Fixed Mobile Integration - Opportunity or Challenge?

> Executive Briefing Dr. Arnulf Heuermann Arnulf.Heuermann@detecon.com Fixed Mobile Integration – Opportunity or Challenge? In many mature markets the home business revenues of fixed and mobile telecommunications carriers are shrinking despite strong growth in traffic. New strategies have to be developed with a focus on performance optimization, exploiting internal and external growth opportunities, and preventing customer churn. In line with the technological trend towards next generation networks, where services run on convergent networks, most carriers are now revising their old company structures where fixed and mobile businesses were separate entities or strategic business units operating their own sales organizations, service and network platforms. The integration of fixed and mobile operations is one of the major management tasks, often also in combination with fixed-mobile merger activities. The central challenge is to release the synergy potential of such integrated organizations. www.detecon.com Fixed Mobile Integration Fixed Mobile Integration – Opportunity or Challenge? > Executive Briefing Introduction Since the early nineteen-nineties mobile network operators have produced a remarkable success story on a world-wide scale. With more than 3bn subscribers in digital mobile networks they have surpassed fixed access lines by far and experienced tremendous growth in subscribers, traffic, revenues and profits. EBITDA margins between 35 and 55% are the rule. At the same time fixed networks in mature markets grew slowly then stagnated, and although the broadband market is booming it cannot compensate for the losses in revenues from legacy services. Despite continuing growth in the mobile data business the average mobile network operator (MNO) in Europe is facing decreasing revenues for the first time, caused amongst others by regulatory intervention in international roaming tariffs and termination rates. We believe that MNOs will see a market consolidation and that fixed-mobile integrated businesses will have a significant competitive advantage in the medium term future. Fixed-Mobile Mergers as Potential for Growth External growth and the release of synergies are the major drivers for fixed-mobile integration: Over the last three years Telecom Italia has re-acquired the remaining TIM shares, one of its spin-offs several years previously, Belgacom followed with its re-integration of Belgacom Mobile and Swisscom joined with the buyback of 25% of Swisscom Mobile from Vodafone. Fixed line carriers have started to hunt for mobile operators, for example the Japanese Softbank Corp., a broadband fixed line, online, advertising and e-commerce company, is buying Vodafone’s mobile business in Japan, the British cable network operator NTL took over mobile service provider Virgin Mobile and in 2007 the French mobile operator SFR acquired the French ISP “Tele2” and increased its share in Neuf-Cegetel, a fixed line and cable service provider. At the same time mobile operators are diversifying their service portfolios, in particular by extending their footprints in the fixed broadband market. Vodafone changed its mobile only strategy in 2006 and, having integrated its German Arcor subsidiary (amongst others), is now attacking Deutsche Telekom in Germany with mobile and fixed products offered under a combined brand. In 2008 VimpelCom, the second largest Russian mobile operator acquired the second largest alternative network provider, Golden Telecom, thereby challenging Uralsvyazinform, until then the only truly integrated operator in Russia. Detecon International GmbH 09/2008 2 www.detecon.com Fixed Mobile Integration Fixed Mobile Integration – Opportunity or Challenge? > Executive Briefing Apart from external growth fixed-mobile integration also offers internal growth potential. Broadband applications like IPTV, gaming, video on demand and community related video applications are neither fixed nor mobile - but require fixed and broadband access. Fixed- mobile integrated carriers will be more flexible and able to offer the best suited technology mix for both densely and sparsely populated regions. The Challenge of Fixed-Mobile Organizational Integration An integrated fixed-mobile organization is part of the wider trend towards the “horizontal” restructuring of telcos. Instead of “vertical” organizations separated into fixed voice, mobile and data business units, new structures are cut into network operation, services and sales. On the network side increasing competition and market saturation as well as technical progress makes a strict cost-leadership strategy necessary. This means standardization, using economies of scale and scope, and shared use of resources as well as enforcing the OPEX and CAPEX optimization potential in the NGN. On the service and in particular the sales side new market entrants like MVNOs, resellers, media companies and ISPs are attacking parts of the carrier value chain. Integrated carriers are forced to follow a clear differentiation strategy, as only “specialist offers” can compete or are accepted by specific customer segments. Cost-leadership and differentiation strategies are in conflict and make a separation of business units for service, sales and network operations necessary. Transformation Path Towards an Integrated Company Separate organization Integrated organization Customer-centric organization Sales Channels, CRM Sales Fixed sales, Mobile sales, services and services and Fixed Service Mobile Service Business Residential network network Network Network Fixed and mobile companies with Fixed service: marketing of fixed & Business: marketing of all (bundled) separate management, HR, Internet & Data and corporate telco services to business & corporate Finance, Procurement, and other services. customers. overhead. Mobile service: marketing of mobile Residential: marketing of all (bundled) Separate sales channels, points of services. telco services to private customers. sales, CRM systems, customer Network : network management for Network : Network management for segmentation and dealer fixed and mobile business, and own company, other carriers. conditions. marketing of carrier services Integrated sales & customer care for all Separate licenses for fixed and (wholesale). services. mobile services, different pricing, Integrated sales & customer channels no bundles or FMC services, Integrated brand as an option. for all services. Integrated CRM different billing. system. Access networks technically separated, backhaul systems separate, mobile network with own switching and leased lines. Figure 1: Generic FMI Organizational Development Detecon International GmbH 09/2008 3 www.detecon.com Fixed Mobile Integration Fixed Mobile Integration – Opportunity or Challenge? > Executive Briefing For the integration of formerly independent fixed and mobile operations with their own networks, service platforms and sales structures the transformation to a horizontal organization means a shake-up of the traditional business structures. On the sales side a (re-)branding, combined points of sales, harmonized dealer concepts and conditions, product bundles, and training of personnel to sell FMC products are only some of the challenges to be faced. The integration will only be successful with a unified mobile-fixed customer market segmentation, segment- specific fixed-mobile product bundles and harmonized price plans. CRM systems and customer care in general are major challenges, as the mobile organization’s data base is based on individual customers, while the fixed organization works with household data.