Scenario Analysis: 3G/4G Wireless

August Jackson

Verizon

Why do Scenario Analysis?

Process to Create Scenarios

STEEP Analysis

3G Drivers: Social

Changing workplace norms and expectations of younger generations of workersContinued growth in the application of outsourcing non-core business activities leads to growing distributed, non-centralized organizationsLower birth rates among native populations in Western Europe, North America and JapanIncrease in the proportion of immigrant and ethnic minority populations in Western Europe and North America

Impact of H1N1 global pandemic and other diseases

Obvious potential for criminal activity to migrate to digital mediaVariances in concerns for individual privacy based on geography, generation and cultureInnovative corporate cultures defined by iterative, lean product development and "perpetual beta"

3G Drivers: Technological

Growth in market for smart phones that combine phone, computer, GPS and often camera

Increase in mobile data volumesUnbundled Mobile VoIP made possible by 3G data services disrupting traditional switched voice hold of wireless carriers

Increase in mobile data speeds (3G and 4G)

Enterprise-class applications on mobile telephonesMobile OS proliferation: Apple, Google Android, Palm WebOS, Nokia Symbian, RIM Blackberry, etc.Fixed-mobile convergence and unified communications platforms enabling business users to unify fixed and mobile voice and messaging servicesVirtualization of computer assets for efficient use of capital assets and securityCloud Computing displacing need for capital investment for information technology deployments

3G Drivers: Technological (cont.)

Increasing acceptance of open source software in government and enterprise for an increasing number of applicationsInteractive, collaborative software platforms that benefit from a network effect (Web 2.0, social media, social software)

Semantic web technologies (Web 3.0)

As yet unproven interoperability of LTE and TD-LTE

Early success of Wi-Max (802.16m) deployments in US and Africa

Competition between LTE and WiMax for 4G standards

Delayed deployment of 3G in China and IndiaTimeframe for widespread 4G / LTE rollout in major wireless markets?"Developing" markets where 3G has yet to be deployed or is only now starting to be deployed are better-suited for lower-cost offerings from the likes of Huawei and ZTEIncreasing proportion of total Internet and IP traffic moving over wireless networks

3G Drivers: Technological (cont.)

Carriers committing to a roadmap for 4G deployment and speed of LTE deploymentGrowing use of cloud computing for distributed applications and infrastructureIncreasing quality of consumer-grade software and applications to support enterprise requirementsGrowth in use of machine-to-machine wireless data and consumer electronic devices with embedded wireless data connectivity (example: Amazon Kindle, GPS navigation)

Will TD-SCDMA be accepted broadly outside of China?How will the China market develop as a consequence of a variety of 3G technologies being designated as part of the 3G spectrum license?Increased application of video conferencing, telepresence and web conferencing as medium for business collaboration and personal communicationsContinued concerns about the health impact of constant use of mobile telephone equipment

3G Drivers: Economic

Economic crisis and the new normal in the West (project 2 - 3% growth compared to 6+ and 8+ percent growth in India and China, respectively

Growing economic power of China and India

Continued reluctance to support Foreign Direct Investment in India

Tie of RMB to the DollarConsolidation among Western telecommunications equipment manufacturersOversupply of consumer retail space in the US commercial real estate marketReverse innovation of low-cost/innovative products introduced in developing marketing finding in-roads as low-cost solutions in Western markets

Possibility of an East Asian asset bubble driven in part by investors borrowing at low interest rates in the US and investing in what they perceive to be the high growth markets in East AsiaGeneral volatility in the price of oil

3G Drivers: Economic (cont.)

Variances in the availability of credit, leverage ratios in national markets to fund capital investment of network build-outs, M&A activity, R&D investmentBusiness and broader economic impact of attempt to revise financial and tax regulationBusiness impact of efforts of US Federal Reserve and European Central Bank to pull-back from policies of quantitative easing to minimize the economic impact of failure of large banks in 2008

3G Drivers: Environmental

Push to "go green" in ICT and companies investing in green R&D and marketing

Continued expansion in greenhouse gas emissions and growing among developing economies

Outcome of continued R&D for clean energy sources

3G Drivers: Political

Concern about the magnitude of US federal deficit and growth in national debt likely to be a defining characteristic of 2012 presidential electionConcerns over cyber warfare by state and non-state actorsUS Federal Communications Commission (FCC's) stated intention to mandate rules for network neutrality, extending potentially to freedom for device connectivity, VoIP over data networks and applications on devicesHints of protectionism among US politicians, particularly vis-à-vis ChinaStimulus spending in the US focusing on rural broadband, primarily wirelessStimulus spending in the US and China devoted to Health IT

Stimulus spending in the US devoted to "smart grid" including wirelessAvailability of white space spectrum for unlicensed wireless services

3G Drivers: Political (cont.)

