Study On Evolution Of End Device Market V15

DiamondCluster Study

The future of the fixed net end device market

Survey results

Munich, July 2006

Page 2BDV-PWI-Study_on_evolution_of_end_device_market_v8-60531-TBR-OML

IntroductionObjectives of the DiamondCluster survey “The future of the fixed net end device market”

To summarize the results of DiamondCluster International’s (DCI) survey on “Evolution of fixed net end device market” in Europe, Middle East & North America with focus on

• Technological evolution of access and in-house technologies

• Convergence trends in the telecommunications market

• Device evolution with special regard to triple play services

• Implications on the device portfolio of telecommunication providers and

retailers


IntroductionDiamondCluster invited numerous players from Europe, Middle East & North America to participate in the international survey in March and April 2006

Players invited Focus regions


Introduction35 CXOs in EMEA and North America across the entire telecommunications industry participated in the study

Geography Industry Position

Europe24

Middle East4

Interview sample

Chipset producers 4 Other1)

9

Fixed Netoperators

11

COO 8

CMO 12

1) Note: Executives for Strategy, Sales, Product Management.Source: DiamondCluster International.

North America

7

ISPs 8

Vendors 7

Retailer 5

CTO 6

Key questions

Convergence trends

Technology trends

Device trends

Implications for device market

• What is your view on current convergence trends in the telecommunication industry?

• How fast will these trends reach mass market status?

• Which technology will set the standard for broadband access?

• Which technology is likely to be used for in-house communication in the future?

• How will convergence trends effect the end-device market?

• Which device is likely to become the central control device for triple play services?

• What trends will impact the end device portfolio of operators and retailers?

• Will operators and retailers change their hardware purchasing behavior?

• Which criteria will be of importance when selecting a vendor?

35 35 35


IntroductionExecutive Summary

• Broadband bandwidth is the driving factor for triple play services• WLAN will remain as the dominant in-house communication technology• Fixed networks will evolve from access pipes to intelligent networks

• Operators, ISPs, and vendors tend to see a larger short term impact of convergence trends as compared to retailers

• Device portfolio focus of operators and retailers will shift from simple phone & broadband devices towards more sophisticated gateway solutions and set top boxes

• Device compatibility, reliability and quality will become key criteria when selecting a vendor

• Operators will source devices from a small number of selected “best-of-breed” vendors to

– Offer the best solution / portfolio – Avoid becoming dependent on a small number of vendors

Technology

Implications on device market

Convergence

Devices

• Set-top boxes will become the key device for triple play services (e.g. IPTV) in the home environment

• Large base of installed "single-purpose" devices will limit uptake of convergent devices

Key findings


Agenda

Introduction

Key developments in the telecommunications market

Implications for the device market

DiamondCluster Credentials


Key developments in the telecommunications market In the short term VoIP and triple play developments will have the strong impact on the telecommunications market

• VoIP and triple play will be the most relevant trends in the short term

• When estimating the time frame for different trends, operators and vendors have a more optimistic view than retailers

• Even though technology is ready, retailers claim that actual consumer interest in new services might be limited due to

– Increase of cost

– Lack of direct benefits

– Slow changing user behavior

• Fully networked home is expected to remain a long term vision due to long replacement cycle of home appliances

FindingsEvaluation of convergence trends

Fixed Net/ISP/Vendor/Chipset manufacturers Retailers

2006 2012 2020

VoIP (Dual Play)

Triple Play

QuadruplePlay

In-homeconvergence

Fully networked home

Time frame

Note: n=35, multiple answers possible. Source: DiamondCluster International survey, 2006.


Key developments in the telecommunications market Majority of respondents agree that intelligence will reside in network and not in end device – placing operators in a key position

0% 20% 40% 60% 80% 100%

Don't know

Network

Device

Where will intelligence be located?

