Metamorphosis v2.0 ss 24 dec 2014

Telecom Metamorphosis

a 3 layer splitting of the existing monolithic Telecom business intoRetail, Network and Apps Platform (RNA) standalone business units.

Saravanan SFreelance Consultant – Telecom Strategy & ChangeChennaiDecember 2014

[email protected] 1

Acknowledgements

[email protected] 2

I had developed the core idea of Metamorphosis and the 3 layer splitting of the Telecom business into the Retail, Apps platformand Network layers and running them as separate businesses between Sept 2013 and Feb 2014, while I was still in IBM payroll. Iquit IBM as of 1st Sept 2014. Much of my thinking on the idea of Metamorphosis had been shaped by my experience of observingand working with Telecom clients and doing business with them as part of IBM GTCME (Global Center – Telecom, Media &Entertainment) and the IBM Major Deals Team and I want to thank IBM for giving me the opportunity to engage with the Telecomindustry and clients over the last 12 years.

While in IBM – I had circulated it my draft document for review and comments. I wish to thank Nick Gurney, Kedrick Brown, MikeSmith and David Chaffetz of IBM for their comments and feedback and for their help in trying to get it published under the IBMbanner.

Since leaving IBM as of 1st Sept 2014, I have updated some of the data and analysis covered in this paper and done a bit morethinking and detailing on the structure, strategy and mode of separation of the monolith Telecom business into the constituentparts of the Retail, the Network and the Apps Platform businesses – as stand alone entities - during 4Q 2014. This version of mypaper is my latest – as of Dec 2014, and has undergone significant modifications since my earlier drafts.

I have decided to put it up on slide share to enable a wider discussion and debate on the need for the Telecom Industry to rethinkits business model in the context of a changing industry and value chain landscape.

The role and position of Device-OS players, Customer Financing, Digital markets and retailing, OTT players and App market places,growing value chain beyond communication, failing financial model of the network owning monolith operator, etc… are rapidlychanging the face of the industry vis a vis customers, products, and the industry participants. I believe there is a need for a totaltransformation for the industry to survive and thrive and the earlier the discussion and debates start, the better.

IBM has unlimited rights to this paper and its contents, in light of the origins of the paper, the significant support, advise andfeedback from close colleagues and the unreserved sharing of industry experience and learnings that I have received from my co-workers and finally for the opportunity to work with leading players in the telecom industry during my decade plus stint there.

4 Critical forces are driving the Global Telecom operators and industry to Metamorphosis

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Pressure toMetamorphosize

DecliningFinancial / Biz

Model

Value ChainRapid

Transformation

IneffectiveMonolithStrategies

ChangingCustomer

Needs

Industry RevenueShrinkage

MarginShrinkage

IncreasingCapex / Asset

Intensity

Commodity Pricing &Inflationary fixed- cost base

Rapid Innovation &Unlimited Usage

Cool, Multiple Devicesand Frequent

upgrades

Apps insteadof Service

24/7 Social NetworkCare & Communication

Economy ofScale

Venture FundExtensions

Economy ofScope

Traditional CostReduction

Device –OS –OTT Platforms

Consumer ITServices

ConsumerFinancing &Online Retail

DisruptiveCompetition


[email protected] 4



Model

Value ChainRapid

Transformation


ChangingCustomer

Needs


MarginShrinkage


Intensity




upgrades



Economy ofScale


Economy ofScope



Consumer ITServices



0.5%

1.0%

1.5%

2.0%

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3.0%

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Mobile Industry Service Revenue as % of GDP

2008 2009 2010 2011 2012 2013

Telecom Revenues – Mobile Industry Service Revenues as % of GDP across markets 2 key learnings1. Industry share of economy falls with increase in GDP / Capita (actually a power curve if quantified)2. Between 15 to 40% drop in Industry share of national GDP between 2008 and 2013. Rare exceptions…

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Mobile Industry share of GDP – On the OECD side, the exceptions were all in the >$45K GDP per capitalevel (US, Canada, Sweden) while in GM, the 3 exceptions – Bangladesh, Peru and Argentina were onlydifferent for part of the period, and otherwise exhibited similar year to year drop as others.

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0.5%

1.0%

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Portug

al

Greece Korea

Spain

Israel Italy

New Ze

aland

Singap

ore

Belgiu

m

France

Germa

ny

Nether

lands

Finlan

d

Austria Japan UK

Canada

Austra

lia USA

Swede

n

Denma

rk

Switze

rland

Norwa

y

Mobile Industry Service Revenue as % of GDP - OECD

2008 2009 2010 2011 2012 2013

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

Bangla

desh

Pakista

n

India

Philipp

ines

Indone

sia

Egypt

Moroc

co

Ukrain

e

China

Thailan

d

Algeria Per

u

Colom

bia

South A

frica

Malay

sia Brazil

Argent

ina

Turkey

Russia

Mexico

Poland Chi

le

Hunga

ry

Taiwa

n

Czech

Rep

Mobile Industry Service Revenue as % of GDP - GMU

2008 2009 2010 2011 2012 2013

EBITDA Margin Trend analysis - OECD and GM Operators across Regions indicate between 6 to 7% pointsDrop in margins over the last 7 years, among 14 of the 17 operators studied - with just 3 exceptions …

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20%

25%

30%

35%

40%

45%

2007 2008 2009 2010 2011 2012 2013

OECD Operator EBITDA Margin Trends - Avg 6% points DROP over 7 years - 1 exception

AT&T Verizon Vodafone Telefonica Singtel FT - OrangeDT Docomo SKT KPN Telstra

30%

35%

40%

45%

50%

55%

2007 2008 2009 2010 2011 2012 2013

GMU Operator EBITDA Margin Trends - Avg 7% point DROP in 7 years - 2 exceptions

America Movil Telefonica China MobileBharti Axiata MTN

Fat margins and a talk and text service model have kept the conflicting drivers of the 3 key underlyingcomponents of the Comms business at bay in the past.

[email protected] 8

NETWORK /INFRASTRUCTURE

SERVICES /APPLICATIONS

RETAIL /CSUTOMER

Key BusinessDrivers

Key OperationalDrivers

Key FinancialDrivers

Asset RevenuisationLow Cost ProcurementOperational EfficiencyEconomy of ScaleAsset Value

Wide participation /membershipOpen & TransparentPartner managementPlug and Play platform

Coverage and CapacityBusiness ContinuityRapid fulfillmentAssured QoSAutomated Re-routing

Customer Focus andIntimacyProximity, 24X7 accessPersonalized andTargeted communication

Omni channelBest Fit OffersBusiness IntelligenceComplete BundleSimple and Clear Care

Share of WalletAccount profitabilityAcquisition / RetentioncostsBrand value

Portfolio contributionRevenue shareCost to ServeEconomy of ScopePlatform Value

Open standards andEase of IntegrationPLC & QoS ManagementTransparent Revenuetracking and sharing

Project ManagementProcurement and InstallmanagementOperations andMaintenance mgmt.

