Navigating the Storm: The Impact of the Economic Crisis and Strategic Responses, by Jawad Shaikh, Vice President Capgemini Consulting

Navigating the Storm: The Impact of the
Economic Crisis and Strategic Responses
6th Arab Advisors Media & Telecoms Convergence Conference

Jawad Shaikh, Vice President
Capgemini Consulting

June 1st 2009
Capgemini Consulting is the strategy
and transformation consulting brand
of Capgemini Group

We are in the midst of a global recession

Global GDP growth rates, 2006 – 2014E, %

12%

10%
Developing
Asia
8%

6% World
Middle
4% East

The US
2% Europe

0%

-2%

-4%

-6%
2006 2007 2008 2009E 2010E 2014E

World United States Europe Developing Asia Middle East

Source: IMF, “World Economic Outlook”, April 2009;, World Bank, “Global Economic Prospects 2009”, Dec
2008; Bloomberg, “U.S. Stocks Post Steepest Yearly Decline Since Great Depression”, Jan 2009; IMF,
“Global Economy Contracts, With Slow Recovery Next Year”, Apr 2009 1
Copyright © 2009 Capgemini. All rights reserved.

Historically, real TME consumer expenditure has correlated
with the performance of the wider economy
TME Consumer Spending per Capita, GDP per Capita,
YoY Growth Rates, US, 1984 2007, %, Real Terms
YoY growth GDP per capita YoY growth, TME Spend per capita

7.0%
US Financial Dot.com Bubble
Recession (2000-2001)
6.0% (1990-1991)

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%
1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007
-1.0%

-2.0%

The current recession is also affecting consumer spend.
Source: Capgemini TME Strategy Lab analysis; US Bureau of Economic Analysis
2
2

The declining spend is severely impacting growth across the
value chain
Content/Media Telecoms Devices

Q-o-Q Revenue Growth Rates of Q-o-Q Revenue Growth Rates of Y-o-Y Revenue Growth of Top
Top Media Players, Q2 08-Q1 09 Top Telcos, Q2 08-Q1 09 Handset Vendors, 2005-08
10% 3.0% 25%

20%
5%
2.0% 15%

0% 10%
1.0%
5%
-5%
0%
0.0%
-10% -5%

-10%
-15% -1.0%
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 -15%
2008 2008 2008 2009 2008 2008 2008 2009 2005 2006 2007 2008

Online advertising revenues Voice revenue growth for Mobile handset revenues are
in the US expected to European cellcos predicted forecasted to decline by
decline by 5% in 2009 to decline by 3.7% in 2009 ~13%

Source: Capgemini TME Strategy Lab analysis based on analyst reports, company websites and news releases.
3

The global crisis combined with a decline in oil prices is
severely impacting the GCC economies
Annual Real GDP growth rates,2007-2009(f),%
25%

20% 2007
2008(E)
15% 2009(F)

10%

5%

0%

-5%
Oman Bahrain Saudi Kuwait Qatar UAE
Trade-
deficit $77 $75 $49 $33 $24 $23
Breakeven
Oil Price
Decreasing Vulnerability to Falling Oil Prices
Source: MEED Projects, as of July 2008. IMF. Respective Central Banks, NCBC 4
Research, World Bank Estimates, Samba Research. Global Research;Ameiinfo Copyright © 2009 Capgemini. All rights reserved.

Consumer and business confidence has fallen significantly
across the region
Change in Consumer Confidence HSBC Gulf Business Confidence
Index , Jul 2008-Feb 2009, %age Index , Dec 2007-Jan 2009

UK Business
Kuwait UAE Bahrain Qatar Oman KSA UK US Confidence Index US Business
fell 10% between Confidence
Q4 2007 and Q4 Index fell 33%
-1.1% 2008 between Dec
07 and Dec 08
98.6
96.8
94
-7.0% 92

-9.5%

-11.9%

-15.5%

70.3

Dec- Feb- Apr- Jun- Aug- Oct- Dec-
-23.5%-23.5% -23.2% 07 08 08 08 08 08 08

Source: Bayt.com and YouGov Mar 2009 CCI report; HSBC Gulf Business Confidence Index; Nationawide& TNS, “Consumer Confidence
Index”, March 2009; ABC News, “ Q1 2009: A Confidence Sourball”, march 2009; Trading Economics, “United States Business
5
Economics”, March 2009; ICAEW, “ Business Confidence Index in UK”, 2009 Copyright © 2009 Capgemini. All rights reserved.

