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Best Practices for Carrier Voice Transformation (2008)

“Best Practices for Carrier Voice Transformation” presented at the IP Voice Meeting in Lisbon, March 2008.

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Best Practices for Carrier Voice Transformation (2008)

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  1. Best Practices for Carrier Voice Transformation Marc Jadoul Lisbon, 5 March 2008. IP TRANSFORMATION CENTER Partnering for change

  2. Evolution of Voice Service Architectures Traditional Switch NGN “Softswitch” IMS Architecture Wireless Subs. Data Wireless Subs. Data ALL IN AS Subs. Data AS IN, AIN, Camel IN, JTAPI, Parlay & proprietary XML SIP Wireline Subs. Data Wireline Subs. Data Session Control CSCF Embedded Features voice + MM Features SIP Call Control Call Control MGCF Signaling Signaling Signaling SIP Media GW Controller Media GW Controller Bearer Control SIP, H.323, MGCP H.248 H.248 Media Gateway Media Gateway IP IP Switch Fabric 2 | IP Voice Meeting | March 2008 All Rights Reserved ©Alcatel-Lucent 2008

  3. Service Provider Voice Strategies — The Future is IMS Voice Services Delivery Strategy 100% 80% 60% 40% 20% 0% 1- 2 Years 2-5 Years > 5 Years NGN Basic Features NGN Full Features IMS PSTN Emulation IMS PSTN Simulation Source: Heavy Reading, “Class 5 Migration and Adoption: A Multi-Client Study”, November 2007 3 | IP Voice Meeting | March 2008 All Rights Reserved ©Alcatel-Lucent 2008

  4. Why Do Service Providers Need to Transform ? ‘Legacy’ dominates revenue mix Low margins on new services Fast erosion of legacy revenues Impact on EBITDA margins = + * Growth Growth ~ 25 % ~ 45 % (~ 2- 4 %) YoY 42 % 35 % ~ 75 % Legacy ~ 55 % Legacy Revenue Mix 2000 2002 2004 2006 2008 EBITDA Mix Legacy revenues Source: service provider reports, Morgan Stanley Low return (RoA, RoI) due to ‘legacy’ & ‘proprietary’ infrastructure. Limited innovation capacity due to network silos & heavy processen/IT. Market Cap /Revenue EV/PPE OPEX/Revenue CAPEX/Revenue Traditionele telecom service providers < 3 < 5 > 62% > 18% New market players (Google, Yahoo, eBay, ...) > 8 > 53 < 47% < 10% RoA= Return on Assets; RoI = Return on Investments EV = Enterprise Value; PPE = Property, Plant, Equipment Source: the Yankee Group, Alcatel-Lucent 4 | IP Voice Meeting | March 2008 All Rights Reserved ©Alcatel-Lucent 2008

  5. Transformation is No ‘Business as Usual’ Upgrade approach Transformation approach • Tactical infrastructure upgrades • Unchecked/uncontrollable TCO • Poor user experience • Technology & operations “stovepipes” • Strategic network transformation • Cost control & investment protection • Managed end-to-end QoS/QoE • Global IP transformation project QoE Costs Costs QoE OpEx OpEx CapEx CapEx Time Time • • • Increased churn ARPU erosion Pressure on margins • • • Customer-centric services ARPU growth Margin protection 5 | IP Voice Meeting | March 2008 All Rights Reserved ©Alcatel-Lucent 2008

  6. Different Drivers for Transformation Carrier-Driven Migration Subscriber-Driven Migration Based on the Provider’s migration schedule When End-Users opt for the new service • Benefits: • Ability to control & plan customer transitions Lower Transition Costs • Higher speed decommissioning legacy Lower OpEx • Avoids creation of additional technology stovepipes • Trade-offs: • Requires feature transparency Higher Emulation CapEx • Expenses without new service revenue Higher initial CapEx • Plans and investments needed to minimize & manage client impact • Benefits: • Staged deployment Lower initial CapEx • Minimal feature transparency Lower Emulation Costs • Greater customer tolerance for transition issues • Trade-offs: • Multiple touch in the access network Higher Transition Costs • Rapid adoption could cause extreme workload on provisioning organizations & systems Higher OpEx • Longer term overlay network costs 6 | IP Voice Meeting | March 2008 All Rights Reserved ©Alcatel-Lucent 2008

  7. Case Study* — an European Incumbent Revenues (M€) EBITDA margin (%) 3.500 € 45% 40% 3.000 € 35% 2.500 € 30% 25% 2.000 € 20% Baseline scenario Baseline scenario 1.500 € Target scenario Target scenario 15% 1.000 € 10% 2005 2006 2007 2008 2009 2010 2011 2012 2005 2006 2007 2008 2009 2010 2011 2012 Environmental impact from: Transformation impact from: Price erosion Take rate Customer churn • Service Delivery (NGN/IMS/SDP) • New services/bundles (VoIP, IPTV, Multimedia) • Network transformation (All-IP) • Process re-engineering and NG OSS/BSS • Competition • Regulation • Internal/external costs evolution (*) business case simulation based on anonymized service provider reports, analyst data and extrapolations of the former 7 | IP Voice Meeting | March 2008 All Rights Reserved ©Alcatel-Lucent 2008

