Successful mergers and integrations of telecom operators

1. Successful mergers and integrations of telecom operators 2005 St Kitts & Nevis Markku Kivinen +1 202 361 8039 markku.kivinen@omnitele.fi

2. Presentation contents • Omnitele in brief • Drivers for consolidation • Planning of merger/integration process • Integration challenges • Summary of learnings

3. Omnitele in brief • Telecom consulting since 1988 • We provide leading edge mobile operator know-how • Projects in more than 70 countries worldwide • Owned by Finnish telecom operator group • Offices in Finland, the Netherlands and the U.S. • Net sales in 2004 EUR 5,2 million

4. Omnitele global presence

5. Drivers for consolidation

6. Already merged Exception(3 ?) Danger zone Market share impact • <15% market share not sufficient in a saturated market • Densely populated (Hong Kong) have lower cost per subscriber – better chances • Sparsely populated countries (Finland) have high cost per subscriber • Caribbean markets still growing, but reaching saturation soon • Cost savings • Network and organization economies of scale • Purchasing power impact on CAPEX • In-net calls (termination charges)

7. Planning of merger/integration process

8. Example case: Finland Land of Santa Claus, thousand lakes, midnight sun, ice hockey and the best race car drivers in the world Four operators: Sonera, Elisa, Finnet and Telia Mobile until Finnet acquired Telia Mobile in 2003. Finnet • 450.000 subscribers, all post-paid • 3600 GSM BTS (80% Ericsson, 20% Nokia) • ~100 pre-commercial WCDMA BTS Telia Mobile Finland • 250.000 subscribers, also prepaid • 1160 BTS (all Nokia) • ~100 pre-commercial WCDMA BTS

9. Due diligence & other advance planning Due diligence Financial Sales & marketing Network & facilities Organization and employees Legal Customer management plan Customer communication Brand management Customer care Operator’s plan for vendor participation Renewed contracts Risk sharing Swap opportunities ” Free-of-charge advice” Redundant equipment Before the process is public Integration plan • Network integration plan • Whose network to use as a basis for a future integrated network? • What are the costs of integrating two networks? • Which equipment is redundant? • How and when can the swap to one radio network be made? • How and when can the swap to one core network be made? • Integration plan of other assets, functions & organization Plans needs to be done in detail: • To realistically estimate the integration cost in the merger decision • To speed up the integration process to save money

10. Typical issues to consider Detailed integration plan – “no more surprises” Division of responsibilities Timetable Integration of two service portfolios into one Which/whose services to keep How to bill for services Customer communication Integration of two networks into one network How to integrate as fast as possible and with no service downtime Organizational aspects Vendors’ role confirmed in the process: Logistics Professional services Show time:Operator integration management Failures lead to • Confused & disappointed customers; high churn • More money spent than expected, expected savings do not materialize

11. Integration challenges

12. Example of a real integration process timeframe First radio nw swap 8.9. Last radio nw swap 21.11. Deal closing 6.6. Core swap 20.11. 5/03 6/03 8/03 10/03 12/03 • Integration planning • Project plan on: • Service operator strategy and its implications to network integration • Basis for integration • BSS integration • NSS integration • Service platform integration • IN integration • GPRS integration • CS data integration • IP networks integration • Transmission networks integration • OSS integration • Mediation and Billing • UMTS • WLAN • First version made before closing, second together with TMF • Updated and specified regularly during the integration project! • Service integration phase • Integration of service pl. • Integration of customer management & billing • Radio integration “MVNO” phase • Traffic moved regionally to the Finnet network • Existing core network and service platforms in use in TMF network, Finnet core upgraded to cover the traffic from the TMF subscribers moved to the Finnet network • TMF customers billed with billing systems of TMF • Finnet and TMF subscribers have own separate service portfolios • Core integration (HLR migration) phase • Detailed planning of core swap and service platforms • Core swap Finnet (450.000 subscribers) acquiring competing operator Telia Mobile Finland (TMF, 250.000 subscribers) with partly overlapping network

