IT transformations - Capgemini Consulting Nederland

volume 9: Spring/Summer.11
Capgemini’s telecom, media & entertainment journal
Capgemini’s telecom, media & entertainment journal
volume 9: Spring/Summer.11
Cloud Computing
LTE
IT Transformation
Strategy Bottlenecks
Beyond Communication Services

CONTENTS
An Interview with John Wittekamp,
CIO of KPN
industry insights
10 Digital Renewal: Addressing
Transformational Challenges and the
Monetization Conundrum
20 Cloud Computing: The Telco
Opportunity
32 Beyond Communications: Identifying
New Markets for Telcos
44 Long Term Evolution: LTE
Opportunities and Challenges for
Telcos
56 IT Renewal: A Business
Transformation
66 Navigating the Content Quagmire:
Protecting and Monetizing Intellectual
Property
management insights
76 Innovating the Telco Business Model:
Drivers and Emerging Trends
84 Strategy Bottlenecks: How TME
Players can Shape and Win Control of
their Industry Architecture
lite bytes
92 Mobile and Internet Vignettes
1

Editorial
Welcome to the Spring/Summer edition of our Insights journal.
The TME industry currently finds itself in the midst of challenging times. While the general economic slowdown
has forced operators to focus on increasing operational efficiency to drive up margins, the advent of new business
models and the opening up of new opportunities in other sectors are increasing the pace of innovation. For
most operators, addressing the dichotomy of these issues requires transformational changes that run deep and
wide into the organization. Operators will increasingly need to take a number of steps aimed at transforming
key priority areas including customer relationship, network infrastructure, operations, IT systems, and product
management.
For our First Person interview, we had a chance to speak with John Wittekamp, the Chief Information Officer
of the major Dutch operator, KPN. John has had an illustrious career in telecom IT in various roles at KPN.
We discussed with him the ways and means to achieve operational efficiency and cost savings through IT
transformations for telecom operators.
We start the Industry Insights section with an article that evaluates the impact of the evolving trends on the
TME value chain and suggest measures to successfully mitigate transformational challenges through digital
renewal. In recent years, the increasing costs of setting up and maintaining IT infrastructure has been a cause
of concern for enterprise CIOs. In our article on opportunities for telcos in cloud computing, we qualify the
services that operators could potentially launch in this space.
Operators are increasingly getting concerned over flat-lining growth in traditional voice services and the
monetization challenges in data offerings. Our third article addresses this concern by looking at operator
opportunities beyond traditional areas of communications, looking at sectors such as healthcare, energy, and
automotive.
Growing consumption of mobile data is placing significant pressure on operator infrastructure. Faced with this
challenge, mobile operators need to upgrade their network infrastructure to continue delivering quality and costeffective
services. Our next article looks at Long Term Evolution and the associated challenges and benefits for
mobile operators.
The penultimate article of the Industry Insights section addresses the growing need to transform and renew telco
IT systems. The increasing mismatch between the IT systems and business needs, along with the need to better
align the operations departments with the IT systems, is driving operators to launch IT renewal programs.
Content players are facing challenging times with a transition to digital and the increasing impact of piracy.
Simultaneously, they are also trying to understand changing consumption patterns and identify models with
potential to succeed in the digital marketplace. Our concluding article focuses on these challenges and proposes
ways and means of protecting and monetizing intellectual property.
In an industry that is facing sweeping movements across value chains and a rapid breakdown of entry barriers,
it is critical that enterprises keep a constant eye on their business model and strategy. In our Management Insights
section, the first article evaluates the evolution of, and trends impacting, telco business models.
The changing business environment requires companies to constantly evaluate their position in the industry value
chain. In this context, we conclude with an article by London Business School Professor Michael Jacobides on
how companies should strive to build architectural advantages by reshaping industry value chains.
I hope you find this edition of Insights thought-provoking and appealing. If you would like to discuss any of the
issues raised, then please get in touch with us.
Rob Staples
Global Head of Telecom, Media & Entertainment,
Capgemini Consulting
3

industry INSIGHTS
Digital Renewal:
Addressing Transformational Challenges and
the Monetization Conundrum
10
Cloud Computing:
The Telco Opportunity
20
Beyond Communications:
Identifying New Markets for Telcos
32
Long Term Evolution:
LTE Opportunities and Challenges for Telcos
44
IT Renewal:
A Business Transformation
56
Navigating the Content Quagmire:
Protecting and Monetizing Intellectual Property
66
9

Digital Renewal: Addressing Transformational Challenges and
the Monetization Conundrum
By Rob Staples and Manik Seth
Abstract: The Telecom, Media & Entertainment (TME) industry faces a series of challenges both in growing the top line by finding
new sources of revenue growth and also increasing operational efficiency to enhance margins. These challenges, while not new,
are increasing as a result of the continually evolving consumer demand, rapid technology developments, new business models, and
increasing competition. The rise in data usage, fuelled by the proliferation of mobile devices such as smartphones and tablets, is
exerting tremendous strain on the network of operators. In addition there is the challenge of operators to effectively monetize this rapidly
growing data traffic. New business models and non-traditional competitors are also increasing competition in the industry. In order to
effectively tackle these transformational challenges, telecom players have adopted a number of diverse measures aimed at renewing
customer relationships, network infrastructure, operations, IT systems, and product management. We have assessed these responses
here calling it Digital Renewal.
“
Global
mobile data
traffic is
expected to grow
at a CAGR of
106% between
2010 and
2014
”
Telecom operators are facing a
complex series of challenges as they
seek to grow the top line in an era
of economic austerity and market
slowdown. When combined with the
competitive complexity and the everincreasing
demand for bandwidth,
operators are adopting a number of
measures so as to prosper. In this
chapter we discuss these measures.
First, we assess some of the unique
challenges that are faced by telecom
players.
Threat from All-You-Can-Eat
Bundles
The increasing consumption of
bandwidth hungry applications and
the demand for higher speeds is
resulting in an unprecedented surge
in the amount of data traffic on
networks. Global mobile data traffic
is expected to grow at a Compound
Annual Growth Rate (CAGR) of
106% 1 between 2010 and 2014.
However, operators have not been
able to successfully monetize this rise
in data consumption. For example,
at 66% of total traffic volume, mobile
broadband dongles contribute only
5% to the revenues of Vodafone
Europe. Whereas, at 23% of the total
traffic, voice contributes a significant
73% to the operator’s top line 2 . This
trend can be primarily attributed to
factors such as the growing usage
of free online services which do not
contribute to the operator’s revenues
and the increasing adoption of low
priced, all-you-can-eat, bundled
communications offerings.
While we see mobile operators
starting to change their pricing
strategies to move away from allyou-can-eat
bundles, if this trend
continues, the growth in service
revenues will not keep pace with
the growth in network traffic and
the resulting Capital Expenditure
(CAPEX) commitment (see Figure 1)
required to upgrade the capacity
constrained mobile and fixed
networks. As a result, in order to
generate returns on the network
investments required to maintain
a high Quality of Service (QoS),
operators need to innovate on the
top line to monetize this network
investment, while also enhancing
operational efficiency by reducing
costs and streamlining operations.
1 Cisco Visual Networking Index: Global Mobile Data Forecast Update, 2009-2014.
2 Enders Analysis, Mobile Data Economics: The Limit of Unlimited, September 2010.
10

Figure 1: Forecast of Mobile Service Revenue Growth in Western Europe (%),
Global Telecom CAPEX Growth (%) and Volume of Network Traffic in
Western Europe (Zettabyte per Month)
Window of Opportunity for
Sustainable Transformation
5.8%
4 %
661.2
Widening spread
between costs
and revenue will
limit efficiency
of lean measures
2.49 %
2.4%
356.2
69.9 %
168
1.04 % 0.69 %
2010 2011 2012
2013
-0.68 %
Growth in CAPEX Revenue Growth Volume of Data
Source: Informa, Mobile Europe Revenue Forecasts, 2009; Cisco, Cisco Visual Networking Index: Global Mobile Traffic
Forecast Update, 2009-2014; 2009; Infonetics Report: Service Provider CAPEX to Bottom in 2010, Investments to Rise in
2011, November 2009
Threat from New Competitors
Another challenge, which poses a
potential threat to operators, is the
infringement of online players in
the traditional telco territory. The
recently announced Facebook-Skype
alliance 3 which will enable Skype
users to call and send SMS to their
Facebook friends directly on their
mobile phones and landlines has the
potential to cannibalize voice and
SMS revenues of operators.
While it is often easy to overstate the
threat of these kinds of initiatives
from non-traditional competitors,
their global scale, all embracing
nature, and network effect does
represent a substantial threat if these
kinds of services gain traction.
These types of transformational
challenges, on top of the more
traditional competitive and
operational challenges, do require
a new set of responses. In the
next section we will discuss these
responses in detail.
Digital Renewal: Key Priorities for
TME Players
When assessing the range of response
measures being adopted by telecom
operators, it is possible to group them
into five broad priority areas
(see Figure 2):
■■
■■
■■
■■
■■
Enhancing customer relationship
Upgrading infrastructure
Simplifying IT
Streamlining operations
Improving product lifecycle
management.
We have assessed these responses
under the heading of Digital Renewal.
In the subsequent subsections, we
detail the five key elements of this
approach.
Customer Relationship Renewal
Key Issues
There are two broad themes under
the heading of customer relationship
renewal. The first of these is how
to re-balance the acquisition and
retention costs, and the associated
3 Company Website.
11

Figure 2: Digital Renewal Approach of TME Players
Operations Renewal
Sustainable efficiency and
optimization of functional
performance to raise profitability,
ensuring operations efficiency of
current activities and creating
headroom to invest in expansion
initiatives and customers
IT Renewal
Transformation of telecom
operators’ IT to reduce complexity
and cost in IT management,
processes and platforms across
fixed and mobile environments
Source: Capgemini Analysis
Customer Focus
Customer Relationship
Renewal
Strategy and transformation of
marketing, sales and service to
revitalize the customer experience
across online and traditional
channels as the imperative shifts to
retention rather than acquisition,
enabling a true digital transformation
Digital Renewal
How to respond to the
transformational challenges
driven by the increasing data
consumption, changes in
consumer behavior, emergence
of new technologies, and the
resulting monetization
conundrum
Technology Focus Operations Focus
Product Renewal
Advanced life-cycle management
to drive and accelerate innovation,
improve launch capability and
reduce complexity across
the converged product, service
and tariff portfolio
Infrastructure Renewal
Launch and monetization strategy
of new fixed and mobile networks
(4G, fiber) to support the launch
of new products and services,
and improve quality of service
total US retail sales 4 . From a service
perspective, the online channel is
not only increasing in demand from
consumers but also is a cost effective
means of post-sales support. When
compared to call center technical
support, the approximate cost per
contact is nearly 92% cheaper for a
virtual agent 5 .
TME players are, therefore, developing
their online channel strategy to use
Web 2.0 and social media tools
for driving marketing campaigns,
enhancing sales, and optimizing
customer service and support.
Moreover, they need to identify and
target the right customer segments
by making their online proposition
attractive and less complicated.
“
By
2013, online
and onlineinfluenced
sales
are expected
to account for
62% of total US
retail sales
”
approach in light of the shift towards
retention and away from high
volume customer acquisition. The
second is to revitalize the customer
experience (see Figure 3) through the
improvement of the online experience
in terms of both sales and service,
and to improve the multi-channel
experience so that customers are
being offered a seamless experience
across all channels. These twin
challenges drive the key activities of
operators in this area.
As part of the customer relationship
renewal, the online channel strategy,
online performance improvement,
and multi-channel strategy seem to be
the key priorities for TME players. In
the subsequent subsection we detail
these key focus areas.
Key Focus Areas
Online Channel Strategy
The online channel is emerging as
the most efficient and cost effective
customer touch point for TME
players. In addition to affecting sales
directly, the online channel also
impacts offline retail sales. By 2013
online and online-influenced sales are
expected to account for 62% of the
For example, having realized the
importance of the online channel,
operators such as SFR have put the
Internet at the core of customer
relationships. The share of SFR’s
online shop in the overall distribution
increased threefold from 5% in
Q1 2008 to 15% in Q1 2009 6 .
Furthermore, the share of web
in overall customer care doubled
between Q1 2008 and Q1 2009 to
reach nearly 42% at the end of Q1
2009 7 .
Online Channel Performance
Improvement
To enhance the customer experience,
drive their top line, and reduce
selling and service costs, operators
are also taking measures to enhance
the performance of their existing
online marketing, sales, and service
initiatives. A focus needs to be on
measures such as optimizing the
online channel for improved crossand
up-selling, achieving higher
conversion rates, reducing post-order
revenue losses through stringent
credit checks, improving supply chain
and inventory management, and
analyzing online consumer behavior.
4 Forrester: US Online Retail Forecast, 2008 to 2013, xxxx 2009.
5 Forrester: It’s Time To Give Virtual Agents Another Look, March 2010.
6 Company Presentation.
7 Company Presentation.
12

Some operators have been able to
successfully enhance the performance
of their online channel through
initiatives such as web exclusive
offers, sales driven search engines 8 ,
high shop visibility 9 , and robust fraud
policy to achieve significant benefits 10 .
The online channel of a European
based leading integrated telco was
significantly underperforming
compared to industry benchmarks
with extremely low conversion rates.
In order to address this challenge,
the operator formulated a strategy
focused primarily on selling to
existing customers. The telco created
an excellent experience throughout
the digital customer lifecycle always
guaranteeing availability, simplicity,
and relevance. This enabled the
operator to not only achieve online
sales growth as planned but also
benefit from the superior profitability
of the online channel 11 . A European
incumbent telco, on the other
hand, significantly improved its
online order to sales performance
by reducing leakages arising due to
faulty payments. By developing a
stringent fraud detection and credit
check policy, the operator aimed to
achieve revenue improvement of more
than €15 million in 12 months from
implementation with retained benefits
in future years 12 .
TME players need to carefully assess
the maturity of their existing online
marketing sales and service system,
identify key areas of improvement,
and implement an ‘online mindset’
throughout their organization.
Multi-Channel Strategy
The evolution in consumer behavior
with an increasing appetite for
technology, strong desire for crosschannel
flexibility, and demand for
personalization, is the key driver
for TME players to strengthen their
multi-channel experience. For each
transaction, customers seek the
channel that provides them with the
Figure 3: Select Initiatives for Enhanced Customer Experience
Operator Measure Description Indicative Examples
Single Bill
Single bill for all services including fixed
and mobile, free of cost
Simplified Invoice
Simplification of invoices so that charges
are easy to understand for the customer
Integrated Multi-channel Service Facilitate a consistent experience and
Experience
seamless switch over across channels
E-Shops
Social Media
Chat-bots
Enhanced IVR
Online Community / Web Forums
Web portal to drive online sales
best experience. Therefore, to enable
a seamless experience across multiple
touch points such as retail stores,
online portal, and call centers, players
need to provide a balanced attention
to all channels.
When compared to pioneers such
as Dell, Argos, Apple, and Expedia,
operators have not only been late in
the adoption of an integrated multichannel
approach, but also have had a
weaker online experience 13 . Even with
the significance of the online channel
increasing, other non-online channels
including retail stores and telesales
are still expected to account for the
bulk (70%) of global retail sales in
2016 14 . This makes it imperative for
TME players to define and formulate
a multi-channel strategy in order to
maintain a 360 degree view of the
customer and balance sales, customer
care, and retention across channels.
It is also important that players
balance Subscriber Acquisition Cost
(SAC) and Subscriber Retention Cost
(SRC) across channels in order to
maximize customer lifetime value.
Furthermore, they need to ensure
Use of social media for proactive
communication and resolving customer
issues
Interactive automated online tool to
address customer queries
Personalized and intelligent IVR system,
to reduce the volume of repeat calls
Community based portals for information
dissemination and troubleshooting
Source: Capgemini TME Strategy Lab Analysis; Company Websites
8 The search feature on the portal is optimized so that customers can easily search and buy products.
9 The portal is designed such that customers can easily locate and access the e-shop.
10 Capgemini Analysis.
11 Capgemini Analysis.
12 Capgemini Analysis.
13 Capgemini Analysis; Forrester, Best and Worse Cross-Channel Design, 2007-2009.
14 Capgemini Analysis; Datamonitor: Global Internet and Catalog Retail Report, xxxx 2009.
13

“
Several
operators are
exploring brand
stretch across
new growth areas
such as energy,
healthcare, and
automotive
sectors
”
that organizational structures and
incentives are aligned to drive
maximum value across all channels.
Some operators such as T-Mobile,
Orange, and Vodafone have already
embarked on the journey to deliver
a unified multi-channel experience
to their customers 15 . For instance,
T-Mobile offers its customers
personalized multi-channel selfservice
over a mobile portal, SMS,
or a voice portal with touch-tone
(DTMF 16 ) or speech recognition 17 .
T-Mobile Germany launched a
technology driven channel integration
program to improve profitability and
customer service. As a result, the
operator witnessed a 3% increase of
Average Revenue Per User (ARPU) in
four months and a 25% increase in
customer satisfaction 18 .
Product Renewal
Key Issues
In order to increase competitiveness,
operators are aiming for continual
improvement on how they manage
their portfolio of products and
services. Not only is there a need
to reduce time-to-market for new
products but also an increased
drive to simplify and rationalize
the product portfolio. This will
balance the organizational focus
and investment in new versus
existing products, including driving
innovation.
To overcome these challenges
operators are focusing on three
initiatives: product portfolio
management, product launch
management, and product
rationalization.
Key Focus Areas
Product Portfolio Strategy
Selecting the right products to launch
and tracking their performance is
one of the most critical challenges
for TME players. Approximately 80%
of new products fail within the first
three years after introduction and
many more fail to be of interest to
consumers 19 . This can be attributed
to the fact that a decision to develop
and launch a product is often defined
within organization silos, customer
involvement is limited and happens
only in the later stages, and product
performance is not evaluated on a
regular basis. Moreover, key tools,
such as market sizing, segmentation,
and customer purchase criteria,
required to effectively formulate a
new product strategy are not always
used effectively. This drives players to
re-define their product development
strategy in such a way that it covers
all key aspects impacting the product
portfolio performance, including more
efficient in-life product management.
A European based global operator
presents a good example of a TME
player that was able to successfully
accelerate new product development
by promoting collaborative working
and intense brainstorming. In
the analysis phase, the operator
organized a series of facilitated
events, bringing together all the right
people from business and technology
such as decision makers, subject
matter experts, and experienced
facilitators, to enable faster decisions
and increased ownership. This
accelerated the analysis phase of new
product development from five to two
months 20 .
In addition, in order to offset the
declining growth rate of traditional
services and gain incremental
revenues, TME players are increasingly
exploring brand stretch across new
product and service propositions. For
example, the launch of application
stores, diversification into content
services, smart metering solutions,
and mobile payments are some
areas which have already witnessed
activity from telecom operators. There
15 Company Websites.
16 Dual Tone Multi Frequency.
17 Voxeo: Unified Self-Service: Delivering on the Value of Multi-channel Customer Interactions, March 2010.
18 Capgemini Analysis; Cisco IBSG Survey, Mobile E-Channel Experience: A Multi-Channel perspective; Cisco Multi-Channel
Handling at T-Mobile Germany, Tieto Presentation, Thomas Villinger, HET VCN Congress: NAARdeTOP, November 2007.
19 Capgemini Analysis.
20 Capgemini Analysis.
14

are several success stories as well,
such as that of Deutsche Telekom
which is betting big on innovative
services and sectors. The company
expects revenues from its “intelligent
networks” growth area for energy,
healthcare, media, and automotive
sectors to reach around €1 billion by
2015 21 .
Product Launch Management
Product launches are frequently
plagued by delays due to disparate
product data, and legacy billing and
CRM systems. In addition, limited
senior stakeholder involvement and
the lack of structured and a crossfunctional
project management
approach results in launch
inefficiencies. While entirely
new offerings can take as long as
12 months or more to launch, even
simple rate changes can take eight to
twelve weeks 22 . Moreover, product
development and the management of
changes is often slow and inefficient
because product information is
stored in multiple places and formats.
Therefore, in order to ensure a
successful on-time and on-budget
launch TME players need to adopt
a proven program management
approach and tools to accelerate timeto-market.
Product Rationalization
Product rationalization is a wealth
accretive activity and is one of
the hallmarks of competitive
TME players. In most cases, a
majority of subscribers are served
by a small percentage of the total
product portfolio resulting in
reduced organizational efficiency
and increased operational costs.
There also exists a long tail of
products and tariffs with few or no
subscribers. Moreover, the presence
of duplicated tariffs driven by legacy
product catalogs structure, increases
complexity. The key challenge is
not only to identify unprofitable
products, but also to effectively kill
them. Achieving and sustaining a
lean product portfolio of competitive,
profitable, and innovative products
through rationalization of products
and tariffs could increase efficiency
across business and technology areas.
Rationalization projects carried out by
a global mobile operator demonstrate
the significant value that can be
delivered through such initiatives.
Driven by the reduced ability to
execute promotions, Vodafone Italy
reduced its prepaid tariffs from 55
to 37. This resulted in the migration
of 10 million SIMs 23 from the legacy
tariffs to the new ones, and had more
than a €15 million net impact on
EBITDA 24 in the 2008 / 2009 fiscal
year.
Infrastructure Renewal
Key Issues
Technology choices are becoming
more and more complex as
operators seek to balance the need
to deploy high capacity bandwidth
with the challenge of generating
a Return on Investment (ROI) for
such deployments. Fiber network
rollout, Long Term Evolution (LTE)
deployment, and network capacity
upgrades all present competing
demands for investment with a
complex business case. With the
emergence of all inclusive pricing for
data services it becomes increasingly
difficult to monetize these
investments. At the same time new
services such as application stores do
not necessarily generate significant
incremental revenue for operators
yet bandwidth hungry devices put
pressure on networks.
To keep pace with this rising
bandwidth requirement and the rapid
technology innovations in network
and IT infrastructure, it is important
for operators to future-proof their
delivery networks and data centers.
21 Deutsche Telekom Press Release.
22 Capgemini Analysis.
23 Subscriber Identity Module.
24 Earnings Before Interest Taxes Depreciation and Amortization.
15

Mobile network traffic in Western
Europe is expected to increase at
111% CAGR, between 2010 and
2013, from 69.9 Zettabyte per month
to 661.2 25 . In order to ensure that
service quality is not compromised,
and to earn incremental revenues
from high bandwidth services of
the future, operators need to focus
on rolling out the next generation
networks. The deployment of such
networks is also an important factor
in driving down the cost of capacity
provision and increasing efficiency
which must feed into the business
case.
Network deployment takes place
against a backdrop of governmental
and regulatory pressures to develop
national infrastructure and is further
impacted by the debate on net
neutrality. Making the appropriate
technology portfolio choices is,
therefore, an essential step.
Moreover, to diversify their offerings
beyond traditional services and
leverage the potential top line benefits
from systems infrastructure renewal,
operators can consider the benefits
of adding cloud service offers to their
portfolio.
Key Focus Areas
Advanced Networks
The deployment of advanced
networks can help operators meet the
rising consumer demand for speed,
reduce churn, and enhance ARPU. It
can also help them reduce operating
costs and improve environmental
sustainability. For example, Sprint
plans to invest between US$4 to 5
billion over the next three to five
years in network upgrades which is
expected to create cost savings from
reduced energy costs, lower roaming
expenses, and improved capital
efficiencies 26 .
Superior networks will not only
enhance service experience, thereby
increasing customer stickiness, but
will also enable operators to earn
higher revenues. The 4G network
of TeliaSonera enabled Swedish
TV stations to broadcast the royal
wedding of the Crown Princess
Victoria and Daniel Westling live 27 .
This experience was not possible to
imitate on the existing 3G networks
of other operators in Sweden. The
benefits from a revenue perspective
can be illustrated through recent
studies which have found that
for operators having both legacy
and fiber based broadband, ARPU
from the fiber services is typically
20-30% higher than that of legacy
broadband 28 .
For operators, upgrading their existing
networks, fixed or mobile, is not a
question of if, but when. The timing
of the upgrade largely depends on
factors such as current and expected
market demand for bandwidth and
the ability of the existing network
to serve this demand. While FTTx 29
and DOCSIS 30 3.0 deployments are
the technologies of choice for fixed
players, mobile operators can upgrade
their networks to 4G.
Cloud Computing
Operators have massive internal IT
infrastructure as well as multiple
large data centers through which
they deliver enterprise services.
Cloud computing can not only help
telecom service providers optimize
their internal systems but also enable
them to offer cloud services by
leveraging their strengths such as data
center capabilities, managed service
experience, and a global IP backbone.
Verizon has leveraged the experience
gained from virtualizing 2,100 of
its internal servers for achieving
internal efficiencies, to offer cloud
deployment and consulting services
to its enterprise customers 31 . Several
other operators such as BT, AT&T,
and Orange have also made an entry
into cloud computing.
25 Cisco Visual Networking Index: Global Mobile Traffic Forecast Update, 2009-2014,2009.
26 Company Websites.
27 Company Website.
28 Yankee Group, Next Generation Access Services: Analysis of Portfolios, February 2009.
29 Fiber to the x: Where x can stand for Home, Curb, or Node.
30 Data Over Cable Service Interface Specification.
31 Verizon Case Study.
16

In order to successfully tap the
cloud computing opportunity, it is
important that operators carefully
evaluate different cloud computing
service segments within their market,
identify the value proposition and
create a roadmap for services,
forge the right partnerships with
technology enablers, and identify
relevant sales channels.
IT Renewal
Key Issues
Telecom operators have built up
expensive legacy IT systems over
many years which have now become
prohibitively costly to maintain. The
cost of deployment is clearly one
part of the equation, but operators
are increasingly focused on reducing
the total cost of ownership (TCO).
The complexity of these legacy IT
estates also creates challenges on the
speed of deployment of new services
which is increasingly important when
competing with highly agile online
entities.
There is now a trend to simplify the
IT estate and focus on the deployment
of more standardized solutions which
are implemented “out of the box”
with minimal customization. This is
linked to a simplification of business
processes whereby best practice—
often eTOM 32 based—industry
standard processes are being selected
at the expense of highly customized
processes which, in practice, offer
little differentiation in a highly
mature industry.
Key Focus Areas
Addressing the given key issues, the
need for most operators is a radical IT
and business transformation to reduce
TCO, to have a single consistent
view of the customer, and accelerate
time to market for new services.
This can be achieved by focusing on
commercial off-the-shelf solutions
(COTS) based on standard business
processes. Operators are increasingly
adopting COTS from vendors such
as Amdocs, Oracle, and Comverse
for billing and ERP. However, the
biggest challenge ahead for telcos
will be to ensure transformation
success, as only one out of three 33
IT transformations is successful in
delivering within time and budget as
they lack the necessary alignment and
commitment. In order to successfully
renew their IT systems, operators
need to strive for a change in
organization, business processes, and
IT in an aligned manner.
Operational Renewal
Key issues
The pressure on TME players’
margins due to slower revenue
growth, increasing costs, and
fierce competition has prompted
several operators to embark on cost
cutting programs. The challenge
is to move from short-term cost
cutting to creating sustainably
efficient organizations and optimize
functional performance in order to
raise profitability. This would ensure
that not only current activities are
efficient, but also enable headroom
to invest in new business expansion.
Three example areas require
attention: infrastructure sharing and
outsourcing, sustainable efficiency,
and environmental sustainability.
Key Focus Areas
Infrastructure sharing and outsourcing
Network infrastructure sharing and
outsourcing all or part of network
related operations is a key strategic
option for operators to reduce costs
and free up vital resources. It is
expected that by the end of 2010,
60% of the world’s wireless operators
and 80% of the emerging market
operators will have some form of
network-outsourcing contract 34 . As
operators rollout new networks, share
active and passive infrastructure,
outsource network management
functions, and share and outsource
network backhaul, this will not only
“
Only one
out of three IT
transformations
is successful
in delivering
within time and
budget
”
32 Enhanced Telecom Operations Map, published by the TM Forum, it is the most widely used and accepted standard for business processes in the telecommunications industry.
33 Capgemini Analysis; Standish Group as quoted in the July Computer Bulletin from the BCS 2009.
34 The International Communications Project, Issue 12, Managed Services Partnering.XXXXXX
17

help them save costs, but will also
result in faster rollout speeds, broader
coverage, and reduce the time-tomarket
for new services.
Network sharing and outsourcing is
becoming a key priority for operators
to enhance operational efficiencies
and reduce costs. Leading global
operators such as Orange, Vodafone,
and TeliaSonera have all outsourced
network operations in order to
develop lean business models 35 .
Similarly, in both emerging and
developed markets, operators such
as 3 UK, T-Mobile, and Bharti have
forged network sharing deals 36 .
Sustainable Efficiency
Today, TME players operate in an
increasingly complex environment
with a multitude of services,
diverse geographical footprint, and
numerous support systems. This has
resulted in enlarged organizations,
increased process complexity, and
multi-layered technology platforms,
all designed to meet the growing
needs of consumers. Due to this,
the profitability of operators has
also suffered. The average EBITDA
margin of major European operators 37
has witnessed a fall of nearly 12%
between 2005 and 2009. Operators,
therefore, require a step change in
operational efficiency in order to
remain profitable and competitive.
Sustainable efficiency is a holistic
approach to drive value and reduce
costs across the organization. In
order to implement it, a behavioral
change is required at the heart of
the transformation and a change in
the way employees and employers
approach, plan, and execute their
work. This lean thinking can ensure
sustainability and continuous
improvement at every level. TME
players can achieve significant
benefits by holistically revisiting their
organizational structures, operating
models, and processes to remove
waste and balance resources in both
the front- and back-office operations.
However, players need to keep in
mind that implementing a truly
sustainable operational excellence
culture demands time and should not
be viewed as a quick fix.
Green Telco
Operational renewal measures
should be aimed at not only
saving costs but also making a
meaningful contribution towards the
environment and benefiting from
the corresponding goodwill. Even
customer decisions today are driven
by environmental friendliness and
sustainability. Many customers are
increasingly opting for online or
e-bills over paper bills. Therefore,
deploying focused initiatives around
improving cooling efficiencies,
reducing energy consumption, and
implementing low carbon programs
to realize tangible savings, should be
the key priority for operators.
Some operators are already deploying
focused initiatives such as low carbon
programs and the reduction of energy
usage for sustainable cost reduction.
BT has achieved a 43% global carbon
intensity reduction through initiatives
such as sourcing 41% of UK energy
requirement from renewable sources
and adopting a global energy savings
campaign 38 . In another example,
Vodafone has implemented measures
aimed at reducing energy usage and
its associated costs in its operations
across multiple locations. The
company has deployed initiatives
to improve cooling, modernize its
network equipment, and reduce diesel
usage 39 .
In conclusion, the Digital Renewal
responses of TME players enable
them to effectively address their most
pressing challenges. By focusing
on the five key priorities of this
approach, players can enhance
customer experience, develop a
35 Company Websites.
36 Company Websites.
37 Belgacom SA; BT Group plc; Deutsche Telekom AG; France Telecom SA; Koninklijke KPN N.V.; Telecom Italia SpA;
Telefonica SA; Telenor ASA; TeliaSonera AB; Vodafone Group plc.
38 Corporate Responsibility, The BT story on Carbon Reduction, April 2010.
39 Company Website.
18

obust product lifecycle management
strategy, future proof their network,
standardize IT systems, and achieve
operational efficiency.
Rob Staples is a vice president and
Global Head of Consulting Services
for Capgemini’s Telecom Media &
Entertainment (TME) practice. Rob
works with CEOs and board-level clients
in the telecommunications and media
industries and is a founding member of
Capgemini’s TME Advisory Board — a
private think tank in which CXOs can
discuss the implications of the converging
communications industries. Rob has
20 years’ operational and consulting
experience, gained in Europe, Asia,
Latin America, the United States and the
Middle East. He is based in London.
Manik Seth is a manager in the TME
Strategy Lab. He has over five years
of experience in strategy, planning,
market analysis and consulting. His
recent work includes being part of a
one year technology-driven business
transformation program for an integrated
operator and helping a leading equipment
manufacturer with identifying BSS/
OSS-related acquisition targets. Prior to
joining the Lab, Manik was involved with
identifying new technology initiatives in
next-generation networks for a leading
software services provider. He is based in
Mumbai. n
“
Average
EBITDA
margin of
major European
operators has
witnessed a fall
of nearly 12%
between 2005
and 2009
”
19

