PLAY TO WIN: The UK Opportunity - · PDF filePLAY TO WIN: The UK Opportunity Next Generation ISP October 4th, ... IP,BB Svcs VoIP Mobile LLU Saturation ... 37% 39% 63% 71% 3% 11%

1© 2005 Cisco Systems, Inc. All rights reserved.

PLAY TO WIN: The UK Opportunity

Next Generation ISPOctober 4th, 2005

Fernando Gil de BernabeManaging Director, Europe and EmergingCisco Internet Business Solutions Group


Revenue Scenarios

That twisting feeling in the SP business

2000 2005 2010 2015

UpliftsUplifts

•Cash in the bank •IP services provide new potential growth areas

•Vertical integration in the value chain to provide value added services in the SMB and Enterprise market

•Broadband access provides new revenue in consumer and a new platform to grow new services

•NGSP transformation offers room for ROIC and OPEX improvement

DepressantsDepressants•Regulation is heating up the market particularly through ULL, potentially driving ARPUs down.

•IP services so far are not providing the revenue and profits expected

•Enterprise market is going DIY and outsourcing to SIs

•Consumers are increasingly on iTunes, iVideos, Skype, and others, which destroy the current SP business model

Source: Cisco IBSG, 2005


Consumers EnterprisesSmall Business

• Real-time operations• Lower costs• Broader reach

• Access to customers• Scaleable growth• Lower costs• Learning and knowledge

• Entertainment• Convenience

The “interactions” economy provides tremendous opportunities for SPs

Service ProviderInfrastructureand Services

$1.2T Industry WW

$600B $400B$200B

Source: Cisco IBSG analysis, 2005


The challenge is profitable growth

PSTN

Voice

ROIC

RevenueGrowth

CAGR % per yr

MobileVoice

-5% +5% +10% +15%

IP,BBSvcs

VoIPMobile

LLU SaturationCompetitionNew technology (4G)

$200B2004

Revenue

Business modelScale

OECD Market Composite

=

LegacyData

IPSubstitution

Source: OECD, Cisco IBSG analysis


Consumer Broadband Is Strong Growth Opportunity

Consumer broadband is still in its infancy in most markets

Worldwide 21% CAGR (2003-2008)• 97 million subscribers in 2003

Source: Cisco IBSG, January 2005

2003

* Estimated

2010

• 251 million expected by 2008

U.S. and Europe expected to reach 60% penetration

by 2010

15%

75%60% 60%

90%*

20%

South Korea U.S. Europe


In the UK growth accelerated substantially in Q1 05.

Source: Company data, NRA, Asociacion de internautas, JP Morgan July 2005

Broadband penetration (by percentage of households)


Unbundled lines have been traditionally very low in the UK

Source: Company data, CSFB June 2005


Openreach may change the competitive scene

Source: Om Malik’s Broadband Blog


Broadband access is a platform for new services

Security and Data Services

• VoIP• Video Telephony• Mobility

Advanced Communications Services

Entertainment Services

• Video on Demand• Music on Demand• Internet Radio

• VPN• Firewalls• Parental Controls

$1.5bn to $12bn2004 2008

2004 2008

$2.2bn to $28bn2004 2008

BroadbandAccess

$1.5bn to $5.5bn2004 2008

• Security• Monitoring• Utility

Management

Home Management Services

$41bn to $110bn2004 2008

$1bn to $20bn2004 2008

Source: Cisco IBSG, January 2005


Broadband Drives Home Networking Market

Broadband Owners More Likely to Network HomesLikely Adoption

26%

42%

49%

29%

41%

38%

29%

13%

11%

11%

3%

2%

5%

1%

0% 20% 40% 60% 80% 100%

Broadband

Dial Up

Mass Market

Definitely NOT Set Up Probably NOT Set Up

Might/Might Not Set Up Probably Set Up

Definitely Set Up

(Total n=450; Primary Market n=243; Mass Market n=208; Broadband n=220; Dial Up n=221 ; Q47)

16% Adopt Home Network

4% Adopt Home Network

2% Adopt Home Network Use

r Typ

e

Source: Internet Home Alliance, State of the Connected Home Market Study, Trends & Forecast, October 2003


Churn Reduction Impacts Overall Profitability…

. . . and Bundling Reduces Churn and Increases ARPU

Source: Bear, Stearns & Co. Inc estimatesChurn Rate

Ave

rage

Cus

tom

er L

ife

40403636333331312929272725252424222221212020

$1,036$1,036$910$910

$815$815$720$720

$657$657$594$594

$531$531$499$499

$468$468$436$436

$404$404

2.50% 2.75% 3.25% 3.50% 3.75% 4.00% 4.25% 4.50% 4.75% 5.00%3.00%

Source: UBS, September 2003

Products in Products in BundleBundle

ChurnChurn Life of SubLife of Sub(in months)(in months)

Life of SubLife of Sub(in years)(in years)

ChurnChurn Life of SubLife of Sub(in months)(in months)

