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Upwardly mobile
Mobile network operators go on demand in pursuit of profitable growth
An IBM Institute for Business Value executive brief
ibm.com/bcs
The IBM Institute for Business Value develops fact-based strategic insights for senior
business executives around critical industry-specific and cross-industry issues. This executive
brief is based on an in-depth study created by the IBM Institute for Business Value. This
research is a part of an ongoing commitment by IBM Business Consulting Services to provide
analysis and viewpoints that help companies realize business value. You may contact the
authors or send an e-mail to [email protected] for more information.
Contents
Introduction
1
Introduction
1
Mobile stocks headed up
2
Going full-spectrum:
Pursuing multiple sources of
revenue growth
7
The elevating factor: The
customer experience
Following the industry’s turn-of-the-century boom and bust, the financial markets
are now beginning to see renewed growth potential in mobile telecom. To realize
that potential, mobile network operators (MNOs) must find ways to grow revenue
profitably. But where will that new revenue growth come from? What new capabilities
will be required to capture it? And how will operators keep costs in check while in
pursuit? The answers lie in new on demand business models that offer enough
flexibility to innovate, differentiate and simultaneously boost margins.
9
Meeting high expectations:
On demand business
Mobile stocks headed up
Though still below their 2000 peak, mobile stocks are recovering ahead of fixed line
and the stock market average (see Figure 1).
11 A higher operating plane
16 The upside of on demand
transformation
Figure 1. Full service and mobile telecom stock performance relative to Dow Jones Industrial
Average and S&P 500, 1997 to July 2004.
17 What is your current
trajectory?
500
19 About the authors
A
Full Service Provider Telecom Index
Mobile Telecom IndexB
Dow Jones Industrial Average and S&P 500
450
400
20 References
350
Value of index
19 About IBM Business
Consulting Services
300
250
200
150
100
50
0
Jan 98
Jan 99
Jan 00
Jan 01
Jan 02
Jan 03
Jan 04 July 04
Source: Yahoo! Finance; IBM Institute for Business Value analysis.
Notes: (A) The IBM Institute for Business Value Full Service Provider Telecom Stock Index tracks the monthly performance of
global telecoms relative to the performance of the S&P 500 and the Dow Jones Industrial Average (DJIA). An index value of 100
indicates the averages are performing on par with the DJIA and S&P, while values above and below indicate out performance and
underperformance, respectively. The operators included in the index are Verizon, SBC, BellSouth, AT&T, Qwest, BT, Deutsche
Telekom, France Telecom, Telecom Italia, Telefonica, Korea Telecom, NTT, Telstra. (B) The IBM Institute for Business Value Mobile
Telecom Stock Index follows the same rules as the Full Service average except the index starts at April 30, 1998. The operators
included are AT&T Wireless, Sprint PCS, Nextel, NTT DoCoMo, China Mobile, mmO2, Vodafone, Telefonica Moviles.
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With a more optimistic economic outlook, mobile executives, like their peers in
nearly every other industry, are now turning their focus toward growth. According
to a recent IBM Business Consulting Survey of 456 CEOs worldwide, 4 out of 5
company leaders are counting on revenue growth as the primary way to boost
financial performance in the near term.1 After setting aggressive bars for EBITDA
and margins the last few years, the financial markets are now supplementing those
targets with revenue growth objectives. However, with subscriber markets saturating
and data revenues slow to materialize, MNOs are justifiably concerned about the
sources and profitability of that revenue growth.
Going full-spectrum: Pursuing multiple sources of revenue growth
Today’s wireless industry includes a wide range of technologies, delivering varying
combinations of bandwidth and mobility. Mobile networks continue to dominate
the overall industry, and to cover all their bases, MNOs are pursuing growth along
multiple paths – voice, data and integrated combinations of both.
Voice still has a major say in mobile network operator revenues
Throughout the coming decade, MNOs will still depend on voice services for a
majority of their revenue (see Figure 2).
Figure 2. Globally, voice still dominates the revenue mix.
700
Revenue (US$ billions)
612
570
600
520
500
400
414
40
469
56
300
200
374
413
75
445
94
476
110
502
652
Total
127
Data revenue
26.0%
Voice revenue
7.0%
525
100
0
2003
2004
2005
Source: Ovum research, January 2004.
