Amman, Jordan, 4 – 7 December 2006 Strategic Management – Part II Forecasting Lecture 4

1. Amman, Jordan, 4 – 7 December 2006 Strategic Management – Part II Forecasting Lecture 4 SUNTEL case study ITU/BDT/ HRD Strategic Management / Forecasting

2. SUNTEL case study • This case study illustrates the role of forecasting in the strategic planning of an incumbent operator called SUNTEL in a fictitious country where fixed network was recently open to new entrants and mobile market is already highly competitive. • SUNTEL is made of 3 entities: • TEL-FIX for the fixed customers and data communication. • TEL-MOB for the mobiles. • TEL-NET for the Internet services • These 3 entities are considered as a whole in the case study. • (payment for services between these 3 entities are not considered here) ITU/BDT/ HRD Strategic Management / Forecasting

3. Setting up Strategic Planning for SUNTEL • Strategic planning deals with business development, orientations for services and guidelines for investment an financing: • what are the SUNTEL’s strategic choices; • how setting up possible scenarios; • how migrating to NGN, how implementing convergence; • how comparing scenarios and selecting the best one; • what impact on human resources and structural organisation • The studied period is: • Base year= 2005, all input data are available for the full year. • Current year =2006 • Five-year period for strategic plan = 2007 – 2011 • Strategic business plan is carried out with the SUNLAND business model of ITU / BDT. ITU/BDT/ HRD Strategic Management / Forecasting

4. SUNTEL’s VISIONTo become a global operator, leader on the national ICT market • Global = fixed + mobile + Internet, • seeking for synergy and competitive advantage with bundled services based on convergence • taking advantage of the best technology (VoIP, WiFi, FO, mobile, fixed,..) for each segment in each area. • deciding internal cannibalisation for avoiding external cannibalisation and churn. • Niche = Focus only on a market segment, • seeking for attractive quality of service / price for a specific technology or a specific type of service where we are very good at delivering the service. ITU/BDT/ HRD Strategic Management / Forecasting

5. SWOT = strengths, weaknesses, opportunities, threats Strengths/Weaknesses: Analysis of the functioning of the company, looks at internal factors controlled by the company which have an impact on the results : Opportunities/Threats:Analysis of the environment of the company, and the impact of external factors, not controlled by the company, but having possible relationships and influence. • Critical judgement, uncompromising search of quality • Utilisation of « external eye » (audit, focus group) • Each problem is an opportunity for improvement • Investigate all variables that influence strategy ITU/BDT/ HRD Strategic Management / Forecasting

6. Issues investigated with the SWOT method Strengths for SUNTEL: • network coverage with modern digital equipment for switching and transmission. • well-dimensioned existing infrastructures (buildings, ducts, outside plant, towers, antennas, • large customer base • commercial outlets located in the right places for TELMOB. • advanced technical skills about PSTN network • quite good brand image of TELMOB. • marketing expertise in TELMOB • large investment for ADSL in large cities. • dynamic commercial practices in TELMOB and TELNET. ITU/BDT/ HRD Strategic Management / Forecasting

7. Weaknesses for SUNTEL: • the structural organisation is not adapted for convergence and SUNTEL is a set of 3 niche operators. • poor reputation of TELFIX (especially business, young people,… ) because of expensive Internet access and a conservative strategy against VoIP. • computer systems of customer care and billing of TELFIX are obsolete and expensive to maintain. • quality of subscribers loops is bad in many areas. • TELFIX employees skills are not exploited by hierarchy. • lack of expertise on new trends in marketing and finance expertise. • remuneration system is not attractive for the right people. • administrative expenses (SGA) are too high. ITU/BDT/ HRD Strategic Management / Forecasting

8. Opportunities for SUNTEL: • strong potential demand for new services, especially in entertainment and business • unsatisfied demand in rural areas for basic services. • WiFi and WiMax technologies are suited for satisfying unsatisfied demand. • possible strategic alliances with service providers and content providers for multimedia (video, music, game, e-business, e-learning, e-medecine, …) and broadcasting (triple play, TV on demand, video monitoring, ..). • possible strategic alliances with terminals providers (IP native phones, IAD and PC, smart mobile handset, console for video game, …) ITU/BDT/ HRD Strategic Management / Forecasting

9. Threats for SUNTEL: • emerging fixed operators and tariffs war in profitable areas. • the market share of mobile competitors is increasing • competitors are more responsive to business customers and faster to satisfy new types of demands with innovative offerings. • PSTN voice telephony is shifting to VoIP • qualified SUNTEL employees are recruited by competitors for getting higher remuneration • ARPU is decreasing for mobiles and fixed lines. • uncertainty about regulation evolution. ITU/BDT/ HRD Strategic Management / Forecasting

10. STRATEGIC INITIATIVESHow to develop competitive advantages • Initiative 1: to restructure SUNTEL with a corporate reengineering. • Initiative 2: to better know the customers expectations regarding new services and ICT convergence. • Initiative 3: to offer a new IP-based services portfolio based on ICT convergence and suited to the customers expectations. • Initiative 4: to adapt tariff structure to the new competitive environment. • Initiative 5: to pass from a PSTN +2G network to all-IP network. • Initiative 6: to align human resources on the strategy. • Initiative 7: to implement better management practices. ITU/BDT/ HRD Strategic Management / Forecasting

