State of affairsSize and history of industry Telco to ICTSmart phone influence Spectrum crunch Telecoms transformationExisting business modelsRegulation/standardization versus innovation/differentiation?European market needs to invest in ICT startups and innovation Telecoms is global market dominated by European operators – new ICT companies dominated by US – devices and hardware dominated by AsiaEU needs to improve network LTEManage spectrum crunch through spectrum efficiency and leverage alternative data channels (Pure LVC)How can Telcos generate a profit, gain from ICT innovation (without footing the bill – customer care and signaling), address the regulations which are limiting Telco competitiveness, address the impact of standardization – positive (reduced cost through commoditization and common API’s), negative (reduce competition, innovation and send jobs to countries with cheap labor) - who will control the standards?
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Traicere Consultants find your way…ICT Business Transformation– Considerations from a European Telecoms Perspective Ruth Y. Pollock Traicere Consultants VMA Madrid, España June 2012
agenda Traicere Consultants find your way…• State of affairs• Considerations• Your thoughts…
Purchasing Power Parity [GDP] Traicere Consultants find your way…1. European Union $ 15,390,000,000,0002. United States $ 15,040,000,000,0003. China $ 11,290,000,000,0004. India $ 4,463,000,000,0005. Japan $ 4,389,000,000,0006. Germany $ 3,085,000,000,0007. Russia $ 2,380,000,000,0008. Brazil $ 2,282,000,000,0009. United Kingdom $ 2,250,000,000,00010. France $ 2,214,000,000,00011. Italy $ 1,822,000,000,00012. Mexico $ 1,657,000,000,00013. Korea, South $ 1,549,000,000,00014. Spain $ 1,411,000,000,000 The European Union remains the15. Canada $ 1,389,000,000,00016. Indonesia $ 1,121,000,000,000 worlds largest economy17. Turkey $ 1,026,000,000,00018. Iran $ 928,900,000,00019. Australia $ 917,700,000,00020. Taiwan $ 885,300,000,000 Source: CIA Factbook, data 2011 est .
Top Mobile Operators Traicere Consultants find your way… Total Subscribers (Millions) Axiata Gp. Berhad China Unicom VimpleCom Orange Telefonica Airtel America Movil Telenor Vodafone China Mobile 0 100 200 300 400 500 600 700 800Source: GSM 2011
Global Market Presence Traicere Consultants find your way…
ICT Global Business Investment Traicere Consultants find your way… Europe USA AsiaTelecomConnectivityIT hardware& softwareContent / EU light investment inMedia content/media sector Source: Carlos Lopez Blanco, Telefonica 2009
Top Global 15 Publicly Traded ‘Internet’companies by market value 2011 vs. ‘04 Success through global market Traicere Consultants find your way… access, and global appeal …none are European
GAMEY vs. traditional Telco Investment Traicere Consultants find your way… Services est. probably <$50M Google $2.222B [Jan 2004 – Dec 2006] Platform Max. US $150M (Tier 1) Google $1.994B [to Mar 2007] Core Network Mobile Core Network $4 B [est.] Not Public Access Network UK 3G RAN $3 – 4B [Analysis est.] Google $ 0 License UK 3G $11,928,000,000 [Vodafone] Google $0 *Finance Vodafone $54.3Bn Debt Google $24.5Bn Cash Telco GAMEYSource: Company Reports, Company Presentations, Analysis [IBM], SEC Filings USD 2 = GDP 1*2010 Google’s Business Model, Andrew Collinson, Telco 2.0 Director of Research
GAMEY vs. Telco Business Comparison Traicere Consultants find your way… Number of Employees – China Telecom 245K; Deutsche Telekom 244K; Google 7K Number of customers served per employee – Verizon 479; Singtel 4,454; Google 54,000 ARPU (per Month) GAMEY companies are orders of – BT $155 ;Verizon $70; ATT $50; Google $7 magnitude more efficient Profit – BT 1.9B; Vodafone $11.5B; Telefonica $5.5B; Verizon $7B ; Google $1.6B … global market access without the Profit Margin cost. – BT 5%; Vodafone 21%; Telefonica 11%; Verizon 8% ; Google 27%Service comparisons • Massive automation with rapid and substantial application development • Blended and personalized services – increasingly user-created • No significant cross boarder trade limitations such as with Telco • More stringent regulations regarding Customer data usage for Telco than IP-companiesGAMEY companies are highly regarded by the market • MktCap (Google + Amazon + MSN + eBay (skype) + Yahoo) = $453B • MktCap (Vodafone + AT&T + China Mobile +Verizon) = $431BOperators are currently better at charging for content and supporting the commercial retailchain (device and service selection, billing and customer support) Source: Company Reports, Company Presentations, Analysis [IBM], SEC Filings USD 2 = GDP 1 *2010 Google’s Business Model, Andrew Collinson, Telco 2.0 Director of Research