Cloud Computing: The Telco Opportunity
By Jerome Buvat and Priyank Nandan
Abstract: In recent years, the increasing costs of setting up and maintaining IT infrastructure have been a cause for concern for
enterprise CIOs 1 . Cloud computing provides businesses with a cost efficient and elastic solution for offloading maintenance, freeing
up budget, and improving IT productivity and responsiveness. The rising interest in cloud computing has resulted in several telcos
entering this space. Although operators have been late entrants, they have established a strong presence by leveraging their in-place
assets and focusing aggressively in this market. The primary focus of telcos has been on IaaS 2 , even if many also provide significant
SaaS 3 applications. However, PaaS 4 has been largely neglected by most operators. Our analysis indicates that cloud computing
presents several attractive commercial opportunities for telcos which should be tapped in a phased manner, without delay, in order to
maximize returns. Although the IaaS proposition would be most fruitful for operators, other opportunities across SaaS, service delivery
innovation, and PaaS will also offer significant potential. We recommend that telcos differentiate themselves by offering niche services
which require industry and region specific customization. For example, a strong focus on specific industry verticals such as finance
and healthcare will help them gain an edge over the competition. In terms of service delivery, telcos are best equipped to adopt virtual
private cloud deployments and broker approach 5 . Customized offerings for large enterprises and SMEs 6 will further strengthen their
position and enable them to become frontrunners in cloud computing.
Figure 1:
SaaS Offerings
Categorization of Cloud Computing Offerings
■ Software applications running
on a cloud infrastructure
■ Applications are accessible
through a thin client interface
such as web
browser
PaaS Offerings
■ Applications built using tools
supported by the provider
■ Clients have control over the
application hosting environment
IaaS Offerings
■ Delivering storage, computing,
monitoring and backup services
from the cloud
■ Companies can manage their
infrastructure remotely
Source: Capgemini Analysis
Applications
Application
Databases
Development
Environment
Virtual
Infrastructure
The Cloud
Stack of Cloud Services
Web
servers
End-user applications
available through Internet
Application
runtime Service Catalog,
environment component library
Monitoring and management of:
■ Services & Resources
■ Virtual servers
(Virtualization)
■ Physical servers
(Datacenters)
Cloud computing is the latest
technology trend in which IT
infrastructure and software programs
are accessed over the Internet or
private networks. Cloud offerings can
be largely categorized as Software as
a Service (SaaS), Platform as a Service
(PaaS), and Infrastructure as a Service
(IaaS) (see Figure 1). These services
are delivered via three main models:
public cloud 7 , private cloud 8 , and
hybrid cloud 9 .
Enterprises of all sizes are being
increasingly drawn to cloud
computing. Benefits such as reduced
IT costs, pay-per-use, better resource
utilization, and elastic scalability are
driving its uptake. The percentage of
CIOs interested in cloud computing
has grown rapidly from 5% in 2009
to 37% in early 2010 10 . The rising
1 Chief Information Officer.
2 Infrastructure as a Service.
3 Software as a Service.
4 Platform as a Service.
5 A broker is the single point of contact for an enterprise for all cloud computing requirements such as service provisioning, service level agreements (SLA) and compliance. A broker sits between
the enterprise and multiple cloud service vendors and provides a layer of abstraction.
6 Small and medium sized enterprises.
7 Public cloud services are delivered to multiple customers from third party data centers over the Internet.
8 Private cloud is deployed within an enterprise for its internal use.
9 In a hybrid cloud model, some resources are provisioned and managed in-house while others are delivered from the cloud.
10 Harvard Business Review, What We’re Watching in Cloud Computing, http://hbr.org/2010/06/what-were-watching-in-cloud-computing/ar/1.
20

interest in these services is driving
increased enterprise spending, and
as a result, cloud computing presents
an attractive revenue potential for
technology players and telcos alike.
While the benefits of cloud
computing make it attractive for
customers, concerns such as data
security, privacy, and compliance
have slowed down the pace of
adoption. For instance, strict
privacy laws that place limits on the
movement of information beyond
the borders of the European Union,
have hindered the evolution of cloud
computing in Europe.
After carefully weighing the benefits
and risks of cloud computing, several
operators have advanced into this
lucrative market. However, the key
challenge ahead for these operators
is to differentiate themselves in this
highly competitive arena. In this
chapter, we take a close look at the
cloud computing space, qualify the
opportunity for telcos, and propose
some recommendations around
how operators can maximize the
opportunity in this market.
Market Dynamics
Worldwide IT cloud services revenues
are expected to grow rapidly at a
CAGR 11 of 26% from 2009 to 2013
to reach US$44.2 billion. While
SaaS will continue to contribute the
highest to the overall revenue, its
share is expected to decline, largely
due to an increased enterprise focus
on IaaS (see Figure 2). The rapid
growth of IaaS will be fuelled by
a keen interest from businesses on
curbing the huge costs associated
with IT infrastructure.
“
Given the revenue potential,
telcos should not delay their
entry in the cloud computing
space
”
Figure 2: Worldwide IT Cloud Services Revenue (US$Bn) and Growth Rate by
Service Type
21%
10%
69%
$17.4
billion
3.7
1.7
12.0
Infrastructure as a Service
37%
35%
21%
2009 2013
Platform as a Service
x% CAGR
$44.2
billion
12.8
5.8
25.6
29%
13%
58%
Software as a Service
Source: Capgemini TME Strategy Lab Analysis; Forrester Research; Cloud Computing 2010, An IDC Update, September
2009
11 Compound Annual Growth Rate.
21

Figure 3: Stakeholders in the Cloud Computing Ecosystem
Figure 4: Enterprise Cloud Offerings of Select Vendors
Examples
Cloud Enablers
■ Provide the technology,
infrastructure, platforms, and
middleware to enable the
provision of cloud services
Source: Capgemini TME Strategy Lab Analysis
Oracle on Demand
Cisco Webex
Salesforce CRM
IBM Lotus Live
Salesforce Force.com
Google App Engine
Microsoft Azure
Amazon Web Services
BT
Orange Business Services
AT&T
GoGrid
Rackspace
EMC MozyEnterprise
Nirvanix CloudNAS
Software (SaaS)
Cloud Service
Vendors (CSVs)
■ Provide the actual cloud
services, spanning SaaS,
PaaS and IaaS, to customers
Application
Development
Platform (PaaS)
Source: Capgemini TME Strategy Lab Analysis; Company Websites
Service Providers
■ Provide cloud focused
business consulting, and
technology services such as
system integration, cloud
migration, and maintenance
Infrastructure as a Service (IaaS)
Servers
Storage
Several companies are competing
aggressively to grab the largest share
of the lucrative cloud computing
market. These players fall largely
under one of these three categories:
enablers, vendors, or service providers
(see Figure 3). The role of some
mature players, however, can also
span a number of categories. For
instance, both Cisco and IBM are
cloud enablers as well as CSVs 12 .
Leading technology vendors such
as Amazon, Salesforce.com and
Microsoft have established a firm
footing in this market and offer a
range of services spanning SaaS, PaaS,
and IaaS (see Figure 4). In terms of
revenues, the current CSV landscape
is dominated by players such as
Salesforce.com, Amazon, and Oracle.
Salesforce.com, the leading provider
of SaaS CRM 13 solutions, reported
revenues of over US$1billion 14 in
2009, which is the highest amongst
CSVs. The success of these leaders
can be attributed to their technical
prowess, early mover advantage, and
the strong focus on cloud computing.
Though large technology players
have emerged as leaders in cloud
computing, several smaller companies
such as Rackspace and Netsuite are
trying to carve their niche. Telcos
such as BT and AT&T have also
entered this market. In the next
section, we will evaluate the cloud
computing initiatives and strategies of
telcos.
Telco Activity in Cloud
Computing
Compared to market leaders such as
Amazon and Salesforce.com, telco
entry into cloud computing has been
reasonably late. While Salesforce.
com started offering services in 1999,
BT and T-Systems, one of the earliest
telcos to offer cloud solutions, entered
12 Cloud Service Vendors.
13 Customer Relationship Management.
14 Company Websites; Annual Report.
22

only in the 2003 to 2004 timeframe
(see Figure 5). Despite the late start,
several telcos such as BT, AT&T, and
Verizon are competing aggressively
with market leaders to establish a
strong foothold. The majority of
operators have taken the role of a
CSV while a few such as Verizon also
act as service providers. This section
presents an overview of key telco
strategies in cloud computing.
Target Segment
The cloud computing offerings of
most telcos are targeted towards the
enterprise segment. Enterprises and
governments spend nearly US$2.4
trillion worldwide 15 on IT products
and services, many of which can be
delivered from the cloud. This high
revenue potential makes the segment
attractive for operators. Moreover, the
consumer cloud space is nascent and
the revenue opportunities limited.
Within the enterprise segment
telcos are aggressively targeting
SMEs due to the growing interest
in this segment for cloud-delivered
software. SME share in overall cloud
services revenue is expected to
increase from 25% to 40% between
2009 and 2015 16 . To benefit from
this opportunity, several telcos offer
services customized to fulfill SME
needs. For instance, “IT Plan” from
Orange is a packaged SaaS solution
offering a suite of office productivity,
messaging, and business applications
targeted at SMEs.
Service Offerings
Telco offerings in cloud computing
are centered around IaaS and SaaS
with limited focus on PaaS (see
Figure 6). IaaS is the flagship offering
of most operators, and in general
SaaS has taken a backseat compared
to IaaS primarily because telco
capabilities and experiences are more
aligned towards delivering IaaS.
“
Several telcos have entered
the cloud computing market with
IaaS as their flagship offering and
a strong focus on the enterprise
segment
Figure 5: Select Examples of Telco Foray into Cloud Computing
SaaS
PaaS
IaaS
2003-2004 2007-2008 2009-2010 Planned
BT Open
Orchard
T-Systems
Dynamic
Services
”
Telstra
T-Suite
AT&T
Synaptic
Hosting
Orange IT
Plan
T-Systems (Database and
Middleware Environments)
Deutsche
Telekom
Zimory*
NTT Biz
Security
SK Telecom Cloud
Computing Platform
Orange
Flexible
Computing
Telefónica
Aplicateca
TeliaSonera Business Class
Cloud Services
BT Virtual
Data Center
Verizon
Computing as a
Service
AT&T Synaptic
Storage and
Compute
Source: Capgemini TME Strategy Lab Analysis; Company Websites
Note: Deutsche Telekom spun off from Zimory as an independent subsidiary in November 2007
AT&T
Telstra
Telecom Italia
NTT
15 Forrester Research, The Evolution Of Cloud Computing Markets, July 6, 2010.
16 Capgemini TME Strategy Lab Analysis; Analysis Mason, Seize the US$35.6 Billion Global Market for Enterprise Cloud
Services, June 2010.
23

Figure 6: Categorization of Cloud Offerings from Telcos
Telcos
BT
Orange Business Services
Deutsche Telekom/T-Systems
TeliaSonera
Belgacom
Telefónica
AT&T
Verizon Business
Telstra
SK Telecom
NTT
Bharti Airtel
Tata Communications
Source: Capgemini TME Strategy Lab Analysis
SaaS
IaaS
Paas
(Planned)
(Planned)
In 2008, AT&T made its debut
in IaaS with its Synaptic Hosting
proposition. Since then, several
leading operators such as BT (Virtual
Data Center), Orange (Flexible
Computing), Verizon (Computing
as a Service), and Deutsche Telekom
(Zimory) have followed suit. In fact,
the current IaaS offerings of most
operators are as competitive as those
from established players like Amazon
and Rackspace. Over the next few
years, all major telcos plan to focus
most on IaaS in order to address the
growing enterprise demand for cloud
infrastructure services.
Although IaaS has captured most
of the operators’ attention, SaaS too
has garnered significant interest.
Many telcos offer a host of SaaS
applications, usually in partnership
with ISVs 17 , for accomplishing a range
of business tasks. For example, BT
offers multiple CRM solutions in
partnership with Salesforce.com and
Netsuite, NTT has recently launched
a cloud-based security solution, and
T-System delivers SAP from the cloud.
Communication and collaboration
software such as hosted PBX 18 ,
messaging, email, conferencing, and
team collaboration solutions are
the mainstay of SaaS offerings from
leading operators.
Telcos have traditionally stayed
away from PaaS, largely due to its
unattractiveness both in terms of
revenue and demand, when compared
to IaaS and SaaS. Apart from
T-Systems, which offers database and
middleware environment to nearly
300 19 customers, few operators have
shown significant interest in this
category.
In addition to SaaS, PaaS, and IaaS
some telcos such as Verizon, Orange
and BT also offer professional
services, helping customers identify
and migrate the right applications to
the cloud.
Entry Strategy
Partnership with technology players
has been the foremost entry strategy
of telcos in cloud computing.
Operators have partnered with a
range of vendors from hardware
providers such as HP and Sun to
virtualization specialists such as
VMware and Citrix Systems. These
partnerships have helped telcos
significantly reduce their time-tomarket
and minimize the risks
associated with developing complex
technical capabilities in-house.
In addition to partnerships, a few
operators have acquired technology
companies to leverage their expertise
to launch cloud services. For instance,
AT&T acquired leading application
services provider USInternetworking
(USi) in 2006 for US$300 million
to develop capabilities in delivering
on-demand services and managed
enterprise software solutions.
Similarly, telcos such as BT, Verizon
and T-Systems also acquired
companies to develop expertise in
launching certain cloud services.
17 Independent Software Vendor.
18 Private Branch Exchange.
19 Forrester Research, Market Overview Of Cloud IT Services From Major Telcos, September 2009.
24

Attractive Opportunities for
Telcos in Cloud Computing
Cloud computing presents several
opportunities for telcos to pursue
(see Figure 7). Analysts estimate that
by 2015, telcos will have a 23% 20
share in the overall cloud services
market.
Operator success in the cloud,
however, will depend largely on
selecting the right choice of services
to launch. Telcos should consider
a combination of factors such as
the attractiveness 21 of a service,
its complexity, and the expertise
required to launch before determining
the services to offer. Most
importantly, operators should focus
on those services for which they are
well positioned to offer by leveraging
their existing capabilities such as data
center expertise, managed service
experience, and global footprint.
Based on this rationale, the most
relevant commercial opportunities for
telcos can be categorized into three
different service buckets: low hanging
fruits, the next phase, and the future
(see Figure 8). In order to make the
most of these opportunities, telcos
should launch these offerings in a
phased manner, starting with the low
hanging fruits first.
In the subsequent subsections we will
detail the three service buckets.
Low Hanging Fruits
These are the services which provide
an immediate attractive opportunity
for telcos and should be launched
first. Not only do these services
have a high demand and revenue
potential but also existing telco
strengths are well aligned to deliver
them rapidly. Hosting on-demand,
SaaS enablement, and storage and
computing on-demand fall under this
category.
Figure 7:
Enablement and
Professional Services
Universe of Potential Cloud Services
ERP
SCM
CRM
Communication and Collaboration
SaaS
Business Intelligence
PaaS
Billing
Document Management
Consulting
Content Management Desktop Productivity Disaster Recovery
Maintenance and Support
Hosting on Demand
Backup Services Service Management
Wholesale Capacity
Cloud Universe
Storage on Demand
System Integration
Virtual Servers Testing and
White-label Services
Development
Cloud Broker
App Server Database
Compute on Demand
Integration
Middleware
Message Queues
Security
Digital Content Creation
Network Assets Object Data Stores
Application Development Environment
Source: Capgemini TME Strategy Lab Analysis; Forrester, Future View: The New Tech Ecosystems of Cloud, Cloud
Services, And Cloud Computing, August 2008
Figure 8: Most Attractive Commercial Opportunities for Telcos in Cloud
Computing
Low
Telco Capability
High
■ These services have a high
demand from enterprises
■ Telcos already possess significant
expertise and assets required to
deliver these services
High
Low Hanging Fruits
Hosting on
Demand
SaaS Enablement
Storage and
Computing on
Demand
Source: Capgemini TME Strategy Lab Analysis
The Next Phase
Cloud Security
Services
Unified
Communication
Wholesale
Capacity
■ Telcos can build on their first phase
services to expand their portfolio of
offerings
■ Telcos can also leverage their global IP
backbone to offer capacity as a service
Service Attractiveness
Future
Cloud Billing
Broker Approach
PaaS (Expose
Network
Functionality)
IaaS
■ These services require telcos
to gain significant experience
in the cloud before launch
■ They can help telcos
differentiate
their cloud offering
Low
20 Analysis Mason, Seize the US$35.6 Billion Global Market for Enterprise Cloud Services, June 2010.
21 Service attractiveness is a combination of customer demand and revenue potential.
25

Hosting on Demand
Telcos are already proficient at
providing managed hosting services
for enterprises. In collaboration
with technology partners, operators
can rapidly virtualize their existing
data center infrastructure, without
excessive cost overheads, to offer
on-demand hosting. Some operators
such as AT&T and Orange already
provide this service. Service delivery
through the cloud will not only result
in the optimization of telcos’ existing
infrastructure, but also attract a
large number of customers interested
in maximizing IT investment by
migrating to the cloud. According
to analysts, when compared to
traditional hosting, cloud hosting can
help enterprises save 50% in costs
with an associated ten-fold increase in
capacity 22 .
SaaS Enablement
SaaS has the largest share of the cloud
services market and its adoption
within enterprises, especially
SMEs, is rising. Telcos which have
not yet ventured into SaaS can
quickly establish a firm footing by
partnering with a wide range of
ISVs and leveraging their existing
infrastructure to deliver diverse SaaS
applications. In addition to gaining
a substantial share of the large and
increasing enterprise spending on
“
Offering customized cloud
solutions can help telcos price
their services at a premium
”
SaaS, these telcos can also improve
customer loyalty by offering SaaS as a
value added service.
Computing and Storage on Demand
Computing, storage, and backup
along with hosting constitute the
bulk of US$5 billion 23 IaaS market.
Telcos already offering on-demand
hosting can cross-sell computing
and storage through an integrated
package. In addition to hosting,
providing virtual CPU 24 instances
(to meet the different computing
needs of customers) and on-demand
storage and backup will result in a
comprehensive IaaS solution. In order
to deliver these additional services,
existing data center resources can be
easily leveraged, thereby, minimizing
incremental costs.
Phase 2
This phase includes the next line of
services, which telcos should offer
in order to expand their portfolio
of cloud services and establish a
stronger footing. Operators can sell
these services on top of their existing
cloud proposition. Cloud security
services, unified communication,
and wholesale services fall under this
category.
Cloud Security Services
In terms of market share, telcos
are one of the leading providers of
managed security services. They
can quickly leverage their existing
expertise in network, application, and
data security to deliver these services
from the cloud. Cloud security is an
attractive market, which is set to rise
by 200% 25 during the period from
2008 to 2013. Telcos can capitalize
on this opportunity by differentiated
offerings such as Distributed Denial
of Service (DDoS) protection.
Operators have an inherent advantage
in this area because they can look
across their backbones and prevent
22 nScaled, Slashing Costs and Driving Capacity for SaaS Providers, February 2009.
23 Cloud Computing 2010, An IDC Update, September 2009; Capgemini TME Strategy Lab Analysis.
24 Central Processing Unit.
25 Gartner, Cloud-Based Computing Will Enable New Security Services and Endanger Old Ones, June 2008.
26

potential attacks earlier than most
other service providers.
Unified Communications (UC)
Enterprise customers are interested
more than ever in a common
platform for all their communications
needs including IM 26 , presence,
voice, conferencing, and email.
The unified communications
market is expected to rise at 55.6%
CAGR to US$4.3 billion between
2008 and 2014 27 , fuelled by cloud
computing. Telcos already deliver
individual communication services
like messaging, VoIP 28 , and PBX to
enterprise customers. They can build
on this experience to offer a unified
user interface and experience across
multiple devices.
Wholesale Capacity
Reliable network connectivity, which
includes fast and secure connections
from the cloud data center to the
customer premise, is imperative for
the success of any cloud business.
Telcos can offer capacity, over their
global IP 29 backbone and private
MPLS 30 networks, as a service to
both cloud service vendors and
enterprises. In addition to capacity,
large global operators can also whitelabel
a complete telco-focused cloud
infrastructure solution for regional
operators.
The Future
Telcos should also think beyond
traditional offerings and leverage the
commercial opportunities presented
by more novel services and delivery
mechanisms such as cloud billing,
PaaS, and the broker approach.
Cloud Billing
Technical and cost challenges make
it difficult for most cloud service
providers to run their billing
infrastructure in-house. Unlike
subscription based billing,
pay-per-use billing is complex and
failing to get it right can result in
“
Hosting on-demand,
SaaS enablement, storage and
computing provide an immediate
attractive opportunity for
telcos
revenue leakages. Telcos can leverage
their experience in billing metered
services to enter the cloud billing
arena. Operators along with their
billing partners can provide their
expertise as a comprehensive cloud
billing solution for vendors.
PaaS
As IaaS and SaaS space becomes
mature and increasingly competitive,
operators might shift their focus
towards PaaS in order to diversify.
PaaS is an attractive solution for
ISVs and SMEs to improve their
productivity and reduce costs by
using cloud-delivered toolkits
for application development and
deployment. Operators can build
on their existing experience with
Service Delivery Platforms (SDP) to
offer PaaS. Telco assets such as voice,
location, and presence can be offered
to help application developers build
applications that can be monetized.
Telcos as Brokers
There is a growing demand for “cloud
brokers” as intermediaries between
end users and cloud providers.
From SLAs with multiple vendors to
compliance and security, the broker
handles all cloud related issues
”
26 Instant Messaging.
27 ABI Research, Vertical Market Opportunities in Unified Communications, Q4 2009.
28 Voice over Internet Protocol.
29 Internet Protocol.
30 Multiprotocol Label Switching.
27

Figure 9: Telco Strategies in the SaaS Space
Increasing Telco Involvement
Telcos as hosting
service providers
for SaaS
Telcos as SaaS
ecosystem
providers
Telcos as
SaaS
enablers
■ Expanding basic hosting capabilities to support SaaS delivery
■ Telcos with limited interest in developing a robust SaaS roadmap
should adopt this strategy
■ Along with hosting, a telco can provide carrier-class data infrastructure,
network connectivity, and 24x7 monitoring
■ Telcos keen on differentiating their SaaS proposition and providing
value added services should go for this strategy
■ In addition to offering hosting services, a telco acts as an aggregator of SaaS
■ Telcos with a high interest in SaaS and keen on positioning themselves
as a one-stop-shop for enterprise software should adopt this strategy
Source: Capgemini TME Strategy Lab Analysis; VON, Telco Strategies to Win a Share in the SaaS Pie, June 2007;
Company Websites
“
In order to address
customer concerns such as
security, costs, and vendor
lock-in, telcos can take up the
role of a cloud broker
”
for a customer. This approach also
enables customers to switch cloud
vendors without worrying about the
operational details. Telco experience
in delivering multiple services with
stringent SLA requirements, strong
enterprise presence, and long lasting
relationship with enterprise IT
departments gives them an edge in
the cloud broker space.
Given the revenue potential and high
demand of different cloud services,
it is imperative that telcos do not
delay their entry in this space. By
diligently identifying and launching
the right services at the right time,
operators can maximize their share of
wallet while the end customers would
reduce IT CAPEX 31 and OPEX 32 .
Recommendations
As seen in previous sections, several
telcos have entered into cloud
computing and are focusing primarily
on IaaS and SaaS. However, there
is a significant possibility of these
services, especially IaaS, being
commoditized in the near future.
As the intensity of competition
increases and service differentiation
dilutes, margins will fall. Therefore,
customization and differentiation
across their offerings, service delivery,
and customer segment targeting,
31 Capital Expenditure.
32 Operating Expenditure.
28

should be the hallmarks of a telco
cloud strategy.
In the following subsections we will
illustrate how telcos can carve their
niche in these different areas.
Service Offerings
In addition to providing traditional
IaaS, operators should focus on
offering localized and customized
services which have a potential of
commanding high margins. This will
help them stay relevant in the face
of high competition from established
players such as Amazon and
Rackspace.
Telcos provide enterprise services
across various geographies and
have a good understanding of local
market demand for these services
including cloud. They are, therefore,
best equipped to address the regional
cloud services market needs. For
example, in certain geographies cloud
-based Virtual Desktop Infrastructure
may have high demand, whereas
other enterprises might be more
interested in disaster recovery. By
quickly identifying and addressing
such opportunities, operators can
gain an edge over the competition.
Offering customized cloud solutions
can help telcos price their services
at a premium. For instance,
replicating the exact software testing
environment on the cloud is a
challenge for enterprises because
many providers do not offer custom
OS images and limit the type of
configurations. By providing a
customized virtual environment for
companies to replicate their exact test
conditions, operators can not only
differentiate their offerings but also
charge higher margins.
In the SaaS space, there are three
different strategies which telcos can
adopt (see Figure 9) with the level
of involvement by operators varying
significantly. Telcos should evaluate
the level up to which they want to
have a SaaS presence and accordingly
adopt the right strategy.
PaaS is an area which will see limited
action from telcos in the near future.
Before establishing a PaaS presence,
telcos would need to carefully
evaluate their technology readiness
and experience with platforms such
as SDP 33 .
Service Delivery
Telcos should endeavor to deliver
services in a way that customers
can enjoy the cost benefits of public
clouds and the security and reliability
offered by private clouds. This can
be achieved through Virtual Private
Cloud (VPC) deployments. This
model delivers services from a public
cloud over MPLS-based Virtual
Private Networks. VPC, therefore,
offers the full security and privacy of
a private cloud, but pushes hardware
ownership to the service provider.
Telcos can leverage their distinct
strength in providing reliable private
IP service to enable a cost effective
and secure VPC solution.
In order to address customer concerns
such as security, costs, and vendor
lock-in, telcos can take up the role
of a cloud broker (see Figure 10).
Figure 10:
Vendor Lock-in
Performance
Telcos as Cloud Broker
Telcos can mitigate most customer concerns related to cloud, by taking the role of a broker
Compliance
Security
Cost Control
Major Customer Concerns
Enterprise Cloud Customer Concerns, %, 2009
14%
20%
25%
30%
37%
Source: Capgemini TME Strategy Lab Analysis; Forrester, February 2009
How Can Telcos Address These As Brokers?
■ Creating a level of abstraction between the customer and
multiple CSVs ensures seamless switching of vendors
■ End-to-end SLA management, by controlling the entire
delivery chain of services, will ensure high performance
■ Delivering services through vendors which fulfill all
compliance and regulatory criteria will allay this concern
■ By monitoring security of multiple CSVs and providing an
additional security layer, security concerns can be reduced
■ Effective allocation and optimum utilization of internal and
external resources will ensure effective cost control
33 Service Delivery Platform.
29

