Strategies to Enhance Long-Term Competitiveness in the Telecommunications Industry: Lessons for NTT.
by MASSACHUSETTS INSTITUTE Shingo Kawai OF TECHNOLOGY
B.S. Physics, 1992 JUN 2 3 2015 Tokyo Institute of Technology, Japan LIBRARIES Ph.D. Electrical and Electronics Engineering, 2007 Tokyo Institute of Technology, Japan ARCHIVES
Submitted to the System Design and Management Program in partial fulfillment of the requirements for the degree of Masters of Science in Engineering and Management
at the MASSACHUSETTS INSTITUTE OF TECHNOLOGY
January 2014. [ Ftb6 10 Ho 2014 Shingo Kawai. All rights reserved.
The author hereby grants to MIT permission to reproduce and to distribute publicly paper and electronic copies of this thesis document in whole or in part in any medium now known or hereafter created.
Signature of Author Signature redacted
d' / ' Shingo Kawai System Design and Management Program January 2014
Certified by Signature redacted Michael A. Cusumano SMR Distinguished Profe Management & Engineering Systems MIT Sloan School of Magement 7es7 / Thfs/gupevisor Signature redacted Accepted by z V d-atrick Hale Director, System Desigi - inagement Program Massachusetts Institute of Technology
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2 Strategies to Enhance Long-Term Competitiveness in the Telecommunications Industry: Lessons for NTT.
by Shingo Kawai
Submitted to the System Design and Management Program in January 2014, in partial fulfillment of the requirements for the degree of Masters of Science in Engineering and Management
Abstract
In the telecommunications industry, the market is highly global as well as competitive in this era of Internet and data communications. Telecommunications carriers compete with not only other telecommunications carriers providing broadband access and mobile communication but also network application and service providers, which are significant threats for telecommunications carriers. It is difficult for telecommunications carriers to control the market for two significant reasons. Firstly, due to the maturity of technology as well as customers, network services have become commoditized. Secondly, telecommunications network services are vulnerable to over-the-top services based on the Internet.
This study aims to investigate how large telecommunications carriers can continue to be competitive in such an environment. This paper focuses on three kinds of strategic options that enable large high-tech companies to continue to make profits; internal R&D, growth and diversification, and M&A. In the second chapter the author focuses on IBM and Cisco, which are good examples of how large companies have evolved over time, combining these three strategies. Then, the use of the three strategies by major telecommunications carriers is investigated. Finally, in the fourth chapter, the author analyzes the future competitiveness of the NTT Group, the major telecommunications carrier in Japan, using these strategies within the next decade.
Thesis Supervisor: Michael A. Cusumano Title: SMR Distinguished Professor of Management & Engineering Systems MIT Sloan School of Management
3 Acknowledgments
First and foremost, I would like to thank my supervisor, Professor Michael A. Cusumano, for his warm and insightful direction during my thesis research. His expertise in corporate strategies and IT industries made my thesis truly meaningful.
This thesis study and learning at the System Design and Management (SDM) program has been an enriching experience, and I am very grateful to those who gave me this opportunity. Especially, I would like to express my sincere gratitude to:
Dr. Atsushi Takahara, Executive Director at NTT Network Innovation Laboratories, for giving me the great opportunity to study at MIT.
Dr. Yoshiaki Sato, Dr. Hisaya Hadama, and Dr. Masahito Tomizawa, former and current Executive Managers at NTT Network Innovation Laboratories, for giving me cordial support and encouragements.
Dr. Ryutaro Kawamura, Director at Photonic Transport Network Laboratories, NTT Network Innovation Laboratories, for his warm encouragement.
Dr. Koichi Takasugi and Dr. Ippei Shake, Senior Research Engineers, Supervisors at NTT Network Innovation Laboratories, for their continued support during my attendance at the MIT SDM program.
Mr. Mitsunori Fukutoku, Group Leader at Photonic Processing Systems Research Group, Photonic Transport Network Laboratories, NTT Network Innovation Laboratories, for his thoughtful suggestions and support.
Director Pat Hale, the staff, and faculty at the SDM program for the great coordination of the program.
The SDM 2012 and 2013 cohort for sharing their knowledge and experiences.
Finally my special thanks to my parents, Shigeo and Mineko, for kind assistance.
4 Table of Contents
A b stract...... 3 A cknow ledgem ents...... 4 T able of C ontents...... 5 L ist of Figures ...... 7 L ist o f T ab le s ...... 7 L ist of A cronym s...... 9
1. Introd uctio n ...... 11
2. Conventional model: how large companies have evolved over time...... 15 2.1. IBM: Total solution of personal computer hardware, software, and services... 15 2.1.1. Internal R&D: multinational research laboratories...... 15 2.1.2. Growth and diversification...... 16 2.1.3. M & A ...... 19 2.2. Cisco: Network Solution Company...... 23 2.2.1. Internal R&D: domestic centralized research laboratories...... 23 2.2.2. Growth and diversification...... 24 2.2.3. M & A ...... 26
3. The use of the three strategies by major telecommunications carriers...... 31 3.1. Carriers with domestic centralized research laboratories...... 31 3.1.1. AT&T (The United States)...... 31 3.1.2. Verizon (The United States)...... 36 3.1.3. British Telecom (The United Kingdom)...... 39 3.2. Carriers with multinational research laboratories...... 44 3.2.1. Deutsche Telekom (Germany)...... 44 3.2.2. Telefonica (Spain)...... 49 3.2.3. France Telecom (France)...... 54
4. Competitiveness of NTT within a next decade...... 60 4.1. The use of the three strategies...... 60 4.2. Comparative analysis with other telecommunications carriers...... 67 4.3. Further strategy for long-term competitiveness...... 69
5 5 . C onclusion ...... 7 1
6 . R eferen ces...... 7 3
6 List of Figures
Figure 1-1 I The growth of the global ICT market...... 11 Figure 1-2 1 5-forces analysis of the telecommunications industry...... 12 Figure 2-1 1 Revenue growth of IBM...... 17 Figure 2-2 I Percentage of revenue of IBM by segment...... 17 Figure 3-1 1 Percentage of revenue of AT&T...... 32 Figure 3-2 1 BT's organizational structure...... 40 Figure 3-3 I Four strategic areas of operations of Deutsche Telekom's Group...... 45 Figure 4-1 1 R&D formation at the NTT Group...... 60 Figure 4-2 I Numbers of NTT patents...... 61 Figure 4-3 I The business formation of the NTT Group...... 62 Figure 4-4 I Revenue of NTT (in billions of JPY)...... 63
List of Tables
Table 2-1 1 The profitability of IBM over time...... 17 Table 2-2 1 IBM's major acquisitions...... 20 Table 2-3 I Cisco's revenue structure over time...... 25 Table 2-4 I The profitability of Cisco over time...... 26 Table 2-5 I Cisco's major acquisitions...... 27 Table 3-1 1 AT&T's revenue structure in terms of segments...... 32 Table 3-2 I AT&T's revenue structure in terms of communications forms...... 33 Table 3-3 I The profitability of AT&T over time...... 33 Table 3-4 I AT&T's major acquisitions...... 35 Table 3-5 I Verizon's revenue structure in terms of segments...... 37 Table 3-6 I The profitability of Verizon over time...... 37 Table 3-7 I Verizon's major acquisitions...... 38 Table 3-8 I BT's revenue structure in terms of segments...... 41 Table 3-9 I The profitability of Verizon over time...... 41 Table 3-10 I BT's major acquisitions...... 43 Table 3-11 1 Deutsche Telekom's revenue structure in terms of segments...... 47 Table 3-12 1 The profitability of Deutsche Telekom over time...... 47 Table 3-13 I Deutsche Telekom's major acquisitions...... 49 Table 3-14 I Telefonica's revenue structure in terms of segments...... 52 Table 3-15 I The profitability of Telefonica over time...... 52
7 Table 3-16 I Telefonica's major acquisitions...... 53 Table 3-17 I France Telecom-Orange's revenue structure in terms of segments...... 56 Table 3-18 I The profitability of France Telecom-Orange over time...... 57 Table 3-19 I France Telecom-Orange's major acquisitions...... 58 Table 4-1 I NTT's revenue structure in terms of communications forms...... 63 Table 4-2 1 NTT's revenue structure in terms of service/product segments...... 63 Table 4-3 I The profitability of NTT over time...... 64 Table 4-4 1 NTT's major acquisitions...... 66 Table 4-5 1Comparison of the use of three strategies...... 68
8 List of Acronyms
NTT Nippon Telegraph and Telephone WTA Winner Takes ALL R&D Research and Development ICT Information Communications Technology M&A Merger and Acquisition PC Personal Computer IT Information Technology CEO Chief Executive Officer BPO Business Process Outsourcing L3 Layer 3 NGN Next Generation Network IP Internet Protocol IOS Internetworking Operating System SDN Software Defined Networking LAN Local Area Network IPTV Internet Protocol Television ABR Adaptive Bit Rate (ABR) AT&T American Telephone and Telegraph SBC Southwestern Bell Corporation LTE Long Term Evolution M2M Machine-to-Machine SLA Service Level Agreement MPLS Multiprotocol Label Switching WAN Wide Area Network CDMA Code Division Multiple Access SIP Session Initiation Protocol GTE General Telephone & Electronics BT British Telecom ADSL Asymmetric Digital Subscriber Line XGPON Extended Gigabit Passive Optical Network CRM Customer Relationship Management CSP Content Service Provider RFT Right First Time CAPEX Capital Expenditure
9 OPEX Operational Expenditure SMB Small or Midsize Businesses FTTC Fiber to the Curb FTTH Fiber to the Home IaaS Infrastructure as a Service NFC Near Field Communications VDSL Very High Speed Digital Subscriber Line API Application Programming Interface EE EmployeE P2P Peer-to-Peer MNC Multinational Corporation RCS Rich Communications Services HD High Definition MPEG Moving Picture Experts Group MP3 MPEG Audio Layer III DAB Digital Audio Broadcasting DVB Digital Video Broadcasting W-CDMA Wideband CDMA ISDB Integrated Services Digital Broadcasting VoIP Voice over IP OBS Orange Business Service ROW Rest of World DSP Digital Signal Processor IC Integrated Circuit 020 Online to Offline B2B2C Business to Business to Consumer SNS Social Networking Site NTT 13 NTT Innovation Institute, Inc.
10 Chapter 1. Introduction
Companies create strategies and make decisions for realizing their corporate visions. One of the most important goals of these companies is to realize long-term competitiveness in their industries. To be competitive in the long term, companies should sustain their market shares as well as turn profits.
I work for Nippon Telegraph and Telephone (NTT), a major telecommunications carrier in Japan. In the telecommunications industry, telecommunications carriers provide users with various network services. They compete with other domestic and international companies, such as other telecommunications carriers, network service providers, and network solution providers. The market is highly global and competitive in this era of Internet and data communications.
To begin with, it is beneficial to analyze the telecommunications industry as a whole. Fig 1-1 shows the growth of the global information communications technology (ICT) market I-li. The scale of this market is more than $3,700 billion in 2013 and is projected to grow with a growth rate of over 3.6 %.
Global ICT Market (Biftons of US$) 5 000 2O13-2O*7. Average Annua 4 COO GrCwth Rate woriawice.+3.6%
us +4.0%
2 OO Asia Pa +6.9%
y 2011 2012 2013 2014 2015 2016 2017
- Japan Asia Pacific lri: United States = Canada = Latin Arnerica Western Europe = Centra!-Eastem Europe M Middle East, Afnca Source: Gartner, "Gartner Market Databo-k, 2013 Update" Ken Newbtury et a! 28 June 2013
Fig. I -I The growth of the global ICT market Source: NTT annual report (2013)
Fig 1-2 shows the 5 forces analysis [1-2] of the telecommunications industry. Because of the wide breadth of the telecommunications industry, I focused here on infrastructure business, including broadband access, core communications networks, and mobile 11 communications networks. The market has a scale of $1,400 billion USD ($300 billion in Japan) in 2011 and is slowly growing with a growth rate of about 3% 11-31. While competition is moderate, cheap (free) substitutes by network service providers, such as Skype, Live, and WeChat [1-4], are significant threats for telecommunications carriers.
Suppliers strong Oliopoy o euppier %tiong -Market s oFuart rlues and switcres more than 75 % by top 4
-PrCdUcts are comnodiized due to conrmon cornpai and cheap transcewers
New Entrants moderate industry Competitors: moderate Substtute strong Mwe-t clf lembrina 1, 1400 n-IrldlStry srtlw0% grhisnl -Cheap services by network service tl$sD) w ;pan l300USP) iri!rnal-onally (1400 Ei.JSD in Japan providers (:Svpe. Live and WeChati -Capital requvrement strong 1300BUSDI -Switc'ng cost f-ed sorvies n-ari Canvenlionai bra',d share high Growith fawi: 3% lnterruiIoially equal to zerc ifree conmnnun caiio SwitchingCosi lo -Profi abilirty stable (-11 %1 lee! -Product differences moderale- low cost, high reL ability -F.ed cost hzgh t-Mo'1 0i> .cdd4 2lin 2? 111 uyers strong -Oliqopo!y of buyers strong -Swich ng cost fixed services nearly eiqual In zifo lree communiailin:il fee) wireless services moderate imobile de ice anc subscnptrin Feei -Mass as woll as corpo'atc users care aboul no ,eiecoimm-rejnicatKon car wc. ul vIc%4 and "lcir proy ders
Fig. 1-2 5-forces analysis of the telecommunications industry
One important aspect of this industry is that the recent development of a telecommunications network based on the Internet is a huge ecosystem, in which many telecommunications carriers, application providers, network service providers, and equipment and device venders are interacting and competing. Another important aspect of this industry is that it is difficult for telecommunications carriers to control the market. Due to the maturity of technology and customer expectations, hardware and software products as well as network services become commoditized. The latest transmission and switching/routing equipment is readily available from more than a few vendors [1-5]. Additionally, various network service providers, such as Facebook 11-6] and Google [1-71, provide versatile and free network services. Telecommunications network services are also vulnerable to over-the-top services based on the Internet.
12 These aspects of the telecommunications industry can be deeply considered from the perspective of platform thinking: platform leaders can create a large ecosystem involving various complementers by means of their core technology and products [1-8]. The Winner Takes All (WTA) analysis is a useful tool to assist top management of infrastructure businesses to understand whether their products and services are creating a platform as well as whether they are becoming platform leaders [1-9]. The major components of a WTA business can be characterized as follows [1-10]:
(1)"Strong network effects between the platform and complements" (2)"Little differentiation among competing platforms" (3)"Multi-homing rare" "difficult or costly for users, app developers, or other players to use more than one platform as their "home""
When I apply the WTA analysis to the NTT Group, the results are as follows:
(1)Strong network effects? - No. The Internet is an open platform and some service providers have created their new platforms that are also open and free to users. (2)Little differentiation? - Yes. Telecommunications technologies and signal input/output interfaces are standardized, and equipment has been commoditized. (3)High cost of multihoming? - No. Network service providers offer free or very cheap services, such as Live, WeChat, and Skype, and enter platform dynamics.
The NTT Group's platform is its telecommunications networks, and the network services have become commoditized and vulnerable to emerging platforms on top of the Internet. Emerging platforms, which are open and often free to users, make the NTT Group's proprietary services (long distance calls, messaging, and video conferencing, etc.) obsolete or too expensive. These results suggest that the NTT Group (and any other telecommunications carrier) is not a platform leader.
The motivation of this study is to investigate how the NTT Group can continue to be competitive in such an environment. For large high-tech companies, there are three kinds of strategic options that can be utilized to continue to be profitable. The first option is internal research and development (R&D). Creation of a next-generation ICT technology is a strong source of new network services, which can lead to the ongoing
13 competitiveness of companies. Second, firms should grow with diversification to meet rapidly changing market needs. With the maturity of technology and customer expectations, many products and network services have become commoditized, and thus companies have to shift their revenue structures. Finally, mergers and acquisition (M&A) is an alternative way to increase profits. This strategy has two benefits: firstly, a firm can drastically increase its share in a market by adding other firms' market share. Secondly, a firm can absorb another firm's product/service technology as well as human resources (engineers, sales people, and management) and organizational operations into its ecosystem.
