© 2010 IBM Corporation
Telco 2015 five telling years, four future scenarios
Franco Prampolini – IBM Italy, Telco Industry Business Development Team Leader
© 2010 IBM Corporation2Telco 2015- five telling years, four future scenarios
Contents
A decade of structural change in Telecom
Forces shaping the future of Telecom
Uncertainties and Scenarios for Telco 2015
Scenario Realization, Financials and Imperatives
Survivor Consolidation
Generative Bazaar
Clash of Giants
Generative Bazaar
Summary and Conclusions
© 2010 IBM Corporation3Telco 2015- five telling years, four future scenarios
Contents
A decade of structural change in Telecom
Forces shaping the future of Telecoms
Critical Variables and Scenario Framework
Detailed Scenario Descriptions
Survivor Consolidation
Generative Bazaar
Clash of Giants
Generative Bazaar
Summary and Conclusions
© 2010 IBM Corporation4Telco 2015- five telling years, four future scenarios
Over the past decade global communications penetration and in mobile cellular telephony specifically has been phenomenal
0%
10%
20%
30%
40%
50%
60%
70%
80%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Mobile celluar telephone subscriptions
Internet Users
Fixed Telephone lines
Fixed Broadband Subscribers
A decade of structural change in Telecom
Source: International Telecommunications Union (ITU) ICT Statistics Database available at http://www.itu.int/ITU-D/icteye/Indicators/Indicators.aspx . 2009 figures are estimated published in ITU, “The world in 2009: ICT Facts and Figures”; ITU Geneva 2009, available at http://www.itu.int/ITU-D/ict/material/Telecom09_flyer.pdf
Telecom Penetration1999 - 2009
© 2010 IBM Corporation5Telco 2015- five telling years, four future scenarios
37%
14%
5%
1%2%
-3%
11%
33%
21%
8%5%
13%
4%
11%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
2005 2006 2007 2008 2009
MiddleEast & Africa
Latin America (excl. Brazil)
Brazil, Russia, India, China (BRIC)
Asia Pacific (excl. India & Japan)
North America
Europe (excl. Russia)
Japan
However, the key engines for growth - mobile cellular telephony and emerging markets expansion - have begun to stall
A decade of structural change in Telecom
Telecom Services Revenue Growth2004 - 2014
Source : IDATE, in "World Telecom Service Market", 2008 Edition - January 2009, revision in July 2009; IBM Institute for Business Value (IBV) Analysis
© 2010 IBM Corporation6Telco 2015- five telling years, four future scenarios
There is a long-term decline in fixed telephony (PSTN) lines and revenues
121 113 105 96 88
136128
120
9791
86
4443
1617
17
17
142151
103102
45
4445
18
0
50
100
150
200
250
300
350
400
450
2005 2006 2007 2008 2009F
North America Europe Asia Pacific Latin America MEA
EU5 PSTN/ISDN Lines (000s)2004 - 2009
-8,000
-6,000
-4,000
-2,000
0
2,000
2004 2005 2006 2007 2008 2009F
France Germany Italy Spain UK
-2,321
-6,317
-5,243
-2,530
-7,657
-10,000
-8,000
-6,000
-4,000
-2,000
0
2002 2003 2004 2005 2006
US Wireline Losses2002 - 2006
A decade of structural change in Telecom
Source: IDATE; Federal Communications Commission, “Trends in Telephone Service”, August 2008, Ofcom, UK, “Communications Market Report”, August 2009 IBM Institute for Business Value (IBV) Analysis
-5% CAGR
© 2010 IBM Corporation7Telco 2015- five telling years, four future scenarios
Fixed-mobile substitution continues
645 632 608 582 576 560
239 275 316 365 430 495
2003 2004 2005 2006 2007 2008E
PSTN Mobile
167 163 159 149 147 139
59 64 71 83 100 111
2003 2004 2005 2006 2007 2008E
Fixed Mobile
EU 5 - Outgoing Voice TrafficBillion minutes
Source: IDATE, National Regulatory Authorities'’ Reports, Federal Communications Commission, “Trends in Telephone Service”, August 2008, Ofcom, UK, “Communications Market Report”, August 2009 IBM Institute for Business Value (IBV) Analysis
59%
84 81 75 71 70
46 52 5865
72
2003 2004 2005 2006 2007
Wireline (-4% CAGR) Cellular (12% CAGR)
UK - Outgoing Voice TrafficBillion minutes
US Personal Telecom Consumption Expenditure
US$ Billion (2003-2007 CAGR)
CAGR
14%
-4%
CAGR
16%
-3%
A decade of structural change in Telecom
© 2010 IBM Corporation8Telco 2015- five telling years, four future scenarios
0%
10%
20%
30%
40%
50%
60%
70%
2004 2005 2006 2007 2008 2009
North America
EMEA
Asia-Pacific
Latin America
Dial-up access is in decline as connectivity shifts to broadband fuelled an expansion of xDSL, cable modem and FTTx
Hou
seho
ld P
enet
ratio
n (%
)
0%
10%
20%
30%
40%
50%
60%
70%
2004 2005 2006 2007 2008 2009
North America
EMEA
Asia-Pacific
Latin America
Broadband Household Penetration
Dial-up HouseholdPenetration
Source: PwC Media and Entertainment Outlook 2009-2013; IBM Institute for Business Value (IBV)
A decade of structural change in Telecom
© 2010 IBM Corporation9Telco 2015- five telling years, four future scenarios
In markets with high mobile penetration, such as Europe, revenuegrowth and ARPU are declining
Mobile market penetration Europe (% pop.)
Mobile ARPU (€/month)
Mobile revenue Growth in EU 5
0%
30%
60%
90%
120%
150%
2004 2005 2006 2007 2008 2009F
EU-15 EU-12 (NMS)
-5%
0%
5%
10%
15%
2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 F
0
10
20
30
40
2004 2005 2006 2007 2008
France Germany Italy Spain UK
A decade of structural change in Telecom
Source: Ronald Montagne “Telcos’ views of openness”, IDATE, October 2009
© 2010 IBM Corporation10Telco 2015- five telling years, four future scenarios
2.1
6.0
5.0
2.7
4.5
8.2 8.1
9.3
23%
34%
60%
43%
65%
54%
46%
33%
0
1
2
3
4
5
6
7
8
9
10
0%
10%
20%
30%
40%
50%
60%
70%
However emerging markets telecom providers continue to secure growth and profits from serving low ARPU customers
6.1
8.1 7.8
4.55.6
9.4
7.1
12.1
42%36%
66%
40%
65%
57%
48%
30%
0
2
4
6
8
10
12
14
0%
10%
20%
30%
40%
50%
60%
70%
3.1
7.5
5.5
2.8
4.8
8.17.3
9.6
26%
35%
60%
43%
67%
55%
46%
28%
0
2
4
6
8
10
12
0%
10%
20%
30%
40%
50%
60%
70%
2006
2008
2010
(USD/ month)
114 128 136 138
62
89
127147
24
44
71
98
16
30
45
56
APAC BRIC MEA LatAm
Emerging Markets mobile ARPU and EBITDA margin
Emerging Marketsmobile revenue,
(US$ Bn)
2004 201206 08 10
Source: IDATE, Bank of America/Merrill Lynch, Global Wireless Matrix 1Q09
ARPU
A decade of structural change in Telecom
© 2010 IBM Corporation11Telco 2015- five telling years, four future scenarios
Overall communications have increased but much of the growth in is over-the-top; traditional telco services share remain unchanged
Notes: (1) An SMS/MMS or e-mail is considered as a 30 second call.
FRANCE TOTAL COMMUNICATIONS MARKET(billions of call minutes and equivalents¹)
• Stable use of traditional communications services
• Increased share of communication services by Internet Communication services providers
•Service are not easily monetized through traditional pricing models
2005 2006 2007 2008 2009 2010
Wireline Mobile SMS/MMS E-mail(excl. spam) IM P2P VoIPSource: Idate: Telco’s views of Openess, Digiworld Summit 2009
A decade of structural change in Telecom
Source: Ronald Montagne “Telcos’ views of openness”, IDATE, October 2009
© 2010 IBM Corporation12Telco 2015- five telling years, four future scenarios
A bright spot has been the phenomenal growth of mobile broadbandwith the rollout of High Speed Packet Access (HSPA) networks …
Source:, Frédéric PUJOL, « Open Mobile », IDATE , 2009, Antoine Pradayrol, “European mobiles: is the data opportunity big enough?”, Exane BNP Paribas:
HSPA traffic growth – World average
Voice & Data contributions Europe
Voice & Data contributionsUSA
Overall, global mobile traffic has more than double d in the past year, reaching 33 Petabytes (PB) per month in 2008, and 85 PB per month in 2009
A decade of structural change in Telecom
© 2010 IBM Corporation13Telco 2015- five telling years, four future scenarios
… driven in part by increased penetration of Smartphones and HSDPA-enabled USB keys and dongles for laptops / Netbooks
122
151
178
2007 2008 2009F
0.6
14.6
28.4
2007 2008 2009F
Smartphone Sales2007 – 2009(Million Units)
Netbook Sales2007 – 2009(Million Units)
21%CAGR
588%CAGR
A decade of structural change in Telecom
Source: IDATE
© 2010 IBM Corporation14Telco 2015- five telling years, four future scenarios
The explosion of mobile applications is driven by devices like iPhone and AppStores but the latter’s revenue contributions are low
-
500 000
1 000 000
1 500 000
2 000 000
2 500 000
July
'08Sep
tem
ber '
08Nove
mbe
r '08
Janu
ary '09
Marc
h '09
May
'09
July '0
9Sep
tem
ber '
09Nove
mber '0
9
-
20 000
40 000
60 000
80 000
100 000
120 000
Downloaded Applications (000) Number of applications
iPhone AppStore: A success with low revenues
� Average Price of Application remains very low US$2.5
� Revenues from AppStore estimated to US$25m-45m
� Apple however sold 13.7m iPhones in 2008; 13% of all handsets shipped (16% in 1H of 2009)
� Apple is using the AppStore to drive demand for hardware and foster audience monetization
Nokia Ovi Nokia Ovi Blackberry Blackberry
Mobile application stores
Google Android Google Android
iPhoneiPhone
AppStore: Downloaded and available applications
Source:, Frédéric PUJOL, "Open Mobile ", IDATE , 2009,
A decade of structural change in Telecom
© 2010 IBM Corporation15Telco 2015- five telling years, four future scenarios
The cost of delivering data however is not matched by revenues as revenue and traffic volumes are decoupled in a data-dominant world
How to improve revenue /traffic for data?
