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24112003 Prof Dr Dres hc A Picot 1
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and Directions in Telecommunication Markets
Arnold Picot
Munich School of ManagementLudwig-Maximilians-Universitaumlt MuumlnchenInstitute for Information Organization and Management
Lecture on the International ICT Convention
The revival of the ICT sector Preconditions and enabling factorsUniversity of Padua24th November 2003
24112003 Prof Dr Dres hc A Picot 2
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 3
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 4
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Definitions
Telecommunications in the broader sense
transmission of any kind of data (text charts pictures audio video voice)
Telecommunications inits stricter sense
Two-way communicationbetween somefewsubscribers
Broadcasting
One-way transmission of contents from a sender to a variety of receivers
Information technology
all technologies based on digital technology and microelectronics
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 5
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Positive Feedback
The cycle of positive feedback The implications of positive feedbackon competition
0
100
Market share (in )
time
50 Battle zone
Winner
Loser
New users supervene
The networkvalue increases
Number of networkusers increases
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 6
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Some interesting principles
Moores law Gilders law Metcalfes law
1
10
100
97 98 99 00 01 02 03 04
year
offer
demand
US volume of long distance calls (1997 = 1)
1000
10000
time
Benefit costs
0
20
40
60
80
100
120
1985 1989 1993 1995 1998
$MIPS
0
20
40
60
80
100
Costs increase linear to
connections
Benefit increases squared to connections
year
Processor performance doubles every 18
months
Bandwidths triples every year
Networking counts
24112003 Prof Dr Dres hc A Picot 7
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Development of the value added chain in thetelecommunications market
Time
Intelligent networks
Telecommunications sector
Simple telecommunications value added chain
Provision oftransmissionlines
Provisionof IN
switchingequipment
Introductionof basisservice
Introduc-tion of network -dependentintegrated service
Billing andcustomer
care
Introductionof network -
independent integrated service
Acquisitionsprovisionof point of sale
Introduc-tionof value ndashadderservices
EndConsumer
Implemen-tation oftransmis-sionservice
Introductionof network -
dependentintegrated service
Introductionof basisservice
Billing andcustomer
care
Introductionof network -
independent integrated service
Acquisitionsprovisionof point of sale
Introductionof value ndash
adder services
End ConsumerProvision of network
Implemen-tation oftransmis-sionservice
Provision ofnetwork
Implementationof transmissionservice
Billing andcustomer care
Acquisitionsprovisionof point of sale
End Consumer
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 8
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Value added chain in the telecommunication marketVertical (dis)integration
Provision oftrans-mission lines
Imple-men-tation oftrans-mission service
Introduc-tion of basisservice
Introduc-tion of network ndashdepen-dentintegra-tedservice
Billingandcusto-mercare
Introduc-tionof network ndashindepen-dentintegra-tedservice
Acquisi-tionsprovisionof point of sale
Introduc-tionof value ndashadderservices
EndConsu-mer
Provi-sionof IN swit-chingequip-ment
Network operator
Service operator
Trader
End consumer
Reseller
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 9
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Convergence in the TC IT and media sector is a two stageprocess
telecommunications information technology
media
1 1first stage of convergence
2
second stageof
convergence
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 10
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Convergence changes technologies applications and markets
Examples of convergence
Implementation of different services and applications on a single platformExample Convergence of data and voice communications- Internet telephony -
Convergence of network technologiesExample Convergence of fixed and mobile networks- O2 Genion service ndash phones for both applications -
Merging of industries into one marketExample Convergence of telecommunications IT and media sectors
Base for convergence digitalization and development of the Internet
24112003 Prof Dr Dres hc A Picot 11
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The convergence of communications services is closelylinked to the internet
change in the meaning ofcommunicationsservices
continuous improvementof data quality
multimedia options of the Internet
increase in transmissioncapacities
bullInternet amp multimediabullInternet telephonybulle-commercebullmobile phones
advantage in costsconcerning transmissionactivities increase in the
number of Internet users
Lack of Internet-basedvoice phoneservice
But
24112003 Prof Dr Dres hc A Picot 12
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Towards a new value added structure
Information technology
Producementcreative staffrights developmentof ideas
Contents programsproduction
DistributionIT or consumerelectronicsappliance
Packaging
Provision of networks
Trans-mission service
Integrated service(network independent)
Distribution SMS
Value added Service
Basic-Service (network dependent)
Media
Telecommunications
Information technology
Telecommunications
Media
Reception appliance
Value Added Services
Navigation
Transmission
Packaging
Contents
Convergence
Media
Manufactureof products
Usersoftware Sales (bundling)
Service
Operating system software
Peripherals + software
Producementcomponentpartssoftware elements
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 13
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 14
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of the number of telecommunications service providers
269 395 491 554 611 674 711 772 811 850 861
10661222
13551593 1629
1780 1876 1917 1939 2007 2045
Number of licenses
Number of providers of telecommunications services whichare not subject to licensing
The addition of the individual figuresdoes not equal the number per capita
11031276
1458
1707
Num
bero
f pro
vide
rs
021
998
071
998
021
999
091
999
082
000
022
001
022
000
012
003
082
002
022
002
082
001
1723
18401952
1988 20042060 2100
Licensees operating in sectors of licensed service and of services notsubject to licensing are countedsingle Therefore the addition of individual figures does not equal thenumber per capita
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 15
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Fixed-network customers voice phone services
mobile phone services
miscellaneous
cable TV
carrierbusiness
rental lines
326
16
100
360152
46
Market Volume 2002 611 bn EuroMarket Volume 2001 599 bn Euro
Fixed-network customers voice phone services
miscellaneous
cable TV
carrierbusiness
rentallines
mobile phone services
351
321
20
105
45
159
Market Volume 2003e 626 bn Euro
mobile phone services
Fixed-network customers voice phone services
rental lines
carrierbusiness
cable TV
359
340
14
101
45141
miscellaneous
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 16
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
178
0
185
12
192
46
210
73
232
124
211
145
200
157
0
50
100
150
200
250
300
350
400
1997 1998 1999 2000 2001 2002 2003
Development of minutes of connection
in fixed-telephony services(1997-2003)
Competitors
DTAG
Total amount
min
utes
of c
onne
ctio
n(in
bn)
178
238
283
355 356
197
357
year
Development of competitor`sshares of minutes in fixed-
telephony services (1997-2003)
6
407
348
258
19
440
1997 1998 1999 2000 2001 2002 2003 1st quarter
50
25
0
year
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 17
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of subscribers` numbers and forecast in mobile services
0
10000
20000
30000
40000
50000
60000
70000
56126
Num
bero
fsub
scrib
ers
) in
tsd
)
586
953 1768 24823764
55548276
13913
23446
60043
48202
1230 46
68101
170
22
285
727
681Number of subscribers (in tsd)Germany
Number of subscribers (in tsd)Italy
Penetration Rate
In international comparison theGerman penetration rate lies in front of the USA (477) Japan (621) and Eastern Europe (30) In comparison withWestern Europe Germany`spenetration rate lies 4 behindthe average (77)
1992 1993 20001996 19981994 1995 1997 1999 2003e20022001
62000
752
year
49926
52589 54076913
867
940
Sources RegTP (2003) RegTP (1999) EITO (2003)
24112003 Prof Dr Dres hc A Picot 18
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Deregulation leads to an increase in competition in private and corporate customer sectors
Structure of competition on the German market (2003)
Long-distance international callsLocal calls
Deutsche Telekom darrService operators uarrcity network operators(eg Netcologne)
Deutsche Telekom darrnational and internationaloperators of ownnetworksuarrservice operators uarr
Deutsche Telekom darr
national and internationaloperators of own networks uarr
private customers
corporate customers
Decrease in market powerdarr
Increase in market poweruarr
24112003 Prof Dr Dres hc A Picot 19
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Market share of minutes of connection in fixed-telephony networks(1st quarter of 2003)
local calls
909
91
942
58
Internet access(broadband)
47
53
long distance calls
42
58
mobile calls
60
40
international calls Internet access(narrow band)
66
34
miscellaneous
32
68
total
44
56
DTAG
Competitors
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 20
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The new European directives
In March 2002 the European Parliament and the Councel adopted four directivesand one decision to be implemented by EU members national governments untilJuly 25th 2003
Radio Spectrum Decision
Access Directive
Authorisation Directive
Framework Directive
Universal Service Directive
24112003 Prof Dr Dres hc A Picot 21
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 22
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
87
56
9379 85
6780 86
127
101
134
108
145
121
39
1018
-35
26
-07
3822
-5
0
5
10
15
20
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003e 2004e
Western European ICT market growth 1994-2004 in
Market value 2003 607 billion Euro Telecomunications
IT
Source EITO (2003)
24112003 Prof Dr Dres hc A Picot 23
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
Western Europe ICT market growth by segment 2002- 2004 in
-69
-16
23
09
26
44
-75
05
3948 45 47
-10
-8
-6
-4
-2
0
2
4
6
Computer hardware
Software ampIT services
Telecommunicationsequipment
Carrier services
2002 2003e 2004e
Market value 2003 607 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 24
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
02
25
41
-27
11
26 32
47 4960
104110
12
4557
-4
-2
0
2
4
6
8
10
12
14
WesternEurope
USA Japan RoW World
2002 2003e 2004e
Worldwide ICT market growth by region 2002-2004 in
Market value 2003 2250 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 25
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
435
661
438
673
507
704
327580
638
825
348
553
456
678
407
650
0 10 20 30 40 50 60 70 80 90
Western Europe
Other Western Europe
UK
Spain
Nordic
Italy
Germany
France
2002 2006e
Internet users as a percentage of population 2002 and 2006(e)
Percentage of internet users of population
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 2
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 3
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 4
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Definitions
Telecommunications in the broader sense
transmission of any kind of data (text charts pictures audio video voice)
Telecommunications inits stricter sense
Two-way communicationbetween somefewsubscribers
Broadcasting
One-way transmission of contents from a sender to a variety of receivers
Information technology
all technologies based on digital technology and microelectronics
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 5
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Positive Feedback
The cycle of positive feedback The implications of positive feedbackon competition
0
100
Market share (in )
time
50 Battle zone
Winner
Loser
New users supervene
The networkvalue increases
Number of networkusers increases
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 6
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Some interesting principles
Moores law Gilders law Metcalfes law
1
10
100
97 98 99 00 01 02 03 04
year
offer
demand
US volume of long distance calls (1997 = 1)
1000
10000
time
Benefit costs
0
20
40
60
80
100
120
1985 1989 1993 1995 1998
$MIPS
0
20
40
60
80
100
Costs increase linear to
connections
Benefit increases squared to connections
year
Processor performance doubles every 18
months
Bandwidths triples every year
Networking counts
24112003 Prof Dr Dres hc A Picot 7
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Development of the value added chain in thetelecommunications market
Time
Intelligent networks
Telecommunications sector
Simple telecommunications value added chain
Provision oftransmissionlines
Provisionof IN
switchingequipment
Introductionof basisservice
Introduc-tion of network -dependentintegrated service
Billing andcustomer
care
Introductionof network -
independent integrated service
Acquisitionsprovisionof point of sale
Introduc-tionof value ndashadderservices
EndConsumer
Implemen-tation oftransmis-sionservice
Introductionof network -
dependentintegrated service
Introductionof basisservice
Billing andcustomer
care
Introductionof network -
independent integrated service
Acquisitionsprovisionof point of sale
Introductionof value ndash
adder services
End ConsumerProvision of network
Implemen-tation oftransmis-sionservice
Provision ofnetwork
Implementationof transmissionservice
Billing andcustomer care
Acquisitionsprovisionof point of sale
End Consumer
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 8
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Value added chain in the telecommunication marketVertical (dis)integration
Provision oftrans-mission lines
Imple-men-tation oftrans-mission service
Introduc-tion of basisservice
Introduc-tion of network ndashdepen-dentintegra-tedservice
Billingandcusto-mercare
Introduc-tionof network ndashindepen-dentintegra-tedservice
Acquisi-tionsprovisionof point of sale
Introduc-tionof value ndashadderservices
EndConsu-mer
Provi-sionof IN swit-chingequip-ment
Network operator
Service operator
Trader
End consumer
Reseller
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 9
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Convergence in the TC IT and media sector is a two stageprocess
telecommunications information technology
media
1 1first stage of convergence
2
second stageof
convergence
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 10
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Convergence changes technologies applications and markets
Examples of convergence
Implementation of different services and applications on a single platformExample Convergence of data and voice communications- Internet telephony -
Convergence of network technologiesExample Convergence of fixed and mobile networks- O2 Genion service ndash phones for both applications -
Merging of industries into one marketExample Convergence of telecommunications IT and media sectors
Base for convergence digitalization and development of the Internet
24112003 Prof Dr Dres hc A Picot 11
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The convergence of communications services is closelylinked to the internet
change in the meaning ofcommunicationsservices
continuous improvementof data quality
multimedia options of the Internet
increase in transmissioncapacities
bullInternet amp multimediabullInternet telephonybulle-commercebullmobile phones
advantage in costsconcerning transmissionactivities increase in the
number of Internet users
Lack of Internet-basedvoice phoneservice
But
24112003 Prof Dr Dres hc A Picot 12
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Towards a new value added structure
Information technology
Producementcreative staffrights developmentof ideas
Contents programsproduction
DistributionIT or consumerelectronicsappliance
Packaging
Provision of networks
Trans-mission service
Integrated service(network independent)
Distribution SMS
Value added Service
Basic-Service (network dependent)
Media
Telecommunications
Information technology
Telecommunications
Media
Reception appliance
Value Added Services
Navigation
Transmission
Packaging
Contents
Convergence
Media
Manufactureof products
Usersoftware Sales (bundling)
Service
Operating system software
Peripherals + software
Producementcomponentpartssoftware elements
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 13
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 14
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of the number of telecommunications service providers
269 395 491 554 611 674 711 772 811 850 861
10661222
13551593 1629
1780 1876 1917 1939 2007 2045
Number of licenses
Number of providers of telecommunications services whichare not subject to licensing
The addition of the individual figuresdoes not equal the number per capita
11031276
1458
1707
Num
bero
f pro
vide
rs
021
998
071
998
021
999
091
999
082
000
022
001
022
000
012
003
082
002
022
002
082
001
1723
18401952
1988 20042060 2100
Licensees operating in sectors of licensed service and of services notsubject to licensing are countedsingle Therefore the addition of individual figures does not equal thenumber per capita
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 15
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Fixed-network customers voice phone services
mobile phone services
miscellaneous
cable TV
carrierbusiness
rental lines
326
16
100
360152
46
Market Volume 2002 611 bn EuroMarket Volume 2001 599 bn Euro
Fixed-network customers voice phone services
miscellaneous
cable TV
carrierbusiness
rentallines
mobile phone services
351
321
20
105
45
159
Market Volume 2003e 626 bn Euro
mobile phone services
Fixed-network customers voice phone services
rental lines
carrierbusiness
cable TV
359
340
14
101
45141
miscellaneous
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 16
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
178
0
185
12
192
46
210
73
232
124
211
145
200
157
0
50
100
150
200
250
300
350
400
1997 1998 1999 2000 2001 2002 2003
Development of minutes of connection
in fixed-telephony services(1997-2003)
Competitors
DTAG
Total amount
min
utes
of c
onne
ctio
n(in
bn)
178
238
283
355 356
197
357
year
Development of competitor`sshares of minutes in fixed-
telephony services (1997-2003)
6
407
348
258
19
440
1997 1998 1999 2000 2001 2002 2003 1st quarter
50
25
0
year
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 17
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of subscribers` numbers and forecast in mobile services
0
10000
20000
30000
40000
50000
60000
70000
56126
Num
bero
fsub
scrib
ers
) in
tsd
)
586
953 1768 24823764
55548276
13913
23446
60043
48202
1230 46
68101
170
22
285
727
681Number of subscribers (in tsd)Germany
Number of subscribers (in tsd)Italy
Penetration Rate
In international comparison theGerman penetration rate lies in front of the USA (477) Japan (621) and Eastern Europe (30) In comparison withWestern Europe Germany`spenetration rate lies 4 behindthe average (77)
1992 1993 20001996 19981994 1995 1997 1999 2003e20022001
62000
752
year
49926
52589 54076913
867
940
Sources RegTP (2003) RegTP (1999) EITO (2003)
24112003 Prof Dr Dres hc A Picot 18
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Deregulation leads to an increase in competition in private and corporate customer sectors
Structure of competition on the German market (2003)
Long-distance international callsLocal calls
