IntercompanyvalueflowsinincumbenttelcosCONFIDENTIALThisreportissolelyfortheuseofclientpersonnel.Nopartofitmaybecirculated,quoted,orreproducedfordistributionoutsidetheclientorganizationwithoutpriorwrittenapprovalfromMcKinsey&Company,Inc.PresentationtoChinaTelecomDecember7,2001SW-SWP63-2001-11-23-FRB-RS21.Structureandvalueflowsofdisaggregatedincumbenttelcos2.Principlesfordesigningvalueflowsindisaggregatedtelcos3.ExampleofNetworkValueFlowMechanismsCONTENTSW-SWP63-2001-11-23-FRB-RS3WirelineVARIOUSDEGREESOFTELCODISAGGREGATIONSDOpsSalesSIISP/e-BusinessesWirelineNetworkRetail/SMECorporate/DataWirelessSDOpsSalesSISDOpsSalesSIISPSDOpsSalesSIISP/e-BusinessesCor-po-rate/Data•Traditionalintegratedincumbentbeforederegulation•VariousorganizationalstructureswithinTelco:–Functional–Geographical–Divisional•Disaggregationofmainbusinesslinesalongoldandnewtechnologies•DisaggregationalongthevaluechainofCorporate/Datasolutions•MoveintoSystemsIntegrationbusinessforcorporatecustomers•FurtherdisaggregationofdedicatedentityfortheRetail/SMEsegement•WirelineNetworkfocusingonServiceDevelopment,OperationsandWholesale•FurtherdevelopmentofSystemsIntegrationbusinessNote:SD=ServiceDevelopment,Ops=Operations,SI=SystemsIntegrationWirelessTelcoCorporationWirelineWirelessIncreasingDisaggregation/IncreasingImportanceofValueFlowsSW-SWP63-2001-11-23-FRB-RS4RATIONALEFORDISAGGREGATIONOFINCUMBENTS•Increasedmanagementaccountabilityandtransparencyforshareholders–SeparateP&Landbalancesheetfordisaggregatedentities–Bettercomparisonwithpeergroups–Nohiddencross-subsidiesofunprofitablebusinesses•Subsequentglobalconsolidationofverticalbusinesseswithgreatersynergiesthanintegratedmodels,e.g.–Wireless–CorporateData–Internet•(Stockmarket)successoffocusedattackers•Morefavorablesumofpartsvaluationinthecapitalmarketexpected•Creationof"acquisitioncurrency"•Increasedattractivenessforpartners•IncreasedattractivenessformanagementtalentAccountabilitySynergiesfromcross-countryconsolidationTransparencySW-SWP63-2001-11-23-FRB-RS5BUSINESSFOCUSOFMAINDISAGGREGATEDENTITIESProductsActivitiesAssets•Semi-finishedVoice/Dataproducts(fixedline)•MobileVoice/Data•FixedlineVoice•StandardDataproducts•FixedlineVoice•MobileVoice•Dataproducts•Internetaccess•B2Cportal•B2Bplatforms•Operations•Productdevelopment•Wholesale•Operations•Productdevelopment•Marketing/Sales•Productmanagement•Marketing/Sales•Productmanagement•Marketing/Sales•SystemsIntegration•ServiceOperations•Operations•Productdevelopment/Contentmanagement•Marketing/Sales•Passiveinfrastructure(Duct,Copper,Fibre)•Transportplatforms(SDH,WDM)•Voiceplatforms(IN,Switching)•Dataplatforms(FR,X25,ATM,IP)•OperationsSupportSystems(OSS)•Mobileplatforms•Infrastructure(Basestations)•OSS•IT-systems(CRM,Billing)•SelectedDataplatforms•IT-systems(CRM,Billing)•ITInfrastructure(InternetServers,etc.)NetworkBusinessWirelessRetail/SMECustomersCorporate/DataSolutionsISP/e-Busi-nessesServicedvpt.Oper-ationsSales/CuC*Syst.Integr.ISP/e-BusinessesWirelineNetworkRetail/SMECusto-mersCorporate/DatasolutionsWireless*CuC=CustomerCareSW-SWP63-2001-11-23-FRB-RS6MAINVALUEFLOWSINDISAGGREGATEDTELCOSServicedvpt.OperationsSales/CustomerCareSystemIntegrationISP/e-BusinessesWirelineNetworkRetail/SMECusto-mersCorporate/DatasolutionsWireless12345•Voiceservices–Traffic–Access...
