ITU / BDT workshop Cairo-Egypt, 25-28 June 2007 Competencies for Competitiveness Lecture 1

ITU / BDT workshopCairo-Egypt, 25-28 June 2007

Competencies for Competitiveness

Lecture 1

The changing market environment

ITU / BDT / HRD HR development ProgramGeneva, March 2007 Lecture1 slide 2

The changing market environmentThe changing market environment

Major changes in the Service Providers' revenue Major changes in the Service Providers' revenue structurestructure

Pricing policies, Interconnection and PeeringPricing policies, Interconnection and Peering New actors and new business models New actors and new business models Development of Broadband accesses and IP Development of Broadband accesses and IP

based servicesbased services Conclusion : Impact on Human ResourcesConclusion : Impact on Human Resources


Telecommunications is the fastest Telecommunications is the fastest changing industrychanging industry

Regulation, privatization and competition are key drivers Regulation, privatization and competition are key drivers

Mobile is becoming a substitute to the fixed-line telephoneMobile is becoming a substitute to the fixed-line telephone

Data is overtaking voiceData is overtaking voice

Internet business model has changed the IndustryInternet business model has changed the Industry

For end users, scarcity is being replaced by abundance For end users, scarcity is being replaced by abundance

Telecom demand is driven by need and affordabilityTelecom demand is driven by need and affordability

Networks are gradually becoming multimedia Networks are gradually becoming multimedia

Inefficient operators are driven out of business Inefficient operators are driven out of business


Changes in revenue structureChanges in revenue structure

Changes impact both developing and developed countries with Changes impact both developing and developed countries with different consequences different consequences

ExamplesExamples• End user revenue market in a developed country

• Overall market view in a developing market in a highly competitive environment : Lithuania

• An instructive case study analysis : Telecom Poland (TP Group) revenue structure analysis based on the last 5 years Annual Reports + number of employees

• How does it compare with a telecom operator in Middle East (Jordan Telecom)

Impact on operator strategiesImpact on operator strategies

Note on case studies : All figures are directly derived from published market figures by Telecom Regulation Authorities and from TP and JT Annual Reports (chosen for case exemplarity and company reactivity on market changes)


End user revenue marketEnd user revenue marketin developed countriesin developed countries

Electronic communication end user market in France

Fixed telephony including PSTN and invoiced Telephony over IP (excluding ToIP part of multi-play bundles)

Internet services including fixed Internet access, VAS, IP TV and multi-play services

Mobile services including SMS, VAS, MMS, 3G Internet and multimedia mobile services

Source ARCEP, France

Change in accounting


Telephony becomes IPTelephony becomes IPin developed countriesin developed countries

Delivered as a value added service on top of broadband access, IP Delivered as a value added service on top of broadband access, IP telephony is a qualified substitute to traditional telephone servicestelephony is a qualified substitute to traditional telephone services

Part of IP in fixed telephony services originated traffic (France)

Source ARCEPFixed IP telephony services offered by High Speed Internet access, providers excluding VoIP services on best effort Internet


Overall communication market Overall communication market revenues in Lithuaniarevenues in Lithuania

Market overall revenues (in million LTL)and growth over the preceding year in %

Leased lines + Datatransmission services

Internet access services Interconnection Mobile communications Fixed telephonecommunications

Revenue distribution in %

0

500

1000

1500

2000

2500

2001 2002 2003 2004 2005

-18% -22% -10% -4%-1%

42% 30% 8% 8%

53% 35% 10%33%

36%30%

34%22%

50%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2001 2002 2003 2004 2005

18%

48%

22%

9%

3%

50%

34%

11%5%

1%

Source : Communication Regulatory Autority, Republic of Lithuania


Study case : Telecom PolandStudy case : Telecom PolandA rather stable business (at first glance) A rather stable business (at first glance)

0

5

10

15

20

2002 2003 2004 2005 2006

Bill

ion

PLN

Revenue Operating profit Net profit

Source : TP group annual reports and presentations of financial results

TP Group results 2002-2006

1 PLN = 3.9 €


Stable and profitable, but …Stable and profitable, but …

TP Group results 2002-2006

0

5

10

15

20

2002 2003 2004 2005 2006

Bill

ion

PLN

Revenue Operating profit Net profit

Source : TP group annual reports and presentations of financial results

0

15 000

30 000

45 000

60 000

Empl

oyee

s

and employment


… … with a deep and fast change in with a deep and fast change in business and revenue structurebusiness and revenue structure

