ITU / BDT Workshop

Cairo, Egypt, 19 22 December 2005

Corporate Strategic Management

Lecture 6

Strategic choices

2 May, 2012

ITU/BDT/ HRD Corporate Strategic Management

Lecture 06

slide 1

Strategic choices
New entrant operators develop their business in the niches where profitability is high and barriers entry are low by using new technologies.
Incumbent operators make decisions and choices to protect their market share by anticipating the strategy of new operators to keep the loyalty of their customers. Any competitive advantage does not last for a long time in a contemporary turbulent telecommunication market. The customer bases of already established players in the telecommunication market are more and more challenged by emerging new operators with alternative technologies.
2 May, 2012

ITU/BDT/ HRD Corporate Strategic Management

Lecture 06

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Which strategy for the incumbent PSTN?

Alternative technologies with call-backs and VoIP.
The voice goes mobile: 70 % of cellular calls take place in buildings. Number of fixed lines is already declining in many countries. About 90 % of new subscribers are mobile in the best cases.
Accounting rates are going down.
Convergence of accounting rates to USA in US$ per minute, 1.6 1.4 Italy 1.2 France 1 UK 0.8 Germany 0.6 0.4 0.2 0

Revenue from voice on the fixed network is declining by 5% per year in average in Europe. Situation is worse in developing countries where revenue from international, which is declining, counted for about 60 % of total revenue.
2 May, 2012

ITU/BDT/ HRD Corporate Strategic Management

Lecture 06

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Two basic strategic choices for the fixed incumbent operator

Conservative and traditional To make political pressure for limiting competition To prevent service providers from selling VoIP To keep high tariffs on voice and leased circuits To be a follower about new services
Offensive and innovative To develop ADSL to take advantage of local loops To develop VoIP and Internet based services To anticipate migration of network to all IP-network To create partnerships with service providers
2 May, 2012

ITU/BDT/ HRD Corporate Strategic Management

Lecture 06

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No future for fixed networks without Internet-based services

Before Internet : data is mainly carried on a network designed for voice telephony. After Internet : the Voice-on-IP enables the voice to be carried on a network designed for the data with packet mode. Voice is only a service segment among many others more profitable. Internet based services are a good opportunity to compensate the loss of revenue on voice.

Transform the threat into opportunity : VoIP is a tool for aggressive tariff reduction in a competitive market.
2 May, 2012

ITU/BDT/ HRD Corporate Strategic Management

Lecture 06

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Options & Risks for VoIP

Option 1: Do nothing and Protect Action: Substantial reduction on IDD rates. Especial discounts and packaging Risk: Reduce revenue per user Lead to higher customer churn Loss of customer satisfaction and cause public anger Option 2: Action: Risk: Offer VoIP Service Start small and adopt new marketing approach Service cannibalization from one service to another.

2 May, 2012

ITU/BDT/ HRD Corporate Strategic Management

Lecture 06

slide 6

VoIP progressively legalised all around the world

Regulatory frameworks based on distinction between voice (as a basic service) and data (as value-added services) are irrelevant in a trend of convergent technology. General authorizations for telecommunications services should be technologically neutral. Terrible image for incumbent operators that try to block innovations, which create business opportunities and support for the national development, like VoIP.

2 May, 2012

ITU/BDT/ HRD Corporate Strategic Management

Lecture 06

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Substitute or complementary ?

Consumers willingness to pay A positive opinion clearly exists in favour of mobiles, They are handier, more user-friendly, can be lent, more reliable, can be used in a wider set of circumstances, and enhance social status. Negative prejudice for Fixed lines. They are considered less reliable, need guarantee deposit, take longer to obtain. Importance of fixed costs (connection and rental fees) for fixed lines. One acquired, a pre-paid mobile phone can accommodate very high variation in consumption. It is appropriate where income is never completely guaranteed or stable, even calls are slightly more expensive
2 May, 2012

ITU/BDT/ HRD Corporate Strategic Management

Lecture 06

slide 8

Which technology to use for the last mile?

Example of technico-economical study for the last mile
Average cost per customer

Wireline Wireless
trend

Wireless

trend Wireline cheaper Wireless cheaper

Average distance between subscriber and switch

2 May, 2012

ITU/BDT/ HRD Corporate Strategic Management

Lecture 06

slide 9

Migration into IP-networks

Incumbent fixed operators have to plan a strategy of migration for their networks into IP-based networks. Qualified personnel are rapidly deployed to new jobs in the IPenvironment.

Network capacity
IP-networks
PSTN
years
2 May, 2012

ITU/BDT/ HRD Corporate Strategic Management

Lecture 06

slide 10

Guidelines for commercial strategy

1. To analyze the current Marketing situation and to undertake market surveys. 2. To have a customer segmentation relevant for the new features of the new offered services. 3. To develop competitive advantages regarding the competition: differentiation of products, brand image. 4. To better serve customers than competitors (Quality of service / price, and variety of features). 5. To only offer services making a satisfying margin with a variety of packages (to focus on the profitable packages).

