A Look into the Future of Telecom Future World Trends Summit

IBM Institute for Business Value

A Look into the Future of Telecom
Rob van den Dam
Global Telecommunications Industry Leader

© 2012 IBM Corporation


The IBM Institute for Business Value creates fact based
thought leadership that help clients realize business value

Future Value Realization CXO
Agendas Studies Surveys

3 to 10 year industry outlook In-depth assessment of today’s Chief Officiers studies – CEO,
with action oriented next steps critical issues, opportunities, etc CIO, CMO, CFO, CHRO, etc.

2 © 2012 IBM Corporation


Agenda

 A short Look Back

 Disruptive Forces

 Four Future Scenarios

 Key Technology Trends

 The Middleware for a Smarter Planet



Over the past decade global communications penetration - and
mobile cellular telephony specifically - has been phenomenal
Telecom Penetration 1999 - 2011

90% Mobile subscriptions
Internet Users
80% Fixed Telephone lines
Fixed BB Subscriptions
70%
Mobile BB Subscriptions
60%

50%

40%

30%

1999: 2011: 20%
Access to Mobile- 10%
telephone cellular
of any kind subscriptions 0%
1999

2001

2003

2005

2007

2009

2011
± 15% ± 85%


CSPs* in developing markets have proven they can grow and
generate high levels of profit from low ARPU customers….
Mobile Cellular Subscriptions Telecom Penetration
140%
120% Developed
100% Developing
80%
2001 60%
Total 719 40%
million 20%
0%

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011
2011 Emerging Markets mobile ARPU and
Total 6
EBITDA margin (2010)
10 65% 9,3 70%
billion 60% 8,2 8,1 60%
8
54%
6,0 43% 46% 50%
6 5,0 40%
34% 4,5
33%
4 23% 30%
2,7
2,1 20%
2
10%
0 0%
Bangladesh India Indonesia Pakistan Philippines Algeria Ukraine Peru

ARPU (USD/ month) EBITDA margin© 2012 IBM Corporation
5
*Communications Service Provider


….and they were even leading the way in adoption of the SMS-
based data lifestyle applications

Mobile messaging-based applications to deliver public information, advisory,
mobile payment, money transfer and basic banking services to rural communities

Indian operator Tata’s service China Mobile offers ‘Nong Xin M-Pesa allows users to
‘mKrishi’ allows farmers to send Tong’ for farmers to provide deposit, withdraw, and transfer
queries and receive news, weather information and money easily with a mobile
personalizes services details of farming-related device. It is a system of
government policies (50 million microfinancing that is widely
users) used in Kenya and Tanzania.



Then came the era of mobile internet, data, a mass of applications, and
the ability to also send images/video from everyone to everywhere

Mobile internet subscriptions Q3 2011
Mobile data
50%
40%
Data
30%
20% Developed
Developing Voice
10%
0%
2007

2008

2009

2010

2011 Smartphones/Tablets
App Stores
In 2011 sold:
Nbr applications: - 490 Mio Smartphones
(63% 10/11 growth)
- iPhone Apps > 500K
- 210 Mio Notebooks
- Android Apps > 600K (7.5% 10/11 growth)
- Window Phone > 100K - 63 Mio Tablets
(274% 10/11growth)


The communications ecosystem continues to evolve

“T-Mobile “Vodafone’s
“BYOD: The inmates Announces Q4 Australian
of the asylum have 2011 Results, Loss operation put on
control” of over 700,000 the market”
(Apr 17, 2012) Customers” (March 16, 2012)
(February 23, 2012)

“Nokia rating cut to “DoCoMo mulls “NEC to buy
one level above increasing stake in Convergys
junk” Indian mobile business support
(April 16, 2012) network” ops…”
(March 26, 2012) (March 22, 2012)

“Vodafone buys “Smartphone sales “AOL sells patents “Millennials are
Cable & Wireless forecast to hit 1B to Microsoft in leading the social
in ‘major step up’ ” in 2014” $1.056 billion deal” media explosion”
(April 24, 2012) (April 13, 2012) (April 9, 2012) (April 13, 2012)



Dramatic forces are radically altering the telecommunications land-
scape, confronting CSPs with both major challenges and opportunities

Disruptive Over- Empowerment of
the-Top (OTT) Consumer
Competitors

Rise of Social Active Government
Media Involvement

Explosion of Change in Global
Mobile Data Hierarchy



OTT providers – in particular the top 4 – are expanding their
dominant position in the communications landscape

Market Value

Market
Value of Market
Top 25 Value of
drivers = 1/2 Top 150
Telecom
of
Internet Providers
traffic 70% of market cap

The massive shift in value continues towards the OTTs as capital markets
prize the direct customer relationship and value provided by OTTs,
>>>>>>> reducing the CSP valuation back to utility status!


