Scenario Analysis Use Case: 3G/4G Wireless Data

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What does the future hold for the wireless telecommunications industry and which players will extract maximum value from providing services, equipment and applications?

This is a version of the presentation that I delivered at the China Institute of Competitive Intelligence conference in Shanghai, November 2009. I used the question of the future of 3G/4G wireless as a use case for using comprehensive scenario analysis to help firms maintain strategic dexterity in the face of uncertainty.

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  • As the mature and more evolved markets have already begun to center their mobile infrastructure investments on 3G, it will be the emerging markets that will serve as the catalyst for further growth in the 3G opportunity. Among these, there is no market as important as China. To better understand this, IDC has examined the requirements for effective 3G deployment in the country. The requirements include: If Unicom is to present a serious competition to China Mobile with Unicom's new WCDMA service, IDC believes that Unicom will need to deploy well over 100,000 WCDMA BTS (or roughly 231,000 carrier sectors) by the end of 2011, out of which some 45% or more will need to support HSPA. IDC estimates that China Mobile will add 155,000 TD-SCDMA cells sites to reach a total of 222,000 BTS in 2011. Based on the orders that China Telecom has placed with vendors, we are estimating that China Telecom will add approximately 120,000 BTS to reach over 200,000 by the end of 2011. These speak to the tremendous 3G market opportunity in China. Simply put, China delivers tremendous scale to 3G. It is therefore no surprise that China offers some of the most prized contracts in mobile infrastructure for 2009. Most notable in the 3G contract awards is the rise of ZTE to the top tier of suppliers in China. ZTE is among the top 2 contract winners in each of the operators' tenders. As a result, the company comes out on top in terms of the overall 3G infrastructure awards (see Figure 2). Though the firm's global wireless infrastructure business is still several-fold smaller than leaders Ericsson and Nokia Siemens, ZTE's rise in China bodes well for its global position in 2009. This is especially true given the North American and Western European markets face particularly challenging business environments this year. Other notable accomplishments include the beleaguered Nortel's success in maintaining its position with China Telecom and Motorola remaining present in the Chinese market.
  • As the mature and more evolved markets have already begun to center their mobile infrastructure investments on 3G, it will be the emerging markets that will serve as the catalyst for further growth in the 3G opportunity. Among these, there is no market as important as China. To better understand this, IDC has examined the requirements for effective 3G deployment in the country. The requirements include: If Unicom is to present a serious competition to China Mobile with Unicom's new WCDMA service, IDC believes that Unicom will need to deploy well over 100,000 WCDMA BTS (or roughly 231,000 carrier sectors) by the end of 2011, out of which some 45% or more will need to support HSPA. IDC estimates that China Mobile will add 155,000 TD-SCDMA cells sites to reach a total of 222,000 BTS in 2011. Based on the orders that China Telecom has placed with vendors, we are estimating that China Telecom will add approximately 120,000 BTS to reach over 200,000 by the end of 2011. These speak to the tremendous 3G market opportunity in China. Simply put, China delivers tremendous scale to 3G. It is therefore no surprise that China offers some of the most prized contracts in mobile infrastructure for 2009. Most notable in the 3G contract awards is the rise of ZTE to the top tier of suppliers in China. ZTE is among the top 2 contract winners in each of the operators' tenders. As a result, the company comes out on top in terms of the overall 3G infrastructure awards (see Figure 2). Though the firm's global wireless infrastructure business is still several-fold smaller than leaders Ericsson and Nokia Siemens, ZTE's rise in China bodes well for its global position in 2009. This is especially true given the North American and Western European markets face particularly challenging business environments this year. Other notable accomplishments include the beleaguered Nortel's success in maintaining its position with China Telecom and Motorola remaining present in the Chinese market.
