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ITU / BDT workshop Cairo-Egypt, 25-28 June 2007 Competencies for Competitiveness Lecture 1

ITU / BDT workshop Cairo-Egypt, 25-28 June 2007 Competencies for Competitiveness Lecture 1 The changing market environment. The changing market environment. Major changes in the Service Providers' revenue structure Pricing policies, Interconnection and Peering

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ITU / BDT workshop Cairo-Egypt, 25-28 June 2007 Competencies for Competitiveness Lecture 1

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  1. ITU / BDT workshop Cairo-Egypt, 25-28 June 2007 Competencies for Competitiveness Lecture 1 The changing market environment

  2. The changing market environment • Major changes in the Service Providers' revenue structure • Pricing policies, Interconnection and Peering • New actors and new business models • Development of Broadband accesses and IP based services • Conclusion : Impact on Human Resources ITU / BDT / HRD HR development Program

  3. Telecommunications is the fastest changing industry • Regulation, privatization and competition are key drivers • Mobile is becoming a substitute to the fixed-line telephone • Data is overtaking voice • Internet business model has changed the Industry • For end users, scarcity is being replaced by abundance • Telecom demand is driven by need and affordability • Networks are gradually becoming multimedia • Inefficient operators are driven out of business ITU / BDT / HRD HR development Program

  4. Changes in revenue structure • Changes impact both developing and developed countries with different consequences • Examples • End user revenue market in a developed country • Overall market view in a developing market in a highly competitive environment : Lithuania • An instructive case study analysis : Telecom Poland (TP Group) revenue structure analysis based on the last 5 years Annual Reports + number of employees • How does it compare with a telecom operator in Middle East (Jordan Telecom) • Impact on operator strategies Note on case studies : All figures are directly derived from published market figures by Telecom Regulation Authorities and from TP and JT Annual Reports (chosen for case exemplarity and company reactivity on market changes) ITU / BDT / HRD HR development Program

  5. End user revenue marketin developed countries Electronic communication end user market in France Mobile services including SMS, VAS, MMS, 3G Internet and multimedia mobile services Fixed telephony including PSTNand invoiced Telephony over IP (excluding ToIP part of multi-play bundles) Internet services including fixed Internet access, VAS, IP TV and multi-play services Change in accounting Source ARCEP, France ITU / BDT / HRD HR development Program

  6. Telephony becomes IPin developed countries Part of IP in fixed telephony services originated traffic (France) • Delivered as a value added service on top of broadband access, IP telephony is a qualified substitute to traditional telephone services Source ARCEP Fixed IP telephony services offered by High Speed Internet access, providers excluding VoIP services on best effort Internet ITU / BDT / HRD HR development Program

  7. 50% 100% 36% 90% 30% 80% 34% 33% 22% 10% 70% 35% 53% 60% 50% 8% 8% 30% 42% 40% 30% 2500 -1% 20% 2000 -18% -22% -10% -4% 10% 1500 0% 2005 2001 2002 2003 2004 1000 500 0 2001 2002 2003 2004 2005 Overall communication market revenues in Lithuania Market overall revenues (in million LTL)and growth over the preceding year in % Revenue distribution in % 1% 3% 5% 9% 11% 22% 34% 48% 50% 18% Leased lines + Data Internet access services Interconnection Mobile communications Fixed telephone transmission services communications Source : Communication Regulatory Autority, Republic of Lithuania ITU / BDT / HRD HR development Program

  8. Study case : Telecom PolandA rather stable business (at first glance) TP Group results 2002-2006 20 15 Billion PLN 10 5 0 2002 2003 2004 2005 2006 Net profit Operating profit Revenue 1 PLN = 3.9 € Source : TP group annual reports and presentations of financial results ITU / BDT / HRD HR development Program

  9. and employment 60 000 45 000 Employees 30 000 15 000 0 Stable and profitable, but … TP Group results 2002-2006 20 15 Billion PLN 10 5 0 2002 2003 2004 2005 2006 Net profit Operating profit Revenue Source : TP group annual reports and presentations of financial results ITU / BDT / HRD HR development Program

  10. … with a deep and fast change in business and revenue structure TP Revenue distribution 2002-2006 20 Other 15 Data services Mobile services 10 Billion PLN Interconnection to Mobile Interconnection to Fixed* 5 Fixed Telephony services 0 2002 2003 2004 2005 2006 * Includes incoming from International ITU / BDT / HRD HR development Program