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2006
2007
CAGR
2003 - 2008
9.5%
2008
In markets where subscriber numbers are still growing, especially China and
India, MNOs face the same challenge experienced in major developed markets in
recent years: avoiding significant dilution of average revenue per user (ARPU) as
subscriber numbers rise. In the U.S., per-minute mobile prices are more competitive
with fixed line prices than in other geographies, driving significantly higher mobile
usage. But because voice-minute bundles are already large, operators have less
opportunity to increase total revenue through more aggressive pricing; the U.S. is
simply too far along the price elasticity curve. In other geographies, however, there
is still room to boost revenue with reduced per-minute rates. Assuming adequate
mobile network capacity and quality (particularly in-building), lower prices can
stimulate higher rates of fixed line substitution and expand total voice usage,
thereby increasing actual revenues. In “prepay” markets, usage incentive schemes
accompanied by targeted price increases can accomplish the same goal of
growing the top line.
Generally, growth in voice revenues has become a battle for high-usage, and
therefore higher-value, customers. To wrest these customers from rivals – and retain
them – MNOs need more accurate segmentation, better-targeted value propositions
and a keen focus on customer experience.
Consumer data revenues increasingly intertwined with device advances
Basic messaging (SMS) continues to contribute a significant majority (typically 85
to 90 percent) of consumer data revenues, which, in turn, now represent up to 20
percent of total revenues for many MNOs.2 The ubiquity and ease-of-use of SMS
have contributed to its success, particularly in markets such as Europe and Asia,
where access to e-mail and instant messaging technologies was slower to develop
than in the U.S.
As evidenced by the prevalence of camera-equipped mobile devices and recent
introductions of mobile music players, consumer mobile data is increasingly a
device-driven market. In this context, mobile service providers – including MNOs and
others such as mobile virtual network operators (MVNOs) – may have to relinquish
some degree of control over the customer relationship, by accepting a secondary
role (providing connectivity) on specific consumer devices, or work with vendors to
create branded multifunction devices.
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Mobile phones eliminate unsightly bulge in pockets and purses
In July 2004, NTT DoCoMo Inc. became the first MNO to launch a “wallet phone” that, as its name
implies, effectively combines the function of a wallet with a mobile phone. Equipped with an embedded
chip which stores money and personal information, the new device has the ability to reduce dramatically
the amount of cash, credit cards, transportation passes, ID and membership cards the average consumer
has to carry. Other MNOs in Japan are following suit – testing the technology or planning similar
introductions.
Applications – some still in testing and others already live – are many and varied. One company, for
instance, provided its employees with wallet phones that serve as company identification cards as well as
payment mechanisms for vending or cafeteria purchases. In southern Japan, residents of an apartment
complex are using their mobile phones as keys to their homes – and to pay their rent when swiped at
the reader near the building entrance. And soon, teenagers at entertainment centers may be using their
3
smart-chip-equipped phones to pay to play video games.
The convergence of the mobile industry and consumer electronics is also creating
challenges for traditional mobile phone vendors, such as Nokia and Motorola, as
they face growing competition from new vendors with strong links to consumer
electronics (like Samsung, Sharp and LG). At the same time, handset manufacturers
are spinning the convergence trend to their advantage by introducing mobile phones
that incorporate functionality previously monopolized by consumer electronics
makers. This can be seen in the creation of the Sony Ericsson mobile phone brand,4
and Motorola’s plans to offer new mobile phones equipped with software from Apple
Computers Inc. which allow consumers to play music purchased over the Internet
from the Apple iTunes Music Store.5
MNOs’ ability to grow consumer data revenues depends in large part on how they
respond to the challenges created by this convergence. To increase adoption of
mobile music and mobile photography, for example, mobile service providers must
enable their devices to communicate with other consumer electronics products
– to download pictures from a camera-phone to a PC or upload music to a mobile
music player – rather than simply interact with mobile networks. While service
providers might worry about short-term cannibalization of mobile data revenues, the
ultimate prize will be more influence over the all-important customer relationship.
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With the success of early 3G launches severely hampered by the lack of attractive,
high-quality consumer devices, many incumbent MNOs have elected to target more
tech-savvy business users in their initial 3G forays, focusing on data-card devices for
PCs. Before investing in major consumer launch efforts, these MNOs are waiting for a
strong supply of compelling consumer devices. By the end of 2004, 26 3G networks
(most of them in Europe) are expected to be available, and upbeat forecasts project
that 19 percent of the devices shipped in 2004 will be 3G-capable (both WCDMA
and CDMA2000 devices). This combination should spur investment in customer
acquisition, which, in turn, should drive revenue and future investment in network
capacity and coverage.7
Leading mobile service providers are already working with manufacturers to design
their own branded devices to suit their particular target markets. In addition, they are
creating branded user interfaces (portals) that provide easy, familiar access to all of
their data services.
