OW en CMT 2008 China Telecom

8/3/2019 OW en CMT 2008 China Telecom

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With the restructuring of Chinas telecommunications

industry, some analysts are betting that China Mobile will

dominate. We take a different position: Dominance by any

single player is not a forgone conclusion. With the right

business designs, focus on the right customers, meticulous

execution of strategy, and careful attention to the rewards

and challenges that will come with being an integrated (and

possibly converged) operator, other players will also have the

opportunity to succeed.

In our view, the ability to achieve profitable and sustainable

growthnot simply capture the biggest revenues or customer

basewill define the ultimate winners.

by

Jonathan Gove

Arnold Lau

Chinas New TelecommunicationsLandscape: Who Will Win?

Communications, Media, and Technology


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The Governments Big Decision

In May, Chinas Ministry of Industry and

Information, National Development and Reform

Commission, and Ministry of Finance jointly

announced the long-awaited restructuring of the

countrys telecommunications industry. Six tele-

communications operators will be merged into

three. Without giving a timetable, the govern-

ment plans to issue 3G licenses after the mergers

are completed, to allow all three operators to run

fixed-line and mobile services.

Each of the three new telecom giants will have hun-

dreds of millions of customers (see Exhibits 1 and 2):

Exhibit 1 Players in Chinas telecom industry, before restructuring

After restructuring

NorthChina

SouthChina

Mobile (GSM) PHS Fixed lines

China Mobile

Subscribers: GSM 367 million(~70% mobile market share - excluding PHS)

Revenues: RMB 360 billion

ChinaUnicom

Subscribers:GSM 119 millionCDMA 41 million(~30% mobilemarket share -excluding PHS)

Revenues:RMB 99 billion

China NetcomSubscribers: Fixed line 114 million,

including ~28 million PHS(~30% market share) Broadband 20 million

(~30% market share)Revenues: RMB 82 billion

China Telecom

Subscribers: Fixed line 222 million,including ~60 million PHS

(~60% market share)Broadband 36 million(~55% market share)

Revenues: RMB 177 billion

ChinaRailcom(Tietong)

$1 = RMB 7.23

Subscribers:Fixed line 18 million(~5% market share)Broadband 0.3 million(~1% market share)

Revenues:RMB 15.5 billion

Mobile(CDMA)

NorthChina

SouthChina

Mobile (GSM) PHS Fixed lines $1 = RMB 7.23Mobile(CDMA)

Source: Oliver Wyman analysis.Note: China Satcom's revenue of basic telecom services is not included in the post-restructuring revenue of China Telecom.

China Mobile +China Railcom (Tietong)

Subscribers:GSM 367 million (~70% mobile market share)

Fixed line 18 million (~5% market share)Broadband 0.3 million (~1% market share)

Revenues: ~RMB 380 billionChina Telecom + Unicom CDMA +

China Satcombasic telecom services

Subscribers:CDMA 41 million (8% market share)

Fixed line 222 million, incl ~60 million PHS

(~60% market share)Broadband 36 million(~55% market share)

Revenues: ~RMB ~204 billion

China Netcom + Unicom GSMSubscribers: GSM 119 million (22% share)Fixed line 114 million, incl 28 million PHS

(~30% market share)Broadband 20 million (~30% market share)

Revenues: ~RMB ~152 billion

It is unclear at press

time how China

Netcom and China

Telecom will be

allowed to compete

in each others origi-

nal geographies


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China Mobile Communications Corp.China

Mobilethe countrys largest mobile operator,

will merge with the small fixed-line operator,China Tietong Telecommunications Corp.

China Telecommunications Corp.China

Telecomthe nations largest fixed-line opera-

tor, will acquire a CDMA-based mobile network

from China United Telecommunications Corp.

(China Unicom), the smaller of the countrys

two mobile operators, and take up the basic

telecommunications services of China Satellite

Communications Corp.

The remainder of China Unicom (a network

based on the GSM standard) will merge with

China Network Communications GroupChina

Netcomthe countrys second-ranked fixed-line

operator.

