navigating the storm: the impact of the economic crisis and strategic responses, by jawad shaikh,...
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Capgemini Consulting is the strategy
and transformation consulting brand
of Capgemini Group
Jawad Shaikh, Vice President
Capgemini Consulting
June 1st 2009
Navigating the Storm: The Impact of the
Economic Crisis and Strategic Responses
6th Arab Advisors Media & Telecoms Convergence Conference
1Copyright © 2009 Capgemini. All rights reserved.
We are in the midst of a global recession
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
2006 2007 2008 2009E 2010E 2014E
World United States Europe Developing Asia Middle East
Developing
Asia
Europe
The US
Middle
East
World
Global GDP growth rates, 2006 – 2014E, %
Source: IMF, “World Economic Outlook”, April 2009;, World Bank, “Global Economic Prospects 2009”, Dec 2008; Bloomberg, “U.S. Stocks Post Steepest Yearly Decline Since Great Depression”, Jan 2009; IMF, “Global Economy Contracts, With Slow Recovery Next Year”, Apr 2009
2Copyright © 2009 Capgemini. All rights reserved.
Historically, real TME consumer expenditure has correlated
with the performance of the wider economy
2
Source: Capgemini TME Strategy Lab analysis; US Bureau of Economic Analysis
TME Consumer Spending per Capita, GDP per Capita,
YoY Growth Rates, US, 1984 2007, %, Real Terms
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
YoY growth GDP per capita YoY growth, TME Spend per capita
US Financial
Recession
(1990-1991)
Dot.com Bubble
(2000-2001)
The current recession is also affecting consumer spend.
3Copyright © 2009 Capgemini. All rights reserved.
The declining spend is severely impacting growth across the
value chain
Content/Media Telecoms Devices
Y-o-Y Revenue Growth of Top
Handset Vendors, 2005-08
Q-o-Q Revenue Growth Rates of
Top Telcos, Q2 08-Q1 09
Q-o-Q Revenue Growth Rates of
Top Media Players, Q2 08-Q1 09
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
2005 2006 2007 2008
-1.0%
0.0%
1.0%
2.0%
3.0%
Q2
2008
Q3
2008
Q4
2008
Q1
2009
-15%
-10%
-5%
0%
5%
10%
Q2
2008
Q3
2008
Q4
2008
Q1
2009
Source: Capgemini TME Strategy Lab analysis based on analyst reports, company websites and news releases.
Mobile handset revenues are
forecasted to decline by
~13%
Voice revenue growth for
European cellcos predicted
to decline by 3.7% in 2009
Online advertising revenues
in the US expected to
decline by 5% in 2009
4Copyright © 2009 Capgemini. All rights reserved.
-5%
0%
5%
10%
15%
20%
25%
Oman Bahrain Saudi Kuwait Qatar UAE
2007
2008(E)
2009(F)
The global crisis combined with a decline in oil prices is
severely impacting the GCC economies
Source: MEED Projects, as of July 2008. IMF. Respective Central Banks, NCBC
Research, World Bank Estimates, Samba Research. Global Research;Ameiinfo
Annual Real GDP growth rates,2007-2009(f),%
$77 $75 $49 $33 $24 $23
Trade-
deficit
Breakeven
Oil Price
Decreasing Vulnerability to Falling Oil Prices
5Copyright © 2009 Capgemini. All rights reserved.
Consumer and business confidence has fallen significantly
across the region
Change in Consumer Confidence
Index , Jul 2008-Feb 2009, %age
HSBC Gulf Business Confidence
Index , Dec 2007-Jan 2009
-23.5%-23.5%
-11.9%
-9.5%
-7.0%
-23.2%
-15.5%
-1.1%
Kuwait UAE Bahrain Qatar Oman KSA UK US
98.696.8
9492
70.3
Dec-
07
Feb-
08
Apr-
08
Jun-
08
Aug-
08
Oct-
08
Dec-
08
Source: Bayt.com and YouGov Mar 2009 CCI report; HSBC Gulf Business Confidence Index; Nationawide& TNS, “Consumer Confidence
Index”, March 2009; ABC News, “ Q1 2009: A Confidence Sourball”, march 2009; Trading Economics, “United States Business
Economics”, March 2009; ICAEW, “ Business Confidence Index in UK”, 2009
US Business
Confidence
Index fell 33%
between Dec
07 and Dec 08
UK Business
Confidence Index
fell 10% between
Q4 2007 and Q4
2008
6Copyright © 2009 Capgemini. All rights reserved.
