protecting data revenues

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PROTECTING DATA REVENUES: POSITIONING TELCOS FOR GROWTH Prepared By Charan Puneet Singh Telecom revenues are declining. Data revenues have been critical for Telcos which have successfully followed a “walled garden” approach. But with Google and Apple, their revenues are fast declining. How should Telcos counter this threat from online players and retain a share of data revenues.

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Page 1: Protecting data revenues

PROTECTING DATA REVENUES: POSITIONING TELCOS FOR GROWTH

Prepared By Charan Puneet Singh

Telecom revenues are declining. Data revenues have been critical for Telcos which have successfully followed a “walled garden” approach. But with Google and Apple, their revenues are fast declining. How should Telcos counter this threat from online players and retain a share of data revenues.

Page 2: Protecting data revenues

Executive Summary

Telecom companies in mature markets are increasingly under pressure, to protect data revenues given the competition from different players in market, the transformation under way in the industry and increased capital and operational spends. In its current avatar, the scope for today’s Telcos in the emerging telemedia value chain is limited to that of a “dumb pipe” , pushing content to the consumer. In order to stay relevant in the market, the telecoms today have four imperatives:

1.Defend and grow telecom’s share of the broadband market through network improvements and high-value integrated and interactive multimedia services.

2. Focus on enabling the 4A vision (content accessible by anyone at anytime through any device) and empowering users, be they individuals, communities or companies.

3. Exploit the advertising potential of the subscriber base - especially mobile.4. Adopt innovative content development and delivery models, and focus on the

consumer experience.

Also, Telecoms today will have to transform themselves in terms of cost structure, organizational structure and business processes to allow them to take on the emerging competition in the form of internet and media companies.

Page 3: Protecting data revenues

ROADMAP FOR PRESENTATION

Understanding the factors at play

Key Recommendations

Page 4: Protecting data revenues

Challenging times for Telcos Globally

Declining Profits

Declining

Revenues

Increased Costs

Declining Tariffs

Disruptive Innovations

High Customer Churn

Evolving Customer Needs

Evolving Technology Trends Breakdown of “Walled

Gardens”

Investments in Capex

Regulatory Costs /Fees

Interconnect Costs

Investments in Next Generation Technology

Investments in Opex

Telcos must prepare to face potential threats from within & outside the industry.

*Limited scope of root cause

Macro economic Challenges

Page 5: Protecting data revenues

What is keeping Telco CEOs awake?

Data revenues now constitute 50% of revenues for some leading Telcos; implying how leading Telcos are adapting to changing market trends.

Global data traffic now exceeds global voice traffic; implying an underlying change in the way customers use telecom services.

Globally, the telecom industry is set for M&A; only the big and bold will survive.

Disruptive innovations in Consumer Electronic Devices (Netbooks/ Iphones/Ipads /IPTV / Satellite Navigation) are affecting a transformation of the telecom industry.

Global Mobile revenue growth has stabilized, with ARPUs declining and subscriber penetration reaching saturation in most industrialized markets.

KPIs like ARPU are becoming redundant; the focus now is on margin (AMPU)

The pricing models are being adapted for a multi-platform & metered consumption

Telcos are losing relevance with consumers, replaced with next-gen. internet brands.

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4

5

6

7

8

2

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Page 6: Protecting data revenues

The Emerging Telecom Ecosystem

Content Production

Aggregation and

Packaging

Distribution

Advertising Aggregator

Portals and Search

Transport and

Delivery

Customer Device

Management

The emerging telemedia value chain spawns new business models, undercutting the dominance of telecom service providers who are being forced to innovate to avoid

being labeled a “dumb pipe”

License Rights

Content Packages / Services

Sales /Advertising

Search /Advertising

Traffic Acquisitio

n

Online Traffic

Advertising Campaign Broadband

Subscriptions

Content Distribution

Customer Devices

Sales

Customer Data Targeted Deals

Customer Content

Management

POTENTIAL REVENUE OPPORTUNITY FOR

TELCOS

Page 7: Protecting data revenues

Factors Affecting Growth in Data

• Development of VAS Eco-system: Telecom Operators have developed an eco-system for consumption of Value-Added Services like Video-On-Demand etc.

• Growth of Local Content and Search Companies: In most of APAC, VAS demand is dominated by local internet companies and content providers.

• Growth of Smart Phones: Smartphone prices have crashed and intense competition between major players has resulted in the best deals for consumers.

• Growth of Netbooks: Demand for mobility and proliferation of cheap computing power has pushed data consumption

• Growth in mobile-based applications: I-phone segment represents the most profitable of this lot, but analogies can be found globally.

• Growth in Mobile-based transactions: Specially in economies where banking network is undeveloped or is sparse or inaccessible for other reasons.

• Products offering Convergence / Triple Play: Operators have products selling packaged Broadband, Voice and IPTV services in the UK market.

• Innovations in Pricing: Developments in Billing Systems has allowed telecoms to charge consumers on a more granular level to ensure retention.

