outthinking disruption - adapt to the fast-moving digital world or risk irrelevance

Outthinking disruption – Adapt to the Fast-Moving Digital World or Risk Irrelevance

Rob van den DamGlobal Telecom LeaderIBM Institute for Business Value

But first a little levity…

Telstra data guy won’t apologise for downloading content, blames Telstra

The man dubbed the “Telstra data guy” says he downloaded $10,000

worth of free data during Telstra’s Free Data Sunday and won’t apologize

to critics despite copping it from the rest of the country for abusing the

system.

Mr Szaszvari downloaded a whopping 994 gigabytes of data that day,

including free software, large backups, TV shows, and movies, despite

claiming his ADSL connection suffers at least 15 drop outs per day.

News.com.au, April 6, 2016

Content


Privacy, regulation, spectrum, acquisitions


3 | CSP Imperatives


5 | Mobile Video



Singtel users report seeing other

users’ personal details on app

TODAYonline, February 29, 2016

FCC Settles With Verizon Over its

Stealth 'Super Cookies'

DSL Reports, March 7, 2016

FCC unveils mobile broadband

privacy proposals

Mobile World Live, March 11, 2016

GSMA chief says mobile industry

has privacy “obligation”

Mobile World Live, May 10, 2016

IoT and big data pose

“monumental” risk for operators


Privacy: Continued Breeches and Growing Regulatory

Concerns

Encryption skyrockets as privacy concerns grow

Source: Google transparency report, retrieved 3/21/16

Percent of traffic that is encrypted, by country

IoT and big data pose “monumental” risk for operators

With the amount of personal data held by companies growing, and

encompassing among other things financial, location, and health data,

futurist Patrick Dixon warned that “you have the biggest target for criminal

activity that the world has ever seen”.

Dixon said, “While there is a clear potential for financial damage through

cyber security and fraud, perhaps the bigger issue is the damage that can

be done to the brand.”

Mobile World Live, May 12, 2016.

Scrutiny from European Competition

Commissioner Margrethe Vestager

helped derail a deal between

Scandinavian telecom operators

Telenor ASA and TeliaSonera AB

The Wall Street Journal | February 11, 2016

Verizon hit with $1.35M fine for use of

“supercookies


Korea’s operators ordered to

compensate users for misleading

“unlimited” claims


FCC starts Open Cable process

BroadbandTV News, March 9, 2016

MTN offers $1.5B to settle Nigeria row


Ofcom study argues consolidation

raises prices


India set to allow virtual operators

Hindustan Times, March 31, 2016

Regulation: Regulators side with consumers and

challengers, seldom with incumbents

Mexico to raise $2.5 billion in

spectrum auction

Reuters UK, February 18, 2016

EBU angered over Commission's

early 700MHz clearance plans

BroadbandTV News February 3, 2016

Australian operators spend $385M for

1.8GHz spectrum

Mobile World Live, February 5,, 2016

We won’t be able to afford 700 Mhz

spectrum: Gopal Vittal, Airtel India CEO

MediaNama February 24, 2016

FCC to Sell Maximum Amount in TV

Airwave Auction

Wall Street Journal, April 29,, 2016

Comcast to Jump Into Airwaves

Auction

Wall Street Journal, February 23, 2016

SoftBank still looking like a bidder in

spectrum auction

Seeking Alpha, May 4, 2016

Google opts out of upcoming US

spectrum auction

Reuters, February 15, 2016

Spectrum: Licensing costs rise, pressuring CSP

financials

Acquisitions: Regulators sour on in-country

consolidation, but cross-border activity continues

Orange abandons bid to buy

Bouygues phone unit

Gulf News, April 3, 2016

Commission rejects Hutch/O2 UK tie-up


Regulator may further delay decisions

over SK-CJ deal

The Korea Times, April 7, 2016

BCE-Manitoba Telecom deal seen

facing tough regulatory scrutiny

4-Traders, May 2, 2016

Axiata Group buys Nepal's Ncell for

$1.36b

Telecom Asia, April 11, 2016

Orange to acquire Millicom’s Congo arm

MobileWorldLive, February 8, 2016

Comcast buys DreamWorks Animation

in $3.8b deal

Washington Post, April 28, 2016

Comcast buys French startup

StickyAds to build out its digital video

business for reported $100M

ReCode, May 9, 2016

Rovi to buy TiVo

BroadbandTV News, May 2, 2016

Content

1 | Context


Digital Giants, Start-ups and other competitors

3 | CSP Imperatives


5 | Mobile Video



©2015 IBM Corporation 7 September 201612

What’s putting the

world’s

top executives on

edge?

