Telecom White Paper

Executive Summary

“Business is going to change more in the next ten years than in the last fifty…If
the 1980’s were about quality and the 1990’s about reengineering, then the
2000’s will be about velocity…A manufacturer or retailer that responds to
changes in sales in hours instead of weeks is no longer at heart a product
company, but a service company that has a product offering.”
Bill Gates – Business at the Speed of Thought (Penguin Books, 1999)
Nowhere is this pace of change felt more strongly than in the telecommunications market. If the digital age
is the new Klondike, then telecommunications companies are the suppliers of the picks and shovels. They
are required to deploy new and innovative technologies within a commercial framework, which demands
products and services that are faster, better, and cheaper. Survival in this highly competitive global market
depends upon agility and flexibility in responding to customer requirements. There are only two types of
companies, the quick and the dead.

This paper describes the challenges and market trends facing the telecommunications industry today, the
critical success factors required for market leadership, and the ways in which new Internet-based
technologies can be applied to business processes to add value and deliver significant business benefits.

In particular, it introduces a new category of software and services, known as Collaborative Product
Commerce (CPC), which is an e-business initiative that embodies many of the information technologies
and business strategies necessary to achieve the next wave of business application competitiveness, beyond
simply managing business transactions across the Internet. CPC addresses all aspects of the product life
cycle, from concept design through to after-market support.
PTC has an established capability in supporting the telecommunications industry. We provide innovative
business solutions to many of the industry’s leading companies. Experience in working with our customers
has shown that PTC Windchill solutions have been shown to contribute to 20 percent to 60 percent
reductions in product development costs and increased revenue on new products of up to 42 percent.
PTC (Nasdaq: PMTC) develops, markets, and supports software solutions that help manufacturers get
superior products to market before their competitors. PTC is the world’s largest software company with a
total commitment to product development. The company serves more than 30,000 customers worldwide.
Further information on PTC is available at http://www.ptc.com.

2000 Parametric Technology Corporation

Telecom White Paper

Introduction

In recent years, the telecommunications market has experienced unprecedented growth as it has
restructured to meet customer demands. Industry deregulation has provided opportunities for new
companies to enter the market and compete “head-to-head” with established industry giants like AT&T,
France Telecom, and British Telecom.
The main challenge for today’s telecommunications companies is determining how to identify and deliver a
winning business strategy that is capable of sustaining growth and profitability, while remaining agile and
responsive to unprecedented levels of technological and environmental change.

Two conflicting strategies are evident in today’s marketplace. The large conglomerates seek to maximize
profits by offering an end-to-end solution, however, they are finding it increasingly difficult to compete
effectively against smaller and more agile companies that collaborate and/or partner to offer tailored
solutions in specific market sectors.

For almost a decade, the incumbent conglomerate service providers, particularly in Europe, were able to
maintain excellent growth, in both turnover and market valuation, through the impetus of deregulation and
the rising volume of lucrative traffic travelling along their copper and fiber optic networks.

Their rivals, on the other hand, typified by Vodafone, as well as Telefonica and C&W, have rationalized
their businesses and specialized in well-defined markets. In this way, they have maintained growth in
shareholder value and have used this strength to seize more of the new opportunities that continue to arise.

Some incumbents appear to face difficulties in funding and managing the new technologies and the
regional, if not global, footprints that are needed to meet emerging market demands. Their ability to make
parallel investments in mobile broadband, Internet telephony, and hosted corporate IT applications, as well
as in consumer entertainment, information, and communications, could now be beyond their reach.

A recent report by Mercer Management Consulting recommends a fundamental breakup of existing

structures. One of the authors of the report, Joao Baptista, who heads Mercer’s global telecommunications
practice, says: “They must break up to break out of the spiral of underperformance that has been caused by
their defensive strategies. Entirely new business designs are emerging and, in consequence, the role of the
telecommunications conglomerate is rapidly disappearing.”

The jury is still out on which strategy will prove to be the most successful in the long term. One common
factor is clear, however. Companies must collaborate or die, since collaboration, either internal to an
organization or external, across multiple organizations, offers the greatest potential to maximize profit and
sustain growth.