  11. Operating profit Employee related expenses TP mobile Payment to other operators TP Fixed Other operating expenses Depreciation & Amortization TP group operating results TP operating results 20 15 Billion PLN 10 5 0 2002 2003 2004 2005 2006 TP fixed and mobile contribution to operating profit 4,5 4 3,5 3 Billion PLN 2,5 2 1,5 1 0,5 0 2002 2003 2004 2005 ITU / BDT / HRD HR development Program

  12. Jordan Telecom consolidated revenues by segment 400 350 data and Internet services 300 250 mobile services Million JD 200 150 Fixed line voice 100 50 0 2001 2002 2003 2004 2005 Revenue structure not changing as fast in Middle East ? • Fixed Telephony remains main revenue and do not decrease as much as in the world market • New licensing regime launched in 2005 not efffective yet so that the fast growing international incoming and outgoing mobile was still a monopoly of the fixed segment of Jordan Telecom • Internet and Data services revenue share still very low (2.2% of JT group compared to 11.4% for TP group in 2005) 1 JD = 0.74 € ITU / BDT / HRD HR development Program

  13. JT group EBITDA contribution by segment 600 employees 180 6000 500 160 Data (Wanadoo+ e-Dimension) 5000 140 400 120 4000 100 300 Mobile (Mobilecom) 3000 80 60 200 2000 40 Fixed voice(Jordan Telecom) 20 1000 100 0 0 -20 0 2001 2002 2003 2004 2005 High profitability recovered but… • The price reductions in fixed voice services are largely compensated by cost reductions and the growth of highly profitable international voice traffic (monopoly effect till 2005) • But … VoIP and international voice competition not yet in place … JT group profitability Million JD 2001 2002 2003 2004 2005 revenue EBITDA Net profit ITU / BDT / HRD HR development Program

  14. More on on Service Providers Strategic Planning, P&L and change in revenues structure in further TRAINING MODULES of ITU-D/HRD TP Revenues from Interconnection TP Fixed Telephony Revenues 3500 14 3000 12 2500 10 2000 8 Million PLN Billion PLN 1500 6 1000 4 500 2 0 0 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 Interconnection to Mobile Interconnection to Fixed Incoming International What is changing on fixed voice revenues when competition is here ? Interconnection Voice traffic Subscriptions + connection fees ITU / BDT / HRD HR development Program

  15. Impact of Economical ChangeLooking for margins and new revenues New priorities • Operation cost reduction • Broadband accesses and IP networking • Becoming customer centric • Need to innovate and be first on market • Need to invest on IT, Service platforms, OSS, Business and Service Management • Re-engineering • Revenue decline on voice traffic (e.g. from 80% of fixed incumbent revenues in 1995 to 20% in 2006 -Due to VoIP pricing model and competition) • Incumbent operators to lose margin and renounce to use voice traffic revenues to subsidize Access costs • Interconnection still growing • but Bill and Keep and Peer-to-Peer trends will make it decline later on • Wireless communication is strongly growing in traffic and penetration • but will be impacted by revenue decline on voice traffic • Broadband access and services are strongly growing • With high competition in service offering ITU / BDT / HRD HR development Program

  16. How do they see the futureThe example of TP Source : Q4/2006 financial result presentation by TP group, Poland ITU / BDT / HRD HR development Program

  17. The changing market environment • Major changes in the Service Providers' revenue structure • Pricing policies, Interconnection and Peering • New actors and new business models • Development of Broadband accesses and IP based services • Impact on Human Resources ITU / BDT / HRD HR development Program

  18. Voice pricing is impacted bythe disruptive Internet pricing model • « Bill and Keep » and peer to peer agreement is the basis of Internet pricing model • Currently applies to flat rates Internet access and for unlimited Telephony over broadband for local or national calls to fixed telephone lines • Usage based pricing used to be the traditional model for voice services • CPP : Calling Party Pays • CNP : Calling Network Pays (Interconnection fees) • RPP : Receiving Party Pays (applies to mobile in the US) • Volume or Call duration based pricing (even when it is a bulk price for x hours of usage as in mobile) • Development of Mobile networks worldwide (outside the US) benefited from CPP, CNP models ITU / BDT / HRD HR development Program