Technology wild card: Potential drag on revenue
New “fixed wireless” technologies, like WLAN (now) and WiMax (soon), will enable customers to use
wireless broadband for applications such as VoIP and IP messaging, which could significantly erode
mobile voice and SMS revenues. This user-driven convergence is already intensifying competition
between mobile and fixed line competitors; Fixed line network operators are looking to WiMax as a way
to fill gaps in their broadband footprint, while MNOs are considering it as a means to provide converged
voice and data services (and circumvent the fixed line service provider). Fixed wireless use may
cannibalize some mobile data revenues (and potentially mobile voice revenues in the future). However,
IBM currently estimates this loss to be as little as four percent – an amount easily offset by increased
overall “wireless” data usage and greater loyalty among high-value customers. The winners will be
those companies that offer the most compelling triple-play packages – voice, data and entertainment (or
business) applications, targeted to the right customer segments.
Corporate data applications expand – but operators’ share unclear
Though the corporate market is much smaller than its consumer counterpart,
revenue from corporate mobile data services is rising (see Figure 3).
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Figure 3. Across all geographies, corporate mobile data revenue is growing.
Western Europe
North America
Asia Pacific
2003 2004 2005 2006 2007
1,846 2,906 4,743 7,131 11,061
1,544 2,218 3,088 4,593 6,755
2003 2004 2005 2006 2007
11,494 13,732 16,644 18,848 22,256
4,723 4,884 5,236 5,604 6,206
30
25
US$ millions
20
15
10
5
0
2003 2004 2005 2006 2007
Consumer 12,707 14,316 16,217 18,256 22,231
Business 3,502 4,040 4,583 5,378 6,795
Source: IBM Business Consulting Services analysis.
At the same time, corporate mobile data solutions are becoming more complex.
Initial solutions offered simple connectivity; then, operators expanded their offering
portfolios to include standard, prepackaged “horizontal” applications such as e-mail
and calendar management. Now, corporate data solutions are going vertical with
more industry-specific functionality. This progression, however, has a downside. As
solutions become more complex, the MNO typically retains less of the revenue. In a
simple access situation, the operator might retain as much as 70 percent of the total
revenue, while on the other end of the specialization spectrum, it might earn as little
as 10 percent. For example, one corporate mobile data solution involving a salesforce
automation package for the pharmaceutical industry provided the operator with just
a third of the total revenue. Even more pronounced, the operator’s share of revenue
from a recent workforce management application for the utilities industry amounted
to around 10 percent.8 In the corporate market, the key challenge for MNOs and their
partners is to develop viable business cases that deliver sufficient value to all parties
involved in delivering complex mobile data applications.
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Integrated offerings must delve deeper to capture share
Convergence – both in terms of voice and data and across mobile, wireless and
fixed line offerings – could become a major source of revenue growth for both fixed
line and MNOs. Although the trend toward convergence has opened new revenue
streams for MNOs, such as selling broadband services through wholesale relationships with a range of network providers (fixed line, cable and fixed wireless), it
has also opened a window for more competitors to enter the mobile and wireless
markets. A broad range of service provider players are now attempting to provide
converged communication services:
• Telecom operators that own both fixed line and mobile assets (e.g., France
Telecom, Verizon, Telstra).
• Fixed line carriers (and cable companies) seeking wholesale relationships to sell
both mobile and fixed wireless services, (e.g., BT, AT&T, Time Warner).
• Consumer companies selling both mobile and fixed line services on a wholesale
basis (e.g., Tesco, The Carphone Warehouse). This group aims to use their brands,
distribution capabilities and customer relationship management (CRM) expertise
to establish themselves in the communications market.
To date, most converged communications offerings have been surface-level
– separate offerings merely sold as one. Typically, back-office support has not
been integrated, making it difficult for service providers to realize synergies and
capitalize on having a consolidated customer base.
Although a wide variety of new technologies (which may accelerate convergence)
are under trial at present across the telecommunications industry, it is unlikely that
technology alone will create significant demand for converged services. To make
convergence attractive to customers, MNOs must provide more value than simply a
price discount. Marketplace success will demand enhanced value propositions and
an intense focus on customer management.
The elevating factor: The customer experience
Competition in major mobile markets has become a battle for high-value customers.
Declines in ARPU and high churn (see Figure 4) have led to a shift in strategic focus
– from customer acquisition to customer management, developing individual customer
revenue over time and retaining “high value” customers in a cost-effective manner.