More competition expected

from other industries

Communications

industry

Cross industry

More competition expected

from within the same industry

….. any many

more

Digital

Disruptors

Business landscape change (in 3 to 5 years)

Telco CxOs are terrified of outsiders making a land

grab

Source: IBM Institute for Business Value Global C-suite Survey (n= 5247, off which 295 CSPs).

The communications market is a complex battlefield

Independent WiFi providers

Networkequipment providers

Application & Cloud providers

Cable/satellite providers

Mobile Device providers

Low cost entrants

Digital Giants

Ankle-biters Traditional

CSPs

OTT Internet giants and the ‘Uber-type’ ankle-biters

are seen as CSPs’ greatest competitive threats

OTT Digital Giants

Ankle-biters (digital start-ups/unicorns)

Mobile device manufacturers

Traditional competitors

Cable/Satellite providers

Independent WiFi providers

New low-cost operators

Cloud providers

Greatest competitive threat to CSPs over the next five years?

Traditional application providers

Network equipment providers

86%

44%

38%

37%

37%

34%

20%

14%

4%

1%

Source: IBM Institute for Business Value Communications 2020 Survey (n= 135).

April 17, 2015: “Till Q1 2014, WhatsApp had already erased an estimated $33 billion in SMS revenue from wireless operators”

February 29, 2014: “Between 2012 and 2018 the entire telecommunications industry will have lost a combined $386 billion because of OTT VoIP”

May 27, 2015: “Telco messaging revenues have already taken a 30% hit (India CSPs), thanks to OTT players”

August 12, 2015: “Telco messaging revenue has taken a 30% nose dive (in Nigeria) and could decrease by an additional 20% in a few months”

These digital invaders - providing better customer

experiences - have already destroyed core revenues

Content



3 | CSP Imperatives

Cost Reduction, Customer Experience, New revenue


5 | Mobile Video



Swisscom cuts jobs, call centres amid

lower earnings

Swissinfo, February 04, 2016

KPN targets €300M cost savings in

latest strategic plan


Singtel subsidiary Optus announces job

cuts amid restructuring

CHANNEL NEWSASIA, April 03, 2016

Italia (Brazil) to cut 1,000 jobs

The Gulf Today, February 11, 2016

Telecom Italia Raises Cost-Cut Target

to $1.8 Billion by 2018

Bloomberg Business, May 13, 2016

India’s Airtel, Idea face cashflow

challenges in FY16-18

Mobile World Live, March 4, 2016.

PLDT outlines 3-year turnaround

plan following 35% profit drop

BusinessWorld, March 4, 2016.

Cost-cutting helps SK Telecom report

Q1 profit jump

Mobile World Live, April 29, 2016.

Rising costs squeeze China

Telecom’s Q1 profit

Mobile World Live, April 29, 2016

Cost Reduction: a quarterly way-of-life for CSPs

Source: Apteligent, OpenSignal,STL Partners analysis

Mobile networkCustomer Experience

index

VERY LOW NPS =(half of that of most

other industries)

The average actual customer experience is poor and varies

by operator varies by a factor of 3!

New Revenue: A Cautionary Tale? CenturyLink CFO

on Telecom Industry Economics

“For every dollar that it loses in legacy

revenues, CenturyLink must generate two

additional revenue dollars in growth areas in

order to maintain its earnings level.”, said the

company’s CFO Stewart Ewing yesterday.