TP Revenue distribution 2002-2006

0

5

10

15

20

2002 2003 2004 2005 2006

Bill

ion

PLN

Other

Data services

Mobile services

Interconnection to Mobile

Interconnection to Fixed*

Fixed Telephony services

* Includes incoming from International


TP group operating resultsTP group operating resultsTP operating results

0

5

10

15

20

2002 2003 2004 2005 2006

Bill

ion

PLN

Operating profit

Employee relatedexpenses

Payment to otheroperators

Other operatingexpenses

Depreciation & Amortization

TP fixed and mobile contribution to operating profit

00,5

11,5

22,5

33,5

44,5

2002 2003 2004 2005

Bill

ion

PLN

TP mobile

TP Fixed


Revenue structure not changing as Revenue structure not changing as fast in Middle East ?fast in Middle East ?

Fixed Telephony remains main revenue and do not decrease as much as in the Fixed Telephony remains main revenue and do not decrease as much as in the world market world market

• New licensing regime launched in 2005 not efffective yet so that the fast growing international incoming and outgoing mobile was still a monopoly of the fixed segment of Jordan Telecom

Internet and Data services revenue share still very low (2.2% of JT group Internet and Data services revenue share still very low (2.2% of JT group compared to 11.4% for TP group in 2005)compared to 11.4% for TP group in 2005)

Jordan Telecom consolidated revenues by segment

0

50

100

150

200

250

300

350

400

2001 2002 2003 2004 2005

Mill

ion

JD

data and Internet services

mobile services

Fixed line voice

1 JD = 0.74 €


High profitability recovered but…High profitability recovered but…

The price reductions in fixed voice services are largely compensated by cost reductions The price reductions in fixed voice services are largely compensated by cost reductions and the growth of highly profitable international voice traffic (monopoly effect till 2005)and the growth of highly profitable international voice traffic (monopoly effect till 2005)

But … VoIP and international voice competition not yet in place …But … VoIP and international voice competition not yet in place …

JT group profitability

Mill

ion

JD

revenue EBITDA Net profit

0

100

200

300

400

500

600

2001 2002 2003 2004 2005

1000

2000

3000

5000

6000

0

employees

4000

-200

20406080

100120140160180

2001 2002 2003 2004 2005

Data (Wanadoo+ e-Dimension)

Mobile (Mobilecom)

Fixed voice(Jordan Telecom)

JT group EBITDA contribution by segment


TP Revenues from Interconnection

0

500

1000

1500

2000

2500

3000

3500

2002 2003 2004 2005 2006M

illio

n PL

N

What is changing on fixed voice What is changing on fixed voice revenues when competition is here ?revenues when competition is here ?

2002 2003 2004 2005 2006

TP Fixed Telephony Revenues

0

2

4

6

8

10

12

14

Bill

ion

PLN

Interconnection

Voice traffic

Subscriptions + connection fees

Interconnection to Mobile

Interconnection to Fixed

Incoming International

More on on Service Providers

More on on Service Providers

Strategic P

lanning, P&L and change

Strategic P

lanning, P&L and change

in revenues structu

re in further

in revenues structu

re in further

TRAINING MODULES of ITU-D/HRD

TRAINING MODULES of ITU-D/HRD


Impact of Economical ChangeImpact of Economical ChangeLooking for margins and new revenuesLooking for margins and new revenues

Revenue decline on voice traffic Revenue decline on voice traffic (e.g. from 80% of fixed incumbent revenues in 1995 to 20% in 2006 -Due to VoIP pricing model and competition)

• Incumbent operators to lose margin and renounce to use voice traffic revenues to subsidize Access costs

Interconnection still growing Interconnection still growing • but Bill and Keep and Peer-to-Peer trends

will make it decline later on

Wireless communication is strongly Wireless communication is strongly growing in traffic and penetrationgrowing in traffic and penetration

• but will be impacted by revenue decline on voice traffic

Broadband access and services are Broadband access and services are strongly growingstrongly growing

