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Moving up the Value Chain TelecomSoftware and solutions

Telecom Conference 2002 18 Nov 2002

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Changing Telecom Domain

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Situation Today

Wireless Services Providers under Intense Pressure:CompetitiveTechnologyCustomer

Stable technology environment, explosive growth:Quickly becoming a preferred voice communications medium

Increased Supply; services are commoditized

Downward prices

Wireless Voice Prices

0

0.1

0.2

0.3

0.4

99 00 01 02E 03E

Yea r

Revenue s - Voice Services

0

20

40

60

80

100

99 00 01 02E 03E

Year

Voice Minutes of Usage

0100200300400500600700

99 00 01 02E 03E

Ye a r

Source: IDC Western Europe Cellular Assessment

Increased Usage. declining prices.. flattening revenues

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Situation Tomorrow

Voice, Data & Services Revenues

0

10 0

20 030 0

40 0

5 006 00

99 00 01 02E 03E 04E 0 5 E

Ye ar

U S D

B i l l i o n s

F ix

V i

i

u : I C 2000; Ov um: Gl b l T l m & IP Mar k , Data reve nue i f r U , Europe a n APAC only, Serv i es in lu es Mco mm erce , AS P, Vi eo , AS P & UMS Serv ices

Voi c e ser vices will loose i ts p re-do m inan c e

P er ha p s will be free an d bu n d le d with o th er ser vices

App lica tions an d ser vices s hall be ke y

Con ver gen ce of ser vices

High S pee d Da ta A pp lica tions :Immine nt ro llout o f WAP, GPR S , EDGE &

UMTS

GSM will co mp e te with fixe d w ireless /b roa db an d ser vices

Mo b ile w ireless vol um es w ill o utg ro w fixe d lines by 2004/5

Ser vices s hall be th e ke y in th e da ys toco me

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Situation Tomorrow

Long distance voice revenue is declining despite tra ff ic growthUS Long Distance MOU: CAGR 9 -00: 9%, 01E-04E: 9%US Long Distance oice prices: CA GR 9 -00: %, 01E-04E: -11%US Long Distance oice Revenues: CA GR 9 -00 2%, 01E-04E: -3%

Wireless subscribers will exceed f ixed line subscribers

MS will be an $ 18B Mar ket by 2005

Video Con f erencing will be $ 2.5 B industry by 2004Video -on -demand will be $ 2.5 B business in S and Europe by 2004

Networ k based call center services will be $3 .6B by 2005

Global networ k consulting and integration will be $3 2B by 2004

Web hosting will be $ 22 B by 2005 in S alone

M Commerce will be a $ 210B business by 2005

Source: IDC Western Europe Cellular Assessment, Ovum: E-Commerce 2000 ; IP & ASP market forecasts, E &Y and Yankee

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F undamental Shift

Providing data & application services very di ff erent f rom voiceservices

Death o f time and distance

Emphasis on content and value o f ten f rom 3 rd parties complexvalue chain

New relationship management and settlement issues

New Commercial model

New products and services pricing and mar keting challenges

New Competition

Quality o f service issues

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L ikely Suite of Services

2. / 3 G

Communications :oiceideo-call

Te t & picture mailElectronic post-cards

Entertainment:ideo

Music

Web castsGamingGamblingE-booksE-magazines

Inf ormation:News, weather, sportsStocks, shares, schedules,

Alarms, directories, yellow pages

M Commerce:Shopping

AuctionsLocation based servicesMicro paymentsBookings/reservationsDelivery tracking

Off ice:File transfersLAN / Internet AccessRemote access

Money:E-cashBankingLotteryPortfolio trading

M Commerce, Financial transactions will call for

secure environments

Trading in new servicesand products will call for business diversification /

tie-ups, business tobusiness integrationissues will come up

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L ikely Revenue Streams

Voice, S MS, V MS tra ff ic

Data Services

Target Advertising

Commercial transactions

Commission based on value o f transactions

Pay per use

Time speci f ic transactions

Mobile content

Digitization o f content libraries

A dvertising in digital world will be lot more effective. Consumers will have a choice to either remain anonymous and receive content for a premium, or surrender some personal

information and receive the content with some personally targeted A ds.