BahrainOman
KSA Kuwait
Qatar
UAE
TunisiaEgypt
Jordan
-5%
0%
5%
10%
15%
20%
-5% 5% 15% 25% 35% 45% 55% 65% 75% 85%
Not all countries in the region are being impacted equally
Expat Population as % of Total Population
Ch
an
ge
in
GD
P 2
00
8-2
009F
HIGHLOW
Po
sit
ive
Neg
ati
ve
Source: Capgemini Strategy Lab Analysis based on IMF and CIA Factbook data
Bubble size represents total population
Impact of Downturn on Middle Eastern Economies
High Impact
Relatively
Lower Impact
Relatively
Resilient
7Copyright © 2009 Capgemini. All rights reserved.
Players will need a balanced strategic response
Asset Optimization
Costs Revenues
CAPEX shifts
Divestiture of non-core operations
Hiving off non-core assets
Pricing
Micro-segmentation
Focus on investing
in services with
proven demand
M&A
SAC/SRC Reduction
People Costs
IT Consolidation and
Optimization
Network Sharing
IT and Network
Outsourcing
Telco Strategic Responses to Downturn
8Copyright © 2009 Capgemini. All rights reserved.
Outsourcing can help reduce network costs, whilst retaining
focus on customer management and value creation
Operators can save up to 5% of their total OpEx through Network outsourcing.
Typical OPEX Breakdown for a Mobile Operator and Potential Savings Through Outsourcing
11.70%
7.80%
7.10%
22.90%
26.80%
23.70%
Subscriber Acquisition and Retention
Network OPEX
Interconnect
Customer Service
IT
Other
15-18%
18-20%
Network maintenance and management
Inventory management
Planning and network optimization
Payouts on license fees and AMC
NOC and Disaster recovery
Application management
Hardware and software maintenance
Data-center management
Information security
Internal helpdesk
Technology Obsolescence-related costs
9Copyright © 2009 Capgemini. All rights reserved.
Separating out tower companies and network sharing
provide a significant upside in shareholder value
Source: Capgemini analysis; GTL Analyst Presentation, March 2008; Frost and Sullivan Estimates, January 2008; TRAI Report on Infrastructure Sharing, May 2008
76,000
19,540
28,000
36,849
61,500
Independent
Tower
Companies
Bharti Infratel RTIL Operator
Owned
Indus
Tower Assets for Selected Operators in India, January 2008, (Units)
Towers Ownership & Network Sharing Initiatives in India
These initiatives are supported by a clear strategic and financial rationale.
Over 70% of the towers are
owned by tower companies
Over 36% of the towers are
shared, and no. is growing
Sharing passive infrastructure,
which is 60% of network CAPEX
Generates OPEX savings as well
as tenancy revenue stream
10Copyright © 2009 Capgemini. All rights reserved.
Along with addressing cost, operators must take effective
steps to retain their existing customers
PAYMENT WAIVER
Waives payments for
unemployed subscribers
Offers unemployed a 50%
discount on their bill
Targeted at subscribers with
Telefonica for at least 6
months
EXTENSION OF CREDIT MULTIPLE BRANDS
Extends credit to
Contract subscribers
Provides GBP40 of credit on
a 12-month contract with
GBP10 rental
Available on a SIM-only
contract
Launched Low-Cost
Brand
Offers shorter contract
periods
SIM only-offerings with call
prices at up to 30% lower
compared
Operator initiatives to retain and attract recession-impacted customers
Source: Information Week, “Comcast Profits Rise Despite Recession”, April 2009
11Copyright © 2009 Capgemini. All rights reserved.
