TELKOM SA Executive Briefing

1

4858_04_2002

© 2002, Cisco Systems, Inc. All rights reserved.

TELKOM SA

Executive Briefing


April 14, 2005

Bill Brownell, Vice President

Cisco Internet Business Solutions Group

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© 2002, Cisco Systems, Inc. All rights reserved.

Outline

•
Introducing IBSG

•
Service Provider Market Trends

•
Next Generation Service Provider

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© 2002, Cisco Systems, Inc. All rights reserved.

Introduction to IBSG: Capabilities

Financial

Services

Retail

Mfg.

Energy

Health

Care

Public

Sector

Enterprise

eBusiness Solutions
–

Customer Care, eLearning,

Outsourcing, SCM, Web Foundation, Workforce Optimization

Service Provider

Challenger

Mobile

System

integrator

SP Solutions Business Planning

SP eBus and eOps Solutions

Incumbent

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© 2002, Cisco Systems, Inc. All rights reserved.


Operational
transformation


SP CxO
Agenda

Profitable Service

Creation

Go To Market
Effectiveness


Business
transformation



IBSG Areas of Focus

IBSG Programs

Drive

Revenue

Growth

Drive

Productivity

Improvements

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© 2002, Cisco Systems, Inc. All rights reserved.

Outline

•
Introducing IBSG

•
Service Provider Market Trends

•
Next Generation Service Provider

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© 2002, Cisco Systems, Inc. All rights reserved.

Consumers

Enterprises

Small

Business

•
Enable the real


time enterprise

•
Lower costs

•
Broader reach

•
Access to customers

•
Scaleable growth

•
Partnering


•
Learning and


knowledge

•
Entertainment

•
Mobility, convenience

Service Providers Will

Enable the 21
st

Century Economy

Service Provider

Infrastructure

and Services

$1.2T Industry WW

$600B

$400B

$200B

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© 2002, Cisco Systems, Inc. All rights reserved.

Consumers And Businesses

are spending more on Communications

Talk More, Eat Less?

Source: OECD 2003

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© 2002, Cisco Systems, Inc. All rights reserved.

Growth in Mobile, Data

0
200
400
600
800
1,000
1,200
1,400
1,600
2004
2005
2006
2007
2008
Value Added
Services
(Layers 4-7)
Layers 2-3
Mobile Voice
Fixed Voice
Source: IDC/Gartner/Ovum/Yankee Cisco IBSG January 2005

$ Billion

-
1.2% CAGR


7.1% CAGR

19.5% CAGR

11.9 % CAGR

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Mobile Subscribers (M)

Broadband Households (M)

Growth Engines

IP Voice over Broadband Users (M)

Managed Services: IP VPN ($B)

Source: Cisco IBSG, January 2005; IDC; Gartner Dataquest; Softbank

0

50

100

150

200

2003

2004

2005

2006

2007

2008

0

500

1000

1500

2000

2003

2004

2005

2006

2007

2008

0

5

10

15

20

2003

2004

2005

2006

2007

2008

0

50

100

150

200

250

2003

2004

2005

2006

2007

2008

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© 2002, Cisco Systems, Inc. All rights reserved.

Customer Are Willing to Pay

(and Stay) for Value

Security

Simplicity

Integration

Personalization

Control

Speed

Reliability

Low cost

Voice

Data

Video

Wired

Wireless

Foundational Requirements

Source: OECD Communications Outlook, 2003

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11

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© 2005 Cisco Systems, Inc. All rights reserved.

10652_01_2005

Challenge:

Complex, Costly Operating Models

•
Market change has generated
increasingly complex hybrid
model

New networks for new services

Overlays to create integration,
bundling, and customer care

•
The hybrid model does

not work

High complexity and increasing
costs, despite cost reduction efforts

Limited ability to integrate

Constrained service innovation

Vulnerable to focused competitors

IBSG
-

11

12

12

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© 2005 Cisco Systems, Inc. All rights reserved.

10652_01_2005

Challenge:

Intensifying Competition (US Example)

Old
–

Static vertical integration: Markets are generally mutually exclusive

Source: Cisco IBSG, January 2005

New
–

Deconstructed model: Competition comes from all directions

Cable Companies

(Comcast)

Service Layer Players

(Vonage, Skype)

Mobile Operators

(Sprint, Verizon, Vodafone)

Application

Core

Access

Incumbent Wireline

Mobile

Cable

Incumbent Wireline

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13

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© 2005 Cisco Systems, Inc. All rights reserved.

10652_01_2005

Traditional Revenue Streams Under Attack

Source: IDC, Yankee and Gartner, Q3 2004

Country

2003

2008

CAGR

USA

169

127

-
5.6%

Japan

40

30

-
5.6%

UK

16.9

15

-
2.4%

Spain

7.2

6.4

-
2.3%

Italy

12

11

-
2.3%

France

14.3

12.7

-
1.7%

Germany

19.5

18.2

-
1.3%

Fixed Voice Market Size

$
-
Billions

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14

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© 2005 Cisco Systems, Inc. All rights reserved.

