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Mobile Operators' Strategies and Financials
in the 4th Revenue Growth Curve
By ALI Saghaeian
Chief Analyst & Consultant
Telecoms, IT, and Media
Saghaeian [at] gmail.com
Objectives
• Understanding the 4th Curve
• What are the Opportunities in the
4th Curve
• Analysis of the 4th Growth Curve
• Tracking the rise and fall of the 4th
Revenue Curves
• What are Mobile Operators'
Strategies in the 4th Curve
• What are the Impact of 4th Curve
on Operator Financials
• Business Case
Development for a
typical VAS (excel
task)
Exercise
Saghaeian [at] gmail.com
Agenda
• Implications of the 4th wave
• Opportunities in the 4th Curve
• Opportunities beyond Voice and Data
• Case Studied for Revenues from new businesses
• 4th Curve Application Areas
• The four revenue growth curves
• Mobile Operator Strategy in the 4th Curve
• The Impact of 4th Curve on Operator Financials
• ICT and Digital Media Industry
• Profitability of business segments
• Global Mobile Industry Profit Share
Saghaeian [at] gmail.com
The 4th Curve
 The 4th curve is not a single entity or a functional block like voice,
messaging or access but is made up dozens of new application areas.
 The 4th curve has different characteristics than the previous three:
o It is not one single curve but a combination of dozens of smaller
curves.
o The barriers of entry are low on the fourth curve.
o The Competitive landscape of each of these curves is different
requiring a more agile organization.
o Competition from new entrants starts very early.
o Business models that extend beyond metering are required.
 The previous three curves were quite distinct in their offerings. The
investment required, the type of people that needed to get hired, the
product roadmap, the vendors, and the value chains etc. were well defined
over the course of time. The purpose, the functionality, and expected
returns were well understood.
Saghaeian [at] gmail.com
Telecom sector revenue trends
Revenue decline can slow down if especially mobile operators implement the
right strategies
Saghaeian [at] gmail.com
 Who will capture the profits
 The Need for New operating models
 Implications on the Ecosystem
 Competition and Operator Consolidation
 New Revenue Models
 New Joint Venture Models
 New Business Models
 Regulatory Rethink
Implications of the 4th wave
Saghaeian [at] gmail.com
Opportunities in the 4th Curve
 AT&T and Telefonica Digital are focused on opportunities beyond
communications into M2M, Advertising, Financial Services, Cloud, Security,
mHealth, and Distribution. With the scale of multi hundred million
subscriber base, each can make an impact with solutions and services they
introduce into the market.
 In many of the markets like advertising and security services, the operator
will be a new entrant. But, the operator is also in a unique position where
they can provide an end-to-end solution to the customers where they already
have a billing and service relationship.
 Operators will have to segment the cost of doing business and the revenue
streams and optimize for higher margins.
Saghaeian [at] gmail.com
Opportunities beyond Voice and Data
Saghaeian [at] gmail.com
Globally identification of new revenue opportunities is a key
requirement for Telco players facing slow down
• Further development of customer base
expansion through segmentation
• Locking of customers to retain the revenues
• Focus on high-end customers
• Push on (interactive) VAS to increase revenue
and margin
• Re-assessment of cost base and organisation
models to address increasing margin pressure
• Identification of new revenue opportunities
in adjacent sectors
• Direct competition between fixed and
mobile players in voice market
• Customer base and consumption still on
the rise, but tariff pressure and regulatory
changes leading to ARPU decrease
• Markets increasingly competitive and
segmented
• Increase in acquisition and retention costs
• Technologies enabling media players to
compete in the Telco market and Telco
players in the media market (OTT)
Global trends in the Telco industry Potential actions from Telco’s
Saghaeian [at] gmail.com
NTT DoCoMo Revenues from new businesses
Saghaeian [at] gmail.com
Telefonica Digital Revenue Targets
Saghaeian [at] gmail.com
Contextual Communications means New Revenue
Saghaeian [at] gmail.com
AT&T earns new revenue with connected car
Saghaeian [at] gmail.com
China Telecom earns new wholesale revenue with
virtual numbers
Saghaeian [at] gmail.com
The 4th curve opportunities
Saghaeian [at] gmail.com
4th Curve Application Areas
Application Areas Competitors
Identity, Risk Management Facebook, Google, Twitter, Microsoft, Banks
Commerce Amazon, Ebay, Google, Groupon
Payments Paypal, Startups, Google, Facebook, Visa
User Profile Google, Microsoft, Apple, Twitter, Facebook
Advertising Google, Facebook, Startups, Apple
Cloud Services Amazon, Cisco, Apple, Microsoft, Salesforce
Enterprise SIs, Vertical players
Connected Home Cable Companies, HP, Microsoft, Sony, Apple, ADT
Health Microsoft, Health Care providers
Analytics Google, Microsoft, Facebook, Amazon
Saghaeian [at] gmail.com
The four revenue growth curves
Operators who are investing heavily in the 4th curve have a good shot at
seeing the end of the decade
Saghaeian [at] gmail.com
 The 4th wave analyzes the four mobile revenue curves in detail and
discusses the strategies needed to increase the net revenue and the
investment areas that can lead to new revenue and healthier margins for
operators around the world.
