10-lucent ims business case v3 - cdg...mobility solutions lucent technologies – proprietary ims...

Mobility Solutions

Lucent Technologies – Proprietary

IMS Blended Applications Business Case

November 4, 2004Sachin DoshiMaria PalamaraCarlos Urrutia-ValdesRobert Muli

2Lucent Technologies – Proprietary

Contents

• Objective

• IMS Benefits Overview

• Business Case Objective

• Methodology

• Executive Summary

• Business Case Assumptions

• Market Sizing and Revenue

• Cost of Ownership Analysis

• Business Model Results


Objective

• Voice ARPU’s and margins are declining year over year

• VoIP provides efficiencies to sustain margins, and VoIP-based service enhancements may help diminish Voice ARPU erosion

• WSP will require strong data strategy to grow ARPU and margins

• IMS based services will help operator in efficiently deploying new services and providing a platform for blended applications which will enhance voice and data ARPU, and decrease subscriber churn leading to greater subscriber NPV.

• Develop business case to understand value of blended applications and deploying current and future apps with an IMS architecture


To Deliver Lifestyle Services,The Approach to Service Delivery Needs to Change

Services Supported

by Point Solutions

Services Supported by a Common IMS Architecture

PTT VideoIM LBS

Application Software

IM Server (Presence, AAA)

Subscriber Database


PTT Server

Subscriber Database

eMRS


MPC/ISG

Subscriber Database

PDE


Video Server

Subscriber Database

IM Server


IM PTT Video

S-DHLR Home Subscriber Server

ISG Presence & Availability Server

eMRS Media Resource ServerIMS

LSS + MGW

LBS

PTT Server


MPC/ISG


Video Server


Portable Travel Agent

LiveWire Activity Agent

Family Portal

IM Server


IM PTT Video

S-DHLR Home Subscriber Server

ISG Presence & Availability Server

eMRS Media Resource ServerIMS

LSS + MGW

LBS

PTT Server


MPC/ISG


Video Server


Point Solutions are inefficient and inflexible, e.g. duplicated subscriber

databases + no interaction

Point Solutions are inefficient and inflexible, e.g. duplicated subscriber

databases + no interaction

Blended Lifestyle Services only possible

with an IMS Architecture, e.g. Streamed video to group IM conference

Blended Lifestyle Services only possible

with an IMS Architecture, e.g. Streamed video to group IM conference

How would yousend a picture toyour PTT Group ?

How would yousend a picture toyour PTT Group ?

Intelligent Blending of

Services to create Lifestyle Services


Lowering the service viability threshold

100%

80%

60%

40%

20%

0

Service adoption

Mobile voice

SMS Service A

Service B

Service C

Service D

Service E

Viability threshold for service offering with vertically integrated platform

Viability threshold for service offering with IMS platform

Unattractive services to a non IMS operator

ILLUSTRATIVE

Unattractive service(s) to an IMS operator

Blending services with and IMS service architecture enables an operator to cost-effectively build integrated service bundles that more effectively target niche market segments

Blending services with and IMS service architecture enables an operator to cost-effectively build integrated service bundles that more effectively target niche market segments


IMS Benefits

• Common contacts across services– Enterprise & personal lists, enhanced with

capability indicators.

• Multimedia enriched communication – Multimedia information can be sent and

received during a voice call.

• Voice enriched data applications

• Predictable service interactions– Operator can set defaults for service

interactions to maximize ease of use and service quality.

– Subscribers can set policies on how they want their services handled.

• Retain ownership of the subscriber – Provide better quality services than IP today.

– Avoid migration of value to the client device.

• Differentiate services from competition and sell more services

– Choose the applications to create blended services.

– Home control same services even when the user roams.

• More cost-effectively deliver high value, new lifestyle services to market

– Minimize client-server airlink traffic by leveraging IMS network information.

– Reduce costs of new services throughcommon applications infrastructure.

• Reduced OPEX– Centralized data and common functions.– Standardized QoS, roaming, billing.