As money gets tighter both within the business and in the investment markets, Operators will feelintense and conflicting pressures from the 3 core components of the business. Splitting them andrunning them independently allows Management and Boards to make more rational decisions.

[email protected] 9

NETWORK /INFRASTRUCTURE

SERVICES /APPLICATIONS

RETAIL /CSUTOMER

Monopoly /Partner

Capex vs. OPEX

Revenue /Profit model

Rental revenue modelMargins driven bymaximum usage ofgiven capacity

Wide Partnershipscreate maximum valuefor platform

Monopoly within aterritory generates maxreturns on asset spend

Segment Monopoly forbest outcomesSegment variety protectsagainst volatility

Variable Cost structureand least Capex / Fixedcosts preferred

Segment spend andshare drives revenueRetention, Upsell andCross sell generatesmargins.

Variety and Long tailbased revenue modelWidth of portfolio andstrength of partnersdrive margins

Balanced Mix of Capexand OPEX best in longterm.

CAPEX preferredIncreased Capex =Increased Assets =Increased Value


[email protected] 10



Model

Value ChainRapid

Transformation


ChangingCustomer

Needs


MarginShrinkage


Intensity




upgrades



Economy ofScale


Economy ofScope



Consumer ITServices



It is not that the customers are not spending on “connectivity” – Rather the money they spend isincreasingly going to Value chain members in OTT / Device space rather than to Operators.


252 258 263272 279 286 292 297 303 309 316

60 69 7788

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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

US Market - Telecom + Device + OTT/ Digital economy Revenue Trend & Projections US$ Billions

Serv Rev Device Rev OTT Rev

70%65%

60%55%

50%46% 44% 42% 41% 40% 40%

17%

17%

18%

18%

18%

18%19% 20% 21% 21% 22%

13%17%

22%28%

33%36% 38% 38% 38% 38% 39%

0%

10%

20%

30%

40%

50%

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100%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Telecom Spend Pattern 2010 - 2014 & Projection to 2020

Serv Rev Device OTT Rev

2014 will be the first year, when US Telecoms Services revenue will be less than OTT + Device combinedSales revenues. By 2020, OTT stand alone will nearly equal Connectivity services, which will have shrunkto less than 40% by value of the total Value chain.


The story is the same in GM as well. Analysis of China Mobile value chain trends done by me in 2013(when I was still in IBM) shows that GM markets are also seeing rapid share growth in the visibleDevices and tangible “Experience / Lifestyle” OTT services while Utility connectivity share is shrinking


China - Mobile Share of Wallet Trend

89%82%

74%65%

58%54%

49%45%

40%35%

11%

12%

17%

21%

23%22%

22%22%

23%25%

1%5% 8%

11%14%

17%20%

21%20%

19%

0% 1% 1% 3% 5% 7% 9% 12%16%

21%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Trad Rev (V+T) Op Data + VAS Op Equip + SAC OTT Rev

Apps and Devices also outscore Operators in penetration levels, speed of global user base growth andcustomer stickiness / usage levels. While there may be some doubts as to their revenuisation models, thereis no question that the Apps have replaced Comms operators for connectivity services among key segments


Slow and stodgy Telecom players are unable to keep pace with customer demand for “New”. CompareNPD cycles of OTT / Device / Telecom traditional services: 1000 New Apps launched every day; monthlyNew Devices; OS upgrades every quarter compared to Comms traditional NPD cycles of 12 – 30 months


Operator power in Device retail is already shrinking and becoming a thing of the past. The shift towearables and OTT services : in-home, connected cars, smart city infra - water, power, traffic, security,health, etc… and associated channel shifts Carriers face futher revenue shrinkage on “Others / Devices”


2Q2012

Mass Merchant Retailers – Best Buy, Costco, Walmart, etc.. Togethercontributed less than 15% of total Retail Smartphone sales in 2012. Source : AllThings D Oct 2012. On the Pads / Tabs side, Carriers have always been minorplayers (relatively) compared to OEM Retail / Mass market Retailers..By 2013, the same Mass Merchant Retailers were doing more than 25% of totalSmartphone sales – Source : All Things D Nov 2013. (No new data on pads /tabs)Online Retailers like Amazon / e-Bay though still small are growing rapidly –(from <4% in 2012 to ~ 9% in 2013) for smart phones.As Devices change from Phones / Tabs to Wearables, @homes, in-car, security,health monitors, etc… in the future… and the sales outlets for them will shift toFashion / Clothing / Accessories outlets; Home Depot / Staples; Pharmaciesand a variety of 3rd parties including Auto companies, Security serviceproviders, etc…On current trends, Carriers will potentially end up losing a good chunk of the15-20% of current revenues which is based on device sales and financing.

2Q2012

As if Device Retailer / OTT value competition were not enough – you have the Disruptive PriceCompetitors. While T-Mo US and Free-Iliad FR are the better known OECD cases, disruptive price playhas been around since 2000 – Eg. Play-PL; 2Deg-NZ; Sun-PH; Reliance-IN; XL-ID; TRUE-TH; etc..






Model

Value ChainRapid

Transformation


ChangingCustomer

Needs


MarginShrinkage


Intensity




upgrades



Economy ofScale


Economy ofScope



Consumer ITServices



4 common Comms Strategies – Economy of Scale, Economy of Scope, Traditional Cost Reduction& Extensions and Diversifications….


Economy of Scale3 rationales have been drawn up for what I call the Economy of Scale strategy.

1. Scale synergies = Cost Savings argument – eg. Procurement, Product Development,Branding, Back office Operations, IT, etc…

2. Market Risk Diversification argument – especially relevant in countries with sub 100mill targetable population as in most of Europe, Asean, Africa, Latam, etc…

3. Opportunity to ride the growth and penetration wave across markets – what I callthe Value Surfing strategy.

Operators : Vodafone, FT-Orange, DT- T-Mobile, Telefonica / O2, Telenor, Vimpelcom,America Movil, Singtel, Axiata, MTN, Etihad-Etilsalat, Wataniya/Ooerdoo, Liberty global,DirecTV-Sky, etc…Vodafone has been best example employing all 3 arguments in both their entries andexits. Eg. Big entries – Continental EU, India, Turkey, Africa AND Big exits - Japan, US,Poland, France, Australia

Not all operators have been successful in driving this strategy. Especially when it comesto leveraging scale synergies – Except for Procurement savings on N/work / Technology /IT and Device release windows, MNC Operators resemble conglomerate operatingstructures rather than a true globalised enterprise.

