Regional telecom trends and strategic options for liban telecom sep 2004


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  • Regional telecom trends and strategic options for liban telecom sep 2004

    1. 1. Beirut September 22, 2004 Presentation Regional Telecom Trends and Strategic Options for Liban Telecom Ministry of Telecommunications
    2. 2. This paper presents the strategic considerations for the creation and privatization of Liban Telecom in the context of the regional telecommunications sector trends <ul><li>The M.E. telecom sector has progressed at an unprecedented pace since 1998, creating an unexpected ‘democratization’ of communications services </li></ul><ul><li>The underlying driver was, is, and will continue to be a universal acceptance of deregulation as an indispensable process to develop the sector </li></ul><ul><ul><li>Concept is now widely anchored among policy makers, albeit at different stages of maturity </li></ul></ul><ul><ul><li>Challenge has evolved from why to how to deregulate, and the M.E. still has a long way to go </li></ul></ul><ul><ul><li>The Lebanese telecommunications market is likely to accompany the regional liberalization trend </li></ul></ul><ul><li>The emerging environment poses considerable challenges for incumbent operators as they fast-track their readiness to meet the future challenges </li></ul><ul><ul><li>The corporatization and privatization of Liban Telecom is a potential vehicle for increasing the incumbent’s readiness for market liberalization and full competition </li></ul></ul>
    3. 3. Total Connectivity has progressed rapidly, averaging between 22% and 31% per year … Note: GCC includes: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE. Levant and North Africa include: Algeria, Egypt, Jordan, Lebanon, Morocco, Syria Source: ITU 2004 Total Connectivity (Fixed + Mobile) (in Thousand Subscribers) GCC Markets Levant & Selected North Africa Markets Fixed Mobile CAGR (1998-2003) 6,844 22% 18,645 8,800 33,432 CAGR (1998-2003) 91% 31% 14% 36% 7%
    4. 4. … positioning the total region well ahead of the world average Total Connectivity CAGR (1998-2003) Note: M.E. market definition includes Gulf (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE), Levant and North Africa (Algeria, Egypt, Jordan, Lebanon, Morocco, Syria) Source: ITU 2004 Comments <ul><li>Revenue growth estimated at a CAGR of 17%, with 2002 total nearing USD 18 Billion </li></ul><ul><li>Telecom investment estimated at USD 17 Billion over 1998-2002 </li></ul><ul><li>Total GDP contribution estimated at USD 130 billion over 1998-2002 </li></ul>
    5. 5. Market liberalization is creating a new set of challenges for incumbent operators Note: (*) Mostly under the management or BOT contract for the MoPT M= Monopoly, D= Duopoly, C= Competitive Country Incumbent Operator Fixed Mobile Bahrain Batelco M D Kuwait MOC M D Oman Omantel M D Qatar (Qtel) M M Saudi Arabia Saudi Telecom M D UAE Etisalat M M Data Internet M C C C M M M M C C M M Monopoly Further Liberalization expected (2004) Source: Press releases, Arab Advisors Groups, Regulator Publications, Booz Allen Hamilton Analysis Egypt Egypt Telecom Jordan Jordan Telecom Lebanon MOT/ OGERO M M M D C C D C C D* C* C* Incumbent Key Challenges <ul><li>Ensure cost-effective service development and delivery </li></ul><ul><li>Develop services based on true customer needs </li></ul><ul><li>Ensure speedy market responsiveness </li></ul><ul><li>Build organizational flexibility </li></ul><ul><li>Create strong cross-functional interfaces </li></ul><ul><li>Develop strong corporate governance for accountability, transparency and equity across the business </li></ul><ul><li>Capture new business opportunities </li></ul>Morocco Maroc Telecom Syria (STE) M M D M C D M D
    6. 6. Privatization and the level of market focus are key factors in shaping the incumbent’s readiness to meet future challenges and risks State Owned & Non-Corporatized <ul><li>Kuwait Ministry of Communications </li></ul><ul><li>Lebanon Ministry of Post and Telecommunications, Ogero (Lebanon) </li></ul>State Owned & Corporatized <ul><li>Algerie Telecom </li></ul><ul><li>Omantel </li></ul><ul><li>Syria Telecommunications Establishment </li></ul><ul><li>Telecom Egypt </li></ul>Partially / Fully Privatized <ul><li>Batelco </li></ul><ul><li>Etisalat </li></ul><ul><li>Jordan Telecom </li></ul><ul><li>Maroc Telecom </li></ul><ul><li>Q-Tel </li></ul><ul><li>Saudi Telecom </li></ul>Selected M.E. Incumbents Segmentation Low Level of Market Focus High
