Telco Strategy in the UBB era - Chaire Innovation & …innovation-regulation2.telecom-paristech.fr/wp-content/... · · 2011-02-04Telco Strategy in the UBB era 2008. 10. MinsooShin

1

Telco StrategyTelco Strategy

in the UBB erain the UBB era

2008. 10.

Minsoo Shin

Hanyang University, Seoul, Korea

[email protected]

© Minsoo Shin, Hanyang U. 2

Contents

I. Telco's Business Environmental Changes & Strategic Uncertainties

I. Telco's Business Environmental Changes I. Telco's Business Environmental Changes & Strategic Uncertainties& Strategic Uncertainties

III. Telecommunications Market Development Scenario & Telco's Strategic Options

III. Telecommunications Market Development Scenario III. Telecommunications Market Development Scenario & Telco's Strategic Options& Telco's Strategic Options

II. Strategic Directions of Global TelcosII. Strategic Directions of Global II. Strategic Directions of Global TelcosTelcos


Contents

Risk that are now being faced by Telco

Factors affecting Telco’s business environment

Analysis of Telco’s business environment

I. Telco's Business Environmental Changes & Strategic Uncertainties

I. Telco's Business Environmental Changes I. Telco's Business Environmental Changes & Strategic Uncertainties& Strategic Uncertainties

SWOT analysis


I. Business Environmental Changes & Strategic I. Business Environmental Changes & Strategic UncertaintiesUncertainties

Risk that are now being faced by Telco Survey of 497 telecommunications industry relevant companies in Asia, America, and Europe*90% of respondents agree that fundamental changes are under wayThe matter is that there would not be a clear solution to these changes

* : Telco 2.0, STL, 2007

“For 100yrs the basic telco. business model was comfortable. 'Time + Distance' = customer perceived value, and a steady state was achieved. Technology has changed all that – distance and time are becoming irrelevant, so the value perception is fading fast. Vertically integrated Telco's must react to deliver new services more quickly and realize that the margins on their t raditional cash cows are gone.” Business

Development Director, Fixed/Converged Operator

“I agree on the status, but I'm not sure about the measures to ensure a future for operators” R&D Engineer, Converged Operator


More than 90% respondents are found to have no visions or strategiesLack of understanding in Internet & Web 2.0Weight on short term objectives of top managementToo much consumption of management resources to correspond to current competitors and regulatorExpectation of constant revenue generation from the current business modelsSometimes sticking to other business areas outside traditional business area

More than 75% respondents do not expect sustainable growth in the future business environment

Enterprise culture and organizationLack of experience in consumer-oriented business modelToo slow response to business environmental changes

Strategy and business modelSticking to current revenue resourcesFocusing on the increase of ARPU rather than finding new revenue sources

TechnologyMarket entry of new players enabled by technology evolution

Very Unconfident

Unconfident

Not Sure

I. Business Environmental Changes & Strategic I. Business Environmental Changes & Strategic UncertaintiesUncertainties

Risk that are now being faced by Telco


Service based CompetitionWired and Wireless Market Saturation

Declining in Physical Strength of All Players

All-IP Web 2.0 Enterprise 2.0 CaaS SaaS Mobile 2.0Open operational environment and new Business Process

Diffusion of consumer participation & joint ownership

B2C Market & B2B Market

Competition & Cooperation between contents and media/network players

Changes in the digital contents value chain by emerging prosumer

C P N TC

P

N

T

I. Business Environmental Changes & Strategic I. Business Environmental Changes & Strategic UncertaintiesUncertaintiesFactors affecting Telco’s business environment


Telecommunications Business Environment

Diversification of consumer needs and Enlargement of Telco’s value chain (Google, Apple)

Open Network &Network Neutrality

(meter-rate system,FBC)

Newly established game rule(Creative innovation,

Resembling innovation)

Newly developed telecomm. Policy

(lower market entry, price

competition, etc

Generalization of telecomm. technologies

Arrival of new players(Yahoo, Intel, Disney,

Bertelsmann, Vivendi Universal)

Free Services(Freebies)

I. Business Environmental Changes & Strategic I. Business Environmental Changes & Strategic UncertaintiesUncertaintiesFactors affecting Telco’s business environment


