Navigating the Storm: The Impact of the Economic Crisis and Strategic Responses, by Jawad Shaikh, Vice President Capgemini Consulting

Capgemini Consulting is the strategy

and transformation consulting brand

of Capgemini Group

Jawad Shaikh, Vice President

Capgemini Consulting

June 1st 2009

Navigating the Storm: The Impact of the

Economic Crisis and Strategic Responses

6th Arab Advisors Media & Telecoms Convergence Conference

1Copyright © 2009 Capgemini. All rights reserved.

We are in the midst of a global recession

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

2006 2007 2008 2009E 2010E 2014E

World United States Europe Developing Asia Middle East

Developing

Asia

Europe

The US

Middle

East

World

Global GDP growth rates, 2006 – 2014E, %

Source: IMF, “World Economic Outlook”, April 2009;, World Bank, “Global Economic Prospects 2009”, Dec 2008; Bloomberg, “U.S. Stocks Post Steepest Yearly Decline Since Great Depression”, Jan 2009; IMF, “Global Economy Contracts, With Slow Recovery Next Year”, Apr 2009


Historically, real TME consumer expenditure has correlated

with the performance of the wider economy

2

Source: Capgemini TME Strategy Lab analysis; US Bureau of Economic Analysis

TME Consumer Spending per Capita, GDP per Capita,

YoY Growth Rates, US, 1984 2007, %, Real Terms

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

YoY growth GDP per capita YoY growth, TME Spend per capita

US Financial

Recession

(1990-1991)

Dot.com Bubble

(2000-2001)

The current recession is also affecting consumer spend.


The declining spend is severely impacting growth across the

value chain

Content/Media Telecoms Devices

Y-o-Y Revenue Growth of Top

Handset Vendors, 2005-08

Q-o-Q Revenue Growth Rates of

Top Telcos, Q2 08-Q1 09

Q-o-Q Revenue Growth Rates of

Top Media Players, Q2 08-Q1 09

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

2005 2006 2007 2008

-1.0%

0.0%

1.0%

2.0%

3.0%

Q2

2008

Q3

2008

Q4

2008

Q1

2009

-15%

-10%

-5%

0%

5%

10%

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Source: Capgemini TME Strategy Lab analysis based on analyst reports, company websites and news releases.

Mobile handset revenues are

forecasted to decline by

~13%

Voice revenue growth for

European cellcos predicted

to decline by 3.7% in 2009

Online advertising revenues

in the US expected to

decline by 5% in 2009


-5%

0%

5%

10%

15%

20%

25%

Oman Bahrain Saudi Kuwait Qatar UAE

2007

2008(E)

2009(F)

The global crisis combined with a decline in oil prices is

severely impacting the GCC economies

Source: MEED Projects, as of July 2008. IMF. Respective Central Banks, NCBC

Research, World Bank Estimates, Samba Research. Global Research;Ameiinfo

Annual Real GDP growth rates,2007-2009(f),%

$77 $75 $49 $33 $24 $23

Trade-

deficit

Breakeven

Oil Price

Decreasing Vulnerability to Falling Oil Prices


Consumer and business confidence has fallen significantly

across the region

Change in Consumer Confidence

Index , Jul 2008-Feb 2009, %age

HSBC Gulf Business Confidence

Index , Dec 2007-Jan 2009

-23.5%-23.5%

-11.9%

-9.5%

-7.0%

-23.2%

-15.5%

-1.1%

Kuwait UAE Bahrain Qatar Oman KSA UK US

98.696.8

9492

70.3

Dec-

07

Feb-

08

Apr-

08

Jun-

08

Aug-

08

Oct-

08

Dec-

08

Source: Bayt.com and YouGov Mar 2009 CCI report; HSBC Gulf Business Confidence Index; Nationawide& TNS, “Consumer Confidence

Index”, March 2009; ABC News, “ Q1 2009: A Confidence Sourball”, march 2009; Trading Economics, “United States Business