For End-Users For Service Providers

Building Blocks for Lifestyle Targeted Blended Services


Business Case Methodology• Gather market data for the ten applications

– Take Rates

– Usage

– ARPU

• Calculate TCO of IMS solution– Increased take rates based on improved feature interoperability which leads to value

added blended services

– CapEx for IMS elements – Session Control, Media Gateway, Media Resource Function, HSS, and Presence Server

• Dimensioning based on improved take rate and usage assumptions

– CapEx savings

• Lower application solution pricing

• Shared architecture for IMS elements

– Operating Expenses

• Network – IMS, Core/Access, and Application Solution operations and maintenance

• Non-Network – SG&A, Provisioning, Billing, Customer Care, Bad Debt, and Fraud

– OpEx savings

• Services operations – Transport, HW/SW maintenance, provisioning, billing and customer care.


Business Case Assumptions

• NAR WSP with 5-Year Subscriber Forecast: 10M in 2005 to 12.2M in 2009

– Business / Consumer Breakdown: 25%/75%

• 5-Year (2005-2009) TCO analysis for ten applications– Active Phonebook (2005)

• IM

• Push-to-Talk

• iLocator

– IP Centrex (2006)

– MMS (2006)

– Unified Communications (2006)

– Phonepages (2005)

– Interactive Gaming (2006)

– VoIP (2006)


Revenue

• Take rates and ARPU for services gathered from various sources:

• IDC, Yankee Group, Gartner Group, Strategy Analytics

• Feature interoperability leads to increase in service adoptions within bundled offers (20% greater than market research)

• Revenues above represent market opportunity if all services were billed separately and subscribers paid full monthly subscription rate for each service.

• Value of IMS is in service and feature interoperability which will lead to bundled service offering, and bundling discounts.

Revenue Breakdown(2005-2009)

9%

14%

2%

13%

6%18%

5%

7%

26%

IM PTTiLocator Interactive GamingIP Centrex MMSUnified Communications PhonepagesVoIP

Revenue Forecast ($M)

$-

$100

$200

$300

$400

$500

$600

$700

$800

$900

2005 2006 2007 2008 2009

$48M (2005)-$821M (2009)


Bundling Effect

• Chart illustrates the % of subscribers with multiple application subscriptions

• Table 1 below outlines the discount assumption for bundling

•• Total 5Total 5--Year Revenues: Year Revenues: $1.85B$1.85B

# of Services Discount2 14%3 17%4 20%5 22%

Blended Services

0%

10%

20%30%

40%

50%

60%

70%

80%

90%

2005 2006 2007 2008 2009

% o

f su

bs

0 Services1 Service2 Services3 Services4 Services5 Services

2005 2006 2007 2008 2009Total Subscribers 10,000,000 10,500,000 11,025,000 11,576,250 12,155,063 IMS Subscribers 1,991,193 3,223,699 4,272,592 4,904,848 5,076,837 ARPU before discount 1.99$ 4.92$ 6.60$ 10.13$ 13.47$ Savings 1.6% 3.0% 4.9% 7.4% 9.2%ARPU after discount 1.96$ 4.77$ 6.28$ 9.39$ 12.23$ Total Revenue ($M) 47$ 185$ 322$ 553$ 745$ ARPU per Wireless Sub 0.39$ 1.47$ 2.43$ 3.98$ 5.11$

Table 1:

Table 2:


Capital Investments (CapEx)

IMS Elements

• Session Control

• Subscriber Database (HSS)

• Media Gateway (MGW)

• Media Resource Server

• Presence Server

Network Capacity

• Core and Access capacity to handle traffic generated by services.

