ITU / BDT Regional Seminar
Fixed Mobile Convergence and Guidelines on the
smooth transition of existing mobile networks to
IMT-2000
Nairobi, Kenya, 9 – 12 May 2005
Convergence Strategy for Universal Operators
and role of Business Planning
Oscar González Soto
ITU Consultant Expert
Strategic Planning and Assessment
May, 2005
ITU/BDT/ Convergence Strategy O. G.S.
slide 1
Convergence Strategy and Business Planning
Content
• Key factors in Evolution
• Cost structure and savings
• Economies of scale
• Competition Level
• A stair case strategy for a universal operator
• Business trends per
category
• Migration steps towards universal operation
• Convergence at Network, Services and IT platforms
• Architectures for convergence per domain
• Business planning
May, 2005
and impacts of competition level
ITU/BDT/ Convergence Strategy O. G.S.
slide 2
Convergence Strategy and Business Planning
Key Factors:
Factors: Cost structure and savings
– High cost impact of network infrastructure layer: > 60% in
Greenfield areas of which > 70% in access segment.
– Dimensioning and cost evolving in 3 phases through time:
– A) Accessibility due to Geo
coverage either physical or radio
– B) Equipment in Ports/users as customers grow
– C) Capacity in Traffic due to increase of multiservice applications
– Significant savings by resources and equipment sharing within
an operator due to convergence at network layers : i.e.: 30%
– Additional savings inter-operators due to cost sharing of noncore equipment (buildings, towers, etc.) > 20%
May, 2005
slide 3
ITU/BDT/ Convergence Strategy O. G.S.
Convergence Strategy and Business Planning
Key Factors:
Factors: Cost structure and savings
Dimensioning and investment trough time per domain
Investment level
per year
Infrastructure for
geo-coverage
Traffic & applications
dependent equipment
Ports/channels
equipment
Time
Deployment
May, 2005
Launching
Expanding
ITU/BDT/ Convergence Strategy O. G.S.
Maturity
slide 4
Convergence Strategy and Business Planning
Key Factors:
Factors: Economies of scale
Economies of scale are an inherent characteristic to the telecom
technologies that impacts on solutions, evolution and also now survivability
in competition
– The five dimensions of the economy of scale:
• By Size of the systems
Larger systems cheaper per unit
• By Technology capabilities
New technologies with higher capacity
• By Traffic efficiency with the occupancy
Higher utilization for a given
GoS when more servers
• By customers Density
Quadratic increase with coverage radio
• By Volume of purchasing
May, 2005
Discount per volume in log scale
slide 5
ITU/BDT/ Convergence Strategy O. G.S.
Convergence Strategy and Business Planning
Key Factors:
Factors: Economies of scale by density
Cost per line ( Monetary units)
Metropolitan and suburban scenarios
300
250
200
150
Metropolitan total
Metrop. infrastructure
100
Suburban total
Sub. infrastructure
50
2 355
2 477
2 235
2 112
1 990
1 747
1 870
1 625
1 381
1 504
1 259
1 139
894
1 016
774
651
529
0
Density (subscribers per KM²)
High impact of customer density in cost per line and
higher impact on Rural (up to 20 to 1)
May, 2005
ITU/BDT/ Convergence Strategy O. G.S.
slide 6
Convergence Strategy and Business Planning
Key Factors:
Factors: Competition level
Different Levels of Competition
– L1) Monopoly for all geographical areas, customer classes and
service types
– L2) Limited monopoly per area and/or service types while free
operation for niche operators
– L3) Moderate competition for all network segments and services
– L4) High competition for high revenue customers and services
– L5) Aggressive competition for all areas, customers and services
“Efficient telecom implies different competition levels as a
function of country size and development status”
May, 2005
ITU/BDT/ Convergence Strategy O. G.S.
slide 7
Convergence Strategy and Business Planning
Key Factors:
Factors: Competition level
Key factors for survivability in competition
– Push for new services
– Imaginative pricing strategies and bundles
– Actions for market share capture and better take-up rate
– Actions do minimize churn
– Actions to decrease Cost of Ownership and share common
resources
– Business profitability positive and within or better than
indicators benchmark
May, 2005
ITU/BDT/ Convergence Strategy O. G.S.
