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Telwares Communications, LLC Proprietary Copyright © 2005
Telecommunications
Industry Update
““The New Telecom Era –The New Telecom Era –
Leveraging Carrier Leveraging Carrier
Consolidations”Consolidations”
November 17, 2005
Telwares Communications, LLC Proprietary Copyright © 2005
WIRELINE MARKETS
Telwares Communications, LLC Proprietary Copyright © 2005
Wireline Market Dynamics
Impact of Industry ConsolidationImpact of Industry Consolidation
• Merging carriers cannot afford to lose customer base which keeps/heightens competitive environment
• Flexible terms and conditions are required to mitigate risk resulting from industry consolidation and to take advantage of pricing reductions (and preserve them longer term)
• Client should immediately seize opportunities to secure leading edge contracts before merger(s) consummate
Short-Term: Short-Term:
Long-Term: Long-Term: • Watch service levels during network/operational integration
• Additional workforce reductions/rationalization
• New culture within each carrier will shape customer experience
Now is the time to perform complete market/carrier/technology due diligenceNow is the time to perform complete market/carrier/technology due diligence
Telwares Communications, LLC Proprietary Copyright © 2005
What Mergers Mean for Enterprises
♦ Less true competition (in long-run) Stabilizing (potential up-tick in) pricing Less customization of contract terms
♦ Changes in service and support Expect account team changes Non-contractual support will erode Integration of invoicing platforms could make already-poor billing even worse
♦ Network migration Merger synergies will dictate migration of customers to most efficient network Customer diversity plans (multiple carriers, different routes,
etc.) will be altered
♦ More regulation Excuse to step away from aggressive, custom-pricing behavior Special access (in connection with LD networks) may fall
under different rules
Telwares Communications, LLC Proprietary Copyright © 2005
Volume/Commitment
Pri
ce
• Commitment size or volumes do not completely dictate price
• Pricing is situational, depending on the variables at that moment. Result: different prices for similar customers
• Carriers will continue to look to maximize profit, with highest possible price AND minimizing rate write-down
• However, better pricing with lower commitments are available, with key knowledge and application of leverage in today’s dynamic environment
Carrier Marketing
Leading Rate Trend
Contract #3
Contract #1
Contract #2
Price/Volume relationship remains situational…
Renewing Contract
Telwares Communications, LLC Proprietary Copyright © 2005
Purchase by Verizon will compete well with SBC/AT&T Combination of financial strength, embedded access/local
relationships, and wireless will drive powerful enterprise market
contender
Definite culture change for MCI (and risk to enterprise business)
Watch out for departure from aggressive pricing/contract terms (MCI
legacy)
Look for MCI to remain aggressive through 2005
Acquisition approved and executed 1st Qtr of 2006 (MCI
Shareholders approved on 10/06, DOJ and FCC approved at the
end of October)
Acquisition approved with only two significant concessions:
MCI/VZ will have to divest themselves of fiber into 350
buildings in the VZ territory
VZ will have to offer unbundled DSL
CA and NY are the two states left to formally approve
Diversity issue for legacy MCI companies in the northeast Verizon will now control almost all telecom services for many clients
MCI
Telwares Communications, LLC Proprietary Copyright © 2005
AT&T
SBC’s acquisition of AT&T will create strong company
Perhaps, stronger than many believe reasonable in terms of continued
competition
Legacy AT&T value = enterprise customers and strong global network
Will focus on sticky solutions, such as managed (EVPN) networks
Culture integration (or clash) will be key
Expect deal to consummate in December 2005 (DOJ & FCC have already
approved and CA is the last state needed for formal approval)
AT&T/SBC will need to divest some fiber into 350 buildings in the SBC
territory
SBC will have to provide unbundled DSL
With large existing market share, the combined entity could easily
disrupt many customers’ diversity and vendor-positioning strategies
(e.g. – now single provider)
Clients of AT&T should anticipate some network and account support
issues potentially before and after the acquisition is complete
Telwares Communications, LLC Proprietary Copyright © 2005
Sprint
Merger with Nextel created a very strong wireless combination
Strongest wireless push into enterprise, although coverage not
as good as Verizon or Cingular
Focus on achieving merger synergies and associated debt
distract from potential merger with remaining RBOC
Profitability focus has pushed Sprint away from larger
enterprise wins
Delay in rolling out MPLS strategy has weakened Sprint’s
reputation with large enterprises
Look for Sprint to maintain focus on its current enterprise
customers (retention), while also looking to expand wireless
into current base
Sprint is aggressively pushing the one contract-one account
team for both their wireless and wireline services
Publicly stated they will migrate their existing Frame Relay
customers to their MPLS based network by end of 2007
Telwares Communications, LLC Proprietary Copyright © 2005
Changing times at the FCC Kevin Martin replaced Michael Powell as Chairman
Continued push for limited/no regulation on internet services, such as VoIP
Review of 3 large mergers will take up staff’s resources in 2005/2006
FUSF will be reviewed in 2006 (Cable Broadband currently exempt)
Focus on broadband and DSL expansion to more areas of U.S. (Just approved
that DSL network providers do not have to share their networks; a big victory
for the LECs)
Regulatory Climate
Telwares Communications, LLC Proprietary Copyright © 2005
KEY CONTRACT COMPONENTS FOR TODAY’S ENVIRONMENT
• Flexible Revenue Commitments:
Term vs. Annual
No more than 70% of expected runrate
• Degradation of service/support, pre and post merger
• Stabilized pricing for all elements
• Market review with remedy
• Term extension options in the event prices increase
• Business protections for:
Business downturn, divestiture, technology change,
Technology Migration, Network optimization, etc.