Life of SubLife of Sub(in years)(in years)

11

22

33

3.10%3.10%

2.46%2.46%

1.55%1.55%

32.2632.26

40.6540.65

64.5264.52

2.692.69

3.393.39

5.385.38

3.20%3.20%

2.80%2.80%

1.20%1.20%

31.2531.25

35.7135.71

83.3383.33

2.602.60

2.982.98

6.946.94

CoxCox InsightInsight

Mon

ths

Ret

aine

d


Take-up of Subscriber Lines Is the Key Factor Impacting Profitability of DSL

Source: Lehman Brothers, Oftel Data, Company Data

4.0%

3.0%

2.0%

1.0%

0.0%

-1.0%

-2.0%

-3.0%

-4.0%Incr

emen

tal %

Impa

ct o

n To

tal F

ixed

Rev

enue

s

% of Lines Taking DSL and/or VoIP

5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Revenue Impact of VoIPExcluding DSL Uplift

Revenue Impact of DSLIncluding Cannibalizationat EUR 35

Revenue Impact of DSLIncluding Cannibalizationand VoIP at EUR 35

The positive impact should be larger if savings from network convergence are attained.


The Skype threat

Source: Evalueserve 2005


Strategies for Success in Broadband: Content and Communications

Making Money in CommunicationsMaking Money in Communications

Mak

ing

Mon

ey in

Con

tent

Mak

ing

Mon

ey in

Con

tent

Level 1:Basic Broadband Connectivity

Level 2:Improved Operations and Services

Level 3:Value-Added Communications Services

Source: Cisco IBSG, November 2004

Level 3:Light Vertical Integration

Level 2:Value Added Distribution

Level 1:Hands-Off Distribution


Strategic Gameboard

MakingMoney in

“Communications”

Mak

ing

Mon

ey in

“C

onte

nt”

Hands Off Distribution

Value Add Distribution

Light Vertical Integration

Basic BB Connectivity

Improve The Obvious

Value Added Comms Services

• DRM, billing, storage, CDN, CS, VoD, PVR, PPV, HDTV

• Price per service• Customer: content

owners, consumers• Content class of

service

• DRM, billing, storage, CDN, CS, VoD, PVR, PPV, HDTV

• Price per service• Customer: content

owners, consumers• Content class of

service

• Portal business content aggr

• Subscription, Ads, per service

• Sophisticated marketing/branding

• Advanced billing, provisioning

• Portal business content aggr

• Subscription, Ads, per service

• Sophisticated marketing/branding

• Advanced billing, provisioning

• BB access only, no content revenue. Wholesale BB

• Flat rate pricing• One size fits all mktg• Inconsistent, long

provisioning• Direct sales

• BB access only, no content revenue. Wholesale BB

• Flat rate pricing• One size fits all mktg• Inconsistent, long

provisioning• Direct sales

• +P2P (bill or kill), storage, security, home networks.

• Bundling• Tiered pricing• Sophisticated

segmentation. • zero touch prvsing• Home Network

• +P2P (bill or kill), storage, security, home networks.

• Bundling• Tiered pricing• Sophisticated

segmentation. • zero touch prvsing• Home Network

• + IP Telephony, Mobility, Video Telephony, Service and support, HA, etc.

• Per service pricing• Service-based QoS• Service enabling CPE

• + IP Telephony, Mobility, Video Telephony, Service and support, HA, etc.

• Per service pricing• Service-based QoS• Service enabling CPE

Source: Cisco IBSG


In the SMB: Security, IP telephony and wireless present the best opportunities

95%

78%

61%

59%

47%

25%

15%

12%

4%

14%

12%

14%

10%

28%

37%

39%

63%

71%

3%

11%

2%Anti-Virus

Firewall

Remote access via dialup

PBX

VPN

Wireless LAN

IP telephony

Currently have Plan in next 12 months Do not have/no plans to buy

Note: Figures relate to those 72% of all SMBs that qualified for the study i.e. those that either use or plan to buy all of the various network technologies at QS6B.

Q: Do you currently have, or plan to buy in the next 12 months, any of the following?

Source: Cisco SMB Research, May 2004


SMBs also express increasing interest in managed services

7.6

5.7

5.3

Mean score out of 10 where 10 means very appealing and 1 means not appealing at all

(Scheme 1) (Scheme 2) (Scheme 3)

Note: Figures relate to those 72% of all SMBs that qualified for the study i.e. those that either use or plan to buy all of the various network technologies at QS6B (see section 3).