10652_01_2005

Level of Innovation

Price

Competition

Low

High

High

Low

Germany

Mexico

Italy

France

Spain

=Less liberarilized competitive structre

UK

U.S.

Canada

Japan

= More liberalized competitive structure

Regional Variations In Pace

General
direction of
customer
demand and
service mix
similar but
pace and
competitive
dynamics vary

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© 2005 Cisco Systems, Inc. All rights reserved.

10652_01_2005

Outline

•
Introducing IBSG

•
Service Provider Market Trends

•
Next Generation Service Provider

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16

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© 2005 Cisco Systems, Inc. All rights reserved.

10652_01_2005

Keep the

Business On
Track

Change the Engine

While Flying

Grow the

Top Line

Source: Cisco IBSG, January 2005

•
Respond to
deregulation

•
Limit competitive
inroads

•
Get the “house in
order”

•
Improve productivity

•
Improve financial
performance

•
Grow new and
existing segments;
transition to IP
services

•
Manage fixed and
mobile convergence

•
Become more
customer and
marketing oriented

•
Reduce operating
expenses through IP
shift

•
Adapt organization

•
Maintain customer
quality; enhance
customer experience

•
Evolve to a new
business model

Management Agenda for Most Incumbents

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© 2005 Cisco Systems, Inc. All rights reserved.

10652_01_2005

Create

Build and Operate

Market, Sell,
Service

Support


Outlines of a New Model:

The Next Generation Service Provider

Service

Innovation and

Partnering

Intelligent Information

Network and Operations

Customer
Agent

Responsive Business Processes

Dramatically change:

•
Cost structure

•
Time
-
to
-
innovation

•
Brand value and customer experience

•
Revenue and profit trajectory

Source: Cisco IBSG, March 2005

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18

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© 2005 Cisco Systems, Inc. All rights reserved.

10652_01_2005

Source: Cisco IBSG, March 2005

Note: Dollars expressed as billions; results displayed for U.S. and Western Europe

Customer
agent

$43

Intelligent
information
network
and
operations

$70

2004
Industry
margin

$230B

39%


EBITDA

2008
Industry
margin



$345B

50%


EBITDA

Legacy

revenue

decline

($95)

Responsive
business
processes

$70

Potential for Significant Profit Improvement

and Competitive Strength

Service

Innovation

And

Partnering


$27

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© 2002, Cisco Systems, Inc. All rights reserved.

Customer Agent:

A Higher
-
Margin Customer Relationship

Services
Reach

Extend network
intelligence to
customer devices

Serve as the network
capabilities manager
for the customer

Services
Management

Use brand to
offer service
packages
customized for
different markets

Market
Segmentation

Solutions
Integration

Provide tools and
services to integrate
third
-
party
applications

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© 2002, Cisco Systems, Inc. All rights reserved.

Customer Agent: NTT DoCoMo

•
Offers iMode high
-
speed wireless data
services

•
First operator to deploy 3G W
-
CDMA (in
2001)

•
42M subscribers

•
Operating revenues (FY ending March
04)
¥
5T

•
Strong services reach:

Worked closely with device
manufacturers to define handset
specifications

Established content search tools
and navigation aids

Billed customers on behalf of
content providers



IBSG
-

20

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© 2002, Cisco Systems, Inc. All rights reserved.

Customer Agent: France Telecom Group

Use the best available
Network

Users
’

features

•
Connection kit

•

password

•

Security strategy

•
Users services

Secure
Access

Single

password


Wi
-
Fi public

ADSL

@ Home

GPRS

UMTS

PSTN

IT manager services

•
Contract

•
Bill

•
SLA

•
Service deployment

•
Reporting

•
Administration services & tools



Enhance employee efficiency

with a single,
simple & secure connection to the best network available

© 2005 Cisco Systems, Inc. All rights reserved.

IBSG
-

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Service Innovation: Top 60 SPs Getting
Traction on a Range of New Services

% Applicable
SPs Offering
2004

Growth Rate of
SPs Offering

2003
–
2004

% of Generally
Available
Services On or
Ahead of Plan

Enterprise
Mobile Office

75%

11%

82%

Layer 3 VPN

62%

20%

80%

Broadband
Video

33%

Not measured in
2003

67%

Metro Ethernet

52%

26%

76%

Broadband
VoIP

58%

65%

83%

Managed
Security

61%

27%

68%

Source: Cisco IBSG, March 2005

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© 2002, Cisco Systems, Inc. All rights reserved.

