Regional telecom trends and strategic options for liban telecom sep 2004

BeirutSeptember 22, 2004

Presentation

Regional Telecom Trends and Strategic Options for Liban Telecom

Ministry of Telecommunications

2Booz | Allen | HamiltonMinistry of Telecommunications

This paper presents the strategic considerations for the creation and privatization of Liban Telecom in the context of the regional telecommunications sector trends

The M.E. telecom sector has progressed at an unprecedented pace since 1998, creating an unexpected ‘democratization’ of communications services

The underlying driver was, is, and will continue to be a universal acceptance of deregulation as an indispensable process to develop the sector

– Concept is now widely anchored among policy makers, albeit at different stages of maturity

– Challenge has evolved from why to how to deregulate, and the M.E. still has a long way to go

– The Lebanese telecommunications market is likely to accompany the regional liberalization trend

The emerging environment poses considerable challenges for incumbent operators as they fast-track their readiness to meet the future challenges

– The corporatization and privatization of Liban Telecom is a potential vehicle for increasing the incumbent’s readiness for market liberalization and full competition


Total Connectivity has progressed rapidly, averaging between 22% and 31% per year …

Note: GCC includes: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE. Levant and North Africa include: Algeria, Egypt, Jordan, Lebanon, Morocco, Syria

Source: ITU 2004

Total Connectivity (Fixed + Mobile)(in Thousand Subscribers)

47%

92%31%59%

53%

8%

69%

41%

1998 2003 1998 2003

GCC Markets Levant & Selected North Africa Markets

Fixed

Mobile

CAGR(1998-2003)

6,844

22%18,645

8,800

33,432

CAGR(1998-2003)

91%

31%

14%

36%

7%


…positioning the total region well ahead of the world average

1.5%

16%

27%

M.E. GDPGrowth

WorldConnectivity

M.E.Connectivity

Total Connectivity CAGR (1998-2003)

Note: M.E. market definition includes Gulf (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE), Levant and North Africa (Algeria, Egypt, Jordan, Lebanon, Morocco, Syria)

Source: ITU 2004

CommentsComments

Revenue growth estimated at a CAGR of 17%, with 2002 total nearing USD 18 Billion

Telecom investment estimated at USD 17 Billion over 1998-2002

Total GDP contribution estimated at USD 130 billion over 1998-2002

Revenue growth estimated at a CAGR of 17%, with 2002 total nearing USD 18 Billion

Telecom investment estimated at USD 17 Billion over 1998-2002

Total GDP contribution estimated at USD 130 billion over 1998-2002


Market liberalization is creating a new set of challenges for incumbent operators

Note: (*) Mostly under the management or BOT contract for the MoPTM= Monopoly, D= Duopoly, C= Competitive

CountryCountryIncumbent Operator

Incumbent Operator F

ixe

dF

ixe

d

Mo

bil

eM

ob

ile

BahrainBahrain BatelcoBatelco MM DD

KuwaitKuwait MOCMOC MM DD

OmanOman OmantelOmantel MM DD

QatarQatar (Qtel)(Qtel) MM MM

Saudi ArabiaSaudi Arabia Saudi TelecomSaudi Telecom MM DD

UAEUAE EtisalatEtisalat MM MM

Da

taD

ata

Inte

rne

tIn

tern

et

MM CC

CC CC

MM MM

MM MM

CC CC

MM MM

Monopoly Further Liberalization expected (2004)

Source: Press releases, Arab Advisors Groups, Regulator Publications, Booz Allen Hamilton Analysis

EgyptEgypt Egypt TelecomEgypt Telecom

JordanJordan Jordan TelecomJordan Telecom

LebanonLebanon MOT/ OGEROMOT/ OGERO

MM

MM

MM

DD CC CC

DD CC CC

D*D* C*C* C*C*

Incumbent Key ChallengesIncumbent Key Challenges

Ensure cost-effective service development and delivery

Develop services based on true customer needs

Ensure speedy market responsiveness

Build organizational flexibility

Create strong cross-functional interfaces

Develop strong corporate governance for accountability, transparency and equity across the business