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Figure 4. ARPU is shrinking amid constant customer churn.
ARPU growth
Monthly churn
Mon. ARPU Change
Percentage Total
point change
-0.1%
1.8%
Global
-0.1%
2.2%
Asia Pacific
North America
54.60
-0.2%
Asia Pacific
24.71
-9.3%
Western Europe
37.25
-0.0%
Global
34.45
-4.9%
-0.1%
1.6%
Western Europe
-0.4%
North America
-1.0
-0.5
-0.0
0.5
1.0
2.4%
1.5
2.0
2.5
3.0
Source: IBM Business Consulting Services analysis, November 2003.
Note: All figures reflect the total number for the third quarter of 2003 and changes from second to third quarter 2003.
Traditional sales mix factors like price and product quality no longer offer the
differentiation they once did. For mobile service providers, MNOs and MVNOs
alike, future differentiation opportunities evolve around the customer – targeting
high-value segments, providing them with the user experience that reflects their
communications needs, retaining them at key points in the customer lifecycle and
expanding service penetration and total spend over time (see Figure 5).
Figure 5. Delivering a superior customer experience will drive service provider differentiation in a
highly competitive marketplace.
Establish retention
policies that favor target
customers, and do not
give away value to nontarget customers
Customer base
Segment
Proposition
service that matches
target customers’
expectations
Right customer
experience for
target customers
Communication
where target
customers like to shop;
leverage brand and
communications in
direct channels
Source: IBM Business Consulting Services.
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Distribution
Identify target customers
by lifetime value, mobile
behavior, needs and
preferences (e.g., high
value consumer; small
business; youth market)
Focus on devices and
service propositions
that meet target
customers’needs
Create branding for target
customers: “talk to them
in their language”, create
a “branded experience”
Providing a branded customer experience to differentiate from competitors requires a
deep understanding of customer needs, clear plans to meet and exceed those needs
and consistent delivery across touchpoints throughout the entire customer lifecycle.
To deliver, mobile service providers will need employees that are committed to provide
the desired experience in all customer interactions; in addition, service providers must
provide those employees with the right tools, integrated systems and processes and
accurate, timely management information. Today’s segmented, piecemeal customer
view will need to be replaced with a single view of the customer that is available
when and where needed to deliver a consistent customer experience. Because of the
expertise they have gained outside the mobile industry, MVNOs often have an inherent
advantage. To compete, MNOs will need to move quickly to close competitive gaps.
While many MNOs have made progress in designing this single view of the customer,
few have actually achieved their vision.
Meeting high expectations: On demand business
To achieve a competitive edge through a differentiated customer experience, MNOs
need the ability to respond rapidly to constantly changing customer and market
expectations. Simply stated, a successful mobile company will need to be an on
demand business.
An on demand MNO focuses on those few capabilities that directly support
differentiation, rather than pursuing a comprehensive strategy aimed at being the
best in every aspect of the value chain. To lower costs and achieve better results,
it frequently relies on strategic partners to provide what they do best. A focused
MNO targets selected high-value market segments for retail sales, while pursuing
increased wholesale and indirect sales through others that are better positioned
in other segments. On demand MNOs are responsive to the accelerating pace of
change in the industry and spend less time revamping inflexible business models
that are dependent on successfully predicting the future. To heighten responsiveness, they establish more flexible product development platforms and buy their
computing resources on demand. Peak loads are managed through resource
sharing, grid computing or outsourcing arrangements. Open systems and the
associated increase in business partner collaboration allows these operators to
shorten product development cycles and lower development costs.
An on demand business is an
enterprise whose business
processes – integrated end-toend across the company and
with key partners, suppliers
and customers – can respond
with speed to any customer
demand, market opportunity
or external threat.
To combat unrelenting financial pressures and capital scarcity, on demand MNOs
migrate their cost structures to more variable models, moving away from committed
investments in fixed assets and toward scalable (both up and down) service development and delivery platforms. Their flexibility allows service portfolios to evolve in line
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with market needs, with a scalable back-end ready to support new offerings. On
demand mobile companies run resilient operations that offer optimum reliability to
clients in a world of unpredictable threats.
A component business model
is a logical representation, or
map, of an enterprise that reveals
its essential building blocks, or
business components. A business
component is a part of an
enterprise that has the potential
to operate autonomously, for
To help companies think through the transformation required, IBM has developed
a new analytical tool entitled component business modeling (CBM). CBM helps
businesses identify which components of their business directly support differentiation
and where redundancy and overlap can be eliminated to cut costs.