Deutsche Telekom darrService operators uarrcity network operators(eg Netcologne)
Deutsche Telekom darrnational and internationaloperators of ownnetworksuarrservice operators uarr
Deutsche Telekom darr
national and internationaloperators of own networks uarr
private customers
corporate customers
Decrease in market powerdarr
Increase in market poweruarr
24112003 Prof Dr Dres hc A Picot 19
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Market share of minutes of connection in fixed-telephony networks(1st quarter of 2003)
local calls
909
91
942
58
Internet access(broadband)
47
53
long distance calls
42
58
mobile calls
60
40
international calls Internet access(narrow band)
66
34
miscellaneous
32
68
total
44
56
DTAG
Competitors
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 20
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The new European directives
In March 2002 the European Parliament and the Councel adopted four directivesand one decision to be implemented by EU members national governments untilJuly 25th 2003
Radio Spectrum Decision
Access Directive
Authorisation Directive
Framework Directive
Universal Service Directive
24112003 Prof Dr Dres hc A Picot 21
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 22
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
87
56
9379 85
6780 86
127
101
134
108
145
121
39
1018
-35
26
-07
3822
-5
0
5
10
15
20
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003e 2004e
Western European ICT market growth 1994-2004 in
Market value 2003 607 billion Euro Telecomunications
IT
Source EITO (2003)
24112003 Prof Dr Dres hc A Picot 23
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
Western Europe ICT market growth by segment 2002- 2004 in
-69
-16
23
09
26
44
-75
05
3948 45 47
-10
-8
-6
-4
-2
0
2
4
6
Computer hardware
Software ampIT services
Telecommunicationsequipment
Carrier services
2002 2003e 2004e
Market value 2003 607 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 24
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
02
25
41
-27
11
26 32
47 4960
104110
12
4557
-4
-2
0
2
4
6
8
10
12
14
WesternEurope
USA Japan RoW World
2002 2003e 2004e
Worldwide ICT market growth by region 2002-2004 in
Market value 2003 2250 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 25
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
435
661
438
673
507
704
327580
638
825
348
553
456
678
407
650
0 10 20 30 40 50 60 70 80 90
Western Europe
Other Western Europe
UK
Spain
Nordic
Italy
Germany
France
2002 2006e
Internet users as a percentage of population 2002 and 2006(e)
Percentage of internet users of population
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 3
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 4
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Definitions
Telecommunications in the broader sense
transmission of any kind of data (text charts pictures audio video voice)
Telecommunications inits stricter sense
Two-way communicationbetween somefewsubscribers
Broadcasting
One-way transmission of contents from a sender to a variety of receivers
Information technology
all technologies based on digital technology and microelectronics
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 5
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Positive Feedback
The cycle of positive feedback The implications of positive feedbackon competition
0
100
Market share (in )
time
50 Battle zone
Winner
Loser
New users supervene
The networkvalue increases
Number of networkusers increases
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 6
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Some interesting principles
Moores law Gilders law Metcalfes law
1
10
100
97 98 99 00 01 02 03 04
year
offer
demand
US volume of long distance calls (1997 = 1)
1000
10000
time
Benefit costs
0
20
40
60
80
100
120
1985 1989 1993 1995 1998
$MIPS
0
20
40
60
80
100
Costs increase linear to
connections
Benefit increases squared to connections
year
Processor performance doubles every 18
months
Bandwidths triples every year
Networking counts
24112003 Prof Dr Dres hc A Picot 7
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Development of the value added chain in thetelecommunications market
Time
Intelligent networks
Telecommunications sector
Simple telecommunications value added chain
Provision oftransmissionlines
Provisionof IN
switchingequipment
Introductionof basisservice
Introduc-tion of network -dependentintegrated service
Billing andcustomer
care
Introductionof network -
independent integrated service
Acquisitionsprovisionof point of sale
Introduc-tionof value ndashadderservices
EndConsumer
Implemen-tation oftransmis-sionservice
Introductionof network -
dependentintegrated service
Introductionof basisservice
Billing andcustomer
care
Introductionof network -
independent integrated service
Acquisitionsprovisionof point of sale
Introductionof value ndash
adder services
End ConsumerProvision of network
Implemen-tation oftransmis-sionservice
Provision ofnetwork
Implementationof transmissionservice
Billing andcustomer care
Acquisitionsprovisionof point of sale
End Consumer
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 8
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Value added chain in the telecommunication marketVertical (dis)integration
Provision oftrans-mission lines
Imple-men-tation oftrans-mission service
Introduc-tion of basisservice
Introduc-tion of network ndashdepen-dentintegra-tedservice
Billingandcusto-mercare
Introduc-tionof network ndashindepen-dentintegra-tedservice
Acquisi-tionsprovisionof point of sale
Introduc-tionof value ndashadderservices
EndConsu-mer
Provi-sionof IN swit-chingequip-ment
Network operator
Service operator
Trader
End consumer
Reseller
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 9
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Convergence in the TC IT and media sector is a two stageprocess
telecommunications information technology
media
1 1first stage of convergence
2
second stageof
convergence
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 10
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Convergence changes technologies applications and markets
Examples of convergence
Implementation of different services and applications on a single platformExample Convergence of data and voice communications- Internet telephony -
Convergence of network technologiesExample Convergence of fixed and mobile networks- O2 Genion service ndash phones for both applications -
Merging of industries into one marketExample Convergence of telecommunications IT and media sectors
Base for convergence digitalization and development of the Internet
24112003 Prof Dr Dres hc A Picot 11
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The convergence of communications services is closelylinked to the internet
change in the meaning ofcommunicationsservices
continuous improvementof data quality
multimedia options of the Internet
increase in transmissioncapacities
bullInternet amp multimediabullInternet telephonybulle-commercebullmobile phones
advantage in costsconcerning transmissionactivities increase in the
number of Internet users
Lack of Internet-basedvoice phoneservice
But
24112003 Prof Dr Dres hc A Picot 12
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Towards a new value added structure
Information technology
Producementcreative staffrights developmentof ideas
Contents programsproduction
DistributionIT or consumerelectronicsappliance
Packaging
Provision of networks
Trans-mission service
Integrated service(network independent)
Distribution SMS
Value added Service
Basic-Service (network dependent)
Media
Telecommunications
Information technology
Telecommunications
Media
Reception appliance
Value Added Services
Navigation
Transmission
Packaging
Contents
Convergence
Media
Manufactureof products
Usersoftware Sales (bundling)
Service
Operating system software
Peripherals + software
Producementcomponentpartssoftware elements
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 13
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 14
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of the number of telecommunications service providers
269 395 491 554 611 674 711 772 811 850 861
10661222
13551593 1629
1780 1876 1917 1939 2007 2045
Number of licenses
Number of providers of telecommunications services whichare not subject to licensing
The addition of the individual figuresdoes not equal the number per capita
11031276
1458
1707
Num
bero
f pro
vide
rs
021
998
071
998
021
999
091
999
082
000
022
001
022
000
012
003
082
002
022
002
082
001
1723
18401952
1988 20042060 2100
Licensees operating in sectors of licensed service and of services notsubject to licensing are countedsingle Therefore the addition of individual figures does not equal thenumber per capita
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 15
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Fixed-network customers voice phone services
mobile phone services
miscellaneous
cable TV
carrierbusiness
rental lines
326
16
100
360152
46
Market Volume 2002 611 bn EuroMarket Volume 2001 599 bn Euro
Fixed-network customers voice phone services
miscellaneous
cable TV
carrierbusiness
rentallines
mobile phone services
351
321
20
105
45
159
Market Volume 2003e 626 bn Euro
mobile phone services
Fixed-network customers voice phone services
rental lines
carrierbusiness
cable TV
359
340
14
101
45141
miscellaneous
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 16
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
178
0
185
12
192
46
210
73
232
124
211
145
200
157
0
50
100
150
200
250
300
350
400
1997 1998 1999 2000 2001 2002 2003
Development of minutes of connection
in fixed-telephony services(1997-2003)
Competitors
DTAG
Total amount
min
utes
of c
onne
ctio
n(in
bn)
178
238
283
355 356
197
357
year
Development of competitor`sshares of minutes in fixed-
telephony services (1997-2003)
6
407
348
258
19
440
1997 1998 1999 2000 2001 2002 2003 1st quarter
50
25
0
year
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 17
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of subscribers` numbers and forecast in mobile services
0
10000
20000
30000
40000
50000
60000
70000
56126
Num
bero
fsub
scrib
ers
) in
tsd
)
586
953 1768 24823764
55548276
13913
23446
60043
48202
1230 46
68101
170
22
285
727
681Number of subscribers (in tsd)Germany
Number of subscribers (in tsd)Italy
Penetration Rate
In international comparison theGerman penetration rate lies in front of the USA (477) Japan (621) and Eastern Europe (30) In comparison withWestern Europe Germany`spenetration rate lies 4 behindthe average (77)
1992 1993 20001996 19981994 1995 1997 1999 2003e20022001
62000
752
year
49926
52589 54076913
867
940
Sources RegTP (2003) RegTP (1999) EITO (2003)
24112003 Prof Dr Dres hc A Picot 18
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Deregulation leads to an increase in competition in private and corporate customer sectors
Structure of competition on the German market (2003)
Long-distance international callsLocal calls
Deutsche Telekom darrService operators uarrcity network operators(eg Netcologne)
Deutsche Telekom darrnational and internationaloperators of ownnetworksuarrservice operators uarr
Deutsche Telekom darr
national and internationaloperators of own networks uarr
private customers
corporate customers
Decrease in market powerdarr
Increase in market poweruarr
24112003 Prof Dr Dres hc A Picot 19
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Market share of minutes of connection in fixed-telephony networks(1st quarter of 2003)
local calls
909
91
942
58
Internet access(broadband)
47
53
long distance calls
42
58
mobile calls
60
40
international calls Internet access(narrow band)
66
34
miscellaneous
32
68
total
44
56
DTAG
Competitors
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 20
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The new European directives
In March 2002 the European Parliament and the Councel adopted four directivesand one decision to be implemented by EU members national governments untilJuly 25th 2003
Radio Spectrum Decision
Access Directive
Authorisation Directive
Framework Directive
Universal Service Directive
24112003 Prof Dr Dres hc A Picot 21
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 22
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
87
56
9379 85
6780 86
127
101
134
108
145
121
39
1018
-35
26
-07
3822
-5
0
5
10
15
20
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003e 2004e
Western European ICT market growth 1994-2004 in
Market value 2003 607 billion Euro Telecomunications
IT
Source EITO (2003)
24112003 Prof Dr Dres hc A Picot 23
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
Western Europe ICT market growth by segment 2002- 2004 in
-69
-16
23
09
26
44
-75
05
3948 45 47
-10
-8
-6
-4
-2
0
2
4
6
Computer hardware
Software ampIT services
Telecommunicationsequipment
Carrier services
2002 2003e 2004e
Market value 2003 607 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 24
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
02
25
41
-27
11
26 32
47 4960
104110
12
4557
-4
-2
0
2
4
6
8
10
12
14
WesternEurope
USA Japan RoW World
2002 2003e 2004e
Worldwide ICT market growth by region 2002-2004 in
Market value 2003 2250 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 25
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
435
661
438
673
507
704
327580
638
825
348
553
456
678
407
650
0 10 20 30 40 50 60 70 80 90
Western Europe
Other Western Europe
UK
Spain
Nordic
Italy
Germany
France
2002 2006e
Internet users as a percentage of population 2002 and 2006(e)
Percentage of internet users of population
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 4
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Definitions
Telecommunications in the broader sense
transmission of any kind of data (text charts pictures audio video voice)
Telecommunications inits stricter sense
Two-way communicationbetween somefewsubscribers
Broadcasting
One-way transmission of contents from a sender to a variety of receivers
Information technology
all technologies based on digital technology and microelectronics
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 5
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Positive Feedback
The cycle of positive feedback The implications of positive feedbackon competition
0
100
Market share (in )
time
50 Battle zone
Winner
Loser
New users supervene
The networkvalue increases
Number of networkusers increases
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 6
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Some interesting principles
Moores law Gilders law Metcalfes law
1
10
100
97 98 99 00 01 02 03 04
year
offer
demand
US volume of long distance calls (1997 = 1)
1000
10000
time
Benefit costs
0
20
40
60
80
100
120
1985 1989 1993 1995 1998
$MIPS
0
20
40
60
80
100
Costs increase linear to
connections
Benefit increases squared to connections
year
Processor performance doubles every 18
months
Bandwidths triples every year
Networking counts
24112003 Prof Dr Dres hc A Picot 7
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Development of the value added chain in thetelecommunications market
Time
Intelligent networks
Telecommunications sector
Simple telecommunications value added chain
Provision oftransmissionlines
Provisionof IN
switchingequipment
Introductionof basisservice
Introduc-tion of network -dependentintegrated service
Billing andcustomer
care
Introductionof network -
independent integrated service
Acquisitionsprovisionof point of sale
Introduc-tionof value ndashadderservices
EndConsumer
Implemen-tation oftransmis-sionservice
Introductionof network -
dependentintegrated service
Introductionof basisservice
Billing andcustomer
care
Introductionof network -
independent integrated service
Acquisitionsprovisionof point of sale
Introductionof value ndash
adder services
End ConsumerProvision of network
Implemen-tation oftransmis-sionservice
Provision ofnetwork
Implementationof transmissionservice
Billing andcustomer care
Acquisitionsprovisionof point of sale
End Consumer
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 8
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Value added chain in the telecommunication marketVertical (dis)integration
Provision oftrans-mission lines
Imple-men-tation oftrans-mission service
Introduc-tion of basisservice
Introduc-tion of network ndashdepen-dentintegra-tedservice
Billingandcusto-mercare
Introduc-tionof network ndashindepen-dentintegra-tedservice
Acquisi-tionsprovisionof point of sale
Introduc-tionof value ndashadderservices
EndConsu-mer
Provi-sionof IN swit-chingequip-ment
Network operator
Service operator
Trader
End consumer
Reseller
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 9
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Convergence in the TC IT and media sector is a two stageprocess
telecommunications information technology
media
1 1first stage of convergence
2
second stageof
convergence
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 10
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Convergence changes technologies applications and markets
Examples of convergence
Implementation of different services and applications on a single platformExample Convergence of data and voice communications- Internet telephony -
Convergence of network technologiesExample Convergence of fixed and mobile networks- O2 Genion service ndash phones for both applications -
Merging of industries into one marketExample Convergence of telecommunications IT and media sectors
Base for convergence digitalization and development of the Internet
24112003 Prof Dr Dres hc A Picot 11
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The convergence of communications services is closelylinked to the internet
change in the meaning ofcommunicationsservices
continuous improvementof data quality
multimedia options of the Internet
increase in transmissioncapacities
bullInternet amp multimediabullInternet telephonybulle-commercebullmobile phones
advantage in costsconcerning transmissionactivities increase in the
number of Internet users
Lack of Internet-basedvoice phoneservice
But
24112003 Prof Dr Dres hc A Picot 12
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Towards a new value added structure
Information technology
Producementcreative staffrights developmentof ideas
Contents programsproduction
DistributionIT or consumerelectronicsappliance
Packaging
Provision of networks
Trans-mission service
Integrated service(network independent)
Distribution SMS
Value added Service
Basic-Service (network dependent)
Media
Telecommunications
Information technology
Telecommunications
Media
Reception appliance
Value Added Services
Navigation
Transmission
Packaging
Contents
Convergence
Media
Manufactureof products
Usersoftware Sales (bundling)
Service
Operating system software
Peripherals + software
Producementcomponentpartssoftware elements
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 13
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 14
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of the number of telecommunications service providers
269 395 491 554 611 674 711 772 811 850 861
10661222
13551593 1629
1780 1876 1917 1939 2007 2045
Number of licenses
Number of providers of telecommunications services whichare not subject to licensing
The addition of the individual figuresdoes not equal the number per capita
11031276
1458
1707
Num
bero
f pro
vide
rs
021
998
071
998
021
999
091
999
082
000
022
001
022
000
012
003
082
002
022
002
082
001
1723
18401952
1988 20042060 2100
Licensees operating in sectors of licensed service and of services notsubject to licensing are countedsingle Therefore the addition of individual figures does not equal thenumber per capita
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 15
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Fixed-network customers voice phone services
mobile phone services
miscellaneous
cable TV
carrierbusiness
rental lines
326
16
100
360152
46
Market Volume 2002 611 bn EuroMarket Volume 2001 599 bn Euro
