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1、NEW TELECOM BUSINESS MODELS,NetworkCostsDramati-callyLower,MarketAppeal of“All You Can Eat”Pricing,Step-IncreaseInCompe-tition,RapidRise inUseofSubscriptionPricing,CustomerSegmentProfitabilityChanges,Develop a new value creation model for the businessDevelop new margin sourcesRealign costs with valu
2、e creation,Opportunity for Action for Carriers,BACKBONE NETWORK TRANSMISSION COSTSARE PLUMMETING,Cost for NY-CA circuit(/min,log scale),(1)Traffic cost assumes 5x peakingSource:BCG analysis,Cost for volume carried(1),Cost of lit capacity,Cost of“theoretical”capacity,Cash cost per unit of capacity,Av
3、erage Cost of U.S.Backbone Network Capacity,$50 for a coast to coastvoice circuit for 1 year,WIRELESS NETWORK COSTS ALSO FALLINGLong Run Incremental Cost Now Below 5/Min,Slope 80%,$/min,0.175,0.150,0.125,0.100,0.075,0.25,0.5,1.0,2.0,3.0,4.0,Orange,Cellnet,Vodafone,Key,Total traffic carried on networ
4、k,(bn mins p.a.),Network Costs/Min for UK Carriers,Source:BCG Analysis,NEW ENTRANTS CREATING PRICE COMPETITION IN WIRELESS,Price Index,Powertel and PrimeCo enter,joining BellSouth and AT&TPowertel soon announces unlimited calls for$50/mo promo,BellSouth lowers unlimited in-region plan to$200 per mon
5、th,PrimeCo offers$45/month for 400 minutes,Nextel enters,targeting small businessAlltel buys naming rights to Jacksonville Jaguars stadium for$6.2 million,BellSouth takes out 14 page add to battle customer confusion,BellSouth offers unlimited off-peak local calls for$24.99Primeco offers 600 min/mont
6、h until 2000 for$54.99/month,Nextel offers unlimited Direct Connect SMR for$54/month,Alltel enters with promotional$0.05 per minute rate and bundled services(wireless,paging,LD,Internet)BellSouth offers 250 minutes for$45/month with half price promotion for first 3 monthsPowertel offers unlimited LD
7、 in-region for$15/monthAT&T announces 1000 minutes for$99.99 per month,BellSouth announces“One Bill”bundling program,AT&T announces“One Rate”national plan,Alltel announces$39.95 bundle incl.Internet,in-region wireless,paging,and$0.09 residential and wireless LD,Sprint PCS entersNextel offers 800 min
8、 and unlimited SMR for$90/month,Sprint launches national one rate-type planBellSouth offers 2000 minutes mobile to mobile for$50 per month,Overview Of Competition In Jacksonville Wireless Market,“ALL YOU CAN EAT”PRICING IS GROWING RAPIDLYTHROUGHOUT THE TELECOM BUSINESS,Annual Growth RateMost data ci
9、rcuits priced on flat-rate basis30%Internet Service Providers100%One-Rate plans in wirelessVery HighFlat-rate long distance serviceNew,Promising,Consumers like“no meter is running”And,lower network costs make subscription pricingaffordable for carriers,IMPACT OF ONE-RATE ON WIRELESS ECONOMICS,Cost s
10、tructure changesCustomer segment behaviors divergeCustomer segment profitability shiftsDistribution channel requirements change,Rapid growth in network volume(MOUs)Reduction of customer care,billing,and marketing costsHigh volume customers migrate to One-RateLow volume customers oriented to usage pr
11、icing pre-and post-paidPast profit sanctuary of high-volume customers gone?How profitable will low-volume customers be?One-Rate has the potential to be a simpler product that could be handled by a higher volume channel,IMPACT OF SUBSCRIPTION PRICING Cost Structure of a Typical Cellular Carrier,Sourc
12、e:Industry Data,BCG Analysis,Monthly Cost per Subscriber($),$,Lower due to diminished importance of call-detail,Network,Higher due to volume and lost pass-through of roaming and long distance charges.,Customer Care&Billing,CustomerAcquisition&Retention,G&A,Lower due to simplified offers,higher chann
13、el volumes,&lower handset subsidies(?),Preliminary Analysis,IMPACT ACROSS MOBILE CUSTOMER GROUPS IS SIGNIFICANT,Hi-volume ceases to be the profit spinnerLow-volume customers are(still)a profit sink,Preliminary Analysis,Source:Industry Data,BCG Analysis,Note:low volume segment using pay-for-use plan.