Not all countries in the region are being impacted equally

Impact of Downturn on Middle Eastern Economies
20%
Positive

Relatively Qatar
Resilient
15%
Change in GDP 2008-2009F

Relatively
10%
Lower Impact

5%
Egypt
Tunisia Oman Bahrain
Jordan
0%
KSA UAE
Kuwait
High Impact
Negative

-5%
-5% 5% 15% 25% 35% 45% 55% 65% 75% 85%

Expat Population as % of Total Population
LOW HIGH
Bubble size represents total population

6
Source: Capgemini Strategy Lab Analysis based on IMF and CIA Factbook data Copyright © 2009 Capgemini. All rights reserved.

Players will need a balanced strategic response

Telco Strategic Responses to Downturn

 SAC/SRC Reduction  Pricing
 People Costs  Micro-segmentation
Costs Revenues
 IT Consolidation and  Focus on investing
Optimization in services with
proven demand
 Network Sharing
 M&A
 IT and Network
Outsourcing Asset Optimization

 CAPEX shifts
 Divestiture of non-core operations
 Hiving off non-core assets

7

Outsourcing can help reduce network costs, whilst retaining
focus on customer management and value creation
Typical OPEX Breakdown for a Mobile Operator and Potential Savings Through Outsourcing

 Network maintenance and management
Network 15-18%
23.70% OPEX  Inventory management
 Planning and network optimization
Subscriber  Payouts on license fees and AMC
Acquisition
26.80%
and  NOC and Disaster recovery
Retention

 Application management
22.90%
Interconnect  Hardware and software maintenance
 Data-center management
7.10% IT 18-20%  Information security
7.80% Customer
Service  Internal helpdesk
11.70% Other  Technology Obsolescence-related costs

Operators can save up to 5% of their total OpEx through Network outsourcing.
8

Separating out tower companies and network sharing
provide a significant upside in shareholder value
Towers Ownership & Network Sharing Initiatives in India

Tower Assets for Selected Operators
in India, January 2008, (Units)  Over 70% of the towers are
76,000
owned by tower companies

61,500  Over 36% of the towers are
shared, and no. is growing

 Sharing passive infrastructure,
36,849 which is 60% of network CAPEX
28,000
 Generates OPEX savings as well
19,540
as tenancy revenue stream

Independent Bharti Infratel RTIL Operator Indus
Tower Owned
Companies

These initiatives are supported by a clear strategic and financial rationale.
Source: Capgemini analysis; GTL Analyst Presentation, March 2008; Frost and Sullivan Estimates, January 2008; TRAI Report on
Infrastructure Sharing, May 2008
9

Along with addressing cost, operators must take effective
steps to retain their existing customers
Operator initiatives to retain and attract recession-impacted customers

PAYMENT WAIVER EXTENSION OF CREDIT MULTIPLE BRANDS

 Waives payments for  Extends credit to  Launched Low-Cost
unemployed subscribers Contract subscribers Brand

 Offers unemployed a 50%  Provides GBP40 of credit on  Offers shorter contract
discount on their bill a 12-month contract with periods
GBP10 rental
 Targeted at subscribers with  SIM only-offerings with call
Telefonica for at least 6  Available on a SIM-only prices at up to 30% lower
months contract compared

Source: Information Week, “Comcast Profits Rise Despite Recession”, April 2009 10

The downturn also opens up some growth opportunities

BSkyB is driving Pay TV Uptake, by creating an affordable HD value proposition

Sky+ HD Subscribers („000), UK
Average Quarterly Growth Rate

17% 27% • Identify a high-growth area, with
1,022 obvious demand:
• Pay TV demand rose as out-of-home
entertainment became unaffordable
779
• Create compelling proposition to tap
the demand:
591
• Slashed entry level prices of Sky+ HD
498 box from £149 to £50
465
422
358
• HD service delivered with strong content
292 portfolio
244
• Promoted limited-time offers e.g. giving
ten months of free line rental
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
07 07 07 07 08 08 08 08 09

Source: Capgemini Strategy Lab Analysis; Enders Analysis, “Sky FY 2009 Q3 results: recession-
resistant”, May 2009; Enders Analysis, “UK pay-TV in 2009: recession and competition concerns”, 11
Apr 2009; Digital TV Europe, “Sky: a sharper picture”, Mar 2009

Operators are exercising caution in making bold investments

Decline in CapEx expected Investments are being delayed

Global Telecom CapEx, 2008 vs 2009, 2009 2010 2011 2012 2013
Billions of USD Expected LTE
Launch Timeline
-11% Before Downturn
122 Expected LTE
108 Launch Timeline
After Downturn
+11%
-7%
76 We are not disclosing specific spending on LTE.
71 68 Given the economic circumstances that we‟re
66
in we will probably start out slower in the first
quarter than what we did first quarter this year
-5% - Verizon CEO, 4Q 08 call
23 22