  • As the mature and more evolved markets have already begun to center their mobile infrastructure investments on 3G, it will be the emerging markets that will serve as the catalyst for further growth in the 3G opportunity. Among these, there is no market as important as China. To better understand this, IDC has examined the requirements for effective 3G deployment in the country. The requirements include: If Unicom is to present a serious competition to China Mobile with Unicom's new WCDMA service, IDC believes that Unicom will need to deploy well over 100,000 WCDMA BTS (or roughly 231,000 carrier sectors) by the end of 2011, out of which some 45% or more will need to support HSPA. IDC estimates that China Mobile will add 155,000 TD-SCDMA cells sites to reach a total of 222,000 BTS in 2011. Based on the orders that China Telecom has placed with vendors, we are estimating that China Telecom will add approximately 120,000 BTS to reach over 200,000 by the end of 2011. These speak to the tremendous 3G market opportunity in China. Simply put, China delivers tremendous scale to 3G. It is therefore no surprise that China offers some of the most prized contracts in mobile infrastructure for 2009. Most notable in the 3G contract awards is the rise of ZTE to the top tier of suppliers in China. ZTE is among the top 2 contract winners in each of the operators' tenders. As a result, the company comes out on top in terms of the overall 3G infrastructure awards (see Figure 2). Though the firm's global wireless infrastructure business is still several-fold smaller than leaders Ericsson and Nokia Siemens, ZTE's rise in China bodes well for its global position in 2009. This is especially true given the North American and Western European markets face particularly challenging business environments this year. Other notable accomplishments include the beleaguered Nortel's success in maintaining its position with China Telecom and Motorola remaining present in the Chinese market.
  • Scenario Analysis Use Case: 3G/4G Wireless Data

    1. 1. Scenario Analysis: 3G/4G Wireless August Jackson Verizon
    2. 2. Why do Scenario Analysis?
    3. 3. Process to Create Scenarios
    4. 4. STEEP Analysis
    5. 5. 3G Drivers: Social Changing workplace norms and expectations of younger generations of workers Continued growth in the application of outsourcing non-core business activities leads to growing distributed, non-centralized organizations Lower birth rates among native populations in Western Europe, North America and Japan Increase in the proportion of immigrant and ethnic minority populations in Western Europe and North America Impact of H1N1 global pandemic and other diseases Obvious potential for criminal activity to migrate to digital media Variances in concerns for individual privacy based on geography, generation and culture Innovative corporate cultures defined by iterative, lean product development and "perpetual beta"
    6. 6. 3G Drivers: Technological Growth in market for smart phones that combine phone, computer, GPS and often camera Increase in mobile data volumes Unbundled Mobile VoIP made possible by 3G data services disrupting traditional switched voice hold of wireless carriers Increase in mobile data speeds (3G and 4G) Enterprise-class applications on mobile telephones Mobile OS proliferation: Apple, Google Android, Palm WebOS, Nokia Symbian, RIM Blackberry, etc. Fixed-mobile convergence and unified communications platforms enabling business users to unify fixed and mobile voice and messaging services Virtualization of computer assets for efficient use of capital assets and security Cloud Computing displacing need for capital investment for information technology deployments
    7. 7. 3G Drivers: Technological (cont.) Increasing acceptance of open source software in government and enterprise for an increasing number of applications Interactive, collaborative software platforms that benefit from a network effect (Web 2.0, social media, social software) Semantic web technologies (Web 3.0) As yet unproven interoperability of LTE and TD-LTE Early success of Wi-Max (802.16m) deployments in US and Africa Competition between LTE and WiMax for 4G standards Delayed deployment of 3G in China and India Timeframe for widespread 4G / LTE rollout in major wireless markets? "Developing" markets where 3G has yet to be deployed or is only now starting to be deployed are better-suited for lower-cost offerings from the likes of Huawei and ZTE Increasing proportion of total Internet and IP traffic moving over wireless networks