Traffic
Revenues
VoiceDominant
Data Dominant
Source: Nokia-Siemens; IBM Institute for Business Value (IBV) Analysis
Network Cost How to lower network
costs for data?
Profitability
A decade of structural change in Telecom
Time
Traffic Volume
US$/bit
© 2010 IBM Corporation16Telco 2015- five telling years, four future scenarios
Telecom revenues from Telecom IPTV subscription and content services remain woefully low
3,698
16,988
357
6%
2%
0.40%
0
4000
8000
12000
16000
2005 2008 2012F0%
2%
4%
6%
8%
IPTV Revenues
Penetration (of PayTV)
Source: IBM Institute for Business Value (IBV) Analysis based on PwC Media and Entertainment Outlook 2009-2013. IPTV Revenues include subscriptions, VOD and multi-channel advertising based on penetration. Additionally assumes telcos secure of 5%,10% and 20% of multi-channel advertising inventory in 2005, 2008 and 2012 respectively
Global IPTV Revenues2005 -2012(US$ million)
A decade of structural change in Telecom
© 2010 IBM Corporation17Telco 2015- five telling years, four future scenarios
In emerging markets, however, there is growing adoption of SMS-based applications, notably public information and advisory services
Indian operator Tata’s service ‘mKrishi’ allows farmers to send queries and receive personalizes services
India China
China Mobile offers ‘Nong Xin Tong’ for farmers to provide news, weather information and details of farming-related government policies (50 million users)
Uganda
SMS Services from Grameen, Google & MTN providing agricultural advice and targeted weather forecasts, health tips, clinic finder, and Google Trader matching buyers and sellers of agricultural produce and commodities
A decade of structural change in Telecom
Source: IBM Institute for Value (IBV) Analysis
© 2010 IBM Corporation18Telco 2015- five telling years, four future scenarios
... as well as money transfer and mobile payment services
New mobile economics World economic pyramid
Philippines South Africa
Zambia Ghana
A decade of structural change in Telecom
Source: IBM Institute for Value (IBV) Analysis
© 2010 IBM Corporation19Telco 2015- five telling years, four future scenarios
Ericsson’s operation center in Reading, UK, 2008
Early 2009, Vodafone UK signed a 7-year agreement with Ericsson to take over maintenance and operational support for Vodafone UK’s 2nd and 3rd generation radio access networks. Expects to achieve cost-efficiencies of 25% over the 7 year period.
~25%
On March 18, 2009, France Telecom-owned Orange announced a 5-years deal to outsource the management of its networks in Britain and Spain to Nokia.
Network outsourcing has gathered momentum in recent years and become mainstream even among tier 1s as part of cost restructuring
Outsourcing
621
32 30 30
6
27
59
89
2004 2005 2006 2007 2008
Cummulative deals per year
Deals per year
Network Outsourcing Deals
A decade of structural change in Telecom
Source: IDATE, Kerry Capell , “Vodafone and Orange Outsource To Ericsson and Nokia “, March 18th Business Week; downloaded at; http://www.businessweek.com/globalbiz/blog/europeinsight/archives/2009/03/vodafone_and_or.html
AT&T and France Telecom used to manufacture their own equipment but divested these to create Lucent and Alcatel. Now operators are giving up running their networks; what does this portend?
© 2010 IBM Corporation20Telco 2015- five telling years, four future scenarios
Consolidation of fixed and mobile markets continues in Europe…
108
140
103 99
2000 02 04 06 2008
-29%
na
Mobile networks operators EU27
18% 22%
10%
23%27%
1%16%
6%9% 10%
18% 19%
11%
9%
2005 2008
Others
Tiscali**
CPWAOL*
BT
Telewest*
Virgin (ntl)
Alice*
47% 47%
17% 24%
12%
22%6%
15%3%
7%
2005 2008
Club Internet*
Others
Neuf
Free
Orange
Source: IDATE, Eurostat European Commission, Ofcom * Acquired between 2005 and 2008 ** acquired in 2009 or currently being sold
Be Toucan Bulldog Video NW AOL Pipex Tiscali
O2 Pipex Pipex Tiscali CPW Tiscali CPW
2006 2007 2009Target
Acquirer
The number of mobile network operators peaked in 2002 after UMTS licenses had been issued. Since then, the number of MNOs decreased by almost one third
Fixed broadband market
France : The top three ISPs extended their subscriber market share from 76% to 93%, facing limited competition from cable
UK: Market consolidation still under way. CPW being a major consolidator expanded its market share from 1% to 16%.Proposed T-Mobile UK and Orange JV will
drive further European consolidation
A decade of structural change in Telecom
© 2010 IBM Corporation21Telco 2015- five telling years, four future scenarios
… and has gone a long way in the US already
Not exhaustive
Partners
Fixed Mobile
Source: IDATE, operator web sites, press
A decade of structural change in Telecom
© 2010 IBM Corporation22Telco 2015- five telling years, four future scenarios
The telecom industry has undergone signficiant structural changeover the last decade; how will it evolve over the next 5 years?
� Phenomenal expansion in communications and industry growth driven by mobile and emerging markets over the past decade has begun to stall
� While long-term PSTN decline appears inevitable, mobile penetration is peaking in most mature markets, ARPU is falling and in some advanced markets mobile revenues have even started declining
� Migration from dial-up to fixed broadband continues and while global penetration remains low, adoption rates in advanced markets are increasing steadily though not enough to compensate for PSTN losses
� Rollout of HSPA networks have driven adoption of mobile broadband helped in part by the penetration of Smartphones and HSDPA-enabled USB keys /dongles for Netbooks and are somewhat mitigating the impact of voice revenue losses
� The cost of delivering data, however, is not matched by revenues as revenues and traffic are decoupled in data-dominant world
� Much expected revenues from both mobile and fixed content services such as IPTV remain woefully low
� … although SMS-based data applications such as money transfer and mobile payment services have taken off in emerging markets
� For the first time, some telecom operators are handing over their networks to external providers (i.e. NEPs) to run/operate on their behalf
� Industry consolidation continues
How will communications evolve over the next five y ears?
A decade of structural change in Telecom > Summary
Source: IBM Institute for Value (IBV) Analysis
© 2010 IBM Corporation23Telco 2015- five telling years, four future scenarios
Contents
A decade of structural change in Telecom
Forces shaping the future of Telecom
Uncertainties and Scenarios for Telco 2015
Scenario Realization, Financials and Imperatives
Survivor Consolidation
Generative Bazaar
Clash of Giants
Generative Bazaar
Summary and Conclusions
© 2010 IBM Corporation24Telco 2015- five telling years, four future scenarios
Forces shaping the future of telecommunications in 2015
►Describe underlying incontrovertible trends in the evolution of the communications industry
►In the absence of a major exogenous shock the degree of uncertainty about these trends is virtually nil
Definition:
►These trends provide a common background and context for all scenarios
Forces shaping the future of telecoms
Source: IDATE and IBM Institute for Value (IBV) Analysis
© 2010 IBM Corporation25Telco 2015- five telling years, four future scenarios
A number of forces are shaping the future of the telecommunications industry into 2015
FORCES SHAPING
FUTURE OF TELECOM
ACCESS
BUSINESS MODEL
INDUSTRY STRUCTURE & REGULATION
USAGE & SERVICES
Usage
Stable demand for
telecom services
Fragmented
Communications
Data Services growth
Services
VOIP migration
accelerates
PTSN declines
Basic Broadband pervasive
as TV
3rd party access /
enablement
Shared Comms
Capabilities
Smartphone
NetbookProliferation
Comms becomes a
feature
Ubiquitous seamless
open access
New broadband
infrastructure competition
NGA and Net
neutrality
Source: IBM Institute for Business Value (IBV) and IDATE Analysis
Green Revenue Models
Forces shaping the future of telecoms
Fixed mobile barriers
fadeTermination
rates converge and low
Ultra-low cost
devices
LTE for Mobile
Broadband
© 2010 IBM Corporation26Telco 2015- five telling years, four future scenarios
Mobile and broadband are emerging as critical necessities and essentials consumers are most unlikely to give after their homes
79%
51%
26%
26%
17%
12%
12%
11% 9%
12%
18%
15%
13%
27%
15%
5%
79%
76%
70%
68%
61%
47%
16%
34%
Unlikely to give up Neutral Likely to give up
Q34: If the current economic downturn persists, which of the following are you least likely to give up?