• With high competition in service offering

New prioritiesNew priorities Operation cost Operation cost

reductionreduction Broadband accesses Broadband accesses

and IP networkingand IP networking Becoming customer Becoming customer

centriccentric Need to innovate and Need to innovate and

be first on marketbe first on market Need to invest on IT, Need to invest on IT,

Service platforms, Service platforms, OSS, Business and OSS, Business and Service ManagementService Management

Re-engineeringRe-engineering

ITU / BDT / HRD HR development ProgramGeneva, March 2007 Lecture1 slide 16Source : Q4/2006 financial result presentation by TP group, Poland

How do they see the futureHow do they see the futureThe example of TP The example of TP





based servicesbased services Impact on Human ResourcesImpact on Human Resources


Voice pricing is impacted byVoice pricing is impacted bythe disruptive Internet pricing modelthe disruptive Internet pricing model

« Bill and Keep » and peer to peer agreement is the basis of « Bill and Keep » and peer to peer agreement is the basis of Internet pricing modelInternet pricing model• Currently applies to flat rates Internet access and for unlimited Telephony over

broadband for local or national calls to fixed telephone lines

Usage based pricing used to be the traditional model for voice Usage based pricing used to be the traditional model for voice servicesservices• CPP : Calling Party Pays

• CNP : Calling Network Pays (Interconnection fees)

• RPP : Receiving Party Pays (applies to mobile in the US)

• Volume or Call duration based pricing (even when it is a bulk price for x hours of usage as in mobile)

Development of Mobile networks worldwide (outside the US) Development of Mobile networks worldwide (outside the US) benefited from CPP, CNP modelsbenefited from CPP, CNP models


(1) assuming a prepaid mobile phone tariff of 0.10 € per SMS (2) assuming a mobile phone subscription of 4 hours/month at 40 €(3) assuming a 56.6 Kbits/s dial-in Internet subscription of 8 € /month, connected for 10 hours per

month (4) Transport only, assuming an ADSL subscription of unlimited connection at 15 €/month for a

user who connects for about 90 minutes per day with an average downstream debit of 640 Kbits/second,

3 minute GSM call 0.50 € (2) 1.5 MBytes 0.333 € per MB

100 picture mails 1.00 € (3) 30 MBytes 0.033 € per MB

1 hour video 0.33 € (4) 300 MBytes 0.001 € per MB

Price Volume

1 SMS message

Price /Volume

0.10 € (1) 150 Bytes 667 € per MB

Nevertheless the free Internet Nevertheless the free Internet model does not apply everywheremodel does not apply everywhere

Value is in the service to the end user


The future of voice service pricingThe future of voice service pricing

Unlimited flat rate already almost generalized for voice (VoIP) and Unlimited flat rate already almost generalized for voice (VoIP) and Internet connectivity on fixed networks Internet connectivity on fixed networks

• The transition to a flat rate is facilitated by the huge capacity made available on networks by recent technology improvements and by the aggressive drive of some players seeking to build market share.

Trend towards flat-rate charging expected to continue at a Trend towards flat-rate charging expected to continue at a moderate pace and include moderate pace and include

• national/local voice services, internet (broadband) access and usage

• International to all networks where Bill and Keep or RPP prevails

• Internet access and basic multimedia/IPTV services

Billing on duration for international calls (several different Billing on duration for international calls (several different international termination rates) and on duration or by event for international termination rates) and on duration or by event for new services or value added voice and multimedia services likely new services or value added voice and multimedia services likely to continueto continue

• Billing by minutes and interconnection (CNP) fees should continue when Peer to Peer may not apply : Case of developing countries for fixed and more specially for calls to mobile for which Interconnection plays a strong role in the prepaid model of business







New services are booming, each with New services are booming, each with different actors and different revenue modeldifferent actors and different revenue model

I can make a phone call on my PCI can make a phone call on my PC I can receive mails on my mobileI can receive mails on my mobile I can watch TV on my PCI can watch TV on my PC I can connect my old telephone set on ADSL modemI can connect my old telephone set on ADSL modem I can connect my TV on ADSL modem instead of an I can connect my TV on ADSL modem instead of an

antenna, a cable or a dishantenna, a cable or a dish I hear music and watch movies on my home cinema, my PC I hear music and watch movies on my home cinema, my PC

or even on my mobileor even on my mobile I can pay my the parking of my car with my mobileI can pay my the parking of my car with my mobile ……..

