Telco 2015 five telling years, four future scenarios

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  • 2010 IBM Corporation

    Telco 2015 five telling years, four future scenarios

    Franco Prampolini IBM Italy, Telco Industry Business Development Team Leader

  • 2010 IBM Corporation2Telco 2015- five telling years, four future scenarios

    Contents

    A decade of structural change in Telecom

    Forces shaping the future of Telecom

    Uncertainties and Scenarios for Telco 2015

    Scenario Realization, Financials and Imperatives

    Survivor Consolidation

    Generative Bazaar

    Clash of Giants

    Generative Bazaar

    Summary and Conclusions

  • 2010 IBM Corporation3Telco 2015- five telling years, four future scenarios

    Contents

    A decade of structural change in Telecom

    Forces shaping the future of Telecoms

    Critical Variables and Scenario Framework

    Detailed Scenario Descriptions

    Survivor Consolidation

    Generative Bazaar

    Clash of Giants

    Generative Bazaar

    Summary and Conclusions

  • 2010 IBM Corporation4Telco 2015- five telling years, four future scenarios

    Over the past decade global communications penetration and in mobile cellular telephony specifically has been phenomenal

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

    Mobile celluar telephone subscriptions

    Internet Users

    Fixed Telephone lines

    Fixed Broadband Subscribers

    A decade of structural change in Telecom

    Source: International Telecommunications Union (ITU) ICT Statistics Database available at http://www.itu.int/ITU-D/icteye/Indicators/Indicators.aspx . 2009 figures are estimated published in ITU, The world in 2009: ICT Facts and Figures; ITU Geneva 2009, available at http://www.itu.int/ITU-D/ict/material/Telecom09_flyer.pdf

    Telecom Penetration1999 - 2009

  • 2010 IBM Corporation5Telco 2015- five telling years, four future scenarios

    37%

    14%

    5%

    1%2%

    -3%

    11%

    33%

    21%

    8%5%

    13%

    4%

    11%

    -10%

    -5%

    0%

    5%

    10%

    15%

    20%

    25%

    30%

    35%

    40%

    2005 2006 2007 2008 2009

    MiddleEast & Africa

    Latin America (excl. Brazil)

    Brazil, Russia, India, China (BRIC)

    Asia Pacific (excl. India & Japan)

    North America

    Europe (excl. Russia)

    Japan

    However, the key engines for growth - mobile cellular telephony and emerging markets expansion - have begun to stall

    A decade of structural change in Telecom

    Telecom Services Revenue Growth2004 - 2014

    Source : IDATE, in "World Telecom Service Market", 2008 Edition - January 2009, revision in July 2009; IBM Institute for Business Value (IBV) Analysis

  • 2010 IBM Corporation6Telco 2015- five telling years, four future scenarios

    There is a long-term decline in fixed telephony (PSTN) lines and revenues

    121 113 105 96 88

    136128

    120

    9791

    86

    4443

    1617

    17

    17

    142151

    103102

    45

    4445

    18

    0

    50

    100

    150

    200

    250

    300

    350

    400

    450

    2005 2006 2007 2008 2009F

    North America Europe Asia Pacific Latin America MEA

    EU5 PSTN/ISDN Lines (000s)2004 - 2009

    -8,000

    -6,000

    -4,000

    -2,000

    0

    2,000

    2004 2005 2006 2007 2008 2009F

    France Germany Italy Spain UK

    -2,321

    -6,317

    -5,243

    -2,530

    -7,657

    -10,000

    -8,000

    -6,000

    -4,000

    -2,000

    0

    2002 2003 2004 2005 2006

    US Wireline Losses2002 - 2006

    A decade of structural change in Telecom

    Source: IDATE; Federal Communications Commission, Trends in Telephone Service, August 2008, Ofcom, UK, Communications Market Report, August 2009 IBM Institute for Business Value (IBV) Analysis

    -5% CAGR

  • 2010 IBM Corporation7Telco 2015- five telling years, four future scenarios

    Fixed-mobile substitution continues

    645 632 608 582 576 560

    239 275 316 365 430495

    2003 2004 2005 2006 2007 2008E

    PSTN Mobile

    167 163 159 149 147 139

    59 64 71 83 100 111

    2003 2004 2005 2006 2007 2008E

    Fixed Mobile

    EU 5 - Outgoing Voice TrafficBillion minutes

    Source: IDATE, National Regulatory Authorities' Reports, Federal Communications Commission, Trends in Telephone Service, August 2008, Ofcom, UK, Communications Market Report, August 2009 IBM Institute for Business Value (IBV) Analysis

