The value proposition of the digital telco...The value proposition of the digital telco IDATE – DIGIWORLD SUMMIT 2015 DISCOVER. DISRUPT. DELIVER 1. Customer view and roles in the
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Corporate Strategy
18.11.2015
The value proposition of the digital telco
IDATE – DIGIWORLD SUMMIT 2015
DISCOVER. DISRUPT. DELIVER
1. Customer view and roles in the ICT value chain
2. Convergence and scenario analysis
3. Winning strategy of a digital telco
2
DISCOVER. DISRUPT. DELIVER 3
The digital revolution is bringing the opportunity to redefine our
business as Digital Telcos
APPLICATIONS AND CONTENT DEVICES CONNECTIVITY
All the world’s
information online
A mobile
supercomputer in
your pocket
The magic glue that
makes it happen
CUSTOMER EXPERIENCE
DISCOVER. DISRUPT. DELIVER 4
ICT exports deflation and displaces consumer good companies – over
65% value share of top 25 global brands
ICT
Source: Millward Brown 2015 and team analysis
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25
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DISCOVER. DISRUPT. DELIVER 5
Learning to deal with “Frenemies” – there are multiple examples of
disruptive announcements with increased regularity
DISCOVER. DISRUPT. DELIVER 6
Product vs. Services – Sustainability is a concern, even for the most
powerful player (Apple vs. Amazon, Facebook and Google)
x% YoY rev growth
x% EBITDA %
NOTE.- Apple: FY ended in Sept and AMZN, GOOG and FB in Dec
Revenues – Q3 2015 ($Bn)
$51.5bn
32.2
19.3
3Q15
+36% 25.4
3Q15
18.7
3Q15
+23% +13%
34%
32%
8%
EV / OpFCF
7x
4.5
3Q15
+41%
43% iPhone
EV / OpFCF
40x
EV / OpFCF
19x
EV / OpFCF
26x
DISCOVER. DISRUPT. DELIVER 7
Analysing the entire value chain – connectivity plays a very relevant
role according to investor community …
CONNECTIVITY
(TELECOMS)
CONTENT CREATION
& MGMT (MEDIA)
DEVICES
(TECH)
IT SERV. & NETWORK
COMPONENTS (TECH)
DIGITAL SERVICES
(INTERNET)
Top 50 largest
Telcos
Apple
Lenovo
Samsung
Sony
ZTE
Cisco
Juniper
Nokia-
Alcatel
Ericsson
Accenture
ADP
Amdocs
HP
IBM
SAP
Amazon
Alibaba
eBay
Baidu
Netflix
Tencent
Priceline
Tripadvisor
Yahoo
Viacom
Sky
Naspers
CBS Corp
Timw Warner
Walt Disney
Televisa
Vivendi
Oracle
VMWare
Salesforce
Microsoft
Adobe
ARM
ASML
Corning
Broadcom
Qualcomm
Intel
DISCOVER. DISRUPT. DELIVER
… with Telcos accounting for 41% of total enterprise value (€7.0Trn) and
70% of total capital employed (€3.0Trn) of the ICT value chain
8 Data as of 23.10.2015. Source: Bloomberg
CONNECTIVITY
(TELECOMS)
CONTENT CREATION
& MGMT (MEDIA)
DEVICES
(TECH)
IT SERV. & NETWORK
COMPONENTS (TECH)
DIGITAL SERVICES
(INTERNET)
9.3% 40.8% 21.3% 20.7% 7.7%
4.5% 70.5% 12.8% 4.6% 7.6%
x
x
% o/ TOTAL EV
% o/ TOTAL CE
Fair and stable
regulatory framework
that incentivises network
investment is a must
DISCOVER. DISRUPT. DELIVER
1. Customer view and roles in the ICT value chain
2. Convergence and scenario analysis
3. Winning strategy of a digital telco
9
DISCOVER. DISRUPT. DELIVER 10
Telecoms involved in three flavors of convergence
FIXED-MOBILE TELECOM-INTERNET-MEDIA TELECOM-IT
• Customers: Fixed and Mobile
access used indistinctly for
many applications
• Networks: Fixed and Mobile
becoming more alike, as Fixed
improves efficiency and
Mobile improves capacity
• Commercial: Many operators
leveraging trends, selling F+M
together to reduce churn
• Content becomes an
application: Content offers
increasingly decoupling from
distribution infrastructure
Video: from specific
infrastructure (cable, DTH)
to (1) telecom networks,
and (2) internet
• Commercial: Video becoming a
key ingredient in telco bundles
• Cloud technology enabling
network resources to be
virtualized (increasing
flexibility and efficiency)
• Disruptive new network
architectures to be based on
software running on general
purpose hardware
• Some operators starting to
adopt the new paradigm
DISCOVER. DISRUPT. DELIVER 11
Customers want full connectivity solutions (ubiquity and capacity) and
use more services as networks develop
AVERAGE SMARTPHONE TRAFFIC PER APP: KOREA vs. BRAZIL (JUN 2015)1
1. Source: Pricing – Global Marketing CCDO. Original data from
Mobidia, selecting apps with most MAUs
DISCOVER. DISRUPT. DELIVER 12
What is the optimal infrastructure balance? Wireline capillarity
(GB/month, Mbps) vs. Network cost (Cost/GB)
Capacity (max.