-2-
Telecom White Paper

Table of Contents

EXECUTIVE SUMMARY .................................................................................................1

INTRODUCTION .............................................................................................................2

TELECOM VALUE CHAIN ..............................................................................................4

Figure 1: Elements of the Telecom Value Chain .................................................................................. 4

BUSINESS DRIVERS......................................................................................................5
Complex and Highly Competitive Global Market ................................................................................ 5
Rapid Rate of Technology Development and Change........................................................................... 6
Industry Consolidation, Partnerships, and Collaboration ...................................................................... 6

CRITICAL SUCCESS FACTORS……………………………………………………………..6

Figure 2: Factors influencing the achievement of initiatives that deliver business value ...................... 7

COLLABORATIVE PRODUCT COMMERCE (CPC).......................................................8

Figure 3: CPC vs. Traditional PDM Architecture ................................................................................. 8
Elevating Product Knowledge to an Enterprise Asset........................................................................... 8
Creating Inter-enterprise Collaboration................................................................................................. 9
Developing Flexible and Responsive Business Models ........................................................................ 9
Utilizing Collaboration Portals ............................................................................................................. 9

BUSINESS BENEFITS....................................................................................................9
Innovative product and service development ........................................................................................ 9
Flexibility and improved customer responsiveness............................................................................. 10
Common processes for collaboration.................................................................................................. 10
Timely and accurate information ........................................................................................................ 10
Effective configuration management and change control ................................................................... 10
Maximize existing investment in information technology .................................................................. 10

CONCLUSION...............................................................................................................10

-3-
Telecom White Paper

Telecom Value Chain

The telecommunications market is represented diagrammatically in Figure 1. This diagram depicts the
three key business elements that, when combined, deliver a communications capability that can be tailored
specifically to meet customer demands.

Tiers 3 and 4 Tier2 Tier 1

Component & Equipment Service

Contract
Suppliers Providers Providers &
Manufacturers Enterprises
Cable Wireless
Component and Equipment Providers Service Providers
Contract Manufacturers and Enterprises

Manufacturers Network Service Providers

CHIPS Marconi, Cisco, Nortel, Siemens, BT Ignite, AOL,
TRW Ericsson… Worldnet
Motorola Access Equipment/Headsets
Sun Enterprises
HP
Nokia, Nortel, Marconi, Alcatel… BT
France Telecom
Deutsch Telecom
Infrastructure AT&T, Telia
Vodophone
Beldon, AT&T, Pirelli, BICC,
Movistar
Alcatel, Tyco, KDD…

Figure 1: Elements of the Telecom Value Chain

At the delivery end of the value chain, Tier 1 application service providers and large telecommunications
enterprises exist to provide voice and/or data communications services to their customers.

Tier 2 equipment providers represent the hardware and software infrastructure needed to support the Tier 1
service providers. An extended infrastructure of sub-contractors and suppliers has grown up to provide
specific capabilities.
One example of how companies collaborate to deliver innovative business solutions is where tariff/pricing,
billing, and service options are supplied by a Tier 1 company and bandwidth, content and equipment are
supplied by a number of Tier 2 providers.
Tiers 3 and 4 represent the extended supply chain for the design and manufacture of the hardware and
software elements.

-4-
Telecom White Paper

Business Drivers
Business strategies in the industry are driven by fundamental market shifts. For instance:

v Traffic carrying is becoming a commodity business, because of massive investment and

overcapacity in national and international broadband cable networks.
v Corporate markets are increasingly demanding regional, if not global, end-to-end capabilities,
combining backbone and local infrastructures, hosting and application services, plus network and
systems integration.
v Residential markets are demanding multiple choices in high quality, user-friendly services,
including entertainment, interactive TV, home shopping, and e-mail - regardless of how these
services are delivered.
v Mobile networks have emerged as international businesses in their own right, with a culture all of
their own. They need a global, or regional, footprint to be able to control their narrowing margins.
Smart forward strategies are also needed to achieve payback on costly 3G licenses.

Of all of the challenges facing the telecommunications industry, three stand out as being the most
significant and worthy of further discussion:

v Complex and highly competitive global market

v Rapid rate of technology development and change
v Industry consolidation, partnerships, and collaboration

Complex and Highly Competitive Global Market

Several factors have combined to create unprecedented levels of complexity and competition within the
telecommunications industry.

One of the key business drivers has been deregulation within the industry. In the United States the
Telecommunications Reform Act of 1996 opened the way to increased competition through the elimination
of monopoly supply agreements. Comparable legislation in most European countries has had a similar
effect.

Fueled by the Internet, there has been an explosive growth in the number of ‘dot.com’ companies offering
new and innovative service applications. While the dot.com bubble may have burst, an expectation has
been set for information services that are reliable, secure, and easy to use. The customer demand for
greater bandwidth shows no sign of slowing down. The competition to develop the ‘killer’ application
and/or service continues unabated.

