doc3 l06 strategic choices v1

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2 May, 2012 ITU/BDT/ HRD Corporate Strategic Management Lecture 06 slide 1

ITU / BDT Workshop

Cairo, Egypt, 19 22 December 2005

Corporate Strategic Management

Lecture 6

Strategic choices


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Strategic choices

New entrant operators develop their business in the nicheswhere profitability is high and barriers entry are low byusing new technologies.

Incumbent operators make decisions and choices to protecttheir market share by anticipating the strategy of new

operators to keep the loyalty of their customers.

Any competitive advantage does not last for a long time in acontemporary turbulent telecommunication market.

The customer bases of already established players in thetelecommunication market are more and more challengedby emerging new operators with alternative technologies.


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Which strategy for the incumbent PSTN?

Alternative technologies withcall-backs and VoIP.

The voice goes mobile: 70 % ofcellular calls take place inbuildings.

Number of fixed lines is alreadydeclining in many countries.

About 90 % of new subscribersare mobile in the best cases.

00.20.40.60.8

11.21.41.6

ItalyFranceUK

Germany

Convergence of accounting rates to USAin US$ per minute,

Accounting rates are going down.

Revenue from voice on the fixed network is declining by 5% per year inaverage in Europe.

Situation is worse in developing countries where revenue frominternational, which is declining, counted for about 60 % of total revenue.


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Two basic strategic choicesfor the fixed incumbent operator

Conservative and traditional To make political pressure for limiting competition

To prevent service providers from selling VoIP

To keep high tariffs on voice and leased circuits

To be a follower about new services

Offensive and innovative

To develop ADSL to take advantage of local loops

To develop VoIP and Internet based services To anticipate migration of network to all IP-network

To create partnerships with service providers


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No future for fixed networks withoutInternet-based services

Before Internet : data is mainly carried on a network designedfor voice telephony.

After Internet : the Voice-on-IP enables the voice to be carriedon a network designed for the data with packet mode.

Voice is only a service segment among many others moreprofitable.

Internet based services are a good opportunity to compensatethe loss of revenue on voice.

Transform the threat into opportunity : VoIP is a tool foraggressive tariff reduction in a competitive market.


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Options & Risks for VoIP

Option 1: Do nothing and Protect

Action: Substantial reduction on IDD rates.Especial discounts and packaging

Risk:Reduce revenue per userLead to higher customer churnLoss of customer satisfaction and cause publicanger

Option 2: Offer VoIP Service

Action: Start small and adopt new marketing approachRisk: Service cannibalization from one service to another.


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VoIP progressively legalisedall around the world

Regulatory frameworks based on distinction between voice(as a basic service) and data (as value-added services)are irrelevant in a trend of convergent technology.

General authorizations for telecommunications services

should be technologically neutral.

Terrible image for incumbent operators that try to blockinnovations, which create business opportunities andsupport for the national development, like VoIP.


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Substitute or complementary ?

Consumers willingness to payA positive opinion clearly exists in favour of mobiles,They are handier, more user-friendly, can be lent, more reliable, can be

used in a wider set of circumstances, and enhance social status.

Negative prejudice for Fixed lines.They are considered less reliable, need guarantee deposit, take longer toobtain.Importance of fixed costs (connection and rental fees) for fixed lines. Oneacquired, a pre-paid mobile phone can accommodate very high variation inconsumption. It is appropriate where income is never completelyguaranteed or stable, even calls are slightly more expensive


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Which technology to use for the last mile?Example of technico-economical study

for the last mile

Average

cost per customer

Average distance between subscriber and switch

Wireless

Wireline

Wireless

trend

trendWireline cheaper Wireless cheaper


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Migration into IP-networks

Incumbent fixed operators have to plan a strategy of migrationfor their networks into IP-based networks.Qualified personnel are rapidly deployed to new jobs in the IP-environment.

years

PSTN

IP-networks

Network capacity


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Guidelines for commercial strategy

1. To analyze the current Marketing situation and toundertake market surveys.

2. To have a customer segmentation relevant for the newfeatures of the new offered services.

3. To develop competitive advantages regarding thecompetition: differentiation of products, brand image.

4. To better serve customers than competitors (Quality ofservice / price, and variety of features).

5. To only offer services making a satisfying margin with avariety of packages (to focus on the profitable packages).


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Customer oriented management

The profitability depends on the revenues coming from customers,taking into account the expenses made for producing services.

