MANAGEMENT DISCUSSION & ANALYSIS ONMOBILE GLOBAL LIMITED ('ONMOBILE') 1. INDUSTRY TRENDS The increase of mobile subscriptions and the growth in mobile data consumption continues at a steady pace. In Q1 2015, the total number of mobile subscriptions was around 7.2 billion. This includes about 100 million new mobile subscriptions in the quarter alone. The number of subscriptions far exceeds the population in many countries. Mobile data continues to grow phenomenally. In Q1 2015, mobile traffic was 55% higher than in Q1 2014. It is expected that by 2016 the number of smart phone subscriptions will surpass those for basic phones and that by 2020, 80% of the mobile data traffic will come from smart phones. One of the drivers of the growth in smart phone adoption is the availability in developing countries of low-cost Android handsets. The dominance of Android in many parts of the world is now clearly established while iOS is dominating other parts. It is now acknowledged that the smartphone ecosystem gravitates around a binary system of operating systems with iOS and Android. Those 2 platforms have opened up a huge market for developers who have created more than 1.5 million apps on each platform. It is estimated that every year, 800,000 new mobile developers join the pack creating restlessly a higher number of apps bringing innovations and disruptions. While the increase in the number of mobile subscriptions, the spectacular growth in mobile data and the staggering number of mobile apps are all imbrssive, mobile operators are not all reaping the benefits. Rising competitive brssure, continued regulatory intervention in many markets and a decline in voice and messaging revenue are hurting mobile operators' ability to keep growing their business. On a brighter note, there has never been a better time to be at the center of the mobile ecosystem. As every part of people's life is being totally redefined by mobile services including housing, food and transportation, the mobile is keeping its crown as the king of the digital world. 2. OPPORTUNITIES Today, there are several areas that brsent significant opportunities for the mobile industry as a whole. • Disruption from mobile-first services: Every sector is being redefined through the mobile lens. Traditional sector such as transportations and food ordering are now being disrupted by mobile-first services. The customer relies more and more on his mobile phone to operate every part of this professional and personal life. As this wave of disruption continues, the mobile industry and the companies, which are following a mobile-first approach such as OnMobile, will benefit. • Mobile messaging: In the mobile services space, mobile messaging is without a doubt the space which has seen the most growth in the brvious 2 years and which has the highest engagement with end-users. In China, mobile users use WeChat not only for chatting but also for ordering concert tickets and even food. Mobile messaging is at the center of the mobile disruption. Plugging into those new ecosystems brsent an opportunity for countless mobile players who will be able to take advantage of this change in customer behaviors. • Rise of live video services: A new set of players in the mobile video space has taken central stage this year: the live-streaming mobile-centric video services. The 2 most well-known apps in this area are Meerkat and Periscope (owned by Twitter) and while video services have been around for a long time, the growth in usage of those 2 services has been imbrssive. Those mobile-first video broadcast services create new challenges for the data networks but also new opportunities in addressing them. As those services keep growing, the upgrade to 5G promising much lower latency will be mandatory. • Reinvention of content: The content space continues to be reshaped by mobile. An interesting trend is the rise of "micro-content": bit-sized multimedia produced and consumed by mobile users such as Snapchat photos, Dubsmash creations and Flipagram videos. People look more and more at fast media that can be consumed in less than 10 seconds. Mobile players who have experience in dealing with short content should have opportunities in dealing with this new wave of content creativity. • Internet growth in India: While most revenue from OnMobile comes from International, it is nevertheless important to note some remarkable changes in the home country. India is experiencing a growth in Internet consumption. There are today about 232 Million Internet users in India (+37% YoY growth). It is today the 3rd largest market after China and the United States but the fastest growing in terms of net adds. Mobile rebrsents 65% of the total internet country in India which is one of the highest level in the world. • Mobile monetization is strong: A few years ago, there were concerns about monetizing mobile, in particular the effectiveness of mobile ads were questioned. Today, Facebook makes more money from mobile than the Web. Mobile ad revenue now accounts for 76 percent of Facebook's advertising revenue and 72 percent of total revenue. Monetization on mobile is real and very strong. The mobile format, in particular on mobile ads, has seen unbrcedented creativity. It is worth mentioning the Facebook Carousel Ad system, the Pinterest Cinematic and the Google Local Inventory Ad. 3. CHALLENGES The mobile industry continues to be extremely competitive and there are several challenges that are affecting the entire industry or selected players within this industry. i. Regulation and policies: Regulation is making it difficult for traditional VAS providers to operate. For instance, the dual confirmation process for service activation that has been introduced in a number of markets created a cumbersome user experience that led to a fall in activation of traditional VAS services. While