Transcript The New Telecom Era – Leveraging Carrier Consolidations

Telecommunications
Industry Update
“The New Telecom Era –
Leveraging Carrier
Consolidations”
November 17, 2005
Telwares Communications, LLC Proprietary Copyright © 2005
WIRELINE MARKETS
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Wireline Market Dynamics
Impact of Industry Consolidation
Short-Term:
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Merging carriers cannot afford to lose
customer base which keeps/heightens
competitive environment
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Flexible terms and conditions are required to
mitigate risk resulting from industry
consolidation and to take advantage of pricing
reductions (and preserve them longer term)
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Client should immediately seize opportunities
to secure leading edge contracts before
merger(s) consummate
Long-Term:
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Watch service levels during network/operational integration
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Additional workforce reductions/rationalization
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New culture within each carrier will shape customer experience
Now is the time to perform complete market/carrier/technology due diligence
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What Mergers Mean for Enterprises
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Less true competition (in long-run)
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Changes in service and support
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Expect account team changes
Non-contractual support will erode
Integration of invoicing platforms could
make already-poor billing even worse
Network migration
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Stabilizing (potential up-tick in) pricing
Less customization of contract terms
Merger synergies will dictate migration
of customers to most efficient network
Customer diversity plans (multiple carriers, different
routes, etc.) will be altered
More regulation
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Excuse to step away from aggressive, custom-pricing
behavior
Special access (in connection with LD networks) may
fall under different rules
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Price/Volume relationship remains
situational…
• Commitment size or volumes do not
completely dictate price
• Pricing is situational, depending on the
variables at that moment. Result: different
prices for similar customers
• Carriers will continue to look to maximize
profit, with highest possible price AND
minimizing rate write-down
Contract #1
Price
Contract #2
Renewing Contract
Contract #3
• However, better pricing with lower
commitments are available, with key
knowledge and application of leverage in
today’s dynamic environment
Carrier Marketing
Leading Rate Trend
Volume/Commitment
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MCI
Purchase by Verizon will compete well with SBC/AT&T
 Combination of financial strength, embedded access/local relationships, and
wireless will drive powerful enterprise market contender
 Definite culture change for MCI (and risk to enterprise business)
 Watch out for departure from aggressive pricing/contract terms (MCI legacy)
Look for MCI to remain aggressive through 2005
Acquisition approved and executed 1st Qtr of 2006 (MCI Shareholders
approved on 10/06, DOJ and FCC approved at the end of October)
Acquisition approved with only two significant concessions:
MCI/VZ will have to divest themselves of fiber into 350
buildings in the VZ territory
VZ will have to offer unbundled DSL
CA and NY are the two states left to formally approve
Diversity issue for legacy MCI companies in the northeast
 Verizon will now control almost all telecom services for many clients
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AT&T
SBC’s acquisition of AT&T will create strong company
 Perhaps, stronger than many believe reasonable in terms of continued competition
Legacy AT&T value = enterprise customers and strong global network
 Will focus on sticky solutions, such as managed (EVPN) networks
Culture integration (or clash) will be key
Expect deal to consummate in December 2005 (DOJ & FCC have already
approved and CA is the last state needed for formal approval)
AT&T/SBC will need to divest some fiber into 350 buildings in the SBC
territory
SBC will have to provide unbundled DSL
With large existing market share, the combined entity could easily disrupt
many customers’ diversity and vendor-positioning strategies (e.g. – now single
provider)
Clients of AT&T should anticipate some network and account support issues
potentially before and after the acquisition is complete
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Sprint
Merger with Nextel created a very strong wireless combination
Strongest wireless push into enterprise, although coverage not as
good as Verizon or Cingular
Focus on achieving merger synergies and associated debt distract
from potential merger with remaining RBOC
Profitability focus has pushed Sprint away from larger enterprise
wins
Delay in rolling out MPLS strategy has weakened Sprint’s
reputation with large enterprises
Look for Sprint to maintain focus on its current enterprise
customers (retention), while also looking to expand wireless into
current base
Sprint is aggressively pushing the one contract-one account team
for both their wireless and wireline services
Publicly stated they will migrate their existing Frame Relay
customers to their MPLS based network by end of 2007
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Regulatory Climate
Changing times at the FCC

Kevin Martin replaced Michael Powell as Chairman
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Continued push for limited/no regulation on internet services, such as VoIP
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Review of 3 large mergers will take up staff’s resources in 2005/2006
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FUSF will be reviewed in 2006 (Cable Broadband currently exempt)
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Focus on broadband and DSL expansion to more areas of U.S. (Just approved that
DSL network providers do not have to share their networks; a big victory for the
LECs)
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KEY CONTRACT
COMPONENTS FOR
TODAY’S ENVIRONMENT
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Flexible Revenue Commitments:
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Term vs. Annual
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No more than 70% of expected runrate
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Degradation of service/support, pre and post merger
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Stabilized pricing for all elements
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Market review with remedy
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Term extension options in the event prices increase
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Business protections for:
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Business downturn, divestiture, technology change,
Technology Migration, Network optimization, etc.
