Sms Marketing Execution Plan 220502 Short Version V2

SMS Marketing Execution Plan Discussion Document

May 23rd, 2002

MKT-Capturing the SMS Opportunity Alternative v1-051302-KSO-SAC

The Opportunity

Relevance to Alltel

Implementation Plan

Agenda


The Opportunity SMS is a Global Phenomenon

SMS has had explosive growth over the past 2 years in all continents …

Global SMS Message Traffic

Source: GSM World, EMC, Merrill Lynch, Mobile Streams DCI.

Bill

ion

s p

er M

on

th

24

10

29

40

62

20

Apr-99 Dec-99 Jun-00 Dec-00 Jun-01 1-Dec Dec-02(e)

CAGR:214%

Message Traffic by Region

Source: Merrill Lynch.

Western Europe

41%

Japan34%

Asia (ex. Japan)

12%

South America

3%

Eastern Europe

8%North America

2%


The Opportunity Revenue Contribution

… and has become an important revenue source to operators all around the world.

Sources: Baskerville, Company releases, DCI analysis.

By Country

22%

10%

7%

4%

<0.5%

10%

8%

43

7

340

7621

53

177

Phillipines Japan Germany UK Singapore Australia US

% of Total Revenue

Messages per Mob Sub per Month 15 15

12

10.6

5

35

3026

21

7

Orange UK Telefonica(TME)

Sonera VodafoneUK

OrangeFrance

% of Total RevenueMessages per Mob Sub per Month

53% 56% 72% NA 31%SMS

Penetration

Sources: Merrill Lynch, DCI analysis.

Selected Carriers


The OpportunityKey Success Factors Abroad

Overseas experience indicate that key milestones need to be achieved to create an environment that fosters SMS adoption.

0

500

1000

1500

2000

2500

3000

Apr-99

Oct-99

Dec-99

May-00

Aug-00

Dec-00

Mar-01

Jun-01

UKGermanyPortugal

Selected SMS Market Ramp-up

Source: EMC, Merrill Lynch.

Million Messages per Month

InteroperabilityPrepaid SMS

Portugal

UK

Germany

1. Interoperability agreements implemented across all of Europe enabling SMS messaging across all GSM networks in Europe

2. Pricing schemes to reduce barriers to entry

- Pay per message sent (zero charge to receive)

- Calling Party Pays

- Pre-paid SMS offers

3. 100% of handset base is 2-way SMS enabled

4. Benefits of SMS proactively communicated

5. SMS focused promotions

Key Success Factors


The Opportunity Barriers to SMS Adoption in US are Coming Down

• Recent third party inter-carrier agreements in the US will enable ~75% of US subscribers to send and receive text messages across different networks by July 2002.

• Major US carriers offer “pay-per-message plans” and AT&T has introduced “calling party pays” for text messaging setting a trend for the future.

• SMS enabled handsets in the US are expected to reach 99% of base by 2004 up from 57% last year.

• Using conservative estimates based on international benchmarks and the recent moves by US carriers we expect SMS revenues to total $2.6B by 2004, equivalent to 2.8% of total industry revenues.

Barriers to SMS adoption in the US are crumbling fast and the market is set to take off.


Date Total Subs (*) Vendor

The OpportunityInteroperability Will Reach 75% of US Subscribers by July

• Interoperability is going to drive SMS traffic & revenue growth

• In December 2001 one month after interoperability was launched 30% of AT&T’s SMS traffic was inter-carrier

• AT&T’s inter-carrier volume increased 65% from December 2001 to January 2002

• InphoMatch, reports that it processes over 1M messages a day

Comments

Recent third party inter-carrier agreements in the US will enable ~75% of US subscribers to send and receive text messages across different

networks by July 2002.

Interoperability

AT&T Wireless Nov 01 17.2M InphoMatch

Century Tel Mar 02 0.7M InphoMatch

Cincinnati Bell N/A 0.5M InphoMatch

Cingular Mar 02 21.3M MobileSpring

PrimeCo Mar 02 NA NA

Sprint PCS Apr 02 12.7M MobileSpring

Verizon Wireless Apr 02 28.7M InphoMatch

VoiceStream Jan 02 6.3M InphoMatch

(*) 3Q01.

Nextel Jul 02 8.2MWireless

Services Corp.


