Technology

Presentation

September 2018

Telecom Digital Transformation

Biannual Analyst Conference Call – H1 2018

Stéphane Téral
Executive Director – Research & Analysis
Mobile Infrastructure and Carrier Economics
+1 408 583 3371
[email protected]
Confidential. © 2018 IHS MarkitTM. All Rights Reserved.
Contents

• What this Intelligence Service is and what’s tracked in this report

• Published research so far

• Telecom Digital Transformation

• The BSS bottleneck makes it a never ending journey that has just begun

• As a result, the BSS market keeps looking up

• The revenue management market remains very fragmented though

• And finally, the subscriber data management

• Final thoughts

• Upcoming research

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018
What this Intelligence Service is and what’s tracked so far

• The Telecom Digital Transformation • What’s tracked:

Intelligence Service is:
• Subscriber Data Management (SDM)
• A repositioning of the Enablement & Analytics
• SDM software and services revenue
Intelligence Service
• Fixed vs. mobile breakdown
• Refocused on OSS and BSS transformation that
is needed to implement the dynamic business • BSS (revenue management)
models telecom service providers are looking for
• Software and service revenue for

• Mediation

• Billing

• Charging

• Partner management

• Other: Voucher and collections management

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 3
Published research so far
Reports Publication Date

Digital Transformation Strategies Service Provider Survey - 2018 May 11

Analyst Insight: MWC18: DTW 2018: The winding, bumpy road to digital transformation May 21

Analyst Insight: It’s hard to get rid of those good old DMS switches! June 12

BSS Strategies Service Provider Survey – 2018 June 27

Subscriber Data Management (SDM) Market Report - Regional - 2018 July 20

Revenue Management Market Report – Regional – 2018 July 27

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 4
Telecom Digital Transformation
The BSS bottleneck makes it a never ending journey that has just begun

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 5
Our definition of Telecom Digital Transformation

The result of undergoing a major transformational change by adopting and deploying Internet-based
digital technologies across the board to better compete with established Internet companies and
develop new business models
The transformational change affects all aspects of the telecom service provider business, including
customer interaction, processes, technologies, networks, organizational culture, and people.

It’s not just about competing Telecoms markets are Telecoms’ service providers
with Alibaba, Amazon, completely saturated of need continuous innovation
Apple, Baidu, Facebook, human customers the world evolution to offer best of
Google, over: there are almost no breed products and services
Microsoft, and Tencent new customers to win to win customers from each
other if they are to grow

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 6
From our May 2018 Digital Transformation Strategies
Service provider Survey

We interviewed 16 service providers who operate a telecom network

and have started, or plan to start, a digital transformation by 2019
• Key findings:
• Respondents’ top digital transformation projects:

75% 44% 38%

Customer experience Automation Cloudification

• We also found the customer experience enhancement is unanimously the chief driver, followed by fast creation of
business opportunities and opex savings; operators are less concerned about the network changes required for
digital transformation than the software (OSS/BSS) and organizational/process changes
• Top management fully supports digital transformation efforts, and therefore projects are fully funded on average at
10% of capex but resource allocations for execution is challenging
• Enhancing the customer experience leads to major investment in network operations digital transformation with OSS,
BSS, and NMS sub-domains accounting for 60% because BSS was identified as the top barrier preventing fast
service creation and introduction
• Digital services, service delivery, and specific technology enablers are the pillars of digital transformation

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 7
From our May 2018 Digital Transformation Strategies
Service provider Survey

The customer is the chief digital transformation driver

Top 3 Digital Transformation Projects

• In this saturated world, subscriber growth

Customer experience 75% is nonexistent, and the game is all about
providing the best customer experience
to minimize the churn rate; there is no
regional difference—as we near the end
Automation 44% of this century’s second decade, every
country in the world has reached mobile
subscription saturation

Cloudification 38% • Therefore, it’s musical chairs between the

three or four mobile operators in each
country; they attract customers to their
networks by providing the best
Network virtualization 25% experience possible

0% 20% 40% 60% 80%

Percent of Respondents

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 8
 From our May 2018 Digital Transformation Strategies
Service provider Survey

It’s all about enhancing the customer experience

Digital Transformation Drivers
Customer experience
enhancement
100% • Everyone rated “enhancing the
customer experience” 7
Fast creation of new
business opportunities
63% (scale: 1 = not a driver; 7 = strong driver)

