telco 2.0 transformation index - methodology and approach

Growth through Innovation

Telco 2.0 Transformation IndexMethodology and Approach

Chris Barraclough, Chief Strategist, STL [email protected]

- 2 -© STL Limited • Proprietary and Confidential

Contents Summary Marketplace Service offering Value network Technology FinanceContents Summary Marketplace Service offering Value network Technology Finance

Introduction

• This is an introduction to the methodology and analysis for the Telco 2.0 Transformation Index – the first detailed analysis and benchmarking of Communication Service Providers (CSPs) as they move to future sustainable business models (Telco 2.0)

• The initial tranche of analysis covers 8 CSPs…• AT&T, Axiata, Etisalat, Ooredoo, SingTel, Telefonica, Verizon, Vodafone

• …across 5 core business model domains• Marketplace, Service Offerings, Value Network (internal organisation and external partnerships, Technology and

Finance

• Comparative analysis is undertaken across all 8 CSPs with objective scores used to determine relative performance of each CSP by domain

• Raw data and analysis/charts are made available in Excel and detailed evaluations made in Powerpoint

• Clients can purchase:

1. The comparative Benchmarking report (and Excel data pack) which includes a detailed deep-dive analysis of 1 CSP

2. Additional CSP deep-dives analysis reports (and Excel data packs)

3. The Benchmarking report and all 8 deep-dive analysis reports (including all Excel data packs)

http://www.telco2research.com/articles/SR_telco-2-transformation-index-report-sep-2013_Summary



The Telco 2.0 Transformation Index (T2TI): Compares the performance of Communications Service Providers (CSPs) in moving to Telco 2.0

1. Explore the Telco 2.0 implementation performance of individual CSPs in detail:

• See where they are strong and weak• Understand what is driving strengths

and weaknesses• Learn and apply lessons to your

organisation

2. Benchmark the Telco 2.0 implementation performance of CSPs against each other:

• Determine best-in-class players in different areas

• Understand relative strengths and weaknesses

• Identify how to improve performance – learn from other CSPs

Enables users to:


Contents Summary Marketplace Service offering Value network Technology Finance

Initiating coverage on 8 leading CSPs

1.Telefonica Europe/South America

2.Vodafone Europe/Asia

3.Etisalat Middle East

4.Ooredoo Middle East

5.Axiata Asia

6.SingTel Asia

7.Verizon US

8.AT&T US

Deep-dive analysis of each CSP

plus

Benchmarking of CSPs against each other and, where appropriate, key new competitors (Google, Apple, Facebook, etc.)



The T2TI is based on STL Partners standard Business Model Analysis Framework1.

• Five core domains are analysed covering both a CSP’s external environment and relationships and its internal structures and performance

• A CSP performance is evaluated against the key requirements for transforming from Telco 1.0 to Telco 2.02.

• Analysis highlights areas of absolute strength and weakness for each CSP and benchmarks performance against peers

• Analysis balances depth and manageability:

• Aims to be insightful but not overwhelmingly detailed

• Objective assessment:• STL Partners is independent

• Uses hard public data and information where possible

• Additional information gathered via interviews and surveys conducted by STL Partners

1. Used in our research and consulting. Strategy reports using this model include The Roadmap to new Telco 2.0 Business Models, A Practical Guide to Implementing Telco 2.0, Cloud 2.0: Telco strategies in the Cloud.

2. Outlined in detail in A Practical Guide to Implementing Telco 2.0 and other reports and implicitly communicated throughout this analysis.

2. Service Offering

5. Finance

3. Value Network4. Technology

1. The marketplace

Services Offering is what the CSP delivers to customers in particular market segment. It is defined by the CSPs corporate and services strategy.

Technology is the technical architecture and functionality that a CSP uses to deliver service offerings.

Finance describes the way the CSP generates a return from its investments and service offerings. It also measures the CSP’s success in generating returns.

Value Network is the way the CSP organises itself to deliver service offerings and includes both the internal structure and processes and external partnerships.

The Marketplace is the context in which the CSP operates. It consists of the economic and regulatory environment and the alternate service offerings offered by competitors.

