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World Telecoms Council Telco 2015

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Telco 2015, Five telling years, four future scenarios

Telco 2015, Five telling years, four future scenarios

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  • Introduce self Overview of agenda Brief view of the market dyanmics Scenario framework and approach 4 scenarios Summary and conclusions
  • But growth is slowing around the globe – less fixed line revenue, lower ARPU
  • Further evidence of the changing competitive landscape – specific to France – eDOT (eDATE French pronunciation)
  • It is not reflected in comparable increase in revenues
  • Structure of the effort – built on extensive fact base Primary research – consumer study, Telco provider study, CEO survey Secondary research Industry trends – some highly pedicatable and others that are far more uncertain Identified 4 scenarios and looked at economics of each While can’t definitively predict or control which scenario will play out, we did derive implications and translated those into strategic imperatives and actions industry players can take Primary reearch is our data – we did these surveys. Consumer survey we did in 9 countries (US, UK, sweden, Netherlands, Spain, Germany, India, China and Australia) – but not France. Doing another one in this quarter....Telco expansion into adjacent industries. Customer experience and relatiions with telcos – only if consumer is a subscriber of particular CSP Face-to-face 60 executives – France Telecom, find out if Bougyes was interviewed and who (ROB)
  • Determined these kind of categories – used these in consumer surveys and executive interviews – where investing in, what services using? Technologies are you investing in – access (e.g., LTE, etc.). Business model for the future – Industry structure – macro factors – regulation, governments rolling out fiber networks Green telco revenues: telecommuting (less travel) – e.g., video conference calls. Stimulates less pollution, green image, energy savings by sharing infrastructure and power stations, etc. 3 rd party connectivity - wholesale
  • Determined these kind of categories – used these in consumer surveys and executive interviews – where investing in, what services using? Technologies are you investing in – access (e.g., LTE, etc.). Business model for the future – Industry structure – macro factors – regulation, governments rolling out fiber networks Green telco revenues: telecommuting (less travel) – e.g., video conference calls. Stimulates less pollution, green image, energy savings by sharing infrastructure and power stations, etc. 3 rd party connectivity - wholesale
  • Survival consolidation will occur as a result of reduced consumer spending leading to revenue stagnation or decline. Investor’ loss of confidence in the sector produces a cash crisis and elicits consolidation Market Shakeout will happen when, under a prolonged weak economy, Telcos are forced to disaggregate their assets into separate businesses. The market is further fragmented by government, municipalities and alternative providers such as utilities Clash of Giants results from carrier cooperation and alliances that pave the way for global consolidation in response to increased competitive threats from over-the-top providers and device manufacturers – clash between telcos OTT and NEPs. Google rolling out fiber networks in US Generative Bazaar transpires when infrastructure providers integrate horizontally to form a limited number of network cooperatives that provide affordable and unrestricted open connectivity to any person, service provider, device or object, unleashing a wave of generative innovation France: survivor consolidation – not really an option a year ago, but now free fall of the Euro, austerity measures, raise tax, spend less in telco services (e.g., Greece, spain, uk) – everything in their own house – costly. Reaction of market in economic situation not very good - so there may be disaggregation of the vertical integration chain
  • Advanced markets – everywhere – connectivity as % of total, increasing. Generative Bazaar – 60% coming from connectivity Completely different from situation at this moment. Connectivity – data traffic increasing, machine to machine, etc. Generative bazaar – many more things are connected – open access connectivity to everyone and everything to make their services possible in the world
  • Transcript

    • 1. IBV Institute for Business Value Rob van den Dam , Global Telecommunications Sector Leader IBV
    • 2. The IBM Institute for Business Value creates fact based thought leadership and tools that help clients realize business value Future Agendas Value Realization Studies 3 to 10 year industry outlook with action oriented next steps In-depth assessment of today’s critical issues, opportunities, etc CXO Surveys Chief Officiers studies – CEO, CIO, CFO, CHRO, etc.
