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Making IP Transformation More Predictable (2008)

“Making IP Transformation More Predictable – Proving It by Business Cases” presented at the ITU "NGN Development Strategies and Implementation Practices" conference in Warsaw, June 2008.

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Making IP Transformation More Predictable (2008)

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  1. Making IP Transformation More Predictable Proving It by Business Cases Marc Jadoul Warsaw — June 23rd, 2008. IP TRANSFORMATION CENTER Partnering for change

  2. IP Transformation — What are we Talking About ? “ The process through which communications service providers will evolve their people, process and technology to leverage a single, converged network based on the Internet Protocol (IP). IP Transformation should enable greater efficiencies, lower costs and provide the basis for value propositions centered upon applications, services, network access, and data carriage. From a technical perspective, IP transformation is the migration towards standards-based architectures that allow service providers to create multipurpose platforms sharing a common infrastructure. From a business perspective it is the creation of new business models and relationships to support a service-and-application- focused orientation. ” PriceWaterHouseCoopers 2 | Carrier IP Voice Transformation | June 2008 All Rights Reserved ©Alcatel-Lucent 2008

  3. Competition and Cost Drivers Keep the Pressure On to Transform ‘Legacy’ dominates revenue mix Low margins on new services Fast erosion of legacy revenues Impact on EBITDA margins = + * Growth Growth ~ 25 % ~ 45 % (~ 2- 4 %) YoY 42 % 35 % ~ 75 % Legacy ~ 55 % Legacy Revenue Mix 2002 2004 2006 2006 2008 EBITDA Mix Legacy revenues Source: service provider reports, Morgan Stanley Low return (RoA, RoI) due to ‘legacy’ & ‘proprietary’ infrastructure. Limited innovation capacity due to network silos & heavy processen/IT. Market Cap /Revenue EV/PPE OPEX/Revenue CAPEX/Revenue Traditionele telecom service providers < 3 < 5 > 62% > 18% New market players (Google, Yahoo, eBay, ...) > 8 > 53 < 47% < 10% RoA= Return on Assets; RoI = Return on Investments EV = Enterprise Value; PPE = Property, Plant, Equipment Source: the Yankee Group, Alcatel-Lucent 3 | Carrier IP Voice Transformation | June 2008 All Rights Reserved ©Alcatel-Lucent 2008

  4. IP Transformation is Vital to Service Providers’ Competitiveness … Is IP Transformation Vital to Future Competitiveness ? Strongly Agree Agree Neither Agree or Disagree Disagree Strongly Disagree 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Percentage of Respondents Source: Heavy Reading, “Class 5 Migration and Adoption: A Multi-Client Study”, November 2007 4 | Carrier IP Voice Transformation | June 2008 All Rights Reserved ©Alcatel-Lucent 2008

  5. … and a Major Means to Increase Shareholder Value Shareholder Value ARPU increase Competitive differentiation Customer retention Enhanced user experience Cost reduction (CAPEX & OPEX) • Uniform infrastructure for fixed & mobile • Common service delivery • Lean operations (staffing, processes & tools) • New services (IPTV, 3G, multimedia, …) • Convergence (voice-data, fixed-mobile) • Nextgen OSS/BSS • Quality of Service, e2e SLA mngmnt • Customer self-service • New IP terminals 5 | Carrier IP Voice Transformation | June 2008 All Rights Reserved ©Alcatel-Lucent 2008

  6. What are Service Providers Doing Today ? Cutting costs through network and operations transformation Transforming cost structure,processes and IT systems Integration of networks to drive cost reduction [AT&T] Number of OSS/BSS systems Cost synergies from integration & transformation Cumulative OPEX savings €850M >$5B 1252 >$3B €450M $1.1B €150M ~50 2005 2007 2009 2006 2007 2008 2006 2011 Optimizing the product portfolio and the ‘customer experience’ Transforming the legacy network to support growth assets Focus on investing in growth services Broadband share in CAPEX mix Revenues from new-wave services Products in portfolio ~100 36.5 % 64% ~50 18.3% 27% 2000 2005 2005 2006 2004 2007 Source: service providers reports and analyst presentations 6 | Carrier IP Voice Transformation | June 2008 All Rights Reserved ©Alcatel-Lucent 2008

