1. GANESHA consult1 Jos Gerrese, GANESHA consult 41 st FITCE European Telecommunications Congress Genova, 4 – 7 Sept. 2002 Pricing in the Newest Economy “rebuilding the industry”

2. GANESHA consult2 agenda Analysis of the current troubled situation Foreseen developments of the bandwidth market for fixed and mobile operations The “Newest Economy” concept Solutions Conclusions

3. GANESHA consult3

4. 4 Analysis of the Situation 1 The Telecoms Industry is largely dead Telecoms itself is very much alive

5. GANESHA consult5 Analysis of the Situation 2 The result of the initial explosive growth of internet ( IP ) and the hype that followed –400 % growth per year predictions (Worldcom) –New entrants who need a network before they can sell anything –Result: Extreme overprovision

6. GANESHA consult6 Installed Bandwidth versus Demand in Gbit/s, Intra-Europe Source: Probe research; Telecommunications International Dec 2001

7. GANESHA consult7 Analysis of the Situation 3 Price erosion caused by classic price- war –Prices started falling and are now at 10 – 20 % of prices some years ago Sell at any cost to get a contribution to cover (some) costs –Only 10-20 % of capacity can be sold because of lacking demand Revenues are 1-5 % of planned budget

8. GANESHA consult8 Investment vs. Income Sales window 97 98 99 00 01 02 03 04 Market price level at investment Current market price Price/ unit Investment price

9. GANESHA consult9 agenda Analysis of the current troubled situation Expected developments of the bandwidth market for fixed and mobile operations The “Newest Economy” concept Solutions Conclusions

10. GANESHA consult10 Future Bandwidth Market Expectations ( fixed & mobile ) Fixed –Nobody (private & business) is using less telecom. The market is growing following a rather normal pattern –Taking away the hype effects, IP shows a healthy growth as well –About 80% of installed capacity is idle and can still be upgraded by WDM technology

11. GANESHA consult11 Future Bandwidth Market Expectations ( fixed & mobile ) Fixed 2 –Professional IP services will gradually reach a significant position Mobile –The air segment in a mobile connection is only 2-5 kms. The terrestrial part can range from 5 - 20000 kms

12. GANESHA consult12 Future Bandwidth Market Expectations ( fixed & mobile ) Mobile 2 –When hopefully (??) GPRS and UMTS take of, using bandwidth per connection of at least ISDN level, a new layer of capacities will be needed, resulting in doubling the current used capacities The future does not look bad at all

13. GANESHA consult13 agenda Analysis of the current troubled situation Expected developments of the bandwidth market for fixed and mobile operations The “Newest Economy” concept Solutions Conclusions

14. GANESHA consult14 The “ Newest Economy “ The recent years went under the paradigm “The New Economy”. It can be characterised as: Doing without Thinking Companies embarked on business ventures without validating the consequences I introduced some months ago –The “ Newest Economy ” Concept

15. GANESHA consult15 The “ Newest Economy “ The Newest Economy concept is about PROFITS When Total Revenues > Total Costs, than Total Revenues -/- Total Costs = Profits

16. GANESHA consult16 The “ Newest Economy “ Minimum conditions: –Each service or product in the portfolio is profitable on a NPV ( Nett Present Value ) basis within a relative short time window –Each customer is profitable for the total of services contracted The customer is King only when he renders profitable revenues –The “Free Service” concept must disappear

17. GANESHA consult17 agenda Analysis of the current troubled situation Expected developments of the bandwidth market for fixed and mobile operations The “Newest Economy” concept Solutions Conclusions

18. GANESHA consult18 Solutions 1 Over-extended or loss-making companies will be taken over by the few strong ones or they go broke –Some companies will pick-up the pieces at real cheap cost and will be able to re- create a new business with an acceptable costbase and profitable pricing –Prices must be raised in general

19. GANESHA consult19 Solutions 2 Customers will have to pay the price –Mass market standard prices for standard services –Tailor made prices for dedicated services Customers must decide if they can afford the service they want –The additional business value should compensate for the costs of service –“Nice to have” is not a valid decision criterium Control the discounts

20. GANESHA consult20 Solutions 3 Development strategy –Stop a project before it stops you Evaluate progress and opportunities per stade and keep Geoffrey Moores’ law in mind Climbing the value chain –Cash flows –Required skill sets

21. GANESHA consult21 Geoffrey Moores’ Chasm & Tornado application life cycle chasm early innovate acceptance decline time rev mass tornado Fig. 4

22. GANESHA consult Revenue – Margin relation Transport services Network services Communication services Information services Transaction services Revenues Margins % Margins 2% ………………………………………25% Revenues 10 K€........................................................0.5 M€ Nett cash margins 2.5 k € 12.5 k € 7.5 k €

23. GANESHA consult Sales Channel Options/Skills Transport services Direct Sales, limited headcount Network services Direct + Indirect Sales, Increased Headcount Communication services Direct+ Indirect+distributors; skills Information services Direct+Indirect+VA-resellers+Integrators; Skills; prof. Services Transaction services Direct+Indirect+VA-resellers+Integrators, Skills; prof. Services + application prov. Fig. 6

24. GANESHA consult24 Conclusions The industry is in shambles but telecoms itself shows a healthy pattern. The industry needs a serious clean-up Apply “Newest Economy” concept Customers have to pay a profitable price so that all parties can live – Pricing and discounting is key Be careful with development projects and climbing the Value Chain Continuously ask: will it bring a profit –If not: don’t do it or stop it

25. GANESHA consult25 GANESHA consult Thanks for your attention j.gerrese@wxs.nl phone: +31 71 5416959 fax: +31 71 5894800