The Opportunity Pricing Plans

Send Plan 1 Plan 2 Plan 3

Major US carriers offer “pay-per-message plans” and AT&T has introduced “calling party pays” for text messaging setting a trend for the future.

• 10¢ • 100 messages for $4.99/month

• N/A • N/A

• 10¢ • 100 messages for $2.99/month (sent and received)

• 250 messages for 5.99/month (sent and received)

• 500 messages for $9.99/month(sent and received)

• 10¢ (post)• 5¢ (pre)

• 100 messages for $2.99/month

• N/A • 600 messages for $7.99/month

• 5¢ • 50 messages (included in the National & Regional plans)

• 500 messages (Included in Talk & Text Plan)

• 500 messages for $2.99/month (Ping Pong Add-on Plan)

• Not offered • Unlimited usage for $5/month

• N/A • N/A

Receive

Bucket PlansPay-per-message

• Free

• 10¢

• 2¢ (post)• 5¢ (pre)

• N/A

• 5¢


The Opportunity SMS Enabled handset Forecast

Text Friendly Handset Form Factor Examples

SMS enabled handsets in the US are expected to reach 99% of base by 2004.

US SMS Enabled Handsets

Sources: Yankee Group, Morgan Stanley, DCI analysis.

127

158

180199

88%

57%

99%

74%

2001 2002 2003 2004

Handsets (Millions)SMS Handset Penetration

SMS Handsets

(M)54.4 72.5 117.2 197.2


Using conservative estimates based on international benchmarks and the recent moves by US carriers we expect SMS revenues to total $2.6B by

2004, equivalent to 2.8% of total industry revenues.

The Opportunity US SMS Penetration and Revenue Forecast

General:• Mobile penetration in US reaches

68% in 2004, yielding 199M subscribers

• Average monthly bill remain around $45.5 in the forecast horizon

SMS Specific:• Usage rises from 15 messages per

user per month in 2002 to 40 in 2004

• Average price per message falls from $0.17 to $0.9 per message

• SMS penetration of user base rises from current 3% to 30% in 2004

Benchmarks:• European mobile penetration: 71%• SMS penetration: >50%• Messages per user per month: ~50

CAGR 01-04

Source: Yankee Group, Merrill Lynch, Morgan Stanley, DiamondCluster Analysis.

AssumptionsUS Subscriber and SMS Penetration Forecast

135%

16%

9%19%

30%

91%81%

70%

3%

97%

2001 2002 2003 2004

Rest ofSubscribers

% SMS Penetration

SMS Revenues

Industry Revenues

127M 158M 180M 199M

% of Total

$58B $71B $82B $90B

$0.2B $0.5B $1.1B $2.6B

0.2% 0.7% 1.3% 2.8%


Agenda

The Opportunity

Relevance to Alltel

A Winning Strategy


Relevance to Alltel Opportunity for Alltel

• A well executed SMS strategy can result in approximately $88 M in revenues for Alltel by 2005.

• The SMS business opportunity requires a $6-10M outlay and has an expected NPV in excess of $120M.

• SMS services has an estimated EBITDA margin of >80% and under the current scenario can contribute up to $340 M over 5 years.

• In addition to short-term return, an effective SMS product would prepare ALLTEL and its subscriber base for future data offerings and increase long-term adoption of wireless data.

SMS offers Alltel a cheap path to developing a portfolio of data services ahead of any major commitment to 3G.


Relevance to Alltel Revenue Impact

Revenue Forecast

A well-executed SMS strategy can result in approximately $138 M in revenues for Alltel in year 5.

Users

Usage

Pricing

Additional Assumptions

(*) EOP.

Key Revenue Drivers

Sources: Yankee Group, MSDW, DCI analysis.

• Messaging user base grows from 3% of network subscribers to 47% in year 5

• Messaging usage climbs from 15 messages per messaging user per month to 60 in year 5

• Average price per message falls from $0.27 in the first year to today to $0.08 in year 5

• Interoperability introduced by end of year 1

• Pay-per-message billing product introduced by end of year 1

ILLUSTRATIVE

Re

ve

nu

es

($

M)

Messaging revenues (M)Messaging penetration (% of base)

1.4 M 2.3 M

30 40

$0.15 $0.11

7.6M 7.9M

Users(*)

Msg/User(*)

Revenue/Message(*)

Subscribers(*)

0.2 M

15

$0.27

7.3M

138125

36

10

88

35%35%

3%

19%

30%

0

40

80

120

160

200

1 2 3 4 5

0%

20%

40%

60%

80%

100%

2.8 M

40

$0.10

8.1M

2.9 M

40

$0.10

8.2M


The SMS business opportunity requires a $6-10M investment with an expected NPV of over $120M.

