CommsDay Summit 2016: Accenture's David Ellis

CommsDay Summit – 4th March 2016

Operating in the Middle of the Digital EconomyDavid EllisCommunications Industry LeadAccenture APAC

Copyright © 2016 Accenture. Confidential and proprietary material. All rights reserved. 2

Operators face a very real risk of becoming <10% EBITDA businesses unless they prepare for new market realities

8 Mega-trends will decide on two extreme industry characteristics:1) Infrastructure Dominance2) Digital Dominance

Overview

Telcos actively seek new positions within three potential scenarios:• Commodity Play: Protect the core, but accept the “new normal”• Synergetic Collaboration: Exploit assets in a world of “co-opetition”• Digital Battlefront: Position in the “middle of the Digital Economy”

TraditionalTelco is dead…

In a world of uncertainty…

Better be prepared…

Regardless of desired strategic direction Telcos must implement 5 “No Regret Moves“ to position for adjusted cost/revenue performance

Long live the Smart Telco!


8 Mega-trends are shaping the Comms Industry up to 2020

1. Customer 3.0(Changing consumer behaviour, new

services, digital customers are shared & not owned, “lock-ins” no longer work)

2. Telco Core Erosion(Declining revenue in voice and data services, difficult monetisation of 4G,

strong market regulation)

3. Webscale Rising(Entrance of internet players, rise of

customer centric OTT providers, centralisation of ecosystem )

7. Smart Consumer Services(Real-time services, at technology level

and demand level)

5. Fixed Line Reloaded(Wireless cap. limited, fixed line continues

to play a significant role)

8. New Monetisation Paradigm(Big Data, analytics, ad-based / freemium

monetization, data monetization)

6. Intelligent Enterprise(Internet of Things, Smart

Manufacturing, M2M Communications)

4. Technology Revolution(Shifting infrastructure needs,

intelligent systems, e.g. SDNs/NFV, CDN, 5G, SD-WAN)


Needs and purchasing behaviour of digital customers have evolved

Customer 2.0Customer 1.0 Customer 3.0

• Slow and failing connectivity• Internet an advertising

medium• Limited customer

engagement

• Customers seeking new choices

• E-Commerce / ‘Internet-only’ businesses

• Hyper-connected• Spoilt for choice• “Want it now” attitude

1990-2000 2000-2010 2010-2020

Purchase path used to be linear…

...But is now…

Open content & channels

Branded content & channels

1. Customer 3.0

Dynamic

Accessible

Continuous

Higher Digital Customer Intensity

Source: Accenture Analysis


Value in the Telco market has shifting away from the Operators…

Market Capitalization (Comms Industry)Market Capitalization (Telco Operator)

2. Telco Core Erosion

Selected European Telco Market Cap11/2005 to 11/2015 – Market Cap (Euro m)

Global and European comms industry profit pool(1)

[Nov ’05 – Nov ’15, EUR]

80,000

140,000

60,000

40,000

20,000

100,000

120,000

2005 2010 20150

Vodafone (-3%)DTAG (3%)

Telefonica (-1%)BT (8%)

Orange (-2%)Telecom Italia (-6%)KPN (-2%)

CAGR 2005-2015

2,000

1,000

1,500

3,000

2,500

500

02010 20152005

896bn (+320%)

Market CapEURbn(10yr growth)

917bn (+167%)

317bn (+56%)251bn (-12%)234bn (+42%)

Devices

Aggregators

ContentWirelessWireline

Source: Bloomberg; Corporate information; Accenture analysis.

