ip transformation beyond the boxes (2007)
DESCRIPTION
“IP Transformation Beyond the Boxes” presented at the Marcus Evans NGN Summit in Montreux, November 2007.TRANSCRIPT
IP TRANSFORMATION CENTERPartnering for change
Marc JadoulMontreux, 20 November 2007
IP TRANSFORMATIONBeyond the Boxes
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Read in the Press …
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Why Service Providers are Transforming their Business
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Why “Doing Nothing” is NO Alternative …
‘Legacy’dominates
revenue mix
~ 55 %
~ 45 %Growth
Legacy
Revenue Mix
Low margins onnew services
~ 75 %
~ 25 %Growth
Legacy
EBITDA Mix
+2000 2003 2004 2005 2007
35 %42 %
Impact onEBITDA margins
=Source: service provider reports, Morgan Stanley
(~ 2- 4 %) YoY
Fast erosion oflegacy revenues
*Legacy revenues
Source: the Yankee Group, Alcatel -Lucent
Low return (RoA, RoI) due to ‘legacy’ & ‘proprietary’ infrastructure.Limited innovation capacity due to network silos & heavy processen/IT.
Traditionele telecom service providers
New market players(Google, Yahoo, eBay, ...)
Market Cap/Revenue
EV/PPE OPEX/Revenue CAPEX/Revenue
< 3
> 8
< 5
> 53 < 47%
> 62%
< 10%
> 18%
RoA = Return on Assets; RoI = Return on InvestmentsEV = Enterprise Value; PPE = Property, Plant, Equipment
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The Approach — Business Transformation vs. Network Upgrade
Optimize for “where you have been”
“Upgrade” approach• Tactical infrastructure upgrades
• Unchecked/uncontrollable TCO
• Poor user experience
• Technology and operations “silos”
Increased churn - ARPU erosion - margin pressure
Time
Costs
OpEx
CapEx
QoE
Optimize for “where you are going”
“Transformation” approach• Strategic network transformation
• Cost control & investment protection
• Managed end-to-end QoS/QoE
• Global IP transformation project
Customer focus - ARPU expansion - margin protection
Costs
Time
OpEx
CapEx
QoE
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The Scope (1) — Cost Optimization along the Entire Value Chain
Enterprise management
Developing & providing
network services
Acquiring & managing customers
Developing new markets & products
Source: Global service provider annual and quarterly reports, FCC ARMIS Database; IBM Institute for Business Value analysis.
Notes: *Global spending breakouts are an average of Europe, Asia Pacifi c and U.S. wireline carriers, and were derived from U.S. benchmarks using total cost of goods sold (COGS) and Sales, general & administrative (SG&A). ** CAPEX breakouts are based on U.S. benchmark only.
83%
10% 31% 49% 10%OPEX
OPEX 10% 5% 12% 14% 9% 8% 32% 5% 2% 2% 1%
CAPEX 4% 1% 1% 2% 3% 2% 1% 1% 1% 1%
Procure-ment
Finance & Accoun-
tingITHR
Network Develop-
ment
Service Assurance
OrderFulfillment
Billing & Collections
Customer CareSalesMkting
and NPD
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The Scope (2) — Convergence in Network AND Services
Service Provider’s perspective
MobileFixed Nextgen SP
+ +ISP
+Fixed Mobile FMC
VideoInternet Triple Play
+Telephony
+
+Voice IP VoIP
+ +Phone iPod PDA iPhone
+Gaming Communication XBox360, Wii, PS3
PersonalizationTV ShareTV
+
OfficeMobility Mobile Office
+
End-User’s perspective
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The Benefits — Bottom-line Improvement across Different Domains
Source: Telecom New Zealand, Gartner
Cash Benefit (x1000 NZ$)
2002 2003 2004 2005
10,000
20,000
30,000
40,000
50,000
60,000
70,000
• Outsourcing benefits• Operational cost savings• Sales & support• New business opportunities• “One-off” Benefits• Other
• Vendor reduction benefit• NGN transition benefit
• Inventory mngmnt savings• Depreciation savings• Promotions• IP edge margin retention• DSL business penetration• DSL consumer penetration
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Transforming thelegacy network to
support growth assets
Revenues from new-wave services
18.3%36.5 %
20072004
Focus on investing in growth services
Broadband sharein CAPEX mix
27%
20052000
64%
What are Other Service Providers Doing TODAY ?
