1. 1 Seminar Business planning and modelling of ICT operators October 2009 Ernst Nordström ernstn@bizopt.se

2. 2 Agenda 1.Introduction 2.Business planning 3.Business modelling 4.Revenue management 5.Conclusion

3. 3 Business planning Business planning encompasses all the goals, strategies and actions that you envision taking to ensure your business’s survival and growth. A business plan is a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals.

4. 4 Business plan structure 1 Cover page and table of contents Executive summary Business description Business environment analysis Industry background Competitive analysis

5. 5 Business plan structure 2 Market analysis Marketing plan Technical plan Operations plan Management summary Financial plan Attachments and milestone

6. 6 ICT business planning

7. 7 Business modelling Business modelling is the process of planning and designing business models—it is an important input to strategic management, usually by assuring the qualitative results. Business model that can be understood as a snapshot of reality that enables effective modelling and analysis of different aspects of the business.

8. 8 STOF business model framework for ICT operators Services –Offered service/application/content portfolio Technology –System realisation Organisation –Means to achieve operator goals Finances –Economic performance of operator

9. 9 Business model structure Service domain –market segment –value model –service portfolio –competitive strategy Technology domain –technology model Organisation domain –players, roles and relationships model Financial domain –revenue model –cost model –pricing strategy

10. 10 Market segment Distinct from other segments (different segments have different needs) Homogeneous within the segment (exhibits common needs) Responds similarly to a market stimulus and Can be reached by a market intervention

11. 11 Value model Value proposition includes identification of the key value drivers and elements, which enable the company to differentiate itself from the competitors Value configurations includes network of partners, which describe how the value is created, who contribute to it (i.e. relationships), and how it is distributed and finally, consumed

12. 12 Service portfolio Set of products/services offered by a company is called portfolio A portfolio conveys the value proposition of the company From the customers' perspective, products are viewed as a bundle of benefits, not attributes A number of motivation factors for explains adoption of ICT services and synthesis of consumer value

13. 13 Competitive strategy Generally speaking the common goal of all business strategies is to attain and maintain sustainable competitive advantage According to Michal Porter's theory there are two basic types of competitive advantage: the cost and the differentiation Therefore, competitive advantage prods the firm to provide superior value to the customer and superior profits for its business.

14. 14 Technology model Communication networks consists of a core network that interconnects end systems via access networks Access and core networks are based on wired or wireless transmission of digital information Public Switched Integrated Network (PSIN) provides economy of scale by using a single network infrastructure for all services which access the network via a common host-network interface Statistical multiplexing allows efficient network utilization and is the main advantage of packet switching over circuit switching

15. 15 Players, roles and relationships Players: participating entities in a business model. It can either be 1) a business entity that provides services or 2) customer that consumes services. Roles: functionalities of players in a business model. A player can take one or more different roles. Relationships: illustrates the exchange of information between two roles/players/layers in the system.

16. 16 Revenue model The revenue model states how to generate revenue from customers On Internet, business models are often based on advertising and free usage, possibly extended with a premium model that gives extra content at some minor fee Revenue sources for ICT operators include payment for services, content, rental of customer premise equipment, and advertising Demand from customers and the pricing of services determine the amount of revenue ICT players may implement revenue sharing with some other player(s), in order to establish stable revenue streams and reduce the risk taking

17. 17 Cost model Knowing the cost per service is very important for pricing decisions, benchmarking, profitability analysis, simulation for possible introductions of new technology or services etc. Capital expenditures (CapEx) costs contribute to the fixed infrastructure of the company and they are depreciated over time. They are needed to expand the services to the customers. Operating expenditures (OpEx) costs do not contribute to the infrastructure itself and consequently are not subject to deprecation.

18. 18 Pricing strategy The suppliers aim at maximising the profit, which is the difference between revenue and cost. The consumers aim at maximising the consumer surplus, which is the difference between consumer value (a.k.a utility or maximum willingness to pay) and price. Factors to consider the design of pricing scheme include technology risks, availability of resources, competition, supplier and consumer behaviour, price discrimination and regulation.

19. 19 Qualitative analysis of business models Major metrics of the star model: 1.Power against suppliers 2.Power against customer bargaining 3.Power against new entrants 4.Power against substitution 5.Power against competition

20. 20 Qualitative analysis of business models Minor metrics of the star model: 1.Customer loyalty: stable customer base 2.Product usability: interactivity between product and consumer 3.Secured solution: enabling security with the company and its services 4.Market regulation: business operation within a regulated market 5.Customer satisfaction: immediacy of satisfaction

21. 21 Goggle vs. YouTube star model

22. 22 Measures of consumer and supplier benefit Consumer surplus (CS) is given by consumer value minus price Consumer value is also referred to as utility or maximum willingness to pay Price is given by the service tariff Producer surplus (PS) or profit is given by revenue minus cost Revenue is given by customer demand and service tariff Cost includes capital and operational expenditures

23. 23 Stochastic model of operator selection

24. 24 Techno-economic analysis of business cases Techno-economic analysis is the process of analysing different business cases to find out adequate technological solution and/or the overall profitability of the case

25. 25 Financial indicators Payback period Net Present Value (NPV) Return on Investment (ROI) Internal Rate of Return (IRR) Net Cash Flow (NCF) Discounted Payback Period (DPP) Discounted Cash Flow (DCF) Operating income Revenue per service class

26. 26 Revenue management Select service portfolio (including value- added services and channel/VoD content) so that revenue is improved Select prices for charging of system usage so that revenue is improved An accurate consumer value model is necessary for successful RM decisions

27. 27 Future work Study portfolio and price design in oligopoly markets under assumption the consumer value function is known