Quantifying the Hype…FMC & Convergence
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Transcript of Quantifying the Hype…FMC & Convergence
October 10-13, 2006• San Diego Convention Center, San Diego California
Quantifying the Hype…FMC & Convergence
Presented by William Markey, President and General Partner, RCBG
Market Observations
• Fixed line substitution is displacing telco lines and accelerating fixed-mobile convergence
• Wireless voice services continue to grow at an increasing rate since number of lines are not tied to a household, but a number of potential individual subscribers.
• Wireless voice services are substituting fixed lines at the rate of 5+% per year.
• Emerging opportunities exist for Fixed-to-Mobile converged solutions with the advent of dual-mode (cellular/VoIP) phones to offer services beyond cellular alone.
150
175
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2003 2004 2005 2006 2007
Lin
es (
M)
Cellphone lines Fixed lines
Cellular and fixed voice lines
Source: European Information Technology Observatory 2005
The Convergence Universe
• True convergence implies:
– Multi-Access
– Multi-Device
– Multi-Media
– Multi-Application
• But this is an evolution, not a revolution
• 90% of wireless revenue is still generated by voice
• Wireless operators must first make the case for convergence with voice
• Therefore FMC voice is the top priority on operators’ convergence agenda
• Convergence-oriented operators are actively seeking suppliers of FMC voice solutions today Laptop PDA
PC
HandsetDesk Phone
TV
CDMA
LANWiFi
GSM
UMTS
DOCSIS
Data
IMVideo
Presence
Gaming VOICE
A Changing Landscape: Convergence
• Various types of telecom convergence will emerge over the next three years. They can be categorized in five general buckets of convergence.
• Voice & data convergence is occurring now, and fixed-mobile convergence (FMC) will gain measurable traction by 2009
Percentage of Telecom execs indicating
“very strong” or “strong” impact of convergence types
Source: IBM, Economist Intelligence Unit
Voice and data convergence (VoIP, voice as an application)
Access technology convergence (wireline, wireless, mobile)
Convergence of telco and broadcast (media and content services)
IP/IT network convergence (next-gen network architecture)
Device convergence (consumer electronics converging with traditional telco)
88%
66%
77%
51%
46%
0% 20% 40% 60% 80% 100%
Device
Telco & IT
Telco & Media
Fixed & Mobile
Voice & data
Diminishing Boundaries of Service Providers
• Fixed Telecoms, Wireless Operators, Satellite Cos, and Cable MSOs have multiple and often competing priorities
• Leverageable expertise, time-to-market, and addressable market size will determine winners in each of the six following categories
FIXED
MOBILE
VIDEODATAVOICE
MSOs
Telcos
Wireless Cos
MSOs
Telcos
MSOs
Telcos
Satellite Cos Satellite Cos
Wireless Cos Wireless Cos
Global Operator Initiatives
• Fixed-mobile voice services are top-of-mind for every major operator in NA and Europe and AP. Operators unanimously acknowledge that FMC voice will occur in their markets.
FIXED
MOBILE
VOICE DATA VIDEO
Vodafone Live!
Sprint TV
KTF mobile video
mmO2 Active
Verizon EVDO
Nextel PTT
Cingular/SBC One Bill
T-Mobile Hotspot bundle
mmO2 mobile VODDoCoMo imode
Cingular EDGE
Comcast VOIP
BT Bluephone
Swisscom Mobile UnlimitedDoCoMo Passage Duple
Cingular FMCT-Mobile FMC
FT/Orange FMC
TWC MVNO
KT One Phone Du
Sprint FMC
Bell Canada FMC
BT 21CN
Cox VOD
DT IPTV
SBC IPTV
Drivers for Fixed-Mobile Convergence
Residential Household Voice Subscriptions
Ho
us
eh
old
s (
00
0s
)
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Wireless (substitution)
Fixed Wireless
Telco Circuit Switched
VOIP over Telco
VOIP over Cable
VoIP
Fixed POTS
Wireless
• Wireless operators: accelerate substitution by converging wireless voice with fixed VoIP
• Cable MSOs: accelerate VoIP adoption by converging fixed VoIP with wireless voice
• Telcos: offer VoIP, wireless, or both in order to participate in the inevitable substitution
Source: RelevantC 2004, North American market trends
Service Provider Positioning for FMC
TelcoOperator
Cellular Operator
Branded DSLBranded HSD
Branded VOIP Branded VOIP
Cable MSO
Corporate Office
WiFi Public Hotspots
Residential Home
Need 3rd-party cellular partner
Need cellular service or 3rd-party
Need VOIP service or 3rd-party
Branded Cellular Voice
(3) Broadband service:
(2) VOIP service:
(1) Cellular service:
Customer segment:
BYOBB
Operator type:
• All operator types are pursuing FMC voice services, but most will require 3rd party network partners
• Three services are needed: (1) Cellular voice service, (2) VOIP service, (3) Broadband service
• An operator must own all three, fill their gaps through partnerships, or lease turnkey networks
Dependency on Device Availability
Dual-device Implementation is an option• This implementation would be a stop-gap measure for seeding the market until dual-mode technology is
prevalent and proven• Traditional cell phone is used when the subscriber is outdoors on the cellular network
• When indoor, a VOIP deskphone, VoWiFi phone, or PC-based softphone could be used for IP calls.