Figure 11:
Summary of Cloud Strategies for Telcos
Service Offerings
1. IaaS should be the primary target
■ Telcos should focus on niche
high margin IaaS offerings
2. Selection of right SaaS strategy
should be determined by
the degree to which a telco
wants to be involved in SaaS
3. Operators should target specific
industry segments requiring
stringent SLAs
Source: Capgemini TME Strategy Lab Analysis
Service Delivery
1. VPC should be the preferred
delivery model for provisioning
cloud services
2. Telcos should adopt the broker
approach
■ High QoS and stringent security
guidelines are required, making
telcos ideal brokers
■ Operators should become
brokers after gaining significant
experience as a CSV
Customers
1. Separate SME targeting
■ SMEs have very different
requirements and
should be targeted with
bundled services
having low TCO
2. Focus on enhanced security,
multi-country presence, and
end to end cloud solutions for
large enterprises
This is another innovative approach
to service delivery where telcos
are well positioned compared
to their competitors because of
strong enterprise relationships and
experience of delivering multiple
services involving stringent
SLAs. However, operators should
build significant experience in
cloud computing before adopting
this approach, so that they can
successfully tackle the complexities
associated with end-to-end solution
delivery.
Customer Segment
Large enterprise customers have
multi-country operations and serious
concerns about the security of their
applications and data. Also, due to
the sheer size and complexity of their
operations, deploying cloud services,
integrating them with on-premise
systems, and continuous maintenance
and support becomes a highly
complex process. In order to target
large enterprises, telcos should try
and offer enhanced security and endto-end
cloud solutions across multiple
countries.
The share of SMEs in the overall
cloud services market is expected
to rise rapidly in the next few years.
SMEs prefer all their ICT 34 needs to
be catered for by a single vendor and
want solutions that are easy to deploy
and support. Total Cost of Ownership
(TCO), which also includes
maintenance, upgrade and support
is another factor which SMEs value
more than the actual selling price of a
solution. In order to effectively target
this segment, telcos should focus on
bundling different cloud services
such as communication, security,
and hosting in a simple package.
Moreover, operators should offer
standards-based cloud solutions and
reduce overheads wherever possible,
in order to minimize TCO.
In summary, telco focus should be
on offering niche IaaS for specific
industry segments, provisioned
through VPCs (see Figure 11).
In conclusion, the revenue potential
and high demand of cloud computing
presents a real opportunity for telcos
to offset the declining revenue from
traditional services. Several operators
have already entered this area and
others should soon follow suit.
The in-place assets of telcos such
as data center capabilities, global
IP backbone, and experience in
delivering managed IT services can
not only help them expedite their
launch but also establish a leading
position. However, there is significant
possibility of cloud services,
especially, IaaS being commoditized
in the near future. Moreover, the
competition is becoming increasingly
intense with several players entering
this lucrative market. Operators,
therefore, need to constantly innovate
and focus on the right services,
34 Information and Computing Technology.
30

delivery models, and industries
where they are best positioned, by
the virtue of their strengths, to carve
their niche and gain an edge over the
competition.
Jerome Buvat is the Global Head of the
TME Strategy Lab. He has more than
thirteen years’ experience in strategy
consulting in the telecom and media
sectors. He is based in London.
Priyank Nandan is a senior consultant
in the TME Strategy Lab. His research
interests and project experiences span
diverse areas such as digital media,
fixed and wireless networks, and cloud
computing. He has a deep understanding
of the TME industry in both developed
and growth markets. Prior to joining
the Lab, Priyank worked for a major
IT product company. He is based in
Mumbai. n
“
Telcos can
differentiate themselves
by offering niche IaaS
for specific industry
segments, provisioned
through Virtual Private
Clouds
”
31

Beyond Communications: Identifying New Markets for Telcos
By Jerome Buvat, Subrahmanyam KVJ and Nikhil Ray
Fixed and mobile operators across the developed world are faced with the prospect of increasing pressure on their voice and data
revenues. Telcos are also facing a strong challenge from over-the-top Internet players who have been taking an increasing share of the
consumer spend on digital media and communications. These developments are forcing telcos to identify new revenue streams for the
future. Consequently, they are looking at entering new sectors that hold revenue potential, while being able to leverage their existing
assets. While telcos have entered into a variety of new services involving content, advertising and cloud computing, among others,
some of the more exciting opportunities lie in healthcare, energy, and automotive. These hold significant potential for telcos to enter
and create a whole new ecosystem where they can place themselves at the center, and in the process generate significant value in
the future. However, in order to tap into this potential, telcos will need to adopt different go-to-market strategies for different service
opportunities. Telcos will need to assimilate changes in how they have traditionally operated their organizational structures if they are
to effectively address upcoming opportunities and challenges.
Figure 1:
Tangible Assets
Network
Strong IT
Capabilities
Wide
Distribution/
Retail
Presence
Existing
Billing
Relation
Key Telco Strengths Developed Over the Years
The biggest and most valuable
asset for telcos is the extensive
voice and data networks that they
have installed over the years
Telcos have developed significant
capabilities in IT systems given the
wide range of software solutions
that they need to integrate and
operate
Telcos have the capability to offer
services across the length and
breadth of geographies that they
operate in, giving them significant
retail presence
Telcos have a strong existing billing
relationship with consumers for the
various services that they provide
that can be leveraged
Source: Capgemini TME Strategy Lab Analysis
Intangible Assets
Brand Equity
Financial
Stability &
Reliability
Strong
Procurement
Divisions
Customer
Relationship
Telcos have built a strong brand due
to their extensive marketing efforts
over the years
Telcos have access to large capital,
a prerequisite for setting up any new
line of business, in addition to years
of experience in delivering reliable
services
Most telcos have procurement
divisions that have significant
purchasing power given their scale
Telcos already provide customer
service through multiple channels
and have built a steady relationship
with their user base
Telecom operators are in the midst
of challenging times. While they are
just recovering from the impact of
the financial slowdown, they are also
facing the prospect of contending
with increased competition from
over-the-top players. Consumers
increasingly expect connectivity
to add value to their day-to-day
activities, and are looking to emulate
their PC-based experiences on the
mobile. Telcos are also keen to
re-use assets that they have builtup
over the years and deploy them
to more effective use (see Figure 1).
These factors are playing a key
role in telecom operators looking
for new revenue streams beyond
communications.
Telco opportunities in new areas can
be ascertained through a combination
of proxy data-points. An increased
IT spend in any industry is usually
a good pointer to greater usage of
technology and communications
which can be correlated to enhanced
opportunities. As such, an analysis
of IT and communications spending
forecast is likely to help identify those
sectors that could potentially hold
future opportunities and which are
likely to grow (see Figure 2).
The projected IT and Telecom spends
in different sectors leads us to look at
three key sectors namely, healthcare,
energy, and automotive that telcos
can target in order to exploit their
latent potential. These sectors, while
offering strong growth potential, also
32

Figure 2: IT Spend and Telecommunications Spend Comparison by Sector,
Global, CAGR, 2008–2013
3.0%
2.5%
Utilities
Healthcare
CAGR Revenue Growth of Spend
on Telecommunications, 2008-2013
2.0%
1.5%
1.0%
0.5%
0.0%
Wholesale
Process Manufacturing
Agriculture
Discrete Manufacturing
have low entry barriers, allowing
telcos to re-use some of the assets
they have built up over the years.
In this chapter, we take a look
at the opportunities, challenges,
capability gaps and some potential
services that telcos can offer in these
sectors. We conclude with a set of
recommendations aimed at giving
initial direction to telcos as they
venture into these new sectors.
Telco Opportunities in Healthcare
Market Overview and Opportunity
Areas
Opportunities in healthcare are
closely tied to the critical role that
the industry occupies in both the
developed as well as developing
markets. In developed markets,
healthcare-spend as a percentage
of GDP varies between 8-11% 1 .
Such significant spending indicates
a sizable opportunity across the
healthcare value chain. Similarly,
in emerging markets, the biggest
opportunity arises from the fact that
healthcare coverage is sparse and
Transportation
Financial Services
CAGR Revenue Growth of IT Spend, 2008-2013
Education
0.0% 0.5% 1.0% 1.5% 2.0% 2.5%
Source: Gartner, IT Spending by Industry Market, Worldwide, 2007-2013, 3Q09 Update, 2009
limited to urban areas. Countries
such as India have under 0.6
physicians per 1,000 people, when
compared to an European Union
average of 3.3 2 . Such wide disparities
also point to latent opportunities for
innovative solutions that can better
address the needs of the people in
such geographies.
Service offerings in the healthcare
market can be classified as consumer
services and enterprise solutions.
Consumer services primarily involve
delivering healthcare offerings to
retail consumers, spanning the
traditional healthcare value chain
(see Figure 3). These services include
remote diagnostics, continuous
monitoring, self-monitoring and
home-emergency solutions, e-health
record solutions and awareness
services. The opportunity for telecom
operators primarily lies in creating
services where connectivity adds
significant value to the overall
experience. This can be achieved by
close collaboration with healthcare
industry players. For instance,
“
The
healthcare
industry offers
a variety of
opportunities
owing to
its critical
role across
developing
and developed
markets
”
1 World Bank, World Development Indicators, 2010.
2 Ibid.
33

Figure 3: Indicative Activity Chain of Consumer Services in the Healthcare
Industry
Diagnosis Treatment Rehabilitation Management
Prevention
Description
Identification of a
patient’s
condition and
likely remedies
Addressing the
cause of the
patient’s
condition through
medication
Nursing a patient
back to good
health and
lifestyle
Enabling patient
and doctor
greater control
over information
gathered
Encouraging
consumer education
through information
and awareness
campaigns
Potential Services
Remote
diagnosis
solutions
Continuous
monitoring
solutions aimed
at ensuring the
rapid treatment
of patient
Self-monitoring
and home
emergency
monitoring
solutions
Electronic health
record solutions,
either for the
healthcare
service providers
or for patients
Awareness and
information
dissemination
services
Source: Capgemini TME Strategy Lab Analysis
Orange Austria launched a health
package for monitoring blood sugar
and pressure levels in partnership
with Alcatel-Lucent and an Austrian
charity in May 2010. The service
is available to Orange Austria’s
subscribers to sign up in their retail
stores for a cost of €10, on top of any
Orange tariff. Subscribers could use
one of the approved blood glucose
meters to interact with an application
installed on their mobile phones that
communicated with the server 3 .
Enterprise solutions typically involve
working with healthcare institutions
and regulatory authorities in building
the technology and communications
infrastructure. Orange offers a
secure communications platform for
healthcare facilities to send automated
reminders on appointments, while
another service allows hospitals to
route incoming calls amongst a preset
group of numbers. Similarly, BT’s
initiatives in e-health are focused
on solutions in collaboration with
regulators and medical institutions.
BT has also built and currently
manages the N3, a secure national
broadband network for the UK’s
healthcare authority, NHS.
Key Challenges and Capability Gaps
Telcos will face stiff competition from
online players such as Google and
Microsoft in certain elements of the
consumer activity chain. Specifically,
in areas such as management of
personal health records, online
players are looking to create models
that bypass healthcare industry
players looking to enter new service
areas, as well as other new entrants
including telcos. Google offers a
service called Google Health where
patients can upload, update and
manage their health records in a
single location. Similarly, Microsoft
offers a personal health record system
known as Microsoft HealthVault,
which is offered direct to consumers
and to healthcare institutions and
regional authorities in various
geographies. However, telcos have
significant advantages that they
can leverage to compete with such
over-the-top players. The telcos’
relationship with their subscriber
base, including fixed and mobile
3 Company website.
34

networks, helps them offer remote
diagnostic services (see Figure 4).
Figure 4:
Comparison of the Relative Advantages of Telcos and Over-the-Top
Players (OTT) in the Generic Healthcare Industry Activity Chain
One way of working around this
challenge is for operators to take a
collaborative approach. The Canadian
operator Telus signed an exclusive
license with Microsoft’s HealthVault
solution to offer it to regulatory and
municipal authorities in Canada 4 .
The other significant challenge that
telcos will face in their entry into
the healthcare sector is around the
strict regulations that are imposed
on collection, retention, storage,
and transfer of medical data. This
heightened regulatory oversight
acts as a significant entry barrier
to new players. Telcos will need to
ensure that they are well versed with
regulations and should take necessary
steps to stay compliant.
While these challenges are broad
hurdles that telcos face in their entry
into the healthcare sector, there are
other specific capability gaps that they
will need to plug as well. Telcos need
to be able to work with, and help
co-develop, a wide range of healthcare
monitoring devices. Traditionally
telcos have limited themselves to
working with handsets, and in some
cases, netbooks and tablets. However,
going forward, telcos need to develop
capabilities that will help device
vendors to target various healthcare
needs rapidly to bring their devices
to market with connectivity from the
operator.
Telecom Operator
OTT Players
Diagnosis Treatment Rehabilitation Management
■ Remote
diagnosis using
specialized
hand-held
devices that
require
connectivity
■ e-health systems
rely heavily on a
telco’s network
assets
■ OTT players can
offer services
only on
standardized
devices such as
mobile phones
with mobile
Internet
■ Mobile and
tele-health
systems allow for
continuous
monitoring of
patients and
constant
communication
requires high
Quality of Service
that telcos can
offer
■ OTT players will
have to rely on
Internet Service
Providers to offer
high Quality of
Service for
device
communication
Source: Capgemini TME Strategy Lab Analysis
Telco Opportunities in Energy
Market Overview and Opportunity
Areas
The energy industry finds itself in
times of rapidly increasing demand
and end-user costs. Demand for
global energy is estimated to be more
than doubling in the time period
1980-2030 5 . Similarly, electricity
costs in the UK are estimated to
have grown at a CAGR of over 11%
during the period 2005-2009 6 .
These developments are forcing
utility service providers to look for
solutions that can help both utilities
and consumers manage energy in a
more efficient manner. This need is
largely addressed by the emergence
of smart grid technologies, and
primarily through the smart meter
(sees Figure 5).
■ Telcos are better
positioned than
OTT players to
deploy healthcare
solutions that
allow for
self-monitoring
and home
emergency
monitoring
solutions
■ OTT players will
need to develop
an ecosystem
that would
support
healthcare
systems and
monitoring
■ Telcos would
need to develop
healthcare record
management
solutions that are
robust and easy
to use
■ OTT players with
their personal
health record
solutions offer
the ability to
collate a patient’s
medical records
and organize
them effectively
Prevention
■ Prevention of
disease is closely
tied to patient
education that
telcos offer in a
limited way
through help lines
■ OTT players have
a potential edge,
given their
increasing
number of
touch-points
including email,
instant
messaging, social
networking where
they can spread
the message
Area of strength
4 Company websites and press releases.
5 IEA, World Energy Outlook, 2009.
6 DECC Statistics Database 2009.
35

Figure 5: Needs Served by Smart Grid Technology
Rising Energy
Demand
Limited availability of
fossil fuels
Increasing levels of
greenhouse gases
The advent of smart meters has
created wholly new application and
communication layers on top of the
existing industry value chain and this
brings with it multiple opportunities
(see Figure 6).
Increase energy
efficiency of grid
Needs real-time
monitoring and
remote control
Rising cost of energy
from conventional
sources
Smart Grid Technology
(Grid with sensing, embedded
processing and digital communications)
Higher usage of
alternative sources of
energy
Needs advanced
control systems for
load optimization
Source: Capgemini TME Strategy Lab Analysis; World Economic Forum, Accelerating Smart Grid Investments, 2009;
Xcel Energy, Smart Grid: A White Paper, 2008
“
Advent of smart meters
allows creation of new services
on top of existing industry
value chain
”
Opportunities in Communications
The communications layer spans
multiple network topologies allowing
telcos to offer traditional data-driven
solutions that leverage their network
assets. Telcos can potentially partner
with utilities to re-use the existing
telco communications infrastructure,
rather than allowing utilities create
alternate channels of transmitting
smart metering data. The size of the
opportunity can be gauged from
the fact that data consumption in
the energy industry is expected to
ramp up significantly, on the back
of the increasing requirements for
data processing and transfer. It is
estimated that smart meter data is
likely to grow up to over 35 Petabytes 7
by 2015 8 .
Opportunities in Home Energy
Management
Home area networks 9 , enabled by
smart meters, allow telcos to offer
home energy management together
with multiple value-added services.
Connectivity to smart appliances
could be routed through existing
network assets, including femtocells 10 .
Telcos can also potentially build
services such as home automation
and remote appliance control on top
of this connectivity to tap into the
fast-growing smart appliances market.
Indeed, it is estimated that the global
smart appliance market is likely to
grow at a CAGR of almost 49% in the
period 2011-2015, reaching a market
size of US$15 billion 11 .
7 A Petabyte is 1024 Terabytes.
8 UtiliPoint, The Utility Industry Enters the Petabyte Era, June 2010.
9 A home area network is a residential local area network used for communication between digital devices deployed in the home using WiFi, Zigbee, Bluetooth, Z-wave, among others.
10 A femtocell is a small cellular base station used to expand coverage of mobile network within a building.
11 ZPryme, Smart Grid Insights: Smart Appliances, March 2010.
36

Opportunities in Utility Enterprise
Systems Management
Utility Enterprise Systems
Management involves telcos offering
data management and related
services using their existing assets.
Key services that telcos could offer
include meter management 12 , meter
data management 13 and revenue
management 14 . Telcos are rightly
positioned to offer these services
given their experience of handling
large consumer usage data sets, well
established IT processing systems,
and revenue management capabilities.
This market is estimated to grow
from US$5.9 billion in 2009 to over
US$6.7 billion globally by 2015 15 .
Opportunities in Utility Energy
Management
The primary opportunity for telcos
in Utility Energy Management lies in
energy industry specific applications
such as advanced metering
infrastructure (AMI) 16 , demand
response 17 and grid optimization 18 .
AMI includes services such as remote
meter reading, remote activation/
de-activation of services, among
others. In the US alone, it is estimated
that revenues from the AMI market
are likely to grow at a CAGR of 22%
in the period 2009-2015 up to US$8.4
billion 19 .
Key Challenges and Capability
Gaps
Telcos will face significant
competition from smart meter
vendors wanting to move up the value
chain; large IT solutions providers
looking for new outsourced services,
and over-the-top players that will
want to create solutions aimed at
consumers to efficiently manage their
power consumption.
Figure 6: The Evolving Energy Industry Value Chain
Power
Generation
Traditional Energy Value Chain
Power
Transmission
Power
Distribution
Application Layer Components
Utility Enterprise
System Management
Energy
Retailing
One of the biggest challenges in
typical smart metering projects is cost
estimation and project management.
Smart metering projects are usually
complex, given the wide variety of
partners that they involve, including
the smart meter vendor, the utility,
the regulator, the local municipality,
and the telecom operator. Another key
factor is that consumer distribution is
likely to be varied and wide-spread,
creating another variable that might
offset the best of project plans.
Managing these uncertainties, while
staying profitable, is a key challenge
as witnessed by Telenor’s entry into
smart metering solutions through
its subsidiary, Telenor Cinclus. The
company failed to estimate the cost
of large scale project implementation,
eventually leading to its closure 20 .
Telcos will also have to contend
with competition from over-the-top
players such as Google and Microsoft
(Smart)
Meter
Communications Layer
Communication networks that connect metering and control
systems across the traditional value chain
Application Layer
A set of applications that help balance the supply and
demand in a decentralized energy generation environment
using the ICT infrastructure
Home Energy
Management
Systems to monitor
and control energy
usage within the
home
Management of
Information
Technology
infrastructure and
data assets of the
utility
Source: Capgemini TME Strategy Lab Analysis
Utility Energy
Management
Energy optimization
systems that balance
supply and demand
to maximize
efficiency of the
utility
Communications Layer Components
Home Area Network (HAN)
A residential local area network used
for communication between digital
devices deployed in the home using
WiFi, Zigbee, Bluetooth or Z-wave
Field Area Network (FAN)
Network deployed to connect a group
of buildings served by a substation or
transformer using Radio Frequency
mesh, fiber, power line communication
Wide Area Network (WAN)
Network connecting many FANs across
a wide areas such as a city using
cellular, private wireless, backhaul,
satellite, WiMAX networks
Local Area Network (LAN)
Utility enterprise network that connects
all the IT systems within the utility
operating locations
who are looking to create consumerfacing
models through online energy
management solutions.
The telco entry into the energy sector
is contingent on them filling various
capability gaps that exist. While some
telco assets are definitely re-usable
in launching new services in energy,
telcos will still need to ensure that
they rapidly build specific capabilities
for specific services. In order to
exploit opportunities in utility energy
management, telcos should recruit a
specialized workforce with knowledge
of power systems. They should strive
to gain understanding of software
applications that are used in the
energy sector and ensure they are on
top of utility industry technologies
such as SCADA 21 .
12 Meter Management is the management of the installation and servicing of smart meters and related services.
13 Meter Data Management is the processing of meter data for energy management applications.
14 Revenue Management is the management of billing and collection for the utility.
15 Newton-Evans Research, Utility CAPEX Report, January 2010.
16 AMI-Networking of sensors and devices that form the basis for advanced applications.
17 Demand Response is the management of peak time demand by incentivizing consumers for higher efficiency.
18 Grid Optimization is the optimization of the grid performance in real-time, improving reliability, efficiency and security.
19 Frost & Sullivan, The United States Advanced Meter Infrastructure Market, 2009.
20 Dagens IT, Electrical shock to Telenor, May 2009.
21 Supervisory Control and Data Acquisition is a process control application that collects data from multiple remote locations sending them to a central server.
37

“
An increased focus on safety
and desire for in-car services is
driving the growth of automotive
telematics
”
Telco Opportunities in
Automotive
Market Overview and Opportunity
Areas
The global automotive sector has
been growing steadily over the
past few years, although the recent
financial downturn has resulted
in a dip in demand. Nevertheless,
the global market for light vehicles
is expected to grow at a CAGR of
over 4.8% during the period 2010-
2020, growing to over 88.5 million
vehicles 22 . The rapid evolution of
technology, a growing regulatory
focus on safety, and an increased
consumer demand for in-car
connected services are among the key
drivers for automotive telematics 23 .
Regulatory authorities are pushing for
increasing the deployment of eCall
and bCall systems with the aim of
reducing vehicle fatalities 24 and this
is likely to result in these markets
growing to almost 20 million unit
shipments by 2017 in Europe 25 .
These factors are expected to boost
the overall automotive telematics
market which is forecast to grow
globally from 6.2 million units in
2008 to over 16.5 million units by
2013 26 . Telco service opportunities
arise through three categories of
services, namely safety / security
services, infotainment services, and
efficiency services.
The range of services that are aimed
at improving passenger safety/security
include accident and emergency
assistance, vehicle tracking,
and remote vehicle operations.
Infotainment services span
navigation, location-based services,
and entertainment services within the
vehicle. The advent of GPS-enabled
smartphones potentially allows telcos
to provide navigation and concierge
solutions to users. Efficiency services
help customers reduce the total cost
of ownership and increase efficiency
to help mitigate rising fuel costs.
B2C efficiency services potentially
include vehicle diagnostics and green
telematics. Remote vehicle diagnostics
involves the service provider running
a series of diagnostics of the vehicle
systems and recommending actions.
The telco opportunity in each of these
service areas can be viewed through
the channels in which a telematics
system can be bought (see Figure 7).
Potential services in the B2B segment
include fleet management services
that require a combination of
telematics services. A typical fleet
management service could potentially
include navigation, vehicle tracking,
communications, security, vehicle
diagnostics, and geo-fencing 27 among
others.
22 R. L. Polk & Co., The Changing Automotive Industry — Forecasting Global Vehicle Demand, May 2009.
23 Automotive telematics is a set of systems that combine global positioning (GPS), onboard computing, and
telecommunications technologies that enable a range of services within the vehicle.
24 eCall is an emergency call system which is deployed automatically or manually notifying the vehicle location, severity of
accident and help needed to the nearby emergency center in the case of an accident.
bCall is a breakdown assistance system where the driver manually alerts the nearby emergency center in case of a vehicle
breakdown.
25 R. L. Polk & Co., The Changing Automotive Industry — Forecasting Global Vehicle Demand, May 2009.
26 Frost & Sullivan, Second Innings for Telematics — but the On-going Auto Market Crisis will Decide the Future, January 2009.
27 Limiting vehicles within certain geographic boundries using GPS.
38

Key Challenges and Capability Gaps
Telcos will face significant challenges
around addressing privacy
concerns, overcoming the lack of
standardization, and coping with a
risk of marginalization.
Addressing privacy concerns
Telematics services require the
vehicle position data to be accessible
to service providers. However,
the ownership of this data can be
misused and regulations are not
clear on ownership. Consequently,
consumer concern over potential
abuse of such data persists and telcos
will need to manage issues around
perception. However, telcos have
historically had a strong record on
managing consumer privacy, despite
handling sensitive personal data and
this is likely to help them stand in
good stead.
Figure 7:
Built-In
(GM OnStar,
BMW
Connected
Drive)
After Market
(TomTom,
Garmin)
Bought-In
(Ford Sync,
Mercedes
Mbrace)
Classification of Telematics Systems and Corresponding Telco
Positioning
Description
■ Telematics systems that
come with the car and are
installed by vehicle
manufacturer
■ Safety services (e-call) and
vehicle maintenance and
diagnostic systems are
normally built-in
■ These are systems that
can be purchased after
vehicle purchase and
installed in the vehicle
■ Navigation and
entertainment systems are
generally fall in the after
market category
■ This is a growing class of
telematics systems in
which mobile phones or
other mobile internet
devices (MID) are used by
tethering with the built-in
systems
Telco Positioning
Safety / Security
Services
■ Telco will have to tie up
with Original Equipment
Manufacturers in order to
offer basic telematics
services through the
built-in channel
■ Forming alliances with
automotive manufacturers
could also increase market
penetration
■ Telcos would have to
partner with device
vendors and embedded
systems companies to
address this market
■ Telcos are most strongly
positioned for this market
as they already have
significant influence in the
MID market
■ Telcos can provide
services through mobile
apps
Not compatible
Compatibility with Channel
Infotainment
Services
Efficiency
Services
Completely compatible
Overcoming lack of standardization
The strong opportunity in automotive
telematics has led to the entry of a
wide range of players across the value
chain. However, with each player
using its own set of technologies
and protocols for delivering services,
there has been a profusion of multiple
modes of communication and
operating systems that can be used
for telematics systems. Moreover,
given the nascent state of this
industry, there is a lack of industry
standards that can be uniformly
applied.
Threat of being commoditized
Automotive telematics offers the
first real chance for players in the
automotive value chain to create
new revenue streams beyond
their traditional product lines.
Consequently, multiple players are
focusing their efforts at gaining a
vantage position in the new service
environment. In doing so, many
Source: Capgemini TME Strategy Lab Analysis
of these firms are encouraging
solutions and services in which
mobile connectivity is treated
as a commodity. For instance,
Ford Sync service offers an in-car
communication and entertainment
service through a one-time charge due
at purchase of car with no recurring
connectivity charges.
While the automotive sector offers
potential for a wide range of services,
telcos will still need to build their
capabilities in order to effectively
compete with other players in the
automotive ecosystem that are looking
to expand into the services realm.
Specifically, telcos will need to build
up skills in areas spanning embedded
software, device design, and sensors.
39

