Telecommunications in 2015 - It’s a brand new game Rob Van Den Dam 20 Oct. 2011

IBM Institute for Business Value

Telecommunications in 2015
It‟s a brand new game
Rob van den Dam
Global Telecommunications Sector Leader IBV

© 2011 IBM Corporation


Agenda

 Introduction

 It is a brand new game

 Four industry scenarios for CSPs

 Smarter consumers, industries, CSPs

2 © 2011 IBM Corporation


Telecommunications is IBM‟s #1 research focus

Telecom
Research TSL Russia
Mobile Web
Labs (Moscow Satellite TSL) Services
TSL China &
Telecom Research Lab
TSL Israel & (Beijing)
TSL Europe Telecom Research Lab
(La Gaude &
(Haifa Satellite TSL) Japan
Montpellier, France) (Tokyo
Satellite TSL)
TSL North America Telecom Research Lab
(Austin, Texas)
(New Delhi)
TSL India ASEAN
(Bangalore Satellite TSL) (Kuala Lumpur
Satellite TSL)

TSL LATAM
(Sao Paulo,
Centers of Institute for
Brazil Satellite TSL) Worldclass
Excellence Business Africa
South Partner
Value
(Johannesburg, Satellite TSL) Ecosystem

Telecommunications Solutions Lab (TSL)
Telecommunications Research Lab


The IBM Institute for Business Value creates fact based
thought leadership that help clients realize business value

Future Value Realization CXO
Agendas Studies Surveys

3 to 10 year industry outlook In-depth assessment of today‟s Chief Officiers studies – CEO,
with action oriented next steps critical issues, opportunities, etc CIO, CMO, CFO, CHRO, etc.



Primary research includes Face-to-Face interviews with Executives from the
Telecommunications industry and Consumer Surveys

Customer Spending Customers’ Adoption of, Customer Sources of
priorities for 2011 – Experience with, comms Information for communi-
2013 products and services cation products/ services

Customers’ Attitudes Customer Advocacy Adjacent Market
towards CSPs and Antagonism Opportunities

Most recent Consumer Survey mid 2011 in 24 countries


Communications Service Providers (CSPs) are experiencing
significant change as the industry playing field transforms

It is a brand new game

Changes in the global hierarchy

Shifts in the way consumers communicate

Increasing power of the consumer



The global hierarchy is changing
Mobile Cellular Subscriptions
Total: Total: Total:
719 million 2.2 billion 5.4 billion

2000 2005 2010

France; 46 Mexico; Nigeria;84
UK; 68 Italy; 90 88
China;
Italy; 71 Germany;107 China;
Top 10 375
India; 75 Japan; 116 833
Mobile markets
Germany; 79 Brasil;195
worldwide
(M subs) Russia;
Brasil; 86
217
Japan; 90 USA; 208 USA; 297 India;
Russia; 126 688
7
Source: ITU statistics database; Global Wireless Matrix Q211, Merrill Lynch, IBM Institute for Business Value (IBV)


The communications industry is increasingly being driven by emerging
countries
The Americas
1. Mobile Revenue YoY growth 1Q11 160%
Colombia
Brazil
– Western Europe: - 2.5% 140%
Argentina
– Japan: - 0.6%
Mexico
– North America: + 6.4% 120%
US 100.2%
– Emerging Asia: + 11.6% Canada June 2011
100%
– Latin America: + 10.9%
– Brazil: + 10.9%
– Colombia: + 12.7% 80%
– Argentina: + 19.6%
60%

40%
2. The emergence of new GIANTS:
20%

0%
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010
8 Source: Global Wireless Matrix Q211, Merrill Lynch, IBM; Institute for Business Value (IBV)


In the emerging markets consumer sentiment is generally
higher than in mature ones
Consumer Spending Changes 2011- 2014
Net Increase/ Decrease Net Increase/ Decrease