LIK
ELY
TO
GIV
E U
PU
NLI
KE
LY T
O G
IVE
UP
Newspapers / Magazines
Pay TV
Going Out (e.g. restaurants, bars,
cinema)
Family Holiday
Landline/fixed telephony
Broadband internet Access
Mobile Phone
Home
LIK
ELY
TO
GIV
E U
PU
NLI
KE
LY T
O G
IVE
UP
Source: IBM Institute for Business Value Global Telecom Consumer Survey, 2009; N= 7722
Forces shaping the future of telecoms >Usage
Usage
Fragmented
Communications
Data Services growth
Ubiquitous seamless
open access
Stable demand for
telecom services
© 2010 IBM Corporation27Telco 2015- five telling years, four future scenarios
14%
15%
27%
22%
61%
56%
62%
26%
24%
17%
16%
14%
13%
14%
11%
12%
13%
7%
7%
60%
58%
58%
57%
56%
53%
51%
52%
49%
28%
29%
29%
33%
35%
36%
44%
41%
No Change
11. How do you anticipate your use of COMMUNICATION services will change over the next 5 - 7 years?
Will increase useWill decrease use
Net % change in frequency
of use
Communications are becoming increasingly fragmented across mobile, email, VoIP, text / instant messaging and social networks
Postal Service
Landline
Voice Conferencing
MMS
Social Networking
Instant Messaging
Video calls
Text messaging
Mobile Email
VOIP
Mobile Voice
34%
37%
23%
23%
22%
15%
16%
14%
12%
9%
-10%
-6%
Fragmented
Communications
Data Services growth
Ubiquitous seamless
open access
Usage
Forces shaping the future of telecoms >Usage
Source: IBM Institute for Business Value Global Telecom Consumer Survey, 2009; N= 7722
Stable demand for
telecom services
© 2010 IBM Corporation28Telco 2015- five telling years, four future scenarios
Use of video and other data services will grow as internet data traffic quintuples and mobile broadband consumptions soars
6,0358,844
12,836
18,762
25,312
32,154
2008 2009 2010 2011 2012 2013
Ambient Video
Internet Video to TV
Internet Video to PC
Internet Voice, VideoCalls and GamingFile Sharing
Web/Email
Global Consumer Internet Traffic, 2008–2013
Petabytes/ month
6 17 41 91201
397
80
182
406
867
65
158
342
615
15
37
89
34
207
483
1076
2184
85
2008 2009 2010 2011 2012 2013
Middle East & Africa
Latin Amercia
Central and Eastern Europe
Western Europe
Asia Pacific
North America
Mobile Internet /Data TrafficPetabytes/ month
Source: Cisco Visual Networking Index, June 2009, http://www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/ns827/white_paper_c11-481360.pdf, IDATE, IBM institute for Business Value (IBV) Analysis
40% CAGR
135% CAGR
Fragmented
Communications
Data Services growth
Ubiquitous seamless
open access
Usage
Forces shaping the future of telecoms >Usage
Stable demand for
telecom services
© 2010 IBM Corporation29Telco 2015- five telling years, four future scenarios
Communications and content will become more ubiquitous with open access enabling interaction with any device, service/provider
70%
62%
44%
6%
28%
32%
50%
62%
2%
6%
6%
32%
Access content with anydevice (PC,TV, phone etc)
from any provider
Alllow access/ use contentfrom other service providers
Real-time inter-modalcommunications
Multi-lingual communicationswith real-time translation
Likely Likely or Unlikley Unlikely
7. How likely are the following interaction models over the next 5 – 10 years?
2009 IBM Institute for Business Value Telecom Industry Survey N=61
“For the first time we are moving from a voice worl d to a visual world of messaging, emailing, internet browsing and downloading, social networkin g and entertainment, all experienced on the move…Ubiquity is the key in the next decade. An ywhere, anytime, any device”Chairman's Office, Global Telecom Provider, Europe
Fragmented
Communications
Data Services growth
Ubiquitous seamless
open access
Usage
Forces shaping the future of telecoms >Usage
Stable demand for
telecom services
© 2010 IBM Corporation30Telco 2015- five telling years, four future scenarios
170.8188.1
473.8
75.4
139.8 134.5
457.6
103.9
North America EU15 BRIC MEA
2008 2014
PSTN circuit switched lines will continue to decline although in some emerging countries there may be some growth as they catch-up
Source: IDATE
Global PSTN lines2008 – 2014 (millions)
� Decline in advanced markets
accelerates
� BRIC turn from growth to
declining market
� MEA is largely under-
penetrated and has substantial
catch-up potential in fixed
-3.3% -5.4%
-0.6%
5.48%
CAGR
Services
PTSN declines
Shared Comms
Capabilities
VOIP migration
accelerates
Forces shaping the future of telecoms >Services
© 2010 IBM Corporation31Telco 2015- five telling years, four future scenarios
Increasingly VOIP is replacing fixed voice access lines…
29 26 22 18 16 14 13 12
11 14 1820 23 25 26 28
0
10
20
30
40
2007 2008 2009F 2010F 2011F 2012F 2013F 2014FPSTN VoIP
Source: European Commission, NRAs, IDATE Analysis
Voice Access Lines
FRANCE
7 6 5 5 54 4 4
2 44
5 55 5 5
0
2
4
6
8
10
2007F 2008 2009F 2010F 2011F 2012F 2013F 2014F
PSTN VoIP
NETHERLANDS
Acc
ess
Line
s (M
illio
n)A
cces
s Li
nes
(Mill
ion)
Services
PTSN declines VOIP
migration accelerates
97% 92%79%
64%
0% 2%10%
21%
3% 6% 11% 15%
2005 2006 2007 2008e
PSTN VoIP Cable
Share of Voice Access Lines
GERMANY
Forces shaping the future of telecoms >Services
Shared Comms
Capabilities
© 2010 IBM Corporation32Telco 2015- five telling years, four future scenarios
…and the proportion of operator managed mobile VOIP will increaseas penetration of mobile VOIP accelerates
10%20%
40%
60%70%
80%
90%80%
60%
40%30%
20%
2009 2010 2011 2012 2013 2014
Managed (incl. Partnerships) Unmanaged
0.8 1.5 4.5104.5
812
15
23.5
6
10
6
12
4
40
22
75
45
25
13
7
2009 2010 2011 2012 2013 2014
US
Germany
UK
France
Source: IDATE
Mobile VoIP users( million)
Ratio Managed / Unmanaged VoIP users
Mobile VoIP
Services
PTSN declines VOIP
migration accelerates
80%CAGR
Forces shaping the future of telecoms >Services
Shared Comms
Capabilities
© 2010 IBM Corporation33Telco 2015- five telling years, four future scenarios
…and operators begin to relax their attitudes
Attitude towards mobile VoIP
Market position(shares)
Partner withVoIP provider
Impose asurcharge
Challenger
Leader
Prohibituse of VoIP
Allow usewith data plan
Attitude not n
ecess
arily
the same fo
r MNOs
operating in
different
countrie
s
► Market leaders exploring possible revenue models:T-Mobile / Vodafone (DE) have lifted the ban on VoIP and imposed a surcharge
► Market challengers using VoIP as a means of competitive differentiation:3 partnering with Skype
Mobile VoIP:Strategies of leaders versus challengers Services
PTSN declines VOIP
migration accelerates
Shared Comms
Capabilities
Forces shaping the future of telecoms >Services
© 2010 IBM Corporation34Telco 2015- five telling years, four future scenarios
� Device compatibility: while all major mobile VoIP solutions are now available on major smartphone OS platforms (Symbian, iPhone, Blackberry and Android), all sorts of cross interference issues have been reported with other applications installed (particularly carrier-customised) by early adopters, limiting widespread adoption by non-geeks
� Cellular network coverage and reach: current mobile VOIP codecs at 28.8kps could theoretically work on EDGE network but user tests have shown unacceptable latency and jitter. So service availability remains confined to public Wifi and 3G network coverage areas.
USABILITY ISSUES
� 3G to 2.5G cell handover : while cell handover within 3G coverage zone works reasonably well (although longer handover times are clearly perceived and reported by users), handover from a 3G to 2.5G cell site does not currently work in practice with dropped sessions in nearly all cases
� Shortened battery duration: current mobile VOIP solutions rely on particularly intensive processing within terminal both on call and always-on wait modes, resulting in substantially shortened battery duration
� Increased delays across all mouth to ear delay components� Increased latency due to permanent packet retransmissions required
Obstacles to mass market adoption of (unmanaged) mobile VoIP on 3G networks
Source: IDATE
Mass migration to mobile VOIP however is unlikely until HSPA andLTE are deployed widely to address known limitations
AVAILABILITY ISSUES
QoS ISSUES
Services
PTSN declines VOIP
migration accelerates
Shared Comms
Capabilities
Forces shaping the future of telecoms >Services
© 2010 IBM Corporation35Telco 2015- five telling years, four future scenarios
Shared capabilities enabling interoperability across fragmented tools will become standard through Google Voice and initiatives like RCS
Google Voice also gives a user a Google Phonenumber that links all their phones together into one central communications network enabling
• Interoperable services between mobile devices and PC terminals, across different access networks
• The Enriched Call experience initially provides the capability to share multimedia content during a call.