Buyer Power

Comparable to the current situation or a little bit

reinforced

Buyer Power

Comparable to the current situation or a little bit

reinforced

Regulation

-Regulation on unbundling for the wire-telecomm. Players

-More pressure on price cutting for mobile telecomm. players

Regulation

-Regulation on unbundling for the wire-telecomm. Players

-More pressure on price cutting for mobile telecomm. players

New Entrants

-Lowering entry barrier by open IP-based network

-Arrival of new retailers such as m-VoIP & MVNO

New Entrants

-Lowering entry barrier by open IP-based network

-Arrival of new retailers such as m-VoIP & MVNO

Substitute Products

-Substitution of current network by IP-based network

- Substitution of current charge systems by new charge systems

- Substitution of current market by newly emerged IP-based market

Substitute Products

-Substitution of current network by IP-based network

- Substitution of current charge systems by new charge systems

- Substitution of current market by newly emerged IP-based market

Supplier Power

- Less reliance on a large-scale closed network

- More reliance on open solutions

- Strategic cooperation between suppliers

Supplier Power

- Less reliance on a large-scale closed network

- More reliance on open solutions

- Strategic cooperation between suppliers

Rivalry-Intensified competition

between existing and new players in the saturated market

- Intensified price competition- Exit barrier

Rivalry-Intensified competition

between existing and new players in the saturated market

- Intensified price competition- Exit barrier

-

-

-

-

-

Neutral

I. Business Environmental Changes & Strategic I. Business Environmental Changes & Strategic UncertaintiesUncertaintiesAnalysis Analysis of Telco’s business environment


- Brand recognition as a stable service provider - Diversification of cooperation with global players- Abundant information on consumers- Real-time billing capability- Holding physical network and supply-chain

- Brand recognition as a stable service provider - Diversification of cooperation with global players- Abundant information on consumers- Real-time billing capability- Holding physical network and supply-chain

STRENGTHSSTRENGTHS

- Relatively less innovative- Too much reliance on closed network and controlled service environment- Less experience in various service development communities- Inappropriate organizational structure and culture for the tightly-coupling of network to application- Subscriber acquisition-centered strategy- Limited investigation in new business area

- Relatively less innovative- Too much reliance on closed network and controlled service environment- Less experience in various service development communities- Inappropriate organizational structure and culture for the tightly-coupling of network to application- Subscriber acquisition-centered strategy- Limited investigation in new business area

WEAKNESSESWEAKNESSES

- More effective operation of cash-cow services- Effective service development opportunities by opening network elements to the 3rd party- Providing individualized service and leveraging customer information with the 3rd party for new service development- Leveraging billing capabilities for the 3rd Party- New revenue sources of contents distribution and advertisement using highly recognized brand- Simplifying consumer’s service choice and consumption process by IP-based package service

- More effective operation of cash-cow services- Effective service development opportunities by opening network elements to the 3rd party- Providing individualized service and leveraging customer information with the 3rd party for new service development- Leveraging billing capabilities for the 3rd Party- New revenue sources of contents distribution and advertisement using highly recognized brand- Simplifying consumer’s service choice and consumption process by IP-based package service

OPPORTUNITIESOPPORTUNITIES THREATSTHREATS

- Disintermediation of essential telecomm. functions by All-IP- New market entry with attractive price structure such as m-VoIP and MVNO- Decrease revenue from the management of middle layer such as APIs, DRM, device OS as IT service or device player acquire capabilities- Slow adaptation of business process and cost structure to rapid changing environment

- Disintermediation of essential telecomm. functions by All-IP- New market entry with attractive price structure such as m-VoIP and MVNO- Decrease revenue from the management of middle layer such as APIs, DRM, device OS as IT service or device player acquire capabilities- Slow adaptation of business process and cost structure to rapid changing environment

I.I. Business Environmental Changes & Strategic Business Environmental Changes & Strategic UncertaintiesUncertaintiesSWOT analysis


Contents

BT

Verizon

NTT

II. Strategic Directions of Global TelcosII. II. Strategic Directions of Global Strategic Directions of Global TelcosTelcos

Rogers Telecommunications

Implications


II. Strategic Directions of Global II. Strategic Directions of Global TelcosTelcosBTBT

BT’s ‘New Wave’ strategyNew name of All-IP 21CN planned to invest 187 hundred billion US $ by 2011BT intends to make NGN(21CN) as a global innovation platform

BT emphasizes its role as a IT company by launching ‘Web 21CN’The other pillar of open innovation is ‘multi-vendor integration’

strategic suppliers for 21CNBT intends to position itself as a global NGN provider and operator through cooperation with vendors

BT launched a business unit called ‘21C Global Venture’ in 2007

In 2002, 7% of BT’s revenue came from New Wave area, while, in 2005, it became 15%, and it is expected to be 30% in 2010 (British Telecom, Annual Report, 2002-2005)

2002년 2003년 2004년 2005년

Traditional New Wave

1,409Me(7.6%)

1,683Me(9.0%)

2,166Me(11.7%)

2,780Me(15.0%)

17,038Me

(92.4%)

17,044Me

(91.0%)

16,353Me

(88.3%)

15,843Me

(15.0%)