Telecompetitor Blog, March 09, 2016

CSPs are exploring a range of opportunities to

generate new sources of revenue

In looking toward the year 2020, CSPs rank ‘increasing their role in the IoT’ as the most important path toward growth

66% 62%56%

45%36% 35% 27% 26% 23%

40%

Increasing role in IoT/ M2M

Becoming a lifestyle enabler

Improving customer

relationships

Improving connectivity

offeringsPlatform for

partner applicationsRevenue from

big data / analytics

New business models

Vertical expansion in other industries

Paymentservices

Revenue from cloud services


New Revenue from IOT: Hype or Hope?

SK Telecom to roll out a nationwide LPWAN Telecom Asia, March 15, 2016

Cisco closes Jasper dealMobile World Live, March 22, 2016.

Jasper study breaks down opex cost for industrial IoT (Mobile World Live, April 26, 2016)

Between 35 per cent and 50 per cent of total opex comes from network communications.

Rogers introduces Internet of Things as a Service. Hype or hope?Internet Do, April 02, 2016

IoT is “killer app” of big data – Amdocs (Mobile World Live, April 13, 2016)

The Internet of Things (IoT) is not just a derivative of data but is the equivalent of a "killer app" of big data.

SigFox ‘Internet of Things’ Plan Challenges AT&T, Verizon, T-Mobile and expand its wireless network using unlicensed frequencies to 100 U.S. cities Investors. Com, May 4, 2016

New Revenue: Adjacent Markets

Telstra bets on e-health to become billion dollar business

Telstra has paid $237 million for 15 acquisitions in the past 18 months with the goal

of hitting $1 billion in annual revenues by 2020. It's a goal that will require rapid

expansion both domestically and abroad – Telstra Health made just $78 million in

the year ending June 30.

"We've been successful in winning a number of multi-million dollar contracts in

Thailand and Malaysia to deliver our integrated hospital information exchange

offering," Mr Ballantyne said. "We wouldn't be making an announcement if it wasn't

in the range of tens of millions … but it's south of $50 million.

Sydney Morning Herald, August 23, 2015

New Revenue: Adjacent Markets

Is Telstra Health a lame duck? Connect the dots

Telstra Health has invested in 20 companies in two years and has been much feted

as the company guiding our e-health future. It looks like it just ran aground on the

isle of ‘strategic review’….

According to industry sources, Telstra’s senior management decided to halt funding

for their Health group following a strategic review of the business….

Telstra Health turns over only about $80 million and is reportedly not profitable.

Medical Republic, April 4, 2015

Content

1 | Context


3 | CSP Imperatives


Serving today’s digital consumer

5 | Mobile Video



Transformation: Telefonica sees digital

transformation as “terrifying” but “urgent”

Phil Jordan, CIO Telefonica, discussed how

the operator is working towards

digitalisation across 15 countries, calling the

process “the hardest thing you will ever do.”

MobileWorldLive, April 14, 2016.

Transformation: The fast are eating the slow

Yesterday, the big ate the small. Now the fast eat the slow.

Andrew Penn, CEO of Telstra: "In the future, if a business is

not mobile-first and digital to the core, if it does not present

on an app or an icon on a customer's handset, then

effectively it will simply not exist."

ZD Net, May 9, 2016.

Transformation: PLDT CEO says digital move will be

“difficult and complicated”

The Philippines’ largest operator PLDT (owner of

Smart) suffered another weak quarter with its profit

down sharply and revenue mostly flat.

PLDT CEO Manuel Pangilinan said the results for the

first quarter confirm that its “digital pivot will be a

difficult and complicated process”.

MobileWorldLive, May 5, 2016.

Trailblazing companies embrace consumers’ love for

digital to fundamentally change customer experience

Today’s CSPs face a number of obstacles when

implementing customer experience initiatives

Siloed processes &

divisionsNot knowing what

makes a ‘good’ experience

Lack of CE vision & strategy

Difficult business

caseLimited view of

customer

Difficulty in measuring

CE

Lack of required

skillsLack of

leadership/commitment

Limited budget

68% 71%

43%

49%

31%26%

19% 24%

34%

49%

42%

32%25%

“The biggest challenge is the company itself; this is a very big and slow boat.”