Economy of ScopeIntegrated Play and Bundling and Whole of Home / Whole of Business forms the cornerstone of Economy of Scope play. The focus is maximising value of accounts within alimited if large enough geography – and looking at customer value and profitabilitymaximisation vs. the costs of customer acquisition / retention as the primary driver ofprofitability and ROI.Recent trends to transport convergence between Mobile and Wired / Cable on thetransport side and sharply increased cost of customer acquisition vs. thinning margins onindividual products have further strengthened this camp.

Operators : Verizon, AT&T since 1995; Rogers, Bell Canada, Telstra, Telkom (though nowshifting to regional play options), PLDT, China Unicom, NTT-Docomo, KDDI, Comcast,Times-Warner Cable, etc..Recent followers of this strategy – Vodafone, DT, Telefonica, etc…

Almost all of them have a core National Wireline / Cable company background and theiractions were largely driven by history / legacy assets, rather than strategic vision.Also many of these Integrated players have been MNCs in the past esply in 1980s / 90sand only focused on Integrated play after burning their fingers elsewhere – eg. Asian /Latam meltdown of the 1990s.

Traditional Cost ReductionTraditional Cost Reduction basically assumes that the Core Monolithic End to End BusinessModel remains and that cost cutting is something you do at the margins to maintain / may begrow EBITDA by 1-2 points.It usually involves relatively small Cost Cuts of the order of 2 – 5% of OPEX using programsspread over 1 - 3 years, and primarily focuses on Head count reduction, Procurement strategy /negotiations, Distribution / commission / Retail structure changes and some level of Outsourcing/ Offshoring of so-called Non-Core operations as call center / IT O&M / etc…

Practically Every mobile Operators have done this, are doing this and look set to continue doingthis. And every new CEO announces his / her flavour of traditional cost reduction involvinganother 10-15% head count reduction. It has practically become a week 1 / month 1 ritual forevery newly appointed Telecom CEO, just like the Town hall meets and IB conference.

The problem with this approach The core business and operating model never changes. Thereare no lasting benefits – as businesses which cut out costs during lean times pick them backagain during better times – and worse – inflationary pressures continuously eliminate anymeasures taken within 2-3 years. They remain vulnerable to Market, Economic, Competitive andValue Chain disruptions, all of which are happening simultaneously today.

Venture Funds / Extensions / Related DiversificationsBasically, this is about expanding product and revenue streams to related areas. Starting withISP and Data Centers, this has gone into all kinds of areas including Mobile Commerce /Payments; Mobile Ads, Own App-stores, Content Plays, Cloud services, Enterprise Mobility,Managed Services, M2M, Retail operations, Security and Trust, even IT (SI/AMS/O&M), etc…

Again, most operators have tried their hands at this over the last 2 decades. However with theexception of Asset based businesses such as Data Centers, and basic Cloud services, they haverarely managed to make a dent in the market or make a profit from most of these operations.

Main reasons :1. Scale – while operators typically think of scale as between 10s to 100s of millions, OTT

players work with Billions on a global basis.2. Walled garden syndrome. Operators have never managed to collaborate on Product /

Customer facing operations, since they believe that is the core of their differentiation.Remember that till recently, even passive network sharing was not on the table.

3. Business model and Mindset differences. Comms mgmt. is about large but relatively surebets. OTT plays are about millions of small bets. Comms players are Asset Rentiers, whileOTT plays are innovation centric. OTT is about speed and flexibility. Comms businessesare leviathons - slow and ponderous.

The problem is – None of the past strategies are geared to solve the current and future threats tothe existing business models and their viability


Industry wide Change Drivers Economy of Scale Economy of Scope Traditional CostReductions

Venture Fund /Extension /

Diversification

Busin

ess/

Fin

ancia

lM

odel

Fai

lure

Industry Revenue Shrinkage No Impact Short Term Operatorbenefit, Long term Indy Hit

No ImpactFailed Completely in the

last 10 years.

Operator Business Model/ Governance / Mind set /

Market Approach justdoes not allow for a

successful venture fundmodel.

Operator scales andwalled garden mind setshrink potential gains by

10X to 100X vs. OTTs

OTT valuation andbusiness models

inherently based oninnovation and longer

term user value potentialvs. here and now NPV of

Telecom mind set.

Telecom slow andcentralised decision

making processes doesnot align with the kind of

fast and constantlychanging OTT business

models

Margin Shrinkage Minor impact –Procurement benefits

Some synergy on Customer– lost in bundle pricing

One time Benefit

Asset Intensity and Capex Minor Impact –Procurement benefits

Negative Impact No Impact

Commodity Pricing & Inflationary Costs No Impact No Impact No Impact

Cust

omer

Nee

ds &

Beha

viou

r Cha

nges

Cool, Multiple Devices and FrequentUpgrades

No impact – Negative No Impact – morecomplexity

No Impact

Products / Services – Rapid Innovation Negative Negative – More complexity No Impact

Unlimited Usage and PAYG No Impact Negative – transport usecannibalisation

No Impact

Applications replacing Services No Impact No Impact No Impact

24 /7 - Social Network Care andCommunications

No Impact Negative - IncreasedComplexity

No Impact

Valu

e Ch

ain

Tran

sfor

mat

ion

Device – OS – OTT Platforms controllingCustomer Buying / Usage behaviour

No Impact No Impact No Impact

Retail transformation – Online, and 3rd

party services driven Sales; ConsumerFinancing.

