Scenario Planning

power in the
telecom value chain
is it up to data?

balancing

Your business technologists. Powering progress

Preface
Atos Consulting offers advice and a pragmatic, realistic approach to addressing client needs. It provides “end-to-end” services and solutions, ranging from supporting strategy development through to enterprise solutions and technology decisions. We help clients deliver innovation to their customers and improve cost and effectiveness by leveraging Information Technologies. To support this work we continuously monitor the latest trends and developments that drive innovation and influence market dynamics and business models in the telecom, media and technology industry. Each year our findings are published in a white paper. This year a scenario planning has been conducted, that investigates the forces that influence value chain dynamics and the increasing role of data. This white paper describes four possible scenarios and their impact on the business model of Traditional Telecom Operators. It concludes with indicators that support the movements along the different scenarios and provides guidelines on the potential organizational impact for the Tradition Telecom Operators. We hope it will help you anticipate and prepare for the challenging times ahead! Atos Consulting

Contents Preface 1. Introduction 2. The scenario framework
2.1 Scenario planning 2.2 Trends
2.2.1 2.2.2 2.2.3 2.2.4 2.2.5 2.3.1 2.3.2 Changing customer behavior The digital revolution New entrants Market dynamics Changing business models The Y axis: Degree of market integration The X axis: Access to data

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2.3 The framework

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3. The scenarios
3.1 Scenario 1: Battle of the titans
3.1.1 3.1.2 3.1.3 Market integration Regulated data access Impact on the traditional business model

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3.2 Scenario 2: The digital currency
3.2.1 Market integration 3.2.2 Open data access 3.2.3 Impact on the traditional business model

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3.3 Scenario 3: Chinese walls
3.3.1 3.3.2 3.3.3 3.4.1 3.4.2 3.4.3 Market fragmentations Regulated data access Impact on the tradtional business model Market fragmentation Open data access Impact on the traditional business model

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3.4 Scenario 4: Broker’s world

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4. What’s next About the authors Acknowledgements Appendix A - Research results Appendix B - Research methodology
What is scenario planning Which method did we use
Identifying trends and developments Prioritizing trends Constituting the scenario framework Validating the scenario framework Describing strategic options

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Appendix C - Glossary

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1. Introduction
At present we see separate value chains for the content, telecommunication and hardware/software industry, offering different products and services to the same customers. We believe these value chains and the corresponding portfolio offerings from the Content Generators, Traditional Telecom Operators and Hardware/Software Manufacturers will integrate. Customers are ignorant about the players in the content delivery process, but are pleased with the functions offered by the personalization of content. They don’t know – and more importantly don’t care – who owns the content when they watch a movie on their iPad; who incurs the costs of sending an iMessage or a ‘free’ message via WhatsApp; who is the telecom operator when they watch a movie using Apple TV; or who is responsible for transmitting their call when they use Skype. We believe these preferences will force organizations to increase chain cooperation to exploit the potential of personalization and data, improve quality of service and achieve efficiency benefits. The competitive landscape of Traditional Telecom Operators is susceptible to change. New entrants are offering services via Internet directly to end-customers (‘over-the-top’ or OTT). By offering free content, these new entrants such as WhatsApp, Viber, Tango or Apple’s iMessage will eliminate the voice and text message revenue streams of Tradition Telecom Operators. In addition, Traditional Telecom Operators face multiple issues that influence their business models and revenue streams. They are losing revenue to new OTT entrants and through international pressure on roaming and terminating tariffs. On the other hand, heavy network and IT investments are required just to keep up. The Traditional Telecom Operators are facing important CAPEX-driven decisions: how much to invest in LTE? What if the market goes towards Wi-Fi using home networks? Overlooking this, the question arises of which strategic path Tradition Telecom Operators should take. Should they change their present position in the value chain? Or should they enter another value chain? As well as external market forces, customers are becoming more digitally equipped and connected in real-time to digital networks in which they generate, communicate and access enormous amounts of data. Data volumes – already increasing substantially – are going to explode. Data can create enormous value for the world economy, potentially driving innovation, productivity, efficiency and growth. At the same time, the data deluge presents privacy concerns that could stir a regulatory backlash, dampening the data economy and stifling innovation. How can organizations turn these huge amounts of data into valuable information? How can your organization cope with and commercially exploit this data while not harming customer privacy? Digitalization is a revolution, and every revolution offers opportunities. Are you ready and equipped with the right tools and strategy? Are you ‘up-to-data’? This white paper describes four future scenarios, attempting to facilitate the debate about the influence of changing market condition on the role of Traditional Telecom Operators. These scenarios are centered on the two axes of the scenario framework, which indicate the two most important trend clusters, the degree of market integration and the level of commercial use of data.

