Trash the Rulebook

TRASHTHE
RULEBOOKThe new rules of engagement are being
written by CommunicationsService
Providers’customers. Releasing trapped
value to make investments in future B2Cand
B2B growth is urgent in order to survive.
#NewAppliedNow
1Copyright © 2019 Accenture. All rights reserved.

THE INDUSTRY IS BEING
SQUEEZED FROM ALL SIDES
TOP-LINE GROWTH IS STALLING
REVENUES HAVE LEVELED OFF
CUSTOMERS ARE FINDING
NEW WAYS TO ENGAGE,
DIGITALLY
AND DIGITAL DISRUPTORS
ARE UNDERMINING THE
TRADITIONAL BASE OF SERVICES
THERULES
HAVE
CHANGED

The commoditized core business isn’t
profitable and there’s ongoing
substitution with low cost, digital
alternatives. Shareholders are being
kept with dividend yields and share
buybacks.
SHIFT&
DISRUPTION
OFVALUE

Barriers to entry & market boundaries are
collapsing and traditional approaches to
growth are no longer sufficient. Existing
asset values and historic positions of strength
are eroding.
CHANGING
RULESOF
THEGAME

Ongoing reduction of customer
stickiness and loyalty. Incumbency is
no longer an advantage – CSPs are
not an essential part of the users’
daily digital routine.
THELIQUID
CUSTOMER
ISHERE

Infrastructure-bound, with vertical
integration and siloed operating models.
CSPs have un-scalable legacy operating
and technology models and legacy,
engineering-based workforces.
THETELCO
RULEBOOK
ISOUTDATED

WHILE CSPS HAVE MAINTAINED INVESTMENT LEVELS,
THEY ARE FACED WITH DECLINING PROFITABILITY
Copyright © 2019 Accenture. All rights reserved.. 7
CSPs have experienced lower return on invested capital and profitability
CAPEX SPEND VS. ROIC
Percent
EBITDA
Percent
32.4%
29.7%
31.4%
29.0%
29.5%
30.0%
30.5%
31.0%
31.5%
32.0%
32.5%
33.0%
33.5%
34.0%
34.5%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
TTM
15.7%
16.4%
15.5%
12.5%
10.8%
5%
8%
11%
14%
17%
20%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
TTM
Capex / Revenue ROIC
Notes: 2018 data covers LTM numbers from Capital IQ. All exchange rates have been converted at constant currency rates of 2018.
Source: Capital IQ data for 70 companies; Accenture analysis; ROIC from Value Insights Platform

DISRUPTERS ARE BORN DIGITAL, BENEFITTING FROM
NEW BUSINESS AND OPERATING MODELS
While historic protections disincentivised CSPs to innovate, disrupters upended the market
by capitalising on core business model advantages to capture market share
TIME TO GET TO A $1BN DOLLAR VALUATION
20.0
8.1
6.2 5.9
5.1
4.4 4.3
3.4
2.8 2.3 1.7
Avg
Unicorns
DISRUPTIVE BUSINESS CHARACTERISTICS
YEARS
Disruptive businesses have
demolished the time to become a
$1Bn dollar business
S&P 500 /
DAX
Create an
ecosystem
of partners,
customers &
developers
Own the full digital
experience and
engagement
(cloud, network and
devices)
Operate as 2-sided
platforms vs focusing
on products
Embed data
driven feedback
loops to optimise
decision making
Adopt a different
business model:
the more you use
the more you grow
Foster a different
tech culture (fail
fast and learn)
Benefit from lack of legacy and
no need to maintain asset baseSource: comScore, Traction metrics, The Economist; oneweb.world; Accenture
*$110-120 in cities without Google vs $70 in cities where Google offers its fiber patch.
**Google estimate of $5 per served customer up to 120M served customers. ***Comcast Capex FY15, only Cable Business

TELECOM COMPANIES ARE LAGGING IN READINESS FOR
DATA-DRIVEN TECH CULTURE
Copyright © 2018 Accenture. All rights reserved. 9
Platform companies have invested in the skills required to become data-driven business,
while telcos are hampered by legacy and have fallen behind.
Source: LinkedIn; Accenture analysis
Google
Amazon
Facebook
Netflix
AT&T
Verizon
Telefónica
Deutsche Telekom
Time Warner
Orange
Telecom Italia
T-Mobile
BT
Sprint
CenturyLink
BCE
0%
5%
10%
15%
20%
25%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
% OF WORKFORCE IN ENGINEERING
%OFWORKFORCEINANALAYTICS