Falling other Revenues Negative to No Impact No Impact

Disruptive Competition – based on newCost Structures and Operating Models

No Impact No Impact No Impact

Emergence / Growth of Consumer ITservices

Worse than Negative –Inc. Complexity

Negative to No Impact No Impact

Operators are now asking for Deep / 50% cost take out to match Disruptive competition, Regulatoryprice pressures and declining revenue streams, and still generate better margins on sales – which ispossible through what I call - the Giga-Bit Factory …. (like the Minute Factory model in GM 2G world)


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Trad Rev Trad Cost GBF Costs GBF Rev

Deep Cost Take Out - From Traditional baseline 100 to Gigabit Factory

Serv Rev Device Rev

Dev COGS I/C & Roam

N/w OPEX Sales Channel

F.O & C.C Mktg & PM

Bill Pay & Bad Debt IT & Admin

EBITDA

Basis for Most Deep CostReduction

1. Eliminate device subsidies /Exit the Retail business /eliminate contracts.

2. Sell / Spin out Passiveinfrastructure and lease back

3. Share Capex / Networkinfrastructure withcompetition

4. Outsource Network O&M /Field Operations

5. Implement Digital Frontoffice for Sales / Care andeliminate Channelcommissions, Sales FTEs &Call center costs

6. Implement Real time BI /BAO – Campaign solutionsand reduce effort /headcount in productmanagement and marketing

7. Invest in convergent BSS-OSSIT and automation and effectstaff cuts in back office FABoperations.

However such a deep Cost Take Out has implications for the existing balance sheet and business model.To align with a 50% take out on costs and revenues, the balance sheet has to shrink to 50% of currentvalue. That calls for Exit from All N/w Infra ownership and writing down inflated good will from past M&A.


43%47% 46% 46% 47% 47%

50%48% 47% 48% 48%

51%

28% 27% 28%30%

33%31%

87%

79%

70%68%

75%77%

53%

58%

52%

47%48% 48%

63%65%

63% 63%66%

64%

43%45% 44%

46% 47% 46%

52%

61%59% 59% 60% 61%

52%50% 51%

49% 48%

54%

63%

52%

59% 59%

45%

49%

76%

69%

63% 62% 61% 62%62% 63% 63%66% 65%

64%63% 63%60%

56% 55%53%

57%

61% 61%

41%

45%48%

41%

30%

36%

41% 40%41%

63%60%

72%74%

67%

74%

51%

61%

54%

59% 59%57%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008 2009 2010 2011 2012

Total Revenue / Gross Assets Ratio

AT&T Verizon Vodafone America Movil TelefonicaTelstra Singtel FT - Orange DT SFRDocomo SKT China Mobile Bharti AxiataMTN KPN

b

Where most operators are already operating in therange of 50-60% Rev / Asset Ratio, a halving of theRevenue line – even at better than before margins (40%under GBF vs. 30% under Traditional) can not supportan Asset base as in the past,

This implies that Operators will be forced to lightentheir Asset base in line with the dropping Revenue line.

On the balance sheet of most operators – the real bigticket Assets are Passive and Active Infrastructure,Spectrum / License, Goodwill (from M&A primarily),Retail Stores and Current Asset Inventories of Devices.

Devices go away with the GBF – at least to the extentthat we can separate any Device Retail / Financingbusiness from the Core Network business of thecompany.

To further Cut Assets, while still retaining Spectrum /License and Goodwill, would be to exit the ownershipof Active and Passive Infrastructure altogether.

Operators are already doing this by Spin outs / Sale andLease back for Towers and Sharing Capex for futureAssets. However to get to 50% of today’s asset base,the cuts need to go much deeper.

Operators in general would have to dispose off all /most of their Infrastructure passive and active and exitany Retail store presence and exit the Device Retailingbusiness altogether…

Which will leave the Operator owning Not a Dumb Pipebut a Dumber Back Office Operations Biz Unit

Network &Infrastructure

60-65% oftraditional Assets

25% of OPEX;~10 to 20% ofStaffing

Commodity /Utility

HO / Back Office /Mktg / ProductManagement

~ 30% of traditionalassets

20% of OPEX; ~30-40% of Staffing

Policy and ProcessDifferentiation

Device, Sales Channel,F.O & Customer Care

5-10% of assets –Inventory / A/cReceivable

45-50% of OPEX; half ofwhich is Device related

Customer Interface &Retail Management

An across the board 50% Cost Take out – and subsequent / parallel balance sheet realignment will resultin a truncated Back office and HO operation, which will neither own its network nor its front office /customer management capability. It will end up losing most of its differentiation / value adding capability.


Passive InfraActive Infra& Network

O&M

Field Ops : Projects, Install,Maintain, Repair

License,Spectrum &

ProductMgmt

FAB BackOffice Ops& 3rd PartyIntegration

IT – OSS / BSS / BAO / SDP

SupplyChain

Mgmt. /Devices

Mktg, Sales,Distribution

/ SubsidyMgmt.

Call Center / Self Care

Retail Shops

VAS Sales /OTT Play

Current Telecom Model – a generalised view – comprising of Network / Field Ops, HO-Mktg-Back Office Ops and Sales / Retail /Devices / Call Center and Front Office Operations…


O&M


License,Spectrum &

ProductMgmt

FAB BackOffice Ops& 3rd PartyIntegration


SupplyChain

Mgmt. /Devices


/ SubsidyMgmt.


Retail Shops

VAS Sales /OTT Play

As it sells off / spins out its N/w Infrastructure; exits Retail Stores and Device business; and moves Sales, Front office and customercare to Online – effectively also starts to lose ownership and control over much of its existing business model scope of operations.

The problem is not with the strategies per se. The problem is that given Telecom monolithic structurecovering network assets and infra, legacy network centric FAB Ops, Central brand marketing and localSales, product and customer management, they can never be implemented effectively.


• Economy of Scale strategies• have maximum value creation potential in Back Office, IT, New Product Development & Management; Device supply chain

management and Digital Front office – sales and care operations. These areas between them affect OPEX – equal to approx. 50 -65% of total Revenues.

• Where as the area that Operators have managed to maximally leverage economy of scale is in Network equipment and Deviceprocurement – which between them affect OPEX equal to only around 25-30% of Revenue

• Economy of Scope strategy• Works best in Front line sales and Product management and Bundling• Where as most operators who have gone in for M&A approach to Economy of scope focus on Synergy cost reduction – primarily

eliminating headcount in Sales and Customer care• Cost Take out can be done in one of two ways :

• Traditional 2-5% cost reduction over 2-3 years is simply not enough to meet the 30-50% discounting price wars / 10-15% annualrevenue shrinkage scenarios facing operators today

• But Deep (50%) cost take out programs are being considered today without regard to strategic implications which may reducethe business to a dumbed down back office as whole host of Front office and Network operations are exited and Balance sheetrealignment requires deep downsizing of the scope of the business operations.

