MAKING SENSE OF SUBSCRIBER COMPLEXITY

THE NEED TO GET A HANDLE ON CHOICE AND CHANGE IN GLOBAL COMMUNICATIONS MARKETS

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Todays communications landscape is characterized by unprecedented change, choice, and convergence. The rapid pace of innovation, the widespread availability of mobile communications, and new services and packages have combined to offer the subscriber an enormous array of new, better, more affordable ways of communicating and entertaining. Managing the challenge of subscriber complexity and choice in communications and media markets now represents one of the most critical business imperatives facing service providers worldwide. Subscriber expectations are exploding around value, features, services, pricing, quality, convenience, user control, and personalization with more opportunities than ever to switch allegiances to both established and new disruptive competitors. Yet according to the 212 executives surveyed as part of the CMO Councils Bringing Dexterity to Subscriber Complexity campaign, most providers are challenged to meet this changing subscriber demand, more often focusing on issues around technology infrastructure and operational demands to increase profitability rather than accelerating the development of a data-driven, highly personalized user experience. And while customer churn can be attributed to service capabilities and pricing structures, customer experience is also weighing heavily on the decision making process. Left unchecked and unmanaged, subscriber complexity runs the real risk of spiraling out of control, making the delivery of service and the optimization of customer experience an insurmountable challenge. However, what is also clear from this study is that the reality of todays mounting complexity is not a surprise to operators. It is the significant internal resistance to change and the cultural shift away from a commoditized provider and into a customer-centric, insight-led, fully integrated experience that may prove to be the greatest challenge. While maximizing return on costly operational improvements and bandwidth capabilities is clearly an important issue to address, in regards to managing subscriber complexity, it may turn out to be only part of the equation. Executives across the C-Suite, from IT to Marketing, must start to look at the systems, solutions and strategies in place that can manage subscriber data, help develop a more robust, personalized experience, and develop key strategies that can identify new (potentially untapped) routes to revenue. The payoff to overcoming these roadblocks and challenges is nothing short of a revenue windfall. In fact, 94 percent of respondents see revenue upside potential, and over half see more than 10 percent increases in uptick. User Demands Shaping the New Mobile Reality More than five billion global users and customers have access to a dizzying array of more cost-effective and available services, devices, means of access, and payment options. This all adds up to a healthy and growing market for more advanced forms of communication and commerce. However, for those who are tasked with providing the global services, equipment, and infrastructure to support the onslaught, the age of convergence comes with a set of substantial challenges and complications. Customers have greater ability than ever to switch allegiances to both established and new disruptive competitors. Churn is abundant, with annual churn for major telecommunications companies ranging as high as 67 percent, according to the Database Marketing Institute. A Jupiter Research report shows that 40 percent of consumers who highly value telecom

2011 CMO Council

customer service said they would purchase from another merchant based on a poor customer service experience, and 96 percent who put forth high effort to resolve their issues are more disloyal. Mobile device proliferation is abundant, and further complicates the picture for operators and device manufacturers. The worldwide smartphone market will grow 55 percent year over year in 2011 as total shipments of smartphones in 2011 will be 472 million and that figure is expected to nearly double to 982 million by the end of 2015 as more users exchange their feature phones for more advanced devices, according to IDC. The market is experiencing a surge in tablets, netbooks, dongles, set-top boxes, telemetry devices, etc. Driven largely by the iPad craze, the tablet market is expanding by 45 percent quarter over quarter, according to IDC. Touchscreen mobile device sales are expected to grow by 97 percent this year alone, says Gartner. In tandem with this surge in devices are increasing demands for the bandwidth to run them. Network infrastructure and resources are stretched to the limits as data usage in Western Europe and North America is expected to increase at a compound annual growth rate (CAGR) of 42 percent and 55 percent respectively through 2015. The average North American user consumed 59 percent more data in 2010 than in 2009, according to ABI Research. This heavy volume and consumption of information is creating increased network congestion and also threatens profitability for data services that have traditionally been packaged and priced as an all you can eat unlimited offering. The reality is that traffic volume is growing exponentially yet corresponding operator revenue has more of a gradual linear trajectory under current models. Beyond the growth of data volumes, the explosion of apps and content is making the subscriber equation more complicated. With more than 50 billion downloads expected next year, the mobile app market is predicted to boom to $17.5 billion by 2012. The tremendous growth of IP-based multimedia is also increasing consumer choice and expectation while at the same time adding new levels of intricacy to the service provider and operator base. Finally, changing demographics and data access and delivery models are playing a role in confounding the operators business. The slowdown in growth in developed countries and the rapid uptake in emerging markets is changing the priorities of service providers and helping to shape a new set of offerings and policies. Emerging models such as data access service passes for a set period of time, bundled access with content and application use, partner-funded access or traffic priority, and split billing are a few examples of the new innovative ways to more discretely deliver and charge for service. Fighting the Enemy Within While operators agree that they must address significant roadblocks that currently stand between them and the ability to deliver more personalized and relevant services and user experiences, the more significant barriers may actually lie within their own corporate walls. Over two-thirds of the operations surveyed feel that the traditional corporate mindset within their organization is out of sync with the new forms of competition and service delivery. Additionally, 72 percent believe that the poor alignment between marketing sales and IT three critical stakeholders in the delivery of an optimized customer experience is a major