  19. Value is in the service to the end user Price Volume Price / Volume 1 SMS message 0.10 € (1) 150 Bytes 667 € per MB 3 minute GSM call 0.50 € (2) 1.5 MBytes 0.333 € per MB 100 picture mails 1.00 € (3) 30 MBytes 0.033 € per MB 1 hour video 0.33 € (4) 300 MBytes 0.001 € per MB Nevertheless the free Internet model does not apply everywhere (1) assuming a prepaid mobile phone tariff of 0.10 € per SMS (2) assuming a mobile phone subscription of 4 hours/month at 40 € (3) assuming a 56.6 Kbits/s dial-in Internet subscription of 8 € /month, connected for 10 hours per month (4) Transport only, assuming an ADSL subscription of unlimited connection at 15 €/month for a user who connects for about 90 minutes per day with an average downstream debit of 640 Kbits/second, ITU / BDT / HRD HR development Program

  20. The future of voice service pricing • Unlimited flat rate already almost generalized for voice (VoIP) and Internet connectivity on fixed networks • The transition to a flat rate is facilitated by the huge capacity made available on networks by recent technology improvements and by the aggressive drive of some players seeking to build market share. • Trend towards flat-rate charging expected to continue at a moderate pace and include • national/local voice services, internet (broadband) access and usage • International to all networks where Bill and Keep or RPP prevails • Internet access and basic multimedia/IPTV services • Billing on duration for international calls (several different international termination rates) and on duration or by event for new services or value added voice and multimedia services likely to continue • Billing by minutes and interconnection (CNP) fees should continue when Peer to Peer may not apply : Case of developing countries for fixed and more specially for calls to mobile for which Interconnection plays a strong role in the prepaid model of business ITU / BDT / HRD HR development Program

  21. The changing market environment • Major changes in the Service Providers' revenue structure • Pricing policies, Interconnection and Peering • New actors and new business models • Development of Broadband accesses and IP based services • Impact on Human Resources ITU / BDT / HRD HR development Program

  22. New services are booming, each with different actors and different revenue model • I can make a phone call on my PC • I can receive mails on my mobile • I can watch TV on my PC • I can connect my old telephone set on ADSL modem • I can connect my TV on ADSL modem instead of an antenna, a cable or a dish • I hear music and watch movies on my home cinema, my PC or even on my mobile • I can pay my the parking of my car with my mobile • …. Technological evolution, Economical revolutionNew business models, multiple interaction ITU / BDT / HRD HR development Program

  23. Communication services are not any more the private domain of telecom operators Service Provider (open) Service Provider (Wholesaler) Interaction applications wholesales of services End User Retailer subscriber data native applications Multiservice subscription wholesales of network resources or revenue sharing access Access Provider Connectivity Provider Connectivity Provider ITU / BDT / HRD HR development Program

  24. End User Retailer But Telecom Operators may still keep a key role among other actors Service Provider (open) Service Provider (Wholesaler) Revenue flow application usage Networkusage Enabling B2C application brokering network usage Network Operator’s core business network subscription package subscription network usage application usage Connectivity Provider Access Provider Connectivity Provider Roaming Interconnection ITU / BDT / HRD HR development Program

  25. The changing market environment • Major changes in the Service Providers' revenue structure • Pricing policies, Interconnection and Peering • New actors and new business models • Development of Broadband accesses and IP based services • Impact on Human Resources ITU / BDT / HRD HR development Program

  26. ADSL subscribers as % of Country main lines 40% France 35% Morocco 30% Lithuania 25% Turkey 20% Poland 15% Senegal 10% South Africa 5% Egypt 0% jun-02 jun-03 jun-04 jun-05 jun-06 dec-06 dec-01 dec-02 dec-03 dec-04 dec-05 In many countries ADSL is the initial driver for broadband and IP services ITU / BDT / HRD HR development Program

  27. High speed Internet access is a facilityThe issue is to grow revenues and margins ITU / BDT / HRD HR development Program

  28. Results : More revenueJapan as an example ITU / BDT / HRD HR development Program

  29. TRAINING MODULES On new broadband services, business modeling and service pricing are available with ITU-D/HRD The broadband revolution • DSL is shaping the market in terms of • Growth pattern and need to have • Service delivery oriented business models • NGN architecture deployment • Competitive landscape and service providers’ interactions • Wireless broadband access (e.g. WiMAX) likely to enter the same game adding • Nomadism and Mobility, • Access to service where DSL is not available • Affordability in remote areas, diversification, fair competition From the free Internet dream to a service provider business oriented view ITU / BDT / HRD HR development Program

