Valuation development in the digital ecosystem & new ...lm6ord_QbWSv6n-YrpmkoVav3J6Ybp… · June...

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Valuation development in the digital

ecosystem & new business models

DNB TMT event

June 2015

Contact: Lars Riegel

[email protected]

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3. Q&A

2. Key industry

trends 2015

1. How has the valuation

of in the TMT developed?

Contents

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1 Value shift in the World’s Digital Eco-System

2 Trends Shaping the Industry

3 Q&A

Contents

4

x2

The digital ecosystem grows more than 2 times faster than the overall economy

(1) Economic growth of regions captured in the

digital ecosystem (same scope)

(2) Digital ecosytem: top 30 players by 2014

revenues in each category

Economic growth(1) vs. revenues of the digital ecosystem(2)

Worldwide, 2008-2014

Annual growth; index base 100 in 2008

139

116

90

100

110

120

130

140

2008 2009 2010 2011 2012 2013 2014

Economic growth

Growth of the

digital ecosystem

CAGR

2008-2014

+5,6%

+2,5%

Source: Thomson Reuters, IMF, Arthur D. Little analysis


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Market capitalization reflects the value capture by players in the digital ecosystem

345

153

6663

9692

146

0

50

100

150

200

250

300

350

2014 2013(2) 2012 2011 2010 2009 2008 2007

134

139

278

Software

Total

Network operators

Devices

Equipment

Content

Internet

139

+245%

+56%

-34%

-4%

+48%

Basis 100 in 2007

+53%

(1) Top 30 per category by 2014 revenues

(2) As of June 2014

+56%

38% 27%

9% 4%

19% 22%

18% 20%

7% 8%

8% 19%

Share of ecosystem

capitalization

2007 2014

Market capitalization by sub-sector(1)

Source: Thomson Reuters, Arthur D. Little analysis


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Globally, telecom operators generate the vast majority of investment, while they benefit only

from a fraction of the added-value and decreasing


+2 pt

-2 pt

Internet

5% 2%

Content

3% 4%

Equipment

2% 2%

Devices

19% +3 pt

Network

operators

66% 68%

6%

17%

5%

-1 pts -1 pt +0 pt

Software Internet

11%

+2 pts

Content

13% 11%

Equipment

6%

- 6 pts

4%

10%

Devices

30%

+5 pts

Network

operators

14%

28%

Software

22%

28%

22%

+8 pts -14 pts +6 pts

2014 2008 2014 2008

Free cash flows by sub-sector(1)

% of total ecosystem FCF

Investment by sub-sector(1)

% of total ecosystem investment

(1) Top 30 per category by 2014 revenues Source: Thomson Reuters, Arthur D. Little analysis


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Internet players are benefiting from high market capitalization growth rates, about twice vs.

sales growth

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

-20% -10% 0% 10% 20% 30% 40% 50% 60%

Network operator

Contribution to

market cap. growth Internet

Telecom equipment

IT services & Software

Content

Contribution to

sales growth

Devices

Contribution to market capitalization growth vs. contribution to sales growth, 2014

Decreasing market

capitalization in spite of

global growth of

telecom sector

Market capitalization

growth higher than

sales growth



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European telecom operators have increased their investment effort (Capex to sales) to sustain

the absolute level of investment


Ratio CAPEX / Sales, US vs. Europe CAPEX evolution, US vs. Europe

CAPEX / Sales, in % Basis of 100 in 2007

100

141

0

50

100

150

2008 2009 2010 2011 2012 2013 2014

America

Europe

+41%

+0%


17%

14% 16%

17%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

22%

24%

2008 2009 2010 2011 2012 2013 2014

North

America

Europe


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Despite these efforts, capex growth by European telecom operators is much lower than in

other parts of the world

TIME Value Growth Tracker 2014 Sales growth vs CAPEX growth, 2008-2014, per region

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

-40% -20% 0% 20% 40% 60% 80% 100% 120%

Capex growth

in % 2008-2014

Sales growth

in % 2008-2014

Europe

Asia

Africa & South America

North America

Stronger investment effort of

European telecom operators



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Key takeaways

1. The digital ecosystem grows more than 2 times faster than the overall economy

2. Globally, the digital sector is enjoying strong growth across all segments (+39% from 2008 to 2014)

3. Growth is strong in all parts of the world except in Europe

− Europe digital ecosystem lagging: -16% since 2008

4. Globally telecom operators generate the vast majority of investment while it is the software players who

capture more and more value

− Telcos share of digital ecosystem investment: 66% in 2014

− Telcos share of digital ecosystem profit, lower and declining to 14% in 2014

5. Shifts in value capture are reflected in market capitalization

− Value of internet and device companies growing strongly

− Telcos and equipment vendors negative: resp. -4% and -34% in market capitalization since 2008

