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With the restructuring of Chinas telecommunications
industry, some analysts are betting that China Mobile will
dominate. We take a different position: Dominance by any
single player is not a forgone conclusion. With the right
business designs, focus on the right customers, meticulous
execution of strategy, and careful attention to the rewards
and challenges that will come with being an integrated (and
possibly converged) operator, other players will also have the
opportunity to succeed.
In our view, the ability to achieve profitable and sustainable
growthnot simply capture the biggest revenues or customer
basewill define the ultimate winners.
by
Jonathan Gove
Arnold Lau
Chinas New TelecommunicationsLandscape: Who Will Win?
Communications, Media, and Technology
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The Governments Big Decision
In May, Chinas Ministry of Industry and
Information, National Development and Reform
Commission, and Ministry of Finance jointly
announced the long-awaited restructuring of the
countrys telecommunications industry. Six tele-
communications operators will be merged into
three. Without giving a timetable, the govern-
ment plans to issue 3G licenses after the mergers
are completed, to allow all three operators to run
fixed-line and mobile services.
Each of the three new telecom giants will have hun-
dreds of millions of customers (see Exhibits 1 and 2):
Exhibit 1 Players in Chinas telecom industry, before restructuring
After restructuring
NorthChina
SouthChina
Mobile (GSM) PHS Fixed lines
China Mobile
Subscribers: GSM 367 million(~70% mobile market share - excluding PHS)
Revenues: RMB 360 billion
ChinaUnicom
Subscribers:GSM 119 millionCDMA 41 million(~30% mobilemarket share -excluding PHS)
Revenues:RMB 99 billion
China NetcomSubscribers: Fixed line 114 million,
including ~28 million PHS(~30% market share) Broadband 20 million
(~30% market share)Revenues: RMB 82 billion
China Telecom
Subscribers: Fixed line 222 million,including ~60 million PHS
(~60% market share)Broadband 36 million(~55% market share)
Revenues: RMB 177 billion
ChinaRailcom(Tietong)
$1 = RMB 7.23
Subscribers:Fixed line 18 million(~5% market share)Broadband 0.3 million(~1% market share)
Revenues:RMB 15.5 billion
Mobile(CDMA)
NorthChina
SouthChina
Mobile (GSM) PHS Fixed lines $1 = RMB 7.23Mobile(CDMA)
Source: Oliver Wyman analysis.Note: China Satcom's revenue of basic telecom services is not included in the post-restructuring revenue of China Telecom.
China Mobile +China Railcom (Tietong)
Subscribers:GSM 367 million (~70% mobile market share)
Fixed line 18 million (~5% market share)Broadband 0.3 million (~1% market share)
Revenues: ~RMB 380 billionChina Telecom + Unicom CDMA +
China Satcombasic telecom services
Subscribers:CDMA 41 million (8% market share)
Fixed line 222 million, incl ~60 million PHS
(~60% market share)Broadband 36 million(~55% market share)
Revenues: ~RMB ~204 billion
China Netcom + Unicom GSMSubscribers: GSM 119 million (22% share)Fixed line 114 million, incl 28 million PHS
(~30% market share)Broadband 20 million (~30% market share)
Revenues: ~RMB ~152 billion
It is unclear at press
time how China
Netcom and China
Telecom will be
allowed to compete
in each others origi-
nal geographies
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China Mobile Communications Corp.China
Mobilethe countrys largest mobile operator,
will merge with the small fixed-line operator,China Tietong Telecommunications Corp.
China Telecommunications Corp.China
Telecomthe nations largest fixed-line opera-
tor, will acquire a CDMA-based mobile network
from China United Telecommunications Corp.
(China Unicom), the smaller of the countrys
two mobile operators, and take up the basic
telecommunications services of China Satellite
Communications Corp.
The remainder of China Unicom (a network
based on the GSM standard) will merge with
China Network Communications GroupChina
Netcomthe countrys second-ranked fixed-line
operator.