This paper investigates how large telecommunications carriers can create long-term competitiveness in the industry. The next chapter focuses on IBM [1-11] and Cisco [1-5], which are good examples of large companies that have successfully evolved over time, combining internal R&D, growth and diversification, and M&A. In Chapter 3, the use of these three strategies by major telecommunications carriers is investigated. Then in Chapter 4, I analyze the future competitiveness of NTT using these strategies within a next decade. Chapter 5 concludes the paper.
14 Chapter 2. Conventional model: how large companies have evolved over time
2.1 IBM: Total solution of personal computer hardware, software, and services IBM used to be a platform leader in mainframes in the computer industry [2-1]. This platform, however, has become less important as new types of computing have emerged, so IBM has adjusted itself with the business shift from mainframes computers to PCs and client-server based computing, and to network computing on the Internet and Web services. IBM continues to succeed by combining its commercial business with open source and free software. In this section I overview how IBM realized these changes by using key strategies.
2.1.1 Internal R&D: multinational research laboratories In its annual report, IBM says "Working with enterprise clients across the full spectrum of their business and technical opportunities, IBM delivers leadership innovation in technology, high value solutions, and insights that improve client and industry outcomes" [2-2]. IBM has multinational research laboratories and has historically invested massive resources on R&D. It has spent $6,302 million in 2012 and $6,258 million in 2011, respectively on R&D alone.
To capture the opportunities arising from these market trends, IBM focuses on four initiatives: Smarter Planet, Growth Markets, Business Analytics and Optimization, and Cloud Computing [2-2]. With these initiatives IBM pursues growth opportunities with significant profit margins.
IBM differentiates itself by means of its unique R&D operations. The company spends more than $6 billion for R&D every year on areas including high-growth, high-value opportunities [2-2]. IBM Research collaborates with customers as well as IBM's business units through twelve research labs around the world on short-term and mid-term innovations. This structure creates new technologies that enhance IBM's portfolio and meet customers' needs to address their business challenges. IBM also carries out basic research on areas including nanotechnology, future systems, big data
15 analytics, and secure clouds. Additionally, IBM Research aims to differentiate its services businesses in order to provide new capabilities and solutions. In 2012, IBM obtained 6,478 patents with regard to fundamental inventions of analytics, big data, cybersecurity, cloud, mobile, social networking and software defined environments [2-2]. IBM has been awarded the largest number of U.S. patents in the past 20 years. These patents included industry solutions for retail, banking, healthcare, and transportation [2-2]. IBM has continued to conduct its R&D to create cutting edge technology for the next generation hardware, software, and network computing.
2.1.2 Growth and diversification
Since the early 2000s, value in the Information Technology (IT) industry has shifted because the advent of the Internet has driven the global integration of networks. As a result, there is now a new paradigm shift and new customer needs for computation using networks. Although IBM used to be a platform leader in mainframes [2-1], this platform has become less important today with different types of computing. IBM has now shifted its emphasis more toward professional services.
IBM realized its growth and diversification by changing its revenue structure within the past decade. IBM exited the increasingly commoditized businesses of PCs and hard disk drives, and strengthened its position as a provider of services, software, and integrated solutions. This transformation has changed its product and service lineup aiming high-value segments in the industry [2-3]. Fig. 2-1 shows the revenue growth of IBM from the year 2000. IBM has focused on three main areas: software, services, and hardware/financing. Especially, the portion of software and services has increased. As illustrated in Fig. 2-2, in 2000, the revenue structure shows that the portion of hardware encompassed 35 %, that of services was 38 %, and that of software was 27 %. In 2012, on the other hand, the portions dramatically changed; hardware/financing only encompassed 14 %, that of services was 41 %, and that of software was 45 %. The total amount of pre-tax revenue has increased from $9.6 million in 2000 to $24.0 million in 2012 [2-3].
16 __V 2015 Road #mp~ Ohm% Key V.--5, f-w MrtI Road m 520
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Fig. 2-1 Revenue growth of IBM Source: IBM annual report (2012)
Segmen Ptax Icome ($ in bi!!ions,
20CC"
2012
- Hardware/Financing Services - Software
L.Th / oa i L xu JiD itorp o Irri rvi -,s at d riou uwofto!id kr sc J i0Saromr~ al ,t rvr_:,.ie I conkvrmwTh 201? pross'It ii
Fig. 2-2 Percentage of revenue of IBM by segment. Source: IBM annual report (2012)
2000 2004 2008 2012 Number of Employee 316,303 329,001 398,455 434,246 Revenue ($ Million) $88,396 $96,293 $103,630 $104,507 Profit ($ Million) $8,093 $8,430 $12,334 $16,604 Revenue/Employee ($) $279,466 $292,683 $260,080 $240,663 Profit/Employee ($) $25,586 $25,623 $30,955 $38,236 Table 2-1 The profitability of IBM over time Source: IBM annual report (2000, 2004, 2008, and 2012)
17 Table 2-1 depicts the profitability of IBM over time. In this paper I employed net incomes or operating incomes as profit values, depending on the description of each company's annual report. While the value of Revenue/Employee has slightly decreased from $292,683 million in 2004 to $240,663 million in 2012, the Profit/Employee value has steadily increased from $25,586 million per employee in 2000 to $38,236 million per employee in 2012 because the profit nearly doubled within the 12 year period.
From the dynamic capabilities point of view [2-4], IBM strategically exited from the PC and hardware business and shifted to the software and service business. That is, from mainframes to minicomputers and PCs, and then to software and services that enable e-business and open systems. This was driven by the direction of Chief Executive Officer (CEO) Lou Gerstner (1993-2002). He knew that IBM's strength is its data processing and that technology itself is a secondary issue. He had a clear focus on system integration and services. The key elements of his vision were [2-4]:
* Strategy: shift from hardware products to services with integrated solutions. " Structure: shift from vertically-segmented teams to integrated teams (cross-organization, matrix structure). * Process: shift from annual plans to ongoing analysis of strategies and their execution. " Top Management: shift from assessment of annual plans and budget decision-making to continued conversations to support managers to identify challenges and opportunities, and then respond.
Gerstner also built IBM's business leadership model and new strategy process that lead strategic planning to its execution.
This shift of revenue structure has been done intentionally and effectively. The success of this shift can be attributed to three factors. First, IBM knew everything about the progress of computing technology. The company has adjusted itself to the shift from mainframes computers to PCs and computing on the client-server basis, and to network computing on the Internet and web services. Second, because of the change in such platform technologies, new products and services that reuse conventional software resources became necessary. One of the most significant contributors has been the
18 emergence of open source and free software. Finally, good management enabled IBM to provide hybrid solutions of products and services; IBM focused not on technology but on solutions, and emerged as a major player in the Internet technology and service industry.
IBM prospects that software revenue will become about half of the total profit and that growth markets will approach 30% of revenue in geographic areas; this transformation will likely yield $8 billion because of the improved productivity. The company also expects that it can give back $70 billion to shareholders and put $20 billion in acquisitions by 2015 [2-3].
2.1.3 M&A To make its business model resilient and adapt to the continuously changing market and economic environment, IBM has sold unprofitable businesses and enhanced its position through strategic M&As. It uses M&A as a strategy to complement other technologies, products, skills, and human resources.
IBM needed a synergy effect by merging with and acquiring other companies to expand its business. It has acquired more than 140 companies since 2000. In the past couple of years, IBM's acquisition-related charges were $641 million in 2012 and $495 million in 2011, respectively. These account for 3.9% in 2012 and 3.1% in 2011 of the company's net income [2-2].
Acquisitions and alliances involve significant risks relating to the integration of new businesses into the company. These risks include challenges to its business operation, failure to achieve strategic objectives, such as anticipated revenue improvements and cost savings, acquisition of key human resources of the acquired companies, and the expected liabilities with regard to legal proceedings involving the acquired companies. Despite these risks, IBM has continued to make acquisitions and alliances.
Table 2-2 lists IBM's major acquisitions since 2001 [2-5] [2-6]. These acquisitions were used to expand its product lineup, to expand its value chain, and to create new markets and segments, especially in services and solutions. In this paper, I partially referred information from Wikipedia as supporting evidences to check and/or complement acquisition information, since not all the annual reports and all the information about acquisitions are archived at each company's website.
19 Since IBM has focused on software products, it acquired companies with these products, such as database software (Informix Corporation, 2001), marketing planning software (Unica Corporation Marketing, 2010), and information security (Internet Security Systems (ISS), 2006). They also focused on services and acquired firms dealing with solution services, such as service oriented architecture (SOA) (DataPower Technology, Inc., 2005) and web conferencing and communications (WebDialogs, 2007). The current trend of IBM's expansion includes Big Data and cloud computing. It acquired businesses that offer data analysis and migration software (Butterfly Software Ltd., 2011) and Big Data analysis (StoredlQ, 2012). To bolster its cloud computing presence, IBM acquired cloud-based retail analytics (DemandTec, 2011) and Cloud based software testing (Green Hat (software company), 2012).
To expand its value chain, IBM has reinforced its product development and product supply chain in efforts to execute the sales of the above product lineup. For instance, IBM acquired businesses, dealing with the software development (Rational Software Corporation, 2003), security software testing (Watchfire Corporation, 2007), and cloud computing infrastructure (SoftLayer Technologies, 2013).
According to its strategic decision to create new market and segment of the software and services businesses, IBM has prepared new products and services as well as hybrid solutions. It has acquired businesses, including business consulting and technology services (PWC Consulting from PricewaterhouseCoopers, 2002), business process outsourcing (BPO) services (Daksh e-Services, 2004), application services (Corio, 2005), storage consulting and technology services (NovusCG, 2007), Data backup services (Arsenal Digital Solutions, 2008), and cloud integration (Cast Iron Systems, 2010).
Acquisition Company Business Country Value (USD) Date
3-Oct-13 Xtify In-app mobile messaging United States and push notification tools
Oct-13 The Now Factory Mobile Networks Big Data Ireland Analytics
15-Aug-13 Trusteer Cyber Security Israel $1,000,000,000
4-Jun-13 SoftLayer Technologies Cloud Computing United States $2,000,000,000 ______I- ______Infrastructure I______
20 19-Dec-12 StoredlQ Big Data Analysis United States -
24-Sep-12 Butterfly Software Ltd. Data Analysis and United Kingdom - Migration Software
27-Aug-1 2 Kenexa Corporation Talent Management United States $1,400,000,000 Solutions United States, 4-Jan-12 Green Hat (software Cloud based software company) testing United Kingdom
8-Dec-1 I DemandTec Cloud-based Retail United States $440,000,000 Analytics
I-Sep-II Algorithmics Inc. Risk Management Canada $387,000,000
21-Oct-10 Clarity Systems Financial governance Canada $350,000,000 BLADE Network 27-Sep-1 0 Networking United States - Technologies
20-Sep-10 Netezza Data warehousing and United States $1,700,000,000 analytics
13-Aug-1 0 Unica Corporation Marketing planning United States $480,000,000 software 24-May-10 Sterling Commerce integrationBusiness software United States $1,400,000,000
3-May-10 Cast Iron Systems Cloud Integration United States $190,000,000
28-Jul-09 SPSS Inc. Statistical analysis United States $1,200,000,000 software United States, 18-Nov-08 Transitive Virtualization Software Corporation United Kingdom
28-Jul-08 ILOG Business Rules France $340,000,000 Management Systems
2-Jul-08 Platform Solutions United States - technologies
3-Apr-08 Telelogic AB Enterprise software Sweden $845,000,000 development
15-Feb-08 Net Integration Business Server Canada Technologies Inc. Software 31-Jan-08 Cognos Business Intelligence Canada $5,000,000,000
31-Jan-08 Arsenal Digital Data backup services United States - Solutions 29-Jan-08 Solid Information Database Software United States, Technology Finland 18-Jan-08 AptSoft Corporation Business Intelligence United States -
24-Oct-07 NovusCG Storage Consulting and United States - Technology Services
1-Sep-07 Princeton Softech, Business Intelligence United States - Inc. DataMirror 31-Aug-07 Corporaton Change Data Capture Canada $161,000,000 Corporation
21-Aug-07 WebDialogs Web conferencing and United States - communications 20-Jul-07 Watchfire Security Software United States -
21 Corporation Testing 20-Apr-07 Unicible IT Services Switzerland $460,000,000
13-Feb-07 Vallent Corporation Telecommunications United States - Management
22-Jan-0722-an07 ConsulManaen incRisk Information security Netherlands - Management, Inc.
20-Oct-06 Internet Security Information security United States $1,300,000,000 Systems (ISS)
12-Oct-06 FileNet Corporation Content management United States $1,600,000,000 software 5-Oct-06 MRO Software Asset Management United States $740,000,000 Service Oriented 1-Aug-06 Webify Solutions, Inc United States - Architecture software
27-Jun-06 Rembo Technology Installation Software Switzerland -
2-May-06 BuildForge, Inc. Software Development United States - 14-Feb-06 Micromuse, Inc. Network management United States $865,000,000 20-Dec-05 Bowstreet, Inc. Portal-based tools United States -
14-Oct-05 DataPower Service Oriented United States - Technology, Inc. Architecture (SOA)
2-Aug-05 DWL Enterprise Information United States, Integration Canada 10-May-05 Gluecode Software Application Server United States -
29-Apr-05 Ascential Software Enterprise Information United States $1,100,000,000 Corporation Integration 16-Mar-05 Corio Application Services United States $182,000,000 7-Apr-04 Daksh e-Services BPO Services India $170,000,000 Rational Software 21-Feb-03 Ration Software Development United States $2,100,000,000 Corporation PWC Consulting from 2-Oct-02 PricewaterhouseCoo Business Consulting and Uie tts $,0,0,0 Technology Services United States $3,500,000,000 pers CrossWorlds 14-Jan-02 Sor, Software United States $129,000,000 Software, Inc. 2-Jul-01 Informix Corporation Database Software United States $1,000,000,000
7-Jun-01 Mainspring Business strategy United States $80,000,000 I consulting I Table 2-2 IBM's major acquisitions Source: http://www.ibm.com/investor/strategy/acquisitions.wssand http://en.wikipedia.org/wiki/List of mergers and acquisitions-byJBM#citenote-63
Key finding: The success of IBM has three main components. First, IBM has realized a series of technical advancements in computing technology. It has remade itself to embrace network computing based on the Internet and Web services. Second, as needs for new products and services that reuse conventional software resources emerged, it made
22 strategic M&A to meet these needs, and successfully utilized the emergence of open source and free software. Finally, IBM has excellent corporate management that enabled it to provide hybrid solutions of products and services.
2.2 Cisco: Network Solution Company Cisco sees itself and its market as follows: "The combination of technological complexity and rapid change within our markets makes it difficult for a single company to develop all of the technological solutions that it desires to offer within its family of products and services" [2-7]. Cisco also gained a platform leadership position in routers and was challenged by emerging switching technologies, such as L3 (Layer 3) switches and label switching technology [1-8]. Thus it broadened its scope to all types of networking hardware as well as some software and services.
2.2.1 Internal R&D: domestic centralized research laboratories Cisco's growth strategy is based on the three components of innovation to expand a wide variety of technologies, products, and capabilities. It uses the "build, buy, and partner" approach [2-7]. Cisco allocates its R&D budget on areas, such as Switching, Next Generation Network (NGN) Routing, Service Provider Video, Collaboration, Wireless, Data Center, Security, and Other Product technologies. It has a domestic central research laboratory and has invested $5.9 billion, $5.5 billion, and $5.8 billion in fiscal years 2013, 2012, and 2011, respectively. The company further introduces that "recent areas of focus are tied to our foundational priorities and include, but are not limited to, our core routing and switching products, collaboration, and the Cisco Unified Computing System and other products related to the data center" [2-7].
