making ip transformation more predictable (2008)
DESCRIPTION
“Making IP Transformation More Predictable – Proving It by Business Cases” presented at the ITU "NGN Development Strategies and Implementation Practices" conference in Warsaw, June 2008.TRANSCRIPT
IP TRANSFORMATION CENTERPartnering for change
Marc JadoulWarsaw — June 23rd, 2008.
Making IP Transformation More PredictableProving It by Business Cases
All Rights Reserved © Alcatel-Lucent 20082 | Carrier IP Voice Transformation | June 2008
IP Transformation — What are we Talking About ?
“ The process through which communications service providers will evolve their people, process and technology to leverage a single, converged network based on the Internet Protocol (IP).IP Transformation should enable greater efficiencies, lower costs and provide the basis for value propositions centered upon applications, services, network access, and data carriage.From a technical perspective, IP transformation is the migrationtowards standards-based architectures that allow service providers to create multipurpose platforms sharing a common infrastructure.From a business perspective it is the creation of new business models and relationships to support a service-and-application-focused orientation. ”
PriceWaterHouseCoopers
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Competition and Cost Drivers Keep the Pressure On to Transform
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
Source: service provider reports, Morgan Stanley
‘Legacy’dominates
revenue mix
~ 55 %
~ 45 %Growth
Legacy
Revenue Mix
Low margins onnew services
~ 75 %
~ 25 %Growth
Legacy
EBITDA Mix
+2002 2004 2006 2006 2008
35 %42 %
Impact onEBITDA margins
=(~ 2- 4 %) YoY
Fast erosion oflegacy revenues
*Legacy revenues
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IP Transformation is Vital to Service Providers’ Competitiveness …
Strongly Agree
Agree
Neither Agree or Disagree
Disagree
Strongly Disagree
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Percentage of Respondents
Source: Heavy Reading, “Class 5 Migration and Adoption: A Multi-Client Study”, November 2007
Is IP Transformation Vital to Future Competitiveness ?
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… and a Major Means to Increase Shareholder Value
ShareholderValue
Cost reduction(CAPEX & OPEX)
ARPU increaseCompetitive
differentiation
Customer retentionEnhanced
user experience
• Uniform infrastructure for fixed & mobile
• Common service delivery• Lean operations (staffing,
processes & tools)
• New services (IPTV, 3G, multimedia, …)
• Convergence (voice-data, fixed-mobile)
• Nextgen OSS/BSS
• Quality of Service, e2e SLA mngmnt
• Customer self-service• New IP terminals
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Integration of networks to drive cost reduction
20072006 2008
$1.1B>$3B
Cost synergies from integration & transformation
>$5B
[AT&T]
Cutting costs throughnetwork and operations
transformation
Cumulative OPEX savings
20072005 2009
€150M€450M
€850M
What are Service Providers Doing Today ?
Source: service providers reports and analyst presentations
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%
Transforming cost structure,processes
and IT systems
Number of OSS/BSS systems
20112006
1252
~50
Optimizing the product portfolio and the
‘customer experience’
Products in portfolio
~100~50
20062005
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Transformation at all Layers of the Network — But will not happen All-at-Once
Wireline
New Services/Bundles
SDP/SDE & NG OSS/BSS
IMS
IN & Telephony Apps
Fixed Mobile Convergence
Class 4 & 5 NGN
Legacy Data Services
IP Core
High Speed Access
Business/Consumer VoBB
Wireless
New Services/Bundles
SDP/SDE & NG OSS/BSS
IMS
IN & Telephony Apps
Tandem & Class 4 NGN
Fixed Mobile Convergence
End-to-End VoIP
Distributed R4
IP Core/Backhaul
High Speed Access
Applications
Call/SessionControl
IPMultiservice Edge
IP/ MPLSCore
Transport
Consumer
Enterprise
Access Networks
PublicInternet
Voice
Video
Content
Data
OSS/BSS
DataCenter
PSTN/PLMN
Transformation enables Convergence
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Evolution of Voice Service Architectures
IMS Architecture
ALLSubs. Data
Session ControlCSCF
MGCF
Signaling
Media GWController
IP MediaGateway
AS
SIPXML
SIP
SIP
H.248
Switch Fabric
Features
IN
WirelineSubs. Data
Call Control
Signaling
Bearer Control
WirelessSubs. Data
Traditional Switch
IN, AIN, Camel
NGN “Softswitch”
ASWireless
Subs. Data
EmbeddedFeatures
WirelineSubs. Data
Call Control
Signaling
Media GWController
MediaGatewayIP
IN, JTAPI, Parlay& proprietary
H.248SIP, H.323, MGCP
voice +MM
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Service Provider Voice Transformation Strategies
Source: Heavy Reading, “Class 5 Migration and Adoption: A Multi-Client Study”, November 2007
Voice Services Delivery Strategy
0%
20%
40%
60%
80%
100%
1- 2 Years 2-5 Years > 5 Years
IMS PSTN SimulationIMS PSTN EmulationNGN Basic Features NGN Full Features
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Transformation is no ‘Business as Usual’
• Tactical infrastructure upgrades• Unchecked/uncontrollable TCO• Poor user experience• Technology & operations “stovepipes”
• Increased churn• ARPU erosion• Pressure on margins
Time
Costs
OPEX
CAPEX
QoE
Upgrade approach
• Strategic network transformation• Cost control & investment protection• Managed end-to-end QoS/QoE• Global IP transformation project
• Customer-centric services• ARPU growth• Margin protection
Costs
Time
OPEX
CAPEX
QoE
Transformation approach
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Making the Transformation “Predictable”
Need for a Business Case to balance the opportunities, costs and risks.