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B usiness Imperatives

Time to Mar ketI ncreased data and application services would mean that theconsumer cant change his service provider too often without itsassociated risks & costs. Form an operator perspective, it isimportant to hit the road fast.

Flexibility in OperationsCustomer will be free to mix the products & services, predominanceof content, software driven, volatile tariffing, faster development of services and offerings, tie-ups with content providers, unregulated, lot of the decisions based on extraneous reasons and environment

Target AdvertisingG iven the pre-dominance of content, appealing and rapidly changing content shall be the key to success.

Consortium o f Operators A ccess Provider, content provider, A pplication Service Provider,Commerce Provider

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Impact on B illing, Customer Care and Provisioning

BillingI mportant document to communicate with the customer Diverse document that might consist charges of voicecommunications, data communications, streamed entertainment services, games, music, micro payments. Online bill presentment will be a norm. Billing could also be based on Quality Of Service.

ProvisioningFlow-through provisioning because of increased self-care. Subscriber will choose his tariff, services, contents, configure to his/her requirements and make on-line payments. Subscribers could opt for

pre-payment or post payment. Number of network elements will bediverse and varied.

Roaming and InterconnectR oaming and I nterconnect settlement systems across network and content and application providers

CRMOrder processing will need to support diverse services and contents.C R M will capture vital customer attributes for target marketing.

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Impacts on Equipment Vendors

Equipment vendors trying to reduce costs o f f eaturedevelopment in Many areas

Most setting up Labs in India

Outsourcing most o f the protocol and stac k development in theareas o f :

MTS, GP RS, SIP and WAP stac ks

Increasing bluetooth and S MS applications

Carrier grade M-Payment technologies and plat f orms

Security

Mobile Devices

IN and NextGen Networ ks

Networ k Management

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Summary

Telecommunications industry undergoing f undamental and f ar reaching changes that will impact everyday li f e o f each one o f

usPractically most o ff icial tas ks and personal transactions can beexecuted f rom the phone

Customer pre f erences and relationship management shall be

the key ingredient to attract larger advertisement revenuesGiven the importance o f content, agile partners, partner alliances, settlement mechanisms shall be key businessconsiderations

Eff icient processes that ensures f aster time to mar ket, quic k deployment and f lexible and robust OSS suite shall be the keysuccess f actor

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US perception o f Indian So f tware Industry

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0

5

10

15

20

25

30

35

40

45

50

1996 1997 2001

USA

Japan

0

1

2

3

4

5

6

7

8

1996 1997 2001

Germany

France

UK Canada

Italy

Sweden

Switzerland

Australia

India

Key Ta keaways:

Newer markets like Canada, Australia and even India are growing faster than the G7

Global IT Services Consumer Mar ketsGlobal IT Services Consumer Mar kets Mar ket Size in %, f or Major countriesMar ket Size in %, f or Major countries

G lobal IT Services Market

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0%

5%

10%

15%

20%

25%

1990 1991 1992 1993 1994 199 5 199 6 199 7 199 8 1999 2000 2001 2002

Key ta keaways:

a. The average rate of growth in worldwidespending in SoftwareServices was 10% fromthe early 1990 s to 199 7.

b. There was a rise to 20% inthe period 199 7-2001 ,fuelled initially by Y2K,and later by the dot-comboom

c. American firms overspentby USD 190 Billion in theperiod 199 8-2000 , andhave built up massiveinventories of hardware

and software systemsd. Even before September

11 , the market wasshowing down back to itspre- 199 7 rate

Growth in So f tware Services Spending WorldwideGrowth in So f tware Services Spending Worldwide -- SchematicSchematic

The Lead-up to the Events of 2001

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Software professionals by country