13. Radio network integration challenges • Eliminate unnecessary coverage overlap and cost – select best sites • To provide seamless coverage, more sites are needed to serve customers of both networks • Extensive testing/benchmarking needed • Frequency changes (850/900/1800/1900) impact coverage • Capacity planning of the future network is critical • Traffic distributions vary a lot between competitors • Multivendor environment is always tough to handle, especially in small geographical scale – vendor swaps & logistics ? • Documentation, documentation, documentation... • Realistic planning/deployment workload expectations are critical • Market for redundant equipment is limited

14. How to provide seamless user experience during the integration ? How compatible are the services, service platforms and billing environments ? How to integrate two service portfolios into one ? Kill or maintain Legal aspects Billing and provisioning External communication to customers All the services controlled by the subscriber may be lost in migration e.g. call diversions, barring, barring password and call waiting, operator logo Harmonizing interconnection and termination fees ? Intelligent Network and service platforms ? Telia Mobile Finland was regarded as market leader for prepaid customers while Finnet did not have any prepaid subscriptions To keep the prepaid solution required not only the IN but also saving TMF’s MSC (INAP) and NCC (SMS, content, GPRS and MMS charging) Transferring subscribers SIM swaps are risky business HLR migration for postpaid is a challenging task Core & service platform integration challenges

15. Customer Care challenges • Educate the Customer Care • Build processes and different compensation levels • Handle the changes in subscription management • Prepare yourself for call volumes from both new subscribers and existing subscribers, as existing subscribers are also experiencing changes in network performance • Prepare different offers with retailers • Letters to customers, particularly corporate • To prepare for competitors’ attacks, various counter offers must be ready (newspapers, web, direct SMS offers)

16. Customer Care integration Case Finnet/Telia: In CC integration, target was to deploy the best practices • Politically challenging • Lots of personnel involved • Most visible part of the operator towards the customers Starting point: • TMF had a CC with very high reputation • Finnet had a partly outsourced CC function (shareholders’ fixed line operations) • Finnet had a ”VIP CC” for corporate customers • Failure of the billing system of Finnet and replacement decision just before integration made matters worse • Mobile number portability introduced with lots of interest in Finnet Final outcome: • Completely new CC process introduced with participation of both parties • More than 10% savings in CC cost per customer, mean waiting time <30 seconds achieved • Eventually best CC reputation in the market and winner in number portability

17. Summary of learnings

18. Operator integration – key learnings 1. Subscriber management is crucial • SIM card swaps for non-OTA capable SIM’s • Discontinuity is a driver for churn: Provide seamless service for end-users during and after integration • Inform customers of “no change” or “change towards better” 2. Prepare the ”best guess plan” well before closing the deal • High level planning to identify showstoppers & major hidden cost items • Focus on contracts & other third party related issues • New IN and other platforms may be needed to accommodate subscribers with varying services • Breaking BTS site leases may take longer than expected • Running parallel networks is extremely expensive 3. Identify key people from the acquired party • Absorb the best people, take best practices in use asap • Keep both organisations motivated • Review of the ”best guess” plan • “Interim consolidation organisation” needs to be immediately nominated

19. Operator integration – key learnings 4. Identify hidden clauses in contracts with suppliers • Example: Contract may be valid only if major part of NSS from vendor xxx • Re-sales of redundant infrastructure may be contractually restricted (network management system from vendor yyy) 5. Re-negotiate operational & expansion contracts • New technology pilot networks and commercial contracts back on the table • Subcontractor agreements (planning, implementation, maintenance, tower leases) 6. All parts of the consolidated network need to be capable of handling significantly more traffic after the swap • Temporary half-rate to be able to quickly move traffic to one radio network • Seamless swap BSC area / MSC area ; start with smaller regions • GPRS throughput may be significantly impacted

20. Operator integration – key learnings Third party’s role as the temporary project office:  Risk sharing - things get done in time  Neutral third party – best practices identified, disputes solved • Telecom specific knowledge – pitfalls identified in advance • Experienced temporary project staff available Omnitele services • Technical and organizational/economical due diligence • Integration project planning and support • Integration project management • Service integration support • Technical experts in e.g: • BSS integration • Core nw integration • Service platforms integration

21. For more information about Omnitele, please visit our web site www.omnitele.fi