Holidays
Holiday/vacation 29% Utilities
Utilities 2%

Food && drinks
Food drinks 27% Mobile Telephony
Mobile Telepony -8%

Clothing
Clothing 27%
Transportation
Transportation -9%

Going out
Going out 25%
Food&& drinks
Food drinks -10%

Mobile Telephony
Mobile Telephony 20% Mobile Broadband
Mobile broadband -12%

Mobile Broadband
Mobile Broadband 14% Pay television
Pay television -17%

Transportation
Transportation 13% Fixed Telephony
Fixed Telephony -17%

Pay television
Pay television 12% Clothing
Clothing -19%

Electrical
Utilities
Utilities 11% Elect. Appliances
appliances
-20%

Electrical
Elect. Appliances
appliances
8% SportsSports -21%

Sports
Sports 1% Holidays
Holiday/vacation -26%

Fixed Teleph. -2%
Fixed Telephony Going out -37%
Going out

9 Source: 2011 IBM Global Telecom Consumer Survey, Global N= 12848
Question: Compared to previous years, are you likely to spend less, the same or more on the following products / services in the next 2-3 years?


For spending on communication services, CSPs in emerging Communications
spending

countries face better times than those in mature markets
USA
Mobile
1 Mobile Mobile telephony
Telephony 20%
1 Mobile Telephony Telephony
-8%

Mobile
2 Mobile Mobile broadband
Broadband 14%
2 Mobile Broadband
broadband
-12%

3 Pay television
Pay television 12% 3 Pay television
television
Pay
-17%

Brazil
4 Fixed Telephony
Fixed telephony 4 Fixed TelephonyFixed
telephony
-17%

Canada

1 Mobile Telephony
Mobile telephony 22% Mobile
1 Mobile Telephony
telephony
-4%

2 Fixed Telephony
Fixed telephony 10% Mobile
Mobile Broadband
2 broadband
-6%

3 Mobile Broadband
Mobile
broadband
9%
3
Fixed
Fixed Telephony
telephony
-16%

Mexico
4 Pay television television
Pay 9%
4 Pay television
Pay television -18%

10 Source: 2011 IBM Global Telecom Consumer Survey, Global N= 12848
Question: Compared to previous years, are you likely to spend less, the same or more on the following products / services in the next 2-3 years?


People are increasingly communicating over-the-top: email, IM, Chat,
Internet Video streaming, Social Networks, VoIP
Brazil Daily Mexico Daily
Usage Usage
Email/IM/Chat 82% Email/IM/Chat 85%
Mobile Telephony 75% Mobile Telephony 80%
Fixed Voice 69% Fixed Voice 72%
Social Networking 59% Social Networking 64%
Video Streaming 53% ABOVE 25s Video Streaming 38%
VoIP 33% VoIP 24%

Email/IM/Chat 84% Email/IM/Chat 92%
Mobile Telephony 79% Mobile Telephony 78%
Social Networking 76% Social Networking 74%
Fixed Voice 59% Video Streaming 61%
Video Streaming 54% UNDER 25s Fixed Voice 49%
VoIP 20% VoIP 29%
Source: 2011 IBM Global Telecom Consumer Survey, Global N= 12848; S06 How often do you use the following communications services?


The trend is towards many-to-many communications, increasingly taken
place over the mobile, augmented with videos, photos & other content

Many to
Many Gated Communities Shared Social Space

Mobile Social
Networking / Telco
Communication Pattern

Walled Gardens
The
AppStore

Traditional Open and Free USA
Communications +56% Mobile
Social
Fixed
Voice
E-Mail Networking
is the fastest

Dec ‘09
Dec ‘10
Mobile growing
SMS
Voice Shift Mobile Content
1:1/1:N category

Provider
Communication Environment Open
Controlled
Internet
12
Source: IBV report: “The changing face of communications”. May 2010


In Colombia, Social Networking is ranked as top category by share of
minutes with one-third of web time spent on social networking sites…
COLOMBIA