• Enhance phone book service capabilities and presence-enhanced contacts in a network address book
• Enhance messaging expands on traditional instant messaging to simplify and unify multiple messaging mediums and provide a richer user experience
Rich Communications Suite RCS)
• One number : a single phone number that rings all yourphones
• Free SMS: send, receive & store text messages online • Block calls : send unwanted callers straight to voicemail• Record calls : record phone calls and store them online • Conference calls : join several people into a single call• Screen callers : hear who is calling before you pick up• Google voicemail : voicemail like email• Voicemail transcription : read what your voicemail says• Custom greetings : vary voicemail greetings by caller • International calling : low cost calls to the world • Notifications : read voicemail messages via email or SMS• Share voicemails : forward, embed, or download
voicemails
Source: GSMA, http://www.gsmworld.com/our-work/mobile_lifestyle/rcs/index.htm, Google, RCS Overview, Colibra
Services
PTSN declines
VOIP migration
accelerates
Forces shaping the future of telecoms >Services
Shared Comms
Capabilities
© 2010 IBM Corporation36Telco 2015- five telling years, four future scenarios
A number of telecom operators have RCS trials already underway
RCS Timeline
Forces shaping the future of telecoms >Services
Services
PTSN declines
VOIP migration
accelerates
Shared Comms
Capabilities
Source: IDATE
© 2010 IBM Corporation37Telco 2015- five telling years, four future scenarios
Majority of households in advanced markets and urban areas of most emerging markets will have access to ‘basic’ broadband
89 99 108 115 120 124 127
99 106 114 121 127 131 134
146177
210249
292
408
2736
4657
70
84
100
811
15
18
22
26
560
713
799
347
30
632
492429
370
2008 2009 2010 2011 2012 2013 2014
Fixed BB subscribers, millions
Global 3G Deployments
75 110 151 194 233 266116144
177212
245275
160
200
237
278
332
9
14
20
27
37
53
17
20
22
2
26
27
714
1,022
401
377
488
606
874
2008 2009 2010 2011 2012 2013
Middle East/ Africa
Latin AmericaAsia Pacific
EU 15North America
3G subscribers, millions
Satellite links from incumbent players and new players (e.g. Google-backed O3B) to eliminate most white spots
Forces shaping the future of telecoms >Services
ACCESSACCESS
Smartphone
NetbookProliferation
Ultra-low cost
devices
Broadband pervasive
as TV
LTE for mobile
braodband
Source: IDATE
© 2010 IBM Corporation38Telco 2015- five telling years, four future scenarios
In many advanced markets, broadband will be generalised with household penetration levels similar to those of Television
Source: IDATE, Eurostat, US Census Bureau *includes IPTV
DE
US
81%57%
91%96%
2008 2009 2010 2011 2012 2013 2014
92%68%
92%96%
2008 2009 2010 2011 2012 2013 2014
Penetration of households (%)
96%66%
92%100%
2008 2009 2010 2011 2012 2013 2014
FR
UK
78%
67%
95%99%
2008 2009 2010 2011 2012 2013 2014
Forces shaping the future of telecoms >Services
ACCESSACCESS
Smartphone
NetbookProliferation
Ultra-low cost
devices
Broadband pervasive
as TV
LTE for mobile
braodband
© 2010 IBM Corporation39Telco 2015- five telling years, four future scenarios
The race for mobile broadband appears to have been decided in favour of LTE
71%
67%
44%
43%
27%
20%
8%
27%
33%
48%
48%
39%
42%
38%
2%
7%
9%
34%
38%
54%
FTTx
4G/ LTE
3G
xDSL
CATV
2G
WiMAX
Critical to Success Neither Not Critical to Success
Source: IDATE, IBM Telecom Executive Survey 2009,
Which of the following access technologies are going to be critically important to the success of your business over the next 5 -10 years?
Forces shaping the future of telecoms >Access
Major operators LTE commercial deployment schedule
Geographical mapping of early LTE commercial deploy ment
ACCESSACCESS
Smartphone
NetbookProliferation
Ultra-low cost
devices
Broadband pervasive
as TV
LTE for mobile
braodband
© 2010 IBM Corporation40Telco 2015- five telling years, four future scenarios
One in five phones and laptops sold will be a Smartphone and a Netbook respectively - i.e. devices with mobile internet access
115
28 40 49 56 61
103130 142
179208
245
285
0
50
100
150
200
250
300
2007 2008 2009 2010 2011 2012 20130%
5%
10%
15%
20%
25%
30%
35%
40%
NetbooksalesLaptopSalesNetbookShare
Netbook vs. Laptop Sales(millions)
Source: IDATE, IBM Institite for Business Value (IBV) Analysis
122 151 178 216 252 287 321
1136 1202 1136 11961298
13821485
0
400
800
1200
1600
2007 2008 2009 2010 2011 2012 20130%
5%
10%
15%
20%
25%
30%
SmartphoneSales
Phone Sales
SmartphoneShare
Smartphone vs. Phone Sales(millions)
Forces shaping the future of telecoms >Access
ACCESSACCESS
Smartphone
NetbookProliferation
Ultra-low cost
devices
Broadband pervasive
as TV
LTE for mobile
braodband
© 2010 IBM Corporation41Telco 2015- five telling years, four future scenarios
The market for ultralow-cost handsets is expected to grow quickly as more than 2/3 of new subscribers come from developing countries
The mobile handset market is becoming increasingly polarised between low cost handsets for emerging markets and high-end smartphones for developed regions – with the mid-range handset market being squeezed.
US$
Rapid growth of subscriber base and and forecasted ULC handsets in emerging markets
Handsets Increase in Complexity but Prices Continue to Decline
Source: https://electronics.wesrch.com/User_images/Pdf/WSS_1244733431.pdf, May 2009
ACCESSACCESS
Smartphone
NetbookProliferation
Ultra-low cost
devices
Forces shaping the future of telecoms >Access
Broadband pervasive
as TV
LTE for mobile
braodband
© 2010 IBM Corporation42Telco 2015- five telling years, four future scenarios
Fixed voice communications will be monetised largely as features of broader connectivity packages rather as a standalone service
12%18% 18%
32%
30%
40%47%
43%23%
16%12%
2%15%
13% 8% 8%5%
4%2% 1%
14%9% 13% 15%
0%
20%
40%
60%
80%
100%
Q1 2005 Q1 2006 Q1 2007 Q1 2008
Other
Fixed voice, dial-up andmultichannel TV
Fixed voice andmultichannel TV
Fixed voice and dial-up
Fixed voice andbroadband
Fixed voice, broadbandand multichannel TV
Service bundles take-up in the UK
Source: Ofcom (2008), “Communications Marketing Report, Office of Communication, UK, IBM Institute for Business Value AnalysisOPTA market Monitor (2009) http://www.opta.nl/nl/actueel/alle-publicaties/publicatie/?id=2926
10% 13% 15%19% 22%4.5%
10.5%
21.5%20.5%
19.5%
0%
0%
5%5%
5%
0%
0%
4%3% 3%
17%
16%
15% 13% 13%
69%61%
40% 40% 38%
0%
20%
40%
60%
80%
100%
Q2 2006 Q4 2006 Q2 2007 Q4 2007 Q2 2008
Fixed voice, TV and broadband Fixed voice and broadband Fixed voice, broadband and mobile Fixed voice and mobile voiceBroadband and TV Other
Service bundles take-up in the Netherlands BUSINESS
MODEL
3rd party access /
enablement
Comms becomes a
feature
Green Revenue Models
Forces shaping the future of telecoms >Business Model
© 2010 IBM Corporation43Telco 2015- five telling years, four future scenarios
Operators will provide open wholesale interfaces to drive innovation on their networks
BUSINESS MODEL
Major actors of the mobile industry are involved at different levels
APIs will be engineeredto prevent fraudulent and malicious activity
Development of new mobile technologies, applications and services to accelerate the commercial deployment of mobile internet services
3rd party access /
enablement
Comms becomes a
feature
Green Revenue Models
Forces shaping the future of telecoms >Business Model
Source: IDATE, IBM Institite for Business Value (IBV) Analysis
© 2010 IBM Corporation44Telco 2015- five telling years, four future scenarios
Telcos will enable other industries to reduce their environmental impact and in the process generate additional revenues
Balance of telcos’ internal CO2 emissions and overall CO² savings
Source: IDATE
Replacement• Conference calls, videoconferencing and telecommuting are directly responsible for 12.6 million tonnes of
saved carbon in 2008• Videoconferencing will continue to grow its impact as solutions become more widespread within
businesses and usage increases• Telecommuting has an exponential impact on the environment allowing reduction of vehicle emissions
Systemic effects:• Online shopping will save 6.2 million tonnes of CO2 in 2008, and will continue to grow and improve its efficiency • Dematerialisation of products will continue to increase, as more and more delivery channels migrate Online• Virtualized interactions will become the most significant CO2 savings contributor
Optimisation• Telecommunications significantly reduce the carbon emissions of many industrial and logistical activities• Paper and physical delivery are replaced by online information• Smart power management will become an important source of savings over the period
BUSINESS MODEL
3rd party access /
enablement
Comms becomes a
feature
Green Revenue Models
Forces shaping the future of telecoms >Business Model
© 2010 IBM Corporation45Telco 2015- five telling years, four future scenarios
The boundaries between fixed and mobile will blur as an increasing number of players offer a combination of products.