High growth of devices and aggregators firmsNo growth in market cap. of Telco Operators


…with further threat from Webscale players…

3. Webscale Rising

2008

2010

2012

2014

Today

2008

2010

2012

2014

Today

2008

2010

2012

2014

Today

2008

2010

2012

2014

Today

2008

2010

2012

2014

Today

Device

Types

PC

Tablet

Phone

TV/STB

Wearables

VR / AR

Home IoT

Cloud Servic

es

Media

Comms

Maps

Search

Storage

Store

Operator

Services

Voice

Data Care

Data Access

Services

Google AmazonMicrosoft Apple Facebook

Limited / Indirect

Present

Not Present

Telcos need to differentiate from Webscale players to establish a clear position of value in the marketSource: Google, Microsoft, Apple, Amazon, Facebook, Accenture analysis, 2015.


… underpinned by bold strategic moves and investments

Voice & Data Products

Traditional Network Development

Last Mile Operators

Selective fibre roll-out (1GBit/s), delivering

superiorfixed-line speeds to a number of cities in the

US

Provision of internet access to remote populations using

mobile assets (e.g. drones, high altitude balloons, satellites)

‘Wi-Fi First’ providers of connectivity,

utilising ‘freemium’ business models

Hybrid WiFi/Wireless Models

High consumer engagement

of social apps such as Facebook, WhatsApp,

and YouTube

SKYBENDER

3. Webscale Rising

Webscale players are seeking to extend ownership and control of the ‘end to end’ customer experienceSource: Comscore, Traction metrics, The Economist; oneweb.world; Accenture.


Network and Infrastructure developments continue to transform and change the industry significantly

Best Effort, “Bandwidth Mantra”

Traditional connectivity model

Voice, email, Internet(«break – fix»)

2G, 3G, 4G(10.000s cells)Access

Services

Network

Quality

1

2

3

4

< 1 year

1-2 years

1-2 years

2 yearsRaise of CDN, Edge Computing, “Quality of Service Mantra”

Business Clouds powered by virtualization (SDN/NFV, SD-WAN)

Wearables, AR, virtual reality, tactile internet, IoT(«perform»)

Heterogeneous Networks / 5G (~100.000s cells)

Technology development New technology mantras

Engineer and Operate Virtual HetNets*,

optimized for service experience, with end to end business functions

(*) HetNets are heterogeneous networks, with seamless multiple technologies

4. Technology Revolution

FROM… …TO:

Plan & Deploy 100.000s Cells HetNets

Design & Operate Quality of Service Experience

Provide Business Clouds for the vertical industries

Design for billions of transactions, pByte of data

Industry is being transformed by major drivers that will require new capabilities in the NW Engineering and Operations servicesSource: Accenture Analysis


New services need increased bandwidth and low latency requiring Telcos to invest in new infrastructure to keep up with emerging technology demands

Telco operators need to upgrade their network and 5G requires more base stations hence more backhaul infrastructure is needed

5G technology can be a chance to positively influence “balance of power” versus over-the-top players with regards to Quality of Service (e.g. mobile edge computing)

Impactions of 5G for Telco OperatorsBandwidth and delay for new services

5G allows innovative services such as tactile internet thanks to low latency (delay) and high bandwidth

Delay

1ms

10ms

100ms

1,000ms

<1 Mbps 1 Mbps 10 Mbps 100 Mbps >1 GbpsBandwidth throughput

Tactile internet

Virtual reality

Multi-person video call

Augmented reality

Autonomous driving

Real time gaming

Bi-directional remote controlling

First responder connectivity

Wireless cloud based office

Video streamingPersonal cloud

Device remote controlling

Monitoring sensor networks

Automotive ecall

Disaster alert

5G

Legacy network

Fixed Nomadic On the go IoT connectivity

4. Technology Revolution

5G requires Telcos to upgrade network infrastructureNew services require high bandwidth and low delaySource: GSMA, Accenture Analysis


Operators are pursuing fixed-mobile network M&A

5. Fixed Line Reloaded

Vodafone takes over Kabel Deutschland for approx EUR 11 bn.