Opex savings 63%

• Fast creation of new business
opportunities and opex savings were
Competitive advantage through increased business agility 56% also highly rated, illustrating the
service providers’ willingness to
Shorter time to market
50% become agile and better respond to
for products and services
customers’ needs
Increase in revenue 38%

Capex savings 25%

Increase in end-to-end
6%
business transparency

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

Percent of Respondents rating “Strong Driver”

Scale: 1 = not a driver; 7 = strong driver

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 9
 From our May 2018 Digital Transformation Strategies
Service provider Survey

Top management fully supports digital transformation efforts

Organizational support for digital transformation projects
• Respondents stated the level of
Board 69% corporate / organizational support they
receive to execute their digital
transformation projects
Corporate / Organizational Support

CEO 56%
• With the support of the board, convincing
the CEO and the CTIO was easy, but as
usual the CFO showed some reluctance,
CTIO 56%
which is typical because shareholders
worry about maximizing profits and put
pressure on the CFO to carefully manage
CFO 44%
the cash flow

• Projects are fully funded but finding

Shareholders 19% resources can be challenging

0% 20% 40% 60% 80%

Percent of Respondents

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 10
From our May 2018 Digital Transformation Strategies
Service provider Survey

OSS/BSS/NMS account for 60% of network operations transformation

100%
15% 15% 15%

80% 11% 10% Don’t know

20%
15% Network management system (NMS)
Percent of Domains

21%
60%
18% Business support system (BSS)
18%
Operations support system (OSS)
40% 25%
22% Service assurance
20%
Service delivery
20% 13%
12%
22%
13% 14%
0%
2018 2019 2020 or later

• We broke the digital transformation of the network operations domain into five sub-domains:

Service delivery | Service assurance | Operations Support System (OSS) | Business support system (BSS) | Network Management System
(NMS)

• Respondents who plan to implement digital transformation of their network operations indicated the percent of digital
transformation efforts applied to various sub-domains in their strategy in 2018, 2019, and 2020 and later
Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 11
 From our May 2018 Digital Transformation Strategies
Service provider Survey

That’s because the existing BSS is the bottleneck

Digital transformation barriers

Existing BSS 63% • The chart shows the percentage of

respondents rating each factor 6 or 7
Existing OSS 50% (Scale: 1 = not a barrier; 7 = strong barrier)

• Existing BSS was highly rated by 63% of

Organizational change 50%
our respondents, followed by existing OSS
and organizational change, each at 50%
Retraining workforce 38%

Existing customer relationship management solution 19%

Legacy access network nodes 13%

Legacy core network nodes 13%

Legacy NMS 13%

0% 20% 40% 60% 80%

Percent of Respondents rating “Strong Barrier”

Scale: 1 = not a barrier; 7 = strong barrier

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 12
 From our June 2018 BSS Transformation Strategies
Survey

Case in point:
We confirmed BSS is the bottleneck, and its transformation is well under way
Stage of BSS transformation BSS transformation barriers
Transformation Stage

Legacy systems 93%

We have already
40%
transformed our BSS Complexity and risks
associated with such 60%
transformation

Barriers
Agreement across
We are in the early stage 40%
13% lines of business
(0–6 months) of transformation

Overall IT roadmap 33%

We are in the mid stage

20% Budget 27%
(7–12 months) of transformation

Trusted technology
13%
partner
We are in the final stage
27%
(12+ months) of transformation Support from
0%
C-level executives

0% 10% 20% 30% 40% 50% 0% 20% 40% 60% 80% 100%
Percent of Respondents Percent of Respondents Rating “Strong Barrier”

Sample = 15 service providers accounting for 20% of telecom capex worldwide

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 13
From our May 2018 Digital Transformation Strategies
Service provider Survey

IoT, video, and enterprise VPNs top the digital services list
New Digital Services Areas
• Respondents who plan to 100%
5% 8% 8%
implement digital transformation 12% 9% 12%
and create new digital services 80%
12%
indicated the percent of various 13%
13%
areas in their strategy in 2018,

Percent of Domains
2019 and 2020 and later 60% 25% 21% 16%

• Respondents plan a wide variety of

40% 22% 23%
services based on digital services— 23%

an indication that digital

transformation is targeted for most 20%
29% 28%
operations and services, not just a 25%

select few 0%
2018 2019 2020 or later

Other Consumer content/media Specific industry verticals Enterprise IP-VPN Video Internet of things (IoT)