Economics”, March 2009; ICAEW, “ Business Confidence Index in UK”, 2009

US Business

Confidence

Index fell 33%

between Dec

07 and Dec 08

UK Business

Confidence Index

fell 10% between

Q4 2007 and Q4

2008


BahrainOman

KSA Kuwait

Qatar

UAE

TunisiaEgypt

Jordan

-5%

0%

5%

10%

15%

20%

-5% 5% 15% 25% 35% 45% 55% 65% 75% 85%

Not all countries in the region are being impacted equally

Expat Population as % of Total Population

Ch

an

ge

in

GD

P 2

00

8-2

009F

HIGHLOW

Po

sit

ive

Neg

ati

ve

Source: Capgemini Strategy Lab Analysis based on IMF and CIA Factbook data

Bubble size represents total population

Impact of Downturn on Middle Eastern Economies

High Impact

Relatively

Lower Impact

Relatively

Resilient


Players will need a balanced strategic response

Asset Optimization

Costs Revenues

CAPEX shifts

Divestiture of non-core operations

Hiving off non-core assets

Pricing

Micro-segmentation

Focus on investing

in services with

proven demand

M&A

SAC/SRC Reduction

People Costs

IT Consolidation and

Optimization

Network Sharing

IT and Network

Outsourcing

Telco Strategic Responses to Downturn


Outsourcing can help reduce network costs, whilst retaining

focus on customer management and value creation

Operators can save up to 5% of their total OpEx through Network outsourcing.

Typical OPEX Breakdown for a Mobile Operator and Potential Savings Through Outsourcing

11.70%

7.80%

7.10%

22.90%

26.80%

23.70%

Subscriber Acquisition and Retention

Network OPEX

Interconnect

Customer Service

IT

Other

15-18%

18-20%

Network maintenance and management

Inventory management

Planning and network optimization

Payouts on license fees and AMC

NOC and Disaster recovery

Application management

Hardware and software maintenance

Data-center management

Information security

Internal helpdesk

Technology Obsolescence-related costs


Separating out tower companies and network sharing

provide a significant upside in shareholder value

Source: Capgemini analysis; GTL Analyst Presentation, March 2008; Frost and Sullivan Estimates, January 2008; TRAI Report on Infrastructure Sharing, May 2008

76,000

19,540

28,000

36,849

61,500

Independent

Tower

Companies

Bharti Infratel RTIL Operator

Owned

Indus

Tower Assets for Selected Operators in India, January 2008, (Units)

Towers Ownership & Network Sharing Initiatives in India

These initiatives are supported by a clear strategic and financial rationale.

Over 70% of the towers are

owned by tower companies

Over 36% of the towers are

shared, and no. is growing

Sharing passive infrastructure,

which is 60% of network CAPEX

Generates OPEX savings as well

as tenancy revenue stream


Along with addressing cost, operators must take effective

steps to retain their existing customers

PAYMENT WAIVER

Waives payments for

unemployed subscribers

Offers unemployed a 50%

discount on their bill

Targeted at subscribers with

Telefonica for at least 6

months

EXTENSION OF CREDIT MULTIPLE BRANDS

Extends credit to

Contract subscribers

Provides GBP40 of credit on

a 12-month contract with

GBP10 rental

Available on a SIM-only

contract

Launched Low-Cost

Brand

Offers shorter contract

periods

SIM only-offerings with call

prices at up to 30% lower

compared

Operator initiatives to retain and attract recession-impacted customers

Source: Information Week, “Comcast Profits Rise Despite Recession”, April 2009

http://images.google.com/imgres?imgurl=http://www.mobileireland.net/wp-content/uploads/2007/10/tesco.gif&imgrefurl=http://www.mobileireland.net/2007/10/30/tesco-mobile-launches/&usg=__LfcPZCPNgUi9EqIN4-98ztOsYos=&h=240&w=374&sz=29&hl=en&start=1&tbnid=apazzZrF-jK4rM:&tbnh=78&tbnw=122&prev=/images%3Fq%3Dtesco%2Bmobile%26gbv%3D2%26hl%3Den


