Discussion Document Consulting

October 2019
Private and Confidential
 Telecom Industry –
the state of the
nation

Spice Discussion Document 2

The burning platform
Telcos are facing revenue stagnation while new competition is growing rapidly in both
infrastructure play and service portfolio

Core service revenue decline Increasing pace from new competitors

The global telecommunication industry continues to record an Moreover, competition from new competition is growing: new
increase in both connections and traffic but telco companies are communication services are eroding operators’ revenues, and
not growing at the same rate. The only consistent exception new service providers are increasing their investment in
has been Africa where revenues have grown. telecommunication solutions

Total telco ARPU percentage variation 2012-2018 Infrastructure play Service portfolio
WESTERN
EUROPE: -6%
Google Fiber Amazon Alexa
Google is developing its own fiber Alexa is an intelligent personal assistant
infrastructure in USA. Currently, providing real-time news and
Google fiber covers about 20 large integrating itself as a smart home
MIDDLE EAST: cities across different states, offering automation service. Amazon recently
-4% a 1000 Mbit/s connection and a TV introduced voice integration to Android,
service for seamless mobile integration
AMERICAs:
Facebook HotSpot WhatsApp
-2%
Facebook has reached an agreement WhatsApp (Facebook) has more than
with Netgear, which allows stores, 700 M users across the world. The
LATIN AMERICA: ASIA: small and medium-sized enterprises voice calling (introduced in 2015) is
who use the Netgear router to offer to already affecting mobile voice
-10% AFRICA: -1% their clients free access to the web. revenue decline

Source: Deloitte analysis 1%

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5 Big Shifts in the Telecom
The tectonic shifts
Today The Future underpinning the industry

Double digit Less than GDP Future telecom market growth will be
=< GDP growth
Growth Growth

In Majority of emerging market

100% Voice 100% Data telcos, they have stopped reporting
voice revenues

Emergence of digital only MVNO’s in

Physical Digital emerging markets (Yoodo in Malaysia)

Digital Native Disruption was on

Enterprise + Consumer only, most of recent moves
Consumer
Consumer are on enterprise

Most of the leading operators have

Bundled Converged moved beyond product bundling

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 Telco Business Models are Transforming at Pace
While Telcos globally are looking to reduce their dependence on their core business, they are transforming
towards new and differentiated business models along 3 archetypes
Integrated and converged models Digital transformation Ecosystem for the future
Strategy
Voice
Automation Connectivity

Sub-bullet
Dash
Bullet
Network Skills
Platforms

Platforms Data
Content Data Experience Portfolio

Partners

Airtel focused on execution excellence through a 3-tier strategy Verizon is implemented a 3-tier strategy that focuses on China Mobile is conducting research and cooperation in Smart
pertinent to go-to-market excellence, customer experience and leading through connectivity, overlaying that with new global Grid, Intelligent building, Intelligent transport, Real-time data
brilliant network experience. platforms around digital media and the IoT space platforms and processing, Intelligent spectrum access, Natural language
solutions and then developing new services and applications on processing, Micro programmable sensors, IoT identification,
Go-To-Market Customer Network these platforms that can generate incremental revenues. Environmental energy gathering, Social communication, etc.
Excellence Experience Experience
Superior in-store
experience to drive Future Communication
New smartphone and 4G
device share via data postpaid Solutions
Drive down cost per
penetration 3G/4G growth via Industry Vertical Service Smart Home and Family
MB Human
consumption and Care
Payments banks through
bundling Platforms
Enterprise Informationization Content and Value added
"frugal and digital" model Scale homes with Open marketing Connectivity Data Asset operations Info
high speed, low cost platform for
broadband application access at Connectivity Data Ability Openness Info Smart IoT
Telco Big Data Analytics
for superior customer Win DTH through
zero data charges;
Airtel Zero
Connectivity
Enterpri
experience innovation and Machine
se
digitization
Industry Informationization

Other examples: Other examples: Other examples:

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To Manage these Transitions, the Key Challenges for Telcos are
Push customer adoption of digital channels and outstanding customer
1 experience across sales and service channels

Adopt data-driven decision making and customer Digitally-enabled

2 Front-end
management

TELCO CHALLENGES 3 Drive postpaid promises and reasons to stay on the network

Move to digital-ready core telco products with accelerated

4 Digitally- enabled
speed to market
Back-End
5 Drive enterprise as a key market differentiator

6 Deploy a flexible on-demand network with APIs to third

party networks Software-defined
and secure network
7 Guarantee cybersecurity, data-management and privacy