Fixed-network customers voice phone services
miscellaneous
cable TV
carrierbusiness
rentallines
mobile phone services
351
321
20
105
45
159
Market Volume 2003e 626 bn Euro
mobile phone services
Fixed-network customers voice phone services
rental lines
carrierbusiness
cable TV
359
340
14
101
45141
miscellaneous
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 16
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
178
0
185
12
192
46
210
73
232
124
211
145
200
157
0
50
100
150
200
250
300
350
400
1997 1998 1999 2000 2001 2002 2003
Development of minutes of connection
in fixed-telephony services(1997-2003)
Competitors
DTAG
Total amount
min
utes
of c
onne
ctio
n(in
bn)
178
238
283
355 356
197
357
year
Development of competitor`sshares of minutes in fixed-
telephony services (1997-2003)
6
407
348
258
19
440
1997 1998 1999 2000 2001 2002 2003 1st quarter
50
25
0
year
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 17
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of subscribers` numbers and forecast in mobile services
0
10000
20000
30000
40000
50000
60000
70000
56126
Num
bero
fsub
scrib
ers
) in
tsd
)
586
953 1768 24823764
55548276
13913
23446
60043
48202
1230 46
68101
170
22
285
727
681Number of subscribers (in tsd)Germany
Number of subscribers (in tsd)Italy
Penetration Rate
In international comparison theGerman penetration rate lies in front of the USA (477) Japan (621) and Eastern Europe (30) In comparison withWestern Europe Germany`spenetration rate lies 4 behindthe average (77)
1992 1993 20001996 19981994 1995 1997 1999 2003e20022001
62000
752
year
49926
52589 54076913
867
940
Sources RegTP (2003) RegTP (1999) EITO (2003)
24112003 Prof Dr Dres hc A Picot 18
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Deregulation leads to an increase in competition in private and corporate customer sectors
Structure of competition on the German market (2003)
Long-distance international callsLocal calls
Deutsche Telekom darrService operators uarrcity network operators(eg Netcologne)
Deutsche Telekom darrnational and internationaloperators of ownnetworksuarrservice operators uarr
Deutsche Telekom darr
national and internationaloperators of own networks uarr
private customers
corporate customers
Decrease in market powerdarr
Increase in market poweruarr
24112003 Prof Dr Dres hc A Picot 19
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Market share of minutes of connection in fixed-telephony networks(1st quarter of 2003)
local calls
909
91
942
58
Internet access(broadband)
47
53
long distance calls
42
58
mobile calls
60
40
international calls Internet access(narrow band)
66
34
miscellaneous
32
68
total
44
56
DTAG
Competitors
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 20
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The new European directives
In March 2002 the European Parliament and the Councel adopted four directivesand one decision to be implemented by EU members national governments untilJuly 25th 2003
Radio Spectrum Decision
Access Directive
Authorisation Directive
Framework Directive
Universal Service Directive
24112003 Prof Dr Dres hc A Picot 21
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 22
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
87
56
9379 85
6780 86
127
101
134
108
145
121
39
1018
-35
26
-07
3822
-5
0
5
10
15
20
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003e 2004e
Western European ICT market growth 1994-2004 in
Market value 2003 607 billion Euro Telecomunications
IT
Source EITO (2003)
24112003 Prof Dr Dres hc A Picot 23
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
Western Europe ICT market growth by segment 2002- 2004 in
-69
-16
23
09
26
44
-75
05
3948 45 47
-10
-8
-6
-4
-2
0
2
4
6
Computer hardware
Software ampIT services
Telecommunicationsequipment
Carrier services
2002 2003e 2004e
Market value 2003 607 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 24
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
02
25
41
-27
11
26 32
47 4960
104110
12
4557
-4
-2
0
2
4
6
8
10
12
14
WesternEurope
USA Japan RoW World
2002 2003e 2004e
Worldwide ICT market growth by region 2002-2004 in
Market value 2003 2250 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 25
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
435
661
438
673
507
704
327580
638
825
348
553
456
678
407
650
0 10 20 30 40 50 60 70 80 90
Western Europe
Other Western Europe
UK
Spain
Nordic
Italy
Germany
France
2002 2006e
Internet users as a percentage of population 2002 and 2006(e)
Percentage of internet users of population
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 5
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Positive Feedback
The cycle of positive feedback The implications of positive feedbackon competition
0
100
Market share (in )
time
50 Battle zone
Winner
Loser
New users supervene
The networkvalue increases
Number of networkusers increases
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 6
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Some interesting principles
Moores law Gilders law Metcalfes law
1
10
100
97 98 99 00 01 02 03 04
year
offer
demand
US volume of long distance calls (1997 = 1)
1000
10000
time
Benefit costs
0
20
40
60
80
100
120
1985 1989 1993 1995 1998
$MIPS
0
20
40
60
80
100
Costs increase linear to
connections
Benefit increases squared to connections
year
Processor performance doubles every 18
months
Bandwidths triples every year
Networking counts
24112003 Prof Dr Dres hc A Picot 7
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Development of the value added chain in thetelecommunications market
Time
Intelligent networks
Telecommunications sector
Simple telecommunications value added chain
Provision oftransmissionlines
Provisionof IN
switchingequipment
Introductionof basisservice
Introduc-tion of network -dependentintegrated service
Billing andcustomer
care
Introductionof network -
independent integrated service
Acquisitionsprovisionof point of sale
Introduc-tionof value ndashadderservices
EndConsumer
Implemen-tation oftransmis-sionservice
Introductionof network -
dependentintegrated service
Introductionof basisservice
Billing andcustomer
care
Introductionof network -
independent integrated service
Acquisitionsprovisionof point of sale
Introductionof value ndash
adder services
End ConsumerProvision of network
Implemen-tation oftransmis-sionservice
Provision ofnetwork
Implementationof transmissionservice
Billing andcustomer care
Acquisitionsprovisionof point of sale
End Consumer
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 8
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Value added chain in the telecommunication marketVertical (dis)integration
Provision oftrans-mission lines
Imple-men-tation oftrans-mission service
Introduc-tion of basisservice
Introduc-tion of network ndashdepen-dentintegra-tedservice
Billingandcusto-mercare
Introduc-tionof network ndashindepen-dentintegra-tedservice
Acquisi-tionsprovisionof point of sale
Introduc-tionof value ndashadderservices
EndConsu-mer
Provi-sionof IN swit-chingequip-ment
Network operator
Service operator
Trader
End consumer
Reseller
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 9
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Convergence in the TC IT and media sector is a two stageprocess
telecommunications information technology
media
1 1first stage of convergence
2
second stageof
convergence
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 10
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Convergence changes technologies applications and markets
Examples of convergence
Implementation of different services and applications on a single platformExample Convergence of data and voice communications- Internet telephony -
Convergence of network technologiesExample Convergence of fixed and mobile networks- O2 Genion service ndash phones for both applications -
Merging of industries into one marketExample Convergence of telecommunications IT and media sectors
Base for convergence digitalization and development of the Internet
24112003 Prof Dr Dres hc A Picot 11
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The convergence of communications services is closelylinked to the internet
change in the meaning ofcommunicationsservices
continuous improvementof data quality
multimedia options of the Internet
increase in transmissioncapacities
bullInternet amp multimediabullInternet telephonybulle-commercebullmobile phones
advantage in costsconcerning transmissionactivities increase in the
number of Internet users
Lack of Internet-basedvoice phoneservice
But
24112003 Prof Dr Dres hc A Picot 12
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Towards a new value added structure
Information technology
Producementcreative staffrights developmentof ideas
Contents programsproduction
DistributionIT or consumerelectronicsappliance
Packaging
Provision of networks
Trans-mission service
Integrated service(network independent)
Distribution SMS
Value added Service
Basic-Service (network dependent)
Media
Telecommunications
Information technology
Telecommunications
Media
Reception appliance
Value Added Services
Navigation
Transmission
Packaging
Contents
Convergence
Media
Manufactureof products
Usersoftware Sales (bundling)
Service
Operating system software
Peripherals + software
Producementcomponentpartssoftware elements
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 13
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 14
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of the number of telecommunications service providers
269 395 491 554 611 674 711 772 811 850 861
10661222
13551593 1629
1780 1876 1917 1939 2007 2045
Number of licenses
Number of providers of telecommunications services whichare not subject to licensing
The addition of the individual figuresdoes not equal the number per capita
11031276
1458
1707
Num
bero
f pro
vide
rs
021
998
071
998
021
999
091
999
082
000
022
001
022
000
012
003
082
002
022
002
082
001
1723
18401952
1988 20042060 2100
Licensees operating in sectors of licensed service and of services notsubject to licensing are countedsingle Therefore the addition of individual figures does not equal thenumber per capita
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 15
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Fixed-network customers voice phone services
mobile phone services
miscellaneous
cable TV
carrierbusiness
rental lines
326
16
100
360152
46
Market Volume 2002 611 bn EuroMarket Volume 2001 599 bn Euro
Fixed-network customers voice phone services
miscellaneous
cable TV
carrierbusiness
rentallines
mobile phone services
351
321
20
105
45
159
Market Volume 2003e 626 bn Euro
mobile phone services
Fixed-network customers voice phone services
rental lines
carrierbusiness
cable TV
359
340
14
101
45141
miscellaneous
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 16
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
178
0
185
12
192
46
210
73
232
124
211
145
200
157
0
50
100
150
200
250
300
350
400
1997 1998 1999 2000 2001 2002 2003
Development of minutes of connection
in fixed-telephony services(1997-2003)
Competitors
DTAG
Total amount
min
utes
of c
onne
ctio
n(in
bn)
178
238
283
355 356
197
357
year
Development of competitor`sshares of minutes in fixed-
telephony services (1997-2003)
6
407
348
258
19
440
1997 1998 1999 2000 2001 2002 2003 1st quarter
50
25
0
year
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 17
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of subscribers` numbers and forecast in mobile services
0
10000
20000
30000
40000
50000
60000
70000
56126
Num
bero
fsub
scrib
ers
) in
tsd
)
586
953 1768 24823764
55548276
13913
23446
60043
48202
1230 46
68101
170
22
285
727
681Number of subscribers (in tsd)Germany
Number of subscribers (in tsd)Italy
Penetration Rate
In international comparison theGerman penetration rate lies in front of the USA (477) Japan (621) and Eastern Europe (30) In comparison withWestern Europe Germany`spenetration rate lies 4 behindthe average (77)
1992 1993 20001996 19981994 1995 1997 1999 2003e20022001
62000
752
year
49926
52589 54076913
867
940
Sources RegTP (2003) RegTP (1999) EITO (2003)
24112003 Prof Dr Dres hc A Picot 18
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Deregulation leads to an increase in competition in private and corporate customer sectors
Structure of competition on the German market (2003)
Long-distance international callsLocal calls
Deutsche Telekom darrService operators uarrcity network operators(eg Netcologne)
Deutsche Telekom darrnational and internationaloperators of ownnetworksuarrservice operators uarr
Deutsche Telekom darr
national and internationaloperators of own networks uarr
private customers
corporate customers
Decrease in market powerdarr
Increase in market poweruarr
24112003 Prof Dr Dres hc A Picot 19
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Market share of minutes of connection in fixed-telephony networks(1st quarter of 2003)
local calls
909
91
942
58
Internet access(broadband)
47
53
long distance calls
42
58
mobile calls
60
40
international calls Internet access(narrow band)
66
34
miscellaneous
32
68
total
44
56
DTAG
Competitors
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 20
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The new European directives
In March 2002 the European Parliament and the Councel adopted four directivesand one decision to be implemented by EU members national governments untilJuly 25th 2003
Radio Spectrum Decision
Access Directive
Authorisation Directive
Framework Directive
Universal Service Directive
24112003 Prof Dr Dres hc A Picot 21
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 22
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
87
56
9379 85
6780 86
127
101
134
108
145
121
39
1018
-35
26
-07
3822
-5
0
5
10
15
20
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003e 2004e
Western European ICT market growth 1994-2004 in
Market value 2003 607 billion Euro Telecomunications
IT
Source EITO (2003)
24112003 Prof Dr Dres hc A Picot 23
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
Western Europe ICT market growth by segment 2002- 2004 in
-69
-16
23
09
26
44
-75
05
3948 45 47
-10
-8
-6
-4
-2
0
2
4
6
Computer hardware
Software ampIT services
Telecommunicationsequipment
Carrier services
2002 2003e 2004e
Market value 2003 607 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 24
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
02
25
41
-27
11
26 32
47 4960
104110
12
4557
-4
-2
0
2
4
6
8
10
12
14
WesternEurope
USA Japan RoW World
2002 2003e 2004e
Worldwide ICT market growth by region 2002-2004 in
Market value 2003 2250 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 25
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
435
661
438
673
507
704
327580
638
825
348
553
456
678
407
650
0 10 20 30 40 50 60 70 80 90
Western Europe
Other Western Europe
UK
Spain
Nordic
Italy
Germany
France
2002 2006e
Internet users as a percentage of population 2002 and 2006(e)
Percentage of internet users of population
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 6
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Some interesting principles
Moores law Gilders law Metcalfes law
1
10
100
97 98 99 00 01 02 03 04
year
offer
demand
US volume of long distance calls (1997 = 1)
1000
10000
time
Benefit costs
0
20
40
60
80
100
120
1985 1989 1993 1995 1998
$MIPS
0
20
40
60
80
100
Costs increase linear to
connections
Benefit increases squared to connections
year
Processor performance doubles every 18
months
Bandwidths triples every year
Networking counts
24112003 Prof Dr Dres hc A Picot 7
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Development of the value added chain in thetelecommunications market
Time
Intelligent networks
Telecommunications sector
Simple telecommunications value added chain
Provision oftransmissionlines
Provisionof IN
switchingequipment
Introductionof basisservice
Introduc-tion of network -dependentintegrated service
Billing andcustomer
care
Introductionof network -
independent integrated service
Acquisitionsprovisionof point of sale
Introduc-tionof value ndashadderservices
EndConsumer
Implemen-tation oftransmis-sionservice
Introductionof network -
dependentintegrated service
Introductionof basisservice
Billing andcustomer
care
Introductionof network -
independent integrated service
Acquisitionsprovisionof point of sale
Introductionof value ndash
adder services
End ConsumerProvision of network
Implemen-tation oftransmis-sionservice
Provision ofnetwork
Implementationof transmissionservice
Billing andcustomer care
Acquisitionsprovisionof point of sale
End Consumer
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 8
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Value added chain in the telecommunication marketVertical (dis)integration
Provision oftrans-mission lines
Imple-men-tation oftrans-mission service
Introduc-tion of basisservice
Introduc-tion of network ndashdepen-dentintegra-tedservice
Billingandcusto-mercare
Introduc-tionof network ndashindepen-dentintegra-tedservice
Acquisi-tionsprovisionof point of sale
Introduc-tionof value ndashadderservices
EndConsu-mer
Provi-sionof IN swit-chingequip-ment
Network operator
Service operator
Trader
End consumer
Reseller
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 9
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Convergence in the TC IT and media sector is a two stageprocess
telecommunications information technology
media
1 1first stage of convergence
2
second stageof
convergence
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 10
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Convergence changes technologies applications and markets
Examples of convergence
Implementation of different services and applications on a single platformExample Convergence of data and voice communications- Internet telephony -
Convergence of network technologiesExample Convergence of fixed and mobile networks- O2 Genion service ndash phones for both applications -
Merging of industries into one marketExample Convergence of telecommunications IT and media sectors
Base for convergence digitalization and development of the Internet
24112003 Prof Dr Dres hc A Picot 11
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The convergence of communications services is closelylinked to the internet
change in the meaning ofcommunicationsservices
continuous improvementof data quality
multimedia options of the Internet
increase in transmissioncapacities
bullInternet amp multimediabullInternet telephonybulle-commercebullmobile phones
advantage in costsconcerning transmissionactivities increase in the
number of Internet users
Lack of Internet-basedvoice phoneservice
But
24112003 Prof Dr Dres hc A Picot 12
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Towards a new value added structure
Information technology
Producementcreative staffrights developmentof ideas
Contents programsproduction
DistributionIT or consumerelectronicsappliance
Packaging
Provision of networks
Trans-mission service
Integrated service(network independent)
Distribution SMS
Value added Service
Basic-Service (network dependent)
Media
Telecommunications
Information technology
Telecommunications
Media
Reception appliance
Value Added Services
Navigation
Transmission
Packaging
Contents
Convergence
Media
Manufactureof products
Usersoftware Sales (bundling)
Service
Operating system software
Peripherals + software
Producementcomponentpartssoftware elements
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 13
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 14
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of the number of telecommunications service providers
269 395 491 554 611 674 711 772 811 850 861
10661222
13551593 1629
1780 1876 1917 1939 2007 2045
Number of licenses
Number of providers of telecommunications services whichare not subject to licensing
The addition of the individual figuresdoes not equal the number per capita
11031276
1458
1707
Num
bero
f pro
vide
rs
021
998
071
998
021
999
091
999
082
000
022
001
022
000