6. World regions display very different profiles

− Revenue size and market value of telecoms similar in NA, Asia and Europe …

− … but NA and Asia much more diversified in the digital ecosystem…

− … and Europe very dependent upon telcos

7. Telcos are in very different situations according to regions of the world

− Contrary to other regions of the world, the European telecom operators’ revenues have declined which is also

reflected in the sharpest drop in value (-30% since 2008)

− European telcos have sustained their level of investment, despite decreasing sales. In the meantime, Capex of other

parts of the world has increased strongly.


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Contents



3 Q&A

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We combined more than 15 different predictions sources and we made a selection of the most

popular and discussed TIME Mega trends

Comments Trends

Internet of

Things and M2M 1 Demand for IoT and M2M will proliferate over the next years, but companies need to increase customers’

awareness. Partnerships-based go to market strategies could help in absence of awareness

Increasingly smart environments are believed to bring new business models and partnerships

Big Data 2 Businesses are gaining unprecedented opportunities to understand consumer needs, preferences and

behaviors through big data analytics

Capability to gather and use big data (even real time) is expected to increase, also leading to a broad offer of

context based services

Cyber Security 3 Data breaches are growing in size and frequency, and Cyber Security is becoming paramount for

companies to avoid theft of data or any other form of cybercrime

Protection of personal information (e.g. encrypted communication, e-payments without unavoidable transfer

of personal information) is also becoming a major concern

Networks

Innovation 4 Technological development in telecommunication networks are expected to focus on increasing capacity (5G,

LTE-A, first large scale G.fast deployments), quality and efficiency (active network sharing)

Software defined networking and Network Function Virtualization are maturing, leading to increased

flexibility and simplification

Net Neutrality/

OTT vs telcos 5 Net Neutrality and relations between OTT/Content providers and telecom operators is a hot topic and

will continue to be critical over the next years

US authorities’ decisions on Net Neutrality could influence regulatory approach in Europe and emerging markets

Market

Consolidation 6 In a context of decreasing margins, rising capex and convergence (Fixed & mobile), consolidation is

likely to continue in European Telecom Sector (but also in the global Internet Ecosystem)

Regulators are expected to be more and more sympathetic to telecom operators regarding M&As (following the

EC approvals of Irish and German mergers in 2014)


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Big data analytics, innovative IT strategies, enhanced software capabilities and developments

in telecom networks are the main focus areas of technological selected trends

Technology Trends

Source: Public Information; Arthur D. Little analysis

17%

11%

22%

33%

Innovative

software

capabilities

Big Data Analytics

Others

Telecom

networks

17%

Innovative

IT stratiegies

Enterprises are expected to increase their capability to gather and use big data

(even real time), also leading to a broad offer of context based services

4 Main trends concerning enterprise IT strategies are usually highlighted:

− Shift of IT role from independent IT provider to an embedded business

enabler (IT as a Service Broker)

− Spread of hybrid cloud through organizations

− Growth of centrally coordinated applications that can be delivered to any

device (Cloud/Client Computing)

− Web-scale IT approach

Advances in software capabilities are going to facilitate the diffusion of Software

Defined Everything (Networking, Computing, Data Centers, Storage, Security)

Technological development in telecommunication networks are expected to focus

on increasing capacity (debates around 5G, LTE-A, first large scale G.fast

deployments) and efficiency (active network sharing)

“The first large scale deployments of

G.fast will appear in the second half

of 2015” Analysys Mason “Enterprises should design private cloud services with a hybrid future in

mind and make sure future integration/interoperability is possible” Gartner

“2015 will be the year that Software Defined

Networking truly takes flight” Masergy

“Active network sharing will become more

common in particular situations and for

specific use cases” Analysys Mason

Quotations

Highlights Key topics


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Hot topics concerning market trends are mainly about smart environments, increasingly

innovative business models and services

Market Trends

“Smart wearable devices will

enter the mainstream following

the launch of Apple Watch”