The governments decision aims to optimize the

allocation of fixed and mobile resources among

operators and create a level playing field. By

awarding mobile licenses to the fixed incumbents,the government may help strengthen these com-

panies, thus increasing the value of their state-

owned assets. The restructuring could allow the

three reconfigured competitors to take advantage

of the lessons learned by telecom firms in othermajor markets around the world that already

restructured, thereby improving their management

expertise and transforming their business designs

and operating models.

In addition, the government hopes to encourage

autonomous innovation, which means promoting

Chinas homegrown 3G technology, TD-SCDMA,

and using it as a springboard to enhance Chinas

competitiveness and influence in the global tele-communications arena.

Regardless of the reasons behind the restructuring,

many experts believe that the post-restructuring

scenario will favor China Mobile disproportionately.

Mobile telephony still has significant growth poten-

tial in China, because mobile penetration stood at

just over 40% at the end of 2007half the level of

many developed markets. Oliver Wymans recent

State of the Industry report finds that mobile com-

munications in emerging markets is the largestvalue-creation sector in the worldwide communica-

tions, media, and technology (CMT) industry.

Exhibit 2 Comparison of operators

Source: Oliver Wyman analysis.

344

5849

170

142

74

235

65

3449 2719

6277 86

119

41 40

0

50

100

150

200

250

300

350

400

ChinaMobile +

ChinaRailcom

ChinaTelecom +

UnicomCDMA

ChinaNetcom +

UnicomGSM

Vodafone Telefonica DeutscheTelecom

AT&T NTTDoCoMo

BT0

50

100

150

200

250

300

350

400

450

Market cap ($ billions), as of 15 May 2008

FY 2007 revenue ($ billions)

Number of subscribers, 2007 (millions)

Market cap/revenue Subscribers


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Moreover, other evidence supports China Mobile

being in the best position to continue dominating

this space after the restructuring. For example, the

company will possess the largest mobile market,

the most extensive business and operations exper-

tise, and the strongest brand and customer base.

Mobile composes more than 60% of the total tele-

com market in China, a share that is still growing.

Many observers also maintain that China Mobile is

years ahead of its competitors in its readiness to

launch mobile Internet services, which is a major

growth opportunity. Owing to its integration with

the much smaller Tietong, the company also may

face fewer post-merger distractions. In addition, it

boasts abundant financial resources with which

to invest in new growth areas. Although fresh sub-

scribers often provide less value as penetrationrates increase, China Mobile can serve them with

lower incremental costs, thanks to its massive scale

and infrastructure.

Of course, government actions will influence each

companys fate in this highly regulated sector.

To achieve a level playing field, for instance, the

government plans to implement asymmetric regu-

latory tools, which could include imposing a mar-

ket-share cap to prevent any player from becoming

a de facto monopoly; implementing asymmetric

mobile number portability; mandating preferential

tariff treatment; or opening a 2G network.

Despite these facts, we maintain that a telecom

landscape dominated by China Mobile is not a

forgone conclusion. The remainder of this white

paper addresses the key strategic questions:

How will Chinas telecom industry evolve over

the next three to five years?

What are the biggest opportunities for profitable

growth for the three new operators?

What business design would best help them

capture those opportunities?

How might they execute that business design

successfully?

What risks can they expect to encounter, andhow can they mitigate those risks?

Mobile Is the Wellspring of Growth

The Chinese telecom market is poised to enter

a tremendous growth cycle in the next several

years. Consensus market forecasts predict that

by 2011, as many as 500 million new mobile sub-

scribers will bring mobile penetration to over 70%

of Chinas population. In addition, as many as 80

million new broadband customers could increase

broadband penetration to 30% of Chinese house-

holds. Meanwhile, the consensus predicts that the

fixed-line subscriber base will shrink by around

10% of households in the next four years. This rate

of shrinkage is substantially slower than that in

other highly penetrated markets, in part because

of modest growth of fixed-line access in some

rural areas.