Figure 8: Strategic Options for Telecom Players in Healthcare
Description
Rationale
for Role
1 2 3
Basic Connectivity
Provider
Service
Enabler
■ Telco restricts itself to the
role of a connectivity provider
that can offer wholesale and
secure access network for
transmitting health
information
■ Telcos operating in markets
where a competitive
electronic and mobile
healthcare ecosystem
already exists can benefit
significantly by positioning
themselves as an access
provider of choice for
multiple players in the space
Source: Capgemini TME Strategy Lab Analysis
■ Telco provides platforms on
which developers and
third-party healthcare service
providers can build
applications and services
■ Telcos can effectively
co-operate with over-the-top
solution providers rather than
compete
■ Telcos can also look at
co-branded service offerings
enabling them to cut down
on the time-to-market while
gaining credibility through
partnerships
Complete Solution
Provider
■ Telco creates, manages, and
sells end-to-end integrated
solutions to either healthcare
institutions, regulatory
authorities or to end
consumers
■ This option enables telcos to
effectively leverage the full
potential of the healthcare
opportunity
■ Telcos can launch branded
offerings that can help
establish their line of
business
Recommendations
The opportunity for telecom operators
to create new revenue streams
beyond their traditional focus areas
do exist. However, in order to tap
into these emerging opportunities,
they will need to take a structured
approach towards deciding on the
choice of sector, selecting their go-tomarket
strategy for each sector, and
making fundamental changes to
their organizational DNA. Given
the diverse nature of the sectors,
and the services within each, these
recommendations should be viewed
as basic guidelines that will help
telcos better assess the opportunity at
hand.
Priority of sector should be closely
tied to an operator’s existing assets
and market attractiveness
Entry into specific sectors needs to be
closely tied to the operator’s existing
assets including markets that they
operate in. These should then be
mapped into the attractiveness of a
specific sector, from the perspective of
ARPU 28 and the potential amount of
control that telcos can exert. Beyond
the initial stage of identifying the
ideal sector to enter, telcos should
then take steps tailored to address the
specific needs and requirements of
the sector.
Telcos in Healthcare
An entry into healthcare leverages
multiple existing telco assets. In
emerging markets, telcos should
focus on capitalizing on their wide
retail presence for driving the uptake
of mobile healthcare solutions, to
capitalize on the limited healthcare
availability in such geographies.
Moreover, given the fact that multiple
services in mobile healthcare are
going to be delivered through
third-party devices, it remains
imperative that telcos draw upon
their extensive M2M 29 experience.
Telcos should start off as a basic
connectivity provider and then move
on to creating platforms that support
other healthcare service providers.
Once they have gained significant
understanding of the space, they
should actively look at creating,
managing, and selling integrated
healthcare solutions (see Figure 8).
Large operators such as Orange and
Vodafone are currently focused at
offering services across the consumer
activity chain. However, players
such as BT have moved aggressively
in the enterprise space and have
already launched multiple largescale
initiatives in collaboration with
regulators and medical institutions.
Telcos in Energy
The telco capability gaps in the
energy sector are best addressed by
selective partnerships. The potential
partners include smart meter/control
system vendors, system integrators,
and software service providers.
Telcos should adopt a phased
approach towards becoming an
28 Average Revenue Per User.
29 Machine-to-Machine.
40

energy management solution provider
to maximize revenue potential.
They should start off by being an
infrastructure integrator, move
on to being an application service
provider before finally evolving to
an energy management solutions
provider that offers the entire range
of smart grid services. These include
communications, management of
home energy, meter, meter data,
and offers advanced metering
infrastructure, demand response
and optimizes the grid (see Figure
9). Most telcos including Vodafone,
T-Mobile, and AT&T are currently in
the infrastructure integrator phase
where their primary engagement with
utilities is built around using network
infrastructure.
Telcos in Automotive
Telcos should aggressively move
forward in the automotive sector in
order to create solutions with which
they can directly reach out to the
consumer. At the same time, they
should also partner with a range of
“
Telcos should prioritize their
entry into new sectors based on
their existing assets and market
attractiveness
players including device vendors,
vehicle manufacturers, application
developers, embedded software
providers, location aggregators
and third-party telematics service
providers in order to create
professional solutions that they can
co-market. They should begin with
automotive applications, using their
experience with mobile apps, and
progressively move on to being a
complete telematics service provider
that offers a complete platform to
”
Figure 9: Telco Evolution as Service Provider in the Energy Space
New Capability Requirement HIGH
Development of applications would
require specialized knowledge that a
Telco can acquire
Telco revenue would be based on
service revenues from enterprise
systems management
Application
Service Provider
Energy management of the
utility and the consumer are
seamlessly managed by the
Telco
Telco revenue would be based
on scale of managed solutions
Energy Management
Solutions Provider
Communication
Infrastructure
Home Energy
Management
Meter
Management
Smart Grid Services
Meter Data
Management
Revenue
Management
Advanced Metering
Infrastructure
Demand Response
Grid Optimization
Infrastructure
LOW
Integrator
LOW
Revenue Potential
HIGH
Telco acts as an integrator for IT hardware and provides integrated
communications
Telco revenue is linked only to use if its existing infrastructure assets, including
networks
Source: Capgemini TME Strategy Lab Analysis
41

Figure 10:
Telco Evolution as Service Provider in the Automotive Space
Telecom Operator
Market
Power
Vehicle Manufacturer
Telematics
System
Built-in
After-Market
Bought-in
Content/
Application
Developer
1
Automotive App Provider
■ Navigation apps
■ Location based apps
■ In-vehicle media
2
Tethered Telematics Service
Provider
■ Security
■ Vehicle control
■ Navigation
■ In-vehicle entertainment
■ PAYD insurance
■ Green routing
3
Complete Telematics Service
Provider
■ Safety (e-call, b-call)
■ Security
■ Built-in navigation
■ Vehicle diagnostics
■ Green telematics
■ Remote vehicle control
1
2
Strategic Options for Telecom Operators
■ Telcos can offer various app styled
services that can be used in the vehicle via
the mobile phone
■ Services that require vehicle information
will have to come from a built-in unit
■ Telcos can offer an after market solution
that can be installed in any model of
vehicle
■ The mobile phone that can be tethered via
Bluetooth or Wi-Fi offers more advanced
services that apps
Partnership Need
Third Party
Service
Provider
Location
Aggregator
Embedded
Software
Developer
3
■ Offering a complete platform including
hardware and software to automotive
manufacturers
■ Complete suite of telematics services can
be offered to customers via a model similar
to the Kindle
Device
Manufacturer
Source: Capgemini TME Strategy Lab Analysis
car manufacturers (see Figure 10).
Some operators are already taking
early steps in this direction. Telecom
Italia has created a joint venture
with auto-component manufacturer
Magneti Marelli aimed at developing
innovative solutions that connect
vehicles to cell phone networks and
providing new on-board infomobility
services.
Adopt differentiated go-to-market
strategy for each sector
The telco approach towards launching
services in new sectors will need to
be differentiated on the basis of the
nature of service. In sectors where
telcos intend to create additional
value rather than replace the
incumbent, they should strive to work
their way up the value chain through
partnerships. This would require the
telco to take a more collaborative
approach and a willingness to work
with industry players. On the other
hand, in services where telcos will
attempt to directly compete with
incumbents, they should adopt a
more aggressive and rapid approach
in terms of going to the market and
establishing a clear value proposition
for their service. In such cases, telcos
need to bear in mind that here they
are attempting to supplant traditional
players which will most likely result
in the incumbents responding with
full force.
42

Adapt and assimilate changes
required to organizational DNA
Traditionally, telcos have conceived,
launched and operated new services
in the telecoms space on their own.
However, increasingly, as telcos
look to new sectors for emerging
opportunities, it becomes imperative
for telcos to adopt a collaborative
approach towards launching services.
This could mean the creation of
separate business units, in some
cases. Some operators have already
realized the need for organizational
structures that are different and
separate from their traditional
telecoms units in order to expand into
new sectors. Deutsche Telekom has
launched three business segments in
order to target opportunities in smart
grid, smart vehicles and networked
healthcare 30 . Telcos will need to
ensure that such new segments are
able to work independently with
various existing business units of
the company such as wholesale,
B2B and retail. Moreover, such
standalone units allow for faster
response to market forces, since the
pace of competition is likely to be
significantly different in each sector,
and is also likely to vary with what
the telecoms sector has to offer.
For telcos in developed markets
staring at the prospect of maturing
telecom markets, the need to identify
new revenue streams is adequately
matched by the opportunities in new
sectors. While the move into new
sectors is likely to be challenging,
going forward, it is safe to say that
only those telcos that stay nimble
and alert to such opportunity areas
are likely to stand out from the
competition.
“
As telcos venture into new
sectors, it is imperative they adopt
a collaborative approach, while
assimilating changes required to
organizational DNA
Jerome Buvat is is the Global Head of
the TME Strategy Lab. He has more
than 13 years of experience in strategy
consulting in the telecom and media
sectors. He is based in London.
Subrahmanyam KVJ is a senior
consultant in the TME Strategy Lab. His
recent work focused on identifying the
telecom operator opportunity in social
networking. He has worked extensively
on the impact of convergence and the
changing consumer behavior on telecom
and media players. He is based in
Mumbai.
Nikhil Ray is a senior consultant in
the TME Strategy Lab. His recent work
includes growth strategies for telecom
operators through diversification and
innovative services. He has over five
years of experience in business planning
and consulting across diverse industries.
Prior to joining the Lab, Nikhil worked at
a boutique strategy consulting firm. He is
based in Mumbai. n
”
30 Company website.
43

Long Term Evolution LTE Opportunities and Challenges for Telcos
By Linda Asplund and Priyank Nandan
Abstract: The mobile networks of most operators are witnessing an unprecedented rise in data traffic, due to an increasing
consumer demand to access bandwidth intensive content on-the-go and the proliferation of a large number of mobile devices such as
smartphones and tablets. This trend is exerting extremely high pressure on the capacity constrained network of operators. Faced with
this challenge, wireless providers need to upgrade their network infrastructure in order to keep up with data traffic volumes and deliver
bits more cost-effectively. When compared to some other upgrade options such as HSPA 1 , HSPA+, and WiMAX 2 , Long Term Evolution
(LTE)provides operators with a technically superior and cost effective solution to deliver true mobile broadband experience. Although
LTE standards and the ecosystem have not yet evolved fully and an upgrade requires significant capital investment, operators can still
reap tremendous benefit by formulating the right migration strategy. A focus on key priorities such as pricing, rollout strategy, network
sharing, and spectrum policy will be instrumental in the successful rollout of LTE. Having realized its potential, several operators across
the globe have already deployed LTE commercially and many more are in the fray.
Figure 1: Global Mobile Data Traffic, Exabytes * per Month, 2009-2014
0.09
0.2
0.6
CAGR
108%
2009 2010 2011 2012 2013 2014
* One Exabyte is equal to 1 billion Gigabytes
Source: Cisco Visual Networking Index: Global Mobile Data Forecast Update, 2009-2014
“
The explosion of mobile
data traffic is exerting
unprecedented demand on
networks
”
1.2
2.2
3.6
The Need for LTE
The increasing proliferation of a range
of Internet enabled mobile devices,
such as tablets, smart-phones, and
e-readers has added to the rising
consumer need to access rich content
on the go. This phenomenon has
resulted in the explosion of mobile
data traffic (see Figure 1) exerting
an unprecedented demand on the
network of wireless operators. Driving
this boom will be the increasing
consumption of mobile video,
which will consume nearly 66%
of all mobile data traffic by 2014 3 .
Bandwidth intensive applications,
especially those based on video,
expose the capacity bottlenecks
and the gap which customers are
increasingly facing between peak
rates in perfect conditions and real
everyday experiences. It is, therefore,
imperative for operators to ensure that
the average user’s mobile experience
is not compromised especially in high
traffic areas.
1 High Speed Packet Access is the amalgamation of
two mobile telephony protocols, High Speed Downlink
Packet Access (HSDPA) and High Speed Uplink Packet
Access (HSUPA).
2 Worldwide Interoperability for Microwave Access.
3 Cisco Visual Networking Index, Global Mobile Data
Traffic Forecast Update, 2009-2014.
44

Figure 2: Comparison of LTE Peak Theoretical Throughput, Latency, Spectral Efficiency and Relative Cost per Bit Parameters
with other Mobile Network Technologies
Downlink Spectral Efficiency (bits per second/Hz/sector)
Downlink and Uplink Peak Throughput (Mbps)
2.5
2.0
UMTS / HSPA LTE WiMAX
UMTS
Release
Type
Antenna
Technology
Qty
5
MHz
Downlink Speed
(Mbps)
10
MHz
20
MHz
Uplink
Speed
(Mbps)
1.5
R6 HSPA
SIMO
1x1,
1x2 14.4 – – 5.76
1.0
R7 HSPA+
64-QAM
SIMO
1x1,
1x2 21.6 – –
11.5
0.5
R7 HSPA+ MIMO 2x2 28.8 – – 11.5
0.0
R8 LTE MIMO 2x2 43 86 173 c 58
HSDPA
HSPA+
2X2
MIMO a
HSPA+ LTE 2X2
SIC, MIMO
64 QAM b
LTE 4X2
MIMO
LTE 4X4
MIMO
Rel 1.0
2X2
MIMO
Rel 1.5
4X2
MIMO
R8 LTE MIMO 4x4 82 163 326 c 86
Relative Cost per bit of Transmitted Data
Latency (ms)
100
200
80
60
160
120
- 70%
40
20
80
40
-20%
-50%
0
3G HSPA HSPA + LTE
0
3G HSPA HSPA + LTE
a) Multiple Input Multiple Output: MIMO uses multiple antennas at both the transmitter and receiver to improve communication performance
b) Quadrature Amplitude Modulation
c) 3GPP TR 25.912 V7.2.0
Source: Capgemini TME Strategy Lab Analysis; Motorola Whitepaper, Upgrade Strategies for Mass Market Mobile Broadband, 2009; 3G Americas, HSPA to LTE Advanced, September
2009; Morgan Stanley Research
In order to enhance subscriber
experience, prepare access networks
for the onslaught of data intense
applications, and reduce operational
expenditure, operators will need to
upgrade their networks sooner rather
than later. For doing so, they have
multiple technology options such as
WCDMA 4 , HSPA, HSPA+, CDMA2000
EV-DO 5 , WiMAX and LTE to chose
from. The migration strategy of each
operator is likely to be different
and will be based on several factors
such as the existing state of their
networks, current and projected
data demand, costs considerations,
and spectrum availability. In Japan,
while NTT DoCoMo is skipping
HSPA+ and migrating straight to LTE,
Softbank Mobile believes there are
still significant opportunities with
42Mbps HSPA+ 6 .
However, given the various migration
options, LTE seems to offer the most
efficient, cost effective (in terms
of TCO 7 and OPEX 8 savings), and
future proof solution for operators,
who can reap considerable long term
benefits by leveraging an early mover
advantage.
LTE is a pure packet switched
evolution of UMTS 9 3G technology
which offers significant advantages
such as higher spectral efficiency,
lower cost of transmission per
megabyte, higher throughput, and
lower latency when compared to
existing wireless network technologies
(see Figure 2). It is also backward
compatible with the CDMA 10 family
of technologies and thereby enables
even CDMA operators to move to
this technology. Furthermore, by
deploying LTE SON 11 telcos can
significantly improve operational
4 Wideband Code Division Multiple Access.
5 Evolution Data Optimized.
6 Telecomasia.net, HSPA v LTE: The Debate Continues, May 2010.
7 Total Cost of Ownership.
8 Operating Expenditure.
9 Universal Mobile Telecommunications Service.
10 Code Division Multiple Access.
11 The Next Generation Mobile Networks (NGMN) Alliance and the Third Generation Partnership Project (3GPP) have standardized a set of capabilities known as Self-Organizing Networks (SON).
With SON, operators can automate previously manual steps throughout the lifecycle of a network — from planning and deployment to optimization and operations.
45

Figure 3: Commercial LTE Deployments and Technology Adopted
Operator Country Deployment Date Frequency Band Duplex Scheme
Sweden
Finland
USA
December 2009
May 2010
Sweden November 2010
September 2010
2.6GHz
1.7/2.1GHz
USA December 2010 700MHz
Japan November 2010 2.1GHz
Poland September 2010 1.8GHz
FDD
China May 2010 * 2.6GHz TDD
* China Mobile has deployed 11 LTE trial networks across China. The first of these trial networks was launched in May
2010.
Source: Capgemini TME Strategy Lab Analysis; Company Websites
efficiency and reduce OPEX. Thus,
LTE offers the best potential to
address one of the most significant
priorities of wireless operators,
which is, upgrading their capacity
constrained networks.
Having realized the potential,
telcos across the globe have already
taken the first steps towards the
deployment of LTE networks (see
Figure 3). In December 2009, by
launching services in Sweden and
Norway, TeliaSonera became the first
operator in the world to offer LTE.
In September 2010, Metro PCS, a
prepaid service provider in the US,
became the second operator to launch
LTE services. It offers its service on
the first commercially available 4G
enabled handset in the world, the
Samsung Craft 12 . While TeliaSonera,
which is a GSM operator, offers
its LTE services over USB dongles,
Metro PCS, a CDMA2000 player,
provides unlimited and contract less
LTE services over a handset. It is
noteworthy how LTE can be delivered
by both large and small operators,
irrespective of their existing wireless
technology, over multiple devices.
With over 100 commitments
by service providers around the
world to deploy LTE networks,
the worldwide LTE infrastructure
market is set to grow tenfold to
reach US$11.5 billion 13 . Going
by the trends, LTE seems to be
the technology of choice for most
operators across the world.
In this chapter, we evaluate the
technology options within LTE, the
most significant barriers regarding
its uptake, and recommend the best
approach for different operators.
Technology Options for
Operators
The technical advantages of LTE
which render significant benefits
over other wireless technologies can
be attributed to its superior access
and antenna technologies. The use
of technologies such as OFDM 14 ,
SC-FDMA 15 , MIMO, and multiple
channel bandwidths results in
attributes such as high throughput,
low power consumption, high
spectral efficiency, and improved
coverage and cell performance. LTE
can be deployed in both paired
spectrum for Frequency Division
Duplex (FDD) and unpaired spectrum
for Time Division Duplex (TDD),
and we witness a greater adoption
of FDD in initial deployments (see
Figure 3). In this section, we will
primarily focus on the TDD and FDD
technology deployment options for
operators.
Both FDD and TDD have their own
advantages and disadvantages (See
Figure 4), and decisions on which
duplex scheme to adopt can be taken
depending on the operator’s business
requirements. In the subsequent
subsections, we detail these choices.
FDD LTE
FDD LTE transmits the downlink and
uplink traffic in separate frequency
12 Company Press Release.
13 Infonetics Research, LTE Infrastructure Forecasts Up, Along With Operator Commitments to LTE Networks, November 2010.
14 Orthogonal Frequency Division Multiplexing: Used for downlink. The available spectrum is divided into many thin carriers each
on a different frequency.
15 Single Carrier Frequency Division Multiplexing Access: For uplink. LTE uses a pre-coded version of OFDM called Single
Carrier Frequency Division Multiple Access (SC-FDMA) which reduces power consumption, improves coverage and the celledge
performance.
46

ands. FDD thus requires paired
spectrum with sufficient frequency
separation to allow simultaneous
transmission and reception. The
paired spectrum of FDD LTE is most
suited to support voice as well as
symmetric data applications such as
peer-to-peer file transfer and video
conferencing.
In addition, when compared to TDD
LTE, FDD LTE offers advantages
both in terms of higher coverage and
better compatibility with existing 3G
networks, which are mostly based on
paired spectrum. As a result, FDD
LTE is expected to be the logical
migration path for most operators
who have deployed 3G networks.
In fact in most geographies the
majority of the spectrum which has
been auctioned is FDD. Most early
and planned deployments of LTE
from operators such as TeliaSonera,
Tele2, and Verizon have also been on
FDD. Other major operators are also
expected to roll out their LTE macro
networks on FDD bands in order to
easily meet their business objectives
for mobile broadband and multimedia
services.
TDD LTE (TD-LTE)
TDD LTE (also known as TD-LTE),
transmits the uplink and downlink
traffic within the same unpaired
frequency band and is predominantly
a mobile broadband technology.
TDD LTE offers flexible and adaptable
(real-time) uplink and downlink
traffic ratio, which makes this
technology suitable for asymmetric
data applications such as HD video
download and content upload.
TD-LTE can provide an effective
upgrade path for existing technologies
such as TD-SCDMA, TD-HSPA and
WiMAX. China Mobile is one of the
major proponents of TD-LTE, with
11 TD-LTE trial networks in place,
and plans to roll out eight more by
the end of 2011. The Chinese operator
Figure 4:
Parameter
Spectrum Flexibility
Spectrum Costs
Hardware and User
Equipment Costs
Coverage
Ease of Migration
Ecosystem Support
Suitability for Data
Applications
Relative Advantages and Disadvantages of FDD LTE vs. TDD LTE
FDD
LTE
TDD
LTE
Remarks
■ The adaptable Downlink: Uplink ratio means that TD LTE ensures
maximization of available bandwidth
■ TDD spectrum is traditionally auctioned for lower US$/MHz/population
■ Economies of scale in favor of FDD will lead to lower hardware and user equipment
costs
■ However, the push from China Mobile and emerging interest from leading
operators in Europe and US is expected to bridge this gap
■ TDD LTE has poor coverage (up to 40% less) compared to FDD and requires
base station synchronization to avoid cross slot interference
■ Most of the current 3G deployments are based on paired spectrum and as a result
are easier to migrate to FDD LTE
■ However, TD LTE is expected to provide effective upgrade path for technologies
such as TD-SCDMA, TD-HSPA and WiMAX
■ Though network and device vendors as well as major mobile operators are
committed to support both FDD and TD LTE technology, higher push is towards FDD
■ TDD LTE is more suitable for IP-based data applications which are mostly
asymmetric in nature
Very High High Medium Low Very Low
Source: Capgemini TME Strategy Lab Analysis; Ventura Team, Has Hi3G Played a Shrewd Hand in the Recent Danish
Auctions?, 2010
has entered into partnerships with
eight international telecom operators
to jointly promote the development of
TD-LTE industry.
Many countries have TDD spectrum
available and operators in Europe
have already auctioned unpaired
spectrum for LTE. Being a niche
technology, TD-LTE is expected
to fetch a lower price per MHz
per population compared to the
FDD equivalent. In Sweden while
2x10 MHz FDD spectrum was
auctioned for 296.6 million SEK,
50 MHz of unpaired spectrum
went for 159.25 million SEK 16 . The
lower spectrum costs and higher
spectral flexibility of TD-LTE makes
it an attractive option for greenfield
operators in both emerging and
developed markets to make a
quick transition to TD-LTE mobile
broadband. This is evident from the
strategy of operators such as Reliance
Communications, Augere, and
Clearwire who are focusing primarily
on TDD bands, banking on the
abundance of available and low cost
unpaired spectrum.
TD-LTE is not only witnessing
traction from pure play mobile
broadband providers but also from
“
Video will
represent nearly
66% of all mobile
data traffic by
2014
”
16 Swedish Regulator.
47

“
LTE
offers the most
efficient, cost
effective, and
future proof
solution for
operators to
upgrade their
networks
”
existing 3G operators in developed
markets as they try to focus on
a capacity-centric rather than a
coverage-centric network strategy.
This was evident in the latest
spectrum auction in Denmark which
witnessed operators such as Telenor,
Telia, and 3, bidding for paired as
well as unpaired spectrum. For
such operators, TD-LTE can act as a
complimentary solution to LTE FDD
to serve the increasing demand for
broadband. Operators can roll out
their LTE macro networks on FDD
bands while deploying a small-cell 17
(picocells and femtocells) second
layer on TDD spectrum, thereby not
only providing enhanced capacity
to indoor users but also offloading
demand from the existing macro cell
network.
The considerable interest in TD-LTE
is expected to help build the
ecosystem support and bridge the
gap with FDD LTE. Major network
and device vendors have already
committed to developing TD-LTE
technology, and live network trials
are already underway. Although the
adoption of LTE FDD will be the
more widespread, it is reasonable to
assume that TD-LTE will also witness
significant uptake.
Challenges in LTE
Implementation
LTE certainly stands out in terms of
its technical superiority and spectral
efficiency. However, being an evolving
standard it poses some significant
challenges ahead of operators. The
main barriers to LTE adoption can
be largely categorized as, technical,
regulatory, ecosystem driven, and
Return on Investment (ROI) related.
We detail these challenges in the
subsequent subsections.
Technical Challenges
Complexity and Backward
Compatibility
For operators considering a network
update, selecting the right technology
is a major concern. They can either
upgrade to evolved versions of 3G,
such as HSPA, and HSPA+ or go
for LTE. While upgrades within
the 3G family may not require too
many network architectural changes,
transformation to LTE requires new
radio access technology and core
network expansion. This is not
only cost intensive, but also highly
complex. In addition, since existing
2G and 3G networks will not be
phased out anytime soon, there is
additional burden on operators to
maintain two networks, support
interoperability, seamless roaming,
and handovers across multiple
communication service providers.
Backhaul
The advent of LTE will further ignite
the surge in mobile data traffic due to
increasing consumption of bandwidth
hungry applications and services.
This will exert additional strain on
the existing backhaul capacity of
operators. In Western Europe wireless
backhaul capacity will more than
triple between 2010 and 2014, to
nearly 60,000 Gbps 18 . Traffic from
LTE applications is expected to
account for more than half of last-mile
backhaul demand in North America
by 2014 19 . Operators need to upgrade
their existing backhaul capacity as
failure to do so can negatively impact
the end-user experience and the
quality of service.
T1/E1 leased lines, fiber, and
microwave are the most popular
options for telcos to upgrade their
backhaul infrastructure (see Figure 5).
Backhaul networks, however, are
expected to be a hybrid of microwave,
fiber, and leased line depending
17 Small cell base stations such as picocells and femtocells are low-power, small wireless access base stations that sit inside
the customer premise, whether at home or at work. They are expected to play a vital role in LTE deployment by helping
mobile operators provide indoor coverage to their subscribers, while at the same time, relieving backhaul and infrastructure
costs.
18 In-Stat research, Wireless Backhaul: The Network Behind LTE, WiMAX, and 3G, October 2010.
19 Ibid.
48

on factors such as available capital,
capacity requirements, and type of
terrain.
Voice over LTE
One of the key benefits of LTE is
its ability to carry all types of voice,
video and data traffic. However, most
of the developments in deployment
of LTE have been focused towards
providing faster data access, and voice
standards are still immature. This
is partly due to the unavailability of
terminal devices and the existence of
multiple standards for voice. There are
three main approaches for operators
to offer voice over LTE, namely,
IMS-based “One Voice” approach 20 ,
Voice over LTE via Generic Access
(VoLGA) 21 , and Circuit Switched
Fallback (CSFB) 22 .
It is expected that CSFB will be a
short term solution for operators given
significant drawbacks such as high
call set up times, coverage concerns,
and low battery life. Though VoLGA
is being backed by T-Mobile, it has
received limited operator and vendor
support and is expected to see
limited adoption. The “One Voice”
approach is expected to be the LTE
voice standard of the future and has
support from all ecosystem players
including the GSMA.
Regulatory Challenge
LTE networks across the world
are being deployed on disparate
frequency bands as different
regulators free up and auction
different spectrum bands. For
instance, while TeliaSonera has
deployed its LTE network in the
2.6 GHz band, NTT will initially
launch services on the 2.1 GHz band
and extend coverage using 1.5 GHz;
Finland and Hong Kong have
allocated the GSM 1800 spectrum
for LTE, and 700 MHz is the primary
candidate in the US. In fact, even
Figure 5: Backhaul Options and their Suitability to Meet Future Demand
Backhaul
Options
T1/E1
Leased
Lines
Microwave
Fiber
CAPEX
Per Site
N/A as they are
leased
~20-50K €
~125K €
Operational
Expense
~100-500 €/
month/site
Negligible
High for leased
and low for own
deployment
Deployment
Speed
Infrastructure
already exists
Issues like LOS,
site geography, etc.
Requires digging
Most Favorable
Flexibility/
Scalability
Range 1-3km,
bandwidth 2Mbps
(E1)
Range 10-30km,
bandwidth 100-200
Mbps
Unlimited range
and capacity
Least Favorable
Overall Rating to
Meet Future Demand
Uneconomical to meet
expected increase in
demand
Effective where DSL and
Fiber cannot reach
Operators plan to replace
leased lines with fiber in
densely populated regions
Source: Capgemini TME Strategy Lab Analysis; JP Morgan, Power of Mobile Broadband, May 2008; Ofcom, Future
Options for Effective Backhaul, January, 2007
within geographies, there might
be a disparity in LTE deployment
frequencies. For example, in the US,
while Verizon and AT&T are using
the 700 MHz band for their LTE
roll-out, Clearwire is testing in the
2.6 GHz band.
Despite a global technical standard,
LTE deployments lack regulatory
consensus on a standard frequency
band globally. This poses a real
challenge and increases complexity
for operators, device manufacturers,
and chipset vendors in terms of
factors such as roaming difficulties
and multi-band support for devices
and chipsets.
Ecosystem Related Challenges
Availability of Terminal Devices
As operators start deploying and
commercializing their LTE networks,
one of the key questions they face is
the ready availability of LTE enabled
devices. Most operators are rolling
out their data-only LTE networks on
limited devices such as USB modems
due to the lack of a mature device
ecosystem. For instance, although
Verizon has announced the launch
of its LTE data services by the end of
20 One Voice utilizes the IMS (Internet Multimedia Subsystem) network overlay to send voice calls and SMS over LTE network.
21 The voice call is carried over the LTE network using VoIP and over the GSM/UMTS network using circuit-switched
technology.
22 Operators use the LTE packet-switched network for data communications and the 2G/3G circuit-switched network for voice
communications.
49