Another marked aspect is Cisco's patent strategy. It has an internal program promoting to obtain patents, copyrights, and trademarks in the United States as well as in foreign countries, where such properties are necessary for Cisco. Cisco holds over 2,500 issued US patents and has applied for more than 4,000 patents [2-7]. However, Cisco also proactively purchases technology licenses. Software as well as hardware intellectual properties from third parties are also included in Cisco's products.
As for manufacturing, Cisco relies on contract manufacturers. It uses external companies that provide manufacturing processes, such as in-circuit test, product repair, product assembly, and software for electronically programmable memory chips [2-7].
23 These companies meet customer requirements and maintain quality control and security of Cisco's various products.
2.2.2 Growth and diversification Cisco deals with not only switching products that provide networking based on Internet Protocol (IP) but also services in the communication and IT industry using these technologies and products. The company provides a wide variety of products that support to transport data, voice, and video over the globe. Its products are designed to support customers to connect, communicate, and collaborate effectively.
Cisco used to be a platform leader in routers but it has weakened its power due to commoditization of routers and the emergence of L3 switches and relating switching technology in the late 1990s. To survive the competition in the switching and networking technology market, Cisco started to diversify its products and services: router complements and versatile networks for users [1-8]. The success of its diversification owes to its Internetworking Operating System (IOS) software, into which Cisco implemented its new interfaces and operating codes. By doing so, Cisco released these new products lineup rather as additional products than as substitutes of its conventional router products. Thanks to IOS, Cisco's products connect and interoperate with other complements. While the interfaces of IOS are open, Cisco does not offer a license to modify the codes so that outsiders can independently control the operation of the interfaces. Therefore, other router and switch companies make IOS compatible products, meaning that these products are interoperable with one another.
Cisco's focus ranges over five foundational priorities: leadership in its core business (routing, switching, and associated services) including security and mobility solutions, collaboration, data center virtualization and cloud, video, and architectures for business transformation. The definitions of virtualization and cloud are as follows [2-7]:
"Virtualization: Refers to the process of creating a virtual, or nonphysical, version of a device or resource, such as a server, storage device, network, or operating system, in such a way that users as well as other devices and resources are able to interact with the virtual resource as if it were an actual physical resource. For example, one type of virtualization is server or data center virtualization, which consists of aggregating the current segregated data center resources into unified, shared resource
24 pools that can be dynamically delivered to applications on demand, thus enabling the ability to move content and applications between devices and the network."
"The cloud: Refers to an information technology hosting and delivery system in which resources, such as servers or software applications, are no longer tethered to a user's physical infrastructure but instead are delivered to and consumed by the user "on demand" as an Internet-based service, whether singularly or with multiple other users simultaneously."
Table 2-2 summarizes Cisco's revenue structure over time. In addition to the steady expansion of the router business (from $5,406 million in 2004 to $14,531 million in 2012), "advanced technologies" which were later broken down into Collaboration, Service provider video, Wireless, Security, and Data center, have increased from $3,435 million (15.6 % of the total) in 2004 to $12,343 million (26.8 % of the total) in 2012. Another marked evolution is the increase in services from $3,495 million (15.9 % of the total) in 2004 to $9,735 million (21.1 % of the total) in 2012. This clearly reflects Cisco's strategic transition from a router and switch company to a unified solution company.
Net sales: 2000 2004 2008 2012 Net sales: 2000 2004 2008 2012 Routers - $5,406 $7,909 $14,531 Routers - 24.5 20.0 31.5 Switches - $8,881 $13,319 $8,425 Switches - 40.3 33.7 18.3 Advanced technologies - $3,435 $9,736 - Advanced technologies - 15.6 24.6 - Collaboration - -- $4,139 Colaboration --- 9.0 Service provider video -- - $3,858 Service provider video --- 8.4 Wireless --- $1,699 Wreless - -- 3.7 Security -- - $1,349 Secuit --- 2.9 Data center - -- $1,298 Data center --- 2.8 Other - $828 $2,135 $1,027 Other - 3.8 5.4 2.2 Service - $3,495 $6,441 $9,735 Service - 15.9 16.3 21.1 Total $18,928 $22,045 $39,540 $46,061 Total - 100.0 100.0 100.0
Product $17,002 $18,550 $33,099 $36,3261 Product 89.8 84.1 83.7 78.9 Service $1,926 $3,495 $6,441 $9-735 Service 10.2 15.9 16.3 21.1 Total $18,928 $22,045 $39,540 $46,0611 Total 100.0 1 100.0 100.0 100.0I Table 2-3 Cisco's revenue structure over time Source: Cisco annualreport (2000, 2004, 2008, and 2012) and http://www.cisco.com/en/US/hmpgs/index.html
Table 2-4 shows the profitability of Cisco over time. From 2000 to 2004, the profit value significantly improved from $2,668 million to $4,401 million, and the Profit/Employee value from $77,072 million to $137,746 million, a fact which shows the efficacy of Cisco's diversification strategy. While the Profit/Employee value has
25 slightly decreased since 2004 due to the increase of the number of employees, Cisco still keeps a high profitability of more than $120,000 per employee.
2000 2004 2008 2012 Number of Employee 34,617 31,950 66,000 66,639 Revenue ($ Million) $18,928 $22,045 $39,540 $46,061 Profit ($ Million) $2,668 $4,401 $8,052 $8,041 Revenue/Employee ($) $546,783 $689,984 $599,091 $691,202 Profit/Employee ($) $77,072 $137,746 $122,000 $120,665 Table 2-4 The profitability of Cisco over time Source: Cisco annual report (2000, 2004, 2008, and 2012) and http://www.cisco.com/en/US/hmpgs/index.html
Cisco is now focusing on emerging markets of more programmable, flexible, and virtual networks, which are called software defined networking, or SDN. It is transforming itself from a hardware provider for networking into a unified communications provider that enables flexible customization of network infrastructures driven by applications.
2.2.3 M&A M&As of high-technology companies are risky, especially if the acquired company has yet to launch its products. There is no assurance that acquisitions will be successful or will not adversely affect the parent company's financial condition or operating results. Cisco's prior acquisitions have resulted in a wide range of outcomes, from successful introduction of new products and technologies to an inability to do so.
Table 2-5 lists Cisco's major acquisitions since 2001 [2-8] [2-9]. They are based on three strategic purposes. Namely, to complement and further expand Cisco's business, to focus on different market and segment in order to counter the threat from substituting platforms, and to absorb human resources and incomplete technologies that will bring revenues, profits, and assets in the near future.
Since Cisco has focused on transporting data, it acquired firms with services and products, such as computer networking (AuroraNetics, 2002, Hammerhead Networks, 2003, Linksys, 2003 and Nuova Systems, Inc., 2008), routers (Procket Networks, 2004), and Local Area Network (LAN) switching (Topspin Communications, 2005) in order to grow its core business.
26 To focus on different market segments, for instance, Cisco acquired businesses, offering such as service delivery platforms (P-Cube, 2004), data storage (Andiamo Systems, 2002), web conferencing (Latitude Communications, 2003), videoconferencing (Tandberg, 2010), data virtualization (Composite Software, 2013), and mobile network relating products (Airespace, 2005, Navini Networks, 2007, Orative, 2008, and Meraki, 2012).
In order to absorb human resources and incomplete technologies, Cisco has intensively acquired companies dealing with services, such as video on demand (Arroyo Video Solutions, 2006), digital signage / Internet protocol television (IPTV) (Tivella, 2006), digital rights management (Securent, 2007), digital video (Pure Digital Technologies, 2009), adaptive bit rate (ABR) digital media processing platforms (Inlet Technologies, 2011), and data virtualization (Composite Software2013).
Furthermore, Cisco also strategically pursues alliances with other companies by which it can generate technological advancement in the industry and accelerate new markets. The purpose of strategic alliances includes the followings: technology exchange, product development, joint sales and marketing, and new market creation [2-7].
Acquisition Company Business Country Value (USD) Date
Scalable solid state 10-Sep-13 Whiptail United States $415,000,000 memory system provider
Composite 30-Jul-13 Data Virtualization United States $180,000,000 Software
23-Jul-13 Sourcefire Computer Security United States $2,700,000,000
3-Apr-13 Ubiquisys Mobile software United Kingdom $310,000,000
23-Jan-13 Intucell Mobile Software Israel $475,000,000
29-Nov-12 Cariden SP Networking United States $141,000,000
Wired and Wireless Cloud 19-Nov-12 Meraki United States $1,200,000,000 Networking
16-Jul-12 Virtuata Software Security United States
15-Mar-12 NDS Group Conditional Access United Kingdom $5,000.000,000
20-Oct-i1 BNI Video Video United States $99,000,000
27 29-Aug-i1 Versly Integrated Software United States
AXIOSS Software IT Service Management 21-Aug-i1 Finland $31,000,000 and Talent Software
Adaptive Bit Rate (ABR)
4-Feb-1 1 Inlet Technologies digital media processing United States $95,000,000
platforms
Network Configuration and
26-Jan-1I Pari Networks Change Management United States -
(NCCM)
LineSider Network Management 1-Dec-10 United States - Technologies Software
Arch Rock 2-Sep-10 Smart Grid United States - Corporation
26-Aug-1 0 ExtendMedia Video United States -
20-May-10 CoreOptics Digital signal processing United States -
18-Apr-1 0 Tandberg Videoconferencing Norway $3,300,000,000
SaaS Web Security 27-Oct-09 ScanSafe United Kingdom $183,000,000 Provider
Intelligent Application 1-May-09 Tidal Software United States $105,000,000 Management
Pure Digital 19-Mar-09 Digital video United States $590,000,000 Technologies
Richards-Zeta Building management 27-Jan-09 Building United States systems Intelligence
19-Sep-08 Jabber, Inc. Presence United States
Pure Networks, 23-Jul-08 Computer software United States $120,000,000 Inc.
Nuova Systems, 8-Apr-08 Computer networking United States $678,000,000 Inc.
I-Nov-07 Securent Digital rights management United States $100,000,000
23-Oct-07 Navini Networks WiMAX United States $330,000,000
18-Sep-07 Cognio Mobile software United States
28-Mar-07 SpansLogic Computer networking United States
28 15-Mar-07 WebEx Web conferencing United States $3,200,000,000
13-Mar-07 NeoPath Data storage United States
21-Feb-07 Reactivity Web services United States $135,000,000
9-Feb-07 Five Across Social networking service United States
4-Jan-07 IronPort Computer security United States $830,000,000
15-Dec-06 Tivella Digital signage / IPTV United States
25-Oct-06 Orative Mobile software United States $31,000,000
Arroyo Video 21-Aug-06 Video on demand United States $92,000,000 Solutions
6-Jul-06 Meetinghouse Computer security United States $43,700,000
Voice over Internet 8-Jun-06 Metreos United States $28,000,000 Protocol
7-Mar-06 SyPixx Networks Surveillance United States $51,000,000
30-Sep-05 Nemo Systems Computer networking United States $12,500,000
22-Jul-05 KISS Technology Entertainment technology Denmark $61,000,000
27-Jun-05 Netsift Computer networking United States $30,000,000
FineGround 26-May-05 Network security United States $70,000,000 Networks
Voice over Internet 26-Apr-05 Sipura Technology United States $68,000,000 Protocol
Topspin 14-Apr-05 LAN switching United States $250,000,000 Communications
12-Jan-05 Airespace Wireless LAN United States $450,000,000
20-Dec-04 Protego Networks Network security United States $65,000,000
21-Oct-04 Perfigo Computer networking United States $74,000,000
13-Sep-04 Dynamicsoft Communications software United States $55,000,000
9-Sep-04 NetSolve Information technology United States $128,500,000
23-Aug-04 P-Cube Service Delivery Platform Israel $200,000,000
Actona 29-Jun-04 Data storage United States $82,000,000 Technologies
17-Jun-04 Procket Networks Routers United States $89,000,000
Latitude 12-Nov-03 Web conferencing United States $80,000,000 Communications
29 20-Mar-03 Linksys Computer networking United States $500,000,000
19-Mar-03 SignalWorks Echo cancellation United States $13,500,000
24-Jan-03 Okena Intrusion detection United States $154,000,000
20-Aug-02 Andiamo Systems Data storage United States $2,500,000,000
Hammerhead 1-May-02 Computer networking United States $173,000,000 Networks
1-May-02 Navarro Networks Computer networking United States $85,000,000
27-Jul-01 Allegro Systems Virtual private networks United States $181,000,000
2001 AuroraNetics Computer networking United States $150,000,000 Table 2-5 Cisco's major acquisitions Source: http://www.cisco.com/web/aboutdoing-business/corporate-development acquisitions/ac-yearaboutciscoacquisition-yearslist.html and http://en.wikipedia.org/wiki/Listofjacquisitions-byCiscoSystems
Key findings: As discussed above, there are several reasons for Cisco's continued success. First, to counter the threats of competitors and substitutes, Cisco has created and developed IOS software, which is its core operating code as well as glue to connect its products and other complements together. Cisco's central research laboratory enabled the development of IOS. Second, thanks to its IOS software, Cisco provided new technology products rather as additional products than as substitutes for its conventional router product lineup. Finally, Cisco effectively utilized M&As in order to complement and further expand its business, focus on different market and segment to compete with substituting platforms provider, and absorb human resources and incomplete technologies for future possible revenues, profits, and assets.
30 3. The use of the three strategies at major telecommunications carriers
3.1 Carriers with domestic centralized research laboratories
3.1.1 AT&T (The United States) Internal R&D: domestic centralized research laboratories American Telephone and Telegraph (AT&T) has scientists and engineers conducting research on "IP networking, advanced network design and architecture, network and cyber security, network operations support systems, and data mining techniques and advanced speech technologies" [3-11. AT&T Services, Inc. performs major development activities at AT&T with AT&T's business units and AT&T Labs to create new services and systems that offer secure and reliable networks for customers.
AT&T's internal R&D is conducted at multi domestic research laboratories. The company has research laboratories in Birmingham, Alabama, and Atlanta [3-1]. It also has various initiatives to promote innovation using not only internal but also external resources. These initiatives include fundamental research, network-based initiatives, open APIs/platforms, and outreach programs to startups and innovation centers [3-2]. AT&T made a strategic research agreement with Ericsson. Its R&D expenses were $1,278 million in 2012, $1,307 million in 2011, and $1,280 million in 2010 [3-3].
Growth and diversification After Southwestern Bell Corporation's (SBC's) acquisition of the former AT&T in 2005, AT&T has tried to transform itself to become a service provider of all solutions. It has conducted network integration, made strategic acquisitions, and acquired skills through partnerships and major outsourcing deals. In order to remain a global leader, AT&T attempts to become a service provider for solutions that require network integration as a core component and pursue cloud computing. This transformational move brings together versatile business operations under a single AT&T umbrella [3-3].
31 ONT I NUE M OMEN UMI1N GROW TH DRI VEPE
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Fig. 3-1 Percentage of revenue of AT&T. Source: AT&T annual report (2012)
AT&T continues to expand in its key growth regions by means of collaborations with partners and its own infrastructure. Investments on wirelines are still seen as the key for AT&T to mature its cloud network strategy. In the wireless markets, AT&T continues to expand its 3G and LTE networks, and has engaged in the construction of the Android-based platforms to be less dependent on Apple. As shown in Fig. 3-1, AT&T's revenue reached $126.4 billion (excluding advertising) in 2012, 81% of which are wireless and wireline data/managed IT services [3-3].