Source: Faber et al; Designing business models for mobile ICT services, 2001; adapted and developed by STL Partners

http://www.telco2research.com/articles/SR_Roadmap-to-new-telco2-business-models_Full

http://www.telco2research.com/articles/SR_Telco-2-guide-to-practical-implementation_Summary

http://www.telco2research.com/articles/SR_Cloud-2-telco-strategies-2012_Summary

http://www.telco2research.com/articles/SR_Telco-2-guide-to-practical-implementation_Summary



Data and information sourced for each market and CSP – quantitative and qualitative analysis conducted

• Company accounts

• Regulator

• International Monetary Fund

• World Bank

• Internetworldstats.com

• Academic studies

• Interviews

• Surveys

• Web sites

• Presentations

Financials:Market, Competitor, Target CSP P&L,

Balance sheet, cash flow

Operational KPIs: Target CSP & competitor market

share, service volumes (voice, data, SMS), ARPU…

Market economics: GDP, growth

Market digital maturity:Internet penetration, Facebook

penetration, bank account penetration, regulation

Service offerings:Core services, Vertical industry

solutions, Infrastructure services , Embedded communications, 3rd-party

business enablers, OTT

Organisation & Partnerships:

Structure, process, key players

Technology: Key technologies, challenges, change process



For each CSP, the data and associated analysis is organised around the 5 domains at different levels of abstraction

• One overall Telco 2.0 transformation score for each CSP based on 5 domain scores

• Over 100 underlying pieces of analysis conducted for each CSP to produce 34 level 1 or 2 scores

• Domain scores built up from Level 1 and Level 2 scores

• Benchmarking of scores and underlying pieces of analysis carried out between CSPs

Financials:Market, Competitor, Target CSP P&L, Balance sheet,

cash flow

Operational KPIs: Target CSP & competitor market share,

service volumes (voice, data, SMS), ARPU…

Market economics: GDP, growth

Market digital maturity:Internet penetration, Facebook penetration, bank

account penetration

Service offerings:Core services, Vertical industry solutions,

Infrastructure services , Embedded communications, 3rd-party business enablers,

OTT

Organisation & Partnerships:Structure, process, key players

Technology: Key technologies, challenges, change process

MarketplaceFinance

TechnologyValue Network

Serv

ice

Offe

ring

Internal organisation

External

partnerships

Man

agem

ent,

visi

on, g

oals

&

cultu

re

Org

anis

atio

n st

ruct

ure

Third-parties

Other CSPs

Core

service

s

Verti

cal

indu

stry

so

lutio

nsIn

fras-

truct

ure

serv

ices

Embe

dded

C

omm

s

3rd-party

business

enablersO

TT

Comm

unications

ConnectivityContent

Enterprise mobility

Unified comms

Other ICT

Traditional telecoms

Cloud services

Embedded connectivity

Embedded voice/messaging

NFC

M2M

CEBP

ID & authentication

Advertising & marketingPayments and collectionDeveloper support

Regulation

Competition

&

positioning

CustomersFi

nanc

ial

perfo

rman

ce

Finance

-

strate

gy

alignmen

t

Revenue

model

Cost

model

Flex

ibili

ty

EfficiencyCustom

er

data

Change process

Summary

Domain

Level 1

Level 2

Economic environment & maturity



Marketplace domain evaluation – analysis areas

• This section evaluates the attractiveness of a CSP’s marketplace by region

• Four parameters comprise the marketplace evaluation:1. Economic environment & digital maturity:

• The overall health of economy (or economises) in which the target CSP operates as reflected by GDP size and growth.

• The digital maturity of the target CSP's market(s) as reflected by consumer and enterprise adoption and usage of telecommunications and internet services.

2. Regulation:• The regulatory framework that the CSP operates in. Includes legislation and attitudes to pricing,

net neutrality, CSP technical and commercial collaboration for new Telco 2.0 solutions, etc.

3. Competition and positioning:• The nature of competition - how players compete, their goals, the strategies they deploy, the

products they develop• How Telefonica is competing in the marketplace and its strengths and weaknesses

4. Customers:• What customers want and, more importantly, are trying to achieve (physically, intellectually,

socially) and how this is reflected in their (digital) behaviour including how they use products, react to companies and brands, share information about themselves etc.

• Specifically, the regard with which customers hold CSPs

Marketplace

Regulation

Competition &

positioning

Customers

Economic environment

& digital maturity




Service offering domain evaluation - analysis areas

1. Core services:• Core “Telco 1.0” retail offerings such as subscriptions, communications, broadband

connectivity and basic content services. These will remain at the core of telco revenues, enhanced by the smart and targeted delivery of improved offers.

2. Vertical industry solutions:• Comprise telephony services (voice and data) being integrated with IT with the operator

acting in a systems integrator role to provide a complete solution. These solutions are tailored and packaged for specific vertical industries.

Serv

ice

Offe

ring

Core

servi

ces

Verti

cal

indu

stry

so

lutio

nsEm

bedd

ed

Com

mun

icat

ions

3rd-party

business

enablersO

TT

Comm

unications

ConnectivityContent

Enterprise mobility

Unified comms

Other ICT

Traditional telecoms

Cloud services

Embedded connectivity

NFC

M2M

CEBP

ID & authentication

Advertising & marketingPayments and collection

Infra

s-tru

ctur

e se

rvic

es

Embedded voice/messaging


3. Infrastructure services:• Includes telecom capacity “bulk” wholesale, as well as more granular “distribution” two-sided business

models and aspects of hosting/cloud services. Some have been around for a while – bitstream ADSL, unbundled local loop sales etc. Others (data MVNOs, wholesale wireless networks, IAAS) are relatively new.