• Mobile TV offerings
• Cable TV and DSL quad play
offerings through MVNO
agreements
Description
• DSL and cable modem
internet access
Examples
•Phone service of cable
companies
•Dual and triple play offerings
of unbundled carriers
• IPTV and TV content rights
acquisition by telecom carriers
• Fixed Mobile Substitution
(« Homezone ») offerings
• MVNO service of TV
channels
• Unbundled or wholesale DSL
offerings of mobile and
satellite TV providers
FIXED TELEPHONY
MOBILE TELEPHONY
CABLE TV
BROADBAND ACCESS
SATELLITE& OVER THE
AIR TV
1 1
3 3
2
4
5
7 7
6
8
99
3
4
Source: IDATE
1
2
3
4
5
6
7
8
9
New broadband
infrastructure competition
NGA and Net
neutrality
Fixed mobile barriers
fade
Termination rates
converge and low
INDUSTRY STRUCTURE & REGULATION
Forces shaping the future of telecoms >Industry Structure and Regulation
© 2010 IBM Corporation46Telco 2015- five telling years, four future scenarios
Increasingly new infrastructure competition will come from government, municipality and local initiatives
Source: IDATE
146
93
2005 2009
x1.6
European municipality and housing company driven FttX projects
� Where incumbents and other telcos fail to build out fiber networks non-traditional players will step in
� Local FttX networks driven by local players, including communities, typically adopt an open access approach
Broadband leaders are
also FttX pioneers:
Netherlands 19
Sweden 46
Forces shaping the future of telecoms >Industry Structure and Regulation
New broadband
infrastructure competition
NGA and Net
neutrality
Fixed mobile barriers
fade
Termination rates
converge and low
INDUSTRY STRUCTURE & REGULATION
© 2010 IBM Corporation47Telco 2015- five telling years, four future scenarios
Across Europe a significant portion of FTTH deployments are local or municipal projects
MidtVest Bredband (2006-2012) 175M householdsSydfyns Intranet (2006-2009)30 M households
M-net Munchen (2007-2011) 200M householdsCityNetCologne (2007-2011)50 M households
Blizznet Vienna (2007-2009) 50M households
Citynet Zurich (TBD) TBD Million households
Pau Broadband Country France (2006-2011) 40M householdsSipperec (2007-2008) 22 M households
GlasvezelNet Amsterdam (2006-2008) 40M householdsKPN Glasnet Enschede (2006-2009) 25 M households
Hafslund tele Oslo (TBD) TBD M householdsLyse Tele (2006-2009)90 M households
Uddevalla (2008) 10M householdsStokAB Stockholm (2006-2012)100 M households
Important FTTH municipal projects in Europe
Forces shaping the future of telecoms >Industry Structure and Regulation
INDUSTRY STRUCTURE & REGULATION
New broadband
infrastructure competition
NGA and Net
neutrality
Fixed mobile barriers
fade
Termination rates
converge and low
INDUSTRY STRUCTURE & REGULATION
Source: IDATE, IBM Institite for Business Value (IBV) Analysis
© 2010 IBM Corporation48Telco 2015- five telling years, four future scenarios
In the Unites States the Federal Government is providing stimulus funds to local communties and organisations to expand broadband
U.S. VP Biden lists $182 million in awards for 18 projects. The projects are the first to receive part of the $7.2 billion in funds dedicated to expanding broadband access -- which includes high speed Internet connections -- into rural areas, poor neighborhoods and Native American communities
Awardees include:� the North Georgia Network Cooperative, which will receive a $33.5
million grant� the Biddleford Internet Corp. which is to receive a $24.5 million grant� North central Ohio's Consolidated Electric Cooperative, which will
receive a combined grant and loan of $2.4 million� Alaska Native Corporation, which will build out a 4G wireless network
in southwestern Alaska� a New Hampshire FTTH project� an Arizona project to build computer centers for 84 libraries in that
state.
Total States Stimulus Funds
Source: http://telecomengine.com/article.asp?HH_ID=AR_5994
Forces shaping the future of telecoms >Industry Structure and Regulation
INDUSTRY STRUCTURE & REGULATION
New broadband
infrastructure competition
NGA and Net
neutrality
Fixed mobile barriers
fade
Termination rates
converge and low
INDUSTRY STRUCTURE & REGULATION
© 2010 IBM Corporation49Telco 2015- five telling years, four future scenarios
There will be new local access competition rules as NGA is deployed but commitment to net neutrality will remain
23%
52%21%
12%14%
56%39% 34%
49%
New competiton ruleslikely with NGA
Abandon commitment toNet Neutrality
Telcos and OTTssubject to similar
regulations
Likely
Possibly
Unlikely
Existing remedies for enforcing competition in the local loop will be replaced with the deployment of next generation access technology
Regulators will abandon commitment to net neutrality in order to stimulate investment and improve customer experience/quality of service
Unregulated over-the-top services will be subject to the same regulatory obligations as traditional services (e.g. contributions to universal service funds)
Forces shaping the future of telecoms >Industry Structure and Regulation
INDUSTRY STRUCTURE & REGULATION
New broadband
infrastructure competition
NGA and Net
neutrality
Fixed mobile barriers
fade
Termination rates
converge and low
INDUSTRY STRUCTURE & REGULATION
2009 IBM Institute for Business Value Telecom Industry Survey N=61
© 2010 IBM Corporation50Telco 2015- five telling years, four future scenarios
… to regulation
� Unsatisfied with the absolute levels and discrepancies of MTR between EU member states, the Commission presented a recommendation for voice call termination
� The Commission aims at harmonising the approaches used to fix MTR
� The Commission aims at enabling lower retail charges and putting an end to de facto subsidies from fixed to mobile operators
In developed markets mobile and fixed termination rates will converge to symmetric, low levels
From appeals…
� The EU put pressure on the mobile industry to significantly cut termination rates
� The Commissioner's long term vision is to bring down mobile termination rates to levels comparable to fixed termination, i.e. ~ EUR 0.01 – 0.015 per minute
Call termination markets in the E.U. need a regulatory plumber. Over the next 3 years, I expect […] to bring the costs for mobile phone calls down by around 70 %—V. Reding, EU Commissioner
USEU
� MTR are generally lower than in the EU
� Operators free to negotiate rates as long as rate is symmetric
� Fixed incumbent operators typically required to set cost-based termination rates ( typically less than one US cent/minute)
� Frequently no MTR charged between mobile operators and new entrant fixed operators
� RPP scheme applied for mobile users
Source: IDATE, European Commission
New broadband
infrastructure competition
NGA and Net
neutrality
Fixed mobile barriers
fade Termination rates
converge and low
INDUSTRY STRUCTURE & REGULATION
Forces shaping the future of telecoms >Industry Structure and Regulation
Source: IDATE, IBM Institite for Business Value (IBV) Analysis
© 2010 IBM Corporation51Telco 2015- five telling years, four future scenarios
The world in 2015
ACCESS
BUSINESS MODEL
INDUSTRY STRUCTURE & REGULATION
USAGE & SERVICES
Forces shaping the future of telecoms >Summary
PSTN decline accelerates and VOIP grows. Ubiquitous and seamless access models prevail with high levels of rich digital content consumption accessible
from any device, platform or network. Communications remain fragmented across several tools but shared capabilities enable interoperability
Mobile and fixed broadband become as pervasive as TV in advanced markets. The battle
of mobile broadband now favors LTE. 3G penetration
increases in emerging markets. A bifurcated market of devices emerges with high penetration of ultra low-cost
devices in emerging markets. One in three devices in
advanced markets is a high-end internet-enabled smartphone, MID or,
Laptop/Netbook.
Voice is monetized as a feature of connectivity. Operators provide open wholesale access and interfaces to a wide range of capabilties including connectvity,
customer information and billing services, to drive traffic on networks. Communication providers benefit from environmental mitigation programs.