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2. The scenario framework
2.1 Scenario planning
This research is based on scenario planning. Scenario planning has evolved into a widely used business tool to cope with uncertainty and manage risks. It is used as a practical tool to create awareness for strategic shifts, to get a grip on turbulent business environments, to manage risks and to create new strategic options. 2.2.1 Changing customer behavior Technology developments and the digital revolution influence customer behavior. Customers become more digitally equipped, and regard technology as a given. They are less concerned about the distinction between mobile, digital and the Internet, and find real-time connection and content availability more important. Moreover, the point of service is moving closer to the end-customer. The customer is in control with respect to the selection of their communication and entertainment services. This, in combination with the increased number of connected personal devices offers a threat as well as an opportunity for Traditional Telecom Operators. On the one hand, Traditional Telecom Operators lose potential profit from the end-customer, since less communications services, or applications, are offered or bundled in their portfolio. On the other hand, it offers opportunities by offering new services which incorporate communication and entertainment services across networks and platforms eg. smart (mobile) billing solutions. In addition, the increasingly sophisticated consumers have access to multiple alternative products and services. This drives expectations higher, and makes customer loyalty more fickle. Business wisdom suggests that it costs more to win a new customer than to retain an existing one. Regardless of size or industry, the organization that is best at retaining customers will benefit from lower marketing costs, greater brand value, reduced customer sensitivity to price and improved financial results. In a market in which product and service offerings are very similar from a customer perspective, churn rates are high. Brand value and the creation of an optimal user and brand experience are therefore of paramount importance. This means organizations need to be agile and able to quickly incorporate the latest technology advances. Traditional Telecom Operators must make better use of data to personalize the user and brand experience and better tailor products and services to customer preferences and needs. 2.2.2 The digital revolution The digital revolution has only just begun. The amount of data generated by the digital society is increasing at an astonishing rate. To illustrate this phenomenon we have some telling numbers. Out of the world population of approximately 7 billion, 5.1 billion own a mobile phone. They produce 11 billion text messages on a daily basis. Moreover, the world’s population watches over 2.8 billion YouTube movies and performs more than 5 billion Google searches every day. The digital world and the growing amount of data are generating a new wave of opportunity for economic and social value creation. As the amount of valuable data increases, sources of innovation, business and national boundaries are being redrawn. Revenue streams are shifting towards companies that can successfully process and mine these vast amounts of data, and can turn data into information. But by commercially using the combination of different sources of personal data, these companies undermine customer confidence and trust. As the prominence of data increases and becomes the new ‘crude oil’ of the digital economy, more and more concerns will arise about the misuse of personal data. That may lead to government intervention to protect customer privacy, trust and security. 2.2.3 New entrants Traditional Telecom Operators are exposed to intense competition from new market entrants. Communication has traditionally been fragmented across internet services such as VOIP or email, and telecommunication services such as text messages and voice. New entrants are changing the competitive landscape by successfully offering ‘over-the-top’ internetbased telecommunication services directly to end-customers. This move towards online data services is leading to decreasing communication volumes via traditional telecommunication services. 2.2.4 Market dynamics Changing customer behavior, digitalization and new entrants are the forces that influence the traditional value chain of delivering content. Today’s customers want to access content

2.2 Trends
This White Paper identifies 26 industry-related trends and developments. Appendix A provides a complete list of these trends and developments. Using scenario planning, the most important and relevant trends are identified and combined. This leads to four different scenarios (see figure 1).
Figure 1: Scenario planning

Scenario 1

Scenario 2

Scenario 3

Scenario 4

Different subjects or themes are identified within the 26 trends, and causal relationships are identified within the themes. The identified themes are changing consumer behavior, the digital revolution, new entrants, (indirectly) regulation, market dynamics and business models. The first four themes are the external factors that influence the Traditional Telecom Operators’ business models and market dynamics. The individual themes and their relationships are explained below.

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wherever and whenever they want. The device, user interface or other technological requirements are irrelevant, just as how and by whom their wishes for content are fulfilled is irrelevant. As mentioned in paragraph 2.2.3, the OTT players deliver content directly to end-customers. This means they eliminate some of the links in the value chain, such as content aggregation and network selection. Market dynamics are therefore forcing Traditional Telecom Operators to re-evaluate their position in the value chain. To regain the power balance in the value chain, the Traditional Telecom Operators have two options. Option one is to change their business model. We will discuss this in more detail in the next paragraph. Option two is to intensify value chain cooperation by vertical integration or quasi-integration strategies. These quasi-integration strategies can, for example, be achieved by infrastructure sharing, network outsourcing or shared purchasing. These strategic choices could result in Traditional Telecom Operators making a split between their brand and pipe. This was described in our white paper of last year: ‘Rethinking the Traditional Telecom Operator’. Vertical integration will presumably lead to more governmental control or supervision to increase competition and protect customers. 2.2.5 Changing business models New entrants have had a negative influence on the financial cash flows of the Traditional Telecom Operators as formerly substantial sources of revenue streams have disappeared. WhatsApp is estimated to deliver upwards of 11 billion outbound messages a day, while Apple’s iMessage service is responsible for 2 billion messages a day1. At an average price of say 10 cents per SMS, these two OTT services alone are responsible for a revenue leakage of more than €1 billion per day from the traditional telecommunications ecosystem. In addition these OTT players use the infrastructure provided by the Traditional Telecom Operators, who are then faced with an increased cost structure without the revenue benefits.

As mentioned in paragraph 2.2.4, Traditional Telecom Operators should reconsider their business model. One example of such a change is by moving from a pay-per-use subscription model to a flat fee. The digital revolution also opens up sources of potential new revenue streams. These are shifting towards companies that can successfully process and mine vast amounts of data. The Traditional Telecom Operators need to ensure they are in the lead to take full advantage of the opportunities offered by the enormous amounts of data, and to profit from the fruits of successfully transforming data into information.