19.4%28.7% 28.4%

0.0% -4.0% -7.0%

18,447Me 18,727Me 18,519Me 18,623Me

0

500

1000

1500

2000

2500

2002년 2003년 2004년 2005년

ICT Solution Mobility Broadband Managed Service

BT’s sales from New Wave area Growth trend of New Wave area


BT’s strategic directionsMake it carrier class

Maintaining the most reliable telecomm. Infrastructure as one of the biggest players

Be open and transparentSpeeding up the development of NGN(Next Generation Network) to provide various technologies and business models in the near future

Be fastAs parallel operations of PSTN and NGN need much cost, the migration of business models based on NGN should be completed in5 years

Do it everywhereAs regional or separated platform based approach for All-IP would entail negative effect, the migration to NGN will be carried outacross the board

Be globalNGN should be interlocked to other players’ networks for anytime and anywhere services

II. Strategic Directions of Global II. Strategic Directions of Global TelcosTelcosBTBT


II. Strategic Directions of Global II. Strategic Directions of Global TelcosTelcosVerizonVerizon

Verizon Business: create by merging between MCI and Verizon in 2006Positioning itself as a global service provider considering all international and domestic business as one global business

Verizon Business’s Strategic Services (Strategic Portfolio) : IP & Higher-margin Managed Services

Sales revenue $52 hundred million (Growth rate: 2.3%) in the 1st Quarter of 2007

$12 hundred million ($2 hundred million increase from 2006) in the same quarter came from the strategic portfolio

Networks Make All the DifferenceActive investment into network resulting in providing 70% of household with regional and distant VoIP services in the 1st Quarter, 2007

Constantly increasing investment into global IP network over 150 countries

Competitive advantage from holding network asset interconnecting UUNET and WorldCom’s IP Network enabling entry into Asia-pacific market

Global Player through Global AllianceExpand Ethernet service over 6 countries in Europe in 2007 and provide Latin America with managed WAN service

Selecting TPE (Trans Pacific Express) as a partner of a submarine cable consortium and entered into partnership with NetCom, China Telecom in China and KT in Korea


II. Strategic Directions of Global II. Strategic Directions of Global TelcosTelcosNTTNTT

NTT group emphasizes ‘Resonant Strategy’ intending to integrate organically telecommunications including wire, mobile, data telecommunications and non-telecommunications area including finance, real estate, IT service, and advertisement

Integrated service provider for the end user

NTT group plans to invest 51 trillion (Korean) won into development of IP-based network ‘RENA’ providing ubiquitous services

NTT’s RENA plan is to improve business value and secure sustainable growth opportunity

RENA plan intends to offer new services based on ubiquitous concept interconnecting NGN services, finance, distribution services, education, medical treatment, and entertainment

Improve network application through cooperation and alliances

NTT group endeavors to find a new revenue source by interconnecting NTT East/West’s wired network and NTT Docomo’s wireless network and providing fixed-mobile convergence services and digital convergence services

Diversification into non-relevant business

NTT group has about 430 subsidiary companies and holds a good position in IT service, finance, real estate, and advertisement market


II. Strategic Directions of Global II. Strategic Directions of Global TelcosTelcosRogers Telecommunications

Telecommunications and media company$7.5 billion revenue generation in 4 areas, 2006

Wire (Rogers Telecom, $850m); Cable (Rogers Cable, $2bn); Wireless (Rogers Wireless, $4bn); Media (Rogers Media, $1bn)

Clear vision and speedy positioningConcentrating efforts on the development of IP-based platform to provide customers with seamless service

Focusing on which sort of service consumer needs and how to deliver it

Rogers has devoted to avoiding investment failure by heavily putting efforts into strategy development and service design to find a way in which consumers get the most value

Focusing on consumer solution, not technologyDeveloping technology requirement following service needsIt would be taken as a something wrong if top management asks ‘HSDPA’

Consider contents and entertainment as a supplement enhancing the quality of telecomm. services, not substuting


II. Strategic Directions of Global II. Strategic Directions of Global TelcosTelcosImplications

Key words in global telco’s strategies …….

Diversification of business portfolio and highly value-added service development

Choice and concentration by market segmentation; Effective use of

resources; Use of acquistion/merge/alliances to lower transaction costs

Proactively responding to consumer needs by integrating IT service and telecommunications

As Web2.0 and Enterprise2.0 appears, more evolved IT based business models tightly

connected to individual life are required

Reinforcement of Global Presence

Market expansion by entering into global market; active joint venture with

regional players


Contents

Primary factors affecting the future business environment

Future development scenario

Evaluation of scenario from industry perspective

III. Telecommunications Market Development Scenario & Telco's Strategic Options

III. III. Telecommunications Market Development Scenario Telecommunications Market Development Scenario & Telco's Strategic Options& Telco's Strategic Options

Implications for Telco


Different Market

from the Current

Market similar to

the Current

Technology evolution & No technological diffrentiation

not meaningful price differentiation with technological advantage

Service competitionStandardized inter-operation within network layer and between device-service-network

Current Player’s Business Strategy

Consumer Inertia

III. Telecommunications Market Development III. Telecommunications Market Development Scenario & Telco's Strategic OptionsScenario & Telco's Strategic OptionsPrimary factors for future business environment


Close correlations between Telco’s Asset and Market system: Market attractiveness

Complexity and connections in service value chain: Competitive Position Volatility

Vs.