Technological evolution, Economical revolutionTechnological evolution, Economical revolutionNew business models, multiple interactionNew business models, multiple interaction


Communication services are not any more Communication services are not any more the private domain of telecom operatorsthe private domain of telecom operators

End User Retailer

AccessProvider

ServiceProvider

(open)

ServiceProvider

(Wholesaler)

Multiservicesubscription

applications

accesswholesales of

network resourcesor revenue sharing

subscriber datanative applications

ConnectivityProvider


wholesalesof services

Interaction



AccessProvider

End User

ServiceProvider

(open)

ServiceProvider

(Wholesaler)


Network Operator’sNetwork Operator’score businesscore business

Retailer

applicationusage

network subscriptionpackage subscriptionnetwork usageapplication usage

RoamingInterconnection

application brokeringnetwork usage

Networkusage

But Telecom Operators may still But Telecom Operators may still keep a key role among other actorskeep a key role among other actors

Enabling B2CEnabling B2C

Revenue flow







In many countries ADSL is the initial In many countries ADSL is the initial driver for broadband and IP servicesdriver for broadband and IP services

ADSL subscribers as % of Country main lines

0%

5%

10%

15%

20%

25%

30%

35%

40%

dec-

01

jun-

02

dec-

02

jun-

03

dec-

03

jun-

04

dec-

04

jun-

05

dec-

05

jun-

06

dec-

06

France

Morocco

Lithuania

Turkey

Poland

Senegal

South Africa

Egypt


High speed Internet access is a facilityHigh speed Internet access is a facilityThe issue is to grow revenues and marginsThe issue is to grow revenues and margins


Results : More revenueResults : More revenueJapan as an exampleJapan as an example


The broadband revolutionThe broadband revolution

DSL is shaping the market in terms ofDSL is shaping the market in terms of• Growth pattern and need to have• Service delivery oriented business models• NGN architecture deployment • Competitive landscape and service providers’ interactions

Wireless broadband access (e.g. WiMAX) likely to enter the Wireless broadband access (e.g. WiMAX) likely to enter the same game addingsame game adding• Nomadism and Mobility, • Access to service where DSL is not available• Affordability in remote areas, diversification, fair competition

From the free Internet dream to From the free Internet dream to a service provider business oriented viewa service provider business oriented view

TRAINING MODULES

TRAINING MODULES

On new broadband service

s, busin

ess

On new broadband service

s, busin

ess

modeling and service

pricing are

modeling and service

pricing are

available with ITU-D/HRD

available with ITU-D/HRD







Key strategic move impacting HR Key strategic move impacting HR managementmanagement

Accelerating broadband access penetration (+ local loop Accelerating broadband access penetration (+ local loop unbundling when applicable)unbundling when applicable)

• Impact on subscriber line management and outside plant quality handling, reduction of cost of ownership by automation of operation support systems and processes

• Deployment and management of new Broadband Wireless Access

Introduction of new servicesIntroduction of new services• Marketing and Market Strategy in Company driving seat• Aggregating content and dealing with Content Providers

Deep change in commercial practice and organizationDeep change in commercial practice and organization• Convergent Point of Sales for residential and mass users• Reinforce (or create) business customer sales including Key Account Managers• New distribution channels• “Flexible” pricing strategies

Maintaining cost control and rebalancing resourcesMaintaining cost control and rebalancing resources• Re-engineering and restructuring in separate business units• Replacing static remotely localized teams by centralized mobile intervention teams


Human ResourcesHuman ResourcesWhat is changing what ?What is changing what ?