2 May, 2012

ITU/BDT/ HRD Corporate Strategic Management

Lecture 06

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Customer oriented management

The profitability depends on the revenues coming from customers, taking into account the expenses made for producing services. Planning process starts from the analysis of customers : who are they ? what services do they want, what can they afford ? what performances are they expecting ? what equipment, what IT, what staff do we need ? customer-oriented means that planning and management are: service-oriented rather than technology-oriented market-driven (specific needs = specific services) based on quality criteria defined with the customer point of view
2 May, 2012

ITU/BDT/ HRD Corporate Strategic Management

Lecture 06

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Business oriented planning

Operators need huge financial resources from the private investors to extend networks and to develop services. Investors only provide funds when projects are profitable and credible according to some pertinent financial indicators. Investors demand a business plan to investigate the assumptions and methods on which rely these financial indicators. They also demand a sound management control to guarantee a correct implementation of the presented plans. A permanent investigation on deviances between forecasts and actual data is necessary for revenue and profit indicators.
2 May, 2012

ITU/BDT/ HRD Corporate Strategic Management

Lecture 06

slide 13

Role of Marketing Plan in the Planning Process

Vision, Mission, Strategy

Marketing Plan
Catalogue of products and services Networks construction Revenues & operations Tariffs Customer care HR, IT

Business Plan, Action Plans, Budget

2 May, 2012

ITU/BDT/ HRD Corporate Strategic Management

Lecture 06

slide 14

Business plan in the planning process

Strategic objectives, Strategic guidelines
Marketing planning Network planning
Operations planning logistic Human resources & Administration

Strategy Development plans :

Future activities Future equipment Future services

Revenues Costs

COSTS

COSTS

COSTS

Business Plan
Evaluation : Is this strategy profitable ?
2 May, 2012

Financial Indicators

ITU/BDT/ HRD Corporate Strategic Management

Lecture 06

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Importance of business plans in a liberalised environment

Management is controlled by shareholders Management is under the pressure of financial results Investors only provide funds when projects are profitable and credible according to some pertinent financial indicators. Investors demand a business plan to investigate the assumptions and methods on which rely these financial indicators.
Shareholders Administration board CEO, executives Internal management
2 May, 2012

Strategic guidelines

Business plan & Regular reporting

ITU/BDT/ HRD Corporate Strategic Management

Lecture 06

slide 16

Incumbent operators should focus their efforts on the following priorities:

Market survey: To understand the needs and the wants of each customer segment for each service segment. Costing models: To understand the additional costs of each new feature or new service segment, in such a manner that the effective marginal profit should be known

To offer a flexible portfolio of services and to stop delivering unprofitable service segments, excepted those covered by USO (Universal Service Obligations) To implement reengineering in the production divisions to minimize the costs.
ITU/BDT/ HRD Corporate Strategic Management
Lecture 06 slide 17

2 May, 2012

Market Segments Customer categories (Retail)

ARPU = Average revenue per user ($ per month) 10,000 1,000 500 250 100 40
2 May, 2012

0.01%

Corporate

Medium business 0.2% Small business 1% SOHO 10% = small office, home office

Business

Households 89%
ITU/BDT/ HRD Corporate Strategic Management

Consumer
Lecture 06 slide 18

Market Segmentation
Categorize customers based on shared characteristics Demand forecasts and revenue forecasts are set up by market segment Penetration of services depends on segments Usage per line is different Trends are different Market studies are made for specific segments

Commercial action plans are related to precise segments

Different sales and after sales units are set up for the segments of customers that have different needs
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ITU/BDT/ HRD Corporate Strategic Management

Lecture 06

slide 19

DSL business Grow the market in 3 major waves

$
TV Game console PC

High Speed Internet access: increase ARPU from existing PC customer Business access: start with underserved SoHo segment with same infrastructure Residential entertainment: gaming/video/entertainment to everybody
Broadband Entertainment
Address new audiences

Business Access
Build on existing infrastructure

High Speed Internet Access

TIME
2 May, 2012

ITU/BDT/ HRD Corporate Strategic Management

Lecture 06

slide 20

France SME internet forecast

(in 000 of SMEs)
1 800 1 600 1 400 1 200 1 000 800 600 400 200 0 1999 2000 2001 2002 2003 2004 2005
Source: Morgan Stanley Dean Witter

other (Satellite,..) fixed wireless fiber/ ethernet cable modem DSL ISDN dialup

2 May, 2012

ITU/BDT/ HRD Corporate Strategic Management

Lecture 06

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DSL penetration, Arab Region, 2003

Bahrain Lebanon UAE Kuwait Qatar Jordan S. Arabia Sudan Tunisia Morocco Egypt

1.40% 1.00% 0.62% 0.53% 0.44% 0.09% 0.04% 0.03% 0.03% 0.01% 0.01%
0% 0% 0% 1% 1% 1% 1% 1% 2%

2 May, 2012

ITU/BDT/ HRD Corporate Strategic Management

Lecture 06

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