Social Network sites Monthly hours spent on Instant Messengers Photo Sites Reach
Reach (Dec 2010) Social Networks (June 11) Reach (Dec 2010) (Dec 2010)
WW 71% WW 35% WW 53%
WW 5,4
Israel 11,8 Asia Pacific 19% Asia Pacific 29%
Asia Pacific 48%
Russia 10,6
Europe 84% Europe 41% Europe 67%
Argentina 10,0

North-America 90% Turkey 9,3 North-America 29% North-America 75%
Chile 8,7
Latin America 88% Latin America 68% Latin America 66%
Philippines 8,4
Colombia 89% Colombia 8,4 Colombia 65% Colombia 80%

IM Usage in Latin America
is the highest in the world

With 89.5% reach, Colombia ranked as 5th most highly penetrated Facebook market

Colombians lead Latin America region in Online Dating
13
Source: Comscore: A rise of Social Networking in latin America, Sept 2011, Comscore: Digital Year in review: Latin America. March 2011


…and many activities are moving to the mobile

Mobile Fixed Mobile
Location
Internet Internet Internet
At home 56% 74%
At work place 32% 35%
Fixed On the street 6% 18%
Internet Internet café 37% 5%
At friend 3% 4%
At college 12% 10%

Take photos or videos
Download or listen to music
Upload or download photos and / or videos
Download or watch videos/television/ movies
Check e-mail
Which of the
Use messenger following
Go to personal page (Facebook, Twitter, activities you
etc.)
Use online services your bank usually do
Online shopping with the
Consult / seek information on vehicular traffic phone?
Source: CINTEL, InteracTIC: Panorama mercado del sector TIC en Colombia, 2010


Industry transformation is increasingly evoked by new market entrants
competing with traditional telecom providers over the open Internet

76% of CSP‟s identify OTT comms providers as their greatest competitive threat
OTT Comms providers (e.g.
76%
Google, Facebook, Microsoft)
Cable/satellite providers 34%

Mobile Device Manufacturers 29%

Over-the-top aggregator 26%

IT application 24% „Next-gen” Messaging System
“It’s not email, it’s everything”
WiMAX operators 16%
Entrants from new industries
(e.g. Banking) 16% Acquisition Skype
“Together we will create the future
NEPs 9% of real-time communications”
Consumer Electronics 5%
Buys Motorola Mobility ($12.5bn)
Electric utility providers 3 Google MVNO launches in Spain
15
2009 IBM Institute for Business Value Telecom Industry Executive Survey N=61


The new consumer reality has created an impulse economy,
characterised by immediacy, frivolity, and transience

ALWAYS ON NO TIME!

I AM LOYAL
TO ME!

FREE I HAVE NO
LIMITS

I AM TRANSPARENT
CONNECTED

http://www.flickr.com/photos/trashd/1102373625



Internet Search, Friends/Family, and Social Media have
become the preferred sources of information
Q19 What are your preferred sources of information when
you are looking for communications products and services?

76%
Internet Search 70% 70%
65%
Recommendations/ advice 64% 62%
53%
Social Media 51% 48%
35%
Websites communication providers 45% 37%
30%
Traditional advertising 31% 43%
29%
Emails/ promotional offers 22% 18%
Emerging 17% Brazil
Retail stores 19% 14%
Countries Mexico
Shopping portals/ auctions 17% 10%
17%

0% 20% 40% 60% 80%0% 20% 40% 60% 80%

Source: 2011 IBM Global Telecom Consumer Survey


As consumers encounter new products, services and experiences on
virtually a daily basis, they fell less loyalty towards specific brands
Telecommunications
Global (24 countries)
average of advocacy levels
in Telecommunications
industry

18% 22% 60%
Advocates Apathetics Antagonists

Comparison of advocacy levels in Retail and Telecommunications industry

Mexico Brazil US UK Germany Canada Italy France

Retail 52% 51% 39% 34% 33% 32% 25% 26%

Telecom 24% 17% 20% 20% 16% 13% 17% 21%

Source: 2011 IBM Global Telecom Consumer Survey & 2010 IBM Global Retails Survey


Vast majority of the CSP CEOs therefore sense the new environment
as more volatile, complex, structurally different and uncertain