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 14
From our May 2018 Digital Transformation Strategies
Service provider Survey

Big Data analytics, cloud, SDN, and NFV are key digital
transformation technology enablers
Enables/Technologies Critical Digital Transformation Technology Enablers

Big data analytics 88%

Cloud 81%

Software-defined networks (SDN) 69%

Network function
63%
virtualization (NFV)

Machine learning/deep
56%
learning, artificial intelligence

Network slicing 31%

Self-organizing networks (SON) 19%

Blockchain 13%

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

Percent of Respondents rating “Critical”
Scale: 1 = not important; 7 = critical

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 15
From our June 2018 BSS Transformation Strategies
Survey

Case in point:
We confirmed SDN/NFV and cloud are at the core of BSS transformation
SDN/NFV implementation in BSS transformation Cloud-based BSS services
93%
Billing
60%
80%
Charging
60%

Cloud-Based Model
80%
Product management
27%
Yes
67%
20% Customer self-care
73%
67%
Order management
60%
67%
Call center
7%
67%
Settlement
7%
60%
CRM
73%
60%
Policy
60%
60%
Partner management
47%
47%
Social channels
27%
No
80% Mediation
33% 2019
7%
Now
13%
Voucher management
0%

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

Percent of Respondents

Sample = 15 service providers accounting for 20% of telecom capex worldwide

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 16
As a result, the BSS market keeps looking up
But, the revenue management market remains very fragmented

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 17
$13.4B by 2022 growing at a CAGR of 2.6%, watch for
the next recession

Worldwide revenue management system revenue hit $11.8B in

2017, up 6% YoY, and will grow 5% to $12.3B by year end
• Key findings are:

• Services accounted for 52% of the total revenue management market in 2017 and should continue
to slightly grow its share throughout the forecast period
• Charging, including convergent and online charging, accounts for half of the total revenue management
market and will also stay close to that level; billing, mediation, and partner management follow with 19%,
13%, and 10%, respectively

• Asia Pacific will remain the largest market for revenue management systems, followed by EMEA,
North America, and CALA

• With 22% market share in 2017, Amdocs is the top player, followed by Netcracker (14%), Huawei
(11%), and Ericsson (9%); the rest is made of numerous players of various types ranging from
traditional BSS vendors to system integrators and providers of IT services

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 18
$12.3B expected in 2018, +5% YoY, growing at 2.6%
CAGR to $13.4B

Our research indicates the shift toward more services revenue than
software may have occurred in 2015 already
Revenue Management Market: Software vs. Services
• Our top down analysis model to deliver the

Revenue (US$ Billions)

following distribution: $16,000,000,000

• Charging: 51% of total revenue $14,000,000,000

• Billing: 19% of total revenue $12,000,000,000

• Mediation: 13% of total $10,000,000,000

• Partner management: 10% of total $8,000,000,000

• Voucher management and collections: Make $6,000,000,000

up the rest at 7%
$4,000,000,000

• Last year, we found an increase of the

$2,000,000,000
portion of services revenue and it will
continue to grow throughout the forecast $0
CY16 CY17 CY18 CY19 CY20 CY21 CY22
period, from 52.5% in 2018 to 53.2% in 2022
Other Partner management Mediation Billing Charging

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 19
We foresee regional stability for all regions

Asia Pacific will remain the largest market with share about 36%
through 2022
Revenue Management Market by Region
• This comes from the fact that China alone 40%

now accounts for slightly more than one third

35%
of Asia’s telecom capex and 13% worldwide

Revenue (%)
—note that at peak in 2015 China accounted
30%
for 20%, and that at the beginning of this
century, the earliest convergent charging 25%
deployments were concentrated in emerging
markets in regions such as Southeast Asia, 20%

India, and Eastern Europe, often driven by

new entrants that lacked the legacy 15%

environments that typically need intensive

10%
systems integration work
5%
• This year’s 5.6% capex decline in China does
not affect OSS/BSS transformation 0%
CY16 CY17 CY18 CY19 CY20 CY21 CY22

North America EMEA Asia Pacific CALA

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 20
A very crowded and fragmented vendor landscape!