French Telco firms SFR and Numericable merge

Vodafone and Liberty Global agreed on joint venture for Netherlands

Telenet (Liberty Global) takes over Base in Belgium

Source: © Ovum, “Network & Tower Sharing Analyzer: 1Q15”, May 2015, © Enders Analysis. © S&P Capital IQ Database. Accenture Analysis


New enterprise services offer significant growth potential

Cloud Services

Security Management

Machine-to-Machine Connected Car Smart City Smart Home Remote control

of devices

Cloud Storage Cloud Management Big data storage Analytics

Enterprise Security Vulnerability Management

Enterprise services

Industrial Internet Smart Manufacturing “Industry 4.0” Intelligent Machines New Workforce

(Maintenance, Installation services)

6. Intelligent Enterprise

Telco players need to adapt to the new opportunities surrounding the wave of consumer driven enterprise products and services


In each of the B2B marketplaces, Telcos need to vie for relevanceHardware

(Automotive) Platform Application Services/ Content CRM Infrastructure

Automotive OEM

Supplier

Car Insurer

Telco Player

Digital Player

Core businessPotential new business

Core New / Potential

? ?

Connected Car


Telco players need define their industry position and leverage capabilities to become relevant in the living services waveSource: Accenture Research


New consumer services provide growth opportunities in B2C segment

ConsumerServices

7. Smart Consumer Services

Smart Home Home security 24/7 service Video surveillance Smart Thermostat Smart Plugs

Wearables Smartwatches Fitness devices Glasses Smart clothes

eHealth Tele-Diagnostic Elder falls alarm Blood pressure Glucose levels

Video & Media Content TV + Cable channels Streaming services Applications Advertising

Telco players need to adapt to the new opportunities surrounding the living services wave


New revenue models have developed due to market entrance of web players including subscription, commission and advertising

Media e.g. video, music etc.

Advertising, Subscription, Commission

Voice Calling

Advertising, Subscription, Commission

Data Connectivity

Advertising

Location Based Services

Commission

Text Messaging

Advertising/Transactional

Hosting / Cloud Services

Subscription

Maps & dedicated GPS devices

Advertising

Traditional Operator Offerings & Disruptors and primary revenue models

8. New Monetisation Paradigm

Traditional subscription-based revenue models of Telco players are threatened as new models become the industry normSource: Accenture Research


Today, Telcos are mainly using licensing or co-branding partnerships – in the future more JV or M&A are expected

Telco can offer the combination of its resources with the partners resources and takes over full risk of operations

Licensing

Telco can offer (preferred) access to network, customers, cost sharing, knowledge exchange

Telco can offer sale to the full customer base

Telco can offer partner access to customer base and distribution via shops/webpage

Telco takes over potential collaboration partner an owns equity and resources and has a high ability to influence operations

Partners join forces in a joint legal entity, both partners share equity as well as resources of the joint venture

Partners remain separate with joint market approach and joint brandingTelco licenses particular product

for distribution/sale

Co-Branding M & A Joint Venture

Short-term Long-term

Wha

t?W

hy?

Position of Telcos


TODAY FUTURE

Telcos need to define preferred mode of collaboration and carefully assess the time horizon and pros and cons of each optionSource: Accenture Research


Comms providers must also look to capitalise on the rich consumer data under their ownership


Mobile Marketing Location Data Identity Management Connected People Mgt

Overview

Buyers

Execution Strategy

• Combine mobile network data with customer profiles

• Targeted with advertising and discounts

• Advertisers • Media agencies • Data management platforms• Mobile/video ad networks• Publishers

• Sharing mobile network data with ad brokers, data management platforms and research firms

• Dev. ad placement platform

• Use location data to determine site selection, location demographics, customer behavior to ads, competitive traffic and purchase throughput

• Real Estate Developers • Shopping Centre Operators• Retailers• Retail Analysts

• Provide aggregated panel data for retail analytics

• Develop an advanced analytics platform for retail site selection and analytics.