Nevertheless, we expect that value in this industry

will continue to migrate to mobile services in the

next three to five years, with mobile likely contrib-

uting over 75% of the industrys revenues and

earnings in 2011. Mobile revenues will continue

to rise thanks to higher penetration, with voice

and SMS remaining the dominant contributors.

Moreover, revenues and profits from mobile TV,

mobile broadband, mobile games, and m-commerce

will constitute a larger percentage of total spending

by consumers and may become critical means of

differentiation for operators.

Developments in the fixed-line realm will further

improve mobiles promise (see Exhibit 3). Value-

added services (such as ring tones) are the current

growth engines for fixed-line operators, driving

revenue growth of 35-40%. But growth will prob-

ably taper off as the market saturates and mobile

substitution eats into the subscriber base. Fixed

broadband has compensated for losses in fixedvoice but has not driven overall growth. If the

pattern seen in other penetrated markets (think

acceleration of fixed-voice decline) occurs, fixed-

line players in China will come under even greater

pressure to replace this revenue and this portion

of their customer base.

Finally, consensus anticipates that Internet Protocol

Television (IPTV) could become a growth platform

in China. However, Chinas State Administration

of Radio, Film, and Television has not merged withthe Ministry of Information Industry into the newly

created Minister of Industry and Information. For


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the near term, ambiguity about the new regulatory

body could constrain IPTVs growth.

Dynamics of the New Markets

How will the larger market dynamics play out in

Chinas restructured telecom industry? We foresee a

competitive landscape containing three large local

players. Owing to the ambiguous regulatory envi-

ronment, we see no game-changing new entrant

(such as Google, mobile virtual network operators,

foreign operators, or cable companies) encroaching

on the scene. Cable companies will remain highly

fragmented, still governed by national and provin-

cial authorities. After the dust has settled from the

restructuring, the government may seek to facilitate

integration of the telecom and media industries,but not in the next few years.

On the other hand, Internet portals, such as

Google, could continue trying to gain more control

over Chinese operators customers as the network

becomes more open (that is, as consumers use it

to access a broader array of services from a wider

range of providers) and as new devices, such as

the iPhone, gain popularity. Other players along

the value chain (for example, Tencent, TOM Group,

and Sina) will likely thrive in adjacent sectors suchas social networking, location-based services, or

mobile payments. The three operators, to capture

Exhibit 3 Telecom industry revenues in China

Source: Oliver Wyman analysis;

JPMorgan.

their fair share of customer value and maintain

strategic control over consumers, may need to

forge savvy partnerships with these companies

or enter the Internet space. For example, China

Mobile recently established an Internet business

division, signaling confidence in the growth poten-

tial of this sector.

Customers in China, for their part, may prefer

fixed-mobile bundled offers, if such offers come at

the right price. To take advantage of this opportu-

nity profitably, carriers will need to weigh the vol-

ume and price tradeoffs. Even in most developed

markets, demand for true convergence offers (ser-

vice delivered across multiple access technologies

and devices) has been weak. Price has driven cus-tomers purchase decisions to date, and we expect

this pattern to play out in China as well.

We also anticipate further segmentation and polar-

ization of customer preferences. At the high end,

early adopters will demand bundled offers

and a rich customer experience (for example,

high-definition video and the inclusion of roaming

minutes in the basic plan). And they will be willing

to pay a premium. At the low end (for example, in

rural regions), consumers will look for basic ser-vices at low prices on last-generation high-coverage

networks.

0

10

20

30

40

50

60

70

80

90

100%

2007 2008 2009 2010 2011

Voice & other

Broadband

Voice

Other data

VAS

SMS

Fix

edlines

Mobile


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As in most other markets, purchase occasions

for fixed and mobile offers are separate in China.

Fixed is usually a household-based decision (often

instigated by a move) that, to date, has entailed

minimal, if any, options in voice. Mobile is a per-

sonal decision, often driven by a desire for a new

handset or by promotions. Hunger for bandwidth

will intensify, fueled by increasing consumption of

data and video content through broadband (fixed

or mobile) access. Finally, while Chinese consum-

ers show interest in offerings such as one-stop-

shopping, integrated billing, and multi-domain

devices, they are not willing to pay extra for them.