Figure 6: Key Technical Challenges for the LTE Chipset Ecosystem
1 LTE technology at present has a number of different configurations such as a range of
Support for
different frequency bands, varied antenna systems like 2X2 MIMO, 4X4 MIMO, etc.
Multiple Technical – This puts a severe strain on the chipmakers with respect to specific technologies to be
Parameters
supported and the allocation of R&D budget
– Supporting too many different configurations pushes up the price of the chipsets,
thereby affecting adoption
2 Integration with 2G and 3G will be a major requirement for all LTE chipsets, especially during
the early days of LTE deployments
Backward
– This will allow modems and handsets to be interoperable with existing networks, and
Compatibility
thus function in the case of selective rollouts
– For example, Qualcomm’s MDM9600 series of chipsets support dual-carrier HSPA+ and
multi-mode 3G/LTE
3 The power consumption levels of current LTE chipsets are very high, due to their use of
Reducing Power technologies like MIMO and use of multiple components
Consumption and – This severely limits the usage of these chipsets, as the battery life of the LTE devices is
Chip Size
limited
A number of LTE chipsets available in the market are currently bulky, thereby adversely
affecting the size and shape of the devices
Source: Capgemini TME Strategy Lab Analysis; cellular-news, Qualcomm Now Sampling Dual-carrier HSPA+ and
Multi-Mode 3G/LTE Chipsets, 2009; MobiledevDesign, 4G Terminal Chipsets Present Challenges And Opportunities,
December 2009
2010, it maintains, that the first LTE
phone would be available only by the
middle of 2011. The unavailability of
LTE compatible phones, smartphones,
and tablets is an opportunity lost for
operators in terms of revenue they
could have earned from premium
pricing.
Multi-mode and multi-band support
is another factor which has slowed
down the availability of LTE devices.
For instance, TeliaSonera launched
its first dual mode LTE and 3G
modem a whole 6 months after the
launch of its LTE network. Multimode
(GSM‐HSPA-LTE) support
is critical for the device to appeal
to early technology adopters and
help operators acquire a large
subscriber base. Similarly, multi-band
capabilities are critical for roaming
handovers, as LTE will be deployed in
multiple RF 23 bands.
Chipset Compatibility
The LTE chipsetecosystem needs to
address key barriers around selection
of specific technologies and chipset
performance improvement. Support
for multiple technical parameters,
backward compatibility, and reducing
power consumption and chip size
are some of the key challenges for
chipset vendors (see Figure 6). There
is a direct correlation between the
availability of chipsets and the launch
of new LTE capable devices. As the
chipset ecosystem for LTE gradually
matures, we will see a large number
of devices being introduced.
Return on Investment
Migration to LTE entails high
CAPEX 24 investments when compared
to HSPA or HSPA+, due to the high
spectrum costs and upgrades in
network infrastructure required.
Typically, a tier one mobile operator
in the UK would need to invest
US$750 million in the first year to
deploy an LTE network, while an
upgrade to HSPA+ may cost just
US$250 million 25 . Even TeliaSonera,
which reused nearly 70% 26 of its
existing network infrastructure, had
to invest a total of US$1.95 billion
on its networks 27 in 2009 to deploy
LTE and plans to invest an additional
US$70 million in 2010 28 . The biggest
challenge therefore for an operator is
to justify the ROI and business case
for these high investments in LTE
network deployment.
23 Radio Frequency.
24 Capital Expenditure.
25 Aircom International, LTE Not the Only Option for Mobile Operators Today, says AIRCOM, May 2010.
26 Dailywireless, TeliaSonera: Go Directly to LTE, September 2010.
27 Large part of it was driven by LTE.
28 Reuters, TeliaSonera Sees no Investment Boost from LTE, April 2010.
50

Today, while wireless carriers provide
the access channel for provisioning
content and various multimedia
services on a large number of mobile
devices, they hardly earn any share of
the revenue pie. Most of the revenues
on such services are scooped away
by content developers and over-thetop
players. Therefore, one of the key
operator challenges is to introduce
innovative services and pricing
models which leverage their advanced
LTE network capabilities.
In the next section, we look into some
key strategies which operators can
adopt in order to successfully mitigate
these challenges and maximize their
return on investment.
Next Steps for Telcos
As discussed, although LTE
provides wireless operators with
a more efficient, future proof, and
cost effective long-term solution
for upgrading their networks, the
road towards LTE is not without its
challenges. However, by adopting
the most relevant strategy around
the rollout, cost savings, customer
proposition, and spectrum policy,
telcos can succeed in their quest. In
this section we evaluate these key
operator considerations and propose
measures to realize the true potential
of LTE.
Customer Proposition
Service Positioning
From a customer perspective, the
higher speeds and lower latency
enabled by LTE is the key USP 29 of
the technology. As voice and SMS
standards gradually evolve, operators
should eventually offer these services
too. However, they need to position
LTE primarily as a much faster
and superior broadband access
technology.
Figure 7:
Comparison of LTE Price Plans of Commercial Offerings
Operator Price Per Month Data Allowance Bandwith
TeliaSonera 599 SEK (US$87) Capped at 30 GB per month 10 to 80 Mbps
369 SEK (US$54) Capped at 20 GB per month 10 to 20Mbps
299 SEK (US$44) Capped at 10 GB per month 5 to 10 Mbps
Tele2 299 SEK (US$44) * Unlimited Not tiered by network speed
Telenor Sweden 549 SEK (US$80) Unlimited Not tiered by network speed
Verizon US$50 Capped at 5 GB per month
(US$10 per gigabyte overage fee)
US$80
Capped at 10 GB per month
(US$10 per gigabyte overage fee)
Not tiered by network speed
Not tiered by network speed
MetroPCS US$55 Unlimited Not tiered by network speed
NTT DoCoMo 1000 JPY (US$12) Capped at 3 GB per month Not tiered by network speed
7980 JPY (US$95) Capped at 5 GB per month Not tiered by network speed
* For the first 12 months of an 18-month contract, after which the price goes up to 499 SEK
Source: Company Websites; Light Reading NTT Docomo Sets LTE Date, November 2010; Light Reading Swedish LTE
Challengers Wield Unlimited Offers, November 2010;
Pricing
In order to manage network traffic
volumes effectively and justify the
high costs of network capacity
upgrades it is critical for operators to
get their LTE data price model right.
First, telcos should price their LTE
offering at a significant premium over
their existing mobile data plans and
focus on maintaining a very high
service quality. For instance, the LTE
data plan of TeliaSonera in Sweden is
priced at an 88% 30 premium over its
existing regular 3G subscription.
Second, all-you-can-eat pricing
strategies need to give way to pay-forwhat-you-use
models where mobile
data is charged based on bandwidth
and volume. Since different customers
have widely varying consumption 31
pattern, and a one-size-fits-all data
strategy is no longer economically
sustainable for operators, subscribers
need to be charged differently. Entry
level customers should be able to surf
the net at lower prices albeit with
slower speeds and lower data caps,
“
Operators
need to position
LTE primarily
as a much faster
and superior
broadband
access
technology
”
29 Unique Selling Proposition.
30 Company Website; Computer World on the Streets of Stockholm with LTE, August 2010.
31 Both bandwidth and data volume.
51

Figure 8: Accumulated CAPEX and OPEX Savings (%) from Network Sharing
26%
27% 27.5% 28%
29%
10%
11%
12%
13.5%
15%
Year 1 Year 2 Year 3 Year 4 Year 5
CAPEX
OPEX
Source: Analysis Mason Wireless Infrastructure Sharing Saves Operators 30% in CAPEX and 15% in OPEX, May 2010
“
A one-sizefits-all
data
pricing strategy
is no longer
economically
sustainable for
operators
”
whereas heavy users and business
customers should have access to
higher priced faster plans with higher
data caps. A look at the LTE price
plans of existing offerings indicates
similar trend (see Figure 7).
Lastly, in the long-term, operators
should try and adopt a value-based
pricing model where customers pay a
premium for superior experience. For
instance a professional photographer
trying to send a photo of a winning
goal at a football match could pay
extra to ensure he would have access
to the network ahead of the many
football fans sending texts. Operators
such as TeliaSonera and Vodafone
have already announced the launch of
such plans in the future. As part of its
new “supermobile” strategy, Vodafone
plans to introduce “staircase” pricing
so that customers can pay extra for a
guaranteed level of superior service or
pay less for limited data browsing.
Rollout Strategy
In terms of rollout strategy, operators
can either choose to extensively reuse
their existing network infrastructure
by adding LTE capability over their
3G network, or plan and build a
network from scratch by swapping
out current infrastructure to a single
RAN network. While the former
results in higher cost savings and
faster rollout, the latter promises
a more flexible, clean, and stable
upgrade for long term benefits.
It is imperative for operators to justify
their investments in LTE with ROI.
In most cases, a full-scale nationwide
rollout strategy may not make
economic sense, since the returns
on data rich LTE services in rural
and semi-urban areas may not be as
attractive as in urban areas. Therefore,
a phased deployment strategy,
targeting affluent data hungry
customers in the densely populated
urban areas first, makes a stronger
business case. For instance MetroPCS
has rolled out its 4G LTE services in
five major metropolitan cities where
it anticipated maximum demand, and
will gradually expand to other urban
areas.
In order to increase coverage in rural
areas operators can forge partnerships
with local wireless providers, and
companies having towers and
backhaul capabilities. Verizon is
currently planning to adopt this
strategy for the rural rollout of its LTE
network.
52

Cost Savings
Network Sharing
In order to minimize the large
investments required in LTE network
rollout and maximize returns from
its deployment, cost savings should
be one of the foremost priorities
for operators. It is estimated that
LTE infrastructure CAPEX alone
will reach US$14 billion globally in
2015 32 . Therefore operators should
not only go for passive sharing of sites
and tower masts but also engage in
active network sharing, to effectively
reduce their financial burden. Two
operators jointly rolling out an LTE
network of 2,500 sites in a developed
economy can potentially save nearly
30% in CAPEX over a 5 year period,
if they share radio access networks
(RANs) 33 (see Figure 8).
LTE networks are technically more
suited to active sharing due to their
flat all-IP network architecture and
operators sharing their active network
elements can save at least 40%
more in CAPEX and OPEX, over a
five-year period, compared to their
counterparts striking only passive
site-sharing deals 34 .
Operators should also get into
agreements to share their backhaul
costs which may account for nearly
50% of the CAPEX needed to deploy
LTE RAN equipment in urban and
metropolitan areas.
Some telcos have already taken the
first steps towards network sharing
to lower the costs of their rollout.
For instance, in Canada, Telus and
Bell have formed an agreement to
overlay their EVDO networks with a
joint HSPA network by 2010 that will
more efficiently prepare for an LTE
migration expected between 2011
and 2012. Similarly, in Sweden, Tele2
and Telenor built the LTE network
together through their networksharing
joint venture, Net4Mobility.
Figure 9: Primary Candidate Bands for LTE
Band
Description
Uplink (UL)
Operating
Band (MHz)
Downlink (DL)
Operating
Band (MHz)
Channel/Carrier
Bandwidths (MHz)
Supported
Potential
Deployment
Region(s)
Comments
Digital Dividend 791-821 MHz 832-862 MHz 5, 10, 15, 20 Europe
Strong push from European Union
Spectrum auctioned in Germany
GSM 900 880-915 925-960 1.4, 3, 5, 10 Europe Spectrum can be re-farmed
Spectrum can be re-farmed
GSM 1800 1710-1785 1805-1880 1.4, 3, 5, 10, 15, 20 Europe, Asia Finland and Hong Kong have
allocated for LTE
UMTS Core,
‘2100’
1920 - 1980 2110 - 2170 5, 10, 15, 20 Europe, Asia Available for LTE in Japan
IMT Extension,
Focus of most operators in
2500-2570 2620-2690 5, 10, 15, 20 Europe
‘2.6 GHz’
Western Europe
700 MHz Multiple bands Multiple bands 1.4, 3, 5, 10 US
Primary candidate for LTE launch
in US
AWS (US) 1710-1755 2110-2115 1.4, 3, 5, 10, 15, 20 US, Canada
US auctions completed in
September 2006
Cellular 850 824-849 869-894 1.4, 3, 5, 10 US, Canada Can be re-farmed after 700MHz
(US)
and AWS is consumed in the US
PCS, ‘1900’ 1850-1910 1930-1990 1.4, 3, 5, 10, 15, 20 US, Canada
Can be re-farmed after 700MHz
and AWS is consumed in the US
Source: Capgemini TME Strategy Lab Analysis; Regulator Websites
Data Offloading
Mobile Data Offloading (MDO) is
another strategy which operators can
adopt to achieve cost efficiencies.
MDO is the use of complementary
network technologies such as WiFi,
femtocell, mobile CDNs 35 , and
media optimization for offloading
data originally targeted for cellular
networks, thereby reducing costs and
minimizing load on core operator
network. It is expected that offloaded
mobile data will increase threefold
from 16% in 2010 to 48% in 2015 36 .
Each of these offload technologies
can solve a particular problem and
will coexist. For instance, while WiFi
is effective in covering limited areas
having many users, such as train
stations and sports venues, femtocell
is a good solution for targeting
small numbers of heavy data users.
Mobile CDNs alleviate the problem
of frequently-accessed content, for
example a viral video, by caching the
content locally rather than loading it
onto the network for each download
request.
Many suppliers such as BelAir
Networks (WiFi), Akamai (CDN),
32 Total Telecom, LTE Business Models: LTE: Sharing the Burden, July 2010.
33 Analysis Mason, Wireless Infrastructure Sharing Saves Operators 30% in CAPEX and 15% in OPEX, May 2010.
34 ABI Research, Active Radio Access Network (RAN) Sharing Amounts to a US$60 Billing Cost Saving Potential for Operators,
April 2009.
35 Content Delivery Networks.
36 ABI Research Mobile Network Offloading, August 2010.
53

Ubiquisys (femtocell), and Openwave
(media optimization) offer a range of
MDO solutions which operators can
leverage.
Spectrum Policy
LTE can be deployed in many
different frequency bands, with each
band supporting multiple channel
bandwidths (see Figure 9).
Operators will need to carefully
evaluate the frequency bands and
channel bandwidth in which to
deploy LTE, based on factors such
as spectrum availability and price,
rollout costs, and coverage. In the
subsequent subsections we detail the
parameters upon which operators
should determine their spectrum
policy.
Which Spectrum Band
Although the decision on the
choice of band in which to deploy
LTE depends upon the availability
of spectrum, operators will still
generally have more than one option
to choose from.
The higher frequency bands such as
2.6 GHz are readily available and
have been auctioned in many parts
of the world. Therefore, 2.6 GHz
is expected to be the spectrum of
choice for most operators considering
LTE deployment. However, lower
frequency bands have certain distinct
advantages which are likely to be of
considerable interest to operators.
Low frequency bands such as
800 MHz and 700 MHz allow signals
to travel farther and provide better
in-building coverage than higher
frequencies. For instance, cell radius
at 700 MHz could be between three
and four times larger than at 2.6 GHz.
Therefore, from a coverage point of
view, a network built at 700 MHz is
likely to require less than a tenth of
the number of sites required for the
same coverage at 2.6 GHz 37 . This will
translate to lower costs and enable
operators to gain an edge on the
pricing front.
However on the flip side, there is a
high level of regulatory uncertainty,
especially in Europe, on the
availability of low frequency digital
dividend band. This along with the
fact that these bands are expected
to be priced significantly higher
weakens their proposition. While the
price per MHz per population for
the 2.6 MHz spectrum in Norway
was US$0.00043, in Germany, it was
US$0.19 for the 800 MHz spectrum 38 .
Given the high costs and competition
involved in the acquisition of LTE
spectrum, operators can also consider
the option of re-farming their existing
licensed frequencies, if regulation
permits, to offer LTE. For example,
Mobyland in Poland has launched
the world’s first LTE network in the
1800 MHz spectrum 39 . The main
concern with re-farming will be
clearing enough spectrum to facilitate
an acceptably efficient implementation
of LTE while maintaining enough
capacity in the remaining spectrum
to support non-LTE traffic on legacy
technology.
What Channel Bandwidth
LTE can be implemented in multiple
channel bandwidths ranging from
1.4 MHz to 20 MHz. For instance
while TeliaSonera uses a 2x20 MHz
channel, Verizon has used 2x10 MHz
channel for deployment. It is
technically possible to implement
LTE as a Single Frequency Network
(SFN) or using a frequency reuse
pattern. For example an operator with
15 MHz of spectrum can use it either
as a single channel or split it into
37 Wray Castel, Training the Telecom World, LTE – Where’s the Spectrum?, November 2009.
38 KB Spectrum Blog.
39 Company Website.
54

three 5 MHz channels. In the SFN
case, the bandwidth would likely be
in the order of 18 Mbit/s, but available
only over a very limited coverage
area with the potential bit rate falling
sharply at the cell edges. In the
frequency reuse case, the bandwidth
will be lower at around 7 Mbit/s, but
available over a much wider area 40 .
Therefore, operator decision on
channel bandwidth needs to be
based on a speed versus coverage
tradeoff. In dense urban areas, they
can implement LTE as SFN where
as in rural areas they can adopt the
frequency reuse pattern.
In conclusion, LTE presents an
attractive technology choice for
operators to mitigate their most
significant concerns around explosion
in demand for wireless broadband.
However, the path towards LTE is not
without its set of challenges and the
decision to migrate is not an easy one
to make. LTE is in a nascent stage
with standards still evolving and the
ecosystem still maturing. Moreover
operators have other wireless
technology options, some of which
may be more cost effective in the
short term. Therefore, operators need
to carefully evaluate the need and
business case for LTE deployment,
before giving a green flag. To reap
the true potential benefits offered by
LTE and successfully mitigate the
challenges, operators should adopt the
right strategies around pricing, cost
savings, and rollout.
Priyank Nandan is a senior consultant
in the TME Strategy Lab. His research
interests and project experiences span
diverse areas such as digital media,
fixed and wireless networks, and cloud
computing. He has a deep understanding
of the TME industry in both developed
and growth markets. Prior to joining
the Lab, Priyank worked for a major
IT product company. He is based in
Mumbai. n
“
Operators should try and
adopt a value-based pricing model
where customers pay a premium
for superior experience
”
Linda Asplund is a principal with
the Swedish Capgemini Consulting
practice. She focuses on strategy and
transformation within the telecom and
media sector. Linda works with both
fixed and mobile operators primarily
in the Nordic market. She is based in
Stockholm.
40 Wray Castel, Training the Telecom World, LTE – Where’s the Spectrum?, November 2009.
55

IT Renewal: A Business Transformation
By Frédéric Vander Sande, Jean Diop and Manik Seth
Abstract: Operators across the world are increasingly realizing the imperative of transforming their IT systems. Driven by the need to
focus on new products and services, while countering increased competition from Internet players, operators are looking to ensure their
IT systems are in sync with the need of the hour. Key factors driving this change include a renewed push from telcos to cut down on
their time-to-market while cutting down on their costs. Telcos will have to bear in mind that a successful IT transformation is the result
of the coming together of a variety of elements from the business and IT side of operations. In doing so, the first step is to identify
and understand the building blocks of a business transformation. Thereon, a strong understanding of the key success factors of a
transformation program completes the early steps towards creating a large-scale successful IT transformation.
“
Convergence
of services
and networks
is hastening
the need for
upgrading IT
systems
”
Rationale for IT Transformation
Operators are increasingly looking
to launch new services for driving
revenues while optimizing current
systems in order to reduce their
cost structure. The need to launch
new services has a direct impact on
operations and IT infrastructure as
operators need to upgrade their IT
systems for supporting an expanded
service portfolio. In order to address
these growing requirements, operators
are launching comprehensive renewal
transformation programs that involve
a shift from the current bespoke
processes 1 to standardized processes
supported by packaged solutions and
out-of-the-box IT implementations.
In this section we discuss the reasons
why operators are launching IT
renewal programs.
Operators are demanding a faster
time-to-market
Telcos are under constant pressure
from fast-moving Internet players
that are not only threatening their
core revenue streams, but are also
doing it in a fundamentally different
manner. We see this in how telcos
have traditionally developed product
features. Internet players have
perfected an approach where they
first release products in beta, and
then incrementally and rapidly add
product features to it. This approach
helps them incorporate user feedback
rapidly back into the system. For
instance, Google’s most popular
services including Gmail and Google
Talk had the beta label for over five
years, during which time Google
made multiple rapid iterations of
product features, while still having
a strong base product available to
consumers 2 . On the other hand, telco
product testing and launch typically
takes months and product iterations
subsequent to launch are usually few.
This is changing in recent times. For
instance, Telefónica, which acquired
social networking site Tuenti in
August 2010, rapidly launched a lowcost
invitation-only Mobile Virtual
Network Operator (MVNO) using
the brand by December 2010 3 . The
need for rapid turnaround in terms
of launching services is putting
increasing pressure on IT systems.
1 Bespoke Processes: Home grown processes developed by operators not based on any industry standard.
2 PC World, Google Removes ‘Beta’ Label from Gmail, Calendar, Other Services, July 2009.
3 Telecom Paper, Telefónica’s Tuenti launches MVNO in Spain, December 2010.
56

Reducing costs is a high priority
area for telcos
Another major challenge for telecom
operators is coping with the rising
cost of maintaining IT systems. In
comparison to other sectors, players
in the telecom sector already spend
a significant amount on information
technology (see Figure 1). Global telco
spend on IT systems is estimated to
increase from around $71 billion in
2008 to over $86 billion by 2014 4 .
Such rising costs of IT are forcing
operators to take a closer look at ways
and means to control it.
Growing costs of operations are
forcing operators to look at new
models involving infrastructure
sharing and network outsourcing.
Multiple telcos have also initiated
cost rationalization programs in order
to ensure that they use the recent
financial slowdown as a good driver
for removing superfluous costs.
Proliferation of multiple systems
and platforms is hindering growth
Over the years, telco IT systems
have grown into multiple disparate
platforms for a variety of reasons.
Most major telecom operators have
grown to their current market
position after a series of mergers and
acquisitions. Each such transaction
brings with it its own set of existing
IT platforms that are rarely integrated
back into the parent company’s IT
systems. This results in an operator
running several versions of the same
system within the organization.
Similarly, many product lines within
an operator typically ran in a silo
fashion, implementing their own
IT systems that rarely integrated
seamlessly with other product lines.
This also led to a situation where
multiple IT systems began to co-exist
and were developed independently.
Figure 1: IT Spend as Percentage of Revenue, Select Industry Verticals, 2010,
Global
0.9
Another problem leading to the
fragmented nature of IT systems is
the lack of maturity in commercial
off-the-shelf solutions (COTS). COTS
solutions traditionally allowed only
a limited amount of customization
which did not permit operators
to fully benefit by installing
these systems. Moreover, process
standardization was a significant
challenge for telecom operators
given the lack of established and
accepted industry standards for IT
architectures. Such proliferation has
resulted in IT systems becoming
unwieldy in time.
IT systems have not kept pace with
the evolving business environment
In a scenario where most developed
markets are nearing saturation, the
industry is seeing a steady move
towards consolidation and a renewed
push towards improving the customer
experience. Furthermore, with the
increasing role of customer experience
in retaining customers, operators
are now exploring new channels for
customer care. The growing adoption
of the Internet is driving operators
1.9
Energy Manufacturing Transportation Telecommunications Media Banking & Finance
Source: Gartner, IT Metrics: IT Spending and Staffing Report, 2010
3.1
4.3
4.6
5.7
4 Gartner, Forecast: Enterprise IT Spending by Vertical Industry Market Worldwide, 4Q10 Update, 2010.
57

to launch Web-based self-service
channels to augment the existing
channels such as contact centers and
retail stores.
While the business environment
is seeing a substantial shift, the
operations and underlying IT
systems and processes have seldom
been upgraded at the same pace.
Considering the broad environmental
changes in recent years, most
operators are fast reaching the limits
in terms of time-to-market and total
cost of ownership of integrating new
services, channels, processes and/or
system stacks. This often results in a
misalignment between the business
needs and IT systems and opens a
competitiveness gap for the operators
(see Figure 2).
There is a growing need to improve
the customer experience
A growing challenge for telcos is to
ensure a consistently high level of
customization across all customer
experience channels. With growing
customer touch points, operators are
looking to create a uniformly rich
customer experience. For instance, in
Figure 2: Misaligned Evolution of Business Environment and IT
Environmental Change
■ Voice focused
services
■ Limited competition
■ Custom built
applications
■ Automation of
existing processes
Source: Capgemini Analysis
■ Growth of data
and IP services
Incremental Change
■ Expansion of
applications to
include data
services
■ Convergence of mobile,
fixed and TV
■ Intense competition from
Cable and Internet players
■ Strong focus on customer
experience
Strategic Drift
■ Integration of different
IT components
■ Large number of new
applications for new
services and processes
■ Need for expansion into
related markets like
Music, Gaming, Cloud
■ Launch of new
technologies like LTE,
Fiber
Need for
transformation
al change
Limited scope for
further expansion for
additional services and
technologies
Business Needs
IT Systems
Time
the US, AT&T allows consumers to
control data plan subscription to their
iPads directly through an application
on their device. Operators are looking
to create such frictionless processes
which therefore require highly
flexible IT systems.
Convergence of networks and
services is driving the need for a
new breed of IT systems
Of late, there has been an increasing
trend towards convergence of
service offerings where telcos deliver
multiple services over the same access
connection. Customers appear to be
increasingly comfortable in having
a single operator for voice, Internet
and TV services. For instance, Virgin
Media reported that more than
60% of its cable customers received
broadband Internet, television and
fixed line telephony services in 2009 5 .
Moreover, operators are now moving
towards a single network for all
services. The emergence of Next
Generation Network (NGN) is
allowing operators to converge their
mobile and fixed line networks. Such
convergence of different networks
enables operators to reduce the cost of
maintenance, while providing enough
flexibility to offer a wide array of
services.
While operators are addressing
the need for network and service
convergence, most operators are
not structurally transforming their
business support systems to respond
effectively to these changes. Instead,
they are showing a preference for
evolutionary and focused tactics.
Most telcos have typically launched
new channels, partners, products or
services by adding new IT stacks “on
top” of legacy billing and customer
care systems without real efforts at
portfolio cleaning.
5 Virgin Media Annual Report 2009.
58

Figure 3: Convergence of Networks and Offers
Separate Networks and Offers
Converged Networks and Offers
Telephony Internet TV
Offer 1 Offer 2 Offer 3
Telephony Internet TV
Bundled Offers
Products & Services
Products & Services
Business
Processes
Organization
Business
Processes
Organization
IT
IT
Single Network
Network 1 Network 2 Network 3
Fixed Line
Voice
Fixed Line
Data
Mobile
Fixed Line
Voice
Fixed Line
Data
Mobile
Source: Capgemini Analysis
Such initiatives are increasing the
complexity in managing the existing
processes and systems of an operator.
This is resulting in compelling
operators towards IT transformation
in order to bring their IT systems
up-to-date with the rapidly
changing operational requirements
(see Figure 3).
The mature state of COTS solutions
offers a strong case for their usage
A number of operators including
American major AT&T, which relied
on custom-made IT systems, have
traditionally faced high costs for
IT development and maintenance 6 .
With margins coming under
pressure, operators are now looking
to transform their IT systems from
current custom-made solutions to
lower cost systems. COTS solutions
offer significant cost advantages
over custom-made solutions, due
to research, development and
maintenance costs being spread over
a large number of implementations.
Large vendors such as Amdocs,
Oracle and Comverse are ensuring a
strong supply of COTS solutions in
the market. Although the maturity of
different business support systems/
operations support systems (BSS/OSS)
components vary, some of them such
as billing and Enterprise Resource
6 Billing and OSS World, Case Study: AT&T’s Migration to Service-Oriented Architecture, 2005.
59

Figure 4:
High
Level of Functionality*
Low
Low
Maturity Matrix for COTS Solutions
Analytical
CRM
Data
Warehouse
Customer Care
Service
Fulfillment
Operator Adoption
ERP
Centralized
Product Catalog
Service
Assurance
Billing
High
Size of the bubble
indicates
“Vendor Focus”
In the next section, we take a look at
the building blocks of a successful IT
transformation program.
Building Blocks of a Successful
Business Transformation
In order to respond to the rapid
environmental changes in the
industry, operators need to revisit
their IT strategy. The changing
business environment requires
operators to make key changes in
their processes and IT architecture.
In this section we discuss the main
building blocks of an IT renewal
program (see Figure 5).
* Level of functionality: Indicative of functionality provided by Amdocs, Oracle, Comverse, Convergys, SAP and Ericsson
products
Source: Capgemini Analysis; Company Websites; TM Forum Website
Planning (ERP) have reached a high
degree of maturity in terms of the
level of functionality provided by
different vendors and adoption by
various operators (see Figure 4).
For instance, billing solutions from
various vendors today cover all
aspects of rating, mediation and
partner settlement.
However, the market still lacks the
availability of complete suites of
various BSS/OSS components from
a single vendor, driving operators to
prefer best-of-breed solutions that
combine components from different
vendors. Consequently, some vendors
including Amdocs and Oracle are
now focusing on developing end-toend
solutions providing all BSS and
OSS components required by the
operators.
Considering these evolutions, most
operators are embarking on IT
transformation programs. However,
in these implementations the main
challenge is to create a comprehensive
business plan and business case,
besides addressing the IT complexity
that is required to manage in the
course of the transformation.
IT architecture and solution
implementation
IT architecture and solution
implementation is an important
component in the assessment of the
readiness for a transformation. It
provides the key interaction point
and alignment with the roadmap
of the IT integrator. Key readiness
aspects that need to be in place in
order to perform an efficient and
effective IT release process need to
be defined beforehand. This includes
synchronized roadmaps between
business and IT, where each step in
the IT transformation phase generates
true business value. Furthermore
the process should ensure that all
the stakeholders are aligned on a
common platform.
Business architecture and processes
The rationale behind the creation
of the business architecture and
processes stream is the need to
prioritize the area where the bulk
of the delivery work will need to be
performed during the transformation.
The different elements that need to
be designed are: scoping and defining
the business requirements approach,
business process re-engineering based
upon the best-of-suite processes,
business data management and
metrics and Key Performance
Indicators (KPIs).
60