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Diversity (now looking at new, combined companies)
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Account team support commitments
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SLAs on key network metrics
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KEY TAKEAWAYS
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Acquisitions will most likely be approved no later than the end of
the first quarter 2006
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To-be-acquired LD companies still seeing difficulty in
marketplace (stretch to make revenue/EBIT plans)
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Therefore, competitive pricing still the rule… but with potential
for short-term expense reductions if revenue not materializing
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Eventual rationalization of pricing post mergers
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Carrier emphasis on managed solutions, applications, and the
“bundle” vs. plain transport
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Further industry consolidation
•
Good timing for contract pricing renewal and reinforcement of
service/support requirements
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AT&T/SBC looking like SBC vs. MCI/Verizon which is a combo.
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WIRELESS MARKETS
Page 9
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The Wireless (Broadband) Question
A challenge in the global marketplace for the IT and Business
leaders of large enterprise...
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The reality of broadband wireless in terms of global scale, domestic distribution,
and willingness of providers to let go of tradition
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Service providers are largely inventing the same wheel
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Leadership in IT infrastructure investment
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Enterprise will play the lead role in installing ubiquitous wireless technology
above and beyond the organization
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Resolution will come from demand, invention and expectation
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Wireless Sourcing Dynamics
Legacy industry practices help drive the current state and climate
Carriers:
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Pricing complexity and structure is consumer-centric, and is designed to preserve
a high margin environment to support expectations
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“Boilerplate” environment for contracting practices – less than sophisticated
against enterprise demand set for flexibility and risk mitigation
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Account support and general administration is less than adequate against the
requirements for successful program management
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Business critical technology messaging – combined with a casual urgency in real
terms
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Consolidation requires a steadfast game plan for preserving base and balancing
build outs
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Heavy investment continues in new technology and coverage / capacity
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Wireless Sourcing Dynamics
New challenges emerge in enterprise sourcing and mobility…
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Fluid environment for technology, billing, account
support and application are heightened by
consolidation activity
The target market for the industry – and what is
driving advancement
Supporting the technology, and the associated costs
/ accountability
Policy, security and generating visibility
Balancing the bandwidth and application demand
The international question, and strategy
Mapping WiFi, WiMAX, RFID and other
technologies
•Reality versus myth
•Timeline and application
A true disparity in enterprise experience across
verticals and size / population
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Mergers, Acquisitions, and New Branding
Cingular / AT&T Wireless:
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Continuing Orange and Blue challenges in approach, model, and support
Billing system challenges and integration efforts
Implied “instant” giant lacks in some areas of reality
Maintain a cautious eye on account support
Approach sourcing efforts aggressively
Sprint / Nextel
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Nextel delivers valued spectrum, heavy enterprise base and PTT powerhouse
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Engineering company meets marketing company
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Unique position among Tier 1 players with both wireless and wireline assets
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Market leader with voice and data SLA’s – which are unfortunately diluted
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Hampered by lingering (and realized) network perceptions
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Be aware of migration efforts around billing and technology
•Complex billing integration
•PTT application users must exercise all means of communication with the combined entity
Alltel / Western Wireless:
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Combined network footprint, internal efficiencies and base lead to potential Tier 1 play
Niche plays in large enterprise will begin to offer compelling stories
Watch for more of this Tier 2 activity
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Enterprise Strategies
Four Key Strategy Drivers – The Foundation of Best Practices
Drive Savings:
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Drive market leading price points
Utilize market leverage
Simplify the structure
•Pricing and support
Terms and conditions
•Flexibility / Risk Mitigation
•Accountability
Simplify the Program:
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Consolidate the supplier base
Address functional requirements
Take ownership of the asset
Understand the demand set
•Profiles, applications
Enforce the Strategy:
Leverage the Technology:
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Utilize established control
Map wireless to key initiatives
Drive synergy and efficiency
across infrastructure
Take advantage of broader
application spectrum
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Drive behavior and experience
Define and support the process
Generate leverage
Provide risk mitigation
•Legal, IP, security, etc…
Set baseline for future sourcing,
security, technology, process
Page 13
Enterprise Strategies
Financial:
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Eliminate as much complexity as possible in the pricing structure
Drive price points that support flexibility in application
Generate savings to assist in funding overall management strategy
Demonstrate real return on investment, and make it last across the lifecycle
Contractual:
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Terms and conditions that speak to the volatility of the marketplace, and the practical
business environment
Look to stabilize the experience – support, MTTR, and relationships
Address changes in technology – speak in contract language ahead of the curve
Operational:
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Use policy as a strategic bridge to mitigate risk, drive behavior, and support the ongoing
sourcing / management efforts
Maintain visibility and accountability with robust inventory / asset management
Executive sponsorship and priority
Technical:
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Separate the market hype from enterprise reality – plan based on good intellectual property
Utilize sourcing and policy events to generate momentum in mobility planning
Address the mobile device from a network / IT infrastructure standpoint
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