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How are Incumbents Re-organizing Company Structures to Face New Market Conditions?| June 28, 2007 | Business Telecom Services - Europe | Advisory Report (Europe)
European incumbents face competition from several different types of companies in addition to the pressure imposed by fixed-line alternative operators, including, for example, systems integrators, cable companies, utility companies, and wireless operators. The incumbent players also face a challenging combination of investment required to modernize legacy infrastructure, downwards pricing pressure on voice revenues and regulators forcing change to encourage open competition. Such carriers must upgrade their infrastructure to NGN in order to accommodate growing converged IP traffic and once that is achieved, voice revenues form TDM and PSTN services will continue to drop giving way to cheaper IP services. All this is affecting both the importance of the network component as well as the internal organisation of the carriers. In general, this will lead to a redefinition of where the core telco value resides. The advantage will no longer be in owning, or policing, access to the infrastructure, but rather in having the best and fastest service delivery platforms connected to that infrastructure. So how are major European carriers reorganizing themselves to operate at a lower cost base, with more agility and faster customer response times? This Advisory looks at how BT, France Telecom, Deutsche Telekom, Telecom Italia, Telefonica, KPN and TeliaSonera have re-aligned their organization to meet these challenges. BT
BT has created two new business units – BT Design and BT Operate. BT Design will be responsible for the design and development of new services, and BT Operate will handle deployment and operation. Approximately 20,000 BT employees will move into these new units from other parts of the business. BT Retail, BT Global Services and BT Wholesale will retain responsibility for marketing, sales and customer service. Openreach (the infrastructure access provider) remains unchanged. BT does not face integration of a mobile division into its operations, since it sold off O2 over five years ago. Each of its core business units are customer-focused - BT Retail (consumers and SMEs), BT Wholesale (SPs/carriers) and BT Global Services (enterprises). The new structure is largely about efficiency, cost rationalization and taking out duplication of resources across the entire organization. BT creates a single operating unit to run all IT, networks, operations, service creation, etc. BT 21CN will sit in this new group (moving away from Wholesale) and will also have a clearer picture of service development needs across the organization. This should benefit BT Global Services and its margins in particular. More long-term, the structure could be the IP Service Factory that can deliver replicable solutions to business customers that would be faster, cheaper, better and more reliable. Also, potentially the new structure means that any job losses could come from outside the UK where BT is not heavily regulated. Also, financial reporting aspects (e.g., CapEx) will no longer be attributable to each business unit. BT sees telco and network services as commodities that are fast running out of value. The network platform (21CN) is more of a pure enabler for software-based services and applications that deliver real value to end customers. Regardless of whether BT is delivering the application to its end customer or another provider, 21CN will generate revenue by being an open platform that software developers can build applications on top of. BT has created the tools and interfaces that let third party developers, big and small, access BT’s core network and IT facilities as illustrated by its launch of Tradespace, which the carrier terms as ‘a social media platform for small businesses.’ BT´s Web services Application Program Interfaces (APIs) work with all the major development environments (Microsoft, Open Source, etc.). BT is getting an early start with the software developers – and Microsoft in particular – to compensate for basic telecoms commoditizing and hoping to gain differentiation, value and sales from software as a service. France Telecom
During March 2004, France Telecom announced a re-organization of its divisions to address the fully-integrated services in-line with its NGN plan. The company is responding to market trends, whereby corporate customers (and other market segments) are increasingly seeking fully integrated communications solutions that take advantage of converged networks, mobile and broadband services. France Telecom is proactively placing itself in a position to address this trend head on. Deutsche Telekom