Streamlining processes and IT systems
Number of OSS/BSS systems
20112006
1252
~50
Simplifying the product portfolio and the
‘customer experience’
Products in portfolio
~100~50
20062005
Source: service providers reports and analyst presentations
Integration of networks to allow cost synergies
20072006 2008
$1.1B>$3B
Cost synergies from integration & transformation
>$5B
Optimization of the network and operations
Cumulative OpEx savings
20072005 2009
€150M€450M
€850M
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IP is a Means, NOT the Target ...
Services
• Portfolio rationalization• New customers, higher ARPU• Enhanced ‘user experience’
Operations
• Time-to-market• Cost reduction• Processes & organization
Infrastructure
• ‘All IP’ network• IMS and SDP• Getting rid of silos !
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Case Study* — an European Fixed Incumbent
1.000 €
1.500 €
2.000 €
2.500 €
3.000 €
3.500 €
2004 2005 2006 2007 2008 2009 2010 2011
10%
2004 2005 2006 2007 2008 2009 2010 2011
15%
20%
25%
30%
35%
40%
45%
Target scenario
Baseline scenario
Target scenario
Baseline scenario
Environmental impact from:
Price erosion• Competition Take rate
Customer churn• Regulation• Internal/external costs evolution
Transformation impact from:
• Service Delivery (NGN/IMS/SDP)• New services/bundles (VoIP, IPTV,
Multimedia)• Network transformation (All-IP)• Process re-engineering and NG OSS/BSS
Revenues (M€) EBITDA margin (%)
(*) business case simulation based on anonymized service provider reports, analyst data and extrapolations of the former
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Impact of Transformation on the Business Results
Impact on revenues Impact on EBITDA
71%
29%
64%13%
6%
17%
Transformation impact from:
Service Delivery (NGN/IMS/SDP)
New services/bundles (VoIP, IPTV, Multimedia)
Network transformation (All-IP)Process re-engineering and NG OSS/BSS
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Some Lessons Learnt from this Case Study
• IP Transformation changes everything
• Regain economies of scale and allow cost synergies• User-centricity is the new paradigm
• QoS is more than ‘bits per second’ QoE• “Less is More” and “Simpler is Better” …
• … but don’t under-estimate end-to-end complexity• No service innovation without network capabilities
• OSS/BSS modernization goes hand in hand with BPR
• Need for a “holistic” vision and roadmap• Migration will not happen overnight
• Internal alignment & external communication• Each transformation project is unique …
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Why Telco-Supplier Relationships are Changing
“ As more IP transformation projects launch, their inherent complexity will steer carriers towards closer ties with fewer vendors. It is happening already.”
“ As time passes, carriers will invariably be drawn into closer relationships with fewer vendors — and those vendors will play a more active role in planning and building networks.”
Andrew Chetham, Gartner
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Approaches to Carrier-Vendor Partnering
Strategic Partner • Streamlined decision, 3rd party procurement, implementation and management process
Multiple Vendors • Selected suppliers directly managed by the Service Provider
Leverage partner’s
experience for an
aggressive roll-out
Retain in-house
control of multiple projects
JP Morgan, November 2005
“ With Telstra following the example of SBC and with other operators such as TNZ also adopting this approach… [Alcatel-Lucent]’s turnkey proposition does seem
to be resonating well with a growing number of major global operators.”
