Telecommunications Trends:

Global Revolution

Geoff Johnson

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 The Future of Telecom Is…
 Wireless Fixed
– Voice will be 75% wireless in 2009. Wireless
 Asian-dominated 2004 2009
– Asia/Pacific will surpass Western Europe & North
America in mobile handsets sold by 2007. Mobile Connections
Asia/Pacific
– Asian service providers and suppliers lead.
EE + LA + Africa + ME
 Fashionable
WE + NA + Japan
– Mobile devices as lifestyle accessories.
– Consumer branding matters:
• Content, services, devices 2001 2005 2009
 IP-based, user-centric and media-rich
– Voice, unified communications integrate to
applications.
– Information, entertainment delivered on demand.
– User-defined communities/social networks
proliferate.
– Usability and user control matter.
Key Issues

1. What are the principal drivers of change in the

telecommunications industry?
2. How will evolving consumer and business
demands alter the entire industry's value chain?
3. How should vendors act on these changes and
influence the way IT departments use
enterprise networks?
Global Telecom Market: Large, Growing ...
and Consolidating
2006 Global Telecom Market Equipment Nokia
($ in Billions) Top 3
Motorola
Control
Equipment 21% 43%
Cisco
26%
Smaller
Vendors

$346 Top 10
Control
57%

$1,296 Services AT&T

NTT Group
Services Deutsche Top 5
Control
79% Telekom 28%
Verizon
56%
Smaller Vodafone
3.7% of Global GDP Vendors
Top 10
Control
Large vendors are 44%

getting larger.
 Global Telecom Market Forecasts: New
Services, New Geographies Drive Growth
Billions of Dollars Billions of Dollars
2,000 1,200
Total Telecom Market Mobile Terminals and Svcs.
1,600 1,000

800
1,200
Total Telecom Services 600
Fixed Network Svcs.
800
400
400 Carrier Infrastructure Enterprise Networks
200
Total Telecom Equipment
0 0
1999 2000 2002 2004 2006 2008 2010 1999 2000 2002 2004 2006 2008 2010

W.
Carrier Growth/Retention Strategies Europe 2010 Asia
 Low-income segments (prepaid) 22% 27%
 Expansion into new geographies
2006
 Mobile Text, Ring Tones, Games
 Bundling: Triple/Quadruple Play Cent./E.
 Media Services: Fixed and Mobile Europe
N. 5%
 Fixed/Mobile Convergence Lat.
America
 Whole-house Connectivity 28% Amer.
9%
 Enterprise Managed Services Mid. East
9%
 Telecom Services: Mobile and Broadband
Capture the Growth
Billions of Dollars Mobile Services
900  $658 billion in 2006
Mobile Services
800
 $807 billion in 2010
700
Total Fixed Network  6.1% CAGR
600 2005 through 2009
500  Expect >3 billion global
Fixed Voice
400 subscribers by 2009
300 Broadband Internet
200
Fixed Data  Asia/Pacific broadband
Internet and Public IP
100 added 12 million lines in
0
2005 (21% growth)
2000 2002 2004 2006 2008 2010  However, still less than
a 2% penetration rate
Fixed Voice Is in Decline
Internet Becomes the Core Network

2005 2010
WAN <20% of corporate locations >50% of corporate locations
connected by Internet connected by Internet

<2% of corporate voice traffic >20% of corporate voice traffic

Voice
<3% of carrier voice minutes >25% of carrier voice minutes

<5% of carrier traffic >40% of carrier traffic

Core
<10% of carriers use consolidated >40% of carriers use consolidated
Internet/private networks Internet/private networks
Key Technologies Will Affect the Industry
visibility Mobile Collaboration

Work-at-Home
Outsourcing Web Collaboration
On-Demand Contact
Open-Source IP Telephony
Center Infrastructure
Unified Communications
Presence-Based
Contact Routing
XML Appliances
Speech Recognition for Telephony and
Contact Center Applications
Session-Based
IP Telephony Middleware Call Center
Natural Language
Speech Recognition VoIP Toll Bypass
Contact Center VoiceXML
IP Contact Centers Enterprise Virtual Contact Centers
Ubiquitous Collaboration Peer-to-Peer
Hosted IP ERMS Presence
Speech-Enabled Web Telephony VoIP
IP Telephony
Voice Verification

Chat
Session Initiation Protocol
VoIP WLAN
Universal Queue Management

As of October 2006
Peak of
Technology Trough of Plateau of
Inflated Slope of Enlightenment
Trigger Disillusionment Productivity
Expectations
time
Years to mainstream adoption:
obsolete
less than 2 years 2 to 5 years 5 to 10 years more than 10 years before plateau
 Mobile Broadband —
As Disruptive as GSM to PSTN?
10 Mbps
Approximate HSUPA 2008 to 2009 WiMAX
broadband equivalent  Better
experience zone EV-DO Rel. A performance
2007 to 2008 than Wi-Fi
metro
WiMAX 2006 (est.)
1 Mbps  Applications
– DSL
Peak HSDPA HSDPA extension
Uplink 2006 2007 to – Developing
Speed 2008 markets
EDGE 2005 – Not a 3G
100 Kbps alternative
– Not a TV
EV-DO Rel. 0 alternative
WCDMA 2004 2006
 1st handsets
in 2008