Dual-mode Handset Availability• Dual-mode WiFi/cellular handsets
began shipping in quantities in ‘05• Dual-mode may represent 15% of
shipments by ’08, on phones with WCDMA, CDMA 2000, EDGE, and EV-DO
• Some handset makers will establish PBX partnerships (e.g. Motorola with Avaya)
• Some will focus solely on consumer VOIP market
• Some will pursue single-mode WiFi-only handsets (e.g., UTStarcom)
Source: RelevantC 2005, Deutsche Bank
mill
ion
s
Total Worldwide Handset Shipments, by data technology
0
100
200
300
400
500
600
700
800
900
2002 2003 2004 2005 2006 2007 2008
Non-data
1xEvDo/DVGPRS
1xRTT
EDGE
WCDMACDMA2000
Dual-mode WiFi Handsets
Dependency on Network Management Components
Public IP Public IP NetworkNetwork
Public IP Public IP NetworkNetwork
BTSBSC
HLRVLR
SGSNOutdoor GSM Network
IP-PBX
WiFi AP
Home networkWiFi AP
Private Private IP IP
NetworkNetwork
Private Private IP IP
NetworkNetwork
Indoor Office Building
Indoor Home
PSTNPSTNPSTNPSTN
Softswitch
• Call routing from MSC to IP• Signaling conversion SIP/SS7• Authentication at HLR• Location presence management
• Handset identification• User authentication• WLAN/WAN negotiation• Domain awareness• WiFi AP management• WLAN network QoS mgt
• Device provisioning• Feature server• Service management• Billing integration
• Softswitch• VOIP media gateway
• User authentication • WLAN network QoS mgt
Back Office
Source: RelevantC 2005
• Operators require end-to-end system upgrades to offer FMC voice services
Operators Approaches to FMC
• Multiple approaches will be pursued. Tactical adoption of technologies will occur by segment.
• Optimal approach depends on operator type, target customer, and billing/pricing ambitions
Network-based FMC Premises-based FMC
Enterprise & SMB
• Operator offers cellular voice and hosted VOIP service to companies without PBX systems
• Cellular voice outside the office. Roams onto corporate W-LAN for VOIP calling.
• Operator bills for both VOIP and cellular on a single bill
• Single-number and single-phone for each employee
• Switching and call management occur at network MSC
• Operator offers cellular voice to company.• Companies have their own IP-PBX systems and
VOIP service.• Cellular outside the office. Roams onto corporate
W-LAN for VOIP calling. • Operators do not bill for enterprise VOIP service• Switching and roaming occur at PBX, not in
operator network
Consumer
• Operator offers cellular voice and hosted VOIP service to residential consumers
• Cellular voice outside the home. Roams onto home WiFi network for VOIP calling.
• Operator bills for both VOIP and cellular on a single bill
• Single-number and single-phone • Switching and call management occur at network
MSC
• Operator offers standard cellular voice • Consumer has hosted VOIP service or traditional
POTS service at home.• Operator offers simple call-forwarding between
phones and services.• Call forwarding preferences are manually set by
consumer, via in-home gadget or PC.• Operator does not bill for landline voice.• No roaming or handoff. No single-phone or
single-bill.
