Telecom revenues are declining. Till now, Data revenues have been critical for Telcos which have successfully followed a “walled garden” approach. But the "walled gardens" are fast eroding under threat from integrated players like Google and Apple, and the telco revenues are fast declining. This presentation presents strategies a Telco to counter this emerging threat from different types of online players and increase or at least retain a share of data revenues.

1. Protecting Data Revenues: Positioning Telcos for growth Telecom revenues are declining. Data revenues have been critical for Telcos which have successfully followed a “walled garden” approach. But with Google and Apple, their revenues are fast declining. How should Telcos counter this threat from online players and retain a share of data revenues. Prepared By Charan Puneet Singh

2. Executive Summary Telecom companies in mature markets are increasingly under pressure, to protect data revenues given the competition from different players in market, the transformation under way in the industry and increased capital and operational spends. In its current avatar, the scope for today’s Telcos in the emerging telemedia value chain is limited to that of a “dumb pipe” , pushing content to the consumer. In order to stay relevant in the market, the telecoms today have four imperatives: 1. Defend and grow telecom’s share of the broadband market through network improvements and high-value integrated and interactive multimedia services. 2. Focus on enabling the 4A vision (content accessible by anyone at anytime through any device) and empowering users, be they individuals, communities or companies. 3. Exploit the advertising potential of the subscriber base - especially mobile. 4. Adopt innovative content development and delivery models, and focus on the consumer experience. Also, Telecoms today will have to transform themselves in terms of cost structure, organizational structure and business processes to allow them to take on the emerging competition in the form of internet and media companies.

3. ROADMAP FOR PRESENTATION Understanding the factors at play Key Recommendations

4. Challenging times for Telcos Globally Telcos must prepare to face potential threats from within & outside the industry. Declining Tariffs Disruptive Innovations Declining Revenues High Customer Churn Evolving Customer Needs Evolving Technology Trends Breakdown of “Walled Gardens” Declining Profits Macro economic Challenges Investments in Capex Investments in Opex Increased Costs Regulatory Costs /Fees Interconnect Costs Investments in Next Generation Technology *Limited scope of root cause

5. What is keeping Telco CEOs awake? Data revenues now constitute 50% of revenues for some leading Telcos; implying how leading Telcos are adapting to changing market trends. 1 Global data traffic now exceeds global voice traffic; implying an underlying change in the way customers use telecom services. 2 Disruptive innovations in Consumer Electronic Devices (Netbooks/ Iphones/Ipads /IPTV / Satellite Navigation) are affecting a transformation of the telecom industry. 3 Global Mobile revenue growth has stabilized, with ARPUs declining and subscriber penetration reaching saturation in most industrialized markets. 4 KPIs like ARPU are becoming redundant; the focus now is on margin (AMPU) 5 The pricing models are being adapted for a multi-platform & metered consumption 6 Telcos are losing relevance with consumers, replaced with next-gen. internet brands. 7 Globally, the telecom industry is set for M&A; only the big and bold will survive. 8

6. The Emerging Telecom Ecosystem The emerging telemedia value chain spawns new business models, undercutting the dominance of telecom service providers who are being forced to innovate to avoid being labeled a “dumb pipe” Sales /Advertising Content Packages / Services License Rights Search /Advertising Content Production Aggregation and Packaging Distribution Portals and Search Transport and Delivery Customer Device Management Advertising Campaign Online Traffic Broadband Subscriptions Traffic Acquisition Advertising Aggregator Customer Data Targeted Deals Content Distribution Customer Devices Sales Customer Content Management POTENTIAL REVENUE OPPORTUNITY FOR TELCOS

8. Growth of Local Content and Search Companies: In most of APAC, VAS demand is dominated by local internet companies and content providers.

9. Growth of Smart Phones: Smartphone prices have crashed and intense competition between major players has resulted in the best deals for consumers.

10. Growth of Netbooks: Demand for mobility and proliferation of cheap computing power has pushed data consumption

11. Growth in mobile-based applications: I-phone segment represents the most profitable of this lot, but analogies can be found globally.

12. Growth in Mobile-based transactions: Specially in economies where banking network is undeveloped or is sparse or inaccessible for other reasons.

13. Products offering Convergence / Triple Play: Operators have products selling packaged Broadband, Voice and IPTV services in the UK market.

14. Innovations in Pricing: Developments in Billing Systems has allowed telecoms to charge consumers on a more granular level to ensure retention.