The downturn also opens up some growth opportunities
244292
358
422465
498
591
779
1,022
Q1
07
Q2
07
Q3
07
Q4
07
Q1
08
Q2
08
Q3
08
Q4
08
Q1
09
Sky+ HD Subscribers („000), UK
BSkyB is driving Pay TV Uptake, by creating an affordable HD value proposition
• Identify a high-growth area, with
obvious demand:
• Pay TV demand rose as out-of-home
entertainment became unaffordable
• Create compelling proposition to tap
the demand:
• Slashed entry level prices of Sky+ HD
box from £149 to £50
• HD service delivered with strong content
portfolio
• Promoted limited-time offers e.g. giving
ten months of free line rental
Source: Capgemini Strategy Lab Analysis; Enders Analysis, “Sky FY 2009 Q3 results: recession-resistant”, May 2009; Enders Analysis, “UK pay-TV in 2009: recession and competition concerns”, Apr 2009; Digital TV Europe, “Sky: a sharper picture”, Mar 2009
17% 27%
Average Quarterly Growth Rate
12Copyright © 2009 Capgemini. All rights reserved.
Operators are exercising caution in making bold investments
122
71
23
68
108
66
22
76
EMEA N America Latin
America
Asia Pac
2008 2009
-11%
-7%
-5%
+11%
Global Telecom CapEx, 2008 vs 2009,
Billions of USD
Source: “Global Telecommunications CapEx Forecast”, Yankee Group, March 2009
2009 2010 2011 2012 2013
We are not disclosing specific spending on LTE.
Given the economic circumstances that we‟re
in we will probably start out slower in the first
quarter than what we did first quarter this year- Verizon CEO, 4Q 08 call
It won't be until 2012 or 2013 when users really
start appreciating LTE. LTE will be too costly in
2010 - Softbank Mobile
Expected LTE
Launch Timeline
Before Downturn
Expected LTE
Launch Timeline
After Downturn
Decline in CapEx expected Investments are being delayed
13Copyright © 2009 Capgemini. All rights reserved.
But should invest in pursuing growth areas with proven
demand
Mobile Penetration in Select Geographies
Across the World, (% of Population), Q4 2008
Broadband Penetration in Select Geographies
Across the World, (% of Households), Q4 2008
39% 35%51%
17%5% 4% 3%
26%
63%
UA
E
Ba
hra
in
Qa
tar
Sa
ud
i A
rab
ia
Ku
wa
it
Om
an
Eg
yp
t
GC
C A
ve
rag
e
We
ste
rn A
ve
rag
e
193%
153% 152%
115%103%
73%
51%
117% 110%
UA
E
Ba
hra
in
Qa
tar
Sa
ud
i A
rab
ia
Ku
wa
it
Om
an
Eg
yp
t
GC
C A
ve
rag
e
We
ste
rn A
ve
rag
e
Comparison of broadband penetration in GCC and Western economies points to
unaddressed demand
Source: Telecom Tiger 26th May 2009; “Mobile Social Networking has 12.3 Million
Friends in the USA and Western Europe”, August 2007.
Penetration
Gap
14Copyright © 2009 Capgemini. All rights reserved.
Beyond organic growth, operators in the region can leverage
their relatively healthy cash positions for select acquisitions
But players have sizeable war-chests
Cash and cash equivalents, Q4 2008, Q1 2009,
$Bn, Net Debt/EBITDA ratio, 2008
4.5 4.23.4
2.2
1.0 0.7
3.3
5.8
1.1 1.1
-0.3
2.3
1.5
-0.1
1.731.96
Zain STC Etisalat Qtel Orascom Batelco Vodafone FT
Cash Reserves Net Debt/EBIDTA Ratio
Source: Capgemini analysis based on Company financial statements. Factiva
0
10
20
30
40
Oubound Inbound + Domestic
Q1 2008 Q1 2009
0
20
40
60
80
100
Oubound Inbound+ Domestic
Number of deals, Q1 08 & Q1 09
Value of disclosed deals, Q1 08 & Q1 09
-61%
-77%
-78%
-79%
M&A activity has plummeted in the region
15Copyright © 2009 Capgemini. All rights reserved.