Planning process starts from the analysis of customers : who are they ?

what services do they want, what can they afford ? what performances are they expecting ? what equipment, what IT, what staff do we need ?

customer-oriented means that planning and management are:

service-oriented rather than technology-oriented market-driven (specific needs = specific services) based on quality criteria defined with the customer point of view


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Business oriented planning

Operators need huge financial resources from the privateinvestors to extend networks and to develop services.

Investors only provide funds when projects are profitableand credible according to some pertinent financial indicators.

Investors demand a business plan to investigate theassumptions and methods on which rely these financialindicators. They also demand a sound management control

to guarantee a correct implementation of the presented plans.A permanent investigation on deviances between forecastsand actual data is necessary for revenue and profit indicators.


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Role of Marketing Planin the Planning Process

Vision, Mission, Strategy

Marketing Plan

Catalogue ofproducts andservices

Networksconstruction& operations

Business Plan, Action Plans, Budget

CustomercareHR, IT

Tariffs

Revenues


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Business plan in the planning process

Strategic objectives, Strategic guidelines

Business Plan

Evaluation :Is this strategy profitable ?

Humanresources &

Administration

Marketingplanning

Networkplanning

Operationsplanninglogistic

Development

plans :Future activities

Future equipmentFuture services

Strategy

Financial

Indicators

RevenuesCosts

COSTS COSTS COSTS


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Importance of business plansin a liberalised environment

Management is controlled by shareholders

Management is under the pressure of financial results

Investors only provide funds when projects are profitable andcredible according to some pertinent financial indicators.Investors demand a business plan to investigate the

assumptions and methods on which rely these financialindicators.

ShareholdersAdministration board

CEO, executivesInternal management

Business plan &Regular reporting

Strategic

guidelines


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Incumbent operators should focus theirefforts on the following priorities:

Market survey: To understand the needs and the wants ofeach customer segment for each service segment.

Costing models: To understand the additional costs ofeach new feature or new service segment, in such amanner that the effective marginal profit should be known

To offer a flexible portfolio of services and to stopdeliveringunprofitable service segments, excepted those covered byUSO (Universal Service Obligations)

To implement reengineering in the production divisions tominimize the costs.


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Market SegmentsCustomer categories (Retail)

500

250

100

Business

ARPU = Average revenue

per user ($ per month)10,000

1,000

40

Corporate

ConsumerHouseholds89%

SOHO 10%= small office, home office

Small business1%

Mediumbusiness

0.2%

0.01%


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Market Segmentation

Categorize customers based on shared characteristics

Demand forecasts and revenue forecasts are set up by

market segment

Penetration of services depends on segments

Usage per line is differentTrends are different

Market studies are made for specific segments

Commercial action plans are related to precise segments

Different sales and after sales units are set up for the

segments of customers that have different needs


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DSL businessGrow the market in 3 major waves

High Speed Internet access: increase ARPU from existing PC customer Business access: start with underserved SoHo segment with same

infrastructure Residential entertainment: gaming/video/entertainment to everybody

TIME

Business AccessBuild on existinginfrastructure

High SpeedInternet Access

Broadband

EntertainmentAddress new

audiences

$

PC

Game console

TV


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France SME internet forecast(in 000 of SMEs)

0

200

400

600800

1 000

1 200

1 400

1 6001 800

1999 2000 2001 2002 2003 2004 2005

other (Satellite,..)

fixed wireless

fiber/ethernet

cable modem

DSL

ISDN

dialup

Source: Morgan Stanley Dean Witter


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DSL penetration, Arab Region, 2003

0.01%

0.01%

0.03%

0.03%

0.04%

0.09%

0.44%

0.53%

0.62%

1.00%

1.40%

0% 0% 0% 1% 1% 1% 1% 1% 2%

Egypt

Morocco

Tunisia

Sudan

S. Arabia

Jordan

Qatar

Kuwait

UAE

Lebanon

Bahrain

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