  7. Transformation at all Layers of the Network — But will not happen All-at-Once Wireline Wireless Voice Content Applications New Services/Bundles New Services/Bundles OSS/BSS SDP/SDE & NG OSS/BSS SDP/SDE & NG OSS/BSS Video Data Public Internet IMS IMS Call/Session Control PSTN/PLMN Fixed Mobile Convergence Fixed Mobile Convergence IN & Telephony Apps IN & Telephony Apps IP/ MPLS Core IP Business/Consumer VoBB End-to-End VoIP Multiservice Edge Transport Class 4 & 5 NGN Tandem & Class 4 NGN Legacy Data Services Distributed R4 Access Networks Data Center IP Core IP Core/Backhaul Consumer High Speed Access High Speed Access Enterprise Transformation enables Convergence 7 | Carrier IP Voice Transformation | June 2008 All Rights Reserved ©Alcatel-Lucent 2008

  8. Evolution of Voice Service Architectures Traditional Switch NGN “Softswitch” IMS Architecture Wireless Subs. Data Wireless Subs. Data ALL IN AS Subs. Data AS IN, AIN, Camel IN, JTAPI, Parlay & proprietary XML SIP Wireline Subs. Data Wireline Subs. Data Session Control CSCF Embedded Features voice + MM Features SIP Call Control Call Control MGCF Signaling Signaling Signaling SIP Media GW Controller Media GW Controller Bearer Control SIP, H.323, MGCP H.248 H.248 Media Gateway Media Gateway IP IP Switch Fabric 8 | Carrier IP Voice Transformation | June 2008 All Rights Reserved ©Alcatel-Lucent 2008

  9. Service Provider Voice Transformation Strategies Voice Services Delivery Strategy 100% 80% 60% 40% 20% 0% 1- 2 Years 2-5 Years > 5 Years NGN Basic Features NGN Full Features IMS PSTN Emulation IMS PSTN Simulation Source: Heavy Reading, “Class 5 Migration and Adoption: A Multi-Client Study”, November 2007 9 | Carrier IP Voice Transformation | June 2008 All Rights Reserved ©Alcatel-Lucent 2008

  10. Transformation is no ‘Business as Usual’ Upgrade approach Transformation approach • Tactical infrastructure upgrades • Unchecked/uncontrollable TCO • Poor user experience • Technology & operations “stovepipes” • Strategic network transformation • Cost control & investment protection • Managed end-to-end QoS/QoE • Global IP transformation project QoE Costs Costs QoE OPEX OPEX CAPEX CAPEX Time Time • • • Increased churn ARPU erosion Pressure on margins • • • Customer-centric services ARPU growth Margin protection 10 | Carrier IP Voice Transformation | June 2008 All Rights Reserved ©Alcatel-Lucent 2008

  11. Making the Transformation “Predictable” • Network modernization • New services launch • Fast market evolution • Continuity of business • Top & Bottom lines • Network & Services alignment • Network & IT alignment • Operations model • Eco-system & partnerships • Organization & processes • Acquiring the right skills Hidden opportunities, costs and risks ! Need for a Business Case to balance the opportunities, costs and risks. 11 | Carrier IP Voice Transformation | June 2008 All Rights Reserved ©Alcatel-Lucent 2008

  12. Building the Business Case for Transformation Scenario #N Scenario #2 Scenario #1 Network Management & Market Evolution & Obsolete Equipment & Demand Coverage OSP Improvement O&M Optimization Incremental REVENUE Transformation CAPEX OPEX savings Selecting the optimal Transformation Scenario based on techno-economic criteria • Identify and analyze major revenue growth opportunities • Find the optimum CAPEX return opportunities • Find the best OPEX savings opportunities • Analyze migration strategy, methodology & timing 12 | Carrier IP Voice Transformation | June 2008 All Rights Reserved ©Alcatel-Lucent 2008

  13. The Transformation Business Case* — Focus on Costs Optimization CAPEX variation (M€) Network OPEX (M€) 600 1,200 1,100 400 1,000 Baseline scenario Moderate scenario Aggressive scenario 200 900 0 800 700 -200 600 Moderate scenario -400 Aggressive scenario 500 -600 400 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Replacement of obsolete equipment: • Access, transport & switching • Introduction of IMS service platform • Next Generation OSS/BSS • Real-estate consolidation/disposal Outsourcing of OPEX intensive activities: • Network Mgmt, Services & Provisioning • Inside Plant & Outside Plant • Regional COC/EGR & regional NOC • Multi-Vendor Spare Management • Tools & Test Set Management • Technical Support & Administration (*) business case simulation based on anonymized service provider reports, analyst data and extrapolations of the former 13 | Carrier IP Voice Transformation | June 2008 All Rights Reserved ©Alcatel-Lucent 2008