• Innovative Business Models: Data based services like TiVo, Netflix and new devices like iTouch, Ipad , Kindle and Dash have pushed data consumption.

Factors behind a global rise in data revenues:

VAS Eco-

Systems

New Devices

Mobile Applicati

ons

Innovation /

Convergence

Page 8: Protecting data revenues

The Demand for Data: Bursting Pipes

• Smart phones have increased data consumption by manifolds: Average data usage went up by 50-100 times with devices like Apple Iphones / Android G1.

• It is Data Cards, USB Dongles and

Data Cards that make up the bulk of Data consumption today.

• Mobile data ttraffic growth will be lead by smart phones and flat price data plans by Telcos and data card traffic.

• Investments in 4G technologies like LTE / Wimax will influence success.

The size of data opportunity is huge, will be led by proliferation of smart phones and data cards but will require heavy capital investments in 4G by

Telcos.

Source Chetan Sharma Consulting

Page 9: Protecting data revenues

ROADMAP FOR PRESENTATION

Understanding the factors at play

Key Recommendations

Page 10: Protecting data revenues

The Emerging Opportunity For Change

The opportunities for telecom operators thus translate into four broad imperatives:• Defend and grow telecom’s share of the broadband market through network

improvements and high-value integrated and interactive multimedia services.• Focus on enabling the 4A vision and empowering users, be they individuals, communities or

companies.• Exploit the advertising potential of the subscriber base - especially mobile.• Adopt innovative content development and delivery models, and focus on the consumer

experience.

To avoid becoming a “dumb pipe”, the emerging telemedia value chain also opens up a lot of opportunities for Telecoms.

Page 11: Protecting data revenues

Walled Gardens Cant Alone Save The Telcos

• The Mighty Fall of American Online: AOL refused to understand that consumers want to exercise choice and not be tied down.

• Failure of Microsoft’s MSN Strategy: MS could not see evolving trends: Desktop was the final destination, till Google changed the game.

• Success of YouTube: Google's’ free content sharing site succeeded despite Viacom’s attempt to protect its content.

• Closure of Yahoo’s Search Business: Yahoo could not afford continued investment, given Google’s complete dominance of the search business.

• Failure of Netflix- Streaming: The product was positioned to control TV viewing experience.

Where and Why it workedWhere and Why it failed

The complexities of ever evolving online consumer and technological trends, together with constraints on capital investment make “Walled Garden” a

doubtful choice.

• Success of I-phone: Apple created a new platform to push data based services, (via numerous applications sold on iTunes) helping Telcos generate profits . However, Apple allows content developers to build and sell applications for Iphones and thus it is a modified “Walled Garden” strategy.

• Success of Facebook: Facebook has rich security features, a platform for application developers to generate content. With the new ”like” feature, where users can share content from external sites on Facebook, it has extended the virtual walls to new boundaries.

Page 12: Protecting data revenues

Don’t run with the Mob While some Telecom s throw money on replicating competitors and building new “walled gardens”, few leading companies are creating their own paths to success

based on understanding of customer needs .

Note: • As per a Gartner Study in 2009, 9 out of 10 corporate social media initiatives have failed.• Though Iphones is a success for AT&T in the US market, it could not stop the market-leader, Verizon from adding more customers and increasing its ARPU, including data revenues by focusing on business design. When Verizon launches I-phone in 2010, AT&T will have a lot to watch out for.

Source Oliver Wyman Consulting

Page 13: Protecting data revenues

Meet Evolving Customer Data NeedsGo back to basics to identify what customers really want, customize service plans and product offerings, rather than force fitting solutions to product

offerings.

Customer SegmentBusiness Owner

HomeMaker Student Salesman

Income Band A1 C B A2Telco Bill X Y Z K

% Spend on Data x y z kHandset AA BB CC DD

Smartphone Yes No Yes Yes

Data Needs

Email, Web browsing, Alerts, MS Office, File

Sharing

Weather Updates,

SMS, Ticket Bookings, Directory Services

SMS, File Sharing, On-

line Games, Dating

Email, Alerts, Ticket

booking, MS Office, VPN,

Skype

Data Usage Medium Light Heavy MediumData Plan bb cc dd ee

Cost to Serve xx yy zz kkBusiness Priority 1 4 3 2

Use customer data to identify customer niches and serve them

with right handset

capabilities, services and price plans.

Identify priority segments and focus to serve them better.

Offer customizable data

plans to users and ensure long term retention.

Ensure that business priority is communicated

in outbound communication clearly.

Identify data needs of different

customer sets; there is no

magic bullet for all.

Page 14: Protecting data revenues

Customer is the KingStay relevant to your core audience and invest in brand building the way

FMCG and Lifestyle companies have done.

Stay On Top Of Consumer Trends

Focus Customer Communication On Core Values Of Your Brand

Focus on Customer Services

Innovate Customer Price Plans

Keep track of evolving consumer trends like Web2.0 in local and international markets. It may not be economical to serve a niche, but it is when trends go mass.

If there is no perceivable difference in network quality, the communication should focus on softer aspects of the Brand and its core values to drive customer loyalty.