012
003
082
002
022
002
082
001
1723
18401952
1988 20042060 2100
Licensees operating in sectors of licensed service and of services notsubject to licensing are countedsingle Therefore the addition of individual figures does not equal thenumber per capita
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 15
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Fixed-network customers voice phone services
mobile phone services
miscellaneous
cable TV
carrierbusiness
rental lines
326
16
100
360152
46
Market Volume 2002 611 bn EuroMarket Volume 2001 599 bn Euro
Fixed-network customers voice phone services
miscellaneous
cable TV
carrierbusiness
rentallines
mobile phone services
351
321
20
105
45
159
Market Volume 2003e 626 bn Euro
mobile phone services
Fixed-network customers voice phone services
rental lines
carrierbusiness
cable TV
359
340
14
101
45141
miscellaneous
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 16
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
178
0
185
12
192
46
210
73
232
124
211
145
200
157
0
50
100
150
200
250
300
350
400
1997 1998 1999 2000 2001 2002 2003
Development of minutes of connection
in fixed-telephony services(1997-2003)
Competitors
DTAG
Total amount
min
utes
of c
onne
ctio
n(in
bn)
178
238
283
355 356
197
357
year
Development of competitor`sshares of minutes in fixed-
telephony services (1997-2003)
6
407
348
258
19
440
1997 1998 1999 2000 2001 2002 2003 1st quarter
50
25
0
year
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 17
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of subscribers` numbers and forecast in mobile services
0
10000
20000
30000
40000
50000
60000
70000
56126
Num
bero
fsub
scrib
ers
) in
tsd
)
586
953 1768 24823764
55548276
13913
23446
60043
48202
1230 46
68101
170
22
285
727
681Number of subscribers (in tsd)Germany
Number of subscribers (in tsd)Italy
Penetration Rate
In international comparison theGerman penetration rate lies in front of the USA (477) Japan (621) and Eastern Europe (30) In comparison withWestern Europe Germany`spenetration rate lies 4 behindthe average (77)
1992 1993 20001996 19981994 1995 1997 1999 2003e20022001
62000
752
year
49926
52589 54076913
867
940
Sources RegTP (2003) RegTP (1999) EITO (2003)
24112003 Prof Dr Dres hc A Picot 18
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Deregulation leads to an increase in competition in private and corporate customer sectors
Structure of competition on the German market (2003)
Long-distance international callsLocal calls
Deutsche Telekom darrService operators uarrcity network operators(eg Netcologne)
Deutsche Telekom darrnational and internationaloperators of ownnetworksuarrservice operators uarr
Deutsche Telekom darr
national and internationaloperators of own networks uarr
private customers
corporate customers
Decrease in market powerdarr
Increase in market poweruarr
24112003 Prof Dr Dres hc A Picot 19
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Market share of minutes of connection in fixed-telephony networks(1st quarter of 2003)
local calls
909
91
942
58
Internet access(broadband)
47
53
long distance calls
42
58
mobile calls
60
40
international calls Internet access(narrow band)
66
34
miscellaneous
32
68
total
44
56
DTAG
Competitors
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 20
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The new European directives
In March 2002 the European Parliament and the Councel adopted four directivesand one decision to be implemented by EU members national governments untilJuly 25th 2003
Radio Spectrum Decision
Access Directive
Authorisation Directive
Framework Directive
Universal Service Directive
24112003 Prof Dr Dres hc A Picot 21
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 22
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
87
56
9379 85
6780 86
127
101
134
108
145
121
39
1018
-35
26
-07
3822
-5
0
5
10
15
20
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003e 2004e
Western European ICT market growth 1994-2004 in
Market value 2003 607 billion Euro Telecomunications
IT
Source EITO (2003)
24112003 Prof Dr Dres hc A Picot 23
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
Western Europe ICT market growth by segment 2002- 2004 in
-69
-16
23
09
26
44
-75
05
3948 45 47
-10
-8
-6
-4
-2
0
2
4
6
Computer hardware
Software ampIT services
Telecommunicationsequipment
Carrier services
2002 2003e 2004e
Market value 2003 607 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 24
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
02
25
41
-27
11
26 32
47 4960
104110
12
4557
-4
-2
0
2
4
6
8
10
12
14
WesternEurope
USA Japan RoW World
2002 2003e 2004e
Worldwide ICT market growth by region 2002-2004 in
Market value 2003 2250 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 25
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
435
661
438
673
507
704
327580
638
825
348
553
456
678
407
650
0 10 20 30 40 50 60 70 80 90
Western Europe
Other Western Europe
UK
Spain
Nordic
Italy
Germany
France
2002 2006e
Internet users as a percentage of population 2002 and 2006(e)
Percentage of internet users of population
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 7
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Development of the value added chain in thetelecommunications market
Time
Intelligent networks
Telecommunications sector
Simple telecommunications value added chain
Provision oftransmissionlines
Provisionof IN
switchingequipment
Introductionof basisservice
Introduc-tion of network -dependentintegrated service
Billing andcustomer
care
Introductionof network -
independent integrated service
Acquisitionsprovisionof point of sale
Introduc-tionof value ndashadderservices
EndConsumer
Implemen-tation oftransmis-sionservice
Introductionof network -
dependentintegrated service
Introductionof basisservice
Billing andcustomer
care
Introductionof network -
independent integrated service
Acquisitionsprovisionof point of sale
Introductionof value ndash
adder services
End ConsumerProvision of network
Implemen-tation oftransmis-sionservice
Provision ofnetwork
Implementationof transmissionservice
Billing andcustomer care
Acquisitionsprovisionof point of sale
End Consumer
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 8
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Value added chain in the telecommunication marketVertical (dis)integration
Provision oftrans-mission lines
Imple-men-tation oftrans-mission service
Introduc-tion of basisservice
Introduc-tion of network ndashdepen-dentintegra-tedservice
Billingandcusto-mercare
Introduc-tionof network ndashindepen-dentintegra-tedservice
Acquisi-tionsprovisionof point of sale
Introduc-tionof value ndashadderservices
EndConsu-mer
Provi-sionof IN swit-chingequip-ment
Network operator
Service operator
Trader
End consumer
Reseller
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 9
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Convergence in the TC IT and media sector is a two stageprocess
telecommunications information technology
media
1 1first stage of convergence
2
second stageof
convergence
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 10
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Convergence changes technologies applications and markets
Examples of convergence
Implementation of different services and applications on a single platformExample Convergence of data and voice communications- Internet telephony -
Convergence of network technologiesExample Convergence of fixed and mobile networks- O2 Genion service ndash phones for both applications -
Merging of industries into one marketExample Convergence of telecommunications IT and media sectors
Base for convergence digitalization and development of the Internet
24112003 Prof Dr Dres hc A Picot 11
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The convergence of communications services is closelylinked to the internet
change in the meaning ofcommunicationsservices
continuous improvementof data quality
multimedia options of the Internet
increase in transmissioncapacities
bullInternet amp multimediabullInternet telephonybulle-commercebullmobile phones
advantage in costsconcerning transmissionactivities increase in the
number of Internet users
Lack of Internet-basedvoice phoneservice
But
24112003 Prof Dr Dres hc A Picot 12
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Towards a new value added structure
Information technology
Producementcreative staffrights developmentof ideas
Contents programsproduction
DistributionIT or consumerelectronicsappliance
Packaging
Provision of networks
Trans-mission service
Integrated service(network independent)
Distribution SMS
Value added Service
Basic-Service (network dependent)
Media
Telecommunications
Information technology
Telecommunications
Media
Reception appliance
Value Added Services
Navigation
Transmission
Packaging
Contents
Convergence
Media
Manufactureof products
Usersoftware Sales (bundling)
Service
Operating system software
Peripherals + software
Producementcomponentpartssoftware elements
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 13
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 14
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of the number of telecommunications service providers
269 395 491 554 611 674 711 772 811 850 861
10661222
13551593 1629
1780 1876 1917 1939 2007 2045
Number of licenses
Number of providers of telecommunications services whichare not subject to licensing
The addition of the individual figuresdoes not equal the number per capita
11031276
1458
1707
Num
bero
f pro
vide
rs
021
998
071
998
021
999
091
999
082
000
022
001
022
000
012
003
082
002
022
002
082
001
1723
18401952
1988 20042060 2100
Licensees operating in sectors of licensed service and of services notsubject to licensing are countedsingle Therefore the addition of individual figures does not equal thenumber per capita
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 15
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Fixed-network customers voice phone services
mobile phone services
miscellaneous
cable TV
carrierbusiness
rental lines
326
16
100
360152
46
Market Volume 2002 611 bn EuroMarket Volume 2001 599 bn Euro
Fixed-network customers voice phone services
miscellaneous
cable TV
carrierbusiness
rentallines
mobile phone services
351
321
20
105
45
159
Market Volume 2003e 626 bn Euro
mobile phone services
Fixed-network customers voice phone services
rental lines
carrierbusiness
cable TV
359
340
14
101
45141
miscellaneous
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 16
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
178
0
185
12
192
46
210
73
232
124
211
145
200
157
0
50
100
150
200
250
300
350
400
1997 1998 1999 2000 2001 2002 2003
Development of minutes of connection
in fixed-telephony services(1997-2003)
Competitors
DTAG
Total amount
min
utes
of c
onne
ctio
n(in
bn)
178
238
283
355 356
197
357
year
Development of competitor`sshares of minutes in fixed-
telephony services (1997-2003)
6
407
348
258
19
440
1997 1998 1999 2000 2001 2002 2003 1st quarter
50
25
0
year
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 17
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of subscribers` numbers and forecast in mobile services
0
10000
20000
30000
40000
50000
60000
70000
56126
Num
bero
fsub
scrib
ers
) in
tsd
)
586
953 1768 24823764
55548276
13913
23446
60043
48202
1230 46
68101
170
22
285
727
681Number of subscribers (in tsd)Germany
Number of subscribers (in tsd)Italy
Penetration Rate
In international comparison theGerman penetration rate lies in front of the USA (477) Japan (621) and Eastern Europe (30) In comparison withWestern Europe Germany`spenetration rate lies 4 behindthe average (77)
1992 1993 20001996 19981994 1995 1997 1999 2003e20022001
62000
752
year
49926
52589 54076913
867
940
Sources RegTP (2003) RegTP (1999) EITO (2003)
24112003 Prof Dr Dres hc A Picot 18
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Deregulation leads to an increase in competition in private and corporate customer sectors
Structure of competition on the German market (2003)
Long-distance international callsLocal calls
Deutsche Telekom darrService operators uarrcity network operators(eg Netcologne)
Deutsche Telekom darrnational and internationaloperators of ownnetworksuarrservice operators uarr
Deutsche Telekom darr
national and internationaloperators of own networks uarr
private customers
corporate customers
Decrease in market powerdarr
Increase in market poweruarr
24112003 Prof Dr Dres hc A Picot 19
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Market share of minutes of connection in fixed-telephony networks(1st quarter of 2003)
local calls
909
91
942
58
Internet access(broadband)
47
53
long distance calls
42
58
mobile calls
60
40
international calls Internet access(narrow band)
66
34
miscellaneous
32
68
total
44
56
DTAG
Competitors
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 20
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The new European directives
In March 2002 the European Parliament and the Councel adopted four directivesand one decision to be implemented by EU members national governments untilJuly 25th 2003
Radio Spectrum Decision
Access Directive
Authorisation Directive
Framework Directive
Universal Service Directive
24112003 Prof Dr Dres hc A Picot 21
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 22
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
87
56
9379 85
6780 86
127
101
134
108
145
121
39
1018
-35
26
-07
3822
-5
0
5
10
15
20
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003e 2004e
Western European ICT market growth 1994-2004 in
Market value 2003 607 billion Euro Telecomunications
IT
Source EITO (2003)
24112003 Prof Dr Dres hc A Picot 23
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
Western Europe ICT market growth by segment 2002- 2004 in
-69
-16
23
09
26
44
-75
05
3948 45 47
-10
-8
-6
-4
-2
0
2
4
6
Computer hardware
Software ampIT services
Telecommunicationsequipment
Carrier services
2002 2003e 2004e
Market value 2003 607 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 24
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
02
25
41
-27
11
26 32
47 4960
104110
12
4557
-4
-2
0
2
4
6
8
10
12
14
WesternEurope
USA Japan RoW World
2002 2003e 2004e
Worldwide ICT market growth by region 2002-2004 in
Market value 2003 2250 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 25
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
435
661
438
673
507
704
327580
638
825
348
553
456
678
407
650
0 10 20 30 40 50 60 70 80 90
Western Europe
Other Western Europe
UK
Spain
Nordic
Italy
Germany
France
2002 2006e
Internet users as a percentage of population 2002 and 2006(e)
Percentage of internet users of population
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 8
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Value added chain in the telecommunication marketVertical (dis)integration
Provision oftrans-mission lines
Imple-men-tation oftrans-mission service
Introduc-tion of basisservice
Introduc-tion of network ndashdepen-dentintegra-tedservice
Billingandcusto-mercare
Introduc-tionof network ndashindepen-dentintegra-tedservice
Acquisi-tionsprovisionof point of sale
Introduc-tionof value ndashadderservices
EndConsu-mer
Provi-sionof IN swit-chingequip-ment
Network operator
Service operator
Trader
End consumer
Reseller
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 9
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Convergence in the TC IT and media sector is a two stageprocess
telecommunications information technology
media
1 1first stage of convergence
2
second stageof
convergence
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 10
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Convergence changes technologies applications and markets
Examples of convergence
Implementation of different services and applications on a single platformExample Convergence of data and voice communications- Internet telephony -
Convergence of network technologiesExample Convergence of fixed and mobile networks- O2 Genion service ndash phones for both applications -
Merging of industries into one marketExample Convergence of telecommunications IT and media sectors
Base for convergence digitalization and development of the Internet
24112003 Prof Dr Dres hc A Picot 11
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The convergence of communications services is closelylinked to the internet
change in the meaning ofcommunicationsservices
continuous improvementof data quality
multimedia options of the Internet
increase in transmissioncapacities
bullInternet amp multimediabullInternet telephonybulle-commercebullmobile phones
advantage in costsconcerning transmissionactivities increase in the
number of Internet users
Lack of Internet-basedvoice phoneservice
But
24112003 Prof Dr Dres hc A Picot 12
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Towards a new value added structure
Information technology
Producementcreative staffrights developmentof ideas
Contents programsproduction
DistributionIT or consumerelectronicsappliance
Packaging
Provision of networks
Trans-mission service
Integrated service(network independent)
Distribution SMS
Value added Service
Basic-Service (network dependent)
Media
Telecommunications
Information technology
Telecommunications
Media
Reception appliance
Value Added Services
Navigation
Transmission
Packaging
Contents
Convergence
Media
Manufactureof products
Usersoftware Sales (bundling)
Service
Operating system software
Peripherals + software
Producementcomponentpartssoftware elements
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 13
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 14
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of the number of telecommunications service providers
269 395 491 554 611 674 711 772 811 850 861
10661222
13551593 1629
1780 1876 1917 1939 2007 2045
Number of licenses
Number of providers of telecommunications services whichare not subject to licensing
The addition of the individual figuresdoes not equal the number per capita
11031276
1458
1707
Num
bero
f pro
vide
rs
021
998
071
998
021
999
091
999
082
000
022
001
022
000
012
003
082
002
022
002
082
001
1723
18401952
1988 20042060 2100
Licensees operating in sectors of licensed service and of services notsubject to licensing are countedsingle Therefore the addition of individual figures does not equal thenumber per capita
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 15
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Fixed-network customers voice phone services
mobile phone services
miscellaneous
cable TV
carrierbusiness
rental lines
326
16
100
360152
46
Market Volume 2002 611 bn EuroMarket Volume 2001 599 bn Euro
Fixed-network customers voice phone services
miscellaneous
cable TV
carrierbusiness
rentallines
mobile phone services
351
321
20
105
45
159
Market Volume 2003e 626 bn Euro
mobile phone services
Fixed-network customers voice phone services
rental lines
carrierbusiness
cable TV
359
340
14
101
45141
miscellaneous
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 16
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
178
0
185
12
192
46
210
73
232
124
211
145
200
157
0
50
100
150
200
250
300
350
400
1997 1998 1999 2000 2001 2002 2003
Development of minutes of connection
in fixed-telephony services(1997-2003)
Competitors
DTAG
Total amount
min
utes
of c
onne
ctio
n(in
bn)
178
238
283
355 356
197
357
year
Development of competitor`sshares of minutes in fixed-
telephony services (1997-2003)
6
407
348
258
19
440
1997 1998 1999 2000 2001 2002 2003 1st quarter
50
25
0
year
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 17
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of subscribers` numbers and forecast in mobile services
0
10000
20000
30000
40000
50000
60000
70000
56126
Num
bero
fsub
scrib
ers
) in
tsd
)
586
953 1768 24823764
55548276
13913
23446
60043
48202
1230 46
68101
170
22
285
727
681Number of subscribers (in tsd)Germany
Number of subscribers (in tsd)Italy
Penetration Rate