• Use mobile data to identify suspicious activity i.e. fraud

• Mobile location more reliable than IP address which can be masked

• Banks• Payment Processors • Insurance Companies• Government Agencies

• Correlate credit card with phone location

• Auto notify financial institutions of movement across border

• Use mobile network data to understand traffic patterns and plan transportation etc

• Use to understand large gatherings, potential riots

• Government Agencies• Police Force• Event Planners• Insurance companies

• Develop connected person placement platform

• Sell data as a service data government agencies

Telco players can build platforms or sell aggregated data to offer valuable insights to both public and private organisationsSource: Accenture Research


The 8 Mega-trends lead to distinct characteristics which define the future market scenarios of the Telco industry

1. Customer 3.0

2. Telco Core Erosion

3. Webscale Rising

4. Technology Evolution

5. Fixed Line Reloaded


7. Smart Consumer Services


INFRASTRUCTURE DOMINANCE

DIGITAL DOMINANCE

• Infrastructure is still dominated by Telco Operators

• Regulation ensures Telco players retain control of infrastructure and allow limited QoS differentiation

• Telco operators still own customer relationship for core services

• Majority of digital services are being provided by Web players

• Webscale players dominate the digital product and service landscape

• Webscale players are competing in core voice/data markets with own infrastructure and/or by providing own data/voice service bundles (e.g.via eSim)

• Telco players are trying to win in digital with their own offers or through collaboration to avoid becoming dumb pipe operators


Commodity Play Digital Battlefront

We see three core scenarios for the telecommunications industry

Synergetic Collaboration

Revenue split IDSP: Revenue split

Digital player enter Telco space and offer sim cards (eSim) and own core network products.

Endgame for digital services and communications services.

Focus on digital services and/or network connectivity.

Succeed as IDSP1 or fail as Dumb Pipe

Revenue split

Telco and web player cooperate for products and services offerings.

Operators partially give up customer ownership in favour of B2B2C focus

Focus on high quality network products + partnerships/rev shares& especially QoS monetisation

Smart Pipe

Telco becomes pure commodity provider to consumers and enterprises.

Digital services dominated by Webscales.Operators have customer ownership but lack of growth opportunity.

Focus on core voice/data network products and wholesale.

Commodity Play for B2B & B2C

Dumb PipeRevenue split

Infrastructure Dominance Digital Dominance

Enterprise, Wholesale Enterprise & Wholesale

Margin development Margin development Margin dev.

~35%today

~10% >35%~35%

Margin dev.

~35%~35% >35% <10%

B2C B2B B2C B2B / B2B2CB2C B2B B2B2C Po

tent

ial T

elco

Pos

ition

Note: 1Integrated Digital Services Provider

today todaytodaytomorrow tomorrow tomorrow tomorrow


Telcos need to actively seek new positions to stay relevant

Traditional Operator

Traditional Operator are at the intersection of Commodity Play and Synergetic Collaboration

Commodity Player

Strong focus on core competencies (network / marketing & sales). Customer ownership allows establishment as partner in B2B and B2C in pseudo-protected market environment

Smart Pipe

Strong partnerships with web players as basis for successful collaboration, strong focus on B2B(2C) and QoS with protection of core from regulation

Potential to move between Commodity Play and Smart Pipe Integrated

Digital Service Provider

Establishment as Digital Service Provider offering access/connectivity + digital products and services to end customer

Dumb Pipe

Failure to establish as IDSP, Telco is disintermediated by webscale ending up as dump pipe (pure wholesale provider) or dies

Commodity Play Digital BattlefrontSynergetic Collaboration



Evolution path depends on enhancement of functional capabilities



Commodity Player

Smart Pipe IDSP Dumb Pipe

ITCUSTOMER

SERVICER&D/

ENGINEERINGNETWORK

SALES & MARKETING

GENERAL & ADMINI

Func

tiona

l C

apab

ilitie

s

For future evolution, Telcos need to modify their DNA which is based on six key functional capabilities



Digital Battlefront is most challenging market scenario as Telco needs to succeed in core and digital business