monthly usage)
Customer demand
vs. Capacity FBB + WiFi (= 1
wireless access
point per home)
Macro-based MBB
(improvements
from technology
+ more spectrum,
e.g. 5G)
+ Potential
densification
benefits
• FBB+WiFi today: ~10,000x Capacity vs. Macro-based MBB
• Technology, additional spectrum, densification: MBB up to ~1,000x (still far from FBB)
• Fixed networks will become less dense in some areas, and Wireless networks will become more
dense. The key issues conditioning the “right” balance are:
1. How will demand evolve in each market
2. What is the cost-balance of FBB vs. MBB in each market
Time
• FBB vs. MBB cost/GB in
each market (and
expected evolution)
• Demand patterns /
expectations for the
next 5-10 years
Speed and monthly
usage, in/outdoor
• Competitive structure
(e.g. markets where all
players are convergent
will probably remain
so)
• Fixed Wholesale
network availability
Time TODAY FUTURE TODAY FUTURE
(Scenario 2)
(Scenario 3)
?
(Scenario 1)
? Customer
demand
~10,000x
KEY ASSUMPTIONS
~10-100x?
DISCOVER. DISRUPT. DELIVER
Scenario analysis – potential competitive strategies within the industry
13
• Operators in different markets may
adopt different strategic positions,
depending on:
Customer behavior: demand
patterns / expectations
Cost/GB per technology (e.g.
FBB vs MBB) in each market
Available assets for each player
(including wholesale market)
Competitive market structure
Cellular as last-resort
connectivity option
Cellular as default
connectivity option
Commoditization of
connectivity
Ability to differentiate
connectivity experience
Main
Question
Potential
Scenario
Frameworks
How will operators capture value in an “all-IP” era?
DISCOVER. DISRUPT. DELIVER 14
Cellular will have different roles to provide “full connectivity”,
depending on players and markets
Cellular as
last-resort
connectivity
option
Cellular as
default
connectivity
option
“Fixed-first” networks Combination of strong
Fixed and Mobile networks
“Mobile-first” networks
• Indoor + outdoor:
Fiber + WiFi
• Complemented with
WiFi hotspots and
MVNO as “coverage
backup”
• Indoor + outdoor:
cellular (macro + small
cells)
• Backhaul: potential use
of high speed radio (+
spectrum) - 5G, or
wholesale fixed links
“Base case” in more advanced markets Typical of emerging markets
(US Cable) (European Incumbents) (India, Indonesia, …)
• Indoor: Fiber + WiFi
• Outdoor: Cellular
(macro + small cells)
• Mobile backhaul
leveraging Fixed
DISCOVER. DISRUPT. DELIVER 15
Tools to differentiate connectivity will be different, depending on
markets & business models
“Fixed-first” networks Combination of strong
Fixed and Mobile networks
“Mobile-first” networks
Ability to differentiate connectivity experience
Best
customer
experience
Best
network
Best
operating
model
• Channels
• Customer care
• BI and analytics
• Technology
• Coverage
• Spectrum
• Fastest time to market
• Highest quality (lowest failure rate)
• Lowest cost / GB
DISCOVER. DISRUPT. DELIVER
1. Customer view and roles in the ICT value chain
2. Convergence and scenario analysis
3. Winning strategy of a digital telco
16
DISCOVER. DISRUPT. DELIVER 17
Transformation into a digital telco requires to excel in four key areas
always with user experience as the top priority
Best Access Network (UBB)
Bundling Best Digital Services (3rd party and owned)
Best Channel and Customer Knowledge
Excellent User / Client Experience
Operational
Efficiency
• Single customer vision and data analytics
• Consistent customized-omnichannel experience
• Best-in-class digital channel
• Operating model to
become the most
efficient provider
• Process simplification
and IT as key levers
to optimize ways of
doing business
CORE BUSINESS
Provide optimal connectivity to anything and anywhere for any use case 1
4
2
3
• Big Data to
optimize everything
we do end to end
• Offer enhanced connectivity to residential and enterprise customers
• B2C offer includes best devices and digital services bundles (i.e. video and others)
• B2C focus on cloud, security, managed mobility services among others
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