slide 8
Convergence Strategy and Business Planning
Key Factors:
Factors: Competition
Business feasibility space in competition as a function of volume
Revenues per customer/year
Non feasible by payment capability,
churn or regulation constraints
Feasibility area:
users range
r2 $
r1 $
Non feasible by
low NPV and IRR
Feasibility area:
tariff range
n1
n2
Customers/type Volume
Feasibility space highly dependent on country size and economical level
May, 2005
ITU/BDT/ Convergence Strategy O. G.S.
slide 9
Convergence Strategy and Business Planning
Content
• Key factors in Evolution
• Cost structure and savings
• Economies of scale
• Competition Level
• A stair case strategy for a universal operator
• Business trends per service categories
• Migration steps towards universal operation
• Convergence at Network, Services and IT platforms
• Architectures for convergence per domain
• Business planning
May, 2005
and impacts of competition level
ITU/BDT/ Convergence Strategy O. G.S.
slide 10
Convergence Strategy and Business Planning
Business domains and trends
Illustration case for customer categories and revenues
Large Corporations
3-8%
Small& Medium
Enterprise
8%
SOHO (1-2 people)
10-20%
High-End
Residential
60-70%
Classes Of
Customers
L-E Residential
>3000
Operator
300-500
70-120
60-80
30-55
business
Growing revenues
Growing Volume
0.5- 1%
feasibility
as a
function of
mix of
categories
Revenues/Month (Euro)
“Customer stratification should be analyzed per country”
May, 2005
slide 11
ITU/BDT/ Convergence Strategy O. G.S.
Convergence Strategy and Business Planning
Business domains and trends
Trends for new application revenues in the future
Growing importance
for % revenue with
time
xSP
Application Management and
Operation
Services and customization
(integration and personalization)
Network Connectivity
(and value added nodes)
~
45%
~
30%
~
25%
Source Ovum, IDC
May, 2005
ITU/BDT/ Convergence Strategy O. G.S.
slide 12
Convergence Strategy and Business Planning
Business domains and trends
Example of Value Added chain and operators movements to gain
economy of scale and market
Network
nucleus
Applications
and Services
Application Service Providers
Backbone Service Providers (BSPs)
Internet Service Providers
(ISPs)
• Agreements with
content providers
and e-commerce
Edge
Agreements and
merging
• Agreements with
wholesale operators
network
Local
Access
• Acquisition/merging of
service providers
• Development of new
access loops and
Unbundling
Access Providers (CAPs)
Mobile Service Providers (MSPs)
• Agreements with content providers
• New multi-service
development
• Agreements with
content and
application service
providers
Metropolitan
Established Service Providers (ESPs
(ESPs))
May, 2005
slide 13
ITU/BDT/ Convergence Strategy O. G.S.
Convergence Strategy and Business Planning
Migration steps
Extension for new
customer types
“staircase” for leading growing alternatives
Customers for
connectivity
Upgraded Telcos
Classic Telcos
Conventional voice
and data services
May, 2005
Extension for new
services domains
+ Services of IN,
VPN and Mobile
ITU/BDT/ Convergence Strategy O. G.S.
slide 14
Convergence Strategy and Business Planning
Migration steps
+ Customers for
new services
Customers for
connectivity
Extension for new
customer types
“staircase” for leading growing alternatives
Extended Telcos
Upgraded Telcos
Classic Telcos
Conventional voice
and data services
May, 2005
Extension for new
services domains
+ Internet and video
Distribution (triple play)
+ Services of IN,
VPN and Mobile
slide 15
ITU/BDT/ Convergence Strategy O. G.S.
Convergence Strategy and Business Planning
Migration steps
+ Customers for
end applications
+ Customers for
new services
Extension for new
customer types
“staircase” for New Universal Telcos
New Universal Telcos
ASPs
ISPs
Extended Telcos
Upgraded Telcos
Customers for
connectivity
Classic Telcos
Conventional voice
and data services
Extension for new
services domains
+ Services of IN,
VPN and Mobile
+ Internet and video
distribution (triple play)
+ e-applications
and Hosting
Specific migration and timeframe to be optimized for the country
context and regulatory conditions
May, 2005
ITU/BDT/ Convergence Strategy O. G.S.
slide 16
Convergence Strategy and Business Planning
Migration steps
Revenue level
(ARPU)
Evolution of revenues with service domains
ASP
Video and multiservice
voice revenues
IN and data
Extension for new
services domains
Conventional voice
and data services
+ Services of IN,
VPN and Mobile
+ Internet and video
distribution (triple play)
+ e-applications
and Hosting
Convergence strategy is fundamental to be competitive and to grow
May, 2005
ITU/BDT/ Convergence Strategy O. G.S.