The downturn also opens up some growth opportunities

244292

358

422465

498

591

779

1,022

Q1

07

Q2

07

Q3

07

Q4

07

Q1

08

Q2

08

Q3

08

Q4

08

Q1

09

Sky+ HD Subscribers („000), UK

BSkyB is driving Pay TV Uptake, by creating an affordable HD value proposition

• Identify a high-growth area, with

obvious demand:

• Pay TV demand rose as out-of-home

entertainment became unaffordable

• Create compelling proposition to tap

the demand:

• Slashed entry level prices of Sky+ HD

box from £149 to £50

• HD service delivered with strong content

portfolio

• Promoted limited-time offers e.g. giving

ten months of free line rental

Source: Capgemini Strategy Lab Analysis; Enders Analysis, “Sky FY 2009 Q3 results: recession-resistant”, May 2009; Enders Analysis, “UK pay-TV in 2009: recession and competition concerns”, Apr 2009; Digital TV Europe, “Sky: a sharper picture”, Mar 2009

17% 27%

Average Quarterly Growth Rate


Operators are exercising caution in making bold investments

122

71

23

68

108

66

22

76

EMEA N America Latin

America

Asia Pac

2008 2009

-11%

-7%

-5%

+11%

Global Telecom CapEx, 2008 vs 2009,

Billions of USD

Source: “Global Telecommunications CapEx Forecast”, Yankee Group, March 2009

2009 2010 2011 2012 2013

We are not disclosing specific spending on LTE.

Given the economic circumstances that we‟re

in we will probably start out slower in the first

quarter than what we did first quarter this year- Verizon CEO, 4Q 08 call

It won't be until 2012 or 2013 when users really

start appreciating LTE. LTE will be too costly in

2010 - Softbank Mobile

Expected LTE

Launch Timeline

Before Downturn

Expected LTE

Launch Timeline

After Downturn

Decline in CapEx expected Investments are being delayed


But should invest in pursuing growth areas with proven

demand

Mobile Penetration in Select Geographies

Across the World, (% of Population), Q4 2008

Broadband Penetration in Select Geographies

Across the World, (% of Households), Q4 2008

39% 35%51%

17%5% 4% 3%

26%

63%

UA

E

Ba

hra

in

Qa

tar

Sa

ud

i A

rab

ia

Ku

wa

it

Om

an

Eg

yp

t

GC

C A

ve

rag

e

We

ste

rn A

ve

rag

e

193%

153% 152%

115%103%

73%

51%

117% 110%

UA

E

Ba

hra

in

Qa

tar

Sa

ud

i A

rab

ia

Ku

wa

it

Om

an

Eg

yp

t

GC

C A

ve

rag

e

We

ste

rn A

ve

rag

e

Comparison of broadband penetration in GCC and Western economies points to

unaddressed demand

Source: Telecom Tiger 26th May 2009; “Mobile Social Networking has 12.3 Million

Friends in the USA and Western Europe”, August 2007.