Although each company’s model is unique, using a standard model developed
for a “typical” MNO, IBM has identified specific business components that exhibit
potential for providing a differentiated customer experience (see Figure 6) and other
components where cost is not consistent with value produced.
example, as a separate company,
Planning
and
analysis
Marketing
Market
and brand
strategy
Brand management
Tactics
(Direct,
react and
control)
Sales
Product offer
and business
planning
Sales
channel
strategy
Partner
product dev.
strategy
Product
development
and retirement
Marketing
communications and
promotion
Marketing
research and
analysis
Operate
and
execute
New
product
development
Customer
Billing and
management
collections
and care
Customer
management
and care
strategy
Alliance
strategy
Sales,
channel and
alliance management
CRM
support and
readiness
Cust. analytics
and product
matching
Provisioning and
fulfillment
Fulfillment
and resource
planning
Billing and
collections
management
Account
planning
Service
development
and retirement
Develop and provide
network services
Device and
supplier
order management
Service
assurance
Customer contact operations
Rating
customer
billing
Sales
Campaigns
and market
fulfillment
Problem
handling and
resolution
Supplier/
partner
settlement
and billing
Order
handling
Service
config.,
activation/
disconnects
Resource
planning
Technology
and resource
strategy and
capacity
planning
Service management and
readiness
Network
resource
performance
management
Customer
SLA/QoS
management
Supplier/
partner
performance
management
Supplier/
Resource
partner
provisioning
problem
reporting and
management Service testing
and perform.
management
Service
problem
Inventory
management
management
Differentiating components
Basic components
Source: IBM Business Consulting Services and IBM Institute for Business Value analysis, 2004.
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Network
resource
development
Service
strategy and
readiness
planning
Loyalty and retention
Customer interface management
Manage
enterprise
Business
management
Strategic
enterprise
planning
Supply chain/value
net strategy
Stakeholder and external relations management
inputs and offers as outputs.
Acquire and manage
customers
Procurement
Develop new markets
and products
by the services that it uses as
Technology management (IT, R&D, disaster recovery)
has discrete boundaries, defined
HR management
Figure 6. CBM highlights which components of the business support differentiation.
Financial and asset management
or as part of another company. It
A higher operating plane
As IBM analyzed the four primary areas of a typical MNO’s business – new product
development, customer management, network services and enterprise management
– key capabilities emerged as high priorities for a MNO that wants to become an on
demand business:
1. Keeping the product portfolio fresh and profitable
To attract and retain high-value customers, MNOs will need to provide innovative
products that suit targeted market segments. Four primary product development and
innovation competencies will be crucial:
• Product portfolio management targets the right investments in development, by
considering ROI, strategic direction, risk and other critical success factors
• Process management creates efficiency across the full product lifecycle, from
concept to service
• Partner management means having the right partner and supplier strategy to
effectively bring products and services to market; with a historical bent toward
providing customer solutions on their own, delivering through collaboration with
partners is a new but critically important skill for MNOs
• Platform management establishes the right architecture to deliver more products,
better leveraging development and deployment expenditures.
Platform and partner management are particularly critical in the area of mobile
portals. In recent years, branded portals have become a key strategy to capture
value from emerging data market opportunities. From an MNO’s perspective, portals
should make new services easy-to-use and create a familiar customer experience
through a consistent “look and feel” for all services. Vodafone epitomizes this
approach with its “Vodafone Live!” portal; as the company deploys the portal across
its various properties, competitors are busy imitating it in regional and local markets.
To create greater value for end-users, MNOs are delivering these portals through
“collaborative ecosystems” that leverage each partner’s unique competencies and
their combined scale. Since MNOs play a central role in these ecosystems, the
structure and execution of their business relationships often dictate the success of
the portal. Platforms based on open standards enable easier integration of business
partner content and applications, streamlining the introduction of new services.
Flexible platform and partner management allow MNOs to respond to the data
services opportunity in collaboration with their business partners, attracting and
retaining a greater share of the marketplace.
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mobilkom speeds up service development and delivery
mobilkom austria prides itself on offering an extensive set of data services – and delivering those
services as quickly and efficiently as possible. Yet, service provisioning is a complex process that
requires close integration with various third-party content and service providers and consistent delivery
despite the number of applications, platforms, channels and devices involved. To accelerate introduction
of new services and lower development costs, mobilkom implemented a new service management
platform based on open standards called Access and Service Management Platform (ASMP). Besides
providing customers with access to innovative new services much faster, ASMP offers customers a
9
single sign-on capability that encompasses all applications connected to the platform.
