Genseven Agenda Toppers for Telecom Executives

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High-Growth Trends: Seven Agenda-Toppers for Telecoms Executives Mobile network operators in high-growth markets contend with a set of challenges and opportunities very different than those of their developed market counterparts. By André Levisse, Nimal Manuel, and Noppamas Masakee The priorities of telco top-managers in high-growth markets differ significantly from those of executives in more developed countries. The absence of fixed-line infrastructure, the preeminence of pre-paid subscribers, and the evolution of innovative business models all play unique roles in shaping these differences. Furthermore, emerging market players can earn outsized profits; based on ARPU (average revenue per user) levels as low as USD 5, some operators capture EBITDA margins in excess of 50 or 60 percent. McKinsey's longstanding work with telcos in emerging markets reveals seven major themes that head the agendas of most top executives in these high-growth markets (Exhibit 1). Exhibit 1

Market dynamics lead to 7 priority areas for high-growth operators 1 Sophistication in the core

Managing for cash Growing revenues with marketing Regulation “Cost per Erlang” (Wireless) broadband Innovation spots

• Challenged operators – focus on liquidity • Healthy operators – focus on opportunities. Manage risks, review competitive opportunities and pursue M&A deals

2

• Sophisticated pricing activities – invisible vs. visible elements • Micro-market customer and distribution management • Marketing spend effectiveness • Economic impact of regulation • Stakeholder management • Regulatory organization • Reducing costs to less than 1 cent per minute • Improving utilization – increase number of minutes per BTS • Lean operations • Latent demand for (fixed) Internet, even in developing countries • Deploy 3G with smart network planning and go-to-market • • • • • Mobile internet driven by large screen devices Social networking enjoying huge subscriber growth Mobile money: pioneered in emerging markets Mobile advertising: focus on ad platform, profiling and sales force Music could be distributed by operators

3

4 Investment in the future

5

6

7
Source: McKinsey

HR/Talent

• Now is the time to draw talent away from harder-hit industries • Good talent management strategy

1. Managing for cash
Of course, with the financial downturn, managing for cash has naturally become the most urgent concern in all markets. However, there are several important nuances when it comes to emerging markets: first of all, there is still growth. For example, in Asia, while the IMF lowered its growth expectations by 2 to 3 percent during 2008, McKinsey & Company Telecommunications Extranet 1

http://telecoms.mckinsey.com

the base case still remains above 4 percent per year. More recently, decreases in fuel and food prices helped unlock consumer spend, at least in urban areas. Second, in general, telecoms players in high-growth markets approach the downturn with a relatively stronger debt position as compared to their counterparts in more developed markets (Exhibit 2). Exhibit 2

High Growth players are entering the downturn with significantly stronger portfolio USD billions
Company name
China Mobile China United Bharti Airtel MTN PT Telkom PLDT America Movil TM China Telecom Saudi Telecom Telef. de Mexico

Net debt/ Net cash (-), 3Q08
-25.7 0.5 1.1 1.7 1.2 0.9 9.8 1.7 10.3 6.7 7.6

Net debt/EBITDA*
-0.7 0.1 0.3 0.3

High Growth Markets

0.4 0.5 0.8 0.9

Ø = 1.3
1.1 1.8 2.0 2.0

2.1 2.2

Developed

NTT Docomo KDDI NTT Verizon Singtel AT&T Telstra Telia Sonera Telefonica France Telecom DT KPN Vodafone Telenor BT Group Sprint Nextel Telecom Italia

-0.0 5.5 38.4 43.1 5.1 75.2 14.0 7.3 65.7 58.0 59.5 16.5 51.5 8.7 22.1 18.5 53.0

0 0.5 1.1 1.3 Ø = 1.9 1.6 1.7 1.7 1.8 2.1 2.2 2.2 2.3 2.3 2.3 2.6 2.9 3.4

Source: InFinancials; Datastream; Bloomberg, S&P

*09 EBITDA forecasted by Bloomberg and Datastream

While wide variances...
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