IT

NETWORK

CUSTOMER SERVICE

SALES & MARKETING

R&D/ENGINEERING

GENERAL &ADMINISTRATIVE

• High quality• Low costs

• Divest infrastructure, only selectively invest based on analytics• Focus on wholesale and share network capabilities• Outsource build/ service/ maintenance of network/ OSS

• High Quality• Leader in product

development

• High Quality• Efficient & best-in-

class IT

• High quality• Low cost

• Low Cost

• Low Cost

• Modular and flexible IT Architecture• Agile and open platform• Use of best in class Enterprise SaaS to drive efficiency• Customer-value driven service levels• Heavily outsource back and front office• Invest in automation/AI • Segment-specific monetization models (e.g. freemium)• High focus on online channel to generate sales• Strong brand for convergent products and services• Development of innovative services, e.g. Living Services• Focus on content creation and partnering with content provider• Strong focus on big data and analytics• Establish innovative culture and network of R&D labs

• Significant outsourcing of business services• Lean back office operations

Non CoreCapability Importance Core

Characteristics Key ConsiderationsIDSP


Strategic implications for this scenario are excellence in innovation and strong digital brand

Non CoreCapability Importance Core

Focus on digital product innovations beyond the core:• Invest heavily in new business areas (e.g. IoT, digital services, web services and smart city)• Develop fully fledged product portfolio by partnerships, acquisitions and organic innovations• Integrated enterprise services, e.g. unified communication, cloud, M2M and device management • Deliver seamless customer experiences by creating delighting and consistent customer journeys • Ensure personalised customer experience across all channels with the support of AI capabilities

Make analytics a growth driver and develop monetisation model:• Enhance real-time predictive analytics and closed loop execution against customer needs• Implement digitally enabled processes, intelligent robotics and end-to-end process automation• Monetise specific sets of data in action and set up new operating models• Monetise of data and monetise reach via ad-based model• Complement subscription model with freemium model

Become a (global) brand in digital industry:• Develop disruptive products and services in the digital area beyond the core network• Become recognized globally as a leading player in digital innovations• Become the preferred ecosystem provider for partners and suppliers to offer products and services

Foster Innovation culture to achieve “Silicon Valley R&D Performance”: • Promote leaders who disrupt the status quo and redefine success in terms of innovation • Encourage cross functional cooperation and break down silos• Establish network of R&D labs and establish start-up accelerator

IT

NETWORK

CUSTOMER SERVICE

SALES & MARKETING

R&D/ENGINEERING

GENERAL &ADMINISTRATIVE

IDSP


Independent of the scenarios Telcos must take 5 moves to succeed



Commodity Player

Smart Pipe IDSP Dumb

Pipe


Lean Operating

Model

5 No Regret Moves

Networkof the Future

• SDN / Network 3.0• NW Virtualisation

Seamless Customer

Engagement• Digital Experience• Seamless Omnichannel

Actionable Analytics

• Customer 360• Big Data

• Multi Shared Service• Large Scale G&A BPO

Virtual Workforce of the Future

• Agile, Collaborative and Insight Driven Culture

• Automation / Robotics

1 2 3 4 5


Summary

TraditionalTelco is dead…

In a world of uncertainty…

Better be prepared…

Long live the Smart Telco!

We have to face a new set of realities or will become <10% EBITDA businesses

Two distinct characteristics will emerge: Infrastructure Dominance and Digital Dominance

Although there are survival strategies as “Commodity Players” and through “Synergistic Collaboration” – there is an opportunity to for Telcos to operate in the “Middle of the Digital Economy”

Regardless of the path, Telcos need structural changes across Network, Customer engagement, Analytics, Op Model and Workforce


https://www.accenture.com/us-en/insight-integrated-digital-service-providers.aspx

To find out more:

David EllisAccentureCommunications Industry Lead – Asia [email protected] +61 409 892 430

mailto:[email protected]