jan larsson_how not to duplicate the 3g mistakes oldformat
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TELECOM STRATEGY
How not to duplicate the 3G mistakes
TELECOM STRATEGY
Agenda1. The eternal Benefit of Specialization?
- Blunt vs. intelligent Specialization- The Importance of Opportunity Cost
2. The commercial Failure of 3G in Western Europe- Ignoring the Opportunity Cost- Understanding the Mobile Operator’s Key Assets
3. Changing our commercial Mindset- Comparative Advantage rules!- Cluster Analysis vs. traditional P&L Calculation- Your place in the Cluster: Evaluating Partnerships
4. Maximize the 4G Profit Potential- The dos and don’ts learned from the 3G Experience- Let’s unleash the Potential!
TELECOM STRATEGY
Agenda1. The eternal Benefit of Specialization?
- Blunt vs. intelligent Specialization- The Importance of Opportunity Cost
2. The commercial Failure of 3G in Western Europe- Ignoring the Opportunity Cost- Understanding the Mobile Operator’s Key Assets
3. Changing our commercial Mindset- Comparative Advantage rules!- Cluster Analysis vs. traditional P&L Calculation- Your place in the Cluster: Evaluating Partnerships
4. Maximize the 4G Profit Potential- The dos and don’ts learned from the 3G Experience- Let’s unleash the Potential!
TELECOM STRATEGY
The importance of Opportunity CostOpportunity Cost:
“the best alternative forgone”
Example: Mobile Operator X can
produce Access Connections and/or chargeable Applications
Total number of Access Connections is 20 million
Total number of chargeable Applications is 50
# of Accesses
# of Applications
20 million
50
ProductionPossibilitiesFrontier
As can be seen in the non-linear shape of the curve, the Opportunity Cost increases when more amounts of the “competing” Item is produced.
a.
b.
c.
d.
TELECOM STRATEGY
Choices based on Opportunity Cost: -Absolute vs. Comparative Advantage
Robert Torrens 1814-1884
Portugal can produce both cloth and wine at a higher productivity than England, and thus enjoys an Absolute Advantage over England for both products.
Most investment (partnerships, capital or labor) calculations in the Telecom Industry end right here!
TELECOM STRATEGY
Choices based on Opportunity Cost: -Absolute vs. Comparative Advantage
Robert Torrens 1814-1884
C o u n t r y Production (200 MH per country)
Before Trade After TradeWool Wine Wool Wine 8 2 16 0
10 7 0 14
T o t a l 18 9 16 14
Intelligent Specialization gives a total gain of +9% (27/30)
When you can produce a product at a lower Opportunity Cost than anyone else, you have a Comparative Advantage of that product .
Focusing on your Opportunity Cost rather than on your absolute advantage encourages intelligent Specialization.
TELECOM STRATEGY
The eternal Benefit of Specialization?
Henry Ford 1863-1947 Robert Torrens 1814-1884
Blunt Specialization Intelligent Specialization
+ Scalability- Opportunity Cost may sky-rocket
= A false sense of efficiency!
+ Scalability+ Opportunity Cost vastly eliminated
= Intellectually more challenging
Thus, what we are really looking for is a scalable solutions
that reduce rather than increase the Opportunity Cost!
FORDISM / “ROUTERISM” COMPARATIVE ADVANTAGE
TELECOM STRATEGY
Opportunity Cost and the Telecom Industry
Thus, there is no “eternal benefit of Specialization” per se,only if the in our industry largely ignored Opportunity
Cost is diminished!
The Opportunity cost discussion is particularly workable in the Telecom Industry, as: It is a rather predictable industry in terms of duplicating success across
different markets. In terms of investments, for Mobile Operators the major alternatives are
limited to two in number:• Building networks (Access development)• Develop services to run on the networks (Application
development)
TELECOM STRATEGY
Agenda1. The eternal Benefit of Specialization?
- Blunt vs. intelligent Specialization- The Importance of Opportunity Cost
2. The commercial Failure of 3G in Western Europe- Ignoring the Opportunity Cost- Understanding the Mobile Operator’s Key Assets
3. Changing our commercial Mindset- Comparative Advantage rules!- Cluster Analysis vs. traditional P&L Calculation- Your place in the Cluster: Evaluating Partnerships
4. Maximize the 4G Profit Potential- The dos and don’ts learned from the 3G Experience- Let’s unleash the Potential!
TELECOM STRATEGY
The relative commercial failure of 3G in Western EuropeAssumptions: Voice was and remains the vastly dominating service revenue for
Mobile Operators Voice had and still has a healthy short-term as well as long-term
cash-flow 3G was extremely costly to roll out 3G provided no additional reliable or predictable Application
revenues
The prime reason why 3G was a commercial failure (in relative terms) is that the Opportunity Cost was largely ignored
The prime reason to ignore the Opportunity Cost was due to the traditional reliance on Application (Voice) revenues, rather than on Access revenues
TELECOM STRATEGY
Opportunity Cost ignored during 3G rollout in Western Europe
Voice share of Mobile Operator’s Revenue*
*Revenue on Traffic and Subscriptions
SMS taking off
3G launched
3G taking off
Source: Telecom Strategy
So far, so good! Where is the problem??
