SVP Advisors - Company Presentation July 2010
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Transcript of SVP Advisors - Company Presentation July 2010
SVP ADVISORS
Company Presentation
July 2010
RETHINKING│ COMMUNICATIONS
Contents
2
1. About SVP Advisors
2. Our experience – selected case studies
3. Contact details
3
SVP Advisors is an international
management consulting firm for the
communications industries specializing in
business strategy and regulation
Established by seasoned professionals in
2006, we have earned over time a solid
reputation within the broad
communications sector thanks to our
quantitative and practical approach in
consulting assignments
Our work combines various disciplines such
as economics, econometrics, finance,
accounting, marketing, engineering, and
computer science
Company Profile
4
Areas of Expertise
• Regulatory strategy
• Market & competition analysis
• Policy setting
• Commercial strategy
• Pricing and tariffs design
• Transaction support
• Product definition
• Business planning
• Business Development
• Costing systems• Pricing models• Margin squeeze
test
Regulation Business strategy
New ventures
and Products
Modelling
5
International Experience
SVP Advisors assignments (12 Countries)
Previous Team experience (24 Countries)
6
We work with some of the world’s largest
and well-respected institutions and
operators, and we are often invited to
present at international conferences and
workshops addressing the latest st topics
in the communications sector
Our client base includes:
Regulators (AGCOM, CMT, CITC,
COFETEL, EETT, NITA, OCECPR, TRA
UAE)
Telecom Operators (Telecom Italia,
Telefónica, Turkcell)
Financial Institutions (Banco
Santander, Citibank, Inter-American
Development Bank)
Int’l Organizations (EU Commission)
Clients
Client Distribution
6%
24%
24%
47%
Telecom Operators
Financial Institutions
Regulators
Int’l Organizations
7
People
Over 10 years experience in
strategy advice and operations
in the communications sector
Lead several TMT strategy
consulting assignments for int’l
clients. Former Head of
Residential Unit at On
Telecoms, a leading Greek
3Play Operator, responsible of
Products, Sales Strategy,
Content, MarkComms &Pricing
Areas of expertise: broadband,
MVNO, IPTV, business
planning, commercial strategy,
market analysis
Dimitri KallinisPartnerBusiness Strategy Expert
Julio VillalobosPartnerTechnology & Regulatory Expert
Over 10 years experience in
strategy advice and operations
in the communications sector
Extensive track-record of
costing, regulatory and
strategy consulting projects for
fixed and mobile operators in
several EU and Middle East
Countries. Former Team Leader
of Technology Strategy at
Telefónica Spain
Areas of expertise: ADSL, fixed
& mobile networks, techno-
economic modelling,
regulatory strategy, regulatory
accounting
Over 10 years experience in
strategy advice and financing
in the communications sector
Telecoms financing expert,
participated in >10 large M&A
transactions and in >20
syndicated loan transactions
over the last few years. Has
actively participated in
innovative ventures through an
investment fund
Areas of expertise: new
technology & media ventures,
start-ups, innovation, financial
transactions
Francisco VelázquezPartnerNew Ventures & Financing Expert
Over 10 years experience in
regulation and policy in
network industries
Extensive in the field
experience in telecoms
regulation. Regular speaker at
TMT conferences and media
events. Former Senior
Economist at OFCOM (Swiss
NRA) and Chairman in the IRG
Regulatory Accounting Group
Areas of expertise: regulatory
policy, regulatory accounting
and costing, competition
analysis
Marco GattiDirectorRegulatory Expert
Contents
8
1. About SVP Advisors
2. Our experience – selected case studies
3. Contact details
Margin Squeeze test for bundled products
9
On behalf of the EETT, the Greek NRA, we carried out a competition analysis of bundled offers including access, narrowband and broadband services, on the basis of:
– An imputation test, to verify whether the incumbent’s tariffs constitute ‘predatory pricing’
– A price squeeze test, to establish whether the combination of wholesale and retail tariffs in a market produce an anticompetitive situation, such as ‘margin squeeze’, preventing efficient alternative operators from competing profitably
To support our analysis, we developed an integrated model which provided the necessary data inputs and parameters required to evaluate possible combinations of multi-play offers
The price squeeze model produces results based on a number of wholesale services, such as bitstream, colocation, shared and full LLU, and interconnection