2011 CMO Council

roadblock. What is clear is that these internal, corporate challenges could be doing more harm to the user experience than user demand itself, creating additional roadblocks in their wake. Consider the other key issues operators are facing: 81 percent struggle to launch and provision new services quickly and cost effectively 72 percent lack the subscriber insight and intelligence critical to the execution of a more personalized user experience 75 percent lack integration between disparate data sources, tying directly back to the challenges of not having the needed insights and intelligence 78 percent indicate they are not able to target individual subscribers with offers and upgrades based on both historic as well as current behavior and needs These issues link to the reality that corporate culture and infrastructures are not connected, aligned and ready to meet the needs of the shifting industry, and must change to meet the growing complexity. Until the mindset of management and the alignment between key customer experience roles is managed, operators will likely continue to see these issues around insights, intelligence and the ability to quickly go to market with products and services. The more in-depth dialogs the CMO Council conducted with operator executives (outlined later in this report) point to many of the same struggles and issues. Nearly every executive sees segmentation and data integration as a key challenge to be overcome. As one executive put it, There is definitely a greater need for insight and intelligence into our subscriber base in terms of preferences and behaviors because the market on customer needs is always changingwe are working extremely hard to create new models for data mining in order to understand emerging clusters. Other executives in the conversations point to an internal legacy mindset that is hampering progress. One commented on the industry as a whole: My view on how the operators have handled the influx of everything, broadly speaking, is that many of them still have this utility-driven mindset. Many of them are still thinking in silos and theyre not marketand customer-centric yet. So theres a long way to gothey have to start breaking down mentally the way they think of a utility, and start to be much more customer focused, customer centric, and customer driven as an organization. Unfortunately, it does not seem that this shift is a key priority for operators, who instead intend to focus on simplifying the customer experience rather than truly making real changes to improve it. Subscriber data management and integration will be a key strategic priority according to 43 percent of the respondents, as another 32 percent will focus on replacing declining core service revenues. But operators must get their priorities straight. While new routes to revenue must be uncovered, it is telling that only 9 percent of operators will make up-selling or cross-selling within more developed markets a priority, while only 5 percent will look to make services more