    59%

    84 81 75 71 70

    46 5258

    6572

    2003 2004 2005 2006 2007

    Wireline (-4% CAGR) Cellular (12% CAGR)

    UK - Outgoing Voice TrafficBillion minutes

    US Personal Telecom Consumption Expenditure

    US$ Billion (2003-2007 CAGR)

    CAGR

    14%

    -4%

    CAGR

    16%

    -3%

    A decade of structural change in Telecom

  • 2010 IBM Corporation8Telco 2015- five telling years, four future scenarios

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    2004 2005 2006 2007 2008 2009

    North America

    EMEA

    Asia-Pacific

    Latin America

    Dial-up access is in decline as connectivity shifts to broadband fuelled an expansion of xDSL, cable modem and FTTx

    Hou

    seho

    ld P

    enet

    ratio

    n (%

    )

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    2004 2005 2006 2007 2008 2009

    North America

    EMEA

    Asia-Pacific

    Latin America

    Broadband Household Penetration

    Dial-up HouseholdPenetration

    Source: PwC Media and Entertainment Outlook 2009-2013; IBM Institute for Business Value (IBV)

    A decade of structural change in Telecom

  • 2010 IBM Corporation9Telco 2015- five telling years, four future scenarios

    In markets with high mobile penetration, such as Europe, revenuegrowth and ARPU are declining

    Mobile market penetration Europe (% pop.)

    Mobile ARPU (/month)

    Mobile revenue Growth in EU 5

    0%

    30%

    60%

    90%

    120%

    150%

    2004 2005 2006 2007 2008 2009F

    EU-15 EU-12 (NMS)

    -5%

    0%

    5%

    10%

    15%

    2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 F

    0

    10

    20

    30

    40

    2004 2005 2006 2007 2008

    France Germany Italy Spain UK

    A decade of structural change in Telecom

    Source: Ronald Montagne Telcos views of openness, IDATE, October 2009

  • 2010 IBM Corporation10Telco 2015- five telling years, four future scenarios

    2.1

    6.0

    5.0

    2.7

    4.5

    8.2 8.1

    9.3

    23%

    34%

    60%

    43%

    65%

    54%

    46%

    33%

    0

    1

    2

    3

    4

    5

    6

    7

    8

    9

    10

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    However emerging markets telecom providers continue to secure growth and profits from serving low ARPU customers

    6.1

    8.1 7.8

    4.55.6

    9.4

    7.1

    12.1

    42%36%

    66%

    40%

    65%

    57%

    48%

    30%

    0

    2

    4

    6

    8

    10

    12

    14

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    3.1

    7.5

    5.5

    2.8

    4.8

    8.17.3

    9.6

    26%

    35%

    60%

    43%

    67%

    55%

    46%

    28%

    0

    2

    4

    6

    8

    10

    12

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    2006

    2008

    2010

    (USD/ month)

    114 128136 138

    62

    89

    127147

    24

    44

    71

    98

    16

    30

    45

    56

    APAC BRIC MEA LatAm

    Emerging Markets mobile ARPU and EBITDA margin

    Emerging Marketsmobile revenue,

    (US$ Bn)

    2004 201206 08 10

    Source: IDATE, Bank of America/Merrill Lynch, Global Wireless Matrix 1Q09

    ARPU

    A decade of structural change in Telecom

  • 2010 IBM Corporation11Telco 2015- five telling years, four future scenarios

    Overall communications have increased but much of the growth in is over-the-top; traditional telco services share remain unchanged

    Notes: (1) An SMS/MMS or e-mail is considered as a 30 second call.