    7. 7. Case in point is Algerie Telecom’s inhibited performance in the cellular segment post partial liberalization… Algeria Cellular Market Growth (in Thousand Subscribers) 1,016 451 95 Source: Arab Advisors, Global Mobile 1,409 Algerie Telecom Orascom CAGR (2001-2003) 22% 285%
    8. 8. … which contrasts with Maroc Telecom’s performance over the same period 5,730 4776 2,852 Source: Arab Advisors, Global Mobile Morocco Cellular Market Growth (in Thousand Subscribers) Maroc Telecom Meditelecom CAGR (2000-2003) 36% 59% 30% 7,160
    9. 9. In Lebanon, the formation and privatization of Liban Telecom is defined in Part VIII of the Telecommunications Law <ul><li>The company will be constituted by decree taken in the Council of Ministers, upon recommendation of the Minister, as a joint-stock company </li></ul><ul><li>Due process, led by independent and expert parties, will apply to the evaluation of assets, rights, obligations and current operations for potential transfer to Liban Telecom. The company will be owned by the State of Lebanon, until such time it is privatized </li></ul><ul><li>The Board of Directors and Chairman will be appointed by the Council of Ministers, as long as all shares are owned by the State of Lebanon </li></ul><ul><li>Liban Telecom may be granted exclusivity to provide any of basic telephone service, voice public-international service, telex and telegraph service (local, international), for a period not exceeding five years from date of its formation </li></ul><ul><li>The government may, by decree taken in the council of Ministers and within a maximum period of two years from date of constitution of the Company, proceed with the sale of not more than 40 percent of shares of the company to a ‘strategic partner’. The partner will be entrusted with the management of the Company as long as he shall continue to hold at least half of the shares originally purchased </li></ul><ul><li>The Council of Ministers, upon recommendation of the Minister, shall determine dates of selling the remaining shares owned by the State to private sector investors </li></ul><ul><li>Staff from Ministry and OGERO may be selected by Liban Telecom based on terms of selection to be developed within three months following the appointment of the Board of Directors, in coordination with the Minister. If selected, employees will enter into agreement with Liban Telecom </li></ul>Selected Legal Requirements Pertaining to Liban Telecom Source: Adapted from Telecommunications Laws as published in the Official Gazette on July 23, 2002
    10. 10. Liban Telecom should undergo firstly a corporatization phase followed by partial privatization Company is Legally Established Company Fully Corporatized Company Partially or Fully Privatized Liban Telecom Privatization Milestones <ul><li>Need to prioritize market facing initiatives </li></ul><ul><ul><li>Market segments to focus on </li></ul></ul><ul><ul><li>High value service offerings </li></ul></ul><ul><li>Competition taking note and reacting </li></ul><ul><li>Need to roll-out total portfolio against the targeted market segments </li></ul><ul><li>Escalating customer expectations </li></ul><ul><li>Regulatory levers come into effect, impeding some go-to-market actions </li></ul>Market Challenges Operational Challenges <ul><li>Rapid design of and alignment on the operating model </li></ul><ul><li>Selective migration of MoPT and OGERO employees, and external recruiting as required </li></ul><ul><li>Opening balances and accounting structure, including transfer of assets </li></ul><ul><li>Full roll-out of the envisaged operating model, including employee mapping </li></ul><ul><li>Full roll-out of supporting IT systems </li></ul><ul><li>Full roll-out of process mapping methodology, company-wide </li></ul>(12-18 months) (12-18 months) Non-Exhaustive