2011 CMO Council

accessible and affordable in developing markets both likely dependant on access to data through improved subscriber data management solutions and fully integrated data resources. Operators must commit to and make the delivery of an optimized customer experience one that is highly relevant and personalized to the needs, behaviors and expectations of the user a key priority. This will require that not only data resources be aligned, and for key functional groups to be in lock-step, but also for senior leadership to change their thinking to embrace this new culture of customer complexity. Fundamental Need to Manage Change and Choice Successful operators must achieve new levels of flexibility, insight and efficiency in the way they activate, cultivate and optimize their subscriber base. They must innovate and improve how they identify and address diverse customer needs, create more compelling and individualized subscriber experiences, as well as market and deliver new service, pricing and payment options. At the same time, they must cost-effectively manage network resources in the face of rising bandwidth demands from their diverse user base. Operators are facing a growing business imperative to innovate and elevate the way they segment and address more fragmented and rapidly evolving subscriber audiences. This includes being able to better identify, track, engage, service and up-sell more diverse customer types with varying lifestyle, business, socio-economic, psychographic, ethnographic and application-specific needs. These are increasingly driven by device or channel preferences, service requirements, content consumption patterns, pricing options and payment plans. Operators must uplift their game in the area of subscriber data management and increase their capacity to deliver a more individualized subscriber experience and bring to market new services, pricing, and payment options that can meet these more segmented needs. The confluence of new devices and business models, huge volumes of data, an explosion of content and application delivery, and an increasingly competitive landscape is creating the need to rethink and revamp strategies to handle the complexity. New systems and solutions must be considered to handle the onslaught. And new mindsets and business models must replace the old in order to survive and thrive in the new world of subscriber complexity. Service providers need to take advantage of real-time intelligence and customer insight and be able to make better business moves based on subscriber usage and context patterns. They need to have the proper infrastructure, software, and support systems in place to provide an end-to-end view of their subscribers and all their complexities and to allocate resources and services accordingly. And they need to embrace the upside top line opportunities that lay ahead if they get it all right. Successful operators must achieve new levels of flexibility, time to market, insight and efficiency in the way they activate, cultivate and optimize their subscriber base. At the same time, they must focus on innovation and improve how they identify and address diverse customer needs and cost-effectively manage network resources in the face of rising bandwidth demands from their diverse user base.

2011 CMO Council

RESEARCH OVERVIEW
In order to get an comprehensive understanding of the factors contributing to subscriber complexity and how communications operators can get a better handle on the issue, the CMO Council and its Customer Experience Board conducted on online survey of 212 senior level professionals in marketing and IT at communications service providers and cable/ satellite operators worldwide in April-May of 2011. In addition, the CMO Council conducted more than 15 in-depth dialogs with prominent marketing and technology executives at some of the worlds most recognized operator brands along with other market influencers and academics to get their insights and perspectives on the issues, challenges, and best practices they have encountered in terms of subscriber complexity. Combined with insight gathered from third parties on the campaign microsite www.subscribercomplexity.org, this extensive information has been collected and analyzed in the following report as a means of educating the marketplace on obstacles, opportunities, and best practices around subscriber complexity and choice in communications and media markets. This report is part of a broader thought leadership program called Bringing Dexterity to Subscriber Complexity that profiles and benchmarks where and how companies are experiencing and addressing diverse needs, preferences, and behavior patterns across a multiplicity of device types, plans, and pricing options in the complex market for telecommunications, wireless, and digital media services. The program is a multi-channel thought leadership program undertaken by the CMO Council and its Customer Experience Board and sponsored by Openet (www.openet.com). The initiative looks at new practices in customer interaction and engagement, subscriber data management, and alternative service packaging and pricing. Initial information on the initiative and a new whitepaper are available on the program microsite site at www.subscribercomplexity.org. The microsite also features initial leadership committee members, supporting facts, articles, content, and other resources.