The lesson for Chinas three new operators: To score

short-term wins in the new environment, compa-

nies will need to build business designs that quicklyreap the benefits of combining the mobile and

fixed-line businesses. These benefits include cost

savings and improvements in customer acquisition

and retention, with an emphasis on increasing share

of wallet, not necessarily on more closely aligning

cross-domain customer relationships. Given the size

of the mobile opportunity alone, operators will likely

compete intensely to protect (or gain) profit share

and attract the most profitable new customers.

In the medium term, companies can profit from

the continued growth in the number of mobile and

broadband users by deepening cross-domain rela-

tionships. For example, they can encourage the pur-

chase of multiple products with value bundles, or

reward regular high spending with loyalty benefits

and create a more seamless experience for custom-

ers. In the long term, they can further secure their

success by creating all-encompassing convergence

offers, such as multi-platform access to the same

content and services for multi-mode devices. Thismay call for strategic partnering with or acquisition

of companies in other parts of the telecom value

chain, such as content developers and aggregators.

What It Takes to Thrive

Chinas restructuring of the telecom industry is

unprecedented in the scope and scale of change

involved. No other nations or regions entire

telecom sector has been restructured in a single

sweeping initiative. To thrive (never mind survive)

in this reshaped landscape, the new operators willhave to address several challenges in addition to

convergence:

Post-M&A integration

Issuance of 3G licenses

Building mobile capabilities

Geographic expansion into rural areas and (for

the fixed-line incumbents) expansion north and

south

Extreme market growth

We anticipate seeing a significant land grab in

the first year following restructuring, as each

player moves to secure the best customers in each

domain and across domains. The race to deploy 3G

infrastructure and to sign up leading-edge userswill further intensify the pressure on each new

companys early operations.

Each player has both strengths and challenges, as

well as the opportunity to create innovative business

designs and operating models that address attrac-

tive customers needs in fresh ways. Keys to success

fall into several categories, shown in Exhibit 4 on the

next page.

* * *

In the new telecom landscape thats about to take

shape in China, large local operators will encoun-

ter a number of enticing opportunities, including

a rapidly expanding mobile market. At the same

time, they will face fresh challenges, such as the

need to lead organizational change in a conver-

gent world and to protect their market share

from rivals. Competition will stiffen as each seeks

to stake a claim in the mobile market.

To capitalize on the best opportunities and avoid

falling prey to the worst risks, Chinese telecom

companies can leverage lessons learned by their

counterparts in other countries that have suc-

cessfully navigated a similar transformation.

Though much remains uncertain, including what

actions the Chinese government may take in the

coming years, we believe that telecom opera-

tors in China stand an excellent chance of not

only surviving but also thriving in their newlandscape.


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Category

Organizational structures and

talent management

Customers

Technology and networks

Convergence

Exhibit 4 Keys to success for Chinese operators

Points of focus

Manage the post-M&A process carefully, including allocating roles and responsibilities

to people from different legacy organizations, reinventing processes, blending different

company cultures, and aligning governance structures and policies.

Understand that the mobile business differs from the fixed business. Acquire and train

staff at all levels in needed skills. For example, in the short run, this may mean training

front-line salespeople to sell both mobile and fixed offers.

Integrate customer bases inherited from legacy organizations, including mobile,

personal handset, fixed-line, broadband, residential, and enterprise customers.

Gain a single view of which products are bought by which customer groups across

multiple service domains.

Beef up customer-analytics and database marketing capabilities. Use analytics to increase

share of wallet and develop bundled offerings that increase penetration and stickiness

without requiring new development efforts.

Understand customer profitability, and target efforts at the most profitable customers.

For example, acquiring PHS subscribers and migrating them to mobile may be inexpensive,

but these are mainly low-value customers.

Quickly build out a mobile network with high-quality coverage (for example, in rural

areas) to tap into the mobile opportunity.

Consider network sharing (at least of sites and possibly of passive infrastructure or active

networks) for new (3G) deployment. Sharing can accelerate rollout, mitigate rollout risk,

and lower costs.