8 Engage in ecosystems, business model innovation,

partnering and digital venturing
Enablers for telco
9 Implement Digital Strategy and Leadership 2.0 transformation

10 Transform Organization and Talent to be Digital ready

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 Some Learnings

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Learning #1: Cost structure of new data networks allow for aggression in offerings…

Network opex is ~ 60% of total costs…

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Learning #1: Challenger telcos are using it successfully to change market dynamics

32% 28%

Jio becomes # 1

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Learning #2 : Portfolio Play a must have and should be for real…
Not just in markets but in products, segments and services

... Portfolio Diagnosis

4
Key choices & high impact initiatives Prioritization and Roadmap

% of revenues in the quadrant

STOP VALUE
High DESTRUCTION
MAXIMIZE VALUE
SDB 1 5% 60% CREATION

SDB 2 2% SDB SDB

SDB 3 2%
22
42% SDB
18% 16
Attractiveness

2% 1% 5% 19 19
19 22

Asset Growth (%)

Market

1% 7% 16

SDB 22 22

22 SDB
16 19
2% 1% 5% SDB
16 19
5%
1% 16 22 16
9% 16
19 19
9%
22 SDB
1% 35% IMPROVE
WACC%
Low PROFITABILITY GROW ASSET BASE

Low BU Strength High ROIC (%)

© 2018 Deloitte Consulting Southeast Asia

Key Actions

Targets for opcos prioritized basis stage of business – cash

flows in LL quadrant, EBITDA % in LH quadrant, Revenue Opcos that could not give scale were divested, acceleration
market share in HL quadrant and absolute Revenue in HH in growth markets
quadrant

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Source: Deloitte case findings, AFG ltd., client interviews, Advantaged portfolio framework
Learning #3: Hyperlocal investments in wireless and wireline coverage are crucial

Cumulative Cash Margin Compared to Cumulative Land Area Data Economics

100%
Combining Wi-Fi and Small cells can improve
90% cost efficiency, and EBITDA margins (%)

80% 95% 95%

Cumulative Cash Margin

generated generate
70% by 40% d by 76% Voice / SMS Data
EBITDA EBITDA
60%

50%
80% X vs. ¼X
80% generate
40% generate d by 35%
d by 8%
30%

20% Wireless Wireline

10%
+ = 71%
lower per
0% Small Wi-Fi
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
bit TCO
Cumulative Land area
cell

Most wireless carriers generate almost 80% of their cash flow from only 8% of the territory they serve. This is a significant
contrast to a wireline carrier for which almost 35% of their footprint generate 80% of their cash flow

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Learning #4 : Size still matters…depends on how you use it
The nature of the cloud effect changes…

…the way you organize your digital …allow you to obtain the assets that
assets inside… drive stickiness and ARPU…

One billing layer Platforms for device, 1.2 mn retailers

for all services Lenders & delivery On one app

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 Learning #5 : Simplicity of products allowed to have higher ARPU
Shift towards simplicity...
Recharge evolution post Reliance Jio
One recharge = One need One recharge = All needs
Multiple products (voice, data, vas) necessitates
Combined packs with long validity
multiple recharges of shorter validity
Data booster
Top-up Data Unlimited recharge with to manage
with TT pack daily data and free voice FUP
Typical
Reliance Jio
recharge
launch
cycle
Tariff Further Pre 2016 Post 2016 • Per day data
Minimum
pack Top-up • Unlimited free voice
validity
with tariff • Voice and data with
packs of
Typically validity One tariff fits all same validity
28 days
bought Customer buys tariff across • No call rate worries
together multiple variants available • Product simplification
basis preferred leg of
calling – Onnet, Offnet,
Roaming, STD, Local

Recharges typically done with small MRPs Recharges done with higher MRPs

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Learning #6: Convergence has evolved from simple fixed-mobile product bundles
Competitive Mobile internet prices presages Operators are evolving along
the rise of the “mobile-only data user” the phases of convergence

0.64
0.56 0.57 • Maximize market share
First year price USD/GB

Phase 1 –
0.43 • Reduce churn • Revenue uplift
Product (cross/upsell)
0.32 0.34 Convergence • Most Telco’s have
0.29 passed this stage

Magenta

• Unify operational
Country X Fiber plans Country X Wireless plans
processes
Phase 2 –
Operational • Synergize GTM, • Retention
Convergence provisioning, cust. care • Simplification
% of Global Population Accessing Internet through Mobile only • Some telco’s are at
this stage
2017 2022