Shifts in the way consumers
communicate
The New Economic Environment

13 19% 68% More volatile
Deeper/faster cycles, more risk

12 23% 65% More uncertain
Less predictable

25% 29% 46% More complex
Multi-faceted, interconnected

35% 28% 36% Structurally different
Sustained change

Not at all/to a limited extent To some extent To a large/very large extent

Source: Q7 To what extent is the new economic environment different? Volatile n=1514; Uncertain n=1521; Complex n=1522 ; Structurally different
19 n=1523; Telco n=73 © 2011 IBM Corporation


The telecom industry has undergone
significiant structural changes over the last
decade

How will it evolve over the coming years?



Giving the ongoing uncertainties, IBM undertook scenario envisioning,
that enables the industry to assess alternative contrasting futures

What are the trends: Revenue and Profitability
- Certainties (high degree of consensus) outlook for each scenario
- Uncertainties (multiple outcomes)

Future 2008 Survivor
Consolidation
Market
Shakeout
Clashof Giants Generative
Bazaar

Scenario C

Scenario D

Scenario A

Present Scenario B

Major economic, competitive Critical Success Attributes:
and technological events that - Scenario-specific
trigger a particular scenario - Cross-scenario


IBM analyzed the forces shaping the future of the telecommunications
industry into 2015…
services
 PSTN decline accelerates
 VOIP (incl. mobile VOIP) grow
usage  Ubiquitous and seamless access
USAGE/  High digital content consumption
SERVICES  Communication remains fragmented

INDUSTRY FORCES SHAPING
STRUCTURE AND FUTURE OF ACCESS
 Broadband pervasive as TV
REGULATION TELECOM  Mobile broadband favors LTE
 New infrastructure  Ultra low-cost devices grow
competition from  One in three devices is
government, municipality smartphone, MID, or Netbook
 Net Neutrality remains
 Mobile and fixed termination
converge
 Pure plays disappear BUSINESS MODEL
 Voice monetized as a feature of
connectivity
 Green Telecom revenues
 3rd – party revenues
 Cost structures changes


….and potentially high-impact variables (13) that can have 2, 3 or 4
alternative outcomes……

Telco 2015 SCENARIOS
Addressable Market/ Industry /
Growth Areas Integration Model

Demand for Voice Open versus closed
communications devices
Expanding SCENARIO 3 SCENARIO 4
Premium
Silo vs. unified Network sharing vs.
/Enriched
communications Outsourcing
Connectivity
Machine-to-
OTT vs. Network Vertical vs. Addressable
machine (M2M)
optimized content Horizontal Integration
communications
market
Service Pricing User vs. 3rd Party
New Verticals Model / ad funded
Declining/
Ultra-fast Stagnant SCENARIO 1 SCENARIO 2
Broadband Regulatory
Availability Uncertainty

Concentrated/ Fragmented/
Vertical Horizontal
13 high-impact uncertainties that can Dominant Industry /
have 2, 3 or 4 alternative outcomes integration model



…and developed most likely scenarios, within the sphere of possible
futures, for the telecommunications industry in 2015
•
• Disaggregation of
Carrier collaboration
Carrier Assets
and alliances
•
• Involvement Govern-
End-to-end Vertical
Expanding CLASH OF GENERATIVE
ment, Municipalities
Market solutions
GIANTS • BAZAR
Fragmentation
• Mega Carriers
•
• Emerging Brands in
Driven by Carriers
Mature markets
Addressable market
• Reduce Spending
Consumers
SURVIVAL • MARKET
ARPU Erosion
Declining / Stagnant
CONSOLIDATION • SHAKEOUT
Investor Loss of
Confidence
• Cash Crisis

Concentrated / Vertical Fragmented / Horizontal

Dominant Industry / integration model


The Generative Bazaar is characterized by pervasive and open
intelligent access for any person, object and device

Two-sided Business

Stimulate a
Model
range of new and
Deploy
exciting next gen Services
ultra-fast
by OPEN INNOVATION
such as telemedicine and broadband
immersive learning
applications.

