Telecom versus Online - Worlds in collision

Telecom versus Online - Worlds in collision

Telecom Media & Entertainment

Vienna, 30 August 2007

C4Lab_Research_Innovation_May2007 I 2

© 2007 Capgemini – All rights reserved Telecom Media and Entertainment

Operators in Europe are faced with slowing growth in voice and Internet access revenues

6%

2%

9%

4%

3% 3% 3%

2% 1%1%

0%

4%

8%

12%

16%

2006 2007 2008 2009 2010

Mobile Revenue Growth, %, 2006-2010

Fixed Voice Revenue Growth, %, 2006-2010

Broadband Revenue Growth, %, 2006-2010

22%

16%

13%11%

8% 7%

5%

14%

8%11%

0%

5%

10%

15%

20%

25%

2006 2007 2008 2009 2010

-5%-4%

-3%-4%

-3% -2%-3%

-4%-3%

-5%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2006 2007 2008 2009 2010

2006 2007 2008 2009 2010

Source: “Voice: A vision of the future”, Ovum, March 2006

Western EuropeNorth America



119 113

18 22

199

2006 2010

146 154

Source: Capgemini TME Lab analysis. Credit Suisse “European Telecoms 2007”, January 2007; Yankee Group “Mobile Data Applications Forecast”, September 2006; Gartner, “Forecast: IPTV Subscribers and Service Revenue Worldwide 2004 – 2010”, 2006; Strategy Analytics “Broadband in Western Europe”, August 2006; Datamonitor “The Evolving Broadcast Sector”, August 2006. Note: a. New services includes all non-voice services except messaging

Year-on-year Mobile Revenue Growth – Western Europe (€ million)a

Launch of new services is also not expected to significantly improve revenue growth prospects

Revenues from new mobile services are not expected to offset falling growth rates

Wireline and IPTV Revenue Forecast, Europe, (€ million)

IPTV will not stem the overall losses in fixed line revenues

99,000

111,664

336

3,000

2006 2010

IPTV will account for only 10% of the broadband

subscriber base by 2010IPTV as % of overall revenues

0.3%

3%

1%

CAGRNew Services

Voice and Access

IPTV

Consumer Messaging

Voice



Online players are launching new communication and content services at a rapid pace...

Selected Internet Players’ Telecom Initiatives, 2004–2006



75%

26%

18%

21%

5%

8%

15%

30%

2%1%

4 hrs 25 mins2 hrs 23 mins

…which are successfully capturing consumer attention and interest

Source: Capgemini estimates based on Arcep reports, IDATE, “Telecom 2.0: emerging usages and implications for carriers”, June 2006. MSN Report, “Europe’s Online Youth”; Comscore Media Metrix, Worldwide IM usage, May 2006.

Estimated time spent on communications per person in France per week (%)

X1.9

Wireline (incl. VoIP)

Wireless Voice

IM

Email

SMS

Telcos

53%53%

Telcos

95%95%

Online Players

47%47%

GoogleYahooMSN

SkypeAOL

In France, the time spent on telco services now constitutes only 53% of the total time spent on communication

2000 2005



Moreover, innovative business models are emerging, which challenge telcos’ fee-based revenue structures

Examples of Disruptive Business Models for Providing Telecom Services

Source: Capgemini TME Lab analysis. Company Websites. NY Times, “Free, Ad-Supported Mobile Service”, January 2007; Market Wire Press Release, “JAJAH Unveils Ad-Supported Business Model for Free Telephony”, December 2006Note: a. Jajah’s media partners include Pro7Sat1 (German TV station), Bild-T Online (German news portal) , and News Austria

Jajah has partnered with large media companiesa in Germany and Austria

These media companies allow their customers to make free voice calls using Jajah’s VoIP service, and in turn share advertising revenues with Jajah

Blyk is an MVNO, which will offer completely free mobile services funded through advertising

It intends to start offering services in the UK beginning mid-2007

Fon allows users to earn revenues by sharing their fixed Internet connection with non-Fon users