CSP CFO from Spain

Source: IBM Institute for Business Value Communications 2020 Survey (n= 135,).

OnlinepresenceProductsandservicesdesigned foronlineengagement first

SelfserviceSelf-service optionscontrolledbythecustomer,improving theirexperience andreducingofflinechannelcosts

OnlinePresence

Self-Service

Digitalchannelsfirst

CallcenterReserved fortransactionsand

issuesthatrequiremorecontrolorcustomerswhochooseor

needdeepersupport

Experiencestores

CallCenter

Omni-channel

Engagementin2020

ExperiencestoreServesasanextensionofthe

onlinechannel,predominantly asaphysicalshowcasefordigitalproducts

subsequently callcenterandstores

A Digital CSP thinks digital first and drives almost all

interactions online, putting the customer in control

It’s time for CSPs to recognize the imperative by

becoming digital services providers

±90% sales and service transactions online, omni-channel, high customer experience & NPS

Serves all segments, customer-defined

purchasing

Servesthecustomerbase

The Digital Services Provider (DSP)•Provides experience-led services •Contextual actions in the moment•Low cost, agile, automated, intelligent

Re-engineer processes for E2E automation, micro-service for agility, low costs

Transformed digitally savvy workforce Cognitive analytics,

intelligent data

Transforming the workforce and skill base is crucial

for CSPs in the digital era

Skills will be needed for areas like:ü digital channels,

social media, content management and digital advertizing

ü user experience (UX) and user interface (UI) design

ü Cloud technologyü Data / Cognitive

analytics to be able to work with the wealth of new data captured through digitization

Gearing Up for the Cloud, AT&T Tells Its

Workers: Adapt, or ElseThere is a need to retool yourself, and you

should not expect to stop,” said Randall

Stephenson, the chief and chairman of AT&T. He

is reinventing the company for a cloud-heavy

future.

AT&T’s competitors are not just Verizon and

Sprint, but also tech giants like Amazon and

Google. For the company to survive in this

environment, Mr. Stephenson needs to retrain its

280,000 employees so they …..

New York Times, Feb 13, 2016.

Content

1 | Context


3 | CSP Imperatives


5 | Mobile Video

The mobile internet morphing into a video distribution network



No one “owns the TV customer” anymore

0%5%

10%15%20%25%30%35%40%45%

n = 1,000 UK Internet usersSource: Ovum’s Digital Consumer Insights

Blue = pay TVRed = SVODGreen = TVOD

UK, pay TV and premium OTT video adoption by service, Nov-15

…and that’s not including “free” services

TVandOTTvideoasanapp:Justonefutureforconsumervideo

1213151516

89135141

242269

502

Social Network

Cinema group

Retailer

Sports association

Content producer

Online retailer

Media group

Internet firm

Telecoms operator

Consumer technology

Broadcaster

Online video

Global, premium OTT-video services by parent

company type, Mar-16

Source: Ovum

Video on the mobile is the key driver of mobile data

growth

37

65% of Facebook's Video Views Are

Now on Mobile Devices

Adweek, Jan 7, 2015

Snapchat Hits 7 Billion Mobile

Daily Video ViewsBloomberg, Jan 11, 2016

It’s official: 50% of YouTube

Traffic Now Comes from MobileRealSEO, Oct 28, 2014

of iPhone users will abondon streaming a video if they have to wait longer than 15 seconds

59%

19%

90%

will abandon a video after only a 5 second wait

of consumers streaming video on their mobile experience video quality problems every day

Procura, OpenWave Mobility, 2015

The internet is gradually morphing into a video distribution network where the definition of consumer experience is rapidly changing

Mobile video has its challenges, but also provides

opportunities

38

KPN is exploring the many new video experience options that LTE Broadcast will allow, for instance in venues like stadiums and concerts hall, providing viewers with instant access to several simultaneous high definition video streams.

