Context of the industry, new competition, CSP imperative, digital transformation, mobile video, ecosystem platforms

1. Outthinking disruption – Adapt to the Fast-
Moving Digital World or Risk Irrelevance
Rob van den Dam
Global Telecom Leader
IBM Institute for Business Value

2. Content
1 | Context of the industry
2 | Non-traditional competitors
3 | CSP Imperatives
4 | Digital Transformation
5 | Mobile Video
6 | Meanwhile, those damn digital platform companies
7 | And, who’s this guy?

3. But first a little levity…
Telstra data guy won’t apologise for downloading content, blames Telstra
The man dubbed the “Telstra data guy” says he downloaded $10,000
worth of free data during Telstra’s Free Data Sunday and won’t apologize
to critics despite coppingit from the rest of the country for abusing the
system.
Mr Szaszvari downloaded a whopping 994 gigabytes of data that day,
including free software, large backups, TV shows, and movies, despite
claiming his ADSL connection suffers at least 15 drop outs per day.
News.com.au, April 6, 2016

4. Content
1 | Context of the industry
Privacy, regulation, spectrum, acquisitions
2 | Non-traditional competitors
3 | CSP Imperatives
4 | Digital Transformation
5 | Mobile Video
6 | Meanwhile, those damn digital platform companies
7 | And, who’s this guy?

5. Singtel users report seeing other
users’ personal details on app
TODAYonline, February 29, 2016
FCC Settles With Verizon Over its
Stealth 'Super Cookies'
DSL Reports, March 7, 2016
FCC unveils mobile broadband
privacy proposals
Mobile World Live, March 11, 2016
GSMA chief says mobile industry
has privacy “obligation”
Mobile World Live, May 10, 2016
IoT and big data pose
“monumental” risk for operators
Mobile World Live, May 10, 2016
Privacy: Continued Breeches and Growing Regulatory
Concerns

6. Encryption skyrockets as privacy concerns grow
Source: Google transparency report, retrieved 3/21/16
Percent of traffic that is encrypted, by country

7. IoT and big data pose “monumental” risk for operators
With the amount of personal data held by companies growing, and
encompassingamong other things financial, location, and health data,
futurist Patrick Dixon warnedthat “you have the biggest target for criminal
activity that the world has ever seen”.
Dixon said, “While there is a clear potential for financial damage through
cyber security and fraud, perhaps the bigger issue is the damage that can
be done to the brand.”
Mobile World Live, May 12, 2016.

8. Scrutiny from European Competition
Commissioner Margrethe Vestager
helped derail a deal between
Scandinavian telecom operators
Telenor ASA and TeliaSonera AB
The Wall Street Journal | February 11, 2016
Verizon hit with $1.35M fine for use of
“supercookies
Mobile World Live, March 8, 2016
Korea’s operators ordered to
compensate users for misleading
“unlimited” claims
Mobile World Live, March 24, 2016
FCC starts Open Cable process
BroadbandTV News, March 9, 2016
MTN offers $1.5B to settle Nigeria row
Mobile World Live, March 10, 2016
Ofcom study argues consolidation
raises prices
Mobile World Live, March 15, 2016
India set to allow virtual operators
Hindustan Times, March 31, 2016
Regulation: Regulators side with consumers and
challengers, seldom with incumbents

9. Mexico to raise $2.5 billion in
spectrum auction
Reuters UK, February 18, 2016
EBU angered over Commission's
early 700MHz clearance plans
BroadbandTV NewsFebruary 3, 2016
Australian operators spend $385M for
1.8GHz spectrum
Mobile World Live, February 5,, 2016
We won’t be able to afford 700 Mhz
spectrum: Gopal Vittal, Airtel India CEO
MediaNama February 24, 2016
FCC to Sell Maximum Amount in TV
Airwave Auction
Wall Street Journal, April 29,, 2016
Comcast to Jump Into Airwaves
Auction
Wall Street Journal, February 23, 2016
SoftBank still looking like a bidder in
spectrum auction
Seeking Alpha, May 4, 2016
Google opts out of upcoming US
spectrum auction
Reuters, February 15, 2016
Spectrum: Licensing costs rise, pressuring CSP
financials

