Telecom Convergence Analysis

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1. Executive Summary
The communications industry is facing unparalleled changes which are breaking down traditional industry boundaries. Providers from different technologies and backgrounds all focus on the same converged service offerings. On the one hand, customer demand for convergent services and content provide new revenue opportunities. At the same time, intensifying competition from existing industry players and new market entrants, including cable, ISPs, content providers and consumer brands, bring renewed demands for innovation and differentiation. Increasingly discerning customers expect a value added services experience, irrespective of technology. At a time of rapid technology change, these factors add to existing pressures on telecom infrastructures and market expectations for growth. IP technology is the catalyst for this disruptive change. Convergence brings together previously parallel networks (cellular, fixed, enterprise, Internet) onto a single IP-based infrastructure. Convergence enables integrated service propositions (¡§triple¡¨ and ¡§quadruple¡¨ plays). Convergence enables virtually ¡§anytime, anywhere, anyhow¡¨ service delivery. Such changes present major challenges and demand renewed attention to strategies. Convergence requires companies to take hard strategic choices on their positioning in the value chain, and ensure their investment and acquisition strategies are focused on building and accelerating revenues rather than shoring up declining legacy streams. Player¡¦s responses to date reflect a number of different rationales: building scale and achieving cost synergies within discrete markets, extending the footprint to new geographies, and accessing new capabilities across industry boundaries. In this respect, Google¡¦s strong brand and its proven ability to collaborate flexibly and in a gain-sharing way with a range of partners, notably content and technology providers is a critical asset to take a revenue share in the emerging market. 2. Attractiveness of the convergence industry

Broadly, convergence describes the tendency of traditional telecommunications, Internet, IT, entertainment and broadcasting to come together through the ability to transport, store and manipulate digital information. Convergence is enabled by technological development and is driven by the search for innovation and improved operations. Convergence is also driven by changing and maturing customer demand. Finally convergence is driven by the potential perceived value growth opportunity. The content of this report has been built upon the Economist survey (Economist Survey, 2006) and upon personal knowledge of the Telco industry. 2.1. Convergence macro environment analysis

2.1.1. STEP Analysis
The objective of the STEP framework analysis is to look to environmental changes likely to affect the structure of the convergence industry. Social
Social factors impact is high since convergence is likely to transform human interactions: ƒÞInterpersonal and business relationships and behaviours change as technology permits new methods of interaction and socialising. Communications anywhere and anytime are changing everyday behaviour (for examples see Appendix 1) ƒÞConvergence offers whole new ways to function, business and personal-wise (see Appendix 2 for examples). Economical

Economic factors impact is medium because of a balance between economic risks (players past debts/overflows), growth potential (revenue, globalisation), and a positive economic context: ƒÞConvergence holds the promise of enhancing value growth. Thousands of new jobs could result from convergence deployment, both directly (infrastructure, services), and indirectly (related industries). ƒÞLegacy revenues from voice are currently set to decline faster than the increase in revenues from convergence services. If this trend continues, Telcos will experience a severe dip in overall revenues and enterprise value, driving major upheavals and possible...
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