4. Embedded Communications:• The delivery to consumers and enterprises of basic telecom services, primarily voice telephony, SMS and

broadband data access, through new routes such as application-embedded functions or devices which “come with data” pre-provisioned. Telecoms as an integral part of another service rather than standalone.

5. 3rd-party business enablers:• The provision of extra capabilities derived from the operator's ’platform’ rather than just network transport.

This includes functions such as billing-on-behalf, location, authentication and call-control, provided as basic building blocks to developers and businesses, or abstracted to more complex and full-featured enablers (for example, a location-enabled appointment reminder service).

6. OTT:• CSPs offering content, communications and connectivity services outside the perimeter of their own access

subscriber base and independent of their network. CSPs acting like a OTT player and launching internet services.

• This section evaluates the attractiveness of a CSP’s service offering• STL Partners has identified 6 service offering opportunity areas for Telco 2.0:



Value Network evaluation domain - analysis areas

• This section evaluates how well each CSP is organised internally and externally (within its ecosystem) to deliver Telco 2.0

• The Value Network evaluation consists of internal organisation and external partnerships:• Internal organisation – how the CSP is configured to deliver Telco 2.0

value:1. Management, vision, goals and culture:

• The quality of the senior management team and the quality and clarity of the associated vision, company goals, company culture

2. Organisation structure:• How well the CSP organisation structure is aligned with the company vision and

goals and how effectively this supports the culture

• External partnerships – how the CSP works with other players to deliver its Telco 2.0 strategy and specific Telco 2.0 service offerings:1. Third-parties:

• The ability of the CSP to develop valuable and sustainable commercial relationships with other players to build mutual value that is greater than could be achieved by either party alone

2. Other CSPs:• The ability of the CSP to identify and exploit areas where collaboration between

CSPs is mutually beneficial (e.g. because opportunities to differentiate are low and/or the need for scale is high)

Internal organisation

External

partnerships

Man

agem

ent,

visi

on, g

oals

&

cultu

re

Org

anis

atio

n st

ruct

ure

Third-parties

Other CSPs

Value Network



Technology domain evaluation - analysis areas

• Four parameters comprise the Technology evaluation:

1. Flexibility• The ability of the CSP's network, OSS and BSS to support more business models

(customers, partners, revenue and cost models) and more services than ever before.• This includes the ability to manage information and transact on a real-time basis with

services that involve multiple customers and partners.

2. Efficiency:• The CSP's ability to drive network, OSS and BSS costs down by managing technology

efficiently and driving complexity out.• Covers both capital expenditures (and related depreciation charges) and operating costs.

3. Customer data:• The CSP's ability to exploit its customer data to generate value for consumers and

businesses. This covers• Ability to understand the value and risks of using customer data (including privacy issues).• Ability to move beyond theory and develop services that derive value from customer data.

Includes both Core (retail) services (relatively easy to implement) and third-party services via a B2B2X platform (more challenging).

4. Change process:• The effectiveness of the CSP's process to transform its network, OSS and BSS to meet the

demands for Telco 2.0 (flexibility and efficiency, use of customer data, etc.). This covers:• Fit between commercial and technology strategy. • The balance of benefits and risks of the CSPs specific transformation approach.• Evidence of success or failure in technology transformation.


Technology

Flex

ibili

ty

Efficiency

Customer

data

Change process



Finance domain evaluation - analysis areas

• This section evaluates each CSP’s financial position, finance-strategy alignment and revenue and cost models

• Four parameters comprise the Finance evaluation:1. Financial performance

• The overall health of the company as reflected by profitability, debt levels and returns on invested capital

2. Finance-strategy alignment:• The degree of congruence between the finance model - revenue, opex, capex – and the Telco

2.0 vision and strategy (Telco 2.0 Happy Piper or Telco 2.0 Service Provider) including the degree to which this is reflected in financial metrics.

3. Revenue model:• How effectively can new revenues be generated as existing (Telco 1.0) revenues come under

pressure?

4. Cost model:• How effectively overall the overall cost base be reduced (as the existing business model comes

under pressure) while new Telco 2.0 activities be adequately funded?

