Business models, strategyegy and internationalisation around

the Telecom CrashWhat is the influence of these strategic choices on the

performance of telecom operator companies in the years 1998-2001

H.Ebbers, Nyenrode University and CEIBS Shanghai

Agenda• Introduction

• Earlier work about KPN

• Theory/ choices

• Research methods

• Results

• Conclusions

Introduction

• Work in progress

• Three students between May 2002 and February 2003

• Guidance of the Center for International Business, Nyenrode University

•Mobile telecommunication

•IP and data services

•Internet, call centre and media- services

•Fixed network

Emphasis is on the first three activities

Core Activities for KPN

Two strategically important joint ventures: KPN Orange (1998) and

BellSouth-KPN (1999)………

• Acquisition of E- plus (Germany) …seen as a growth market

• Acquisition of Orange-KPN Belgium

• Majority stakes in Central and Eastern Europe

KPN Mobile

• Arrangements with NTT- DoCoMo

– Technology sharing

– Minority holding: NTT- DoCoMo aquired a 15% stake in KPN

– UMTS biddings

International expansion

• Regional focus (CEE)

• Control over management

• Divestments driven by debt problems and the 2001 telecomcrash

KPN

Bell South

Orange (UK)

France Telecom

Pannon

UMC

Telkomsel

OTE/ BTC

Euroweb Corp

Telia

E-plus

Comsource

Slovak Telecom

Eirocom

Orange -KPN Belgium

Swisscom

SPT/ Cesky Telecom

Telsource

NTT Docomo

Hutchison #G

Tele Danmark

Join

t ve

ntur

e(50

%)

minority (17%)

majority

(51%)

minority (21%)

=Alliance at the endof 2002

=alliance which KPN is considering to end.

= sold non -core asset or ended alliance

KPN

Bell South

Orange (UK)

France Telecom

Pannon

UMC

Telkomsel

OTE/ BTC

Euroweb Corp

Telia

E-plus

Comsource

Slovak Telecom

Eirocom

Orange -KPN Belgium

Swisscom

SPT/ Cesky Telecom

Telsource

NTT Docomo

Hutchison #G

Tele Danmark

Join

t ve

ntur

e(50

%)

minority (17%)

majority

(51%)

minority (21%)

=Alliance at the endof 2002

=alliance which KPN is considering to end.

= sold non -core asset or ended alliance

KPN’s alliance network within mobile telecommunications

KPN

KPN-Qwest

Wipro/wipronet

DisneyBlast

KPN Belgium

InfonetServices Corporation

Lambda net

EurowebCorp

SchipholTelematics

CESECBEC

Jasz-Tel

AT &T-unisourceservices

Unisource

Telsource

Planet Internet

Telstra Satellite

Utel

=Alliance at the endof 2002

=alliance which KPN is considering to end.

= sold non-core asset or ended alliance

Nokia

Joint Venture

Fixed

IP/data/ICM

KPN

KPN-Qwest

Wipro/wipronet

DisneyBlast

KPN Belgium

InfonetServices Corporation

Lambda net

EurowebCorp

SchipholTelematics

CESECBEC

Jasz-Tel

AT &T-unisourceservices

Unisource

Telsource

Planet Internet

Telstra Satellite

Utel

=Alliance at the endof 2002

=alliance which KPN is considering to end.

= sold non-core asset or ended alliance

Nokia

Joint Venture

Fixed

IP/data/ICM

Introduction

• Companies: Telecom Operators– SBC - KPN - France Telecom– Deutsche Telekom - Telia - Sonera– Vodafone - BT - AT&T – Colt - Cable & Wireless - Infonet– Sprint - MCI Worldcom - QWest

Telecom Content & Valueequipment Carriers/ Service Added Customersindustry Operators Providers Services

Theory• Business Models

– Mintzberg– Cushway & Lodge– Viscio & Pasternack

• Internationalisation• Strategies

– Boston Consulting Group matrix– Porter’s generic strategies– Ansoff’s product/market matrix– Equity and non equity based cooperative agreements

Business Models

V o ice D ata IP

C ab le & W ire less G lob a l

C arib b ean M id d le E as t M acau

C ab le & W ire less R eg ion a l

C ab le & W ire less G rou p

Traditional Model = 0 Emerging Model = 1 Score‘managing assets’ ‘managing resources’ 1998 1999 2000 2001

Businesses built around assets

Businesses built to leverage and develop resources (people, capabilities, knowledge) 0 0 0 0

Portfolio of businesses related in product-market terms

Portfolio of strategic capabilities based on knowledge created 0 0 0 0

Financial investment assigned business unit by business unit

Resource allocation (talent and capital) on a corporate-wide bases 0 0 0 0

Performance measured around assets (utilisation rates, profitability of single business units)