New infrastructure competition come from
government, municipality and local initiatives, will
new rules as NGA is deployed. Mobile and fixed termination rates
disappear and boundaries among fixed, mobile and internet fade
Source: IBM Institute for Business Value (IBV) Analysis
© 2010 IBM Corporation52Telco 2015- five telling years, four future scenarios
Contents
A decade of structural change in Telecom
Forces shaping the future of Telecom
Uncertainties and Scenarios for Telco 2015
Scenario Realization, Financials and Imperatives
Survivor Consolidation
Generative Bazaar
Clash of Giants
Generative Bazaar
Summary and Conclusions
© 2010 IBM Corporation53Telco 2015- five telling years, four future scenarios
Alongside determining trends a number of uncertain variables with multiple contrasted outcomes will shape future industry scenarios
Regulatory Uncertainty
Ultra-fast Broadband Availability
Network sharing vs. Outsourcing
User funded vs. 3rd party funded
OTT vs. Network optimized content
Silo vs. unified communications
Demand for voice communications
New Verticals
Machine-to-machine (M2M) communications
Premium /Enriched Connectivity
Closed/Packaged vs. Open connectivity
Range of uncertainties Selected Critical Variables
Vertical vs. Horizontal Integration
Uncertainties and Scenarios for Telco 2015
Source: IBM Institute for Business Value (IBV) and IDATE Analysis
© 2010 IBM Corporation54Telco 2015- five telling years, four future scenarios
Dominant themes across selected critical variables - addressable market growth and the dominant industry model …
Vertical vs. Horizontal Integration
Regulatory Uncertainty
Ultra-fast Broadband Availability
Network sharing vs. Outsourcing
Closed/Packaged vs. Open connectivity
User vs. 3rd Party / ad funded
Addressable Market/ Growth Areas
Industry / Integration Model
OTT vs. Network optimized content
Silo vs. unified communications
Demand for Voice communications
New Verticals
Machine-to-machine (M2M) communications
Premium /Enriched Connectivity
Uncertainties and Scenarios for Telco 2015
Source: IBM Institute for Business Value (IBV) and IDATE Analysis
© 2010 IBM Corporation55Telco 2015- five telling years, four future scenarios
…provide the dimensions that define four corner scenarios within the sphere of possible futures for telecom in 2015
Critical variable #1
Dominant Industry / integration model
Concentrated/ Vertical
Fragment/ Horizontal
Addressable market
Declining/ Stagnant
Expanding
The major dimensions for our scenario construction are addressable market and dominant industry structure/ integration model
Uncertainties and Scenarios for Telco 2015
Future
Scenario C
Scenario D
Scenario B
Scenario APresent
Telco 2015 SCENARIOS
SURVIVOR CONSOLIDATION
CLASH OF GIANTS
MARKET SHAKEOUT
GENERATIVE BAZAAR
Source: IBM Institute for Business Value (IBV) and IDATE Analysis
© 2010 IBM Corporation56Telco 2015- five telling years, four future scenarios
…each with contrasted industry dynamics …D
eclin
ing/
S
tagn
ant
Exp
andi
ngA
ddre
ssab
le
Mar
ket
Concentrated / Vertical Fragmented /HorizontalCompetition/ Integration Model
SURVIVOR CONSOLIDATION MARKET SHAKEOUT
CLASH OF GIANTS GENERATIVE BAZAAR
Source: IBM Institute for Business Value (IBV) Analysis
�Carrier cooperation and alliances (e.g. RCS) pave way for global consolidation in response to the rising stakes from global application/content providers (Google, Microsoft, Sony etc.) or OEMs (Nokia, Apple, Ericsson)
�Mega carriers expand their markets through selected verticals (smart grid, e-health...) for which they provide packaged end-to-end connectivity
�Carriers succeed in stemming communications services revenue erosion through shared capabilities
� Few, mega carriers compete with OTT some of whom integrate backwards into the network
� Telcos develop a portfolio of premium network services (e.g. 3D TV) to deliver new digital experiences
�Barriers between OTT and network providers blur as regulation, technology and competition drive open access
� Infrastructure providers (The Net Co-op) integrate horizontally and cater to multiple service providers, based on co-operative /shared risk funding model
�A myriad of asset-light service providers emerge, packaging connectivity with new services revenue models
�Pervasive affordable open connectivity are enabled for any person or object and unleash a wave of generative innovation
�Reduced consumer spending leads to revenue stagnation or decline
�Advanced market operators have not significantly changed their voice communications/closed connectivity service portfolio and have failed to expand horizontally or into new verticals
� Investor loss of confidence for telecoms sector produces cash crisis that triggers survival consolidation
�Under prolonged economic downturn, investors force carriers to disaggregate assets into separate businesses with different return profiles and retail brands emerge to aggregate and package services from disaggregated units
� The market is further fragmented by government/ municipality and alternative provider (e.g. local housing associations or utility) initiatives to extend ultra-fast broadband to gray areas, as traditional infrastructure investment concentrates in densely populated areas
�Operators look for growth through horizontal expansion and premium connectivity services sold to application and content providers as well as businesses and consumers
Uncertainties and Scenarios for Telco 2015
© 2010 IBM Corporation57Telco 2015- five telling years, four future scenarios
Contents
A decade of structural change in Telecom
Forces shaping the future of Telecom
Uncertainties and Scenarios for Telco 2015
Scenario Realization, Financials and Imperatives
Survivor Consolidation
Market Shakeout
Clash of Giants
Generative Bazaar
Summary and Conclusions
� Scenario Characteristics
� Scenario Triggers / Realization Path
� Financial Assumptions
� Revenue and Profitability Implications
� Critical Success Attributes
© 2010 IBM Corporation58Telco 2015- five telling years, four future scenarios
Packaged communications and connectivity services dominate with minimal service innovation based on traditional revenue models
Usage
Services
Business Model
� Communications are “silo’d” and fragmented across multiple but limited suppliers Connectivity usage similar to today - personal, active, download
� Consumers opt for OTT and user generated content
� In emerging economies communications remains voice-centric on mobile; internet and data usage remain anecdotal and limited to large cities but some deployment of basic mobile data services e.g. mobile money
� Services are as today as telco fail to enter new industry verticals and /or expand horizontally to offer open network services to application/third-party providers
� Packaged connectivity and communications services prevail
• User funded revenues continue to dominate and carrier revenue structure remain largely based on maintaining high ARPU across limited # of accesses
• Retail driven with a multiplicity of tariff packages, including metered and bundles for different segments with an emphasis on cost control
� Content is not a very dynamic market for telcos. Service providers absorb network costs from increased OTT content consumption or pass connectivity costs to users
SURVIVOR
CONSOLIDATION
Survivor Consolidation
SCENARIO CHARACTERISTICS
Scenario Realization, Financials and Imperatives >Survivor Consolidation
Source: IBM Institute for Business Value (IBV)
© 2010 IBM Corporation59Telco 2015- five telling years, four future scenarios
Economies of scale drive integrated (fixed and mobile) model dominance and network investments are curtailed
� Consolidation of declining private players in advanced markets and competition revolves usually around a limited number of large integrated players as fixed and mobile pure-plays disappear/fade
� In emerging markets a duopoly of mobile operators is the norm
� Emerging mobile centric giant operators from BRICs successfully gain foothold across emerging regions (Africa…) by replicating their low cost model
Industry Structure
Access
Regulation
� As is, with ongoing regulatory uncertainty
� NGA investment is stifled by very restrictive regulation or regulatory uncertainty
� Operators reduce rollout speed and geographic coverage of NGA
Survivor Consolidation
SURVIVOR
CONSOLIDATION
� Ultra broadband availability is limited to 10-15% of households primarily in economically profitable areas
� For smaller operators, active network outsourcing to NEPs and passive sharing amongst one another are sustained beyond downturn with FTTx and LTE
� Handset subsidies remain and telecom networks are closed to unapproved devices, third-party providers or applications/services
SCENARIO CHARACTERISTICS
Scenario Realization, Financials and Imperatives >Survivor Consolidation
Source: IBM Institute for Business Value (IBV)
© 2010 IBM Corporation60Telco 2015- five telling years, four future scenarios
Stagnating penetration and lack of growth/capital investment lead to investor loss of confidence and triggers survivor consolidation
SURVIVOR
CONSOLIDATION
2010 2011 2012 2013 2014 20152009
Prolonged economic downturn
Increased price competition
Reduced capital expenditure
Constrained access to capital / reduced
capex
Higher wholesale / inter-connect charges
Stagnating penetration levels at /near current levels
Relaxed competition rules to encourage M&A to build scale
Inability to monetize Value-Added
Services (VAS) to
Declining/flat revenues/margins
Investor loss of confidence
Consumers cut-back spending/turn to lower
cost alternatives
TRIGGER EVENTS / REALIZATION PATH FOR SCENARIO
Economic and Financial
Competition and Regulation
Consumers and Markets
Investment and Technology
Scenario Realization, Financials and Imperatives >Survivor Consolidation
Source: IBM Institute for Business Value (IBV)
Illustrated trends
© 2010 IBM Corporation61Telco 2015- five telling years, four future scenarios
Critical success attributes for Survivor Consolidation
Exploit fixed–mobile substitution to increase revenues /growth
Contain voice ARPU erosion
Reduce cost to serve and preserve/ increase operation margins
Secure significant fixed / mobile broadband market share
Scale (across access types and regions)
Integrated Operators
Mobile Operators
Fixed Operators
Weak Moderate Competitive StrongHow well operators are positioned
Critical Success AttributesSURVIVOR
CONSOLIDATIONRECOMMENDATIONS
� Stimulate mobile voice usage through competitive commercial packages with fixed alternatives
� Fixed operators acquire/partner for mobile capability
� Invest in fixed mobile convergence with cost synergies
� Move to flat rate/ all-you-can-eat packages and bundle with other services (e.g. content / Broadband)
� Integrate voice with popular OTT communications services e.g. IM, social networking
� Optimize cost structures through process simplification, automation and transition to self-service
� Accelerate migration to converged/single core network� Leverage global delivery for non-core functions
Current Capability Assessment
� Use handset/Netbook subsidies and long-term contracts to acquire / lock-in mobile internet customers
� Bundle fixed broadband with content and voice offers at attractive prices
� Actively pursue in-country and regional consolidation opportunities to build scale
� Enhance M&A integration capability to enable rapid integration of IT, business processes and systems
Source: IBM Institute for Business Value (IBV)
Scenario Realization, Financials and Imperatives >Survivor ConsolidationSURVIVOR
CONSOLIDATION
© 2010 IBM Corporation62Telco 2015- five telling years, four future scenarios
Contents
A decade of structural change in Telecom
Forces shaping the future of Telecom
Uncertainties and Scenarios for Telco 2015
Scenario Realization, Financials and Imperatives
Survivor Consolidation
Market Shakeout
Clash of Giants
Generative Bazaar
Summary and Conclusions
� Scenario Characteristics
� Scenario Triggers / Realization Path
� Financial Assumptions
� Revenue and Profitability Implications
� Critical Success Attributes
© 2010 IBM Corporation63Telco 2015- five telling years, four future scenarios
Consumers have greater choice from a variety of providers /brands some of who leverage premium connectivity for new services …
• Communications are “silo’d” and fragmented from a wide range of suppliers and aggregators across the value chain leveraging premium connectivity
• Users have greater choice of device/handset, services and service providers with more ala carte packages and online/OTT video/TV consumption increases
• In emerging markets mobile money paves the way for other simple data applications catering to specific needs of emerging markets
Usage
Services
• Multiplicity of tariff packages including metered and bundles that appeal to different segments supplied under a variety of market brands
• Greater focus on wholesale backbone business as well as ICT services as…
• …telcos expand horizontally to offer premium connectivity to enable content /application providers to offer own OTT content services with QoS and SLAs
• Emerging market operators focus on growing mobile data usage
Market Shakeout
MARKET SHAKEOUT
Business Model
• User funded but wholesale driven in parts as device OEMs and application content providers leverage premium connectivity to deliver customized and vertical solutions
• Ultra-fast broadband (FTTH and LTE) offers are priced at levels comparable to broadband connectivity, encouraging rapid migration
• Open access models financed by government/ municipalities in gray/sparsely populated areas
SCENARIO CHARACTERISTICS
Scenario Realization, Financials and Imperatives >Market Shakeout
Source: IBM Institute for Business Value (IBV)
© 2010 IBM Corporation64Telco 2015- five telling years, four future scenarios
…in a more fragmented market as governments/municipality and alternative providers extend ultra-fast broadband to gray areas
� Some tier-2 operators divest network / assets and focus on customers and brand
� Multiple service provider brands emerge to package and bundle low-cost no frills services targeted at specific consumer segments
� Major device manufacturers enter communications service provision as MVNOs in major markets
� A handful of NEPs manage networks for 50% of global telecom providers
Industry Structure
Access
Regulation
� Strong access obligations on infrastructure and strong net neutrality stance undermine investment incentives.