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Benefits of a Strategic Partnering Model
Strategic Partnering Model Traditional Decision Process
Tech. strategy& CapEx
allocation
Technologyselection
& planninjg
Tenderspec
preparation
Evaluate& selectvendor
Negotiate& place order
Delivery /post-salessupport
Businessdriverneed
Limited opportunity for Telco except when functions are outsourced under contractual relationship
Enables telco to focus on core competencies by outsourcing/outtasking non-core activities to vendor
Focus oncompetencies
Widespread deskilling in Telcos can potentially lead to slow and poor decisions
Vendor can work in alignment with telco to prepare business cases and help make good investment decisions
Good investmentdecisions
No incentives for vendorsRisk-reward model allows vendors to get more upsideIncentives
Pricing outcomes vary dependent on state of market, number of competitive vendors, incumbency
Benchmarking and risk-reward model ensures that vendors provide attractive pricePricing
Global expertise generally not provided unless at a cost or little incentive
Telco has access to Strategic Partner’s global expertise, R&D, products, solutionsGlobal Expertise
Complex network, high total cost of ownership; high vendor management costs
Integrated network with lower total cost of ownership, low vendor management costsNetwork & Cost
Long process (12-18 months) of technology spec, tender selection, pilot & rollout
Short process (3-4 months); vendor assists in technology evaluation, rapid pilot and rolloutTime to Market
Multiple Vendor ModelStrategic Partnering ModelBenefits
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Alcatel-Lucent’s Partnering Approach to IP Transformation
Full-lifecycleProfessional ServicesPrime Integrator
BusinessTransformation
ServiceTransform.
NetworkTransform.
StakeholderEngagement
Consult
Design
IntegrateDeploy
Maintain& Operate
2
1
34
5
Cross-domainMulti-vendorEnd-to-End
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Alcatel-Lucent IP Transformation Centers
Regional competence centers•Business/Technology Consulting•Network/System/Solution Design•Network/System Integration & Validation•Technology/Services/Subscriber Migration•Project/Program/3rd Party Management
End-to-end hosted integration facilities•Multi-technology, multi-vendor•Network, CPE, IT and applications
Alcatel-Lucent IPTCs launched in Europe, North America and Asia Pacific
IPTC’s mission: “Assist Service Providers in defining, executing and managing their transformation journey.”
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Alcatel-Lucent IPTC in Antwerp, Belgium
First center of such scale in Europe•1500 m2 lab and integration floor•50+ cutting-edge technologies (network, IT, ops, apps., test, …)•80+ multi-domain experts (consultants, designers, engineers, …)•End-to-end: from satellite antenna to 500 xDSL modems bank•Can handle up to 10 large projects
Flexible integration of reliable solutions•More than 150 km UTP cable and fiber•More than 15000 patch ports, AC/DC everywhere•Unique concept, no sub-floor cabling•One ‘virtual’ lab across ALU Antwerp campus•Secure interconnection with other ALU, 3rd party
& customer premises/networkServing customers in Europe, Middle-East, CIS, Africa and Central/Latin America
•300 IPTC visits since opening in September ‘06•About 30% of customer audience is CxO level
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The Conclusion (1) — Making IP Transformation “Predictable”
Hidden costsand risks !
Containing costs and De-risking investments
• Shareholder-proof business case
• Scalable all-IP architecture
• Market-proof service roadmap
• The right skills and experience
• End-to-end integration
• Streamlined business processes
• Cost-effective OSS/BSS
• Overall project management
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The Conclusion (2) — IP Transformation “Beyond the Boxes”
Infrastructure: reduce costs• Strengthen IP footprint and BB coverage• Simplified architecture, getting rid of
network and service“stovepipes”
Services: fuel growth• Right portfolio mix• Streamlined and redesigned
end-to-end delivery process
Operations: free up cash• Leverage cost saving programs• Automated processes with
optimized systems & tools• Alternative partnership models
Transform predictably. Transform comprehensively. Transform profitably.
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