Use customer services to make an impact on consumers; achieve higher cross-sells and ensuring satisfaction. No use investing in new technology if the existing are dissatisfied with existing service.

Make price plans more transparent and granular to allow a metered access to services. Use the Subway-model to offer consumers freedom to pick and chose components of their service plans at standard prices.

Page 15: Protecting data revenues

Collaborate, Combine and Compete

Open Your Walled Gardens

Open up your networks to external application providers to enable the development of new services that incorporate telecom capabilities, such as location tracking, voice mail access, contacts management and presence.

Collaborate Across the Chain

Expand presence across the emerging telemedia value chain with exclusive tie -ups with production houses, internet companies, technology start ups.

With margins decreasing and the pressure to transform business, smaller companies will find it difficult to survive alone.

Merge or Acquire

Build The Right Skills

Build the right skills in your organization to transform it to the next generation telecom. This will enable it to take on competition from different quarters .

.Find partners and collaborators because it will be difficult for any telecom operator to invest everywhere by itself when the margins are falling.

Page 16: Protecting data revenues

Change Management is the Key

Reduce Opex

Reduce sales, general and operating expenses by right sizing the organization. Centralize non-essential functions and outsource network specific functions like network maintenance to specialists like Ericsson / IBM. Invest In R&D

The telecom sector is way behind internet companies in terms of investments in R&D as a percentage of sales. It is imperative that telecom companies be on the leading edge of technological evolution to stay competitive in future.

Reorganize To Focus On Innovation

Most Telcos today are descendants of erstwhile P&T departments, with bureaucratic org structures that complicate decision making. Telcos need to move to a new organizational design to be competitive against internet/media companies.

Reduce Time to Market

Optimize business processes to enable the business managers at the Telco to launch new products and service plans rapidly, without having to go through a technology cycle.

The new Telco will be very different from the one we know today and managing this change will be critical to its future.

Page 17: Protecting data revenues

Appendix

Page 18: Protecting data revenues

Global ARPU Trends

Source Chetan Sharma Consulting

Page 19: Protecting data revenues

Comparing Mobile To Wire line Growth

Source Chetan Sharma Consulting

Page 20: Protecting data revenues

Global Wireless Data ARPU Trends

Sou

rce:

Che

tan

Sha

rma

Con

sulti

ng, 2

010

10%

20%

40%

$5 $10 $20

Japan ($24, 44%)

South Korea

UK

ChinaUS

Germany

Canada

Italy

Spain

HongKong

Average Wireless Data ARPU (USD) for carriers in a country

Dat

a as

a %

of

tota

l rev

enu

es (

aver

age

acro

ss c

arri

ers

in t

he

cou

ntr

y)

Singapore

Switzerland

Norway

New Zealand

Belgium

Austria

France

Netherlands

Russia

Greece

DenmarkPortugal

Israel

India

Sweden

Finland

Thailand

Brazil

Indonesia

Philippines ($1.8, 47%)

Czech

Turkey

Mexico

Malaysia

Asia

Europe

Americas

Australia

Venezuela

Source Chetan Sharma Consulting

Page 21: Protecting data revenues

Skills Required For Telco 2.0

Page 22: Protecting data revenues

Global Leaders in Data Revenues

So

urce

: Ch

etan

Sh

arm

a C

onsu

lting

, 20

10

$10 $20 $30

20%

40%

NTT DoCoMo

KDDI

Softbank

Sprint

Verizon

T-Mobile US

AT&T

Wireless Data ARPU (USD)

Da

ta a

s a

% o

f to

tal

reve

nu

es

SK Telecom

3 UK

Vodafone UK

KTF

Vodafone Spain

Vodafone Italy

Vodafone Germany

3 AustraliaO2 UK

O2 Germany

RogersChina Unicom

China Mobile

Reliance

Bharti

Vodafone India

T-Mobile UKT-Mobile Germany

A

B

C

Asia

Europe

Americas

3 Italy

50%

Orange France

Orange - UK

3 Sweden

SMART ($2, 53%)

Telstra

Source Chetan Sharma Consulting

Page 23: Protecting data revenues

Don’t Follow the herdDelegates at a recent telecom industry meet were divided about the success of online

application stores which the telecom operators are opening in a frenzy.

http://www.telco2.net/blog/2009/12/smartphones_and_app_stores_whe.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+Telco20+(Telco+2.0)

Page 24: Protecting data revenues

References:

• “THE ENTERPRISE OF THE FUTURE – TELECOM INDUSTRY EDITION” IBM GLOBAL CEO Study

• “ Managing Growth and Profits in Yettobyte Era” Chetan Sharma Consultants

• “A Future In Content(ion): Can Telecom Providers Win A Share Of The Digital Content Market? “IBM Global Business Services

• “The Upside for Telecom Operators: Turning strategic threats into growth opportunities”Oliver Wyman

Page 25: Protecting data revenues

Contact

Charan Puneet SinghAccount Manager - APAC RegionThoughtWorks Studios

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