14、,ACTIONS TO CAPITALIZE ONAND RESPOND TO THE SUBSCRIPTION BUSINESS MODEL,1.Restructure marketing to take account of fundamental changeMore brand and offer differentiation between high and low volumeSpecific channel for experienced,high-volume usersManaged acquisition cost as down customer base mature
15、s2.Re-align cost structure with requirements of a subscription businessMaximize scalability of networkStreamline customer care and billing3.Offer value added services for extra fee to increase marginsE.g.,text messaging,fixed-mobile VPNs4.Develop a national offer based on alliances and roaming agree
16、ments,HOW MUCH ADVANTAGE DO NATIONAL PLAYERS HAVE?,Data we have seen over the years indicates that the number of national roamers is low on the order of 10%Probably heavy users and high-value customers,howeverNational brand and presence is a significant marketing advantageBellSouth also enjoys brand
17、 strengthOpportunities exist to create value by linking mobile with fixed-line servicesNothing“unbeatable”about the national playersEconomic issue:cost of national roamingNational roamer marketing issues:share target,making the total BMI offer compelling,BROADER ISSUES NEED TO BE ADDRESSED AS WELL,T
18、he combined factors of increased competition,subscription business models,and high penetration are changing the economics of wireless telephonyHighly valuable to lay out the new economics and how to optimize themProfit sources in the businessSegment focus to maximize valueBest rate and sources of gr
19、owthTarget cost structure for the businessWork out how to maximize value and set the right expectations.with new economic rules,APPENDIX IHong Kong Telecom CSL:A Segmented Approach to Mobile,HONG KONG TELECOM:AN EXAMPLE OF A SEGMENTED APPROACH TO MOBILE COMPETITION,Market situation quite similar to
20、current US developmentsMultiple PCS entrantsDeveloped,sophisticated mobile marketHong Kong Telecom CSL(the mobile business)defended its position successfully with a strategy based on differentiated brands and offers for high-and low-volume customersBoth brands believed to be profitable.,Number of su
21、bscribers,Hong Kong penetration nearly 40%.,39%penetration,GSM(900MHz)HK TelecomHutchisonSmarToneCDMAHutchisonDAMPsHK TelecomPCSNew WorldHutchisonPeoplesSundayNine NetworksSix competitors,.Intense Competition,MARKET OVERVIEW:FAST GROWTH,HIGH PENETRATION,HK TELECOM CSL SUMMARY,HK Telecom CSL historic
22、ally a market leader among three GSM operatorsFailing to win a PCS license led HK Telecom to take pre-emptive action to:Defend heavy user customer baseCreate vehicle for capturing lifestyle user without PCS platformResulting strategy was to split GSM into two fully separate brandsDifferent target se
23、gments,imagery,offers,channelsTwo years on,results appear impressive,though with some cautionary areasImpact of number portability,dual band phones,etc.yet to be seen,HK TELECOM SPLIT ITS GSM INTO TWO DISTINCT BRANDSAim to both target“lifestyle users”while retaining heavy business users,Targeted at
24、business users3 different packagesBranded as a HK Telecom servicePackage access fees range from HK$360-1480Sold through dedicated 1010 stores and dealersWe recognize that time is money,and that every call counts,Business Brand:1010,Targeted at younger users with disposable income6 different packages
25、No HK Telecom brandingPackage access fees range from HK$228 or aboveSold through dedicated One 2 Free stores and dealersWe have a service to fit your personal lifestyle,whatever that happens to be,Lifestyle Brand:One 2 Free,Each service has been designed to meet the needs of their target segment acr