Impact on Operator Revenue & Costs
• Market Share: Increased subscriber growth due to differentiated service offering
• ARPU Increased MOU-per-subscriber due to “stolen” minutes from POTS at home/office
• Termination: Changes in termination revenue & costs due to lower VOIP interconnect fees
• Roaming: Changes in international roaming revenue due to international VOIP calling
• Capacity: Cellular network savings due to offloading traffic to the IP network
• VOIP investment: Installation and operation of the VOIP infrastructure
• FMC upgrades: Installation and operation of the FMC infrastructure software and upgrades
• CPE:: Increased CPE and handset subsidization costs
• CPGA:: Increased marketing and customer support costs from rolling out new service
• DSL impact: Increased sales of broadband services to support VOIP growth
• POTS impact: Loss of POTS voice revenue as a result of VOIP displacement
Implementing a converged voice service will result in significant changes to the Service Provider’s operations. FMC integration, subscriber conversion, pricing & bundling, network investments, marketing and support must all be considered. These can be quantified by modeling all systematic drivers:
FMC Impact on Revenue & Costs
Wireless Service Provider Metrics
No-Growth Scenario Annual impact
of converting existing subs to FMC
5% Growth ScenarioAnnual Impact
of converting subs and adding new subs
2 ARPU: Increased MOU-per-subscriber Positive Positive
3 Termination: Changes in termination fees (Negative) Positive
4 Roaming: Changes in internat’l roaming fees (Negative) Positive
5 Capacity: Cellular network traffic savings Positive Positive
6 VOIP: Operation of VOIP infrastructure (Negative) (Negative)
7 FMC: Investment in FMC infrastructure (Negative) (Negative)
8 CPE: Handset and CPE subsidization (Negative) (Negative)
9 CPGA: Marketing and customer support costs (Negative) (Negative)
10 DSL: Incremental sales of broadband services Positive Positive
11 POTS: Incremental impact on POTS voice (Negative) (Negative)
Total Impact Positive Positive
Each of the drivers can be isolated and quantified. The following example illustrates the impact of FMC on the Operator’s annual profitability at steady-state. The impact is positive under both no-growth and growth assumptions.
FMC Impact on Revenue & Costs
Wireless Service Provider MetricsNo-Growth Scenario
Annual impact of converting existing
subs to FMC
5% Growth ScenarioAnnual Impact
of converting subs and adding new subs
2 ARPU: Increased MOU-per-subscriber 81M 310M
3 Termination: Changes in termination fees (2M) 35M
4 Roaming: Changes in internat’l roaming fees (6M) 7M
5 Capacity: Cellular network traffic savings 5M 9M
6 VOIP: Operation of VOIP infrastructure (11M) (17M)
7 FMC: Investment in FMC infrastructure (6M) (8M)
8 CPE: Handset and CPE subsidization (16M) (22M)
9 CPGA: Marketing and customer support costs (3M) (16M)
10 DSL: Incremental sales of broadband services 42M 91M
11 POTS: Incremental impact on POTS voice (41M) (82M)
Total Impact € 43M € 307M
Excerpts of ROI model for an Integrated Operator with 5.0M subscribers at Year 1
Pricing of Cellular/VOIP Packages
Note: Illustrative Examples based on Operator conversations
Blended Pricing Anytime/Anywhere
Bundled Pricing
Ala Carte Pricing
PRICE PLAN
GSM MINUTES PRICE
1 200 55.00€ 2 300 80.00€ 3 500 100.00€ 4 700 130.00€ 5 1000 140.00€
PRICE PLAN
VOIP MINUTES PRICE
A 200 5.00€ B 300 10.00€ C 500 15.00€ D 800 20.00€ E 1000 25.00€
PRICE PLAN
GSM MINUTES
VOIP MINUTES PRICE
1 100 200 50.00€ 2 200 300 85.00€ 3 300 500 110.00€ 4 400 800 150.00€ 5 600 1000 175.00€
PRICE PLAN
ALL MINUTES PRICE
1 200 70.00€ 2 300 90.00€ 3 500 120.00€ 4 700 150.00€ 5 1000 160.00€
14% effective price decrease
27% effective price decrease
44% effective price decrease
Business Case for Mobile VOIP
Voice Services purchased by enterprise
NPV of 5-YR Expenditures
Service Providers & Revenue CaptureSample Scenario
Cellular Service $6.5M VZW gets $2.6M (40% share of account)
VOIP Service $12.7M VZ gets $12.7M (100% share of account)
Total Telecom Spend $19.2M VZW and VZ get $15.3M combined
FMC Service $16.2M VZW and VZ get $16.2M combined
Demand drivers for adopting mVOIP• The impact of mVOIP on enterprise spending was modeled using a scenario of a 5,000-employee enterprise
with pre-existing POTS service
• The migration to VOIP results in over $6.0M in savings over a 5-yr horizon
• The migration to Hosted mVOIP results in over $9.0M in savings. This savings is driven by a carrier-hosted plan that includes VOIP and cellular.
The enterprise saves $3.0M by adopting the mVOIP service, and the Service Provider increases its revenue in this account from $15.3M to $16.2M