It won't be until 2012 or 2013 when users really
EMEA N America Latin Asia Pac start appreciating LTE. LTE will be too costly in
America 2010 - Softbank Mobile
2008 2009

Source: “Global Telecommunications CapEx Forecast”, Yankee Group, March 2009
12

But should invest in pursuing growth areas with proven
demand
Comparison of broadband penetration in GCC and Western economies points to
unaddressed demand

Mobile Penetration in Select Geographies Broadband Penetration in Select Geographies
Across the World, (% of Population), Q4 2008 Across the World, (% of Households), Q4 2008

193%
153% 152%
Penetration
115%
103%
117% 110% Gap
73% 63%
51% 51%
39% 35%
26%
17%
5% 4% 3%
GCC Average
Saudi Arabia
UAE

Western Average
Egypt
Qatar

GCC Average
Saudi Arabia
UAE

Western Average
Oman
Bahrain

Egypt
Qatar
Kuwait

Oman
Bahrain

Kuwait
Source: Telecom Tiger 26th May 2009; “Mobile Social Networking has 12.3 Million 13
Friends in the USA and Western Europe”, August 2007. Copyright © 2009 Capgemini. All rights reserved.

Beyond organic growth, operators in the region can leverage
their relatively healthy cash positions for select acquisitions
M&A activity has plummeted in the region But players have sizeable war-chests

Number of deals, Q1 08 & Q1 09
100 Cash and cash equivalents, Q4 2008, Q1 2009,
$Bn, Net Debt/EBITDA ratio, 2008
80
-61%
60
Cash Reserves Net Debt/EBIDTA Ratio
40 2.3
-77% 1.96
20 1.73
1.5
1.1 1.1
0
Oubound Inbound+ Domestic
40 -0.1
Value of disclosed deals, Q1 08 & Q1 09 -0.3 5.8
30 4.5 4.2
Q1 2008 Q1 2009
3.4 3.3
20 2.2
-78%
10 1.0 0.7
-79%
0
Oubound Inbound + Domestic
Zain STC Etisalat Qtel Orascom Batelco Vodafone FT

Source: Capgemini analysis based on Company financial statements. Factiva 14

In summary

 In line with the historical trend, consumer spending on telecom and media is
being impacted by the global economic crisis, including in the Middle East

 Operators can target bottom-line improvement through adoption of structural
cost reduction measures such as outsourcing and network sharing

 Protecting revenue must stay in focus – using segmentation and pricing levers,
e.g. “recession offers” based on „psychological‟ segmentation to retain, as well
as attract customers

 With Capex constrained, investment for growth should target areas of proven
demand – e.g. broadband in the Middle East

 Many major Middle Eastern operators have accumulated healthy war-chests
and can take advantage of lower valuations for attractive M&A deals

15

Introduction to Capgemini Consulting
and the TME Practice
June 2009

of Capgemini Group

Capgemini is one of the world’s foremost providers of Consulting,
Technology and Outsourcing services

Global Reach Three Business Lines Five Global Sectors

• North America, • Consulting services: • Telecom, Media &
Europe and Asia – The largest European management Entertainment
consultancy, with over 4,000
• Over 90,000 consultants across 30 countries
• Financial services
employees
– Helping clients with Business • Public sector
• 300 offices in more Transformation – encompassing,
30 countries Strategy, Operations & Technology • Manufacturing/retail

• Revenues 2008: • Technology services: • Energy, Utilities
€ 8.7 billions – Architecture and design Chemical
– Application and data
– Infrastructure
• Outsourcing services:
– Business process outsourcing
– IT outsourcing

INTRODUCTION TO TME CONSULTING.PPT
©2009 Capgemini – All Rights Reserved
01/06/2009 00:35 | 17

Capgemini Consulting is a Global SBU of Capgemini Group
 Global business unit of more than 4,000 consultants working in over 30
countries

 Europe‟s largest management consulting firm

 €700m revenue in 2008 (8% of Capgemini Group revenues)

 Long-standing heritage within the Capgemini Group, with strong Business-
Transformation experience and industry-leading clients

Capgemini Consulting mission:
Advising and supporting organisations in transforming their business from innovative
strategy through to execution, with a consistent focus on sustainable results.