Highly variable adoption of wireless LAN technologies (namely Wi-Fi) using unlicensed spectrum in national marketsNational policies allowing for the introduction of nuclear powerNational policies on regulating financial markets following economic crisis of 2008National policies to encourage reduction in greenhouse gasesChina's Ministry of Industry and Information Technology and related regulatory bodies mandates for home-grown wireless standards like TD-SCDMA and TD-LTE

Themes of Uncertainties

Unbundled Mobile VoIP

Unlicensed Wireless Spectrum

US FCC rules on “net neutrality”

LTE and TD-LTE Interoperability

Externalities of multiple 3G standards

China’s MIIT’s require TD-LTE

Volatility in oil, commodity prices

Financial regulatory reform in US, Europe

US Fed and ECB draw down money supplies

Move in RMB : $ ratio

Asset bubble in developing markets?

Availability of credit and cost of capital

Standards

Openness Economic Volatility

3G/4G & ICT Scenarios

Telco Sets the Pace Modest speed increase Carriers set pace of ICT innovation Very high ROC for telcos Highly regulated

Google World Rapid speed increases Carriers lower ROC ICT central to strategic competitiveness of all firms Total ICT market grows fast

Innovation Stagnation Almost no bandwidth growth Almost no innovation in ICT Telcos purchase equipment makers Regulated, cost-plus pricing

Reverse Innovation World Slow speed increase Increased use of open source hardware and software Business and ICT innovations move from China & India to West

Closed & Controlled Open Ecosystem

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Important Attributed of Scenarios

Stable Growth, Closed & Controlled

Scenario 1: Telco Sets the Pace

Stable Growth, Closed & Controlled

Scenario 2: Google World

Stable Growth, Open Ecosystem

Scenario 3: Innovation Stagnation

Economic Volatility, Closed & Controlled

Scenario 4: Reverse Innovation World

Economic Volatility, Open Ecosystem

Caveats & Observations About Scenarios

China and US may face different scenarios

Different ideas of “Regulatory Intrusiveness” in China and US

High growth in China will only slightly blunt impact of commodity price volatility

Global economic state will define success of Chinese equipment makers outside China

谢谢August Jackson

Verizon

+1 703 348 7337august@augustjackson.nethttp://augustjackson.net

Appendix

Sources

Blenkhorn, David, and Craig Fleischer. Managing Frontiers in Competitive Intelligence. New York: Quorum Books, 2000.

Bensoussan, Babette and Craig Fleischer. Analysis Without Paralysis: 10 Tools to Make Better Strategic Decisions. New York: FT Press, 2008.

Day, George. "Looking in to Marketing's Future.” Marketing Management September/October 2009: 12-17.

Dewar, James. Assumption Based Planning: A Tool for Reducing Avoidable Surprise. New York: Cambridge University Press, 2002.

Steps to Scenario Analysis

1. Identify the decision(s) that need to be made

2. Define the scope of the analysisA. Products

B. Markets

C. Customers

D. Geographies

E. Timeframes

3. Identify the stakeholders

Steps to Scenario Analysis

4. Identify the basic trendsA. Explain trends

B. Why does this trend affect the firm related to the decision to be made

5. Identify uncertainties among the trends/driversA. Possible outcomes for each uncertainty

B. Relationships among the uncertainties?

C. Any mutual exclusivity?

Steps to Scenario Analysis

6. Select 2 most important uncertainties

7. Cluster strings of possible outcomes

8. Identify the extremes with all positive/negative outcomes

9. Check for consistency and plausibilityA. Are the scenarios compatible with the timeframe in

question

10.Identify relevant themes and organize trends and uncertainties around these trends

Steps to Scenario Analysis

11.Identify research requirements to better understand uncertainties and trends

12.Develop qualitative models for uncertainties that can be formalized and quantified

13.Develop scenario narratives of the future state and a back-story of how we got there. “Histories of the future.”

14.Describe the competitive and financial implications of each scenario

Steps to Scenario Analysis

15.Develop the competitive strategy narrative around each scenario.

A. The common strategies to all scenarios?

16.Choose an overall strategy with respect to the scenarios

A. Shape the future?

B. Adapt to the future?

C. Minimize overt vulnerability

Steps to Scenario Analysis

17.Build early warning milestones for each scenario

A. What kinds of things will we see if a scenario is coming true?

B. Where will we see it?