Telecommunications 2012-01-01
Telecommunications 2012-01-01
telecommunications
2012
Contents
Introduction
02
03
Editorial committee
04
Sector context
06
Executive summary
08
10
12
13
15
16
18
20
22
Contacts 25
Introduction
Jonathan Dharmapalan
Global Telecommunications
Leader
Jonathan Dharmapalan
2.
Disengagement from
the changing
customer mindset
3. Lack of confidence in
return on investment
Fi
n
5. Lack of regulatory
certainty on new
market structures
l
cia
n
a
Failure to dene
new business
metrics
6. Failure to capitalize
on new types of
connectivity
7.
Lack of regulatory
certainty on new
market structures
Lack of
condence in return
on investment
Privacy,
security and
resilience
Disengagement
from the changing
customer mindset
Poorly formulated
M&A and partnership
strategy
Insufcient information to
turn demand into value
Poorly
formulated M&A
and strategic
partnerships
Failure to
capitalize on new
types of connectivity
t
ra
St
eg
ic
Co
m
pl
e
nc
ia
4. Insufficient
information to turn
demand into value
The Ernst & Young risk radar presents a snapshot of the top 10
business risks in an industry sector, by dividing risks into four quadrants
that correspond to Ernst & Youngs Risk Universe model. These
quadrants are:
Lack of
organizational
exibility
at
io
n
er
p
O
Concentration of equipment
vendors
Editorial committee
Jonathan
Dharmapalan
Holger
Forst
Prashant
Singhal
Global
Telecommunications
Sector Leader
Global
Telecommunications
Markets Leader
Global
Telecommunications
Markets Leader
Olivier
Lemaire
Luis
Monti
David
McGregor
EMEIA
Telecommunications
Leader
Americas
Telecommunications
Leader
Asia Pacific
Telecommunications
Leader
Rohit
Puri
Bala
Balakrishnan
Adrian
Baschnonga
Director, Global
Telecommunications
Center
Telecommunications
Partner United States
Vincent de La
Bachelerie
Dennis
Deutmeyer
Mark
Gregory
Telecommunications
Partner France
Global Telecommunications
IFRS Leader
Telecommunications
Partner United Kingdom
Manesh
Patel
Michael G.
Stoltz
Jeremy
Thurbin
Telecommunications
Partner India
Telecommunications
Partner United States
Telecommunications
Partner France
Pieter
Verhees
Telecommunications
Partner Netherlands
Sector context
Safe haven positioning threatened by
questions over future growth
% change y/y
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
Q4
08
Q1
09
Q2
09
Q3
09
Q1
01
Q2
10
Q3
10
Q4
10
Q1
11
Q2
11
Americas Asia ex
Japan
FY 2011
1Eurostat; Deutsche Bank, European Telcos: The best way to play, 5 September 2011
(reports were sourced from author website unless otherwise noted).
2Macquarie, Global Telecoms, 15 September 2011.
Q4
09
Japan
FY 2012
Europe
FY 2013
Africa
4,000,000
2,000,000
Population
Mobile connections
Revenue (US$m)
1,200,000
1,000,000
800,000
600,000
600
400,000
500
200,000
0
400
300
2009
2011
200
FY 2012E
FY 2011E
FY 2010
FY 2009
FY 2008
FY 2007
FY 2006
100
0
2010
3Ovum, UNFPA, 2008 Population Revision Database, Ernst & Young analysis; Deutsche Bank,
Global Telecommunications, 25 July 2011.
4Ovum Mobile Voice and Data Forecast 2011-2016, January 2012; Cisco Visual Networking Index.
2012
2013
2014
2015
Executive summary
The top 10 business risks for telecoms
operators
The top 10
As value shifts from minutes of usage to volumes of data, operators need to move away
from their legacy strategies focused on customer retention, which have had the effect
of commoditizing the value of minutes and bandwidth in customers eyes. Instead of
concentrating on fighting churn, operators need to target revenues from new services
that tap into rising demand and master a wider array of charging models to monetize
these services.
With global technology brands now top of mind for consumers, and technology cycles
quickening, operators need to understand and respond to fast-changing customer
expectations and behaviors if they are to fight off the competitive threat from over-thetop providers. This will require operators to communicate clearly the underlying value
of the network and the sources of added value that differentiate their offerings in new
service areas. Innovation in the service model could also be used to build brand loyalty
in the same way technology players have done.
While operators have proved adept at managing capital investment and balancing it
flexibly with free cash flow and dividends, it is increasingly clear that tight capex control
can limit their ability to grow new services quickly. So they need to maintain their
commitment to investing in growth opportunities, while tracking technology and
consumer developments closely to ensure they target their financial investments
at the right areas at the right time.
To drive profitable customer propositions and improve their time-to-market for new
services, operators need accurate, timely and comprehensive business intelligence and
customer analytics, underpinned by aligned and integrated operational support and
billing systems. These elements pave the way for efficient growth by enabling operators
to produce better business intelligence for decision-making, helping them understand
customer changes before their competitors, and allowing them to reuse network data in
collaborative partnerships. Better information can also help operators reduce
operational costs and ensure regulatory compliance.