• Value chain Extensions / Diversifications have been consistent failures most Operators.• Operators find it impossible to cooperate with their local market competition and any scale they can provide is limited to their

group subscribers in the 10s / 100s of millions at best – where as OTT players dream in terms of billions• OTT businesses are inherently risky – What is needed is a VC mindset – willing to develop a large portfolio of small

investmentswith high risks of failure, and a willingness to invest senior management time to guiding and mentoring some ofthem to stupendous success. Operators hate risks – esply small bets. They have consistently preferred to Billion $ sure shotphysical infrastructure hedged bets rather than managing a VC portfolio of thousands of small bets

• OTT business need fast, flexible decisioning, market and user sensitivity, and a Skills valuing people management policy. TelecomCXOs tick the “none of the above” box for the above characteristics. After all most of them have reached where they are bytaking big bets on physical infrastructure, managing regulators rather than market competition, being process driven, treatingpeople as a cost and customers as a necessary evil. One can not expect them to become successful VCs especially if the rest ofthe business remains the same as before.





Model

Value ChainRapid

Transformation


ChangingCustomer

Needs


MarginShrinkage


Intensity




upgrades



Economy ofScale


Economy ofScope



Consumer ITServices



Instead of simply shrinking down through an ad-hoc 50% Cost Take out program, the Operator might bebetter served by undertaking a strategic metamorphosis of the existing business into a 3 part RNAbusiness model – with separate Retail, Network and Application Platform business unit.


Passive Infra Spinouts / JV / SPV /Sale & Lease Back

Active Infra & Network O&M - JV/ SPV / Roaming / W/sale /

Outsource

Field Ops – Outsource / Spin out/ Mergers

License &Spectrum

Integrated Products / Services /Apps / Commerce / Content &

Media Platform – Ops & IT

Partner& Rev.ShareMgmt.

IT – OSS / BSS / BAO

FAB – Tier 2 and Back office Ops

Device SupplyChain Mgmt

Customer / Account ValueMgmt, Product Bundling,

Pricing, Marketing

ConsumerFinance /

Swaps

Sales – Retail,CC, Online,

Distribution.

Customer Interface– CC, Soc-Net,

Online.

OTT Service Delivery –Localisation, Language,Promotions, Collections

Bill, Pay, Collect &Credit Mgmt.

N/wW/sale

Purchase /Roaming

Network & Infra Business Apps Platform Business Retail / Customer Mgmt. Business


O&M


License,Spectrum &

ProductMgmt

FAB BackOffice Ops &

3rd PartyIntegration


SupplyChain

Mgmt. /Devices


/ SubsidyMgmt.


Retail Shops

VAS Sales /OTT Play

OR

AD HOC SHRINKAGE TO DUMB HO & BACK OFFICE ?

STRATEGIC METAMORPHOSIS – THE RNA MODEL

The Metamorphic transformation will require some re-organisation of ownership and responsibilityacross the 3 resulting business units to ensure each is a viable standalone business – and isstrategically internally coherent individually …


The Network / Infra / Field OpsBusiness is the closest to legacyTelecom model - a Asset rental / utilitybusiness – providing core connectivity– it is the original dumb pipe.Two key Strategic Priorities :

1. Asset Revenuisation – target 80%asset utilisation

2. National economy of scale /Local monopoly – M&A / Sharing/ Buy & Lease back / IntegratedQuad-play core and accessnetworks - anything to eliminateasset competition

Passive Infra Spinouts / JV / SPV /Sale & Lease Back

Active Infra & Network O&M - JV/ SPV / Roaming / W/sale /

Outsource

Field Ops – Outsource / Spin out/ Mergers

License &Spectrum

Integrated Products / Services /Apps / Commerce / Content &

Media Platform – Ops & IT

Partner& Rev.ShareMgmt.

IT – OSS / BSS / BAO

FAB – Tier 2 and Back office Ops

Device SupplyChain Mgmt

Customer / Account ValueMgmt, Product Bundling,

Pricing, Marketing

ConsumerFinance /

Swaps

Sales – Retail,CC, Online,

Distribution.

Customer Interface– CC, Soc-Net,

Online.

OTT Service Delivery –Localisation, Language,Promotions, Collections

Bill, Pay, Collect &Credit Mgmt.

N/wW/sale

Purchase /Roaming

Network & Infra Business Apps Platform Business Retail / Customer Mgmt. Business

This is the business unit with the biggestchange – the purpose is to build amultinational platform of connectivityservices and apps including apps / content/ commerce / ads / m2m / cloud / etc… - allthe things legacy telecom mgmt. would notinvest in.Strategic Priorities :

1. Replace BSS-OSS Ops design with aMulti-sided Platform design

2. Build a Partner / Rev sharing / Co-development biz model

3. Evolve a VC type OTT equity portfolio4. Leverage BI / Local area know-what /

market access to

Retail / Customer facing business is the most complicatedchange – Telecoms believe they know this VNO space and canexecute well. BUT at least 25% of their subscribers and I wouldmore than beg to differ (1% Churn on 2 year contract period 25% of Subs DO NOT RENEW.)Strategic Priorities :

1. Online AND Brick and Mortar Retail presence – not justtelephony – but the full range of data connectivitybacked services including 3rd party brands

2. Territory oligopoly and leadership; Whole of Home /Whole of Business – Full Platform of services – 100%share of Data – Digital Wallet in every home / SMB

3. Comprehensive Customer Information and Intelligence;achieve 100% Customer Trust

Retail Business Unit. More than just a classical Virtual Network Operator, it will be the1 stop shop and service interface for all Comms, Digital, IT / Cloud and M2M services,for consumer and business segments – leveraging Brand scale & Customer Insight


Parameter DetailsWhat is thebusiness ?

With its own Online, Soc-Net, Mobile stores, physical Retail outlets and channel partners, Own call center / App-Care services – itforms the single window for all customer buy / care / pay interactions for all things related to connectivity, digital, automation and ITservices. Targeting whole of home / whole of business Comms – Digital & IT revenue share in the country, it focuses on bringing allnetwork and app services onto its Customer Front End platform – including Device sales / service, Contract and Services sales, allCustomer Care, Bill – Pay- Collect and in turn provides Local market access, understanding and intelligence to all back end partners –whether they are parent group network / platforms or 3rd party providers. Core strengths are Customer understanding, Portfoliobreadth, Sales, Consumer financing, Logistics and Service / product delivery and supply chain management.

FinancialModel

Asset light, primarily invested in working capital and Front End Technology and Retail space. The business focuses on maximisingscale from a procurement perspective AND Differentiated Sales and Service experience and Wide Product Portfolio and a seamlessUsage experience for Customer Acquisition, Revenuisation and Retention. A thin margin business like most Retailers, profitability ismaximised by maximising share of wallet and effective customer value management

Strategy As an Asset light – Customer Interface and Intimacy business unit, it has the ability to adopt a unique “Local Economy of ProductScope PLUS Global Economy of Brand & Marketing Scale strategy”. , It leverages the Platform business unit for the widest possibleproduct portfolio but is open to adding other 3rd party products and services to meet its customer needs and desires. Coupled withdeep customer analytics based Insights / understanding; and effective territory management, global branding and supply chain /consumer financing capability, the business unit maximises customer value, wallet share and industry gross revenue share.

