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Telecom Markets Trends
Raul Lucido
vice president
strategic marketing &
Governmental & regulatory affairs
1995-2000: Unprecedented growth
• Internet access boom equals fixed line bonanza
• Corporate data needs skyrocket
• New revenue streams (US data)
– Hosting goes from zero to $2.5 billion
– eCommerce services reach $20 billion
• Mobile services create a boom
– Europe goes from 6% penetration to 54%
– Japan goes from 7% to 50%
– Hundreds of millions of handsets sold annually
There is an irreversible long-term trend in
demand for telecoms …
1400
World telecoms revenue
As % GDP
USD billion
Historical
4.0%
3.5%
Forecast
1200
3.0%
1000
2.5%
800
2.0%
600
1.5%
400
1.0%
200
0.5%
0
0.0%
Source: Analysys
As % of GDP
1600
… driven, in part, by technology …
100 000 000 000 000
1 000 000 000 000
10 000 000 000
100 000 000
1 000 000
10 000
100
1
Cooper’s Law states that the number of conversations (voice and data) conducted over a
given area, in all of the useful radio spectrum, has doubled every two and a half years for the
last 105 years, ever since Marconi discovered radio in 1895
Source: ArrayComm, Martin Copper
… and leading to a revolution in the structure of
the economy
Structural demand for
communications and
IT
Cost to users
Cost of basic
technologies
Short-term
demand
Telecoms revenue is an accurate
indicator of wealth
Global telecoms revenue (USD million) per km2 in 1998
Source: Analysys
In a world where trade flows look like the
Internet …
Prices are expected to continue to decline to
less than EUR0.05/min
Average cost per call minute for a sixline business (1990 EUR): 1991–2001
CAGR reductions on call
tariffs of 5–15% in the
last ten years
Source: Analysys Cutting the Cost
Average cost per call minute for an average
residential user (1990 EUR): 1991–2001
CAGR reductions on call
tariffs of 3–13% in the
last ten years
We know that demand grows steadily in the long
run …
2000
4.0%
1800
3.5%
1600
3.0%
1998 USD billion
1400
2.5%
1200
1000
2.0%
800
1.5%
600
1.0%
400
0.5%
200
0
1985
Source: ITU/Analysys
1990
World telecoms revenue
0.0%
2000
1995
As % GDP
… so why have stock markets reacted
like this?
Deutsche
Telekom
NASDAQ
OTE
Source: BigCharts.com
Capacity is being reduced …
Telecoms job cuts
300 000
250 000
200 000
150 000
100 000
50 000
0
Telecoms
manufacturers
Source: Telecoms job cuts, Financial Times, September 2001
Telecoms
operators
… and the change in business climate could last
one year or more
Over-investment
Collapse in values
Slow revenues
Consolidation
Demand and supply
match
Revenues increase
Today
3–4 years
6 months?
Investment begins
About 1 year
A year or so
2001: Operators feel the bust in debt . . .
Debt levels of 5 European telcos (millions of Euros)
60,000
50,000
BT
Deutsche Telekom
Enitel
KPN
Sonera
40,000
30,000
20,000
10,000
0
Q1 2000
Q1 2001
Source: Company reports
. . . and in share prices
Share prices of 5 European telcos (US dollars)
250
200
BT
Deutsche Telekom
Enitel
KPN
Sonera
150
100
50
0
31 March, 2000
31 March, 2001
Source: Dow Jones, from ADRs listed on NYSE
Nasdaq Telecommunications Index
1400
1200
1000
“Hype decisions”
800
600
400
200
2000
01-02-05
1998
99-02-05
1996
97-02-05
1994
95-02-05
1992
93-02-05
1990
91-02-05
1988
89-02-05
1986
87-02-05
1984
85-02-05
1982
83-02-05
1980
81-02-05
1978
79-02-05
1976
77-02-05
1974
75-02-05
1972
73-02-05
71-02-05
0
2002
Main factors creating the
hyper-growth and crisis
Market
Investments
Geographical
expansion
New competitors
Good GDP development
(US driver)
“Technology”
Investments
Digital Mobile
The hypergrowth of the late
1990’s & 2000
Spectrum
Internet
LH Optics
Now
• Hyper-growth gone/
• Network spending exceeds •
Macroeconomic instability
demand in several areas
• Signs of subscriber
• Increased competition
•
growth maturity
& lower margins
Failure in new business
models delaying new services
Financing constraints
(debts, cash,…)
Next likely Steps
• Many more Operators/SP will go “bankruptcy”, Suppliers?
• From Growth focused to Return focused to Profitable Growth focused
• Define the core business and divest/close non-core assets
• Retain and explore installed customer base
• Fast consolidations to create necessary Returns
• The “incumbent” telcos will dominate & drive consolidations
Consolidation has started. We will see 3 (4) operators per market.
The top 20 globally will have more than 80% of revenues.