2.3 The framework
To constitute the framework, the 26 individual trends were first ranked by 38 international Atos Consulting telecom, media and technology experts on a 10 point scale in terms of business impact and level of uncertainty. Then, the average scores of the 26 trends and developments were calculated and plotted on a graph (see Appendix A). As described in paragraph 2.2, five themes were identified. The two most relevant and important of these were selected in an expert session to determine the value on the axes. These themes are the degree of market integration and the access to data, and they form the axes of the scenario analysis. This framework is shown in figure 2, and has been validated by industry experts. The following paragraphs explain the axes in detail.
Figure 2: The scenario framework

Integrated market

Scenario 1

Scenario 2

Regulated access to data

Open access to data

Scenario 3

Scenario 4

Fragmented market

1 “Carriers’ messaging nightmare gets worse as Apple’s iMessage growth pulls even with WhatsApp”: BGR.com, 24 January 2013. [http://bgr.com/2013/01/24)

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2.3.1 The Y axis: Degree of market integration The top of the Y axis represents an integrated market, while the bottom of the Y axis shows a fragmented market situation. Figure 3 shows the status quo.
Figure 3: The service delivery chain
Content generation
Creation Aggregation

data is commercially exploited. The left side of the X axis illustrates a world in which the use of data and the location where the data is stored is heavily regulated and controlled by (inter-) governmental agencies. Data can be classified as (semi-)structured or unstructured. The term structured data refers to data that is identifiable due to the fact that it is organized in a structure or database and can be understood, searched and processed by computers. Unstructured data can be defined as textual or non-textual data that is not captured in a database. Examples are social media communications such as Tweets or pictures uploaded to Facebook. The terminology ‘Big Data’ is relevant in this context. It describes the situation in which datasets are so large and complex that they are difficult or impossible to process in a database by traditional data processing applications. The future challenge is to analyze these huge volumes of structured and unstructured data to help companies turn data into information and make money out of it. A movement to the right along the X axis illustrates a world in which the amount of data has exploded, and the resulting information is used by organizations for commercial gain. This data explosion is driven mainly by the rapid development of online services, in particular those provided at no charge to users (other than their connectivity costs). Search, instant messaging, photo sharing, social networking etc. are the services that have driven internet use, enabling people to live more of their lives online, and enabling everybody to become a publisher. But these benefits have a hidden cost to the user – namely their privacy. The challenge with respect to data is what kind of information can be used? And when does it harm the privacy of individual customers’ well-being? Protecting customer privacy by governmental control and regulation is indicated by a movement to the left along the X axis. The privacy of communication is well protected in national legislation. However, there is still a big gap in EU and national legislation with respect to the protection of personal or territorial data. In other words, there is not yet any direct legislation on combining data sources to identify individuals or locations. On the left side of the X Axis this gap will be the center of debate, since mobile telecommunication services for example use location data.

Content distribution
Distribution Delivery

Content delivery
User Interface Access on Device

Content generator

Traditional Telco Operator

Hardware/so ware manufacturer

This high-level, somewhat simplified chain is a combination of the traditional value chains used in the content, telecom and hardware/software markets. This chain represents a set of activities performed sequentially by Content Generators, Traditional Telecom Operators and Hardware/Software Manufacturers to deliver content to customers. By content we mean everything that is distributed using Internet Protocol (IP). Examples are web objects (text, graphics, URLs), downloadable objects (media files, software, documents), applications (portals, apps), live media streams, on-demand media streams and/or social networks. An upward movement along the Y axis indicates intensified integration between the different organizations involved in the content, telecom and hardware/software markets. The most extreme form of upward movement is vertical integration. This is the process in which an organization takes control over more stages of the industry’s service delivery chain when bilateral trading is not beneficial. Alternatively there are quasi-integration strategies such as long-term contracts, joint ventures, strategic alliances, technology licenses, asset ownership and franchising. The upwards movement is caused by a blurring of the barriers between the content, telecom and hardware/software markets. Industrial developments in recent decades reinforce this movement. Historically, wired telecommunication networks for the transmission of voice and data have been geographically bounded and state-owned. The liberalization of foreign service markets, technology developments and the privatization of many telecommunications systems have, among other factors, contributed to the globalization of the telecommunications market. Competition and the fight for the end-customer’s share of wallet have intensified and forced organizations to move their boundaries and look for strategic (integrated) partners to strengthen or expand their market power or raise the barriers to entry. In addition, new entrants are changing market dynamics by offering non-traditional telecommunication services such as WhatsApp and Viber to end-customers by using the network capacity of Traditional Telecom Operators. On the other hand, a downward movement along the Y axis indicates market fragmentation. This is caused by international competition, rapid price declines and increased pressure on margins. These developments have forced organizations to re-evaluate their cost position. Organizations hope to improve their bottom-line performance by focusing more on what they do best, and outsourcing or ending activities that are not core to their business models. 2.3.2 The X axis – Access to data The X axis describes the level of control and protection of the collection and processing of personal data. The right side of the X axis indicates a situation in which the economic and social value of

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3. The scenarios
The previous chapter described the identified themes and the axes in detail. The degree of market integration and access to data constitute the scenario framework. This results in 4 scenarios, which are discussed in the following section. Each scenario starts with a brief summary of the market dynamics, after which the movement along the axes is described. Each scenario concludes with a description of the impact of this movement on the business model of the Tradition Telecom Operators.
Figure 4: The scenario framework Integrated market