-8 -3

17

64 71

4661

15

125

196

-50

0

50

100

150

200

250

1 2 3 4 5

Cashflow (mln) Cum. Cashflow (mln)

Relevance to Alltel Payback

Financial Analysis ($ M)

• Investment Requirement: $6-10 M including SMSC purchase, marketing and implementation

• EBITDA margin: more than double typical voice margins (36%)• NPV >120 M (incl. Terminal Value)• Near-immediate break-even and pay back in just 16months

CommentsYear

Capex

EBITDA Evolution

120108

297

76

340220

7 36112

0

50

100

150

200

1 2 3 4 5

0

200

400

600

EBITDA (mln) Cum. EBITDA (mln)

Year70 %

EBITDA margin 79 % 86 % 86 % 86 %

0.10SMS ARPU 0.40 1.00 1.30 1.40

Source: DiamondCluster Analysis.

ILLUSTRATIVE


Relevance to Alltel Preparing for the Future: SMS as a Lead into Mobile Data

In addition to short-term return, an effective SMS product would prepare ALLTEL and its subscriber base for future data offerings and increase

long-term adoption of wireless data.

• Uncover data-using segments and understand how different segments respond to offers, pricing plans, communications, and promotions

• Not applicableCustomer Segments

• Learn which offer types are most appealing• Understand how customers use data

• Increase customer familiarity with integrated data and voice plansOffer Design

• Test different pricing schemes (buckets, bundles, per kilobyte/megabyte)

• Realize how customers prefer to be charged for data

• Get subscribers used to data pricing models (buckets, bundles, per kilobyte/megabyte)Pricing

• Introduce wireless data to sales staff and distribution channels

• Test data-specific messages, mediums and promotions

• Teach customers data capabilities • Reduce subscribers’ psychological barriers to using

mobile data

Communication & Promotion

• Learn user preferences for handset functionalities related to data use

• Make subscribers comfortable using their handsets for data applicationsHandsets

Preparing the Operator Preparing the Subscriber Base

SMS can mitigate mobile data risks SMS teaches subscribers to use their

handsets for other applications beside voiceKey Benefit


Agenda

The Opportunity

Relevance to Alltel

A Winning Strategy


• Target high potential users within the subscriber base: Teen, Students, Young Professionals, SMEs

A Winning Strategy Strategic Guidelines

A successful SMS strategy requires an action plan to reduce barriers to adoption in order to create the viral effect required to drive usage.

• Upgrade SMS platform to address market requirements

• Enable all subscribers to use the service as default

• Focus on peer to peer messaging first but develop selective content offers (e.g. ringtones)

• Introduce bill per message price plan

• Introduce Calling Party Pays concept (free to receive)

• Develop communications program to educate customers as well as sales force and customer service representatives

• Incorporate 2-way SMS as a standard feature in all new handsets

• Establish interoperability agreement with third party IC providers

• and IM players

Pricing Strategy

Interoperability

Handset

Offer Design

Communication and

Promotion

Customer Segments


Implementing the strategy requires aggressive cross-functional coordination between marketing, sales, and the technical support functions.

Program Management

Billing Network/SMSC

Integration

Sales and CustomerService

Handset Strategy

Construct and Monitor Business Case

Marketing Plan

A Winning Strategy Implementation Framework

Inter-Operability


A Winning StrategyImplementation Plan: Business Case

Program Management

InteroperabilitySales and Customer

Service


Handset Strategy

Marketing Initiatives

• Estimate current SMS support costs

• Estimate incremental investments/costs to support market strategy:- SMSC- Network- Billing- Applications- Marketing and promotions