Country Number of Professionals(In thousands)

Irel d 50reece 70

itzerl d 100 Nor y 120I di 125

d 150

It ly 200r ce 400500

erm y 55010002000

Software sources

ources of IT

Perso el

o str i ts

2 Millioy Colleges ot ble to meet ew dem dy Number of gr du tes decre sed betwee

1985-94Russi 1.6 Millio

y Unacquainted with new tech nologies or busi ness

India 250,000y Nearly t apped out

apan 1 Millio ny Tied u p with pro priet ary cor por ate

progr amsUk r aine y L ack ing in Busi ness app lications

y Not stro ng in EnglishBulg aria y Not stro ng in EnglishIsr ael y S hort of m anagers and progr ammers

Key Ta keaways:

Multiple new sources more being added to the list ietnam, Phillipines

G lobal Competition

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Indian Software Industry: Facts

Indian So f tware Industry at USD 6 Billion (as o f 200 1)Targeting 50 Billion by year 200 8Exploiting recent trends such as ITES changing pro f ile

High visibility Internationally destination o f choiceActively engaged in ITES, App Development andMaintenance, E AI, Legacy System maintenance

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Total Y evenue ` 87B U SD

a

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e f : Ng h h e b i a b c d e f : Me Kin h f y

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Indian Software Industry: Facts

Outsourcing Drivers:Reduced Operating Costs low cost per transaction

Access to world class capabilitiesFocus on its core competenciesQuic k turnaround 24 x operationsCentralization o f multiple processes and systems

Why India?

Over 1 million student graduates each year Over 200 ,000 engineering graduates each year Over million enrolled in higher educationSecond largest pool o f engineers60-75 % lower wages compared to US depending ons k ills

Time zone advantageEnglish spea k ingSpecial incentives f or in f rastructureSupport o f State and Central GovernmentsDuty f ree import o f Capital GoodsStrong Brand Equity: TCS, In f osys, Wipro, Satyam,H

CLT

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U S Perception

Highly s killed engineering s k illsPassionateSuccess f ully changed So f tware Engineering f rom anart to scienceSo f tware engineering is commoditizedDomain penetration / s k illsSlowly moving f rom Development and Maintenanceprojects to Systems Integration projectsLarge project management s k illsPerception changing f rom a developer to anArchitect (although not f ully)

Brand shi f ting is clearly happening . is surely slow

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Industry shi f tsBig deals out there -- at least 8 deals over $1b in wor ksDeals evenly spread among larger playersInterest in BPO growing, providers still lac k solutionsNew outsourcing ESPs gaining traction in Europe and USLess rigidity re pricing structures in contractsBusiness better than SI or Consulting

Best o f breed vs . f ull serviceCommoditization and consolidation in some IT f unctional LOBs

User practicesDistressed customers as k ing ESPs f or concessions

R is k mitigation bigger concern and f ocusFocus on ROI key today

Source: Gartner

O utsourcing Trends - U S

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Industry shi f tsInterest accelerating, o ff shore becomes a must have

Causing shi f t f or Tier 1 ESPs: o ff shore component becomes keyNew entrants: countries, playersPart o f a larger trend towards global delivery and sourcingCross -border collaboration becoming more commonModel is evolving /maturing f rom body shopping to end -to -end servicesExpanding to ITO, BPO, E RP and other higher value chain servicesIndia continues to dominate B UT country diversi f ication bigger issue

User practicesFortune 500 f irms are leading the pac kLonger decision -ma k ing cyclesMore concern about ris k , ris k mitigation, business continuityFocus on ROIOveremphasis on competitive pricing, leads to commoditizationShi f t to larger and more -stable vendors (consolidation imminent?)Start small, keep adding servicesSecond vendor syndrome

O ffshore Trends - U S

Source: Gartner

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mportance of Selection Criteria (All)

0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00

Near-Shore Capabilities

Multi-Vendor Capabilities

Significant presence in the U.S.