In international comparison theGerman penetration rate lies in front of the USA (477) Japan (621) and Eastern Europe (30) In comparison withWestern Europe Germany`spenetration rate lies 4 behindthe average (77)
1992 1993 20001996 19981994 1995 1997 1999 2003e20022001
62000
752
year
49926
52589 54076913
867
940
Sources RegTP (2003) RegTP (1999) EITO (2003)
24112003 Prof Dr Dres hc A Picot 18
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Deregulation leads to an increase in competition in private and corporate customer sectors
Structure of competition on the German market (2003)
Long-distance international callsLocal calls
Deutsche Telekom darrService operators uarrcity network operators(eg Netcologne)
Deutsche Telekom darrnational and internationaloperators of ownnetworksuarrservice operators uarr
Deutsche Telekom darr
national and internationaloperators of own networks uarr
private customers
corporate customers
Decrease in market powerdarr
Increase in market poweruarr
24112003 Prof Dr Dres hc A Picot 19
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Market share of minutes of connection in fixed-telephony networks(1st quarter of 2003)
local calls
909
91
942
58
Internet access(broadband)
47
53
long distance calls
42
58
mobile calls
60
40
international calls Internet access(narrow band)
66
34
miscellaneous
32
68
total
44
56
DTAG
Competitors
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 20
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The new European directives
In March 2002 the European Parliament and the Councel adopted four directivesand one decision to be implemented by EU members national governments untilJuly 25th 2003
Radio Spectrum Decision
Access Directive
Authorisation Directive
Framework Directive
Universal Service Directive
24112003 Prof Dr Dres hc A Picot 21
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 22
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
87
56
9379 85
6780 86
127
101
134
108
145
121
39
1018
-35
26
-07
3822
-5
0
5
10
15
20
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003e 2004e
Western European ICT market growth 1994-2004 in
Market value 2003 607 billion Euro Telecomunications
IT
Source EITO (2003)
24112003 Prof Dr Dres hc A Picot 23
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
Western Europe ICT market growth by segment 2002- 2004 in
-69
-16
23
09
26
44
-75
05
3948 45 47
-10
-8
-6
-4
-2
0
2
4
6
Computer hardware
Software ampIT services
Telecommunicationsequipment
Carrier services
2002 2003e 2004e
Market value 2003 607 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 24
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
02
25
41
-27
11
26 32
47 4960
104110
12
4557
-4
-2
0
2
4
6
8
10
12
14
WesternEurope
USA Japan RoW World
2002 2003e 2004e
Worldwide ICT market growth by region 2002-2004 in
Market value 2003 2250 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 25
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
435
661
438
673
507
704
327580
638
825
348
553
456
678
407
650
0 10 20 30 40 50 60 70 80 90
Western Europe
Other Western Europe
UK
Spain
Nordic
Italy
Germany
France
2002 2006e
Internet users as a percentage of population 2002 and 2006(e)
Percentage of internet users of population
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 9
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Convergence in the TC IT and media sector is a two stageprocess
telecommunications information technology
media
1 1first stage of convergence
2
second stageof
convergence
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 10
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Convergence changes technologies applications and markets
Examples of convergence
Implementation of different services and applications on a single platformExample Convergence of data and voice communications- Internet telephony -
Convergence of network technologiesExample Convergence of fixed and mobile networks- O2 Genion service ndash phones for both applications -
Merging of industries into one marketExample Convergence of telecommunications IT and media sectors
Base for convergence digitalization and development of the Internet
24112003 Prof Dr Dres hc A Picot 11
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The convergence of communications services is closelylinked to the internet
change in the meaning ofcommunicationsservices
continuous improvementof data quality
multimedia options of the Internet
increase in transmissioncapacities
bullInternet amp multimediabullInternet telephonybulle-commercebullmobile phones
advantage in costsconcerning transmissionactivities increase in the
number of Internet users
Lack of Internet-basedvoice phoneservice
But
24112003 Prof Dr Dres hc A Picot 12
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Towards a new value added structure
Information technology
Producementcreative staffrights developmentof ideas
Contents programsproduction
DistributionIT or consumerelectronicsappliance
Packaging
Provision of networks
Trans-mission service
Integrated service(network independent)
Distribution SMS
Value added Service
Basic-Service (network dependent)
Media
Telecommunications
Information technology
Telecommunications
Media
Reception appliance
Value Added Services
Navigation
Transmission
Packaging
Contents
Convergence
Media
Manufactureof products
Usersoftware Sales (bundling)
Service
Operating system software
Peripherals + software
Producementcomponentpartssoftware elements
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 13
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 14
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of the number of telecommunications service providers
269 395 491 554 611 674 711 772 811 850 861
10661222
13551593 1629
1780 1876 1917 1939 2007 2045
Number of licenses
Number of providers of telecommunications services whichare not subject to licensing
The addition of the individual figuresdoes not equal the number per capita
11031276
1458
1707
Num
bero
f pro
vide
rs
021
998
071
998
021
999
091
999
082
000
022
001
022
000
012
003
082
002
022
002
082
001
1723
18401952
1988 20042060 2100
Licensees operating in sectors of licensed service and of services notsubject to licensing are countedsingle Therefore the addition of individual figures does not equal thenumber per capita
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 15
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Fixed-network customers voice phone services
mobile phone services
miscellaneous
cable TV
carrierbusiness
rental lines
326
16
100
360152
46
Market Volume 2002 611 bn EuroMarket Volume 2001 599 bn Euro
Fixed-network customers voice phone services
miscellaneous
cable TV
carrierbusiness
rentallines
mobile phone services
351
321
20
105
45
159
Market Volume 2003e 626 bn Euro
mobile phone services
Fixed-network customers voice phone services
rental lines
carrierbusiness
cable TV
359
340
14
101
45141
miscellaneous
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 16
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
178
0
185
12
192
46
210
73
232
124
211
145
200
157
0
50
100
150
200
250
300
350
400
1997 1998 1999 2000 2001 2002 2003
Development of minutes of connection
in fixed-telephony services(1997-2003)
Competitors
DTAG
Total amount
min
utes
of c
onne
ctio
n(in
bn)
178
238
283
355 356
197
357
year
Development of competitor`sshares of minutes in fixed-
telephony services (1997-2003)
6
407
348
258
19
440
1997 1998 1999 2000 2001 2002 2003 1st quarter
50
25
0
year
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 17
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of subscribers` numbers and forecast in mobile services
0
10000
20000
30000
40000
50000
60000
70000
56126
Num
bero
fsub
scrib
ers
) in
tsd
)
586
953 1768 24823764
55548276
13913
23446
60043
48202
1230 46
68101
170
22
285
727
681Number of subscribers (in tsd)Germany
Number of subscribers (in tsd)Italy
Penetration Rate
In international comparison theGerman penetration rate lies in front of the USA (477) Japan (621) and Eastern Europe (30) In comparison withWestern Europe Germany`spenetration rate lies 4 behindthe average (77)
1992 1993 20001996 19981994 1995 1997 1999 2003e20022001
62000
752
year
49926
52589 54076913
867
940
Sources RegTP (2003) RegTP (1999) EITO (2003)
24112003 Prof Dr Dres hc A Picot 18
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Deregulation leads to an increase in competition in private and corporate customer sectors
Structure of competition on the German market (2003)
Long-distance international callsLocal calls
Deutsche Telekom darrService operators uarrcity network operators(eg Netcologne)
Deutsche Telekom darrnational and internationaloperators of ownnetworksuarrservice operators uarr
Deutsche Telekom darr
national and internationaloperators of own networks uarr
private customers
corporate customers
Decrease in market powerdarr
Increase in market poweruarr
24112003 Prof Dr Dres hc A Picot 19
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Market share of minutes of connection in fixed-telephony networks(1st quarter of 2003)
local calls
909
91
942
58
Internet access(broadband)
47
53
long distance calls
42
58
mobile calls
60
40
international calls Internet access(narrow band)
66
34
miscellaneous
32
68
total
44
56
DTAG
Competitors
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 20
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The new European directives
In March 2002 the European Parliament and the Councel adopted four directivesand one decision to be implemented by EU members national governments untilJuly 25th 2003
Radio Spectrum Decision
Access Directive
Authorisation Directive
Framework Directive
Universal Service Directive
24112003 Prof Dr Dres hc A Picot 21
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 22
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
87
56
9379 85
6780 86
127
101
134
108
145
121
39
1018
-35
26
-07
3822
-5
0
5
10
15
20
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003e 2004e
Western European ICT market growth 1994-2004 in
Market value 2003 607 billion Euro Telecomunications
IT
Source EITO (2003)
24112003 Prof Dr Dres hc A Picot 23
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
Western Europe ICT market growth by segment 2002- 2004 in
-69
-16
23
09
26
44
-75
05
3948 45 47
-10
-8
-6
-4
-2
0
2
4
6
Computer hardware
Software ampIT services
Telecommunicationsequipment
Carrier services
2002 2003e 2004e
Market value 2003 607 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 24
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
02
25
41
-27
11
26 32
47 4960
104110
12
4557
-4
-2
0
2
4
6
8
10
12
14
WesternEurope
USA Japan RoW World
2002 2003e 2004e
Worldwide ICT market growth by region 2002-2004 in
Market value 2003 2250 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 25
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
435
661
438
673
507
704
327580
638
825
348
553
456
678
407
650
0 10 20 30 40 50 60 70 80 90
Western Europe
Other Western Europe
UK
Spain
Nordic
Italy
Germany
France
2002 2006e
Internet users as a percentage of population 2002 and 2006(e)
Percentage of internet users of population
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 10
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Convergence changes technologies applications and markets
Examples of convergence
Implementation of different services and applications on a single platformExample Convergence of data and voice communications- Internet telephony -
Convergence of network technologiesExample Convergence of fixed and mobile networks- O2 Genion service ndash phones for both applications -
Merging of industries into one marketExample Convergence of telecommunications IT and media sectors
Base for convergence digitalization and development of the Internet
24112003 Prof Dr Dres hc A Picot 11
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The convergence of communications services is closelylinked to the internet
change in the meaning ofcommunicationsservices
continuous improvementof data quality
multimedia options of the Internet
increase in transmissioncapacities
bullInternet amp multimediabullInternet telephonybulle-commercebullmobile phones
advantage in costsconcerning transmissionactivities increase in the
number of Internet users
Lack of Internet-basedvoice phoneservice
But
24112003 Prof Dr Dres hc A Picot 12
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Towards a new value added structure
Information technology
Producementcreative staffrights developmentof ideas
Contents programsproduction
DistributionIT or consumerelectronicsappliance
Packaging
Provision of networks
Trans-mission service
Integrated service(network independent)
Distribution SMS
Value added Service
Basic-Service (network dependent)
Media
Telecommunications
Information technology
Telecommunications
Media
Reception appliance
Value Added Services
Navigation
Transmission
Packaging
Contents
Convergence
Media
Manufactureof products
Usersoftware Sales (bundling)
Service
Operating system software
Peripherals + software
Producementcomponentpartssoftware elements
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 13
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 14
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of the number of telecommunications service providers
269 395 491 554 611 674 711 772 811 850 861
10661222
13551593 1629
1780 1876 1917 1939 2007 2045
Number of licenses
Number of providers of telecommunications services whichare not subject to licensing
The addition of the individual figuresdoes not equal the number per capita
11031276
1458
1707
Num
bero
f pro
vide
rs
021
998
071
998
021
999
091
999
082
000
022
001
022
000
012
003
082
002
022
002
082
001
1723
18401952
1988 20042060 2100
Licensees operating in sectors of licensed service and of services notsubject to licensing are countedsingle Therefore the addition of individual figures does not equal thenumber per capita
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 15
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Fixed-network customers voice phone services
mobile phone services
miscellaneous
cable TV
carrierbusiness
rental lines
326
16
100
360152
46
Market Volume 2002 611 bn EuroMarket Volume 2001 599 bn Euro
Fixed-network customers voice phone services
miscellaneous
cable TV
carrierbusiness
rentallines
mobile phone services
351
321
20
105
45
159
Market Volume 2003e 626 bn Euro
mobile phone services
Fixed-network customers voice phone services
rental lines
carrierbusiness
cable TV
359
340
14
101
45141
miscellaneous
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 16
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
178
0
185
12
192
46
210
73
232
124
211
145
200
157
0
50
100
150
200
250
300
350
400
1997 1998 1999 2000 2001 2002 2003
Development of minutes of connection
in fixed-telephony services(1997-2003)
Competitors
DTAG
Total amount
min
utes
of c
onne
ctio
n(in
bn)
178
238
283
355 356
197
357
year
Development of competitor`sshares of minutes in fixed-
telephony services (1997-2003)
6
407
348
258
19
440
1997 1998 1999 2000 2001 2002 2003 1st quarter
50
25
0
year
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 17
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of subscribers` numbers and forecast in mobile services
0
10000
20000
30000
40000
50000
60000
70000
56126
Num
bero
fsub
scrib
ers
) in
tsd
)
586
953 1768 24823764
55548276
13913
23446
60043
48202
1230 46
68101
170
22
285
727
681Number of subscribers (in tsd)Germany
Number of subscribers (in tsd)Italy
Penetration Rate
In international comparison theGerman penetration rate lies in front of the USA (477) Japan (621) and Eastern Europe (30) In comparison withWestern Europe Germany`spenetration rate lies 4 behindthe average (77)
1992 1993 20001996 19981994 1995 1997 1999 2003e20022001
62000
752
year
49926
52589 54076913
867
940
Sources RegTP (2003) RegTP (1999) EITO (2003)
24112003 Prof Dr Dres hc A Picot 18
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Deregulation leads to an increase in competition in private and corporate customer sectors
Structure of competition on the German market (2003)
Long-distance international callsLocal calls
Deutsche Telekom darrService operators uarrcity network operators(eg Netcologne)
Deutsche Telekom darrnational and internationaloperators of ownnetworksuarrservice operators uarr
Deutsche Telekom darr
national and internationaloperators of own networks uarr
private customers
corporate customers
Decrease in market powerdarr
Increase in market poweruarr
24112003 Prof Dr Dres hc A Picot 19
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Market share of minutes of connection in fixed-telephony networks(1st quarter of 2003)
local calls
909
91
942
58
Internet access(broadband)
47
53
long distance calls
42
58
mobile calls
60
40
international calls Internet access(narrow band)
66
34
miscellaneous
32
68
total
44
56
DTAG
Competitors
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 20
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The new European directives
In March 2002 the European Parliament and the Councel adopted four directivesand one decision to be implemented by EU members national governments untilJuly 25th 2003
Radio Spectrum Decision
Access Directive
Authorisation Directive
Framework Directive
Universal Service Directive
24112003 Prof Dr Dres hc A Picot 21
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 22
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
87
56
9379 85
6780 86
127
101
134
108
145
121
39
1018
-35
26
-07
3822
-5
0
5
10
15
20
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003e 2004e
Western European ICT market growth 1994-2004 in
Market value 2003 607 billion Euro Telecomunications
IT
Source EITO (2003)
24112003 Prof Dr Dres hc A Picot 23
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
Western Europe ICT market growth by segment 2002- 2004 in
-69
-16
23
09
26
44
-75
05
3948 45 47
-10
-8
-6
-4
-2
0
2
4
6
Computer hardware
Software ampIT services
Telecommunicationsequipment
Carrier services
2002 2003e 2004e
Market value 2003 607 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 24
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
02
25
41
-27
11
26 32
47 4960
104110
12
4557
-4
-2
0
2
4
6
8
10
12
14
WesternEurope
USA Japan RoW World
2002 2003e 2004e
Worldwide ICT market growth by region 2002-2004 in
Market value 2003 2250 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 25
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
435
661
438
673
507
704
327580
638
825
348
553
456
678
407
650
0 10 20 30 40 50 60 70 80 90
Western Europe
Other Western Europe
UK
Spain
Nordic
Italy
Germany
France
2002 2006e
Internet users as a percentage of population 2002 and 2006(e)
Percentage of internet users of population
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 11
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The convergence of communications services is closelylinked to the internet
change in the meaning ofcommunicationsservices
continuous improvementof data quality
multimedia options of the Internet
increase in transmissioncapacities
bullInternet amp multimediabullInternet telephonybulle-commercebullmobile phones
advantage in costsconcerning transmissionactivities increase in the
number of Internet users
Lack of Internet-basedvoice phoneservice
But
24112003 Prof Dr Dres hc A Picot 12
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Towards a new value added structure
Information technology
Producementcreative staffrights developmentof ideas
Contents programsproduction
DistributionIT or consumerelectronicsappliance
Packaging
Provision of networks
Trans-mission service
Integrated service(network independent)
Distribution SMS
Value added Service
Basic-Service (network dependent)
Media
Telecommunications
Information technology
Telecommunications
Media
Reception appliance
Value Added Services
Navigation
Transmission
Packaging
Contents
Convergence
Media
Manufactureof products
Usersoftware Sales (bundling)
Service
Operating system software
Peripherals + software
