evolving service provider business models

© Copyright 2010. Yankee Group Research, Inc. All rights reserved.

Evolving Service Provider Business ModelsCamille MendlerMay 25, 2010


Agenda

Structural Choices

Partnering to Transform

The Role of Wholesale

Q&A


Telecom: An Industry in Decay - or Transition?

Picture source: Tantrum_dan/Flickr


Post-Enron: Telecom Atones and Regroups

The Noughties• Drive to improve the bottom line • Divestment of underperforming

assets• Competitive disintermediation

The Teens• New business models• Pursuit of third-party ecosystems• Wholesale becomes strategic

The “irrational exuberance” of the late 20th century -- culminating in the dot-com crash -- has had long-lasting effects on surviving 21st-century service providers.

Global expenditure on telecom managed services and outsourcing

Source: Yankee Group, 2009


Competition Grows on Multiple Fronts

Wishful thinking: The telco is no longer the center of the universe.

Media & broadcast

BBC, Bertelsmann, Disney, Sony Music

ICT equipment, software & services

Cisco, Ericsson, HP, IBM, Microsoft, NSN

Consumer electronics

Apple, HTC, Nokia, Samsung, Sony

Cloud

Amazon, Google, Facebook, YouTube,

Salesforce.com

Source: Yankee Group & Telecom Italia, 2009

Telecom

operators


Service Providers Are Rethinking What’s Core

What is the core unique selling pointof a telecom operator?

9.4%

11.3%

13.2%

24.5%

35.9%

3.8%

1.9%Other

Billing systems

Subscriber model

Core network

Access network

Brand

Service management platform

n=53Source: Yankee Group / TEN2009 Telecoms Barometer Survey (of European telecom executives)


When Capex Remains Tight, Pragmatism Emerges

20.8%

0.0%1.9%

7.6%

34.0%35.9%

Stronglyagree

Agree Somewhatagree

Somewhatdisagree

Disagree Stronglydisagree

Source: Yankee Group / TEN2009 Telecoms Barometer Survey (of European telecom executives)n=53

Will network infrastructure sharing become the norm?


New Business Models Become Visible

Direct Indirect

High

LowFocus on network plant & operations

Focus on

customer intimacy

RegulatedOpenreach, Chorus

IndependentGTL Infra

Joint VentureNet4Mobility

DigitalDistributor

Qwest

TrustedIntermediary

BT

Virtual TelcoAircel

Media MavenOrange

OpCo

ServCoStatus quo Status quo

Source: Y

ankee Group, 2010

Profound structural and strategic realignment is underway globally.


Understanding the OpCo

Model Definition Examples

IndependentSpecialist firm managing physical network plant assets (towers, fiber) for shared use. Often offers sale/leaseback deal to telcos.

GTL Infra (India), TowerCo (U.S.)

RegulatedFunctionally or structurally separated incumbent operator division managing access network (copper, fiber) for shared use on equal access terms.

Openreach (U.K.), Chorus (NZ), OpenNet (Singapore)

Joint Venture

Infrastructure sharing joint venture pooling passive and/or active network assets for cost-efficient network reach, expansion and build.

Net4Mobility (Sweden), MBNL (U.K.)

OpCos have no direct relationship with the final consumer.


Understanding the ServCo

Model Definition Examples

Digital Distributor

Provider of connectivity-centric services to one or multiple client segments (e.g., service providers, enterprises, consumers).

Qwest, Neutral Tandem (U.S.)

Virtual Telco

Telco externalizing all functions non-core to service differentiation, customer acquisition and retention activities.

Aircel, Bharti Airtel (India)

Trusted Intermediary

Enterprise-focused telco asserting prime contractor role for multi-sourced service delivery and assurance across IT and telecom domains.

BT Global Services, T-Systems, Orange Business Services

Media Maven

Consumer-focused telco (typically 100 million-plus subscribers) aiming to be primary lifestyle services (entertainment & content) as well as connectivity provider to clients; dependent on holistic view of end customer.

Orange, SK Telecom (Korea), MTN (Africa), Telefónica

Many telcos currently operate as digital distributors by default.


Agenda

Structural Choices



Q&A


Telco functions

Telcos Need Help To Become OpCos or ServCos

Network Network operationsoperations

Billing & OSSBilling & OSS

IT infrastructureIT infrastructuremanagementmanagement

Application Application managementmanagement

GeneralGeneraladministrationadministration

Interconnect Interconnect & settlement& settlement

Voice &Voice &capacitycapacity

Business processoutsourcing

IT outsourcing

Wholesale

Physical plant & Physical plant & field maintenancefield maintenance

Networkoutsourcing

HousingHousing


Integrators & BPOsAccenture, Atos Origin, IBM

BSS & OSS specialistsAmdocs, Convergys, Comverse, Telcordia

Digital transactions & interconnectIntec, Neustar, Syniverse, Telarix, TNS

CDN providersAkamai, Edgecast, Limelight

Ethernet exchangesCENX, Equinix, Neutral Tandem

Wholesale operatorsBelgacom ICS, BT Wholesale, Tata

Equipment vendorsALU, Cisco, Huawei, Ericsson, NSN

Construction, engineering& logistics firmsBechtel, Relacom, Service Stream

Partner examples


OpCo Examples and Activities

MBNL Net4Mobility Openreach GTL Infra

Type Joint Venture(3G)

Joint Venture(4G) Regulated Independent

Geography Western Europe (U.K.)