Deutsche Telekom (DT) has consolidated its operations into three business areas: Broadband/Fixed Networks (providing services primarily for consumers and small businesses under the new ‘T-Home’ brand), business customers (‘T-Systems’) and mobile communications (‘T-Mobile’). The Broadband/Fixed Network division is responsible primarily for Deutsche Telekom’s national network-based retail and wholesale services (e.g., fixed telephony, data communications and DSL access). The formerly independent ‘T-Online’ pillar was folded into T-Com to create Broadband/Fixed Networks in 2006 in order to integrate broadband and traditional fixed network services into a single operational division. With the integration of T-Online into T-Com, now dubbed ‘T-Home,’ the combined unit will develop triple play services incorporating broadband, voice and video services across a single network, as well as new FMC products for the residential market. DT lost some steam in strengthening its domestic enterprise and residential market share in 2006, allowing competitors to gain market share through aggressive pre-packaged solutions sold via focused sales channels. DT also faces further deregulation of the domestic market and less support from the government as the EU pushes for infrastructure full competition. DT’s ability to maintain and build its market position within key segments rests on the successful outcome of its reorganization. Telecom Italia
Telecom Italia (TI) initially decided to split off its mobile group, TIM, in 2006 due to regulatory influences preventing the launch of FMC services on the grounds that the offer was not replicable by competitors. Now that MVNO agreements between TI and TIM are in place, it is not clear whether TIM will remain a separate entity. It is said that the Italian market regulator is in the process of obtaining legal power to force a separation between TI’s fixed-line network infrastructure and supporting businesses from the company’s commercial groups with the legal power supposedly taking effect by the end of 2007. If the separation takes place, then TI’s commercial groups will have to rent or buy fixed-line services under the same conditions as rivals to encourage a freely competitive market. In October 2005, Telecom Italia Group adopted a one-company model to be in a position to leverage fixed and wireless assets to deliver integrated services. Telecom Italia now needs to prevent total mobile-substitution, and believes in a ‘save your fixed-line access point’ message that aims to convince end-users to hold onto fixed-line access in order to enter a new world of integrated and converged IP applications that can be used by fixed-mobile devices. NGN spending in the business services market is more influenced by a ‘need-to-do’ policy to meet specific customer requirements. IMS is also recognized as a future eventuality, but there is no urgency on IMS-enabling assets at this point in time. On April 28, 2007, Telefonica and four other Italian investors (i.e., Generali, Mediobanca, Intesa Sanpaolo and Benetton) joined forces to buy 100% of the stock of Olimpia. The new consortium, in which Telefonica holds 42.3% of the shares, will have a 23.6% participation in Telecom Italia’s capital (18% indirectly through Olimpia and 5.6% directly), thus becoming the largest shareholder of the Italian operator. The agreement gives Telefonica representation on Telecom Italia’s board with two members out of 19. Moving forward, Telefonica and Telecom Italia will continue to be managed separately and independently. Telefonica
During December 2005, the Spanish incumbent made a series of acquisitions and launched a management restructuring around the creation of a ‘Coordination Business Development and Synergies’ function. The carrier’s stated objective was to create a company that was better tuned to addressing digital integrated communications, and information and entertainment to all market segments. Telefonica also claims it made this move to better manage and integrate its expanded multinational holdings, including a share in Telecom Italia (see above), some of BellSouth’s mobile operations, Cesky Telecom, O2 and a small share in and collaborative pact with China Netcom. Telefonica needed to place a management umbrella over such multinational holdings to maximise Group efficiencies and synergies. The Telefonica restructuring was sensible, because the new organisation gave the carrier the ability to leverage its complex and geographically dispersed business more effectively. Furthermore, the creation of a new ‘Coordination Business Development and Synergies’ management function laid the foundation for identifying and developing more competitive international business services. KPN
In the beginning of 2007, KPN aligned its organization to advance its ambitious strategy for its All-IP NGN project. By doing so, the walls between IT, operations, and mobile and fixed services were removed, and essentially re-organized into a customer-centric organization. There are five pillars in the new structure: consumer, business, IT, Wholesale, and international mobile. The consumer business is responsible for fixed voice, Internet services, broadband, IPTV, retail outlets and call centres. The business division has five lines of reporting: (1) KPN Sales, (2) Corporate Solutions, (3) Large Enterprise, (4) SME and SOHO, and (5) Portfolio Management. KPN has also set up a third pillar, namely IT, which oversees the operations, infrastructure, billing, CRM and testing. This single division is responsible for all fixed and wireless services. There is a separate wholesale division that manages all carriers, carrier products, and an international mobile division overseeing the retail operations of BASE and E-Plus and that is charged with overseeing the wholesale MVNO operations (e.g., Simyo) inside the Netherlands. KPN is following the trend of realigning with the objective of making it more transparent and customer-centric. It is positioning itself to provide the complete solution for fixed and mobile