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ICT Convergence:Consolidation or Shakeout Stage!

Guy Alain Djopmo Komguep

London - January 24th, 2008 Think forward

Designing Future Business

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Foundation:1954 Diebold1977 DETECON

Restructuring:2002 Detecon International GmbH

Turnover 2006:EURO 148 million 650 consultants

Shareholder:T-Systems Enterprise Services GmbH

Offices in Germany:Bonn (HQ), Dresden, Eschborn, Munich

International locations:Abu Dhabi, Bangkok, Johannesburg, Mexico City, Beijing, Reston, Riyadh, San Mateo, Singapore, Zurich

Detecon’s global presence ensures the international success of our clients.

To have an impact, you have to be there

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Know-how und Do-how

Fact-based quantitative analyses provide the foundation of our work

On-site integration of our do-how expertise for the development of strategies and implementation processes

Clear Commitments

Independent evaluation

The client is our partner: Joint teams and knowledge transfer

Our success can be measured

ICT Talents

Experienced staff with multi-cultural competence in the global ICT markets

Implementation of complex ICT projects which demand the combination of commercial, technological and legal expertise

Global Reach

3500 successfully completed management and technology projects in 106 countries

Universal quality standards and worldwide knowledge transfer through the networking of our consultants in Global Competence Teams

Global activities, know-how und ‘do-how’ expertise in ICT markets characterize our consultancy services.

The experience of more than 3500 projects

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Content

1. Breakthrough Insights

2. Value Creation Leads

3. Levers for Value Capture

4. Spheres of Action

5. Outlook Notes

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No standards

Regulatory issues

Technology was not ready

Driven by network standpoint

Niche focus, high price and low competition

Yesterday

Breakthrough Insights

Mature standards

Regulatory framework enhancements

Technology readiness

Users demand seamless services

Mass market, low price and high competition

Today

Starting point of Information and Communication Technologies convergenceFixed-Mobile Convergence was already a hot topic a decade ago in the Telco‘s industry, which was driven more by the network perspective rather than the end-user perspective.

$? „Many lie questions were on the table“ „Business opportunities are available“

?

?

$ € £

¥

฿

¢

إ.د

रुपय

R

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ICT Convergence Lifecycle - Snapshot 2007

Breakthrough Insights

Take-off phase and Growth stages include economies of scale and learning benefits

Consolidation and shakeout stages embrace economies of scope and merger and acquisition advantages

During the stabilization phase, established players perceive network externalities effects as well as buyer lock-inprofits

During these different phases the product line move from ICT convergence to multi-sector convergence

Rationale

The pace of ICT convergence in western European markets tremendously differs with regard to regulatory framework, competitive edge and market responsiveness.

Western European markets dynamics

Take off Growth Consolidation Shakeout Stabilization

• Germany• Netherlands• Switzerland

• Sweden• Danemark• Norway

• Portugal• Greece

• France• Spain• Italy

FMS FMC Triple Play Quadruple Play Living cities

• UK

Number ofcompetitors

Time

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Positioning paths in the value chain

Taxonomy of ICT Convergence

Breakthrough Insights

With respect to local marketing requirements and Telco’s strategies, ICT convergence initiatives can be realized at different levels across the valued-chain business entities.

Single Number, Voicemail

Bundled Services

Service Delivery Platforms

Single Bill

One End-User Tariff

Convergent Charging

IP Multimedia Subsystem

Multi Access Edge

Metro Aggregation

Network Convergence

Service Convergence

Tariff Convergence

Hybrid Devices

Multifunctional Microchip

Integrated Power Supply

Device Convergence

Unique Brand, CRM

One POS, Cross-Selling

Common Distribution

Marketing Convergence

NetCo ServCo SalesCo

1 2 3 4 5

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Customer Premises Equipment with Symbian or Microsoft operation system?

Standard or proprietary Service Delivery Platforms?

IMS versus UMA in the core network?

Backhaul including metro aggregation and legacy systems?

Question marks

Value Creation Leads

Technology prism

Technology choice In the realm of ICT convergence, the Telco player should align its technology strategy with the predefined business strategy.

Sustainable CAPEX

OPEX rationalization

Churn rate downsize

Competitive customer acquisition costs

Technology opportunity costs

Sunk costs

Economic rents

Value proposition Technology AValue proposition Technology B

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Value Creation LeadsStrategic alliance

Strategic alliance framework – Triple Play offering

Legal Framework Incentives

Content Provider function: Innovation leadership Content creation and protection Service branding Content licensing Ensure interoperability

User Protection Governance

Fixed Operator role: Understanding user demands Broadband access Business model Technology choice Branding, Pricing, Distribution

FixedOperator

BroadcastCarrier

CPEVendor

Content Provider

CPE Vendor role: Terminals readiness Fostering standards Sharing investments Economy of scale

Broadcast Carrier function: Content aggregation Content transport Setting standards Business cooperation

Regulatory Bodies

Players in the ICT arena should contractually joint efforts to achieve lasting business development through synergies, expenses sharing and technology transfer.

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Value Creation Leads

The stretched-T strategy: slim at the bottom, wide at the top!

Involve the customer in your market lifecycle is the crux of customer advantage. Thus understand usage, psychographics, culture, purchasing and benefit patterns is key.

SoHo = Small Offices / Home OfficesVSE = Very small EnterprisesSME = Small and medium EnterprisesLE = Large EnterprisesMNC = Multinational Corporations

Differentiation !