Capture new business opportunities

Ensure cost-effective service development and delivery

Develop services based on true customer needs

Ensure speedy market responsiveness

Build organizational flexibility

Create strong cross-functional interfaces

Develop strong corporate governance for accountability, transparency and equity across the business

Capture new business opportunitiesMoroccoMorocco Maroc TelecomMaroc Telecom

SyriaSyria (STE)(STE)

MM

MM

DD MM CC

DD MM DD


Privatization and the level of market focus are key factors in shaping the incumbent’s readiness to meet future challenges and risks

State Owned & Non-Corporatized

State Owned & Non-Corporatized

Kuwait Ministry of Communications

Lebanon Ministry of Post and Telecommunications, Ogero (Lebanon)

Kuwait Ministry of Communications

Lebanon Ministry of Post and Telecommunications, Ogero (Lebanon)

State Owned & Corporatized

State Owned & Corporatized

Algerie Telecom

Omantel

Syria Telecommunications Establishment

Telecom Egypt

Algerie Telecom

Omantel

Syria Telecommunications Establishment

Telecom Egypt

Partially /Fully Privatized

Partially /Fully Privatized

Batelco

Etisalat

Jordan Telecom

Maroc Telecom

Q-Tel

Saudi Telecom

Batelco

Etisalat

Jordan Telecom

Maroc Telecom

Q-Tel

Saudi Telecom

Selected M.E. Incumbents Segmentation

Low Level of Market Focus High


Case in point is Algerie Telecom’s inhibited performance in the cellular segment post partial liberalization…

Algeria Cellular Market Growth(in Thousand Subscribers)

10%14%100% 30%

90%

86%

70%

End 2001 End 2002 Mid 2003 End 2003

1,016

451

95

Source: Arab Advisors, Global Mobile

1,409

Algerie Telecom

Orascom

CAGR(2001-2003)

22%

285%


… which contrasts with Maroc Telecom’s performance over the same period

71%72%

77%

82%

29%

28%

23%

18%

2000 2001 2002 2003

5,730

4776

2,852

Source: Arab Advisors, Global Mobile

Morocco Cellular Market Growth(in Thousand Subscribers)

Maroc Telecom

Meditelecom

CAGR(2000-2003)

36%

59%

30%

7,160


In Lebanon, the formation and privatization of Liban Telecom is defined in Part VIII of the Telecommunications Law

The company will be constituted by decree taken in the Council of Ministers, upon recommendation of the Minister, as a joint-stock company

Due process, led by independent and expert parties, will apply to the evaluation of assets, rights, obligations and current operations for potential transfer to Liban Telecom. The company will be owned by the State of Lebanon, until such time it is privatized

The Board of Directors and Chairman will be appointed by the Council of Ministers, as long as all shares are owned by the State of Lebanon

Liban Telecom may be granted exclusivity to provide any of basic telephone service, voice public-international service, telex and telegraph service (local, international), for a period not exceeding five years from date of its formation

The government may, by decree taken in the council of Ministers and within a maximum period of two years from date of constitution of the Company, proceed with the sale of not more than 40 percent of shares of the company to a ‘strategic partner’. The partner will be entrusted with the management of the Company as long as he shall continue to hold at least half of the shares originally purchased

The Council of Ministers, upon recommendation of the Minister, shall determine dates of selling the remaining shares owned by the State to private sector investors

Staff from Ministry and OGERO may be selected by Liban Telecom based on terms of selection to be developed within three months following the appointment of the Board of Directors, in coordination with the Minister. If selected, employees will enter into agreement with Liban Telecom

Selected Legal Requirements Pertaining to Liban Telecom

Source: Adapted from Telecommunications Laws as published in the Official Gazette on July 23, 2002


Liban Telecom should undergo firstly a corporatization phase followed by partial privatization

Company is Legally Established

Company FullyCorporatized

Company Partially or Fully Privatized

Liban Telecom Privatization Milestones

Need to prioritize market facing initiatives– Market segments to focus on– High value service offerings

Competition taking note and reacting

Need to prioritize market facing initiatives– Market segments to focus on– High value service offerings