DISRUPTERS DRIVE EXPERIENCE USING DIGITAL
ENGAGEMENT, NOT PHYSICAL PRESENCE
Source: Goldman Sachs; Accenture analysis
AT&T
APPLE
VS.
31
KPN
Telecom Italia
Verizon
BT
38
41
64
69
1,181
Retailing
Online/Digital Services
Technology
Hospitality
Financial Services
Insurance
Telecom
50
46
37
28
24
23
11
…BUT STILL TYPICALLY SCORE POORLY
IN TERMS OF NET PROMOTER SCORES
Net Promoter Score by IndustryUnique subscribers (000s) per store – Domestic operations – 5
large Telcos Vs. Apple
TELCOS HAVE A LARGER RETAIL
PRESENCE PER CUSTOMER VS. DIGITAL
DISRUPTORS…

DISRUPTERS HAVE SEIZED OPPORTUNITIES IN B2B
WHILE CSPS HAVE FAILED TO INVEST
▪ Only few CSPs with a
successful B2B play
▪ Digital natives such as
Amazon (with AWS) and
Google are clearly the
B2B revenue growth
leaders recording growth
rates of 30-50%
▪ They started to transfer the
magic loop of ever
increasing customer
relevance from B2C to B2B
Notes: B2B Penetration implies B2B revenues as a % of total revenues
Source: Company reports; Accenture analysis
The new and continuously evolving ecosystem landscape required a radical change for
telcos: learn from cloud companies, or partner for growth.

BUTWHATIFTHIS
COULDBEFLIPPEDTO
ARACETOTHETOP?
Cost savings are
now re-invested
to fuel future
growth
WITHOUTINVESTING
INAFUTUREGROWTH
MODELIT’SARACETO
THEBOTTOMFORCSPS
CSPs are currently
just surviving by
optimizing their
core business to
save costs and pay
dividends

1. TRANSFORM THE CORE BUSINESS
…by building more competitive cost structures to improve
flexibility, increase profits, and drive up investment capacity.
2. GROW THE CORE BUSINESS
…by redirecting some of that investment capacity
to drive incremental growth in the core business.
3. SCALE NEW BUSINESS
…while identifying new sustainable business models which
leverage and monetize key control points and scale them
(at the risk of core business cannibalization).
4. PIVOT WISELY
…by keeping an eye on pace and balance. The “core” and
“new” businesses usually need to co-exist for a substantial
period of time.
13
SCALINGNEWGROWTHISADELIBERATEAND
PERPETUALCHANGEJOURNEY,NOTASINGLEEVENT
Copyright © 2019 Accenture. All rights reserved.

Leverage the valuable heritage of telecoms
experience – customers, billing relationships,
networks, security, and trust - to embrace new
competitive advantage and find new growth.
PLAYTO
YOUR
STRENGTHS

NETWORK ROLE NETWORK INVESTMENT STRATEGY
▪ Drive the most cost competitive in-
country connectivity (all digital,
portfolio simplification)
▪ Open to shared or outsourced networks
▪ Software defined and agile control
points to build customer intimacy
▪ Foundation capability to provide
connectivity services
▪ Provides critical control points: SIM
cards, CPEs
▪ Differentiating capabilities ahead of
competition (low latency, own IPs, MEC,
topology of services)
▪ Provides critical control points:
connected objects and ubiquitous
policy management
▪ Focus on best quality, features and
coverage
▪ Walled garden for distinctive network
capabilities and control points
▪ Articulated organization and tech platform
for service creation and exposure
Multi-sided
platform model
Connected Industry
Orchestrator
SUCCESSDEMANDSADEPARTUREFROMTODAY’S
MODELSANDCOMPETENCIES–ANDPLAYINGTOONEOF
THECSP’SCORESTRENGTHS–THENETWORK
Pervasive
Network
As an
Enabler
for New
Growth

INTELLIGENT OPERATIONS
Transform the operating model towards
customer-centricity and agility while
leveraging automation (RPA, AI) into the
core culture.
PROGRAMMABLE PLATFORMS
Transform the cost base and the customer
experience by creating software defined,
programmable and reusable solutions,
driven by insightful data and end to end
orchestration.
DYNAMIC NETWORK SERVICES
Rapid launch of software driven services to keep
pace with client desires and expectations (B2B,
B2C, 5G) supporting a Multi-sided platform model
as well as a Connected Industry Orchestrator
model.
GROW + TRANSFORM THE CORE
MIGRATIONS/DEPLOYMENT
Ultra lean management of legacy network, in
parallel to accelerated migration towards new
stack and deep densification of Fiber & 5G.
Needs a two speed approach to migrate and
sustain while building the new
THE PERVASIVE
NETWORK
OUTSIDE IN INSIDE OUT
THEPERVASIVENETWORKISDRIVENBYINSIDEOUT,AND
OUTSIDEIN,TRANSFORMATION