• Telecommunication networks will evolve from pure access pipes to intelligent content delivery networks

• Operators increasingly take influence on devices sold through subsidy payments

• Impacted by intelligent networks, mainly low end devices are pushed into the market by operators

• Devices on customer premises expected to remain simple to

• Keep prices attractive to drive penetration• Increase usability for less sophisticated

users

Findings

Selected quotes


“By shifting intelligence from the device to the network, prices of triple play end devices can

significantly be reduced“ - Vendor, Europe

“The device at the customer premises will synchronize with the information provided by

network“ - Operator, Europe

“By offering triple play services to our customers we can escape from the pipeline role that we were

shifting into“ - Operator, Europe


• Coexistence of a multitude of technologies likely

• WLAN is a global standard with broad device base installed

• DECT is a high quality technology for short range voice communication, but not suitable for in-house networks

• Wireless USB and Ultra Wide Band are still in a very early phase, but likely to gain importance

• Bluetooth will remain an important technology, but only for specific applications (e.g. mobile headsets)

• Ethernet and Coax Cable will vanish slowly in home environment

FindingsEvaluation of in-house technologies

Key developments in the telecommunications market WLAN is expected to become the dominant standard technology for inhouse communication

-

+

+

WLAN

Ultra Wide Band

Wireless USB

DECT

Bluetooth

Coax Cable

Ethernet

Current importance

Fu

ture

pro

sp

ec

ts


Powerline


Key developments in the telecommunications market Mainly due to installed base, convergence of network termination, router and triple play device is seen as unlikely in short term

• The convergence of access modem, router, and triple play device is technologically feasible…

• …but a broad installed base of singular devices leads to the need for add-on functionality rather than converged device solutions

• When subsidizing new devices, operators prefer low-cost, entry models

• More sophisticated customers will eventually buy converged devices through retailers

FindingsSelected quotes

Source: DiamondCluster International.

“Network access and triple play device should be separate devices in order to be able to upgrade existing customers without replacing existing infrastructure”

Cable Operator, Europe

“Due to the number of competing standards for access and in-house communication, network termination and triple play devices should stay separate to allow customers a maximum of flexibility”

Operator, Europe

“Operators, representing our most important customers, prefer to have modem and triple play device separate, mainly to remain flexible in selection of vendors”

Vendor, North America


Key developments in the telecommunications market Mainly due to installed base, convergence of network termination, router and triple play device is seen as unlikely in short term

FindingsEvolution to device convergence


2005…. ... 2011

VoIPTelephony

Connection to telecommunication

network

Gateway (Modem /

Wlan router)

Set Topbox

IPTVService

s

VoIPTele-

phony

Connection to telecommunication

network

Set TopBox (incl. gateway)

IPTVService

s

PC InternetAccess

Home Audio System

PC InternetAccess

alternativeslide

• The convergence of access modem, router, and triple play device is technologically feasible…

• …but a broad installed base of singular devices leads to the need for add-on functionality rather than converged device solutions

• When subsidizing new devices, operators prefer low-cost, entry models

• More sophisticated customers will eventually buy converged devices through retailers


Key developments in the telecommunications market Offering the highest flexibility and requiring only little technological affinity, set-top boxes are likely to become the central device

3%

9%

30%

57%

72%

92%

0% 20% 40% 60% 80% 100%

Phone

Home Server

Game console

TV sup. Triple Play

Media center

Set-top box

Devices likely to serve as central controller

• A set-top box offers a number of advantages that make it the ideal central control device

• Easy to setup & use • Compatible to existing home

entertainment devices• Inexpensive compared to media centre

PCs or game consoles

• Early adopters with high technological affinity will prefer Media centre PCs

• Triple play functionalities will increasingly be integrated in TV sets as standard feature

• Game consoles might be an alternative to set-top boxes, especially for young segments

Findings


Selected quotes


“ In the future, end users don‘t want to configure the end device – plug & play and good usability is key“

Operator, Europe

“Market is turning to lifestyle products. Especially big consumer electronic brands are set to dominate the market with their devices"

Retailer, USA


Agenda

Introduction





Implications for device marketToday, broadband modems and gateways are the most important devices for operators - while retailers focus on DECT phones and broadband gateways

Importance of devices

• DECT and ISDN phones are still important devices in the portfolio of retailers and operators