In summary
In line with the historical trend, consumer spending on telecom and media is
being impacted by the global economic crisis, including in the Middle East
Operators can target bottom-line improvement through adoption of structural
cost reduction measures such as outsourcing and network sharing
Protecting revenue must stay in focus – using segmentation and pricing levers,
e.g. “recession offers” based on „psychological‟ segmentation to retain, as well
as attract customers
With Capex constrained, investment for growth should target areas of proven
demand – e.g. broadband in the Middle East
Many major Middle Eastern operators have accumulated healthy war-chests
and can take advantage of lower valuations for attractive M&A deals
Capgemini Consulting is the strategy
and transformation consulting brand
of Capgemini Group
Introduction to Capgemini Consulting
and the TME Practice
June 2009
INTRODUCTION TO TME CONSULTING.PPT
©2009 Capgemini – All Rights Reserved
01/06/2009 00:35 | 17
Capgemini is one of the world’s foremost providers of Consulting, Technology and Outsourcing services
Global Reach
• North America,
Europe and Asia
• Over 90,000
employees
• 300 offices in more
30 countries
• Revenues 2008:
€ 8.7 billions
Three Business Lines
• Consulting services:
– The largest European management
consultancy, with over 4,000
consultants across 30 countries
– Helping clients with Business
Transformation – encompassing,
Strategy, Operations & Technology
• Technology services:
– Architecture and design
– Application and data
– Infrastructure
• Outsourcing services:
– Business process outsourcing
– IT outsourcing
Five Global Sectors
• Financial services
• Public sector
• Manufacturing/retail
• Energy, Utilities
Chemical
• Telecom, Media &
Entertainment
INTRODUCTION TO TME CONSULTING.PPT
©2009 Capgemini – All Rights Reserved
01/06/2009 00:35 | 18
Capgemini Consulting is a Global SBU of Capgemini Group
Global business unit of more than 4,000 consultants working in over 30
countries
Europe‟s largest management consulting firm
€700m revenue in 2008 (8% of Capgemini Group revenues)
Long-standing heritage within the Capgemini Group, with strong Business-
Transformation experience and industry-leading clients
Capgemini Consulting mission: Advising and supporting organisations in transforming their business from innovative
strategy through to execution, with a consistent focus on sustainable results.
INTRODUCTION TO TME CONSULTING.PPT
©2009 Capgemini – All Rights Reserved
01/06/2009 00:35 | 19
Capgemini Consulting services support end-to-end Business Transformation
Business Transformation: a journey from innovative strategy to sustainable performance.
• Phase 1
• Technology
Transformation
(Business & IT
Strategy)
• Post Merger
Integration
• People &
Organisation
Change
• Restructuring;
P2P
• Customer
experience
transformation
• Customer
segmentation
• Sales
effectiveness
• Multi-channel
optimisation -
sales &
service
• Shared services
• Finance
transformation
• Employee
transformation
• Innovation &
Prod. Lifecycle
Management
• Planning,
Logistics &
Fulfilment
• Operational
Excellence –
incl. BeLean ™
• Strategic
sourcing
• Asset Mgmt
• Accelerated IT
Rationalization
(AIR)
• Sustainable IT
Cost
Management
• Technovision
• CIO Advisory
Business Transformation Leader
INTRODUCTION TO TME CONSULTING.PPT
©2009 Capgemini – All Rights Reserved
01/06/2009 00:35 | 20
Capgemini Consulting runs a global management consulting unit with over 300 professionals focused on the TME sector
Global Track Record in the Convergent Industry Worldwide Presence
Capgemini TME Consulting’s raison d’être is deep industry knowledge and close collaboration with our clients.