The governments decision aims to optimize the
allocation of fixed and mobile resources among
operators and create a level playing field. By
awarding mobile licenses to the fixed incumbents,the government may help strengthen these com-
panies, thus increasing the value of their state-
owned assets. The restructuring could allow the
three reconfigured competitors to take advantage
of the lessons learned by telecom firms in othermajor markets around the world that already
restructured, thereby improving their management
expertise and transforming their business designs
and operating models.
In addition, the government hopes to encourage
autonomous innovation, which means promoting
Chinas homegrown 3G technology, TD-SCDMA,
and using it as a springboard to enhance Chinas
competitiveness and influence in the global tele-communications arena.
Regardless of the reasons behind the restructuring,
many experts believe that the post-restructuring
scenario will favor China Mobile disproportionately.
Mobile telephony still has significant growth poten-
tial in China, because mobile penetration stood at
just over 40% at the end of 2007half the level of
many developed markets. Oliver Wymans recent
State of the Industry report finds that mobile com-
munications in emerging markets is the largestvalue-creation sector in the worldwide communica-
tions, media, and technology (CMT) industry.
Exhibit 2 Comparison of operators
Source: Oliver Wyman analysis.
344
5849
170
142
74
235
65
3449 2719
6277 86
119
41 40
0
50
100
150
200
250
300
350
400
ChinaMobile +
ChinaRailcom
ChinaTelecom +
UnicomCDMA
ChinaNetcom +
UnicomGSM
Vodafone Telefonica DeutscheTelecom
AT&T NTTDoCoMo
BT0
50
100
150
200
250
300
350
400
450
Market cap ($ billions), as of 15 May 2008
FY 2007 revenue ($ billions)
Number of subscribers, 2007 (millions)
Market cap/revenue Subscribers
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Moreover, other evidence supports China Mobile
being in the best position to continue dominating
this space after the restructuring. For example, the
company will possess the largest mobile market,
the most extensive business and operations exper-
tise, and the strongest brand and customer base.
Mobile composes more than 60% of the total tele-
com market in China, a share that is still growing.
Many observers also maintain that China Mobile is
years ahead of its competitors in its readiness to
launch mobile Internet services, which is a major
growth opportunity. Owing to its integration with
the much smaller Tietong, the company also may
face fewer post-merger distractions. In addition, it
boasts abundant financial resources with which
to invest in new growth areas. Although fresh sub-
scribers often provide less value as penetrationrates increase, China Mobile can serve them with
lower incremental costs, thanks to its massive scale
and infrastructure.
Of course, government actions will influence each
companys fate in this highly regulated sector.
To achieve a level playing field, for instance, the
government plans to implement asymmetric regu-
latory tools, which could include imposing a mar-
ket-share cap to prevent any player from becoming
a de facto monopoly; implementing asymmetric
mobile number portability; mandating preferential
tariff treatment; or opening a 2G network.
Despite these facts, we maintain that a telecom
landscape dominated by China Mobile is not a
forgone conclusion. The remainder of this white
paper addresses the key strategic questions:
How will Chinas telecom industry evolve over
the next three to five years?
What are the biggest opportunities for profitable
growth for the three new operators?
What business design would best help them
capture those opportunities?
How might they execute that business design
successfully?
What risks can they expect to encounter, andhow can they mitigate those risks?
Mobile Is the Wellspring of Growth
The Chinese telecom market is poised to enter
a tremendous growth cycle in the next several
years. Consensus market forecasts predict that
by 2011, as many as 500 million new mobile sub-
scribers will bring mobile penetration to over 70%
of Chinas population. In addition, as many as 80
million new broadband customers could increase
broadband penetration to 30% of Chinese house-
holds. Meanwhile, the consensus predicts that the
fixed-line subscriber base will shrink by around
10% of households in the next four years. This rate
of shrinkage is substantially slower than that in
other highly penetrated markets, in part because
of modest growth of fixed-line access in some
rural areas.
Nevertheless, we expect that value in this industry
will continue to migrate to mobile services in the
next three to five years, with mobile likely contrib-
uting over 75% of the industrys revenues and
earnings in 2011. Mobile revenues will continue
to rise thanks to higher penetration, with voice
and SMS remaining the dominant contributors.