    11. 11. The end game of the phased approach is value creation Base Value Upon Corporatization Incremental Value Due Structuring and Operationalization Incremental Value Through Institutionalization Incremental Value Through Market Economy Operation Potential Future Value Potential Selling Price to Strategic Investor Potential Selling Price at 1st flotation Potential Selling Price at 2nd flotation Timeline Market Value Phased Value Creation at Liban Telecom Conceptual International experience suggests that adequate structuring could enhance value by up to 90%
    12. 12. The operating model at Liban Telecom could likely be one of a holding structure with fully accountable business units, and corporate center and a group of shared services… Liban Telecom Envisaged Organizational Model Architecture Outsourced Services Corporate Center Shared Services Customer-Focused Business Units <ul><li>A lean corporate center will focus on: </li></ul><ul><ul><li>Setting corporate strategy </li></ul></ul><ul><ul><li>Coordinating capital and resource allocation </li></ul></ul><ul><ul><li>Managing risk </li></ul></ul><ul><ul><li>Interfacing with external constituencies (shareholders, regulatory bodies, etc.) </li></ul></ul><ul><li>Business Units created around Customer Segments will serve as primary P&L responsibility points, focused on managing assets and growing the business </li></ul>Strategic Guidance Results Request Services Corporate Policy Services Manage Services <ul><li>Shared Services platform to provide market competitive transactional and expertise services demanded commonly across the organization, in addition to exploring and managing outsourcing opportunities </li></ul>
    13. 13. … which would allow Liban Telecom to selectively acquire strategic partners, as required per business unit should there be a decision to do so Benefits Multiple Strategic Partnership Model Holding Group 100% 80% 60% 51% 20% 40% 49% Private and Public Placement Business Unit 1 Business Unit 2 Business Unit 3 Business Unit 4 Partner 1 Partner 2 Partner 3 No required partnership <ul><li>Strategic partnership value-add is customized to each business line, with an emphasis on: </li></ul><ul><ul><li>Economies of scale, particularly in technology acquisition, deployment and operation </li></ul></ul><ul><ul><li>Access to new service development knowledge and platforms </li></ul></ul><ul><ul><li>Access to regional/global networks, enhancing price competitiveness to end users </li></ul></ul>
    14. 14. The envisaged model entails a shift from the functional structure currently prevailing at the MoPT and OGERO… Current MoPT Structure Post Lebanon Ministry of Post and Telecommunications OGERO Technical Division IT Finance HR Commercial Division Operations General Monitoring Operation and Maintenance Engineering / Installation Shared Services
    15. 15. … to one that is sector specific Liban Telecom Business Model Sales Marketing Product & Content Development Network Management Support Functions Customer Service Corporate Core Mobile Services Enterprise Solutions Wholesale Network HR, IT, Procurement & Legal Affairs CEO’s Office, Corp. Strategy & Steering, Regulatory Affairs, Communication, Business Development, Corporate Finance Key Telecom Activities Fixed Services Preliminary
    16. 16. The roll-out of the envisaged business model raises a series of challenges for Liban Telecom Corporatization/Privatization Implementation Challenges <ul><li>What is the detailed organization structure and manpower plan? </li></ul><ul><li>How to map OGERO and MoPT employees to Liban Telecom with minimal disruption? </li></ul><ul><li>How to migrate from the current situation to a new process map? </li></ul><ul><li>What will Liban Telecom’s growth strategy be? </li></ul><ul><li>What will the cost reduction opportunities be? </li></ul><ul><li>What is the set of financial tools to be implemented to enhance the company’s performance (activity-based costing, accounting separation, etc.) </li></ul><ul><li>What is the target network and IT architecture and the technologies to be adopted? </li></ul><ul><li>What is the technology migration strategy from the current to the target architecture? </li></ul><ul><li>What is the detailed technological evolution roadmap? </li></ul><ul><li>What customer segmentation will be used? </li></ul><ul><li>What are the services to be implemented and according to which roadmap? </li></ul><ul><li>What will Liban Telecom’s brand strategy be? </li></ul>Operating Dimension Financial Dimension Technology Dimension Customer Dimension Liban Telecom Corporate Goals
