Transcript Jos Gerrese GANESHA consult Pricing in the Newest Economy

Jos Gerrese,
GANESHA consult
Pricing in the
Newest Economy
“rebuilding the industry”
GANESHA consult
41st FITCE European Telecommunications Congress
Genova, 4 – 7 Sept. 2002
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agenda
• Analysis of the current troubled situation
• Foreseen developments of the
bandwidth market for fixed and mobile
operations
• The “Newest Economy” concept
• Solutions
• Conclusions
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Analysis of the Situation 1
• The Telecoms
Industry is largely
dead
• Telecoms itself is
very much alive
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Analysis of the Situation 2
• The result of the initial explosive growth
of internet ( IP ) and the hype that
followed
– 400 % growth per year predictions
(Worldcom)
– New entrants who need a network before
they can sell anything
– Result: Extreme overprovision
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Installed Bandwidth versus
Demand in Gbit/s, Intra-Europe
8000
7000
6000
5000
Supply
Voice
Data/IP
4000
3000
2000
1000
0
2000
2001
2002
2003
2004
2005
Source: Probe research; Telecommunications International Dec 2001
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Analysis of the Situation 3
• Price erosion caused by classic pricewar
– Prices started falling and are now at 10 –
20 % of prices some years ago
• Sell at any cost to get a contribution to cover
(some) costs
– Only 10-20 % of capacity can be sold
because of lacking demand
• Revenues are 1-5 % of planned budget
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Investment vs. Income
Market price level at investment
Price/
unit
Investment price
Current market price
Sales window
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agenda
• Analysis of the current troubled situation
• Expected developments of the
bandwidth market for fixed and mobile
operations
• The “Newest Economy” concept
• Solutions
• Conclusions
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Future Bandwidth Market
Expectations ( fixed & mobile )
• Fixed
– Nobody (private & business) is using less
telecom. The market is growing following a
rather normal pattern
– Taking away the hype effects, IP shows a
healthy growth as well
– About 80% of installed capacity is idle and
can still be upgraded by WDM technology
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Future Bandwidth Market
Expectations ( fixed & mobile )
• Fixed 2
– Professional IP services will gradually
reach a significant position
• Mobile
– The air segment in a mobile
connection is only 2-5 kms. The
terrestrial part can range from 5 20000 kms
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Future Bandwidth Market
Expectations ( fixed & mobile )
• Mobile 2
– When hopefully (??) GPRS and
UMTS take of, using bandwidth per
connection of at least ISDN level, a
new layer of capacities will be
needed, resulting in doubling the
current used capacities
• The future does not look bad at all
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agenda
• Analysis of the current troubled situation
• Expected developments of the
bandwidth market for fixed and mobile
operations
• The “Newest Economy” concept
• Solutions
• Conclusions
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The “ Newest Economy “
• The recent years went under the paradigm
“The New Economy”.
It can be characterised as:
Doing without Thinking
Companies embarked on business ventures
without validating the consequences
• I introduced some months ago
– The “ Newest Economy ” Concept
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The “ Newest Economy “
• The Newest Economy concept is about
PROFITS
When Total Revenues > Total Costs, than
Total Revenues -/- Total Costs = Profits
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The “ Newest Economy “
• Minimum conditions:
– Each service or product in the portfolio is
profitable on a NPV ( Nett Present Value ) basis
within a relative short time window
– Each customer is profitable for the total of services
contracted
• The customer is King only when he renders profitable
revenues
– The “Free Service” concept must disappear
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agenda
• Analysis of the current troubled situation
• Expected developments of the
bandwidth market for fixed and mobile
operations
• The “Newest Economy” concept
• Solutions
• Conclusions
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Solutions 1
• Over-extended or loss-making
companies will be taken over by the few
strong ones or they go broke
– Some companies will pick-up the pieces at
real cheap cost and will be able to recreate a new business with an acceptable
costbase and profitable pricing
– Prices must be raised in general
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Solutions 2
• Customers will have to pay the price
– Mass market standard prices for standard services
– Tailor made prices for dedicated services
• Customers must decide if they can afford the
service they want
– The additional business value should compensate
for the costs of service
– “Nice to have” is not a valid decision criterium
• Control the discounts
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Solutions 3
• Development strategy
– Stop a project before it stops you
• Evaluate progress and opportunities per stade
and keep Geoffrey Moores’ law in mind
• Climbing the value chain
– Cash flows
– Required skill sets
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Geoffrey Moores’ Chasm & Tornado
application life cycle
tornado
rev
decline
mass
innovate
chasm
acceptance
early
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Fig. 4
time
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Revenue – Margin relation
Nett cash margins
Transaction
services
Revenues
2.5 k €
Information
services
Communication
services
Margins %
Network
services
7.5 k €
Transport
services
12.5 k €
Margins
Revenues
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2% ………………………………………25%
10 K€ ........................................................0.5 M€
Sales Channel Options/Skills
Transaction Direct+Indirect+VA-resellers+Integrators,
services
Skills; prof. Services + application prov.
Information
services
Direct+Indirect+VA-resellers+Integrators;
Skills; prof. Services
Communication
services
Direct+ Indirect+distributors; skills
Network
services
Transport
services
Fig.GANESHA
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Direct + Indirect Sales,
Increased Headcount
Direct Sales,
limited headcount
Conclusions
• The industry is in shambles but telecoms
itself shows a healthy pattern. The industry
needs a serious clean-up
• Apply “Newest Economy” concept
• Customers have to pay a profitable price so
that all parties can live
– Pricing and discounting is key
• Be careful with development projects and
climbing the Value Chain
• Continuously ask: will it bring a profit
– If not: don’t do it or stop it
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GANESHA consult
Thanks for your attention
[email protected]
phone: +31 71 5416959
fax:
+31 71 5894800
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