Telco 2.0 Transformation Index - Methodology and Approach

Growth through Innovation
Telco 2.0 Transformation Index
Methodology and Approach
Chris Barraclough, Chief Strategist, STL Partners
chris.barraclough@stlpartners.com

- 2 -© STL Limited • Proprietary and Confidential
Contents Summary Marketplace Service offering Value network Technology FinanceContents Summary Marketplace Service offering Value network Technology Finance
Introduction
• This is an introduction to the methodology and analysis for the Telco 2.0 Transformation Index – the first detailed
analysis and benchmarking of Communication Service Providers (CSPs) as they move to future sustainable
business models (Telco 2.0)
• The initial tranche of analysis covers 8 CSPs…
• AT&T, Axiata, Etisalat, Ooredoo, SingTel, Telefonica, Verizon, Vodafone
• …across 5 core business model domains
• Marketplace, Service Offerings, Value Network (internal organisation and external partnerships, Technology and
Finance
• Comparative analysis is undertaken across all 8 CSPs with objective scores used to determine relative performance
of each CSP by domain
• Raw data and analysis/charts are made available in Excel and detailed evaluations made in Powerpoint
• Clients can purchase:
1. The comparative Benchmarking report (and Excel data pack) which includes a detailed deep-dive analysis of 1
CSP
2. Additional CSP deep-dives analysis reports (and Excel data packs)
3. The Benchmarking report and all 8 deep-dive analysis reports (including all Excel data packs)

The Telco 2.0 Transformation Index (T2TI): Compares the performance
of Communications Service Providers (CSPs) in moving to Telco 2.0
1. Explore the Telco 2.0
implementation performance of
individual CSPs in detail:
• See where they are strong and weak
• Understand what is driving strengths
and weaknesses
• Learn and apply lessons to your
organisation
2. Benchmark the Telco 2.0
implementation performance of
CSPs against each other:
• Determine best-in-class players in
different areas
• Understand relative strengths and
weaknesses
• Identify how to improve performance –
learn from other CSPs
Enables users to:

Contents Summary Marketplace Service offering Value network Technology Finance
Initiating coverage on 8 leading CSPs
1. Telefonica Europe/South America
2. Vodafone Europe/Asia
3. Etisalat Middle East
4. Ooredoo Middle East
5. Axiata Asia
6. SingTel Asia
7. Verizon US
8. AT&T US
Deep-dive analysis of each CSP
plus
Benchmarking of CSPs against each
other and, where appropriate, key
new competitors (Google, Apple,
Facebook, etc.)

The T2TI is based on STL Partners standard Business Model Analysis
Framework1.
• Five core domains are analysed
covering both a CSP’s external
environment and relationships and
its internal structures and
performance
• A CSP performance is evaluated
against the key requirements for
transforming from Telco 1.0 to Telco
2.02.
• Analysis highlights areas of absolute
strength and weakness for each
CSP and benchmarks performance
against peers
• Analysis balances depth and
manageability:
• Aims to be insightful but not
overwhelmingly detailed
• Objective assessment:
• STL Partners is independent
• Uses hard public data and information
where possible
• Additional information gathered via
interviews and surveys conducted by
STL Partners
1. Used in our research and consulting. Strategy reports using this model include The Roadmap to new Telco 2.0 Business Models, A Practical Guide to Implementing Telco 2.0, Cloud 2.0: Telco strategies in the Cloud.
2. Outlined in detail in A Practical Guide to Implementing Telco 2.0 and other reports and implicitly communicated throughout this analysis.
2. Service Offering
5. Finance
3. Value Network4. Technology
1. The marketplace
Services Offering is what the CSP
delivers to customers in particular market
segment. It is defined by the CSPs
corporate and services strategy.
Technology is the technical architecture
and functionality that a CSP uses to deliver
service offerings.
Finance describes the way the CSP
generates a return from its investments
and service offerings. It also measures the
CSP’s success in generating returns.
Value Network is the way the CSP
organises itself to deliver service offerings
and includes both the internal structure
and processes and external partnerships.
The Marketplace is the context in which
the CSP operates. It consists of the
economic and regulatory environment and
the alternate service offerings offered by
competitors.
Source: Faber et al; Designing business models for mobile ICT services, 2001; adapted and developed by STL Partners

