in Middle East.

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Catching the hen’s egg – moving pictures on mobiles

Broadcast – There are five main mobile broadcasting standards: DVB-H, MediaFlow, DMB,
TMMB and DVB-SH. Broadcasting technologies are perfectly suited to deliver high-quality
content to numerous users simultaneously and ensure an above-average quality of service.
On the other hand, the investments of broadcasting include the deployment of a cost-
intensive technical infrastructure, to ensure an adequate indoor coverage, which requires
network densities equal to cellular networks. Especially for the Middle East, the new
developed DVB-SH technology as a hybrid solution of DVB-H and ETSI SDR enables a
direct connectivity to handsets in rural areas such as deserts and a unique indoor coverage
in urbanized areas.

Technologies
Broadcast Multicast Unicast

Point-to-Multipoint, Terrestrial & Point-to-Multipoint; Point-to-Point over cellular network;


Characteristics Satellite based; uni-directional bi-directional bi-directional

Distribution method To all user To all user or specific user groups To single user

Bitrate 128 – 256 kbps; high data rate 128 – 256 kbps; high data rate 40-128 kbps; low - medium data rate

Scalability
Unlimited Unlimited Limited (5-8 users per cell)
(# of concurrent user)

Capacity Up to 30 (depending on the standard


4 - 16 Virtually unlimited
(# TV channels) and frequence spec.)

Coverage Limited indoor coverage Good Good

DVB-H, MediaFlo, DMB-T, DVB-SH,


Standards TMMB, S-DMB
MBMS,BCMCS, CMB, TDtv GPRS, EDGE, 3G, 3.5G

The handset availability for broadcasting standards is highly limited. The main standards
don‘t show more than 10 handset models.

Multicast – The strengths of multicast are given by relatively small changes to the
underlying 3G standard and the same level of coverage without additional spectrum,
licensing or base-station construction. However, multicast technologies including MBMS eat
in the 3G spectrum, which is already used by operators for voice and data services. Because
mobile multicast technology has only just recently reached commercial grade, very few
terminals are available so far.

Unicast – The unicast technology is the most used transmission standard for moving
pictures in the world. The availability of handsets is excellent. In contrast to broadcast
technologies, unicast has a backchannel capacity enabling interactivity. Unicast technologies
leverage and capitalize on current infrastructure and utilize existing spectrum allocations and
network coverage. In addition, the transmission capacity can be significantly enhanced via
the introduction of HSPA. However, unicast technologies show weaknesses in traffic scaling
and Quality of Service in case of a large number of concurrent users. In general, cellular
networks in Middle East, 2 & 2.5G networks are optimized for voice services and limited to
stand the high volume network traffic of moving images.

The broadcast technology, including DVB-H, is most suitable for general interest content,
which is normally exported by the national wide TV stations. On the one hand the
broadcasting technology is characterized by the highest investment cost compared with each

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Catching the hen’s egg – moving pictures on mobiles

other delivery technologies. Otherwise the broadcasting technology displays a critical cost
advantage in terms of a decrease of the corresponding fixed costs and a cheaper becoming
supply of the users. In fact, given technical infrastructures of DVB-T can be used to
implement a DVB-H network without significant monetary investments. The Middle East
offers favorable geographical circumstances for the implementation of the broadcasting
technology to mobile handsets, because of a worldwide above-average concentration of the
population, which links the investment cost in the broadcasting technology significantly.

The capacities of the common broadcasting technologies, e. g. DVB-H, are limited to about
30 channels. The technological circumstances of the broadcasting technologies means that
a broadcast offer can be complemented with multicast and unicast technology to avoid that
Mobile-TV is merely re-use channel of the stationed TV. We believe that the sustainable
success of Mobile-TV in Middle East is highly depended on the effort of telco carriers to
establish a medium, which is perceived as a self-standing and reflecting the specific traits of
a mobile usage context.

Apart from broadcasting technologies, MBMS is the most effective cellular phone network
distribution technology to deliver maximum 16 channels of thematic or local content in Middle
East. The multicast technologies as a point-to-multipoint technology are characterized by a
lower network load than unicast technologies. The unicast technologies differ mainly in terms
of the timing request of the user, which increases network traffic and generates above-
average supply costs compared to any other transmission technology.

It is remarkable that telco carriers still focus the unicast technology to offer Mobile-TV to their
customers. We believe that an integration of the technologies to a Mobile-TV platform along
the Long Tail is the key to establish a compelling proposition with an elaborate content offer.