Competition taking note and reacting

Need to roll-out total portfolio against the targeted market segments

Escalating customer expectations Regulatory levers come into effect,

impeding some go-to-market actions

Need to roll-out total portfolio against the targeted market segments

Escalating customer expectations Regulatory levers come into effect,

impeding some go-to-market actions

Market ChallengesMarket Challenges

Operational ChallengesOperational Challenges

Rapid design of and alignment on the operating model

Selective migration of MoPT and OGERO employees, and external recruiting as required

Opening balances and accounting structure, including transfer of assets

Rapid design of and alignment on the operating model

Selective migration of MoPT and OGERO employees, and external recruiting as required

Opening balances and accounting structure, including transfer of assets

Full roll-out of the envisaged operating model, including employee mapping

Full roll-out of supporting IT systems

Full roll-out of process mapping methodology, company-wide

Full roll-out of the envisaged operating model, including employee mapping

Full roll-out of supporting IT systems

Full roll-out of process mapping methodology, company-wide

(12-18 months) (12-18 months)

Non-Exhaustive

Non-Exhaustive


The end game of the phased approach is value creation

Base Value Upon Corporatization

IncrementalValue Due Structuring and Operationalization

IncrementalValue Through

Institutionalization

IncrementalValue Through

Market EconomyOperation

PotentialFutureValue

Potential Selling Price to Strategic Investor

Potential Selling Price at 1st flotation

Potential Selling Price at 2nd flotation

Timeline

Mar

ket

Val

ue

Phased Value Creation at Liban Telecom

Conceptual

Conceptual

International experience suggests that adequate structuring could

enhance value by up to 90%

International experience suggests that adequate structuring could

enhance value by up to 90%


The operating model at Liban Telecom could likely be one of a holding structure with fully accountable business units, and corporate center and a group of shared services…

Liban Telecom Envisaged Organizational Model Architecture

Outsourced Services

Outsourced Services

CorporateCenter

CorporateCenter

Shared ServicesShared ServicesCustomer-FocusedBusiness Units

Customer-FocusedBusiness Units

A lean corporate center will focus on:– Setting corporate strategy– Coordinating capital and resource

allocation– Managing risk– Interfacing with external constituencies

(shareholders, regulatory bodies, etc.)

Business Units created around Customer Segments will serve as primary P&L responsibility points, focused on managing assets and growing the business

Strategic Guidance

Results

Request

Services

CorporatePolicy

Services

Manage

Services

Shared Services platform to provide market competitive transactional and expertise services demanded commonly across the organization, in addition to exploring and managing outsourcing opportunities


… which would allow Liban Telecom to selectively acquire strategic partners, as required per business unit should there be a decision to do so

BenefitsBenefits

Multiple Strategic Partnership Model

Holding GroupHolding Group100%

80% 60% 51%

20% 40% 49%

Private and Public Placement

Private and Public Placement

Business Unit 1

Business Unit 1

Business Unit 2

Business Unit 2

Business Unit 3

Business Unit 3

Business Unit 4

Business Unit 4

Partner 1Partner 1 Partner 2Partner 2 Partner 3Partner 3No required partnership

Strategic partnership value-add is customized to each business line, with an emphasis on:

– Economies of scale, particularly in technology acquisition, deployment and operation

– Access to new service development knowledge and platforms

– Access to regional/global networks, enhancing price competitiveness to end users

Strategic partnership value-add is customized to each business line, with an emphasis on:

– Economies of scale, particularly in technology acquisition, deployment and operation

– Access to new service development knowledge and platforms

– Access to regional/global networks, enhancing price competitiveness to end users


The envisaged model entails a shift from the functional structure currently prevailing at the MoPT and OGERO…

Current MoPT Structure

PostPost

Lebanon Ministry of Post and TelecommunicationsLebanon Ministry of Post and Telecommunications