Data and information sourced for each market and CSP – quantitative
and qualitative analysis conducted
• Company accounts
• Regulator
• International Monetary
Fund
• World Bank
• Internetworldstats.com
• Academic studies
• Interviews
• Surveys
• Web sites
• Presentations
Financials:
Market, Competitor, Target CSP P&L,
Balance sheet, cash flow
Operational KPIs:
Target CSP & competitor market
share, service volumes (voice, data,
SMS), ARPU…
Market economics:
GDP, growth
Market digital maturity:
Internet penetration, Facebook
penetration, bank account penetration,
regulation
Service offerings:
Core services, Vertical industry
solutions, Infrastructure services ,
Embedded communications, 3rd-party
business enablers, OTT
Organisation &
Partnerships:
Structure, process, key players
Technology:
Key technologies, challenges, change process

For each CSP, the data and associated analysis is organised around the
5 domains at different levels of abstraction
• One overall Telco 2.0 transformation
score for each CSP based on 5
domain scores
• Over 100 underlying pieces of
analysis conducted for each CSP to
produce 34 level 1 or 2 scores
• Domain scores built up from Level 1
and Level 2 scores
• Benchmarking of scores and
underlying pieces of analysis carried
out between CSPs
Financials:
Market, Competitor, Target CSP P&L,Balance sheet,
cash flow
Operational KPIs:
Target CSP & competitor market share,
service volumes(voice,data,SMS), ARPU…
Market economics:
GDP, growth
Market digital maturity:
Internet penetration,Facebookpenetration,bank
account penetration
Service offerings:
Core services, Verticalindustry solutions,
Infrastructureservices , Embedded
communications, 3rd-party business enablers,
OTT
Organisation &
Partnerships:
Structure, process,key players
Technology:
Key technologies,challenges, change process
Value Network
ID & authentication
Summary
Domain
Level 1
Level 2

Marketplace domain evaluation – analysis areas
• This section evaluates the attractiveness of a CSP’s marketplace by region
• Four parameters comprise the marketplace evaluation:
1. Economic environment & digital maturity:
• The overall health of economy (or economises) in which the target CSP operates as reflected by
GDP size and growth.
• The digital maturity of the target CSP's market(s) as reflected by consumer and enterprise
adoption and usage of telecommunications and internet services.
2. Regulation:
• The regulatory framework that the CSP operates in. Includes legislation and attitudes to
pricing, net neutrality, CSP technical and commercial collaboration for new Telco 2.0
solutions, etc.
3. Competition and positioning:
• The nature of competition - how players compete, their goals, the strategies they deploy, the
products they develop
• How Telefonica is competing in the marketplace and its strengths and weaknesses
4. Customers:
• What customers want and, more importantly, are trying to achieve
(physically, intellectually, socially) and how this is reflected in their (digital) behaviour including
how they use products, react to companies and brands, share information about themselves etc.
• Specifically, the regard with which customers hold CSPs

Service offering domain evaluation - analysis areas
1. Core services:
• Core “Telco 1.0” retail offerings such as subscriptions, communications, broadband
connectivity and basic content services. These will remain at the core of telco
revenues, enhanced by the smart and targeted delivery of improved offers.
2. Vertical industry solutions:
• Comprise telephony services (voice and data) being integrated with IT with the operator
acting in a systems integrator role to provide a complete solution. These solutions are
tailored and packaged for specific vertical industries.
ID & authentication
3. Infrastructure services:
• Includes telecom capacity “bulk” wholesale, as well as more granular “distribution” two-sided business
models and aspects of hosting/cloud services. Some have been around for a while – bitstream
ADSL, unbundled local loop sales etc. Others (data MVNOs, wholesale wireless networks, IAAS) are
relatively new.
4. Embedded Communications:
• The delivery to consumers and enterprises of basic telecom services, primarily voice telephony, SMS and
broadband data access, through new routes such as application-embedded functions or devices which
“come with data” pre-provisioned. Telecoms as an integral part of another service rather than standalone.
5. 3rd-party business enablers:
• The provision of extra capabilities derived from the operator's ’platform’ rather than just network transport.
This includes functions such as billing-on-behalf, location, authentication and call-control, provided as basic
building blocks to developers and businesses, or abstracted to more complex and full-featured enablers (for
example, a location-enabled appointment reminder service).
6. OTT:
• CSPs offering content, communications and connectivity services outside the perimeter of their own access
subscriber base and independent of their network. CSPs acting like a OTT player and launching internet
services.
• This section evaluates the attractiveness of a CSP’s service offering
• STL Partners has identified 6 service offering opportunity areas for Telco 2.0:

Value Network evaluation domain - analysis areas
• This section evaluates how well each CSP is organised internally and
externally (within its ecosystem) to deliver Telco 2.0
• The Value Network evaluation consists of internal organisation and
external partnerships:
• Internal organisation – how the CSP is configured to deliver Telco 2.0
value:
1. Management, vision, goals and culture:
• The quality of the senior management team and the quality and clarity of the
associated vision, company goals, company culture
2. Organisation structure:
• How well the CSP organisation structure is aligned with the company vision and
goals and how effectively this supports the culture
• External partnerships – how the CSP works with other players to deliver
its Telco 2.0 strategy and specific Telco 2.0 service offerings:
1. Third-parties:
• The ability of the CSP to develop valuable and sustainable commercial
relationships with other players to build mutual value that is greater than could be
achieved by either party alone
2. Other CSPs:
• The ability of the CSP to identify and exploit areas where collaboration between
CSPs is mutually beneficial (e.g. because opportunities to differentiate are low
and/or the need for scale is high)
Value Network

Technology domain evaluation - analysis areas
• Four parameters comprise the Technology evaluation:
1. Flexibility
• The ability of the CSP's network, OSS and BSS to support more business models
(customers, partners, revenue and cost models) and more services than ever before.
• This includes the ability to manage information and transact on a real-time basis with
services that involve multiple customers and partners.
2. Efficiency:
• The CSP's ability to drive network, OSS and BSS costs down by managing technology
efficiently and driving complexity out.
• Covers both capital expenditures (and related depreciation charges) and operating costs.
3. Customer data:
• The CSP's ability to exploit its customer data to generate value for consumers and
businesses. This covers
• Ability to understand the value and risks of using customer data (including privacy issues).
• Ability to move beyond theory and develop services that derive value from customer data.
Includes both Core (retail) services (relatively easy to implement) and third-party services via a
B2B2X platform (more challenging).
4. Change process:
• The effectiveness of the CSP's process to transform its network, OSS and BSS to meet the
demands for Telco 2.0 (flexibility and efficiency, use of customer data, etc.). This covers:
• Fit between commercial and technology strategy.
• The balance of benefits and risks of the CSPs specific transformation approach.
• Evidence of success or failure in technology transformation.

Finance domain evaluation - analysis areas
• This section evaluates each CSP’s financial position, finance-strategy
alignment and revenue and cost models
• Four parameters comprise the Finance evaluation:
1. Financial performance
• The overall health of the company as reflected by profitability, debt levels and returns on
invested capital
2. Finance-strategy alignment:
• The degree of congruence between the finance model - revenue, opex, capex – and the Telco
2.0 vision and strategy (Telco 2.0 Happy Piper or Telco 2.0 Service Provider) including the
degree to which this is reflected in financial metrics.
3. Revenue model:
• How effectively can new revenues be generated as existing (Telco 1.0) revenues come under
pressure?
4. Cost model:
• How effectively overall the overall cost base be reduced (as the existing business model comes
under pressure) while new Telco 2.0 activities be adequately funded?