Western Europe (Sweden)

Western Europe (U.K.)

Southeast Asia (India)

Network operations

Various functions outsourced to Ericsson and NSN

Copper infrastructure support services outsourced to Carillion Telent

N/A

Physical plant

T-Mobile and 3 (and now Orange UK) joint venture is pooling 3G access networks

Telenor and Tele2 joint venture is building LTE network with shared infrastructure and spectrum

OpenReach is the functionally separated and regulated access division of BT Group, controlling its copper and fiber access

Tower portfolio acquired from operators and own build


ServCo Examples and Activities

Sprint Aircel BT Orange

TypeDigital

Distributor(in transition)

Virtual Telco Trusted Intermediary Media Maven

GeographyNorth America

(U.S.)

Southeast Asia(India) Global Global

Network operations

• Outsourced to Ericsson

• Outsourced to NSN• 21CN upgrade and international network outsourced to ALU

• Various maintenance deals with ALU, NSN • In U.K., outsourcing of broadband network to BT Wholesale, white label voice/broadband deals

IT & OSS

• Amdocs for customer care and billing• IBM for CRM, IT ops and app development

• Wipro for IT ops, billing, revenue assurance and white labeled app store

• Various IT, BPO deals with Tech Mahindra, HP, Accenture

• Various national deals for IT and apps outsourcing with EDS, ATOS Origin

Physical plant

• Sale and leaseback of towers to TowerCo

• Towers sold to GTL Infra

• Functionally separated, various third-party maintenance deals

• Pursuing infrastructure sharing deals in several geographies (e.g., U.K.)


Agenda

Structural Choices



Q&A


Wholesale Becomes Strategic

Traditional definitions of wholesale• Sale of a communication service to

a licensed service provider, where an enterprise or consumer is not directly billable

• Re/sale of “excess” capacity (e.g., minutes, bandwidth, colo space)

• Sale of a communication service at a regulated price (domestically)

Traditional perceptions ofwholesale• Non-strategic activity, limited

profitability/regulated rate of return• Transactional, undifferentiated,

price-driven product sales

Polarizing wholesale market:

• “Dumb” wholesale: Traditional volume-based transport services, where profitability is dependent on global scale and large volumes

• “Smart” wholesale: Value-added services that extract better quality, performance, intelligence and analytics from network and IT assets

Smart wholesale offers untapped and uncapped revenue opportunities; dumb wholesale’s profit margins are constrained.


Network Network operationsoperations

Billing & OSSBilling & OSS

IT infrastructureIT infrastructuremanagementmanagement

Application Application managementmanagement

GeneralGeneraladministrationadministration

Interconnect Interconnect & settlement& settlement

Business transformation

services

Hosted content & apps

Voice &Voice &capacitycapacity

Business processoutsourcing

IT outsourcing

Wholesale

Physical plant & Physical plant & field maintenancefield maintenance

Networkoutsourcing

Telco functions

HousingHousing

Wider-economyservices

Traditionalservice cluster

21st-century wholesale

Digital infrastructure & delivery services

+

+

+

Wholesalers Are Partnering With Other Service Providers -- and in the Wider Economy



Redefined ‘Wholesale’ Could Grow the Top Line

Smart grid, international remittances,remote home control, M2M, health care

White label SaaS, UC, contact center, app store, mobile TV & IPTV, digital advertising and ad insertion

CDN and P4P mgmt, media transcoding, IPX, ENUM, app store management, IaaS, PaaS, APIs, mobile payments, analytics, device and CPE management, Ethernet exchange, cloud federation, compliance management, security and fraud mgmt, content partner management, broadcast distribution, M2M MVNE, presence and identity management

Infrastructure build-operate-manage, process design and optimization, service design and launch, marketing, sales support

Portfolio additions

Business transformation

services

Hosted content & apps

Wider-economyservices

21st-century wholesale

Digital infrastructure & delivery services

AT&TBT Wholesale

BT WholesaleGlobal Crossing KPN/iBasisTata Communications

Innovators

AT&TBICs

Verizon

BT WholesaleDTAG ICSSLevel 3TeliaSonera Intl Carrier


Smart Wholesale Is About Reselling Intelligence, Not Capacity



Conclusions & Recommendations

• Splendid isolation is unsustainable• To survive and grow, service providers must embrace partnership

• Proactive choice of business model is required• Sitting on the fence will only speed competitive disintermediation

• Helping others deliver compelling services isn’t failure• Wholesale is not a legacy activity, but a key to future revenue growth


Agenda

Structural Choices



Q&A


Q&A

Further Reading

• “What if Google Paid?,” April 2010

• “Rethinking Telcos' Role in Third-Party Ecosystems,” February 2010

• “Redefining the Core: Outsourcing and the Virtual Telco,” March 2009

• “Transforming Service Providers into Anywhere Providers,” February 2009

• “Teaching an Old Dog New Tricks: Wholesale Transforms,” January 2008

This research is available for purchase at shop.yankeegroup.com.

Current Yankee Group Link Research subscribers can find these reports

on the Yankee Group Web site client portal.


Thank You

www.yankeegroup.com

Camille MendlerVP, Global Service [email protected]: @cmendler

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Upcoming Yankee Group webinar:Preparing for 4G Video ServicesTuesday, June 29, 2010 | 11 a.m. ETRegister at www.yankeegroup.com

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