2011 CMO Council

EXECUTIVE SUMMARY OF KEY FINDINGS

Most operators are focused too much on traditional concerns around infrastructure and operational requirements rather than data-driven customer experience and new routes to revenue 83 percent of operators feel they need to get a better handle on the network resource and support challenges presented by a more demanding customer base and the proliferation of new devices 47 percent say if left unchecked and unmanaged, subscriber complexity could spiral out of control Carriers are often times fighting significant internal barriers within their corporate walls 68 percent say their traditional corporate mindset is out of sync with new forms of service Traditional concerns such as meeting consumers bandwidth needs (55 percent), support for new devices (35 percent), and pricing are identified as main drivers of complexity 72 percent point to poor alignment between marketing, sales, and IT 81 percent struggle to launch and provision new services quickly and cost effectively Most are not paying enough attention to fundamental, data-driven, personalized experience 72 percent lack the subscriber insight and intelligence critical to the execution of a more personalized user experience 75 percent need integration between disparate data sources A majority (52 percent) do not have good capabilities for segmented offers and promotions 42 percent need improvements in their CRM and subscriber management and tracking Many are not fully optimizing new routes to revenue While 59 percent of operators say they are considering new revenue sources from over-the-top (OTT) services, Focus seems to be on meeting OTT bandwidth needs (25 percent) and providing flexible plans (14 percent) 94 percent arent exploring partnerships such as revenue sharing with OTT providers 88 percent dont believe OTT providers are competing for their customers An array of new devices, greater bandwidth needs complicating the picture Increasing bandwidth demands is the biggest contributor (55 percent) to subscriber complexity, followed by support requirements for new devices (35 percent) The growth of smart phones (63 percent) and tablets (46 percent) are the two biggest trends creating the need for more granular customer management

2011 CMO Council

A majority of operators earn a C or worse grade in managing subscriber complexity Mobile and over-the-top providers rank best, whereas cable and satellite operators and ISPs at the bottom Only 25 percent rate their own pricing and service flexibility as high 46 percent have significant issues with data silos and disconnects or poor integration with customer data stored in disparate repositories Shifts in global mobile adoption are causing direct impact on operators 70 percent say a slowdown in adoption rates in developed countries has increased the importance of their subscriber retention and revenue optimization 37 percent say the rapid adoption of mobile communications services in developing countries is causing them significant strain Pricing models are in flux 74 percent say the traditional flat rate subscription model hurts their companys ability to maximize revenues and profitability, primarily because of growing bandwidth usage Only a quarter of operators rate their pricing and service flexibility as high in order to compete in todays complex communications market

2011 CMO Council

Presented By About the CMO Council

The Chief Marketing Ofcer (CMO) Council is dedicated to high-level knowledge exchange, thought leadership and personal relationship building among senior corporate marketing leaders and brand decision-makers across a wide-range of global industries. The CMO Councils 6,000 members control more than $200 billion in aggregated annual marketing expenditures and run complex, distributed marketing and sales operations worldwide. In total, the CMO Council and its strategic interest communities include over 20,000 global executives in nearly 100 countries covering multiple industries, segments and markets. Regional chapters and advisory boards are active in the Americas, Europe, Asia Pacic, Middle East and Africa. The Councils strategic interest groups include the Coalition to Leverage and Optimize Sales Effectiveness (CLOSE), LoyaltyLeaders.org, Marketing Supply Chain Institute, Customer Experience Board, Market Sense-Ability Center, Digital Marketing Performance Institute, GeoBranding Center, the Forum to Advance the Mobile Experience (FAME), and the cause-directed research initiative, Pause to Support a Cause. More information on the CMO Council is available at www.cmocouncil.org

About the Customer Experience Board

The Customer Experience Board brings together a dedicated knowledge center and global think tank comprised of concerned marketers from leading service provider organizations and key industry experts who interact and engage to gather insight around improving global integrated customer experience management and promote best practice adoption in this critical area of business performance. The Customer Experience Board is focused on benchmark studies, audits and competency assessments, content aggregation, report publication and syndication, peer-topeer interactions, best practice development, vertical industry analytics, and global models and frameworks for integrated customer experience management. For more information visit www.customerexperienceboard.org

About the BPI Network

The Business Performance Innovation (BPI) Network is an inuential group of seniorlevel executives driving transformation, process re-invention, organizational innovation, lean operation, and competitive adaptability in multi-national enterprises worldwide. Members of this change-centered afnity network represent companies with combined annual revenues of more than $1 trillion. The aim is to share thinking and advance best practices in how enterprises can transform to better perform as they seek to tap more complex, cost-sensitive, growth markets with large, diverse and evolving consumer and infrastructure needs. More information is available at www.BPINetwork.org

About Openets Service Optimization Software (SOS)