    FRANCE TOTAL COMMUNICATIONS MARKET(billions of call minutes and equivalents)

    Stable use of traditional communications services

    Increased share of communication services by Internet Communication services providers

    Service are not easily monetized through traditional pricing models

    2005 2006 2007 2008 2009 2010

    Wireline Mobile SMS/MMS E-mail(excl. spam) IM P2P VoIPSource: Idate: Telcos views of Openess, Digiworld Summit 2009

    A decade of structural change in Telecom

    Source: Ronald Montagne Telcos views of openness, IDATE, October 2009

  • 2010 IBM Corporation12Telco 2015- five telling years, four future scenarios

    A bright spot has been the phenomenal growth of mobile broadbandwith the rollout of High Speed Packet Access (HSPA) networks

    Source:, Frdric PUJOL, Open Mobile , IDATE , 2009, Antoine Pradayrol, European mobiles: is the data opportunity big enough?, Exane BNP Paribas:

    HSPA traffic growth World average

    Voice & Data contributions Europe

    Voice & Data contributionsUSA

    Overall, global mobile traffic has more than doubled in the past year, reaching 33 Petabytes (PB) per month in 2008, and 85 PB per month in 2009

    A decade of structural change in Telecom

  • 2010 IBM Corporation13Telco 2015- five telling years, four future scenarios

    driven in part by increased penetration of Smartphones and HSDPA-enabled USB keys and dongles for laptops / Netbooks

    122

    151

    178

    2007 2008 2009F

    0.6

    14.6

    28.4

    2007 2008 2009F

    Smartphone Sales2007 2009(Million Units)

    Netbook Sales2007 2009(Million Units)

    21%CAGR

    588%CAGR

    A decade of structural change in Telecom

    Source: IDATE

  • 2010 IBM Corporation14Telco 2015- five telling years, four future scenarios

    The explosion of mobile applications is driven by devices like iPhone and AppStores but the latters revenue contributions are low

    -

    500 000

    1 000 000

    1 500 000

    2 000 000

    2 500 000

    July

    '08Se

    ptem

    ber '

    08No

    vem

    ber '0

    8Ja

    nuar

    y '09

    Mar

    ch '0

    9

    May

    '09

    July

    '09Se

    ptem

    ber '

    09No

    vem

    ber '0

    9

    -

    20 000

    40 000

    60 000

    80 000

    100 000

    120 000

    Downloaded Applications (000) Number of applications

    iPhone AppStore: A success with low revenues

    Average Price of Application remains very low US$2.5

    Revenues from AppStore estimated to US$25m-45m

    Apple however sold 13.7m iPhones in 2008; 13% of all handsets shipped (16% in 1H of 2009)

    Apple is using the AppStore to drive demand for hardware and foster audience monetization

    Nokia Ovi Nokia Ovi Blackberry Blackberry

    Mobile application stores

    Google Android Google Android

    iPhoneiPhone

    AppStore: Downloaded and available applications

    Source:, Frdric PUJOL, "Open Mobile ", IDATE , 2009,

    A decade of structural change in Telecom

  • 2010 IBM Corporation15Telco 2015- five telling years, four future scenarios

    The cost of delivering data however is not matched by revenues as revenue and traffic volumes are decoupled in a data-dominant world

    How to improve revenue /traffic for data?

    Traffic

    Revenues

    VoiceDominant

    Data Dominant

    Source: Nokia-Siemens; IBM Institute for Business Value (IBV) Analysis

    Network Cost How to lower network

    costs for data?

    Profitability

    A decade of structural change in Telecom

    Time

    Traffic Volume

    US$/bit

  • 2010 IBM Corporation16Telco 2015- five telling years, four future scenarios

    Telecom revenues from Telecom IPTV subscription and content services remain woefully low

    3,698

    16,988

    357

    6%

    2%

    0.40%

    0

    4000

    8000

    12000

    16000

    2005 2008 2012F0%

    2%

    4%

    6%

    8%

    IPTV Revenues

    Penetration (of PayTV)

    Source: IBM Institute for Business Value (IBV) Analysis based on PwC Media and Entertainment Outlook 2009-2013. IPTV Revenues include subscriptions, VOD and multi-channel advertising based on penetration. Additionally assumes telcos secure of 5%,10% and 20% of multi-channel advertising inventory in 2005, 2008 and 2012 respectively

    Global IPTV Revenues2005 -2012(US$ million)

    A decade of structural change in Telecom

  • 2010 IBM Corporation17Telco 2015- five telling years, four future scenarios

    In emerging markets, however, there is growing adoption of SMS-based applications, notably public information and advisory services

    Indian operator Tatas service mKrishi allows farmers to send queries and receive personalizes services

    India China

    China Mobile offers Nong Xin Tong for farmers to provide news, weather information and details of farming-related government policies (50 million users)