 It is inevitable that the 4th growth curve for the wireless industry is going to
bring in disruption in the industry structure, technologies used, revenue
models, and at some point the regulatory framework itself.
 Any given operator could play a different role on the various mini-curves
that make up the 4th curve. The net performance of any given operator will
be measured by how they perform in aggregate on the 4th curve.
 Alone, any given mini-curve might not represent as big of an opportunity as
the previous three curves individually, however, collectively; the 4th curve
has the potential of surpassing the previous ones.
Analysis of the 4th Growth Curve
Saghaeian [at] gmail.com
The rise and fall of the 4th Revenue Curves
Saghaeian [at] gmail.com
o Delay the decline
This can be achieved by a number of key initiatives that involve a mix of business
models, consumer loyalty, integration of new technologies to reduce churn, and
embracing OTT/VAS services.
o Extend the peak
The reason Sprint is still able to offer unlimited data on iPhone and Android devices
is because their margins/bit are better than their competitors.
A number of operators like Rogers, Vodafone and Verizon have launched data share
plans that allow consumers to bundle multiple device per plan. This will encourage
users to become data users across multiple devices. This form of data pricing and
bundling will help extend the access curve peak in all markets.
o Invest in the 4th curve
Given that the 4th curve is not a singular curve but a combination of several mini-
curves that have their own profile, growth characteristics, competitive dynamics, and
opportunity landscape, operators will have to manage the 4th curve like an
investment professional would manage an investment portfolio or fund – diversify to
reduce risk and extend growth.
Mobile Operator Strategy in the 4th Curve
Saghaeian [at] gmail.com
The Impact of 4th Curve on Operator Financials
 The growth in revenue has been fueled by the investments that operators
have to make to keep up with the network demand. As such, many have had
to raise significant amounts of debt.
 If the EBITDA for the company doesn’t grow in proportion to the rising debt,
the company comes under scrutiny and financial pressure. Typically, the
average Debt/EBITDA ratio for global operators stays around 1.4 with Asian
operators
 Over the past few years, weak economic conditions in various geographies
and pressures on the first three curves have increased the Debt to EBITDA
ratios for some of the operators. For Deutsche Telekom, the ratio has risen
by 22%, for France Telecom 23%, for Sprint 24%, and for Telefonica 50%
 Operators’ ability to raise debt and invest in new ideas and growth curves
rests on the both the will to invest as well as their current financial condition.
When the revenues stop growing but the debt demands stay high, the ratios
start to climb, putting significant stress on the financial health of the
operator.
Saghaeian [at] gmail.com
ICT and Digital Media Revenue Map
Saghaeian [at] gmail.com
ICT and Digital Media Industry - Revenue
 ICT and digital media industry has
grown by 5.6% since 2007, reaching $3.7tn
in 2013.
 It remains a services-based industry
however the proportion of services
decreased by 5.1% since 2007 in favor of
hardware.
 The role of advertising gains on
importance.
Saghaeian [at] gmail.com
Business Segments - Revenue, 2007 vs. 2013
 Communications was the worst performer whilst broadband connectivity gained
in importance as service providers tackle competition with multi-play offerings
 The role of devices increased as more gadgets were connected
 Content was flat as companies look for effective monetization strategies
Saghaeian [at] gmail.com
Shift in value, 2007 vs. 2013
Saghaeian [at] gmail.com
Revenue Growth Barometer
Saghaeian [at] gmail.com
ICT and Digital Media Industry - Profitability
 ICT and digital media industry EBITDA
has grown by 5.1% since 2007, reaching
$962bn in 2013.
 EBITDA margin saw moderate decline
from 26.4% to 25.7%, with software being
the main culprit.
 The biggest improvement in EBITDA
margin was achieved by advertising.
Saghaeian [at] gmail.com
Profitability of business segments, 2007 vs. 2013
Saghaeian [at] gmail.com
EBITDA Margin Barometer
Saghaeian [at] gmail.com
Perceived value, 2007 vs. 2013
 Connectivity & communications remains the worst performing segment, with
a knock-on effect on network vendors
 Investors see potential in content, followed by internet platforms and IT
 Device, OS & components seems overpriced
Saghaeian [at] gmail.com
Global Mobile Industry Profit Share
Saghaeian [at] gmail.com
Mobile Operator profit growth in some regions
Saghaeian [at] gmail.com
Safaricom Mobile Data Revenue Segmentation
Saghaeian [at] gmail.com
Any Questions?