  30. The changing market environment • Major changes in the Service Providers' revenue structure • Pricing policies, Interconnection and Peering • New actors and new business models • Development of Broadband accesses and IP based services • Impact on Human Resources ITU / BDT / HRD HR development Program

  31. Key strategic move impacting HR management • Accelerating broadband access penetration (+ local loop unbundling when applicable) • Impact on subscriber line management and outside plant quality handling, reduction of cost of ownership by automation of operation support systems and processes • Deployment and management of new Broadband Wireless Access • Introduction of new services • Marketing and Market Strategy in Company driving seat • Aggregating content and dealing with Content Providers • Deep change in commercial practice and organization • Convergent Point of Sales for residential and mass users • Reinforce (or create) business customer sales including Key Account Managers • New distribution channels • “Flexible” pricing strategies • Maintaining cost control and rebalancing resources • Re-engineering and restructuring in separate business units • Replacing static remotely localized teams by centralized mobile intervention teams ITU / BDT / HRD HR development Program

  32. Human ResourcesWhat is changing what ? Competition (driven by Internet, Regulation and Globalization) • improving internal efficiency (process transformation) • Improving CRM* supporting platform and associated processes • Reducing time to market for new services • Managing customer satisfaction • Ability to carry out instant deployment of the staff • Growing guidance provided by the Marketing and Finance Departments • New skills required from ALL Managers: financial, legal, regulatory, coaching ability, team leadership, etc,… • New corporate requirements in terms of career management *CRM : Customer Relation Management ITU / BDT / HRD HR development Program

  33. Human ResourcesWhat is changing what ? Technology, New Services and Convergence • Towards all-IP networks and services • Regrouping fixed line / Internet / mobile commercial organization to mass users • Developing and marketing convergent solutions for residential and mass users • Developing and marketing convergent solutions for business users and application providers • Growing number of virtual Job positions • Drastic reduction of the number of technical staff • Growing dependence of the staff from the Management Information System • Growing number of “nomad” employees • Intensive use of Knowledge Management (learning entreprise) ITU / BDT / HRD HR development Program

  34. Changing Mentality and Organization • From infrastructure and basic service delivery operations to customer-centric commercial activities in a competitive environment • In depth changing of mentality toward innovation, sales and marketing and streamline operations • Setting up and managing a strong CRM system and organization • Ensuring that each employee benefits from end-to-end visibility on the network as well as on the delivery of services • Enterprise and business customers as a key target for the former incumbent operator • Country coverage Network and Points of Presence • New converged communication service handling : IP VPN, IP Centrex, fixed and mobile voice and data services. • Communication management services offered to large enterprises and organization (outsourcing) ITU / BDT / HRD HR development Program

  35. Major issues in HR management • Change in employee status (from Public Administration to private company rules) • Ability to hire qualified personnel for accelerating the development of new services • Ability to promote and managed the careers of most qualified and efficient personnel • Developing new skills to handle new range of activity • Managing and defining new job families • Setting up talent review and focused career development programs for highly qualified employees • Setting up extended personnel conversion programs and organizing career-oriented deployment scenarii • Facilitating staff mobility and personal initiatives ITU / BDT / HRD HR development Program

  36. Back-up slides • More on TP HR strategy and 3 year changes in employee qualification (a good example for open discussions) • More on value added services and add-on revenues on top of broadband accesses ITU / BDT / HRD HR development Program

  37. Moving fast is a necessitye.g. TP group 2005-2006 Source : Q4/2006 financial result presentation by TP group, Poland ITU / BDT / HRD HR development Program

  38. TP group employment evolution2001-2003 Source : TP group Annual Report 2003 ITU / BDT / HRD HR development Program

  39. $9.2 billion (+88%)and already 22% value added on access revenue $4.9 billion Broadband Value Added ServicesWorld Market 2004-2005 Source Point-Topic 2006 ITU / BDT / HRD HR development Program

  40. Revenue and ARPU for consumer value added services Source Point-Topic 2006 ITU / BDT / HRD HR development Program

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