WITH SUCH DISRUPTIVE TRENDS, TELCOS MUST ACT
FAST TO LEAD OR LOSE IN THE FUTURE VALUE CHAIN
SUMMARY IMPLICATIONS
▪ Global industry growth is anaemic: globally, traditional CSPs revenues have stalled
▪ Value shifts to digital players: tripling in comms industry value driven by platform growth
▪ Strength in North America: NA CSPs have seen some success via diversification strategies
while European CSPs have focused on consolidation and have fallen behind
• Examine new growth areas carefully, and look for
opportunities to make shift along the value chain
to occupy other profit pools, or find new ways to
monetise existing offerings
▪ Regulatory protections are fading: traditional telco strongholds are being eroded
▪ Digital business models drive platform growth: disrupters leverage new business models
built on speed, reach, and scale
▪ Customer lifetime value is key: platforms export customer loyalty across an ecosystem of
products & services to optimise customer lifetime value
• Launch a digital transformation program to revisit
competitive position, business models,
investments, and services in B2C and B2B
markets
• Enforce rotation to a relevant platform play
▪ Customer expectations continue to shift: disrupters raise the bar on customer experience
▪ Capitalising on emerging trends is key for B2C: relevance, brilliant basics, security & trust,
and ease of experience are front of mind for B2C
▪ Disrupters have seized opportunity in B2B: telcos have been held back by current business
models, but can target specific pools of value
• Adopt user-centric, digital first, and data-driven
experience design
• Learn lessons from leading B2B services
providers to target SMB customers with a
relevant and balanced service portfolio
▪ Growth of the physical internet: the internet moves from connecting people to people to
connecting things to things with autonomous data exchange becoming the norm
▪ Edge enables new applications: security, privacy, and convenience is moving to the edges,
giving devices and proximity a new relevance
▪ Future value lies in orchestration of this ecosystem: landscape is already crowded
• Enable software defined, reliable, secure data
highways with smart connectivity (incl. 5G)
• Move early to occupy the orchestrator role,
creating multisided cloud based platforms and
capitalising on proximity and trust advantage
Source: Accenture analysis

RIDINGONTHEDISRUPTIVE
TRENDS,THECSP CAN
REINVENTITSELF

Look for new growth
opportunities in B2C
and B2B
Become embedded in the
digital routine of
consumers, and provide
platforms and vertical
services for enterprises.

Launch a digital
transformation
program
Revisit competitive
positioning, business
models and services in B2C
and B2B markets. Enforce
the rotation to a relevant
platform play.

Move to hyper-
personalization for
customers
Adopt user-centric,
community oriented,
data-driven experience
design. Leverage the
credibility of telcos around
trust, security,
privacy and proximity.

Update technology and operating models
Build software-defined, highly reliable, secure data
highways, specialized network clouds and smart
connectivity, including 5G. Anchor multi-sided, cloud-
based platforms increasingly on edge devices for reliability
and security, allowing telcos presence, proximity and trust
advantage.

Success demands a departure from today’s
models and competencies if CSPs are to
scale new growth models.
PICK
YOUR
PLAY

TOROTATETOTHENEWSUCCESSFULLY,CSPS
NEEDTOMODIFYTHEIRDNA
• The future of work evolves from
“jobs” to “roles” in a liquid model
• Workforce development, training
and capability building become
central tasks
• Operating model transformation will
blur traditional foundational models
and establish agile collaboration
• Empowerment is at
the center of future
performance management
OPERATING
MODEL
• Hyper-individualization and
contextualization of services
• Future service models manage the
tradeoff between Revenue Per
Customer and Reach
• Investment and capital allocation
ruled by platform economics and (for
product development and innovation-
related processes) - flexibility over
efficiency
BUSINESS
MODEL
• Customers expect that services
understand them and not the other way
around
• CSPs need to adopt
a more customer-centric, data driven,
experience designed approach
• Channel specificities
and audiences will be managed
consistently through a system
of engagement
• Co-creation and continuous learning
to improve the experience
CUSTOMER
ENGAGEMENT

• CSPs will operate software defined
and virtualized pervasive network
stacks
• Key capabilities are centered around
providing digital highways,
specialized network clouds and
smart connectivity
• Network transformation follows a
smart combination
of customer centric and efficiency
driven approaches
NETWORK
• CSPs need to operate
a digital multi-speed IT and network
stacks to get on with the digital
portfolio as soon
as possible
• Federation of decoupled platforms
across IT and Network
• IT and networks will be a central part
of day-to-day value creation, and the
engineering teams will have to become
true business partners
TECH
STACK
NEWGROWTHMODELSNEEDANEWAPPROACH
TOITANDNETWORKINVESTMENT

Unleashing trapped value through
cost optimization is just the first
step. We help you reinvest smartly
and scale new growth in a future
business model that stays true to
your core.
TUNEUP

Trash the Rulebook

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