(Dollars in millions) Net sales: 2000 2004 2008 2012 Net sales: 2000 2004 2008 2012 Wireless service $4,945 $19,436 $44,249 $59,186 Wireless service 9.6 32.3 35.7 46.4 Data - $10,984 $24,372 $31,798 Data - 18.2 19.7 25.0 Voice - $20,796 $37,321 $22,619 Voice - 34.5 30.1 17.7 Directory $4,439 $3,832 $5,416 $1,049 Directory 8.6 6.4 4.4 0.8 Landline local service 2 - - - Landline local service 42.9 - - - Network Access $10,427 - - - Network Access 20.3 - - - Long-distance voice $3,178 $3,297 - - Longdistance voice 6.2 5.5 - - Other $6,388 $1,878 $12,670 $12,782 Other 12.4 3.1 10.2 10.0 Total $51,476 $60,223 $124,028 $127,434 Total 100.0 100.0 100.0 100.0 Table 3-1 AT&T's revenue structure in terms of segments Source: AT&T annual report (2000, 2004, 2008, and 2012)
Table 3-1 summarizes AT&T's revenue structure in terms of segments over time. There are two big changes. Firstly, the revenue of the data services ($31,798 million) exceeded that of voice services ($22,619 million) in 2012. This means that the preferred form of telecommunications utilized by network service users has shifted from telephone conversation to data transportation. Secondly, the revenue of the
32 wireless services ($66,763 million) exceeded that of wireline services ($59,567 million) in 2012, a fact which is more clearly shown in Table 3-2. It seems that these trends will continue in the near future.
(Dollars inmillions) Net sales: 2000 2004 2008 2012, Net sales: 2000 2004 2008 2012 Wireless $7,941 $19,436 $49,174 $66,763 Wireless 15.4 32.3 39.6 52.4 Wireline $39,789 $36,857 $67,668 $59,567, Wireline 77.3 61.2 54.6 46.7 Advertising Solutions $4,251 $3,665 $5,416 $1,049 Advertising Solutions 8.3 6.1 4.4 0.8 Intemational $320 $22 - - International 0.6 0.0 - - Other $1,034 $243 $1,770 $55 Other 2.0 0.4 1.4 0.0 Elimination - -_ -_ Eimination Adjustments - - - Adjustments Total $51,476 $60,223 $124,028 $127,434 Total 100.0 100.0 100.0 100.0 Table 3-2 AT&T's revenue structure in terms of communications forms Source: AT&T annual report (2000, 2004, 2008, and 2012)
2000 2004 2008 2012 Number of Employee 215,088 162,000 302,660 242,000 Revenue ($Million) $51,476 $60,223 $124,028 $127,434 Profit ($Million) $10,743 $7,424 $23,063 $12,997 Revenue/Employee ($) $239,325 $371,747 $409,793 $526,587 Profit/Employee ($) $49,947 $45,827 $76,201 $53,707 Table 3-3 The profitability of AT&T over time Source: AT&T annual report (2000, 2004, 2008, and 2012)
The profitability of AT&T over time is summarized in Table 3-3. Because of the continued growth of the revenue and the periodic employment adjustment, the Revenue/Employee value has continued to increase from $239,325 per employee in 2000 to $526,587 per employee in 2012, while the Profit/Employee value has relatively fluctuated.
There are two enablers that allow AT&T to change its revenue structure. The first enabler is that AT&T has expertly followed the progress of telecommunications technology and has adjusted its business with the shift from telephone conversation to data transportation. The other enabler is AT&T's umbrella strategy to become a services provider for all solutions. This strategy encouraged AT&T to provide wireline service as well as wireless service so that it can accommodate the transition in the customers' needs from fixed line communications to mobile communications.
33 According to the Gartner's analysis, AT&T specifies the following areas of focus [3-21.
Marketing: "AT&T continued to expand its marketing message in its three key markets." First, "In the business market, the company advanced both products and services." Second, "The home consumer market offers in the U.S. were characterized by bundles - quadruple and even quintuple packaged offers advancing integrated wireless, home security, U-verse IP broadband/video and home appliance integration." Finally, AT&T "encompasses both fixed and mobile networks, which together drive flexibility and diversity in the company's product offerings."
Wireless: AT&T speeds up the construction of its Long Term Evolution (LTE) network and "reached more than 50 agreements to acquire more spectra for increasing coverage density." While the growth per year in subscribers decreased from more than 40% in 2011 to 9.1% in 2013, "more than half of the 14.3 million devices connected to AT&T's network were enterprise machine-to-machine (M2M) endpoints." It is also seen as "a market-leading resource for related mobility, M2M communications consulting, and other project-based services."
Hosting: "AT&T continues to evolve its hosting and cloud services through the addition of new capabilities and service delivery locations." It provides versatile solutions that meet the computing needs of enterprise customers by means of 38 data centers around the world, "- co-location data center space, cloud storage and computing, and complex managed enterprise applications." Because of its own global network, AT&T is "one of the few providers in the market that can deliver an end-to-end solution with service level agreements (SLAs)."
AT&T plans to expand its wireless as well as wireline networks to accommodate future growth of IP data and emergence of new services. The scope of Project VIP includes to accelerate the deployment of LTE technology and to implement new additional technologies that enhance the efficiency of wireless frequency usage. This project is conducted to generate additional revenues in the following key areas: wireless, strategic network services, cloud services, and security, along with existing wireless, U-verse and IP-related business services [3-3].
34 M&A To become a service provider for all solutions from network integration to wireless services and to cloud computing, AT&T intensively makes use of the acquisition strategy. This allows the company to grow and complement other technologies.
Table 3-4 lists AT&T's major acquisitions [3-4] [3-5], which were conducted based on three strategic purposes: to expand area coverage and the number of customers, to translate AT&T's business to new media, and to expand its wireless services and solutions. To begin with, in an effort to expand its coverage area and customer base, SBC acquired the former AT&T (2005) and all services, including wireless of BellSouth (2006).
Acquisition Company Business Country Value (USD) Date ______
12-Jul-1 3 Leap Wireless Wireless service United States $1,200,000,000
19-Dec-1I T-Mobile USA Wireless service United States $3,000,000,000 Centennial 9-May-09 Communications Wireless service United States $240,000,000 Corp
18-Dec-08 Wayport, Inc. Intmajort hot potsf United States
30-Apr-08 Edge Wireless Regional GSM carrier United States
9-Dec-07 Dobson Cellular Cellular One United States $2,800,000,000
Global provider of voice, 2-Oct-07 Interwise Web and video United States $121,000,000 conferencing services
29-Dec-06 BellSouth Regional Bell Operating United States $86,000,000,000 Company
1-Dec-05 AT&T Telecom carrier United States $16,000,000,000
Table 3-4 AT&T's major acquisitions Source: http://www.att.com/gen/press-room?pid=9880and http://en.wikipedia.org/wiki/HistoryofAT%26T
35 To enhance its business on various media, such as Video Share, U-verse, and to extend the reach of high speed Internet into rural areas, AT&T acquired businesses, such as global providers of voice, web and video conferencing services (Interwise, 2007).
In alignment with its strategic decision to enhance its wireless and wireline broadband networks, AT&T has acquired businesses, such as wireless service providers (Dobson Cellular in 2007, Centennial Communications Corp in 2009, T-Mobile USA in 2011, and Leap Wireless, 2013) and a regional GSM carrier (Edge Wireless, 2008).
3.1.2 Verizon (The United States) Internal R&D: domestic centralized research laboratories Verizon has continued its development on Multiprotocol Label Switching (MPLS) based Wide Area Network (WAN) services as well as its complementing Ethernet WAN services, which are based on its lOOG backbone. Verizon is changing to become a resilient solution provider offering improved processes and geographic availability with Ethernet access up to 10 Gbps [3-6]. Verizon's core technology platforms for mobile solutions are 4G LTE and 3G Code Division Multiple Access (CDMA). 4G LTE technology offers high performance data services with higher throughput and at a lower cost than 3G technologies do. Verizon is also providing network access and value-added telemetry-type applications, that is, M2M wireless connections involving healthcare, manufacturing, utilities, distribution, and consumer products [3-7].
Verizon has taken several initiatives to research and develop data services, new devices, and applications [3-7]. Firstly, Verizon has innovation centers in Waltham, Massachusetts and San Francisco. These centers stimulate the development of devices, services and applications that bring out the best performance of the 4G LTE network. The centers strategically collaborate with partners from various industries, such as Alcatel-Lucent, Ericsson, Cisco, and Samsung. The second initiative is Isis, a joint venture with AT&T and T-Mobile, which is a trial platform for mobile commerce launched in 2012. The final is Converged solutions. In 2012, Verizon Wireless reached commercial agreements with cable companies, such as affiliates of Comcast Corporation, Time Warner Cable, Bright House Networks and Cox Communications Inc., to mutually deal with other companies' products and services [3-7].
Growth and diversification
36 U'
Verizon has remained a leading telecommunications player with its broad series of network services, which include analog voice, MPLS, IP, Ethernet and Session Initiation Protocol (SIP) trunking. Additionally, Verizon Wireless launched the Share Everything plans, which "feature domestic unlimited voice minutes, unlimited text, video and picture messaging and a single data allowance that can be shared among up to 10 devices connected to the Verizon Wireless network." [3-7]
(Dollars in millions) Net sales: 2000 2004 2008 2012 Net sales: 2000 2004 2008 2012 Verizon Wireless Verizon Wireless Service revenue $14,194 $27,662 $49,332 $63,733 Service revenue 22.3 38.8 50.7 552 Equipment and other --- $12,135 Equipment and other -- - 10.5 Wireline Wireline Mass Markets - - $29,912 $16,702 Mass Markets -- 30.7 14,5 Global Enterprise -- $21,126 $15,299 Global Enterprise -- 21.7 13.3 Global Wholesale --- $7,240 Global Wholesale --- 6.3 Domestic Telecom $42,597 $38,551 - - Domestic Telecom 66.9 54.1 - - Information Service $4,031 $3,615 - - Information Service 6.3 5.1 - - International $1,976 $2,014 - - Intemational 3.1 2.8 - - Other $901 :9 Si92 $539 Other 1.4 37 0 5 Corporate, eliminations Corporate, eliminations and other and other Total $63,699 $71,283 $,34 $115,450 Total 100.0 100.0 100.0 100.0
Table 3-5 Verizon's revenue structure in terms of segments Source: Verizon annual report (2000, 2004, 2008, and 2012)
Table 3-5 shows the Verizon's revenue structure in terms of segments over time. The percentage of the wireless service increased from 22.3% ($14,194 million) in 2000 to 55.3% ($63,733 million) in 2012. The revenue of the wireless services also exceeded that of wireline services in 2012. In addition, global data service, which is reflected to the Global Enterprise ($16,702 million) and the Global Wholesale ($15,299 million), became the major part of the wireless service revenue in 2012.
2000 2004 2008 2012 Number of Employee 260,000 210,000 223,900 183,400 Revenue ($ Million) $64,707 $71,283 $97,354 $115,450 Profit ($ Million) $16,758 $13,117 $16,884 $13,160 Revenue/Employee ($) $248,873 $339,443 $434,810 $629,498 Profit/Employee ($) 1 $64,454 $62,462 $75,409 $71,756 Table 3-6 The profitability of Verizon over time Source: Verizon annual report (2000, 2004, 2008, and 2012)
Table 3-6 unveils the profitability of Verizon over time. It has successfully increased revenues and Revenue/Employee between 2000 and 2012 from $64,707 million to
37 $115,450 million in revenue and from $248,873 million to $629,498 million in the Revenue/Employee category, respectively. On the other hand, Verizon experienced a slight decrease in profit ($16,884 million to $13,160 million) and in Profit/Employee ($75,409 million to $71,756 million) during the last 5-year period.
Verizon has succeeded in changing its revenue structure because of its organizational structure and R&D capabilities. Verizon's operations are divided into three business units: wireless, residential and small business services, and enterprise services. It has successfully anticipated the emergence of the large demand in wireless communications. In terms of R&D, Verizon has continued to upgrade its networks to enhance high-speed data transmission capabilities in order to meet the demand for internet browsing and the expansion of wireless applications which are available for mobile laptops, mobile phones and other wireless devices [3-8]. It also offers various kinds of wireless devices, such as smartphones, tablets and other Internet accessing devices. These devices can run on many operating systems, such as Google Android, Apple iOS, BlackBerry OS, and Windows Phone OS, as well as use 4G LTE and/or 3G EV-DO high-speed data services [3-7].
Within the near future Verizon's strategy focuses on the expansion of its LTE service and opportunities in highly growing markets with strategic vertical solutions, such as M2M, cloud, IT and security solutions. Verizon is also targeting the following markets: finance, automotive, manufacturing, distribution, healthcare, energy, retail and government sectors [3-8].
M&A Since its foundation in 2000 via the merger of the Bell Atlantic and General Telephone & Electronics Corporation (GTE), Verizon has led its expansion strategy by acquiring business operations and furthering technology development capabilities. It acquired a giant telecommunications carrier, MCI Inc., in 2005 [3-6].
Acquisition Company Business Country Value USD)
14-Feb-05 MCI Inc Telecom carrier United States -
30-Jun-00 GTE Corporation Telecom carrier United States - Table 3-7 Verizon's major acquisitions Source: http://about.verizon.com/
38 Verizon also relies on vendors to enhance its product lineup. The company states that "Our primary cell site equipment infrastructure vendors are Alcatel-Lucent, which provides more than half of our cell site equipment, and Motorola and Ericsson, which together provide nearly all of our remaining cell site equipment" [3-7]. Verizon relies on them for its switching equipment as well.
3.1.3 British Telecom (The United Kingdom) Internal R&D: domestic centralized research laboratories British Telecom (BT) Group has been a global communications services and IT-related services provider. In 2013 the BT Technology, Services and Operations unit was created and has been responsible for innovation, design, test, build and run of BT Group's global network [3-9]. BT's main research facility is located in the United Kingdom at Adastral Park, and has global development centers in the United Kingdom, the United States, and Asia. It invested 544 million ($892 million in USD) in the following research and development [3-10]:
- Improving broadband coverage: BT has "field-tested broadband amplifiers and regenerators to extend the reach of its ADSL (Asymmetric Digital Subscriber Line) 2+ and fiber services." - Improving broadband speed: "ultra high-speed broadband over the final copper drop and 10Gbps XGPON (Extended Gigabit Passive Optical Network) technology over a fiber network." - Transforming BT's costs: It has built tools to "speed up network design, use equipment in the best possible way, and minimize the cost of network build." - Improving video delivery: BT has changed how it delivers TV content by not duplicating TV content streams over its network.
The Key success factor of BT's R&D can be attributed to an open-innovation based approach. This enables the company to think outside of itself, utilizing start-up companies and universities around the world. It had more than 4,400 patents and applications worldwide in 2013 [3-10].
Growth and diversification To remain a leading telecommunications carrier in the global market, this company revitalized its organizational structure to meet customer needs. BT has "improved its
39 bottom-line in the trading environment, intensified customer experiences in all business areas, and yet made further improvements in the cost base and operational effectiveness" [3-11]. It is also "upselling value-added services such as media or managed services on top of its core network and communications services".
BT's latest organizational structure is shown in Fig, 3-2. This structure is based on its customer segments to provide transparency and accountability [3-111
multa'oaw coopOratc~a
Cusinefts" Customer UX_ cawrpr Segments Matorte and and BervBcs lclBT Busintess. proroders govatrIneret U(. SMB and ,rganzabaon BTWi-F modiarmel Oln.r pars U.K_ carners of at and servce provije-s Gtova, camm UK. Consumer ST Enterpnses arid oninmut wNte-iaweI caols, BT Irarerid BT Ireland rrlWIaged Olinr perm pterdas Consumner &jsirieas W&Nwoes af 87
ST BT ST Br Openreach
Market- Global COmsumz Business Wholesale
Units
Product factory and Service& Delivery TeahrboI~y, Service
All revenue figures ra~e to 12-mrenniriR-ancia year ended Ma'ch 2013
SMB = srisO ar rmidsie busmneso Fig. 3-2 BT's organizational structure
Modified from Ruud, K., Vendor Rating: BT Group (Gartner, 2013)
BT global services (BTGS), which is "organized in a matrix of four regions - the U.K, Asia/Pacific and the Middle East and Africa, Europe and Latin America, and the U.S. and Canada" [3-111, deals with "services for around 7,000 large corporate and public sector customers in more than 170 countries worldwide" [3-10]. Its focus areas are as follows: network services, customer relationship management (CRM), unified communications, IT services and security, and professional services. BT Consumer "delivers triple-play services to households in the United Kingdom and the Republic of Ireland" [3-111. Its fiber-based package also complements BT's broadband services. BT Business expands "automated IT services to improve BT's revenue and margins" [3-11]. BT Wholesale "offers a broad range of wholesale products including voice,
40 broadband, data and broadcast services" [3-11]. Finally, Openreach "delivers last-mile access and backhaul circuits to BT and to other CSPs (content service providers) in the United Kingdom" [3-11].