Consider network outsourcing to decrease costs, step up acquisition of mobile-network

operations and maintenance skills, and free executives attention for more strategic

matters (such as convergence).

Formulate a strategy to manage all four dimensions of convergence: organization,

products/services, front-end processes, and back-end processes.

Develop converged offers that deliver cost and efficiency benefits in the short term.

Plan, but do not rush, to move toward the holy grail: truly converged offers.

Test converged offers impact on market share and profitability with interactive

scenario-playing.

Launch high-impact marketing campaigns and loyalty programs.

Regularly verify customer preferences for converged offers, and design offers around the

companys existing strengths (for example, broadband).

Carefully weigh the implications of participating in content for winning in the

convergent world. For example, explore how the company can use content to sell services

across platforms.

Explore ways to work with other value-chain players (device manufacturers, content

providers, and aggregators) to assemble attractive converged offerings.

Assess global best practices and lessons learned to ease transition to convergence.

Consider how convergence can help mitigate risks such as attacks on market share

or customer base.


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While there is little doubt that technologies, offers,

and customer needs are converging, the term

convergence means different things to different

people. Moreover, there are different degrees of

convergence (see Exhibit 5).

Exhibit 5 Degrees of convergence

The most successful converged offers to date

have been bundled or triple-play offers selling

multiple fixed-line-based products (for instance,

voice, broadband access, and video) at a discount.

Telefnicas TRIO (voice, broadband, and IPTV

under the Imagenio brand) and Neufs Twin are

apt examples. Adding mobile to the mix (think

AT&Ts Quad Pack, which includes fixed telephony,

TV, fixed broadband, and mobile telephony) has

been a harder sell. Given the prevalence of single-

domain operators in China and the widespread

acceptance that Chinas mobile space alone offers

staggering potential, this difficulty of fixed-mobile

offer development may arise in China as well.

Yet the lack of wide acceptance of cutting-edge

products does not necessarily mean that conver-

gence is not worth pursuing. A converged operating

model contains many dimensions, not just the offer

itself (see Exhibit 6), and companies employing such

a model are garnering some important benefits.

Why Convergence?

A converged operating model can yield significant

cost savings as well as deeper and stickier custom-

er relationships, because customers spend more

across more domains and stay loyal. It can also

enhance organizational efficiency and decision-

making. Finally, it can enable a company to put

in place the infrastructure required to offer truly

differentiated products and services in line with

customer demand.

Most operators are moving down the convergence

path in some form. Given the momentum of themobile sector worldwide and the increasing sub-

stitution by mobile for pure fixed and fixed/mobile

offerings, management teams and capital markets

alike have made convergence a priority. For some

companies, the initial objectives behind converg-

ing have been to achieve cost savings and inte-

grate technologies to provide a platform for future

offers; other companies have been more focused

on bundling and packaging.

Pure-mobile operators have demonstrated lessurgency overall (even downright reluctance) about

the move toward convergence. Some view conver-

Convergence: What, Why, and How?

True convergence provides a unique customer

experience across the telecom value chain. It

requires three things: multi-platform devices that

have features as good as or better than those

offered by the best single-platform devices; con-

tent (such as news, sports information, or net-

working communities) that customers want to

receive on several different platforms; applications

that give customers access across the platforms.

Few, if any, successful examples of true conver-

gence exist today. One recent offer by France

Telecom, Unik, may have come closest. Unik is a

converged handset that works on both mobile and

Wi-Fi networks. After a heavy marketing campaign

to promote it, only 600,000 customers had sub-

scribed to the offer by the end of the first year. In

Germany, Deutsche Telekom launched a similar

offer, but it, too, has fallen short of anticipated

market acceptance. Pricing and device adjust-ments will likely be necessary to accelerate takeup

of these offers.

True convergenceMulti-mode devices

Service bundles

Multi-domain customerrelationship (single bill,

single customer view, etc.)

Cross-selling

Least convergedSeparate domain

and separate customers


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gence as a defensive tactic useful for fending off a

competitive threat presented by fixed and mobileplayers in the near term while they prepare to

offer mobile data services that can substitute for

broadband in the same way that voice has done.