  8. Impact of Transformation on the Business Results Impact on revenues Impact on EBITDA 29% 17% 6% 13% 71% 64% Transformation impact from: Service Delivery (IMS/SDP/SDE) New services/bundles (VoIP, IPTV, Multimedia) Network transformation (All-IP) Process re-engineering and NG OSS/BSS 8 | IP Voice Meeting | March 2008 All Rights Reserved ©Alcatel-Lucent 2008

  9. IP Technology is a Means, NOT the Target ... Services • ROI on broadband access • New customers, higher ARPU • Enhanced ‘user experience’ Network • Common transport layer • Ready for multimedia • Getting rid of “stovepipes” Operations • Time-to-market • Cost reduction • IT, processes & organization 9 | IP Voice Meeting | March 2008 All Rights Reserved ©Alcatel-Lucent 2008

  10. Lessons Learnt — Network Transformation “Less is more” and “simpler is better” … • Regain economies of scale and allow cost synergies • One single multi-service network, without (network & service) silos … but don’t under-estimate end-to-end complexity • “Standards compliance” is not always a synonym for “interoperability” • Understand the legacy before designing the next generation • Work with a prime Network Integrator to manage technology, solution architecture, project and multi-vendor interdependencies QoS is more than “bits per second” • It’s the overall quality of the end-user experience (QoE) that matters • Invest time & money for upfront QoS/QoE design, testing and validation • Always develop and evaluate the service against well-defined KPI/KQIs Inter-working is a business decision, not a technical one • Inter-working with PSTN and peering with VoIP are hard requirements • Don’t (mis-)use SIP for what it was never intended for • Security, QoS and inter-carrier roaming and settlement need to be covered by end-to-end IP peering scenarios 10 | IP Voice Meeting | March 2008 All Rights Reserved ©Alcatel-Lucent 2008

  11. Lessons Learnt — Services Transformation IMS is a good framework for design and delivery • Appoint Solution Architects to maintain integrity of the architecture • Adopt a consistent set of R&D practices and an efficient delivery organization • Get organized for a dramatically shorter SLC: weeks instead of 12-18 months The feature parity/transparency challenge • A service portfolio based on “differentiation” instead of “continuation” will minimize R&D costs and and maximize revenue potential • Synchronize with marketing & sales early in the project to challenge features and to quantify costs, risks and benefits of approaches • Work closely with vendors to communicate your priorities and expectations VoIP should not be deployed in isolation • Launch new services bundles combined with a portfolio rationalization • Align your network and service capability roadmaps • Create a prioritized transition & launch plan to balance revenues with costs “Plain Vanilla” voice is not enough • A well designed SDP will allow to smoothly ramp-up move from voice to converged, blended and personalized services • Three activities not to neglect: MARKETING, MARKETING, and MARKETING 11 | IP Voice Meeting | March 2008 All Rights Reserved ©Alcatel-Lucent 2008

  12. Lessons Learnt — Operations Transformation IP Transformation changes everything • Network Interface Points: e.g. collocation from CO to street cabinets • Services: e.g. regulated vs. non-regulated • Products & vendors: network, IT, CPE … content • Customer Interfaces: “Zero-Touch” provisioning and Customer Self-Service • In-house skills: spanning the present and the new technology and operations Migration will not happen overnight • Physical Migration, Network Database Migration, Network Routing Migration, OSS/BSS Migration, … • Migration strategy & planning, tools development and customer communication Network transformation should go hand-in-hand with IT • Transform operations from managing networks to managing services and customers • New business and usage models require flexible rating, charging and billing • Challenges the processes, not just the technology ! Each transformation project is unique • Transformation may start anywhere in the service provider’s organization • Geography, local market, regulation, legacy infrastructure, resource availability, budgets, etc.may affect transformation strategy, scope, roadmap and implementation 12 | IP Voice Meeting | March 2008 All Rights Reserved ©Alcatel-Lucent 2008

  13. Conclusion • IP transformation represents a unique —once in a lifetime— business opportunity for telecom service providers to evolve their network, services and operations beyond a “bit pipe” with “vanilla voice” • IMS is a key standards framework and reference architecture for developing and delivering differentiated VoIP and multimedia services • VoIP and IMS introduction need to be part of a “holistic” network and services evolution vision — in sync with the end-user portfolio, business processes, IT systems, skills and organization transformation roadmaps • A “best practices” approach, supported by an experienced partner is the most effective way to engage into a “predictable” VoIP and IMS deployment • Carriers worldwide are leveraging Alcatel-Lucent’s global reach, experienced technical staff, and IP subject matter expertise to accelerate their network evolution and to incorporate lessons learned from the early adopters Transform predictably. Transform comprehensively. Transform profitably. 13 | IP Voice Meeting | March 2008 All Rights Reserved ©Alcatel-Lucent 2008

  14. www.alcatel-lucent.com www.alcatel-lucent.com www.alcatel-lucent-iptc.com Thank You! — Obrigado! marc.jadoul@alcatel-lucent.be 14 | IP Voice Meeting | March 2008 All Rights Reserved ©Alcatel-Lucent 2008

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