slide 17
Convergence Strategy and Business Planning
Content
• Key factors in Evolution
• Cost structure and savings
• Economies of scale
• Competition Level
• A stair case strategy for a universal operator
• Business trends per service categories
• Migration steps towards universal operation
• Convergence at Network, Services and IT platforms
• Architectures for convergence per domain
• Business planning
May, 2005
and impacts of competition level
ITU/BDT/ Convergence Strategy O. G.S.
slide 18
Convergence Strategy and Business Planning
Network Layer Modeling
IP
Voice Mail
SMP
SCP
Service and Control level
HLR/AuC TSC
UMS
e-applications
TEX
SSP
WLL/Mobile
Functional level
VOD
SSW
SSP
MSC
BSC
TVoDSL
IN
EIR
BTS
VoIP
SMS-C
Int’l
GW
POP/LEX
Fixed NB/BB
NGN network
DATA/IP
LL
Transport/SDH/WDM
Infrastructure and Cable level
May, 2005
slide 19
ITU/BDT/ Convergence Strategy O. G.S.
Convergence Strategy and Business Planning
Evolution towards NGN
From initial networks towards target network
NMC
SCP
SS7
OSS
Mob
LEX/TEX
NAS
TDM
Services
Softswitch
Control
Distributed Switching
Transport/Media
Data
ATM/IP
Access
gateway
Packet
Network
IP/MPLS/CAC
LEX
Access
gateway
PCM
RSU
POTS
Trunk
gateway
Other
Networks
Access
gateway
DSL
MUX/DSLAM
ISDN
Wireless
gateway
DLC
HDSL/XDSL
Migration steps and timeframe to be studied/optimized for each country context
May, 2005
ITU/BDT/ Convergence Strategy O. G.S.
slide 20
Convergence Strategy and Business Planning
Towards Converged Platforms and Services
Customers, Customer classes and Wholesale/Retail chain
BSS
Connectivity
Voice/data
fixed
Voice/data
mobile
Portals
CRM
E-Business
Office
ERP, etc
SLA
Customer Perceived Services
OSS
Information
Systems
Enablers
Applications
Enablers
Telecom Service Enablers
Management
Network & Systems Infrastructure
Servers & Storage Infrast.
Building and Physical Network Infrastructure
May, 2005
slide 21
ITU/BDT/ Convergence Strategy O. G.S.
Convergence Strategy and Business Planning
Towards Converged Platforms and Services
Customers, Customer classes and Wholesale/Retail chain
BSS
Connectivity
Voice/data
fixed
Voice/data
mobile
Portals
CRM
E-Business
Office
ERP, etc
SLA
Customer Perceived Services
Telecom Service Enablers
Applications
Enablers
Network & Systems Infrastructure
Optical CxC, Switches and Mux
SDH CxC, ADMs, Rings
IP/ATMRouters and Switches
BST, MUX, DSLAMs, NTs, etc.
Information
Systems
Enablers
OSS
Servers & Storage
Servers, LAN switches,
LANs, Disks, etc.
Management
Building and Physical Network Infrastructure
May, 2005
ITU/BDT/ Convergence Strategy O. G.S.
slide 22
Convergence Strategy and Business Planning
Towards Converged Platforms and Services
Customers, Customer classes and Wholesale/Retail chain
BSS
Connectivity
Voice/data
fixed
Portals
CRM
Voice/data
mobile
E-Business
Office
ERP, etc
SLA
Customer Perceived Services
Telecom Service Enablers
Databases, OS,
Telecom Platforms,
Mobility platforms
IN plat., Firewall
Traffic shaping
Applications
Enablers
DB, OS, App. Platf.,
Directory servers,
Domain names,
Transaction manag.
Network & Systems Infrastructure
Information
Systems Enablers
DB, OS,Inf. Platf.
Languages,
Load Balanc.,
OSS
Management
Servers & Storage
Building and Physical Network Infrastructure
May, 2005
slide 23
ITU/BDT/ Convergence Strategy O. G.S.