Figure 5: Building Blocks of Digital Transformation
IT Architecture
and
Solution
Implementation
Business
Architecture
and Processes
Transformation
Governance
and Policies
Change and
Communication
Commercial
Roadmap and
Evolution
Business and IT
Simplification
Migration and
Transition
Management
Organization
Design,
Competences
and Training
Source: Capgemini TME Strategy Lab Analysis
Transformation governance and
policies
The need for business and IT
alignment as well as the integration
of the solution editor and/or solution
integrator within the operator
requires a specific focus on the
transformation governance and
policies. These include organization
model and business/IT arbitration.
The right set-up of the transformation
governance and policies is critical
for a successful transformation.
It requires not only looking at
the governance but also involves
setting up the necessary governance
structures, decision making
processes, policies and monitoring
of the transformation progress and
realized benefits. It describes the
structure, processes, organization,
planning and transformation KPIs.
The whole transformation is then
phased and steered through the
design and follow-up of a global
transformation roadmap aligning all
the streams in order to reach the right
level of transformation readiness.
The important aspect here is that
the roadmap must combine and
synchronize both business and IT
roadmaps. At each phase there should
be a clear deployment that generates
business value.
The other key component of the
transformation governance is
arbitration. It needs to guarantee
timely and effective business
decisions, specifically in the context
of a best-of-suite driven IT solution
implementation. Arbitration must be
done after multi-dimension analysis
in order to reconcile the short- and
long-term views, internal and external
benefits and financial performance.
By having the arbitration process
running in parallel to all business
requirement gathering activities, a
fitness for use delivery is guaranteed
while managing out-of-the-box
compliance at the same time.
Change and communication
Change and communication is crucial
in generating the necessary buy-in,
motivation and mobilization amongst
the different stakeholders in order
to achieve common appreciation of
goals and commitment in working
towards it. It also underpins the
transition of an organization from the
current state to target state aiming
at empowering employees to accept
and embrace changes in their current
business environment. Within this
stream it will be crucial to set up a
change and communication plan that
will identify all the necessary actions
and measures to ensure change
readiness, involvement, commitment
61

and acceptance by all the different
stakeholders, both business as well
as IT.
Organization design, competencies
and training
Changes to business processes
will result in the need to learn
new process sequences and tasks,
and potentially new skills, roles,
responsibilities and new ways of
working within the organization.
Competency development should
fulfill these needs all along the
transformation and should be
considered up-front. The training
plan should describe the training
approach and the training program
required to provide operator staff
with the skills to guide the IT
transformation. This program must
be closely aligned to the To-Be
organization’s design and culture, to
the related processes and procedures,
as well as to the new roles, tasks,
responsibilities.
Migration and transition
management
Three migration scenarios essentially
arise in any large transformation.
In the first scenario, enterprises
build the new IT infrastructure by
prioritizing urgent evolutions, and
progressively evolve to support
business and technology/network
evolution. In the second scenario,
which represents a turnkey solution
with a “big bang” migration,
“
Advancements in IT systems
have not kept pace with changes in
business environment
”
enterprises build the new IT and
migrate in “one shot” the existing
business to the new environment
and then enhance the system. In the
third scenario, which is essentially
a turnkey solution with incremental
migration, enterprises build the new
IT beside the legacy systems in order
to provide a new, robust, end-toend
solution, designed for innovation
and business strategy and later on
migrate existing business according to
priorities.
Once a decision is made on the
migration strategy, both business and
IT aspects have to be detailed and
synchronized. All transformation
dimensions have to be re-considered,
planned and tested in such an
exercise.
Business and IT simplification
Business and IT simplification is
a crucial element in a successful
transformation program. Business
and IT simplification guidelines and
decisions should be based upon
the effects of the overall business
case. It encompasses simplification
of the organization, products,
channels, communication methods,
terminologies, and processes from
hypotheses testing over design and
planning to execution and validation.
A key element while planning the IT
renewal program is to simplify the
IT architecture through application
rationalization and integration
of different applications for data
consistency. Software application
rationalization can help operators
achieve significant reduction in
the overall IT costs as it results in
lower development and maintenance
costs. A simplified IT system
will also enable operators to gain
competitive advantage by reducing
the time-to-market for new services.
For example, in efforts to simplify
and transform its IT systems, KPN
62

implemented Oracle’s Application
Integration Architecture to enable the
integration of its billing and Customer
Relationship Management (CRM)
systems thereby accelerating the
time-to-market for new products and
services by 30% 7 .
The ability of an operator to reach its
total cost of ownership (TCO) and
time-to-market business objectives
while keeping the transition as
transparent as possible for its
customers is closely linked to the
capacity to change quickly and adapt
itself. In order to do so, operators
should focus on critical business
simplification and transformation
areas including product catalogue,
product lifecycle, project portfolio,
organizational design and opportunity
scouting.
Commercial roadmap and
innovation
In the course of the IT transformation
program, new products and services
and technical innovations will
have to be incorporated in the
operational and IT infrastructure.
A set of rules have to be defined to
decide on whether to incorporate
these innovations in the incumbent
or replacement infrastructure.
Additionally, the inception of new
innovations needs to be stimulated
and consequently new structures and
methodologies should be developed.
In the next section, we conclude
the paper with insights on
what constitutes a successful IT
transformation program and highlight
the potential pitfalls of which
operators should be aware.
Key Success Factors for a
Winning IT Transformation
Program
A winning IT renewal program
requires the successful coming
together of various elements in order
“
The need to create a
uniformly rich customer
experience is a key driver for IT
system transformation
to ensure completeness, secure
delivery readiness and manage risks.
Any IT transformation is firstly a
business transformation
Almost systematically, IT
transformations are initiated and
initially driven within the offices
of the Chief Information Officer
(CIO) or Chief Financial Officer
(CFO). However, IT transformation
objectives are generally divergent
in terms of delivery priorities and
planning from short/mid-term sales
and marketing objectives. At the
end, the To-Be solution must serve
business objectives and be used by
customers and partners themselves in
addition to internal business and IT
operations. To ensure full company
commitment, realistic qualitative and
quantitative business objectives and
KPIs must drive the transformation.
The success of a transformation lies
in its design, partner selection and
its kick-off phase
The program design phase plays
a crucial role along with solution
and partner selection in realization
of the objectives. Specific attention
encompassing all business and
IT change dimensions should be
set in the initial 100 days of the
transformation. This design period
must not only build confidence in the
solution in the various stakeholders
”
7 Oracle Customer Case Study, KPN Drives a Customer-Centric Approach and Simplifies IT Systems with Prebuilt Integrations, 2009.
63

“
IT transformations,
at their core, are business
transformations
”
and in the transformation path, but
also deliver early results and reveal
unknowns and gaps requiring specific
focus to secure the full transformation
program delivery. Not identifying
them early enough will dramatically
increase the failure rate.
Senior management commitment is
paramount for success
Considering the scope, impact
and risks of an IT transformation,
it is essential to create up-front
alignment on vision and objectives
across departments. CxOs should
build, share and commit on a
clear picture of the To-Be situation
and the business and personal
benefits the transformation will
bring to customers, partners and
their own departments. They must
then translate it into qualitative
and quantitative objectives for
all individuals involved in the
transformation and ensure direct
support and the right empowerment.
CxOs and transformation leaders
must more than all “walk the talk”
as they are de facto the first level of
change agents within the organization
and will be regarded as such within
their own department.
Constant focus on To-Be state is
necessary
A continuous focus on To-Be target
leads to the complete realization of
all transformation benefits. However
a focus on To-Be requires additional
efforts in designing a realistic
transformation path.
People change management needs
to be addressed right from the start
With transformation programs
typically impacting the bulk of a
company’s workforce, it becomes
imperative that companies have a
strong focus on change management.
It requires companies to design and
plan a clear change strategy and
roadmap integrating progressively
all the stakeholders right at the start
and then constantly managing change
through well structured orchestration
during the program delivery.
Correctly skilled transformation
teams and change agents must be
identified, incentivized, trained and
coached as effective transformation
happens only from the inside.
Effective engagement with partners
is a pre-requisite for successful
delivery
Transformation programs are long
and painful. It is the capacity and
the commitment of the involved
third-party partners to successfully
overcome program difficulties as one
team that will build the successful
conditions for transformation
delivery. Reaching such equilibrium
requires at least two key conditions.
It requires the development of a
true win-win partnership where all
parties are contractually incentivized
to do everything possible to deliver
the program. The collaboration and
program governance must reflect this
situation. On the other hand, the
up-front definition, communication
and close management of strict roles
and responsibilities in program
activities and deliverables must be
enforced. A collaborative approach
will help the transformation
stakeholders to achieve better,
faster, more sustainable results
through seamless interactions and
collaboration-focused methods and
tools.
64

Strong business arbitration
safeguards need to be established
A key challenge during large
transformation programs is to quickly
resolve disagreements that might
arise between stakeholders. In such
cases it becomes important that both
parties come to a quick agreement
against the defined KPIs in order to
ensure that the business objectives
and overall timelines of the program
are not impacted. A clear and timely
arbitration process up to CxO level
must therefore be set up involving
business, IT and integration/solution
partners. To ensure that decisions
are driven by the business case,
systematic evaluation and decision of
the business and IT scenario impacts
is required.
Industry standards should be put at
the center of IT renewal
For the success of IT renewal
programs, it is necessary for operators
to change the fundamental way of
planning the different processes and
IT systems. Traditionally, operators
have tended to put business and
their requirements at the center
of IT development. Each operator
typically developed systems in line
with their own understanding and
requirement. However, today both
business and IT should orient towards
accepted industry standards in
defining requirements, processes and
solutions. Processes and IT systems
based on industry standards such as
the Enhanced Telecom Operations
Map (eTOM) 8 result in significant
improvement in operational efficiency
as standards are based on industry
best practices incorporating a large
number of business situations and
capitalize on vast practical experience.
Also, standards can help operators
in streamlining processes across
different business units as these are
easier to understand and implement
across different teams. Implementing
standardized processes can help
operators reduce the TCO of their IT
systems as most IT products today
are based on industry frameworks.
BSS solutions such as Siebel and
Clarify are based on eTOM. Operators
following the eTOM standard can
quickly implement such solutions
without any customization, reducing
the TCO and implementation time.
In conclusion, a successful IT renewal
program requires an understanding
and appreciation that it is, at its core,
a business transformation program,
requiring companies to systematically
take a series of steps aimed at
achieving their stated goal.
Frédéric Vander Sande is a
principal consultant within the
Capgemini Consulting Telecom Media
& Entertainment’s practice. With
ten years’ balanced business and
technology background, he has been
involved in strategic planning, business
transformation and business creation
initiatives with telecom, media &
entertainment companies worldwide.
Frederic’s expertise lies overall in
digital content distribution strategy
and operations including IPTV, mobile
TV, Digital Cinema, and intellectual
property management. He also advises
and delivers in areas such as MVNO,
business/IT transformation, operations
excellence or new product and service
launches. He is based in Brussels.
Jean Diop is a Vice President in the
Capgemini Consulting Telecom Media
& Entertainment practice group. He
leads the Mobile Financial Services
(MFS) strategic & business consulting
group. He’s been involved in the strategic
definition, financial appraisal, and
business creation, development and
launch of several MFS initiatives in the
Telecoms, Banking, Retail and Transport
sectors in different geographies. He is
based in Utrecht.
Manik Seth is a manager in the TME
Strategy Lab. He has over five years
of experience in strategy, planning,
market analysis and consulting. His
recent work includes being part of a
one year technology-driven business
transformation program for an integrated
operator and helping a leading equipment
manufacturer with identifying BSS/
OSS-related acquisition targets. Prior to
joining the Lab, Manik was involved with
identifying new technology initiatives in
next-generation networks for a leading
software services provider. He is based in
Mumbai. n
“
Senior
management
belief and
commitment to a
transformation
program is
critical
”
8 Industry trade association framework by TM Forum.
65

Navigating the Content Quagmire: Protecting and Monetizing
Intellectual Property
By Bas den Braber and Nikhil Ray
Abstract: The rapid growth and consumer uptake of the Internet has created both opportunities and challenges for the content industry.
The advent of new form-factor devices such as tablets and content types such as short-form video are creating significant shifts in
consumption patterns. The increased Internet usage has also led to an increase in piracy. For consumers, the cost, convenience, and
anonymity are the prime drivers for piracy. Content owners have traditionally countered piracy by seizing counterfeit CDs/DVDs and
prosecuting online distribution platforms and pirating consumers. However, piracy is not the only challenge facing content owners. While
consumers have rapidly increased consumption, the pace of monetization has been much slower. A combination of advertising and
consumer payments is likely to establish itself as the de facto monetization model for most content owners.
In the long-term, content providers need to evolve beyond only selling content. One way of achieving this is to provide superior digital
content consumption ecosystems that give anytime, anywhere access across multiple devices. In this aspect, cloud-based services
will play a critical role in adding significant value to the content proposition. Moreover, such ecosystems are difficult to pirate and they
enhance the content’s value proposition. Content owners should also actively work with Governments and Internet Service Providers
(ISPs) to create legislation modelled on the “three strikes rule” in order to create a credible deterrent and cut down on piracy. In the
end, the creation of platforms where consumers get a superior experience, in a convenient manner, will be imperative for the success
of content players.
Figure 1:
40%
35%
30%
25%
20%
15%
10%
5%
0%
Digital Content Contribution to Overall Category Revenues, Global,
2008-2009
35%
32%
20%
27%
4%
Gaming Recorded Music Films Newspapers Magazines
5%
4% 4%
2008 2009
1% 2%
The advent of, and subsequent
transition to, digital has had a
disruptive impact on the content
industry. The spread of the Internet;
the rapid increases in fixed and
mobile broadband speeds; and a rapid
proliferation of devices have driven
strong growth in the consumption
of digital content. Overall, digital
is beginning to register significant
revenues (see Figure 1).
Platforms such as peer-to-peer
networks, streaming sites, and file
hosting services have made sharing
pirated media convenient for the
general population. Recent surveys
indicate that over 15% of Internet
users admit to regularly sharing files
over peer-to-peer networks 1 .
Source: IFPI, Digital Music Report, 2009, 2010; PWC, Global Entertainment and Media Outlook, 2009, 2010
In this chapter, we study the key
challenges facing content players and
analyze the opportunities that they
1 Forrester Research, The Napster Legacy: File Sharing 10
Years On, June 2009
66

have in terms of driving revenues
and minimizing Intellectual Property
(IP) theft. We also present insights
from Capgemini’s primary research
of key content industry players
across Europe 2 . We conclude with a
set of recommendations for content
providers.
Challenges Facing the Content
Industry
Content players globally are facing
significant challenges through a
combination of changing consumer
behavior, evolution of technology, and
piracy. These challenges create the
need to continuously innovate, pursue
new business models, and effectively
apply law enforcement.
Consumers Expect Content to be
Priced Free
A key reason for the rapid uptake
of web services has been the largely
free content provided initially.
The New York Times and The Times
originally encouraged free access
to their websites while charging for
print editions. After gaining traction,
they are now attempting to create
paywalls around their websites. User
perception, however, is still at the
price point of zero (see Figure 2).
Moreover, the ease and convenience
in transferring digital content
has led consumers to have a poor
appreciation of the inherent costs
of the content owners. Industry
players now have the challenge of
changing this perception and creating
pricing models that will viably entice
customers.
New Consumption Patterns are
Evolving
The proliferation in devices such
as smartphones, tablets and Digital
Video Recorders (DVRs) and
the increasing fixed and mobile
bandwidth are driving consumption
pattern changes. Consumer attention
spans have shrunk. In a survey
published in June 2010 short-form
videos were the most popular in eight
out of ten genres 3 . Multi-tasking is
widespread with 59% of US citizens
using the TV and the Internet
simultaneously 4 .
Customers also demand more
flexibility in consumption, and some
industry players are beginning to
address that. For instance, Amazon’s
Kindle automatically synchronizes the
last page read between devices letting
consumers to move seamlessly from
a PC to a dedicated e-book device to
a smartphone. Similarly, Capgemini’s
research indicates that Video on
Demand (VoD) to be a priority for
content companies 5 .
Barriers to Piracy are Low and the
Impact Multi-faceted
Efficient digital file formats and
the ubiquity of the Internet have
enabled easy access to a large variety
of content. For the end-consumer,
piracy is seen as an effective option
because of cost, convenience, and the
perceived anonymity.
For companies though, the full impact
of piracy goes beyond the direct
revenue loss. Piracy puts pressure
2 Capgemini conducted detailed primary research with select content industry senior executives on a wide-ranging array of
matters related to the spread of digital content; the need to protect intellectual property; the impact of piracy on business
models; and various other related questions. The survey was conducted in mid-2010 across major European markets.
3 Frank N. Magid & Associates, Magid Media Futures 2010: Online Video, June 2010.
4 Nielsen, Three Screen Report, Q1, 2010.
5 Capgemini Primary Research, 2010.
Figure 2: Survey Response to Question “Free content on the Internet should
remain free”, Global, 2009 *
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
86%
12%
2%
67
80%
16%
4%
89%
11%
87%
11%
Total Asia Pacific Europe Middle East,
Africa, Pakistan
Strongly Agree/Agree
Neither Agree nor Disagree
92%
8%
89%
“
Changes
in consumer
behavior and
expectations
coupled with low
technological
barriers to
piracy are some
of the biggest
challenges
for content
players
”
10%
1% 2% 1% 1%
Latin America
Disagree/Strongly Disagree
* Note: The numbers may not add up to 100% due to rounding errors.
Source: Nielsen, Changing Models: A Global Perspective on Paying for Content Online, February 2010
North America

Figure 3: Synopsis of Options for Controlling Piracy
Confiscate Physical Counterfeits
Close Online Platforms
Prosecute Customers
Involve ISPs
Create Barriers
Charge Levies
Increase Consumer Awareness
Source: Capgemini TME Strategy Lab Analysis
Implementation Feasibility
High
High
Medium
Low
Low
Low
High
Potential Impact
Medium
Low
Low
High
High
High
Low
to lower prices or shorten release
windows. The provider’s reputation
might suffer from substandard and
illegal versions due to quality issues.
However, file sharing also serves
as a way to discover new content,
especially before the arrival of legal
platforms.
These challenges create a tough
environment for content players.
In the next section we look at the
options available to content providers
to overcome these challenges.
Revenue Protection and
Generation Options for Content
Players
The content industry needs to look at
stemming losses from IP infringement
as well as identifying new avenues
and models for an increased
monetization of content.
Control Piracy through Regulatory
and Industry Action
A key option for content owners
is to confront parties indulging in
and facilitating large-scale piracy
(see Figure 3). Such action can
include the individual initiative of a
content owner, or of a larger industry
consortium.
Confiscating Physical Counterfeits
The seizing of counterfeit CDs and
DVDs is a commonly exercised
option. In 2010, over 42 countries
participated in a collaborative
operation and seized over 142,000
DVDs and 28,000 CDs 6 . With
a stronger substitution effect for
counterfeit discs compared to online
piracy, the economic impact is also
greater.
Pursuing Online Distribution
Platforms
Platforms that aid large-scale piracy
are a highly visible target. An early
success was the closure of Napster’s
original P2P 7 file sharing service
following lawsuits and a court order
in 2000. Post-Napster, the actual
content is typically not stored on the
P2P site but is distributed across a
large number of customers, making
the task of taking down such services
more challenging.
Torrent sites that allow users to
download content off P2P networks
are now the primary target. In 2005-
2006, US authorities permanently
closed down Elite Torrents and
imprisoned some offenders 8 . In 2006,
the leading torrent site—The Pirate
Bay’s servers—were raided by the
Swedish Police 9 . In May 2010 the site
went offline, but only temporarily,
when a German court blocked
access 10 . After a prolonged litigation,
the founders were sentenced to jail in
November 2010 11 .
6 World Customs Organization, Mountains of Pirated and Counterfeit CDs and DVDs Seized in Global Operation, October
2010.
7 Peer-to-Peer: A service that directly connects users of a service with one another, without the need of a server to host
content.
8 US Department of Justice, Federal Law Enforcement Announces Operation D-Elite, Crackdown on P2P Piracy Network, May
2005.
9 The Register, Swedish Police Scupper Piratebay, May 2006.
10 PC World, German Injunction Knocks The Pirate Bay Offline Temporarily, May 2010.
11 Denver Post, Jail Reduced for Founders of File-sharing Company, November 2010.
68

Despite these few successes, such
platforms continue to thrive. With
no copyright content hosted on their
servers and the option of hosting
servers globally, impactful legal
enforcement remains a challenge.
Deterring Pirating Consumers
Barring few instances, content
industry players have not directly
prosecuted pirating consumers.
Also, such cases are typically against
uploading copyrighted media but
not downloading it. In 2005, a Hong
Kong man was sentenced to three
months in jail for what is considered
to be the first such action for sharing
files through torrents 12 . The ensuing
negative publicity and the unviable
costs of pursuing large number of
individual consumers has blocked the
implementation of this option.
Involve ISPs to Block Network Access
of Pirates
The reluctance of ISPs to
cooperate with content owners is
a long standing issue. For ISPs,
blocking paying customers is not
good economics. In the US, the
Recording Industry Association of
America (RIAA) launched a “three
strikes” program to block Internet
connectivity but did not get the
backing of the major ISPs 13 .
However, control over a consumer’s
piracy history and the ability to share
content and contact details makes
ISPs a critical element of the value
chain. The HADOPI Law in France
and the Digital Economy Act 2010 of
the UK are based on the “three strikes
rule” and are examples towards
ensuring ISP participation 14 . The UK
Act, however, is facing stiff opposition
from ISPs with BT and TalkTalk
having forced a legal review of the
Act 15 .
France’s HADOPI has had a
successful start with the sending of
warning e-mails to IP infringers 16 .
The law faced initial resistance with
ISP Free refusing to send warning
e-mails. However, after the French
Government filed a decree stipulating
ISPs to send warning emails within
24 hours of a HADOPI request, Free
was forced to comply 17 .
Creating Barriers to Piracy
An effective deterrent is to make
it inconvenient and/or costly for
consumers to use illegal content.
Microsoft has banned modded 18
Xbox 360s from playing online via
Xbox Live and has also voided their
warranty.
Similarly, Sony’s PlayStation 3 has
rolled out an update disabling
the third party operating system
installation 19 . As per a lawsuit against
Sony, the update was not for the
benefit of consumers but to protect
content.
The difficulty here is in devising
effective barriers for content that is
downloadable and consumed offline.
Charging Levies on Internet Access
or Hardware
Another option being exercised by
content players it to impose levies
on Internet access and/or media
storage hardware since they are
perceived as key enablers of piracy. In
some countries, content owners are
engaging with regulatory authorities
to create legislation aimed at doing
so. For instance, there is currently
a proposal before the Canadian
Government to extend the levy that
exists on physical storage media
such as blank audio cassettes and
CDs to MP3 players 20 . However, such
moves are likely to face significant
“
Adopting
a multi-pronged
approach
involving
legislation and
collaboration is
key to reducing
the impact of
piracy
”
12 New York Times, In Hong Kong, a Jail Sentence for Online File-Sharing, November 2005.
13 Wired, AT&T, Comcast Deny RIAA ‘Three-Strikes’ Participation, March 2009.
14 The HADOPI law, named after the institution administering it which is the Haute Autorité pour la Diffusion des Œuvres et la Protection des Droits sur Internet, refers to the French law introduced
in 2009 promoting the distribution and protection of creative works on the Internet.
15 TalkTalk Website, BT and Talktalk Win Legal Review of Digital Economy Act, November 2010.
16 The Wall Street Journal, All Eyes on France as Officials Enforce New Antipiracy Law, October 2010.
17 The Connexion, Free Backs Down in HADOPI Dispute, October 2010.
18 A modded Xbox is a device that has been hacked to allow it to play pirated game DVDs.
19 Techtree, Sony Sued For Removing ‘Other OS’ From PS3, April 2010.
20 Toronto Sun, Canada’s Government Says No to ‘iPod tax’ and Kicks Around its Political Opponents, December 2010.
69

Figure 4:
Overview of Digital Content Monetization Models
Consumer-Paid
Pay Wall/Subscription
Content is available on
subscription basis. User pays
a flat fee to the publisher for
consuming content
Transactions/Micropayments
Publisher charges based on
content consumed by users in
discrete transactions
Bundling
Digital content is bundled with
another product/service and
the publisher usually charges
for the access
Source: Capgemini TME Strategy Lab Analysis.
Digital Content
Monetization Models
Ad-funded
Cost per Impression (CPM)
Advertiser pays based on
number of page views and
publisher charges on the basis
of number of impressions
Performance
CPC/CPA model based on user
action. Publisher charges every
time a user is engaged in an ad
implementation challenges since they
are based on the premise of punishing
other stakeholders in the ecosystem
instead of just the perpetrators.
Conducting Consumer Awareness
Campaigns
Compared to consumer prosecution,
a softer approach is to conduct
awareness campaigns highlighting the
negative impacts of piracy. Several of
these campaigns have been started
by content providers and regulatory
bodies. Disney took a creative
approach by having its characters
educate on piracy 21 . However,
Capgemini’s primary research clearly
shows that an approach based on
changing attitude is not regarded as
effective as the legal enforcement 22 .
Generate Revenues by Identifying
Monetization Opportunities
The landscape of monetization
opportunities available is changing
with the evolution of several
traditional models and the emergence
of new models such as bundled-withdevice
(see Figure 4).
Hybrid and Others
Loss Leader
Content is given for free
to drive sales in a more
profitable channel
Freemium
Most content is available free
and ad supported with paid
access to premium services
Collection Society
Collection societies collect
royalty by licensing content on
behalf of the copyright holder
Consumer-Paid Models
The most commonly used consumerpaid
models for monetization include
subscriptions, one-time transactions
and bundling.
Subscription Based Offerings
Media players are putting higher
quality content behind a pay wall.
This is particularly true of companies
with strong brands and loyal
following. The Wall Street Journal
adopted paywalls in 1997 and now
has over a million paying customers 23 .
Likewise, digital versions of The
Times / The Sunday Times have crossed
100,000 paid subscriptions since
their launch in June 2010 24 . These
successes are, however, qualified.
Half of The Times / The Sunday Times’
paid subscribers are occasional users
and website traffic has fallen by
90%. Overall, few general purpose
publications have generated large
digital subscription revenues.
An effective approach is to target a
niche audience that values the content
and usage experience. Thomson
Reuters has around 500,000 users,
almost half of them being premium,
while Bloomberg has about 288,000
paid customers in the financial
institutions segment 25 . Similarly,
Microsoft’s Xbox Live service
targeting online gamers, crossed the
US$1 billion annual revenues in June
2010 26 .
Subscription-based streaming services
are also a potential option. Hulu
Plus offers paid video streaming for
access through devices like iPad, PS3
and TVs. Similarly, Rhapsody offers
subscription-based premium music
access.
Transaction Based Offerings
Pay-per-download offerings have been
very successfully offered through
Apple’s iTunes and Amazon’s Kindle.
21 British Video Association, Industry Trust Informer, June 2008.
22 Capgemini Primary Research, 2010.
23 The Week, The media’s risky pay wall experiment: A timeline, July 2010.
24 The New York Times, More Than 100,000 Pay for British News Site, November 2010.
25 Reuters, Thomson Reuters to launch next generation desktop, September 2010.
26 Bloomberg, Microsoft’s Online Xbox Sales Probably Topped $1 Billion, July 2010.
70

Through a superior device and store
integration they make using genuine
content the default way and more
convenient than illegal content. Such
offerings typically have micropayment
based à la carte pricing.
Micropayments can overcome the
consumer’s reticence to pay by
offering content in small units thereby
lowering the economic barriers for
paid consumption. Capgemini’s
research has found that the content
industry believes that micropayments
will be a key driver in monetizing
currently free content such as catchup
TV 27 .
Selling content to corporations can
also be fruitful. The BBC in the UK
makes money from selling TV show
formats. The Master Chef series
now has versions for five countries.
Similarly, our research indicates
that music labels believe that selling
synchronization licenses for the use
of music for audiovisual productions
is insulated from piracy 28 .
Bundling
Bundling involves offering digital
content together with another
product/service. Nokia’s Ovi service
offers free access to maps, music
and other content through select
Nokia devices. Similarly, 3 UK is
experimenting with offering free
limited period access to The Times/The
Sunday Times with mobile broadband
connections 29 . Bundling helps to
harness the existing customer base for
new product trials and faster time-tomarket.
Ad-Funded Models
While advertisement revenues for
traditional media are stagnating or
declining, digital media is seeing
growth. US Internet advertising
revenues have shown a 19%
annualized growth over the years
2004 to 2009 30 . This growth is
encouraging traditional print media
companies to consider a shift to
digital. Print magazine U.S. News
& World Report is dropping its
subscription business to focus on the
USNews.com website which gets nine
million monthly visitors and tablet
applications 31 .
A critical challenge in building
ad-funded models is to build up a
large active customer base, since
the revenue per user is typically
low. Capgemini’s primary research
suggests that measuring audiences
across all platforms will help optimize
advertisement revenues 32 .
Hybrid and Other Models
Apart from generating revenues only
from advertisements or consumer
payments, content owners are also
actively looking at other innovative
ways of monetizing content.
Marketing Loss Model
In the Marketing Loss Model,
content is given away for free to
drive purchases in a more profitable
channel. Music artists Prince and
Radiohead have distributed free
albums to increase their fan base, and
recoup investments through sold-out
live shows. Moreover, these shows
are authentic experiences that cannot
be duplicated or pirated. Photo
sites, Snapfish and Kodak Gallery,
offset online storage costs by selling
merchandise such as mugs, prints
and T-shirts. Gaming consoles are
frequently sold at a loss to help drive
software sales and online services. It
is estimated that Sony loses 6 cents
on every US dollar of PS3 hardware
sales 33 .
Freemium
Freemium is a hybrid model where
consumers have a choice of ad-funded
as well as paid premium content.
“
Content
companies
need to focus
on generating
revenues
through
innovative
combinations of
consumer-paid
and ad-funded
monetization
models across
multiple
platforms
”
27 Capgemini Primary Research, 2010.
28 Capgemini Primary Research, 2010.
29 The Next Web, Three offers customers free access to The Times newspaper websites, November 2010.
30 IAB, IAB Internet Advertising Revenue Report, 2009.
31 Star Tribune, U.S. News & World Report to stop sending subscribers monthly print edition, shift toward digital, November 2010.
32 Capgemini Primary Research, 2010.
33 The Wall Street Journal, Cost Cutting Pays Off at Sony, February 2010.
71