This organizational structure has significantly affected BT's revenue structure as shown in Table 3-8. The former BT retail unit that included the United Kingdom and Irish Business and Consumer units has been integrated into the ICT and managed networks, which is BT's most focused segment ($10,798 million in 2012). Broadband and convergence ($4,872 million in 2012) and cables and lines ($8,354 million in 2012) are also crucial segments for BT, enhancing its copper/fiber access networks as well as 4G wireless networks.
(Dollars in millions with exchange rate of l Pound = 1.64 USD at 2113.12.18) Net sales: 2000 2004 2008 2012 Net sales: 2000 2004 2008 2012 and ICT and managed - - $8,725 $10,798 ICT managed - - 25.7 34.1 networks networks Broadband Broadband and - - $4,210 $4,872 and - - 12.4 15.4 convergence convergence Calls and lines - - $11,182 $8,354 Calls and lines - - 32.9 26.4 Transit - - - $1,850 Transit -- - 5.8 Conveyance, interconnect Conveyance, circuits, interconnect circuits, WLR, global - - $5,573 $2,421 - - 16.4 7.6 cattier and other WLR, global carrier and wholesale other wholesale Other products Other products and - - $4,266 $3,369 and - - 12.6 10.6 services services BT Retail $19,373 $20,713 - - BT Retail 39.8 68.2 - - BT Wholesale $18,849 $5,650 - - BT Wholesale 38.7 18.6 - - BT Global Services $348 $3,952 - - BT Global Services 0.7 13.0 - - BT Wireless $6,473 - - - BT Wireless 13.3 - - - Ignite $6,332 - - - Ignite 13.0 - - concert $4,225 - - - concert 8.7 - - - Yell $1,276 - - - Yell 2.6 - - -
Other - $56 - - Other - 0.2 - - Corporate, eliminations Corporate, eliminations and other and other Total $48,652 $30,371 $33,955 $31,663 Total 100.0 100.0 100.0 100.0
Table 3-8 BT's revenue structure in terms of segments Source: BT annual report (2001, 2005, 2009, and 2013)
2000 2004 2008 2012 Number of Employee 137,000 99,900 111,858 87,900 Revenue ($ Million) $48,652 $30,371 $33,955 $31,663 Profit ($ Million) $3,398 $4,743 $4,748 $9,645 Revenue/Employee ($) $355,126 $304,016 $303,551 $360,222 Profit/Employee ($) $24,804 $47,476 $42,445 $109,725 Table 3-9 The profitability of BT over time Source: BT annualreport (2001, 2005, 2009, and 2013)
41 I We can see the positive change in profitability of BT over time in Table 3-9. Because of the abovementioned organizational changes, the profit and the Profit/Employee significantly improved. The profit almost doubled from $4,748 million in 2008 to $9,645 million in 2012 and the Profit/Employee more than doubled from $42,445 million in 2008 to $109,725 million in 2012, while the revenue and the Revenue/Employee were relatively stable during the whole period.
BT is now trying to recover the decrease in its revenue from the early 2000s using three main techniques. The first is renovation of its customer relationship. Along with its organizational renovation, BT has launched the Right First Time (RFT) program to improve customer experience, efficiency and profitability with a target of fewer faults [3-10]. The second technique is cost reduction across Capital Expenditure (CAPEX) and Operational Expenditure (OPEX). BT reviewed its inventory and supply chain, improved its process to correct mistakes for BTGS and BT Wholesale customers, streamlined its network as well as IT infrastructure, and combined BT Innovate & Design and BT Operate into its new BT Technology, Service & Operations unit [3-10]. It also improved the development of product and software across BT's all business, improved the field engineers' productivity by cutting down administrative works, and decreased its travel and subsistence cost. BT cut its operating costs by 9% overall [3-10]. Finally BT invested for the future by increasing fiber rollout, mobility (4G spectrum), and TV and IT services for the small or midsize businesses (SMB) market in the United Kingdom [3-11]. This helps its business to drive profitable revenue growth and deliver long-term value to its shareholders.
M&A To remain a leading provider of communications and network-related IT services, BT strategically utilizes its acquisition approaches. Table 3-10 summarizes BT's major acquisitions [3-12] [3-13], which are based on three strategies. The first is to increase the number of customers and area coverage capabilities. BT acquired three telecom companies (Radianz, Albacom, and Infonet) in 2005 in order to meet this goal.
The second is to penetrate into new markets and segments, especially service and solutions. To enhance its ICT managed services, BT acquired businesses, such as an online electrical retailer (Dobson Cellular, 2006), an international provider of IT consultancy and software (International Network Services Inc. (INS), 2007), a Network
42 service provider (Comsat International, 2007), and an online business directory firm (Ufindus, 2008).
The third is to enhance its mobile services and solutions. In order to prepare for the SMB market, BT has acquired a wireless products manufacturer (Lynx Technology, 2007), a wireless service company (Wire One Communications, 2008), and a phone company (Ribbit, 2008).
Acquisition Company Business Country Value (USD) Date ______
Feb-1 3 ESPN Inc. UK and Ireland TV United Kingdom - channels
Jul-08 Ribbit Phone company United States
Jul-08 Ufindus Online business directory United Kingdom $32,800,000 firm
Jun-08 Wire One Wireless service company United Kingdom - Communications
Oct-07 Lynx Technology Wireless products United Kingdom - manufacturer
Apr-07 Inernational Network service provider United States -
International An international provider Feb-07 Network Services of IT consultancy and United States - Inc. (INS) software
Jan-07 PlusNet plc ISP United Kingdom -
Aug-06 Dobson Cellular Online electrical retailer United Kingdom $50,184,000
Apr-05 Radianz Telecoms company United States
Feb-05 Albacom Telecoms operator Italia
Feb-05 Infonet Telecoms company United States
(in million USD with exchange rate of 1 Pound = 1.64 USD at 2113.12.18) Table 3-10 BT's major acquisitions Source: http://www.btplc.com/Sharesandperformance/Annualreportandreview/ Archivedreports/index.cfm and http://en.wikipedia.org/wiki/BritishTelecom
Furthermore, BT also uses partnerships to provide new solutions. BT has collaborated with Ofcom to promote the creation of a new regulatory body for BT and the United
43 Kingdom telecoms industry, by which Openreach provisions and/or repairs the last mile metal wirelines [3-11].
3.2 Carriers with multinational research laboratories
3.2.1. Deutsche Telekom (Germany) Internal R&D: multinational research laboratories Deutsche Telekom's vision is to become "My first choice for connected life and work" [3-14] for its customers. It is simplifying its networks and preparing for further demand for bandwidth and connectivity. Deutsche Telekom is not only comprehensively enhancing its Wi-Fi network but also moving itself toward LTE and fiber to the curb (FTTC) / fiber to the home (FTTH) technologies [3-15].
Deutsche Telekom has three innovation approaches: "in-house developments, partnerships, and equity investments" [3-16]. At T-Labs, its central research and innovation unit, it conducts research at various locations, including Berlin, Darmstadt (Germany), Tel Aviv (Israel), and Silicon Valley (United States), cooperating with international universities and research institutes [3-14]. Besides its existing products and services, Deutsch Telekom aims at disruptive as well as new approaches, including network function virtualization and infrastructure as a service (IaaS). In the fixed network, Deutsche Telekom is expanding the vectoring technology, by which it enhances the transmission bandwidth on existing copper lines. It is also pursuing network coverage and higher transmission rate with LTE technology [3-16].
Recent research areas include the mobile wallet that turns cell phones into wallets by using near field communications (NFC), online cloud platforms that provide corporate users with solutions without investing on hardware or software so that ordered services are charged on a per-usage basis, De-Mail that is electrically secure and legally equivalent to paper mail, and a Remote Control app that turns smartphones into remote TV controllers [3-16]. These technologies have the potential to drive the company into new markets of network services.
Growth and diversification In 2012 Deutsche Telekom decreased its revenue again and made a negative net profit (-$5.3 billion) because it changed its organizational structure and made investments in the United States [3-15]. The company "maintains strong offerings beyond its core
44 products (broadband and mobile) and is guided by its vision to provide a complete, interconnected user experience that extends across "connected life and work"" [3-15]. As shown in Fig. 3-3, this company has outlined four strategic areas of operations, which are accompanied by its three core principles: "fix", "transform", and "innovate" [3-14].
-m -- - My First Choice for Connected Life and Work -r- Y7.
Fig. 3-3 Four strategic areas of operations of Deutsche Telekom's Group Source: Ridder, F., et.al, Vendor Rating: Deutsche Telekom (Gartner, 2013)
Deutsche Telekom provides holistic network services by means of its competent IT, networking capabilities, and IT integration [3-15] as follows.
- Broadband/Fixed Networks: Deutsche Telekom aggregates revenues from its double- and triple-play services, that is, its fixed-network-based voice, data, and TV services 13-14]. The company not only deploys FTTH but also invests on Very High Speed Digital Subscriber Line (VDSL) vectoring technologies, by which it differentiates its network from others in Germany [3-15].
- Mobile Communications: T-Mobile "serves consumers, smaller companies and domestic customers, while the Deutsche Telekom Multinational Corporations Unit and T-Systems, Deutsche Telekom's global unit, serve larger multinational corporations" [3-151. This strategy seems fragmentary: "recent sales efforts have focused on the small-to-medium segment but Deutsche Telekom still seems focused on either basic connectivity services or more complex solutions specifically aimed at global customers" [3-151.
- Systems Solutions: T-Systems provides business customers with ICT services, including innovative cloud services. However, "it is becoming less competitive in the global networking market" [3-151 due to the slow growth of its international network.
45 - Cloud: Deutsche Telekom "offers third party solutions, such as cloud-based CRM and financials, Web conferencing and cloud-based security to midsize companies" [3-15]. The needs of customers for security and data governance in the German market and the broader European market are met by these solutions.
- M2M: Deutsche Telekom has a two M2M strategy - functional and industry. The first includes a variety of functional theaters: "a competence center (including consultants, solution design, system integration and implementation)", "an M2M association (with France Telecom, Telecom Italia and Teliasonera)", "a marketplace that brings buyers of M2M solutions together with providers of software, applications or hardware", "an M2M developer community where developers access APIs (Application Programming Interfaces), software development kits and other resources" [3-15]. The second ranges the following nine market segments: "energy, telematics, healthcare, retail, industrial automation, the public sector, security, transport, and logistics and consumer electronics" [3-15].
- Small or Midsize Business Offerings: while T-Systems aims the high end of the market, Deutsche Telekom targets the German midmarket with a broad IT services portfolio [3-15]. Its "private cloud portfolio includes a virtual private data center solution and a customer based data center" [3-15].
The above service lineup is reflected in the revenue structure in Table 3-11. As for that of the Mobile communications, the revenue increased from $12,604 million in 2000 to $34,250 million in 2004, and to $47,840 million in 2008 (the figure in 2012 is not clear since revenues are mainly categorized into area segments). On the other hand, revenue from the Broadband/Fixed Networks decreased from $40,806 million in 2004 to $24,237 million in 2008. Another marked aspect of the revenue picture is that partial revenues of various solutions in 2000, such as Network communications ($20,687 million), Data communications ($4,521 million), and Value-added services ($2,466 million) were integrated and evolved to that of business customers ($14,385 million in 2004 and $11,585 million in 2008) and some of System Solutions.
46 (Dollars in millions with exchange rate of 1 Euro 1.37 USD at 2113.12.18) Net sales: 2000 2004 2008 2012 Net sales: 2000 2004 2008 2012 Germany - - - $29,296 Germany - - - 36.8
Europe - - - $18,814 Europe - - - 23.6
United States - - - $21,050 United States - - - 26.4 Systems Solutions - - - $9,054 Systems Solutions - - - 11.4 Group Headquarters & 77 Group Headquarters & Shared Services Shared Services Wbile Communications Wbile Communications - - $27,370 - - 32.4 - Europe Europe okbile Wbile Communications - - $20,471 - Communications - 24.2 - USA USA Wbile Communications $12,604 $34,250 - - tKbile Communications 22.5 43.2 - - Broadband/Fixed Broadband/Fixed Network $2,603 $40,826 $24,237 - 4.6 51.5 28.7 - Network______Business Customers - $14,385 $11,585 - Business Customers - 18.1 13.7 - Group Headquarters Group Headquarters & - $6,165 $821 - & - 7.8 1.0 - Shared Services Shared Services Network communications $20,687 - - - Network communications 36.9 - - Carrir services $5,480 - - - Carder services 9.8 - - -
Data communications $4,521 - - - Data communications 8.1 - - - Terminal equipment $1,370 - - - Terminal equipment 2.4 - - - Value-added services $2,466 - - - Value-added services 4.4 - - - International business $3,014 - - - International business 5.4 - - - Others $3,288 - - - Others 5.9 - - - Reconciliation - (r;, - - Reconciliation - 2 - - Total 56,033 79,323 84,482 79,692 Total 100.0 100.0 100.0 Table 3-11 Deutsch Telekom's revenue structure in terms of segments Source: Deutsch Telekon annual report (2000, 2004, 2008, and 2012)
Table 3-12 lists the profitability of Deutsche Telekom over time. The revenue and the Revenue/Employee share increased until 2008, then decline in 2012. This tendency was preceded by 4 years for the profit and the Profit/Employee. They started to decrease in 2008, and turned to negative values (-$5,210 million for the profit and -$22,424 million per employee for the Profit/Employee) by 2012.
2000 2004 2008 2012 Number of Employee 227,015 247,559 234,887 232,342 Revenue ($ Million) $56,033 $95,626 $98,092 $79,746 Profit ($ Million) $8,083 $8,961 $4,729 ? 2 I' Revenue/Employee ($) $246,825 $386,276 $417,614 $343,228 Profit/Employee ($) $35,606 $36,198 $20,134 ($22,424) Table 3-12 The profitability of Deutsche Telekom over time Source: Deutsch Telekon annual report (2000, 2004, 2008, and 2012)
In order to regain power, I believe that Deutsche Telekom should settle the following three issues: its current solution focus, technology focus, and future solution focus.
47 Firstly, while telecommunications carriers tend to pursue comprehensive solutions, Deutsche Telekom's current solutions seem relatively undirected. For example, T-Mobile's mobile solutions for smaller companies and domestic customers and T-Systems' solutions for larger multinational corporations may look divergent.
Secondly, Deutsche Telekom's investment in the next generation technology seems neutral; it has invested in both FTTH technology and the vectoring technology. Since further demands for data transmission bandwidth are obvious, it can focus on FTTH, replace copper lines, and make legacy services to migrate into the new networks.
Lastly, Deutsche Telekom may have no clear vision for core future solutions. T-Systems should either make significant investments in its international networking capabilities or exit the global networking market. In addition, it should also clarify target customers and market segments for services, such as the online cloud software solution platforms and De-Mail [3-16].
M&A Table 3-13 summarizes major acquisitions by Deutsche Telekom [3-14] [3-17]. These acquisitions have been made for the following purposes. First, Deutsche Telekom strategically expanded its mobile operations. It acquired mobile communications operators, such as Powertel Inc. (2001), VoiceStream (2001), tele.ring Telekom Service GmbH (2006), SunCom (2007), Orange Netherlands (2007), Orange's unit in United Kingdom (2010) now known as EmployeE (EE) [3-18], and MetroPCS (2013).
