Transcript Unlocking the Potential of the Telecommunications Sector

Unlocking the Potential of the
Telecommunications Sector to
Support Networked Readiness
Harvard University – March 14, 2002
This report is solely for the use of client personnel. No part of it may be circulated, quoted, or
reproduced for distribution outside the client organisation without prior written approval from
McKinsey & Company. This material was used by McKinsey & Company during an oral
presentation; it is not a complete record of the discussion.
Agenda
•
Impact of telecommunications sector reform
•
Importance of reform going forward
•
Priorities for reform
1
Spread of sector reform
Fixed voice telephony, status end of year 2000
No reform
Privatization only
Liberalization
Real GDP
per capita
$000
No. of
countries
Share of countries having undergone
sector reform, %
100%
Upper high
income countries
20
21
Lower high
income countries
10 - 20
15
Emerging
countries
3 - 10
28
Developing
countries
3
85
100
47
43
33
33
25
41
20
32
26
2
Value impact
Incumbent market capitalization, $ billions
993
829
85
Emerging and
developing
countries
High-income
countries
CAGR
3%
60
-24%
933
+105%
CAGR
18%
534
78
744
456
At
flotation
Flotation
+3 years
January 18,
2002
3
Teledensity growth
Change in teledensity between 1996 and 2000
No reform
Privatization only
Liberalization
+54
+48
+53
+26
+21
+20
+13
+3
Upper
high
income
Lower high income
Emerging countries
+5
+5
Developing countries
4
Internet penetration
% change in Internet users per 100 inhabitants from 1996-2000
No reform
Privatization only
Liberalization
+31
+25
+15
+11
+4
+6
+8
+1
Upper
high
income
Lower high income
Emerging countries
+1
+1
Developing countries
5
Options to reach Internet penetration
Status end of year 2000
Internet
penetration
(%)
660
User Intensity (Internet users
per 100 lines)
50
5
75
40
4
30
3
50
CHL
37.5
20
2
25
ESP
10
1
17.5
10
5
2.5
0.5
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
160
170
Teledensity
(Lines per 100 inhabitants)
6
Multiple tradeoffs
Industry
growth
Customers
• Business
• Residential
Investors
Operators
Society
• Incumbent(s)
• New entrant(s)
• Government
• Employees,
unions
Equipment
providers
• Domestic
• Foreign
7
Priorities among multiple objectives
Similar
emphasis
Developing
countries
Emerging countries
Developed countries
Country
Benefits to Efficient Proceeds for Universal Attract
customers industry government service
investments
Germany
France
U.K. (1)
U.K. (2)
Sweden
U.S.
Australia
New Zealand
Japan
South Korea
Argentina (1)
Argentina (2)
Brazil
Chile (1)
Chile (2)
Mexico (1)
Mexico (2)
Czech Republic
Hungary
Poland
Russia
Malaysia
South Africa
China
India
Indonesia
Philippines



Networked
readiness
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EXAMPLES
Broadly favored
market
efficiency and
competition
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Compromised
between
efficiency,
privatization
proceeds and
teledensity
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
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Promoted teledensity and
additional
investments
8
Measurable dimensions
• Teledensity
Universal access
• Price levels
Benefits to consumers
• Incumbent performance
Proceeds to government
* Footnote
Source: Source
9
Universal Service
Cumulative growth of fixed-line Teledensity
3 years post-reform
Emerging countries
Hungary
Brazil
Poland
Czech Republic
Malaysia
Chile (2)
Mexico (2)
Chile (1)
South Africa
Mexico (1)
Argentina (1)
Argentina (2)
Teledensity at
time of reform
12
10
15
19
8
11
9
5
10
6
10
20
Increase in
lines per 100
9
8
8
8
3
4
3
3
2
2
1
1
Change
Percent
69
71
53
43
39
35
29
61
12
30
12
6
Priority on
Universal
Service
No priority
on Universal
Service
Developing countries
China
India
Indonesia
Philippines
Senegal
2
1
1
1
1
3
1
1
1
1
150
73
90
97
62
All with
priority on
Universal
Service
10
Benefits to customers
Long distance cumulative price change
Incumbent tariffs 3 years post-reform, %
Countries that did not
emphasize benefits to
customers
Countries that emphasized
benefits to customers
South Korea
Germany
France
Chile (2)
Sweden
New Zealand
Australia (2)
Australia (1)
U.S.