35%27% 21%

40%

17%14%

Broadband with secureInternet access

. . . Plus option forwireless LAN

. . . Plus IP Telephony

Rating of9&10 outof 10

Rating of7&8 out of10


SPs must develop IP service evolution paths that leverage the IP platform

Broadband

IP PBX

Managed LAN

Wireless LAN

Managed Desktop

IP VPNHome

gateway

IP Key system

WirelessNetwork

Managed LAN

Wireless LAN

IP telephony

Consumer

SME

Enterprise

IP Network

Managed Desktop

IP VPNSecurity/Control Security

VideoMobility ServiceMobility bundle |Mobility Service

Security

Managed StorageNetwork Backup

Photo Storage

Internet Access Internet

AccessInternet Access


The goal is to expand the share of wallet with a low marginal cost per service

Source: Cisco IBSG analysis

IP VPN

LAN

IP Tel

W-LAN

Security

Multicast

Internet

100%

19%19%

48%

141%

15%

30%

100%

270%


SMB business attitudesQ: Using a scale of 1 to 10, where 10 means you agree very strongly and 1 means you do not agree at all, please tell me how much you agree with each one.


8.5

7.9

7.8

6.9

6.5

6.3

5.9

4.7

It is important that we are able to separatebusiness from our private life

I am very comfortable using new technologies

Without our IT network, our business couldnot be successful

Our business is very risk averse

If our network went down, we would not beable to conduct any business

It would help us if we could access thecompany network from home

We have to deal with more challenges thanopportunities in our daily business

It would help us if we could access thecompany network from airports or hotels


36%

35%

29%

26%

25%

22%

0% 5% 10% 15% 20% 25% 30% 35% 40%

IPVPN

Intrusion Detection

Apps Perfm Mgt

Apps Hosting

Disaster Recovery

Desktop mgt

SMBs are prepared to outsource

Source: Yankee Mid Market Survey 2004 Europe 100-499 employees

Types of Solutions Handled by an External Supplier


Fundamental drivers for outsourcing/out-tasking: cost and skills

Cost• Cost reduction (via scale and expertise)• Financial re-engineering

Cost• Cost reduction (via scale and expertise)• Financial re-engineering

People• Limits need to attract and retain IT staff• Access to emerging technology skills

People• Limits need to attract and retain IT staff• Access to emerging technology skills

Complexity• Integration / consolidation of disparate

systems, networks

Complexity• Integration / consolidation of disparate

systems, networks


However, mixed customer experience

The Good• Cost savings: 2/3rds receive 5–10%• Consolidation• Faster decision makingThe Bad• Innovation—80% dissatisfied• Service levels—30% with

significant issues• Contract inflexibility• 70% prematurely ended contractThe Ugly• Skills depleted, hard to rebuild

23© 2003 Cisco Systems, Inc. All rights reserved.8712_09_2003


Perception of firms that can best provide outsourcing/out-tasking services

Global Enterprise Post Installation Management Preferences

Telecommunications Networks or Services

Enterprise Networks

Applications

Telecom Service Providers

IT Out-Taskers (i.e., IBM Global Services and EDS)

VARs (Including Systems Integrators and Big 5 Accounting/ Consulting Firms)

IT Consultants (i.e., Accenture)

Base: All Respondents, n=1489

Others2 3 38

13 178

1210

25

4748

57

25 22

0%

20%

40%

60%

80%

100%

Source: Cisco IBSG Enterprise-Service Provider Connect Study 2004


Key success factors in selecting a provider


25.2

12.6

12.3

12.2

10.7

8.7

6.3

4.1

3.5

2.2

2.2

Reliability

Providing information so that you can clearlyunderstand what the product does

Network products are suitable for my type of business

The post-sales support

Security inbuilt into the product

A company you know well

Reseller’s advice

Network manufacturer offers a full range of ITproducts, eg. PCs, printers, servers

Comprehensive network product portfolio

Offer good financial options

Among the cheapest price


SMB key business needs point out potential marketing strategies

Base: all qualified respondents (1024) – QA2


20.1

17.3

16.0

15.3

12.7

11.6

7.0

Increasing our profitability

The security of your data

Productivity

Growing your company’s revenues

The security of your network

Maintaining cashflow

Expanding into new geographical markets


Example: FastWeb Business Model

Source: FastWeb


Customers Payback Time

Source: FastWeb


Example: FastWeb, the NGSP Advantage, now

Source: FastWeb Estimates


Taking Advantage of Consumer Broadband and SMB Opportunities

Source: Cisco IBSG

1. Ramp-up quickly and protect Access Fees as they will still be critical in the next 3-4 years

2. Enter home networking market to ensure service control, and intelligent management of customer

3. Build a service portfolio with SLAs and develop sophisticated marketing strategies

IBSG - 30

1. Partner with Cisco, VARs, and specialty integrators to improve competitive position

2. Strengthen brand, segment the SMB market, educate the market; create lower cost, reliable, scaleable solutions, and improve customer service

3. Aim for simplicity

Consumer SMB

313131© 2005 Cisco Systems, Inc. All rights reserved. 313131© 2005 Cisco Systems, Inc. All rights reserved.Presentation_ID CISCO CONFIDENTIAL

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PLAY TO WIN: The UK Opportunity - · PDF filePLAY TO WIN: The UK Opportunity Next Generation ISP October 4th, ... IP,BB Svcs VoIP Mobile LLU Saturation ... 37% 39% 63% 71% 3% 11%