  14. The Transformation Business Case* — Focus on Revenue Growth Revenues (M€) EBITDA margin (%) 3.500 45% 40% 3.000 35% 2.500 30% 25% 2.000 20% Baseline scenario Baseline scenario 1.500 Target scenario Target scenario 15% 1.000 10% 2005 2006 2007 2008 2009 2010 2011 2012 2005 2006 2007 2008 2009 2010 2011 2012 Environmental impact from: Transformation impact from: Price erosion Take rate Customer churn • Service Delivery (NGN/IMS/SDP) • New services/bundles (VoIP, IPTV, Multimedia) • Network transformation (All-IP) • Process re-engineering and NG OSS/BSS • Competition • Regulation • Internal/external costs evolution (*) business case simulation based on anonymized service provider reports, analyst data and extrapolations of the former 14 | Carrier IP Voice Transformation | June 2008 All Rights Reserved ©Alcatel-Lucent 2008

  15. The Transformation Business Case* — Where is the Impact coming from ? Impact on Costs Impact on Revenues Impact on EBITDA Transformation impact from: Service Delivery Platform (IMS/SDP/SDE) New services/bundles (VoIP, IPTV, Multimedia) Network transformation to All-IP (CAPEX & OPEX) Process & IT re-engineering and NG OSS/BSS (OPEX) Outsourcing of activities: O&M, ISP/OSP, etc. (OPEX) (*) business case simulation based on anonymized service provider reports, analyst data and extrapolations of the former 15 | Carrier IP Voice Transformation | June 2008 All Rights Reserved ©Alcatel-Lucent 2008

  16. Proofpoint: Telecom New Zealand’s Transformation project Cash Benefit (x1000 NZ$) • Outsourcing benefits • Operational cost savings • Sales & support • New business opportunities • “One-off” Benefits • Other 70,000 60,000 50,000 • Vendor reduction benefit • NGN transition benefit 40,000 30,000 • Inventory mngmnt savings • Depreciation savings • Promotions • IP edge margin retention • DSL business penetration • DSL consumer penetration 20,000 10,000 2002 2003 2004 2005 Source: Telecom New Zealand, Gartner 16 | Carrier IP Voice Transformation | June 2008 All Rights Reserved ©Alcatel-Lucent 2008

  17. IP Technology is a Means, NOT the Target of Transformation ... Services • ROI on broadband access • New customers, higher ARPU • Enhanced ‘user experience’ Network • ‘All IP’ infrastructure • IMS and SDP • Getting rid of “stovepipes” Operations • Time-to-market • Cost reduction • IT, processes & organization 17 | Carrier IP Voice Transformation | June 2008 All Rights Reserved ©Alcatel-Lucent 2008

  18. Some Lessons Learned on Network Transformation “Less is more” and “simpler is better” … • Regain economies of scale and allow cost synergies • One single multi-service network, without (network & service) silos … but don’t under-estimate end-to-end complexity • “Standards compliance” is not always a synonym for “interoperability” • Understand the legacy before designing the next generation • Work with a prime Network Integrator to manage technology, solution architecture, project and multi-vendor interdependencies QoS is more than “bits per second” • It’s the overall quality of the end-user experience (QoE) that matters • Invest time & money for upfront QoS/QoE design, testing and validation • Always develop and evaluate the service against well-defined KPI/KQIs Inter-working is a business decision, not a technical one • Inter-working with PSTN and peering with VoIP are hard requirements • Don’t (mis-)use SIP for what it was never intended for • Security, QoS and inter-carrier roaming and settlement need to be covered by end-to-end IP peering scenarios 18 | Carrier IP Voice Transformation | June 2008 All Rights Reserved ©Alcatel-Lucent 2008

  19. Some Lessons Learned on Services Transformation IMS is a great framework for design and delivery • Appoint Solution Architects to maintain integrity of the architecture • Adopt a consistent set of R&D practices and an efficient delivery organization • Get organized for a dramatically shorter SLC: weeks instead of 12-18 months Avoid the voice feature parity/transparency trap • A service portfolio based on “differentiation” instead of “continuation” will minimize R&D costs and and maximize revenue potential • Synchronize with marketing & sales early in the project to challenge features and to quantify costs, risks and benefits of approaches • Work closely with vendors to communicate your priorities and expectations Combine new services with portfolio rationalization • Launch new services bundles combined with a portfolio rationalization • Align your network and service capability roadmaps • Create a prioritized transition & launch plan to balance revenues with costs “Plain Vanilla” services are not enough • A well designed SDP will allow to smoothly ramp-up move from voice to converged, blended and personalized services • Three activities not to neglect: MARKETING, MARKETING, and MARKETING 19 | Carrier IP Voice Transformation | June 2008 All Rights Reserved ©Alcatel-Lucent 2008