10. Acquisitions: Regulators sour on in-country
consolidation, but cross-border activity continues
Orange abandons bid to buy
Bouygues phone unit
Gulf News, April 3, 2016
Commission rejects Hutch/O2 UK tie-up
Mobile World Live, May 1, 2016
Regulator may further delay decisions
over SK-CJ deal
The Korea Times,April 7, 2016
BCE-Manitoba Telecom deal seen
facing tough regulatory scrutiny
4-Traders, May 2, 2016
Axiata Group buys Nepal's Ncell for
$1.36b
TelecomAsia, April 11, 2016
Orange to acquire Millicom’s Congo arm
MobileWorldLive, February8, 2016
Comcast buys DreamWorks Animation
in $3.8b deal
Washington Post, April 28, 2016
Comcast buys French startup
StickyAds to build out its digital video
business for reported $100M
ReCode, May9, 2016
Rovi to buy TiVo
BroadbandTV News, May2, 2016

11. Content
1 | Context
2 | Non-traditional competitors
Digital Giants, Start-ups and other competitors
3 | CSP Imperatives
4 | Digital Transformation
5 | Mobile Video
6 | Meanwhile, those damn digital platform companies
7 | And, who’s this guy?

12. ©2015 IBM Corporation 7 September 201612
What’s putting the
world’s
top executives on
edge?

13. More competition expected
from other industries
Communications
industry
Cross industry
More competition expected
from within the same industry
….. any many
more
Digital
Disruptors
Business landscape change (in 3 to 5 years)
Telco CxOs are terrified of outsiders making a land
grab
Source: IBM Institute for Business Value Global C-suite Survey (n= 5247, off which 295 CSPs).

14. The communications market is a complex battlefield
Independent
WiFi providers
Network
equipment providers
Application & Cloud
providers
Cable/satellite
providers
Mobile Device
providers
Low cost
entrants
Digital
Giants
Ankle-
bitersTraditional
CSPs

15. OTT Internet giants and the ‘Uber-type’ ankle-biters
are seen as CSPs’ greatest competitive threats
OTT Digital Giants
Ankle-biters (digital start-ups/unicorns)
Mobile device manufacturers
Traditional competitors
Cable/Satellite providers
IndependentWiFi providers
New low-cost operators
Cloud providers
Greatest competitive threat to CSPs over the next five years?
Traditional application providers
Network equipmentproviders
86%
44%
38%
37%
37%
34%
20%
14%
4%
1%
Source: IBM Institute for Business Value Communications 2020 Survey (n= 135).

16. April 17, 2015: “Till Q1 2014, WhatsApp had already erased an estimated
$33 billion in SMS revenue from wireless operators”
February 29, 2014: “Between 2012 and 2018 the entire telecommunications
industry will have lost a combined $386 billion because of OTT VoIP”
May 27, 2015: “Telco messaging revenues have already taken a 30% hit
(India CSPs), thanks to OTT players”
August 12, 2015: “Telco messaging revenue has taken a 30% nose dive (in
Nigeria) and could decrease by an additional 20% in a few months”
These digital invaders - providing better customer
experiences - have already destroyed core revenues

17. Content
1 | Context of the industry
2 | Non-traditional competitors
3 | CSP Imperatives
Cost Reduction, Customer Experience, New revenue
4 | Digital Transformation
5 | Mobile Video
6 | Meanwhile, those damn digital platform companies
7 | And, who’s this guy?

18. Swisscom cuts jobs, call centres amid
lower earnings
Swissinfo, February04, 2016
KPN targets €300M cost savings in
latest strategic plan
Mobile World Live, March 7, 2016
Singtel subsidiary Optus announces job
cuts amid restructuring
CHANNEL NEWSASIA, April 03, 2016
Italia (Brazil) to cut 1,000 jobs
The Gulf Today, February 11, 2016
Telecom Italia Raises Cost-Cut Target
to $1.8 Billion by 2018
Bloomberg Business, May13, 2016
India’s Airtel, Idea face cashflow
challenges in FY16-18
Mobile World Live, March 4, 2016.
PLDT outlines 3-year turnaround
plan following 35% profit drop
BusinessWorld, March 4, 2016.
Cost-cutting helps SK Telecom report
Q1 profit jump
Mobile World Live,April 29, 2016.
Rising costs squeeze China
Telecom’s Q1 profit
Mobile World Live,April 29, 2016
Cost Reduction: a quarterly way-of-life for CSPs

19. Source: Apteligent, OpenSignal,STL Partners analysis
Mobile network
CustomerExperience
index
VERY LOW NPS =
(half of that of most
other industries)
The average actual customer experience is poor and varies
by operator varies by a factor of 3!