Moreover, revenues and profits from mobile TV,
mobile broadband, mobile games, and m-commerce
will constitute a larger percentage of total spending
by consumers and may become critical means of
differentiation for operators.
Developments in the fixed-line realm will further
improve mobiles promise (see Exhibit 3). Value-
added services (such as ring tones) are the current
growth engines for fixed-line operators, driving
revenue growth of 35-40%. But growth will prob-
ably taper off as the market saturates and mobile
substitution eats into the subscriber base. Fixed
broadband has compensated for losses in fixedvoice but has not driven overall growth. If the
pattern seen in other penetrated markets (think
acceleration of fixed-voice decline) occurs, fixed-
line players in China will come under even greater
pressure to replace this revenue and this portion
of their customer base.
Finally, consensus anticipates that Internet Protocol
Television (IPTV) could become a growth platform
in China. However, Chinas State Administration
of Radio, Film, and Television has not merged withthe Ministry of Information Industry into the newly
created Minister of Industry and Information. For
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the near term, ambiguity about the new regulatory
body could constrain IPTVs growth.
Dynamics of the New Markets
How will the larger market dynamics play out in
Chinas restructured telecom industry? We foresee a
competitive landscape containing three large local
players. Owing to the ambiguous regulatory envi-
ronment, we see no game-changing new entrant
(such as Google, mobile virtual network operators,
foreign operators, or cable companies) encroaching
on the scene. Cable companies will remain highly
fragmented, still governed by national and provin-
cial authorities. After the dust has settled from the
restructuring, the government may seek to facilitate
integration of the telecom and media industries,but not in the next few years.
On the other hand, Internet portals, such as
Google, could continue trying to gain more control
over Chinese operators customers as the network
becomes more open (that is, as consumers use it
to access a broader array of services from a wider
range of providers) and as new devices, such as
the iPhone, gain popularity. Other players along
the value chain (for example, Tencent, TOM Group,
and Sina) will likely thrive in adjacent sectors suchas social networking, location-based services, or
mobile payments. The three operators, to capture
Exhibit 3 Telecom industry revenues in China
Source: Oliver Wyman analysis;
JPMorgan.
their fair share of customer value and maintain
strategic control over consumers, may need to
forge savvy partnerships with these companies
or enter the Internet space. For example, China
Mobile recently established an Internet business
division, signaling confidence in the growth poten-
tial of this sector.
Customers in China, for their part, may prefer
fixed-mobile bundled offers, if such offers come at
the right price. To take advantage of this opportu-
nity profitably, carriers will need to weigh the vol-
ume and price tradeoffs. Even in most developed
markets, demand for true convergence offers (ser-
vice delivered across multiple access technologies
and devices) has been weak. Price has driven cus-tomers purchase decisions to date, and we expect
this pattern to play out in China as well.
We also anticipate further segmentation and polar-
ization of customer preferences. At the high end,
early adopters will demand bundled offers
and a rich customer experience (for example,
high-definition video and the inclusion of roaming
minutes in the basic plan). And they will be willing
to pay a premium. At the low end (for example, in
rural regions), consumers will look for basic ser-vices at low prices on last-generation high-coverage
networks.
0
10
20
30
40
50
60
70
80
90
100%
2007 2008 2009 2010 2011
Voice & other
Broadband
Voice
Other data
VAS
SMS
Fix
edlines
Mobile
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As in most other markets, purchase occasions
for fixed and mobile offers are separate in China.
Fixed is usually a household-based decision (often
instigated by a move) that, to date, has entailed
minimal, if any, options in voice. Mobile is a per-
sonal decision, often driven by a desire for a new
handset or by promotions. Hunger for bandwidth
will intensify, fueled by increasing consumption of
data and video content through broadband (fixed
or mobile) access. Finally, while Chinese consum-
ers show interest in offerings such as one-stop-
shopping, integrated billing, and multi-domain
devices, they are not willing to pay extra for them.
