Telecom 2020: Preparing for a very different future

1. TELECOM 2020Preparing for a very different future Rob van den Dam Global Telecom Industry Leader IBMInstitute for Business Value

2. Content •How we see the world changing •Future trends that are happening right now •Our vision for a Telco in 2020 •Making it happen •What does YOUR future like?

3. The acceleration of OTT 50 Million Users 100 Million Users (Int) 300 Million Users (China) 200 Million Users 50 Million concurrentUsers 40 Million Subscribers Google fiber 1.2 Billion Users 255 Million Users 130 Million Users 230 Mio Active Buyers

4. OTT and the new generation 26% 25% 19% 17% 13% 30% 45% 55% 58% 66% 71% 76% 79% 27% 55% 54% 72% 41% 77% SOCIAL NETWORKING 68% EMAIL INSTANT MESSAGING / Chat MOBILE MESSAGING (SMS) MOBILE VOICE calls INTERNET VIDEO streaming/download MICRO-BLOGGING FIXED VOICE calls VOIP ((Voice over Internet) VIDEO CALLING Emerging Markets (age < 25) Mature Markets (age <25) 2014 IBM Global Consumer Survey •35 countries •22,000 consumers DAILY USAGE Source: 2014 IBM Global Telecommunications Consumer Survey

5. The global OTT players thrive 2004 data as of 9/17/2004. 2013 Market value as of 12/19/2013. 2012 Revenue is TTM. List excludes Alibaba ($75B), whose private market value would put it in the Top 10. List also excludes Skype (bought by MSFT in 2011 for $8.5B), YouTube (reported as part of Google) and Paypal (reported as part of eBay) The market value of the Top 15 equals that of the Top 100 publicly- traded CSPs The top 5 have more than $115B of cashon their balance sheets 2012/13 2004 OTT and Internet category players

6. Growth CSPs is stalling Source: 2014 IBM report: What being global really means 15 largest Global CSPs

7. The implications for CSPs Soaring customer expectations CSP’s are behind consumer brands in customer experience and risk losing significant revenue year-on-year. Needs new forms of innovation A new kind of CSP is required that involves customers, employees and partners to co- create new kinds of products and services. With a new enemy New entrants in your market. Not your normal competitors, and they are innovating faster than you.

8. 3 key forces will drive changes FORCES Traditional telcomodel will disappear; new business models & partnerships required to sustain revenue growth Threats to revenue The growth in Internet services and subscription will not offset declines in fixed line, voice calls and SMS Information CSP’s have to manage a rich variety of data from both external and internal sources sources Data and analytics move from back-office to a critical profit enabler driving innovation in the front office Consumers Consumers want exceptional service from CSP’s as provided by consumer- oriented brands Innovate, partner, or die” becomes an unspoken mandate as new entrants reach out directly to consumers and bypass the traditional CSP operator IMPLICATIONS IN 10 YRS

9. Major technological advances Program Learn Natural Language Analytics DeepQA Cognitive Computing “SyNAPSE” Silicon Devices Nano Scale 1 Billion Transistors 1,000X 1 Trillion Devices Nano Systems Workload Optimised Systems Exascale Software Defined Environments 1,000X Big Data 1,000,000X Real-time Inference & Knowable Future

10. Cognitive systems: Applications Sensor Networks / Internet of Things Infrastructure Buildings Vehicles Grids Metering Billions of end points 100K+ elements,10ms latency Multiple feedback time-scales Social Business Five-in-Five Watson Human and knowledge capital analytics TM Cognitive Sensing Technology: •Hearing and voice recognition •Extracting knowledge from pixels •Sniffing for healthiness •Haptic technology for retail •Healthier molecular based recipes

11. How we see the world changing Human Society

12. How we see the world changing Machine-to-machine communication

13. How we see the world changing Internet for everyone Fully open, free to use Wi Fi in the Moscow metro

14. How we see the world changing Mobile as a remote for our lives To control home heating And home entertainment To manage home gaming Even to control toilet activities!

15. How we see the world changing The instrumented life

16. How we see the world changing True peer-to-peer

17. How we see the world changing Peer-to-peer innovation

18. In short: a new world •New classes of services •Connected lives/ mass personalisation •Business functions as a service •Industry value chains reconstructed •Disrupted competitive landscape Consumers Business Government/ Industries

19. 4 themes for CSPs Four Common Themes Cost Reduction Telco industry •Data dwarfs voice •High growth gone; fight is now for niches and markets further from the core •Digital, more demanding empowered customers shaped by experiences outside of telco •Industry consolidation just starting Media industry •TV everywhere: 195M tablets sold in 2013; and 5B smartphones by 2018 •Simultaneous consumption: 75% of consumers surf the web and use social media while watching TV •Audiences become collections of “ones” Customer Experience New Revenue Sources Reinvent the Enterprise

20. Cost savings

21. Cost savings: Leveraging synergies In which AREAS was your organization able to CAPTURE SYNERGIES? (15 largest Global CSPs) Captured synergies to some or significant extent Priority focus areas Source: 2014 IBM report: What being global really means

22. Customer Experience: CSPs are not leaders by any customer measure No CSPs in Top 25 Telecom lowest among 7 industry groups No CSP in Top 50 No CSPs in Top 50 No CSP in Top 100 Wireless industry ranked 44 of 50 industries No CSP in Top 50 Only one CSP in Top 100, O2 at #46

23. Customer Experience: Look outside the industry for leadership

24. New Revenues Sources Exploit remaining pockets of growth Business Services revenue increased 26.4% to $3.2B Small business continues to drive growth: increasing contribution from midsize businesses Source: Comcast 2013 Earnings Presentation Enter higher growth adjacent spaces AT&T and IBM today announced its Internet of Things / M2M alliance to initially focus on creating new solutions targeted for city governments and Midsize utilities. Source: TelecomLead, February 18, 2014 T-Mobile USA Network analytics for operations and CEM Source: https://www.youtube.com/watch?v=IBZYJpDT0vQ Leverage on differential insight Cannibalize before being cannibalized iOlets you make calls, chat and share images with other iOusers over the Internet for free (WLAN and 3G/LTE) Source: Swisscomwebsite Partner with OTTs Source: Spotifywebsite

25. The New Enterprise Model Developers ISVs Banking Consultants/ SIs Healthcare Media Social business Personal comms Security Policy Analytics M2M Etc… Etc… Managed customer interface, services, platforms and networks Service providers and partners CSP solutions Consumers Business Government/ Industries Example Players in the services economy today $1.5B revenueof10K+ Affiliates Expecting $10B transactions on mobile in 2012 40% total units sold by outside sellers 40% new business comes from non-CRM offerings API only company reaches150,000developers and 1.5Mcalls a day 4.5M API invocations per month In 2020 up to 60% of today’s IT market is addressable through this delivery model

26. Over to youWhat does YOUR future look like?

27. The CSP rolein tomorrows world 1.Lean and mean Network provider ORSmart Teleconnect/ Ecosystem provider? 2.Follower ORLeader? 3.Customer driven service company ORProduct supplier? 4.Differentiated ORCommoditized? 5.Need for Vertical AND/ORHorizontal integration? 6.Work with new entrants ORFight them 7.Do it Yourself ORCo-create? 8.Local ORGlobal? 9.Consolidator ORbe consolidated?

28. Thank you Rob van den Dam Global Telecom Industry Leader IBM Institute for Business Value rob_vandendam@nl.ibm.com www.ibm.com/iibv

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