Second, it tried to expand its coverage areas and operations globally. In addition to some of the above mobile communications operators outside of Germany, Deutsche Telekom acquired IT service provider (Metrolico, 2009) and Retail telecommunications operator (Cesk6 Radiokomunikace, 2009).
Deutsche Telekom has significant shares of other telecom companies, such as Central European subsidiaries Slovak Telekom (Slovakia), Magyar Telekom (Hungary), and Hrvatski Telekom (Croatia), which are now merged into T-Com/T-Home [3-14]. Additionally, it intended to enhance and streamline its operations. In 2011, Deutsche Telekom and France Telecom-Orange established a 50-50% joint venture Buyln in order to regroup their operations of procurement and gain a scale merit [3-14].
48 Acquisition Company Business Country Value (USD) Date ______
13 MetroPCS Mobile communications United States - operator
10 France Telecom- Mobile communications United Kingdom - Orange's unit operator
6esk6 Retail 2-Dec-09 Radiokomunikace telecommunications Czech Republic - operator
Jun-09 Metrolico IT service provider Spain
1-Oct-07 Orange Netherlands Mobile communications Netherlands $1,781,000,000 operator
Sep-07 SunCom Mobile communications United States operator
Apr-06 tele.ring Telekom Mobile communications Austria $1,781,000,000 Service GmbH operator 4-Jun-01 VoiceStream Wireless Corporation United States $4,228,191,724
4-Jun-01 Powertel, Inc Mobile communications United States ______operator I______
Table 3-13 Deutsche Telekom's major acquisitions Source: http://www.telekom.com/home and http://en.wikipedia.org/wiki/DeutscheTelekom
3.2.2 Telefonica (Spain) Internal R&D: multinational research laboratories Telefonica group founded the innovation company, Telefonica I+D, in 1988, and takes an open innovation-based approach by collaborating with universities and other research institutions [3-191. Telefonica I+D's technological innovation activities focus on certain areas: new radio access technologies (LTE-Advanced), network virtualization technologies, in accordance with SDNs, and network optimization and developments that make networks more flexible and can adapt to new consumers and service requirements [3-20]. These technologies are expected to enhance Telefonica's service lineup within several years.
Total R&D expense amounted to $1,467 million in 2012, $1,347 million in 2011, and $1,092 million in 2010. These expenses correspond to 1.7%, 1.6%, and 1.3% of the
49 Group's consolidated revenue in 2012, 2011 and 2010, respectively. As for intellectual properties, Telefonica registered 87 patents in 2012 (95 patents in 2011) [3-20].
Telefonica Digital's Product Development & Innovation Department conducts the following R&D activities to develop new products and services [3-201:
- "Natural P2P (peer-to-peer) communications of the future, using the Internet, Web 2.0, and smartphones." - "Video and multimedia services (combining text, audio, images and video) offering a user experience in all connected devices." - "Advanced solutions in emerging ICT businesses such as e-health and remote patient support or monitoring." - "M2M service management associated with energy efficiency and mobility." - "Making use of user communications profiles to exploit opportunities to operate different products and business models (marketing campaigns, target marketing, contextual services, churn reduction, cross-selling, etc.)"
Telefonica's stance is that "it cannot rely solely on acquired technology to differentiate its products from those of its competitors and to improve its market positioning" [3-20]. The company is confident that such innovation enables it to retain its leading position in the telecommunications industry and allow it to continue to be a competent player in the market.
Growth and diversification According to the Gartner's analysis, "since 2000, under the leadership of its CEO Cesar Alierta, Telefonica has transformed itself from a national operator with presence in Spain and Latin America into a global telecom player with diversified assets" [3-211. Telefonica established itself as one of the major service providers for multinational corporations (MNCs). Telefonica Digital, which promotes the unified use of new services and good practices within the group, was created to focus on the digital economy. The company will create and develop over-the-top services to obtain the capabilities to survive in the Internet-related markets [3-21].
The Telefonica Group has reported consolidated segment results according to its new organizational structure since September, 2011. The structure basically consists of two regional business units: Telefonica Latin America and Telefonica Europe [3-20].
50 Telefonica has included in these regional units all information, such as wireline, wireless, cable, internet and television businesses, whose progress is summarized as follows [3-21].
- Fixed and Broadband; Telefonica has effectively allocated resources to aggregate telephony, broadband and pay-TV services. It says that "almost 90% of retail broadband accesses come from bundles offered as part of dual- or triple-play service packages" [3-21].
- Mobile Communications: Telefonica is "strengthening its ability to execute with improved services and expanded geographic coverage, and maintaining a strong focus on the service experience" [3-211. Some examples are location-based services in consumer markets and mobile productivity improvement applications that enable electronic drug prescription and resource management in healthcare markets [3-21].
- Multinational Corporation Solutions: Telefonica Multinational Solutions provides corporate users with widely assorted managed services, such as "WAN optimization services, desktop and LAN services, mobility and data center services, and collaborative services such as telepresence, convergent and security solutions" [3-21].
Table 3-14 depicts Telefonica's revenue structure in terms of segments. Total revenue has more than doubled within the 13 year period, from $39,025 million in 2000 to $85,428 million in 2012. The revenue from Fixed services steadily increased from $14,367 million in 2000 to $29,432 million in 2012 due to the resource allocation described above. On the other hand, that from Mobile services skyrocketed from $7,191 million in 2000 to $53,078 million in 2012, the figure which is about 7 fold.
Table 3-15 summarizes the profitability of Telefonica over time. After the slight reduction in 2004 and 2008, the Revenue/Employee has grown to $313,384 million in 2012. The profit increased from $6,792 million in 2000 to $31,399 million in 2008, and the Profit/Employee from $45,677 million in 2000 to $122,159 million in 2008. They declined a little in 2012, still keeping high profitability of more than $100,000 per employee.
51 (Dollars in millions with exchange rate of 1Euro = 1.37 USD at 2113.12.18) Net sales: 2000 2004 2008 2012 Net sales: 2000 2004 2008 2012 Fixed 14,367 25,178 - 29,432 Fixed 36.8 60.6 - 34.5
Mobile 7,191 16,514 - 53,078 Mobile 184 39.8 - 62.1
Inter-segment Inter-segment eliminations eliminations Other and elims. 261 - - 4,787 Other and elims. 0.7 - - 5.6 Telef6nica Contenidos - 1,670 - - Telef6nica Contenidos - 4.0 - - business business Directorios business - 861 - - Directorios business - 2.1 - - Atento business 722 838 - - Atento business 1.8 2.0 - - Instrumentality companies 1,326 1,101 - - Instrumentality companies 34 2.7 - - and other and other Data business 1,261 - - - Data business 3.2 - - - Media business 992 - - - Media business 2.5 - - - T.PI. business 561 - - - T.P.I. business 1.4 - - - Telef6nica Internacional 17,240 - - - Telef6nica Internacional 44.2 - - -
Total 39,025 41,541 57,946 85,428 Total 100.0 100.0 100.0 100.0
Table 3-14 Telefonica's revenue structure in terms of segments Source: Telefonica annual report (2000, 2004, 2008, and 2012)
2000 2004 2008 2012 Number of Employee 148,707 173,554 257,035 272,598 Revenue ($ Million) $39,025 $41,541 $57,946 $85,428 Profit ($ Million) $6,792 $18,105 $31,399 $29,086 Revenue/Employee Cs) $262,430 $239,355 $225,440 $313,384 Profit/Employee ($) $45,677 $104,320 $122,159 $106,701 Table 3-15 The profitability of Telefonica over time Source: Telefonica annual report (2000, 2004, 2008, and 2012)
This drastic growth of revenues can be attributed to three main sources. The first is Telefonica's positioning in the market. It is effective to target global services for MNCs, which expects to utilize telecommunications networks as a uniform service platform. The second is Telefonica's focus on mobile communications. Targeted mobile users, e.g. employees at MNCs, travel globally, make transactions at multiple locations, and interact with others on a global basis. Mobile solutions such as geographic area coverage and location-based services are perfectly suited to these users. Finally, the third is its structure. One stop service provision of managed services for enterprise customers is a strong competence that allows the company to penetrate into the MNC market segment.
52 M&A Major acquisitions by Telefonica are summarized in Table 3-16 [3-22] [3-23]. These acquisitions were conducted based upon two strategic initiatives. The first is to expand the area coverage and operations in other countries including Europe and Latin America. Telefonica acquired companies, such as a landline service provider (Tricom, 2000), a regional telecommunications carrier (HanseNet Telekommunikation GmbH, 2009), and a leading company in hosting/housing (Acens Technologies, S.L., 2011).
Acquisition Company Business Country Value (USD) Date ______
Jul-11 Acens A leading company in Spain $75,350,000 Technologies, S.L hosting/housing
Jul-10 Vivo Wireless service Brazil $10,275,000,000
HanseNet Dec-09 Telekommunikation Telecom carrier Germany $1,250,810,000 GmbH
Oct-05 02 Mobile services provider United Kingdom $51,824,000,000
04 Gteal Mobile services provider Panama
Oct-04 OTECEL S.A Mobile operator Ecuador
Rominican 00 Tricom Landline service provider
Table 3-16 Telefonica's major acquisitions Source: http://www.telefonica.com/en/about-telefonica/html/home/home.shtmland http://en.wikipedia.org/wiki/TelejVoC3%B3nica
The second is to realize interconnection with other countries' mobile communications networks. The acquisition of foreign mobile service providers and mobile operators is directly linked to the expansion of mobile communications businesses. Telefonica acquired OTECEL S.A in 2004, BellSouth Guatemala in 2004, 02 in 2005, and Vivo in 2010.
Telefonica also made a series of merger contracts according to the same strategies. The company invested "in its operations in Latin America, with mobile spectrum acquisitions in Mexico, Brazil and Costa Rica and a concentration on the Brazilian market" [3-21]. Its "strategic alliance with China Unicom" and "consolidation of its partnerships with operators, such as Telecom Italia, Sunrise Telecom, Telenor, KPN,
53 NTT Docomo, Etisalat, and Bouygues Telecom" brought Telefonica to the global stage of the MNC segment [3-21].
3.2.3 France Telecom-Orange (France) Internal R&D: multinational research laboratories France Telecom-Orange is one of the leading international service providers for enterprise and mobile communications [3-24]. Its innovation capabilities include networks, rich communications services (RCS), and data monetization technology [3-25]. France Telecom-Orange has 15 Orange Labs across 10 countries: France, the United Kingdom, China, Japan, Poland, Romania, Tunisia, India, Spain, and Egypt. The immersion in these specific environments enables these Labs "to anticipate and take advantage of technological breakthroughs and changes in user patterns worldwide and to facilitate partnerships, thereby accelerating the Group's capacity for innovation" [3-25]. This company spent $1,112 million in 2012, or 1.9 % of its revenues on R&D, $1,122 million in 2011, and $1,158 million in 2010 [3-25].
France Telecom-Orange's main technological fields are mobile TV, content aggregation and video search, NFC, money transaction, M2M, e-health, education, HD (High Definition) voice, 3D video conference, spatial sound, integration of cloud computing and networks, mobile and fixed network capacity management, content delivery networks, and transparent access to networks and content through several devices [3-26]. The company is also replacing its wireless access network so that it can decrease costs, increase service quality, and accelerate the deployment of LTE [3-26].
To enhance its innovation, France Telecom-Orange has taken three strategic approaches: the Nova+ program, strategic partnerships, and patents and licensing [3-25]. In the Nova+ program, its innovation chain is analyzed to generate value in major markets for the company. This program is intended to: use skills of the Group more wisely when it develops business, optimally react when the Group's business challenges, geographical locations, and competitive situations change, enhance synergies within the Group, effectively satisfy the customers' needs and expectations, and advance the timing when new products and services are launched into markets [3-25].
By partnering with leading industrial companies globally, the Group has expanded its products and services portfolio and penetrated into new ecosystems in areas, such as home automation, healthcare, and the environment [3-25]. Partners also include
54 universities and academic institutions in France and abroad. France Telecom-Orange Group is a major player in various research programs in France as well as in Europe. For instance, the Group "chairs the B-com Technology Research Institute, which works on ultrahigh-speed broadband fixed-line and mobile networks and the content of the future" [3-25]. In consequence of these initiatives, France Telecom-Orange has effectively conducted open innovation to explore synergies.
The final approach is its patents and licensing strategies. France Telecom-Orange had 7,493 patents (including 291 new patents filed in 2012) in France and abroad to protect its innovations. The company licenses some of them to maximize the value of the inventions: "Turbocodes" technologies that cover 3G mobile networks and patent pools for industry standard (MPEG (Moving Picture Experts Group) Audio, MP3 (MPEG Audio Layer III), DAB (Digital Audio Broadcasting), DVB (Digital Video Broadcasting), W-CDMA (Wideband CDMA), G729, IEEE802.1 lx, and ISDB (Integrated Services Digital Broadcasting)-T in Japan) [3-25]. Most of the licensees are affiliates of the Group and operate their products and services under the "Orange brand" [3-25].
Growth and diversification France Telecom-Orange's goals to seize growth opportunities are conducted along with the project Conquests 2015. This project concentrates on the following four major important areas: people, customers, networks, and international development [3-24].
France Telecom-Orange has a matrix organizational structure by country as well as function. The Group's main activities are based on three businesses: home communications services, personal communications services, and enterprise communications services [3-26].
- Home Communications services: France Telecom-Orange's home segment covers voice over IP (VoIP), IPTV, home gateways, and broadband access.
- Personal Communications services: the company's "mobile subscriber numbers are growing in France, Spain, and Poland, while mobile service subscriptions are growing in emerging markets (particularly Africa)" [3-26].
55 - Enterprise Communications Services: Orange Business Service (OBS) is powerful in commercializing communications services, such as MPLS, VoIP, and Ethernet [3-26]. OBS's business ranges from fixed, mobile and converged services to managed network services (security, video, application management and customer relations solutions, etc.). The company is also "globalizing its solutions for M2M" and "expanding its cloud services to its French and MNC customers and vertical solutions (e-health, financial and others)" [3-26].
(Dollars in millions with exchange rate of 1Euro : 1.37 USD at 2113.12.18) Net sales: 2000 2004 2008 2012 Net sales: 2000 2004 2008 2012 Personal - - 22369 21,557 Personal - - 34.2 36.2
Home - - 24,730 20,568 Home - - 37.8 34.5
RoW (Other European RoW (Other European countries, Africa &Middle - - 11,401 11,345 coutries, Africa &Middle - - 17.4 19.0 East, etc) East etc) Enterprise - - 10,665 9,591 Enterprise - - 16.3 16.1 International International Carriers Carriers & - - 1848 2,224 & - - 2.8 3.7 Shared Services Shared Services III Eliminations - - Eiminations Total - - 65,348 59,617 Total - - 100.0 100.0
Table 3-17 France Telecom-Orange's revenue structure in terms of segments Source: France Telecom annual report (2008 and 2012)
France Telecom-Orange's revenue structures are shown in Table 3-17. Because of the privatization and restructuring in 2004, no revenue information before 2004 was available. Total revenue has decreased from $65,348 million in 2008 to $59,617 million in 2012. The Personal, Home, ROW (rest of world: other European countries, Africa & Middle East, etc.), and Enterprise all slightly decreased, while only the International Carriers & Shared Services slightly increased. These are a reflection of current global telecommunications markets. The decrease in the number of fixed-line phones persists around the world since mobile phones are taking the place of fixed-line phones. While Internet services keep growing, fixed line services have slowly increased.
The profitability of France Telecom-Orange over time is shown in Table 3-18. While all the financial parameters decreased in 2012, France Telecom-Orange has one of the highest Profit/Employee values referred to in this paper.