The lesson for Chinas three new operators: To score
short-term wins in the new environment, compa-
nies will need to build business designs that quicklyreap the benefits of combining the mobile and
fixed-line businesses. These benefits include cost
savings and improvements in customer acquisition
and retention, with an emphasis on increasing share
of wallet, not necessarily on more closely aligning
cross-domain customer relationships. Given the size
of the mobile opportunity alone, operators will likely
compete intensely to protect (or gain) profit share
and attract the most profitable new customers.
In the medium term, companies can profit from
the continued growth in the number of mobile and
broadband users by deepening cross-domain rela-
tionships. For example, they can encourage the pur-
chase of multiple products with value bundles, or
reward regular high spending with loyalty benefits
and create a more seamless experience for custom-
ers. In the long term, they can further secure their
success by creating all-encompassing convergence
offers, such as multi-platform access to the same
content and services for multi-mode devices. Thismay call for strategic partnering with or acquisition
of companies in other parts of the telecom value
chain, such as content developers and aggregators.
What It Takes to Thrive
Chinas restructuring of the telecom industry is
unprecedented in the scope and scale of change
involved. No other nations or regions entire
telecom sector has been restructured in a single
sweeping initiative. To thrive (never mind survive)
in this reshaped landscape, the new operators willhave to address several challenges in addition to
convergence:
Post-M&A integration
Issuance of 3G licenses
Building mobile capabilities
Geographic expansion into rural areas and (for
the fixed-line incumbents) expansion north and
south
Extreme market growth
We anticipate seeing a significant land grab in
the first year following restructuring, as each
player moves to secure the best customers in each
domain and across domains. The race to deploy 3G
infrastructure and to sign up leading-edge userswill further intensify the pressure on each new
companys early operations.
Each player has both strengths and challenges, as
well as the opportunity to create innovative business
designs and operating models that address attrac-
tive customers needs in fresh ways. Keys to success
fall into several categories, shown in Exhibit 4 on the
next page.
* * *
In the new telecom landscape thats about to take
shape in China, large local operators will encoun-
ter a number of enticing opportunities, including
a rapidly expanding mobile market. At the same
time, they will face fresh challenges, such as the
need to lead organizational change in a conver-
gent world and to protect their market share
from rivals. Competition will stiffen as each seeks
to stake a claim in the mobile market.
To capitalize on the best opportunities and avoid
falling prey to the worst risks, Chinese telecom
companies can leverage lessons learned by their
counterparts in other countries that have suc-
cessfully navigated a similar transformation.
Though much remains uncertain, including what
actions the Chinese government may take in the
coming years, we believe that telecom opera-
tors in China stand an excellent chance of not
only surviving but also thriving in their newlandscape.
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Category
Organizational structures and
talent management
Customers
Technology and networks
Convergence
Exhibit 4 Keys to success for Chinese operators
Points of focus
Manage the post-M&A process carefully, including allocating roles and responsibilities
to people from different legacy organizations, reinventing processes, blending different
company cultures, and aligning governance structures and policies.
Understand that the mobile business differs from the fixed business. Acquire and train
staff at all levels in needed skills. For example, in the short run, this may mean training
front-line salespeople to sell both mobile and fixed offers.
Integrate customer bases inherited from legacy organizations, including mobile,
personal handset, fixed-line, broadband, residential, and enterprise customers.
Gain a single view of which products are bought by which customer groups across
multiple service domains.
Beef up customer-analytics and database marketing capabilities. Use analytics to increase
share of wallet and develop bundled offerings that increase penetration and stickiness
without requiring new development efforts.
Understand customer profitability, and target efforts at the most profitable customers.
For example, acquiring PHS subscribers and migrating them to mobile may be inexpensive,
but these are mainly low-value customers.
Quickly build out a mobile network with high-quality coverage (for example, in rural
areas) to tap into the mobile opportunity.
Consider network sharing (at least of sites and possibly of passive infrastructure or active
networks) for new (3G) deployment. Sharing can accelerate rollout, mitigate rollout risk,
and lower costs.