• Calculated on a $ / Mbyte basis

• Operator may have required excess capacity, but the allocated cost should be included in the business case regardless

Application Solutions

• HW, SW, and integration services for each of the ten applications

– Some of the functionality will migrate to IMS elements

12Lucent Technologies – ProprietaryHSS (Subscriber Database)HSS (Subscriber Database)

Presence ServerPresence Server

Session ControlSession Control

Media Resource ServerMedia Resource Server

IM Server IM Server (Presence(Presence

AAA)AAA)

ApplicationApplicationSoftwareSoftware

IM

Sample Network Platform Comparison

PMOServices Supported by Point Solutions

FMOServices Supported by a Common IMS Platform

IMS Platform

Sub. DatabaseSub. Database

PTTPTTServerServer


PTT

MRSMRS


Content ServerContent Server


Gaming

MRSMRS


MGWMGW

IP CentrexIP CentrexServerServer


IP PBX/CTX

MGWMGW

Session ControlSession Control


MRSMRS

MMS Server MMS Server (Presence(Presence

AAA)AAA)


MMS


IM ServerIM Server


IM

PTTPTTServerServer


PTT

Content ServerContent Server


Gaming

IP CentrexIP CentrexFeature ServerFeature Server


IP PBX/CTX

MMS ServerMMS Server


MMS


CapEx Summary

5-Year Total CAPEX: $560M

• 43% of CapEx in Network Infrastructure

• 15% for IMS

• 57% in Application Solutions

Total CapEx ($M)

$-

$20

$40

$60

$80

$100

$120

$140

$160

$180

2005 2006 2007 2008 2009

Core / Access IMS Applications

$51$76

$112

$163 $157

Application CapEx(2005-2009) VoIP

26%

Phonepages

16%

IM6%

IP Centrex3%

Unified Communica

tions2%

PTT6%

Active Phonebook

26%

iLocator2%

MMS10%

Interactive Gaming

3%


Operating Expenses (OpEx)Non-Network Expense Assumptions

• Marketing & Sales: 10% of revenue decreasing to 2% in 2008

• G&A: 5% of revenue

• Bad Debt: 1% of revenue

• Fraud: 1% of revenue

• Billing: $0.35 per monthly bill per subscriber

• Customer Care: 0.6, 5-minute calls per subscriber per Year

• Provisioning: 5 minutes per IMS subscriber

– Customer Care and Provisioning FTE Cost: $75K

– Working Hours: 7.5 hours per day, 208 days per year

Network Expense Assumptions

• IMS OAM&P – 15% of installed CapEx

• Application Maintenance/Upgrades – 8% of installed CapEx

• Transport Costs - $0.074 / Mbyte decreasing to $0.05 / MB in 2009

• Core/Access OA&M – 15% of allocated CapEx


Operating Expenses Summary

5-Year OpEx - $723M

• $267M in network related expenses

• $383 in non-network related expenses

Non-Network OpEx(2005-2009)

Network OpEx(2005-2009)

Total OpEx

$-

$50

$100

$150

$200

$250

2005 2006 2007 2008 2009

Non-Network

Network

$42$80

$122

$182$224

43%

5%5%

7%

21%

19%

SG&A Bad Debt Fraud

Provisioning Billing Customer Care

24%

60%

16%

IMS OAM&P Transport Costs Network OAM&P


$(400,000)

$(200,000)

$-

$200,000

$400,000

$600,000

$800,000$T

ho

usa

nd

s

Revenues OpEx CapEx Free Cash Flow CDCF

Revenues $46,847 $184,665 $322,057 $552,518 $745,096

OpEx $(39,686) $(81,834) $(131,589) $(205,158) $(264,719)

CapEx $(51,486) $(76,071) $(112,415) $(162,798) $(157,274)

Free Cash Flow $(44,324) $1,416 $27,658 $90,122 $188,427

CDCF $(39,575) $(38,447) $(18,761) $38,513 $145,432

2005 2006 2007 2008 2009

Results Summary5-Year NPV – $145M

Payback Period – 3.3 years

5-Year Summary ($M) TotalRevenues 1,851$ Operating Expenses (723)$ Capital Investment (560)$ NPV 145$ Payback Period 3.33

IMS will provide an IMS will provide an efficient architecture for efficient architecture for deploying value added IP deploying value added IP voice and data servicesvoice and data services


Point Solution Business Case

• Application Rollout

– All apps rolled out in 2005, except VoIP in 2006

• Revenue

– Penetration rates for IMS apps are 20% higher than point solution due to advanced application and feature interoperability