2. Upgrading customer-centric service to differentiated experiences
Using a MVNO business model, niche mobile service providers are starting to
challenge the major MNOs by focusing on delivery of a unique customer experience
that appeals to a specific customer segment. For example, Virgin Mobile has had
success in several markets with its edgy, nontraditional marketing and targeted
service propositions.
Although most MNOs have made progress with becoming more customer-centric,
full-scale customer management – encompassing customer service, revenue stimulation and retention – presents an even greater challenge today, as MNOs strive
to deliver differentiated service across multiple market segments and increasingly
complex operations. Enhanced capabilities in key areas will help all mobile service
providers provide differentiated customer experiences.
• Multichannel customer self-service. Broad-based Internet adoption, technological
advances and increasingly sophisticated mobile devices have created new possibilities for customer service – along with elevated customer expectations. Today’s
customers want access to customer service through whatever channel is most
convenient for them – call center, Web site, retail location or the mobile device
itself. In customers’ minds, multichannel support is not limited to providing information, answering questions or logging problems; providing customer service
today means solving the problem through the customer’s choice of channel – for
instance, providing over-the-air (OTA) problem resolution by downloading updated
software to the mobile device. To meet such demands, MNOs must have a flexible
and resilient infrastructure that is capable of delivering a consistent, high-quality
customer service experience regardless of channel.
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• Advanced analytics. More sophisticated analytical capabilities enable service
providers to understand the needs and relative lifetime value, or profit contribution,
of individual customers. This deeper level of understanding helps enable profitable
revenue growth through better targeted and more efficient marketing. It also helps
service providers design different experiences for different customer sets which
can increase customer satisfaction and overall customer lifetime value.
• Customer service performance tracking. Electronic tracking of customer service
performance enables mobile service providers to monitor the impact of service
provision continuously and identify weaknesses and areas for improvement
without delay. Supported by new technology, service improvements (including
customer self-service) and more efficient business processes, call-handling
agents can focus on the most complex cases, allowing more time to provide
personalized service to high-value customers.
• Billing flexibility. As billing requirements escalate, so do costs. Mobile customers
expect realtime information and seamlessly integrated services, devices,
network capabilities, applications and content. The more complex tracking,
charging and revenue models required for such services demand better and
more complex network operator billing capabilities than those deployed in a
traditional voice-only environment. The need for third-party collaboration in
service delivery also demands more flexible and well-defined billing interfaces
among MNOs and third parties. As complexity mounts, billing flexibility becomes
a clear competitive advantage.
Tapping the expertise of IBM: Sprint transforms customer service
Sprint is using an outsourcing strategy to transform its customer service processes. Under a 5-year
agreement, Sprint expects to improve customer satisfaction dramatically through better customer
segmentation, increased self-service options, more efficient call routing, reduced average call handling
time and a higher rate of first call resolution. In addition to significantly improving the customer
experience, Sprint expects to reduce customer service costs by US$550 million over three years. This
strategy allows Sprint to move forward simultaneously on its top priorities – improving customer
satisfaction, driving new sources of revenue and operating its business more efficiently and with
greater flexibility.
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3. Meeting new-generation needs with next-generation networks
Successful new product development and rollout are critical for MNO differentiation
and revenue growth. The network plays a crucial role in enabling these top-line
objectives. New wireless and Internet technology advances, and more complex
customer needs (such as multimedia content delivery, enterprise solutions and
integrated offerings, including customer service and billing), are placing greater
demands on their MNOs’ legacy networks, which hamper their ability to meet
escalating service level expectations. With digital wireless merging mobile telephony
with mobile computing, and data and content integrating within a standardized
Internet context, MNOs need to offer bundled, value-added services that help attract
and retain the most profitable customers. Delivering against these requirements
requires transformation of current mobile networks to IP-based, next-generation
networks with open architectures, customer self-service and simplified network
management – without service delivery disruption and in a cost-effective manner.
Next generation networks give MNOs the flexibility to provide services on demand
through a well-formulated service delivery platform. Open architectures make it
easier to integrate third-party content and applications. This type of homogenous
environment also helps reduce costs and simplify network management, allowing
higher-skilled engineering staff to invest the bulk of their time in revenue-generating
product initiatives instead of network operations.
As operators migrate to these new networks, the ability to manage a hybrid
environment successfully and cost effectively will be a critical challenge. Since
dropped calls, unattractive service offerings and poor customer service can lead
to lost customers in an intensely competitive market, the transition needs to be
seamless – allowing MNOs to meet existing service commitments while migrating
customers to the new network without disruption.