11. Initiative 1 : Restructuring of SUNTELRestructuring the 3 business unit into an integrated company SUNTEL SUNTEL Marketing Network operations and maintenance TEL-NET Internet TEL-FIX PSTN & data TEL-MOB Mobile Billing, Customer care Supporting functions Dedicated companies for different services and networks Business Units for converged services and networks ITU/BDT/ HRD Strategic Management / Forecasting

12. Initiative 2 : Customers expectations • Develop customer satisfaction surveys. • A Composite Customer Satisfaction Index is established and a survey is carried out on a representative sample. Weighted average of the answers to several questions (Overall Satisfaction, Satisfaction related to specific expectations) Develop customer opinion polls. A questionnaire will be carried out about intended usage of new services and opinions of potential customers. How much customers are ready to pay. What is the intention to shift to competitors and why (churn investigation) Collect and analyse data from charging and billing systems. ITU/BDT/ HRD Strategic Management / Forecasting

13. Four main methods for collecting and analyzing what you want to know • Observation : a lot of information is already available in your company, but generally you do not use it enough • Feedback : your customers send signals and they may tell you interesting things, if you are ready to hear them. Analyse customer complaints with top managers. Beware of the “no problem” syndrome due to the screen put by middle management. • Questionnaires : ask the right questions to know what you can not watch • Focus Groups : meet the right people and get what they really think. ITU/BDT/ HRD Strategic Management / Forecasting

14. Develop forecasting studies Top down and bottom-up approach; Location of the demand for different services segment depending on bandwidth at low geographical level. Density in rural areas will catch up density in urban areas at long term ITU/BDT/ HRD Strategic Management / Forecasting

15. Competition will be more aggressive in urban areas: market share will be lower in urban areas. Network extension is still necessary in rural areas, but no longer in urban areas ITU/BDT/ HRD Strategic Management / Forecasting

16. Initiative3 : A new services portfolio to develop competitive advantages Other sources of revenue are necessary to offset the revenue declining of voice telephony. Past: voice telephony prevails on circuit-switched network designed for voice-telephony. Future: To offer multi services and multimedia based on broadband all-IP network, with a variety of packages designed for specific market segments with specific needs There is no “one fits all” solution. The customer segmentation depends on the features of the new offered services. It is crucial to ensure a satisfying margin on every offering and to focus marketing on the profitable packages. ITU/BDT/ HRD Strategic Management / Forecasting

17. Future service portfolio(mass market) Low-speed Internet Voice Hi-speed Internet TV-live PSTN Dial-up POTS 2G Mobiles Double play2,5 G Triple play with 3G Naked ADSL ADSL Double play Triple play WiFi VoIP Internet Internet VoIP WiMax Double play Triple play ITU/BDT/ HRD Strategic Management / Forecasting

18. Boston Consulting Group matrixTrends for SUNTEL Dilemma Star Market growth (revenue growth) High speed Internet VoIP 2G mobiles Low speed Internet WiFi 3G mobiles Dead dog Milk cow fax ISDN PSTN voice Market share (revenue share) ITU/BDT/ HRD Strategic Management / Forecasting

19. Mobile cannibalisation vs. ADSL impactInternal cannibalisation vs. external cannibalisation? • Fixed subscribers are expected to decrease (substitution by mobiles, shift to emerging competitors in profitable areas); • Two contradictory driving forces on the evolution of fixed lines numbers : • cancellations of subscriptions of fixed lines when customers shift to use only mobiles (especially low users) • fixed lines are still demanded where ADSL is available to offer affordable packages (double play, triple play, quadruple play) To serve low income users by mobile prepaids rather than by fixed lines, because mobiles have a lower marginal cost. To keep the loyalty of high income users with broadband services is the best opportunity in a competitive environment; ITU/BDT/ HRD Strategic Management / Forecasting

20. Anticipate the strategy of the mobile competitors • Some new entrants seek for attracting low-incomecustomers with low-cost services, even with a lower quality. • Their strategy: tariff war. The expected profit margin is low. • SUNTEL anticipation: adjust tariffs Other new entrants seek for attracting high-income customers with value-added services and additional features. Their strategy: market creaming. They offer a variety of new services for profitable customers, which is only possible with broadband technology. Without the burden of rural areas and the legacy of obsolete systems, they can offer a large and flexible portfolio of services to better serve customers. They give more for less to entry the market. The expected profit margin is high. ITU/BDT/ HRD Strategic Management / Forecasting

21. Impact of competition in the fixed lines(alternative operators, IP-telephony, unbundling) ITU/BDT/ HRD Strategic Management / Forecasting