Full Outsourcing Capability

Certifications

Business Process Expertise

Project Management Capabilities

Speed to Delivery

Quality of Resources

Cost

Maturity of Offshore Services Process and Methodology

Source: Gartner Dataquest August 2002

Parameters for Selection

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Key Selection Criteria

The U sual ConcernsCultural fitProven capabilityTechnical expertiseB ench strengthReferencesCommercial application expertiseMethodologiesAffordabilityVendor financial stabilityB est in breed solutionsIntegration

Some New CriteriaDomain ExpertiseRepeatable solutionsB usiness processCorporate relationshipsIn-house competencein the soft skills O ffshore processesG eographicdispersion/global reachCustomer intimacyAlliances

AggregatorPosition in value chainB rand/decision makingauthority

Source: Gartner 2002

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Top Ch ll g s ( ll)

0 1 2 3 4 5 6

Ge tt - fr C r r t e emen t

Unde r t nding nd ntif ing ene f it

Unde r t nding t e diff e r en tiat r among e r ice r ovide r

Nego tiating con tr ac t t e r ms

Managing change r eques ts and scope of w ork

Integ r a ting w ith inte r nal applica tions and pr ocesses

Managing the pr ojec t t imelines and/o r udge t

Managing Communica tion

Source: Gartner Dataquest August 2002

Challenges

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Challenges

Challenges:

Geopolitical scenario - PerceptionProximity to perceived unstable nations - PerceptionSlight inadequacies in in f rastructure RapidlyimprovingTechnically good, poor on management - PerceptionLow Cost solutions Perception

Neighboring countries becoming a hub withsurplus s k ills

What do we do?

Move up the value chain consolidate the bread

and butter businessBuild s k ill sets, knowledge baseEnhance the brandManage the expectations

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Technology Technology

Delivery Delivery ModelsModels

Type of Type of CustomersCustomers

CompetitionCompetition

Key Ta keaway : The Indian IT Industry has learnt to adapt and survive in the past

From Card-punches and Paper tapes to mainframes, to PCs, Servers and LANs, toNetwork Computers, to Mobile Devices

From Bureau jobs, to Time and Material Programming at Client sites, to smallprojects offshore, to ODCs, Systems Integration, High-end Domain and TechnologyConsulting, end-to-end Solutions, Application Service Provider Solutions

The early adopters were adventurous and cost-conscious - the next wave had theinternal competencies to manage outsourcing of IT functions.

Small IT companies in overseas markets, to primarily Indian companies, to other overseas country companies especially Ireland, Israel, Phillipines, China, Russia,to the big consulting companies, to the IT departments of our customers

Learning to Adapt & Survive

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Programming Services

Turnkey Development

System Integration Technology & Business processes

Package Implementation

IT strategy as a business driver and enabler

Market entry and

consolidation strategies

Value Chain

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Initiatives by Indian So f tware Houses

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Amongst the so f tware f ocused countries very highmind share globally

Continue to build the base and brand in US andEurope

Exploit the branding in US and Europe to exploitAPAC in System Integration Projects

In APAC region, need to be more competitive

Focused o ff erings based on impending customer challenges; increased o ff-shore o ff erings

Moving up the value chain, moving f rom West to East

Current Status

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Market drivers - G lobal Telecom Industry

Fixed line

Process automationO utsourcing back-office functionsIncreasing customer focusExploring cross-sell opportunitiesO ptimizing their backbone networkIncreased focus on Revenue Assurance

& F raud control functions

Retain the existing customer base & enhance wholesale services

Consolidating 2 G subscriber baseF ocus on increasing ARP U & reducing

churn through 3 G launchproviding same set of services to pre-

paid & post-paidIncreased focus on end-to-end process

integration

Increasing ARPU & reduce churn

Increasing focus towards bundling thisservice with Cable & F ixed line

Enhancing value added product offeringsB

undling opportunities with mobileservice is gaining momentumIncreased focus on convergence