Efficiency ! • Optimal OPEX• Modular platforms• One network• Outsourcing

• Tailored segments • Stickiness creation• Viable offerings

Consumer Business

Network

Services

Sales and Marketing

Kids Youth Families Seniors SoHo VSE SME LE MNC…

Intrinsic customer segmentation

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Brand positioning fundamentals

Brand awareness, point of difference, relation to inherent products and active loyalty should be continuously managed. Avenue

Within the context of ICT and multi-sector convergence, it is essential to manage brand as total customer experience across the psychological benefits, functional and economic benefits.

Bottom line

Levers for Value Capture

Customer perception cues

Brand equityBuilding strong brands offers Telco players attractive avenues to insulate themselves from competition and commoditization pressures.

RelationshipWhat about you and me?

ResponseWhat about you?

MeaningWhat are you?

Identity Who are you?1

2

3

4Resonance

Judgments Feelings

Performance Imagery

Salience1

2

3

4

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Orange Livebox versus Neuf Box

Levers for Value Capture

Between Orange Live box and Neuf box the point of parityis the functional benefit: both offers Internet, Telephony and Television utility

Orange, key point of difference, aims at increase the consumption opportunities with new livebox releases: Livebox Pro, Livebox premium

To gain new market share and build psychological benefits, Neuf offers home installation service and pursue and aggressive marketing communication strategy

Analysis

The Telecom French market faces a shakeout stage with regard to ICT convergence, thus successful players should move from competitive edge to customer advantage…

Pioneer and Follower brand preference -Case study of the French market

Pioneer

Follower

• Co-branding• France Telecom assets• Technology innovation• Psychological benefits

Orange Livebox advantage (France)

• Customer service• Less sunk costs• Buyer loyalty

Neuf Box advantage (France)

Market Share

Dissimilarity of brand Extension

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Value based pricing

Value Quantification of ICT Convergent Offerings

Levers for Value Capture

Numerous players in western Europe and USA tend to reduce the competitive reference value price, this could lead to significant market failures.

Positive Differentiation

Value

Competitive Reference

Value

Negative Differentiation

Value

Total Economic

value

Ease of use Cost efficiency Always best connected Customer education After-sales services Reliability and security

Legacy systems Emerging competitors Technology used Standard functions Alternative solutions

Willingness To Pay

Subsidies Switching costs Risks (e.g. guarantee)…

suitable price setting zone

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Raising Price, Increasing Volume, or Lowering Cost?

“Price Volume Cost” impact analysis

Spheres of Action

Analyze the economic value of ICT convergence offerings to the customer and compute all source of savings or increased revenues is essential to succeed.

Base Case 1% increase in price(with no loss in volume)

1% increase in volume(no change in price)

1% decrease in costs

Sales = 100CGS = 70

Sales = 101CGS = 70

Sales = 101.0CGS = 70.7

Sales = 101CGS = 69.3

GM = 30SGA = 20

GM = 31SGA = 20

GM = 30.3SGA = 20.0

GM = 30.7SGA = 20.0

Operating profit = 10 Operating profit = 1110% gain over base case

Operating profit = 10.33% gain over base case

Operating profit = 10.77% gain over base case

Business acumen note

It is smart to increase price rather than decrease cost and moreover increase volume, however the customer should be compensated with additional value.

As long as the costs > 50% of sales, a cost decrease is always better than an equivalent volume increase; vice versa when the costs < 50% of sales.

CGS: Cost of Good Sold; GM: Gross Margin; SGA: Service, General and Administrative expenses

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Strategic value disciplines

Spheres of Action

Provide ICT products or services that uniquely meet customer needs with constant quick response

Key benefit: Psychological, 2nd benefit: Functional E.g. Video on Demand via IPTV

Customer Intimacy

Points of difference focusSustaining and widening customer advantage requires constant search for unique value proposition and new benefits.

Provide reliable and convenient ICT products or services at competitive prices

Key benefit: Economic, 2nd benefit: Functional E.g. Home Zone services

Operation Excellence

Offer customer cutting-edge ICT products and services superior to competition and innovative

Key benefit: Functional, 2nd benefit: Psychological E.g. Apple iPhone

Product LeadershipProduct Leadership

OperationExcellence

Communication Provider

CustomerIntimacy

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In a nutshell

Outlook NotesTake awayService bundling is the easy part of the journey toward ICT convergence. The real transformation lies at regulatory, techno-economic, organizational and marketing level.

1. Align technology choice with smart business strategy is essential to leverage the economicreturn of ICT convergence.

2. You can not push the pebble with one finger! set up strategic alliances with pioneer partners to gain customer advantage and focus on your core competences.

3. Build strong, enduring and profitable brand through the pursue of psychological and functional benefits. (Competitive advantage = Consideration ; Customer advantage = Commitment)

4. Close to customer intimacy value discipline, product leadership and operational excellence are the mix-ingredients for lasting profit.

5. Nominal price increase and variable costs’ decrease are more powerful than volume based strategies, especially in mature and saturated western European Telco’s markets.

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Thank you for your kind attention!

Guy Alain Djopmo Komguep Competence Practice Communication Technology Detecon International GmbH

Oberkasseler Str. 253227 Bonn (Germany)

Phone +49 228 700 2826Mobile +49 151 1221 7902Fax +49 228 700 2107Djopmo.Komguep@detecon.com

Member of

Detecon International GmbH

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Frankfurter Str. 2765760 Eschborn · Germany

Phone (+49 6196) 903-0

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Supervisory Board: Reinhard Clemens (Chair)Management Board:

Dr. Klaus Hofmann (Chair), Dieter BrücherRegistered at: Court of Bonn HRB 2093

Company location: Bonn

The future‘s looking good