Producementcomponentpartssoftware elements
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 13
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 14
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of the number of telecommunications service providers
269 395 491 554 611 674 711 772 811 850 861
10661222
13551593 1629
1780 1876 1917 1939 2007 2045
Number of licenses
Number of providers of telecommunications services whichare not subject to licensing
The addition of the individual figuresdoes not equal the number per capita
11031276
1458
1707
Num
bero
f pro
vide
rs
021
998
071
998
021
999
091
999
082
000
022
001
022
000
012
003
082
002
022
002
082
001
1723
18401952
1988 20042060 2100
Licensees operating in sectors of licensed service and of services notsubject to licensing are countedsingle Therefore the addition of individual figures does not equal thenumber per capita
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 15
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Fixed-network customers voice phone services
mobile phone services
miscellaneous
cable TV
carrierbusiness
rental lines
326
16
100
360152
46
Market Volume 2002 611 bn EuroMarket Volume 2001 599 bn Euro
Fixed-network customers voice phone services
miscellaneous
cable TV
carrierbusiness
rentallines
mobile phone services
351
321
20
105
45
159
Market Volume 2003e 626 bn Euro
mobile phone services
Fixed-network customers voice phone services
rental lines
carrierbusiness
cable TV
359
340
14
101
45141
miscellaneous
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 16
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
178
0
185
12
192
46
210
73
232
124
211
145
200
157
0
50
100
150
200
250
300
350
400
1997 1998 1999 2000 2001 2002 2003
Development of minutes of connection
in fixed-telephony services(1997-2003)
Competitors
DTAG
Total amount
min
utes
of c
onne
ctio
n(in
bn)
178
238
283
355 356
197
357
year
Development of competitor`sshares of minutes in fixed-
telephony services (1997-2003)
6
407
348
258
19
440
1997 1998 1999 2000 2001 2002 2003 1st quarter
50
25
0
year
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 17
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of subscribers` numbers and forecast in mobile services
0
10000
20000
30000
40000
50000
60000
70000
56126
Num
bero
fsub
scrib
ers
) in
tsd
)
586
953 1768 24823764
55548276
13913
23446
60043
48202
1230 46
68101
170
22
285
727
681Number of subscribers (in tsd)Germany
Number of subscribers (in tsd)Italy
Penetration Rate
In international comparison theGerman penetration rate lies in front of the USA (477) Japan (621) and Eastern Europe (30) In comparison withWestern Europe Germany`spenetration rate lies 4 behindthe average (77)
1992 1993 20001996 19981994 1995 1997 1999 2003e20022001
62000
752
year
49926
52589 54076913
867
940
Sources RegTP (2003) RegTP (1999) EITO (2003)
24112003 Prof Dr Dres hc A Picot 18
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Deregulation leads to an increase in competition in private and corporate customer sectors
Structure of competition on the German market (2003)
Long-distance international callsLocal calls
Deutsche Telekom darrService operators uarrcity network operators(eg Netcologne)
Deutsche Telekom darrnational and internationaloperators of ownnetworksuarrservice operators uarr
Deutsche Telekom darr
national and internationaloperators of own networks uarr
private customers
corporate customers
Decrease in market powerdarr
Increase in market poweruarr
24112003 Prof Dr Dres hc A Picot 19
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Market share of minutes of connection in fixed-telephony networks(1st quarter of 2003)
local calls
909
91
942
58
Internet access(broadband)
47
53
long distance calls
42
58
mobile calls
60
40
international calls Internet access(narrow band)
66
34
miscellaneous
32
68
total
44
56
DTAG
Competitors
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 20
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The new European directives
In March 2002 the European Parliament and the Councel adopted four directivesand one decision to be implemented by EU members national governments untilJuly 25th 2003
Radio Spectrum Decision
Access Directive
Authorisation Directive
Framework Directive
Universal Service Directive
24112003 Prof Dr Dres hc A Picot 21
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 22
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
87
56
9379 85
6780 86
127
101
134
108
145
121
39
1018
-35
26
-07
3822
-5
0
5
10
15
20
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003e 2004e
Western European ICT market growth 1994-2004 in
Market value 2003 607 billion Euro Telecomunications
IT
Source EITO (2003)
24112003 Prof Dr Dres hc A Picot 23
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
Western Europe ICT market growth by segment 2002- 2004 in
-69
-16
23
09
26
44
-75
05
3948 45 47
-10
-8
-6
-4
-2
0
2
4
6
Computer hardware
Software ampIT services
Telecommunicationsequipment
Carrier services
2002 2003e 2004e
Market value 2003 607 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 24
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
02
25
41
-27
11
26 32
47 4960
104110
12
4557
-4
-2
0
2
4
6
8
10
12
14
WesternEurope
USA Japan RoW World
2002 2003e 2004e
Worldwide ICT market growth by region 2002-2004 in
Market value 2003 2250 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 25
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
435
661
438
673
507
704
327580
638
825
348
553
456
678
407
650
0 10 20 30 40 50 60 70 80 90
Western Europe
Other Western Europe
UK
Spain
Nordic
Italy
Germany
France
2002 2006e
Internet users as a percentage of population 2002 and 2006(e)
Percentage of internet users of population
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 12
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Towards a new value added structure
Information technology
Producementcreative staffrights developmentof ideas
Contents programsproduction
DistributionIT or consumerelectronicsappliance
Packaging
Provision of networks
Trans-mission service
Integrated service(network independent)
Distribution SMS
Value added Service
Basic-Service (network dependent)
Media
Telecommunications
Information technology
Telecommunications
Media
Reception appliance
Value Added Services
Navigation
Transmission
Packaging
Contents
Convergence
Media
Manufactureof products
Usersoftware Sales (bundling)
Service
Operating system software
Peripherals + software
Producementcomponentpartssoftware elements
Source Zerdick A Picot A Schrape K et al (2001)
24112003 Prof Dr Dres hc A Picot 13
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 14
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of the number of telecommunications service providers
269 395 491 554 611 674 711 772 811 850 861
10661222
13551593 1629
1780 1876 1917 1939 2007 2045
Number of licenses
Number of providers of telecommunications services whichare not subject to licensing
The addition of the individual figuresdoes not equal the number per capita
11031276
1458
1707
Num
bero
f pro
vide
rs
021
998
071
998
021
999
091
999
082
000
022
001
022
000
012
003
082
002
022
002
082
001
1723
18401952
1988 20042060 2100
Licensees operating in sectors of licensed service and of services notsubject to licensing are countedsingle Therefore the addition of individual figures does not equal thenumber per capita
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 15
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Fixed-network customers voice phone services
mobile phone services
miscellaneous
cable TV
carrierbusiness
rental lines
326
16
100
360152
46
Market Volume 2002 611 bn EuroMarket Volume 2001 599 bn Euro
Fixed-network customers voice phone services
miscellaneous
cable TV
carrierbusiness
rentallines
mobile phone services
351
321
20
105
45
159
Market Volume 2003e 626 bn Euro
mobile phone services
Fixed-network customers voice phone services
rental lines
carrierbusiness
cable TV
359
340
14
101
45141
miscellaneous
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 16
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
178
0
185
12
192
46
210
73
232
124
211
145
200
157
0
50
100
150
200
250
300
350
400
1997 1998 1999 2000 2001 2002 2003
Development of minutes of connection
in fixed-telephony services(1997-2003)
Competitors
DTAG
Total amount
min
utes
of c
onne
ctio
n(in
bn)
178
238
283
355 356
197
357
year
Development of competitor`sshares of minutes in fixed-
telephony services (1997-2003)
6
407
348
258
19
440
1997 1998 1999 2000 2001 2002 2003 1st quarter
50
25
0
year
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 17
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of subscribers` numbers and forecast in mobile services
0
10000
20000
30000
40000
50000
60000
70000
56126
Num
bero
fsub
scrib
ers
) in
tsd
)
586
953 1768 24823764
55548276
13913
23446
60043
48202
1230 46
68101
170
22
285
727
681Number of subscribers (in tsd)Germany
Number of subscribers (in tsd)Italy
Penetration Rate
In international comparison theGerman penetration rate lies in front of the USA (477) Japan (621) and Eastern Europe (30) In comparison withWestern Europe Germany`spenetration rate lies 4 behindthe average (77)
1992 1993 20001996 19981994 1995 1997 1999 2003e20022001
62000
752
year
49926
52589 54076913
867
940
Sources RegTP (2003) RegTP (1999) EITO (2003)
24112003 Prof Dr Dres hc A Picot 18
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Deregulation leads to an increase in competition in private and corporate customer sectors
Structure of competition on the German market (2003)
Long-distance international callsLocal calls
Deutsche Telekom darrService operators uarrcity network operators(eg Netcologne)
Deutsche Telekom darrnational and internationaloperators of ownnetworksuarrservice operators uarr
Deutsche Telekom darr
national and internationaloperators of own networks uarr
private customers
corporate customers
Decrease in market powerdarr
Increase in market poweruarr
24112003 Prof Dr Dres hc A Picot 19
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Market share of minutes of connection in fixed-telephony networks(1st quarter of 2003)
local calls
909
91
942
58
Internet access(broadband)
47
53
long distance calls
42
58
mobile calls
60
40
international calls Internet access(narrow band)
66
34
miscellaneous
32
68
total
44
56
DTAG
Competitors
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 20
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The new European directives
In March 2002 the European Parliament and the Councel adopted four directivesand one decision to be implemented by EU members national governments untilJuly 25th 2003
Radio Spectrum Decision
Access Directive
Authorisation Directive
Framework Directive
Universal Service Directive
24112003 Prof Dr Dres hc A Picot 21
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 22
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
87
56
9379 85
6780 86
127
101
134
108
145
121
39
1018
-35
26
-07
3822
-5
0
5
10
15
20
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003e 2004e
Western European ICT market growth 1994-2004 in
Market value 2003 607 billion Euro Telecomunications
IT
Source EITO (2003)
24112003 Prof Dr Dres hc A Picot 23
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
Western Europe ICT market growth by segment 2002- 2004 in
-69
-16
23
09
26
44
-75
05
3948 45 47
-10
-8
-6
-4
-2
0
2
4
6
Computer hardware
Software ampIT services
Telecommunicationsequipment
Carrier services
2002 2003e 2004e
Market value 2003 607 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 24
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
02
25
41
-27
11
26 32
47 4960
104110
12
4557
-4
-2
0
2
4
6
8
10
12
14
WesternEurope
USA Japan RoW World
2002 2003e 2004e
Worldwide ICT market growth by region 2002-2004 in
Market value 2003 2250 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 25
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
435
661
438
673
507
704
327580
638
825
348
553
456
678
407
650
0 10 20 30 40 50 60 70 80 90
Western Europe
Other Western Europe
UK
Spain
Nordic
Italy
Germany
France
2002 2006e
Internet users as a percentage of population 2002 and 2006(e)
Percentage of internet users of population
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 13
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 14
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of the number of telecommunications service providers
269 395 491 554 611 674 711 772 811 850 861
10661222
13551593 1629
1780 1876 1917 1939 2007 2045
Number of licenses
Number of providers of telecommunications services whichare not subject to licensing
The addition of the individual figuresdoes not equal the number per capita
11031276
1458
1707
Num
bero
f pro
vide
rs
021
998
071
998
021
999
091
999
082
000
022
001
022
000
012
003
082
002
022
002
082
001
1723
18401952
1988 20042060 2100
Licensees operating in sectors of licensed service and of services notsubject to licensing are countedsingle Therefore the addition of individual figures does not equal thenumber per capita
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 15
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Fixed-network customers voice phone services
mobile phone services
miscellaneous
cable TV
carrierbusiness
rental lines
326
16
100
360152
46
Market Volume 2002 611 bn EuroMarket Volume 2001 599 bn Euro
Fixed-network customers voice phone services
miscellaneous
cable TV
carrierbusiness
rentallines
mobile phone services
351
321
20
105
45
159
Market Volume 2003e 626 bn Euro
mobile phone services
Fixed-network customers voice phone services
rental lines
carrierbusiness
cable TV
359
340
14
101
45141
miscellaneous
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 16
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
178
0
185
12
192
46
210
73
232
124
211
145
200
157
0
50
100
150
200
250
300
350
400
1997 1998 1999 2000 2001 2002 2003
Development of minutes of connection
in fixed-telephony services(1997-2003)
Competitors
DTAG
Total amount
min
utes
of c
onne
ctio
n(in
bn)
178
238
283
355 356
197
357
year
Development of competitor`sshares of minutes in fixed-
telephony services (1997-2003)
6
407
348
258
19
440
1997 1998 1999 2000 2001 2002 2003 1st quarter
50
25
0
year
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 17
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of subscribers` numbers and forecast in mobile services
0
10000
20000
30000
40000
50000
60000
70000
56126
Num
bero
fsub
scrib
ers
) in
tsd
)
586
953 1768 24823764
55548276
13913
23446
60043
48202
1230 46
68101
170
22
285
727
681Number of subscribers (in tsd)Germany
Number of subscribers (in tsd)Italy
Penetration Rate
In international comparison theGerman penetration rate lies in front of the USA (477) Japan (621) and Eastern Europe (30) In comparison withWestern Europe Germany`spenetration rate lies 4 behindthe average (77)
1992 1993 20001996 19981994 1995 1997 1999 2003e20022001
62000
752
year
49926
52589 54076913
867
940
Sources RegTP (2003) RegTP (1999) EITO (2003)
24112003 Prof Dr Dres hc A Picot 18
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Deregulation leads to an increase in competition in private and corporate customer sectors
Structure of competition on the German market (2003)
Long-distance international callsLocal calls
Deutsche Telekom darrService operators uarrcity network operators(eg Netcologne)
Deutsche Telekom darrnational and internationaloperators of ownnetworksuarrservice operators uarr
Deutsche Telekom darr
national and internationaloperators of own networks uarr
private customers
corporate customers
Decrease in market powerdarr
Increase in market poweruarr
24112003 Prof Dr Dres hc A Picot 19
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Market share of minutes of connection in fixed-telephony networks(1st quarter of 2003)
local calls
909
91
942
58
Internet access(broadband)
47
53
long distance calls
42
58
mobile calls
60
40
international calls Internet access(narrow band)
66
34
miscellaneous
32
68
total
44
56
DTAG
Competitors
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 20
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The new European directives
In March 2002 the European Parliament and the Councel adopted four directivesand one decision to be implemented by EU members national governments untilJuly 25th 2003
Radio Spectrum Decision
Access Directive
Authorisation Directive
Framework Directive
Universal Service Directive
24112003 Prof Dr Dres hc A Picot 21
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 22
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
87
56
9379 85
6780 86
127
101
134
108
145
121
39
1018
-35
26
-07
3822
-5
0
5
10
15
20
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003e 2004e
Western European ICT market growth 1994-2004 in
Market value 2003 607 billion Euro Telecomunications
IT
Source EITO (2003)
24112003 Prof Dr Dres hc A Picot 23
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
Western Europe ICT market growth by segment 2002- 2004 in
-69
-16
23
09
26
44
-75
05
3948 45 47
-10
-8
-6
-4
-2
0
2
4
6
Computer hardware
Software ampIT services
Telecommunicationsequipment
Carrier services
2002 2003e 2004e
Market value 2003 607 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 24
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
02
25
41
-27
11
26 32
47 4960
104110
12
4557
-4
-2
0
2
4
6
8
10
12
14
WesternEurope
USA Japan RoW World
2002 2003e 2004e
Worldwide ICT market growth by region 2002-2004 in
Market value 2003 2250 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 25
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
435
661
438
673
507
704
327580
638
825
348
553
456
678
407
650
0 10 20 30 40 50 60 70 80 90
Western Europe
Other Western Europe
UK
Spain
Nordic
Italy
Germany
France
2002 2006e
Internet users as a percentage of population 2002 and 2006(e)
Percentage of internet users of population
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 14
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of the number of telecommunications service providers
269 395 491 554 611 674 711 772 811 850 861
10661222
13551593 1629
1780 1876 1917 1939 2007 2045
Number of licenses
Number of providers of telecommunications services whichare not subject to licensing
The addition of the individual figuresdoes not equal the number per capita
11031276
1458
1707
Num
bero
f pro
vide
rs
021
998
071
998
021
999
091
999
082
000
022
001
022
000
012
003
082
002
022
002
082
001
1723
18401952
1988 20042060 2100
Licensees operating in sectors of licensed service and of services notsubject to licensing are countedsingle Therefore the addition of individual figures does not equal thenumber per capita
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 15
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Fixed-network customers voice phone services
mobile phone services
miscellaneous
cable TV
carrierbusiness
rental lines
326
16
100
360152
46
Market Volume 2002 611 bn EuroMarket Volume 2001 599 bn Euro
Fixed-network customers voice phone services
miscellaneous
cable TV
carrierbusiness
rentallines
mobile phone services
351
321
20
105
45
159
Market Volume 2003e 626 bn Euro
mobile phone services
Fixed-network customers voice phone services
rental lines
carrierbusiness
cable TV
359
340
14
101
45141
miscellaneous
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 16
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
178
0
185
12
192
46
210
73
232
124
211
145
200
157
0
50
100
150
200
250
300
350
400
1997 1998 1999 2000 2001 2002 2003
Development of minutes of connection
in fixed-telephony services(1997-2003)
Competitors
DTAG
Total amount
min
utes
of c
onne
ctio
n(in
bn)
178
238
283
355 356
197
357
year
Development of competitor`sshares of minutes in fixed-
telephony services (1997-2003)
6
407
348
258
19
440
1997 1998 1999 2000 2001 2002 2003 1st quarter
50
25
0
year
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 17
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of subscribers` numbers and forecast in mobile services
