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Changing Carrier Business Models
Challenges and Opportunities
Andrew Chetham
Principal Analyst
Telecom Asia Pacific
[email protected]
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Voice is at the Centre of the Carrier Storm
Voice over
Substitution
Broadband
to Mobile
IP Voice
PSTN Flat Rate
over Cable
Pricing
Migration
Convergence
& IP Functionality
to NGN
VoBB – Understanding the Threat
A comparison of PSTN and VoIP Rates in the US
Verizon
Basic Telephony - total monthly
cost (basic phone incl. 3 features)
$49.45
% discount from Verizon
Basic telephony + unlimited N.A
Long Distance
% discount from Verizon
(Date point: Mid 2004)
$87.22
AT&T
Cablevision
Vonage
$38.15
$32.36
$26.49
22.9%
34.6%
46.4%
$67.22
$32.36
$34.99
22.9%
62.9%
59.9%
Arrival of VoBB and Vonage(s)
Low, fixed monthly rates, unlimited use
Cap the revenue opportunity
The only way is down
Single most disruptive threat to incumbents today
VoBB: Bypassing the Local Carrier
VoBB Players
Give away this ….
Connections
Local Calls
To sell this
LD
IDD
Value of voice
VoBB Players
Incumbents
No costs
High costs
Big impact
Big impact
Low costs
High margins
Accelerate current
decline
VoBB Checklist – the Stars Need to be in
Line to Promote Early Lift Off.
Broadband Users
A)
Penetration
B)
Quality
Regulations – Short Term Enablers
A)
Number Scheme (special prefixes for VoBB)
B)
VoBB number portability (for primary line)
C)
Emergency services, call monitoring, location based service
Regulations – Long Term Accelerators
A)
ENUM deployment
B)
IP Value added services
Level of Competition
A)
Number of non-facilties based players
B)
Types of players (ISPs, cable operators, pure play VoIP)
C)
Strength of the incumbent
Pricing
A)
Size of the existing voice market
B)
Are the savings big enough to promote a switch to IP?
C)
Price of ATA and IP phones
Mobile VoIP, likely to remain niche through
to 2009

IP Voice over Wireless Broadband
– Limited scale of operations, data focused, lack of
voice enabled terminals

IM over Mobile
– Handset issues, vendor/carrier relations, low smartphone penetration, lack of flat rate 3G data pricing
schemes
What’s the Strategic Imperative?
Drive Value
Back into
Fixed Voice
The questions:
What is this value?
How to achieve this?
Why is Skype is Important in Redefining the
Future of Voice Communications

Power of the Directory
– Telco power over PSTN is their power over the access to these
numbers
– The move to IP breaks that hold. New directory owners will
emerge as the key players in voice
– Microsoft, Yahoo, Skype, Major Portals can be big players.
– Global ENUM may mitigate this

IP Functionality
– Call Management
– Added Value Functions/Conf Calling/Video Calls
Driving Value Back into Voice: CONSUMER
The BT Communicator
 Yahoo IM Platform
 Free PC - PC
 Video calling
 PC – PSTN/ @ PSTN rates
 Directory Enquires
 Address book
 Call back icon
 Call management features
 Client Based
FOCUS ON NEW FUNCTIONS
NOT PRICE
Driving Value Back into Voice: BUSINESS
PCCW CONVERGENCE
Features
Web-based
Unified
mailbox
Voicemail
Fax
Email
Call
and Directory Management
Enterprise
Per
Mobility
seat rental 200-300HKD
Benefits
IP
Telephony
No
Capex
Fixed-Mobile Convergence

Operational Savings
Sharing networks, core, metro, back-end IT , SG&A…etc
RESULT: Increasing profitability, sharpening competitiveness

Market Share/Churn Protection
Product differentiation, ability to attack/defend existing customer segments
RESULT: Redistribution of the total revenue “pie”
> Winners & Losers