Google and Skype are investing in Fon, mainly to extend the reach of their services to Fon’s wide network of WiFi access points

Ad-subsidized Mobile Services

Wi-Fi Community with Innovative Revenue Model

Free Voice Telephony

Ad-Subsidized Internet Access

Google is providing free Internet access funded by advertising in San Francisco and Mountain View, California

It plans to serve focused advertising and services to users based on their location within the access network



Telcos need to revisit their innovation strategy in light of a changing business environment

Source: Capgemini TME Lab analysis

Emergence of Consumer Created Innovative Services

• New players have introduced radically different business models such as free Internet access and ad-subsidized mobile services

• Online players are launching communication products and services at a rapid pace

Fast Pace of Innovation

• Consumers are increasingly modifying online content, as well as creating their own content using openly available Web 2.0 tools

Need to Change

Innovation Strategies

Innovative Business Models

Why do Telcos Need to Innovate Differently?



Online players are also expanding their presence to tap creative talent across the world

Leading Internet players have developed global networks of research and development centers

Asia, Middle East and AfricaBangalore 2003Google

Israel Planned in 2007

Microsoft Beijing 1998

Microsoft Bangalore 2005

Yahoo! Bangalore 2003

2004ZurichGoogle

2005London

2004Ireland

2006BarcelonaYahoo!

1997CambridgeMicrosoft

Europe

2003New York

Google

2005Washington

2004Seattle

2006Pittsburgh

1995Santa ClaraYahoo!

2005Berkeley

2001Mountain View

2006Chile

1991RedmondMicrosoft

1999Mountain View

North America

2004Tokyo

2006Sydney

Planned in 2007

SingaporeGoogle

South East Asia and Pacific

Source: Capgemini TME Lab analysis. Company websites and news releases.



To launch new products rapidly, online players have acquired a large number of start-ups…

Source: Capgemini TME Strategy Lab analysis. Company Websites

Key Acquisitions made by Yahoo! and Google to Grow and Improve Service Offerings

2007

2006

2005

2004

2003

2002

Mobile applications developer

Mobile email software developer

Web statistics tool launched as Google Analytics

Launched as Google Spreadsheets

Android Reqwireless Urchin 2Web

Mapping capabilities for Google Earth

Launched as Google Ridefinder

Core mapping capabilities in Google Earth

Picture management tools

Where2 LLC ZipDash Keyhole Picasa

Personalized Search Blog Site (blogger.com)

Context sensitive ads technology, integrated into Adsense

Ads technology, integrated into Adsense

Kaltix Pyralabs Applied Semantics Sprinks

Internet ad serving software

Data visualization software

Video game advertising

DoubleClick TrendAnalyzer Adscape

Blog search and analytics tool

Integrated into Docs and Spreadsheets

User-generated video sharing site

3D modellingcapabilities for Google Earth

SketchupWritely YouTube Measure MapSocial Tagging and Bookmarking

Del.icio.us

Mobile content and applications

Kenetworks

Photosharing site (Flickr.com)

Ludicorp

VoIP capabilities for IM client

Dialpad

Launched as new version of Yahoo mail

OddPost

Search Engine

AllthewebKeyword-based pay-per-click Internet advertising

OddPost

Online Job Search Portal

Hotjobs

Search Engine

Inktomi

Blog communities service

MyBlogLog



Telcos will need to address a number of challenges while adopting online players’ innovation practices

Key Questions Faced by Telcos Pertaining to their Innovation Strategy

Driving Innovation Internally

Benefiting from External

Innovation

Which methods and tools can telcos use to build and sustain employee generated innovation?

How can telcos create a start-up like environment conducive to creativity, given their large existing structures and processes?

How can telcos provide more attention and resources to innovation?

How can telcos leverage external innovation?

How can telcos effectively use consumer feedback in pre-launch stage (private beta, lab, public beta, non-branded)?

For which services can telcos involve the open developer community?

How can telcos effectively use the innovative capabilities of acquired start-ups?

Source: Capgemini TME Strategy Lab analysis