OGEROOGERO

Technical Division

Technical Division ITIT

FinanceFinance HRHR

Commercial Division

Commercial Division OperationsOperations

General MonitoringGeneral

Monitoring

Operation and Maintenance

Operation and Maintenance

Engineering / Installation

Engineering / Installation

Shared ServicesShared

Services


… to one that is sector specific

Liban Telecom Business Model

SalesSales

MarketingMarketing

Product & Content Development

Product & Content Development

Network ManagementNetwork Management

Support FunctionsSupport Functions

Customer ServiceCustomer Service

Corporate CoreCorporate Core

Mo

bil

e S

erv

ice

s

En

terp

ris

e S

olu

tio

ns

Wh

ole

sa

le

Network

HR, IT, Procurement & Legal Affairs

CEO’s Office, Corp. Strategy & Steering, Regulatory Affairs, Communication, Business Development, Corporate Finance

Key Telecom Activities

Fix

ed

Se

rvic

es

Preliminary

Preliminary


The roll-out of the envisaged business model raises a series of challenges for Liban Telecom

Corporatization/Privatization Implementation Challenges

What is the detailed organization structure and manpower plan?

How to map OGERO and MoPT employees to Liban Telecom with minimal disruption?

How to migrate from the current situation to a new process map?

What is the detailed organization structure and manpower plan?

How to map OGERO and MoPT employees to Liban Telecom with minimal disruption?

How to migrate from the current situation to a new process map?

What will Liban Telecom’s growth strategy be? What will the cost reduction opportunities be? What is the set of financial tools to be

implemented to enhance the company’s performance (activity-based costing, accounting separation, etc.)

What will Liban Telecom’s growth strategy be? What will the cost reduction opportunities be? What is the set of financial tools to be

implemented to enhance the company’s performance (activity-based costing, accounting separation, etc.)

What is the target network and IT architecture and the technologies to be adopted?

What is the technology migration strategy from the current to the target architecture?

What is the detailed technological evolution roadmap?

What is the target network and IT architecture and the technologies to be adopted?

What is the technology migration strategy from the current to the target architecture?

What is the detailed technological evolution roadmap?

What customer segmentation will be used? What are the services to be implemented

and according to which roadmap? What will Liban Telecom’s brand strategy

be?

What customer segmentation will be used? What are the services to be implemented

and according to which roadmap? What will Liban Telecom’s brand strategy

be?

Operating Dimension

Financial Dimension

Technology Dimension

Customer Dimension

Liban

Telecom

Corporate

Goals

Liban

Telecom

Corporate

Goals


1. Financial Dimensions

Lead FactorsLead Factors Resulting ChallengesResulting Challenges

Growth Strategy Growth Strategy Build the Fixed business around a clear service portfolio with adequate market segmentation, with Mass Broadband as a central part of the growth strategy

Develop the Mobile business on the shortest critical path to seize the under-served market potential

Develop the Enterprise group primarily around the Data access business and customized Managed Data Services. Combine with remaining access services by Liban Telecom to offer one-stop-shop for serving Enterprises

Define the boundaries and develop the Wholesales business, which serves as a commercial arm to the Network, selling capacity internally as well as externally

Build the Fixed business around a clear service portfolio with adequate market segmentation, with Mass Broadband as a central part of the growth strategy

Develop the Mobile business on the shortest critical path to seize the under-served market potential

Develop the Enterprise group primarily around the Data access business and customized Managed Data Services. Combine with remaining access services by Liban Telecom to offer one-stop-shop for serving Enterprises

Define the boundaries and develop the Wholesales business, which serves as a commercial arm to the Network, selling capacity internally as well as externally

Cost Efficiency Strategy Cost Efficiency Strategy Optimize the manpower plan and ensure gradual mapping of employees to the new operating model in line with market take-up

Establish aggressive targets for cost management, with clear year-on-year initiatives for cost rationalization. Key areas to consider: (i) operation and maintenance, and (ii) general and administrative. Conversely ensure adequate funding for sales and customer service activities

Optimize the manpower plan and ensure gradual mapping of employees to the new operating model in line with market take-up

Establish aggressive targets for cost management, with clear year-on-year initiatives for cost rationalization. Key areas to consider: (i) operation and maintenance, and (ii) general and administrative. Conversely ensure adequate funding for sales and customer service activities