• Network modernization• New services launch
• Fast market evolution• Continuity of business• Top & Bottom lines• Network & Services alignment• Network & IT alignment• Operations model• Eco-system & partnerships• Organization & processes• Acquiring the right skills
Hidden opportunities,costs and risks !
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Scenario #NScenario #2
Building the Business Case for Transformation
Selecting the optimal Transformation Scenario based on techno-economic criteria• Identify and analyze major revenue growth opportunities• Find the optimum CAPEX return opportunities• Find the best OPEX savings opportunities• Analyze migration strategy, methodology & timing
Scenario #1
Market Evolution Obsolete Equipment Network Management
Demand Coverage OSP Improvement O&M Optimization& & &
Incremental REVENUE Transformation CAPEX OPEX savings
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The Transformation Business Case* — Focus on Costs Optimization
Replacement of obsolete equipment:• Access, transport & switching • Introduction of IMS service platform• Next Generation OSS/BSS• Real-estate consolidation/disposal
Outsourcing of OPEX intensive activities:• Network Mgmt, Services & Provisioning• Inside Plant & Outside Plant• Regional COC/EGR & regional NOC• Multi-Vendor Spare Management • Tools & Test Set Management• Technical Support & Administration
(*) business case simulation based on anonymized service provider reports, analyst data and extrapolations of the former
-600
-400
-200
0
200
400
600
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
CAPEX variation (M€)
400
800
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
1,200
1,100
1,000
900
700
600
500
Network OPEX (M€)
Moderate scenario
Aggressive scenario
Baseline scenario
Moderate scenario
Aggressive scenario
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10%
2005 2006 2007 2008 2009 2010 2011 2012
15%
20%
25%
30%
35%
40%
45%
Target scenario
Baseline scenario
EBITDA margin (%)
The Transformation Business Case* — Focus on Revenue Growth
1.000
1.500
2.000
2.500
3.000
3.500
2005 2006 2007 2008 2009 2010 2011 2012
Revenues (M€)
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
(*) business case simulation based on anonymized service provider reports, analyst data and extrapolations of the former
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Impact on Costs Impact on Revenues Impact on EBITDA
The Transformation Business Case* — Where is the Impact coming from ?
Transformation impact from:
Service Delivery Platform (IMS/SDP/SDE)
New services/bundles (VoIP, IPTV, Multimedia)
Network transformation to All-IP (CAPEX & OPEX)
Process & IT re-engineering and NG OSS/BSS (OPEX)
Outsourcing of activities: O&M, ISP/OSP, etc. (OPEX)
(*) business case simulation based on anonymized service provider reports, analyst data and extrapolations of the former
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Proofpoint: Telecom New Zealand’s Transformation project
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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IP Technology is a Means, NOT the Target of Transformation ...