22. What about fixed prepaids? • Objective: to stimulate the demand of fixed lines for low-income users and to avoid growing churn for prepaid mobiles with affordable offer. • Good news: Interesting solution where bad debt is high, especially in developing countries. Interesting solution to stimulate the incoming traffic. • Bad news: ARPU is falling under the threshold profitability of fixed lines and most of fixed prepaids are loss-makers. • Decision: no fixed prepaid at the SUNFIX catalogue. • (solution more appropriate for fixed only operators that are threatened by fixed mobile substitution). ITU/BDT/ HRD Strategic Management / Forecasting

23. Fixed line unit cost vs. Mobile unit costWhere is the threshold profitability? Average cost per unit Average cost per unit = CAPEX per unit / amortisation period in years + annual OPEX The incremental cost of low users is much smaller in mobile network than in fixed networks TH2 average FIXED incremental TH1 average MOBILE incremental Network size ITU/BDT/ HRD Strategic Management / Forecasting

24. Initiative 4 : Tariffs • Past: • price per minute per destination with cost-based tariffs / PSTN costing • Future : • flat rate with unlimited calls, • bandwidth based tariff, • bundled services • Dilemma: • to keep high tariffs and to have a high churn • or to decrease tariffs and to have a lower margin ITU/BDT/ HRD Strategic Management / Forecasting

25. Tariff:variety of special packages with discountsand death of distance factor ITU/BDT/ HRD Strategic Management / Forecasting

26. Impact of new tariffs ITU/BDT/ HRD Strategic Management / Forecasting

27. Guidelines for ADSL pricing • Develop premium DSL offers • security • reliability • differentiation • Keep the offer simple • SOHOs and SMEs want “pay and use” services and predictable expenses • Develop a strong promotion and distribution strategy • develop a multi-channel communication strategy • licensed systems integrators and partners that act as an indirect communications channel • Achieve operational excellence (end-to-end provisioning) • provide excellent customer service • improve the provisioning and activation process ITU/BDT/ HRD Strategic Management / Forecasting Source: A.T. Kearney carrier interviews

28. Initiative5 : Migration to all-IP network Large investments are requested to migrate from PSTN to NGN Common IP backbone for fixed, mobile and Internet services Future savings in annual OPEX and additional CAPEX for extension are expected. A percentage of copper local loops will be rehabilitated every year to enable ADSL where there is a potential demand for ADSL. Wholesale business will be developed on the NGN elements ITU/BDT/ HRD Strategic Management / Forecasting

29. Initiative 6 : Aligning Human Resources • Objectives: • Increasing employee development, motivation and satisfaction • Increasing continuously the performance of the training, career management and compensation processes. • Remuneration system is reviewed : • recruiting and retaining the best employees • salary is increased depending on the re-classification of the job, • the variable part of the remuneration is increased. • Early retirement is used to decrease the headcount, but new recruitment for getting missing skills. • Rightsizing means downsizing or outsourcing in certain areas and increasing the workforce in other areas. ITU/BDT/ HRD Strategic Management / Forecasting

30. Human resources planning • Double pressure: • Decrease staff if productivity is low • Recruitment of marketing and finance analysts specialists • Early retirement = Staff decrease – Recruited staff Higher percentage of higher level staff ITU/BDT/ HRD Strategic Management / Forecasting

31. SUNTEL will be a learning company.Concept of Knowledge Management. • All employees should be personally involved in their own development (proactive actors of learning and not consumers of passive training). • Managers should be committed to develop the competencies of their subordinates at every level. • Dynamic knowledge sharing are crucial issues. • Know-how is more and more gained from colleagues on the field. • Intense usage of Intranet and e-learning (learn more and cost less). ITU/BDT/ HRD Strategic Management / Forecasting

32. A permanent internal deployment should be planned. • An average duration of 4 years is recommended for most working positions: • to avoid the “diva” behaviour with higher and higher demanding people, • to avoid the “little kingdoms” where there is a strong resistance to any change, • to facilitate collective competencies. • Internal mobility: • 5% of staff to be deployed in a stable period • 10% of staff to be deployed in period of restructuring. ITU/BDT/ HRD Strategic Management / Forecasting

33. Initiative 7 : Management practices • Develop a culture of change. • Use benchmarking and collect information about the best practices on management information systems (especially: customer care, billing, finance and accounting). • Facilitate the utilisation of innovations and new technologies by SUNTEL’s staff (how to sell what we don’t want to use ourselves). Importance of INTRANET and collaborative tools. • Analyse staff complaints about internal services between the different units. Investigate lacks of teamwork. ITU/BDT/ HRD Strategic Management / Forecasting

34. CONCLUSIONWhere SUNTEL should focus its efforts : • To develop market surveys for a better understanding of the needs and the wants of each customer segment and for each service segment. • To offer a flexible portfolio of IP-based services: to anticipate the impact of competition and to focus on more profitable service segments. • To develop forecasting studies for a better estimation of the potential demand taking into account a new tariff policy based on packaging and flat rate. • To investigate the costing models of equipment to take advantage of theeconomies of scale in a converged network operated with converged management systems. • To develop business models for investigating the evolution of the effective profit of each service segment and the impact of new technologies on the financial indicators of the company. • To implement reengineering based on the convergence of technologies to minimize the costs and to offer bundled services as expected by customers. ITU/BDT/ HRD Strategic Management / Forecasting