10 Kbps
10 Kbps 100 Kbps 1 Mbps 10 Mbps
Peak Downlink Speed
Seven Billion Connected Devices by 2010
Billions of Devices, 2010
8.0
Peripherals
7.0 Consumer
Automotive 38% of
Network Devices electronics will
6.0 connected
drive the next
devices
5.0 Consumer Devices wave …
4.0
3.0 Cell Phones
2.0 Mobile Handsets
Nokia
1.0 Top 10
0.0 PCs control
88% Big 3
control
Plus billions more sporadically 67%
connected devices:
 Personal items  Sensors
 Tags  Toys … Samsung
 Home automation  … People? Motorola
and security
 Complex Device Proliferation Creates
New Opportunities
New Business Models
Aging Business Model
 Advertising
for Connected Home
The three screens TV
 Subscriptions
 Pay-per-view
(TV, phone and TV
PC) are blending Multimedia
distribution in home DVR Threat to
and multiplying.
Mobile
Media Gaming PC
Mobile is Media PC
Media Entertainment
approaching Phone
broadband
speeds. No
Universal
Device

Very-high-speed Mobile Computer

wired broadband Phone
is emerging.
Established Business Model
 Subscriptions
Pay by minute or bundles Laptop
 Prepaid

Threat to Smartphone Midget PC

PDA
 Voice Convergence or Substitution?
Software
Rules
Voice Over Fixed
Wi-Fi DSL or Operator
Home or Office Cable

Hand-Over MVNO or
4+ Major Reseller
FMC Models

Mobile
GSM Operator
or
Cellular Network CDMA

By 2010, 30% of Australian

homes will use only cellular or
Internet telephony.
FTTX Delivers Great Services, Potentially
Great Profits — and Redefines Broadband
 Japan has >30% FTTX penetration. By
2009, there will be 5 million U.S. FTTH

$90 per-month triple-play package

homes (only 4.1% of U.S. households). Gross Margin
Gross Margin
$39.23 (33%)
$30.10 (44%)
 FTTX equipment sales will surpass

(voice, video, Internet)

xDSL in 2007. Fibre CAPEX
 FTTH costs >US$9 per-month per- $9.13/month
household during the investment
horizon. Video COGS
 Current-generation services don't $17.50/month
require 100-Mbps symmetrical
bandwidth, but HDTV over broadband Internet COGS
does. $23.85/month
 Impact: 30% gross margins are
attainable only if the ARPU is >$90 or Voice COGS
service delivery costs drop dramatically. $9.42/month
CapEx = capital expenditure
COGS = cost of goods sold
 IPTV — Rapid Growth in the Coming Years
(Millions) IPTV Subscribers (Millions)
IPTV Revenue
20,000 $14,000
18,000
16,000 A/P-Japan 12,000
14,000 N. America 10,000
12,000 8,000
10,000 W. Europe
8,000 6,000 Revenue
Rest of World
6,000 4,000
4,000
2,000 2,000
0 0
2005 2007 2009 '05 '06 '07 '08 '09 '10

 Driven by high-speed access lines

Fixed Retail Revenue Split, 2010  Forecast 2010 worldwide:
– 49 million subscribers
– $13 billion in revenue
– 73% CAGR 2004-2010
Voice  User profiles vary by market:
Data – Usually targeted at high-income
Internet neighborhoods
IPTV  Won't compensate for decline in retail voice
 By 2010, <2% of total fixed retail revenue
from IPTV
 Business Trends: CIOs Redirect Attention
Toward Process Improvements, Cost Controls
Enabling better bus. processes 42%
Where Strategic use of IT and BI 38%
CIOs
Creating new products, svcs. 13%
See the
IT Role Cutting business costs 7%
Heading
0% 10 20 30 40
Percentage of responses