Financial Transparency Financial Transparency Establish from Day 1 chart of accounts for the individual businesses, leading to stand alone financial statements with adequate transparency and accountability. This would create, as a result, adequate readiness for accounting separation (regulatory requirement) and transparency for strategic partnership

Develop from Day 1 activity-based costing practices to control operational investments and their relation to revenues and profits

Establish from Day 1 chart of accounts for the individual businesses, leading to stand alone financial statements with adequate transparency and accountability. This would create, as a result, adequate readiness for accounting separation (regulatory requirement) and transparency for strategic partnership

Develop from Day 1 activity-based costing practices to control operational investments and their relation to revenues and profits


2. Customer Dimensions


Market Segmentation Market Segmentation Develop clear and actionable market segmentation with an emphasis on Residential, SMEs, and Enterprises

Define implications on service and servicing portfolio. Particularly emphasis should be placed on customized sales management, distribution channels, customer care and treatment

Develop clear and actionable market segmentation with an emphasis on Residential, SMEs, and Enterprises

Define implications on service and servicing portfolio. Particularly emphasis should be placed on customized sales management, distribution channels, customer care and treatment

Service Portfolio Service Portfolio Outline full potential of service portfolio to be offered by Liban Telecom, taking into account:

– Fixed: role of VAS, broadband and related content strategy, and bundled triple-play offerings

– Mobile: role of segmented tariff schemes, data services, and synergies with fixed wireless solutions

– Enterprise Solutions: role of IP-based access services, and evolution of service offering to managed data services

Outline full potential of service portfolio to be offered by Liban Telecom, taking into account:

– Fixed: role of VAS, broadband and related content strategy, and bundled triple-play offerings

– Mobile: role of segmented tariff schemes, data services, and synergies with fixed wireless solutions

– Enterprise Solutions: role of IP-based access services, and evolution of service offering to managed data services

Brand Strategy Brand Strategy Seek to build at the outset a strong monolithic branding structure

Emphasize from Day 1 the mother brand to create equity and future leverage

Allow flexibility to accommodate co-branding through future strategic partnerships

Seek to build at the outset a strong monolithic branding structure

Emphasize from Day 1 the mother brand to create equity and future leverage

Allow flexibility to accommodate co-branding through future strategic partnerships


3. Technology Dimensions


Network Strategy Network Strategy Develop granular perspective of the network requirements, and plan for customized deployment both for Fixed and Mobile to facilitate QoS compliance with market demand – which would translate into optimal return on investments

Plan for migration of the core network towards an IP-based environment, and phase out investments in switching-based equipments

Develop granular perspective of the network requirements, and plan for customized deployment both for Fixed and Mobile to facilitate QoS compliance with market demand – which would translate into optimal return on investments

Plan for migration of the core network towards an IP-based environment, and phase out investments in switching-based equipments

Information Technology Strategy

Information Technology Strategy

Prioritize development of Enterprise Resource Planning solution, inclusive of key start-up modules: Finance, HR, Material Management

Prioritize development of customized customer relationship management and billing system, using open standards to facilitate interface with future alliances and partnerships

Prioritize development of Enterprise Resource Planning solution, inclusive of key start-up modules: Finance, HR, Material Management

Prioritize development of customized customer relationship management and billing system, using open standards to facilitate interface with future alliances and partnerships

Implementation Roadmap Implementation Roadmap Plan for gradual roll-out of technology environment

– Demonstrate commitment in engaging Liban Telecom on growth path, with due investments

– Pace efforts with business development and sustainability

– Allow room for subsequent customization stemming from future alliances and partnerships

Plan for gradual roll-out of technology environment

– Demonstrate commitment in engaging Liban Telecom on growth path, with due investments

– Pace efforts with business development and sustainability

– Allow room for subsequent customization stemming from future alliances and partnerships


4. Operating Dimensions


Organization Model Organization Model Define early on the operational model for Liban Telecom, and identify roll-out challenges in relation to existing functionalities within MoPT and OGERO

Emphasize readiness of market facing functionalities within the set business units, with the objective to achieve strong go-to-market capabilities and competitive agility