Convergence Strategy and Business Planning
Towards Converged Platforms and Services
Customers, Customer classes and Wholesale/Retail chain
Connectivity
Voice/data
fixed
Portals
CRM
Voice/data
mobile
E-Business
Office
ERP, etc
Customer Perceived Services
Service Enablers
Applications
Enablers
Network & Systems Infrastructure
Information
Systems
Enablers
Servers & Storage
- Service Level Agreement
Management
- Service activation
- Service management
- Quality/performance mgt
- Invoicing
- Billing
- Customer care
- Provisioning
- Inventory
- Application monitoring
- Application management
- NE/DC management
- NE/DC supervision
Building and Physical Network Infrastructure
May, 2005
ITU/BDT/ Convergence Strategy O. G.S.
slide 24
Convergence Strategy and Business Planning
Content
• Key factors in Evolution
• Cost structure and savings
• Economies of scale
• Competition Level
• A stair case strategy for a universal operator
• Business trends per service categories
• Migration steps towards universal operation
• Convergence at Network, Services and IT platforms
• Architectures for convergence per domain
• Business planning
May, 2005
and impacts of competition level
ITU/BDT/ Convergence Strategy O. G.S.
slide 25
Convergence Strategy and Business Planning
Role of Business Planning
– Forecast solutions, costs and revenues
– Evaluate future Cashflows, NPV, IRR, ROI, etc.
– Perform “What-if” analysis for optional alternatives on Volume of
customers, customer mixes and services domains
– Perform benchmarking with “best in class” operators
– Decision making on strategy and actions in competition
based on quantified evaluations
– Recommend alternatives and actions to ensure success
May, 2005
ITU/BDT/ Convergence Strategy O. G.S.
slide 26
Convergence Strategy and Business Planning
Role of Business Planning
Evaluations to be based on robusts techno-economical tools due to
high number of alternatives and complexity
Case study for medium size country with mixes of customer classes
and services domains:
– Multiservice IP Network with integrated operation
– Three service categories: Voice, Data/Internet, Video distribution
– Modeling demands, multiservice traffic flows, dimensioning, network
resources, CAPEX, OPEX and financial results for different levels of competition
– Evaluate future Cash-flows, NPV, IRR, etc. for a 10 years period
May, 2005
slide 27
ITU/BDT/ Convergence Strategy O. G.S.
Convergence Strategy and Business Planning
Role of Business Planning
Effects of the mix of customers on Reference Scenario: Low competition level
Network NPV
8e+08
7e+08
6e+08
SOHO and
Small
Enterprise
Euro
5e+08
4e+08
All
Segments
(reference)
3e+08
Residential
2e+08
1e+08
0e+08
-1e+08
•
May, 2005
Y0
Y1
Y2
Y3
Y4
Y5
Y6
Y7
Y8
Y9
Y10
Year
SME and SOHO with quicker recovery but less NPV and company value at
medium term
• “All customer segments” case with much better behavior
ITU/BDT/ Convergence Strategy O. G.S.
slide 28
Convergence Strategy and Business Planning
Role of Business Planning
Effects of the mix of services on Reference Scenario: Low competition level
Network NPV
7e+08
6e+08
Internet
5e+08
Euro
4e+08
Internet &
VoDSL
3e+08
Internet &
Video
2e+08
All
Services
(reference)
1e+08
0e+08
Y0
Y1
Y2
Y3
Y4
Y5
Y6
Y7
Y8
Y9
Y10
-1e+08
-2e+08
•
Year
Major impact of service classes on NPV and company survivability
• Single service classes without future
• High benefit of “all services” case
May, 2005
slide 29
ITU/BDT/ Convergence Strategy O. G.S.
Convergence Strategy and Business Planning
Role of Business Planning
Effects of the mix of services on typical scenario: Medium competition level
Network NPV
5e+08
4e+08
Internet
Euro
3e+08
Internet &
VoDSL
2e+08
Internet &
Video
1e+08
0e+08
Y0
Y1
Y2
Y3
Y4
Y5
Y6
Y7
Y8
Y9
Y10
All
Services
(reference)
-1e+08
-2e+08
•
May, 2005
Year
Increase of competition level amplifies the previous effects on feasibility: big
differences between service mixes
• Data only or single service classes without feasibility at medium term
• Very robust behavior for the “all services” case
ITU/BDT/ Convergence Strategy O. G.S.
slide 30
Convergence Strategy and Business Planning
Recommendations
• Ensure proper modeling of key factors and professional tools
• Focus on multiple customers, multiple services domains
• Take benefit of all economies of scale
• Maintain business indicators within benchmark margins in
competition
and
!! Base decisions on joint Technical and Economical evaluation
at all phases !!
May, 2005
ITU/BDT/ Convergence Strategy O. G.S.
slide 31