Consider network outsourcing to decrease costs, step up acquisition of mobile-network
operations and maintenance skills, and free executives attention for more strategic
matters (such as convergence).
Formulate a strategy to manage all four dimensions of convergence: organization,
products/services, front-end processes, and back-end processes.
Develop converged offers that deliver cost and efficiency benefits in the short term.
Plan, but do not rush, to move toward the holy grail: truly converged offers.
Test converged offers impact on market share and profitability with interactive
scenario-playing.
Launch high-impact marketing campaigns and loyalty programs.
Regularly verify customer preferences for converged offers, and design offers around the
companys existing strengths (for example, broadband).
Carefully weigh the implications of participating in content for winning in the
convergent world. For example, explore how the company can use content to sell services
across platforms.
Explore ways to work with other value-chain players (device manufacturers, content
providers, and aggregators) to assemble attractive converged offerings.
Assess global best practices and lessons learned to ease transition to convergence.
Consider how convergence can help mitigate risks such as attacks on market share
or customer base.
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While there is little doubt that technologies, offers,
and customer needs are converging, the term
convergence means different things to different
people. Moreover, there are different degrees of
convergence (see Exhibit 5).
Exhibit 5 Degrees of convergence
The most successful converged offers to date
have been bundled or triple-play offers selling
multiple fixed-line-based products (for instance,
voice, broadband access, and video) at a discount.
Telefnicas TRIO (voice, broadband, and IPTV
under the Imagenio brand) and Neufs Twin are
apt examples. Adding mobile to the mix (think
AT&Ts Quad Pack, which includes fixed telephony,
TV, fixed broadband, and mobile telephony) has
been a harder sell. Given the prevalence of single-
domain operators in China and the widespread
acceptance that Chinas mobile space alone offers
staggering potential, this difficulty of fixed-mobile
offer development may arise in China as well.
Yet the lack of wide acceptance of cutting-edge
products does not necessarily mean that conver-
gence is not worth pursuing. A converged operating
model contains many dimensions, not just the offer
itself (see Exhibit 6), and companies employing such
a model are garnering some important benefits.
Why Convergence?
A converged operating model can yield significant
cost savings as well as deeper and stickier custom-
er relationships, because customers spend more
across more domains and stay loyal. It can also
enhance organizational efficiency and decision-
making. Finally, it can enable a company to put
in place the infrastructure required to offer truly
differentiated products and services in line with
customer demand.
Most operators are moving down the convergence
path in some form. Given the momentum of themobile sector worldwide and the increasing sub-
stitution by mobile for pure fixed and fixed/mobile
offerings, management teams and capital markets
alike have made convergence a priority. For some
companies, the initial objectives behind converg-
ing have been to achieve cost savings and inte-
grate technologies to provide a platform for future
offers; other companies have been more focused
on bundling and packaging.
Pure-mobile operators have demonstrated lessurgency overall (even downright reluctance) about
the move toward convergence. Some view conver-
Convergence: What, Why, and How?
True convergence provides a unique customer
experience across the telecom value chain. It
requires three things: multi-platform devices that
have features as good as or better than those
offered by the best single-platform devices; con-
tent (such as news, sports information, or net-
working communities) that customers want to
receive on several different platforms; applications
that give customers access across the platforms.
Few, if any, successful examples of true conver-
gence exist today. One recent offer by France
Telecom, Unik, may have come closest. Unik is a
converged handset that works on both mobile and
Wi-Fi networks. After a heavy marketing campaign
to promote it, only 600,000 customers had sub-
scribed to the offer by the end of the first year. In
Germany, Deutsche Telekom launched a similar
offer, but it, too, has fallen short of anticipated
market acceptance. Pricing and device adjust-ments will likely be necessary to accelerate takeup
of these offers.
True convergenceMulti-mode devices
Service bundles
Multi-domain customerrelationship (single bill,
single customer view, etc.)