3.1.1 Market integration The barriers between the media, telecommunication and hardware/software markets have disappeared, leading to a single global market for the delivery of content or entertainment services. The battle for market share, security, privacy and customer trust is fought by players who traditionally have their roots in content, telecommunication or hardware/software. These players execute most of the steps of the service delivery chain. The traditional service delivery chain players have intensified cooperation by vertical integration or quasi-integration strategies such as long-term contracts, joint ventures, technology licenses or asset ownership to cope with globalization. These ‘vertical chains’ will facilitate the delivery of end-to-end entertainment and communication services to customers, resulting in the creation of ‘media hubs’ to facilitate the delivery of entertainment and communication services. Differentiation will be based on short time to market and customer trust. 3.1.2 Regulated data access Customers are increasingly reluctant to have their data shared, distributed, processed or analyzed for the creation of personal content. Customers’ behavior is strongly focused on protecting and controlling their own data; they are averse to the collection of personal information. The use of personal information is the center of social debate, with many political parties pressing for strong regulation. Customers demand full control of the sharing and portability of personal information across channels. Regulatory authorities supervise the use of and access to the personal information held by organizations throughout the service delivery chain to protect citizens’ privacy. For operators, the combination of a strong brand with the perception of being a ‘trusted data broker’ is therefore vitally important in gaining customer trust and loyalty. 3.1.3 Impact on the traditional business model Globalization and digitalization have forced the content, telecommunications and hardware/software markets to integrate, thereby changing the market dynamics and relationships from supplier/buyer to competitors. The Traditional Telecom Operators are fighting for their privileged, inherited downstream position.

Scenario 1 Regulated access to data
The battle of the titans

Scenario 2
The digital currency

Scenario 3
Chinese walls

Scenario 4
Broker’s world

Open access to data

Fragmented market

3.1 Scenario 1: Battle of the titans
In this scenario, globalization has forced organizations to intensify cooperation throughout the service delivery chain by vertical integration and/or quasi-integration strategies. Players have become global and hold different positions in the service delivery chain. However, regulatory authorities have intervened to protect customer privacy, which has slowed innovation and dampened growth within the data economy.
Figure 5: Scenario 1

Battle of the titans
Content distribution
Distribution

1

Content generation
Creation

Content delivery
User Interface Access on Device

Content generator

Traditional Telecom operator

Hardware/ so ware manufacturer

Regulated domain

Regulated domain

Regulated domain

Customer

Content aggregation

Content delivery

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They believe they can only win this battle if they own the pipe, as the speed and direction of innovation of the pipe is as important as product innovation. This is one of the main reasons why all the Traditional Telecom Operators have invested in their own infrastructure (Fiber and LTE), instead of sharing a single national infrastructure. The Content Generators and the Hardware/Software Manufacturers believe the battle will be won as a result of scale. This belief has even resulted in the integration of Content Generation. They have the scale and strategy to innovate, and are pushing their products with huge marketing budgets. These players combine advanced customer analytics with trust in their brands. They only need the pipe as supporting infrastructure. As a result of this battle, customers are able to choose from many suppliers and multiple offerings. Former suppliers have transformed into rivals of their previous clients, further depressing prices and revenues of the Traditional Telecom Operators. The Traditional Telecom Operators with enough funding to ‘play’ this game will continue to exist. Another source of strength for the national incumbents is that they have earned the trust and loyalty of customers, thereby significantly increasing their brand value. In this scenario Traditional Telecom Operators, acting as ‘media hubs’, should be able to expand their business through the advantage of having their own bit pipe. Forward and backward integration are the most obvious instruments to do this. The trusted brand image of Traditional Telecom Operators is another supporting factor, since closeness to the customer requires higher involvement and engagement. Moreover, the revenue losses caused by OTT players can be partially compensated by competing directly with those players.

Figure 6: Scenario 2

The digital currency

2

Content generation
Creation Aggregation

Content distribution
Distribution Delivery

Content delivery
User Interface Access on Device

Content generators

Traditional Telco Operator

Hardware/so ware manufacturer

Customer

3.2.1 Market integration The traditional service delivery chain players have intensified their cooperation by vertical integration or quasi-integration strategies. This results in a competitive landscape with players who have their roots in content, telecommunication and hardware/software. In this scenario big conglomerates are in direct contact with end-customers, and occupy several positions in the service delivery chain. Just as in scenario 1, the interrelationship between the Content Generators, Traditional Telecom Operators and Hardware/Software Manufacturers has changed from buyers and/or suppliers to direct competitors. 3.2.2 Open data access Next to increasing number of people, increasing number of devices and sensors are also connected to digital networks. Together these are able to generate, communicate, share and access huge amounts of data. People have become data ambassadors. They don’t care that each step in the digital world leaves a footprint of bits and bytes, and accept the fact that the commercialization of data is the price they pay for the delivery of (free) services. In fact, they are not concerned about who owns, controls and uses their personal and non-personal information.