  20. Some Lessons Learned on Operations Transformation IP Transformation changes everything • Network Interface Points: e.g. collocation from CO to street cabinets • Services: e.g. regulated vs. non-regulated • Products & vendors: network, IT, CPE … content • Customer Interfaces: “Zero-Touch” provisioning and Customer Self-Service • In-house skills: spanning the present and the new technology and operations Migration will not happen overnight • ‘Technical’ (SP driven) vs. ‘Commercial’ (user driven) migration approach • Physical (MDF), Network routing, Subscriber DB, OSS/BSS Migration, … • Migration strategy & planning, tools development and customer communication Network transformation should go hand-in-hand with IT • Transform operations from managing networks to managing services and customers • Challenges the processes, not just the technology ! • Also look at alternative operation models such as outsourcing Each transformation project is unique • Transformation may start anywhere in the service provider’s organization • Geography, local market, regulation, legacy infrastructure, resource availability, budgets, etc.may affect transformation strategy, scope, roadmap and implementation 20 | Carrier IP Voice Transformation | June 2008 All Rights Reserved ©Alcatel-Lucent 2008

  21. Conclusion • IP transformation is a ‘once in a lifetime’ business opportunity for service providers, butneeds to be part of a ‘holistic’ network + services + operations transformation vision • As there is no ‘one size fits all’ solution; a business case will help to identify the optimal scenario for OPEX, CAPEX spending and new revenue generation • A ‘best practices’ approach and working with an experienced partner are the most effective paths towards predictable execution • Carriers worldwide are leveraging Alcatel-Lucent’s global reach, experienced technical staff, and IP subject matter expertise to accelerate their network evolution and to incorporate the lessons learned from the early adopters Transform predictably. Transform comprehensively. Transform profitably. 21 | Carrier IP Voice Transformation | June 2008 All Rights Reserved ©Alcatel-Lucent 2008

  22. About Alcatel-Lucent’s IP Transformation Solution Cross-domain Multi-vendor End-to-End Business Transformation Services Transform. Network Transform. Consult Stakeholder Engagement Maintain & Operate Design Deploy & Migrate Integrate Full-lifecycle Professional Services Prime Integrator “ While many vendors have positioned themselves for IP network transformation and FMC services, only Alcatel-Lucent can point to actual customer references that involve the complete NGN transformation of a large incumbent network, including access, switching and core, and both fixed and mobile elements. ” Current Analysis, Inc. 22 | Carrier IP Voice Transformation | June 2008 All Rights Reserved ©Alcatel-Lucent 2008

  23. Some Alcatel-Lucent Transformation References Migration to NGN • Business case development and financial planning / budgeting • Strategic Partner for full solution delivery + Migration + Network operations Lightspeed/U-verse: AT&T to deliver VoIP, IPTV & HSI to 18M households • IMS Core Prime Integrator • Network provider: access, Ethernet switching, IP routing • Video service integrator: Head end, Middleware, CM, DRM, CPE [AT&T] Strategic Partner for Titan Network Transformation Program • End-to-end network integrator • End-to-end deployment: access, Ethernet Aggregation, NGN voice, OSS Strategic partner for migrating 20 million customers to the new 21CN all-IP network • Assist BT in ensuring that its 21CN Migration Control Centre (MCC) is operational • Develop a workflow tool for tracking deployment activities associated with the customer upgrade process and the transition of over 5,500 telephone exchanges Mobile NGN to greatly reduce the cost of the wireless core network, enabling FMC services • 2G extension with a distributed NGN core; introduction of FMC services • Gradual migration to a 100% Mobile NGN Core Network • Integration, multi-vendor testing, deployment & migration services Prime integrator to migrate 7 million subscribers to an all-IP network in 3 years • Network design, E2E multi-vendor integration, migration planning, overall program mgmnt • Access, Ethernet, IMS technologies IMS technology and Network Integration partner • Supplier of IMS Core, Application Factory and Management components • Prime Network Integrator: network design and integration, testing and validation between the IMS Core, third-party applications and communications devices 23 | Carrier IP Voice Transformation | June 2008 All Rights Reserved ©Alcatel-Lucent 2008

  24. Dziekuje! www.alcatel-lucent.com www.alcatel-lucent-iptc.com www.alcatel-lucent.com 24 | Carrier IP Voice Transformation | June 2008 All Rights Reserved ©Alcatel-Lucent 2008

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