This perception is changing, however. Even the

most successful mobile operators are recognizing

the need for (at a minimum) select investments in

fixed and broadband markets.

Vodafone, for example, is entering the fixed

market, in part by acquiring Tele2 in Spain and

Italy, and by leveraging its fixed-line assets in

Germany, known as ARCOR. The company expects

this move to generate benefits including cost sav-

ings, the ability to gain its own fixed network to

carry voice and data from towers into its infra-

structure, a defense against fixed/mobile play-

ers, and the opportunity to provide a broader

portfolio of offerings. In South Korea, SK Telecom

is pursuing Hanaro Telecom, the countrys sec-

ond-largest wireline carrier, with an eye toward

defending its market position. The companyhopes to add fixed-line services (VoIP, pay TV, and

broadband) to create triple- and quad-play offers,

which it believes will help it reduce churn. And

in Japan, Softbank is integrating both mobile and

wireline businesses into its strong broadband and

Internet-content portfolio to enhance its ability to

offer bundled services.

In markets where mobile penetration is reaching a

plateau, pure-mobile operators view convergence

as a strategy to spur new growth. In France, mobileoperator SFR (which owns 40.5% of Neuf Cegetel)

has offered to buy the remaining equity in the

business. Its aim? To challenge France Telecom in

the market for combined fixed-line, Internet, andcell-phone services (and to achieve cost synergies

by combining the two operations).

The substantial cost benefits of a converged model

cannot be refuted. Oliver Wyman recently helped

a multi-domain operator lay out its convergence

path, and identified overall cost-saving opportuni-

ties of 10-20% for nearly every line of operating

expenses, with less than a two-year time to sav-

ings for the majority of initiatives (see Exhibit 7).

While every operators benefits map will look dif-

ferent, this magnitude of impact is typical.

Still, telecom convergence in China will unfold in

a very different setting than elsewhere. In other

countries, convergence has arisen by necessity in

mature markets (where the mobile business is flat,

and the fixed business is either flat or growing

only through broadband). But in China, the mobile

business is still showing significant growth. This

has mixed implications for Chinese operators. Onone hand, it should make convergence easier in

terms of finding synergies; its always easier to

achieve benefits from synergies when companies

are growing than when they are restructuring. On

the other hand, operators may find it difficult to

move away from a single business-line focus when

business is booming, and the resulting distractions

can seem costly.

How to Converge?

There is no one right path to convergence; dif-ferent markets, and different operators within

markets, will have their own priorities and ratio-

Exhibit 6 The four dimensions of convergence

One customer-centricorganization

Integrated management

Integrated governance

Fixed-mobile bundles forthe consumer market

Integrated offers for

small- and medium-sized

business clients

Integrated product

management/marketing

One sales and customercare organization

Single view of

customer base

Integrated customer

support service

Shared services for general

and administration

functions

Integrated networkplatforms and network

operations

Integrated network

management

Integrated IT systems

Shared general and

administration systems

Convergence ofthe organization

Converged productsand services

Converged front-endprocesses

Imperatives

Milestones

Converged back-endprocesses and platforms


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nales for their decisions regarding how to tackle

the four dimensions of a converged operating

model. They will also differ in the degree to which

they invest in each dimension in the near term.

For many companies, the ultimate goal might be

an operating model like the one represented inExhibit 8, but the means of achieving it will differ.

The exhibit depicts a fully converged model, with

customer segment (not product) divisions in sales,

and an integrated marketing team. The model

uses different network elements to deliver differ-

ent services, but builds on a common platform

and allows integrated billing. Corporate functions

are shared as needed by front- or back-end inter-

nal customers.

Lets explore issues associated with each element

of the convergence operating model.

Converged organization. To organize for conver-

gence, many operators have begun offering a full

portfolio of services (mobile, fixed voice, broad-

band, TV) but with little or no integration at the

business-unit level. More forward-thinking opera-

tors are plotting a clearer path to convergence in

their organizational structure. Some have started

building domain-free units devoted to market-ing and sales, network operation, billing, and IT.