Social Networking has become a key communication channel
for many people as alternative for traditional communication
100%
South Africa 81% 7% 10%
16% 17%
22%
India 68%
20%
80% 23%
Greece 67%
24%
Mexico 66% 30%
60% 35%
UAE 64%

Sweden 64% Emerging
Brazil 63% 40%
72% 67%
Russia 63% 59% 53%
Portugal 60% 20% 43%
China 60%

South Korea 53%
0%
Poland 51% Below 25 25-34 35-39 40-49 Above 50
Italy 49% 100%
12% 17%
Canada 47%
27% 29%
UK 46%
80%
22% 45%
Spain 46%
26%
Czech Republic 45%
Mature 60% 29%
US 44% Mature 29%
Australia 42% markets
40% 30%
Germany 41%

France 40%
66%
57%
Netherlands 36%
Daily Access to 20% 44% 42%
Belgium 34% SOCIAL NETWORKING 26%
Japan 24% SITES 0%
Source: 2011 IBM Global Telecom Consumer Survey, Global N= 13237; Below 25 Daily Weekly Occasionally Above 50
25-34 35-39 40-49


Mobile data (really video) explodes, causing significant capex
and opex pressures on CSPs

Global Mobile Data Traffic, 2011–2016
(TB x 1000/ month)
10 8 0 4
10804
Mobile VoIP Middle East & Africa
Mobile Gaming Central & Eastern Europe
Mobile File Sharing
20%
Latin America
6896
78% 6896
18%
Mobile M2M North America CAGR
Mobile Web/Data Western Europe
4 2 15 4215 23%
Mobile Video Asia Pacific
2379
2 3 79
70.5
12 52 % 1252
40%
59 7
597

2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016

2011 2016
• Global mobile data grew 2.3-fold • Mobile data traffic will increase 18-fold
• Mobile video traffic exceeded 50% • 2/3 of mobile data traffic will be video
• Average smartphone usage tripled

Source: Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update, 2011–2016.


Consumers now have unprecedented power to build & demolish
brand strength as they blog, text and comment via Social Media

12/29/11 Press Release: What happens when being disconnected?
“Starting January 15, a new $2 payment
Most/
convenience fee will be instituted for Always sometimes Never
customers who make single bill Attempt to
payments online or by telephone” redial/reconnect 48% 44% 7%

Avoid providers with 81%
Within 24 hours, more than 100,000 whom friends had bad 25% 56% 19% Avoid
people had signed a online petition: experiences Providers
Greetings,
with poor
Tell friends about my 16% 61% 23% experience
I am disappointed to learn that Verizon Wireless poor experience
plans to institute a new $2 fee for paying bills
online…. Your company should not assume that
it can do anything to your customers and
Contact customer
9% 51% 41% 77%
service Tell friends/
that we will allow it to happen…
family bout
Switch providers, -
10% 56% 45% their poor
e.g. use a different SIM
experience
12/30/11 Press Release:
“Verizon Wireless has decided it will not institute My provider proactively
5% 31% 65%
the fee for online or telephone single payments contact me
that was announced earlier this week.
The company made the decision in response to Source: 2011 IBM Global Telecom Consumer Survey, Global N= 13237

customer feedback about the plan…”


Active government involvement means increasing
regulations

2010 70% of Telecom CEOs
Global anticipate heavier
CEO Study regulations ahead
Small government, light Big government, heavier
16% 14% 70%
regulation regulation
Move or return to unrestrained Greater government involvement,
market with limited state more regulation and government
ownership or regulatory reform as a stakeholder in strategic
businesses

EU
“put broadband under “The EU’s long-term
an existing set of rules vision is to reduce
governing telephone mobile terminating
services rather than its rates in member states
current status as a to levels comparable to
lightly regulated fixed termination. EU
information service” roaming regulations …”