20. New Revenue: A Cautionary Tale? CenturyLink CFO
on Telecom Industry Economics
“For every dollar that it loses in legacy
revenues, CenturyLink must generate two
additional revenue dollars in growth areas in
order to maintain its earnings level.”, said the
company’s CFO Stewart Ewing yesterday.
Telecompetitor Blog, March 09, 2016

21. CSPs are exploring a range of opportunities to
generate new sources of revenue
In looking toward the year 2020, CSPs rank ‘increasing their role
in the IoT’ as the most important path toward growth
66%
62%
56%
45%
36%
35%
27% 26%
23%
40%
Increasing role
in IoT/ M2M
Becoming a
lifestyle
enabler
Improving
customer
relationships
Improving
connectivity
offerings
Platform for
partner applications
Revenue from
big data /
analytics
New
business
models
Vertical
expansion in
other industries
Payment
services
Revenue from
cloud
services
Source: IBM Institute for Business Value Communications 2020 Survey (n= 135).

22. New Revenue from IOT: Hype or Hope?
SK Telecom to roll out a nationwide LPWAN
Telecom Asia, March 15, 2016
Cisco closes Jasper deal
Mobile World Live, March 22, 2016.
Jasper study breaks down opex cost for industrial IoT (Mobile World Live, April 26, 2016)
Between 35 per cent and 50 per cent of total opex comes from network communications.
Rogers introduces Internet of Things as a Service. Hype or hope?
Internet Do, April 02, 2016
IoT is “killer app” of big data – Amdocs (Mobile World Live, April 13, 2016)
The Internet of Things (IoT) is not just a derivative of data but is the equivalent of a "killer app" of big data.
SigFox ‘Internet of Things’ Plan Challenges AT&T, Verizon, T-Mobile and expand
its wireless network using unlicensed frequencies to 100 U.S. cities
Investors. Com, May 4, 2016

23. New Revenue: Adjacent Markets
Telstra bets on e-health to become billion dollar business
Telstra has paid $237 million for 15 acquisitions in the past 18 months with the goal
of hitting $1 billion in annual revenues by 2020. It's a goal that will require rapid
expansion both domestically and abroad – Telstra Health made just $78 million in
the year ending June 30.
"We've been successful in winning a number of multi-million dollar contracts in
Thailand and Malaysia to deliver our integrated hospital information exchange
offering," Mr Ballantyne said. "We wouldn't be making an announcement if it wasn't
in the range of tens of millions … but it's south of $50 million.
Sydney Morning Herald, August 23, 2015

24. New Revenue: Adjacent Markets
Is Telstra Health a lame duck? Connect the dots
Telstra Health has invested in 20 companies in two years and has been much feted
as the company guiding our e-health future. It looks like it just ran aground on the
isle of ‘strategic review’….
According to industry sources, Telstra’s senior management decided to halt funding
for their Health group following a strategic review of the business….
Telstra Health turns over only about $80 million and is reportedly not profitable.
Medical Republic, April 4, 2015

25. Content
1 | Context
2 | Non-traditional competitors
3 | CSP Imperatives
4 | Digital Transformation
Serving today’s digital consumer
5 | Mobile Video
6 | Meanwhile, those damn digital platform companies
7 | And, who’s this guy?

26. Transformation: Telefonica sees digital
transformation as “terrifying” but “urgent”
Phil Jordan, CIO Telefonica, discussed how
the operator is working towards
digitalisation across 15 countries, calling the
process “the hardest thing you will ever do.”
MobileWorldLive, April 14, 2016.

27. Transformation: The fast are eating the slow
Yesterday, the big ate the small. Now the fast eat the slow.
Andrew Penn, CEO of Telstra: "In the future, if a business is
not mobile-first and digital to the core, if it does not present
on an app or an icon on a customer's handset, then
effectively it will simply not exist."
ZD Net, May 9, 2016.

28. Transformation: PLDT CEO says digital move will be
“difficult and complicated”
The Philippines’ largest operator PLDT (owner of
Smart) suffered another weak quarter with its profit
down sharply and revenue mostly flat.
PLDT CEO Manuel Pangilinan said the results for the
first quarter confirm that its “digital pivot will be a
difficult and complicated process”.
MobileWorldLive, May5, 2016.