Restructuring Suppliers
Main driving forces for the Future Telecom Market
Regulation
Customer
Demands
Technology/
Products
• Consolidation & Convergence
• Economy Development
• New Technologies/Services
• End-to-end Interoperability/Open standards
• Business Models
A new communications architecture
Today
Single-service networks
Cable TV Networks
Data/IP Networks
Wireline Networks
Wireless Networks
Content
Future
Multi-services network
(carrier class)
Applications
Service Networks &
Application enablers
Communication control
MGW
Connectivity/
Backbone
Network
Connectivity
MGW
MGW
Access Networks
MGW
Seamless Interoperable Services - Key to Mass Services
1B
(400 M+ Internet)
Fixed
1B
Mobile
End-to-End
• E-2-E Connectivity
• E-2-E Call completion
• E-2-E Applications
Business Model Mobile Services - Retail logic
Commission (for billing, customer care,…),
Revenue sharing
Easy to use,
Simple pricing,
Relevant Services
Subscriber
charges*
Operator/
Service Provider
charges
Content
Provider,
Ads
Best Practice; i-mode,…)
*Entrance fee + Monthly fee + Volume based usage fee
SMS Growth, January 2000 to December 2002E
Billions/Month
30
SMS was standardized in 1991/1992
25
20
15
10
5
Source; GSM Association
0
Jan-00
Mar-00
Jun-00
Sept-00
Dec-00
Mar-01
Jun-01
Sept-01
Dec-01
Mar-02E Jun-02E
Sept-02E Dec-02E
Subscriptions (million)
Development Sha-mail service, J-Phone
~47%
of all
subs
Launch
Nov 2000
Sources: Ovum and Reuters
May 2001
Sept 2001
Dec 2001
Aug 2002
Broadband Access has now taken off
• Stronger Operator Business Cases
• Competitive Technologies
Subscribers (Million)
1999
2000
2001
2002E 2003E
xDSL
0.7
6.0
17.0
~33.0
~52.0
CATV
2.4
9.0
14.0
~23.0
~33.0
~1.0
2.0
~4.0
~7.0
Ethernet
Source; Dell Oro, etc.
Growth of Wireline Broadband Access
12
10
Ethernet metro access
8
USD bill.
Fiber Ethernet
6
4
DSL–Ethernet up–link
2
DSL–ATM up–link
0
2002
2003
2004
2005
2006
2007
2008
Sources: EU commission, Jefferies & Company, Inc and ECTA, Pioneer Consulting 2001
2009
2010
… Mobile Subscriptions Doubling to 1.8 Billion by 2007
1800
Mobile
Subscriptions (million)
1500
1200
Fixed
(POTS/ISDN)
900
600
300
Fixed
Broadband
(Cable, xDSL,
LMDS, Fibre)
0
(Year -end)
2000 2001 2002 2003 2004 2005 2006 2007
World-wide Operator Services Revenues - “demand”
• GDP development/Asia
• Broadband,
Multi-Media,
Mobile & Fixed
• “Convergence”
• GDP development
• Digitalization & SPC
70’s
• GDP development
• Deregulation
80’s
?
• GDP development
• Mobile
• Internet
90’s
2000
Growth Opportunities
• Subscriber Growth
•
Traffic/Usage Growth
•
New Communication Services (Voice, Messaging,
Imaging/Video,…)
•
New Content & Applications
Our Product Visions;
We believe in a main Product Strategy that is
based on the following;
•
Next Generation Networks that is based on an “end-to-end”
carrier class “all IP solution” both mobile (3G) and fixed
(Broadband)
•
Seamless migration between today’s networks and subscribers
to Next Generation, driven primarily by the large operators
• Next Generation “all IP” is based on a single network and multipurpose terminals (or networks) for multiple services (MultiServices)
• Open defined standards and APIs, end-to-end
Wireless Evolution
Analog
1G
Wide Area
AMPS, NMT,
Network (~10km) TACS etc
Digital
Wideband
2G
GSM, PDC
TDMA,
CDMA
3G
WCDMA,
EDGE
CDMA2000
Local Area
Network (~50m)
CT1
DECT, PHS
WLAN
Personal Area
Network (~20m)
“wire”
Infra Red
Bluetooth
Combined
devices
4G
Ericsson Next Generation carrier class
Broadband Multi-services Network
Softswitch Control & Applications
IP
Multimedia
(TSP)
Telephony &
IN
(ENGINE/AXE)
Backbone Network
IP/MPLS/ATM/SDH/WDM
MGW
Copper Access
Ethernet DSL Access
(+ POTS/ISDN)
MGW
Fibre Access
Fiber Ethernet Access
MGW
Fixed Radio Access
LMDS (+W-LAN & 3G)
Public Broadband access
Backoffice
systems
Ethernet DSL Access
AAA
Service Engine
Copper
Switched
Ethernet
Ethernet access
Service
Selection
Broadband
access server
RJ45
e/o
Apartment 1
IP network
DRG22
RJ45
Apartment 1+n
Information
e/o
Name table
Fiber
Surveillance camera
board
Entrance
RJ45
Hub
e/o
Regional Node
ELN220
ATM
xDSL Access
DSLAM
Product portfolio strategy –
Invest in Next Generation
3-party applications
Partners.
Ericsson Mobility World
Applications
Messaging, Browsing,
Download, Streaming,
Positioning, VPN
Services
Network/roll-out/
Integration, System Integration,
Customer Management,
Managed Services
Application enablers
Broadband
Access
EDGE NODE/BRAS
ENGINE Integral (ATM/IP)/MGW
Ethernet Access/DSL
LMDS/MINI-LINK BAS
Softswitch
(TeS/MSC, IP-MM), HSS
2.5/3G
Control
SDH opto/WDM/DXX,
MINI-LINK, Juniper
Backbone/Transport
Packet core, Circuit core,
WCDMA RAN/OSS,
EDGE/GSM RAN,
CDMA2000, MGW
Convergence & Substitutions - Content migration
BUSD
m-commerce
Public Services
Positioning
Substitutions
from other
value chains
Advertisement
Mobile office
Media & Music
Gaming/Gambling
1000
Messaging
Telecom services
- GDP development
- Business Productivity
- Competition
- New Services
Time
2000
The New Market logic
“The ability to learn faster than your
competitors may be the only sustainable
competitive advantage”
Arie de Geus