Mobile, Fixed-line & Broadband Media & Entertainment
Telecom & Media Enablers
Our TME offices
Americas Europe Middle East
Asia Pacific
Atlanta
Cambridge
New York
El
Segundo,
California
Düsseldorf
Helsinki
London
Madrid
Milan
Munich
Oslo
Paris
Rome
Stockholm
Utrecht
Dubai
Mumbai
Shanghai
Sydney
INTRODUCTION TO TME CONSULTING.PPT
©2009 Capgemini – All Rights Reserved
01/06/2009 00:35 | 21
With its core expertise in business transformation, Capgemini Consulting has supported its Telecom & Media clients through all of the major waves of change
TME Consulting Practice Capabilities
Te
lec
om
Re
vo
luti
on
s
Privatization
Competition facing strategy Management alignment
Organization Design
Telco-in-a-box
Proposition development Competitive pricing
Governance
Customer experience processes Downsizing & efficiency
Strategy Definition Business Creation
Vision engineering/value innovation
Growth strategy/market entry Functional strategy (commercial
product, technology, etc.) Due-diligence, PMI, Exit
“In a box ®” methodology
(Capgemini trademark) Launch Profile
Product Lifecycle Management
Customer Experience definition PMI process
Tools and Methodologies
Operations Efficiency
Business Simplification
Customer journey management Path to profit/cost optimisation
End to end process redesign
Revenue Assurance
From monopoly
to competition
Fixed Mobile convergence
Strategy Corporate strategy (acquisition)
Portfolio definition
Broadband launches (network,
products, in DSL or WiMAX) Organization redesign
Pricing definition
Customer Support convergence
Convergent segmentation Convergent business processes
From Mobile to
Broadband
3-Play strategy
Entry Market/Go To Market CPE Strategy
Distribution strategy
3-Play launch
IPTV launch TV channel negotiation
Box Company creation
QoS improvement program
Unbundling acceleration program Broadband sales push program
Pricing optimization
From PSTN to
3-Play
Content Strategy for Telco
Acquisition Strategy Multi-screen strategy
DVB-H Licence acquisition
Content acquisition (football rights,
movies) Pay TV launch
Catch Up TV Mobile TV launch
Advertising revenues optimisation
Pay TV player subscription QoS optimisation (Mobile TV,
IPTV)
From Telecom
to Media
Group synergy strategy: product,
marketing, network, IT, sourcing Group governance vs. national
operations
Group function design and launch
Governance, tracking & reporting design and plan
Group innovation process design
Synergy implementation
Group function implementation Sourcing implementation
Tracking and reporting execution
From national
companies to
global groups
INTRODUCTION TO TME CONSULTING.PPT
©2009 Capgemini – All Rights Reserved
01/06/2009 00:35 | 22
We have built a strong track record of innovative projects in the Middle East
• Defined the Strategy and the Post Merger Integration plan for the acquired ISP by a Mobile operator
• Identified the different Marketing Synergies between the subsidiaries for a Telecom Group
• Helped clients bid for mobile and fixed licences
• Due diligence of technology players & operators; PMI and 100 Day plan processes
M&A
• Transformation of Ministry of Communication in Kuwait
• Transformation of major telecom player in Egypt
Major Transformation
Projects
• Defined the Broadband Strategy, Go To Market and Value Proposition for a Mobile Operator for its
operations in Middle East and Africa
• Defined the Broadband and Wholesales Strategy of an incumbent in Jordan
• Defined the Fixed Mobile Convergence portfolio for a leading mobile operator and a fixed incumbent
• Developed the Broadband and WiMAX strategy of an Incumbent to face the arrival of the 2nd fixed
line operators
Broadband and Fixed-
Mobile Convergence
• Redesigned new media strategy for a leading Middle Eastern media player: linear and non linear
contents services, interactive services, addressing the 3 screens (TV, PC, mobile).