Leading MNOs are also searching for ways to condense the transition period and
accelerate returns on their IP network investments. The complexity involved and the
resources required are causing MNOs to look for partners that can help accelerate
the transition.
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Equipped for the future: European MNO establishes intelligent, on demand network
To significantly increase its ability to launch new, upcoming voice services quickly and cost-effectively,
a leading European mobile telecommunications provider decided to implement a new intelligent network
(IN) platform. Based on open standards, the platform is expected to reduce the development cycle
for new services by 50 percent, allowing the company to enter new markets and bring in additional
revenue more quickly. As a substantial side benefit, the simplified environment should also cut ongoing
maintenance costs by some 25 percent. With a goal of retaining all of its existing VPN and prepaid
customers during its network transition, the company has mapped out a careful migration strategy to
avoid disruption. The entire solution is designed to be expandable as traffic rises, and can easily scale to
support the company’s subsidiaries in other parts of Europe.
4. Finding funds for transformation within enterprise management processes
Although enterprise processes such as supply chain, finance and administration,
HR and IT do not typically contribute to MNO differentiation, they offer tremendous
sources of potential cost savings that can be channeled back into differentiating
investments.
MNOs are only beginning to tap these types of funding sources. Many have
outsourced HR and some subset of IT support, but few have evaluated their
Finance functions for potential outsourcing opportunities. Years of growth-throughacquisition have left MNOs with a hodge-podge of legacy systems and redundant
resources in their Finance departments. As mobile companies become more
focused on differentiating capabilities – and more comfortable relying on partners
that can provide superior levels of service in the remaining areas of their business,
Finance will likely emerge as the next frontier for business process outsourcing.
Limelight on the back-office: Disney consolidates on a grand scale
After a decade of expansion, the Walt Disney company was left with 400 back-office systems, 15 HR
applications and multiple implementations of SAP, Peoplesoft and Oracle software. Intent on creating
the same level of synergy the company enjoys in product development and marketing, Disney decided
to consolidate its back-office operations, aiming to reduce spending on Finance and HR function
enterprisewide. As part of the project dubbed Tomorrowland, Disney is deploying a common set of
integrated back-office systems across all of its businesses – from theme parks to film studios to retail
stores. All told, the new platform will help manage 700 businesses in 42 different countries. Expected
savings are substantial, totaling US$130M per year – which, according to Disney, is similar to enjoying a
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blockbuster like The Lion King every year.
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The upside of on demand transformation
To understand the potential benefits of on demand transformation, IBM has
constructed a cost model for a typical European MNO based on a simplified value
chain divided into four functional areas that span eight core business processes.
The model shows the distribution of operating expenses across those areas
based on a representative sample of MNOs across Europe (see Figure 7). MNOs
may find the model useful in benchmarking their own operations and identifying
areas of their businesses where costs are above the norm and opportunities for
improvement exist.
Figure 7. Operating expense structure for a typical European MNO.
Developing
new markets
and products
10%
10%
Marketing
and NPD
Developing
and providing
network services
Acquiring and
managing customers
57%
29%
Customer
acquisition
24%
15%
13%
16%
Customer
management
Customer
retention
Network
running
costs
Enterprise
management
9%
8%
5% 4%
Manage IT and
HR,
development Finance and
Network
Accounting,
operations
Procurement
Source: IBM Business Consulting Services experience and IBM Institute for Business Value analysis, 2004.
Using this cost model as a starting point, IBM has projected the financial benefits
of various initiatives that can move MNOs toward on demand business, based on
our experience supporting clients in their own transformations. In particular, IBM
examined four types of initiatives:
• Improved new product development through a standard, flexible service creation
and delivery platform
• Improved customer management accomplished by entrusting the transformation
of customer service to a specialized outsourcing partner
• More flexible and cost-effective billing achieved through outsourcing and simultaneously transforming the billing function
• Reduced cost of enterprise management by outsourcing non-differentiating
business components (such as HR) to a partner that specializes in those areas.
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Upwardly mobile IBM Business Consulting Services
Typically, on demand initiatives are synergistic, offering greater returns when related
efforts are pursued in tandem. With this advantage in mind, the IBM benefits
assessments assume that these four initiatives are undertaken concurrently.
Although the actual value creation potential may vary by company, depending on
its current state, the upside potential is substantial. Considering just this sampling of
four possible initiatives, a typical MNO has the potential to increase free cash flow
in the range of 20 to 50 percent (see Figure 8).