Revenue
(US$m)
450,000
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
6,000
5,000
4,000
3,000
2,000
1,000
2010
2011
2013
2014
2015
60%
Lean operator
2020
20%
0%
20%
30%
50%
30%
20%
40%
60%
Consumer
Business
25%
15%
50%
80%
100%
Wholesale
10
2012
Rank
2010
Rank
2009
Brand
Industry group
Technology
20
27
Apple
Technology
Microsoft
Technology
IBM
Technology
Walmart
Retail
Vodafone
Telecoms
10
10
GE
Diversified
Toyota
Automotive
11
14
AT&T
Telecoms
10
HSBC
Financial services
85
3DTV
Tablet
27
Netbook
33
e-Reader
54
11
55
Smartphone
60
HDTV receiver
93
Laptop
100 98
80
60
40
20
0
Games console
UK device penetration
Q1 2011 (%)
HD-ready TV
Landline phone
Mobile phone
TV set
Ambivalent outcomes
2009
North America
Europe
Q1 2011
Asia Pacic
Q2 2011
MEA
12
2010
3,500,000
3,000,000
Added urgency
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
2009
2010
2011
2012
2013
2014
WCDMA
HSPA
LTE
2015
2016
CDMA 1XEV-DO
2011
70
2008
59
50
55
65
70
75
2011
65
2008
67
50
55
13
60
60
65
70
75
Dynamic charging
capability
Improved
time-to-market
Better distribution
of network load
Shifting standpoints
The challenges and uncertainties around the policy approaches
to new market structures include shifting regulatory standpoints
on wholesale broadband access pricing, and the trend toward
imposing network separation as a pro-competition tool in
super-fast broadband. Going forward, new spectrum releases will
shape 4G market structures and the rules vary from market to
market in areas such as spectrum caps and trading. In new and
emerging areas such as mobile money, regulatory jurisdictions
and policies continue to lag behind the technology a challenge
compounded by the broadband as a human right lobby.
On top of these uncertainties, there is continued regulatory
pressure on legacy parts of the business, such as MTRs and
roaming. In combination, these issues have pushed regulatory
frameworks to the top of the list of challenges facing ISPs (see
Figure 13). And in tough fiscal conditions, operators know that
telecoms can be a rich source of government taxation as well as
a focus for government investment.
Figure 13. Survey: challenges facing ISPs12
Q. What is the key issue facing ISPs over the next ve years?
Regulatory frameworks
41
Return on investment
24
20
Access to capital
15
0
14
20
40
60
%
respondents
Seeking certainty
These factors are creating an urgent need for greater regulatory
certainty and, alongside greater clarity and consistency from
regulators, achieving this will require operators to engage with a
wider set of stakeholders. Consolidation in markets worldwide
will continue to impact pricing and investment, and the need to
fund next generation access and spectrum releases (see Figure
14 for European examples) will require broad market consensus
on the regulatory position. And overarching questions remain
about the impact of the net neutrality agenda across the whole
of the technology, media and telecoms ecosystem.
To engage effectively on these areas of uncertainty, operators
need to form workable sector stances on a range of issues.
These include the increasing relationship between fixed and
mobile policies for example, in the regulatory approaches in
adjacent markets (e.g., financial services) traffic management
of data services and the drive to increase broadband coverage in
rural areas.
Figure 14. European 800 MHz spectrum auctions13
Date
Sep 11
Italy
Jul 11
Mar 11
Spain
Sweden
60
60
60
May 10 Germany 60
Price/ Notes
MHz/
pop
2,962 0.82
1,205 0.47
228
0.42
3,600 0.73
This new risk, which has come straight into our top 10, springs
from the fact that new types of connectivity notably M2M links
require new types of strategies. As M2M takes off in various
vertical markets (see Figure 15), the very concept of
connectivity is rapidly being fundamentally redefined.
15
Health care
Government, retail and
nancial services
0.45, 21%
14Analysys Mason, Imagine an M2M world with 2.1 billion connected things,
January 2011.
Security
Automotive and transport
Global M2M
connections:
2.1 billion
Utilities
1.32, 62%
Deutsche
Telekom
International M2M
competence center
in Bonn; US M2M
outsourced to RACO
Wireless
Home security,
resource
management,
smart metering
and grid,
telematics,
logistics, retail
Vodafone
Dedicated M2M
organization launched
in 2010
Automated SIM
pre- and post-paid
provisioning; policy
management; API
integration with
customer systems
Environmental
monitoring,
remote
maintenance
and control,
tracking, health
care, metering,
automotive
telematics
and fleet
management
70
10,000
60
50
8,000
40
6,000
30
4,000
20
2,000
10
Deal value
16
# of deals
4Q10
Utilities, fleet
management,
security, health
care, consumer
electronics
12,000
3Q10
Jasper-powered Control
Center provides
analytics reports,
automated provisioning
80
2Q10
Emerging Devices
Org as dedicated BU.