Organizations profit from their customers’ indifference to data and commercially exploit the opportunities offered by the personalization of data. Just imagine, for example, the result of a social media comment ‘I feel like a good action movie!’ resulting in a smart list of highly rated action movies delivered to the user’s television, together with personalized interactive advertisements. Or the convenience of a paid smartphone application that combines facial recognition with location and personal data. This opens the door to an enriched, augmented reality world in which scanning an individual results in a detailed personal profile. As well as that, this enriched data can also be sold to third parties. 3.2.3 Impact on the traditional business model Data drives innovation, productivity, efficiency and growth. The successful Traditional Telecom Operators in this scenario will be those that are able to (1) effectively incorporate and exploit the power and opportunities offered by data to its organization, (2) embed the latest data processing and mining techniques into their business processes; and (3) anticipate fast-changing customer demands and/or technology advances.

3.2 Scenario 2: The digital currency
In this scenario data is the new ‘crude oil’; the new currency in the digitalized and globalized world. Open access to data using data mining and analytics together with a high degree of global market integration has enormous economic potential and value for the ‘media hubs’.

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Horizontal regulated domain

Horizontal regulated domain

Horizontal regulated domain

Vertical regulated domains

Telco niche players

Vertical regulated domains

This scenario opens the opportunity to commercially export these business models to other markets. The power and capability to commercially analyze, process and exploit data are not limited to the telecommunication or content industry. The power, data intelligence and techniques to combine personal, locationbased, social, transactional and usage data are a tremendous source of economic value.

Hardware/ so ware niche players

Customer

3.3 Scenario 3: Chinese walls
In this scenario, specialized niche players have entered the market in each step of the service delivery chain. Globalization and the speed of (disruptive) innovation have intensified international competition. Governmental control and regulation have intensified. The physical location of data is important because of differing national regulations. Commercial exploitation of personal data has made customers reluctant to store and share their information. Security, trust and quality of service have become the key points of differentiation to create customer lock-in.  

3.3.1 Market fragmentation The service delivery chain in this scenario is strongly fragmented. Competition within each step of the chain is intense; however there is little competition between the different steps of the delivery chain. This has resulted in a competitive marketplace in which each organization has specialized its product and service portfolio towards a niche segment. Trust and security are the key differentiators in service delivery to end-customers. The customers are in control, which means they are in direct contact with the different parties offering specialized products and services. 3.3.2 Regulated data access Trusted brand image, network and data security are the key differentiators. Governmental agencies and supervisory authorities have become key market influencers since they are responsible for the protection and transmission of personal data. Organizations operating at network level – the distribution link of the service delivery chain – have completely detached their network infrastructure from network transmission. Organizations are prevented from scanning and/or prioritizing the information

carried by their networks. The basis of competition within the distribution link is technology in combination with quality of service and a trusted reputation. In this scenario, the location of data storage has become important. This is because rules and legislation for the use and protection of data differ between countries. The applicable jurisdiction depends on the physical location of the data warehouse. As a result, countries have urged commercial parties to clarify their policy in an attempt to encourage organizations and customers to store their data within their borders. 3.3.3 Impact on the traditional business model This scenario describes a world with stable market dynamics, in which competitors operate in a niche in each step of the service delivery chain. Intense governmental and regulatory control puts pressure on margins and discourages organizations from making big R&D investments to promote innovation. Privacy, trust, security and quality of service are the key differentiators.

Balancing power in the Telecom value chain - Is it up to data?

Horizontal regulated domain

However, these capabilities are not unique. Differentiation is based on the creation of a successful customer experience, thereby maximizing brand value. Customer experience is the sentiment a customer experiences throughout all the channels and points of contact with the organization. It is about how customers perceive the interaction with your company. Maximizing the customer experience requires creating a consistent, unified experience through all customers’ touch points with it; for example by using common designs, content assets and application code, standardized delivery processes and harmonized skills and roles. Above all, it requires extensive, uniform and real time knowledge of the customer.

Figure 7: Scenario 3

Chinese walls 3
Content distribution
Distribution Delivery

Content generation
Creation Aggregation

Content delivery
User Interface Access on Device

Content niche players

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The Traditional Telecom Operators should focus their activities on their core business, the bit pipe. International competition has forced network structures to become European or even global. Differentiation is about trust, data protection, storage, security and encryption. The market has become fragmented, and Traditional Telecom Operators need to find a niche using their trusted brand image to earn sufficient margins.

3.4 Scenario 4: Broker’s world
In this scenario, a fragmented international market together with the commercial potential of data has set the scene for new intermediaries or brokers who are responsible for the aggregation and distribution of content. The success of the brokers comes from the effective and fruitful combination of a wide range of products and services offered throughout the service delivery chain, bundled on a platform and made available to end-customers through a single point of contact/access. The delivery of personalized content with the commercial potential of data will be the driving force for a stable revenue stream.
Figure 8: Scenario 4

Brokers gain competitive advantage by using their unique assets: established and direct customer relationships, connectivity, a physical presence and extensive customer management competences. They are brokers in the exploitation of personal data availability and best-in-class solutions. They use this information to reduce the complexity of multiple providers, provide intelligent delivery of services, enable cost reductions, authenticate identities and offer increases in the speed and convenience of online services. To reduce capital costs, Traditional Telecom Operators have turned to network outsourcing or sharing. Direct network management or ownership is no longer a core part of their capabilities. Additionally, their product portfolios and innovation are sourced from external vendors; they themselves package solutions for specific market segments. The focus is on mass customization of products. Disruptive innovations occur frequently, with specialized niche players claiming market segments. Market instability means real-time intelligence and analytics enable agility and flexibility – key characteristics of a winning strategy. Governmental regulation supports and encourages a market in which subscriber information can be legally monetized. In this context individuals are active customers, seeking out and requesting services that make use of their personal data. This enriches their overall experience and supports the idea of a twosided business model: connecting providers to users. As trusted data repositories, Traditional Telecom Operators are active not only for their downstream customers by arranging best in class services and packages, but also for their upstream customers by offering businesses products such as micro-targeted advertising and access to an unprecedented amount of enriched customer data.