Figure 8. Potential financial upside of several on demand initiatives.
Capex reductions
New service creation
and delivery platforms
11.7%
Opex reductions
Revenue increases
16.5%
CRM BTO
Billing BTO
17.7%
Outsourced enterprise
management
4.2%
0%
2%
4%
6%
8% 10% 12% 14% 16% 18%
Notes: Projections are based on a hypothetical European MNO with US$3 billion in annual revenues. The benefits of the
initiatives assume the use of flexible financial models, including business transformation outsourcing – which in some cases,
depending on the type of transformation, may require an initial investment.
Source: IBM Business Consulting Services experience and IBM Institute for Business Value analysis, 2004.
What is your current trajectory?
Renewed enthusiasm is spreading throughout the mobile industry, as participants
evaluate a growing list of possible revenue streams. But, as a mobile business,
how prepared are you to capitalize on rising opportunity and convert it into topand bottom-line growth? You can use the following questions to help assess your
current position.
• What are the core tenets of your revenue growth strategy?
• How are you planning to differentiate yourself from a growing cadre of competitors?
• How successful have you been at attracting and retaining high-value customers?
More specifically, among the high-value customer segment, what is your current
market share?
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• How are you segmenting your customer base? Have you identified the needs of
specific segments? And are you tailoring products and services based on these
insights?
• How effectively are your employees “living” your brand values and communicating
them to your customers?
• Have you designed a differentiated customer experience? And are your
employees and partners equipped to deliver it to all your customers through all
your channels?
• Would your customers attest to a consistent experience every time they interact
with your company, and how satisfied are they with that experience?
• How often do inflexible development platforms or network constraints inhibit
product innovation?
• How rapidly are you transitioning to an IP-based network? How confident are you
about expected return on investment?
• How successful have you been at securing funds to invest in new, differentiating
capabilities? How extensively have you explored using cost reductions in nondifferentiating areas as a potential funding source?
By adopting on demand business models, MNOs can ready themselves to make
the most of every revenue opportunity and differentiate themselves through every
customer interaction. To discuss ideas you can use to capture your share (and
more) of a mobile market that is healthy and growing again, please contact us at
[email protected]. To browse through other resources for business executives, visit
our Web site:
ibm.com/bcs
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About the authors
Jeanette Carlsson is the Global Communications Sector Lead at the IBM Institute for
Business Value. Jeanette can be contacted at [email protected].
Henry Stevens is the Global Wireless Strategy and Solutions Leader for IBM
Business Consulting Services. Henry can be contacted at [email protected].
Contributors
Kevin English, Consultant, IBM Institute for Business Value
Martin Williams, Consultant, IBM Institute for Business Value
Chris Woodland, Senior Consultant, Telecom Industry, IBM Business Consulting Services
About IBM Business Consulting Services
With consultants and professional staff in more than 160 countries globally, IBM
Business Consulting Services is the world’s largest consulting services organization. IBM Business Consulting Services provides clients with business process
and industry expertise, a deep understanding of technology solutions that address
specific industry issues and the ability to design, build and run those solutions in a
way that delivers bottom-line business value.
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References
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“Your Turn: The Global CEO Study 2004.” IBM Business Consulting Services. 2004.
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IBM analysis of company reports.
3
Kane, Yukari Iwatani. “Mobile phones aim to take load off wallets.” Reuters. July 18,
2004. http://www.reuters.com/newsArticle.jhtml?type=technologyNews&storyID=5
698349 (accessed July 28, 2004).
4
Sony Ericsson Web site. http://www.sonyericsson.com
5
Warner, Melody. “U.S. vendor launches handset with music download software.”
Dow Jones Newswires. July 27, 2004.
6
Ovum. Annual forecast. January 2004.
7
IBM Institute for Business Value analysis.
8
IBM Business Consulting Services client experience.
9
“MOBILKOM AUSTRIA: mobilkom austria and IBM transform delivery
of data services on demand.” StockHouse USA. June 29, 2004. http://
www.stockhouse.com/news/news.asp?tick=IBM&newsid=2348331 (accessed July
15, 2004).
10
IBM Corporation. “IBM and Sprint announce comprehensive business
agreements.” February 4, 2004. http://www-1.ibm.com/industries/telecom/doc/
content/news/pressrelease/1005755102.html (accessed July 28, 2004).
11
Glick, Bryan. “Disney completes UK back-office project.” Computing. June 26,
2003. http://www.computing.co.uk/news/1141859 (accessed July 14, 2004).
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