To succeed in this environment, you must rst know your subscribers and how they use your services, be capable of deploying innovative business models that maximize revenue, and be able to control the allocation of your network resources intelligently and efciently. This is making the most of every network and customer. And Openet can help with our Service Optimization Software. At the core of our solutions is the Openet Framework, a convergent, modular, real-time event processing and transaction management platform. This Framework enables operators to transform their BSS/OSS environments to capitalize on new services, business models and network investments. A global company, Openet is used by the worlds largest and most innovative service providers including AT&T, BT, Orange, Telstra, Time Warner Cable, and Verizon Wireless. Learn more at www.openet.com

2011 CMO Council

Media Partners The Mobile Marketing Association (MMA)

The Mobile Marketing Association (MMA) is the premier global non-profit trade association representing all players in the mobile marketing value chain. With more than 700 member companies, the MMA is an action-oriented organization with global focus, regional actions and local relevance. The MMAs primary focus is to establish mobile as an indispensible part of the marketing mix. The MMA works to promote, educate, measure, guide and protect the mobile marketing industry worldwide. The MMAs global headquarters are located in the United States and it has regional chapters including North America (NA), Europe, Middle East and Africa (EMEA), Latin America (LATAM), and Asia Pacific (APAC) branches. For more information, please visit www.mmaglobal.com.

Light Reading

Founded in 2000, Light Reading is the leading online media, research, and focused event company serving the $3 trillion worldwide communications market. Lightreading. com is the ultimate source for technology and financial analysis of the communications industry, leading the media sector in terms of traffic, content, and reputation. Light Readings research arms, Heavy Reading and Pyramid Research, provide the most comprehensive communications research, market data, and technology analysis in close to 100 markets around the world. Light Reading produces nearly 20 targeted communications events including TelcoTV, Ethernet Expo New York and Ethernet Expo London, The Tower Summit @ CTIA, and Optical Expo, as well as focused one-day events tailored for cable, mobile, and wireline executives. www.lightreading.com

RCR Wireless

RCR Wireless News: enabling intelligence on all things wireless for industry leaders and enterprise volume buyers. RCR Wireless News is the premier news source for the wireless communications industry and is first with carrier, distributor, network, handset and mobile content news. Published since 1981, RCR Wireless News keeps our subscribers engaged and informed with breaking stories, enlightened features and invaluable industry insight. RCR Wireless News target audience is executive-level employees at leading wireless companies, and volume buyers at enterprise-class organizations. It is our dedication to editorial excellence that leads executives to consistently choose RCR Wireless News over other industry publications. RCR Wireless News offers daily email alerts so wireless industry professionals can stay informed on industry happenings. www.rcrwireless.com

Pipeline

Pipeline is the leading publication solely focused on providing in-depth and ongoing coverage of the OSS/BSS industry. Service Providers in more than 160 countries turn to Pipeline for relevant information to aid them in the delivery of next generation services. Pipeline covers emerging OSS and BSS issues and the evolution of the communications industry, and provides timely news analysis and perspective from top analysts and the foremost OSS/BSS vendors. Now in its eighth volume, Pipeline continues to lead the telecom publishing industry through its innovative on-line format, interactive advertisements and provocative editorial content. Read the current issue of Pipeline at www.pipelinepub.com

2011 CMO Council

MobileGroove

MobileGroove: named a top 50 influential technology site by Konector is the source of analysis and commentary on mobile search, mobile advertising, and social media. Peggy Anne Salz, the Chief Analyst and Founder of MSearchGroove (MSG), produces and markets thought leadership for the mobile industry. Her report, Mobile Search & Content Discovery, was regarded as the first in-depth study of its kind, establishing Peggy as an authority on mobile search and content discovery technologies. Her most recent series of practical how-to white papers covers the basics of mobile advertising and mobile analytics, earning her a reputation as a leading mobile advertising expert and speaker. Her published work, which includes more than 300 articles on the mobile industry, has appeared in magazines and online destinations such as The International Herald Tribune, The Wall Street Journal, Mobile Entertainment, New Media Age, and in the Agile Minds column in EContent magazine, among many more. www.mobilegroove.com

2011 CMO Council