    • 3. Agenda
      • A decade of structural change in telecoms
      • Scenario Planning for 2015
      • 4 contrasting scenarios
      • Scenario outcomes
      • Critical success attributes
    • 4. Telcos’ revenue is no longer growing in any significant way in most mature markets Telecom Services Revenue Growth 2005 - 2009 Source : IDATE, in "World Telecom Service Market", 2008 Edition - January 2009, revision in July 2009; IBM Institute for Business Value (IBV) Analysis EU27: -2.1% overall (-3.2% fixed / -1.1% mobile) Japan: -2.8% overall (-2.2% fixed / -1.1% mobile) US: +0.7% overall (-1.6% fixed / +3.3% mobile) S.Korea: +1.9% overall (-0.7% fixed / +3,5% mobile) Fixed and mobile market revenue growth in 2009 Revenue g rowth rates fell under 2 digits almost everywhere
    • 5. The sector’s annual growth worldwide (+2%) is now being sustained almost singlehandedly by emerging countries and BRIC
      • Regional consolidation:
      • ± 100 telcos in Europe
      • versus
      • AT&T and Verizon in US
      • The growing role of the
      • emerging markets
        • The emergence of new giants: China Mobile, Bharti, Vimpelcom, Etisalat, ...
        • ...and they know how to make profit with ARPU < USD 5
      Source: IDATE, IBM Institute for Business Value (IBV) Toward a new hierarchy 2005 2010 Mobile markets increasingly being driven by emerging countries Top 10 mobile markets worldwide (M subs) USA; 207 USA; 208 China; 770 China; 375 India; 75 Russia; 126 India; 376 Russia; 215 Japan; 123 Japan; 90 Brasil; 143 Brasil; 86 Italy; 83 Italy; 71 Germany; 87 Germany; 79 France; 46 UK; 76 Mexico; 65 UK; 68
    • 6. While overall communication have increased, much of the growth has been over-the-top with share of traditional unchanged Notes: (1) An SMS/MMS or e-mail is considered as a 30 second call. FRANCE TOTAL COMMUNICATIONS MARKET (billions of call minutes and equivalents ¹) Stable use of traditional communications services Increased share of communication services by Internet Communication services providers Source: Idate: Telco’s views of Openess, Digiworld Summit 2009 Source: Ronald Montagne “Telcos’ views of openness”, IDATE, October 2009 0 200 400 600 1000 1200 800
    • 7. Telecom revenues do not track the increases in network traffic anymore Traffic Telecom Revenue Voice Dominant Data Dominant Source: Nokia-Siemens; IBM Institute for Business Value (IBV) Analysis Time Traffic Volume / Revenue Network Cost (future technologies) Network Cost (existing technologies) Value Opportunity Ecosystem Revenue
    • 8. After a decade of massive change what is the future of telecom? Determining Trends Underlying trends in the evolution of the communications industry for which there is very high degree of certainty and consensus Provide backdrop for the future of telecommunications in 2015 CRITICAL VARIABLES 2 Likely but uncertain trends with potentially high impact and multiple outcomes SCENARIO SYNOPSIS & OUTCOME 3 1 REALIZATION PATH 4 Major economic, competitive and technological events that trigger each scenario QUANTITATIVE MODELING 5 Telecom industry revenue and profitability outlook for each scenario by region and access (fixed/mobile) for 2015 Revenues Free Cash Flow (EBITDA - Capex)
    • 9. Telco 2015 – five telling years, four future scenarios Scenario Envisioning Primary Research Consumer Survey (9 countries) Telco Provider Interviews (±60) Macro Economic Trends Industry Data/ Analysis (IDATE) Secondary Research Industry Trends Forces Shaping Telecom Uncertainties Scenarios & Outcomes Implications Challenges & Trends SURVIVOR CONSOLI-DATION CLASH OF GIANTS MARKET SHAKEOUT GENERATIVE BAZAAR Telco 2015 Strategic Imperatives