26、oss the entire customer experience,Single GSM Platform,Target:Image:Products/packages:Distribution Outlets:Message:,Note:US$1=HK$7.8,HK TELECOM MADE THE SPLIT WELL BEFORE THE PCS PLAYERS LAUNCHED,Sept,97,People PCS,Jan,97,Launched One2 Free and 1010 Brands,Sunday PCS,Hutchison PCS,Apr to Aug,97,New
27、World PCS,Oct 97,P-Plus PCS,Nov,96,“denied a PCS license this year,(Hong Kong Telecom)has made an aggressive move into the mass market for mobile phones with the launch of a service company called One2Free”-SCMP(23/11/96),Sources:South China Morning Post,ONE2FREE TARIFF PLANS ORIENTED TO FIT SUBSCRI
28、BERS LIFESTYLESEmbodied in their array of tariff plans using advanced billing system,Tariff PlanLeisure PlanReply Call PlanZone PlanStandard Plan“Make your own plan”Specify desired number of monthly free minutes and how to allocateCall circle plan,Targeted CustomersFor those who use the service prim
29、arily off-peakFor those who carry pagers,and make return calls onlyFor those in suburban and home-cell locationsFor those without a specific preferencePeople who have a combination of the above needsGroups of friends-allocates free minutes among specific numbers,“TWENTYSOMETHING”FOCUS IS CONFIRMED T
30、HROUGH ADS,PROMOTIONS,AND SALES CHANNELS,A&P features a variety of twentysomething professionals,Sales Channels support the image,“One2Free allows customers to experience the true freedom and pleasure of personal communications”,Sales outlets:Caf-style,with internet kiosks and music videosStaff dres
31、sed in athletic uniforms,all of similar age to target segmentLittle or no use of HK Telecom brand,BY CONTRAST,1010 TARGETS HEAVIER USER BUSINESSMAN Matter-of-Fact Approach with Focus on Service and Value-Added Bundles,1010 Service Packages,Low Usage,Medium Usage,High Usage,“Supreme 1010”,Free Mins,N
32、ew Monthly Fee(HK$),Thereafter Call Charge(HK$/Min),Value-added Services Included,E-NoteInfoExpressAuto Int RoamingE-NoteInfoExpressAuto Int RoamingVoiceMailCall WaitingE-NoteInfoExpressAuto Int RoamingVoiceMailCall WaitingE-NoteInfoExpressAuto Int RoamingCall Forwarding BundleCaller DisplayVoiceMai
33、lCall WaitingE-NoteInfoExpressAuto Int RoamingFREE HANDSET*,120,200(less30%),300(less30%),500,1010,$360,$450,$580,$880,$1,480,$1.8,$1.8,$1.8,$1.5,$1.2,Other special services:Free phone deliveryRepair phone pick-upFree handset maintenanceHandset trade-in allowanceDiscount for re-purchase of lost phon
34、e,Note:US$1=HK$7.8,A&P AND CHANNELS FOCUS ON THE“SUCCESSFUL BUSINESS LEADER”IMAGE,Note:US$1=HK$7.8,A&P Emphasizes a Recognition that Every Call is a Potential Business Deal,Business-Like Sales Channels,“Business Leaders Cannot Be Interrupted”-TV Commercial,Connoisseur Centre decorated as business lo
35、unge provides following services with coffee:Personal demonstration of value-added servicesA 4-hour guarantee on handset maintenance Free handset offered to stay in touch while repairing-Over 80 outlets including Hongkong Telecom Shops,the Connoisseur Centre,authorized agents,BOTH HK TELECOM BRANDS
36、HAVE STRONG ARPU1010 Nearly 2x GSM Rivals,One2Free Beats Other GSM and PCS,Note:US$1=HK$7.8Source:BCG interviews,literature search,Yankee Report 1998,116,65,61,45,35,20,Monthly ARPU By Operator(US$),1010 AND ONE2FREE HAVE ACHIEVED DISTINCTLY DIFFERENT CUSTOMER PROFILESOne2Frees Age Profile Younger t
37、han PCS Players,%,Customer Age Distribution Breakdown,3,3,4,6,5,2,Age,40 or above,30-39,20-29,15-19,Source:A.C.Nielsen Mobile Phone Study 1997;BCG Analysis,HK Telecom,MaleElderMore professionals,executive and managersBetter educated,Quite equally spilt between male an d femaleYoungerMore white colla
38、r,PCS,PCS,HK Telecom1010One2FreeSmartone GSMHutchison GSM,Dec 9627%-27%26%,Dec 9726%17%9%21%17%,March 9825%16%9%21%16%,Comparative Subscriber Market Share,GSM Players,HKT HAS HELD SHARE BETTER THAN OTHER GSM PLAYERS,APPENDIX IIBackground on Mobile Market,US MOBILE MARKET TRENDS,Increased competition