the impact of this particular policy is now absorbed, new policies can constantly make it more difficult to operate for traditional VAS providers as well as OTT providers. ii. Mobile messaging services: Mobile messaging services pose a serious challenge to traditional voice and messaging services. They are both an opportunity and a threat. As those services keep growing, they can either become more inclusive (like social networking services which open their platforms) or more exclusive. iii. Monetization of music services still difficult: The music business is going through a deep transformation. The growing trend is still music streaming where the main players are still not profitable. The arrival of Apple with its own offering Apple Music is creating now even more competition and disruption in this space. While as a whole the music industry is growing back, it is still increasingly difficult to operate profitably for the players in this space. 4. RISKS AND CONCERNS OnMobile operates in a very competitive market with competition from both legacy VAS companies and over-the-top services. Most of the business-to-business contracts follow a revenue share model in which the revenue is shared between the mobile operator, the content owners and OnMobile. As a consequence, the revenue accrues to the company only if customers' end-user subscribers use or subscribe to the services offered by them. As a result, the Company's revenue is subject to uncertainties that are beyond its control, such as customer acceptance of its application services along with the subscription rate, that is largely dependent on the pricing of the services, product placement, and promotional activities conducted by the Company's customers, either jointly with the Company or solely. As customers' attentions are moving more and more towards mobile messaging services, the way people consume content and media is also reshaped. This can rebrsent a competitive risk to OnMobile's ability to continue growing its customer base and operate profitably in its markets. Among the business-to-business solutions, the legacy RBT business has specific risk such as the decline of traditional telephony which has been limited the past few years but could accelerate if people are calling less or using more alternative ways of communication such as mobile messaging. 5. OUTLOOK 2015-16 People's lives continue to be changed by mobile in general and smartphone adoption in particular. In the content world, the first wave reshaped traditional content types - news, movies, music tracks and information. The second wave of change is interesting as it is about creating new content types - short texts, animated GIFs, dubbed videos and other digital creations that have been enabled by the mobile phone. This transformation and creativity brsent OnMobile with an opportunity to evolve its products, change business models and bring a new experience to users globally. OnMobile expects to play an important role in the creation, transformation, monetization and distribution of new types of content leveraging its large geographical footprint, its substantial base of users, and its deep understanding of audio content in particular. 6. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY In any industry, the processes and internal control systems play a critical role in the health of the Company. OnMobile's well-defined organizational structure, documented policy guidelines, defined authority matrix and internal controls ensure efficiency of operations, compliance with internal policies and applicable laws and regulations as well as protection of assets. Moreover, the Company continuously upgrades these systems in line with the best available practices. The internal control system is supplemented by extensive internal audits, regular reviews by the management and standard policies and guidelines to ensure reliability of financial and all other records to brpare financial statements and other data. The management information system provides timely and accurate information for effective control. 7. DISCUSSION ON CONSOLIDATED FINANCIAL PERFORMANCE FOR THE YEAR ENDED 2014-15 The consolidated financial statements relate to OnMobile Global Limited, referred to as "the Company" and its subsidiaries and associates together referred to as "the Group". The consolidation for the year includes figures of OnMobile Latam Holding S.L. formed during the year and Vox Mobili S.A. divested during the year. 9. CORPORATE SOCIAL RESPONSIBILITY OnMobile CSR policy aims to strive for economic development that positively impacts the society at large with a minimal resource footprint, embrace responsibility for the Company's actions and encourage a positive impact through its activities on hunger, poverty, malnutrition, environment, communities, stakeholders and the society. In the year 2014-15, OnMobile continued support towards "Education" as a social cause through Give India Payroll giving program. The Company had tie-ups with few NGOs during Indian festivals. We are currently working on our social investment strategy wherein we could leverage our technology to support a social cause. Annual report on our CSR activities is appended as Annexure VII to the Director's report. 10. CAUTIONARY STATEMENT Statements in the Management Discussion and Analysis describing the industry' projections and estimates (which are based on reliable third party sources) as well as Company's objectives, estimates, projections and expectations may be "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those exbrssed or implied. Important factors that could influence the Company's operations include economic developments within the country, demand and supply conditions in the industry, changes in Government regulations, tax laws and other factors such as litigation and labour relations. |