Verizon has launched its new mobile video service go90, aiming to prove that CSPs can compete with mobile ad titans Google and Facebook. Verizon is in talks with advertisers and brands about content sponsorships and original-content creation

Vodafone UK pushes 4G offering with its Netflix partnership. 4G customers are using four times more data than those on 3G, which shows how popular services such as Netflix are with their 4G customers.

Content

1 | Context


3 | CSP Imperatives


5 | Mobile Video


Serving ecosystems of partners


Apple has thousands of developers and accessory manufacturers continually

creating complementary products that work beautifully with Apple’s devices and

create increasing demand for them

Within 4 years of existence Xiaomi became the 3rd e-commerce company in

China – it sells its smartphones at near cost and makes money from commerce

services. It is the opposite of Apple, but has the same platform business model

Tencent gained revenues from many products and services, but the real

success came when Tencent transformed from a product to a platform company

Newcomers (such as AirBnB and Uber) are making use of platforms and are

becoming the platform of reference in their sector

IBM acquisition of The Weather Company marks a recognision of the value

and replicability of large scale IoT platforms

The rise of platform-based ecosystems built on the

internet and ‘as a service’ business model created new

markets

Green = Not in Top 15 in 2004 Red = Gone or not in Top 15 in 2015

The Top 15 born-on-the-internet, (mostly) platform

companies have increased in market value almost ten-

fold in twelve years

And platform economics are superior to infrastructure

or product

Source: STL Partners, May 2016.

Providing best-effort connectivity(connectivity as a commodity)

Providing network-optimized connectivity(managed connectivity)

Running a digital mall(self-run businesses via web/mobile/shop)

Exposing/managing an ecosystem platform (for own and partner applications)

In looking toward 2020, CSPs envision four capability

areas based on the services and assets they provide -

three product-based and one platform-based


Content

1 | Context


3 | CSP Imperatives


5 | Mobile Video



Who’s this guy and what’s he doing with this car?

LeEco Wants to Give Away Its 'Tesla Killer' for Free,

but Questions Remain

"On April 14, we held the first free hardware day in China,

when we had sales for our smartphones, TVs on our

website. We believe that the world is heading for an

ecosystem era, where hardware will be irrelevant and rather

users will be more interested in the content, value they can

get from a device.”

Billionaire entrepreneur Jia Yueting, chief executive and

chairman of Chinese conglomerate LeEco (formerly LeTV)

Gadgets360, April 23, 2016.

LeEco in 2nd quarter 2016

Russia set for Chinese Netflix

BroadbandTV News, April 6, 2016

LeEco sidelines headphones jack with latest smartphones

MWL, April 26, 2016

China’s LeEco opens San Jose HQ to take on Apple, Tesla, Netflix

SFGate, April 29, 2016

LeEco launches new smartphone, entertainment services in India

Hindustan Times, May 3, 2016.

LeEco announces global partnership with Twitter

Times of India, May 12, 2016

By moving to a platform-based business model, CSPs

can become a digital services enabler (DSE)

An open platform will create new opportunities for

DSEs to enable a new wave of sustainable growth

Taking a central role in ecosystems and IoT applications, DSEs will capitalize on:

§ network effects (crossover effects between the different players) and the

increasing returns from large platforms

§ economies of scale§ market trust and brand reach§ capturing innovations from 3rd parties, app developers and also internet users

(platform efficiency is fuelled by the trend of open innovation)

§ emerging businesses and young startups who see them as the way to get access to the market

§ high levels of security and privacy that only CSPs can provide

The 2020 CSP will emerge from today’s provider along two primary axes:the digital services provider and the digital services enabler

Summary

Ending quote from AT&T

AT&T wants the world to see its software for spinning up services

AT&T has revealed details of a software platform that makes it easier for customers to order new

services, and the company may release the code as open source for other service providers to use.

“We're opening the hood of our network and showing you the engine,"Donovan told a hall in Santa Clara, California, that was crowded with engineers from carriers and

vendors.

PC World, March 15, 2016

Thank you

Rob van den DamGlobal Telecom Industry LeaderIBM Institute for Business [email protected]

www.ibm.com/iibv