Competition (driven by Internet, Regulation and Globalization)Competition (driven by Internet, Regulation and Globalization)

improving internal efficiency improving internal efficiency (process transformation)(process transformation)

Improving CRM* supporting Improving CRM* supporting platform and associated platform and associated processesprocesses

Reducing time to market for Reducing time to market for new servicesnew services

Managing customer satisfactionManaging customer satisfaction

Ability to carry out instant deployment of the staff

Growing guidance provided by the Marketing and Finance Departments

New skills required from ALL Managers: financial, legal, regulatory, coaching ability, team leadership, etc,…

New corporate requirements in terms of career management

*CRM : Customer Relation Management


Technology, New Services and ConvergenceTechnology, New Services and Convergence

Towards all-IP networks and Towards all-IP networks and services services

Regrouping fixed line / Internet / Regrouping fixed line / Internet / mobile commercial organization mobile commercial organization to mass usersto mass users

Developing and marketing Developing and marketing convergent solutions for convergent solutions for residential and mass usersresidential and mass users

Developing and marketing Developing and marketing convergent solutions for business convergent solutions for business users and application providersusers and application providers

Growing number of virtual Job positions

Drastic reduction of the number of technical staff

Growing dependence of the staff from the Management Information System

Growing number of “nomad” employees

Intensive use of Knowledge Management (learning entreprise)

Human ResourcesHuman ResourcesWhat is changing what ?What is changing what ?


Changing Mentality and Changing Mentality and OrganizationOrganization

From infrastructure and basic service delivery operations to From infrastructure and basic service delivery operations to customer-centric commercial activities in a competitive customer-centric commercial activities in a competitive environmentenvironment• In depth changing of mentality toward innovation, sales and marketing

and streamline operations

• Setting up and managing a strong CRM system and organization

• Ensuring that each employee benefits from end-to-end visibility on the network as well as on the delivery of services

Enterprise and business customers as a key target for the Enterprise and business customers as a key target for the former incumbent operatorformer incumbent operator• Country coverage Network and Points of Presence

• New converged communication service handling : IP VPN, IP Centrex, fixed and mobile voice and data services.

• Communication management services offered to large enterprises and organization (outsourcing)


Major issues in HR managementMajor issues in HR management

Change in employee status (from Public Administration to Change in employee status (from Public Administration to private company rules)private company rules)• Ability to hire qualified personnel for accelerating the development of new

services• Ability to promote and managed the careers of most qualified and efficient

personnel

Developing new skills to handle new range of activity Developing new skills to handle new range of activity Managing and defining new job familiesManaging and defining new job families Setting up talent review and focused career development Setting up talent review and focused career development

programs for highly qualified employeesprograms for highly qualified employees Setting up extended personnel conversion programs and Setting up extended personnel conversion programs and

organizing career-oriented deployment scenariiorganizing career-oriented deployment scenarii Facilitating staff mobility and personal initiativesFacilitating staff mobility and personal initiatives


Back-up slidesBack-up slides

More on TP HR strategy and 3 year changes in More on TP HR strategy and 3 year changes in employee qualification (a good example for open employee qualification (a good example for open discussions)discussions)

More on value added services and add-on revenues More on value added services and add-on revenues on top of broadband accesseson top of broadband accesses


Source : Q4/2006 financial result presentation by TP group, Poland

Moving fast is a necessityMoving fast is a necessitye.g. TP group 2005-2006e.g. TP group 2005-2006


TP group employment evolutionTP group employment evolution2001-20032001-2003

Source : TP group Annual Report 2003


Broadband Value Added ServicesBroadband Value Added ServicesWorld Market 2004-2005World Market 2004-2005

Source Point-Topic 2006

$9.2 billion (+88%)and already 22% valueadded on access revenue $4.9 billion


Revenue and ARPU Revenue and ARPU for consumer value added servicesfor consumer value added services

Service Service Monthly Monthly ARPU 2004 ARPU 2004 ($) ($)

Revenue Revenue during 2004 during 2004 ($m) ($m)

Monthly Monthly ARPU 2005 ARPU 2005 ($) ($)

Revenue Revenue during 2005 during 2005 ($m) ($m)

Game downloads 10 49 10 101Gaming online 6.74 805 9.26 1354Home networks 4.4 1055 4.35 1371Internet voice 0.95 18 0.96 56IP telephony 11.17 833 12.96 1834Music downloads 4.42 173 2.96 769Security 1.69 1789 1.88 3351Video over broadband 12.18 136 19 324

Total VASTotal VASRevenue Revenue

48584858 91609160

Source Point-Topic 2006

Documents

ITU / BDT workshop Cairo-Egypt, 25-28 June 2007 Competencies for Competitiveness Lecture 1