Analysys Mason

“2015 – The year of NFC, at last” Telecoms.com

Quotations “Sensors, actuators, and other means

of connecting things in the physical

world to networks are proliferating at

astounding rates” McKinsey “Many more operators will deploy

VoLTE services in 2015 and

beyond” Analysys Mason


6%

33%

33%

Others

Business

Models/

partnerships

Mobile

and Internet

Services

28%

Devices

Highlights Key topics

Demand for smart devices (e.g. smartphone, autonomous vehicles,

wearables, smart objects) is expected to proliferate; M2M connections and 3D

printers growth is also considered a major trend. However, companies need to

increase customers’ awareness

The active base of non-military drones is forecasted to rise over the next years

Increasingly smart environments (smart homes, smart cities) are believed to

bring new business models (e.g. diversification beyond core) and partnerships

(e.g. automotive/telco)

Innovative services are likely to be mainstream over the next years, thanks to

advances in bandwidth available (e.g. immersive communication, virtual

personal assistant) and technology (e.g. cryptocurrencies, NFC)

VoLTE and Wi-fi calling/offloading are becoming critical trends in the mobile

market


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Consumer

and Employee Trends

New digital consumer and employee habits are believed to change, impacting 3 main areas


New Social Media

Workplace 3.0

The future workplace is expected to differ from

today’s, resulting from 3 main habits that are

expected to spread:

Work everywhere – more and more working

time is going to be spent outside the office

Video conferencing – is going to become the

first choice before travelling

BYOD – employees are using more and more

personally owned mobile devices to access

privileged company information; BYOD policies

are shifting within companies, becoming less

intrusive over internal and external devices,

instead turning to web-based tools

Digital Consumption

Digital consumption is expected to change over the

next years, and related main consumer trends

concern:

Webrooming – researching items online before

going purchasing them in a physical store is

becoming more popular than showrooming

Digital Purse – our smartphones not only will be

able of making purchases, but also of collecting

loyalty cards, discount coupons, receits, etc..

Streamed and on-demand Video – more people

will watch streamed video on a weekly basis than

broadcast TV

Click and collect – online orders are being

picked up from a physical location rather than

delivered to the purchaser s’ home

Social Media 1.0 is dead, and is now part of a ever changing digital ecosystem; main areas becoming part

of the new Social Media environment include:

Messaging apps

User- generated content


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Global Trends – there is a common sentiment: B2B ICT and Managed Services are an

interesting adjacent segment for Telcos globally

Global B2B ICT spending and growth

(2011 – 2016)

in billion USD

Source: Arthur D. Little, Analysis Mason (Global), Gartner (WE)

427 432 440 445 451 458

173 171 174 179 186 195

245 256 272 290 308 327

649 664695

771813

731

2014F

1,644

2013F

1,582

2012E

1,494

2016F

1,794

2015F

1,715

1,523

2011

Telco Hardware Software IT-services

B2B

ICT

&

MS


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Classical telecom services will be still 51% by 2020, ICT & Managed Services must be thought

a defensive approach to core business

Source: Market reports (2013), Experts input, Arthur D. Little analysis

¹including industrial solutions

26%20%

34%

31%

8%

9%

14%

15%

8%14%

10% 11%

100%

Applications

Data Center & Cloud

Equipment

Security

Enterprise Network

Voice & Data

2020f 2014

ICT & Managed Services product groups

¹

Current telecom business to be

defended

ICT is needed to complement current

business value proposition


18

Managed products are charged at a premium of more than 4x, providing alternative growth

opportunities for Telecoms, especially in the B2B segment

Pricing of Managed versus Unmanaged products & services

Connectivity Computing

1.5x – 5x 1.2x – 2x

Applications

1.5x – 4x

Core ICT


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3 Q&A

20

As the world’s first consultancy, Arthur D. Little

has been at the forefront of innovation for more

than 125 years. We are acknowledged as a

thought leader in linking strategy, technology

and innovation. Our consultants consistently

develop enduring next generation solutions to

master our clients' business complexity and to

deliver sustainable results suited to the

economic reality of each of our clients.

Arthur D. Little has offices in the most important

business cities around the world. We are proud

to serve many of the Fortune 500 companies

globally, in addition to other leading firms and

public sector organizations.

For further information please visit

www.adlittle.com

Copyright © Arthur D. Little 2012. All rights

reserved.

Contact:

Additional information – Contact details

Lars Riegel

Principal

TIME practice Central Europe

+43 (0) 664 969 1743

[email protected]

Austria

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