      • Critical attributes for success
      • Potential capability gaps by Operator
      • Scenario-specific recommendations
      • Cross-scenario recommendations
      IBM Institute for Business Value Analysis Scenario Revenues and Profitability Revenues Free Cash Flow (EBITDA - Capex) 1,541 CEO interviews from Global CEO Study; ~80 from CSPs
    • 10. There are a number of Forces shaping the future of telecommunications into 2015 Source: IBM Institute for Business Value (IBV) Analysis ACCESS BUSINESS MODEL INDUSTRY STRUCTURE USAGE/ SERVICES
      • PSTN decline accelerates
      • VOIP (incl. mobile VOIP) grow
      • Ubiquitous and seamless access
      • High digital content consumption
      • Multiple communication tools
      • Broadband pervasive as TV
      • Mobile broadband favors LTE
      • Ultra low-cost devices grow
      • One in three devices is smartphone, MID, or Netbook
      • Voice monetized as a feature of connectivity
      • Green Telecom revenues
      • 3 rd – party connectivity revenues
      • New infrastructure competition from government, municipality
      • Net Neutrality remains
      • Mobile and fixed termination converge
      • Pure plays disappear
    • 11. Communications remain fragmented across multiple services from traditional telecom and over-the-top (OTT) providers Landline/ Fixed Voice Postal Service Email VOD Mobile email (on Smartphone) VOIP Voice Conferencing Video Calls Social Networking Mobile Voice Text/SMS Instant Messaging Under 25s Source: IBM Institute for Business Value Global Telecom Consumer Survey, 2009; N= 7722 Frequency of use Never Use Several Times a day Size of Bubble: % of respondents who use service every day MMS % of consumers expecting to increase/decrease use of service Communication usage and growth (Under 25s) 2009-2015
    • 12. A new round of investment in FTTx, while the race for mobile broadband appears to have been decided in favour of LTE Source: If applicable, describe source origin
      • Which of the following access technologies are going to be critically important to the success of your business over the next 5 -10 years?
      “ WiMAX only relevant if 3G/4G spectrum lacking” Head of Product-IT Development, European CSP 2009 IBM Institute for Business Value Telecom Industry Survey N=61 World’s top 8 FTTx operators LTE developments
    • 13. Infrastructure sharing will become increasingly important as part of overall cost re-structuring Strategic cost structure priorities
      • (B) Which of the following changes to your cost structure will be critical to improve your competitiveness and agility over the next 5-10 years?
    • 14. In addition to these trends there are a number of potentially high-impact variables that are, as yet, uncertain Access Business model Industry structure and regulation Usage Source: IBM Institute for Business Value (IBV) Analysis Services Forces shaping the future
      • New Vericals: eHealth,
      • Smart Grids, …
      • Premium connectivity
      • The Future of voice
      • OTT versus Network optimized content
      • Siloed versus unified communication
      • ServCo/NetCo versus Vertical
      • Integration Network sharing
      • versus Outsourcing
      • Regulation: ex ante versus
      • ex post , from asymetric
      • regulation to symetric regulation,
      • the future of Net neutrality, …
      • Ultra-Fast Broadband
      • availability
      • Open Versus Closed
      • Devices.