Penetration

Gap


Beyond organic growth, operators in the region can leverage

their relatively healthy cash positions for select acquisitions

But players have sizeable war-chests

Cash and cash equivalents, Q4 2008, Q1 2009,

$Bn, Net Debt/EBITDA ratio, 2008

4.5 4.23.4

2.2

1.0 0.7

3.3

5.8

1.1 1.1

-0.3

2.3

1.5

-0.1

1.731.96

Zain STC Etisalat Qtel Orascom Batelco Vodafone FT

Cash Reserves Net Debt/EBIDTA Ratio

Source: Capgemini analysis based on Company financial statements. Factiva

0

10

20

30

40

Oubound Inbound + Domestic

Q1 2008 Q1 2009

0

20

40

60

80

100

Oubound Inbound+ Domestic

Number of deals, Q1 08 & Q1 09

Value of disclosed deals, Q1 08 & Q1 09

-61%

-77%

-78%

-79%

M&A activity has plummeted in the region


In summary

In line with the historical trend, consumer spending on telecom and media is

being impacted by the global economic crisis, including in the Middle East

Operators can target bottom-line improvement through adoption of structural

cost reduction measures such as outsourcing and network sharing

Protecting revenue must stay in focus – using segmentation and pricing levers,

e.g. “recession offers” based on „psychological‟ segmentation to retain, as well

as attract customers

With Capex constrained, investment for growth should target areas of proven

demand – e.g. broadband in the Middle East

Many major Middle Eastern operators have accumulated healthy war-chests

and can take advantage of lower valuations for attractive M&A deals



of Capgemini Group

Introduction to Capgemini Consulting

and the TME Practice

June 2009

INTRODUCTION TO TME CONSULTING.PPT

©2009 Capgemini – All Rights Reserved

01/06/2009 00:35 | 17

Capgemini is one of the world’s foremost providers of Consulting, Technology and Outsourcing services

Global Reach

• North America,

Europe and Asia

• Over 90,000

employees

• 300 offices in more

30 countries

• Revenues 2008:

€ 8.7 billions

Three Business Lines

• Consulting services:

– The largest European management

consultancy, with over 4,000

consultants across 30 countries

– Helping clients with Business

Transformation – encompassing,

Strategy, Operations & Technology

• Technology services:

– Architecture and design

– Application and data

– Infrastructure

• Outsourcing services:

– Business process outsourcing

– IT outsourcing

Five Global Sectors

• Financial services

• Public sector

• Manufacturing/retail

• Energy, Utilities

Chemical

• Telecom, Media &

Entertainment



01/06/2009 00:35 | 18

Capgemini Consulting is a Global SBU of Capgemini Group

Global business unit of more than 4,000 consultants working in over 30

countries

Europe‟s largest management consulting firm

€700m revenue in 2008 (8% of Capgemini Group revenues)

Long-standing heritage within the Capgemini Group, with strong Business-

Transformation experience and industry-leading clients

Capgemini Consulting mission: Advising and supporting organisations in transforming their business from innovative

strategy through to execution, with a consistent focus on sustainable results.



01/06/2009 00:35 | 19

Capgemini Consulting services support end-to-end Business Transformation

Business Transformation: a journey from innovative strategy to sustainable performance.

• Phase 1

• Technology

Transformation

(Business & IT

Strategy)

• Post Merger

Integration

• People &

Organisation

Change

• Restructuring;

P2P

• Customer

experience

transformation

• Customer

segmentation

• Sales

effectiveness

• Multi-channel

optimisation -

sales &

service

• Shared services

• Finance

transformation

• Employee

transformation

• Innovation &

Prod. Lifecycle

Management

• Planning,

Logistics &

Fulfilment

• Operational

Excellence –

incl. BeLean ™

• Strategic

sourcing

• Asset Mgmt

• Accelerated IT

Rationalization

(AIR)

• Sustainable IT

Cost

Management

• Technovision

• CIO Advisory

Business Transformation Leader



01/06/2009 00:35 | 20

Capgemini Consulting runs a global management consulting unit with over 300 professionals focused on the TME sector

Global Track Record in the Convergent Industry Worldwide Presence

Capgemini TME Consulting’s raison d’être is deep industry knowledge and close collaboration with our clients.

Mobile, Fixed-line & Broadband Media & Entertainment

Telecom & Media Enablers

Our TME offices

Americas Europe Middle East

Asia Pacific

Atlanta

Cambridge

New York

El

Segundo,

California

Düsseldorf

Helsinki

London

Madrid

Milan

Munich

Oslo

Paris

Rome

Stockholm

Utrecht

Dubai

Mumbai

Shanghai

Sydney

http://www.alcatel-lucent.com/wps/portal/!ut/p/kcxml/04_Sj9SPykssy0xPLMnMz0vM0Y_QjzKLd4w3cjUDSUGYpvqRKGIG8Y4IkSB9b31fj_zcVP0A_YLc0IhyR0dFAJgg_-M!/delta/base64xml/L3dJdyEvd0ZNQUFzQUMvNElVRS82X0FfMkU2

http://www.ericsson.com/

http://www.rai.it/

http://portalblog.aol.com/

http://www.chrysalis.co.uk/index.php?object=home

http://www.boxer.se/

http://www.orange.nl/

http://www.vodafone.nl/

http://www.deutschetelekom.com/dtag/cms/content/dt/de/9624;jsessionid=A8DEB2A2CC84CDF5D9037859A833BF98