56 2000 2004 2008 2012 Number of Employee - - 171,718 170,531 Revenue ($ Million) - - $65,348 $59,617 Profit ($ Million) - - $23,404 $17,118 Revenue/Employee ($) - - $380,552 $349,596 Profit/Employee ($) - - $136,292 $100,381 Table 3-18 The profitability of France Telecom-Orange over time Source: France Telecom annualreport (2008 and 2012)
It seems that France Telecom-Orange has to settle three issues to further grow in the global market. The first issue is its cost optimization. Multilateral business operations including human personnel and aggregation of customer information and expenses/revenues tend to increase its cost. In fact, France Telecom-Orange has carried out two approaches to reduce costs and simplify its operations: Chrysalid and Customer Experience 2015 [3-25]. The second is its customer relationship. To gain customer loyalty, France Telecom-Orange should provide the best customer experiences as a one-stop service provider by deploying a line-up of easy-to-understand products whose options satisfy customers' specific needs, providing flexibly responding customer support staff, and offering support during the lifetime of customers [3-25]. The third is its network optimization. The growth of mobile communications services will come mainly from emerging regions, such as Latin America, the Middle East, and Africa. Allocations of network resources as well as the usage of partnerships with other network providers and suppliers are also the keys to success [3-26].
M&A To remain one of the top global telecommunications carriers, France Telecom-Orange has extensively acquired various companies, which are summarized in Table 3-19 [3-27] [3-28]. These acquisitions were made for two strategic reasons. Firstly, France Telecom-Orange seeks to expand emerging mobile service and solutions from domestic market to European markets, then to global markets. It acquired mobile phone operator in the United Kingdom (Orange plc, 2000), Spain (Amena, 2005), Austria (One, 2007), Morocco (Midtel, 2010), and Egypt (Mobinil, 2012).
Secondly, it is attempting to enhance the capability of wireline network to penetrate into new markets and segments of managed services that meet MNC customers' needs for vertical solutions. France Telecom-Orange acquired businesses, such as an Internet
57 provider (Wanadoo, 2004) and the Spanish Internet unit of Deutsche Telekom (Ya, 2007).
Acquisition Company Business Country Value (USD) Date
Mar-12 Mobinil Mobile operator Egypt
Sep-10 Midtel mobile phone operator in Morocco - Morocco
Jun-07 One Mobile phone operator Austria -
Jun-07 Ya Spanish Internet unit of Germany - Deutsche Telekom
Jul-05 Amena Mobile phone operator Spain $8,768,000,000
4-Mar-04 Wanadoo Internet provider United Kingdom -
00 Orange plc British mobile phone United Kingdom - network Table 3-19 France Telecom-Orange's major acquisitions Source: http://orange.com/sirius/histoire/en/and http://en.wikipedia.org/wiki/Orange_SA
The company also utilized merger strategies to realize the above purpose. It purchased shares of several international companies (GlobalOne, Equant, Internet Telecom, Freeserve, EresMas, NTL, and Mobilcom). In addition, in 2009, France Telecom-Orange made the merger contract to start the 50/50 joint venture with Deutsche Telekom to start mobile operations in the United Kingdom [3-24].
Key finding: In this chapter I scrutinized six major global telecommunications carriers to investigate how these carriers utilize three strategies. There are similarities as well as uniqueness depending upon each company's corporate strategy and business situation.
First, R&D is similarly conducted as open innovation. Many of the examined companies have various initiatives to drive innovation using both internal and external resources, and use effective partnerships with other research institutes and universities. On the other hand, unique approaches are conducted at France Telecom-Orange. It runs
58 the Nova+ program that analyzes the innovation chain to generate value, and has a specific patents and licensing strategies.
As for the aspect of growth and diversification, similar in most of the carriers, revenues of the data service exceeded those of voice services and the network use case shifted from wireline communications to wireless communications. The successful companies all effectively responded to these changes. Unique strategies were also employed by some carriers. For instance, AT&T strategically diversified itself to become a services provider for all solutions. Verizon restructured its organizations and R&D to grow. Telefonica transformed its structure to become a one-stop service provider.
In terms of M&A, many companies similarly expanded area coverage and the number of customers, enhanced wireless services and solutions, and penetrated into new markets and segments, especially services and solutions. Unique uses of M&As are: to translate business to new media (AT&T), to expand R&D capabilities (Verizon), to enhance and streamline operations (Deutsche Telekom), and to position the company for a specific market (Telefonica).
59 Chapter 4. Strategy of NTT and its competitiveness within the next decade
4.1. The use of the three strategies Internal R&D: domestic centralized research laboratories The NTT Group offers comprehensive ICT services ranging from cloud services for data centers and other infrastructure, such as IP backbone and mobile networks, to management, applications and solutions [4-1]. It has traditionally developed and built its own networks, including fiber optic as well as LTE networks [1-1]. However, in the future users will tend to freely select services and infrastructure. In order to achieve such a future, security will be a special emphasis. The development of a worldwide security network, which will operate as a common platform, is the group's top priority.
PUM"O. OW a*" ail tWMM of "WWAnM IV be connected
New Future that ICT can create svirmle and mduftwe k*et 1"W1449 -iabw service Plattolm -tIMNotwoo 109WC Z -;=buw to 1WWe Comprehensive CommwcIaization Functiol ns CO vwioncJR&b Ve sults into B-Siness
Communication Servkco
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4P Cutting-Edge Technologies a Fig. 4-1 R&D formation at the NTT Group Source: http://www.ntt.co.jp/index_e.htnl
Figure 4-1 illustrates the R&D fields at the NTT Group. It has thirteen comprehensive domestic Laboratories, which are engaged in R&D as well as standardization activities
60 in areas, such as cutting-edge technologies, information networks, and communications services.
In the fiscal year 2012, ended March 31, 2013, the NTT Group's R&D expenses were about $2.63 billion [1-1]. They collaborate with operational companies within the group to develop next generation products and network services [4-1]. R&D products can be deployed not only as new network services provided by operating companies but also as products and services provided by R&D subsidiaries within the group [4-2]. NTT Group also partners with universities, academic institutions, and other companies in Japan and abroad by means of open innovation-based approaches. For instance, in 2010 NTT successfully developed digital signal processor (DSP) integrated circuits (ICs) for digital coherent optical transmission at 100 Gbps per channel. Consecutive research and development projects were collaboratively conducted by NTT, NEC, Fujitsu, and Mitsubishi Electric, the projects which were done under the frame of sponsored researches organized by Ministry of Internal Affairs and Communications [4-3].
NTT has owned intellectual property in versatile ICT fields to maintain its leadership in the industry. As shown in Fig. 4-2, it has applied for thousands of patents both domestically and internationally every year, and owns more than 10,000 patents that cover infrastructure technologies including network architecture, brand-new services, and basic core-technologies [4-1].
Numbef of patntsi 16 000 141,000 ---
10,000 Overseas patents 8.000
Domestic patents
2008 2009 2010 2011 2012 (YnenedMuch 31I Fig. 4-2 Numbers of NTT patents. Source: http://www.ntt.co.jp/index-e.html
61 Growth and diversification As both individuals and corporate customers are increasingly active on a global basis, it is also necessary for telecommunications carriers to globalize their networks and services to guarantee holistic connectivity. Additionally, the telecommunications industry has progressed to a dynamic stage where cloud services play the critical role, and the NTT Group expects that international markets and cloud services are promising growth enablers [1-1].
Market segments which surround NTT's business can be broadly divided into three areas: fixed line, mobile, and the cloud. Each segment is evolving at its own pace. For instance, while the fixed-line market is well established, the mobile market is under a fierce competition because of the advent of smartphones and LTE. Furthermore, since the cloud market is still premature, it is difficult to foresee how the market will evolve in the near future. The NTT Group is now preparing high-quality, secure, and reasonable solutions that enable the transition to the cloud. The business formation of the NTT Group is summarized in Fig. 4-3 [1-1].
ICT SWrVICOS
Api ctione diorw Clses SUrNceAdacd on sEerging coWrvies
014" MWe
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communications forms. While the total revenue has been stable and more than $100,000 million since 2004, there are several characteristics in the structure. One is that the revenue of the mobile communications business, the largest part (over 40 %) of the total revenue, has been higher than that of regional communications service, the second largest part, since 2004. This means that communications forms have shifted from wireline-based to wireless-based. Another is the stable growth of the revenues of the long distance and the international communications businesses (from $10,886
62
-I million in 2004 to $16,248 million in 2012) and the data communications business (from $7,782 million in 2004 to $12,774 million in 2012).
Tota Operksog Revenues
)i. A ______A '____
ZC73P Z&irnaK-
.~ m~*~ UU U UU U I z :VII:- ? jyl -CZJ 2KII
Fig. 4-4 Revenue of NTT (in billions of JPY) Source: NTIT annual report (2013)
(*1) Dollars in millions (the values were written in the annual reports) (*2) Dollars in millions with exchange of 1 Yen = 0.0098 USD at 2113.12.18) Net sales: 2000 2004(*1) 2008(*1) 2012(*2) Net sales: 2000 2004 2008 2012 Regional Regional communications - $42,893 $41,477 $35,851 communications - 42.5 39.0 34.2 business business Long distance and Long distance and international - $10,886 $13,423 $16,248 international - 10.8 12.6 15.5 communications business communications business Mobile Mobile communications - $45,277 $45,388 $43,807 communications - 44.8 42.7 41.8 business business Data communications Data communications - $7,782 $11,502 $12,774 - 7.7 10.8 12.2 business business Other - $11,455 $11,890 $12,324 Other - 11.3 11.2 11.8 Eliminations - Eiminations - Total - $100,990 $106,289 $104,867 Total - 100.0 100.0 100.0 Table 4-1 NTT's revenue structure in terms of communications forms Source: NTIT annual report (2005, 2009, and 2013)
(*1) Dollars in millions (the values were written in the annual reports) (*2) Dollars in millions with exchange rate of 1Yen = 0.0098 USD at 2113.12.18) Net sales: 2000 2004(*1) 2008(*1) 2012(*2) Net sales: 2000 2004 2008 2012 Fixed Fixed voice voice related - $33,440 $26,337 $17,340 related - 33.1 24.8 16.5 services services Mobile Mobile voice related - $30,057 $23,305 $16,670 voice related - 29.8 21.9 15.9 services services IP/Packet IP/Packet - $16,568 $29,571 $37,037 - 16.4 27.8 35.3 communications services communications services Sales of Sales of telecommunications - $6,431 $7,241 $8,280 telecommunications - 6.4 6.8 7.9 equipment equipment I I System integration - $8,507 $12,364 $17,881 System integration - 8.4 11.6 17.1 Other - $5,987 $7,471 $7,658 Other - 5.9 7.0 7.3 Total - $100,990 $106,289 1 $104,867 Total - 100.0 100.0 100.0 Table 4-2 NTT's revenue structure in terms of service/product segments Source: NT annual report (2005, 2009, and 2013)
63 Table 4-2 organizes the revenue structure in terms of service/product segments. It is prominent that the revenue of IP/Packet communications services has grown dramatically from $16,568 million in 2004 to $37,037 million in 2012. The figure in 2012 is higher than the sum of those of the fixed voice related services and the mobile voice related services ($34,010 million). Finally, the revenue of the system integration has also grown from $8,507 million in 2004 to $17,881 million in 2012.
Table 4-3 shows the profitability of NTT over time. Despite the slight up and down of the revenues and the profits, the Profit/Employee seems to have significantly decreased from $79,936 per employee in 2004 to $51,819 per employee in 2012. These values are also relatively lower than those of the other telecommunications carriers, a fact which is a possible business challenge for NTT within the near future.
2000 2004 2008 2012 Number of Employee - 201,486 196,296 227,150 Revenue ($ Million) - $100,990 $106,289 $104,867 Profit ($ Million) - $16,106 $11,324 $11,771 Revenue/Employee Cs) - $501,226 $541,473 $461,665 Profit/Employee ($) - $79,936 $57,688 $51,819 Table 4-3 The profitability of NTT over time Source: NTT annual report (2005, 2009, and 2013)
There are two aspects that enabled NTT to make steady revenues. Firstly, like AT&T and other successful telecommunications carriers, NTT has understood the progress of ICT technology and adjusted itself to the shift from voice communications to data communications. Secondly, the NTT Group has emphasized mobile communications. NTT owes major profits to NTT Docomo [4-4], the mobile communications operation company within the group, for more than a decade. Since the number of individual mobile customers are saturating, development and deployment of next generation mobile services for corporate customers are key issues that need to be addressed to continue to grow revenues.
For its future growth, the NTT Group will focus on the development of cloud services in the United States market since this is "the most competitive and the most advanced market in the world" [1-11. After succeeding in the United States, it expects to deploy its cloud services to European countries and then to developing countries with proper
64 customization [1-1]. The European market is also highly competitive, so the NTT Group will acquire regional companies and launch joint ventures to develop and deploy services customized to each region and segment. Personal clouds, which provide "file synchronization between computing devices (PCs, laptops, media tablets and/or smartphones) and data repositories in the cloud or on enterprise premises", are a possible new battleground [4-5]. Furthermore, the NTT Group shortly aims to use mobile access points for Online to Offline (020) marketing "(linking online information and services with real activities, such as purchases at real stores)" as well as establish a new Business to Business to Consumer (B2B2C) business model "(operations that support the consumer focused businesses of other companies)" by active involvement in the whole value chains to customers [1-1].
M&A Recently the NTT Group has considered M&A transactions to be a major strategy to penetrate the cloud market as a global IT company group by earning its profit margins and generating synergies within the group. It expects that its overseas sales will reach $20.0 billion by 2017 and the percentage of corporate sales brought in by overseas sales will increase to more than 50% [1-1]. The NTT Group is also going to focus on M&As of cloud-related businesses and further enhance returns for shareholders in the medium-term future [1-1].
Table 4-4 summarizes NTT's recent major acquisitions [4-6]. They were conducted for three main purposes. The first is to enhance the capability of providing network services as a group in the global market. The NIT holding company acquired companies, such as a network integrator (Dimension Data, 2010), a managed security provider (Solutionary, 2013), and a consulting company specializing in cloud-enabled business (Centerstance Inc., 2006).
The second is to provide global and secure infrastructure operation. NTT Communications acquired businesses, such as the network service provider (Virtela Technology Services Inc., 2013), the collaboration service provider (Arkadin International SAS, 2013), data center operators (Frontline Systems Australia Pty Ltd., 2011 Gyron Internet Ltd., 2012, Netmagic Solutions Private Ltd., 2012, and RagingWire Data Centers, 2013), and managed security providers (Integralis, 2009, and Secode, 2010).
65 Acquisition Company Business Country Value (USD)
Oct-13 Virtela Technology A network service United States $499,550,000 Services Inc. provider
Oct-13 RagingWire Data Data center operater United States $329,800,000 Centers
Oct-13 Everis System integrater Spain $485,000,000 Participaciones, S.L.
service Arkadin A collaboration Aug-1 3 International SAS (audio, web & video France $388,000,000 conferencing) provider
Jun-13 Solutionary Managed security United States $194,000,000
Oct-1 2 RMA consulting User experience United Kingdom $9,700,000 integrater
A consulting company Sep-12 Centerstance Inc. specializing in cloud- United States $38,800,000 enabled business transformation solutions
Jun-12 Gyron Internet Ltd. Data center operater United Kingdom $48,500,000
Total System. Feb-12 Service System integrater Brazil Services, Inc.
Jan-12 Netmagic Solutions Data center operater India $97,000,000 Private Ltd.