KeyCapabilities

Comprehensive Cross Platform Customer acquisition, communication and campaign capability – including Physical and Digital retailoutlets and local territory control. Device and 3rd party Services supply and assurance chain management and 24X7 Care ability.Deep customer insights and rich customer relationships, Trust and Loyalty, and be the first option for customer interfaceConsumer Credit management and financing and collections capability. Credibility for back end parties on Rev share and Customeranalytics inputs. Personalisation, Localisation and Territory management support for back end Commerce / Payment / Ad providers.

Ethos Customer Centricity and High level of Customer Trust and Intimacy, Rapid Innovation and Wide (cool) portfolio, Visible and Top ofMind Branding for all Comms and Digital services, Partner and Bundling and Trust and Credibility with portfolio partners; Multi-national Scale of Operations (Brand should support 100s of millions at the least if not billions of potential users), Thin Assets andMargins, and short working capital cycles for profit maximisation.

KeyOperatingBlocks

Retail / Sales /. Channel – Digital and Physical management operations; Supply chain, Credit management and Consumer Financing;Portfolio Bundling and Billing and effective Product / Service placement based on customer understanding and revenuemaximisation; Efficient and automated back end integration to Platform / Network service providers / 3rd party App stores, M2Mservice providers, etc… Efficient and Customer friend.ly 24X7 Customer Care across the entire portfolio.

Application and Services Portfolio Business Unit. It will be the Innovation Engine Room –developing and delivering a many sided platform for all Comms and Digital services,Invest in and Develop the digital / app economy and partnership framework / forum



Starting from a hidebound product silo-ed FAB Back office and IT operation for most Telecoms, this business unit is expected totransform itself into the Innovation Engine for the entire group. The idea is to :1. create, operate and grow a Many sided Platform performing FAB services for a range of network, IT, App, Content & Media,

Commerce, Ad, M2M, etc,.,,, partners – enabling the Apps space entrepreneurs to focus on the core product innovation whilethe platform takes care of day to day Ops and maintenance.

2. Develop a App / Services development cluster of innovators through direct investment / preferential market access and networkAPIs and usage behaviour analytics / Providing the Operate – Revenuise – Upgrade platform and Mentoring and Brand buildingsupport for such entrepreneurs / partners.

3. Grow to regional scale – Pan-EU / Latam / GM-Asia / MENA etc… to deliver scale benefits to the Platform and Partners4. Tie up with both Parent Group Network Biz unit and any other relevant N/w service provider / Infrastructure seller to ensure full

services platform for any and all service / app product that may be required by any Retailer / Customer facing business unit.FinancialModel

Intermediate between Retail and Network, this business unit will have perhaps 25-30% of the Assets of the original parent – largelyinvested in the Many sided Platform and FAB automation for all partner products PLUS investments in DCs and Cloud based servicesto support hosting, delivering and managing / operating the Apps / content / commernce / Ad / M2M / other solutions for the rangeof partners required to build a comprehensive Comms + IT + Digital services portfolio.Multi-national Regional presence will bring in Scale benefits, but even one-country operations can benefit by reselling the platformservices and solutions to multiple Retail operators within the same market.Profitability comes from maximising Automation and where manual operations are a must – relocate / outsource to low cost centers

Strategy As a platform operator, value comes from ensuring ownership of critical value creation and capture nodes within the overallplatform. However scale and width of partnerships and platform comes from multi-national play (regional / linguistic / culturallysimilar markets) – not necessarily global) and Investment portfolio and Partnership alliances with key platform nodal players

KeyCapabilities

Many sided Platform capable of Rapid time to market, Launch and Test and Roll out, product performance analysis, and in generalProduct Management capabilities, etc…; Ease of partnering; Venture Funding and Angel funding / mentoring of OTT players / App-developers; Analytics; Automation and Low cost operations;

Ethos Rapid Innovation; Large Portfolio management and Partner friendly and transparent Partner relationship managementKey OperatingBlocks

Rapid Innovation, Ease of partnering, Transparency of revenue sharing, Seamless, low cost and fool proof FAB services for a widerange of products and services, Support infra and services for Non-N/w based Apps and Services; Access through Parent group Retailbiz unit and other Retailers to a large marketplace for partners to enable rapid subscription and commercialisation.

Network & Infrastructure Business Unit. The monopolistic asset owning Rental / Utilitybusiness unit – focused on maximising Asset utilisation and revenuisation, managing longgestation projects, raising cheap funds / debt for Capex projects as well as daily N/w O&M



In many ways the simplest business unit of the 3 child organisations, it is basically a Asset Renter / Wholesaler of NetworkConnectivity solutions in Core / Access and Last Mile and provides Field Operations support where required to Retail / Platformbusiness units and their partners..

FinancialModel

With close to 70% of the parent group assets – excepting spectrum / license / brand goodwill, - this is heavy balance sheet businesswith high Depreciation costs. As such it has to have a high EBITDA, but so long as it can ensure Economy of scale at a country leveland Procurement scale through cross-national partnerships / multi-national scale, it can deliver low cost network services at areasonable, stable margin to the rest of the value chain.High asset utilisation (>75-80%) and comprehensive asset ownership for distinct medium of transport and access coupled with localmonopolistic scale will enable a strong P&L.

Strategy Local scale of economy and monopolistic asset market is critical to maintain a reasonable but stable profitability. High Capex entrybarriers, key zoning approvals and ownership of legacy long re-use passive infrastructure such as ducting / trenches / towers / etc…are important to ensure competition on the asset side does not intensify. The idea is not to make monopoly profits – but to avoid aexcess asset situation which could lead to bankruptcy of all (Eg. Atlantic cables in the early 2000s).

KeyCapabilities

Network Planning, Efficient and Fast Project management; High quality low fault rate N/w operations; Redundancy planning andBusiness Continuity guarantees; Wholesale Service SLAs for Quality, Capacity and Class of service delivery to needs; Efficient andQuick Field operations for Installs / Repairs; Rapid coverage capability, for new Tech introduction; Rapid amd high re-use / re-purposing of pre-existing / under utilised network asset and inventory, smart funds management and debt and hedgingmanagement to keep ROI within good performing Utility ranges

Ethos Essentially a monopolistic rentier business. The focus is on quality n/work operations and services and low costs. Scale is morecritical at a local level than at a global level, unless operating in ultra-small markets eg. Sub 10 mill pop EU markets for instance.

