Usage challenge: the iceberg effect

1
Usage challenge the iceberg effect

• Stable usage
• Revenues threatened by multiple alternatives and
  technology disruptions

FRANCE TOTAL COMMUNICATIONS MARKET (billions of
call minutes and equivalents¹)
2005
2006
2007
2008
2009
2010
TELEPHONY
ONLINE COMMUNICATIONS
blogs online forums

• Fast increasing usage
• Not monetizable through traditional pricing
  models

Notes (1) An SMS/MMS or e-mail is considered as
a 30 second call.
Source IDATE
2
The growth challenge the wireline market is
stagnating
Fixed line loss is generalizing across Western
Europe
resulting in high deflationary pressure
on wireline voice
EU 5 fixed voice market 01-06 evolution (bn)
EU 5 fixed line net adds (000s)
while usage is declining under fixed mobile
substitution
barely compensated by broadband growth
Outgoing call minutes per year in France (billion
minutes)
EU 5 fixed services market evolution (bn )
3
Next generation carriers will achieve agility
through increased specialization
Market approach
Strategic imperatives for ROIC optimization
Likely candidates
Revenues
Value added application provider
Primarily allocating resources to the
proliferation of applications targeting niches
and short-lived opportunities to increase
customer base and/or revenue per customer.
Network no longer considered a strategic asset
and outsourced to reduce invested capital base.
1
Customers services
3
1
Enhanced connectivity provider
Maximizing utilization of best-of-breed network
to enable economies of scale, at the lowest
possible cost per Mb provisioned. Revenues
generated from leased capacity of enhanced
connectivity. End user service creation and
commercialization left to 3rd party providers.
Converged services integrated operator
2
Value added application provider
Converged services integrated operator
2
Enhanced connectivity provider
Network
Operations
Converged services integrated operator
Leveraging owned fixed and mobile networks to
offer truly converged and seamless
multimedia-rich premium services in addition to
over the top content.. Incremental revenues by
targeting the premium digital content opportunity
and tight cost control through converged IP
network architectures.
3
Opex
Invested capital
4
Network outsourcing is becoming a real strategic
option
subscribers /network at time of outsourcing
750 employees transferred
Ned 150 employees transferred
12M
10M
Tipping point
UK 1000 employees
Europe excl. UK Spare parts mgt for 2G, 3G
transmission
4M
Italy 750 employees transferred
3M
Global services Maintenance spare parts mgt
200 employees transferred
2M
300 employees
1M
50 employees
Switz.
Maintenance
3G Network
2002
2003
2004
2005
2006
2007
MAINTENANCE
ACCESSCORE
ACCESS
5
but is only a fraction of an overall operations
transformation
Network outsourcing
Operations transformation
Operational complexity
6
Separation questions
Where is network separated?

• Which part will keep the risk?
• Will it stop the alternates investments?
• Is it the end of the infrastructure based
  competition?

• Which part will keep the risk?
• Is it the end of the infrastructure based
  competition ?

7
Separation v. Consolidation TI TEF

• Brazilian regulator restrictions?
• Level of synergiesTI-TEF?
• Structure of power
• Portfolio changes

TIs new shareholding structure
8
Next generation carriers will achieve agility
through increased specialization
Market approach
Strategic imperatives for ROIC optimization
Likely candidates
Revenues
Value added application provider
Primarily allocating resources to the
proliferation of applications targeting niches
and short-lived opportunities to increase
customer base and/or revenue per customer.
Network no longer considered a strategic asset
and outsourced to reduce invested capital base.
1
Customers services
3
1
Enhanced connectivity provider
Maximizing utilization of best-of-breed network
to enable economies of scale, at the lowest
possible cost per Mb provisioned. Revenues
generated from leased capacity of enhanced
connectivity. End user service creation and
commercialization left to 3rd party providers.
Converged services integrated operator
2
Value added application provider
Converged services integrated operator
2
Enhanced connectivity provider
Network
Operations
Converged services integrated operator
Leveraging owned fixed and mobile networks to
offer truly converged and seamless
multimedia-rich premium services in addition to
over the top content.. Incremental revenues by
targeting the premium digital content opportunity
and tight cost control through converged IP
network architectures.
3
Opex
Invested capital
9
Engaged in this cross-industry battle, carriers
have overlooked the threat posed by new entrants
on their core market.
Communications account for a substantial proportio
n of online usage
yet carriers are struggling to innovate and be
competitive in this space
Competition dynamics
Carrier strategies
Share of time spent online
Email

• Continue to bundle with internet access
• Match webmail providers innovations to limit
  their market share

USA
Instant Messaging

• After trying to push their own solutions,
  carriers are now partnering with leading IM
  providers

Worldwide
Blogs

• Still dominated by independent companies but
  consolidating

• Isolated initiatives to transform the homepage
  activitiy

• Consolidation by media companies

• No significant initiative apart from SK
  Telecoms acquisition of Cyworld and BTs failed
  acquisition of Bebo

Social networks/ online forums
Communications account for nearly 40 of time
spent online
Source Online Publishers Association, Comscore
Hitwise, IDATE
10
PURE COMBINED STRATEGIES
Horizontal concentration

• Domestic
• Pan-European
• Development economies

Vertical integration

• Networks-contents-services
• Wholesale retail
• Access WW Web infrastructure player

Specialization

• Pure Mobile V. FMC
• Wholesale v. Retail
• MVNO FVNO
• Business v. Consumers

Execution

• Winners
• Losers

?
Source IDATE