Transcript Document

The Turnaround Telecosm
Conference
August 26, 2003
Doug Bulleit
Chief Strategist,
BellSouth Corp
“Disruptive” Changes in Telecom Industry Structure Will Be Driven
by New Broadband Architectures, Value Propositions and Business Models
Architecture
A skillful blending of available Transport,
Compression and Grid-based Storage to realize
an earlier, more capable, ubiquitous and less
expensive public broadband platform
Value Proposition(s)
An End-User-Centric approach to Individuals as
Consumers, Employees and Customers, thus potentially
generating three revenue streams upon a common single
platform investment
Business Model(s)
A Horizontally-Stratified but Vertically-Aligned
kieretsu-like new Industry Structure comprising
Infrastructure, Complex Services and
Distribution Players
The Looming “Digital Broadband Era” Promises Could Be More “Disruptive”
Than Previous Network Transformations Due to the
Decoupling of the Network, Location and Services
Soft Switching
Digital Switching
Mechanical Switching
Analog/Narrowband Era
Primary
Products
Network/
Architectural
Characteristics
Primary
Profit
Centers
Industry
Structure
Implications
Digital/Broadband Era
Voice Calls
Operator Services
Pulse Dialing
APL/Dial-Up Data
Ditto +/displaced by…
DTMF Dialing
Custom Calling
VoiceMail
DCS/FR/ATM, etc
•Derived Multi-Line VoIP : with…
- Enhanced Call features
- Personal #’s for life
- Portability (wireless/wireline, home/office)
- etc
•On-Demand Broadband Services
Hierarchical Analog Switches
Copper/Microwave
In-Band Signaling
ditto+/displaced by…
Digital Switches
OOB/SS7 Signaling
AIN Platform Services: e.g., 800,
Custom Calling, etc
Packet Switches/Routers
Flattened Topographies
Converged Backbone/Multi-Service Edges
Ditto +/displaced by…
LD Access charges
Vertical Services
Enhanced Services
Data Services
Distribution
Professional Services
“Middle Layers”
Content/Applications
Logical Network Services
Physical Network Services
Technologically Enabled/LegallyMandated Interconnection
Carrier Proliferation
Vertical Integration
Carrier Consolidation
Horizontal Stratification
Vertical Alignment
Basic Local Service
LD/Toll Charges
Private Line Mileage
Operator/Directory Services
Monolithic (Bell System/ITCs)
with minimal interconnection
Circa 1984
Network/Services/LocationDecoupling
Circa 2004
As Industries Mature and Otherwise Grow More Complex, Competitive
and/or Commoditized, Their Structures Tend Horizontally Stratify
Coase’s Theorm
Companies exist to
reduce Interaction
Costs*
Moore’s Law
The price/performance
of computing doubles
every 18 months
Electronic
Commerce
Explosive Information
Network Services Growth
Metcalfe’s Law
The power of a network
expands exponentially
with its number of nodes
The cost of bandwidth
is inversely Proportional to Moore’s and
Metcalfe’s “exponentials”
Gilders’ Law of
The Telecosm
*a.k.a. Transaction Costs,
“Economic Friction,” etc.
Different Scaling Phenomena Induce Different Competitive Pressures at Different
Levels of the Value Chain That, Ultimately, Cause Industries to Evolve In
Horizontal Patterns
End Users
Personal
Computers
Gasoline
Consumer
Credit
Customer
Customer Relationship
Businesses
Intimacy
Core
Processes
Product Innovation
Businesses
Infrastructure
Businesses
Royal Dutch
Shell
Halliburton
Product
Leadership
Operational
Excellence
Suppliers
Businesses driven
by Scope, Reach, share and
retail customer needs
Businesses driven by
innovation, Speed to
market and employee needs
Businesses driven by
Asset Turn efficiency and
industrial customer needs
Leading Carriers May Move Toward a 3-Layer Model To Facilitate Scaling
Objectives as well an Assortment of New Business Initiatives
Retail distribution of Services, both…
• Billing/Coll’n • Direct Sales
Sales & Marketing
Distribution
Layer(s)
• Customer
Care
• etc
• Indirect Sales
Professional Services & • MNS
Systems Integration
• Bundling
• Consulting
• ASP
• Training
• etc
 Direct
 Indirect via key Ally/Customers
Consider Dual Branding and
managed customer migration
Provide custom services which
compliment Network and content
services; leverage lower-level
strengths to fashion key alliances
Wholesale or Agency Resale of End-End Services
Complex
Service
Layer(s)
Physical/Logical
Migration
Network
Layer(s)
• Hosting
Content/ApplicationBased Services: e.g.’3D” • Grid/SAN
Network-Based
Services
• Grid/App’s
• DRM
• Messaging
• etc
• ISP
• VoIP/VON
• AIN/800
• VPN
• Security
• etc
Package Content and Application
based services with Value added
Network Services
Package raw network with value
added network services and EndEnd management
Wholesale Sourcing of Underlying Network(s)
Logical EndEnd Networks
• FR
• IP
• TDM/CS
• ATM
• MPLS
• etc
Physical Network
Components
• ILXs
• Cable
• CLXs
• Backbones • etc
• CMRS
Deliver end-end Network based
on a combination of On-Net
capabilities and Off-net
capabilities
Focus on Scale to reduce
unit cost and improve ROA
Generate a large wholesale
base to increase scale
efficiencies
ODC-Like Mechanisms May Prove Instrumental To the Effective Vertical
Alignment of Key Industry Alliances
