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Taga arthur d little Taga arthur d little Presentation Transcript

  • Key trends in the telecom industry - need for a changeApril 25th 2012Presentation to Telco-Forum/MoscowContact Person: Arthur D. Little AustriaDr. Karim TagaManaging Partner 1
  • Agenda1 CEO strategies2 Need for a change3 Options 2
  • 1 CEO strategies CEO statements converge drastically Selected quotes from European telecommunication player 2012 Orange CEO Stèphane Richard: Deutsche Telekom CEO Rène Obermann: “The data demand explosion will continue, it is our task to drive the data “We see significant growth potential from monetization“ cloud computing” “Co-opetition means optimization of “And cloud computing is also one driver asset base with telcos’s, alliances & of our intelligent network solutions in partnerships with OTT’s, and strategic the areas of healthcare, mobility, and partnerships with device manufacturers energy.” and content providers.” “We require a modern regulatory „Now is the time to invest. It is not the approach (...) that is not constantly just time to regulate.“ cutting prices.” Télefonica CEO César Alierta: Vodafone CEO Vittorio Colao: “Active cooperation among ICT “Industry collaboration is needed to players key to address industry create new services and business models” challenges” ”Data traffic is booming and new “Cloud services are steadily gaining technological developments will allow this importance.” growth.” "Regulators should allow operators to "We really need to stop this auto-pilot recover the costs of network regulation mentality.“ investment.“ Source: Company pages; Arthur D. Little, press research 3
  • 1 CEO strategies The strategies of European telco‘s show significant similarities in their approaches Strategy approaches of the big telco’s  Collaboration to  Cooperation  Co-opetition  Cooperation create business among ICT (e.g with OTT’s, with partner models/ services players device manufactures) companies  Accelerating mobile data  Profitable mobile data  Task to drive data  Growth in mobile growth opportunity growth monetization monetization internet and consumer services  Verticals (M2M etc.)  Verticals (e.g. eHealth,  Verticals as new growth  Growth in verticals M2M devices) areas  Customer experience  Customer engagement  Customer concentration  Customer satisfaction  Deliver value and  Maximize efficiency  Striving for operational  Increase operational efficiency from scale efficiency efficiency  Expanding growth  Development of new  New growth segment  Growth from dynamic segments and new applications & services cloud computing & cloud computing & service intelligent networks Intelligent network  Ensure data security  Focus on data security  Safety, security & privacy  Services that work reliably and privacy in services and securely All big telco’s show significant similarities in their future strategy approaches, mainly in data monetization, industry co- opetition, verticals, cloud computing and customer experience Source: Arthur D. Little analysis 4
  • 1 CEO strategies The strategic direction of the European telecommunication player show significant similarities Collaboration and partnerships Maximizing - with OTT‘s, device efficiency manufactures and content provider Data monetization - profitization of rapid Customer data growth - tiered pricing 6 common areas of interest of the excellence/ largest telecommunication companies experience schemes Verticals New Services - financial services - Cloud computing M2M, eHealth - Intelligent networks Source: Arthur D. Little 5
  • Agenda1 CEO strategies2 Need for a change3 Options 6
  • 2 Need for a change Out of the 55 Western European Operators there is an strong indication of decreasing financial trends Service Revenue and EBITDA, Western Europe, CAPEX, Western Europe, 2007 - 2012 2007 – 2012 EUR bn -8.1% EUR bn 132.3 132.3 132.3 131.9 143.5 140.9 20 38.3% 38.4% 38.2% 38.1% -7.4% 150 37.1% 37.1% 15,9 15,7 14,7 14,8 15 13,6 13,7 100 10 50 5 53.3 52.3 50.6 50.8 50.5 50.2 0 0 2007A 2008A 2009A 2010A 2011E 2012E 2007A 2008A 2009A 2010A 2011E 2012E EBITDA Margin Service Revenue EBITDA CAPEX (EUR bn) Even though EBITDA margins show an increase, there is a significant reduction in service revenues and EBITDA This leads to less cash for investment and therefore impacts CAPEX by a -7.4% decrease between 2007 and 2012 Source: Arthur D. Little Analysis, Merrill Lynch Global Wireless Matrix Q2-2011 7
  • 2 Need for a change Operators are caught in a dilemma: They need to invest further into high speed networks to meet exploding data demand, - but they are constraint in their ability to monetize it End of Profit for Mobile Carriers? North American Mobile Carriers Western European Mobile Carriers Source: Tellabs 2011 8