    17. 17. 1. Financial Dimensions Lead Factors Resulting Challenges <ul><li>Growth Strategy </li></ul><ul><li>Build the Fixed business around a clear service portfolio with adequate market segmentation, with Mass Broadband as a central part of the growth strategy </li></ul><ul><li>Develop the Mobile business on the shortest critical path to seize the under-served market potential </li></ul><ul><li>Develop the Enterprise group primarily around the Data access business and customized Managed Data Services . Combine with remaining access services by Liban Telecom to offer one-stop-shop for serving Enterprises </li></ul><ul><li>Define the boundaries and develop the Wholesales business , which serves as a commercial arm to the Network, selling capacity internally as well as externally </li></ul><ul><li>Cost Efficiency Strategy </li></ul><ul><li>Optimize the manpower plan and ensure gradual mapping of employees to the new operating model in line with market take-up </li></ul><ul><li>Establish aggressive targets for cost management , with clear year-on-year initiatives for cost rationalization. Key areas to consider: (i) operation and maintenance , and (ii) general and administrative . Conversely ensure adequate funding for sales and customer service activities </li></ul><ul><li>Financial Transparency </li></ul><ul><li>Establish from Day 1 chart of accounts for the individual businesses , leading to stand alone financial statements with adequate transparency and accountability. This would create, as a result, adequate readiness for accounting separation (regulatory requirement) and transparency for strategic partnership </li></ul><ul><li>Develop from Day 1 activity-based costing practices to control operational investments and their relation to revenues and profits </li></ul>
    18. 18. 2. Customer Dimensions Lead Factors Resulting Challenges <ul><li>Market Segmentation </li></ul><ul><li>Develop clear and actionable market segmentation with an emphasis on Residential, SMEs, and Enterprises </li></ul><ul><li>Define implications on service and servicing portfolio . Particularly emphasis should be placed on customized sales management, distribution channels, customer care and treatment </li></ul><ul><li>Service Portfolio </li></ul><ul><li>Outline full potential of service portfolio to be offered by Liban Telecom, taking into account: </li></ul><ul><ul><li>Fixed: role of VAS, broadband and related content strategy, and bundled triple-play offerings </li></ul></ul><ul><ul><li>Mobile: role of segmented tariff schemes, data services, and synergies with fixed wireless solutions </li></ul></ul><ul><ul><li>Enterprise Solutions: role of IP-based access services, and evolution of service offering to managed data services </li></ul></ul><ul><li>Brand Strategy </li></ul><ul><li>Seek to build at the outset a strong monolithic branding structure </li></ul><ul><li>Emphasize from Day 1 the mother brand to create equity and future leverage </li></ul><ul><li>Allow flexibility to accommodate co-branding through future strategic partnerships </li></ul>
    19. 19. 3. Technology Dimensions Lead Factors Resulting Challenges <ul><li>Network Strategy </li></ul><ul><li>Develop granular perspective of the network requirements , and plan for customized deployment both for Fixed and Mobile to facilitate QoS compliance with market demand – which would translate into optimal return on investments </li></ul><ul><li>Plan for migration of the core network towards an IP-based environment , and phase out investments in switching-based equipments </li></ul><ul><li>Information Technology Strategy </li></ul><ul><li>Prioritize development of Enterprise Resource Planning solution , inclusive of key start-up modules: Finance, HR, Material Management </li></ul><ul><li>Prioritize development of customized customer relationship management and billing system, using open standards to facilitate interface with future alliances and partnerships </li></ul><ul><li>Implementation Roadmap </li></ul><ul><li>Plan for gradual roll-out of technology environment </li></ul><ul><ul><li>Demonstrate commitment in engaging Liban Telecom on growth path, with due investments </li></ul></ul><ul><ul><li>Pace efforts with business development and sustainability </li></ul></ul><ul><ul><li>Allow room for subsequent customization stemming from future alliances and partnerships </li></ul></ul>