TELECOM STRATEGY
Opportunity Cost ignored during 3G rollout in Western Europe
Relative Voice profit contribution*
Cross-subsidizing tend to ignore the Opportunity Cost
CURRENT TREND
Probably better to let 4G Access investments be better correlated to 4G Access revenues…
*Profit on all traffic (Application) services
Source: Telecom Strategy
Access Investments can not be paid for with no real Access revenues!
4G ?
4G ?
TELECOM STRATEGY
The key Assets of a Mobile Operator
Traffic services (Applications) are not key Assets
The key Assets should be guarded at all costs
What is not a key Asset should be handled by someone that has a Comparative Advantage doing so
In simplistic terms: The physical Access infrastructure The allocated Airspace Spectrum The efficiency of the Operation
• Established Brand value & recognition• Established billing relationship to Subscribers• Established technical operation & maintenance
If the key Assets are identified as such, the relative failure of 3G can be largely avoided
TELECOM STRATEGY
Agenda1. The eternal Benefit of Specialization?
- Blunt vs. intelligent Specialization- The Importance of Opportunity Cost
2. The commercial Failure of 3G in Western Europe- Ignoring the Opportunity Cost- Understanding the Mobile Operator’s Key Assets
3. Changing our commercial Mindset- Comparative Advantage rules!- Cluster Analysis vs. traditional P&L Calculation- Your place in the Cluster: Evaluating Partnerships
4. Maximize the 4G Profit Potential- The dos and don’ts learned from the 3G Experience- Let’s unleash the Potential!
TELECOM STRATEGY
A Mindset based on Comparative AdvantageTraditional evaluation of Investments,such as Partnerships: Solely based on Absolute Advantage Management Consultants love P&L
calculations, as Absolute Advantages are then very easy to identify and compare
The only Opportunity Cost evaluation that really only shows the Absolute Advantage/Disadvantage of the Investment
TELECOM STRATEGY
A Mindset based on Comparative Advantage
Any interaction of partners or internal investments should be based onminimizing the Opportunity Cost by evaluating the ComparativeAdvantage to maximize the total Gain!
Optimal 4G Partnership Cluster, based on total Gain
Altering the composition of the Cluster, will also alter the total Gain, as the Opportunity Costs changes.
TELECOM STRATEGY
A Mindset based on Comparative Advantage
Any interaction of Partners or internal Investments should be based onminimizing the Opportunity Cost by evaluating the ComparativeAdvantage to maximize the total Gain!
Optimal 4G Partnership Cluster, based on total Gain Optimal 4G Mobile Operator
internal Investment Cluster, based on total Gain
TELECOM STRATEGY
A Mindset based on Comparative Advantage
Any interaction of Partners or internal Investments should be based onminimizing the Opportunity Cost by evaluating the ComparativeAdvantage to maximize the total Gain!
Optimal 4G Partnership Cluster, based on total Gain Optimal 4G Music
Application Provider internal Investment Cluster, based on total Gain
TELECOM STRATEGY
Agenda1. The eternal Benefit of Specialization?
- Blunt vs. intelligent Specialization- The Importance of Opportunity Cost
2. The commercial Failure of 3G in Western Europe- Ignoring the Opportunity Cost- Understanding the Mobile Operator’s Key Assets
3. Changing our commercial Mindset- Comparative Advantage rules!- Cluster Analysis vs. traditional P&L Calculation- Your place in the Cluster: Evaluating Partnerships
4. Maximize the 4G Profit Potential- The dos and don’ts learned from the 3G Experience- Let’s unleash the Potential!
TELECOM STRATEGY
The dos and don’ts learned from the 3G experience We all want 4G to be a commercial success rightFrom the start… Thus, never again should Mobile Operators ignore the
Opportunity Cost, which means that: Never again should we assume that new traffic
Services (Applications) will or can pay for Network technology shifts.
If we do mind the Opportunity Cost, we will instead understand our own sweet-spot in the Cluster, then:
We may concentrate on intelligent Torrens-styled specialization.
To do this, we have to mind the Comparative Advantage of Partnerships and internal Investments alike.
TELECOM STRATEGY
Let’s unleash the 4G potential!The six 4G Mobile Operator Commandments: We will always mind the Opportunity Cost and we will not cross-subsidizing
uncertain Application revenues by certain Access revenues. We will never let vendors decide for us what is required to run future services, as
there is no way they can possibly know that. We will however invite Vendors into our optimal Cluster to maximize the total Gain.
We will not accept dual (legacy / non-legacy) technology platforms. Due to the relative predictability of our industry across different markets, we will
squeeze the most out of (single platform) legacy systems, where such are sufficient.
Less than 95% of Applications launched will ever fly. Thus, we will make sure that all new Applications are handled by Partners, never in-house.
We will fight to protect our network Investments and Air Spectrum as those are and remain our key Assets (alongside our Operation).