U.K. (2)
-65
Mexico (2)
-60
-45
-43
-34
-28
U.K. (1)
-21
Argentina (2)
-21
Japan
-20
-32
Poland
-20
-17
Indonesia
-16
0
-13
0
Brazil
11
11
Proceeds to Government
Change in performance and relative value of incumbent
% median values
At flotation
Flotation + 3 years
EBITDA
41
P/E premium over main
stock market index
51
EBIT
46
Countries with
priority on
proceeds to
Government
30
32
21
53
Countries with
no priority on
proceeds to
Government
43
28
26
27
17
12
Overview of regulatory levers
Industry
Structure
Pricing
Interconnection
Regulatory
Levers
Customer
Access
Universal
Service
Performance
Levels
13
Detail of fixed and mobile regulatory levers
Example of fixed and mobile regulatory levers
Regulatory
Levers
Industry
Structure
• Number of competitors
• Ownership and control rules, including restrictions on foreign investment
• Networks and services open to competition
• Licensing procedures and conditions
Pricing
• Price caps / tariff rebalancing
• Access deficit compensation
• Pricing constraints on local calls
• Constraints on roaming charges
Interconnection
Customer
Access
Universal
Service
Performance
Levels
• Rights and obligations to interconnect
• Structure and level of charges
• Collocation and infrastructure sharing
• Conditions for unbundling network elements
• Interconnection for ISPs
• Obligations and rights for virtual network mobile operators (MVNO’s)
• Numbering plan
• Number portability
• Length and ease of carrier pre-fixes
• Subscription mechanism for carrier pre-selection
• Universal access and service obligation definitions
• Universal service funding mechanism
• Penetration targets
• Network rollout and coverage targets
• Service quality targets
Source: McKinsey
14
Continued importance of reform
Access
Internet and usage
intensity
Quality
• Teledensity low in
• Increase usage of
• Steps to ensure
most developing
world (>800 million
households stilll
without a phone line)
existing infrastructure
already enabled for
Internet
• 5.7 billion inhabitants
are not using the
Internet
$150–200
billion in
value
broadband reaches
187 million
connections by 2005
• $150-200 billion to
support rollout of 3G
mobile technology
Value has
been
unlocked
15
Teledensity
Million access lines/population
Access lines
Population
1,064
High-income
countries
948
220
Emerging
countries
Developing
countries
614
438
4,534
16
Potential to increase usage intensity
Highest in group
Median
Lowest in group
Internet user intensity
54
Developed
Access availability
41+
27
13
Price
39
Lower income
developed
16
31+
Competition
8
39
Enabled line
38+
17
Emerging
1
Choice of service
64
18
Developing
1
63+
Interconnection
17
Broadband penetration
Broadband access lines, million
% of global access lines
13
2001
2005
2001
fixed
lines
38
4
187
2001
2005
1,000
Infrastructure
challenge
18
Broadband quality upgrades by country, 2000
EXAMPLES
Internet penetration
Users per 100 inhabitants
South Korea
Singapore
Broadband penetration
Percent of all households
57
40
46
13
60
U.S.
Netherlands
46
Japan
44
11
7
4
19
3G challenges
• No deployment, available only in Japan
• US$130 bn paid in license auctions in
Europe alone
• Unclear initial consumer value
• Additional US$150–200bn to deploy
networks in Europe alone
20
What can be done?
Promote access
• Developing countries
• Encourage and attract
investment
• Explore mobile
options
• Recognize mobile
options
• Slow gradual process
Encourage Internet and
usage intensity
Fund quality
improvements
• All countries
• Stimulate demand
• Encourage
• Mostly developed, but
competition and
choice
• Fine tune and revise
• Iterating process
significant variation
by country
• Require significant
upgrades
• Explore funding
options
• Experiment multiple
approaches
• New approaches
needed
21
Unlocking the Potential of the
Telecommunications Sector to
Support Networked Readiness
Harvard University – March 14, 2002
This report is solely for the use of client personnel. No part of it may be circulated, quoted, or
reproduced for distribution outside the client organisation without prior written approval from
McKinsey & Company. This material was used by McKinsey & Company during an oral
presentation; it is not a complete record of the discussion.