Paid content may be subscription
or transaction based while
advertisements help fund the long tail
of non-paying consumers.
These dual revenue streams
improve the economic feasibility
for the publisher. Spotify provides
ad-supported music for free and the
higher quality, advertisement-free
music, with mobile phone access,
for premium customers. Similarly,
Hulu has a paid subscription with
expanded content portfolio over free
access though both versions have
advertisements.
The mobile gaming space has several
games available for free with a
restricted set of levels and features.
Unlocking these requires payments. A
recent mobile game, Angry Birds, has
achieved 10 million purchases on the
Apple App Store despite having free
versions available 34 .
Collection Societies
The role of collection societies 35
varies by country, market, service,
and channel. There is significant
fragmentation across these
dimensions along with limited
transparency. In some countries
efforts are being made to expand
the scope of collection societies into
digital services such as radio, music
and video streaming. For example
Buma Stemra in the Netherlands has
introduced a collection mechanism
for online downloads and streams
comprising of flat rates and variable
models where 8-12% of revenue is
shared 36 .
Recommendations
Future roadmaps for content owners
need to move beyond just packaging
traditional content in digital formats.
This includes looking at curbing
piracy, creating new revenue
models and providing superior
content consumption ecosystems
(see Figure 5).
Deter Piracy through Legislation
In the long run a credible deterrent
for the average pirating consumer
is a necessity. Directly prosecuting
consumers and platforms has seen
limited success. An effective option,
also validated by the content industry
in our research 37 , is to block Internet
access of pirating consumers. This
requires legislation along the lines of
the “three strikes” model. Industry
associations will need to lobby
for laws such as HADOPI in their
respective countries.
Figure 5: Key Recommendations for Ensuring Superior Monetization of Digital IP
Traditional
Downloadable
Content
Enhanced
Consumption
Ecosystems
Control Piracy
Push for legislation to
block internet access
of pirating consumers
Digital Content Monetization
Increase Revenues
Use both consumer payments
and advertisement which is
measured across all platforms
Ecosystems that provide convenience and excellence in customer
experience are difficult to duplicate and adds value to the content
There are, however, challenges in
pursuing this course. For one, it puts
the implementation onus on ISPs.
They are expected to act against their
paying customers for the benefit of
the content industry with which
ISPs have no revenue sharing. Costs
incurred by ISPs for such operations,
thus, should be covered. Moreover,
care should be taken to not alienate
the consumers. Providing benefit
of doubt to borderline cases could
be helpful. Also, content owners
should strive to maintain a degree of
anonymity by ensuring that action is
taken by an independent body and
not a specific content owner.
Employ Multiple Monetization
Models
Generating profitable advertisement
revenue is a challenging task. For
instance, Blinkbox, an on-demand
video streaming service, estimates
that breaking even requires over
60 million monthly streams, a
reach that only Google and the
BBC can command in the UK
market 38 . At the same time, a low
consumer propensity to pay means
that sufficient consumer payments
are not likely to be widespread
either. Most providers would need a
combination of advertisements and
paying customers. Companies that
cater to niche user groups and/or offer
specialized content should, however,
construct their model around
consumer payments.
In all the cases, content owners
need to hit the sweet spot of pricing
by matching it with the perceived
value of content and convenience in
that particular format. Advertising
revenue would improve by delivering
advertisements tailored to a device’s
capabilities while measuring
audiences across all platforms.
Source: Capgemini TME Strategy Lab Analysis
34 Yahoo! News, (Not so) Angry Birds passes 10 million iPhone downloads, November 2010.
35 Collection societies are responsible for collecting royalty by licensing content on behalf of the copyright holder.
36 Buma Stemra, Digitale tarieven: On Demand, December 2010.
37 Capgemini Primary Research, 2010.
38 Broadband TV News, On demand Blinkbox on a roll, November 2010
72

Portable Connected Devices and the Content Opportunity
One of the biggest developments in the past year has been the advent and rapid rise in popularity of portable connected devices such as the Apple
iPad. While tablet PCs have been around since 2000 very few have been able to create the compelling user experience that Apple has done through
its iPad. The results are telling. In 2010, Apple sold over 15 million iPads in the 9 months that it was available in the market and has already released
the iPad 2 with enhanced features a . It is now estimated that global tablet shipments are set for a 12-fold rise from 19.7 million units in 2010 to over
242.3 million units by 2015 b . Devices such as the iPad encourage increased consumption of various types of content in both nomadic and mobile
environments, giving rise to more monetization opportunities. Through their highly interactive and immersive design, these devices allow content
owners to reach out to consumers in ways that were traditionally not possible.
Figure: Survey Response to Category of Content Regularly Accessed, Global, August 2010
53%
51%
39%
33%
32%
25%
21% 22% 44%
41%
13%
11%
12%
8%
Books TV Shows Movies Magazines Radio News Music
iPad
iPhone
Source: Nielsen, The Increasingly Connected Consumer: Connected Devices, October 2010
The larger 9.7” sized screen of the iPad with a large on-screen keyboard, allows for convenient viewing of a range of content category, with
traditional print and video being the most favored (see Figure above). Content owners have begun to recognize the premium nature of the
device — prices starting at US$499 going up to US$829 for the top-end model — and have taken early steps to tap into the potential of the iPad
demographic.
For publishers, devices such as the iPad offer a clear route to creating price plans that merit the medium, rather than relying on having a single
serve-all website-driven solution. Publishers such as Conde Nast have realized this and have introduced apps that are priced similar to their print
equivalents. Conde Nast’s Wired iPad app sold over 95,000 units at US$4.99 in June 2010 (a price that has continued to the time of publishing). A
lot of the content of Wired magazine is already available for free on their site or at deeply discounted yearly subscriptions of US$10 c . These apps
offer rich content including videos, annotations, expanded photo galleries, and interactive advertisements that can potentially help drive engagement
levels. Publishers are experimenting with models where each issue is a separate app or they are using a common container app with in-app
purchases for new issues. Other magazines such as Time and The Atlantic are also experimenting with similar pricing approaches. Content players
are also launching free apps that they are seeking to monetize using mobile advertising. Research commissioned by a consortium of five leading
publishers indicated that the publishing industry could gain as much as US$1.3 billion in incremental revenues through interactive periodicals d .
Newspaper publishers too are viewing the medium with expectation and anticipation. News Corp invested over US$30 million to launch “The Daily”,
an iPad-only newspaper that is priced at $0.99 per week or $39.99 annually e . Video aggregators and broadcasters are among the latest entrants
to this opportunity. The BBC is reported to be working on launching a subscription-based offering of its popular iPlayer service on the iPad for
audiences outside the UK f . Similarly, video streaming services such as Hulu and Netflix have launched dedicated apps for the iPad.
These are early days for the device category. As such, the current traction could likely be attributed to the initial enthusiasm for the format. Moreover,
the market is growing rapidly and Apple now faces strong competition from a variety of vendors that are using the Google Android platform and from
other players such as RIM. However, the initial wave of applications and the traction generated indicate the strong potential of the medium. Content
players should keep an active eye on this rapidly evolving category and its likely impact on the overall content ecosystem.
a) Company website.
b) iSuppli, Global Tablet Shipments to Rise by Factor of 12 by 2015, February 2011.
c) All Things Digital, Wired’s iPad App Boasts a New Feature: A Price Cut, June 2010.
d) Media post, Subscription Revenue Boost With Interactive Periodicals, August 2010.
e) Fast Company, Apple and News Corp’s “The Daily” Hits the iPad for $0.99 Weekly, $40 Yearly, February 2011.
f) Paid Content, BBC Plans Subscription-Only U.S. iPlayer on iPad, December 2010.
73

“
Content
providers
need to focus
on creating
and offering
superior digital
consumption
experiences, as
opposed to only
selling content
in multiple
formats
”
Create Superior Content
Consumption Experiences
Content providers need to embrace
digitization beyond just packaging
content in digital files and streams.
Companies that have provided
ecosystems enabling superior content
consumption experiences have done
better.
Bloomberg terminals have for long
time integrated device, secure
connectivity and real time content.
Similarly, Apple offers iPod along
with iTunes computer application
and the Internet store. The key here
is to have an integrated ecosystem
that offers a superior, convenient
consumption experience and not just
content by itself. A traditional parallel
would be a movie theater experience
versus offering video cassettes.
The prevalence of piracy and low
consumer paying propensity makes it
even more important in the digital era
to go beyond just providing content.
A vital area is to offer content across
multiple devices and platforms.
Free flowing content that can be
seamlessly accessed across devices
encourages consumption in varied
scenarios.
With improving Internet connectivity,
content owners should also consider
cloud-based distribution models.
These also allow access to far greater
amounts of content than can be
stored in devices. Consumers can
conveniently stream the chosen
content onto the preferred device at
their desired time. With increased
consumer uptake of cloud-based
content and the acceptance of its
benefits, the utility of downloading
a complete version of the pirated
content or buying counterfeit discs
goes down.
In conclusion, the content industry
needs to move from just combating
the threats of digitization to taking
advantage of this media. It helps to
consider all the aspects of digital
content access and consumption.
The content industry needs to create
new digital ecosystems that provide
convenience and a superior customer
experience. If the value provided to
the consumers improves, so will the
fortunes of the content providers.
Bas den Braber is a managing
consultant in Capgemini Consulting’s
TME practice. He has been working with
major telecom and media companies
on strategic and operational challenges
for more than eight years. Bas focuses
on B2B music, digital media, as well as
online sales and services. He is based in
the Netherlands.
Nikhil Ray is a senior consultant in
the TME Strategy Lab. His recent work
includes growth strategies for telecom
operators through diversification and
innovative services. He has over five
years of experience in business planning
and consulting across diverse industries.
Prior to joining the Lab, Nikhil worked at
a boutique strategy consulting firm. He is
based in Mumbai. n
74

management
INSIGHTS
Innovating the Telco Business Model:
Drivers and Emerging Trends
76
Strategy Bottlenecks:
How TME Players can Shape and Win Control of
their Industry Architecture
84
75

Innovating the Telco Business Model:
Drivers and Emerging Trends
By Oliver Schön, Philipp Zimmermann and Subrahmanyam KVJ
Abstract: The operating environment for telcos is turning increasingly complex. Telecom operators who had grown on the back of
traditional voice and data services are realizing that as consumption patterns are rapidly changing, value not only moves to other stages
in the telco value chain but also into completely different markets. Subsequently, their old business models are coming under increasing
pressure and appear to be crumbling. Some telcos have understood this rapidly evolving scenario and have taken steps to ensure that
they are in tune with the changing times. How else can one explain the fact that a fiber operator convinces its customer to dig up
the last mile connectivity, or that a telco enters into reselling energy and gas agreements, or that consumers in certain markets have
opted for advertisements to be a core part of their mobile experience? These developments represent only a fraction of the innovation
in business models that telcos can partake in. They, in turn, are being driven by a range of broader trends that are currently impacting
business models the world over. Telcos should consider taking steps to incrementally change their business models, while striving to
adopt radical approaches in select areas, and challenge traditionally accepted norms of where a telco fits into the larger ecosystem.
“
The
telco business
environment is
rapidly evolving,
creating the need
for innovating
the businesss
model
”
Need to Innovate Business
Models
The business environment for
companies is rapidly evolving. Telcos
are facing the constant threat of
over-the-top business models from
Internet players and from device
players within the TME industry that
threaten to reduce their importance in
the ecosystem.
The coming of age of the digital
consumer, a breakdown in current
revenue streams, and emerging
opportunities in new sectors are all
playing a key role in ensuring that
the business model of yesterday is
becoming increasingly obsolete.
Monetization Challenges with
Traditional and New Services
One challenge telcos face is the
decline in their traditional fixed-line
businesses and maturing mobile
voice services. Mobile voice revenues
of major European operators have
declined, on average, by 7.5% every
quarter in the period June 2009 -
June 2010 1 . An even bigger challenge
lies around the monetization of new
services such as mobile broadband. It
is estimated that while data generated
by mobile broadband dongles account
for over 66% of traffic volume, it only
contributes 5% of revenues 2 . Yet,
operators have to continue investing
in network infrastructure to meet
such surging demand. Analysts
estimate that while operators’ annual
spending on network equipment in
the period to 2014 is likely to surge
by 28%, overall end-user revenues
are expected to shrink by 1% 3 . Such
metrics indicate the failure of the
business model to match pricing to
usage.
Evolving Consumption Patterns and
Advent of Social Media
The rise in popularity of the ‘mobile’
Internet as well as the increasing use
of rich and social media is driving
1 Enders Analysis, Mobile Revenue Growth and Outlook Q2 2010, September 2010; Operators include Vodafone, Telefónica,
France Telecom (UK, France), and Telecom Italia Mobile.
2 Enders Analysis, Mobile Data Economics: The Limit of Unlimited, September 2010.
3 Bloomberg, Apple Asked to Pay Up for Network Improvement as Operators Face Data Flood, December 2010.
76

significant changes to traditional
consumption patterns. The popularity
of web services is eating into
traditional telco revenue streams.
At the same time, telco pricing
models to monetize such traffic do
not appear to be working. Moreover,
with large social networking sites
such as Facebook erecting what is, in
essence, a massive walled garden with
extensive communication features, the
telco’s ability to monetize significantly
diminishes.
Emerging Opportunities in New
Sectors
The widespread deployments of
wireless networks, coupled with an
increased appreciation of the value
of connectivity, have meant that
opportunities for telcos have opened
up in new sectors. Multiple operators
are actively looking at opportunities
in sectors such as healthcare,
automotive, energy, and utilities. BT
has ventured into the smart metering
area by setting up an alliance with
two other companies under the brand
name SmartReach 4 . However, a move
into these new sectors also means
that telcos will have to change their
traditional ways of doing business to
be in line with the requirements of
the new sector. Since opportunities
span sectors, the key focus for telcos
is to ensure that they have a model
that they can deploy flexibly in other
sectors.
These factors are forcing telcos to
innovate their business models. In
this article, we analyze the evolution
and current trends impacting
business models and how telcos
could potentially address the need to
innovate their traditional models.
Business Models and their
Evolution
Companies that want to be successful
in the current environment have
to fundamentally scrutinize their
business model on a regular basis and
challenge its components if necessary.
Figure 1:
Framework of a typical Business Model
TARGET INTERACTION CREATION
Markets
Customer Segments
Defined Product /
Service Range
VALUE
PROPOSITION
Source: Capgemini analysis
However, in order to redefine its
general orientation, it is critical to
first understand the constituents of a
business model.
Structure of a Business Model
The overarching goal of a business
model is to address a business
opportunity in such a way that value
is created for customers as well as
for the company. A business model
encompasses the addressed value
potential, the customer interaction,
as well as the value creation model.
A business model consists of three
strongly interlinked dimensions:
Target, Interaction, and Creation
(see Figure 1).
Target involves defining the revenue
potential. This is derived as a sum
of three key elements. First, the
geographical or vertical markets
within which the company is aiming
to deliver the service. Second,
the customer segments that are
to be addressed and their specific
requirements. And, third, a clearly
defined product/service range offered
based on previously identified
customer requirements. These
elements together form the basis for
creating a unique value proposition
for the company’s product/service.
Customer
Relationship
Distribution Channels
Payment Structure
REVENUE
MODEL
Core Assets
Core Processes
Role of Partnerships
COST BASE
“
A
business model
encompasses
the addressed
value potential,
the customer
interaction
as well as the
value creation
model
”
4 ZDNET, British Gas, BT Push Ahead with Smart Meter Plans, October 2010.
77

Figure 2: Actions taken by Telcos on their Business Model
TARGET INTERACTION CREATION
Defining the revenue potential Defining the customer relation Defining profitable means of
achieving target and interaction
Value
Proposition
MARKETS
Acquiring Zain
Africa
CUSTOMER
SEGMENT
OFFERING
MVNOs* for
niches
Tweaking price
plans
Entering utility
sector
Revenue
Model
RELATIONSHIP
Employing
social media
CHANNEL
Use of MVNO
Tuenti
PAYMENT LOGIC
Ad-funded price
plan
Customer
involvement
Note: *MVNO – Mobile Virtual Network Operator **BSS – Business Support Systems
Source: Capgemini analysis; Company websites and press releases
Cost Base
CORE ASSETS
Outsourcing
global network
operations
CORE PROCESSES
BSS**
simplification
PARTNER NETWORK
Partnering with
media
Interaction defines the manner in
which the company interacts with the
customer to meet their requirements
with products and services. It also
consists of three elements. The first
element is the customer relationship,
with a focus on the nature of the
relationship, the necessary intensity,
the duration, the content and the
typical and ideal sequence of events
during customer interaction. The
second element is the channels of
distribution through which products
and services should be marketed or
which facilitate the interaction with
customers before and after the sale.
And the third element is the payment
structure with a clear definition of the
mode, point of time, and frequency
of payments. In total, these elements
define the structure of the business’
income flow.
Creation builds on the first two
dimensions of Target and Interaction.
It defines how a company can
profitably fulfil its value proposition.
The essential elements are the
assets and special capabilities that
the company brings into value
creation. These could be production
facilities, the brand of the company,
or technologies. Another element
is the specific processes that the
company has to master for delivering
its services. Finally, it is necessary to
address which service components
have to be delivered in-house –
considering the background of
the desired quality, costs and
flexibility – and which should be
ordered from a network of partners.
The organization of value creation
essentially characterizes the cost basis
of the company and also determines
the competitive capacity and
sustainability of the business model.
Evolution in Telco Business Models
Telcos have made efforts to innovate
across the three major dimensions,
through a combination of market,
channel, and network initiatives
(see Figure 2).
Changes in Target
Telcos have begun to make changes to
their core value proposition. Multiple
telcos have realized the need for
expanding their footprint in order
to tide over maturing home markets.
India’s Bharti Airtel realized that
competition in the Indian mobile
market was growing rapidly, and in
order to diversify, went ahead and
acquired the African operations of
Zain 5 . Similarly, operators have also
entered completely new sectors.
Magyar Telecom has recently entered
the utilities market through a
reselling agreement with E.ON AG
for gas and energy. The operator is
also offering smart metering services
in select cities in Hungary 6 . Multiple
operators have shown readiness to
modify their offerings to address
evolving business and consumer
realities. Most operators started off
mobile broadband pricing plans on
a flat rate model. However, once it
started becoming clear to them that
there was a challenge of monetization,
they are now moving onto tiered
pricing based on downloads. Some
5 Company website.
6 Wireless Federation, Hungary’s Magyar Telekom & E.ON AG Sign Power Retail Sales Deal, May 2010.
78

operators have ventured even further
and now offer tiers by bandwidth
offered. In the US, AT&T has moved
away from a flat rate tariff to a tiereddownload
plan for mobile data on
smartphones 7 . Similarly, Vodafone
Germany has introduced plans that
are tiered by speed for its LTE-based
mobile broadband services 8 .
Changes in Interaction
Telcos are making fundamental
changes to traditional revenue
models. Norwegian fiber operator
Lyse realized that the cost of digging
a trench for the last mile between the
home and the node is prohibitive.
Accordingly, it came up with an
innovative model by which it offered
a discount to customers who dug the
trench themselves. The company also
pre-sells all of its services through
town meetings and gatherings.
Services are only started after at
least 60% of people in an area have
signed up 9 . By encouraging ownership
of the last-mile connectivity, Lyse
created an emotional bonding with
its customers. The results are telling.
Over 80% of the company’s 130,000
customers have opted for the do-ityourself
approach. The churn rates for
such customers are below 0.2% 10 .
Similarly, other players are also
venturing into the creation of new
revenue sources. Telefónica acquired
a majority stake in Spanish social
networking site Tuenti, and is now
launching Mobile Virtual Network
Operator (MVNO) services using
the Tuenti brand 11 . Companies are
also experimenting with innovative
ways of payments. Blyk, which
started off as a B2C MVNO, allowed
consumers to earn free messaging
and airtime by receiving targeted
opt-in advertisements. The company
now works with operators in multiple
countries to create such innovative
advertising supported solutions.
Changes in Creation
Telcos are also effecting changes to
areas that directly impact their cost
base. In emerging markets a key
approach is to outsource significant
parts of network operations to
equipment vendors. Multiple
operators in India have outsourced
network operations to vendors such
as Ericsson and Alcatel-Lucent among
others. In developed markets too, this
approach has begun to gain traction.
In the US, Sprint has signed a US$5
billion network outsourcing contract
with Ericsson 12 . Another approach
is to work towards simplifying
complicated Operation Support
Systems / Business Support Systems.
KPN used solutions from Oracle in an
effort to simplify and transform its IT
systems 13 .
Operators are also looking at other
avenues of cost savings. Multiple
operators are looking at reducing
the impact of their operations on the
environment while hoping to save
costs. A1 Telekom Austria’s Smart
Energy Control pilot project has
helped it save over €175,000 due to
the intelligent reduction in the power
consumption of its mobile network 14 .
While telcos are innovating within
the ambit of individual elements
of the business model framework,
there are larger trends with varying
spans of influence that are impacting
companies across multiple elements
of this model. In the next section, we
discuss some of these broader trends.
Trends Impacting Business
Models
Capgemini’s experience with multiple
clients across the globe has helped
us to identify five broad emerging
trends in business model innovation.
We believe peer-to-peer, push-topull,
crowdsourcing, long tail, and
fragment-and-mash are among the
7 The Washington Post, AT&T Wireless Scraps Flat-rate Internet Plan, June 2010.
8 TeleGeography, Vodafone Unveils LTE Rollout Plans, Confirms Tariffs, September 2010.
9 The Sydney Morning Herald, Waiting on a Missed Connection, August 2010.
10 Connected Planet Online, NAB: FTTH provider’s Customers Bury their Own Fiber, April 2009.
11 Bloomberg, Telefonica’s Tuenti to Start Low-Cost Mobile-Phone Service, Expansion Says, November 2010.
12 Fierce Wireless, Sprint Inks $5 Billion Network Outsourcing Deal with Ericsson, July 2009.
13 Company websites.
14 Environmental Leader, Telecom Firm Cuts Energy Costs $223,000 Annually, August 2010.
79

Figure 3: Trends Impacting Business Models and their Span
TARGET INTERACTION CREATION
Peer-to-Peer
Systems where consumers are part of the value creation
Push-to-Pull
Decentralized models with flexible value chains
Long Tail
Creating services / products aimed at serving
multiple niche groups
Source: Capgemini analysis
Crowdsourcing
Outsourcing internal tasks to large undefined groups
Fragment & Mash
Modularization of entire business model
key trends that have an impact on
business models (see Figure 3).
Peer-to-Peer
The advent of new technologies
is constantly forcing the
disintermediation of the stages that
make up the linkage between a
service provider and a consumer. In
extreme cases, the customer even
takes over tasks originally belonging
to producers. An example is the
question and answer site, Stack
Overflow. The site offers around
34 distinct communities in which
users can ask questions and get
answers from fellow members. The
site attracts over 10 million monthly
unique visitors and is very popular
in the technical programming
community 15 .
Such examples indicate the trend and
the importance of involving users of
a service and letting them create the
core that can then be monetized by
the service provider. Stack Overflow
sells advertising on top of content
created by its users.
Push-to-Pull
Centralized business models rely
on the predictability of demand,
ensuring product development, and
optimizing the supply chain. These
models are centered on the basis that
strategic decision making is best done
at a central/corporate level. In an
increasingly competitive environment
with shortened lifecycles, more
complex distribution channels, and
a more powerful and ever-better
informed customer, the centralized
approach is destined to fail.
Decentralized models take the
opposite approach, with the customer
center stage. To ensure that customercentricity
is not just an empty phrase,
the entire value chain has to have the
flexibility to react quickly and to cope
with varying customer requirements.
This often demands the adaptation
of the entire supply chain and
production methods to manufacture
individual or new products faster,
more flexibly, and economically.
Deutsche Telekom’s IPTV service
in Germany, T-Entertain, offers a
good example of a company that has
addressed the impact of this trend.
The company offers a service called
Liga Total that allows subscribers to
create customized live broadcasts of
the Bundesliga soccer series. Users
can put together their personal
conference of matches happening
simultaneously and are alerted
through on-screen pictures whenever
interesting moments happen in other
matches. Users can then switch to
that match and ensure that they
do not miss out on the action. The
service shows how companies are
taking a decentralized approach and
are letting the customer take control,
while offering enough flexibility to
mass customize 16 .
Crowdsourcing
Crowdsourcing refers to the
outsourcing of activities that are
traditionally done in-house to
15 TechCrunch, Stack Overflow Hits 10M Uniques, Boldly Goes Where No Q&A Site Has Gone Before, November 2010.
16 Company website.
80

external, undefined user groups,
which in many cases are either
current or prospective customers.
Companies increasingly source goods
and services via open networks of
external service providers, extending
from open source software to product
design to research and development.
Such approaches help reduce
procurement costs and time-to-market.
France Telecom has an established
program called the Orange Partner
program for allowing third-party
developers to create innovative
services for Orange’s subscriber base.
Developers enrich the application and
service portfolio that Orange brings
to its customer base, while being a
part of the growth. The program has
over 45,000 members 17 .
Some companies have taken
crowdsourcing to interesting lengths.
GiffGaff, an MVNO in the UK owned
by and operating on O2’s network,
relies extensively on crowdsourcing
in its business model. Subscribers are
awarded points and are encouraged
to answer other customer support
enquiries or submit ideas for
marketing, advertising or pricing
models. Users can then convert
these points to cash, mobile credit,
or donations to charity. As of June
2010, the company had a 6,000
strong online community and over
40% received their first bi-annual
cash payout with the average user
receiving UK£14 18 . The company
claims that 100% of questions raised
are answered by its community, with
an average response time of four
minutes 19 .
Long Tail
‘Long Tail’ defines a new approach
based on technology enablers that
allows companies to profitably
serve niche segments that were not
attractive to serve previously. The
basis of the Long Tail approach is that
minimal/next to zero incremental
cost makes targeting niche groups a
potentially profitable business model.
A successful deployment of the Long
Tail business model can be seen
in E-Plus, a German operator. The
advancement in IT systems has now
enabled operators such as E-Plus to
actively deploy multiple MVNOs that
can function with an independent
identity, without incurring significant
additional costs. The operator has,
over the years, entered into a series of
agreements with MVNOs to launch
services focused on multiple niches
in the market. For instance, its BASE
service is aimed at heavy mobile
usage subscribers, while Simyo is
targeted at low usage subscribers.
Similarly, it has a service targeting
Turkish immigrants and a separate
service targeting teenagers. While
E-Plus was able to address this
market even before the launch of
such MVNOs, however, their launch
helped it create a strong value
proposition for customers. This focus
on long tail helped E-Plus weather the
tough times in the German market
(see Figure 4).
Fragment and Mash
This trend describes the consistent
modularization of the entire business
model. Companies start building skill
sets across a range of sub-activities
that are required to deliver a larger
activity. By standardizing the best
practices and creating enablers for
letting such secondary skills flourish,
companies can create platforms for
new services based exclusively on
these skills. The result is the breakdown
of the classical sequential value
chain into a value network. Here,
the company’s competencies, which
have been built up during the course
of delivering services, are taken
apart to help create new products
and services, thereby giving rise to a
“mashable” company.
“
Trends
impacting
business models
broadly include
peer-to-peer,
push-to-pull,
crowdsourcing,
long-tail and
fragment-andmash
”
17 Orange website.
18 Guardian, Mobile Provider Giffgaff Makes First Customer Payouts, July 2010.
19 Company website, October 2010.
81