The information explosion is a global phenomenon. Different countries have responded to change at
different rates, but the market characteristics are similar in most countries. Where competitive pressures
apply, the effect is to reduce profit margins as companies seek to generate additional revenue from greater
market share. The cost of sales continues to fall. Only the strongest and most innovative companies are
likely to survive.

In a competitive market, companies must continue to seek ways of differentiating their products and
services. Being the first to market with new technology, improving process efficiency, and being able to
respond quickly to change are essential to securing market share and delivering continuous growth and
profitability to shareholders.

-5-
Telecom White Paper

Rapid Rate of Technology Development and Change

Competitive pressures are driving the pace of technology development and change. Alternative
technologies, such as cable and wireless, compete for market share. The monopoly position once enjoyed
by the larger corporations no longer guarantees business when solutions can be put together through the
collaboration of a number of niche suppliers. Advances in technology can negate investment in
infrastructure. Telephone cables and cable switching technology versus mobile phones and satellite
communication is one example. Who knows which technology will dominate? Technology redundancy
has become a major issue.

In the U.S., Federal Communications Commissioner Harold Furchgott told business and high tech leaders
that "Technology is changing more rapidly than the regulators can keep up. We need to interpret the link as
narrowly as possible, avoid micro-management, and let the technology people move on with bringing us all
these next-generation products."

Improvements in data compression, amplification, and multiplexing now permit a single fiber-optic strand
to carry twenty-five terabits of information per second - twenty-five times more information than the
average traffic load of all the world’s communications networks put together. In the United States,
communications companies are now laying optical fiber networks at the rate of 4000 strand miles per day.
The total bandwidth of U.S. communications systems is tripling every year.

Industry Consolidation, Partnerships, and Collaboration

In response to the challenges and dynamics of the telecommunications market, the trend in recent years has
been the fragmentation of large, monolithic organizations into smaller more agile business units focused on
competing for and delivering business solutions.

Mergers and acquisitions have been used to consolidate compatible capabilities and create the ‘critical
mass’ needed to compete effectively in specific niche markets. The shakeout in the industry continues, as
companies develop and refine their business strategies and start to address the issues associated with getting
disparate companies to work together effectively. This is one of the biggest challenges facing the industry
in the next five years.

In corporate business strategies, global alliances are a popular means of retaining market share, sustaining
growth, and avoiding takeover. Inter-government collaboration, particularly in Europe, has been used as a
way of retaining a controlling interest in what is seen as a strategically important industry. Agreements
such as the recent announcement between Sweden (Telia) and Norway (Telenor) allow for the pooling of
research and development budgets.

Critical Success Factors

To respond effectively to the challenges facing the industry requires an appropriate strategy, focused on
achieving specific business objectives. These objectives can be expressed in terms of how the company
wishes to position itself within the market. For example:

v Most innovative products and/or services

v Fastest response to customer requirements
v Fastest time to market for new products and services
v Highest level of product/service reliability
v Best value for the money

-6-
Telecom White Paper

This list is generic and applicable to most industries. However, the telecommunications industry faces
additional challenges in response to the dynamic and highly competitive nature of the market. These can
be summarized in positions such as:

v Most agile and responsive to change

v Most efficient processes for collaborative working
v Most effective federation of product knowledge between operational support systems

Figure 2 diagrammatically represents the various factors that influence the achievement of a corporate
strategy and its ability to deliver genuine and sustainable business benefits.

Figure 2: Factors influencing the achievement of initiatives that deliver business value

Achieving market leadership requires the highest levels of operating efficiency and effectiveness related to
the use of resources, processes, and technology. Achieving this within an industry that is subject to
unprecedented levels of change is even more difficult.

The trend towards industry collaboration to put together business solutions places significant demands on
inter-company infrastructures. Developing new products and services within a virtual enterprise, which
may be distributed across different countries, requires the ability to manage and make readily available
complex products and/or service configurations. This has to be achieved within a technology infrastructure
that is secure, flexible, and reliable.

In response to this market demand, a new IT model has emerged, known as Collaborative Commerce (c-
commerce), which is an e-business initiative that embodies many of the IT technologies and business
strategies necessary to achieve the next wave of business application competitiveness, beyond simply
managing business transactions across the Internet (e-commerce).

Collaborative Product Commerce (CPC) is the application of c-commerce for product lifecycle activities.
It involves elevating the product intellectual capital asset above and beyond the product managers and
using it to exploit new business opportunities.