Our estimates indicate Amdocs leads the 2017 RM market

2017
• OSS/BSS providers: CSG International
Netcracker
14% (convergent charging and mediation only),
Cerillion (convergent and online charging only),
Huawei Openet, Oracle, Redknee (now being rebranded
11%
Optiva), Salesforce, and SAP
Amdocs
22%

Ericsson • System integrators and providers of IT

9%
services: Accenture, Cognizant, CSC, Hewlett
Packard Enterprise (HPE), IBM Global
Services, Infosys, Tata Consultancy Services,
Tech Mahindra and Wipro

• Network equipment providers: Cisco,

Other
Ericsson, Huawei, Nokia, NEC and its
44% subsidiary NetCracker, and ZTE

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 21
And finally, a look at subscriber data management
Fueled by VoLTE users, the SDM market is up

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 22
User and subscriber database consolidation drive the
SDM market

The total global market for SDM software and services was
$2B in 2017, up 15% YoY
Worldwide SDM Revenue

Revenue (US$ Billions)

• Silo elimination, SDM consolidation, and the
ongoing migration of voice customers to $3,500,000,000.0

VoLTE are accelerating the need for SDM

deployments $3,000,000,000.0

• The SDM software market reached $1.3B in $2,500,000,000.0

2017, which represents 63% of the total market

$2,000,000,000.0
• As a result, we expect the SDM revenue,
including software and services, to reach $1,500,000,000.0

$2.3B by yearend and grow to $3.0B by

2022 at a 2017–2022 CAGR of 7.8% $1,000,000,000.0

• The software share will remain at the same $500,000,000.0

level throughout the forecast period

$0.0
CY16 CY17 CY18 CY19 CY20 CY21 CY22

Services Software

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 23
The LTE world continues to fuel the SDM market
Commercial LTE Networks – GSA August 2018 Worldwide SDM Revenue: Fixed vs. Mobile

R evenue (U S $ B illions)
800

700

600 $4,000,000,000

500
$3,000,000,000
400

300 $2,000,000,000

200
$1,000,000,000
100

0
CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 YTD $0
CY16 CY17 CY18 CY19 CY20 CY21 CY22
FDD & TDD TDD FDD Fixed line Mobile

• 681 commercial LTE networks in 1H18 • Mobile accounted for 71% of worldwide SDM revenue in
2017, will stay at the same level this year and reach 74%
• 534 of the current LTE networks are FDD only, 114 are TDD throughout 2022
only, and 33 are a mix of both FDD and TDD; exhibit shows
the GSA’s most recent LTE update (August 2018) • HLR migration, enabling traffic offload, and roaming support
are all driving SDM in mobile networks
Source: Global Mobile Suppliers Association (GSA)

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 24
Asia Pacific will remain the world’s largest SDM market

Worldwide SDM Software and Services Revenue by Region

• As Asia Pacific is home to more than 2B 60%
LTE subscribers, the region commands
47% SDM revenue market share that will
50%
grow to 53% in 2022

Revenue (%)
• EMEA is losing steam with share falling 40%
below the 30% bar, so is North America
30%
• VoLTE activity in CALA will grow its
share from 6% currently to 8% in 2022
20%

10%

0%
CY16 CY17 CY18 CY19 CY20 CY21 CY22

North America EMEA Asia Pacific CALA

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 25
Like OSS/BSS, SDM is a very crowded and fragmented
market!

Huawei leads the SDM market with 28% revenue share in 2017
2016 2017

Nokia
23% Nokia
24%
Huawei Huawei
26% 27%

Ericsson
21% Ericsson
Other 22%
Other 13%
17%
ZTE HPE
HPE
7% ZTE
6% 7% 7%

• Since we do not receive any SDM revenue information from vendors, we had to research the SDM footprint to
better understand each vendor standing; we concluded that Huawei led the market in 2017with 28% revenue share
due to its large worldwide customer base with only the US market missing, followed by Nokia and Ericsson with
25% and 22%, respectively

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 26
Final thoughts
On that long digital transformation journey, keep up is the name of the game!

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 27
Here is the end goal, we’re getting there…

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 28
Upcoming research

Reports Publication Date

OSS Service Provider Survey By end of 2018

Other components to be determined By end of 2018

Analyst Insights Ongoing

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 29
Upcoming events

Industry Events Event Date

September 12–14
Request a briefing

September 18–20
Request a briefing

October 10–11
Request a briefing

October 23
Network Slicing Summit Berlin Request a briefing

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 30
Thank you. Questions?

Stéphane Téral
Executive Director - Research & Analysis
Mobile Infrastructure and Carrier Economics
+1 408.583.3371
[email protected]

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: IHS Markit Telecom Digital Transformation Intelligence Service. 2018 31