The global hierarchy is changing as we see a shift of economic
power from mature to emerging markets
Expected Consumer Spending Mature Expected Consumer Spending
Mature
Net Increase/Decrease markets Net Increase/Decrease

Utilities Utilities 40% Utilities Utilities 4%

Food & drinks
Food & drinks 30% Food &&drinks
Food drinks -3%

Transportation
Transportation 22% Transportation
Transportation -6%

Mobile Telephony
Mobile Telephony 21% Mobile Mobile
Broadband
broadband -10%

Clothing Clothing 16% MobileTelepony
Mobile
Telephony -14%

Holiday/vacation Holidays 7% PayPay television
television -16%

Mobile Broadband
Mobile Broadband 6% Sports Sports -18%

Pay television
Pay television 6% Fixed Telephony
Fixed Telephony -19%

Elect. Appliances
Electrical appliances 3% Clothing
Clothing -19%

Fixed Telephony.
Fixed Telephony 2% Holidays
Holiday/vacation -23%
Electrical
Going out -7% Going out Elect.Appliances -24%
appliances

Sports -10% Sports Going out out
Going -32%

Q4 2011 Mobile Operators Q4 2011 Mobile Operators
Service Revenue Growth YoY: 9.7% Service Revenue Growth YoY: 0.6%
Source: 2011 IBM Global Telecom Consumer Survey, Global N= 13237 © 2012 IBM Corporation
Question: Compared to previous years, are you likely to spend less, the same or more on the following products / services in the next 2-3 years?


CSPs are confronted with a number of uncertainties whose contrasting
outcomes signal distinctly different scenarios for the future

Addressable Competition/
Market Growth Integration Structure
The Future of Open vs. closed
Voice ? devices ?
Silo vs. unified Premium Network sharing vs.
communications ? Connectivity ? Outsourcing ?

OTT vs. Network Service Pricing
Vertical vs. Horizontal
optimized content ? Model ? Integration ?
M2M
Expansion into communications ? User vs. 3rd Party /
Adjacent Verticals ? ad funded ?
Ultra-fast BB
Availability ? Regulation ?

Source: IBM Institute for Business Value (IBV) and IDATE Analysis


Giving the ongoing uncertainties, IBM undertook scenario envisioning,
that enables the industry to assess alternative contrasting futures

What are the trends: Revenue and
- Certainties (high degree of consensus)
- Uncertainties (multiple outcomes)
Profitability outlook for
each scenario

Future

Scenario C 2008 Survivor
Consolidation
Market
Shakeout
Clashof Giants Generative
Bazaar

Scenario D

Scenario A

Present Scenario B

Critical Success
Major economic, competitive and Attributes:
technological events that - Scenario-specific
trigger a particular scenario - Cross-scenario


Mapping the extremes of the possible outcomes related to the
uncertainties reveals four contrasting scenarios
Telco 2015 SCENARIOS
•• Disaggregation of
Carrier collaboration
• Carrier Assets
Co-op of
and alliances
infrastructure
•• Involvement Vertical
End-to-end Govern-
GENERATIVE
Expanding CLASH OF providers
ment, Municipalities
Market solutions
GIANTS BAZAR
•• Fragmentation
Open & Affordable
• Mega Carriers
connectivity to
•• Driven by Brands in
Emerging Carriers
any person/object
Mature markets
Addressable market
• Reduce Spending
Consumers
SURVIVAL • MARKET
ARPU Erosion
Declining / Stagnant
CONSOLIDATION • SHAKEOUT
Investor Loss of
Confidence
• Cash Crisis

Concentrated / Vertical Fragmented / Horizontal

Dominant Industry / integration model


The study further identifies scenario-specific critical success attributes
and cross-scenario ones
Telco 2015 SCENARIOS

CLASH OF Common Critical
GENERATIVE
Expanding GIANTS Success Attributes BAZAR
Cost-effective ultra-fast
broadband strategy
Network /customer insights to
optimize experience & cost
Agile, flexible, reconfigurable
Addressable market processes & infrastructure

Cost containment

Culture of innovation and
collaboration
Declining / Stagnant
SURVIVAL MARKET
CONSOLIDATION SHAKEOUT