34
ALI Saghaeian | saghaeian@gmail.com

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Mobile Operators' Strategies and Financials in the 4th Revenue Growth Curve

  • 1. Mobile Operators' Strategies and Financials in the 4th Revenue Growth Curve By ALI Saghaeian Chief Analyst & Consultant Telecoms, IT, and Media Saghaeian [at] gmail.com
  • 2. Objectives • Understanding the 4th Curve • What are the Opportunities in the 4th Curve • Analysis of the 4th Growth Curve • Tracking the rise and fall of the 4th Revenue Curves • What are Mobile Operators' Strategies in the 4th Curve • What are the Impact of 4th Curve on Operator Financials • Business Case Development for a typical VAS (excel task) Exercise Saghaeian [at] gmail.com
  • 3. Agenda • Implications of the 4th wave • Opportunities in the 4th Curve • Opportunities beyond Voice and Data • Case Studied for Revenues from new businesses • 4th Curve Application Areas • The four revenue growth curves • Mobile Operator Strategy in the 4th Curve • The Impact of 4th Curve on Operator Financials • ICT and Digital Media Industry • Profitability of business segments • Global Mobile Industry Profit Share Saghaeian [at] gmail.com
  • 4. The 4th Curve  The 4th curve is not a single entity or a functional block like voice, messaging or access but is made up dozens of new application areas.  The 4th curve has different characteristics than the previous three: o It is not one single curve but a combination of dozens of smaller curves. o The barriers of entry are low on the fourth curve. o The Competitive landscape of each of these curves is different requiring a more agile organization. o Competition from new entrants starts very early. o Business models that extend beyond metering are required.  The previous three curves were quite distinct in their offerings. The investment required, the type of people that needed to get hired, the product roadmap, the vendors, and the value chains etc. were well defined over the course of time. The purpose, the functionality, and expected returns were well understood. Saghaeian [at] gmail.com
  • 5. Telecom sector revenue trends Revenue decline can slow down if especially mobile operators implement the right strategies Saghaeian [at] gmail.com
  • 6.  Who will capture the profits  The Need for New operating models  Implications on the Ecosystem  Competition and Operator Consolidation  New Revenue Models  New Joint Venture Models  New Business Models  Regulatory Rethink Implications of the 4th wave Saghaeian [at] gmail.com
  • 7. Opportunities in the 4th Curve  AT&T and Telefonica Digital are focused on opportunities beyond communications into M2M, Advertising, Financial Services, Cloud, Security, mHealth, and Distribution. With the scale of multi hundred million subscriber base, each can make an impact with solutions and services they introduce into the market.  In many of the markets like advertising and security services, the operator will be a new entrant. But, the operator is also in a unique position where they can provide an end-to-end solution to the customers where they already have a billing and service relationship.  Operators will have to segment the cost of doing business and the revenue streams and optimize for higher margins. Saghaeian [at] gmail.com
  • 8. Opportunities beyond Voice and Data Saghaeian [at] gmail.com
  • 9. Globally identification of new revenue opportunities is a key requirement for Telco players facing slow down • Further development of customer base expansion through segmentation • Locking of customers to retain the revenues • Focus on high-end customers • Push on (interactive) VAS to increase revenue and margin • Re-assessment of cost base and organisation models to address increasing margin pressure • Identification of new revenue opportunities in adjacent sectors • Direct competition between fixed and mobile players in voice market • Customer base and consumption still on the rise, but tariff pressure and regulatory changes leading to ARPU decrease • Markets increasingly competitive and segmented • Increase in acquisition and retention costs • Technologies enabling media players to compete in the Telco market and Telco players in the media market (OTT) Global trends in the Telco industry Potential actions from Telco’s Saghaeian [at] gmail.com
  • 10. NTT DoCoMo Revenues from new businesses Saghaeian [at] gmail.com
  • 11. Telefonica Digital Revenue Targets Saghaeian [at] gmail.com
  • 12. Contextual Communications means New Revenue Saghaeian [at] gmail.com
  • 13. AT&T earns new revenue with connected car Saghaeian [at] gmail.com
  • 14. China Telecom earns new wholesale revenue with virtual numbers Saghaeian [at] gmail.com
  • 15. The 4th curve opportunities Saghaeian [at] gmail.com
  • 16. 4th Curve Application Areas Application Areas Competitors Identity, Risk Management Facebook, Google, Twitter, Microsoft, Banks Commerce Amazon, Ebay, Google, Groupon Payments Paypal, Startups, Google, Facebook, Visa User Profile Google, Microsoft, Apple, Twitter, Facebook Advertising Google, Facebook, Startups, Apple Cloud Services Amazon, Cisco, Apple, Microsoft, Salesforce Enterprise SIs, Vertical players Connected Home Cable Companies, HP, Microsoft, Sony, Apple, ADT Health Microsoft, Health Care providers Analytics Google, Microsoft, Facebook, Amazon Saghaeian [at] gmail.com