Diversity (now looking at new, combined companies)
• Account team support commitments
• SLAs on key network metrics
Telwares Communications, LLC Proprietary Copyright © 2005
KEY TAKEAWAYS
• Acquisitions will most likely be approved no later than the
end of the first quarter 2006
• To-be-acquired LD companies still seeing difficulty in
marketplace (stretch to make revenue/EBIT plans)
• Therefore, competitive pricing still the rule… but with
potential for short-term expense reductions if revenue not
materializing
• Eventual rationalization of pricing post mergers
• Carrier emphasis on managed solutions, applications, and
the “bundle” vs. plain transport
• Further industry consolidation
• Good timing for contract pricing renewal and reinforcement
of service/support requirements
• AT&T/SBC looking like SBC vs. MCI/Verizon which is a
combo.
Telwares Communications, LLC Proprietary Copyright © 2005
WIRELESS MARKETS
Page 9
Telwares Communications, LLC Proprietary Copyright © 2005
The Wireless (Broadband) Question
• The reality of broadband wireless in terms of global scale, domestic distribution, and willingness of providers to let go of tradition
• Service providers are largely inventing the same wheel
• Leadership in IT infrastructure investment
• Enterprise will play the lead role in installing ubiquitous wireless technology above and beyond the organization
• Resolution will come from demand, invention and expectation
A challenge in the global marketplace for the IT and Business A challenge in the global marketplace for the IT and Business leaders of large enterprise...leaders of large enterprise...
Telwares Communications, LLC Proprietary Copyright © 2005
Wireless Sourcing Dynamics
Legacy industry practices help drive the current state and Legacy industry practices help drive the current state and climateclimate
• Pricing complexity and structure is consumer-centric, and is designed to preserve a high margin environment to support expectations
• “Boilerplate” environment for contracting practices – less than sophisticated against enterprise demand set for flexibility and risk mitigation
• Account support and general administration is less than adequate against the requirements for successful program management
• Business critical technology messaging – combined with a casual urgency in real terms
• Consolidation requires a steadfast game plan for preserving base and balancing build outs
• Heavy investment continues in new technology and coverage / capacity
Carriers:Carriers:
Telwares Communications, LLC Proprietary Copyright © 2005
Wireless Sourcing Dynamics
New challenges emerge in enterprise sourcing and mobility…New challenges emerge in enterprise sourcing and mobility…
• Fluid environment for technology, billing, account support and application are heightened by consolidation activity
• The target market for the industry – and what is driving advancement
• Supporting the technology, and the associated costs / accountability
• Policy, security and generating visibility• Balancing the bandwidth and application
demand• The international question, and strategy• Mapping WiFi, WiMAX, RFID and other
technologies•Reality versus myth•Timeline and application
• A true disparity in enterprise experience across verticals and size / population
Telwares Communications, LLC Proprietary Copyright © 2005
Mergers, Acquisitions, and New Branding
• Continuing Orange and Blue challenges in approach, model, and support• Billing system challenges and integration efforts• Implied “instant” giant lacks in some areas of reality• Maintain a cautious eye on account support• Approach sourcing efforts aggressively
Cingular / AT&T Wireless:Cingular / AT&T Wireless:
• Nextel delivers valued spectrum, heavy enterprise base and PTT powerhouse
• Engineering company meets marketing company
• Unique position among Tier 1 players with both wireless and wireline assets
• Market leader with voice and data SLA’s – which are unfortunately diluted
• Hampered by lingering (and realized) network perceptions
• Be aware of migration efforts around billing and technology
•Complex billing integration
•PTT application users must exercise all means of communication with the combined entity
Sprint / NextelSprint / Nextel
• Combined network footprint, internal efficiencies and base lead to potential Tier 1 play• Niche plays in large enterprise will begin to offer compelling stories• Watch for more of this Tier 2 activity
Alltel / Western Wireless:Alltel / Western Wireless:
Telwares Communications, LLC Proprietary Copyright © 2005
Enterprise Strategies
Four Key Strategy Drivers – The Foundation of Best Four Key Strategy Drivers – The Foundation of Best PracticesPractices
Page 13
Drive Savings:Drive Savings:• Drive market leading price
points• Utilize market leverage• Simplify the structure
•Pricing and support• Terms and conditions
•Flexibility / Risk Mitigation•Accountability
Simplify the Program:Simplify the Program:• Consolidate the supplier base• Address functional
requirements• Take ownership of the asset• Understand the demand set
•Profiles, applications
Leverage the Technology:Leverage the Technology:• Utilize established control• Map wireless to key initiatives• Drive synergy and efficiency
across infrastructure• Take advantage of broader
application spectrum
Enforce the Strategy:Enforce the Strategy:• Drive behavior and experience• Define and support the process• Generate leverage• Provide risk mitigation
•Legal, IP, security, etc…• Set baseline for future
sourcing, security, technology, process
Telwares Communications, LLC Proprietary Copyright © 2005
Enterprise Strategies
• Eliminate as much complexity as possible in the pricing structure• Drive price points that support flexibility in application• Generate savings to assist in funding overall management strategy• Demonstrate real return on investment, and make it last across the lifecycle
Financial:Financial:
Operational:Operational:• Use policy as a strategic bridge to mitigate risk, drive behavior, and support the
ongoing sourcing / management efforts• Maintain visibility and accountability with robust inventory / asset management• Executive sponsorship and priority
• Terms and conditions that speak to the volatility of the marketplace, and the practical business environment
• Look to stabilize the experience – support, MTTR, and relationships• Address changes in technology – speak in contract language ahead of the curve
Contractual:Contractual:
Technical:Technical:• Separate the market hype from enterprise reality – plan based on good intellectual
property• Utilize sourcing and policy events to generate momentum in mobility planning• Address the mobile device from a network / IT infrastructure standpoint