Analysis output data within each domain is collected for all CSPs and
used to benchmark Telco 2.0 transformation performance
Dimension Description Value
Market GDP 2012, Aggregate of all markets, $ Trillions 12.9$
Market GDP growth 2010-17, Compound Annual Growth Rate (CAGR) for weighted average across all markets* 4.3%
Market GDP per capita 2012 in US$, weighted average across all markets* 22,729$
Market GDP per capita growth 2012-17, CAGR, weighted average across all markets* 2.8%
Market Internet penetration 2012, %, weighted average across all markets* 63%
Market Mobile penetration 2012, %, weighted average across all markets* 119%
Market Bank account penetration 2011, %, weighted average across all markets* 56%
Market Mobile broadband penetration 2011, %, weighted average across all markets* 22%
Market Telecom Regulatory Governance Index Based on 2011 academic paper, weighted average across all markets* 0.55
Market Herfindahl score Q4 2012, weighted average across all markets* 0.31
Market Mobile revenue growth 2010-2012, CAGR, weighted average across all markets* 4.6%
CSP Total subscribers Q4 2012, Millions 239
CSP Monthly ARPU Q4 2012, $ 20$
CSP market share Q4 2012, weighted average across all markets* 32%
CSP market share gain/loss 2010-12, weighted average across all markets* -1.2%
Market Facebook penetration 2012, %, weighted average across all markets* 40%
Market Proportion of post-paid customers Q4 2012, weighted average across all markets* 30%
CSP Proportion of post-paid customers Q4 2012, weighted average across all markets* 31%
Market Average monthly churn Q4 2012, weighted average across all markets* 3.0%
CSP Average monthly churn Q4 2012, weighted average across all markets* 2.8%
CSP Brand value/revenue 2012, %, total of all CSP brands 33%
CSP Facebook likes Spring/Summer 2013, Millions, total of all CSP brands 9.8
CSP Facebook likes per $1M Spring/Summer 2013 Facebook likes/2012 revenue, total of all CSP brands 121
Marketplace
Example: 23 quantitative variables collected for Marketplace domain (Telefonica data)

Each domain has its own set of output data used for benchmarking
Telco 2.0 transformation performance: e.g. shown Marketplace
Notes: 1) Work-in-progress, additional dimensions may be added. 2) There are additional datasets for each domain.
Dimension Quantitative Qualitative Scored?
Market GDP  
Market GDP growth  
Market GDP per capita  
Market GDP per capita growth  
Market Internet penetration  
Market Mobile penetration  
Market Bank account penetration  
Market Mobile broadband penetration  
Market Telecom Regulatory Governance Index   Regulation
Market Herfindahl score  
Market Mobile revenue growth  
CSP Total subscribers  
CSP Monthly ARPU  
CSP market share  
CSP market share gain/loss  
Market Facebook penetration  
Market Proportion of post-paid customers  
CSP Proportion of post-paid customers  
Market Average monthly churn  
CSP Average monthly churn  
CSP Brand value/revenue  
CSP Facebook likes  
CSP Facebook likes per $1M  
Marketplace
MarketplaceDomain
Economicenvironment&
digitalmaturity
Competitionand
positioning
Customersand
customerengagment

Analysis output data is then used to compare CSPs against each other
and against new competitors
9%
20% 22% 24% 24% 27%
33% 33% 35% 35%
39%
44% 45%
95%
173%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
Qtel (now
Ooredoo)
China
Mobile
AT&T Verizon Axiata
Group
Deutsche
Telekom
Orange Telefonica MTN Etisalat Singtel Vodafone Apple Google Facebook
Example: Brand value/Revenue, 2012

Each individual piece of analysis is used to build domain scores and
overall score for each CSP
Example: Marketplace domain
Churn analysis
Brand analysis
Digital
engagement
analysis
Customer mix
analysis
OTT strength
analysis
Market share
analysis
ARPU analysis
Subscriber
volume analysis
Market Growth
analysis
Market structure
(Herfindahl)
analysis
Market
regulation
analysis
Market GDP size
analysis
Market GDP
growth analysis
Market GDP per
capita analysis
Market GDP per
capita growth
analysis
Market internet
penetration
analysis
Market mobile
penetration
analysis
Market bank
account
penetration
analysis
Market mobile
broadband
analysis
Economic environment
& digital maturity score
Regulation score Competition &
positioning score
Customers and
customer engagement
Marketplace domain score

For qualitative analysis, STL Partners uses a standard scoring guide for
each CSP to produce a comprable score
• Qualitative analysis –
such as exploration of
Service Offerings – is
undertaken by STL
Partners:
• Example shows 3 slides
analysingTelefonica’s Core
Services (Voice and
messaging, Connectivity
and Content)
• The results for each CSP
are then converted to
scores using a scoring
guide with
clear, standardised
definitions used to
produce scores
Example: Telefonica performance on Core Services (Service Offering Domain)

Each CSP analysis report is supported by a data pack containing the
sourced data and STL Partners analysis

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