� Local not-for profit network initiatives provide open access
MARKET SHAKEOUT
� Government, municipality and alternative provider (e.g. local housing associations, Utilities) broadband initiatives increase household coverage to 20-25%
� Passive infrastructure sharing becomes the norm for most operators for FTTx deployment and for 2G/3G mobile infra optimization
� Low end SIM-only, open devices and high-end devices based on exclusivity periods and strategic partnerships with OEMs, co-exist
Market ShakeoutSCENARIO CHARACTERISTICS
Scenario Realization, Financials and Imperatives >Market Shakeout
Source: IBM Institute for Business Value (IBV)
© 2010 IBM Corporation65Telco 2015- five telling years, four future scenarios
Break-up of the vertically integrated model and alternative provider, government / municipality initiatives trigger market shake-out
Prolonged economic downturn
2010 2011 2012 2013 2014 20152009
Infrastructure sharing / outsourcing becomes
prevalent Governments/
municipalities and others invest in
broadband
Declining/flat revenues/margins
Disaggregated assets attract superior /
sustainable returns
Private sector capex is constrained
PE acquire under-performing behemoths
and split them
Voluntary/forced separation for efficiency or regulatory reasons
Brands emerge to package services from disaggregated assets
MARKET SHAKEOUT
OEMs and ACPs offer services using premium
connectivity services
Demand services available on other provider networks
Consumer demand greater choice of
provider
Economic and Financial
Competition and Regulation
Consumers and Markets
Investment and Technology
TRIGGER EVENTS / REALIZATION PATH FOR SCENARIO
Scenario Realization, Financials and Imperatives >Market Shakeout
Source: IBM Institute for Business Value (IBV)
Illustrated trends
© 2010 IBM Corporation66Telco 2015- five telling years, four future scenarios
Critical success attributes for Market Shakeout
Powerful brand(s) plus strategic asset (e.g. excl. device partnership, network)
Ultra-fast broadband coverage and optimized network delivery
Collaboration with device OEM and application /content providers
Open API propositions with low-priced tariffs for 3rd
party services
Agile, flexible and reconfigurable processes and infrastructure
Integrated Operators
Mobile Operators
Fixed Operators
Weak Moderate Competitive StrongHow well operators are positioned
Critical Success AttributesMARKET SHAKEOUT RECOMMENDATIONS
� Leverage capabilities (e.g. devices partnerships, network quality, service innovation, no frills) to establish a distinctive reputation in market place
� Target specific brands at key customer segments
� Establish partnerships with municipalities and owners of multi-dwelling units to extend and share BB costs
� Develop deep insights into network and data usage to optimize core and access networks to reduce costs
� Define and implement common / interoperable standards and processes for collaboration
� Develop a shared platform capability to enable collaboration
Potential Capability Assessment
� Provide standard connectivity interfaces to enable 3rd
parties to leverage premium connectivity capabilities � Develop low-cost tariff packages to enable affordable
machine-to-machine connectivity across many devices
� Develop common platforms integrating technology, processes for rapid business/operating model innovation
� Leverage global delivery skills
Source: IBM Institute for Business Value (IBV)
Scenario Realization, Financials and Imperatives >Market ShakeoutMARKET
SHAKEOUT
© 2010 IBM Corporation67Telco 2015- five telling years, four future scenarios
Contents
A decade of structural change in Telecom
Forces shaping the future of Telecom
Uncertainties and Scenarios for Telco 2015
Scenario Realization, Financials and Imperatives
Survivor Consolidation
Market Shakeout
Clash of Giants
Generative Bazaar
Summary and Conclusions
� Scenario Characteristics
� Scenario Triggers / Realization Path
� Financial Assumptions
� Revenue and Profitability Implications
� Critical Success Attributes
© 2010 IBM Corporation68Telco 2015- five telling years, four future scenarios
Users opt for packaged integrated communication services as end-to-end OTT and network optimized digital lifestyle services co-exist
� Users opt for leading suppliers of shared capability (presence, contact list…) aggregators across voice and online communications
� Premium network optimized services coexist with OTT content� Significant portion of consumers purchase packaged digital content / lifestyle
services from healthcare, payments, security to energy management, from carriers � Voice services dominate in emerging market as it is extended to base of pyramid
Usage
Services
� Carriers generate sizeable traction for packaged end-to-end solutions (connectivity+IT) for strategic verticals (e-health, smart grid…)
� Some premium network optimized entertainment services (multi sensorial, 3D, immersive reality…) are met with commercial success from differentiated and uniqueuser experiences
� Integrated /unified communications ala Google Voice and Rich Communication Suite
Clash of Giants
Revenue Model
• Communications are free for users who pay for shared capabilities
• Retail dominated. Focused on customer ownership providing end-to-end targeted services and experience based on network / customer insights
• Connectivity revenues from packaged end-to-end digital content / lifestyle services
• Emerging market operators focus on maximizing their asset utilisation by growing voice revenues through the bottom of pyramid
CLASH OF
GIANTS
SCENARIO CHARACTERISTICS
Scenario Realization, Financials and Imperatives >Clash of Giants
Source: IBM Institute for Business Value (IBV)
© 2010 IBM Corporation69Telco 2015- five telling years, four future scenarios
The vertical integration model prevails and some OTT players integrate backwards in a light-touch regulatory environment
� Market expansion gives rise to global carrier consolidation in response to rising stakes as OTT players integrated backwards
� Following the example of emerging region carriers, European and North American operators consolidate at regional level (e.g. 2 or 3 pan European operators)
� Some emerging market operators enter mature markets
� Active global industry alliances and standards for shared communications capabilities
Industry Structure
Access
Regulation
� Light-touch regulation on infrastructure to encourage infrastructure competition. No endorsement of strong net neutrality positions
� Fewer, big carriers compete with OTT.