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Catching the hen’s egg – moving pictures on mobiles

3.2 Content composition – positive user experience is key

“Content is king” (Derrek Francis)

It is essential that a proposition for


moving images take the specifics of
FanTESStic - a format for mobile phones
mobile usage behavior on a small
screen into account. The user
experience of a mobile device does
not tolerate just traditional TV formats
that appear as miniature images on a
much smaller screen. Fitting formats
are not yet available in abundance,
justified by the high production costs.
However, some progress has been
made lately: e.g. Endemol has
partnered with a number of mobile
phone operators for its latest venture
and has created a new division
focused purely on mobile content,
confirmed by Peter Bazalgette at
Mipcom.

The user experience does not only


depend on what is displayed but also
on how it is displayed. To attract a
larger audience made up of average
users without specific technical interest or background, a service must be easy to install and
use. Many services in the Middle East market lack that characteristic and waste the revenue
opportunity. The results are deflating: Users are frustrated and the telco carriers have to
handle the challenge to win back these disappointed customers. A moving pictures offer
should not be launched unless a positive experience of first usage is guaranteed. Telco
carriers have to design simple user interface without the necessity of the user to have any
specific technological know-how. In addition, the Mobile-TV offers should also be easy to
switch between different services, e.g. to interrupt viewing to take a call and to return to the
service afterwards.

The rendering quality of a moving image displayed on a mobile device significantly


influences the user experience. Detecon’s market research has shown that users will tolerate
poorer quality on the mobile screen compared to the quality expected from traditional TV.
However, we don’t believe that Mobile-TV will see a breakthrough unless the transmission
quality delivers images without disturbance and adequate resolution, partly making up for the
natural limitations of the small screen. Orange in France, for example, offers some of its
Mobile-TV programming in HD quality. Orange has an impressive customer base of more
than 500.000 Mobile-TV users.

In addition to the general disposition of Mobile-TV, telco carriers have to consider cultural
circumstances and the expectations of the users regarding moving pictures. The Middle East
is often understood as a homogeneous area in cultural terms, but an internal study of
Detecon underlines that the national preference criteria differ significantly in aspects of
language, formats, origin of production and moral standards.

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Catching the hen’s egg – moving pictures on mobiles

Finally, a Mobile TV proposition must cater for the users’ expectation that the service be
interactive. According to our analysis, interactive services with live notes such as live-user-
participation or live-show-gaming are the most popular interactive Mobile TV services. But
the list of additional value adding interactive services doesn’t end here. Other services such
as ticketing sales are thinkable and in fact, already visible in other markets like Hong Kong.
PCCW has launched a full range of interactive services in addition to its moving pictures
offer. From a provider perspective, interactive services offer a great opportunity to establish
unique selling proposition for their main voice services and leverage the unique asset of
mobility.

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Catching the hen’s egg – moving pictures on mobiles

4 Defining the business model remains to be a challenge

Mobile-TV as a ‘system product’ necessitates a sustainable business model due to the fact
that different players with diverse industry backgrounds and cultures are involved. The
complexity even increases when we apply a broader perspective of moving pictures,
including linear programming as well as all sorts of on-demand services. The business
models for broadcasted mobile content fundamentally differ from those that are distributed
via unicast technology.

4.1 Positioning decisions need to be made early

When it comes to making a strategic decision about embracing the moving pictures
proposition, for most telco operators the main questions are:
1. What is the right level of engagement in the moving images opportunity?
2. Which part of the proposition should be developed at what time?

Detecon has identified three generic business models to establish a Mobile-TV value chain.

Three generic business models

Content
STEP- Content Service Pro- Mobile TV Marketing, Return
aggre-
Factors provisioning visioning Distribution CRM, Sales channel
gation

1
Political I.
Factors Broadcaster
led model
X
Content Producer Broadcaster Broadcaster BNO (Broadcaster Broadcaster Telco carrier
2 could also take this role)

Economical
Factors
Mobil TV III.
3
Market
Wholesale
model
X X X
Technological Content Producer Broadcaster Telco consortium BNO (consortium Telco carrier Telco carrier
Factors could also take
this role)

4
II.
Social
Factors
Telco carrier
led model
X X X X
Content Producer Broadcaster Telco carrier Telco carrier Telco carrier Telco carrier