Concentrated / Vertical Fragmented / Horizontal

Dominant Industry / integration model


Advances in network technology, analytics, cloud computing, social
collaboration tools and security help CSPs to prepare for the future
Cost-effective ultra-fast
broadband strategy
Network /customer insights to
optimize experience & cost

Agile, flexible, reconfigurable
processes & infrastructure

Cost containment

Culture of innovation and
collaboration

Faster/Smarter Advanced Cloud Social Security
Networks Analytics Security
Networks Analytics Computing Collaboration Technology
 Ultra-fast  Big data  Maturation/past  Collaboration  Threats
the hype with partners, (malware,
 Low Capex  Embedded
employees, cybercrime,
 Wireless  Predictive  Private/Public/
consumers etc)
optimization Hybrid
 Unstructured  Product/Service  Disaster
 Sensory-based  Efficiency recovery
 Intelligent improvement innovation
(support M2M) decision-making  Social Tools  Fraud control
 Intelligent site  New cloud
 Customer services/models  Consumer  Trusted identity
operations experience
 Value creation sentiment  Data protection
 Self-organizing  Etc
 Etc.  Etc..  Etc.
 Etc.

Faster/Smarter
Networks
IBM Institute for Business Value Networks
The industry has decided in favor or FTTx and LTE for ultra-broadband
access, in combination with WiFi mobile offload and femtocells
Million
Which of the following access technologies are subscribers
going to be critically important to the success of 200 Rest of the World FTTx
your business over the next 5 -10 years? Asia/Pacific
150 Europa
Critical to Success Neither Not Critical to Success North America
100
FTTx 71% 27% 2%

50
4G/ LTE 67% 33%
0
3G 44% 48% 7% 2009 2010 2011 2012 2013 2014 2015

500 Million MEA

WiFi
xDSL 43% 48% 9% subscribers
400
Latan
CATV 27% 39% 34%
300 Asia/Pacific WiFi
Mobile
2G 20% 42% 38% 200 CEE Data
Offload
100 Western Europe
WiMAX 8% 38% 54%
North America
0
0% 20% 40% 60% 80% 100% 2012 2015
Telco 2015 Telecom Industry Survey N=61 (IBV Survey) Idate Yearbook 2012 © 2012 IBM Corporation

Faster/Smarter
Networks
IBM Institute for Business Value Networks
Governments can become a major catalyst for bringing communication
infrastructure to the population and to spur economic growth
A nationwide ultra high speed fiber access infrastructure and a
complementary pervasive wireless network in Singapore to
• support the needs of the users and to allow them to thrive in
the global environment
• spur innovation in the various vertical sector economies
• enhance Singapore's global competitiveness

The Australian government setup a National Broadband Network as
a ‘game changer’ for consumers and international competitiveness:
- Fiber with speeds > 100 Mbps with 90% coverage
- NGN Wireless with speeds > 12 Mbps

The Vive Digital Plan, including a national fiber optic infrastructure, in
Columbia to bring technology in the life of every Colombian to:
• reduce poverty
• generate employment
• improve international competitiveness
• achieve prosperity for all

Advanced
Analytics
Analytics

Advanced analytics will help CSPs to gain customer insight from the
Big Data in their network, social media and other customer information

Data Network &
Data Ingestion

Improved Customer Experience
Transformation Customer Insight

Transactional Data

Transactional
Data
Social Media Social Historical
Media Data
Referential
Referential Data Data Sets

Historical Data


Advanced
Analytics
Analytics
Advanced analytics holds enormous potential to create personal
experiences that adapt to subtle changes in user-defined context

Draw Insight Translate Insight
Acces to data
from data into Decisions

Telecom Industry CEOs identify customer Watson can sift through an equivalent of
insights as the most critical investment about 1 million books or roughly 200
area (Global CEO Study 2012) million pages of data, and analyze this
information and provide precise answers
Customers 83% in less than 3 seconds

Sales 67%
Operations 55%
Markets and competitors 47%
Supply chain 40%
Human resources 39%
Risk management 32%
Financials 25%

In which areas do you plan to improve your ability to draw
24 meaningful and executable insights from available information?”