  • 2 Need for a change – Value chain fragmentation Operators tend to resort more & more to partners and focus on their core competency, customer management An increasing number of initiatives A more & more permeable value chain 1. Outsourcing & sharing of network 1 Tower Service infrastructures – JV for new build/wholesale companies Access providers OTT FVNOs models vs Utilities Media groups Media MVNOs Service Regulators CPE vendors 2. Detachment of network and services – drivers 2 for network based value creation 1 2 3 4 5 3. Service Delivery Platforms – stimulating 3 service development & partnership Customer Network Network SDP manage- Commer- infras- abstrac- platforms ment cialization 4. Owning, building and secure the customer tructure tion 4 & billing relation 5. Development of proactive multi-branding / 3rd 5 Operators focus ? party brand management 9
  • 2 Need for a change – Implications value chain shift Telcos have to re-think their position along the value chain and focus more … Implications  Consider network sharing or managed services if under cost pressure and reduce Outsourcing & shared or uncertainty from traffic growth (e.g. mob BB) and network complexity 1  Monitor new opportunities for “joint network” deployment and wholesale offer to jointly operated networks reduce capex spending and optimize opex  Capitalize on your network assets (presence, location based, traffic mgt. etc.) 2 Network abstraction  Participate in the market place by cross selling 3rd party developed applications  Differentiate your services per targeted segment and applications e.g. QoS  Move away from silos to reduce costs and accelerate time to market  Provide integrated and mashed-up services 3 Service Delivery Platforms  Anticipate disintermediation from non-Telco competitors  Reduce risks of managing services via revenue sharing models with suppliers  Manage content aggregation timely – take advantage of the “cloud” 4 Customer relation  Manage partnership as first mover advantage to differentiation from competition  Build customer relations via mashed services (own and 3rd parties)  Capitalize on your network capacity 3rd party brand management  Acquire “new” channels via commercial partnerships to address untapped 5 segments – consider the “self liquidated sponsorship” effect MVNOs/LCC*  Cherry pick and manage price war Source: Arthur D. Little LCC: Low Cost Carrier 10
  • 2 Need for a change – Rethink the value chain … but we have to re-think the value chain framework The new Telco-media value chain Role Examples Point of  On / off-line advertising Contact Retail &  On / Off-line retail shops Services  Internet Services User Content  Music Company Player  TV Program Producing Company Telecom  Telecommunication Company Player  Cable Company  Device Manufacturing Company System  S/W Development Company : Point-of-contact Player  H/W Development Company Source: Arthur D. Little 11
  • 2 Need for a change – Case Study The new Telco-Media Ecosystem is useful for strategic positioning analysis, else Google wouldn’t be understood Usage and Usefulness of Telco-Media Ecosystem: Google’s Case Business Portfolio: Value Chain Model Business Portfolio: Media Ecosystem Focusing on Service Integrator area & formulating Ecosystem Origi- Aggre- Service Trans- User through partnership with players in other areas nation gation Provision mission Contact YouTube Viacom Partnership Vodafone CBS Partnership Partnership Service Portal Content Enabler Access Portal Blog Player Player Blog Universal BSkyB Partnership YouTube Partnership Earth Picasa Warner User Partnership SF WiFi Picasa Partnership Map Map Sony BMG Street Partnership Earth DELL System Device Direct Investment Street Player Partnership “Difficult to say that Google has a sound service portfolio “Shows that Google has a sound service portfolio with because it has multiple services in aggregation related area, multiple services in Service Integrator area, merely one of four areas.” where close relationship with user is highly required” Source: Arthur D. Little 12
  • Agenda1 CEO strategies2 Need for a change3 Options 13
  • 3 Options According to interviews conducted for the latest ADL-Exane report, Telco executives expect stagnation or decline, and plan their activity accordingly Revenue outlook in the telecom sector Interview quotes (per interviewees) “Increasingly difficult market situation. Can’t see anything that can turn around the negative trend” “Negative in the short term and stable in the mid term if we are lucky” “The future revenue growth will to a large extent depend on how the carriers act going forward.” “Within Europe, growth is only possible if offering services beyond core telecoms. Without those services, at best revenues will be flat.” Source: 2012 Arthur D. Little – Exane report interview notes 14