    Uganda

    SMS Services from Grameen, Google & MTN providing agricultural advice and targeted weather forecasts, health tips, clinic finder, and Google Trader matching buyers and sellers of agricultural produce and commodities

    A decade of structural change in Telecom

    Source: IBM Institute for Value (IBV) Analysis

  • 2010 IBM Corporation18Telco 2015- five telling years, four future scenarios

    ... as well as money transfer and mobile payment services

    New mobile economics World economic pyramid

    Philippines South Africa

    Zambia Ghana

    A decade of structural change in Telecom

    Source: IBM Institute for Value (IBV) Analysis

  • 2010 IBM Corporation19Telco 2015- five telling years, four future scenarios

    Ericssons operation center in Reading, UK, 2008

    Early 2009, Vodafone UK signed a 7-year agreement with Ericsson to take over maintenance and operational support for Vodafone UKs 2nd and 3rd generation radio access networks. Expects to achieve cost-efficiencies of 25% over the 7 year period.

    ~25%

    On March 18, 2009, France Telecom-owned Orange announced a 5-years deal to outsource the management of its networks in Britain and Spain to Nokia.

    Network outsourcing has gathered momentum in recent years and become mainstream even among tier 1s as part of cost restructuring

    Outsourcing

    621

    32 30 30

    6

    27

    59

    89

    2004 2005 2006 2007 2008

    Cummulative deals per year

    Deals per year

    Network Outsourcing Deals

    A decade of structural change in Telecom

    Source: IDATE, Kerry Capell , Vodafone and Orange Outsource To Ericsson and Nokia , March 18th Business Week; downloaded at; http://www.businessweek.com/globalbiz/blog/europeinsight/archives/2009/03/vodafone_and_or.html

    AT&T and France Telecom used to manufacture their own equipment but divested these to create Lucent and Alcatel. Now operators are giving up running their networks; what does this portend?

  • 2010 IBM Corporation20Telco 2015- five telling years, four future scenarios

    Consolidation of fixed and mobile markets continues in Europe

    108

    140

    103 99

    2000 02 04 06 2008

    -29%

    na

    Mobile networks operators EU27

    18% 22%

    10%

    23%27%

    1%16%

    6%9% 10%

    18% 19%

    11%

    9%

    2005 2008

    Others

    Tiscali**

    CPWAOL*

    BT

    Telewest*

    Virgin (ntl)

    Alice*

    47% 47%

    17% 24%

    12%

    22%6%

    15%3%

    7%

    2005 2008

    Club Internet*

    Others

    Neuf

    Free

    Orange

    Source: IDATE, Eurostat European Commission, Ofcom * Acquired between 2005 and 2008 ** acquired in 2009 or currently being sold

    Be Toucan Bulldog Video NW AOL Pipex Tiscali

    O2 Pipex Pipex Tiscali CPW Tiscali CPW

    2006 2007 2009Target

    Acquirer

    The number of mobile network operators peaked in 2002 after UMTS licenses had been issued. Since then, the number of MNOs decreased by almost one third

    Fixed broadband market

    France: The top three ISPs extended their subscriber market share from 76% to 93%, facing limited competition from cable

    UK: Market consolidation still under way. CPW being a major consolidator expanded its market share from 1% to 16%.Proposed T-Mobile UK and Orange JV will

    drive further European consolidation

    A decade of structural change in Telecom

  • 2010 IBM Corporation21Telco 2015- five telling years, four future scenarios

    and has gone a long way in the US already

    Not exhaustive

    Partners

    Fixed Mobile

    Source: IDATE, operator web sites, press

    A decade of structural change in Telecom

  • 2010 IBM Corporation22Telco 2015- five telling years, four future scenarios

    The telecom industry has undergone signficiant structural changeover the last decade; how will it evolve over the next 5 years?

    Phenomenal expansion in communications and industry growth driven by mobile and emerging markets over the past decade has begun to stall

    While long-term PSTN decline appears inevitable, mobile penetration is peaking in most mature markets, ARPU is falling and in some advanced markets mobile revenues have even started declining

    Migration from dial-up to fixed broadband continues and while global penetration remains low, adoption rates in advanced markets are increasing steadily though not enough to compensate for PSTN losses

    Rollout of HSPA networks have driven adoption of mobile broadband helped in part by the penetration of Smartphones and HSDPA-enabled USB keys /dongles for Netbooks and are somewhat mitigating the impact of voice reven...