01/06/2009 00:35 | 18

Capgemini Consulting services support end-to-end Business
Transformation

Business Transformation Leader

• Phase 1 • Customer • Innovation & • Shared services • Accelerated IT
experience Prod. Lifecycle Rationalization
• Technology
transformation Management • Finance (AIR)
Transformation
transformation
(Business & IT • Planning,
• Customer • Sustainable IT
Strategy) Logistics &
segmentation • Employee Cost
Fulfilment
• Post Merger transformation Management
Integration • Sales • Operational
effectiveness Excellence – • Technovision
• People &
incl. BeLean ™
Organisation
Change • Multi-channel • Strategic • CIO Advisory
optimisation - sourcing
• Restructuring; sales &
P2P service • Asset Mgmt

Business Transformation: a journey from innovative strategy to sustainable
performance.
01/06/2009 00:35 | 19

Capgemini Consulting runs a global management consulting unit with
over 300 professionals focused on the TME sector

Global Track Record in the Convergent Industry Worldwide Presence
Mobile, Fixed-line & Broadband Media & Entertainment Our TME offices

Americas Europe Middle East
 Atlanta  Düsseldorf  Oslo  Dubai
Telecom & Media Enablers
 Cambridge  Helsinki  Paris
 New York  London  Rome Asia Pacific
 El  Madrid  Stockholm  Mumbai
Segundo,  Shanghai
 Milan  Utrecht
California
 Munich  Sydney

Capgemini TME Consulting’s raison d’être is deep industry knowledge and close
collaboration with our clients.
01/06/2009 00:35 | 20

With its core expertise in business transformation, Capgemini Consulting has
supported its Telecom & Media clients through all of the major waves of change
TME Consulting Practice Capabilities

Strategy Definition Business Creation Operations Efficiency
 Vision engineering/value  “In a box ®” methodology  Business Simplification
innovation (Capgemini trademark)  Customer journey management
Tools and  Growth strategy/market entry  Launch Profile  Path to profit/cost optimisation
Methodologies  Functional strategy (commercial  Product Lifecycle Management  End to end process redesign
product, technology, etc.)  Customer Experience definition  Revenue Assurance
 Due-diligence, PMI, Exit  PMI process

 Group synergy strategy: product,  Group function design and launch  Synergy implementation
From national
marketing, network, IT, sourcing  Governance, tracking & reporting  Group function implementation
companies to
 Group governance vs. national design and plan  Sourcing implementation
global groups operations  Group innovation process design  Tracking and reporting execution

 Privatization  Telco-in-a-box  Governance
From monopoly  Competition facing strategy  Proposition development  Customer experience processes
to competition  Management alignment  Competitive pricing  Downsizing & efficiency
Telecom Revolutions

 Organization Design

 3-Play strategy  3-Play launch  QoS improvement program
From PSTN to  Entry Market/Go To Market  IPTV launch  Unbundling acceleration program
3-Play  CPE Strategy  TV channel negotiation  Broadband sales push program
 Distribution strategy  Box Company creation  Pricing optimization

 Fixed Mobile convergence  Broadband launches (network,  Customer Support convergence
From Mobile to Strategy products, in DSL or WiMAX)  Convergent segmentation
Broadband  Corporate strategy (acquisition)  Organization redesign  Convergent business processes
 Portfolio definition  Pricing definition

 Content Strategy for Telco  Content acquisition (football rights,  Advertising revenues optimisation
From Telecom  Acquisition Strategy movies)  Pay TV player subscription
to Media  Multi-screen strategy  Pay TV launch  QoS optimisation (Mobile TV,
 DVB-H Licence acquisition  Catch Up TV Mobile TV launch IPTV)
01/06/2009 00:35 | 21

We have built a strong track record of innovative projects in the Middle
East
Selected Recent Assignments in the Middle East and Africa (2007-2008)
• Defined the Strategy and the Post Merger Integration plan for the acquired ISP by a Mobile operator
• Identified the different Marketing Synergies between the subsidiaries for a Telecom Group
M&A
• Helped clients bid for mobile and fixed licences
• Due diligence of technology players & operators; PMI and 100 Day plan processes

• Launch of 1st WiMAX operations in Middle East
Mobile & • 1st MVNO deal in Middle East
Broadband • Launch of Mobile Operators in Middle East, North Africa and Turkey
Launches • Launch of 3G/HSDPA network and services
• Go-To Market Strategy in Africa for Middle East operator, leveraging India Best Practices

Major • Transformation of Ministry of Communication in Kuwait
Transformation • Transformation of major telecom player in Egypt
Projects

• Defined the Broadband Strategy, Go To Market and Value Proposition for a Mobile Operator for its
Broadband operations in Middle East and Africa
and Fixed- • Defined the Broadband and Wholesales Strategy of an incumbent in Jordan
Mobile • Defined the Fixed Mobile Convergence portfolio for a leading mobile operator and a fixed incumbent
Convergence • Developed the Broadband and WiMAX strategy of an Incumbent to face the arrival of the 2nd fixed
line operators