-7-
Telecom White Paper

Collaborative Product Commerce (CPC)

“Internet commerce has given product development enterprises a wake-up call – change business practices,
or risk being left behind.” This is the view of a leading IT industry analyst, the GartnerGroup.
Early adopters of CPC solutions are using the technology to address business issues such as
customer-driven product configuration, connecting trading partners to the product development process and
building content-rich portals to allow greater leverage and utilization of product intellectual capital.

A CPC technology framework requires more than just blending new Web technologies with older
application architectures. CPC architectures are almost the complete inverse of older, monolithic models.

Traditional Product Database

Client Interface
Tools
Application Integration
Data Modelling
Data Integration
Data Ownership
Data Linkage
Installation Timeframe
Application Development
Timeframe
Primary Application Usage
CPC Model
Model
Proprietary and Web (HTML) Web (HTML, DHTML, Java)
Proprietary Numerous Java and Web Tools
Proprietary APIs EAI adaptors
Rigid data model required Limited or no data modelling
Proprietary APIs XML
Within single monolithic architecture Across multiple federations
Via proprietary data modelling Via hyperlinks
Months Weeks
Months Days
Collaborative product lifecycle
Enterprise product development
applications

Source: Gartner Research

Figure 3: CPC vs. Traditional Software Architecture

The key concept underlying the CPC model is exploitation of standard, widely available Web-based
technologies to create a light-footprint architecture that can be rapidly altered in response to continuously
changing business demands. Creating new functionality in a CPC context is as easy as creating a Web page
and having users point their browsers to a URL.

Most enterprises recognize the opportunities and challenges created by the Internet, and are attempting to
use this technology to devise appropriate and coherent business strategies. For example, in the
telecommunications industry, a collaborative environment could be established between the various
partners in the ‘virtual enterprise’: customer, service provider, sub-contractors, manufacturers, and
suppliers.

These companies would typically be geographically dispersed, use different business software applications,
and operate different internal business processes. The collaboration capability of CPC solutions would
allow an environment to be established where, subject to appropriate administration and security
procedures, all partners have access to the same information. Collaboration tools can be used to ensure
adherence to a common process and reduce development time.

Elevating Product Knowledge to an Enterprise Asset

Product innovation and market success drive top-line revenue growth, making product knowledge the key
enterprise asset. Yet few companies have invested in enterprise solutions that focus on leveraging the
product asset to create new business opportunities. CPC leverages product knowledge to drive innovation,
expand revenue potential, and reduce time to market. It offers a complete network of product and process
information that can be managed as a strategic enterprise asset.

-8-
Telecom White Paper

Creating Inter-enterprise Collaboration

Products are created and delivered with the collaboration of multiple participants. Companies that embrace
the diversity of their suppliers, partners, and customers must link processes and systems together more
dynamically to create a complete source of product knowledge that crosses organizational boundaries.

Developing Flexible and Responsive Business Models

As companies rely more on their suppliers, they need to respond quickly to changes and adjust their mix of
suppliers opportunistically to take advantage of geographical considerations, new technology
developments, product innovations, domain expertise, and superior strategic business relationships. With
product information dispersed, potentially all over the world, and managed differently by each supplier,
exchanging information can be difficult. Companies need a means to connect instantly to the
heterogeneous processes and information systems of each new supplier. The Internet provides the conduit
for this knowledge transfer.

Utilizing Collaboration Portals

Collaboration portals enable companies to easily test
new relationships and tap the domain expertise and
technology developments of new suppliers and design
chain partners. This aids development of the highly
innovative new products required to compete
successfully in today's markets.

PTC’s enterprise Collaborative Product Commerce

(CPC) solution, known as Windchill, provides global
manufacturers with the tools to leverage the Internet for
product development collaboration and product
innovation. Windchill has been designed from the
outset to take full advantage of emerging Web-based
technologies such as HTML, XML, and Java and
comprises 32 applications addressing each aspect of the
product lifecycle, from concept design to after-market
support services.

Windchill utilizes the latest Internet technologies to provide a highly scalable offering capable of
supporting thousands of concurrent users. Multiple server architecture and support for commercial
clustering standards underpin Windchill’s scalability, while support for Oracle 8i and Java 2 enables
maximum performance advantages.