Shift to a more connected world: Connecting anything and everything
25


The Colombian government has become a major catalyst for bringing
communication infrastructure to the population
Vive Digital Plan: Bring technology in the life of every Colombian
to:
• Reduce poverty
• Generate employment
• Improve International Competitiveness
• Achieve prosperity for all

Establish a technological leap by:
• The massification of the Internet
• National Fiber Optic Project aimed to bring fiber
optic to 400 municipalities across the country in 2014
• Expect to expand internet penetration to over 90
percent of Colombian population
• Targeting 8.8 million broadband connections by 2014
• Increase of Internet centers for public access
• Broadband access to public institutions
• Development of the national digital ecosystem


IBM‟s IBV study identified scenario-specific critical success attributes
and cross-scenario ones

CLASH OF Common Critical
GENERATIVE
Expanding GIANTS Success Attributes BAZAR
Cost-effective ultra-fast
broadband strategy
Agile, flexible, reconfigurable
processes & infrastructure

Addressable market Culture of innovation and
collaboration
Network /customer insights to
optimize experience & cost

Cost containment
Declining / Stagnant
SURVIVAL MARKET
CONSOLIDATION SHAKEOUT

Concentrated / Vertical Fragmented / Horizontal

Dominant Industry / integration model


Our world is changing and becoming smarter

It is becoming increasingly
INSTRUMENTED
By 2010, 30 billion RFID tags will be
embedded into our world and across entire
ecosystems

It is becoming more
INTERCONNECTED
An estimated 2 billion people will be on the
Web by 2011 …. and a trillion connected
objects – cars, appliances, camera,
roadways, pipelines – comprising the
“Internet of Things”

Systems are becoming more
INTELLIGENT
Every day, 15 petabytes of new information
are being generated. This is 8x more than
the information in all U.S. libraries


The consumer is becoming smarter

Instrumented Interconnected Intelligent

They have They use multiple They have clearly
instantaneous access to technologies to defined expectations
information about interact with other of what they want from
communication consumers and with their provider now and
products, services, communication in the future
provider and other providers
consumers’ experiences
through technology



Smarter CSPs can profit from the Big Data from their network and
other customer information to enhance the customer experience

Data Deliver Customer
Data Ingestion
Transformation Experience

Transactional Data
Transactional
Data
Historical
Data
Referential Data Referential
Data Sets

Historical Data

Network/Customer insight to deliver a distinctive customer experience which
goes beyond satisfaction and creates an emotional engagement with their CSP


Industries are becoming smarter, and Communications Service
Providers can play a crucial role on enabling smarter industries

Smarter energy Smarter Smarter Smarter Smarter solutions
and utilities government healthcare transportation for retail

Smarter banking Smarter insurance Smarter Smarter Smarter
telecommunications chemical and electronics
petroleum



To respond to these challenges and strengthen critical success
attributes, CSPs must think and act differently – become smarter

TELECOM INDUSTRY

Cloud
Customer experience Adjacent Industries
Smart Analytics
Smarter Smarter Smarter Smarter Smarter
energy and governm healthca transporta solutions
utilities ent re tion for retail

Smarter Smarter Smarter
banking insurance telecommun Smarter Smarter
ications chemical and electronics
petroleum

New Business Models

32


Ultimately, the opportunity is for telecommunications to become “the
middleware for the smarter planet”
LOGISTICS GOVERNMENT
MEDIA &
ENTERTAINMENT
RETAIL
L IT
G
R M I

C H F
E
CONSUMER
ELECTRONICS
ENERGY & UTILITIES
HEALTHCARE
M FINANCIAL

MANUFACTURING



Muchas Gracias

Rob van den Dam
Global Telecom Industry Lead
www.ibm.com/iibv rob_vandendam@nl.ibm.com


Telecommunications in 2015 - It’s a brand new game Rob Van Den Dam 20 Oct. 2011

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