real option or quasar
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Status Quo of Telco Players Initiatives in Africa Quintessence of the ICT Value Proposition Paradox of Quasar Contenders and Their shortcoming Conundrum of Real Options as Strategic Portfolio Lessons learnt from Successful ICT Use CasesTRANSCRIPT
Deutsche Telekom Group
Assessing the Opportunities of ICT Convergence for African operators:
Real Options or Quasars?
Guy Alain Djopmo Komguep
Cap Town - November 19th, 2008 Think forward
Designing Future Business
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Content
1. Status Quo of Telco Players Initiatives in Africa
2. Quintessence of the ICT Value Proposition
3. Paradox of Quasar Contenders and Their shortcoming
4. Conundrum of Real Options as Strategic Portfolio
5. Lessons learnt from Successful ICT Use Cases
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Broadband in African countries in Q4 2007
Status Quo of Telco Players Initiatives in Africa
Africa - Internet Accounts (2008 -2012)
Key findings and prospects Broadband has made considerable headway into Africa in the last two years. In Q4 2007 we had 2.92 mil. subscribers, equivalent to 51% of the 5.77 mil. total Internet accounts.
By December 2007 terrestrial broadband networks were now available in almost every capital city in Africa, some 50% of main cities, 10% of secondary cities and 2% of towns. (DSL, MMDS, WiMAX, etc.)Satellite footprints cover every square inch of Africa, both C-band and Ku-band broadband networks are favoured in remote locations. Falling international and national prices for bandwidth will see customers get better connection speeds for the same or even less money in the next three to five years.
Rationale
59% ADSL+ Dial up1,728,037
1%CATV 25,250
40%Broadband Wireless1,167,211
Source: Balancing Act, June 2008
25%15% 12% 10% 8%
35%
40%
5.800.000
2008
40%
45%
7.900.000
2009
42%
11.413.000100%
Broadband Wireless
ADSL
2011
Dial-up
49%47%46%
43% 44%
1.000.0008.300.000
2010 2012
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Lens in some top-tier marketsStatus Quo of Telco Players Initiatives in Africa
In a nutshell
The emergence of multiple play offerings is quite different in African Telco top tier markets.Key players are pursuing diverse approach from “wait and see” to pan-continental rollout.
Orange-owned Mauritius Telecom launched its Triple Playoffering in July 2006:Broadbandinternet, VoIP, and IPTV
20,000 subscribers by April 2008
Mauritius
France Telecom’s Telkom Kenyais promising to launch its newmobile service with bundled offers.
Converged services - like thecurrent launches of mobile TV will also see bandwidth demandgrow from mobile operators
Kenya
Originally Telkom South Africa’swas gung-ho to go. It planned to invest R7.5 billion after it wasgranted a license in August 2007and to roll-out in 9 months
But in April 2008 it announced it would be selling all or part of itsmajority share in Telkom Media
South Africa
Algeria Telecom is deploying an FTTH network from SAGEM andlaunched on 15 December 2007 a triple play offering with voice, broadband Internet and TV
500,000 ADSL lines in place with a plan of 3 million by end 2009
Algeria
Globacom announced its intention to launch triple play in 2008 in Nigeria, 300,000 lines
The offering will include fixed line telephone, high speed Internet and TV in 13 major cities
Nigeria
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Positioning paths in the value chain
Taxonomy of ICT Convergence
Quintessence of ICT Value Proposition
With respect to local marketing requirements and Telco’s strategies, ICT convergence initiatives can be realized at different levels across the valued-chain business entities.
Single Number, Voicemail
Bundled Services
Service Delivery Platforms
Single Bill
One End-User Tariff
Convergent Charging
IP Multimedia Subsystem
Multi Access Edge
Metro Aggregation
Network Convergence
Service Convergence
Tariff Convergence
Hybrid Devices
Multifunctional Microchip
Integrated Power Supply
Device Convergence
Unique Brand, CRM
One POS, Cross-Selling
Common Distribution
Marketing Convergence
NetCo ServCo SalesCo
1 2 3 4 5
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Customer Premises Equipment with Symbian or Microsoft operation system?