15. Innovative Business Models: Data based services like TiVo, Netflix and new devices like iTouch, Ipad , Kindle and Dash have pushed data consumption.VAS Eco- Systems New Devices Mobile Applications Innovation / Convergence

17. It is Data Cards, USB Dongles and Data Cards that make up the bulk of Data consumption today.

18. Mobile data ttraffic growth will be lead by smart phones and flat price data plans by Telcos and data card traffic.

19. Investments in 4G technologies like LTE / Wimax will influence success.Source Chetan Sharma Consulting

20. ROADMAP FOR PRESENTATION Key Recommendations Understanding the factors at play

21. The Emerging Opportunity For Change To avoid becoming a “dumb pipe”, the emerging telemedia value chain also opens up a lot of opportunities for Telecoms. The opportunities for telecom operators thus translate into four broad imperatives: Defend and grow telecom’s share of the broadband market through network improvements and high-value integrated and interactive multimedia services. Focus on enabling the 4A vision and empowering users, be they individuals, communities or companies. Exploit the advertising potential of the subscriber base - especially mobile. Adopt innovative content development and delivery models, and focus on the consumer experience.

24. Though Iphones is a success for AT&T in the US market, it could not stop the market-leader, Verizon from adding more customers and increasing its ARPU, including data revenues by focusing on business design. When Verizon launches I-phone in 2010, AT&T will have a lot to watch out for. Source Oliver Wyman Consulting

25. Meet Evolving Customer Data Needs Go back to basics to identify what customers really want, customize service plans and product offerings, rather than force fitting solutions to product offerings. Identify data needs of different customer sets; there is no magic bullet for all. Use customer data to identify customer niches and serve them with right handset capabilities, services and price plans. Identify priority segments and focus to serve them better. Offer customizable data plans to users and ensure long term retention. Ensure that business priority is communicated in outbound communication clearly.

26. Customer is the King Stay relevant to your core audience and invest in brand building the way FMCG and Lifestyle companies have done. Stay On Top Of Consumer Trends Keep track of evolving consumer trends like Web2.0 in local and international markets. It may not be economical to serve a niche, but it is when trends go mass. Focus Customer Communication On Core Values Of Your Brand If there is no perceivable difference in network quality, the communication should focus on softer aspects of the Brand and its core values to drive customer loyalty. Focus on Customer Services Use customer services to make an impact on consumers; achieve higher cross-sells and ensuring satisfaction. No use investing in new technology if the existing are dissatisfied with existing service. Innovate Customer Price Plans Make price plans more transparent and granular to allow a metered access to services. Use the Subway-model to offer consumers freedom to pick and chose components of their service plans at standard prices.

27. Collaborate, Combine and Compete . Find partners and collaborators because it will be difficult for any telecom operator to invest everywhere by itself when the margins are falling. Open Your Walled Gardens Open up your networks to external application providers to enable the development of new services that incorporate telecom capabilities, such as location tracking, voice mail access, contacts management and presence. Collaborate Across the Chain Expand presence across the emerging telemedia value chain with exclusive tie -ups with production houses, internet companies, technology start ups. Merge or Acquire With margins decreasing and the pressure to transform business, smaller companies will find it difficult to survive alone. Build The Right Skills Build the right skills in your organization to transform it to the next generation telecom. This will enable it to take on competition from different quarters .

28. Change Management is the Key The new Telco will be very different from the one we know today and managing this change will be critical to its future. Reduce Opex Reduce sales, general and operating expenses by right sizing the organization. Centralize non-essential functions and outsource network specific functions like network maintenance to specialists like Ericsson / IBM. Invest In R&D The telecom sector is way behind internet companies in terms of investments in R&D as a percentage of sales. It is imperative that telecom companies be on the leading edge of technological evolution to stay competitive in future. Reorganize To Focus On Innovation Most Telcos today are descendants of erstwhile P&T departments, with bureaucratic org structures that complicate decision making. Telcos need to move to a new organizational design to be competitive against internet/media companies. Reduce Time to Market Optimize business processes to enable the business managers at the Telco to launch new products and service plans rapidly, without having to go through a technology cycle.

29. Appendix

30. Global ARPU Trends Source Chetan Sharma Consulting

31. Comparing Mobile To Wire line Growth Source Chetan Sharma Consulting

32. Global Wireless Data ARPU Trends Source Chetan Sharma Consulting

33. Skills Required For Telco 2.0

34. Global Leaders in Data Revenues Source Chetan Sharma Consulting

35. Don’t Follow the herd Delegates at a recent telecom industry meet were divided about the success of online application stores which the telecom operators are opening in a frenzy. http://www.telco2.net/blog/2009/12/smartphones_and_app_stores_whe.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+Telco20+(Telco+2.0)

36. References: “THE ENTERPRISE OF THE FUTURE – TELECOM INDUSTRY EDITION” IBM GLOBAL CEO Study “ Managing Growth and Profits in Yettobyte Era” Chetan Sharma Consultants “A Future In Content(ion): Can Telecom Providers Win A Share Of The Digital Content Market? “ IBM Global Business Services “The Upside for Telecom Operators: Turning strategic threats into growth opportunities” Oliver Wyman

37. Contact Charan Puneet Singh Account Manager - APAC Region ThoughtWorksStudios Connect on Linkedin