http://www.teliasonera.com/

http://www.sfr.fr/

http://www.telenor.com/

http://www.tim.it/consumer/homepage.do

http://www.o2.co.uk/

http://www.cox.com/

http://www.etisalat.com/index.jsp

http://www.du.ae/en/

http://www.avea.com.tr/index_tr.shtml

http://www.telecomegypt.com.eg/index.asp

http://www.tdf.fr/1.html



01/06/2009 00:35 | 21

With its core expertise in business transformation, Capgemini Consulting has supported its Telecom & Media clients through all of the major waves of change

TME Consulting Practice Capabilities

Te

lec

om

Re

vo

luti

on

s

Privatization

Competition facing strategy Management alignment

Organization Design

Telco-in-a-box

Proposition development Competitive pricing

Governance

Customer experience processes Downsizing & efficiency

Strategy Definition Business Creation

Vision engineering/value innovation

Growth strategy/market entry Functional strategy (commercial

product, technology, etc.) Due-diligence, PMI, Exit

“In a box ®” methodology

(Capgemini trademark) Launch Profile

Product Lifecycle Management

Customer Experience definition PMI process

Tools and Methodologies

Operations Efficiency

Business Simplification

Customer journey management Path to profit/cost optimisation

End to end process redesign

Revenue Assurance

From monopoly

to competition

Fixed Mobile convergence

Strategy Corporate strategy (acquisition)

Portfolio definition

Broadband launches (network,

products, in DSL or WiMAX) Organization redesign

Pricing definition

Customer Support convergence

Convergent segmentation Convergent business processes

From Mobile to

Broadband

3-Play strategy

Entry Market/Go To Market CPE Strategy

Distribution strategy

3-Play launch

IPTV launch TV channel negotiation

Box Company creation

QoS improvement program

Unbundling acceleration program Broadband sales push program

Pricing optimization

From PSTN to

3-Play

Content Strategy for Telco

Acquisition Strategy Multi-screen strategy

DVB-H Licence acquisition

Content acquisition (football rights,

movies) Pay TV launch

Catch Up TV Mobile TV launch

Advertising revenues optimisation

Pay TV player subscription QoS optimisation (Mobile TV,

IPTV)

From Telecom

to Media

Group synergy strategy: product,

marketing, network, IT, sourcing Group governance vs. national

operations

Group function design and launch

Governance, tracking & reporting design and plan

Group innovation process design

Synergy implementation

Group function implementation Sourcing implementation

Tracking and reporting execution

From national

companies to

global groups



01/06/2009 00:35 | 22

We have built a strong track record of innovative projects in the Middle East

• Defined the Strategy and the Post Merger Integration plan for the acquired ISP by a Mobile operator

• Identified the different Marketing Synergies between the subsidiaries for a Telecom Group

• Helped clients bid for mobile and fixed licences

• Due diligence of technology players & operators; PMI and 100 Day plan processes

M&A

• Transformation of Ministry of Communication in Kuwait

• Transformation of major telecom player in Egypt

Major Transformation

Projects

• Defined the Broadband Strategy, Go To Market and Value Proposition for a Mobile Operator for its

operations in Middle East and Africa

• Defined the Broadband and Wholesales Strategy of an incumbent in Jordan

• Defined the Fixed Mobile Convergence portfolio for a leading mobile operator and a fixed incumbent

• Developed the Broadband and WiMAX strategy of an Incumbent to face the arrival of the 2nd fixed

line operators

Broadband and Fixed-

Mobile Convergence

• Redesigned new media strategy for a leading Middle Eastern media player: linear and non linear

contents services, interactive services, addressing the 3 screens (TV, PC, mobile).