B2B M2M is part of
Advanced Mobility
Solutions Group
# of deals
1Q10
AT&T
US$m
14,000
4Q09
Target
segments
3Q09
Service delivery
platform
2Q09
1Q09
4Q08
3Q08
2Q08
1Q08
-7%
39%
-4%
-4%
69%
46%
61%
-7%
45%
Stakeholder caution
-7%
46%
Decreased
Increased
17
and externally
Key performance
indicator
Rationale
Mobile voice
growth
TV market share
Churn
Penetration
Customer market
share
MoU
ARPU
Pre- and post-paid
split
hits
Revenue market
share
transmitted
3G/4G network
utilization
M2M connections
Mobile payment users
3G handset take-up
Smartphone take-up
18
The new KPIs for this environment will need to include metrics
such as revenue generating units (RGUs) per customer and
segment market shares and track the penetration of new
services into the installed base. They will also have greater
sensitivity to households and existing coverage areas, provide
deeper insights into network utilization patterns such as urban
versus non-urban traffic, and delve deeper into customers
smartphone behaviors.
Additional internal operational metrics will also help operators
improve the customer experience, with more insights into quality
of experience, and KPIs built on aggregated data drawn from a
variety of systems and processes, such as service configuration,
billing and customer care.
This risk area has risen by one place since 2010, reflecting the
conflicting pressures that operators face. On the one hand,
operators are widely regarded by customers and business
partners as security guarantors across a range of services. On
the other, they have to try to fulfill this role while coping with an
array of threats that are expanding rapidly in number and
severity.
The challenges are compounded by rising concerns among
customers. As mobile phones evolve into personal data hubs,
end users are facing privacy and security dangers that are
escalating and multiplying, as threats converge from a range of
environments, including SMS, cloud, Web 2.0 and mobile apps.
As a result, customers are now as concerned about data integrity
as call quality (see Figure 21).
6 9 11
55
15
22
Unsolicited messages/spam
54
18
21
23
20
Malware/viruses
Rogue apps that can
steal data/spy
0%
Carriers
Content/app provider
46
36
11
10
50%
37
17
100%
19Adaptive Mobile, Mobile Trust & Security Barometer US, September 2011
(survey consists of online interviews with 2,000 smartphone users).
19
74
Period of data
retention
Timing of
implementation
This risk is new to our top 10 this year, driven by the need for
operators to develop more agile organizations that can execute
their new strategies. With their organizational structures now
subject to various forces, including the shift to data services, the
rise of partnering and the growing imperative for speed-tomarket, operators have already made significant changes to
their organizations. But more are needed.
The changes to date include a concerted sector-wide move away
from product-based structures and toward segment-orientated
organizations. New business units have also been created to
investigate and exploit new growth areas (see Figure 23).
However, the forces affecting organizational structures continue
to change and strengthen. These forces include intensifying
regulation of many incumbents domestic businesses, fastchanging levels of market maturity across different regions, and
the need for in-market and cross-border efficiencies in fastchanging areas of demand, such as enterprise ICT, smart
services and fixed/mobile bundles.
Figure 23. Carrier organizations sample new business units20
Date
Conditions of access
to and use of retained
data
Regulatory
issues
Operator
Sep 11 Telenor
Notes
Digital
Services
Group
New unit established to drive
Industrial
operational efficiency, crossDevelopment market streamlining and other
synergies
Cost reimbursement
of service provider
compliance
External attitudes to
data retention, e.g.,
end users, privacy
groups
New Unit
Global
Resources
Customer
Sales and
Service
Jul 11
Telstra
20
Segment-based
Consumer
Enterprise
Product-based
Wholesale
Fixed
Function-based
Finance
HR
Operations
Mobile
Other
Geography-based
Domestic
21
Regional
Intl
The top 10
1 Failure to shift the business
model from minutes to bytes
22
ial
c
an
Failure to define
new business
metrics
Lack of regulatory
certainty on new
market structures
Lack of
confidence in
return on investment
Failure to shift the
business model
from minutes to bytes
Disengagement
from the changing
customer mindset
Poorly
formulated M&A
and strategic
partnerships
ra
tio
ns
t
ra
St
Lack of
organizational
flexibility
Evolving service
cannibalization
scenarios
23
Privacy,
security and
resilience
Insufficient information to
turn demand into value
Failure to
capitalize on new
types of connectivity
eg
ic
Co
m
pl
e
nc
ia
Fi
n
Difculties in managing
debt and cash
e
Op
Concentration of
equipment
vendors
24
Global
Telecommunications
Center contacts
Jonathan Dharmapalan
Global Telecommunications Leader
+1 415 894 8787
[email protected]
Holger Forst
Global Telecommunications Markets Leader
+49 221 2779 20171
[email protected]
Prashant Singhal
Global Telecommunications Markets Leader
+91 124 671 4746
[email protected]
Olivier Lemaire
Telecommunications Leader EMEIA
+352 42 124 8356
[email protected]
Luis Monti
Telecommunications Leader Americas
+55 11257 33550
[email protected]
David McGregor
Telecommunications Leader Asia-Pacific
+61 3 9288 8491
[email protected]
25