Broker’s world 4
Content generation
Creation Aggregation

Content distribution
Distribution Delivery

Content delivery
User Interface Access on Device

New entrance in traditional market: Brokers

Customer

3.4.1 Market fragmentation The strongly fragmented market has paralyzed customers by the sheer number of available content options. This paradox of choice in combination with open data access has numbed customers, creating room for new entrants with the ability to package all the required and personalized communication and entertainment services, facilitating customers’ choices by acting as a single point of contact.

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3.4.2 Open data access With social and economic activity fully migrated to digitally connected platforms, customers have become technology-savvy and connected through several personal devices. Their decisions are heavily influenced by the technological characteristics of their lives. The combination of structured data stored in cloud data centers and depots with unstructured information about online and geographical activity generates massive amounts of information, detailing how customers engage in specific activities, with whom and where. Using this data leads to highly enriched new services – not only in terms of customer expectations, but also in terms of predicting customers’ wants and needs. Players are able to take much of the responsibility for choice, allowing customers to select from fewer but ‘smarter’ products – those data enriched combinations that make most sense in their own lives. The need for customers to decide on every offer themselves becomes somewhat irrelevant as players use predictive analytics to eliminate unnecessary choices.

3.4.3 Impact on the traditional business model This is the scenario of data-enriched portfolio offerings. Real-time analytics, big data capacity and agility are the weapons of choice for service brokers battling for dominance. To be successful in this scenario, Traditional Telecom Operators should be able to fully exploit the commercial value of data by offering one-to-one personalized entertainment services. Competition and innovation are intense, but it is all about the right sourcing strategy. Micro one-to-one targeting, a flexible and agile organizational structure in combination with the right strategic partnership will ensure that your organization is fully up-to-date with leadingedge technology advances.

Data in combination with intensified chain cooperation drive innovation, productivity, efficiency and growth.

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4. What’s next
In Chapter 2 we described the relevant and important themes that constitute the scenario framework. In Chapter 3 the four scenarios were described in detail. This chapter discusses the early warning indicators and business implications of the most likely scenario: the Digital Currency. The market or power balance is shifting, current business models are becoming obsolete and need to be re-evaluated, and customer behavior is changing. More importantly, the amount of data is exploding and organizations need to get equipped with the right tools, strategies and mindsets to exploit the commercial potential of data. Under these conditions, Traditional Telecom Operators need to choose their direction. This intensified cooperation or integration will result in mammoth content organizations or ‘media hubs’. Customers will want one organization to be responsible for the delivery of all their personalized entertainment services. To reduce the margin pressure caused by new OTT entrants, Traditional Telecom Operators can better join or partner with these new entrants to claim a share of wallet and stay in direct contact with the end customer. In combination with maximizing the brand and customer experience, this will increase the economic and social wealth of data for Traditional Telecom Operators and their customers. However, the commercial use of data also has organizational implications. It requires Traditional Telecom Operators to be Agile, so they can quickly incorporate the latest technology advances and (processing/data mining) techniques. In addition, Traditional Telecom Operators should have a transparent policy with respect to the storage and use of commercial data. Customers should have the feeling that they are in control of which data is collected and used by organizations. Moreover, organizations need to have secure infrastructures and systems, and to position themselves as trusted: “we won’t compromise your personal data”.

Regulated versus open data access
If we look at the most likely movement along the X axis, we believe that data will become a more integral part of doing business. The success of sites such as Facebook, which make no secret of the way they make money, indicates an acceptance by customers of the commercial use of their personal data. Moreover, organizations are becoming more aware of the opportunities offered by personalization of content. For Traditional Telecom Operators this means they should base their business model on the commercial opportunities that result if they can process and mine the enormous amounts of data into enriched, structured data with unstructured data and turn this into information. The emergence of organizations that offer realtime analytics software, data mining services or profiling techniques supports the move to the right along the X axis. However, the scenario framework offered in this White Paper is not a static model. Different market players have all experienced different growth and development curves.

Market integration versus fragmentation
Historical market developments and recent trends support this shift. Until the 1980s, telecom operators in the EU, for example, were state-owned monopolies often run in conjunction with postal services. This started to change in the early 1980s, with privatization, separation in the ownership of telecom and postal services, and the introduction of limited competition in some countries. Strict regulation focused on lowering entry barriers, giving non-incumbents the chance to successfully enter the telecom market beyond national boundaries. Subsequently, increased M&A activity has reduced the number of telecom operators in most countries to gain economies of scale and efficiency advantages. Recent research even indicates that the first quarter of 2013 was the busiest in terms of M&A deals since the height of the dot-com bubble in 2000 for the technology, media and telecommunications sector2. These developments are indicators that support an upward market shift along the Y axis. To survive, Tradition Telecom Operators need to intensify market cooperation with a focus on risk- and cost sharing initiatives, and to obtain economies of scale.