For example, their marketing and sales strategies

are organized around customer segments rather

than specific fixed, mobile, or broadband offerings.

Others have begun by integrating their product

bundles and sales and marketing staff.

Creating a converged organization raises somedaunting challenges. Executives must make a

compelling case for change, foster a sense of

urgency, win buy-in from lower-level managers,

and redesign business processes. In addition, the

company has to provide training to help people

strengthen needed new skills, such as selling

both mobile and fixed offerings, or hire people

with those skills.

Converged products and services. As noted ear-lier, few, if any, converged offers have been able

to beat the best-in-class offers now available in

single-domain or dual-domain environments.

To tackle this problem, operators will, of course,

need to cultivate more integrated customer rela-

tionships. But they can also develop a variety of

product offers. Many players are now focusing on

creating bundled offers to take to market.

Building converged offerings is difficult. Firms

must carefully manage cannibalization amongbusinesses (for example, mobiles cannibaliza-

tion of fixed). They need to price the converged

Exhibit 7 Cost savings from convergence

Year 4

Year 3

Year 2

Year 1

% of cost savingsover four years

10-15%

5-10%

80-90%

5-10%

Front-endBack-end

Marketing

Sales and customer care

Network

IT services

G&A

Real estate

Legend:

Circle representscost saving measure,

with size depictingcost-savings potential

Source: Oliver Wyman disguised client example.


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11

offers strategically. And they must focus their offer

development on customer priorities, not on con-

vergence for the sake of convergence.

Converged front-end processes (sales, market-

ing, customer support). To develop a convergedbusiness, operators must gain a single view of

their customer base, understanding what cus-

tomers buy across domains, how they buy it, and

why. Companies also need to provide a stream-

lined customer-service experience. They can do

so by converging their front-end processes. For

example, one major North American provider has

had success overlaying a cross-domain customer-

service team on top of separate domain-specific

business units. Another major operator in NorthAmerica has integrated its sales force and invest-

ed heavily in training its representatives to sell

across domains.

The major challenge with this dimension of the

converged operating model is recognizing that

purchase occasions differ greatly across domains,

and (to date) customers have been accustomed to

choosing best-in-breed offers from each domain.

Companies must design processes to build share

of wallet, to increase cross-selling, and so forthwithout expecting customers to snap up a con-

verged offer just because its there.

Converged back-end processes (network, IT

platforms, general and administrative). Of all the

converged operating model dimensions, this one

yields the highest cost savings. Companies can

then use these savings to fund investments in

other dimensions of the operating model.

Key challenges to overcome include the sig-

nificant capital expenditure required by IT and

network convergence, which may be difficult to

justify for operators that have recently invested

in networks. Moreover, while converging back-

end processes is perhaps the most critical step to

developing and delivering converged experiences

for customers, network- and IT-related processes

are also often the hardest to change. To overcomeresistance, executives need to formulate a long-

term strategy for convergence and communicate

it effectively throughout their organization.

Different companies tackle the four dimensions

of the converged operating model in different

sequences. For example, one European carrier

started by integrating its networks, then worked

on converging its organizational structures and

finally its products. Another European incum-

bent worked first on organizational convergence,then on products, and finally on its processes

and platforms.

Exhibit 8 A true convergence operating model

End-user/subscriber

Customer segments

Converged product management

Wireline access Wireless access

Voice Data Voice Data

CorporateRetail

Back-end operations IT/Network

Shared/Corporate Functions (implementation formsvary from fully centralized to matrix)

Sales and

customer care

Marketing

Service technology/Network operations/

Operations/ITBilling

General andadministration

Broadband

Business

11


12/12

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This white paper was written by Oliver Wyman PartnerJonathan Gove and Associate

Partner Arnold Lau, who are both based in Hong Kong. They can be reached at

[email protected] and [email protected].

The following people also contributed to this paper: Dekkers Davidson, Jrme Moitry,

Winnie Gutschke, and Carl Cheung.

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