KeyOperatingBlocks

Network Planning and Strategy; Passive Infrastructure Projects and Local Government / Zoning regulator management,Procurement; Project management; N/w Quality of Service / SLA management and Ops and Repair and Assurance; Field Ops andInstall and Repair on existing network assets and inventory; Debt and Funding management for long gestation projects; etc…

Who has this been done before ? And what are the results ?Frankly there is no comprehensive example of E2E Metamorphosis and even the partial case studies havenot always been voluntary… – but enough successful partial case studies to suggest serious consideration…


Is Metamorphosis a necessary strategy for all Operators ?


I believe that Metamorphosis is a Must Do – for every operator. It is best if they do the actual separation into P&L units. But at theminimum, they should separate the strategic-governance-management mechanisms that operate the 3 business units.

What Metamorphosis gives operators is three fold :

1. In the short term, it unlocks value in terms of assets / resources / capabilities / relationships within the monolith – byenabling strategic Deep Cost Take out; High cost Non-core Asset spin outs / sale; support outsourcing of non-differentiatingoperations today, etc….

2. In the longer term, it allows for operators to decide where their true capabilities and interests lie – and allow them to grow inthe selected area of choice both within and across markets and live within their comfort zone of risk and return.

3. Most importantly – it gives the freedom to decide what to do next– without getting caught up in the Assets vs. Customers vs.Innovation argument for every $ spent / earned by them.

By far the biggest problem for Telecom operators today is that there are 3 different directions of forces operating on 3 different businesscomponents :

• Customer needs changes affecting the Retail business unit

• Value chain changes affecting the Apps & Services Platform business unit

• And the overall Financial pressures / Capex / Funding and Cash flow pressures – affecting Asset creation and utilisation – mostof the burden for which falls today in the Network domain.

Monolith operating models hinder the ability of the operator to undertake different strategic approaches to addressing these differentproblems in the 3 different operational units within their e2e business model.

What Metamorphosis does is to make visible the fact that the 3 different operational groups are in fact 3 completely different businessesin themselves and require different and in some cases contradictory strategies / approaches to survive and grow. By splitting into 3different business units, Operators are able to selectively address the opportunities and threats of each of the business units on theirown merits and craft and execute independent strategies for each of the 3 business units.

Today’s monolithic business forces Operators to either make un-necessary compromises OR force them to opt for which of the 3 areas,they want to focus on, leaving them at the mercy of the competition / market in the other 2 areas.

Will Metamorphosis result in 3 surviving business units for every Operator? – Is Metamorphosisan end state – OR a way station?


Not every Operator will have 3 surviving business units in place of their monolithic operations of today.

Metamorphosis requires splitting the existing business into 3 separate business units with their own financials, strategy and governance.But that is NOT the end state.

In my view, I expect that each operator will focus on 1 or maximum 2 of the resulting business areas – and look to grow in selected areasof competitive advantage rather than trying to keep all 3 of the businesses going simultaneously.

• Certain operators are better suited to run the Network / Infra business – and they will likely acquire / merge other NetworkOperating units within the market to generate Local Economy of scale advantages, while exiting / selling off the relatively poorlymanaged / operating Retail / Application Platform business unit. I can think of Bouygues in France, perhaps Orange in Poland,Vodafone in Australia / NZ and East Europe opting for something on these lines.

• On the other hand, some Operators in certain markets may decide to focus on the Retail / Customer / Devices portion of thebusiness - buy out / merge with Retail operations of Network operators or with other VNOs – to create Monopolistic Quad playand OTT services retail / front office operations. Some of these players may want to retain their Apps Platform business as wellfor atleast sometime to come. Vodafone and O2 in West Europe, Telenor in Asia, DT in Central and East Europe are possiblecandidates for instance.

• While many operators think they can and want to operate the Many sided Apps and Services Platform as a business, I personallythink that most will eventually either sell out OR at best tie up with OTT –OS players to cobble a Telco-OTT-Device JV Platform. Ican readily think of a Google-Vodafone-Samsung JV platform OR a O2-AT&T-Apple JV Platform in say 2025 if not by 2020.However longer term, the Innovation business requires very different mindsets / philosophies / skills from anything Telecomshave today.

Post splitting, very few operators today have the business and operations capability across all 3 domains, the financial capacity andstrength to fund the turnaround and growth OR the strategic ability to operate and survive / beat the competition in all 3 domains – Retail& Customer, Apps & Service Platform and Network & Infra.

The current industry structure and business model is not stable or even viable in the growing OS-OTT-Connectivity market. So eventuallyeveryone will be forced to go for a metamorphic 3 way splitting of their business. So to my mind, it is not a case of Whether but Wheneach operator feels they should undertake Metamorphosis.

Point to note – As always, the earlier you transform, the more time., you have to turnaround and reposition the new business unit to takeadvantage of downstream opportunities – whether it is to sell out / buy in / merge or partner with other players.

Looking at possibilities … One market at a time – For eg. France


Take the French Telecom / Cable market for instance with 4 majors Iliad-Free, Numericable-SFR, Bouygues and FT-Orange and a myriadsmall VNOs today. Frankly – SFR is in trouble and Numericable has paid a very high price for it. Bougues is beyond trouble – it is headedfor disaster if something is not done soon. Iliad-Free are the market darlings on growth, but profitability pressures and capex demands arerather high and may lead to breakdown sometime down the road. FT-Orange is under pressure to improve – even if things are not urgent.

In my view, a good end state for all 4 players in the French market would probably be :

1. 2 Network / Infra Players eventually – Bouygues, FT-Orange. Possibly a 3rd player from either Numericable or Iliad may survive –though personally – I would expect to see Bouygues buy out the Cable and Mobile Infra from either or both Iliad andNumericable to be able to compete with FT – Orange Network Business effectively longer term. Whichever 3rd player remainswill be forced to sell out due to lack of scale.

2. 2 or max 3 Apps & Service Platform players – Google-FT-Orange – Canal+ platform; perhaps an Amazon-Vivendi-SFR-Numericable / Iliad-Free platform. (Platform plays in my view will eventually be driven by Global OS-OTT Platform owners andValue chains – and not Telecom players However the Global OS-OTT platforms will want country level tie ups for basicconnectivity services, Customer understanding, Localisation support (language / culture / content and Advertisers) the deepmarket connections and business relationships. Acquiring / merging with a strong local Telecom platforms would be a good wayto gain these benefits.)