      • User-funded versus third-party Funded
      • Pricing model: flate rate, tiered pricing
      • based on speed, bytes, quality, bundled
      • service, …
      • M2M impact
    • 15. These variables are gathered in tw major deimensions - addressable market growth and the competition/integration structure Vertical vs. Hori-zontal Integration Regulation Network sharing vs. Outsourcing Open vs. closed devices User vs. 3 rd Party / ad funded Addressable Market Growth Competition/ Integration Structure OTT vs. Network optimized content Silo vs. unified communications The Future of Voice Expansion into Adjacent Verticals Premium Connectivity Service Pricing Model M2M com-munications Ultra-fast Broad-band Availability Future Scenario C Scenario D Scenario B Scenario A Present
    • 16. The interplay of these critical variables / uncertainties produces four distinct future industry scenarios SURVIVOR CONSOLIDATION Spectrum Passive Infrastructure Active Network Support Infrastructure Retail Channels Devices Customer Few large players dominate Market MARKET SHAKEOUT Spectrum Passive Infrastructure Active Network Support Infrastructure Retail Channels Devices Brand Brand Customer Customer Many players - Fragmented GENERATIVE BAZAAR Enabling the two-sided business Declining/ Stagnant Expanding Addressable Market Growth Concentrated / Vertical Fragmented /Horizontal Competition/Integration Structure CLASH OF GIANTS Telco OTT/ OEM Spectrum Passive Infrastructure Active Network Support Infrastructure Retail Channels Devices Customer Spectrum Passive Infrastructure Active Network Support Infrastructure Retail Channels Devices Customer
    • 17. .....with contrasting characteristics
      • Netco/Serco split with dominant Net-Coop and myriad of asset-light service providers
      • Open access provided by Net co-op through new funding models
      • Virtuous cycle of open innova-tion for apps, content & devices
      • Carrier cooperation and alliances lead to global consolidation
      • Face-off with either global application and content provider or OEMs/NEPs
      • Mega carriers expand into selected vertical markets(e-health, grid)
      • Reduced spending by consumers
      • Revenue erosion/stagnation
      • Capex reduction
      • Triggers defensive consolidation
      • Carrier assets disaggregated – financial re-engineering – among service providers, NEPs, Device OEM, IT Providers, new investors
      • Lack of infrastructure investment triggers municipality involvement
      • Multiple brands compete for customer attention
      SURVIVOR CONSOLIDATION CLASH OF GIANTS MARKET SHAKEOUT GENERATIVE BAZAAR
    • 18. Scenario outcomes for selected critical variables: Ultra broadband availability
      • Open access on a Net Co-op owned infrastructure
      • The Net Co-op will be owned by private & public players achieving high Ultra BB coverage
      • Operators infrastructure sharing to deploy NGA
      • Sharing can be based on commercial agreements or NRA driven
      • No more than 3-4 players in the market
      • Due to financial and regulatory constraints, Ultra BB are deployed in densely populated “black” areas only
      • New services cannot unfold their full potential
      • Government and municipalities step in to take UltraBB to “grey” areas
      • Access to municipal networks will be open
      SURVIVOR CONSOLIDATION CLASH OF GIANTS MARKET SHAKEOUT GENERATIVE BAZAAR
    • 19. Scenario outcomes for selected critical variables: Open vs closed devices
      • Largely open devices: users will choose devices that fits their needs best
      • Carriers & OEM might team up to provide optimised handsets for distinct services
      • Closed comms-centric devices in low-end segment
      • Strong competition for open devices in high-end segment
      • Strategic partnerships with OEMs
      • Cheap closed devices continue to dominate market
      • Handset subsiduation continues
      • Open devices prevail
      • Handset subsidies will disappear
      • SIM-only dominant model for carriers
      SURVIVOR CONSOLIDATION CLASH OF GIANTS MARKET SHAKEOUT GENERATIVE BAZAAR
    • 20. Scenario outcomes for selected critical variables: Regulation
      • Open access is the norm
      • Evolution of Internet-style model with light-touch regulation for Telcos
      • Level playing field in services
      • Light-touch regulation on infrastructure to encourage infrastructure competition
      • No endorsement of strong net neutrality positions
      • As is, withy ongoing regulatory uncertainty
      • As a consequence NGA investment is stifled