Standard or proprietary Service Delivery Platforms?
IMS versus UMA in the core network?
Backhaul including metro aggregation and legacy systems?
Question marks
Quintessence of ICT Value Proposition
Technology prism
The mantra of technology choice In the realm of ICT convergence, the Telco player should align its technology strategy with the predefined business strategy.
Sustainable CAPEX
OPEX rationalization
Churn rate downsize
Competitive customer acquisition costs
Technology opportunity costs
Sunk costs
Economic rents
Value proposition Technology AValue proposition Technology B
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Quintessence of ICT Value PropositionStrategic alliance
Strategic alliance framework – Triple Play offering
Legal FrameworkIncentives
Content Provider function:Innovation leadershipContent creation and protectionService brandingContent licensingEnsure interoperability
User ProtectionGovernance
Fixed Operator role:Understanding user demandsBroadband accessBusiness model Technology choice Branding, Pricing, Distribution
FixedOperator
BroadcastCarrier
CPEVendor
Content Provider
CPE Vendor role:Terminals readinessFostering standardsSharing investmentsEconomy of scale
Broadcast Carrier function:Content aggregation Content transportSetting standardsBusiness cooperation
Regulatory Bodies
Players in the ICT arena should contractually joint efforts to achieve lasting business development through synergies, expenses sharing and technology transfer.
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Enemies of successful ICT Convergence offerings
Paradox of Quasar Contenders and Their Shortcomings
Providing uniquely price discount without meaningful differentiation is a quick win but usually not a sustainable one on the long term
The lack of customer segmentation and related organization hurdles is a fundamental challenge for ICT players
After-sales and quality of service is essential for customer stickiness and lasting business development
Understand the local regulatory framework is key
Rationale
Several surveys and analysts reports pinpoint five key drawbacks for the successful deployment of convergence offerings in the ICT arena.
Pitfalls of ICT Convergence Offerings
40%
55%
62%
Shortcomings of Quasars Contenders
Enemy 5
Enemy 3
27%
Enemy 2
Enemy 4
Enemy 1
19%
Price discount focus
Lack of customer segmentation
Weak after-sales
Regulatory issues
Organization hurdles and process
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Strategic value disciplines
Paradox of Quasar Contenders and Their Shortcomings
Provide ICT products or services that uniquely meet customer needs with constant quick responseKey benefit: Psychological, 2nd benefit: FunctionalE.g. Video on Demand via IPTV
Customer Intimacy
The right path!Sustaining and widening customer advantage requires constant search for unique value proposition and new benefits. It is indeed also valid for ICT convergence offerings.
Provide reliable and convenient ICT products or services at competitive pricesKey benefit: Economic, 2nd benefit: FunctionalE.g. Home Zone services
Operation Excellence
Offer customer cutting-edge ICT products and services superior to competition and innovativeKey benefit: Functional, 2nd benefit: PsychologicalE.g. Apple iPhone
Product LeadershipProduct Leadership
OperationExcellence
Communication Provider
CustomerIntimacy
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Value based pricing
Value Quantification of ICT Convergent Offerings
Conundrum of Real Options as Strategic Portfolio
Numerous players in western Europe and USA tend to reduce the competitive reference value price, this could lead to significant market failures.
Positive Differentiation
Value
Competitive Reference
Value
Negative Differentiation
Value
Total Economic
value
Ease of use Cost efficiencyAlways best connectedCustomer education After-sales servicesReliability and security
Legacy systemsEmerging competitorsTechnology usedStandard functionsAlternative solutions
Willingness To Pay
SubsidiesSwitching costsRisks (e.g. guarantee)…
suitable price setting zone
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Raising Price, Increasing Volume, or Lowering Cost?
“Price; Volume; Cost;” impact analysis
Conundrum of Real Options as Strategic Portfolio
Analyze the economic value of ICT convergence offerings to the customer and compute all source of savings or increased revenues is essential to succeed.