Are you up to data?
The movements along the axes referred to above are all indicators of a fundamental shift in the media, telecommunications and hardware/ software sector. These changing market dynamics create organizational uncertainty about the impact on their business models and future strategies. When the market goes through a period of instability, scenario planning is a strong tool to manage uncertainty. It creates organizational awareness of strategic movements in a way that helps organizations to better anticipate market trends and developments. Atos Consulting believes that the external factors influencing the telecommunications, media and technology landscape all support the movement towards the Digital Currency. Now, it’s up to you to choose your direction. Is your organization equipped with the right tools and strategies to commercially use the opportunities offered by ‘Big Data’. Are you ready to intensify chain cooperation to reduce margin pressure? Are you ‘up-to-data’?

The digital currency
To be successful in scenario 2, the Digital Currency, Traditional Telecom Operators need to equip themselves with the power to process and mine enormous amounts of structured and unstructured data.

2 http://www.reuters.com/article/2013/02/08

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Balancing power in the Telecom value chain - Is it up to data?

About the authors
Berber Merx-Rienks is an Executive Business Consultant at Atos Consulting Theo Taute is a Senior Business Consultant at Atos Consulting Kevin Scott is a Senior Business Consultant at Atos Consulting

Acknowledgements
The writers like to thank all the industry experts and executives who offered their precious time to validate the framework and discuss the business impactions. Furthermore, they would like to thank Michel van Buitenen, Prof. Dr. Ard-Pieter de Man, Jaap van Mechelen, Sarah Muller, William Rice, Jeannette Pielanen, Marcel van de Pol, Judith Poppelaars, Reynier van Voorst, Harry Wijbenga and Sjoerd Wolters, who have been instrumental in the successful drafting and completion of this White Paper. Without their support and dedication this project would not have materialized.

Balancing power in the Telecom value chain - Is it up to data?

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Appendix A Research results
Table 1: Trends and rating

No. Trend 1 2 4 5 6 7 8 9 10 12 14 15 16 18 20 Network or infrastructure outsourcing or sharing Decline in voice revenue for traditional Telco’s Subscription based pay models are transferred to pay per use models Increase in data usage and data revenue Increase in micro-payments Changes in consumer behavior demand organization to be agile TV anywhere Connected TV Paradox of choice Broadcasting content is a commodity, differentiation is mainly possible on the basis of a brand High demand in user experience Consumer privacy and network security are becoming more important Increased use of context-based service Fixed Mobile Substitution (FMS) Platform-as-a-service (PaaS) technology

Probability 7.0 9.1 7.0 7.0 9.4 8.3 8.5 8.0 7.6 6.9 6.7 6.4 8.1 7.2 7.8 7.4 8.4 5.2 6.3 7.1 7.4 6.4 8.6 7.7 6.2 7.6

Impact 7.7 8.3 7.2 8.0 8.6 7.3 9.1 7.6 7.8 6.6 6.4 6.7 7.9 7.1 7.6 6.9 7.8 5.8 7.6 6.4 6.3 7.0 8.7 7.2 6.4 7.7

3 Increase in interactivity in traditional broadcasting industry

11 Communication is a commodity, differentiation is mainly possible on the basis of a brand 13 Social media is becoming more relevant in influencing consumer behavior

17 Increase role of business intelligence and data 19 Wireless communication will replace fixed 21 Growth in (mobile) gaming industry 22 Market consolidation 23 24 26 New entrants are changing the communication landscape Hardware and software integration Increased power of hardware providers in value chain

26 Increased role/span of control of governmental agencies and authorities

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Balancing power in the Telecom value chain - Is it up to data?

Figure 9: Trends plot

10,0

9,5 7 23 8,5 2 8,0 4 1 19 3 14 22 12 25 11 10 20 21 16 9 26 15 24 13 17 8 6

9,0

5

Impact
7,5

7,0

6,5

6,0 18 5,5 5,0 6,0 7,0 8,0 9,0

Probability

Balancing power in the Telecom value chain - Is it up to data?

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Appendix B Research methodology
What is scenario planning?
Change is the only certainty in the world. However, rapidly changing circumstances make the future uncertain and hence make it difficult for managers to determine their strategy. One thing is for sure: extrapolation of current trends is not a sound basis for strategy-making. But decision-making based on intuition and incomplete information is equally difficult. Scenario planning has been developed to help companies cope with uncertainties and to deal with changing trends and developments. The scenarios created sketch a set of plausible but clearly different future situations. Put differently, these scenarios are stories, describing possible futures that are affected by decisions made today. At any rate, scenarios are no prediction of the future. Rather, they are a tool for managing uncertainty. They are an instrument that helps to improve decision-making in different future business environments. An important part of the value of scenarios lies in the strategic discussions they generate. These deliver new insights as well as strategic options. The aim of scenario planning is not to identify one specific future, but to explore possible futures and to identify the mechanisms that drive the future in particular directions. Scenario planning helps managers to think out of the box in a structured way. It enables the discussion about the impact and uncertainty of business trends. As a result, if the described changes occur, managers will be better able to deal with them appropriately because they have already thought about the consequences of those changes.