MPLS

VPN

Security

CoS

QoS

Enhanced

Voice

IP PBX

VoVPN

Service Innovation:

Gaining Share of Wallet
--
Equant

Built a broader
VoIP

portfolio
based on a strong
MPLS VPN

base

•
Managed End
-
to
-
End solution


•
VPN service with
Quality of
Service

•
Simple
Migration Path

from

traditional telephony to VoIP

•
Broad LAN & WAN support

–
Consulting

–
Deployment

–
Maintenance

IBSG
-

23

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© 2002, Cisco Systems, Inc. All rights reserved.

Innovating with Others: BT Rich Media

•
BT Rich Media aims to be a
“one
-
stop enabler for the
distribution of content”

•
Hosting and distribution =
premium performance
connectivity:


“BT Rich Media allows you to
create new opportunities from
your existing content … through
the ability to multicast, stream
and download to many
channels.”

•
Web
-
services
-
based billing and
customer care

IBSG
-

24

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© 2002, Cisco Systems, Inc. All rights reserved.

Communications

Entertainment

Online

Modular service
construction



Source: Cisco IBSG, January 2005

Network operational cost

40
–
60%

Operating Expense

Savings

Shared services

Central office expense

Outside plant

20
–
40%

15
–
30%

5
–
10%

Customer service

5
–
10%

Intelligent IP
infrastructure



Need extensive horizontal scale to manage

billions of IP
-
addressable devices

Operations

Integrated, service
component
“factories”


IP network (policy, QoS, security, multicast …)

Other

networks

Fully
extended
services

The Factory: Intelligent Information Network

and Operations

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© 2002, Cisco Systems, Inc. All rights reserved.

Total Fixed Network OpEx

0%

20%

40%

60%

80%

100%

2002

2006

0%

20%

40%

60%

80%

100%

2002

2003

2004

Total Wireline CapEx:
Innovative vs Traditional

Traditiona
l

Innovative

Telecom Italia: NGN

Operations expenses decline
through converged core

2004

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© 2002, Cisco Systems, Inc. All rights reserved.

Customer

Care

Employee

Automation

Supply Chain

Idea

to

Offering

Market

to

Order

Quote

to

Cash

Forecast

to

Delivery

Issue

to

Resolution

Support the Business

Streamlined,
automated
business
processes

Responsive Business Processes



Source: Cisco IBSG, January 2005

Employee productivity

20
–

40%

Processes time reduction

Customer satisfaction


>20%

25
–

50%

Applications

Abstraction layer

Shared

computer

services

Shared

storage

services

Dedicated

computer

services

Dedicated

storage

services

Limited

dedicated
capacity to


help ensure

real
-
time
operations

Web
services
interface

Third

parties

Web
services
-

based
applications

Shared
service
-
oriented IT
infrastructure

WS

WS

WS

WS

WS

WS

WS

WS

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© 2002, Cisco Systems, Inc. All rights reserved.

Capabilities of BusinessDirect
:

•
Pay bills electronically

•
Place voice, data, and IP orders

and check status

•
Report and track service problems

•
Test circuits

•
Reroute network traffic in real time

Results:

•
Order
-
to
-
bill
-
cycle time reduced by 50%
through unified Web portal

•
One
-
third of all trouble reports managed

on Web

•
18% increase in employee productivity

•
80% maintenance issues automated

•
60% increase in customer satisfaction


Automated, Customer
-
Focused Solutions

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© 2002, Cisco Systems, Inc. All rights reserved.

Making the Move

•
Approach the process as a broad, synchronized business
transformation

•
Adopt a customer
-
centric perspective

•
Focus on productivity and value improvement, rather than
cost reduction

•
Use a strong leadership strategy. Help ensure business units
work together, silos are removed, and business goals are
achieved

•
Develop a clear roadmap

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© 2002, Cisco Systems, Inc. All rights reserved.

Evolutionary

(7
–
10+ years*)

Pace Depends on Situation

Accelerated

(3
–
5 years
**
)

NPV* gains 15
–
20% greater
than evolutionary approach

OR

*Net present value

**Estimated time to convert 80% of service revenue to IP

Most appropriate for service
providers with

•
Little or no competition

•
Limited capital

•
Slowly developing service
markets

Business Impact

•
Conserve capital

•
Minimize risk of customer loss

•
Avoid start
-
up OpEx cost

Most appropriate for service
providers with

•
Intense competition

•
Capital availability

•
Rapidly developing service
markets

Business Impacts

•
Maximum OpEx savings

•
New revenue generation

•
Platform for profitability

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© 2002, Cisco Systems, Inc. All rights reserved.

MS Edge+Core
for IP NGN

Cisco Helping Service Providers to
Transform

Enabling 3G
Services

PSTN Migration
to IP NGN

Broadband for
Triple Play

Largest

MPLS
/
Metro E
Deployment

Biggest Broadband
Metro E for Triple
Play

The All Digital

NGN for Cable

Core for
IP NGN

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© 2002, Cisco Systems, Inc. All rights reserved.