Jul-1I OpSource, Inc. IaaS provider United States $67,900,000
Jul-1 1 Frontline Systems System integrater, Data Australia $97,000,000 Australia Pty Ltd center operater
Apr-11 Value Team S.p.A. System integrater Italia $291,000,000
Oct-10 Inc.Keane International, System integrater United States $1,067,000,000
Aug-10 Secode Managed security Sweden $14,550,000
Jul-10 Dimension Data Network Integrater, South Africa $2,774,200,000 System integrater
Jun-10 Intelligroup Inc. System integrater United States $155,200,000
Jun-10 Avex Systems Pte System integrater Singapore $9,700,000
Apr-10 Emerio GlobeSoft IT outsourcing provider Singapore - P-te Ltd ______
Jun-09 Integralis Managed security Germany $73,720,000
Mar-08 Cirquent System integrater Germany $339,500,000
Oct-07 itelligence AG Instaler of SAP and Germany $194,000,000 system integrater Table 4-4 NTT's major acquisitions Source: Asakawa, N., Special article: Can NTT win in the world? (Nikkei Computer, 2013)
66 The third is to enhance the capability of application development and system integration. According to the group's strategic decision to enhance its cloud services, NTT Data has acquired various system integrators (Cirquent, 2008, Intelligroup Inc., 2010, Keane International, Inc., 2010, Value Team S.p.A., 2010, Total System Services, Inc., 2012, and Everis Participaciones, S.L., 2013).
4.2. Comparative analysis with other telecommunications carriers With the results of Chapter 2 and 3, we can compare the NTT Group's use of three strategies with those of high-tech companies and other telecommunications carriers. The results are summarized in Table 4-5. First, as for the internal R&D, half of the other companies have multinational research laboratories, the other half have domestic centralized research laboratories, and NTT has domestic centralized research laboratories. A major trend in the telecommunications industry is the open innovation-based R&D (AT&T, BT, DT, and Telefonica) and NTT also employs it. Another trend is the massive patent application. Just as with IBM, Cisco, BT and FT-Orange, NTT promotes patent applications strategically. On the other hand, a relatively unique approach is to collaborate with companies' business units. The NTT Group, IBM, and AT&T employ this approach. Another unique aspect of NTT's strategy is that only it and IBM are conducting basic research exploring the boundary regions of science and technology. These R&D capabilities enable NTT to prepare for next generation technology to generate revolutionary network services.
In terms of growth and diversification, most companies, including NTT, respond to customer needs for new products and services. In the meantime, some other companies take successful independent actions in order to diversify. For instance, IBM had good management that enabled it to provide new software products and services. NTT has multi corporate cultures and overlapping of solutions within the group so that the corporate governance is a significant issue [1-1]. Furthermore, Cisco and AT&T provide services for all solutions, and Telefonica became a one-stop service provider. Positioning itself as a service provider is also an important issue for NTT.
67 b) o F- o C S 0 06 *N F- I Key strategy factor D - 0~
Multinational research laboratories 0 0 0 Domestic centralized research laboratories 0 0 0 0 0 Open innovation-based R&D 0 0 0 0 0 To work with clients and the company' 0 0 .6 business units To explore the boundaries of science and 0 E technology .E Massive patent application 0 0 0 0 0 The program that analyzes innovation chain 0 to create value Specific patents and licensing strategies by 0 branding To know everything about the progress of 0 0 0 technology in its industry. c To meet customer needs for new products 0 0 0 0 0 0 0 0 + and services
SGood management00 that enabled to provide new products and services To provide services for all solutions. 0 0 MC To restructure its organization 0
To become a one stop service provider _ c Cost reduction across CAPEX and OPEX 10 0 Investment for the future 0 Network optimization 0 To expand product lineup 0 To expand its value chain 0 To create new market and segment 0 0 To complement and further expand 0 business To absorb human resources and 0 technologies that will bring revenues _____ To expand its service and the number of 0 0 0 0 0 0 0 customers To penetrate into new markets and Ssegments, especially service and solutions00 0 To expand R&D capabilities 0 To enhance and streamline its operations. 0 To reposition in the market. 0 To provide network services as a group in 0 the global market To provide global and secure infrastructure 0 operation To enhance the capability of application 0 development and system integration. Table 4-5 Comparison of the use of three strategies
68 Finally, we can discuss the M&A. While IBM and Cisco utilize the strategy as a measure to enhance their product lineup and value chain, to create new markets and segments, and to complement their existing business, all the telecommunications carriers basically employ the approach to expand their service and grow their customer base. Some carriers including NTT also acquire other companies to penetrate into new markets and segments, such as cloud services. In addition, the NTT Group tries to provide services as a group in a global market, provide global and secure infrastructure operation, and enhance the development of applications and system integration. For example, it expands its global cloud infrastructure in the Asia/Pacific region, seeks to create a device-free, OS-free, and location-free Wi-Fi platform, and seeks Big Data analysis of social networking sites (SNSs) as well as other unstructured data to provide additional value to users [4-11. These strategies differentiate the NTT Group from other carriers.
4.3. Further strategy for long-term competitiveness Before concluding this section, we can discuss further possible strategies for long-term competitiveness of the NTT Group. I believe that, like those of IBM, its dynamic capabilities also play a crucial role. These abilities place great importance on abilities of senior management to "accurately sense changes in their competitive environment" and "to act on these opportunities and threats" [2-4]. In other words, they use these tactics "to seize opportunities" and prepare for threats "by reconfiguring both tangible and intangible assets to meet new challenges" [2-4].
The dynamic capabilities of the NTT Group are considered as follows.
" Strategy: from the voice and data transmission treated separately to unified data communications on the integrated IP network, to the converged network services with fixed mobile convergence (integration of wired and wireless communications), and to cloud services by vertically integrating data communications networks, applications, and solutions " Structure: from centralized network service provisioned as one big company to solution-centric network services provisioned by each operating company (NTT was divided into a holding company and 5 operating companies in 1999) * Process: annual business planning and following up within a fiscal year * Top Management: making long-term group business plans, gathering and reading annual plans of each operating company, and making budget decisions
69 According to the above analysis, we recognize the current capabilities of the NTT Group as well as their limitations. The NTT Group offers various integrated solutions but its capabilities are not sufficient to meet rapidly changing market needs. With regard to structure, we can provide integrated network solution services by synergizing multiple operating companies. The NTT Group can also introduce ongoing review processes of its strategies and execution. As for top management, it is important for the CEO to converse with middle managers to help them identify challenges and take actions from the high-level standpoint of the NTT Group.
In fact the NTT Group has taken actions to further enhance its capabilities. For instance, it embarked on an initiative to provide unified solutions by means of vertical service integration. Under the direction of top management of the holding company, NTT Communications [4-7], NTT Data [4-8], and Dimension Data [4-9] collaboratively started to offer cloud services with vertical integration from infrastructure operation to system integration and application development [1-1].
Another action is to expand its R&D operation globally. In 2013 the NTT Group established NTT Innovation Institute, Inc. (NTT 13) in Silicon Valley [4-10]. The group expects to make NTT 13 take an initiative role in cloud computing, information security and software defined networking. In fact, "the CEO of NTT 13 is highly knowledgeable about the field of technology, and has technical skills that encompass both the supplier and user sides" [1-1]. It is possible that the NTT Group could develop value-added, new competing Internet-based services or complementary services through these strategies.
70 Chapter 5. Conclusion
This paper discussed how large telecommunications carriers can create long-term competitiveness in the industry. First, in Chapter 1, I overviewed the telecommunications industry and introduced three important strategies that enable large carriers such as NTT to continue to make profits: internal R&D, growth and diversification, and M&A.
Then, in Chapter 2, I scrutinized IBM and Cisco as good examples of how large companies have evolved over time by utilizing the three strategies. The success of IBM can be attributed to the fact that it shifted from hardware products to services with integrated solutions by effectively using the three strategies. In particular, it has excellent corporate management that enabled it to provide a hybrid solution of products and services. Cisco's success is due to its diversification into complements and versatile kinds of networks by means of its fundamental IOS software, which was invented at its central research laboratory. Cisco also effectively utilized M&As to complement and expand its business, focus on different markets and segments, and absorb human resources and premature technologies.
I then analyzed in Chapter 3 how six major telecommunications carriers utilize the three strategies. First, internal R&D is similarly conducted as open innovation at most of the companies to drive innovation, while unique approaches are conducted to analyze the innovation chain and to strategically use patents and licensing. As for the growth and diversification aspect, most carriers make revenues more from the data services and their customers shifted from wireline communications to wireless communications. Meanwhile, a certain carrier became a services provider for all solutions, some restructured themselves to grow R&D, and another became a one stop service provider. Finally with M&A, many carriers enhanced area coverage and the number of customers, expanded wireless services, and entered new markets. Unique usages of M&As are to expand into media business, expand R&D capabilities, optimize network operations, and shift positioning in a specific market.
Subsequently, in Chapter 4 I investigated the future possible competitiveness of NTT using these strategies. NTT, like most telecommunications carriers, conducts open innovation-based internal R&D and massive patent application. On the other hand,
71 collaboration within and among its business units and basic research activities are its unique strength. As for the growth and diversification, most of the other companies as well as NTT effectively meet customer demands for new products and services. In the meantime, in anticipation of demand, some other companies take successful action toward diversification, such as good management, provision of services for all solutions, and transition to become a one-stop service provider. In regard to M&A, all the carriers acquire other companies to expand their services and the number of customers, and some carriers including NTT use these acquisitions to enter new markets and segments. NTT's unique purposes are to provide services as a group in order to provide global and secure infrastructure operation, as well as vertical integration.
In this chapter I also described the recommendation for NTT's further strategies. First, the corporate governance that settles multi corporate cultures and the overlapping of solutions within the group is an important issue. Another issue is to enhance its dynamic capabilities to meet rapidly changing market needs. I believe that synergizing multiple operating companies is crucial to providing integrated network solution services. The NTT Group can also introduce ongoing review processes of its strategies and execution. The final issue is to expand its R&D operation globally for developing value-added, new, competitive Internet-based services. NTT has recently started to tackle some of these, and would do well to monitor the progress of their efficacy in the near future. These are topics for further study.
72 6. References
Chapter 1.
[1-1] NTT annual report, 2013 [1-2] Porter, M. E, (2008) "The Five Competitive Forces That Shape Strategy," Harvard Business Review, January, pp. 24-42. [1-3] OECD Communications Outlook, 2013. [1-4] http://www.skype.com/en/, http://windows.microsoft.com/en-us/windows/home, and http://www.wechat.com/en/. [1-5]ALU: http://www.alcatel-lucent.com/, Ciena: http://www.ciena.com/, Fuaway: http://www.huawei.com/en/, Fujitsu: http://www.fujitsu.com/global/, and Cisco: http://www.cisco.com/en/US/hmpgs/index.html, etc. [1-6] https://www.facebook.com/facebookforbusiness. [1-7] http://www.google.com/about/company/. [1-8] Gawer, A., and Cusumano, M. A., (2002) "Platform Leadership; How Intel, Microsoft, and Cisco Drive Industry Innovation", Harvard Business School Press. [1-9] Cusumano, M. A., (2010) "Staying Power; Six Enduring Principles for Managing Strategy and Innovation in an Uncertain World", Oxford University Press. [1-10] Cusumano, M. A., (2013, Fall) "Strategy for Platforms & Multi-Sided Markets", 15.904 Advanced Strategic Management, Lecture Notes, MIT Sloan School of Management, Cambridge, MA. [1-11] http://www.ibm.com/us/en/.
Chapter 2.
[2-1] Cusumano, M. A., (2004) "The Business of Software", Free Press. [2-2] IBM annual report, 2012. [2-3] http://www.ibm.com/investor/strategy. [2-4] Harreld, J. B., O'Reilly III, C. A., and Tushman, M. L. (2007) "Dynamic Capabilities at IBM: Driving Strategy into Action", California Management Review, vol. 49, no. 4, pp.21-43. [2-5] http://www.ibm.com/investor/strategy/acquisitions.wss. [2-6]http://en.wikipedia.org/wiki/List-ofmergers-and-acquisitionsbyIBM#citenote -63. [2-7] Cisco annual report, 2012.
73 [2-8]http://www.cisco.com/web/about/doing-business/corporate-developmentlacquisiti ons/ac-year/about ciscoacquisition-yearsjlist.html. [2-9] http://en.wikipedia.org/wiki/List-of-acquisitions-byCiscoSystems.
Chapter 3.
[3-1 ]http://www.research.att.com/evergreen/aboutus/aboutus.html?fbid=sRDu6AUnv ws. [3-2] Elliot, B., Mason, R. F., Blau, B., Goodness, E., Marsala, F., Menezes, B., Toombs, D., Young, D., Rickard, N., and Schoener, M., (2013) "Vendor Rating: AT&T", Gartner. [3-3] AT&T 10K annual report, 2012. [3-4] http://www.att.com/gen/press-room?pid=9880 [3-5] http://en.wikipedia.org/wiki/History_ofAT%26T. [3-6] http://about.verizon.com/. [3-7] Verizon 10K annual report, 2012. [3-8] Cana, M., Young, D., Goodness, E., Menezes, B., Toombs, D., Sabia, A., and Marsala, F., (2013) "Vendor Rating: Verizon Communications", Gartner. [3-9] http://home.bt.com/. [3-10] BT plc 20-F annual report, 2013. [3-11] Ruud, K., (2013) " Vendor Rating: BT Group" , Gartner. [3-12]http://www.btplc.com/Sharesandperformance/Annualreportandreview/Archivedre ports/index.cfm. [3-13] http://en.wikipedia.org/wiki/BritishTelecom. [3-14] http://www.telekom.com/home. [3-15] Ridder, F., Rickard, N., Tratz-Ryan, B., Forsman, J., Ruud, K., Marsala, F., Elizalde, F., and Petri, G., (2013) "Vendor Rating: Deutsche Telekom", Gartner. [3-16] Deutsche Telekom annual report, 2013. [3-17] http://en.wikipedia.org/wiki/DeutscheTelekom. [3-18] http://explore.ee.co.uk/. [3-19] http://www.tid.es/en/Pages/default.aspx. [3-20] Telefonica annual report, 2012. [3-21] Elizalde, F., Tratz-Ryan, B., Forsman, J., and Ruud, K., (2012) "Vendor Rating: Telefonica", Gartner. [3-22] http://www.telefonica.com/en/abouttelefonica/html/home/home.shtml [3-23] http://en.wikipedia.org/wiki/TelefC3%B3nica.
74 [3-24] http://www.orange.com/en/home. [3-25] France Teecom 10-K annual report, 2013. [3-26] Unden-Farboud, L., and Delcroix, J.-C., (2011) "Vendor Rating: France Telecom", Gartner. [3-27] http://orange.com/sirius/histoire/en/ [3-28] http://en.wikipedia.org/wiki/Orange_S.A.
Chapter 4.
[4-1] http://www.ntt.co.jp/indexe.html. [4-2] http://www.ntt-electronics.com/en/index.html, http://www.ntt-at.com/, and http://www.nttsoft.com/. [4-3] Suzuki, S., Miyamoto, Y., Tomizawa, M., Sakano, T., Murata, K., Mino, S., Shibayama, A., Shibutani, M., Fukuchi, K., Onaka, H., Hoshida, T., Komaki, K., Mizuoshi, T., Kubo, K., Miyata, Y., and Kamio, Y. (2012) "R & D on the Digital Coherent Signal Processing Technology for Large-capacity Optical Communication Network", The Journal of The Institute of Electronics, Information and Communications Engineers, vol. 95, no. 12, pp. 1100-1116 (in Japanese). [4-4] https://www.nttdocomo.co.jp/english/. [4-5] Smith, D. M., Bittman, T., Plummer, D., Basso, M., Prentice, B., Bova, T., and Lheureux, B., (2012) "Predicts 2013: Cloud Computing Becomes an Integral Part of IT", Gartner. [4-6] Asakawa, N., (2013) "Special article: Can NTT win in the world? ", Nikkei Computer, November 28 issue, pp. 24-38 (in Japanese). [4-7] http://www.ntt.com/index-e.html. [4-8] http://www.nttdata.com/global/en/. [4-9] http://www.dimensiondata.com/en-US. [4-10] http://www.ntti3.com/.
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