• Defined the Mobile Strategy for a leading free-to-air TV channel in the Middle East; defined Partnerships

Strategy with operators, positioning for the segmented offer and described the roll out strategy

• For a Pay-TV player in Middle East, defined the IPTV strategy and business case

Media Convergence

• Launch of 1st WiMAX operations in Middle East

• 1st MVNO deal in Middle East

• Launch of Mobile Operators in Middle East, North Africa and Turkey

• Launch of 3G/HSDPA network and services

• Go-To Market Strategy in Africa for Middle East operator, leveraging India Best Practices

Mobile & Broadband Launches

Selected Recent Assignments in the Middle East and Africa (2007-2008)

http://www.etisalat.ae/index.jsp?lang=en



01/06/2009 00:35 | 23

Our “C4 Advisory Board”, comprising of senior telecom & media leaders help validate and enrich our views on the market evolution

The C4 Board of Advisors, 2008

Chair: Lord Birt

Didier Bonnet, Vice President & Global Leader, TME, Capgemini

Dana Dunne, CEO, AOL Europe

Kaj-Erik Relander, CEO Accel Partners

Pascal Cagni, CEO & Vice President - EMEA, Apple

Stefano Mazzitelli, CEO, Telecom Italia Sparkle

Peter Erskine, Chairman, O2 / Telefonica

Olivier Fleurot, Executive Chairman, Publicis

Frank Rövekamp, Global Chief Marketing Officer, Vodafone Group

Patrick Vien, Chairman and CEO, Warner Music Int’l

Clive Ansell, President - Strategy, Marketing & Propositions, BT plc

Joanna Shields, President - International, Bebo

Jon Gisby, Director of New Media, Channel 4

Dallas Clement, SVP Strategy & Development, Cox Communications

Francis Deprez, Chief Strategy Officer, Deutsche Telekom

Peter Bazalgette, Chief Creative Officer, Endemol

Tony Cohen, CEO, Fremantle Media

Emily Bell, Director, Digital Content, Guardian News and Media

Carolyn Fairbairn, Head of Strategy & Corporate Development, ITV

Eelco Blok, Member of the Board of Management, KPN

Patrick Barwise, Emeritus Professor of Management and Marketing, London Business School

Keith Pardy, Senior Vice President - Strategic Marketing, Nokia

Professor George Yip, Dean, RSM Erasmus University

Francesco de Leo, Strategy Director, Wind

The TME “C4 Advisory Board” was founded in 2006 to provide an environment for industry players to engage in open, honest, fact-based discussion on the implications of the converging communications industries

The Board of Advisors meets twice a year and, with their blend of insight and experience, shapes debate on the rapidly changing communications, content and technology landscape

History

23



01/06/2009 00:35 | 24

Team comprised of consultants, research analysts and sector experts

Conducts in-depth research & analysis to form Points of View on sector evolution and address client questions Accesses a variety of proprietary and public

information sources Leverages internal Group knowledge as well

as networks with external experts

Links with influential academics and industry analysts Joint study with INSEAD on Value Innovation

in the mobile sector Joint study on Telecom & Media sector with

European analysts IDATE Content exchange with Forrester, Gartner,

Enders, etc.

Capgemini TME Consulting Lab has a global outlook on the sector and enjoys strong links with influential academics and industry analysts

Me

dia

Inte

rnet

Te

lec

om

Cro

ss

Digital native: how young people modify the Telecom and Media landscape

Music Labels: striking the right chord for stimulating revenues VOD challenge for DTH platform

When TV face web 2.0

Mobile Media advertising

Towards Advertising 2.0 ?

Future of TV models: broadcasting and beyond

Meeting the Local Search Challenge

New ways for digital music distribution

Internet Players vs. Telcos: Worlds In Collision?

Evaluating Fiber Deployment for European Operators

Recent Trends in the Indian MVNO Market

IPTV opportunities & threats for DSPs and DDT players WiMAX: The Last Mile Winner?

Growing Mobile Data Revenues: Opportunities in Infotainment

Mobile content

Recent research publicationsLondon

Mumbai

ParisBoston



of Capgemini Group

Consulting Services

Telecom Media & Entertainment

Dubai, UAE

Mobile: +971 50 274 6862

Direct: +44 870 238 2222

[email protected]

Jawad ShaikhVice President

Region Head Middle East & Africa