Margins of a typical double-play offer considering economies of scale and
technology choice
Note: chart has been altered for confidentiality reasons
EETT (Greece), 2008
-5%
0%
5%
10%
15%
20%
25%
OLO Small size
OLO Medium size
OLO Large size
Incumbent size
Using Bitstream Using LLU
Accounting Separation System for a Mobile Operator
General overview of the Mobile Accounting Separation System
Mobile operator (CEE), 2009
10
For a large mobile operator we developed an Accounting Separation System aimed at fulfilling its regulatory and operational needs
The accounting separation system supports the mobile operator in:– Carrying out profitability analysis,
wholesale costing and commercial pricing strategy
– Proving full compliance with regulatory obligations
– Being proactive in its regulatory and competitive environment
– Countering complaints of anticompetitive behavior on the basis of enhanced information availability
As market matures, this tool will also support the mobile operator to focus on cost efficiencies, enhanced targeting and product innovation, while considering MTRs impact, network upgrades, wholesale strategy and regular reporting to management
FIXED ASSET REGISTER
P&L STATEMENT
BALANCE SHEET
COST ALLOCATION PROCESS
REVENUE ALLOCATION PROCESS(DIRECT TO SERVICES)
ACCOUNTING SEPARATION
REPORTS-Internal
reporting- Regulatory
reporting
SPLIT BY CHANNEL SPLIT BY SEGMENT
SPLIT BY TARIFF
STAGE 6.3 - CORPGeneral corporate
costs
STAGE 3.2 – RETRetail activities
Primary activities (customer related)Support activities
COGSTaxes & Fees
STAGE 4.2 – RETRetail functions
Sales - AcquisitionCollectionsFront-EndRev Stim-RetentionProduct ManagementBack Offi ce
COGSTaxes & Fees
STAGE 2.3 – RESTCorporate Costs by
Department
Allocation to business units by type of costs
Allocation of common and joint costs to activities and network elements
Allocation of support activities to functional
blocks
Allocation to internal services
Allocation to services with transfer charges and
routing factors
STAGE 2.1 – NWNW business unit
Capital related costs by AssetOperating network costsCosts by DepartmentOther External Costs
STAGE 5.1 – NWInternal NW servicesStatements at wholesale markets
OriginationTerminationRoamingOther
Internal retail services
STAGE 6.2 – RETRetail servicesStatements atretail markets
Voice & Video callsMessagingDataRoaming INRoaming OUTOther
STAGE 1
Stage 1.1 FARFixed Assets
Stage 1.2 P&LOrganization costs
PersonnelG&A
COGSInterconnectionRoamingHandsetsSIM cards
Other expensesSales & MarketingOther costs of sales (e.g. NW operating costs)
External expensesPowerTaxes
Non-attributable to telecoms activity
Stage 1.3 BSWorking capital
STAGE 2.2 – RETRetail business unit
Costs by DepartmentRetail costs by natureNon-op. Assets
COGSTaxes & Fees
STAGE 3.1 – NWNW elements
Primary plantSupport equipment
STAGE 4.1 – NWNW Functional Blocks
Radio LinkBackhaulCoreBackboneIXDB & Platforms
STAGE 6.1 - NWWH servicesStatements WHproduct 3rd parties
Voice & Video callsMessagingDataRoaming INRoaming OUTOther
STAGE 5.2 – RETInternal retail services
Service-specificService Group-specificAcquisition-drivenCustomer-drivenRevenue-drivenChurn-drivenGeneral & other
TC – TRANSFER CHARGESRF – ROUTING FACTORS
RF
DW TRAFFI C DATA
OPERATI NGVARI ABLES
NW ROUTI NGFACTORS
DW SUBSCRI BER
DATA
Audit of the Regulatory Accounts of a Mobile Operator
11
On behalf of AGCOM, the Italian NRA, we audited the regulatory accounts of mobile operator H3G Italia, prepared under both the FDC HCA and FDC CCA methodologies
We followed a phased approach that comprised of the following activities:– Review of the methodology followed in
the preparation of regulatory accounts– Reconciliation of financial and other
relevant data (e.g. traffic volumes)– Review of the re-valuation of assets at
current costs– Review of the allocation of costs to
activities, cost centres and services
The main outcome of our work has been the identification of necessary and/or suggested amendments to the operator’s costing systems, and the quantification of the impact of such changes on the cost of regulated services (i.e. wholesale termination)
AGCOM has used the results of his audit in the price cap mechanism applying to H3G’s wholesale mobile termination rates
Schematic overview of H3G’s Regulatory Cost Accounting System
AGCOM (Italy), 2010
Allocation Stage I
Allocation Stage I I I
Services Cost Centres
Allocation Stage I I
Activities Inputs
Cost Accounts Activities Cost Centres
AGCOM Results Table 1
Internal Management
System
FAR
Traffi c Volumes
Revenues
AGCOM Results Table 2
Input Allocation Model Stages Output
LEGEND