The most rewarding model from the perspective of a telco operator is the carrier led model.
A telco carrier manages the end-to-end relationship with customers, service offering and
marketing, distribution, billing and the customer-relationship-management. In addition, a
telco carrier has to aggregate the content from broadcaster and content providers and
controls the offered Mobile-TV platform as a Gatekeeper. In this position, the telco carrier
acts as a dominating party within the business model and claims the lion’s share of the profit:

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Catching the hen’s egg – moving pictures on mobiles

I. Broadcaster led model II. Wholesale model III. Telco carrier model
Q Could provide wholesale Telco Q Buys a wholesale Mobile TV Q Manages the end-to-end
carriers service to the package from the Independent relationship with customers,
broadcaster. service offering and marketing,
Mobile TV service provider and
distribution, billing & CRM
Q Could performing billing & sell it to end consumer.
Q Aggregating content from
collecting. Q Manages the end user broadcaster and content
Q The involvement could be relationship providers
limited except for providing the Q Controlling the Mobile TV
Positive aspects:
up-link. Platform
+ Integrated service provision – a
Positive aspects: Positive aspects:
complete package will be
+ Commercial risk is with the offered by the MNO – Mobile + Integrated service provision – a
broadcaster. Services + TV complete package will be
Negative aspects: offered by the MNO – Mobile
+ Interactive services are possible Services + TV
- Interactivity possible, but with one single bill
+ Interactive services with single
separate bills from the Telco + Reduced complexity; efficient bill
carriers and broadcaster. usage of spectrum Negative aspects:
- Consumer need to subscribe to Negative aspects: - Complexity of dealing with
more then one service. To the
Telco carriers for mobile - Possibilities for differentiation content providers, running the
are limited (exclusive channels Mobile TV service platform
services and to the Broadcaster
are still possible) - Inefficient usage of frequencies
for Mobile TV. from a public view point

On the flip side, such an approach naturally requires a higher level of investment and risk.

4.2 Pricing – hybrid approach the most promising

„As far as I can see it, this medium is really expensive. Mobile TV specific content is more
expensive to produce per minute than the traditional TV. I ask myself, who is going to pay
this? I am sure, it won’t be the customer, also not in Middle East.“ (Aat Schouwenaar at the
Digital TV conference in Dubai 2008)

Detecon internal studies suggests that users are willing to pay between 1 and 15 Euros per
month for Mobile-TV in Middle East, meaning linear programming that resembles traditional
TV, when the service meets their expectations. However, several market research
institutions have revealed that the price keeps users away from Mobile-TV. So what is the
right approach? Because service providers regard Mobile-TV as a new source of revenue
and in order to cover costs, the common market approach today is to charge users for the
service.

There is no one-fits-all-pricing strategy in Middle East. Again, the provider strategies as well
as the market conditions play a role. In Middle East, free TV via satellite is wide spread.
Users might wonder why they should pay for something which they can have elsewhere free-
of-charge without even having to accept the discomfort of a small screen? The added value
of ‘TV anytime, anywhere’ might not suffice to justify the charges. And in fact, Mobile-TV in
Middle East has not taken off yet.

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Catching the hen’s egg – moving pictures on mobiles

Market circumstances in Middle East

High Egypt UAE


content offer
Diversity of

Low

Saudi-Arabia

Low High

Willingness to pay

On the other hand, since market research generally indicates that there is a willingness to
pay among users, and since in some markets such as France and the US payable services
have actually attracted significant numbers of users, a provider should not forego the
revenue opportunity upfront by making the service free of charge at market launch.
Generally, we recommend a market approach, which differentiates between ‘low hanging
fruit’, i.e. a basic content offering with a certain appeal that is offered for free as an appetizer
and premium content of high quality and attractiveness, offered for money.

We don’t see a business model based on ad-funded content as a substitute for directly
payable service for some time to come. Mobile advertising will need time to mature and to
reach commercial grade (for more details see our opinion paper “Mobile Advertising –
making money from the fourth screen”). However, we are very positive about the benefit of
advertising as a complementary means to avoid unpopular high prices or as a means to get
additional return on investments, especially in Middle East.

Detecon has calculated an annual growth rate of 20,3% of the net advertising market from
2002 to 2006 in Middle East, which indicates the increasing potential of advertising based
Mobile-TV. However, the TV advertising spend per capita is still low compared with the US
or Europe, but the industrial advantage of the advertising industry is justified by a
simultaneously growth within several advertising channels and not an adapting process from
the stationed TV to Mobile-TV.