ICT Business Diversification Traicere Consultants find your way… Denotes where business started Carriers Nokia RIM Apple Qualcomm Google Facebook Components Social Networks Cloud Services Developer Ecosystems Network User Interface Operating System Hardware IP Manufacturing Source: VisionMobile 2011
Mobile Service Growth Traicere Consultants Communication Advice find your way… Entertainment Government Trade Retail According to a new research report by Berg Home Management Insight, the worldwide number of users ofLearning mobile banking and related services is forecasted to grow from 55 million users in 2009 at a Banking compound annual growth rate (CAGR) of 59.2 percent to reach 894 million users in 2015.Security By 2015, Berg Insight forecasts that mobile M2M banking will attract 115 million users in Europe and 86 million users in North America.Building Management Healthcare Business ManagementSource: Cellular News, 2010 Games
Apple ‘Stickiness’ Traicere Consultants find your way… $6.8 bn Revenues generated by iPhone (hardware) sales in 2009 (22% of Apple’s revenues) $400 m Revenues generated by App Store sales since its creation < 1% App Store contribution to gross profit since its creationSource: Faber Noveli 2010
Current ICT Investment Traicere Consultants find your way… US Currently invests 30% of GDP in ICT business Source: Oxford Economics, 2011As a percentage of GDP, Europe’s stock of ICT capital has fallen to about two-thirds ofthe level in the US, the world leader, having been close to parity in 1991.…this ICT investment gap has affected Europe’s productivity growth, which has averagedonly half the US rate since 2000.
Telecom Challenges Traicere Consultants find your way…Spectrum Crunch• Increase in data demand (primarily Mobile B’band) through increase in subscribers and data-rich applications• Rate of demand is exceeding data transfer speeds• Network efficiency innovation unable to keep up with service demandEnd of Profit Source: Stem Tamkivi, GM Skype Estonia 2009• Cost of service provision will potentially equal (if not exceed ) revenue generation• Increased ICT profitable businesses have developed ‘over the top’ of operator services such that operators provide access to market for other ICT services without direct or proportionate revenue remuneration• Operators in most markets are anticipated to reach ‘end of profit’ by 2015 Worst case Best case Region median scenario scenario North America Q1, 2013 Q4, 2013 Q2, 2014 Developed Asia Pacific Q3, 2013 Q3, 2014 Q1, 2015 Western Europe Q1, 2014 Q1, 2015 Q2, 2015 Source: Tellabs/ Analysis Mason (February 2011)
Telecom Considerations Traicere Consultants find your way…Spectrum Crunch - your thoughts?• Adopt systems/standards with greater efficiency such as LTE? Free cash flow• Adopt off-loading and intelligent QOS solutions and strategies across available network?• Invest in new technologies which demonstrate more efficient RF spectrum utilization?• Invest in the development of new technologies which exploit EM spectrum such as Visible Light Technology/Li-Fi? 1 Cost per Mega Byte. Li-Fi <1:300 HSPA only - No LTE 1:3 HSPA, with LTE deployment 1:5 <1:3000 HSPA+LTE, 50% off - load GPRS EDGE UMTS HSPA LTE 2010 2012 2014 2016 2018 2020 Source: Dr. Kim Kyllesbech Larsen, Deutsche Telekom 2011 Operator illustration Source: Pure VLC 2012 Visible Spectrum is unregulated
Telecom Considerations Traicere Consultants find your way…End of Profit – your thoughts?• Through economies of scale, reduce CapEx and OpEx via network consolidation (shared infrastructure, JVC, MVNO, acquisition)? – Create a common telecoms platform supporting net neutrality throughout Europe – such as in Australia ? • Impact on innovation, entrepreneurship and business ‘inspiration’ – Free up legislative control such that network control is market driven, and network acquisition easier? • Security and market stability considerations – Bundle services• Standardize where possible to improve network harmonization ? – The relationship between standards and regulations – Innovation and standards management – Commoditization will drive price down to the cheapest labor source and most favorable currency exchange rate• Update regulations to support greater market competition and future profitability ? – Resolving different schools of thought • Deregulate to increase market influence • Increase regulation to promote net neutrality and/or spectrum harmonization • Licensed, Authorized or License-exempt who will benefit?• Invest in growth ICT market segments and businesses ? – Investment outside of traditional Telecoms business models – Consider US (and Scotlands ) model of cultivating business entrepreneurship programs with universities – What changes would be required to create global ICT businesses such as Google in the EU