� Telcos develop a portfolio of premium services (3D TV) but have to carry competing OTT services
� Operator infrastructure sharing Next Generation Access (NGA)
� …enabling coverage of 40%-50% of households. No more than 3-4 players in market
� Operators enter strategic partnerships with selected OEMs for devices that conform to their platform architectures and standards
� Custom closed devices to support shared communications capabilities and RCS
CLASH OF
GIANTS
SCENARIO CHARACTERISTICS Clash of Giants
Scenario Realization, Financials and Imperatives >Clash of Giants
Source: IBM Institute for Business Value (IBV)
© 2010 IBM Corporation70Telco 2015- five telling years, four future scenarios
Carrier cooperation and alliances (e.g. RCS) pave way for globalconsolidation in response to rising stakes from OTT providers …
2010 2011 2012 2013 2014 20152009
CLASH OF
GIANTS
Growing vibrant global economy
Increased consumer confidence/ spending on communications
Investor confidence in vertical models
delivering better returns
Greater access to capital and
increased capex
OTTs integrate backwards into access
provision
Providers invest in selected verticals
Global industry consolidation
OTT provider consolidation with a
small # of global players
Some emerging market providers expand
globally
Partnerships between OEMs and content
providers
Greater demand for end-to-end customer
experience
Increased customer adoption digital lifestyle
services
Consumers demand rich communications
with sharedcapabilities
Economic and Financial
Competition and Regulation
Consumers and Markets
Investment and Technology
TRIGGER EVENTS / REALIZATION PATH FOR SCENARIO
Scenario Realization, Financials and Imperatives >Clash of Giants
Source: IBM Institute for Business Value (IBV)
Illustrated trends
© 2010 IBM Corporation71Telco 2015- five telling years, four future scenarios
Critical success attributes for Market Shaekout
Vertical Industry solutions and expertise
Global Integrated Enterprise
Deliver end-to-end network-enabled digital experiences OTT cannot replicate easily
Integrated Operators
Mobile Operators
Fixed Operators
Weak Moderate Competitive StrongHow well operators are positioned
Critical Success AttributesCLASH OF GIANTS RECOMMENDATIONS
� Leverage real-time network and customer analytics to deliver personalized experiences
� Enable seamless interactions across access types and devices and new content experiences (e.g. 3D)
� Build partnerships with domain expertise for selected verticals to develop and deliver solutions
� Focus on delivering customer experience measureable by SLAs commensurate with industry expectations
Potential Capability Assessment
� Actively participate an drive inter and intra industry alliances to deploy shared communications capabilities
� Collaborate with other providers to build common infrastructure for shared communications capabilities
�Build global “centers of excellence” to optimize capability and delivery
�Develop common platforms integrating technology, processes for rapid business/operating model innovation
Source: IBM Institute for Business Value (IBV)
Seamless interoperability between telecom and online communications
Scale (across access types and regions)
� Actively pursue in-country and regional consolidation opportunities to build scale
� Enhance M&A integration capability to enable rapid integration of IT, business processes and systems
Scenario Realization, Financials and Imperatives >Clash of Giants
CLASH OF
GIANTS
© 2010 IBM Corporation72Telco 2015- five telling years, four future scenarios
Contents
A decade of structural change in Telecom
Forces shaping the future of Telecom
Uncertainties and Scenarios for Telco 2015
Scenario Realization, Financials and Imperatives
Survivor Consolidation
Market Shakeout
Clash of Giants
Generative Bazaar
Summary and Conclusions
� Scenario Characteristics
� Scenario Triggers / Realization Path
� Financial Assumptions
� Revenue and Profitability Implications
� Critical Success Attributes
© 2010 IBM Corporation73Telco 2015- five telling years, four future scenarios
Pervasive affordable open connectivity are enabled for any person or object, unleashing a wave of generative innovation…
� Advanced users mix and match silo’d communication tools; most adopt open source shared capabilities (presence, contact list…) across voice and online communication
� Voice services continue to be paid-for on mobile but fixed communications become an embedded feature of connectivity
� Open "do it yourself" connectivity integrated/ packaged by individuals/organizations � On demand consumption of OTT digital content/ services with delinearisation
Usage
Services
� Carriers cater to enhanced connectivity for OTT providers that deliver industry-specific solutions e.g. wellness services, energy management
� Premium connectivity (e.g. guaranteed low latency, security, CDN...) for OTT � Local applications that meet emerging markets specificities boom� New voice usages (e.g. human to machine for mobile internet)) lead to voice-rebirth
Generative Bazaar
Revenue Model
� Wholesale driven with premium connectivity a key feature for revenue generation Carriers are able to generate premium prices for ultra broadband (FTTX, LTE)
� OTTs co-operate with network providers and pay carriage fees or share revenues in return for network optimized delivery that enhance end-user experience
� Carriers are successful in ramping M2M models to generate low ARPU on an infinite number of connected objects
� Net Co-ops leverage analytics for service providers and for cross-access and platform advertising.
GENERATIVE BAZAAR
SCENARIO CHARACTERISTICS
Scenario Realization, Financials and Imperatives >Generative Bazaar
Source: IBM Institute for Business Value (IBV)
© 2010 IBM Corporation74Telco 2015- five telling years, four future scenarios
… in a netco / servco separation model with open devices, platforms based on open network access
� A co-operative of horizontally integrated infrastructure providers catering to a myriad of asset-light service providers such as VNOs, OTTs, Banks, Utilities, Governments etc.
� Horizontal model (Netco/Servco separation) and passive infrastructure sharing but no network outsourcing
Industry Structure
Access
Regulation
� Evolution to internet-style model with light-touch regulatory approach towards telcos.
� Abolition of the majority of sector-specific regulations, forcing telcos upwards the investment ladder
� Structural separation of access networks. Wholesale access to essential services (HDTV, search algorithms)
� Open Access becomes the norm.
� Widespread fixed and/or mobile ultra-broadband availability with access to 60% - 80% of households
� Open devices (unlocked phones, netbooks…) dominate market as carriers retreat on handset subsidisation
� Open and standardized devices platforms supported by Net Co-ops and device manufacturers
Generative Bazaar
SCENARIO CHARACTERISTICS
GENERATIVE BAZAAR
Scenario Realization, Financials and Imperatives >Generative Bazaar
Source: IBM Institute for Business Value (IBV)
© 2010 IBM Corporation75Telco 2015- five telling years, four future scenarios
Barriers between OTT and network providers blur as regulation technology and competition drive open access models enabled by…
2010 2011 2012 2013 2014 20152009
Growing vibrant global economy
Increased consumer confidence/ spending on communications
Investors confident of higher return from open connectivity innovation
Widespread deployment of ultra-
fast broadband
Increased access to capital and
increased capex
Providers invest in standardized service and device platforms
Providers devise funding model for open access infrastructure
National govt. fund open infrastructure
for economic growth
Infrastructure to services-based
competition /regulation
Asset-light providers emerge to innovate on
open infrastructure
Increased use / availability of
connected devices
Organizations package connectivity
with own services
Consumers want to use service from many providers
GENERATIVE BAZAAR
Economic and Financial
Competition and Regulation
Consumers and Markets
Investment and Technology
TRIGGER EVENTS / REALIZATION PATH FOR SCENARIO
Scenario Realization, Financials and Imperatives >Generative Bazaar
Source: IBM Institute for Business Value (IBV)
Illustrated trends
© 2010 IBM Corporation76Telco 2015- five telling years, four future scenarios
Critical success attributes for Generative Bazaar
Dynamic Business Design
Leverage insights from connectivity, data,ecosystem to enable 3rd Party innovation
3rd-Party connectivity / capabilities access and developer communities
Integrated Operators
Mobile Operators
Fixed Operators
Weak Moderate Competitive StrongHow well operators are positioned
Critical Success AttributesGENERATIEV BAZAAR RECOMMENDATIONS
� Enable 3rd party access to premium connectivity based on open APIs
� Enable access to common capabilities (Billing, SDP)� Stimulate and support vibrant developer communities
� Enable applications/service providers access to insights from network, data and users for innovation
� Develop deep insights into network and data usage to optimize core and access and reduce costs
Potential Capability Assessment
� Infrastructure / processes to facilitate connectivity of a multitude of objects, sensors, devices and applications
� Build modular business architectures based on standards and flexible, common technology platforms
� Create new operating model and organization to support structural separation
� Deploy systems, processes to support differentiated and dynamic wholesale pricing for various SLAs
Funding model for Net Co-op / open access network infrastructure
� Partner with other infrastructure providers including municipalities extend ultra-fast broadband coverage
� Agree to shared/co-operative funding model for open network access
Structurally separated network and services operations
GENERATIVE BAZAAR
Source: IBM Institute for Business Value (IBV)
Scenario Realization, Financials and Imperatives >Generative Bazaar
© 2010 IBM Corporation77Telco 2015- five telling years, four future scenarios
Contents
A decade of structural change in Telecom
Forces shaping the future of Telecom
Uncertainties and Scenarios for Telco 2015
Scenario Realization, Financials and Imperatives
Survivor Consolidation
Market Shakeout
Clash of Giants
Generative Bazaar
Summary and Conclusions
© 2010 IBM Corporation78Telco 2015- five telling years, four future scenarios
Communications-connectivity substitution will increase over the next 5 years regardless but dominates revenue mix in Generative Bazaar
1%
24%
75%
2008
Communications
Connectivity
Content
1% 2% 5% 5%
30%
49%31%
60%
69%49%
64%
35%
SurvivorConsolidation
Market Shakeout Clash of Giants GenerativeBazaar
1% 0% 1% 3%14% 20% 18%
34%
85% 80% 82%63%
SurvivorConsolidation
Market Shakeout Clash of Giants GenerativeBazaar
Advanced Markets
2015 Revenue Mix Scenarios
Emerging Markets
2015 Revenue Mix
Scenarios
2008 – 2015 Changes to Segment Revenue Mix by Scen ario
Communications : PSTN Voice, VoIP/ VoBB, Mobile Voice, SMS revenues
Connectivity : Fixed Broadband, dial-up internet, legacy corporate data service, 3G/Mobile Broadband and Machine-to-Machine revenues
Content : IPTV and Mobile Content (music, video, mobile TV, games, advertising)
Source: IBM Institute for Business Value (IBV) and IDATE Analysis
Summary and Conclusions
© 2010 IBM Corporation79Telco 2015- five telling years, four future scenarios
-1%
0%
1%
2%
3%
4%
5%
6%
7%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
… that represents the most optimistic outlook for telecoms, relative to the IMF’s global GDP forecast fro 2010 - 2014
Global GDP vs.. Telecom Services Growth Scenarios
Source: International Monetary Fund (IMF), World Economic Outlook Database, October 2009; http://imf.org/external/pubs/ft/weo/2009/01/weodata/index.aspx, IBM Institute for Business Value (IBV) and IDATE Analysis, 2004 - 2009 growth forecasts are based on IDATE "World Telecom Service Market", 2008 Edition -January 2009, revision in July 2009. 2010 -2015 are IBM Telecom 2015 scenario forecasts
Generative Bazaar
Clash of Giants
Market Shakeout
Survivor Consolidation
2009 – 2015 Telecom Growth Scenarios (Stylized)
Global GDP
Global Telecom
5.3%
3.3%
1.8%
0.2%
4.5%
Gro
wth
Summary and Conclusions