29. Trailblazing companies embrace consumers’ love for
digital to fundamentally change customer experience

30. Today’s CSPs face a number of obstacles when
implementing customer experience initiatives
Siloed
processes &
divisions
Not knowing what
makes a ‘good’
experience
Lack of CE
vision &
strategy
Difficult
business
case
Limited
view of
customer
Difficulty in
measuring
CE
Lack of
required
skills
Lack of
leadership/
commitment
Limited
budget
68% 71%
43%
49%
31%
26%
19%
24%
34%
49%
42%
32%
25%
“The biggest
challenge is
the company
itself; this is
a very big
and slow
boat.”
CSP CFO from Spain
Source: IBM Institute for Business Value Communications 2020 Survey (n= 135,).

31. Online presence
Products and services designed for
online engagement first
Self service
Self-service options controlled by the
customer, improving their experience and
reducing off line channel costs
Online
Presence
Self-
Service
Digital channels
first
Call center
Reserved for transactions and
issues that require more control
or customers who choose or
need deeper support
Experience
stores
Call
Center
Omni-
channel
Engagement
in 2020
Experience store
Serves as an extension of the
online channel,predominantly as a
physical show case for digital products
subsequently call center and stores
A Digital CSP thinks digital first and drives almost all
interactions online, putting the customer in control

32. It’s time for CSPs to recognize the imperative by
becoming digital services providers
±90% sales and service
transactions online, omni-
channel, high customer
experience & NPS
Serves all segments,
customer-defined
purchasing
Serves
the
customer
base
The Digital Services Provider (DSP)
•Provides experience-led services
•Contextual actions in the moment
•Low cost, agile, automated, intelligent
Re-engineer
processes for
E2E automation,
micro-service for
agility, low costs
Transformed
digitally savvy
workforce Cognitive analytics,
intelligent data

33. Transforming the workforce and skill base is crucial
for CSPs in the digital era
Skills will be needed for
areas like:
ü digital channels,
social media, content
management and
digital advertizing
ü user experience (UX)
and user interface
(UI) design
ü Cloud technology
ü Data / Cognitive
analytics to be able to
work with the wealth
of new data captured
through digitization
Gearing Up for the Cloud, AT&T Tells Its
Workers: Adapt, or Else
There is a need to retool yourself, and you
should not expect to stop,” said Randall
Stephenson, the chief and chairman of AT&T. He
is reinventing the company for a cloud-heavy
future.
AT&T’s competitors are not just Verizon and
Sprint, but also tech giants like Amazon and
Google. For the company to survive in this
environment, Mr. Stephenson needs to retrain its
280,000 employees so they …..
New York Times, Feb 13, 2016.

34. Content
1 | Context
2 | Non-traditional competitors
3 | CSP Imperatives
4 | Digital Transformation
5 | Mobile Video
The mobile internet morphing into a video distribution network
6 | Meanwhile, those damn digital platform companies
7 | And, who’s this guy?

35. No one “owns the TV customer” anymore
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
n = 1,000 UK Internet users
Source: Ovum’s Digital Consumer Insights
Blue = pay TV
Red = SVOD
Green = TVOD
UK, pay TV and premium OTT video adoption by service, Nov-15
…and that’s not including “free” services

36. TV and OTT video as an app: Just one future for consumer
video
1
2
13
15
15
16
89
135
141
242
269
502
Social Network
Cinema group
Retailer
Sports association
Content producer
Online retailer
Media group
Internet firm
Telecoms operator
Consumer technology
Broadcaster
Online video
Global, premium OTT-video services by parent
company type, Mar-16
Source: Ovum

37. Video on the mobile is the key driver of mobile data
growth
37
65% of Facebook's Video Views Are
Now on Mobile Devices
Adweek, Jan 7, 2015
Snapchat Hits 7 Billion Mobile
Daily Video Views
Bloomberg, Jan 11, 2016
It’s official: 50% of YouTube
Traffic Now Comes from Mobile
RealSEO, Oct 28, 2014
of iPhone users will abondon streaming
a video if they have to wait longer than
15 seconds
59%
19%
90%
will abandon a video after only a 5
second wait
of consumers streaming video on
their mobile experience video
quality problems every day
Procura, OpenWave Mobility, 2015
The internet is gradually morphing into a video distributionnetworkwhere the definition of
consumer experience is rapidly changing

38. Mobile video has its challenges, but also provides
opportunities
38
KPN is exploring the many
new video experience options
that LTE Broadcast will allow,
for instance in venues like
stadiums and concerts hall,
providing viewers with instant
access to several simultaneous
high definition video streams.
Verizon has launched its new
mobile video service go90, aiming
to prove that CSPs can compete
with mobile ad titans Google and
Facebook. Verizon is in talks with
advertisers and brands about
content sponsorships and original-
content creation
Vodafone UK pushes 4G
offering with its Netflix
partnership. 4G customers are
using four times more data than
those on 3G, which shows how
popular services such as Netflix
are with their 4G customers.