• Forecast monthly subscriber and revenue growth

• Evaluate/design the organization structure required to deliver growth

Tasks Deliverables

• Business case model and budget with 3 year pro-forma projections

• Peak (“busy hour”) volume projections and capacity needs

• Recommendation on organization structure to support growth

BillingNetwork/SMSC

Integration


A Winning StrategyImplementation Plan: Marketing Initiatives

• Identify and segment high potential SMS users within the base

• Define offer(s), pricing strategies and respective value proposition- Design focus groups to test the offering- Adjust service offerings and pricing strategies

based on focus groups results- Refine service offering requirements and

timelines from a technical and customer service point of view

• Define communication and promotion strategy and plan

• Launch SMS offerings

Tasks Deliverables

• High priority customer segmentation

• Service offering(s) prioritized by segment

• Pricing strategy

• Partnership requirements

• Communication and promotion strategy and plan

• Campaign launch

• Measurement and evaluation of results

Program Management


Service


Marketing Initiatives

Handset StrategyBilling

Network/SMSC Integration


A Winning StrategyImplementation Plan: Technical Support Coordination

Dramatic growth must be anticipated and prepared for at all levels.

• Evaluate interoperability options

• Evaluate SMSC capabilities against future volume and service requirements

- Busy hour traffic

- Reporting and troubleshooting

- Data capture for billing requirements

• Evaluate Network capabilities against forecasted traffic

• Evaluate billing capabilities against future service needs

Tasks Deliverables

• Inter-carrier vendor (ICV) comparison and selection recommendation

• SMSC vendor comparison and selection recommendation

• Network traffic forecast

• Billing services needs and timeline

- Per-message

- Downloads/alerts

- Games, IM

- Roaming

Program Management


Service


Handset Strategy

Marketing Initiatives Billing



A Winning StrategyImplementation Plan: Sales and Customer Service Support

In order to fully capitalize on the SMS opportunity, the “front line” must be involved, trained, and excited about the service.

• Identify current communication methods and support for field and customer service

• Develop internal communication strategy, plan and materials tied to marketing strategy

- Sales

- Customer service

- Regional marketing

- Network support

• Develop internal promotion to create interest/excitement around the service

Tasks Deliverables

• Internal communication plan

• Internal promotion plan

Program Management


Service


Handset Strategy

Marketing Initiatives Billing



A Winning StrategyImplementation Plan: Program Management

One of the primary benefits of program management is to eliminate “surprises” and minimize or eliminate deadline slippage.

Tasks Deliverables

• Detailed master workplan with schedule, deadlines, and interdependencies

• Weekly status reports/discussions

• Periodic management progress reports

• Preparation and launch completed on time and within budget

• Identify current state of program

- Interview key stakeholders

- Identify and document current projects, schedules

- Identify inter-project dependencies• Facilitate cross functional communications

- Track and report progress against baseline

- Encourage adherence to deadlines• Resolve issues

- Identify roadblocks

- Form ad-hoc teams to tackle issues

- Monitor impact on overall plans

Program Management


Service


BillingMarketing Initiatives NetworkSMSC


A Winning Strategy High Level Plan for Launch

Task Month 1

Alltel can leverage DCI’s expertise in this area to speed time to market and be in a position to fully launch a competitive SMS offer in just 6 months.

Month 2 Month 3 Month 4 Month 5 Month 6 Month 7

Business Case• Estimate investment Requirements• Build revenue and cost model• Evaluate Organization Requirement

Marketing Plan• Identify and segment potential users• Define offer and pricing strategy• Define communication and promotion plan for launch

• Execute plan

Interoperability • Prepare and issue RFP • Evaluate and execute

SMSC/Network • Prepare and issue RFP • Evaluate and execute

Billing • Evaluate billing requirements• Execute

Program Management• Track and report progress• Identify and mitigate risks

Launch


A Winning Strategy Implementation Project Structure

Project Lead

MarketingInitiatives

SMSC RollOut

DCI

Steering Committee

Subject Matter Experts

Alltel

DCI Alltel

Alltel

Billing SystemRoll-Out

Alltel

InteroperabilityHandsetStrategy

Alltel

Sales and C.Care Training

Alltel

BusinessCase

DCI

PMO

DCI

Project Areas

DiamondCluster team would be deployed in the marketing initiatives, including partnership evaluation, business case development, program management as well as interoperability negotiation support.

DCI Alltel

Sms Marketing Execution Plan 220502 Short Version V2

Documents

Transcript of Sms Marketing Execution Plan 220502 Short Version V2