• CapEx

– Application solutions will be more expensive for point solution as various IMS functionality will need to be supported within the solution (Subscriber database, Presence Server)

– No additional CapEx for IMS elements

• OpEx

– Customer Provisioning – 3 minutes per subscriber per application

– Customer Care – 1 call per subscriber per year

– Application Maintenance & Upgrades – 15% of HW/SW


Point Solution Business Case Results

$(400,000)

$(200,000)

$-

$200,000

$400,000

$600,000

$800,000

$Th

ou

san

ds

Revenues $90,783 $193,969 $324,038 $507,107 $663,391

OpEx $(51,799) $(90,725) $(150,110) $(226,343) $(286,054)

CapEx $(36,636) $(67,838) $(107,097) $(152,023) $(155,082)

Free Cash Flow $(7,149) $8,503 $21,078 $53,633 $118,359

CDCF $(6,383) $396 $15,399 $49,484 $116,644

2005 2006 2007 2008 2009

5-Year Summary ($M) Point Solution IMS CaseRevenues 1,779$ 1,851$ Operating Expenses (805)$ (723)$ Capital Investment (519)$ (560)$ NPV 117$ 145$ Payback Period 1.94 3.33

• For these 10 services, in this timeframe, the value of the blended services is offset by the fact that many of these services can be offered immediately without IMS.

• IMS based apps would still lead to increase in revenues over 5 years

• NPV for IMS is 25% greater than PS


Churn Reduction• Blended services will provide compelling logic for subscriber stickiness, and will

reduce churn for WSP.

• Table 1 outlines assumptions for reduction in churn– E.g. A subscriber with 2 services is 10% less likely to churn

• Table 2 shows the effect of the assumptions on yearly churn

• Table 3 summarizes the savings an operator can expect based on the reduction in churn

• Total Savings over 5 years: $165M

• Another Perspective: If operator does not deploy blended services, churn may increase to similar financial effect

# of Services Churn Reduction

0 0%1 5%2 10%3 14%4 17%5 20%

Yearly Churn 2005 2006 2007 2008 2009

Point Solution 28.8% 28.8% 28.8% 28.8% 28.8%IMS 28.4% 28.1% 27.7% 27.1% 26.6%

Table 1: Table 2:

Table 3:2005 2006 2007 2008 2009

Reduced Churn (K) 35 69 117 188 252 CPGA $250 $250 $250 $250 $250Savings ($M) 9$ 17$ 29$ 47$ 63$


Incremental Business Case (IMS – Point Solution)

$(50,000)

$-

$50,000

$100,000

$150,000

$200,000$T

hous

ands

Incremental Revenues $(35,164) $7,890 $27,266 $92,485 $144,644

OpEx Savings $12,113 $8,891 $18,521 $21,184 $21,336

CapEx Savings $(14,849) $(8,233) $(5,318) $(10,775) $(2,191)

Free Cash Flow $(37,901) $8,548 $30,318 $69,440 $114,126

CDCF $(33,840) $(27,026) $(5,446) $38,684 $103,442

2005 2006 2007 2008 2009

5-Year Summary ($M) TotalRevenues 72$ Savings 165$ Operating Expenses 82$ Capital Investment (41)$ NPV 103$ Payback Period 3.12

NPV of $103M represents an NPV of $103M represents an 89% increase in value over 89% increase in value over

Point Solution business case.Point Solution business case.


Conclusions

• Looking at these applications, most of which could be deployed using a point solution in the same time frame if not earlier than IMS does not amplify the full value of IMS.

–– Even these services would generate a 89% increase in value if deEven these services would generate a 89% increase in value if deployed ployed on IMS as opposed to using the various point solutions.on IMS as opposed to using the various point solutions.

• Evaluating various mass market and lifestyle services would showeven greater value for IMS over an extended study period.

• Evaluating the impact of optimized transport (wireless/wireline) for complete coverage would also improve the value of the IMS solution.

• Lucent can develop customized business cases for specific operator needs using dynamic modeling tools developed by Bell Labs.

Deploying IMS in a wireless operator network will enhance the value of VoIP and new voice and data applications

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