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Catching the hen’s egg – moving pictures on mobiles

5 Conclusions & recommendations


Q The competition of technology standards has totally broken out. There are
several transmission standards used around the world, which can be classified
into the three categories: Broadcast, multicast and unicast. There will be no
generally applicable technology direction for all operators in Middle East. The
right path will depend on external market conditions, current technological
infrastructure as well as internal factors such as long-term strategies of the
telco carrier.
Q Distribution is not dependent on a specific transmission technology. If Mobile-
TV is defined as a medium as mentioned above, an appropriate integration of
the transmission technologies along the Long Tail is a key structure to ensure a
cost-effective distribution and diversified content offer. Content-for-mobile
differentiates Mobile-TV from a simple re-use-channel and exemplifies how
necessary alliances of content producer, telco carriers, media companies and
handset manufacturers in terms of taking the financial risks are.
Q Mobile-TV as a ‘system product’ allows three generic business models. To
make Mobile-TV successful, it is mission critical to develop a cooperative
approach that reflects the potentially diverse interests of all involved parties.
Controlling the customer relationship, telco carriers have the chance to act as
dominating party within the Mobile-TV value chain and to claim a major share
of the revenues.
Q The average willingness to pay for Mobile-TV varies significantly in a range of 1
and 15 US$ per month. According to the experiences of the prospective
customers with free TV via satellite in Middle East, a hybrid pricing approach
is most appropriate for Mobile-TV. Detecon recommends that telco carriers
take the opportunity to take on a bigger piece of the cake, given an advertising
based Mobile-TV as a unique opportunity to establish a new footprint as
advertising distributor.

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Catching the hen’s egg – moving pictures on mobiles

6 The Authors

Falk Wöhler-Moorhoff is a Managing Consultant with Detecon International. Following


completion of his Degree in Business Studies he worked for a German company in
Singapore for three years and then for a start-up company for two years before joining
Detecon. He has a wide range of project experience in the telecommunications industry both
in Germany and abroad. In his work he concentrates on the areas of business innovation
and telco/media convergence.

Falk.Woehler-Moorhoff@detecon.com

Ahmet Genc is a Junior Consultant with Detecon International. In his master thesis he
focused on the strategic success factors of Mobile-TV in Middle East. He worked for
international consultancy companies and has a wide range of project experience in the
telecommunications, media industry and financial industry. In his work at Detecon, he
concentrates on the areas of growth strategies and revenue forecasts.

Ahmet.Genc@detecon.com

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Catching the hen’s egg – moving pictures on mobiles

7 The Company
Detecon International GmbH

Detecon International is a leading worldwide company for integrated management and


technology consulting founded in 2002 from the merger of consulting firms DETECON and
Diebold. Based on its comprehensive expertise in information and communication
technology (ICT), Detecon provides consulting services to customers from all key industries.
The company's focus is on the development of new business models, optimization of
existing strategies and increase of corporate efficiency through strategy, organization and
process improvements. This combined with Detecon's exceptional technological expertise
enables us to provide consulting services along our customers' entire value-added chain..
The industry know-how of our consultants and the knowledge we have gained from
successful management and ICT projects in over 100 countries forms the foundation of our
services. Detecon is a subsidiary of T-Systems, the business customers brand of Deutsche
Telekom.

Integrated Management and Technology Competence

We possess an excellent capability to translate our technological expertise and


comprehensive industry and procedural knowledge into concrete strategies and solutions.
From analysis to design and implementation, we use integrated, systematic and customer-
oriented consulting approaches. These entail, among other things, the evaluation of core
competencies, modular design of services, value-oriented client management and the
development of efficient structures in order to be able to distinguish oneself on the market
with innovative products. All of this makes companies in the global era more flexible and
faster – at lower costs.

Detecon offers both horizontal services that are oriented towards all industries and can entail
architecture, marketing or purchasing strategies, for example, as well as vertical consulting
services that presuppose extensive industry knowledge. Detecon's particular strength in the
ICT industry is documented by numerous domestic and international projects for
telecommunications providers, mobile operators and regulatory authorities that focused on
the development of networks and markets, evaluation of technologies and standards or
support during the merger and acquisition process.

Detecon International GmbH


Oberkasselerstr. 2
53227 Bonn
Telefon: +49 228 700 0
E-Mail: info@detecon.com
Internet: www.detecon.com

Opinion Paper 14 Detecon International GmbH