    20. 20. 4. Operating Dimensions Lead Factors Resulting Challenges <ul><li>Organization Model </li></ul><ul><li>Define early on the operational model for Liban Telecom , and identify roll-out challenges in relation to existing functionalities within MoPT and OGERO </li></ul><ul><li>Emphasize readiness of market facing functionalities within the set business units, with the objective to achieve strong go-to-market capabilities and competitive agility </li></ul><ul><li>Define and institutionalize on the shorted critical path the corporate governance model to achieve accountability and transparency of objectives, strategies and executions </li></ul><ul><li>People Strategy </li></ul><ul><li>Define mapping process and criteria to select employees from existing pools (MoPT, OGERO), ensure alignment at the level of the Board of Director, and achieve proper communication to promote clarity and fairness </li></ul><ul><li>Develop early on gap analysis in skills set and define mitigation strategy . Liban Telecom will likely face typical challenge of re-balancing between dominant technology-driven culture and must-have emerging commercial skills </li></ul><ul><li>Process Mapping Framework </li></ul><ul><li>Develop and align on common platform to map all operating process within Liban Telecom, using telco-industry common standard </li></ul><ul><ul><li>Leverage experience of international operators to enhance operational efficiency and effectiveness </li></ul></ul><ul><ul><li>Adopt ‘open standard’ that would facilitate the operationalization of future alliances and partnerships </li></ul></ul>
    21. 21. Liban Telecom could target a 12-18 month corporatization readiness program Strategic Dimensions Months 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 <ul><li>Financial Dimension </li></ul><ul><ul><li>Growth strategy </li></ul></ul><ul><ul><li>Cost efficiency strategy </li></ul></ul><ul><ul><li>Financial transparency </li></ul></ul><ul><li>Customer Dimension </li></ul><ul><ul><li>Market segmentation </li></ul></ul><ul><ul><li>Service portfolio </li></ul></ul><ul><ul><li>Brand strategy </li></ul></ul><ul><li>Technology Dimension </li></ul><ul><ul><li>Network strategy </li></ul></ul><ul><ul><li>IT strategy </li></ul></ul><ul><ul><li>Implementation roadmap </li></ul></ul><ul><li>Operating Dimension </li></ul><ul><ul><li>Organization model </li></ul></ul><ul><ul><li>People strategy </li></ul></ul><ul><ul><li>Process mapping framework </li></ul></ul>Design Implementation Indicative
    22. 22. Competition in Mobile services is likely to follow one of three scenarios 1 2 3 Different Mobile Liberalization and Operational Scenarios Scenario Description <ul><li>The Fixed sector is corporatized </li></ul><ul><li>One of the mobile operators is privatized </li></ul><ul><li>Liban Telecom takes over the other mobile operator </li></ul><ul><li>The Fixed sector is corporatized </li></ul><ul><li>Two mobile operators are privatized </li></ul><ul><li>Liban Telecom is an MVNO in the Mobile sector </li></ul><ul><li>The Fixed sector is corporatized </li></ul><ul><li>Two mobile operators are privatized </li></ul><ul><li>Liban Telecom has a mobile operation </li></ul>Symbol in this Document LT M M LT M M M LT MVNO M M
    23. 23. In summary, Lebanon can accompany the liberalization and privatization trend in the region through effective market liberalization and the privatization of Liban Telecom <ul><li>Telecom market liberalization is inducing significant growth in the region </li></ul><ul><ul><li>Competition driving the introduction of new services and more favorable prices </li></ul></ul><ul><ul><li>Privatization is enhancing the incumbent's ability to compete effectively and add further value to consumers </li></ul></ul><ul><li>Corporatization of incumbents aims to create value prior to privatization in order to maximize returns </li></ul><ul><li>Liban Telecom should aim to face financial, customer, technology and operational challenges with a systematic and concerted corporatization program </li></ul><ul><li>Once a market scenario is adopted for mobile competition, Liban Telecom should be ready to capture the related advantages and mitigate risks associated with the scenario’s disadvantages </li></ul>