Define and institutionalize on the shorted critical path the corporate governance model to achieve accountability and transparency of objectives, strategies and executions

Define early on the operational model for Liban Telecom, and identify roll-out challenges in relation to existing functionalities within MoPT and OGERO

Emphasize readiness of market facing functionalities within the set business units, with the objective to achieve strong go-to-market capabilities and competitive agility

Define and institutionalize on the shorted critical path the corporate governance model to achieve accountability and transparency of objectives, strategies and executions

People Strategy People Strategy Define mapping process and criteria to select employees from existing pools (MoPT, OGERO), ensure alignment at the level of the Board of Director, and achieve proper communication to promote clarity and fairness

Develop early on gap analysis in skills set and define mitigation strategy. Liban Telecom will likely face typical challenge of re-balancing between dominant technology-driven culture and must-have emerging commercial skills

Define mapping process and criteria to select employees from existing pools (MoPT, OGERO), ensure alignment at the level of the Board of Director, and achieve proper communication to promote clarity and fairness

Develop early on gap analysis in skills set and define mitigation strategy. Liban Telecom will likely face typical challenge of re-balancing between dominant technology-driven culture and must-have emerging commercial skills

Process Mapping Framework

Process Mapping Framework

Develop and align on common platform to map all operating process within Liban Telecom, using telco-industry common standard

– Leverage experience of international operators to enhance operational efficiency and effectiveness

– Adopt ‘open standard’ that would facilitate the operationalization of future alliances and partnerships

Develop and align on common platform to map all operating process within Liban Telecom, using telco-industry common standard

– Leverage experience of international operators to enhance operational efficiency and effectiveness

– Adopt ‘open standard’ that would facilitate the operationalization of future alliances and partnerships


Liban Telecom could target a 12-18 month corporatization readiness program

Strategic DimensionsStrategic Dimensions

MonthsMonths

11 22 33 44 55 66 77 88 99 1010 1111 1212 1313 1414 1515 1616 1717 1818

Financial Dimension

Growth strategy

Cost efficiency strategy

Financial transparency

Financial Dimension

Growth strategy

Cost efficiency strategy

Financial transparency

Customer Dimension

Market segmentation

Service portfolio

Brand strategy

Customer Dimension

Market segmentation

Service portfolio

Brand strategy


Network strategy

IT strategy

Implementation roadmap


Network strategy

IT strategy

Implementation roadmap

Operating Dimension

Organization model

People strategy

Process mapping framework

Operating Dimension

Organization model

People strategy

Process mapping framework

Design Implementation

Indicative

Indicative


Competition in Mobile services is likely to follow one of three scenarios

1

2

3

Different Mobile Liberalization and Operational Scenarios

Scenario DescriptionScenario Description

The Fixed sector is corporatized

One of the mobile operators is privatized

Liban Telecom takes over the other mobile operator


One of the mobile operators is privatized

Liban Telecom takes over the other mobile operator


Two mobile operators are privatized

Liban Telecom is an MVNO in the Mobile sector



Liban Telecom is an MVNO in the Mobile sector



Liban Telecom has a mobile operation



Liban Telecom has a mobile operation

Symbol in this DocumentSymbol in this Document

LTMLTM MM

LTMLTM MM MM

LTMVNO

LTMVNO MM MM


In summary, Lebanon can accompany the liberalization and privatization trend in the region through effective market liberalization and the privatization of Liban Telecom

Telecom market liberalization is inducing significant growth in the region

– Competition driving the introduction of new services and more favorable prices

– Privatization is enhancing the incumbent's ability to compete effectively and add further value to consumers

Corporatization of incumbents aims to create value prior to privatization in order to maximize returns

Liban Telecom should aim to face financial, customer, technology and operational challenges with a systematic and concerted corporatization program

Once a market scenario is adopted for mobile competition, Liban Telecom should be ready to capture the related advantages and mitigate risks associated with the scenario’s disadvantages

Regional telecom trends and strategic options for liban telecom sep 2004

Economy & Finance

Transcript of Regional telecom trends and strategic options for liban telecom sep 2004