3. At the Retail front end, I expect some players like Device-OS-OTT conglomerates such as Apple / Samsung / Amazon may wellset up businesses of their own in addition to setting up the Apps-Services platform play as well. However they will need deepbrick and mortar distribution, supply chain management and territory sales management support as well as Customer insights /understanding, all of which the Telecoms can provide. In France for instance, I would expect to see FYT-Orange, Iliad-Free andNumericable-SFR to come through either on their own OR in JV with a OS-OTT Retail space player in the long term.

4. Last point – it is always possible that splitting the business into 3 parts enables potential additional Telecom Industry M&As thatwould not be possible otherwise. For instance, one could easily imagine a Pan-EU DT-FT merger of their Network businesses tocreate a Everything Everywhere Network Biz. Ditto AT&T and Telefonica may decide to merge their interests in any of the 3areas across West EU and USA and Latam markets to create a EU-Americas giant in either Networks OR Retail space.

The point is this : While it is still possible that all 4 existing major French telecom players survive to 2020 / 2025 – they may not be anylonger be present in all the 3 core business areas that form the monolith telecom biz structure today. What is certain is that if they do notchange, very likely 2 or even 3 of the existing players will go down in flames or be bought at fire-sale prices within the next 5 to 7 yrs.

Looking at possibilities … One Country at a time… - US market


The US market is a slightly different beast – compared to other OECD markets. A combination of Operator market power; high entrybarriers and a relatively supine Regulator has allowed a few large players – VZ, ATT, ComCast-TWC, T-Mo and Sprint to drive the US marketfor too long. But the situation is changing and rapidly at that.

Consumers are increasingly shifting to OTT and non-Comms Service providers for their needs and the Value chain is rapidly transformingto include a variety of new players who create and capture value. (Refer to my slideshare pdf on Global Telecom Share of Wallet).

On the wired side we are seeing significantly increased competition – whether from CLECs who are investing in Gigabit Ethernet and Fiber/ Cloud services and Data centers; from Cable M&A (Comcast + TWC); from investments by Internet companies (Google / FB), andincreasingly aggressive municipal authorities who are today restricted only by age-old regulations from investing in building city-widefiber networks, etc..

The nature of the Mobile market is changing rapidly – with disruptive price wars, “non-contract” postpaid, open market device sales andconsumer financing deals, and shift in consumer spend from voice and data to Apps and Entertainment, shift from phones to non-phonedevices, etc… - the shape and nature of competition is changing drastically, leading to dropping margins, while Capex grows.

Although the industry still seems stuck in its old world mentality of “High Asset intensive Entry Barriers” and “Managed ReulatoryGovernance”, the world is swiftly shifting under their collective feet. And the faster they anticipate the changes and transformthemselves, the better some of them have to survive and thrive in the next decade.

In my view, Verizon is least likely to break up its monolithic “own-everything-under-1-roof” structure. T—Mobile are focused on their LowCost Operations & Disruptive Pricing business model. This may willy-nilly lead to their exiting / spinning off / outsourcing parts of theirbusiness as part of low cost operating model execution. But they are not unlikely to take up a voluntary structured metamorphosis fornow. Sprint may well benefit by going through a split up of their business and exiting 1 or 2 of them through structured mergers withother players in the industry, but it appears, they are happy to follow T-Mo’s lead for now and are not striking any new ground in theirstrategic thinking. AT&T may well be the first to look at some thing on the lines of Metamorphosis. They do have the ability and the scaleto not only split into 3 layers – but are also capable of driving each of the 3 into successful businesses in their own right. However theircurrent focus on acquisitions and investments seem to give the view they are not too worried about cash flow right now. They too mayneed to see the financials get worse before they undertake something like this.

Even though some operators may stand to gain significantly by early adoption of metamorphosis, I do not think the US market is quiteprepared to take up something as radical as a comprehensive restructuring into 3 standalone businesses before the end of this decade, atleast, not before they have tried all the other options and failed to achieve the promised gains.

How to implement Metamorphosis – 3 Options – (1) Geological / volcanic change; (2) Entomological(Cocooning yourself) and (3) Amphibious. I would recommend the amphibious model as bring gradualand organic, remaining open to externalities and so flexible and relatively pain-free organisationally.


Three different options for Metamorphic transformation :1. Violent, Heat, Pressure – as in Geology would be impossible to

execute / control or even live through for an organisation. The leastweakness anywhere – and what you have is a volcano – not ametamorphosis

2. Larva – Pupa – Butterfly kind of metamorphosis seems appropriateas a nice visual of what you would like to end up with but thisapproach requires a period of lying in stasis in a cocoon, while youchange from a creepy crawly ravenous big worm into a flit and sipbutterfly – not something a business could really afford to gothrough – meaning the staying in stasis for a period of time.

3. The amphibian variety – organic, gradual, alive and kicking throughall of its phases, and constantly growing / morphing through thewhole period . No Stasis / No Cocoons / No heat and pressure /much less dramatic / less fuss and fanfare but equally successful asa way to get from here to there…

So What next ?


From an Operator stand point, the obvious next questions are :

• Is this relevant for me and in context of my market ? – At what point should I need to consider it seriously ?

• If I do buy into the idea of metamorphosis – how do I prepare my business and organisation for it?

• How do I execute something as radical as Metamorphosis ? – in terms of Financials, Commercials, Operations,Customer management, Organisation & People, Management, Governance and Shareholder management

• What are the execution risks and how do I manage them effectively ?

• How do I know I have succeeded ?

My belief is – there is no one size fits all strategy / approach to Metamorphosis. A lot depends on the market conditions,investment climate, industry situation and regulatory environment. In addition, your own asset base, operating profitability,extent of customer intimacy, product innovation capability, industry partnerships, balance sheet structure and management /governance and organisation politics will drive your particular strategy and plan.

And Finally

Not every market is under the same pressure to change. While some markets in Europe are over-due in taking action alongthe lines of Metamorphosis – eg. France, Spain and Italy come to mind immediately..

While some others in Asian / American markets may consider Metamorphosis as irrelevant to them in the short / mediumterm.

You have players in GM already half way there, Eg. the “Bharti Airtel Business Model”; And some in the OECD markets whohave already structurally split apart their wireline businesses – forcibly or otherwise– Eg. BT – Openreach; Spark (TNZ) -Chorus; Telstra-NBN Fixed line assets; KPN - Reggefiber, etc…

And, you see a range of deals for sharing Capex / Networks; National Roaming, etc.. as operators try to manage theconflicting pressures without going for a total transformation.

Metamorphosis v2.0 ss 24 dec 2014

Business

Transcript of Metamorphosis v2.0 ss 24 dec 2014