0
10000
20000
30000
40000
50000
60000
70000
56126
Num
bero
fsub
scrib
ers
) in
tsd
)
586
953 1768 24823764
55548276
13913
23446
60043
48202
1230 46
68101
170
22
285
727
681Number of subscribers (in tsd)Germany
Number of subscribers (in tsd)Italy
Penetration Rate
In international comparison theGerman penetration rate lies in front of the USA (477) Japan (621) and Eastern Europe (30) In comparison withWestern Europe Germany`spenetration rate lies 4 behindthe average (77)
1992 1993 20001996 19981994 1995 1997 1999 2003e20022001
62000
752
year
49926
52589 54076913
867
940
Sources RegTP (2003) RegTP (1999) EITO (2003)
24112003 Prof Dr Dres hc A Picot 18
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Deregulation leads to an increase in competition in private and corporate customer sectors
Structure of competition on the German market (2003)
Long-distance international callsLocal calls
Deutsche Telekom darrService operators uarrcity network operators(eg Netcologne)
Deutsche Telekom darrnational and internationaloperators of ownnetworksuarrservice operators uarr
Deutsche Telekom darr
national and internationaloperators of own networks uarr
private customers
corporate customers
Decrease in market powerdarr
Increase in market poweruarr
24112003 Prof Dr Dres hc A Picot 19
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Market share of minutes of connection in fixed-telephony networks(1st quarter of 2003)
local calls
909
91
942
58
Internet access(broadband)
47
53
long distance calls
42
58
mobile calls
60
40
international calls Internet access(narrow band)
66
34
miscellaneous
32
68
total
44
56
DTAG
Competitors
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 20
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The new European directives
In March 2002 the European Parliament and the Councel adopted four directivesand one decision to be implemented by EU members national governments untilJuly 25th 2003
Radio Spectrum Decision
Access Directive
Authorisation Directive
Framework Directive
Universal Service Directive
24112003 Prof Dr Dres hc A Picot 21
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 22
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
87
56
9379 85
6780 86
127
101
134
108
145
121
39
1018
-35
26
-07
3822
-5
0
5
10
15
20
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003e 2004e
Western European ICT market growth 1994-2004 in
Market value 2003 607 billion Euro Telecomunications
IT
Source EITO (2003)
24112003 Prof Dr Dres hc A Picot 23
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
Western Europe ICT market growth by segment 2002- 2004 in
-69
-16
23
09
26
44
-75
05
3948 45 47
-10
-8
-6
-4
-2
0
2
4
6
Computer hardware
Software ampIT services
Telecommunicationsequipment
Carrier services
2002 2003e 2004e
Market value 2003 607 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 24
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
02
25
41
-27
11
26 32
47 4960
104110
12
4557
-4
-2
0
2
4
6
8
10
12
14
WesternEurope
USA Japan RoW World
2002 2003e 2004e
Worldwide ICT market growth by region 2002-2004 in
Market value 2003 2250 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 25
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
435
661
438
673
507
704
327580
638
825
348
553
456
678
407
650
0 10 20 30 40 50 60 70 80 90
Western Europe
Other Western Europe
UK
Spain
Nordic
Italy
Germany
France
2002 2006e
Internet users as a percentage of population 2002 and 2006(e)
Percentage of internet users of population
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 15
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Fixed-network customers voice phone services
mobile phone services
miscellaneous
cable TV
carrierbusiness
rental lines
326
16
100
360152
46
Market Volume 2002 611 bn EuroMarket Volume 2001 599 bn Euro
Fixed-network customers voice phone services
miscellaneous
cable TV
carrierbusiness
rentallines
mobile phone services
351
321
20
105
45
159
Market Volume 2003e 626 bn Euro
mobile phone services
Fixed-network customers voice phone services
rental lines
carrierbusiness
cable TV
359
340
14
101
45141
miscellaneous
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 16
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
178
0
185
12
192
46
210
73
232
124
211
145
200
157
0
50
100
150
200
250
300
350
400
1997 1998 1999 2000 2001 2002 2003
Development of minutes of connection
in fixed-telephony services(1997-2003)
Competitors
DTAG
Total amount
min
utes
of c
onne
ctio
n(in
bn)
178
238
283
355 356
197
357
year
Development of competitor`sshares of minutes in fixed-
telephony services (1997-2003)
6
407
348
258
19
440
1997 1998 1999 2000 2001 2002 2003 1st quarter
50
25
0
year
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 17
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of subscribers` numbers and forecast in mobile services
0
10000
20000
30000
40000
50000
60000
70000
56126
Num
bero
fsub
scrib
ers
) in
tsd
)
586
953 1768 24823764
55548276
13913
23446
60043
48202
1230 46
68101
170
22
285
727
681Number of subscribers (in tsd)Germany
Number of subscribers (in tsd)Italy
Penetration Rate
In international comparison theGerman penetration rate lies in front of the USA (477) Japan (621) and Eastern Europe (30) In comparison withWestern Europe Germany`spenetration rate lies 4 behindthe average (77)
1992 1993 20001996 19981994 1995 1997 1999 2003e20022001
62000
752
year
49926
52589 54076913
867
940
Sources RegTP (2003) RegTP (1999) EITO (2003)
24112003 Prof Dr Dres hc A Picot 18
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Deregulation leads to an increase in competition in private and corporate customer sectors
Structure of competition on the German market (2003)
Long-distance international callsLocal calls
Deutsche Telekom darrService operators uarrcity network operators(eg Netcologne)
Deutsche Telekom darrnational and internationaloperators of ownnetworksuarrservice operators uarr
Deutsche Telekom darr
national and internationaloperators of own networks uarr
private customers
corporate customers
Decrease in market powerdarr
Increase in market poweruarr
24112003 Prof Dr Dres hc A Picot 19
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Market share of minutes of connection in fixed-telephony networks(1st quarter of 2003)
local calls
909
91
942
58
Internet access(broadband)
47
53
long distance calls
42
58
mobile calls
60
40
international calls Internet access(narrow band)
66
34
miscellaneous
32
68
total
44
56
DTAG
Competitors
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 20
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The new European directives
In March 2002 the European Parliament and the Councel adopted four directivesand one decision to be implemented by EU members national governments untilJuly 25th 2003
Radio Spectrum Decision
Access Directive
Authorisation Directive
Framework Directive
Universal Service Directive
24112003 Prof Dr Dres hc A Picot 21
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 22
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
87
56
9379 85
6780 86
127
101
134
108
145
121
39
1018
-35
26
-07
3822
-5
0
5
10
15
20
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003e 2004e
Western European ICT market growth 1994-2004 in
Market value 2003 607 billion Euro Telecomunications
IT
Source EITO (2003)
24112003 Prof Dr Dres hc A Picot 23
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
Western Europe ICT market growth by segment 2002- 2004 in
-69
-16
23
09
26
44
-75
05
3948 45 47
-10
-8
-6
-4
-2
0
2
4
6
Computer hardware
Software ampIT services
Telecommunicationsequipment
Carrier services
2002 2003e 2004e
Market value 2003 607 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 24
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
02
25
41
-27
11
26 32
47 4960
104110
12
4557
-4
-2
0
2
4
6
8
10
12
14
WesternEurope
USA Japan RoW World
2002 2003e 2004e
Worldwide ICT market growth by region 2002-2004 in
Market value 2003 2250 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 25
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
435
661
438
673
507
704
327580
638
825
348
553
456
678
407
650
0 10 20 30 40 50 60 70 80 90
Western Europe
Other Western Europe
UK
Spain
Nordic
Italy
Germany
France
2002 2006e
Internet users as a percentage of population 2002 and 2006(e)
Percentage of internet users of population
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 16
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
178
0
185
12
192
46
210
73
232
124
211
145
200
157
0
50
100
150
200
250
300
350
400
1997 1998 1999 2000 2001 2002 2003
Development of minutes of connection
in fixed-telephony services(1997-2003)
Competitors
DTAG
Total amount
min
utes
of c
onne
ctio
n(in
bn)
178
238
283
355 356
197
357
year
Development of competitor`sshares of minutes in fixed-
telephony services (1997-2003)
6
407
348
258
19
440
1997 1998 1999 2000 2001 2002 2003 1st quarter
50
25
0
year
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 17
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of subscribers` numbers and forecast in mobile services
0
10000
20000
30000
40000
50000
60000
70000
56126
Num
bero
fsub
scrib
ers
) in
tsd
)
586
953 1768 24823764
55548276
13913
23446
60043
48202
1230 46
68101
170
22
285
727
681Number of subscribers (in tsd)Germany
Number of subscribers (in tsd)Italy
Penetration Rate
In international comparison theGerman penetration rate lies in front of the USA (477) Japan (621) and Eastern Europe (30) In comparison withWestern Europe Germany`spenetration rate lies 4 behindthe average (77)
1992 1993 20001996 19981994 1995 1997 1999 2003e20022001
62000
752
year
49926
52589 54076913
867
940
Sources RegTP (2003) RegTP (1999) EITO (2003)
24112003 Prof Dr Dres hc A Picot 18
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Deregulation leads to an increase in competition in private and corporate customer sectors
Structure of competition on the German market (2003)
Long-distance international callsLocal calls
Deutsche Telekom darrService operators uarrcity network operators(eg Netcologne)
Deutsche Telekom darrnational and internationaloperators of ownnetworksuarrservice operators uarr
Deutsche Telekom darr
national and internationaloperators of own networks uarr
private customers
corporate customers
Decrease in market powerdarr
Increase in market poweruarr
24112003 Prof Dr Dres hc A Picot 19
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Market share of minutes of connection in fixed-telephony networks(1st quarter of 2003)
local calls
909
91
942
58
Internet access(broadband)
47
53
long distance calls
42
58
mobile calls
60
40
international calls Internet access(narrow band)
66
34
miscellaneous
32
68
total
44
56
DTAG
Competitors
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 20
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The new European directives
In March 2002 the European Parliament and the Councel adopted four directivesand one decision to be implemented by EU members national governments untilJuly 25th 2003
Radio Spectrum Decision
Access Directive
Authorisation Directive
Framework Directive
Universal Service Directive
24112003 Prof Dr Dres hc A Picot 21
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 22
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
87
56
9379 85
6780 86
127
101
134
108
145
121
39
1018
-35
26
-07
3822
-5
0
5
10
15
20
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003e 2004e
Western European ICT market growth 1994-2004 in
Market value 2003 607 billion Euro Telecomunications
IT
Source EITO (2003)
24112003 Prof Dr Dres hc A Picot 23
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
Western Europe ICT market growth by segment 2002- 2004 in
-69
-16
23
09
26
44
-75
05
3948 45 47
-10
-8
-6
-4
-2
0
2
4
6
Computer hardware
Software ampIT services
Telecommunicationsequipment
Carrier services
2002 2003e 2004e
Market value 2003 607 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 24
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
02
25
41
-27
11
26 32
47 4960
104110
12
4557
-4
-2
0
2
4
6
8
10
12
14
WesternEurope
USA Japan RoW World
2002 2003e 2004e
Worldwide ICT market growth by region 2002-2004 in
Market value 2003 2250 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 25
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
435
661
438
673
507
704
327580
638
825
348
553
456
678
407
650
0 10 20 30 40 50 60 70 80 90
Western Europe
Other Western Europe
UK
Spain
Nordic
Italy
Germany
France
2002 2006e
Internet users as a percentage of population 2002 and 2006(e)
Percentage of internet users of population
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 17
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Development of subscribers` numbers and forecast in mobile services
0
10000
20000
30000
40000
50000
60000
70000
56126
Num
bero
fsub
scrib
ers
) in
tsd
)
586
953 1768 24823764
55548276
13913
23446
60043
48202
1230 46
68101
170
22
285
727
681Number of subscribers (in tsd)Germany
Number of subscribers (in tsd)Italy
Penetration Rate
In international comparison theGerman penetration rate lies in front of the USA (477) Japan (621) and Eastern Europe (30) In comparison withWestern Europe Germany`spenetration rate lies 4 behindthe average (77)
1992 1993 20001996 19981994 1995 1997 1999 2003e20022001
62000
752
year
49926
52589 54076913
867
940
Sources RegTP (2003) RegTP (1999) EITO (2003)
24112003 Prof Dr Dres hc A Picot 18
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Deregulation leads to an increase in competition in private and corporate customer sectors
Structure of competition on the German market (2003)
Long-distance international callsLocal calls
Deutsche Telekom darrService operators uarrcity network operators(eg Netcologne)
Deutsche Telekom darrnational and internationaloperators of ownnetworksuarrservice operators uarr
Deutsche Telekom darr
national and internationaloperators of own networks uarr
private customers
corporate customers
Decrease in market powerdarr
Increase in market poweruarr
24112003 Prof Dr Dres hc A Picot 19
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Market share of minutes of connection in fixed-telephony networks(1st quarter of 2003)
local calls
909
91
942
58
Internet access(broadband)
47
53
long distance calls
42
58
mobile calls
60
40
international calls Internet access(narrow band)
66
34
miscellaneous
32
68
total
44
56
DTAG
Competitors
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 20
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The new European directives
In March 2002 the European Parliament and the Councel adopted four directivesand one decision to be implemented by EU members national governments untilJuly 25th 2003
Radio Spectrum Decision
Access Directive
Authorisation Directive
Framework Directive
Universal Service Directive
24112003 Prof Dr Dres hc A Picot 21
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 22
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
87
56
9379 85
6780 86
127
101
134
108
145
121
39
1018
-35
26
-07
3822
-5
0
5
10
15
20
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003e 2004e
Western European ICT market growth 1994-2004 in
Market value 2003 607 billion Euro Telecomunications
IT
Source EITO (2003)
24112003 Prof Dr Dres hc A Picot 23
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
Western Europe ICT market growth by segment 2002- 2004 in
-69
-16
23
09
26
44
-75
05
3948 45 47
-10
-8
-6
-4
-2
0
2
4
6
Computer hardware
Software ampIT services
Telecommunicationsequipment
Carrier services
2002 2003e 2004e
Market value 2003 607 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 24
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
02
25
41
-27
11
26 32
47 4960
104110
12
4557
-4
-2
0
2
4
6
8
10
12
14
WesternEurope
USA Japan RoW World
2002 2003e 2004e
Worldwide ICT market growth by region 2002-2004 in
Market value 2003 2250 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 25
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
435
661
438
673
507
704
327580
638
825
348
553
456
678
407
650
0 10 20 30 40 50 60 70 80 90
Western Europe
Other Western Europe
UK
Spain
Nordic
Italy
Germany
France
2002 2006e
Internet users as a percentage of population 2002 and 2006(e)
Percentage of internet users of population
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 18
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Deregulation leads to an increase in competition in private and corporate customer sectors
Structure of competition on the German market (2003)
Long-distance international callsLocal calls
Deutsche Telekom darrService operators uarrcity network operators(eg Netcologne)
Deutsche Telekom darrnational and internationaloperators of ownnetworksuarrservice operators uarr
Deutsche Telekom darr
national and internationaloperators of own networks uarr
private customers
corporate customers
Decrease in market powerdarr
Increase in market poweruarr
24112003 Prof Dr Dres hc A Picot 19
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Market share of minutes of connection in fixed-telephony networks(1st quarter of 2003)
local calls
909
91
942
58
Internet access(broadband)
47
53
long distance calls
42
58
mobile calls
60
40
international calls Internet access(narrow band)
66
34
miscellaneous
32
68
total
44
56
DTAG
Competitors
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 20
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The new European directives
In March 2002 the European Parliament and the Councel adopted four directivesand one decision to be implemented by EU members national governments untilJuly 25th 2003
Radio Spectrum Decision
Access Directive
Authorisation Directive
Framework Directive
Universal Service Directive
24112003 Prof Dr Dres hc A Picot 21
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 22
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
87
56
9379 85
6780 86
127
101
134
108
145
121
39
1018
-35
26
-07
3822
-5
0
5
10
15
20
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003e 2004e
Western European ICT market growth 1994-2004 in
Market value 2003 607 billion Euro Telecomunications
IT
Source EITO (2003)
24112003 Prof Dr Dres hc A Picot 23
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
Western Europe ICT market growth by segment 2002- 2004 in
-69
-16
23
09
26
44
-75
05
3948 45 47
-10
-8
-6
-4
-2
0
2
4
6
Computer hardware
Software ampIT services
Telecommunicationsequipment
Carrier services
2002 2003e 2004e
Market value 2003 607 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 24
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
02
25
41
-27
11
26 32
47 4960
104110
12
4557
-4
-2
0
2
4
6
8
10
12
14
WesternEurope
USA Japan RoW World
2002 2003e 2004e
Worldwide ICT market growth by region 2002-2004 in
Market value 2003 2250 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 25
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
435
661
438
673
507
704
327580
638
825
348
553
456
678
407
650
0 10 20 30 40 50 60 70 80 90
Western Europe
Other Western Europe
UK
Spain
Nordic
Italy
Germany
France
2002 2006e
Internet users as a percentage of population 2002 and 2006(e)
Percentage of internet users of population
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 19
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Current development on the German telecommunicationmarket
Market share of minutes of connection in fixed-telephony networks(1st quarter of 2003)
local calls
909
91
942
58
Internet access(broadband)
47
53
long distance calls
42
58
mobile calls
60
40
international calls Internet access(narrow band)
66
34
miscellaneous
32
68
total
44
56
DTAG
Competitors
Source RegTP (2003)
24112003 Prof Dr Dres hc A Picot 20
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The new European directives
In March 2002 the European Parliament and the Councel adopted four directivesand one decision to be implemented by EU members national governments untilJuly 25th 2003
Radio Spectrum Decision
Access Directive
Authorisation Directive
Framework Directive
Universal Service Directive
24112003 Prof Dr Dres hc A Picot 21