Performance measured on a corporate-wide level driven by knowledge creation and sharing 0 0 0 0

Accountability focussed on business unit financials often impeding and discouraging business interaction

accountability includes growth and best practices sharing 0 0 0 0

Total 0 0 0 0

InternationalisationC&W geographical revenue

US16%

UK41%Europe

6%

Japan9%

Caribbean22%

Asia3%

Rest 3%

more than 90% of revenue local: level 1 less than 90% but more than 50% of revenue local: level 2 less than 50% of revenue local but less than 25% of revenue outside its own continent: level 3 more than 25% but less than 50% of revenue outside its own continent: level 4 more than 50% of revenue outside its own continent: level 5

Strategieshigh

Question Mark Star

Market Growth Rate

Dog Cash Cow

lowlow Relative Market high

Share

Existing product New product

Existing Penetration Product develop-Market Strategies (90%) ment strategies (30%)

New Market development DiversificationMarket Strategies (30%) Strategies (10%)

Broad

1. Cost Leadership 2. Differentiation

Strategic targetMarket

3A. Cost Focus 3B. Differentiation Focus

Narrow/NicheLow-cost Strategic Advantage Uniqueness/

Differentiation

BCG

Porter

Ansoff

Research methods• detailed company analyses

– performance– business models– internationalisation– strategies

Results: Telecom Crash

Return On Equity

-25%

0%

25%

50%

2001200019991998

ROE market

• Market performanceDebt/Equity ratios

50%

100%

150%

2001200019991998

debt equity market

Net profit margin

-25%

0%

25%

2001200019991998

net profit Market

Stock price evolution compared to previous Year

0%

50%

100%

150%

200%

2001200019991998

Market

Results: Business Models (1)

Cushway & Lodge vs performance 1999

0

1

2

3

4

5

6

7

8

0 1 2 3 4

Business Model: 1= product, 2=geo, 3=functional,4 =customer

pe

rfo

rma

nce

SBC

KPN Telecom

France Telecom

Deutsche Telekom

Telia

Sonera

Vodafone

BT

AT&T

Colt

C&W

Infonet

Sprint

MCI-Worldcom

Qwest

Results: Business Models (2)

Viscio and Pasternack score vs performance 2000

0

1

2

3

4

5

6

7

8

0 1 2 3 4 5

Viscio and Pasternack score

pe

rfo

rma

nce

SBC

KPN Telecom

France Telecom

Deutsche Telekom

Telia

Sonera

Vodafone

BT

AT&T

Colt

C&W

Infonet

Sprint

MCI-Worldcom

Qwest

Results: Internationalisation

Internationalisation vs performance 1998

0

1

2

3

4

5

6

7

8

0 1 2 3 4 5

Internationalisation level

pe

rfo

rma

nce

SBC 1998

KPN Telecom 1998

France Telecom 1998

Deutsche Telekom 1998

Telia 1998

Sonera 1998

Vodafone 1998

BT 1998

AT&T 1998

Colt 1998

C&W 1998

Infonet 1998

Sprint 1998

MCI-Worldcom 1998

Results: Strategies

Porter vs performance 2000

0

1

2

3

4

5

6

7

8

0 1 2 3

Porter: 1= Cost Leader, 2=Differentiation, 3= Focus

perf

orm

ance

SBC

KPN Telecom

France Telecom

Deutsche Telekom

Telia

Sonera

Vodafone

BT

AT&T

Colt

C&W

Infonet

Sprint

MCI-Worldcom

Qwest

Results: Performance

Debt/Equity ratio vs performance 1998

0

1

2

3

4

5

6

7

8

0% 100% 200% 300% 400%

Debt/Equity ratio in %

pe

rfo

rma

nce

SBC

KPN Telecom

France Telecom

Deutsche Telekom

Telia

Sonera

Vodafone

BT

AT&T

Colt

C&W

Infonet

Sprint

MCI-Worldcom

Qwest

Conclusions (1)

• Generally a limited correlation between company performance and business models, internationalisation and strategy

• Telecom Crash has little impact on business models, internationalisation and strategy

• Low debt/equity ratio has positive impact on performance both before and after the Telecom Crash

Conclusions (2)• Business Models

• Lack of significant correlation– Customer oriented (Cushway & Lodge) – High Viscio & Pasternack Score

• Internationalisation• Little correlation in 1998, no correlation in other

years

• Strategy• Porter: correlation changes before & after crash• BCG: stars are performing well• Ansoff: move towards penetration after crash