Security enhancement tools 4.5%

Where  Expected
Budgets
Mobile workforce applications 3.9%
spending increase
Are Collaboration technologies 3.6% in 2006
Going in Service-oriented architecture 3.2%  Worldwide CIO
2006
Workflow management 3.2% survey, 2006
Networking 3.0%  1,400 CIOs
Expected overall IT budget growth 2.7%
 Impact of Business Trends on the Market
LAN
LAN and telephony infrastructure
converge on IP over Ethernet.
WAN
Workers are more nomadic.
Quality of and access to
broadband Internet improves.
Applications
Directory, policy, security
and presence management are
integrated into applications.
 Voice application server via IPT;
wireless; presence and
messaging; security embedded
into LAN/WAN.
 Remote offices, SMBs adopt
public Internet as "good enough."
 Large enterprises rely on MPLS
for its flexibility.
 Networks optimize applications.
 Application integration with mobile
devices drives fixed/mobile
convergence in the enterprise.
 Consumer products will invade
enterprise.
 Communications Providers' Food Chain:
An Enterprise View and SWOT Analysis
Strength Weakness Opportunity Threat
Large-scale, Future as a bit- Wealthy Regulated
NSPs stable, reliable, pipe commodity, partner, deep returns, low
(Fixed, Mobile ubiquitous utility resources, profit, poor
Carriers) FTTH partnering skills

IT core skills, Volatile Industry Low margins,

ITSPs large facilities, contracts, skills consolidation, must scale for
(EDS, IBM, talent pool retention risk master new productivity
CSC) technology

Enterprise Huge "mind Gargantuan Incremental Nimble start-

Solutions share," well- innovation, advance into ups, best-of-
financed portfolio emerging breed
(MS, IBM, challenges markets
ERP)
Overwhelming Unrealistic Willing mass No business
Disrupters* consumer user dreams, markets, try channels,
(Google, acceptance expectations anything once diversity,
Yahoo) integration
 Impact on Equipment Providers: Asian Vendors
Grow; Global Equipment Providers Consolidate
2001-2005 Revenue Evolution Carrier Infrastructure
-50% 0% 50% 100% 150% 200%
Consolidation: 2005
Nokia 1. Alcatel/Lucent $26B
Motorola 2. Ericsson/Marconi $21B
Cisco
3. Nokia/Siemens $20B
Samsung
Siemens 4. Cisco/Scientific-Atlanta $31B*
NEC *Enterprise + carrier
Ericsson
Alcatel Watch List for Restructuring,
Nortel Spinoffs, JVs, Acquisitions:
LG  Nortel  Juniper
Lucent
 UTStarcom  ADC
Huawei
Avaya  Ciena  Convergys
Fujitsu 367%  Tellabs
UTStarcom
 Huawei (2008-2010 likely)
Juniper
ZTE
 Impact on Providers: The 'Grass Isn't
Always Greener' for Operators
Application
Mgmt.
8% CAGR

40%
Mobile
Cable 4.6% Telecom
Margin CAGR Services
(EBIT) 10% CAGR
Operation
Services
20% Fixed Telecom
Services 7.1% CAGR
1.7% CAGR
Process Mgmt.
8.9% CAGR
2 4 6 8 10 12
Relative Growth: CAGR (%) 2004-2009
Size of bubble = relative market size worldwide
Source: Gartner analysis, Datamonitor (cable), 2006
 Impact on Providers: The 'Grass Isn't
Always Greener' for Operators
Application
Mgmt.
8% CAGR

40%
Continuous
Mergers & Acquisitions Mobile
Cable 4.6% Telecom
Margin CAGR Services
(EBIT) 10% CAGR
Operation
Services
20% Fixed Telecom One-Stop Shop
Services 7.1% CAGR
Communications Provider
1.7% CAGR for Converged Services

Process Mgmt.
8.9% CAGR
2 4 6 8 10 12
Relative Growth: CAGR (%) 2004-2009
Size of bubble = relative market size worldwide
Source: Gartner analysis, Datamonitor (cable), 2006
Success Stories Around the Globe
 StarHub (Singapore): Successful quadruple play
– Saturated market (96% penetration)
– Two services: 12% less likely to churn
– Triple play: 28% less likely to churn
– Grew 3-service households by 32% in one year
– Data mining finds common subscribers in a household
and identifies up-sell/cross-sell opportunities
 PCCW (Hong Kong): Fast IPTV entrant Mobile/Wireless Kiosk,
– Giving away STBs and offering free service Kampala
– Converted 53% of customers to paid in first year
– ARPU rising, but still low
 Sprint/Cable Partners quadruple play: U.S.
A work in progress with a view to the future
– Home/mobile mailbox
– Remote DVR control
– Fixed/mobile bundle  MTN — Africa
 BT Global Services and HP: Info. & communication tech. – Loyalty programs
– Managed services for enterprise
– All IP network services plus IT for enterprises
Recommendations
 Use consumer-focused industry innovations to your
business's advantage.
 Understand the implications of convergence vs.
substitution.
 Identify business applications and process
improvements enabled by IP-based infrastructure.
 Communities and markets grow with good tools and
freedom, not by provider control.
 Learn from Asian providers and users.
 Look for IPTV to succeed in some markets, but telcos
may not be the winning providers.
 Watch for telephony and network service providers to
evolve into using software-based models.