  • 17. The four revenue growth curves Operators who are investing heavily in the 4th curve have a good shot at seeing the end of the decade Saghaeian [at] gmail.com
  • 18.  The 4th wave analyzes the four mobile revenue curves in detail and discusses the strategies needed to increase the net revenue and the investment areas that can lead to new revenue and healthier margins for operators around the world.  It is inevitable that the 4th growth curve for the wireless industry is going to bring in disruption in the industry structure, technologies used, revenue models, and at some point the regulatory framework itself.  Any given operator could play a different role on the various mini-curves that make up the 4th curve. The net performance of any given operator will be measured by how they perform in aggregate on the 4th curve.  Alone, any given mini-curve might not represent as big of an opportunity as the previous three curves individually, however, collectively; the 4th curve has the potential of surpassing the previous ones. Analysis of the 4th Growth Curve Saghaeian [at] gmail.com
  • 19. The rise and fall of the 4th Revenue Curves Saghaeian [at] gmail.com
  • 20. o Delay the decline This can be achieved by a number of key initiatives that involve a mix of business models, consumer loyalty, integration of new technologies to reduce churn, and embracing OTT/VAS services. o Extend the peak The reason Sprint is still able to offer unlimited data on iPhone and Android devices is because their margins/bit are better than their competitors. A number of operators like Rogers, Vodafone and Verizon have launched data share plans that allow consumers to bundle multiple device per plan. This will encourage users to become data users across multiple devices. This form of data pricing and bundling will help extend the access curve peak in all markets. o Invest in the 4th curve Given that the 4th curve is not a singular curve but a combination of several mini- curves that have their own profile, growth characteristics, competitive dynamics, and opportunity landscape, operators will have to manage the 4th curve like an investment professional would manage an investment portfolio or fund – diversify to reduce risk and extend growth. Mobile Operator Strategy in the 4th Curve Saghaeian [at] gmail.com
  • 21. The Impact of 4th Curve on Operator Financials  The growth in revenue has been fueled by the investments that operators have to make to keep up with the network demand. As such, many have had to raise significant amounts of debt.  If the EBITDA for the company doesn’t grow in proportion to the rising debt, the company comes under scrutiny and financial pressure. Typically, the average Debt/EBITDA ratio for global operators stays around 1.4 with Asian operators  Over the past few years, weak economic conditions in various geographies and pressures on the first three curves have increased the Debt to EBITDA ratios for some of the operators. For Deutsche Telekom, the ratio has risen by 22%, for France Telecom 23%, for Sprint 24%, and for Telefonica 50%  Operators’ ability to raise debt and invest in new ideas and growth curves rests on the both the will to invest as well as their current financial condition. When the revenues stop growing but the debt demands stay high, the ratios start to climb, putting significant stress on the financial health of the operator. Saghaeian [at] gmail.com
  • 22. ICT and Digital Media Revenue Map Saghaeian [at] gmail.com
  • 23. ICT and Digital Media Industry - Revenue  ICT and digital media industry has grown by 5.6% since 2007, reaching $3.7tn in 2013.  It remains a services-based industry however the proportion of services decreased by 5.1% since 2007 in favor of hardware.  The role of advertising gains on importance. Saghaeian [at] gmail.com
  • 24. Business Segments - Revenue, 2007 vs. 2013  Communications was the worst performer whilst broadband connectivity gained in importance as service providers tackle competition with multi-play offerings  The role of devices increased as more gadgets were connected  Content was flat as companies look for effective monetization strategies Saghaeian [at] gmail.com
  • 25. Shift in value, 2007 vs. 2013 Saghaeian [at] gmail.com
  • 27. ICT and Digital Media Industry - Profitability  ICT and digital media industry EBITDA has grown by 5.1% since 2007, reaching $962bn in 2013.  EBITDA margin saw moderate decline from 26.4% to 25.7%, with software being the main culprit.  The biggest improvement in EBITDA margin was achieved by advertising. Saghaeian [at] gmail.com
  • 28. Profitability of business segments, 2007 vs. 2013 Saghaeian [at] gmail.com
  • 30. Perceived value, 2007 vs. 2013  Connectivity & communications remains the worst performing segment, with a knock-on effect on network vendors  Investors see potential in content, followed by internet platforms and IT  Device, OS & components seems overpriced Saghaeian [at] gmail.com
  • 31. Global Mobile Industry Profit Share Saghaeian [at] gmail.com
  • 32. Mobile Operator profit growth in some regions Saghaeian [at] gmail.com
  • 33. Safaricom Mobile Data Revenue Segmentation Saghaeian [at] gmail.com
  • 34. Any Questions? 34 ALI Saghaeian | saghaeian@gmail.com