Reducing operations expenses perand increasing up-sell opportunitiesusing customer base

Mobile service providers

Internet/Broadband Cable

F ocussing towards last mile servicesEnrichening product offeringsB undling opportunities with ISP service

is gaining momentumIncreased focus on convergence

Reducing cost for subscriberacquisition and increasing up-sellopportunities

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Telecom Industry - Indian scenario

O pportunitiesVery low tele-density

Huge potential for growthLarge potential exists for data

servicesComputer literacy & drive towards

IT awareness is a plus pointCalling cards, pay phones is yet to

be tapped

B SN L , MTN L ,VSN LIncreasing customer focus

F ocussing on faster service

provisioning through W LL

O perations automation

IT consolidation

F ocus on reducing churnMergers & expansionO perations & IT consolidationO utsourcing subscriber acquisition

& A/R is pre-dominant

Large telcos (state-owned)

Licensed private operators Challenges

Highly cost competitive

Majority of population is in ruralareas

B uilding backbone

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SW initiatives towards changing telecom industry

Sy stem Integration

Reducing process study restricting itto customization using packagedprocesses

B uilding strong EAI expertise toprovide end-to-end integration & process automation

Widening strengths in implementingworld-class O SS applications

B uilding teams with experts fromrelevant practices

F ocussing on Revenue Assurance / B ill

Audit functions

Architecture definition using new

technologies (like .NET)

F ocussing on managed operations

such as Call center, Network

operations

Various engagement models to

provide Application support for 2 G

O SS systems and Legacy applications

Consulting services

O utsourcing Innovation

Create IPRs in building adaptors

between applications

Creating IPRs in 3 G & Mobile internet

area

Engaging panel of experts drawn from

telecom industry

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Systems Integration services

Market/Customer expectation

B usiness process understanding

3 G awareness

Packages implementation & real-time

data flow

Domain knowledge

Packaged processes for all verticals in

Telco industry

B uild wireless applications and

protocols

Tie-up with alliance partners with

clear focus

B uild Domain expertise

Initiatives

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Depth in relevant skill areas

Industry participation

Value addition

Quick technology update

B alanced cross functional team

Participate in Industry forums

B uild O SS components, Custom

Adapters

Set up C O E

Systems Integration services

Market/Customer expectation Initiatives

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O utsourcing services

Localization issues (social,cultural, business requirements)

Increase productivity /

turnaround time

Reduce operational costs

Addressing employee issues

Recruit local professionals

Provide round-the-clock

service to reduce turn-aroundtime

O nsite- O ffshore

in-source ??

provide f lexibility without any compromise on quality & service levels

Market/Customer expectation Initiatives

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Innovation

B uilding assets / IPRs

B est practices

Packaged questionnaires,

approach notes, standards &

guidelines and best practices.

Packaged Tools and techniques

B uild IPRs

Market/Customer expectation Initiatives

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delivering Sy stems Integration services that is fully geared to face

emerging trends with competent consultant base, right set of alliances

providing Consulting services with mix of consultants drawn from

various practices

O utsourcing engagements for Application support & maintenance of

any O SS applications and also business operations

build Assets / IPRs

Summary

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Re f erence BaseRe f erence Base

1. Build and Sustain Long-term relationships

2. Greenfield Projects in Cutting-edgetechnologies and Domains

Rebuild Value PropositionRebuild Value Proposition

1. Partners for Higher Productivity,Higher Quality and Future Growth

2. Sustainable lower costs

Strong Processes and MethodologiesStrong Processes and Methodologies

1. Organizational Processes, not justdelivery processes

2. Hand-holding the outsourcing andoffshoring processes

Eff ective BrandingEff ective Branding

1. Primary Brand India and Indian IT

2. G lobal face localization of content,channels and delivery

Mar keting andSales Strategy

Summary

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Than ks f or your timeand attention

Contact:

N SivasambanEmail: siva_s@delhi .tcs .co .in