• The market for broadband modems is almost entirely served by operators - therefore of almost no importance to retailers

• Retailers focus on more sophisticated devices, such as gateways with integrated modems

• Due to early stage of market, IPTV set-top boxes do not play an important role for retailers yet, but an increasing one for operators

• VoIP devices are slowly picking up in residential market

Findings

not important important

1 5

Cordless DECTphone

ISDN phones

VoIP phones

Broadbandmodems

Broadbandgateways

IPTV set-topboxes

Home entertain-ment devices

2 3 4

Fixed Net Operators/ ISPs Retailers



Ranking of decision criteria for selecting a vendor

Implications for device marketVariety of devices and network infrastructure let compatibility emerge as most important criteria when choosing a vendor

• All survey participants agree that compatibility of vendors’ devices to network is very important

• Reliability, quality, and after sales service are key when selecting a device vendor

• 88% of respondants ranked price as an important decision criteria

• Global footprint, portfolio width and vendor brand rank as relatively unimportant factors in decision process

• To leverage own brand and services, operators increasingly focus on vendors’ ability to customize

Findings

20%

50%

55%

75%

85%

88%

95%

95%

100%

0% 20% 40% 60% 80% 100%

Global footprint

Portfolio Width

Brand

Ability to customize

After Sales Service

Price

Quality

Reliability

Compatibility

- +


Importance


Implications for device marketRichness of portfolio is not expected to become a major decision criteria, nevertheless premium will be paid if single vendor is best of all classes

FindingsSelected quotes


• Overall, operators prefer to procure from different sources in order to

• Decrease dependency on specific vendors

• Build on individual capabilities of vendors

• Vendors not capable of offering the full range of products should iron out weaknesses through strong partners

• operators are willing to pay a price premium for a vendor capable of delivering an end-to-end solution

“For vendors „umbrella management“ will be key for success in device market, rather than covering all products by themselves they should partner with different specialists and ensure compatibility“

Operator, Europe

“It will take quite some time until standardization will take place in triple play market, today operators are willing to pay for solutions delivered by single source“,

Operator, USA

“Vendors don’t need to offer all devices out of one hand. What is more important to me is device compatibility to the network and other devices as well as the reliability of the vendor”

Operator, Europe


Convergence player

• Offering customers end to end solutions from network infrastructure to end device

• Wide variety of devices and technologies

• Generally slightly more expensive, mainly due to extensive R&D efforts

• Often, already well known brands in telecommunication market

• Specialized only on limited number of device types and technologies e.g.:

- V-tech: Cordless phones

- SMC: Broadband devices

• High flexibility in production, often good capabilities in customization

• Often cheaper than full range vendors due to more focused approach

Pure Player

Implications for device marketConsequently two different concepts compete in the end device market

Home MediaBroadbandVoicePlayerAscaladePanasonicSunCorpUnidenD-LinkAVMWestell NetgearZyxelLinksysScientific AtlantaHumaxThomsonSiemens

HNW

Cisco

Convergence player Pure player


Implications for device marketKey learnings from different players in end device market

Retailers

• For device retailers trends will play an important role at much later point in time while…

• … convergence trends will impact operators & vendors as technology enablers first

• Devices sold through retailers will be more sophisticated thus combining different technologies and functionalities

Operators

• Triple play services might take longer to be established in market due to slow consumer acceptance

• Operators should focus on set-top boxes, they are compatible to wide range of existing devices & affordable

• Operators will focus on sourcing rather from specialists than convergence players due to

• More attractive pricing• Avoidance of dependencies

from small number of vendors

Vendors

• Vendors will focus on ensuring compatibility and quality to be an attractive partner for operators

• For operator clients, vendors will increasingly need to be capable of delivering rather simple but customized devices

• Convergence players that are able to achieve best in class positioning in all device groups, might achieve higher prices

• Converged devices, combining access, router, and set-top box will only be of importance to retailers in the long run

• Consumer electronics players are likely to dominate the home device market


Agenda

Introduction





DiamondCluster International is a premier top-management consulting firm with a strong focus on Telecommunication & Technology

• Premier business strategy and technology consulting firm serving the “Global 2000” companies

• Firm focuses on Telco & Tech and Financial Services

• Our European practice generates 80% of its revenues in Telco & Tech, serving operators and vendors

• ~200 clients in over 35 countries supported by ~550 professionals from more than 45 different nationalities

• Among top 5 strategy and management consulting firms in Telco worldwide (1)

Premier international management consulting firm… …with a strong global presence

(1) Global Market Analysis – Telecom Consulting, Hot Telecom/Total Telecom, 2004.