39. Content
1 | Context
2 | Non-traditional competitors
3 | CSP Imperatives
4 | Digital Transformation
5 | Mobile Video
6 | Meanwhile, those damn digital platform companies
Serving ecosystems of partners
7 | And, who’s this guy?

40. Apple has thousands of developers and accessory manufacturers continually
creating complementary products that work beautifully with Apple’s devices and
create increasing demand for them
Within 4 years of existence Xiaomi became the 3rd e-commerce company in
China – it sells its smartphones at near cost and makes money from commerce
services. It is the opposite of Apple, but has the same platform business model
Tencent gained revenues from many products and services, but the real
success came when Tencent transformed from a product to a platform company
Newcomers (such as AirBnB and Uber) are making use of platforms and are
becoming the platform of reference in their sector
IBM acquisition of The Weather Company marks a recognision of the value
and replicability of large scale IoT platforms
The rise of platform-based ecosystems built on the
internet and ‘as a service’ business model created new
markets

41. Green = Not in Top 15 in 2004 Red = Gone or not in Top 15 in 2015
The Top 15 born-on-the-internet, (mostly) platform
companies have increased in market value almost ten-
fold in twelve years

42. And platform economics are superior to infrastructure
or product
Source: STL Partners, May 2016.

43. Providingbest-effort connectivity
(connectivity as a commodity)
Providingnetwork-optimized connectivity
(managed connectivity)
Runninga digitalmall
(self-run businesses via web/mobile/shop)
Exposing/managing an ecosystem platform
(for own and partner applications)
In looking toward 2020, CSPs envision four capability
areas based on the services and assets they provide -
three product-based and one platform-based
Source: IBM Institute for Business Value Communications 2020 Survey (n= 135).

44. Content
1 | Context
2 | Non-traditional competitors
3 | CSP Imperatives
4 | Digital Transformation
5 | Mobile Video
6 | Meanwhile, those damn digital platform companies
7 | And, who’s this guy?

45. Who’s this guy and what’s he doing with this car?

46. LeEco Wants to Give Away Its 'Tesla Killer' for Free,
but Questions Remain
"On April 14, we held the first free hardwareday in China,
when we had sales for our smartphones, TVs on our
website. We believe that the world is heading for an
ecosystem era, where hardware will be irrelevant and rather
users will be more interested in the content, value they can
get from a device.”
Billionaire entrepreneur Jia Yueting, chief executive and
chairman of Chineseconglomerate LeEco (formerly LeTV)
Gadgets360, April 23, 2016.

47. LeEco in 2nd quarter 2016
Russia set for Chinese Netflix
BroadbandTV News, April 6, 2016
LeEco sidelines headphones jack with latest smartphones
MWL, April 26, 2016
China’s LeEco opens San Jose HQ to take on Apple, Tesla, Netflix
SFGate, April 29, 2016
LeEco launches new smartphone, entertainment services in India
Hindustan Times, May 3, 2016.
LeEco announces global partnership with Twitter
Times of India, May 12, 2016

48. By moving to a platform-based business model, CSPs
can become a digital services enabler (DSE)

49. An open platform will create new opportunities for
DSEs to enable a new wave of sustainable growth
Taking a central role in ecosystems and IoT applications, DSEs will capitalize on:
§ network effects (crossover effects between the different players) and the
increasing returns from large platforms
§ economies of scale
§ market trust and brand reach
§ capturing innovationsfrom 3rd
parties, app developers and also internet users
(platform efficiency is fuelled by the trend of open innovation)
§ emerging businesses and young startups who see them as the way to get access to the
market
§ high levels of security and privacy that only CSPs can provide

50. The 2020 CSPwillemerge from today’sprovideralong two primary axes:
the digital services provider and the digital services enabler
Summary

51. Ending quote from AT&T
AT&T wants the world to see its software for spinning up services
AT&T has revealed details of a software platform that makes it easier for customers to order new
services, and the company may release the code as open source for other service providers to use.
“We're opening the hood of our
network and showing you the engine,"
Donovan told a hall in Santa Clara, California, that was crowded with engineers from carriers and
vendors.
PC World, March 15, 2016

52. Thank you
Rob van den Dam
Global Telecom Industry Leader
IBM Institute for Business Value
rob_vandendam@nl.ibm.com
www.ibm.com/iibv