Operating profit = 10.77% gain over base case
GM = 30.7SGA = 20.0
Sales = 101CGS = 69.3
1% decrease in costs
Operating profit = 10.33% gain over base case
GM = 30.3SGA = 20.0
Sales = 101.0CGS = 70.7
1% increase in volume(no change in price)
Operating profit = 1110% gain over base case
GM = 31SGA = 20
Sales = 101CGS = 70
1% increase in price(with no loss in volume)
GM = 30SGA = 20
Sales = 100CGS = 70
Operating profit = 10
Base Case
Business acumen note
It is smart to increase price rather than decrease cost and moreover increase volume, however the customer should be compensated with additional value.
As long as the costs > 50% of sales, a cost decrease is always better than an equivalent volume increase; vice versa when the costs < 50% of sales.
CGS: Cost of Good Sold; GM: Gross Margin; SGA: Service, General and Administrative expenses
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HDTV
Video on Demand
Internet Flat rate, DSL
Fixed Telephony
Value Added Services
International tariffs
Service Offerings
Customer retention
Increase revenue streams
Leverage brand perception
Profile convergence offerings as commodity
Use synergies and resources of DTAG
Business StrategyTailored offerings for Customer Segments
Lessons Learnt from Successful ICT use casesMultiple Play – Case Study of Deutsche Telekom in GermanyDTAG triple play offering is a state-of-the-art solution using the resources, competences and partners of the group in Europe, USA and Australia.
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Broadband internet and WiFi
Premium HDTV
Video on Demand
Flat rate Telephony
Home Tele surveillance
Live music
Service Offerings
Revenue streams increase
Customer acquisition and retention
Innovation leadership positioning
Internationalization of business
Vertical integration and spatial differentiation
Business StrategyLivebox = TV + Broadband + Telephony + WiFi
Lessons Learnt from Successful ICT use casesMultiple Play – Case Study of Orange in FranceLeading communication provider Orange markets one of the most innovative multiple play offering, sub-branded as Livebox in several European and African countries.
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Wireless
Home Phone
High Speed Internet Access
Personal TV
Security Savvy
Free Installation
Service Offerings
Presence across different market segments
Wireless and cable into single legal entity
Customer defines its own “bundling package”
Flexibility and customers’ stickiness
Vertical integration and process simplification
Business StrategyGet The Bundle You Really Want
Lessons Learnt from Successful ICT use casesMultiple Play – Case Study of Rogers in CanadaNearly 60% of households in Canada have a triple play or a bundled service subscription.Thus Canada is ahead of such key markets as the USA, France, and even South Korea.
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In a nutshell
Lessons Learnt from Successful ICT use casesTake awayService bundling is the easy part of the journey toward ICT convergence. The real transformation lies at regulatory, techno-economic, organizational and marketing level.
1. Align technology choice with smart business strategy is essential to leverage the economic return of ICT convergence.
2. You can not push the pebble with one finger! set up strategic alliances with pioneer partners to gain customer advantage and focus on your core competences.
3. Build strong, enduring and profitable brand through the pursue of psychological and functional benefits. (Competitive advantage = Consideration ; Customer advantage = Commitment)
4. Close to customer intimacy value discipline, product leadership and operational excellence are the mix-ingredients for lasting profit.
5. Nominal price increase and variable costs’ decrease are more powerful than volume based strategies, especially in top-tier markets including valuable customers.
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Contact
Integrated management and technology consulting worldwide
Guy Alain Djopmo Komguep
Detecon International GmbHOberkasseler Str. 253227 Bonn (Germany)Phone +49 228 700 2826Fax +49 228 700 2107Mobile +49 151 1221 7902 [email protected]
Deutsche Telekom Group
Detecon International GmbH
Oberkasseler Str. 253227 Bonn · Germany Phone (+49 228) 700-0
Frankfurter Str. 2765760 Eschborn · Germany
Phone (+49 6196) 903-0
Supervisory Board: Dr. Klaus Hofmann (Chairman)Management Board:
Joachim Stahl (CEO), Jens Ockenfels (CFO) Registered at: Court of Bonn HRB 2093
Company location: Bonn
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