39、:4-6 carriers in each marketLower prices,especially for high-volume customersGrowth strong:past and forecastNew entrants are taking a large share of the growth Rapid move to digital service well-received by customersIncreases capacity and usageLeading carriers driving for seamless nationwide coverag
40、eSubstitution of mobile for fixed phones beginningNew“One Rate”pricing plans1 very attractive to customers,1)Refers to a plan that offers a large bundle of minutes for a fixed monthly price with no extra charges for peak,roaming,long distance,or interconnection.,DECLINING PRICES LIKELY TO FUEL GROWT
41、H,HOWEVER.,Price($/min of use),Usage(minutes of use per month per subscriber),Israel 97,Israel 95,Israel 94,U.S 98,U.S 97,U.S 96,U.S 95,U.S 94,U.S 93,Duopoly pricing.6x increase in price results in.33x decrease in usage.,2.5 to 3/min calling plans.8x drop in price leads to 20 x increase in usage.,?,
42、Decrease in price seems to have permanentlychanged consumer behavior in Israel,Source:FCC,Literature search,BCG analysis,Decreased Price Produced Lasting Volume Increase in Isreal,Estimates suggest that cellular penetration will surpass fixed penetration while fixed volume declines,CELLULAR BECOMING
43、 SIGNIFICANT AS A SUBSTITUTE FOR FIXED LINESExample:Israel,Arrival of Partner Group as thirdcellular service provider“Speculation centers on how far partner will bring fixed rates down.”-Nesuah analystPartner“hopes to attract 800,000 customers within three years by offering lower prices and quality
44、services.”-DataproCellcom international rates arealready cheaper than BezeqsDue to interconnection with new international carriers Barak and Golden LinesAnticipated to feel additional downward pressure,Cellular prices are expected to become even more competitive,Source:Literature search,BCG analysis
45、,“There is a price point in cellular which is higher than fixed,but at which people are still prepared to make a mobile call instead of using the fixed network.”-Industry analyst,Penetration(%of population),Bezeqs fixed-line domestic call volume was 6.5%lower in first half of 1997 than same period i
46、n 1996Attributed to cellular by Bezeq chairman Izzy Tapoohi,COST STRUCTURE OF A TYPICAL CELLULAR CARRIER,Source:Industry Data,BCG Analysis,MonthlyCost per Subscriber,$,Network(34%),Billing and customer care(9%),Marketing and customer acquisition(46%),General and administrative(11%),NEW TELECOM BUSIN
47、ESS MODELSA slide bookprepared forBELLSOUTH MOBILITYbyThe Boston Consulting Group,Inc.January 6,1999,NEW TELECOM BUSINESS MODELSDiscussion NotesJanuary 6,1999,*Extras*,HOWEVER,REVENUE PER SUBSCRIBER IS DROPPINGPrice Per Minute Declining Faster Than Usage Is Increasing,Average subscriberrevenue per m
48、onth,Average price per minute,$/minute,Average subscriberminutes of use per month,Mins/month,$/month,Source:BCG analysis,FCC CMRS Competition Report,1998,IMPACT OF“ONE-RATE”PRICING Cost Structure of a Typical Cellular Carrier,Source:Industry Data,BCG Analysis,$32.80,MonthlyCost per Subscriber,$,Bill
49、ing and customer care costs fall due to diminished importance of call-detail,$3.00,$1.50,IMPACT OF“ONE-RATE”PRICING Cost Structure of a Typical Cellular Carrier,Source:Industry Data,BCG Analysis,$32.80,MonthlyCost per Subscriber,$,Network costs rise due to increased volume and loss of pass-through o
50、f roaming and long distance charges.,$11.00,$14.50,Note:US$1=HK$7.8,Flexi-PlanPackage,Minutes categories#(50mins per unit),Unit Costs(HK$),Thereafter call charge(HK$/min),AUTOMATION ENABLES LOW COST CUSTOMIZATIONConsumer can Design Plan,and Switch Among Plans,Subscriber can configure the amount and