Audit of the Regulatory Accounts of a Fixed Incumbent Operator
12
On behalf of the CMT, the Spanish NRA, we reviewed the cost accounts of the fixed-line incumbent Telefónica
Our work comprised the following activities:– Reconciliation of costs and revenues with
the financial accounts– Review of the allocation of costs to
services– Review of the re-valuation of assets at
current costs
Additionally, we evaluated the adequacy of modifications introduced in the system due to the evolution of the company’s operations and the ameliorate proposals made by the NRA
The results of the audit were used by the NRA in setting regulated tariffs and monitoring relevant markets to ensure fair competition
We have carried out this project for the CMT during 4 subsequent years, from 2007 to 2010
Evolution of current costs by regulated activity segment
CMT (Spain), 2007-2010
Telecommunications Policy in a LATAM Country
13
On behalf of Cofetel, the Mexican Regulator, we carried out a study of the telecoms sector and identified areas where public intervention would be required
After establishing the market boundaries for the services considered, we assessed:– the benefits and costs of several
alternative technological options– the role of public communications in low
income & rural areas
The study provided recommendations based on the market situation and international best practice and covering:– The role of competition in the market– Fixed to mobile substitution– The social role of the Internet– The benefits and costs of several
alternative technological options
Our recommendations covered several policy areas, including regulation, social telephony & internet access programs, spectrum management and education
0%
20%
40%
60%
80%
100%
CDMA 450 Copper wire GSM 800 UMTS 100 WiMAX ADSL
% Po
pula
tion
cov
erag
e
Market efficiency frontier Market sustainability frontier Current coverage
Fixed telephony Mobile telephony Broadband
Market efficiency gaps with different technologies
Cofetel (Mexico), 2007
Note: chart has been altered for confidentiality reasons
Review of Universal Service Policies in the EU
14
We assisted Telecom Italia in examining potential implications of the EC’s review of Universal Service Obligations (USO) and defining the incumbent’s position in the process. Our investigation focused on:– the potential inclusion of broadband and
mobile services within the scope of USO– how the USO should be funded– the relevance of the formal separation of
access and service layers
Based on extensive research, we examined the implications of technological and market developments in the universal service framework, including the expansion of mobile telephony, the move towards Next Generation Networks, increasing competition levels, and the potentially diminishing importance of public telephony
Disparities among EU countries were also investigated to understand the limitations that such disparities impose on the search for a unified USO regulatory framework at European level
Conditions justifying public intervention for provision of telecoms services
Telecom Italia (Italy), 2008
Retail-Minus methodology based on a DCF model
EETT (Greece), 2007
15
We assisted the EETT, the Greek NRA, in the establishment of wholesale broadband access tariffs on retail-minus basis
We first examined which framework best corresponds to the market and operator conditions in the relevant country, considering previous international experiences and country-specific market data. A methodology was devised for the calculation of the retail-minus factor, as well as rules for the assessment of retail offers and the review of wholesale tariffs
We then supported our client in carrying out a public consultation to ensure an adequate reflection of the different operator views and market realities.
A Discount Cash Flow model was developed in order to replicate the revenues and costs of a generic alternative operator. The results of the model were used to establish new wholesale tariffs.
Retail-Minus calculation model
Due Diligence Process for a Mobile Operator
16
On behalf of the Inter-American Development Bank, a major US lending bank, we reviewed the business plan of a leading mobile operator in Latin America
The transaction was a refinancing syndicated facility of US$600 million co-financed by several commercial banks from LATAM, US and Europe
We provided a market and technical due diligence report, including revenue, capex and opex analyses, as well as payback analysis and sensitivity analysis
Our work included on-site visits to perform management interviews, on the ground market analysis as well as network and operational facilities’ monitoring.