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 22
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
87
56
9379 85
6780 86
127
101
134
108
145
121
39
1018
-35
26
-07
3822
-5
0
5
10
15
20
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003e 2004e
Western European ICT market growth 1994-2004 in
Market value 2003 607 billion Euro Telecomunications
IT
Source EITO (2003)
24112003 Prof Dr Dres hc A Picot 23
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
Western Europe ICT market growth by segment 2002- 2004 in
-69
-16
23
09
26
44
-75
05
3948 45 47
-10
-8
-6
-4
-2
0
2
4
6
Computer hardware
Software ampIT services
Telecommunicationsequipment
Carrier services
2002 2003e 2004e
Market value 2003 607 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 24
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
02
25
41
-27
11
26 32
47 4960
104110
12
4557
-4
-2
0
2
4
6
8
10
12
14
WesternEurope
USA Japan RoW World
2002 2003e 2004e
Worldwide ICT market growth by region 2002-2004 in
Market value 2003 2250 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 25
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
435
661
438
673
507
704
327580
638
825
348
553
456
678
407
650
0 10 20 30 40 50 60 70 80 90
Western Europe
Other Western Europe
UK
Spain
Nordic
Italy
Germany
France
2002 2006e
Internet users as a percentage of population 2002 and 2006(e)
Percentage of internet users of population
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 20
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The new European directives
In March 2002 the European Parliament and the Councel adopted four directivesand one decision to be implemented by EU members national governments untilJuly 25th 2003
Radio Spectrum Decision
Access Directive
Authorisation Directive
Framework Directive
Universal Service Directive
24112003 Prof Dr Dres hc A Picot 21
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 22
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
87
56
9379 85
6780 86
127
101
134
108
145
121
39
1018
-35
26
-07
3822
-5
0
5
10
15
20
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003e 2004e
Western European ICT market growth 1994-2004 in
Market value 2003 607 billion Euro Telecomunications
IT
Source EITO (2003)
24112003 Prof Dr Dres hc A Picot 23
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
Western Europe ICT market growth by segment 2002- 2004 in
-69
-16
23
09
26
44
-75
05
3948 45 47
-10
-8
-6
-4
-2
0
2
4
6
Computer hardware
Software ampIT services
Telecommunicationsequipment
Carrier services
2002 2003e 2004e
Market value 2003 607 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 24
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
02
25
41
-27
11
26 32
47 4960
104110
12
4557
-4
-2
0
2
4
6
8
10
12
14
WesternEurope
USA Japan RoW World
2002 2003e 2004e
Worldwide ICT market growth by region 2002-2004 in
Market value 2003 2250 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 25
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
435
661
438
673
507
704
327580
638
825
348
553
456
678
407
650
0 10 20 30 40 50 60 70 80 90
Western Europe
Other Western Europe
UK
Spain
Nordic
Italy
Germany
France
2002 2006e
Internet users as a percentage of population 2002 and 2006(e)
Percentage of internet users of population
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 21
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 22
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
87
56
9379 85
6780 86
127
101
134
108
145
121
39
1018
-35
26
-07
3822
-5
0
5
10
15
20
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003e 2004e
Western European ICT market growth 1994-2004 in
Market value 2003 607 billion Euro Telecomunications
IT
Source EITO (2003)
24112003 Prof Dr Dres hc A Picot 23
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
Western Europe ICT market growth by segment 2002- 2004 in
-69
-16
23
09
26
44
-75
05
3948 45 47
-10
-8
-6
-4
-2
0
2
4
6
Computer hardware
Software ampIT services
Telecommunicationsequipment
Carrier services
2002 2003e 2004e
Market value 2003 607 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 24
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
02
25
41
-27
11
26 32
47 4960
104110
12
4557
-4
-2
0
2
4
6
8
10
12
14
WesternEurope
USA Japan RoW World
2002 2003e 2004e
Worldwide ICT market growth by region 2002-2004 in
Market value 2003 2250 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 25
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
435
661
438
673
507
704
327580
638
825
348
553
456
678
407
650
0 10 20 30 40 50 60 70 80 90
Western Europe
Other Western Europe
UK
Spain
Nordic
Italy
Germany
France
2002 2006e
Internet users as a percentage of population 2002 and 2006(e)
Percentage of internet users of population
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 22
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
87
56
9379 85
6780 86
127
101
134
108
145
121
39
1018
-35
26
-07
3822
-5
0
5
10
15
20
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003e 2004e
Western European ICT market growth 1994-2004 in
Market value 2003 607 billion Euro Telecomunications
IT
Source EITO (2003)
24112003 Prof Dr Dres hc A Picot 23
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
Western Europe ICT market growth by segment 2002- 2004 in
-69
-16
23
09
26
44
-75
05
3948 45 47
-10
-8
-6
-4
-2
0
2
4
6
Computer hardware
Software ampIT services
Telecommunicationsequipment
Carrier services
2002 2003e 2004e
Market value 2003 607 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 24
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
02
25
41
-27
11
26 32
47 4960
104110
12
4557
-4
-2
0
2
4
6
8
10
12
14
WesternEurope
USA Japan RoW World
2002 2003e 2004e
Worldwide ICT market growth by region 2002-2004 in
Market value 2003 2250 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 25
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
435
661
438
673
507
704
327580
638
825
348
553
456
678
407
650
0 10 20 30 40 50 60 70 80 90
Western Europe
Other Western Europe
UK
Spain
Nordic
Italy
Germany
France
2002 2006e
Internet users as a percentage of population 2002 and 2006(e)
Percentage of internet users of population
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 23
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
Western Europe ICT market growth by segment 2002- 2004 in
-69
-16
23
09
26
44
-75
05
3948 45 47
-10
-8
-6
-4
-2
0
2
4
6
Computer hardware
Software ampIT services
Telecommunicationsequipment
Carrier services
2002 2003e 2004e
Market value 2003 607 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 24
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
02
25
41
-27
11
26 32
47 4960
104110
12
4557
-4
-2
0
2
4
6
8
10
12
14
WesternEurope
USA Japan RoW World
2002 2003e 2004e
Worldwide ICT market growth by region 2002-2004 in
Market value 2003 2250 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 25
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
435
661
438
673
507
704
327580
638
825
348
553
456
678
407
650
0 10 20 30 40 50 60 70 80 90
Western Europe
Other Western Europe
UK
Spain
Nordic
Italy
Germany
France
2002 2006e
Internet users as a percentage of population 2002 and 2006(e)
Percentage of internet users of population
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 24
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The Markets for ICT in Europe and around the World
02
25
41
-27
11
26 32
47 4960
104110
12
4557
-4
-2
0
2
4
6
8
10
12
14
WesternEurope
USA Japan RoW World
2002 2003e 2004e
Worldwide ICT market growth by region 2002-2004 in
Market value 2003 2250 billion Euro
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 25
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
435
661
438
673
507
704
327580
638
825
348
553
456
678
407
650
0 10 20 30 40 50 60 70 80 90
Western Europe
Other Western Europe
UK
Spain
Nordic
Italy
Germany
France
2002 2006e
Internet users as a percentage of population 2002 and 2006(e)
Percentage of internet users of population
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 25
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
435
661
438
673
507
704
327580
638
825
348
553
456
678
407
650
0 10 20 30 40 50 60 70 80 90
Western Europe
Other Western Europe
UK
Spain
Nordic
Italy
Germany
France
2002 2006e
Internet users as a percentage of population 2002 and 2006(e)
Percentage of internet users of population
Source EITO in corporation with IDC (2003)
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 26
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Distribution of broadband internet access in of private households (2003 2008e)
78
56
4 5
3 1
2 9
2 6
2 3
2 3
2 2
2 1
19
14
12
10
9
7
4
3
2
1
1
8 6
78
71
70
53
4 6
4 4
4 4
4 1
4 0
4 0
4 3
4 6
4 1
3 0
3 4
2 4
2 3
7
3
2 1
0 10 2 0 3 0 4 0 50 6 0 70 8 0 9 0 10 0
Ko rea
Ho ng ko ng
T aiwan
Jap an
Sing ap ur
Swit z er land
U SA
N et her land s
B elg ium
Swed en
A ust r ia
U nit ed King d o m
Sp ain
Germany
F rance
I t aly
C z ech R ep ub l ic
M alaysia
B rasi l
V enez uela
C ro at ia
Source Arthur D Little (2003)
2003
2008e
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 27
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband subscribers (end 2002)
0
2
4
6
8
10
12
European UnionPopulation 380 m
Denmark Italy Finland Portugal Spain Ireland Luxembourg amp Greece
Rep of KoreaPopulation 47 m
AustriaSweden
Belgium
Netherlands
UK
France
GermanySource ITU World Telecom Indicators Database
Users in Mio
Source ITU World Telecom Indicators Database (2003)
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 28
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Broadband Prices
$ 9177$ 7954
$ 7366$ 7359
$ 6169$ 5803$ 5784$ 5736
$ 5334$ 5299$ 5182$ 5155$ 5146$ 5056$ 4972$ 4923
$ 4763$ 4616$ 4520$ 4456
$ 4061$ 3964
$ 3834$ 3821
$ 3441$ 3393$ 3318$ 3259$ 3248
$ 2419
A ustraliaLuxembo urg
P o rtugalItaly
IrelandIceland
Slo veniaLithuania
M altaSingapo re
SwitzerlandCanadaSwedenFranceJo rdan
Ko rea (Rep)Denmark
M acao Israel
UKNo rwayCyprus
New ZealandHK China
B elgiumGermany
United StatesA ustria
NetherlandsJapan
155142
136114
088086
080062061060
055055
048043
039036
030030
024023021021
017017
013012
006006003
lt 001
DenmarkJo rdan
M altaLithuania
IcelandCyprus
SwitzerlandP o rtugal
IrelandFrance
A ustraliaSweden
Luxembo urgUnited Kingdo m
ItalySlo venia
A ustriaIsrael
No rwayGermany
New ZealandM acao China
NetherlandsCanada
United StatesSingapo re
Ho ng Ko ng ChinaB elgium
Ko rea (Rep)Japan
Source ITU Research (2003)
Broadband subscription charges July 2003 Us $ Cost of 100 kbits as of monthly income
Overall subscription charges are important
But factoring in the speed of the connection and income is the more telling story
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 29
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecommunication industry is confronted withdifficulties ndash Many players do not earn their cost of capital
US Telecommunication Players WACC vs ROIC (2002)
10837Wireless
Aggregate
82-34T-Mobile
1175Nextel
7763Verizon Wireless
75102Cingular
10526ATampT Wireless
1153Sprint PCS
854Wireline
Aggregate
6661SprintFON
1025ATampT
7984Alltel
6808Qwest
65109Bell South
8584SBC
777Verizon
WACCROIC
ROIC Return on invested capitalWACC Weighted average cost of capitalReturn cost of capital
2 4 6 8 10 120
-2
-4
2
4
6
8
10
12
deg Verizon Wireless
deg Verizon
deg SBC
deg Qwest
Alltel deg
ATampT deg
SprintFON deg
deg WirelineAggregate
deg Sprint PCS
deg ATampT Wireless
deg Cingular
deg Nextel
WACC
deg T-Mobile
degWirelessAggregate
ROIC
deg Bell South
Do not returncost of capital
0
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 30
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Developments and directions in telecommunication markets
1 Characteristics of telecommunication markets
2 Market developments
3 Challenges and opportunities
4 Directions in telecommunication markets
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 31
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Telecom`s Paradoxon
Telecom industry is in crisis in the midst of technological progress and strong user
demand
Source CITI (2003)
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 32
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The telecom industry is confronted with difficulties
bull Telecom capital spending is down by two thirds since 2000 threatening futureinnovations
bull Some European companies must earn $10 million a day for debt service
bull Telecom firms face costlier access to financial markets as investors adjust theirperception of risk
bull Cellular is reaching saturation while 3G lags behind projections that led to extravagant auction bids in Europe
bull Equipment firms face bankruptcy unless investment picks up
bull RampD and innovation are slowing down with long-term implications
bull Investment slowdown and cost cutting is leading to decline in service quality
How can the telecom industry cope with the new situation
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 33
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
How can the telecom industry cope with the new situation
bull New sources of revenues
bull The impact of economies of scale is significant At least an the network level oligopolies seem to be moresucessful in fixed and in wireless
bull Review of strategic positioning
bull Network outsourcing opportunities have to be considered
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 34
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
New Sources of Revenues
bull In 2002 German subscribers sent 21 billionshortmessages via SMS and recently also via MMS
bull Short message services share nearly 14 or more than25 billion euro of providersacute sales revenues (in comparison to 124 in 2001)
bull As shown the number of broadband accesses is risingrapidly
bull The traffic in mobile communication is still rising (voiceand data)
bull New services will offer new business opportunities experimental approach needed
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 35
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
The industry structure comprises too many players
Exemple wireless telecommunication link between number of competitorsand EBITDA Margin ndash also true for other telecom areas with high network and
scale effects
7 6 5 4 3 28
10
20
30
40
50
60
Number of players
EBITDAMargin
01
Hongkong deg
Netherlands degdeg Denmark
Austria Turkey deg UK IsraelArgentinia Chile deg
Japan deg
Germany deg
deg France India
Greece degItaly deg
China deg
deg Singapore Southafrica
Finland deg
deg Russiadeg New Zealand Phillipines
deg Switzerland Portugal
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 36
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Economies of Scale in the wireless industry
Cost per Sub vs Subscribers (National Operators USA)
0
$700
$800
40
$100
$200
$300
$400
$500
$600
Subscribers (in Mio)$0
deg Verizon Wireless
deg Cingular
deg ATampT Wireless
deg Sprint PCS
deg Nexteldeg VSTR
AnnualizedOp CostPer Sub
10 20 30
Source Booz Allen Hamilton (2003)
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 37
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Different strategic positionings are possible
bull bdquobit-pipeldquoconcentrate on traditional key competences therebybecoming utility providers who offer transmissioncapacities as a kind of physical infrastructural layer formanifold specialized suppliers of intermediate and endcustomer services in telecommunications
bull bdquocomprehensive service providerldquoevolve into vertically integrated value added generatorwith broad service portfolio direct contact to theendcostumer and control over the entire value chain
bull bdquoplatform providerldquoconcentrate on design and operation of technologicallyadvanced network IT and service infrastructure as basisfor third party service provisioning
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 38
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Currently each strategic option evokes openquestions
bull bit-pipe
ndash profitabilityndash revenue sharingndash monopoly and regulation
bull comprehensive service provider
ndash too large a portfolio of necessary horizontal and verticalcompetences to be manageable
ndash efficiency problems due to lacking scale and synergyadvantages
bull platform provider
ndash sustainable competitive advantage possiblendash revenue sharingndash access regulation
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 39
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Outsourcing considered in some casesin mid term future
Kept in houseNetwork Outsourcing Opportunities
Network IT Products ampcontent
Customer Careamp Billing
Marketing ampSales
Architecture designSystem selection
Pricing(Product Marketing)
Product Servicedefinition (Product Mkt)
Plan Design
customer segmentationservice level definition
billing requirementspecificationDemand Management Service delivery
platform developmentBranding
Network planning andarchitecture
Product (Systems)management QM
Distribution channelmanagement
Network tuningoptimization
Development programming
Service deliveryplatform operations
Billing mediation Advertising
Operate
Network operators Application operationscore system
Content bundling Billing operations Points of Sale
Network maintenance Solution provisioning forcorporate customers
Call Center inbound(technpremium support)
Application andContent development
Infrastructureinstallation
IT Operations Application operations Call Center inbound(regular support)
Logistics
IT InfrastructureData Center
Call Center outboundand overflow
Applications operationssupport systems (finadmin
Bill printingdistribution)
Source Eikelmann(2002) Generally outsourced or under construction already or delivered in par
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 40
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
In the end the markets will decide what strategy
will prevail
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
-
24112003 Prof Dr Dres hc A Picot 41
INSTITUTE FOR INFORMATION ORGANISATION AND MANAGEMENTProf Dr Dres hc A Picot LMU
Thank you for your attention
- Developments and Directions in Telecommunication Markets
- Developments and directions in telecommunication markets
- Developments and directions in telecommunication markets
- Definitions
- Positive Feedback
- Some interesting principles
- Development of the value added chain in the telecommunications market
- Value added chain in the telecommunication marketVertical (dis)integration
- Convergence in the TC IT and media sector is a two stage process
- Convergence changes technologies applications and markets
- The convergence of communications services is closely linked to the internet
- Towards a new value added structure
- Developments and directions in telecommunication markets
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Current development on the German telecommunication market
- Deregulation leads to an increase in competition in private and corporate customer sectors
- Current development on the German telecommunication market
- The new European directives
- Developments and directions in telecommunication markets
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- The Markets for ICT in Europe and around the World
- Developments and directions in telecommunication markets
- Distribution of broadband internet access in of private households (2003 2008e)
- Broadband subscribers (end 2002)
- Broadband Prices
- The telecommunication industry is confronted with difficulties ndash Many players do not earn their cost of capital
- Developments and directions in telecommunication markets
- Telecom`s Paradoxon
- The telecom industry is confronted with difficulties
- How can the telecom industry cope with the new situation
- New Sources of Revenues
- The industry structure comprises too many players
- Economies of Scale in the wireless industry
- Different strategic positionings are possible
- Currently each strategic option evokes open questions
- Network Outsourcing Opportunities
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