The Windchill solution leverages standard Internet security measures and industry-leading security
products such as Entrust® , SecurID®, and SiteMinder®. The pure Internet architecture of Windchill
supports HTTP and HTTPS standards, and accommodates firewalls, proxy servers, and network address
translation (NAT). Moreover, by compartmentalizing the project information and assigning access levels
to information managed within the project, users are restricted to finding and accessing only data to which
they are explicitly permitted. The result is an Internet environment that is more reliable and secure than
e-mail, FTP, and other manual methods used today by dispersed product development teams.

Business Benefits
The adoption of Web-based technology is expected to deliver significant benefits related to reduced time
and cost, improved communication and understanding, and improved collaboration across the extended
enterprise.

With specific reference to the challenges facing the telecommunications industry, the following benefits are
directly relevant:

-9-
Telecom White Paper

Innovative product and service development - CPC collaboration portal’s ability to flexibly set up a secure
collaboration project space makes it possible for partners to investigate new relationships and ideas outside
of their corporate firewall with little or no risk. The result is a collaborative development environment that
yields more innovative products and services that reach the market faster and at lower cost.

Flexibility and improved customer responsiveness - The degree of inter-enterprise collaboration that CPC
solutions facilitate for direct customer involvement in product configuration and development. This has
been shown to reduce design cycle time, increase market share, improve customer retention, and deliver
higher levels of customer satisfaction.

Common processes for collaboration - A federated process model allows companies to organize
information by automating and linking their business processes across disciplines and companies. This
expedites workflow processes so members of the extended enterprise can easily participate. A federated
application model allows everyone to access and use information easily, regardless of the application it was
created in. Web browsers combined with visualization technology enable the viewing, markup, and
interrogation of graphic information, making each individual more productive in his or her role. Common
processes are essential when working in a distributed environment and have been shown to save time and
costs.

Timely and accurate information - Windchill offers the ability to pull together participants distributed
across multiple companies and geographies. They can use the exchange environment as a common place to
develop product designs and specifications online. It also enables online review and release processes,
direct procurement activities, request for proposal/quote (RFP/RFQ) development and review processes,
and makes sure that product information is readily available to all facilitate the most timely decisions.
Significant cost savings have been achieved by reducing the time spent looking for information.

Effective configuration management and change control - In a distributed environment, one of the major
challenges is maintaining accurate configuration records of products and services at various stages of
development. The application of CPC solutions has been shown to reduce the cost and time associated
with managing change.

Maximize existing investment in information technology – CPC solutions provide Web-centric technology
that delivers the key capabilities needed to find, organize, and use information in a dispersed environment.
Databases, applications, and processes are seamlessly linked together, allowing maximum benefit to be
gained from existing investment in information technology. To find information, a federated data model
logically knits together disparate IT systems, including legacy and incumbent systems. There is no need to
replace systems or re-host data. Instead, a layer of connectivity is added that provides ready access to
information wherever it is held.

Conclusion
To ensure their survival in a highly competitive global marketplace, telecommunications companies are
being forced to look at new and innovative ways to reduce costs and improve efficiency. Three key drivers
are changing the nature of competition and the way manufacturers do business:

v Complex and highly competitive global market

v Rapid rate of technology development and change
v Industry consolidation, partnerships, and collaboration

- 10 -
Telecom White Paper

Collaborative Product Commerce (CPC) is a new category of software and services that leverages the
Internet to deliver value across the product development spectrum, from product concept to after-market
support and disposal. Companies are realizing that the use of Internet technology can provide a
competitive advantage by allowing product and process knowledge to be shared across the 'virtual
enterprise.’

v Shared data environments utilize Web-centric technology to enable the customer, service provider,
and suppliers to collaborate on product and service development
v The Internet provides online access to product and process knowledge, which can help reduce
costs in all phases of the lifecycle.
v The use of Web technologies such as HTML, Java, and XML makes data access, sharing, and
re-use a practical and cost effective solution, compared to existing point-to-point interfaces
between closed, proprietary systems

PTC develops, markets, and supports market-leading CPC solutions that help companies shape innovation
and achieve sustainable competitive advantage in the Internet age. PTC has established relationships with
many of the leading telecommunications companies worldwide.

The experience of companies working with PTC’s Windchill solutions has confirmed the potential benefit
and cost savings that can be achieved when Internet-based technology is used to share product information.

PTC welcomes the opportunity to assist telecommunications companies in driving innovative solutions
throughout their extended enterprise by leveraging product and process information. PTC believes
accelerating the flow of product and service information throughout the ‘virtual enterprise’ is the key to
achieving sustained competitive advantage.

- 11 -