Based on the main findings from our review we build a revised case with a different set of hypotheses and parameters
Illustrative example of the analysis carried out during the Due Diligence process
Inter-American Development Bank (Colombia), 2007
Argentina
Colombia
Chile
Ecuador
Peru
Venezuela
Brazil
Mexico
Argentina
ColombiaChile
Ecuador
Peru
Brazil
Mexico
Company A
Company B
0%
10%
20%
30%
40%
50%
60%
0% 20% 40% 60% 80%
EB
ITD
A m
arg
in
market share
Assessment of MVNO Business Models
17
We supported a European mobile operator in the development of its MVNO strategy
As part of our work, we developed a Tool for determining the economics of different MVNO business models to be potentially hosted in its mobile network
The modelling tasks were preceded by the definition of the business models, in terms of:– MVNO type (e.g. light)– Business proposition (e.g. discount)– Target market segment (e.g. youth)
For each business model, the Tool provided financial accounts (P&L, CF statement) and KPIs (subscribers, ARPU, MoU, etc…) over a 5-year period
The Tool was instrumental in assessing the viability of MVNO models in the current market situation, under different scenarios of market penetration and cost structure (including the wholesale cost for airtime)
Schematic Overview of the MVNO Tool
Mobile operator (EEC) 2010
Business Case for an Interactive Content Provider
18
We assisted an international betting company developing the Business Case for a “real” live interactive football betting application
We first assessed and provided inputs on the business model selected for the new application including:– service provision and access means – potential clients/partners– price and revenue sharing mechanisms
We then identified and analysed the national markets showing the greater potential for the application based on the degree of penetration of broadband services, the average spend in sports betting, and the features of multiservice platforms
Finally, we developed a Business Case based on the business model and target markets previously defined. The Business Case produced a full range of economics based on different scenarios of addressable market, service penetration, events covered, average usage and spent, as well as net revenue (fees) for the betting company
Overview of the key economics of the
Business Case – Base Scenario
Year 1 Year 2 Year 3
Addressable market (Units) 000 4,000.0 4,800.0 5,600.0
Active users 000 86.4 178.6 282.2
Penetration % 2.2% 3.7% 5.0%
Net ARPU (mth) € 4.7 4.6 4.4
Total net revenue € 000 4,915.0 7,282.6 12,048.6
Total recurring costs € 000 1,161.7 2,228.1 3,635.1
Total one-off costs € 000 798.1 1,040.0 1,388.4
Gross Margin € 000 2,955.2 4,014.5 7,025.0
Gross Margin % % 60% 55% 58%
Note: figures have been altered for confidentiality reasons
Content Provider (Western Europe), 2009
Bottom-Up model for determining the cost of postal services
19
On behalf of the OCECPR, the Cypriot NRA, we developed a Bottom Up Costing (BUC) model for determining the cost of Postal Services provided by Cyprus Post (CP)
The model covered all services and activities carried out by CP in the postal value chain: collection, sorting (inward and outward), transport and delivery
The model takes into account cost efficiencies achieved in certain processes, variations in costs due to different service parameters (e.g. items’ weight) and geographical specifics
The model provides the following outputs:– Unitary cost by service (e.g. bulk mail)– Cost by activity (e.g. delivery)– Cost by category (e.g. personnel)– Cost by resource employed
The results of the model were instrumental in the assessment of the pricing policy of CP, including the compliance with regulatory obligations and competition principles
Calculation flow of the BUC model
DEMAND
NETWORK DI MENSI ONI NG
OUTPUTSMAPPING
TO DRIVERS
MAPPING TO
ACTIVITIES
COSTINGAND
ALLOCATIONResources by activity
By resourceBy cost categoryBy activityBy service
By serviceBy geo-type
List of servicesList of geo-typesList of ext. Factors
List of service groupsList of driversList of activities
List of resourcesList of Routes
List of cost types
EXTERNAL FACTORS
By geo-type
PROCESSES
By service
1. INPUTS 3. DIMENSIONING 5. OUTPUTS2. ALLOCATION MATRIXES
4. COSTING (ALLOCATION TO
SERVICES)
UNIT COSTS
By resource
GEO-MODEL
By route
CHARTS
LRIC analysisGraphsKPIs
SCENARIO ANALYSIS
Sensitivity
OCECPR (Cyprus), 2010
Contents
20
1. About SVP Advisors
2. Our experience – selected case studies
3. Contact details
Contact details
Mr. Julio Villalobos – [email protected]
Mr. Dimitri Kallinis – [email protected]
C/ Almagro 15, 5th floor28010, MadridSpain
Telephone number: +34 91 310 2895
Fax number: +34 91 141 28 11
Contact Persons
Company Details
2009 © SVP Advisors STRICTLY CONFIDENTIAL
THANK YOU