Cross-selling
Least convergedSeparate domain
and separate customers
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gence as a defensive tactic useful for fending off a
competitive threat presented by fixed and mobileplayers in the near term while they prepare to
offer mobile data services that can substitute for
broadband in the same way that voice has done.
This perception is changing, however. Even the
most successful mobile operators are recognizing
the need for (at a minimum) select investments in
fixed and broadband markets.
Vodafone, for example, is entering the fixed
market, in part by acquiring Tele2 in Spain and
Italy, and by leveraging its fixed-line assets in
Germany, known as ARCOR. The company expects
this move to generate benefits including cost sav-
ings, the ability to gain its own fixed network to
carry voice and data from towers into its infra-
structure, a defense against fixed/mobile play-
ers, and the opportunity to provide a broader
portfolio of offerings. In South Korea, SK Telecom
is pursuing Hanaro Telecom, the countrys sec-
ond-largest wireline carrier, with an eye toward
defending its market position. The companyhopes to add fixed-line services (VoIP, pay TV, and
broadband) to create triple- and quad-play offers,
which it believes will help it reduce churn. And
in Japan, Softbank is integrating both mobile and
wireline businesses into its strong broadband and
Internet-content portfolio to enhance its ability to
offer bundled services.
In markets where mobile penetration is reaching a
plateau, pure-mobile operators view convergence
as a strategy to spur new growth. In France, mobileoperator SFR (which owns 40.5% of Neuf Cegetel)
has offered to buy the remaining equity in the
business. Its aim? To challenge France Telecom in
the market for combined fixed-line, Internet, andcell-phone services (and to achieve cost synergies
by combining the two operations).
The substantial cost benefits of a converged model
cannot be refuted. Oliver Wyman recently helped
a multi-domain operator lay out its convergence
path, and identified overall cost-saving opportuni-
ties of 10-20% for nearly every line of operating
expenses, with less than a two-year time to sav-
ings for the majority of initiatives (see Exhibit 7).
While every operators benefits map will look dif-
ferent, this magnitude of impact is typical.
Still, telecom convergence in China will unfold in
a very different setting than elsewhere. In other
countries, convergence has arisen by necessity in
mature markets (where the mobile business is flat,
and the fixed business is either flat or growing
only through broadband). But in China, the mobile
business is still showing significant growth. This
has mixed implications for Chinese operators. Onone hand, it should make convergence easier in
terms of finding synergies; its always easier to
achieve benefits from synergies when companies
are growing than when they are restructuring. On
the other hand, operators may find it difficult to
move away from a single business-line focus when
business is booming, and the resulting distractions
can seem costly.
How to Converge?
There is no one right path to convergence; dif-ferent markets, and different operators within
markets, will have their own priorities and ratio-
Exhibit 6 The four dimensions of convergence
One customer-centricorganization
Integrated management
Integrated governance
Fixed-mobile bundles forthe consumer market
Integrated offers for
small- and medium-sized
business clients
Integrated product
management/marketing
One sales and customercare organization
Single view of
customer base
Integrated customer
support service
Shared services for general
and administration
functions
Integrated networkplatforms and network
operations
Integrated network
management
Integrated IT systems
Shared general and
administration systems
Convergence ofthe organization
Converged productsand services
Converged front-endprocesses
Imperatives
Milestones
Converged back-endprocesses and platforms
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nales for their decisions regarding how to tackle
the four dimensions of a converged operating
model. They will also differ in the degree to which
they invest in each dimension in the near term.
For many companies, the ultimate goal might be
an operating model like the one represented inExhibit 8, but the means of achieving it will differ.
The exhibit depicts a fully converged model, with
customer segment (not product) divisions in sales,
and an integrated marketing team. The model
uses different network elements to deliver differ-
ent services, but builds on a common platform
and allows integrated billing. Corporate functions
are shared as needed by front- or back-end inter-
nal customers.
Lets explore issues associated with each element
of the convergence operating model.