• Defined the Mobile Strategy for a leading free-to-air TV channel in the Middle East; defined Partnerships
Strategy with operators, positioning for the segmented offer and described the roll out strategy
• For a Pay-TV player in Middle East, defined the IPTV strategy and business case
Media Convergence
• Launch of 1st WiMAX operations in Middle East
• 1st MVNO deal in Middle East
• Launch of Mobile Operators in Middle East, North Africa and Turkey
• Launch of 3G/HSDPA network and services
• Go-To Market Strategy in Africa for Middle East operator, leveraging India Best Practices
Mobile & Broadband Launches
Selected Recent Assignments in the Middle East and Africa (2007-2008)
INTRODUCTION TO TME CONSULTING.PPT
©2009 Capgemini – All Rights Reserved
01/06/2009 00:35 | 23
Our “C4 Advisory Board”, comprising of senior telecom & media leaders help validate and enrich our views on the market evolution
The C4 Board of Advisors, 2008
Chair: Lord Birt
Didier Bonnet, Vice President & Global Leader, TME, Capgemini
Dana Dunne, CEO, AOL Europe
Kaj-Erik Relander, CEO Accel Partners
Pascal Cagni, CEO & Vice President - EMEA, Apple
Stefano Mazzitelli, CEO, Telecom Italia Sparkle
Peter Erskine, Chairman, O2 / Telefonica
Olivier Fleurot, Executive Chairman, Publicis
Frank Rövekamp, Global Chief Marketing Officer, Vodafone Group
Patrick Vien, Chairman and CEO, Warner Music Int’l
Clive Ansell, President - Strategy, Marketing & Propositions, BT plc
Joanna Shields, President - International, Bebo
Jon Gisby, Director of New Media, Channel 4
Dallas Clement, SVP Strategy & Development, Cox Communications
Francis Deprez, Chief Strategy Officer, Deutsche Telekom
Peter Bazalgette, Chief Creative Officer, Endemol
Tony Cohen, CEO, Fremantle Media
Emily Bell, Director, Digital Content, Guardian News and Media
Carolyn Fairbairn, Head of Strategy & Corporate Development, ITV
Eelco Blok, Member of the Board of Management, KPN
Patrick Barwise, Emeritus Professor of Management and Marketing, London Business School
Keith Pardy, Senior Vice President - Strategic Marketing, Nokia
Professor George Yip, Dean, RSM Erasmus University
Francesco de Leo, Strategy Director, Wind
The TME “C4 Advisory Board” was founded in 2006 to provide an environment for industry players to engage in open, honest, fact-based discussion on the implications of the converging communications industries
The Board of Advisors meets twice a year and, with their blend of insight and experience, shapes debate on the rapidly changing communications, content and technology landscape
History
23
INTRODUCTION TO TME CONSULTING.PPT
©2009 Capgemini – All Rights Reserved
01/06/2009 00:35 | 24
Team comprised of consultants, research analysts and sector experts
Conducts in-depth research & analysis to form Points of View on sector evolution and address client questions Accesses a variety of proprietary and public
information sources Leverages internal Group knowledge as well
as networks with external experts
Links with influential academics and industry analysts Joint study with INSEAD on Value Innovation
in the mobile sector Joint study on Telecom & Media sector with
European analysts IDATE Content exchange with Forrester, Gartner,
Enders, etc.
Capgemini TME Consulting Lab has a global outlook on the sector and enjoys strong links with influential academics and industry analysts
Me
dia
Inte
rnet
Te
lec
om
Cro
ss
Digital native: how young people modify the Telecom and Media landscape
Music Labels: striking the right chord for stimulating revenues VOD challenge for DTH platform
When TV face web 2.0
Mobile Media advertising
Towards Advertising 2.0 ?
Future of TV models: broadcasting and beyond
Meeting the Local Search Challenge
New ways for digital music distribution
Internet Players vs. Telcos: Worlds In Collision?
Evaluating Fiber Deployment for European Operators
Recent Trends in the Indian MVNO Market
IPTV opportunities & threats for DSPs and DDT players WiMAX: The Last Mile Winner?
Growing Mobile Data Revenues: Opportunities in Infotainment
Mobile content
Recent research publicationsLondon
Mumbai
ParisBoston
Capgemini Consulting is the strategy
and transformation consulting brand
of Capgemini Group
Consulting Services
Telecom Media & Entertainment
Dubai, UAE
Mobile: +971 50 274 6862
Direct: +44 870 238 2222
Jawad.shaikh@capgemini.com
Jawad ShaikhVice President
Region Head Middle East & Africa
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