Finance

Fina

ncia

l pe

rform

ance

Finance

-

strate

gy

alignmen

t

Revenue

model

Cost model




Analysis output data within each domain is collected for all CSPs and used to benchmark Telco 2.0 transformation performance

Dimension Description Value

Market GDP 2012, Aggregate of all markets, $ Trillions 12.9$ Market GDP growth 2010-17, Compound Annual Growth Rate (CAGR) for weighted average across all markets* 4.3%Market GDP per capita 2012 in US$, weighted average across all markets* 22,729$ Market GDP per capita growth 2012-17, CAGR, weighted average across all markets* 2.8%Market Internet penetration 2012, %, weighted average across all markets* 63%Market Mobile penetration 2012, %, weighted average across all markets* 119%Market Bank account penetration 2011, %, weighted average across all markets* 56%Market Mobile broadband penetration 2011, %, weighted average across all markets* 22%Market Telecom Regulatory Governance Index Based on 2011 academic paper, weighted average across all markets* 0.55 Market Herfindahl score Q4 2012, weighted average across all markets* 0.31 Market Mobile revenue growth 2010-2012, CAGR, weighted average across all markets* 4.6%CSP Total subscribers Q4 2012, Millions 239CSP Monthly ARPU Q4 2012, $ 20$ CSP market share Q4 2012, weighted average across all markets* 32%CSP market share gain/loss 2010-12, weighted average across all markets* -1.2%Market Facebook penetration 2012, %, weighted average across all markets* 40%Market Proportion of post-paid customers Q4 2012, weighted average across all markets* 30%CSP Proportion of post-paid customers Q4 2012, weighted average across all markets* 31%Market Average monthly churn Q4 2012, weighted average across all markets* 3.0%CSP Average monthly churn Q4 2012, weighted average across all markets* 2.8%CSP Brand value/revenue 2012, %, total of all CSP brands 33%CSP Facebook likes Spring/Summer 2013, Millions, total of all CSP brands 9.8CSP Facebook likes per $1M Spring/Summer 2013 Facebook likes/2012 revenue, total of all CSP brands 121

Marketplace

Example: 23 quantitative variables collected for Marketplace domain (Telefonica data)



Each domain has its own set of output data used for benchmarking Telco 2.0 transformation performance: e.g. shown Marketplace

Notes: 1) Work-in-progress, additional dimensions may be added. 2) There are additional datasets for each domain.

Dimension Quantitative Qualitative Scored?

Market GDP

Market GDP growth

Market GDP per capita

Market GDP per capita growth

Market Internet penetration

Market Mobile penetration

Market Bank account penetration

Market Mobile broadband penetration

Market Telecom Regulatory Governance Index Regulation

Market Herfindahl score

Market Mobile revenue growth

CSP Total subscribers

CSP Monthly ARPU

CSP market share

CSP market share gain/loss

Market Facebook penetration

Market Proportion of post-paid customers

CSP Proportion of post-paid customers

Market Average monthly churn

CSP Average monthly churn

CSP Brand value/revenue

CSP Facebook likes

CSP Facebook likes per $1M

Marketplace

Mar

ketp

lace

Dom

ainEc

onom

ic e

nviro

nmen

t &

digi

tal m

atur

ity

Com

petit

ion

and

posi

tioni

ng

Cus

tom

ers

and

cust

omer

eng

agm

ent



Analysis output data is then used to compare CSPs against each other and against new competitors

Qtel (now Ooredoo)

China Mobile

AT&T Verizon Axiata Group

Deutsche Telekom

Orange Telefonica MTN Etisalat Singtel Vodafone Apple Google Facebook0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

9%

20% 22% 24% 24% 27%33% 33% 35% 35% 39%

44% 45%

95%

173%

Example: Brand value/Revenue, 2012



Each individual piece of analysis is used to build domain scores and overall score for each CSP

Example: Marketplace domain

Churn analysis

Brand analysisDigital

engagement analysis

Customer mix analysis

OTT strength analysis

Market share analysisARPU analysis

Subscriber volume analysis

Market Growth analysis

Market structure (Herfindahl)

analysis

Market regulation analysis

Market GDP size analysis

Market GDP growth analysis

Market GDP per capita analysis

Market GDP per capita growth

analysis

Market internet penetration

analysis

Market mobile penetration

analysis

Market bank account

penetration analysis

Market mobile broadband

analysis

Economic environment & digital maturity score

Regulation score Competition & positioning score

Customers and customer engagement

Marketplace domain score



For qualitative analysis, STL Partners uses a standard scoring guide for each CSP to produce a comprable score

• Qualitative analysis – such as exploration of Service Offerings – is undertaken by STL Partners:• Example shows 3 slides

analysingTelefonica’s Core Services (Voice and messaging, Connectivity and Content)

• The results for each CSP are then converted to scores using a scoring guide with clear, standardised definitions used to produce scores

Example: Telefonica performance on Core Services (Service Offering Domain)



Each CSP analysis report is supported by a data pack containing the sourced data and STL Partners analysis