  • 3 Options To face current difficulties, Operators are exploring 5 options to rethink their business 1 2 Change of the 3 4 Consolidation / Diversification Cost cutting Business Model mergers Do you believe Telecom operators Different options Examples in France: Examples: can effectively diversify outside of their core segments? explored:  Orange: 1Bn€ savings  2010: complete merger  Online Centric planned in France in of Orange UK and T-  Premium: service and 2015, mainly in network Mobile (Everything innovation excellence customer care (Chrysalid Everywhere) program)  One-Stop-Shop:  2011: similar deal services aggregator  Bouygues Telecom: between Orange and T-  Mastering “Internet of 300M€ savings Mobile in Poland Things”: powering planned on external M2Mapplications charges (including network), offers  Bit-Pipe: economies of (subsidies), and scale, wholesale… distribution => no Telco found the => all concrete options  network mutualisation is an solution yet boil down to cost cutting effective cost cutting lever 5  Orange was sold in Switzerland and Austria Shareholders  Several rumors ongoing… => resignation step-down 15
  • 3 Options The five top 5 winners and looser in the online advertising and media industry Top five winner and looser in the online advertising and media industry  Revenue  29.32 bn. (+24%)  34.2 bn. (+39%)  1.8 bn. (+257%)  65.2 bn. (+52%)  0.15 bn.  Profit/ loss  8.51 bn. (+30%)  1.15 bn. (+28%)  0.5 bn. (+250%)  14 bn. (+70%)  0.03 bn.  Employees  24.000  33.700  2.400  49.400  600  Most import-  Google search  E-Reader Kindle  Social network  Iphone and Ipad (in  Short message service ant product media sector) Twitter+  Strengths  Dominating search based advertising  Growing revenue (+ 43%)  Dominating network, targeted advertising  Hard- ,+Software+ digital media from one hand  Global brand, among most visited websites  Weaknesses  Dependent on search  Too wide, too many  Very depended on online  Extreme dependent on  Unclear business model based advertising competitors banner advertising end-user  Outlook  Chances in local search  Chances with hardware  Leading position in  Most popular end-user  Important communication based advertising + media from one hand banner advertising devices tool, take-over candidate  Revenue  6.32 bn. (-2%)  2.42 bn. (-26%)  2.5 bn. (+4%)  1.1 bn. (-36%)  0.76. bn. (-7%)  Profit/ loss  1.23 (+ 105%)  - 0.78 bn.  - 2.5 bn.  - 0.61 bn.  - 0.23 bn.  Employees  13.600  5.860  90.000  51.000  149.000  Most import-  Email, digital sport-  Email, internet access  Search engine Bing,  IGN Entertainment, Wall  Games provider Playdom- ant product  Strengths and finance news  Most visited news  Global brand, own media Hotmail  Global brand Street Journal online  Second largest media and Penguin  World largest media portal  Very dependent on company after Disney, company, content, brand  Weaknesses  Very dependent on sales of internet  Billion deficit in internet Content  Deficits in online business banner advertising access business  No social network  Missing digital distribution  Outlook  Is loosing attractivity  Revenue is growing  Shareholder force sale  Missing digital channels channels slower than costs of of Bing of distribution production Source: Wirtschaftswoche 48, change YoY Sept ‘11 16
  • 3 Options On the way to 2020, telcos have a need to rethink drastically their business models as business as usual won’t work Comparable Key success Financials Description Focus business models factors (EBITDA) 1  Best practice network operator’s  Lean Telco  American tower  Economies of  20-25 %  GTL scale Bit-pipe  Network developer (network as a  Network mgnt.  Ericsson  Technology mgnt. service...)  Alcatel Lucent  Finance/ capital 2  Service on demand: Cloud/ Web 2.0  B2C/B2B2C  Amazon  IT/ cloud technolog.  35-45 % Telco 2.0  On-line distribution & customer care  Platform  Online retail  Portfolio portfolio 3  Self-service process  Service and content aggregator  B2C/B2B2C  Google  Apps/services  40-45 %  Customer and service interface  Broad portfolio innovation Service excellence  Customer  Apple  Partnership interface  Customer Exp. 4  Universal service provider- from IT  “Me too”  Utilities  Limit complexity  10-20 % to telecom to energy to  Cost  Best-buy  Scale single One-stop-shop entertainment... effectiveness servicefp 5  M2M/ Internet of things  B2B  Geek Squad  Partnership  5-15 %  B2B2C  BTGS  Recruitment in Mastering IoT  Vertical champion - the engine and  Vertical enabler backbone for other industries  OBS adjacent markets  Home assistance.  T-systems  End2End platform Source: Arthur D. Little M2M: Machine to Machine OBS: Orange Business Services BTGS: BT Global Services IoT: Internet of Things B2C: Business to Customer IT: Information Technology B2B: Business to Business 17