Which methodology method did we use?
Conducting this research we have gone through the following phases: identification of trends and developments, prioritizing trends, constituting the scenario framework, validating the scenario framework, describing the scenarios and formulating strategic options3. In the first phases we involved either industry experts, telecom managers or Atos Consulting experts to provide input, question results and verify the findings. Identifying trends and developments The objective of the first phase was to gather trends and developments that are relevant for the telecom, media and technology sector. These trends and developments were primary gathered by desk research. The list was then validated and enhanced by industry experts of Atos Consulting. An overview of 26 of the most relevant trends and development is given in Chapter 2. Prioritizing trends This phase aimed to identify the most important trends in our list of 26. This was done by a questionnaire distributed among international Atos Consulting telecom, media and technology experts (n=38). The respondents had to rate the trends and developments on a 10-point scale according to their business impact and level of probability. Constituting the scenario framework All 26 trends and developments were ranked by 38 industry experts. These rankings were then plotted in a graph according to the highest level of uncertainty and greatest impact. Then the research team identified the most relevant trends to form the axes of the scenario analysis.

Validating the scenario framework In this step, the scenario framework was validated by 22 telecom, media and technology business managers by means of an interview or a group discussion. During the interview the research methodology was verified and the axes were validated for accuracy, actuality and relevance. Describing strategic options Each scenario was in detail by the Atos Consulting research team. Within the 26 individual trends 5 related themes were identified: changing customer behavior, the digital revolution, the threat of new entrants, market dynamics, the business model and regulation. Then the strategic implications of each scenario for the traditional telecom companies were identified and described.

3 Our research is based on the scenario planning methodology developed by Kees van der Heijden

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Balancing power in the Telecom value chain - Is it up to data?

Appendix C Glossary
‘Big Data’ This term has inspired a slew of definitions, many of which involve the concepts of massive volume, velocity and variety of information. For the purposes of this paper, ‘Big Data’ refers to massive datasets so large and complex it is difficult or impossible to store, process or analyse them by traditional data processing applications. Data are raw, unorganized facts that need to be processed to create business value. Data can be something simple, seemingly random and useless until organized. Everything that is distributed using Internet Protocol. Examples are web objects (text, graphics, URLs), downloadable objects (media files, software, documents), applications (portals, apps), live media stream, on-demand media stream and/or social networks. HBB-TV is an initiative aimed at harmonizing the broadcast and broadband delivery standards of content to end-consumers through connected TVs and set-top boxes. When data is processed, organized, structured or presented in a given context to make it useful, it is called information. Over-the-top (OTT) refers to services or content delivered to consumers over the Internet and bypassing a managed infrastructure. Recorded information about an identifiable individual that may include his or her (1) name, address, email address, phone number, (2) race, nationality, ethnicity, origin, color, religious or political beliefs or associations, (3) age, sex, sexual orientation, marital status, family status, (4) identifying number, code, symbol, (5) fingerprints, blood group, inherited characteristics, (6) healthcare history including information on physical/mental disability, (7) educational, financial, criminal, employment history, (8) others’ opinions about the individual, and (9) personal views except those about other individuals. The term structured data refers to data that are identifiable due to the fact that they are organized in a structure or database and thereby understandable, searchable and processable by computers. Unstructured data can be defined as textual or non-textual data that is not captured in a database, such as social media activity, customer behavior like Twitter posts or pictures uploaded to Facebook. Vertical integration is the process through which organizations at different stages of production in an industry merge when bilateral trading is not beneficial. Data

Content

HBB-TV

Information OTT

Personal Information

Structured data

Unstructured data

Vertical Integration

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About Atos Consulting
Atos Consulting helps you realize your futureproof efficiency, agility and improved topline. Our key to success is coupling the right strategy, process design and innovation with ICT. We are motivated to work with you and your staff to achieve this challenge. Our clients view us as leaders in commitment to implementation. We are Atos Consulting. Powering Progress. Atos Consulting is a leading international business and IT consultancy organisation that employs over 2,500 driven professional across the globe. Atos Consulting is the partner for customers looking for effective solutions in the field of returns, organisation, processes and control. It provides in-depth knowledge of sector-specific primary processes and secondary processes such as Finance, HRM and IT. If required, Atos Consulting also provides interim management or takes over processes. Atos Consulting is independent, provides expert advice and works closely together for and with customers. Atos Consulting is an independent part of Atos. Atos is an international information technology services company with annual 2011 pro forma revenue of EUR 8.5 billion and 74,000 employees in 48 countries. Serving a global client base, it delivers hi-tech transactional services, consulting and technology services, systems integration and managed services. With its deep technology expertise and industry knowledge, it works with clients across the following market sectors: Manufacturing, Retail, Services; Public, Health & Transports; Financial Services; Telecoms, Media & Technology; Energy & Utilities. Atos is focused on business technology that powers progress and helps organizations to create their firm of the future. It is the Worldwide Information Technology Partner for the Olympic and Paralympic Games and is quoted on the Paris Eurolist Market. Atos operates under the brands Atos, Atos Consulting & Technology Services, Atos Worldline and Atos Worldgrid.

Meer informatie: Atos Consulting Papendorpseweg 93 3528 BJ Utrecht +31 (0) 88 265 8888

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