Revenue Uplift
New products catering to new needs, simplicity, 1+1 = 3
…..But Will Customers Pay More?
Fixed-Mobile Convergence, coming through
Different Avenues
Network
Services
Single Network
Same Services available
for fixed & mobile
over fixed and mobile
Device
Single Device to Access
Multiple Services
traffic
Du
At home
BluePhone
Phone
HK Vfone
‘Ann’
Bundles
New Products
Bundled Offer France Telecom‘s
“Business Everywhere“
Main features:
• One contract
• One bill
• One password
• One or two factor authentifcation
• Single user interface
• Support of Microsoft Exchange
and Lotus Domino
• Support of PalmOS, Symbian,
Pocket PC
• Single user hotline 24/7
• Voice to be added later
Managed services
Office
Applications
Firewall
IPSec or SSL
Dial-In
DSL
Wifi
GPRS
3G
Seamless Access support
Powerful Product
Voice Convergence
BT‘s Bluephone in the UK
Home
DSL
VoIP
BT
Bluetooth
W-LAN
MVNO
Hand-over
GSM
Vodafone
Main features:
• One device for fixed and mobile
• One number
• One price structure
• One contract
• One bill
• One password
• One mailbox for voice, e-mail
and SMS
• UMA compliant
• Low tariffs at home based on VoIP
• Handover between VoIP over
W-LAN/Bluetooth and GSM
• Mobile handsets can also be used
in Wifi hot spots
Voice Convergence – Device Focused
Korea Telecom‘s “One Phone“ Service
Home
PSTN
KT
Bluetooth
Reseller
- No Hand-Off -
CDMA
KTF
Main features:
• One device for fixed and mobile
• Need PSTN connection
+ One Phone service (for mobile)
• Outgoing calls only
• Voice focused only
• Focused on saving money
• PSTN Tarriffs for outgoing
• No handover PSTN/Mobile
• P2P callijng using bluetooth
• Only three handsets available
The Carrier as a Content Channel
The Content Delivery Value Chain
Content
>
Media > Carriage
Hardware/Software
> Customer
Platform Providers
Finding a Role in the Content Value Chain
How the Content $$s are Split
Carriage
+ Platform
9 - 20%
Aggregation / Media
CONTENT OWNER
Up to 50%
50%
As carriage proliferates so does the complexity of the contracts with the content industry

Pay TV to the PC, to the TV, over the internet or over carrier managed network

VoD to the PC, to the TV, over the Internet or over carrier managed network

Mobile TV, Mobile VoD, Mobile music downloads
Media: Music to the Handset
South Korean example
SK Telecom :
Walled Garden approach
Recording company
Monthly fee, unlimited downloads
LG Telecom :
Open Portal approach
Recording company
Composer
Composer
Walled Garden only
SKT
Service tied to the handset
End-to-end control of the music delivery
Aggregator
50% Revenue share
Aggregator
LGT’s Music-On
Bought a record company
SKT’s Melon
LG
 Pay Per use??/ No charge currently
 Desktop or handset
 No handset restriction
 20% revenue share
IPTV – PCCW example

Free STB, Free Channels, no subscriptions

Pay TV only, no on-demand function

Sold bundled with ADSL/Broadband
–
Lock in ADSL revenue/customer + Voice

Low existing Pay TV penetration

20% penetration into homes end 2004

Existing Cable TV ARPU of HK$220

Very low initial uptake of paid-for offers

Mini-subscription pack crucial to ARPU

Looking to launch nVOD
Keep the Capex / Opex Low
Pricing/ Content / Marketing Key
Source: PCCW , March 2005
New Business Models and Players are a
Threat
Man United Broadband
VoD: Direct over the Internet
TESCO Broadband
TESCO VoD?
Conclusions

Voice is changing, carriers need to embrace that
change. Focus on new functionality.

FMC will be a reality. Need to plan and prepare.

Content is an opportunity. But carriers need to
secure an early position or risk eventual
disintermediation.