Cloud
IBM Institute for Business Value Computing
The evolution in Cloud has now reached a tipping point where it can
create and deliver business value for CSPs
On the back of Cloud technologies CSPs will play a key role
in value creation

Performing current Deliver horizontal and Develop radically
business more vertical Cloud-based different value
efficiently and applications based on propositions, or create
effectively new business models new customer needs

E.g. Cloud Telephony E.g. Cloud-based eHealth systems E.g. Cloud TV

Healthcare Community
Online


Cloud
IBM Institute for Business Value Computing
Cloud computing will increasingly be used in partnerships and in new
and innovative ways to transform business models


Social
IBM Institute for Business Value Collaboration
Social Collaboration will increasingly involve employees, partners
and customers to develop innovative products and services

Employees Partners Customers
self-forming teams around becoming on-demand leading the conversations that
fast moving opportunities extensions of the enterprise define brands

Global CEO
73%
Study 2012:

Social Media
to engage
customers

Today
In 3 to
5 years 11%

Social business enables the flow of new ideas for new products and services
regardless of their location inside and outside the organization

Security
IBM Institute for Business Value Security
Technology
Advances in security technology must secure protection against threats
to personal, national and global security from cyber criminality

Drivers for addressing security
• Applications are migrating towards the Cloud
• BYOD – employees want to use their own device
• Growth in mobile
• Need for secure virtualized environment
• Increased threats, including malware, cybercrime, phishing
• Business continuity and disaster recovery
• Compliance with regulations (fraud / data privacy)
• Identity theft
• Brand damage

“Cybersecurity is one of the most serious
economic and national security challenges we
face as a nation, but one that we as a
government or as a country are not adequately
prepared to encounter”


Our world is changing and becoming smarter

It is becoming increasingly
INSTRUMENTED
Billions of camera phones, billions of RFID
tags embedded into our world and across
entire ecosystems

It is becoming more
INTERCONNECTED
At the end of 2011 2.3 billion people were on
the Web …. and a trillion connected objects –
cars, appliances, camera, roadways, pipelines
– will comprise the “Internet of Things”

Systems are becoming more
INTELLIGENT
90% of the world’s data was created in the
past 2 years. 2.5 quintillion bytes of data
created every day


Industries are becoming smarter, and CSPs can play a crucial role
in enabling smarter industries, …..

Smarter energy Smarter Smarter Smarter Smarter solutions
and utilities government healthcare transportation for retail

Smarter Smarter Smarter Smarter
Smarter banking chemical and
insurance education electronics
petroleum



….in providing smarter services to consumers in mature Mature
Mature
markets, and….. markets
Retail/Shopping Banking/Insurance Healthcare

Vertical Market applications ranked as #1 by
consumers surveyed in mature countries
Nbr 1: Receive Mobile Nbr 1: Location-based Nbr 1: Reminders for
coupons/Discounts (46%) insurance claims (48%) medications/appointments (55%)

Public Services Travel & Transport Utilities

Nbr 1: Find nearest Nbr 1: Time table for public Nbr 1: Receive notifications of
public/government agencies transportation (46%) electric/gas/water service
(37%) outages (46%) © 2012 IBM Corporation
31
Source: 2011 IBM Global Telecom Consumer Survey, Global N= 13237; Mature Countries N=8865;


…. to consumers in emerging markets

Retail/Shopping Banking/Insurance Healthcare

consumers surveyed in EMERGING countries
Vertical Market applications ranked as #1 by
Nbr 1: Receive Mobile Nbr 1: Manage bank Nbr 1: Reminders for
coupons/Discounts (40%) accounts through mobile medications/appointments (61%)
device (50%)
Public Services Travel & Transport Utilities

Nbr 1: Pay for local services Nbr 1: Pay for public Nbr 1: Alert when monthly usage
(e.g. car parking) (47%) transportation (56%) reaches pre-set threshold (60%)
32 Source: 2011 IBM Global Telecom Consumer Survey, Global N= 13237; Emerging Countries N=4372


The opportunity for telecommunications is to become “the middleware
for the smarter planet”. …..

LOGISTICS GOVERNMENT
MEDIA &
ENTERTAINMENT
RETAIL
L IT
G
R M I

C E H F
CONSUMER
ELECTRONICS ENERGY & UTILITIES
HEALTHCARE
M FINANCIAL

MANUFACTURING



…and to stimulate economic development and prosperity, and
improve lifestyle for people in both mature and emerging countries



Thank you

Rob van den Dam
Global Telecom Industry Leader
www.ibm.com/iibv rob_vandendam@nl.ibm.com


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