LONDON

PARIS

MUNICH

SÃO PAULO

MADRID

CHICAGO

Clients served

DiamondCluster offices

BARCELONA

DUBAI MUMBAIWASHINGTON D.C.


Not exhaustive

We serve the leading IT, CE & Telco vendors, operators, and media firms


Our expertise comprises strategy, technology and execution – a clear differentiator for the way we add value to our clients

Definition of a technology vision that is aligned with business goals and development of an actionable plan

Conceptualization and design of technology platforms

Identification and build-up of core business capabilities required to launch or run a business

Accomplishment of projects to operationally improve the customerand business value

Temporary allocation of executive positions onCXO level to excellent managers

Technology architecture

design

Interimmanage-

ment

Businessstart-ups/

operations

Valuemanage-

ment

Innovation basedstrategies

Successfulimplementation

with targetedactions

STRATEGY

EXECUTION

Technologyas a means

to generate value

TECHNOLOGY

Development of growth strategies to capitalize on technology related acquisitions and post merger integrations

M&Aadvisory

Differentiator

Technology strategy

Designing strategies that work and help our clients materialize the benefits

Strategy & execution

Help CEOs masterand capitalize on

technology

Strategy & technology

Rigorous analysis and creative strategies about mobile landscape shifts, new competitors, unique market opportunities & emerging technologies

Definition of sustainable sales and marketing strategies integrating channels, products, pricing and GTM in a unique market value proposition

Sales & Marketing Strategy

Strategy


Based on our comprehensive team experience, we provide support for the leading IT HW, SW and Service vendors

Client examples Project description

• Growth strategy: Development of a growth strategy for HP’s consumer business in Europe incl. growth initiatives for the 5 major countries

Not exhaustive

• Go-to-market-strategy: Evaluation of the market potential for Microsoft Office solutions by industry to prioritize the go-to-market

• Sales Push: Set-up of war rooms for Siemens Business Services to identify big outsourcing deal opportunities as well as management of the dedicated team

• Outsourcing negotiation: Development of a risk-pricing methodology and negotiation framework for IBM´s telecommunication unit for IT infrastructure build/outsource deals

• Growth strategy: Development of a growth strategy for the SME business of T-Systems incl. business plan, customer segmentation, partnership concept and sales force reorganization

Strategy

Exe-cution

Tech-nology

Strategy

Tech-nology

Exe-cution

Exe-cution

Tech-nology

Strategy

• Sales strategy: Development and execution of a sales push for Fujitsu Siemens Computers to improve its performance in the business notebook market in Spain

• Controlling system: Implementation of an activity based controlling system for EMTEC incl. definition of improvement initiatives and implementation in SAP

• Account Development: Preparation of an account development strategy for IBM to support their growth into the Nordic Region

• Outsourcing: Preparation of outsourcing of WestLB’s data center operations, networks and desktop infrastructure

• Application Development: Identification, design and planning of mobile data applications to complement Ericsson`s 3G network equipment and terminals in Germany

• IT Strategy: Development of a global IT strategy for DaimlerChrysler Financial Services that is aligned to the business strategy

• Merger strategy: Strategic evaluation of a global IT merger to understand potential implications for the enterprise business of HP in Western Europe


Your contact at DiamondCluster

Peter WimmerPartner Telecommunication

Tel: +49 89 24242 122

Fax: +49 89 24242 105

Mobile: +49 175 29050 22

[email protected]

Leomax, Rosental 3-4Leomax, Rosental 3-4

D-80331 MünchenD-80331 München

GermanyGermany