46% 60% • Network

• Integrate fixed and
Phase 3 – mobile infrastructure synergies and
Network readiness for
• Unify tech platforms future
Convergence
FTTH = $ 1,500 – 1,800 / home connect • Few telco’s have • Traffic offload
achieved this One fiber
5G = $ 200 – 300 / Last mile

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Learning # 7: Reasons to Stay on postpaid – Postpaid Promise
Operators are driving exclusivity in service, convenience and integrated offerings

Unlimited Data / Roaming Packs
Operators are offering
unlimited data at monthly
fixed price. Also providing
unlimited voice & data
international roaming packs for
postpaid
Pay for data, get voice free
Operators are bundling
services such as free voice and
text services on purchase of
data packs
Zero Rating
Accessing of selected mobile content
without charge (example: Facebook
application)
Convergence
Highly converged products
such as pre-packed bundles
containing TV, free live stream
mobile, Wi-Fi and landline
services are offered at a fixed
monthly price

Family Sharing Exclusive Deals- Handset and

Plans which could be shared
across multiple devices
amongst family/friends
QoS Differentiation
Service differentiation
through plan specific levers
example: on demand boosts
real time data tracking,
auto debit facility etc.
non telco freebies
Operators are providing access
to coupons / vouchers,
handset bundle and protection
deals at little or no cost going
beyond telecom freebies in
Postpaid value proposition

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Learning # 7: Emerging Models for Postpaid Cost Transformation
Radical simplification of cost structures

Disrupt Postpaid Model Attack need to call Improve Retail ROI

Drive to simplify journeys – LEAN Retail as a Branding and Sales channel

Launch subscription based model
(shift from mode of payment to subscriber value) based categorisation than service channel

Proactive Company
Cognitive Care Simplify
Eliminate notifications stores as
Eliminate Model franchisee
Collections & and alerts marketing &
Credit Risk model
Recovery branding cost

Rationalize Launch Cost linked to

‘End to end’ premium call experience performance
journey on center stores
Reduced
web/app
billing queries
Franchisee
Pay for
partner
Shift to service
BOT based Drive self help consolidation
Cognitive models
exception Care/ BOTs/ behavior
management Self care Shift
Budget model Franchisee to
for low self service
In-house complexity kiosks
escalation than low ARPU
resolution

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Learning #8 : Customer experience and profitability can go hand in hand
Transform the organization into an ambidextrous one
…shops…
• Move away from mobile, broadband, TV, wholesale etc to a
simplified structure that rolled up into B 2 C and B 2 B
• Drive uniform customer experience across multiple
touchpoints…develop customer one view…across multiple
products
• Cross bundling – get extra data on broadband for
connecting postpaid and DTH connection
Single bill, Single sign on,
single payment Across all services
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…factories…
• Primarily tasked with lowering the cost of production
(Rs/min or Rs/GB) and having standardized, error free
production
• Fiber factory, tower factory, undersea factory, data center, IT
factories, network factories…
• Shared services for finance, HR, legal, regulatory and SCM
• Center of excellence for analytics, digital, platforms,
innovation, planning & architecture
• Number of employees in 2013 ~ 13,000
• Number of employees in exit 2019 ~ 7,000
YoY Opex movement
17
 Learning # 9: Among all disruptive tech, machine learning is likely to drive highest
impact
Artificial Machine Digital Cognitive
Blockchain RPA Nanotechnology AR / VR
Intelligence Learning Currency Computing

Processing power has gone up 1,000x, for cheaper… …as Telco’s derive maximum value from Machine Learning

Million operations per second per watt

1,400

1,200

1,000

800

600

400

200

NVIDIA NVIDIA NVIDIA Google

Tesla K40 P40 Volta TPU1
(28nm) (16nm) (12nm) (28nm)

Top 3 observed telecom Use Cases for Machine Learning / AI

Alarm & Fault Management Product Churn Reduction Customer Billing Management
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 Learning #10: Balanced push on Transforming core and scaling edges will be critical

Deal Value % $ in Core

Buyer Telecom Target ($) M&A
Acquisition Acquisition for
Softbank Sprint Corporation (72.08% Stake) 35,544
for Scale Expansion into
Softbank Ymobile Corporation 4,436
in Core Adjacencies
Softbank OneWeb Limited 1,200
Total 41,180 35%