    8. 8. 3G Drivers: Technological (cont.) Carriers committing to a roadmap for 4G deployment and speed of LTE deployment Growing use of cloud computing for distributed applications and infrastructure Increasing quality of consumer-grade software and applications to support enterprise requirements Growth in use of machine-to-machine wireless data and consumer electronic devices with embedded wireless data connectivity (example: Amazon Kindle, GPS navigation) Will TD-SCDMA be accepted broadly outside of China? How will the China market develop as a consequence of a variety of 3G technologies being designated as part of the 3G spectrum license? Increased application of video conferencing, telepresence and web conferencing as medium for business collaboration and personal communications Continued concerns about the health impact of constant use of mobile telephone equipment
    9. 9. 3G Drivers: Economic Economic crisis and the new normal in the West (project 2 - 3% growth compared to 6+ and 8+ percent growth in India and China, respectively Growing economic power of China and India Continued reluctance to support Foreign Direct Investment in India Tie of RMB to the Dollar Consolidation among Western telecommunications equipment manufacturers Oversupply of consumer retail space in the US commercial real estate market Reverse innovation of low-cost/innovative products introduced in developing marketing finding in-roads as low-cost solutions in Western markets Possibility of an East Asian asset bubble driven in part by investors borrowing at low interest rates in the US and investing in what they perceive to be the high growth markets in East Asia General volatility in the price of oil
    10. 10. 3G Drivers: Economic (cont.) Variances in the availability of credit, leverage ratios in national markets to fund capital investment of network build-outs, M&A activity, R&D investment Business and broader economic impact of attempt to revise financial and tax regulation Business impact of efforts of US Federal Reserve and European Central Bank to pull-back from policies of quantitative easing to minimize the economic impact of failure of large banks in 2008
    11. 11. 3G Drivers: Environmental Push to "go green" in ICT and companies investing in green R&D and marketing Continued expansion in greenhouse gas emissions and growing among developing economies Outcome of continued R&D for clean energy sources
    12. 12. 3G Drivers: Political Concern about the magnitude of US federal deficit and growth in national debt likely to be a defining characteristic of 2012 presidential election Concerns over cyber warfare by state and non-state actors US Federal Communications Commission (FCC's) stated intention to mandate rules for network neutrality, extending potentially to freedom for device connectivity, VoIP over data networks and applications on devices Hints of protectionism among US politicians, particularly vis-à-vis China Stimulus spending in the US focusing on rural broadband, primarily wireless Stimulus spending in the US and China devoted to Health IT Stimulus spending in the US devoted to "smart grid" including wireless Availability of white space spectrum for unlicensed wireless services
    13. 13. 3G Drivers: Political (cont.) Highly variable adoption of wireless LAN technologies (namely Wi-Fi) using unlicensed spectrum in national markets National policies allowing for the introduction of nuclear power National policies on regulating financial markets following economic crisis of 2008 National policies to encourage reduction in greenhouse gases China's Ministry of Industry and Information Technology and related regulatory bodies mandates for home-grown wireless standards like TD-SCDMA and TD-LTE
    14. 14. Themes of Uncertainties <ul><li>Unbundled Mobile VoIP </li></ul><ul><li>Unlicensed Wireless Spectrum </li></ul><ul><li>US FCC rules on “net neutrality” </li></ul><ul><li>LTE and TD-LTE Interoperability </li></ul><ul><li>Externalities of multiple 3G standards </li></ul><ul><li>China’s MIIT’s require TD-LTE </li></ul><ul><li>Volatility in oil, commodity prices </li></ul><ul><li>Financial regulatory reform in US, Europe </li></ul><ul><li>US Fed and ECB draw down money supplies </li></ul><ul><li>Move in RMB : $ ratio </li></ul><ul><li>Asset bubble in developing markets? </li></ul><ul><li>Availability of credit and cost of capital </li></ul>Standards Openness Economic Volatility