Services
• ROI on broadband access • New customers, higher ARPU• Enhanced ‘user experience’
Operations
• Time-to-market• Cost reduction• IT, processes & organization
Network
• ‘All IP’ infrastructure• IMS and SDP• Getting rid of “stovepipes”
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Some Lessons Learned on Network Transformation
“Less is more” and “simpler is better” …• Regain economies of scale and allow cost synergies• One single multi-service network, without (network & service) silos
… but don’t under-estimate end-to-end complexity
• “Standards compliance” is not always a synonym for “interoperability”• Understand the legacy before designing the next generation• Work with a prime Network Integrator to manage technology, solution
architecture, project and multi-vendor interdependencies
QoS is more than “bits per second”
• It’s the overall quality of the end-user experience (QoE) that matters• Invest time & money for upfront QoS/QoE design, testing and validation• Always develop and evaluate the service against well-defined KPI/KQIs
Inter-working is a business decision, not a technical one
• Inter-working with PSTN and peering with VoIP are hard requirements• Don’t (mis-)use SIP for what it was never intended for• Security, QoS and inter-carrier roaming and settlement need to be
covered by end-to-end IP peering scenarios
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Some Lessons Learned on Services Transformation
Avoid the voice feature parity/transparency trap• A service portfolio based on “differentiation” instead of “continuation” will
minimize R&D costs and and maximize revenue potential• Synchronize with marketing & sales early in the project to challenge
features and to quantify costs, risks and benefits of approaches• Work closely with vendors to communicate your priorities and expectations
“Plain Vanilla” services are not enough• A well designed SDP will allow to smoothly ramp-up move from voice
to converged, blended and personalized services• Three activities not to neglect: MARKETING, MARKETING, and MARKETING
IMS is a great framework for design and delivery• Appoint Solution Architects to maintain integrity of the architecture• Adopt a consistent set of R&D practices and an efficient delivery organization • Get organized for a dramatically shorter SLC: weeks instead of 12-18 months
Combine new services with portfolio rationalization• Launch new services bundles combined with a portfolio rationalization• Align your network and service capability roadmaps• Create a prioritized transition & launch plan to balance revenues with costs
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Some Lessons Learned on Operations Transformation
IP Transformation changes everything• Network Interface Points: e.g. collocation from CO to street cabinets• Services: e.g. regulated vs. non-regulated• Products & vendors: network, IT, CPE … content• Customer Interfaces: “Zero-Touch” provisioning and Customer Self-Service• In-house skills: spanning the present and the new technology and operations
Migration will not happen overnight• ‘Technical’ (SP driven) vs. ‘Commercial’ (user driven) migration approach• Physical (MDF), Network routing, Subscriber DB, OSS/BSS Migration, …• Migration strategy & planning, tools development and customer communication
Network transformation should go hand-in-hand with IT• Transform operations from managing networks to managing services and customers• Challenges the processes, not just the technology !• Also look at alternative operation models such as outsourcing
Each transformation project is unique• Transformation may start anywhere in the service provider’s organization• Geography, local market, regulation, legacy infrastructure, resource availability,
budgets, etc.may affect transformation strategy, scope, roadmap and implementation
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Conclusion
• IP transformation is a ‘once in a lifetime’ business opportunity for service providers, butneeds to be part of a ‘holistic’network + services + operations transformation vision
• As there is no ‘one size fits all’ solution; a business case will help to identify the optimal scenario for OPEX, CAPEX spending and new revenue generation
• A ‘best practices’ approach and working with an experienced partner are the most effective paths towards predictable execution
• Carriers worldwide are leveraging Alcatel-Lucent’s global reach, experienced technical staff, and IP subject matter expertise to accelerate their network evolution and to incorporate the lessons learned from the early adopters
Transform predictably. Transform comprehensively. Transform profitably.
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About Alcatel-Lucent’s IP Transformation Solution
Full-lifecycleProfessional ServicesPrime Integrator
BusinessTransformation
NetworkTransform.
ServicesTransform.
StakeholderEngagement
Cross-domainMulti-vendorEnd-to-End
Consult
Design
Integrate
Maintain& Operate
Deploy& Migrate
“ While many vendors have positioned themselves for IP network transformation and FMC services, only Alcatel-Lucent can point to actual customer references that involve the complete NGN transformation of a large incumbent network, including access, switching and core, and both fixed and mobile elements. ”
Current Analysis, Inc.
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Some Alcatel-Lucent Transformation References
Migration to NGN• Business case development and financial planning / budgeting• Strategic Partner for full solution delivery + Migration + Network operations
Lightspeed/U-verse: AT&T to deliver VoIP, IPTV & HSI to 18M households • IMS Core Prime Integrator• Network provider: access, Ethernet switching, IP routing• Video service integrator: Head end, Middleware, CM, DRM, CPE
Strategic Partner for Titan Network Transformation Program• End-to-end network integrator• End-to-end deployment: access, Ethernet Aggregation, NGN voice, OSS
Strategic partner for migrating 20 million customers to the new 21CN all- IP network• Assist BT in ensuring that its 21CN Migration Control Centre (MCC) is operational • Develop a workflow tool for tracking deployment activities associated with the customer
upgrade process and the transition of over 5,500 telephone exchanges
Mobile NGN to greatly reduce the cost of the wireless core network, enabling FMC services• 2G extension with a distributed NGN core; introduction of FMC services• Gradual migration to a 100% Mobile NGN Core Network• Integration, multi-vendor testing, deployment & migration services
Prime integrator to migrate 7 million subscribers to an all-IP network in 3 years• Network design, E2E multi-vendor integration, migration planning, overall program mgmnt• Access, Ethernet, IMS technologies
IMS technology and Network Integration partner• Supplier of IMS Core, Application Factory and Management components• Prime Network Integrator: network design and integration, testing and validation between the
IMS Core, third-party applications and communications devices
[AT&T]
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