Figure 4: Mobile Service Revenue Growth for E-Plus Germany, (%), Mar 08-Sep 09
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
-2.00%
-4.00%
-6.00%
-8.00%
-10.00%
Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09
Source: Enders Analysis, Mobile Revenue Growth and Outlook Q2 2010, September 2010
“
Telcos
should strive
to create a
culture that
encourages risktaking
and rapid
iteration
”
One example of this trend is Amazon.
The rapid growth of the online
retailer meant it had to establish
special technological competencies,
especially the operation of highly
scalable server structures for the
operation of its electronic trade
platform. As Amazon ventured into
other product areas, and as it gained
scale, the company increasingly had
to create systems that could scale
rapidly to support the increasing
traffic. Amazon uncovered a new
area of business from this emerging
competency. Namely, the leasing of
these structures, which we also know
now as cloud computing. Amazon
developed a complete business
model around this idea, from
product development to accounting
and administration processes to
new marketing channels, currently
marketed under the Amazon Web
Services brand.
The Road Ahead for Telcos
The need to innovate business models
has never been more pressing for
telecom operators. Telcos will need
to innovate across all three elements
of the business model if they are to
make a successful transition to a
future digital society where they can
play a significant role in the entire
ecosystem. Companies that fail to
do so expose themselves to the risk
of being undermined in their core
markets. Telcos should take a twinpronged
approach at innovation
that attempts to both change their
business model incrementally
while constantly expanding the
boundaries by experimenting with
radical approaches towards delivering
traditional and next-generation
services.
Change Business Model
Incrementally
Over the years, telcos have morphed
into large complex organizations with
multiple layers. Such hurdles can
create artificial barriers for innovative
employees. Product development in
the online space typically takes an
approach where start-ups rapidly
iterate between various versions/
features of a product, sometimes in
weeks. However, in a typical telco
environment, the timelines can span
multiple months, often exceeding a
year, before a typical product release.
Some telcos have realized that they
need to bring in outside expertise
if they are to receive an innovation
boost. One example is Orange
which has set up 18 innovation
labs in research hotspots in nine
countries. However, for telcos, it is
imperative that while they attract
top talent, they should also create a
culture that encourages risk taking
and rapid iteration. An innovation
promoting culture distinguishes
itself by intensive, cross-functional
communication, creativity, error
tolerance, and the entrepreneurial
willingness to take risks.
Telcos should also be flexible about
incorporating best practices from
successful players in other industries
and third parties. Online players have
successfully proved that employee
contribution can make a significant
impact on driving innovation. Telcos
need to create systems that encourage
82

lower-level employees to contribute
ideas that they can potentially
consider. Some operators have begun
to move in this direction. Telstra, in
Australia, has deployed a SalesForce.
com service to run a web-based
forum that allows all employees
and partners of the operator to
submit and discuss ideas that can be
voted on before passing onto senior
management 20 .
Experiment with radical approaches
Telcos should consider creating new
value propositions by enabling access
to content anywhere and anyplace
through the use of new technologies.
Similarly, they should look at creating
new models of monetization where
they work closely with content
owners and device vendors to create
innovative bundles that have the
potential to generate synergy. For
instance, 3 UK offers free bundled
access to The Times and The Sunday
Times together with its mobile
broadband connections 21 .
Going forward, telcos should consider
working closely with content
owners in defining new models that
best serve mutual interests while
delivering the maximum value for
the consumer. For consumers to be
able to enjoy data-intensive content
services on the Internet, telcos need
to convince content providers on the
need to consider the costs of building
high-bandwidth data networks in
their business models. In the future,
telcos can work towards creating
models where they agree with content
players on a dedicated Quality
of Service provisioning to ensure
network asset monetization. Telcos
can consider experimenting with
models where they not only charge
consumers for access to network
resources, but also potentially work
with content providers to create
dramatically different pricing models
that move away from charges for data
consumption.
Some telcos have already begun to
stretch traditional boundaries of
telco operations. The US operator
Verizon and Google have come
together to propose a framework
that can potentially create dedicated
monetization models for next
generation services 22 . While the
proposal has sparked significant
debate on aspects around net
neutrality, it is critical that
operators continue to engage with
the larger stakeholders, including
other companies, regulators, and
consumers, on the need for an
ecosystem where everyone, carriers
included, are compensated fairly for
their respective contribution. In doing
so, the benefits of such new business
model innovations need to be clearly
stated to both the industry and the
consumer. It should be subsequently
separated from the controversial
aspects of net neutrality, vis-à-vis
censorship of free speech, slowing
down “free” Internet services and the
creation of an alternate Internet.
Telcos need to actively look at
breaking new ground across all three
elements of the business model.
They should move from providers
of connectivity to aggregators and
innovators of third-party offerings.
Telcos will need to continue to stretch
the boundaries of what current
revenue models allow. While they
have traditionally followed B2B and
B2C models, increasingly, innovative
B2B2C models are more likely to be
the norm in the future.
On the cost side, the opening up
of both the IT and processes will
ensure that they seamlessly fit in
with demands from new sectors. In
going forward in all these ventures,
it remains imperative that telcos
continue to utilize their core assets
such as the ability to implement
complex IT systems in order to
provide an ecosystem to other sectors.
Telcos need to embark on a series of
such changes in order to ensure that
they can build upon their successes
in delivering telecoms services. In
the end, they will need to ensure
that they continuously challenge
established models and notions on
their role if they are to truly innovate
their business model.
Oliver Schön is a principal for the
Capgemini Consulting Strategy and
Transformation Practice. He helps
companies across various industries to
design growth and innovation strategies
as well as the required transformation
programs. Oliver is head of the strategy
competency within Capgemini Consulting
Germany and has published a range of
articles and cases on Business Model
Innovation. He is based in Frankfurt.
Philipp Zimmermann is a principal
in Capgemini Consulting´s TME
practice. He specializes in serving large
telecommunications, media and hightech
clients on a range of strategic,
organizational, operational, and
regulatory issues, bringing 10 years
of sector expertise. His clients include
some of the largest telecommunication
operators and media companies in
Europe, the US and the Middle East. He
is based in Berlin.
Subrahmanyam KVJ is a senior
consultant in the TME Strategy Lab. His
recent work focused on identifying the
telecom operator opportunity in social
networking. He has worked extensively
on the impact of convergence and
changing consumer behavior on telecom
and media players. He is based in
Mumbai. n
20 Telecom Asia, Crowdsourcing the Workforce, November 2010.
21 CNET, 3 Offers Free Access to The Times, Don’t All Rush at Once, November 2010; The service is free for three months for prepaid and contract subscribers. After three months, the access
remains free for prepaid consumers who top up every 30 days and it costs UK£2 a week for postpaid subscribers.
22 Google Public Policy Blog, Finding Common Ground on an Open Internet, October 2009
83

Strategy Bottlenecks
by Michael G. Jacobides
Abstract: The competitive environment facing businesses is rapidly evolving. Companies in many different sectors increasingly face
challenges arising from new technological developments. To draw an analogy with military services, companies need to move from
“tactical combat”, undertaken in stable sectors with easily identified competitors, to a “guerrilla warfare” mentality, where they must
rapidly switch tactics to fight non-traditional competitors. But with much of the existing strategy toolkit built around “tactical combat”,
this is a challenging task. Successful, agile companies do not just compete within their own sectors; they seek to actively redefine and
reshape those sectors. The most successful companies become the “bottleneck” in their sectors through a strategy of forging alliances,
changing the rules of the game, establishing webs of dependencies, and knowing when and where to compete, or not. Identifying the
core values that a company brings to its sector is key to this approach. Companies need to identify bottlenecks, use them to create
architectural 1 advantages, and finally make architectural thinking a part of their organizational fabric if they are to achieve sustainable
success in the new business dynamics.
“
Most
fast moving
companies
do not just
compete within
the confines of
their industry,
they change the
definition of their
industry
”
The role of bottlenecks in
shaping industry architecture
Most fast-moving companies, whose
value has increased substantially
over time, (e.g. Apple, Google, or
IKEA) have something in common.
They do not just compete within the
confines of their industry, but they
try to change its very definition. They
understand that competition is no
longer within a sector; it is primarily
about shaping the structure of a
sector.
For instance, Apple redefined the
mobile music device sector by
keeping a hold on the music format,
selectively outsourcing hardware
production, and carefully managing
co-specialized companies such
as Toshiba or Foxconn providing
complementary products and services.
Similarly, IKEA redefined furniture
retail by reshaping roles in its sector:
final assembly is done by consumers
in their own houses; production by
subcontractors; logistics by external
providers; and retail by franchisors.
These companies encouraged
competition by complementary
parties in sectors where they did not
have a presence, and changed the
rules of the game. They understood
that making money is about
structuring a set of relationships
around them to become the
bottleneck within their industry
(the most valuable part of a complex
system, where the value accrues), i.e.
controlling without owning.
Using traditional strategic analysis
tools to analyze the way these
companies build and capture value
is challenging. Some of the familiar
approaches such as Porter’s five
forces are increasingly redundant in
a world where industries are now
defined not only by technologies,
IT, and globalization, but also by
industry participants reshaping their
own landscapes. Competition has
shifted from identifying new value
propositions and building new value
curves, to industry redefinition and
leveraging of the ecosystem.
1 Industry Architectures describe the rules and roles that pertain to the division of labor in a sector; they define the templates
and standards through which companies cooperate and compete within a sector.
84

If existing frameworks are not always
useful, what is? The answer lies in
building new concepts that are more
attuned to a world driven by alliances
and the aim to reshape sectors. Today,
effective organizations leverage far
more than their own actions in order
to both create and capture value. They
shape the rules and roles of their
sector, aiming to become a bottleneck
and “rule without owning” – that
is, leveraging the skills and energy
of others. Companies sticking to
traditional sector definitions often fail
to see how profits migrate from their
own, narrow part of the industry to
other parts of the sector as the result
of changes in the “rules of the game”
around them. Without a change in
worldview, they might find that their
position becomes untenable 2 .
For instance, the snapshots of market
capitalization in the computing
sector (see Figure 1) show how value
shifted in the sector from computer
makers such as Apple and IBM to
GUI/OS 3 manufacturers such as
Microsoft and CPU 4 makers such
as Intel. More recently, power has
migrated again, to ISPs 5 and search
engines such as Google. Computer
makers didn’t realize how the
“industry architecture” around
them had changed until it was too
late. By looking only at their direct
competitors they lost the opportunity
to create more value and strengthen
their own position, allowing
previously marginal participants
like Microsoft and Intel to occupy
key positions in the industry and to
change the nature of the sector to
their advantage.
Successful companies aim to impose
their own vision on the architecture
of their industry. Competition today
is about whose “vision” will succeed,
and who will create and hang onto
the bottleneck. Google transformed
Internet search, web advertising,
Figure 1: Market Capitalizations, Computing Sector, 1992–2005
Industry Segments
Computer Systems and
Peripherals
Software Publishing
Semi Conductor
Electronic Component
Manufacturing
Computer System
Design
Internet Service
Providers
Web Services
1992 1997 2005
The size of the pie charts represents the market capitalization of the industry segment
IBM
Hitachi Limited - ADR
Hewlett Packard
Toshiba Corp
NEC Corp - ADR
Digital Equipment
Microsoft Corp
Novell Inc
Apple Computer
Oracle Corp
Intel Corp
Compaq Computers
Sun Microsystem
Cisco Systems
Dell Inc
Fujitsu Ltd - ADR
Ebay Inc
Yahoo Inc
Google Inc
Texas Instrument
Taiwan Semicond
SAP AG-ADR
Others
Source: From the Structure of the Value Chain to the Strategic Dynamics of Industry Sectors, Michael G. Jacobides,
Carliss Y. Baldwin & Reza Dijaji, 2007
and the means through which
digital content can be monetized.
Now, it is trying to do the same
in mobile telephony. By providing
research and development and a
platform (Android), it aspires to
obtain de facto control of browsing
and search in mobile devices. While
Google encourages competition
in complementary segments like
handsets or programming and
applications, it maintains its grip
on the Android browsing and
search experience. Compared with
the current model, where telecom
providers control what happens in
the handset, it’s clear why Google is
keen on this version of the brave new
world.
Companies can add value by
reorganizing existing products and
ideas in a sector as long as they hold a
powerful position in the value chain.
Or they can unleash value by virtue
of a new product or service-delivery
model that integrates the value added
by an array of participants. Crucially,
companies do not need to own the
key resources they rely on, as existing
theory suggests. They need to ensure
that the parts of the value chain they
2 Michael G. Jacobides, Thorbjorn Knudsen and Mie Augier, Benefiting from Innovation: Value Creation, Value Appropriation
and the Role of Industry Architectures, Research Policy, pp. 1200-21, Vol. 35, 2006 and ibid, Who does What and Who
takes What: Benefiting from Innovation, AIM Management Briefing, December 2006.
3 Graphical User Interface/Operating System.
4 Central Processing Unit.
5 Internet Service Provider.
“
Companies
sticking to
traditional
sector
definitions
often fail to
see how profits
migrate from
their own,
narrow part of
the industry to
other parts of
the sector
”
85

are not active in are “contestable”, and
that they control the relatively scarce
or unique parts.
In the following sections, a guide
on how to create or maintain an
industry bottleneck is provided. A
way to understand how and why the
competitive environment is changing,
why this matters, and how companies
can respond is offered and in addition
some specific steps that managers
can take to be more effective in these
increasingly competitive conditions
are suggested.
Redefining sectors to create
architectural advantage
Research has identified three tactics
that companies employ to dominate
within an industry architecture.
Enhance mobility across the value
chain
First, companies can enhance
mobility in the parts of the sector
where they do not compete – while
collaborating closely with the firms
involved. For example, Apple does not
physically produce any components
for the iPod. Instead, it retains
a small, tightly controlled set of
suppliers who are given substantial
parts of the value-add, but also know
they may be replaced at any time.
Apple becomes dependent on its
collaborators to an extent, but these
dependencies are asymmetric; their
partners always need them more.
Toyota has a similar approach with
its suppliers, making sure that there
is potential mobility in the sector.
Its top-tier suppliers make more
profit than those in lower tiers. But
they know they must be extremely
open with Toyota regarding their
cost structures to stay in the top
tier. Toyota actively encourages
competition between suppliers to
ensure its vehicles become better
and cheaper: it works closely with
its suppliers but its rules make sure
suppliers never forget that they are
replaceable 6 .
Create the conditions to become a
bottleneck
Companies can also change rules
and institutions to become the
bottleneck. The key is to become the
least replaceable part of the sector (or
a set of interconnected companies)
so that it can be controlled without
even owning it. This requires taking
a view of the whole sector, identifying
how to become less replaceable, then
seeing how to change the nature of
the relationships. Identifying and
bringing the value-add to the other
industry participants is vital.
Microsoft used alliances, standards,
and industry conventions to become
the bottleneck and achieve industry
dominance. The industry made it
easy to be a PC manufacturer, but
harder and harder to compete with
Microsoft. The same strategy was
behind Apple’s ability to create a
dominant position for itself in digital
music. Apple’s control of iTunes
locked customers in through its
Digital Rights Management (DRM)
strategy. Files that were compatible
with iPod only played on iPods or
PCs. Playability on computers induced
users to stick with iTunes. Crucially,
the incompatibility of iTunes with
other portables creates dependencies
on Apple, thus Apple can safely
retreat from hardware production,
knowing that it dominates the
bottleneck in the digital music sector.
While Apple has moved away from
using DRM as a tool for building a
dominant position, nevertheless, the
role that it played in building Apple’s
dominance cannot be overstated. The
skill of shaping the environment and
of selling the vision is a key driver of
success in companies such as Apple.
6 Michael G. Jacobides and David C. Croson, Small Numbers Outsourcing: Efficient Procurement Mechanisms, Working
Paper, London Business School, November 2010.
86

Redefine roles and responsibilities
With new expectations and a new
vision proposed, companies can
redefine roles, or “who does what”.
This means looking, not only at what
they themselves need, but also what
other players need. Companies need
to take a strategic approach when
it comes to choosing where they
participate and what roles to play in
the industry architecture. They need
to be frugal with capital commitment
and get the maximum amount of
power to flow to them, even at the
expense of some short-term benefits.
Figure 2: Toolkit for Building Architectural Advantage
1 2 3
Identify
Bottlenecks
■ The bottleneck is the least
replaceable part of the value
chain or industry architecture
Create Architectural
Advantages
■ Create a map of current industry
architecture, customers, and
products
■ Locate the bottleneck
■ Identify how the industry
architecture could change
■ Identify the impact of change in
industry architecture
■ Identify how to change current
role and become the bottleneck
Change Organization’s
Fabric
Encourage employees to:
■ Have a vision of the company’s
role in the sector
■ Be ready to change vision
■ Recognize that positions don’t
last forever
■ Have the courage to change
routines
■ Be outward looking
■ Articulate vision outside the
organization
■ Be strategic, not just nice
■ Keep larger picture in mind
The final element in Apple’s iPod
success is its dominance of the multibillion
accessories market, where it
has encouraged others to prosper but
has not entered itself. Its restraint is
calculated 7 . Even more calculated is
its control of downstream pricing:
Apple only gives 14% margin for
iPods, while the margin on iPod
accessories is 25%, so retailers
dedicate more shelf space to them.
This increases iPod presence in
terms of retail and enhances the
installed iPod accessory base (and
dependencies on Apple), even though
Apple is absent from the accessory
segment. By finding intelligent
ways of convincing retailers and
business partners to invest in the
iPod architecture, Apple ensures
that the pie is large enough, and
its allies strong enough, to beat the
competition in unison. This contrasts
with Apple’s mistakes in the PC
sector, where its insularity shunned
collaboration and it focused too much
on “the traditional PC sector”.
Choosing where to focus should not
just concern a company’s strengths,
or opportunities to make money; it
should also be about how the firm
can best support its position within
the industry architecture: how its
choices will shape the sector and help
it become a bottleneck.
Source: Professor Michael G. Jacobides
A toolkit for building architectural
advantage
Architectural advantage can be
built through a three-step process
of identifying bottlenecks, creating
architectural advantages through
bottlenecks, and finally making
architectural thinking a part of the
organization’s fabric (see Figure 2).
Identify bottlenecks
Bottlenecks are a key part of industry
dynamics. But where do they sit
in the value chain? The bottleneck
is the least replaceable part of the
value chain or industry architecture,
where value accrues. The greater
the mobility of adjacent segments,
the more effective the bottleneck
becomes. Mobility and dependencies
change over time, as does the position
of the bottleneck (see Figure 3).
“
The most
successful
companies
become the
“bottleneck” in
their sectors and
“rule without
owning”
”
7 The Australian, Gecko Gear Makes the Case for Quality iPhone Accessories, October 2010.
87

Figure 3: Evolving Bottlenecks in the Computing industry, 1990s–Present
1990s
2000s
2010s?
Component
Supplier
Component
Supplier
Component
Supplier
Assembler
Assembler
Source: Professor Michael G. Jacobides
Assembler
OS Provider
OS Provider
Bottleneck
Distributor
Distributor
Distributor
Web Service
Provider
End User
End User
End User
When IBM outsourced the design
and development of CPUs and
OSs, it believed that the bottleneck
rested with “owning the customer
base” through branding and support
services. But with PCs, this wasn’t
good enough. PCs were standardized,
serviceable by anyone, and
customers were not limited to large
companies. So, making and selling
computers waned as a bottleneck.
The bottleneck then shifted to how
the computer was used. It turned out
that, once accustomed to particular
software and a particular operating
system, customers would not want
to change – and this meant that
capturing this segment became
critical. Microsoft and Intel increased
their interdependencies, making
the OS, the GUI, and the software
even “stickier” and the CPU more
important – even as other parts of
the sector became more and more
replaceable. As a result, Apple and
IBM lost out to Microsoft and Intel.
With growing popularity of web
services, companies such as Facebook
(and their optimistic investors) appear
to be betting on them becoming the
new bottlenecks (see Figure 3).
It is essential to track shifts in
the bottleneck. A bottleneck will
not stay still; sometimes it will
move upstream, and sometimes
downstream. Challengers will try
to change it, and will sometimes
succeed. Automotive manufacturers,
for instance, have been better able
to keep their share of value than
businesses in other sectors. Even as
they increased outsourcing, OEMs 8
defended their industry architecture
and didn’t render themselves
replaceable. Despite hard times for
the sector, companies such as Toyota
that carefully manages its supply
architecture have been successful. It
comes down to relative mobility and
how it changes over time.
Create architectural advantages
through bottlenecks
Clearly, companies need to look
beyond the traditional definition
of their sector: they should shape
it as opposed to just competing
in it. But how, in practice, can
managers map their sector, design
their architecture, and decide how
to change their strategy? Companies
should take a five-step approach to
gain an understanding of where the
bottleneck is heading and how to
build architectural advantage.
Create a map of current industry
architecture, customers, and products
Companies should map different
roles in the sector (“who does what”),
identify rules connecting players,
and the industry architectures that
is, the set of players, rules and roles
that pertain to the division of labour.
With these architectures mapped out,
executives should strive to understand
whether there is competition between
different architectures, and where
that can potentially lead to. Finally,
they must figure out how different
participants make money (“who takes
what”).
8 Original Equipment Manufacturer.
88

Locate the bottleneck
Companies should focus on
identifying who calls the shots in
the industry, and why. They should
understand what drives value creation
in the sector, and who captures value.
What is the logic with which the
sector is structured? What business
models, within the context of their
architecture, appear to be making
more, and why? Executives should
also explore whether there is a
bottleneck and, if there is, how it can
be maintained.
Identify how the industry
architecture could change
Companies should figure out whether
the current division of labor in
the industry could change – and
if it can, how? They will need to
understand what new technologies or
regulations could change the sector,
and, consequently, who would gain
the most as a result. They should also
keep an eye out for potential new
entrants as the industry evolves, and
how that might affect the sector’s
dynamics.
Identify the impact of change in
industry architecture
Companies need to identify how the
bottleneck and the value of current
players might change as a result of
industry architecture changes. Key
questions to consider include the
direction in which the bottleneck
could potentially move and the
subsequent impact on existing
companies.
Identify how to change current role
and become the bottleneck
Companies need to consider what
sector conventions they could change
to become more effective. They
will need to identify their “desired
architecture” and how to achieve
it. They should consider forming
alliances depending on the objectives
of other participants in the sector.
This five-pronged analysis will deliver
a vision of how a specific sector is
changing, where a company currently
stands, and what its future role
should be. It also provides a game
plan of short-term objectives to satisfy
both customers and employees, as
well as medium-term objectives in
changing the rules of the game.
The next step involves convincing
people, inside and outside the
organization, to accept the company’s
vision.
Make architectural thinking part of
the organization’s fabric
As well as creating and sharing a
sense of the sector’s rules and roles,
organizations must also be able
to update their plans as the sector
evolves, by instilling in management
the skill to be proactive in seeking
new opportunities. To do so, the
right behaviors, skills, and attitudes
must be promoted at manager and
employee level.
Have a vision of the company’s role
in the sector
Employees and managers may lack
a vision of how they can add value
to, and connect with, others in the
ecosystem. This leads to missed
opportunities, sending the wrong
signals or eroding the company’s
relative position, and being dissonant
with the narrative and image the
company may want to propose.
Be ready to change vision
Executives sometimes lack the ability
and openness to change their own
views of their sector. Clinging to
simple depictions of reality can prove
disastrous in the long-term.
Recognize that positions don’t last
forever
A new strategy will only last while
conditions allow. Even with success,
the objective is still to seek the new
bottleneck. It’s important to convey
the sense that advantage is temporary,
“
A company
becomes a
“bottleneck”
in a sector by
forging alliances,
changing the
rules of the game
and establishing
webs of
dependencies
”
89

“
Companies
should strive
to make
architectural
thinking
part of the
organization’s
fabric
”
making executives think more
creatively about how to add value
continuously.
Have the courage to change routines
Adapting to sector changes requires
courage; employees will need to
revisit old habits. Executives should
be able to revisit practices and
priorities as business models change.
Be outward-looking
Within an organization, discussions
can become introspective. Companies
can combat this tendency by
redefining rules and roles of the
firm, revisiting how they connect
with others. To do so, they need to
link internal responsibilities and
accountability with outward-looking
objectives.
Articulate vision outside the
organization
With alliances forming in record
numbers, it is crucial to foster
employee skills that permit seeking
new sources of collaborative value
and support the company’s vision.
Selection and promotion criteria must
recognize these skills.
Be strategic, not just nice
Managers might believe that the
company’s external orientation means
creating many relationships with
outside partners, increasing alliances
and so on. But it’s important to be
strategic and establish a clear sense
of why a relationship exists, how it
is managed, and the benefits that are
expected of it.
Keep a larger picture in mind
Managers often focus on generating
volume. This must be tempered
by a more strategic sense of how
this can actually improve the
company’s position. This won’t
happen automatically: it requires
reinforcement, monitoring, incentives,
training, and effort.
These priorities must be woven
into the organization’s fabric. The
real challenge is integrating these
outward-looking insights into daily
operations. Changing a company’s
culture is no mean feat, but doing
so can give these ideas real traction.
One way to make companies more
externally focused is to redesign,
opening up the “pores” along the
value chain to energize the firm
and make it more aware of different
opportunities. This might redress the
problem of introspection, inherent
in traditional vertically integrated
companies. This same principle
underpins many of the benefits of
several “open” structures emerging of
late: it allows companies to be more
adaptable. If we add “architectural
cunning” to this more extrovert
orientation, companies can thrive
even in challenging settings. Such
architectural thinking is an integral
part of organizations’ re-think of their
own “playscript”— of the ways in
which they can add and capture value
in a rapidly shifting environment 9 .
Conclusion
Shaping the sector in which a
company operates and seizing new
opportunities to win control of the
industry’s architecture is increasingly
becoming a priority. In a shifting
landscape a “guerrilla” mentality is
key to success. Companies need to
be proactive in shaping their sector
and ensure that their preferred
vision and architecture can be
accepted and become dominant.
Alternatively, they can seek to
improve their position within an
existing architecture. As globalization,
IT, and deregulation facilitate
disintegration and “re-combinations”,
as options and trading partners grow
exponentially and alliances hit alltime
high levels, companies need
to take a strategic approach. With
new options come new challenges
and, with opportunities appearing
9 Michael G. Jacobides, Strategy Tools for a Shifting Landscape, Harvard Business Review, pp. 76-85, Vol. 88, No. 1,
January-February 2010 or ibid,The Play’s the Thing, Business Strategy Review, pp. 58-63, Vol. 21, Issue 2, 2010.
90

constantly, companies need to be
strategic in the way they shape their
environment. This is especially so in
a time of crisis, such as the one facing
firms from telecommunications to
healthcare to financial services, the
possibilities to re-think and re-shape
the architecture have never been
better 10 .
Michael Jacobides holds the Sir Donald
Gordon Chair for Entrepreneurship
& Innovation at the London Business
School, where he is Associate Professor of
Strategic and International Management.
A Ghoshal Fellow at the Advanced
Institute for Management Research, he
studied in Athens, Cambridge, Stanford
and Wharton. His research looks at how
technology, competition and de-regulation
re-shape sectors, changing “who does
what” and, as a result, “who takes what”
and he studies strategic design, looking
at how to restructure and reconfigure
value propositions and value chains to
cope with domestic and global forces.
He works with organizations to help
them re-think how companies navigate
in shifting landscapes and re-writing
their “playscripts”. He writes for The
Financial Times and HBR in addition to
major academic journals. He is based in
London. n
“
It is essential to track shifts
in the bottleneck since the position
rarely stays still; sometimes, it
will move upstream, sometimes
downstream
”
10 Michael G. Jacobides, Don’t Let this Crisis go to Waste, Business Strategy Review, pp. 71-75, Vol 20, No 3, August, 2009
and ibid, New ways of thinking about Business, Financial Times Mastering Management Series, February, 23, 2009 (available
online).
91

lite
BYTES
Some
vignettes and trends depicting the lighter side of our Telecom, Media and
Entertainment industry
Mobile
n What is more important, a wallet or a mobile? A Unisys study reveals that a lost wallet takes
26 hours to be reported, whereas a missing mobile phone is reported in just 68 minutes.
Source: Output Links, The stars align for QR code, February 2010
n “4.2 billion out of 6 billion people in the world own toothbrushes and over 4.5 billion
people own mobile phones,” was the most buzzed statement at the annual Mobile
Marketing Association Forum, 2010 Asia Pacific conference.
Source: Business Insider, Tips to take your business mobile, October 2010
n Children in the UK are more likely to own a mobile phone than a book. A latest study
by the National Literacy Trust surveyed more than 17,000 school children aged 7 to 16.
It found that 86% of pupils had their own mobile phone, compared with 73% who had
their own books.
Source: Literacy Trust UK, More British children own a mobile phone than a book – is this an issue for
the Government?, June 2010
n Men are more active in mobile internet usage and their love for sports is evident here
as well. Nearly 2 million Orange customers use social networking on their handsets,
with men viewing on average 33% more pages than women. Sport is the main driver
for mobile TV viewing and is more popular with men accounting for 50% of mobile TV
content consumed by Orange customers.
Source: Orange, Digital Media Index, April 2010
n The first commercial mobile phone in the world was a Motorola DynaTAC 8000X
launched in 1983. It was more than a foot long, weighed almost 2 pounds, could store
30 numbers and sold for $3995.
Source: Company website
Internet
n Why is Facebook blue? According to The New Yorker magazine, Mark Zuckerberg is
red-green colorblind, which means the color he can see best is blue. That also happens
to be the color that dominates the Facebook website and mobile app. “Blue is the
richest color for me,” he told the magazine.
Source: The Week, The New Yorker’s Mark Zuckerberg profile: 7 key revelations, September 2010
n Has Facebook affected your love life? As per a research study published in the
magazine seventeen, 79% of people click “friend” within a week of meeting a new
person. After adding a new friend 60% of people follow their crush’s profile once a day
while, 40% check in on their would-be soulmate several times a day. Another study (SF
Gate, 2010), revealed 48% of social media users check Facebook/Twitter after they go
to bed and 7% indicated they’d even check during an ‘intimate moment’.
Source: CNN, Boy meets girl: How Facebook functions in modern romance, November 2010
n You can now decide what is available on the internet about you and what digital traces
you want to leave back. DeleteMe is a service starting at $10 that manages your internet
history and deletes your past digital traces. It can delete your past accounts, search
results, and other things you don’t want to be available online.
Source: Company website
n Teenagers in Taiwan spend much more time accessing websites than dealing with their
family members, according to findings of a survey conducted by the Taipei Women’s
Rescue Foundation (TWRF)
Source: China Post, Local teens spend more time online than with family, June 2010
n Is internet killing the TV? You need to think twice. Nearly 60% of people in the US
were watching TV and surfing the Internet on their computers simultaneously, while
the average monthly time spent doing both the activities was 3 hours and 41 minutes.
Source: Nielsen, What Consumers Watch: Nielsen’s Q1 2010 Three Screen Report, June 2010
92

Insights is published by Capgemini’s Telecom, Media & Entertainment (TME) consulting practice.
We are the leading global management consulting group dedicated to helping CEOs and senior executives
in the converging communications industries address their most critical strategic and operational challenges.
For further information visit: www.capgemini.com/tme
Editorial Team: Jerome Buvat • Bobby Ngai
Design: Stéphane Tchirieff
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“
Successful IT transformation
entails fundamental
organizational changes
”
—John Wittekamp, Chief Information Officer, KPN