Converged organization. To organize for conver-
gence, many operators have begun offering a full
portfolio of services (mobile, fixed voice, broad-
band, TV) but with little or no integration at the
business-unit level. More forward-thinking opera-
tors are plotting a clearer path to convergence in
their organizational structure. Some have started
building domain-free units devoted to market-ing and sales, network operation, billing, and IT.
For example, their marketing and sales strategies
are organized around customer segments rather
than specific fixed, mobile, or broadband offerings.
Others have begun by integrating their product
bundles and sales and marketing staff.
Creating a converged organization raises somedaunting challenges. Executives must make a
compelling case for change, foster a sense of
urgency, win buy-in from lower-level managers,
and redesign business processes. In addition, the
company has to provide training to help people
strengthen needed new skills, such as selling
both mobile and fixed offerings, or hire people
with those skills.
Converged products and services. As noted ear-lier, few, if any, converged offers have been able
to beat the best-in-class offers now available in
single-domain or dual-domain environments.
To tackle this problem, operators will, of course,
need to cultivate more integrated customer rela-
tionships. But they can also develop a variety of
product offers. Many players are now focusing on
creating bundled offers to take to market.
Building converged offerings is difficult. Firms
must carefully manage cannibalization amongbusinesses (for example, mobiles cannibaliza-
tion of fixed). They need to price the converged
Exhibit 7 Cost savings from convergence
Year 4
Year 3
Year 2
Year 1
% of cost savingsover four years
10-15%
5-10%
80-90%
5-10%
Front-endBack-end
Marketing
Sales and customer care
Network
IT services
G&A
Real estate
Legend:
Circle representscost saving measure,
with size depictingcost-savings potential
Source: Oliver Wyman disguised client example.
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offers strategically. And they must focus their offer
development on customer priorities, not on con-
vergence for the sake of convergence.
Converged front-end processes (sales, market-
ing, customer support). To develop a convergedbusiness, operators must gain a single view of
their customer base, understanding what cus-
tomers buy across domains, how they buy it, and
why. Companies also need to provide a stream-
lined customer-service experience. They can do
so by converging their front-end processes. For
example, one major North American provider has
had success overlaying a cross-domain customer-
service team on top of separate domain-specific
business units. Another major operator in NorthAmerica has integrated its sales force and invest-
ed heavily in training its representatives to sell
across domains.
The major challenge with this dimension of the
converged operating model is recognizing that
purchase occasions differ greatly across domains,
and (to date) customers have been accustomed to
choosing best-in-breed offers from each domain.
Companies must design processes to build share
of wallet, to increase cross-selling, and so forthwithout expecting customers to snap up a con-
verged offer just because its there.
Converged back-end processes (network, IT
platforms, general and administrative). Of all the
converged operating model dimensions, this one
yields the highest cost savings. Companies can
then use these savings to fund investments in
other dimensions of the operating model.
Key challenges to overcome include the sig-
nificant capital expenditure required by IT and
network convergence, which may be difficult to
justify for operators that have recently invested
in networks. Moreover, while converging back-
end processes is perhaps the most critical step to
developing and delivering converged experiences
for customers, network- and IT-related processes
are also often the hardest to change. To overcomeresistance, executives need to formulate a long-
term strategy for convergence and communicate
it effectively throughout their organization.
Different companies tackle the four dimensions
of the converged operating model in different
sequences. For example, one European carrier
started by integrating its networks, then worked
on converging its organizational structures and
finally its products. Another European incum-
bent worked first on organizational convergence,then on products, and finally on its processes
and platforms.
Exhibit 8 A true convergence operating model
End-user/subscriber
Customer segments
Converged product management
Wireline access Wireless access
Voice Data Voice Data
CorporateRetail
Back-end operations IT/Network
Shared/Corporate Functions (implementation formsvary from fully centralized to matrix)
Sales and
customer care
Marketing
Service technology/Network operations/
Operations/ITBilling
General andadministration
Broadband
Business
11
8/3/2019 OW en CMT 2008 China Telecom
12/12
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The following people also contributed to this paper: Dekkers Davidson, Jrme Moitry,
Winnie Gutschke, and Carl Cheung.
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