services by customer segment (e.g., business and consumer). This is in step with trends seen in other markets. By moving in this direction, KPN believes that it is better-aligned to migrate to all-IP. A unique aspect here is the fact that KPN has created Sympac – which looks after large enterprise customers for enterprise mobility and is beginning to expand operations internationally. KPN believes that the benefits for the re-alignment are two-fold. First, it will help achieve a fully integrated marketing, sales and customer service organization, with one face to the customer in all channels for the entire service portfolio. In KPN’s view, having an integrated approach will enable it to focus more on service orientation and improve customer loyalty. KPN wants to drive cross-selling as well by focusing on customer lifecycle management. The second benefit is the ability to develop a fixed-mobile portfolio. This includes furthering its capabilities in offering hybrid fixed-mobile services (e.g., mobile and PBX integration). It also means continuing the testing and development of IMS, and looking to new service creation with the network at the core. TeliaSonera
In the beginning of 2007, KPN aligned its organization to advance its ambitious strategy for its All-IP NGN project. By doing so, the walls between IT, operations, and mobile and fixed services were removed, and essentially re-organized into a customer-centric organization. There are five pillars in the new structure: consumer, business, IT, Wholesale, and international mobile. The consumer business is responsible for fixed voice, Internet services, broadband, IPTV, retail outlets and call centres. The business division has five lines of reporting: (1) KPN Sales, (2) Corporate Solutions, (3) Large Enterprise, (4) SME and SOHO, and (5) Portfolio Management. KPN has also set up a third pillar, namely IT, which oversees the operations, infrastructure, billing, CRM and testing. This single division is responsible for all fixed and wireless services. Recommended Vendor Actions • Both geographically-determined and technology-defined business units are at odds with what consumers and enterprise customers are seeking from their service provider – namely integration of broadband service delivery in both fixed and mobile devices. Organizational change is recommended to meet this integrated services trend more effectively. • Carriers need to drive cost savings and faster IP service creation across the business globally by bringing IT, networks, operations, and design, under a single reporting structure. They also need a broadband infrastructure to deliver these services, but ownership of this infrastructure is no longer vital. • Carriers need to focus on a single-company concept – grouping together separate fixed and wireless corporate entities, and breaking down any barriers or resistance between the groups to achieve effective pursuit of FMC. Customers should no longer have to approach two separate divisions for fixed and wireless services and accept separate contracts, billing, and points of contact. • Incumbent carriers need to work closely with local national telco regulators and the EU to determine an infrastructure investment plan that ensures optimal flexibility and scalability of services on an integrated, end-to-end IP communications highway. Such players need to see the infrastructure as a commodity and build a competitive position on agile service delivery platforms. • The NGN plans in all European countries will have significant employment impacts, requiring far fewer support and maintenance staff – which is essential for future profitability, but may impact employee morale. Carriers need to develop organizational structures that are transparent and understandable to all staff levels. Recommended User Actions • Get set for fast expanding broadband services and – more slowly – evolving FMC. When assessing carrier preparedness for this development, users should look at service rollout, supporting infrastructure and carrier organizations that will support FMC solutions - providing access to services and applications via multiple devices (i.e., PCs, laptops, mobile phones, PDAs) and the best available fixed or wireless network. • Users need to measure the ability of telecom service providers to handle changes in accordance with technology evolution, and also how such change will impact business processes. For example, customers should ask whether the telco can deliver consistent and competitive service levels, or is the carrier likely to run into significant problems with over-staffing and lack of skills to handle new systems, which will inevitably impact service price and quality? • It is important to recognize that the migration to an all IP NGN infrastructure will take another five to eight years, because it involves all elements in the delivery chain. A core IP infrastructure still needs massive developments and investments in the access network and the terminals to deliver end-to-end IP. However, carrier intentions as expressed in their own reorganizations are indicators of an orderly transition strategy. • Users need to focus more on the services that they need, and less on the infrastructure aspect. The network platform is commoditizing and carriers are concentrating on their ability to deploy new services rapidly and cost effectively. |
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