Sales & Marketing
Distribution
Layer(s)
Professional Services & • MNS
Systems Integration
• Bundling
• Consulting
• ASP
• Training
• etc
Wholesale or Agency Resale of End-End Services
Complex
Service
Layer(s)
Content/ApplicationBased Services
• Hosting
• VoIP/VON
• Grid/SAN
• Messaging • etc
Network-Based
Services
Wholesale Sourcing of Underlying Network(s)
Network
Layer(s)
Logical EndEnd Networks
Physical Network
Components
• DRM
• Bilateral
Agreements
• Strategic
Alliances
• Joint Ventures
e.g., ODCs
Back Up
Much of our “Transformational Strategy” Formulation Has Been Driven By
Perceived Problems and Opportunities that Attend Growth in a Changing
Competitive Environment
Scale matters!…
`it drives different kinds of Growth
differently at different “layers” of the
emerging value chain
Vertical Scope
Capacity of our Offer relative to
our customers’ needs/spend
“SCALE”
Distribution Layer(s)
Disruptive
Growth
Synergies:
Horizontal Reach
Capacity to extend our
Offer to all of our
customers’ locations
and/or destinations
Continuous
Growth
Synergies:
Asset Utilization: or,
Asset Turnover Ratio – i.e., volume
of traffic over a given facility
Initial
Combination
Synergies:
Current Condition
Complex Service Layer(s)
Network Layer(s)
To Harness Convergence and Evolving Industry Structure We need a
Common Understanding of Them
New Growth
Stimulation
Share ReDistribution
Disruptive Growth Synergies
Continuous Growth Synergies
Structure
Convergence
Scaling
Initial Combination Synergies
Current Condition
Digital Network “Convergence” Is Being Driven By Three Sets of Accelerating
Forces
Demand-Side Issues
Customer Expansion
Consumers
(Enterprise)
Employees
“Individuals”
(App/Content)
Customers
Infrastructure
• Demographic Shifts &
Economic Activity
• Application/Device
Proliferation
• Emergence of Electronic
Communities Of Interest
• etc
Traffic Volume & Character
Voice Net’s
•
•
•
•
Data Net’s
Video Nets
Speed/Bandwidth
Quality Of Service/SLA
Mobility & Extensibility
etc
Supply-Side Drivers
Competitive Share Capture
(of total Customer Spend):
i.e., the only means to
material short-term growth
involves accelerating intercarrier attack strategies
Broadband & Wireless
Migration: i.e., with
narrowband traffic migrating
to wireless, wireline futures
turn upon generating new,
and/or migrating existing,
services upon a common
broadband alternative
Vertical
Scope
Scale
SCALE
Horizontal
Reach
Asset Turns
•
•
•
•
Scope & Reach of Offer
Relative Price/Performance
Ease-of-Use & Manageability
etc
Asset Utilization: i.e., the
ultimate adjudicator of
competitive advantage relies
upon maximizing
traffic/revenue over a given
platform investment
Convergent Dynamics
Drive Continuous and
“Disruptive” Growth;
moreover, it acts
differently upon
different “Layers”
`Inter-Segment Leverage with a Particular “End-User-Centric” Focus
Three sets of powerful, irreversible and
irresistible forces are setting the stage...
...`for a Broadband/IP Leadership strategy bulit upon
an end-to-end cross-leveraged “3D” agenda.
Consumers
Massive IP Networking/
Applications
Adoption
• Faster
• Better
• Cheaper
Broadband
Backbone
Proliferation
(App/Content) Customers
(Enterprise) Employees
Digital Network
Convergence
• Bandwidth
• Security
• Administration
Voice, Data & Video
Individual
End-Users
• Distribution Reach
• Price/Performance
• Value-add: e.g., storage
Wholesale Infrastructure
Emergence of
Broadband Access and EndUser Appliances
• Scale
• Volume
• Connective Reach
In Addition to Reducing the Complexities of Monolithic Decision Making,
Managing the Business at Three Layers Presents New Strategic Opportunities
Strategic Opportunity
Scaling Challenge
Scope
“SCALE”
Reach
Retail customer-facing
businesses create value by
acquiring and retaining
customers through effective
service, anticipation/satisfaction
of changing Scope/needs, etc
Distribution
Layer
Asset Utilization
Scope
“Middle Layer” companies build and
maintain competitive advantage through
unending new service innovations upon
effective arbitrage and value-added reintegration of underlying network services
“SCALE”
Reach
“SCALE”
ILEC “utility company”
maximizes profitability through
uncompromising focus upon
incremental cost control and
scale economies
Complex
Service
Layer
Network
Layer
Free to source both traditional and
more complex services from any and
all providers, the new Retail winners
will provide better value through more
diversified customer-tailored offersboth Business and Consumer
including the sales force and brand.00
Exploiting emerging protocols (e.g.
MPLS) both new ventures and
entrenched software-oriented players
alike will innovate at the physical
networks’ edges to create new value t
Newly-streamlined ILECs may choose
to further align policy makers with their
own ROA needs: i.e., co-opt regulators’
objectives by systematically eliminating
all sources of subsidy
Asset Utilization
In an evolving horizontally-stratified industry structure, vertically-integrated players will
be less flexible and strategically disadvantaged to more focused attackers