Telefonica Verizon Softbank

10 year EV
growth NA NA 4.7% 9.0% 6.7% 5.1% 4.5% 5.5% 1.7% 23.8%

No. Acquisitions 11-14 22-23 37-38 30-33 22-28 20-23 3 12-13 45-51 89-99

% Telecom
Acquisition 95-100% 60-64% 55-57% 51-57% 32-41% 30-35% 33% (1) 8-9% 8-9% 8-9%

Deal Value % $ in Core

Buyer Telecom Target ($) M&A
Singtel Turn Inc. 310
Singtel Bharti Telecom Limited (1.73% Stake) 413
Singtel Bharti Telecom Limited (7.39% Stake) 658
Source: Thomson Reuters, Bloomberg, annual reports, press releases, Monitor Deloitte analysis Singtel Intouch Holdings (21% Stake) 1,183
Spice Discussion Document Total 2,564 58% 19
Learning #10: No single configuration for scaling Edges is observed

Choice Configuration Challenges Examples

Choice 1 • B cannot scale

Digital • A remains unchanged
From exploring to
A B
Legacy
business Business • A protects against cannibalization
experimenting (New)
• B loses sponsorship
• B loses talent

Choice 2 Digital • B has funding

B Business • A has resources
From experimenting
Legacy
business A Unit / CoE
• A feels short term pressure
to accelerating • B drives long term vision
• Both drive duplicate efforts

• Digital Charter (combine A and B)

Choice 3
• Governance and decision making
From accelerating A and B • Multi-speed innovation
• Framing and choice-making
to being digital
• Fundamental shift in leader mindset

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 Future operating
model

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Telco 2030 operating model
We see four plausible scenarios along the two dimensions of ‘ownership of customer
relationship’ and ‘dominance of technology layer’ that define the telco of the future
Telcos retain the primary
customer relationship but
transfer the technology
entirely to vendors in
“The virtual telco”
Technology
competence fully
with vendors
In this scenario, when
technology vendors
overtake the telcos in the
tech layer, telco players are
driven out of both domains
Source: Deloitte Telco 2030
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Customer relationship remains with telco
In “The engineer strikes
back” telco operators
master both customer
relationships
and the technology layer
Ownership of customer relationship
The virtual telco The engineer
strikes back
Technology
Dominance of the technology layer competence returns
to telco players
In this scenario, “The new
A vendor brand The new
wholesale truth” telcos have
wholesale truth
been driven out of the
customer domain but remain
masters of the technology
Telco fully displaced from customer relationship
22
Telco 2030 operating model
‘The engineer strikes back‘ provides a holistic scenario in strategic positioning, with the ability to
derive challenger and attacker strategies from these elements

Customer relationship remains with telco

The virtual telco Provide the best client experience

Carry the best services and assistance
experiences for clients
Positioning on services that reinforce the
width of the client relationship
(content, bank, AI, e-commerce…)
through operational excellence,
network infrastructure and long
term technologies. Consolidation
& mutualized investments keep
bargaining power against GAFAs3
and vendors

Technology Separate the network and service activities Technology

competence fully to manage heterogeneous dynamics competence returns
with vendors Operation excellence: automate to telco players
processes and transform

Invest in network infrastructure and

Positioning as a Hub of networks (bonding,
long term technologies (fiber, 5G…) in a
SDN, …) and heterogeneous service actors
mutualized way

A vendor brand The new wholesale truth

Telco fully displaced from customer relationship

Source: Deloitte Telco 2030; Note: 1) Market share is gradually reducing, 2) ~10% of the 2025 estimate of 27BN IoT connections, 3) GAFA: Google, Apple, Facebook, Amazon
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Future operating ecosystem framework
The future operating model is based on a customer-centric ecosystem framework – operation,
technology and organization support core & new businesses

Framework Key aspects

1 • Customer-centric strategy and experience will foster uncompromised focus on

the segment-of-one and facilitate the way they experience interaction with the
company, seamlessly across digital channels

3 2 • E2E processes mapped along the customer lifecycle evolve across channels
promoting personalization and facilitated by robotics, automation and AI

1 3 • Right speed IT is crucial to leverage XaaS technologies and implement agile

Customer and fast BSS while a virtualized network bringing business, IT and network
together across real-time steered IT infrastructure
experience
2
4 • Agile organizational structures adapt to new customer-centric processes,
eliminating silos through agile working models and attracting high-skilled and
passionate talent
4
Flexible 5 • Organizations become the orchestrator of different innovation options and
organization strategies in a test and learn approach

5 Innovation • Partnerships and alliances evolve around joint product offerings and
6
technology operations to enable an open network of collaboration and mutual
value add
6 Partnerships & alliances
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