TelcoNetwork

PartnerNetwork

User Network

3rd Party Service

Partner Service

Telco Service

Non-exclusiveDevice

PartnerDevice

ExclusiveDevice

TelcoPlatform

3rd

partyPlatform

Network

Application & Content

Devices

Platform

Current Market System Vs.

Dream Market System

New Market System



Market Attractiveness: the extent to which network operator controls marketClosed and proprietary network Vs. Open network/network neutralityTelco-oriented policy and technology Vs. Market-oriented policy and technology

Competitive Position Volatility: Service Intelligence LevelCurrent level of retail and wholesale market Vs. Segmented retail marketControlled Introduction of Service Vs. Dynamic Service IntroductionTelco-centered Vertically Integrated Value Chain Vs. Fragmented Value ChainGeneral Purpose Service Vs. Specific Purpose Service

Market Attractiveness

Competitive Position Volatility

Network/Operator Control

Service Intelligence



HIGH

Digital Me

• Niche Player

• P2P distribution

• Access model BM (e.g. Locating people)

• Municipal network

Platform as a Service

• Self-customized Platform based Content

• Integrated mode of CP, SI, NP

• Co-design experience BM

Personal Communicator• Weakening economic efficiency of network

investment• Joint BM for P-Com embedded service •Large Telco and media player centered BM

Traffic Optimization• Maintaining economic efficiency of network

investment• Tightly coupling between regulator and Telco• Cooperation with contents provider• Intelligent traffic routing BM

BM offering services through open platform and devices using professionally created contents

BM offering services through exclusive networks and devices using niche distribution and consumer/community created contents

BM offering services through exclusive networks and devices using professionally created contents with a brand

BM depending on consumer created contents and open platform

LOW

LOW

HIGH


Service

Intelligence

III. Telecommunications Market Development III. Telecommunications Market Development Scenario & Telco's Strategic OptionsScenario & Telco's Strategic OptionsFuture Development Scenario


HIGH

Digital Me• Value migration to Ad-hoc

networking device • Decreased incentive for network investment

• Price competition with essential quality of Network reach, speed, reliability

Platform as a Service• New Platform Player• New market based on integrating platform elements, contents and services

• Breakdown of connection betweenservice platform and network

• Market without physical dominator

Personal Communicator• MSV (Multi-Service Vendor) offeringservice package

• Increased importance of Network Security• Importance of good UI and Portal function• Service innovation and integration

capabilities• Increased bargaining power of contents

provider

Traffic Optimization• Maintaining the value of Network Provider• Network provider centered value chain• Importance of channel development between network provider and other players

LOW

LOW

HIGH


Service

Intelligence

III. Telecommunications Market Development III. Telecommunications Market Development Scenario & Telco's Strategic OptionsScenario & Telco's Strategic OptionsEvaluationEvaluation of scenario from industry perspective


Platform

as a Service

Platform

as a Service

Digital MeDigital Me

Personal

Communicator

Personal

Communicator

Dominant brand building and leading innovation through direct competition with new or substitute players (MVNO , VoIP, etc.)

Extend content providing capabilities and M&A or alliances between content provider and media player in the long term

Adaptation capabilities to innovative technologies like Web 2.0 and competitive advantage in terms of price competition

Strategic alliances with various solution provider and diversification outside traditional area

Traffic

Optimization

Traffic

Optimization

Joint ownership on the market through cooperation and alliance and creation of new market; effective use of network resources

Expansion of network depth (network access point) and network breadth (service area)

Extend to platform component solution provider from End-to-End channel provider (e.g., shopping mall and its part)

Acquire highly value-added services through developing new service portfolio including end user oriented service development

Leverage competitiveness of edge of C-P-N-T, i.e. C-T, by retaining bandwidth

III. Telecommunications Market Development III. Telecommunications Market Development Scenario & Telco's Strategic OptionsScenario & Telco's Strategic OptionsImplications for TelcoImplications for Telco


Thank you.

Documents

Telco Strategy in the UBB era - Chaire Innovation & …innovation-regulation2.telecom-paristech.fr/wp-content/... · · 2011-02-04Telco Strategy in the UBB era 2008. 10. MinsooShin