    15. 15. 3G/4G & ICT Scenarios <ul><li>Telco Sets the Pace </li></ul><ul><li>Modest speed increase </li></ul><ul><li>Carriers set pace of ICT innovation </li></ul><ul><li>Very high ROC for telcos </li></ul><ul><li>Highly regulated </li></ul><ul><li>Google World </li></ul><ul><li>Rapid speed increases </li></ul><ul><li>Carriers lower ROC </li></ul><ul><li>ICT central to strategic competitiveness of all firms </li></ul><ul><li>Total ICT market grows fast </li></ul><ul><li>Innovation Stagnation </li></ul><ul><li>Almost no bandwidth growth </li></ul><ul><li>Almost no innovation in ICT </li></ul><ul><li>Telcos purchase equipment makers </li></ul><ul><li>Regulated, cost-plus pricing </li></ul><ul><li>Reverse Innovation World </li></ul><ul><li>Slow speed increase </li></ul><ul><li>Increased use of open source hardware and software </li></ul><ul><li>Business and ICT innovations move from China & India to West </li></ul>Closed & Controlled Open Ecosystem Economic Volatility Stable Growth
    16. 16. Important Attributed of Scenarios Stable Growth, Closed & Controlled
    17. 17. Scenario 1: Telco Sets the Pace Stable Growth, Closed & Controlled
    18. 18. Scenario 2: Google World Stable Growth, Open Ecosystem
    19. 19. Scenario 3: Innovation Stagnation Economic Volatility, Closed & Controlled
    20. 20. Scenario 4: Reverse Innovation World Economic Volatility, Open Ecosystem
    21. 21. Caveats & Observations About Scenarios China and US may face different scenarios Different ideas of “Regulatory Intrusiveness” in China and US High growth in China will only slightly blunt impact of commodity price volatility Global economic state will define success of Chinese equipment makers outside China
    22. 22. 谢谢 August Jackson Verizon +1 703 348 7337 [email_address] http://augustjackson.net
    23. 23. Appendix
    24. 24. Sources Blenkhorn, David, and Craig Fleischer. Managing Frontiers in Competitive Intelligence . New York: Quorum Books, 2000. Bensoussan, Babette and Craig Fleischer. Analysis Without Paralysis: 10 Tools to Make Better Strategic Decisions . New York: FT Press, 2008. Day, George. &quot;Looking in to Marketing's Future.” Marketing Management September/October 2009: 12-17. Dewar, James. Assumption Based Planning: A Tool for Reducing Avoidable Surprise . New York: Cambridge University Press, 2002.
    25. 25. Steps to Scenario Analysis <ul><li>Identify the decision(s) that need to be made </li></ul><ul><li>Define the scope of the analysis </li></ul><ul><ul><li>Products </li></ul></ul><ul><ul><li>Markets </li></ul></ul><ul><ul><li>Customers </li></ul></ul><ul><ul><li>Geographies </li></ul></ul><ul><ul><li>Timeframes </li></ul></ul><ul><li>Identify the stakeholders </li></ul>
    26. 26. Steps to Scenario Analysis <ul><li>Identify the basic trends </li></ul><ul><ul><li>Explain trends </li></ul></ul><ul><ul><li>Why does this trend affect the firm related to the decision to be made </li></ul></ul><ul><li>Identify uncertainties among the trends/drivers </li></ul><ul><ul><li>Possible outcomes for each uncertainty </li></ul></ul><ul><ul><li>Relationships among the uncertainties? </li></ul></ul><ul><ul><li>Any mutual exclusivity? </li></ul></ul>
    27. 27. Steps to Scenario Analysis <ul><li>Select 2 most important uncertainties </li></ul><ul><li>Cluster strings of possible outcomes </li></ul><ul><li>Identify the extremes with all positive/negative outcomes </li></ul><ul><li>Check for consistency and plausibility </li></ul><ul><ul><li>Are the scenarios compatible with the timeframe in question </li></ul></ul><ul><li>Identify relevant themes and organize trends and uncertainties around these trends </li></ul>
    28. 28. Steps to Scenario Analysis <ul><li>Identify research requirements to better understand uncertainties and trends </li></ul><ul><li>Develop qualitative models for uncertainties that can be formalized and quantified </li></ul><ul><li>Develop scenario narratives of the future state and a back-story of how we got there. “Histories of the future.” </li></ul><ul><li>Describe the competitive and financial implications of each scenario </li></ul>
    29. 29. Steps to Scenario Analysis <ul><li>Develop the competitive strategy narrative around each scenario. </li></ul><ul><ul><li>The common strategies to all scenarios? </li></ul></ul><ul><li>Choose an overall strategy with respect to the scenarios </li></ul><ul><ul><li>Shape the future? </li></ul></ul><ul><ul><li>Adapt to the future? </li></ul></ul><ul><ul><li>Minimize overt vulnerability </li></ul></ul>
    30. 30. Steps to Scenario Analysis <ul><li>Build early warning milestones for each scenario </li></ul><ul><ul><li>What kinds of things will we see if a scenario is coming true? </li></ul></ul><ul><ul><li>Where will we see it? </li></ul></ul>

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