• Redesigned new media strategy for a leading Middle Eastern media player: linear and non linear
contents services, interactive services, addressing the 3 screens (TV, PC, mobile).
Media
• Defined the Mobile Strategy for a leading free-to-air TV channel in the Middle East; defined Partnerships
Convergence Strategy with operators, positioning for the segmented offer and described the roll out strategy
• For a Pay-TV player in Middle East, defined the IPTV strategy and business case
01/06/2009 00:35 | 22

Our “C4 Advisory Board”, comprising of senior telecom & media leaders
help validate and enrich our views on the market evolution

History The C4 Board of Advisors, 2008
 Chair: Lord Birt
 Didier Bonnet, Vice President & Global Leader, TME, Capgemini
 Dana Dunne, CEO, AOL Europe
 Kaj-Erik Relander, CEO Accel Partners
 Pascal Cagni, CEO & Vice President - EMEA, Apple
 Stefano Mazzitelli, CEO, Telecom Italia Sparkle
 Peter Erskine, Chairman, O2 / Telefonica
 Olivier Fleurot, Executive Chairman, Publicis
 The TME “C4 Advisory Board” was  Frank Rövekamp, Global Chief Marketing Officer, Vodafone Group
founded in 2006 to provide an  Patrick Vien, Chairman and CEO, Warner Music Int’l
environment for industry players to  Clive Ansell, President - Strategy, Marketing & Propositions, BT plc
 Joanna Shields, President - International, Bebo
engage in open, honest, fact-based
 Jon Gisby, Director of New Media, Channel 4
discussion on the implications of the
 Dallas Clement, SVP Strategy & Development, Cox Communications
converging communications industries
 Francis Deprez, Chief Strategy Officer, Deutsche Telekom
 Peter Bazalgette, Chief Creative Officer, Endemol
 The Board of Advisors meets twice a  Tony Cohen, CEO, Fremantle Media
year and, with their blend of insight and  Emily Bell, Director, Digital Content, Guardian News and Media
experience, shapes debate on the rapidly  Carolyn Fairbairn, Head of Strategy & Corporate Development, ITV
changing communications, content and  Eelco Blok, Member of the Board of Management, KPN
technology landscape  Patrick Barwise, Emeritus Professor of Management and Marketing,
London Business School
 Keith Pardy, Senior Vice President - Strategic Marketing, Nokia
 Professor George Yip, Dean, RSM Erasmus University
 Francesco de Leo, Strategy Director, Wind
23
01/06/2009 00:35 | 23

Capgemini TME Consulting Lab has a global outlook on the sector and
enjoys strong links with influential academics and industry analysts
Recent research publications
London

Cross
 Digital native: how young people modify the Telecom and
Boston Paris Media landscape

Mumbai  Music Labels: striking the right chord for stimulating
revenues VOD challenge for DTH platform
 When TV face web 2.0

Media
 Mobile Media advertising
 Towards Advertising 2.0 ?
 Team comprised of consultants, research  Future of TV models: broadcasting and beyond
analysts and sector experts
 Conducts in-depth research & analysis to
form Points of View on sector evolution  Meeting the Local Search Challenge

Internet
and address client questions  New ways for digital music distribution
 Accesses a variety of proprietary and public
 Internet Players vs. Telcos: Worlds In Collision?
information sources
 Leverages internal Group knowledge as well
as networks with external experts
 Evaluating Fiber Deployment for European Operators
 Links with influential academics and  Recent Trends in the Indian MVNO Market
industry analysts
Telecom

 IPTV opportunities & threats for DSPs and DDT players
 Joint study with INSEAD on Value Innovation
WiMAX: The Last Mile Winner?
in the mobile sector
 Joint study on Telecom & Media sector with  Growing Mobile Data Revenues: Opportunities in
European analysts IDATE Infotainment
 Content exchange with Forrester, Gartner,  Mobile content
Enders, etc. INTRODUCTION TO TME CONSULTING.PPT
01/06/2009 00:35 | 24

Jawad Shaikh
Vice President
Region Head Middle East & Africa

Consulting Services Mobile: +971 50 274 6862
Telecom Media & Entertainment Direct: +44 870 238 2222
Dubai, UAE Jawad.shaikh@capgemini.com

of Capgemini Group

Navigating the Storm: The Impact of the Economic Crisis and Strategic Responses, by Jawad Shaikh, Vice President Capgemini Consulting

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