      • Competition intensity is limited
      • Strong access obligations on infra and strong net neutrality stance undermine investment initiatives
      • Telcos focus more on whole-ale backbone business as well as ICT services
      SURVIVOR CONSOLIDATION CLASH OF GIANTS MARKET SHAKEOUT GENERATIVE BAZAAR
    • 21. Communications-connectivity substitution will increase over the next 5 years regardless but dominates revenue mix in Generative Bazaar … Advanced Markets 2015 Revenue Mix Scenarios Emerging Markets 2015 Revenue Mix Scenarios 2008 – 2015 Changes to Segment Revenue Mix by Scenario Communications : PSTN Voice, VoIP/ VoBB, Mobile Voice, SMS revenues Connectivity : Fixed Broadband, dial-up internet, legacy corporate data service, 3G/Mobile Broadband and Machine-to-Machine revenues Content : IPTV and Mobile Content (music, video, mobile TV, games, advertising) Source: IBM Institute for Business Value (IBV) and IDATE Consulting & Research Analysis
    • 22. … and represents the most optimistic outlook for telecoms, relative to the IMF’s global GDP forecast for 2010 - 2014 Global GDP vs.. Telecom Services Growth Scenarios Source: International Monetary Fund (IMF), World Economic Outlook Database, October 2009; http://imf.org/external/pubs/ft/weo/2009/01/weodata/index.aspx , IBM Institute for Business Value (IBV) and IDATE Analysis, 2004 - 2009 growth forecasts are based on IDATE &quot;World Telecom Service Market&quot;, 2008 Edition - January 2009, revision in July 2009. 2010 -2015 are IBM Telecom 2015 scenario forecasts Generative Bazaar Clash of Giants Market Shakeout Survivor Consolidation 2009 – 2015 Telecom Growth Scenarios ( Global GDP Global Telecom 5.3% 3.3% 1.8% 0.2% 4.5% Growth
    • 23. Telcos need common and scenario-specific attributes for success Leverage advanced customer and network analytics 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 SURVIVOR CONSOLIDATION MARKET SHAKEOUT CLASH OF GIANTS GENERATIVE BAZAAR Cost-effective ultra-fast broadband deployment strategy Network / customer insights to enhance experience & optimize cost Culture of collaboration Cost containment Common Critical Success Attributes Source: IBM Institute for Business Value (IBV) Increased share of high value customers Achieve Scale Secure significant share of ultra-fast broadband in densely populated areas Reduced cost-to-serve Contain voice ARPU erosion Clear & distinctive role(s) in disaggregated value chain Powerful brand / reputation Viable premium connectivity propositions for 3 rd party providers Agile, flexible and reconfigurable processes and infrastructure Ubiquitous and cost-effective broadband access Collaborative inter/intra-industry alliances Efficient and competitive infrastructure Innovative and differentiated network-optimized experiences Enhanced service provider roles in vertical markets Achieve scale across regions and access (fixed, mobile, Internet) Third party applications / services innovation Pervasive open network access infrastructure Structural separation of network and services operations Dynamic business design Agile, flexible and reconfigurable processes and infrastructure
    • 24. A return to strong growth requires the industry to act collectively to create the necessary conditions for the emergence of more profitable scenarios
      • Overall, the financial model suggests Generative Bazaar is potentially the most profitable, with the highest revenue and growth prospects but is so the most challenging scenario
      • A return to strong growth requires the telecom industry to act collectively to create the conditions for the emergence of profitable scenarios, Clash of Giants / Generative Bazaar:
        • Global industry collaboration on common capabilities ,enablers and platforms
        • Enhancing the role of the service provider in adjacent vertical markets
        • Pervasive and open access connectivity for any person, object and device
        • Value propositions for third-party application providers
        • Harnessing information and business insights new business models.
      Summary and Conclusions
    • 25. Key contacts Ekow Nelson Global Telecommunications Industry, IBM Corporation [email_address] Rob van den Dam Global Telecom Industry Lead , IBM Institute for Business Value [email_address] Nick Gurney Global Telecom Industry Leader Global Business Services [email_address] www.ibm.com/iibv Thank you! http://www-935.ibm.com/services/us/gbs/bus/html/ibv-telco2015.html?cntxt=a1000065 http://www-935.ibm.com/services/us/gbs/bus/html/gbs-telcos-socialnetworking.html?cntxt=a1000065

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