  • Smart Home has become a hot topic again and players from various industries are nowplacing their bets Selected examples Devices / Service 1 2 IT equipment players 3 appliances providers manufacturers 6 Over-The-Top Assistance specialists 4 5 Smart Home pure playersSource: ADL 18
  • Verizon and AT&T have recently made significant moves towards Home SystemManagement Launched a pilot to develop a Verizon home Acquisition of Xanboo, home system systems management solution management solution specialist (Jan 2011) (Dec 2010)  Energy management: energy Energy Healthcare reader, smart appliance switches and thermostats,  Security : smart door and window locks  Video-camera : in-door, out- door +  Anytime/anywhere value proposition  Remote control via: Security / video Lighting – Smartphone – PC – FiOS TV product In Jan 2010, Verizon Wireless and 4Home* announced partnership to develop Home control applicationsSource: Public information, Verizon, AT&T, Arthur D. Little analysis Home Automation specialist 19
  • Telecom operators are also active in the Smart Home field with initiatives around CPE or largealliances, mainly to response to OTT closed and integrated ecosystem Example of move around CPE Example of move around alliance Freebox Revolution Telefonica alliance “Beywatch” Gaming Internet on TVGyro remote control Other players involved DLNA media server Apps store NAS storage serverSource: ADL 20
  • Multiple Ecosystems will be significantly affected from smart technologies - forming “TheInternet of Things” Energy “Smart Metering & Smart Grid” Mobile Building devices automation Internet of things Ecosystems Medical & health Moving objects Industrial Retail processes Vending Machi- nes & POSSource: ADL 21
  • The value chain consists of a wide area of services and eco-system players that need to bealigned in order to establish a sustainable solution The Internet application value chain The vertical of Things value chain Module / Reseller Smart Network Service System Service modem (Bus. Customer object operator enabler integrator provider supply cust.)  SIM cards  Vending  Network  Platform  Interfaces  Packaging /  Uses  Buys  Sensors machines  Connectivit  Enabling  Solution Bundling service service  Actors  PNDs y capabilities build-up  Service  Resells  Uses  Cars  Availability (e.g. QoS)  Hardware Provisionin services Service  Aggregators  Application g  Transponde  Cameras  Quality  Backend s  CRM r  Computer  Billing Average Value Share Distribution 5 – 10% 15 – 20% 30 – 40% 15– 20% 10– 20% Value highly distributed across the Value Chain – fuelling the need to extend own service offerings towards service enablement & provisioningSource: ADL 22
  • Interesting future … …high impact … high uncertainty 23
  • 4 Mobile Voice Market Although the average price level of mobile voice services is already beneath the lowest in Europe, the year-on-year decline was by far the highest – increasing the price gap to 200% Monthly mobile service fee (average user) Comments (2009) Price, in €  The Austrian mobile 40 38,8 telecommunication market is 36,6 34,6 32,1 31,5 x3 extremely competitive – this leads to 30 29,3 27,6 one of the lowest price levels in 22,2 Europe 20 15,7 13,5 13,3 13,0 11,5  Nevertheless, prices are still falling 10 very fast – the decline in the average price level was more than two times 0 higher than the average decline  This led to a further increase of the -10 inter-European price gap, that amounted to nearly 200% in 2009 Austria Spain UK Portugal France Italy Ireland Demark Netherlands Switzerland Belgium Germany Sweden -20  In other words, the average mobile -30 telecommunication customer in Switzerland had to pay three times -40 the amount, that the average Austrian customer had to -50 -48,1 % YoY 08-09, % Source: Finnish Communications Regulatory Authority (FICORA); Arthur D. Little Analysis 24
  • The Austrian telecommunication marketComparison of the key data from fixed mobile communications operators shows a relativelystable market Market Share Revenue EBITDA* Market share per A1 Telekom Revenue per EBITDA per operator in operator in % T-Mobile operator in mio. € mio. Orange 3G 42 43 42 1.668 600 585 1.574 32 31 30 1.367 1.085 1.038 983 20 20 19 285 283 283 592 569 548 187 182 185 8 8 6 196 207 174 2008 2009 2010 2008 2009 2010 2008 2009 2010 The market share and EBITDA of the Austrian mobile operators remain stable from 2008-2010; revenue is slightly decreasingSource: Arthur D. Little, Press releases, Company Information, RTR.*) not separately published from 3G for Austria, **) only consolidated account available(fixed+ mobile line) 25